Mike Woodfield, CPM Candidate, is COO, and partner of Obsidian Capital Co. After leaving college Mike took on his first venture as a partner with a venture capital group out of Chicago. Mike’s first venture was a company turnaround taking revenue from $1,000,000.00 per year to $3,000,000.00 in just under 1.5 years while overseeing up to 45 employees
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Welcome to the Multifamily Operators Podcast, and this is your host, Joseph Kazan. And today we have Mike Woodfield. Welcome. Hey, how are you doing?
I’m doing great. Thank you for being on the show. Usually we start the show with a few minutes where our guests get to tell the audience who they are, what they’ve done so far. Tell us a little bit about yourself. Well, I guess first and for foremost, I have two beautiful kids and a beautiful wife at home.
They’re a huge support to me, but on the business side, I have had the opportunity to be involved in the acquisition and hold and disposition of about 5,000 apartment units over the close of about five or six years. More recently delving in on the ownership side. Previously really just focusing on asset management.
But had the opportunity of about putting about seven, 800 units of my own with some partners under contract and now holding those. So had some good experience in the multi-family industry here recently. Really focused on the asset management side of the business. The first four years, five years of my career in it, in in real estate doing maybe about 30 to 40 million in renovation, works on value add deals creating millions of dollars in, in in value added to our investors.
And had a great. 2014 through 2019. So just trying to figure out 2020 like everyone else. Yeah. . Yes. That’s definitely a special one. Yeah. But Neil, awesome. Thank you for, for that little brief and we’re definitely gonna dive into a few of these things. This podcast is, Specializing in operators.
Right? So that’s why your rich experience in asset management is, is what draw drew us to you and, and have you on the show as a guest. So let’s start with a little bit of just so the, the audience can understand the kind of properties you were working on, obviously multifamily. Sure. What kind of class, what kind of locations, which states you guys were in.
Sure. Give us a little bit of that. Yeah, of course. We, we mostly focused on central Texas. We did delve down into properties in the Houston area along the coast in Corpus Christi but mostly in your San Antonio, Austin. And really dfw, the Fort Worth area is where we had probably over half of our assets we’re arranging from a C product to a B minus.
Most of them were value add deals where we did some pretty heavy lifts and renovations. Some renovations were like, you know, deferred maintenance. Some were completely down, you know, 0% occupancy, you know, bottom from a bank type of deals where we, we brought them back online and, and, Breathe some life back into ’em.
So a, a wide array of things. And, and now more recently we’ve gone into some development and building things ground up. Got a few projects under the underway doing that, moving dirt on 50 units here in leaner Texas right now. All the work’s done on it, and we’re ready to pour some foundations here in the next three weeks.
So, That’s awesome. Those are typical asset classes I’ve dealt with and I’m looking forward to dealing with in the future. Okay. Yeah, no, that’s great. One of the main questions that we always ask is third party versus in-house property management. And I know you guys had somewhat of a unique perspective on that one.
Yeah. So Glenn, who’s the CEO of Citian he grew up in property management. I mean, really that’s what he. . And, and he was, he’s been my mentor in this business for years now, and so I kind of tend to think more like a property management. I, I think more operationally than, than most apartment owners do.
Much to the su chagrin of many of the property management companies we work with. I dive too far into their business. We do use third party management right now. In the past we have owned and operated our own management company. . So you, you guys literally went the opposite direction then everybody else we talked to, right?
Yeah, yeah. Everybody starts with third party and then they transition to self-management. Well, and, and I think we’ll get back to a point where we do that. Really the reason for that was Glenn’s former business and business partner they went their separate right ways. And as part of that, the management.
Was also sold. So right now we just don’t have the unit count to justify starting our own management company, but once we get that unit count back up, we definitely would look to do that. So. Okay. So, so that leads to multiple follow up questions, right, ? Sure. So you say you don’t have the unit count.
What is a unit count in your mind, in your experience? Yeah. To justify self. I think a good rule of thumb would be a thousand units, 1500 units north of that. You know, when you, when you get into property management, you know, those companies generally aren’t super profitable. They, what, what it does is it gives you the control over your operations, and that’s why people move towards that.
Your private equity groups and other investors really like when they see you. Self manag. because they know that you have the control over the property. You know, you’re not having to deal with so much red tape. So, you know, I, I mean we think maybe 1500 units because you start getting to where you can get enough management fees to where you can really bring some resources in that you need to properly run a property, right?
Like, you know, before that you’re running so lean that maybe your property will suffer cuz it’s not getting enough attention. You know, maybe bills are getting paid a little late because you don’t quite have the accounting staff you need. Maybe you have one regional that’s spread thin over the portfolio rather than having two because you can’t afford ’em.
Right? So you really have to be strategic and really have the budget. You go in and do needs done. So that’s why a a thousand to 1500 units, maybe in 2000 units, you have a budget where you can hire a regional or two, you can get a good accounting team, you know, you can have a, maybe a president of the management company that’s overseeing all the operations.
Maybe you can have a some training that takes place. Mm-hmm. where someone can come in and train that, that the onsite. on the software and different things like that. So you can really support that management company at that point. Gotcha. So how is the experience on both ends, right? Yeah. So you used to be.
self-management and you had absolute control. And, and yeah. I, I just want to reiterate what you said earlier. Most people transition to self-management, not because it’s a profit center, but it’s a control mechanism, right? That’s right. You get a lot better control, so you go from a hundred percent full control to now having to work with third party.
Yeah. How does that transition? Where, where do you see Maybe I can give you some like pros and cons or something like that. I, I mean with, with the, you know, owner managed us managing it ourselves the control was huge. You know, you get stuff done much quicker. If you needed a, you know, something paid quickly from the lender, Hey, cut this check today.
Okay, done. Boom. You know, whereas like the company we work with now, they’re like, we only cut checks on, we. So you submit something and it doesn’t get cut till Wednesday, you know? Or if wanted to send the quarterly decision, okay, this tomorrow. Okay, got it. Boom, it’s out. Well now it’s like, well, we send that out on Thursdays, so if you send it on a Friday, you have to wait five, six days for it to get out the door.
So those things can be frustrating. And when we owned our own company, we, we were able to handle that, you know, quickly. Mm-hmm. You know, it’s with. With the third party, I would say some of the cons are getting in touch with the people that are decision makers can be a little bit tougher cuz they’re so covered up with other clients that they’re trying to get, you know, yeah.
They’re outselling and getting more customers, right. So you don’t get that in individual attention, which can be frustrating. You don’t have really control over the accounting team, which I had mentioned is frustrating. You know, the regional doesn’t work for you, so at the end of the day, they’re answering to their boss.
Yeah. So that’s frustrating. You know, the, the pros of working with a third party is if you work with good ones they usually. really good employees cuz they, you know, are a management company. That’s what they’re known for. They can, they have good systems and operations in place because they’ve been doing it forever and that’s all they do.
Mm-hmm. . So you’ll get some benefit and some consistency out of them that you may not get out of a, you know, owner managed operation. I would say li. . Yeah. Less liability. Yeah, exactly. I would say some of the cons of doing owner managed is that it sucks your time. If you’re the one that’s doing it, then inevitably you will get pulled into property management.
So we know in our business that property management doesn’t necessarily make you the money. You know, acquisitions does. Running properties really well, makes you the money at the end of the day, right? Mm-hmm. , we. , but it doesn’t generate, you know, the, the, the acquisitions. Yeah. And so, you know, if you get pulled into property management, you might do a few less deals a year.
You know, you may not be out, you know, hounding the pavement, looking for new deals because you’re busy trying to establish, offer operations mm-hmm. , and you can’t afford to hire somebody else. So you’re. Right. And if the apartment goes, gets set on fire and you know whatever happens, the water gets shut off or a pipe burst, they’re calling you.
Yep. You know, what should I do? Right? And, and so, you know, doing owner managed stuff, it really puts a lot of problems and issues at your property, on your plate where you have to deal with a lot of it. Whereas if you pay a third. , it puts those issues and problems on their plate and they try and get everything taken care of before they approach you with something significant.
So I would say those are some pros and cons of maybe both. Yeah, that, that sounds good. So now that you do work with third party, okay. How do you go about selecting one? Okay. What is important to you in a pro, a third party property management company. So I, I really like to meet with the owners of that company sit down and discuss kind of philosophy, see how they operate and how they manage their staff and their team.
I, I really look at their regionals really heavily. What kind of regional managers do you have the experienced, you know have they been in the game a long time? Because really a regional manager. can make or break you if they’re gonna pay attention to you. How spread thin are the regional managers?
Like I’ll look at that cuz right off the bat, I know if you got a regional manager with 12 properties, I don’t even want to touch that. Yeah. You know, I don’t, I don’t want, I don’t want that regional manager on my property cuz he’s, he or she’s not gonna be looking in that ever, never gonna dive into the details.
They’re not gonna go visit the site. They’re not gonna look at you know, my p and l. And they’re, I’m gonna have to be, I’m gonna end up doing their job for them. So I like a company that doesn’t run super lean, you know, that has the resources that understands the business. I also am getting my CPM designation, cert certified property manager.
Mm-hmm. through Iram. Yep. Which is kind of. You know, a master’s in property management if you wanna call it. And the reason why I’m doing that is cuz I really wanna understand that this side of the business not just the ownership, but what they do day-to-day. And so I look for operators and owners of management companies that have their CPM because I know what it’s taken for me to get mine.
And it’s, it’s intense and they have to be pretty skilled and pretty smart to get it. So those are some of the things I’ll look for when I’m. Vetting a property management company. Okay. Yeah, that’s good. , you, you said, mentioned sit and talk to the owners, right? Mm-hmm. . So what does that mean for the size of the property management company?
Are they managing 600 units? 6,000, 60,000? Because I know the big nationals, good luck sitting with the owners, right? Yeah. Yeah. You’ll, that’ll never happen. So the, the, the operators that we usually sit down and work with have anywhere from 20 to 50,000 units. and you know, if they don’t have time to sit down with me and talk about my property and our property and, and how we want it run, then you know, I probably wouldn’t go with them.
So, I mean, I really want them. , I want to have their attention, cuz that’s what we’re paying them for, is to have their attention. So if Yeah, and if you can get their attention in the sale process, right. Yeah. You’ll never gonna get, you’ll never, you’re already a client. Yeah. They’re, they don’t want to talk to you.
You know, they’ve gotten so big, they’re so insulated that they don’t even deal with issues anymore. So, you know, I, I like something that’s maybe a little bit smaller than those big national groups that just wouldn’t have time for you or to sit down with you and take care of things. So how does a how does your work with that third party look like?
Right? How often do you talk to, who do you talk to? Mm-hmm. , how often do you go on site? Sure. Yeah. I actually have a, a monthly asset management checklist that I fill out every month just to keep myself accountable. Anybody else that does asset management, I keep, you know, have them fill that out as.
But essentially I, if, if a property is being renovated or it’s under 90% occupancy, or we’re not hitting some of the metrics we need to be hitting I’ll, I’ll meet in some form of fashion once a week. So whether that’s a phone call or an onsite visit or, or whatever, a Zoom meeting we’ll do that once a week until we’re hitting our goals.
And what that does is that kind of keeps the property manager company knowing that you’re paying attention, you know, and. and they don’t like that. They don’t, they don’t like having you in their business. They just wanna run the property and you to leave them alone. So, you know, they’ll do whatever it takes for you to leave them alone.
And so if, if a property’s doing what it’s supposed to be doing, I do a once a month site visit. And then usually I’ll have a phone call, you know, once, once a month with either the property manager or the regional manager. I’m usually the regional manager just to get some sort of detail on what’s going on.
So that’s basically my communication. Sometimes I’ll communicate with the accounting team, like I said, to get something taken care of, or if we have a quarterly distribution, you know, I’m sending over those distribution lists and how much to send out to investors. So that’s basically my, my communication with them.
And do you guys have one third party management you’re working with or you have more than. Based on area location. Yeah. So we have more than one. Sometimes you’ll get into markets where a certain management company isn’t really managing anything around there. And what happens when you, let’s say for example, you know, they’re a DFW based management company and you wanna pull ’em down to Houston with.
well now their regional manager who probably lives in Dallas, is gonna have to drive to Houston. So that regional manager’s probably gonna make it down there once a quarter. And so you’ll be going to the property more than that regional manager and you have to make sure that regional is going to the property once a week to visit with the staff and to work through things.
So I like to find management companies. You know, their, their core would be in that market that they’re gonna manage that property for me. So if we’re in Oklahoma City, I want an Oklahoma City management company there. If we’re in Dallas, Dallas based Houston, Houston based, and so we’ll work with multiple management companies because of that.
Just, just to avoid the headache of me already knowing if you don’t have the economies of scale in a market, you’re not going to spend. all your management fees that you made for travel and different things like that, you know? So that’s usually how I would approach that. So to answer your question we would use, you know, multiple management companies.
Okay. So you, you mentioned the checklist of, of your asset management activities. Right? So we’re looking at talking to the management companies. We’re we’re talking to investors, I’m assuming investor distributions and communi. , what else do you have that goes towards the operation of the property and not necessarily the financial side of things?
Hmm. The operation of the property. You know, when we do visits, we go and we look at unit turns to make sure that they’re not sitting on product that’s not made ready. That’s huge for us. I, I follow the four Ps. People, product, price, promot. That’s a huge one in the iron courses. You know, if you have to have the right people on board, on staff, and I always am looking at that.
Do we have the right people? Do we have the right leasing agent? Is he or she, bubbly salesman, saleswoman? Do we have the right manager? , are they experienced? Can they see things that others can’t see? Are they keeping their staff in line and moving forward? Do you have a really strong collections person or assistant manager that is out pounding the doors and getting that rent collected product on the make readys and the turns?
Does it look good? Do the units stink? You know like cigarettes, you know, or mm-hmm. , whatever from the previous tenant. Are they not clean on their checklist board? Does it say made ready? But when you go and walk it, it’s not made. Right. Do they have available product? If they have 10 vacant units and there’s only one available, they’re never gonna fill those 10 up ever.
You have to get units made ready. You have to have all 10 made ready. So how do you get there? Right? Coming up with a plan, with the property management company. Make sure you have available product price. You know oftentimes you’ll look at your unit layout and you’ll, I, I look at. Unit occupancy.
So if you have like a one bedroom, one bath, and a two bedroom, one bath, and a two bedroom, two bath, and a three bedroom, two bath, I’ll look and see what the occupancy is at each one of those unit types, because sometimes you’ll be 90% or 99% on the one bedroom, one bath, and you’ll be a hundred percent on the two bedroom, one bath.
Then you go to the three bedroom, two bath, you’re like, we’re 40%. This is where all of our vacancy is. What’s going on here? And then you do a market study. and you’re like, you guys are overpriced by $250 lower, the lower the rent. You know, I, I, I’ve had that happen so many times. Right? So you go in and you look at that people product, price and then promotion.
How are they selling the product? You know, do they do little mini models? How, how does the model look? You know, are they selling the product? Is the leasing path clean, the tour path? Is it. , you know that type of thing. You know, how are they, how are they doing marketing, you know, what does your Facebook look like?
Are your Google ads bad or not Google Ads? Is your your Google rating low? You know, are they making any effort mm-hmm. to change it? You know, all these things are what I look at, so, , man, you’re adding so much value for all of our listeners. I really appreciate that. I’m glad I’m not taking away value because some might say I do that.
So . Yeah. No, that’s great. So just one thing that you touched on and, and. , some of our audience might not know. Can you describe what a mini model is? Yeah. And what’s the difference from a, a model unit? So, so sometimes you don’t wanna do a model unit. Maybe you have like a hundred unit or a 50 unit apartment complex and you don’t want to have that vacancy loss.
Cuz at the end of the day, that’s what it is. From a model, you want to be a hundred percent leased in maximizing your revenue. So what you could do is, you know, you could get like some decorations, some smaller decorat. , put some music on, make it smell good in, in the unit. Some, put some drinks in the fridge, some bottles of water in the fridge, some snacks out on the countertop, and a few decorations, and you can just move them from unit to unit as you lease them.
So, mm-hmm. , when you walk in, it just looks better, you know, it feels a little bit more homey. And it sells it a little bit. . Yeah, we, we do the same. We have just knickknacks, right? Mm-hmm. . So in the bathroom there will be a towel on the towel rack. There will be curtains on the towel, on the tub you know soap holder.
Mm-hmm. a couple of dishes, like a couple. We like to put like a couple of glass wine glasses. Yeah, sure. And, and a bottle of wine and kind of like, welcome home sign. You can go to the dollar store and pick this up for like 30 bucks. Right. Cheap. But it makes a big difference when somebody walks in versus just seeing walls and counters.
Yeah. And, and the carpet, you know, you could even give that stuff to the resident when they lease the unit, you know, buried into their, you know a fee may sign up if you want to, you know, like whatever. Or just give it to him as a, a promotion. You know, I. We actually have like a little laundry basket that we put everything back into and move a sparkle kit to the next one.
Yeah. They call that a sparkle kit. Yeah. Well we have those too. Yes. Yeah. So, so I mean, those are, those are, you know, easy things you can do that make someone just feel like, oh, these, these, you know, they care. This is nice. You know? And I didn’t walk in here and I saw a roach running across the , the kitchen countertop and it’s dirty and, you know.
Yeah. I mean, I’ve had experiences. I’d gone into a unit and I’m like, well, this, you know, kind of one of the questions I asked when I showed the property is, show me the units that you’re selling. That’s really what we do. We’re we’re, I mean, they’re salespeople, you know, they’re selling units, you know, and show me, show me what you’re selling.
And I go walk along a tour path and. You know, there’s, there’s gravel and mulch that’s spilled over into the concrete on sidewalk. I’m like, okay, that looks bad. And then I noticed that the exterior lights are on in the middle of the day, and I’m like, you’re spending money there, you know, get those off. . And then, you know, their response is always, it’s always a photo cell issue, you know, always, you know, it’s always on fix.
Yeah. But that’s the thing. A photo sale is an eight bucks piece. That’s right. You know, just a switch. Yeah. And another 10 minutes of work and instead of spending all that electricity on Yeah. On 24 7. Yeah. But then we go look at the product and we go inside and. You know, I’ve had times where there’s paint buckets still sitting on the floor from the painter that never got taken out.
I’m like, you gonna sell this? You know, I mean, there’s paint buckets right there. Who’s gonna buy that? Yeah. Or you know, it could be, you know, the sink’s dirty. They never cleaned it on the turn or. , you know, maybe like the refrigerator’s missing or whatever, right? You know a unit’s not completely made ready until it’s completely made ready.
So don’t put it made ready ever. And usually the property manager managers learn pretty quick with me that you don’t put something that’s made ready unless it is in fact made ready. So that’s usually like one of the first questions I ask. Let’s go look at your product. Let’s see what’s going on. You know, that tells the whole story.
Do you secret chop? Yes we do. We will have people go and, and, and look, a lot of third party management companies pay to have secret shops done of like their leasing agents and make sure they’re, you know, asking the right questions and selling questions. And then they’ll they’ll do have people go in and try and lease apartments and see how their tour goes.
And, and so most third party management companies do that, and they send us those reports. We’ll call in and see, you know, like you know, what, how they, how they’re doing it ourselves. We’ll do that all the time. Okay. Yeah, of course. You know, how they respond, how quickly they respond, do they follow up, you know, that type of stuff.
So, yeah it’s really important because you might have a listing agent but you don’t. if they’re not following up, like you said, or if they don’t set up appointments or they don’t do showings or, yeah, they do showings, but the, the closing rate is low. So looking at all the stain is important, but when you secret shop, you realize that, oh, well, she walks around the property and just talks.
Crap about the property. So no wonder she doesn’t close, right? Yeah, exactly. That happened too. Yeah. Not on our properties, on another property that I was sick of shopping for another owner. Uhhuh . So yeah, so, so far we talked about buildings, right? We talked about the, the, the physical assets, but the buildings don’t.
The rents, they don’t pay the salaries, they don’t pay anything. Right. It’s the residents that do. Yeah. So in your world, previously in the previous company and now what do you guys do for your resident, right? How do you encourage retention? Well, and I think that’s an important question to ask Joseph, because we’re heading from a world.
It wasn’t resident focused. I mean, I don’t, I don’t know if any of the viewers have been awake in the past 6, 7, 8 years, but we’ve been raising rents over and over and over again for the past, since, since 2013 on people. And you know, it’s like, well, if you don’t wanna pay it, leave, it’s kind of been the attitude, you know, we’ll find somebody else, they’ll pay it.
As the economy changes, that attitude needs to change, right? To a more resident retention. Because when things get bad, what you need is you need really good residents paying their rent or else you’re in big trouble. So we’ve been having a lot of conversations about that with our management companies that we work with is how are you taking care of the residents to make.
That they’re loyal to the property and to us cuz we took care of them, you know, and that they won’t move when times get bad. So some of the things that, that we’ve done during Covid is, you know, for, for a while we didn’t charge any late fees. We weren’t raising rates on renewals when renewals came up, and we did that for about three or four months, which was very costly to us.
But we’ve seen less people move out as a result of that. You know, we’ve been more, you know, working with them with some payment plans, which typically we haven’t done in the past. And trying to help them out and be a bit more understanding. , you know, this time and what we’re facing. So those are some of the things that we’ve done for our residents that I think that they’ve certainly appreciated and you know, have reciprocated by staying there and paying their rent.
So, yeah. And, and for our audience, just so , we’ll help them understand the retention is a super critical thing in, in our business. Mm-hmm. . Right. So a, a retained resident means I don’t have to spend capital to turn the unit. That’s right. Right. Yeah. And a retained resident that is happy will recommend friends and family to come live on the property.
And statistically there’s a lot of research that shows that a resident. Refer someone in and the person that, that was referred by someone on the property, statistically they stay longer and, and they, they renew their leases and so on. . And it doesn’t ha, it doesn’t matter that you’ll have a superstar leasing team mm-hmm.
upfront, leasing 20 units a month if you’re losing Yeah. 27 on the back end, right? Yes. Yes. So retention is super, super critical in our business. Mm-hmm. and a lot of people just focus on the leasing without realizing like, you gotta close the back door. Yeah. Otherwise, , you’re just spending a lot of money.
Yeah. And, and, and there’s other ways you can do that. You know, you can go in and, you know, something that I think we were doing in the past is we’ll go in three months before four months before their lease ends and say, how’s it going for you? Anything that’s in your unit that’s bugging you, you know, that’s not been taken care of by you know, our, our staff already.
and how can we fix it? How can we make it better, you know you know, and it might be like, I need a new microwave. You know, this one’s old and okay. Yeah. You know, and get a new microwave for that unit. Or it could be, you know, this, this light’s burn out. It could be simple stuff, you know? Yeah. Or it could be like a garbage disposal doesn’t work or whatever, but going in and fixing those things for people are huge.
You know, maybe it’s painting the master bedroom a different color or something, you know like those, those types of things would, would go a long way with a resident. Yeah. And it’s surprisingly how people will tolerate a small thin, mm-hmm. , like a drip and faucet. Mm-hmm. , or a cabinet door that’s off the hinge.
Mm-hmm. and they won’t. Yeah. Because obviously if they report it, we’ll jump on it and we’ll take care of it. But they won’t report it. But the problem is that they don’t report it, but they hold it against you. Yeah. Right. It’s kind of, I don’t wanna stay in this apartment. The F has been dripping for six months.
right? Yeah. I didn’t tell anyone, but that doesn’t matter, right? Yeah. Yeah. So, so that’s why it’s important, kind of one of the things that we make sure is when we do pest control once a quarter, right? Mm-hmm. , we go into every unit we send one of our guys with the pest control. And we tell them, write down anything you see.
Mm-hmm. , right? So if you see a drip in faucet, let us know. We’ll open a, we’ll open the work order and we’ll take care of it, right? Yeah. Mm-hmm. , if you see something broken, if you see a torn carpet, if you see a blind that fell off, whatever it is we’ll take care of it because like you said, a happy resident is a resident that renews an in and accept an increase in rent and.
Yeah, I mean, it’s like anything in life, right? You got proactive and you have reactive, you know? And yes, exactly. If you’re a proactive management company, you’re doing things like that. If you’re reactive, you’re always on your hills, you know, waiting for the next bad set of news to come, rather than getting out and fixing problems, getting on top of it, communicating with the residents, you know, getting in front of them, meeting them, knowing their names, you know, all these things are so critical when it comes to re.
Yeah, exactly. So you guys do a lot of heavy, heavy value add, right? Mm-hmm. , you, you mentioned earlier, like empty properties, right? Yeah. Mm-hmm. Talk about heavy value add, right? . So everybody buys a property and wants to increase rent or implement. Can you give us three, four things that help you increase income?
We’ll talk about the expense size in the side in a minute that help increase income or generate other income streams that are not the usual rubs and increase in reps. Okay. Yeah, I mean, those are the basic ones, but here’s a few other that I’ve thought were creative or have brought some value to our bottom line.
We love. Yeah, sure. So a lot of times, like if you were to do some sort of pet audit of the, the customer base, you would find that probably 10% of the people that have pets are actually paying pet rent, especially in your kind of your C plus B minus assets. Usually you’re way off on that. So you could do some sort of audit and go through.
and charge people that rent for those pets and, and maybe get a deposit because those pets are very hard on the units. That’s why you mm-hmm. Mm-hmm. you quite frankly, you deserve that extra rent because you’re gonna be paying for it on that turn. Yep. So that would be one, go through and be very thorough about that.
Another one is parking and not parking In the traditional sense, meaning like covered parking, you charge more or a reserved parking stall, you charge more. Where if you’re not paying for that or if you don’t have residents paying for reserved parking spots, you certainly can do that. You know, you can go and put numbers on, you know, the lots and, and lease those out as part of the lease and charge 20 bucks or 15 bucks for someone.
when they pull in at night, they don’t have to worry about finding a spot. They know where theirs is at. Mm-hmm. , that’s worth 25 bucks a month for them probably. Yeah. The other one would be, you know in these C class properties you have a lot of traffic in there and maybe some troublemakers sometimes, and a lot of times those people don’t even live at your property.
That’s usually the consensus that it’s not your residence that are causing the. . And so one good way for them to kind of stay out of the property, keep ’em, keep ’em at bay, is you hire a towing company and the towing company will come in and what they’ll do is they’ll enforce a, a rule where, you know, if you park in our parking lot and you’re a guest and you’re not in the guest lot, you’re parking inside of the, the apartment complex.
You gotta pay some, like three or five bucks a. to have your car parked there. So that does two things for you, right? First of all, it keeps people out that don’t want to pay five bucks a day or get towed mm-hmm. Or they’ll pay and you have another line out of income. So we have a 250 unit property that they’re paying.
I think we get about seven, 800 bucks a month from that towing company. Wow. As income to. Because they log onto this, I don’t think it’s an app, maybe it’s an app they download and they, they pay to park there. The other option would be if they do live at the unit, they come into the leasing office, we get ’em on the lease, right?
So we can charge more for rubs. Mm-hmm. , we build back more on our utilities. We could probably charge some few other fees to get ’em on the lease because now we have to do paperwork again. Mm-hmm. and we know that they live there now. And and we give ’em a sticker and they can park there. Right. But it, it helps you manage that where you don’t have people just living there that aren’t even residents.
Yeah. They’re not even on lease. Right. So that’s been one creative way. The other one is, is, you know, in, in apartments you, you know, pretty typically you collect a deposit. Right. You know, that deposit is not income. No. It doesn’t hit your p and l’s income. Right. It’s, it’s a liability actually. Mm-hmm. and on your balance sheet, it’ll sit as a liability because you can’t spend that money Yep.
Until that resident has moved out. So and, and sometimes you give that money back if they were really good residents. You write a check and you send it back to ’em, or you take it outta the last month’s rent or whatever, you know, they, they get that money back for being a good resident. That being said and some of these c plus C minus assets, C assets that we’ve managed in the past you do take some risk with those, those residents, cuz sometimes they’ll have an eviction, you know, from five years previous or something like that. So we we’ll charge a fee for that. We called it an opportunity fee, basically, where, you know, , if they had had a pass that was mm-hmm.
Maybe a little bit checkered or whatever. Not in the sense that like, we’re not allowing criminals or anything like that, that we, we do a vetting process and background checks and everything like that. No drugs, no. You know, assault, nothing, nothing like that. But maybe like 10 years ago they had, you know, an eviction right there.
There’s risks there. Yeah. So they’ll pay a fee in addition. And what we’ll do is that comes in as income. and that kind of offsets, you know, if they skip or you know, something like that. So those are some of the, we, we call it a high risk fee. Yeah. Yeah. Some people call it a risk fee. We call it an opportunity fee, I guess it sounds.
I like that. Nicer . I like that. Yeah, . But I guess it’s really a risk fee. You’re right. I mean, it’s all tied to risk, you know, and if people have had those things in the past, then they are a riskier tent and we have to look it that way. . So those are two kind of, I guess maybe three. I gave three the pet. Pet as well.
Yep. That would be, here’s another one with rubs. And I don’t think that a lot of people look at this very closely. So listen cla listen carefully. You know, when you are underwriting of property or you’re buying a property, you look and you’re, you know, from a per this visual perspective, you see, okay, this owner is charging rubs.
You can see it on the p and. You know, it’s in the other income, electric, gas, water, right. Trash, whatever. We’re, we’re billing all this stuff back. Right. You can see it. Mm-hmm. , but maybe what you’re not seeing is what percentage they’re billing back. Right. Joseph, where, where do you sit? Where do you live?
Are you up in Dallas? Where are you? Yeah, I’m in Dallas. Yeah. Okay. Do you recall at the top of your head how much, what percentage of the utilities we can build. The 90% isn’t 95, think 95%. 90 95, something like that. Yeah. So, so there’s a legal amount we can actually build back, but you may take over a property and they’ve only been building back 20%, right?
No, I think there’s a little bit more regulations into that one. Do you have an irrigation system or not? But sure, sure. Yeah. Yeah. Right. Yeah, yeah, yeah. Irrigation would be lower, right? You know, that you could bill back and. Yes, there are different regulations, but let’s say you’re billing back on your electric 20%.
Well, what are the other people around you billing back, you know, could is your neighbor across the street who’s 95% occupied, going back 80%. Yep. You know, maybe you need to look at on your new leases, trying to build back more, you know, and, and capturing a bit more of that income on the rubs, you know.
Maybe don’t just take it at face value. See how much you actually are charging if that’s what the market is allowing you to charge. So that’s the one thing I’ll say about Robs. Well, I’m gonna take that one and tie it back to retention and what you said a minute ago about the parking. Right. See how it all ties together?
Mm-hmm. , if we know exactly. , how many people live in each apartment? Mm-hmm. , that’s a factor in the rubs calculations. Right? Right. So the more accurate your knowledge about how many people are in each unit. The more unquote fair the rubs allocation is, which means the people in the one bedroom or the studio apartments will pay less than the people that have four or five people in in a three bedroom apartment.
That’s right. Right. And then that helps you with retention because they don’t think that you are overcharging for utilities. Right. That’s exactly right. So it’s kinda like all these things come together. Right. It’s all tied together. Yeah. Absolut. . Awesome. So, so now let’s take a look at the other side of the coin, right.
On the expenses side of things. Right. Okay. What are three, four things that you like to do to decrease in expenses? Hmm. Sometimes we increase expenses, believe it or not. You know, if some, if we go in and take over our property that is completely deferred and the owner hasn’t been maintaining. Well, but that would be CapEx.
That wouldn’t be operat necessarily, right? So you wanna look at the, well, the operating expenses, I’m talking about maintaining things, right? Like it could be a landscape company, right? Mm-hmm. . And you know, they’ve had like a landscape company coming in once a month, and as soon as the grass grows knee high, they cut it.
Well, I want mine cut every week. And not only that, I want you to make sure that there’s never fallen branches or. I wanna make sure that you keep the canopies above heads. So when people are walking on the sidewalks, they’re not getting hit by branches. You know, I wanted you to make sure that there’s new flowers in the flower beds and there’s seasonals.
You know, so we may be spending more money than the previous owner on landscaping, because we just want it to look nicer. Yeah. Right. And we think that that will get us a return on how much people will pay for rent and how long they’ll stay there for. So, you know, it’s not always about cutting expenses, is what I’m saying.
Right. So the opex side. . Yeah. The deferred maintenance, all that stuff, you know, your capital expenditures will cover that or it should, but, you know on the operating expenses, I would say that sometimes we do end up spending more, some things that we cut, like some owners were previously paying for like cable and they pay for cable on like every unit or something like that.
I think that’s a waste of money. Most people stream things nowadays. So I, we took over a property you on not too long ago and, and we, we canceled the contract with the cable company. It saved us like 4 4500 bucks a month. Yep. So that was an immediate $4,500 to n i without just canceling it. And, and the reason why I made that choice is because I went and looked at all the property surrounding ours and none of them were paying for.
You know? Yep. And I’m like, these, they don’t care. You know, these residents don’t care. We had one person come in the office complain. Yep. And, and that’s something we just did as well in one of our properties. And it’s kind of, it was a, a, a we decided that six months ago. Right. So Uhhuh, , every lease that we created since that decision literally said, you’re gonna get this for the next few months and then it’s gonna die at that date.
Right? Yeah. That’s right. So, so all of these are fine and we. . The, the people that will ha that had those in the contract will take that off their contract. So we won’t charge the fee. Mm-hmm. And they can go get themselves and if Yeah, one of them comes in and complain, then we can handle that by, even if we have to get in the package, it’s still worth You were paying 45, we were paying 9,700 a month.
Yeah. It’s just, that’s a lot of money. So that’s a lot. . That’s one thing I’ll definitely look at. The other one is vacant electric or Common Electric. Yes. Like we already touched on that. You know, it’s always you know, Mr. Woodfield, there’s a photo cell, you know, and I’m like, don’t tell me that. Just fix it.
You know? I don’t, I don’t want to know, you know, unless like we have severe electrical problems that we need to handle and come out of pocket for, just, just fix it and, and getting the lights off, you know? And, and so that’s another one I look at all the time. Vacant electro. Common electric, vacant electric.
So walking units and, and you walk in and the first thing I do is I feel for the ac Yeah. I’m like, if I feel that freaking cold hit my face, , I’m gonna look at the manager who’s walking units with me. I’m like, why is it cold in here? Yeah. Right. Or if there’s a fan on or lights on, or the refrigerator’s open and turned on or whatever.
I’m just like, guys, yeah. This is one. Oh. You know, and then, and then their first response is always, oh, it’s the vendors. Every time I’m like, I don’t care. They’re not the ones that we paid or run this, it’s you. Yep. So you gotta go behind them and shut it off. Or if you find a vendor that’s leaving ’em on, you fire ’em.
Bringing another vendor. So we get, we get, we come down really hard on that because it’s just, it’s a waste of money. I mean, at the end of the day, it’s a big waste of money. It’s a big waste of money. And it can be thousands of dollars a month, you know, for a big property could be 10 grand a month that you’re spending on just vacant units with electricity, you know, and it’s silly.
So that’s another one that I really look at closely just to make sure that we’re not, you know throwing. in the garbage can, you know? Yeah. So on the subject of electric, I’m going back to the income. One of the things that we came up with, or not Uhhuh, we didn’t come up with, but one of the things that we utilize is You invented it.
Yeah. No. Is that our utility billing company has this service because they’re getting all the utility bills. Mm-hmm. , including the vacant electric. So they’re looking and they’re comparing that to the rent. To make sure that we’re not paying electricity for residents because the, the way most of properties are set up and that this is a switch, it can turn on and off with your electric provider.
Mm-hmm. is that when a resident moves out and cancel their service, they automatically pass it to your name. Mm-hmm. and then so, so you could find yourself in a situation where somebody moves in and didn’t transfer electricity to their. or we actually had that happen to us. Somebody called the, the electric provider told them they left and they automatically switched it to us while they were still living in their apartment
So we obviously have a clause in the contract that says you’re gonna be billed 50 bucks fee in whatever you owe us, or every month that we find. And then that utility billing company is doing that basically for half the fee. Mm-hmm. . So if we charge 50 bucks, they get 25. If they found someone awesome, they get to Bill and, and we get to Bill, they get to get paid.
If they found no one, I didn’t have to pay for it. Yeah. So it’s a win-win for everybody. I love that. That’s. . Yeah. So it helps both on the income, right? Mm-hmm. , because you can get mm-hmm. the, the, the fees and get this paid back. Sure. And it helps with the expenses cuz you don’t pay electricity for somebody else.
Love it. That’s great. Good work. So, Mike, I don’t wanna, I’m sorry. I think you should tell people you invented that. Yeah, there you go. Wait to service somebody else provide. So I can’t really claim that . But I wanna be conscious of your time, and you’ve brought a lot of value today. Oh, thank you. If, if you could go back 10 years and talk to young Mike, right?
Mm-hmm. to yourself. Yeah. What advice would you give yourself back then? Oh man.
Geez, that’s a tough question. Right? There’s so much I would say, but I mean, I’d probably tell myself, hmm. You gotta gimme some more direction here. This is too broad for me. Well, I, I, I can’t go on a broad scale apartment. In the apartment. Okay. Let’s stay in the apartments. Okay. By and hold, I guess. I don’t know.
focus on the cash flow more. I don’t, I mean like gosh, you know, oh, there’s gotta be a story beyond that one. What’s else focus on the cash flow? Well, I think that sometimes when you’re operating your own properties and you get caught up in acquisitions that you forget that like, really at the end of the day, you’re providing a good experience for people to live there.
And as a result of that, it should cash flow and you should be able to return your investor some money. You know, and, and really those are the two things that you need to focus on as an operator, as an owner, as you know, are my residents happy? Am my, am my staff onsite? Are they happy and doing a good job for me?
And am, am I getting enough money to where I can send a check back to these people that put trust? and you know, I think that that is highly important, you know, that we, we always look at that and not get caught up in just whether it’s prop property, operation problems, or buying new deals, you know?
Yeah. As we can get distracted. That’s a good advice. Yeah. So I would tell myself, focus on those basic things, you know and. You know, I, I don’t know. I don’t really have too many regrets, Joseph to be honest with you. And I think that a lot of advice comes out of regret, you know, from Yeah, your past.
Like, I did this one time, so you should watch out, you know, type of thing or but I, I don’t have too many regrets from the past 10 years of my life. I mean good things have happened, you know? I, I, I feel like. things have have gone great. And you know, one, one piece of advice I’d probably give myself is stick with the markets, you know yeah. You know another good piece of advice is don’t let yourself fool yourself when it comes to underwriting. You know, don’t talk yourself into deals that aren’t deals because of fees and different things. Those things can. You know, those big dollar signs can be so enticing, but you know, at the end of the day, that property’s gotta work.
And those numbers you buy it for and Yep. If if they aren’t correct, then it’s painful, man, and it’s, it’s not worth it ever. You know, so buy, right. Yeah. That’s my advice. Buy right . Well, we always say on the podcast, you make your money when you buy, you lose your money on operations. That’s right. Yes. So that’s kind of like we like to stick with that Moto.
Yeah, I lo I love that. That’s, that’s better advice than I gave, so, yes. Awesome. If our listeners wants to reach out, talk to you, discuss op investment opportunities with OB obsidian. How can they find you? And we’ll put everything in our show notes as well. Okay? Perfect. You can reach out to me on my email, mike obsidian capital co.com.
You can get it on obsidian capital co. Website. Obsidian capital do code.com. We have an investor portal there that you can sign up and get on our distribution list that we send out to investors and see what we’re doing, what’s coming up and everything. I also, I don’t, I don’t know if you mind me doing a plug.
I, I help people asset management. You know, if, you know, a lot of times what I’ve found is that, They can learn how to buy properties. There’s a lot of people out there that will show people how to buy properties, but there’s very little people out there showing you what to do after you bought it. And I’ve got, yeah, we have this podcast.
That’s why you have this podcast. And I, I, you know kind of coach people or mentor a few people doing that. So if anybody’s interested in that, shoot me an email and be happy to talk to anyone you know, want to best or just wanna shoot the breeze about multi-family. Want to go grab lunch, whatever, you know.
Fantastic. Yeah. Awesome. Well, Mike, thank you so much for taking the time today. You’ve brought a lot of value. Hey, and I’m sure our listeners would love this episode. Cool. Thanks Joseph. I appreciate having on. Awesome. And for you, the listeners, if you want to listen to more episodes, feel free to subscribe on iTunes, teachers SoundCloud, and now on Amazon as well.
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