Jan. 19, 2021

494 - David Friedman (Knox) On Turning Your Property Into An Investment

494 - David Friedman (Knox) On Turning Your Property Into An Investment

David Friedman is the cofounder of Knox. Knox makes turning your home into an investment property frictionless; delivering passive income and a fantastic value growth investment.


David Friedman is the cofounder of Knox. Knox makes turning your home into an investment property frictionless; delivering passive income and a fantastic value growth investment.

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Transcript

 

All right, how's it going, everyone. Welcome to another episode of forward thinking founders, where we talk to founders about their companies, their business for the future and how the two collided to them. Very excited to be talking to David Friedman is a co-founder of Knox. Financial, welcome to the show.

It's going great. Thanks for having me. Yeah. Thanks for coming on. I'm looking forward to learning more about, about Knox financial for people that haven't heard of it. What are you working on? Sure. So the founding story of Knox is, is an experience I had and the co-founder of Knox Spencer had. And lots of people have had I'll tell my story.

I came to a point in life where it's time to move. I got engaged and I've been living in a condo for 10 years and I looked around and I said, this is my best investment. I have to move, but why am I selling my best investment? What kind of an investing idiot sells their best investment. And I was running another startup at the time.

It was rapidly growing and I had to focus. And so I sold that condo. Well, over the next two years, I went up in value. Another $200,000. And the new owner sold it again and made a lot of money. And I felt like I should've made that money. And I said to Spencer, who was, I was coworker of mine at the time. I said, look at what happened to me.

He said, the same thing happened to me. And I said, this is a lot of people. And they all have the same experience. And what we realized was investing in real estate is a pain in the ass. And the reason is that the financial institutions that with whom we put our portfolios, don't do real estate.

They do stocks, bonds, mutual funds, et cetera. So there is no financial institution for property investors, and that is Knox. So kind of walk me through a little bit about how it works. If someone is someone you know, or heard about us for the first time on this podcast, what would be their user experience with it?

Is it software based marketplace, you know, service? Can you walk me through the platform a little bit? Sure. So people are going to hear about us and they're going to be one of a few situations. They're probably either upsizing, downsizing slash retiring, or they already own a portfolio of investment properties.

If they're in any or they want to acquire one, actually, it's another way to look at it. They'd come to our website and they would do one of two things either. You can just have a consultation with one of our property wealth advisors. Or you can just go ahead and sign up your, your home or your portfolio for our platform directly on the website.

So that's sort of the first step is do you want to chat with somebody in which case that chat, that consultation it's all about your investment goals and the numbers, just like, you know, if you were going to. Take us a portfolio of stocks and bonds to Merrill Lynch or Goldman Sachs or something like that.

They're going to talk to you about, you know, your risk tolerance, your investment goals, life goals, et cetera. We do the same thing, but our software does investment analysis on real property. I'm assuming we can help you reach your goals, which is true. Nine out of 10 times, then we start doing some logistical planning.

Right. Okay. What, when, when does this make sense? Is there a least turnover date? Is there a, are you moving and that's important because you can't handle your portfolio anymore, or your home is going to be vacant. Are you retiring? You're moving into a nursing home. Is your mother moving into a nursing home?

So it's all these moments in life. And then you'd sign up and we would you know, transition your property onto the platform. And after that you become a completely passive investor. We send you a net profit and a statement every quarter tax paperwork at the end of the year. And other than that again, it's just like working with your financial advisor, the ins and outs of that portfolio.

Let alone, if you buy a share of stock, you buy a, share a Microsoft. You don't go to work at the company. Right. But if you buy an investment property, it comes to the part-time job, but not with Knox. So since he kind of had that origin of story, that moment when we realized, Oh, this happens to, you know, a lot of people to where you are now, I'd love to hear, like, what have been some of the things that you've like learned about that this industry.

Like, I I'm someone, like, I honestly don't know that much about investing in real estate, things like that. That's why I wanted to have you on, because it's like interesting for me to hear. What have you learned along your journey since you kind of ramp this company off to where, to where you're at today?

That's a great question. So the first things we did even before we launch the product is so the harder knocks we're, we're a data and automation company. We're a FinTech company, right? And that technology is really data. And the automation you build off that data. But we took a data set. We did a regression study.

We looked at the us housing market versus the S and P and we made some, some bakers basic assumptions about. The type of mortgages people have on their income properties and we index property to the case index. So we index the stock market to the S and P 500, we said, okay, which performs better in a 20 year?

Look back. Well, the U S housing market, the average single family home in America beats the stock market by 370%. That was an astounding number. Right. It's not just, you know, 25% better or a hundred percent better. It's 370% return. So we've said, okay. And by the way that 20 or swath we looked at originally, it was 98 to 18.

So it included the great recession, which dramatically impacted house. So that, that was just, that was a really, eye-opening like we, we knew it was better intuitively and I think a lot of people intuitively know that property investing. Beats equities, but they don't really know how to quantify it. And we looked at the data and it's, it's amazing.

The, the next thing we sort of realized is that so much of the real estate world has these, these sort of perverse incentives, right. And we changed the model. So, you know, when you look again at financial advisory and in the classic sense, people are taking a percentage of assets under management.

So the more the portfolio grows, the better performs. The more the, the owner of the portfolio wins, the more the financial advisor wins. And we, we decided we were going to do the same thing. We're going to dramatically simplify the way this works. So. Then the knock structure is very simple. If we collect a dollar of rent, we keep a dime 10%.

There's no brokerage fees. There's no property management fees. There's no markup on maintenance, leasing fees, marketing like nothing. Right. And what that does, it completely aligns our incentives with our customers. Versus, I mean, there's, there's the industry is rife with like, so some pretty ugly things in there.

Like the more maintenance the company is doing. If you hire a property maintenance company, the more maintenance they do, the more money they make. But that's the opposite of what an owner wants and owner wants lower cost maintenance and had done it the right time to preventative maintenance. So you know, realtors, if you've read Freakonomics, you know, this like the incentives in, in real estate brokerage are kind of odd, you know, tenant moves in they get paid a month's rent.

That's fine. But if the tenant moves out three months later, there's no recourse docs for you. Replace the tenant for no cost. So. You know, looking at how it works. We realize there's a lot of ways to mitigate risk and sort of fix the incentive structures. And that, that was a big part of why we launched Knox.

We felt like we could just give people a lot of peace of mind. And as you're, as you're working on, as you're working on Knox yeah. You know, you said you you've a co-founder here, which, which is great. I'd love to kind of hear how useful the responsibility and more so for you, what are you spending your time on, on a day to day?

Are you shipping code talking to users, fundraising? You know, what's it, what's a day in the life for you. Sure. So there's sort of two questions there, but I have three answers for you because originally it was David Spencer, Spencer, Taylor's the co-founder and he's the COO of the company. So Literally once a unit is on the Knox platform.

Hey, he and his team takeover. So I don't deal with leasing, but like a once a week, half hour meeting to seed some stuff like some dashboards I don't deal with maintenance issues. I don't, I actually have no, no meetings on that. There's enough people involved in that. I keep myself away. Spencer's involved in that.

I do more of the board relations and fundraising. The sales team reports to me. I do a lot of finance work. And marketing work and some product work as I'm kind of an, I'm an engineer by training. So I do a little bit more of that. Spencer's also involved in marketing and sales as well because, and he runs the insurance side of the business.

So as a financial institution, we have an entire insurance arm and that is that's all Spencer what's happened since inception is we've hired the absolutely incredible senior team. You know, our CMO was the COO of betterment are. Chief product officer ran the auto vertical for forever quote. Our VP of growth was employee 33 at Uber.

So we have this unbelievable set of senior teammates. And honestly, there are a lot like co-founders especially after 2020, which was like a year in the trenches for so many of us You know those names I offered then Tim, our CFO, like that six person team, myself and Spencer, and then the rest of the senior team, it's almost like have bunch of other co-founders.

That's a, it's great. When you have like, found out that founding team, you know, you got the early employees that kind of, they all feel like, you know, owners in the company, you know, which is great. If you really want to take that and zoom out, you know, from the day-to-day and look forward. And what would you say the future looks like for you, you know, in the next five, 10, 15 years, what does not look like?

And what's the vision and what direction are you growing in? Sure. So, well, before, if we got five years, let's talk about like the next few years, right?  You know, we're operating in five States now and basically four major metros. We consider like Boston Eastern, Massachusetts, Rhode Island, New Hampshire, one market, but then we're also operating in Dallas and Houston and Texas, which are separate markets.

And then Atlanta, the greater Atlanta area In the next year, we're gonna allow it to at least half a dozen more markets. And probably that'll mean four to six more States operationally by five years. We'd certainly like to be in all the major metros in the U S that's 50 odd metros around the country and probably by five years from now, I think we'd probably have launched a few international markets as well.

If not many.

You know, in order to kind of make the progress happen and make, make, make it happen. You know, you need some help, right? It takes a village to make a startup work. It takes, you know, team members as well as just supporters from the side. So my question for you is how can the forward thinking founders, community help you make it happen and help you grow this company?

Are you, are you hiring? Are you raising capital? Are you looking for customers or users? How can we assist? Great. So. So, yeah, we're definitely looking for customers and we're partnering with all sorts of great institutions and tech companies like some knocks cause is not just working with consumers.

We're also the backbone of a bunch of different property based business models. So if you're building a business on property, You should talk to us. We'll make the finances a lot easier. The tax, the insurance, the all sorts of stuff. The physical plant management for that matter. But you know, there's another axis along which Knox grows, which is all the financial products we bring to bear.

Cause when you think about a real estate investment there's debt and insurance, which might be obvious, but then there's all sorts of other things you need. So we are more and more working with partners that fill those needs. So if people are doing any kind of. Financing or insurance related businesses that, that touch on properties or just investor borrowing and insurance needs.

You know, we're very open to those conversations because often they allow us to serve a customer better. Also revenue optimization opportunities on properties. You know, we've started to talk to a short-term rental companies about how we can work together. Because again, we're just trying to maximize revenue and investment performance for our.

For our owners. If that means that instead of a long-term rental for a home, you should turn into short-term and that juices the revenue by 30%, that's what should be done. That's the obvious choice. Can we make that frictionless? Like the rest of our product is, is the goal, right? So we have to have the right partners to do short term and do it well.

And you know, someone is listening to this, they want to get involved. They want to help in any capacity. How can they find you online? What's your website? You know, you're on social media. Do you have an email? How can they get in touch? We have all those things. So NOx financial K NOx, financial.com is our website.

There's a million ways to get in touch there. We're obviously also on all the major outlets, Facebook, Twitter, LinkedIn, you name it. If you just want a general inquiry, you can email info@knoxfinancial.com and it will be routed to the right department. Cool. I appreciate you coming onto the podcast.

Best of luck building out Knox. Well, thank you. This was great.