Episode 111: The most effective way to win by saving with Juan Vargas – The Apartments Operators Podcast

Jason got his start in real estate investing in 2001 after buying his first duplex with his wife. From there he was able to grow his portfolio up to 300 units before he was able to leave his job in pharmaceutical and medical device sales in 2012. He currently owns over 900 units throughout the Erie, Pennsylvania market and he is under contract on another 127 units.

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Show Transcript

Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Hey everybody. Welcome back to The Operators podcast.

And today we have Juan Vargas. Did I say her name right? That’s correct, yeah. Juan Vargas. Yes. Yeah. Awesome. Welcome. Great to have you on the show. We always start our conversations with just giving the guest a few minutes to introduce themselves. And so tell us a little bit about you. What have you done so far, how your portfolio looks like?

Give us a little bit of a picture. Yeah. No, I definitely will. So I got my start in multi-family in 2016, right? So my start in multi-family was 2016. Before that I was doing single family. And so I got into some single family homes. But then I quickly realized that multi-family was the better option, right?

Multi-family was a better option. I’ll tell you why. It was because just basic math. If you’re vacant on a single family house, then guess what happens? , you’re a hundred percent vacant, and if you have a 10 unit, you’re vacant one unit down you’re still 90% occupied.

Yep. And so that was my reasoning and I was like, man, it just makes way too much sense to go into multi-family. So I got into a multi-family in 2016 that was through a 32 unit. And since then, I’ve been a GP. And over a thousand units. We have a deal right now under contract in Houston.

It’s a 264 unit deal. So that’s another 200 units. But I’ve been a limited partner as well, so I’ve been a limited partner in over a thousand units because I like to see what other operators are doing, other strong operators are doing, and I like to also, just keep the capital moving and keep the capital growing you.

That’s how you’re able to, I like that. The thought of that mailbox money, right? So if you have that mailbox money coming in and you didn’t have to do much for it, then it’s awesome. So I did a little bit of of each, yeah. Yeah, I know. I keep helping people understand that there is nothing passive about what we do.

It’s like, why do you wanna get into multi-family? I want passive income. What we do is not passive. If you wanna passive, you need to be on the LP side of things, right? If you wanna do what we do, if you wanna be a syndicate, if you wanna buy those and operate them themselves, there’s nothing passive about that.

Yeah. And you’re a hundred percent right about that. E even on the passive side, where, whereas it’s, almost, a hundred percent passive, you still gotta do what you know, look at the financials, right? You gotta at least look at the financials make sure that you understand, what’s going on and, ask questions, right?

I’m on both sides, so I see the both sides. But, understand the financials, understand what’s going on, understand the decisions that are being. Why they’re doing a certain thing, why they’re moving a certain way versus this other way. Why those things happen.

Because, it doesn’t mean that you’re gonna be an operator yourself or be active but you want to be able to understand where your money is at and what your money is doing, right? Yeah. But, speaking specifically on the active side there’s definitely nothing passive about that.

Cause there’s a lot of, every. Operations that you should be involved with. And so yeah, it’s, it is definitely a day-to-day type of activity. And I’m gonna say this real quick there’s something that, a lot of people out there they want. Be an active person, right?

They wanna buy their own deals. Why? Because there’s more money to be made, right? And we know that, right? There’s a little bit more money to be made. But there’s a reason for that is because there’s a lot more time and effort and with just a lot more involvement. That it takes to be able to make sure that you operate one of these these deals correctly.

That’s the kind of thing itself. Be careful what you wish for. Be careful what you wish for. Exactly. Is that gonna be passive? Sure you’re gonna make more money, but if your goal is to be, passive and to spend your time with the family at the beach and just travel the world, and then it might not be the best thing, right?

Yeah. Or you can be an active a passive active, where. there, there’s ways we, that’s a whole nother conversation there. But you can be a passive active where, you’re not the one of the main lead asset managers, so to speak. Yeah. There’s a lot of s e c questions going on around the passive active thing I would highly urge everybody that considers something like this to talk to a securities lawyer.

Exactly. Yes. Tell us a little bit about your organization. You’re a GP in a thousand units. Are you the lead sponsor in all of them? Are you the one that works with the property management? How does that look like in your world these days? Yes. So I am not the lead sponsor in all those, deals.

Other some of those deals I’ve participated the other activities, been, a, a la guarantor have helped. With some capital, just been involved in other different ways, but 550 about half of those units, I am involved, on an active role in an active role as a, as an asset manager.

And the deal that we have now this will be the third where I’ll be fully involved. And it’ll be, six, 700 units in that range. So yeah, that’s overall, viewpoint. Okay, great. So do you guys use third party or do you guys do self-management?

So we use third party. We have thought about in the future, maybe doing it in the future, maybe getting a little bit more vertically integrated. But for the time being we are gonna do just third party property management because those guys are the ones that understand the day-to-day operations more than we do.

And so we have to, be fully aware of, our expertise and our skillset. And so property management, is that one of. And we live it to the pros, for them to handle those day-to-day operations. Yeah. But you gotta, you’ll learn that pretty fast, . Yeah. Yeah. You sure will.

It’s, you find yourself learning the things that you didn’t wanna learn pretty fast. Yeah, exactly. It’s, there’s a lot of things that are involved that people don’t realize. It’s not until you, you actually do get to be involved in a property where you starts to see that, Hey man, this is not really what I signed up for, like you said earlier.

There’s a lot more things to it than people realize. Yes. And one thing for sure, this industry will teach you something new every single day. It, it will for the better or for the worse. It’s gonna teach you something, right? Yeah. One, one thing that’s a hundred percent certain and I wanna say this to everybody, passive or active, no matter what it is that you focus on one thing is for certain, a hundred percent.

Is that those projections, those performers that you see day one, whether you’re looking to invest in a deal or if you’re an active guy looking to, raise capital and take down your own deal, is that those projections are not gonna be right on. They’re either gonna be below or they’re gonna be better.

You know what? Whichever. But they’re not gonna be exact. . And and sometimes both, right? ? Yeah. Yeah. So sometimes both. Yeah. So it’s that gonna be sometimes it’s better. Yeah. Up and down, monthly. Yeah. Or yearly. But you’re never gonna be spot on. And so you have to, do your best to, to on the right, to the best of your ability.

And look at the historicals, that’s what we do. We look at the historicals and make sure that, Hey, what we have here is it reason? , is it sustainable? And so that’s how we are able to write our deals, awesome. So how do you go about are you guys in one market?

Are you guys in multiple markets? Yes. So we are in, in, in Houston now Houston, Dallas, Phoenix. And some of my my other GP deals that I’m not actively involved in are also in, in Dallas. And one Atlanta outside of Houston that I’m involved with. And then I’m a guarantor and another deal with, which is a tertiary market in Lufkin, Texas, so yeah the majority of the deals that we look at are deals that are in primary markets. And, there’s reasons for that, versus the secondary, tertiary markets. We just per, personally, like the primary markets more you. . Okay, so I’m going, since you’re using third party and you are in so many markets in multiple states, I’m gonna assume you don’t have just one property management.

Is that true? That is correct. That is correct. And yes, that’s another challenge that you have to look at, and does your third party property management company that you’re using are they active in those other markets that you’re also interested in, right? And if they are great, right? And even if they are, then look at what what other assets they manage in that same market that you’re looking at, right? If they’re not, if they have one or two deals and they don’t have a. Foothold on that market, then maybe they’re not the right, people to go with.

Maybe it’s, it’s better to look for somebody that’s local, that’s more local and, they’re headquartered there and they have, several deals and properties that they manage and oversee. So yeah, for us, we start off in Dallas. Our next deal after that was in Phoenix.

And our property management company from Dallas, they don’t manage in Phoenix. they specifically manage right there in, in the Arizona market. And they have a strong understanding of the, of that market that those. What goes on there. It was an easy decision for us, and the other thing about that was, our property management company that we use in, in, they’re in, in, in Dallas.

They are able to move to another market, right? If the deal, big enough they can certainly move, you have to really look at, how, if it makes sense, first of all, and if it doesn’t make sense, then they go with the pros that are in that market. And so that’s what we did.

Yeah. So that you answered some of it, but I want you to dive a little bit deeper about how do you go about finding and evaluating and selecting a third party property management? What’s important to you? What kind of questions are you asking? How how do you verify what they tell you?

What do you guys do? Yes that’s a very good question. So what we do is we look at, or we almost have referrals, right? So we, we have, luckily for us, we have a lot of colleagues that are in the business. And so a lot of it is word of mouth, right? And we start off with that, Hey, have you used this property management company?

How is the performance? How are your deals operating? How are they performing? You want to ask those kind of questions. Assuming that, they are an A, they have a good reputation and and those kinds of things. Then one of the things that you have to look at as well, in addition to that, is what type of assets that they’re managing, right?

And so one thing that we look at is if there’s a class, there’s B class, and a c. You don’t wanna get an a class manager to manage your c class property. Vice versa. You don’t wanna get c class manager at the manager. Your b plus property even B2C is a distinct difference.

Definitely. Because there’s different tenant profile, right? And so these managers they can operate maybe a b property, perfectly. And then they’ll do the best for that property, but then they’ll go to a c and a C is gonna be different. Why is it gonna be different? You have a different 10 base, you have a different demographics, you have d.

Type of terms the tennis demand different amenities for the property. There’s a different, it’s a different type of clientele, so to speak Absolut? Absolutely. So B and C are totally different. If I’m looking at a b plus asset, I’m gonna go after a b plus manager that has experience that has, that’s done it in that.

And same thing with the C. Just by the way, we don’t look at age, but, it just used it as an example. So that’s another example what we do and. Yeah, are they active in that market? And if so, then the other thing that we do is we, if it’s the first time we’re using them, then we get some referrals or we ask for an opinion from the local brokers that are operating that market.

And also the lenders have a, believe it or not they have a good. A good understanding of who is the right manager in a certain market. . So just get referrals is what I’m saying. And then also understand the type of asset that you’re buying because it’s not gonna be the same, with property manager to property manager.

Yeah, absolutely. And I can take it even a step further. I’ve seen that. The type of resident in your property right, or the ones that you’re gonna target is also important because if you’re targeting a 55 and older, it’s completely different than a community full of millennials. Exactly.

It’s a whole different kind of interaction and expectations from the tenant. and if you’ll take a company that managed workforce, a little bit of older properties and you try to give them a property that is full of millennials that have demands and at some time willing to pay more for what they’re getting, right?

, that’s gonna be not working very well. Hundred percent. A hundred percent. And for the listeners that haven’t listened to our previous episodes what Juan just said about making sure you find the property management that targets the class you’re buying is a repeat thing that we’ve heard from multiple operators.

And it’s just solid gold here. Don’t try to take a property management that manage a class and give them a b class with the expectation that they’ll turn it into an a class that doesn’t work. Unfortunately, the other way does work, right? You’ll take a c class property management into a B class property.

It’ll turn to a C class real fast, . So that’s just an unfortunate situation, right? That same portion side of it okay, great. Do you guys, what kind of profile of properties do you guys like, do you like the value add? Do you like them stabilized? Management plate? What is really your bread and butter?

Yeah, that’s a, that’s another very good question. So we like to look for properties. That, first and foremost, they’re stabilized, right? So stabilized. Now that being said, we’re not opposed to looking at a deal that’s, underperforming or not stabilized. We definitely have taken look at several deals like that.

If we and I’ll tell you why in, in just a second. But we look for deals that are stabilized. Deals that has some value add potential, right? For the last couple deals that we did these are deals that were value add from both a renovation standpoint and also an operational standpoint, right?

So the deal that we have now, this is more of a hybrid. This is the deal that we have in Houston. This is more of a hybrid. So the reason why I say that is because the owner or the seller had done a lot of renovations to the. And so a lot of the big ticket items were already done and taken care of.

And so it’s already performing property. They did some of, some renovations to the interior units. And so what does that mean for us? That means that we can. Go in there and continue that renovation program because the best comp is the property itself, right? You can look at other comps, yes.

But if the property is performing, and the other comps, do they do support it? But if the property is performing getting those rents, then that’s the best comp you can use. So this is more of a hybrid. And so it has it’s already a stabilized property performing well, and it has some value add potential as well.

So we, we like to see that, first and foremost. Now, going back to my first point, and, do look at some deals that are not stabilized, but we focus more on the stabilized deals. Why is that? Is because of the equity, right? Our equity they like deals that are stabilized. . So I think there’s a place and a time for everything.

It’s just right now, our equity, it, our investors, they like to see deals that are stabilized because it presents a little bit less, less risk for them, right? , and also for us, for everybody involved. Yeah. Now if I had some super aggressive investors and, they wanted some deals that, that were.

50, 60% occupied where, we could turn this property around, putting 15, 20,000 a unit into them, then that’s a different story, right? Then I will looking for that all day, right? Because that’s the strategy I have the guys that, that to partner with and to work with it, for that type of deal.

So that, that’s why we look for stabilized assets because, our equity we always think about what is, what do they want? Yes. And that’s why we take those kind of deals down. That sounds good. It doesn’t sound like a really heavy value add.

Are you handing that entire operation over to the property management, build the plan, this is what I want do, this is what I want you to do, and just hand it over to them for execution? Or do you have a separate way of executing the value? So we’re always involved in that, right?

So obviously they’re gonna be the ones that are gonna be in charge of the day-to-day , and making sure that we execute the business plan as we requested. And, when we have turns, that they get done, in a timely manner. . But ultimately, if we don’t tell them and we don’t stay on top of them and we’re not keeping track of the financials and seeing what’s going on, then you know, they’re gonna just do at their own pace.

So we have to make sure that we follow a certain guideline and we follow a certain that certain business plan that we have, scheduled for the property. Not that it can be done. So yes, it is yes and no. I would say, to answer your question, yes, they do it directly.

We’ll have to make sure that they’re doing their job correctly. In other. Yeah I’m just gonna reiterate something that you said here, right? It is kinda like you can’t just hand over the keys, right? It’s really important. Absolutely not. You stay on top of it and you check and you ask the questions, and you hold them accountable because I’ve seen a few operators or wanna be operators, just hand over the keys to the property management and it just ends up in a disaster every single time.

Absolutely not. You’re a hundred percent accurate in saying that. And I think that goes back to the original conversation that we had I think, starting the podcast was, be being active, being passive. Yes, you can be, you technically on the GP side.

but are you active or are you passive? Are you passive in that, you’re handing over the keys and then these guys just handle their own business and okay, whatever it goes, it happens, it’s okay, I’ll just report to my investors, whatever you say is gonna happen and goes.

Or are you the guy that’s knocking on the door, being active, doing those surprise visits make sure that things are in order. There’s a lot more to it than just sitting back and relaxing and just drinking pina colada, at the beach. You just can’t, you can’t do that, you definitely have to be involved. Yeah. And I personally think it’s gonna be even more important in the next few years because, you could have bought something in 20 12, 20 13 and just hand over the keys and the market would probably correct almost every mistake somebody could do, right?

The rents were just going up so fast in the last five years that, if it’s not operat, Professionally or not efficiently enough. The market kind of compensates for it. But as we get to very close to the top of the cycle, and I don’t know how close we are, right? I don’t have a crystal ball it gets more and more critical to stay on top of it and make sure that no, no one takes their time and being slacking around to, to get those plans executed. So I think it’s gonna be more critical in the next two. Yeah. No I you another one, man. You are right on. I think, I would echo what you said, in the 2000 tens, I think, even I saw who was it JC Castillo that posted on LinkedIn just the other day.

In 2000 tens was a decade where we were able to buy deals. And if you were a semi, good operator, or even, you can even say, a kind of bad one. You were saved by by the market, right? So the cap price compressing there was a lot of capital coming into the market.

Rinse kept going up. Just a combination of everything, right? So even if you did, okay, even if you were that guy that was drinking that piano, Claude at the. Most of the time you’re gonna be okay, right? Not every time, but most of the time. Why? Because those capra kept compressing, the market just kept going in your favor.

And so even if you didn’t do much to the property just by the capra compression alone, you know you made out, right? Yeah. So you go to sell the property and you made out. But in the 2000 and twenties, it’s gonna be a different story. And in 2000. , you may not get that same cap rate compression.

I don’t think we will either. I think as a matter of fact, I think the cap braces are gonna start to, to go the other way. So what does that mean? If you’re buying a deal today? Does it mean that, if we do have a recession in the next year, this year in two years, whatever what does that mean?

Is does it mean that, everything’s gonna go haywire and we’re all gonna be in best shape? No, it doesn’t. It doesn’t mean that necessarily. It just means that you have to be able to properly operate your. , make sure that you’re staying on top of the, what’s going on every single day your financials and do what you can.

And I think more than anything, it’s gonna be a tenant retention. Make sure that, that there, that our tenants that we have at the property are being taken care of and their needs are being met. So it just goes back to the basics then, I think a lot of people kind of overcomplicate.

Honestly. And I think it’s just providing the basic fundamentals that people have or the, that people need in, and providing them in a good way, right? Yeah. Yeah, obviously, there’s amenities that you have to, have and stay with the latest and greatest and as far as technology goes but, just customer service alone just the basic fundamental is very important.

So I, I would think that, you’re right on with that statement as well. Yeah. You are working with the third party property management. Give us a little bit of a picture of how does that look like? How often do you talk to them? Who do you talk to? Do you talk to the corporate office people?

You talk to your regional, you talk to the onsite teams. How often do you show up on site? Give us a little bit more. Yes. So at our third party property management company we have weekly calls, right? And so we don’t hardly ever, we hardly ever get on calls with the corporate office, right?

Unless there’s something that’s going on, or, that’s out of our control and we need to take care of which is, hardly the case. , it, usually these calls are with the onsite property manager in the regional. So we have these calls with both of them. And we look at o over, over everything, what’s going on, how many leases do we have?

How was the traffic how many was the delinquency? All those kind of questions that we have, if we have any campex repairs or items that are, that need to be taken care of, what’s the schedule like what’s going on. And so we try to stay on top of the, every single.

one of those things, is those calls on a weekly basis, but we look over and communicate wouldn’t say daily a hundred percent, but it’s almost on a daily basis. And . And so we try to visit the property at the very least if it’s not local, at the very least twice a month, once a month, twice a month, depending on where it’s at.

So twice a month for like our Dallas deal I have a partner there in Dallas and he’s there. You don’t have to be there every single day, but, you gotta make sure that you’re And have a presence there. For our Phoenix. That’s the deal that, obviously I’m in Houston, he’s in Dallas so what do we have to do?

We have to make sure that we visit the property at least. Once a month. And so for that one, we also brought in a partner who is able to be there more frequently. And so we do it as a combination of all three of us. So yeah, you have to make sure you stay on top of it and make sure that you’re communicating with them.

Okay, great. So as asset managers but the ones that drive, the ones that operate. Do you navigate or direct your property management to do any onsite events or parties or how do mentioned earlier, and I think you’re absolutely right about customer service, right? It all comes down to clean, safe warm environment, right?

But also what we found that for retention, a sense of community is really important as well. Do you guys do anything for residents that kinda our listeners can pick up and do as well? Yes, definitely. So we always try to stay active with him through like different parties, different events.

And so we had a holiday party Halloween, 4th of July, tho those kind of different events. And then, also whenever we do like surveys we’ll do surveys. So what is it that you’re looking for? What is it that you would like to have, at the property what is it that’s missing?

We’d like to do those kind of services as. . And for that, we just offer them, something, right? Offer them a gift card or something like that to like that they’re able to do those surveys . But it really is, it was the information that we want, and to be able to know what it is that’s going off the property.

As far as the management, is the management going well or they doing their job. Those kind of things. as far as, what do you guys expect at the property? What are you like as amenities? Those kind of things. So we always try to be involved because, if you’re not, then they can go down the road, to, to the next guy.

Why, what makes you different than the next guy? So you know, that that’s, you have to be involved, and we are, we try to stay involved as much as possible. Yeah. Okay. That’s great. Because you’re coming in and doing value add.

And right now you’re focused on the light value add, the ones that are already destabilized. Other than renovating units and increase in rent, what other ways do you guys have to increase revenue? And we’re gonna talk about decreasing expenses in a second. So let’s focus on the revenue side.

On the revenue minute. Yes. Yes. Very good question. As we could be at the top of the market who knows how much further the rents have to go. Obviously, when we look at deals, we always look to, to push a rinse. Every single time we’re looking at a deal, we always find look for ways to, if we can push the rents, then create.

As it’s, it is, becoming more, more difficult to find deals that pencil out, right? Because everybody wants to be in the space they’re asking for crazy prices. And so you gotta find that competitive advantage. So for us and not saying that we bank on this, but for us some of the ways that we’ve been able to generate that extra income is through additional income, right?

Other income, right? Specif. On the other income, we look for sources like cover parking reserve parking wifi, those are like the three main that we’ve used for the last, the last couple deals and even our deal that we have now. So what do you do with the wifi?

Yes, very good question. For wifi, so wifi as I said earlier, we have to make sure that we st stay on top of all the amenities and the technology, right? Because, tenants they’re, there’s no tenant out there, there’s no, nobody out there really without, a cell phone, right?

And so nobody out there really without technology, right? So one of the things that we provided with the wifi is obviously, internet access for each unit. So the way it works, we have a contract with a third party service provider, and then, they bill us directly.

So we pay them for their services. So now what we’re able to do is if, let’s say for example that on average they charge us, 30, 40 bucks per unit, then we can turn around and offer the wifi to the tenants. And so we can charge them, 70, 80 bucks. So you make that delta, you make that difference, right?

So that’s one way that we’re doing it. A lot of these tenants are gonna get wifi for their department anyways. Yeah. So we’re able to offer that service right then and there. And we’re implementing that in, in, in one of our properties. And, it’s we just launched that.

And so I can’t tell you a hundred percent on the results, right now. But, we had good, long conversations, actually. A lot of convers. To make sure that this was something that was achievable. And we even, asked, our tenant profile if that was something that they would like, and it was overwhelmingly overwhelmingly yes.

So you know, what that does also is that, they are able to. Offer that server is right, right at the very beginning. And then, they can be activated, as soon as they, they move in, they have a wifi done instead of them having to do it on their own and going throughout the whole process.

Yeah. Ultimately what it does is that for the property level, is that you’re able to make that delta between what you know, they’re charging you and what you’re charging or billing back the tenant. It’s kinda like rubs on. The same thing.

So we’re able to do that. So there, there’s a couple different ways you can do that. One is you can buy your own equipment. So you can make sure that you account for that cost up front. And then pay for that. It’s in a vary, deal by deal size, has a lot to do with it as well.

That’s one way that you’re able to do it is pay for the equipment up upfront. The other way that you’re able to do it is, they take care of the equipment. The third party provider takes care of the equipment. Now you’re gonna make it less this way, but it’s still a way where you are able to come out of pocket, nothing, right?

Yeah, it’s like leasing the equipment, basically. It’s like leasing the equipment. So there’s downsides right there. Now, everything’s gonna be upside. There’s downsides, one of them is that usually there’s you. Four or five year contract that you have to sign. And then, if they don’t, if you don’t have anybody that is paying for that service you still have to pay for it.

They’re still gonna build you no matter what. Yeah. So there’s that. So you have to make sure that you have a ramp up type of agreement where you know, it, it you start off with a few units and then it goes up from there and it goes up into the full amount of units.

So that’s one way but yeah. And then the other way, like I said is covered parking and reserve parking, I think that’s like reserve parking for example. , I see so many properties that don’t even have that, they’re not even billing back for that, or they’re not even charging tenants for that.

And it is, it’s just something that you can just go over there and just, get a little, painting on the floor with a spot number. And then it is just so easy, right? Just billing back, for a spot that’s that’s attractive. Same thing with the covered parking.

Yes. With covered parking, it is gonna cost you on that one. We will and it depends on, which market you’re in. , it’s same thing, right? If you’re able to get the return on that then why not? Then, you should do it. So those are, some of the ways that, that we try to make sure that we focus on that other income.

And obviously the other one is the the utilities, right? Of course rubs. Yeah. Okay. Great. So let’s look at the other side of the coin, right? Because every dollar we add in income is completely equal to every dollar we can save on operations, right? Give us two, three ways where you guys like to look at specific things and maybe reduce some of the expenses.

Yes. Yes. One of ’em is a huge one on a lot of the deals that we look at is payroll, right? A lot of times, it’s, it could be an owner that’s owned the property forever and he, he made some good friends at the property and his staff, they’re they’re good friends or whatever, right?

And, which is fine, that, that’s great. If you’re trying to, some good returns for your investors, then you gotta find ways to reduce that payroll. And so sometimes it’s because they’re overpaying some of the staff, sometimes it’s because they have too many people at the property level.

So it just, you have to look at that number and then, and find ways, to where you can reduce it. a lot of ways you can reduce it sometimes, you have to increase it. Because they’re understaffed. But in a lot of cases they are overstaffed and, or the, those expenses are too high.

So that’s one payroll. Another one is going back to utilities. Utilities is a big one, but you look at like water water expenses and electricity. How do you cut back on those? Have you. A green program and I’m not specifically talking about going through a lender and doing their Freddie Mac or Fannie Mae type of green program, right?

, because you can get those, they, you have their own program where they give you better pricing on the loan, right? Yeah. And that’s one way, right? That’s just for your for your loan. But specifically what I’m talking about is you doing your own green program.

And what I mean by that is does the property have d lighting exterior if it doesn’t, then that’s something that you should immediately, implement and add, right? Yeah. Because it’s gonna go down to you, right? Because those are not, the tenants don’t pay for those costs. You do, right?

As a property owner. And what about if it’s like a rubs pro property, or even if it’s not a rubs property, usually water, it’s something that’s built back, right? It’s not necessarily individually metered, in most cases, right? So if you have, toilets, for example, that are old and they.

Using up a lot of water. , even shower heads, those kind of things. Then, that’s an easy fix. That’s a really easy fix. So yeah, it can cost you, 50, a hundred thousand dollars to, to replace all the toilets and showerheads and aerators and do all those things.

But how much are you saving per month, is ridiculous. The number that you can save per month. . And then if you do it on a further basis and you wanna see the value that you just added to the property, then you just divided on the cap rate, right? Yes. And just so I thought you were able to even see the value that you just increased the property with.

So I think it’s huge. And I think, that’s something that, people don’t look at. And I think you, you should account for that if you’re looking, if you’re active and you’re looking for a deal. And look for ways that you can reduce that and make sure you’ll account for.

50 grand, a hundred grand, 150 grand, whatever it takes to replace them. And yep, you’re gonna see the big savings, on the backend and cashflow wise. So just go ahead and make sure you account for that. So those are the two biggest ways that I would say that that we are able to reduce those expenses, obviously taxes, living in Texas.

Taxes is a big thing. Especially in these unfortunately, yes. Especially in these primary markets where you’re looking at, let’s say like in BE County, which is San Antonio or like Tarrant County, they’re pretty aggressive. Dallas County. Harris County. Yeah. There’s Col County is one of the most aggressive ones in Collin County.

They’re super aggressive, right? If you let them run over you, they’re gonna run over you, right? If you don’t say anything and you just take it then you’re gonna get it. Oh, yeah. . So you have to make sure that. That you fight back. If you have to sue them, then you sue them.

We’ll do whatever you gotta do to produce that number. And you’ll be able to have some strong tax savings there or not. I wouldn’t say tax savings, is your money that you should get back. They’re just taking it from you. So yeah. For our out state, yeah.

For out-of-state listeners that live in a disclosure state, Texas is a non-disclosure state. , which means you don’t have to tell the county and the state how much you paid for the. . So when they see that it was a transaction that transferred the deed, they’re gonna try to guess how much you paid.

And a lot of time they might guess higher than what you actually paid. Or they might guess, right? But that could mean a big jump. That’s what Juan is talking about trying to protest that new assessment. And sometimes it has to go to court. Sometimes we hire tax attorneys to go to court and litigate over that because the county just completely overreacted and exaggerated on the.

Yes. Yes that’s definitely very important to, to note. One thing I would say as well is, speaking of the taxes, Excuse me. So on, for example, like Texas, you said that we’re non-disclosure. So a lot of these guys they, it wouldn’t doubt me. I wouldn’t doubt it in my mind that these guys have access to a lot of the research information platforms out there.

A co-star or a l n data or whatever, right? And the reason I say that is because a lot of these sources, they have those sales price. Where, how it transacted and what the cost was, and what the pressure price was. And so I wouldn’t be surprised if these guys see that.

And then, say you buy a property at 20 million and, they’re taxing you at 20 million, right? , evaluation. Then, how can you say that the property’s not, valued at 20 million if that’s what you paid for it, yeah. That’s just one thing that, that’s.

That, I just wanted to say, I think these guys do have access to all that, and I think it, for them it is small cost to pay. And, lot of money that they can be making for their county. Yeah. So a couple of advice to our listeners about how to avoid that is, one, make sure that in your contract you may, it says specifically in your purchase contract, it says that nobody’s gonna disclose the sale.

Because right after you close the CoStar and Yardi and a l n, they’re gonna make a phone call to everybody that was involved. They’re gonna call the title company. They’re gonna call the brokers. They’re gonna call the lenders. They’re gonna call you and your mother-in-law, right? They’re gonna call everybody they can to try to figure it out, because yes, that’s part of the service they provide for the people that use the.

So if it’s in your contract, then your broker cannot disclose it and the other side broker cannot disclose very good points it and the lenders and so on. So make sure that is, it’s in the contract. That’s one thing. The other thing is a more obvious one. If you get the phone call, tell them thank you.

But I’m not telling you how much I paid for it, right? Yes, very. And then lastly, and I don’t know if every county does that. I know Colin County definitely does that. They will send you a letter from the county appraisal district that looks very official, that says, please fill up the form. And that form asks all those questions.

I’ve seen it, yes. And then in a very fine print, it says you don’t really have to tell us. Yes. So it’s like usually when I get those letters it’s got okay, straight to the trashcan, right? But a lot of people don’t realize it’s optional because it’s coming from the county. It’s gotta be official, right?

It’s optional. So you don’t have to fill it up in Texas. Make sure that, you follow your state rules and regulations. That’s very good advice. Very good advice. You don’t have to disclose it. Don’t fill out those sheets. If you get a call, just ignore it or give, answer and say I’m not gonna tell you, it’s not none your business, so it really isn’t, they’re just gonna use that to, to your disadvantage.

Yes. I, being in this business long enough, I’m sure you have a lot of stories. Give us a funny story, a horror story, a little bit of both. Give us a little something funny for the audience. Yeah. So wouldn’t necessarily call it funny cuz it really wasn’t, oh yeah.

You know what? I do have a, I guess it’s funny, it wasn’t funny to me at the time though, but never funny at the time. is there funny at the time and it’s never Yeah. If it happens to you, is that funny? But, you look back on it, you’re like, oh man. So this was my very first deal, which was a 32 unit.

And so I was a 32 unit that, that we owned and managed and, We had, we were doing renovations in a, in the office, which was really a storage unit. It was a storage unit that we converted into an office. . And cause there was no really no real office at the property on site.

I have one of those we’re using this. You had one of those. Yeah. So you just gotta do what you gotta do. And so we had this office and we had, running water to the property or to that office. And so it, we went through like a big freeze. . And as you can guess we got a call from the tenant from one of the tenants.

He’s Hey, I think you guys, I don’t think it’s supposed to be this wet cuz it really hasn’t rained, but I see a lot of water. I just wanted you guys to know. And it was like, like 10 30 at night. And we’re like, oh great. And it was like freezing out, so then we go out there. And then, of course you can’t see anything as dark and there’s water everywhere, there’s a shutoff valve.

So here we are, digging through it, digging through all the mud, through all the water, through everything freezing water, just to be able to find the shutoff valve. We ultimately found it, but after it had made like a big disaster. And so yeah, that was, it was because, it wasn’t property insulated, right?

We should have done a better job of insulating the pipe. . And so it’s just one of those things hey, you think that’s like the worst thing in the world, is it your worst day ever? But it’s one of those things, you look back on it and you kinda learned from it a little bit, right?

And it makes you. makes you a better better person. I guess a better owner, right? Those kind of things but is not funny at the time. Yeah. makes sure that you pay attention to the weather and you have your pipes that are well covered and that, is that gonna, is that gonna happen?

Yeah. So that’s a good, that’s a good operational tip comes out of this story, right? It’s watch the weather and it’s the problem. Watch the weather. Yeah. if the weather is gonna drop below zero, right or below 32. You’re gonna have to make sure that the day before your team runs around the property and all those faucets that come out of the buildings have the covers on top of them.

If you have pipes that are coming out of machinery room or boiler room, That they are insulated, right? This is a very good operational tip for our listeners, right? It’s kinda like you don’t think about these things, right? But then one of those incidents will teach you real fast to watch the weather and if the weather is gonna drop below the freezing point, you gotta you have a task list for that day.

Do you, you definitely have a task list and really, you should be able to whenever you know it winter time is coming. Make sure that you prepare. Then don’t wait. Tell me like, what, where I did it after the fact. Don’t do that.

Make sure that you prepare, a couple months in advance. Not that whenever it does come, you’re fine. Just make sure you monitor your property. But, this is assuming that you have a smaller property and, or, you’re doing your own management, which a lot of us, do still, right?

So yeah, very. . Awesome. If you talk to a new operator, somebody that just signed a contract or just completed an acquisition right? But it’s the first property they’re gonna operate what’s the best advice you would give them? . Yeah that’s a very good question. What I would say is to make sure that they are on top of their property.

Every single little thing that they’re on top of. And if you’re doing this for the first time, you’re not gonna know everything. That’s just a given. You’re not gonna know everything. But make sure that you’re asking your team your property managers all those questions, right?

And there’s never a dumb question in this industry because, we’ve, these. Not only the property manager, but everybody that’s in been in the essentially, have gone through different things. And so always ask questions. Don’t, don’t have that ego going into the property because could turn in into a real bad situation real quick.

Don’t be afraid to ask for help is really what I’m trying to get at. Ask for help and be willing to take that advice from others that, that have been done doing it much longer than. Yeah, that, that’s a really good advice. Like I said earlier in our conversation, this industry will teach you something new every day.

It doesn’t matter if you’re doing it for three years, 30 years, or 300 years, there is still something new every single day. All the time. All the time. And I’ve, I haven’t, there’s a lot of things out there that haven’t gone through. Myself. And if I do experience that, then I’m gonna have to, reach out to the guy that, that’s been there longer than I have that, that can, help me out with that situation or somebody.

Always have somebody you know with you, somebody that you can contact. Somebody that you can ask for help from. Because there’s a lot of moving pieces to these deals is not just rent and expenses. It is just, that’s just one piece of it, certainly one, one of the most important ones, but not, that’s not all of it.

So make sure that you have a good team and you’re willing to ask for help. Yeah. That’s a really great advice. Our last question that we ask, usually all of our all of our guests, is if you could go back in time and young client and let’s say that you cannot tell them that 2009 is the bottom, buy everything.

Okay. Let’s put that aside. What would you tell young you at that time, what advice would you give yourself? So I knew that 2009 was gonna happen or I didn’t know that was gonna happen. You can’t tell them that. You can’t tell yourself that. Oh, I cannot tell myself that. Okay. So if it was, back then, and I knew that I wanted to to get into into, to real estate at that time then, yeah.

I think, it goes back to having the right mentors, I think that’s so huge. So having the right mentors to learn from to re reduce mistakes from if I didn’t know that the crash was gonna happen if I did know, then obviously I would buy anything and everything because as we know, ev, people that bought thin, did very well.

If I don’t know that what’s gonna happen, which, back in oh nine, I didn’t know it was gonna happen. And yeah just be prepared and have the right. Mentor, so to speak that can help you with growth, right? So yeah that’s one of the, that’s a great advice.

One of, one of the best things is just having the right team, like I said, having the right team, having the right people. Because if you don’t, then you can get burned really quickly. And, they’ll help you navigate through some of these these issues that arise.

Cause they will arise. And, you’re able to get to them much easier. Much, much. That’s a really good advice, having mentors no matter at what level you are having people around you, whether they are actual level. Oh, preferably a few steps down the mile from where you are right now is always a good idea.

I know I’m part of a few masterminds Exactly. For that reason. , I look online, I connect in conferences with other owners exactly for that reason. Because this industry teaches you so many things all the time, that when you bang your head against the wall, and even if your team that has decades of experiences banging the head against the wall, Having other people that might have randomly crossed the same path as you do is super critical and can really save your behind on these things.

Yeah. And it, and I guess it goes back to how do you know who to reach out to? How do you know who that mentor? Because everybody says Find a mentor. Find a mentor. Yes. There there’s a couple different ways. One is simply, paying for a mentorship program.

You can do that. that works out well. Or somebody that’s, that you can just simply add value to, right? Somebody that, that’s, that as an owner, you find out that you know who that owner is. You find them and you reach out to them and you just add value to them. Don’t look for your own things.

Don’t know that. Just add it to them any way you can and they naturally and or organically become that, that mentor to you. And whenever you do, their help, for any one, property that you’re looking at or whatever, they’ll be there for you. So don’t force anything, make sure that it comes out more naturally, more organic.

And, that’s, those are really the best type of mentorships in my opinion. Cause, yes, the paid ones are great. , you’re gonna get some great people behind there. And, the network around there is gonna be great, and I’ve done those myself. You find that one person who’s done it and just become, their really good friend.

And yeah, I think those are the best ways that to have a mentor. Yeah, absolutely. I wanna be conscious of your time. How can our listeners find you if they wanna reach out, if they want to invest with you, if they want to ask you any questions how can they. Sure. That’s juan jim wealth capital.com.

It’s juan jim wealth capital.com. Or they can, reach out to me through social media. I’m on, Facebook Instagram, LinkedIn. , even Twitter. So you can reach out to me any one of those platforms. The juan vargas.com or Yeah, the juan vargas.com. That’s another one of our websites.

. But it’s at the Juan Vargas for the social media platforms. Yeah. And we’ll put links to all of those in the show notes. Sweet. Yeah, no I appreciate that. And and thank you. Juan, thank you so much for being a guest today. It’s been a pleasure. Hey. No. I was gonna say minute.

It is been my pleasure. I love the questions that you asked. A lot of solid questions and I like your knowledge as well. And I hope that, your show continues do really awesome. Awesome. Thank you so much. And to the listeners, if you want to listen more to our show, our website is the apt dot.

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