Episode 113: ​What to look for in a property management​ with Steve Firestone & Michelle Fischer​ – The Apartments Operators Podcast

Steve leads the company’s investment and asset management team. Crown Bay Group’s main focus is on multifamily and select commercial properties. He is responsible for overseeing all aspects of the company’s property acquisitions and dispositions process from deal origination/sourcing through underwriting and analysis, contract negotiations, due diligence, project financing, asset management and disposition.

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Show Transcript

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

I’m the host Joseph Golan, and today we. Steve and Michelle with us to tell us about their organization and their operations. Steve, welcome to the show. Let’s get started with you. Tell the audience a little bit about yourself, your portfolio, what are you guys doing, and then we’ll switch over to Michelle.

Sure. Sounds good. Thanks. Thanks for having us, Joseph. I’m Steve Firestone. My company is Crown Bay Group. I started that about that’s six or a little bit more. Years ago we started buying multi-family or large multi-family from about two, 2015. I think it’s when we really started ramping up and getting our first deals done.

I have done. I think about 13 deals total over the last five years. We’ve probably gone full cycle at about six or maybe even more properties. Mostly C space properties, c plus properties, anywhere from roughly a hundred units up to 300 and something per property. At our peak it was probably just about 2000 units and a lot of them.

We were lucky enough to hit our long-term or five year sort of goals in two years. So we sold off a lot of stuff as we hit our projections. And last year really good with hindsight now, but we sold about four, if not five properties last year. By December we were all done and waiting to take up the next space of us scaling up the company.

And then of course this happened with Covid what’s happening now, and coulda put a little bit of a damper on that, but I was happy that we sold off a lot of stuff. Now we’re just really ramping up. Despite what’s happening of the next phase of growing Crown Bay Group. Michelle actually is our director of operations.

She runs Crown. Management. We have our own separate management company that mostly just runs our own properties right now. We have been doing it for about three years. And yeah, that, that’s it. That’s awesome. Michelle, do you wanna tell us a little bit about yourself? Sure. And how did you joined the group?

I joined Steve three and a half years ago when he started Crown Bay Management. I’ve been in the business for 31 years now. Started out as a leasing agent, worked my way up. I’ve done everything from brand new construction, building properties from the ground up to foreclosures, receiverships, and anything in between A, B, C, D, E, F, G.

Get the hell out as fast as your feet will take ya. So I’ve done it all. There’s not much I haven’t experienced in property management in my 31. And it’s definitely a fun job. . . It definitely keeps you on your toes. I, oh, every day it’s something new. Okay awesome. So we’re jumping straight into the question.

We ask all of our operators third party versus self-management, and sounds like you made the transition from third party to self-management about three years ago. What was the driver there, Steve to switch over? At first it was I guess everybody thinks you need a management company to, to trust when you’re first starting out.

And I spoke to most of the management companies, at least in this market in Atlanta where we started buying. And picked out a company that I, started to, sort of relationship with that I thought would be good. Good, pretty good reputation. And it was okay until, you know better.

It, it’s only once you’re more knowledgeable when you start finding out how not okay. It really is. So we did that for a while, a couple of years. And things just weren’t going right. I felt a lot like I was paying them and I still had to look over their. I know that’s a sort of asset management, but it’s not really what I intended to do, to have to keep an eye on them.

They should know what they’re doing. And as we took over properties from other operators and other management companies, that’s when you really start finding out that a lot of them, most of them are all the same. And really with management companies that your interests really aren’t aligned.

At the end of the day, their reputation is built on running your properties properly. There is something to that. But on the other hand, they’re also, and usually the top people that are running the company, Are interested in building their company. So you really just get pushed off onto, a regional manager and whatever staff she hires or he hires.

And you’re only as good. It doesn’t matter about the company, you’re almost only as good as the people who they hire and who’s keeping an eye on them. And half the time you don’t even have a regional manager that is that great, so nobody is checking them. So it really just was a big mess and I.

Thought about sorting a management company, like I’m sure everybody does when, you always think, oh, when I get to that number, whatever it is that people tell you, you have to have to make it viable. And Unless someone pushes you into it, which is what happened to me. Sometimes you need a push to get started in anything in life, Michelle was working for a big company for quite a while running a huge portfolio which was nationwide from here where we are. And I had, funny enough, I had met that met. Her and another guy that worked there when I first came here and we had lunch and they were trying to, get my business as management.

And then we, I didn’t, really think about it that much or talk to Michelle again for years and But I was friendly ish with, I got friendly with the, basically what her boss, or was the president of their company and friendly ish. And then he called me one day and I found out, or he told me he was leaving, retiring or, moving on after he’d been there for a long time.

And then that was about two months later, he called me and then Michelle had. Too cuz she, she had only ever worked, under for him for eight years and didn’t answer to anybody else in this company. I guess they brought in someone else. It wasn’t the same anymore and she decided she wanted to leave.

So he called me up and said, I left. Michelle’s left too now. And he goes, remember Michelle? I was like, Yeah. And he said, you are never gonna get an opportunity like this again. You are starting a management company. I’m like, I am. I’m like, I got like a thousand units. That’s how the heck can I do that?

It’s I’m telling you, you gotta talk to her. And the rest is history . And it just happened by coincidence. She lives not far from me and we started meeting up and talking about it and whether she was willing to start a company from scratch and all that. And we just worked our way into it.

And, once we got to that stage and did it, It was amazing to me that, you know how much I knew we could do better with our own management, but I didn’t realize how bad it really was. Yeah. Until Michelle took over and uncovered the same things on every property as we took them back from third party, one at a time.

It was like the same issues, the same problems on every property, that I didn’t even notice. And then, and at the same time things like reducing expenses, raising occupancy raising up, just income, everything, which just all happened in an exactly set time.

For each property was identical. Yeah. There’s a lot to unpack here, yeah. But what I always find amazing and this is what this podcast is for, right? We talked to experienced operators, people that are in the field and doing the job. The stories are identical. It’s just so incredible that we’re all going through the same process, right?

You start with when in very small percentage, start with their own property management right out of the gate, right? So we’re all told, oh, you gotta get to 1200 units, 1500 units before you can justify a management company. And we go with third party and we all have the exact same issues. And like you said, at the bottom line, They’re only as good as the regional and the onsite team that they hired for your properties.

And IT, and still a property management company needs checks and balances and processes and procedures and making sure that just because they have a book doesn’t mean that they, the people in the field actually go follow that book, right? So , same challenges we keep hearing over and over from all of our different operator.

And we’ve been hit with the exact same thing. And I like how you said at some point you just get a little push, right? Yeah. That, that pushes you over the threshold. And that’s what happened to us at the beginning of the year, just before the whole Covid blew up. We got that push and we took over and quit Quitted own management company.

I found original, like just like you did, and she’s our VP of operation now. And I’d love to hear from you, Michelle, a little bit about your perspective, right? You’ve been in the industry for so long how come that all those property management have those exact same issues? And because you’ve seen that, right?

You pick up properties from third party management and they all have the exact same challenges over and over. I’d love to hear your perspective with all of your experience. I think my perspective on it is that when you are a huge operator of a management company like these large property management companies, you’re just a number.

You just become a number to them. Cuz I’ve worked for the large property management companies and I think part of the problem is that, like you said, there’s not enough oversight on the properties. To be able to determine, why? Like we have a property right now that we are purchasing from a large management company and they’re giving away one month free on this property, one month free rent in this market.

I haven’t seen that in seven to 10 years. No concessions, but they can’t lease the apartments. And so they try to just tell these, like they tell the owners what an owner. What they think an owner’s gonna believe. And so they say, oh the market’s dictating a one month concession. And most owners don’t look into that because they don’t have the time.

They’re trusting the operators of the management to be telling them what’s really going on in the market or operation wise. And they just don’t, I think they, what I always tell Steve is I feel like a lot of these large companies have the gift of the. But they don’t walk the walk.

They talk the talk real well, I’m sure you’ve experienced it where they tell you everything that you want to hear, but it, the numbers never show the results. Or when, and it’s just getting up there. They all of a sudden have these. These excuses, they have a list of excuses that they pick from, to justify why you’re not at occupancy.

You know what I mean? This is what we have. Steve had a property that I, we took over management on and they were having an occupancy issue, and this management company kept telling Steve that the reason for the occupancy issue was that they weren’t getting qualified traffic in the door. On day one, my regional maintenance supervisor went out there and walked all the vacant units.

The reason why they couldn’t increase the occupancy was because they had 21 down units on the property that Steve knew nothing about. Yeah they lied. They told, they, on the rent roll, it says that there’s, there was no non-revenue units. Yeah, and there was all these units that were, they were taking things over to fix other ones.

The things, we had plenty of money in the bank, so I don’t know why they were doing that. And so within 30 days, we keep an eye on ’em. Within 30 days, we turned those units, got ’em occupied and increased the income by 20, $30,000 just on those 12 units. Yeah. We’ve had that as well. When we took over, we found residents that were told there’s no forest, there’s we ordered the parts.

It’s at the same time, the parts are in the shop, it’s it’s right there. Yeah, it’s I feel it comes from a place where like you said, oversight. If there’s no oversight, if there’s no one carrying, right before we took over, we got to the point that we were actually going through each unit ledger.

And like you say, Steve, that’s not asset management, right? So when I got to that point, I said, okay, if I’m doing all that work, why do I have to pay someone else to do that? So that was one of those little points of push , like you mentioned earlier, for us. One of the things that I’ve noticed and that’s like we said earlier, they’re only as good as the regional and the people on site that they hire.

What is some of your philosophy about hiring? Because it’s a very unique industry, to be honest, right? We buy properties that are millions and millions of dollars, and then we hand over the keys to a manager on site that has a salary base of 50, $60,000 or even less so how do you hire what’s important to you when you hire an onsite manager, for example, or regional?

How do you make sure you get the right people in? I’m gonna tell you first off that Michelle is perfect to answer this and explain because. . I’ll tell you from an operator point of view, that she knows we joke about this all the time. Cause every time I go and into her property that I’m interested in buying and she’s like a running joke now, she’s shit.

The girl like, are you gonna tell me that you like the manager, right? And I’m like, yeah, . She seems really good. She seems, and then, and it’s always, turns out it’s okay she’s shit. And that, they’re just telling me what I want to hear. Even, just looking at a property. Cause they just wanna keep their.

Kind of thing. And we never keep ’em, and Michelle always points out to me why things that they say and do that. They were totally lying and making up stuff go ahead, . I think unfortunately a lot of it is experience of interviewing people. For people that don’t have that experience, it becomes harder to determine what is a good manager and what’s a bad manager.

I’ve interviewed them for 31 years and regional managers that it’s slightly easier for me. We do have a task that I require managers to take because they. In an interview we’ll tell you they know everything. But when you ask them to give you the formula to calculate cash flow, and it’s on a test, I’m telling you, nine times outta 10, a manager can’t tell you where cash flow comes from.

And it’s, total income minus total operating expenses, minus your capital equals cash flow. It’s pretty simple, but I think a lot of people, what I find is they’re really good at interviewing, like a management company is really good at telling you what. They think you wanna hear that’s how a lot of interviewer interviewees are. And so you I think bottom line, it’s, you gotta get down to testing ’em and putting it, on paper what they know. Yeah. So what would be a red flag for you in an interview?

There’s so many . I know. Give us a few. A huge red flag to me is somebody that’s texting or talking on their phone or answering phone calls because that’s what they’re gonna do all day long at work. That just irritates me to no end. You don’t know how many times I’m in an interview and somebody is texting or answering their phone.

It’s strange during the. ? Yes. Wow. Okay. Yes. That’s a huge red flag. Again the yes Ma’ams the yes ma’am. Yes ma’am. Oh, yes ma’am. I can reduce your delinquency. But then I say, tell me how you’re gonna reduce my delinquency, and they start fumbling. You gotta watch out for that. Yes, ma’am. Yes, ma’am.

Yes, ma’am. Just like we talked about with the management company, they know how to Yes, sir. You, yes, sir. You, where you think, wow, this person really knows what they’re talking about, but they don’t. Yep. They’re just used to the gift of the gab, but they can’t walk the walk. I’m adamant about that, yeah, that’s, that. That’s good. We’ve gotten to the point and we’re in a, most of our properties are in a smaller town, so there’s just not a lot of depth in the town pool. We got to the point that when we hire someone, they start on a 10 99. We don’t bring them on board for the first 30.

Until they prove themselves. Because we literally had to send people home after a few days or after a week. They just, they tell you, yeah, I can do this, I can do that. And that’s true to maintenance and office. It’s kinda, oh, yes, I can do this and I can do this. And then you get to the reality and it’s kinda like they’re, they don’t know.

They don’t know how to do it. And on a, on the maintenance end, we also have a test they have to take because yes, they do the same thing. Yeah, I can fix air conditioners and they have their EPA certification, but you tell ’em to go out and fix one, they don’t know how. Yep. Yeah. You gotta test.

People, and I did, Steve had a friend that owned a small property in a small town here in Georgia, and he could not find a good manager. And I gave him my test and he said, wow, that was phenomenal. I found somebody that could pass the test . And she worked out well for him, because again, people like to talk the talk.

Yep. That’s absolutely true. Okay. That sort of leads into one other thing too about I just wanted to say, This is why I do a lot of these panel discussions at the, I don’t know if you’ve been to the IMS event im in, in, yeah. In imn. Yeah, sorry. In in New York and in Chicago. I did in Santa Monica.

And the panel that I’ve been mostly doing or asked to be on was about the difference between having third party management or your own. And that’s what the discussion is about. So I’m used to talking about that and. You know it, it’s, so the first thing I always tell people is because it’s misleading and the first thing I say is, I just wanna make it clear.

We’re not saying that you should just go out and say, Hey, I’m a management company. Now you should. If you’re talking about starting your own management company, what we’re saying is, To find someone and bring someone in to operate the company that knows what they’re doing. Not that you do. And this also goes back to interviewing staff and unfortunately property operators like, like us, of course, we talk to staff, we, if we think they suck, we’re gonna say something, but you know, but at the same token is we don’t see them and talk to them every day.

So we just meet them once they end. Like they tell you what you wanna hear and we think they’re a nice person and that stuff, but we don’t really know what they’re like to work with or how they’re doing their job every day. So it’s run by emotions. So it’s like anybody else, if I meet anybody once they can, I can.

Instantly like them and they all nice. And the second I walk out the door, they start cursing me out behind my back. You don’t know , but when Michelle works, has to work with them and speak to ’em every day. And the number one thing is actually see their performance every month. That’s it. If they don’t perform.

Then they’re, they gotta go. You gotta go. Yes. Michelle’s pretty strict on that one. . Yeah, no you’re absolutely right. And one of the thing that was a real challenge for me to think through was how do I handle compliance, right? Because there’s so many fair housing rules and revelations and all kind of things that you have to, and HR stuff, right?

That you have to worry. And I think that you hit it on the nail and it’s finding that right person to lead the whole venture of creating your own property management company. And when I was interviewing for my VP of operations, I told all the candidates, I’m not looking for a number two, I’m looking for a number.

I want someone that can come in, set this thing up, and then become my number one so I don’t have to be in the property management day to day. And, Not that I threw the keys over the fence, so that never works. I’m still in the trenches cuz we are still only a few six months in.

But I hired the person that I felt that at some point I’ll be able to take a step back and let her run the show. What do you guys do when it comes to compliance? How do you keep your people up to date with fair housing and all this kind of stuff? Cuz a lot of the people will have the same hesitation I had with just, how do I do all that?

We have an hr director that handles all of that for us and keeps us in compliance and sends out all of the latest and greatest laws on everything. That’s something that we have a department that does that for us. Okay. And do you guys use certain online classes for fair housing?

Yes. Grace Hill, we’re using Grace Hill as well. Okay. Grace Hill’s good because they have to get their certificates. So if you ever have a lawsuit, like a fair housing lawsuit, it’s awesome that all of your people have taken the Fair Housing class. And that is just such a great way to document all of that.

If you ever get yourself into that situ, Okay. Which you will. You will. Yeah. . . It’s not as if it’s don’t think you’re immune to it, . No, nobody is. We actually found that there are certain people that would call and try to trap our people. Like they have professional shoppers that do that to see if you’re gonna violate fair housing.

Yeah, but I’m not talking about the government that I’m talking about actually, people trying to trap they sue you. Yeah. They make a living out of it. Yeah. That’s same with other lawsuits on your properties that they’re so savvy to it. They go out and trip on a curb and sue you and say they broke their.

Yeah you’re always gonna have those folks. We had one at a property the other day that entire living seal tried that. It fell on then injured them. But we got real smart with that and hired an engineer to say that they pulled it down. Yeah. And they really did. Yeah, it’s crazy what people will do and I think a lot of times that’s what scares people to open their own management company is they don’t know how to handle fair housing lawsuits, liabilities, but if you hire somebody like myself that’s been in the industry for 31 years, I know how to handle all of the, all of those issues for Steve. Yeah. And good insurance. . Yes. Always have good insurance and make sure you don’t let your insurance lapse. . Yes, absolutely. So hindsight, Steve I’m pretty sure I know the answer, but would you start management euro management day one, or would you still go through the process of starting with third party and then transit?

I would I would still start with third party because I think in a way you don’t have a choice when you’re starting, especially if you’re gonna jump right in and buy a hundred units plus it sounds too daunting to, I remember first property board, actually one, Michelle was talking about Parkside crossing back in 2015.

It was 250 units, and I have been looking at smaller properties first over my first year of due diligence before we bought. So we’d be looking at 20. 30, 40, 80, a hundred. Then I thought, I got myself psychologically up to the point where I felt like I already owned all those smaller properties, so nope, now I’m gonna buy a hundred.

And then I ended up buying two 50. And the first time you go to a 250 unit property and you’ve never owned a property before, I was, I couldn’t even find my way around. I was like, felt like I was lost. And then now of course it doesn’t seem like a big deal, but at the time it was like, holy crap, what the heck have I done?

Yeah, but I think without having third party management, You don’t learn what you’re doing wrong or what they’re doing wrong. So I think it’s really important to still learn from it. It’s not like they don’t have any idea what they’re doing, they’re just not, like I said, totally aligned with your goals.

And but they’re not, if you get a decent one that’s recommended or whatever, they’re not like terrible. Like they don’t have any idea. You learn a lot from seeing what’s going on and how it evolves, maybe at least over the first. And then, you’ve gotta have something to compare it to when you finally do your own thing and you’ve got someone to set shit out, pointing out what’s wrong and showing you the proof and the pudding of what, how it can be.

So I think it’s important to learn. I’m not gonna say the wrong way first, but just not the most efficient way. Yeah. That when we start out, you don’t know what you don’t know. Yeah. And that’s one of the biggest challenges. And trial by fire is not the best way either. . Yes. But I don’t know if I would recommend anybody to wait until they’re, at the financial threshold, which is somewhere around the 1200 5,000 unit.

, would say as soon as you feel comfortable professionally to handle. Even if it means you make an investment and the first year you’re gonna be negative cash on on, or net loss on your management company, it’s still worth it. That, that’s a good point actually, because a lot of people.

Seem to think not operators, but other people seem to think especially investors. Oh, but you’re making 4% management and whatever. And I’m like, yeah. And you try to, you’re trying to explain to them that we don’t make any profit, we’re it’s 4% or whatever it is. That’s in line with the market.

Not to mention we don’t have all these extra fees in there that we’re charging and taking advantage of like other third parties do, and that mount, that really mount up that we, I was shocked when I realized what they were charging me for all these. Stealth fees and things. Yeah. Yeah, it’s just such a big it’s not only that it’s like you look at the math, right?

The, what you charge for the management and the amount of brain damage that management generates. The, it’s not a good business. I really don’t see how third party management do, and that, is part of the reason why they don’t do such a great job because, If they’ll actually put all the time required, they’re not gonna make any money.

Yeah, again, that’s what I tell, like especially investors, the, our management entity is really a loss leader. Yeah. And what it does is really enable us to run each of our se, and consider every property as a separate business. Obviously, we have some crossover investors and some different in every property.

So you want, it’s not like having a portfolio where some are up and some are down. You want every property’s gotta perform good. Yeah. We’re not worried about making money with that. We’re trying to just make each property run more efficiently by having that in-house service. But it’s really a service to our investors, if anything, not anything making money for me.

Yeah. like the way you phrased it. It’s a lost leader. It’s not a yeah. It’s not a profit center really is not. Yeah, absolutely. Okay. Michelle, tell us a little bit about the things that you guys like to do on your properties for the residents, right? Do you do any events, any parties, any promotions or what do you do to increase retention?

I guess that’s what I’m really looking for. We did until Covid 19 hit. Now all of that has ceased assisted . But yes, we do, weekly, like once every two months we’ll do a whole week of resident appreciation week where we do a different event every day for of an entire week for the residents.

We do pool parties, we do Christmas parties every holiday. We definitely do something for the residents We have our staffs have really great re relationships with all of our residents. And that comes from, Steve, down to me, down to them. We believe that the residents are paying everybody’s salaries.

The residents are, Making the properties perform financially, so we, even during Covid 19, we don’t have a lot of delinquent residents on our properties, and we have not changed our operations at all during the whole pandemic. And I think it’s our residents like us and respect us, and we give them that back also.

Yeah, so I’ll give you a few examples of what I’m looking for, right? For example, we used to do pre covid back to school parties. So we would actually reach out to a few vendors like hairdresser and, local pizza shops and other vendors and bring them in so the kids would get free.

But it’s the little things that we like to do. We usually towards the end of the year, whether it is a challenge, usually a bigger challenge with collections because, C class residents somehow prefer to pay buy gift over paying rent. So Amazon didn’t get big from nothing. , that is still weird, but it is what it is.

So we used to incentivize them giving away movie tickets. That’s another thing that due to Covid movie tickets and we would raffle big l d TVs. Do you have any of those little things that you guys are doing that are not just the usual full party Christmas? Yeah, we do all of those kind of events.

Every property does different things depending on the manager and the residents at the property. If we have a property that has a large profile of children, then yes, we’ll do like Easter egg hunt for the kids Yes. Back to school. We’ll do what Channel three news here in Atlanta does stuff.

The bus, we do like donations for school, supplies for the kids on the property. We do all like that kind of charity stuff for the residents also. Yes, we do. That’s awesome. That’s another thing about having good staff as well. You can always tell good manager when they need to be firm, but still approachable from the tenant’s point of view and seem to be doing things at that end.

A lot of them really get into their work and have these things that they’ve done in the past that they like to do, and they bring on board ideas of. Those sort of events, and you can tell the ones that really get into it and keeping the tenants really happy. Yeah. It’s like I said, every property’s different based on the staff and the profile and but all the managers have their own unique ways of what they do, and they’re all interesting and good.

Like it’s fun to watch what they do every month. . Yeah. That’s really great. And it comes from a place of caring, if you have the right manager and they care about the resident, then they will bring up those suggestions. They will ask for a budget to do something. And we always encourage our managers to think that way.

Take care of your residents. . And if you need to fight for someone, come in and fight for someone, right? You’ll never be punished for defending your resident or advocating for your resident, right? So that’s great. So let’s talk a little bit, because I know you, you’re very much like a lot of operators.

You buy properties that are underperforming and you’re trying to add. We’re gonna look at both sides of the equation, right? Increasing revenue and reducing expenses. Let’s start with the revenue side. Give us a few examples of things that you guys like to do that is not the usual raise rent.

Because that’s the easy one, right? Give us a few examples. On, on a lot of the properties we take over, they’re not billing back all the utilities and we build back all utilities, water, sewer, trash, pest control. A lot of the properties we take over don’t bill back any of that. Day of takeover, all concessions are eliminated.

We do not do concessions. Literally we’re taking over a property that has A ton of concessions year to date, and it’s just not necessary if you have the right staff on the property and it’s all gonna go back to that, like you said, it’s gonna go back to having the right people in the office that are gonna increase your income and reduce your expenses.

So the utilities concessions. And the one thing I tell all of our staff members that will fix any property is vacancy loss. You reduce your vacancy loss on the day of takeover with like within 30 days, you’re gonna see your income increase hugely and your expenses are gonna decrease. You’re not paying vacant utilities.

You don’t have to turn that unit. It’s occupied. It. getting back to the basics of property management that really solves all operational income issues. Yeah. That’s pretty much calling it, okay. Steve, do you have any examples that you can think of? In general, what Michelle’s saying, I always say one of our main things, we have, or I have three things I, I look for or do to raise value.

When you say value add, it’s. Open-ended or what is value? And pe a lot of people that don’t know, they just, if you’re adding value, they think you’re building something or like interior doing interiors or renovations. But the reality, it’s just anything that makes it more valuable. . So our, my strategy when I buy you is number one, of course, it’s just buying, right?

If you don’t buy it right in the pay, the right price in the first place, you’re just dead in the water anyway. And number two, really the biggest thing that adds value. Management efficiency. And that’s a combination of reducing expenses and, raising your utility basis. We take over some properties and they are charging for water, but they’re only get, recouping like 50%.

We can get that up, over, probably an. Maybe takes a nine month turnover to get it up to, near a hundred percent of the, the tenant used water. , that’s huge. You could add millions on a big property in capitalized income. So it really is just mostly.

That type of thing. It’s always, I always say it’s a man, it’s mostly a management play. And then any work we do is extra. We might do upgrade 25% of the units or do some, lighter upgrades on all units as we turn, but most of it is just getting to grips with it right away. We know in advance in advance when you buying a property what things need to be fixed and, if you have someone to implement them, then you know, you can turn it around quickly.

And really it’s not specific things. It’s a combination of. Of those things, just lowering any expenses that aren’t correctly being dinged. Charge correctly. And really it is, there’s a point there. A lot of it’s just collecting the income, training the tenants. Good manager knows how to, train, retrain the existing tenants and train the new ones as they come in so that they know you collect on, on time we file on whatever the 10th of the month, things like that.

So training them and having a more systematic approach to collections and everything is really a huge difference. Absolutely. And you touched on reducing expenses so let’s talk about reducing expenses. Where do you guys find the most value of, if I do this, I get that much reduction in expenses, right?

So what are the big stones in expense reductions? . I have to say that one of the biggest misconceptions in property management is that utilities are a non-controllable expense and they are controllable, and that is where most of your money is going out the window. If you start to see that your water bill is increasing, don’t ignore it.

Get somebody out there. We have a regional maintenance director, so it, I monitor the monthly utility bills on every property, and if I see a water bill is starting to climb up, I send him out there and nine times outta 10, there’s a leak on that property somewhere. And most people don’t do that. And then it goes from 11,000 to.

15,000 to 20,000 and then it, oh my God the water bill’s now 20 grand. It used to be 11. What’s going on? If you catch it right away, when you start to see that increase happening, another thing is vacant utilities, whether it’s gas or electric, my managers walk those once a week.

Every vacant unit, to check for mold or check for leaks. To make sure all the utilities are sh not cut off because you need power for the refrigerator. . But the air conditioner’s not blasting on 50 degrees all day and night for 30 days straight, so you have to have somebody that’s monitoring those vacant bills and you’re all of your utility bills, because I’m telling you, We save.

I had a property last month that the water bill did go from 11,000 to 15, and I immediately called the regional maintenance director and said, you need to get out there. Guess what? The bill’s back down to 11 again. Yeah, we caught it immediately. There was leaks on the property. It’s I think everybody that has ever trained me in this industry says utilities are a non-controllable expense.

That’s the craziest thing I’ve ever heard. It’s one of the biggest controllable expenses. Yeah. Really it is. Another thing. Is advertising. We’re buying a property in the next 30 to 60 days, where this company has spent year to date, $85,000 on advertising. Oh my gosh. In anything like that, do you know that on our properties, we spend zero on advertising because I have the right employees that know how to market.

they know how to lease. I always tell everybody an apartment is a box. It’s just a box that you’re selling. They’re all pretty much the same. It’s the people, people lease an apartment because of the person that they’re dealing with, the customer service they’re getting. You know how that person made you feel?

I am a huge proponent about, first impressions and how you make somebody feel the first time they meet you. And if you’re on your phone and you’re texting and they’re waiting and they’re wanting to see an apartment, they’re like, I’m outta here. Yeah. So if you have the right people, you don’t, and I find that these.

Third party management companies, and this is a third party managed property. Instead of looking at the staffing because they’ve turned the staffing over three times already, the entire staff. And instead of going, okay, we got a major staffing problem here, they’re telling the owner we need to spend $85,000 on advertising.

This is the one that we mentioned before earlier on in, in the conversation that. Was having trouble with the occupancy. There’s a, this is the only, the one month free from fixing it, spend more of the owner money . Yeah. No it’s crazy. I don’t even know what they’re spending $85,000 on, but I wanna know I’ve asked the broker, can you please give me a breakdown because outta curiosity, I just need to know, for my own, do we do a website?

But we have a website that’s, from a company that, as soon as we know we’re taking over, they get it ready. That’s the only thing we do pretty much. That’s, it might do some minor. So we, it’s mostly just traffic coming in and Michelle said just having good staff. Yeah, when we took over the, one of our properties, they were using apartments.com and they were paying like a thousand dollars a month for this thing.

Yeah. And it, and then when we drove into the roi, it was just not there. It wasn’t generating and traffic. . And there were bills, and bills from apartment list, for example. And just turns out if they visited apartment. Website at some point, and then they showed up on your property. It might be unrelated, they just drove by.

, you’re still getting charged for the lead because a partner lists log them first and stuff like that, that we eliminated immediately. That’s one of the things you find out about from, the hard way from third party management. They’re spending a thousand dollars a month on my money on apartments.com and then you don’t think anything about it for a long time until you.

You know what I’d like to see. Can you show me the analytics from that? And and then they, Oh gee, we don’t have any leases from apartments.com. And you’re like, why am I still spending a thousand dollars a month? Oh, I don’t know. That’s third party management, . Yeah that’s exactly what it is. So we, and we also have a media company that builds multifamily websites.

Because we feel, we crack the formula. Layout templates and so on to the point that we get about five, six leads at organic leads a day, coming to our property website and put in all the information. Look for an apartment, and this is. Every property every day organically. We don’t spend a dime on it.

Same us. One of the things that we we also learned is that because we also have a brokerage, right? We got a fully vertically integrated organization. We also have a brokerage, so we put our apartments on the mls. The MLS propagates to hundreds of different websites, including realtor.com, in Zillow and apartment list and Damper and all these guys.

So we get leads through those for. So why pay apartment list if they’re gonna give you a free lead just because you put it on the mls. That’s just another way that we found that we can get a lot of different leads and use them without paying for it. Yeah, that’s a great idea. Okay I wanna be conscious of everybody’s time.

When you look back a little bit. And if you could go back in time to a younger self. And what would you tell yourself, and let’s assume you can’t tell yourself that 2009 would be the bottom by anything you can put your hands on. Short of that, what advice would you give yourself your younger self?

I certainly wish I got into it much. I have been involved in real estate, for instance, about 20 years now in, more doing development and other stuff along the, just about everything along the way, buying, selling commercial property, stuff like that. But I really didn’t know a hundred percent about.

How great multi-family was till five or six years ago. And then I just decided to do that a hundred percent and I wish I did that way before that. It’s just a great business and it’s it’s much safer than doing spec building and, things like that. It’s just, as long as you learn how to operate them properly it’s a great business.

That’s great. I wish we did it a long time ago. Okay, so we’re recording this at the end of July of 2020. It’ll be a missed, not to mention Covid, but, and we mentioned it a little bit along the way, but how did Covid impact your operations? I think I heard Michelle say that would you change nothing in the operation?

Did you stay fully open? Did you do any work orders? Even the small ones How did you guys adjust and how did your residents adjust? When the covid first hit, Steve called me panicking, and I fully understand, I was a little rattled myself, but I’m the, I’m like the calm one, so when it hit, and everybody you know has their opinions and there’s so many people that wanna say, you should do this, you should do that, you should do this.

And you know what I said to Steve? I said, Steve, I’m gonna continue to operate like normal and I’ll adjust if I have to as we go along. But I’m just not gonna listen to all this rhetoric that’s going on, that I keep hearing, absolutely. We put, safeguards in place.

All our offices are open. We do full work orders, because part of my problem was, on a 348 unit property, if we hadn’t been doing work orders since February and it’s now July. , can you imagine? We’d never dig out of that hole and the residents would be miserable and we’d be devaluing the property by not fixing these items.

. At the beginning of it, I just told Steve, I’m gonna run it like normal, but we’re gonna require our employees to wear masks, maintenance, have to wear maintenance gloves and masks. We’re gonna sanitize, we’re gonna close down all the common areas such as the pool, the fitness center, blah, blah, blah.

And I’m happy to say at the end of July, I have not had one employee or one resident that has had Covid 19. That’s great. We had to minimize to emergency only work orders for a little while. I think that was like for March, April and some of May. And then when things started calming down a little bit, we went back and because like you said, it builds a backlog.

and if you don’t catch up on it, it can be a real problem. It took us a little while, but we’re finally got caught up on, on all that backlog and we never closed the office because your residents still service, right? , still need service, they still need attention. You still need to renew leases.

You still need to lease apartments and show. So yes, we adjusted, we had masks and sanitizing. We did virtual tours to anybody that wasn’t comfortable to do a an in-person tour. But overall, we’re an essential business. We gotta keep operating. We have people to take care of that lives in those apartments.

You can’t really shut it down. No. And of course it is communication as well though, with the tenants. Of course we, we had. Ask tenants and, put notices out and said, please, don’t call if it’s not something that, is really that important. So we have do, would like a bit of tenant cooperation on that side too.

Don’t come in the office unless you really need to. Don’t call us because to change your light bulb or something ridiculous, come on. So it’s a bit of common sense, I think in communi. Yeah. And sometimes we had to have that conversation with the residents kind look, it’s not an emergency.

We’re not just trying to protect our team member, we’re also trying to protect you and everybody else in the community. Because if our team making his team is walking in and out of unit all day long, if one of them gets sick, he can get the entire complex, right? It was also protecting them.

So like you said, a lot of communication that was going on with the residents to help them understand. A lot of them are very, and so are we very sorry that we can’t open the pools just yet. Especially here in Texas, it gets hot. Yeah. But it is what it is and we gotta follow the city code and all the instructions.

It’s definitely. Different. Cut everybody by surprise. And we’ll all have to adjust in some way to, to the situation. I’ll just ask one last question and it’s what’s next for your organization, right? What’s the plans? Are you guys still buying in 2020? Are you planning on development?

Where are you going forward? We’re still sticking with, what we do, which is, mostly specializing in a more of a c, C to B, C plus to B minus demographic. That seems to be our, niche, specialization sort of market. Which is what we’re used to dealing with.

And we’ve weren’t doing anything for the first couple of months or more. If most people weren’t, no one really knew what to suspect, what’s going on. That felt like the market shut down, as far as buying and selling and stuff. Everyone pulled out of deals that we know that were, that.

We’re under contract, things like that. But lately things have seemed to pick up a little bit. We’ve really been, or I’ve been weighing up what I think, listening to industry news, economic news, and trying to, feel my way through what my opinion is. At the end of the day think there is a.

Good justification for buying if their price, risk adjusted pricing, which I don’t see a lot of at the moment. But we are buying, so we have a 93 unit we’re closing on next Tuesday. That just came up and that actually was on the market. Quite a while pre covid and they had offers on it in the eighties, a door, and we’re buying it for 69 a door because the guy decided he wanted to sell it and everybody pulled out and I said, yeah, we’ll do that for the right price.

So that is priced in, any downside. And of course the upside is, a lot of it on our, my plan right now buying is that hopefully, even in two years from now, we’re back to income related cap rates and pricing based on that. , so hopefully we’ll gain something from that.

Plus it’s got management efficiencies. And then we’ve got another 260 unit property we’re closing on in about, I dunno, somewhere between 45 to 60. And that’s been a great deal as well. Really great property where we already have a property, the one that Michelle said that we’re taking over.

That’s needs a lot of management efficiency run by a big management company. Meanwhile, we have a property on the same road as that’s inferior. And our rents are higher and we’re a hundred percent occupied, so they have no excuse. , we’re buying. But that’s the best purchases, right? When you have a proof that you can do better, right?

It’s way lower risk that way. Awesome. So it sounds like it’s onward and upward for you guys. That’s fantastic. I wanna take a minute and say thank you for both of you taking the time today and being on the show. If anybody wants to reach out to you guys and find you, maybe invest in one of your deals, how can they find you?

And we’ll put links in the show notes for all of that. Sure. Our website is just www.crownbaygroup.com. You can go on there. I think, our email’s on there, info crown bay group.com. Anybody’s, welcome to send me an email or, Send a message through, through, through there, or directly on the email to get in touch with me and I’ll get back in touch with you or we can get on a call or whatever the case may be.

That’s really the best way. We also have an investor tab on there as well on our website. You can click on that, which takes you to our investor portal, which has, which we actually just really got up and running during Covid. We thought it’s a good time. Let’s do something proactive here.

So let’s get that. We got that just up and running. And the first deal is actually on there now. And if you click on that, you can actually see all the documents and downloadable items. Awesome. Great. We’ll definitely make sure we have the links in the share notes. For the listeners, thank you so much for listening to our show.

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