Interview with Chris Smith of EquityScout.com

I had the pleasure to interview Chis Smith, the founder and CEO of EquityScout.

Q: What is EquityScout?

A:   EquityScout is a website that offers real estate evaluation software to real estate investors.  Investors have a lot of factors to take into account when they’re evaluating an investment.  Taxes, expenses, vacancies, rental income, property appreciation; all of these factors impact the profitability of an investment.  Our online software allows investors to enter their assuptions into an intuitive, user friendly program to see what sort of return they should expect out of an investment.

Q: What made you get into the real estate investing business?

A:   Like a lot of investors I was looking to diversify out of the stock market and into something that gave me superior returns.  The great thing about real estate is that it allows prudent investors to use leverage wisely.  That, plus the fact that your investment generates cashflow makes real estate a great opportunity for long-term buy-and-hold investors.

Q: What is a typical profile of a real estate investor?

A: Typical profile?  Doctors, plumbers, school teachers, accountants, soldiers; real estate investors come from all walks of life.  But not everyone is cut out for real estate.  You need to have a talent for working with people, cutting deals, and making decisions.  And you also have to have the right sort of risk appetite.  My experience is that investors are getting younger and younger.  That’s a good thing - real estate truly is an investment where time is your friend.

Q: What are some of the most used functionalities of EquityScout?

A:   Users generally have one burning question:  am I overpaying?  I’m a long-term value investor, so for me the answer to that question comes from the cashflow that the property produces.  Cash is king - that’s a motto in almost every business.  Seeing all of your assumptions boiled down to a cashflow projection is a feature that users like.  Another feature is the fact that we’re an online software platform that users access through their internet browsers.  No downloads or installations, and you can see your results from any computer that has an internet connection.  That allows users to save their work and retreive it anytime and from anywhere.

Q: I know EquityScout gives a lot to charity. What is your relationship with Magnificat House?

A:   Well we’re a small company, so “a lot” might be more than I should take credit for.  But Magnificat House is a charity that I’m personally involved in.  They provide services for the most needy members of our community here in Houston: homeless, mentally ill, and recovering addicts.   They also run the Loaves and Fishes soup kitchen.  It’s a great organization.

Q: How is the rental market in the Houston area?

A:    The market here is in good shape.  Compared to a lot of major metropolitan areas you can get high rental income relative to property values.  And in my experience properties in most areas don’t remain vacant for too long.  Houston, in general, is still an undervalued market.  The effects of the subprime fallout and concerns about the economy remain to be seen, but I’m bullish on this market.  Personally, I bought a fourplex in a prime neighborhood earlier this year and am looking to purchase another.

Q: What are the top things real estate investors should consider when  investing in real estate ?

A:   Here are five things I focus on and advise other to think about:

1)  Keep it simple:  Buy a house.  Rent it out.  Repeat.  I’m amazed at the number of new investors who go to some investing seminar then are ready to do some complicated multi-million dollar deal with all sorts of crazy bells and whistles.  Real estate, truth be told, is actually pretty simple.  Don’t get into any deal that you don’t understand backwards and forwards.

2)  Run the numbers:  The thing I like about our product is that it keeps you honest.  The numbers don’t lie.

3)  Know your risk level and invest accordingly:  A lot of what passes for “investing” these days is actually speculating.  This was fueled by the flipping frenzy during the recent price run-up.  Many of us know someone who bought a house, slapped a coat of paint on it and planted some new bushes, and flipped it for a $50,000 profit.  Here’s a news flash: it wasn’t the paint and the bushes that added fifty grand to that house’s value; it was the rising market.  If you’re watching those flipping shows on TV then take them with a grain of salt.  Television is for entertainment, not education.

4)  Relationships matter:  Real estate is all about people.  Investors who know how to build relationships will succeed.  Investors deal with tenants, neighbors, real estate agents, mortgage brokers, contractors, and a host of other stakeholders.  If this isn’t something you like doing then you’re probably better of investing in the stock market.

5)  Learn the rules:  Real estate is a simple game, but the devil is in the details.  There are rules for evicting a disruptive tenant.  There are rules for selling a property and deferring the tax.  There are rules for writing an effective lease.  And in my book, there are rules for learning the rules.  Here’s two of them.  First, stay away from courses and seminars; they’re designed to separate you from your wallet.  Second, hit the library or the book store, and talk to other investors.