By Meghan Hall
As prices for single-family homes continue to skyrocket in rapidly growing metropolitan areas near cities like San Francisco and Seattle, more people are renting, contributing to the growth and dynamic nature of the multifamily property market. While large property management companies can have teams dedicated to the maintenance of their portfolios, individual investors often have fewer easily accessible resources at their fingertips. The Registry spoke with Heath Silverman, chief executive officer at Stessa, about how the company is working to provide multifamily property owners with smaller to mid-size portfolios access to data that can help them track their expenses and returns.
Can you tell me a little bit about your role at Stessa and why the company was founded? What information and technology gap in the real estate market did the original iteration of the product seek to fill?
I am the co-founder and CEO of Stessa. I’ve been working in tech for 20 years and investing in real estate for almost as long. My co-founder Jonah Schwartz and I didn’t originally know we would create a real estate technology company. We started off contemplating a number of big ideas around the future of work, yet we kept getting distracted by our real estate portfolio. We did a deep dive into one of our multifamily properties that had been on autopilot for a couple years and ended up nearly doubling the value of the building through a combination of operational efficiencies and bringing some rents to market. This added real value; we took the new numbers to the bank, did a cash-out refi and purchased a new property to grow our portfolio.
We were shocked by how much value we were able to create in such a short amount of time and had three big takeaways: As real estate investors, we should be applying these learnings to our entire portfolio; as product people, we could build software to automate nearly everything we just did; as entrepreneurs, there was a huge opportunity in the space to build a company around a technology solution that we could make available to the millions of investors like us who use little more than a spreadsheet to manage their portfolios.
Stessa fills a real need: Unlike other large asset classes, there is not a lot technology to help these individual real estate investors manage their portfolios.
How has Stessa grown and changed since its creation?
We initially started with a premium solution for mid-market professional real estate investors, fund managers and syndicators. As we continued to grow, we decided to offer all of Stessa’s core functionality to individual investors for free.
We also made significant improvements to our iOS app. The new mobile app captures receipts on the go and is much smarter than the regular iPhone camera app. With built-in edge detection, distortion correction and image optimization, investors can securely and quickly archive every receipt to the online platform. Stessa’s machine learning algorithm will automatically read the details from [those] and organize each new transaction into tax-ready real estate categories, making it easier than ever to track all expenses related to an investor’s residential real estate rentals. Everything is stored in the cloud with bank-grade security, so it’s always accessible and available during tax time or for audit purposes.
Today, Stessa has thousands of active investors using the platform representing more than 10,000 properties and over $5 billion in real estate assets.
What market does Stessa cover? Residential? Commercial?
Stessa is designed for real estate investors with single-family rentals and multifamily buildings. The typical new user today is an individual investor with 1-10 properties looking to reduce complexity and increase transparency across their investment properties.
This is a significant market: In recent years, the number of renters in the United States has been reaching all-time highs, with nearly 45 million households renting. Most of these are rentals are owned by small landlords. In fact, over 70 percent of single-family rentals and apartment buildings in the United States are owned by individual investors.
Why did Jones Lang LaSalle (JLL) choose to back Stessa? How has JLL’s backing altered the product?
JLL Spark chose to back Stessa because they saw big potential for growth driven by a disruptive technology that serves an unmet need for individual real estate investors. Stessa offered the opportunity to reach a new customer segment and aligns with JLL Spark’s mission of transforming the real estate industry through technology-based innovation. They also liked the fact that my co-founder Jonah and I are experienced technology entrepreneurs who have worked together for many years and that we also invest in real estate together, so we’re very passionate about the space.
JLL Spark is great because they understand and embrace startup economics. They know that disruption is going to happen and they want to be at the forefront of it. We’re excited to have the opportunity to work with people who have successfully done it before. With JLL Spark, we can continue to enjoy a startup environment with the added bonus of the backing of a big company. JLL brings deep real estate expertise and a strong global brand to give us credibility, all while providing the support to help us move faster.
Why is Stessa geared more toward smaller and medium-sized investors? What technologies do larger investors have that are not accessible to the others?
Small and medium-sized investors own the majority of single family rentals and multifamily buildings and have a clear need that is not currently being met.
Larger investors typically have access to more resources, both capital and staff, to build and update reports that enable them to keep close tabs on how their properties are performing. Most individual investors, on the other hand, don’t have the time or expertise to consistently maintain their property financials. As a result, they lack visibility into the performance of their portfolio.
Stessa wants to change that by giving them a powerful new way to track, manage and communicate the performance of their real estate assets. With Stessa, property owners can see all their key metrics in one place with a visual dashboard, automate their income and expense tracking and save time with tax-ready financial reports. And best of all, Stessa is free for individual investors!
Why is it that investors really only got a sense of their earnings on tax day each year? How does Stessa seek to track investments to give its users more accurate data on their assets?
I am often quoted saying that “many investors have no idea whether they have made or lost money except one day a year, at tax time when they review their returns from their accountant.” It may sound surprising, but it is true!
The reality is that the average investors do not have the time or resources to actively manage their real estate investments. Optimizing a real estate portfolio can involve tedious manual effort, which is why most investors see suboptimal returns. If they are able to find the time, the diligent investor will use an elaborate system of paper and manual spreadsheets, which are time-consuming to maintain and can be extremely challenging to keep up-to-date.
Stessa uses technology to automate the painful data entry that plagues investors. Once users add a property and securely connect bank, mortgage and property management accounts to Stessa, income and expenses update automatically as new information becomes available. The Stessa mobile app lets users easily scan and track property-related receipts on the go. All receipts scanned with the mobile app are automatically available on the online platform, so investors have a complete picture of their property expenses that they can access from anywhere.
With all property data in one place, Stessa surfaces the key metrics so that investors always have a current view of how their portfolio is performing. Tax time becomes a breeze with tax-ready financial reports one click away. Stessa minimizes the busy work, so investors can focus on the things that matter, like growing their portfolio.
What has been the result of the beta testing phase of the app? Has the feedback been primarily positive?
Feedback has been extremely positive. We repeatedly hear from our customers that Stessa saves them time by automating work that they were doing manually, is easy-to-use and opens their eyes to the numbers that matter with its visual dashboard.
One of our customers shared that before Stessa, he manually updated four different spreadsheets to keep track of his property financials. It was overwhelming and tedious. Now, using Stessa he is able to automate a lot of that income and expense tracking work. Not only did it save him a couple of hours each week, but he is also now able to focus his time and energy on what he enjoys and is good at: finding the next deal. We hear a lot of stories like that from our customers.
With the new iOS app, we have heard from a lot of excited customers who are amazed that the receipt capture works so well with the machine learning, [which is] able to read their paper receipts so quickly and accurately. Technology innovations like this that are more common in other industries simply haven’t been available to real estate investors until now.
As real estate becomes an increasingly technology-driven industry, how does Stessa plan to stay ahead of its competitors? What technologies might the company implement in the future to streamline and strengthen its services?
We built the first service designed specifically for individual real estate investors, and we will continue to innovate by listening to our customers and tapping into our own experience as investors, product builders and technology entrepreneurs.
Our vision has always been to democratize this asset class and streamline the real estate ownership lifecycle. We are excited to improve access to real estate as an asset class and offer new value-add services over time that will help investors maximize portfolio value while saving time. We want to support real estate investors every step of the way as they build out and continue to grow their portfolio.