Host: Today's guest is one of the few Acquiring Minds interviews so far who set out to do a roll up. Yes, many guests here anticipate doing more acquisitions after their first one, but few have gone into it with an explicit roll up strategy. Well, Kevin Swensen did. Kevin had years of experience in and around real estate appraisal and he saw an opportunity to consolidate that space. Like many industries targeted for roll up, real estate appraisal is populated by thousands of tiny often one. But it wasn't just fragmentation that attracted Kevin. He also had a vertical integrations play in mind. This is the sort of strategy that only an industry insider could develop, and I really enjoyed getting the perspective of a searcher with deep industry expertise and conviction. In fact, my favorite part of the interview is where Kevin and I chew on this question of industry experience. Many of us are likely to search across multiple industries, industries that we don't have experience in. So thinking through your lack of industry experience is mandatory. How will you handle that? Can you learn the industry in say six months? Will sellers even be open to speaking to somebody from outside the industry? Have those questions in the back of your mind as you listen to this conversation with Kevin Swensen, buyer of Real Estate Appraisal businesses. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberle Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberle is a specialty insurance brokerage for searchers by a former searcher. Check out oberle-risk.com, o b e r l e-risk.com, link in the show notes Kevin Swensen, thank you for joining me today on Acquiring Minds.

Guest: Well, good to be here. Thank you.

Host: Kevin, you are rolling up the appraisal industry. Real estate appraisal. You grew up in the real estate business. You're bringing to bear your own direct experience in the appraisal sector of the real estate industry. According to what you told me on our pre call, it is a classically highly fragmented sector, thousands of tiny appraisal businesses around the US and you're doing this self funded, so no investors as yet. I know that your strategy is kind of in flux and we'll get into that, but you've already acquired your platform business, the first business that you're gonna use to then go on and acquire others. So we're gonna hear the story of that first acqu and then just really hear more about your strategy, what a one man roll up looks like and how it's all unfolding. So start us off. Kevin, with some background on you, of course, tell us about growing up in the real estate business and then what your own direct career experience in real estate and real estate appraisal has been.

[3:45] Guest: Yeah, thanks again Will for having me. Yeah, I grew up in the real estate business. My family owned and ran a real estate licensing school along with real estate brokerage in the, in the state of Utah. Had a lot of exposure to real estate through that and a lot of interest. Right. Mostly in the investment side. I spent some time with Marcus and Mill chap during the 0809 timeframe in commercial real estate and then the majority of my career has been on the valuation side. So since 09 I joined a national residential mortgage broker and set up their appraisal desk. Spent a lot of my career managing appraisal orders for residential transactions. Did some time of course appraising real estate myself and then also have done variety of really kind of startups, vertical integrating inside the real estate space. So with that lender, we converted that appraisal desk to an appraisal management company so it could be a profit center. And then also I, you know, I had an opportunity to join an appraiser who I identified it as one of the best appraisers we worked with nationally and worked with him for a while, figuring out how he was able to scale quality and service. And then I took, I had this vision of taking that at scale, taking the ability to output a lot of appraisals in a quality manner with higher level service that I wasn't really experiencing as the manager of an appraisal desk. Right. As someone who was ordering thousands of appraisers monthly across the nation. We had a lot of challenges with the service level that we were receiving from appraisers as well as quality. So I took, I took this vision to an appraisal management company to start up their appraisal firm, began recruiting a number of appraisers and implementing process to what we were doing. And had some success.

[6:24] Host: Let me stop you there because I want to give people a definition of, well, appraisal. Generally people will know what that is, but just a little bit of the history of it and how relevant it was in the 2008, 2009 time frame. And then also what appraisal versus appraisal management means. So first, at the risk of talking down to people, tell them what, tell them what appraisal means. Exactly. And what its role is in a transaction. Because it is important that they understand.

Guest: Sure, absolutely. So, you know, a lender, right, When a lender's giving money, right, they're going to want collateral in a real estate, in a real estate transaction, the real estate is the collateral. And they want to know, they want to have some substance, some knowledge of what the value of that real estate is, right? And so that's what an appraisal. That's what an appraisal is, Right, an appraisal, by definition, it's an opinion of value based on facts, right? So an appraiser is hired to develop an opinion of value. And so lenders will order appraisals so that they're comfortable lending on, they're comfortable with the collateral that is the basis for the loan. And an appraisal management company, really, they came about based on regulation and changes to the industry in the 09 time frame. I'm not going to go in great detail, but essentially Fannie and Freddie, they FHA and so on and so forth. They wanted a third party to be responsible for selecting who the appraiser is. They wanted to make sure there wasn't bias associated with that opinion of value, right? So a loan originator, right, who's going to be compensated for a loan closing. They don't want that loan originator to pick a specific appraiser who they might have influence over the value that they are able to to select. And so the industry evolved in 09 significantly such that there really were two options. A lender can either set up an appraisal department appraisal desk that has very specific compliance rules, or they can send those appraisal orders through an appraisal management company, right? So an appraisal management company is going to receive a volume of orders from these lenders and then they divvy out those orders out to individual appraisers or appraisal companies.

[9:05] Host: And so they represent kind of a layer, a firewall, if you will, between the appraisers and the lenders that theoretically ensures neutrality and lack of kickbacks and bias and Influence.

Guest: That's exactly what it's about. Yeah.

Host: And just so people are clear, in 2009, I agree with you, let's not do too much of a history lesson, but basically what was happening is the run up, the incredible run up in real estate prices that was happening from 2000, I don't know, two or three or four for the next few years for lenders to be able to make a loan on a condo and to say it was worth a million dollars, the appraisers have to agree that in fact it's worth a million dollars. And so obviously the lender might want to influence that appraiser to say. For the appraiser to say, yes, in fact, we agree that this condo appraises at a million dollars when in fact maybe it shouldn't have or it didn't, or, you know, the real underlying market value wasn't quite a million dollars. And so you get enough of this misbehavior and you just get an acceleration of appreciation market wide that results in collapse. I mean, that's one piece of, one piece of the complex jigsaw puzzle that was the real estate induced crash of 2008 or 9. But it was a key piece because things have to appraise for these, these loans to occur.

Guest: Exactly. Right.

Host: Yeah. Cool. Okay. And so just personally, why do you like. Is it just because you have experience in appraisal? Why do you like the appraisal sector of real estate versus the myriad other things you could be doing in real estate, like real estate itself, like buying and selling buildings yourself?

Guest: Yeah, yeah, I definitely have a lot of interest at all levels of real estate, frankly. You know, I expressed that I spent some time in commercial side and that, you know, I had done a number of flipping have off and on throughout my career. I love the numbers side of it. Right. And so that's why I gravitated more to commercial. You know, I, I love digging down into the numbers. The appraisal piece for me has been more managing a business. Right. Than it, than it is actually appraising. But yeah, no, it's, it's all around interesting. Interesting for me.

Host: Okay, so. So you're getting all this experience and standing up an appraisal desk and working with thousands of appraisers to, to hire them to do appraisals, seeing that the service level is not what it should be, the quality of the work is not what it should be. You've worked with somebody you kind of consider the best in the biz. This, this one gentleman did was Right, right, right. And, and, and what made him so, so good? And, and was he a one man operation? How or how big, if not how big was his firm? I'm just curious what like the, you know, the gold standard looks like in the appraisal world.

[12:08] Guest: Yeah, Gosh, the standards gotten really low, frankly. Right. And part of it is it's just, it's difficult to scale. It's difficult to scale appraising. Right. So if it takes 8 hours per report for an appraiser to complete an assignment, right. And he's doing, you know, ten files a week. Right. When volume increases significantly based on the number of appraisers that are out there, we're asking appraisers to do three, four times that and they can't scale at that level. And if we can get their volume down to three hours per report, well, then they can scale much better. And that's really what's needing to happen in the industry. So what we were, I mean, the challenges that we were experiencing, frankly, I mean, I'll probably shouldn't say this, but this is a reality, right? There are assignments, right, where we had an appraiser who repeatedly, for two weeks in a row, right. Every single day we're reaching out to him and every day he's saying, you'll have it tomorrow, you'll have it tomorrow. Right. And unfortunately we use that appraiser again even after completing that assignment, because in that particular market where he's at, he's the best option of the worst options we have. And so there's appraisers, I think there's a lot of things that have happened to the industry and one of the challenges of the compliance piece is the accountability is a little bit different. So appraisers, appraisers don't feel like it's important to give updates on the report, on what you know, that it's scheduled and when it's scheduled for, and then that it's been inspected. And in fact, to them it's perceived as obnoxious that we're asking those types of questions because they don't have significant empathy for what it means to be a real estate agent where you're managing a transaction and expectations and it's emotional, it's important. So they don't have a lot of empathy for that. And so that's a challenge. Right. We're not getting updates and then, I mean, I don't know if we want to go into quality, but the training for appraisers is a challenge. And so a Lot of appraisers don't have a great way to go about supporting their opinion of value so well.

Host: But take us now to the opportunity that you saw and the thesis that you developed. Wouldn't it be great to have experts at your back when buying a business? People to help you polish up your pitch and processes as you go to market as a searcher, then help you evaluate opportunities once you get some deal flow? Such experts exist buy side advisors, but they'll cost you to the tune of tens of thousands, even hundreds of thousands of dollars. But another option exists, the acquisition Lab. The lab is a do it with you buy side advisory service, not do it for you. Founded by Walker Deibel, author of Buy Then Build the Lab represents Walker's vision for what is most needed to make a searcher successful and available at an accessible price. It's cohort based and you will come out the other side of your cohort prepared to go to market as a savvy searcher with a tight message and process so brokers take you seriously, pre approved for a loan and with an entire community at your disposal to help you along the journey to buying a business. To learn more, check out acquisitionlab.com link in the show. Not.

[16:08] Guest: Yeah, so I mean I was experiencing a lot of pain, right? So it was not receiving those updates and seeing turn times that were prolonged. And there are certain appraisers out there that have, they're not one man shops, right? So most of these appraisers are one man shops. So they are doing all of the work which ends up being data entry, right? Scheduling phone calls, doing their accounting, their accounts receivable and they end up not being able to do all of managing all of that very well. And the best appraisers, and this is kind of going back to the appraiser I went and worked with, right? So the best appraisers, I'd had conversations with them, we were very relationship focused. We felt like if we can discover and find the best appraisers and get them the highest volume of work, right. That's going to erase the pains that we're experiencing in fulfilling appraisal orders. And so yeah, I mean that's really what it comes down to is if we can provide some, bring some specialization, right? So the appraiser is not scheduling a phone call, right. He doesn't have to put his headspace into scheduling a lot of the data entry, right? A lot of that can remove from the appraiser and the people doing the data entry, there's things that they can do to make the review easy for the appraisers. Because at the end of the day it is the appraiser's responsibility. It's their license that's on the line 100% for that report. But there's definitely a lot of things an appraiser can do to take his eight hours per assignment down to closer to three hours.

Host: So the idea is these one and two person operations, or maybe primarily one person operations. They're doing all of their own back office, if you will, and if you can acquire, if you can kind of do that for them as the parent organization so that they're just focused on doing the true appraisal work itself that reduces the, the total cost of a project from eight to three or four hours. And you can then recruit appraisers better because you're providing, you know, this, this home where all the junk that they hate, the paperwork they hate dealing with is done for them in the background and they're just out there doing pure appraisal work. You know, this, this reminds me of that probably, there's probably this model probably exists all over the place, but in your world of real estate Compass, which is a name people will probably recognize, you know. Well, Compass's strategy I think has been different things at different times. But fundamentally they, they rolled up real estate brokerages and I think their pitch was, you know, all of the will kind of tech enable you, Mr. Or Mrs. Real Estate Agent with all of this kind of stuff in the background, the CRM, the, the whatever to make you, you know, to allow you to do what you do best, which is, you know, managing a transaction, you know, showing people homes, listing and let us take care, take the rest of the crap off your plate sort of thing. Is that kind of a fair analogy?

[19:29] Guest: Yeah, that's exactly it. I mean at the end of the day an appraiser's job's going to be more fulfilling. Right. When they're spending their time and space inside their max value offering. Right. And what we can pay them the most money for, which is their analysis. Right? Yeah. And let's take as much of that other stuff away from them and so that they can spend more time in that. And it's not just more time in that, but it also allows them to like really the benefits are significant not just from oh, now they're doing more volume of orders, but the reality is their quality increases. Right. Because there's more people reviewing their work, there's more specialization in the work that's done on the report. By doing more transactions, they get better at the analysis, they save drive time. When they're doing more assignments per day, their drive time per order goes down. There's seasonality associated with the business. Their slower months will experience higher transaction volume because their overall transaction volume increases, allows them to take on more clients. There's a lot of benefits, not just from a income perspective, but also just from a more rewarding, fulfilling job where you're not doing data entry and scheduling, you're spending more time doing real estate analysis.

[21:01] Host: And are there appraisal firms around the country that have cracked this or at least a little bit so that they're 20 person, 40 person shops. And I assume that the way, if such a shop exists, they've gotten there because they're kind of implementing a model like you described where they're taking a lot of the stuff off the appraiser's plate. Are there any models of this that already exist?

Guest: Yeah. So the commercial side, I think it's been this way to a certain degree for a longer period of time. On the residential side, very little, but it's changing, changing fast. So like I said in 20, 20, 15 is when I started doing this. I didn't really know of anybody doing it at any sort of scale in the last and even a year and a half. It was interesting. I had through Twitter was able to meet somebody doing some roll ups in Australia, done 250plus acquisitions and a super interesting conversation with him because of the questions he was asking me and the end of the conversation with him it was basically wow, Kevin, you're on the early end of a roll up here. There's really nobody starting to do it. Well, since he and I had that conversation quickly, there's a number of very large firms beginning roll ups that I've run into as I've talked to sellers. So it's happening for sure. There's you know, a half dozen that are, they're starting to do this model. My belief, right, maybe it's silly, maybe I'm completely wrong, but my belief is that the industry will completely consolidate that, that you know, again from being the, the, the client, right, the person ordering appraisals. I don't like the current structure. I, I wasn't getting the quality and service but these large professional companies can give me a much, much better, that could give me a much better quality service. It just makes a lot more sense. So I, so I think it's going to just continue to consolidate.

Host: So on the point of consolidation, so you Developed this thesis that you shared with us and you set out to do a roll up as an individual, not as part of a fund or a larger organization. So what did you imagine the mechanics of that being the platform acquisition and then bolt on after bolt on after bolt on sort of thing. Talk us through that.

Guest: Yeah. So definitely learning as I go. Right. And I would say I've always been open to investors, but I felt like I want to prove out my thesis first. Right. So just have more control over a greater number of equity, amount of equity if I can really get the ball rolling first. And so my first plan was, hey, let's just max out SBA first. Let's show the ability to implement some process to these companies and increase the revenue through that process. And then at that point we'll identify the next step, whether it's bringing on equity to continue or whether we're able to generate increased cash flow to continue to invest at a pace that works with the goals that we have also thought through some creative strategies. I don't know if we talked about this earlier, but basically I had two acquisitions that I almost did at the same time and there are multiple reasons why that didn't happen. I'm not sure it's a good idea to do two at the same time, especially in your first acquisition. But that seller ended up being more interested in a partnership structure and I'm super interested in that model itself because of the build opportunity. And it looks like this, right? So $2 million purchase price instead of acquiring for 2 million, it's hey, all acquire for 3 million within a 3 to 5 year time period. You know, that's the option to purchase piece and then there's a joint venture piece to that and it's hey, I'm going to come in, I'm going to take over the back office process for your appraisers. And through that we're going to take their, you know, the 2.53 million in revenue and push it as high as we can. Right. The process has the ability to double the revenue. And so the idea being that we can fund that acquisition, that $3 million acquisition through potentially two things. Both that increase in that significant increase in revenue as well as multiples expansion. Right. By going and doing this option to purchase joint venture with multiple sellers. And I'd say I have two sellers that are interested in that model. And so that may be something I do.

[26:14] Host: Do they, when you, if you, if you do this deal structure, do they get a, is there any sort of payday immediately or is there only a payday if and when you acquire at that agreed upon price? You know, whatever. You said like a year, did you say a year later? Or maybe you didn't give a time frame.

Guest: But yeah, it's going to take, it's going to take some time. So three to five years is the amount of time I want to do it. Yeah, I think the goal would be to do it in the two to three year mark. I think three years is much more realistic. As far as upfront payment, there's some legal costs that I would cover, but not looking to. It requires some courting, it requires the seller, me. And we're like, we have to get comfortable with working together. They have to understand the vision that I have. And if there's buy in to that which seems to be right. Like I speak the appraisers language, I get their business. I have a unique perspective from being the client. Right. And seeing higher volume of orders and variety of ways that appraisers work. So I'm not necessarily looking to put a lot of money down. It's hey, let's do this together. There's outs, right? There's for sure outs. The idea is that there's increased revenue. Right. So there is potential for them to benefit from a cash flow perspective during that time period of time. Yeah.

[27:41] Host: Okay. Okay. Well, Kevin, tell us about the story of your first acquisition. So your platform acquisition.

Guest: Yeah. So I'd share this. I was searching for a long time. Right. I'm going to back up and just share. Hopefully this is information that is helpful. But I went through kind of this, oh, I really want to do an acquisition. Right. It makes a whole lot of sense to. Well, when I left the firmware as building the appraisal firm, I left because I needed equity and I wasn't an equity owner. And I thought I left with the idea, gosh, I can do an acquisition and roll things up. So I started learning about how do you do an acquisition? Came into Buy, then build, joined Walker's lab. Right. The acquisition lab. And through that process I started looking for appraisal firms. Looked for a long time. I've seen 10 sales happen, had conversations with some buyers, learned a lot. But I didn't get super aggressive until last March where I said, okay, I got to do an acquisition. Let's go. Now I have a massive database. 40,000 appraisal companies identified, gosh, 30 in the top markets that I wanted to look that were the largest firms. Reached out to 30, had eight phone conversations that led to four interested sellers that I still have interactions with today. The acquisition that I actually did wasn't from that list of 30. It wasn't in a market I was interested in. It was listed with a broker. I fell in love more or less with that acquisition because I was trying to find the best platform. And these sellers, there's two sellers uniquely were, I wouldn't call them appraisers, I'd call them MBA quality business owners first, appraisers second.

Host: Were they the founders?

Guest: They were the founders. Okay, go ahead. Yeah, and just that's why I went with that particular acquisition is that they, it wasn't quite the size I wanted. Right. Just under 3,3 million in revenue and but I, there was a lot of good things about that business. So went, went ahead with that acquisition. I used SBA deal numbers. You know, I had basically seen appraisal companies if they're really small, right. Two to four sda, sde, really not quite four. And I acquired on the high end. I think there were two reasons why I was okay acquiring on the high end of that is the quality of the business and then the terms that I was able to get. So purchase price right around 2.5 million. The terms, for better or worse, I chased a 5% down deal and that was because I was trying to max out SBA on two deals with the equity I had. So I had a 5% standby note for, for 10 years, 10 year standby. And then I had another 15% note with one, I think it was one year standby, five year balloon, 10 year amortization on that. So while I did a low down sba, I felt okay with it because my debt service coverage was, was pretty solid in the 1.75 area.

[31:47] Host: So it was 5% from you, 5% full standby, 15% the balloon seller note. So that's 25% and then so 75% SBA.

Guest: Right? Yep.

Host: Right, right. Which gave you that favorable debt coverage ratio.

Guest: Exactly.

Host: Okay. And, and so you said it was a two and a half million dollars acquisition at around, you know, approaching forex. So my math says that's was 650-700SD, something like that.

Guest: Yep. Great.

Host: Cool. And I remember you saying on our pre call that you, you know, you have this roll up strategy. Of course it's really what's driving things. But you also are, you have a nice hedge in the fact that if you buy a really healthy, solid platform company and the roll up doesn't quite work out in the way that you thought, you still made a great investment in the form of that first platform company. Would you. Did I get that right and do you still feel that way?

Guest: Yeah, I mean I feel like I'm a believer in finding something that both you've got a build opportunity in your acquisition and then also just when you've got experience and network to help you through it. That's an advantage. And so I feel like I have that right. We definitely have experienced some challenges. Right. The market's a little bit challenging right now, but yeah, definitely I'm pretty confident in the ability to continue to do some acquisitions. But regardless, I'm in a space I'm interested in and I'm confident in its success.

[33:32] Host: And putting aside the roll up for a moment, just let's say you just kind of we're going to acquire this business and then plan to grow it organically and maybe some, some bolt ons. But you weren't explicitly trying to do a roll up. You have all this experience in real estate and appraisal as we, as, as is evident throughout our whole conversation and I think you just touched on it, but you said it more directly to me in our pre call that you have a philosophy about that where you're a big believer in leveraging expertise to do an acquisition rather than what a lot of folks do who might be kind of generalist and they might kind of look at a lot of different industries and if they like the characteristics of an industry, of a particular company within an industry, they'll go for it for that reason rather than their own experience in said industry. So put that in your own words please because.

Guest: Yeah, yeah, I think I'm going to say two things will hopefully I'm saying what you want to hear, but one, just the big light bulb that came on. For me, the whole reason I fell in love with acquisition was I was vertically integrating for an appraisal management company. I was building an appraisal firm and there was a huge light bulb that came onto me why I was there. It was okay, these guys have X amount of revenue that is in a business that generates 10% net profit margins and they're able to send 30% of their work potentially to a sister company that they also own to a business that generates 20% margin. And not only that, there's an intimate relationship between both of those companies that allows the appraisal firm in my opinion should be as or more competitive than another appraisal firm out there. Because appraisal management company can say, hey, we love when you do this. We hate when you do that, right? Change it. Just lots of advantages in that vertical integration. And it's not so dissimilar than what I was doing at the lender level, setting up an appraisal department that converted into an appraisal management company like Knowledge of the Customer to cater what we did to the customer. But also we're getting this. We have this revenue that we don't have to go market with to get us to stand us up and then we can grow from there. Right? So I would say that was a big piece and I don't see or hear it a lot in the business acquisition space, but that's where I got the big ideas. If I can buy a business, whether it's an appraisal business or whatever, that I can then do a startup off of it to vertically integrate. To me, gosh, that's pretty powerful. Then the other part that you were talking about, I use geeky terms to say this, but find your sure thing, lean into your experience. That's what I've done. As I was going through the acquisition lab with Walker Deibel, it was completely with, I don't have to do this appraisal thing. It's what like, I just want to do acquisition like, this is great. And I ended up sticking with the appraisal piece for so many reasons. And Walker definitely helped me with getting clarity on that. But a huge part of it is, gosh, I look at a lot of acquirers that are going away from their experience, and I just think that you can lean into your network that can be super powerful if you stay in a space that you know there's lots of surprises. It doesn't matter what business you acquire, you will experience surprises. I have. It's going to happen. And if you can do it in an industry that you're familiar with, with the knowledge that you have, It helps with your build, right? It helps. You can pull certain levers to do better. And then when you experience challenges, you already know the people to talk to. You've maybe already seen a variance of this challenge before to be able to work through it. And so there's. And it's the lingo too, right? The language that you have with clients, you already know the language. And I would even go back further to this. Like this alone potentially could be the reason to stay in your sure thing. And that is conversations with sellers, right? So I reached out to 30 and had eight conversations. That's through proprietary search. That's a pretty good hit rate. And at least one of them said, hey, I received this type of outreach all the time. You're the first person I've called and it's because they could directly see the experience I had. And I really think the friction of search, if you can find your sure thing and stick inside that lane, I think that your time to do due diligence, your time to even decide what your offer price is, a lot of the friction in the search just disappears. I also think you can raise capital easier. I'm a big believer in finding your sure thing. And if you look, there's a couple guys out there like me that have stayed in a very niche lane that have, I think experienced similar reduced friction in their search.

[39:07] Host: Yeah, yeah, yeah. I think that is all hard to argue with. My only reaction is if you really like the path of acquisition entrepreneurship and you don't have a sure thing or you want to leave your industry or you don't see an opportunity necessarily within your industry. I mean, you had this light bulb moment within your industry that kind of set you on the path to acquisition. And others kind of hear about acquisition entrepreneurship first and they don't necessarily have a light bulb moment with respect to the industry that they're already in. And then the other thing I'd say is like what you hear over and over from my guests is especially, which is often that they've acquired into an industry that they don't know that they're an outsider to. They just spend those first six months learning, learning, learning humility, humility, humility. And they really hit the books and they come in just, just like sponges, hoping that, you know, they can learn in six months time what it takes other people to two or three years to learn because they're so incentivized to learn. And they're so proactive about it because they're like, you know, obviously I need to learn at an accelerated rate here. So no question that, I mean, probably from day one you, you didn't need to, not to say you didn't need to learn stuff, but like, you probably felt like from day one you could kind of hit the ground running. And many acquisition entrepreneurs, it's, you know, day, you know, six month and day one is when they feel like they can start actually doing stuff and making changes. And so yeah, that, that, that would be nice to not have to do that. I just, you know, I know that if I make an acquisition, it's very likely to not be based on a sure thing. So I'm just kind of thinking through and my own reaction to hearing what you Say, well, okay, nice to have, nice to have, but not a need to have. Maybe.

Guest: Totally, Totally. And I'd share two thoughts just to what you just said. The humility is huge, right? I think it's a good thing. And I also am a huge believer in acquisitions in your sure thing or not just on the basis that you will learn more and at an accelerated pace. It's not just that humility, it's that accountability. The weight of ownership forces you to learn at an accelerated pace, period. So which I think is great for people in any career, right. Like find that weight. And I would say while I wasn't an owner in the opportunities I've done, I felt the weight, right. Like these were kind of unique circumstances while they were inside corporate umbrella. There was a weight of accountability that accelerated my learning. The other thing I would say is, I mean I, I'm a believer in this. I don't see it. I don't know how it happens, but I think it makes a ton of sense. And I've, I've considered doing it inside the appraisal space and that is if you don' a sure thing, go find someone with a sure thing and leverage theirs. Right. So I've considered, hey, here's an appraisal acquisition. I've already maxed my SBA capacity. Not ready to do this acquisition. But hey, ETA entrepreneur, let's go do this one together, right? I'm going to be able to have the lack of friction and getting the seller on board able to support them, but they're still going to have the weight and ability to learn. And I think that's not a bad idea for ETA entrepreneurs to go find people with a sure thing and piggyback off of that. There's ways to make it a win win situation for both parties, but I'm a believer in eta. I don't disagree with you, Will. There's not one way to do it.

[42:48] Host: Yep, yep. Kevin, because of your experience in real estate, I, I will see broker deals even on biz. Buy sell other, other businesses for sale that are within the real estate industry, such as title companies or home inspection companies. And my understanding is that at least in those two cases, those are also very fragmented industries. Any quick thoughts on any of the. Either those two in particular or any of the, any of the. Of these sub industries within the real estate ecosystem?

Guest: Yeah. So I'd start with this like one thing again, like during my clarity phase where I was like, do I want to stick with the appraisal or go another route? One of the things that I had researched was SBA default data. And it was kind of interesting. Over the last 10 years, what had the lowest. What industry had the lowest amount of default real estate? Right. But that's totally deceptive because if you go 10 years prior, that 10 year prior period, what had the highest amount of default real estate? It's a cyclical industry. Me going into this acquisition, I was expecting to close in January, closed late March. As I was seeing things happen, my expectation was January is going to be the worst month I'd seen in more than 10 years inside the industry. But I went for it anyway. Right. I went into this with my eyes wide open. It's a cyclical industry. It has some challenges and it totally does. So that's what I would say is real estate. There's definitely opportunities and especially if you understand it, you know, go for it. But you got to. You probably should use less leverage. This is the guy that used as much leverage as he could. You probably should use less leverage. You should definitely risk test it to it being a harsher industry, not a, not a greater industry. But yeah, there's opportunities inside the title space. It's a relationship business. Right. So make sure you understand that really well. And it really comes down to real estate agents. Right. So just understand it. But I think there's opportunities like, you know, will. I have grand big visions really honestly of going inside and outside a vertical integrated company inside the real estate services space. So I'm a believer in it. But there's some unique challenges for sure.

[45:32] Host: So now that you're into the acquisition, so remind me when you said you closed your month three.

Guest: March 28th. So yeah, we're March 28th, just outside three months.

Host: How's it going? And now being in the seat and also what's going on in the macro economy and the real estate market, does that affect your strategy and how you're thinking about this roll up in the

Guest: next two or three years? Yeah. So golly Industries. I said this earlier. I expected the month of January and the year really to be quite a bit down market size. I did not expect the government or the Fed to raise rates at the pace that they have. They've raised rates probably at a pace never done before that's impacted transactions. Transaction volume is down significantly, down about 50% and that's having some impact. The acquisition I did had a component of residential, 50% residential, 50% commercial. And I went back and forth on the pros and cons of both of those. Right now I'm really Grateful the commercial piece is not impacted. And that's at least not yet. That's historically the case. So there's definitely some diversification benefits that have helped significantly. With revenue down, though, it's a little bit of a difficult conversation to acquire someone whose revenue is going to be down. Right. So that value conversation, that was being easy for me. Right. It was a fairly easy conversation for me to get into SD or EBITDA or whatever and then talk about multiple. But now when we're talking about that SD number. Right. What is it? Because we don't know what this year is going to look like and we don't know what next year's going to look like. So there's some challenges there. But I say the big thing. I'm actually trying to convert the challenges of the market into a good thing. And the way I see of doing that is it's easier to recruit appraisers in a down market. So bringing them to my company, that's a lot easier to do when volume's down and they're hungry and. But if I don't have volume of orders for them. Right. Are they going to stay? And so I'm super interested in doing an acquisition of an appraisal management company I've owned and, well, I haven't owned, but I've ran an appraisal management company. I've been the general manager, totally responsible for appraisal management companies. So I've done it before. I know the space very well. But really what the advantage is, I can take that appraisal management company to help me grow organically at the appraisal firm level by sending a certain portion of that business from the appraisal management company to the appraisal firm and really focusing on providing a superior quality and service with that appraisal firm to that appraisal management company and other appraisal management companies and lenders. So, like, too many words to say this, but a pretty big pivot. Right. Instead of focusing on appraisal firm acquisitions exclusively, kind of pivoting to, okay, let's go raise some capital, let's go acquire an appraisal management company. Because really that's going to accelerate the growth of the appraisal firm.

[49:20] Host: But you had always envisioned some vertical integration. So buying the appraisal management company was in the plans. It's just that's been pulled forward is what's changed.

Guest: Yeah. So the appraisal. So there's two things about the appraisal firm. It's a lot more fun to solve the problems of the industry at the appraisal firm level. Right. An appraisal management company, like, they don't have a lot of control over fixing the challenges that's at the appraisal firm level. And so that's why my focus and emphasis up front was at that level. But yeah, it makes a lot of sense today to acquire an appraisal firm. Like, their revenues are down too. Right. That conversation of what is EBITDA or SD is much more challenging. I have some pretty specific strategies that I think allow me to take that on, partly because I, I want to control the AMC, but I don't need to be 100% owner. Right. And so there, there's, there's ways for me to acquire in this down market that make a lot of sense for the seller. And I think really kind of my whole play makes sense to the opportunity.

Host: And are there no regulations around the appraisal management. Like, could you just. If you were able to take ownership or take control of an appraisal management company, what's to stop you from just having 100% of its business, just sending you 100% of its business? Can they do that? Or is there some regulation there that they have to divvy it up, you know, a third and a third and a third or whatever?

[51:07] Guest: Yeah, they, I mean, technically, I guess they could do that. There isn't a regulatory reason not to. That's a challenge for multiple levels. Right. Just as a manager appraisal management company. Right. Just having that many appraisers right away to do that in the first place, it's not going to be possible. There's a lot of challenges. Right. From a scalability perspective, as an appraisal management company, you're having where you're receiving a lot of orders over a broader geographic area than an appraiser, an individual appraiser firm is going to be able to cover. You know, that's probably.

Host: Oh. Because an appraisal management company probably works across multiple markets.

Guest: Right? Right.

Host: Whereas an appraiser is going to just be a local, very hyper local shop.

Guest: Right. And that's, that's why I got to go raise capital. Right. For the appraisal management company. Because from an acquisition size. Right. So 40,000 appraisal firms. Right. With most of them being one man. Shops, appraisal firms. I don't know the number. I don't, I'm not. But, but you're 2,000 across the country. Right. So much smaller number and the average size is like, I don't know. Right. Probably One of the smaller revenues of an appraisal management company would be in the 5 to 10 million dollars in revenue. So like, my dream would go to be go do a $25 million appraisal management company acquisition right now.

Host: And these appraisal management companies, they all sprouted in the last 10 years. I mean, the category didn't exist prior

Guest: to the Great Recession. Sure it existed, but just not in large part. Right. So I think what was more common are these one off type transactions

Host: the

Guest: lenders were doing for verification of occupancy, things like that. They existed, but not in large part.

Host: Okay. Okay. Kevin, is there anything more that you want to add that I haven't asked you?

Guest: I think you've done a great job. I think you've asked some good questions. Nothing comes to mind. This has been fun.

Host: Well, this is choppy waters ahead for all of us, but the market is very fluid at the moment and it sounds like you're a guy who adapts and adapts a strategy to facts on the ground. So I suspect if we talk again in a year, things may be different and your strategy may have evolved and so good, good excuse to get you back on. But thanks for, for your time, Kevin, and your transparency.

Guest: Thanks again, Will. It's been a lot.