Episode 139: Transforming Multifamily: From Distress to Success with Josh Appelman- Apartments Operators Podcast

 Welcome to the apartment operators podcast, where you can learn from experienced operators, what it really means to be an apartment operator, no fluff, no sugar coating, just the raw unfiltered truth of the ups and downs of operating multifamily communities.

 Hey everybody. Welcome to the apartments operator podcast today.

We have Josh Appelman. Josh, welcome to the show. Hey, how we doing? Appreciate you having me on and look forward to talking about the apartment operations and and how how the industry is going. Awesome. So yeah, let’s not let our listeners wait. Tell everybody a little bit about yourself.

How does your portfolio look like? How did you get to multifamily and we’ll go from there. Yeah. So I’m a 5 time Inc. 500 5000 recipient for my past business. We’re we’re scaling. Now we look for for distress value at multifamily properties to purchase. We’d like to plug in our, our operations management team or we’d like units that are, that are dated that need to be renovated, upgraded, and we’d like to reposition the property.

So we’re from goal, my past business is we, we scaled that very large and, and that kind of propelled us into multifamily and, and here we are. Awesome. So what kind of what For you, do you guys have right now? Do you have class 100 units? 1000 units? Yeah, so we’re it’s definitely workforce housing.

It’s see, I’m going to say C plus to B minus. So it’s we take them when they’re, let’s say, D plus. C minus, and we raise them raise the bar. They can’t ever be, I’m going to say B plus or a, of course, because just a vintage and and then where they’re located. But we look for workforce force housing.

That’s been dated that it’s been mismanaged in a sense that things just keep rolling over. We’ve got 205 units direct ownership, owner operator we are under contract right now at on another 144 units. And we, we, we look for just properties that we can, we can purchase on our own and we can reposition and.

And keep adding to our, to our team as there’s a difference when you’re, when you’re syndicating thousands of units, you’d still, you only own a fraction, but when you own and operate your entire portfolio, that the growth is much slower, but it’s much more meaningful. So there’s, there’s the play and there’s a difference, but that’s what our game plan is.

We’ve got plenty of runway left. We feel like to get to our 750 units the next 3 years and then 2000 years in the next 10 years, which I think is under underachievable. But but we’ll get there. Well we’re on track. Absolutely. And which kind of markets do you guys operate in? Major MSAs. We’re in Cincinnati, Northern Kentucky, which is a major Midwest MSA, Dayton, Ohio.

We’ll stay within an hour radius. We’ve we’ve looked in Columbus, Ohio. We’ve looked in Indianapolis, Lexington, Louisville. I mean, we can, we can certainly plug in. And any surrounding NSAs, but they’ve gotta be, you gotta, you’ve gotta have economies of scale and you’ve gotta have you can’t be too fragmented with with a bunch of scattered sites and, and scattered areas.

Yeah, absolutely. Especially when you do a lot of big projects. Heavy value add, being close by is, is very, very, very helpful. So the very first question we usually ask every guest is, do you guys self-manage or do you guys use third party? Yeah, we, we started out using 3rd party and that came to an end when, when ultimately, but when you’re dealing with scattered sites, older properties, you have to deal with a different type of property manager.

Who’s willing to take those properties on. So I’m going to say that they’re, they’re not necessarily subpar. They’re just a different type of property manager. That’s. That you’re going to get versus 1 is going to manage 150 plus unit community. So we started out with 3rd party property management and our 2nd property manager for 2nd acquisition.

We found out that they were stealing deposits from from tenants and that’s that propelled us to take management under our own roof and. Really just vertically integrate all operations into one. It’s just one of the things you don’t want to find out, but you have to, you have to be able to react and make decisions and, and take things on on your own.

It’s not something we wanted to do, but it happened for us, not to us in the sense that now we’ve got full control over every, every move we make, and we can apply as much pressure. That’s that’s needed to be applied to get certain things to happen. Yeah, well, you said two very important things. I’m going to reiterate here is one is the word we hear from every single operator we talked to that went the self management route and almost all of them did is control, right?

It gives you control and nobody thinks. Property management is a profit center. Nobody thinks it’s a great fun thing to do. It’s definitely a brain damage center, but it’s it’s giving you the control that you absolutely need in this things. And then you know, you should look at it from the positive perspective is you learn that lesson early enough. We learned that lesson 500 units deep and to property management. into it. Until we decided to bite the bullet and take on management. Some people waited till they had 1000 units and then they took on the effort. But almost every large operator I’ve ever talked to have switched over to self management at some point.

So let’s talk about self management, right? How do you find the right people? How do you hire what, who do you hire? Your operation is not large enough to have multiple layers, right? So, so I’m assuming you have just on site people. Tell us a little bit about how your management structure look like.

Yeah, so, I mean, with us being vertically integrated, we, we come from construction. So we know that we have a renovation arm. We’ve got our asset management arm. We purchase properties. We’ve we’ve managed them and and and and managing it now. So we’ve got multiple, I’m going to say profit centers. The, the profit property management company is not a profit center.

We do that on purpose to make sure that our expenses on a property or or nominal. From what we can control, keep the property value where it should be so that you can, you can execute on your business plan. But with that, with that being said, we’ve got other avenues of income coming in. We can afford to have a larger staff than what a another property management company of our size would be.

So we’re able to have a larger financial team behind the scenes. That’s that’s reconciling all the accounts and making sure that we’re, we’re operating under performance accounting, not just the daily bookkeeping accounting and performance accounting is where you’re setting metrics and targets and KPIs and meeting your budget requirements month over month.

So, you can be a, a profitable management company on a property side, or a really profitable company, because you’re managing all of the little paper cuts that a road, the P and L throughout the course of the month’s weeks, just those decisions that. That get made that that maybe are now taking a 2nd, look at that.

Maybe aren’t needed. It’d be expenses versus the property management company that would throw cash at the problem. We take care of the problem at a cheaper rate. We control the material and labor our teams made up of a combination here in the office as well as at home with different personnel, answering their phones, answering leasing questions, executing leases people are the pillar to any company.

You’ve got to. You’ve got the past company I, I scaled Inc. 500, 5,005 year years in a row. We grew rapidly, but ultimately we, we grew and we had to balance operations in from from the back side to the front side. You’ve got an influx of sales. Now you have to, to deliver service on the back end, which increases your, your labor pool and your in-office staff.

Same with property management. You bring on a new property, now you’ve got, you, you’ve gotta balance out the backend operations. You’re bringing on a whole nother.

You’ve got to be able to absorb the growth. Apartments in management, they require maybe 1 or 2 people per 100, depending when you get the scale. So you can, your staff can offset their time a little bit differently. But you’ve got to have good people. You’ve got to have competent people. We started we have a morning stand up meeting every morning at 7 45 in the morning.

Some people are still sleeping that we’re up and we’re meeting on and setting our daily targets daily targets, equal weekly goals, weekly goals constitute for our monthly, monthly, quarterly, quarterly is yearly. So if you’re, if you’re setting those targets, your ship has a destination versus just floundering out in the middle of the ocean.

We kind of, we get, we know where we’re going every day. Awesome. So for people that are considering doing what you guys are doing, can you give us some examples of those daily, weekly, monthly goals that you set for your team? How do you guys track them? Just a little bit behind the scene peak of what’s important to you guys because everybody has benchmarks.

Everybody has targets, but it’s not. I’ve learned that it’s not always the same things and not everybody look at the same things the same way. And you’re not necessarily even supposed to meet your targets, but you have a target. So, if you said, if you set your target, you’re doing more than most, but there’s different types of targets.

You’re going to, you’re going to set. You have your company targets. You’ve got your for us. How many units do we want to acquire within the next X amount of years? That comes down to your yearly. Which top line revenue look like, which are, you know, I look like, how many people are you going to need leasing requirements maintenance staff, the targets.

I mean, we’ve, we’ve got a pretty built out list of targets to hit. We’re not supposed to hit them, though, keep the bar keeps on getting raised higher and higher. But again, we’re, we’ve got targets. So your unit count equates to, to, to. Top line revenue, and then your top line revenue, what do you want to keep at the end of the day?

And then what’s what was your overall asset your value of your assets? I said here, but then it’s 3 years. We want 750 units. What is it going to take to get there? And it’s not syndicating 750 units. Isn’t a problem, it’s not especially if you’re a trusted operator, you know, what you’re doing, you know, where you’re heading, you’ve got the team to get there.

But if you’re the owner operator and you don’t have a bunch of partners and LPs and that’s, that’s, it takes time and you have to be methodical and you have to have great relationships with banks and and able to prove that you can get there. Absolutely. So you mentioned that you like the value add right to do to come in, do the work, make it better and make more money out of it.

So we like to ask our guests the same question on both on the income side and the expense side, right? Give us a few things you guys do to increase income and then we’ll turn around and ask the same question about reduced expenses. But assuming that, you know, everybody has the same answer about raising rents and charging utilities, right, give us the more creative things that you had a chance to do along your way that might teach some of our guests a new trick.

Yeah, well, I think to increase your income, you need to look at your expenses. So your line items for every expense where is the money going? And how do you keep it? So lawn mowing, for example, landscaping, you should have a property service fee. There should be each 10 should pay a property service fee to offset that cost to figure out your costs throughout the course of the year.

And then divide that by the amount of units on the complex. And there, you’ve got your hard cost. Maybe at an admin fee on top of the, it’s going to be a fractional cost of the tenant, but there should be a charge there to offset the cost do the same for pest control. There should be. And then you’re, of course, your pet income.

We just there’s a website. I think it’s pet screening dot com. We, we just got hooked up with them. I think 2 months ago and it’s a website where all the tenants, whether they have a pet or not, they have to go in there and apply. So, a lot of these what’s happening right now is the the emotional support animals.

People will bring them on site and then give you an emotional support letter saying that their doctor prescribed this medical instrument called a pet to them. Well, there’s websites out there. You pay 50 to and you get this letter. Well, 9, 9. 99 percent of the time are times. It’s just a, it’s a, it’s a letter.

So this website. This website protects us as landlords. They’ll, they’ll, they’ll, they use AI algorithms. However, they do it. They find out the doctors legit and if the letter is legit, and if not, it’s going to go ahead and auto charge their ledger. That’s loss prevention because pets do what pets are supposed to do.

Things happen inside the unit that you can’t control. It’s just it’s going to happen. We charge property service fee to the the residents. We, we renovate to where we’re meeting market rate rents without an issue. So we renovate our units at a level to where those running properties can compete if they’re not renovating units.

And typically they’re not. And I say, granted countertops, stainless steel appliances, new cabinetry, LVP flooring, desired plumbing, fixtures, electrical fixtures, everything looks, everything looks, feels, feels great. As if it’s brand new and we’re acquiring the the residents that are willing to pay a premium faster and, and than, than any other property can because they’re, they’re dated in those areas.

As far as creative income streams, just we do a property service feed pest control fee leasing fee. We we look at our expenses and how do we recapture the cashback? Okay. Awesome. Any certain amenities you like to add to properties? There’s a little an area to put your pets out there and do their thing.

That’s a great little dog dog area. Usually, the properties have have a little grilling area all street parking, those sort of things. We like our appliances to be brand new stainless steel. Typically I mean, we’re not, we’re not looking for pools. Per se, there’s there, there’s gotta be economies of size and we’re playing in the sub 60 unit.

Complexes where we’re a little bit bigger than than the. Some people can play in and a lot smaller what institutional wants to see. So but pools will erode your, your line items, your, your profitability on a property. You know, we, we want it to be a safe, functional and clean place for people to raise their families and more or less be a, be the next step for home ownership.

Yeah. And, and you kind of mentioned that and I sometimes forget because for me, it’s kind of like, yeah, of course, but I sometimes forget people don’t always think about that, but you’ve mentioned pets multiple times. And I recent studies that I’ve been reading, it showed that about 60 percent of all residents start a search with, is it a pet friendly environment?

So, so providing those ped amenities, a dog spa or a little fenced dog park being pet friendly, even if there are fees involved because everybody has fees involved with the pets, right? But willing to accept that. Is a very big plus for a lot of the operators out there right now. And in fact, for us that we’ve been doing that for years.

When you go on one of our property websites and the list of amenities, pet friendly is like number one. Because that’s what people are looking for these days, especially after COVID. So so, so I just kind of wanted to reiterate what you were mentioning. So let’s flip that conversation on the expense side of things, right?

What are some ways you found that you can cut the cost? Because at the end of the day, as owners of multifamily, the value is directly driven from the NOI. And for the NOI, it doesn’t matter if you added a dollar to the income or you reduce the dollar from the expenses, that dollar impacts the value the same way.

So which ways do you guys go and look at the P and L and try to find ways to cut the cost without impacting the level of service you’re providing? Well, and you do, you need to measure your flow through as well. So, if you’re adding it to the top line, what is actually hitting the, you know, why? Because that that dollar on the top line can also get captured in the expenses.

So, monitoring your expenses through such as even utility usage. Month over month, and then year over year. What was it last month compared to this month? And then last year compared to this year in the same month. And you can find possible issues just by monitoring utility usage or could be an underground leak.

You never know, but if you’re not monitoring it, you’re definitely not going to doubt maintenance and and, and labor monitoring again, where you’re at from month over month and year over year, but also being able to be in control of of the the materials where you’re buying on that.

We’ve got national accounts set up with vendors so that we can. So that we’re able to procure labor and material, not the national vendors, but material on a much better basis than a lot of people just because we’re buying power how much we do purchase over the course of the year. So I think the, the, the expenses just need to be routinely monitored in order to keep them or even lower them.

When we were had property management, when we 1st got going, there was a month where there was over, like, 9000 dollars on maintenance. So, and I, and I remember that. So, like, what the hell we spend 9000 dollars on maintenance and they, and then it was sitting there with all the receipts. And it’s basically, it’s just throwing money at the problem with us having full control of the management piece.

We fixed the problem at a much better rate and it’s fixed. It’s not just throwing money at the problem and hoping that it’s fixed. Yeah, no, you’re right. And as owner operators, we have an opportunity that usually most owners don’t have is for us specifically, we always prefer to acquire the equipment and train our guys in order to do a certain job than to call in an external vendor to do the job.

So, so obviously you got to have licenses and permits in certain things, but the very basic simple example I can give is lively. So we had a slab leak and a slab leak. For the listeners that are not aware of it, is basically when you have a pipe burst underneath the concrete, underneath the building.

We had one that happened underneath the, the parking lot, and I had a direct example because we had a slab leak at a certain spot in the, in a certain parking spot. Right before we took over management and the property management called in a third party and that cost about 3, 500 versus two years later, we had another slab leak at a very similar spot in a very similar parking lot.

And that ended up basically being to two of our guys working for about six hours. Right? The cost difference is huge. And that basically adds tons of value to your property. Right. Because you’re not spending thousands of dollars on, on something that your team can handle because it’s not that complicated.

So so we always prefer to buy equipment and you kind of mentioned looking at the expenses and trying to dig in a little bit. An example of something that we came across was a small 20 unit property and the land, whoever designed the landscape over there. There were over a hundred and ten sprinkler heads around the property, and there was not a lot of of, of grass to, to water.

So we came in, we brought a landscaper, we did a review, and we ended up eliminating over 60 sprinkler heads out of a hundred and something. Just the water consumption dropped and the grass still looks great because it gets the amount of water it needs. There was just an overkill. Like we’re talking about a 15 square feet piece of grass had about 12 sprinkler heads around it.

So so yeah, absolutely taking a look and digging into why is this so high? And then trying to understand, can I do it better? Can I do it differently is a big moneymaker for, for operators. Yeah, there’s a a flow valve or a part that is placed in the water main that eliminates the air going through the pipes is your build on water plus the air.

And I didn’t even know it existed, but that is 1 way to greatly lower your water bill. And there’s only like two or three companies that that that are able to produce these, these these valves, but they well, now I’m learning a new trick. What’s the name of that thing? I want to say it’s called flow.

Let me, we’ll, we’ll search for it after the show and we’ll share it with our guests in the show notes, but that’s yeah, flow, flow, saver, flow, saver. Yeah. Yeah, well, absolutely. Because that thin little thin spins whether air moves or water moves or whatever. So yeah, you’re absolutely right. That could save a lot of people a lot of money, especially larger properties and even more properties that have the commercial water heaters or boilers and the pool.

Yeah, we had a property with over 50, 000 gallon pool. You can imagine how much water this thing consumed. Oh, yeah. So, so, yeah, absolutely. So that there you go. I listen as London and I learned a new trick. That’s kind of like the cable, like, do you add cable to your property or do you not add cable and Internet to your property?

So, I mean, we were looking into adding the Internet, but now it’s Internet everything. But we found out through a survey that we wouldn’t have enough people sign up for the Internet to even make it make sense. You’re getting charged on every unit, no matter what. And then if you could upsell, sell them at a premium, then you’re making money.

But if there’s a, a net zero, you got to find out what it would be. That’s kind of it’s a double edged sword. If you’re fully occupied or very close to fully occupied, then this can be a moneymaker. But if your property has any hiccup and your occupancy drops, you’re still paying for every unit, whether it’s occupied or not.

So on the lower occupancy dips you’re hurting. So it’s a double edged sword. Plus some people will find it a turnoff. It was like, what do you mean? I have to take your internet package. I want to get my internet package. I want this. I want that. So, so some people find it a turnoff. Some people find it a value.

It’s kind of like, I didn’t find it as a big moneymaker as it should be because we had property with both. So it comes with the contract. Yeah, exactly. Something with the laundry machine contracts, right? Usually it sounds great to have hands off and the company takes care of it. But, but I found that the service is lacking and, and you don’t really, as an owner, you don’t see any income coming from at least laundry machine room.

So, so it’s. It’s definitely better to own than to lease. Yeah, I agree. Totally agree. Awesome. So one of the most critical things for us as owners of multifamily is retention. Retention means no turn, which means reduced capex, reduced expenses smoother operations. Do you guys do any special things for retentions, any incentives, any activities, pool parties, you know, or residents?

Engagement. What do you guys do in order to maintain a high retention? I think it boils down to service. So if there’s a work order, an issue, anything at all, it’s getting it 1 acknowledging that it came in and 2 having it done within 72 hours. So, if you’re letting issues go, if your property is not presentable curb appeal, making sure the landscaping is kept up with making sure the place looks stellar at all times, you’re going to have people that just.

Take their money somewhere else. Get great service. Great property. Great curb appeal. Everything’s brand new. Feels good. Looks good. Safe, functional, clean. I mean, where are the people going to go? What is competition out there? What does it look like? What is it doing better? I think seeing what the other properties are doing and what they’re not doing, making sure that you are doing what they’re not, then you’re, you’re going to have a market owner no matter what.

Well, you mentioned your portfolio is mostly smaller unit composed of smaller properties. Sometimes it’s hard for a smaller property to compete on amenities, right? The big apartment complex have pools and gyms and, and all of this kind of abilities. Do you guys do anything special to compensate for that or it just comes down to we have the best looking properties with the best looking amenities And we give great service.

So we beat everybody on that So, you’ve got brand new our smallest ones, 33 units, and then our largest wanted 62, but it comes down the brand new property down the road is going to charge more. So we’re still very, we’re cost conscious as far as where we’re at within a market. As long as we’re, we’re a fraction lower still provide a great house.

It’s a great place to live. I mean, it’s it’s we know we can and can’t do. We know we can get away with what we can’t. We’re going for aesthetics for sure, because we’re help. We’re helping our compensate the we’re going to say the age and the size and the amenity package with what can we, what can we control and control what the property looks like inside?

That’s enabled us to increase the rents to, to, to market plus some. We do get turned. I mean, we get turned. People are people come and go. They can’t stand it. Yeah, they don’t want to pay what we’re what we feel is reasonable and they just move on. And I mean, I don’t know right now where they’re going because there’s rents are places are tough to find.

But we’ve got, I mean, we, we constantly have a unit terms every single month. Just people moving on, which you get. not a ton, but you get people that are moving. How do you retain the best the best tenants? Just good service. Be there. Answer the phone. I mean, I think anyone could pick up the phone right now.

Della Property Management Company and nine of nine out of 10 of them are not going to answer. Just Answer the phone and set your customer at the door. So there’s things that are that I brought over from my past company to this company, of course, building both up. But those are the things just making sure that you’re there for your customer.

Yeah, that’s great. Okay. So, if you were kind of, like, looking back and talking to somebody that is just getting started, right? What would be a great advice for someone like that? I learned the hard way, but you’ve got to have confidence 1st and confidence comes from competence. Right? So competence is from learning, learning the lingo, learning the, the, the acronyms, how to underwrite I think, if you learn how to underwrite, that means you can, you could take a roll.

You can take a tweet. T12. you can plug it in. And you can identify the value of the property. That’s going to give you a level of confidence because now you can evaluate an apartment community. Now, that’s that I think is the, the building blocks. Then you start learning with the cap bridge. You start connecting the dots on different acronyms that have a higher, higher knowledge of thinking.

So you can start to just apply maybe back to the napkin approach on different things, just getting high levels and then you drill down. But you have to have the confidence 1st. You have to develop those skills. You have to get in the room. You have to start networking with people that are doing it. Maybe select somebody who you want to aspire to be and start looking and what they’re doing because they’ve they’ve already been where you’re currently at.

Just what did they do to get there? In real estate, anyone who’s doing real estate, they’re more than happy to share with others. What they need to do next in order to level up themselves. To getting in the room, getting watching YouTube. There’s a ton of content on YouTube. And I mean, it’s it’s out there.

People are willing. We were on this podcast right now. Listen to podcast. Start listening to how conversations go. Pick up little nuggets. If you pick up 11 nugget from 1 conversation, apply it to the next. And then. It’s just connecting the dots all the way through right now. I mean, we’re, we’re, we’re, we’re talking, but we’re, we’re discovering different things through conversation in real estate.

You were never, you’re never going to be, you’re never going to know at all. You have to keep on. Keep on, I mean, you’re, you’re learning about management. You have to attack tax exposure. You have to, I mean, just being a CFO more, more of a, in a CFO seat to where you’re, you’re able to look at things through a different optics. So by getting into it though, just rich dad series, read books, listen to books, listen to audible instead of watching Netflix, dive into, to just getting into knowledge, just eat, breathe knowledge. Yeah, there’s a lot to learn and. A lot of people think we’re in the buildings business, but we’re actually in the people business in, in the multifamily world and people will always find a way to surprise them.

Yeah. So, so that’s definitely we learn every day Hey, I just learned something new right now, but that flow valve. So we’ll definitely gonna look into that one ourselves too. So got any little horror story or funny story that you want to share there’s there’s just different. There’s stories every single day.

I mean, there really is. There’s just things that come up pop up. I mean, when we’re taking over property, we, we know kind of what we’re up against now at this point, which is great. When you’re when you’re 1st getting in there, it gets that intimidation goes away through experience. But like I mentioned earlier, I think the worst part is just bad property manager stealing from people stealing their deposits.

And we’re not talking about a month’s rent. This lady was taking 2 and 3 month’s worth of rent, which we never charge. We charge 1 month’s rent or use obligo throughout folio. But this lady was just taking two and three thousand dollars Venmo payments from these people. It’s just a horrible woman.

She’s being prosecuted. I mean, it’s still going through the system and this is, she’s a while ago, but that that’s just more of a, not a whore story. What it is. I mean, it’s a people part of it, but it pushed us to where we’re at. But yeah, Yeah, that’s those are the type of things that are out there. If you’re dealing with with in the people business people just do the do do things and there’s no right or reason for it, but but Those things are everywhere, you know people think that just because you’re in real estate That you don’t need to be, you don’t need to operate a business.

It’s time to sit back and relax and be at the beach. I think you can do that. If you’re an LP, if you’re a limited partner in a syndication, that is all right. You planted some cash here. You sit back, let us operate it. But when I’m talking to other operators, you’re like, I don’t want to push the rent. I’m good with my that’s not.

You’re doing yourself a disservice and if you have any partners, you’re doing them a disservice and this just happened. I think last week, I was talking to somebody and it’s just if you’re an operator, you’re operating a business real estate is no different than any other business. It’s just now you’re going to deal with people stuff.

You’re going to have more stories. You’re going to have people quit. You’re going to have to deal with hiring people. Tenant relate just all of the, the nonsense that goes with just any other business out there. So whether it’s a restaurant, there’s some are worse than others, but some are much more intensive, operationally intensive than others.

But real estate, if you’re operating it, you’re active, you’re pushing your meeting in the morning, you’re going over whether you’re at renovations, you’re pushing the leasing, you’re pushing the rates. Yeah, you’re get your foot on the pedal. You’re you’re pushing your business forward. Stories are getting comfortable.

It’s absolutely a business. And a lot of people think about multifamily as a passive investment, and it’s not. It’s really not unless you’re an LP. Like I said, there’s nothing passive about what we do. Being an operator, it’s in the name, right? You’re operate, you gotta be the guy that pulls things. And it’s not just, Oh, I have a phone call with the property manager.

There’s once a quarter and everything is awesome. You know, there were days where this might have been the reality, but this is 2024 and it’s no longer the reality. So, so that kind of segway me to my next question is it’s 2024. 23 was not a great year for, for a lot of the real estate all over the country.

Where, where do you see the market going in the next couple of years? The I mean, we were pegged to have three rate cuts this year. That’s not happening. I think that And we, we, we don’t know what the black swan event is yet. You know, we’re in election year. So yeah, 3rd quarter. Yeah, the 3rd quarter.

I just, I don’t know. I mean, we’re under contract for 144 units. We’ve already closed. We’ve had 5 closings. This, this. You’re so far, which is great. I mean, we buy deals. We buy good deals. It’s real estate. Okay. I mean, we’re not going after the whales every time. That’s great. That’s come along. But it’s gotta be, we’re able to buy deals now that we couldn’t find last year.

For sure. Where is it going? I, I I think rates are gonna stay where they’re at for through to 2025. There’s really no sign from the Fed showing that they’re they should lower them. And in all fairness, why would they at this point? They need to with the with the the treasuries. But I think the people I think the people that set themselves up are going to have a rough time ahead.

With floating rates rate rate locks, or those are expiring recaps. But I think that it’s just, you know, hold on to survive until 25. and it’s more like survive until 27. but if you’re a buyer, you’re buying, you’re, you’re buying good rate. KKR just bought like 2. 7 billion over 5, 000 units across the country.

That’s just came out this week. So you see moves like that, and then you hear rental double within the next 10 years. Hopefully 10 years from now, I’m not going to say it should have bought more. So we’ll see. Yeah. Well, look in real estate, it doesn’t matter which asset class, if you’re paying, playing the 15 plus year game.

I still haven’t seen a lot of people lose money on a 15 year game. Yeah. Just, there’s not a single property anywhere in the country that is selling for less than a, what it was selling 15 years ago. So, so if it’s a long term play and, and that’s a different game. The short term 235 years. That’s a little bit more of a up in the air kind of thing depends on how November is going to play out for this country.

So, so, yeah, but there’s definitely a challenge going on in the last couple of years of rent going flat or, or, or somewhere negative. Some, some places are still positive, but not nearly as much as they were in the last 10 years. And then on the other side, we have expenses that are keep growing at a much higher pace than they did in the last 10 years.

So between labor and material and, and insurance, I, I think every owner, multifamily owner in the country got, got hit really, really hard with insurance in the last year. So the, the next couple of years, I think are going to be very interesting in the multifamily world. And I think a lot of people, like you said, that, that set themselves up for success.

With variable rates and, and expiring cap rates, I think a lot of people are going to be hurt which, which is a negative, but on the positive side, if you’re a buyer, there might be some opportunities coming their way. Yeah. Yeah. Where’s your portfolio mainly located? So we’re in Texas, so we’re only operating in Texas.

Yeah, you got hit with taxes and insurance pretty hard then. Taxes is a common thing for us. We have an attorney on retainer every year basically to fight the property taxes. They’ve been growing at the same rate for a long time now. So that’s kind of part of the underwriting already. What we did not see is the massive increase in insurance in the last few years.

We’re talking some properties have seen upwards of almost a hundred percent double their either insurance rates which is Massive right for every five thousand dollars per unit. I I don’t have the math, in front of me, but but the the problem was not just necessarily Well, increase in price.

So for us, for example we’ve seen increases in price but one of the things that we’ve also seen is You Our wind and hail deductible jumped to 4%. Some people have gone 5 and 6 percent and a minimum water damage deductible of 100, 000. So these are big things. And with the last harsh winters that we’ve had, you know, almost every winter in the last four years, we had an incident that required insurance involved.

So, so, so again, wind and hail on a 4 million building, 4 percent deductible. That’s more than what it’s going to cost to replace the roof. Yeah. So so, so we’re almost self insured at this point. Is there a play on that? Is there a play to get to actually truly self insure and to make it, make it worth it, make it make sense.

Yes and no. So, so it depends on the size of your portfolio. If you’re large enough, there might be a play for self insurance. The challenge is always going to be your lender. So if you own it outright, yeah, do self insurance, you absorb, I’m sorry, you absorb the, the, the, the risk because you can afford it.

But if you have a lender that owns 60, 70, 80 percent of the property, then they’re not going to let you self insure. They want an insurance policy. I have seen some people go the self insurance route. There is a way where you can set up your own insurance company. There is obviously regulations that come around with it and then you can turn around and do a reinsurance Which is cheaper but again, it’s it’s a complicated legal structure and you need to get your lenders buying on something like this got it but but absolutely, yeah, we we’ve seen people do that because As I mentioned earlier we have our own commercial property management company And we manage not just multifamily, we manage retail, industrial, and so on.

And one of our retail owners that we manage for they have a 250, 000 deductible per building. So if they have a shopping center that has three, four buildings on it, every building has a quarter million dollar deductible, which is insane, right? In order to generate enough damage that will make it worth.

Invoking that policy, there’s got to be over a million dollars worth of damage. So, so that’s really the challenges that a lot of the multi family owners are facing because it hit multifamily a little bit harder than, than, than everybody else. And then every 5, 000 increase is 85, 000 loss of value at a six cap environment, and that comes straight out of our pockets.

So, so that, that’s one of the challenges that we’ve seen going around the market. Shopping around is important. Shopping around every year is important, but it’s not always helping. I know personally, we shopped around and, you know, we still couldn’t afford couldn’t find a better policy than the 4 percent I just mentioned earlier.

But shopping around for sure. I mean, you’re, you’re getting introductory rates, at least if you’re shopping with a new broker versus the other brokers. Happy to get you on the renewals, which we experienced that this year. We had we had to move on.

Yeah, it’s, you know, it’s part of what we do. Yeah. So awesome. I just want to be conscious of your time. So we’ll, we’ll wrap up with the question we ask all of our guests at the end of our podcast. If you could go back in time and talk to young Josh. What kind of advice would you give? And let’s assume you can’t tell yourself that 2009 was the bottom, put your hands on everything you can.

2009. Yeah. I mean, I’ve built up a really good company through the course of 10 years, and that was a great ride. It was fun. It was invigorating. I wouldn’t take any of that away. Cause I learned a ton of business principles and action through that experience for sure. And that’s, what’s helped us propel as fast as we have in the past.

2 years here I would, I would buy real estate while I was building up the other company. I would buy real estate. So I was concentrating 100 percent on the business growth. Not anything else. It was just, it was plowing everything back in the company, bro, bro, bro, bro, bro. I would have, I would have learned as I was.

My son will do exactly what I, what I would tell myself, which is him learning, but also becoming his own person, but learning realist. I think everyone needs to know real estate everyone. I think that it’s the most, it almost should be a responsibility to know how to value evaluate real estate and how to use it as a wealth.

Building tool. If I could tell myself 20 years ago, 30 years ago it would be to just learn real estate and then apply, learn, apply, learn, and at the same time building another building the company up. That’s a good advice. Josh, if any of our listeners wants to reach out and, and brainstorm or, or maybe invest with you guys or, or do anything together, how can they find you? Applemancapital. com. That’s A P P E L M A N capital. com. I’m on all the social media channels. So you can look me up. We we pump out some pretty good content before and after on a lot of our projects. So yeah, I’m out there active. Awesome. We’ll put it in the show notes as well. Josh, I want to thank you so much for coming on the podcast.

Really appreciate it. All right. Thank you. Talk soon. Awesome. And for you, the listeners, if you want to see more of the show, you can find us on YouTube, Apple, Stitcher Android, and so on. We’re everywhere. And if you can do us a favor and give us a review, 1 star, 5 star, we’ll appreciate any review and any feedback.

Thank you so much. And we’ll see you on the next one.

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