Episode 108: From Operator to Fund with Paul Moore - 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. Welcome to that. Multi-Family Operators Podcast.

My name is Joseph Gaza and I’m the host. And today we have Paul Moore with us. He owns and operates multiple properties and he recently expanded to self storage and mobile home park. Welcome Paul. Hey, great to be here, Joseph. . Awesome. Why wouldn’t you take just a few minutes to introduce yourself to the audience and let them know who you are and what you do?

Okay, fantastic. I got an engineering degree about 32 years ago, and that was my first mistake. And , I’m lighthearted today cuz I just did a podcast called How to Lose Money, which you were on. We were glad to have you as a guest about a year and a half ago. And but yeah, that was a, the, that was not a really good fit for me.

So I went on and got an mba, went to Ford Motor Company, worked there for about five years. And though I love Ford, I actually found myself tinkering a lot on the side. I was looking for a side hustle, looking to make money and start something. And so we eventually started an HR outsourcing firm. And my partner and I did that for about five years.

We were nominated at, we were finalists actually for Ernst and Young’s entrepreneur of the Year a few times. And that got us some attention. We actually sold our firm to a publicly traded firm for quite a bit of money back when I was about 34 years old. I moved to the Blue Ridge Mountains of Virginia.

My partner had already moved to the Colorado Mountains, and I considered myself an investor, and that was my second big mistake because I didn’t know the difference between investing and speculating. Joseph, investing is when your principle is safe. And you’ve got a chance to make a return.

Speculating is when your principle is not at all safe and you’ve got a chance to make a return. And I didn’t know the difference. So I, a lot of people confuse, a lot of people confuse the stock market in Vegas. But at the end of the day, it’s the same thing. I tell you what it really is in such a great degree.

Paul Samuelson is the first Nobel Prize winner in economics from the us and he. If you, he said investing should be like watching grass grow or watching paint dry. If you want excitement, take $800 and go to Las Vegas. And so I didn’t understand that and so I made some really good investments and I made a lot of money.

In the last 21 years since I sold my company, but I also made some horrible investments and lost a lot of money as well. And so over these years I started, we started flipping houses before flipping was a thing. I ended up on H G T V. I did. I sold, bought, and sold all kinds of high-end waterfront. I tried to be a builder and you shouldn’t be a builder Joseph if you don’t even know how to tighten the doorknob on your own door.

But my subcontractors realized that really quick and they started taking advantage of me. Hey, I bought one of ’em a bulldozer, and I tell you, it was a really difficult time and I had more money than cent. And of course, the money started draining away and I found myself two and a half million dollars in debt as.

Fell off the precipice into the great recession of 2008. I was completely debt-free 13 months later, and that was an awesome little story. But at any rate after that, we got into we built a multi-family property in North Dakota for the oil workers there, and we made a ton of money. Plowed some of that into a Hyatt hotel, which we built after that.

Oil prices unfortunately went from 110 a barrel at their peak to 26 at their trough. Something about oil just a little bit and and so we actually did not do well with that Hyatt hotel that we had built for the oil executives coming to North Dakota. It’s still the nicest hotel that I’m aware of in all of North Dakota, but we don’t own it anymore.

I’ll leave it. At any rate, we actually it was my partner. I was really helping him out on that one. But at any rate I decided I really wanted to get into something safer. I really wanted to do commercial real estate, so I got into Class B value add. Multi-family and I ended up writing a book on that.

That’s still selling pretty well on Amazon. But like you said, we’ve recently expanded into self-storage and mobile home park investing. So enough about me. What do you think of me, ? What a wonderful life story, man. I, the high is the lows man. No, that’s great. Thank you for that introduction. Let’s start with the simple questions.

How many units do you own these days? So right now we have expanded from, we sold off quite a bit, including our portfolio in North Dakota. We at, when we reconfigured as Wellings Capital a few years ago, we spent. Better part of three years beating our head against the wall because all of us are in our fifties, I should say three of the four of our company are in our fifties, and we were determined Joseph not to overpay, and so we would only bid up to what we thought made sense.

We didn’t stretch the proformas. We didn’t take. Big risks and we found ourselves getting beat out time, after time and not even bidding on a lot of other things. And so we actually we have one asset right now. It’s in Lexington, Kentucky. It’s 125 unit town home development. And since then, we’ve opened up two funds, which is the Wellings Income Fund number one, and the Wellings Growth Fund number one.

And we have 22 assets in those two funds. That includes a little bit of multi-family a lot of self-storage, and quite a few mobile home parks. Awesome. Today when you invest, what are you looking for? What class, what size? So we, we feel like it’s quite a bit risky to go on the brand new class, a side for multi-family.

And we feel like it’s quite a lot of hassle. Huge hassle to be investing in the Class C and D side. So we really are, we really do like the Class B 20 to 40 year old for multi-family, for self-storage. We’re looking for assets. I’ll just touch on this very briefly that are in where we’re looking for holes in a demographic map where there are a lot of people but not a lot of self-storage and high visibility on a main road.

Mobile home parks we’re. Looking to be fairly near population centers. We don’t want it to be way out in a rural area, but mobile home parks are crushing it. There’s a decreasing supply, an increasing demand every year. And so we are really hot on a all kinds of mobile home parks at this point, but we don.

We generally like to be in the top 50%. They’re tiered differently, they’re based on star system. We like to be in the, three star, which is like of middle of the road or above. Awesome. Thank you for that. So if you can take us through one of your most successful stories of ownership and one of your most unsuccessful stories of owner.

Just tell us a little bit about the wins and a little bit about the losses and lessons that you learned in your operating career. Okay, so in our Lexington, Kentucky property we, one of the things I think we did, I, I still, every time we think through this, we think that was the right thing to do and that was the wrong thing to do.

What we did is we had to have a 90% we had to have a 90% occupancy when we closed, and they were hovering right around 90%. We did a ton of due diligence. We had. Four teams of people there, our team and a property manager and a COAs asset manager, and then some other folks on the ground that are with us.

So we really have three, three main teams of people on the ground. We did a lot of due diligence, but the person, the company that sold it to us, we don’t. We don’t wanna say publicly that they were not being honest, but it seemed that there were some funny things in the books in there because when we took over the property, we had to be at around 90% and we offered a bonus to the property manager and the assistant if they were at 90% or better.

They miraculously were right at 90% when we closed, and we. Of the hundred 25 units. I’ll just summarize and say we had about 41 skips or evictions right after that. And so it was supposed to be a stabilized property, but it was not at all stable. And I’ll tell you that they had been apparently leasing the people that we wouldn’t have leased to if we would’ve been the property manager.

I think what made that more difficult, Joseph is. We wanted, as everybody does an all a team, and when we first got in there, the regional property manager, which I think I had not, I had underestimated the importance of the regional property manager. And then of course the on the ground property manager, I would say the regional property manager that we hired, they put in a new person in that position right when they started.

And I’d say that person was about a D player. And then the property manager themself was about a C player. And so we had to go through this massive turnaround that we didn’t expect. And so five months into that we, five months into this, we found ourself really not doing well. . And so we f pretty much we forced them, if you will, if they were gonna stay on board with us to give us a much better regional property manager.

When this great a player, regional property manager came in, it ended up causing the c. Level on the ground property manager to quit because she didn’t want to have that level of accountability. And so we ended up with an A property manager after a few month gap, and now things have been on the upswing ever since.

Other than. $107,000 water main break, which crushed our income for a couple quarters, to be real honest with you. Yeah. So there, there’s a lot here. So let me take it a step back and start constructing that, that narrative a little bit. So you started with, we needed 90% occupancy. For the people that are out there that don’t know, I’m gonna assume, and correct me if I’m wrong, this is because you were taking an agency.

Yeah, and Fenian 30 requires you to, in order to get agency, that they wanna see a stabilized property. Usually it requires 90% occupancy for at least 30 or 60 days. So was that the case? Yeah. And we were showing 90% physical occupancy, fortunately. Yeah. So this is the other side of things, right? As operators, we gotta be careful with what we incentivize.

If you incentivize occupancy then obviously you’ll get occupancy. Yes. Do you have a pulse? You are in. And that is really the wrong way to screen. Tenant. And really I’ve seen people, owners that are their screening criteria is ridiculous. I’ve met an owner and I was talking to him and his onsite person, he’s like, how do you screen your tenant or your prospect?

And I got answers like we’re looking on their Facebook and stuff like that. It’s guys, if you don’t screen with background checks, criminal checks, rent, history checks, you’ll end up with people that will be on the property a month or two. Then they’ll stop paying because these are professional tenants.

That’s what they do. They hop from one property to another. They can literally pack her their entire apartment into the backpack of a into the back of a pickup truck, and they move on to the next. So you wanna be very careful with what you incentivize. And I’m gonna share with the audience a little thing that we’re looking at and we’re in incentivizing.

So we told our teams on the ground we’re gonna take total dollars collected at the end of the month. Divided by the number of unit, and we’re creating a competition between our different onsite managers. So when you look at dollar collected, it’s a combination of occupancy and collections. So you drive, that’s like RevPAR for a hotel.

Yes, exactly. Revenue per average room. Exactly. So that’s why they, it drives them both for, to increase occupancy and to get better on collections. Because if you have a property that is 90% occupied physically, but half the property doesn’t pay, then you’re really only at 45% or 50. Economic occupancy.

So that’s really important for people to understand that. And then we, you talked about the regional and the onsite manager, and what I’ve learned really is the most important skill set, and I’d love to hear your opinion about that. But the most important skill of a property management company is their hiring skills.

Everything else falls second. And it feels a little bit ironic that we buy properties that are five, 10 million, 20 million properties, and we hand over the keys to people that their pay grade is 40, 50, $60,000 a year. So isn’t that crazy? It is in some ways, which is why this podcast is about operations.

It’s about asset management. It’s about knowing, even if you’re working with a third party property management, knowing what to ask, when to ask. So I’d love to hear a little bit more about your interaction with that regional supervisor. What did the first one, what did she do wrong? What did she not do, and how did the a class, A level player come in and change the picture?

We knew there was a problem when we closed on December 7th, 2017. On December 8th. In the morning we got a call or an email from her saying, Hey, the copier’s broken. We’ve already got a quote. We can get a new one for $6,000. In the small facility that, honestly, there’s not a lot of need for copies.

And we said, wait, you already got a quote for a new one for $6,000? Yep, that’s right. And we said have you checked on fixing it? We’ll get back to you. And they were able to get it fixed for $156. And that bothered me to the core, and I was immediately horrified. Literally the celebration of owning this new property within hours, business hours of owning it, all of a sudden it just became like this horrible feeling wait a minute.

This is a regional, this isn’t like a assistant leasing agent, this is a regional manager suggesting this. And I don’t know, I I know people out there my former business partner, for example, would’ve probably called the company and demanded her being fired right away. I just know how hardcore he is and I kind of wonder, one of the lessons we’ve learned from how to lose money is be ready, higher, slow, like you.

But be ready to fire fast. . And we let this go on for almost six months before we just said enough. And that was just a prolific, horrible memory and that kind of stuff. Not to that degree exactly, but that kind of stuff went on. I dropped in unexpectedly two or three times and.

There was a couch that was sitting by a dumpster that had been there the time I was there before a month or two before. That was completely discouraging to me. And so yeah, we would have those conversations. I actually got to know the vice president of the company. It’s a fairly large company, and I was fortunate enough that she agreed with me and she took.

Okay. So let’s talk about the company. You don’t have to say the name, but how did you choose that third party company? We’re in a mid-size city, as I mentioned earlier, and so it was hard to, they didn’t have a lot of the really big national players that we would’ve loved to work with there.

And but this player actually, Very high reviews. I had actually stayed in one of their apartment complexes that they directly owned and managed years before, and was very impressed with them. And so we checked their reviews. We checked online, we checked their references. We talked to a lot of other people.

I’m in a mastermind group with people like John Cohen. I think you know John? . And he had good things to say. And so we and they were the best, largest national player in that city that was, at least, that had a presence in that city. And yeah, we, I think we checked really thoroughly and I don’t regret that.

Yeah. So I think I can echo your experience with I’ve heard a lot of other owners talk about using large national companies or la large regional companies, and those companies are hit and miss based on the regional and the person on site. So they could have the best system and the best processes and the best manual, but if the accountability’s not there and the processes are.

They don’t confirm that the processes are being followed correctly. Then even that doesn’t help. Okay, so with that I’m assuming you don’t use the same property management across all your assets. Especially since you have different asset classes. Oh, absolutely not. No. So we just real quickly on this we, in our fund model, we are actually working, partnering with, we’re raising money into other operators deals.

So we’re not even the asset manager on these other 22. We basically decided to trade control. For trust. We basically are saying, Joseph, look we spent months and months getting to know these operators and by the time we get to know them and really trust them, we’re saying, okay we’re handing you our trust.

Your, your track record is amazing and we trust that you’re gonna continue to take care of us and our investors and so far we haven’t been disappointed. At all. One of the operators we’re working with the c e o has been with his own company. He started for 42 years. One of the other employees, 20 41 years, another 1 38, another 35, another 33, another 30.

And so that’s their, that’s almost all their executive team there except one or two. And That’s an impressive and they have a Disneyland clean standard. I literally got to one of their self storage properties. Once I showed up, the guy figured out who I was. He was already super friendly and outgoing.

He had been working there. Imagine this a manager at a self storage facility. He’d been there 15 years. And he started apologizing for the leaves on the ground in the parking lot. He said, this is the time of Santa Ana winds here in Southern California. There’s some leaves. And I looked out, I couldn’t see anything but a handful of leaves.

He said, yeah, I’ve already cleared the lot. Three two times today. I’m about to clear it for the third time. That was truly their standard, and it shows it. Shows. Awesome. So we had a little conversation before we started recording this and you mentioned that you took a step up from the being the actual operator to creating the fund that works with operators.

And I thought it’s gonna be very valuable to our audience that is gonna, is composed of actual operators to hear how it is to work with someone like you. and what was the thought process behind stepping up from the operator to the fund level? Because I’m sure that’s a subject that interests a lot of our audience.

Yeah, so I spent a lot of time over the last couple years reading Gary Keller and Jay Papasan’s famous book called The One. And the book convinced me that I needed to do one thing really well. I’m also close friends with a guy who ran for a governor of Colorado last year. He was actually he flew me and my family over here yesterday from a resort.

We spent a day with him and he flew us back here over the Blue Ridge Mountains. It was a lot of fun, and he said, I’ve rubbed shoulders with all these billionaires over the last several years, and there’s one difference between. Them and us. He said, he and I went to college together.

So we’ve been friends and partners off and on all through these years, including the North Dakota deals that were very suc. The one was very successful. But he said the big difference between them and us is they figured out in their early twenties what they wanted to do, and they did it.

They. Hyper focused on it. They said no to 10,000 distractions and they kept their nose to the ground and they become, they became the premier expert in their field in that. And, people like Bill Gates did that. And other people have just stayed very focused and said no to a lot of distractions.

and I realized that for me, being a money razor, an asset manager, an operator, an acquirer, having the acquisition pipeline, all that and a lot of the other roles I really didn’t think that I had the bandwidth to do all that well. And I realized I really love working with investors and I really don’t like all the details of operations.

And so this was a good fit for me. I was hoping that one of our other partners on our team would step up to that. But we’ve realized over the years that we’re all all three of the major partners of Wellings Capital have the same orientation. We’re all oriented towards working with investors and raising money and.

Not so much toward all the details of operations. And so we hired a really sharp young man who is oriented that way, and he’s our liaison between us and the operating folks. Okay. So how do you vet your operators? You mentioned earlier, Yeah. You found a company that is Disney Clean, right?

How do you look for them? How do you reach out to them? Do they reach out to you and what is important to you in an operator? Yeah, so when we decide we wanted to start a fund, we wanted to give diversification across geographies, across a few different recession proof or recession resistant asset classes.

And we wanted to get some great operators, and so we were looking for operators. Who didn’t have alar a significant money raising machine of their own, although one of them actually does raise pretty money pretty well on their own. Who really focused on operations, who have a team, a cohesive team that have been together for hopefully decades like the one I mentioned.

We’re looking, and this is not more than just a group of independent contractors, but a team. Cohesive and works together. We’re looking for somebody who uses a professional property management team of their own, whether it’s internal or outsourced. And we’re looking for people who give timely regular communication, thorough communication people who will communicate with us well through the whole process.

We believe if, if they’re not communicating well, giving references, forthcoming with all kinds of details while we’re vetting them, that it’ll certainly just get harder after we invest. So we’re, we’re spending a good deal of time also, just trusting our gut sometimes.

Sometimes everything looks perfect on paper. It checks all the boxes, but something’s wrong and it may not be some horrible thing, but if we’re just not a ho, totally sure, we tend to walk away from an operator or a deal because we really want to learn to trust that. I just think we’re all created with some kind of inner knowing, some kind of a ability to read.

Body language or something being wrong that we can’t put our finger on. I think ladies are better than men in general in reading this. And I’m trying to learn from my wife how to read those type of things and follow my instincts. Yeah. So that’s the second time I hear you talk about listening to your gut.

And I think I’m a big believer in that. I think that. The way I rationalize that is your gut feeling is your reptile brain taking the entire decade of experience that, that, that makes you who you are. And compute everything and assesses risk within a half a second. Yeah. That is really what your gut is.

And I always tell everybody, just trust your gut. And there’s the reason why this mechanism has evolved in human beings. And like I said, there’s some people that have a more evolved sense of it, and some don’t have that. But for the most part, everybody has some sort of a gut feeling. And I say trust your gut and work with this thing.

Yeah. It’s very true and it’s hard when all the numbers line up and you’re already thinking down the road to when you’re gonna collect that million dollars, but you know that there’s something in your heart of hearts that doesn’t line up. It is hard, especially I think as men and as entrepreneurs, we’re optimistic people by nature, so we wanna believe the best, and especially if we’re honest.

We wanna believe other people are honest too. And so it makes it hard. And I’ve had to learn, I’ve actually gone to this level with this Joseph, if I chose somebody who is very, almost completely opposite of me and they’re intimately involved in our company and I’ve said, I will not do anything unless you completely.

So basically I’ve given him authority because he’s this more of a cynical, let’s always say no kind of guy. And so if I really want to do something and I presented him an opportunity at 10 30 this morning and by 11 he was saying, I just don’t think so. And it was hard. Maybe Matt. But I’m gonna, I’m not gonna override him because he’s often been Right.

Yeah. At the end of the day, the best deals are sometimes the one we didn’t do. That’s right. So that’s I think I agree with that. I’m, I feel that myself, I’m very much like the person you’re describing. I start every property underwriting with the approach. I don’t wanna buy this property.

Yeah, that’s good. Now convince me otherwise, right? Let’s go through all the motions until I run out of reasons to say no. And if you agree, you get through that last cycle where I ran out of reason to say, no, I don’t wanna buy this property. Then we go ahead and we pull the trigger on it. And you know what, yes, you’re right.

It’s frustrating sometimes you see people do deals all around you and, everybody puts notes and announcements on Facebook and LinkedIn and Twitter and social media gets a lot of attention these days on multifamily. But at the end of the day we take other people’s money, we take investors money, and we promise them that we’re gonna protect.

and I think you made a very interesting statement earlier in the podcast. That investment is where your principle is safe, and you have a r a chance to get a higher reward versus speculative where you are risking everything, right? So this is why we, I look at things that way, is because the highest priority is to protect our investors’.

The and by all means and I’ll ask you that in a second, but we always put our own skin in the game. We always invest in our own transactions, and so protecting the investors is also protecting us. . And this is one way that we create extreme alignment between us and our investors is make sure that we have skin in the game.

And to date, me and my partners al, have always been the biggest investor in the deal. So that’s always hel, helps with aligning the interest. How about you guys? I know that at the beginning you were putting a lot of your own money into the deals. Yeah. What about the funds? Are you invested in the funds as well?

Yeah, we’re investing in the funds and my goal is to invest much more. In fact I’m selling a piece of waterfront property I have from leftover from pre-recession, believe it or not. And as soon as it’s sold, I plan to plow all that money split it about evenly into our two funds. So very much believe in that as.

There’s something different when money’s invested versus a ton of time, and I can’t put my finger on it, but it seems that there’s just something different, isn’t there? I can tell you what it is for me at least, right? The way we structure the deals is we give most of the returns to the investors.

If I only work for the asset management fee or the split of the profit, then I’m not gonna make a lot of money. I’m gonna make good good money, but I’m not gonna make a lot of it. And any hiccup that happens on the property, like you mentioned, right? I work for free because investors gets paid first.

So for me, making sure that we invest ourselves, the partners, we invest ourselves is a way to make sure we get a piece from the bigger side of the. And so that’s what it is. It’s not about the hours, it’s the fact that the hours don’t make as much as the guys that put the money in. Yeah, that’s very true.

Very true. Okay between the Lexington property and the other assets that you guys have under the fund do you get involved at all? How the property management is running or how the organization is interacting with the residents. So with our fund, we are really not involved. I can imagine a scenario where we could be, but our plan would be to not be involved at all with the fund assets.

We’ve, like I said, we’ve traded control for trust and we’re trusting those operators. Far more experience than we ever would, and we, they have teams that are already doing a great job of that with our Lexington property. Absolutely. Yeah. We were on a call without property manager for half an hour today.

We’ve done a weekly call for better part of a year over a year. And we were on, talking to them about how many carpet. To trash and replace with real hardwood floors. We have real hardwood floors in this property under old dingy carpet. And wow. That’s one thing we want to do, and now it’s more, it’s $1,100 more per unit.

To refinish the hardwood than it is to just replace it with carpet. So it’s a harder, more expensive road. But we’re, we’re making decisions like that. We’re making decisions for other things. And the property managers, of course, carrying out our decisions. . Interesting. So do you do anything for the residents, like event or parties or anything else?

Yeah, we have so you’re probably familiar with Apartment Life. , that’s in Dallas apartment life.org. Pete Kelly’s the c e o, it’s an amazing organization and they help coordinate somebody to go on site at large apartment complex. And coordinate events they might make backpacks for kids going back to school.

They’ll host parties. They’ll host movie nights. They’ll give out snacks or coffee. They’ll go around help with resident retention. They’ll go out and they’ll pass out Amazon packages that have accumulated in the closet. In the apartment office, we had a massive number of Amazon and u p s packages that were accumulating in our apartment.

We couldn’t believe the office. Some of these were weeks old and somebody had never come to pick ’em up. So they go out and they pass out these for free and they interact with. They try to be an intermediate person between, between the management, the ownership, and the residents. In order the residents might tell them something that they hadn’t officially complained about, and then they, that person from apartment life can go tell the management before it becomes a bigger problem.

So yes, we do we think it’s very important. These aren’t just boxes, if you think of your childhood home, Joseph and I can picture mine right now, these are these, some of these people, this is their childhood home. This is the place they’re gonna remember. This is where a new baby’s gonna be born and grow up, or this is gonna be, where the elderly have their last resting place on this earth.

So it’s really important that we create these boxes are not just units, they’re actually homes in these homes. We wanna link together and become a community, and that’s why we used Apartment Life, and that’s why that’s one of our. Goals as we do as we do what we do with multi-family.

Awesome. Can you share with the audience what has involved cost wise or logistics wise? Yeah, a typical apartment complex that would have apartment life might be a couple hundred units or more. So they have a consulting arrangement with us because we only have 125 units and they charge us, honestly, not a horribly, a high amount.

And then we provide a free. Place to live for that apartment life rep. Now, if it is a normal size apartment that uses apartment life, which would be 200, 300, 500 units, they would provide a free apartment. They would also pay a about a probably a thousand or so dollar a month fee to apartment life.

And then they’d give the apartment Person on the ground. I think it’s either a one or $2 a month budget per apartment for their monthly activities. And that’s what we do. We give ’em a $2 and 50 cent budget, so it’s about $300 a month he can spend on parties and stuff that they do.

Interesting. Okay. Yeah, definitely something worth checking out. And we’ll put a link in the show notes. So you got into this property and all of a sudden it’s half empty. What’s the steps? How do you get out of this hall and how long does it take? Are you out of the hole? I don’t know how long ago it happened.

Yeah, whatever you can share with us. Yeah. I think the whole, the worst part of it was nine months ago when when the, a lot of the people who had been put in there the last three or four months before they went to sell the property had come to time of eviction or skipped out. Or not renewed. And so we had our economic occupancy drop to a dangerously low level.

Thankfully we had some reserves and we had we, we were able to cover that at the time. But no, now we’re up in the 92, 90 4% occupancy range. We’re hoping, we have every reason to. That we’re gonna be in the 97, 90 8% occupancy range within a month or two. And I don’t have any answer for the steps to get out.

I think it’s just you’ve gotta address day in and day out, just do the right thing and you’ve gotta just keep plowing away with all the things you know to do and improving what you’re doing all the time. Thank you. Appreciate you answering that with the honesty. Because I personally believe we learned more from mistakes and challenges than we learned from success.

Let’s do a quick questions. What’s your go-to method to increase income that is not just raising rents? Yeah, so I’m gonna answer this if it’s okay with you, across mobile home parks, self storage and multi-family. One of the value formula in commercial real estate’s. Powerful value is net operating income divided by cap rate.

And so we can force appreciation For example, with self-storage, we started renting U-Haul, and that increased the income by $3,000 a month. Now quickly, let’s do the math. 3000 a month is $36,000 a year and $36,000 a year divided by, let’s say a 6% cap rate. If I’m not mistaken, that’s about a.

Hundred thousand dollars increase in value just by adding U-Haul. That could be a 2020 5% bump in appreciation to the value of the property by a simple change. Another example is a mobile home park where they said, okay, if you’ve got a. Over two cars. If you’ve got three or four or five or six cars, or an RV or a boat or a work trailer, you gotta put it over out of the way.

And so they paved an acre of weeds and they put a nice fence and a gate around it, and they’re renting that now. And when it’s all rented up, it’ll be $10,000 a month in additional rev revenue. Joseph, it only costs them a hundred thousand to do it. So 10,000 a month is 120. Annual ROI on that a hundred thousand they spent divide the 120,000 again in revenue per year, or additional income, I should say, by a 6% cap rate.

That’s 2 million in additional value to that property. If that property only costs 5 million and let’s say there was 3 million in debt, 2 million in. That 5 million just went up to 7 million, but the equity just doubled. Doubled. Wow. I love commercial real estate. And so that’s the multiplier. Yeah it’s so powerful.

And so that’s a couple ideas. How to increase income with self storage. You can also add a showroom, sell locks, boxes, scissors. Add admin fees, application fees, late fees. With mobile home parks, you can actually go out and buy those covered parking areas and charge, put it, bold it right onto their trailer, the carport, excuse me.

And for a thousand dollars, you can, even if you rent it for an extra 15 or $30 a month, it powerfully, impacts income and the value of the property. Here’s another. A mobile home park operator. I know the Disneyland clean guy. He actually will tell people, we’ll pay you $15,000 to move your mobile home park mobile home into our park.

And I said, you’ve got to be kidding. You’re throwing away money. He’s no, do the math. And again, the same math I just did with the value formula, it works really well. It does, it definitely does because they never leave. because nobody else will give them $15,000 to move. That’s one thing, but think about this.

If their rent goes up from 300 to three 30 a month for their lot rent, that’s 10% increase. Where are they gonna go? Are they gonna literally spend $5,000 to move a mobile home down the street to save 30 bucks a month? Or are they gonna spend 11,000 to move their double wide down the. I don’t think so.

No, they don’t. Awesome. How about the other side? Like you said, NOI is the factor here. So every dollar you add in income or every dollar you drop in expenses. So what are some creative ways you guys found to reduce expenses? The one way I mentioned our, in our apartment, and this is just.

I guess it’s common sense, when we realized during due diligence that there were really nice hardwood floors under that carpet it was a pretty much a no-brainer. Yeah. It costs $1,100 more to finish those hardwood floors rather than just recar. But that’s gonna last for a long.

Long time. And so we were able to increase rent by $50 a month, but also decrease our ongoing capital expenses by switching to hardwood floors. Another way to this is more of a revenue enhancement. I We’re talking about, adding cell towers. Adding wifi for the community, that you can actually do that.

We’re doing a cable contract. We were that’s something we can do, but that’s increasing revenue. Here’s one to decrease expenses. The water and sewer bill at this property in Lexington was $110,000 when we moved in when we took over and the company was paying the water and sewer.

We calculated that it should have been about 50 or 55,000. So it was at least double what it should have been. We asked the guy, the maintenance guys, if they noticed anything funny. They said, yeah, the water level in the pool drops about six inches a day, but we just spill her back up. And we said, oh good.

Thank you for telling us. And so we actually put water meters in and that was about $60,000. But we, within a few weeks found out that toilet fla. All over the complex were needing to be replaced and you would not believe, I know you Joseph know this , but you would not believe how many tens and tens of thousands of gallons of water.

One toilet flapper can cost you over time. And so just. Fixing that saved us about 50 or $60,000. And then we were able to pass the cost back to the tenants, of course, the next year. And so that was a huge cost savings. Installing those water and sewer meters, installing gas meters, very similar for heat.

Awesome. Yeah, that’s great advice. Cuz I, I tell my maintenance guys and my crew is kinda we’re, when you see water going, that’s money bleeding. It’s big. That’s what it is. It’s very big. Especially if you’re in a smaller town. Like I know you guys are in, we’re in a smaller town, then the costs of water and sewer are so high that it is even worse than the main cities.

If you could go back in time and we’ll try to wrap up in, in a few minutes. If you could go back in time and talk to a younger you what advice would you give him going into multi-family and into all those adventures that you’ve been going through? We did a lot of residential homes and I interact with people all the time on bigger pockets and through podcasts who are beating their head against the wall trying to get that next house to flip or buy a duplex or a massive single family or small multi-family portfolio.

And Joseph. Almost all of them end badly. They almost all say they’re driving themself crazy. They can’t find the properties, or if they find the properties they’re, I talked to a guy the other day who had a goal of getting 20 properties so he could sell his oral surgery practice. He said, I’m up to four properties and I’m going nuts.

I’m making calls wondering where the painter is between my next oral surgery appointment and the following one, and I’m on the phone trying to figure out how to get a tenant at lunchtime. He said, I can’t do 20 properties. I talked to another guy the same day who had 300 properties. And he said, I have no life at all, even though I’ve got a management team in place, I have got to get rid of this and go passive.

If I could give my 20 something self or even my 34 year old self when I had my money from selling my company advice, I’d say invest in commercial properties, commercial multi. Commercial self storage, commercial, mobile home parks. The value formula is compelling. I can’t think of any other more predictable, stable way to build wealth and to save on taxes.

Said Paul. Thank you. I know you have a phenomenal podcast. I was a guest on it, and I always try to listen to it because there’s always really good, valuable lessons from all your guests. Why won’t you tell the audience a little bit about you, the podcast and about your book and maybe how to find your fund if they’re interested in investing with you.

Okay, great. So I’ve got a book called The Perfect Investment and the subtitle is building Multi-Generational Wealth from the Historic Shift to Multi-Family Housing that’s available on Amazon. At our website our podcast is called How to Lose Money. You can find that on iTunes, Stitcher, Google Play, or of course at How to lose money.com.

We appreciate you being a guest on there, Joseph. And wellings capital.com is our website where you can learn more about our two funds. That’s W E L I N G S. Wellings, capital c a p i t a l.com and we have a wellings fund income fund and a Wellings growth fund. And we would love to chat with people about that.

This is for accredited investors and the minimum investments, $50,000. Awesome. Thank you so much, Paul. You’ve been a wonderful guest and I really appreciate your time. Thanks, Joseph. It was an honor to be on here. Awesome. And to you the audience. If you’re interested to learn more about multi-family or you want to look our podcast app on iTunes and stitches and everything else, our website is apt o p r.com and we’ll see you next time.

Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.