Episode 104: How to Leverage 3rd Party Management with Dave Childers – The Apartments Operators Podcast

Mr. Childers is a Managing Member of Cedar Rock Capital based in Nashville TN.  Mr. Childers has over 15 years of experience in real estate investing in Middle TN. David was only 25 years old the first time he partnered and purchased his first rental property.

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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 to The Operators podcast.

We’re talking with multifamily operators, and today we have Dave Childress from Tennessee. Dave, welcome to the. Hey, thanks for having me. I appreciate you having me on today. Yeah, absolutely. Why wouldn’t you take a couple minutes and tell the audience who you are, what you’re doing and why are you here on the podcast?

Yeah I’ve owned a multi-family for a little over 15 years, and I love this podcast specifically because it’s talking about operations, and that’s where I got my start was I bought 114 unit complex and I spent every day on it for many years, mowing grass, operating it, managing it, leasing it during the downturn of the economy.

So really I learned. The business. I tell people it’s the NBA I got from actually running the property and living to tell about it. It was not a magical business at that time. Just survival was everybody’s, name of the game at that point in 2000. 10, 8, 9.

So I really learned everything from being on a p on the property dealing with tenants. We were just talking about that this weekend is, you’re dealing with tenants lives and if you have a thousand units, you have a thousand family units, right? So the operational side, and I’m very passionate about, I actually teach a lot of asset management classes here in Nashville.

Just talking about this specific thing, because I think it’s something that people leave out. They think they’re gonna raise capital, go find a deal and it’s mailbox money. And you really, mostly if we see another downturn, you’re gonna have to be prepared to react quickly to lowering rents or working with people and trying to keep ’em in.

And so yeah, I’m very passionate about the subject, so I’m very excited that you are diving into this subject and having guests. And I hope people listen to this podcast for that reason so they can get educated on some of the tick tricks of this trade. Yeah. You nailed it on the head, right?

It, for me, it’s it’s not all rainbows and lollipops. It’s not all gonna be awesome, all the. and you’re not just raising money to buy a building. When you raise money and you buy this property, you’re also buying a lot of people that you are working with and you providing shelter to, which is one of the most basic needs.

That’s why I created this podcast because a lot of the education out there and the podcasts and the websites and the books are focusing on the. To get to the closing table and they forget to mention that after that sprint, there’s a whole marathon of a few years where you’re gonna have to take care of a property and the tenant and everything else.

Yeah. . So I heard you say that you were mowing grass and everything. That leads me to one of our most common question is third party or self-management. Sounds yeah. So yeah I kinda leveraged my time to get in this business by, using my, leveraging my time to to find partners and that was my responsibility was to manage it.

And that’s how I got. I never want to go back to managing. It’s but it taught me great lessons on how hard it is to sit there and manage a property and deal with these lives and, people’s drama that comes with it. So it made me appreciate my managers, my leasing agents, my maintenance guys.

The maintenance guys are your front line, right? And so having good maintenance guys with great personalities that can, I told, I used to tell ’em, you’re, you gotta talk these tenants off the cliff, right? You can make ’em jump or you can make ’em walk back. And how your attitude is, if you’re letting them know that you’re gonna take care of things and everything will be all right and we’re gonna fix it, that’s one thing.

Or you antagonize it and make it worse. Yeah. So self-management this property I was actually referring to that kind of gave my my. I got a HUD loan on it, and when HUD came in said, Dave, we’re gonna give you the loan, but you need to find third party management because you are not so good at this.

So I I, it was great. It’s been five years now that’s been under third party management and I would never wanna take it back. They’ve just done a tremendous job. . But I’ve had to learn now how to asset manage, right? So you go from being a manager and now you start hiring management companies and you have to know what to expect from them and how to direct them and, making site visits and so there’s a whole nother skill you have to learn.

So that’s my evolution and I started off with duplexes have scaled. Sold the duplexes off, but have definitely, if you find the right management company, it’s a it’s amazing. Yeah. And I’d love to dig a little bit deeper into that in a second, but I wanna address one thing you said and ask more about that.

You said, I don’t ever want to go back to it. I would go back if I had to, but I don’t want to. Our experience when we talk with other operators is that everybody starts off backwards from you, right? They start off as a third party management, and then as they grow, they switch over to self-management because they feel they don’t have the control or the quality that they’re looking for.

And you’re saying the opposite completely, maybe because that you started at management. Tell me a little bit more about that shift that you made. I know HUD made you, but other than that, Why don’t you want to get back to it? Or are you not yet at the scale where you want to get back to it? So where are you on that?

Yeah. I don’t have enough doors centrally located to really, I don’t think, build my own management company and have it make sense. And I think for me I know my. Skills and my weaknesses and managing people is really not a skill of mine. And it’s really something I don’t wanna do. So I would rather third party have third party management and not have to be managing managers.

It’s just where I’m at. And you’re right. I work with different people to have. 15, 20,000 units and they, build their own management company. And I think they have the scale to do that. But for me, I think my time is better spent. Go back. I’m a multi-family broker too, so I spent a lot of time brokering properties.

But it’s also my time is better spent looking for deals than actually managing managers and management. So I guess I, I’m try always trying to eliminate the jobs I have, and that’s one that, you know, and mostly if you’re buying for, I bought one in Florida and they’re not all again, centrally located.

If I think if I had a management company, I don’t know, maybe I’m wrong, but I can hire in different regions for whoever the good players are in those markets versus trying to go into market and learn it and experiment with a my own management company. Okay, so let’s dive right into that one. How do you hire a property management?

What are you looking for? What are you asking? What’s important to you in the management partner? . Yeah, one thing I think is o obviously if you’re buying a C class asset, making sure you’re finding a management company that, you know manages C class assets. Cause we’ve run into that where we’ve hired managers on different properties that have come from an A and they wanna make your C class an A class, which is never gonna happen.

And I think that goes into, what their past experience is, the management company. Regionally, are they, do they have regionals? Do they have extra help in the area? The one management company now that I use for this big 114 unit, they, they just do the county that we’re in and they have about 4,000 doors in that county.

So they have a lot of help. So that one, one property, if it needs an extra assistant manager or our leasing agent or a maintenance guy for the day, cuz the property has a call out, then it’s very easy for them to, pull somebody over. So that was definitely important. Thing I think about is what else do they have in the area, when it comes to contractors, do they have subs that are on their list that they have a history with that they can call in to, to do some of the work?

So tho those are some of the big things I’ve looked for in the past. Okay. And, A lot of companies out there are in the 46,000 units range, which is what we like the same. How do you really tell if they’re good or not? Are you asking for references? Are you asking to see somebody else’s rent role?

Yeah, that’s, can you go about vetting them out? Yeah, I mean that, you know what’s funny is when I bought the property in Florida, I think I reached out to about 10 different property management companies. And the one we went to with, actually, they followed up with us, which I was super impressed with.

A lot of ’em didn’t even return my phone calls, so I guess I just crossed ’em off the list from that alone. But yeah, I. Maybe even getting I know what I did is I got a list of properties that they managed and actually drove the properties without them, knowing that I was gonna do that and got to see how the property presented itself when I just went through and looked at it that way.

And we did, we called a lot of people and verified that, they would continue to work with them, okay, great. Describe your operations today. Just so the listeners will have an idea of how many units, how many regions. It sounds like you’re in multiple states. And how does your team look like?

Or is it just Dave is the team? So I’m the team. I’m the team. I’m the team. Everything. Yeah, I guess what I’ve done different is I’ve partnered one-on-one with a lot of. And then a lot of things, a few things I own on my own done one syndication. So I think the portfolio’s only like 300 and a little over 300 units, maybe a 30 million total.

And I own about 80% of that. So there’s some that I own on my own, some that I’ve syndicated, some that I’ve partnered one-on-one with guys, so it’s just me right now. That’s kinda the plans for 2020 is to really grow it, go out and. I think I mentioned I was a broker, so I spent a lot of time brokering.

And the plan is to remove me from that day to day and really get in the car, go meet with brokers go, view more properties. We’re in the kind of a refinance stage right now with some of our properties, which gonna make us a little bit more liquid to, to actually go out and I was just on the phone.

A broker about a 36 unit here in Tennessee that I’m very intrigued about. Today’s Thursday, I’m hoping to drive over there on Monday and take a look at it. Yeah, I’ve brokered almost 500 multi-family deals since 2011 and that’s just consumed me and I really wanna get back buy more assets.

So that 300 unit portfolio, how many properties, individual properties, let’s see. 1, 2, 3, 4, 5, like six, six properties. Yeah. Okay. So they’re medium sized properties for the most part. Yeah. So that brings in another interesting aspect of operations. When you have a smaller property, like a 1520 unit per property, you can’t have onsite manager and onsite maintenance people.

So how does that changes the dynamic you have with a property management? Yeah, so 114 we’ve got one manager, one maintenance guy, 86. We have one maintenance, one manager, 56. We’ve got a mom I call a mom and pop team. It’s a husband and wife that work about 30 hours a week, and they’re pretty much able to do everything on that property.

Your cost per unit when you’re running it that way, the expense goes up. So I have a 14 unit in downtown Nashville, and. It’s managed by a real estate company that kind of, they trade it more like a single family home or a duplex wood. They charge me an 8% management fee, and then they charge me a lease up fee when they find a renter.

But yeah that, that smaller property, that 10 to 60 unit is, it’s. It’s definitely interesting in how you have to manage that. If it’s in a big city it’s easier, but if you’re buying maybe on a rural market, it’s really hard. And we’re always coaching people maybe to find a tenant that lives there that can help you out.

And cuz it kinda get quite expensive, if you had a 50 unit and you’re having to pay 8% or pay a full-time person, it, it really can kill your deal. Yeah. Financially. And then I do own, I think I was mentioning a duplex in a single family home this year.

We’re gonna get rid of those just because of the management intensity of those. So I’m actually putting out some videos on my Facebook page, just, Came in after 4th of July and keys were slipped under the door from this duplex. They moved out in the middle of the night or on the weekend. And just, that’s like operational stuff that people don’t wanna really talk about.

Yeah. . Yeah, I know. I hear you. So it sounds like you’re working with multiple property management companies. Let’s take a step out right now and talk about the asset management side of things is how does your asset management structure look like? Do you talk. All the property management once a week or once a month?

How does that look like in your world? Yeah, it just depends. Some properties are, they’re on autopilot and the managers are great and I talk to ’em once a month. I get their Monday reports and I look through their Monday reports and if I don’t have any questions, it’s pretty straightforward.

I don’t need it. And then there’s some that are a little bit more talk to ’em every other day. And I’m probably doing a little bit more than I really want to on those, but that’s the stage that they’re in. The one that I’ve owned for 15 years it’s, again, it’s on autopilot for the most part.

Once you take your eye off the ball right, then it goes, away. Making those site visits without them knowing is something I do. I’ve got, like I said, I’m a property in Florida and I have to fly down there and nobody knows I’m coming until they see sitting there waiting for them.

But, Monday reports, financials that you get from your PR property management company, at the end of the month, we’re always looking through those. So that’s more on the asset management side, but yeah, we’re working with multiple management companies and some do one thing great and another thing bad.

So it’s so you, again, you learn what your expectations are, but the Monday reports are key really to know what’s going on at the property for the previous week. Okay. And for audience that doesn’t know what a Monday report is and every property management is a little bit different with the report.

Tell us a little bit about what are you looking for and what is that weekly report you’re talking about? Yeah, they can get it as extensive as how much they’ve actually collected for the month. So we can still see what’s outstanding, see what coming is coming, vacant, how many units are occupied how many are rent ready.

I like for them to all put my, the renewals that they have for the last week cuz then I can see trends, if they’re renewing their leases and rents are going up. Then maybe on those vacants we can, we. Do a little rent bump. But it really gives you just insight into how many leads they had, how many people the number I really look for is how many people they turned down. , right? Yeah. On their applications. Cuz if they’re bringing 10, 10 applications in and they’re approving all of ’em, then there’s something wrong. So I wanna see that they’re, you’re actually screening tenants and turning people down.

That’s always a good sign. They’re putting in there where they’re getting their leads from, right? Facebook marketplace or signage or drive-bys or whatever. So you learn a lot from those reports that give you the ability to steer the ship as an owner. And which one you want to go.

So it’s also good to look for where’s your roi, right? So we’ve used and apartment finder and all different online marketing techniques. And if we don’t get that report coming back saying this is where the traffic came from, ’em, we don’t have a way to value if our marketing dollars are spent.

That’s why we also track these things to see what’s going on. We also see the, it’s like a funnel, right? You have traffic, you have applications, and you have how many leases. And if there’s a really off ratio in any one of those stages, then that’s where we dig in. For example, if I have a hundred people in the traffic, but only one applic, Then we got a challenge with our leasing team, probably because either they don’t market correctly and everybody that comes in saying that’s not what you marketed, or They don’t know how to convert a traffic into an application. But sometimes it’s not their fault. Sometimes it’s something on the property, right? And that’s where you wanna claw out of them, right? What is that issue that they hear from prospects? So we can handle that and they won’t have that issue anymore.

Yeah. And I’ve had property management complain to me that, this unit’s not leasing up and they, call me two months later and tell me it’s because of this, washer and dryer. What would it cost for us to install washer and dryer connections? Again that’s information I need to digest and come up with a solution to that problem.

We found some little units that you can stack and put on a little dolly and hook up to your sink and do all the washing dryer. And I don’t even mind buying those. I think they’re $800. But if it’s gonna land me another a hundred dollars a month in rent or $50 or even just keep a good tenant there, I’m willing to do stuff like that.

But it’s that information. That I need from the property and from, like you said, the leasing agent, the management to, to determine those and make a good business decision. Yeah. And you’re funny about the talking about the return on your investment for advertising. Before I was sophisticated and now I’m sophisticated now, I, when I was sitting on property, I would list out all the places I was marketing the property,, $800 a month balloon.

$10 a month, right? Yeah. , Craigslist add zero zero. I was getting 90% of my leads from putting balloons out so they knew somebody was sitting there and then Craigslist ads and so I eventually just got rid of and a lot of those expensive at that time,, which was part of eBay.

Would charge you four or five or whatever, 50% of the rent. And it was very expensive. And so I just started saying, man, we’re not gonna do that stuff. We’re just gonna grass or just do the grassroots type thing. We’re by a big university, so we’d go out and pass out biscuits to students and, just go to Laundromats and pull the little tabs, the pull down tabs.

And I always used to say we’re not trying to get a $600 renter or a thousand dollars a month renter, we’re trying to sign a 12,000 or a 6,000 annual lease. So if you put in that perspective but yeah, definitely tracking where you’re spending your marketing dollars, and that’s right.

Right now I’m a huge fan of, Facebook marketing, setting up a page for the property and boosting ads, boosting post and pausing it and targeting and there’s so much you can do with Facebook advertising that now people are catching on. But we’ve been doing that for a couple years now and it’s a great tool.

Yeah. Facebook marketplace is one of our biggest drivers of traffic. And you mentioned biscuits. We do donuts, right? Yeah. And we’ll go to firehouses or police stations or nursing homes and just walk around with donuts and some flyers. And everybody loves donuts. That was one of the things we really did when the economy was bad, is we’d go to the good tenants and say, Hey, we want your friends to live here and we wanna reward you.

You know what? Don’t you wanna make two or $300? And so we would do that. So we’d have, 10, 15 maybe not 10, 10 to five to 10 units full of maybe one, one company where all these people work together and they were just referring everybody. And so that’s, that goes back to taking care of tenants, right?

Yes. Taking care of ma maintenance issues. We could just talk about tenant retention and just taking really real good care of people and the customer service aspect that keeps your tenants in place and makes ’em live, in the same, home for 20. And then we don’t have to talk about turns, and you’re still taking their rinse up slowly.

Tenant retention is huge. And just I’m a huge fan of being a good landlord, good multi-family owner, taking good care of my tenants because they’ll take care of you. I’m smiling here because it’s like you’re reading off of my list of questions. So you’re just curious. I told you man, I love the subject.

I love the subject, I love teaching it because, as a broker I’ve seen bad owners, a lot of bad owners and I’ve seen a lot of. Us make money off bad owners. And man, I can, I told maybe I’m not gonna share that story, but there’s some landlords in this business, honestly, they should be in jail, is my opinion.

They don’t take care of their tenants and that’s not what we’re here to make money, but we provide what you said, like a service. We’re providing them, housing their home and I respect their home and I wanna take care of their home. And I know if I take care of their home, they’re gonna take care of.

And so it’s a huge subject right now, man, because I if you’re overpaying for something right now in apartments then that’s where you’re gonna start trying to make up numbers, right? Is spend less time maintenance and upgrades, and you’re, you or I see owners as.

taking out all that money and maybe sticking in their pocket and not reinvesting in the property. And that’s very frustrating cuz that’s not how the business is supposed to go. Yeah. So let’s go deeper. What do you guys do on your properties? To increase retention. Oh, man. Events, parties, yeah.

You mentioned a referral program, but anything that our listeners can take and implement on their properties, definitely adding, cheap amenities if we can. Playgrounds, dog walking areas, dog, p dog areas. It can be as simple as one of my properties added a coffee station in the office, right?

Free coffee. And she said, it’s funny how many people stop in here every morning to have. Get their coffee and we have a variety and all the little goodies to go along with it. Little things like that. Birthday cards to, to tenants and their kids. C summer parties, all by the swimming pool.

Any kind of community event that you can add like that book clubs, DVD clubs. I think that’s probably on the way out. But a lot of those things, it doesn’t take, you don’t have to add a million dollar swimming pool like my friend just did. If he ever listens this, he’ll laugh. But you can spend, a couple thousand dollars on a nice little playground.

So there’s a lot of little cheap cheap, affordable amenities that you can add to make people feel like they’re part of a community and. Wifi in one place we have’s got a real nice outdoor seating area, so we have wifi there and a lot of the kids come after school and hang out in these Adirondack chairs and sit around and are able to log into the internet and right there by the office.

So that’s been a big hit for that property as well. Yeah. It’s funny you mentioned that, but one of the affordable amenities that we found is a hundred dollars popcorn. Oh yeah. And it’s funny because it’s great for leasing. It generates really good smell in the office and process can get it.

But we also tell all the kids on the property when you come back from school, just swing by, grab a a bag of popcorn and they, a lot of them come in. And I don’t remember where I, okay now I remember a good friend of ours, Maureen Miles. Oh, yeah. She’s the one that told us this little secret.

It’s kinda like kids come in and they talk , and then you learn who’s doing what on the property and where. So it’s also a next job, added bonus on the back end as well. But I’ve been in the office when they come in and get some popcorn and the mom is in the background and when that kid gets all smiley with a back of popcorn, that mom automatically smiles as well.

that goes a long way to what you just said about making them feel a part of the community, making their feel that they’re, somebody cares about them on the. Yeah, I’ve seen ’em. Do you know, Christmas decoration awards, Halloween type things and the coffee, cure. I’m sitting here looking at my cure egg, they’ll have a cure egg machine in there with hot cocoa, different types of coffees, teas.

Yeah, so there’s a lot of little things like that, just connecting with your tenants, knowing that we’re not just here to take your money. That we really do care. Renewal bonuses, that’s an, actually, let’s talk about that. Doing something to improve the unit as a, to keep a tenant and retain, retain that tenant.

It could be changing out the mini blinds or putting up ceiling fans, just cleaning their carpets. That went a long way. Yeah. Back, just saying, Hey, we’ll, you sign a new lease, we’ll come in there and put new blinds, cost us a hundred dollars and then get your carpets cleaned.

And they just, the tenants have lived in it for six years. And you’re cleaning it every year. It just helps you, right? Yes. And just taking care of tenants is the, is a huge thing. . Yeah. One more thing, you mentioned holidays and stuff like that is on Halloween, we basically ordered a $20 worth of face paint kit from Amazon and send up a flyer saying, come on in and we’ll do face paint for you.

And, kids come in and, get a little bit of face pin and everybody’s happy and they can go trick or treating with this thing. And it’s. . It doesn’t have to be expensive. Yeah, no, you’re right. People don’t expect necessarily expensive, big grandeur things. It could be a small thing as a $20 face paint kit.

And as an owner and as a community, you also get a lot of pictures of kids getting into the face paint and all that. You upload that to the community website and the Facebook helps with marketing, helps with traffic, helps with everything. Like you said earlier, if you give, you’ll get back and that’s, yeah.

And back to the gift card too. We used to do like an early bird special, right? So if you got your rent in before the first of the month, you were entered in for a, $25 gift card. To early bird. And another thing about the gifts too is if you do a party, like we’ve done a few in the summertime, we’ll get all of our vendors to give gifts, right?

Yes. Or give some kind of prizes so we don’t even have to buy ’em. We get ’em to go down and get gift cards from Starbucks or the pizza place that wants to market on our property and come and pass out flyers. Yep. We’re gonna ask you for some free pizzas for the party. Lowe’s, some of these vendors we use, we offer, we ask them to cough up, some of these, it doesn’t ha like you said, it doesn’t have to be hundreds of dollars, but, and so they pretty much pay for some of these parties as well.

Yeah. At and t Cricket, wireless cable companies, these are all great. We even had a hairdresser come out for a back to school event and give kids free haircuts. That was really great. So you’re absolutely right. Sometimes you can even get somebody else to pay for. . So that’s really great.

So we set up a model unit one time and just, we only needed it for three months. We were just in a lease up phase and we got one of the local, , rental furniture places to, to put the furniture in there and, their flyers. We were giving ’em out to every tenant that moved in.

And we sent them quite a bit of business for just allowing us to set up for them bringing, just a few pieces of furniture to furniture unit, make it look like a model. So that was another way, to get some tenants. And we didn’t have to spend any money.

Yeah. That’s fantastic. I think our listeners are getting a lot of great ideas today. You went that route and then stopped yourself, right? So give us a little bit of a horror story and then a funny story, right? Because I know you have a lot from both. Oh man. What can I share? Yeah, let’s keep it PG 13

And geez, I’m trying to think. Horror stories, man. I’ve man, oh, you put me on the spot here. Ob obviously doing eviction set outs, people trashing units. I’m trying to think. I, again, I’ll refer back to this story, just even this year, 4th of July coming in and there’s keys, underneath the door and I go and find this unit vacant and middle of July or, into July.

I had to spend about $5,000 to turn that unit that wasn’t planning on it. I hate things like that. Horror stories, funny stories, man. I’m trying to think. I’d say sometimes bugs, like the bedbugs gross me out. Roaches, you open a door and they fall on your head, right?

Cuz they’re in that crack above the door. That’s probably the grossest thing that I can talk about here that we’ve had to deal with. But lot of filthy people, I’ve learned that in this business a. Female college girls are gross. I learned that.

I they don’t know how to run a vacuum cleaner or wipe in. They might be neat and their apartment might look neat, but they’re pretty gross to me. I learned that college students a funny story. I had a unit that a gentleman came in real quick. He said, ma’am, my electric bill on this little 800 square foot unit was like five or $600.

And he said, man, there must be something wrong with the electrical. And I said I’ll send an electrician down. This is in the middle summer, middle Tennessee. It’s probably 105 with the Heini index. So the electrician comes back. He said, man, there’s nothing wrong with the electric. He said, it’s the Hi ac.

I said what’s wrong with the ac? He said, the guy has the unit set at 50 degrees. . . And I said, what? He said, yeah, that it’s just running constantly. So the gentleman, young guy, I think he was a freshman in college, sophomore, he came in, I said, man, there’s nothing wrong with your electrical.

I said, but your AC unit can’t keep up. It only can drop it so many degrees. And he just had no clue. He thought everybody kept it at 50. I said, it probably needs to be more like 75. And so I said, that will probably help your electric bill. So it’s head scratchers like that, that you’re.

Man, like how have you survived this long in, in life? Yeah. I’d say those are some of the funny stories that, you just scratch your head. Okay. Now let’s get serious again about operations. Oh, now we gotta go back that way. Okay. Yeah. And talk about increasing value add, right?

Increasing income, right? Yeah. 3, 2, 3 ways. That is not the obvious raise. Or raise occupancy two, three things that you guys do on your properties to increase the income. Always Rebidding insurance. I think that’s a big thing is always having, re you know, on the expenses with the company.

That’s, let’s talk about the income. We’ll come back, talk about the income. Ok. So I, no free passes . Right now, prime example is we’re replacing all the appliances at one property. Again, back to you, your property management company gave me a very good suggestion, something I wasn’t even thinking about cause I’m not there.

They’re getting the feedback from the tenants and they said, we think if. Replace all these appliances with new black ones. We’ve got the old almond, probably 15 years old. We think we can get six $69 more a month for every unit just by putting black appliances. They started buying the A package as a stove, a fridge, and a hood vent for A thousand dollars and we’re getting a $69 rent pump.

If you do the math, it’s about a $900,000 increase in in, in value just by doing something simple like that on a six and a half cap of $70,000 NOI increase. Simple things like that. You don’t always have to go for the home run. Maybe it’s $5 or $10 here or there. So a hundred dollar.

every dollar counts and mostly every dollar counts when you’re on a hundred units, 200, 300 units. The multiplies, right? I love apartment complex math. That’s what I tell people. Cuz it, $5 here and there. And when you meet these owner operators, mom and pops that are say, oh, it’s only $5.

It’s only $10, as you’re probably losing hundreds of thousands dollars in value. So the appliances upgrading flooring, Pet, pet rents, pet leases, things like that are something that we commonly do. I’m trying to think on the income side right now what we’re doing.

Honestly, I really, a lot of these things I, I don’t deal with on a day-to-day basis. Okay. Let’s switch over to the expense size, Dave. Yep, I’m here. Sorry, my internet or some internet just froze. Okay. Let’s switch over to the expenses side of things and give us a couple things over there.

You mentioned the insurance, rebidding the insurance.

Hold on, you’re frozen again. Okay, because I got your picture frozen. There you go. You’re back online. Can you see me? Yep, I can see you. Okay. Okay. Hailey, we’ll have to edit this out, so give her three seconds of silence and start again. Okay. Sarah, let’s switch over to the expense side of things. I, you mentioned repeating the insurance.

Give us a couple of things. Yeah. I think even on the renovation side or turn turns of a unit, making sure that you’re doing the right things that actually see a return on your investment. Got not going overboard on some of your renovations. I know a lot of people using like vinyl plank right now we’re still using sheet vinyl cuz it’s just a lot more affordable.

And just all your vendors, I think you gotta go through all your vendors. For, here’s a prime example trash, right? You, there’s one company with a w and an m that just loves to go up with their trash dumpster fees every year on an escalation clause for no reason.

And if you don’t call ’em out on it, they don’t do anything. So I actually met a lady here in Nashville, that’s all she does is rebid trash. And she saved. Thousands, I’d say a year on some of my even smaller properties. And making sure, just going through there and all your line items and just seeing if there’s anything at landscaping, can you re-bid it out?

And so anything that, it has any kind of contract on it annually, you need to be going back and looking at those contracts and seeing if there’s any way to, to save yourself a money there. One of my properties I bought had a master cable contract on it, and it wasn’t common for the.

Place it was costing me $33,000 a year to have basic cable in everybody’s apartment. And so we eliminated that. And, there was definitely a, 10% of the property that was not very happy with that. But the rest of the property didn’t really care because the basic cable wasn’t what they wanted.

They wanted nice internet and, a better package. Yeah. So that was one, one thing that we’ve always done, but I think on the renovation side, finding the right vendors to do your turns is huge. Finding that flooring company, if you’re gonna use third party, That specifically does apartment complex type flooring?

Yeah, I know that’s that’s a really good tip on the renovation, right? Take a look around what everybody else is doing. Don’t do under that because you won’t be able to get your return on your money, but don’t overdo, because again, you won’t see a return on your money. So if the market is. Vinyl sheets.

There’s no point in doing planks, but if everybody in the market is doing planks, you don’t wanna be the last one still doing sheets. Yeah. That’s a really good point. . So if you look at a young operator, somebody that just syndicated their first deal or 10 31 from a fourplex into a 20 unit what would be your best advice?

Find that good management company because again I’m gonna drill down on this. If you find that good property management company, they know what the. , should, you should have, if you should have vinyl plank or sheet vinyl, they know the improvements you should make. Is it on the H V A C units or is it put in, tile or is it replacing the what were we just talking about?

We just talking about something the appliances. Okay. They’re gonna tell you, you know what the biggest bang for your buck, you’re gonna. and they have all those relationships set up. So I think that’s the biggest thing is, you’re paying for their advice and their education. Almost ho honestly.

So find a good property management company and make sure you’re looking at, first thing I do is when I go to look at different markets is this, is there multiple property management companies available in that market? Because I’ve made that mistake, I’ve bought properties where, I’m honestly having to really handhold or do a lot of property management stuff on my own that I never planned to because the market’s too small or the property’s too small and And I’ve been spoiled in some of my other properties.

So it’s, it is one of those little learning curves, learning things that I’ve made is making sure that you’re looking in markets that have, not just one, but a couple management company as options. If you don’t plan to do it yourself, line yourself, listen to those people and have realistic expectations.

I think you and I have talked about this. Some of these people think they’re gonna buy a property and in, in 60 days or one, even one year, they’re gonna double the rents. And I’m just like, man, this is not realistic. And if the property was vacant, yes. But what are you gonna do with, this little old lady that’s your grandma that’s been living there for 35 years?

Are you gonna kick her to the, out? And there’s just a, again, back to your’re dealing with people’s lives. Set your expectations, realistically. And if you don’t know those, reach out to yourself or me or somebody that knows what they’re doing to analyze and look at that deal and tell you if you’re crazy or not.

And I feel like I talk more people out of not buying properties in case than I talk ’em into buying properties because of things like that. Yeah. We’re both brokers, right? My, my listeners know that I’m a broker too, of multi-family. And we both see other brokerage, I’m not gonna name names, but the big guys out there that have extremely optimistic performers with stuffing there that basically suggest that whoever built this performer has never operated a property, right?

If they put a 1% loss to lease year, , it’s kinda like it tells me that you’re gonna spend so much money on CapEx on turning units because 1% means you take the guy that pays $760 a month and kick him out because the market rate says 795. And it’ll take you four years to see your money back, but hey, you got market win.

That’s . That’s really where you gotta build these things into your underwriting a little bit better. Because again, looking at the closing table is one thing, but remembering that at the end of that sprint there is a whole marathon of operation that awaits you, is something that a lot of people not considering these.

Just on the expense side too, I, I tell people go down in that marketing package to the total expense divided by the number of units, and if it’s 1900, 2000 a door, there’s no way, you’re not gonna run it that cheap. And you gotta be realistic. Suddenly these little, 80 unit complexes I’m at 5,000 a door expense rate.

It’s just what it is. And, I could probably try to shave off, Some of it’s insurance cuz of the location in Florida, it’s expensive to run these proper properties the right way. Now I tell people, if you are gonna go live in that city and you’re gonna mow the grass and you’re gonna manage it, and you’re gonna be the leasing agent and the cleaning lady and everything else.

Then, yeah, you might be able to run it at that, but to be an investor is different than that. So just be realistic on those expenses of what they’re, and then you gotta put money away for that, oh shit. Time, right? the things that you just don’t know that are gonna happen, the, this, so man you’re touching on so many critical points, . I just wanna re recapture a few. I talked, man, I love this subject, . I love this stuff. Just a few things to recapture for our audience, right? The cost to operating unit is gonna fluctuate. A lot based on the property sized location.

Age, obviously, running a 2012 property is gonna be cheaper than running a 2000 a 1964 property, right? Just because it’s newer. If you have a pool, that’s cost. If you don’t have a pool, you don’t have that cost. If you’re in a flood zone or your hurricane zone like Florida, it’s gonna cost you a lot more than, I don’t know, west.

So it, it’s really, it’s a lot of factors and you can’t just put everything into the same box and expect everything to average out at the same spot. Let’s stop right there. Let’s stop right there. Stop using 50% expense ratio crap, cuz that just, that is not, maybe it’s a good place to go.

Should I pursue it deeper and spend more time? But don’t use that. Okay. People please don’t just say, oh, it’s gonna be 50% expense ratio. So let’s go on. I had to say that. And no really there’s a lot of industry benchmarks out there and the, it’s not that they’re not true, they’re absolutely true cuz it’s a industry wide average.

But you look at a 200 unit that sits on four acre of concrete, concrete and 200 units that sits on 20 acres of grass. Their landscaping cost is gonna be dramatically different, but they will average out at the industry. So while the industry average might be true, you gotta really look at the property that you are buying to understand your operating costs.

Yeah. And your mowing in Florida is gonna be more than in Michigan. But then you’re gonna have snow removal right. In Michigan. So it, it, you just gotta look in and understand. That’s what I’d say a mistake I made that luckily I had enough wiggle room and a deal was the insurance in Florida, cost me a lot.

It was to double what it is here in Middle Tennessee, and. Hurricanes come and storms and your insurance rate goes like this. Yeah. And so again, I had enough room in there and that was a lucrative enough deal to where it I absorbed that oh moment. And so you gotta be prepared for those type of times.

And that’s another point I wanted to recapture for our audience is that you, I’ve seen a lot of underwriting from investors that kind of assume that. If they need a hundred thousand dollars to close, they need a hundred thousand dollars. You can operate a 50 unit or a hundred unit, or 200 unit property with $0 in the bank day one.

Even if you close on the first of the month, it still takes a while until you raise your money, until you collect your rent. You have payroll, you have vendors that needs to be paid. You’ll have deposits when you get started. We bought a property that had three year old boiler on it, right? And a year later that boiler died.

$25,000 expense that we did not see coming. If we didn’t have that in reserves, Everybody talk about we put reserves $300 a Yeah. But that takes a while until it builds up to build up. Yeah, definitely. We have a rainy day fund aside of what you raised for buying the property.

Just for operations. That’s, so lemme talk about that. I have a HUD loan and HUD makes me maintain a couple hundred thousand dollars reserve account for that. And there’s days that it frustrates me because they have that much money tied up. But then there’s days where I just don’t have to worry about things.

Because I. There’s there, that property is super, super liquid and that’s how they’re able to make it non-recourse and make it a 35 year loan. So I’m thankful for that. In those times, like you said, you, you just I went down to Florida the other day and they said, man, we’ve gotta put this $7,000 sewer pump in.

I didn’t even know we had a sewer pump. It’s like a grinder pump. And they said, we fixed it, but it’s finally time to replace it, $7,000. And I was like we just have to bite the bullet and and replace it. Or maybe we budgeted for it this year and we hadn’t put it in the budget.

Yeah, you definitely need to, be ready for those type of things, like you said. Yeah. Awesome, man. This has been fantastic. One last question I usually ask all of our guests is if you could go back in time and talk to young Dave. . And no, you cannot tell ’em that 2009 is the bottom.

Bye bye. Bye. Two nine. Other than that, what would you, what’s the best advice you would give to young Dave? Okay, so get coaching, get good coaching. I’ve really learned this business, just trial and error, and it’s actually not, recently where I’ve gotten in mastermind groups and.

And gone to more conferences and reached out and learned. I did it. I learned a lot just from doing it. And I wish I would’ve spent, and I wish I would’ve had the funds, I guess back in those days when I was starting this to find good coaches good training. I think they, you got frozen.

It says the internet is unstable. Can you hear me still? Oh you were frozen for a minute, so let’s take it back a little bit. Just answer the question again. You hear yet? Shake your head. Shake my head. Nope. Nope. Not yet. Oh, I can hear you. You still there? See you move. Yeah, I’m here now. I’m still here.

Yeah. You okay? You got frozen too now? Can you hear me? Let’s keep trying. Can you hear me,


Hailey, I’m sorry. You’re gonna have a lot of editing on this one,


Hello. I’m just gonna get we lost you. Okay. Huh? There you go. Okay. Let’s just wrap up. Can you hear me? Yeah. Will you wanna just ask me a question again? Yeah, I’m just gonna ask the question. Okay. Alright. Okay, so a question we ask a lot of our guests is, if you could go back in time to 10, 20 years ago when you just got started, what would be the best advice for young Dave?

Assuming you cannot tell yourself that 2009 is the bottom line, yeah. I think just, spend time learning this business. Follow guys like me or yourself or intern in the business. And I think on the, on, on the property side, I think that’s probably one of the most important things, I think learning how these properties operate on the operational side.

But even if you have to pay for training, pay for coaching you’re, I would’ve made a lot less mistakes, probably made a little bit more money if I would’ve spent some money up front. I didn’t have it. But I learned the business just from school, hard knocks and I wish I could have combined that with some professional coaching and put ’em together.

So that would be my advice, is before you jump in and people are gonna take that the wrong way, cuz then they’re gonna study this for years and never buy anything. I’m not saying that, but I’m saying, really learn or associate or team up, with super successful people that have a proven track record that’ve done it.

Yeah. That’s great. I want to thank you so much. This has been an awesome interview, a lot of really great nuggets for our listeners. Why won’t you tell our listeners where they can find you if they wanna reach out, if they wanna send you a referral for your broker business or they wanna buy in Tennessee how can they find you?

Yeah, so you can find me on Facebook, Dave Childers. It’s c h i l d e r s. Instagram. I don’t really use Instagram for business, but call me on my cell phone. I’ll give you my cell phone number. It’s (615) 479-8737. Connect with me that way. So Dave at Cedar Rock Cap, all one long.

Big word, cedar rock More information about me. Contact me there. Search me out. I’d love to talk. Great. And we’ll put all those contact methods in the show notes. I wanna say thank you again. Been a pleasure. Yeah. Thank you again for, putting your time and effort into putting a great podcast like this on a subject that we need to be talking a little bit more about.

And I hope your listeners will watch all of these and really learn about the operational side of of this business. Awesome. Thank you so much for us to li for you, the listeners, if you wanna find more about us,, that’s our website. We put all of the videos on YouTube and we’re on iTunes feature.

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