We talked to David Friedman of Knox Financial about real estate during COVID-19 times and he had the following to say:-
First of all, how are you and your family doing in these COVID-19 times?
David Friedman: I have two children—an almost three-year-old and a one-year-old—so, as you can imagine, our family has been very busy. We’re very fortunate to have stayed healthy during these times. We’re all looking forward to a day when we can safely see friends, family outside of our household, and colleagues in person again.
Tell us about you, your career, how you founded Knox Financial.
David Friedman: I have more than 15 years of experience in starting and leading technology companies. After graduating from Tufts University, I founded Boston Logic and served as its CEO for more than a decade. At Boston Logic, I led the company to become a leading provider of real estate brokerage software. I sold Boston Logic in 2016 and continue to sit on the board. Boston Logic now operates under the name Propertybase and has clients in over 60 countries.
In terms of the idea for starting Knox Financial, a few years ago, I sold a condo that I’d lived in for 10 years. While I lived there, the value went up over $250,000. I thought that was pretty great! However, 4 years after I sold the home, the new owner sold it again for another $200,000 more. I kicked myself for selling when I had.
I had considered holding on to the home into an investment property when I moved out. But after looking into lining up financing and insurance, finding a tenant, collecting rent, and taking care of maintenance, I realized that keeping the home as an investment would be a lot of work. I threw my hands up and sold, only to regret it later.
In a self-deprecating way, I told this story to friends over the next several months. As it turned out, many had gone through a similar thought process, and almost all of them had reached the same conclusion and experienced the same regret every time they looked at how much their old home had gone up in value.
This caused me to think about the investments most of us make. We tend to gravitate towards equities—stocks, bonds, and mutual funds. I realized that lots of people leave investment decisions up to a financial advisor at a trusted financial institution, and there wasn’t anything like that for real estate investing.
So, we set out to build Knox Financial, a financial institution for property investors that automates and optimizes building wealth through investment property.
How does Knox Financial innovate?
David Friedman: In short, through data and automation. Knox has more data on the properties, owners, and tenants in our platform than exists anywhere else. We also aggregate data from 3rd party sources such as market trends, insurance costs, and more. This allows us to optimize investments to serve our client’s financial goals. Many of our customers are retired or will be soon, and they live off of the income from their portfolios on our platform. We use data and scale to bring them superior returns, savings and manage risk. Our team can instantly see everything from whether you’re underinsured to when major appliances will need replacement and how much wealth a Knox customer is projected to build over the next 20 years.
How the coronavirus pandemic affects your business, and how are you coping?
David Friedman: In March 2020, Knox was approaching its first full year in business, and every month more homeowners and landlords were putting their properties onto our platform that makes investment property ownership a hands-off experience. We were also just named Boston’s most promising new startup, closed a $3M seed round of venture capital funding, and were planning to expand beyond Boston in the early spring.
Then, the COVID-19 pandemic changed everything.
In mid-March, I led our team in making a series of decisions to help Knox weather the storm. Perhaps the most important was refocusing our entire team’s efforts on product development that would allow Knox to emerge from the spring as a stronger, more scalable company.
When COVID-19 hit, and the lockdowns started, we set a two-month goal. Very simply, we aimed to make our product dramatically more scalable—financially and geographically. To put it another way, we aimed to accomplish a year of product development in about two months. The result was a laser-focused, energized team striving to complete a large body of work on a short timeline.
Before March, Knox was available to Boston area homeowners and landlords. Because of our team’s incredible efforts in the spring, Knox is now available to homeowners and landlords in six states across the U.S…We’re well-positioned to continue our national expansion in 2021.
Did you have to make difficult choices, and what are the lessons learned?
David Friedman: Just a few years after founding my first startup in 2004, and bootstrapping it into a revenue-generating business with about 15 employees, the Great Recession descended on us. As I’ve navigated our team through an extraordinary year, I’ve thought a lot about how I led my last venture through the Great Recession more than 10 years ago and came out stronger on the other side.
Perhaps the most difficult choices I’ve had to make as a CEO, both in 2004 and in 2020, were around making budget cuts during periods when growth will be slow, at best. At Knox, this involved asking our super-star employees to take temporary pay cuts, reducing our planned marketing budget by more than 80%, and deciding against opening our first brick-and-mortar location.
Making these temporary cuts in the spring was painful, but they put Knox in a strong capital position to continue growing in the second half of 2020. Between June and November, we launched Knox in a number of states across America, hired 12 additional full-time employees, and tripled the portfolio of investment properties on the Knox Frictionless Ownership Platform.
How do you deal with stress and anxiety? How do you project yourself and Knox Financial in the future?
David Friedman: I’m a very solutions-oriented person. When a situation arises, that is unexpected or particularly intense. I try my best to focus on how to find a solution to the situation. This approach had served Knox Financial well, particularly this year when the whole world was turned upside down. I still get stressed—I’m only human. I know the stress will pass, and we’ll find a way to press on. We always do.
As we head into 2021, I can confidently say that Knox is well-positioned for dramatic expansion. We’re building an incredibly strong organization with an amazing product set. Knox will, one day, be known as the largest financial institution focused on helping people build wealth through property investment.
Who are your competitors? And how do you plan to stay in the game?
David Friedman: Our biggest competition is people who decide to DIY and take on all of the work themselves. It’s like investors who work with a trading app on their phone rather than working with a financial advisor.
The world will always have folks who want to make all their own investing decisions. These people often find themselves pulling together a combination of a la carte resources (accountants, financial advisors, real estate professionals to help find tenants, and property managers/maintenance folks). They learn quickly that property investing requires a significant time commitment and requires quite a lot of expertise to do well and avoid unnecessary risk.
As the first financial institution for property investors, Knox is the only company that optimizes all aspects of building wealth through investment properties. Much like Betterment is an automated financial advisor for its customers’ stocks and bonds, Knox is an automated financial advisor for people’s investment properties.
I’m honored that Knox has been recognized for its success over the last year. In December 2019, we were named Boston’s most promising new startup by The Boston Business Journal’s BostInno publication. We were also named one of the most promising startups in the U.S. in the 2020 American Business Awards.
Your final thoughts?
David Friedman: The Knox Frictionless Ownership Platform is currently available to homeowners and landlords in Georgia, Massachusetts, New Hampshire, Maine, Rhode Island, and Texas. We plan on launching in many additional states in the coming year.
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