Flexible Rent and Renter-Centric Solutions in Multifamily with David Sullivan, Managing Director at Best Egg

Nate Smoyer (00:02.038)
David, welcome to the show. Episode two or round two of having you on TechNest.

David Sullivan (00:04.037)
What's up, Nate? I'm excited to be here. Thanks for having me.

David Sullivan (00:11.439)
That's right. I think the first time we talked was like five years ago, four years ago. It's been a long time.

Nate Smoyer (00:16.818)
I was still at a veil living in Chicago without a motorcycle and hadn't done any ultra running at that point. What was different for you? It was a lot shorter. I went, I moved to Chicago. I looked a little bit more clean cut and then the pandemic happened and Wildman came out.

David Sullivan (00:28.825)
and your badass beard.

David Sullivan (00:39.535)
Yeah, that beard's good. I've gone through two cycles of man buns because of the pandemic, but now I'm a more clean cut version of myself today.

Nate Smoyer (00:47.338)
There you go. Yeah. Well, I don't have any comments on the man bun. I'll leave that one alone here for now. But for those listening here, we have a return guest that I'm excited to have back on the show, David Sullivan. He's currently managing director at Best Egg, their consumer financial technology platform focused on helping consumers with their everyday finances. But prior to the Best Egg, David's co-founder and CEO at a company called Till.

a rent payment solution designed to help renters budget, save, pay rent on time. And they were acquired by Best Egg during the pandemic. So first let's say congrats on that way to make that happen. It's been almost two years now, right?

David Sullivan (01:27.507)
Thank you.

David Sullivan (01:30.955)
Yeah, it's been about 15 months. Yeah. It's been great. Deciding to sell was a really hard decision that was made easier due to both the market environment and our opportunity. So we run Best Ag Flexible Rent, and I'll just share the backstory of why we made this decision. And then...

Nate Smoyer (01:32.566)
Here we go. What has that been like?

David Sullivan (01:59.863)
happy to talk more about transitioning a company in or anything like that. Um, so the best egg flexible rent products is the flexible rent product we built at till helps just very simply, like renters pay rent on time, but then break up rent into smaller payments that they can pay throughout the month. So, uh, we really give a renter control of how they're paying rent. And we're also reporting these payments to the credit bureaus, all three major ones so that they can build their credit score. And so.

Nate Smoyer (02:28.119)
Mm-hmm.

David Sullivan (02:29.339)
We had been as an independent company, like a point solution, selling this product to landlords, property owners, property managers, mostly focused on the institutional side. When we started believing that we could probably build this as an embedded financial solution. And so that's what we do today. And so flexible rent, our best deck flexible rent is found as an embedded payment option with

our partners like Atfolio, Zego, MRI rent payment. So when renters are going into these portals, they have the opportunity to pay flexible rent that way. I think one of the things we learned as an independent company was selling to property managers one by one has a really challenging LTV to CAC ratio. It takes a lot of capital. You need to raise a lot of capital to employ that type of sales force to do it effectively.

Nate Smoyer (03:19.393)
Mm-hmm.

David Sullivan (03:26.747)
And it's a really low LTV CAC in the early days of the company. It looks good over like a 10 year period, but like you got to burn a lot of cash to get there and. Yeah. But like, so like when we were out raising, we were like raising to keep doing that. And the reality was like the market started failing, like the prop tech and FinTech market started pulling back. We're seeing a lot of down rounds. We were starting to see that when we needed a lot of capital and we started getting approached.

Nate Smoyer (03:34.62)
Ten year period is a long time.

Nate Smoyer (03:42.21)
Mm-hmm.

David Sullivan (03:54.371)
and we're approaching some of these embedded partnerships. The challenge of these embedded partnerships is they are, they take real scale. To plug into AppFolio or any of our partners, we need to be able to operate hundreds of thousands of renters and have a half billion, billion dollar plus balance sheet. We needed sophisticated capital markets, sophisticated customer operations, sophisticated legal compliance, things that just like as a...

startup, we had proven this cool product market fit. Like, I just did not believe we were going to be able to get all of the resources we needed through a Venturaries. And so it became rather obvious, a hard decision, but like rather obvious, like we have to go become part of a major player. And we decided what was best for Till was to join a big fintech company like Bestech.

that had all of these resources that were highly complimentary to what we needed for our flexible rent solution to win in the market.

Nate Smoyer (04:58.014)
And for those not familiar, Bestang is not exclusively focused on the real estate vertical. That's not their jam. It's not like they were out just in rents. They're broadly financial consumer kind of company.

David Sullivan (05:06.696)
That's right.

Yeah, that's right. So Best Egg, our focus is on building financial confidence for the limited savings customer. We are primarily a direct to consumer fintech out in the market, but our flexible rent product fit in really nicely with the suite of products that we're building at Best Egg more broadly, given that renters oftentimes have limited savings and evolving financial situations. And so

Nate Smoyer (05:35.426)
Mm-hmm.

David Sullivan (05:38.679)
Our opportunity and hope is like we're plugging in and able to help renters with flexible rent and then able to help them continue on their financial journey. So one cool thing we got by plugging into Best Egg is we have a financial health platform. It's free credit monitoring, free budgeting tools. Like that comes right along with our flexible rent offering.

Nate Smoyer (05:58.854)
Yeah, it totally makes sense. And actually, I have to tell you this. So when, well, I had learned about Till, I don't know how fast from the time we met to having you on the show, but I remember thinking about it. And then actually I had a situation with one of my customers at my self storage facility. She was just habitually late. Like every time she'd pay on the eighth or 10th of the month. And I was so frustrated. I was like, on one hand, I was like,

Well, hey, you know, I got a $30 late fee. So like, you really want to just keep paying me a $30 late fee, I guess. But like, I'm also the same time, like there's stress involved in that because I don't know if she's gonna dip out one month, if it's gonna like, whenever. And then she got two months behind at one point and I reached out, I was like, hey, what's going on? You're like, talk to me in the details. And she's like, she didn't want to pay if she couldn't pay out in full. Like, okay, I'll tell you what, I'll make a deal with you here.

Lay payments stay what they are, late fees are late fees, but I'll bring it in too. Okay, so if you pay half on the first and half on the second or the 15th, then you're straight. You got, you know, but if you're late on the first and late on the 15th, well then you got double late fee here, right? So like I tried to really like create an incentive here and then, you know, to see if that would work. It did work initially and then she felt like it didn't work. But.

David Sullivan (07:25.755)
Yeah. Well.

Nate Smoyer (07:26.294)
But I actually took that idea and I went with it because I knew that there was something about her payment schedule that was not right. And ultimately she just couldn't afford the unit. And we had to make that call of like, hey, look, you just can't afford this. This isn't a house, it's a little bit different. But breaking those payments up, from our conversation, I took that lesson from that. I was like, hey, you know what? Sometimes that's just what all people need is they just needed a little things broken up a little bit.

David Sullivan (07:32.979)
Totally.

David Sullivan (07:51.651)
Yeah, it's crazy how dynamic most consumers cashflow is. And it's dynamic in the month, it's dynamic seasonally. So like our understanding of like a lease risk is like we look at annual rent and rent to income ratios and that's like how we're thinking about it. Yet like you see really high income and cash volatility throughout the year. And so, you know, I joke, they're like, people are like, what do you do? And it's like,

Nate Smoyer (07:59.973)
Mm.

David Sullivan (08:21.695)
I divide rent into two, three or four, but the actual sophistication to sit behind it and understand the credit risk, the verification risk, the fraud risk, and then build really smart credit and cash flow based underwriting models that understand how do you set each individual renter up for success, takes the entire headache away from a property manager.

Nate Smoyer (08:31.714)
Mm-hmm.

David Sullivan (08:51.323)
It was just like, I promise you I can pay, just let me pay. Let me break it up on my schedule. And it was like, okay. And then it worked. Like a year later, she went from nine late payments to 12 on-time payments. And it was like, wait a minute, okay. And now it's like, it's interesting. Most people that use flexible rent end up using it for nine to 12 months. And the two main benefits that like, I think at first people thought, oh, flexible rent, that's how like...

Nate Smoyer (09:03.938)
Mm-hmm.

David Sullivan (09:20.751)
all my troubled delinquent renters get out of it. But what we're really seeing is like, most people are actually using it as like a proactive budgeting tool. And like a lot of the testimonials we get are like, wow, like I now have control over the biggest expense of my life. You've actually helped me better make my car payments on time. You are helping me like take control of when I'm buying groceries. And so.

Nate Smoyer (09:44.162)
Mm-hmm.

David Sullivan (09:46.659)
It's a really effective tool that gives renters strong control and it's flexible. They can change when they're paying during the month, how many payments during the month, the amount of the different payments during the month. Truly gives real intelligent control over this core expense and the downstream impact is budgeting.

Nate Smoyer (10:05.79)
Now, obviously a lot changed during the pandemic, but in the, let's say like, it's the pandemic is officially over, right?

David Sullivan (10:15.663)
I think so. I think the CDC just said it's the flu. So I think that's probably like the milestone marker of like, oops.

Nate Smoyer (10:19.477)
Okay.

Nate Smoyer (10:24.687)
I saw something about that. I was like, I don't know if we're still in it and I don't even know when it officially ended. Basically I only market with zero interest rates. Just basically...

David Sullivan (10:29.756)
Yeah.

David Sullivan (10:37.275)
We're still kind of in the like the venture capital pandemic. We just transitioned from like COVID to like a different funding environment.

Nate Smoyer (10:41.774)
Yeah, basically that, yeah, I should be specific. You know, with the changes during the pandemic, right? There was a whole bunch of things that got thrown into flux with, especially in multifamily housing and rentals, right? And there was a little bit of a shift in how people manage their finances. I think the news kind of like hyperbolically overstated some of those shifts as to like what was gonna happen and how things happened.

But I'm curious, what effect did that have on at the time till? And let's look at today, how things have shifted with the solutions that you're providing through Bestag. Have some of those trends died off? Have trends totally shifted again? Or are things looking rather the same? It's just the same problems, just different time period.

David Sullivan (11:35.547)
You know, it's really interesting. I'm not sure how much I can ascribe to the pandemic. I think the one thing the pandemic did is like, there was this massive like, oh shit moment, like by property managers, where it was like, how are we gonna work with like renters? But then like the stimulus came in and then it was like, things are good, very quickly. So like that definitely happened. You know, what I'll say, and I don't know,

Nate Smoyer (11:52.127)
Mm-hmm.

Nate Smoyer (11:57.885)
Mm-hmm.

David Sullivan (12:05.091)
I don't think this is pandemic related.

If anything, what the pandemic did is it fueled a ton of innovation. So like we had all this stimulus, which created this like, which meant like a ton of venture money came into the prop tech market, especially like I'm, I'm mostly talking here about like the rent tech market. So like you had a ton of innovation happen where we see, like, you see flexible payment ideas, you see new like, you know,

Nate Smoyer (12:21.838)
Mm-hmm, mm-hmm.

David Sullivan (12:35.231)
underwriting concepts, we see leasing software, tons and tons of point solutions were created. I then think there was a realization in our market that it's going to be really, really tough for point solutions to survive. When you look at the majority of PropTech, 98% of companies are sold or merged.

Nate Smoyer (12:42.358)
Mm-hmm.

Nate Smoyer (13:02.571)
Yeah.

David Sullivan (13:03.111)
We've seen 2% of companies in PropTech broadly, like IPO and get out. And I think one of the realizations over the same time period of all the point solutions and maybe like a folly of the venture money coming in was how hard it is to disrupt like a very defensible industry, like the property, like management platforms out there. And then the property management companies.

Nate Smoyer (13:13.175)
Mm-hmm.

Nate Smoyer (13:27.681)
Yeah.

David Sullivan (13:32.039)
have control. They have control of the renters. They have control of the properties. And it's really, really challenging to disrupt. And so you see highly acquisitive groups buying point solutions and expanding their product strategy through either the... We funded all this innovation and they're looking at the market saying, should I build this or buy this or partner this? And

Nate Smoyer (13:45.492)
Mm-hmm.

Nate Smoyer (13:57.568)
Yep.

David Sullivan (14:03.435)
They're going to build or buy most things unless a partnership has to be the thing. So for us, most property management companies or most property management systems are not going to go become at scale capital markets companies. And that's why we had to go to a capital markets engine. But like...

The mindset shift of the innovation we funded that I've seen is the landlord, like property management companies and owners and the like property management systems, the like Atfolio, Zegos, Yardies of the world. There's a definitely a mindset shift that is looking at how do we build renter-centric solutions and renter-centric experiences. And one of the things that I've believed for a long time that I think the industry is starting to believe, not because of me, but I just think like it's...

Nate Smoyer (14:32.631)
Mm-hmm.

David Sullivan (14:58.159)
the belief is out there is like, if you build for the resident experience, and it started with amenities, but now it's expanding into other financial experiences, rewards, credit reporting, flexible rent, if you build for the resident, you are actually driving better property NOI too. There is this cool win-win outcome that the market's realizing, and I think we are starting to see a shift of build and buy investment theses towards

Nate Smoyer (15:02.295)
Mm-hmm.

Nate Smoyer (15:17.058)
Yeah.

David Sullivan (15:27.259)
like renter centricity. And I don't think that was there before.

Nate Smoyer (15:29.214)
Yeah, I totally agree.

No, I mean, from my perspective, I was seeing the amount of mentioning of tenant experience increase and tenant management increase. And it was like this kind of like movement away from like property management. And it was like, look, you have one property manager, but you got a thousand tenants. You might have two buildings, but it's the one property, right? And that kind of thing like that. It's just like, if you can improve the experience of the tenants,

And I think that was kind of a little bit of like an uphill cell for a few years because like everything worked. But an ad up, someone moved in. No. And we raised the rent. Who would have thought? And now suddenly, right, you're at a, it's an interesting moment because as we've, we've heard from a few guests already on the show, you know, not in the last few weeks, there's this wave that people have been discussing.

looks like a lot of new inventory hitting the market. And invariably this is gonna be, new inventory tends to be a little bit higher end or better planned or better integrated. It's gonna have smarter amenities to it. So now your competition just went up. Well, if they can't get the next level rents that they were initially forecasting and they have to pull the rents back a little bit to fill vacancy.

David Sullivan (16:36.243)
That's right, yeah.

Nate Smoyer (17:00.518)
now you're really in a tough spot. So, 10 experience becomes important. And I've seen multiple PropTech site this, and I don't have any of the examples on hand, but there's something like people like to live near their friends, especially in like multi-family communities. They wanna live near their friends. They try and move and live in the same neighborhoods or the same block and that sort of thing. I mean, it kind of makes sense to me. I've never moved.

for that reason, so like I don't understand it. I love my friends, but I ain't moving next to you.

David Sullivan (17:31.451)
Yeah. I mean, maybe if you can figure that out, the transient nature of multifamily like changes in a way.

Nate Smoyer (17:37.822)
Yeah, yeah, but it definitely seems to be something that now that everything is in honky dory and up into the right, that there's still more room for that, that tenant experience. You kind of mentioned build by, and I always like to throw embed in there as well. Cause I think that's like, in my opinion, that is the ultimate fastest way to test ideas if there's a way to do that.

What's your take on that and how PropTechs are evolving and where does that lead point solutions and especially entering into multifamily because multifamily, like you mentioned, it's a, is quagmire the right word?

David Sullivan (18:20.531)
Correct. There's maybe some other words. Yeah.

Nate Smoyer (18:21.682)
Yeah, it's a quagmire of an industry. I don't know how to use another word. I don't know why that came to mind. It's a difficult to navigate industry to make your way as a point solution.

David Sullivan (18:29.436)
It's a-

David Sullivan (18:34.715)
It is really hard. And like, so your distribution options are, you know, selling to properties or going into like the marketplaces, selling to properties and going into the marketplaces of the property management systems that are open enough to do that. Not all of them are. Or going to the property management systems of the world. And it's challenging because at the end of the day,

the property management systems embedding there is absolutely the best distribution strategy. Like that's where you can actually get scaled access to renters or to landlords based, whatever your like solution is. But it's tricky because, what the property management systems want and what they should want is one, a great tech experience. And you can't like,

undervalue how much investment it takes to put that together. Then a native and embedded solution that keeps the customer, their customer, so you have to bring a value proposition through and keep the customer in their experience in a good way. It can't be about a Trojan horse. You have to authentically go build a value prop that

Nate Smoyer (19:44.926)
Mm-hmm. Yeah.

David Sullivan (19:57.347)
solves a core need for the partner that you're embedding with, and the property manager, and the resident. It's really hard. You have to design a solution that's like a win, a win, a win. Those are for the three parties and for the point solution. That's the entire bet we made

Nate Smoyer (20:07.442)
And the, mm-hmm. It's gotta be a win multiple ways.

David Sullivan (20:25.795)
embedded flexible rent business is like, if we're gonna build this and we're gonna do it at scale, this is the way to go. And so it's all our entire team obsesses about. But it is a great unlock for customer access, but it's also, we have to be responsible for our partners. We have to be responsible for their customers, which are property management companies and their customers, which are renters, and make sure that like the wins exist across the board.

Nate Smoyer (20:56.246)
I think one of the hidden complications there is just how complex communications can be. Communicating to all parties, what's happening and where, when you're an embedded solution, can be really challenging. Because you're trying to integrate data from two different sources and then email programs. And of course, merge fields is an issue. And if there's a lag on the APIs, pushing and pulling, I mean, it can be, I do think it's a little underrated. It's not as simple as like, just put this JavaScript right here.

David Sullivan (21:05.596)
100%.

David Sullivan (21:26.075)
Yeah. Well, and it's also, it's, that is all true. And if you're going to do it, you can't like MVP test. Like you have to be able to scale and you have to be able to scale very quickly. And so you actually have to have enough of like your own product, infrastructure tech, or whatever you're doing that can go from like. Zero to a hundred real quick.

Nate Smoyer (21:26.583)
We'll call it good.

Nate Smoyer (21:36.244)
Yeah, so-

Nate Smoyer (21:53.482)
But you kind of bring up a good point, and I think this is something maybe that for founders who are listening should take a listen into. Because while integrating into the bigger multifamily platforms, property management platforms, on the surface, golden ticket, let's get there. Integrating with a big ILS, golden ticket, right? Let's pursue that. But like...

They're looking at you as like, hey, you're just this point solution, you're this little startup. And they're also looking at you like, you're kind of high risk, like how do we know you're gonna survive the next year or two? Like you went through some of that. Is getting acquired and partnering with a big org, is that the only way forward? Or is it you can do that or slog or, you gotta have some sales chops? Like what is the best path forward there?

David Sullivan (22:46.319)
Yeah, I think it depends on what the product is. So for like any finance focused company, or where you're dealing with like really sensitive data, underwriting, modeling, you know, credit, credit reporting, like things that have real legal, real compliance or capital markets engines that have to exist, like I think you have to be a pretty decently sized company.

Nate Smoyer (22:50.615)
Okay.

Nate Smoyer (22:56.078)
Mm-hmm.

David Sullivan (23:15.983)
You know, it's like having SOC twos and data security and privacy. You also have to have the durability. Like, you know, we have no risk of going out of business as a company. Um, we have access to capital markets at scale. Like those things do need to be true. We have SOC twos. Like we have to do things in a way that's like, there's high fidelity around the operation because we're working with companies that, you know,

Nate Smoyer (23:16.066)
Mm-hmm.

David Sullivan (23:45.779)
have massive market caps and very real partner relationships. And so it's pretty critical that we are doing things the right way for these relationships to be stood up correctly.

Nate Smoyer (23:49.23)
Sure, yeah.

Nate Smoyer (24:03.734)
I wanna shift gears here a little bit and kind of talk through a little bit more of like the overall, we'll call it rent tech, ecosystem or field. We saw like in the last few years, I mean, since we've met, like the number of companies that have popped up, some have had similar offerings to Till, some are ancillary, some are totally different, but same customer base.

And we talked a little bit about some of the challenges of being a point solution and getting that traction. But now here you are, you're kind of a little bit on, like a little bit of a different side of the journey. And looking at over the field, you can see where your peers have kind of ended or where they're continuing, where they're at. Like what's your assessment of the overall of those rent tech and or even rent payment type solutions that have been trying to appeal to.

you know, the property management companies and renters and solving some of those challenges.

David Sullivan (25:03.579)
Yeah, I think the rent tech markets in a really interesting spot. We're seeing a lot of down rounds. We're seeing some companies close. And like I said earlier, like I think the majority of companies end up inside of these, these big defensible like property management systems, or maybe even inside some of like the biggest property management companies, like a gray star who has like an innovation arm. So like, I think that's where.

Nate Smoyer (25:22.455)
Mm-hmm.

David Sullivan (25:33.387)
almost everyone ends up and the data is starting to show it. It's like 98% of us are finding our way to that type of outcome. Because every, every point solution started like trying to diversify their stack to compete with those groups. But it's just like, it's really hard. And the hard thing is when you're selling to a property, like one thing we learned is like, I'm not just competing against my direct competitor. I'm competing against like literally every random thing that's trying to sell that company.

Nate Smoyer (25:35.202)
Hmm.

Nate Smoyer (25:47.266)
Mm-hmm.

David Sullivan (26:02.415)
Like I'm competing against like the solar roof that's going to save them some money. I'm competing against like, you know, the more efficient water meter, because it's like, there's one or two people per building or, or group that's like really studying this stuff. And so you're competing for their like finite time and attention. And so every point solution is competing against every indirect competitor in the market. And so thus, like, then it's like, well, maybe we should diversify our, our product offering.

Nate Smoyer (26:11.072)
Yeah.

David Sullivan (26:32.339)
to be more interesting, but it's kind of like, an endless goose chase, because you're never gonna have more product offerings than some of the legacy groups that have bigger sales forces, more profitability, more brand, more product offering. So they have flywheels and it's really hard as an independent point solution. I think like, it's gonna be interesting to see, you have a group out there like,

Nate Smoyer (26:46.37)
Mm-hmm.

David Sullivan (27:00.923)
The space that I'm really paying attention to that's interesting to me is like the reward space.

Nate Smoyer (27:06.898)
Oh yeah, there's a few good companies. We've had Piñata on the show. They seem to be, I'd say like a front runner leader in that space.

David Sullivan (27:08.195)
That space seems to be like...

David Sullivan (27:15.451)
Definitely. Pinata built. They're in the game now.

Nate Smoyer (27:21.94)
the credit card rewards or credit rewards that they do.

David Sullivan (27:25.007)
Yeah, I think they're becoming more of like a payments rewards platform with a credit card. But like those two companies are interesting. And like I think they're demonstrating that like there is valuable payment behavior change that can happen with a rewards mechanism. So that's like another example of a thing that like it would be, I think, really hard for a system or a landlord to go create.

Nate Smoyer (27:28.706)
Okay.

Nate Smoyer (27:54.778)
Mm-hmm.

David Sullivan (27:55.323)
that could be valuable in a one to many relationship. But I think some of the same dynamics still hold, which is like, it's still really hard to like.

invest into that sales force.

Nate Smoyer (28:08.466)
This is actually something that I picked up on as a trend last year, maybe because I was late, I don't know. But a handful of the events that I was at last year, specifically anything that was like a property management panel. And there was a lot of discussion around tenant experience and tenant like benefit packages, I forget what they call them. But basically that like.

And in some of these point solutions, that's actually how they've gained some of that distribution is like they're wrapped up into like an all-in-one bundle that then gets offered to the tenants. And when, I mean, talking to Pinata and learning how they've, I mean, they've gained fast distribution in that way, very fast distribution. Reaching the tenant directly would be very expensive and difficult and would take a long time or a ton of cash.

David Sullivan (28:54.579)
Totally.

Nate Smoyer (29:04.51)
And the property manager is just not equipped for building this out. And it's not the focus of the management platform. So like being able to integrate those partnerships and bring them in and package them up, it just makes a ton of sense.

David Sullivan (29:09.267)
Totally.

David Sullivan (29:18.463)
I totally agree. I think the customer value prop exists. One thing I've been interested in wondering is the way a lot of platforms out there are building their revenue models is a per unit monthly fee. Then the property is bundling into a benefits or a rent or benefits fee, which is bundled. So they're making spread on it. And then the...

Nate Smoyer (29:33.463)
Mm-hmm.

Nate Smoyer (29:39.021)
Yep.

Yep.

David Sullivan (29:48.135)
company providing it is making spread on it. But like, it is interesting though, cause it's like, you know, the CFPB under Biden is like attacking junk fees, like crazy. It's like, how much control do renters actually have? Like renters are probably benefiting from a lot of these concepts and solutions, but there is like a multi-tiered profit model sitting behind all of them too.

Nate Smoyer (29:50.562)
Standard retail model.

Nate Smoyer (30:10.635)
Mm-hmm.

Nate Smoyer (30:16.878)
Well, that begs the question, just because you're getting charged and there's middlemen, and I'm not going to take a position on it. I can tell you I know my position on it, but I'll ask the questions here. Just because someone's making money on it, does that make it a junk fee? What would make it a junk fee?

David Sullivan (30:16.887)
And like, how much choice?

David Sullivan (30:32.951)
No, I don't think so. I actually think a lot of the solutions being offered are good. So I'm not saying that's my position, but I have been wondering. The junk fee is a hidden fee that the consumers don't know they're signing up for. So I have been wondering because at first it was probably like, we're going to offer this one product and it's like a $5 fee. But as we start

Nate Smoyer (30:34.78)
Oh, okay.

Nate Smoyer (30:39.54)
Oh, okay.

Nate Smoyer (30:47.25)
I see. Yeah, yeah, yeah.

Nate Smoyer (31:01.362)
Hehe

David Sullivan (31:02.203)
And we're looking at like rental pricing and affordability. Like how much are we actually adding into the renters life where they actually have a choice? Like.

Nate Smoyer (31:13.576)
Uh, yeah.

David Sullivan (31:14.675)
So I don't know. The choice piece to me is like, the thing I've been wondering is like, how much are renters valuing all these renters, this renter centric move that's happening in the market? And then how much are they, how much do they know they're paying for it? Explicitly or not. So that's a study I've been like looking for.

Nate Smoyer (31:17.336)
Ahem.

Nate Smoyer (31:29.846)
Mm-hmm.

Nate Smoyer (31:36.207)
You know, it's interesting because California, for instance, you know, they instituted their legislation two years ago, I think, where property managers had to offer some sort of security deposit alternative. And that certainly helped drive some growth in that category. I don't know that it's been the tailwind that some may have wanted that are in that category.

but it certainly was somewhat of a little bit of a push from behind. And I think there's certainly opportunity for offering those choices and services. But I think ultimately, you know, that kind of stuff comes to come back to what you were saying a little bit earlier about tenant experience, you know, and differentiation in the market and responding to market conditions. I mean, like if you have to raise the bar and you can make living in a community or building that much easier or more convenient or...

enjoyable with a few bundled add-ons. I mean, I don't know, I'm inclined to say that sounds good to me. I think I'd be okay with it, minus living near a lot of people, which have put that far behind me.

David Sullivan (32:47.166)
You've taken like the most opposite approach.

Nate Smoyer (32:50.498)
I was like, yeah, I think I want to live in a neighborhood with less people in my entire building. That sounds good to me. The block over doesn't even have pavement roads. They have dirt roads. So there's an idea for where I live. But, well, hey, we're gonna jump down to the bottom of the show here. You are probably gonna be somewhat familiar with some of these questions. A little bit has changed since the first time you've been on the show, but this is called For the Future.

David Sullivan (32:56.263)
Totally.

Nate Smoyer (33:18.914)
For the futures, when I get to ask each guest comes on the show to give their best predictions based on the following four questions. David, are you ready to play?

David Sullivan (33:27.559)
Let's do it.

Nate Smoyer (33:29.218)
Cool. Number one, what does Best Ag look like? And we'll contextualize this to rent payment solutions. What does it look like one year from now?

David Sullivan (33:42.015)
I think one year from now will be broadly available in more than 15 million homes around the US. My hope is that a household brand name that our property management system partners, landlords, and renters look to as a new payment solution.

Nate Smoyer (34:03.986)
Number two, will we ever largely move away from rent is due on the first?

David Sullivan (34:17.639)
Will we move away from rent is due in full on the first? I think it is possible. I think it will take a massive shift in how our industry operates. And so I don't think there's enough leverage force in the market to drive that change in the near term, like in the next five to 10 years. But it comes down to like how the entire building is financed.

Nate Smoyer (34:17.746)
In full. Let me clarify that in full.

Nate Smoyer (34:40.141)
Mm-hmm.

David Sullivan (34:46.583)
and how the financial economics of the building work. So we would need mortgage providers to be able to collect multiple payments over time. We would need the securitization industries to understand that the different cash flows are gonna operate differently. We need our systems to be updated and upgraded to allow for underwriting renters differently. We need landlords, property management.

companies and owners to be okay with a different cashflow stream with reporting mechanisms to operate that way. And then we also need our eviction rules and processes to change. So those are all of the constraints. I might have missed some off the top of my head, but those are all the constraints that are sitting on top of why rent is due on the first. We want to protect eviction rights. We need to make our debt payments on the 10th. The people that have put the mortgage in it have put like...

Nate Smoyer (35:38.082)
Mm-hmm.

David Sullivan (35:42.083)
that debt into a securitization structure somewhere that's expecting a certain return threshold. We don't have property management software that's enabling site managers to operate really efficiently. Collecting rent on the first is a big enough task. Managing delinquency thereafter is a big enough task. We concentrate our efforts on the first due to structural reasons. I don't see those structural reasons. There's not enough force in the market.

Nate Smoyer (36:04.554)
Mm-hmm.

David Sullivan (36:11.98)
to truly change those structural reasons today.

Nate Smoyer (36:15.722)
Got it. Number three here, what's one industry trend you think will continue but you wish would go away?

David Sullivan (36:24.191)
Oh, but I wish we'd go away. That's, dude, that's an amazing hook on that one.

Nate Smoyer (36:27.894)
You like that? That's why I do the little dramatic pause.

David Sullivan (36:34.479)
Let me, okay, here we go. Nice, all right. Paid rent reporting. What I mean by that? No, the trend I want to continue is that all rent, and we're trending this way, although still the minority of rent is reported to the credit bureaus, but all rent, which is our customers, the renters' biggest trade line, happens every month. It's like a 12-month installment loan. All rent.

Nate Smoyer (36:42.452)
Keep going, yeah.

David Sullivan (37:03.539)
should get reported to the credit bureaus so that renters can build their credit score. It's what happens when you pay your mortgage. It's what happens when you pay your credit card. It's what happens when you pay your car bill. Like everyone builds their credit score, except for renters. So we've had this like awesome influx of innovation around reporting rent to the bureaus so that renters are benefiting and building their credit scores. But we are charging renters for this. And it is...

Nate Smoyer (37:23.362)
Mm-hmm.

David Sullivan (37:33.091)
It is an easy product. At Till, we actually had a free version of this. Like all you do is take the data and send it to the credit bureau. Like we, we aren't paying $7 or $12 a month or $60 for the last year for our credit card to do that. So I, I believe that rent reporting will continue as a trend. I think it becomes a free offering in mass over the next decade.

Nate Smoyer (38:03.246)
I am not opposed to that. I'll tell you one, I have one small bit of beef with most rent reporting products, even when I was at a veil. And it's that each new lease is a different trade line. And when it shows up as different trade lines, it then changes the average length of time you have a trade line.

And so if you have some established credit, it actually, it can cause a ding. It can cause a little bit of a ding if you've got established credit because it reduces your overall average of trade lines. I kind of found out the hard way. I was like, I was, and I was so mad because this was actually, I wasn't mad about that. I was mad because I was actually not the first customer, even though I worked there.

On launch, I was like, okay, it's ready, cool, yeah, I'll do that end of the day. We didn't send out a marketing email, nothing, and someone beat me to it, I was pissed. I was like, I wanted to be first, and a renter actually beat me to it. So, you can only be so mad about that, but anyway. Yeah, all right, last one here. What's one thing you believe will dramatically change or fade away in real estate as a result?

David Sullivan (39:10.3)
Yeah.

Nate Smoyer (39:26.006)
tech advances.

David Sullivan (39:29.907)
dramatically change or fade away in real estate as a result of tech advances.

David Sullivan (39:44.715)
I think the thing that's going to dramatically change, I don't think it goes away, but I think the cost of on-site management dramatically changes. Buildings can operate pretty efficiently with marketing engines, leasing engines, the payment tech stacks, moving payments to online.

Nate Smoyer (40:04.472)
Mm-hmm.

David Sullivan (40:14.491)
delinquency management. There's even like, you know, people are building like eviction management tech. It's like, so if you look at the, like the NOI statement and where owners need to improve NOI and profit margin, like cost of people is like an enormous component of controllable cost. So that I think we'll see like,

Nate Smoyer (40:29.664)
Mm-hmm.

Nate Smoyer (40:38.817)
Yeah.

David Sullivan (40:43.087)
a massive shift in the amount of onsite costs that exist. It doesn't mean people go away. There's gonna be a role for people, but you might not need four people at a property. You might need one. Or maybe it's a part-time thing, or there's maybe more like 1099 work into it. But I think that over the next decade is gonna massively transform.

Nate Smoyer (41:02.062)
Got it. David has been a lot of fun. Stoked to have you back. Yeah, for round two. Greatly enjoyed talking through, again, congrats on the acquisition. I know we've talked about it, but here I wanna publicly acknowledge that with Bestag and hope that you guys continue the progress that you're making with the solutions you're building in giving more flexibility to renters and helping them find their way through.

David Sullivan (41:06.548)
Thank you for having me.

Nate Smoyer (41:29.038)
paying for rent, but also budgeting and saving and their overall finances. Before we close out, for those who wanna get in touch with you and or learn more about Best Egg, where do they go and how do they do that?

David Sullivan (41:40.923)
Yeah, please email me. My email is david.sullivan at besteg.com. And what I'd say too to like any founders that are listening that are thinking about exploring a sale or navigating like a merger or acquisition, like we didn't really get into the depths of this, but we've learned so much about transitioning our company, our team, our culture, the product.

Mostly successfully, I think we've done things like a lot of things really well, and we had some really good guidance on that. So if I can pay that forward, I'd totally be happy to be a resource. And of course, I'd love to talk about best ag or flexible rent to anyone that's interested.

Nate Smoyer (42:25.034)
I love it. Appreciate that. Hopefully we get a chance to hang later this year. Blueprint, right? I'll see you there. Boom.

David Sullivan (42:30.023)
We will. I will be at Blueprint. We'll go on a long trail run together.

Nate Smoyer (42:37.769)
Are there trails in Vegas?

David Sullivan (42:39.715)
Yeah, yeah, but we got to take a cab away from, we got to take a cab away from the unfortunate part of Vegas, the strip.

Nate Smoyer (42:47.44)
That is fair. For those listening who have not yet booked their ticket to Blueprint, and if you're listening to this, hopefully it's before the actual conference, head over to technest.io. I've got a discount offer for you. I don't get paid for this. I just believe in the event and partner up with Blueprint. So we'll give you a discount off your ticket so that way you can save a few bones and then head down to the craps or...

whatever those games are that people play. I don't know how Vegas works. I don't know, man. But you can spend your money on something else. Well, until then though, we'll catch you later. Have a good one.

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