106: How To Build & Scale A Real Estate Empire in 2024 With Expert Investor Scott Pennebaker

Today, join us as we explore the world of real estate with Scott Pennebaker, a visionary in the field of real estate investing, wholesaling, and the integration of technology in property dealings.

Facing the challenges of the COVID-19 pandemic, Scott adapted his business model, emphasizing the significance of pivoting strategies in uncertain times. His venture into wholesaling marked a turning point, leading to the creation of a multimillion-dollar business empire.

In 2021, Scott’s company took a significant leap with a $65 million capital infusion, marking a new phase in his entrepreneurial journey.

In this episode, Scott shares his insights on scaling a real estate business, the lessons learned from early management challenges, and the crucial role of private equity investment in business growth. He also delves into the complexities of software development in the real estate sector and how it complements traditional transactional business models.

Discover Scott’s unique approach to navigating downturns in the real estate market and his vision for the future, where software and transactions run side by side, potentially reshaping the landscape of real estate investing.

Inspiring Quotes

• “In 2020, when COVID hit, we were locked out of college campuses. So that’s when we pivoted all our resources and energy full-time into wholesaling.” – Scott Pennebaker
• “You have to be laser-focused. And we talk about that, and I come back from the mastermind meetings… but at the same time, it’s very easy to get caught in the weeds and lose the forest between the trees.” – Scott Pennebaker
• “We could bully the business between Brandon and Al and I to about 10 million, but to get to 25 million, it’s going to take a lot more of an army… we’ve had to learn how to manage people, how to bring people in and put them in the right seats.” – Scott Pennebaker

• 00:00 Introduction to Scott Pennebaker and his real estate journey
• 04:20 Pivoting strategies during COVID-19
• 08:33 The evolution into wholesaling
• 12:47 Insights into private equity infusion and its impact
• 17:30 Challenges and successes in scaling a real estate business
• 22:15 Exploring the integration of technology in real estate
• 28:04 Navigating the real estate market downturn in 2023
• 32:50 Future of real estate: Balancing software development with transactions
• 37:28 Closing thoughts and key takeaways from Scott’s journey

Brad Weimert (03:02.996)
Scott Pennebaker. It’s great to see you virtually here and it was great to connect with you a couple of weeks ago.

Scott Pennebaker (03:06.998)
No, that’s good. You don’t want to butcher it right out of the gate.

Scott Pennebaker (03:17.099)
chore.

Scott Pennebaker (03:32.566)
Yeah, awesome, man. Thanks for asking me on. I wish we could have done this, you know, in person while we were in Tampa, but, you know, we’ll make the best of it, um, through a computer screen. We’ll still have a good time. I promise.

Brad Weimert (03:42.3)
We in fact, yeah, I believe that we in fact got distracted by Hulk Hogan, as I recall.

Scott Pennebaker (03:49.086)
Indeed, that is correct. I couldn’t miss my childhood. One of many childhood idols, right? Just the opportunity to see, see the Hulkster.

Brad Weimert (03:51.38)
Which is-

Brad Weimert (03:58.68)
Yep. Well, it’s a strange starting point, but we met at a mastermind event for real estate educators, largely, and also, you know, the vendors that are tied into that ecosystem, Easy Pay Direct being one of them. I wanted to talk to you because A, the organizer of that event suggested that I have you on which is an awesome endorsement anyway, but B,

the real estate investment market is always an interesting one for me to talk about because I am actively involved as a real estate investor and the different niches inside of real estate investing, you could spend a lifetime diving into one of them. So I love uncovering kind of the nuances of how different models work.

Before we get into the specifics, can you give me a little bit of background and then bring me kind of up to today with Rebuild, which is the core company right now? Like, where’d you come from and how’d you end up there?

Scott Pennebaker (04:57.678)
Sure.

Scott Pennebaker (05:01.09)
Absolutely. It’s interesting you say that there’s so many different ways to be involved in real estate investing, because that’s true. A lot of the gurus or the coaches that we know, they start with teaching wholesaling, and then they teach fix and flip, and then buy and hold. It’s kind of the order of operations. I actually started investing differently. I started with buy and hold, then was doing some fix and flip, and now I do 100% wholesale. So.

I actually had a college textbook company. We wholesale textbooks from 2015 to 2020. And that was an interesting business in itself, but when in 2020, when COVID hit, we were locked out of college campuses. So that’s when we kind of pivoted all our resources and energy full-time into wholesaling. But I started as an investor in 2010. So I was running both businesses side by side. Again, just bought a few rentals.

Then started doing some, some fix and flips, lost my tail on, on a couple, projects, kind of my last two large fix and flip deals. I’m like, I’m just going to buy rentals. It’s easier. I don’t have to have as many people impacting my bottom line. There’s not, uh, you know, inspectors and appraisers and realtors and, um, you know, all these folks involved that, that don’t have as much risk or skin in the game as they do on the flips. I realized flipping is hard and it’s really hard to scale that. So between 2015, 2018,

We bought about 150 rentals mainly from wholesalers. I have two partners in this business, Al Young and Brandon Devlin. They were actually partners in my textbook company from about 2012. Brandon and I reconnected from a sales company we did door to door in college. And then his cousin Al was working at BlackRock. He met Al actually at the conference. He was working at BlackRock as a director for the previous 10 years. Prior to that.

Brad Weimert (06:31.754)
Mm.

Scott Pennebaker (06:55.702)
And so in 2015, they became equity partners in Recycle a Textbook, and we started buying rental properties from wholesalers. 2018, we’re like, man, we paid these wholesalers a ton of money, this might be something we could probably do ourselves and source direct to sellers. So we hired an intern from University of Kentucky, started sending out mail, taking calls, running appointments. We initially were sourcing for ourselves because we were rebuilding communities, kind of the rebuilt thing is where the name came from.

But we realized quickly that we couldn’t take down all the properties that we were getting good contracts on. So we started assigning them to people in our network and we’re like, man, this is actually more scalable than having a bunch of rentals or then doing a bunch of fix and flip. So really in 2020, when COVID hit and kind of wiped out the textbook business, we focused to go all in on.

on wholesaling. And so our second office was, our first was in Lexington, Kentucky, where I am. Our second was in Philadelphia, where Al lived at the time, and our third was in Nashville. And so about that time, we realized that, you know, with textbooks being shut down, we were able to approach some of our top sales reps in that company and say, hey, do you want to learn about wholesaling or about real estate? Because we’ve been doing it kind of part-time since 2018.

And they’re like, sure. And so that’s why we ended up opening an office in Austin, Texas. Later San Antonio, as we were able to repurpose some of our sales reps from the textbook company to help us grow the wholesale leg, the wholesale business. So now.

Brad Weimert (08:25.044)
Mm-hmm.

Brad Weimert (08:33.8)
Awesome. And so for clarity, yeah, so for clarity for people that don’t know, um, wholesaling the, you were, uh, originally investing in real estate yourself and, uh, creating a rental portfolio. Is that what the initial proposition there was? Got it. And so there are different ways to find those opportunities, but basically you were going to these people that were wholesaling properties, which means that they would go find the deals.

Scott Pennebaker (08:49.826)
That’s correct.

Brad Weimert (09:02.132)
but didn’t have any interest in actually doing the deals. They would just find them and buy them at, or lock them up, contract them at a certain price, and then sell the contract to you at a little bit more, and they would make that margin. And that’s functionally the wholesaling model. And at some point you thought, why are we spending all this money paying these people? We should be able to find these deals ourself.

Scott Pennebaker (09:25.57)
That’s correct. So yeah, we were like, let’s cut out the middle man and do it ourselves. And then quickly realized that, you know, rental property is a get rich slow business. So in 2018, kind of something else happened is that textbooks, a lot of that started moving digital. And we had a, you know, we had a eight figure a year textbook wholesaling company, you know, where we sourced on college campuses all over the country and then sold on Amazon and eBay direct.

Brad Weimert (09:27.401)
Got it.

Brad Weimert (09:41.388)
Mmm.

Scott Pennebaker (09:55.15)
to students, so it allowed us to have a campus bookstore pretty much on every campus by having an online marketplace. But what we realized is everything started pushing digital and if we didn’t have any rights to any digital content, so if there was no physical textbook, then we didn’t have anything to sell. So that was the time we started leaning more into real estate, but then we had all these rental properties but they’re all leveraged at 80% with mortgages on them

kick off a ton of cash. If you make a couple hundred bucks a door, you’re lucky. And Al, Brandon, and I, we’re all happily married, eight kids, wives who like nice things. We’re gonna have to create cash flow, and rental properties aren’t gonna do it. It’s a long-term play. And so that’s when we decided, we know we don’t wanna fix and flip, but we know that we could wholesale and actually create revenue. So now we’re in 12 markets across six states, mainly across the Southeast.

Brad Weimert (10:56.072)
Got it and are you still building a portfolio of rentals?

Scott Pennebaker (11:01.962)
We are slowly, but not as aggressively as we were. We’re opportunistic. We look at more multifamily. We have some commercial deals, things like that. So stuff with a little bit larger spreads on it.

Brad Weimert (11:14.272)
Awesome. So I want to dig into the wholesaling model and scaling it because there are a lot of people that as you mentioned, teach wholesaling, but all of their revenue really comes from being a guru, right? It’s like educating people and then teaching them the model, not actually creating an eight figure business by wholesaling. So can you break down the model for me? And also just for frame, I read that last year you did 600 deals, which is two a day.

Scott Pennebaker (11:43.138)
That’s right. Yes.

Brad Weimert (11:44.284)
Which is wild. Where what? What’s the what’s the tempo this year in 2023?

Scott Pennebaker (11:52.802)
You know, we’ve been smacked in the face, like everyone in the kind of the real estate industry. We’re probably tracking down 25 or 30% year over year. But you know, the good thing is it’s allowed us to kind of slow down and build a stronger foundation. We formed a lot of bad habits in a hot market, right? You could just put property under contract. You didn’t have to negotiate it as much with sellers. You threw it up on a Facebook page and investors were clamoring for it. So.

Now you actually have to work on your disposition and finding investors that will buy them. And you have to actually train salespeople out to sell and to buy properties for deeper. And really it’s just explaining to sellers, we do all belly to belly. So we’re actually in the home with the seller sitting down with them. We’re walking the property with them. We’re filling out a repair estimate form with them. We’re sharing comps with them and showing them what a fixed up house in the neighborhood sells for. This is how much it would cost to get it there.

This is the type of margin that our end buyer is gonna need to be looking for. And then we create an offer right there on the spot. So my background was really in direct sales, door to door is where I cut my teeth in college. And so that was Brandon as well. So we like being in the home with the seller. But that’s hard to scale to your point, you know, because we have to have boots on the ground in every office. We need at least one or two acquisition people, a Dispo person.

And then we have regional sales managers that oversee about two or three offices apiece. So creating that boots on the ground model is definitely a lot more challenging than a virtual model where we were just working the phones and could put property under contract over the phone, send out an inspector, get the photos and then start to market the property and retrade it if necessary. We are working towards doing both a virtual model as well, but we also started with the boots on the ground.

The setup is, you know, two to three people in a local office. Um, like I said, with a regional manager over about three offices. And then, um, above that we have a director of sales and then above that a VP of sales. So it’s just funny to go from like in 2020, we were like seven employees by the end of. Or midway through early 2022, we’re like 70 employees. We’re at about 70 right now. So.

Scott Pennebaker (14:19.414)
You know, I come from like a small business background. And so to think that we could grow that quick and scale that quick definitely shows opportunity, but also shows that we kind of rode that, that COVID wave. And this year we’re slowing down, building a better foundation, getting sales training and SOPs in place, KPIs and really holding our sales guys accountable to things like that. And I think that’s what was missing.

in the past. It was just kind of more run and gone, but now we have a lot more structured sales organization.

Brad Weimert (14:55.001)
Fascinating. So there are, I love drilling into these things because there are a couple different types of entrepreneurs and one of them are the really tight operators that everything is systematic, the SOP is in place or it doesn’t happen and the other are the complete opposite of the spectrum and you just said run and gun but it is just do it and grow.

And it’s a good lesson for everybody because there isn’t a right way to do it. And you can get a long way. Um, just taking action. Um, what do you think the biggest mistake was through that growth curve, you know, to get to 70 employees and yeah, you had a hot market, yada, but whatever. Uh, what was the mistake? What would you have done differently through that initial scale? If anything.

Scott Pennebaker (15:50.018)
So, and I hadn’t mentioned this, but I should back up. In October of 2021, we were talking with a private equity firm, approached us, they’re named LL Funds, and they were the lead investor in Offerpad. And so they sent us a term sheet in the summer of 2021. We kind of went back and forth and we, and Alan Brandon and I, and even they were upfront, they’re like, are you guys willing, do you really want to take on VC money? Because

You all could continue the way you’re going, you know, with a handful of offices and probably make more money year over year for the next 10 or 15, 20 years, however long you wanna do this as individuals, or we can pump a bunch of money into the company and we can grow something huge and try to have a life-changing event in five to seven years. We’re all in our low 40s, early 40s, so we’re like, let’s take a shot. Not many companies get an opportunity, so.

We got a term sheet from LL. We raised 65 million in 2021. 15 was in equity and 50 was in debt. And so 15 of that bought a third of the company and then 50 million is aligned to actually grow the business. They’ve been a great strategic partner in the event that are in a lot of different ways. For one, they’ve seen the movie. They took Offerpad public and they love the real estate space.

They really liked our model because it’s balance sheet light. So we’re not housing a bunch of properties on our balance sheet. It’s not as cash intensive. And they’ve introduced us to some great people that have been able to guide us and advise us along the way. And some of them still consult for us. The biggest mistake, though, I think early on is that we took people that were good at sales, like field sales and doing really good in their market and promoted them to management.

where they really had no management experience. And so we gave them almost like an impossible task to like move, we wanted to promote from within and show that you can move up, but with really no management experience, it’s totally different than just doing field sales. So now we’ve restructured and actually found some great people. And part of that was, it was hard to hire coming out of COVID and to find people.

Brad Weimert (17:44.128)
Mm.

Mmm.

Scott Pennebaker (18:11.694)
So we just kind of worked with what we had. But now that the market has softened, we’ve been able to find some great people from companies, big companies that have been laid off just because of the way that the market shifted and there’s not as many job opportunities in that sector. So that was probably the biggest mistake early on and we’re still trying to climb out of that, but just the last three months, we’re starting to see another.

kind of hockey stick growth. And I think that is because of the management, we’ve gone out and actually hired professional sales managers that have run orgs of six, 700 people, and they can easily manage our 30 sales reps. But that would probably be the thing that if we could go back with a crystal ball and we would have just gone and tried to hire that talent, you know, upfront, versus trying to live through and burn through so much money, trying to push.

management for people that really didn’t have the experience.

Brad Weimert (19:12.861)
The conversation of bootstrap versus VC or PE always leads down interesting paths. The motivations behind each path are interesting. The emotional triggers that guide decisions are interesting. When you think about hiring on more experienced management to…

manage the salespeople, if you would continue down the bootstrap path, would that still be a choice you would make or is that decision contingent on bringing on what sounds like kind of a shitload of money for the existing operation?

Scott Pennebaker (19:54.866)
It’s 100%. I mean, I think we could have gotten by on a more bootstrap with less experienced managers. But when you’re targeting a Series B, you know, they want to see who’s going to get us there and what experience do they have? What pedigree? Why should we give you more money? You know, so who are we going to war with basically? And so it’s really important that you have experienced people and operators with a track record.

that you can put on your pitch deck when you go out to raise additional funds. And, you know, good people are expensive. And when you’re a bootstrap company, that’s another thing that you’re highly, I guess, careful with. But we’re careful with that now as well. You know, you still just can’t, you know, frivolously throw money at people. They have to be able to produce.

I’m really happy with the group we have on the sales team now, and it seems like we’re starting to see the results of it.

Brad Weimert (20:58.836)
So,

Brad Weimert (21:03.456)
I could ask you more about the PE thing, but I want to come back to that I think in a little bit because when we first started talking and maybe it was actually before we pressed record but you told me you’re the growth officer. So you’re one of three partners in it and you’re responsible for growth. When we started talking about that, you led into kind of different products that in some capacity are vertically integrated. And

In some cases, maybe you wouldn’t define it that way, but you’ve got this core wholesaling business that you’re scaling and the model functionally are these pods across different local environments that are going out and finding deals belly to belly and that is the growth plan. When you think about scaling it.

Brad Weimert (21:55.54)
How do you think about just replicating that versus adding on other products to generate revenue in addition to it? Where’s the focus? Why do you make one choice versus the other?

Scott Pennebaker (22:05.314)
Sure.

Scott Pennebaker (22:09.07)
So my focus as the growth officer, I guess kind of back up, there’s the mother company, it’s Rebuilt Holdings. And so there’s a lot of entities underneath the Rebuilt Holdings. There’s Rebuilt Offers, which is our cash offer business. There’s National Title Services, which is our in-house title company. We have Rebuilt Capital, which is our lending arm. We do bridge loans for investors. There is Rebuilt Realty, which is our brokerage for retail sales, traditional brokerage.

There’s Rebuilt Properties, which is our SFR. It’s our holding company. You’re asking if we still buy stuff to hold. That’s under Rebuilt Properties. And there’s Rebuilt Technologies. And the Technologies company is one that we’re really excited about right now because we’ve just launched our marketplace, marketplace.rebuilt.com. It only houses Rebuilt buying opportunities right now. So there’s about 80 properties that we have.

at all times, we get about 80 to 100 properties a month on our marketplace. But in Q4, we’re opening up the opportunity for other wholesalers to be able to post their inventory on our marketplace. And then we’ve integrated title, so an investor in New York could buy property in Texas and be able to find the property on the marketplace, get their title services through the marketplace, if they want to apply for a loan.

through Revolt Capital, they can do that through the marketplace or any other affiliated lenders. We’ll have insurance tie-ins, we’ll have property management tie-ins, construction tie-ins, kind of a Shopify model for real estate investing. So that’s really the exciting piece that’s getting us to the unicorn of a billion dollar value, but the transactional business and having proprietary inventory, the transactional business is only gonna get you a multiplier, maybe one to two times EBITDA.

But a technology in a SaaS based business can get you a 10 or 20 X return, right? So you have to pair those together. But the transactional business is really important. For one, it provides proprietary inventory on our marketplace. So we’re not relying on other wholesalers to drive inventory to our marketplace. A second reason is that we’re actually in the field doing this job. So when we start to pitch other services like Tidal and lending to our wholesalers, we know what you’re looking for.

Scott Pennebaker (24:37.75)
because we actually built those companies for ourselves. We know what out of the title company you need someone that can do novations and 1031 exchanges and all the investor friendly stuff that most typical title companies only wanna do arms link transactions on retail sales. The investor stuff takes a little bit more knowledge on that side. So my focus really is trying to drive growth and outside title business.

So Rebuild, we attach already 90% of our deals to, we give them a national title because it only makes sense and they’re working for us. I’m driving title business to rebuild, or the national title, lending business to rebuild capital. And our brokerage is more of just another product offering. So if we’re in the home and we say, hey, Mrs. Jones, it sounds like you want the most money.

and you’re not in a hurry, this honestly would be a better fit for our brokerage. We can list the property for you. So that’s really what we use the brokerage for mainly. And then the properties is just a holding entity for anything that we buy and keep. And then there’s a technologies business that I spoke about initially. So I attend a lot of these conferences and masterminds where we met to really try to talk to some of the coaches about affiliate programs for them to refer.

business over to us for lending, to do transactional funding for wholesalers and things like that. And to just have relationships with people in the industry that have a large audience and to try to grow through their networks.

Brad Weimert (26:19.292)
So I guess one of my points of inquiry here is at what point did you start expanding into other product sets? So you mentioned purely a real estate investment strategy here starting with buy and hold and having a rental portfolio, then you moved into wholesaling. As you started to expand the wholesaling, when did you add title? When did you add the rest of the equation? And it sounds like technology came last and I wanna hit on that in a second, but first just how did you expand from

you know, it being a small million dollar a year business to multimillion and beyond.

Scott Pennebaker (26:56.47)
Yeah, so Tidal really was started out of necessity. When we had multiple markets trying to manage multiple Tidal companies was a nightmare because you had different points of contact. And another thing is that a lot of the files that we get and properties that we get, they just have some hair on them. You know, they have unreleased liens or unreleased mortgages. There’s a bunch of heirs. They haven’t been through probate or they need a little hand holding.

you know, as a wholesaler, you’re not just a real estate investor, you’re kind of also a social worker. So you’re like trying to like find a place for people to move. You help them with moving expenses, especially when their owner occupant occupied properties. Right. So the title was really, we formed it out of necessity, not so much as to be a moneymaker. It just happens that you can make money in title. So that’s, um, was fortunate, but now we have one company

Brad Weimert (27:28.648)
Yeah.

Scott Pennebaker (27:49.858)
with kind of one point of contact, that’s open Slack channel on our internal messaging, and it just makes the whole transaction a better process. A lot of title companies, like I was talking about, just wanna do arms link transactions. They don’t wanna run down a bunch of errors and deal with that kind of like the heavy lifting that it takes on some of our files. Plus the way title companies make money is through title insurance premiums. Most of the properties that are investment

properties are under 200,000. The title insurance is based on that sale price. So, you know, if I’m in a title company in Tennessee and Nashville, I’d rather do million dollar homes in Brentwood that are arms-link transactions that I can sell huge title policies on than a bunch of crappy, you know, stuff on the East side. So it just made sense for us to bring the title in-house. And then now we’ve built it to where we can actually take.

about 40% of our files every month now come from outside entities. So any companies outside of rebuild. And I really like to get that to about 80, 20. I’d like 80% because I think the title company can stand on its own. I’d like 80% of the, um, the title business to be outside files and then 20% to be rebuilt as we’ve grown or as we continue to grow. And then, um, the capital really,

You know, we were always doing lending early on at a smaller scale. But when we raised that $50 million line, that gave us the ability to, to open lending up a lot more. So that was just an opportunity because we had the money.

Brad Weimert (29:21.481)
Got it. Okay.

Brad Weimert (29:25.788)
That makes sense. So I asked this, you know, the genesis of this question is that many, many entrepreneurs struggle with, I’ll call it shiny object syndrome, myself included, right, which is something pops up and you’re like, oh, we should do that. And you want to run in that direction and execute really quickly. And very often, the answer is just do more of what you’re doing.

Scott Pennebaker (29:42.288)
Mm-hmm.

Brad Weimert (29:52.444)
You don’t need a shiny object. You don’t need a new business. You don’t need a side hustle. Do more of what you’re good at and get better at it. Right. And that will yield a bigger business that’s more stable. Um, that’s more scalable. Uh, so when you talk about the title, that sounds like it was an operational deficiency, like it was actually slowing down operations. So title was necessary to be able to move at the pace that you wanted to move at. Um, and you answered some of these things.

Scott Pennebaker (30:13.144)
Yes.

Brad Weimert (30:19.892)
But I guess how do you think about sort of these new elements of the business, pre-money? Did you add anything else on pre-money or how do you think about that approach of shiny objects versus just keep your fucking head down?

Scott Pennebaker (30:34.486)
No, you’re exactly right. And I see that all the time. When I go to some of these masterminds, we all have breakout rooms and then opportunities to get up and speak about our business. What went well last quarter? What challenges did you face? And myself included, but I hear folks always like, hey, last quarter I bought this RV park, like a state over and I’m trying to do this ground up development.

and I’m wholesaling a few deals, and I got to hire a couple new people, but like everything just seems like none of it’s gonna get finished, right? And it’s because there’s just too many distractions, and there’s so many different ways to make money in real estate to your point, that you have to be laser focused. And we talk about that, and I come back from the mastermind meetings, and I’m probably the worst one, because I’m in the senior leadership team meetings, and I’m like, oh, I learned this, the virtual wholesaling’s one. Like, hey, we should be doing virtual. I’m like, we need to fix.

boots on the ground selling first, right? Or I’m like, hey, we need to add more PPC to our marketing. And they’re like, we don’t have a lead problem. We have a conversion problem, right? And so, you know, when I go to these conferences, I always come back with fresh ideas, but at the same time, it’s very easy to get caught in the weeds and lose the force between the trees, I guess. So that’s a very good advice, Brad, that you bring that up is that if something’s working, just go deeper.

We found that in some of our markets we were a mile wide and only an inch deep. And so we’ve opened and shut different markets or closed and kind of reopened markets over time, just to try to get as deep of an attachment into our current markets, we were thinking we would have 25 markets by now, but you know, we haven’t been able to prove that we can go super deep and attach title and attach lending at the pace that we would have hoped.

I think if things wouldn’t have shifted in the macro environment, we probably would have opened more markets quicker. But at the same time, we had such bad processes that I’m kind of glad it did slow down so we could build a stronger foundation.

Brad Weimert (32:48.058)
Yeah, I think that’s the mature entrepreneur speaking there. It’s the self-awareness of…

Scott Pennebaker (32:55.707)
I’m a visionary, so I’m always living in the future, right? And I’m like never content with the present. Al’s more the operator, so that’s good.

Brad Weimert (33:02.076)
Yep, I hear you.

Well, speaking of that, when you think about the future, you mentioned the new software product. And so you’ve painted the picture of kind of scaling this pod, local environment, getting more deals. And you talk about bringing on money and where the exit is. And the multiple on the exit for a wholesaling company is nothing compared to on a software company. And right now, and you know,

Brad Weimert (33:36.292)
Might be 10 or 20 acts on exit, but in hot markets, there are, you know, 50, 60 exit on software products.

Brad Weimert (33:49.32)
Had you considered doing software before you brought money on, or was this a pivot that was sort of formed by PE and Fusion and necessary for the next phase?

Scott Pennebaker (34:03.286)
It was definitely formed by PE infusion and necessary for the next phase. You know, initially we had solutions for just say acquisitions, but we were using, I don’t know, like most wholesalers were using 10 to 12 different third party applications and softwares to run our acquisitions or even just run our wholesale business. You know, the private equity firms, our board is like, you guys can’t go raise a series B using other people’s

third party applications, you have to build it in house. So, you know, we probably spent a million bucks in the first year building like a CRM and different things that we already had a solution for. So it was like super frustrating at my eyes because I’m seeing all this money being spent on something that’s just solving what is not making it any better than what we already had. However, one thing as it was built and I started to realize and play with it, for one, we were able to condense, you know, six softwares, 10 softwares into one application.

that we built for ourselves that every other wholesaler needs and that very soon can become a SaaS product. So that’s something that we’ll be able to roll out to the marketplace and say, hey, eliminate these 10 subscriptions. We have one application that can do all of that for you. So it’s exciting to see that kind of come together and come to life. But I don’t think we would have made the investment. I know we wouldn’t have made the investment if we were still bootstrapping it.

not had done a capital raise. There’s definitely, they made a good point by saying you can’t go raise more money on the backs of someone else’s development.

Brad Weimert (35:43.02)
You are a salesperson and a real estate investor and a wholesaler. How has your foray into software development been?

Scott Pennebaker (35:57.27)
I just stay, I know my lane, Brad. So I stay out of that. That’s another episode for Al. Al actually is, has headed up a lot of that. And then it’s, you know, we, we made some bad mistakes even on the front end, just with personnel that we hired early on to come in. And, you know, in my experience, kind of from the outside looking in at software development, it always feels like two steps forward, three steps back. Cause even when you have to like,

Brad Weimert (35:59.848)
Ha ha ha.

Scott Pennebaker (36:25.458)
move around personnel or whatnot, then the next guy comes in and he’s like, oh, well, why do you do it this way? You know, it should have been done this way or this wasn’t done right. So now we got to untangle this and rewrite it this way. And it’s almost like when you bring in a plumber on the job after the framer, and he’s like blaming the framer for everything being out of, that’s not level or it’s not square and things. It’s just a bunch of finger pointing. So.

You know, I don’t have any background in technology. I mean, I know how to use this stuff. You wouldn’t think so for as trouble if I had to get on your podcast here with the software. But I’m an operator. I’m definitely not a developer. And so it’s been cool to see it come to life with the Rebuild logo on it and use the tools day to day. But it’s definitely been stressful and expensive for software development.

Brad Weimert (37:04.16)
Ha ha ha!

Brad Weimert (37:23.568)
Yeah, I mean, I largely ask because my I mean, correct me if I’m wrong, but Al doesn’t have background in building software either, right? So did you bring on a CTO? Did you outsource the development? Like this is a very common challenge that both entrepreneurs have had and also are going to continue to have moving forward with the need for differentiation.

Scott Pennebaker (37:33.355)
No.

Scott Pennebaker (37:50.274)
We brought on initially, we were looking for a head of product and a head of engineering and we brought someone on that we thought could do both. Since we unwound that, we just brought in a head of engineering and we actually just recently hired him. He was formerly at a large company called Sunday up in California.

So we were bringing him on after he left there and he starts in like a week on the 16th. So we’re excited to have him on the team. In the interim, we brought on a chief of staff who had background in software development. And so he brought his team over, some were onshore, some were offshore. And they’ve been able to do a lot in a short period. And so we’ve rolled out the marketplace.

We have a field app coming that our sales reps in the field will be able to use all through an iPad, do their sales presentation, their repair estimates, get documents signed in the field. So we’re excited to see all that roll out. So they’ve done a lot with a little in a short amount of time. So I’m glad, I’ll be excited to see when the new gentleman starts with his experience and background to kind of pour gasoline on the fire and see how quickly we can start rolling out products. But you really need a product person pushing a lot of that stuff.

Brad Weimert (39:15.824)
Yeah. Well, software development, I mean, as you mentioned, maybe that’s a, uh, an episode for Al, but when you look at kind of opening the door to how to develop software, um, man, there are a thousand different ways to do it. And some people are very deliberate in their approach and follow some framework. Some people shoot from the hip and seem to run. And.

it’s similar to kind of the bootstrap conversation versus the PE conversation or VC conversation, there doesn’t seem to be the best way to do it or the right way to do it. There seem to be good and bad points to both. So I love digging into the nuances there, as people stumble through it and try to figure it out. Because even the people that you think have all their shit together. They don’t

Scott Pennebaker (40:06.306)
No, that’s right. They always want me to interview like the not like every engineer or person would bring on tech, but for like the SVP or VP roles on my I’ll just talk to them about their family and like their life and their work style their management style, but I can’t ask them any technical questions because it’s not really my wheelhouse. So hopefully somebody is asking those questions.

and figuring out what languages they write in and all that stuff. One thing I learned early on is that you have to document the process and you have to document all the code. It takes longer to do it, but if you ever wanna sell your software, there has to be really strong documentation of what you’re writing and how you’re writing it. And so that was some mistakes we made early on and we had to go back and unwind and take the extra time to actually, you know.

document that stuff because if someone else is going to come behind it and another team of engineers right on top of it you want it to build it set it up for success like that where it doesn’t have to be all unwound and rewritten.

Brad Weimert (41:15.478)
So you have a partner that came from BlackRock, which is a huge deal. Huge, huge, one of the largest organizations for those that don’t know.

Brad Weimert (41:28.496)
And maybe that informed some of the, you know, PE money that came in and what you were looking for. But did you assess any other PE options? How did you approach PE? What were you looking for from it? Like, what do you get from it today?

Scott Pennebaker (41:45.918)
Yeah, those are great questions. So honestly, we weren’t even looking for that as an opportunity. Al’s wife’s first cousin, AJ, who’s now our VP of Finance, but he was working for LL funds as an analyst and Al would see him at like Thanksgiving and Christmas and just kind of telling what we were doing with.

Brad Weimert (42:02.9)
Mm.

Scott Pennebaker (42:09.706)
Rebuild and you know how we put these properties under contract and find in buyers and some of the spreads we can get And he’s like man. I really think that Ll be interested in hearing about this, you know, they just Were about to take off for pad public And so that he made the introductions we really didn’t um Haggle or Interview with any other firms just because we like the vibe that we got from them. They weren’t like you know, um

more and more and more type guys. The good thing about the advice we’ve gotten from them is even like, go slow this year to go fast next year. And they’re not always just trying to build a strong foundation that you can show, you can put a dollar in and get $3 out and just a lot of good advice for scaling. And, um, you know, we could bully the business between Brandon and Al and I to, to about 10 million, but to get to 25 million, it’s

It’s gonna take a lot more of an army, right? And so we’ve had to learn how to manage people, how to bring people in and put them in the right seats, and how to just kinda stay in our lane. And that’s some stuff that they’ve really advised us on. I work in a field office with a couple sales reps and they wanna come to me and naturally I wanna give them advice, and I do on how to count properties and stuff, but if they have an issue, I’ve learned to be like, okay, you need to go talk to your sales manager.

and make sure I deflect some of that stuff and don’t, because the sales manager, if I tell them something that sales manager wouldn’t agree, they’re gonna just, as a founder, feel like my decision is the right decision. So, and trust me, it’s not, it’s typically not. So I wanna like make sure that we’re following at the right, the lines of communication. So that’s been something that private equity companies helped us with, with just how to run a bigger company and management reporting lines and org charts and.

you know, things that I had never had any experience with. But definitely Al’s background, he sits in the CEO seat and it’s great with interfacing with the private equity firm and presenting board decks and board meeting minutes and things like that is really powerful. He does a great job with that. Just kind of explaining the vision of where we’re going and how we’re gonna get there and what it takes.

Brad Weimert (44:32.256)
One of the common critiques with PE is that they, this is the critique, is that they are full of MBAs that have no operational experience. And when you mentioned that you have gotten some sort of guidance around management and leadership, is it coming from the people on the board that gave you money, or are they pointing you in a direction to get that guidance somewhere else?

How does that work?

Scott Pennebaker (45:03.758)
It’s a little bit of both. For example, the chief marketing officer of Offerpad sits on our board. And he has had four exits, you know, as an operator in marketing in different seats, one with Zappos, DoorDash, Offerpad, another large company called Coupang. So his advice has been very pointed and direct and very advantageous.

Um, and then even there, another gentleman that we interface with most at the private equity firm, it’s at all our board meeting, you know, he was an operator and sold his business. Um, and that’s how he got involved with this, this company. So they’ve definitely built businesses and sold them as operators. And I think that’s one thing that’s been super helpful is that it’s just not them.

And they ask a lot of good questions to kind of help us come up with the answers ourselves versus just telling us what, what they, you know, telling us direct. So it’s been a great learning experience and, and definitely enjoy having them as partners.

Brad Weimert (46:16.212)
Did you go into it expecting that? Did you go into it just looking for the money, or did you wanna have quote unquote smart money with it?

Scott Pennebaker (46:23.382)
No, definitely it was important to us to have a strategic partner, not just the money. Somebody that could really help us drive to what we were trying to achieve with that experience and knowledge. So, that’s one thing we’ve been fortunate to get out of that. That we hope from early on, just from our initial talks, was going to be the case.

Brad Weimert (46:47.512)
Awesome. Cool. So and that was you brought in money two years ago, almost

Scott Pennebaker (46:53.646)
Yep, two years ago, exactly, this month.

Brad Weimert (46:57.404)
So we’ve got a I’m gonna, I’ll call it a significant downturn in the real estate market in 2023 here. What is the roadmap from here? What’s the path to scale from here? So you’ve got a little dip in growth in 2023 as a result of the market. You’re still scaling out the pods across local markets to sell the deals, but you’re moving towards the software. Is software.

the dominant part of the future? Are you going to let go of the wholesaling arm? Do they run side by side? Does one, you know, outshadow the other in the future?

Scott Pennebaker (47:31.778)
They run side by side. We, we, yeah, that’s a great question. Um, I think software could out shadow transactional business at a certain point because it’s, um, you know, once we can get some momentum with, with getting some subscriptions and showing, um, that it works and what pain points it solves, you know, we can market that to, to companies all over the, all over the country, but.

It’s really important to transactional business because for one, it funds the software development. It pays the payroll. Um, so we’re not having to tap equity, you know, every month at a negative loss because we don’t want a lot of software companies, they just operated at a loss every year, every year, every year, just so that then hopefully one day they can make money what what’s appealing about the transactional business is actually already a business that makes money.

So it allows us to put more money into development, where otherwise we would just be spending out equity to do that. So having the transactional business is super important for the software development. And also to show that we can scale transactional business, that’s important to our investors to show that we can go deep. Their number one KPI is transactions, number of transactions. It’s not so much…

Brad Weimert (48:25.065)
Mm-hmm.

Scott Pennebaker (48:54.99)
like the spread per deal. They want to, they rather us do a small deal, an attached title and maybe lending versus a handful of large spread deals, right? So they want to see volume of transactions and how much market penetration we can get. And that’s what we’re proving out now on the transactional side, that we can institutionalize the wholesale business. You know, there’s been so many chucking of trucks. That’s the most wholesalers are just, you know, they took a course and

learned to send some mail and unfortunately gives Wholesale a little bit of a bad name because they don’t communicate well with the customer, the seller, or the investor. So that’s what we’re trying to fix and that’s what we’re on a mission to do this year and

Brad Weimert (49:30.4)
Mm-hmm.

Brad Weimert (49:40.948)
So they’re pushing you for both. Software and transactions.

Scott Pennebaker (49:43.466)
Mm-hmm.

Yes.

Brad Weimert (49:48.86)
Love it. Awesome, man.

Scott Pennebaker (49:49.122)
But our software complements our transactions. So, you know, and vice versa, transactions complement the software because we can give them good feedback. And so it kind of goes both ways. We’re building it for ourselves. So that makes it, you know, one of our goals with software is that it makes the field, field sales much easier. And it provides tools for, you know, to assist with that.

Brad Weimert (50:17.216)
Awesome. Yeah, I’m curious to see where it goes. The the software side of things, you know, at some level, the software is I’m not going to say easier to scale, but it’s less human intensive from a management perspective internally.

Scott Pennebaker (50:33.262)
Absolutely. You’re exactly. You’re exactly right. 100 percent. That’s that’s evident today.

Brad Weimert (50:41.596)
Oh, yeah, I believe that I believe that as somebody that has a full time development team in house, I can I can feel your pain on that front. But the running a sales team, it’s just a different ecosystem. You know, you grew up in door to door sales as I did. And I think probably the notion of a sales team that way came from that era of Oh, yeah, that’s how sales works. And software development is a whole different thing to run, which is not easy either.

Scott Pennebaker (50:43.222)
Yeah.

Scott Pennebaker (50:47.365)
Yeah.

Brad Weimert (51:10.516)
But once the software is moving, the lever there is pretty big. So I’m curious to see how the PE company approaches it once you hit that scale.

Scott Pennebaker (51:19.862)
Yeah, absolutely. It’s exciting. I’ve learned a lot for sure.

Brad Weimert (51:24.196)
Yeah, incredibly, man. Incredibly. Well, I appreciate you carving out time to talk, man. If people want to find out more about Rebuild or you, where do you want to point them?

Scott Pennebaker (51:33.826)
Yeah, our main website is rebuilt.com. My email is scottatrebuilt.com. You can find me on Facebook or Instagram, scott.pennebaker is my handle.

Brad Weimert (51:47.636)
Dig it. Scott, thanks so much for coming out time, man. We’ll hopefully get some more face time in the future here.

Scott Pennebaker (51:52.982)
Awesome, man. Thanks, Brad. Appreciate you having me.

Brad Weimert (51:58.044)
Love it. I’m glad that we made it work technically here. Ha ha.

Scott Pennebaker (52:02.294)
Yeah, man. Good. I appreciate you having me on and the opportunity to talk about the company and hopefully get some new users and subscribers and that’d be great. Really, you know, I’ve been taught that software stuff is such a slow development. Like I’ve been going to these conferences saying, oh, it’s coming, it’s coming, it’s coming. We’ll have the ability for you to plug in. And now I think it finally is getting close.

Brad Weimert (52:13.823)
Yeah.

Brad Weimert (52:28.42)
Yeah, I have a general rule internally, certainly externally, but even internally when we talk about new features for our staff, they’re like, when’s it gonna be done? And I’m like, I’m not gonna answer that. I’ll let you know when I’ve played with the beta and I think that it’s going into production, but you know, yeah. It’s…

Scott Pennebaker (52:43.198)
Hahaha

Scott Pennebaker (52:48.459)
Right.