Episode 107: If The Market Can Support It with Ben Suttles - The Apartments Operators Podcast

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. I appreciate that, Joseph. I, hopefully I can add some value to some of your listeners here.

I have no doubt you can. Let’s take a few minutes just like we do at the beginning of every episode. Tell our audience a little bit about who you are, what you’ve been doing, how your portfolio looks like today and then we’ll take it from there. Yeah like you did Ben Subtles. I’m a co-owner of a company called Disrupt Equity.

Me and another gentleman named Ferris Musa owned that. It’s we’re based outta Houston. We were both born and raised here. We’ve li lived elsewhere, came from the IT industry probably about five, six years ago. Gone into commercial real estate started focusing on multi-family, and 14 bought first deal in 2015.

And we’ve just been off to the races ever since. We have roughly about 1500 units, across nine properties both in Texas and in Georgia. Those are our main kind of primary markets that we focus on. We’ve got a lot of deal flow coming out of there. There’s a lot of good reasons why we focus on those those markets and we look to increase our portfolio from there.

But yeah, love to add some value to folks and answer any questions that you have. Awesome. Let’s talk a little bit more about your world, right? What do you do? So you have two main markets. What kind of asset classes do you guys usually buy? Yeah, it’s gonna be mainly the workforce housing and I think that.

That kind of gets a bad rep when people don’t understand that actual terminology. It’s not, doesn’t mean section A, doesn’t mean tax credit, doesn’t mean any of that stuff, right? It just means affordable. So we tend to focus on stuff with across our whole entire portfolio. To give you some perspective, our average rents are eight to $900.

Across the whole entire portfolio. It’s mainly gonna be class C, class B, stuff in Class C and class B areas. Everybody loves those diamond in the rough, properties where you can find a class C or B in an A area. Most of the time people are sitting on those and. Yeah, even if they do come up for sale, they’re way too expensive anyway, right?

Because the seller knows what they’re sitting on. Obviously you have to be aware of the submarket too when you go and buy, but we tend to gravitate to those types of deals because that’s where we see, where we can create some value. A lot of those properties are either tired, they just haven’t been updated in years.

Or there’s just a lot of deferred maintenance or they’re being mismanaged. A lot of ’em are mom and pop operators. Where maybe somebody’s been sitting on it for 5, 10, 15 years. We’ve bought a property where. We’ve bought it off the actual original developer who’d had it for 35 years and willed it to his children and finally the children tired of it and we bought it from them and actually got it at a pretty good price point too.

But so we look to target those types of deals where we can increase the value. We’re not really in the market to. Buy turnkey properties or yield plays, we just, that’s not really our focus. We’re looking to where can we drive that value to buy infusing capital into the property and managing it a little bit more tightly.

Gotcha. So one of the basic questions we always ask is self-manage or third party. That’s a good question. I was actually having a conversation with another gentleman a couple days ago about this. So currently we do third party. It’s something that we might bring in house and I use that real loosely.

I would probably buy into a property management company. Just because I just feel like it might be brain damage for us to potentially have to start one from scratch. And that’s not, no offense to anybody that’s gone down that path. I know that there’s a lot of successful operators that have started it from the ground up.

I tend to say, Hey, let’s focus on our strengths, which is buying deals. So from our perspective, we’d much rather buy into maybe a controlling piece of a good operator, a good property management company, and then they operate our properties. But currently we have third party. We have two main ones.

I also work with a third one on one property and a tertiary market. But we tend to focus on how can we have a good asset management layer over the property management. So we really, when we’re working on our business, we’re trying to streamline and make more efficient, make more profitable that asset management piece.

In between the property and the property management, you got asset management, then you’ve got obviously investors and LPs and gps and stuff like that. So we tend to want to focus on how can we be better asset managers, and once again, from our perspective, if we can. Focus on that versus the property management.

I feel like we can in, we can increase, the profitability of the deal by, having the flexibility to fire or get rid of the third party if we need to. But something that me and Ferris are aware of that to take it to the next level, we might have to bring that in-house. And so we’re, that’ll probably be a 2020 or 2021 goal of ours to, to identify some good property management companies to buy into.

So let’s put aside for a second that this, that decision to create or buy into I wanna focus on the notion of bringing it in-house. What drives that conversation between you and your partner right now? What are the reasons that you just said it yourself. If I want to take it to the next level, I gotta bring it in-house.

What made you get to that conclusion? It’s not necessarily us, and once again, this is not anything against third party property management companies. They all have their deficiencies, let’s put it that way, and ultimately they don’t have a whole lot of skin in the gaining, so you have to watch them very closely.

So that’s probably driving it the most. We also have a lot of conversations with Think private equity, think family offices, those types of folks. Those types of firms. And a lot of what they’re looking for is a vertically integrated. Commercial real estate company. So in the, in their mind it’s one neck to choke.

And we get that, we came from the IT world. It’s all about efficiency, productivity, automating, being more efficient across the board. And so we understand that having that third party is, can be perceived as being inefficient. But at the end of the day, like we’re trying to balance flexibility as well as growth and trying to focus on our strengths.

And so that’s why we haven’t brought it in-house. To, to drive it home. I think ultimately it’s two pronged. It’s two ultimately. We feel like we might be able to do a little bit better job if we had a controlling piece of a property management company, because we’re gonna get the lions share of the attention.

And then also just from a marketing and building our brand standpoint, we can go back and say, Hey, we’re also vertically integrated. That goes into other business too, right? You look at the p and l, you have a lot of expense items that, just, I’ll use a crazy example, say plumbing. If you’re, if you have enough of a portfolio and say, one market, I know you, you have some stuff in Lubbock. If you have enough of a portfolio in one market, you just buy into a plumbing company. And then guess what? You know that becomes revenue, right? No, and I’m not saying, you still have to be, there has to be like a hands off approach to it, right?

But you can start looking at the different line items and the expenses and say, what could I potentially buy into to make the overall investment more profitable, more efficient? And so I think the first step for us is buying into that property management piece, and then we’ll start taking out those different layers to get to that vertically integrated.

Firm that we envision over the next five years. That makes total sense. Yep. So let’s talk about third companies that you work with right now. The third party, how did you find them? What are you looking for in a third party property management? How do you know how to evaluate them? Because a lot of the time, people that buy their first property or even the first property in a new market, right? Cause you are in two different markets. How do you come out to a market you don’t have any experience in or any assets in and evaluate? The local talent for that matter? Yeah, I would say rely heavily on referrals because if you just start, say you go into, I don’t know, South Carolina, right?

You don’t know anything about South Carolina. You don’t know anybody that operates in South Carolina. You just start Googling property management companies. That’s really like a shot in the dark. So we went into Atlanta. But the, and this was, we thought about this strategically, why we went into Atlanta.

One of the reasons was one of one of our third kind of silent partner on a lot of these deals is a gentleman named Mark Kenny. And he was already there. He was being suc, he was having some success in Atlanta. And I think from our standpoint, he, our, he also had a Rolodex of people that we could leverage getting into Atlanta at the same time.

And one of them was a property management company out there. And so we still did our due diligence. We still interviewed I think maybe three or four, and we felt most comfortable with the one that, that he had. And we’re now starting to get some economies to scale too. So we’re able to get fees down.

We’re able to, for example, bid out our landscaping across our whole entire portfolio through them. Really leverage that, that that relationship. But I would say first and foremost, try to get referrals from people that you trust, not just, you’ll see a lot of these people, you probably see ’em on Facebook, oh, I need a referral from this.

And you got that. Random people, and I’ve even chimed in. I’m like, take it for what it’s worth. My two senses is hit this person up, but. These people don’t even know me, right? So you need to, take referrals from people that you trust, know, and and then go out and still do your due diligence, and I’d also say shop their properties. I’d say gimme a list of the five properties. Just randomly five, they’ll probably pick the best five, right? They usually do. But go out and secret shop. Those, is the property clean? Is the staff well kept and in a uniform? And do they, are they friendly?

Are they are, do they do the leasing process correctly? All these things are important to verify for yourself and then have a checklist of things that are important to you that you want to, say, okay, if they hit. Eight outta these 10 boxes they’re at least in the money.

So and so go through that process too and validate those, because otherwise you’re just going in cold and it really is, they, and property management company can make or break your deal within months. Yes. So it’s important to really pick those people very So what are those boxes for you?

What are you asking? What are you looking at? Secret shopping. The property is a really good advice for our listeners. I’d say don’t even ask the property management company. If they have a website, go figure out on their website what they manage and just show up unannounced.

I usually like to do that. What are you, for example, what are the boxes for you? What are you asking? What are you expecting to hear back? Is there a certain size that you like because we hear a lot of the Goldilocks kinda idea of not too small, not too big, somewhere in the middle.

What’s your preference in, in a property management company? So I do believe in that goldilock zone because if you’re, if they’re too big, And you’ve only got one or two properties with them, guess what? You’re not gonna get a lot of attention on that. Even if there’s a problem, you’re still not gonna get the attention that you need.

So I, we tend to gravitate to people that are probably five to 15,000 units, because at least at five, they’ve got their processes, they’ve got the access to software, they’ve got the kind of the bench. Hopefully at that point to be able to manage, our portfolio and then go up to a 15, beyond that, you start getting into some folks where you might still, where you might become a number.

So that’s probably first and foremost, how big are they? The other thing is too, where are they located at? And how are they, how do they disperse among, cuz I, we’ve had property management companies that are very centralized. Then we’ve had ones that are spread out, right?

Where they have regionals in different areas. Maybe they have a VP over here, VP over there. They all will spin it like this is the best way to do it. And I think that you have to determine on your own, Do I want them to have an office in the area or am I good with somebody driving in on a weekly basis?

So that’s the other thing. Where are they’re located at and how do they, how do the regionals work? The regionals being the people over the onsite managers. How frequently do they visit the properties? I also look for referrals from them. Once again, you could.

They’ll probably give you the best guys and gals, but you still want to call and usually those people are gonna they’re gonna give you some of the dirty laundry too. But, so you gotta look into that as well. So you’ve got size, you’ve got where they’re located at. The other thing too is what kind of asset classes you have, property management companies that do different things.

You’ve got some that will, that are all right. Managing smaller property. Some that won’t touch anything less than a hundred. If they did, they still have a minimum, which might kill your deal. Some that, that like a and b deals and they will not touch a Class C deal. Some that might touch a Class C deal, but do they don’t want heavy value add deals.

And we’ve come across some deals where not a hundred percent boarded up, but maybe had 20 or 30 down units great play for us where we can infuse some capital, bring those down units on and have a good business plan, but, Some people don’t wanna mess with that because it’s a whole different, it’s a whole type, a different type of asset that they have to manage.

There’s a lot of rehab, there’s a lot of contractors and stuff like that. So make sure that they’re aligned with your business plan too, because you’re not gonna get a Class A person in a Class C that’s just not gonna be successful. Yeah, I wanna reiterate that because we ask a lot of the same questions all of our guests and that advice is just pure goal cuz it’s been repeated over and over.

If you’re a listener, you’ve heard that multiple times from most of our operators. Find the property management that manages the same asset class is the one you’re buying. If you’ll take a c class property measurement to run your A class, it’s gonna become a C class real fast. And unfortunately doesn’t work the other way.

If you’ll take an A company to a C class, it’s not gonna be an A class and they’re just gonna bleed money cuz they’re gonna spin like it’s an A class. And they won’t be able to handle and collect and so on. That’s just a gold advice that we keep hearing over and over. So I just wanted to reiterate that.

No, absolutely. And I wish it was that way, right? You could take a gray star and, oh, they’re gonna make your class C it too into an eight class property. The one other thing that I like too, that I’ve seen with some property management companies is the ones that. Are willing to go do property tours, willing to put budgets together, really willing to earn the work versus, yeah, I’m only gonna talk to you after you have something under contract.

The other thing that I like to see too is honesty. So you’ll have people that will say every single deal that you bring across their desk, it’s oh, this is great. We can make a ton of money. Their pro forma budgets look like pure gold. I like the folks that are honest, and we’ve had a lot of those where they’re saying, don’t go chase after that.

Ben, you we’re not even gonna manage it. If you get it. And those are the types of folks that are like, okay, they’re straight shooters. That’s what I need. I need somebody that’s gonna keep me outta trouble because, we’re based outta Houston. I can, it’s just not feasible to get to every single property that we’re looking at right away.

Now, don’t get me wrong, if I’m invest in final or I’m gonna sign a contract, we’re gonna go see it, right? But if we’re at the very beginning, parts of the stage where we’re just analyzing the deal. To maybe potentially make an offer. I’m relying heavily on my knowledge of the area as well as the knowledge of my property management company, and they’ve gotten us they’ve kept us outta trouble.

So you have to, I like those people that are candid and say, Hey, don’t go after that deal. Or they’ll be candid about the area. Yeah. The area’s. All right. But I don’t see that transitioning for another 10 or 20 years. Yeah. So now you know what you’re, you’re never gonna be in the path of progress.

So on the back end, then it’s gonna be you’re gonna be, trying to sell that story where people are gonna be like, eh, the area’s. Alright. So I like the, I like when people are candid and honest with me as well as a property management company. Yeah. And that’s just another point when somebody’s weighing the options between self-management and third party.

Third party brings a lot of experience most of the time, and usually unless you bring a third party with you from out of town into a new market. If they’re present already in the market, they have a lot of knowledge and a lot of history. And if you add up between usually the owners of the property management and the regional supervisors and the onsite managers, They have decades, if not centuries, of experiencing that market, knowing all the properties and all the history and all the pitfalls.

And it’s kinda yeah, don’t go over there cuz as soon as you cross that highway, it’s all going to be a rough area or don’t go to that property. They always have plumbing issues or. All this kind of piece of information, and it’s like you said, Ben, it can really save you from making a terrible mistake or at least a very big financial mistake.

So that, that’s a really good point. And one other thing to reiterate too, they’ll give you advice on the area, but like you said, some of these people have been around for decades. We have property management, especially the owners and the regionals, the VPs, the kind of the people that have been around.

Oh yeah, we managed that back in 96. So they literally know the property cuz they’ve managed it before, right? Yep. And they’ll say, Hey, the plumbing on that deal is, You’re always gonna have a plumbing problem. Plumbing always leaks. So I love to see that. And then on top of that, they’ll have specific expense knowledge of certain areas.

I’ll give you an example. So Atlanta is made up of a lot of different counties. Atlanta m msa I think is like 29 counties. We usually, I think we play in about seven of ’em. So ultimately, each county is different in terms of how they operate. And DeKalb County is one of ’em that’s just notorious for, just being very onerous in terms of fees and citations and, Deposits and just being just a big pain to work with and we’re not gonna know that, going into a new market. And so they explained Hey, this is what you should expect from DeKalb County in terms of operating a property. And they were spot on. I’m glad that we knew that information because, you you, you wouldn’t have known that and then you would’ve been caught, not be prepared for some of the stuff that they try to pull on you.

And you have to have that that person or that, that firm and you’re, on your side to steer you outta trouble with these with some of these properties and some of these areas. Yeah, that, that’s a really good segment. I’d like to hear more about. How did you decide to go into a new market, which is not your backyard, and how is it different to operate between your backyard and a different state kind of market?

It’s definitely, it takes some getting used to, I think that’s where a lot of people have a lot of hesitation. So you have to be prepared that it’s, you’re gonna manage it differently, even asset management differently, because you know you’re gonna have to, obviously you’re gonna to go on a plane versus just driving over there.

That’s the first and foremost. So there’s gonna be a little bit more expenses. So you have to be very diligent in terms of, how much is it gonna cost to actually lay eyes on this as frequently as I need to. The first, at least six to 12 months while you’re going through your value add, you’re doing your rehab, you’re stabilizing the property.

So you have to take that into consideration. But we ultimately, Texas is a very hot market. It will continue to be I’m very bullish on Texas, but the one thing that a lot of people probably realize that no Texas is that it’s also very. There’s just a lot of syndicators here and they’re all going after the same class B and class C stuff.

And so it, it’s very competitive. And so we were, obviously, me and Ferris are from Houston, but we hadn’t we couldn’t find a deal here. We still can’t, we still don’t to this day have a deal in Houston, which is pretty disappointing cuz I love to have one right down the road. But ultimately we started about two and a half, three years ago, we started researching other markets that were.

Similar to Texas, but weren’t Texas. And we came across Atlanta and we knew, obviously we knew our third partner had some deals out there too, but I really didn’t pay attention to it until I started running the numbers, looking at the statistics, looking at the reports, and Atlanta just kept hitting all of those boxes.

And that was first and foremost is it gonna be what we want it to be in terms of a submarket that we wanna invest in? And everybody knows the obligatory stuff, population, job growth, tax friendly, business friendly. Georgia has all of that stuff. The other reason that we picked Georgia too is Elena Hartsfield is the biggest.

Airport in the country. In fact, I think it’s actually the biggest in the world. And so you’ve got a lot of flights in and out. So from Houston, I can take a 6:00 AM flight. I’m in Atlanta by eight 30. I can go see our whole entire portfolio that day and I could fly back that night. So it’s not even, in fact, it’s probably easier to get to Atlanta sometimes than some of our portfolio here in Texas, just because it’s just a direct flight.

So the other thing that I would also tell people is, Not to say that you can’t find deals in some of these smaller markets, but just take that into consideration. If it takes you, if it takes you a better part of a day just to get there, then you’re there for a whole day and then you gotta takes you a whole nother day to get back.

Where you’re having hot planes or you’re having to drive there and it takes six hours, just be careful, so our thesis is it, if it’s within three to four hour driving period or within a two to three hour flight, we’re gonna we’re gonna look at it and preferably direct flights, not something that has a connector somewhere else where I’m gonna have to hop off a plane and go somewhere else.

That’s the reason why we liked Atlanta as well, because it’s just logistically, it’s easy to get to. So that was another reason, that was another box that, that Atlanta checked off for us. But there’s other markets that we’re looking into as well, and they all have to hit those same things, right?

But be prepared that it’s gonna take a little bit more hands-on, especially the first six to 12 months because you’re not there and the property management company knows that you’re not there. So just make sure that you’re laying eyes on them. Just pop in. Let them know that you’re willing to fly out there, drive out there and lay eyes on the property quite frequently and give them the criticism or the feedback that they need, in order to be successful. Yeah. And that’s one of the things that a lot of the people out there don’t consider as part of operators. You’re gonna have to be on site and in the trenches more often than most people realize. Yes. Once the property is smooth sailing and everything’s stabilized, maybe you can go down to like once a quarter.

But if you are doing any value add that requires exterior and working with contractors and interior and so on, you’re gonna be on site in the first six to 12 months quite a bit. And like Ben said, if you need to take a two hour flight and then another two hour drive that ne that becomes a three day affair.

Yes. It’s not an in and out the same day. So that’s something to really quit that is really critical to pay attention to to that account. Did you ever had a property that had something going on that you actually had to be there more than like once a month? Yeah we’re usually on site for the first six to 12 months.

Cuz remember, our business plan is really it’s the value add we’ve got. We’ve always got at least a million or 2 million going into our properties. So there’s a lot of coordination with that. And on top of having to manage a general contract, you gotta manage the property management company pretty tightly too, because it’s, there’s a lot of things that are in flux.

Tenants are pissed off, there’s a lot of construction, there’s a lot of moving pieces. So you really have to keep them, accountable during that timeframe too. So between me and Ferris, and then our asset manager, you we’re on site at least two or three times a month. For the first six to 12 months on, on each of our deals, just because we feel like the more frequently that they see one of us and the more frequently that we’re giving them feedback and guidance and keeping them on the right direction the more they’re, they keep on their toes.

And it’s not all, like I said, it’s not always. It’s gonna be, I’m gonna give you a heads up that I’m gonna be out there. I’m just gonna go out there and I don’t care if you don’t like it or not. And guess what? I’m expecting a regional to come out there too. We’ve had some people push back, oh, you need to gimme a heads up.

No, why do I have to give you a heads up? It’s my property. Exactly. And I’m out here and I expect you to come out here and visit me because we’ve got issues or I’ve got questions or I’ve got something to do. Ultimately I would say that be prepared that yes, you will have to be out on site.

Now, the frequency of that, I’ll leave that to u That’s just our personal preference, just because we have a lot of rehab going, but I would say at least once a month, and I would vary it up. I would not, and sometimes I would tell them that you’re coming in, sometimes I wouldn’t. And keep them on their toes because the property management companies also tend to get lazy.

And maybe the property, the trash hasn’t been picked up or, there’s always blinds that are messed up or something just that they get lazy. You say, Hey, that’s not the, that’s not the type of property I wanna run, or the other way around, right? They know you’re coming so suddenly things happen that wouldn’t normally happen when you’re not there.

And I and I still today have to remind them guys, Don’t do anything special just because I’m coming to town. I don’t want you to go get behind on your work orders or neglect any of our residents just because Joseph is coming to town. That doesn’t work this way. Yeah. That, that’s a very good point.

And one thing I wanted to also point out too, Joseph, is there’s third parties that can also help shop the property as well. I think on top of onsite visits, which are huge, I think you should also incorporate a third party or maybe either yourself acting as somebody else or somebody that you trust.

Secret shopping. The property as well. We have a third party that we work with where they’re gonna call the properties at least a couple times a month. Make sure that the leasing agent and the onsite manager, whoever’s answering the phone, is hitting these boxes that they’re supposed to be hitting, and they get graded.

And then on top of that, if they fail that or they get and they get bad scores or score scores that we feel are subpar, we’ll do an onsite shopping of them as well. And we’ll use that as feedback to them. It’s not to get them into trouble it’s always in a, an effort to improve them. And then sometimes that leads to people that have to get let go.

But you’re only gonna know that if you’re actually out there doing the due diligence that you need to on these people. So that’s just another way of keeping them on their toes. And it really, it’s actually fairly inexpensive to, to find, there’s, you can find these people online. It’s just a secret shopping companies.

If you’re happy with the service give them a shout out and we’ll add that into the show notes as well. Yeah. Let me get the exact name. I usually have Neil, who is our asset manager, do that, but they’ve done a really good job for us and I’ll send that over so you can have that in my notes as well.

Okay, fantastic. Yeah, we’ll do that. Anything like pieces of technology and stuff like that you can think of, that would be great. Useful for operators feel, please feel free to mention them. The one thing that, that really has helped us, because there’s, like I said, there’s a lot of moving pieces on these is Asana.

So Asana is just pretty much a project management, task tool that you can use. But when you’ve got, and we’ve got ’em per property and sometimes even per property, we’ve got subtasks and they’re there where there’s projects per property, right? You’re assigning tasks to people.

There’s all these moving pieces and that allows you to schedule it, assign it, and keep track of it. So I think that, that’s also something that we’ve incorporated that’s kept a lot of things off of email. And we’ll invite our property management company to our sauna platform as well.

And that we assign tasks to them and say, Hey, where are we at on this? This was due last Friday, it’s now Tuesday, it’s late. How is that working out for you? Eh, it’s been a little bit some adopted better than others, obviously I think it just, some people aren’t used to, we’re very hands on.

And so if I need to talk to my onsite manager, I’m not going through the VP to the regional, to the onsite manager, I’m just gonna pick up the phone. I’m gonna call, I’m gonna call our onsite manager. And some people don’t like that. Yeah. And also on the flip side, some people just don’t like, us being that hands-on and dictating, or trying to guide how some of this works.

But the ones that are that we have had a better partnership with have been open to this. And once again, I’m not gonna be onerous about it. I’m not gonna dump a thousand tasks on them and. Ride them like a school master, but at the end of the day, if there’s something important, And we’ve talked about it on the weekly calls, I’m gonna sign a task to it.

And, so it’s it’s no longer gonna be like, Hey, what did we talk about on the phone call? It’s Hey, we talked about these five action items. Now they’re tasks and I’m gonna expect them to to be, done within the timeframe that we talked about. So that’s been a game changer for us to incorporate that.

So I’d always if you get into a situation where you’ve got more than a couple properties, I would look into that for sure. Yeah. We use Asana for the for the podcast management things, but we use Trello for all of our other tasks. And like I said we try to onboard our property management.

Some adopted better than others. Some still need an email with statuses, so we try to work as far as we can. But the good thing about those tools is even if the person that have a task assigned to them is not logging in, at least you have a visibility of this task belongs to that person and it’s due.

So whichever way they track it, at least you have access and control over how to track it. So I love that. Yeah, Tri is just as good. We’ve used that too. And it’s a similar type platform. Yep. Yeah. I would, yeah, I would encourage that the operators go out and at least look into that, yeah, especially as it starts scaling, right? When you have one property, it’s a lot easier to remember and handle and control. But once there’s more and more things going on, you’ll find that you have the same contractor working on three different properties on different items, and just checking who’s doing what, when and where is getting more challenging with scale.

So yeah, once you start scaling, I would highly recommend to find a good systemizing tool for you. Yeah, absolutely. Whichever it is. Yep. Okay, so you mentioned earlier that all of your properties are heavy value at least one or 2 million in rehab. Give us your favorite two, three things to that you guys do that help increase income.

That is not the standard raise rents right. Come on, man. That’s the easy one. Yeah, I know. So let’s just see if you got one. Give us two, three more so to, to increase. Okay. So is it to increase income collection? So there’s different ways that you can skin the cat, right? So the easy way is let’s increase rent, right?

A lot of these deals what a lot of people. Gloss over, over or don’t underwrite properly is just the amount of delinquency and bad debt that you might have on a property. So I think just reaching out and being good at collecting the rent that you’re billing out will by default increase your income on a monthly basis.

Because especially the first year, you’re probably going to be cycling through a bad tenant base and you’re gonna have some skips and some evictions and some people that are gonna stiff you for rent. So the easier, the quicker that you get a handle on that, the better that you’re in your collections are gonna keep, you’re gonna keep going.

So you have to that’s one thing that we’ve noticed is, just collect the rent that you’re billing. Is huge because a lot of people just ride it off and you’re like, okay, how can we be better at this? So that’s one thing, right? Not being too heavy handed on the renewals too for the first six to 12 months, cuz you want to make sure you keep that back door closed.

You don’t want a bunch of people running on you. Especially when you’re going through a value add, it’s very disruptive to the property, and then you can go over to, the other income side. So what do we do? Obviously if you’re going from a mom and pop operator or something that’s a little loosey goosey to more of a, a rigid kind of either in-house or third part party property, manage, the fees are just gonna go up.

Because there’s just gonna be more fees involved and they’re gonna be more rigid about collecting those fees. Obviously that’s just regular stuff, admin fees, late fees, whatever it might be. The other thing that people need to obviously look at is, is utility build backs, is rubs something that that submarket is doing?

If they are, I’d look into does this property, can this property support it between what you’re going to do on your rents plus billing back whatever amount, 30, 40, $50 for utilities, can that property and can that submarket support that? And if it can, I would definitely do that because and then also incorporating, a lot of people think it’s just like a water and electricity thing, pest as well.

Look into billing, back pest control. You’re paying for it. People don’t want roaches and other stuff in their proper and it’s just a nuisance. Five, $10 maybe tops a month. You say, here’s your pest control fee. And I’ve lived in, in, in apartments too. That’s just how the class A stuff, B stuff, that’s how they do it all the time.

Yeah. So why not incorporate that into Class C? As long as you can support it in the submarket, I’d say bill it back. Because that’s gonna be an expense that you’re gonna have to incur anyway, I like how you keep repeating the phrase, if the market can support that. And I just wanna draw that one little nugget out because it’s super important, right?

Being able to being able to, Get in theory and then being able to get a certain fee in actual is a huge difference, right? Every broker will tell you, oh yeah, you, the owner is not implementing rubs, so you have a potential of increase in income doing rubs. But hey, these newsletter, if everybody in the neighborhood is doing orbi, sp.

You cannot charge back for utilities. It’s that simple. Yeah. And in reality it always balances, even if you have a mixed market where some people do rubs and some people don’t, it balances out. Because if I can pay $600 with all bills paid, or I can pay 550 rent, but I’ll get $50 in utility bills.

It balances out. There’s no way that the other property can charge 600 and apply a $50 utility bills. All things being equal, right? We’re not talking upgraded versus not upgraded. We’re talking for everything else being equal. So Supercritical very good comment here by Ben is, Always make sure that your submarket can support it.

That the property across the street, the properties around the corner are doing the same thing that you wanna do. Cause otherwise you’re gonna get a disadvantage in your leasing. Yep, that’s true. Yeah. Yeah. It will fail. You’ll get pushback. That’s what I love about this market is that.

You’ll get feedback very quickly if you’re overpriced, and people will just tell you so they go with their, but before you even get down that route you need to, that’s what I love about the this business too, right? It’s a very stupid business and in the sense that I can go down the street and I can shop all my competition, I just copy what they’re doing.

Now I’m gonna say that I can do it better and my property’s gonna look better. But ultimately, if they’re building back water and I’m not billing back water, guess what? I’m billing back water. Because everybody else is doing it in that submarket. And if that person wants to rent and that’s submarket, then it’s just makes sense.

You’re just leaving money on the table if you don’t do it. So that’s, those are some ways that you can increase that, that top line number, beyond rents, and increasing rents, which was always the easiest part. And I’d also discourage people from having too aggressive of an expectation in year one of rent pushes.

Now, obviously we always perform it, but we always back it out. It’s really almost a balance because we’re backing it out by underwriting a lot more and lost a lease and just economic. Vacancy across the board. Yeah. We might increase our g r or gross potential runs, but we’re gonna, we’re gonna, we’re gonna increase the other stuff too, to offset that, and then you’re hoping within 12 day, 18 months you’ve been able to kinda, cycle through a tenant based and now you’re stabilized and that now you’re back to where you should be.

You know that, that would be, those would be my advice on the top line stuff. Awesome. Now let’s flip the coin and talk about expenses. What is two, three things that you like to do? To reduce expenses for the property? And it’s always easier to drive the top line than it is to decrease expenses.

I think that’s another thing that the brokers like to, oh, you can do this or you can do that. It’s, that’s easier said than done in, in, in my experience. I think some of the more low hanging fruit stuff would probably be around utilities. Now you have, there’s an investment there, right? There’s, this is not, this is gonna be like, oh, I’m a better operator, so therefore I’m gonna be able to get utilities down.

You’re going to have to incorporate LEDs, low flow toilets, low flow air, aerators, all of these different things that will just by default decrease the usage of the utilities. So therefore they’ll decrease what you’re spending on utilities. So that’s one thing that you can do. And then there’s other major things, right?

Like maybe you have a, an HVAC. Preventative maintenance program or you build in, replacing the hvac systems at your property. Cuz those things suck a ton of juice. And if you look at all these older properties, some of these things are older than 20, 30, 40 years old, they’re still cranking.

But you could just imagine the amount of juice Yeah. That these things you’re humming on. So take a look at that when you’re building out your CapEx budget because those things are a major use user of electricity. Some of the other things too is. Are they fat on payroll? Some folks just run it real lazy and they’ll just throw a bunch of people at it.

We brought a property in San Antonio that’s seven employees. They didn’t need seven employees. They needed six. There’s, you just lost 30, 40, 50 grand and expenses right there just by having one less person. And if we weren’t trying to poor boy it was, it just, ultimately they were just being lazy and so they threw another another leasing agent at it because ultimately they were trying to, they’re trying to keep the occupancy up while they sold it.

And so we automatically saw that as a, as an opportunity to cut expenses. And then the third thing being would be insurance. Not all insurance is created equal. Not all insurance brokers are created equal. And look to see, and I’m not saying once again to poor boy insurance, that’s, we’ve had insurance claims they’re worth it to have good insurance and have a good insurance broker on it.

But sometimes, And I’ll give two. There’s a caveat to this. Sometimes you can get insurance down, so maybe for whatever reason they’re paying, their brothers, cousins sister, who has an insurance company and they’re just paying a premium. On the flip side of that, we’ve bought deals from people that have a lot larger portfolio than us.

Yeah. And by default, because they have more units, their insurance rates are gonna be better. Because the insurance company, you can blend it into almost a portfolio policy. And then by default they get better rates than us. So people are like, oh, they’re, a hundred grand in insurance so I can run it at a hundred grand insurance.

The fact is you’re buying it from somebody that has a billion dollar portfolio, and your insurance is not gonna be a hundred grand. It’s probably gonna be a hundred thirty, a hundred forty, fifty grand, if not higher. So always validate those numbers with an insurance. So it can go both ways too, right?

Yeah. But insurance is another thing that you can look at. I think but on the flip side, there’s other things that can increase in expenses too. Here in Texas, as there’s there’s always taxes that we gotta fight. Oh yeah. Protest every year. So I will work diligently to get expenses down, but most of the time they’re offset by the increase in taxes.

Even after I protest them. That’s why it’s critical that we fight for every dollar on That’s true. That’s true. And I always I always have a little grin on my face when I win some of those protests, but I don’t win ’em all. And sometimes even when I win ’em, it’s not as much as I want it off.

Yeah. If you look at other states that are a little bit easier to peg down at Texas, if people don’t know some of your listeners, it’s just, we property taxes is a big money grab and we have to be just as citizens of Texas, we have to fight ’em every single year because some of the appraisal districts will be very aggressive in increasing the values based on the new purchase prices.

And that’s just. So they can increase their tax base. Yep. We just have to, that’s something you have to be aware of too. Yeah. So those would be some of the things that I would do. People are gonna say, oh, I can get r and m down, I can get general, I can get, admin down.

I can get all this stuff down the likelihood that you can, I can get market marketing down maybe. Maybe you can, maybe you can’t. I wouldn’t bank. If your whole entire business plan is I’m gonna get, my expenses down 15, a hundred grand a year to make my deal work, I say, you probably don’t have a deal.

There has to be more than that because I’ve just seen too many people where they bank on that, that, that theory and it just doesn’t work out for ’em. We’re going into the underwriting side of things. But I always tell people that when you look, when you do your underwriting and you look at the owner’s p and l, that’s the owner’s.

P n l. Yeah. That’s not your p n l, the most likely it will never be your p and l. Yeah. And the simple examples are, it’s kinda if the owner’s brother-in-law is the pest control guy and he gets it for cost, you’re gonna have to pay retail. And then he hired his sister to manage a 2000 property and pays her a hundred thousand dollars a year, you’re not gonna pay that.

So that’s it can go either way. So it’s a good place to search for red flags, but I wouldn’t do my underwriting based on anybody’s p and l, but my own. Yeah it’s it’s another data point that you need to examine and. And say, okay I’ve reviewed it. And I think that some of that makes sense and some of that I can segue into my own underwriting.

More often than not from just based, and I’ve underwrote hundreds of deals at this point. Yeah. I just, they’re always just, like I said, you have to take ’em with a grain of salt. Let’s just Oh and not everybody out there is on it. Oh yeah, no that’s for sure. I’ve seen some fudged up PNLs that the columns don’t add up.

The totals don’t add up. We’ve seen all these, like this NOI number is not adding up. And then you’ll see a lot of stuff that’s dragged below the line that shouldn’t be below the line. And they know that. And the other way around. Yeah. They’re just, they’re, and sometimes I’ve seen PNLs where they don’t even show you anything that’s below the line.

And I’m like, no, I need to see the below the line stuff. Because what could end up happening is that they’re dragging stuff below that just to make that NOI look better. Yeah. And then you’re basing your offer off of that, and then you just get, you get crucified, when you take over the property because you didn’t realize that they were hiding all of these different expenses.

That now you’re gonna have to incur. So that’s always a problem. Awesome. Ben, I wanna be cautious of your time. Just to wrap up with a couple of quick questions. What would be your best advice for a new operator? Somebody that is just getting started, they’re, they raised the money or they closed, just closed or about to close the first deal, and they’re about to start that marathon run called operations.

What would be the best advice? So if they haven’t gotten their first deal yet, I’d just say, just be patient, right? Your first deal can make or break your career. You have to get the right one, right? You don’t want it to be your first deal. Out of the gate is the big challenging one because, a, it might hurt your reputation moving forward, or b, it’s going to, it’s gonna, it’s gonna stress you out so much that you’re not gonna wanna buy your second deal.

So just be very patient. Be very diligent on your underwriting. We’re at the top of the cycle here. There will be a correction at some point. Nobody knows when, but there will be. And you just, you want to be even more diligent with how you underwrite deals. So that would be my suggestion to somebody that’s just brand new look, starting to look now if you just bought your first deal.

My, my biggest piece of advice is keep on that property management company and make sure that you understand the financials and what you’re looking at. Because as much as we love to say the property management companies are honest and they’re diligent with putting their financial reports together, I’m just gonna say both of those are not true all the time.

Sometimes they are, sometimes they’re not. And so you need to know what you’re looking at because they can fudge a lot of stuff and make the property look better too. So be looking at bank statements, be looking at all the backup to make sure you can tie all that back to the financial reports and keep them honest at the same time.

So that would be my biggest thing is keep on your property management company and keep on your general contractor as well too. Everybody’s gonna notice your first deal. They’re probably gonna try to see if they can take advantage of you a little bit. Or drag things out or just be lazy.

This is the time where you have to be even more diligent. Just so you can make sure that first deal really, it doesn’t have to be a home run. We’re just looking for singles and doubles. As long as you get a single double, you get people their money back, you give ’em a return, everybody’s gonna be happy.

You don’t always have to help ’em run. But if you lose people money on your first deal, that’s gonna be probably your own deal. Yep. That would be the end of the road. Absolutely. If we could roll back the time, co meet Young Ben let’s say 10. Yeah, that was a long time ago, man. Had a lot of hair.

And assuming you cannot tell yourself 2009 is the bottom by everything, right? What would you tell yourself? I would say what would be the advice that I would give myself? Is that the question? Yep. I, I think it’s a cliche, but I think it’s Right. Start early.

I, this was something that I was interested in back in the in, early, earlier two thousands. And you just get gun shy. And you’re just like, oh, I’m not ready, or I don’t have enough money, or I don’t have enough experience, blah, blah, blah, whatever, excuse that you can come up with people go through in their minds.

It’s just a, it’s like the seven steps of grieving, right? You’re just like, you come up with all these different things as to why you can’t do something or why you act a certain way. And I would just say start early. And I’d also say, develop before you get into making offers and getting too far down the rabbit hole.

I’ve had a lot of success partnering with the right people and putting the right teams together. So I would say, my advice to my earlier self would be, cuz I’ve also had a, I’ve also had a bad partnership. So this is where this is going, right? Yeah. You have to be very diligent with who you partner with, and make sure that those goals are aligned. So I would’ve said, be a little bit more patient. Develop the right team and the right partnership and then go out and execute on something. And so if I was a little bit younger, I would’ve probably given myself that advice and probably saved myself some of those hair that I’ve lost.

But but yeah, it could always be, start earlier, make more money, put more money in real estate versus stocks. There’s a lot of things that I probably would’ve told, but that would probably be the biggest, piece of advice that I would’ve given myself personally. Phenomenal. Thank you Ben, that it’s been such an honor to have you on the show.

Where can our guests learn more about you if they wanna reach out to you? What would be the best way to find you? So we’ve got a website, www.disruptequity.com, and you can find me@bendisruptequity.com. We’ve got some content on there, and we’re obviously rolling out some more videos.

We’ve got some stuff that that we’re trying to add some value to some folks too. If you ever want to learn a little bit more about it, reach out to me, be happy. I always like to talk shop. Love to have some conversations over the phone as well. Awesome. Thank you so much, Ben.

It’s been an honor and for you, the audience, if you enjoyed the show, if you wanna listen to more of our episodes, go to iTunes, teacher, any one of those that you can download or go to our website, apt.com. And we also would really appreciate it if you can put a review for us. Good, bad, anything, any review, would highly appreciate it.

We’d love feedback just as well as we love the compliment. So thank you everybody and we’ll see you soon. Thanks Joseph.