Data-driven real estate lending with Mount North Capital's Brian Seidensticker and Kiah Hochstetler
Welcome everybody to another edition of ATL Alts. This is your host Andrei Sindate. I'm excited to have two guests on with me today from Mount North Capital. I'd like to welcome Brian Seidensticker and Kaia Hochstetler, co founders of Mount North Capital, which is an opportunistic real estate investment platform to the show. So thank you for joining me Brian and Kaia, and love to welcome you to the conversation.
Andres Sandate:ATL Alts, as you guys know, is an alternative investment show focused in the private markets, and we interview experts across the industry. So our audience is financial advisors, it's independent wealth managers, family offices, high net worth individuals who are really looking for education and opportunities to learn more. So we appreciate you joining us today. So with that, Brian and Kai, welcome to the show.
Brian Seidensticker:Thanks, Andres. Thanks for having us.
Andres Sandate:Yeah, I'll jump in right away, Brian, and start with you. I'd love for you to give us a little bit of background maybe about Mountain North Capital. I mentioned it's an opportunistic real estate firm. But tell us a little bit about yourself, and then we'll have Kai go next.
Brian Seidensticker:Yeah. Well, my background is is actually as an aerospace engineer. That's what I as a as a trained profession anyway, and did that for the twelve years of my professional career. And then for various reasons ended up in the delinquent tax sale space, providing data software. And that's actually how Kai and I met is on that side and then joined forces.
Brian Seidensticker:One of the leading complaints, if you will, or pain points for our customers was basically a funding source for tax, you know, sale properties in general. You know, we went down a route of trying to get a bank on board that didn't work out. And we'd done all this work and kinda looked at each other and said, Hey, maybe we can start a fund to do this. And that's essentially how Mountain North Capital was born. It's evolved a lot since then, but that's a little, I guess, the quick version of an origin story.
Andres Sandate:Yeah. Well, thanks. We'll dive into that. Kai, I would love to get a little bit about your background too.
Kiah Hochstetler:Yeah, so I had the pleasure of meeting Brian through an IT consultancy that I had founded and started providing services to tax sale resources. As time went on, saw the opportunity to take some of my experience in the software world and move it into developing an asset management platform for tax lien investors. Over time, Brian and I decided to join forces and bring our companies together. During that period as well, I was doing investment work for a family office that has grown and as we started talking about the capital allocation side and my experience in the world of private investment and funds, it made sense to transition into the next chapter of Taxol Resources and SDA, which we launched Mountain North Capital off of.
Andres Sandate:That's great. I know there's a lot of things we wanna dive to today for our audience. Again, you know, sort of framing this up for people, you know, when we're thinking about bringing a guest on and diving into an asset class, let's talk about real estate. You obviously have a lot of different areas you can go. And so for us at ATL Alts, it's really fascinating to meet experts and sponsors and investment professionals who are doing what I think are highly specialized niche and sometimes more esoteric real estate, in this case, strategies.
Andres Sandate:And so you've mentioned tax liens and so can we maybe high level talk about this asset class that you're in within real estate? Either one of you are welcome to maybe tackle that, but just to help the listeners understand when you guys say tax liens and the real estate that your guys invest specialty is within, what does that contain?
Brian Seidensticker:Yeah. You know, I guess the fund as a whole is what we do is pretty basic, right? Buy real estate at a low price, sell it at a higher price. There's nothing fancy about that. I think the magic comes in of like how and where we're finding these particular properties.
Brian Seidensticker:And though we're not isolated to tax sale properties, that certainly is how we got started and still lot of the way we acquire the properties. And really that type of property comes around or comes through due to a tax delinquency, right? We don't do a lot in the tax lien. I like to say, you know, there's really three buckets of like tax sale types, right? There's tax liens, tax deeds, and then there's like a middle ground that we like to call redeemable deeds.
Brian Seidensticker:And the fund itself focuses much more on redeemable deeds and the deeds, the real estate end of it. The tax liens is much more of a, like a micro mortgage, you know, scenario and a note scenario. And we're in the more of the real estate space.
Andres Sandate:Yeah. So you started a business, well, were running a business, Kai, it sounded like, and we're working with Brian. You give us a little bit of background. We wanna learn about the asset management part of this business, but I think it'd be helpful for listeners to kind of understand all the different moving parts in the platform and then maybe how the two of you came together.
Brian Seidensticker:So within the
Kiah Hochstetler:tax real estate industry, right, when you start dealing with these distressed assets and assets where there's unpaid taxes on them, on the tax lien component, which is where both Brian and I started, TaxCell Resources was aggregating data. In total, they have over 3,500 scrapers that they've built over the years and a substantially proprietary data system to work off of. And as we moved through that process, Brian's company was providing the underwriting data, then it moved into an asset that was acquired by an investor, whether it was a small scale retail investor or moving into more institutional hedge funds. And as you can only manage so much on a spreadsheet, and as that grew, we started building this platform around that to support funds that had tens of thousands of assets on the tax lien side. But then they would roll into additionally the tax deed component or those tax liens would become REO.
Kiah Hochstetler:So organically, over the years, the features and functionality of the platform grew to encompass the entire life cycle of the investment. And that's really where we saw the opportunity to build a fund at scale is through both the proprietary data that we're able to pull in through the It's publicly available, but it's not an easy effort to look at the national level of data set. And anyone can go down and get a tax list, but when you start, you know, underwriting across multiple markets and states, it's a heavy lift. And that's something in the work that we had already done. And then as far as the asset management goes on the platform side, you're running when you start dealing with hundreds of assets, going to things will fall through the cracks.
Kiah Hochstetler:And so the system really supported building rule sets around making sure things didn't fall through the cracks. They were reminders and to dos based on the lifecycle of an asset, providing bankroll reportings for lenders, and allowing access for tracking of the financial components as well to understand the underlying profitability of a single investment, but then look at it in an aggregate fund level. So
Andres Sandate:when you set up Mountain North Capital and every asset manager that's out there in the alternative private market space is, many of them are trying to take advantage of inefficiencies and complexities and aspects of a private market that you just can't do in the public market. So when you think about opportunistic real estate and as you said, Brian, getting to the real estate, you know, where you're effectively buying low, hopefully selling high, right? Very simple. There's a lot of things that go into that. So help us really understand maybe a summary or overall of the types of assets that you're out looking for.
Andres Sandate:There's different ways that you're going to call it originating. There's different ways that you're identifying opportunities. And every manager goes about that process differently. You've clearly got a methodology and a lot of background and a platform that's informing a lot of your thinking and proprietary nature of it, but I'd love to understand how you're identifying the opportunities that fit for Mountain North Capital.
Brian Seidensticker:Yeah, I think, you know, we were lucky to have this, you know, ten to fifteen year, you know, foundation of the data analytic software side to lean on and, you know, what we're doing isn't real proprietary, right? It's how we're doing it, right? And it really comes down to, you know, we were already tracking when, where and what properties were in these auctions. But then we also started gathering the results of those auctions. And and we've dovetailed not only just the tax sale, but, you know, in the trustee or mortgage foreclosure space as well.
Brian Seidensticker:And so the unique part of it is just having all of those analytics to know, you know, take advantage of the inefficiencies is where it comes what it comes down to. And those inefficiencies can be for different reasons. Some pretty straightforward with, you know, live auctions in the middle of nowhere typically have less competition. And so, you know, if you can see those and the assets make sense, then you make a, you know, concerted effort to attend those, then typically you can do better than your average investor that's, you know, sitting on their couch, attending an auction online where everybody in the world can participate. And that's one example.
Brian Seidensticker:And then there's, you know, just various other analytics that we look at to try and identify your markets and then ultimately trying to identify the specific properties to go after as well. Because the industry as a whole much about deciding what the property might sell for as much as is it going to make it to sale. Right? And so we have a lot of advantages in identifying the properties that are gonna go to sale and at a price that makes sense for us.
Andres Sandate:Yeah, that's fascinating. One of the things I'd love to sort of dive into is when you sit down with a wealth advisor or a family office, and they look at funds and they evaluate alternative investments in private markets. Many of them are expressing more and more that they want to find investment opportunities for their clients, right? And in your case, a strategy that generates very, you know, in this case, like more of an income play, more of an income versus a growth play. So you're trying to provide like yield or income to your underlying client as one of the objectives of the strategy.
Andres Sandate:So when you dial it back to the wealth manager or the family office, like person that's looking at the strategy and they're not familiar with your space, they're not familiar with, you know, we're used to buying multifamily assets, we're used to underwriting like clean buildings, you know, we can go on property, we can get clean title, there's insurance. And so I know that a lot of aspects of what you're doing involve as is value, potential value, like what's the unlock. So maybe Kai, you can tackle this one. You come at it, you've got a lot of software experience, you you've got a data background, like, are we overthinking it when we're the wealth manager, when we're the family office, or is there really a lot more to it that does provide, you know, require like a professional asset manager that's got an edge, that's got a platform, that's got a team, you know, versus the person, like you said, sitting at home on their couch, you know, trying to do this? I'm curious.
Kiah Hochstetler:Yeah, from the underwriting analysis and capital allocation perspective, at the end of the day, a lot of it comes down to portfolio theory. So when you approach underwriting, there's your standard checkbox that you go into. But given the state of the assets, given that we can't get inside of them, all of that goes into the underlying buy price and our willingness to pay. And so there's discounts applied at auction at that level. And you don't apply portfolio theory where you're doing them in aggregate, like you will have assets from time to time that pop up and you have issues with and you have to work out and not every one of them are winners, but you check the bulk of the boxes and make sure that it's addressed.
Kiah Hochstetler:And so by applying portfolio theory, for anyone who's ever looked at private venture portfolio theory, some sites are 50 companies to provide a reasonable return. Like the same concept applies, we're doing it at scale, at hundreds of properties at a time as we're moving through this to allow it to provide the yield and return that we're bringing to our investors and provide the economics and underlying support that makes sense for us to operate the fund. And there's risk in doing one off. And if you can't get inside of it, there's risk in doing one off. But by applying portfolio theory, you can mitigate that and provide the economic outcomes that everyone's looking for in an investment.
Andres Sandate:Yeah. Maybe let's dive in a little bit to how you think about the, I guess I'd call it the mitigation aspects of it. So you've clearly got like an advantage when it comes to analytics and data right but there's other elements to it experience clearly but maybe Brian you can talk about when you go to assign value right when you go to actually make an offer on an asset or put a price to an asset, like maybe help us understand what what that entails because in real estate they always say you know you make your money on the buy, right? You don't make your money on the sell. I mean that's an old adage but you know, we're here to educate.
Andres Sandate:We're here to help wealth advisors, families, individuals that are out there trying to find, you know, the next really attractive opportunity to earn yield or growth, in this case yield. So we want to help them understand this manager is different because there's so much dispersion in returns when you look at private markets. You could have a top decile manager doing the same exact thing in a different part of the country to a bottom decile manager. And if you get it wrong, your client and or your portfolio is going to suffer. So you really have to understand the manager and their background and what their edge is and how they go about pricing assets.
Andres Sandate:So a long setup to like a question of when it comes to price, like help us understand your methodology and approach.
Brian Seidensticker:Yeah. Well, I think most people are familiar with what I'll call as repaired value because most houses and neighborhoods and commercial buildings you drive down are already in that state, They are in Yeah, you could put some money into it, but it is already repaired. It's at You can get what we consider market value for that property. Now with the type of assets we deal with, that's rarely the case where the assets in that state, right? And so what we deal with in part of the hard part of our job is deriving the, what we call the as is value, right?
Brian Seidensticker:And there's kind of, there's two components to that as is value. You know, one is a discount really due to the whatever work is needed to bring that property back to an as repaired state, like the structure itself. And so, you for sake of numbers, let's say it's a $200,000 house, right? But it needs a $100,000 in work. We consider that a $100,000 as is value.
Brian Seidensticker:And so we deal with as is values. The other aspect of our industry is from a title perspective, right? Which is dealt with more on the tax sale side, but you have to account for things there because you typically don't get title insurance. And so you definitely need to know what you're doing in order to identify what stuff on the title needs to be dealt with, right? And what is that gonna cost?
Brian Seidensticker:And that's all start part of our underwriting and ultimately our price, you know, or strike price, right? Where we're gonna buy that. And then we say we're only gonna buy it at 65% of that as is value or less, right? And so we do all of our work. We say, you know, that same $200,000 property, say it means a $100,000 worth of construction and title clearance work on it, right?
Brian Seidensticker:And so the as is value of that is a $100,000 and we will buy it for $65,000 or less. Right? That's kind of the margin of safety and profit that we're working with when we identify underwrite and then what we're willing to bid it up to at those auctions.
Andres Sandate:Yeah. Maybe you can help us understand the actual execution of the acquisition itself. Right? Because again, what we wanna do here today, hopefully, is help people and inform them, right, around the idea that there are different managers and different strategies to go out and build exposure if you want exposure to real estate in your portfolio, right? And I think as alternatives continue to proliferate, one of the things we're going to keep doing at ATL Alts and that we're doing at our wealth management firm is we're just continuing to pound the table to folks to say there are five or six you know well known common alternative asset categories, but within those categories, in this case real estate, there's debt, there's equity, there's, you know, there's core, there's core plus, there's value add, there's opportunistic within opportunity.
Andres Sandate:You know what I mean? Like, so helping people as they're on that journey is really critical to, you know, get the right subject matter expert to execute that particular strategy. So again, with that lens of sort of informing, maybe Kai, you can take this one. So when it comes to, okay, you've done your underwriting, you've identified an opportunity, you've done the underwriting, you've come up with the as is value. Walk us through some examples or scenarios within the fund itself around what does the execution of this look like?
Andres Sandate:Because you say auction, that's different than my notion of fee simple real estate where we're going, we've got exclusive, we're walking the building, we're walking the property, we've got site inspections, we've got access to the inside, all this history, all this property condition report, I mean that's different, right? So I think if I'm an investor, I want to understand like when you guys go to actually execute at auction, or whatever the format is, what does that look like?
Kiah Hochstetler:Well, on the size and rate of the county, I mean, we put people on planes, every and if there's other auctions throughout the month. And so we're doing our initial underwriting process where we're doing drive by and getting photos of the current conditions or the underwriting, and we're sending bidders to these auctions with a clipboard to stand there. There's logistics involved in management around that of you have to come with money order with cashier's checks in hand ready for the amounts that are there. And so there's a lot of procedural management of that side when you start talking about scaling up a fund and making sure that everything's in check. And they get there and they start bidding and they start going through the process and they've got maximum bid prices that they move through.
Kiah Hochstetler:And one of the key components in that is sometimes we win everything we want and other times those bidders come home empty handed, but we have to stick to our fundamentals of underwriting. And we can't look at this and say, okay, you have to come back with something because the moment we start applying that pressure to our bidders, we're going to start making fundamental mistakes. And that's just not how we're going to run this fund. And within that process, you know, sometimes there are two, three, four people at the county level or city level running an auction. And so our bidders are running around and looking, okay, what's properties up next over here?
Kiah Hochstetler:Which one is it at? And sometimes there's multiple bidders at a single auction. And so it turns into a bit of a rodeo from that perspective try to come home with. And there's stories. Our bidders come back with stories all the time of local investors who are trying to pay for everything with cash for a $300,000 house and they're to run back to their car.
Kiah Hochstetler:They're unbelievable. It's just a wild process. And so in our institutional process, there's not really a lot of other people showing up at an institutional level. We're really dealing with local competition. We're underwriting against our data sets that we have, and so we're bringing in an additional level of sophistication to that process.
Kiah Hochstetler:And we're maintaining our fundamentals so that we're not getting over our skis on something and we're getting too far into an asset and we don't have that room to address any unknown issues that are coming into it and making sure that there's room to breathe in this. And you articulated earlier, right? You make money on your buy, not on your sell. And making sure that there's enough room in there to both cover our capital costs and to deal with the values that are there. And one of the pieces that we haven't dove into and really once an asset's acquired, in our underwriting process, it gets a grade.
Kiah Hochstetler:That grade, it's one of four categories. That grade is then reevaluated after acquisition for where it's at, and we're not going to take all these assets through a repair. We will selectively choose asset by asset, is this one appropriate to wholesale to a local fixer and flipper? Is it appropriate and is it in a condition where we can take it to the primary MLS market for either an owner occupied or a landlord who wants to lease it out? Or is this something that we have a lot of margin opportunity and this one makes sense to go through a construction process?
Kiah Hochstetler:And we're not getting into the process of removing full roof systems or moving walls around. We're talking about changing out the visuals, flooring, cabinets, some of the HVAC equipment, like getting into some of these things that are fairly quick turn and burn processes, applying paint, changing outdoors and sometimes windows. So it's not, we've all heard stories and we've all seen where people have lost investments when they've over repaired. And avoiding the over repair scenario is crucial. We're better off to make a small spread and move it to a fix and flipper than we are to try and go for the large win.
Kiah Hochstetler:And on that, if it's something that, you know, it's a market where construction costs are higher. And so understanding what the construction industry is at at that capacity in that market is also crucial as we get into it. Our model is independent on us repairing these things. And it's just opportunities to garner additional return on the process.
Andres Sandate:Yeah, so many great points within that. Brian, you got your work cut out for you because Kai scored a bunch of points here on wall with that answer. But it leads me to, no, seriously, like questions around, okay, so you have, you know, let's call it, you know, use these analogies, boots on the ground, they're attending these auctions, they're your eyes and ears, they've got a process that they're following and price, like price or values, strike price that they're able to, you know, obviously they want get the property cheaper if they can, but they've got sort of a ceiling. So Brian, come back to you here. So Kai, I think you laid out there are a series of different options that you have at your disposal after you, if you win at the auction or successful at the auction.
Andres Sandate:They don't always have to be complete heavy rehab projects. So Brian, talk a little bit about like that on the front end. Do you have an idea of these properties? You mentioned people are traveling and looking at this, and it sounds like there's a lot of residential assets, but is this strategy limited to residential properties or is that largely what you're seeing in this opportunistic real estate strategy?
Brian Seidensticker:It's definitely the majority, right? But it's not the only, right? When I say single family you know, residential homes, you know, it's really more of what is available and what what is the opportunity?
Andres Sandate:Yeah.
Brian Seidensticker:We truly are an opportunistic fund in the fact that, you know, we take advantage of value add where when and where it's applicable. Yeah. But our primary model is, you know, acquire the property and disposition that property as quick as we can, right? Making a decent return and then recycle that, right? You know, we feel that there's a whole lot more volume that we could go after.
Brian Seidensticker:So there's no reason hold on to a property, you know, for longer than we absolutely have to. You know, the type of properties that we're going after really comes down to the partner, the profit partner that we're working with, which is usually somebody there locally, right? Which is part of our process is coming from tax resources and the services that we provide and how we came up with the fund concept in general was to enable these local investors that are historically very, you know, cash strapped, right? Yeah, constraint. Just any auction model is very cash intensive because you know, you have to have hundreds of thousands, millions of dollars really to make it a full time thing.
Brian Seidensticker:Otherwise you're always buying a property or two or three, right? You're doing whatever you need.
Andres Sandate:Can't drive around in a vehicle with hundreds of thousands of dollars in your car. I mean, and so it just is not a scalable model. I completely appreciate what you're solving for. But you allowed me to ask a follow-up. And so I really think people are going to benefit from understanding the pieces of this platform more so than just the siloed parts.
Andres Sandate:I understand it, have a data advantage, call it, because of the analytics and because of the proprietary data sets and the models and all the things you offer in the marketplace through TaxSell resources. But you also, through that, now have access to boots on the ground and expertise and local investors that say, hey, man, if it weren't for, you know, being constrained, I could go do those three properties because I know, you know, this area and I know, you know, there's opportunity. Is that right? Am I getting that piece right?
Brian Seidensticker:You're exactly right. I mean, partners we're working with locally who are boots on the ground, that, you know, they already typically know exactly what they're doing. They've been doing it. They're just, you know, cash limited. And so our whole strategy is identify those folks, build a relationship, and then enable them to do what they've already been doing just on a little larger scale.
Brian Seidensticker:And so they don't have to buy three properties, do what they do, and then sit, wait for them to sell, open up the cash, go do it again. They can just keep doing that process over and over. And that is, you know, certainly a piece of our our model, right, which is which is very unique and that we're not trying to organize all this with a gigantic internal team, you know, all located in in one office. Right? It's very heavily focused on the local boots on the ground and the partners that we work with to identify the properties, right?
Brian Seidensticker:And then we work with them to identify what we feel as is value, right? We purchase the property, we always own the property, right, throughout the whole process. And so, you know, we are collateralized, you know, entirely by the owning of the assets as we're not doing notes or loans or anything like that. And so it just ends up being a really good relationship where the asset class we're in, how we're acquiring them, right, allows us to make a good return, but then still has enough leftover for that profit share partner to benefit as well.
Andres Sandate:Yeah, you have to leave something for them, right? Because you want them to be motivated, I would imagine to complete the project quickly on budget, right? And get it back to market per the asset management plan. Is that right, Kai?
Kiah Hochstetler:Yeah. Well, before we jump to that piece, like there's one one component there that I want to articulate that Brian mentioned and just is it our process like other funds that are in this space, right? Some of the hard money lenders, things like that they have a note against the property. We own and control the property the entire way through with these partners.
Andres Sandate:Yeah. Big difference. That's a big
Kiah Hochstetler:Yeah. Something ever goes sideways, you have to plan for when things don't go perfect. And if anything ever does go sideways, all we do is, you know, execute the legal notice saying you're failing at, you know, the piece that you committed to, and we step in and start managing the asset. And so that there's no need to go through any sort of legal process around that because the asset is deeded to the fund. And that provides the, you know, we'll call it belt and suspenders, you know, so that we can not get stuck in a legal process and not get stuck fighting it out and dealing with extra legal expenses just so you're not doing your part, we're going to step in and take this and go with it.
Kiah Hochstetler:And so in that asset management process, it allows us to scale between both having kind of the redundancy of some internal teams that do this, but also the scalability of the boots on the ground partners in markets that is a unique model that is working really successfully for us. And, you know, we have to underwrite them. They have to bring track record to the table or else we're, you know, that's where you get upside down in a fund. And the key component there is making sure that you're not scaling too fast, but scaling at an appropriate rate. And because you don't want to buy yourself headaches.
Kiah Hochstetler:And we've all either been there or seen people do it. And that's what we're trying. And that's what we're managing against and managing for is that it runs smoothly in this process of working with on the ground partners.
Andres Sandate:Yeah, this partnership model, think is really interesting because you're underwriting the properties or in this case the asset, but you're also underwriting the operator, if you will, on the ground. Other lending programs are doing something similar in a way. They're underwriting, if you will, the borrower if it's a hard money loan, but what's different is, you know, they've got to kind of understand what they're doing with the asset, but it seems that you guys have a distinct advantage and that you can step in without all the, you know, judicial process and all the, you know, all the legal expense and the hassle and the, oh, just give me more time, right? You just say, nope, we're stepping in and taking over. So hope that our listeners will make the effort to really understand that, but I want to give you guys the opportunity to really draw a distinction.
Andres Sandate:So we've done some shows around private credit, direct lending, private debt because it's an area where there's a lot of interest, right? People are looking for different ways to get yield in their portfolios. They're turning to their wealth advisors. The families are looking for non correlated, non bank lending strategies. So I want to give you guys the opportunity to make crystal clear to folks like how are there other elements beyond you know you guys in the hard money and the bridge lending space?
Andres Sandate:Are there other aspects of what you're doing that are distinct that, you know, that listeners should understand that insulate the investor, you know, or provide more protection? And Brian or Kai, I'll let either of you maybe address that question.
Brian Seidensticker:Scott, do you want to take initial shot at
Kiah Hochstetler:it? Sure. So as we've talked through the process, right, differentiation is, you know, we're aggregating our own data sets. That's that's core point number one. And then it moves on to really the asset management platform and industry understanding, especially when it comes to the tax deed side.
Kiah Hochstetler:And state by state, we have different criteria, different things that we're managing for in our legal underwriting process. And that changes and you managing the relationships with the attorneys when we do have to do the legal work and knowing who can handle that at scale and move them through the process so they're not getting stuck with that. And you have assets that are just sitting on the books and underperforming because of extended process time. And then you layer on the ability to scale with these boots on the ground partners that provide the scalability into different markets, which creates as we're moving between states and markets, it's also creating diversity. And so you're reducing your exposure.
Kiah Hochstetler:While you're in the same asset class, you're reducing your exposure market by market by having it within different partners as well as our internal team managing those. And so that you're not getting overweighted in a single market where if a manufacturing plant pulls out or whatever list of things go wrong in markets that start to cause a reduction in asset price. And so you're not overexposed there. And then as you move to the next level, it's really the marketing list that we've built over the years with over 60,000 people on our newsletter, while they're not all people who are interested in the hard assets, but having those relationships because of the over a decade in the industry for where we wholesale these products and knowing how to move the assets off of our books and into somebody else who's going to take them to the next level if we're not taking it through the repair process into the primary MLS. And so what it does is it's not There's no silver bullet, right?
Kiah Hochstetler:You start building the layers, you start building the strategic advantage, And that's what makes this thing durable and interesting and a worthwhile investment to be in is because it's layered. When you go out there and you see somebody who's like, we have this one thing and this is our market differentiator and it's this, that's not a very good moat. And you start building a moat around just process and time and industry and ability to move through it and work. That's what's kind of our fund differentiation. We didn't start out to be a fund, we started out to be a service provider.
Kiah Hochstetler:But the organic nature of the resources that we had led us to the point where it said, well, you know, the smart next move is really take all these things and make a fund out of it.
Andres Sandate:Yeah, yeah. Well, and there's a lot that goes into that, but Brian, it sounds like you wanna make a point or
Brian Seidensticker:I think there's three really key things that make us unique, right? And then there might be others out there that compare, but I'm not aware of them. But one of them is that we are a 100% asset backed, right? Yeah. Or extremely heavily asset backed, right?
Brian Seidensticker:We're not lending, we're not a lender. Everything that we purchase is owned by the fund. And so in a worst case scenario, you're not trying to collect on a piece of paper through a legal process, right? There's something very unique about that. I think the other one is the fact, you know, in general, aren't looking to own these properties ideally less than a year, typically less than a year.
Brian Seidensticker:We can go longer than that, but when you do the long term strategy, right, there's a lot that you don't know what's going to happen two, three, four or five years down the road. And so there's a lot of, I'd say, potential risk of that where we're trying to get in and out of assets. And so we have the ability to change location, change buy strategy, change sell strategy. We're not tied to, hey, we're in this, we gotta wait it out. You know, those are two pretty key components.
Brian Seidensticker:I think the other one is, especially with today's atmosphere is coming from a tax sale space. Tax sales are countercyclical to most real estate, you know. And what I mean by that is in recessions, typically you get a lot better deals at the type of, you know, auctions that we're going to and the inventory goes up, which puts us as an odd advantage compared to most just because of asset class that we deal with. And those are two, you know, I say three, sorry, pretty unique. You put those three together, it's a pretty powerful thing.
Andres Sandate:Yeah, yeah, for sure. I mean, absolutely this conversation, we will, you know, we'll also share it with our audience for asset backed, which is kind of our sister podcast. The reason you know I think it makes a lot of sense not only did you say the term, you teed it up, but most importantly is I think it's helpful for investors like and their advisors to really understand when you're going to go into debt like or lending like strategies, right? If you're giving capital to a sponsor or an asset manager and expecting yield or income on the back, you know, on return, you really have to underwrite the manager's ability to underwrite and you have to underwrite their ability to own, you know, well collateralized assets, right, at hopefully like very attractive LTVs or loan to values. You wanna get that asset coverage.
Andres Sandate:Right? So if something goes wrong, right, you're insulated. But what you just articulated is is different than what a lot of private debt bridge lender type sponsors are out there doing. So I think it's worth spending time. So I appreciate you guys articulating that.
Andres Sandate:I want to understand a little bit around the liquidity, right? So in private markets, the knock is always, I can't press a button and sell. Right? And what I think advisers and and I think family offices, astute ones have known this for decades because their allocations reflect it. They've been allocating to private markets you know, the thirty, forty, fifty, sixty, 70% for decades, right?
Andres Sandate:And individuals are one to two or 3%, right? So there's a lot of, I don't want say catch up, but there's just a lot of opportunity to educate advisors and individuals directly around the merits of a diversified portfolio. Having said that, one of the things that you run into is people's fears and misunderstanding about liquidity. And so I want to talk about what you said, which is a lot of times people associate private markets with these long term lockups, seven years, ten years, twelve years, right? You're never getting your money back like for a decade.
Andres Sandate:You just said it's one to two years, maybe in many cases ideally less than a year. And a skeptic would say, that's not possible. Like you can't buy real estate and flip it in a year, right? Or I just don't know that you could do that at scale. So I want to allow you, Kai, to talk about the way you've set up the fund and the profile of these underlying assets and why you're able to counter that and come back and say, no, actually, when an investor comes into our fund, this is the expectation, right?
Andres Sandate:Or this is the expectation they should have around liquidity.
Kiah Hochstetler:Yeah. Well, the accountants listening, I mean, as far as our books go, right, we hold these assets, these real property assets as inventory on our books. Right, we look for ways to take advantage of depreciation off of these things and some of the tax strategy around that. But at the end of the day, we have to hold it as inventory because we're moving through them at such a high velocity. And I think that's the truest sense of really like how are we able to do that?
Kiah Hochstetler:It's buying low, selling higher, but still below we're at wholesale market values for the majority of the assets that aren't going to the owner occupied market. And with that, right, it's because it's we're focused on the opportunity for the next person, making sure that in our underwriting strategy, there's enough meat there for the next person to take it and do something with it and they're motivated. And the model really supports that. It's dependent on that. It makes sense to do that.
Kiah Hochstetler:As Brian was saying, you know, we can move through markets and we can move assets, right? We're always marking to market because we're buying the next asset. And at an auction, the highest price takes it. But it means that there's nobody else willing to take a higher price. You're not going in in, you know, the private market deals where you're buying something, you're going in and saying, okay, here's my buy price, but it's not a true sense of like, what is the market willingness to pay at this point in time?
Kiah Hochstetler:And so an auction creates that, you know, check, check and balance effect for really where the asset is at. And then with that, you know, in terms of the investment terms, you know, we have a two year promissory note that we offer our investors. It's so it's, you know, we're moving the assets on a quicker term time period, but the investment note is at the fund level, it's a two year term, and then they have the option to renew. And what facilitates and allows us to make sure that we, when an investor chooses not to continue on, that right, because we're turning assets so fast and moving through that process of selling our inventory, we have available cash to take them out if they're interested in not continuing on with us. And so the model itself, all the pieces around this investment fund model work together so that we can deliver on our promises to our investors and that we're not stuck.
Andres Sandate:We're
Kiah Hochstetler:not saying, okay, hey, we're dragging this out another period of time. And oh, now we got to do a capital call, right? These are not things that are built into this fund because of how we've structured the deal and the underlying business principles.
Andres Sandate:And exposure that the underlying investors in the fund get is diversified across all of the fund's holdings. It's not just to one individual asset. So if they invest into the fund, they're not getting the three latest deals you did. They're getting all of the holdings of the underlying fund that are deeded to the fund. Right, Brian?
Andres Sandate:Correct.
Brian Seidensticker:Yeah. It's across everything, right? You know, from a liquidity standpoint, it's unique in the fact that, you know, yeah, it's not as liquid as a stock that you can go sell now. Yeah. Right?
Brian Seidensticker:But from an asset backed, you know, it's very unique because typically those asset backed is all right. Yeah, it's a five year model, right? But that model turns into seven years and then eight years, right? And then you happen to have a recession in the middle of that and then it turns into an eight to ten year, you know, turnaround versus, you know, when you're constantly selling assets and buying new ones, then that creates that liquidity event at the sale of that property, right? And can we go sell every property tomorrow and liquidate the fund?
Brian Seidensticker:It's not that simple, right? But it creates that constant liquidity and that constant growth and pattern, which gives us a lot of flexibility.
Andres Sandate:Yeah, know we're deep into the weeds, so we might as well keep going. We've got a few more minutes tonight, but I think this will be very valuable for people that are really interested in learning about the strategy. And I think it's worth diving in on a couple of other important distinctions. And one of them is the market appetite. You've talked about this, Kai, and you you mentioned this, Brian, like you have knowledge of these markets.
Andres Sandate:And I know you you're not investing, would imagine, in every state. You've got some target markets that that you're focused on for different reasons. I'd love for you to talk about that. But what I'd love to really dive into is this notion of like validated appetite in the market because you have the knowledge, have the data, you have the history, but you also have local operators that have expressed intent and interest in that asset. They just don't have the capital.
Andres Sandate:They don't have the wherewithal. So you you have this built in, it seems like distribution, like, system, right, for the asset in in a way. Like, you've already almost solved for the exit. I don't want to put the cart before the horse, but I'd love to understand how those two dynamics really help your model work. Because you said, Kai, these pieces kind of work together and you're dependent on that buyer, but you got to leave some juice in the deal for them.
Andres Sandate:So maybe Brian could talk about how does that construct work? Like the validation of the appetite is there, but the distribution or the exit is already sort of built in inherently? Help us understand that.
Brian Seidensticker:Yeah. Well, I think especially with the tax sale piece, right? Unique thing with those is the title itself, right? Is when you're buying it at the auction, you don't get title insurance from the county. I wish that were the case, but you'd never get that.
Brian Seidensticker:And so you can't go get, you know, standard bank financing. And so a lot of the partners that we work with, you know, they are the end, they are the liquidity event because we help them, you know, I think of it as kind of bridge financing scenario. We help them on the acquisition, help them once they get to standard financing, and then they're the ones to, you know, taking that off our hands. We make what we're supposed to make. There's still enough left over for them to do what they need to.
Brian Seidensticker:And that doesn't happen in every case, but that built in buyer from the very beginning is a unique thing that you typically don't have. Now, in all cases, right, as we're trying to buy at extremely conservative value that leaves enough in there for some other person that's looking for a discount, right? We're buying it as such a good discount that we can sell it at still a good discount that somebody else can take it through the value add, scenario. And that being a strategy from day one, right, allows us to disposition properties a little faster than typical.
Andres Sandate:Yeah. So Kai, I want to give you a chance to talk about if we zoom out of some of the nuances. But I said I had two questions, so I'm going hit you with this one. Talk about this idea of being in the loss position and how you further insulate investors. You know, we're coming into your fund.
Andres Sandate:Right? We really like the space. You guys are opportunistic. You're finding all these opportunities. But you're doing even more.
Andres Sandate:Right? So, like, talk a little bit about how you guys have set this up and structured it and explain loss to our listeners. Because I think when people hear loss and investing, it's like, me away. These guys are doing debt and lot like so maybe unpack it for us.
Kiah Hochstetler:Yeah, so really the component, and we talked about earlier how Brian and I started our business journey separate, providing services to his company. And in 2020, we brought our companies together under Last Best Partners, which acts as a holding company for the operating entities in the data and software space. And as we move forward, we launched Mountain North Capital, which is held underneath Last Best Partners. And so with that, the promissory note that's signed at the fund level also comes with a corporate guarantee from the holding company level. And so we provide that loss position that's really encompassing all of the operations within this sphere and within this ecosystem.
Kiah Hochstetler:And so we're saying, okay, we're putting all of our businesses on the line. We're saying that we're going to deliver that return to you as the investor. The other component, right, and I know people are sitting there wondering, know, when they start thinking debt, you start hearing positions. So you've got your position debt. The way that we've addressed that is there's an inner creditor agreement that every investor signs.
Kiah Hochstetler:And so at the end of the day, it puts everyone on the same plane. So it acts more like equity in that sense. And so everybody sits at the same level, so you're not dealing with positioning. And so your hit is that corporate guarantee that we provide. And then everybody sits at the same plane as for all the lenders that come in as the investors.
Kiah Hochstetler:And one of the other components, which is in the weeds, but we looked at equity for this. And some of the challenges with equity was there's no efficiency coming off of the assets. So there's going to be, you know, phantom income because you're not getting any depreciation because it's held as inventory. We're in, you know, 12 states and that number is going to continue to grow. So you're getting K-1s coming out of all these different states.
Kiah Hochstetler:And at the end of the day, the simplicity for the investor, we said, let's put this in a wrapper as a promissory note, throw an inter creditor agreement around it and put a corporate guarantee there. And that's the cleanest way. It's a yielding asset with quarterly payments and a two year term.
Andres Sandate:Got it. Got it. Well, I think it would be helpful for people to understand and listeners to understand this notion of returns get competed away a lot of times in efficient capital markets when there's money to be made. Right? Let's just call it what it is.
Andres Sandate:Like, the moment people start realizing, oh, I you know, we can make money. It's like everybody goes, you know, bug to the light type of thing. So, Brian, maybe you can talk about how big the space is annually or the size of a vehicle you guys believe you could manage given this opportunity. Number one is like scale. But two is talk about why that hasn't happened, right?
Andres Sandate:Why have more asset managers that have gone into every other great asset class, like where they can make returns, like why are you not seeing more of them? So it's like scale and then competition.
Brian Seidensticker:Yeah, so, you know, scale side, you know, it's grown immensely, but I'll kind of, you know, when we put the fund together, you know, we were focused very much on the tax sale side. And one of the unique things that TaxSet Resources did, you know, several years ago is do the like industry wide analysis of how big is this space. Nobody really knew. And when we did that, we went, wow. It's, you know, from on the tax lien side, it's about $4,000,000,000 a year.
Brian Seidensticker:On the tax deed side, it's 4 to $5,000,000,000 a year. Wow. Wow. You know, this is a space that is larger than most people know about the NBA. It's a larger space than NBA.
Brian Seidensticker:Now does every asset meet what we are looking for? No, right? And so we did a pretty, we did a very in-depth analysis of like, okay, out of all of that, what would we actually be interested in looking at and buying, you know, from a data perspective? And we feel on an annual basis, there's a 100 to $200,000,000 in tax deeds that we feel would meet our metric, right? So there's a significant amount of growth from where we're at today, which we're at 30 ish million at the moment.
Brian Seidensticker:Yeah. Now the and so on the why aren't there more people in this space doing it, right? I think one of the hardest things, which is, you know, to my knowledge, the only ones that have it is just knowing where to go, what to buy and at what price. And we're the only ones that are aggregating that information on a nationwide basis like we are, which gives us a large, you know, competitive advantage. Sure.
Brian Seidensticker:And then also having the flow of partners, right, that we work with, as well as the asset management component of it, we built for institutional folks that we could grab on. You know, I think the asset management, that's not the only solution out there. But when you put all of that stuff together, it's a very hard space that, you know, historically haven't seen institutional funds, you know, doing it like we're doing it. Yeah. I think you've, there are some institutional folks that have focused on very specific areas because if you're gonna do it all, I'll say in house, right, with your own team, you really gotta know the markets you're in, right?
Brian Seidensticker:Because you can't rely on that local profit share partner. You know, so to some degree, we're letting out a little bit of our secret sauce of how we're doing this, you know. But you put all that stuff together, it is very, very hard to put all those pieces of the puzzle together. And quite frankly, you know, Kai and I, when we got started, we didn't put this puzzle together intentionally. It really was a, we started on the data analytics side, software side, and then kind of fell into the, hey, this fund model makes a lot of sense.
Brian Seidensticker:Let's do it. Not, hey, let's go do this fund and then have to put all those pieces together. I think if we had done that, right? And say, hey, this is a fun one put together. Let's do it.
Brian Seidensticker:Probably never would have started because we would have looked at all of the things that you had to do and go, let's go do something else.
Andres Sandate:Right. There's so much, sound like a consultant, but there's so much synergy between pieces. I hate that word. But it's, but you know, I digress. So you alluded to this and I think it's a great place for us to sort of round the the round the turn.
Andres Sandate:It is Kentucky Derby weekend, right? So we've got a big big race this weekend. So we're rounding the turn here and Kai, I want to ask you about organizational, lessons that the the the team you've alluded to having invested in this infrastructure, it's clearly not just the two of you. So give us a perch of from that perch of like as two leaders, co founders, like help us understand what are the different pieces you've had to put in place and have put in place in terms of the organization itself?
Kiah Hochstetler:Yeah, so one quick note, right from a level of, you know, the professionalism, people can go out and build software, the asset management platform that we built, one of our clients is a publicly traded bank, and they use their custodial services for the tax lien industry through this. And so the level at which this software was built to meets publicly traded bank requirements within that. And so it's not just a piece of software that we clip together. You know, at this point, it's over a decade of development that's gone into it, and it is a robust piece. Back to your question on what the team looks like, I'll let Brian give you the latest headcount because we keep incrementally growing.
Kiah Hochstetler:But within that, right, it has a segmented parts, right? We have our data team, we have our software team, we have our customer service team, we have our asset management team for the fun side, and then we have our boots on the ground team That's our internal staff that are flying places, looking at assets, managing assets. And then there's the outside layer of the profit share partners that we work with. And within that, in the synergies, as you so alluded to, that come of this, allows it to work really well. And to Brian's point, probably It's not that people can't go out and build this, but it is a Herculean lift.
Kiah Hochstetler:Know, you sometimes, you know, somebody's going to question whether or not it's worth it. There was a lot of people who've come and gone in the asset management software space. You watch them come in and as a founder of a software company, you get a little nervous and then you watch them kind of two years later, they exit out because the complexity that goes into this is no small task. And so, you know, lessons learned, you know, maybe I wouldn't go build a tax lien asset management platform and all of the things that go around it due to the complexity. You start out on the journey and you learn something along the way.
Kiah Hochstetler:Now we have a highly valuable tool that we can run the fund off of and grow from there.
Andres Sandate:Yeah, yeah. Well, so Brian, you started out, I guess, and were working with Kai's company going all the way back to the very beginning of our conversation. So I'm going give you the last word. You know, when you set out to tackle this and you look now, you know, a decade plus, you've learned a lot, you've added a lot, you're now ambition has grown, there's a big opportunity out there. How do you stay laser focused on the right things, right?
Andres Sandate:How do you stay super focused on creating value for customers? Because that's ultimately why they come back, is you're creating value for customers, whether those customers are on your data side, whether those are now investors in your business on the Mountain North Capital side. Like if you don't deliver, they're not gonna stick with you for long. So as the as, you know, as the sort of original, you know, owner, founder comes into play here, always like to ask, like, what are the things you have to continue to remind yourself of every day to ensure you're delivering value to your customers?
Brian Seidensticker:Yeah, adage, you know, stay in your lane. I've had to kind of, you know, I view it from a double edged sword or double edged coin, right? Yeah. One side, right, is like, you know, the thing that we gotta stay true to is doing something of quality, right? And that was our differentiator from the very beginning is doing something of quality for the institutional level investor, right?
Brian Seidensticker:And working with Kai on the software side. And that continues to be our mantra because on the flip side of that is like stay in your lane, right? There's some levels of stay in your lane where just kinda ends up being idiotic. And you know, for example, like a lot of the areas we're going to for auctions initially on the tax sale side, our bidders were, you know, for example, you know, in Texas, they call it Super Tuesday. All the auctions happen on the first Tuesday every month.
Brian Seidensticker:And there's a big giant room and on half of the room, right, is the tax sale going on. The other half of room is all of these foreclosure, you know, opportunities going on, mortgage foreclosure sales, right? And our bidders are attending the tax sale and they're buying a few properties and they're seeing like the volume of the properties on the other side of the room and just the incredible activity. And they're kind of like, hey, we should look at this. We should look in for many, many months.
Brian Seidensticker:We're like, no, that's not, you know, we need to stay where we're at. But eventually they convinced us to go look at the data and sure enough, it like, wow, we can get because the assumption was we can't get nearly the same discount because of, you know, that's Everybody knows of mortgage foreclosures, you know. Well, what we didn't really take into account is the convoluted process that was being utilized and sell the properties. And so when we looked at the data, we're like, wow, you can get the deals over there too. And the volume of potential assets that we could buy exploded, right?
Brian Seidensticker:And then we went to like, okay, from the data side, we need it internally, you know, from a product standpoint, is this something that we can make into a product as well? And again, like if we, all right, from a quality standpoint, it didn't exist. There were a lot of platforms out there providing foreclosure data, but they were doing what I call the easy stuff, right? You know, an example would be at an auction. There's an online trustee selling 170 of the properties, but there's 20 other trustees selling the other 200 properties and nobody was providing all three seventy properties.
Brian Seidensticker:And then when you start going to the sales, we realized, wow, there's an opportunity, not only from the fund perspective, but also doing what we have done on the tax sale, which is provide something of quality that encompasses everything. And that's really where we've tried to balance the two of we're opportunistic. We can't keep our eyes closed and say, we can't do that because, right? We gotta understand what that because is. And if there's a way of opening that door, why not open the door if the opportunity is there and it makes sense for what we're doing without getting way off track, right?
Brian Seidensticker:Are we gonna go buy property in Italy? No. Way outside the bounds, right? But are we gonna open up other States or other types of acquisition methods of getting into those opportunities as we learn about them and can vet them? We're open to that.
Andres Sandate:Yeah, as I always say to my young boys, just because you can doesn't mean you should. Look, and I remember when we very met and I said to myself, having worked in this space with a fund, a hedge fund that was doing some distressed and opportunistic investing after the GFC or at these auctions, and I said to myself, if I'm an investor and I'm an advisor, which I am now, you know, would I want to try to go do that myself when I could just find a great partner to do it who's got a better competitive advantage and a better moat and better all the way around, right? And that's the beauty of being able to have these conversations for me at ATL Alts and with our firm is that we are like heads down every day trying to find groups that are doing, you know, within one of those big verticals, real estate, you know, what have you, credit, but doing it in a way where they've got an unfair advantage over everybody else. And so this conversation to me has really illuminated a lot of different things that you've layered into your platform.
Andres Sandate:So I really appreciate it. I want to ask you Kai, how do people learn more? How do people understand how they can get engaged further with all the different things you guys are doing.
Kiah Hochstetler:Yeah, so you can reach out at kiahtaxsaleresources dot com. And from there, we can get you a link to our investor portal that has our PPM and all the investment docs that go along with that and happy to set up a call as well. There's a schedule call link in there and we can talk about the opportunity at hand. There's always questions that come up with these things, especially when you get into the alt space. So we can drill down into those and talk about some of the specific assets.
Kiah Hochstetler:And yeah, happy to share the model with that and, you know, let people know anything else that they want. The other highlight that's around who Brian and I are is that we both bootstrap both of our companies. We didn't take outside funding. These companies weren't built off of investor dollars, and we stayed in bootstrap lane and grew for an industry. And this was the natural organic next step for where we're at today.
Andres Sandate:Yeah, fantastic. Well, Brian, Kai, I really appreciate you sharing an hour plus with us here today on ATL Alts. I will absolutely make the show available to listeners on both ATL Alts and our asset backed platform because I think there's so many aspects of the conversation which are very relevant. The show notes and how people can get in touch with you and how they can learn more. So with that, we'll wrap it up.
Andres Sandate:I appreciate your gentlemen, you know, both your time and continue to wish you guys the best of luck with what you're doing at both TaxSell Resources and Mountain North Capital.
Kiah Hochstetler:Well, thank you.
Brian Seidensticker:Thank you. Thank you, Andres.
Andres Sandate:Thanks, guys.
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