Do you want to live the way you want? Here’s how you can generate wealth through real estate. Sam Wilson presents Jilliene Helman, the CEO of RealtyMogul. Jilliene talks about how RealtyMogul is an online platform where investors invest with real estate companies and developers. You can search through the deals and choose those that meet your risk and reward criteria. If you don’t want to deal with salespeople because you want to invest by yourself, this episode’s for you. Join in and start generating more wealth in real estate!
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Generate Wealth And Live The Way You Want With Jilliene Helman
Jilliene Helman is the Chief Executive Officer of RealtyMogul and its wholly-owned subsidiaries, RM Manager, RealtyMogul Commercial Capital, RM Adviser, RM Technologies, and RM Communities. She has been involved in investments with property values over $4 billion, including over 19,000 apartment units, and is a pioneer in real estate crowdfunding.
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Jilliene, welcome to the show.
Thanks for having me, Sam.
The pleasure is mine. There are three questions I ask every guest who comes to the show. Can you tell us where did you start? Where are you now? How did you get there?
I grew up in an entrepreneurial family. We talked about business and real estate at the dinner table. That impacted a lot of my experiences being an entrepreneur now. I saw a gap in the market. To have access to commercial real estate opportunities, you had to have a lot of money and connections. I wanted to find a way to give everybody access to these opportunities.
I founded RealtyMogul in 2012. Our mission is to empower people to live the lives they want by generating wealth through real estate and we continue to execute that mission. We started with a $110,000 duplex in Compton, California, which is a high-crime market. We worked on a $110 million transaction in Miami, Florida. We have come a long way in founding the company.
What does RealtyMogul do?
RealtyMogul is a digital platform for investors to invest in real estate transactions and developers or sponsors and real estate companies to raise equity capital. Investors and real estate companies come to our platform. Real estate companies post their deals and investors have the ability to search through those and find deals that meet their unique risk-reward profiles. Investors can invest in individual transactions, an individual apartment building, office building, or shopping center. We have two real estate investment trusts, which are diversified pools of deals that investors can also invest in.
Tell me the moment when you knew you were onto something. I know you said you saw a gap in the market, but it is one thing to see a gap in the market and develop a strategy to say, “Here is how we were going to fill that,” and then thirdly to execute upon that strategy. How did all that take place?
We did a bunch of customer discoveries. We started calling on people that we knew and people in the real estate markets and started asking like, “What is the hardest part of your job?” Consistently, we were hearing from real estate entrepreneurs that the hardest part of their job was raising capital. They were finding deals and struggling to raise capital. The market has moved a little bit, but this was back in 2012, where we were still coming out of the Great Recession. There was still a lot of fear from the ’08 crisis. When I knew we were onto something, we had launched the business.
At that time, we were working out at my apartment and I was hitting the phones. I was calling on clients, and I would say, “I’m the CEO here at RealtyMogul. I’m calling to make sure that you have a good experience. I want you to know that there is a real person on the other side of this website.” I will never forget that every day, we would check the bank account, “How much money had come in? What had been invested?” There was $500,000 in the bank account one morning when I woke up. I was astounded like, “Who wired us $500,000?”
We looked in our tracker and it was a guy by the name of Jack. I called our one employee at that time, and I said, “Have you ever talked to Jack?” He goes, “No, I don’t know who Jack is.” I looked in our database and there was no record of anyone having talked to Jack. I picked up the phone and called Jack. I said, “Jack, I’m Jilliene. I’m the CEO of RealtyMogul. I saw that you made an investment with us. I want you to have my personal phone number. If you need anything, call me.” This was $500,000. Our largest investment prior to that was $25,000.
Jack said, “The exact reason that I’m investing with you is that I don’t want to have to talk to someone like you.” It was astounding. It was like, “This is going to work. People are going to invest in the internet, and they don’t want to deal with salespeople. They want to do it themselves. They want to set it and forget it.” That was the moment when I knew that we were onto something. We probably had less than $1 million or $2 million invested in the platform at that time.
People invest in the Internet because they don’t want to deal with salespeople. They want to do it themselves.
That is the best investor capital-raising story I have heard. That is hysterical. May you have many more of those “I don’t want to talk to you” hang up on you phone calls. We need more of those in this space. That is hilarious. Early on, I would imagine that there was gaining momentum with this. Finding the right sponsors to work with, vetting the right deals, and then being able to bring the appropriate amount of capital to those deals, I’m sure it was a bit of a grind in the beginning. How did you get that going initially where you had enough deal flow and enough money to put in the deals to make it worth everybody’s time?
It was baby steps. When we first started, we started with a $110,000 deal. That was our first transaction. We went from that to a $300,000, $400,000 and $500,000 deal. We got stuck at about $1 million and we kept pushing forward every day. It is challenging even now. One of the big challenges is keeping the marketplace in balance, “Do we have enough real estate transactions? Do we have enough investors to fill those real estate transactions?”
That is still a constant challenge and conversation at the company, but it is baby steps every single day. In the early days, I was personally calling every single person who signed up on the website to give them confidence and trust. Here we are, many years later, we have a very long track record that people can study. There is a lot that has been written about us on the internet. People can find that, but in the early days, none of that existed.
One of the things that I coach entrepreneurs on now is, “Do things at the beginning that is not scalable.” We have got over 220,000 members on the RealtyMogul platform. I certainly have not spoken to the majority of them or even the minority of them, but in the early days, it was me. I was picking up the phone, creating relationships, building trust, and sharing with people that we were here and we were serious. It is those baby steps and unscalable things that set us up in the beginning.
That would be one of my questions for you. What were some of the keys early on to building RealtyMogul? You have answered it. In the automated set it and forget it world that we live in, that is not the answer people want to know.
It is hard work. Being an entrepreneur is not for the faint of heart.
Can you give us a couple of failures or oversights that you’ve had to recover from?
We have had so many surprises and pitfalls along the way. In the early days, our website would crash and that all needed to be fixed. We wouldn’t have enough people to pick up the phones. People would go days without getting a response back. Now, our average response time is within 2 to 3 hours if you leave us a voicemail or you send us an email. We have built those SLAs and processes.
Those are the early experiences that shape you. Those are the things that make you figure out what is important and that shape the culture of the company. We had plenty of pitfalls and failures. This one is critical and we have never had money go to the wrong place. Our general ledger across the entire company is off by $0.08 over nine years, which speaks to the level of detail. Thankfully, we have never had anything like that happen, but there have been minor pitfalls and surprises along the way many times as part of building a company.
Talk to us about how RealtyMogul works because you guys are not directly operating the deals, are you? Do you guys also directly operate deals?
We have two business lines. One business is our technology business, where real estate companies come to us, and they can post their transactions on the marketplace. We have got minimum qualifications and minimum underwriting standards that they need to meet. They come to the platform and run their transaction on our platform. They have the ability to market to the investors that are on our database, but they are running their own offering. We provide the technology and the administrative services for them to be able to do that. That is one of our businesses.
We have another business called RM Communities, where we were directly acquiring apartment buildings. Most of those apartment buildings are being acquired for our real estate investment trust. It is our pooled vehicles where investors can invest in a diversified pool of assets and we use the technology platform. That company is a client of the technology platform. It is the same way that third-party real estate companies are a client of the technology platform. It is cool because we eat our own cooking. We can see like, “What is working well? What is not working? What is frustrating about the experience? Where can we augment it? How can we do better?” It has helped us to hone in on that experience for the sponsors.
Minor pitfalls and surprises are part of building a company.
When the capital is raised on the RealtyMogul platform, does it go into an SPV, and then that SPV ends up being a limited partner? Does it go directly into the deal to the sponsor? How does that flow of money go?
The sponsors use RealtyMogul to use our technology platform. We don’t structure those entities for them. It is up to a sponsor. Different sponsors structure their offerings differently, but most commonly, they will create a downstream entity or a Special Purpose Vehicle specifically for the investors that they work with on the RealtyMogul platform. That entity itself will invest into the title-holding entity that owns the real estate.
How do you guys monetize that transaction?
First of all, we have a technology fee. We were a technology company. If we were working with third-party real estate companies, we charge a technology fee. More importantly, we stay on for the life of that transaction as an administrative services provider. We want investors to have a single point of contact after a deal closes. We process all of the reporting, send all of the K-1s and process all of the distributions.
Those are all part of the administrative services that we do for sponsors so that investors have a consistent experience. We have a second set of eyes on all deals and we have access to all the financials and reporting. We can answer the majority of questions that come in. Sometimes there is something that can’t be easily answered, in which case we will liaison on with the sponsor to get it answered for an investor.
A common question or objection I would imagine that you guys have found a way to overcome is, once the person figures out who the sponsor is, why don’t they go directly to the sponsor?
If you add value, you should get paid. That is my belief in life holistically. It is up to us to be continually adding value. One is we were vetting those deals to make sure that they meet minimum requirements. We have had plenty of sponsors who have come to us. We have done our first deal, and suddenly, they think that every subsequent deal is going to meet our minimum requirements and underwriting guidelines. It is not the case. Maybe we do deal 1 and deal 2, but deals 3 and 4 don’t meet our criteria. The investor is not going to know that. We don’t publish the deals that we decline. We only publish the deals that are approved and get on the platform. That is one piece of it.
The other piece of it is having a second set of eyes on transactions. I will give you a specific example and it is a sad example. We had a sponsor whose policy was not written and disclosed. Every year, they would make a donation out of every single property to charity. It wasn’t included in the financial model. I love that you are donating to charity. That is an amazing thing and it is completely illegal. It was not included and the investors were not made aware. They didn’t invest in that transaction knowing that. That is an example of something. We called and said, “We love that you are donating to charity, but unwind this. This has to come out of your parent company or some other pool of capital. It can’t come out of this entity.”
We have had other issues where sponsors have incorrectly calculated the distribution of proceeds. We do a second set of eyes on that and we will go back to them. It has happened in both directions and where it is accredited to the investor and sponsor. I don’t believe that either was fraudulent or intentional. It is where they were. We were also always available. We have a very large team of investor relations representatives who are familiar with these deals. Our standard response time is 2 to 3 hours. The sponsors can’t handle having 50 investors coming to them for questions. Their infrastructure typically is not built out to provide that.
Those three buckets are where investors see a lot of value for us. 1) The minimum requirements and minimum qualifications. 2) Our second set of eyes. 3) The standardization around answering questions, having one place to download your K-1s, having one place where distributions are coming from, and having one place where you can download all of your reports across sponsors and different deals. We try and standardize as much as possible.
I love what you guys are doing. I love the way that you put this stuff together. Talk to us about something that a sponsor has done that you say, “This doesn’t flow or this doesn’t fly.” What are some red flags for you when sponsors bring deals to you, and you guys say, “This doesn’t work right out of the gate?”
I’m going to look on the sponsor side. If the sponsor’s track record is multifamily in Phoenix, Arizona and they want to go buy a retail deal in Miami, Florida, that is a no. We were looking for sponsors that have expertise in the asset class, ideally in the market, or there are some reasons, insight, or knowledge that they have in the market. We will see a lot of sponsors who are first-time partners come. Two different sponsor groups are partnering up together. I strongly dislike that. There are all kinds of things that can happen in partnerships, even if they are independently two great partners.
In a scenario like that, we want to be very clear that one partner has control. There is none of this 50/50 control across two sponsors. It is a recipe for disaster. On the deal side, it might be overly aggressive assumptions. If you are coming to us and you are assuming 10% rent growth for five years in any market in the country, that is an automatic no. If you are assuming less than 5% vacancy in any market in the country, that is an automatic no. You have got to turn units and there is vacancy when you turn units.
Things like that are red flags. Every deal is a little bit different. There is no standardized real estate deal. A multifamily value-add deal or multifamily stabilized deal is about the most homogenous deal that you’re going to get, but even then, you have got nuances by market. It is some of those egregious ones that are high-rent growth and low-vacancy operating sponsors who haven’t done business together.
Have you changed or altered what you guys find as acceptable underwriting in any meaningful way?
You always have to be shifting because the market is shifting. I will give you a prime example there. We have never done a development deal. We have done heavy value-add and opportunistic business, but we have never posted a development deal on the platform. The reason that we changed our underwriting criteria or minimum qualifications there is that by buying stabilized assets in some markets, it was cheaper, almost as expensive, or maybe slightly more expensive to develop as it was to buy an asset that was built in 1990 or 2000.
Would you rather have a 20, 30, or 40-year-old product or a brand-new product? The market moved. As a result of that, without the development, it started to look interesting. We were always iterating. Nothing is off the table and you have to stay flexible. That is a specific example of where we changed our minimum qualifications.
If you add value, you should get paid.
We were seeing lots of that where the cost of build might be the same or 10% more for a brand-new product than buying something like 20 or 30 years old. It’s like, “I would be happy to pay a 10% premium for a brand-new product than to buy something that is twenty years old.” What is the biggest challenge that RealtyMogul is facing now?
It is the war for talent. We were growing rapidly. This is an amazing market for talent and it is great. As I go back to my philosophy, people should get paid for adding value. Our team adds a tremendous amount of value and we were looking to add. We have done a good job of making RealtyMogul a competitive place to work, first and foremost, our culture.
We are so maniacally focused on team and culture. That is more important than almost anything. It is challenging to hit our hiring goals. I don’t want our team to burn out. We are not a, “Hire people and spit them out two years later kind of shop.” I have got folks who have been with me for 7, 8, 6, or 5 years. It is very longevity at the company, but it is challenging to hire the right people in nowaday’s environment. It is a good time for employees.
What is one thing that you would like to change about your business or yourself in 2022?
I don’t know if there is anything specific about our business. We want to grow. We rolled out our 2022 strategic plan to the team and the theme was, “No surprises.” We knew what we were doing. We add a lot of value to investors, sponsors, and real estate companies. Let’s do more of it and let’s scale. Scaling the business is the main strategic priority. The other one is, “Perfect the basics.” Let’s get the basics right. Let’s move from every single voicemail being picked up within 24 hours to 12 hours. Let’s move to people knowing that we are the predictable company that will communicate on time proactively.
Those are the types of things on the business side. On the personal side, I would love to get back into a very regimented meditation practice. I’m one of those people who probably meditate twice a week. It is typically on the weekends. I still haven’t figured out how to pause the emails, texts, team’s messages, and all of that first thing when I wake up in the morning. That always feels a little bit crazy, but I would love to find a way to solve that.
Jilliene, thank you so much for your time. I certainly appreciate it. It was great to learn about RealtyMogul, what you guys do and how you do it. The final four questions for you are these. What is one tool or resource that you find you can’t live without?
Other than a cell phone, it’s a pen and paper. Every Sunday night, I have this ritual of sitting down with a pad of paper and a pen. I have got all these Moleskines lined up on my bookshelf. I take that time on Sunday evenings to write out like, “What is the most important thing for me to accomplish in the upcoming week? Who on the team needs praise? Who on the team has done a great job that I want to reach out to? What are the most important roles that I need to be involved in hiring for? What are the major upcoming decisions? What are the things that I need to do to give direction to the team so they can be set up for success?” That time away from the computer and going back to pen and paper is a sacred time for me to make sure that I’m focused on the right things and the right priorities.
When it comes to investing in the world, what is one thing you are doing now to make the world a better place?
My second passion outside of real estate is healthcare. I sit on the board of a company called NEXT|HEALTH. The premise behind NEXT|HEALTH is to avoid sickness and keep people healthy before you get sick. It is also tied into functional medicine, “Treat the root cause of disease as opposed to the symptom of a disease.” Education is critically important. Our healthcare system is broken and we throw drugs at the problem. People widely, for some reason, don’t believe that food is the greatest medicine in the world. What you put in your body is what you use to fuel it. My involvement in the future of healthcare and medicine hopefully will change the world. That is the intention and I’m passionate about it.
If our readers want to get in touch with you or RealtyMogul, what is the best way to do that?
If you want to get in touch with me personally, find me on LinkedIn. I’m very active and would be happy to connect. RealtyMogul.com is the best place to go. Create a user account. It is free to sign up. You can start seeing deals, you can see open investment opportunities, and you can learn a lot. We do a lot of deals, and we have folks who will call me and say, “I didn’t know much about real estate before I joined and now I have seen 50 deals and watched 50 webinars. I feel like I know the nomenclature.” I talk the talk, which is great.
Thank you so much for your time. I do appreciate it.
You got it. Take care.
Important Links:
- RealtyMogul
- NEXT|HEALTH
- LinkedIn – Jilliene Helman
About Jilliene Helman
Jilliene Helman is Chief Executive Officer of RealtyMogul and its wholly owned subsidiaries, RM Manager, RealtyMogul Commercial Capital, RM Adviser, RM Technologies and RM Communities. She has been involved in investments with property values over $4 billion, including over 15,000 apartment units, and is a pioneer in real estate crowdfunding.
