Episode 101 Andrew Cushman
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Welcome everybody to the Apartment Operators Podcast. I’m your host, Joseph Golan, and today I have a personal mentor of mine, Andrew Kushman. Andrew, welcome to the show. Oh, thanks Joseph. Glad to be here, man. Awesome. So for the audience that haven’t heard about the great Andrew Cushman , can you give a few minutes just to run down a little bit about yourself, your background, and your portfolio? Kind of so everybody know what you’re doing these days. Yeah. I took the standard route into real estate and got a chemical engineering degree. And then yeah, after about seven and a half years of that, I discovered flipping houses. And we, when I say, and whenever I say we, it’s my wife and I we flipped our first property here in Southern California. It was. I think it was early 2007 and made about as much as I did all year at my job. So I said, all right, that’s it. I’m outta here. Went in and quit. We did the flipping thing full-time for about four years, and then we were, we said, this has been great, but now we’re kinda at the bottom of this recession. No one has equity anymore. Deals are getting hard to find as a ton of competition. What’s the next big thing? And we kinda looked around. , we said we think it’s gonna be apartments because now, eventually we’re gonna come out of this recession, which means household formation, job formation. No one can buy a house for the next seven years cause they all got foreclosed on. And we still have immigration, we still have population growth. So we think apartments are gonna do really well. So we went and found a mentor. Just word of mouth, we. We asked our single family mentor, Hey, do you know someone who does apartments? And he’s yeah, I do. And so we connected with him and he, he taught us the business and our first deal was a mostly vacant 92 unit property on the other side of the country out in Georgia. And that was 2011. Since then, we’ve done a little over 1800 units and have been full-time apartment investors, seven, seven years now, something like that. Awesome, thank you for that. And 92 mostly vacant units for your first deal. That sounds like swinging for the fences. I wouldn’t recommend anyone to do it that way. . Now I should clarify. 92 units is a first deal. That’s fine. Mostly vacant. No. , share a little bit more. Why not? When you’re doing your first deal, there’s enough challenges to begin with without adding on unnecessary ones. Un properties, especially in this economy, if a property’s 75% vacant, odds are there’s some serious things wrong. And if part of what’s wrong is the neighborhood, that’s something you can’t fix. So that’s one thing to be aware of. If you don’t have a lot of experience in the business, And you’ve got a property that’s, 50 years old and mostly vacant. The odds of you making mistakes on estimating the renovation is gonna be much higher. The odds of you not knowing the specialties of managing that type of property and making mistakes are gonna be a lot higher. You’re gonna have more problems with vandalism, with crime. You’re gonna have, you’re gonna have trouble getting a loan on the property. There’s just things that, done right, can make a lot of money, but on your first deal can also increase the chances that it doesn’t work out so well for you. So what’s your biggest takeaway from that deal, that first deal with all the challenges that went through? On the one thing I’m glad I did it because it did end up, it did end up profitable. We sold it for several times more than what we bought it for. We dramatically underestimated the rehab. So I learned a lot about, about, how to do that, especially on older buildings. But the biggest takeaway is even though. Deal was very challenging. Probably the most stressful six months outta my life. I’m very really, we’re still super glad that we did it because without doing that deal, we wouldn’t be here today. If we had given up or letting it fall through, who knows where it would be. But the second deal is far easier than the first one. So that deal, as difficult as it was, it still ended well for us and the investors. And it’s the one that got us started in the business. And every deal after that has been easier because , we’ve never bought anything like that again. Okay. That’s a good segue. So what do you buy these days? What is your preferred profile of a deal these days? Unfortunately, what we’ve been buying for the last five years has now become very popular, and that’s the c plus to b property class value add properties generally built 1980 to maybe two or, 2000 or so. And my value add that could. Generally that falls into two categories. That’s, management, meaning it’s a property that isn’t being well managed and we can improve on that and, or it hasn’t been upgraded or there’s deferred maintenance, or there’s amenities or something that we can do to the physical asset to improve it and get higher rents. Okay. And like I said, this market, it makes that very competitive. How do you go about finding your next deal? The biggest thing for us is broker relationships. When and part of that is because we’re looking at stuff that’s generally a hundred units and up, meaning and most owners have a hundred units and up. Number one, they tend to be a little more sophisticated, so they’re not very likely to sell you their property off of a yellow letter. And then you know, the brokers spend their lives building relationships with all of these owners. They know, especially if it’s a long term broker, they know every owner of every property in their region. And we’ve found it most effective to leverage those relationships. Now, that’s not necessarily just waiting for the email blast for the next listing, it. And we do, no, we do look at those as well, but it’s also, Having good relationships with that and having the broker know what you, what is a good fit for you as a buyer, so that when they talk to a seller, they can be like, oh, this property’s a great fit for Joseph, or This property’s a great fit for Andrew. Let me just call them and see if we can put a deal together now. Because if the seller, something many cases the seller can get, if the seller can just get their price, they’re happy and they don’t necessarily care about going through the whole marketing process. So the number one is broker relationships and then we are. In the process of being, of setting up a system to be even a little bit more proactive as opposed to just, talking to our favorite brokers and catching up and saying, oh yeah, hey, he talked, I talked to the seller, it might be a good fit. We’re actually gonna go out and. Make a list of properties that we like, and then to give that to the brokers and say, Hey, of the people of these properties, who do you already have a good relationship with? Is there any way maybe we could just put a deal together and jump, instead of waiting for the seller to come to the broker and say, yeah, okay, I’m ready to sell. We’re gonna identify properties we know we already want. and then go to them and say, go to the broker and go to the seller and say, Hey, let’s see if we can put something together. Yeah, that’s a good idea. We’ve done the same thing last year when we pointed at a property across the street from a property where they owned and told the broker, go get us that one. So that was very good strategy that we were able to capitalize. . So let’s talk about your current portfolio or your past portfolio. Can you give us a little bit of a our listeners like to hear some funny stories, some horror stories. Give us a couple of nuggets of the things that someday when we’ll write a book about apartments we’ll put. You want just horror stories or something that or something that They, we can learn, they can learn from or what? I’ve got plenty of all of those. I’m sure you do like most operators out there. Just give us a couple that come up to you to mind. I think one of the most I talked about not buying properties in rough neighborhoods or neighborhoods that you can’t. And one of the things anyone who’s watching the video can see this, but what I’m holding in my hand is a bullet that I pulled out of the wall of one of our properties when I was there on a visit. And I keep that as a reminder that I never, ever buy in the hood. It is number one, those proper. Don’t ever pencil out in real world like they do on the spreadsheet. And two, even if they did, they’re just generally not worth the headache. Now there are. There is. There are very, there is a small subset of apartment investors that specialize in that type of stuff. . And if you’re that person and you have the fortitude for dealing with that kind of crap and that kind of tenant base and the stuff that goes along with that, and you do specialize it and you get really good at it, you can make money at it. I’m not saying it’s impossible, but in general it’s just not worth it, and it never works out as good as you think it will. So that’s that. I have that sitting on my computer at all. And that actually that, that very same property. This is one of one of my favorite stories is that property, it was a big property. It was over 300 units, so it had a nice big standalone leasing office and it had skylights and all this stuff. And one day middle, five o’clock in the afternoon, broad daylight. Someone who was pissed off because they weren’t paying their rent, and we told them they had. Climbed up on the roof of the building and threw Molotov cocktails through the skylights and attempted and attempted to burn down the leasing office. They didn’t burn it down, but they did burn it. So that was that, that was a fun one. And yeah there’s plenty of stuff like , plenty of stuff like that from those type of properties. Although I shouldn’t say we only bought a couple like that, and that was in, in the beginning. And those are long sold off. And nowadays we’re in the B class properties where, you know, Probably the worst thing we see now is, someone left their iPad on the front seat of their car and naturally someone, grabbed it or something like that. Okay. Thank you for sharing that. Yeah. We have our own stories that, that come with the properties and you’re right rougher the property that are more extreme, the stories are. Let’s talk a little bit about your operation, right? So I know you are the operator. You had 1800 units recently before you sold a couple, and that’s a big operation. So how does a one or two men show control that much span of units? We, so we’ve got the one, the, probably the biggest key is we have a very good third party property management company and we, we lean on their resources a lot and they’ve grown along with us when we first hired them. They managed 3000 units now they managed 25,000 units and they’ve they’ve been really, they’ve actually maintained discipline as they’ve grown. I’ve seen some management companies be awesome at 3000 and then when they got to 20,000, they were horrible. But they haven’t, and so we lean very heavily on them and that’s one of the reasons we try to buy properties that are a hundred units and above so that property can support its own full-time staff and management. And we’re. We’re not involved in the day-to-day process of okay, does this guy get $5 off his lease, or, and all that, just day-to-day admin stuff. And that’s part of being a true, an operator and an a more, and really when operator, it’s almost asset manager where you’re not, we’re not handling the day-to-day operations of, oh, we got a lease today, or, this unit has to be ready tomorrow. We are providing the leadership, the vision, the direction. The funding all that kind of stuff. For the properties. And so how we manage that many units is, of course we’ve got the onsite staff, but then there’s regionals and then I’m still in touch with the owners of the property management company. And there’s also a renovation coordinator and. Keeping all those people on the same page. We do weekly conference calls and we include the maintenance supervisor at each property. Everyone always tends to forget that guy or gal, and they’re in, they’re very they, in fact, think about it. They probably have more interaction with the residents than almost anybody else on the team once those residents move in. So we always bring them and they have a huge impact on your expenses. So we always wanna make sure. The maintenance guys are part of the, don’t get left out. We do those, we do weekly calls and then we, of course, I actually personally do go out and tour the properties generally once a quarter. If something’s, if it’s something we’ve owned for five years and it’s just cruising along, I might not visit as frequently, but then something that we just purchased that’s in the middle of a renovation or repositioning, I might actually visit more frequently. So that’s generally, how we manage that. It’s real. And then we actually did just bring on have an office manager that’s been with us for five or six years. She does an amazing job with a large variety of things. And then we just actually just a month ago brought two additional people on to help with both asset management and to help increase the pipe, our deal pipeline and looking at new acquisitions. Just to touch back a little bit, you said you have weekly. Who’s on that call? Do you do that? One call for all the properties. Do you do a call per property per. How does that look like? Yeah it’s just every Tuesday is just a marathon of conference calls back to back. And it’s the, it’s myself, it’s the all of the property staff. So that’d be the property manager, the leasing assistant, the maintenance supervisor, the maintenance tech literally everybody on onsite, and then the regional manager for that property as well. And then if it’s a property that’s under renovation, the rehab coordinator is on that call as. And so what generally what we do is we our agenda is we run through anything renovation or maintenance related, and then we let the renovation guy go, and then we get, then we go over the weekly report and, how many leases did we get, how would we collect, what was traffic, turnover, all those kind of things. And then any other issues that come up towards the end. so yeah, those are for most properties, those are every week. And again, for the properties, are just, we’ve had ’em for four or five, six years. They’re cruising along, they’re way ahead of proforma, and there’s just not that much to talk about. Some. Some of those properties are either every other week or once a month. Understood. And why did you decide to do that weekly meeting with everybody on site? Most of the operators I get to talk to are doing that with the regional, maybe someone from the corporate office of the property management, but they never get to the leasing agent and the maintenance tech level. What led you to that format and what do you see value coming out of those? Because if you want to get the absolute truth of what’s really happening, talk to the people who are actually on site every day. A regional manager, part of their job is to polish things up and present a nice picture to the owner and the way to get around that. Is to have everybody on a call at the same time. And as long as you’re halfway decent at asking questions, you will find out what is really going on and what the real issues are, and you can be a much better operator. Second of all, and I cannot tell you how many times I’ve had property level staff come to us and say, , you guys are like, are the best owners we’ve ever worked with. You actually listen to us. You actually give us feedback. You actually help us get things done. And they’re like, most owners we never see, we never talk to, and it is all through the management company. And we do, we let them know that the management company exists for a reason and then they are supposed to follow the chain of command. But that my job is to empower and enable them to do the, to be able to do the. They can at their jobs. And that’s why we’re there. And there’s so many times where I have found things out because the maintenance guy is on the call and I asked a question, or they just happen to blurt something out because that’s another thing you, a regional manager or anybody is cannot coach for, 2, 3, 4. Onsite staff of all what they can say and not say it’s gonna come out especially, the maintenance guy, he doesn’t whatever. He’s not gonna be, he, there’s no politics there. Yeah, exactly. The politics falls apart when you have every level right there at the same time. And it, it gets very hard for somebody to, to spin the picture and present some, present something a little different than what it is. So that’s why we had that. And like I said, we, I’ve got a list of managers who we sold the property or something and they’re like, you, I, I’ve got one from Texas who’s I’ll move to Georgia to come work with you guys again. It, it also builds loyalty and trust because they know, there’s been times where, No management company is perfect and no individual is perfect. So there’s been times where for whatever reason, the A manager felt like a regional or someone else on the team, it just wasn’t. Happening the way it should or just an issue wasn’t getting dealt with. And they ha they reach out to me and I’m able to solve that at a di and from a different angle or at a different level and, and really ma and, keep them moving forward. Yeah. Don’t I that’s actually, and you’re right, most people don’t do that. And I think it’s a missed opportunity and it, you. It builds a lot of trust and a stronger team. And I will be clear though, that’s not me getting involved with, okay, how do we handle this work order? That’s not it. It’s team building. Make sure everybody’s on the same page, make sure everyone feels included, and again, it builds performance and loyalty and gives you a better idea of what’s really happening. Yeah. And I’m sure it’s great for employee retention, right? So people feel they get heard. It’s great. So we talk to a lot of operators and we always have nuggets dropped in, in every podcast. And this I just want to reiterate what you said over here, this is probably the biggest cold nugget we’ve heard so far in, in the podcast, and that is, if you want to know what actually happens on site, you gotta talk to the people on. Yeah. And that’s just phenomenal. Thank you for that. So you mentioned you’re working with third party property management. How did you go about finding them? How did you interview? What were you looking for when you were hiring a property management company? I found the best way to find a property management company is when you’re looking, when you’re talking with brokers and you can sub. The, lender for broker and, lender, broker, whatever. So when you’re talking about lenders and brokers, and let’s say you’re looking at a property, maybe you’re in you’re in Dallas and you’re looking at a property and you’re new to the market and you need a need to find a management company. What I did is I asked brokers and lenders, Hey, if you were gonna buy this property, who are the top two or three management companies you would hire to run it? And I did that over and over again, and I built a list of who kept coming. And what happened is I’m like the top, the same two or three companies came up over and over again. I’m like, these are the three that I need to talk to. And so then I went to those top three and I built a list of 30 questions and I went through and I interviewed ’em all. And then one became, one really stood out above the. and then I flew out to Atlanta and physically met with the owner of the company. We went and had dinner and I basically, we interviewed each other for an hour and a half to make sure it was a good fit. And then we hired them and we’ve kept, they, in fact, not only have we kept them on those properties, but in another state we had a different management company, which we eventually. Fired and then brought the Alan the Georgia Management Company out to handle those properties for us. So that actually ended up, that ended up being a very effective way of finding a good management company. That’s great. So what are the two. Top two, three qualities you’re looking for in a property management company. What made that one stand out above all others? There’s a couple. One is you want a management company that specializes in the same type of asset that you specialize in. If, you know in a company that primarily manages a class properties is not gonna run your C class deal the way it should be run they’re not gonna, they’re not gonna be good at the special tactics that need to be employed to actually get the rent paid on a C class property. They’re probably gonna run it too expensive. They’re gonna do things that just don’t really apply to a c-class property and vice versa. Someone who’s a company that specializes in C-class properties is not gonna be really good at running an A. So they specialized in the C in the B space. And so we that we knew that’s where we were and we liked that. The other thing was the two founders of the company, Had both had come from a fairly extensive previous background in property management and were very well known in the Southeast. Every single person that I came across that knew them, spoke very highly of them. They were also small enough where I’m working, I can reach out to the owners at any time. I have their cell phone numbers and they. , but they were also big enough to have the resources and the depth needed to handle issues when they come up. So let’s say my manager gets in a car wreck and all of a sudden they’re gone. Our management company will just bring in another manager to fill the hole for a while rather than our property sitting there with no manager because they have floating managers that can, that are for that purpose of if, when there’s an emergency opening at a property, they can just fill it right away now and while we find a new permanent one they also, Charged us what we, they charged us a very fair rate for managing the properties. Now at this point, it’s, we’re at a decent enough scale that helps. But even in the beginning they were, I think now we pay 3%. I think the first one we paid three and a half or four. And then once we kept adding properties at, and now it’s just three, three across the board. And I could go on and on, and now I look at it and I say, they. Leverage that as a operator was just even a thousand or 2000. For us, you and I, it’s oh, 2000 units. Yeah. We’re, we feel pretty good about ourselves, but in the world of multi-family, that’s still really not much. And so they can get leverage that I can’t get because they have suppliers who, when they when they go to those suppliers, they’re like, all right, hey, we’re we, we manage 25,000 units now they can. Incredible pricing, which they just pass on to us as the owner. And so there’s advantages there as. That’s great. Thank you for that. So with all that you reached a scale of almost 2000 units. Did the thought of self-managing ever cross your mind? What are your thoughts about self-management? Generally speaking, I think it’s a bad idea and is and there’s a handful of reasons for that. Now I will say if, if you’re buying a fourplex and it’s down in the street from where you. No, fine. I still would. I, we’ve got a single family rental a mile away. I don’t, so I don’t manage that myself. But I generally think self-management is a bad idea. Number one, there can, there’s just not a not a lot of money in it for one, it’s not a not-profit center. It can be. A bit of a balancer in different in different markets, right? If you’ve got management income coming in. So as a I do understand that aspect as that, or that appeal as a business owner. But generally speaking, there’s not a lot of money in it. Another reason is, Who are you? Are you a property? Are you a jack of all trades or are you an apartment owner and operator? So are you focusing on acquiring more properties and rapidly scaling that up to 1000, 5,000, 10,000 units? Or are you also gonna be trying to do property management and all these other things? And one of the, and then also what I just alluded to, is leverage. For us, if you come, like for example, I came from flipping houses, right? And then first deal, 92 units oh wow, I got 92 units. I, that’s some leverage. No, it’s not really , for us it feels big, but granted, and really, especially in this economy, no one gives it, no one cares if you’ve got 90 units. From the con so you can, again, just like leveraging broker relationships to get deals, you can leverage the property management company to get better pricing and better service and. And then higher level contacts and all of that. And one of the things I often hear is, oh nobody, no one cares about my property like I do. So this is what I would say. All right, Joseph, you’re married, right? You still like your wife very much. All right, good. So let’s say heaven forbid, she gets a headache, goes into the hospital and they’re like you’ve got a brain tumor. It’s benign, but we have to get it out, right? You schedule the surgery. Day the surgery comes, she’s on the table. They’re getting ready to, they’re getting ready to, put her under and remove the tumor. And Joseph, you walk in, you put your hand, shoulder, hand on the shoulder of the surgeon Hey buddy, you know what? I appreciate what you’re doing here, but I care about her more than you, so I’m gonna take care of this. Caring doesn’t equal competence. That’s so true. It does. yeah. I can’t when I can’t tell you how many properties I’ve bought from guys who own a thousand or 2000 units and manage it themselves, and there’s so much management upside on that property cuz they candidly don’t really know what they’re doing. It is easy. To do property management at a mediocre level. And that’s what most people do. It’s very hard to do it at an exceptional level. And there are operators out there that own a thousand, 2000, 5,000 units that do it. I could name a handful that do a fantastic job and they’re very vertically integrated. And for them it does make sense and it does work. I would say for the average investor, especially someone. Who’s just getting started at 50, a hundred, 200, 300, 400 units. Your best bet is to hire a the right property management company and closely work with them. So that you can focus on scaling your acquisitions in your business and then learn the property management from them. And if at some point down the road, you want to you wanna start your own property management company and all that, that, that’s fine. And I know that’s always the ongoing argument. Do some guys absolutely love it. A lot of guys don’t. It’s pretty obvious to tell where I land. Again, I know some guys with five and seven and 10,000 units and they wouldn’t even think of touching property management. Cause like, why would I do that? I wanna go buy a 30 min, 30 million property. I’m not gonna waste my time, making three or four or 5% trying to manage it. And then the final thing is too, when, as a syndicator. When you send out your offering memorandum and you’re self-managing and you’re taking, usually if it’s self-managing a four or 5% management fee, some of this, more student investors will look at that and say wait a second. So you’re getting gonna get four or 5% no matter what happens with this property, no matter whether I’m getting paid or not. And you could just hire another company and pay 3%. That comes up too. That’s just another factor. Yeah. I like to just put it down very simple as a headaches to returns ratio. Yes. And that is just I don’t know how these guys do that for fee management. I do have a little bit of a different approach and we’ve had that conversation in the past of when we get to the size of 1200, 1500 units, Then we’ll reevaluate it if it’s the time to take over or not. But it’s definitely not a financial decision. You’re not gonna make money out of it compared to the brain damage it generates. But it’s more of a brand control and quality control. And what I learned is if you work with the right property management company, you can still get that brand control and that Quality control without having to take everything in-house and bring the headache. Yeah. And you’re absolutely right. And we should clarify, if what I’m talking about is not set it and forget it. Going back to our previous conversation about the weekly calls and the visits, we’re working very closely with that property management company. We are not hiring them and then saying, all right, cool. Send us the monthly. That won’t work so well. No matter who’s managing your company you have to be a good asset manager and then third party can work really well if you hired the right one to start with. Yeah. I was talking about gold nuggets. This is just another one right here, dropped by Andrew. Wait, I’m dropping money. Wait a second. property managing companies are, no matter how good they are, you can’t just hand over the keys and forget. It’s not gonna work cuz good companies go bad. Good managers goes bad. Just the wrong person at the wrong place could generate a lot of damage on your property. So you can’t just set it and forget it. Like Andrew said, this is just, was worth repeating again and again. So I wanna segue a little bit over to your residents, right? The people that live in your properties. Do you do anything to encourage retention or leasing or any great ideas that you guys do let’s say events or specials or anything like that helps you attract and retain your residents? One of the things that I try to impress on our managers, There should never be a day out of the year when the office isn’t decorated for some holiday. And that could be the typical ones, 4th of July, Easter, Christmas, whatever. But. Any excuse. It can be, St. Patrick’s Day, national Pie Day, national Chocolate Day, whatever. We should be celebrating and decorated something at all times. Just for the festive attitude and the fun and, giving, have an excuse to give people treats and all that. But, we’ll we also run open houses. We’ve done stuff where local charities or groups or will bring Food to, to residents and part, or we’ll do the same thing, partner with local businesses. We’ve opened up property and ha actually had a small carnival on it one time, and that was actually exceedingly popular. We got a ton of leases out of that. Didn’t cost us anything. Wait. Don’t. Don’t just jump all over it. What do you mean a little carnival? And how did it not cost you anything? There was a it was a community thing and one of the, one of the big. This was in Texas, so it was a large local church. A lot of our residents went to that church and they partnered up and said, Hey, we’re gonna do like a Saturday carnival, and, and we said we agreed that they could do it at our property. And so they set up fun ga, games and food and like bounce houses and all that kind of stuff. And they did it at our property. And of course all of our residents got to enjoy it. But it also brought in a ton of other people. . And that’s probably I don’t remember the exact numbers. That’s probably one of the most, most successful leasing days I’ve ever seen. And so that, that worked out really well. But then, e even if it’s not just about the leases, it’s also just when people see the property partnering and being active with the community and other aspects of the community it builds your community and people just wanna stay. People wanna be a part of that. That’s more that, that’s, that was a special thing. Now again, we do a lot of open houses. We try to, we, we do. Celebrations, we’ll do dinners, we’ll do breakfast on the go. So maybe there’s one property where every, was it, I forget what day of the week, but say every Thursday morning, our leasing assistant would be out there with little bags of, donuts and whatever. So people just leaving for work could just grab it and eat breakfast and, while they sat in Atlanta traffic. And stuff like that. We try to do a lot of those type of things. That’s great. What would be an average budget for you for those activities? Yeah. I don’t know if I can actually really answer that que, I don’t think any particular activity costs usually costs more than a couple hundred bucks, if that. Cuz candidly, a lot of times what we’re doing is we’re the ven we ask our vendors to donate the supplies and the material. We’ll have a vendor donate the materials and then our staff hands ’em out. And so really it costs our staff a little bit of time, but the actual financial cost is minimal. Or maybe we do an open house or maybe we do a another thing we’ll do a frequently it’s some properties is like a movie night for, the kids. And so yeah, we might buy a. Hundred dollars worth of pizza and $50 worth of, desserts and soda or something like that. And so it may $150 for that event, which, depends once when you’re at a hundred or 150 or 200 unit dollar 200 unit property is fairly, is insignificant, especially for the return and goodwill that you’re getting. So most of this stuff is at most a couple hundred dollars. In many cases it’s. Yeah so leveraging your vendors is a good point. We’ve done pool parties when we brought people from at and t showed up , and we had other vendors come in and they had gift cards and they had gifts and we did a back to school, so we had a hairdresser come in and did free haircuts for the kids. So that was really like you said, engaging the community, engaging residents. That’s always great. Great. So we have a little bit more time. I wanted to kind of transition over to value add. I know almost everything you do has a value add component part of it. , can you give us like two, three things that you guys like to do that increase income that is not just raising rent? Yeah, there’s a handful of things. One of ’em is, Washer dryers. I just saw a survey actually this past week that. , there there’s a, there’s demand for amenities and there’s supply of amenities, right? And this, it was the survey, it matched up the two. And basically what I was saying, what do people actually want, and then what is actually supplied? And one of the ones was cat friendly apartments, right? Almost all apartments are cat friendly, but most residents actually don’t. So that was one where there was a mismatch. And on the flip side of that, the most in demand amenity is in-unit washer dryers. Yet only about 13% of apartments have that. So that’s one of the things that we look for. Is there a way to supply that amenity, whether it’s. Now if we can buy a property that has the connections to begin with, that’s fantastic, but if we don’t, is there a way to add them? So we have one property that we purchased about a year ago. That has the connections. Many renters can’t afford to buy their own set. So what we started doing is we started buying our own. And you can do, you can, there’s two ways to do this. You can sign up with a vendor and do a leasing program or you can do what we’re actually trying on this one is we’re just buying sets for $650 and then it’s an option. Say, Hey, we have a laundry room you can use. , if you want for 40 bucks a month we will put these in and you can rent them. Those washer dryer sets pay for themselves in 15 months and then it’s just then it’s just, it’s re additional free in basically free income after that. And even if they break in three or four years, we’ve still made multiples of our money on that investment. So that’s one is washer dryer connections. The other one really is, it gets overlooked, is just resident re. So going back to what you were asking me about the open houses and the parties and the fun stuff that’s good for, it’s great for drawing people in, but it’s also good for resident retention because, a vacant unit, you put somebody in that unit and they’re paying you rent, but then that’s also a unit that you don’t have to turn, you don’t have to repair, you don’t have to do CapEx on. So the biggest thing really for income is. Reduce resident turnover. But again, you washer dryers, you can do preferred parking, you can do different things with cable billing. You buy it in bulk and then you sell it to the residents at a, slightly higher amount. Water billing is a big one. We’ve gone through on some properties and just done individual metering and say, okay, you pay what you use, pay for what you use. There’s, and in each, and it can be very property specific. We had one property that we were looking at. It was right on the freeway, and it was it was a great candidate for putting up a billboard. And then doing, for paid advertising. Some stuff’s very generic and you can look at it almost any property. Then there’s other stuff that, there’s some properties have unique opportunities based on their size and location and the. Awesome. Thank you. Let’s take a look at the other side of that equation. Reducing expenses. Yeah. One of our favorite ones is water saving devices. I’d say five years ago. We could plan on doing that at almost any property Nowadays, it’s already been done at a lot of properties, so it’s not quite as a common thing as it used to be. But there’s been, there’s one property, we reduced the water bill by 60% just by going through and retrofitting all the toilets and the shower heads and just fixing all the leaks. So water saving is a big one. I already mentioned turnover. Generally turnover is one. Outside of property taxes and. Payroll. Payroll, yeah. Thank you. That’s what I was looking for. Turnover is really one of your biggest expenses because number one, like I said before, it drops your income, but two you’re, you’ve got a unit just sitting there vacant. Now you’ve got to even best case scenario, you’ve gotta, you’ve gotta paint it and clean it. But if, especially if you’re in C class properties, there’s very rare that all you gotta do is paint it and. Typically there’s some, CapEx involved. Especially on a harder sea, a normal turn might be 2, 3, 4, $5,000. So that’s a huge expense. And so not only is it the monetary expense, but if your maintenance team or your contractors are spending time turning those units, they’re not spending time doing just the normal work orders and keeping the residents happy, and then that, and or they’re not address. Deferred maintenance, or they’re not addressing routine maintenance, which becomes deferred maintenance. So turnover is a huge opportunity for for keeping expenses down. Let’s see. And then also one thing we do if we’re doing a renovation, we look at hardening the units, right? So if you put carpet in a property, especially again, a, B minus or C, that carpet, no matter how good it is, It doesn’t last long, right? People just, they stain it, their dog chews it. They, it’s, I don’t, sometimes I still can’t comprehend what some people do to these carpets, but it is the way it’s, and so you end up replacing that all the time. So if instead of that carpet you put in a extremely, it’s more expensive the first time, but an extremely durable. Let’s say like plank vinyl, plank forward flooring, not only does it look nicer and you can often get more rent for it, it’s much more durable. And if somebody damages it, you just pull up those couple of planks, put in new ones, and you’re good to go. You don’t have to replace the entire thing. Same thing with with countertops. it’s very tempting to spend 150 bucks to resurface a countertop. The minute someone puts a scalding hot pan on that co, on that countertop, it’s ruined again. And now you’ve gotta either resurface it and you, it’s just an ongoing thing. So we’ve actually in some properties, started going with quartz or with the court’s material, which is harder than gran. and it’s almost indestructible so that we know, we’re in that particular property, we plan to own it for 10 years. We’re not gonna have to touch those countertops for 10 years. We’re not gonna be resurfacing them. We’re not gonna be replacing them. They are done. So that’s another thing we do is if we’re gonna hold the property for more than a few years, which we typically are, we try to harden the units to just reduce long-term ongoing maintenance expense. Thank you. This have been phenomenal so far, and I know you’re running out of time. Just to wrap it up, a couple of quick questions. I, if you could go back in time to Andrew in 2007 before you got started in apartments, what’s the best advice you would give yourself? ? I started the apartment, I started the apartments in 2011. Sorry. And what so if I went back to 2011 I’d probably say, Hey, you know what, in 2019, you’re gonna invent time travel, and that’s gonna make you far richer than anything else. So don’t worry about all this real estate business. But no, I, I, what I would say is I would say, Number one, try. Try to go straight to the, especially back at that point in the cycle, try to just go straight to the B properties. Don’t mess with the C stuff. It’s funny, if you look, almost every operator, they mi, they start and C, because the deals are easier to get and then they move up to B or, and sometimes higher. So I would just, I would start in the B also, I would say, at those earlier points in the. Not only buy B properties, but in the beginning of the cycle, there’s, so I can’t tell you how many times where I’ve seen properties where in 2013 or 14, I didn’t buy it because I didn’t wanna pay an additional $500 a unit. and now that would’ve meant absolutely nothing there. There’s one property in the Houston area where the seller wanted 24 unit for it, and it was a B minus property, a good area, and I had it penciled out at 23.5 a unit, and we just ended up not getting a deal done. And I think three years later I saw it come back on the market for 65 a unit. how much did I lose because I just didn’t, wasn’t willing to pay market at the early part of a cycle. Now, today, I think that $500 a unit could end up being a lot more important, but when you’re early, early in the cycle I, wish I had just aimed a little lower on their returns and bought more, and it would’ve worked out exceptionally. Awesome. Thank you so much. Today was awesome. A lot of really good information for our listeners, Andrew. Do you wanna take a couple minutes, tell our listeners where they can find you? If they have they wanna reach out, they want to network, they want to invest in one of your deals. Yeah. I’ve, I’m you can connect with me on bigger pockets LinkedIn if you actually want to reach out really connect. Our website is short for Vantage point acquisitions. It’s v P. A cq.com. It’s not, definitely not a fancy website. We should probably about, about at the point where it should be redone and updated, but there is a contact us form on there and if you put any information that comes directly to my email inbox and I tried to get back with those as quickly as possible. I do reply to all of them. It might not be within an hour, but I will get that and we’ll reply. So that’s generally the best. Awesome. Thank you so much for your time, Andrew, today. I appreciate it. All right. You’re welcome, Joseph. Good talking with you.
 
Episode 102 – Brian Murray

Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Hey everybody. Joseph Guzman with The Operators Podcast. And today we have Brian Murray. Brian is a published author, a very successful one. We’ll put a link in the show notes to his awesome book about apartment. It’s called Crushing It. And thank you for joining us today, Brian. Thanks for having me. I’m really excited to be on your show. It’s all of our pleasure here. Why would you give a few minutes to the audience so they’ll know who you are? What’s your background and what you’re doing today? Sure. I started my apartment investing back in 2007, so it’s been 12 years. I was actually working as a teacher at the time and trying to figure out a way to make some extra income and I’d always been interested in real estate. So I got out there, started looking at properties, and started slowly looking at bigger and bigger ones. And I actually made a little bit of an unusual start. I jumped in. With a pretty large office building right out of the gate. And I did self-manage and I really had no idea what I was doing, but I figured it out as I went. And it took me a couple years to turn that property around. And but I learned how to add value to properties. I learned how to manage properties and I started buying additional ones. And did the same thing. I bought retail and then I started buying multi-family. And more and more we’ve been moving into multi-family. At this point we’ve got a pretty large portfolio. We’re based out of upstate New York. About two thirds of our properties now are multi-family and we still operate all of our own properties. The other thing that’s probably a little bit, Atypical. We actually don’t have any investors, so we haven’t raised outside money to this point. Looking to the future we’ve reached a size where it’s become harder to grow organically and maintain the growth rate that got us here. So we may be raising capital in the future, but for now we, we are still haven’t taken outside money. Awesome. Thank you for that. And you mentioned that you self-manage, right? That’s one of the questions we ask all of our guests. Do you self-manage or do you use third party? What led to the decision to self-manage? I think it was by necessity. I’m not in a very large market and the very first property that I got, I assumed the mortgage on that property. That, that’s. Primarily how I got into a sizable property without having a lot of money to put down. And the lender at the time insisted that as part of the conditions of assuming that I did find a property manager and I looked really hard and I just wasn’t happy with the options I was finding. Eventually, I settled on a property manager from outside of the area. Basically agreed to do our bookkeeping and allow me to manage under their umbrella. And we kept that arrangement for a couple of years, and they just charged a nominal fee. And at that point I reached a spot that I could refinance that mortgage and get rid of them, and I’ve managed ever since. But even when it was under their umbrella I was pretty much doing everything. So yeah that’s a. The backdrop in terms of how I ended up doing that, it really weren’t options that I was particularly happy with. And what is the, were options, would you still make the same decision? I, knowing what I know now, I think I would they, the challenge is what I’ve come to find out is you just can’t expect someone else to. Manage your property the way you would, there’s really no substitute for that. Even when you find a good property manager and when you do, they’re worth their weight and gold. But, it’s a challenge. No one else ever gonna look at a property quite the same way as an owner will. And I think even in situations where in the future I may be using third party property management, I’ll expect to keep a close eye on things because I think that’s necess. Yeah, I agree with you a hundred percent. I think it’s worth repeating the statement of nobody’s gonna look at your property the way you. So we work with third party property management, but we keep a very close eye on everything. We look at the reports, we talk to the people in the field. We do surveys direct to the residents, right? So we keep a very close look because I like to say that you make your money when you buy, but you lose your money on operations, right? So that’s why it’s important to keep operation tight regardless of. who’s managing? Yeah, so I think the other thing that’s worth mentioning is that if you do want to have third party property management, you’re gonna be able to manage those third parties much better if you’ve got a little bit of experience doing it yourself. And I think a lot of people are, they look at it in reverse. They say I don’t know how to do it, so I’ll hire somebody and then I’ll learn. But I would actually encourage people to flip that on its head and say, I’m gonna dive in there and I’m gonna learn it so that I can manage property managers well down the road. Yeah. I agree with that. I’ll just put one caveat. It works well when you have a 10 20 unit property, but if you are jumping in on your first transaction to a hundred plus, I wouldn’t try to self-manage. That’s true. A lender might not let you . Yeah. That’s a different conversation. Yep. Yep. How many units total right now do you have under management? We’ve got around 600 residential and about another hundred commercial. So we’re around 700 total in the p. What would you say is your biggest operational challenge these days? Because 600 plus 100. That’s a sizable operation. And I’m sure you have quite a few people working for you. What’s the biggest challenge? I’d say the biggest challenge is just, it’s not even unique to real estate. It’s finding good people, it’s people management it’s dealing with all the drama that comes with that. It’s I can, I think that any business owner out there can probably tell the same stories whether they’re in retail or real estate or something completely different. Once you’ve got that many people there’s just a lot of headaches that can come with that. And I feel very fortunate. I feel like I’ve got a pretty good team, but, we’ve still had, we’ve had turnover and had the same experiences that other business owners have. in property management you get a lot of, you have by necessity, quite a few hourly workers and sometimes there’s, those positions tend to have higher turnover. Yeah. It’s interesting how your challenges are very similar to our challenges. Even though we use third party we still have challenges with hiring and finding the right people and the high turnover. So that problem exceeds. Having a third party manager or not. Granted they do a lot of the hiring and they deal with a lot of the drama, but it’s still part of our operation and our look at outlook at things. So if you don’t mind, let’s take a couple of examples of properties that you had in the past. If you can share one win and one horror stories, cuz I’m sure you have those, everybody have those . Yeah. Gosh. Maybe I’ll start with a horror story cuz there’s more to choose from . No we’ve have our share of, what I tell people is we’re making mistakes and learning things every day. And we have our little wins every day, and some are bigger than others, just it’s just perpetual. And so there is a lot to choose from there on both sides. I would say one of the biggest mistakes we made came right on the heels of one of our greatest success stories. We had two, two different multi-family properties that we purchased at at auction. One right after the other. So the first one that we purchased, that auction, I actually chronicled that one in my book. And that was a very distressed. Five story multi-family building the apartment building was it really was in rough shape. The, the very dark interiors lights were smashed out. There’s a lot of drug activity in there. It really had been let go pretty bad. And we were able to step in take that property over. We actually temporarily relocated our management office into the building. Because I knew that there was a lot of, Tendency to look the other way and not wanna deal head on with some of the things that were there. But we worked through it. We lit the place up inside. Now we put security cameras everywhere and we just started making improvements and worked our way through the tenants that were doing things they weren’t supposed to, weren’t happy to see all those lights and security cameras and the tenants that, that, that were fine. Were happy to see that. And so you. I think one of the, one of the things we learned from that was that a lot of that stuff sorts itself out. You people don’t want to, if they’re doing something they’re not supposed to be doing, they don’t want that presence. They don’t want that going on. And a lot of ’em just chose to up and leave on their own. It wasn’t all that smooth, that we definitely had our challenges and I walked through that. But it was a great project and. We were able to create a property that was valued at more than, when it was appraised. We refinanced it a few years after we bought it, and it appraised at more than double what we paid for it. So we’re very happy with that. , but you know that project was underway and going well and everything looked good. And we had another opportunity to do a similar one. And we did the same thing. We went in, we bought it at auction. It was distressed. But in this case, we learned a really hard lesson and realized how fortunately we fortunate we were with the first one, that when we got in and we started doing the work, we kept uncovering things behind the walls that we hadn’t been aware were there, was there. And we ended. Tearing everything out. We didn’t anticipate that we completely gutted it on and ended up putting in all new mechanicals and even making some structural repairs and had some environmental remediation. It was pretty much anything you could think of that would, that could have been in there hidden behind those walls was there. We powered through we got the project done. But it had a that one had a main building with 20 units, and it had a an old, it was an older building and it had an old carriage house out back that had another eight units in it. And we ended up tearing that building down instead of continuing to hemorrhage money into that project. In the end, it’s a beautiful property, but I don’t think we’ll ever get back what we put. Yeah so really great lessons here. I wanted to dive into some of them a little bit. The first one you decided to move your office into it and I wanna learn a little bit more about that decision because I do believe that proximity is power. And I ma made it a little bit of, you made me laugh a little bit with the once you put the security lights and all that, it’s kinda like when you shine a a light on the dark corner, usually all the rats run away, right? That’s right. So what led you to move your office in there and how do you think this would end up if you were not physically in the building? When we put, when we realized we won the auction, I still remember sitting down in a conference room with my team and talking about our options and how we were gonna handle this. And the unanimous consensus around the table was keep the property manager on. We don’t, this is one we don’t wanna manage ourselves. And that’s right. Then I knew that. This wasn’t gonna work. So I don’t normally do this. I weigh the input from my team very carefully, but I actually put my foot down and I said, no this needs a complete overhaul. We need to be doing this. We can’t do that. That’s the easy way out. It’s not the right way to do this. It’s not gonna be successful unless there’s a change. Seeing how, what I saw in that meeting was an aversion to confronting things that there was going to be conflict, it was gonna be uncomfortable. There, there were too many excuses that people would have to work on something else or look the other way or procrastinate when there’s something that challenging. And I felt like physically locating ourselves in the building made that impossible because everything was right there in your face. You would see the tenants, you would see what was going on. The good tenants would walk downstairs with concern. Complaints and speak right to us. And we had enough contractors in there and with our office in there that there were people all over the place and all those things that would go on, without any observation. In the past, they couldn’t happen anymore. And I think I, I do think moving in there was in hindsight definitely the best decision. It was a highly effective approach. And it worked out in that, in this. Awesome. That’s great. And then with the other one, the one that you had to tear down on a lot of things was there anything you could have done otherwise? Hindsight looking right, everybody is smarter hindsight, right? Anything you could have done, I know it’s an auction, so I don’t know if you had access to it before or not. Anything you could have done to figure out these things before you actually bought it and started tearing down. . So you’re absolutely right. When you buy at auction, oftentimes you don’t have access. We had very limited access and in both cases in the first case, we actually had a tenant let us in and walk around and the second case, the front door wasn’t locked. And so we were able to poke around and look around, but not do a thorough inspection. So the price we paid for that was that we weren’t aware of a lot of the problems that were in there. And so I think the real lesson learned wasn’t necessarily not to buy things at auction, but to what, when you do that, to do it, recognizing and accepting the fact that there, that those problems could and very well made exist. And you gotta factor that into your price and into your budget. If you can’t get that, if you can’t get that access, you have to assume the. Yes. That, that, that’s a perfect access. It’s a perfect statement right there. If you don’t know it’s easier to assume the worst than to handle with the aftermath. Exactly. Okay, great. I wanna circle back to the conversation about hiring people. What do you guys do when you need to hire people in? Organization, do you have a certain process? Do you guys use any psychological tests? What do, what is your process? We’ve tried a lot of different things. We try to get a candidates in front of as many people as possible, but if I have to think through what’s effective and what’s not, I think and this goes not only in my experience in real estate, but in, in. Prior to that as well, I think many of our, probably most of our best hires over the years have been from referral. So the number one thing I would say that we do is talk to everybody on staff and see, hey, do you know somebody, is there someone you’ve worked with in the past that you could vouch for or that might be interested? And don’t limit your pool to people who are actively looking, so what I’ll do is I’ll talk to somebody on the team and I’ll go I don’t care if they’re looking or not. Think about the last place you worked. Who was, who were the stars there? Tell me who they. Let’s reach out to ’em. Let’s invite ’em in, see if they’ll have a conversation. Because unfortunately, a lot of people who are good at what they do are focused on their job instead of out looking for other opportunities. And, sometimes you gotta actively go to them and pull them away. . And it’s it’s kinda like finding properties, right? Like not all the good properties are for sale, everything’s for sale for the right price. So if you go and knock on a door and you talk to somebody just because they weren’t planting a sale, you may have planted a seed, they might come back to you later. Or they might actually engage in a conversation on the spot. It, I think employees are really similar in that. That’s a great tip. Thank you for that. So we have, in our industry, we have a lot of compliance regulations for housing rules and so on. How do you keep your team updated and up to code, if you wanna call it this way, with all the regulations and compliance? We’ve got a great property manager who stays on top of that stuff for us, and, she will educate new hires. We’ve had a professional come in to, to deliver a training to staff and we try to do the best we can with that. Are you using any certain system or you. keep training every once in a while to make sure everybody is current. Yep. Yeah. Just keep everybody trained. Okay. Do you do any fee management for other people, other owners? No. Nope. Just our own properties. Yep. Yeah, that, okay, that makes sense. Some people do that. I honestly find it really challenging to think about managing other people’s property. It sounds like a lot of work and not a lot of gain yeah. Sorry. Oh, no. Yeah, a lot. There’s so much that goes into it. I think. , I think it’s money hard earned. So I think there’s if you’re gonna manage properties you, I think you’ll have a lot of business for yourself. In my opinion, probably the best reward for that could be leads on properties that you might eventually acquire yourself. But the margins are narrow and, it’s definitely not a part of our business that we’re looking to. . Yeah, that makes sense. So do you do any special events for your residents or any like pool parties or I don’t know. Some people do donuts in the mornings. And what do you guys do for your residents? So that’s not something we do really in our properties. , I know that’s done more widely. We really haven’t, we really haven’t gone in that direction. Most of our communities are not a class or even B class. It’s mostly, I’d say, c plus communities workforce housing, and it’s just not something we’ve had to do and we’re content to not spend that extra money doing. Okay. C class residents like parties too. . That’s true. That’s true. There’s a lot of things they like. We’re not gonna pay for ’em all. . Yes. Just a little tip from our operations, right? We have c class properties too, and when we want to do like a pool party, something like that, we reach out to. In the area, and they usually come in and sponsor, or they’ll bring a booth or something. They’ll donate presents like gift cards and stuff like that. So you can do these things on a relatively low budget. Yeah, and it’s definitely helping with the engagement with the residents. So if you guys don’t do events or stuff like that do you have anything you do to keep retention? I would say that the number one thing we do is we’ve developed a reputation for great customer service and taking care of our properties and in the communities that we operate people recognize that if they wanna live someplace where it’s gonna be well tended to and if they have any concerns, they’re gonna be addressed. That’s what sets us apart from the competi. Yeah, no that, at the end of the day, most people want just a safe, clean place to live in. That when you need something, you’re getting taken care of, right? If that’s the reputation you were able to build in your community then that makes a lot of sense why you will have retention and you’ll stay full. And Okay. What about Val? Sorry. What about value add projects? I, you mentioned the one that you have in your book, and you mentioned the one that was not so great. So when you look at a project that is a value add , how do you approach it? How do you decide what’s worth it, what’s not worth it where you should spend money, where you should not spend money? Help me with what goes through your. . Yeah, I think a lot of it’s, a lot of it’s based on experience, but we’ll we’ll look both at the income side and at the expense side very carefully. And, there’s just a lot of opportunities usually surrounding the rent, particularly, I would say even to raise it up a. The best value add properties are, I would say, properties that are poorly managed. And so the more poorly managed the property is, the more excited we get when we look at it. And that’s often an inattentive owner. It’s usually third party management. It’s often somebody that doesn’t live nearby or ever visit the property. It might be out of touch with the local market conditions. I know one of the most common ways to raise value would be to raise rents. But honestly just as often we go into a value add project and lower rents, and you. You don’t really hear people talking about that, but it really depends on the market you’re in. So if you’re in a, you’re in a high growth market and you’re fortunate enough to be in that environment where rents are rapidly growing, you’re much more likely to raise rents. But if you’re in a slow growth market or even a declining market, a lot of times the rents that, that the owner might be charging are too high. And so if you can, for example, Lower lowering rents by, say 5%, might result in a 10% increase in occupancy. And then you’re driving up your rental income by lowering rents. And so there’s been a number of occasions that’s worked well for us. That we’ll actually go in and actually we’re actually working on turning around a project right now that had about 55% occupancy. And the first thing we did is we went in and we slashed the rents because the owners were out of touch with the local market and they didn’t really understand that, Hey, your, the rents were too way too high. And we bought that project November 30th, and we’re here we are. Four, four months later or five, five months later. And we’re up in the upper seventies in terms of occupancy and the number one thing we did was to lower rents. But we’re always looking at expenses as well. We want to try to make investments that are gonna be long-term, not afraid to spend the money upfront if it means it’s gonna hold expenses down longer term. . And you know that there’s dozens and dozens of areas that we would look at with something like that. So yeah, just looking at all opportunities on, on, on both sides, both the income and on the expense side. Yeah, so thank you. I think you had a really good point in that I want to reiterate a couple of them. The occupancy versus rate is always a balance, right? They’re both pull different ways. They higher the rates, the lower the occupancy, and so on. A common mistake I’ve seen people doing their underwriting is finding a property that is. Occupied higher than market, right? Let’s say the market is at 90%, the property is occupied at 95%, and, but the rates are below market and in their underwriting, they underwrite that the rates will go back to market, but they don’t bring the occupancy back to market. Right, and then that’s double dipping and you can’t really get that. I think your approach of let’s put the rent a little bit lower so we can get the occupancy really shows the understanding of these two are pulling in different directions. And so that’s great. And definitely having occupancy means there’s. Income coming in, which allows you to do more with the property. Can you give us, I don’t know, three top ways to reduce expenses, stuff that you like to do? Wow. There’s a lot to choose from. One of ’em I mentioned already which is the cameras more and more we’re going to that fairly quickly, and lot of that has to do with we’ve taken on a lot of distressed properties. Like we, we like to create value with properties that are poorly managed, but. Installing cameras throughout a property really can change the behavior and reduce the amount of damage in the property and abuses, people, abandoning things in the hallways or, throwing extra stuff in the dumpster or doing different things that are gonna cost you money. And frankly, it discourages the tenants who are bad tenants from living there. Early on. , putting those cameras in I think usually gets us over the long run a great return in on in terms of driving down expenses. One, one that I learned a lesson on af took me 10 years to figure this out. But we were, we went through and times we’ve made, we make a lot of insurance claims. And what I began to realize is that, So often when something would happen at a property and we would go and we would say what’s the damage? And we would talk about whether to submit the claim or not. And I just began to realize that over time we really had determined that pretty much any claim less than about $15,000. Wasn’t worth it to submit because our insurance rates would go up and we would have, we wouldn’t end up ahead by submitting claims that were that low. And so at a certain point in time I realized that hey, we basically stopped submitting insurance claims for less than between 10 and $15,000, yet all of our insurance deductibles were at $5,000. So we went back through and raised all of our. Insurance deductibles up to anywhere from 15 to $25,000, and we saved our company about a hundred thousand dollars a year making all those changes. I think that’s a, talking to investors, especially ones that are starting to build a, a portfolio. and have enough doors to weather the storm and enough reserves to weather the storm. If they need to come up with an unexpected $10,000 they might want to take a look and make sure that they’ve got the right and they’re not over-insured paying for coverage that you don’t need because insurance costs keep rising and one way to get those rates down a little lower is carry a high deductible. That’s a fantastic. The I’ve never heard that one. , this, there, like I said, there’s just dozens and dozens of different things that we do. One, one thing that’s a little unique that we do, and almost every property we buy, we end up when we rekey we always take the the locks out of passage knobs on the doors. And what we realize is if we. Only have a deadbolt on all the apartment doors, and we don’t have keys in the passage knobs, the lockouts practically disappear becomes practically impossible to lock yourself out. The most common lockout is when you’ve got the passage knob locked on and you walk out and then you close it and you realize you don’t have your key. Yep. It’s, you can’t lock your door unless you have your key from the exterior. When you only have the dead. And I would say almost every apartment community that we’ve acquired has had the locks in the passage, and obviously we’ll eliminate that. And so we’re always trying to think of things that’ll, the little things like that, that pay you back later. And like we, we don’t like to see garbage disposals. And so what do we do? We, instead of fix ’em, we all, we just take ’em Unless it’s required, by whatever. Water sewer district you’re in. But in, in the cases that we haven’t had anything that’s obligated us to keep them. And the tenants don’t seem to care so we’ll take those out and then, cause there’s certain things that just tend end up taking a lot of labor, like Yep. Whether it’s ice makers or you. There’s just garbage disposals. There’s certain things that tend to break and can be expensive to fix. We try to avoid those. Yeah so that’s great. We do the same with the garbage disposal, but not in all of our communities, right? Some of the communities are a little bit nicer and the people want the garbage disposals. In the lower end communities, people don’t care, so we just eliminate them. We haven’t done that, but I’ve seen some owners, and usually it’s in the C minus kind of class. They take away the dishwashers because the residents don’t use them. They use them as cabinets , so they just store stuff in them. They started eliminating the dishwashers and put in a just a cabinet in there. Okay, great. If you went back in time to Brian in 2007, what would be the best advice you can. Oh I I would say set your fears aside and stop worrying that you might make mistakes because you’re going to, but that’s okay. You know what does our friend Rod Khun call him seminars? Seminars. Yes. Seminars. So that’s what they are. And managing a property yourself is an opportunity to have a seminar every day and get some education. I think if you’re thinking about being an operator and you haven’t taken that step I think you just, you go for it. And to be successful, I think I would say, Two things to keep in mind. One would be try to be as, as proactive as you can instead of reactive. I think property managers tend to fall somewhere on a spectrum there and unfortunately, when budgets are tight, you’re always, you find yourself always reacting. You’re always like trying to solve problems. And then it doesn’t leave you the opportunity to get out in front of things and to try to push as hard as you can to stay on the forefront of being proactive and preventing the problems from happening to begin with. Management by crisis. Yeah. Yeah. And I think the other thing is that, One of the problems that’s really pervasive in the industry is that property managers and property management companies often develop this poor culture where it’s really an us versus them mentality with the tenants. And I actually think it was an advantage that I didn’t have property management experience when I started. Before I was teaching I worked in customer service area in a technology company. And I just had that mentality that, hey these are cus these are not tenants. They’re customers and they are the ones who’s paying the bills and, we’re providing a service for them and. You have to think about them as customers and you have to treat them that way. And it’s a challenge. I’ve hired people who have experience in property management and it’s, they often have that, that us versus them mentality. And I have to make sure that’s not carried into my company. You want to create a culture that’s service oriented and. If you can do that successfully, that gives you a competitive advantage. It’s not easy to do, but yeah, just think about your tenants as customers. Cuz. Cuz that’s what they are. Yeah. No that’s a another great cold nugget in this show. We don’t call them tenants, we call them residents. And I, every time I get a chance to talk to our on onsite staff, I keep reminding them that the people that pay their salaries is not the property management. It’s not me. It’s the guys out there in the unit, right? So I tell them, JC. . You walk in and you walk by an associate, they’ll lift their head, they’ll smile and say, Hey, can I help you today? Did you find everything okay? I tell the same thing to our leasing agents, into our maintenance guys. You walk down an A path and somebody and a resident comes across this your way. Lift your head, smile, wish them a great day. Ask if there’s anything you can do for them, because these are the guys that pay your salary. It takes a while. You’re right. There’s a lot of us versus them mentality out there. But kindness doesn’t cost money. Yeah. And if you’re kind, you can be firm and kind, you can be demanding and kind, but kind should be one of the ground qualities you want from your onsite staff. Any, anyone that interacts with the. . Yep. And the, we talked about a variety of things, and, for someone that’s just getting started or early in the process the adding value and the taking care of the property, it doesn’t have to be complicated either. And some of the, the, probably the. Number one thing that I look at right out of the gate is making a property clean. Painting it, landscaping, and a lot of that. When I first started out, I would do that myself and I, it doesn’t, maybe to do it at a professional level, I don’t have those skills, of course, but, I can paint and I can do some basic landscaping and I can clean. And if you do those things it really can make a property a world of difference. And you’ll find that, that’ll have probably an even better return than some of the more complicated things that we already discussed. Going back, I probably reassure myself. At an early age that hey, these are things you can do. You can go out and you can do these things and you can be successful and you can do it as well as somebody else. And you can learn as you go for the things that are more complicated. And there’s always other people you can talk to for advice. Yeah. Awesome. Brian, this has been fantastic. A lot of great information in gold nuggets here. I want you to take a couple more minutes and tell the audience where they can find you where they can get your book, which is phenomenal and highly recommended. We’ll have links at the show notes, but tell us how we can find you. Sure. You could find me on either LinkedIn or Facebook. You’ll, you could find my website@washingtonstreetproperties.com. And my book, which is Crushing It in Apartments and Commercial Real Estate, you Can, the easiest way to find that is right on amazon.com. And if any of your listeners read that book and. Have questions at the end. They’re welcome to reach out to me through LinkedIn or Facebook. I’m always glad to answer questions, but that was a two year project that I really was motivated to try to share everything I learned in my journey with people who wanna try to do the same thing. And everything I could think of that might be helpful to somebody I put into that book. So hopefully some of your listeners will find that to be a good resource. I, I know it was great to read for me, and I highly recommend it for everybody. Thank you so much, Brian, for being our guest today and for everybody else. We’ll see you in our next chapter. Thanks, Joseph. Take care. Take care.
 
Episode 103: Devin Elder
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Welcome everybody to the Apartments Operator podcast.

This is Joseph Golan, and today we have a special guest, Devin Elder. And David Devin has past experience with flipping and he’s syndicating and he is really doing a lot of great things. Without further ado, welcome to the show. Hey Joseph. Thanks for having me. It’s a pleasure to have you. Why won’t you just take a few minutes and tell the audience a little bit about yourself, your company, what are you guys doing?

Give them a little bit of background. Yeah, sure. My company is based in San Antonio, Texas. I was born and raised here in San Antonio, and for the most part have lived here most of my life. Gotten a real estate back in 2012 doing the birth strategy on single family stuff in. Saw the opportunity and potential there and just started buying a ton of rental houses and really got the real estate bug.

And so after a while I wanted to replace my six figure W2 income. That was the next milestone. And I Was able to do that in about two and a half years. Looking back, it’s, it seems oh, hey, it was inevitable. But at the time it was just a ton of hard work and burning the candle at both ends and learning and buying.

But really for me, the goal was always to end up in multi-family. I had some friends early on that were doing it, but they were like they had a lot of money and that was a barrier for me starting out. I didn’t really have any money starting out, so I did the single family route for a number of years.

Built up some capital and a track record. And then got into syndication. And that business has grown a lot in the last few years. Started syndicating, a hundred plus unit deals all around San Antonio and one of ’em just outside. So that’s where I spend about 90% of my time today is syndicate, looking at b and c a hundred plus unit stuff in my backyard here in San Antonio.

Thank you. How big is your current portfolio? How many units? 10 70 at last count and we’re adding another 124 units in probably by the time this podcast comes out, we’ll closed on it. That’s phenomenal. That’s over a thousand units. That’s very impressive. So tell us a little bit about what kind of class you guys like and what are you looking for?

Do you buy value add? Do you buy stabilized? Is there always San Antonio? Are you looking at other markets? Give us a little bit of an idea. Yeah, so our criteria, which frankly, I’m considering narrowing a little bit cause I feel like maybe we’re. We’re looking at too many deals. Criteria is really important when you set out to do this because it’s gonna dictate everything.

It’s gonna dictate, what kind of investors you have, it’s gonna dictate maybe who your legal team is, who your property management team is, who your lenders are. So we’ve focused historically on just a hundred plus unit deals, and that’s typically a hundred to. Mid to high 200 s. We haven’t really underwritten any 500 unit deals.

Those tend to be those big institutional players. Maybe one day I’ll buy a 500 unit, in one shot, but it seems to be like a hundred to two 50 right now is what we’re focused on. And these are B and C assets. And I each. For different reasons. We’re looking at 1970 to 1990 construction for the most part, on a b asset, mid eighties in a good area, I think you’ve got you can make the argument that your tenants are gonna be a little nicer on the property.

You’ve got a higher income level with those tenants and and so forth. But then we’re also seeing some of these kind of seventies sea areas where. There’s just a lot of meat on the bone in terms of the property’s been neglected or you need to re-tenant the property. So I like both, I like both strategies and have done both.

And it’s really, the whole thing as is investor return driven. So we’re underwriting to hit a certain metric for investors and then we work backwards from there and figure out, how can we conserv conservatively underwrite these things and then go in and execute a value add strategy.

The. Typical value add that we’re doing is I would say probably 6k a door all in, inside exterior interior upgrades. I would look at something a little lighter or a little heavier, but there was a deal that we did that was, north of 15 k a door. Really wild experience.

Learned a ton, but not really jumping up and down to sign up for another one of those anytime soon. Yeah. 15 Kora. That’s a lot. Are we at I, I know we have a few very heavy lifting projects ourselves, and it’s very time consuming and there’s a lot of contractors and there’s a lot of balls up in the air.

So that’s a good segue with a portfolio of a thousand units. G try to give us a little bit of a picture of how your organization looks like. Do you use self-managed, do you use pr third party? Do you have asset managers? Just a little bit of your organization. Yeah, great point. So we do, at least at this stage, we do exclusively third party.

And I think that’s a very important part of our strategy in being able to grow, is that we’re not also building a management company Now I have lots of friends that have vertically integrated companies, and I think there’s I don’t think there’s a right or wrong way. For me, it’s definitely third party is the right way because I don’t have to do HR and build out a whole other company around that.

And that’s one of the key reasons key things that’s allowed us to scale, right? So I also want to be in a position, so third party property management across the board, whole portfolio we’re using. 1, 2, 3. Three different management companies and that kind of that may not, may not always be that way, but I feel like right now I get to learn a lot from and get different perspectives, but then I also get some, it’s some accountability for them.

Hey, nobody’s got the whole portfolio and they know Devin’s got other management companies on other projects, and I feel like that’s an advantage there to keep. Keep folks honest. So that’s a huge part of being able to scale the business. I purposely set out to build a large unit count portfolio, but I don’t wanna have a lot of overhead.

I don’t wanna be in a be in a position where I need to acquire two properties this year to make payroll. I just don’t wanna be in that position. And fortunately, I’m not in that position. I have a couple other revenue generating companies that I’m in, that I own. And so if we close a deal this year, Stellar.

If we close zero deals, that’s not gonna, I’m gonna be bummed cuz I wanna buy more deals, but, there’s no big payroll number that’s waiting. So really it’s just the third party management companies. Myself as a principal of the company, I have one full-time assistant that helps a lot with, All kind of admin activities.

And then I’m hiring an asset manager for one of our current projects, but on a project basis. So they’re gonna asset manage one asset for me. It’s not a full-time payroll and the property’s gonna pay for that. And that’s, talk to me in a year, 18 months and I’ll fill you in on how that goes, but that, I’m trying to do that experiment if they don’t work out.

And they, then I, and I let them go. And then I’m the asset manager. That’s fine. But my goal is to start bringing in some asset management resources to free up my time to really focus on, finding the next deal and making sure we’re lining up the equity. So I’m at a point where I need more asset management resources.

We’re trying it out on one property, on kind of a project basis. And we’ll, we’ll see if that’s viable kind of for continuing to grow the portfolio. Yeah so you have three property management companies that you work with. How did you select them? What was your criteria? What process did you go through?

And if you can, Pick one or two qualities that you really looking for in a third party property management. Yeah, for sure. So I think the first quality is just fit for the asset and making sure that they, the management company has done similar assets and that they’re comfortable and you’re not trying to take a, a b plus kind of management company and shove ’em on some just super rough C property where, They’re not gonna know what they’re doing.

So fit is number one. And then two is just is I guess could be boiled down to responsiveness. Are the financials coming on time consistently? And are they responding to our requests? Are they making all of our meetings when we’re having our, usually a weekly call with a PM to go over our KPIs?

And so the responsiveness is one there and then they need to have they need to have a local presence where we are and own other assets in the area. I think that’s that’s a requirement that, I’ve wanted to stick to for these. So beyond that, you know what a lot of it comes down to, like any vendor Who’s recommended them?

What’s their relationship like with other people? Maybe that I already know. And that’s holds true for any vendor. It’s like you can go look in the business journal or the phone book, but ultimately, I want a referral from somebody. Yeah. And that’s always a good start when somebody refers them to, right?

You have knowledge of firsthand experience with them. What I found and I’d love to hear your insights about that with third party property management. Everybody can run a software, for property management. Everybody can pull out reports. The most critical skill that I think a property management should have is a good hiring skill.

Because I’ve seen properties rise and fall over who are the people on site that run it. Hiring and supervising their people seems to me as the most important skill in the property management. I’d like to hear your experience, your insights about that. Yeah, I completely agree and I’ve seen that play out in a million ways.

I’ve seen it play out on our own properties. I’ve seen it play it out on properties where that we’re looking to acquire that are. Are good assets. They’ve been running the ground by a couple of bad people that are, not to, everybody’s got a role to play, if somebody’s that’s an hourly person.

It, it has this massive impact on the property. I’ve always marveled at that, that we raise millions of dollars for these assets. The bank gives us another 5 million. We’ve got a million dollar CapEx budget and it’s all riding on. Can the leasing agent close a deal? There’s a lot riding on that person.

And so I completely agree. It’s the real estate’s the easy part. The numbers is the easy part. It’s having a person in there that can execute. And of course, that all comes down to what kind of hiring and training program does the property management company have. And that’s another thing that I personally just don’t wanna build out cuz I know how much work that takes to build a talent bench.

And so I think one of the advantages we have, With some of the management companies that we use, they’re active in this market. They know the assets in the market, and they’ve got a talent bench so that when we buy a property, they could say, Hey, we already have a. A bunch of applicants we’ve talked to that we didn’t hire for the last property, but we can bring them right in.

So you gotta have that deep bench of talent, and then you gotta have a regional manager that’s gonna be able to stay on top of those folks and get there. But it’s all about the people and it’s amazing how important it, let’s say a leasing agent is to, to the success of the entire investment.

Yeah, the leasing agent, the manager on site. And I’ve seen properties go, like you said, they get tanked real fast if it’s the wrong person that runs the show there. How do you, I heard you say you have a weekly meeting with them. How do you, or how deep are you engaged in the day-to-day?

Are you talking to the onsite team? Are you going to visit the property? If you do, how often? Give us a little bit of how you manage the management company. Yeah. I hired the management company and then I have some expectations of what they do, and I’ve, for the most part, Wanna let them do their jobs.

So we have the weekly call with the regional and go over our different KPIs. What was traffic like? What did what traffic sources Did those, did those leads come from, what are our conversion rates? Just kind of standard sales stuff, right? What are the conversion rates on those leads?

And then, what are we looking at in terms of open tickets for maintenance? What are we looking at as far as occupancy projections over the next, 30 and 60 days? So there’s a standard set of metrics that I wanna see if we’re doing renovations on a project, how are those coming along?

Where are the budgets coming in, what. What rent premium are we getting for our renovations and just stand on top of that at a high level. Most of that can be handled in my experience and with our existing portfolio. Most of that can be handled on those calls. And then we’re really just looking for outliers, right?

We’re looking for anomalies and those numbers. We know we said our, we’re gonna rehab X amount of units per month. Are we. Is there an anomaly there or we, or are we hitting that right? So there’s a lot of data, a lot of KPIs we’re looking at, but mostly I’m looking for the anomalies. Why is wire leads down this week?

Or, wire leads up, just anything that’s outside the norm. So that’s how I approach that piece of it. But then I also approach it from another angle that, to keep the property management company on their toes is just to go visit the property at. Unscheduled intervals and just drop it on the staff, and check in. And I’m very clear, it’s not my role to motivate the staff or to, give them, dictates I work through our regional to, to let them do their job and there’s that hierarchy. But I also do want everybody to know that Devon’s gonna pop up and be walking through units on any property at any given time during the week.

So I spend a fair bit of time doing that. I’d say there’s at least. Once or twice a month, I’m on site at every property doing that and just going through, and I like to talk to the maintenance staff kind of one-on-one and not necessarily grill them on anything. I’m not there to crack the whip.

They don’t report to me. The management company reports to me, but that individual has their, it has their chain of command and I wanna respect that, but I also want them to know that I’m on site. I’m not looking around. Or I’m not some California owner that’s hasn’t been to the property in three years.

Although I love California owners. If any anybody wants to sell me a property, by all means give us a call. Yeah. California owners and California investors, right? That’s right. Yep. Okay. And you sometimes it’s the former becoming the latter. So you are onsite once or twice, you talk to the team.

Do you bring ideas to the table or are you completely hands off with Letting the property manager do their thing. Because I can see how working with three companies, you’ll see one company do, let’s say a pool party, and you’ll suggest the other two, Hey, that works great for retention, why won’t you do the same?

So do you try to cross pollinate between the companies? I absolutely do. And that’s the, one of the reasons that I like this setup is because you’re getting different perspectives from folks. And granted if a management company’s got 10,000 units, they’ve certainly seen a lot and they’re gonna teach me a lot too.

But I feel like there’s a lot of opportunity for cross pollination in any business. Where you’ve got the opportunity to maybe get outta the rut a little bit, explore some different ways of doing things. So that’s certainly been the case for me in property management. So if I’ve got, I don’t care where the idea came from.

If it’s a good idea, let’s implement it. And if I can share that’s gonna make. Our portfolio do better. That’s gonna make, that’s gonna be a nugget for the property management company to pick up and implement elsewhere. Absolutely. I think there’s an advantage there. Now, in the future we may streamline and consolidate and maybe that’d make the asset management piece a little easier for us to have one throat to choke.

But it’s also a lot of eggs in one basket, right? So we’re. We’re enjoying that cross pollination idea right now, and we’ll see if that’s, viable in the years to come. But right now, I think we do see some of that. I’m, it’s a two-way street. I’m always willing to provide ideas, but at the same time I’m amenable to hearing stuff too, because look, if a company’s been in business 20, 30 years and they’ve got tens of thousands of units, I’m gonna listen to what their suggestions on stuff, right?

That’s what I hired ’em for. Yeah, of course. And that’s one of the big benefits I like with working with third party property management, is I get to learn a lot. Yeah. So that opens the door for me. If sometimes somewhere in the future we decide to do self-management, then I have the opportunity right now to absorb all that knowledge, all those procedures, all those ideas along the way.

Absolutely. With that said give us a few examples of just things you guys do onsite for retention or for leasing or just activities that are a little bit unique and interesting. Yeah, so we’ve done different things. We did a property. There’s the obvious stuff, right? It’s usually we have some CapEx dollars upfront for either a rebrand or some kind of exterior improvement, right?

Solar screens are one of my favorite things. It’s relatively low cost, creates a lot of uniform look on the property just to make people feel. Like they’re living in a little bit nicer place, right? Or maybe even a much nicer place in some cases if we’re doing a heavy lift. So in terms of just retention and creating the nice feel there other things like making it safe and clean, right?

That’s the standard. So if there’s a safety element there that’s been an issue, we wanna fix that as quickly as possible. And sometimes on these properties, there is so we need to go back through, and that’s not necessarily like a. Retention policy. It’s just an overall community policy. We want this to be a safe place for people to live and it, some folks just have to go to, to facilitate that goal.

So just making sure that we’re, a lot of times, amazingly, these management companies or if it’s. Self-managed when we’re taking it over. They’re not doing the screening. They’re not doing a three, three times income requirement for rent, and so you can get a lot of undesirable folks in there.

And so we gotta do a lot of times we gotta do that on the front end, just clean it up. So if that’s gonna help make. That’s gonna help facilitate that clean and safe goal. Make the property nicer. A lot of times we’ll go in through and remodel the office, make the office really nice, and so we’ll do those kind of things.

Then there’s things like resident events. We’ll do pool parties or barbecues, or sometimes we’ll pick a theme. I don’t think any of that stuff is rocket science, but, we’ve got pretty good weather right now in Texas, we’d do a spring party or a, we had a rodeo theme event.

There was a property that we was a pretty big lift. We did in a really relatively small town, and we had the Chamber of Commerce come out, do a ribbon. Ribbon cutting ceremony and everything and so just things like that to just show people that they’re that the ownership group is interested because, a lot of the times these things are just neglected and, people are carrying out their lives in a subpar environment.

So just going in. A lot of it comes down to money, right? You just come in with some CapEx dollars, make the improvements, fix what’s wrong, and then try and set up the system so that if somebody’s got a broken fan, they don’t have to, they don’t have to put up with it for that long. It’s really like super basic, but just staying on top of the stay on top of the work orders and getting those things taken care of.

We’ll also do different things like on renewals. Maybe we will offer to upgrade, a fan in a bedroom or little things like that because, it’s obviously easier for any business to keep. An existing customer than to go acquire a new customer, right? So we want to try to keep folks on that are qualified as much as possible.

And so we might have little incentives to keep them on board for, another lease renewal cycle. And then maybe that’s a unit that we don’t have to actually go in and do a full, $4,000 rehab on or even a turn on. You can just keep ’em in place.

So we’ll do little things like that where you’re offering. A relatively minor upgrade, they live there so they’re gonna benefit from it every day. And that can be a good relatively low cost trade off to keep them, to keep them in their. Yeah. So many great nuggets in this.

I want to just to emphasize a couple of things that you said, safe and clean, that is extremely important in especially a c-class environment, but in any, really any environment. We’ve had a few properties that we bought that were pitch black at night and it doesn’t cost a lot of money to put up lights and strong l e d lights everywhere.

And that immediately helps the residents feel safer and at the same time reduces your liability risk of somebody falling in the parking lot. And clean doesn’t cost money, right? You make sure that your team do grounds in the mornings and so on. So clean doesn’t cost you anything, and it really changes the atmosphere in a community when there’s trash everywhere on the floor or when it’s clean and there’s nothing on the floor.

So just wanted to reiterate what you were saying. It’s really important safe and clean. The other thing that you mentioned was making sure they get their work orders done on time. And that’s really comes down to people want to feel taken care of, right? If I’m here and I’m paying rent and something doesn’t work, I want someone to address it fast and get it done and leave the apartment clean when they leave.

So that’s definitely another important piece in, in what you were saying. And then lastly, I like what you said about the renewal. We take it a little bit further out and we look at the major items that are in the apartment and if the carpet is torn or something is not working and they just never report it to us, right?

We try to walk the unit to our 90 days out before the expiration, so when we do have the conversation about renewal, it’s talking about. Okay. We saw your carpet is torn. We’re willing to go ahead and upgrade that for you or change it for you. If you renew with us for another year, and the math is very simple.

If they move on, you’re gonna have to do the carpet anyways. Yeah. So might as well go ahead and do it. Give them the feeling that you take care of ’em and get a renewal for another 12 months, hopefully with a little bump in rent. Yeah, absolutely. Yeah. If they move, they, you’re doing the carpet and you’re probably doing a lot more than that.

Exactly. You may capture that rent bump, but you just spent a thousand dollars, or three or $4,000 for a nominal rent bump. It’s definitely worth it to take care of your people. I like that. Yeah. You do a lot of value add, right? So can you tell us a little bit about one project that you had what, how did it look like when you came in?

What did you guys do to the property and what was the outcome of it? Yeah, man. I find myself as the years and the projects go on going after things that are less and less value add, right? Like they’re all value add, but I’m like a five or 6K a door guy Now. We’ve done some stuff with heavier lift.

So the, there was a project we bought. Last year I was closer to 10 K at door. Was I have to pull up my numbers, but it was around there really interesting property. It’s gone we’re stabilized now, so I can, laugh at this stuff, but it was a freaking heavy lift man. It was lot of section eight.

It was Sh you just cut to the bone expenses from the ownership group, right? It was a It was a family type deal. The uncle was doing the plumbing and the son was running the management. The dad was cracking the whip but, very little expenses. And then it was also a, it was 106 units at a takeover, but the property was built in 1974 as 130 unit property.

So somebody had converted it ostensibly to capture some kind of section eight. Rent deal on a four bedroom. They’re calling it a four bedroom. But you had these crazy units with spiral staircases in between ’em, and it was just a circus. So bought that. Long story short, converted it from, a lot of Section eight, all bills paid property to at, 106 unit Section eight, all bills paid to 130 unit market rent.

Residents paying utilities. And so there was a lot, there was a lot to change during there. One of the nice things about that particular project is we got the loan, but we actually had the CapEx, was was cash. So we were able to go in like really quickly and not worry about bank draws and just knock out the rehabs.

But it was an interesting project taking, doing all the unit conversions and everything and having a re-tenant the property during the process. So it was pretty wild. Pretty wild ride, but it’s stabilized now. It’s producing. Good cash flow, we’re, we’re hitting our proforma that property we ma may actually sell a little bit sooner than the five year projected hold period.

And that should do real well for investors if we do that a little sooner than anticipated. But it was everything. I think you just, you have to budget for a lot of economic vacancy when you do a project like that because, the property was 92%. Physical when we bought it.

And that looks good. And the broker’s gonna trumpet that and you might be able to get a loan on that too, right? But ultimately, if you’ve gotta in on a property, a lot of times you don’t know how you know how low you’re gonna have to scoop on that occupancy. And it’s, it can be pretty wild, so you’ve gotta really understand how low you’re gonna take that occupancy and make sure you raise enough money.

If you’re doing a syndication to float any type of occupancy challenges that you’re gonna have while you turn it around, cuz rule of thumb is it’s gonna take longer and cost more than you thought, right? So you try to pad that as much as possible and it could be a real balancing act.

When you’re doing a retenanting like that, you’re doing a lot of construction. You are you’re still trying to run the business. So you’re just adding like layers of complexity and I think you just have to be up for that. One of the things in my background was I started out flipping houses, and I was flip one, two, and I got up to a point where I, I had 20 flips going at a time, and so I had to really develop a lot of systems and processes and tolerance for that kind of craziness.

And I have that tolerance and that skillset. So I think that translated well to doing like these big big renovations on apartments. That sounds like a hell of a ride. You touched about two different terms in your answer here, and I want to take it back a little bit for the people that don’t know the terms.

You mentioned physical eco occupancy versus economic occupancy. Can you give the audience a couple of words about the difference? Yeah, physical just means that let’s say a property is a hundred units and it’s 90% physical occupancy. That means there’s 90 of those units have a person in them, so they’re being physically occupied.

They’re not empty That seems good. And I think, sometimes the conversation stops there, but really, who cares how many bodies are in units? You wanna know who’s actually paying rent. And so that’s economic occupancy. And you could have a property that’s 90% physical occupancy and 70% economic occupancy, and that’s the real number.

In fact it’s almost better in some cases to have an empty unit. Then to have somebody in it that’s not paying, because they may trash it, you’re, or you’re gonna have to go through an eviction process that costs time, money, and energy. So sometimes just having bodies in there is not enough.

And on the buy side, you gotta watch out for that too, because sometimes owners will just fill up a property with bodies that are. They might be paying their rent today, but they don’t really qualify. And then you got a lot of what I would call professional tenants. They know all the ins and outs of how to skirt the legal system and drag things out as long as they can.

And so you just gotta be aware of that stuff. Physical occupancy, that’s great that there’s bodies in there, but you really need to know what, how many of those people are paying rent. And sometimes on the value add deals, those numbers are very far apart and it’s can be a shock, I think, for some people to take over a property and just watch that occupancy go.

We had one property that was 75% physical at takeover pretty bad already. And economic was a little lower than that. And we had to take the property down to 58% occupancy before we started climbing back up. And so you’ve got a model being able to go down. To, to that occupancy before you bring it back up.

And so on that particular project, we modeled 30% economic vacancy for all of year one to say, Hey, we’re gonna have to take it from 75 down into the fifties and then back up and over a whole year we’ll be, we’ll be better than s than 70%. But it could just be, it’s just gotta be some something you gotta be just ready for, if that’s the kind of property you’re gonna take over.

Yeah we’ve seen that before too. And in case the audience doesn’t understand, why would an owner do that? Th there’s two main reasons. One, as you mentioned evicting people, cost, time, money, energy, and so on. And then the other side is when a buyer wants to get an agency loan, they usually require property to have 85, 90% occupancy.

So the sellers know that. So intentionally, They don’t evict people. And unfortunately we see that a lot more in the C class environment. And the only way to mitigate that, like you said, Devin, is to underwrite for that, underwrite a 30, 40% economic vacancy in year one, knowing that not only all these people will have to go because they’re not paying, but there will also be elements on the property that you don’t want to keep, you don’t wanna renew.

And you’re gonna have to evict those two. So we also had a property that when we bought was in the low nineties occupancy and very fast we got to 64% occupancy. Yep. Between the people that we showed the door to and the people that left. Big jump if you model for it.

It’s okay, but if you didn’t model for it, that’s, that could be big trouble. Yeah, exactly. So that’s a really good distinction. So tell us a little bit about three ways that you guys like to increase income that is not raising rent. Yeah one, one that we did on the property that that I mentioned that was a heavy lift, we actually didn’t model any rent increases.

We modeled some modest year over year rent increases, kind of inflation type stuff. But we basically, the business opportunity was to shift the utilities, so it was effectively raising rents. But we went in and did a rehab on a unit and said, we wanna be able to lease this for the same amount.

But just have the tenant pay the utilities. So that wasn’t strictly a rent raising play there. Although effectively for the tenant, they’re paying their bills so their rent did effectively go up. But, we’re able to market the property at a pretty affordable rent. And then also that shifted like, $200,000 a year off the property’s expenses.

Right? Which is a huge impact on our net operating income. So that’s that was one way that we did it on one property that Was not strictly raising the market rent or raising the advertised rent. One of the other things is just trying to tighten up utility expenses that might be switching over to l e d lights things like that or doing some kind of the water saving shower heads or low flow toilets, those kinds of things.

If the property’s in, if the property’s paying any of those utility costs, trying to reduce those as much as possible. And then just trim, trimming fat on the expense side. I think the question was on increasing n O I or was just increasing income. Increasing income. There’s a follow up about expenses.

Okay, gotcha. Yeah. So income it’s tough cuz it’s, a lot of it is just really about that rent number, right? And trying to get the product to where it’s gonna support a higher rent based on that renovation. So there’s there’s not a whole lot I would say that we do, that are big secrets in terms of raising income.

There might be little things like covered parking that we could do. For example, we’re buying a property right now that’s got ma, overwhelming majority of the parking spaces are covered but they’re not assigned and they’re not charging anything for it. So that’s an easy revenue opportunity.

It’s not gonna be huge, but it’s a revenue opportunity that’s already in place and we don’t have to. Build the covered parking like it’s already there, you just didn’t have an owner. That’s paying attention to those kind of things with the level of detail that we will, because at the end of the day, we gotta make the money for the investors.

So we gotta watch all that stuff. Whether it’s trash valet service and we can get a couple more dollars here, or it’s covered parking and at the end of the day, it’s not trying to nickel and dine tenants, it’s trying to provide value. How do we provide value for people so that they wanna stay, they wanna refer their fin, they wanna renew.

So if having a trash valet is a valuable thing for residents it might be not much skin off their nose to pay a couple of bucks for that, but times a hundred units, 200 units. You start to see a real impact on the net operating income. So little things like that. Covered parking, trash, valet. We’re starting to look at some storage options.

I think we’re gonna pull residents on one property where we’ve got some space to maybe build some storage and see if there’s, I’m not gonna go build it and then try to sell it. I’m gonna. Pull the tenant base first to see if there’s any desire there to pay a couple of bucks a month for some onsite storage.

But we haven’t implemented that. So I, I’ll have to follow up with you and see if there’s a revenue opportunity there. Yeah, that’s a good idea. It also increases the stickiness of the residents, right? Yeah. So if that resident has a, an apartment and a storage unit and he thinks about moving, now he needs to realize that he is gonna have to move the storage unit as well.

And it’s a lot more painful to move out so that, that helps with retention as well. Yeah, that’s right. Great. What advice would you give a new operator. Yeah, I think depending on what kind of asset class you’re going for I think it can be real important to try to get in a deal with somebody else that’s much more experienced.

And I think there’s there’s certain things you’re just gonna have to learn on your own, but if there’s a lot of other things I think you can learn by. Partnering or at least having somebody on the team that has a lot more experience. Maybe it’s just bringing somebody on and bringing somebody into your deal really as more of an advisor.

Or maybe it’s just getting on somebody else’s deal that’s running it in a smaller capacity, just so you can start to learn the ropes, because it’s not rocket science. It’s not a, it’s not an incredibly co complicated business. It’s just math and, Just housing and some construction and stuff like that.

But there, there is a lot to learn for somebody that’s new. So I always recommend that people don’t try to go out and do a big deal on their own. Try to get into a big deal as a, in a small way, if that makes sense. So get on a big deal in a small way. In some way, shape, or form. And then that’s gonna give you, going through that is gonna give you a level of comfort.

And it’s, I always say that there’s like a, in terms of learning something, you can get about 50% of the way there from books, podcasts, coaching seminars, all these things. But you’re really never gonna get the other 50% of the learning until you go do it. So if you can get into a project with somebody, or even a step before that, if you can just passively invest in somebody’s project.

You put $50,000 in somebody’s project, that’s not gonna give you an all access pass to call them twenty four seven and ask every question. But it will give you a look at the deal and the financials and you can ask the sponsor a reasonable amount of questions. And that’s the easiest way.

And then I would say try to get onto a deal. On the management team in some capacity, and then just grow into it. And then eventually, a person will understand that they, where they are and are they ready to take the next step into a full-blown, operating of the apartment complex.

I also do recommend third party management because there is so much to learn in property management that I just don’t think you’re gonna learn from a class or a course or anything like that. And I think it’s too, My personal opinion is it’s too much to go out and try and figure all that stuff out on your first deal.

Figure out property management, figure out raising capital, figure out all asset management, all this stuff. Those are all like, skills that take time to learn. And so I, I always advocate a third party management company so that you don’t have to learn all that stuff and reinvent the wheel.

Yeah I tend to agree with you. I would say if it’s a 10 unit or a 20 unit, maybe you can take on self-management. Yep. But if you’re going over there to the big ones, definitely take somebody that has experience with you. That’s a really good advice. Soho, I like to ask my guest is if you could go back.

10, 20 years in time. And you met young Devin, right? What would you tell yourself, what would be the best advice you would give yourself? Yeah, there’s two tracks. One is or two options. I guess one would be, Hey man, keep having fun. Doing what you’re doing while you’re young, cuz you know you’re gonna have a lot of responsibility one day and now’s the time to freaking live it up.

And I did when I was young and I have no regrets. And now I do have a lot of responsibility, but at the appropriate time in my life, I’m 40 years old. I have all this stuff that I need to manage, but I, I enjoy it. That’s what a four year old guy does, business, that’s like my favorite thing to do.

So I think, Youngme. Had a lot of fun and I, I leave that in the past, but, if in terms of imparting a nugget, I, real estate wasn’t even really on my radar until about 2012. And I had just a massive learning curve and I didn’t start with any capital. So it was like a ton of work and nothing wrong with hard work.

But, if I would’ve known when I was 20 years old that, hey, you can start learning this multi-family business, learning different aspects of raising capital and managing properties, and then starting to. Network partner, meet other people. You don’t have to go out day one and have a 10 million net worth and a million bucks in the bank to go buy a property.

A lot of times you put these things together with partnerships and you can learn and grow through that. So I think. That’s what I’m teaching my kids now is with some single family stuff so they can at least start to learn the business, to give them tools to build their own portfolio.

I think if I would’ve had those tools a lot earlier on I think that could have shaved a lot of the heartache and learning curve. But at the same time I don’t regret anything in the process. All the challenges and everything. That’s just all part of the journey.

Yeah. And we grow and we learn from every one of those, right? Yeah. Yeah. No, I keep saying that. If I could tell myself that 2008 was the bottom right, that would be great. But no. If you’re not allowed to say that, then I would just tell myself to skip the singles. Cause I also started singles.

Just go straight up to multi-family. That would’ve completely changed the trajectory of where we are today and where we could be. Totally agree. Everybody has this natural knee-jerk reaction to start small or even start with I’m gonna start like, I started with a six unit. It’s just, it’s, it felt like that was the natural thing to do, but there, you could spend a lot of time in, in that and it’s maybe sometimes not even necessary.

I agree. Great. I want to thank you so much for being with us today and can you tell our audience where they can find you if they wanna talk to you or invest in one of your deals? How can they find you? Sure, yeah, I’d welcome a call. You can go to the website, which is dja texas.com. Not to be confused with another great website that you operate, Joseph, but ours is delta, juliet echo texas.com.
That’s the company you can see, all kind of stuff, videos, everything. And then there’s, if you spend enough time on the site, you’ll figure out how to book a call with me, and I would welcome that. Great, and we’ll put links in the show notes for that. Thank you so much for being with us today and we’ll look forward to talking to you again in the future.

Excellent, Joseph. My pleasure. Thanks for having me on.
Episode 104: Dave Childers
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Hey everybody. Welcome to The Operators podcast. We’re talking with multifamily operators, and today we have Dave Childress from Tennessee. Dave, welcome to the. Hey, thanks for having me. I appreciate you having me on today. Yeah, absolutely. Why wouldn’t you take a couple minutes and tell the audience who you are, what you’re doing and why are you here on the podcast? Yeah I’ve owned a multi-family for a little over 15 years, and I love this podcast specifically because it’s talking about operations, and that’s where I got my start was I bought 114 unit complex and I spent every day on it for many years, mowing grass, operating it, managing it, leasing it during the downturn of the economy. So really I learned. The business. I tell people it’s the NBA I got from actually running the property and living to tell about it. It was not a magical business at that time. Just survival was everybody’s, name of the game at that point in 2000. 10, 8, 9. So I really learned everything from being on a p on the property dealing with tenants. We were just talking about that this weekend is, you’re dealing with tenants lives and if you have a thousand units, you have a thousand family units, right? So the operational side, and I’m very passionate about, I actually teach a lot of asset management classes here in Nashville. Just talking about this specific thing, because I think it’s something that people leave out. They think they’re gonna raise capital, go find a deal and it’s mailbox money. And you really, mostly if we see another downturn, you’re gonna have to be prepared to react quickly to lowering rents or working with people and trying to keep ’em in. And so yeah, I’m very passionate about the subject, so I’m very excited that you are diving into this subject and having guests. And I hope people listen to this podcast for that reason so they can get educated on some of the tick tricks of this trade. Yeah. You nailed it on the head, right? It, for me, it’s it’s not all rainbows and lollipops. It’s not all gonna be awesome, all the. and you’re not just raising money to buy a building. When you raise money and you buy this property, you’re also buying a lot of people that you are working with and you providing shelter to, which is one of the most basic needs. That’s why I created this podcast because a lot of the education out there and the podcasts and the websites and the books are focusing on the. To get to the closing table and they forget to mention that after that sprint, there’s a whole marathon of a few years where you’re gonna have to take care of a property and the tenant and everything else. Yeah. . So I heard you say that you were mowing grass and everything. That leads me to one of our most common question is third party or self-management. Sounds yeah. So yeah I kinda leveraged my time to get in this business by, using my, leveraging my time to to find partners and that was my responsibility was to manage it. And that’s how I got. I never want to go back to managing. It’s but it taught me great lessons on how hard it is to sit there and manage a property and deal with these lives and, people’s drama that comes with it. So it made me appreciate my managers, my leasing agents, my maintenance guys. The maintenance guys are your front line, right? And so having good maintenance guys with great personalities that can, I told, I used to tell ’em, you’re, you gotta talk these tenants off the cliff, right? You can make ’em jump or you can make ’em walk back. And how your attitude is, if you’re letting them know that you’re gonna take care of things and everything will be all right and we’re gonna fix it, that’s one thing. Or you antagonize it and make it worse. Yeah. So self-management this property I was actually referring to that kind of gave my my. I got a HUD loan on it, and when HUD came in said, Dave, we’re gonna give you the loan, but you need to find third party management because you are not so good at this. So I I, it was great. It’s been five years now that’s been under third party management and I would never wanna take it back. They’ve just done a tremendous job. . But I’ve had to learn now how to asset manage, right? So you go from being a manager and now you start hiring management companies and you have to know what to expect from them and how to direct them and, making site visits and so there’s a whole nother skill you have to learn. So that’s my evolution and I started off with duplexes have scaled. Sold the duplexes off, but have definitely, if you find the right management company, it’s a it’s amazing. Yeah. And I’d love to dig a little bit deeper into that in a second, but I wanna address one thing you said and ask more about that. You said, I don’t ever want to go back to it. I would go back if I had to, but I don’t want to. Our experience when we talk with other operators is that everybody starts off backwards from you, right? They start off as a third party management, and then as they grow, they switch over to self-management because they feel they don’t have the control or the quality that they’re looking for. And you’re saying the opposite completely, maybe because that you started at management. Tell me a little bit more about that shift that you made. I know HUD made you, but other than that, Why don’t you want to get back to it? Or are you not yet at the scale where you want to get back to it? So where are you on that? Yeah. I don’t have enough doors centrally located to really, I don’t think, build my own management company and have it make sense. And I think for me I know my. Skills and my weaknesses and managing people is really not a skill of mine. And it’s really something I don’t wanna do. So I would rather third party have third party management and not have to be managing managers. It’s just where I’m at. And you’re right. I work with different people to have. 15, 20,000 units and they, build their own management company. And I think they have the scale to do that. But for me, I think my time is better spent. Go back. I’m a multi-family broker too, so I spent a lot of time brokering properties. But it’s also my time is better spent looking for deals than actually managing managers and management. So I guess I, I’m try always trying to eliminate the jobs I have, and that’s one that, you know, and mostly if you’re buying for, I bought one in Florida and they’re not all again, centrally located. If I think if I had a management company, I don’t know, maybe I’m wrong, but I can hire in different regions for whoever the good players are in those markets versus trying to go into market and learn it and experiment with a my own management company. Okay, so let’s dive right into that one. How do you hire a property management? What are you looking for? What are you asking? What’s important to you in the management partner? . Yeah, one thing I think is o obviously if you’re buying a C class asset, making sure you’re finding a management company that, you know manages C class assets. Cause we’ve run into that where we’ve hired managers on different properties that have come from an A and they wanna make your C class an A class, which is never gonna happen. And I think that goes into, what their past experience is, the management company. Regionally, are they, do they have regionals? Do they have extra help in the area? The one management company now that I use for this big 114 unit, they, they just do the county that we’re in and they have about 4,000 doors in that county. So they have a lot of help. So that one, one property, if it needs an extra assistant manager or our leasing agent or a maintenance guy for the day, cuz the property has a call out, then it’s very easy for them to, pull somebody over. So that was definitely important. Thing I think about is what else do they have in the area, when it comes to contractors, do they have subs that are on their list that they have a history with that they can call in to, to do some of the work? So tho those are some of the big things I’ve looked for in the past. Okay. And, A lot of companies out there are in the 46,000 units range, which is what we like the same. How do you really tell if they’re good or not? Are you asking for references? Are you asking to see somebody else’s rent role? Yeah, that’s, can you go about vetting them out? Yeah, I mean that, you know what’s funny is when I bought the property in Florida, I think I reached out to about 10 different property management companies. And the one we went to with, actually, they followed up with us, which I was super impressed with. A lot of ’em didn’t even return my phone calls, so I guess I just crossed ’em off the list from that alone. But yeah, I. Maybe even getting I know what I did is I got a list of properties that they managed and actually drove the properties without them, knowing that I was gonna do that and got to see how the property presented itself when I just went through and looked at it that way. And we did, we called a lot of people and verified that, they would continue to work with them, okay, great. Describe your operations today. Just so the listeners will have an idea of how many units, how many regions. It sounds like you’re in multiple states. And how does your team look like? Or is it just Dave is the team? So I’m the team. I’m the team. I’m the team. Everything. Yeah, I guess what I’ve done different is I’ve partnered one-on-one with a lot of. And then a lot of things, a few things I own on my own done one syndication. So I think the portfolio’s only like 300 and a little over 300 units, maybe a 30 million total. And I own about 80% of that. So there’s some that I own on my own, some that I’ve syndicated, some that I’ve partnered one-on-one with guys, so it’s just me right now. That’s kinda the plans for 2020 is to really grow it, go out and. I think I mentioned I was a broker, so I spent a lot of time brokering. And the plan is to remove me from that day to day and really get in the car, go meet with brokers go, view more properties. We’re in the kind of a refinance stage right now with some of our properties, which gonna make us a little bit more liquid to, to actually go out and I was just on the phone. A broker about a 36 unit here in Tennessee that I’m very intrigued about. Today’s Thursday, I’m hoping to drive over there on Monday and take a look at it. Yeah, I’ve brokered almost 500 multi-family deals since 2011 and that’s just consumed me and I really wanna get back buy more assets. So that 300 unit portfolio, how many properties, individual properties, let’s see. 1, 2, 3, 4, 5, like six, six properties. Yeah. Okay. So they’re medium sized properties for the most part. Yeah. So that brings in another interesting aspect of operations. When you have a smaller property, like a 1520 unit per property, you can’t have onsite manager and onsite maintenance people. So how does that changes the dynamic you have with a property management? Yeah, so 114 we’ve got one manager, one maintenance guy, 86. We have one maintenance, one manager, 56. We’ve got a mom I call a mom and pop team. It’s a husband and wife that work about 30 hours a week, and they’re pretty much able to do everything on that property. Your cost per unit when you’re running it that way, the expense goes up. So I have a 14 unit in downtown Nashville, and. It’s managed by a real estate company that kind of, they trade it more like a single family home or a duplex wood. They charge me an 8% management fee, and then they charge me a lease up fee when they find a renter. But yeah that, that smaller property, that 10 to 60 unit is, it’s. It’s definitely interesting in how you have to manage that. If it’s in a big city it’s easier, but if you’re buying maybe on a rural market, it’s really hard. And we’re always coaching people maybe to find a tenant that lives there that can help you out. And cuz it kinda get quite expensive, if you had a 50 unit and you’re having to pay 8% or pay a full-time person, it, it really can kill your deal. Yeah. Financially. And then I do own, I think I was mentioning a duplex in a single family home this year. We’re gonna get rid of those just because of the management intensity of those. So I’m actually putting out some videos on my Facebook page, just, Came in after 4th of July and keys were slipped under the door from this duplex. They moved out in the middle of the night or on the weekend. And just, that’s like operational stuff that people don’t wanna really talk about. Yeah. . Yeah, I know. I hear you. So it sounds like you’re working with multiple property management companies. Let’s take a step out right now and talk about the asset management side of things is how does your asset management structure look like? Do you talk. All the property management once a week or once a month? How does that look like in your world? Yeah, it just depends. Some properties are, they’re on autopilot and the managers are great and I talk to ’em once a month. I get their Monday reports and I look through their Monday reports and if I don’t have any questions, it’s pretty straightforward. I don’t need it. And then there’s some that are a little bit more talk to ’em every other day. And I’m probably doing a little bit more than I really want to on those, but that’s the stage that they’re in. The one that I’ve owned for 15 years it’s, again, it’s on autopilot for the most part. Once you take your eye off the ball right, then it goes, away. Making those site visits without them knowing is something I do. I’ve got, like I said, I’m a property in Florida and I have to fly down there and nobody knows I’m coming until they see sitting there waiting for them. But, Monday reports, financials that you get from your PR property management company, at the end of the month, we’re always looking through those. So that’s more on the asset management side, but yeah, we’re working with multiple management companies and some do one thing great and another thing bad. So it’s so you, again, you learn what your expectations are, but the Monday reports are key really to know what’s going on at the property for the previous week. Okay. And for audience that doesn’t know what a Monday report is and every property management is a little bit different with the report. Tell us a little bit about what are you looking for and what is that weekly report you’re talking about? Yeah, they can get it as extensive as how much they’ve actually collected for the month. So we can still see what’s outstanding, see what coming is coming, vacant, how many units are occupied how many are rent ready. I like for them to all put my, the renewals that they have for the last week cuz then I can see trends, if they’re renewing their leases and rents are going up. Then maybe on those vacants we can, we. Do a little rent bump. But it really gives you just insight into how many leads they had, how many people the number I really look for is how many people they turned down. , right? Yeah. On their applications. Cuz if they’re bringing 10, 10 applications in and they’re approving all of ’em, then there’s something wrong. So I wanna see that they’re, you’re actually screening tenants and turning people down. That’s always a good sign. They’re putting in there where they’re getting their leads from, right? Facebook marketplace or signage or drive-bys or whatever. So you learn a lot from those reports that give you the ability to steer the ship as an owner. And which one you want to go. So it’s also good to look for where’s your roi, right? So we’ve used apartments.com and apartment finder and all different online marketing techniques. And if we don’t get that report coming back saying this is where the traffic came from, ’em, we don’t have a way to value if our marketing dollars are spent. That’s why we also track these things to see what’s going on. We also see the, it’s like a funnel, right? You have traffic, you have applications, and you have how many leases. And if there’s a really off ratio in any one of those stages, then that’s where we dig in. For example, if I have a hundred people in the traffic, but only one applic, Then we got a challenge with our leasing team, probably because either they don’t market correctly and everybody that comes in saying that’s not what you marketed, or They don’t know how to convert a traffic into an application. But sometimes it’s not their fault. Sometimes it’s something on the property, right? And that’s where you wanna claw out of them, right? What is that issue that they hear from prospects? So we can handle that and they won’t have that issue anymore. Yeah. And I’ve had property management complain to me that, this unit’s not leasing up and they, call me two months later and tell me it’s because of this, washer and dryer. What would it cost for us to install washer and dryer connections? Again that’s information I need to digest and come up with a solution to that problem. We found some little units that you can stack and put on a little dolly and hook up to your sink and do all the washing dryer. And I don’t even mind buying those. I think they’re $800. But if it’s gonna land me another a hundred dollars a month in rent or $50 or even just keep a good tenant there, I’m willing to do stuff like that. But it’s that information. That I need from the property and from, like you said, the leasing agent, the management to, to determine those and make a good business decision. Yeah. And you’re funny about the talking about the return on your investment for advertising. Before I was sophisticated and now I’m sophisticated now, I, when I was sitting on property, I would list out all the places I was marketing the property, apartments.com, $800 a month balloon. $10 a month, right? Yeah. , Craigslist add zero zero. I was getting 90% of my leads from putting balloons out so they knew somebody was sitting there and then Craigslist ads and so I eventually just got rid of apartments.com and a lot of those expensive at that time, rent.com, which was part of eBay. Would charge you four or five or whatever, 50% of the rent. And it was very expensive. And so I just started saying, man, we’re not gonna do that stuff. We’re just gonna grass or just do the grassroots type thing. We’re by a big university, so we’d go out and pass out biscuits to students and, just go to Laundromats and pull the little tabs, the pull down tabs. And I always used to say we’re not trying to get a $600 renter or a thousand dollars a month renter, we’re trying to sign a 12,000 or a 6,000 annual lease. So if you put in that perspective but yeah, definitely tracking where you’re spending your marketing dollars, and that’s right. Right now I’m a huge fan of, Facebook marketing, setting up a page for the property and boosting ads, boosting post and pausing it and targeting and there’s so much you can do with Facebook advertising that now people are catching on. But we’ve been doing that for a couple years now and it’s a great tool. Yeah. Facebook marketplace is one of our biggest drivers of traffic. And you mentioned biscuits. We do donuts, right? Yeah. And we’ll go to firehouses or police stations or nursing homes and just walk around with donuts and some flyers. And everybody loves donuts. That was one of the things we really did when the economy was bad, is we’d go to the good tenants and say, Hey, we want your friends to live here and we wanna reward you. You know what? Don’t you wanna make two or $300? And so we would do that. So we’d have, 10, 15 maybe not 10, 10 to five to 10 units full of maybe one, one company where all these people work together and they were just referring everybody. And so that’s, that goes back to taking care of tenants, right? Yes. Taking care of ma maintenance issues. We could just talk about tenant retention and just taking really real good care of people and the customer service aspect that keeps your tenants in place and makes ’em live, in the same, home for 20. And then we don’t have to talk about turns, and you’re still taking their rinse up slowly. Tenant retention is huge. And just I’m a huge fan of being a good landlord, good multi-family owner, taking good care of my tenants because they’ll take care of you. I’m smiling here because it’s like you’re reading off of my list of questions. So you’re just curious. I told you man, I love the subject. I love the subject, I love teaching it because, as a broker I’ve seen bad owners, a lot of bad owners and I’ve seen a lot of. Us make money off bad owners. And man, I can, I told maybe I’m not gonna share that story, but there’s some landlords in this business, honestly, they should be in jail, is my opinion. They don’t take care of their tenants and that’s not what we’re here to make money, but we provide what you said, like a service. We’re providing them, housing their home and I respect their home and I wanna take care of their home. And I know if I take care of their home, they’re gonna take care of. And so it’s a huge subject right now, man, because I if you’re overpaying for something right now in apartments then that’s where you’re gonna start trying to make up numbers, right? Is spend less time maintenance and upgrades, and you’re, you or I see owners as. taking out all that money and maybe sticking in their pocket and not reinvesting in the property. And that’s very frustrating cuz that’s not how the business is supposed to go. Yeah. So let’s go deeper. What do you guys do on your properties? To increase retention. Oh, man. Events, parties, yeah. You mentioned a referral program, but anything that our listeners can take and implement on their properties, definitely adding, cheap amenities if we can. Playgrounds, dog walking areas, dog, p dog areas. It can be as simple as one of my properties added a coffee station in the office, right? Free coffee. And she said, it’s funny how many people stop in here every morning to have. Get their coffee and we have a variety and all the little goodies to go along with it. Little things like that. Birthday cards to, to tenants and their kids. C summer parties, all by the swimming pool. Any kind of community event that you can add like that book clubs, DVD clubs. I think that’s probably on the way out. But a lot of those things, it doesn’t take, you don’t have to add a million dollar swimming pool like my friend just did. If he ever listens this, he’ll laugh. But you can spend, a couple thousand dollars on a nice little playground. So there’s a lot of little cheap cheap, affordable amenities that you can add to make people feel like they’re part of a community and. Wifi in one place we have’s got a real nice outdoor seating area, so we have wifi there and a lot of the kids come after school and hang out in these Adirondack chairs and sit around and are able to log into the internet and right there by the office. So that’s been a big hit for that property as well. Yeah. It’s funny you mentioned that, but one of the affordable amenities that we found is a hundred dollars popcorn. Oh yeah. And it’s funny because it’s great for leasing. It generates really good smell in the office and process can get it. But we also tell all the kids on the property when you come back from school, just swing by, grab a a bag of popcorn and they, a lot of them come in. And I don’t remember where I, okay now I remember a good friend of ours, Maureen Miles. Oh, yeah. She’s the one that told us this little secret. It’s kinda like kids come in and they talk , and then you learn who’s doing what on the property and where. So it’s also a next job, added bonus on the back end as well. But I’ve been in the office when they come in and get some popcorn and the mom is in the background and when that kid gets all smiley with a back of popcorn, that mom automatically smiles as well. that goes a long way to what you just said about making them feel a part of the community, making their feel that they’re, somebody cares about them on the. Yeah, I’ve seen ’em. Do you know, Christmas decoration awards, Halloween type things and the coffee, cure. I’m sitting here looking at my cure egg, they’ll have a cure egg machine in there with hot cocoa, different types of coffees, teas. Yeah, so there’s a lot of little things like that, just connecting with your tenants, knowing that we’re not just here to take your money. That we really do care. Renewal bonuses, that’s an, actually, let’s talk about that. Doing something to improve the unit as a, to keep a tenant and retain, retain that tenant. It could be changing out the mini blinds or putting up ceiling fans, just cleaning their carpets. That went a long way. Yeah. Back, just saying, Hey, we’ll, you sign a new lease, we’ll come in there and put new blinds, cost us a hundred dollars and then get your carpets cleaned. And they just, the tenants have lived in it for six years. And you’re cleaning it every year. It just helps you, right? Yes. And just taking care of tenants is the, is a huge thing. . Yeah. One more thing, you mentioned holidays and stuff like that is on Halloween, we basically ordered a $20 worth of face paint kit from Amazon and send up a flyer saying, come on in and we’ll do face paint for you. And, kids come in and, get a little bit of face pin and everybody’s happy and they can go trick or treating with this thing. And it’s. . It doesn’t have to be expensive. Yeah, no, you’re right. People don’t expect necessarily expensive, big grandeur things. It could be a small thing as a $20 face paint kit. And as an owner and as a community, you also get a lot of pictures of kids getting into the face paint and all that. You upload that to the community website and the Facebook helps with marketing, helps with traffic, helps with everything. Like you said earlier, if you give, you’ll get back and that’s, yeah. And back to the gift card too. We used to do like an early bird special, right? So if you got your rent in before the first of the month, you were entered in for a, $25 gift card. To early bird. And another thing about the gifts too is if you do a party, like we’ve done a few in the summertime, we’ll get all of our vendors to give gifts, right? Yes. Or give some kind of prizes so we don’t even have to buy ’em. We get ’em to go down and get gift cards from Starbucks or the pizza place that wants to market on our property and come and pass out flyers. Yep. We’re gonna ask you for some free pizzas for the party. Lowe’s, some of these vendors we use, we offer, we ask them to cough up, some of these, it doesn’t ha like you said, it doesn’t have to be hundreds of dollars, but, and so they pretty much pay for some of these parties as well. Yeah. At and t Cricket, wireless cable companies, these are all great. We even had a hairdresser come out for a back to school event and give kids free haircuts. That was really great. So you’re absolutely right. Sometimes you can even get somebody else to pay for. . So that’s really great. So we set up a model unit one time and just, we only needed it for three months. We were just in a lease up phase and we got one of the local, , rental furniture places to, to put the furniture in there and, their flyers. We were giving ’em out to every tenant that moved in. And we sent them quite a bit of business for just allowing us to set up for them bringing, just a few pieces of furniture to furniture unit, make it look like a model. So that was another way, to get some tenants. And we didn’t have to spend any money. Yeah. That’s fantastic. I think our listeners are getting a lot of great ideas today. You went that route and then stopped yourself, right? So give us a little bit of a horror story and then a funny story, right? Because I know you have a lot from both. Oh man. What can I share? Yeah, let’s keep it PG 13 And geez, I’m trying to think. Horror stories, man. I’ve man, oh, you put me on the spot here. Ob obviously doing eviction set outs, people trashing units. I’m trying to think. I, again, I’ll refer back to this story, just even this year, 4th of July coming in and there’s keys, underneath the door and I go and find this unit vacant and middle of July or, into July. I had to spend about $5,000 to turn that unit that wasn’t planning on it. I hate things like that. Horror stories, funny stories, man. I’m trying to think. I’d say sometimes bugs, like the bedbugs gross me out. Roaches, you open a door and they fall on your head, right? Cuz they’re in that crack above the door. That’s probably the grossest thing that I can talk about here that we’ve had to deal with. But lot of filthy people, I’ve learned that in this business a. Female college girls are gross. I learned that. I they don’t know how to run a vacuum cleaner or wipe in. They might be neat and their apartment might look neat, but they’re pretty gross to me. I learned that college students a funny story. I had a unit that a gentleman came in real quick. He said, ma’am, my electric bill on this little 800 square foot unit was like five or $600. And he said, man, there must be something wrong with the electrical. And I said I’ll send an electrician down. This is in the middle summer, middle Tennessee. It’s probably 105 with the Heini index. So the electrician comes back. He said, man, there’s nothing wrong with the electric. He said, it’s the Hi ac. I said what’s wrong with the ac? He said, the guy has the unit set at 50 degrees. . . And I said, what? He said, yeah, that it’s just running constantly. So the gentleman, young guy, I think he was a freshman in college, sophomore, he came in, I said, man, there’s nothing wrong with your electrical. I said, but your AC unit can’t keep up. It only can drop it so many degrees. And he just had no clue. He thought everybody kept it at 50. I said, it probably needs to be more like 75. And so I said, that will probably help your electric bill. So it’s head scratchers like that, that you’re. Man, like how have you survived this long in, in life? Yeah. I’d say those are some of the funny stories that, you just scratch your head. Okay. Now let’s get serious again about operations. Oh, now we gotta go back that way. Okay. Yeah. And talk about increasing value add, right? Increasing income, right? Yeah. 3, 2, 3 ways. That is not the obvious raise. Or raise occupancy two, three things that you guys do on your properties to increase the income. Always Rebidding insurance. I think that’s a big thing is always having, re you know, on the expenses with the company. That’s, let’s talk about the income. We’ll come back, talk about the income. Ok. So I, no free passes . Right now, prime example is we’re replacing all the appliances at one property. Again, back to you, your property management company gave me a very good suggestion, something I wasn’t even thinking about cause I’m not there. They’re getting the feedback from the tenants and they said, we think if. Replace all these appliances with new black ones. We’ve got the old almond, probably 15 years old. We think we can get six $69 more a month for every unit just by putting black appliances. They started buying the A package as a stove, a fridge, and a hood vent for A thousand dollars and we’re getting a $69 rent pump. If you do the math, it’s about a $900,000 increase in in, in value just by doing something simple like that on a six and a half cap of $70,000 NOI increase. Simple things like that. You don’t always have to go for the home run. Maybe it’s $5 or $10 here or there. So a hundred dollar. every dollar counts and mostly every dollar counts when you’re on a hundred units, 200, 300 units. The multiplies, right? I love apartment complex math. That’s what I tell people. Cuz it, $5 here and there. And when you meet these owner operators, mom and pops that are say, oh, it’s only $5. It’s only $10, as you’re probably losing hundreds of thousands dollars in value. So the appliances upgrading flooring, Pet, pet rents, pet leases, things like that are something that we commonly do. I’m trying to think on the income side right now what we’re doing. Honestly, I really, a lot of these things I, I don’t deal with on a day-to-day basis. Okay. Let’s switch over to the expense size, Dave. Yep, I’m here. Sorry, my internet or some internet just froze. Okay. Let’s switch over to the expenses side of things and give us a couple things over there. You mentioned the insurance, rebidding the insurance. Hold on, you’re frozen again. Okay, because I got your picture frozen. There you go. You’re back online. Can you see me? Yep, I can see you. Okay. Okay. Hailey, we’ll have to edit this out, so give her three seconds of silence and start again. Okay. Sarah, let’s switch over to the expense side of things. I, you mentioned repeating the insurance. Give us a couple of things. Yeah. I think even on the renovation side or turn turns of a unit, making sure that you’re doing the right things that actually see a return on your investment. Got not going overboard on some of your renovations. I know a lot of people using like vinyl plank right now we’re still using sheet vinyl cuz it’s just a lot more affordable. And just all your vendors, I think you gotta go through all your vendors. For, here’s a prime example trash, right? You, there’s one company with a w and an m that just loves to go up with their trash dumpster fees every year on an escalation clause for no reason. And if you don’t call ’em out on it, they don’t do anything. So I actually met a lady here in Nashville, that’s all she does is rebid trash. And she saved. Thousands, I’d say a year on some of my even smaller properties. And making sure, just going through there and all your line items and just seeing if there’s anything at landscaping, can you re-bid it out? And so anything that, it has any kind of contract on it annually, you need to be going back and looking at those contracts and seeing if there’s any way to, to save yourself a money there. One of my properties I bought had a master cable contract on it, and it wasn’t common for the. Place it was costing me $33,000 a year to have basic cable in everybody’s apartment. And so we eliminated that. And, there was definitely a, 10% of the property that was not very happy with that. But the rest of the property didn’t really care because the basic cable wasn’t what they wanted. They wanted nice internet and, a better package. Yeah. So that was one, one thing that we’ve always done, but I think on the renovation side, finding the right vendors to do your turns is huge. Finding that flooring company, if you’re gonna use third party, That specifically does apartment complex type flooring? Yeah, I know that’s that’s a really good tip on the renovation, right? Take a look around what everybody else is doing. Don’t do under that because you won’t be able to get your return on your money, but don’t overdo, because again, you won’t see a return on your money. So if the market is. Vinyl sheets. There’s no point in doing planks, but if everybody in the market is doing planks, you don’t wanna be the last one still doing sheets. Yeah. That’s a really good point. . So if you look at a young operator, somebody that just syndicated their first deal or 10 31 from a fourplex into a 20 unit what would be your best advice? Find that good management company because again I’m gonna drill down on this. If you find that good property management company, they know what the. , should, you should have, if you should have vinyl plank or sheet vinyl, they know the improvements you should make. Is it on the H V A C units or is it put in, tile or is it replacing the what were we just talking about? We just talking about something the appliances. Okay. They’re gonna tell you, you know what the biggest bang for your buck, you’re gonna. and they have all those relationships set up. So I think that’s the biggest thing is, you’re paying for their advice and their education. Almost ho honestly. So find a good property management company and make sure you’re looking at, first thing I do is when I go to look at different markets is this, is there multiple property management companies available in that market? Because I’ve made that mistake, I’ve bought properties where, I’m honestly having to really handhold or do a lot of property management stuff on my own that I never planned to because the market’s too small or the property’s too small and And I’ve been spoiled in some of my other properties. So it’s, it is one of those little learning curves, learning things that I’ve made is making sure that you’re looking in markets that have, not just one, but a couple management company as options. If you don’t plan to do it yourself, line yourself, listen to those people and have realistic expectations. I think you and I have talked about this. Some of these people think they’re gonna buy a property and in, in 60 days or one, even one year, they’re gonna double the rents. And I’m just like, man, this is not realistic. And if the property was vacant, yes. But what are you gonna do with, this little old lady that’s your grandma that’s been living there for 35 years? Are you gonna kick her to the, out? And there’s just a, again, back to your’re dealing with people’s lives. Set your expectations, realistically. And if you don’t know those, reach out to yourself or me or somebody that knows what they’re doing to analyze and look at that deal and tell you if you’re crazy or not. And I feel like I talk more people out of not buying properties in case than I talk ’em into buying properties because of things like that. Yeah. We’re both brokers, right? My, my listeners know that I’m a broker too, of multi-family. And we both see other brokerage, I’m not gonna name names, but the big guys out there that have extremely optimistic performers with stuffing there that basically suggest that whoever built this performer has never operated a property, right? If they put a 1% loss to lease year, , it’s kinda like it tells me that you’re gonna spend so much money on CapEx on turning units because 1% means you take the guy that pays $760 a month and kick him out because the market rate says 795. And it’ll take you four years to see your money back, but hey, you got market win. That’s . That’s really where you gotta build these things into your underwriting a little bit better. Because again, looking at the closing table is one thing, but remembering that at the end of that sprint there is a whole marathon of operation that awaits you, is something that a lot of people not considering these. Just on the expense side too, I, I tell people go down in that marketing package to the total expense divided by the number of units, and if it’s 1900, 2000 a door, there’s no way, you’re not gonna run it that cheap. And you gotta be realistic. Suddenly these little, 80 unit complexes I’m at 5,000 a door expense rate. It’s just what it is. And, I could probably try to shave off, Some of it’s insurance cuz of the location in Florida, it’s expensive to run these proper properties the right way. Now I tell people, if you are gonna go live in that city and you’re gonna mow the grass and you’re gonna manage it, and you’re gonna be the leasing agent and the cleaning lady and everything else. Then, yeah, you might be able to run it at that, but to be an investor is different than that. So just be realistic on those expenses of what they’re, and then you gotta put money away for that, oh shit. Time, right? the things that you just don’t know that are gonna happen, the, this, so man you’re touching on so many critical points, . I just wanna re recapture a few. I talked, man, I love this subject, . I love this stuff. Just a few things to recapture for our audience, right? The cost to operating unit is gonna fluctuate. A lot based on the property sized location. Age, obviously, running a 2012 property is gonna be cheaper than running a 2000 a 1964 property, right? Just because it’s newer. If you have a pool, that’s cost. If you don’t have a pool, you don’t have that cost. If you’re in a flood zone or your hurricane zone like Florida, it’s gonna cost you a lot more than, I don’t know, west. So it, it’s really, it’s a lot of factors and you can’t just put everything into the same box and expect everything to average out at the same spot. Let’s stop right there. Let’s stop right there. Stop using 50% expense ratio crap, cuz that just, that is not, maybe it’s a good place to go. Should I pursue it deeper and spend more time? But don’t use that. Okay. People please don’t just say, oh, it’s gonna be 50% expense ratio. So let’s go on. I had to say that. And no really there’s a lot of industry benchmarks out there and the, it’s not that they’re not true, they’re absolutely true cuz it’s a industry wide average. But you look at a 200 unit that sits on four acre of concrete, concrete and 200 units that sits on 20 acres of grass. Their landscaping cost is gonna be dramatically different, but they will average out at the industry. So while the industry average might be true, you gotta really look at the property that you are buying to understand your operating costs. Yeah. And your mowing in Florida is gonna be more than in Michigan. But then you’re gonna have snow removal right. In Michigan. So it, it, you just gotta look in and understand. That’s what I’d say a mistake I made that luckily I had enough wiggle room and a deal was the insurance in Florida, cost me a lot. It was to double what it is here in Middle Tennessee, and. Hurricanes come and storms and your insurance rate goes like this. Yeah. And so again, I had enough room in there and that was a lucrative enough deal to where it I absorbed that oh moment. And so you gotta be prepared for those type of times. And that’s another point I wanted to recapture for our audience is that you, I’ve seen a lot of underwriting from investors that kind of assume that. If they need a hundred thousand dollars to close, they need a hundred thousand dollars. You can operate a 50 unit or a hundred unit, or 200 unit property with $0 in the bank day one. Even if you close on the first of the month, it still takes a while until you raise your money, until you collect your rent. You have payroll, you have vendors that needs to be paid. You’ll have deposits when you get started. We bought a property that had three year old boiler on it, right? And a year later that boiler died. $25,000 expense that we did not see coming. If we didn’t have that in reserves, Everybody talk about we put reserves $300 a Yeah. But that takes a while until it builds up to build up. Yeah, definitely. We have a rainy day fund aside of what you raised for buying the property. Just for operations. That’s, so lemme talk about that. I have a HUD loan and HUD makes me maintain a couple hundred thousand dollars reserve account for that. And there’s days that it frustrates me because they have that much money tied up. But then there’s days where I just don’t have to worry about things. Because I. There’s there, that property is super, super liquid and that’s how they’re able to make it non-recourse and make it a 35 year loan. So I’m thankful for that. In those times, like you said, you, you just I went down to Florida the other day and they said, man, we’ve gotta put this $7,000 sewer pump in. I didn’t even know we had a sewer pump. It’s like a grinder pump. And they said, we fixed it, but it’s finally time to replace it, $7,000. And I was like we just have to bite the bullet and and replace it. Or maybe we budgeted for it this year and we hadn’t put it in the budget. Yeah, you definitely need to, be ready for those type of things, like you said. Yeah. Awesome, man. This has been fantastic. One last question I usually ask all of our guests is if you could go back in time and talk to young Dave. . And no, you cannot tell ’em that 2009 is the bottom. Bye bye. Bye. Two nine. Other than that, what would you, what’s the best advice you would give to young Dave? Okay, so get coaching, get good coaching. I’ve really learned this business, just trial and error, and it’s actually not, recently where I’ve gotten in mastermind groups and. And gone to more conferences and reached out and learned. I did it. I learned a lot just from doing it. And I wish I would’ve spent, and I wish I would’ve had the funds, I guess back in those days when I was starting this to find good coaches good training. I think they, you got frozen. It says the internet is unstable. Can you hear me still? Oh you were frozen for a minute, so let’s take it back a little bit. Just answer the question again. You hear yet? Shake your head. Shake my head. Nope. Nope. Not yet. Oh, I can hear you. You still there? See you move. Yeah, I’m here now. I’m still here. Yeah. You okay? You got frozen too now? Can you hear me? Let’s keep trying. Can you hear me, Dave? Hailey, I’m sorry. You’re gonna have a lot of editing on this one, Dave. Hello. I’m just gonna get we lost you. Okay. Huh? There you go. Okay. Let’s just wrap up. Can you hear me? Yeah. Will you wanna just ask me a question again? Yeah, I’m just gonna ask the question. Okay. Alright. Okay, so a question we ask a lot of our guests is, if you could go back in time to 10, 20 years ago when you just got started, what would be the best advice for young Dave? Assuming you cannot tell yourself that 2009 is the bottom line, yeah. I think just, spend time learning this business. Follow guys like me or yourself or intern in the business. And I think on the, on, on the property side, I think that’s probably one of the most important things, I think learning how these properties operate on the operational side. But even if you have to pay for training, pay for coaching you’re, I would’ve made a lot less mistakes, probably made a little bit more money if I would’ve spent some money up front. I didn’t have it. But I learned the business just from school, hard knocks and I wish I could have combined that with some professional coaching and put ’em together. So that would be my advice, is before you jump in and people are gonna take that the wrong way, cuz then they’re gonna study this for years and never buy anything. I’m not saying that, but I’m saying, really learn or associate or team up, with super successful people that have a proven track record that’ve done it. Yeah. That’s great. I want to thank you so much. This has been an awesome interview, a lot of really great nuggets for our listeners. Why won’t you tell our listeners where they can find you if they wanna reach out, if they wanna send you a referral for your broker business or they wanna buy in Tennessee how can they find you? Yeah, so you can find me on Facebook, Dave Childers. It’s c h i l d e r s. Instagram. I don’t really use Instagram for business, but call me on my cell phone. I’ll give you my cell phone number. It’s (615) 479-8737. Connect with me that way. look@cedarrockcap.com. So Dave at Cedar Rock Cap, all one long. Big word, cedar rock cap.com. More information about me. Contact me there. Search me out. I’d love to talk. Great. And we’ll put all those contact methods in the show notes. I wanna say thank you again. Been a pleasure. Yeah. Thank you again for, putting your time and effort into putting a great podcast like this on a subject that we need to be talking a little bit more about. And I hope your listeners will watch all of these and really learn about the operational side of of this business. Awesome. Thank you so much for us to li for you, the listeners, if you wanna find more about us, apt.com, that’s our website. We put all of the videos on YouTube and we’re on iTunes feature. Subscribe, give us a rating. We appreciate that. Thank you. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.

Episode 105: Jason Pero
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Hey everybody. Welcome back to The Operators podcast.
My name is Joseph Golan. I’m your host, and today we have a very special guest, Jason Perot. Jason, welcome to the show. Thanks for having me, Joseph. Happy to. Awesome. Well, Jason is one of the most awesome operators I know. He’s got a lot of units under his belt and he self-manages and he is doing everything.
He’s a one-man. Empire, really. And he is gonna tell us all about it. Give us a few minutes, a little bit about you, what you’re doing, and how your organization looked like, just so the audience will get a feel for your who you are. Okay. Started buying property in 2001. Was graduated college in 1999.
Started working you know, started buying rental property. Bought my first duplex in oh one. Next year, my wife and I, we bought a duplex and a quad. And then the year after that, you know, we just kept building it the old fashioned way, just saving up one person’s income, living off the other, and just putting down payments on smaller real estate, just trying to build up a little bit of cash flow.
During that time, I worked as a medical sales medical device sales rep. At which time, in 2012, I was able to leave that job had about 290 units at that time, just my wife and I know partners. And since that time, we’ve grown to about 900 units today 600 of those units. My wife, Nadia, and I own just ourselves, no partners, just a hundred percent her and I.
And then we’ve syndicated. 300 units. So we’ve done two syndications over the last year an 86 unit and a 205 unit. Both went really, really well and that, that’s where we are today and we still self-manage you know, everything in house and all all in the Erie, Pennsylvania, Northwest Pennsylvania geographic area and how.
people are in that town. Just so everybody will get an idea. Sure. So the, the city of Erie is a hundred thousand people, but the greater metro area, so all the suburbs and everything is about 350,000 people. Okay. So, so you’re not in a huge metroplex and you were still able to accumulate a very significant amount of, I’m gonna imitate Mark Cuban from Shark Tank for a second and just do this.
Oh, thanks. You guys deserve every bit of it. Get into. Hundreds of units all by yourselves without without any partners, is incredibly impressive. And then you also added a syndication aspect to your business that, that is really impressive. So thank you. Let’s talk, let’s just jump straight into it, 900 units.
How, how does your organization look like? How many people do you have? Do you self-manage? Do you use a third party? Tell us a little bit. Yep. So we self-manage. And that was probably the hardest part of leaving my day job and still growing the business and, and creating a, a company. So I think it’s really easy to buy rental properties, you know, whether you buy a single family home or a 500 unit complex, but to actually operate it and hire people and, and build a team that was the hard part for me.
So I feel like we finally have it. So I have a main property manager who also is an acting asset manager. He he oversees a a junior property leasing agent, property manager for. For about approximately 6, 5, 500, 600 units. And he so he, and this, this individual handle all the leasing and then he oversees our site manager.
So I have a about 120 unit portfolio in a small town south of Erie. It’s a small college town called Edinburgh, Pennsylvania. So we have a a branch office down there where we have a property manager, an office manager. You know, and then, and then a ma you know, maintenance personnel. So, you know, we have it, it’s a really I I’ve really learned that you have to staff properly.
So I have a full-time accountant on staff. You know, I also have you know, my C P A, who I work with very closely, that is you know, not on payroll, but, but part of the team so we, you know, make sure all of our taxes and financial documents are in aligned at the end of the year. Hired an office manager that really, really is, is invaluable.
I mean, she keeps the, you know, everything moving from, you know, helping the prop, you know, the property manager, the maintenance guys you know, keeping inspections on, on schedule and on tasks. So that was probably one of the best hires I’ve made just because she’s kind of the glue, she’s the organizer of, of everything because there’s so much going on at once.
But we have, so we, you know, we have, like I said, we have site managers at, at our larger properties, but then, you know, in-house property managers that manage the site managers and, and kind of the overall leasing part of the business. So they work closely with our maintenance manager and maintenance team.
And so We will subcontract certain things out, but I’ve found it’s way more cost effective to hire a guy on payroll that say is, is a great at flooring or hire a guy full-time who’s a wizard with drywall repair and painting. And if you can keep these guys full and, and keep their schedules full, just better to continually have work for them and we just go a lot further.
That was our biggest challenge is finding the, the quality work. The guys that actually wanna show up be part of a growing company. And that’s, You know, that’s probably content for a whole other conversation. But really attracting the, like, learning how to attract quality people, but also keep quality people and help them grow and achieve their goals.
And so and so we have a whole maintenance staff, you know, and, and we even from like our bottom entry level guys that might go out and cut grass and clean out vacant apartments and things like that. We try to attract people that have a growth mindset. So, you know, maybe they come in and they’re at $10 an hour and they’re cutting grass and they’re, you know, doing this menial work.
But if they. Maybe they’re not highly educated, but they wanna come in and learn a trade. You know, they can learn and, and apprentice under some of our senior guys. And over a period of time can, can really elevate their career and, and have some nice benchmarks for them to be able to, you know, up their income you know, be, maybe get some more benefits you know, through the company and things like that.
So we try to plot a plan for their future so that as I grow, these guys can grow and then we can hopefully promote from within. And that’s, that’s how we sort of have. You know, now this guy who’s rolling into the asset management mode, because we’re getting to that unit account where we really need to manage, manage our managers.
And that’s been me, you know, all these years. And so my time’s getting pulled in all these directions. So I, I’ve really started to think about. My next steps and what does that look like and who do I need to either promote from within or attract from the outside to come in the organization to you know, to kind of help that fill that role.
Because it ultimately, when, when it started out, just my wife and I, we did it all ourselves. And so we’ve learned that, you know, we really need to hire people that are better than what, you know, they can do these things better than I can. But that also freezes up for the growth, you know, the growth part of the.
Oh yeah. We’re, we’re so gonna dig into that one, . But first I, I wanna ask a little bit about the beginning. Right? Okay. So did you always self-manage or did you have third party at some point? A lot of our people that we talked to in operations, there’s the ones that believe in third party management.
There’s the ones that believe in self-management. There’s the people that have gone through the transition. But wh where did you start? What was the thought process behind? Do I get a third party or do I self-manage? So when we started out you know, the people that I was buying property from and people that mentored me, they all self-managed.
I didn’t really know any different. So I bought a duplex and, and. I couldn’t think of, I was buying it for cash flow, so I didn’t think any differently, like, Hey, I’m gonna go hire somebody to run this for me. So unfortunately, like when things would break, I’m not handy at all. I’m still not handy. So I, I learned who to call, you know, who to delegate certain tasks to, but, you know, my wife Nadia and I would go and paint the apartment.
We would clean it out, we would get it ready for rent, and we would advertise the rental and, and then you know, le lease the property up. So that’s how we did it. Say four years in the business. 2005, I, I was at 23 units. Then we acquired a 56 unit portfolio from a guy who was my first real business mentor in, in the, in the, in the real estate business.
And he had built up at the time what I thought was an amazing portfolio, 128 units. I ended up buying all of that from him over the years, but he I was so impressed with this guy and he, he ran such an awesome business, taught me a ton, and I said, wow, I can do that. But I also had a full-time job that was really demanding.
And my, my son was born in 2005, so going from like 23 to 79 units, I was able to hire in the maintenance guy that worked for my mentor. And then, What I found over a period of months was that there was a tenant that had she was retired, long, retired, but had experience in property management. And I said, well, great, she’s looking for a part-time job.
I can have her start showing apartments. And, and when they started taking all these tasks off of my plate, I said, oh, wow. Now I have more time to go buy more property and, and I have time to, you know, dedicate to my job to make more money, to buy more properties. So I didn’t really know any different. I, I had a third party company call me at one time.
And this is, you know, 13, 14, 15 years ago, and they said, Hey, would you be interested in, in US managing your property? You know, they wanted 10%. I said, man, that that’s, that’s my profit. I can’t give up 10%. So I just stuck with self-managing and I, I thought there was a big need, and at least in our market for a quality third party management company sounds like that’s in most markets, that it’s really hard to find, you know, good property management companies and kind of dabbled in it, but it was, you know, d class properties, stuff that was really hard to manage.
Owners that really didn’t wanna pony up the money to put into the prop, you know, put the work into the properties that was needed. Mm-hmm. . So I quickly got out of that. I dabbled in that for a few years and it just I felt like any money we made just, you know, like wasn’t worth a headache and heartache.
So that’s a brain damage man. The brain damage. It’s not worth it. No. But you know, we’ve evolved our portfolio, so we did have a lot of, you know, smaller properties. But I’ve, I’ve ended up selling off a lot of those and, and really transitioned into the bigger. The bigger property. But even at that, I found that it’s and again, not that I’m the best at or anything like that, but I think when the owners involved you know, one of the, one of the things that I learned from one of my, my first real mentor in the business his name was Dick.
Dick, had said to me that, you know, no one ever takes his. Good of care of it as the owner. And that’s, you know, whether that’s true or not, you know, I some third party companies would probably debate that. But what I thought was that if I have my touch on, on the business, you know, whether that’s just managing the manager or providing my input, that I’m gonna get ultimately what I want out of the properties, which is something that’s, Attractive to own.
It’s well managed, well run. We treat our customers fairly, treat our employees fairly. And then you know, look, if if kind of the you know, the, the stuff hits the fan then I can roll my sleeves up. And not that that has to happen a lot, but I know that I’m willing to jump in and do whatever’s needed, especially now that we have.
Passive investors in our deal and, and, and our syndication deals, they need to know that I, you know, I’m out there raising money, but I’m also kind of running the show with with the company. And I think, and that’s not for everybody, but I think that is a nice selling point, especially in a small market, to know that the owner is involved in the day-to-day operations.
And that, again, that’s, for me, it’s at a high level. I’m not showing apartments anymore. I’m not doing a lot of that basic work, but I. You know, I’m working with our managers and, and, and kind of have, you know, our, our folks who have the boots on the ground to give my input and, and direction on how, how I wanna see things go.
Yeah. And, and that’s something I learned is, is true for any kind of business. It’s not just property management, right? Even if you own a shoe store, if you’re gonna sit down thousands of miles away, it’s not gonna operate as well as you’ve been. There and visiting and, and guiding the, the people. Yeah. On site.
So, so I get that totally. So how do you develop the skill to. Manage hundreds and hundreds of units. Right. So you mentioned earlier one of the common challenge that all property management companies have, whether they’re just manage a person that manages their own units or it’s a third party they all have hiring challenges.
Yeah. Right. Hiring the right people. What I learned is, is a. In this business. And if you don’t have the right people, it doesn’t matter what the size of the property management and what infrastructure they have and what technology they have installed. If they’re onsite people, the maintenance, the, the managers, they’re not the right people.
Right. It’s just not gonna work. So I, I do want you, you mentioned earlier that that’s a whole topic for another conversation, but let’s make it a topic. because I think it’s super critical on the operation side, and it doesn’t matter if you self-manage or if you have a third party, how to pick the right people is, is super critical.
So I’d love to hear your insights about that. Sure. And honestly, that, that’s something that I, I think I struggled with for so long. I, I, I would be so happy that I had an employee. and, and that made me feel good. , you know, whether they were effective or they were an a player was a different story. And you know, it just, it became something that I think I had to work on myself to be a better leader.
And, and I don’t know what that really looks like, but I know that I’m, you know, to be an authority in the business. I’m president of our local ria. I’ve done this all myself, so I know what I’m doing. But I found that oftentimes I, I put an advertisement out there. We try to hire somebody and they’d, they’d want to come in and work, oh, you know, oh, you own this many units.
We’d love to work for you. And then you put ’em on the job and 3, 4, 5 months later you find out that, you know, they’re a drunk or they, they’re sleeping on the job, or they’re just not putting the product out there that you want. And I, I just had a shift in mindset a couple years ago, probably around the time that we met.
You know, I started thinking about, you know, is it skills or mind? Like what, what’s teachable? And, and I feel like you can teach somebody how to lay carpet. You can teach somebody how to paint a wall the way you want it done, but it’s really hard to teach mindset. Like you can lead people in personal development and growth, but, but to have a growth mindset, people kind of have to come to that on their own.
So I really started focusing on hiring people and attracting people that have like a growth mindset and a positive attitude. . I will not hire anybody that’s like a Debbie Downer. All, you know, those people that see the negative. I want, I want problem solvers. You know, I don’t want excuse makers. And so like, as an example, in our, our most recent syndication, it was a 205 unit complex.
The site manager, she was there for 13, 14 years. And, you know, they consistently were at 90% occupancy, but they weren’t advertising properly online. They, she. Very much comfortable being the queen bee on on the job, but not. Not really trying to make, make the property run as efficiently as possible. And so I knew I was going to have to replace her.
It just, it, I, I knew it wasn’t gonna be a fit for my personality because she had her ways of doing things and she wasn’t open to, to change. And, and for me, it’s not that my. Right. And it’s not that my way is, is the only way. I mean, I’m, I’m constantly changing how we do things to adapt and grow and, and, and, and, and, you know, better our process.
So I knew there was gonna be some conflict that if they’re not willing to change, I don’t really want them on, on, on my team. And, and, and again, not changing to the way I want doing things, just being open to, continually open to growth and learning new things. So we ended up hiring. And she’s, she was probably the fastest l learn or quickest study I’ve seen in this business from my own experience.
But she was a nanny for 23 years. Our kids had gone to school together and she had had left that job at the end of the school year, which is about a month. We closed on the property on June 28th, and the light bulb went off. I said, my gosh, she’s dealt with like, so she had triplets and. , there’s four children right now.
And then she had these older kids. I said, oh my gosh, she dealt with, and the kids are really sweet. My, my, you know, my, I I know them and so I’m not, but, but that’s hard. I mean, like, that’s a lot of, you know, they’re, they’re sixth graders now, and the other one’s a fifth grader. So this girl, you know, this, you know, the ex nanny was, you know, leaving her house at, you know, 4 35 in the morning, going and getting these kids ready for school, going home and picking up her, her own daughter and just solving problems, you know, and getting, and she’s managing.
Other kids’ lives and her own daughter’s life, always with a smile, always with a positive attitude. The parents that she nad for were, were probably a little bit difficult to deal with and I saw that, you know, property management’s just the people business and it’s about solving problems. I mean, you know, I always tell.
People, you’re not, you know, you might be their landlord, but you’re also gonna be their financial counselor, their marriage counselor, their life coach, you know, their, their business coach, all these, all these hats that you wear as a property manager. And, and so she had that mindset. And so my wife and I talked to her, told her about a possible, you know you know, the possibility of, of, of a job, and really explained to her what it looked like, had her shadow, one of my property managers for a couple days.
To see if this is the type of job that she would, you know, that, that she would, you know, this would be a mutually beneficial thing. But she came in and, and. Learned the job so fast because it’s just systems and procedures. I mean, we, you know, so we, we taught her the systems and the procedures and in that first couple weeks she was a little unsure of herself, but now she’s, you know, she’s hustling.
She’s got the property damn near full, which is awesome. Like way, way ahead of schedule. So I, I kind of knock on wood, I’m like, it worked out better than expected. But she was just an example of like hiring for the mindset because she was growth oriented, wanted to grow as a person, you know, really. Really good with people and wants to learn new things.
If I did the opposite and had this person who was a stick in the mud, we’d, we’d still have a 10% vacancy rate and not, not really making any progress at the property. And that kind of goes like even our, on the maintenance side of things, we’ve hired guys that, you know, they may not have a ton of skill, but you could tell they’re quick learners, they’re mechanically inclined, and, and so we’ll let them apprentice alongside one of our flooring installers, or we’ll let them apprentice with our painting team.
And then, you know, over a few years they can get some nice raises and they. You know, they can kind of come into their own to where they have more responsibility. So I’ve really focused on that. I don’t know that that’s the be all, end all answer, and I’m sure you know the next. Acquisitions will pose new hiring and firing problems.
But that’s sort of where we’ve evolved to today as far as like the type of people we try, try to attract, which makes my life easier so I can focus on growing the company and not, you know, not just getting mad at people, not doing , doing the apartments turn, apartment turns properly, or not dealing with customers properly.
So so I just found that, you know, empowering them, you know, but also, Getting those types that are growth oriented, because they’re gonna be self-led and self-managed more so than having to like, just give them like, you know, fire out punchless every day. That, that’s like miserable for everybody. So, yeah, I know I, I didn’t think about that before.
About a nannys basically very similar to your property manager, right? Cuz you gotta be the mom. You gotta be kind, but you gotta be firm, right? Yeah. So with kids it, it kinda work. It’s very transferrable kinda skillset. I didn’t even think that, but I totally agree with you about hiring for talent and teaching skill.
Yeah. Because I can see the difference between a property where we have a maintenance, a lead maintenance guy that walks around smiling. And communicates with the residents, and the residents love him, and he is joking around with them in between and, and he’s, you know, he’s got that mentality of, I’m here to work and contribute and, and take care of my residents, versus the people that just come to punch the clock, the people that, that are, you know, walking around with a moi face around it’s, the attitude is a huge, huge factor.
In in all these things, but I do have to give it to you. It’s a pretty big gamble to take a person that from outside the industry and give them 205 unit problems. Yeah. Oh yeah. Yeah. Right. So, so what did you do to kind of hedge that bet? So Her daughter and my son went to elementary and middle school together.
So we, you know, we knew her and her husband you know, fairly well from school events and, and things like that. You know, explained to her the job and said, look, this is a two-way street. I mean, the my risk you might be a month into the job and Miss Nannying so much that. You know what? You go back, you go back and do it for somebody else, or you leave the job.
But you know, what we did is, you know, we made sure that we had one of our senior property managers spend the first couple weeks on the job upon closing the acquisition onsite with her. And so she always had somebody there to support her and teach her the ropes. But I knew that, you know, buying that property, we were going to replace the site manager anyways.
And, and I know, I mean, in my mind, I’m think. Like, how bad can it get? I mean, if, if we went from like 10, like it could get really bad, it could get really bad , but you know, they’re a1 percent vacancy rate. And, and I knew that the I knew that the old property manager and maintenance manager didn’t get along too well.
And I, I spent a lot of time sort of vetting the different employees that we were gonna hire and the ones that we were gonna let go from the old, the old business. So so this individual Tammy so she came on and I. I thought, well, yeah, it is, it is a, it is a risk. But I just, I had faith that she would be able to do the job, and I personally spent a lot of time with her as well.
I would, I would show up every, every day on, you know, for the first week or two, you know, now I check in with her every couple days. You know, we have phone conversations and she’s still working with, you know, my, my asset manager spends a morning a week with her and just to kinda really get her up to speed.
He goes to eviction hearings with her. He, he’s giving her that confidence, but she really, Know, but we give her input and we give her a say. I mean, she feels as, as though she’s a part of something bigger. So so for our syndication, my I have a, a co-sponsor on that on these larger deals. So he and I and our C F O do a monthly meeting where we involve, You know, the head maintenance guys and the property manager, we, we share the financials.
We, we really give her input into, Hey, here, you know, tell us how things are going. We, we see how it’s going financially, but give us your input. Let’s, let’s try different things out. And I think that giving her that sort of, that that feeling that she of ownership and her job has gone a long way to, to kind of creating a happy, you know, happy environment for her.
And we’ve let her experiment with things. We said, Hey, you know, I said I’d love to do things for our tenants. What do you think? And she said, well, I’d love to try a game night. Can I, you know, can I buy some pizzas and, and do like board games? And we have like 20 residents show up. So 10% of the residents showed up for this game night a few weeks ago, and, and it wasn’t expensive.
So so it’s not just us dictating how her job has to go. It, it’s, here’s what we expect, but you can have a lot of fun with this and do things that you think are gonna be great for your community. And she’s sort of embraced that. Now. Look, if it didn’t work, we would’ve. We both knew going in that there was that possibility that it wouldn’t be a fit.
And I think we’re both lucky that it was a fit and that that that she loves it. But if it wasn’t, we would’ve, we would’ve went back to the drawing board and figured out, you know, how to attract somebody that was a better fit. So, do you, have you, you mentioned systems and processes, so do you have like manuals and, and everything?
You hand over so she knows how to do, like you said, evictions and notices, fair housing rules. How do we train that from someone that is completely new to the industry? Give us a little bit of, because again, it’s a very high risk Yeah. To bring someone from outside. But I also believe in finding the right talent like we talked about.
So for example, on larger property, when you have an assistant manager, that they’re usually more logistic oriented. Then I always advocate to find someone that has been an assistant manager of a big department store, like a JC or a Macys or, or one of these. Big ones because these guys are phenomenal.
Right. Right. They, they get things ticking and they, they’re the logistics person at the store. Yeah. They’re proce process oriented. Right. So, exactly. So, so I, I, I believe in bringing people from outside the industry, but there’s still that Yeah. Concern of how do you get them up to speed with. The industry rules, regulations, laws, and so on.
Well, and that’s been a growth area for me. So so the short answer is that it’s a work in progress. So we, you know, part of me hiring in my office manager slash business manager I had hired her eight years ago as assistant office manager for our local RIA that I’m now president of. And when I was vice president, I was in charge of personnel and I always said if it didn’t work, With our organization that I would hire her in my personal business.
And so that evolved, you know, in, in about a year ago, she approached me and said, Hey, I’m looking for a change of pace. So she’s, she’s very has experience in with property management before coming over to to the re a ria. And part of her job is, is creating the manual. So in the past when my wife and I did it, and then we’d hire property managers, it was a lot of verbal training and, and on the job training, , but I realized that, that that’s great.
But how long do I want to continue to do that, ? Yeah, so so we have all the forums and we have like, you know, our, our standard lease and our addendums and all these, all these things. But really what we you know what I’ve tasked her name’s, Yvonne is our office manager creating the calendar in the manual.
That Okay. Here. You know, here’s how each month should go from a workflow perspective. You know, first through the fifth, rents are coming in the sixth. Check the delinquency, you know, the delinquency chart people who are delinquent and, and, you know, then post, you know, post five day notices. Kinda create a calendar of all the tasks that need done in a given month.
But then, then the forms. And process spelled out within the manual and how we, how we do that. She’s also working on that for apartment terms and maintenance, you know, like, like maintenance policies and how, so everybody kind of follows that certain that certain process. So it’s, it’s like McDonald’s.
I mean, it’s not, not, I’m not franchising per real estate, but you know, if we add on a, a maintenance. Guy, then they know, okay, here’s how I handle this type of situation. And, and look, it’s a, it’s a tough business. I mean, there’s not, it changes every day. There’s, there’s a thousand different things that can go wrong.
And just when you think you’ve seen it all, something new, like some new scenario pops up, we learn something new ever . But, but it’s more like so, so we’ve got that for both sides of the business and that that’s what we’re working on. And so it’s, so we do have that. System on paper to show how we handle, right.
And, and but we have that for the property management is what, you know, so it’s like, yeah, that monthly task list, but also how we onboard. Tenants and how we screen tenants and then, you know, how we store that information. And so, so they do it consistently. And, and so I mean our, our property managers follow a script, but we let them be themselves too.
I mean, the biggest thing is, you know, not, I don’t want them to be a robot. Yeah, if I need that, I can hire a VA from, you know, from halfway across the world to do that. But we want that human element. So we let the, let them put their personality into it. But, you know, ver make sure that they’re very very in tune with you know, fair housing you know, HUD rules, all, all these things because, you know, we don’t wanna get say the wrong thing or do the Yeah.
Or do the wrong thing. So so we just, you know, we try to make sure that, and I mean, but our, but again, our most recent property manager, she was a program administrator for. Prior to coming to work for us. And, and so again, hiring for hiring for mindset. You know, she ha has the mindset, has the experience of dealing with customers, but also knows the law.
We just have to train, you know, we just have to train her on how to lease units and how to sell. But she, but she has that, the other, the other part of the business there. So so that’s a huge asset because she’s, she’s training our other folks on like, Hey, you can say this, but you can’t say that. And here’s how we, you know, here’s how we wanna mar market our things so we’re not.
Doing something, you know, inadvertently doing it wrong. Like something as simple as, you know, like, you know, brand new apartment’s great for a young family. Well, you can’t say that. Yeah. You know, and, and people don’t realize oftentimes that they’re, they’re giving the appearance of discriminating even though they’re not intending to d discriminate.
Right. So, yeah. That’s the thing. So great for a young family with kids. Well, you know, what if it’s a same sex couple with, with, you know, dogs, I mean, you know, they’re. There’s testers out there on the market as you know, that that can come in and then just you know, find your company for saying or doing the wrong thing.
So just beyond testers, right? There are also professional scammers. Oh yeah. That, that try to trip your leasing agents. And we’ve had that we’ve seen that before, thank God. Not on my property, but on one of our customers. And They sue them, right? Yeah. Because somebody tripped and, and like you said, not intentional.
So that’s why at least Fair Housing Rules is super critical to make sure that your team is well versed in, in what they can hundred percent cannot do and what to say. Yeah. Yep. Okay. So I wanted to touch a little bit, you, you kind of talked about that in brief about what do you do for your residents?
Yeah. Because in. My experience, the number one key in operations is retention. Yeah. Because if you don’t have good retention, then it’s a revolving door and everybody is working harder. Yeah. The maintenance guys have to do more, make credits. There’s more work orders. The leasing agents needs to lease more units.
The expenses obviously skyrocket. So what do you guys do for re. Yep. So I’ll, I’ll, I’ll tell you what I do and I’ll also share with you, you know, I, I, one of the challenges with growing so much and self-managing is. The, the retention can get away from me really easily. And so I, I, over the years, I became so obsessed with growing my portfolio and I would, I would just add property and add property without taking care of the tenants that were, were making me money.
And, and again, I mean, being a nice guy and all that, all that stuff that, that helps. But, but I mean you know, you want people to, to know that you’re responding to their needs in a timely manner. You wanna you want people to know that you care and that you’re. Appreciative of, of their business. So so I think that’s one of the challenges as the growth is that that can get away from you, especially when you’re like a solo operator because you’re just focused on growth and, and not realizing that, you know, there’s other things you have to tend to your garden too.
So So what happens then is people will you know, they’ll end up like just putting any tenant, they won’t screen properly. And so so then you’re putting bad tenants in somewhere. They’re, like you said, then the, the make readys increase, the maintenance guys workload increases. So it all comes first down to attracting the proper tenant.
And, and so, you know, we, we try to give a, a clean, attractive apartment. At a, at a price that’s not at the high end of the market or the low end of the market. So something that’s a very, like, people feel like they’re getting a good deal for what we offer. So. So, you know, that, that we’ve kind of gotten back to the fundamentals of, you know, giving a high quality product.
But as, as our tenants, you know, run through a life cycle of running a unit, so year two and three, you know, we’re trying to, Hey, you re-sign your lease, we’ll give ’em a, you know, a $10 gift card to, you know, to the gas station and do these little, little giveaways and, and they feel like, okay, hey, great, I’m getting something back and it’s only $10, but what if I’m increasing the rent by $20 a month?
I mean, it’s a, I mean, that pays for. Over and over again. But it’s a little token of our appreciation. We used to do it I got away from it for about three or four years, started doing it again last year. But we would get everybody a ho, a Christmas card and you know, just, you know, again, just be happy Holidays.
I mean, we’d, you know, include every, everything but around, you know, December, they all got a Christmas card and a box of chocolate and. You know, and, and there was a point in time where I, I would get a, you know, not offended, but I’d get a little down all, I’d see all these boxes of chocolate in the dumpster, you know?
And then, but then like we, we stopped doing it and people are like, wait, you’re not, you know, what, what happened to the, you know, the Christmas you know, the, the Christmas chocolate? And I’m like, okay, well, you know, we, so, so we wanna go back and do these little things for tenants then, like let ’em know that we care.
And you know, even if it’s a, like a card from the company signed by my wife and I, you know, I think it’s important just to have that personal contact, but, You know, we, you know, in terms of retention at tenants, so it’s, you know, making sure our, our, you know, our maintenance guys and our property managers are professional.
They’re nice, even to the difficult tenants, you know, the people that, that can make you have a bad day really quickly. just, you know, keeping it professional, keeping it, keeping it positive. We’re actually at our recent syndication, we’re doing a tenant appreciation night tomorrow, and we’re bringing in a couple food trucks and every tenant’s gonna get you know, they’re.
Get a couple coupons and they’ll be able to, you know, just to have some food and drinks and, and hang out and, and we’ll do that once a year at that complex. And then, but we’ve invited all of our employees to come and then we’re going to we’re gonna start doing that and like at a, find the location, but do that for all of our other scattered properties.
And, and just little things like that don’t cost a lot, but people feel like, okay, well, you know, my landlord cares. It’s, it’s, it’s a small amount on the bottom line at the end of the year. But I can guarantee you no other, no other property management companies are doing that in town. And, and you know, I have fun doing it.
So so selfishly I’ll enjoy and I’ll get the free, we have like a grilled cheese food truck and an ice cream food truck. I mean, I’ll be, I’ll be fat and happy tomorrow night, . Um, So I’m, I’m happy, but I, it’s really cool to see the tenant and it’s a chance to like, you know just to get to know your tenants a little bit out outside of, you know, outside.
You know, signing the check or, or, or seeing, seeing their leases. And so you know, it is a people business and, and I enjoy that. That’s not for everybody. I know our investors in that syndication, a lot of them don’t want the, you know, they don’t want anything to do with, with tenants. So we’ll stay far, far away why their investors.
Right? Right. No, but you, you had so many. Nuggets in there, and I’m definitely gonna get back to this recording and steal some of your ideas uh, to do on our properties. Yeah. But I wanna touch back and, and reemphasize something that you said earlier about telling your team how to treat with respect and, and curious to the residents.
And that’s what I like to tell all of our employees is. I, I’m not the one paying your salaries. Yeah. The, the property manager, if it’s a third party property management, they don’t pay your salaries. I don’t care what the paycheck says. The people that actually pay your salaries are the guys and girls and, and families that live in those units.
A hundred percent. Yeah. So, so you gotta treat them with respect. You gotta give them a good feeling. And I also I have a lot of background in, in the retail world, and I tell ’em, look, when you walk around on the property and you see trash on the floor, pick it up. Right? Clean doesn’t cost money if a resident come.
Get your eyes up right. Smile at them and say, hi, how are you doing today? Or, have a great day, or good morning, whatever it is. If, if you walk into a JCPenney or a Macy’s and you walk down the Islanders and associate guaranteed a hundred percent, they will raise their head from whatever they’re doing and ask.
Did you find everything you were looking for today? Yeah. Right. They will acknowledge you and they will offer service. Yep. And that’s what we expect our onsite teams to do exactly the same because it’s a different feeling when you, you know, you leave your apartment and you go to your car and there is a maintenance guy walking with his head in the you know, looking at the ground, not acknowledging you versus someone raising their head, looking at you, smiling and saying, good.
And people are way more receptive when they know you and your team care than if they’re, if they’re just punching a clock or they’re just in it for the money and it’s you just see a time and time again that, like, if you have that just a positive attitude and inspire that in employees, I mean, it’s, it’s hard and, and it’s hard to be positive some days.
I mean, do you see how some tenants can ruin, ruin a unit and, and things like that. But You know what you know, you, you turn it, you turn lemons into lemonade. And that, that’s how I, I try to tell my kids to you know, to look at things. Always look for the positive, you know, the, the positive spin on something.
And, and you know, and look, and we, we, sometimes we’ve had tenants where they’re, you know, they’ll test every bit of patients. You, you have. But I always say, tell my team. I’m like, well, what could we have done differently there? I know this person’s a maniac and, and they’re, they’re like, terrorizing us with, you know, like, I mean, you know, some people, you know how, how just some, some customers can be.
But what could we have done differently? Should we have not rented to them? Or how do we, did we not, were we not clear in, in our expectations of how they communicate with us? You know what, like just constant self-assessment so we can get better at. You know, if it’s a pain in the butt, well, how do we get better at it so we, so we can like, remove that pain in the butt in the future?
Or how do we respond better so it doesn’t, a problem doesn’t escalate and, and you know, just you know, things like that. Yeah. I also like to remind our team that if a team comes in screaming or upset it, it might have nothing to do with them. Right, right. Yeah. Because they might be upset cuz their boss was writing them all day at work.
Right. And, and they might be upset because something happened in the family, whatever it is. Right. You, you gotta be a human being on the other side and it’s kinda like, I’m sorry you feel that. Whether he, the, the, the resident is right or wrong with whatever they’re complaining about, you should be sorry as a, as a fellow human being that they feel that bad, whatever the reason is.
So just because you, you feel sorry that they feel that bad does not mean you admit to be at fault of anything. Right. Right. So, so I, I try to remind every. I wanna be conscious of your time. So I want to kind of switch over to a few rapid questions that we ask most of our guests. You do value at, right?
I know you do syndications and, and most of the properties you bought, you fund some element to improve. So give us two, three ways that you guys like to do to raise. And we’ll talk about expenses in a second that is not the conventional raise rent or, or stuff like that. Sure. So our new acquisition, we did we’ve offered a concierge trash service.
So there’s several buildings on, on the property, and there’s they’re all three stories. And, and so I know a lot of people that they would put their trash on the third story , and then, you know, and again, it’s attracting critters or it’s just unsightly. . So instead of, you know, in the past we would just post, you know, five year notices and you’d be hitting people with a hammer and, and, and they just wouldn’t respond.
So I said, well, why don’t we, you know, why don’t we think about. You know, just adding that as a service because, you know, maybe they’re not doing it to be disrespectful. Maybe they’re just lazy and maybe they, they’d be happy to pay an extra $25 a month for this, for this concierge service. But so we offer that up and we’ve already got about a dozen people that have taken advantage of it.
And again, I know on, on the scheme of things, that’s not a huge income thing, but over the, over the course of time, that’s that’s a nice that, that can be a nice little boost of, of income. Even, even if it’s not a big boost of income, it, it’s, it could be a retention thing, right? Yeah. Yeah. So a resident thinking twice, well, if I’ll go to that place, there’s not gonna be the person that’s gonna pick up my trash.
Right? And like I said, I’m lazy. I want somebody to take the trash for me. So, so it could be a retention item as well. What else? So, so we also, at our places where we have parking, we’ll, we’ll do a resident of the month. So we’ll do a reserve parking spot, and then we’ll we’ll just kind of randomly like pick, pick my favorites or whatever.
But we’ll say, Hey, you know, resident of the month and then they get the best parking spot for that month. And that’s kind of a nice little, people feel appreciated. So again, it doesn’t, it’s not a direct like, hey, they’re paying extra for that spot. But it goes to the retention aspect of the business. The other thing we do, you know, which, which helps raise rents is that you know, when, if somebody’s been there five years or seven years, say, Hey, we’ll come in and you pick the color of paint, or you, you know, you pick this and we’re gonna go in an upgrade in your apartment.
And then when we’re asking for that $50 a month rent increase, but they’ve just got a brand new backsplash in their kitchen or they’ve gotten like a new countertop. And they might be things that we would’ve changed. Anyways, if they moved, we were gonna change it anyhow. So so then they’re like, oh, wow, I’m paying more rent, but I, it looks like I have a brand new apartment.
So they, they feel better about us asking for more money. And, and so ultimately it gets us, it gets us more money because we haven’t you know, we haven’t had that have to turn the unit yet. Turnover cost, right? So, so yeah, you might go throw in a back splash or you might change the light fixtures, but it becomes well that’s a heck of a lot cheaper than having to go through and do everything.
So no Absolut. If you can get away with cleaning the carpet, it’s a lot cheaper than having to replace it and turn the unit and do paint and change fixtures and whatever you have to do. If they will have moved out. Exactly. Okay. So, so let’s look at the other side. What do you do to get reduced expenses?
Yeah, so on, on the expense side, I, I look at expenses every month. So we, you know, I’ll look at my utilities and so that’s one of the biggest The biggest drains is, is, is utility bills. So even as we’ve grown so big, I make sure that my financial team is, is always giving me the rundown of all, all the bills, and I know which properties, how many te, how many residents there are things like that.
And, and I, I, especially the water bills. Oh yeah. You know, we, we kind of know, you know, per person how much wa water’s gonna be utilized. So we have that in our lease though, that we will charge back for anything above and beyond like normal, normal use. And so we’re pretty clear about defining that to te to residents what that looks like.
So on, on, on that side of things, you know utilities can be just a. Like money suck. And if you don’t, and if you’re not paying attention to it, it gets away from you really fast. So there’s, there’s U Utilities, the second side on, on the like, like the make readys and the maintenance stuff. So we, I try to shop around for everything.
I mean, whether it’s paper towels, like, you know toilet paper holders, you know, toilet seats, you know, we’ll look through, you know, your lows and Home Depot, but your HD supply and appliance warehouses and things like that. And just try to. Chisel down the price where we can, because if you save a nickel here and a dime there, and we’ll buy our batteries from Amazon uh.com, that, you know, I can get batteries for a third of the cost off of Amazon as opposed to the local hardware store.
But when you’re changing smoke detectors and things like that on a regular basis, that that could be a. A thousand or 2000 a year, and that’s, that’s money outta my pocket. So, so I really look at, look at the supply side. And then is is also on expenses. It comes back to retention because if I can retain, you know, one tenant, what does that make ready gonna cost me?
You know, is that gonna be a a thousand dollars turn or a $5,000 turn? So, yeah, so I’ve really focused that on how do I run my business. It’s not just about, Buying units and just get, keeping them full. It’s also about reducing that amount of time that we have to spend turning over those units. So getting, attracting and keeping a better quality tenant.
And when those higher quality tenants leave hopefully they leave that unit in better shape. So yeah, I had a few this week security deposits that are going out this week back in full, and I checked with my property manager to make sure that that was accurate. I said I haven’t had. All of them in a month, like in a long time where they were all a full refund.
He said, you know, everybody left it in perfect shape. And, and I said, that’s, that’s like music to my ears because that’s less work that we have to do. It always costs us more money to turn the apartment than it does to give a full deposit back. So So I, we’ve really, so that’s, I guess the other thing is educating our tenants.
What does a full deposit refund look like? Because they’ll get in and they’ll scrub that inner part of the stove and they’ll get in and clean all the cracks and crevices in the refrigerator and behind the toilet, and all those things that we’ve gotta do to, you know, to, to make that unit, you know, make ready.
So. Okay. Great. What would be a good advice for a new operator? Right. Somebody that is just getting started in. Yeah, I think again, whether they’re gonna be a self-manager or a third party, you know, operator, whatever it is, find find a mentor in the business and find multiple mentors. So I, I think for me, my, my career sort of started to, to snowball when I started working on personal development working on myself, but also seeking out guys in the business.
Been where I want to go. You know, maybe I was at a hundred units and this guy’s had 200 units, or when I was at 10 units and I saw somebody that had 50, I thought, oh my gosh. Like, you know, it was mind blowing to me. So you know, just finding, you know, searching out friends and mentors because our industry For the most part compared to other industries, has a lot of people willing to help and willing to share information and ideas.
And so and that doesn’t cost any money. I mean, I would also curse you, that is a testament for that. Yeah. And so go out. But, but yeah. Listen to podcasts, read the books, but you know, go, even if it’s just the local meetup, Those are usually very cheap. That that’s a, at a minimum, but, you know, as, as a career evolves, you know, or, or your investing career evolves, you know, spend a little bit of money and go to these conferences and boot camps and things like that and see what, see what fits because you may you may be able to accelerate your career that much more once you kind of get around people that, more people that are doing what you wanna do.
And so I just, I think that’s the biggest thing, just is. Because it’s most, most of it’s mindset. So, yeah. You know, like we can, we can read a, you know, you can, you and I can talk for 20 minutes and figure out how, how to underwrite or teach somebody how to underwrite a deal, but they’re only gonna learn that through practice.
And, and that comes easy. But what’s the mindset of going from one units to 10 units to a hundred units to a thousand units and, and, and things like that. It’s just learning how to, learning how to be a millionaire, not just become a millionaire. So, Yeah, absolutely. That’s a phenomenal advice. A little twist on that question.
If you could go back in time to a younger Jason, right. What would you, what And no, you cannot tell yourself that 2009 is the parliament by everything you can, right? Other than that what would you tell yourself? You know, I, I, I would tell myself to relax. I mean, I don’t have any regrets. I’m very pleased and not grateful for where I’m at right now.
I know that, I mean, you can tell yourself different things and you to go bigger and whatever. I mean, that’s fine. I’m, I’m, I’m, I’m, Extremely blessed and happy with where I’ve, where I’ve come from. But I think early on when I was working my day job, I was so obsessed with money and, and career and, and building this business that I feel like I, I feel like that put strain on my friendships and my, my marriage and, and just wasn’t the best version of myself till I stopped caring about that stuff.
That, or I stopped realizing that nobody else cared. I, I didn’t need to prove how good I was to anybody else. It was, you know, and just learning, learning that it’s, it’s not a competition just. , you know, just give it up and, and I just was so obsessed. I would work hours and hours and hours in, in the business, and I think that you know, if I was a little bit more free and relaxed about it, maybe things would’ve come a little easier in the early days.
Yeah. Oh, that’s awesome. So I, I want to thank you for a time. It’s been a phenomenal and a lot of really, really good information. Can you tell our audience where they can find you? If they want to send the referral away, if they wanna reach out. How can they find you? Sure. So Jason Perro, you, you know, you can find me on Facebook and LinkedIn.
My e you can put my email in the show notes if you want. That’s jason perro yahoo.com. And I, and if anybody wants to schedule, you know, a quick 15 minute phone call with me they can get on my Calen Calendly schedule, which is just Calendly slash jason Perro. That’s very generous of you. Thank you, Jason.
And we’ll make sure to put everything in the show notes. Awesome. Great. And for you, the audience, if you want to hear more of our podcast, just go and subscribe on iTunes or Stitchers or anywhere else where you consume. We also post all of our videos on YouTube on our channel, and we would really appreciate if you can go online and give us a rating.
That helps a lot. Until next time, thank you so much. I’m your host, Joseph Golan. Thank you

Episode 106: Jeff Greenberg

Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Welcome everybody to The Operators podcast. My name is Joseph Golan, and with me we have Jeff Greenberg today.
Jeff is a very experienced operator of multifamily. Jeff, why don’t you tell the audience a little bit about yourself and. Yeah. I’m glad to be here today. I’ve been doing the multi-family for about 11 years now. I’m involved in over a thousand units. I believe we’re involved in over 70 million worth of properties at this time.
I’m also doing student housing as well. That’s fantastic. We’ll definitely dive into that one a little bit later. So we usually like. Ask a little bit about what’s your criteria, what is your preference? You mentioned student housing. Is that stealing your preferred asset or are you looking at other things these days?
We’re looking at both student housing and multi-family assets. Mainly value add. It’s just the, with the student housing we have found that it’s easier for people to make mistakes, and if we can pick up properties where they have issues and we can fix ’em, then there’s an advantage in. . Okay. A lot of our audience is trying to figure out if they’re going to use third party property management or self-manage.
Which way did you go? We went third party. We don’t wanna self-manage our properties. And why is that? I’m in California and my properties are all out of state and I want the property manager to be the first one to respond and. Typically if there’s an issue, we’ll hear about it. A little later we’ll hear about what they’ve already been doing to resolve it.
And if they need some further help or advice from us, they’ll contact us, but we’re not the first responders. That makes sense. Let’s go back to when you started working with third party property management, or even today. When you buy a new property in an area where you don’t already have presence, how do you select a third party property manager?
What is important for you? The characteristic you’re looking for in a company that you want to hide? The thing is, we do go in and we get referrals as much as we can, and we interview quite a few property management companies. Once we narrow it down, we’ll go out and visit with them and talk to them and make sure there’s an alignment of interest.
We wanna make sure that we feel comfortable, that they’re gonna do the best for the property and they’re willing to work with us. They’re. As well as gets the kind of reports that we need definitely need reporting. Typically we have weekly reports as well as monthly and quarterly reports, and we wanna make sure that they’re on the same page.
Okay. So questions you would ask in an interview, things that would make you immediately disqualify a property managering company. Is there a specific size you’re looking for? Give us a little bit more details. We want someone that’s. That their specialty or their niche is the property type or the property size that we’re doing with the student housing.
We will only take management companies that specialize in student housing. That’s a very specific niche. Same with Sea Properties, workforce housing. We don’t want somebody that their specialty is a B class property. We want somebody that specializes in C class. . We’re also concerned about management companies that maybe that are very large.
I have an issue typically being a small fish in their large pond, that sometimes they don’t take care of you. On the other side of it, you get a property management company that’s too small. Can they handle your property? Do they have enough depth. They have to remove some employee or somebody leaves or whatever, are they gonna have coverage?
So I wanna make sure their experience, that they do have a sufficient depth, but I prefer, typically with the smaller property management companies, so the Goldilocks, right? Not too big, not too small. There you go. What is the right size for you? 2000 units, 200 units, 6,000 units. Give us a little bit of a.
I’m, I can’t say that I have a range in there. It depends on the experience of the management company. Right now I’m working with a company that just started their own company, but the owner of the company has 30 years of experience, and her daughter, who’s the regional, has 12 years of experience, both with very large companies.
They’re just starting out on their own, but they have a huge amount of experience, but don’t have a lot of doors. . Understood. Okay. So experience matters more. The experience matters more than the number of doors that they’re working. Okay? Yeah. So from my experience, it’s a lot about chemistry as well. You gotta make sure that whoever you are working with kind of fits with your style, fits with what you are asking for, fits with your pace, right?
So if you’re an owner or. That is high paced, fair, dynamic. Have to move fast and you’ll have to work with a regional or a property management owner that is slow paced, calculated. Let’s stop and think about everything. It’ll drive you crazy, right? And the other way around, if you are the kind of guy that is very analytical and needs everything thought out and planned ahead of time, and you’re dealing with a highly dynamic, fast moving property management company, that would also put you in a very uncomfortable situ.
It’s really important that you have a good chemistry with whoever is gonna be a point of contact in that property management. Do you agree? Absolutely. And in addition to that, it’s, I want someone that is not so set in their ways that they’re not willing to make adjustments for our needs.
If it’s either in some kind of form that we need adjusted or just some. Methodo methodology, that they’ll be flexible enough and work with us as far as making our needs taking care of our needs. Absolutely. No, that’s great. So going to third party property management route means that you focused mainly on asset management.
Yes. You mentioned earlier that you asked your property management company give you weekly, monthly, quarterly report. Everybody gets you the financials, the 12, the rent roll the balance sheet and so on. Is there anything special that you introduced into the relationship with the property management that is a special kind of report specific parameters that you guys are tracking?
I don’t know that our requests are that. , but typically it’s the weekly report. That’s one of the most important, how many, a lot of the lease up information as far as how many people came in the doors, what method they, they used to find the property, how quickly they were met with somebody from the team.
If there was an application, if there was a tour, those kind of things that we’d like to know about, to see how efficiently they’re running the. Especially when we’re in a lease upstage or we’re in a turnaround. We wanna make sure that we’re getting the leases, we’re getting the conversions. And then also on the maintenance end of it how quickly how many maintenance requests we’re getting, how many, how quickly they’re getting turned around we’re we need to keep satisfied customers.
And so we’re wanna make sure the maintenance is taken. . Yeah. So I didn’t mention to our audience, but you and I are today in Denver, Colorado in the Multi-Family Boardroom, which is a mastermind for multi-family owners. And in the last day or so we’ve been hearing a lot of software and tools that people use for their asset management.
Are you using any of those tools? Is there any piece of software that you introduced into your organization to help you with the operations side of things? Not really. We use, I, there’s communication tools that we use, but that’s mainly it. With Zoom, we get on Zoom calls with our property management company as well as with our asset manager to see what’s going on.
We do a lot of taking pictures of new construction so we can see what’s going on. And the internet is just, a great resource as far as being able to. . Okay. Great. How many doors do you currently have under your control? We’re, I have 300 doors that are under my control.
I’m also an LP on another 700 doors. Okay, great. And thousand And I know you had a lot more than you sold recently. I sold off a bunch of stuff. With this many doors, how does your organization look like? Is it a one-man show? Do we have people working with you? Do you have people working for you?
Help our audience understand a little bit about the operation side. I have some people mainly working with me. I do have a partner that we work together on most of the stuff. But it’s mostly my show. I do have people going and finding deals. And I have people bringing deals that they need help getting closed.
And so we partner up. But it’s pretty much a small operation. Okay. And that’s pretty common. And from what we’ve been talking to other operators recently. Okay. So now let’s switch a little bit and talk technical, right? You do a lot of value. Give our audience maybe two, three ways where you guys have to increase income.
That is not the obvious increased rates. , obviously the big ones are the increased rents and the increased occupancy, but also on management efficiencies finding ways to do things, more economically, the water saving type of stuff. As far as other unique things, offhand, I’m not sure that we do anything differently.
We do, one of the things we’re gonna be initiating in the Amarillo property possibly is the covered parking rents maybe some vending. But other than that, it’s mostly the typical. . Okay. And you mentioned the other side of the noi, right? Our expenses.
Exactly. That’s as important as increased income, cuz every dollar increase in income is absolutely equal to every dollar you save in operations because the math is simple. NOI is income, less expenses. Two, three things you guys do for saving cost. I heard you do water conservation, right?
, what does. For you guys? That includes the aerators and the showers and the faucets as well as the the low flow toilets. So we’re doing, that’s on the water con conservation, but we really scrutinize. I have a construction manager as well as the asset manager that are definitely scrutinizes all of our expenses as far as any kind of repairs.
They’re, we getting multiple bid. and making sure that the contractors stay on their bids. . Yeah. That’s very important. And yeah, following that closely and don’t put up with all the extra expenses. Okay. Yeah. That’s great. Going back a little bit, if you could go back in time to when you started this thing what would be the best advice you would give? , Jeff from that time, fire your management company quickly when there’s a problem. Don’t hang on and think that they’re going to improve. Typically that’s not gonna happen. If things going, I’m gonna dig into that one. If things go wrong, it’s probably gonna get worse.
Tell us the whole story. The one, it, it happened to have been a guy that I be had become friends with. He was my act, actual, my broker. This was on a small property, 20 unit property. And he was my, he also was my property manager. First of all, small ties with a broker that doesn’t exclusively do property management is a mistake in itself.
That’s not where they’re making their. and he was losing money actually working for me because his office was 35 miles away from the property. So he was very loose on who he let in. And in a 20 unit property, we let it get down to where we were finally at six units vacant on a 20 unit property.
Wow. That’s a lot. And we finally forced us to fire him. There were other signs where we were getting tenants in there that didn’t belong in the. This was a b plus property. It was three year old property. Wow. It was down the block from a hospital and he was letting tenants in there that, that didn’t belong.
But they had the deposit and they had the first month rent. And so he took ’em even though they were inappropriate for the property. So he wasn’t screaming well, he was not screening well. He was also killing off all of my plans to automate different. Where I had, I set up an automatic system or a system where the people the tenants could pay very easily, either go to the local bank or they could do it online, and he started going there and collecting money face to face, and it made him waste time.
He had to go down there, do it at least three times because people weren’t there on the. And I’m sitting there, this is just a waste. And not only that, now they’re not gonna use my system because you’re showing up. It was just, so we’re still friends and he still brought me other deals, but I said I would never use him as a property manager.
And we went through a couple others prior to getting the one that we finally used for the next three years until we sold the property. Good. Yeah, sometimes take a little bit trial and error until you find the right fit. And it really circles back to what you said earlier, you gotta find the property management that fits the niche, that fits the property, right?
If it’s a smaller, nicer property, you can’t hand it over to someone that handles single families or somebody that handles a C class or somebody that is doing student housing, right? So you just gotta write, find the right fit for that property. Yeah. Touching again on the student housing a little bit.
Give us a few things where student housing is unique and it’s not like multi-family, cuz I try to help people understand that student housing is its own enemy even though it’s multi-family, but it doesn’t behave the same, doesn’t work the same, you don’t have the same kind of people. There’s a lot of things about student housing that are different to start with.
You have a very short time window as far as when you need to. The properties line leased up. If you don’t, if you miss that window, you may have vacancies for the whole year. It’s not like multi-family where, okay, you don’t get something leased up this month. You’ll do it next month. If you don’t get that into that window.
Now each school typically has a different window. I have three different properties and three different states, or three different schools, and the windows are different. And it goes based on when school starts, right? Not so much. My Ohio property, I know that we need to have at leased up by March, otherwise we’re gonna be struggling.
Okay? March. Prior to the August semester my, my Georgia property, my Ford Valley property, that property I could lease up all the way to August, even though I’m already filled, completely filled up. Because I don’t know if it’s the demographics that maybe don’t plan as, because I’ve got a low end demographic in Georgia and I’ve got a very high end demographic in Ohio.
So they plan a little bit better. I don’t know if that’s part of it or not, but the time is real important. The other thing is the marketing. You can’t just rely on putting it up on Craigslist or apartments.com and expect to get students. You’ve gotta have website up there. You have to have a presence on the campus.
There’s a lot of things that you need to. And many property, most property management companies aren’t prepared for that. They’re not able to dedicate the amount of time necessary for the marketing end of it. That’s a big piece of it. The other thing is we rent a lot of the properties we’re renting by the unit and we try to do roommate matching.
, most property management companies aren’t set up for that kind of stuff. Yeah. They’re not gonna sit there and interview the kids to see what you know. How well they’re gonna fit together. So that’s another specialty area. I suppose those are the big ones. Also I guess when you’re purchasing the property, what’s important is not just the market, but the location to the school and you’re looking you’re doing a lot more due diligence on the school as opposed to the community.
That makes sense. I have a property in Oxford Oxford, Ohio. There’s no city. It’s a, basically the, that community is 20,000 people with 18,000 students. Cincinnati’s 45 minutes away, Dayton’s an hour away. So evaluating the job growth of that city or the cities around it really doesn’t make sense.
Relevant. Yeah, that’s right. It’s the school. How well is the school doing? What is the percentage. Units that the school has, where the kids could be on campus. , what percentage do they have? How close is the property to the school, as well as amenities if enrollment is going up a year, over year, and so on.
Absolutely. That makes sense. The health of the school. How is it work with millennials and Gen Z? Because that’s pretty much who’s a student these days, right? The millennials and Gen Z. Is there any. Special ways you have to handle work orders or any special amenities you have to provide. Give us a little bit of that.
The internet is crucial. Your wifi go down, goes down, and your internet goes down and the world is stopped because everything is based on the internet. They’re watching their videos, on the internet. They’re doing it on the phone also, but if it’s on their computers internet goes down, you’ve got that definite issue. The location to the campus or location to the bar district is real important. Yeah. District yeah. One, one or the other will get, you, get your points as far as being close to one of the other, if you’re far away from both, then that’s an issue.
It’s good if you’re near a bike path because a lot of times the students will ride their bikes on campus and stuff. , the, it’s as far as the millennials they have a high expectation of level of service. Of your response, level of service, your response. Yeah. They’re pretty demanding as far as I expectations, but that’s why you have a management company that knows how to handle that.
That type of young. Yeah, and I spoke to other operators that deal with communities that are focused on millennial residents. And while they are demanding a higher level of service from other people experience, they say that they’re also willing to pay for that. So you can get usually higher rents from millennial based communities if you provide that level of service.
Have you met that? Kind of situation. The the dealing with the millennials mainly is, in the student housing and, they have an expectation of service definitely. And we had one student that felt that she was above the level of our particular property and decided, just to break or lease and just take off.
But, it’s so there’s a high expectation. in the higher demographics. It’s a whole different thing, I think in the lower end demographics where they totally appreciate everything you do for them. So it’s not just the age group, it’s also, I think the economic demographics.
That makes sense. One last funny story. We all have one of those from your entire experience. Okay. I was just talking to my property manager about this one the other day where we found little pock marks in one of the units in the hardwood floor. And we were trying to figure out what they were from, and it was about four feet back from the mirror and there was a small area in the front of the.
and it looked as if somebody was wearing stilettos, , stiletto heels and walking back and forth. But the only thing is that unit was male. Okay. So that was rather interesting. Okay. This industry will bring you a lot of interesting stories. Jeff, I wanna say thank you for taking this podcast with us and for being such a great friend.
I appreciate that. Thank you, Joseph. It was great.

Episode 107: Ben Suttles
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. I appreciate that, Joseph. I, hopefully I can add some value to some of your listeners here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Now, obviously we always perform it, but we always back it out. It’s really almost a balance because we’re backing it out by underwriting a lot more and lost a lease and just economic. Vacancy across the board. Yeah. We might increase our g r or gross potential runs, but we’re gonna, we’re gonna, we’re gonna increase the other stuff too, to offset that, and then you’re hoping within 12 day, 18 months you’ve been able to kinda, cycle through a tenant based and now you’re stabilized and that now you’re back to where you should be.
You know that, that would be, those would be my advice on the top line stuff. Awesome. Now let’s flip the coin and talk about expenses. What is two, three things that you like to do? To reduce expenses for the property? And it’s always easier to drive the top line than it is to decrease expenses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We’d love feedback just as well as we love the compliment. So thank you everybody and we’ll see you soon. Thanks Joseph.
Episode 108: Paul Moore
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Welcome to that. Multi-Family Operators Podcast.
My name is Joseph Gaza and I’m the host. And today we have Paul Moore with us. He owns and operates multiple properties and he recently expanded to self storage and mobile home park. Welcome Paul. Hey, great to be here, Joseph. . Awesome. Why wouldn’t you take just a few minutes to introduce yourself to the audience and let them know who you are and what you do?
Okay, fantastic. I got an engineering degree about 32 years ago, and that was my first mistake. And , I’m lighthearted today cuz I just did a podcast called How to Lose Money, which you were on. We were glad to have you as a guest about a year and a half ago. And but yeah, that was a, the, that was not a really good fit for me.
So I went on and got an mba, went to Ford Motor Company, worked there for about five years. And though I love Ford, I actually found myself tinkering a lot on the side. I was looking for a side hustle, looking to make money and start something. And so we eventually started an HR outsourcing firm. And my partner and I did that for about five years.
We were nominated at, we were finalists actually for Ernst and Young’s entrepreneur of the Year a few times. And that got us some attention. We actually sold our firm to a publicly traded firm for quite a bit of money back when I was about 34 years old. I moved to the Blue Ridge Mountains of Virginia.
My partner had already moved to the Colorado Mountains, and I considered myself an investor, and that was my second big mistake because I didn’t know the difference between investing and speculating. Joseph, investing is when your principle is safe. And you’ve got a chance to make a return.
Speculating is when your principle is not at all safe and you’ve got a chance to make a return. And I didn’t know the difference. So I, a lot of people confuse, a lot of people confuse the stock market in Vegas. But at the end of the day, it’s the same thing. I tell you what it really is in such a great degree.
Paul Samuelson is the first Nobel Prize winner in economics from the us and he. If you, he said investing should be like watching grass grow or watching paint dry. If you want excitement, take $800 and go to Las Vegas. And so I didn’t understand that and so I made some really good investments and I made a lot of money.
In the last 21 years since I sold my company, but I also made some horrible investments and lost a lot of money as well. And so over these years I started, we started flipping houses before flipping was a thing. I ended up on H G T V. I did. I sold, bought, and sold all kinds of high-end waterfront. I tried to be a builder and you shouldn’t be a builder Joseph if you don’t even know how to tighten the doorknob on your own door.
But my subcontractors realized that really quick and they started taking advantage of me. Hey, I bought one of ’em a bulldozer, and I tell you, it was a really difficult time and I had more money than cent. And of course, the money started draining away and I found myself two and a half million dollars in debt as.
Fell off the precipice into the great recession of 2008. I was completely debt-free 13 months later, and that was an awesome little story. But at any rate after that, we got into we built a multi-family property in North Dakota for the oil workers there, and we made a ton of money. Plowed some of that into a Hyatt hotel, which we built after that.
Oil prices unfortunately went from 110 a barrel at their peak to 26 at their trough. Something about oil just a little bit and and so we actually did not do well with that Hyatt hotel that we had built for the oil executives coming to North Dakota. It’s still the nicest hotel that I’m aware of in all of North Dakota, but we don’t own it anymore.
I’ll leave it. At any rate, we actually it was my partner. I was really helping him out on that one. But at any rate I decided I really wanted to get into something safer. I really wanted to do commercial real estate, so I got into Class B value add. Multi-family and I ended up writing a book on that.
That’s still selling pretty well on Amazon. But like you said, we’ve recently expanded into self-storage and mobile home park investing. So enough about me. What do you think of me, ? What a wonderful life story, man. I, the high is the lows man. No, that’s great. Thank you for that introduction. Let’s start with the simple questions.
How many units do you own these days? So right now we have expanded from, we sold off quite a bit, including our portfolio in North Dakota. We at, when we reconfigured as Wellings Capital a few years ago, we spent. Better part of three years beating our head against the wall because all of us are in our fifties, I should say three of the four of our company are in our fifties, and we were determined Joseph not to overpay, and so we would only bid up to what we thought made sense.
We didn’t stretch the proformas. We didn’t take. Big risks and we found ourselves getting beat out time, after time and not even bidding on a lot of other things. And so we actually we have one asset right now. It’s in Lexington, Kentucky. It’s 125 unit town home development. And since then, we’ve opened up two funds, which is the Wellings Income Fund number one, and the Wellings Growth Fund number one.
And we have 22 assets in those two funds. That includes a little bit of multi-family a lot of self-storage, and quite a few mobile home parks. Awesome. Today when you invest, what are you looking for? What class, what size? So we, we feel like it’s quite a bit risky to go on the brand new class, a side for multi-family.
And we feel like it’s quite a lot of hassle. Huge hassle to be investing in the Class C and D side. So we really are, we really do like the Class B 20 to 40 year old for multi-family, for self-storage. We’re looking for assets. I’ll just touch on this very briefly that are in where we’re looking for holes in a demographic map where there are a lot of people but not a lot of self-storage and high visibility on a main road.
Mobile home parks we’re. Looking to be fairly near population centers. We don’t want it to be way out in a rural area, but mobile home parks are crushing it. There’s a decreasing supply, an increasing demand every year. And so we are really hot on a all kinds of mobile home parks at this point, but we don.
We generally like to be in the top 50%. They’re tiered differently, they’re based on star system. We like to be in the, three star, which is like of middle of the road or above. Awesome. Thank you for that. So if you can take us through one of your most successful stories of ownership and one of your most unsuccessful stories of owner.
Just tell us a little bit about the wins and a little bit about the losses and lessons that you learned in your operating career. Okay, so in our Lexington, Kentucky property we, one of the things I think we did, I, I still, every time we think through this, we think that was the right thing to do and that was the wrong thing to do.
What we did is we had to have a 90% we had to have a 90% occupancy when we closed, and they were hovering right around 90%. We did a ton of due diligence. We had. Four teams of people there, our team and a property manager and a COAs asset manager, and then some other folks on the ground that are with us.
So we really have three, three main teams of people on the ground. We did a lot of due diligence, but the person, the company that sold it to us, we don’t. We don’t wanna say publicly that they were not being honest, but it seemed that there were some funny things in the books in there because when we took over the property, we had to be at around 90% and we offered a bonus to the property manager and the assistant if they were at 90% or better.
They miraculously were right at 90% when we closed, and we. Of the hundred 25 units. I’ll just summarize and say we had about 41 skips or evictions right after that. And so it was supposed to be a stabilized property, but it was not at all stable. And I’ll tell you that they had been apparently leasing the people that we wouldn’t have leased to if we would’ve been the property manager.
I think what made that more difficult, Joseph is. We wanted, as everybody does an all a team, and when we first got in there, the regional property manager, which I think I had not, I had underestimated the importance of the regional property manager. And then of course the on the ground property manager, I would say the regional property manager that we hired, they put in a new person in that position right when they started.
And I’d say that person was about a D player. And then the property manager themself was about a C player. And so we had to go through this massive turnaround that we didn’t expect. And so five months into that we, five months into this, we found ourself really not doing well. . And so we f pretty much we forced them, if you will, if they were gonna stay on board with us to give us a much better regional property manager.
When this great a player, regional property manager came in, it ended up causing the c. Level on the ground property manager to quit because she didn’t want to have that level of accountability. And so we ended up with an A property manager after a few month gap, and now things have been on the upswing ever since.
Other than. $107,000 water main break, which crushed our income for a couple quarters, to be real honest with you. Yeah. So there, there’s a lot here. So let me take it a step back and start constructing that, that narrative a little bit. So you started with, we needed 90% occupancy. For the people that are out there that don’t know, I’m gonna assume, and correct me if I’m wrong, this is because you were taking an agency.
Yeah, and Fenian 30 requires you to, in order to get agency, that they wanna see a stabilized property. Usually it requires 90% occupancy for at least 30 or 60 days. So was that the case? Yeah. And we were showing 90% physical occupancy, fortunately. Yeah. So this is the other side of things, right? As operators, we gotta be careful with what we incentivize.
If you incentivize occupancy then obviously you’ll get occupancy. Yes. Do you have a pulse? You are in. And that is really the wrong way to screen. Tenant. And really I’ve seen people, owners that are their screening criteria is ridiculous. I’ve met an owner and I was talking to him and his onsite person, he’s like, how do you screen your tenant or your prospect?
And I got answers like we’re looking on their Facebook and stuff like that. It’s guys, if you don’t screen with background checks, criminal checks, rent, history checks, you’ll end up with people that will be on the property a month or two. Then they’ll stop paying because these are professional tenants.
That’s what they do. They hop from one property to another. They can literally pack her their entire apartment into the backpack of a into the back of a pickup truck, and they move on to the next. So you wanna be very careful with what you incentivize. And I’m gonna share with the audience a little thing that we’re looking at and we’re in incentivizing.
So we told our teams on the ground we’re gonna take total dollars collected at the end of the month. Divided by the number of unit, and we’re creating a competition between our different onsite managers. So when you look at dollar collected, it’s a combination of occupancy and collections. So you drive, that’s like RevPAR for a hotel.
Yes, exactly. Revenue per average room. Exactly. So that’s why they, it drives them both for, to increase occupancy and to get better on collections. Because if you have a property that is 90% occupied physically, but half the property doesn’t pay, then you’re really only at 45% or 50. Economic occupancy.
So that’s really important for people to understand that. And then we, you talked about the regional and the onsite manager, and what I’ve learned really is the most important skill set, and I’d love to hear your opinion about that. But the most important skill of a property management company is their hiring skills.
Everything else falls second. And it feels a little bit ironic that we buy properties that are five, 10 million, 20 million properties, and we hand over the keys to people that their pay grade is 40, 50, $60,000 a year. So isn’t that crazy? It is in some ways, which is why this podcast is about operations.
It’s about asset management. It’s about knowing, even if you’re working with a third party property management, knowing what to ask, when to ask. So I’d love to hear a little bit more about your interaction with that regional supervisor. What did the first one, what did she do wrong? What did she not do, and how did the a class, A level player come in and change the picture?
We knew there was a problem when we closed on December 7th, 2017. On December 8th. In the morning we got a call or an email from her saying, Hey, the copier’s broken. We’ve already got a quote. We can get a new one for $6,000. In the small facility that, honestly, there’s not a lot of need for copies.
And we said, wait, you already got a quote for a new one for $6,000? Yep, that’s right. And we said have you checked on fixing it? We’ll get back to you. And they were able to get it fixed for $156. And that bothered me to the core, and I was immediately horrified. Literally the celebration of owning this new property within hours, business hours of owning it, all of a sudden it just became like this horrible feeling wait a minute.
This is a regional, this isn’t like a assistant leasing agent, this is a regional manager suggesting this. And I don’t know, I I know people out there my former business partner, for example, would’ve probably called the company and demanded her being fired right away. I just know how hardcore he is and I kind of wonder, one of the lessons we’ve learned from how to lose money is be ready, higher, slow, like you.
But be ready to fire fast. . And we let this go on for almost six months before we just said enough. And that was just a prolific, horrible memory and that kind of stuff. Not to that degree exactly, but that kind of stuff went on. I dropped in unexpectedly two or three times and.
There was a couch that was sitting by a dumpster that had been there the time I was there before a month or two before. That was completely discouraging to me. And so yeah, we would have those conversations. I actually got to know the vice president of the company. It’s a fairly large company, and I was fortunate enough that she agreed with me and she took.
Okay. So let’s talk about the company. You don’t have to say the name, but how did you choose that third party company? We’re in a mid-size city, as I mentioned earlier, and so it was hard to, they didn’t have a lot of the really big national players that we would’ve loved to work with there.
And but this player actually, Very high reviews. I had actually stayed in one of their apartment complexes that they directly owned and managed years before, and was very impressed with them. And so we checked their reviews. We checked online, we checked their references. We talked to a lot of other people.
I’m in a mastermind group with people like John Cohen. I think you know John? . And he had good things to say. And so we and they were the best, largest national player in that city that was, at least, that had a presence in that city. And yeah, we, I think we checked really thoroughly and I don’t regret that.
Yeah. So I think I can echo your experience with I’ve heard a lot of other owners talk about using large national companies or la large regional companies, and those companies are hit and miss based on the regional and the person on site. So they could have the best system and the best processes and the best manual, but if the accountability’s not there and the processes are.
They don’t confirm that the processes are being followed correctly. Then even that doesn’t help. Okay, so with that I’m assuming you don’t use the same property management across all your assets. Especially since you have different asset classes. Oh, absolutely not. No. So we just real quickly on this we, in our fund model, we are actually working, partnering with, we’re raising money into other operators deals.
So we’re not even the asset manager on these other 22. We basically decided to trade control. For trust. We basically are saying, Joseph, look we spent months and months getting to know these operators and by the time we get to know them and really trust them, we’re saying, okay we’re handing you our trust.
Your, your track record is amazing and we trust that you’re gonna continue to take care of us and our investors and so far we haven’t been disappointed. At all. One of the operators we’re working with the c e o has been with his own company. He started for 42 years. One of the other employees, 20 41 years, another 1 38, another 35, another 33, another 30.
And so that’s their, that’s almost all their executive team there except one or two. And That’s an impressive and they have a Disneyland clean standard. I literally got to one of their self storage properties. Once I showed up, the guy figured out who I was. He was already super friendly and outgoing.
He had been working there. Imagine this a manager at a self storage facility. He’d been there 15 years. And he started apologizing for the leaves on the ground in the parking lot. He said, this is the time of Santa Ana winds here in Southern California. There’s some leaves. And I looked out, I couldn’t see anything but a handful of leaves.
He said, yeah, I’ve already cleared the lot. Three two times today. I’m about to clear it for the third time. That was truly their standard, and it shows it. Shows. Awesome. So we had a little conversation before we started recording this and you mentioned that you took a step up from the being the actual operator to creating the fund that works with operators.
And I thought it’s gonna be very valuable to our audience that is gonna, is composed of actual operators to hear how it is to work with someone like you. and what was the thought process behind stepping up from the operator to the fund level? Because I’m sure that’s a subject that interests a lot of our audience.
Yeah, so I spent a lot of time over the last couple years reading Gary Keller and Jay Papasan’s famous book called The One. And the book convinced me that I needed to do one thing really well. I’m also close friends with a guy who ran for a governor of Colorado last year. He was actually he flew me and my family over here yesterday from a resort.
We spent a day with him and he flew us back here over the Blue Ridge Mountains. It was a lot of fun, and he said, I’ve rubbed shoulders with all these billionaires over the last several years, and there’s one difference between. Them and us. He said, he and I went to college together.
So we’ve been friends and partners off and on all through these years, including the North Dakota deals that were very suc. The one was very successful. But he said the big difference between them and us is they figured out in their early twenties what they wanted to do, and they did it.
They. Hyper focused on it. They said no to 10,000 distractions and they kept their nose to the ground and they become, they became the premier expert in their field in that. And, people like Bill Gates did that. And other people have just stayed very focused and said no to a lot of distractions.
and I realized that for me, being a money razor, an asset manager, an operator, an acquirer, having the acquisition pipeline, all that and a lot of the other roles I really didn’t think that I had the bandwidth to do all that well. And I realized I really love working with investors and I really don’t like all the details of operations.
And so this was a good fit for me. I was hoping that one of our other partners on our team would step up to that. But we’ve realized over the years that we’re all all three of the major partners of Wellings Capital have the same orientation. We’re all oriented towards working with investors and raising money and.
Not so much toward all the details of operations. And so we hired a really sharp young man who is oriented that way, and he’s our liaison between us and the operating folks. Okay. So how do you vet your operators? You mentioned earlier, Yeah. You found a company that is Disney Clean, right?
How do you look for them? How do you reach out to them? Do they reach out to you and what is important to you in an operator? Yeah, so when we decide we wanted to start a fund, we wanted to give diversification across geographies, across a few different recession proof or recession resistant asset classes.
And we wanted to get some great operators, and so we were looking for operators. Who didn’t have alar a significant money raising machine of their own, although one of them actually does raise pretty money pretty well on their own. Who really focused on operations, who have a team, a cohesive team that have been together for hopefully decades like the one I mentioned.
We’re looking, and this is not more than just a group of independent contractors, but a team. Cohesive and works together. We’re looking for somebody who uses a professional property management team of their own, whether it’s internal or outsourced. And we’re looking for people who give timely regular communication, thorough communication people who will communicate with us well through the whole process.
We believe if, if they’re not communicating well, giving references, forthcoming with all kinds of details while we’re vetting them, that it’ll certainly just get harder after we invest. So we’re, we’re spending a good deal of time also, just trusting our gut sometimes.
Sometimes everything looks perfect on paper. It checks all the boxes, but something’s wrong and it may not be some horrible thing, but if we’re just not a ho, totally sure, we tend to walk away from an operator or a deal because we really want to learn to trust that. I just think we’re all created with some kind of inner knowing, some kind of a ability to read.
Body language or something being wrong that we can’t put our finger on. I think ladies are better than men in general in reading this. And I’m trying to learn from my wife how to read those type of things and follow my instincts. Yeah. So that’s the second time I hear you talk about listening to your gut.
And I think I’m a big believer in that. I think that. The way I rationalize that is your gut feeling is your reptile brain taking the entire decade of experience that, that, that makes you who you are. And compute everything and assesses risk within a half a second. Yeah. That is really what your gut is.
And I always tell everybody, just trust your gut. And there’s the reason why this mechanism has evolved in human beings. And like I said, there’s some people that have a more evolved sense of it, and some don’t have that. But for the most part, everybody has some sort of a gut feeling. And I say trust your gut and work with this thing.
Yeah. It’s very true and it’s hard when all the numbers line up and you’re already thinking down the road to when you’re gonna collect that million dollars, but you know that there’s something in your heart of hearts that doesn’t line up. It is hard, especially I think as men and as entrepreneurs, we’re optimistic people by nature, so we wanna believe the best, and especially if we’re honest.
We wanna believe other people are honest too. And so it makes it hard. And I’ve had to learn, I’ve actually gone to this level with this Joseph, if I chose somebody who is very, almost completely opposite of me and they’re intimately involved in our company and I’ve said, I will not do anything unless you completely.
So basically I’ve given him authority because he’s this more of a cynical, let’s always say no kind of guy. And so if I really want to do something and I presented him an opportunity at 10 30 this morning and by 11 he was saying, I just don’t think so. And it was hard. Maybe Matt. But I’m gonna, I’m not gonna override him because he’s often been Right.
Yeah. At the end of the day, the best deals are sometimes the one we didn’t do. That’s right. So that’s I think I agree with that. I’m, I feel that myself, I’m very much like the person you’re describing. I start every property underwriting with the approach. I don’t wanna buy this property.
Yeah, that’s good. Now convince me otherwise, right? Let’s go through all the motions until I run out of reasons to say no. And if you agree, you get through that last cycle where I ran out of reason to say, no, I don’t wanna buy this property. Then we go ahead and we pull the trigger on it. And you know what, yes, you’re right.
It’s frustrating sometimes you see people do deals all around you and, everybody puts notes and announcements on Facebook and LinkedIn and Twitter and social media gets a lot of attention these days on multifamily. But at the end of the day we take other people’s money, we take investors money, and we promise them that we’re gonna protect.
and I think you made a very interesting statement earlier in the podcast. That investment is where your principle is safe, and you have a r a chance to get a higher reward versus speculative where you are risking everything, right? So this is why we, I look at things that way, is because the highest priority is to protect our investors’.
The and by all means and I’ll ask you that in a second, but we always put our own skin in the game. We always invest in our own transactions, and so protecting the investors is also protecting us. . And this is one way that we create extreme alignment between us and our investors is make sure that we have skin in the game.
And to date, me and my partners al, have always been the biggest investor in the deal. So that’s always hel, helps with aligning the interest. How about you guys? I know that at the beginning you were putting a lot of your own money into the deals. Yeah. What about the funds? Are you invested in the funds as well?
Yeah, we’re investing in the funds and my goal is to invest much more. In fact I’m selling a piece of waterfront property I have from leftover from pre-recession, believe it or not. And as soon as it’s sold, I plan to plow all that money split it about evenly into our two funds. So very much believe in that as.
There’s something different when money’s invested versus a ton of time, and I can’t put my finger on it, but it seems that there’s just something different, isn’t there? I can tell you what it is for me at least, right? The way we structure the deals is we give most of the returns to the investors.
If I only work for the asset management fee or the split of the profit, then I’m not gonna make a lot of money. I’m gonna make good good money, but I’m not gonna make a lot of it. And any hiccup that happens on the property, like you mentioned, right? I work for free because investors gets paid first.
So for me, making sure that we invest ourselves, the partners, we invest ourselves is a way to make sure we get a piece from the bigger side of the. And so that’s what it is. It’s not about the hours, it’s the fact that the hours don’t make as much as the guys that put the money in. Yeah, that’s very true.
Very true. Okay between the Lexington property and the other assets that you guys have under the fund do you get involved at all? How the property management is running or how the organization is interacting with the residents. So with our fund, we are really not involved. I can imagine a scenario where we could be, but our plan would be to not be involved at all with the fund assets.
We’ve, like I said, we’ve traded control for trust and we’re trusting those operators. Far more experience than we ever would, and we, they have teams that are already doing a great job of that with our Lexington property. Absolutely. Yeah. We were on a call without property manager for half an hour today.
We’ve done a weekly call for better part of a year over a year. And we were on, talking to them about how many carpet. To trash and replace with real hardwood floors. We have real hardwood floors in this property under old dingy carpet. And wow. That’s one thing we want to do, and now it’s more, it’s $1,100 more per unit.
To refinish the hardwood than it is to just replace it with carpet. So it’s a harder, more expensive road. But we’re, we’re making decisions like that. We’re making decisions for other things. And the property managers, of course, carrying out our decisions. . Interesting. So do you do anything for the residents, like event or parties or anything else?
Yeah, we have so you’re probably familiar with Apartment Life. , that’s in Dallas apartment life.org. Pete Kelly’s the c e o, it’s an amazing organization and they help coordinate somebody to go on site at large apartment complex. And coordinate events they might make backpacks for kids going back to school.
They’ll host parties. They’ll host movie nights. They’ll give out snacks or coffee. They’ll go around help with resident retention. They’ll go out and they’ll pass out Amazon packages that have accumulated in the closet. In the apartment office, we had a massive number of Amazon and u p s packages that were accumulating in our apartment.
We couldn’t believe the office. Some of these were weeks old and somebody had never come to pick ’em up. So they go out and they pass out these for free and they interact with. They try to be an intermediate person between, between the management, the ownership, and the residents. In order the residents might tell them something that they hadn’t officially complained about, and then they, that person from apartment life can go tell the management before it becomes a bigger problem.
So yes, we do we think it’s very important. These aren’t just boxes, if you think of your childhood home, Joseph and I can picture mine right now, these are these, some of these people, this is their childhood home. This is the place they’re gonna remember. This is where a new baby’s gonna be born and grow up, or this is gonna be, where the elderly have their last resting place on this earth.
So it’s really important that we create these boxes are not just units, they’re actually homes in these homes. We wanna link together and become a community, and that’s why we used Apartment Life, and that’s why that’s one of our. Goals as we do as we do what we do with multi-family.
Awesome. Can you share with the audience what has involved cost wise or logistics wise? Yeah, a typical apartment complex that would have apartment life might be a couple hundred units or more. So they have a consulting arrangement with us because we only have 125 units and they charge us, honestly, not a horribly, a high amount.
And then we provide a free. Place to live for that apartment life rep. Now, if it is a normal size apartment that uses apartment life, which would be 200, 300, 500 units, they would provide a free apartment. They would also pay a about a probably a thousand or so dollar a month fee to apartment life.
And then they’d give the apartment Person on the ground. I think it’s either a one or $2 a month budget per apartment for their monthly activities. And that’s what we do. We give ’em a $2 and 50 cent budget, so it’s about $300 a month he can spend on parties and stuff that they do.
Interesting. Okay. Yeah, definitely something worth checking out. And we’ll put a link in the show notes. So you got into this property and all of a sudden it’s half empty. What’s the steps? How do you get out of this hall and how long does it take? Are you out of the hole? I don’t know how long ago it happened.
Yeah, whatever you can share with us. Yeah. I think the whole, the worst part of it was nine months ago when when the, a lot of the people who had been put in there the last three or four months before they went to sell the property had come to time of eviction or skipped out. Or not renewed. And so we had our economic occupancy drop to a dangerously low level.
Thankfully we had some reserves and we had we, we were able to cover that at the time. But no, now we’re up in the 92, 90 4% occupancy range. We’re hoping, we have every reason to. That we’re gonna be in the 97, 90 8% occupancy range within a month or two. And I don’t have any answer for the steps to get out.
I think it’s just you’ve gotta address day in and day out, just do the right thing and you’ve gotta just keep plowing away with all the things you know to do and improving what you’re doing all the time. Thank you. Appreciate you answering that with the honesty. Because I personally believe we learned more from mistakes and challenges than we learned from success.
Let’s do a quick questions. What’s your go-to method to increase income that is not just raising rents? Yeah, so I’m gonna answer this if it’s okay with you, across mobile home parks, self storage and multi-family. One of the value formula in commercial real estate’s. Powerful value is net operating income divided by cap rate.
And so we can force appreciation For example, with self-storage, we started renting U-Haul, and that increased the income by $3,000 a month. Now quickly, let’s do the math. 3000 a month is $36,000 a year and $36,000 a year divided by, let’s say a 6% cap rate. If I’m not mistaken, that’s about a.
Hundred thousand dollars increase in value just by adding U-Haul. That could be a 2020 5% bump in appreciation to the value of the property by a simple change. Another example is a mobile home park where they said, okay, if you’ve got a. Over two cars. If you’ve got three or four or five or six cars, or an RV or a boat or a work trailer, you gotta put it over out of the way.
And so they paved an acre of weeds and they put a nice fence and a gate around it, and they’re renting that now. And when it’s all rented up, it’ll be $10,000 a month in additional rev revenue. Joseph, it only costs them a hundred thousand to do it. So 10,000 a month is 120. Annual ROI on that a hundred thousand they spent divide the 120,000 again in revenue per year, or additional income, I should say, by a 6% cap rate.
That’s 2 million in additional value to that property. If that property only costs 5 million and let’s say there was 3 million in debt, 2 million in. That 5 million just went up to 7 million, but the equity just doubled. Doubled. Wow. I love commercial real estate. And so that’s the multiplier. Yeah it’s so powerful.
And so that’s a couple ideas. How to increase income with self storage. You can also add a showroom, sell locks, boxes, scissors. Add admin fees, application fees, late fees. With mobile home parks, you can actually go out and buy those covered parking areas and charge, put it, bold it right onto their trailer, the carport, excuse me.
And for a thousand dollars, you can, even if you rent it for an extra 15 or $30 a month, it powerfully, impacts income and the value of the property. Here’s another. A mobile home park operator. I know the Disneyland clean guy. He actually will tell people, we’ll pay you $15,000 to move your mobile home park mobile home into our park.
And I said, you’ve got to be kidding. You’re throwing away money. He’s no, do the math. And again, the same math I just did with the value formula, it works really well. It does, it definitely does because they never leave. because nobody else will give them $15,000 to move. That’s one thing, but think about this.
If their rent goes up from 300 to three 30 a month for their lot rent, that’s 10% increase. Where are they gonna go? Are they gonna literally spend $5,000 to move a mobile home down the street to save 30 bucks a month? Or are they gonna spend 11,000 to move their double wide down the. I don’t think so.
No, they don’t. Awesome. How about the other side? Like you said, NOI is the factor here. So every dollar you add in income or every dollar you drop in expenses. So what are some creative ways you guys found to reduce expenses? The one way I mentioned our, in our apartment, and this is just.
I guess it’s common sense, when we realized during due diligence that there were really nice hardwood floors under that carpet it was a pretty much a no-brainer. Yeah. It costs $1,100 more to finish those hardwood floors rather than just recar. But that’s gonna last for a long.
Long time. And so we were able to increase rent by $50 a month, but also decrease our ongoing capital expenses by switching to hardwood floors. Another way to this is more of a revenue enhancement. I We’re talking about, adding cell towers. Adding wifi for the community, that you can actually do that.
We’re doing a cable contract. We were that’s something we can do, but that’s increasing revenue. Here’s one to decrease expenses. The water and sewer bill at this property in Lexington was $110,000 when we moved in when we took over and the company was paying the water and sewer.
We calculated that it should have been about 50 or 55,000. So it was at least double what it should have been. We asked the guy, the maintenance guys, if they noticed anything funny. They said, yeah, the water level in the pool drops about six inches a day, but we just spill her back up. And we said, oh good.
Thank you for telling us. And so we actually put water meters in and that was about $60,000. But we, within a few weeks found out that toilet fla. All over the complex were needing to be replaced and you would not believe, I know you Joseph know this , but you would not believe how many tens and tens of thousands of gallons of water.
One toilet flapper can cost you over time. And so just. Fixing that saved us about 50 or $60,000. And then we were able to pass the cost back to the tenants, of course, the next year. And so that was a huge cost savings. Installing those water and sewer meters, installing gas meters, very similar for heat.
Awesome. Yeah, that’s great advice. Cuz I, I tell my maintenance guys and my crew is kinda we’re, when you see water going, that’s money bleeding. It’s big. That’s what it is. It’s very big. Especially if you’re in a smaller town. Like I know you guys are in, we’re in a smaller town, then the costs of water and sewer are so high that it is even worse than the main cities.
If you could go back in time and we’ll try to wrap up in, in a few minutes. If you could go back in time and talk to a younger you what advice would you give him going into multi-family and into all those adventures that you’ve been going through? We did a lot of residential homes and I interact with people all the time on bigger pockets and through podcasts who are beating their head against the wall trying to get that next house to flip or buy a duplex or a massive single family or small multi-family portfolio.
And Joseph. Almost all of them end badly. They almost all say they’re driving themself crazy. They can’t find the properties, or if they find the properties they’re, I talked to a guy the other day who had a goal of getting 20 properties so he could sell his oral surgery practice. He said, I’m up to four properties and I’m going nuts.
I’m making calls wondering where the painter is between my next oral surgery appointment and the following one, and I’m on the phone trying to figure out how to get a tenant at lunchtime. He said, I can’t do 20 properties. I talked to another guy the same day who had 300 properties. And he said, I have no life at all, even though I’ve got a management team in place, I have got to get rid of this and go passive.
If I could give my 20 something self or even my 34 year old self when I had my money from selling my company advice, I’d say invest in commercial properties, commercial multi. Commercial self storage, commercial, mobile home parks. The value formula is compelling. I can’t think of any other more predictable, stable way to build wealth and to save on taxes.
Said Paul. Thank you. I know you have a phenomenal podcast. I was a guest on it, and I always try to listen to it because there’s always really good, valuable lessons from all your guests. Why won’t you tell the audience a little bit about you, the podcast and about your book and maybe how to find your fund if they’re interested in investing with you.
Okay, great. So I’ve got a book called The Perfect Investment and the subtitle is building Multi-Generational Wealth from the Historic Shift to Multi-Family Housing that’s available on Amazon. At our website our podcast is called How to Lose Money. You can find that on iTunes, Stitcher, Google Play, or of course at How to lose money.com.
We appreciate you being a guest on there, Joseph. And wellings capital.com is our website where you can learn more about our two funds. That’s W E L I N G S. Wellings, capital c a p i t a l.com and we have a wellings fund income fund and a Wellings growth fund. And we would love to chat with people about that.
This is for accredited investors and the minimum investments, $50,000. Awesome. Thank you so much, Paul. You’ve been a wonderful guest and I really appreciate your time. Thanks, Joseph. It was an honor to be on here. Awesome. And to you the audience. If you’re interested to learn more about multi-family or you want to look our podcast app on iTunes and stitches and everything else, our website is apt o p r.com and we’ll see you next time.
Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.

Episode 109: Kenny Wolfe
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Hey everybody. Welcome back to the Operators C Podcast, and today we have a little bit of a different format.
We have Kenny Wolf here. Hi Kenny. Hey Jessica. How are you today? Awesome. Thank you for being on the ship. Thank you very much. Absolutely. So Kenny’s gonna give us a couple of minutes, just a little bit about who you are, what’s the portfolio looking like these days? How does the organization look like?
Sure. Okay. Good. So we Wolf Investments we’re up to, we’ll be up to about 4,000 units by the end of the year. We’re in four different states Texas, Oklahoma, Louisiana, and Ohio. And we’re in multiple markets in Ohio. So that’s what the size looks like. Our organization, we’ve got about four and a half in the office here.
Now the half is a real full person, but she works halftime part-time. And then and then we also have a ownership and a management company here in Dell’s Fort Worth allied Property Management. That’s offsite. They, their headquarters is in Mansfield. They’ve got about 180 employees now that we’ll definitely touch on that one.
All right, good. And then we’re actually about, we’re in the midst of signing the contract for by another management company up in Ohio. So we’re trying to bring that in house and then start vertically integrating even more than what we’re doing now. That’s phenomenal. So have you been doing that for 30 years?
No. No. So we’ve been, so we’ve been we got into multi-family, almost nine. Awesome. So in nine years you got to 4,000 units. I know you sold a few along the way. Let’s go back a little bit to the beginning. Did you obviously didn’t start with owning a property management company, so did you use third party? We did, yeah. We used third party for a while there. I got frustrated and then, so my option was to either build one or to buy one and buy one was a much way better way. So what was the trigger for you? Because we talked a lot about operators and some of them are still using third parties.
Some of them swear by third parties, and some of them are, like you said, frustrated and ready for the next step, but they’re on the vert. So what took you over that threshold? So I finally got it fed up cuz I would’ve to correct their accounting every month. And they wouldn’t listen to me.
And so I said, okay, if they don’t listen to me, go buy one. And then they will they have to. So that’s what what triggered the big jump to do it. I think we get a better product by doing that. Management companies are, there’s a lot of mediocre management c companies out there.
It’s a very fragmented business. So it’s also a way for us to put a touch our, our touch on a management company, make it that much better than. Us. Yeah. And for the audience, it’s goes back to a theme we hear a lot with control and brand control and quality control and getting things standardized across all the portfolios.
So we’re hearing the same things from you. When was the, when did you do that switch? When did you buy the property management? So we, so I bought now one 49%, so I don’t have the whole thing. I met a high minority interest the so we did that a year and a half ago. That’s when we made the, made this made the jump.
So tell us a little bit about the changes that you’ve seen happening in your property since you did. So part of the, Tina with Allied to to grow that management business, and by doing this, by teaming up, we were able to hire better talent. And like our CFO at Allied is was the CFO for the Crow Family Trust for 20 years.
So that’s an accounting level we have now. No one can touch our accounting. Yeah. Now we’ve got the best. And then we just hired a executive VP of operations from Lincoln. Or so we’re starting to we’re all the profit we make at Allied Redhouse come back into hiring better people. So that, that’s one thing is I can direct, we can direct, not we, I’m not, I, but we can direct hiring’s best people and you’re doing the best practices.
, our, I think our reports look good because I, I said I had it from an investor point of view. Okay, this is what I want to see this is how it should look. These kind of things. So I can make my my suggestions as an, as a as an investor on the investor side too.
So how does it look like in the field, right? Is it better occupancy? Is a higher rent? Is it better customer satisfaction surveys? What does. Properties feel by you owning in a property management company? So well so my accounting is, my background is in accounting. So that’s a number one.
If you’re an investor or an operator, asset manager, and you can’t trust your accounting, you’re flying blind. So to me that was a big deal. And now I, now I. A hundred percent trust our financials. Cuz now we’ve got the best guy in there. And then also too, now we’re seeing, by hiring that Lincoln Property Group guy, now we’re seeing like, okay, this is how the big boys do it.
This is how the institutional guys run their stuff. So we’re getting better practices than what I’ve seen in some of the other third party operators that are, I mean our probably twice our size, so I think we’re, by hiring those outside guys. Of more institutional level experience.
We’re getting that institutional level quality in the reporting and on the regionals in the management side property management side as an institutional, but we’re still, but folks are still able to call up the CEO and get her on the phone. Yeah. So it’s that balancing act that we’re trying to do.
Okay. Yeah, no, cuz that’s something we hear a lot from other operators is Theng, Goldilocks kind of thing. We want not too small, but not too big. So it sounds like with your company, your investors basically are getting a big company, systems, processes, but a small company. Attention feel, right?
Yeah. And it’s also by buying that this next management company, it’s gonna, that’ll put us about 10,000 units under management across four states. And we like, that, that’s gonna really help our, the the folks that use us as the management company, because our insurance rates just got a.
Yeah, because now our master policy is 10,000 units instead of 4,500 what it is now. And it’s multiple regions. So it reduces the risk. Risk, and so that, that’s gonna be massive. So there’s ways because we’re growing on the management side and getting bigger and more geographically diverse, not just on insurance, but there’s a whole slew of other options that we’re gonna be able to roll out, which is exciting cause So we are building a better mouse track, we really are
That’s great. Let’s talk about the asset management, right? You guys. Buy properties, you raise money from investors. So asset management is still part, even though you own the property management, asset management, somebody needs to hold them accountable. Sure. For sure. Yeah. So how does that look like today in your organization?
Who does that? And how did you used to do it? I’m guessing you used to do it yourself, right? Yeah. And how did you transition? Because we talked to a lot of operators that are still in the phase where they are the asset managers. And you’ve done the transition, so let.
From when you used to do it to what it is right now? Sure. Yeah. I, it used to be like a one man band, like everybody starts out. But we started hiring people. So here at the office we I first started hire, hired a marketing slash assistant additional marketing. Cause I have not, I’m not a good at digital marketing.
So that was a big deal for me to be able to add that touch for social media and all that kind of stuff. And then the third hire was an asset. So I could start training him up on how to or how I asset manage or how to and pass that off on, on him somewhat. I’m still pretty involved with that.
I’m gonna make platinum setups on America this year, about flying around, but but he does a lot of it which is great. He’s in Middle Rock today, checking out some stuff for us so it’s good to have we can cover more ground that way. , sometimes we travel together to a property, especially if it’s new.
, it’s get on the same page. And then once we have the rehab set and all the kind of the big high level items we want fixed from the get-go, then then sometimes I’ll back off and let him go. Especially to Columbus in January and I’ll pass that in July. So yeah, , so you get to pick and choose what do you want to go, like when you want to go around.
That’s Phenomen. So how does that look like, right? So is it a weekly call with the onsite team or is it a monthly call with the regional? Give us a little bit more of a feel of how involved you guys are. And again, before and after only a new own property management. So we still, so we, so so the management company that you bought into, they run it they’re.
Entity. So we treat it like that. So she runs it, Nicole runs the, that management company. She does all that. So our job here at Wolf Investments is is to manage those assets. So it’s just it’s, it would be just like we were using a third party or now basically, on our side.
So we’ve got a weekly call with regionals. Most of the time the, those onsite manager are on that call. So we’ve got a weekly call with regionals onset manager. We also have a weekly call with our rehab crew. So if we have whatever properties we have, show ’em that kind of big rehab construction phase we’ve got a weekly call with them to make sure everybody’s on the same page.
And then on that call I try to make sure all the regionals that are, that are in those properties that have the construction around that call as well to make sure everybody’s communicating properly. Yeah, so communication is key. Communication is. Yeah. So how does that call with the onsite manager and the regional looks like?
What do you cover, what do you ask? What do you expect to hear? So I’m, I’m a numbers guy. So we start off with the numbers what’s our occupancy, what we preleased. And some, one of our properties was like constantly, we’d be at like 93% occupied, but 87%.
And it was the strangest thing. And it’s been that way for, it was that way for five months. And then finally I’m like, look, we gotta flip that. We need to be 95% on pre-lease. And then it was and it’s a, it’s an a class deal, so it’s a little different to manage anyways, but but we would always be at that 92 3% occupancy, which is fine.
But, so anyways, most of the time it’s higher than that, but but the weekly calls the numbers are first. And then let me go down to if the, if any, if there’s any major changes. Obvious it’s gonna be on the numbers side and then we look at the revenue collected that, so far that, that month.
Any kind of challenges, with the, that the manager brings up or the regional we try to really promote that. There’s no right answer, there’s no wrong answer. We just need to know the exact information and then just deal with it. Any issues with, operations to onsite stuff?
Intent in our car, in our building with our car this week or not, I don’t know. Stuff like that. You hear the operational stories as well. Yeah. We have had those two . So no it’s a really good point, and I think you said it as a, as an offer mark, but it’s really important, right?
Those conversations. . When you have the onsite manager online, sometimes they feel intimidated, right? The asset manager or the ownership is on the line and they might not be open, and they need to know that no matter what they say. We’re not there on the call to scold anyone or to punish anyone.
We’re there to try to figure out how we can do better. So even if the property is not performing the best, right? It’s all about what can we do better? What’s the feedback you’re hearing from the applicants, right? Where do you do your marketing? What’s the traffic? How can we increase traffic?
And so on. So it’s always with. Solution mindset right. Versus a blaming kind of mindset. Cuz that’s gonna go nowhere, right? Yeah. You had tried more bees with honey, right? That’s what they said. Yeah. In Texas here the yeah, you wanna, and also too, when you go, that’s why it’s also important for owners.
And asset managers to go onsite. Cause you’ve gotta build that rapport. You gotta, take ’em off to lunch. It’s 20, 30, 40 bucks, whatever it is, how big your property here is, but do that small stuff , and build a rapport with them. And get to know ’em as a person.
And then usually that’s gonna be, that’s gonna pay off dividends because they’re gonna put in the extra work. They don’t want to disappoint. They like you if you’re a nice guy or a girl. But but that kind of stuff builds out rapport so that way you’ve got that when you do have those weekly.
And Oh yeah, we dropped 5% on occupancy this week. It’s it’s that they’re more comfortable saying that and said, okay, but, and then they follow up okay, this is how I’m gonna fix it. Yeah. So that’s what you gotta build that rapport with the onsite team.
Yeah. It’s trust thing, they gotta trust that if they say something bad, it’s not gonna immediately cause ’em to lose their job. Exactly. Okay, that’s great. Now you guys do a lot of value, right? Tell us, a few things that you like to do in the value add that that really helps push either occupancy or income up.
I, everybody knows that, you do value add, you get mixed, right? But what other values do you provide, or how do you interact with the resident that help you with that? So obviously tell you like, like the backsplash and the appliances and all that kind of stuff. Stuff that we like to do give that extra little touch is like that one of our higher end properties up in Columbus on a renewal.
We let ’em say, Hey, if you renew no cost to you, we do a, we’ll do a USB outlet wherever you. In the unit. So most of the time it’s in their bedroom or in the kitchen. We had a whole, I was in my boat, was just put in the kitchen when we first had this call. And the but then as well, I think I would want it in my bedroom.
We’re like, okay, then let them choose. It’s a, that’s even better. They’ll really like that. Make it their own. So it costs us I don’t know, those USB outlets are pretty cheap. 10, 12 bucks. Yep. Our guy in house installs it. But it’s that little touch you can give ’em where you’re bringing big value to their life by that small little outlet.
Yeah. But it’s a big deal. And when they get a choose where it’s at, game over. So that’s that kind of stuff. And then something else we do our little Disney magic trick that we do on on most of our properties. We will not tell a new resident when they’re moving in.
We’ll have a it’ll magically appear when they move in as there’s a two liter of soda, and then there’s also a free coupon for pizza a local pizza to place. . Cuz no one likes to cook when you first move into your unit. And if we don’t promote it like beforehand. Like when they sign release, we don’t let ’em know.
Yeah. It’s just, it just is there, right? Yep. So it’s that. I don’t know if you’re gonna to Disney where or anything like that. You go into the thing and there’s so many small little things that they do that they that, they don’t even promote, yes. But you’re gonna go off and tell your friends somebody like, oh my gosh, you know what the, you know what they did for me?
All these little things, so we try to recreate. Theses are two separate things that you mentioned that I wanna touch on. So the USB thing I love that idea mostly because there’s, the aspect of making it their own, letting them choose is huge. Cuz then they get that feeling of home, but in your own home you can decide what color you want, the walls and where to put what socket and so on. So that’s one thing. But the other thing is, It’s the gift that keeps on giving. So every night they’re gonna plug that charger into that socket in their bedroom and they’re gonna think about how awesome it is to live in that part.
Yeah. So that’s why I love that one. We do something very similar in our community, and that is we offer them when we have a renewal special, we offer them either a certain discount or we offer them a pair of movie tickets every. For a year. Oh, nice. As long as they’re pay on time.
So we of course lead them to pay on time. And then it is, again, every month it’s a pair of movie tickets. If they talk to friends or if they tag themselves on you on Facebook or Instagram or whatever it is, it just keeps on giving. So it is, it doesn’t cost a lot. It is what, less than 20 bucks for a pair of tickets.
It, it’s. Keeps on giving. Sure. So I love that you do the US beef thing and the thing with the soda and the pizza is, a lot of people don’t realize, but moving is psychologically more painful than a divorce. Or losing your job. And I think I read an article about it also.
It was ranked higher than going to the dentist . Yes. So it’s such a stressful thing. So just having. Is huge, right? A couple of bottles of water, right? It’s 60 cents and it makes them happy. On a property, we had a property that had laundry machines that were operated by tokens, Uhhuh,
So we had a little baggie with tokens sitting on the desk for them when they came in, because, , I need to do laundry and the office is closed. Where can I get tokens? And how come quarters don’t go together? It just saves the frustration. We’ve seen other operators that mentioned that they leave like a plunger with a toilet paper and a few little toiletries.
Because when you move in, what are the boxes? What am I doing I love that because, It makes the move experience much better, right? Yeah. And reduces some of the stress. And if they walk in with a positive attitude to their apartment, they’re gonna keep a positive attitude going forward.
Yeah. And then it’s also the resident referrals too. They’re gonna tell their friends about, about that. Yeah. Awesome. Give us a few things that you like to do to save on expenses, right? Because I’ve walked into properties and as brokers, right? We see a lot of P mills and it’s kinda like you spend that much on this, right?
A few things that you guys like to tackle immediately as you buy a property. Every property’s different. We just bought an A class in 2018. It was built in 2018, so bought it under December of last year. And then but we walked in. It’s oh my gosh, they were running it so poorly.
The payroll was twice what it should be. On, you just go down, you tackle the biggest line items first. So the biggest three, especially if you’re in Texas, are property taxes, insurance, and payroll. So optimize those if you can. Sometimes they’re low. Sometimes they don’t have enough.
On that. And then it’s also admin, utilities. Utilities. You can, really drive that down. I’m on the fence on, on the water conservation. To be honest with you, it depends on the state we’re in. Because if it’s a flat fee for water, then absolutely I’ll do the toilets. But if it’s a rub system, rebuild that back.
We’re a percent of a. So it’s so I, and I’ve heard it both ways. Some folks will say that, oh if they’re not paying as much water, then they can pay you more rent. That’s maybe, I don’t know if that’s true or not. Maybe they can send them their car or something, I don’t know.
But it is a factor, right? Because we see applicants ask What’s the water bill normally? But I think that, The rules and the regulations around that are so complicated that it’s really hard to predict which way is better. It used to be a lot easier with Fannie Freddy green Reward Program to do these things, but they just made the program so hard to maintain.
That I don’t see a value in that. And this year they cut the. Two months ago they just cut the I cut the rate discount. So that was like, it was like 0.02 that it wouldn’t say to you. Yeah. So that’s, so they changed it. One thing to know about the green reward program, I don’t know if you had a chance to experience that, but there is zero flexibility in this thing, right?
Yeah. Nail it. The, we had to, we had a green reward program property and the original engineer decided that we need to replace all the toilets, Uhhuh, , and we brought a water conservation company to do the project and they did the math and didn’t looked at what we had in, in the field and said, don’t do that.
It’s a waste of money because you’re not gonna get that gain that you’re looking. and Fannie would not hear any of it. Wow. So they forced us to replace, there’s 125, there’s $20,000 expense just for the sake of checking the box. And they had zero openness to even discuss that. So that’s the kind of thing that you are buying into when you have a green award. And I don’t think a lot of people are aware of that going into it, right? No, you, yeah. You. So yeah, so thank you for that. What about cost costing, cost cutting initiatives, right? Things that you can drive either by engaging your customers or your residents or talking to the maintenance guys.
How do you drive costs down? So so yeah, so having you also want to get to know your mainten. On onsite, not just the folks in the office. So get to know them because they’re gonna find the stuff where the, so this tool is running, they’re gonna, so you’re gonna make sure your maintenance guy is on it and knows okay, these are key importance.
If you hear a running toilet, we need that fixed asac, the lights on it in a vacant unit. or your any of your vacants you wanna set to ac, especially in Texas in the summertime, higher than you would if you would live, you were living in there. So it is those small little things where.
We had a property in Shreveport. We just we took over in April. He his electricity was just astronomical. Based on, part of it was cuz he had pretty high vacancy. But we knew a part of it was that, cause we walked in, when we did the due, the due diligence those vacants weren’t like 68 degrees and this is 400 units.
And he said he’s supposedly is 60%. When I say supposedly, cause it’s a whole nother Yeah. Conversation, but but so 40% of the units were vacant and he had ’em on 68, 70 degrees. And so we go in, so we went through the first month and we walked every, how say we walked every unit, but then all the vacants we adjusted the ac up obviously.
And we saw the $9,000 decrease and the electric bill by, just, by doing that stuff. Yeah. We had very similar situations and it’s. We tell our managers that they have to walk the vacant units every week because of those running toilets and the acs. And it’s and I still walk in every once in a while and the ACS blowing at 60 and it’s what?
I was there last week. Oh yeah. The guys went in there to do something, so the guys forgot to turn it back out. I was like, okay. That’s why you walk in. It’s every week, I’ve walked into vacant units where there’s an active leak going on, right? Destroying something. And that’s really where it doesn’t have to be the manager walking in every unit every unit every week.
But you can split it between the manager and the assistant or the leasing agent. Or maintenance the maintenance team. And. And don’t just open the door, check the box. Just actually walk in, look at the showers. It makes a ton of difference. Like you said, $9,000 in electricity is huge.
People underestimate toilets. The running toilets. Oh yeah. But a running toilets can bleed thousands of gallons a month. Just by continuous recycling. That’s a lot of money. Especially if you are not. Certain areas if you’re in the outskirts in the secondary markets. Oh yeah.
Water can get really expensive. It can. Yeah. We like to keep track of these things as well, right? Yeah. We’ve got property in El Paso, so Yeah, water is pretty high out there yeah. What would. Be a good advice to a guy that just get, or a girl that just get into this business, right? That they found a good property, they’re raising their money.
They’re about to get into that. I, one of the big themes we have with this podcast is everybody talks about the sprint to get to the closing table, but nobody talks about the marathon that comes after , and that’s what this podcast is all about. So what would be a good advice for someone that is just about to enter the marathon?
So if you’re just, if you, oh, so if you just bought your property so for me, we just bought one on Friday in Columbus. I usually fly up about a week after close. I am not there on the day of close and a lot, some folks think that’s strange, but I don’t want to get in the way if I’m there, they’re the day close.
It’s crazy cuz they’re trying to within, cuz wires usually don’t hit till two o’clock, so that means they got three hours to get, to get a handle on this property. , I noticed enough to lock it up. So that they’re going through the, all the files, putting those into the computer system and it’s crazy that first week and sometimes you walk in into the office, it’s empty.
There’s no furniture. There’s no computer, right? Yeah. So them handle all that. So I don’t show up till a week after I show up. We go through and we’ve already before we buy it, actually, we’ve already gone through and I’ve walked with the regional manager for the most part before we buy it.
And we talk about all the things we want them to do over the construction. So they already know those bids. And so then the week after I show up a lot of those time. A lot of that time we already have the bids for everything and I can, we can just start doing our final approvals on there, which is, it’s helpful cuz that gets you going that much faster.
We always rebrand every time we buy a deal. It’s our kind of personal touch. But choose that quickly upon takeover so that way you need your logo going, the new signage, all that kind of stuff. It just sets the. For the new manager. So who makes that decision? Because that’s a conversation I had with a few operators and everybody’s a little bit different, so who decides what’s the new name and what’s the new logo look like and so on.
So I prime myself as the apartment whisperer. So I like just go to the property and it just typically a name, just Prime just comes to me. Sometimes we like it in El Paso, we’re trying to use the word aga, of our, in all of our properties. , we kinda have a low.
Or a brand, a fan out there? Yeah. Like in Columbus, all of our, the other, the two prior ones we had bought were pv, so Pond, Rosa Village, and Parkview Apartments. So this next one will headed you at pv. So with Park Vista regional manager, Barbara. Shout out to Barbara. Barbara came up with that one.
So Barbara, Barbara did a good job on that one. She picked that one. It’s on Vista, a Vista view. So that, that’s pretty easy on that one. Okay. For the people that raise money with investors, I found that it’s really cool for the investors if you get them involved in the process. So on one property we chose the name.
So we let them choose the logo. We give ’em like two, three options and they guys do vote on the logo on another one, we let them vote on names. Okay. So it’s kinda it helps engage in a little bit with the, I. But you also have the full control of what the options you provide. So it’s not gonna be really crazy names or crazy logos.
I have to ran some that in. Yeah. But it gets a little bit more engaging, so that’s cool. So I want to try to get a little bit more from where you are right now. What are the things that people that haven’t gotten to where you are? Don’t know that. They don’t know. Where it comes to scaling, where it comes to, what did you bring in-house, for example? So property management is one of the things you brought in-house. Were there any other functions that you brought in-house? Wait. So we we own part of a tower company now. Okay, so that’s nice.
Obviously when we close on stuff we gotta spend that money anyway. So might, what else? Might as well own it so that we’re working with that insurance on that piece. That’s gonna be massive for the management company side. Because one, we can offer a lower. Breaks to all of our folks.
But two, we figure out a way to keep the deductibles to 25,000, which is tough. Now, this year that really popped up to 1500. Some of ’em are even 200 now, depending on what you got and where you’re at. That’s cool. So for us to be able to offer, to figure out a way to keep that to 25 as opposed to 5,000, whatever it is now that’s gonna be massive.
That’s a long conversation, but we’re trying to vertically integrate with what we’re trying to do on that side. On the investment side, we’re going, we’re in of those 4, 5, 4 different states. Bought a lot of El Paso recently. I’m trying to buy a ball of Cleveland to Ohio before everybody else figures out.
So there’s, don’t tell anybody . We’re trying to build those markets now cause I think they’re about to turn. We’re doing our first we’re cracking. We’re first ground up development deal here in Dallas Fort. . And then we’re about to kick off another one here in town too. And we’re doing that because we’re selling a property and I don’t wanna say where, cause it is in Texas.
, we’re selling a property and it’s it is 1968. They’re paying more north of 90 K odor on the deal. But they for this new development we’re working on, it’s gonna be 88 units, brand new a class, and we’re gonna be all in at 1 0 5 a unit. That’s phenomenal.
So I’d rather have an A class for 1 0 5 than, not, than that. So DFW right now we’re focused on seeing if there’s any spot, strategic spots we can build. We’re not, we don’t want build at 1 21 the tall way. That’s obviously way too, that’s too well, that’s too busy. That’s too busy. So there’s definitely some of these old spots.
Spots in dfw, but this is in the growth path of dfw. . So that’s why we get the lanes switch sheet. So that we’re doing that. And then another out of the box kind of deal we’re doing in the multi-family side is we’re about to go to contract on a property in downtown Cleveland.
It’s a historic office building. So we’re gonna convert that to multi-family. So it’s a redevelopment product. Oh wow. We, it’s got lot of those. Yeah. It’s got a lot of different parts. Cause we’re gonna get destroyed tax credits from the state and federal. . And then also it’s, it is, it’s in an opportunity zone.
So it’s got all those kind of, yeah, there’s a lot of moving parts on the financial side and tax wise these are also high rises, right? Stories. Yeah. So this is it is 11 stores, 11 stories, right? Yeah. We looked at one of those project, and then that is really one of those things that you don’t know what you don’t know, right?
It’s I had a conversation with a friend that is doing this thing. It’s. Yeah, when you need Sheetrock for the eight floor, you gotta coordinate a crane and pop a window up and stop traffic so you can bring 2:00 AM a crane to load up all the sheet rock. The eight floor is okay, . Yeah, because I don’t know that, I don’t know.
You dunno. Yeah. So it’s definitely, I’d love to hear more about that project and some other opportunities. Is definitely gonna be an interesting one. But again, these things are located at phenomenal locations downtown. Where there’s not a lot of residential opportunities. And people always want to live downtown there’s usually a very successful if they’re done. Yeah. We’re teaming up with the local construction company up there in Cleveland. They’ve done nine of these. Now they’re working on Danny Gilbert’s right now. He’s the owner of.
Yeah. So I gotta tour his deal, his redevelopment deal in downtown. It’s amazing. Awesome. So Dan bought a million square feet. I not say damn like I know him, but Dan bought a million square feet and it was redeveloping it to multi-family. We bought 56,000. So a little bit different, but we’ll catch up to Dan.
We’ll catch up. It’s always good to have a goal, right? Yeah. Yeah. It’s good. Awesome. So I really do appreciate your time. It’s phenomenal. And your experience is amazing. We can talk for hours. I know, right? , if you could have gone back in time, I asked that to all of my guests, right? And tell younger Kenny no, you can’t tell ’em.
2009 is the bottom right. . So other than that, what would you tell yourself? So I started mul investing in multi-family when I was 28. I wish I would’ve done it obviously earlier. Everybody probably says that. So that’s the gimme. I’m very glad I started with 76 units and nothing lower.
So I went from zero to 76. I was a, as a syndicator. We invested passively twice before that, so I think that was a good move as well to learn the ropes. But buying that seven, buying that bigger property where it could afford full-time property management was key to to scale it as fast as we did.
Because if you buy the smaller unit you can’t afford the full third party property management, so that means you’re gonna be stuck in the day to day at some level. Yeah. Maybe you’re doing the accounting, maybe, there’s different levels, but that, that’s been key to be able to scale it so fast.
Yeah. And I found that a lot of people are attracted to the 2030. Unit range, and to me, 30 is a very challenging size. Oh, it is? Yeah. It’s too big to handle as a single operator. And it’s too small to afford a staff. So I think that’s one of the most challenging sizes, that 20 to 40 unit. Oh, yeah.
But it’s very attractive to a lot of people that don’t want to raise money, don’t want investors. It’s still manageable for some people to pick up something like this with a relatively lower investment. So that’s yeah, just closing costs challenging. Yeah. And I’ve always enjoyed having investors, to be honest with you.
So I don’t I never got, I never understood that. But I know some guys that did that. They went from, . I think he went from 11th to 16 to 32, all with his money and they grew it that way. And so he’s got maybe 1500 units that are all his. Yeah. Which, is good, but how big it takes a lot longer.
And how bigger could he have gone? What kind of projects could he have taken on had he teamed up and, and bought a building and bought a much. Bigger building and bigger assets and all that. I think it’s better to syndicate, bring a group investors together so you can buy a bigger, better asset.
But I’m biased, yeah, of course. . Okay. Thank you so much, Kenny. Where can our audience find you if they have any questions? If they wanna reach out, if they want to invest with Wolf investment? Sure, how can I find you? So we are wolf-investments.com, so W L F E right there, dash investments.com. That’s the best way to get let in. There’s a subscribe button, so if you hit that, put your name in email, it’ll get you on our on the email list. And then it’ll prompt you for a phone call or meeting with me as well too. So to get you on the full investor list, access to the investor portal.
We’re on Facebook. We got a YouTube channel, LinkedIn, all the social media stuff, we try to stay pretty active. . And then we also host three times of year conferences, the M F I N conference. Next one is February 8th in Houston. What about 400 people there? Speakers from all over the country fly in.
We’ve got vendors who do an education series. And the best part, there’s no like $30,000 thing to buy at the end. Okay. There’s just, there’s nothing. There’s just education and networking. This no table at the end of the, there’s no like bright light on you to buy something. This is just education network.
This year, this past year, we did it in Houston, LA, and Boston. , we just got back from Boston in early October. So we’re gonna do it again in Houston and hit West Coast and East Coast again. So stay tuned for that. But that’s mf investor network.com. Awesome. We’ll put all the links in the show notes for everybody.
Yeah, that’s a great way to get to know folks and meet folks that are in the. We’re working on a few big names to come to the Houston event. I can’t say yet, but but it’s looking pretty promising, okay. Awesome. Thank you so much, Kenny. I appreciate your time. Thank you, Joseph. I appreciate it.
Awesome. And for you, the audience, if you like this show, if you want to listen to more, just go to iTunes, stitchers, wherever you consume your podcast and subscribe. Thank you so much. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud.
For questions or feedback, please visit our site@www.apt.com.

Episode 110: JC Castillo
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Hey everybody. Welcome back to The Operators podcast.
Today we have a very special guest, JC Castillo. Thank you for joining. Hey, thanks a lot for having me. I appreci. Awesome. We start the program usually with just the guest giving last three, four minutes of who you are, what you’re doing what you’ve been doing so far, how your portfolio look like.
Give us a little bit of a background. Yeah, sure. Our company is called multi-Family Property Group and we’ve been around for the last 13 years. I started the company in 2006 and. We’ve transacted over a thousand units since the company was formed. And we are a vertically integrated private equity shop.
That means that we not only do we, we buy and reposition the apartment assets, but we also operate them ourselves with our own in-house management company. And we currently have a portfolio of about 725 doors somewhere around 70 million. In assets under management. That’s phenomenal.
That’s great. So b c class, A class, what kind of class do you guys, like, where in the country are you located? Yeah. So we are we’re based in the Silicon Valley. That’s where I’m located. But we operate and buy properties in the Dallas Fort Worth metroplex in Texas. And we’ve been there since the company was started.
That’s where we’ve been buying our deals and. And we are focused on B and C class assets. But I would say that as of the last few years, we’ve really started to migrate up in the asset stack class stack to B properties. And we’re shying a little bit further away from the C properties.
Okay. You just gave me the first question. Good. Why is. Because what we, we see happening in the market this point in the maturity of the economic cycle, and we’ve had a really great run, is that we see that the C class property and the C class demographic of renters are historically paying the highest rents that they’ve ever paid at these properties.
And if you look at the last five or six years actually, the C-class properties have performed the. Out of any of the asset classes, including A and B. However as we reach the point in the economic cycle where historically the C class blue collar folks are paying. The highest rents I’ve ever paid.
Then if there was an economic shock to the system or a small downturn, we feel like they’ll be a little bit less able to withstand that economic shock. Because let’s face it, they’re living a little bit more, let’s say, paycheck to paycheck. And so we wanna be a little bit more insulated from that C class stock.
And we wanna move up into the B class where we got a little bit more of what we would call a gray collar demographic or tenant base. So maybe not necessarily an engineer working at Google but certainly someone who is a little bit less prone to paycheck to paycheck type of situ. and also the quality of the B class asset too.
We wanna step up away a little bit more from that C class stock, which is typically gonna be your 1970s and earlier vintage. And, and on the A side we really don’t wanna be in the A space mostly because we feel like there’s been a lot of supply that’s come online. Over the last few years.
And so we feel like if you’re in the A minus stock you may be a little bit more in the crosshairs of a concessionary period where the brand new a class stock that’s coming online may be competing with you a little bit more. But in the B class side, there’s a definitely a much, much bigger of a delta between a plus rents.
And bres so that we’re not gonna be in the crosshairs as much for those concessionary periods. So really it’s more for us moving to B as more of a protective measure at this point in the economic cycle. That’s interesting. Before I ask you the follow up question about the B class assets, Just a couple of words for our listeners.
You mentioned concessionary hair, cross hairs, right? I’m guessing, and I’m assuming you, you mean. The new class that are being built as they lease up, they usually give a lot of concessions, like a free month or the first six weeks off or 50 bucks off, whatever the concession is for that market in order to draw the crowd in.
And that’s really where the A minus, which was the a of two years ago really. Or three years ago. That’s where they’re gonna be a direct competition. Why would I rent for $1,200 here when I can rent for $1,300 over there, but get a free month, which basically means it’s the same rent. You pretty much hit the nail on the head.
That’s exactly the point. And with a B class product and your same example, that’s probably gonna be more like a, let’s say like a $500 delta, which is just gonna be too much for the B class person to for the most part, again, this is all relative, but too much for the most part for the B class to go up into the A class and say, I’m gonna go ahead and take that, that highly con concessioned out brand new a product.
Yeah. And that totally makes sense. So I wanna go back to your decision to go to the B class and I usually hear that from experienced operators, right after they’ve done about a decade worth of apartment complexes, they wanna move from the C to the B. We had Andrew Kushman on the show and he had the exact same sentimental, but mostly we hear that people don’t wanna deal with the older asset class from the maintenance perspective, it’s the first time I hear someone talking about the economic side of things, which totally makes sense.
But what about the maintenance and the physical aspect of C class? Is that another driver for you guys moving away from the C class into the b? Yeah. I think it is a driver for sure. Absolutely. If you look at the B stock that we have versus the C stock that we have, we definitely see a higher percentage of the revenue coming in that’s being spent on expenses to upkeep the property.
Cuz let’s face it, it’s 15 to 30 years older. Than the B class product. So yeah, that certainly is a factor. However, I would say that it’s not a showstopper because ultimately we underwrite deals with the knowledge of it being a C class property. So if we know it’s a C class property, we’re gonna underwrite a certain increased amount of upkeep on the property for wear and tear.
And, we’ve got a pretty good system behind the scenes to take care of that c product. But yeah, all things being equal certainly it’s, it would be preferred to have something with less wear and tear on it. That makes sense. You mentioned earlier that you guys are vertically integrated and you have your own management company.
Did you start off with your own property management? We didn’t, because when we first started off we were just a little bit too small, but in the back of my mind I always figured that would be our path forward once we scaled out big enough. And I think that.
Starting Europe, our own shop. We started in 2013, so we’ve been going at it for probably about, I think six years now as a a vertically integrated shop with our own management company. And I think that, what we’ve seen over the last six years is we’ve seen some advantages in terms of a More of a predictable output from the property management piece or the operational piece?
I think that when we first started it, obviously we felt like we could build a better mouse trap, and in some respects I think that we have succeeded in that. But in a lot of other ways, we have the same constraints on the operational side as any third party management company. I think that while you may want to get into the third party management or, build your own shop out because you feel like it’s A challenge using third party.
I think that’s usually ends up being a little bit less of the perceived advantage once you actually do it. I think the bigger advantage is just there’s an extremely large amount of efficiency that’s built in when you have everything under one shop. And there’s also an extremely large amount of predictability because I can go back.
Whenever we’re gonna buy a new property, I can go back to all my records with all our existing properties and I can get very accurate in terms of how we’re gonna model. An operation with a new takeover. And all that goes back to our investors when we commit to a set of proforma financials for the investors, I feel and I’ve, what I’ve seen is that our predictability has increased sign significantly more with the shop in-house because of all the historical data that we can put into into bear.
And also the process is very strict and tight. Against our own process cuz it is our process. And so I think that’s really the big advantage because at the end of the day, what the investors care about, whether you use third party or you don’t, is can you hit your proforma model and is it predictable?
That’s what investors care about. So we lessen the risk by doing it that way. That makes a lot of sense. What was the threshold what was the trigger to start your own management? If I can think back in time, I think the biggest thing, the threshold was, the first threshold is especially when you’re like me, who’s gonna build out a property management shop that’s in, completely in a different part of the United States.
You think about it, I’m here in San Jose, California and I built a property management company in Dallas. So I truly am you. Completely isolated and removed from the property management. So the first thing you have to do is be ha is be able to find a superstar person that can build the team up from basically nothing.
And that’s a rare quality because if you’ve already got scale and you’ve got enough money to pay somebody big money to hire a VP of operations or an executive of operat, That’s actually probably in some ways a little bit easier because you can hire somebody to take over that’s already got a track record, but it’s like a startup company.
You, that big polished executive that can take over a big shop, that’s not the same person that’s gonna be able to build your shop up from ground zero. And at the same time you can’t just, get a person that’s managing your property as an onsite community director and expect them to be able to put together a property management company either because they have nowhere near the skillset.
So in a lot of ways I got really lucky. I found, I think I found the needle in the haystack that one person that could be both could be turned into that executive polished person, but also knows how to take a startup company’s approach and really build something from. And turn it into something along with, obviously I did a lot of heavy lifting too.
Really the magic of what we created, I think, really rests with that one person that really took this thing and ran with it. And so the second part of that is, what’s the number or the scale we need to be at? If you think about it, if you’ve got, enough of a revenue coming in from, let’s say, your typical management fees to pay for.
That one person that’s gonna start your company up, then that’s basically where you need to be at. Obviously, whatever that person’s salary’s gonna be, you’ve gotta be able to at least bring that into the company to justify starting your own place up. . What proceeded what the number of units or the right person?
The right person starts everything. Okay. Without the right person, it wouldn’t have mattered whether we had enough scale or not. We just wouldn’t have done it because that, that, that’s the make or break. That sounds great. How did you come about to find that person? That person was working at a different management company and I had met that person a couple times and I guess one of the strengths that I have is I’ve always, I think I’ve always been able to identify superstar talent and really, our company.
less about me, it’s more about the team that we put together. And I just, I saw the potential in this person almost right away. And so I just pretty much, I was hell bent on putting together a plan to get this person on the team and thankfully we were able to make it happen. Okay. And I’m gonna keep asking question about that because that’s a subject that interests a lot of our listen.
Yeah. And we get a lot of questions about that. So you found that superstars of yours and what’s next? I think the first thing that you have to do is you’ve gotta basically standardize around a a set of tools that you’re gonna use and implement in your company. For example, first thing we had to do was standardize on a software.
That we were gonna use to build out our company. The second thing that you need to do is start to build out a set of procedures and processes for, how you’re going to operate the company, how you’re gonna manage the properties. And how you’re going to service the customers, which we call our residents, our customers, because we think that’s a better name for them because they do have a choice when it comes to living at our property or not.
But those are the, some of the high level things that I think are super critical to putting together a company like that. Obviously, there’s a lot of blocking and tackling. You’ve gotta have a significant buffer in place for reserves because you’re gonna carry a payroll now because you’re paying all of the staff.
and you, even though you bill back the property for most of the payroll, you’ve gotta be able to float that for, a little bit until you can bill back. Liability’s a big thing. You’ve gotta be able to set up your your insurance companies all the liability that you’ve gotta carry for the property.
And also super critical. You’ve gotta make sure that your management agree. Are airtight all around a lot of different things, but inclu, including making sure that the the named insurance companies that are carrying the coverage on the properties also are required to co insure. Your property management company in case something really bad happens because obviously you want that protection as well from on your management company’s side.
Absolutely. So that leads me to another question. Do you fee manage or do you just manage your own properties? So that’s a strategic dis decision I think that everybody ha has to make when they when they endeavor to do this. We have decided to only manage our own properties. And the reason why is because, We figured out that the management property business, unless you scale it very large, isn’t a real big profit center.
It’s just not. If I could look back the last six years, I really haven’t made all that much money having our own management shop. But what we do have is we have greater predictability, which I believe has increased our our ownership profits both operationally and also exiting the property with with good equity.
Really for me it’s less about the property management company and more about the overall vertically integrated private equity shop and how we’re able to do, I think, a better job by doing it This. That’s really a good, very good lesson. Most of the operators we talked to that have built their own property management company did the same decision that you made, but you’re absolutely right.
It’s a very strategic decision. And I’ve always said that property management is more brain damage than a profit. The only reason most of the operators chose to open their own property management is brand control, quality control, like you said, predictability earlier. These are all great.
Good examples. Yeah. And I think that eventually if you keep growing your company, eventually you come to the crossroads of having to make that decision. There’s only a few companies that I’ve seen that have gotten really big, that have been able to leverage a third party strategy and make it work.
Typically, what I see that happens and the only way that you can do that and keep growing to a very large point. If you become strategically a much higher percentage of that property management company’s business . So meaning if I have, let’s say, 5,000 or 10,000 doors under my company and I give all that to one management company to manage third party, and I am probably like 60 or 70% of their revenue base.
And obviously that’s almost like having your own shot because you call the shots. The problem becomes when you’re that, and you’re only, let’s say 25% of their business, then it’s really hard to have that predictability, have that control, have that customer quality control that you’re talking about.
In a lot of rare cases you can, but it gets a lot more challenging when you ha when you get diluted as a total percentage of that management company’s business. So where I’ve seen operators be successful in it is where I’ve seen them. Partner deeply with one shop, and they just become a huge piece of their business to where that guy is basically modeling their company after whatever you need him to do.
Yeah. We just recently recorded a podcast with Kenny Wolf, and Kenny was at that point where he wanted his own shop. He made a little bit different strategic decision. It’s very much in line with what you just described, but instead of just being the big percentage of the business, he went in and he bought 49% of somebody else’s property management companies.
He gets a little piece of the action, but the most important thing for him is being part of the ownership structure, gives him that control. And then all the benefits that you just mentioned. Yeah, you’re, that’s just another way to do it. You’re totally right. I know Kenny and and I’ve, we’ve we talked about this before, during, and after, and you’re right, that’s exactly his mentality and I think it was a great move on his part.
Yeah. Absolutely. They’re actually buying another property management company in Ohio, which is a new market. They started expanding. So he’s gonna be very big very soon. Yeah, he’s gonna be, he’s gonna be really busy too. . Oh yeah, that’s for sure. So that’s a good segue to Owning your own management company, and I’m assuming you probably have a team members that help with asset management and you have investors relations.
Give us a little bit of a highlight of how does your organization look like today and. How did you build it up? Because I’m sure you didn’t hire multiple people day one, right? Yeah. Yeah. How does it look like I say Yeah. I say that I’ve been at this for 13 years and I’ve, I think I did the math and I’ve found about, on average, about one superstar every four years to five years.
Right now I have three principal partners at the company. And in each person it’s taken. It took me a long time to find each person. So yeah, over 13 years, you, you’ve, you and I’m not touch. Obviously we have a lot more people that work for us , but I’m saying, the real, the key people those really come around very infrequently.
But one of the things that I think strategically that you have to think about when you’re gonna build out a private equity, Like what we do, like an operations shop is you gotta think about what you want to be and how you’re going to, you go about doing your business. One of the things that’s unique about us is we are we’re one of those few shops that doesn’t turn deals very frequently.
We tend to buy deals and we wanna hold them for, 10 to 12 years if we can. That’s not to say we won’t sell deals and exit early if the numbers make sense, because we always, we’re always looking out for our investors’ best interest. But because we’ve been through a recession and I started buying properties before the 2008 recession and I bought ’em, during the recession and after the recession we learned a lot, I think a lot more from the recession than we did from the recovery.
And one of the things that, that I personally learned is that going long with investments typically turns out. Really well, but also protects you from the risk of a short-sighted approach if there is an unforeseen downturn. And so when we built out our company, we really built it with a long-term approach to investing.
So we we specifically look to partner with private equity or investors high net worth clients that are looking to go a little bit more longer in the tooth when it comes to investing. Like they think like us, Hey, I want to be in a deal for a long time. I want cash. Equity’s great and equity’s gonna be there, but equity’s gonna be there in 10 years, just like it’s gonna be there in five years.
And on the on the shop side, what we did was we were very careful about putting people on the payroll just for the sake of being able to have somebody that’s under asset management, somebody that’s under underwriting. So all these people with payroll means when you’re an operator, you’ve gotta pay the payroll no matter whether you’re transacting or.
Yes, and but if we’re a long-term minded company who’s really focused on just doing quality deals and letting ’em sit for a while, it doesn’t make a lot of sense for us to have a high amount of payroll that’s always transacting deals, cuz that’s why you need ’em if you transact a lot of deals.
. So for us, what we instead did was we decided to go really light on people that were on the payroll and instead only really partnered with people that, in a way had a partnership stake and really know. Tangible payroll really on the private equity side. So that we weren’t beholden to have to turn deals because we ha because we have to keep the light bills light, the light, the lights on.
And so what you’ll see with our shop is we’re pretty lean when it comes to the the private equity shop side or the operator side. And that’s intentionally done so that we can sit on we can literally not do a deal for the next year if we don’t want to. And there’s, nothing’s gonna change about our company, but if it’s a great deal and we like it, we’re gonna do it.
So that’s the way we’ve set up. But other people that may be transacting deals every three to five years, exiting a lot quick. , that’s really not gonna be as easy to do because it takes a lot more people to, turn the crank when that’s the way that your company is set up. So really, it really depends on how you build your your shop out is what type of a syndication or operations company do you wanna be?
Interesting. Okay. So what does it mean for you on the current status? Do you have, you mentioned three, four superstars. What are their roles? We’re very simply broken out. I myself am the managing director managing principal. Basically, I, I oversee the day-to-day operations as well as all of the acquisition reposition efforts.
And we have three people that work with us. Three three, three partners. So we’ve got the vice president of Capital Funding and Acquisi. So that person is in charge of investor relations, raising money for deals and finding the new deals. And then we have a vice president of Repositions. So that person is in charge of, once we close the deal up and the keys get handed over to us, that person takes the keys and they do everything at the property, including rebrand.
Renovations unit upgrades everything that goes hand in hand with how we take the property from whatever it is to what it’s gonna become. , that’s what they’re in charge of. And then we have the v vice president of operations. And so that person is in charge of the management company and they basically oversee all of the operations once we take over the.
So three people very cleanly laid out. That sounds very logical. Split. And so from what I hear, your person in the middle, the one that’s in charge of repositioning it sounds like you’ve built around value add, right? Finding a property that is underperforming for whatever reason, doing some value add and then stabilizing it at a much higher noi.
Give us a few things that you guys like to do on the properties you buy other than the obvious race. Cause that’s the easy one. That’s what everybody’s trying to do. But usually it requires something right to be done. Whether it’s renovating, whether it’s management play give us two, three things that are not as common that you guys like to do.
Yeah. I think, the one’s not as common. I think we, we take a very high level, simple approach to a reposition. And we don’t call it a renovation, we call it a reposition, because reposition includes a lot more things than just slapping some paint on the bricks and making it a different color because that everybody can do that.
At least I should say most people can do that. But reposition includes three things. One, it includes rebranding the property. So that includes things like renaming. Coming up with new signage, new marketing, a brand new website, a brand new look and feel to the sales collateral, all that stuff, right?
Number two is gonna be your rehab, and that’s gonna include things like rehabbing the the amenities changing the exterior changing the look of the leasing office, maybe we will blow out some walls. Maybe we will change the outside of the leasing office so it’s more inviting.
And then the last thing is which I think is really important that I think some people take it to the right level, but a lot of people don’t. Is the unit upgrades themselves because we get so caught up in, the amenities, race wars, as I like to call ’em, but we forget that the renters.
Gonna be more interested a lot of times in how their unit’s gonna look. So we actually get pretty detailed and specific about how we upgrade units. We actually have for e each and every floor plan, for example, we come out with an Excel sheet that is a specification that calls exactly out what happens per floor.
To, like I’m telling you, like to the penny, how much we’re spending and what things get done to each layout so that we have basically a repeatable format for the upgrade so that the quality is there every time we do an upgrade. Because the worst thing, if you’ve ever, especially if you’re in the operations piece like we are, so we have a management company, is when you put a model unit together and that model unit looks amazing.
let’s say that it has granite countertops and it’s got, stainless steel appliances and all this other stuff, and then because you’re not detailed or because you just don’t think it’s a big deal, you start doing things to the upgrade units that are less quality finish out. Like for example, let’s say that you’ve got stainless steel in your model unit and then your regular upgrade units that you’re actually renting out they’re black appliances, or let’s say that they’re not granite countertops.
You just spray the countertops and the ones that you’re renting out. The prospects, they actually see that stuff right away. And it’s people can see right through that kind of like fake sales stuff. And that’s where you get blown up on your bad reviews online and stuff.
And that’s where it all spirals out. And I think a lot of people don’t understand that when you cut those corners, it’s really a short-sighted approach. And so when we’re specific, when I say about the unit upgrades, that means that when you walk into our model unit and you walk into yours and you’re gonna live.
there’s not supposed to be any difference whatsoever. Everything is there, everything’s the same, everything’s repeatable. And I think that’s really what kind of that’s the magic of the other piece that we do with our upgrades is that we’re very, I would use the word maniacal about how we make sure that the upgrade units are done to specifications throughout the life cycle of the.
No, I totally agree with you. It’s, it goes beyond just the getting a bad review. It’s starting a relationship on the wrong foot. Because when you bring we call ’em residents you call them customers, we never call them tenants, right? When we get them into the unit, when we move them in, it’s gotta be a happy day.
It’s gotta be a smooth transition. It’s gotta be a good experience, cuz otherwise you’re starting the whole thing on the wrong foot. And then there’s gonna be complaints, and there’s gonna be bad reviews, and they’re not gonna refer anyone. And the and that’s just a kind of a domino effect of everything dropping from this point and on, versus if they come in and it’s an amazing moving experience and everything as promised, then that relationship is gonna start.
I couldn’t agree with you more. The other tip that I’ll give you, because I think that, Joseph, you understand a lot more than most people about the idea of starting off a customer relationship on the right foot and. And I think it gets lost in the noise. A lot of people think about these deals as, how am I gonna flip this deal?
And they forget about the customer in which the customer drives all of our business. But the other thing that we do with all of our properties when we take over is we don’t ever raise the rents. When we take over a property, because we believe in the idea of giving before you take . And so what happens is we typically give about three to four months for the exterior renovations to happen.
And that, that three or four months gives us some time to show the residents when we first take over that, hey, we’re gonna invest in the property before we’re gonna start asking you to pay higher rents. And so once we’re done with all that, and in five months or so after we’ve we, the property completely transforms.
That’s when we start pushing the rents on the classic units and obviously the upgrade units. That’s, when people are moving out, obviously that’s a little different, but. You gotta be really careful with the classic units, with people that are already paying rent when you buy a property and take over.
Because if you are not sensitive to giving before you take, I think a lot of times you can see your occupancies drop really for no apparent reason. Then you just wanted to get ahead of the curve on your rental race raising before you were able to show the customers that you’re willing to put something into the property before you ask for something back.
Yes. And like you said earlier, the customer have a choice and they chose that property before you bought it because it was lower price. They knew they were getting less, but they were okay with that because of the lower price. Now you come in, they’re not getting any more, and they’re gonna have to pay more than they have other options at that new price point that might give them a little bit more.
So you’re absolutely right about. So on the flip side of that coin of everything that we do to increase the income and generate more income, there is. Saving costs. And just the way multifamily formulas look right? The No, I is insensitive to which side of the equation? You increase income or you decrease expenses.
Your No, I is gonna move in the same direction. What do you guys like to do in order to reduce costs? That’s always a loaded question. What I would say is, the first thing we always like to understand is that, certain things have a run rate and there’s not much you can do about it.
Expenses to repair the property and to keep it in the shape that it’s supposed to be in are gonna be what they are. As long as we’re not wasting money and doing unnecessary things. But, you gotta fix stuff when it gets broken. . So there’s some things that we, that we are gonna assume that are gonna continue on at a.
A good run rate, but there’s other things that you can absolutely do to save cost. One of the things that we found is a lot of properties that we take over are spending a lot of money on marketing. What we found is the best Customer is usually referred by an existing customer if you’re doing your job right and you’re really focused on treating the customer the right way.
And so you might be surprised, but we don’t spend any money with advertising at any of our properties with any of the big sites like apartments.com, et cetera. And the reason why is because we have a really good word of mouth with our properties in terms of the way that we. Now, it’s not to say that we’re, that we are perfect.
We’re really not perfect, but I think we do a good job of also apologizing where we make a mistake and making it right. And so I think one of the areas that we have seen the ability to save money is in reducing excessive marketing expenses. Another area that comes to mind is, We’re actually I would say pretty good about the cost model that we have in place for things like management fees and and management related costs.
We pretty much try not to pass off a lot of the, Things that we may see other third party management properties or companies passing off to to the property itself. So we keep it pretty lean and mean and pretty, pretty pretty bare bones with without sacrificing the quality of experience.
Some of the other stuff, insurance, taxes, that stuff’s kind of, you just gotta really work hard to. Make sure that your property tax consultant, if you’re in Texas, which is a non-disclosure state, make sure that your property tax consultant is doing a good job of getting your taxes down.
Insurance. You’ve, especially nowadays, insurance is going up. There’s just no doubt about it. You really have to beat the bushes every year to get the best quotes you. If you just set it and forget it with insurance you are definitely gonna pay a high premium right now. So those are some things that come to mind.
Yeah. Especially with the insurance. I want to second that one. You really have to push, even if it’s with the same agent don’t just. Automatically take the renewal, have, ask them to shop around for you and look at what the other options are. What is your coverage? Do you need that coverage?
Are you missing coverage that you really should have? What is your deductibles? All those questions should be asked every single year because just the way the weather has been in the last few years, there’s more and more. Damages for the interest companies to absorb and then they are a business.
They’re not doing it for philanthropic reasons, right? When they absorb a cost, they’re gonna roll it over on the customer, which is us. So you really have to pay attention to these things. You got that right and I’ll give you another tip on the insurance side. And anybody that’s been in the suspicious long enough will know this.
Insurance brokers are notorious for sending you the pricing literally like the day before your policy renews. And of course, there’s, they always give you a lot of reasons why it got delayed and coming to you. But at the end of the day, if you’ve only got a day between the time that you see the price and the time that you have to renew your policy, guess.
You’re probably gonna have to stick with that same company cuz there’s not enough time to do any due diligence with anybody else. So we always start, three months to four months ahead of time getting quotes from other brokers and getting things done. So that we’ve got a long runway of pricing so that we know that we’re not gonna get bamboozled at the very end and get a last minute quote and have to have that as our only option.
That’s another tip I can tell you right away that, that’s a wonderful tip. It really is. It, I learned that one the hard way too. Yeah. We all did and you just gotta listen to your podcast and the next person probably, hopefully won’t have to go through what we, you and I. Yeah. That’s why we created this podcast to talk about the real hard truth.
Do you have any interesting horror story, funny story 13 years in the business? I have no doubt you have a lot of each. Gi give us a little A few stories. I’ve got a lot of horror stories. Some of them I just don’t want to expose publicly. But here’s the thing. If you’ve been in this business the way I have long enough anything that can go wrong usually will at some point.
And I’ve always, I’m a big believer that you know, and investors with us should always know this, is that you, you never pitch perfect. I think what you try to pitch is you pitch a very good amount of analysis. that’s gonna show what you think is gonna happen with a very high likelihood of it happening.
But it really matters what happens and what you do when the speed bumps or the problems do pop up , that’s where you really make your money with your investors by showing ’em that you are committed to problem solving and figuring out how to solve it, and then actually making it work.
One of the things that comes to mind for me that I can tell you is we we bought a property several years back and we decided that we were gonna go ahead as part of the renovation. And we bought this knowing is that we were gonna have to rip out window units. This property was older and it had window ac.
And they were a big problem for many reasons. Including the fact that they were noisy very inefficient and they dropped a lot of water on the exterior of the property. So it’s constantly causing trouble with the wood rot. We decided we were gonna replace them with mini-split H V A C systems inside the units.
. So we bought the property, went ahead and did that. And it was a complete nightmare. And the biggest thing that we learned from that whole experience was when you go into to do something to a unit that is invasive to the tenant’s lifestyle, that’s where it becomes a really big deal, if you’re gonna upgrade a unit when the person moves out, that’s one thing because you can do whatever you want to the unit while it’s vacant, nobody cares, right? Maybe the next door neighbors might hear a little bit of noise, but for the most part, not a big deal. But when you’re gonna replace, let’s say H B A C systems at every unit of the property you buy.
Imagine if your property is 95% occupied, there’s only 5% of the units that are vacant where you can go in and do whatever you want and not interrupt anybody’s life. But there’s 95% of the units when you go in and you are creating a huge lifestyle deal to your residents, and you are gonna lose a lot of people and have a lot of.
Pissed off residents when you’re doing that reconstruction to those u AC units, even though your intention is good, and even though the output’s gonna be good eventually, it’s that super painful point of getting from A to B, that’s gonna be a nightmare for you. So one of the things that we learned through that process was we are very adverse to taking on projects where we have to do Repositions that include things that are very invasive to the lifestyle of existing residents right out of the box, we’re probably gonna stay away from stuff like that.
And based on that experience, I think for us, that’s the right move. And I’m not here to say that you can’t make it work. Obviously we recovered from that. The property’s doing fantastic and. In hindsight, I’m glad we did it because it’s a huge difference between window units and completely efficient and indoor mini split systems.
But I tell you, for crying out loud, that first year was just, it was very painful. Yeah. , I can imagine. And that the reviews should follow up with this and . Yeah. I’m glad we’re over it. . Yeah. Okay, great. Any funny. Funny stories, gosh, a lot of funny stories happen all the time.
Actually, one of my biggest things that I get a kick out of is I get a kick out of maintenance requests. I actually, if you can believe it, I still get carbon copied on the maintenance requests to come through. I don’t have a chance to read most of them, but, I try to pay attention where I can just to make sure that we’re doing a good.
but I invariably see some pretty funny maintenance requests that come in. I can remember this one person that wrote in and the email said, it said, ah, like a H exclamation point. It said, there’s a mouse running around in my kitchen. I need it fixed immediately.
And I just thought that was so great because they took the time to capture the experience of what they were thinking right when it happened. And then they, because they obviously, they didn’t submit that work order like in the heat of the moment. They actually took I figured that they had to take out like maybe 30 minutes later or an hour or two days.
and go back and relive that experience in their mind and then submit the work order. And so I just to no end w and I still laugh at myself to this day, looking at the work order and I see the, ah, , like literally like you can picture them like jumping up and down with the mouses. And I just We don’t wanna have mice in our properties, but I thought that was a really innocent but hilarious take on a work order that I saw that came through
That’s funny. Yeah. Awesome. I wanna be conscious of your time. One question that we a couple questions that we like to ask our guest is, one is what would be a really good advice that you would give someone that is just getting into. It’s the first property they’re gonna operate. Maybe they just purchased it or they’re in the process of purchasing a property.
What would you give them? It is an advice. My advice never changes. It’s been the same as long as I’ve ever been around and got started. It’s go long. Not short with your investment horizons. Always think long term. Real estate is a slow man’s game. It’s a slow and steady winsor race type of deal.
And then the other thing is always focus on relationships before deals. I see too many people that are focused on the shiny object and they go after it at all costs, even if they burn bridges with people that could help them do five or six deals after the first one. Build relationships and place that above everything.
Because in the down times, in the tough times with relationships, you can make it through. But if you’re out there and you burned all the bridges and you’re just isolated out in the ocean by yourself, you’re the first person that’s gonna get picked off when something bad happens.
Go along, not short, and build relationships and prioritize that over deals. That makes sense. Thank you for that. And then the other question we ask everybody is if you could go back in time and meet yourself as a younger person what advice would you give yourself? And no, you cannot tell yourself that 2009 was the bottom of the recession.
If I could go back in time to myself getting outta school. I think that I would’ve given myself a copy of Rich Dad, poor Dad even sooner than what I was blessed enough to be able to read it as a younger person, but certainly not right when I came outta college. And I wish I, I wish that I had a, read that book, but b actually.
Read it with enthusiasm, with the understanding that it could change your life. I think that a lot of concepts in that book did change my life looking back and and I think that had I seen it sooner, Probably even would’ve been saved me even a couple other headaches that I had along the way.
That’s awesome. JC I wanna say thank you again for your time today. It was a great conversation. We got a lot of really good advice and nuggets for our re customers. If our listeners wanna reach out to you invest with you, ask you questions, how can they find you? It’s really easy. All they’ve gotta do is go to our.
They can go to multi-family property group.com. Again, multi-Family Property Group, just like our name, multi-family property group.com. And they can literally go to the contact us section of the website and request a free 50 minute consultation with me. I’m always willing to give my time. A lot of people have helped me along the way and if anybody else out there wants some.
Or some knowledge on what I’ve been doing and how I can help them. I am always happy to do that. And it doesn’t mean by the way that they have to invest with us. That’s not the objective. It’s really to be a source of information first. That’s fantastic. We’ll make sure to put a link in our show notes.
Thank you so much. It’s been wonderful. Joseph, man, I really had a good time. I gotta say that. I really enjoyed your questions and this I’ve done a few of these and I’d say that you’re actually pretty phenomenal at it. And I’ve, I really have had a good time and I would say that your show is gonna be awesome.
Awesome. Thank you so much. All right, bud. Thank you. For the listeners, if you want to listen to more of our podcast our website is apt, o r.com apartments operators, and we’re on iTunes. Stitches anywhere you want. Just subscribe and leave us a review. Thank you so much and we’ll listen to you le later.
Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.

Episode 111: Juan Vargas
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Hey everybody. Welcome back to The Operators podcast.
And today we have Juan Vargas. Did I say her name right? That’s correct, yeah. Juan Vargas. Yes. Yeah. Awesome. Welcome. Great to have you on the show. We always start our conversations with just giving the guest a few minutes to introduce themselves. And so tell us a little bit about you. What have you done so far, how your portfolio looks like?
Give us a little bit of a picture. Yeah. No, I definitely will. So I got my start in multi-family in 2016, right? So my start in multi-family was 2016. Before that I was doing single family. And so I got into some single family homes. But then I quickly realized that multi-family was the better option, right?
Multi-family was a better option. I’ll tell you why. It was because just basic math. If you’re vacant on a single family house, then guess what happens? , you’re a hundred percent vacant, and if you have a 10 unit, you’re vacant one unit down you’re still 90% occupied.
Yep. And so that was my reasoning and I was like, man, it just makes way too much sense to go into multi-family. So I got into a multi-family in 2016 that was through a 32 unit. And since then, I’ve been a GP. And over a thousand units. We have a deal right now under contract in Houston.
It’s a 264 unit deal. So that’s another 200 units. But I’ve been a limited partner as well, so I’ve been a limited partner in over a thousand units because I like to see what other operators are doing, other strong operators are doing, and I like to also, just keep the capital moving and keep the capital growing you.
That’s how you’re able to, I like that. The thought of that mailbox money, right? So if you have that mailbox money coming in and you didn’t have to do much for it, then it’s awesome. So I did a little bit of of each, yeah. Yeah, I know. I keep helping people understand that there is nothing passive about what we do.
It’s like, why do you wanna get into multi-family? I want passive income. What we do is not passive. If you wanna passive, you need to be on the LP side of things, right? If you wanna do what we do, if you wanna be a syndicate, if you wanna buy those and operate them themselves, there’s nothing passive about that.
Yeah. And you’re a hundred percent right about that. E even on the passive side, where, whereas it’s, almost, a hundred percent passive, you still gotta do what you know, look at the financials, right? You gotta at least look at the financials make sure that you understand, what’s going on and, ask questions, right?
I’m on both sides, so I see the both sides. But, understand the financials, understand what’s going on, understand the decisions that are being. Why they’re doing a certain thing, why they’re moving a certain way versus this other way. Why those things happen.
Because, it doesn’t mean that you’re gonna be an operator yourself or be active but you want to be able to understand where your money is at and what your money is doing, right? Yeah. But, speaking specifically on the active side there’s definitely nothing passive about that.
Cause there’s a lot of, every. Operations that you should be involved with. And so yeah, it’s, it is definitely a day-to-day type of activity. And I’m gonna say this real quick there’s something that, a lot of people out there they want. Be an active person, right?
They wanna buy their own deals. Why? Because there’s more money to be made, right? And we know that, right? There’s a little bit more money to be made. But there’s a reason for that is because there’s a lot more time and effort and with just a lot more involvement. That it takes to be able to make sure that you operate one of these these deals correctly.
That’s the kind of thing itself. Be careful what you wish for. Be careful what you wish for. Exactly. Is that gonna be passive? Sure you’re gonna make more money, but if your goal is to be, passive and to spend your time with the family at the beach and just travel the world, and then it might not be the best thing, right?
Yeah. Or you can be an active a passive active, where. there, there’s ways we, that’s a whole nother conversation there. But you can be a passive active where, you’re not the one of the main lead asset managers, so to speak. Yeah. There’s a lot of s e c questions going on around the passive active thing I would highly urge everybody that considers something like this to talk to a securities lawyer.
Exactly. Yes. Tell us a little bit about your organization. You’re a GP in a thousand units. Are you the lead sponsor in all of them? Are you the one that works with the property management? How does that look like in your world these days? Yes. So I am not the lead sponsor in all those, deals.
Other some of those deals I’ve participated the other activities, been, a, a la guarantor have helped. With some capital, just been involved in other different ways, but 550 about half of those units, I am involved, on an active role in an active role as a, as an asset manager.
And the deal that we have now this will be the third where I’ll be fully involved. And it’ll be, six, 700 units in that range. So yeah, that’s overall, viewpoint. Okay, great. So do you guys use third party or do you guys do self-management?
So we use third party. We have thought about in the future, maybe doing it in the future, maybe getting a little bit more vertically integrated. But for the time being we are gonna do just third party property management because those guys are the ones that understand the day-to-day operations more than we do.
And so we have to, be fully aware of, our expertise and our skillset. And so property management, is that one of. And we live it to the pros, for them to handle those day-to-day operations. Yeah. But you gotta, you’ll learn that pretty fast, . Yeah. Yeah. You sure will.
It’s, you find yourself learning the things that you didn’t wanna learn pretty fast. Yeah, exactly. It’s, there’s a lot of things that are involved that people don’t realize. It’s not until you, you actually do get to be involved in a property where you starts to see that, Hey man, this is not really what I signed up for, like you said earlier.
There’s a lot more things to it than people realize. Yes. And one thing for sure, this industry will teach you something new every single day. It, it will for the better or for the worse. It’s gonna teach you something, right? Yeah. One, one thing that’s a hundred percent certain and I wanna say this to everybody, passive or active, no matter what it is that you focus on one thing is for certain, a hundred percent.
Is that those projections, those performers that you see day one, whether you’re looking to invest in a deal or if you’re an active guy looking to, raise capital and take down your own deal, is that those projections are not gonna be right on. They’re either gonna be below or they’re gonna be better.
You know what? Whichever. But they’re not gonna be exact. . And and sometimes both, right? ? Yeah. Yeah. So sometimes both. Yeah. So it’s that gonna be sometimes it’s better. Yeah. Up and down, monthly. Yeah. Or yearly. But you’re never gonna be spot on. And so you have to, do your best to, to on the right, to the best of your ability.
And look at the historicals, that’s what we do. We look at the historicals and make sure that, Hey, what we have here is it reason? , is it sustainable? And so that’s how we are able to write our deals, awesome. So how do you go about are you guys in one market?
Are you guys in multiple markets? Yes. So we are in, in, in Houston now Houston, Dallas, Phoenix. And some of my my other GP deals that I’m not actively involved in are also in, in Dallas. And one Atlanta outside of Houston that I’m involved with. And then I’m a guarantor and another deal with, which is a tertiary market in Lufkin, Texas, so yeah the majority of the deals that we look at are deals that are in primary markets. And, there’s reasons for that, versus the secondary, tertiary markets. We just per, personally, like the primary markets more you. . Okay, so I’m going, since you’re using third party and you are in so many markets in multiple states, I’m gonna assume you don’t have just one property management.
Is that true? That is correct. That is correct. And yes, that’s another challenge that you have to look at, and does your third party property management company that you’re using are they active in those other markets that you’re also interested in, right? And if they are great, right? And even if they are, then look at what what other assets they manage in that same market that you’re looking at, right? If they’re not, if they have one or two deals and they don’t have a. Foothold on that market, then maybe they’re not the right, people to go with.
Maybe it’s, it’s better to look for somebody that’s local, that’s more local and, they’re headquartered there and they have, several deals and properties that they manage and oversee. So yeah, for us, we start off in Dallas. Our next deal after that was in Phoenix.
And our property management company from Dallas, they don’t manage in Phoenix. they specifically manage right there in, in the Arizona market. And they have a strong understanding of the, of that market that those. What goes on there. It was an easy decision for us, and the other thing about that was, our property management company that we use in, in, they’re in, in, in Dallas.
They are able to move to another market, right? If the deal, big enough they can certainly move, you have to really look at, how, if it makes sense, first of all, and if it doesn’t make sense, then they go with the pros that are in that market. And so that’s what we did.
Yeah. So that you answered some of it, but I want you to dive a little bit deeper about how do you go about finding and evaluating and selecting a third party property management? What’s important to you? What kind of questions are you asking? How how do you verify what they tell you?
What do you guys do? Yes that’s a very good question. So what we do is we look at, or we almost have referrals, right? So we, we have, luckily for us, we have a lot of colleagues that are in the business. And so a lot of it is word of mouth, right? And we start off with that, Hey, have you used this property management company?
How is the performance? How are your deals operating? How are they performing? You want to ask those kind of questions. Assuming that, they are an A, they have a good reputation and and those kinds of things. Then one of the things that you have to look at as well, in addition to that, is what type of assets that they’re managing, right?
And so one thing that we look at is if there’s a class, there’s B class, and a c. You don’t wanna get an a class manager to manage your c class property. Vice versa. You don’t wanna get c class manager at the manager. Your b plus property even B2C is a distinct difference.
Definitely. Because there’s different tenant profile, right? And so these managers they can operate maybe a b property, perfectly. And then they’ll do the best for that property, but then they’ll go to a c and a C is gonna be different. Why is it gonna be different? You have a different 10 base, you have a different demographics, you have d.
Type of terms the tennis demand different amenities for the property. There’s a different, it’s a different type of clientele, so to speak Absolut? Absolutely. So B and C are totally different. If I’m looking at a b plus asset, I’m gonna go after a b plus manager that has experience that has, that’s done it in that.
And same thing with the C. Just by the way, we don’t look at age, but, it just used it as an example. So that’s another example what we do and. Yeah, are they active in that market? And if so, then the other thing that we do is we, if it’s the first time we’re using them, then we get some referrals or we ask for an opinion from the local brokers that are operating that market.
And also the lenders have a, believe it or not they have a good. A good understanding of who is the right manager in a certain market. . So just get referrals is what I’m saying. And then also understand the type of asset that you’re buying because it’s not gonna be the same, with property manager to property manager.
Yeah, absolutely. And I can take it even a step further. I’ve seen that. The type of resident in your property right, or the ones that you’re gonna target is also important because if you’re targeting a 55 and older, it’s completely different than a community full of millennials. Exactly.
It’s a whole different kind of interaction and expectations from the tenant. and if you’ll take a company that managed workforce, a little bit of older properties and you try to give them a property that is full of millennials that have demands and at some time willing to pay more for what they’re getting, right?
, that’s gonna be not working very well. Hundred percent. A hundred percent. And for the listeners that haven’t listened to our previous episodes what Juan just said about making sure you find the property management that targets the class you’re buying is a repeat thing that we’ve heard from multiple operators.
And it’s just solid gold here. Don’t try to take a property management that manage a class and give them a b class with the expectation that they’ll turn it into an a class that doesn’t work. Unfortunately, the other way does work, right? You’ll take a c class property management into a B class property.
It’ll turn to a C class real fast, . So that’s just an unfortunate situation, right? That same portion side of it okay, great. Do you guys, what kind of profile of properties do you guys like, do you like the value add? Do you like them stabilized? Management plate? What is really your bread and butter?
Yeah, that’s a, that’s another very good question. So we like to look for properties. That, first and foremost, they’re stabilized, right? So stabilized. Now that being said, we’re not opposed to looking at a deal that’s, underperforming or not stabilized. We definitely have taken look at several deals like that.
If we and I’ll tell you why in, in just a second. But we look for deals that are stabilized. Deals that has some value add potential, right? For the last couple deals that we did these are deals that were value add from both a renovation standpoint and also an operational standpoint, right?
So the deal that we have now, this is more of a hybrid. This is the deal that we have in Houston. This is more of a hybrid. So the reason why I say that is because the owner or the seller had done a lot of renovations to the. And so a lot of the big ticket items were already done and taken care of.
And so it’s already performing property. They did some of, some renovations to the interior units. And so what does that mean for us? That means that we can. Go in there and continue that renovation program because the best comp is the property itself, right? You can look at other comps, yes.
But if the property is performing, and the other comps, do they do support it? But if the property is performing getting those rents, then that’s the best comp you can use. So this is more of a hybrid. And so it has it’s already a stabilized property performing well, and it has some value add potential as well.
So we, we like to see that, first and foremost. Now, going back to my first point, and, do look at some deals that are not stabilized, but we focus more on the stabilized deals. Why is that? Is because of the equity, right? Our equity they like deals that are stabilized. . So I think there’s a place and a time for everything.
It’s just right now, our equity, it, our investors, they like to see deals that are stabilized because it presents a little bit less, less risk for them, right? , and also for us, for everybody involved. Yeah. Now if I had some super aggressive investors and, they wanted some deals that, that were.
50, 60% occupied where, we could turn this property around, putting 15, 20,000 a unit into them, then that’s a different story, right? Then I will looking for that all day, right? Because that’s the strategy I have the guys that, that to partner with and to work with it, for that type of deal.
So that, that’s why we look for stabilized assets because, our equity we always think about what is, what do they want? Yes. And that’s why we take those kind of deals down. That sounds good. It doesn’t sound like a really heavy value add.
Are you handing that entire operation over to the property management, build the plan, this is what I want do, this is what I want you to do, and just hand it over to them for execution? Or do you have a separate way of executing the value? So we’re always involved in that, right?
So obviously they’re gonna be the ones that are gonna be in charge of the day-to-day , and making sure that we execute the business plan as we requested. And, when we have turns, that they get done, in a timely manner. . But ultimately, if we don’t tell them and we don’t stay on top of them and we’re not keeping track of the financials and seeing what’s going on, then you know, they’re gonna just do at their own pace.
So we have to make sure that we follow a certain guideline and we follow a certain that certain business plan that we have, scheduled for the property. Not that it can be done. So yes, it is yes and no. I would say, to answer your question, yes, they do it directly.
We’ll have to make sure that they’re doing their job correctly. In other. Yeah I’m just gonna reiterate something that you said here, right? It is kinda like you can’t just hand over the keys, right? It’s really important. Absolutely not. You stay on top of it and you check and you ask the questions, and you hold them accountable because I’ve seen a few operators or wanna be operators, just hand over the keys to the property management and it just ends up in a disaster every single time.
Absolutely not. You’re a hundred percent accurate in saying that. And I think that goes back to the original conversation that we had I think, starting the podcast was, be being active, being passive. Yes, you can be, you technically on the GP side.
but are you active or are you passive? Are you passive in that, you’re handing over the keys and then these guys just handle their own business and okay, whatever it goes, it happens, it’s okay, I’ll just report to my investors, whatever you say is gonna happen and goes.
Or are you the guy that’s knocking on the door, being active, doing those surprise visits make sure that things are in order. There’s a lot more to it than just sitting back and relaxing and just drinking pina colada, at the beach. You just can’t, you can’t do that, you definitely have to be involved. Yeah. And I personally think it’s gonna be even more important in the next few years because, you could have bought something in 20 12, 20 13 and just hand over the keys and the market would probably correct almost every mistake somebody could do, right?
The rents were just going up so fast in the last five years that, if it’s not operat, Professionally or not efficiently enough. The market kind of compensates for it. But as we get to very close to the top of the cycle, and I don’t know how close we are, right? I don’t have a crystal ball it gets more and more critical to stay on top of it and make sure that no, no one takes their time and being slacking around to, to get those plans executed. So I think it’s gonna be more critical in the next two. Yeah. No I you another one, man. You are right on. I think, I would echo what you said, in the 2000 tens, I think, even I saw who was it JC Castillo that posted on LinkedIn just the other day.
In 2000 tens was a decade where we were able to buy deals. And if you were a semi, good operator, or even, you can even say, a kind of bad one. You were saved by by the market, right? So the cap price compressing there was a lot of capital coming into the market.
Rinse kept going up. Just a combination of everything, right? So even if you did, okay, even if you were that guy that was drinking that piano, Claude at the. Most of the time you’re gonna be okay, right? Not every time, but most of the time. Why? Because those capra kept compressing, the market just kept going in your favor.
And so even if you didn’t do much to the property just by the capra compression alone, you know you made out, right? Yeah. So you go to sell the property and you made out. But in the 2000 and twenties, it’s gonna be a different story. And in 2000. , you may not get that same cap rate compression.
I don’t think we will either. I think as a matter of fact, I think the cap braces are gonna start to, to go the other way. So what does that mean? If you’re buying a deal today? Does it mean that, if we do have a recession in the next year, this year in two years, whatever what does that mean?
Is does it mean that, everything’s gonna go haywire and we’re all gonna be in best shape? No, it doesn’t. It doesn’t mean that necessarily. It just means that you have to be able to properly operate your. , make sure that you’re staying on top of the, what’s going on every single day your financials and do what you can.
And I think more than anything, it’s gonna be a tenant retention. Make sure that, that there, that our tenants that we have at the property are being taken care of and their needs are being met. So it just goes back to the basics then, I think a lot of people kind of overcomplicate.
Honestly. And I think it’s just providing the basic fundamentals that people have or the, that people need in, and providing them in a good way, right? Yeah. Yeah, obviously, there’s amenities that you have to, have and stay with the latest and greatest and as far as technology goes but, just customer service alone just the basic fundamental is very important.
So I, I would think that, you’re right on with that statement as well. Yeah. You are working with the third party property management. Give us a little bit of a picture of how does that look like? How often do you talk to them? Who do you talk to? Do you talk to the corporate office people?
You talk to your regional, you talk to the onsite teams. How often do you show up on site? Give us a little bit more. Yes. So at our third party property management company we have weekly calls, right? And so we don’t hardly ever, we hardly ever get on calls with the corporate office, right?
Unless there’s something that’s going on, or, that’s out of our control and we need to take care of which is, hardly the case. , it, usually these calls are with the onsite property manager in the regional. So we have these calls with both of them. And we look at o over, over everything, what’s going on, how many leases do we have?
How was the traffic how many was the delinquency? All those kind of questions that we have, if we have any campex repairs or items that are, that need to be taken care of, what’s the schedule like what’s going on. And so we try to stay on top of the, every single.
one of those things, is those calls on a weekly basis, but we look over and communicate wouldn’t say daily a hundred percent, but it’s almost on a daily basis. And . And so we try to visit the property at the very least if it’s not local, at the very least twice a month, once a month, twice a month, depending on where it’s at.
So twice a month for like our Dallas deal I have a partner there in Dallas and he’s there. You don’t have to be there every single day, but, you gotta make sure that you’re And have a presence there. For our Phoenix. That’s the deal that, obviously I’m in Houston, he’s in Dallas so what do we have to do?
We have to make sure that we visit the property at least. Once a month. And so for that one, we also brought in a partner who is able to be there more frequently. And so we do it as a combination of all three of us. So yeah, you have to make sure you stay on top of it and make sure that you’re communicating with them.
Okay, great. So as asset managers but the ones that drive, the ones that operate. Do you navigate or direct your property management to do any onsite events or parties or how do mentioned earlier, and I think you’re absolutely right about customer service, right? It all comes down to clean, safe warm environment, right?
But also what we found that for retention, a sense of community is really important as well. Do you guys do anything for residents that kinda our listeners can pick up and do as well? Yes, definitely. So we always try to stay active with him through like different parties, different events.
And so we had a holiday party Halloween, 4th of July, tho those kind of different events. And then, also whenever we do like surveys we’ll do surveys. So what is it that you’re looking for? What is it that you would like to have, at the property what is it that’s missing?
We’d like to do those kind of services as. . And for that, we just offer them, something, right? Offer them a gift card or something like that to like that they’re able to do those surveys . But it really is, it was the information that we want, and to be able to know what it is that’s going off the property.
As far as the management, is the management going well or they doing their job. Those kind of things. as far as, what do you guys expect at the property? What are you like as amenities? Those kind of things. So we always try to be involved because, if you’re not, then they can go down the road, to, to the next guy.
Why, what makes you different than the next guy? So you know, that that’s, you have to be involved, and we are, we try to stay involved as much as possible. Yeah. Okay. That’s great. Because you’re coming in and doing value add.
And right now you’re focused on the light value add, the ones that are already destabilized. Other than renovating units and increase in rent, what other ways do you guys have to increase revenue? And we’re gonna talk about decreasing expenses in a second. So let’s focus on the revenue side.
On the revenue minute. Yes. Yes. Very good question. As we could be at the top of the market who knows how much further the rents have to go. Obviously, when we look at deals, we always look to, to push a rinse. Every single time we’re looking at a deal, we always find look for ways to, if we can push the rents, then create.
As it’s, it is, becoming more, more difficult to find deals that pencil out, right? Because everybody wants to be in the space they’re asking for crazy prices. And so you gotta find that competitive advantage. So for us and not saying that we bank on this, but for us some of the ways that we’ve been able to generate that extra income is through additional income, right?
Other income, right? Specif. On the other income, we look for sources like cover parking reserve parking wifi, those are like the three main that we’ve used for the last, the last couple deals and even our deal that we have now. So what do you do with the wifi?
Yes, very good question. For wifi, so wifi as I said earlier, we have to make sure that we st stay on top of all the amenities and the technology, right? Because, tenants they’re, there’s no tenant out there, there’s no, nobody out there really without, a cell phone, right?
And so nobody out there really without technology, right? So one of the things that we provided with the wifi is obviously, internet access for each unit. So the way it works, we have a contract with a third party service provider, and then, they bill us directly.
So we pay them for their services. So now what we’re able to do is if, let’s say for example that on average they charge us, 30, 40 bucks per unit, then we can turn around and offer the wifi to the tenants. And so we can charge them, 70, 80 bucks. So you make that delta, you make that difference, right?
So that’s one way that we’re doing it. A lot of these tenants are gonna get wifi for their department anyways. Yeah. So we’re able to offer that service right then and there. And we’re implementing that in, in, in one of our properties. And, it’s we just launched that.
And so I can’t tell you a hundred percent on the results, right now. But, we had good, long conversations, actually. A lot of convers. To make sure that this was something that was achievable. And we even, asked, our tenant profile if that was something that they would like, and it was overwhelmingly overwhelmingly yes.
So you know, what that does also is that, they are able to. Offer that server is right, right at the very beginning. And then, they can be activated, as soon as they, they move in, they have a wifi done instead of them having to do it on their own and going throughout the whole process.
Yeah. Ultimately what it does is that for the property level, is that you’re able to make that delta between what you know, they’re charging you and what you’re charging or billing back the tenant. It’s kinda like rubs on. The same thing.
So we’re able to do that. So there, there’s a couple different ways you can do that. One is you can buy your own equipment. So you can make sure that you account for that cost up front. And then pay for that. It’s in a vary, deal by deal size, has a lot to do with it as well.
That’s one way that you’re able to do it is pay for the equipment up upfront. The other way that you’re able to do it is, they take care of the equipment. The third party provider takes care of the equipment. Now you’re gonna make it less this way, but it’s still a way where you are able to come out of pocket, nothing, right?
Yeah, it’s like leasing the equipment, basically. It’s like leasing the equipment. So there’s downsides right there. Now, everything’s gonna be upside. There’s downsides, one of them is that usually there’s you. Four or five year contract that you have to sign. And then, if they don’t, if you don’t have anybody that is paying for that service you still have to pay for it.
They’re still gonna build you no matter what. Yeah. So there’s that. So you have to make sure that you have a ramp up type of agreement where you know, it, it you start off with a few units and then it goes up from there and it goes up into the full amount of units.
So that’s one way but yeah. And then the other way, like I said is covered parking and reserve parking, I think that’s like reserve parking for example. , I see so many properties that don’t even have that, they’re not even billing back for that, or they’re not even charging tenants for that.
And it is, it’s just something that you can just go over there and just, get a little, painting on the floor with a spot number. And then it is just so easy, right? Just billing back, for a spot that’s that’s attractive. Same thing with the covered parking.
Yes. With covered parking, it is gonna cost you on that one. We will and it depends on, which market you’re in. , it’s same thing, right? If you’re able to get the return on that then why not? Then, you should do it. So those are, some of the ways that, that we try to make sure that we focus on that other income.
And obviously the other one is the the utilities, right? Of course rubs. Yeah. Okay. Great. So let’s look at the other side of the coin, right? Because every dollar we add in income is completely equal to every dollar we can save on operations, right? Give us two, three ways where you guys like to look at specific things and maybe reduce some of the expenses.
Yes. Yes. One of ’em is a huge one on a lot of the deals that we look at is payroll, right? A lot of times, it’s, it could be an owner that’s owned the property forever and he, he made some good friends at the property and his staff, they’re they’re good friends or whatever, right?
And, which is fine, that, that’s great. If you’re trying to, some good returns for your investors, then you gotta find ways to reduce that payroll. And so sometimes it’s because they’re overpaying some of the staff, sometimes it’s because they have too many people at the property level.
So it just, you have to look at that number and then, and find ways, to where you can reduce it. a lot of ways you can reduce it sometimes, you have to increase it. Because they’re understaffed. But in a lot of cases they are overstaffed and, or the, those expenses are too high.
So that’s one payroll. Another one is going back to utilities. Utilities is a big one, but you look at like water water expenses and electricity. How do you cut back on those? Have you. A green program and I’m not specifically talking about going through a lender and doing their Freddie Mac or Fannie Mae type of green program, right?
, because you can get those, they, you have their own program where they give you better pricing on the loan, right? Yeah. And that’s one way, right? That’s just for your for your loan. But specifically what I’m talking about is you doing your own green program.
And what I mean by that is does the property have d lighting exterior if it doesn’t, then that’s something that you should immediately, implement and add, right? Yeah. Because it’s gonna go down to you, right? Because those are not, the tenants don’t pay for those costs. You do, right?
As a property owner. And what about if it’s like a rubs pro property, or even if it’s not a rubs property, usually water, it’s something that’s built back, right? It’s not necessarily individually metered, in most cases, right? So if you have, toilets, for example, that are old and they.
Using up a lot of water. , even shower heads, those kind of things. Then, that’s an easy fix. That’s a really easy fix. So yeah, it can cost you, 50, a hundred thousand dollars to, to replace all the toilets and showerheads and aerators and do all those things.
But how much are you saving per month, is ridiculous. The number that you can save per month. . And then if you do it on a further basis and you wanna see the value that you just added to the property, then you just divided on the cap rate, right? Yes. And just so I thought you were able to even see the value that you just increased the property with.
So I think it’s huge. And I think, that’s something that, people don’t look at. And I think you, you should account for that if you’re looking, if you’re active and you’re looking for a deal. And look for ways that you can reduce that and make sure you’ll account for.
50 grand, a hundred grand, 150 grand, whatever it takes to replace them. And yep, you’re gonna see the big savings, on the backend and cashflow wise. So just go ahead and make sure you account for that. So those are the two biggest ways that I would say that that we are able to reduce those expenses, obviously taxes, living in Texas.
Taxes is a big thing. Especially in these unfortunately, yes. Especially in these primary markets where you’re looking at, let’s say like in BE County, which is San Antonio or like Tarrant County, they’re pretty aggressive. Dallas County. Harris County. Yeah. There’s Col County is one of the most aggressive ones in Collin County.
They’re super aggressive, right? If you let them run over you, they’re gonna run over you, right? If you don’t say anything and you just take it then you’re gonna get it. Oh, yeah. . So you have to make sure that. That you fight back. If you have to sue them, then you sue them.
We’ll do whatever you gotta do to produce that number. And you’ll be able to have some strong tax savings there or not. I wouldn’t say tax savings, is your money that you should get back. They’re just taking it from you. So yeah. For our out state, yeah.
For out-of-state listeners that live in a disclosure state, Texas is a non-disclosure state. , which means you don’t have to tell the county and the state how much you paid for the. . So when they see that it was a transaction that transferred the deed, they’re gonna try to guess how much you paid.
And a lot of time they might guess higher than what you actually paid. Or they might guess, right? But that could mean a big jump. That’s what Juan is talking about trying to protest that new assessment. And sometimes it has to go to court. Sometimes we hire tax attorneys to go to court and litigate over that because the county just completely overreacted and exaggerated on the.
Yes. Yes that’s definitely very important to, to note. One thing I would say as well is, speaking of the taxes, Excuse me. So on, for example, like Texas, you said that we’re non-disclosure. So a lot of these guys they, it wouldn’t doubt me. I wouldn’t doubt it in my mind that these guys have access to a lot of the research information platforms out there.
A co-star or a l n data or whatever, right? And the reason I say that is because a lot of these sources, they have those sales price. Where, how it transacted and what the cost was, and what the pressure price was. And so I wouldn’t be surprised if these guys see that.
And then, say you buy a property at 20 million and, they’re taxing you at 20 million, right? , evaluation. Then, how can you say that the property’s not, valued at 20 million if that’s what you paid for it, yeah. That’s just one thing that, that’s.
That, I just wanted to say, I think these guys do have access to all that, and I think it, for them it is small cost to pay. And, lot of money that they can be making for their county. Yeah. So a couple of advice to our listeners about how to avoid that is, one, make sure that in your contract you may, it says specifically in your purchase contract, it says that nobody’s gonna disclose the sale.
Because right after you close the CoStar and Yardi and a l n, they’re gonna make a phone call to everybody that was involved. They’re gonna call the title company. They’re gonna call the brokers. They’re gonna call the lenders. They’re gonna call you and your mother-in-law, right? They’re gonna call everybody they can to try to figure it out, because yes, that’s part of the service they provide for the people that use the.
So if it’s in your contract, then your broker cannot disclose it and the other side broker cannot disclose very good points it and the lenders and so on. So make sure that is, it’s in the contract. That’s one thing. The other thing is a more obvious one. If you get the phone call, tell them thank you.
But I’m not telling you how much I paid for it, right? Yes, very. And then lastly, and I don’t know if every county does that. I know Colin County definitely does that. They will send you a letter from the county appraisal district that looks very official, that says, please fill up the form. And that form asks all those questions.
I’ve seen it, yes. And then in a very fine print, it says you don’t really have to tell us. Yes. So it’s like usually when I get those letters it’s got okay, straight to the trashcan, right? But a lot of people don’t realize it’s optional because it’s coming from the county. It’s gotta be official, right?
It’s optional. So you don’t have to fill it up in Texas. Make sure that, you follow your state rules and regulations. That’s very good advice. Very good advice. You don’t have to disclose it. Don’t fill out those sheets. If you get a call, just ignore it or give, answer and say I’m not gonna tell you, it’s not none your business, so it really isn’t, they’re just gonna use that to, to your disadvantage.
Yes. I, being in this business long enough, I’m sure you have a lot of stories. Give us a funny story, a horror story, a little bit of both. Give us a little something funny for the audience. Yeah. So wouldn’t necessarily call it funny cuz it really wasn’t, oh yeah.
You know what? I do have a, I guess it’s funny, it wasn’t funny to me at the time though, but never funny at the time. is there funny at the time and it’s never Yeah. If it happens to you, is that funny? But, you look back on it, you’re like, oh man. So this was my very first deal, which was a 32 unit.
And so I was a 32 unit that, that we owned and managed and, We had, we were doing renovations in a, in the office, which was really a storage unit. It was a storage unit that we converted into an office. . And cause there was no really no real office at the property on site.
I have one of those we’re using this. You had one of those. Yeah. So you just gotta do what you gotta do. And so we had this office and we had, running water to the property or to that office. And so it, we went through like a big freeze. . And as you can guess we got a call from the tenant from one of the tenants.
He’s Hey, I think you guys, I don’t think it’s supposed to be this wet cuz it really hasn’t rained, but I see a lot of water. I just wanted you guys to know. And it was like, like 10 30 at night. And we’re like, oh great. And it was like freezing out, so then we go out there. And then, of course you can’t see anything as dark and there’s water everywhere, there’s a shutoff valve.
So here we are, digging through it, digging through all the mud, through all the water, through everything freezing water, just to be able to find the shutoff valve. We ultimately found it, but after it had made like a big disaster. And so yeah, that was, it was because, it wasn’t property insulated, right?
We should have done a better job of insulating the pipe. . And so it’s just one of those things hey, you think that’s like the worst thing in the world, is it your worst day ever? But it’s one of those things, you look back on it and you kinda learned from it a little bit, right?
And it makes you. makes you a better better person. I guess a better owner, right? Those kind of things but is not funny at the time. Yeah. makes sure that you pay attention to the weather and you have your pipes that are well covered and that, is that gonna, is that gonna happen?
Yeah. So that’s a good, that’s a good operational tip comes out of this story, right? It’s watch the weather and it’s the problem. Watch the weather. Yeah. if the weather is gonna drop below zero, right or below 32. You’re gonna have to make sure that the day before your team runs around the property and all those faucets that come out of the buildings have the covers on top of them.
If you have pipes that are coming out of machinery room or boiler room, That they are insulated, right? This is a very good operational tip for our listeners, right? It’s kinda like you don’t think about these things, right? But then one of those incidents will teach you real fast to watch the weather and if the weather is gonna drop below the freezing point, you gotta you have a task list for that day.
Do you, you definitely have a task list and really, you should be able to whenever you know it winter time is coming. Make sure that you prepare. Then don’t wait. Tell me like, what, where I did it after the fact. Don’t do that.
Make sure that you prepare, a couple months in advance. Not that whenever it does come, you’re fine. Just make sure you monitor your property. But, this is assuming that you have a smaller property and, or, you’re doing your own management, which a lot of us, do still, right?
So yeah, very. . Awesome. If you talk to a new operator, somebody that just signed a contract or just completed an acquisition right? But it’s the first property they’re gonna operate what’s the best advice you would give them? . Yeah that’s a very good question. What I would say is to make sure that they are on top of their property.
Every single little thing that they’re on top of. And if you’re doing this for the first time, you’re not gonna know everything. That’s just a given. You’re not gonna know everything. But make sure that you’re asking your team your property managers all those questions, right?
And there’s never a dumb question in this industry because, we’ve, these. Not only the property manager, but everybody that’s in been in the essentially, have gone through different things. And so always ask questions. Don’t, don’t have that ego going into the property because could turn in into a real bad situation real quick.
Don’t be afraid to ask for help is really what I’m trying to get at. Ask for help and be willing to take that advice from others that, that have been done doing it much longer than. Yeah, that, that’s a really good advice. Like I said earlier in our conversation, this industry will teach you something new every day.
It doesn’t matter if you’re doing it for three years, 30 years, or 300 years, there is still something new every single day. All the time. All the time. And I’ve, I haven’t, there’s a lot of things out there that haven’t gone through. Myself. And if I do experience that, then I’m gonna have to, reach out to the guy that, that’s been there longer than I have that, that can, help me out with that situation or somebody.
Always have somebody you know with you, somebody that you can contact. Somebody that you can ask for help from. Because there’s a lot of moving pieces to these deals is not just rent and expenses. It is just, that’s just one piece of it, certainly one, one of the most important ones, but not, that’s not all of it.
So make sure that you have a good team and you’re willing to ask for help. Yeah. That’s a really great advice. Our last question that we ask, usually all of our all of our guests, is if you could go back in time and young client and let’s say that you cannot tell them that 2009 is the bottom, buy everything.
Okay. Let’s put that aside. What would you tell young you at that time, what advice would you give yourself? So I knew that 2009 was gonna happen or I didn’t know that was gonna happen. You can’t tell them that. You can’t tell yourself that. Oh, I cannot tell myself that. Okay. So if it was, back then, and I knew that I wanted to to get into into, to real estate at that time then, yeah.
I think, it goes back to having the right mentors, I think that’s so huge. So having the right mentors to learn from to re reduce mistakes from if I didn’t know that the crash was gonna happen if I did know, then obviously I would buy anything and everything because as we know, ev, people that bought thin, did very well.
If I don’t know that what’s gonna happen, which, back in oh nine, I didn’t know it was gonna happen. And yeah just be prepared and have the right. Mentor, so to speak that can help you with growth, right? So yeah that’s one of the, that’s a great advice.
One of, one of the best things is just having the right team, like I said, having the right team, having the right people. Because if you don’t, then you can get burned really quickly. And, they’ll help you navigate through some of these these issues that arise.
Cause they will arise. And, you’re able to get to them much easier. Much, much. That’s a really good advice, having mentors no matter at what level you are having people around you, whether they are actual level. Oh, preferably a few steps down the mile from where you are right now is always a good idea.
I know I’m part of a few masterminds Exactly. For that reason. , I look online, I connect in conferences with other owners exactly for that reason. Because this industry teaches you so many things all the time, that when you bang your head against the wall, and even if your team that has decades of experiences banging the head against the wall, Having other people that might have randomly crossed the same path as you do is super critical and can really save your behind on these things.
Yeah. And it, and I guess it goes back to how do you know who to reach out to? How do you know who that mentor? Because everybody says Find a mentor. Find a mentor. Yes. There there’s a couple different ways. One is simply, paying for a mentorship program.
You can do that. that works out well. Or somebody that’s, that you can just simply add value to, right? Somebody that, that’s, that as an owner, you find out that you know who that owner is. You find them and you reach out to them and you just add value to them. Don’t look for your own things.
Don’t know that. Just add it to them any way you can and they naturally and or organically become that, that mentor to you. And whenever you do, their help, for any one, property that you’re looking at or whatever, they’ll be there for you. So don’t force anything, make sure that it comes out more naturally, more organic.
And, that’s, those are really the best type of mentorships in my opinion. Cause, yes, the paid ones are great. , you’re gonna get some great people behind there. And, the network around there is gonna be great, and I’ve done those myself. You find that one person who’s done it and just become, their really good friend.
And yeah, I think those are the best ways that to have a mentor. Yeah, absolutely. I wanna be conscious of your time. How can our listeners find you if they wanna reach out, if they want to invest with you, if they want to ask you any questions how can they. Sure. That’s juan jim wealth capital.com.
It’s juan jim wealth capital.com. Or they can, reach out to me through social media. I’m on, Facebook Instagram, LinkedIn. , even Twitter. So you can reach out to me any one of those platforms. The juan vargas.com or Yeah, the juan vargas.com. That’s another one of our websites.
. But it’s at the Juan Vargas for the social media platforms. Yeah. And we’ll put links to all of those in the show notes. Sweet. Yeah, no I appreciate that. And and thank you. Juan, thank you so much for being a guest today. It’s been a pleasure. Hey. No. I was gonna say minute.
It is been my pleasure. I love the questions that you asked. A lot of solid questions and I like your knowledge as well. And I hope that, your show continues do really awesome. Awesome. Thank you so much. And to the listeners, if you want to listen more to our show, our website is the apt dot.
And you can find us on iTunes, teacher SoundCloud, all the other usual aspects for getting your podcast. We’ll also appreciate it if you take a couple minutes and put a review for us. And until the next time, thank you. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud.
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Episode 112: Mike White
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Welcome everybody to the Operators podcast. We have Mike White with us today.
Mike is from Texarkana, Texas and he is got a big portfolio of about 500, 600 units. Mike, tell the audience a little bit about yourself and how your portfolio look like today. Sure, Joseph. I’d be happy to start off just a, maybe a little bit of brief history. I was a 33 year financial advisor, mainly with AG Edwards and Morgan Stanley.
Actually 20 years ago, accidentally got into the rental property business through a buddy of mine that was going through a divorce and needed to sell a duplex. That’s how I first started 20 years ago with two doors. So as Joseph said, we’re right at bumping 500 doors today, and I’ll fill the gaps in just a little bit on that.
But that is actually how I started in rental property. And then slowly, Adding more as time went on. Now the previous career in the brokerage business, I was very successful in that. So that set me up to be able to have the wherewithal to be able to go out and acquire and buy and borrow and grow the portfolio.
About five years ago, I made a decision. I was an independent advisor at that time, and I made the. To totally get out of financial advising for clients at that time. And at that time was it also coincided with getting hooked up with a really great us, US bank banker out of Little Rock. And about five years ago really put the pedal to the metal and just started acquiring mainly du duplexes, townhome.
My biggest concentration has got 57 doors, but my growth has really been fueled the last three to five years with the help of this banker. It has been great to work with and I wish I could say something good about. The bankers here in Texas County, but I can’t. But but that’s kinda what got me to the point as to where I am with the number of doors that I have today.
And as Joseph said owner operator, my oldest son has come home about a year ago to help. I have a younger son in San Antonio, but we’re making this more of a family business and a family experience. Had a little bad. Of events with a long time employee and that kind of precipitated the oldest son coming home and it’s been nothing but great to have him home.
That’s awesome. So for the most part, if I remember correctly, you don’t have investors. This is all a family business, family owned, right? Today, yes it is. And in the past there’s been a couple of things. That I have done Joseph, and you can ask me a little bit later in your podcast and we can elaborate.
But you know, coming from the financial advising side, I dealt and developed relationships with a lot of higher net worth people. So there has been, two to four of those people along the wayside that have helped. And there’s also been situations we can talk. A little bit later as well where I’ve gone in and had actually the owners of the rental properties carry some for me.
So yes, I have had some help, but today, as of today, I think I only have one left. And pretty much gotten all of ’em out of the way. But they served a good purpose in helping me to fuel my growth. But I also had to realize, The cash flow from the acquisition that I was buying.
There had to be enough there to make sure that I took care of them and paid them a nice return as well. Awesome. Yeah. We’ll definitely touch base on that one a little bit later. For the audience tell us a little bit about your portfolio. How does it look like? A lot of it is duplexes in town homes, like you mentioned.
It’s all concentrated in one town. Correct. Everything is in Texarkana. We have some outlying bedroom communities. Nash, Texas Liberty is, but it’s all basically connected to Texarkana. And again, I started. 20 years ago with one duplex, two doors. And so today I think we’re sitting on 16 single family homes and the rest is going to be a few standalone duplexes, but all of the other holdings are going to be duplexes and town homes that are gonna be in a location.
And once I established a foot, In that particular location, if there were more duplexes or town homes available, then I would go directly to the, some of the other and try to own the concentration on a particular road. That served me very well up to up until today. Yeah, that’s a fantastic strategy.
It’s kinda like you come in you choose the location first. You get the first one in and then it’s a lot easier to talk to another owner and say, Hey, I own the one next door. Will you sell me yours? That sounds great. So in terms of class I know you have a mixed bag of anywhere from brand new, build a class all the way down to the CC minus.
How does. Managing that diverse a portfolio look like, right? Because you, you have a class with clientele that pays a lot more than the C minus class that pays a lot less. So it’s really rare to see somebody that has such a wide variety of classes in their portfolio. Texarkana is not a huge town.
We’re probably 125,000 metropolitan area, maybe larger. My c classed holding. Are going to be holdings that were acquired earlier. Okay. So I would say in the last three to five years, there have been no acquisitions of C Class holdings. They’ve been all A and B holdings to the management front.
You know what I see and what I experience here, the C class. Properties require a little bit more time and attention to the tenants. So we really have to stay on top of that a little bit more than we do with the A and the B tenants. But naturally, the a and B holdings are newer. We also don’t have to do as much maintenance work on those as well.
So I hope that covered that. Yep, that, that makes sense. So it’s all self-managed, right? It’s all in-house. Did you start with self-management or did you have a third party and then you transitioned to self-management? I’ve never had a third party. Okay. So remember, Up until five years ago, I still had, I had the left hand advising and I had the right hand over here.
So it really started becoming a lot more, taking a lot more of my time. And once the growth started happening, then I had to make a conscious decision. To do away with that side. And I did went out probably 10 years ago. Bought the office where we are right now. And a year and a half ago I bought some storage units, which helps us on appliances heat and air conditioning units.
If I catch a goodbye at Lowe’s or something like, , I have the ability to store those until they’re needed. And I also have couple of resources that we can go to and really get good, solid use stuff and get a little mileage that, and save some money as well. Okay. So was there any point in that path that you’ve considered third party?
No. And why is that? A, I like control. I control this. I run this now, Mason, my oldest son being here as well, and B, that costs extra money to do that. So have I made mistakes over 20 years in, in running all this? The answer to that is yes, but today I don’t make very many mistakes. No, I’ve never considered that.
We’re not a huge area. So literally from the central location of my office 10 or 12 minutes would be the furthest location that we have to go and do maintenance calls, or make readys or things of that sort. We do not go and meet prospective tenants. We have those tenants come by here. We have them leave a driver’s license, credit card, debit card.
We give them the key, we let them go look, they bring it back. So that is an efficient way that we have found that works for us on prospective tenant going out and looking at a unit. Yeah, that, that’s that’s definitely an original way to do that. We’ve had a lot of operators come up and some of them are using third party and some of them had used third party and then transitioned to self-management.
We just transitioned at the beginning of the year to do self-management on our portfolio, and it’s a huge difference. , the cost is not the factor that drove us, but like you said earlier, it’s control. It’s being able to know that you, what you are doing and you have all the aspects under your umbrella and you can make sure that the tenants are being taken care of, that the maintenance is getting done and nobody’s wasting or doing things they shouldn’t be doing.
So I, I totally agree with that one. Tell us a little bit about your organization, right? You mentioned your son, Mason. What is his role in the organization? Who else do you have in your organization to help you run that portfolio? So Mason came home a little over a year ago and basically has implemented changes of rebranding a brand new website.
We’ve hooked up with AppFolio. We have been converting a tremendous amount of our tenants over to paying online, which has made us more efficient. I will say that the Covid situation has really shifted that percentage up for us, which has opened my eyes to make it. It’s more easy, it’s more efficient.
We’re not handling the money, we’re not having to make deposits. So that has really opened my eyes up in that aspect. I have a new office property manager that we hired from one of the larger, newer apartment complexes that she just happened to live in one of her duplexes. She’s been there four years.
She’s on board and doing great. And Mason is really a big part of what goes in the office. And my job has really now shifted over to, taking care of maintenance and making sure the guys are out in the right direction, making sure the units are taken care of. If, just my job is more shifted on that, but I still take care of other things in the office as well.
Making sure we have all the necessary appliances, all the supplies we need, all the paint, for my guys to do their job and. My wife Missy she will come up here and work maybe five days a month during rent time. So Missy will come up and help and we’re still taking cash. We still take personal checks, money orders, cashiers checks, so all those items.
It’s kind of Missy’s job to count. Make sure it reconciles, make. The funds get into the proper entity that we have for that particular property. So really three outta three outta four members of my family are a big part of what goes on up here now which makes things run really well and really efficient.
Yeah, that’s especially on the funds and the accounting side of things, being able to trust the person that you have doing all that work is super critical. And usually there’s no one you can trust more than family. That’s exactly right. I had a bad experience with that, and so that’s all I’ll say about that.
Okay. You mentioned your maintenance side of things, right? What size of a crew do you usually run in order to handle 500 units across the entire town? As of today I have five full-time maintenance. I have two full-time. It’s actually a long-time friend that takes care of all the grounds and he does a lot of extra things during the fall and winter months.
So that’s seven. And then I have I use an independent H V A C guy. I use an independent electrical group and I use an in. Plumbing person. Okay? So I’m not using, plumbing group or a H B A C group or an electrical group. What I have found, and I’m not afraid to ask, and so it works out really good for me, is that if I can get ahold of those independent people and give them volume, business, what are they giving me in?
Quality and discount a discounted rate. I had an el, I had an electrical guy, electrician that was doing my work and he had a lot of guys working for him and he was doing a hundred dollars a call and then a hundred dollars an hour. He got replaced with some very good and qualified people that got referred to me at 65.
So who’s worth that 35% decrease. We are. So you constantly gotta keep an eye on that, making sure the work’s done, getting the work done right, but, heavy plumbing heat and air issues and electrical issues. Now, my crew can put up ceiling fans, replace lights, switches, do simple things.
We can do simple things on plumbing, but there’s just certain things that you’ll need. Those three people. . And this time of year, as you well know, your costs on H B A C can really rise. Oh yeah. Yep. Yeah, I know. That’s what our guys have been doing for the last three weeks is acs anywhere from just checking the fray on and putting some more in all the way to replacing condensers and replacing the entire systems.
It’s it’s Texas in the summer. That’s just what it is. But we have our AC guys, basically our maintenance guys are HVAC certified, so they’re capable of handling, I’d say 95% of all HVAC issues on their own. But just like you, if it’s an electric thing, we get an electricity that is licensed and insured.
If it’s plumbing, we can do a lot of the plumbing all the way up to slab leaks. But when it comes to the massive, like we need a hundred foot machine or we need leak detection, that’s what we have to call it a professional because they have the tools that cost thousands of dollars that it’s not worth for us to invest in for once or twice a year that we really need that extra.
I will say one other thing on H B A C and we started doing this about three years ago. Going out every quarter and changing those filters. Yeah. I have found that my H B A C costs, With the independent fella have gone down by simply getting on a maintenance program of changing those filters.
So we take that opportunity once a quarter and it takes a couple of weeks, but we take that opportunity as well to spray every unit inside and out for insects as well. Yep. No, that’s great. Also washing the condensers outside from all the debris, preferably somewhere in the march timeframe, April timeframe, before the heat really starts hitting.
We found that helps extending the life of all of those condensers especially on the older properties where the, they’re starting to reach their age. And then, the manufacturer, if you call a retail AC technician, they tell you that the manufacturer recommend replacing it after five, seven years.
It’s like we have ACS that have been alive for 20 years, right? And they’re still working very well. So it’s just a matter of good maintenance and preventative maintenance and making sure that we keep everything in life. We call it. , and I call it the common sense approach to taking care of a tenant.
If they take care of their business with us, we’re taking care of them. And we’re Johnny on the spot about what I call hot shots. When someone calls with an issue, we’re usually out there that day and if not, the very next day, you, if even if it’s a non-emergency. And I really believe that is a extremely great.
For new people getting started, you will take care of that tenant. You’re gonna find they’re gonna stay longer, they’re gonna turn out to be good tenants if you’ll take care of them. Yeah, that that’s a perfect approach. Do you manage other people’s properties or just your own? Joseph Used to I did three or four different times up until maybe five years ago, whenever my growth started happening, so I don’t have time.
We gotta take care of our business now. But I have done that before. Okay. And you stopped it just because of bandwidth? Yes. Yes. Okay, so as a owner operator that have about 500 units, that’s usually about 1,012 hundred residents across them if not more. Do you do anything special for your residents?
Any events or deals with other places in town that will give them. Is there anything that you bring extra value other than the obvious of giving them a safe, clean place to live and being like you say John on spot with responding to the work order request? Here’s what we do. Okay. Long-term tenants, we have rewarded them in the past with 50 to a hundred dollars gift cards, and in some instances, a free month’s rent.
Folks that have referred us good tenants, and we’ll always tell ’em we need to have them three months before, but you know, we may give them a hundred to $200 off one month’s for good referral. So we, some of the thing. But with being a spread out now, go from single family homes to a concentration of 57 doors and with being spread out like.
It’s a little bit more difficult to say, you know what, we’re gonna have a big get together for all the good tenants or, so we really don’t do anything like that. Yeah. Okay. So if you could go back, let’s say seven, eight years right. To Mike before the big exponential growth. What would the advice be that you would give yourself, knowing now what you didn’t know, six, seven years?
Here would be the biggest thing is, 20 years ago, I’m 60 now, so I started basically at 40 with my first duplex. I really wish I would’ve gotten that first duplex at 30, 10 years sooner and have that growth carry forward. That would’ve been the biggest thing 10 years ago. Yeah. I can still tell you there were mistakes made along the wayside.
Sure. Everyone’s got hindsight. Everyone’s, would love to go back and make some changes. But the good lord’s blessed me to be sitting where I am sitting today in the situation I am sitting today, and I’ve always looked this. Not that way. You can spend a lot of time, a lot of people looking back there and that you don’t get anything accomplished.
I would continue to look forward, be positive and focused and just go from there. And unfortunately, anyone that does this, and I believe you would agree with me, you are going to make mistakes. What worked for you and what worked for me. Those things are different. Now. There is a lot of general stuff that can go hand in hand, but you know, everyone wants to get into rental property, but once they get into it, they find out, you know what, it’s a lot of work.
Yeah. I think the biggest misconception is that people think that it’s a buildings business. And they don’t realize it’s a people business. Exactly. And when you have people involved, you are gonna be surprised every single day. This business taught us and made us laugh and made us cry, and made us sweat and made us bleed right in every possible way because it’s people.
And people are just unpredictable. That’s just what people do. Let’s talk a little bit about the operations side of things. Give us a few things that you guys like to do in order to increase your income. I got your little printout and I made some notes and so if I can just kinda look at these and go over the things I jotted down, but, It I believe the incre the waste to increase income without increasing rents and the waste to reduce expenses, those go hand in hand.
It’s okay. I’ll go over a few of these. All right. Absolutely. All bathroom, kitchen and outdoor plumbing fixtures. If you got a property, you’re paying a water bill. Stay on top of those. Make sure that everything is not leaking. Ba commodes are not running, kitchen faucets are not running. We try to condition all of our tenants to let us know about that.
I touched on the maintenance of the air conditioning systems. I’ve noticed from just changing those filters, how we’ve had a reduction in H V A C costs. Having my own maintenance guys. I believe having all of these guys internal and me being able to stay on top of them, they’re not getting rich, but you know what?
They’re making a good living. I think that’s an integral factor in helping, in keeping costs down. I hit on seeking out the individual H V A C guys, electrical guys. Not everyone can be big enough to have your own internal H B A C. I’ve tried that four times here in Texarkana.
We have our technical college here at trains him. I’ve tried that four times and four times it struck out. But I have an independent fellow that I’ve probably been using for 10 years, and I’ve just decided he’s the best. I can’t beat what he charged me. He’s got history with the pro properties, and he goes out and takes care of them.
And, wa he’s gotta make money, but he keeps them going and we’re not replacing a lot of them. I touched a little on this, the online payments that has made us more efficient, efficient is saving money and increasing your return. , so that, that has really made a big help as far as we go on our side.
Having the property and landscape guys being full-time employees versus having guys bid the properties to come in and. That is so much more cost effective for me to do that with them versus having these guys come and make a, and again, my deal is different. I don’t have all of these doors at just two locations.
They’re all over Texarkana. Yeah. Monitor the utilities of vacant units. You go walk in one, one of your guys, and you go walk in there and this thing’s sitting on about 58 degrees. Monitor that thermostat. I’ll tell you a quick story on that. It’s been a month or so ago.
I went in a unit, they were in there working on Friday. I walked in it on Monday. You could hang meat. So I went in. And made the guy pay 50 bucks. I said, look, that thing running had to burn this much. I got my point across and I got it across in front of all my guys. Yeah. I just wanna reemphasize that but with a little bit of a different angle.
It’s not just monitoring the utilities, it’s just walking you vacant, right? If you have vacant units, you gotta visit them at least once a week or so. Because otherwise things happen, right? Especially in older buildings. We had one of the units that we walk into it and there’s a full sauna going on something in the faucet, in, in the bathtub, just like an old rubber.
Seal, just bursted and hot water was just flowing and the entire unit was a sauna. You could see the water condensating on the windows from the inside. So that obviously is a lot of damage and you have to come in and you gotta dry everything and water extraction and the whole nine yard. But if we wouldn’t have walked into it a day or two after it started going, it could have been really.
Monitoring utilities for us, it’s part of walking every vacant unit at least once a once a week or once every other week. Yeah, that’s a great, that’s a great idea. You guys do. I probably, we need to be a little more efficient about doing that. Now, fortunately, we run 96 to 98% occupancy.
So our occupancy is always great, but even those ones that we’re not in, we need to probably be looking and checking those a little bit more often. I think I hit on showing the properties, having them come here. Those were really, when you ask that question, reduce expenses and increase income.
Those were the main things that kinda came to the top of my head about the ways that we do that, without coming in and increasing rents, and we. Whenever someone satisfies a lease with us and they’ve been no problem, we leave ’em on a month to month. We don’t go up on our rents. We don’t ask ’em sign a new lease.
That’s somewhere we probably need to look at and maybe make an adjustment because I’ve been of the opinion that. If Joseph is renting from me and I never hear anything from Joseph, Joseph pays his rent on time, I’m gonna leave Joseph alone. But that’s probably a place that I would think that we need to review and probably make some changes on that.
If you’re gonna stay month to month, most people gonna charge you what? A higher rate. Yeah. If you’re gonna go, if you’re gonna sign a new lease, then they’re only gonna go up to. That’s the way most are. And that is a place probably where we could improve. Yeah. The standard that I’ve seen in the industry is that when your lease expires and you haven’t renewed, it goes up to market rate plus a month to month fee.
But anywhere between 50 and a hundred dollars a month. And I’ll say one other thing, a big thing, I had an independent insurance guy up in Nashville, Tennessee, taking care of my insurances. And he got referred to me many years ago. He just kept, things kept going on.
We just, it just stayed in place for several years. And I inquired about Hey, are you watching, are you keeping up with policies or anything we can do to save money? He’d always tell me, yes, but nothing would really, would ever change. And so my youngest son played baseball at u c, the University of Central Arkansas.
And he became friends with the young man and we’re friends with his parents. But the young man went out and he worked for an insurance company and then he went out and became an independent. And I told him if he. I would, I would shop with him and I gave him the opportunity to come in and bid our properties.
He came in substantially lower than the other film. Wow. Don’t always thank an insurance guy just because he has all of it. After a while, they will get lazy. And they’re not really making sure, because that’s a big cost for my portfolio for anyone who’s got a large portfolio. But that is another thing to really stay on top of is, your insurance costs.
Yeah. That’s a very big expense, especially in the last few years that the hurricanes and the tornadoes. And all of that bad weather hit all of the country the insurance companies were getting hit so bad that everybody’s premium went up. Okay. What’s next for Mike and his organization?
Are you guys looking to expand? Are you going to development? Are you going to purchase in different markets? What’s the outlook? My wife and I came from very modest families and we both got educations. We both worked really hard. We had good careers. She was a little hygienist.
Both sons have master’s degrees we took care of our business on that side. But I’m working right now I’m looking to have. A pretty big transaction occurred on the sale side towards the end of September. After that happens, my buying power with my bankers will probably triple.
So what is gonna be the next step? The next step? I’m already looking at other deals here in Texarkana. I’ve already got some acreage. Acquired that I already own and already have some other acreage that already identified that we’re gonna build on. And, that’s gonna be the next step as far as here in Texarkana.
Also have a couple of towns that I don’t wanna mention right now, that we’re going to be looking to expand maybe only a couple hours away from Texa. So this is. What’s getting ready to happen for me and my family is 20 years of hard work coming to fruition and allowing us to really shift gears and go forward with it.
And the really beautiful thing about this whole thing, Joseph, is Mason is along for the ride on it. He’s learning. He’s getting to see something like this happen. And he’s included the whole way. You know what, there’s a lot of opportunities out there for people. But it, where I sit, I’m gonna go with what brung me and I’m gonna continue to do residential rental property.
And I’ll tell you one story. Let me tell you one story. I don’t know how we’re sitting on time, but two 14 years ago, friend of mine’s son said, Hey, you need to go look at this doctor’s house out in North Texas County. I’ll go look at an older doctor. He. Retire and go to Houston. Big house 3,600 square feet, but it was dated.
I bought the house for $165,000. Okay. Back then, I really didn’t know what I was doing. I said, you know what? I wanna flip this and just make a little money off of it. I should’ve just put some new carpet and painted it. And probably could have, but lo and behold, I had too many chiefs and telling me what to do.
So I ended up sinking another $120,000 in this house. Wow. 14 years ago. But it turned out to be a very nice setup. Once we finished shift, plow forward 14 years later, that house has rented for those 14 years, anywhere from 2000 to $2,400 a month. All right. You can do the math on all of that. So can your listeners, but also I just recently sold it for 310,000.
If that doesn’t tell you the power of time on rental property, I don’t know what does. Yeah. We keep telling everybody that real estate is a long game. If you’re trying to buy and sell within two to three years, you’re trying to time the market and might work, might not work. Exactly. But if you play the long game you’re gonna win with real estate.
There’s not a single property out there that is selling today. Same price that was selling in 1994. Exactly. Or even 2000. So that’s like even the people that bought at the top of the market in 2006 were back to zero somewhere around 20 16, 20 17. And now it’s keep going up. Before I let you go, do you have any adjustments or any things that have been impacted in your organization because of the covid situation?
Because, we’re recording this in the end of July of 2020. It’s really hard not to talk about Covid, here’s how, here’s what I can say and how this has affected us. Okay. We probably had four months,
March, April, may, and June. Okay. Maybe some of February, but we literally ran four or five months. We had no one move and we only had one evict. Now you talking about something that can really make everything just run along really great that really did that. So we continued to work. My guys came in and we were here each and every day and we have continued to take care.
We’re an essential business taking care of people’s. So we’ve continued to work and I talked to my guys, if any of ’em were around anyone’s sick or if anyone they knew was around anyone’s sick, do not come into this office or I’d fire ’em. I cautioned them on wearing gloves, masks when we needed to.
And we had continued doing business just like Cornel. So I’m not sure how it is with your rental property, but each and every year in July, there tends to be a big turn. So we’re going through that now. We’re paying for that good time that happened, but you know, it’ll happen this month.
Things will settle down when everyone is kinda focused in school. Hopefully we get back to school going forward, but it really hasn’t affected the business side here very much. . Okay. I’m glad to hear that. Cuz there are a lot of other places in the country that really got hammered. With the Covid.
Some of our properties, especially the ones that are under the Cares Act with Freddy loans on it saw a little bit of a hit. But Like you said, we gotta take care of the residents. And that’s what we’ve been trying to do. And the ones that came to us and communicated that they’ve been impacted by covid, they lost their job with, oh, they got their hours cut.
We created payment plans and we’re working with them. We brought assistant organizations to look into that. We help them fill up the forms, so we’re doing whatever we can to help the residents and hopefully they work with us to get. Unfortunately in this business not everybody is trying to work with you.
And we do have some of the residents that are flat out taking advantage and they’re going, taking this ride all the way out to court. They literally told us, I’ll see you in court. Not willing to pay. Even though they haven’t been impacted, they did not lose their job. Take advantage of this situation.
But I’m glad to say that’s not the majority of people. That’s the majority. One, one thing we did do okay on that side. And I would tell everyone this, and fortunately we didn’t have to go through that a lot, but I told everyone, Hey, if you can get me half, I’ll work with you on the other half.
So basically, I was trying to tell that tenant, if you can put your toe in the water, I’m willing to put mine in the water, but don’t expect me to do the whole. We just, we really didn’t have that much trouble. Again, today, what’s going on? I really think it’s the summer moving cycle right now.
Yeah. Okay. Just to sum it up what advice would you give a new operator? Somebody that is just getting into the business, someone that is buying their first apartment complex or their, even their first pl. The best advice that I would give someone would be to seek out some older person that has done it for 20 or 30 years and go become a friend.
Go take interest in them and let them be a mentor to you. I had a man a little over four years ago. This goes back to what I told you about trying to acquire all the units on a street. I had some, he had eight duplexes in a house, which would give me everything kinda in this little pocket. And so I bought ’em from him and he actually lived across the pond in my neighborhood.
I knew him but didn’t know him well. And today this man is 83, about to be 84 years old. And he and I are so close right now. It’s just not even funny. But I really think that would benefit. Someone to go and find someone that would take an interest in ’em. Cause there’s plenty of people that wanna make a dollar off of you and don’t really care.
But I think that would be the biggest thing that, that I would tell someone, everybody wants to sell a book. Everybody wants to tell you how to do it, everybody wants to do that. You need to go talk to someone that’s successful, that’s got a lot of seasoning under their belt. And I believe that person could learn a lot.
I think that’s one of the best advice our listeners ever got. Find yourself a mentor. Somebody that’s been doing, not somebody that’s been talking. Exactly. Uh, And this will propel you immensely. I wanna say thank you so much for your time today. How can our listeners find you if they want what is your website?
If you wanna share an email or anything else? If anybody wants to reach out to you, how can they find you? Our website is white props ps.com and I will give my business email out. It is mw white props.com and they can email me at that address. And I wouldn’t mind spending a little bit of time with someone that was truly interested and truly You know someone that really, you got, you’ve got to have this in your blood.
Yes. If you’re gonna be successful, this has gotta run through your blood. If it’s not running through your blood and you’re deeply invested in what you’re doing, you’re gonna fail at it. Which could be said about a lot of different things in life. Yep, that’s true. That’s true. Thank you so much. That’s very generous of you.
We’ll put the links in the show notes and for our audience, if you want to hear more please go and subscribe on iTunes. Features Spotify, wherever you consume your podcast. We’ll also appreciate if you can get us a feedback and get us ratings on apple Podcast. That helps us a. Until next time.
Our website is aptr.com. Thank you so much for listening. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.

Episode 113: Steve Firestone & Michelle Fischer
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Hey everybody. Welcome back to another episode of the Apartments Operated Podcast.
I’m the host Joseph Golan, and today we. Steve and Michelle with us to tell us about their organization and their operations. Steve, welcome to the show. Let’s get started with you. Tell the audience a little bit about yourself, your portfolio, what are you guys doing, and then we’ll switch over to Michelle.
Sure. Sounds good. Thanks. Thanks for having us, Joseph. I’m Steve Firestone. My company is Crown Bay Group. I started that about that’s six or a little bit more. Years ago we started buying multi-family or large multi-family from about two, 2015. I think it’s when we really started ramping up and getting our first deals done.
I have done. I think about 13 deals total over the last five years. We’ve probably gone full cycle at about six or maybe even more properties. Mostly C space properties, c plus properties, anywhere from roughly a hundred units up to 300 and something per property. At our peak it was probably just about 2000 units and a lot of them.
We were lucky enough to hit our long-term or five year sort of goals in two years. So we sold off a lot of stuff as we hit our projections. And last year really good with hindsight now, but we sold about four, if not five properties last year. By December we were all done and waiting to take up the next space of us scaling up the company.
And then of course this happened with Covid what’s happening now, and coulda put a little bit of a damper on that, but I was happy that we sold off a lot of stuff. Now we’re just really ramping up. Despite what’s happening of the next phase of growing Crown Bay Group. Michelle actually is our director of operations.
She runs Crown. Management. We have our own separate management company that mostly just runs our own properties right now. We have been doing it for about three years. And yeah, that, that’s it. That’s awesome. Michelle, do you wanna tell us a little bit about yourself? Sure. And how did you joined the group?
I joined Steve three and a half years ago when he started Crown Bay Management. I’ve been in the business for 31 years now. Started out as a leasing agent, worked my way up. I’ve done everything from brand new construction, building properties from the ground up to foreclosures, receiverships, and anything in between A, B, C, D, E, F, G.
Get the hell out as fast as your feet will take ya. So I’ve done it all. There’s not much I haven’t experienced in property management in my 31. And it’s definitely a fun job. . . It definitely keeps you on your toes. I, oh, every day it’s something new. Okay awesome. So we’re jumping straight into the question.
We ask all of our operators third party versus self-management, and sounds like you made the transition from third party to self-management about three years ago. What was the driver there, Steve to switch over? At first it was I guess everybody thinks you need a management company to, to trust when you’re first starting out.
And I spoke to most of the management companies, at least in this market in Atlanta where we started buying. And picked out a company that I, started to, sort of relationship with that I thought would be good. Good, pretty good reputation. And it was okay until, you know better.
It, it’s only once you’re more knowledgeable when you start finding out how not okay. It really is. So we did that for a while, a couple of years. And things just weren’t going right. I felt a lot like I was paying them and I still had to look over their. I know that’s a sort of asset management, but it’s not really what I intended to do, to have to keep an eye on them.
They should know what they’re doing. And as we took over properties from other operators and other management companies, that’s when you really start finding out that a lot of them, most of them are all the same. And really with management companies that your interests really aren’t aligned.
At the end of the day, their reputation is built on running your properties properly. There is something to that. But on the other hand, they’re also, and usually the top people that are running the company, Are interested in building their company. So you really just get pushed off onto, a regional manager and whatever staff she hires or he hires.
And you’re only as good. It doesn’t matter about the company, you’re almost only as good as the people who they hire and who’s keeping an eye on them. And half the time you don’t even have a regional manager that is that great, so nobody is checking them. So it really just was a big mess and I.
Thought about sorting a management company, like I’m sure everybody does when, you always think, oh, when I get to that number, whatever it is that people tell you, you have to have to make it viable. And Unless someone pushes you into it, which is what happened to me. Sometimes you need a push to get started in anything in life, Michelle was working for a big company for quite a while running a huge portfolio which was nationwide from here where we are. And I had, funny enough, I had met that met. Her and another guy that worked there when I first came here and we had lunch and they were trying to, get my business as management.
And then we, I didn’t, really think about it that much or talk to Michelle again for years and But I was friendly ish with, I got friendly with the, basically what her boss, or was the president of their company and friendly ish. And then he called me one day and I found out, or he told me he was leaving, retiring or, moving on after he’d been there for a long time.
And then that was about two months later, he called me and then Michelle had. Too cuz she, she had only ever worked, under for him for eight years and didn’t answer to anybody else in this company. I guess they brought in someone else. It wasn’t the same anymore and she decided she wanted to leave.
So he called me up and said, I left. Michelle’s left too now. And he goes, remember Michelle? I was like, Yeah. And he said, you are never gonna get an opportunity like this again. You are starting a management company. I’m like, I am. I’m like, I got like a thousand units. That’s how the heck can I do that?
It’s I’m telling you, you gotta talk to her. And the rest is history . And it just happened by coincidence. She lives not far from me and we started meeting up and talking about it and whether she was willing to start a company from scratch and all that. And we just worked our way into it.
And, once we got to that stage and did it, It was amazing to me that, you know how much I knew we could do better with our own management, but I didn’t realize how bad it really was. Yeah. Until Michelle took over and uncovered the same things on every property as we took them back from third party, one at a time.
It was like the same issues, the same problems on every property, that I didn’t even notice. And then, and at the same time things like reducing expenses, raising occupancy raising up, just income, everything, which just all happened in an exactly set time.
For each property was identical. Yeah. There’s a lot to unpack here, yeah. But what I always find amazing and this is what this podcast is for, right? We talked to experienced operators, people that are in the field and doing the job. The stories are identical. It’s just so incredible that we’re all going through the same process, right?
You start with when in very small percentage, start with their own property management right out of the gate, right? So we’re all told, oh, you gotta get to 1200 units, 1500 units before you can justify a management company. And we go with third party and we all have the exact same issues. And like you said, at the bottom line, They’re only as good as the regional and the onsite team that they hired for your properties.
And IT, and still a property management company needs checks and balances and processes and procedures and making sure that just because they have a book doesn’t mean that they, the people in the field actually go follow that book, right? So , same challenges we keep hearing over and over from all of our different operator.
And we’ve been hit with the exact same thing. And I like how you said at some point you just get a little push, right? Yeah. That, that pushes you over the threshold. And that’s what happened to us at the beginning of the year, just before the whole Covid blew up. We got that push and we took over and quit Quitted own management company.
I found original, like just like you did, and she’s our VP of operation now. And I’d love to hear from you, Michelle, a little bit about your perspective, right? You’ve been in the industry for so long how come that all those property management have those exact same issues? And because you’ve seen that, right?
You pick up properties from third party management and they all have the exact same challenges over and over. I’d love to hear your perspective with all of your experience. I think my perspective on it is that when you are a huge operator of a management company like these large property management companies, you’re just a number.
You just become a number to them. Cuz I’ve worked for the large property management companies and I think part of the problem is that, like you said, there’s not enough oversight on the properties. To be able to determine, why? Like we have a property right now that we are purchasing from a large management company and they’re giving away one month free on this property, one month free rent in this market.
I haven’t seen that in seven to 10 years. No concessions, but they can’t lease the apartments. And so they try to just tell these, like they tell the owners what an owner. What they think an owner’s gonna believe. And so they say, oh the market’s dictating a one month concession. And most owners don’t look into that because they don’t have the time.
They’re trusting the operators of the management to be telling them what’s really going on in the market or operation wise. And they just don’t, I think they, what I always tell Steve is I feel like a lot of these large companies have the gift of the. But they don’t walk the walk.
They talk the talk real well, I’m sure you’ve experienced it where they tell you everything that you want to hear, but it, the numbers never show the results. Or when, and it’s just getting up there. They all of a sudden have these. These excuses, they have a list of excuses that they pick from, to justify why you’re not at occupancy.
You know what I mean? This is what we have. Steve had a property that I, we took over management on and they were having an occupancy issue, and this management company kept telling Steve that the reason for the occupancy issue was that they weren’t getting qualified traffic in the door. On day one, my regional maintenance supervisor went out there and walked all the vacant units.
The reason why they couldn’t increase the occupancy was because they had 21 down units on the property that Steve knew nothing about. Yeah they lied. They told, they, on the rent roll, it says that there’s, there was no non-revenue units. Yeah, and there was all these units that were, they were taking things over to fix other ones.
The things, we had plenty of money in the bank, so I don’t know why they were doing that. And so within 30 days, we keep an eye on ’em. Within 30 days, we turned those units, got ’em occupied and increased the income by 20, $30,000 just on those 12 units. Yeah. We’ve had that as well. When we took over, we found residents that were told there’s no forest, there’s we ordered the parts.
It’s at the same time, the parts are in the shop, it’s it’s right there. Yeah, it’s I feel it comes from a place where like you said, oversight. If there’s no oversight, if there’s no one carrying, right before we took over, we got to the point that we were actually going through each unit ledger.
And like you say, Steve, that’s not asset management, right? So when I got to that point, I said, okay, if I’m doing all that work, why do I have to pay someone else to do that? So that was one of those little points of push , like you mentioned earlier, for us. One of the things that I’ve noticed and that’s like we said earlier, they’re only as good as the regional and the people on site that they hire.
What is some of your philosophy about hiring? Because it’s a very unique industry, to be honest, right? We buy properties that are millions and millions of dollars, and then we hand over the keys to a manager on site that has a salary base of 50, $60,000 or even less so how do you hire what’s important to you when you hire an onsite manager, for example, or regional?
How do you make sure you get the right people in? I’m gonna tell you first off that Michelle is perfect to answer this and explain because. . I’ll tell you from an operator point of view, that she knows we joke about this all the time. Cause every time I go and into her property that I’m interested in buying and she’s like a running joke now, she’s shit.
The girl like, are you gonna tell me that you like the manager, right? And I’m like, yeah, . She seems really good. She seems, and then, and it’s always, turns out it’s okay she’s shit. And that, they’re just telling me what I want to hear. Even, just looking at a property. Cause they just wanna keep their.
Kind of thing. And we never keep ’em, and Michelle always points out to me why things that they say and do that. They were totally lying and making up stuff go ahead, . I think unfortunately a lot of it is experience of interviewing people. For people that don’t have that experience, it becomes harder to determine what is a good manager and what’s a bad manager.
I’ve interviewed them for 31 years and regional managers that it’s slightly easier for me. We do have a task that I require managers to take because they. In an interview we’ll tell you they know everything. But when you ask them to give you the formula to calculate cash flow, and it’s on a test, I’m telling you, nine times outta 10, a manager can’t tell you where cash flow comes from.
And it’s, total income minus total operating expenses, minus your capital equals cash flow. It’s pretty simple, but I think a lot of people, what I find is they’re really good at interviewing, like a management company is really good at telling you what. They think you wanna hear that’s how a lot of interviewer interviewees are. And so you I think bottom line, it’s, you gotta get down to testing ’em and putting it, on paper what they know. Yeah. So what would be a red flag for you in an interview?
There’s so many . I know. Give us a few. A huge red flag to me is somebody that’s texting or talking on their phone or answering phone calls because that’s what they’re gonna do all day long at work. That just irritates me to no end. You don’t know how many times I’m in an interview and somebody is texting or answering their phone.
It’s strange during the. ? Yes. Wow. Okay. Yes. That’s a huge red flag. Again the yes Ma’ams the yes ma’am. Yes ma’am. Oh, yes ma’am. I can reduce your delinquency. But then I say, tell me how you’re gonna reduce my delinquency, and they start fumbling. You gotta watch out for that. Yes, ma’am. Yes, ma’am.
Yes, ma’am. Just like we talked about with the management company, they know how to Yes, sir. You, yes, sir. You, where you think, wow, this person really knows what they’re talking about, but they don’t. Yep. They’re just used to the gift of the gab, but they can’t walk the walk. I’m adamant about that, yeah, that’s, that. That’s good. We’ve gotten to the point and we’re in a, most of our properties are in a smaller town, so there’s just not a lot of depth in the town pool. We got to the point that when we hire someone, they start on a 10 99. We don’t bring them on board for the first 30.
Until they prove themselves. Because we literally had to send people home after a few days or after a week. They just, they tell you, yeah, I can do this, I can do that. And that’s true to maintenance and office. It’s kinda, oh, yes, I can do this and I can do this. And then you get to the reality and it’s kinda like they’re, they don’t know.
They don’t know how to do it. And on a, on the maintenance end, we also have a test they have to take because yes, they do the same thing. Yeah, I can fix air conditioners and they have their EPA certification, but you tell ’em to go out and fix one, they don’t know how. Yep. Yeah. You gotta test.
People, and I did, Steve had a friend that owned a small property in a small town here in Georgia, and he could not find a good manager. And I gave him my test and he said, wow, that was phenomenal. I found somebody that could pass the test . And she worked out well for him, because again, people like to talk the talk.
Yep. That’s absolutely true. Okay. That sort of leads into one other thing too about I just wanted to say, This is why I do a lot of these panel discussions at the, I don’t know if you’ve been to the IMS event im in, in, yeah. In imn. Yeah, sorry. In in New York and in Chicago. I did in Santa Monica.
And the panel that I’ve been mostly doing or asked to be on was about the difference between having third party management or your own. And that’s what the discussion is about. So I’m used to talking about that and. You know it, it’s, so the first thing I always tell people is because it’s misleading and the first thing I say is, I just wanna make it clear.
We’re not saying that you should just go out and say, Hey, I’m a management company. Now you should. If you’re talking about starting your own management company, what we’re saying is, To find someone and bring someone in to operate the company that knows what they’re doing. Not that you do. And this also goes back to interviewing staff and unfortunately property operators like, like us, of course, we talk to staff, we, if we think they suck, we’re gonna say something, but you know, but at the same token is we don’t see them and talk to them every day.
So we just meet them once they end. Like they tell you what you wanna hear and we think they’re a nice person and that stuff, but we don’t really know what they’re like to work with or how they’re doing their job every day. So it’s run by emotions. So it’s like anybody else, if I meet anybody once they can, I can.
Instantly like them and they all nice. And the second I walk out the door, they start cursing me out behind my back. You don’t know , but when Michelle works, has to work with them and speak to ’em every day. And the number one thing is actually see their performance every month. That’s it. If they don’t perform.
Then they’re, they gotta go. You gotta go. Yes. Michelle’s pretty strict on that one. . Yeah, no you’re absolutely right. And one of the thing that was a real challenge for me to think through was how do I handle compliance, right? Because there’s so many fair housing rules and revelations and all kind of things that you have to, and HR stuff, right?
That you have to worry. And I think that you hit it on the nail and it’s finding that right person to lead the whole venture of creating your own property management company. And when I was interviewing for my VP of operations, I told all the candidates, I’m not looking for a number two, I’m looking for a number.
I want someone that can come in, set this thing up, and then become my number one so I don’t have to be in the property management day to day. And, Not that I threw the keys over the fence, so that never works. I’m still in the trenches cuz we are still only a few six months in.
But I hired the person that I felt that at some point I’ll be able to take a step back and let her run the show. What do you guys do when it comes to compliance? How do you keep your people up to date with fair housing and all this kind of stuff? Cuz a lot of the people will have the same hesitation I had with just, how do I do all that?
We have an hr director that handles all of that for us and keeps us in compliance and sends out all of the latest and greatest laws on everything. That’s something that we have a department that does that for us. Okay. And do you guys use certain online classes for fair housing?
Yes. Grace Hill, we’re using Grace Hill as well. Okay. Grace Hill’s good because they have to get their certificates. So if you ever have a lawsuit, like a fair housing lawsuit, it’s awesome that all of your people have taken the Fair Housing class. And that is just such a great way to document all of that.
If you ever get yourself into that situ, Okay. Which you will. You will. Yeah. . . It’s not as if it’s don’t think you’re immune to it, . No, nobody is. We actually found that there are certain people that would call and try to trap our people. Like they have professional shoppers that do that to see if you’re gonna violate fair housing.
Yeah, but I’m not talking about the government that I’m talking about actually, people trying to trap they sue you. Yeah. They make a living out of it. Yeah. That’s same with other lawsuits on your properties that they’re so savvy to it. They go out and trip on a curb and sue you and say they broke their.
Yeah you’re always gonna have those folks. We had one at a property the other day that entire living seal tried that. It fell on then injured them. But we got real smart with that and hired an engineer to say that they pulled it down. Yeah. And they really did. Yeah, it’s crazy what people will do and I think a lot of times that’s what scares people to open their own management company is they don’t know how to handle fair housing lawsuits, liabilities, but if you hire somebody like myself that’s been in the industry for 31 years, I know how to handle all of the, all of those issues for Steve. Yeah. And good insurance. . Yes. Always have good insurance and make sure you don’t let your insurance lapse. . Yes, absolutely. So hindsight, Steve I’m pretty sure I know the answer, but would you start management euro management day one, or would you still go through the process of starting with third party and then transit?
I would I would still start with third party because I think in a way you don’t have a choice when you’re starting, especially if you’re gonna jump right in and buy a hundred units plus it sounds too daunting to, I remember first property board, actually one, Michelle was talking about Parkside crossing back in 2015.
It was 250 units, and I have been looking at smaller properties first over my first year of due diligence before we bought. So we’d be looking at 20. 30, 40, 80, a hundred. Then I thought, I got myself psychologically up to the point where I felt like I already owned all those smaller properties, so nope, now I’m gonna buy a hundred.
And then I ended up buying two 50. And the first time you go to a 250 unit property and you’ve never owned a property before, I was, I couldn’t even find my way around. I was like, felt like I was lost. And then now of course it doesn’t seem like a big deal, but at the time it was like, holy crap, what the heck have I done?
Yeah, but I think without having third party management, You don’t learn what you’re doing wrong or what they’re doing wrong. So I think it’s really important to still learn from it. It’s not like they don’t have any idea what they’re doing, they’re just not, like I said, totally aligned with your goals.
And but they’re not, if you get a decent one that’s recommended or whatever, they’re not like terrible. Like they don’t have any idea. You learn a lot from seeing what’s going on and how it evolves, maybe at least over the first. And then, you’ve gotta have something to compare it to when you finally do your own thing and you’ve got someone to set shit out, pointing out what’s wrong and showing you the proof and the pudding of what, how it can be.
So I think it’s important to learn. I’m not gonna say the wrong way first, but just not the most efficient way. Yeah. That when we start out, you don’t know what you don’t know. Yeah. And that’s one of the biggest challenges. And trial by fire is not the best way either. . Yes. But I don’t know if I would recommend anybody to wait until they’re, at the financial threshold, which is somewhere around the 1200 5,000 unit.
, would say as soon as you feel comfortable professionally to handle. Even if it means you make an investment and the first year you’re gonna be negative cash on on, or net loss on your management company, it’s still worth it. That, that’s a good point actually, because a lot of people.
Seem to think not operators, but other people seem to think especially investors. Oh, but you’re making 4% management and whatever. And I’m like, yeah. And you try to, you’re trying to explain to them that we don’t make any profit, we’re it’s 4% or whatever it is. That’s in line with the market.
Not to mention we don’t have all these extra fees in there that we’re charging and taking advantage of like other third parties do, and that mount, that really mount up that we, I was shocked when I realized what they were charging me for all these. Stealth fees and things. Yeah. Yeah, it’s just such a big it’s not only that it’s like you look at the math, right?
The, what you charge for the management and the amount of brain damage that management generates. The, it’s not a good business. I really don’t see how third party management do, and that, is part of the reason why they don’t do such a great job because, If they’ll actually put all the time required, they’re not gonna make any money.
Yeah, again, that’s what I tell, like especially investors, the, our management entity is really a loss leader. Yeah. And what it does is really enable us to run each of our se, and consider every property as a separate business. Obviously, we have some crossover investors and some different in every property.
So you want, it’s not like having a portfolio where some are up and some are down. You want every property’s gotta perform good. Yeah. We’re not worried about making money with that. We’re trying to just make each property run more efficiently by having that in-house service. But it’s really a service to our investors, if anything, not anything making money for me.
Yeah. like the way you phrased it. It’s a lost leader. It’s not a yeah. It’s not a profit center really is not. Yeah, absolutely. Okay. Michelle, tell us a little bit about the things that you guys like to do on your properties for the residents, right? Do you do any events, any parties, any promotions or what do you do to increase retention?
I guess that’s what I’m really looking for. We did until Covid 19 hit. Now all of that has ceased assisted . But yes, we do, weekly, like once every two months we’ll do a whole week of resident appreciation week where we do a different event every day for of an entire week for the residents.
We do pool parties, we do Christmas parties every holiday. We definitely do something for the residents We have our staffs have really great re relationships with all of our residents. And that comes from, Steve, down to me, down to them. We believe that the residents are paying everybody’s salaries.
The residents are, Making the properties perform financially, so we, even during Covid 19, we don’t have a lot of delinquent residents on our properties, and we have not changed our operations at all during the whole pandemic. And I think it’s our residents like us and respect us, and we give them that back also.
Yeah, so I’ll give you a few examples of what I’m looking for, right? For example, we used to do pre covid back to school parties. So we would actually reach out to a few vendors like hairdresser and, local pizza shops and other vendors and bring them in so the kids would get free.
But it’s the little things that we like to do. We usually towards the end of the year, whether it is a challenge, usually a bigger challenge with collections because, C class residents somehow prefer to pay buy gift over paying rent. So Amazon didn’t get big from nothing. , that is still weird, but it is what it is.
So we used to incentivize them giving away movie tickets. That’s another thing that due to Covid movie tickets and we would raffle big l d TVs. Do you have any of those little things that you guys are doing that are not just the usual full party Christmas? Yeah, we do all of those kind of events.
Every property does different things depending on the manager and the residents at the property. If we have a property that has a large profile of children, then yes, we’ll do like Easter egg hunt for the kids Yes. Back to school. We’ll do what Channel three news here in Atlanta does stuff.
The bus, we do like donations for school, supplies for the kids on the property. We do all like that kind of charity stuff for the residents also. Yes, we do. That’s awesome. That’s another thing about having good staff as well. You can always tell good manager when they need to be firm, but still approachable from the tenant’s point of view and seem to be doing things at that end.
A lot of them really get into their work and have these things that they’ve done in the past that they like to do, and they bring on board ideas of. Those sort of events, and you can tell the ones that really get into it and keeping the tenants really happy. Yeah. It’s like I said, every property’s different based on the staff and the profile and but all the managers have their own unique ways of what they do, and they’re all interesting and good.
Like it’s fun to watch what they do every month. . Yeah. That’s really great. And it comes from a place of caring, if you have the right manager and they care about the resident, then they will bring up those suggestions. They will ask for a budget to do something. And we always encourage our managers to think that way.
Take care of your residents. . And if you need to fight for someone, come in and fight for someone, right? You’ll never be punished for defending your resident or advocating for your resident, right? So that’s great. So let’s talk a little bit, because I know you, you’re very much like a lot of operators.
You buy properties that are underperforming and you’re trying to add. We’re gonna look at both sides of the equation, right? Increasing revenue and reducing expenses. Let’s start with the revenue side. Give us a few examples of things that you guys like to do that is not the usual raise rent.
Because that’s the easy one, right? Give us a few examples. On, on a lot of the properties we take over, they’re not billing back all the utilities and we build back all utilities, water, sewer, trash, pest control. A lot of the properties we take over don’t bill back any of that. Day of takeover, all concessions are eliminated.
We do not do concessions. Literally we’re taking over a property that has A ton of concessions year to date, and it’s just not necessary if you have the right staff on the property and it’s all gonna go back to that, like you said, it’s gonna go back to having the right people in the office that are gonna increase your income and reduce your expenses.
So the utilities concessions. And the one thing I tell all of our staff members that will fix any property is vacancy loss. You reduce your vacancy loss on the day of takeover with like within 30 days, you’re gonna see your income increase hugely and your expenses are gonna decrease. You’re not paying vacant utilities.
You don’t have to turn that unit. It’s occupied. It. getting back to the basics of property management that really solves all operational income issues. Yeah. That’s pretty much calling it, okay. Steve, do you have any examples that you can think of? In general, what Michelle’s saying, I always say one of our main things, we have, or I have three things I, I look for or do to raise value.
When you say value add, it’s. Open-ended or what is value? And pe a lot of people that don’t know, they just, if you’re adding value, they think you’re building something or like interior doing interiors or renovations. But the reality, it’s just anything that makes it more valuable. . So our, my strategy when I buy you is number one, of course, it’s just buying, right?
If you don’t buy it right in the pay, the right price in the first place, you’re just dead in the water anyway. And number two, really the biggest thing that adds value. Management efficiency. And that’s a combination of reducing expenses and, raising your utility basis. We take over some properties and they are charging for water, but they’re only get, recouping like 50%.
We can get that up, over, probably an. Maybe takes a nine month turnover to get it up to, near a hundred percent of the, the tenant used water. , that’s huge. You could add millions on a big property in capitalized income. So it really is just mostly.
That type of thing. It’s always, I always say it’s a man, it’s mostly a management play. And then any work we do is extra. We might do upgrade 25% of the units or do some, lighter upgrades on all units as we turn, but most of it is just getting to grips with it right away. We know in advance in advance when you buying a property what things need to be fixed and, if you have someone to implement them, then you know, you can turn it around quickly.
And really it’s not specific things. It’s a combination of. Of those things, just lowering any expenses that aren’t correctly being dinged. Charge correctly. And really it is, there’s a point there. A lot of it’s just collecting the income, training the tenants. Good manager knows how to, train, retrain the existing tenants and train the new ones as they come in so that they know you collect on, on time we file on whatever the 10th of the month, things like that.
So training them and having a more systematic approach to collections and everything is really a huge difference. Absolutely. And you touched on reducing expenses so let’s talk about reducing expenses. Where do you guys find the most value of, if I do this, I get that much reduction in expenses, right?
So what are the big stones in expense reductions? . I have to say that one of the biggest misconceptions in property management is that utilities are a non-controllable expense and they are controllable, and that is where most of your money is going out the window. If you start to see that your water bill is increasing, don’t ignore it.
Get somebody out there. We have a regional maintenance director, so it, I monitor the monthly utility bills on every property, and if I see a water bill is starting to climb up, I send him out there and nine times outta 10, there’s a leak on that property somewhere. And most people don’t do that. And then it goes from 11,000 to.
15,000 to 20,000 and then it, oh my God the water bill’s now 20 grand. It used to be 11. What’s going on? If you catch it right away, when you start to see that increase happening, another thing is vacant utilities, whether it’s gas or electric, my managers walk those once a week.
Every vacant unit, to check for mold or check for leaks. To make sure all the utilities are sh not cut off because you need power for the refrigerator. . But the air conditioner’s not blasting on 50 degrees all day and night for 30 days straight, so you have to have somebody that’s monitoring those vacant bills and you’re all of your utility bills, because I’m telling you, We save.
I had a property last month that the water bill did go from 11,000 to 15, and I immediately called the regional maintenance director and said, you need to get out there. Guess what? The bill’s back down to 11 again. Yeah, we caught it immediately. There was leaks on the property. It’s I think everybody that has ever trained me in this industry says utilities are a non-controllable expense.
That’s the craziest thing I’ve ever heard. It’s one of the biggest controllable expenses. Yeah. Really it is. Another thing. Is advertising. We’re buying a property in the next 30 to 60 days, where this company has spent year to date, $85,000 on advertising. Oh my gosh. In anything like that, do you know that on our properties, we spend zero on advertising because I have the right employees that know how to market.
they know how to lease. I always tell everybody an apartment is a box. It’s just a box that you’re selling. They’re all pretty much the same. It’s the people, people lease an apartment because of the person that they’re dealing with, the customer service they’re getting. You know how that person made you feel?
I am a huge proponent about, first impressions and how you make somebody feel the first time they meet you. And if you’re on your phone and you’re texting and they’re waiting and they’re wanting to see an apartment, they’re like, I’m outta here. Yeah. So if you have the right people, you don’t, and I find that these.
Third party management companies, and this is a third party managed property. Instead of looking at the staffing because they’ve turned the staffing over three times already, the entire staff. And instead of going, okay, we got a major staffing problem here, they’re telling the owner we need to spend $85,000 on advertising.
This is the one that we mentioned before earlier on in, in the conversation that. Was having trouble with the occupancy. There’s a, this is the only, the one month free from fixing it, spend more of the owner money . Yeah. No it’s crazy. I don’t even know what they’re spending $85,000 on, but I wanna know I’ve asked the broker, can you please give me a breakdown because outta curiosity, I just need to know, for my own, do we do a website?
But we have a website that’s, from a company that, as soon as we know we’re taking over, they get it ready. That’s the only thing we do pretty much. That’s, it might do some minor. So we, it’s mostly just traffic coming in and Michelle said just having good staff. Yeah, when we took over the, one of our properties, they were using apartments.com and they were paying like a thousand dollars a month for this thing.
Yeah. And it, and then when we drove into the roi, it was just not there. It wasn’t generating and traffic. . And there were bills, and bills from apartment list, for example. And just turns out if they visited apartment. Website at some point, and then they showed up on your property. It might be unrelated, they just drove by.
, you’re still getting charged for the lead because a partner lists log them first and stuff like that, that we eliminated immediately. That’s one of the things you find out about from, the hard way from third party management. They’re spending a thousand dollars a month on my money on apartments.com and then you don’t think anything about it for a long time until you.
You know what I’d like to see. Can you show me the analytics from that? And and then they, Oh gee, we don’t have any leases from apartments.com. And you’re like, why am I still spending a thousand dollars a month? Oh, I don’t know. That’s third party management, . Yeah that’s exactly what it is. So we, and we also have a media company that builds multifamily websites.
Because we feel, we crack the formula. Layout templates and so on to the point that we get about five, six leads at organic leads a day, coming to our property website and put in all the information. Look for an apartment, and this is. Every property every day organically. We don’t spend a dime on it.
Same us. One of the things that we we also learned is that because we also have a brokerage, right? We got a fully vertically integrated organization. We also have a brokerage, so we put our apartments on the mls. The MLS propagates to hundreds of different websites, including realtor.com, in Zillow and apartment list and Damper and all these guys.
So we get leads through those for. So why pay apartment list if they’re gonna give you a free lead just because you put it on the mls. That’s just another way that we found that we can get a lot of different leads and use them without paying for it. Yeah, that’s a great idea. Okay I wanna be conscious of everybody’s time.
When you look back a little bit. And if you could go back in time to a younger self. And what would you tell yourself, and let’s assume you can’t tell yourself that 2009 would be the bottom by anything you can put your hands on. Short of that, what advice would you give yourself your younger self?
I certainly wish I got into it much. I have been involved in real estate, for instance, about 20 years now in, more doing development and other stuff along the, just about everything along the way, buying, selling commercial property, stuff like that. But I really didn’t know a hundred percent about.
How great multi-family was till five or six years ago. And then I just decided to do that a hundred percent and I wish I did that way before that. It’s just a great business and it’s it’s much safer than doing spec building and, things like that. It’s just, as long as you learn how to operate them properly it’s a great business.
That’s great. I wish we did it a long time ago. Okay, so we’re recording this at the end of July of 2020. It’ll be a missed, not to mention Covid, but, and we mentioned it a little bit along the way, but how did Covid impact your operations? I think I heard Michelle say that would you change nothing in the operation?
Did you stay fully open? Did you do any work orders? Even the small ones How did you guys adjust and how did your residents adjust? When the covid first hit, Steve called me panicking, and I fully understand, I was a little rattled myself, but I’m the, I’m like the calm one, so when it hit, and everybody you know has their opinions and there’s so many people that wanna say, you should do this, you should do that, you should do this.
And you know what I said to Steve? I said, Steve, I’m gonna continue to operate like normal and I’ll adjust if I have to as we go along. But I’m just not gonna listen to all this rhetoric that’s going on, that I keep hearing, absolutely. We put, safeguards in place.
All our offices are open. We do full work orders, because part of my problem was, on a 348 unit property, if we hadn’t been doing work orders since February and it’s now July. , can you imagine? We’d never dig out of that hole and the residents would be miserable and we’d be devaluing the property by not fixing these items.
. At the beginning of it, I just told Steve, I’m gonna run it like normal, but we’re gonna require our employees to wear masks, maintenance, have to wear maintenance gloves and masks. We’re gonna sanitize, we’re gonna close down all the common areas such as the pool, the fitness center, blah, blah, blah.
And I’m happy to say at the end of July, I have not had one employee or one resident that has had Covid 19. That’s great. We had to minimize to emergency only work orders for a little while. I think that was like for March, April and some of May. And then when things started calming down a little bit, we went back and because like you said, it builds a backlog.
and if you don’t catch up on it, it can be a real problem. It took us a little while, but we’re finally got caught up on, on all that backlog and we never closed the office because your residents still service, right? , still need service, they still need attention. You still need to renew leases.
You still need to lease apartments and show. So yes, we adjusted, we had masks and sanitizing. We did virtual tours to anybody that wasn’t comfortable to do a an in-person tour. But overall, we’re an essential business. We gotta keep operating. We have people to take care of that lives in those apartments.
You can’t really shut it down. No. And of course it is communication as well though, with the tenants. Of course we, we had. Ask tenants and, put notices out and said, please, don’t call if it’s not something that, is really that important. So we have do, would like a bit of tenant cooperation on that side too.
Don’t come in the office unless you really need to. Don’t call us because to change your light bulb or something ridiculous, come on. So it’s a bit of common sense, I think in communi. Yeah. And sometimes we had to have that conversation with the residents kind look, it’s not an emergency.
We’re not just trying to protect our team member, we’re also trying to protect you and everybody else in the community. Because if our team making his team is walking in and out of unit all day long, if one of them gets sick, he can get the entire complex, right? It was also protecting them.
So like you said, a lot of communication that was going on with the residents to help them understand. A lot of them are very, and so are we very sorry that we can’t open the pools just yet. Especially here in Texas, it gets hot. Yeah. But it is what it is and we gotta follow the city code and all the instructions.
It’s definitely. Different. Cut everybody by surprise. And we’ll all have to adjust in some way to, to the situation. I’ll just ask one last question and it’s what’s next for your organization, right? What’s the plans? Are you guys still buying in 2020? Are you planning on development?
Where are you going forward? We’re still sticking with, what we do, which is, mostly specializing in a more of a c, C to B, C plus to B minus demographic. That seems to be our, niche, specialization sort of market. Which is what we’re used to dealing with.
And we’ve weren’t doing anything for the first couple of months or more. If most people weren’t, no one really knew what to suspect, what’s going on. That felt like the market shut down, as far as buying and selling and stuff. Everyone pulled out of deals that we know that were, that.
We’re under contract, things like that. But lately things have seemed to pick up a little bit. We’ve really been, or I’ve been weighing up what I think, listening to industry news, economic news, and trying to, feel my way through what my opinion is. At the end of the day think there is a.
Good justification for buying if their price, risk adjusted pricing, which I don’t see a lot of at the moment. But we are buying, so we have a 93 unit we’re closing on next Tuesday. That just came up and that actually was on the market. Quite a while pre covid and they had offers on it in the eighties, a door, and we’re buying it for 69 a door because the guy decided he wanted to sell it and everybody pulled out and I said, yeah, we’ll do that for the right price.
So that is priced in, any downside. And of course the upside is, a lot of it on our, my plan right now buying is that hopefully, even in two years from now, we’re back to income related cap rates and pricing based on that. , so hopefully we’ll gain something from that.
Plus it’s got management efficiencies. And then we’ve got another 260 unit property we’re closing on in about, I dunno, somewhere between 45 to 60. And that’s been a great deal as well. Really great property where we already have a property, the one that Michelle said that we’re taking over.
That’s needs a lot of management efficiency run by a big management company. Meanwhile, we have a property on the same road as that’s inferior. And our rents are higher and we’re a hundred percent occupied, so they have no excuse. , we’re buying. But that’s the best purchases, right? When you have a proof that you can do better, right?
It’s way lower risk that way. Awesome. So it sounds like it’s onward and upward for you guys. That’s fantastic. I wanna take a minute and say thank you for both of you taking the time today and being on the show. If anybody wants to reach out to you guys and find you, maybe invest in one of your deals, how can they find you?
And we’ll put links in the show notes for all of that. Sure. Our website is just www.crownbaygroup.com. You can go on there. I think, our email’s on there, info crown bay group.com. Anybody’s, welcome to send me an email or, Send a message through, through, through there, or directly on the email to get in touch with me and I’ll get back in touch with you or we can get on a call or whatever the case may be.
That’s really the best way. We also have an investor tab on there as well on our website. You can click on that, which takes you to our investor portal, which has, which we actually just really got up and running during Covid. We thought it’s a good time. Let’s do something proactive here.
So let’s get that. We got that just up and running. And the first deal is actually on there now. And if you click on that, you can actually see all the documents and downloadable items. Awesome. Great. We’ll definitely make sure we have the links in the share notes. For the listeners, thank you so much for listening to our show.
We appreciate if you can take some time and go to iTunes or Stitcher or Spotify, wherever you listen to your podcast and leave a review for us. One star, five stars, whatever stars you feel is right for us. We’ll appreciate it. Our website is a P T O P R where we can, you can watch all of the shows and we’ll see you.
Thank you. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.

Episode 114: Brian Burke
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Welcome everybody to The Operators podcast. My name is Joseph Golan, and I’m your host.
Today we have Brian Burke from Praxis Capital. Brian, welcome to the. Thanks for having me on. It’s great to be here. Awesome. Brian is one of the best operators I know. He’s got a huge portfolio. He’s done a lot of things over the last few years. Brian, why don’t you take a couple of minutes and tell our audience a little bit more about your organization and a little bit about your history of what you’ve been doing.
Yeah, I’m the president and c e o of Praxis Capital. We’ve been in business now geez, I’ve been doing this for 30 years now. Bought about a half a billion dollars worth of real estate. Our current portfolio is around 250 million, a multi-family. We got about 3000 units in several states across the country.
You know, our model is to acquire underperforming multi-family assets, fix ’em up and. And, and run ’em for a while, and then ultimately we re we we sell ’em. So, you know, kind of not an unheard of strategy. I’m sure a few of people that you’ve talked to have done that. Right, Joseph? Yeah, well, we hear the story over and over, but the, the reason we created this podcast is because there’s a lot of podcasts out there that talk about how to buy, how to raise money, right?
How to put these deals together. But not a lot of podcasts out there that actually talk about, okay, you closed the deal. Now what? Right. Yeah. You know, it’s funny that you say that because there, there’s, there’s books, if you look at books, right? There’s hundreds of books about how to acquire real estate.
But very few books about how to operate it and manage it properly. And it’s a, I always tell people it’s like the, the acquisition phase will take you, you know, maybe two months, maybe six months, but the operation phase could be six years or 60 years. So it’s that’s really where the rubber meets the road.
So it’s kind of cool that you’re doing this podcast. Yeah, the, the way I like to say it, it’s kinda like getting to the closing table is a sprint and then it starts the marathon. That’s it. Right? That’s exactly right. It’s kinda like if you get to, if you get to the closing table thinking you’re all done with your sprint, it’s like, wait a second, we’re gonna start a marathon here.
Oh, I know. It’s funny cuz people will be like, oh gosh, I finally closed on this deal. I just, you know, it wore me out getting all the way through and it’s like, oh, you just wait. You haven’t even gotten worn out yet. There’s no time to be tired cuz this is just where it’s getting started. . Awesome. So let’s jump into it.
3000 unit portfolio. That’s a massive portfolio. That’s very impressive. And I know that along the way you sold some, you bought some right. , you probably have a lot more unit under your belt over the. How did you get started? Well, I got started like, like any new real estate investor would start, I got started flipping houses.
I I was buying single family homes, fixing ’em up and reselling ’em. At, at first I was doing it, you know, I bought my first deal with a hundred percent financing. I had a. A loan company, you know, a lender made me the first loan. The seller carried back the down payment. I fixed it up and rented it out for a while and then ultimately resold it.
My second deal, I bought by cash and financing all my credit cards, , and using that to, to, to buy a property, subject to the existing financing. And then, then I, then I figured out, wait a. I could actually get other people to partner with me and then, and bring money to the table so I could close. So that’s when I started, you know, using other people’s money, so to speak, and started just, you know, buying houses and partnerships with other people that would bring some cash and we’d fix ’em up and resell ’em.
And, you know, the business grew over the course of about a decade and a half, and then, And then we started getting into that crazy time in the market around 2000 5 0 6. You know, the market was just getting really bizarre and I’m like, you know, I gotta get outta here because nothing makes any sense. So basically stopped buying for a few years, maybe about two years, almost stopped buying, and then the market was just, Collapsing around us.
And it was great because all of a sudden there was just opportunity everywhere. It was like drinking from a fire hose. So the business just really grew as a result of all the foreclosures. You know, we had been buying foreclosures for years and so we just started you know, we went from doing, you know, a dozen houses a year pri pre-crash to over a hundred houses.
Host crash. And you know, in conjunction with that, we were raising a lot of money to acquire all these houses and said, geez, you know, what’s gonna happen when all these foreclosures are gone? What are we gonna do? And, and I thought, you know what? Multi-family, I, I bought my first multi-family property almost 20 years ago and I said, you know, I know that business, we can, we can move all these investors into multi-family investments and really scale this thing.
And, and that’s what we’ve done. So, you know, the last. Geez, I guess you know, 15 years have had a, a pretty heavy focus on multi-family in the last 10 years, especially a very very large focus on multi-family. That’s phenomenal. It’s kind of like it’s growth, growth, growth. Wait a second, something’s gonna happen.
Let’s pause for a second. And you guys are, are out in California, right? Yeah, that’s right. So obviously everything went completely bananas over there in the big clash of oh eight, right? So, oh, I was buying properties. I would, it was funny. I would look at the transaction history of a property that I would buy and there were properties I was purchasing and I’d look back in the transaction history and.
I’ve just paid less for this property than the guy that bought it in 1982. I literally, we set the clock back 30 years when that happened and stuff was like, you know, a good market was 30% off. A bad market was 70% off. And, you know, we were just buying stuff pennies on the dollar. It was a once in a lifetime opportunity.
We’ll never see it again. Everybody wonders like, is this next crash gonna look like that? Is Covid gonna cause you know, the market to do that? And I don’t think so. I think we had our shot at that and you know, now we, now we gotta work for a living . Well, I, I actually agree with you a lot on that one, but I have my reasoning.
What is your reasoning? I think that’s a subject a lot of our listeners would want to hear your insight. Well, what do you think? We’re never gonna see another 2008. Well, well, we’re certainly not gonna see it now. You know, maybe, maybe, you know, a hundred years from now we will, or something like that.
But in our lifetimes, I don’t expect it. One of the, the main reasons is that there’s so much money. Chasing real estate right now there’s literally hundreds of billions of dollars in dry powder waiting for real estate opportunities. And if the prices were to drop even 10%, that capital is gonna flood into the market.
You also have the the fundamental support for, for real estate, especially in the reside. Asset class because you know, there’s a lot of, you know, the population growth and you know, people are having babies and you know, there’s more and more people, but there’s development restrictions. It’s not like you can just go slap up, you know, a hundred thousand units in a day.
It takes a long time to get projects approved. They’re very expensive to build. And you know, construction loans aren’t the easiest thing to get either. So you’ve got supply side constraint to some extent. that helps buoy pricing. And I think, you know, with those two factors, you know, residential real estate’s gonna hold up really well.
Now if, if you’re in the hotel business or you own restaurant properties or you own retail maybe even if you own a lot of office, I’d be a little bit more worried right now. But if you’re a residential owner, I think residential is gonna be the shining star. Residential and industrial, industrial properties also will be the shining stars through, through this pandemic reset.
So, Yeah, I, I totally agree with you. The way I look at this is in no way the real estate crash was kind of like a, a fallout from the job market crash, right? It started with lemon markets and all that falling apart, and then stocks drop and then layoffs, and then real estate got impacted right? In 2007 and eight, if you got laid.
that’s it. You, you had no way to find a job cause nobody was hiring and, and no way to pay your mortgage. Right. But today there’s so many other opportunities that have been created since then that were not available then. Right. So for example, everybody can jump in and drive an Uber. Yeah. Everybody can take their house, Airbnb it while they’re renting a smaller unit.
Right. A smaller apartment and try to make the mortgage. . There is websites like Upwork and Fiber that allows you to do small jobs, basically micro entrepreneurial kind of things that can get you income even in a world where nobody’s hiring. So I think just that alone is never gonna allow us to see the big massive impact that we saw in 2007 and eight.
It’s kinda like funny how technology changes the word sometimes. And I’m spot on with you on the industrial right. I think Covid basically skyrocketed all the E-com and even the people that were very hesitant about online shopping before are now basically forced into online shopping. So all that e-com is gonna need more warehouse space, more manufacturing space, more, a lot more space in the industrial.
I think you’re spot on, on the industrial. Yeah. Transportation, logistics, storage. You know, the retail used to be the corner of Maine and Maine, you had to have high visibility. You’d have a lot of square footage to store your inventory that’s for sale. You know, now your inventory’s tucked into some, you know, non-descript, unlabeled warehouse on a corner that you probably couldn’t even find without gps.
Yeah. And, and that changes the face of, you know, kind of the retail slash. Industrial sector, and it’s, it’s gonna create a little bit of a reset there. So I’m glad I’m not in the retail space. Yeah, yeah. Well, but I have faith in, in humanity that will find a way to repurpose Yes. Right. That. piece of real estate is not gonna go away.
It’s still gonna be there because you can’t get a haircut online and you can’t get your nails done online, right? So there’s certain things that are still gonna require physical access. But I also think that we’re gonna see a lot of repurposing of, of the retail space for other purposes. Right?
Yeah. I’ve heard about people that take like anchor stores that used to be at Kroger or used to be an Albertsons and convert them into Big Gs or convert them into climate control storage units and all. Repurposing. Right. And I think that’s still gonna help boost commercial real estate in the next few years.
There’s no limit for creativity. That’s true. Somebody’s gonna think of something. Yeah. Well, we’re kind of diverting here from the main podcast. I know I can speak four hours with you. We’ve done that before. So I’m gonna try to reign us back in 3000 units. Right. Do you guys self-manage or do you guys use third party?
Yeah, we are now vertically integrated. We. we started, you know, most people should start with third party management. You know, you need third party management companies experience market contacts you know, network, all that stuff to, to kind of get yourself off the ground. And that’s what we did originally.
And about four years ago, we vertically integrated, we created our own management company. It has its own organizational. You know, I’m, I may own all the stock, but it has its own c e o and you know, now I’m, I’m just the chairman, so I, I don’t have much say in it. I let them run it. My goal as an asset manager is to make sure that they’re achieving goal and to provide guidance and direction to ensure that you know the plan.
Is tracking according to what we want. Now having said that, the team at our management company is enormously more experienced than even I am. The c e o of my management company has 40,000 units and 40 years of property management experience. He started national multi-family management companies for institutional investors six times in his career.
And. You know, we had this tremendous advantage that we could build a management company and almost instantly at the flip of a switch we had a 40 year operating history. You know, we had all of the policy and procedures manuals, and I mean, everything that you could imagine we had that at our fingertips almost right away.
And so we’ve got a great team there. And, you know, that’s, that’s our management division. And, and we now have control the entire process. from start to finish by by doing that vertical integration. Yeah. That, that’s great. So what was the trigger? What was the point where you said, no more third party, it’s time to set up my own?
Well, the trigger, interestingly enough you know, the, the, there was an undercurrent that had been festering for a while. And the undercurrent was we wanted to attract large. Investors. In other words institutional partners large family offices, people who could write multimillion dollar checks.
And the sophisticated investors in that space have come to understand that operators that. are vertically integrated, produce better results than operators that manage via third party. That’s their experience. This is them talking, not me talking. This is the feedback we were receiving when we had third party management.
Hey, you’re, you guys sound like you’re experienced, that’s great. We’d love to work with you, but you know, if you guys don’t manage your own you know, call us when you do, basically was what the message we were getting. So that was the undercurrent that was going for a while. That wasn’t what drove the decision though.
What drove the decision was just a, a fortunate and random and unplanned meeting where I got a call from a guy that said, Hey, me and two of my Competitor colleagues have been in the institutional space for between 20 and 40 years working for a variety of shops. We would like to be more entrepreneurial and, you know, kind of have a stake in the outcome.
And so we’re looking for a new opportunity and a friend of mine knew you and said, we should talk to you and see if you wanted to do something together. So after a number of months we ultimately, Found that there was a good match here, and if they joined our organization we could take this company to the next level.
Well, one of the three colleagues is the c e o of our management company. You know, his, his specialty was management and it’s like if these guys join. Not only do I have a C F O and an acquisitions specialist, I also get a property management specialist. And between the three of ’em, it was like a company in a box.
It’s like, you come in and join the company and now we can create all of these things. And that was the real catalyst was it was finding the right person. And you know, you can say, oh, I’m gonna create a management company all you want. , but if you don’t have the right person in place to run it for you, you’re just, you know, you’re shooting in the dark, you’re fumbling around, you’re trying to figure it out for yourself.
I didn’t want to do any of that stuff. I hate property management. There’s, there’s, there’s no business I wanted to be in less than property management, but if I can have. Full control over our assets. And I have an expert at the helm that’s fielding all that day-to-day property management garbage that I don’t want to field
That is the time and that was the catalyst. And that’s really what set this plan in motion. Yeah, I, I can definitely relate. We postpone as, as far as we could the decision to take over self-management. But we. Pushed into it mostly because of the performance of the previous property management companies.
So yeah, we had to do the same step. And, and you’re right, you’re absolutely right with finding the key player. And this is probably my best advice to anyone thinking about setting up their own company management. Don’t look for a number two, look for a number. , right. Just like you figured out this is gonna be my number one, he’s gonna be the ceo, he’s gonna run the show, and I can trust him.
Right? That’s what we did when we were looking for our VP of of operations. Find me a number one, find me someone that at some point I’ll be able to hand over the keys and not deal with that. Because you’re right property management is more brain damage than anything else, but it’s a necessarily evil, necessary evil i in our business.
And how retrospectively, right. Looking backwards to all the properties that you basically took over from third party to the in-house management. What do you see in the performance? What do you see in the outcomes of those properties compared to what it was before? Well, here’s what’s really interesting, and this may take you a little bit by surprise.
We didn’t, we didn’t convert any of them. So what we did was we, we had a few properties that were ready for disposition, and this was just all kind of right in that fortuitous timing, right? So so what we did is we started acquiring a lot of property and we were putting all the properties we were acquiring into the vertical integration platform and all the properties we had existing, we left on third party management.
And our third party management companies were doing a great job. You know, it was the, the decision had nothing to do with you know, their performance and, you know, or sliding them in any way. They were really doing a good job for us. For us it was really just about having full control over the process.
We we made that change within about a year of creating our property management company. We only had I think two properties left on third party management. And we sold one of those this year. And so we still do have one property left on third party management. And you know, the reason we don’t take it over really is because it’s the only property we own in that.
And for us, our, our management platform is a lot more efficient if we can build some scale in the markets where we are. So if we started acquiring additional properties in that market, for example there’s a likelihood then maybe we would take that property over. But we, we weren’t buying more assets in the markets where we were.
One of the big reasons I brought these guys on is because we wanted to buy in markets where we were not. And so, you know, originally we were 100% in Texas. Everything we owned was in Texas. We wanted, I wanted , I wanted out of Texas and it’s, you know, nothing wrong with Texas, it’s just that it was getting hyper-competitive to the point where ridiculously so, and I thought, you know, if there’s a lot of other really good markets, That we should also be looking in.
We can’t rely on only Texas to supply us all of our acquisition deal flow. Let’s go national and, and look everywhere. And so that’s what we did. And, you know, we were able to expand into Arizona, Georgia, Florida you know, and these markets because, you know, the team that that joined us had experience in all those markets.
So as we were adding on properties, we were adding them in new markets and we were basically selling outta Texas. . So that’s kind of how the transition played out. And it was a little bit weird. You know, most companies, they might go in and, you know, the last company. The CEO of my management company worked for, he literally created a management company and then took 25,000 units from third party management to in-house management in 90 days.
Jesus. And, and to me, that’s just, that is crazy. I don’t know how he did that. I didn’t want to create that kind of disruption. I wanted to have like a smooth and organized transition, kind of build a platform and scale into one and out of the other system and not just make a switch. . Well, I guess that’s where the experience comes in place, right?
It’s like 25,000 units in 90 days is insanely hard, even for national level property management companies. So sounds like you got a real, a player over there that you brought on board. So I want, I wanna talk about before and after, right? Or even now that you still have a third party property management.
How does the organization work with them as an asset manager? How do you work with them? How often do you talk? What kind of reports are you asking for? How does that integration work today? Yeah, on, on our third party, it’s kind of funny, our third party management, we have one property left and we have a weekly phone call with that property manager.
And, and periodic visits at least once a quarter visits, sometimes monthly visits to the property on the third party management or on the vertically integrated side of the platform, which is, you know, now 90 something percent of our portfolio. We, we have biweekly operations. The the operations team, of course, they talk all the time.
They’ll have weekly manager calls. They, they have daily check-ins between our area vice president, our chief operating officer. And our c e o, you know, they’re in constant communication. We use like a RingCentral system where they don’t even have to dial full numbers. Everybody is just an extension.
No matter where in the country you are three digits and you have ’em on the phone. So, you know, there’s, there’s constant communication there. My focus is kind of threefold. My focus. Acquisitions, capital capital stack and asset management. So you know, we’re looking for new opportunities to buy.
We’re looking for new money to be able to advance them. And then looking for, looking at the performance operations team to ensure that. You know, we’re, we’re tracking according to plans. So we have a, a biweekly operations call where we talk about every property and you know, what’s going on and that sort of stuff.
But most importantly is we have a really incredible technological infrastructure, and this is what is a real advantage to being vertically integrated over non vertically integrated. You know, within our, you know, this is enterprise grade software where we literally, I can go in anytime day or night 24 7, and I have a dashboard where I can see the performance up to the minute of every asset in our portfolio, I can see what our occupancy is.
I can see how many pieces of traffic came through the front door. I can see how many leases were signed, how many of those pieces of traffic were called back you know, how how many leases were denied or canceled. Move-ins and move-outs how much money was collected today and how what was put in the bank.
All of this stuff is available 24 7, 365. Anytime portfolio widen. I can look at that either as a portfolio as a whole or as a property individually and, and you know, so that coupled with weekly reports that, that are generated and automatically sent out by the system. Plus another weekly report that’s generated by our managers and sent out.
There’s literally almost a daily and constant communication flow from me and our operations team to know exactly what’s going on at the property. Not to mention that we have full video security camera at every property that I can log in anytime and see almost every corner of the property from anywhere that I am.
At, at any time I want to. So, you know, we’ve got a, a great technological backbone and that’s the big advantage of vertical integration is you can put all that stuff and wrap it all together. Yeah, it definitely makes it a lot simpler because especially at your portfolio size. Other operators that have that size that we talk to sometimes have to deal with one third party that has Entrata and one of them has RealPage and the other one has one site and it’s kinda like it’s all over the place and.
Creating an aggregated report becomes a real nightmare. Right. So what’s the platform you guys are using, if you don’t mind saying, yeah, we, we use RealPage. So we have one site at the properties. We have RealPage Business Intelligence for the asset management side and the RealPage accounting suite.
So the whole thing kind of wraps up all together so that, you know, if a, a manager. Sign a lease, put it into one site collect the rent payment, goes right into RealPage accounting so that the, all of that stuff is all interconnected with one another. And so from property management to accounting to reporting is all within one package.
Yeah, RealAge is a great software. We use some of their modules as well. It, you and I participate in the I M N Speaker Circle. Every once in a while it’s like I always find it funny to go watch the property management software panel. Because you, you look on the panel and there’s like six people and it’s like, okay, what are you using?
Well, we used to use RealPage. We’re now using trada. Next guy goes, we used to using Trada. Now we’re using Yardi. It’s kinda like people always kind of flip and they always have their opinions. Every software has its benefits and it’s, it’s not so great aspect. But the important thing is to be able to leverage and use all the tools and the capabilities, the software.
Right. Yeah. And, and you know, it’s, it’s interesting that you say that. And everybody, everybody has a preference for a reason, you know, and sometimes they switch because, oh, that guy gave me a better price, or something like that, you know, that might be one reason, or I was frustrated with this component. I couldn’t get it to work.
So, you know, I switched I switched companies. You know, our reason for using the one that we use is because, you know, the, the head of my management company has been using this. At all of the companies that he’s been with, he’s used this platform. So it’s going on almost 30 something years that he’s used the RealPage platform and our chief operating officer was actually one of the beta testers.
For a number of components for the RealPage platform. So, and it was also a corporate train the trainer. So, you know, we’ve, the, the staff, the team that I have has such an intimate level of knowledge of all of the intricacies of this system that we know how to use it to its maximum capability. And it’s difficult.
There’s a. Pieces to this that if you just come in and go, okay, I’ve never used this before and I’m gonna come in and try to use it, it will boggle your mind how complicated it is. But if you’ve been using it your whole life, and it’s almost like, you know, reach if you go to reach for a bottle of water on your desk, , you just go grab it, right?
Yeah. But you don’t have to think about, okay, I’ve gotta move my arm to the left. I need to open my fingers. You know, put, put the hand around the the bottle, grasp it. You know, you don’t think about all those pieces, you just reach your hand out and grab it. And that’s how it is for my team. When they use RealPage, they just reach out and grab it cuz they know where all the, where all the pieces are.
Yeah. And, and I think I, I have a background in software development, right? And we’ve built software for multiple companies, and the software is only as good as the user’s ability to use it. Yes. Right? If you use 10% of the capabilities, you will feel that you’re not getting enough value. Right. But every single day I would swing by and you know, see one of my team members bang the head against the wall.
It’s like, well wait, did you know you could do it that way? It’s like, oh my God. It’s kinda like, it’s just, if you take the time, you learn the software and you actually use what they offer. All those property management software platforms out there are pretty robust, and again, they all have their pluses and minuses, but they’re pretty robust and capable of doing a lot of.
and my experience is most people don’t use, don’t even use half of the capabilities. Yeah, that’s right. I would agree with you. And you know, they all kind of do the same thing. You know, really when you boil it down and they’ll all do the same stuff. If you know how to use it and you know, if you don’t know how to use it or it’s just not intuitive to you for whatever reason, then you know you make a switch, right?
Yeah. Or you get more training, that’s another option. Yeah. Right. . Right. Either one of those would be would work for sure. Okay. So when we started talking about third party versus your own, you, you had the comment of everybody should start using third party thinking hindsight, right on your entire history.
Would you start your own sooner? Would you go later, and we’re gonna take a side for a second. The coincidence of putting all four of you together in a room, right? If that didn’t happen, but you had control over it, would you start your own management company earlier? I don’t think so. You know, it’s funny that you asked that question cuz one of the things I was looking at as I thought, well, until we get over 1500 units, it kind of didn’t make financial sense because there wasn’t enough money there to.
A full-time staff, really, I mean, and a, and a management company requires some staff. You’ve gotta have an accountant or a corporate controller you know, at least an AP and AR person. And you gotta have somebody that’s in charge of the organization. And you need to have you know people in charge of the operations, you know, the properties themselves.
So as a, as a small operator, I couldn’t. that to make any financial sense really when we were small. But you know, really for me, I think back to my story of my first rental property. And I bought this condo as a from a, a guy that, you know, a friend of a friend. And I was gonna rent it out. And I I, I put an ad in the newspaper.
This tells you how old I am. I, I put an ad in the newspaper to find tenants. And I got a call from a couple of girls that were in school and were looking for a place, and I showed ’em the unit and they were really nice girls and, and they they had jobs and they were going to school and you know, their parents lived locally and this was gonna be their first place together and all this other stuff.
And I thought, great. I found my tenant. They filled out applications. There was nothing negative on the credit report that I, I ran the credit report through a thing, I, nothing, no red flags. Came back and, and I said, okay, the apartment is yours. Meet me here. I’ll give you the keys. Just bring me a cashier’s check for the deposit.
and we meet at the place and, and we exchange keys and sign the leases and, and they say, oh, you know, we, we just didn’t have time to get to the bank to get the cashier’s check for the deposit. Here’s a, we’ll give you this personal check. I’m like, okay, fine. You know, I read never to do that in the book.
Always says, you know, get cashier a cashier’s check. But what do the books know? You know, I’m out here in the field. This is the real world, and in the real world, this is how things are done. So I take the, the personal check. I deposited about five days later. I get the notice that the check bounced. And so of course I call ’em up and no answer and you know, call ’em again and no answer and serve a three day notice and no response, and finally have to go all the way through the eviction process.
I had to evict him. They never responded to any of the eviction notices. I had to have the sheriff come out and, and and conduct the eviction. They never even came back for their. after they were evicted and you know, in sorting through their stuff, you know, about two, about two and a half, three months went by before I finally got ’em out.
And you know, I’m, there’s like writings throughout the apartment that, you know, you can see, like when they first moved there, their handwriting was really neat. But by the time they were gone, it was completely sloppy. You could tell they were just started using drugs. Their motor skills had declined and you know, I ended up having to conduct a public auction to have their stuff sold off and you know, and it was like the, this long story that’s already too long to go short now was that I realized.
I am a horrible, and I mean, horrible property manager. I should never be a property manager. I was too nice. You know, I, I didn’t, I, I didn’t want to be like, oh, you know, I’m the mean landlord and go get me the cashier’s checker. You can’t have the keys. I wanted to be accommodating. I wanted to trust people and that that’s just the wrong characteristics for a property manager.
Yeah. And. You know, I never wanted to be a property manager, so would I have started on a management company sooner if I didn’t have somebody to run it? Absolutely not. Would should a new investor start managing their own? Well, I guess if you’re a better manager than I am, go for it. But I feel like you need to have somebody that’s already learned their lessons the hard way on somebody else’s dime and you know, knows what they’re doing to come in and guide you as a new investor who hasn’t learned your lessons yet on how to do this right.
And people say, oh, nobody’s gonna manage it better, my probably better than I will. Hogwash somebody who knows what they’re doing will do better than somebody who doesn’t know what they’re doing. No matter how many books you read, or how many podcasts you listened to, or how well you think you know, the business.
It is a complicated hands-on tactical sport that requires experience and people skills. And and you know, there’s, there’s my soapbox . Yeah. Now just to touch to a couple points that you mentioned that are super critical for everybody to understand, anybody that’s considering starting their own management company have to understand that there’s, first of all, there’s a legal aspect of.
You gotta know fair housing, you gotta hire people that know fair housing And if you don’t understand all this and you don’t have the experience or the knowledge of all the rules and regulations and a way to keep up with them cuz they constantly change then you can get in real hot water real fast, right?
So, so that’s one thing. Obviously there’s a difference between the eviction process in Texas versus the eviction process in California. But you gotta know where you are. You gotta know the rules, you gotta know the regulations. The other aspect of, of the property management is, is spot on what you just said.
You need people skills. People have that misconception that we’re in the buildings business. We’re not in the buildings business, we’re in the people business, right? Because the empty buildings are not me bringing in the money. It’s the resident. It’s the people that live in those buildings that actually bring the, the money.
And when you have people involved, Everything can change it on time and they’re gonna surprise you every single day. Right? So you’re absolutely spot on. I just wanted to highlight those two little things that are pretty critical for anybody thinking about their own management company. We ask all of our guests to, to get a few of ideas from them about how they turn you turn properties, right?
So the usual story of buying something that can have a value add, do the value add and, and, and increasing the. So other than increasing rent, right? Or upon rubs, what are two, three things that you guys like to do in your organization to increase revenue? Yeah, there’s a, there’s a lot of different things you can do on the what do you the, the ancillary revenue side.
One thing that we’ve done and had some really good success with is when laundry service contracts expire, have the laundry service people come and take all their machines, and then we go in and renovate the laundry room and we buy our own. And we get the, now that you have the card reading machines you know, the people can they use a not a credit card, but like a special card for the laundry machine.
So we don’t have the cash collection problem where you have, you know, the managers taking all the coins and putting ’em in their pocket. You know, you don’t have the theft issue. . So we, we dramatically increase the income at a property that we have in Florida when we converted over to to owned laundry machines versus the laundry lease system.
That was a big success for us. Another one is is putting laundry machines in units that have connections. Residents that don’t have their own laundry machines. Sometimes you can get 25 to $50 in additional rent if the unit comes with laundry machines versus them having to supply their own laundry machines.
Other things that we’ve done we’ve added covered parking to properties that don’t have covered parking spots, especially in warmer climates like Arizona, Texas. It’s nice to have covered parking and you can rent those covered parking spaces out. We’ve gotten anywhere between 25 and $40 a month for covered parking.
Another one is assigned parking. This one’s interesting. It doesn’t cost you a dime but you can say, look, we’ll give you an assigned parking space that’s near your front door. That’s reserved for you. And it’s $15 a month, you know, so you can you can do a sign parking. That’s almost a no cost, just the cost of the sign.
Other things valet trash where they pick up the trash from the front porch for an added fee instead of them having to go to the dumpster. That’s another one. Solar is another one. And, and one interesting twist with covered parking is what about using solar panels for your covered parking?
And then you can get a little bit of utility savings for your house electric meter at the same time that you’re getting revenue for the. Car parking space underneath it. So that’s another interesting one. You know, converting garages to storage or closets to storage units, adding storage units or closets.
The list goes on and on. There’s all kinds of ways. That’s fantastic. There’s a lot of really great ideas here. What about the other side of the no. Why, right. Saving on expenses. Yeah. You know we don’t, I don’t place a lot of focus on expense savings. You know, the, the the improvements are so limited.
You know, with, with revenue, the sky’s the limit. You can, you can increase revenue exponentially, but you can only decrease expenses incrementally, so you don’t ignore it. , but you certainly aren’t going to get a huge swing out of expenses no matter what you do. But there are some things to look at. Number one is property tax protests especially in areas where property taxes are increased to reassessed market values periodically, once a year, once every three years, once every four years, whatever the case may be.
Protesting those assessed valuations with the tax author. Can oftentimes result in substantial expense savings or at least keeping the taxes where they were instead of having an enormous increase. So that’s probably the biggest one you can do. The other one is of course, you know, water saving modifications.
You know, changing out to low flow toilets and showerheads and faucets is a, is a common one. We like to go into properties and change out the lighting to l e d lighting and, and it’s one of the first things we do when we take over our properties. You go and you change all the lighting and it’s like, it’s incredible because the residents are like, wow, there’s new owners here.
It’s all bright now, you know? Almost instantly, like there’s a new sheriff in town. It’s cool what lighting can do and the new l e D lighting is much more energy efficient than the older style. And you can save a little bit of cost there. Personnel is another one. A lot of times properties are overstaffed.
You know, and looking at the staffing matrix and making sure that they’re appropriately staffed is another one to get some expense savings there. Anything else that you can do as pennies, but you know, every penny you can save it matters a little bit. Of course. Well, it, it’s the way the n y is calculated, right?
A dollar saved and a dollar added is the exact same dollar to same value, right? Yeah. So, so that’s phenomenal. Okay, so if you could just it’s a question we ask everybody. If you could go back in time to young Brian. And the one thing you can tell yourself is like 2009 is the bottom by everything you can, right?
What, what advice would you give yourself? ? I did exactly that. In 2009, I started buying up rental houses. We bought 120 rental houses in the San Francisco Bay area for about, I think, Less than 15 million and we sold them for about 45,000,005 years later. So we did exactly that. We bought everything we could get our hands on.
So geez, I mean, you know, what would the older self tell my younger self? I, I think I, I would say, you know, get, get to know more investors sooner. You know, when I first started in real estate, I was focused on how can I develop my own resources to, to get started in this business. Cash advancing credit cards, you know, seller financing, you know buying subject two, all those different kinds of things.
And I didn’t put any energy on getting myself out there. For people to know who I was and what I was doing, so they would be attracted to what I was doing and want to supply funds to help grow that. Had I done that sooner, I probably, well, actually, you know what? It probably would’ve happened. I probably would’ve built a huge portfolio and lost it all in the big crash because, you know, you would’ve been so heavily invested.
Instead, I had limited resources. I only had so much to. That I was able to actually scale out of the business before the crash happened to a great extent. But I would like to think that I would’ve been smart enough to survive the same way I, I did survive even if I had gone big. So I think I would’ve liked to have gone bigger a little bit faster.
It, I’m a slow bloomer. Took me 15 years to really grow. Well, and, and I think that this is something that we see over and over in, in all the people we interview. It’s kind of, there’s very, very few that went zero to 90, right? Yeah. It’s kinda like it, it’s usually, it’s, it’s an exponential growth. You start with one and then two, and then five, and then seven, then 10, then 20, then 80 then, and so on and so on, right?
So it’s kinda like, it, it, it’s a 20 years overnight. That’s what people say. So thank you for that. I appreciate that insight. So for our listeners that wanna reach out, maybe some of them want to invest with you. Maybe some of them want to get advice. How can they find you? And we’ll put all of that in the show notes.
Of course. Well, there’s there’s lots of ways. If they want to invest with us, the easiest way is to go to invest with praxis.com and they can watch the webinar on our fund that’s open and accepting investors. Now, if you’re accredited, you can do that, and I can say that because it’s a 5 0 6 offering that allows me to advertise, but we only accept proven accredited investor.
So if you’re an accredited investor, You can go to invest with praxis.com. Read about and watch the webinar on our, our latest fund offering. If you’re not accredited investor you know, you gotta get to know us and we gotta get to know you before you can invest in any of our future offerings. So the best way to learn more about us is to just go to our website.
It’s prax cap.com. It’s P R A X c.com. Learn about us there. You can find me and follow me on bigger pockets.com. I’m. Answering questions in the forums from time to time. You can catch me on Instagram at investor Brian Burke or at Prax Cap or catch me at one of the conferences once we can actually start getting back together again in person which hopefully won’t be too long.
Yeah, that sounds great. Well, Brian, I wanna say thank you so much for being on the show. You brought a lot of value to our listeners. Thank you so. Thanks for having me as part of it. Joseph, it’s great to see you again. Awesome. And for you, the listeners, thank you so much for listening again for us.
Our, our, our website is apt o r.com. And if you could go to iTunes, stitchers, SoundCloud, wherever you consume your podcast and give us a rating, we would be highly appreciated. Thank you. And we’ll see you soon. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud.
For questions or feedback, please visit our site@www.aptopr.com.

Episode 115: Mike Woodfield
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.
Please leave us a review, one star, five stars, whatever you decide. We’ll, appreciate any review. Thank you so much, and we’ll see you again in the next.

Episode 116: David Toupin
Welcome everybody to the Multifamily Operators podcast.
This is Joseph Golan, your host, and today we have David Toin. David, how are you today? I’m doing great man. It’s good. Good to catch up with you here. Thanks, Jeremy. Awesome. Yeah, thanks for coming. We usually start the podcast with just a few minutes where our guests tell our audience who they are, what they’ve done, just so we’ll have a bit, a better background of who you are.
Awesome. Yeah. So nice to meet you everybody. I’m David Tupin. Joseph and I have actually been friends for a couple years and Joseph’s. Been a mentor to me in a lot of ways. So it’s cool to be here. I’m a, a deal junkie. I guess it’s probably the best way to describe me. I freaking love real estate every part of it.
I’m 25 years old. I started investing when I was 1920 in college up in Michigan, where I bought my first apartment building with no money down using investors capital. It was a 12 unit complex, and since then, in the past four and a half, five years, I’ve bought a little under a thousand apartment.
As a primary sponsor and now have 200 units under development as well. And so been really growing that business focused on buying more solid apartment deals. Doing some more JVs now. And I also started a real estate tech company recently called a Real Estate Lab. where I’m building a multi, multi-family acquisitions platform.
First of its kind web, web and cloud-based. And so that’ll be launching early next year. And so now I guess I’m a software guy as well. . So this is all you’ve done and you’re already 25. Come on. You know, . I know. I need to step it up. . So just our audience is not used to having a guest that is that young.
Right. Which is why I wanted you on this podcast to show that there. Operators out there that are not 35, 40, 50 years old that have decades of experience. Right. So as you know, there’s a lot of podcasts out there that talk about the acquisition side and the financing side and how to find deals. This podcast focuses on operations.
Right. And I know you started hardcore operation Yeah. As young as it gets. Right. So, le let’s take that step back and, and you started with 19. Nine year old kid. Yep. Starting to be an operator right out of the blue. Right. So tell us a little bit about how did it go and some, some lessons of a 19 year old person when it comes to operation.
Yeah, it was I, I, it was tough to say the least because the first couple properties I bought the first 120 units, I self-managed all those. And I don’t know how I convinced the bank to let me do that, but I did somehow . But I self-managed ’em meaning that we handled the leasing oversaw the maintenance my, my third property, which is a little bigger as 96 units, I finally had onsite staff.
But the first two properties, 24 units. I did not. And so I had to hire an assistant in-house that would handle the leasing and you know, manage the tenants and the billing and all that in AppFolio. And so what I really learned quickly on is. management is a very hands-on business. It’s like, man, you wanna, you wanna take a break for a week, but you can’t because it, it is just something new day after day.
There’s always things that come up. You have to be on the ball. And it, it just showed me that it’s very easy to drop the ball and, and to let a property go. If you’re not paying attention to it. It’s very easy for it to start trending downwards instead of upwards. And. What I noticed is, you know, everyone that’s buying apartments and syndicating whatnot, we all have these great plans to bring the rents up and to improve the properties and do, do all these great things.
But there is so much work behind the scenes that goes into that, and execution is key. So I have, I learned not the hard way, school hard my man getting into it. That that’s great. And you know, as a, as a 19 year old kid, you, you can always say, you know what, not. Right, right. The hell with it. I’m going back to live with mom or I’m going to school and get a degree and just get a job.
What got you through all those obstacles, what got you through all the pain? Because there’s a lot of pain in, in what we do. But you know, it takes a special kind of person to persevere to all that and still wanna buy more. Right? Yeah. So, so what was it for you? What got you through all. Yeah, I mean, you know, I mean, you know me a little bit, I’m just, I’m just like highly motivated to continue growing and I wanted to keep buying more and more properties and for me it was just like, that was just the only option at the time.
I mean, I probably could have hired a management company, but. , I did it myself on those first couple properties. I, instead of charging eight to 10% on the small properties, I charged like 4%. So I really wasn’t even making as much as I should, but I did it because I really wanted those first deals to go well and to get a lot of money to the investors.
And so I also knew that being hands-on for a little while would probably slow me down and buying other deals. But what it did was I learned so much and so. You know, and funny you say that because I actually did live with my mom and my parents, right? I did. I was living with him. She could probably recall, he put ladder onto the car and down to the properties to go change a light bulb outside or whatever.
You know, I was, I was that hands on. I was doing a lot of little things every day. You know, sometimes I’d even go in and paint a unit to save some money. I’d do it myself and. So, you know, there’s, there’s just a lot that goes into it, figuring out that it, it’s, it’s not as simple as just doing it online either.
Somebody’s gotta be there every season. When the, you know, when it starts getting dark earlier to go in and change the timers on the outdoor lights. I mean, somebody’s gotta be there to do that. So it’s not dark in the parking lots and it’s not unsafe. There’s just all these little things that you start figuring out.
And so I just realized like, man, this is a very constant. and for me, I really did not, you know, and to this day, I don’t like management. I like subbing it out to third party because of it. The biggest learning experience was when I moved onsite and I house hacked at larger property. I really saw day-to-day and actually had to perform day-to-day management, including when one of my onsite managers quit, I had to jump in and do it for a couple months.
I was the leasing agent, I was handling the bookkeeping, the billing, cutting the checks, depositing the rent payments, like all that. I, I was doing it hands on. You know, and, and so I learned. how to hire, how to fire. You know, I’d fire my first employees. I had to hire some of my first employees. And going through all that was just a, was a good learning experience and, and just have a lot of good little nuggets that I got from that.
Okay. Yeah, that’s great. That kind of leads us to a question we ask all of our guests, third party versus in-house management. And we had one of your partners on the podcast earlier Mike, and he kind of suggested. , they went from in this previous company from self-management into third party.
And you’re talking about, I started self-managing and now I prefer third party, which is kind of the opposite direction of most of our guests so far including myself. We started with third party and we transitioned to self-management with all the pain that comes with it. So, so what is your insight on third party versus self?
I prefer third party. If you could find a good one. I totally prefer third party management over self-management. I see why people bring management in house to control it better. It is not a profitable business. I think you’d probably attest to that, and most people would attest to that. You’re not making money and you’re actually creating more headaches, but you can maintain more control over it if you do.
especially if you’re in a position or in a market where there’s not good management companies, which there’s a lot of markets like that, and you just can’t find a good one, and you strike out, and you strike out and, and you can’t find a good regional or whatever. It’s, and you need to take over to take control of it.
I totally get that. I hate management, so I, you know, I don’t want anything to do with it. So my business partners know a lot more. Owning management company. They’ve done it before. You know Glenn and mm-hmm. . And then Mike, who you interviewed recently, he, you know, he worked with Glenn a lot that on their former company.
I, I haven’t been in a position yet where I’ve had enough assets at one time. You know, I’ve bought a thousand units, but right now I only have a couple hundred because a lot of those I’ve sold and flipped. So I’ve never had like a thousand at one time where it makes sense scale-wise to bring it in-house.
So I, my mind might change at some. You know, as we’re buying more and more assets and growing, like, hey, it makes sense. But for right now, I mean it, we have good management companies on the assets we have in different markets. Yeah. And, and that’s kind of like, I wanna go back to a statement you made in, in this last answer is kind of, if you can find a good one.
So as you mentioned, there are some markets that finding a good one is really challenging. So how do you go about finding a good one, finding a good property management that you can trust or what are you looking in a property management company that that fits your criteria? Yeah, I mean, this is, it’s a huge decision choosing a property management company.
And so don’t take it lightly when you’re doing your due diligence. If you’re in a new market and you don’t have a contact put some time into it. I would say the easiest. Is call apartment owners in the area, ask who they’re using, call 10 different ones that are using 10 different management companies and see what their experience is and get a warm referral.
I think the, the number one way to find a good third party company is get a referral from somebody else that owns a property nearby and ask ’em how they’re doing. . Other than that, I mean, you could, you could literally just Google. A lot of people ask like, how do you find a management company? You could just Google property management companies in x, y, Z city and it’ll pop up.
You know, they have website and you can go and fi figure out, you know, which ones are in the area and start interviewing them. Ask them for references. But I think the, a warm referrals always the best way. An introduction from somebody else that’s using someone. Gotcha. So, so you’re basically looking for who do I know in that market and, and try to gauge their.
Yeah, that, that’s a good way to go at it. This would probably be better for the smaller property management companies, the bigger ones that are national, you know what I’ve found is that there are a lot of hidden miss with them, right? They can, I, I have friends that have thousands of units in, in third party, and the same natural company is doing great in one market and not so great in other markets.
It’s people. It’s all people, right? You can have a great regional manager with the same, the same company that manages 15,000. You know, let’s say in DFW, Texas, Austin and San Antonio, they might do a great job in Dallas cuz they have a really great regional on your property and some good onsite staff, but they might do terribly in San Antonio where they have, you know the employees aren’t so great, you know, so you just, it’s man, it’s, it’s people, people’s everything.
And so I can see why, you know, once you get to scale, you wanna bring it in house. Cause you could then control and go hire the right regional, hire the right onsite, and you’re more in control. Makes sense. Completely. Yeah. Okay. That’s great. So you’re currently working with property management companies, multiple property management companies, right?
So how do you work with them? Right? How does it look like? How often do you meet, who do you meet with? Do you talk to the regional, do you talk directly to the onsite managers? How does that work for you guys? Yeah, I wanna I. I’m gonna say we here, but Mike, you interviewed, he does most of this and the asset management takeover.
I, I do most of the work up until closing and then kind of hand it off. But you know, in the past I have done it and I’ll explain kind of how Mike does it a little bit further, but we just stay in constant communication with them. We have Spreadsheets and tools that we use to track all different kinds of metrics.
And so every week when we get our owner’s reports and our cash POS position documents we will go in and we’ll input these into our spreadsheets that, that track all this data. And help us asset manage. And so we maintain close oversight on, on the metrics. We track every single lease in our spreadsheets as well.
We input it and we’ll get to see, hey, is it a renovated or non renovated unit for this property? What was the original lease? What was the last lease rate? What’s our increases over each of them? So we’re looking diligently at every single lease. And then we’re communicating a couple times a week with the regional.
And then we’re also. You know, once a week or, or sometimes more or less with the onsite manager themselves. And so we’re actually talking to him. And then the next thing we’ll do is we’ll do site visits every month, every property. And ensure that, you know, they’re not missing things. There’s always little things that get missed and nobody will ever take as good care as the owner or care as much as the owner.
And so you just have to understand that going in, that it, they’re, they’re not gonna be perfect, and you kind of have to babysit ’em a little bit. And so we’ll walk through the property and say, Hey, well you missed this, or this balcony is getting a little worn down. You need to paint that. Or, Hey, this sign is hanging , you know, needs another screw.
Little things like that. And I think that’s the attention that takes to run a nice property. Really need to be hands on with the management company and, and babysit them and make sure they’re, you’re holding them accountable to the plan. You can’t, you can’t just expect to hire them and everything’s gonna go great.
I mean, and I would love for that, but I, in my experience, it’s not how it works. . That’s wishful thinking, right? Wishful thinking. So tell me a little bit about those benchmarks that you guys are measuring, right? It sounds very interesting for our audience to know what kind of things you’re tracking, right?
So you mentioned the leases. So I’m assuming you’re looking at or the, what’s the difference between the established market rate and then what the actual rate is that you got leased in and when you turn, you see if you get the bumps that you expect from the renovations, but what other market benchmarks or, or property benchmark you guys are looking at?
Yeah, so some of the biggest things we’re looking at are what are our renewal rate increases versus. New leases you know, what, how much are we increasing the renewals versus how much are we getting a bump when we have a new tenant coming in? And then we further divide that up into renovated versus classic units and for each category.
So we’re looking at those and that’s, that’s in terms of the rents. We’re also every month comparing our actual financial performance in terms of every expense category to our budget or to our original under. How are we progressing? And then how close are we on our average collections and revenue and other income every month compared to our budget?
So we’re kind of lining it up side by side and putting that into our tracker, and then looking at that. Another thing we track that, you know, might seem a little more rudimentary, but we still do it every month, is we charge asset management fees on deals we syn. And that fee does not always get paid on autopilot, right?
You can tell ’em, Hey, every month, send me this fee. You’ll notice every month they’ll pay their, their self, the property management fee before they pay the asset management fee. And so, you know, once you start getting multiple properties, we need to make sure we’re collecting our fee and our income there.
So we have a tracker every month to ensure that the check comes in, or the wire sent for our fees, and making sure that gets paid. and then we’re tracking, you know, our, our past four quarter of distributions to our investors and ourselves. We’re tracking that actual to budgeted and, hey, what’s our, what’s our next budgeted distribution and what does our n o I need to be every month to hit that?
And then on top of that, we were tracking our monthly NOI and, you know, t3, T six T 12, and, and what’s the current valuation of the property based on that at all times. Gotcha. Okay. Yeah, that, that makes sense. You, you look at all the parameters and you also look at the big pictures. Right, exactly.
What is the property value? How are we improving or not improving? And do we get the progress against the original plan we we set up to go on? Right? Yeah. That makes a lot of sense. So I know you guys do a lot of value add. I know you’ve done that in your previous deals as well. One of the questions we repeat and ask our guests is kinda like when you come into a value add project, other than increasing rent and implementing rubs, which is an answer almost everybody gives us, right?
Give us two, three other things that you guys do to increase income. We’ll, we’ll touch on the expense side a little bit later. Other ways to generate income streams, other ways to increase income on specific line items. Things that you’ve done in the past, cuz I know you’ve, you’ve bought properties improved and sold them, right.
What was the best bank for your buck other than rubs and, and rent? Yeah, I mean, once you’re doing, you have rent and, and you’re, you’re doing rubs and you have your other main, like say there’s storage on site and you start collecting, I just bought a, a portfolio of 11 apartment buildings. Most of them have basements.
This is up in Michigan, and they you know, they have storage, but they weren’t being charged for. So we’re gonna go in and implement a plan to start charging back for the you know, the cage storage lockers in the. Stuff like that. I mean, I think once you have your other income in line and, and you’re, you’re collecting, you know, if you look at it on a per unit basis, I’d say most properties on average, collect between well-managed properties with a good management company will collect between 300 to 500 per unit annually.
And other income. If you’re, if you’re below that 300, I think there’s room to grow. If you’re above that 500, like you’re doing a hell of a job. And so if you’re in that range, I think what people, then the next level of this that people forget about. Is that, once again, the people aspect of things and you know, you obviously you budget in when you’re buying these properties.
What’s my, you know, potential loss to lease concessions, bad debt and all that stuff. And our, you know, our rent collections we obviously focus on, but how can we improve, like resident retention? And how do we improve when we have renewals or you know, lease up, you know, new leases, like how do we improve people staying longer, less, less vacancy, more retention?
Like it’s a people thing. People will stay there if they really enjoy living there. , the property’s always kept clean. So like paying attention to the little things. Always keeping a clean property, like I’ll pay extra for cleaners just to have the common areas always looking great and feeling good and no trash around the property, stuff like that.
And then making sure your on tight team is really on top of their customer service and, and, and not dropping the ball. And I think you’ll just see naturally over time, like you’re already doing all the other income. I mean, there’s no secret to that. There’s, there’s things you can do to add. , you get out a cable contract, whatever, to bring more income.
There’s all these things that people know about, but like at the end of the day, what is your service like? Are you running a good property? If you were to walk through there and lease an apartment, would you enjoy that experience? Would you enjoy living there? Do you feel safe? Those kind of things. I think people forget about the fact that we’re providing housing to people, you know, not just not just looking at spreadsheets.
So if you can improve that over time, I think you’ll see that your income will just naturally. . Yeah. I, I think you’re spot on. A lot of people that we, we, I’ve talked to in the past are always focusing on leases and, and leasing up and, and getting more leases and getting more traffic, but they kind of neglect the, the back door, right?
There’s no point in leasing 20 units if, if you lost 25. Yeah, . Exactly. And every time we lose a a resident, that means there’s gonna be a turn and we’re gonna have to spend money to make that unit ready for the next person. We’re gonna have to spend money to market it. We’re gonna have to spend money for the labor of the leasing agent to go through all the motions of finding the prospect, qualifying them, running the application.
So there’s just a lot of cost in every. and that’s where we always try to kind of help people understand retention is key. Right. So I, I heard some of the key factors in retention in, in what you said, and we always say people want clean, safe places to live in. Right. Amen. And, and then, you know, one of the things that I look at our team members and, and evaluating them, it’s kinda like if I walk around the property with them and they see a piece of trash on the floor, if.
Bend over, pick it up. Right. Then we got a problem. Yeah. Right. That’s something that I expect them to do right as they walk on the property, as they see trash. If the manager walks and see there’s somebody at a little party last night and it’s a little trashy outside, send our grants guy immediately out there to take care of it or send our maintenance guys, whoever we need to in order to make sure that this gets picked.
Dude, I can tell a good owner from a bad owner too, cuz I’ve seen people, I’ve driven properties with owners and you know, they’re showing me properties and I see. All over. And it’s like, dude, you’re the owner and you’re not even stopping. Like, it doesn’t matter if I’m by myself or I’m showing somebody maybe a friend or another investor, like you’ll always see me whenever I see a piece of trash on one of my properties.
I will stop every single time and I’ll pick it up and I’m gonna go throw it out. Like it doesn’t matter how much I’ll spend an hour doing it if I have to. And now I’m gonna go yell at my maintenance guy for not doing it. But, you know, we, we typically like to hire people that, and, and tell that to people we hire right away.
It’s the same thing, like you take pride of. You pick up trash. Not only, you know, it’s good for the property, but it’s good for the environment. But you know, I, yep. You gotta take good care. Keep it clean and Exactly. And safe is the other thing, right? So when you look at exterior per light perimeter lights and, and all the maybe gates fencing and all these kind of stuff, to make sure that people feel safe is also very crucial on retention.
So cleaning safe are obviously the top. Is there any other things that you guys do or you’ve done in your previous properties to increase retention? To kind of make the resident happy? I don’t know, parties or giveaways or whatever. Give us some ideas for our listeners on how they can promote retention in their properties.
Yeah, we’ve done some like giveaways, like gift card type of things. We’ve done, you know, before I had done something where we’ll bring out like a food truck, you know, a couple times a year and residents can have like a cool little get together. We’ll have like little Christmas parties, stuff like that.
Just fun things that the residents or their kids can get involved in. You know, Halloween we’ll have some candy set out and some decorations just making it feel like more like home. and just being really friendly with the residents. I think that’s always a good thing to do. Yeah. Any creative things post covid that you guys have been doing?
Because we all also used to do the parties and the open houses and all that. But now we can’t do that. Right. Yeah. It was very, very sad summer that we couldn’t do a pool party. Right. Yeah. And so on. So what, is there anything that you guys found a creative way in the Corona environment to still give something to the re residents?
Nothing that I specifically have heard about from our management company recently. Sorry, I don’t have a better, a better answer for that, but No, I, I haven’t, I haven’t really put a ton of thought into, you know, post covid. I know they’re probably still having some small gatherings and like some candy out on Halloween.
I know they, they would do for people to stop in, you know, but they gotta wear their mask now and stuff. Yeah. The larger gatherings we can’t do. So I, I think that’s been something difficult. I, I doubt you’re gonna get all the residents on like a Zoom call. Right. To join in and, and you know, if I, you know, I’ve rented from apartments before.
If I got invited to do that, I probably wouldn’t personally, so I don’t, I don’t know. I don’t know. It’s, it’s a tough question. It is something I think we all have to think about. Ha. Have you guys done anything? All different. I, I, I don’t know. I think after nine months of being shut down from the world, people might actually join a Zoom club.
I know they might now. You’re right, you’re right. They might they money. Yeah. No. One of our properties is small enough. It’s only 22 units. And it’s a, a nice area you could call class A property. So what we did is we just bought a bunch of h. Bags, like really small bags loaded up with candy and just hang a little baggie on each door.
And we got so many great feedback. Oh my God, it was so nice for us. It was like Saturday morning for Halloween. It’s a great idea. What? It was so fun to open the door and find the candy. Thank you for the candy. It’s like the cost was, I don’t know, maybe a three bucks a door. It’s nothing. But it made everybody so happy.
And then that’s the thing that if I could give advice on, on customer retention. It’s never the big things, it’s never the big gestures or the big parties, it’s the small things. Right? I think you nailed it on the head when you said customer service. But it also, whatever little things you can do for your residents and there’s a lot of those little things that you can still do during COVID.
Yeah, I. I agree. Yeah, that gave me a good idea. We’re gonna do something like that for Christmas. I like that. Well, giveaways are easy, right? Because giveaways do not require gathering, right? So we will have, if for Christmas, we will have Christmas decoration party who’s got the nicest patio, the nicest front door, or the nicest porch, whatever.
And then we’ll give away either gift cards or what we like to give away is, Because if you look at the prices of, of TVs these days, they, they drop so low. Yeah. You buy a really nice TV for like 300 bucks or less. Right. Or less. So it’s like you can get 15 inch TV for like 150 bucks. Yeah. So, so every year, usually every year I buy like 10 of them at least.
Oh, nice. And then we give them away in, in multiple occasions throughout the year. Ah, that’s cool. And. The We do draws, we do draws for gift cards, for paying on time and, and, and all this kind of stuff. So we always try to make sure we engage the community. Mm-hmm. , even if right now we can’t bring them all to us, we’ll try to go out to them and we’ll try to reach out to them and talk to them.
That’s pretty cool. . Yeah. So we talked about the income side of things. Let’s, let’s flip the conversation to the expense. Cuz as you know, in multi-family valuation, every dollar we increase in income and every dollar we reduce in expenses are practically equal. Right. To, to the value of the property.
So give us two, three ideas that you’ve, in the past, in your properties you’ve done in order to decrease expenses. Get more. Sure. I think one of the couple biggest things, advertising costs can be reduced. And you see in bigger markets now on these, you know, large properties we have before when we were spending, you know, ad dollars, $10,000 would go a long way.
Right? And now we’re spending 20, 30, $40,000 for the same because. Because these websites are just increase apartments.com, right? They increase their prices every year. And so now we’re paying, we’re paying more for the same amount of advertising. And so one thing you can do to reduce that is, is implement a really good referral program.
And, and obviously it goes on top of the customer service thing again, right? The better of a experience you provide, the more likely somebody, even after they’ve moved out, is gonna be likely to refer. Your property goes up. So having a good referral program, you could spend a lot. You know, on that than you would on marketing.
Even if you’re giving away, you know, a $200 gift card to somebody for referring a tenant you know, if they refer a good tenant, you could drop your vacancy and and, and decrease your advertising. Repairs and maintenance is something I see that you know, people on older properties are spending, you know, 4 50, 500, 600, 700 a unit sometimes on, on repairs and maintenance.
if you buy a property and you go, or if you already own a property and you’re seeing really high, you know, annual per unit expenses that are outside the range of what a typical well-run property, well-maintained property is having, which I would say in my opinion is between like 350, 400 a unit. If you’re way outside of that or way over that, or you’re double that, Put $50,000 into your property right now to go repair the big headache issue things.
Or when you buy a property, raise money up front, extra money and, and take care of all those things. Go fix a bunch of the HVACs all at once or go you know, go repair a lot of the plumbing or take care of, you know, if you, you have units that are constantly getting water damage. Go put in a French drain outside, reroute the water, like get a new gutter system, do that big stuff up front because the money you’ll save, you know, in noi, let’s say you should be spending $40,000 a year based on market averages and you’re spending 80 or 90 a year on repairs and maintenance.
Go spend 60 grand. One time cap reduce and you’re gonna in, in CapEx or a hundred grand in CapEx and reduce your ongoing maintenance by 50,000 a year. I mean, it’ll pay itself off in two years, first of all. But $50,000 at a six cap is like a million bucks, right? So, you know, you’re, you’re increasing, increasing the value tenfold on what you’re.
Yep. I just, you gotta think about it that way. I, and I, it blows my mind how these old, old owners don’t think of things that way. They’re trying to save every penny, but it’s like, you realize your n n I gives you exponential increase over what you’re spending. So, yep. Things like that. That’s great. That’s great.
Yeah. A lot of people are looking at things black or white. I have to do this or I do that. Should I do this? Should I do that? And I’m, life is never that simple. Right. Usually the answer is it. So we’ve had the, the usual conversation. It’s like, okay, this we have a resident that’s up for renewal and he’s a hundred dollars away from market rate.
And we talked to the resident. They say, I can only go up $50. Is it worth getting them out and, and renovating the unit and spending the money to do that? Or should we leave them and take the $50 loss to lease? Right. Well, it’s not a black and white answer. It. , if I’m in ongoing smooth operation mode, I want the tenant to stay.
Right? Because for $600, I can’t turn that unit correct. Right. On the other hand, if I’m gearing up for a refi or a sale and I wanna show max rent and I have a 99% property occupied property with a waiting list, might be worth my time to get it out, put the CapEx in so I can increase the. Yeah. So again, it all depends on which stage of stage of the property lifecycle you are and what your considerations are.
Agreed. Totally agree. Awesome. Well, I know you have a hard stop soon, so I want to ask well, this is a question we usually ask our, our guests because they are more mature than you are in, in age. What would you tell young David? But David is young, right? David is young. Wouldn’t I tell younger David
Yeah. Let’s see, what do you say? Younger David. And by the way, I, I told you that the first time I met you. Right? And I keep seeing that in you. It’s like where you are compared to your age and other people your age. It’s unbelievable. It’s phenomenal. So if to copy mark Cuban from Shark Tank
Good job, man. Glad, so glad. I appreciate it, man. Good job, man. Hey, you know, put a lot of hard work in and I, I love doing it. So it’s been, it’s been a fun and wild ride so far. I think it’s just hopefully keeps getting crazier, but so let’s take a twist on our usual question. Okay. Instead of, what would you say younger, David, what would you say to other people your age that want to do what?
How can they be like you? How can, how can they be successful as you? work as hard as I do. That’s the first thing. I mean, you know, if you really want this, the level of success and you wanna do it early and young or, or wherever you are really, I mean, expect to put in a lot of time and, and really just grab onto the industry.
If you love this and you love like apartments, right? Which is what we do you’ve gotta, you’ve gotta really want to master it. And I think that’s one thing that I’ve done since I’ve started is every aspect of it. I wanna learn. I wanna get better at, I, I’m hands on. You know, I don’t just like half-assed, I’m like fully in, immersed in it because I want to become an expert at it.
And so you know, I think the time I put in reflects that, you know, the 80 hours week every week for years and years and years is, you know, that’s just what I do. And and, and the time I put into it’s really helped me become that. So I think that’s one thing. And if I were to give a little bit more technical advice learn the numbers because this is a very numbers driven.
and you can, you can be the back of the napkin type of person. And I’ve seen it work. I’ve also seen it go wrong. To date, I’ve never bought a deal that’s lost money. I’ve never not hit projections to investors. I’ve only, I’ve only exceeded on every single deal. And the way I do that is I’m really conservative and I just, I, I think we buy right.
You know, we buy the right chance of deals. And now, you know, I’m not gonna say I. Also gotten lucky with the market doing very well over the past couple years. But in general, I think, you know, if you really understand the numbers, you can avoid buying deals that otherwise would be bad. So know the numbers.
Sounds great, man. And you know what I think another attribute that I can attest from the side is being humble, right? Because everybody at your age would be looking at the nice cars and the nice watches and the, the whatever it. And you just said 10 minutes ago, if I see trash on the floor, I’ll stop, I’ll go pick up the trash.
Yeah. Even if it takes me an hour. Right. So it’s not only hard work, it’s also the attitude of, it’s like I’m, I’ll get my hands dirty, I’ll do whatever it takes. Right? Absolutely. And, and I share that same mentality with you. If I need to load the trash in my, the back of my truck or drag a trailer you know, go put on some you know, maintenance t-shirt and yeah.
Do whatever you need to do. Good, man. I love that. And, and we do that all the time. So it’s kinda like, I, I think that’s another very important attribute that you have that people your age could really gain from copy. Yeah. I think that’s key too. Yep. I. Awesome, man. I know it’s been short, but there’s so much value in this conversation.
I really appreciate you being with us. If our guests want to find you, reach out to you, invest in one of your deals, how can they find you? And obviously we’ll put everything in the show notes. Yeah, so our website is obsidian capital code.com. And probably the best way to reach me personally is through Instagram, if you have it.
Most people do nowadays, so it’s at, at Real Estate. Jedi is my handle real estate. Jedi. Good job, man. Yep. Gimme follow. Thanks brother. Awesome. Thank you so much for being with us and for you, the audience. If you want to hear more podcasts with operators just subscribe to our podcast wherever you are.
iTunes teachers, SoundCloud, even Amazon right now, we. And give us a review. One star, five star, whatever you find it. We appreciate it. Thank you so much and we’ll talk to you soon.

Episode 117: Brian Hamrick
Welcome everybody to the Multifamily Operators podcast. This is Joseph Kaza, your host, and today we have Brian Hamrick with us. Brian, thank you for coming to on the show. Hey, Joseph, it’s great to be here.
Thanks for inviting me. Awesome. We start every podcast with our guests, introducing themself, telling our audience a little bit about themselves and what they’ve done. Thank you. My name is Brian Hamrick. My company is Hamrick Investment Group and we invest in residential apartments.
We have 370 units here in Grand Rapids, Michigan. I also invest in self storage, performing a non-performing notes office. And we’re just about to start 120 unit development, 120 unit apartment unit development here in Grand Rapids. Asset manage over 32 million in value. And I’m just excited to be here and talk about operating my real estate.
Awesome, man. Congratulations on the new project. I haven’t heard about that one. We’ll dive into it a little bit later. So one of the things that we’ve always liked to ask our guests is how they run their operations, right? Are you use self-managing? Are you using a third. . Which way do you guys.
Yeah, so I made the decision early on to hire third party property management. I, when I bought my first 12 unit here in Grand Rapids, there was that moment when I thought, you know what? I could do this myself. And then the more I thought about it, after about five minutes, I’m like, Nope, I don’t wanna do it.
I would be terrible at it. It’s best if I hire a pro a. Third party property management. I interviewed a bunch of different companies, found one that I really like, and they helped me build my first 70 unit portfolio. Awesome. And they, do they manage all your 300 plus units? No. At one, at some point I got to a point where the numbers just started going down.
I, I around 20 14, 20. When I should have been making money hand over fists because rents were rising, my numbers were getting worse and worse, and I really had to dig into it with them to find out what was going on. Could not get the right answer. And I ended up moving on to a different property management company and they now manage my entire portfolio, which is roughly 370.
Gotcha. And you’re on the second one. Let’s dig a little bit deeper into that one. So what are you looking for when you hire a third party property management? What was your criteria? What is important to you? How do you make that decision? So I, what I’m at its very basic core, you’re looking for someone to add to your team who’s really going to bring value to your team, and to me, managing those properties managing those units I want someone who knows how to manage the type of units that I already own.
Most of my units, all of my units are at least 40 to a hundred years. Here in Grand Rapids. So I want someone who understands how to do that. I was looking at the time when I moved on to the second property management company. I was looking to grow my portfolio to buy larger apartment complexes.
So I specifically chose a company that manages larger apartment complexes as well as the smaller multi-families, cuz I have everything from duplex. All the way up to a 207 unit apartment community. What’s very important to me is that they have an on-staff maintenance team. Because what I found is that when companies sub out their maintenance work you don’t get that special attention that you do if the maintenance company works for your property management company because they will go and if they are there to fix one thing, say the stove isn’t working.
and they see that there’s a leak in the tub, they’re gonna fix that as well. If it’s a sub, that doesn’t always happen. They might write it up and say, Hey, you need to look at this, but then you gotta send someone back out at a different time. Yeah. Cuz the maintenance guy, I know he’s gonna get a phone call at 2:00 AM and he doesn’t want to take that call.
Yeah. Let’s head it off is out there. Exactly. Plus you also have the financial side of things, if they sub a new sub, then now you have to pay profit margins. So the more we can keep those maintenance expenses down and get it all with, in one fell swoop the better the bottom line is gonna look.
You got it to continue. I got a couple more things. One is the leasing is very important. How quickly can they release units, turn the units market those units to get the best quality tenants? And then also the accounting systems. You know what’s the software management system that they’re using?
The company that I work with green Property Management, they use AppFolio. . And I really like that it’s real time. I am able to go in, I could look at it right now online and see exactly how my properties are performing today, what’s the occupancy, what’s the delinquency what are the bills that are being paid?
And I have real time access to that, which I really appreciate. Yeah it’s much better than somebody uploading a statement at the end of the month and by then it’s like too late to react to. Yeah, exactly. I want to know, I don’t wanna know 40 days after the fact or 30 days after the fact.
I want to know at least, weekly time. Yeah. But real time is the best way. Awesome. So how do you work with that third party property management? Do you talk to them daily, weekly, monthly? Who do you talk to at the property management company? Give us a little bit of an insight of how do you work.
So the company that green Property Management, who I manages all my properties here in Grand Rapids, I work with them on a pretty consistent basis. I wouldn’t say daily but at times I’ve worked with them daily. When we take over property and there’s always something going on I’ll work with them daily.
Preferably, it might be. We have a monthly meeting about our properties, go over the numbers talk about the budget for the next month or several months, what does the rent roll look like? How do we get occupancy up? So we do have those monthly meetings, and then we ha I can call anyone in the company.
I have a maintenance question I can get ahold of the maintenance guy. If I have a leasing question, I can either send an email or call the leasing agent at the property. It’s a co. Communication, but we only have one monthly meeting scheduled. Gotcha. Okay. So basically mostly ad hoc with a monthly reoccurring.
Yeah, ad hoc, really just depending on where are we is the property stabilized and just humming along, or are we under some sort of project and we have to have constant communication about expenses and progress. How about onsite visits? Do you do those? How often do you do. Yeah, so for my smaller properties, my two units, my four units up to my 37 unit, I might go there twice a year if everything is looking good.
If the numbers look good I’ll drive by the property when I’m in the area just to look and check on it. But on my larger properties, I have a 96 and a 207 unit with them as well. I’m going there at least once a. because I wanna walk the grounds, I wanna walk through the interior. I wanna see, how is it being kept up?
Does it look clean, presentable? Do I see any issues that might crop up? And it just gives me the opportunity as well to take photos from my investors so that they can see, okay, this is what the property looks like as of a week ago. Yeah. And what you mentioning resonates with my personal experie.
The bigger the property, the more attention it needs. So there’s more often conversations, there’s more often looking at the budget and tracking the numbers. And there’s more often onsite visits. And then the smaller ones, especially the twos and threes and fours, those barely get any attention. Yeah.
But again, that’s also because they usually have less turnovers and less fluctuations over the. . Yeah. And also if you just look at ’em as individual businesses, your two unit is really not that big a business in the whole scheme of things. Yeah. But if you have a 96 unit apartment complex, now you have a multi-million dollar business and you have to pay a lot more attention to that.
Yep, absolutely. So you mentioned that you switched to property management company and we had to go through something very similar at some point. , what are those benchmarks that you were tracking in order to recognize wait a second, something is not going well, and what were the questions? You didn’t get the right answers to
questions were, why are my maintenance expenses getting so much higher? Why are is our eviction rate increas? Why is it that our rents are not increasing when we’re in, in, in 2014? 2015? Rents were skyrocket. Yep. So why am I not benefiting from that as well? And What, why can’t you answer my questions in the first place?
I wasn’t getting good answers. And I, I wanna, this was a company that helped me build my original portfolio, and I really wanted to give them the benefit of the doubt, but at the end of the day, I just wasn’t getting the answers. The numbers weren’t improving. My, my profit, my net profit was decreasing and there was no reasonable explanation why.
And I just, Realize, you know what? As tough as it is, I need to make it make a switch. And I’m glad I did because as soon as I moved over to the new property management company, green, which is Green Property Management Company, they turned it around within six months I was back making the same if not better profit than I that I had been.
Yeah. And I think there’s a really good lesson in there. That’s a lesson that I learned also the hard way is that, is there is some kind of an emotional attachment to the first company that you work with. And in many cases they were there and taught us a lot of things and held our hand a lot of things.
But at the end of the day, it’s a. and if the numbers are not working out and they can’t improve and they don’t do enough to try to improve, you gotta cut your losses as soon as you can. I would give an advice and you tell me what you think about that is put a clock on it, right? As soon as the conversations are starting and that things are not going the direction you want to.
I would tell the property management company, okay, you have 30 days, 60 days, 90 days, whatever the comfort level you have with them, right? And put a clock on it so you can track it, and then at that date you gotta cut. I ended up doing that but it took me a little bit too long. To get to that point.
And I regret not doing that sooner. There’s a cost to switching management companies. It’s not like you can just fire them and then immediately start up with someone else. They’re, when I switched from my previous management company, I had to pay out the leases. I had to pay out what they would’ve made on the leases that they had put in place, and that cost me about $10,000 right there.
So that, that’s a big cost that you have to psychologically overcome and say , not only am I firing them, but I’m also paying them 10, $10,000 outta my pocket, contractually. And then there’s the emotional cost. You feel an obligation to them because they ha if you’re in a good, you were in a good enough situation with your management company that you had to manage multiple properties, it sounds . And that’s cause at one point they were doing a very good job. and there, so you feel that obligation to, to respect and honor that relationship. But at some point you’re right, it is business and you have to take that emotion out of it. Yeah. One more lesson is don’t create contracts that make you pay if you have to fire them.
Yeah. Yeah. Look at your yeah. Your management contract and Yeah. They’re putting tenants in. I had to respect that because they put tenants in place for say, 12. And they’re, they expected to make their 8% or whatev 10% or whatever they were making over that 12 month period. So that might be a Michigan thing.
That’s not how we do business in Texas. Yeah. You guys are totally different in Texas. . Yeah. If you’re not performing, I’m gonna fire you. And I’m not gonna pay you for non-performance. That’s not gonna happen. Yeah. But, okay. So a lot of the people we talk to, Have either transitioned already or plan on transitioning to self-management at some point.
Is that something you’ve considered? Is that something on your radar at all, or is that something you say, I’ll never do that. Now I will never do that, and I’ll tell you why. Because I don’t want the headache. I don’t want to have employees, I control 32 million in assets. It doesn’t mean I own 32 million.
It means I control it. I have investors, I have lenders but I’m a one man band. I don’t have employees. I work outta my home office. and I have a reasonable lifestyle where I can spend time on the weekends with my family. I can spend, I have dinner with my family every night. I’m not constantly at work.
Even though I am constantly working , I think I’m not constantly at work having to worry about what my employees are doing. I much prefer, even though I know I’m leaving money on the table, I much prefer to hire third party management c. Contractors. I prefer to have strategic rockstar partners in all my different endeavors who do a lot of the heavy lifting, and in some cases have their own staff and employee.
But I very intentionally set up my life to, to not have that stress and headache of having to build and employ people, build a team, and employ people. That I then am responsible. . I can totally respect that. And we’ve held off as, as long as we could. But for us, and a lot of the people we spoke with, it, it’s never about money.
It’s, you’re right, that the brain damage property management brings to the table is not worth the money it generates cuz the, it’s not a profit center for us. But it does allow us to have a lot more control. So there’s a trade off there. We’ll talk when you hit 1500. And I’d love to revisit that question with you.
But for now I totally understand where you’re coming from. I was there as well. And we just, we were cornered into setting up our own property management company, basically. Yeah. It sounds like you were in a situation where you had to fire your previous one, and you probably could not find someone who would do it as well as you would expect it to be done.
Yep. That’s exactly what it was. We fired our second one, and then we said, okay. I. Taking another gamble on the third one. We’re just gonna bite the bullet into it ourselves. Yeah. Yeah. But, and then you mentioned the brain damage, and that’s exactly what I wanna avoid but I, but yeah, kudos to you for pulling it together.
Yeah. As an asset manager, we don’t get down all the way to the daily operation of the property. But there’s always the ability to influence from the outside. One of the things that we, I would like to ask is when you come in and you guys do value add projects, right? Yes. The goal in the value add project is come in, buy an underperforming property, increased income, reduce expenses, and make the property value a lot more than either refi or sell whatever the strategy.
we ask the same questions over and over to our experienced operators because we always learn new things, right? And that’s what this podcast is all about is helping new operators and experienced operators learn new methods and new ideas. So on the income side of things, we’ll get to the expense in a minute.
But on the income side of things, other than the normal increased rent or implement utility charge. What are the kind of things that you guys like to do that either generates new income stream or increase the income in existing line items? You took away my big one, which is utility chargebacks.
But I do wanna say something about that because there, for the longest time, a lot of the properties I invest in here do not have split utilities both on the smaller level. And then the 96 unit we bought does not have split utilities. So we are paying that. And for the longest time we thought we’ll just.
eat the cost of that and charge a higher rent to, to compensate for it. But within the past two years, we’ve decided, no, let’s do a utility charge back. Because the resident, they separate that in their mind. They know that if they go somewhere else, they’re gonna pay utilities separately. So we should also charge them separately.
So anyone who is listening to this, who is not doing U rubs resident utility build back system. You should con highly consider it because it will bring more money in and and also help offset those utility costs. So even I know that’s a typical one, but I did have to change my mindset on that.
Things that we do are. Additional, anytime we can get additional fees for parking has now become because some of our properties are near downtown we know of some units where people are paying $150 a month to have parking. So we have monetized our parking in some respects.
In, in the case of our 96 unit, we’ve included it in that rubs fee. So it’s, even though it’s not technically a utility, it’s more like a resort type fee. , it’s gonna include your parking. A lot of these, our 96 unit is seven stories tall, and when we bought it, you’d see a lot of those air conditioning units hanging outside the window.
, and we banned those. So you cannot have an air conditioning unit in the window. What we do allow them to do is rent from us for $50 a month. A high efficiency like floor air conditioning unit that vents out the. Gotcha. So it’s got a little vent, but it sits on the floor, and that has brought in some additional income.
We have institute instituted a system. That really is more deliberate about when on move out the turnover costs and how much of that can we build back to the resident, get out of their security deposit. And you have to be somewhat deliberate about that because it’s very easy to just say, oh we spent $200 for paint.
we’ll deduct that from your security deposit. No, we go through and we itemize everything, whether it’s blinds, doorknobs, things like that and add that up to be deducted from their security deposit. Yeah we do exactly the same thing. We have a price sheet. And that says this is how much you charge for the blinds and the flooring and the carpet cleaning and so on.
And we actually give that to the resident. It’s part of their lease package, so they’ll know when they get out what they’re gonna get charged for. Yeah. Yeah and a lot of people don’t realize, but the other income line items are really significant in the multifamily world because, when you.
A duplex, a two unit, and you have a resident leave every three years. It seems insignificant, but when you have you have 96 units and let’s just say only 20 of them decide to rent the $50 a month a AC that you offer, that’s a thousand bucks a month. That’s $12,000 a year. And with a, with whatever cap rate you guys are running at, it’s hundreds of thousands of dollars to the property.
just because you offer that service. These are really. I got another big one you just made me think of. Go for it. Laundry. So on my smaller units up to my 37 unit, I’ve purchased the laundry machines, the coin operated commercial laundry machines. And that income really helps improve our bottom line and our net operating income.
And. Therefore the value of the property. Now, on that same 96 unit, we inherited a 10 year laundry contract, , where we’re getting half, roughly half the income, but someone else owns the machines and is maintaining the machines for us. I am I’d love to get your opinion on this, but I am seriously considering purchasing eight washer and dryer units.
To just replace the contract that we have when it comes due at the beginning of next year. Yeah. So we have properties with both lease or owned. And on one hand there’s pros and cons both ways, right? On one hand you get to collect the income. But you also are responsible for the maintenance of the machines and the dryers and if anything breaks, you gotta make sure somebody comes out and fix it and bear the cost.
And every few years you’re gonna have to replace the machines, upgrade the machines, and so on. On the other hand when you are the one signing the contract of, with the con, the. Usually in Texas, it’s called Coin Mac, right? Or SDS or any one of those service providers, they’ll give you a very big upfront bonus when you do the math.
That upfront bonus is good for a few years, , right? So you really have to they make it very attractive. They also tell you, you’ll get a piece of the action. But my experience in talking to other operators, that piece is usually very minimal compared to what you could. So I’d say look at the property, look at the history what they collect versus what you’ll have in your pocket when you give it away to an operator.
And that’s where the decision factor is made, right? If the operator gives you enough upfront fee to cover for the next 10 years or the next five years, and you plan on selling in three, go with the operator, right? But if what they’re gonna give you is gonna be half of what you can make on your.
you might, it might be worth spending the money and getting the machine. Yeah. Yeah. That’s a great breakdown. Thanks. I know on our 207 unit, when we signed that contract, they gave us $45,000. There you go. And for a 10 year contract. So that’s not bad. It’s nice to have that money in your pocket up front.
The question is, what would you get monthly, right? From the machines on the 207 unit, if you get a thousand dollars or 2000, , that means they paid for two and a half years upfront. Yeah. And that’s about right. That’s about how the math worked out. Yeah. And again, sometimes you need that upfront money.
Sometimes you already budgeted the CapEx to buy the machine, so might as well just buy the machine and run with it. Pros and cons depends on your exit strategy, on your hold strategy, on the financial situation you are. . Yeah. Yeah. I agree. I agree that. And one, one other income item can be rooftop income.
When we bought our, the, our 96 unit there was a there, there was rooftop income in place from a T-Mobile cell tower. Okay. Which went away shortly after we bought it. , unfortunately. But there that, there’s that type of income to look into too. But you need a good attorney. This cell.
Cellular companies will come to you and say, Hey, we’d like to locate a tower on your building. Is that a high rise? It’s a seven story, so it’s one of the taller buildings in its area. Okay very specific to like core urban areas. When you have high rises and mid rises one thing that might work in your environment is also air rights, right?
, that’s very common in very expensive areas like Manhattan, right? If you have a seven story, you can sell the air rights, so somebody can put a double the size high rise next to you and they’ll pay you. . So I’d say definitely another interesting opportunity when you’re in those urban environments and you have tall buildings.
Yeah. Interesting. Okay, so let’s take a look at the other side of the equation because when we value multi-family, everybody knows the formalized NOI divided by cap rate equals the value. NOIs income, less expenses. So every dollar we increase in income, and every dollar we reduce in expenses are. In the way they add or subtract from the property value.
So increase in income by $2, but it creates $4 worth of expenses, is actually reducing the property value. So what do you guys like to do when it comes to a new property you take over to maximize efficiency of operations? How can you reduce expenses, cut expenses, change the way you do things that are no longer impacting your opex?
What do you guys like? . One thing we’ve done is an energy efficiency audit where we hire a company to go through, look at all the systems that are in place. In Michigan we have gas forced air furnace furnaces HVAC systems, and some of the older properties. We have hot water heat boiler systems.
So we’ll do a utility audit to see, okay, how are those systems running? How can. What kind of money can we spend to make ’em more efficient or replace ’em? What’s our pay? On that we’ll look at the building envelope itself, the windows do we need to put storms up? Some of my buildings are in historic areas and I can’t replace these old windows that are leaky and drafty, but we can put storms up and in fact, we’re doing that right now as we speak.
And that will have a huge effect on the bottom line. Saving on those utility costs because one, you there, your biggest expenses are gonna be property. Which you can fight, but you won’t always win. Your insurance, which you can always try to, get the best bids on insurance.
But utilities are a huge ticket item and that’s really gonna be the best place to look to find those savings. Find all the leaks in the building. If you have a lot of units, all those little leaks really add. . And the more you can stay on top of those, the more you’re gonna save. So I think utilities is big.
Decreasing tenant turnover very important because someone was just telling, dropped this information on me today, but the average cost nationally to turn over a unit is $4,100. And I thought about that. I’m like we don’t usually spend that much, but when you consider the downtime and if it takes a month or.
To lease it out. That vacancy is costing you money too. So reducing that. That’s, yeah, that’s a lot of things that people don’t realize. So turning a unit is not just how much you pay to paint it or to clean the carpet. It’s everything. It’s. The time the maintenance guy’s gonna be there.
It’s the materials, it’s the time the leasing agent is gonna have to spend on marketing the unit and from showing prospects and doing tours. And then work the application process and the screening fees that you’re gonna get charged. And then that period of lost income is also something that costs you, right?
So we always advocate to do the. Before you tell an existing resident to move out because you want higher rent is what you’re gonna gain versus what you’re gonna lose. Exactly. Yeah. So the more you can decrease that the better. So that’s a really good thing. And that’s a common thread we hear from all the great operators we talk to.
What do you guys do in order to increase.
Tendon appreciation events or maybe gift cards. In one of our buildings, we actually have a restaurant. So we pass out gift cards quite regularly. When it comes time to the end of someone’s lease, we will contact them 60 to 90 days before that lease ends to say, Hey, do you intend to stay?
We really want you to stay. How can. Make it so that you do stay. And we will offer small perks, like if they want a wall painted , if they’ve been there for a while and they need new carpet a new appliance, we’ll do whatever we can up to a certain amount.
We don’t want to, overspend, but we will spend to keep them in that unit so we don’t have those turnover costs. Yeah. And that’s the kind of things that we always encourage our team to look at. It’s if that carpet is destroy, and they move out, we’re gonna have to replace it anyways. So it’s not like you’re spending money to keep them in.
You would’ve spent that money anyways if they moved out. Exactly. Yeah. So spend it while they’re there and they’re still paying their rent. Exactly. How we offer a carpet cleaning service. Somebody will come and car clean the carpet if they have a carpet an appliance, new ceiling fans, whatever we can in order to keep them in.
And especially things that we know we’re gonna have to do anyways if they move out. That exactly. That makes the most expensive for us. Okay. Any creative ideas that you guys have been trying to. in the Covid environment cuz we used to do pool parties and all these kind of events, but we can’t do those anymore.
So in terms of client appreciation or retention promotions, what do you guys do in the Corona environ environment? Yeah, that’s a great question cuz that’s changed everything. You can’t have a pizza party in the lobby or anything like that. Definitely communication has been key, but as far as showing appreciation, gift cards, we still do that.
Addressing service calls as soon as. For a while there when we were in quarantine and we’re not anymore. Yeah. The service calls really kinda had to be put on the back burner unless it was an emergency. But I think just staying on top of the service calls making sure the tenant can get ahold of you and communicate with your management company when they need you that’s very important.
Yeah, that’s great. . Another common question we ask all of our guests is if you could go back 10, 20 years back and talk to younger Brian, what advice would you give yourself? And then let’s assume you can’t tell yourself that 2009 would be the bottom by anything you can put your hands on, right?
What lessons you learned along the way that you would love to pass on to younger? Find those strategic partners, find those other individuals who will help you take your game to a higher level. I’ve been lucky to find strategic partners in the multi-family apartment space.
I’ve found a strategic partner several partners in the self storage space. who really know that area, and I can invest with them. I bring something to the table as well, but can partner with them. And in the performing and non-performing note space, I also have a strategic partner in that.
And that has just, starting out often as an investor, you have to decide what path are you going to. . And I think the more you can find those people who are really good at what they do that you can partner with or work alongside with, the faster you’re gonna be able to go down that path and start branching out into other directions.
Yeah. So it’s all about the people you surround yourself with that’s a really great advice. We’ve heard it in a different way. Find a mentor but it’s, find a partner, find someone that knows what they’re doing that you want to. And partner with them, bring value to them. That’s really a common thread we see with all the great operators.
So I really like that advice. Yeah. Now I like the mentor part, but don’t, I don’t put too much emphasis on that because I think there’s all kinds of great mentors. I think people just listening to your podcast, Joseph, are getting mentorship from you and your guests and now in the age of podcasting.
When I started, we didn’t have the podcast. We had to pay five, $10,000 for this kind of conversation. Yes. But in the age of podcasts, there’s so much great information out there, and I know there are a lot of people doing the training and the mentorship and all that can be very helpful. But if you’re thinking, Hey, I’m gonna spend $10,000 on a mentor who’s going to get me from A to Z?
No. You’ve gotta figure out how to do it yourself. And the quickest way to get there is to partner with someone and bring value to them in the process. Yeah and I’ve. I’ve always been asked like how can I find a mentor or what can I offer a mentor? Because there’s a lot of people that will reach out and say will you be my mentor?
I’ll do whatever you want. It’s kinda what do you mean? Whatever I want? It’s kinda what do you have to bring to the table? Why would I spend my time. I’m helping you and this is where I’ve taken a lot of calls for, from a lot of new people that just wanted, and I still do to today, but I figured for me, the most efficient way is this podcast having conversation with experienced operators asking similar questions so our audience can hear the different opinions and the different approaches.
And the different ideas. You’re the first one that has a mid. So the whole idea of rooftop income still, it’s the first time we came up on our podcast, but, all right, score one for me. There you go, . No, but the idea of, because I talk to a lot of different operators from different parts of the country, then our listeners can get value and knowledge about all those different things like you said.
And all they have to spend is time listening on iTunes. We don’t charge anything for that. It’s free for everybody. And I found this vehicle as a way of dispersing not just my knowledge, but other people’s knowledge in a mass platform instead of one phone call at a time. Yeah I agree. I host a podcast too, and you’ve been a guest on it.
I think if someone is serious about getting your mentorship, And they call you they better have listened to your podcast because a lot of what they wanna gain from you, you’re sharing for free, weekly or monthly or however often your podcast comes out. Yeah. Okay. I wanna be conscious of your time.
You’ve, Brought a lot of value. I just mentioned the fact that you have all those things that, that a lot of our previous guests didn’t have was a huge value. If our listeners want to reach out and maybe invest in one of your deals, ask any questions, how can they find you? And we’ll obviously put everything in the show notes as well.
Yeah, thanks for the opportunity. My website is higg investor.com. That’s h i g. investor.com. H i g is short for Hamrick Investment Group and you can listen to my podcast. It’s called The Rental Property Owner and Real Estate Investor Podcasts. And we’ve that’s have well over 250 episodes, over a million listens, and we’re almost years in.
That’s phenomenal and yes, absolutely go listen to that podcast. I was a guest on it. I listened to quite a few, not all two 50, but quite a few of your episodes and really great value comes out of those things. Thank you. Thank you, Joseph. You got a lot of catching up to do. Yes, absolutely.
Okay. Brian, thank you so much for your time. I appreciate you coming on the. And to our listeners thank you so much for listening. If you want to listen more from experienced operators, our website is apt, o p r.com. You can find us on iTunes, teachers, SoundCloud, and now even on Amazon. We’re there. We’ll appreciate any review you can give us one star, five stars, whatever works for you.
We’ll, appreciate it. Thank you so much, and we’ll talk again soon.

Episode 118: Jack Bosch
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw unfiltered truth of the ups and downs of operating multifamily communities. Welcome everybody to the Apartments Operators podcast.
My name is Joseph Gozlan. I’m your host, and today we have a very special guest, Mr. Jack Bosch. Welcome to the show, Jack. Thank you for having me, Joseph. I’m super excited to be. Awesome. You have a lot of experience in so many different aspects in real estate. Why won’t you take a couple of minutes and tell our audience a little bit about yourself, what you’ve done so far.
You have an accent just like me. So tell us a little bit about the background for there, and then what you’re doing today. First of all, I have a much stronger accent than you . I’ve actually almost never hear your accent but I, obviously, I sound like Arnold just, I don’t look like him. So I am, again, my name is Jack Bosh.
I’m actually from Germany, originally, came into the United States in 1997 three weeks into it. Met my beautiful wife and wonderful and super smart and strong wife Michelle. Few years into we finished our college degrees here. We got jobs. We hated our jobs. We went from there to learn real estate and started a company together flipping land.
So just like other people flip houses, we flip land, which is simpler than house flipping because there’s no tenant installers in termites. Which is something we gonna talk about a lot right now. And we made that our cash machine. We built it up flipped over 4,000 pieces of land and then turned the cash and the income.
We realized at some point of time that we, if we wanna ever retire really well and nicely and so on, then we can’t re you can’t retire in an active business. Because unless you sell the business, because otherwise if you stop the business, then the income stops. So we realized that we needed to take the money from there.
And then even though we sell a lot of our land, we sell a financing. So we had cash flow from land. Those, even those are 5, 7, 10, 15 year nodes that will also stop at some point of time. So we realized that what we need to do is we need to get, we need to specialize not just on generating. But on also allocating income and allocating assets and buying assets that last for our lifetime.
And they’re bringing cashflow for our lifetime. So we started adding to our land flipping and land flipping coaching, which we teach we teach other people how to do that. We added to that mo first single family investing cuz we basically dipped our toe in it and it’s okay, let’s figure out how these people, these renters are, and then what’s the deal with them.
and dipped their toes in that saw that we could actually manage a portfolio, not just where we live in Phoenix, but another portfolio in Cleveland and another portfolio in Omaha, Nebraska. And we’re like, okay, I never have to go out there. We have a property manager in place, let’s step it up. That’s when we started syndicating apartment complex deals.
And now we are invested either as general partners or the minority as also limited partners, but significant limited partners in about 700 units. Awesome. So you got a lot going on. And one of the first thing we ask everybody is self-managed or third party. Third party. Okay. Everything, even our single families are being managed by third party.
Okay. So what was the driver for the decision? . We learned it on a single family because on a single family, we literally, I went from around the weekends first we started in our neighborhood, like in, in Phoenix. We bought some houses in like a C class neighborhood, but a well located C class neighborhood that easy to get to the interstate, easy get to everywhere.
And these houses have been a hundred percent full ever since we owned them. They’re like, the moment they’re vacant, you fix ’em up again and you got five applications within the matter of a few days. And good quality. Good thing tenants are now staying in for eight years, 10 years already in those same properties.
But what I realized is that we actually, we needed to go, but with our old car, with a new Mercedes for it, we used to old for Toyota 4runner, right? Go house to house and pick up rent and it was nice, but. I’m soft at heart, and when people tell me when the lease comes up, and I was like, yeah, we gotta rent.
Increase the rent. They would tell me the story and know when the dog died and the an emergency room and this and that. It’s okay let’s wait a little bit. And we realized we wouldn’t, we weren’t as strict if they broke a window, we ended up fixing it and paying for it, but they broke the window.
The window doesn’t break itself, right? . So we’re like no. At some point of time he is you know what? We want to go travel. We like travel. . So we like spending the summer, two, three months going out of town and you can’t pick up rent. So we brought in somebody else to pick up rent, who then supposedly was attacked by somebody and the money was stolen.
Did it really happen? Did it not? We don’t know. We don’t know. So it is okay, that doesn’t work, and then let’s just go third party. And what we realized is that we are actually making more money on these rentals with third party than we’d made our own. Because now it’s the property manager’s the owner wants to increase the rent.
We have to, it’s our hands are bound. You broke the window. The owner said based on the law, you have to pay it. So we got that middle man that can be like both good cop backup and do those things that are necessary to make the property perform and take people to court and evict and whatever.
It’s all necessary. And after that experience was like, we’re not going self-managing probably ever again. Plus when we went to multi-family, our multi-families are not close to us. The market in Phoenix where we live is extremely hot property, straight at the three and a half cap or four cap, which is like crazy and and so we are going into the secondary tertiary market.
So we have properties in Oklahoma City, we’re properly in Kentucky. We are property in North Carolina, and I am not going to go out there every. So I, we go out there a few times a year, but we go, but we don’t go out every week. So third party was the only way to go. I didn’t wanna have to manage higher pay roll, all those things.
I, I wanted somebody to be in place. So you wanted to turnkey operation. Turnkey operation now. Did it work like that? Always? No. I can tell you some couple of horror stories about that. We’ll get to that one in just a minute. So before we talk about the ordeals, you have to go with the third party management.
How did you go about selecting your third party partner? I can tell you how not to go about selecting just as valuable. Now the first property that we bought was a 90 unit. Classy town, 90 unit, all town homes. Beautiful property, classy older in 1980s but a nice property. We still own it actually.
We, we, we actually restructured the deal, bought our investors out, and we’re gonna own that for the next 20 years as just buying old property. Just happened last year, but this property, the way we did is we had a friend that. That also owns multi-family in a different state. And he knew this mo he was like, my property management company’s the best in the world.
They’re nationwide. They’re absolutely amazing. And and they’re, I couldn’t and I trust this guy. He’s a good, he’s a good guy. a, He’s a friend of mine. I trust him. So I was like, okay, I talked to these guys. They said all the right things, but I didn’t dig any deeper. . So we hired them and what it turns out to be that it was a company that bought local property management companies all over the country and was in the process of rolling them into their national brand.
But in the process of them being rolled into the national brand, they still operated in limbo and like their own way. And what happened is that property management company that they had bought in the location where my friend owned multifamily, that happened to be a great operated property management company, the property management company that, that we were talking to and then ultimately hired, ended up being a disgruntled owner.
Of a single family home, a single family property management company that ended up running our 90 million, 90 unit apartment complex like a single family, meaning his team was not HVAC certified. That means we spent $40,000 over the for next six over the next six months replacing air conditions that should have been repaired.
They were not in good, they were not good managers. They, instead of keeping everyone in, because there was a lot of people month to month rents , instead of keeping them in they basically canceled their, their their raised their rents and they’re all left. And then within literally four months, we went from a 90% unit occupied unit property to a 65% occupied unit.
And we were bleeding left and right financially on that property at that moment. We kicked them out and then we learned how to properly select the property management company. learn we had them. We first of all, we asked. We looked at the properties in the market that looked really wisely, ma maintained that were full, that had nice rents.
We asked who runs them. We selected them down. We interviewed them. We asked for referrals. We looked at, we we yeah we just did a whole bunch of checks. We asked them if their HVAC certified. We met up with their maintenance team. We met up with their leadership team. We dug deep to really.
What are their philosoph, what is their philosophy? What their, what are their actions that you’re taking? Typically and then we picked one and we couldn’t be happier. They brought this property back within four months to 90% again, and it has been all through Covid and everything. It has been 98 to a hundred percent occupied with 97 to 98% rent collection.
So mean they did an absolute fantastic job. Yeah. I just want to echo what you were saying in just a little bit different way, cuz we’ve heard that over and over from previous guests in the. Is that it doesn’t matter if it’s a national brand or a local company or anything else. The only thing that actually matters is who’s on site, who is the actual people with the boots on the ground, who is the manager of the property, who is the regional supervisor of that property management company and obviously processes and having the right accounting team and all that is super important.
They can have everything lined up in corporate, but if the people in the field are not good, it’s not gonna end up well for anybody. Unfortunately we have experience since everybody else that we’ve heard before, hundred percent understand that one that we ended up hiring was they had, they, every year they win various awards of the National Apartment Complex Management Association or whatever it’s called.
And and for best place to work in, for most efficient, for best processes and things. Not that I knew, if that really means something. But now that we’ve worked with them for a couple of years, I know it means a lot because every new person that they bring in is highly trained, knows what to do, is professional.
Is really good. . Yeah. Okay. So now is it time to tell us a little bit more of those horror stories? I already did. These guys, they weren’t they wouldn’t res the first one like that. We hired the wrong one. We hired it based on because it was the first multi-family that we bought.
Which goes to the point that if you think, real estate has so many different facets, right? And so many different angles that you can, If you know how to flip land doesn’t mean you know how to manage an apartment complex if you know how to flip land. , if you know how to own, own and manage single family successful, the dynamics of multi-family are very different, right?
So not good or bad, just different, right? Little bit more complex, little bit different engagement, little different things and so on. And there’s probably no such thing like a perfect property management company. They all have their strengths and weaknesses. You just need to make sure, as you said, Joseph, That the team on the ground is there highly trained, they know what to do, they follow up.
The team now follows up like on every lead that they have ever heard until that lead tells ’em no. Yeah. So there’s if there’s 200 leads that are still linted and inquired over the last six months. They’re getting a message like every week they’re getting a message from them.
It’s have you find a place to live already? You wanna come back? And until they tell ’em, leave me alone, I have a place to live. Then we take ’em off a list. But before we don’t. And those are fantastic things to do. Versus the other one, they were like, . First of all, they kept the alt leasing agent in there.
They were completely enabled, like we said okay, we need to bring this, these people left, as I mentioned , people left like crazy. Like we had 25 VA vacancies in a matter of four months. So for down from seven vacancies to 25. So now the problem gets so why are we not filling these vacancies?
We’re in a good season for renting. Why are we not? We’re filling up cuz they’re not rent ready. It’s okay, so why don’t you get them rent ready? We only have one maintenance guy, 90 units. You can’t really afford to have two. So it’s okay, can we bring support in? We only work with licensed companies.
Okay, that’s fine. Then let’s bring in a licensed company. They want $20,000 to make a uni rent ready. And I’m actually not even not even not even exaggerating a little too much. There, there were like 15 to $20,000. It’s are you guys crazy? Like getting a uni rent ready? If you don’t have to replace the kitchen or the bathroom, if you replace the carpet, you know what it costs.
The carpet is perhaps a thousand dollars and the rest is $300 in paint and cleaning up $1,500, $1,600, you should be ready. And they’re like, now we can’t do that because we don’t have the manpower. It’s then it’s never where we hire another maintenance guy. Let’s let us start with that.
But it might take six to eight weeks to find one. And they were just like, not reacting, not acting. He was trying to push a cart uphill and it’s just we couldn’t get anywhere. And to the degree that I had to on my own pocket, hire the husband of our leasing lady who was a handyman, and he brought in two other.
And I paid them outside of property management to get these units rent ready so we could actually listen. That’s how chaotic it ended up turning. And then while we are looking, while we’re searching and finding and looking for another property management company, and then the moment we set eyes on.
The moment we decided on that one, they were able to actually step in within two weeks, which is pretty fast, usually takes perhaps 30 days. They were able to step in within two weeks and then they brought in their team of experienced people and boom. Not only did those units I mean with, as I said, within three months we were back to 90%.
Within another two months we’re at 98% and we have literally stayed there ever since for the last pretty much two years. . Yeah. And these are great examples of what you just said earlier, that real estate, different real estate assets have different dynamics to them. In a single family word.
A person that manages single families. Even if it’s 30 or 300, they usually don’t have their own crew. So AC breaks down, you call an AC technician, something with plumbing gun on, you call in a plumber. And then if I need to get a unit house ready, I’m calling a contractor. That does all the subin for themselves versus in their partner world, right?
We usually have onsite maintenance guys that can do all these things, and if not, then we bring apartment contractors and not retail contractors. That helps you turn a unit for two, three grand instead of 2030 grand. We just went through the same process with a small property. We helped one of our clients manage and we brought in contractors for a 300 square foot studio apartment.
I’m not getting 300 square foot and we got bids over $30,000 and it’s kinda like I, what’s going on here? Look, I can buy another apartment for $30,000. Do you wanna renovate a 30 300 square foot for 30,000? Yeah you can’t work with retail anything retail technicians or retail contractors.
It just doesn’t make sense in the multi-family world. So tell us a little bit about how you interact with your third party property management. How often do you have a phone calls? Who do you talk to? How often you visit the site? So it depends on which property it is. So on on the one on one of the one in North Carolina takes a long time to get to from Phoenix, so it takes a full day to pretty much get there.
But so I don’t go to that one very often because it’s also run beautifully. I think so, so I might only go there now at the beginning I went there more often, but now I might only go there three times a. Right now that sounds very little, but we have weekly I get lots of pictures instead.
So I got lots of pictures. Last time I went there I saw that there was a little mul a little mosque growing on the weather side of them from the sprinklers cuz it’s 90 units on 15 acres. So there’s lots of grass and things. So there’s like little mosque growing. So the, I basically ask, okay, by this state I need all this to be power washed.
And then I. Building, but building, after building, I get the pictures and I don’t have to go spend an entire day flying out there, checking, renting a car, doing their, staying overnight and then coming back the next day and be completely wiped out. So I get those things Now, larger decisions right now are coming up.
And now that we refinance and thing and we, we bought our investors out on that one. So we’re keeping this for the long term, so we’re making some more major investments into it. So for any of these major investments, I’ll make my way out there. So we are adding some extra parking, but we’re converting.
The Shad into an actually leasing office, cuz right now they’re using one of the units as a leasing office and we need to open it up for revenue and instead there’s this beautiful shad that’s just a two car garage, basically a beautiful building. Actually, it’s the same kind of building as the rest of it just, it needs to be converted.
Which again, I had asked the fir first property management company right after we bought it to get us a quote, and it was like a hundred thousand dollars quote. I was like, really? I don’t wanna rebuild the thing. And I don’t wanna rebuild it with granite countertops and everything and marvel floors.
I want it to just it’s basically the equivalent of a burned unit that needs to be redone. It should be costing about 25,000. To finish this up. Put some insulation in there because all plumbing and everything is there already, right? So now we’re getting quotes to make it really pretty and it might cost 30, 40 or so, but that’s in the budget.
But when that happens, I wanna go out there. But then what we do is we receive, I receive an email from them every Monday. , which lays out exactly all the statistics, how many visitors we’ve had, how many applications we got, how many approvals, how many new clients, if we have, what, how many people we have on the waiting list.
If we have a waiting list. It shows us how many people that the leasing agent followed up with. It tells us what we are collection tracking for the month and for the week and for the month what we are in rent collections. And it tells us what maintenance items were done for the week.
And and then if there’s any activity was done on the property, like a celebration or party or it gives you a bunch of pictures of those. Usually with that, I look through and I might shoot up a clarification email. I don’t even have to get on the phone with a team at that time. If every if the property is at eight 98% occupied, basically we have one, a one vacant unit.
Yep. I don’t I don’t need to. I don’t need to. Then I have access to, they use resin as a property management financial tool. So I log into resin. I have all the day-to-day financials that I can see. I don’t need to waste anyone’s time and then jump on a call with them, however but we do get on a call at least let’s say every two, three weeks just to catch up on stuff.
But then also as we put in projects for every project, when we kick off a project, when we get for those, we get more regularly on, on the phone with each other because they might get three quotes. And I don’t wanna just look at the quotes, I want to talk to them and say So what’s the pros of this one and that one, and then we talk these things through.
But, so there’s a few phone calls a month perhaps, and and this one email a week, and then perhaps other emails that go through go back and forth. Now, if you go to a refinance, of course, then the interaction is tenfold higher, right? Because then you need all kinds of stuff from them for the lender, and it just goes back and forth.
Now, on the other property, we do a phone call a week. And I get a little bit, they’re a little bit less organized. The other property management company in our Oklahoma market. So they’re sending me more we, we go to the KPIs that I’m interested in more on the phone. . So they send me an email the night before we talk, which says like how many who applied, who was allowed, who was not.
Cuz for example, one of the things we did there. We just increased the rental requirements actually right in the middle of Covid, which is we want better tenants. So we actually increased the requirements and successfully that actually helped us successfully navigate to Covid because we got within about.
Three, four months. We had quite a bit of turnover and we got a lot better tenants in and they paid all throughout to Covid. So it was, it helped a lot. But there we are. I still, they also use resume as a platform. So I can also look at those things. But there, I have a phone call a week.
I might have a phone call with accounting once every two, two months or so because they book stuff in a way that doesn’t make sense to me. And so I’m. diving in is like, what are you booking? Like that? And we have a conversation about that and that’s about it. But then there’s also an additional with that property man, with that regional property manager, she operates very well on text.
So we just text back and forth on a bunch of things and email back and forth. Probably another five, six emails I would. Not five, six emails a week, but some weeks it can be five to 10 emails. Other weeks there’s nothing but so bottom line is we’re plugged in on a weekly basis. Look at our financials.
That might trigger a conference call to dig in some more detail and, but again, this property is right now 91% occupied. It was 95, but then we were actually lucky. I like, last summer they actually stopped the eviction moratorium for about four weeks or three, four weeks, right? Yeah. Between August and September.
Yeah. We were ready. We had everything ready for that to stop the day. It stopped. We submitted everything, we got it processed, and we were able to evict 13 people the day, the morning of the reinstatement of. Of the moratorium. So as a result, our occupancy though dropped from 95 to 86%.
. And so it took us a little bit to fill that back up, but we are at 91%, but collections are actually higher than they were when we’re at 95% because we got better tenants. Yeah. It’s better cut it. Thanks for sharing all of that. So in. Johnny moving forward. Do you see yourself buying more multi-family properties?
Yes. So last year we passively invested but with a significant share in, we were, we became 20% owners in a tech and a tenant forma for a tenants and common structure. Where’s only four owners? We own 20% of it, of 258 units in Kentucky. . So that we invested in that. Now that’s passive. But it’s for owners, it was a great opportunity, great value add and all for our owners wanna hold onto their property for a long time.
So we’re like glad to invest in a more significant amount in that to to just for cash flow. And we are actively, we’re actually hiring a transaction coordinator right now and an acquisition manager in the next few weeks to really get because it was always like something we did like part-time.
, like we, we have a land flipping business. We have an educational business, and we are investing in these assets. In order to sometimes the syndications providing other people an opportunity to invest with us and so on, but also for us to be able to to put our own money into something that has that has the depreciation in the cash flow for more longer term.
So with that said, we definitely wanna continue that. We have switched our outlook though a little bit. That instead of doing syndications, we might still do a few syndications with a lot of investors. Like 30, 40 investors or so. But we also have since connected with a few investors that are, have similar outlooks as us, that are potentially want to invest like.
More significant amounts and put three or four investors together and own a property for the foreseeable future, 10, 15 years. Yes. And so for that we can actually tackle a little bit of a different product. So instead of it having to be that product that everyone else’s chases, which is the value add.
We can go even into an almost a stabilized kind of property, but in a higher rent growth market and just basically because we don’t need to make an 8% return in year one. We, if we can make a three, four, 5% return in year 1, 2, 3. But then with the rent growth, be it an 8%, 10% return in three to five years, every one of the investor group would be happy.
And then we’ll just hold it for another 10 years afterwards continuing to get higher and higher cash flow on the property. So our strategy is shifting a little bit on that. But it’s and it’s and, yeah, this is yeah. Shifting a little bit. Yeah, no it’s a great point. To what you’re saying is it all depends on the strategy and it’s all dependent on the investor’s expectation, right?
So on the syndication world, our investors are always looking for high return and immediate kind of immediacy of that. And then the high net worth individuals that you’re talking about, and I’ve met a few of those myself, are more into let’s buy something that is a higher quality in a better location.
We might not see a lot of returns in the first few years, but multifamily and commercial real estate in general is I like to say it’s like wine. It gets better over. . Because the inflation is eating through your mortgage payments and rent keep going up and up. So I totally understand that strategy.
So that strategy still aligns with your decision to stay in the third party management space, right? It does, because on those kind of proper. There’s not that much heavy lifting to do from a from a value add kind of point of view. So yes. Do we, might we end up with a property that we still in the next five years need to replace all the kitchens and interiors and upgrade them?
Yes. But then it’s a five year project, right? You buy 200 units and you upgrade 30, 40. Upon move out little by little and you just basically bring in on payroll, potentially almost like two extra maintenance guys in, or two extra contract, two extra people in that can do that. Property moves out, they go boom and put it in place.
And a good property management company can manage that. I think it becomes, A little bit more of an issue if you have to do really a lot of heavy lifting at that point. I I wanna be involved because I wanna be involved on a daily on a daily, weekly basis. On the other ones, it’s just more like checking off the box.
Is the next unit ready? Okay, are we doing it within the right parameters? We’re in the right cost, using the same material. Is it uniform? And you just, as long as you put those things in place and you have a good team it can be managed. Third. Understood. Okay let’s talk a little bit about value add, right?
I know your properties are value add especially the syndication. Give us a few examples of things that you guys like to do in order to bring the property value up from the income perspective. We’ll talk about expenses in a little bit but let’s take off the table the usual ones. Increase rent, applied robs, right?
So other than these two, what other kind of things you like to do that increases your income in the property you. . So we like to put amenities on the property. Mo, most of the properties with own don’t have a whole lot of amenities. Like the one in Kentucky right now is actually getting an indoor pool.
Oh, wow. It’s 50. It does it’s 5,258 units. They have this big sh metal thing and it was already started, but when we bought it we decided to finish it up. So it’s gonna have an indoor pool that the community can use and that community, I don’t think there’s another property that has that, but again, it was already it only took another $50,000 to finish, or $75,000 to finish that pool.
And it was already prepared cuz that’s $120,000 pool or so. So now on the other one, if I’m thinking about again, our once in North Carolina, it has zero amenities, it has zero amenities and it had zero amenities. So now we added we’re still adding some of them because like we were just through.
Fixing the issues that the first property management company caused. When we brought back the other one, we were just ready to put in the things, whereas okay, the winter hits, let’s wait out the winter, let’s wait for spring 2020. Come along. But of course, COVID hit, right? Yeah. So we still haven’t added anything there other than we able to rent a, we bought it because we know rents were $150 below.
But that’s one of the obvious, right? . , we, what we have done is, what we’re doing now is in the next two months, we’re adding a playground, we’re adding barbecues, we’re adding a, we are adding extra parking on the side. We are adding overflow parking over there on, on, on both sides of the property.
We are adding, cuz every park, every unit only has one parking spot right in front of its . So anyone comes to visit. It’s not an easy kind of situation. Or some people have husband and wife obviously, there, where do we put the second car? So that’s been a little bit of an issue of contention.
So we are adding this out there on the sides. Then what else are we doing there? We we are adding we’re not adding a pool because it’s just too much effort and liability insurance rates go up and so on. But one of, a lot of the things we do in our properties are actually. intangible. . So we are really firm believers that a, even a C-class property, even the tenants in a c-class property, which is typically like workforce housing, they don’t just want the place to put their head at night.
They want the place to feel and they, first of all, they need to feel safe. So one of the things we do is we put up a li, the first thing we do is we put, we increase the night lighting on the property by a factor of 10. , like we, we go out and. Big, bright l e d lights all at every door.
Everything and may and turn and disable the ability of the tenants to actually turn it off. So basically they’re photoable cake things at night they turn on and when and down in the morning they turn off and that means the property is lit up like a Christmas. Because that single mom that works at Walmart and comes out from the night shift at 10, at 11, or from the late shift at 11:00 PM that single mom wants to feel safe on that property.
right? So those are little things, more psychological things that make a difference. What do we do? We upgrade the interiors to actually now that unit’s all, they’re both two, they’re all town homes. They’re two story units. We’re actually replacing the carpet to the entire units, even upstairs.
Okay? That helps. Pardon? You’re going to hard floors even on the second. Even on the second floor. The vinyl looking heart floors. Yeah. Even on the second one, because most of them we realized is like a husband and wife, a single person, or perhaps a single mom with a couple of kids and so on.
It’s your own kids traveling. It does less bottom if it’s somebody else and another apartment trams on there. So we just tested one unit. Tenants love it. So we’re gonna roll this out over the next over the other units over the next year. Because is. Not only is it it, the units look nicer.
And then our other property in Oklahoma, all the units are like that now. They’re all single floor units. They’re all piece of carpet in that property anymore. So that helps on both ends. It’s a one time, little bit more investment, but then it’s a cost saver, but it also, it’s a higher perceived value than a shampoo property that still has a bunch of cigarette stains.
It’s still, it’s, it looks nicer. It looks like, oh wow, this looks. And then people go to somewhere and get themselves a $50 rock to Ikea, get themselves an $80 rock if they really wanna feel something soft under their feet. And now they have a nice looking unit. So that’s something we do on everyone.
But we are really big on, on trying to create a community. So we’re big on, on doing barbecues. We’re big on doing 4th of July. We’re big on doing Easter egg hunts. We’re doing back to school back to school backpacks. We’re doing popcorn in the office for the kids to come in. We’re doing things like.
To provide decorating contests for Halloween and things that people can embrace and feel like they’re part of it. And even in one property, we did something, we found a local community college. Where some of the kids needed needed extra hours. Like for some reason they needed hours in community service or something like that.
And it was part of their curriculum. So we brought ’em in and we brought ’em in as math tutors for the kids in the, oh, that’s the school. So basically twice a week this college student comes in and the kids of the neighborhood because that property happens to be right next to a not very good elementary.
So the kids that, that stay there, they’re going to that school and they’re struggling. Guess what? Now there’s somebody that, for free, gives ’em some tutoring so that they can advance a little bit more, and that’s just super well received in the community by the tenants. Some of them treated as babysitting, which is okay too, but.
But others are seed of valleys. Yeah, I want my kid to be successful. And so that it’s so we are doing, we’re trying to do well by doing good too. Yeah. No, it’s fantastic. It’s a very creative way to add value. And bring value to the community and doesn’t cost you anything but a phone call to the local community college.
I, I love that idea. It’s a, we haven’t heard that one before on the show. That’s definitely a great one. Good. I’m glad. We also added a gym. We saw this little storage room of the, after the policing office, and it’s big enough to put, to drip to a treadmill, some weights. And and a bicycle thing on there and a rack or for weights and so on.
So it’s why don’t we just turn the door from inside to the outside and put a key card thing in there and people can get a key card for 10 bucks that if they bring the key card back, they get their 10 bucks back and, but they can go. Now we have a 24 7 gym. , which we didn’t have before. So little things like that add amenities with the barbecues, with the perus, with the thing.
And now we are replacing on one of the properties on that same property we’re, we were on a leasing program with a laundry units. And it has its own separate standing building with like 10 wass and dryers and 10 10 washes and 10 dryers. And the leasing is over cuz the leasing made us no money.
and there was these old top loader machines. So we basically told them to kick ’em out, and within the next six to eight weeks, we’re bringing in new our own equipment. our own equipment there. So our maintenance staff is now being trained up to fix those. And and we are gonna have a little bit variety of things, not just the small ones, but we’re gonna have at least one big one.
So we might only have nine washers eight small ones a medium, one and a big like seven small ones a medium, one and a big one. , and now we get to keep all that revenue and we calculated that should add about $1,500 to $2,000 a month in an actual profit to the bottom line. That’s 20 grand a year at a, at that’s a three, $400,000 value add to the property.
Yep. Fantastic. Great. So let’s flip the coin and talk about expenses, right? What do you guys do to shave off expenses or be more efficient on your expi? One thing is, for example the laundry thing itself, because as I discovered shortly into owning the property is that we, not only did we get only like this tiny revenue share, which usually can, the results literally was like $80 in the year we made on that you thing.
But we also had to pay for all the water and the gas. it was connected to our main units. So now shaving that and turning it over, it’s not only gonna increase revenue, but also but also at least we are now spending the money on our own stuff. Yeah. So on. Other than I think the really, one of the biggest ones is we have on the hundred 46 unit property, we have one maintenance guy and one guy who is mainly in charge of turns.
. So these two are good, but because of that, we don’t have to do almost anything. , like we we, it’s extremely rare that we have to bring in an outside company. So we have the salary expenses, but not much more. It’s extremely rare that we have to replace an ac. Because we got all this different cuz they can fix the acs.
Some of these acs are pretty old and they’re still fix ’em and fix ’em. So that saves tens of thousands of dollars a year over the course of that property. Cuz you got 146 acs that you don’t, of which you don’t have to replace, even if it’s just 10 a year, it’s for 40, 50 grand that you would have to, that you’re saving.
Yeah. So here’s a little trick on that one that we’ve. Is eye contact. I found a contact that works for a company that installs new acs and I told ’em, look, on my properties, we have two, two to two and a half tons condensers. So if you go out and you replace a working one, save it for me. So we end up, I think we bought 30 or 40 condensers last year at a cost of two, $300 a.
So we were able to replace, broken parts and get all new condensers that are in good working shape. We usually like to take when they do like a bank so banks and big commercial companies, they replace ACS on a schedule, not when they need to, right? Because if you’re a bank, you can’t wait till the AC breaks.
And then the entire branch is a hot sauna in Texas. You replace those on schedule even though they could have 2, 3, 4 years more left in them. So they take off really good units and they put brand new ones. So we’re happy to take those off their hands. Oh and saved us tens of thousands of dollars in the last few years.
I love that idea. That’s great. What else do we do? There isn’t that much that we we, on one of the units one of the properties. on the carpets that exist. We bought a carpet cleaning machine ourselves, and they’re, and then the maintenance guys, carpet cleaning the machines that saves shaves off, that shaves off 150 bucks of that or whatever.
Saves us a little bit money there. We’ve seen there, there’s that, but one of the things is the, one of the property managements that’s also again, in favor of Of third party management in this case, they are so big that they’re well known in Texas. They’re so big that they bring in their own they bring in their container full of stuff from, of fixtures.
From China and yes, makes their product a little bit, like predictable in a sense that, if you walk into a property that they manage, it’s the same kind of stuff, but what it does it pretty, we don’t ever have to go to Home Depot and pay $150 for whatever it is because they pass it on pretty much as a service to their properties.
At cost or if it’s just a very slight markup. So we get what costs at Home Depot, 150 bucks. We get it for 75 or 80. So that, that’s that saves a lot of of money. And then mainly having well-trained people that can fix all kinds of stuff. Cuz again, unless it’s something major we don’t have to bring outside contractors out for almost anything.
And then again, it comes down to having a good regional manager. Our regional manager on that property is a hustler. She is she is she doesn’t take no for an answer and she’s gonna. The best contractor that does it like a really good contractor that does it for a really low dollar amount.
And and so we so that all together keeps costs fairly down. Yep. Fantastic. I wanna be conscious of your time. I know you have another appointment coming up soon. If you. Met young Jack 10, 20 years ago. And you can’t tell yourself that, 2009 is the bottom by everything you can what advice would you give yourself?
I probably would’ve accelerated two multifamily quicker. Because again, I love our land business. We’re gonna do land flipping for the rest of our lives. I love teaching it, but long term, Wealth generation, long term and big, massive wildlife wealth generation happens more with a multi-family, but it’s also 3.2 million times more complicated, right?
Yeah. So get me wrong. So I’m I wouldn’t change a thing in what I’ve done. I would just would’ve probably transitioned from not transition. I would’ve probably added multi-family five years earlier. So that’s what I would’ve done five or 10 years earlier than I have about five years earlier than I have.
And and would’ve done more quicker. But it’s okay. We have done well. We’re we’ve, we won’t complain. We’re, we are a really beautiful spot in life and uh, and life is good. Awesome. Okay tell our audience where they can find you. If they wanna reach out, invest with you, or learn more about your land flipping business, how can they find you?
And we’ll obviously put links in the show notes. So if you wanna know more about our apartment complex investing activities, you can go to Orbit Investments or bt investments.com. If you wanna know more about the land, which we really didn’t talk about, but if you drink by that, you can go to Land Profit.
Fun, like having fun, land profit fun.com and check out more details there. Awesome. And also jack bosch.com, my website I’m on Facebook. I’m on our different platforms everywhere, YouTube. Awesome. Jack, you’ve been fantastic. You brought a lot of that. Our audience, thank you so much for being on the show.
Thank you for having me. Awesome. And for you, the audience, if you want to hear more, please subscribe. Doesn’t matter if it’s on iTunes, feature SoundCloud, wherever you consume your podcast and feel free to leave us a review. We’ll see you later in our next episode. Thank you. Thank you for listening to our show.
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Episode 119: Anna Kelley
Welcome everybody to the Apartments Operators podcast.
My name is Joseph. I’m your host, and today we have a very special guest, our first woman to be on the show. Anna Kelly. Anna, welcome to the show. Thank you so much. It’s my honor, and I’m super excited to be your first female multi-family investor. So it’s not rare that is the case, but I enjoy representing for the other women in the space as well.
Awesome. And then we have a few more women lined up to come next on the show. We felt that it was a little bit unbalanced, so I definitely want to hear, and I want to hear a woman’s perspective to all these things as well. So how about you take a few minutes and tell our audience a little bit about more yourself, your portfolio how you got to multifamily, just so they’ll have a.
Sure. So I’ll try to give you the quick and dirty and short and sweet version. I am a full-time multi-family real estate investor. I currently have a portfolio that I asset manage, and I’m a general partner on about 160 million of multi-family. In Texas, Georgia, and Pennsylvania. I got started about 20 years ago with my very first property.
So I’ve been in real estate for about 20 years, and I really started out Joseph as a lone ranger. So my husband and I bought a couple properties. We house hacked. Did it just to provide a little extra income and, my goal was financial freedom, so it took me years to develop true financial freedom.
I retired two years ago after 20 years at AIG Life Insurance Company through the power of multi-family investing. And so now I do it full-time and absolutely. Awesome. That’s great. So you have a portfolio across three different states. How does that look like? Do you use third party management or do you have your own management?
And just for a little bit of background, we look at this podcast for operator. Operators and we talk a little bit about the acquisition side of things and the due diligence and investors. But we try to focus a lot more on the operations side of things. Like you said, you asset manage.
That’s why most of the questions will be focused on that side of things. Third party or in-house.
Anna, you froze.
And are you there? It’s my fault.
Anna, can you see? Hi. Yeah, I’m sorry. I had a little hiccup with the network here. I’m not sure what it is. No problem. But don’t worry about that. We’ll just edit this out sure. Okay, lemme just walk us into this again. Okay. So tell us a little bit more about your portfolio. How it is it to manage across three different states.
Are you using third party management company or your own management? So Joseph, every market is so different, as and each market has its own challenges and its pluses and minus, and depending on the size of the market, the property management Process looks a little bit different, right?
So in my larger cities like Houston, Texas, we have really strong property management companies available to us because there’s lots of multi-family assets in Atlanta, Georgia. I have three complexes there, and we use a very large property management company in Atlanta, and they do a great job for us.
So my role is primarily asset managing on those. In central Pennsylvania. So I started out with 70 units of my own for my husband and I, and we actually self-managed those properties for a very long time. So a couple years into into starting to develop partnerships, I did joint venture partnerships with two other partners where the three of us took down 238 units, and we actually created our own small property management company.
to handle those 238 units plus one of my partner’s properties that he had in his own company business. So to this date, we have a property management company, N P a, where we hire our own onsite property management and maintenance people. And then I have a few properties in a very small market that we still, believe it or not, self-managed.
However, I have a property manager that works for me directly, so I’m not in it every day. I’m not meeting with tenants and signing leases and meeting contractors, but I am employing people who do it for me. Okay. So I think you’re the first one that actually has a combination of working with third party and our self-managing.
So that, that’s a unique perspective that I’d love to explore a little bit more why go third party if you already have a, a property management? . So a couple of things. I made a very specific decision, Joseph, that’s different than probably a lot of operators that you will talk to. But I spent 16 years working full-time and growing real estate full-time on the side while helping my husband to start his own business and running that.
And I have four children, so I worked 70 to 80 hours a week for most of my children’s childhood. And when I retired from aig, I made a commitment to myself that as I scaled my multi-family business, I would do it in such a way that I truly enjoy the financial freedom that I developed on my own, with my own assets.
and that by three 30 every day when my kiddos come home from school, I’m done. I’m not doing 70 or 80 hours a week again until my kids are grown and out of the house. I’ve got about eight or nine years left, right? . So I’ve made a strategic decision to partner with different people on different assets in different markets.
So in central Pennsylvania, for example, I have joint ventures. I have 238 units with two partners. One of my partners actually has the property management company. And so we partner together with his PM company just on the assets here in central Pennsylvania. They don’t really wanna go outside of Pennsylvania and manage things in other states.
There’s different rules, different laws and whatnot. And my partnership here, it works. . I don’t wanna start my own property management company in Georgia or Texas, cuz I know the headaches that come along with that and I don’t wanna have to be flying there all the time. So it makes sense for me for the assets that are in Georgia and in Texas where I partner with different operators and we basically create a joint mentorship in the GP side of things.
It’s just better for us to go with large third party property management. That are experienced that we can asset manage from afar. And then there’s still properties that I buy for my own portfolio and it makes sense for me to just stay small with a, with an employee to work for me. Gotcha. Okay.
So let’s talk about those property and third party property management. How do you work with them? How often do you talk to them? What does it look like? Do you get any reports? Tell us a little bit about how that looks. Sure. So the large property management companies, when you first take over an asset, as Joseph, it, it is all hands on deck and it’s very time intensive, especially if there’s a value add, right?
So there are deals that I buy that are buy and hold. For myself and for small joint ventures. But most of the larger syndications are value add deals. So there’s a construction management component that’s extremely important. So you have to be able to work with a property management company who can oversee the construction company that’s updating your units and unifying the property.
And executing that value add strategy for you. So we talk at least every week. We have weekly asset management calls with our property management company, and it usually consists of the asset managers, the property management company’s regional property manager, as well as the onsite property manager and leasing agent.
So we talk to them every week. We go through a list of KPIs, we wanna know, for example, How many units are leased? How many units are coming up for renewal? What are you releasing them at? Where is our occupancy? And how well is the construction crew doing on our timeline and within our budget as they’re turning units?
And so it’s a weekly touch point. They provide us weekly reports and there’s many times when we email back and forth throughout the week before that weekly call. But typically speaking on these larger assets, the entire time we’re going through the value add deal, we have weekly meetings with our property management company.
Okay. And after that, . And after that, a as they start to stabilize and you’ve got all the units updated that you want to, then the question is, are you looking to try to sell it quickly or are you still trying to hold it for a couple more years? And we sometimes will back off to every other week calls, but we never go a full month without talking to our property management company.
Okay. Yeah, that makes sense. So a lot of the. Operators we talk to, especially the larger ones, your scale and higher say that when they reach a certain threshold, it becomes more beneficial for them to have their own management company. You that have both. Do you ever see yourself transitioning off the third party into complete management for your own management, or do you say, This is the lifestyle.
It gives me what I need. I don’t want to change that. Yeah. I say this I have to work very hard, Joseph, to temper my drive, right? My entrepreneurial drive is always thinking, what could I do to go bigger, grow faster delegate more and buy more properties. But the reality is, again, because of that lifestyle choice, really wanting to make sure.
I can be a mom first and foremost. Every moment that my kids are home they’re all in travel sports. We are in sports every night, all weekend away, all the time. So for me to be able to start my own large property management company, it would take a large amount of time that I’m currently, quite frankly, not willing to give up.
So while I’m all about systems and processes and scaling, to some extent it would, it won’t be until my kids are out of the house that I really say, okay, now let me. , grow something so large in my area where I, where it makes sense for me to create my own property management company. And the other thing you know that is really important to think about is usually owning your own property management company is not very profitable.
It’s really about control. Yes, you want control and you wanna make sure that you have people that are gonna do what you need them to do. And so you want. , you want more contact with them and get them to do what you need them to do. But in terms of making a profit, you usually have to take on other people’s properties in order to make a profit.
I don’t want to create something where I’m taking on other people’s headaches, cuz property management is like the least attractive part of. owning properties to me. So I just don’t think I’m ever gonna do it now. Never say never. You never know. But I enjoy and can make work fairly well working with other property management companies.
Got it. Got, okay, cool. Let’s change gears to , what do you guys do on your properties? And I’m gonna separate the question to three different parts. We’ll get through all three of them. We’ll start with income, we’ll go to expense and then we’ll talk about retention, right? Let’s talk about income, for example.
When you take a property and you ha you build a plan, usually you build a plan ahead of time, right? What are the things that you guys do on your properties to increase the. that are not the usual, let’s increase rent or apply rubs. Everybody does that. We got this. Tell us a little bit about the secrets sauce, right?
The unique stuff the creative opportunities you came across when you were doing your properties. Sure. And a lot of them, for a lot of us that are in our network, we’re always looking for ways to increase value. So you’re always coming, you test the waters and you say, what can this market bear?
So one of the things that you wanna do is you wanna look at what is your current market doing? What kind of things are they charging for? And at least charge for that, right? Because you don’t wanna leave any money on the table. So if I have free parking, and all of the complexes that I’m competing with have parking that they pay for, then I might as well take advantage of that profit center cuz it’s not gonna put me at a competitive disadvantage in order to charge for parking. But at the same time there’s times where nobody’s charging for parking. And if I have a beautiful sprawling park property where women have to walk by themselves at night through a big courtyard in a wooded area, And don’t wanna have to, do that. And they’re gonna be willing to pay for parking even if my competitive.
the charging for that. So I’m gonna test the waters for things like parking. Pet yards is something that we’ve done in some markets. We’ve said, Hey, this is a market that has a lot of pets and there’s really no place for a dog park or something big, but we’ve got space behind each of the units and so we’ll build little courtyards or patios or pet yards, and we’ll do that on.
One of the things that we did during Covid, especially because we had a value add strategy that we needed to put on hold a little bit until we figured out if our tenants were gonna pay. We started doing some renovation on demand, but also amenities on demand. So we didn’t just build them and say, Hey, we’re gonna, we know we can make money and everybody’s gonna pay extra.
We said, listen, here’s our base package, and if you’d like your own private patio and your enclosed pet yard, we’ll build it for you and we’ll charge you 75 bucks a month. So we’ve done some things like that were somewhat outside the box. That actually worked really well because we didn’t just spend the money hoping that we could get people to pay for it.
Especially in a pandemic when people are worried about, the cost of living. More so than they were before we started testing the waters with renovation on demand, pet yards on demand washers and dryers on demand in units that have connections and things of that nature. Okay, so you basically reach out to the residents and tell them.
If you want me to with your apartment, it’ll cost you this much every month going forward. Exactly. Yeah. And we’ve done some tenant surveys, so we’ll ask tenants when we move into the community, what are you happy with in the apartment? What amenities do you wish that you had that you don’t?
And sometimes we’ll give them a checklist, you know what you like to see? A little soccer yard for kids. Would you like to see a dog park? Would you like to see picnic tables in the courtyards? Do you use the basketball hoops or would you rather that area be a a playground for kids? Would you wanna fire pits?
So we ask questions to see what does the current tennis tenant base want, and if it’s a nicer property, , they’re probably gonna stay, but they probably would like a few extra things. And then if you give them those exterior things right away and you start to beautify the property and add some amenities, becomes much easier when you then wanna add, additional income by raising their rents later.
Yeah, that makes total sense. . Awesome. So we’ve got a few new ideas. That’s great. Let’s switch over to the income side to the expense side of this, right? Sure. What are you guys looking for what kinda opportunities you found to reduce expenses or change the way things are done that will not require as much expenses?
Give us a few idea. Sure. The the, one of the very first things we do in almost every property that we buy, especially if it’s a bit older property, so I’m a value-add investor who I only really invest Joseph in class A in class feed areas. So I want nice areas, really strong schools, very low crime.
but I like older buildings where I have a value add component, right? . And so a lot of times those older BA buildings are very inefficient. And so we wanna do things like converting our lighting up to l e d lights, and we want to get rid of the old 19. Seventies, eighties and early 90 toilets.
And we wanna put in new water efficient toilets in most of those units. You have to be a little bit careful of that because of the type sewer lines that are there, whether they’re clay or whether they’re cast iron or whatnot. But assuming that everything is fairly new and can handle low flow toilets, we put in low flow toilets and we change to L E D lights everywhere we can very quickly.
And we put in water saving. Shower heads and faucets and that typically saves us quite a bit of money, pretty easily, without actually having to raise rents in order to justify the cost. . . Okay. So that’s one of the things we do in the northeast, interestingly enough. So we talked a little bit earlier.
I’m from Texas, and in Texas everything is gas or central air and heat, right? There’s very little that’s oil, unless you’re in a really old rural area, . So up here in central Pennsylvania, there’s a lot of properties that still run on oil. So the first thing I do here, is rather than convert to all new gas burners and boilers, which makes sense on certain properties, depending on the price point, I can actually have them change out to burn gas instead of burning oil.
But with the existing heating systems and I can spin a 10th of the cost that it would cost me to replace all of those units and cut my utility costs in. and that’s significant when you multiply that across a lot of different units. So changing oil fired burners to gas fired burners is one of the very first things I do in the Northeast to significantly reduce my expenses and significantly raise the value of those properties without almost any work.
That’s very interesting. It’s like we talk to a lot of people in the business and I keep reminding everybody that you don’t know what you don’t know until you. Yeah. So I remember the first time I saw a p and l from a property up north. There was a line item for snow removal. We’re from Texas.
We don’t have a line item on the p and l for snow removal, right? So it’s the kind of thing is that, especially when you do underwriting and you’re getting ready to take over a property and operate, if you’re a Texas operator and you’re buying something in Minnesota or one of those freezing states, right?
You better know what you’re getting into and you better understand. Sometimes things are different. What you just said is something that almost none of our guests said before because we didn’t have anybody that had properties with oil burning furnaces or whatever that is , trust me, I, I learned so much moving to Pennsylvania from Texas.
To me it was like living in, in Antarctica cuz it’s so much colder. But to the point of snow removal with Joseph, we just had one of the worst cold seasons since I’ve been here for almost 14 years, and we had three heavy snows back to back, one property alone, a 96 unit property from three snows to plow the parking lot.
Salt you have to put salt on the sidewalk so people don’t slip was $12,000. For three snow removals. And so the first thing my partners and I did, this is a joint venture complex here. We said we’re buying a snowplow truck and we’re gonna hire someone else to come start snowplowing instead of having the snow company come do it and charge you an arm and a lag, $4,000 every time they gotta remove the snow.
So those are the kind of things that we just say, what can we do to make this not happen again? And to cut expenses everywhere we can. . And the great thing is not only does it increase your cash flow, but it raises the value of your property, which is why we all love multi-family. Yeah, and you know what, I think that what you just mentioned is one of, in my opinion, one of the bigger benefits of having the property management company because if you are waiting for the financial reports, you’ll get it a month later with a $12,000 line.
because there was snow, right? But because you and your partner are in it and you know exactly what’s going on, you made the decision. And this is a decision I do often in, in our property management company to buy a tool, train a person so we can do it on our own, right? I can tell you that on our properties right now, we got to the level that we hardly ever use plumbers.
We I went out and I spent the money and we bought the big sewer machines and we bought the pro press machines and we brought all the tools that we need. And our guys, we trained our guys to do all this things. So now I only call a plumber and, plumbers right? They usually come in late, do a shitty job and and then charge you an arm and a leg, right?
So we hardly ever use plumbers unless there’s a requirement for a licensed. . Absolutely. Yeah. Those are the kind of things that really make it very attractive to have your own staffing or own people. Absolutely. Hands down. And, I think, Joseph, to your question earlier about do I ever see myself starting a property management company, the more you concentrate on one particular market, the easier it is to do that. When you have properties and you joint venture on the GP side in different partnerships in different states, it becomes harder to do that unless one of your partners whose boots on the ground like. , almost all their assets are there, then they can start that PM company.
But it does require a commitment to a particular area where you get the efficiencies of having your well-trained people stay with you and manage multiple properties for you. Yeah, and there’s absolutely truth to that. We’ve heard a lot of numbers, a thousand, 1500 unit and so on portfolios.
But what I learned is it’s not about how many units you control, it’s about d. , right? Yes. If you have a hundred unit property in 10 different states, you might have a thousand units, but you don’t have enough to have your own property management cuz there’s just no density. Exactly. So when we got to about 500 units in one market, that was enough for us to say, okay, we’re gonna get a regional, we’re gonna have our own staff, we’re going to control all these things.
You’re absolutely right. It’s about density. It’s not about the total number of units you. a hundred percent. Awesome. I take pride of not sugarcoating things in this podcast, but how about you tell us a few horror stories from your experience? It’s not to scare anybody off, it’s just to show that it’s not always rainbows in lollipops.
So tell us a fewer stories and how you dealt. Sure. So I can tell you, for all of us, the pandemic was a horror story, right? I’ve always basically said if you pick really strong markets and have a really good strong tenant pool, you can weather just about anything unless there’s a, some kind of major national crisis.
But I never thought we’d actually see a major national crisis. , just having to really handle the balance of needing to make a return for your investors. Needing to employ all of your partners and your property management companies, and also be very compassionate with people and tenants who are going through really life-changing.
Disastrous situations for their own finances across, much of the country was really difficult. I think this last year for me as an asset manager was harder than most years that have one-off things because it was such, such a massive scale where we had to say, how can we be proactive, be good to people, still get them to pay so that we can pay our mortgages and not have to go into forbearance.
and still operate in an efficient way, for our investors. So we rose to the challenge and thankful, we were able to get really lean and really creative because when disaster happens, you’re forced to get creative. You have to say, how can I not? The sky is falling, all these things, but it’s like one at a time.
How can I get ahead of. Anticipate what’s coming, anticipate the worst case, and then start moving proactively to take steps to make sure that things are okay. So the pandemic was tough. We got very lean where we thought we were lean before, you talk about operations and property management company wanting to save money.
We realized we were not nearly as lean as we thought we were. We were hardcore renegotiating all of our contracts, snow removal lawn care cable, everything we could renegotiate. We renegotiated. We got very good with tenant communication and being proactive. We got very good with taking a little more time to write letters to our tenants that were that showed a personal side.
We got much more proactive in showing the community we care. You think you’re gonna show the community you care? Do you think they’re gonna update the units? You’re gonna add these dog parks and they’re all gonna be really happy even though we’re raising the rent a hundred dollars or $150, or. But when you start to be proactive and you show them, Hey, we care about you and we’re gonna show you.
how you can apply for P money if you have a small business, how you can apply for unemployment benefits, how you can go to these agencies that will help you with rent when we bring in a food drive to bring, kids breakfast cuz their parents are at work and they’re not at school doing those kind of things.
Really forces you to really think about community because keeping your existing tenants is as much a part of your profitability as just making the properties nice and hoping you can get your tenants out and bring in a new tenant pool. So the pandemic was so many. Small disasters all at one time. People getting sick, PMs getting sick, maintenance, people getting sick not being able to get AC supplies when AC systems went out during the pandemic.
Not being able to get replacement windows when someone breaks a window or replacement appliances. You gotta get really creative, you, you hire better maintenance people. You beg and plead and pay extra to get appliance servicing companies to, to put you first, so this year alone was a lot of little things.
That were a challenge, but we rose to it and I feel man, if we could live through 2020 and early 2021 and be more profitable than we projected, we can do anything. Joseph. Yeah. . That’s true. We definitely had a lot of lesson learned in this last year and a half. Sure, absolutely. But you segued into the third part that I was looking for us to explore, and that is retention, right?
So let’s talk pre covid and post covid, right? What kind of things do you guys do in your communities that encourage retention? Because we both know that leasing is easy, it’s keeping the back door closes. The challenge and if you don’t keep the back door closed, it doesn’t help that you lease 20.
If you lost 19, you just spent all that money for a positive one. A hundred percent. So yeah, potential. Sure. So I, I think because a lot of syndicators are really only focusing on, let’s get in, let’s flip the complex, let’s execute our value add and let’s get out. They’re really not that worried about retention.
You don’t hear very many people talk about it cuz it’s. We don’t wanna retain those tenants. We want those tenants that aren’t paying enough to leave and we wanna replace them with new tenants that are gonna pay a lot more. And so I don’t see a lot of focus on retention, honestly. I am more of a hybrid buy and hold and value add investor.
And I have different models, right? So for the stuff that I’m buying myself or with joint venture partner, We want something that has a value add, but rather than selling it after we’ve done all this hard work and then having to find another one, we refi and we keep the property for 10 years. Yeah. And so for those properties, we’re really focused on retention and. . One of the ways that we really do that is we make sure that we don’t get so greedy that we bring all the current tenants at market. We wanna get them a, we wanna get them closer to market, but we want, don’t wanna make them at market, or they’re just gonna leave and go to every other complex that’s like ours, right?
We want them to know that we are rewarding them for being a good tenant by keeping. Slightly below market, but we’re still doing things for them. So we might give them the opportunity to move into a newly renovated unit that we’ve already redone in the building at a discounted price off the new rate.
Or we’ll do something for them while they’re still there. That gets tricky, Joseph, because. . You don’t want contractors in there while your tenants are there and moving things around. But if we can keep a really good, strong paying tenant happy by giving them an accent wall in their living room, or doing a backsplash for them, that’s gonna go a long way for them staying there and being willing to pay a little bit more rent.
So that’s one of the things in some of our larger complexes, we really focus on community and we really want to make a difference. The one thing that’s super important for me is I grew up in section eight housing, right? So I didn’t have anybody to really. Pour into me. My mom was a leasing agent in our section apartment complex, and then at night she was a waitress and I babysat my six siblings five siblings and me.
Sorry. And the only really reason that we had it okay, is we had people coming in and pouring into our apartment community. So we had churches that came in and they would do afterschool programs and they would help us with our homework and things like, So that really made an impact on me.
And so in my bigger complexes, Joseph, I wanna partner with other community organizations that will come in, organizations like the Children’s Hunger Fund. That, like I alluded to during Covid, when parents aren’t able to be there and their kids are home, they’re bringing meals after school lunches, or they’re bringing backpacks filled with school supplies for the kids.
, that kind of stuff really makes the community understand that, wow, these people really care about us. They’re pouring into the kids, they’re getting other people to come. , homework and tutoring, giving job skills classes, computer classes. We did a couple of things. One thing I was really proud of, I have a friend who is actually an international best selling author and speaker, and he is a business consultant.
So some large Fortune 500 companies. And he does talks on things like change management and stress management for employees. We did a free Zoom where we got him to come and did a zoom for all of our tenants to help them to deal with. Major challenges beyond their control and how they could have some stress relief and things that they could do to be able to navigate all the challenges that of Covid, and that was very well received by our tenant.
So just doing things like that don’t necessarily cost a lot of money. , they don’t make you not be able to pay your investors. You can still meet your returns and still find creative ways to build community and to build that goodwill with your tenants that even when you do start to raise their rent, because you have to, right?
Yep. They don’t mind a little bit of rent bump because they know this is a community that cares about us and we’re safe here, and they’re gonna. Yeah. That’s great. I like the fact that you incorporate local organizations to come and help. And like you said, sometimes it’s not a lot of money.
It’s just carrying and putting the sweat work, right? Yes. Last Thanksgiving in our area, we got one of our vendors to pitch in and we pitched in some personally into this. And we bought, we went out and we negotiated a deal with a local grocery store and we basically put together about a hundred Thanksgiving meals and we just, and we started by just giving it away to residents in our community, but then it just grew out of it, and we ended up delivering meals all over.
I love that. So that’s and it’s really great because obviously you do great with the people that get those meals but just looking the faces and the looks at our team, our employees, our team members when they hand over a meal to a resident and they smile and they’re so happy.
Yeah. And I’m so thankful that. priceless. And again, that’s amazing and it’s not a lot of money. It’s really not a lot of money. Surprisingly, not a lot of money to put together. A, a basket like this is 10 bucks a basket. It’s not a big deal. Do you think, how much does a tenant turnover cost you, to your point earlier?
You’re gonna spend a thousand, $2,000 to turn a unit oftentimes, or more than that, even depending on what it is. And if you put that amount of money, you got 200 units and you spend 10 bucks a piece. For the cost of one turnover, you’ve made 200 people’s a day. You’ve made them happy.
Yeah. And how many people that thought about moving aren’t gonna move now because their management brought ’em Thanksgiving dinner. Yeah, it’s huge. . Absolutely. Yeah. So we, yeah, we were driving over trucks full of turkeys. That’s awesome. That was great. Okay, so I wanna be conscious of your time.
One question is that I like to ask everybody is if you could just go back 10, 15, 20 years to young Anna and talk to yourself. What advice would you give yourself? And let’s assume I say that to everybody. You can’t tell yourself that 2009 was the bottom by everything. Okay. . , that’s the obvious one.
Yeah. I would tell myself a couple of things. I would say don’t give up when things are hard. Learn grit and resilience much faster. , learn to get off of the ground and put yourself back up on the horse quickly and not wallow in. This is too hard. I’m gonna take a break, right? , I had so many challenges and we only touched on one being covid, right?
But we’ve had fires and floods and hurricanes and lost roofs and hoarders and drug addicts and all kinds of stuff. All happened at one time while working and while having kids and running a business and just think. , this is hard. I can’t do this. It’s much harder than it looks in TV and books and all that, right?
Yes. There were too many times where I took a break. I’m like, okay, I’m not buying anything else. This is it. I’m just gonna keep what I got and not keep growing because it was just hard, right? Yep. So it took me a few of those hurdles before I realized I can tackle anything. , anything that comes, I’ve got what it takes to get creative and to figure it out.
So the faster I can bounce back, the further ahead I can go and those things that seem like huge challenges are really where it grows character and wisdom, and makes us a much better investor as we go. So that’s one thing. I think the other thing I would’ve said is partner with people much, much faster.
We did not partner with people in the beginning. I was jaded a story for another time, but I hired a coach who was a fraud and it jaded me from trusting other people. And we were, we did everything from buying them to financing them, to property, managing them. So working with contractors and renovating them, everything on our own.
So I learned a lot, which was really good, right? I could swing a hammer and do just about anything needed, but I, my growth was slow. It could have been so much faster if I would’ve partnered with other operators and gone bigger, faster with other operators. Instead of trying to do it slowly all on our own.
So yes, there was benefits to taking the slow route and I learned more and I quite frankly created more wealth that’s in our own family’s coffers, cuz I didn’t have to split a bunch of deals that we sell every three to five years. . But if I had started partnering earlier, I would’ve been home with my kiddos faster and I would’ve scaled a lot faster.
That’s really great advice and. To St. What you said a little bit earlier is kind if there’s any industry out there that will keep you on your toes, this is it. We learn something new every single day, and there’s, it’s because we’re not in the building business, right? Everybody thinks that real estate is about building, but no real estate is about.
Yeah, it’s a people business and when you work with so many people over so many years, they are bound to surprise you. There is always something new, something that you can’t figure out that anybody would ever think to do. They find a way to do it. Yes. And sometimes it’s frustrating, right?
Like when you walk into an apartment and a person that hasn’t paid rent and there’s a 65 inch LD TV brand new box, just because they got the stimulus right? And he goes, I can’t pay rent. It’s sometimes it’s frustrating and sometimes it’s heartbreaking and sometimes it’s Joyce, right? So definitely a rollercoaster of an.
all the gamut. And for me it, it’s the most important part. When you talked. Do I wanna grow a big property management company? Yeah. Either there’s things that you can do with your time to, to make more money. But there’s things that you can do that, that are so rewarding that don’t take a lot of money.
And so being able to, like you said, you have a tenant that bought an l e d and I’ll give you an example. I have a tenant who I know. , they were collecting unemployment even though they were still working and not reporting things right. And I gave them, I gave my tenants most of my tenants on the properties I don’t own with partners.
I gave them 10% discounts off their rent for a few months if they paid on time to encourage them to pay rent on time during Covid. So rather than take those discounts, they’re like, oh, now I’m not gonna pay you for two months, cuz there’s an eviction moratorium. And you can just tell your lender, you don’t wanna.
and I’m like, you got a new TV in there. I gave you 10% off of your rent for months. You can pay me. You’re just pretending that you can’t. And I was angry, right? Part of me’s angry, but then I think back, okay, she’s a single mom, she’s got two kids. My mom was a single mom and had five kids, and I know she worked so hard to take care of.
But she had no financial literacy, no financial acumen, and it’s fight or flight. It’s do what you have to do to survive, right? And this mom’s probably still worried that she’s not gonna keep this little part-time job and she’s not gonna be able to feed her kids. So what can we do? I helped her instead to find a way to get rental assistance.
waived all the late fees and now I’m working on bringing her some resources to teach her about budgeting. So it’s things like that. Do you get mad and you kick ’em out, or do you wanna make an impact on their lives and show them how they can do things differently without having to play the game?
Yeah. And spend the money so they don’t have to pay rent. So it’s important to me to be able to take those kind of challenges and really say, this is people business. How can I be good to people? We’re so thankful for our tenants, right? A lot of times people are just like, they’re just the people that are bringing us the checks, but I have financial freedom today because I have tenants that trust me to provide them good housing.
So if you can be a good person to your tenants, They will stay and you’ll be rewarded handsomely. It, it’s a full circle. It’s a full circle. The better you are to people in business, partners, investors, property managers, your staff and your tenants, the better you will do and the better the world will be.
I really believe that. I am a very big believer in karma. That’s what you said is absolutely true. I wanna thank you so much for being on the show. How can our audience find you if they want to invest with you, if they wanna reach out? We’ll put all the links in the show notes as well.
How can we find you? Sure. Great. Thanks so much, Joseph. So my website is greater purpose capital.com, where I really focus on buying properties where we can invest for meaningful impact in the lives of our investors and our residents as we’ve talked about today. And my email is info r ei mom.com. My Facebook is anna r e i mom.com.
And the same for LinkedIn. Awesome. Thank you so much, Anna, for being on the show. It was a great pleasure. To have you. Thank you so much. It’s been my honor and my pleasure as well, Joseph. Awesome. And for you, the audience, if you wanna hear more of our episodes, you can subscribe on iTunes, SoundCloud, Stitcher, wherever you consume your podcast.
And we’ll also very appreciate if you can give us a review, one star, five star, make up your own stars, whatever you feel is right. And until next time, thank you so much.

Episode 120: Feras Moussa
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Welcome everybody to the Apartments Operated podcast Today we have another wonderful guest for us.
Musa is with us for us. He’s the partner of Ben Settle, that used to was a guest on our podcast about a year. and would love to hear how you guys are doing today and what’s been going on in the last year. But before that, give our audience just a quick minutes about who you are, what you’re doing, how your portfolio look like, looks like today.
So they’ll have a background. Awesome. Thanks for having me, Joseph. Definitely appreciate it. Glad to be here. For those that don’t know me, my background’s actually software and I’ve been doing software all my life ever since high school. Had my own little web company and.
College happened. Then I went, worked at Microsoft and left Microsoft had a software company and now I do real estate. I tell people, I started really, I was looking to invest my own money, right? And learned a lot more about real estate and learned about syndication and loved it cuz it’s people’s numbers and systems and so that’s where fast forward a little bit, right?
Started disrupt equity. Clearly the name Disrupt is a tech spin, right? That’s where that originated from. And I left Microsoft with a vision of building software in industries that don’t have it like real estate. And I’ve since learned the opportunity is more about tying everything that is the Norman Tech and applying it to industries like real estate.
And so that’s big part of what we do and how we’ve done it right at Disrupt equity in terms of just leveraging most of the stuff that’s out there, but tie it in a way to really make a compelling package. And so today disrupt equity. We’ve done many deals full cycle. We currently have about 1500 units that we own and manage right throughout Texas and Atlanta.
And then we also have disrupt management that does third party management, and that’s about 2,500 units as well. So that’s maybe a very short, quick two minute bio. So happy to drill in anything. Awesome. Perfect. I heard you say you have your own management company and I heard you say you have 2,500 unit under management versus 1500 that you guys currently control, which means you’re doing third party for other people.
So we’re definitely gonna bid into that one in a few minutes. But let’s get started with have you always had your own third party management? No, we honestly started ours outta necessity. We, like I said, we’re in Texas and Atlanta and we’ve had throughout our history, five different management companies.
So we’ve seen the good, the bad, the ugly, and ultimately to me, management is a very dated business, right? There’s not a lot of. Companies that have really thought through management and modernizing it. And so for us, we started management out of necessity just from the pure neglect that we saw happen on our own properties.
Just, clear negligence. And so that’s really the, and it’s something that we knew we would need at some point, right? You’ll outgrow third party management if you’re not happy with it. And. That kind of accelerated things and really just brought on our own management.
So we met someone that had our own management company, Joseph, you’ll know as well as I do, management’s a hard business, let alone a bad business. But we’ll get to that. But it’s a hard business in the sense there’s so much going on and you really, it’s hard to just, if you’re a syndicate or an operator, it’s not trivial to go start your own management company, I’ll be honest.
And so for us, we had someone that had her own management company took it from zero to 10,000 units before, right? So it’s not her first rodeo. And , that’s the brains behind that. We just jet fuel it and really build up a lot more of the systems and processes. So yeah, we started ours out of necessity right before Covid hit back in January.
So that was a, the, maybe the right time, because honestly, sometimes I cringe thinking what would’ve happened if we were stoned to third party management? So it, it’s amazing how our stories. Similar. . But we took over management February 1st, 2020, and then Covid happened, and then for the first few months you look around and you think to yourself, so that’s just the worst possible timing to choose to take over management.
That was the worst decision. It’s the worst timing. And then you look back at it and you say, the best thing that could have happened, because with the third party, there is no way we would’ve. No, I mean they just wouldn’t have cared for things, right? There’s no thinking outside the box and some of these companies are borderline criminal too, right?
They would bleed you to death. It’s easy and I tell people, and I see this because whenever now there be third party managers really interesting cuz we take over from other management companies and you see the same pattern where the owner puts pressure on the management company. , the management company reacts and does a heads in bed, goes, gets temps, goes, gets, whatever.
And really jacks up between temps and locators, spends a hundred grand, gets the property occupied. Most people can pay for a month or two. It’s hard to find people that’ll pay for 12 months. And, you just see that. And so then you just see this pattern where like you can literally see it in the financials, right?
And then in the delinquency and in the ap and then, a few months later, they’re pissed. Everybody’s pissed. That’s whenever they bring us in and then we’re having a mop up. And, that’s what we saw on our property. That’s what I’m saying on other people’s properties. And this is where you as a property management company, have to give the owners cold hard truth.
Like literally you have to give ’em the information they don’t want to know sometime or who want to hear, they need to know, but don’t want to hear it. And really just talking to them about the fact. Hey, here’s the right way to do it. It’s gonna take time. It’s not a quick situation.
And here’s the data that shows it. Yeah, it’s hard to realize that when you’re on the outside, but when you have a hundred or 200 in the property, it can spin out of control and drop 20, 30% occupancy in no time in a matter of months. But it can take over a year or sometimes. To recover from that 34 months of spiral.
Yes. So it’s hard to see that from the outside. No it’s so true. And then I’ll give you a real case study, right? A deal that we third party managed, took a portfolio for this client and, and one of the deals, they closed on it in the spring, right? Four months later they took, we took over and I ran the numbers for them.
I’m like, so here’s the numbers, and this I ran these numbers four months after takeover. So about. After they close on it, and I’m like, the previous management company moved in 54 people. Of the 54 people, 23 of them are, large have been evicted or skipped. The other 23 of them are large balanced delinquent.
So 80% of it is garbage. And I can’t really say, look, our occupancy. It’s not as high as it was before because we’re having to cycle all that people, but we’re collecting more money, right? So the numbers speak for themselves and really, and just explain, hey, it’s not trivial to replace 54 people on top of renewals, on top of leasing.
So it’s a whole system and it takes, to your point, it’s easy to destroy a property two, three months. It really is. And also destroyed in a way that as an owner, right? Like I felt like we did a good job in asset management. We were all over things. And what I realized in hindsight is most management companies don’t even track what they’re spend.
And you don’t realize it until two months later. Whereas for us, I’m manal about the team creating pos, creating invoices, and we know beforehand, right? And even on that same deal, there was about $200,000 of new AP that came in after we took over. That was never on any books. And so as an owner you think, hey, they’re doing an okay job.
They’re not spending that much money. But then as the dust settles, you see all these problems. And yeah. And again, when it’s not their money, then the spend is. The maintenance guy said we need a host. This is a true case, right? The maintenance guy said, we need the new host, so we’re gonna go buy a new host.
Oh, but we just bought one last week. What happened to it? The other maintenance guys have it, and I don’t know where they are, so I’m gonna get a new host. It’s no, that’s not how it works. But that’s when it’s not your money and it’s not, nobody cares then yeah, get that on, on a two jetting machine.
So yeah, I know what you’re talking about. Yes I have stories like that as well, but what I like hearing from you in, in, and this is really echoes with our experience, is, The care. Now, what I found is that the industry compensation model for property management is just wrong. Now, I’ll be honest with you, I don’t have the solution, right?
Because I’ve been trying to rack my brain around what’s the right way to do it, and I don’t have a solution. If I had a solution, I would be a billionaire. I’m guessing, right? But the challenge is that they get paid off the. And they get paid a very small percentage, but as an owner, the interests are not there.
So for example we had a property where, long story short, $25,000 a year were not billed or collected. Of course, if it’s not billed, you can’t collect. For us, $25,000 a year at a six cap is about half a million dollars worth of value to the. So the ownership, look at this is oh my God, it’s $25,000 a year.
It’s a lot of money for the management company. $25,000 a year at 4% is a thousand bucks. It says hundred bucks. It’s 80 bucks a month, three hours of work for one employee. So if that, in order to get that $25,000 a year requires more than three hours worth of work for an. , it’s not worth their time. No I agree with you this and this is the problem.
Okay, so this is, I still struggle with this because, for us, we’re super transparent on our fee structure. That’s by design, right? Like I’m an owner and it’s got the disrupt name to it. So I really care a lot about the brand and everything else. And what I’ve seen is that, The industry sucks because the margins are razor thin and therefore most managed companies will pack anything and everything.
That’s pretty questionable into the financials, right? Because again, 300,000 comes in, 200,000 goes out, it’s right. And, they’re they’re really making their revenue on other things other than the management fee. And whenever you’re very transparent and your revenue really is the management.
It’s a hard, sometimes a hard to explain owners like, look, yeah, we’re maybe a quarter of a point higher, but really that is all we’re taking. Like we’re not, taking all these other points that these companies make up a marketing fee and this fee and not doing anything for it, right?
Yeah. It’s a weird business in the sense that I’m surprised the margins are as tight as they are because it really, it, the margins are razor thin for a business that is, really so complicated. Honestly, it’s complicated, but there’s so many things that have to happen. Yeah.
But it really it’s, the margins are where they cut the corners. Unfortunately, that’s the problem. Instead of having a qualified account. Doing the work. They have somebody that is not certified, that does not have accounting education, and a lot of the time they mess things up. One of the things that one of the property management companies we fired before we took over they, I used to say they’re playing pay.
It’s every month they spin the wheel to figure out where they’re gonna put the pays fees under which ledger account, and you would find them randomly across all the ledger accounts. So it’s kinda like that’s the kind of things where they cut corner to make a little bit more money. And like I said, I think the compensation model should be different.
I wish I could had the formula for now. There’s not a clear way to do it, yeah. It’s tough because even on, okay, everyone says the golden thing is noi, but it’s also easy just to say everything is capitalized and now you’ve fudged with that, or you know you’re doing it property that needs 10 times more focused.
Cuz it’s a big turnaround. I mean that also can’t be an, a wide treatment. It’s not fair to the management company. And if you’re also focusing on, in Hawaii, nobody would ever take over at distress. No, that’s exactly it. That’s what I mean there, there, those things need so much work, right?
So why was negative was zeros like. You’re not gonna take it over cause you’re not gonna make Yeah. And then that’s where even as a management company, there’s the big difference between getting a property brand new that just got acquired and having a clean slate versus taking over from an, a previous management company.
The client’s already been as, Ja as the Jackie, the president of our management company. Say they’ve already been burned by their girlfriend. So now you know you’re the next one up and they’re already antsy and they’re, questioning everything and just, they, you start off with an uphill battle of everything.
They’re probably in a payable situation. They’re probably cash neglected. They’re probably, gonna have, just delinquency problems and turning units and getting, just cycling tenant base. Plus, they’ve already lost trust and confidence in management. So you have to regain that.
It’s to me, those are very different situations and it’s really hard. To jump into one, whereas the other one’s a lot more straightforward. So yeah, it’s a weird business. All I’ll be honest. . Yeah. Awesome. So I get to ask you questions that I don’t usually get to ask. Most of our guests, cuz they don’t have their own management company it’s usually we found that once our guests have crossed a thousand or 1500 units threshold, that’s where they’re starting to think or implement it.
Their own property management company. But you have that perspective, so it’s awesome. So we can start talking about that. So we had a similar situation to what you described earlier. We had a property that in a certain period of time I don’t remember, four or five months, we moved in 58 people.
We moved out 55 people. At an average of about, let’s say $2,000 a turn, if you include payroll and everything into it that’s a hundred thousand dollars invested for a net positive three. Yeah. That’s a lot of churn. That’s a lot of trying to, you have that nice ocean background.
I’m scared to go. Yeah. And I’m scared to go do that same number on deals that we had before. We did over management too, because I’d probably cry a little bit. Yeah. Yeah. So you look at this then and you say, what are we doing? We spent a hundred thousand dollars for net positive three.
That doesn’t work. And that usually happens because everybody’s looking at the front door and what comes in and traffic and leasing, but nobody watches the back. . All right, so there’s a little bit on the front door, making sure that you screen a little bit better and you qualify a little bit. But there’s a lot on the back door right’s, a lot.
I That person that made it to that and that person that made it to that back door has already proven themselves. They already, they’ve already been there for 12 months. Yep. No, I think a lot of these companies are very reactive about just renewals, man. I’m pretty particular about renewals and we track that in our weekly report and just front and center.
Because to your point, if I could save that, I and some owners, it depends on what the strategy is, right? But for guys that are in it, for the cash flow, they’re gonna be in the deal for many years. They’re not in it to just to show look. The top dollar lease in my market for the last five leases.
Therefore, the next guy can hypothetically get that right. Take that off the table, I mean to your. , I can not have a unit vacant for a month and have to go release it and save the two grand, right? Yeah. And maybe I, I don’t go up an extra $25 a month of rent, but guess what, 25 times 12, that’s $300 a year.
I’ve already saved four x then on the turns. And so yeah it’s painful. And this is where I tell people there’s a cost to moving in low quality people. The time that is the property, the unit sits vacant and the just the headache of. Getting that personality, getting the unit turned. Because the other thing too, and I’m sure you’ve experienced this, cause again, I’ve experienced it on our own assets, is it’s so much work to get a property from 85 to 95.
But if you, but staying at 95 is cruise control, right? Because again, you’re psych. Cuz now you have so many more turns, so many more leases, so many versus, hey, once it’s stabilize, You’re just renewing, you’re moving in a few people, you’re cycling a few units. It’s less work for everybody. And there’s a cost to that too.
Exactly. Yeah. So let’s talk about that. How do you guys, in your organizations, for your own properties and for your third party, what do you guys do to watch the back door? The, or in other words, to increase retention? Yeah, we ab I, I’m pretty particular. They start renewals three months in advance and we grill them every, it’s literally front and center data point.
And I even have property level report cards internally that we go through all these key metrics. And every time I think of something I’m like, Hey, that’s actually a good data point and get that added to their report card. But really tracking the stuff three months in advance, working the renewals, and then figuring out different incentives, right?
And really letting managers know, Hey, you have the flexibility to close this. Here’s your range to get it done. Because there really is a mathematical, mid and max that you need to renew that person at. And so they just need to land in there somewhere, right? Everybody’s happy.
And so you start at the top and then you just taper down. But to me though, it’s, you can’t re, you can’t do renewals 30 days out. You already lost that person, man. People that are. Quality people are gonna already have a plan within 30 days. They’re not gonna, Hey, 20 days.
Yeah, I know. I’m supposed to move out in 20 days. Yeah. I’ll stay. That’s not gonna happen. So really working it early on, getting the managers to have that range and incentivize the managers too. We pay for renewals. Cuz again, there is a cost to that. And even educating the staff at how much life they’re.
How much life they’re easier how much easier their life will be if they get the renewals right? Yeah. Because again, that means, hey, guess what? That’s one less thing for you to turn. Hey, guess what? Maintenance guide. I That’s one less thing for you to turn, right? It’s just easier for everybody. And so we put a big focus on it in general, right?
In terms of just really working it and every week going through, Hey, what’s our renewal and what’s the status on each one of these guys? Okay, so our philosophy is that. Renewal doesn’t start 30 days or 90 days out, right? Renewal is something that is a full year thing. If they had a shitty moving experience, they’re not gonna renew.
It doesn’t matter what you do 90 days out, I right. If they don’t get their maintenance request done on time, they’re not gonna renew. If the maintenance guy came in once in the entire year, but left the apartment dirty with mud on the floor, right? They’re gonna have really bad taste in their mouth and it’s gonna be hard to.
The way we look at it is like from the moment they move in, we work on the renewal, right? We focus on retention. You bring up a good point, and that’s actually probably something I just glossed over. You’re absolutely right. It start it’s about, in the end of the day, you are providing a service to the tenants.
You have to realize that, right? The renewal is the carrot. But again, if they’re already pissed off, it’s already a uphill battle. And it’s funny you mentioned the movement. I learned that trick from our first asset manager that we had many years ago, right? Whenever he would go on. He would actually, this is whenever we’re the silver third party, he would ask them for their last 10 move-in condition reports.
Because guess what, if a tenant is complaining like, I got a hole here, this doesn’t, their move-in condition shows the quality of the unit. You already started that relationship on a sour footing. Yeah. And so for us we actually do have a process for basically, after people move in 30, 60, 90 days, we do follow ups to figure out just what’s going on, what’s painful, what’s not, and then just tracking those work orders and just really being particular about that.
Cuz yeah, I you hit it on the head, right? If they’re. , the price is the last thing that kind of really, you gotta go home run, but you gotta keep it them satisfied beforehand. Okay, awesome. You started to mention that in, in the last few minutes about reports and KPIs. So how does it look like for you working with your team as I’m guessing you still do the asset manage management side of things.
So take off your manager hat off and put your asset manager off for a second. And how does it look like working with your team? How often do you talk to them? What are you looking at and how do you encourage them or steer them? Yeah. So for us, it’s a good question for us, we started our management company with the plan of it being third party, and I treat it as an independent entity really in the sense that our asset manager’s offices over there, property managers down this way.
And they are two different. And they very much, they still get on the weekly calls. The calls are all recorded. I still listen to them whenever I feel like it and expect them to still have that separation. It’s not a big blur and I really don’t want it to be a blur because I want this guy picking on this guy if he needs to, and vice versa, right?
, there needs a healthy banter, healthy candor there, and so it’s very much the asset manager has the things that he’s focused on. What are we getting on renewals? How much did we get on renewals? What did we get on premiums? What are we spending to get these upgrades? Like really, doing asset management level.
All the property managers focusing on property management things, are we collecting what we’re supposed to do? We have the processes for anything and everything, right? And really, doing operation level thing. And so they are two separate things. And then, we sync, Ben, and it’s funny, me and Ben have divided it up too, right?
Where he syncs with the asset managers helping lead that. While I’m unfortunately stuck on the property, I didn’t really help him build that out. Cause that business got, there’s so much process and stuff to build there. And yeah. That kind of keeps it separated to some sense too.
And then, me and him can be the continuity of, where we gotta make everybody happy, keep everybody aligned kind of thing too. Gotcha. Okay. , you mentioned you do, you have about a thousand, if the math is at about a thousand units, you do third party four third party, I mean by the, so I guess one thing I didn’t mention is we do not manage our Atlanta portfolio.
So that is, we have not taken over Atlanta or anything like that. So that, so we third party about 2000 and that’s, have a few more coming up here in the pipeline. And then of that, 2003rd party, a thousand are first party, I guess that’s what you call it, right? Why
Why third party? Why take ok. That’s a good question. Why take somebody else’s headache? I know we got corners. The question, we got cornered to do own management and, I took the pain because I had to, right? It’s our property is our investors. I’ll do whatever I have to do, but why take other people’s headache?
It’s a good question. I ask myself that every day, almost, and I’m like, man it’s a hard business in a lot of ways, but it helps me manage my properties better, right? And what I mean by that is it gives me scale of resources, scale of, backend and being able to have more reach across the ecosystem, right?
I can see more deals. I know what deals are having problem, more, you hear more just by the access you have. And so it gives me operational efficiencies, right? In terms. Hey, if we’re doing an upgrade instead of buying, I’m the kind of guy that once we have enough scale in a market, rather than buying, 150 faucets to upgrade 150 units, I’ll go buy a container of faucets and do it across, get a couple of other buy-ins from other owners saying, Hey, here’s what we’re gonna do.
We’re gonna buy a container, it’s gonna cost this, we’re gonna charge this premium for doing this. Being very candid, transparent, but ultimately you’re, set up paying Home Depot 20. You’re getting over for 15. Are you happy with that? Yay, nay, let’s go do it, kind of thing. So I think it gives us economies of scale.
I can go get, to your point, if you’re managing 400. , that’s what, three properties? Maybe three, four, and I don’t know the size, but ultimately you can only get a landscaper to bid three, four properties. Whereas if I have 15 properties in the market, I can have a lot more influence, which ultimately results in.
better management for my own assets, right? Better performance, better pricing for my own assets, as well as third party. So it’s almost it’s like I say, it’s a necessary evil sometimes because with scale it gives you other both problems, but other benefits. And if a manager leaves, you can shuffle people around a lot more effectively.
Whereas if you only have three properties, a manager leaves, you’ve lost one third of your leadership. Yeah. Things like that to think. because the other problem too, actually I’ll say this and I think this is funny, and you’ll probably appreciate that. The problem with management is really a good manager quickly becomes a supervisor or regional, right?
And a bad manager doesn’t stay there very long. And so that role is always a role That’s like a, the good, very rarely do people stay in managers, right? They’re good, they go, they’re bad, they’re gone. And so it’s a one, one little trick that we found is good for a manager position is to.
An older supervisor that wants to take a step down, you hit it right on the head. And we have two exact situations of those. That’s the best, that’s the best for property manager position. No, and it’s funny because we did that and then that manager, now we talked her into being a super, cuz she’s really good, right?
And so now we’re like, look, we’ll keep it, we will reduce the travel, but like that’s, that worked out amazing on one of our properties. And now we have that again. And then there’s a question of can you have. A person that is a manager, but you know, regional material, they supervise another manager to where they’re almost like a remote Yeah. Site manager, supervisor. Yeah. So yeah, I, I’m multi-site, I’m trying to figure those dynamics out. But to your point, that is the best one. The one that, they don’t need to make as much money, they just want stability, simplicity. Yeah.
And. Don’t wanna take dump travel. They just wanted, no, we had one that just whipped the property like night and day and 60 days. Amazing. What, what was done on that property? So just cleaned it. So yeah, that’s send her our way, . So I’ll trade you one . No, that, that’s, yeah. That’s funny that you said that cuz little that’s been, that was in the back of my head last week.
I’m like, this is the best kind of supervisor or manager. Yeah. No and again it’s a, it’s like a a. Weird situation in our business, right? We buy five, 10, 15 million properties and we end up putting a 40 or $50,000 pay grade to run the show. Yeah. Eh, but the finances can’t afford having it a hundred thousand cause making 50, 67, $800,000 decisions each month.
And one, like it’s crazy to me and. Yeah, but that’s just across the industry, that’s the standard, right? I haven’t seen a lot of properties where you have a hundred thousand dollars managers on them. Definitely not in Texas. No. No. And that’s the kind of things again, more of the challenges of the industry.
Let’s switch to some of the questions that we ask all of our guests, right? You guys do a lot of value add right from the eyes of an. and now, and you have both the manager and the asset manager and the property manager perspective. We’re gonna look at income and we’re gonna look at expand separately.
So let’s focus on income for a second. What are your go-to methods to increase income that is not increasing rates and applying ropes, everybody does that. Give us a few creative ways where you guys found you can add value and charge more. Yeah, no, so there is, there’s some things that people like.
Like one property, we got this idea from a property we bought and took over, like simple things like a tech package, man, you spend 150, $200 and some people will pay $50 a month for that. That is a very good roi. What is that? What’s in the package? Oh, you’re putting in like an Nest thermostat.
You’re putting in August door front lock and. What’s the third thing I’m missing? Oh, like USB outlets, like very simple things to do. Takes a maintenance guy, 45 minutes, an hour, all in. It’s really the equipment, but then people will pay you that premium and I’ve seen that. Other things, that are easy are carports, right?
Like really being smart and really, we like to do three tiers of parking, right? of Having, I forget the terms that we use, but essentially, There’s cover, there’s premium, and there’s standard. So premium is that spot that everybody always wants. It’s right next to the Yeah. The, their apartment.
It’s, I can see it from their balcony, whatever. People will pay for that spot. Right. Even if it’s nominal. I think what we are good at is actually really pushing the other income piece. And you hit the easiest ones are the rubs. Like that one is just easy, right?
Yeah. But then really digging in and I like to really look at what else can I do? What CapEx can I put in, what can I get out of it? There’s other, there’s other nominal fees that you do see here and there, right? Like valet trash. I’m starting to see more of that even on the BBC properties.
And I think it’s, as an operator, it’s valuable because, the thing I hate the most is going to properties and people with their trash all over the dumpster. It’s just a, and then the dumpster company, they do their own, they really be anal with them because those guys will just throw whatever, and they’ll charge you premiums because, oh, we did an extra.
And I think there’s actually, as an operator, there’s a way to structure that to where it’s a win-win, right? You get a much better, cleaner property. You’re maybe making a few bucks on it as well. And then for tenant, hey, it’s a much more simple process, right? That’s another one we’re looking at a lot more closely.
Even simple things, man, just rebidding the contracts, right? Like we literally did that big push this past couple of months and like the, even the trash contract, we got it. 17% lowered. just by spending the, three hours to do it or the laundry contract that they say they’re paying you.
And then you go and you realize there’s a big lawsuit against the company. And then once you send them a demand letter, all of a sudden they send you 15 checks for what you owed. Things like that people don’t track, and all this stuff starts to add up. I’m trying to think of other big NOI boosts that I’ve seen.
The really, the tech one is the one I like the most lately, right? Where it’s very cheap and very quick banging for the. and you see any other big ones that you like. I’m gonna ask you the same question that I’m missing here. I will listen to our podcast and you’ll find a lot of those Uhhuh , right?
Yeah, no, it’s What we’ve seen is that a lot of the time people just split the reins based on layouts, right? This is a two bedroom. This is a one bedroom. This is a three bedroom. This is the price for one, two, and three. . But there are not only tiers, but there is like first floor, second floor.
Yes. Does it have a patio? Doesn’t have a patio. Does it have washer dry connections? No. Dry washer, dry connections, right? , all those little things allows you to set different prices for different. And that, and again, goes back to what we talked about ear earlier. A third party doesn’t take the time to do all these things.
No, they don’t because it takes time and they don’t see the roi with the way the compensation is structured. But for us, doing something like this can really help us push the rents. . And again, it’s not because it’s first floor, it’s $500 more than the second floor. Oh. But it could be as simple as $10, $20.
It absolutely adds up. No, We do the exact same thing. The first floor, I mean you hit the key one. I’m trying to think of the different, we even have like ones that are like one, ones with a study that are really like two ones and not, I and I don’t know how you guys do it, if you do it as a floor plan or you do it as a an amenity on the unit.
For us, we’ve played with both because as an owner I like to see what am I getting an upgrades for them, right? So seeing it as a separate floor plan is a lot easier than seeing, okay, our ones have these different checks, but then each one is a little different. You have to drill in we have a combination.
Yeah, I’ve struggled with what the best way to do that is, but I to your point, that’s low hanging fruit, right? Doing those kinds of things. And even other, I guess it’s thought of another one, just I like properties where I could figure out a way to add a bedroom , right? Like the converge is those are the best.
I’m not even kidding you. Like we have one where it’s literally these one bedrooms with a study and literally I had a freaking thing. I put a corner closet and boom now, and it’s actually already got a window. So it’s really a. Yeah. So now I’ve gotten that, premium for getting a two, but really it’s, it was a one to start with.
One other one I do and it only works on certain properties. We’ve done this a few times now, is getting, properties all have balconies, but finding balconies for you actually can get the enclosure right. And give them essentially a little bit of a yard. People pay up for that. We’ve got hundred $25 premiums for that.
Yeah. And. The way I like to look at where do I spend the money is the, by looking at the researchers that tell me what are people looking for. Up until last year, look the number one search item was pet friendly. So if you go on any of our property website and you look at amenities for the community, Pet friendly is the top one.
Why? Because that’s what everybody care about. Having a little yard is super important for people that have pets, right? Because you can let the dog out or the cat out without being afraid that, they’ll just run away or get hurt somehow. So again, I tell the girls in the office, when you.
For this property that have, or for this unit that have the balcony. Make sure you talk about pet friendly. Make sure you talk about the fact that it has a private backyard. So it comes down to all the little things across the board. And you men you made me think of a really good one actually, that we do.
It’s also auditing who, who’s really paying the pet feed, who. That one is an easy revenue source, right? Where like audit everything. It’s not just auditing everything, but the pet one is easy where we do quarterly inspections. As part of that, you make a note if there’s a pet, and guess what?
Someone that already has a pet, you hit ’em with a pet fee. They’re more likely to pay the pet fee than get rid of the pet . Of course, there’s always the conversation like, I don’t have a. Here’s the picture. Yeah. No, because I walk the property, I take pictures, and you always find a cat or a dog in the window, with the face smushed.
, so we also have, so we have of course, quarterly pest control. So when the pest control guy comes in, there’s always one of our guys walking with them to open the doors. We don’t send a vendor to the units without one of our, with one of our team members. So we give our team member a.
To check the boxes. Who has pets? Who’s neglecting the unit, who has a, any major issue that we don’t know of? Because unfortunately what we learned is that some residents will take a lot of pain and not talk and will not complain. And even when you ask them, they will not tell you. So we had a slab leak in one of our proper.
And we sent messages, text messages, and emails cuz we couldn’t find the leak outside. So we knew it’s in under one of the units. And we asked anybody, if you have a leak, let us know. And nobody said anything. And then eventually we found it in one of the units. They literally lived with a soaked, warm water soaked carpet and said nothing for over a week.
It’s kinda are you kidding me? . . We encourage our residents to tell us, we always do follow up on all of the work orders to make sure that we’re done. We have quarterly surveys. We talk to every resident once a quarter to get their, the feedback, general feedback about the property. And then we send our guide with the pest control guy to check the boxes, right?
If the smoke alarm is chirping, if there’s a pet in the unit and all that. But what. , especially if you are an operator that works with a third party property management audit. Everything that $25,000 a year I mentioned was a fee that was not charged. Even though it was in the lease. It was just not put into the system and without doing your ledger audits every month to make sure that everybody got charged everything then you won’t be able to get that.
and wood. Tens of thousands of dollars a year. Yeah, and it’s funny because like on the buy side you do see the discrepancies, like some deals and you’re like, man, these guys are minting other income. Whereas like other properties you’re like, this is a very similar property and there’s a $300,000 discrepancy in.
So yeah, pennies adds up into real money and I agree with you a hundred percent. Absolutely. So let’s flip the conversation to the expense side, right? What do you guys do in order to reduce expenses in your portfolios? So the biggest thing I like to tell people, Is you can spend, I’m making up numbers, 40 hours on expense control and you can spend 40 hours on income control and nine times outta 10 income is easier to get your pop than the expense side.
That’s the biggest thing we do on the expense side. That I think makes a huge difference cuz we’ve been burned by this with management companies is requiring, and I have this weekly and it’s in our report requiring pos to get. Independent of the invoices coming in, right? Because you don’t want managers just reacting, oh, I’ve got invoice.
I’m gonna go create the po. It doesn’t make sense. . But really forcing that, and then the other piece tied to that is really forcing our maintenance. Whenever a unit, someone leaves a unit, they have to go in and basically take a photo audit of the whole thing. Then they have to go put in their po.
So what they want to do, , a back office person gets to see, okay, here’s what they a we also tie that to, what did we charge on security deposits, right? Because it’s easier for someone to give back security deposit than actually try to fight for, right? We have a separate team that actually audits, security deposits tied to the photos, the condition of the unit, right?
But more importantly though the maintenance guy puts together the po I wanna buy new flooring. I wanna do a new microwave. I don’t wanna paint the walls. Back up a season and says that flooring does not need to be replaced. Like where’s the, it looks fine, right? Okay, maybe you replace one piece, but you don’t need to spend 15, 200, $2,000 to replace the whole thing, right?
So that’s one immediate way to save it. And then also, whenever the unit’s ready, they have to go do the same photo audit. So yeah, before and after of every single unit and you have pos and what should have been spent on. And even on the after, you can see did the microwave get installed or did it get stolen?
Yeah. And then that’s its own set of problem. So really, To your, it’s what you said earlier, right? The really tapering down the back door problem. Not just from a renewal, but even whenever you do have to go do the turn, really controlling that story. That’s one thing. Another one that we do is actually just across, looking at T 12 s have a separate report.
We’re looking at just variances, right? And just seeing are we seeing an uptick in water for utilities like we. Like literally have that situation right now where we’re seeing a increase month to month, which doesn’t really tie to occupants. It’s been the same occupancy, so there’s something else going on there.
And so just being aware of those, cuz utilities is where you really can get killed as well. That’s a big area that actually is worth focusing on the expense side of things. . Yep. Maybe those are some of the biggest ones that kind of come to mind that I like. Or maybe the most exciting ones.
I’ll leave it at that . Yeah. So when you mentioned the water and what one thing that we like to do is we track the meters every week because if you are waiting to see the uptick in your water bill, you’re about a month and a half too late. , right? So if we start seeing an uptick in one of the water meters, then we know we have a slab leak, or we have a leak somewhere, and we go and we hunt it down so we can shut it down as soon as possible.
So worst case, we have a weak week and a half loss of water versus. A month and a half loss of water. Yep. Not to mention all the damage that I agree. Water can create digital water meters with internet access are worth their weighting gold. They’re pennies and I log into them cuz there’s one property where we have a serious water leak somewhere and it’s killing us.
Like it’s, mean it’s a thing that, we knew the property had it when we bought it. Cause we have two properties not far from each other. One’s got 50 more units, but it’s got. 2.5 x the water bill, like it is just there. Literally the per unit on that is like $150 a unit of water.
I, and we’ve been, we’ve gotten water leak detection companies and all sorts of stuff, but I, it’s been fun to, cause I log into that thing like every two days. I just think about it. I’m like, let go see what it’s, and it’s been nice to see the trend down because we’re fixing random leaks. Just any and every league that we can find.
, but there’s still something bigger somewhere happening that’s separate problem. But yeah, those things are cheap and absolutely. . Yeah. We can talk after the show. I’ve had so many plumbing lessons learned in the last year and a half. , I’ll be happy to share with you.
Yes, too. Awesome. Can I be conscious of your time? Again, a question we ask all of our our guests on the show, if you could go back 10, 15 years ago to the software engineer for us and say, Hey, Yeah, I got a really good tip for you, right? And the obvious one, 2009 is the bottom by everything.
That’s off the table. So if you can’t say that, what do you give younger you as a No, I would say it’s more of a general thing. I don’t wanna tie it to real estate, but it’s really be leery of building your brand and your crm. Throughout your life. You in the syndicator side, you start to build your database once you want to go into that.
But sometimes I’m like, man, I wish I had done this 10 years more in my life. Especially me. I was exposed to so many tech people so much in that space and I, just, I wish I had been better at building that brand, continuing to build that database throughout my life. Yeah.
That’s maybe the easiest one, right? I There’s a million other things that could say, oh, this stock, that stock. But a real life tip is that one, I think, I no better times of today tip. That’s something someone can start today, right? I don’t need to know when the next Google is.
This is a totally different thing, right? Yeah, no, that’s a great tip. That’s a really great tip building your brand and start building your. Potential investor database and your, and I say it’s your audience of whatever you do. Whether it’s could be investors, it could be customers, right?
If I decide to go sell cupcakes Yeah. I a database. I go sell cupcakes, do whatever. Absolutely. Awesome. Thank you so much. Where can our listeners find you? If they want to WeChat, they want to invest you with you, or they want to hire you as a third party manager, where can they find you? And we’ll put all the links in the.
Now, please disrupt equity.com or send me an email at ferris f e r a s disrupt equity.com. Awesome. Thank you so much for being on the show. I think you brought a lot of value. Thanks for having me. Absolutely. And for you, the listener, if you wanna listen more to our episodes, go to iTunes stitchers, SoundCloud, whatever, you take your podcast and subscribe and leave us a feedback that is really important for us.
Thank you so much, and we’ll see you soon again. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site@www.aptopr.com.

Episode 121: Alina Trigub
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Welcome everybody to the Apartments Operated podcast Today we have a fantastic friend of mine and a great operator.
We have Alina. Alina, how. I’m doing great, Joseph. Thanks so much for having me. Absolutely. It’s a pleasure to have you. After all this time we start the conversation with giving our guest a few minutes to just tell the audience a little bit about themselves and the background. So why won’t you take the steering wheel here for a second?
Sure I’ll try to give you the abbreviate version of who am I and where I come from. Started my journey many months ago as a tax account and switched to information technology. Worked in it for over 20 years, and while in it started investing in Syndications passively while doing that, realized they need to bring syndications up to market and share what I was doing and how I was generating income with the other community.
So I started my own company. Some financial about three and a half years ago while going through that journey. Last year as well know, COVID happened, so my full-time job was eliminated and I decided to go into real estate full-time. After I went into real estate full-time I was then introduced to the new partner of mine Mike Slotnik, and I joined his team TF Management.
That’s where I work currently as head of investor relations. We are a real estate fund management company. We invest in other people projects. That’s on a high level and nutshell my abbreviated version. Awesome. Congratulations on the move to a hundred percent real estate. Thank it’s a little bit scary, but also a little bit exciting, right?
Yeah. The sun, a lot of us made that move and so we bring operators, right? This is the operative podcast, and I know you have your own personal story about operating and dealing. Some of those challenges. Usually we start with just tell us a little bit about the portfolio that you are handling, right?
The stuff that is in your direct asset management. . Sure. It, our portfolio as Joseph mentioned, includes passive and active opportunities. In terms of the active opportunities, it’s mainly apartments. They are in a secondary to tertiary markets in general. So it figure, this is mostly workforce housing.
Type of projects. Okay, great. The question we ask all of our operators is third party or in-house management, unfortunately, third party . That’s a fantastic answer. . So why third party and why? Unfortunately. I’ve always wanted to have permanent partners and I’m now at the point where I joined CF management where I have the same group of people I’ll be working on moving forward.
But before that, when I originally started my journey I was working with different partners and there was no way to scale it because. Trying to work with various people to see who would I wanna work with long term down the road. And hence there was never an opportunity to establish that in-house property management company.
But otherwise, I’m a strong believer that if you have the same reliable partners, people you are planning to work with for very long time and planning to grow your portfolio, having your own in-house property management company is absolutely must. . Why is that? Because everyone does business in their own way.
When you are the one as they say, when you are the one ordering the orchestra, ordering the music, paying the bills, you are telling them how that music is supposed to be played and what did you want them to play? Same applies to the property management company. Depend. where the property is located.
And in our case, I’m talking about secondary market. You want people to number one, to be catering to that particular market. And you want them to know the local laws. You want them to operate the way people in that market are operating and catering to the tenants in your community.
And so that you are number one, attracting the right. and number two, retaining the right tenants and screening tenants in the way you want them to be screened. So these are the tenants that will stay with you for a long time. You don’t wanna be going through the revolving door and keep changing the tenants every single year.
Believe me, we had some cases where we had the months. Months. So six months leases, and it’s far from ideal, but when your vacancy rises and then goes above 10%, 12 and so forth, there’s nothing else you can do. You need to fill it in and even you do what you can. So you fill it in with temporary people with it’s month to month or six months something, so you can start generating income and payroll investors.
So it sounds like your insights come from experience, right? So tell us a little bit. The struggles that you’ve had working with third party and how you would address it otherwise when it’s your own. Just for my knowledge, does TF Management Group have. A property management division?
No. TF Management Group is a real estate fund management company, so yeah, they do pure fund funds. So we do purely fund funds. No they don’t have operation experience. I’ve done it myself through Sam Financial, when I was. Still up operating in partnering with other people to buy the profits.
Got it. So help us, give us a few stories or a few examples of what led you to those insights because we had the same insights, we took over management of our own properties in February of 2020, just before everything exploded with the coronavirus. And then in the first few months I had in my mind, , this must have been the worst timing in history for me to take over management, right?
But then hindsight, a year over a year later, I’m looking at, say, this was the absolute best time for me to take over. Because I don’t know if we would’ve survived the last year and a half under Covid terms with a third party property manager. We would just absolutely not survive it. So give us a little bit of your experience and your.
Sure. So I’ll concentrate on this one. Property where in, in the last in during three years, we had four property management companies. Our mistake was sticking to the residential property managers, the ones that used to manage single family houses or dos and triplexes. They just have No, no background on managing apartment complexes.
So when you have 20, 30, 50 units, you’re still much better off. Even though it might maybe more expensive, you’re much better off to switching to the commercial property management company. Number of reasons. First of all, I saw the difference in using. The software that was not suitable for apartments.
Number two, the approach when they were bringing people to do their renovations, again, they were concentrating on each individual unit rather than thi thinking in volumes. We need to renovate, for example. 2, 2, 3 units every so often. And we would tell them, here, there are three units. Let’s run away them in the next three, four weeks, and let’s do it in bulk.
They would bring this contractors that would drag it over a period of two, three months that would take forever to do it. And it was just absolutely insane to work with them. And then other examples typically, Commercial property management have their own bookkeepers. And while you still need to have your own bookkeeper to do the books, but at least the way they present you the information, is the report generated, let’s say through AppFolio or another commercial app where when it was with residential, oh, here.
Yeah. You have pieces of information here, pieces there, and you have to manually combine it and put it together. Capacity to your accountant. Really a nightmare for us to manage all that. And granted, they were good people, but good people is not a profession you don’t need, you need a professional property manager to deal with the tenants.
The tenants plus on top of it. The tenants in the apartment complex are typically not the tenants you get in a single family house. Single family houses, for the most part are families that stay in there for a very long term, either because of the school system or because of the jobs that people get.
When it’s apartments, again, depending on the size of our apartments, in our case it’s one to two bedrooms. So we were attracting a lot of singles and a lot of couples or maybe. With one kid. So these are, again, people working in a neighborhood that they need decently and they need access to highways and they would stay longer in your community if they know that the maintenance requests are taken care on time.
They know that the neighbors, they have the ones that they wanna leave next to. With the residential property manager, I noticed that they didn’t pay much attention. Screening, screening in the detail to the level of details who wanna be screened. And they were also not coming on premises often enough.
Even before Covid, for instance, while we had one of this residential PMs, we ended up having someone live in the attic of one of the buildings. He probably lived there for at least six months. You know how we found. I hope you’re sitting down. Yeah. . He fell through the ceiling into someone’s apartment.
Thank God nobody was killed. Touch, nothing happened. But this would mean what, how in the world this could have happened. How he got into the attic. Why the attic was open. Why nobody heard him. Why none of the maintenance people ever men noticed him. I have no idea. But he was leaving there for six months, so you can only imagine how much trash was lifted out from the place.
And, he got nothing happened to him. We were able to, just call the police and escort him out. But stories like this, they’re incredible. And they only come when you have the property management not paying enough attention to your property. Yeah, you’re absolutely right. And what I’ve noticed is cuz I, now that I have my property management company, I also talked to a lot of other property management owners and I noticed that even the ones that have hundreds of single family properties under their umbrella, They still don’t have exactly what you said, the infrastructure that the multi-family owners really need.
We need the right accounting system. We need the follow ups. We need the system for renewals, right? And the and make credit cannot take. a month and make credit cannot be at retail prices. We can’t afford having an ac retail AC technician come out every time one of our ACS is down, right?
It’s insane. It’s very expensive. So they just don’t have that same infrastructure even when they go very big. The best example I help people get the difference is if you have a single family house rent. and the tenant pays on time and you never get any complaint. , you don’t go there, right?
It’s quiet, right? Yeah. There’s no reason to go over there. It’s usually, it would mean that the person in that house, when they need to change a light bulb, they change a light bulb when they need to unclog a toilet. They unclog the toilet themselves. They don’t need to call you for this things, right?
, so it’s called quiet for a single family. Manager. This is a best tenant possible, right? For us in the multi-family world, we have to walk every unit, every three months for pest control to check the latest smoke detectors, change AC filters, right? There’s always we gotta check for squatters in vacant units or in addicts, right?
We have to check for. Pets that were not in the lease and then showed up. We do all these things as a routine thing. , while we can’t say, it’s oh, this guy paid rent on time. Never go into his apartment. Doesn’t work like that. For sure. Yeah. And, and examples like that go on forever.
Even a simple thing as advertising vacant units I remember when we had the residential pm it would take weeks literally to put it out there and then have it on social media. And in some cases I had to physically put it myself on social media where. They supposedly had a person dedicated to advertising where when we switched to the commercial property management company when I told them that, we have these units coming up that’s gonna be vacant.
They put the units up online the next day. And that’s the kind of service I wanna see and ideal. You wanna see, you have the expectations to have this kind of service in all of the areas, but again, when it’s not your property management company don’t expect that you know that the mountains are gonna be turned for you.
They will do what they can, but you are one of hundreds or maybe even thousands clients that they have. So they need to serve their clients. Bottom line is you always have to stay on top of their mind. And you always have to follow up. If it’s your property, you follow up and you find out when they, if they do things that you ask them to do.
Yeah, absolutely. That’s a gold nugget right there, right? It’s it’s your property. Nobody would ever treat it the way you would, nobody would follow up the way you would. Just, it’s an opportunity for me to give a little tip from the way we do things, right? So we always. Units that are either available or coming up being available, right.
And unless you’re 99% occupied, you can leverage that tip. So instead of putting the unit J one or K three or unit 34, we just use the layouts. So we’ll put a unit. A or A one, A two B, one, B two C one, C two. And we’ll advertise the layouts. So when they come in and they say, I want a two. Okay, this is what I have available from a two.
So our marketing is constant without having to change anything. Now, every once in a while, we’ll, Special on a specific layout or special for a specific unit or whatever it is. Then we will target market those. But we have a constant marketing going on just based on the layout and the pictures are of our model units.
So that keeps things flowing. We’re also a brokers, so we put them on the mls and that propagates to hundreds of websites, like every MLS is in this in this time. So what we just continuously market the layouts instead of marketing a specific unit. Yeah. Yeah, that makes sense. And we’ve done it when we had a lot of vacancies when it was like five or six vacancies.
And we, what we would do is we would put put a representation of the unit type. So let’s say one was one bedroom, one was two bedroom. Yeah. The layout is the same. You as long as the same size, we would just put the unit. Up there without indicating which unit it was, one A, one B, or so forced. And just say, we have one bedrooms available and two bedrooms available.
And that also allowed us to keep that advertisement for a long time until we filled in the vacancy. Yep. In general, what I know test our case at least when we had higher vacancy, we implemented the tenant referral program by giving tenants Like gift cards, anywhere from $50 to 75 to a hundred dollars gift card for bringing their friends and family.
And that seemed to work well because number one, they were bringing someone who they know and they want to leave, and plus they, they were making this extra bucks on the site. So that was helpful as well. So for those that are maybe challenged with a higher vacancy given your tenants a little something in return for recommending your property always helps as.
Yeah. And I’ve read multiple industry researchers that show that someone that got referred both the person that referred them, and they usually stay longer and pay on time. Because again, if you brought your cousin you don’t want to be, or your cousin brought you here. You don’t want to be the one not paying, and your cousin is gonna look at you funky.
For sure . So a little peer pressure there as well. So it’s kind like we like referrals. We also have an ongoing referral program all the time and we appreciate that. The thing that, again, lesson learned in blood we only apply the credit or give the gift card after three. So when they move in, they have to be in the apartment three months later in order for the resident to get the gift card.
So yeah. So you have implemented, and I’m sure through TF management, you guys are always looking for ways to implement value add. Of course. We ask our guests to give us two, three methods where we’re gonna look at both sides of the No I, increased income and decreased expenses.
, two, three examples of each that are not the obvious one. So not raise rent and apply rubs. We’re looking for the more creative ones for the income side of things and on the expenses side of things. Whatever you guys come up with, right? , share a few ideas, a few things that you guys have done or you’ve seen other operators do that you thought, Ooh, that’s awesome.
in terms of the income. What I’ve seen was a great idea is adding a pet park, even though it did not directly increase rent but I saw it brought a different type of clientele. People that wanted to have their pets in the house so they would be paying for the pets. And that brought, of course, extra income without having that pad park.
People were that, that had the pet. Second thoughts, whether they wanna bring whether they wanna reside at their property or not, but bringing the pads into the place that has a pad park help to bring that extra income in house. So that was helpful overall. Out outside of the Robs, what else have I seen people do?
So what we did at our property, we actually. Had these storage compartments with, within each building that were filled with junk. So weed them out and we started renting them out for whatever people needed it. It was maybe one or two storage compartments in the building. So we emptied it out and started offering to folks that needed that extra space on the expense side for us personally, believe it or not, the future saving.
Switching to the commercial property management company. At first we didn’t realize, but then over time we, we saw the difference. Residential was just so much more, and not only the upfront cost, how much they were charging, but also in other charges that we mentioned contractors renovations, making the units run, ready doing the regular maintenance work.
The. The prices that the commercial property management company had already agreed upon with the companies that were doing the, these mass innovations or mass maintenance were so much better be because they were able to negotiate due to the volume and that was a huge saving for us in the long term for sure.
So that was really helpful. But even with that outside of saving an income and reducing the expenses, back to the topic. You asked initially why it’s better to have an in-house property management versus the out of house. I had a story where we had this extensive u utility bill.
It was extensive water bill on one of the properties, and I asked our property manager as to have they looked, what was happening, and I don’t know if you remember Joseph, we had a conversation about that, what can be done? And you recommended this creative method of buying the thermometers and to filling the temperature of the first floor, whether it’s reason or not, when it’s, if it’s hot water, to see whether there’s any water damage.
So I told them to do that. I also told the property management company to. The water meter every single week on the same day at the same time. So I’ve been getting weekly reports with that number and it hasn’t changed. So even though they weren’t able to determine where the water damage came from but I also told them to follow up with the water department and find out maybe there, there was a faulty water meter.
or something happened, the water company that, that caused such a tremendous increase. And increase was pretty high up. It was four digit numbers, which was big for that type of property. And they told me yes, we’re followed up. Water company didn’t notice any changes.
And when asked about this card, they said no, nothing was. . Guess what? I didn’t wanna leave it like that. It was, the bill was three times more than the typical bill. So I called the water company and asked for a manager. Manager was on vacation. I followed up couple of weeks later, and guess what?
After a conversation with the manager, our B bill was reduced by at least 50%. So they gave me the credit. Why? Because I followed up and I stayed on the case. because you cared. . Because I care. Yeah. Because it’s my money. I don’t wanna pay my money, my, my investor money for this property. But I stayed on top of it even though the PM told me yes, we called, we followed up, asked for credit, nothing happened.
Is there a way for me to find out if they called? I don’t know. Maybe they’ve called and just weren’t insisted enough to get that credit. Or maybe they didn’t call. I have no. But I know what I was capable of doing simply because I followed up and because I cared. Yeah. And this is one of our biggest changes when we took over management was we realized that.
What I basically did is I tightened up the leash, right? Nobody could spend a single dollar, not even a single dollar, without going through me in the first few months. And all of a sudden our expense rate dropped and I’m not kidding. 30, 35%, which is amazing. Huge. It is huge. And it just shows you just about waste a lot of waste because it’s not their, And it’s I need this part, and it’s like I can go to the shop and dig it up and figure out where that part is, or I can just go to the store and buy a new one.
I have a, yes, I have a store on that too. We needed a new washer, I think. So the pm this was back with the residential pm So the PM sends me the estimate and yes, we have this threshold. I think at the time it was maybe 500. So he said, we, we need the, a new washer or, I don’t remember what it was. So he says, when you one cost, let’s say 1100.
I don’t remember. and I said, why are we buying new? So I called the local stores in the area and I found the store that was selling refurbished, and they had not just one, they had three in the range between three and 500. I said, here is the store number. They have three units for less than 50% of your price, and they refurbished and they can deliver it to you tomorrow.
He’s oh, you know what? We’ve shot in that store before. I’m like, why didn’t you even think of calling them? Why? Why it’s supposed to be me? I have to call thousand miles away, not leaving in the area. I have to find, call these stores and find that out where it’s purely the job of the project property management company.
and this is where the rub is, right? Their job is to manage the property, not to make your money. And that is, I think, where our industry is really messed up. And I wish I had better mouse trap, right? Or a better way to compensate property management companies. They’re not compensated on the bottom line.
See some pe, some owners incentivize on increases in NOI and stuff like that, but as far as they’re concerned. If it’s a new refrigerator or refurbished refrigerator, I don’t care. Yeah, it’s gonna be extra $400 for you. It’s not gonna make a big difference for me. Because I collect. As a manager, I collect from what I the money that comes in on the top.
Yeah. I get percentage of that and that is really where things get really bad because and I think I told that story on, on the podcast before we had a few fees that were never charged to the resident and they accumulated into about $25,000. . So for us, when you look at a cap of a five, six, 7%, this is hundreds of thousands of dollars.
But when you look at the property management company, it’s 80 bucks a month. , that’s not sure what can they do with 80 bucks a month? They definitely can’t afford, have a person go through all the ledger accounts of all the residents and all the leases to make sure that all the fees are charged correctly.
Yeah. Cause that. Financially makes no sense. It’ll take more than three hours worth of work and 80 bucks. Yeah. They don’t care. You’re right. So that’s really where it is. It’s kinda like, why go the extra mile? Because they’re not getting compensated for that. So that’s why we felt that we had to go to self-management.
And I can tell you, I will not buy another property with third party management. I just. . Sure. Okay. So that’s awesome. So I like what you said earlier about the pet park, and that is indirectly adding income to your property because people with pet pay, pay, pet rent and pet fees and so on.
And again I read industry research all the time. Pet friendly is one of the top two, top three amenities that people look for when they look for an apartment. and it has increased during Covid. Actually, there is statistics and I don’t remember the exact numbers, that there’s a significant increase in people buying pets.
Adopting pets. Yeah. Bringing pets to their home now. So yeah, that’s for sure is a huge trend. Yeah. Two things out of that one right is when I read that article two years ago I went back to our website designs. When you look at our amenities on our community amenities, pet friendly is top one, right?
Because that’s the first thing they’re looking for. But on the other side is, what it helps is with the stickiness of the tenant to the property, right? I like it here. My, I can take my doctor to this little park here, but if I go over there, they don’t have a. . , right? So all of a sudden I have one more reason not to leave the property.
One more reason. That helps you increase retention, which is super critical in the multifamily. . Absolutely. Absolutely. Yeah. And I’m glad you mentioned that this is one of the top things that listed on your website because it is so popular now among not only millennials, but even families to, to get a path.
And so they’re always looking for whether the community is that family. Yep. Absolutely. I’m gonna be conscious of your time. If, and that’s another question we ask everybody. If you go back 10, 15, 20 years right? To younger Lina, right? What would you tell yourself, right? What advice would you give yourself?
And I tell everybody, you cannot tell yourself that 2009 was the bottom by everything. Okay. So other than that, what advice would you give? I would say to start educating yourself about real estate and start investing as early as possible. I wish I started much younger. Any real estate. I would say, yeah, because you need to figure out what’s the best thing for you.
And while for me now I believe in, long term buy and hold commercial real estate there are people that do really well with notes. There are people that do really well. with warehouses storage and so forth. So I think to each his own, but you need to find the niche that will work for you.
I personally believe in generating passive income, so that means you, you’re buying your repositioning and holding well performing property, whatever it is. But some people just wanted the access. So again, to each, for me, commercial is, But that’s, that’s my choice. Awesome. Yeah, I, no, you’re absolutely right.
Everybody have their own little niche and what they’re comfortable with and everything with you. I started with single family, right? I started with Rich Dad, poor dad, like everybody else. But I really fast learned that I’d rather be on the commercial side of things versus the residential side of things.
And then I heard you say passive, right? Operation is not passive in any way, shape or form. So for me it’s basically a full-time role on top of the other four full-time hats I have. But I love it. I enjoy it. Just like you, I have 17 years history in it career and I made the move and.
Like I said at the beginning of our conversation, it’s a little scary and a little exciting but it’s definitely, in my opinion, was worth the move. I agree. I think. Awesome. I wanna thank you for being on the show today, and if any of our listeners wants to reach out to you, find you invest with TF Management or same financials can they find you?
And obviously we’ll put everything in the. Sure they can find me either on LinkedIn or on tf management group.com or on semi financial.com. Awesome. Okay thank you so much for coming in, Alina. We definitely want to have more female operators on the podcast. You’re our second one and we’re excited to have you.
And for you, the listeners, if you wanna listen to more of our podcasts, just go to iTunes, teachers, Sam Cloud, Amazon, wherever you consumer podcast. We’re pretty much everywhere and we would really appreciate if you could leave us a feedback, one star, five star, whatever you feel our podcast is worth.
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Episode 122: Mandy McAllister
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Welcome everybody to The Apartments Operator Podcast.
Today we have Mandy with us. Mandy, welcome to the. Oh, hi. I’m so excited to be here. Thank you, Joseph. It’s our pleasure. Usually we start the conversation with giving our guest a few minutes to tell the audience a little bit about themselves, about their portfolio. When would you take a little bit and introduce yourself?
Sure. I Mandy McAllister, I’m out of Chicago, land Illinois. Don’t really love real estate investing right here. So the bulk of my investments are in Indiana, the Indianapolis area, and we’re under contract for an asset in northwest Indiana now. I really started investing in small multis, that’s really my wheelhouse.
Small meaning like four to 50. in that neighborhood. I think that, in terms of growth moving forward, where we’re looking, I think there’s meat on the bone in these smaller multis. So that’s what we like to own and what we like to operate, how we like to gain scale. So that’s me in a nutshell.
Awesome. So how big is your portfolio right now? 252 units. All in, if you include the 47 that we’re under contract, . That’s fantastic. And that’s all from small properties. How many properties is that ? So it’s one, two it’s maybe a dozen or so. Okay. I learned pretty quickly that, if you do a small multi, you get quicker scale, but if you do a cluster of them, you get this economies of scale, i, I think that there’s it’s a kind of, in multi-family people tend to thumb their nose at smaller stuff, but what matters most to me is the cashflow. And I get a lot more of a bank account sometimes from the six unit than I do 130 unit, yeah. First of all, that’s fantastic, right?
You’re the first guess we have that is having that point of view. And I would love to dig deeper because. Over the last few years that we’ve been doing multifamily, I’m leaning towards what you are talking about right now. So we’ve done all the way up to 236 unit properties, and like you said, I can see my smaller ones performing better, but the more important part is we can turn the smaller ones a lot faster.
exactly. The ease of implementation of that business plan on a 47 unit versus a 470 unit it’s a very different animal, yeah, it’s absolutely. That kind of guides us to the first question we ask everybody. Are you self-managing or are you using third party? Third party in everything I own from my fourplex to the, larger, small.
Okay. So right now you have third party. Is it one third party company that controls all your 250 units? Nope. So it’s one, two, I have four total property managers. And for the record, not all were created equal . Okay. Then let’s dive into that one. Let’s start with the decision to go third party and not in-house.
Yeah. Was that outta necessity, was that an intentional , there any thoughts to change? In terms of when I started I started building a fourplex, a sixplex at a time, and I was a full-time medical device sales rep. I’ve actually just announced my retirement. So in 72 days I am no longer a W2 employee.
I’m solely a real estate investor. Congratulations. So I’m pretty pumped about that. , thank you. So that was, that’s outta necessity, right? And then when we started, understanding that I don’t love Illinois, I don’t love the way we govern our state. I live here because of family, but I wanna invest my dollars where I really feel like the government is doing good things for bringing in jobs, bringing in growth of G D P, so that population continues to grow.
And that, for me, equals Indian. And I’m two, two and a half hours away from that market where I live right now. Only having. , call it a hundred units right there. It makes sense to have third party as soon as we scale up to maybe 300 or so, is our goal to reassess if it makes sense to take some stuff in-house.
, we’ll reassess then. But we’re continuing to build that footprint in the Indianapolis area so that we can reach a point that we, it makes sense to, to bring something. . Okay, so it is on the planes, right? , it’s not an ideology of, I never want to do my own management. Cuz we’ve seen that from a lot of our guests and it’s kinda it’s understandable there’s a lot of brain damage in mul in property management.
I, I say that from firsthand cuz we have our own property management company. But it does give you a lot of control. So there’s pros and cons either way. , okay. , you’re dealing with four different property management company. How do you pick one? How do you assess a property management company when it comes to taking over your properties?
And like you said, not all of them are equal, right? So yes. Maybe I’ll start with some hiccups that I hit. So I’ve hired property managers that were friends of mine, just acquaintances, like networking stuff, people that I really liked without doing a ton of, oh, due diligence, oh you manage properties.
I’ve got this small property there. Will you manage it for me? And. that ends up, actually every major mistake I’ve made in investing is because I trusted someone, because they were my friend, not ha and then didn’t do large, due diligence on the backend. In this case, this property manager is an incredible human and I’m glad he is my friend.
But this, my property is not managed in the way that I want it managed. I don’t the attention to, alright. The place across the street is getting 200. more in rent. How, what do I need to do in order to achieve that or to achieve closer to that? I need your professional advice as the expert in this market.
Short of getting that, like I, that is the type of partner I want in a , property manager the ones that have gone really well. We discussed full on business plans. They also, in both cases of the really two, the two really good ones, they both own property that’s similar to mine, not far from mine.
So they’re managing their own and they’re managing mine. So the chance to really see how does the rubber meet the road on your reporting, on how you look at things, on the decisions you make. In both, gosh, it goes all the way down the four, all the way up to the 53. You. Help me understand how you deal with this in your portfolio.
Nothing is more true than how somebody deals with their own stuff, yeah. And I totally agree with what you just said. I just wanna recap that little nugget, right? Is finding the property manager that owns a property similar to you is a real game. , but I know that if I’ll manage somebody else’s property, then I’ll treat it like mine.
But I also know that I have the perspective of an owner and not just a property manager. And that perspective is very different sometimes. , and is the source of the main challenges everybody’s having with property management companies because they look at it as a business of managing instead of business of.
and it’s a real problem sometimes cuz they’re not always on the same level of goals. , it’s not aligning the. And as the asset manager, so in the 53 unit, we, it’s a joint venture, but we have a couple of like syndication type things including an asset management fee.
So you said the business of owning versus the business of managing. There’s also the business of optimizing, so it’s my job as the asset manager and once that switch really went on, Having managed this LE 53 unit asset, managed this 53 unit, that’s the brain space that I applied to my own portfolio of these, fours and sixes and eights and what have you, that I am in the proc of the business of optimizing these, and I have to hold accountable and ask for advice where necessary from these third parties, but I am the optimizer.
Yeah. So in your size, there’s a lot of investors that own properties in the 4, 6, 10, and 20 that fall into the default of hiring a residential property management company that manage single family versus a commercial property management that knows how to handle the bigger ones. , what don’t you, what?
Your philosophy in this. Are you hiring single family management companies or commercial? What is your experience? The closer to your goals you can get that your property manager aligns with, the closer to your goals you will achieve, for instance. My very first small multi that I took on was near a college town, and I realized that, an unfurnished rental managed by a mom and pop would get $400 a door.
But if I put the branded college rental guys on it, then I’m gonna get $800 a door. So what is it that you wanna do? If you want to be, if you’ve got a fourplex and you have a, somebody who mostly manages single family, that could be a good fit. But if you venture into the eight or 12, like that’s a full on community with shared space and things like that, that you are likely going to be best served in reaching your goals with aligning with someone who does that.
One thing I’ll also tell you is I acquired in a market that was poised for incredible growth. The thing didn’t happen to make that incredible growth happen. However, I didn’t really check out in that mistake that I made. The there aren’t a lot of property managers that deal in small multi in that market that I’m in.
I should. Figured that out before acquiring, getting so intoxicated by the, oh my God, this growth is coming. I’ve gotta buy something quickly. Let’s do it. Really making sure those third parties are in place. If you’re gonna depend on that they exist and that you’ve interviewed them before, acquisition is a really huge deal.
Something that I would tell my former self to make sure I didn’t. Yeah. You got a really good point. From my experience managing. The 20 to 40 50 unit is one of the biggest challenges out there because it’s too small to sustain its own full-time personnel, like a maintenance guy or a leasing agent.
But it’s too big for the small guys to handle with one leasing agent that leases all the single family, right? . It’s a very challenging size to manage and like you. There’s just not a lot of property management that’s their size. That’s their niche. So for the 53 and for the 47, we’re partnering with a group like these markets in Indianapolis.
Our kind of, I guess good news, bad news is there’s not a ton of extra large apartment buildings, , like most of them are in the sub 75 range, so the partner that we have has, something. , I don’t know. We have a 53. They have, I don’t know, it’s 80 or something in that neighborhood, like maybe two miles away.
So what we do is we have one of their people that works on, that come to our property two days per week. So ultimately our goal is, put two or three of those 53 units in a close-ish proximity. Then we have one full-time person that can be bought between the three. . Yeah. That’s one way to do that.
That’s a great way if you have a joint venture with someone that owns not so far away. Another way that we’ve noticed that people can do is if you have a 20, 30, 40 unit property and across the street or half a mile away, there is a hundred or 20 or 200 unit property, then find that property management and see if they’re willing to take on your little.
As a little satellite kind of thing, cuz you can run everything from one office. You can send the maintenance guys over and just pay for the hours instead of hiring people that you can’t afford on a small property. . That’s actually a really great hack. So if you are, this is something that I haven’t done, but you just gave me a brain thought that, maybe somebody listening, if you’re acquiring a 20 unit and there’s a, there’s another apartment building around the corner, go figure out who their property manager is and see if you can use that exact same hack that Joseph talked about as a proactive type of a thing.
Yeah. And. , it’s a huge difference in cost of management, right? . if you’re dealing with a company that, even if they have their own crew, but they need to send the maintenance guy to your property, then you’ll pay for mileage and you’ll pay for time for the travel and all that. Versus if he’s across the street and he’s just crossing the street, you’ll just pay for the time he’s on your property.
, right? So it can help a lot with reducing cost as well for and think about knowledge of the. Oh yeah. In terms of knowing where rents can be pushed, knowing if a ratio, utility billings thing will work. If you’ve got the guy around the corner who’s the big dog managing, like you, you know your safety and numbers, right?
Yeah. And your EUC agent is the same leasing agent. They can divert people based on the layout, based on the budget market survey happens once, doesn’t have, you don’t have to pay for the market survey and so on. So there’s a lot of value. . So are your project are all value add stabilized? What is your preferences?
Great question. I’ve recently changed my mind on this. If you’re coming up in learning multi-family, in the last call it five years the hotness was everybody’s gotta do value add. I need a value add. Value add. And right now, so my master’s degree is in economics and my, that part of my brain is firing because we are, we’re pretty hot in the market in terms of acquisitions right now.
The one thing we have going for us is super low. So the way that I choose to look at this is if I could lock in a really long term, low interest rate, non-recourse agency debt from the jump and then, ride that out all the way through, that is an ideal, that is an asset under itself into itself, having that long-term debt locked in.
We previously were looking very value add heavy, but if you have to bridge loan into that your, your cashflow that you’re getting, if we got an eight year. interest only term on that 53 unit. Oh, wow. Eight years of io. That’s fantastic. So if what you want is cash flow, why not?
And another point there too. in the value add underwriting space. Right now, you’re, you are not gonna look at an noi, apply the cap rate and pay that for a value add asset. You’re gonna have to pay for the opportunity to hopefully be able to achieve the rents that you think you will, right? Yeah. So if I’m paying for 75% of the upside anyway for the chance to do that heavy lift, why wouldn’t I at least consider doing something that’s already in place that’s s.
And lock in that debt and write it for cash flow from the jump. We are not scared of stabilized assets and our 53 unit was a stabilized asset. Specifically it was a reposition, it was a, an assisted living turned into a multi-family. So they filled it up at below market rents much like you would, like a anybody who does like a build to rent situation, you fill it up.
Exactly. You. , like with undermarket rents, and then your entire business plan is just bump rents to where they belong. Do you know what I mean? Yeah. So there’s a lot of ways to skin a. . Okay. So speaking of that give us a few ideas cuz I’m sure you’ve done quite a few value ads. And we usually ask for our guests to give us ideas of what they do to increase income and what they do to decrease expenses.
But we take off the easy ones, right? So increasing rent and rubs is the easy ones on the income. What else do you guys do? And I’m really interested to see if you. Different kind of ideas on the smaller properties versus the bigger properties that we’ve seen so far. So I’ll tell you my favorite ninja trick of all time.
So in the, in my very first little baby four unit that I did by a college town, I handed it over to the managers that had already branded themselves as college rental guys. We charge an upcharge for wifi. So I pay for the wifi and they pay me for that so that juices my N O I a little bit, right?
Because what college kid isn’t going to get wifi and Joseph, let me tell you the best part about this. If they’re late paying their rent, we turn off the wifi and then those kids pay their damn rent. That’s cute. It’s that is a ninja trick if I ever heard one. It’s it’s twofold in terms of lessening spend.
There’s, the, we haven’t done a lot of stuff that’s outside the realm of What is common and easy. So I, me adding value in that way. We’ve just done all the layup stuff. We I will say too, if you are not doing a pet rent make sure you do a pet deposit that’s non-refundable and make sure you’re doing a monthly pet rent.
because if you add 10, 15, 20, 20 $5 to your, top line, it doesn’t cost you anything really. That goes straight to your bottom line. Yeah. And that, that can really do some big stuff. Yeah. We actually split the deposit to half of it is refundable, half of it is non-refundable, and there is a pet rent.
Yeah. Smart. So we do all of it . That’s great. What about retention? Do you guys do anything special around retention of your residents? ? During Covid, especially on my small stuff, we offered Visa gift cards if they’d be willing to stay. The, if rent was $800, we offered up to 400 bucks for them to, continue their, Because gosh, the keeping your hands around your make readys, like that’s your turns.
That’s a lot of the time that I spent on the phone. Asset managing for the 53 is, okay help me understand why this took that many hours type of stuff. Yeah. A friend of mine has done, raffles. That’s not something I’ve instituted yet, but, your biggest turnover, your biggest, fee, your biggest loss of income is in the turns, especially in college towns, in these college rentals because they’re a transient group, right?
Like . I didn’t live anywhere for two years in a row in college. . Awesome. That’s one of the, that’s one of the reason I understood housing. It’s kinda like you can have the perfect property and the top level service and everything is awesome, but they will still leave after a year because they wanna try something new.
Exactly. Or because their chemistry partner lives over there and they want to go there. It’s that and the headache of. 19, 20 year old stupid kid. But here was my hack on that, I’ll tell you. So I chose to only acquire one bedroom units cuz think about the avatar of the kid who’s gonna rent a one bedroom apartment in college.
Yeah. It’s a grad student or it’s a super bookish kid who wants to be alone and to study. So we’re pretty aggressive in offering things to have them stay cuz those turns really kill us. But like I mentioned at the. , instead of getting $400 a month rent, I’m getting $800 a month rent.
Like there, there comes a point, a tipping point where it makes sense to maybe try to deal with the turnover. But the having one bedrooms like really helps out with the headache cuz of the type of person it attracts. That makes sense. So we pride ourself as a podcast to be the one that doesn’t sugarcoat then don’t fluff anything.
Cuz you know, there’s a lot of podcasts out there that just show you the rainbows and lollipops. , everything is awesome. Everybody that shows up on, on the podcast is super successful and that’s great. But that’s not life, right? . So if you don’t mind sharing a little bit of how we called it earlier, hiccups or challenges or some even horror stories, if you have any with our audience just to, give them the reality of things.
And not just the is that a lot of the groups out there promise. I wanna preface this. , my biggest problems, my biggest things to overcome and learning lessons have come in a, in my first fourplex, it’s the gift that keeps on giving. But because the property manager is so strong, because the third party is so strong and they do this all the time the headaches that I have personally felt have been minimal.
So initially, when I acquired this in 2016, we had a period that some of them were set up as furnished student rentals and some of them were not. One of the homeboys that was in the unfurnished rental turned out he his extra job was selling drugs. So to, to get him out of there and to make the other residents who were like 19 year old.
and, like to make them feel, and their parents feel warm and fluffy. Like we had to do a lot of, jockeying for position and moving in and moving out. And, a lot of that headache was felt by my property manager for 10% a month. Best 10% your friend Mandy has ever paid was over the course of of that headache.
My, my friend Maureen Miles in that I don’t know I’m sure you know her, but in. drug dealing management thing. Like I, I got to share my favorite of her hacks, and I bet you’ve heard it, but she had a property in Atlanta that was a little troublesome, and it was it was largely the friends coming in that were the drug problem.
She posted that, we are allowing the Atlanta Police Department to train their drug sniffing dogs over the course of the next three. So she posted this everywhere. And lo and behold, the problems left another hack for your people. But in terms of other issues that I’ve had that, that can, that question mark property manager that I should have bet vetted better in the leases that we agreed upon said that they were, said that we were collecting for.
A full year and a half under management. I didn’t even notice that it was just a sixplex, like I took my eye off the ball. I didn’t even notice that they weren’t charging for heat, even though my lease said that they were the trust but verify thing and if you’re playing in this super small, multi, the Florida, call it eight neighborhood, , if you gotta do you can’t manage what you don’t measure in the 50 ish whatever that neighborhood you’re gonna get really good reports and a lot of attention from your property manager and the 10 and below, you’re gonna have to really fight for stuff.
What I would say, my hack on that to keep my eye on the belt ball better. , there’s an app called essa, it’s assets backwards, S T E S S A. It’s basically like a mint.com or something that basically prepopulates everything and runs these really elegant reports on your super small multis. you I, so that I’m managing the manager more appropriately. So if you screw up like I did do some things, put some things in place so that you are not able to mess up. . Okay. I gotta, I’m sorry, I gotta repeat that. That little thing that you were talking about, that $6 fee, right?
And help people understand, it’s oh, it’s just six bucks. Here’s how it ties to our earlier conversation about property management versus ownership, right? That six bucks a month is $7 20 a year, right? In terms of 10%, how many units that property, . My the one was six bucks. The it was, they weren’t charging for heat, so it was like No.
How many units? Yeah, but how many units? It was a six unit, but they weren’t charging $120 per person, so it was $120 per winter month times six unit. Okay. Yes, but it’s a big problem. Okay. For them it was $12. Yeah. Per. Yeah. Times six. I see what you mean. I see what you mean. Yeah. So for 60 bucks, it wasn’t worth the extra effort of somebody diving deep on their end, making sure that every little contract fee is being charged, right?
Yep. We’ve hit the same situation, but with $50 fees over 236 units. So for us, it was a much, much bigger loss. Yes. But again, the way we compensate property management c. , it ended up being a loss of about 80 bucks a month for that property management company for the fees that’s in charge. And for us it meant hundreds of thousands of dollars after cap rate calculations in the property value.
Yes. So ownership versus management perspective, this is where the rubber misses the road really. Yes. Is that it’s just not worth putting the extra effort on their. because they’re running a business of management and they don’t have the perspective of ownership. They don’t care what the value of your property is, they just care what they collect and put in the pocket.
. . So yeah. So that little thing you mentioned happens in every little size of property . And it’s really the main challenge with dealing with third party property management. , and it’s, if you can. , a biweekly call, a weekly call with a, that your ownership is such that you can demand that call with them.
It’s easier to keep your eyes on it’s not easy, but it’s easier than to let it slip if you have a six unit here and a four unit there, so I, it’s a free app that I have nothing to do with. So if you’ve got smaller stuff and you’re managing managers seriously, consider putting something in place that you can measure something so you can manage it.
Yeah, that makes total sense. . Okay. I wanna be conscious of your time. If you could look back to younger man, and, let’s assume you can, and I keep repeating that for everybody. You can tell her that 2009 is the bottom by everything. Okay? . Other than that, , what is the best advice you could give?
I I have started this group, aspiring Women Achieving More, and it’s a lot of super high performing women. And I think largely, especially women. So being one, I’m gonna give my advice as a woman that I think that we more than men even tend to struggle with imposter syndrome type stuff.
The fear of what if the needing to feel completely a hundred percent prepared before we take that first step. I would say, Mandy at 19 is the one who got interested in real estate investing. Mandy at 35 is the one who took the first actual step in the direction of financial freedom that, my advice is to myself that.
You are not going to learn anything or get anywhere until you start taking steps. Do not be afraid of screwing up cuz you’re gonna, yeah. You gotta take a step, make it metered. Learn all you can learn because you know you’re gonna get to a point that you know all you can know. But until you take that first step, if you see a step 800 this life you want for yourself, you know you’re never gonna get there unless you can get from step one to step two.
So believe in. , take that plunge and the net will appear. Yeah. The people that don’t do mistakes is usually the people that don’t do anything. Yes. Awesome. That’s a great advice. Can you tell our audience where they can find you? We’ll obviously put everything in the show notes, but if they wanna reach out to you, if there’s a woman that want to join your group, or if there’s an investor that wants to invest with you, how can they find you?
Sure. So the, I have a catchall website, mandy mcallister.com and on it you can learn a little more about the women’s group, aspiring Women Achieving More and My investment firm, good Fortune Capital. And if you are looking at smaller stuff for your own accounts and you’re interested in knowing exactly how much you need to reach certain levels of financial freedom, check out my blog cuz I have a calculator of that helps you figure out how much you need in order to reach that financial freedom and leave your.
Oh, that’s awesome. We’ll definitely link to that calculator. Mandy, I wanna say thank you so much for coming up on the show today. It was awesome. It was different than our usual crowd of guests and it was a lot of value add to our listeners, so I really appreciate you coming up. . My pleasure, Joseph.
Thanks for the invitation. Absolutely. And for you, the listeners, if you want to hear more of our podcast, just go to anywhere. You subscribe to your podcast, iTunes teacher, Amazon, SoundCloud, and so on, and a special request. Just give us a feedback. It doesn’t matter if you hate us and it’s a one star or you love it, it’s a five star.
Either way, just give us a feedback that helps a lot. Five stars. Five stars. Thank you everybody, and we’ll see you on the next. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site@www.apt.com.

Episode 123: Calvin Roberts
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Welcome everybody to the Apartments Operator Podcast.
Today we have a special guest. We have Calvin here with us. Calvin is not a multi-family operator, but he is an insurance agent that specializes in multi-family, and we thought that’s gonna be bringing a lot of value to you also, Calvin, we start with just a few seconds of you introducing yourself to our audience and telling everybody who you are, what you do, and we’ll take it from.
Perfect. Hi everyone. My name is Calvin Roberts. I am the principal of Falcon Insurance Agency of Michigan. We are a national boutique commercial insurance brokerage, specializing in serving multi-family and commercial real estate investors throughout the United States. We ensure many thousands of doors in many different markets across the United States and are the go-to experts on multi-family risk management and insurance guidance.
Awesome. Okay, thank you for that. We’re recording this podcast in November of 2022 and everybody’s biggest question is, where’s the market going? What’s gonna happen? Interest of raising inflation is rising. We are in the process of learning the results of the November elections. So how is the insurance world reacting to everything that’s going on in the market?
So there’s been a lot of calamity in the commercial insurance marketplace over the last year, two years, and there’s a few factors that are really driving all the change and increase in cost from the insurance side of things. The first is the subject on everyone’s mind inflation. If you’re an insurance company and you expected to pay 200,000 in claims and because of inflation, it turns into 300,000 in claims that are actually paid.
You have to make that money back somewhere, which comes in the form of increased premiums, limiting coverage, market availability. It’s been a challenging marketplace for multi-family operators when it comes to insurance placement in the last several years, and it’s really been inflation driving much of that in addition to some of the large catastrophic claim events.
Hurricane Ian in Florida. . That are really impacting things on the insurance side. Yeah. And for the audience that is wondering why is inflation increasing the claims? If it used to cost, I don’t know, $5,000 to repair a wall or repair a replace a kitchen a couple years ago between covid changing the whole.
Logistic nightmares of shipping and the labor costs that have increased dramatically in the last few years. That’s why that same kitchen that you could have fixed four or $5,000 is not gonna cost you $10,000, which is why the insurance industry is now suffering from all that impact because, The number of claims per year, probably statistically doesn’t change, but it does change dramatically of the cost that is attached to recovering those claims from the insurance.
Am I right there? Exactly. It’s the frequency of losses has not gone up, but the scale and scope of losses when they do occur has increased fairly dramatically as a result of the cost of building materials going up, the cost of labor increasing sharply. These factors in tandem with, the ever increasing frequency and magnitude.
Large catastrophic claim events. So events like the Texas Freeze Occurrence that happened a couple years ago, , that was, that came outta the left field. From the insurance industry’s point of view. It’s a black swan event and it’s hard to predict and account for. So when events like that have occurred with greater frequency in tandem with all of the pressure on, building materials and labor when repairing damage.
It’s really a 1 2, 3 punch that is driving up premiums. Yeah, that, that black swan, we felt it the hard way here in Texas. And we have a smaller property that was built in 2007. And we suffered damage because the pipes for the fire suppression system, the sprinkler system blew up like they cracked and exploded in the attic from freezing, basically.
And it is like it’s Texas. Nobody expects these kind of things to happen in Texas, but I it did, and it was a big insurance claim, and it’s not it’s a it’s like a faucet. You can drip. This is all pressurized fire suppression systems, so yeah. Absolutely. That’s a, that’s another, like you said, another combo punch that came out of the blue and they didn’t see the damage coming.
and it’s impacting. And of course, insurance companies are a business. They’re not charitable organizations. So if they have increasing costs, they have to pass it on to their customer, which unfortunately is us, the operators, right? . So let’s talk about maybe a little bit of ways you’ve seen operators.
Try to reduce the costs and then dos and don’ts, right? Where is it wise to reduce the costs and where is it not really wise to reduce the costs? So there are a few things that we can do. The biggest is goes back to the saying that a ounce of prevention is worth a pound of cure. So by getting very proactive about your organizational risk management, you can help to.
Further increases in premium by keeping your market access available, by making yourself a attractive client for an insurance company. So one of the key things I suggest to all of my multi-family groups is that we require renter’s insurance for all of our residents. And if the tenant fails to provide their own, or maybe they stop paying after a month or two, and while it lapses, You can do something like a master tenant liability program where, let’s say we have a thousand doors and maybe 700 of them either don’t provide their own insurance or they stop providing their own insurance, they let it cancel, that kind of thing.
You can implement a master tenant liability program, so something like a hundred thousand or 300,000 liability. That would respond as a first resort type of claim in the event that, one of our tenants is cooking dinner one night and, maybe they worked a long day, maybe a 10, 12 hour shift and decided to crack open into a couple beers while cooking dinner and they go to lay down on the couch while that oven is, cooking and it turns into a nice little 8,000 thousand dollars.
Claim as a result of the kitchen combusting by having that master tenant liability program in place that keeps that claim off of your claim history. Meaning that instead of this turning into a claim on our own policy, it turns into a claim on either the tenant’s, renter’s insurance, or on the tenant master liability program.
. So it reduces our loss ratio over a several year period. It makes it so that you’re able to fit into the best risk pool possible. Nobody can prevent the large catastrophic apartment building burns to the ground fire, but you can cut down on the high frequency, medium intensity losses that come out of tenant negligence with such a program so that makes it so you are able to fit into the best possible risk.
Meaning that you’ll get the best insurance placement available. The most attractive companies who they have the tightest underwriting on their insurance. , you are able to qualify for them, whereas you might not be able to, if last year we had 10 kitchen fire losses. I could have otherwise been, not prevented, but shifted to someone else’s policy other than your.
So it’s a proactive approach to keeping the total cost of risk down over a several year period. And by implementing such a tenant liability master program, operators are able to make insurance into not just a expense, but the revenue generating opportunity for their organization. And I’ll give you an example.
I, I recently did one for a group in Michigan, Ohio that has right around 3000 doors under manage. And of those 3000 doors, 924 were, non-compliant with the renter’s insurance requirement. So without such a master liability program in place, there would be nothing but the operator’s first party coverage that would respond to a tenant negligence fire loss, as an example.
Their cost per door per month was right around $7 and 22 cents for this product. For a hundred thousand liability coverage, they might charge the president 13 or $14 a month, to hopefully persuade them to buy their own third party coverage. . And if they don’t, then, it becomes a scenario where they’re making six, $7 per door per.
You multiply that by 924 doors and we’re looking at a very reasonable profit center for this organiz. Yeah, so I’m gonna try to break it down and for our listeners and correct me if I’m saying something wrong here. So the opportunity with the renter’s insurance is, has multiple facets, right?
, first of all, if you force your. Residents to have insurance, right? That decreases the op The chances that you’ll have small claims throughout the years, which means as a, as an insured person, you’ll start having a good history of not claiming you’ll have a history from your policy, right?
You’ll have a strong case of, look, I’m making all my to have insurance, right? And in case anything happens, right? Even if it’s something major. That policy could put in that tenant policy if it’s resulted by something that started in, in, in their fault, could cover your deductible, right? That’s the word.
Exactly. So attractiveness to the insurance carriers. Something that covers your deductible. That’s another thing. Reducing the amount of interaction you have with your own insurance is always a good thing. And then lastly, the whole profit center that comes from being able to charge if they don’t have the insurance.
And I know a lot of the owners, they operators are doing that these days. They force it. And we actually have a much higher number in the contract because we really are not interested in making this a big profit center. We are interested in making sure everybody has the coverage. So we actually put $50 a month, right?
We, when the, in reality, they should only pay any, I don’t know, up to $20 a month realistically from any of the insurance carriers out there. I also know that there. Like companies like e premiums, which were not sponsored by, so it’s not like that. That will basically have some kind of a deal with the operator that says, okay, every referral we get, every resident of yours that is signing up for us.
You’ll get a little kickback at the end of the month and. When I spoke with you over the phone, you mentioned that program that you guys have, and that sounded even more attractive. So instead of just getting like a one, $2 per person, you get. to charge whatever you want. And then you have a fixed cost from the insurance, which I think you said seven and $7 and some cents.
So that’s another fantastic opportunity to create a new revenue center over there and just not just tell them they have to, but also tell them, look, I’m gonna give it to you at this price, which will be competitive against every other insurance agency. So definitely there’s multiple facets in this thing.
Did I miss anything? No that’s perfect and very comprehensive. Okay. Awesome. So we’ve learned something new here, right? We’ve learned that we can do that. So let’s keep going with this. The do’s and don’ts, right? It’s like where are the corners that you’ve seen operators try to cut that you should not be cutting those corners.
So I commonly see on deals that are. controlled by a insurance broker who maybe doesn’t do a ton of multi-family. They might have one or two big clients, and that’s pretty much all that they focus on within this space. Maybe they mostly write home an auto insurance, but they happen to walk out and write a big account.
In the multi-family space, one of the big things I’m constantly fixing are policies that. Outside of the minimum insurable value based on the co-insurance threshold for a policy. And what that means is, and I’ll use a property in the Midwest, maybe Michigan as an example here. Let’s say you buy a building in metro Detroit for $400,000.
It’s a eight unit apartment building. Maybe, let’s call it 7,000 square feet. The replacement cost of that building, just for easy numbers, let’s say might. , I don’t know, a million dollars. And we paid 400,000 as the purchase price. The actual retail value of the property. . So you tell your agent, oh I’d toure it for the $400,000 that we just paid for it, and we want replacement cost coverage because we don’t want any depreciation coming into play in a claim scenario.
And a lot of agents might say, sure, we can do that. . And the reason why that’s a bad idea is because the overwhelming majority of commercial property insurance policies stipulate that you must ensure to a minimum percentage of the actual rebuild value. So if we have the standard 80% co-insurance clause, in this example policy, that million dollar to completely rebuild building that we paid 400,000 for on the open.
The minimum we can insure that for with replacement cost while settlement is 800,000, 80% of the actual cost to completely rebuild through the tornado, come through and wipe it off the map. Now, if we were toure it for the 400,000 that we had purchased it for in a claim scenario, let’s say a $200,000 claim.
Math would look like. You divide the amount of coverage you have. 400,000 by the minimum inable value. 80% of CO of the replacement cost 800,000, meaning that we’re left with a 50% co-insurance penalty in this example. So in a $200,000 fire loss, we would have 50% of the loss amount reduced from our claim settlement a hundred.
Oh. in addition to our deductible, let’s say 5,000, meaning that we would get a check for $95,000 to repair, $200,000 worth of damage, we’re paying over a hundred grand outta pocket on a medium sized loss. So that’s probably the most common issue I’m fixing on policies, especially with inflation driving up the replacement cost of buildings so significantly over the past two years and it’s something to where I think it’s better to write a policy that is within the minimum insurable value, generally 80% of replacement costs.
And to do that with maybe a higher deductible than we had planned. Maybe we were doing 10,000 deductible. , but we’re gonna do a 25,000 deductible, but we know that is a known stop loss amount rather than the co-insurance penalty effectively working out as a silent percentage deductible that we don’t see until the claim actually happens.
Okay? There was a lot of technical stuff in, in, in your answer over there. So I’m gonna try to simplify that. I just happen to understand a bit in this, in the whole insurance world, because I’ve learned these things the hard way, unfortunately, and I can give my example in a minute, but for the most part, if you bought a building for $400,000, but it’s gonna cost me, let’s say, burnt to the.
And I’m gonna have to rebuild it. It’s gonna cost me a million dollars, right? So this is the replacement value. And when you look at things and you go, okay, I only need insurance for $400,000, cuz if it burns to the ground, I get my money back and I’m happy. That’s true, but let’s say just half the building burned to the ground, burned right now you have, let’s say a $200,000 claim.
The insurance company is going to, excuse my language here, but they’re gonna screw you over. by saying, no, you should have insured it over here. You insured it over here. Now I’m gonna make that little math trick of mine to basically say, you should have insured it, double that cost. So I’m gonna give you half the returns.
. And now you are in a place where it didn’t burn to the ground so you can get your money and move on. But it’s not like I covered it for $400,000. So any damage up to $400,000, I’m gonna get my. No. They find ways to avoid paying you because that’s what insurance care insurance carriers do for a living is avoid pain.
, that’s how they make money. So you really want to understand the difference between your replacement value and your actual coverage and what happens when there is partial crime because it’s very simple when it’s a total loss. , you will get that $400,000, right? But anything partial, they have math and they have equations, and they have those little clauses in the policy that nobody ever sees, right?
. So think about it and go look at your emails. When you talk to your insurance agent, they usually only send you the declaration pages, right? Just the certificates just shows the. They don’t send you the full policy unless you specifically requested, and when you do, you get 300 pages of legal language and in that 300 pages of legal language are buried all kind of opportunities to avoid paying you money.
So you can go the hard way and literally, The whole thing, the whole 300 pages, so you’ll know exactly where the gotchas are, right? Or you have to lean on a honest insurance agent that will most tell you most of those things, but not all of those things. One of the things that we’ve learned the hard way.
Is, we mentioned the big Texas storm a few minutes ago, and we had a property, not the one I was telling you before about that had a bunch of units flooded, and then one of the buildings was mostly vacant. , so we didn’t have electricity on in those units. And somewhere in those 300 pages of legal language, there’s a clause that says that if there’s no electricity or heat in that unit, , if you have any damage from freezing pipes, it’s not covered.
But it’s not something that when you call your insurance agent and say, Hey, I got a multi-family property. I wanna put insurance. If you’re in Texas, they’re not gonna tell you you gotta have electricity on, or you gotta have heat on if you wanna be covered against frozen pipes.
Yeah. Nobody will tell you these things that there’s a lot of. places in those policies that listening to a good, honest insurance agent is gonna save you a lot of money and a lot of heartburn. Really . On the after fact of things. Yeah. No, I agree completely. It comes down to you need to work with someone who is knowledgeable within this space, not just commercial insurance, but specifically within the multi-family and commercial real estate.
because, I look at it this way. I do a ton of multi-family properties. That is my specialty, that’s what I focus on. But if someone came to me and they had a manufacturing company, mom and pop privately owned that was doing 75 mil revenue, I’m gonna try to bid that, see what I can do. But it’s also outside of where my experience and principal.
College is within the field. So you could realistically find a better result from someone who specializes in manufacturing as an example to where I would probably just decline the quote if I can’t do something well, I’d rather be upfront about it and just say, it sucks. I love to work with you and this is a great opportunity, but you can be better served elsewhere.
And again to mention something you said earlier, all those opportunities with the renter’s insurance to, to reduce your total premium cost by getting those better insurance carriers or, get more coverage for your money or get the same coverage for less money. Every dollar that we save on the insurance cost is gonna be straight into the noi.
And increase our property value. , it’s a fine balance between where can I save money versus how much coverage do I have? But it is when you get the same coverage for less money because you did all these things, then you or you find the right insurance agent, or you find the right carrier, then that’s money that goes straight to the bottom lines to the No, I And obviously N NOI impacts property value.
Absolutely. And by working with someone, is knowledgeable. Within this space, you can generally find, assuming that there is an opportunity to improve on the account, a better premium with better coverage. Now I go to the example of a middle market account. I wrote last year with around 1100 doors in Michigan and Ohio, and they were with one of the big top 100 national agencies previously.
But to them that other. , this insured was just another big account. They have lots of middle market accounts, so they weren’t getting a ton of, personalized service or dedicated thought and effort into the account a account, several orders of magnitude with demand from such an agency.
I came in and I was able to bring their total insurance spend down right around 22%. Year over year, and we went from actual cash value across the entire portfolio to, I wrote replacement costs on probably 75% of the portfolio with the remaining properties as a AC b, just because that’s how it was before, and they wanted to keep those locations ACB to keep the cost down.
, help with the NOI on those locations. But I was able to come in and reduce their total insurance spend by right around $70,000 a. And massively, that’s a lot of money. Their coverage. Yeah. Which that translates into another acquisition every year or two, yeah. So it’s a lot of cash flow that has been freed up by revisiting the account with, truthfully, someone who wanted it more than the existing broker.
. Yeah. Here’s another, Gotcha clause that the insurance agency love to do with the A C V A ACV stands for actual cash value. For example, if you have a roof and the roof is 15 years old and the lifespan of a roof is 30 years and you have a claim on it, now all of a sudden you only get half.
, right? Because the roof has been half his life already done. So you are replacing a, a roof that is 15 years old. There it is. So know your property, know your roof’s, age, know your, all your other components age, because a c v actually means you’re gonna get less when there is time to do a claim.
Exactly they come with that, those appreciation penalty. And it’s just, it’s not with is expected by million investors cuz they’re thinking I got ACB coverage. I want to base it off close to the retail value of the property. I didn’t wanna insure twice. But then when the claim happens and they’re paying half the loss or more out of pocket, I mean that stings.
Yeah, that, that’s big. And again, same comments just from the other side of things. That goes straight to you. I know why. And impacted in just the hard the wrong way. . So I have a note that you mentioned something about no drugs on premises. What is that about? So I think it’s a good idea to have several.
Written into your lease in conjunction with speaking with counsel. The first would be, if you’re renting residential multi-family properties to individuals or families, it’s a good idea to stipulate in the lease that there are no illegal drugs that will be kept on premises. . And the main motivation behind that is that let’s say your resident has a friend come, , maybe it’s an 18 year old kid that you’re running to, and one of his buddies from high school comes over and maybe they’re doing illegal substances that they shouldn’t be, and the friend who is visiting overdoses and passes away, they could try to come pointing fingers at yourself, the multifamily operator saying that you were negligent in renting to this person.
So by having something like that strictly written into the. , it gives you something to stand behind should something like this, unfortunately make its way to a jury trial. . So it’s rather than in a nightmare scenario like that, trying to fumble together a defense, it gives you something concrete to where you said, don’t do this.
And they ignored you. They wrote the rules rather than, , it never being addressed in the lease. . So I think it’s a good idea to have a no illegal drugs clause in the lease. I also think it’s a very good idea, especially if you have, a parking lot for your apartment building where residents can park and store their vehicles.
and I actually took this idea from a large national property group, McKinley Properties, who I read through their entire lease agreement, took notes on things I thought would be good to implement elsewhere. , and I’m presuming that over the last six decades that they’ve been in business with, around 60,000 doors under management.
They’ve probably learned these things the hard way from experience . Yeah, but I think it’s a good idea to write into your lease that if a resident intends to park their own vehicle on premises, that the landlord and property management company and building owner are expressly not liable for any damages.
Theft, a tree branch from a neighboring property pulling on the car. If something like that happens and they do not have their own insurance and maybe they needed that vehicle to get to and from work and this caused a real problem for them, they’re going to come pointing fingers every which way, and they’re most likely gonna come after the landlord because, hey, the landlord has all this money type of approach, especially with their attorney egging them on.
, but. stipulating, you are expressly not liable for damages that occur to the resident’s personal auto kept on premises. It helps to diffuse those kinds of situations before they even have a chance to make it to court. Because if your attorney and this person, a resident of an apartment complex comes into your office and says, Hey, the a tree that was hanging above my car that I parked.
had a branch fall over in a windstorm and it toed my car. I wanna sue the landlord. They’re probably gonna ask for a copy of the tenant lease agreement. , and they see that you are expressly not liable in claiming as such, and that you encourage them to purchase their own insurance with comprehensive and collision coverage.
It might dissuade someone like that from taking this case on a contingency basis rather than it’s just not being addressed in the lease. . Yeah. Okay. That makes sense. So we talked about the renter’s insurance. We talked about the landlord’s insurance. What about other entities that are on or around our properties, like vendor suppliers and so on.
What’s your thoughts about that? There’s a couple thoughts. I’m a big believer in not hiring a, a lawn care company or a snow removal company. Unless they prove that they are insured properly. So on the general liability side, you want to be named a additional insured so that if the arborist you hire to trim a tree accidentally knocks it over or otherwise does damage to someone else’s property, that their insurance would respond with a mutual defense clause protecting your organization rather than that turning into two insurance.
One on the vendor’s insurance and another on your property policy. So it again, keeps these claims from going onto your history, falls back onto the responsible party’s insurance and their insurance would have a duty to defend your organization. So I think that’s really a full stop requirement if you’re going to be hiring contractors who will be on premises.
You hire an electrician who maybe does a not great. working on the electrical of the building and it causes a fire and maybe someone passes away in that fire, that could turn into a claim on your insurance as well. But it’s better if it falls back onto the, responsible party in this scenario.
So I think It’s a good idea. Really, it should be a full requirement that any vendors will be working on or servicing your property. Should have their own general liability insurance and name yourself as a additional insured. And you should also require that they have a copy of worker’s compensation.
So get a certificate of that has to be named an additional interest on that for rep purposes. That way at the end of the year on maybe your property management company’s workers’ comp audit, when they ask, Hey, did you hire any contractors over the last year? You can say yes, but they proved they had their own workers’ compensation insurance.
That way, that doesn’t become premium, that you are responsible for paying because your worker’s comp policy would otherwise pick that up. Yep. That makes total sense. Okay. Are there any. Tips, tricks, suggestions you have for our listeners before we wrap these things up. There’s one other concept that is, it’s becoming more popular over the last several years with the insurance marketplace hardening, and that is a captive insurance program with a captive.
You are the insurance company, it’s a licensed insurance entity, and it really works best for those organizations who. Hey, I pay a half million in premium or greater, and we’ve only filed one claim in the last five years. It was for $50,000. We don’t really have claims like that. We were on the tight ship.
Maybe we have sprinklers in our buildings. We have fire extinguishers and we implement risk management best practices that. make us a desirable insurance account. , a captive insurance program is an entity to where it is controlled by the member. So you would essentially own an insurance company for your own self use purposes.
And this doesn’t work with everyone, but if you’re paying right around the half million in premium or greater, and you have a significantly better than average loss experience, maybe your loss ratio, the. Claims paid out, money paid out in claims, versus the amount premium that you pay is somewhere around 20% paid out versus what you pay in a captive would probably make sense for you depending on the scale that you’re at.
And it works well for the captive owner in two ways. One being that you keep the underwriting profit, premium minus claims that you pay into this captive and. You keep the investment income that is generated. So it’s like how Berkshire Hathaway made most of their money, not necessarily on the profit from underwriting, premium minus claims, but that they have all this money and cash flow coming in that is otherwise being invested until it’s.
Used to settle claims at a later date. So you can really profit from those two avenues and make this into not an expense for your organization, but a another potential revenue center that you can Yeah. The double end in it basically. It’s interesting I’ve seen the captive insurance work in small things like ensuring the cars, ensuring their office supplies and, electronics and stuff like, I haven’t seen anyone do that on the larger real estate side of things because one catastrophic event and you’re underwater, right?
So it’s kinda like to pay half a million dollars in insurance, you gotta have multiple tens of millions of dollars of real estate, right? One of them goes on the ground and you need about 10 years worth of that half a million to cover the issue. So it’s kinda it’s a risk reward factor then in that case it’s a high risk and for something like that, you can help to balance the risk by purchasing reinsurance for your captive. So reinsurance is okay. Yeah. Okay. It’s insurance for insurance companies. So for example, I’m just making numbers up for hypothetical here, but let’s say State Farm has. A reinsurance treaty that triggers after 5 billion in hurricane losses over a calendar year.
If one year they have a bad season and they pay out 10 billion in claims, they would get that 5 billion after their, initial threshold is met, return to them by a third party Reiner. So your Munich re, your aig, there’s lots of reinsurance companies. You could. Purchase the voids of London Reinsurance Treaty or something along those lines.
That’s definitely an interesting concept for the more the larger companies out there, right? So I’m sure some of them will reach out and say, Hey, talk to me. It’s interesting. . So in just to respect your time and our audience, anything you would like to say before we wrap up? Or where can our audience find you?
If they wanna reach out, they wanna talk insurance, they wanna get a quote, maybe get a list of those. Good to know. Add these to your least kind of clause. How can they reach you? My email address is Calvin, spelled like Kel Klein, c a l v i. At Falcon i n s short for insurance agency.com, and if they are inclined, I’m available on LinkedIn, Facebook, you can reach me a quite a variety of ways and I’m incredibly responsive.
Awesome. We’ll put the links in the show notes as well, Calvin. That was very educational. I’ve learned a lot. I hope I have learned some things as well. Thank you so much for coming up on the show. Oh, thank you very much again for having me. It was my honor and pleasure. Awesome, and for you, the audience, if you want to hear more about multifamily, please go give us a review.
Doesn’t matter, one star, five star. Just give us a review you feel is right on iTunes, on Stitcher, on SoundCloud, wherever you consume your podcast and subscribe. We’re looking forward to another episode coming up soon. Awesome. Thank you again very much. Hope you have a great day.
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Episode 124: Paul Moore
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. We have a repeat guest, our first repeat guest of the podcast, my friend Paul Moore.
Paul is an amazing guy and we bring him, usually we talk to operators. Paul is the operators operator. It’s the next level up. Paul, give us a few minutes just so the audience will have a refresher if they haven’t heard our previous podcast or they don’t remember since it’s been so long since you’ve been on.
Man, it’s great to be here, Joseph, but why did you want to get a guy on who has a podcast called How to Lose Money? Come on. First of all, I was a guest on that show, so I liked that show and I’m a great man of that show. And this is in a way, your podcast inspired mine because you said it. The same thing is there’s way too many podcasts out there that just talk about the rainbows and lollipops.
Yeah. And here on this podcast, we talk about the real no sugar coat. Truth of operating apartments and operating multifamily. So that’s why you’re here and you’re like I said, the next level up. So I’m sure our listeners would be happy to hear from you. Yeah, man, thank you so much for having me on again.
So yeah, I had a engineering degree, which was my first mistake, and then I got an mba, went to Ford Motor Company, had my own staffing firm from five years, and then I. Just went off into a shiny object chaser mode. Like I started all kinds of companies and most of ’em, I don’t, some of them, I should say, I don’t remember now.
Most of them never got off the ground, but I did a couple things that were really interesting. I flipped houses. And then we flipped waterfront lots. Then we built some houses. We did a ground up. We did some we did seven or eight houses we built from scratch. That didn’t go very well. But I did a subdivision, which was land development and that.
Went really well. And then we eventually invested in oil and gas in North Dakota and we found out that there was a massive housing shortage during the oil boom in 2010, 11, 12, 13, et cetera. So we built multi-family there and we operated that for a number of years. We had no idea what we were doing. In fact, when we went to sell the property, they said, do you have a copy of your rent roll?
And I. What’s a rent roll? And they said, what do you mean? What’s a rent roll? I said, what do you mean? I said, I got a list of everybody who stays here. And that’s how little we knew about it cuz we weren’t connected to any multi-family, any formal procedures and all that. We were operating at more like an ex.
Extended stay hotel, because these were flexible leases. They were paid corporate suites basically. And so we had a lot of fun doing that. We were charging like 4,000 a month for our 300 square foot furnace unit, and we were staying pretty full, so that was fun. But my partner decided to do a Hyatt hotel and I helped him for a while, and then I broke away and went back into multi-family.
My goal, Joseph, was to stay in multi-family the rest of my life. But then I came to the conclusion that maybe it was overheated. Now the real problem wasn’t just that. The problem was too, my company didn’t have a good acquisition team. We didn’t have great strategies, we didn’t have a great team, and we just weren’t finding the deals that other people were finding.
And so out of frustration, I started looking at other asset classes. We looked. Self storage. We looked at senior living and we eventually decided to start investing in self-storage and the other multi-family, and that’s mobile home parks. Remember in the, maybe before your time in the nineties here be before.
Before you came to the US there was an ad campaign called Pork, the other white meat, and we thought that was pretty funny. We always made fun of it. Now I call mobile home parks, the other multi-family. So why do you call it the other multi-family? Where is operating a mobile home park similar to operating an apartment and where is it different?
Yeah, so I wrote a book on multi-family investing, and at the time I thought it was the perfect investment and that’s why I called the book that now. , just to be clear for you and your listeners, I still believe that. I still believe multi-family is the perfect investments. It’s got incredible demographics, it’s got long-term data that would support that.
Multi-family is gonna be a great asset class for decades to come. It’s got all kinds of benefits and features and things that just make it a wonderful asset type. The foreclosure rate is extremely low. It’s almost zero, and we. Multi-family, I call mobile home parks. The other multi-family, because it’s also a property that has multiple families and individuals living at it.
Unlike self storage that has nobody living there except some mice, the mobile home parks, have a lot of different individuals sharing the common space. What I love about it is, . Unlike multi-family, it’s an opportunity. Unlike apartments, it’s an opportunity to partner with our tenants because mobile home park investing done well usually doesn’t have mobile homes involved unless they’re owned by the tenants.
In other words, we’re basically leasing land to. Tenants who are bringing or buying their own mobile homes at the park, when they bring or buy their own mobile home, they’re actually responsible for the maintenance, the upkeep, and if they walk away and don’t pay their lease, eventually they’re gonna be walking out of there without their mobile home.
Sure they can haul it off in the middle of the night, but it typically costs $5,000 to move a mobile. . And so even with Covid going on when there was some eviction moratorium, Our operators would tell these people, look, you might as well keep paying your rent. You’re making money from the government anyway, and if you get six months behind on your rent, the day this eviction moratoriums lifted, we’re gonna file eviction against you.
How are you gonna catch up and you’re gonna lose your home? And typically they would. And stayed caught up. And so we really mobile home park investing. The tenants are sticky. And you know what, Joseph? It’s the only asset type we’ve ever heard of that has a decreasing supply and an increasing demand.
every year, so we really like it. Yeah, I heard about it. Is it true that it’s about every year about 3% of mobile home parks are being wiped away and no city or county wants to approve new locations? I don’t think it’s, I don’t think it’s that high. There’s about 40, 44, 40 5,000 mobile home parks in the us.
It’s believed that 85% are owned by mom and pop operators. They don’t have the know. The desire, the skills, the money to upgrade the park and to increase income and to maximize the value. and they don’t need to. Think about this. Cap rates used to be like 12% for mobile home parks. , now they’re really popular and the mobile home parks cap rates have gone down to say maybe 6%.
So Wow. While the operator has done nothing except b. status quo or mediocre? Yeah. Their value of their park has perhaps doubled, and so they don’t have to do anything. Why should they? So if they sell, One of our operating partners can pay them top dollar in their mind. They’re getting, absolutely top dollar more than they ever dream to go retire with.
But this operator can take that same park and create a wonderful asset with higher income, better park, better maintenance, better everything, and they can sell it to a larger. Like a REIT sometimes for top dollar and really do well by their investors. . Interesting. So I heard you say 85% is still owned by mom and pop.
Yeah. That means that this field, that this asset class still has a ton more opportunity, right? For people like Q and I to come in, raise money and buy these things out. But we’re investors, right? We’re operators. We’re looking at things a little bit different. A couple questions that I always had in mind about Mobile Home Park is one.
because you don’t own the homes, right? You only lease the land. Land is not appreciable. Isn’t that being taxed like ordinary income at the very high brackets? Man, Joseph, this is one of the big. Hard to believe. Secrets of mobile home park investing because bonus depreciation is so strong, you can actually depreciate in many cases.
Of course, I can’t guarantee this, but in many cases, investors get back over 100% of what they invested is depreciation in year one alone. Now, let me. And if you want me to drill deeper, I will. Please do. But typically, a mobile home park is about 25 to 35% valued in land. The other 65, maybe 75% is in infrastructure.
The infrastructure, and sometimes there’s mobile homes in there too. Like some park owned homes, but the infrastructure is typically depreciable not in 39 years or 27 and a half years. It’s typically depreciable in 15 or 10 or five or three or seven years. Will all those asset classes, excuse me, all those depreciation classes under the.
Tax Reform Act in December, 2017 are all compressed at the moment, at least into year one, bonus depreciation. And so if a mobile home park has, let’s say, 50% loan to value mortgage, so you got a 5 million park, two and a half million equity, two and a half million debt, okay? . Now the 5 million park, let’s say a million and a half of that is.
Now you’ve got three and a half million that you can write off, and if you can compress all that, let’s say of that three and a half million. 3 million, okay, can be depreciated in year one. ? The total investor size is only two and a half million. So all that two and a half million in equity is getting a $3 million write off.
So those investors are getting incredible tax deductions. Would you have ever dreamed that? No. I assume that the land value is much higher. Me too. As part of the cost of the mobile home park, is that something that you guys have to put into the contract? The value of the land, the value of the improve?
That’s funny you say that. Cause I used to think that. I used to think, oh, what is this some kind of funny accounting where you’re adding in goodwill? Or is this some kind of thing where you’re adding in the value of the business separate from the real estate? No, this is all basically done on what’s.
It’s similar to a cost segregation study and some mobile home park owners just use a typical cost segregation study, and there’s actually two different ways to do it, but they both arrive at a similar conclusion. Interesting. . Okay, so let’s talk about the operations, right? So one of, right out the bat, you said the biggest difference is no maintenance, right?
So you don’t have to worry about the houses and the inside and faucets and plumbing and all these other stuff, right? Yeah. But you still have the infrastructure. Absolutely. Yeah, we have some maintenance for sure. So let’s talk about size for a second. What kind of size of mobile home parks you guys are invested in.
Because I’ve seen those as little as like 12 lots. Yeah, and I’ve seen those go to hundreds and hundreds of lots so yeah. What is your. Portfolio looking like in terms of advertised? Yeah. Our sweet spot would be investing between a hundred and maybe 300 units. So of course larger would be fine, but they’re extremely hard to find a large mom and pop mobile home part.
Now, the percentage out there is so small, but I mean like our best deal. Last year, and I can drill into the details on this, but at a high level, we did due diligence. January, 2020. We closed on it February, 2020. We did four important things to the park, and this is again, improving on the mom and pops.
Oh, it’s important to note, the seller had not been to the park in at least five years. She lived five, four states away, and so she just never went. . And so she got top dollar 7.1 million and we sold it 10 months later for 15 million. . Oh, wow. Okay. Yeah, so the return on equity, the equity was only three and a half million of the 7000007.1 million, so the equity return was quite substantial.
Awesome. So what did you do? How do you add value in a mobile home park compared to an apartment complex? Yeah, there’s a bunch of ways to add value. Like you can lease sheds, you can lease carports, you can build decks and sell them or lease them to the tenants. You can lease storage to the tenants. You can do internet, cable tv, but we didn’t do any of.
Here’s what we did. Our operating partner went in number one. Now imagine we’re talking about 311 units, so it was a large park, okay? And it was a decent park, and it was in a good area. But the first thing was the operator. The previous, the seller had not raised rents in many years from what we understand.
So they were 35% below the market. Now, excuse me, a smart mobile home park operator, especially a buyer, is not gonna go in and raise. Rents that high. Even if they could, they shouldn’t. And that’s one thing that’s really important to us. We don’t want to see anybody taking advantage of people, especially in a lower income bracket.
So they raised rents a fraction of that 35%. But as with the commercial real estate value formula, a small amount of increased income is a real big. to the value. And so that small amount of increased income, let’s say that they raised rents 10%, and I actually don’t have the actual number.
, let’s say the rates were raised 10%. That can raise the value by maybe 20%. , but with leverage, that can be, that can cause a 40% appreciation on the equity and you know that. Yeah. So that’s number one. Every dollar times 311 times 12 months. Ah-huh. . Actually, let me tell you more about that, but you’re right, that’s right.
Second, the utilities, if you can believe this, were still paid by the owners. And so we went in and we actually had my operating partner installed meters on every lot. And the tenants. Started paying for the water and sewer, which is actually way more environmentally sound because they use an average of 30 to 35% less according to studies.
And so that pass got pa, that cost got passed back to them. Let’s just say that was 150,000 a year, $150,000 a year, added straight to the bottom line. At a 5% cap rate. When we went to sell, that was 3 million in value created. Wow. Okay. Absolutely. So that’s a big deal. So that’s the second one. And that was the big one, by the way.
The third thing is the costs were really bloated because, the owner was just, she just had a cash cow and she would pay whatever she needed to do to pay for maintenance. Or pay for, management or to pay for whatever she needed. So the costs were greatly slashed. 60, $80,000 a year, which again, that, that creates a big amount in the value.
And the fourth thing, and this is really weird, there were 50 vacant lots. Now, Joseph, it’s not like apartments. I mean filling 50 vacant lots with mobile homes that cost, let’s say $5,000 to get in there and they might cost 50,000 for the new home. , or 10 or 20,000 for an old home. That’s a big. Big chore and it’s a lot of effort.
And by the way, that’s why the mom and pops don’t usually fill their vacant lots. It’s very hard to do. , my operating partner didn’t do it. He set out a plan to do it. He was on the way to doing it, and that’s when he got the offer for 15 million and that was only six, five or six months into owning it.
And so he got that offer and then he closed 10 months into owning it, and the rest is history. . Yeah, no. Cuz the big grids or the big owners out there that they operate differently, right? They can spend that CapEx to buy those 50 mobile homes and then start doing either park owned leasing or set them up with owners financing.
For the tenants to start buying those off their hands. That’s right. So they make money on the financing side, on top of the. The purchase side. But that’s because they have that size and that infinite money for CapEx, right? That’s why they also offered you 15 million, six months after you paid seven, right?
Cause they look at differently. Yeah, I knew the buyer and I did the math on the back of an envelope for the buyer, and I thought, you know what? He didn’t do too bad either, because if they can fill those 50 vacant lots, it should take them four years. That’s one mobile home per month. If that takes them four years, more or less.
they’re gonna do fine. Their value. So they’re a long-term buy and holder and they plan to hold this 40 years. Yeah. And so they’re gonna do fine. But yeah. The crazy thing is, do you know Berkshire Hathaway? Yeah. Actually is at, involved at least two or three ways in mobile home parks. Number one, they have 21st.
21st mortgage will actually do up to a 100% loan on mobile homes new, or even up to 20 something years old. And so they’ll actually go in and so if you can, let’s say you’re the mobile home park owner operator, and you can find a home on Craigslist for $10,000, spend several thousand dragging it in and setting it.
and then you can turn around and 21st mortgage, we’ll finance that to the right tenant, okay? Or you can go to Clayton Homes, which is also owned by Berkshire Hathaway, and you can get them to finance to, basically, Clayton will finance the mobile home. They’ll put it in there, and after 12 months of it sitting there, if you haven’t filled it, you gotta start paying as a lot owner.
But there’s no reason a well marketed mobile home. In the right location. Shouldn’t be able to fill a mobile home, like that in a year. Yeah, of course. they basically give you 12 months with no payments. I think that’s how it works. That’s my understanding. And the 21st mortgage one, here’s a little sly thing Berkshire Hathaway does.
They actually have the, Park effectively co-signing for the deal. They’re not really co-signing, but what they’re saying is if this home gets trashed or if the people move out and stop making payments, the park has to assume the home. Interesting , and it’s the park ownership. You have to sign on it.
that basically you sign a deal with them that says you’ll take over payments. And so think about it. This is a great deal for everybody because the part gets a new income stream. The Clayton or whoever sells a new home, Berkshire Hathaway, gets financing with a g. , guarantor. Yeah. And the individual who can’t afford their own home with a medium credit score can actually get in and get their own home where they get their own backyard, their own playground area.
They can park right by their door, have a grill outside. Some of the things they might not be able to get in their parents’ basement or in, some high-rise apartments and things. . Yeah. Now we interviewed Kevin Bupp as well and that’s the majority of what it does is mobile home parks and it works great for them as well.
Yeah. So you also got into another asset class in the last couple of years since we, we talked, right? What’s the other asset class? Yeah, self storage. I’m actually writing a book called Storing Up Profits Capitalize on America’s Obsession with stuff by investing in self storage. That’s awesome. Tell us more, how does it look like?
What does the average deal look like for you guys? How. The obvious thing is you have no tenants, right? So that’s different operation wise, but I’m sure there is still maintenance for the buildings. Oh yeah. There is the whole business aspect of everywhere I saw a steal storage. They have a rental truck and they have packing materials and all this kind of stuff.
So how does that look like operational wise? To deal with on compared to, of course, apartments that we are. Yeah. Let me tell you, let me start by telling a little sort of a story here. If I was renting you an apartment in a thousand dollars a month and you, if I was the landlord, and I said, Hey, your rent’s going up 6% next year.
That’s, a thousand dollars rent, that’s $60 a month, that’s $720 a year. You might move out rather than sign up for that extra $720. But if I was renting you a storage unit, let’s say a 10 by 10, and it was a hundred dollars a month and I raised your rent, six. , you’re probably not gonna get a U-Haul.
No, you’re probably not gonna get your friends together to move all your junk, your treasure down the street just to save $6 a month, especially when you’re on a month to month lease. And you can know that you can, eh, yeah. next weekend or next month, I’ll go ahead and clear that stuff out and get out of there.
And of course, they usually forget about it again for until the next rent increase in a year. , or it could be the next rent increase could be in three months. But it’s very flexible terms. There’s no eviction problems. There hasn’t been any eviction laws passed against self-storage that I know of.
Any moratoriums you don’t have to deal with toilet. Tenants and trash. Although there are tenants, you’re not dealing with the same level. The value add or the maintenance usually on these is when someone moves out. You just have to sweep out the unit and put it back on the market. When I first heard about value adds, Joseph in self storage, I think I laughed out loud.
I. , what can you do to value add a self storage facility? We’re talking about four pieces of four or five pieces of sheet metal, a floor and a door, and some rivets. How are you gonna improve, where is the paint and where’s the carpet and the cabinets and the countertops and fixtures and faucets and lighting.
The value add is in other areas that you already mentioned, number. If you add U-Haul, it can be huge. If you’re in an area where there’s not a lot of U-Haul or there’s not an oversupply of U-Haul, you can make up to several thousand dollars. A friend of mine’s making, I think, $5,000 a month with U-Haul in front of their facility.
Five thousands high, let’s say 3000. So $3,000 a month in commission from U-Haul, that’s $36,000 a year. Divide 36,000 a year by a five or 6% cap rate, and you just increase the value of your facility by six or $700,000 perhaps. , that’s a pretty good day just for signing a. and it’s a really good impact on equity, especially if you got a deal where you only have a million and half in it, and you just increased it by say, 30% by just signing a contract with U-Haul and getting started with them.
That’s a big one. Another one’s showrooms, and you mentioned this, you can sell locks, boxes, tape, scissor. Bubble wrap, and you can also upsell the clients. You can also, give them special deals. You can sell them tenant insurance, and you can make money from that. Other value adds a big one is just all the vacant land.
A lot of mom and pop owners will say, yeah, here’s my self storage facility on three acres, and there’s. Five acres vacant right beside it that comes with it. You can turn that into an RV and truck parking lot, and then while you’re parking RVs, trucks and boats there, you can start building out a little more self storage at a time to see if you can fill it up.
And especially if you can get some state-of-the. Climate controlled self storage, it’s likely that you’re gonna do really well with that. So that’s one of the biggest value adds that there is. Other stuff like adding cell towers. adding an at t m machine, selling propane, things like that are also done at self storage facilities.
Oh, one of the things that I’ve seen the last couple years is people getting creative. Have you guys looked into maybe take an abandoned TomTom or Albertson’s? That is a big space in a retail and all those REITs that owns those places. , they can feel a 200,000 square foot location very easily.
And converting those into climate controlled self storage in great locations because you can rent it out of the reed really cheap for a long term. Have you considered something like this? Is it something that you’ve seen other operators in the field do? Yeah, in fact, one of the chapters in my books about.
A guy named AJ Osborne, you might have heard about him. He was actually in a coma, but his company kept operating while he was sick. They bought a re, the reno. . Yeah. They brought the Reno, Nevada super Kmart and they, I don’t know how much they originally paid, but they sold the parking lot off to apartment developers.
And when they did that, and then they did the upgrades to make it into a self storage facility, they actually had seven and a half million dollars in it. That was 5 million in debt and two and a half million dollars in cash. , they actually cut the old Kmart in half to create more perimeter for more external, outside self-storage.
They made the inside climate controlled, beautiful, climate controlled self-storage, and I was on the phone with him in December of 2018 when he told me that he just got an. . Now, remember, he only had two and a half million cash in it, seven and a half million total. He got an offer from a REIT to buy it for 26 million.
Wow. That would’ve been about an eight or nine to one return on equity, and he turned it down because he believed he could do better because he was only 40% full by then. That’s incredible. Yeah. People are very creative on these things, and then, . So operating, I’ve seen two kinds of storage facility. One that has everything automated, right?
So you click buttons, you get in, you can lease. There’s a little mini kiosk you can lease through, and they give you a lockbox and everything. And I’ve seen those that have, like the guy that operates the store also lives above the stores in a mini apartment, right? And he’s the one that does everything else, right?
Tell us a little bit about your experience. What have you seen out there? How do you tackle the two different ones? Yeah. We have one that we invest with who’s based in Georgia. They’ve got, decades of experience and they believe it’s best to have the manager on site. So if they buy a mom and pop self storage, they’ll often build an apartment to put somebody on site.
And then if for some reason the person can’t or won’t live on, , but they’ve got a great person. They might lease that, for, to a college student or whatever, but having somebody on site, Provides a feeling of extra security. If the person is a workaholic, they might be willing to go down and help people or let people in the night.
It just gives a better feeling to some people, it definitely allows them to staff the showroom. to work extra hours to clean out the U-Haul S and get ’em ready for leasing the next day, which they do have to be swept out by the way. Those are the type of things that happen when you put somebody on site.
Like you said, the other model is not having somebody on site. There’s another model, Joseph, that’s fully automated. where basically there’s nobody on site. It used to be it costs like $35,000 to get a kiosk to actually do your transaction through, but now with an iPhone or , any kind of smartphone, they can actually sign a lease and get set up and get a gate code and everything all through their smartphone, and you lose something there.
You can’t do as good a job upselling. You can’t sell locks, boxes, tape, scissors, and bubble wrap. , but. , you can cut deals to do that kind of stuff, but you have to get pretty creative to try to do some of those type of things with an automated facility. But think about how much money you’re saving.
Yeah. A whole year worth of salary. Yeah. Yeah. Fantastic. Okay. I wanna be conscious of your time. I know you have hard stop in the last two years perspective, right? Because we’ve asked you that two years ago, and I’m gonna ask you again the same thing now, and it’s like, , if you could go back two years, not 20 years, right?
What would you tell Paul from two years ago that today, you didn’t know two years ago? Warren Buffett? I’m writing a book on Warren Buffett’s principles for real estate investors, and he said The best investors say no a lot. The very best investors say no almost all the time. And I originally, when we got started, I originally was headed default my whole life of trying to say yes to things, trying to make things work, trying to find a way to make you know, something good.
Now I’ve learned, and that’s been maybe over three years actually, to really have a. and a mind defaulting on. No, and that means when we go in to meet with an operator, we really don’t try to make it work. We don’t try to find every way we can to say, yes, we really do have a default. This probably won’t work.
, but it could work. Let’s talk and. that’s really helped. If I’d have spent my whole life with that mindset, I think I would’ve lost a lot less money and made a lot less bad deals in earlier decades. Sounds another episode for your podcast. I know, right? Interview yourself, . Yeah, man. I should.
That sounds like a good idea. Okay, awesome. Thank you so much, Paul. So for our audience that would like to reach out to you or maybe invest in your funds, maybe find where they can buy your books. Definitely. I highly recommend listening to the podcast, how To Lose Money. It’s a fantastic podcast with really great guests.
I’m not saying just because I was a guest, , how can people find you, and obviously we will add all that in the show. You can find us@wellingscapital.com. That’s W E L I N G S capital.com. And if you really want to get a an ebook, a free P d F Guide to Self Storage Investing, or Mobile home park investing, or just commercial real estate in general, which includes multi-family, you can go wellings capital.com/resource.
and we’ll get you all that information for free. Awesome. Thank you so much, Paul, for coming back on the show. I really, thanks Joseph. Appreciate. , man, it was really an honor to be here. Thank you so much. Awesome. And for you, the audience, if you wanna listen to more of our podcast, you can go to iTunes Cloud, SoundCloud, Stitcher, Amazon, wherever you want, wherever you consume your podcast, and download more episodes.
And we’d also appreciate if you can leave us a feedback, whatever it is, one star, five starts. We don’t mind as long as we get some feedback. We appreciate that all the time. Thank you so much, and we’ll see. Thank you for listening to our show. If you want to enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud.
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Episode 125: Stewart Beal
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Welcome everybody to the Apartments Operated podcast.
Today we have Stuart with Stuart. Bill, and Stuart owns and operates thousands of units. He’s with Bill Capital, he’s got a lot of experience. Welcome to the show. Hey, thank you for having me. Absolutely. So we start usually the show with giving our guests just a few seconds to introduce themselves, tell us a little bit about yourself, what you’ve been doing, how’s your portfolio looking and then we’ll take it from there.
Okay, great. Yeah my name is Stuart and this is the 20th year of my real estate career. I started purchasing properties when I was 19, in 2002, and now we manage 3000 departments. In about 65 cities in the state of Michigan, many around metro Detroit. And then in addition to that, I’m invested in about 3000 other units through real estate syndications, where the properties are too far away for me to manage them.
North Carolina, South Carolina. So we were invested and manage about 6,000 units in total. We have a property management company, so we do three things for real estate investors that ways that you could get involved in what we do. The first thing is if you buy a property anywhere in the state of Michigan, we’ll manage it for you for a fee as a property manager that could be as small as a single family home.
Or the largest property we’ve ever managed was a 468 unit apartment building. We also have experience managing office space, retail, pretty much everything, but mobile homes will manage, and then that’s the first thing that we do for real estate investors. The second thing we do is we buy two to three small properties a month.
So a lot of times non-accredited investors approach us and say, how do we get started? How do we get involved? And we invite them. To JV with us, so to speak, into a single asset entity where we’re buying a small property. A triplex four unit, five unit. Tomorrow we’re buying a six unit in Port, or Huron, Michigan as an example.
That’s the second thing we do for investors. And then the third thing we do for real estate investors is we do real estate syndications. We’re currently raising two funds right now. Fund two is investing in apartment buildings, mid-sized apartment buildings, 20 to a hundred units. In the state of Michigan and then be Fund three is investing in office buildings, single story flexible use commercial slash office buildings in the state of Michigan.
And those two funds are active right now and you could invest in them right now. Awesome. First of all, wow, . That’s a lot of experience and that’s a lot of things going on at the same time. So I think this is gonna be a very interesting conversation. So we’re recording this in November, 2022. The Fed just increased another three quarters of our point last week, and they’re gonna do that again next week.
Inflation is going crazy. Interest rates are going up there’s no tomorrow, right? Everybody’s asking. What do you think about the market, right? So tell us, what do you think about the market? What do you see things going, what is your outlook on the short one, two years and then in the five, seven years range?
Kinda like someone with your experience. You’ve been around since 2002, so you’ve seen the big crash, right? Of oh 7, 0 8. So I’d love to hear what you. Yeah. Okay, great. So it’s very strange. Four months ago we borrowed 1 million at 3.45% interest rate to purchase an office building. And yesterday I agreed to pay 7.19% to do a cash out refinance with that very same bank on a different property.
And. . I didn’t readily agree to that. That was the best offer that I got on this property from the lending people that I was speaking to. It’s not a big property, it’s a small deal, so maybe I could have gotten a better interest rate if I had some more meat on the bone type of thing. But anyways, it was the best Buy a lot.
Yeah, it was the best offer that I got. What I tell people, And I’ve been doing this for 20 years in a couple of different environments, economic environments. What I tell people is everyone is gonna be playing the game on the same field. Okay. So you and your competitors on the buy side are gonna be.
Being offered approximately the same interest rates that you are on the sell side, your seller, the sellers are going to be selling to people that, again, are, have the same interest rates as you are, and when you can borrow at 3.45%, a building is worth a lot more. It’s both a buyer and seller.
Then when you are borrowing at seven or 8%, right? The debt is double. The sellers are gonna have to realize that, or they’re not gonna sell their buildings. And people, people sell buildings because they have to a lot of the time. And so the prices are going to have to stabilize or come down because buyers are not gonna be able to afford as much.
The, what I tell people is you can do well on. Economic environment, as long as you have a robust deal flow pipeline and you’re underwriting and reviewing multiple properties a month and then just doing the one or two that are the best for you, that you have the highest chance of succeeding at. And if you’re reviewing, let’s say you review 20 properties in a month and you pick the best two and you don’t do those 18.
You’re gonna do pretty well, in any environ. Because you’re choosing the best deals that are available to you and that you have the highest success. Now, if interest rates get too much higher, you’re gonna see me paying some debt off and holding properties in cash for the first time. You’re gonna see me buying properties in cash and maybe not refinancing as quickly.
You’re also gonna see more land contracts, right? Because sellers would be glad to be to lend you money at 6% instead of 8%, which you’d be borrowing it from a bank. So there’s a couple of different. Shifts that you can go to in, in higher interest rates. Now, I’ve never done higher interest rates before I, in 2002, I borrowed money at 5.25% by on my first deal, and then maybe my second deal, I borrowed 5.5, but I’ve been under that for 20 years.
I’ve never borrowed money at more than 5.5 basically for 20 years. And so this will. This is a new environment for me and I’m gonna have to learn how to adapt as we all are. But I will tell you that in 1981, my father bought his first house and in 1981, interest rates were 18%. And so the way he got that deal done was a land contract.
He borrowed the money from the seller at 12%. He thought that was a great deal, 33% less. Interest payment than you would’ve you borrowed from the bank. And the seller thought it was a great deal too, because he sold a house that he had to sell. Cause he had to move and he got a 12% return on his loan.
So you’re gonna see different things happening, yeah, I know. That’s a good point. And for our listeners from other states that, dunno what a land contract is, usually cell financing is just how we address it. At least in Texas, we call it seller financ. Land contract, so Yeah, no, that’s a good point.
What we’ve seen, and we’ve got a commercial brokerage, right? So we’ve seen that there is this weird gap between buyers and sellers that lasts about 120 to 180 days, right? So the buyers are facing the highest interest rates today, but the sellers are still thinking in terms of 120 days backwards of what the interest rate was back then.
Yeah. A lot of the investors that we talk to have this notion or the idea of when maybe I need to sit down and wait, maybe I need to hold off. And what we tell them is, instead of waiting, what we suggest is that make an offer today at the price you would pay three, four months from now. Yeah, exactly.
Waiting to invest in real estate. The exact opposite of what you wanna do. You want, you wanna invest as much money as possible in as quickly as possible into real estate that you have now. Don’t be reckless and invest every last dollar, keep an appropriate cash reserve. Of course, I’ve been guilty of breaking that rule, multiple times in my career, obviously.
But yeah, you want to invest as much money as, as quickly as possible in real estate, because as long as you’re. Choosing from multiple deals and doing the best one that you can. Real estate’s cyclical, obviously, goes up and down, but it will go up, especially with construction costs skyrocketing because really the price of real estate should be close to the cost of construction and in mid the.
For the last 20 years, it’s been so outta whack that we’ve got a lot of room for real estate to increase in value until it equals the cost of construction in Texas. You’re from Texas, much closer. The cost of real estate is much closer to the cost of construction. But in Ypsilanti, Michigan, where I live, we can still buy properties for 50% of what they would cost to build, and it used to be 25%.
So I think there’s room for real estate values to increase overtime. Yeah, no, that makes sense. Here in Texas they are the brokers make it a point to point it out when they, it’s below replacement cost. And over there in your world is like a third to maybe 50% of replacement cost.
Yeah. So that makes a total sense then. So you mentioned a few strategies when the market shifts of paying cash and doing things like this. One of the other things that we’ve noticed is on the rise in popularity is loan as. Especially when it comes to the agency debt. The larger Fannie Mae loans, right loans that were taken for seven, 10 years, but 3, 2, 3, 4 years ago are suddenly now very attractive cuz in they’re in the four to 5% range.
So that’s another strategy we see very popular in, in our environment. Yeah, so I had some properties for sale late last year where my interest rate on them was 4.85%, or maybe 5.15. And I couldn’t get anyone to assume the loans. I couldn’t get anyone to assume the loans. They said, no, we’re not gonna assume.
I said, no the, I got these prepayment penalties. I can sell the building at a higher, at a lower price to you if you assume the loan. Cause I’ll avoid the prepayment penalties. I couldn’t get anybody to assume them. But yeah, if I had, if I was selling a property today at a 4.85, I assume it would snap, it , snap it up.
Unless the loan, the value was so outta whack that, if it was like less than 50% loan to value or something, then maybe. But yeah, definitely we’re gonna be seeing a lot more loan assumptions for sure. . Awesome. So you mentioned that you have a property management company, which means you’re doing third party.
When did you set it up? Did you start man self-managing from the first property you bought, or did you get to a certain threshold where you said, okay, now it makes sense to do self-management? Yes. Since I bought my first property when I was. 19. I didn’t even know there were companies that managed properties for other people.
I didn’t. I didn’t even think of that and I wasn’t even aware of that. So the day I bought that first property was the day that our company, our property management company, was founded. So it was a property management company managing just five units for the first year. And I was the only employee, obviously.
But then the second property I bought was a 30. And it was pretty distressed, so I hired a maintenance technician to work for us when we did that. He still works here seven, 17 years later and then. The third and fourth property, got me to about 50, 55 units. And at that point I needed a bookkeeper and I had some other businesses.
So while managing 55 units isn’t a full-time job for a bookkeeper, I needed a bookkeeper for everything I had going on. So then that was like the third hire, and so it scaled up to there, where now we have about 60, 65 employees at the property management company, and I wish we had 80. It’s kinda hard right now, as to hire a maintenance technique,
Yeah, so let’s talk about that because that’s one of the biggest pinpoints that a lot of the owners that we see, that self-manage are facing. And we’ve had the same challenges as well, because we also self-manage is just hiring people. It seems like the world’s gone to a place where nobody wants to. and if they wanna work, I, after a month or two or three or six they just get bored and they wanna move to the next thing.
So you just mentioned you have an employee for 17 years. That’s amazing. What do you do to find good talent and more importantly retain it? Yeah, so the way I’ve retained that, that guy is, Do anything for him that he ever needs help with. Like I remember one time he was like in a fight with his wife, so I set him up in a hotel.
I remember one time he needed a, a bed that costs $6,000 for his wife. Cause she was in a situation. So I bought that for him. You just do anything you can for your like, main guys. You can’t do that for all 7 70, 65 guys. But those core guys you like really. Take care of, pay them a good salary, but then when it comes down to it, really take care of any pain points they have because then they’re just super loyal.
Because, when someone calls and says, hey, rich, come work for my property manager company a Rich, I bet says, no I gotta stick with Stuart because any problem I’ve ever. Ever had, he’s helped me out with, and if I come work for you, it’s not gonna be the same. So he’s very loyal.
We also have, 401K matching, which is very attractive. We have 30 company vehicles, which we give our maintenance staff. So they have their, they take pride in this $50,000 logo van that they drive. Whereas a lot of property management companies try to do property management where they have no vehicles at all.
The maintenance tech has to drive his own vehicle. . Another way to retain talent in terms of attracting talent. Who can hold a job right now? Has a job that’s a first. That’s a first for me in my career. Normally I would put ads out and I would get hundreds of resumes, but right now, anyone who can hold a job, Has a job.
So you’ll get a maintenance technician in the door and he’ll say, yeah, I worked for this other property management company for three months. Like alarm bells go off, but you need to hire a maintenance guy today. And so you do hire that person, but then one day later you’re like, oh, okay, I realize why this guy didn’t have a job, is because he literally can’t hold a job.
So what I do is I keep that core together. and then at the bottom, people come and go just daily, constantly. And it’s just a problem that we work on every day. And if you hire 20 guys that come and go quickly, maybe you’ll get one or two and you can retain them and keep it going.
But that’s the number one challenge in our business right now is attracting a maintenance technician who can do a robust amount of work. You. Yeah it’s, it, we talked to a lot of vendors and suppliers that, that are in the same spot as you and I. And it’s kinda it’s sad to see that we’re in a world where showing up every day on time became 70% of the requirement.
Yeah. Just show up. Yeah. So I have a couple of employees that have worked for me for more than 10 years who have never called in. Never not missed a day. And so when I’m talking to these younger people that are trying to work for me, I tell them that’s what’s possible. That’s the standard. And it’s weird when you sit down with someone after they’ve worked for you for 90 days and you point out to them that they’ve called in sick or not showing up like 11 out of 90 days, and 11 outta the first three weeks.
Exactly. Exactly. So it, it can be done. You can come to work every day and be responsible, a staff member. I’m not saying you can’t call on sick, I’m just saying it shouldn’t be something that happens so often that your boss starts thinking about it, yeah. And so it should just be a rare thing.
Yeah. You’re rare, you’re rarely miss work, and in maintenance, property management and, calling. Calling in is devastating for the employer, very unlike a lot of businesses. So for instance, I also own the Ace hardware and if in IFPs, Michigan that my wife owns it and Ru and runs it, , she has eight people working in the store.
If one person doesn’t show up, seven people are in the store. It’s a little store, and so it’s not the end of the world, but if a leasing agent that has 16 appointments tomorrow doesn’t show up it’s problematic. Yeah. And it’s, the impact goes beyond the employer, right? If the maintenance guy out of two calls in on a property, right?
Then suddenly half the work orders are not getting. And if the one that actually shows up is your HVAC guy, then now none of the ACS or the heaters are getting dark. So the impact goes beyond the employer, it goes onto the residents as well, and that impacts their lives as well. Yeah, so we’re focusing on retention, hiring new staff, and when we get lucky enough to have someone that looks like they have a lot of potential training them really well.
Try to keep them, keep keeping ’em going. Do you send them to school for HVAC certifications and stuff like that? Yeah, so I find the schools are not as good as just doing the job, so we do partner. Partner up where you partner up with a guy who’s worked for a long time and just get right into it, yeah, no, obviously school doesn’t teach you actual skills, but it gives them the certification. So sometimes we would send our maintenance guys to get a certification so a, they can get, go buy the materials like the free on and so on. But it also, , it helps them advance their career, having those certifications, right?
So when we send them they have the tendency of, staying more loyal cuz they know we can help them advance their career going forward. And of course with certification, they get raises and so on. So we use that as a tool for retention. Makes a lot of sense. Yeah. Love it. Yeah. So the.
Event that happened to everybody in our world was Covid. So tell me a little bit about how co covid impacted your world, both from the investor side and the property management side. Just cuz it impacts differently. Yeah. Okay, great. So when Covid hit, my partners and I had just finished raising 130 million from investors.
Buying 140 apartment complexes in which there were 6,000 units, like we had just wrapped. We had just been on a five year streak where we did that, and we had just wrapped it up. We just wrapped up our fourth syndication a month or two before Covid hit. So when Covid hit, I thought, Everything was over.
Not only just the business over, but it’s gonna be horrible, and I just remember being I had some real low days there in the beginning. And then magical things started to happening where lenders would reach out to us and say don’t worry about paying your loan.
We’re gonna give you six months of no payments at all. And then we’re gonna add that on the end. And then here came the SBA coming, saying, we’re gonna do it even better. We’re gonna pay your loan for you. So actually your principal, and then there will be over the six, six months. And and then these programs started coming out with with the ceremony and all these things where the tenants were gonna get support.
So just so much support happened. That we quickly realized that if we’re really nimble and work quickly, that we can survive this. And now, two and a half years later almost people are still applying for Sarah and , not paying the rent, it’s getting a little old. But in the, in, in the beginning there, the programs were really beneficial and, in, in the most part, things worked out.
Okay. Here’s an interesting question cuz I’ve been talking to a lot of operators recently and they all give me your, about the same answer. So in, in your, this is an estimate, right? In your estimate in the last two and a half years since Covid has started, what percent of rent income that you brought in.
Came from assistant organizations. I would say that it’s just an absolute mind boggling, staggering figure. I dunno the figure rough, yes.
I dunno. 10, 15, 20%. don’t know, but it, I actually hear more like 30, 40%. Okay. Yeah. Yeah. Could, it could be. I hope it’s not that. Oh man, that’s bad. But yeah it’s mind boggling. And I’ve got a guy in Detroit who hasn’t paid rent in three years, meaning he, he owed money before Covid.
He’s gotten three rounds of payments, assistance from the government. And I asked him, Hey William, COVID is over for the most part. You gonna, are you gonna return to work and pay your rent? And he said, no, because by the time you figure out how to evict me, I’ll get bailed out a fourth time.
I’m sure, they’ll roll out, they’ll roll out a fourth program. So he is, he was just an able-bodied adult with a job and for the last three years he’s just sat in his apartment not working and. that, that’s amazing that you say that because one of my biggest concern right now with the way the economy is looking is that every benchmark in the economy looks really rough except for unemployment.
And that’s what everybody that has the mentality of, oh, it’s not too bad. It is pointed out. Look at the unemployment. It’s so low. It’s so low. . Like I said, I talk to operators across the board and they all say same stories as you just told us. And they say 30 40% of the income comes from assistance organizations.
It tells me that the unemployment rates is fake. Yeah, no, it is because that William Guy doesn’t sit on that unemployment rate numbers that we see coming out of the government choices. No, he. Yeah, they’re not counting people that Yeah. The unemployment is fake. The unemployment rate is fake because it doesn’t count people that are not looking for work.
e Exactly. So my point is, When the party ends, when the, those assistance organizations stop printing money. Cuz you can’t keep printing money forever. Inflation is going all over the place right now And that is one of the major reasons. But the federal government literally doubled the money supply in the last three years.
Yeah. When that party ends, when they stop giving away that money, I think we’ll see unemployment more than double. It’ll go from three, four to seven, eight. And then that’s where it’s really gonna be interesting to the economy. Yeah. I have a robust organization, but I’m not trying, I’m not trying to.
With this organization resolve economic problems, big economic problems, right? What I’m trying to do is be nimble enough, smart enough, move fast enough so that we benefit positively from economic shifts and not negatively. And it’s very challenging and, but it’s something that we work on every day is.
People like people this morning were distraught about the governor getting elected or not elected and they’re like having all these worries about, you can’t really run in a small business change that type of stuff. You just have to roll with what is coming your way, and that’s what I try to do.
Here’s the reality of things though. When we talk about the economy, it’s gonna be rough. Yes, it’s gonna be rough, but when there’s blood in the water, that’s exactly when sharks are having the most. . And this is where in our brokerage we work almost mainly with investors because when the market is good, investors invest, and when the market is bad investors invest because you make more money on downturns as a real estate investors than you do on upturns, right?
Anybody that bought in 2008, 9, 10, 11, even 12 right? Made a lot more money than anybody that bought in 20 16, 17, 18, right? Yeah. It’s that. So when I talk about the economy’s gonna be bad, it doesn’t mean that people should stop investing or not invest at all. It’s about what you said at the beginning of the conversation is the strategy has to shift, right?
We have to look at maybe we do sell financing, maybe we pay cash. Maybe we use this, or we use that. Maybe we don’t refi, we buy and hold for a little bit longer. . It’s just a shift in the strategy, but it doesn’t mean, okay, stay away for the market. It makes no sense, right? Because even if you look back on 2008, a lot of people lost their homes for foreclosure, but you don’t go from a 4, 4, 4, $500,000 house to the street, right?
You lost that house, but you go to an apartment, right? So being in the apartment industry, being in apartment complexes is a great thing. Even in down. Yeah I agree. And we stress tested our portfolio a number of different ways, and we think that, we could function at, 75% occupancy or collections, I should say, 80% collections, on a lot of our portfolio.
And we just, you just gotta make sure that as an investor going into a downturn as you’re not too overly levered, and I’ve always been. Way under levered. I don’t, I do cash out refinances, but I don’t do ’em as quickly as I could and as aggressively as I could. That’s one of my main blueprints is cash out refinances.
But I just still don’t do ’em as aggressively as I could. And so that keeps me under levered. And hopefully we can be agile in a downturn. And I hope it isn’t a downturn, but we will definitely take advantage if it. . Yeah, that makes sense. So as operators, right? As, as that, especially syndicators that work with investors.
Our job is to make money for our investors. In the multifamily world, in the commercial real estate world, a formalized simple n o i divided by cap equals value. Raising our NOI is the main thing we’re focused on, and that goes both ways. We either increase income or we decrease expenses.
So give us a few samples of what you guys do in your organization to increase income or decrease rent. We would like to see examples for both of you have that are not the obvious run, right? That don’t, increase rent. Okay, that’s obvious. And apply rub. , or I don’t know if you guys do rubs up there, the ratio utility billing.
These are pretty common. Everybody’s doing that. Give us a few creative ones that you guys have been using in the last few years to increase the value of your properties. Yeah. Okay, great. So we. Often by secondary in tertiary market class C and class B apartment complexes from mom and pop sellers.
And these folks have managed these things for 30 years and they’re have not. Invested into the property in order to attract folks who are looking for a nice apartment. So what we do is we go in and we modestly increase rents on the existing residence, which naturally flushes a few people out and, a few people don’t renew.
And what we do is we go in and we upgrade the unit to a significantly higher. Then the owner was renting the apartment before. It’s basically, a basic value add strategy. Then we try to eliminate cost on the expense side. So for example, I bought a five unit apartment complex, a five unit apartment house in Ypsilanti recently, where the former owner had been paying waste management 3000 a year for a dumpster for 10 to 15 years.
And I asked him why don’t you just get rid of the dumpster and use the city trash can? And he said five units is a lot to have the trash cans and the residents don’t really take great care of the trash cans. I’m like, yeah, but you’re eliminating a $3,000 expense on a property that has income of, 40, 50,000 a year is just huge.
And yeah. Yeah. The value of the property significantly. So we u we look to eliminate things that we can. I also recently bought a seven unit apartment building in Ohio, and I went into the basement and realized that the water piping, the, it had a fire and the guy who rebuilt the property ran the piping in such a way where you could just attach seven water meters.
So you go from one water meter to seven water meters and. After I bought it, have the meat water in their name and they’re paying the water directly. Again, not increasing the rent, but reducing expenses. And that’s a strategy. And then what we’ve also done is since we’re managing so, so many units, you can go to vendors and get discounts, so like we’ve got a discount at Lowe’s, discounted Home Depot, discounted ACE Hardware, but we’ve got certain vendors.
That offer us discounts because of the amount of volume that we give them. For instance, our main electrician, they charge, people who just called our office handy electrician, they charge ’em almost twice as much as they charge us because we use them almost every day. And, it keeps their guys busy and then they can charge more people, other people more money.
So that’s another strategy. But on the income side it’s really the basics. Value add strategy rubs, . Okay. Yeah, makes sense. One of the things that we did when we started scaling up on our management side of things is we started buying equipment, right? So better plum, more professional plummet equipment or landscaping and stuff like that, and had our in-house guys take care of.
almost everything we could in-house. And that caused a of cost saving because if I had a slab leak in the parking lot, instead of paying $4,000 for a plumber to come do that, two of my guys could finish it out in a day, which end up basically costing us a couple of hundreds or $300 instead of 3000.
4,000. Do you guys do the same in your. Yeah, so I, I talk to other property management companies, especially property management companies that are run by realtors, and they tell me they don’t employ anyone at all. Every single issue is taken care of by a subcontractor. And I was like, oh my God, you’re paying like twice.
For a lot of what you’re getting done than if you had people that work for you in house. And that’s why we have a robust maintenance staff. We have over 30 maintenance technicians at our maintenance company, and we’re saving ourselves money every single day. A plumber costs $125 per hour, . and your maintenance guy could take care of four plumbing issues in a building for the one hour that the plumber would charge you, yeah. So that’s a main strategy unfortunately, with. Are not having enough staff. We have to rely on subcontractors too much right now.
But you’ve gotta get the work done. So you gotta do what you gotta do, yeah, no, I totally get that now. But I was talking about taking it to the next level, right? So you, your maintenance guys will do the basic plumbing, right? But a slab leak that requires you guys might not have slab leak, but in our world, the slab leak means digging through concrete underneath the building to find the pipes. and then have a $3,000 pro machine or have a $3,000 auger that to run the big cleanouts. So we elected to spend the money to buy the expensive equipment the more commercial grid, if you wanna call it, in order to have our guys have the capabilities.
Cuz like you said, when you have a good maintenance guy, a good technician, They can do a lot of things right, but if you don’t have the equipment for them to do that, then you have to call a third party contractor to do that for you. Yeah. So that’s what I was talking about. Yeah, that makes a lot of sense, for sure.
Yep. And we own a robust amount of equipment and we also rent some things. So as an example, we got a quote from a plumber for a $15,000 new sewer line. And I said how much is the excavation? How much is the plumbing? Turns out the excavation was about 80% of the work. So I rented a mini excavator and had our maintenance technician do the excavation.
He did the entire excavation in a day. The plumber came in with his permit and did the plumbing, and that saved about 50% on the whole job, yeah, that makes total sense. Cuz you can rent those things at Home Depot for three, $400 a day, it was like, we rented one of those in one of our properties and I was happy to play with it.
It was like a little toy . I was on site that day, so I was like, okay, then give me a turn. Yeah. No, that’s great. A question we ask all of our guests on the show is if you could go back to younger, you right. A 20 year old Stewart and say, Hey, listen. He’s you can tell ’em that 2008 is the bottom right.
So buy everything you can. And you can’t give them the 2 billion lottery ticket numbers. So what would be a good advice for young? Yeah, so I, in 2006 to 2016, ran a construction company where I had as many as 180 employees and we were doing work in seven states. I wanted to build a regional, construction company powerhouse, but our payroll was $200,000 a week or every other week, and.
At the end of the day, I was just doing construction for other people who were doing real estate and making money on the real estate side, and I feel like I wasted 10,000 of my hours on this construction. If I could go back and just focus on. Instead of that construction company I would’ve done even more in real estate.
And that’s why I, people call me and say, Hey Stuart, I see you’ve got 30 maintenance guys. Can you come over and do a project at my property? And I tell them, if you hire me to manage it, I will, but I don’t do construction. Separately, I want that recurring management revenue, and then I’ll do the maintenance, but I’m not gonna do it as a one-off construction project.
And so that’s what I would go back and do. But I’m gonna I’m happy overall with what I’ve accomplished. But that’s, no, that’s, it’s not a small feat. Owning thousands of units, investing in thousands more, having a big property management company. That’s very impressive, right?
There’s nothing you know, not to be happy about. So if any of our listeners wants to hear more from you, get in touch with you, maybe invest with your a syndications, or have you manage one of their properties in the area, how can they find you? Okay, great. So I’m very active on Facebook. I’m Stuart Beal.
I’m very active on LinkedIn. Send me a Facebook message, send me a LinkedIn message, and then emails always best beal go beal.com. And then our property management website is ww dot go beal.com. And our real estate syndication website is ww.deal capital.com. So you can find us on those websites and to invest a minimum of $25,000.
You do not need to be an accredited investor to invest in our smaller deals. Triplex Ford Unit five, unit six unit. We’re buying a six unit tomorrow that you could invest in, for instance, and then to invest in our syndication, you need to be an accredited investor. We’ll help you get accredited if you’ve never gone through that process before.
And then you can invest in our pools of real estate. You’ll own a smaller slice of a larger pool. But I can tell you oftentimes that works out really well for the investor. Yeah, that sounds great, and we’ll definitely put all the links in the show. Thank you so much for coming in. That was a very interesting conversation.
I knew as soon as I see your bio, I saw your bio. I knew it’s gonna be a very interesting conversation, so I appreciate you coming up on the show. All right, great. I had a great time. Thank you very much for having me. Awesome. And for you, the listeners, if you do us a favor, please give us a rating. Doesn’t matter if it’s a one star, five star, whatever you feel is right.
Just go to iTunes, teacher SoundCloud, wherever you consume your podcast, subscribe and give us a review. We appreciate it very much.
Thank you for listening to our show. If you want to enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud for questions or feedback. And please visit our site@www.aptopr.com.

Episode 126: Derek Vickers
Welcome back everybody to the Apartments Operators podcast. My name is Joseph Golan. I’m your host, and today we have Derek. Derek is a mobile home park operator, and we’ve been venturing into mobile homes in the last few episodes.
Welcome Derek to the show. Yeah. Thanks Joseph. I appreciate you having me on. I’m excited. I love doing these things. I love giving value to people and hopefully I can help them either start their mobile home park investing career or real estate investing career. And yeah, I hope I can provide some value.
Fantastic. And for the audience, just so they’ll know you tell us a little bit about your portfolio, what you guys are doing, and how big is your portfolio, just so they’ll get to know. Yeah, so we have just about 2000 lots of mobile home parks, about 38 mobile home parks in the southeast. 21 of those are in the state of Florida where I reside.
And we bought our first, we acquired our first mobile home park in September, at the end of September of 2020. And so we grew extremely rapidly here in the last two. And it’s been crazy and we can talk a little bit about the pitfalls of that. So it’s great to grow fast, but it does not come with, without some growing pains and headaches.
And we specialize in value add mobile home parks. We come in and lift up the value of the property, paving the roads, et cetera. Cap, injecting our capital into the properties and, and bringing them up. Then, these properties aren’t, scraped for multi-family, which is more affordable housing that’s gone in the us.
So we really look to provide clean, safe, affordable housing for our resident. . Awesome. Wow. So that’s gonna be a very interesting conversation today cuz I got so many questions. So let’s get started with the very basics of mobile home parks. You can either own the lot or you can own the lots and some of the houses.
Or all the houses, right? What is your model? Are you guys just lots or are you guys doing the whole thing with the houses and everyth? Yeah, so that’s a great question. And so what we do is our goal is generally to get to all tenant owned homes. Meaning the tenants own the units. We just own the land.
Okay. But we actually will buy parks that where we own all the units. And there’s a lot of vacancy. There’s not many people living in these parks. So then we can actually sell those houses and create affordable housing there. But also we can actually then bring, everybody up to market lot rent then, which allows us to create a lot of value and.
I think in the last two years we brought on something like three or 400 houses of affordable housing that were abandoned or vacant that wouldn’t have been brought up had we not came in and injected our dollars into these properties. So that’s the general how we do it. So it’s a little backwards than what people do, but we like to buy them and we own them and then turn them in to where the tenants own the.
That’s fantastic. So out of your 2000 lots, give or take, how many of them are park owned and how many of them are already either tenant owned or in the process of. Being purchased from the park. Yeah, so I think around the portfolio, I was just looking the other day, we have around like a buck 75, a buck 85 homes that we don’t own, that we’re in the process of selling in one way, shape, or form now.
So I would say, 90% of the portfolio is 10 and owned. And I think here within the next six months to a year, we should have all those tenon. Oh yeah. No, that’s fantastic. That’s a great rate. And how many of them are financed by you guys? So we roughly yeah, so interestingly enough, like we don’t really underwrite the home sales value into our underwriting because we want to come in, we want to provide families with clean, safe, affordable housing.
So we’ll take a house that we could sell on the market for 15, 20, 25. and we’ll sell it for $5,000 to somebody. We’ll take a home that we could sell for 50,000 and we’ll sell it for 20,000. We really want to give people the opportunity to get affordable housing cuz there’s not a lot of it. But that’s one of our goals.
So we really don’t, underwrite the cost of the home in the, in our underwriting for the proper. . Interesting. That’s that’s an interesting approach. So let’s talk about the big questions that we always ask everybody. Third party or self-management. I self-management in mobile home parks, I know of some people that do it and I’m sure they do it well.
We’ve never used it. We actually purchased a property from Friday management and they did a relatively good job. But if you’re in this business, Like anybody who’s an operator, it’s these parks require attention. And I’m a bit of a control freak, so I like being able to control what’s going on in the properties.
So if you’re buying value add properties, Where you have to go in, you have to sell homes, you know that you have to do a lot of CapEx. You’re not gonna want third party management because you’re gonna wanna make sure that your hands are in there making that work. Because we made, a mistake where we didn’t really have third party management, but we had a manager that it’s turned into third party at some of our properties and it ended up being a disa.
It was a big learning experience. I’ll be honest, it ended up being a disaster for sure. But big deals, we fixed everything now and I think it’s better especially where you can have more control and then eventually you can pop out. Because some of our more seasoned properties that are a couple we’ve had for a couple of years now, you, nobody really needs to be there and there’s not much work required after they’re snowball.
Okay, so we’re gonna circle back to your operations in a minute, but we want details on the disaster, right? We pride ourself of being the podcast that doesn’t sugarcoat and doesn’t tell everybody it’s, oh look, it’s all rainbows and lollipops, right? So deet. Yeah, and I would just say if you do have a third party manager, you need to, you need to keep an eye on them.
It’s not gonna be completely hands off. It needs your attention to make sure the right things are being done. And, it’s super, super important because, you go in there and you realize, oh my gosh, we’ve hired all these people that we don’t even know that are on, the payroll that we’re paying and they’re doing, x, y, and Z stuff around the park.
And, you find out that people are, you wonder why people aren’t paying rent. And then you go talk to these people and they say, oh, we were paying so-and-so cash for rent for the last six. Yeah. Yeah. Stuff like that. And, with code enforcement and government, the municipalities not being attentive to their requests, not being attentive to violations.
And things and making sure that they’re handled in a timely manner can create a disaster, especially for a mobile home park because these municipalities and some of them that we’re in, we’re not in the middle of nowhere. We’re in, big, big MSAs in Florida. . And so these municipalities, they don’t make as much.
Look, we pay a lot of property taxes, but it’s not as much as a 300 unit apartment building would pay in that spot. And so they’re not favorable to us and in any way. And so if you get on their bad side, you can have so many things go wrong because these parks are old. They were built in the fifties and sixties.
The units are old. A code enforcement person at any time. Could come in there and write a thousand violations. Yeah. It’s just, cause it’s not up to building code of right now. So you get a guy that’s power hungry and he likes to have a little power. His chest is propped up a little bit.
He can come in there and ruin you and all that stems from poor management and not handling those things, correctly. Like we had permits that were supposed to be renewed that weren’t renewed. We had, fines that had built up. We had, I think at one park we had 120 code enforcement violations that we didn’t know about.
Yeah. Yeah, it’s, I it’s absolutely, and it doesn’t matter what asset class it is. Honestly, if you get in a pissing contest with the code enforcement, it’s not gonna end well for you. It doesn’t matter what you do. Doesn’t matter what you do. It’s and they know that they have all pretty much all power over you.
There’s really nothing you can do about it. Yep. We actually talked with an operator that had gotten into a pissing contest with the fire marshal and they just flat out shut them down. Like they forced full evacuation of the entire apartment. And it is you can’t, you just can’t do that.
Yeah, and I agree. And like we’ve dealt with stuff with the fire marshal too. Like other than the code enforcement stuff that happened, there was, because the code enforcement things weren’t answered and handled properly. They had then had the fire marshal out there and then they had, I felt like the entire city of Tampa out.
And, it’s you just have to pay attention to that stuff because the city could, I think, in theory, shut you down. We’ve got grandfathering and stuff and we could get attorneys and they could battle, but like from what we’ve been through with the city now, it’s man, I probably, if they really wanted to and they really wanted to fight us really hard, for whatever reason, you could probably get shut down.
And then this guy’s case where you’re telling me they , they did, they. Okay, cool. Let’s talk about how is it life as an operator for, in such a big portfolio of mobile home parks. So let’s start with a little bit of how the portfolio looks like. Do you guys, do you have 2000 units across how many parks?
So it’s 38 parks. Yes. Okay. So is it an average of about it’s smallers or do you have some large ones, some small ones. How does the mix look? Yeah, so we have a three, 300 unit property and that’s our largest, but the average around the portfolio is 50 lots. And so they’re generally small to medium size.
And we found that, most of the large operators and the REITs and the private equity companies, they aren’t going after these deals. And there’s still a lot of meat on the bone. It’s still a lot of value to be had. So we have found actually a lot of value in the smaller properties. . So it’s an average.
Actually, someone asked me this the other day and I did the math. It’s exactly about 50 lots on average per park. Yeah. And we’ve heard that from another or a few other guests on the multifamily side as well, is that it’s easier to operate and there’s more meat on the bone with the smallers 20, 30, 40, 50 units, apartment buildings than it is on the two 300.
So I always compare that to, if you need to take something and turn it around, it’s gonna be a lot easier to turn around a speedboat than it is to turn a tanker, right? Yeah. For you need a bigger radius. It takes longer time, you need more tools, more engines, right? So it’s just a lot easier to turn these things around, a lot faster to get to your capital.
Yeah, and too these parks they’re, and I’m sure multi-family is more aggregated and not as fragmented as mobile home park is, to my knowledge. But I think there’s still mom and pop operators that operate these, 10, 20, 30, 40, 50 unit apartment buildings.
But that’s who we’re generally. From mom and pop, they’ve owned the park for 40 years, 30 years, 50 years. They have no debt on the property. It’s just it makes them so much money that they don’t ever, they’re just like, okay, the money comes in, we’re not gonna do anything to the property.
And it’s like they’re getting literally 25% of the value out of it. And it’s just, some minor changes they could do, but they don’t wanna do the work either. Yeah. So it takes work what for. . Yeah, exactly. What course They don’t have investors that have to pay returns to you. Exactly.
Exactly. . So how does day-to-day look like, right? You go to the office, what does it look like, right? What do you do? How do you keep an eye on all those properties? How do you get reports? How, who does collections and so on and. Yeah, so we actually so my day-to-day is different every day.
I’ve never been really much of an office guy. I’m out and about, especially at the properties that are still in the turnaround phase. I like to be a little bit more hands-on just because of the experience we’ve had in the past in making sure that things are getting done properly. So some days I’m in the office.
I spent some time in the morning on emails communicating with our property managers. We have property managers that manage roughly one to 200 lots each. They’re our regional property managers and sometimes we’ll have an extra person on the ground, but like on the stabilized ones, we found that one property manager can run, almost 200 lots and even more in some cases depending on how stabilized, because our operat.
We have a corporate office that basically the managers, they take some calls, but not really, but all of any. Calls that you get for, random things. That’s another topic. It’s some of the calls that we’ve gotten from people, but that’s answered by someone in our corporate office who takes notes down, talks to them, and they’ll send it to the property manager if necessary.
But a lot of times that person can actually handle whatever, whatever the issue. And so it actually takes a lot of weight off of the property managers. And then we also have someone in the corporate office that does collections. And this guy, he does a fantastic job. When we had that issues with the other property manager our collections weren’t that great.
We brought him in and now we’re, I think I just checked for this month, we’re, 95% collected around the portfolio. So we’re you. Doing phenomenally there now. And so we also have another lady in the corporate office who handles permitting and, different things administrative things like that.
But generally we have everyone pay online. There’s no money orders, no checks, no nothing. Everyone pays online, which, it sounds like, okay, that’s a no-brainer. It’s 2022. In the mobile home park business, it. It’s a little bit more difficult of a task than you would initially think when some of these mom and pop owners.
like when I was doing deal the deals with these guys, I would go into their office at the first of the month and Joseph, I kid you not, they’ve got a stack of cash, , like stack of cash, one property. It was actually a set of three properties we bought, we were asking for proof of the income coming.
Okay. I get pictures on my phone of stacks of cash on the sixth of the month or something like, okay, here’s the proof. I’m like, really? Yeah. So it’s it’s very interesting. Yeah. We call those shoebox owners, right? Because you ask for a p and l, they give you a shoebox full of receipts. Yeah. Yeah.
I’ve never heard that term, but I’m going to I’m gonna start using that because that’s exactly what they are. I’ve got a a guy I’ve been working now, he’s a mom and pop guy. He developed this park. The dude’s 90 something years old and I was like, I’m just gonna bring you a duffle bag full of cash one day, and we’ll finally get this deal done.
And he’s oh, I already got enough of that
Yeah. How do you deal with maintenance? Do you have any maintenance? Because, you have about a hundred, you said 170, 180 houses that are still parked owned. So you gotta take care of those. . Yeah. And the interesting thing yes, there, there is some maintenance and I think, generally the Parkland homes yes, they have some maintenance and some of them are more of a headache than others, but it’s actually not as, as much as you would think.
So for example, some of these parks that we bought, like I had mentioned before they’re, they were developed in the fifties. The infrastructure is. Shoddy at best. In some places they have these old water lines, old sewer lines, they get clogged. Some of these properties were 50, 60, 70% vacant when we bought them.
And no one’s lived in those houses in forever. So when you put people in them, it puts strain on the infrastructure that wasn’t there before. And hadn’t been there in a while. So you’ve, Sewer clogs, you’ve got, water leaks. And so we have probably one or two maintenance people.
I think something to that effect every, four or 500 lots to assist with those water line breaks and things like that. But if it gets major, we’ve got some handyman services. We’ve we’ve got plumbing companies that come out. What we’ve learned is that, pay more to do the job right, don’t pay less.
And save a thousand bucks now cuz you’re gonna come back and Joe Smith, the plumber didn’t do a good job and you gotta do the work. And we’ve actually, we’ve talked about really eliminating maintenance and just using handyman companies and just using plumbing and companies and things so you don’t have to manage those people because it’s just one extra thing that the property managers have to deal.
Yeah. And hiring these days is very challenging, right? Oh yeah. But we went actually the other way around, so we decided that we were in a certain market that. getting qualified plumbers and qualified vendors was challenging. Like you say, Joe Smith comes in and he does a crappy job and then comes back and he still does a crappy job, and then you have to hire another company to fix his crappy job.
Yeah. And you end up paying and they all overcharge you. Yeah. So we ended up just buying a lot of equipment and training our own guys to handle anything. So the only time we would call a plumber is when you had to have a certified master plumber license to get a permit or to install a commercial grade water heater because you don’t have a warranty if you don’t have a master plumber license on the installation.
But everything else, like slab leaks and all that, we would take care of in-house with our own guys having commercial grade plumbing. And that I love that idea and we’ve experimented with that a little bit. But as you had mentioned before, it’s like it’s been it hasn’t been easy finding people that you can trust.
You hire the guy and he is doing that fine, and then one day he doesn’t show up and then he is got your snake and he’s got, every other tool that you bought it. You can’t win. I see you laughing cuz it sounds like you’ve been Sorry. Yeah I’m laughing. But we’ve all, we, I hear that from every operator.
I hear that from every vendor and every business owner in the last three years. It is it’s really hard to find higher and retain. Good talent. It’s just, yeah. Very hard. So how do you guys deal with that? How do you, because you still have people, you, whether it’s property management or ma or the collection guy or whoever picks up the phones or maintenance, how do you deal with hiring and retaining people?
Yeah, so we, this was one of the things we learned the hard way on and we tried to do this, cheaper and what the, consensus is in the mobile home park business. Hey, hire someone, pay ’em 500 bucks a month in free lot rent. It doesn’t work on a turnaround property or A property doesn’t need any attention, you can do that.
We were trying to hire cheap employees. It didn’t work. So we learned how we got quality property managers, dependable property managers, people that we can trust is to pay them more. So we pay a property manager more than probably, most mobile home park operators do. I would say, and that’s how we’ve gotten great talent in and we’ve had to pay for it.
So we’ve had to take a cut on our end, but it’s hiring talent and it’s probably saving us money in the long run because we can trust them. and they’re not doing, shady stuff cuz they’re only making 500 bucks a month and they’re trying to figure out how to make more money . That’s what we’ve learned, and especially in this environment and the way things are now, you have to pay someone well or what’s their incentive to c to come to work, so it’s Chick Filet is paying 18, $19 an.
Yeah. You gotta complete, and if you’re gonna pay 18 or 19 bucks an hour and you’re gonna have tenants yelling at you and you’re ha you’re going to have irrational arguments with tenants it’s can be a lot to deal with a lot of stress. You gotta be able to handle a little bit of pressure.
And if someone’s dude, that can just, swipe someone’s card to Chick-fil-A for the same amount, I’ll do that. Yep. Yeah. How do you guys or what’s on your menu for taking a property and doing a value add? So the obvious things are increasing rent or charging utilities which in your case, I’m not sure if you guys have that or not.
But what else? What are the creative ways you guys find that you can increase your income? And then we’ll follow up with the same question about decreasing. Yeah, so it’s really, the things you said increasing rents billing back for water and sewer billing, back trash. We put in individual meters on the homes, and that’s really what we’ve done from an income perspective because these properties that we’ve bought, for example, you know these properties that we bought in Tampa, I think I mentioned the three package earlier. So these properties were I think the prior owner, I think he was pulling in $25,000 a month and it was 120 lots. And that’s if everybody was paying. And I think we have those properties pulling in somewhere to 90, 95,000 now.
And that’s not even from that. Crazy. It’s just getting people into the vacant units, billing back for water and sewer. Which they should, because people in this park, they’d have a pool outside, they fill it up with water and the owners fitting the bill, they got a sprinkler outside or something crazy.
And so we’ve really kept it simple as far as adding value, filling in vacant lots, which we’ve done some of, but it’s really selling these vacant units and getting good families in them that are going to. And that’s really how we’ve increased the value of these things. Okay, that’s great.
How about reducing expenses? . Yeah. And so some of the same stuff, billing back for water and sewer, really looking at economies of scale, having that one regional property manager handle multiple parks. Buying and aggregating parks in areas so you can get those economies of scale.
Because if I have a, a 60 lot park that’s, out in the middle of nowhere, I’ve gotta hire a separate property manager. But if we’ve got 10 properties in an area, , that are 50 lots each. We can hire one property manager with maybe an assistant or something and get that economy of scale.
So that in turn reduces expenses. Also, if we’ve have companies and treatment plan operators, we’ve looked at, aggregating those guys to more properties to reduce some expenses as well. But the typical billback stuff , that’s helped. And the wa and we actually have our office monitors the water leaks on a daily basis.
We get a report every day, Hey, this unit has, they’ve used, however many thousand gallons. It seems irregular. And so then we can send that to our maintenance crew that’s over those properties and they can go check that because the people, they don’t want, they’re like, they don’t want to have to.
A $400 water bill, but if they have a lease in their house, they’re gonna have to pay a $400 water bill. Typically we work with them and and so unfortunately in the affordable housing business, these people may not even have the money to do it. And so eventually, like we have to end up fitting the bill because we understand that, things are tough.
We’re in the affordable housing business. We’re here to help people. And , if we don’t notify them of that leak, we’re typically gonna have to pay for it anyways. Yeah. And so we’ve even actually in many instances when we didn’t have to, we could just say, Hey, this leak is on you. This problem in your house is on you.
You own the house, which in some cases the request is irrational and you have to do that. But in the case of something like water, we’ll be more than happy to send our maintenance guy in there to fix it. and to help our tenants out because we know at the end of the day we’re probably gonna get fit with the bill, but, and it also helps them, helps us.
Yeah so we were creating a habit of checking the meters every week and just keeping track of the meter to see which one goes haywire. . And just tracking the meters every week was a lot more efficient than waiting for the bill because the bill comes in about a month and a half too late.
Yeah. Yeah. So if you’re waiting for the bill you are already losing bleeding money, right? For a month and a half at least a month and a half. So that’s really where we got into the habit of just sending our maintenance guys to read the meters, once a. Yeah. Do you guys have digital meters or they like analog where they have to go read ’em?
Mix and match. So the digital meters only came in last year and a half or so? Yeah. But we still have have one property that has one main meter, which is digital, but each and every unit has its own separate submeter and those are analog. Okay. So those actually somebody has to go and read them.
Yeah. Yeah. So you mentioned earlier some lessons about growing too fast. What can you. . Yeah. And I think, look, I, I’m like a go big kind of guy, so it even pains me to say some of this, , I’ll be honest with you, if you’re gonna go fast, you need to make sure that you have the infrastructure, the pro infrastructure, I mean by employees, the staff, the trustworthy staff to help you, the systems and processes in place.
Because we bought, 20 turnaround properties in 2020. Okay. And so like we would’ve been really busy if we would’ve bought like a quarter of those, we would’ve still been like crazy in getting these things turned around. And so I would just say that’s a lesson learned. Like you can, and this pains me to say it like you can have too many projects going on.
You’re like, there’s no question. You can have too many projects going on, especially if you don’t have the quality staff that’s trained, that’s honest, that’s trustworthy to help you handle that. It can be tough. And so that’s one big lesson learned. And another one is one thing I mentioned earlier.
Don’t go cheap on stuff. If you’re gonna hire, Joe, Joe Smith, the plumber here, you just need to hire the right. Hire the right guy at first because you’re gonna end up spending money in the long run. It may work for a little bit, but, pay the extra couple thousand dollars and make sure it is done right.
Make sure they’re pulling permits, make sure they’re a licensed contractor. And I know when you’re in it, it’s oh my God, I don’t wanna spend $5,000 on that. This guy, Fred over here in the park said he can do it for 1500. It sounds so great. It’s like you’re winning. But actually in the long run, if he screws it up and then you end up having to pay the guy $5,000 anyways, so you actually end up paying, $6,500.
So you just I would say that do things right the first time, hire the right people, and then, pay attention to your operations. And I know there’s people out there that if you’re operating. Eventually, I’ll have someone in my place to where they can handle a lot of this, day-to-day stuff, and we’re getting to that point.
But like you, you have to pay attention to it, to a certain degree, and it becomes passive. At some point, and I think if you’re, you’re in the business and you want to get like the big returns from real estate, the big multiples, you have to be, in the general partnership. And you can be an lp, your capital, your multiple of capital isn’t gonna be as high as someone that’s in the general partnership.
But you can do. But don’t get into the operations business and thinking it’s just a walk in the park, like you’re dealing with people here and they’re gonna do stupid stuff. They’re, you’re gonna evict someone that hasn’t paid for 12 months, they’re gonna call code enforcement and then they’re gonna cause you a lot of problems.
They never called before, but until they get evicted. I’m sure you’ve had , I’m sure you’ve had that before. But yeah, and I would just, be conscious of who you’re hiring too. Make sure you do solid background checks. Make sure you ask great questions, make sure you call references and make sure you’re hiring someone that you know is honest and trustworthy.
And quite honestly, it’s tough to get that if you’re trying to pay 12 bucks an hour or 15 bucks an hour. Now it’s just , it’s just harder, since 2020 it’s made that although the minimum wage didn’t go to $15 an hour, it essentially did , it tacitly did, everybody knows you at least gotta pay someone 15 bucks an hour now, at least.
And I would say it’s even more than that now to get quality. And unless, I could be off and maybe I just got unlucky with people, but no, you’re not you’re in, you’re 15. Sounds low. Honestly for a quality person. It’s just that I feel that it’s less of an inflation thing and more of a.
generational thing. It feels like people just gave up. Yeah. And they don’t have any dreams or passion or drive. So I talk to a lot of residents and they’ll go, yeah I, I don’t have a job. So it’s just like, how do you pay rent? How do you pay your bills? I do a little DoorDash and a little Uber and an occasional shift here and there, and I have enough to pay my bills.
Oh, I. And it’s like for people like you and me and our listeners that are trying to invest and grow and buy it, it sounds so weird, but yeah, I see that so often that it’s a real problem. . Yeah. Yeah. And I agree completely and I think it’s, it’s a mentality thing.
It’s a mindset thing. I can go on and on about this. With, movies and TV and, people have just been taught really the wrong things about money, the wrong things about investing. And I think it’s just. , know, people have been led this way, unfortunately.
And if you don’t really have that drive and you don’t want to do something better for yourself you won’t. And I think if people have grown up and tough settings and I, my family wasn’t wealthy by, by any means, but unfortunately that’s all people.
They know like just getting by is normal. And then the media portrays guys like you and me as evil guys that want to go out and do something. They want to create, they wanna help people. They wanna. Because a lot of people just don’t have goals. They don’t, I don’t think they think big enough.
They think about, getting themselves through. They don’t think about, I have charities that I’m passionate about. I have my family, I have my close family. That’s a motivator for me. I wanna donate to charities. I wanna, help people. I want to make a difference in, in the world and in people’s.
And I just, don’t think people can see pass sometimes okay, I need to pay my bills that this month and that’s it. Yeah. Yeah. I agree. So do you guys do any events or cuz you know, at the apartment industry we have to worry about retention, right? In your world, if they own the house retention is built in cuz it’s gonna cost them a lot of money to take that house and move it somewhere.
But is there any retention related activities that you guys are doing other than just good customer service? Yeah. And so we’ve actually, since we’ve gotten, out of the weeds a little bit with some of the turnarounds on these things, so one of our properties, we had a Thanksgiving picnic where we had like the inflatable slide out there.
We had face painting there, we had food, we had prizes. There was like a DJ out there. And so we’ve done that. We have done a c. Same thing actually two weekends ago at one of our properties. So we’re actually getting into doing more things like that. We had a flower planting day where we bought, 500 bucks worth of, nice flowers and plants from Lowe’s or Home Depot.
We dropped them off at the property and, allows, Plant in front of their house makes it, it’s good for us. It looks great. It’s good for the residents, it’s good for morale and, it doesn’t cost a lot of money, but it goes, a, a long way. Yep. Makes them part of ownership.
That’s what we wanna see. Absolutely. Okay we’re recording this episode at the end of 2022 and everybody is hovering around and worried and thinking and talking about. How’s 2023 gonna look like? Inflation is still running wild. I might stop growth in the last couple of months, but it’s still pretty high.
Interest rates are very high these days, right? If you’re looking at a small bank loan, you’re in the 7% range, a seven and half percent range. If you look at Fannie Freddy, you are almost at six. What is your outlook? What do you guys see? What are your plans for 2023? Are you still buying?
Are you holding? Are you waiting to see what’s going on? Are you selling? What’s your outlook? Yeah many different ways. We’re yes, we’re looking at buying, I’ve made a couple offers on deals, but, the strike zone at the beginning of, 20 this year was huge.
And now it’s smaller, so it doesn’t mean you can’t do a deal. The deal just has to make sense. And, taken into account a lot of our properties are financed by, local banks where you’re getting in that, I just got talked to one of our bankers the other day and they’re, seven and a quarter Yeah.
Is basically where they’re at now. And they’ll do, they’ll, they’ll loan money. They’re in the business of loaning money, they’re just gonna take less risk and the deal has to be more solid than, the bank would literally take anything. Like at the beginning of this year, not anything, but yeah.
They weren’t, looking through deals with a fine tooth comb. So I think there’ll be deals out there. The interesting thing, Joseph, is I’ve seen in 21 in the beginning of this year, if you tried to negotiate seller financing with park owner. No way. No. . But now, like every deal that I’ve been working on now, it’s seller financing options.
Yeah. And so I think it’s gonna get it’s gonna get more difficult to execute some of those deals because of what, whatever reason. Higher rates and things and, capital, it’s interesting one of my partners was talking about, and I’ve heard people talk about, capital’s. , people are restraining from investing and taking risks, but I honestly see the opposite because the people I’ve talked to, they’re like, inflation.
I don’t want my money sitting in the bank. Yep. If you can pay me an 8% pre, and over that, you’re gonna gimme 70 30 or 60 40, whatever the deal is like, , that’s good for people because their money’s dying in the bank now. . And so I, I see it. I think there’s gonna be some opportunities, and I don’t think we’ll see it for the next two or three years, but there will be some life-changing deals.
There will be some people that get in trouble. If you bought, let’s say you bought an asset, 3, 4, 5 years ago and your loans come and do now and it’s gonna hurt. It’s gonna hurt. It’s gonna hurt. Yep. And maybe because of rent growth, you were able to get out of it, but. Maybe not.
And so it’s gonna be interesting. I think there’s gonna be some opportunities we’re looking to buy. But we’re also being more, disciplined with what we buy. If we find a, a treatment plant or a septic system that needs, it’s all the, and it needs work, in January we’ve just been like, buy it, if it breaks, we’ll, we’ll figure it out.
That would probably kill a deal now versus back in, in January. Yeah, that makes total sense. So one question I’d like to ask everybody on the show is if you could go back five, 10 years ago and talk to a younger self, right? What advice would you give yourself? . I would give myself the advice of getting into this business then because I was in the insurance business and granted, look, I learned a lot of things about leadership, a lot of things about sales that helped me in this business actually, and the acquisitions business too.
But I would say get in the business. Get in this business. If you’re looking to get in this business, get in it now and start building equity now, and you’re not gonna own the whole deal. You’re never gonna own the whole deal because the bank is gonna own, yeah, you’re not paying cash. So the bank’s gonna own a portion deal.
You’re never gonna own the whole deal. Okay? So don’t worry about not having any money and just get into the game. And there’s many different ways that you can do that. But get into the game and start building equity in different deals. Do the hard work, get in grind, and do the operations.
Go hand out the notices, go knock on the doors for equity, and then you build that up over time and then you can step out of that. But I was in the business for nine years. Nine 10 years that I didn’t have any, I wasn’t building any equity in, I was making good. But I was building no equity in it. So when I got out of it, I couldn’t sell it like it was the insurance business.
So like I still get renewals and stuff from that, which is fine, but in that particular business, I couldn’t sell it. So even if it’s not real estate, get into something where you’re building your own equity. And I know people say that entrepreneurship is risky, but no, I think the opposite is more risky.
If you’re gonna go work at a job and make 40 grand a year, that is the riskiest thing that you can do. Because it’s, you’re susceptible to things happening. And I guess you could say you are as an entrepreneur, but then you just rely on yourself and your skills and your confidence and your certainty. And me personally, I would rely on that more than, someone else like that you’re working for or whatnot.
So that’s what I would say. I, I hope that I think that made sense. Yeah. No, it makes total sense. It really does. It’s I saw a tweet thread, a tutor thread the other day that some influencer, right? And that’s a lot of the problem today is people just look at people that have a following and they don’t vet.
They just, you just got X amount of followers. So whatever he says must be true. And a lot of the time it’s not. So I saw Twitter third the other day. It goes, go to work. Be good at your job. Put maximize your Roth ira, which is $6,000 a year. Go home, you’ll be fine. And he’s really?
6K a year? First of all, let’s start with 55% of Americans have less than $10,000 in their retirement account. So if you maximize your Roth ira, you are better off than 55% of Americans. But in today’s world, with the way rates that prices keep going up, I don’t think six K year is gonna be doing anything much.
By the time you get ready to. Yeah, no, you’re getting killed. And that goes to what you just said, that information being, disseminated on the public is part of the problem. And what you said, people think, go to school, get a job, invest in the 401k, or go to college too.
That’s the other thing. And then you’re gonna be fine. And it’s not the case anymore. And I think a lot of people have to do some confronting on that and look at that. , I’m going to school. Is that the right thing to do? No. Am I investing, I’m gonna put all my money into this 401k that I can’t touch until I’m, what is it?
Whatever it is, 60. I can’t touch it, but Wall Street can invest it and make money off of it while it’s in there. Yeah don’t get me on my soapbox around the 401k. That’s just a scam. Total. The 401k is you betting against. It’s just absolutely doing betting against yourself. If you’re 21, just got outta college, right?
You’re earning, I don’t know, 60, 70, $80,000, a hundred thousand dollars a year that you have a low tax bracket, right? So you’re putting your tax deferred money now at a low tax bracket. So when you get to retirement and you’ll be at a higher tax bracket, you’re gonna pay the. That makes no sense.
It makes no sense. Yeah, it makes no sense. And I’ve talked to even family members of mine that have, they grew up with that mentality and I don’t blame them for it. And so they all, they thought I was crazy. And initially, and, rightfully so going against the grain, but I’ve gotten, people to invest and I’m like,
I’m gonna give you some money outta my 401k. How much should we give all of it? He’s not doing anything in there. Like I’m putting all of my look at this. Look how much money that I’ve put into these deals. So it’s not like I’m just telling you something I’m not doing, but do all of it.
Yeah. These deals are, they’re good deals. We’re not buying stupid stuff. But, like we always tell our investors the only reason we take investors is because we run out of money to invest ourselves. Exactly. So we’re, my partner and I, were always the biggest investor in every deal with.
Absolutely. Absolutely. Yeah. And that’s, that’s great too because like you are showing that, and even people who don’t know a lot about real estate, it’s look, this is how much I’m putting into this deal hey we trust you. We’ll we, we’ll go in with you. And . love getting investors because it helps them, especially people that don’t know how to do real estate deals, because it’s a difference.
It’s a heavy transaction. There’s a lot of moving parts and things. , but you actually get to help them to where they can actually still create wealth. You could be an LP investor and keep rolling your money in deals and become quite wealthy and do really well for yourself. And plus you have an.
You can go touch, you can go kiss, you can just go look at it, right? Your 401k, it’s like this ethereal thing that this nebulous thing that’s like, where is it? What is it in? There’s 50,000 things I’m invested in. I’m diversified, and that’s a whole nother topic. Unless you’ve got like a billion dollars liquid.
You don’t need to diversify. Like you got a billion. The guy that has that money, Warren Buffet says diversification is only required when you dunno what you’re doing. There you go. There you go. And that’s totally true. That is totally true. 100%. Yeah. So I’m gonna be conscious of your time. If our investors or our listeners wants to get in touch with you, see more of what you’re doing, maybe invest with you guys what’s the best way to reach out to you, and obviously we’ll put all the links in the show notes.
Yeah, so just reach out to me via email. It’s Derek Vickers, 8 85 gmail.com. You can catch me on Instagram, Derek Vickers 8 85 and TikTok, Derek Vickers, 8 85. Facebook, I’m always posting videos about out in the parks and. Crazy things that are happening in the parks and just really tips on entrepreneurship.
And I just I have fun with it and I ba recently got back on the social media about three months ago after a two year dark period while we were buying all this stuff. And then I got this realization. I’m like, oh my gosh. Like all these lessons I’ve learned all these times, I fell on my face, I can.
Other people that are getting into real estate or whatever can help them, avoid some of those pitfalls. I’m back on there now. Follow me, I’d love to hear from you via email too. I’d love to help you. If you have any questions, you have a deal you want me to look at, you wanna partner on a deal, just, reach out for sure.
Awesome. Thank you so much Derek, for coming on the show. It’s been very interesting. I appreciate you coming. Yeah, Joseph. I. Appreciate that and we will talk again soon. It’s been fun. Sounds great. And for you, the listeners, thank you so much for listening to our podcast. If you like and subscribe, that will be very helpful.
You can give us a review, one stars, five stars, whatever you feel, we are worth just go to iTunes or wherever you consume your podcast and we’ll see you soon in the next episode.

Episode 127: Steven Nguyen
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth 📍 of the ups and downs of operating multifamily communities.
Welcome everybody to the Apartment Operators podcast. My name is Joseph Gaza and I’m your host. And today we have Steven. And Steven is a very interesting guest.
He still has a day job. And Steven, welcome to the show. Hey Joseph. Thanks for having me on and excited to share my story. Yeah, absolutely. It’s a pleasure. Give the audience like 30 seconds to a couple minutes of who you are, what’s your story, how is your portfolio looking like? And then we’ll dig into it.
Awesome. So as you kinda alluded to earlier, I still work a full-time w2. I’m a pharmacy director by day trade. So I’m a pharmacist director at a hospital manage around 40 pharmacists. Been doing this for about 10 years. Came out of pharmacy school of $250,000 of student debt. I’m the very traditional W two high income route.
you know it, it’s a great profession, but I quickly realized that you hit a ceiling very fast. I’ve been making the same income since, 2019. And obviously everything’s more expensive since 2019. Houses, gas, food, everything. And from there I just naturally progressed into real estate.
I aggressively paid off $250,000 of student debt in about four years. Wow. After that, I just said, what’s next? What’s after paying your student loans and the natural progression is to buy your own house? So I started off house hacking. I’m not sure if your audience knows what house hacking is, but basically I lived in the master bedroom and I had to rent out the other three to four bedrooms for about a thousand each, and that helped cover my mortgage.
So that helped reduce my cost of living. I’m in California over here, so rent’s very expensive. I was living in San Francisco where a one bedroom, one bath is about 4,500. So just through house hacking, I lowered my living expense to around 1500, which is one third while making a high income w2.
And honestly, my goal was to buy one of these house hacks a year in California for 10 years. and then hopefully retire. But I quickly realized that in California, since the houses cost so much, about a million dollars on average, to be honest, I’m at best breaking even while self-managing these single family homes.
That’s, I can’t leave my day job. I don’t have cash flow, but I did have insane, appreciation and inequity, which is more of a California market. . know, Once I learned about out-of-state investing and apartment complex, specifically when I learned that as you increase your cash flow, you increase your net operating income, you force appreciation, you can have both cash flow and appreciation.
I just said I need to learn how to do apartment complexes. So from there I learned how to do a direct mailing campaign. , know, I sent around 1800 letters over six months, and I closed on my first two apartment complexes. So I got a 26 unit and a 20 unit in Oklahoma. And after that I kind of dive into mobile home parks.
So I have a 200 lot mobile home park in Alabama. So that kind of puts my portfolio at around 90 units current. . I have no partners in the deal. It’s just myself and I did all this while working a full-time W two job. So that’s just a high level about my story. Wow. There’s so much to dig into over there.
First of all yeah, when you were starting to say, it’s kinda I would rent a room for a thousand bucks a month, and it’s kinda okay, we gotta tell everybody he’s from California. Otherwise everybody wouldn’t understand that. So that was the first thing. But the most impressive thing you started with was.
You paid off $250,000 a quarter million dollars in four years. That is discipline. That is impressive. Absolutely. And that is one of the smartest thing I believe you’ve done as a young person coming outta school. because a lot of people don’t realize that debt has three categories. There is good debt, bad debt, and really bad debt.
and really bad debt has only one line item in it, and that student knows Yes. And the reason it’s get a separate category is because every other debt, good or bad, we’ll get wiped off if you file ba. Really bad debt. A k a student loans don’t wipe off even if you file for bankruptcy. So good on you to get that.
I just wanted to get it out of the way because I know we have a lot of younger audience and younger listeners that want to get started and look, If the choice is between investing in real estate or wiping off your student loan, wipe off your student loan. There’s a famous video of Warren Buffett that a lady came to him and said, I got some money to invest.
And then he was asking some questions and she realized she has a high credit card debt at 18%. He did. He said, pay off the credit card. Cuz there is nothing I can tell you that makes 18% annually. Absolutely. Great. Started. So let’s get started with your statement of I realized I’m barely breaking even, so I decided to go outta state straight to multifamily, kinda like
That’s a big leap over there, right? So how’d you find out about apartments and what made it, interesting to you? And then we’ll talk about operating outta states and operating two different asset. . Yeah. So with my single family homes, I have to self-manage them. I didn’t mention that earlier, and despite me self-managing it, I.
Barely breaking even, or slightly negative, but just for some context, for those who don’t live in California, I got my first single family home in 2017 for about $800,000. It’s worth around 1.2 to 1.3 million today in about five years. . So that’s half a million dollars in equity over five years, which is a hundred thousand dollars per year.
And in some states, that’s just the prices of a home. Yeah. So would you take negative $200 a month to make half a million dollars in equity? I think everyone would, but it’s not scalable. . Yeah, it’s true. I, but quickly becomes not scalable and it ties you to your job, and that’s what you’re alluding to.
And that’s what I quickly realized. , right? . So that’s why I just started consuming a lot of YouTube content, a lot of podcasts there’s a lot of courses out there, a lot of people you can learn from. So for me, once I just understood that basic concept, I mentioned earlier that the value of apartments is based on the net operating income, which is in your control, right?
The, you can control the expense and you can control the. that’s fully under your control and then you divide by the market cap rate, you can force the appreciation. So example I like to give is, if you have two single family homes, one rents for 5,000, one rents for 10,000, they’re both worth the same cuz they’re both based on sales comps with, take that same example where you have an apartment complex that gets 5,000 versus the apartment that gets 10,000, the one that gets 10,000 is worth.
So that’s more of in your control than you can force appreciation. So you can, it, it’s more open your control. So that’s what really appealed me up to me. So what I, why I learned out-of-state investing was because I invest in Oklahoma City and literally my 26th unit apartment complex, I got that for half a million dollars that.
Cheaper than the single family home I bought for about $800,000 in California. It’s cheaper than a condo. So that completely blew my mind. So that’s why I made that huge pivot from single families in California to add a state multi-family in Oklahoma. Yeah. And then I think you repeated the key word multiple times is control control.
We, when we invest in single family, . And let’s say the entire street is averaging half a million dollars and something happens and everybody gets divorced. Now everybody’s worth $400,000. You have no control. It doesn’t matter if you rented for half a million dollars a month to Elon Musk, it doesn’t matter if you gold plated the faucets or Diamond crested the wallpaper.
It’s still gonna be $400,000 versus in an commercial property. At apartment complexes, we have control. We can push rents, we can add a vending machine. We can get a better contract for the waste management to reduce expenses. We. Not full control, right? Because there’s still things the world happens around us, right?
But there is still a lot more control and I can navigate and like I said, force appreciation in a world where I don’t have to be worried if the neighbor gets divorced. . Exactly. So the control thing, you said it multiple times and it’s right on the money. That’s really one of the main reasons we switched to commercial real estate is that element of control.
So Oklahoma City, Alabama how do you get. Management out there that you can trust, that you can work with. Are you still with the first property management you hired, te Tell us a little bit about the we pride ourself of being the no sugar coating. No, no fluff kinda podcast. So tell us the truth the cold hard truth.
How hard was it? Or how easy was it? The day-to-day of running stuff out of state with a third party, I’m guessing third party manager, right? Yeah. You hit the nail in the head and to be honest, I had a good property manager in Oklahoma City before I bought any real estate there, and that’s why I chose Oklahoma City.
So many people and a new investors asking me, Steven, why’d you invest in Oklahoma City? It’s not a sexy market. I know that it’s next to Texas, which is very sexy, very appealing. But I just said, I have a strong property manager, so that’s why I’m gonna start sending letters to Oklahoma City to get a deal.
Cause I know. apartment or property managers, especially for apartment complexes, it’s a different mentality of managing apartments versus single family homes cuz they’re watching my expenses, they’re seeing my rent, they’re minimizing my expenses, they’re trying to maximize my rent. So it’s a different mentality.
So you cannot use your property manager from single family homes to manage your apartment. It’s a completely different mindset. I’m repeating this multiple times to hit a point. As you can tell. So for me, I had a really good property manager in place. That’s why I chose Oklahoma City. But just for some context, most people do it their other way where they choose a market first and then try to scramble to find a property manager.
And the harsh reality is nine out of 10 property managers are terrible and it’ll take you about six to 12 months to figure out that they’re terrible. And what I always say is, , and by then things can go real bad, real fast, right? Yes. So what I always tell How’d you find that manager? Oh yeah. So for me, I was fortunate.
I had a referral from another investor who owned a few apartment complexes in Oklahoma City, so that’s the best way that I’d recommend people to do it. But if you don’t have that referral, honestly, even despite getting that referral, I called around 10 to 20 property managers. I literally just Googled it and went down the list.
And what’s nice is when you interview 20 property managers, it does one or two things. The first thing it does is it gives you a nice roster. For me, I always, cuz I know most property managers are gonna be bad, I wanna have a backup and a backup with my backup. So I have three property managers in the queue in case my first one does not perform.
So I interview 20, I’ll rank ’em number one, number two, number three, number one doesn’t work out. I’m gonna queue number two. Number two doesn’t work out a Q number three. And from there I go through a pretty rigorous interview process. and after the interview 20 of ’em, what’s amazing is that you start to learn how they think.
So by then you know you can kinda take the best traits of all our property managers in your mind, visualize what the best property manager becomes. And I will say, on personal experience, I, I’ve been fortunate, I’ve had the same property managers for both of my apartment complexes.
I’ll call my one for my 26 unit, my A player. , my 20 units, kinda my B player. And let me tell you, there’s a huge gap between an A player and a B player. Yeah. And the reason for that is the A player will tell me what to do and be proactive about it. Hey Steven, we just finished renovating five units.
I put a signout to advertise your units, your newly renovated units. They told me, yeah, my B player, I have to tell. So just that subtle difference. Can make or break your operations. , right? Yeah. So that was my mindset and my shift there. So hopefully I answered your question over there,
Yeah. So I wanna repeat something that you said is don’t take residential property managers. And it sounds crazy and I have seen firsthand residential property management companies that manage hundreds of single family. Can’t handle a 20 unit property. Yeah. And it’s just, like I said, it’s a different mindset.
It’s a different way of operation. They’re the single family people, usually, not all of them usually would just call a retail technician. Everything, something, every time something breaks. It’s oh, let’s call an AC technician. Let’s call a retail plumber and so on. That’s really kinda challenging for your cash flow because you can’t just keep calling retail technicians for every little thing.
And then the multi-family guys, usually they have their own crew and their HVAC certified and saves you a lot of time and money on all these things. The other thing that I wanted to touch base on is your A player right? Versus your B player. , I we have a saying on the podcast that you make your money when you buy, but you lose your money on operations.
Yes. And it’s as simple as that. If you don’t have somebody that has tight control over the expenses and tight control over collections, then your entire N NOI can go out the window. It doesn’t matter how nicely you renovate it, it doesn’t matter. Paint you put on the outside or flower beds you’ve planted right tight control of the collections and tight control of the expenses is what makes you profitable.
So in the same city you have an A player and a B player. So why do you have the B player? Yeah, so my A player unfortunately has a smaller radius, so about an hour radius of Oklahoma City. My 20 unit is probably about two hours away. For me, that’s why I had to kind of branch out. But, My mindset and having another property manager is, you always need a backup, right?
Yeah. So for me, I wanna test them out before I scale around them. So Gotcha. Because I know who my A player is, and as a referral, I wanna scale around them. So after I’m done doing my value add strategy, pull out all my down payment, all my renovation costs, extra money on top. , guess where I’m gonna scale?
I’m gonna start sending letters and hit around my A player property manager. And like I said, the only way to know if they’re an A player is you have to use them. And I do make it very known to them that I’m in this for the long run and I wanna buy more. And I’m testing you to see if you’re a great operator or not, or a great property manager.
And if you are, I will scale around. Gotcha. And how do you work with them? Is that a weekly phone call? Is that a daily phone call? Tell us a little bit about how you operate your management. Yeah, so a as I alluded earlier, I still work a full-time W two. So for me, I touch base with my property managers once a week.
Honestly, for the. , maybe three to six months. Usually I have heavy renovations going on, so I will touch base once a week. I have a template that I go over with my property managers. Kinda like a weekly update sheet. So like how much rent was collected or expenses how many units are rent ready, what’s assess the renovations, just a lot of basic, metrics that we hit.
But on top of, It’s just more for me to help remove barriers. Cause sometimes the property manager, they’re stuck with a decision that they didn’t realize they’re stuck with. But when they talk to me on a weekly cadence, they realize that, oh, I actually had a question for the owner about this and I can help answer that and remove that time delay as fast as possible.
Cuz you know that when you involve other people. property managers and they’re outta state. Things get delayed significantly, and my job is to remove those barriers as fast as possible. , so an example is I, my, my last week I had a Cobra property manager and she didn’t know I was open to short term leases of maybe six to nine months.
And I just said, honestly, at this point, since I have a hard money loan on my 20 unit, I want it to fill up those units, but make it known that I do accommodate short-term leases, but we’ll add on additional fees on top of. . So typically it’s about 50 to a hundred dollars to pay in your market. So I’m open to that cuz to me I had 13 units to fill up and if they qualify I don’t mind that.
And from experience, people usually end up staying longer. They usually don’t stay there for six to nine months cuz they get comfortable. Maybe they’re saving for a house. and houses getting more expensive still. Yeah, so renter, mentality’s different than being a homeowner, so I know by higher probability if they like the area, it’s nice, it’s well maintained, they’re gonna stay.
And we like to ask them why, right? Yeah. Cuz like I said, if they plan on buying a house so there’s two things. One, like I said, plans change. Life change, the market changes, right? So they might stay longer. The other thing is we started offering at some point a program that. offered them to get into a 12 month lease, pay a $300 one-time fee, which guarantees to them that if they do buy a house, we will release them from the lease with no penalty.
, so that gives you a little fee up top. Yes. And then instead of having a six months contract, you have a 12 months contract and. They’re gonna actually have to buy out, show you that they bought a house in order to get out of their lease. So that helps them with the worry about committing for too long and helps you with having a more stable contract.
In case you, like you said want to go to a refi, right? So the lender doesn’t like to see six months leases, right? So they want to 12 months Lisa. So that helps you over there. So it’s like it’s a win-win for. That’s really smart. I’m glad you shared that . I didn’t think that far.
I was more thinking when we analyze tenants, we see their bank statements and we’ll know if they have a down payment in there, , or worse towards it. Yeah. But again, life changes. Life happens. . And then some people are transient, right? I don’t know where yours are located, but we’ve had our own properties and we’ve had other operators that we talked to do like a midterm leasing in their apartments for traveling nurses and stuff like that.
In around Oklahoma City, there’s a Oklahoma City. There’s a lot of oil and gas, right? So you can find linemen and you can find people from the energy company that are coming out for six months, eight months and they just need uh, A place to stay that is furnished. So for you, the cost of furnishing a unit is negligent compared to the increase in rent they pay just to be in a transient unit.
So just little strategies that you can think of working over there. Sorry, do you have a software you have access to so you can see reports in real time or is. Paper reports or emails where this is the numbers. You said you go through a template on a weekly basis, just trying to see you get out of your day job.
Do you go check in on everything on the software? Yeah one property manager uses Rent Manager, which is very common. And what’s nice about Rent Manager is you can automate the reports emailed to you on a monthly basis. So my property manager, usually by the third Friday of every month, they’ll send me the last month’s reports, but.
That’s still a three week delay. So even beyond that, I do check the bank accounts. So some we share a bank account, some we have an escrow account. But even on top of that, I can always just email my property manager and say, Hey, can you show me what the current escrow account looks like?
If it’s a bank account, I will log in. So my 26 unit, they use Rent Manager and my 20 unit, they use AppFolio and I always make sure that. , know, they send me my reports on a monthly basis on time, cuz after a while people get very comfortable, they get very lax, especially with you after they feel like they got over that, oh, I impressed them already phased, they might start to slip here and there.
So you have to keep ’em on their toes where if I don’t see my report, I will email them and say, Hey didn’t see my report for this week. Can I get an update for that? Unfortunately, even if you have an A player, human nature. Once you understand human psychology, people will get lax and they will find your blind spots and they will try to cut corners in those blind spots.
And unfortunately the squeaky wheel does get the grease. So you kinda have to be a squeaky wheel sometimes to make it known that you’re still watching it and you still expect to have a high standard of how your property’s operated. So that’s just been my experience. Gotcha.
Cool. Your next property was a 200 unit mobile home park in Alabama. Yes. Like, how does that live to a different state and a different asset class come about? Yeah, honestly it was shiny object. In retrospect, I wish I would’ve just doubled down in Oklahoma cause I had such a strong system there.
And just for like peace of mind. Because honestly, once you scale to more units, a lesson that I learned is that simplicity scales, fancy fails. I’d rather be really great at apartments in Oklahoma versus be good at apartments in Oklahoma and like mobile home parks in Alabama. So that’s just some context that I went through recently, but what kind of appealed me to mobile home parks is, once again, This is a 200 lot mobile home park.
Not all 200 are full. I think it had about maybe 30 homes filled, about half were park owned homes, half were tenant owned homes. When I took over the park a lot of tents were not paying, so it’s a highly distressed park. A lot of vacant park owned homes that need to be renovated.
But what really appealed to me was it was selling for about a million dollars. 55 acres, 10% down, and seller financing at 5% interest only. So the terms were very impressive. I got it for $6,000 a lot, and it takes around. maybe 20 to $30,000 just to establish infrastructure to one lot. Yeah. So to me, I knew I was buying, right?
So even if I was struggling operating it, and maybe I put in CapEx, cuz mobile parts is crazy amounts of CapEx. Like literally whatever amount you think you’re putting in, it might be double or triple that amount is because just by the nature of only 55 acres, there’s a lot of fixed cost that you have.
Yeah. I just knew I was buying right day one and I knew that I had really good seller financing terms, like where can you get 5% interest only fixed for six years. Yeah. I I did that about a year ago, but to this day, that’s impossible. If you, for this part, you have to do a hard money loan, which is probably gonna be around 12 to 14% at this point.
. So I knew that I could easily fix and flip this if I wanted to. So I was looking for multiple exit strategies, but obviously if I could fill up this part to even a hundred outta 200, it’s worth about five, 6 million if you can fill it to, full capacity, it’s, you’re talking 10 to 12 million.
So I knew that I had my wrists, my downside slightly mitigated, and then my upside was exponential to the point where I could lead my. . It, it was definitely shiny object syndrome, like I said, but I’m glad I bought it. And I did learn a lot from that. So at this point I’m pivoting to see if, do I want to sell it or do I want to continue?
So I am looking at my options at this point. Cuz like I said, it’s a lot I, I. Good chunk of the CapEx that I allocated by undershot it . Yep. And I’m slightly disappointed in my property management cuz I have an onsite manager and then I have an offsite manager and I manage the offsite manager. So let’s try level.
And they’ve been in the industry for about 30 years. . And I, they probably knew that the expense I allocated was a little bit less cuz they’d been in the operations for that long. So it disappointed me a little bit in the sense of, number one, they should set the expectations up front, being more experienced in the industry.
So it signified to me that they’re trying to market the deal to me. , know, obviously because, cuz they make money when I buy, right? Yep. They’re trying to market the property and then number two is they underestimated the expense cuz they we work on a plan together, a perform a plan and they grossly underestimate those expenses for me.
So that kind of signified to me that okay, they’re not the greatest operator out there. So that’s what’s making me lean towards maybe unloading it, lock some profits. , make, get paid to learn a lesson. It’s all good. And then at that point I can get my money back and pivot to see, okay, do I wanna do mobile home parks again or do I just wanna double down Oklahoma City?
And I’m looking towards doubling down Oklahoma City cuz I have a player there where I wanna scale around them. . And then once all my assets are stabilized, I can leave my W2 job and at that point I can reevaluate if I want to do mobile home parks. Yeah, so I wanna dig in a little bit about the lessons over there.
Yes. So the property manager were part of the sale when you bought it? Yeah. So they actually serve as mobile home park consultants. So they help you do the offset management and the onset management, and they’re already doing that for the prior. Okay, so they, yeah. So they had a vested interest in helping the seller over the new buyer, correct?
Correct. And so that’s kinda, that’s a good lesson right there, right? We’re brokers, right? So I keep helping people understand that it doesn’t matter if your dealer is on the market or off the market, if there is an agent involved from the sellers side, you. Another person that is not that person working for you.
Exactly. You want another agent or another property manager or somebody else that is gonna be your person, that their fiduciary responsibility is to you, that their loyalty is to you. And we’ve represented sellers before and we try to be fair, with whoever is coming and talking about the property.
We are, it’s in the Texas Real Estate Commission bylaws, right? And rules and regulations is that I have a fiduciary responsibility for the seller if I represent the seller. . So my job is to make sure that my seller is protected and my seller is getting the most for his property. . Like I said, we try to be fair, but we do have a responsibility for our sellers.
I think that’s a very good lesson from this, kind, from this experience is make sure there’s always somebody that represents you and not the other side and not shared between the two organ the two sides. Exactly. You set together and you did a performer you mentioned. So that’s another, sounds like another lesson over there.
A lot of the time we’ve seen some brokers put performers out there that are, I like to call it sprinkled with rainbows and lollipops all over it. Yeah. And they’re just absolutely unreasonable. Most of the time we see that on the income side of things and it’s yeah, just put some paint on it and you can.
$1,500 for one bedroom in southwest Oklahoma cities that n no you can’t. But the CapEx is a very important component in understanding. Where are you going? How much are you gonna have to spend? Cuz CapEx usually you don’t get as part of the deal. Or if you do, usually it’s in a reserve account with the bank and it’s a pain to work with them to get that money.
The CapEx component, if you don’t mind sharing a little bit more about where do you guys were off and how far off you were on some things that would, I think that would be a great valuable lesson for our. Yeah, so fortunate for me I had all the CapEx up front by doing a cash out refi. I, one of my high equity single family homes, so I was able to leverage that equity for the CapEx of my mobile home park.
But like I said, what really threw me off was that’s 55 acres. There’s a lot of trees, just the trim. 10 trees, it’s like $7,000. Yeah. And that completely blew my mind. I was like, I didn’t realize trees are that expensive. Like I said I think they know what the cost is. Cause when I asked them, they said, yeah, it’s about 700.
But I just wish they primed me a little bit in advance. And, when I bought my mobile home park, I consumed the malls, the whole podcast about mobile home parks. But even despite that, you still learn by doing it. And I was leaning a lot on my property management, who’s been in the industry for 30 years to guide me, but I felt like they just weren’t very strong at communicating that front.
So my expectations are very wild or off. And on top of that, you yet to understand your property manager’s personality type. So the type that I had for my mobile home park, she’s very people pleaser. So they say what they want you to hear, but that’s not exactly what they can. . But for me, that creates a discrepancy and that creates frustration.
Yeah. I said you said we could fix up whatever, two or three homes per month. It’s gonna cost roughly eight to $10,000 per mobile home to fix up, and then we’re gonna rent out those three every month. But we were consistently not hitting that. And another lesson was, they recommended to pay some contractors.
on an hourly basis and quickly, you realize when you pay in a contract on an hourly basis, there’s no motivation to go fast. It’s just like any hourly worker, regardless if I work fast or slow, I get paid the same. Yep. So they get very complacent. Versus contractors, if you negotiate $10,000 to fix it, whether it’s fast or slow, it’s up to them.
And if they go slow, They’re gonna lose more money if they go fast, they make more money. Yeah. So you have to align the interest. So that’s another pitfall that I fell into and lesson I learned with my mobile home park and with my apartment. I never paid by the hour. It was always by the unit.
Yeah, this is my unit. How much is it gonna cost to renovate this unit? So even despite doing it over here, I let my guard down my mobile home part. Cause I thought it was a different asset class. I thought this was more standard. , right? Yeah. That’s where I fell. That’s why I said it’s better to be great at one asset class versus be okay at two or three.
Yeah. So that’s another thing with the third party property management that we’ve noticed is we no longer do third party management, but when we do, or the operators that do, you gotta insist on getting three separate. From three different contractors on anything they do. It doesn’t matter if it’s street dreaming or renovating a mobile home park or renovating a, single family.
And the reason for that is especially the veteran ones that’s been on the market for more than 10 years, they have relationships. And they have contact and they have a lot of time, unfortunately, family. My cousin does that. My uncle does that and. If you don’t get the bids, you could end up paying a lot more than you should, just because I’ve always worked with Steve.
Steve does a great job. But Steve costs double what everybody else does, right? Yeah. So making sure that your property managers give you at least three bids for every project that is more than, let’s say 500 bucks. Then that makes. Work a little bit harder and make sure that they save your money.
Because at the end of the day, and this is what we’ve heard from every operator that have grown to scale, is that we can’t just let them do what they want cuz they don’t care. It’s not their money. Yes. They’ll spend your money gladly. It’s not theirs. So that’s the kind of thing that we’re.
Cautioning or with letting everybody know that they used third party is just, you gotta stay on top of it, or they will spend your money really fast and not always for the right things. No, I’m glad you said that cuz it’s very true cuz for them they just wanna solve the problem as fast as possible and the first solution is just the easy solution and it may not be the cheapest solution.
Yeah. And it’s not always about speed, it’s about I have a million different things I’m doing for five or 15 or 50 different clients. Exactly right. So calling Steve, because Steve always comes and help me is a lot easier. Then, okay, now let’s go get three bits. Exactly. So yeah. And one other thing that you mentioned, and I think didn’t go as, as pronounced as I thought it should be is the 55 acre thing.
A lot of the mistakes we see people doing underwriting at the beginning is they use industry. Landscape should be 120 a door or $80 a door, or but I can have a 200 unit apartment complex on four and a half acres of concrete. Or I can have it on 50 acres of grass and landscape.
And there’s gonna be a huge difference in your contracted services between this one and that one, even though they’re both 200 unit apartment complexes. The, I have seen a 200 unit on over 20 acres, and they had to have a full-time landscape person that starts at the beginning of this the property on Monday and works his way through the property all the way through the week and ends over there on Friday.
And of course, the payroll increase just jumps up, right? Paying attention to these things is critical. Otherwise you learn that the hard way. Exactly. You hit the nail right in the head. I had to get a new lawnmower and just one guy spending all day to, or all week to mow 55 acres.
And on top of that, when it’s rainy season in Alabama, the crab weed grow rapidly, like insanely tall, very fast. Yep. So it’s definitely underestimated. All performs, I will say that all performs are understanding the landscape. Yeah. But you did something that we’ve done too in the past and it’s, I believe it’s the smart move.
Instead of having a landscaping company come and do the work, you actually bought the equipment, hired a guy, and now it’s your guy. Does that. , right? Yes. And the huge advantage of data from operational perspective is if your maintenance guy needs something to do that needs four, right? Lift something heavy, something like that guy can get off the mower for 10 minutes, help and come back to the mower.
So you have another set of hands on the property that normally is dedicated for landscaping. But when. , they can help with something else, which if you were hiring a company, they would come in once a week, do whatever they do and run away within a few hours or a day. I think that was a very smart move on your end to just buy the equipment.
I know it’s painful to do that expense upfront, but you buy the equipment and you hire the guy, it pays off more in the long. Exactly, and I was actually able to finance that lawnmower over four years of zero interest. So some people don’t realize that, that you can finance it, have not much interest, and still get the equipment you need.
Yeah we’re a little bit more frugal. We just go to Craigslist and Marketplace and we buy a used one for maybe a third or fourth of the cost.
Okay. I wanna be conscious of your time, cuz I know you have a day job to get to. If you could go back a couple of years before you got started with all real estate before you bought your first home, what advice would you give yourself? that’s a great question. I feel.
Just getting started in real estate earlier would be advice that I gave myself, surround yourself with the right people, continue to self-educate yourself every day. . I started investing in 2017, but I graduated from school back in 2013. If I invested back, then I could have bought new properties a lot cheaper, especially in California and then apartment complexes.
So I’d just say, surround yourself with the right team. And fortunately in this day and age, there’s a lot of communities out there that you can join. You can pay for a course or mentorship and just surround yourself with people who take consistent action. because for me it was just very eye-opening to know that things were possible.
I didn’t know it was possible to have 90 units while working a full-time job. If you told me five years ago that in five years I’d own 90 units, I’d probably be thinking, oh, I quit my job and said, f you , to my boss. But that’s not the reality, right? . Yeah. I wish I would taken that and I wish, what someone told me earlier back then was focus on the process, not the.
I think in the beginning when I, especially when I was scaling, I was so fixated on how many units I wanted to own. I was so fixated on I wanna hit 20 K a month in cash flow and then retire. But the problem is when you’re so fixated on this outcome, you become unhappy. If, let’s just say you make $5,000 a month in cash flow, oh, I’m unhappy cuz I’m not 20.
But in reality, $5,000 a ca a month in cash flow, that’s more than most people’s. Like that can pay for most of your living expenses, except if you’re in California. But any other state, you could cover most of your living expenses there. So I think just focusing on the process and making it a long-term process.
So for me, I did three heavy value add deals out the gate, two apartment complexes, one mobile home park. I’ve probably renovated about close to 40. Units between all that in one year in my first year doing apartments and mobile home parks with no partners. All outta your pocket. Yes, all in my pocket.
And I’ll tell you, writing large checks every month has a psychological burden. Even though the money is there In allocating the bank account, when you start writing 25,000, $50,000 checks on a monthly basis, the psychology of it, cause our brains are very fear-based. Yep. It does not feel good at all, right?
I felt very good of a lot of money in my bank account, but when you’re just writing checks monthly and seeing that dwindle, just the psychology around it messes with you, and when you get stressed out, you don’t make the best decisions as an operator. So that’s why I just said going back do something that’s sustainable for a long period of time.
And what I should have done was if I bought a bunch of units, I should have just bought it in Oklahoma City and scaled around my a-player. Or wait for one deal to finish. Pull all your money, buy your next deal. Wait for that deal to finish, pull out your money, buy another one. Cuz real estate’s a long term game.
Yeah, I’m only in my thirties. I already have 90 units. and honestly, you’ll be surprised how it compounds. Once I finish cash out, refi both my apartment complexes, I can go buy a 50 unit. There you go. I just doubled my portfolio. Yep. Then after that, you stabilize those three. Now pull all your money, you go buy a hundred unit, you just doubled again.
So you have to think about it long term and what’s sustainable at a good healthy rate. Like you don’t wanna go too fast. , but you also don’t wanna take inaction. There’s always like this happy medium in the middle where that’s a sweet spot and that’s how you can organically scale. So that’s why I would go and tell myself, from a couple years ago.
That’s a solid advice. So if our audience wants to reach out to you and talk to you, how can they find you? Yeah, so you have the link for my link tree that has a link to all my socials. So I’m on YouTube at Mickey Multifamily money, Instagram TikTok at Mickey Multifamily Money. And they can also shoot me an email as well at sdt win Typically pretty responsive there. Awesome. Yeah, we’ll put all the links in the show notes as well for our audience. Thank you so much, Steven, for coming on the show. That was really inspiring. All right, Joseph. Hopefully people found some nuggets and learned from my success on my apartment side and some failures I had on my mobile home park side.
And hopefully they just, like you said, found value and don’t make the same mistakes as I did. Sounds good. And for you, the audience, thank you so much for listening to our podcast. We’ll appreciate if you can give us a review, one star, five star, whatever you feel is right. Just go to iTunes or Stitcher, wherever you consume your podcast and give us a review and stay tuned for another.
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Episode 128: Shane Carter
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities.
Welcome everybody to another episode of the Apartments Operators podcast.
Today we have Shane Carter. Shane has over 25 years of experience in multifamily. Shane, welcome to the show. Thank you so much. Great to be here. Awesome, Shane, at the beginning of every show, we ask our guests to kind of introduce themself, tell our audience a little bit about yourself, what you guys have been doing, and how is your portfolio looking like.
Sure. So, so my background, I like to I like to call my background one of the classic self-made man story. I started, about 25 years ago, like you said, and I started flipping contracts, wholesaling contracts, wholesaling properties, did fix and flips. And sort of transitioned up from there to really I found that I had a real affinity and love for contracting and construction and general con, general contracting in general.
And so I started a construction firm and that, I first, I started renovating homes and doing remodels, and then doing additions, and then building, single family homes. And then I started doing community development and, high-end luxury homes, two to 5 million homes.
And then doing mixed use projects and condo developments and town homes and doing land development. And That was my growth in that business. That’s all obviously cash flow transactional business. I always took the money I made in that and bought apartment units. So mostly, when I started it was a four unit and then a six, and then an eight, and then a 20, and then a 60, and then a.
200 unit and so on and so forth. So I sort of grew organically as my capacity grew and as my cashflow grew, didn’t really take on a lot of investors, a couple of JVs here and there with one or two folks. And really changed my investment thesis in 2020. I had sold off most of my assets in, between 16 and 18.
Cuz it, it kind of felt like it was the top right. It kind of felt like, oh, this is the peak again for those of us who owned assets and sort of lived through the oh 8, 0 9, fallout of course nine, 10, and 11. I bought millions and millions more assets. And so by the time 2000 16, 17, 18 rolled around it kind of.
That was it, right? We were, we’re ready to kind of tap out and cash out. Of course, we know what happened after that. Everything doubled again. So, in retrospect, not maybe the best move, but it still, we still did well. So, Started Hampshire Capital in sort of, in 2020. And Covid with a longtime friend and business partner, associate Nick Bouquet.
And really our thesis was to get into the larger asset classes, really get to, multi-billion dollar portfolio, engage with institutional capital and essentially do it differently than what we had done over the last, 10, 15, 20 years of our of our investment cycle.
So, We started buying, bought our first tranche of assets in March of 2021 in Texas. And since then we’ve acquired about 2000 units, about about 230 million in assets under management. And it’s really all, kind of B and c class value add. We are now starting to incorporate some newer development 2022.
2023 type builds into the portfolio just to have a little bit of that yield stabilized asset in our holdings as well as the value add. But in general, yeah we buy multi-family assets, 200 plus units in Texas, North Carolina, South Carolina, Florida. Those are the only places we buy. Major MSAs.
Okay, so that’s a very impressive background, right? So I’m sure you have a lot of stories all the way from the beginnings with the small ones, through the bigger ones and the bigger acquisitions right now. So one of the key questions we always ask is, do you guys self-manage or use a third party? So I started self-managing and started managing all my own assets, especially on the smaller side when we started entering these larger markets.
And of course we. We’re a couple of guys that are based out of New Hampshire and we have, local partners, employees and staff in all the locations that we own assets, but they’re mostly there for construction management and asset management. So we do have, we do construction management obviously because of my background.
We do have that vertical in-house, but we don’t have in-house property management right now. That is part of our goals is that by the end of 23, about 12 months from now, We want to be able to be in a place where we can take property management in-house and do it and execute at a high level.
So currently we do work with third priorities. Okay. So I’ll split my next question to two is like, how is it working right now and why did you guys make the decision to transition So, Well, the second answer is kinda cause of the first answer is that things aren’t going as well as we’d like.
Right. Okay. We don’t so our company is, we’re really focused on culture, right? Within our own organization, we’re focused on culture as the sort of c e o of the company. That’s kind of my main job is people and money and. , people and culture to me are the most important thing in any business, and it’s critically important in our business, in, in multifamily.
It’s super important. This is a people business and your culture and how you run and conduct your business is the most important thing about your culture. So, and about your business. So that’s what’s not going well right now. We don’t like when you third party. Property manage you sort of third party and sub out your culture, right?
So now you have another firm in there that maybe aligns with your culture. Maybe they don’t, but they’re not taking on the property the same way that you would. And that’s the aspect of it that we don’t like and why we’re interested in going to be doing property management in house ourselves.
Just too much misalignment with the culture aspect. Okay, so remember I mentioned earlier we do honest truth, no fluff, no sugar coating, right? Yeah. So, what does it mean, misalignment of culture, right? What do they do that you don’t like? What do they not do that you would like them to do? So, look, specifically, I’ll start with accounting.
Accounting is the number one thing that, that I don’t like in terms of how they do things. So it. . For us it’s a control mechanism, right? We like to be intimately, we’re very hands on as asset managers. And so we expect, and even though we have access to, Entrada or Yardi or whatever software we’re looking at Things just don’t get executed the way we want.
They don’t get executed as quickly as we want, as well as we want. And in a manner that creates a partnership with vendors, a partnership with, with key relationships. Right? And so, and I’m starting with accounting because some of that flows with timeliness of payment. Oh we didn’t, we couldn’t pay them because they didn’t fill out this form and they’re not in our system.
And I’m like, what the hell is that? Just. They did the work. We need to pay them. Well, that’s not how our system works. So there’s things like that, that are just a misalignment of how our culture is. And and look, I get, I get e o s I love traction with that. That’s something we implement in our company.
And, process and procedure is important, but not if it’s doing your business a disservice in terms of function and execution. Right. So that would be one thing that I would. Is, accounting bill, paying a p a r, it’s just not as tight and tightly run as I like to see it. And then secondly, again, at the culture level, we, let’s say we’ve had multiple regionals, right?
Regional managers that come in to our property level staff and we’re, our asset managers are engaged with the regionals. . And they’re managing, our 600 unit portfolio plus somebody else’s 400 units, plus somebody else’s 300 units, and they’re just stretched super thin, right? So they’re not giving it the detail, they’re not giving it the attention that it deserves things.
Hey, we have a request. This need, pick anything, right? Something needs to get done, a task needs to be accomplished. And they say, okay, I’ve got it. I’ve got. We follow up two days later, it’s not done. Three days later it’s not done. Five days later it’s not done. That’s not acceptable. I want that done the next day after we said we were going to do it.
Right. So things like that, that just are not acceptable to how we function. Yeah, no, and it kind of makes sense, right? I’ve, one of my pet peeves with third party management is we, as an industry, we don’t know how to compensate. and I wish I had a good answer cuz then you know, I’d be one of the best third party property management in the country.
But there’s just no right way to compensate a property management in a way that will align with the interests of the owner, right? People say, well, we pay them off the top line so they have no interest in driving bottom line. So, okay, so we’ll pay them on the bottom line. Well, they’ll defer maintenance, they’ll get the bottom.
So, so it’s like there, there’s no right way to make a third party property management align in a cost effective way. Cuz let’s be realistic that we can pay them a lot more and they’ll do a lot more, but then we’re not gonna be profitable as the business. Right. So That’s exactly right. Yeah, so, so every big operator, or 95% of the big operators we talk to when they get to a certain scale, They transition into a third from a third party to an in-house management.
And the keyword word, and you’ve said it is control. That’s right. Is being able to get what I want done when I want it done. The way I want it done is what I’ve seen is the main driver for operators to switch to self-management. . Yep. That’s a hundred percent correct. That, and that’s exactly our goal and our thesis.
Look, I do, I want to have a bigger company and have more payroll and have more overhead and staff. Not necessarily, but I can’t accept the results that we’re getting with third party property management. Right? So we have to take it in-house and you’re, you hit the nail on the head. It’s all about control.
It. Not a profit center. We don’t expect to make money at it. It’s just about control and execution and speed of execution, which to me is very important. Yeah and another thing you mentioned earlier is the damaging of relationships, right? In today’s market where it’s so hard to find good labor and good vendors and vendors that you can trust then being able to preserve that relationship is super critical.
So if they feel. You know that they’re not getting paid on time or appropriately or whatever, then they’ll go work for somebody else. And now you lost a clinical vendor in a world where it’s so hard to find good ones. Yeah. The entire paradigm has shifted and I sort of felt it in that same sort of 2000 16, 17, 18 timeframe.
So, obviously I was a contractor for 20 plus years, a general contractor, and I. The sort of relationship with subcontractors, with laborers, with vendors was more like, Hey, I’ve got the work and, and I’m the sort of the, the one that, that everyone should be coming to and the subcontractors, the vendors the labor were, sort of, Hey, Shane we wanna work with you.
How do we work with you? That dynamic shift. In that, probably, like I said, about four or five years ago, and since then, it’s different. You have to have a different relationship and a different understanding of that relationship with your vendors, your contractors, your suppliers.
Because we’re in a labor shortage, we’re gonna continue to be in a labor shortage. And those relationships are very critical. And let’s be honest, getting paid is one of the most important things to that relationship. So when somebody’s messing with your pay and your money they just leave and they go over to the next guy who’s gonna pay him more timely.
So that’s, again, that’s why I started with accounting is my biggest gripe. Yeah. So, but that same situation, the shortage of labor that kind of flipped that equation on us. Is gonna be one of your biggest challenges studying your own third party manager, right? So what do you guys have in mind for hiring retention?
Cuz as somebody that has their own property management company, I can tell you that’s our biggest challenge, right in the last six years, we went through maybe 200 different personnel people for maybe five, 600. It’s insane. A amount of people to go through just to find and retain decent talent.
Yeah, it is it’s hard and it’s going to remain hard until there’s some potential rebalancing, in the macroeconomic world that we find ourselves in. But to answer your question specifically, I am going to continue to come back to my overarching thesis, which is culture.
And so the culture at our organization, which is going, which will flow down to the property level staffing, is one of, our guiding principles, right? And we list them right on our website, and it’s just how we operate. And so it’s creating the environment, the energy within a company, within a culture.
Is inspiring. That leaves everyone feeling like I matter. I’m super important, right? I’m a porter, I’m picking up trash. Man, you are so important to us. We appreciate you so much, cuz without you, our property’s gonna look like crap. And that’s going to affect leasing, that’s going to affect everything.
There’s a negative downflow from there. So every single person is super important. Everyone is valued. , everyone’s input is valued. And creating that culture where we’re doing exciting things, we’re on this really steep trajectory of growth. Get in now where you’re gonna miss the boat, right? Where that sort of energy around our company is one that we’re trying to continue to cultivate and we will cultivate.
And that is actually the more important figure to attract people. People, we all have this innate. Need as humans to be a part of something greater than ourselves, right? And so that’s what we are doing at Hampshire Capital, is creating this environment of this machine that is growing and sort of bringing everyone along with it where everyone wins.
We have company profit sharing where we’re going to be setting up a a system where, kind of like a matching 401k, but it’s a matching pool of investment funds where if our employee. Choose to participate, the company will match their funds and there’s gonna be a tenure aspect according to that. But then we use those to invest in our properties.
So now our employees are part owners of our properties, literally, right? Via the Hampshire Capital Employee Investment Fund. And so we are thinking through things like that, thinking through ways that we can create a fund where our residents can actually apply or invest a portion of their. to become a fractional owner and a, an LP investor in the asset that they live in.
So some of their rent each month is an investment and is going towards their home that they love. And we’re trying to think through new and interesting ways to create that culture that attracts people. So I think culture is the most important thing, and I think that creating something where somebody feels like they’re a part of something bigger themselves is the most important thing.
Secondly, of course, is money, right? We’re we intend to be able to pay more money, we’re just gonna pay more for it. We’re going to take less of the quote, unquote management fee because we’re going to stuff more of that overhead into. The property management the property manager, assistant property manager, leasing agent lead, maintenance supervisors, porters, et cetera.
So all of those folks we’re, we are attracting them with better pay, better benefits and a culture that they’re extremely proud to be a part of. Yeah I love the idea of creating this investment fund for the employees. That, That’s a really cool idea. One of the ideas that we’ve heard and operator mention that I’ve never heard before, but it was fantastic idea, so I’ll share with you and the audience again, is if your properties are high occupancy, right, then what that, that owner did.
anything over 95% occupancy was shared between the employees. So let’s say you have a hundred units and you’re 95% occupancy. So the rent from the last five units is shared between the employees. So he had retention, people staying there for 17, 20 years, and everything is a. because if you drop under 95%, they don’t get a piece of reaction.
But everything they get over is, let’s do a quick turn. Let’s keep the residents happy, let’s get the work orders done fast. So we’ll keep retention cuz as long as they’re here, it increases the chances of us staying over 95% and so on. So that, I thought it was the very interesting concept of. As ownership, if we’re 95% occupied we’re doing good in most markets, right?
So everything on top of it is cherry on top, but the benefits of giving that charity to the employee comes across a hundred percent of your property, right? Increasing retention is what saves us a ton of money in the long run, right? So, I thought it was a really interesting idea, so I thought I’d share.
That is an interesting idea. I li I like that. So my only question would be, isn’t that sort of diametrically opposed to growing, your rents, right? So, can you stay? So in other words, when we look to, to go in and renovate units and raise properties, or even achieve that organic rent growth that is essentially not happening right now.
But, if you look back over the last five years, there’s been, pretty substantial in some markets, double digit rent growth. Oftentimes there’s this balance between. Retention and rent growth and percent occupancy. Right? So would you rather be 97% occupied, but be $75 per month per unit under your competition or under where you could be?
Or would you rather be 92% occupied, but have that extra $75 a month for each unit? Right. Well, it’s interesting. It’s not question, it’s not mutually exclusive here, right? So, so the answer to the question is simple. It depends on where I am in the. So if I am in the value add portion of my of my investment, then of course I want the 92.
So I can turn the units and I can push the rent. But if I’m already stabilized right, and my loss to lease is let’s say a three, four, 5%, then I want the 95% occupancy. Cuz I already stabilized. Right? Right. The refi might have already happened the and so on. So then I want the stability. Depends on where I am in my investment cycle, that’s where I want my occupancy.
But to solve that challenge that you present is you can always say, okay, I’m taking these units out of the equation because I’m upgrading those. So units under upgrade don’t count for the 95% occupancy that you guys need to retain. No that, that’s a good point. Thank you for bringing that up.
How does that help with the tenant retention though? I mean, I can see where it benefits the employees and them pushing for tenant retention, but how does it benefit the tenants in any way? So if you are the lead maintenance guy, or you are manager, right? And you want retention because you don’t want to get dropped off the 95% then you’ll give better customer. You will turn work orders real quick. You will keep, when you do work orders a maintenance guy. You keep everything clean and nice and tidy. You don’t leave anything wet or dirty, right? So you keep the property clean. So everybody on the team is working to make sure everybody on the property is happy and staying.
And it also helps from and again, this is not from my personal experience this is from the conversation with that person. , it helps expel deadbeats off the team because if I, if you are the lead maintenance and you have a maintenance guy that doesn’t contribute to everybody’s efforts to maintain the high percentage of and they hurt your ability to earn that extra income, you will expel that person real quick.
Yeah, no, I like that. I really like that. Which, why Yeah. In the industry where we were struggling to keep people for two years, they had people with retention of 17, 20 years on the property. Yep. So, so I like that a lot. That’s good. That’s a great, that’s a great process. I like that.
So, so just thought out, share that. So, you guys do value add, right? And turnaround. So the obvious is let’s increase rent or let’s charge rubs when nobody’s charging ropes. Right? So, so, so that’s the easy ones. What other things are you guys doing to increase. income from alternative ways or increased value in alternative ways.
And we’ll talk about reducing expenses in a second, right? Cuz there’s two sides to the No, I, yeah. So give us a few ideas that you guys go into properties and you help increase the income side of the No, I, that is not the obvious. Raise, rent or charge Robs. So I’ll tell you one technique that we’ve employed at a couple of assets now with massive success and, a little bit of this has to do with my sort of, construction background and building, lots of homes and building lots of different properties.
And so, I have, I’ve been able to get a decent eye of what space is interior space, right? And sort of how to work with it. Anyway, there’s a there’s been a couple of different assets where I’ve found, we’ve found specific unit types that lend themselves to being separated into two separate units.
So a large three bedroom that lent themselves to, put in putting in a separation wall. And now you’ve got two, one bedrooms. So the three bedroom rented for you. 1400 a month and now the two one bedrooms rent for 9 95. Right? So that’s a win all day long. If you look at that and, general expense for something like that was, I think in the sort of 30, $35,000 range to bifurcate the unit into two units.
But then, You do this amazing thing when you go to trade the asset, which is you get the, no, I bump. But then on a quote unquote, a price per door you’ve just created, you just spent 35 grand and you just created a unit that is on a price per door basis. A hundred, 150, right? Per door, because that’s what the market bears.
So now you’ve just created 10 extra units. At a hundred thousand dollars a piece that’s a million dollars. And forget about, whether or not that extra $400 a month was equated to that extra million dollars in value. It does, right? Yeah. But you’re sort of, you’re covering your bases two ways there.
That’s a great way to add value that I think. Some people miss. Now, the only caveat to that, and then the thing that we did is you really have to drill into the unit by unit absorption and what the unit vacancy rates are. In other words, you don’t wanna be creating too many one bedrooms if that’s your highest vacancy rate, right?
And you’re already having trouble leasing those up. But in this particular asset, it was an old hot asset, from the seventies, super dense, lots of three and four bedroom unit types in there, very few one bedrooms. It was like 6%, one bedrooms. So there was a way to balance out the unit mix create additional units and, create a better operating property.
In one of our highest vacancies was actually in the two and three bedrooms. So we picked the unit types that weren’t doing as well to bif. . Yeah. That’s a great way and improves your property value. Like you said, I get that $400 at a five cap valuations, right. I add a lot more than what it cost me to split that unit.
So that’s a good idea. What else do you guys do? So, we most of it is, it’s pretty. kind of pretty standard, right? In terms of looking at the value add program and then the additional incomes, carports, yards, patios, sort of private spaces for first floor residents.
I would say, what are some of the other things that we really focus on? Yeah, I mean there, there’s rubs, there’s there’s sort of, rent guarantee programs, right? Where or deposit guarantee programs where you get a, where you get a portion or reward program for that.
And, obviously cable, wifi, things like that. So it’s really a full steam approach to all of those things, but it’s really asset by asset, and you gotta look at the comps and you don’t wanna price yourself out either. Yeah, of course. If you actually don’t get too aggressive on the additional income assumptions, we leave those as sort of cherries on top.
Gotcha. . Okay. So what about the other side of the n y right? The expenses. What are interesting ways where you guys were able to reduce costs on a property? Yeah, so, look, one of the biggest ways , in, and this is, pretty common sense, right? But you know, if you buy one asset in an area, try to get another one.
There’s economies of scale relative to staffing, relative to your buying power. So if you just have 150 unit asset, and then the next, the next one is, you got one in Houston and your next one is in Dallas, and the other one is in San Antonio. They’re not really helping each other, right?
So if you get in one specific market and then get more of a scale there, you’ve got staffing and you’ve got buying power from your vendors and your relationships that say, Hey, look. Instead of 150 units, I’ve got 700, I’ve got 800, I’ve got 1100 units in this one little pocket. They’re all within 15 minutes of each other.
What can you do for me? Right? That’s gonna be your biggest bang for the buck in terms of reducing expenses. Staffing is not an expense you can really trim right now. Right? But obviously, we all know about energy conservation, right? And saving saving on your water, your sewer.
I’m a big fan of solar where it fits as well and where it’s appropriate for the asset. And, other than that it’s really just your standard flavor of tightening up your operations. . Yeah. No the economy of scale is really important.
It’s not just being able to negotiate with your clients, but there’s other ways that economy of scale help. Like, for example, when we order materials, Yeah. We can go and order things in bulk. Instead of ordering things in one at a time, we’re going to Home Depot or HD Supply or whatever it is to get three of those.
We order 30 of those, right? Yeah. And then the staffing thing is, it’s less about trimming and more about backup. , right? So if I have a leasing agent here and a listing agent there, but she is sick, I have someone that can cover, versus now I’m stuck and my manager has to do their her job and the leasing agent job, right?
So, yeah. So being able to have a backup is huge. Being able to forward the phones to the other leasing agent is huge. Being able to tell all your leasing agent, you’re gonna get your leasing. Doesn’t matter which property you lease on, it’s gonna help you really with capitalizing on a qualified candidate.
For example, we had a property that had larger units and a property that had fence patios and a property that was, let’s say, closer to the university. So if you have a qualified candidate, and what are you looking for? Do you need washer dryer connections? Do you need a patio? Do you have a pet? Do you need first floor, second floor?
If my leasing agent can lease any one of those properties, or at least send them to the other property instead of just telling ’em I don’t have anything for you. That’s a leverage, right? That’s an ability in that economy of scale when you are in a tight location like you said. So absolutely. That is a great opportu.
Just to add onto that real quick the other thing I would say is the leasing backfill is, we’ve definitely had that, but what we’ve actually seen more of is the maintenance, right? So there’s a look at and every one of our portfolios, there’s assets that are doing better than others, right?
There’s the ones that need more work, they just need more things going on. Maybe they’re a seventies bill or an eighties and they just have more things break, they have more maintenance issues. And so the ability to be able to. Two guys off of this property, Hey, work orders are a little light over on this one.
We’re a little heavy over here. Let’s pull these guys over here for 3, 4, 5 days for a week and let’s just blitz this property get the work orders knocked out, get the tenants happy, and then they can go back and, go back to the property they’re assigned to. That flexibility, like you said, to backfill and use staffing as you need is super.
I. . Yeah. And just the way life works. If you have five, seven maintenance guys, then this guy’s better at electrician. This guy knows HVAC a little bit more. That guy is a more of a plumbing guy and then being able to leverage their expertise is very important across the portfolio. So, yeah, that’s exactly the situation we were in.
, so, 2023, right? I can’t believe it’s already 2023. Where do you see the market is going? What are you guys planning on doing with inflation coming in with the stock market that just ate 20%? The s a p s and P finished with 19.4% loss, and even that only because the energy sector went up by 60%.
Right? So what do you guys see yourself in 2023? Are you buying, are you holding, are you selling? , what’s your outlook? Yeah, so good question, man. It’s it’s a mixed bag. It’s a little bit of all, so we do have, we will be getting out of one asset. Just, we just don’t, we just don’t particularly like it, right?
We want to. Trade up into something else. And, we feel like we’re gonna be able to meet our business objectives in doing that, but for the most part, we are more focused on, stabilizing operations and ensuring that the assets we do have are operating at the highest possible level that they can be.
And then when it’s appropriate and when we find the right opportunities. To buy opportunistically, right? Because I think that we’re in an environment right now where we look back in 3, 4, 5 years and say, Gosh, 23 was actually a really good time to buy. Right. And I think that hindsight might be coming for us.
So I, I don’t wanna necessarily miss the boat, but you know the deal, you can make money in any market, right? It’s, you can buy, you can sell in any market, you just have to do it well. So the key things we look at is number one basis, can we get this asset at a good basis? . If the answer’s yes, then you know, we’re willing to really dig deep and figure out what we can do there.
Cuz you never get a second chance to make a first to get your basis right. . So, in this environment, I think there are gonna be a number of assets where folks have to trade. Not, they don’t necessarily want to, but they have to. They’re not meeting their D S C R requirements for their bridge debt.
They’re, that, that’s coming due. They’ve got an event of default on their record, et c. On the asset and the lenders just saying, no, sorry guys, we’re not gonna work with you. We’re gonna have to sell this thing. I think there are gonna be a few assets like that would meet our buy box, which is pretty tight already.
So number one has to have a good base. Number two, I would say whenever we can assume. Debt that is cheaper than the prevailing rates we have on the market right now. We’re very interested in those scenarios and we know that we can, we’ll have to raise more equity, we’ll have to come with more equity.
But you know, I think there’s, we have institutional partners in different ways to solve for that equity stack that can make it pretty advantageous to acquire. The right type of debt in this environment coupled with the right type of asset. So those are the two key things that we’re keyed in on, in, in this environment.
And if we can make that a success, then then we’re absolutely buyers. Yeah, no you’re hitting some really good points. I’m just gonna kind of recap Well first we al, we’ve always said and I’ve said that multiple time on this podcast is, well, multifamily, you make your money. When you buy, you lose your money on operations.
It’s that simple, right? Yeah. So making your money when you buy, that’s really important and I agree with you. I think 2023 is gonna show us some opportunities where. properties took a bridge loan two, three years ago and they’re up for a refi right now. And if I took a bridge loan at a 5% a few years ago, now it’s in the nine and 10% and a higher that changes the entire equations.
Right? We have seen permanent if. Let’s say I under road for a permanent coming in at three and a half percent, but the permanent is now around six. Then again, I could find myself underwater. So a lot of these are gonna be interesting. A lot of the properties that took the FES in 20 20, 21, 20, the early years of covid thinking that things will be better in 2023 and they can start paying again.
That’s gonna be a. And I think that Fannie Mae and Freddy is gonna have some room, but not that much room to keep not getting paid with the deficiencies. So that’s that’s gonna be inter definitely an interesting years for these things to come and underwriting is really gonna be the critical part of can we buy it?
Can we get a decent enough debt to support it? I’m not worried about the equity because all the people that took a major hit from the stock market and pulled out are gonna have to deploy you somewhere. Right? Yeah, no, I agree. Yeah there’s gonna be a lot of retail capital that wants to deploy into real estate, and we have, collectively we have an opportunity now to offer them much better returns and frankly, safer returns for those types of investments.
And look, there’s still. Trillions of institutional and sovereign wealth and insurance company and sort of big money that’s sitting out there quietly and not doing anything, just sort of waiting to see what happens here. Yeah. And but. But the inflation kills them. They’re dying to deploy because the inflation, oh, they’re losing, right?
Yeah. Kills them. And if they were okay with losing 2% a year, a couple years ago, now they’ll be losing four, five, 6%. They’re dying to deploy that capital. Cuz even if a, even a 2% return is better than losing six. Yep. Agreed. Agreed. And that, but you see a lot of that money wanting to go into the debt products, into the preferred equity products.
Right. Sort of safer. And what I’m talking about is the classic sort of JV equity type of equity that’s a lot of that is still sort of sitting on the sidelines and waiting to see what fleshes out here over q1, Q2 of 23. Yep. Absolutely. So, so that’s gonna be interesting. Just try to be conscious of your time and our audience.
We ask every operator that comes on the podcast the same questions. Right. If you could go back 10, 20 years ago. Right. What kind of advice would you give yourself, assuming you can’t tell everybody, well, 2009 is the bottom. Buy everything you can. Right. Other than that or the lottery numbers.
I would say that I didn’t think big enough, fast enough, right?
So, Owning and everyone’s gonna have a different answer for this. This is just me. So owning 200, 300 units or 400 units, yourself and sort of being the guy who owns all of that and that passive income that comes in from that. That was okay. And it was fine. It was a plat, it was a place I wanted to get to when I got there.
But then when I got there, I realized, okay, what’s next? But you know, that’s I climbed that mountain, which one’s next? And I didn’t think big enough. Fast enough, right? So I could have jumped into and bought, 2000 units or more. 2000 14, 15, 16. Right. All any of those years. And I would’ve done much better than what I did during those particular years.
Right. And so that, that’s the number one thing that the, that I would tell myself. The second thing would be that, I should have gotten into more partnerships faster. . And I wanna be careful with that cuz we’ve all had bad partners. We’ve all had bad partnerships. I can think of two or three offhand right now, but.
But finding the right partners and the right people to align yourselves with because there really is one plus one really is three, right? And so the more you can put yourself in a situation where you’re with people that you align with, that you trust and that and are you’re a hundred percent aligned with, you can absolutely grow faster than you could trying to, put your shoulder into it and pushing harder.
I’m just gonna have to follow up on that one. What’s your best advice of find finding the right partner? So I guess it depends on where you are in your career, right? , I would say that it has to be a personality fit.
It has to be, I hate to use the word culture again, but it has to be a an energetic fit right where you are both. Resonating and have the same principles, have the same vision, have the same mentality, have the same goals. See the business that we’re in the same way, and that can be. , from markets to asset class to business plans, to how you operate, how you function, how you actually do your business.
Those I think are the most important things. Everything else you can kind of align and you can make money with anyone. But those are the, I think the key things is really get people that you just resonate. Yeah. No I think that’s a really good advice. So Shane, I really appreciate you coming on the show.
If our audience wants to reach out and ask question or invest with you guys, where the can they find you and whatever you’re gonna share, we’re gonna put in the show notes as well. Yeah, absolutely. So, you look, our website’s a good place, right? hampshire.capital, www.hampshire.capital. There’s no.com, there’s no.net, there’s none of that.
It’s just.capital. You can find me on, Facebook, LinkedIn, Instagram, just Shane Carter nh. And yeah, happy to connect. Awesome. Thank you so much for coming on the show. It’s been very educational. Oh, my pleasure. Thank. Awesome. And for you, the audience we really appreciate if you can subscribe and if you can give us a review, one star, two stars, five stars, whatever you feel is right, just go to iTunes or wherever you consume your podcast and give us a review.
And thank you so much for listening. We’ll see you in the next episode.
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Episode 129: Kevin Gardner
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. Welcome everybody to the Apartments Operators podcast, and today we have a special guest, Kevin Gardner.
Kevin is not a multi-family operative, but his company helps multi-family operators in subjects that are not very commonly known, so we thought we’ll bring him on the show and let a lot of operators here about this service. Welcome to the show, Kevin. Thanks, Joseph. I appreciate the opportunity to speak with you.
This. Awesome. So usually we let the guests introduce their self. Take 30 seconds, tell everybody who you are, what’s your background, and then we’ll get into the conversation. Excellent. Yeah. Thank you very much. Yeah, so multi-Family Utility Solutions is really exactly that. We help operators focus on their utilities and their operations, their contracts, and the reason we got into this space is I used to work for Comcast, one of the largest cable operators in the US cable and internet, and so I gained a lot of experience.
In a former life, I was actually on the opposite side of the negotiating table, negotiating with property owners to get Comcast the right to be on their property. So when I left Comcast, it was just natural to stay in that space, but work for the operators and have them the benefit of my previous experience.
Awesome. So everybody know as operators, we care a lot about the N O I, right? So we do a lot of income increasing activities, but the other side of the N O I, and it’s just as important, is reducing expenses. And this is where you guys come in sometimes, and sometimes you come in in increasing income. So let’s talk a little bit, your company says utility solutions, right?
What does that mean? What kind of utilities and how does that work exactly? Yeah, exactly. Like you mentioned, usually on the cable and the internet contracts, we have the opportunity to bring in an increased revenue, right? So a lot of people don’t realize that even if they’re resident, Are paying for cable service or internet service directly to the provider, there’s still an opportunity for you to get some revenue sharing or some access fees.
So that’s revenue that goes right to your bottom line. So let’s take a step back. So when it comes to cable and internet, we have what I’ve seen, and correct me if there’s more, but I’ve seen two types of properties. There’s the properties. Don’t have anything to do with that. It’s like they, we tell our residents, get whatever you want.
You want at and t, you want satellite, you want dh, do do whatever you want. And that’s their responsibility. And there’s properties that have what we call a master agreement, which is a single company. The tenant can only get from that company. When you describe those things, what are we talking about?
We’re talking about the first or the second. We’re talking about all solutions because what we like to do before we make any recommendations is talk to the owners. Understand what are your priorities? What are your, are you in this for the long haul? Are you trying to create generational wealth or are you trying to take a B class property and turn it into an A-class property and, and sell it and pay back your investors?
In three to five years. So a lot of those factors will impact what recommendations and what type of contract they’ll wanna do. The other thing is what’s existing currently, right? The first one you mentioned where the residents pay for them for their own service and they have a choice, is just call an right of entry agreement or an access.
And, but you, they, the, those companies you mentioned at and t, whether it’s Comcast, spectrum, whoever it is, they still need to have an agreement in place to allow them to be on your personal property. And we do a lot of work in like Dallas, in Spectrum and at and t are both in Dallas. The city of Dallas has granted a non-exclusive agreement for both of those companies to operate, but that just gives ’em the right to be in the public easement.
It doesn’t give ’em the right to be on anybody’s personal property. So whether you as a homeowner grant them permission to be on your property bride service, or you as the multi-family property owner, grant them the right to be on your property so that they can serve your residence, there still has to be some agreement in place that allows them the right to be on your personal property.
So that’s an access agreement, and in those cases, We negotiate if there’s no agreement in place or if there’s an expired agreement. There’s always something. They didn’t just come in there without an agreement, but oftentimes, depending on how old the property is, it could have been something that was never recorded.
It could have been lost in the shuffle from her to owner, so they did come in there, but if there’s no current agreement, With term, any significant term left on it. It gives us a window of opportunity to negotiate with them and get compensation for you, the owner, for just simply letting them on your property to pro, continue to provide service.
The other one, basically, if at and t wants to serve our residents, they need permission for their technician to come in. They need permission to get their infrastructure lined up into our communication hubs and so on. Correct. And that’s what they’re willing to pay for and that has value obviously. Cuz without that permission, they don’t get to provide service and generate revenue.
So that’s the, so what kind of, we’ll get into the other type of agreement in a second. What kind of revenue are we talking about? What kind of an agreement have you been able to secure in the past? Are we looking at price per unit? Are we looking at, okay, here’s $5,000 goes away, go away? What kind.
Agreements have you seen out there that those utilities companies are willing to pay? There are two types of compensation most often, and sometimes they, there is one and not the other. Other times we’re able to get both. The first one is what’s called a signing bonus or a door fee. , and that’s usually a lump sum fee that’s paid within 90 days of execution of the agreement.
And these agreements are typically 10 years long and you are granting them certain rights. You may help them with marketing. You may say that the wire that they’re already using, nobody else can use, things like that. So we, we have to decide what those terms are and what you’re willing to do. But there’s a lump sum.
So if you’ve got a hundred units, And they give you a hundred dollars per unit. They’re gonna issue you a check for $10,000 within 90 days of signing the agreement. The other type of compensation is what’s called revenue share, which is really a commission. So in exchange for helping them market their services, right, and when somebody new moves in, I move in, you say, Hey Kevin, here’s, we recommend at and t here.
They’ve got the best internet service, and here’s how you get ahold of them. What you would get then is on a quarterly basis, a percentage of the revenue. Okay. And the natural follow up question is, does that impact the residents? And the answer is no. Your residents aren’t paying a higher rate cause of this agreement.
That’s, they can’t do that. They’re not allowed to do that. It. But what t and t or Comcast Spectrum, whoever’s getting out of that is help marketing their services. So in theory, they’re what? Paying for the percentage of revenue. , but they’re getting more customers as a result. So it’s a trade off. So those are the two types of compensation most frequently associated with what’s calling the right of entry or access agreement.
Gotcha. So we’ll have, um, a second type is we’ll basically have pamphlets in the office. And when a resident comes in and they’re asking, maybe we’ll have the welcome packet that will have that pamphlet in there of whatever company we have. They agree. Correct, correct. Now, that doesn’t mean that they, that you can’t have another provider as well.
It’s just that, and you may have an agreement with the other provider, but it’s just, which one are you gonna put a priority to those rights? You can grant, you can say, I’m gonna exclusively market you, but you can’t say you’re gonna be the only provider in this. Gotcha. And yeah, and we’ve seen those types of companies reach out a lot.
We’ve done multiple like property events right before Covid, like pool party or stuff like that. And then at and t or Comcast or one of these guys would come and sponsor and give us a little bit of money so they can put a booth in that area when everybody’s partying. So I know they are very interested in the apartment world in getting into as many apartments as.
Yes, absolutely. And that’s what’s is an exclusive marketing arrangement and they’re your marketing partner. And we’ve had some owners, and they can’t put this into an agreement, but we’ve had some owners go as far as saying, look, I’m not allowing any satellite dishes on my property. It’s your property.
You have the right to do that, but nobody can tell. You have to do. as part of a contract cuz it’s anti-competitive, right? So they can’t say, look, we want you to disallow satellite dishes, but you as the owner have that because you don’t want the liability, right? People are putting them on their roof and creating leaks and liabilities for you.
You as the owner can make a business decision and certainly helps as well because then you’re encouraging people to take the services that aren’t seeing something to your roofs and things like, That’s a side note. Regardless of having an agreement or not having an agreement with a service provider, we don’t allow those satellite dishes for the exact same reason you mentioned.
It’s a damage to the property. It’s damaged to the roof. Cuz those installers, they don’t care. They’ll just come in and they’ll just drill in whatever they can drill in order to secure that dish. So we told our residents, At most, we allow them on the ground where it’s not an eyesore at. If you’re a second floor, then you can have a, like a Home Depot five gallon bucket and fill it up with cement and stick a pole in it.
But we do not allow permanent attachment to the building, and that has to be a separate issue. It can’t be associated with, it can’t be a condition of, it’s gotta be up to you as the owner to make that decision. Okay, so the other kind we’re talking about was an exclusive agreement. How does that work? See it, it can’t be an exclusive agreement.
The exclusive to, to provide service. You can’t have it so that I’m gonna sign an agreement with this company and they’re the only ones that can provide service. We can, here’s the, we may be saying the same thing, but differently. Okay. So what I think you’re referring to is what’s called a bulk agreement.
And a bulk agreement is where you buy service and basically provide it as an amenity and include it in your rent or as a add-on. But you’re buying it in bulk so the, you’re not saying that they’re the only ones, but by default, They really are, because who’s gonna wanna provide service if you’ve already bought service from one provider?
If I’m a second provider, I’m gonna look at that and say, I really don’t wanna come in there because I don’t really have any upside, because you’re already providing that service, but you’re not doing it on a contractual, exclusive basis. It’s really what’s considered a bulk agreement, and that’s why the cable and the internet companies love those because it’s by default.
An exclusive right to provide because nobody else is gonna want to come in there and compete with you when you already are serving all the customers. So it’s a little bit of a technicality, but it’s not considered an exclusive agreement. It’s considered a bulk bill or master pay agreement. Yeah. In those arrangements for the listeners, have pros and cons.
Right? So on the upside, is we the, the owners of the apartment building. We pay a much, much lower price per door. So we’ll pay, let’s say 30 or $40 for per unit for an internet and cable basic cable service. The, the cable provider, they’re happy because they just sold the entire complex regardless of occupancy, regardless of what the other people are.
They know if I have a hundred unit, they just sold a hundred accounts and they also get upsells. So we provide internet and basic cable. But if somebody wants a dvr, If somebody wants a D V R or somebody wants a, I don’t know, a sports cable package or an H B O package, those are all upsales in the internet company or the service.
The cable provider gets the upside. The residents are also happy with that because if we pay 30, 40 and we turn around and we charge the resident, let’s say 60, we make that little difference and that adds to our N O I. But honestly today, go find an internet and cable package for $60 that doesn’t exist out there.
So the residents usually are happy to get that package because it’s cheaper than going out and getting internet and cable separately and bundle in everything. Now with the world of Hulu net, Netflix and all that, it still works not. Good for the resident as it might be because it’s still cable and and internet.
But if you wanna stream Netflix and Hulu, you still need internet. So either way, the very basic package of internet was like, 65, $70 last time I was looking at, so it’s still a good win for everybody else. Now, the downside of these things is if your property is not fully occupied, you’re still paying for all those units.
So if you, are you buying a distressed property, let’s say 50, 60% occupancy, you’re still paying for a hundred percent of the. So that becomes a little bit of a challenging expense and a burden as you getting that property up to occupancy. But if you’re in full occupancy, 90 plus, then this is a very definitely a money producing agreement to have in place.
Did I get it right? Yeah, I would add a couple of things. The reason the cables or internet companies like this is, like you said, they get to count a hundred percent of the units. Even if you only have 50 out of a hundred, they’re reporting that they have a hundred units, even though there’s nobody in those units, so their customer count.
It helps with that. , they also pass on the discount because they’re not going out there and connecting and disconnecting people all the time. So there’s savings that they’re realizing and they’re passing it on to you in the form of that discount. I will make an another comment about this, and I, in all my years, have never seen a cable company or internet company where there’s a master build or bulk agreement in place allowed the owner.
To get out of that agreement before the term is up. Okay. Because that’s their favorite agreement. They want you to be in bulk, so they’re not gonna allow you to go from bulk to individually build. So if you are trying to sell this property, and the new buyers may not want to deal with that, or maybe they don’t believe in it, because I’ve got both types of owners, that could be a limitation.
That’s something they’re not interested in. If you’re under a access agreement and you want to go bulk, even if there’s term left on that agreement, I have always seen that they will allow you out of the term for an access agreement to go bulk because that’s what they prefer. So just a few little things, and this is why I think earlier you said, we started talking about what type of agreement, and this all comes down to what is that owner’s goals, what do they wanna do, what are they comfortable with?
If they’ve just bought this property and they’re re-roofing and reaving and doing all these other things, do they really want to get involved in? Because it’s about a one year process to go from non. To bulk because most oftentimes it’s you add that ex that that fee with the renewal of the lease, and that takes 12 months and they work with you on that to allow you a stair step.
But it’s one more thing if you just bought a property that’s got maintenance and things like that. Do you really want to be dealing with that as. Right now, some people don’t. So my job is to point out all the pros and cons so that my owners, my clients are aware of everything that can happen and everything to consider, and then it’s ultimately their decision.
But my job is to educate them on all those pros and cons of each of the different options. Sounds good. So what other kind of utilities are you guys helping? Yeah, we, we can help with in, in certain areas where you have larger properties and maybe together we can look at trash removal rates and different types of services depending on the market.
That’s very dependent on the number of. Units you have and the market. If you’re out in some of the rural areas where there’s not as much competition or anything like that, you have fewer, fewer units and they’re further apart, it’s gonna be harder to save anything there. The other thing is electric and gas, but that really comes down to the reason we talk about cable and internet most is because we can do that almost anywhere in the country with electric and gas.
It has to be a deregulated market or a deregulated. For example, I live in Ohio. We are deregulated. The rates are determined by the competitors that are in the marketplace. Conversely, I’ve got a lot of clients in Tennessee, the Tennessee Valley Authority, the state regulates the rates. There is no competition there.
So there is no opportunity to do that. Also with electricity, it really comes down to usage. So if you’ve got a smaller property, you have no, let’s say no laundry room, you don’t pay for the resident’s electricity. , you don’t have inside common areas or workout facilities or swimming pools where you’re not using a lot of electricity, you’re not, your account’s not gonna be that attractive because you have minimal usage.
Yeah. You have a larger property with common areas. Workout facilities, the laundry rooms where you’ve got a lot of, of usage of electricity, then those are gonna, and it’s in a deregulated market, then that’s gonna be more of the opportunity. But the great news on all these things is we do free as assessments.
All we need is a little bit of information from you and we’ll do a free assessment for you and tell you what we think we can do to help you either save or generate. So you basically would come in and review all the utilities and say, okay, I can help you with this or that. I was thinking while you were saying all these things, all bills paid properties would also be very beneficial for them to look at electricity and gas.
The deregulated can help, but Yeah, but not always. So we had properties in Lubbock, Texas, which is a secondary. , and then doesn’t matter if you want it or not, there’s one gas company, right? And there’s one electric company. So Deregulate state, Texas is deregulated, but that area only had one option. And when you have one option, there’s not a lot of negotiation power.
Right? States can be deregulated, but markets within those states can not be. Yeah. Okay. Yeah. And tra you mentioned trash. Trash is also something that we highly recommend. All the operators to pay close attention to, because one, they tend to demand really long contract, three, five years at least, and that kind of locks you in.
And I don’t know about you, but every waste removal contract I’ve seen in my experience, had a kind of clause that says we can change the rate whenever we want based on whatever we want. So you might think you’re going in with one rate, but. Fuel surcharge or I don’t know, I want to charge, and all of a sudden you go from X to Y and your N no, I gets impacted without any control.
So these are very. Dangerous contract to work with. I know for a fact that we had the opportunity to do a switch at a certain point in our waste management, and we literally cut for the same service. We cut the cost by half. And that is massive for your No, I, if you’re able to take an expense line at ’em and cut it in half, and it was just like, Lynn, why are they so expensive?
I don’t know. Same market, same service. They came up half, uh, just basically cuz they wanted to take over the contract. It’s, it comes down to new customers. It’s no different than if you’re in, let’s say I, let’s say I’ve been living somewhere in the same house for three years and you move in next to me and you’re a brand new customer.
You might get a promotional offer to be a brand new customer and you may be paying half of what I’m paying for cable and. Because my promotional offer was three years ago, and now I’m an existing customer and my rates have gone up to the rate card, and you’re the new customer that they’re trying to lure in there.
The same thing happens with multi-family property service providers. So is all, is that also part of your service? So if I’m in a deregulating market and you came and you helped me with my electricity or with my, is that something you come back and you review every year to say, okay, let me help you. Just like shopping for insurance or shopping for a new phone plan.
Yeah, we, uh, we look at the length of the contract, so we maintain a database and whenever contracts are coming up for renewal, we will always then step back in renegotiate those. And in, in cases like the, let’s say you did a 10 year access agreement with Spectrum, when that agreement’s almost done, that 10 year term, we don’t allow it to go into an auto-renew period.
Of one year. One year. One year, we go back and we renegotiate another 10 year agreement, and by doing that, we secure another upfront Doy payment and then the revenue share just keeps on, on, on moving along. Great. Any other tips or advice, horror stories you’ve seen in in the past? We pride ourselves for being the pro, a podcast that doesn’t sugarcoat anything.
Anything you can share with our audience. I think the biggest thing is a lot of people say, when do I engage you? And I would say it’s never too early. So let us look into things. Even if you’re just, you’ve signed a letter of intent and you’ve got some due diligent papers and you want us to take a look at things because you’re putting together your proforma on what’s this gonna look like if, if we do buy this, what can I get in the next three years?
Let us engage us early. We do that all the time. And see, the one thing for us is we work on commission. So we will advise you all day long. There’s no retainer, there’s no hourly charts, there’s none of that. We’ll look into all this. If after we’ve given you the free assessment, you wanna move forward with it and you get pay or you get savings, we get a percentage of what we’re able to get.
So we, our goals and yours are a hundred percent aligned. We wanna improve your o I and in exchange for that, we receive a percentage of that. Yeah, and it sounds just like the tax pro protest process every year in the states where you know you can protest your tax taxes. We engage the team that does that every single year and they get a percentage of what they save us.
Like you said, the interest of the vendor and the owner aligned. Exactly. Awesome. Yeah. Win-win. Yeah. So great. Thanks for all that information. That was very educational, Kevin. And if our audience wants to reach out and get ahold of you, engage your services, how can they find you? I’m at kevin@multifamilyutilitysolutions.com.
That’s our website and my phone. (248) 930-4768. They can call me and, uh, yeah, we’d love to. Well, like I said, we give out advice all the time. We educate people on their exact portfolio and then let them make the decision if they wanna move forward. Perfect. Thank you so much, and we’ll put all that in the show notes as well, your website and your email and your phone number.
And for you, the listeners, thank you for listening to our podcast. If you wanna hear more, just subscribe wherever you do consumer podcast, iTunes features, SoundCloud, Amazon, and so on. And if you can leave us a review, that would be great. Kevin, thank you so much for being on the show and we’ll see you soon.
Thank you, Joseph. I Appreciate. Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.

Episode 130: Jonathan New
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities.
Welcome everybody to the Apartments up with this podcast. Today we have Jonathan, you, Jonathan, welcome to the show. Hey, thanks for having me, man. It’s a, it’s an honor to be here. So I’m Jonathan New. I’m the director of Fairwinds Capital Invest. I am originally from Alabama. I’ve been in the Navy for the last 18 years. I’m a commander in the Navy.
I am on my last job in the Navy before I retire, and do this. Side hustle thing that, that I do it, it takes up way more time than the Navy ever hoped to do. But but it got my started in single family about 14 years ago at this point became accidental landlords when the housing crisis hit.
And we managed while I was in Japan and our own house. And then a few. Like five years ago at this point, I got into doing this on a more professional scaling type of business. Single family again did fix and flips until I realized that was just way too much work. I was doing like four or five houses every single month and I was doing it by myself, and so it weight on me a lot.
So then I teamed up with the f Partners that I have here at Fairwinds, we had done some deals together on the single family and we all came to the same conclusion at the same time to get into commercial real estate and syndications. So we’ve done 11 deals at this point. We have 768 units a little over a hundred million worth of management aum m and we operate mostly most of our footprints in Houston, Texas.
But we also own some stuff that’s in Hampton Roads here in Jacksonville, Florida, which is where I live now. And up in Annapolis, Maryland we do mostly value add. Apartment complexes, but we also have a boutique in that we’re operating up in at the Naval Academy Alumni House. And we’ve also got a brand new, I said brand new, but it’s built in 1900.
It’s a bed and breakfast here in the St. Historic section of St. Augustine. We also own some hotel conversions as well as a ground. Development that we just got into. So we are a little over the map, but we have two or three different things that we specialize in. Oh, it might have been easier to ask you what you don’t do so first of all, thank you for your service and it’s just to make sure I understood correctly, you are still in active duty. That’s correct, yes. All right. The fact that you can do all that and still active duty, that’s very impressive. Hour of the team and my my Navy job just really is not very heavy lift.
If you, I’m willing to take away just saying that you don’t sleep much either. No not with three kids, a wife, two jobs and trying to stay somewhat physically vet just a failing ac failing activity sometimes. Okay, so w I don’t even know where to start with everything that you guys do. Let’s get started with, you mentioned you have partners, right?
And you guys have properties in Florida, Texas, you said Maryland, right? Virginia Virginia. Very first question is, do you guys self-manage or do you have third party every. Third party everywhere, man, Kent. We dabbled in starting up our own property management company. But I think most everybody that does property management, they start it when they’re small.
They try to grow it out and then they. figure out very quickly that it is just way too much hassle. So they dump it and then they come back to it again when they get really big. So we just dumped our property management company and we are just doing third party right now. Gotcha. Okay. And then what we’ve learned from talking to our previous guest is that it requires a certain scale and definitely it requires density.
If you have a thousand units where it’s 50 in every single city in across the country, then having your own property management is zero value. But if you have six out of the 700 units or in one city, then now it makes more sense to have you have that scale to have the management in that city. How many property management companies do you work with?
Is it one that handles all your assets or is it multiple? We have a few actually we have one specifically in Houston that we’re using. Then we have another one here in Jacksonville. And then for our smaller stuff like the boutique, Kens, we have very specialized operators, managers. Gotcha.
Okay. And how did you go about finding, so you are from Florida right now, right? How do you go about finding a third party property management in Houston? Networking. It’s just all about network networking, figure out who other people use and it’s a trial and error type basis as well.
We’ve already had to fire a property manager out in Houston and we’re just started up with a new one to take over the entire portfolio out there. You’re not gonna get it right the first time. If you do, you get lucky. Yeah. There, there’s some would argue that the second and third and fourth are also gonna be challenging because third party will never care as much as you do about your properties, right?
So it’s just about finding the team that does the best for you, for your property in that market, right? . What is your criteria when you look? So it’s great that you just picked a new one. So tell us a little bit about the process. How do you go about selecting a new property management?
Other than said they’re using them. So it’s in my mind, in this new company that we are using, it’s leasing that the one that we just hired, they. They have the right fit. So there’s a culture fit well. So in the Navy we have fit and fill. So you fill just the fill of the spot with just anybody that will do the job.
Then you have fit, which is when you have the right skillset, the right cultural fit. And just all the nuances that you need for that job. With leasing, when we interview them, we interviewed four or five different management companies and we all sent them through the same process so you can get an idea of how they think you, you give ’em a test, you give everybody the same standardized test.
And you see how they all answer and you just go with whoever you think has the best fit for you. So with us, we had them mystery shop three different apartment complexes that we own and don’t own. And we judged the way they came back with the answers, including the subject property, which is our 121 unit.
In around, we. It’s an area of Houston, but they came back and they had this crystal clear vision of what they wanted to do with the property. We’re gonna take the awnings, we’re gonna change out the awnings, we’re going to change the. Of the walls and we’re going to market to a very targeted audience.
Cause our units are just so big. We’re gonna market to this millennial crowd like a hipster crowd is what they said. And they just came with this Really crystal clear vision of who they wanted the tenant base to look like. And I had never seen that before. Most everybody’s Hey, you’re gonna get this for rents.
You’re gonna get this is gonna be your expenses, this is gonna be your delinquency expected for this area. And it’s just very methodical, which is what you. But at the same time, they went above and beyond what we were expecting. So we hired ’em on the spot. There was a, there’s another property management group out in Houston that we’ll be using on another couple projects.
We call it dating. So you date the property management company, and then if you like the way, if you try ’em on and you like your first couple dates, then you can marry ’em. You can just give ’em the entire portfolio and go from there. Yeah. Okay. That’s interesting. So you have a few properties in the market.
You give a few properties or one property to a few different companies just to test the waters and figure out what’s the right cultural fit and who’s performing and who’s living up to the promises. Cuz making promises, it’s easy, right? Yeah. Did you bother to Mr. Shop them? Oh, of course.
That’s absolutely part of the due diligence, pre process. Figure out what other projects they run and what they look like on the outside, what they, you talk some of the tenants see how that’s doing. You can read reviews online. That’s a great thing about the online process is it’s.
Very open kimo for the most part. You can talk to the owners and see how they’re doing with all the acc, all the software that we have as analyzers. You can see who owns the properties, who’s managing the properties, and then you can speak above and below the property manager to see how successful they’re doing.
Yeah. Okay. That’s great. So that’s, it’s a whole process. It’s a whole due diligence process basically. Got it. So how do you work with them on once they take over a property? How do you work with your third party? Do you meet once a week? Once a quarter, once a month. Do you talk to the actual onsite manager or do you talk to.
Tell us a little bit about how your organization is built to interact with those managers. Sure. Our asset management comp, our wing of the Fairwinds is set up so that we have weekly meetings with the both regional and onsite managers. . We can up or decre, we can increase or decrease that depending on how the property’s performing.
If it’s performing very well, we’ve already stabilized it, then we can go down to a once every two weeks or maybe even once a month most likely just once every two weeks. But you really do have to stay on top of ’em to make sure that your vision is aligned with what they’re. And also when we go out to our properties physically probably once a quarter.
It’s it’s how it’s been shaking out, and then we’ll physically meet up with everybody that’s involved with the project too. Even the even not just the onsite manager, but the people that, you know your vendors your housekeeping, everybody that you employ is somebody you want to talk to physically.
. Okay. And then do you have how does that phone call looks like? Do you go over Matrix? Is it a report? That specific report? We’re looking for tips and tricks, right? What did you find that is working? What do you find that is not working? Help a new operator out. If they get started working with a party, a third party property management.
It. I hate to say it, but it depends. It really does. It depends on your KPIs. Just you want, you wanna identify the specific KPIs that are very project specific. Cause some projects you go in, they’re value ed cause you gotta do a whole construction management. Plan or they just need delinquency brought up or reduced.
So it depends on the project. So you identify your kpi, p i specific to the project, you identify your macro and micro goals. Micro goals obviously support the macro goals, so they build into that. Then you attack that system systemically with your property management and you design your meeting.
To support those KPI achievements. I know that’s very generalized and it’s hard to break it down further than that cause it really is all just dependent on your relationship. Give us example. Okay, so with Heritage, right? So we bought that Your heritage is our 121 unit that we just replaced with leasing.
So with that, we’re having some troubles with our. Delinquency, our economic vacancy right now, because the company that we just fired, they were having a very difficult time with tenant lead conversion. They were getting a lot of people to come in, but nobody was signing leases. So our vacancy slipped and we had to do a lot of concessions to try to comment at that.
And so now our economic vacancy is below what we really want it to be. , So now we set up our meetings such that we always talk about what our leads are, our lead magnets, what our conversion rate is, who’s doing it. Then we talk about. Specifically like evictions because we’re trying to get over that economic vacancy home.
Yeah. So we talk about who’s not paying, who’s paying who’s, I don’t know who’s behind. All those KPIs that are specific for what’s going on with heritage at the moment, we’re having some chiller problems. Would never recommend buying chillers. I don’t think I ever really get. Oh, wow. So I was about to say you have one of those.
Yeah. We’re we went in with with Gumption. , I’ll say. We went in with gumption and we had it we had it inspected, but it was and it passed the inspection on acquisition, but it quickly just broke down after that, so never again. Yeah, so just for the audience, in case they don’t know what a chiller is, cuz not everybody lives in an area where there is a chiller.
A chiller is basically when the entire property is being cooled or heated by one big machine that cools or heats water. And that water runs in pipe underground into the building through every unit and back into the machine circulating that water and. Those things are a ancient, and B, very big, very complicated, very expensive machines that finding people or companies that know how to fix them is very challenging.
And feel free to correct me if I say anything wrong here, but it’s very challenging to find someone that knows how to fix. And then if you have to replace it, God forbid it’s a six figure job. So that’s why properties with chillers are properties that are very high on expenses.
In the N O I ratios. And there are ways around it and I’ll share one with you in a second. But the other thing about the chiller system is because it is responsible for heating and cooling, there’s only one way the entire property can. So we either heat the entire property or we cool the entire property.
So if you are on heating mode and you have a hot day in the middle of, let’s say February, which is not rare in Texas. Then everybody, it sucks because everybody will complain because the system is on heat. But if you’ll switch it to cool, then again, welcome to Texas. The next day can be 26 degrees, and now your entire apartment community is on.
Cool. Instead of on heat. So it’s a very challenging situation. The machine also consumes a ton of energy and water. And this is where the trick I said, I’m gonna share with you, I had a one of the best operators we’ve interviewed on the show, Andrew Kushman, I believe is one of the first five, six episodes.
They had a chiller system in one of their properties and they went out and they hired a company and they dug a will on the property. And they used water to run the chill. It cost them about 50 k to dug, to dig the well, but the reduction in utility costs, water consumption because they don’t use city water anymore.
For that, that made it like 10 times worth it in the n no y and the CapEx and the increase of property value. So definitely something to look into if you have room or if you have the ability on your property. to dig it then that might save you a ton of money. It makes a lot of sense. It makes a lot of sense.
Yeah. But is it like a lot of things that makes a lot of sense. Sometimes you go huh, I didn’t think that’s even a possibility. Downtown Houston. Yeah. Welcome to Texas. Yeah, there’s a the, oh goodness. The water line. The, yeah. Water table’s pretty high there. Yep. Be outside the room possibly.
It makes a lot of sense. Yep. Okay, so that’s how you interact. You ask for KPIs, you push these things. You mentioned earlier, marketing. Do you have them come up with the plan and execute everything or do you have anything in-house that kind of help the properties out with any of those activities?
Everything that is done through the property management company for us. We did have our own marketing team, so if it came down to it, we could help out a little bit, but that is their bread and butter. Marketing core tenants is a big reason why they get hired in the first place. How well they manage a website, what like their apartments.com listing and their Zillow and all the other stuff that they have to use how they’re doing it.
That’s huge. Yeah. Absolutely. And one of the things that we’ve learned as operators ourselves is. Third party property management in today’s world are a little bit behind on technology, and they’re not very techy, not very sophisticated. So we found that when we brought in a team of VAs to help out with some of these things, we saw a big boost in lead generation and sometimes lead filtering.
We’ve used VAs to do follow up calls like on work orders. So you take a four or $5 an hour VA to make that follow up phone call. That saves time from your manager to do that. Right now it doesn’t completely takes it off a table cuz you still want the manager to be involved with it. But it allows you to take some of the load off the team onsite at a relatively low cost.
Sure. And that’s what I’m thinking about me is I’m not techy at all. You can ask any one of my teammates, any one of the board members that does Jonathan know anything about software at all? No. . So that’s why we have teams. Gotcha. That’s awesome. You mentioned that you guys focus on buying value add kind of stuff.
Other than the very standard let’s increase rent and let’s apply rubs right? Give us two, three ideas of increasing value. on the income side, cuz we’ll talk about the expense in a second, but increasing your income, creative stuff that you guys have been doing and that you found success. . There are a lot of things that you can do.
You can include short-term rentals. Short-term rentals are banks look at ’em weirdly. But at the same time, you usually get more income through short-term rentals. But you can do three months, four months, like. Traveling, nurses, things like that’ll increase how much you’re able to get for your market rent.
You can do washer dryer, bill back programs where you just rent them out to the tenants. You can do smart locks. We like to do low flow toilets, low flow things on the shower heads, , that’ll decrease your utilities. We usually like to put in new windows, which will decrease your electricity a little bit.
Plus there’s green loans out there that you can get specifically for that. . those are good ways to decrease what you can, what you’re expending. Then the amenities packages if you’ve got good amenities, you’re gonna attract higher class tenants who will pay at least in theory, you still gotta stay on ’em, so you’re able to get into a higher tenant class.
And then you can charge a little bit more if you are out performing your competitors, you can charge a little bit more. That’s wonderful. How does that look or your portfolio look like in today’s work? We’re recording this in mid-February of 2023. There is a lot of going, a lot of things going on in the market.
The economy is not so great. Inflation is pushing, the fed is increasing. . So a lot of people are hesitant. I know a lot of p people that told me we’re sitting on the sideline waiting to see what happens. We I have clients on the brokerage side that tell me, I still wanna buy. I’m still buying.
What do you guys feel on your end? Are you still in buying mode? Are you changing anything in the way you are operating the properties because of all. You have to but we’re always in bi mode. But you have to change up the, you have to, or else you’re gonna die. A adapt or die.
So what we are doing is we, so a year and a half ago you could buy off proforma. You can’t do that anymore. We only offer off of. in place, t twelves. But we’re also because the sellers haven’t caught up with what the economy demands right now. We. , we started exploring, create creative financing.
It’s hard to get done. But we have a couple sellers that are, we’re exploring OWS with us right now. Master lease options Okay. Allows you to meet in the middle when you don’t have to put as much up upfront and your interest rates low cause you’re not, it’s not driven by any kind of lending standards.
So you can do whatever They get their price or close to it, and they also cash flow a little bit. And then you’re getting a good asset for higher leverage. So that’s a big way that we have changed up the way we buy our Because of inflation, we have to assume that our expenses are gonna rise up faster than we were a year and a half ago.
So that’s how a big underwriting change we’ve done. It, so what do you write for, I’m sorry? What do you write? What do you write for inflation these days? Usually in mid fours per year. We were at like three a year and a half ago. Could look at going a little higher though. But that’s what we’re doing right now.
Okay. And then what about the actual, the existing properties? You already have any changes in the operations there? Any conversation with the third party about changing certain things or watching for payroll or watching for materials or, cuz everything, all the costs went up. Payroll. I dunno.
Yeah, no, you’re right. Payroll’s gone up a lot. It’s tough to, it’s tough to let people go and keep your payroll down and it sacrifices the way that the efficiency of your r and m and. Other items on your budget. But it’s project dependent. We’ve had, we let go one person to keep our payroll down at Heritage and then we had to look at, you gotta look at every single thing when, let me back up.
When the r and m, when. cost of materials are what they are, and they’re just rising and rising, then that’s something that you can somewhat control. You can control how aggressive you are into your r and m. Some things you can’t control, like insurance is going way up. Like in Houston, they just eclipsed a thousand dollars a door.
On average for your insurance. And that’s not something that you can really go out and affect. Cause everybody’s charging you that same rate. Taxes are the same rate. You can sue the city and the government, the local government to get your valuation redone. But it’s not something that you can go out and just say, oh, we’re gonna, we’re gonna not hire as many people to get our taxes down.
we’re fighting every year. We’re fighting the taxes. But some years you get better discounts. Some years you don’t. The insurance. Absolutely. We just got hit with like almost 30% increase on one of our properties. . And it’s just there’s nothing you can do about it.
Yeah. And that goes straight against your No. Why? And it’s not like he can turn around and raise rent by 30% just because your insurance went up 30%. Sorry guys. I dunno what to tell you. It rolls down. . So what do you see rent, growth going on in the next year or two? I think that rent’s gonna continue to go up.
A lot of people will think it’ll stall out but unemployment super low. The fed’s actually trying to get their unemployment numbers up. So they’re trying to get people without jobs. But with unemployment the way it is and people can work from home, I think that it’ll continue to.
Rise, not at the rate of inflation, but I think that we’ll continue to see rises. I don’t think we’ll see as much of a rise jumps as we did during the Covid years. But I do think that it’ll continue to rise at more of a historic trend. Okay. Yeah. In terms of, again, back to operations cuz that’s what our audience is looking for.
Do you do anything special for the residents on the properties, like events or anything else? Or a different way to ask that question is what do you do to increase retention? Because as we’re going into some challenging waters, retention is gonna be super critical for every operator out there to just keep the turnover to a.
Yeah, at least turnovers. I’ll get ya. Yeah, so we’ve done a few things. We’ve done we’ve seen, done like touch of trucks, have all the, like fire trucks and police trucks come in. You can do parties for the community. It is a community that you’ve got under your belt. It’s families.
Families are there. So you do like the little get togethers, you can give people Christmas gifts. You can give people like little concessions like that to let them know that you’re thinking about ’em during good times. Not say good times. I mean Christmas or New Year’s or something like that.
We like to put like little like decorations out on the on the on the apartment complexes so that people will feel at home when they come back to their homes. It’s a home. It’s not just an apartment, not just a unit. It’s a home. Yeah. What is that? What we want them to feel like, right?
Yeah. Absolutely. Absolutely. Okay how about some horror stories or funny stories or anything like that? Because what, there’s a lot of podcasts out there that tell everybody the nice stuff and the cool stuff and the rainbows lollipop stuff. And we believe in no sugar coating and no fluff, right?
So everybody has horror stories or a lesson. They learned their hard way, unfortunately. Share some of those with us. We already talked about one chiller systems. Yeah. It’s a hard lesson to learn. Yeah. That one sucks. Let’s see. We had, we did have a tenant die on property like two days after we took it over.
That’s always tough. How do you deal with that when a tenant dies? Cause he didn’t die by there wasn’t a shooting or anything like that. We’ve actually only had one shooting on, on our properties. So I’m pretty thankful about that. Having one or having only one. Only one. . It’s so tragic.
We were taking over a property a few months ago and they had six shootings during the time span that we were under contract and we ultimately had to let go. Cause I mean we contacted these jokers about the shootings to what was going on and they were too busy to take our phone call cause they were in Cabo just partying.
They’re a big operator too. But , I the shootings and the tenant safety the community safety is a big part for me. It it, like I said, this is a community. This is these people’s homes. They have to feel safe. And so that’s I’ll say that they, that story, even though it wasn’t.
A, something that we learned from our own mistake. We watched somebody else make that mistake. And those are the best kinds of lessons to learn is when you learn from other people’s mistakes. Yeah. But that really drove home that, that deal made us truly define into our mantra and our company philosophies that we’ve published and.
About having a tenant safety mindset, making sure that they’re there, it’s their homes and their communities, and that their families are safe. Yep. Clean and safe. That’s what the very first two things that everybody’s looking for when they’re looking for a home. It’s I want to, I want a safe, clean environment.
Yeah. You gotta treat everybody with dignity and respect, and your business plan will follow g. Yeah. Awesome. So it, they try to wrap these things up cuz I wanna be conscious of your time. If you could go back in time and give young Jonathan an advice and let’s say you can tell young Jonathan the 2009 was the bottom by everything you can’t.
Other than that, what would you tell your younger. Bypass, residential real estate and just go straight into commercial . Just go straight into it. Yep. That’s pretty much my answer. When I was asked that question, it’s kinda yeah, just don’t waste your time. Don’t waste your time on the singles.
Just go straight up to the big leagues. Yep. It’s possible. It’s doable and it’s more real than I ever thought It. Yeah. And I have a, so we’re brokers as well, right? We help buy and sell any commercial real estate, multifamily, single tenant, triple nets and so on. And I help investors like our slogan is commercial real estate is more headed, more zeros, less headaches.
Yeah that’s right. That’s just what it’s it’s more zeros, less headaches. Awesome. Jonathan, if our audience wants to reach out, ask some more questions, maybe invest in one of your deals how can they find you? So I’m jonathan@fwcinvestments.com and that’s also our website.
You can see everything about what we have going on offerings that we have. We don’t have many 5 0 6 speeds. Most everything we do is 5 0 6 Cs at the moment. And so you can get into our investor portal. Portal that way you can reach out to me or any of my partners and we’ll be happy to get on the phone with you, talk, just talk real estate.
It’s a people, it’s a people business and I just love talking to people. Yep. It’s not hard to trigger us to talk about real estate, right? All day long. Awesome. So we’ll make sure we put all those links in the show notes for everybody and I really appreciate it come, you coming on the show.
Thank you for having me. I hope you have a great day and a w great. Awesome. Thank you. And for you, the audience thank you for listening and please give us a review, one star, five stars, whatever you feel we deserve. It’s okay. Just put it on wherever you consume your podcast, whether it is iTunes, teachers SoundCloud, Amazon, and so on.
And until the next time, thank you so much for joining us.
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Episode 132: James Kandasamy
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities.
Welcome everybody to the Apartments Operators podcast. I’m your host, Joseph Golan, and today I have a very special guest. I have Jason Canam. James, welcome to the show. Happy to be here.
Joseph, nice to be on your show. Finally, I think we tried to make this show a few times and finally we are able to finally doing it. Yeah, I’m glad we’ve been friends for a while. So it’s really an honor to have you on the show. Let’s just like we do in every show, let’s take the first minute or two to let you have the stage, introduce yourself, tell our audience a little bit about your background, how you got to multi-family, how, what did you do in the multi-family world and where you are today.
Sure. I started on the single family space. I’m basically used to be in a corporate world. I’m an electrical engineer, an mba, and all the. All the stuff there. And then after that I did C I M as well. But C M is something I did recently, not because of C I M, I’m in multi-family, but started doing single family flips in 2013 and I think 2015 is when I started buying my first apartment complex 40 units.
And we used to own like almost 3000 something units and then we sold half of it last year. And we also started doing a lot of landow and now we have a grownup construction as well on 300 plus units that already moved it. I’m gonna be pouring concrete right now and we are also doing a quite number of land entitlement right now for multifamily and P T R.
Right? So yeah, that’s very high level on my introduction. We have, asset under management doesn’t really matter a lot for me, but I know a lot of people look at that and get hype worried. We have almost what a 500 million in assets under management. Yeah that’s the high level introduction.
Awesome. That’s wonderful. And then I know you, so I know how impressive your background is and how you’ve done great deals for your investors. I’m gonna ask questions in this podcast that I know the answer for no problem. I’m still gonna ask them. So do you guys do third party or do you self-manage?
So we started self-management start right from day one. So we didn’t do third party so that is unusual, right? So we talk to a lot of operators and a lot of them, when they get to a certain scale, they go to the third party management because they realize that’s the best way to operate, right?
The most control the, you can operate surgically, you can make the decisions fast and be reactive enough to what needs to be reactive. How did you get to I’ve never managed anything like this. I’m still gonna go in and manage. How big ago was your first project? First one was 45 units. So how do you jump into, say, I’m gonna manage 45 units apartment complex?
Yeah it’s a good good point because not only 45 units a per, which is the first apartment, it was also in San Antonio. We are from Austin my wife and I from Austin. So it’s a battle between the husband and wife. And I was telling, let’s do third party property management, , and my wife was selling.
No. We are gonna manage it ourself, and I, when I look at the operations statement of the current property management, of that 45 units, this is one of the largest, in fact, they probably are the largest property management company in San Antonio, which of my understanding is third parties suppose super efficient, very less inefficiency.
And they should be doing a good job. But when I look at the finance statement, I say, wow, this is so much of wastage on the financial statement. And when I visited the manager, 45 minutes, they had a part-time manager. They did not know much about it. So we realized that third party management doesn’t mean they are better than what you think you can get from you self-managing.
You. Self-managing can be a lot of work. And I really was thinking maybe we should just do third party. But of course my wife was the wiser one, . She said have to do it ourself. Yeah. And she convinced me to do ourself. So I’m, I can’t brag about, me being so brainy about doing things on my own.
But we made the decision because it was first deal, it was a value add, and we think that, It’s gonna be a well oiled machine or very efficient operation if we run it because we can manage it ourself in terms of the contractors, in terms of rehab process, in terms of the, any leasing activities. So how bumpy was it at the beginning, right?
Because bumpy, bumpy, it’s absolutely it’s a monumental test to take on when you don’t have that experience and you don’t have the contact and so on. Tell us a little bit about the first few months, the first year of setting up your own management company. When you’d never done something like that before.
Yeah, it’s, it was hard. But we, one thing we had before we started managing that 45 units was we had that single family rentals. We had 13 rentals. So we were very well-versed with the leases. We were very well-versed with the tenant screening. We were very well-versed with the how to remodel the house.
But going into a Palma was completely different, right? So setting up was not that difficult because we already have the LLCs. We already know how to screen tenant hiring people. I have I used to be a manager and a large company and, all that is transferrable skill, right?
How to hire people. But also you’re hiring somebody at that level, right? As a manager it was a bit difficult. So the lucky part for us is the first manager we hired lives nearby the property and. And she stayed for two years, , right? So a lot of times it’s very hard to find people who stay in that position, so she stayed.
So we were very lucky with that. And and the difficult part was more on the remodeling because now we set up a budget to remodel apartments. But how do you get the right contractors? Because it’s hard to find contractors who you know is gonna work, right? Because this. Is a, it is a new city, new apartment, new part of town.
So we tried a few methods, right? One of the method that I can pass on to, your audience here is we start looking for contractors in Craig’s Lease, right? . And we took three contractors from Craigslist cause they’re the cheaper one or they are the one that doesn’t have the license.
Of course people say, everybody need to be licensed and bonded, but it doesn’t work that way all the time, right? Especially when you want to do at a very cost efficient part, right? . So we took three contractors and we gave them three different units and then we get them to do work, right?
And after that, after one month, we fired the other two and gave a lot of work for that one guy who really. . Even that after two, three months, they also left. Then we keep on hiring contractors. So contractors took us some time to really get the right contractors. That was really hard because, know, you’re losing money all the time , whenever they leave.
Cause they leave the job halfway too. Apart from hiring that one manager and contractor, the lease up and all that it was not that difficult. I Setting up the property management software, there’s a lot of easy to use property management software. We use some for our single family, and we moved that to multi-family and software we use like Rasman, which is very it’s like a Facebook, and some, as you understand leases and how occupancy works, leases expiring. How does, you know then it becomes super easy. Yeah. And you mentioned contractors that’s a challenge. , everybody in the industry has, right? It’s even when you find a good one, they don’t last or they move on to something else, or they increase their prices to the point where they basically price themselves out of the job.
I joke around but it’s of based on truth. In contractors world, you can get good. You can get reliable and I’m sorry. You can get reliable. You can get cheap and you can get fast, but you can only pick two outta three. Two outta three. Exactly. Exactly. Yeah. And a lot of times a lot of people like to get GCs.
right? And we have learned this no, don’t do higher GC at that level because from our single family experience, cause we used to do a lot of single family rental flips, and we have tried with the GC and without GCs and we realized that with the GCs become the worst because now the GCs holding your money and they’re not really good project managers, they’re not good money managers and they mess up the complete the whole deal.
So we said, no more GCs is all our subs. We are gonna be the GC . Yeah, even though it’s harder, but it’s a lot more cheaper and more efficient. So we did that in the, when we bought our first apartment complex, we said, no GCs, we are gonna just look for subs. And subs also is very there’s few things, right?
One is, there’s big subs and there’s some inter interrelated subs, right? So the big subs are the roof, the driveways, right? The exterior painting. So they’re the big stops, right? You can get like one guy. and they are really not related to any other subs. So they, you pay them the money and they do the job and they can go home.
, they don’t fight with another subs. But there’s another sub or contractor, what do I call, as a interrelated subs, which are the painters, the flooring guys, and the kitchen installers. The guys who work each other though, they have to talk among each other. Yeah. So maybe on that part, you can get us one guy to, to do everything, maybe like a sub GC kind of thing.
But that’s the more difficult part because they need to talk among each other. They have to coordinate very well. So we did that, right? We hire one guy who has, who can do everything inside and, multiple subs for outside big work. So that will be, that, that can really work in apartment business at a very efficient cost.
And Yeah. And one of the things that people that are looking into setting up their own property management company, one of the things that kind of scares them the most is all the bookkeeping, the accounting, the bank reconciliation. Because like I said people come from different worlds, still have experience with management, hiring, dealing with contractors, but not a lot of them have that experience dealing with the backend side of things.
And I know you guys did something unique in, in that space. So how did you handle that? Yeah, in the beginning we we, oh, so yeah that’s a really good point. accounting is really a mess. , we tried multiple routes. So the first route we tried, we hired A C P A, right? People who have who, take by hourly and then we send them all the bills and we get them to enter.
And that was so expensive. Cuz every time a C P A comes, it takes three months for them to really set up the whole system. . And and we are like fast runners. We are like, I guess I don’t know what’s happening. And at the end of the day we file three CPAs and it’s already nine months by the time we get all our books.
And every time a new C p A comes in they take like another two or three months to set up, right? So we are like so tired, right? But at end of the day, we hired we then we tried hiring a third party company just to do accounting. That also really didn’t work out very well.
We hired third party and we didn’t work out very well. And finally, once we have certain number of units, like thousand units, we hired our own accounting person. . So now we have our two accounting person doing all our properties. But we went through a multiple cycle of different people to do that books.
But you’re right, books is really hard to get it right in the beginning. Yeah. And a lot of it is because there is a disconnect between the people in the field and the people in the back office. . So the person in the back office can see an expense written, some one way and then another person entered an invoice and certain another way.
And somehow that person in the back office is supposed to know that it’s the same kind of experience and they’re both supposed to go to the same GL account. . And then sometimes picking the GL account is definitely an interesting roulette. Correct. We’ve had property management companies that we work with like third party and they would you would randomly find the same expense every month, different accounts randomly.
I swear to God. There’s no reason or rhymes around that. So that’s been definitely a challenge even with professional third party management. Even they have the same problem. Yeah. Even for us, even we have our own accounting team, we have to train them. Because the thing is you have property managers entering the invoice, right?
And then accounting team, they enter some invoices but not all of it, right? So accounting team is much easier to control, but the property managers with hard to control, right? Cause they will enter something and sometimes they don’t understand within capital and expense one-time expense.
They do not know, right? So we have to do a lot of training and that was, yeah, we have to keep on auditing our books, right? As I said in the beginning, you can do that. But as we grow bigger is just become hard. Even now we still find some mis categorization even in our own deals. So that’s something that is a challenge.
It’s not easily solvable. . Yeah. One of the things that we leveraged was VAs. . So instead of having the train to train, cuz we, in the offices, we have a lot of attrition, right? Ellucian agents go. Come and go. Managers come and go. Assistants come and go. So we found that it’ll be easier and more cost effective to tell them, you know what?
You get an invoice, just scan it and send it to this email address. Don’t worry about putting it in the system. And then we train the VA to be on the receiving end of that email address. Okay. And we trained the VA of how to categorize invoices. So we trained one person. That person’s been with us for a while now, and we don’t have to worry about a lot of these things now.
Is she perfect? No, nobody is. And sometimes it goes into the wrong place, but for the most part, it did save us a lot of of confusions. , it also takes a lot of the load, the admin load off the office people, which in turns let them do more leasing, more management, more interactions with the residents and that helps the whole operations of the property.
So we took that piece out of their hands and told ’em, just scan it and send it to these. Yeah. You’ll be surprised on how much va, there’s not much of attrition. They don’t live easily. And they’re more consistent. Yeah. And again we’ve found multiple interesting ways to leverage VAs in our in our management world.
Are you guys using any VAs? Yeah, we do. We do we do VAs mainly for KPIs for property management. . So the VAs usually they, they sit in Philippines or what? So they will basically look at our property management software. So they track our delinquency, our economic occupancy our make ready, our idling units and our, so we track a lot of KPIs and they sh they will visualize it for us and send it back to us. So that’s a really good value add in terms of the VAs, right? Yeah, absolutely. We had our VAs sent ’em a lot. We had our VA send a daily report basically with those KPIs we did the same thing. We’ve identified those things that we want to track, and they would send daily emails with the property manager, the supervisor and us with how those are moving, right?
So not only we can get to see a picture of you have xun vacant right now. It also we were also able to see the changes, right? So we would tell them, okay, show us the difference from today to yesterday or from this month to last month, and so on. So it really helps you kinda get a quick picture in your email every day.
So you can raise the flag and say, wait, that’s not moving in the right direction. Let’s go dig into. Yeah, absolutely. Yeah. All that KPIs is key, right? Because as asset manager operators, you have to monitor this and sometimes the property managers just doesn’t have time. They have to work on the onsite staffing at the same time.
Onsite leasing, they have a lot of other things. Sometimes they’re not able to visualize all these and we visualizing it and giving them feedback will be very beneficial in terms of improving. . Awesome. Let’s switch over and talk about value add, right? I know you’ve done a lot of turnarounds value add in your deals.
Everybody knows about rubs and everybody knows about coming in and raising rents. So other, these two, let’s talk about a few other ways that you guys coming to a property and increase income. And then we will turn the conversation into how do you decrease expenses, right? Because both Oh, sure. Both sides of the equation helps.
The n o i in the same way, every dollar I increase in income or dollar I decrease in expenses is an equal dollar to the N O I. Let’s start with the income and then we’ll switch to the expense in a second. Sure, sure. So I usually, when I, even when I underwrite my deals, I use something called a bum methodology, bu the rent kind of thing, right?
So rent is the ultimate thing. If a sponsor operator start talking about adding wash and dryer, adding parking and all that means that’s the bottom of the ball panel deal, right? . Yeah, so bump is basically, BU stands for building that means what is the rent upside without you doing any remodeling, right?
What is the base rent, right? That means outta 12 month leases, there could be some people who has not caught up to the market rent, right? Or they will never cut up, never caught up, or it may take a few years to go, right? So when you buy, we are assuming that we can get them, get everybody else to the market rent or to the rent that is possible in that property.
Yeah. So that is bu, right? The ma MP is basically, market ramp mark market rent, which is basically based on a comp. , right? If your comp is able to get higher end just because they need remodeling. So that’s another upside that we have. So we have two level of upside. So when we buy our deals, we don’t even touch the B U M P, we just make sure that we just do good management.
And you’ll be surprised on just by good management, you probably can just jump up $50 without doing anything. , right? So that’s our first strategy. The second strategy is now, okay, let’s get everybody to caught up to the average rent of the property, right? . So that’s the bu part of it. And then after that, we start looking at, this will be like every three months we start having some kind of tiered program, cuz we do not wanna over rehab any property.
Because any rehab money that you have is very valuable to be sitting in the bank, right? Than putting in You’re not getting the NOI that you want a project, you get your NOI without doing this, you should do that, right? It’s completely different from a lot of people who they said, first day, I wanna go and start remodeling.
Let’s start remodeling this, let’s start remodeling that, right? We try not to do that. We want to take first management upside. Second is the just get everybody caught up to the rent. And third is let’s start remodeling some units. See how much bump you’re getting? , because you do not wanna be remodeling five to maybe now it’s $10,000 unit and you get a $50 rent, right?
It’s a waste, right? Because you may not need to do that. And your performer, you probably are only have hundred units, a hundred dollars per unit increase. So the a hundred dollars ran increase, you can just get by good management and just getting everybody caught up and above that can be your future upside, right?
That’s your icing on the cake, right? . So we really wanna make sure we do the first two levels first before we do the remodeling. Otherwise I just keep the money in the bank account. But on the income side, yeah, of course remodeling with the nicer units will be much better. Of course, the kitchen is always the highest priority.
Kitchen and bathrooms. As long as you do that well, it’s selling point. Yeah. So important. But also how clean is your rehab is also important. Every contractor will do some work, but sometimes their work is not very clean. So when a prospect walk in, they can see, the door is a bit crooked the line is not straight.
And so all that matters. So you are really Yeah. As an operator, you really have to train your operator to do a good job. Yeah. Cuz if they see a half-assed renovation, they’ll say they manage everything half. . Yeah, I know they just, you just hard to lease up. Hard to really do a good lease up when the, during the job is not very well.
So remodeling, of course, we will do that to increase rent. That’ll be the primary income. On top of other things. We have a lot of Michelins income, right? But before I go to visuals, you wanna make sure you have the highest rubs percentage that you can get, right? And Texas is very tricky because, POC has different methodology of allocation of rubs, right?
They have square footage. By square footage plus occupant. Sometimes it’s just by occupants, sometimes it’s by square footage and there’s bedroom. Yeah. Which is called a ratio utility billing. Which is the, a ratio one, one person means it’s 1.6 and then 2% is, I think, sorry, 2% is 1.6. That’s a certain ratio.
So selecting which POC can also maximize your ups. So we always talk about POC number two, which is basically racial utility billing. And that’s usually the highest chances of you getting the highest collection, re collection back of your ups. . So that’s one tape. On the Michelin income, we implement a lot of other things other than petran pet.
We do a renters liability insurance, which we charge renters for, common area insurance. So we charge them like $11, but they pay us mean we charge ’em $11, we pay $6, we get $5 upside. Mm-hmm. .. on it. We have assigned parking, which is one of the cheapest way to, without doing any CapEx, right?
Just assign the parking to certain units. , $10 or $12 per unit. What else we do special? Other than car pods, all that’s pretty common, right? So pass control, we can recover the pass. That’s all not governed by poc, so you can have a reasonable one, right?
Water and sewer is governed by poc. . So you have a certain methodology you have to use, but pass control trash, you really don’t have to follow. So you can charge $10 or $11 on a trash, not knowing how much trash is being collected. How much is the expense? So you can go slightly above a hundred percent on that collection.
Not to be unreasonable, but that are some things that you can go a bit more than what you’re charging. So do you guys still do Robs because we’ve seen a trend in the industry of people moving. Back away from rubs because of the complexity. And switching into just fixed fee utilities. know we, yeah, we started doing that as well.
Yeah. I’m not fixed fee utilities. I mean cuz it’s, the problem is with high inflation, people wanna budget the expense, right? So they don’t wanna have a different number coming in every month. So we have one property, which we converted from hotel to multi-family, which we did all bills paid.
And people just living, people love all bills paid. Apart from the units are really nice because what are the other things? We live all bills paid because I pay X and I’m done. Yeah. And they’re happy with that. And fix the utilities gives them an opportunity to get. , right?
So that’s what we did. We took the average of what we’ve seen people pay on our property. And then we built matrix. So one bedroom, two bedroom, and how many people, you’re gonna have one person, two people, or more than two people. Okay? And then we did this little matrix and each box in the matrix has a dollar amount.
So when we lease, we tell them instead of allocating, this is the fixed fee for the utilities, here’s your base rent, here’s your utility fee, how many people are gonna live in the apartment? That’s what’s gonna be your fee. And got it. And it allows us to basically get to a few things. One they get the stability, they get the predictability of their bills, which they love and help us leasing.
It helps us eliminate the need for a third party company. Cuz we outsourced all the utility billing side of things because, you guys have the capacity to deal with all the regulation and the municipality headache. , we just didn’t want to deal with it. We, we saw that as a liability, so we didn’t want to deal with it.
So we actually had to pay a third party company to do all that work for us. And then at the end of the day you control the utility fee. So now it’s no longer fallen into the rubs and the regulations and the rules. You can charge whatever you feel is right and whatever the market will bear.
And that’s up to you. So we thought that trend seemed reasonable to us and we implemented it and I think next month will be our last month with the third party utility company because we converted everybody over. . Yeah. No, I think that’s a really good methodology to do that because if putting myself in a resident shoe, I would love a fixed pay , just pay this and be done, right?
Yep. And just avoid all kind of questions. Why is this minus is high? Did you all have a leak? Did you charge to me? And all kind of things. Yep. And yeah, I think that will be a very attractive amenity, I would say for a lot of people. Yeah. And we are seeing that in one, one apartment that we have that which is all bills paid and people just love it.
Yeah. Okay, great. Where are you guys in your property management practice today? How does that look like? How many people? You said you still run a lot of units. Yes. So we have 50 people working for us. , six assets. And we have some, a few corporate people, maybe eight to nine corporate people.
But the corporate is also, we are also doing ground up development and all that, right? , so plus accounting. So I would say maybe five in corporate. And then around 40 to 50 people on the property management side. And you have regional supervisors? Yes, I have regional manager reporting to us.
And who’s working with the regional? We, Shante and I, my wife and I are working with the regional, so we, we don’t have a VP of operation in between maybe it’s son to get one. . We tried, we had a few, we had two or three VP of operations but maybe in the future we’ll hire one.
But we tried and they don’t live up to the. Not to our standard , we are operators. If you see we, when we started, we know the every single detail of the business. Yeah. So that’s too dangerous for any VP of operation. So we will ask a lot of questions on why this, because we know how it, the whole thing works.
, like if a property doesn’t lease up on seven one, we can tell you why. Okay. Did you go look at the lease? Lease leads C rm Right? How many people did you apply? So we’ll ask a lot of questions and it’s just a very high expectation from us to that VP of operation. So whoever comes in need to be really good or better than us, which we really want them to be because we didn’t want to be doing this ourself because we are also owners of the asset.
It’s just too much of our time. . But, we had to find the right people. Yeah. And that’s one of the challenge that everybody’s having without party management is. when you get to the supervisors and the regionals and so on, all the way up to the VPs, 95 times out of a hundred, it’s people that started from the field.
They started as a leasing agent, then a manager, then a supervisor, then regional, and then they become a vp. But they don’t have necessarily the skillset or the mindset of an owner and especially not an owner operator. I’ve had the exact same experience as being able to be in the details and knowing everything and then asking my VP questions and they don’t have the answers.
And that’s because when they grow in the industry, they as a regional, in a large property management company, usually manage thousands of units. . So their ability and capacity to be in the details is not there. . So the, so that’s how they grow. So the VP doesn’t have the details because in a, again, third party property management, he has to be on top of five, six, 7,000 units plus and there’s no way you’ll be in the details in a corporate world when they dump so many units on you.
But I like the way you said it, and they need to be as good or better than us, and honestly, it, it’s gonna be very challenging to fill those shoes. Yes. Correct. And again, I’m pretty sure you’re not paying for your grade of person in the VP position. And that’s what a lot of us forget, is we will go and we’ll buy a four or 5 million property, a 10 million property, then we hand over the keys to a 50, $60,000 a year person.
Yeah, that’s true. And then we expect them to operate at a standard that is much higher than the pay grade. Yeah. So it’s true. That’s true. It’s just hard to find, as an entrepreneur, the A to Z of the business, and you are really, your heart and soul is in, in it, right?
Yeah. Because you wanna make sure he’s really successful. Whereas as an employee, they may not need to have that heart and soul, right? They’re just another person working. Same thing in any job, or, sorry, you’ll find employees who really, put their heart and soul into the job and their employees who are just gonna do minimal stuff just to get by, right?
, they’ll work a bit, but it’s not their, Yeah. So it’s hard to make them your baby even when they’re employee. So yeah, I don’t know what’s the answer to that, but , the answer is to do what? To keep doing what you’re doing and that’s, but the problem is we can’t grow.
But that’s how you bring value to your investors and that’s how you grow. Yeah. Yeah. I’ve seen like a lot of my, colleagues who are in the syndication, they start buying thousands. They keep on buying every month. So how are you guys doing it? They’re giving you third party, right?
You lose a lot of efficiency. You lose at least 10 to 15% efficiency, in No, I too, when you do that, because, third party is third party and you can do all that in a hard market in the past 10 years, right? Past 10 years, 2010 to 2020, 20 22, 20 22 things were hard, right?
You can just keep on buying because the market itself is carrying you up. You don’t have to really care about. what the property management company is doing. The asset manager can go for vacation. Nothing happens. Everybody makes money. But when the market turns, like during Covid market turn it was really difficult time and I don’t know.
, the first batch of syndicators disappeared during that time. And this time, the second batch of this syndicates are gonna disappear as well. These are the people who are not good operators. They bought it because the market is hot, they’re surviving it, but then it’s very hard to survive. You’re not a good operator during these times.
Yeah. And we of had that conversation before we started recording and you’re absolutely right. I think in the next few years what we’ll see is that only the top level operators are gonna survive. The guys that are your level of experience, your level of knowledge, your level of attention to details because, if you were a, if you’re a mediocre operator anywhere the last 10 years, the market could have could have compensated.
for your inefficiencies, right? It’s not necessarily that you’re a bad operator or you make mistakes, it’s just that you’re not as efficient as you can be. And then, but the market rent growth covers that inefficiency. I personally believe that this party is over, right? And now in the next few years, everything is gonna be tighter.
Anywhere between the fact that we’ve already seen rent growth flatten some certain pockets in the market have actually gone down. Some of them are still going up, but they’re not going up anywhere near the rate that we’re going up in the last 10 years. And at the same time, you we’re seeing a huge spike in expenses, and that’s inflation between labor costs because chick-Fil-A pay pays $18 an hour and it’s a lot easier work than being a maintenance guy or a me.
And Walmart, I just came back from an industrial summit and the Walmart distribution guys are paying $26 an hour plus benefits to work in the distribution center. Labor costs are just skyrocketing. Material costs are increasing a lot. And we’ll talk about you guys, you said you have new construction.
I’m sure you’ve seen the cost of cement exorbitantly growing day over day. So when you’re in the market where rent cannot outpace the cost of expenses growing, then you better be very tight on every dollar that gets spent and you better be a top notch operator. And unfortunately, not everybody can be top notch operators.
That’s just not it. And that’s where we’re gonna see some challenges coming into some of those operators in the next two years is. The markets are just gonna, the properties are just not gonna perform. And you compound that with debt that is coming due and bridge loans that are coming to you and we’re gonna see some interesting buying opportunities, let’s call it that way.
Yes. Yeah. We talked about increasing income. Anything interesting you guys do to reduce expenses when you take off expenses? I think apart from the operating expense make readys, you want to try to use your own in insight in internal people to do, make readys when you buy in volume, of course your material cost comes down.
And we usually like, Not only volume, we also have much better account position like with Lowe’s or Home Depot, right? We have special accounts with them, which they give you really good prices. , so you want to try to get that as well. In terms of water and sewer, you just wanna make sure you monitor your water and sewer so it doesn’t go out of whack.
And property tax, of course higher property tax consultant to protest your tax every year. Insurance, you wanna shop it as much as possible. Insurance is really getting hammered everywhere. We got hit 30% this year increase. Yeah. And I talked to some really large operators and some of their properties got hit, 50% increase.
Yeah. And when I got hit with 30%, I shopped it and I talked to a few brokers and they all told me it’s we can’t do any better. Take the 30% and be happy, . So that wasn’t fun. Correct. Mine went up 10% increase this year, which was much better than 30%. But Yeah. But may I, mine was already high from last year itself, so probably that’s why.
But but yeah, insurance went up, property tax hopefully this year is not going up, but cuz of the, all the economic situation. Apart from that what has payroll? We, I mean we don’t double payroll like what third party property management company will do. They hide a lot of charges into the payroll.
Yeah. That’s why they have payrolls like 1400 or 1300 per dollar or 1200. And our payrolls like almost thousand dollars per dollar. And because we pay everyone much better rate than everyone, but there’s no additional burden that was sneaked in by what third party does.
So they third party, there’s no way to make 3% third party property management. , it’s just too much of a work to get just 3%. So what the third party management company do is they sneak in all kind of fees into all the other expense codes. Yeah. And I’ve had that conversation with many operators.
The way we compensate third party companies makes no sense. Yeah. Unfortunately, I don’t have a better answer, and it is I couldn’t come up with a better model to compensate third party and our audience that watches our videos know that I keep talking about this with a lot of people.
It’s just, it makes no sense. And you’re right, they gotta find ways to increase their income somewhere else or cut in the amount of work they do for you for the same price, which at the end of the day might not mean a lot of difference for them, but could mean a lot of difference for us. For example, let’s say they, they don’t, Collect anything they can collect fees wise.
And it’s $25,000 a year for us as at a six cap, it’s almost half a million dollars. For them it’s $83 a month. So is it worth doing a lot more work? Cuz $83 a month for a property management company, it’s two hours of labor. Yeah, I know. Yeah. I was thinking on, at some point I was thinking of doing third party property management and I was thinking I cannot, I can never on my right conscious just charge 3%.
Just to be fair to the operator, I said, why not am I based compensation based on I know why. The more I know why you increase the more, we had that conversation. So all I have to do is a third party manager is deferred maintenance and I get your NOI goals and I get. Correct.
Yeah, right there. There’s ways to manipulate almost every number we have. So that’s why I couldn’t come up with a different model. The only way I could figure is jv. If I’m an investor in a jv with you, I know you are also the in-house management, and you are also a partner, so you have a vested interest.
This is the only way investor, the owner, and the property manager would have the same interest aligned. Otherwise, I don’t see a better model. I just couldn’t find one. Yeah. Yeah. I could not figure out. Because in expenses can change without their control, our control, and it’s just hard to compensate based on that.
So income is the best and Yeah. Income we just talked about insurance, right? 30% increase goes straight into your N O I. And the property management company has no control over that. So now they’re gonna get hit on their compensation because insurance went up all over the country. . Yeah. Now I was thinking more on the controllable operational income.
Expense. So not getting into gray area and then Yeah, but still there’s gray area, right? Minus the property tax insurance and the management fee, right? Everything else is controllable within them. So is there a way to do that or not? But end of the day I decided not to do third party because I know it’s how much a tankless job is that, or too little of a comp competition, right?
The headaches to returns ratio is not there. Yeah, exactly. Exactly. Some of the audience gonna ask us, right? Why is doing it? The reason why we do is because we do a lot of difficult projects. We do a lot of deep value ads where a lot of turnaround, and if I give it to third party property management, they can never do that.
You need to have your heart and soul in it. You have to be at the property very frequently and all that. They’re not gonna do it. It’s not their money. It’s not, we don’t make many, in fact, we lose money on property management, but I think that’s the reason why we make a lot more money on our assets compared to a lot of other operators.
Yeah. Who use exactly third party property management. And this is the same statement we hear from every operator that grew to a scale that allowed them to create their own management company. , it’s not a profit center, it’s more of a brain damage center. But but the control allows us to make more money on the ownership side and for our investors than not using a third party.
We just keep hearing the same statement over and over. I think from the 30 something episodes that we’ve already had. We maybe had two or three that said they like to stay with third party management. Yep. So that means the time versus effort versus uh, money. . Yeah. And I just wanna circle back for a second about a couple things that you said on saving money.
One was watch your water usage. And that is super critical. One trick that we used to do was to watch the meters and track the meters once a week. So always on a Tuesday at around 10:00 AM or so, you pick a day and you pick a time of the day and you have if you have digital meters that you can look online, then that’s great.
Your VA can pull the data and look at the numbers. Or if not, then we had our maintenance guys on the older properties go out and read the meter and send us the numbers. This way you can pick up a slab leak or a big shift in, in consumption within days. Cuz if you’re waiting for the water bill to come in, for you to know there is a big consumption, you’re about a month and a half too late.
Now you’ve been bleeding for two months. So that was one of the little tricks that we used on watching the water consumption. Because especially on the c class properties and you know that, right? Yeah. Seen 1980s and older, you would find lab leaks and sewer problems and all these kind of things that, that you could be literally flushing water down the toilet and nobody would even notice it.
Correct. Yeah. It’s hard on the older assets. Yeah. And I’m coming back to third party. I’m also on I mean since, we are used to, older assets and it makes sense for us to self-manage with this amount, but it may, things may be different on a newer asset, right?
A class A, maybe it’s, if you buy it maybe third party would makes a lot more better because they have less. Issues. But I’ve not tried it, but, so the question is it less issues or the numbers are big enough to hide inefficiencies? Could be, yeah, exactly. . But at the end of the day, we can’t be doing this forever.
We can’t be self managing forever. At some point we have to safeguard our time because time is the most important thing in our life, right? At some point you’ll make money more than you, you can forgive the inefficiencies of the third party, right? So at that point of time, you’d probably be okay.
Cause your time becomes more important. So let me ask you a different question or look at it from a different angle. , that VP of operations that you couldn’t hire , have you considered upgrading that pay grade to, let’s say, $150,000 a year, pay grade, or $200,000 a year pay grade to find that person that can.
Do things better than you. Oh, we tried all that. , we started increasing by 50,000 to, we think, we thought we are paying too low. . But I’ve realized no matter what you pay, it’s all about the, how much ownership they have in the asset, how much they how much passionate they are about the deal.
Do they really care but their baby? And if you don’t find that, you can find that even with the lower pay people. . So I don’t think so pay was the issue because we were like really paying very high interesting to get the best VP of operation. And now that’s the fact, the reason I’m asking is you gonna go third party, you’re gonna pay that money anyways, right?
Yes. Yes. Correct. You’re gonna give away hundreds of thousands of dollars across your portfolio. Can you take that amount of money to generate that person that you were looking for? Yeah, we have tried it, but it, it pay was not the issue. Okay. Interesting. . Yeah. Yeah. Realize that. Yeah. It’s, as I said, end of the day, anybody who’s doing this kind of difficult not say difficult class B and C I’m not sure about class A because I’m not really done class Anybody doing B and C, need to be, they have to be in the deal. They have to be part of the problem. They have to be passionate, they have to think of it as, as their baby and , that’s why it makes a difference. Yeah. That makes total sense. Yeah. And we have some employees, I who are like regional managers, senior managers who are like really, they really care about our properties and we don’t mind paying them more.
They’ll, if something happen, they’ll stay 24 7 on the property. Yeah. And they will put their a hundred and so they, that, that kind of people is highly more, highly valuable Yep. Than this highly paid. VPs because it’s just different. So I dunno, may maybe one day we have to think about, just promoting internally to people because, passion and ownership is more important than knowledge.
Yeah. Knowledge. You can’t teach talent. And you can’t teach work ethics, but you can teach every skill. Exactly. So that’s where our, my head is right now. Maybe we should just promote internally and teach them what they need to learn from a VP of operations or what, because people with VP of operations, they’re like 20, 30 years in the business, they come with their big baggage behind them.
I know this how to do it. Yeah. And we tell them differently. They say what are you talking about? Oh, this is how we do it. It’s not right. We can do things better. Yeah. Maybe it all depends on your owner, whether they’re dangerously knowledgeable in the apartment business. If they do not know anything.
Yeah. Any VP of operation can go to somewhere and, you can run around the owners, but when the owners know a lot of, a lot more than you, that’s where it’s very hard to just work . Yep. So let’s switch a little bit to where you are today. You mentioned you’re doing new construction. Yeah.
So what led you to let’s stop the B N C class value add and go to, I’m gonna build a brand new construction in Austin, which is probably very expensive and very painful to go through the red tape of Austin. Yeah, no, this is in San Antonio, so it’s slightly better than Austin. So still gonna go through a lot of rate tapes.
Yes. Correct. . So we have a lot of investors behind us and they always keep on pushing us to do deals. And because our criteria to do deals is high, we really want to do deals we really like, there’s a lot of upside in it. And all that just was so hard for me to find deals. And compared to some other operators some other owners who are like, keep on buying deals, they don’t mind buying any deals without upside or very little upside.
It’s all about how aggressive or how conservative you are. So it doesn’t mean you own 10,000 units. You are very good, right? . Yes. So I could not find a lot of deals at the same time. , one of my investor has this land and he keeps on telling me, if I wanna sell this land, I only sell to you. I say, why?
Because I trust you. I don’t trust anyone else. And that was a really good land. It’s an infield location in San Antonio, and he has been telling me for past five years. And I tried to bring in some developers to him and people don’t wanna do it. And finally I said, okay, I’m gonna do it, but it’s gonna take two years.
And I said, it’s a good skill for me to learn because I’ve realized, first, I cannot find deals. Even though I find deals, there’s a lot of pressure to close on deals. Whereas in grownup construction, you can plan your way, you can plan your land entitlement, you can plan, when are you gonna build it.
So it’s a lot more longer leave time. So if I want to raise money, I have a lot more time. . So I realize grownup has more planning work, whereas B N C is small. It’s very immediate. You have hard money, you have to close, you have to value it. You have a lot of investors asking when you’re gonna turn and all that.
So that’s why I realized that maybe I should try ground up construction. And since that investor had that very good, very nice land, and we went and did it, we did the zoning for two years, zoning and entitlement work, all the drawing, all with my own money every for two years. And after that we started building.
That was the reason. I want to do something else as well. And also I realized that you real estate has seven spectrum in it, right? Starting with the land banking after that land subdividing. . And after that got land entitlement, after that got land ground up construction after that got value add.
And after they got repositioning where you break down the entire building and build a new one, right? . So there’s seven spectrum on it. Yeah. And a lot of times a lot of gurus only teach the value add site, right? Yeah. Because that’s what they were thought, right? Yes. But every time I, you I, same thing every time we, I drive around, I see somebody’s doing that development, somebody’s that doing that ground, oh, somebody’s doing this land banking.
So somebody’s making money on all this seven spectrum. I was always wonder what is the other spectrum? Yeah. And I realized like there’s other spectrum which can make a lot more money even though it’s higher risk. Yeah, I was about to say new development is the ultimate game in real.
it’s the highest risk, highest reward game. And usually nobody starts at new construction. They get to new construction. . But the reason it’s the highest reward with the highest risk is on the risk side. The length of time it takes to get there is a risk factor. Anybody that bought a piece of land in, let’s say July of 2022, right before the world exploded.
Had a certain underwriting and now only six months later we’re, we live in a different world, we change. Yeah. So new construction, especially that size, we’re looking at 18 to 24 months before you can get people in the door. . What’s your time? Minus 26 months cuz it’s 324 units.
Yeah. So that, that’s a lot of time and the market and the environment can change a lot in that timeframe. So that’s why it’s the highest risk. But it is the highest reward because at the end of the day when you’re done, you have an A class property at the cost of a B class because you don’t have to pay the premium for the developer.
You don’t have to pay the premium for the person that laid their money and took the high risk. Correct. So it’s, it is the ultimate game of high risk, high reward in the real estate spectrum like you called it, right? Yeah. Yeah. Correct. Yeah. But I, yeah, that’s one true. There’s also like even beyond that, buying a raw.
and how do you get it to zone right. How do you get it entitled? That’s also a big play. There’s a lot of people playing in that space. . But it’s not very well thought. There’s no gurus teaching that, ? We have our friend Jack Bosch. . Jack Bosch is doing a lot of land flipping.
He buys it. He does flips right. He doesn’t develop. He’s not a developer by Correct. He’s playing one of the spectrum. He’s playing the, it’s the one step before the development. Yeah. Not in the Land King, but he buys it and quickly flip it. So he’s our friend, so just in case I audience wanna know and he was a guest on the show too.
Oh good. Yeah. But if you buy the land, and in fact I ask this Jack, so buy, why don’t you develop it? He said no, I’m not developing it. , he just, it’s not his business model. He, it’s too much race. It’s different skillset set. Yeah. It’s a skillset set. And sometimes you make more money on the fly, on the volume rather than developing it.
Even though, yeah. Development makes, end of the day makes a lot more money on one transaction. compared to FLA flipping, you do a lot of transaction to probably generate the same amount of money or slightly less money. Or maybe more money, I don’t know. But getting a raw land at a good price and titling it it’s a big value add.
On the whole ground up construction, a lot of developers will come after the land is entitled, but if you go beyond that, if you go beyond to the land, draw land, yeah. And you mitigate some risk and if you have enough money to mitigate all that risk and you hold it as yourself without bringing investors, that’s another value add that you’re doing.
Yeah. So anything in, in commercial, anything that changes the usage to a better usage is gonna make you a lot. Oh yeah, you can take a, a small industrial and somewhat con, somehow converted to retail. It’s change of usage to a better, more expensive, you make a lot of money if I don’t mistake.
You did a hotel conversion to apartments, right? Yeah. We make, and that’s what it is you convert, converted from one usage, which was destroyed with Covid, right? . And you turned it into an apartment, which is still in high demand. So now you took one asset usage change, changed the usage. Now it’s worth a lot more than it was as a hotel.
Yeah. Same thing with office to multi-family conversion that some people are doing right now, right? Yeah. Yeah, the profit on that one hotel, the multi-family conversion’s equal into almost 2000 apartment units. Wow. It’s, that’s mind blowing. Absolutely. It’s mind blowing. We made like 30 x in 12 months with that money, with that hotel
Yeah. So that’s like crazy deal. But you need that daringness to do that, right? Yes. And it’s not just Dar this it’s be willing to step into a world where you don’t know what you don’t know. You mentioned converting office buildings into apartment complexes. We have a joint friend, Kenny Wolf that is doing just that, right?
, they got a couple of projects in, I believe Kansas City right now. . And then I had a conversation with him before I even started doing that, while he was researching the thing, and I was looking at a similar project and he goes, We were looking at a 10 story building. It’s if you need Sheetrock on the eighth floor, you need to coordinate with the police to stop traffic at 2:00 AM Bring a crane, pop up a window so you can put the sheetrock with the crane into the eighth floor because the elevator is not big enough to get all the shit rock you need either.
So it’s okay. Things you don’t know that you don’t know. So that’s where the daring part comes in. It’s kinda like it, it’s, you take a risk going into a world where you don’t know what you don’t know. Yeah. So people who are daring to do that, they’ll make the most money.
Because. If you’re doing, as what Albert Einstein say, right? In insanity is doing same thing over and over again expecting different things. If you look at everybody’s just buying the normal apartments and doing, small value add and trying to make money, right? That’s what, yep.
That’s a e safer way. But when they take more risk, and if you’re able to maneuver through that risk, I it’s not easy. As I said, you have to be able to maneuver these unknown certainties, uncertainties and unknowns and try to make, come out as successful at the end. Yeah. Yeah, even the hotel conversion, the way we manage our risk was like, we took seller financing.
We asked the seller to not pay any mortgage for eight months, so we did multiple things, and then we’d work with the city when, before closing to get the zoning. So someone who can able to manage all this risk, , can come out with a, very good compensation end of the.
Yeah, absolutely. I wanna be conscious of your time. We’re going a little bit long here today. If you could go back in time and talk to 20 year old James , what would you tell him? What would be your advice to Young James? Young James? I would say get out of your network, right?
That would be my advice. I A lot of times, like when I started work, right? My first year of working on a WW job, someone gave me a Robert Kiosaki book, right? Reached that for that, and I took that book, I read it for three, four pages and I threw it away. I said, this book, it’s not for me, , right?
Because I’m not in that circle. I’m not in the business circle. I’m not in real estate. And, it just doesn’t make sense to me just because all my friends, all my network is all W2 employees. , we all think alike. We go to the coffee place where we mingle we talk about the same thing, right?
But once you out from your network to another industry, if say you go to meet up or you go to networking, let me go and try this business conference. You try this business then you get to know about something else that you do not know that’s commonly in your space, right? . So I didn’t do that early enough, right?
Until later on when I start, there was a reason why I need to get out of this W2 job, right? That’s where I started looking at other options, and that’s where I started finding. So I wouldn’t change anything from my experience. The while I think, we have been very successful and I’m not gonna change anything to be more successful than what we what we are right now, even though we can go from now onwards.
But I think what I would say for the younger ones or whoever listening to this podcast is Go out of your network. Don’t go to the same conference over and over again. I go to the multi-family conference. I see the same guys, right? And I go to another multi farmer conference. The same guys, no, go to a different conference.
Go to a Chamber of Commerce conference. Go to a doctor’s conference. Because you’ll be the only real estate guy there. People come to you . Yeah. That’s an interesting way to look at it. Yes. Yeah. Why you go to everyone. Everybody’s a real estate guy. And all the passive one is all this multi-family conference.
They already invested their money. Cause they already know who to invest with, right? Yeah. And they, if they’re coming for the conference, that means they’re not really passive. They’re more active passive investors. Yes. They’re not the best passive investors. The passive investors who are the best, are the one that busy doing other things.
Yep. And they only know you. So they’re gonna give you all your money to one person because they only know you. Whereas if you go to active in passive, they’re gonna take all the money and give to all the others. Syndicates. . Yep. So think differently. Think differently. Where, which con which, where you can go to get new information.
Yeah, no that’s a really good advice. And it’s funny how you mentioned the conferences and it is that’s the same reason why I didn’t go to the n h that nmh, I didn’t go to guys. You go to, it’s the National housing multifamily Housing Manager Council. So you go there and everybody there is property managers and brokers,
Oh, I’m a property manager and I’m a broker. And it’s what am I gonna do that talk to Yeah. The vendors, people that did the same thing. , they’re the vendors for principles, right? Yeah. So that was that’s, that, that was a great advice. Yeah. Yeah. Correct. And then, and right now, when in April I’m gonna go to a hotel owners conference.
Okay. . Yeah. Because I know a lot of hotel owners are accredited investors too. Yeah. And they’re also hurting right now. So you might find another conversion opportunity. That’s the other thing that we are trying to do, right? We’re gonna go and advertise any hotel to multi-family conversion. We’re willing to buy.
So just do something different. I didn’t go for a lot of conferences in the past six months and I’ve been one recently, and then I see the same people, but at least I meet my friends, I talk to them, but I have no hope of finding passive investors there. , I have no hope of finding deals there.
It’s more of catching up with friends and get to know what they’re doing and all that. It’s maybe if you can find partners, you probably can go for that kind of conference, but , it’s a different kind of networking. Absolutely. Okay. Yeah. Yeah. Great. Awesome.
James, I really appreciated you coming on the show. It’s been always a pleasure talking to you. Yeah. If our audience wants to reach out, if they want to invest with you, if they wanna make a deal with you, sell you, bye You. Hire you? How can they find you? ? They can hire me cause I’m not selling anything.
. Pat achieve investment group.com is our website. Or you can come there and register, and usually you’ll get like a, I think there’s a Invest with Us link there where you can get a calendarly link and you know it, you can set up some time and talk to me. And if you wanna get my book passive Investing in Commercial Real Estate, okay.
You can go to passive investing in real estate.com and get this book, you, this book’s 20 Bucks in Amazon. Perfect. And if you go to that website, it’s 4 95 or 4 95 for shipping. You have to wait for three or four weeks for it to come. But that’ll be a really good place for you to learn passive investing.
And the other book that I recently launched is called smarter Doctors. This book was written mainly for doctors. , because a lot of times they have this big wall around them. Because they get bombarded with so many financial advisors. Everybody wanna target them, right? So I said, I’m gonna write a book and they’re gonna pick up and read it because 20% of my investor base are doctors and every time I talk to them, they say, oh, I should have known this syndication thing a long time ago.
Yeah. No, absolutely. And we also have a lot dentists and physicians in, in our investors pool and one of my business partners a, is a dentist. And you’re absolutely right. Not only they’re bombarded by other people from outside, but they also don’t have a lot of financial education.
of Frowned upon to talk about the business side of medicine. So definitely I think a book like this would be a huge help for someone like that. So absolutely. We’ll put all those links in the show notes. And again, I thank you so much for coming on the show, James.
Absolutely. Nice giving as much value as to your audience. Perfect. Thank you so much. And for you, the audience, if you wanna see more shows like that with great people like James we are on YouTube, we are on iTunes, teachers, SoundCloud, wherever you can consume a podcast, you will find us over there.
Please subscribe, leave us a review. We appreciate it. And until next time, thank you so much.
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Episode 131: Seth Teagle
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities.
Welcome everybody to the Apartments Operators podcast. My name is Joseph Gaza. I’m your host, and today we have Seth. Seth, welcome to the show. Hey, thank you for having me on. Excited to be here and talking with you. Awesome. We start every podcast with letting our guests introduce themselves, tell our audience a little bit about who you are, how you got to where you are, what portfolio you have just give us a little bit of a.
Yeah, so I was a 22 year firefighter paramedic left that a few years back and it got into multi-family investing and development. I got into real estate probably. five to seven years ago. And since then, we’ve built out a company that owns just under 2000 doors and we’ve got probably seven or 800 under construction right now.
So we’re just, we’re vertically integrated, so we do a lot of our property management and I would say not necessarily the ground up development, but the, if we do like a value add, multi-family purchase, and we do a lot of the renovations and interior CapEx items in-house. That, that’s phenomenal.
So how does one go from firefighting and paramedic into 22,000 doors, 2,700 under construction? How did Yeah, so that’s the, that’s always the question. I, it was, I was doing that job, had done it for a long time, since I was about 18. Loved it. But as I continued to get squeezed by the economy and my paycheck continued to not go far enough, I was trying to figure out a way to buy some time back and I stumbled into real estate through a college roommate of mine and then Probably, I’d say year and a half after that I had worked for a house flipper for a while doing project management, and during that time realized that single family and house flipping wasn’t really for me.
And I had the opportunity to came along between my own money and another investor that I met through a local real estate meetup. We put our money together and I went out and found the biggest thing that we could afford to buy, and it happened to be a 50 unit apartment building. And we, I basically, Ran the deal.
That was the kind of the, it was how it was supposed to, what was laid out was that he was gonna invest with me and then I would run the deal and do all the work. And we did that full executed the full value add plan. After about a year and a half, we pulled out 1.2 million which between just the two of us, we were able to get our, all of our original capital out.
And then I took my earnings and went and bought another building. And and it just it grew from there. So that’s the short. No, that’s phenomenal. Right now, is your portfolio focused in one location, one city, one metroplex, or how does that look like? So I would say pri primarily our heaviest presence is in central Ohio, which is where I live.
I’m in the Columbus, Ohio market. We have, I would say most of our stuff is here. We’ve got we’re cog P on some stuff in Oklahoma Illinois. And then one of our, there’s three of us that make up our company now as far our executives go. And we’ve got one of ’em has got a pretty big portfolio in Salt Lake City, Utah, where he lives but otherwise, I’d say the mag, I’d say 80% of our stuff is here in central. . Okay. With that, a big concentration in one spot. Do you self-manage? Do you do third party? Which way did you guys go? So we do a little bit of both. I’ve got two property, I should say three properties that we have third party management on.
Mainly because one of them is that way because of the area and the tenant class. Like we just felt more comfortable with somebody that kind of was specialized in that area. And so we didn’t wanna manage that one, but we did do a million dollars of construction on that portfolio. We we couldn’t do both when we took it over.
We couldn’t manage well and manage the construction. We knew there was a bunch of CapEx, so we focused on doing that and allowed this other company to come in and do the tenant management. And then I’ve got another, about 86 or 90 doors that’s managed by a third party person. And it only because it’s a little bit farther east from Columbus and it’s just it’s my own personal stuff.
And so it’s outside of it’s out of the way for us to go out there. We don’t really have any, but. They already had a team in place out there. I knew one of the owners. So it just made sense. But everything else that we have, we self-manage. We have a team of about 27 people that work for us.
And they do renovations in the management side of things. So how do they compare? Your third party management property and your in-house property management? Yeah, good question. A little bit of a leading question there, but yeah, no, I think it’s good. So as far as like time freedom goes, third parties obviously frees you up to do a whole lot.
When we decided to vertically integrate it sounded like a great idea at the time, but then I became an employer and I never. Thought of that side of things when I got into investing. So there’s a lot of things that we deal with that are employment based, so that, that’s a little bit different.
But as far as like the, management wise, I would, I still think that we probably perform better, only because, nobody really manages it like they do if you own it. And we’re able surgically weave our way through the business plan versus, the. One of the portfolios we have, it’s 70 units that’s managed third party.
They’re, I feel like they’re more of a I don’t know. They’re doing a lot of surgical work with a spoon, if you will. It’s not, they get I, that one, yeah, no we took it, we took the occupancy on that one down, to maybe 10%. We had to completely rebrand the place, go in and do all kinds of renovations floor to ceiling, we did roofs, all kinds of exterior stuff.
And they really struggled with getting at least back up. And so it wasn’t until we came in and said, Let’s do this. We gave them the plan, they executed the plan, we gave them, and then it, and it worked. So I think even then, they seem to be more costly. We’re always looking at being cost effective.
Because we’re looking at managing it, but we’re also looking at the returns. We’re looking, we’re looking at the full picture, and they’re only seeing it from, they’re like all third party management companies that. Are not owners or they’re looking at they’re a for-profit business.
. So for them, they don’t really necessarily care about your underwriting, they don’t care about your projections, they don’t care about your cash flow. They’re gonna, they do what they gotta do to run the property. But if that means running the, or leasing it out lower than market to keep it full, that’s what they’re gonna do.
Unless you’re really watching over ’em It’s one of the biggest challenges in the industry when it comes to third party property management, is the model we use to compensate them. And you look at it and you say, okay, I can get a hundred dollars more per month for that unit if I push it hard.
So they look at the amount of effort they have to do to get that extra a hundred dollars and what come and that will take the property. To occupancy down. So for them, at the three, four, 5%, you pay them out of the growth. It’s a wash. So why do the extra hard work? Yeah, they, and we’ve had that issues with staff that we’ve had, that we’ve had to let go where they don’t understand the multiplier.
If we increase the NOI by X, it, it can skyrocket the value of the property. Like we’ve tried to teach that to our, to the folks in our offices. And some of ’em get it and some of ’em don’t. But to that end, like you just said, that they’re the path of lease resistance for them is to keep the rents a little bit lower, maybe just below the fringe of market.
Keep the place full, and so again, if you’re, if I’m buying it and I own it, That might be great, right? If my base is getting into the property, I bought it 20 years ago or 10 years ago or whatever, maybe I keep it low, I keep it full, the cash flow comes in, I’m okay. I’m a happy camper. But when you buy it with a specific business plan in place to value add or exit in three to five years, or you’re, or you bought it on bridge debt in, hey, in 18 months or two years, we got a refi and you have to hit specific metrics.
You don’t have the luxury. Of running the property that way. And there’s a big disconnect between third party management companies and people that are buying value atd, multi-family. And the only time I see people really be successful is if they buy a big enough property where they can bring in institutional management or really involve the management company at the co like the contract signing timeframe.
I would say if you’re buying a 50 unit or a 30 unit or a 60 unit, the management company that’s gonna run that for you is different than the company that’s gonna run a 200 unit or 180 unit. Or if you have a portfolio of 300 doors. It’s just different levels of management and it’s different levels of I wanna call more savvy.
But, it’s the same thing as if you’re a mom and pop owner with 20 doors versus a guy that has 200 doors, like you’re, you just evaluate everything Differe. . Yeah. Somewhat. But our experience and our, the podcast guests that we talked to all pretty much got to the same conclusion of setting up their own management company.
And for the end the end reason of it doesn’t matter what’s up the food chain. In the property management company, at the end of the day, you have 40, 50, $60,000 a year person running the. True that, that’s just the end of it. So it all comes down to who’s that person and who’s the supervisor that runs that person.
And if they’re good. If they’re not good, they’re not good. The only thing that goes in favor of the bigger companies is they usually have better hiring skills and better system in place for those two individuals to do their job which kind of gives them a little bit of a better success rate.
It’s not guaranteed, unfortunately. Yeah, I would agree with that. Yeah. I think that they bring the infrastructure. That you lack if you’re trying to start your own management company, that’s something that was really tough for us was, we’re operators, we’re owners, we’re investors.
We, we weren’t employers. And bridging that gap was tough. We ended up hiring a really solid asset manager who had started in scale two property management companies. And so he, when we found him, he was the c o of a larger company and he was doing all the op, so we brought him in basically to buffer.
Me from the management company to where I didn’t have to make those decisions because yeah, my, I was getting flooded with people, the onsite person calling us all the time asking for direction. It’s that is not the highest and best piece of my time. And so when, once we brought Mark in it really.
Really helped us systematize things and stabilize the management company and grow that and be strong, so that was Yeah, you’re right. And I will say too, with regional or with larger companies, I’ve seen them where maybe they don’t even have, like they have the local people, like you said, but then they just have one regional person.
If that regional person quits, now they have to bring somebody new in. Like they’re now that person has to come in and learn the properties and learn all the different things. And that’s where you said it comes down to having that $60,000 a year person on the property. And if they’re good.
If they’re not, then the property will suffer. Yeah. So let’s talk about that point in time when you guys made the decision to start your own. , what were the con what, how was the conversation at that point? What were the reasons you even considered it? Pros and cons that, I’m sure there was a conversation and eventually somebody agreed to bite the bullet.
But cause again, from experience, personal experience, and from talking to a lot of guests, property management, in-house, property management is less of a profit center and more of a control thing. Allows you to do things like you said earlier, be surgical about executing versus trying to work through somebody that is doing surgery with a spoon.
I love that. I’m gonna totally gonna steal that, that, that phrase from you. So what were the lead leading drivers in that decision? How big was your portfolio when you made that decision? What kind of scale you felt was required or justifiable in order to make that transit? Yeah, so I think that we were, God, what were we at?
We were probably at 250 doors here locally at the time. And then we were buying 180 unit complex. And traditionally we had, we would buy something, keep the staff around for a little while, let ’em go if there was staff. Some of the stuff that we bought, like my, the first 50 unit didn’t have any staff.
The next one I bought after that was a 40 unit. It didn’t have any staff. It was a a little bit different. But when we bought this 180 unit, It had staff on site. The property was a Blos property. It was being ran well. The rents were low. That was really the value add play was just taking rents to market.
So just having better oversight and management. But we really felt that the person that was onsite there working was salvageable. That she was willing to learn. She was excited about the new takeover. We had maintenance guys on site that were great. They still work for us to this day. The gal that we originally had hire, , she just left at the beginning of the year.
And I think that, that gave us the idea where’re like, look, we have a kind of on the ground team in place. Maybe it makes sense for us to just start doing this on our own and we’ll just start with this one property and see how it goes. Rather than bring in somebody else and make these people, employees of that company, we’ll just make ’em employees of our own company and we’ll go from there.
And, That was about the thinking that went into it. And what we didn’t realize at the time was, the gal that we were going to absorb and employ, she was a, spoke in the wheel to a larger. Nucleus company down in Columbus, which I knew those the, I knew the company, but we thought that she was more like all inclusive, handling everything on the site.
And it wasn’t until after we had closed and took over that we realized that she was just a satellite person sending out, the meat and potatoes of the company was down in Columbus and they were handling all, like all the accounting, all the bookkeeping, all the bill paying, like they were handling all of that, and all of a sudden, that was on her shoulders.
And, it, it just it became clear after a few months that like we were really, there was a lot more to this than we had anticipated. And so we had to halt what we were doing and really get aggressive on trying to figure out the right solution. Who’s the, the accounting company that we had, for instance, the accounting company we were using.
They were no longer able to handle just the volume of transactions we were doing. So we had to figure out a new, find a new company, and then just all the tax stuff and the just the things you don’t think about, right? You get an owner statement and you’re like, oh, this is all spelled out for me from third party.
But how do you prioritize things, do you, is this maintenance and repairs or is this CapEx? Is this, all the different things that. Normally a third party management company has an accounting person on staff, and then they do that for you. Now all of a sudden we were having to do it and the person that we thought could do it couldn’t do it.
Yeah. And so it was, like I said we instantly were on our heels trying to figure this out. Yeah, no, it makes total sense. Now also, the. A lot of people don’t realize that you have your field team and you have your back office team, in property management, right? Your field team is the onsite manager, the leasing, the maintenance guys and they operate the day-to-day.
They don’t have the bandwidth or capacity to handle bank reconciliations. Picking and choosing which invoice gets paid when and what general ledger account go, every expense goes. Oh yeah. Into and that’s really where when we talk to clients sometimes and tell them this is the property management fee and this is.
payroll, and they go, what do you mean? Is it payroll included? It’s no, the payroll is for the field team. And the property management fee usually is to supervise the field team. And to run the black office team. That’s just a normal misconception and yeah I can totally understand why you’re onsite manager couldn’t handle all of that.
Yeah. How long ago was that? The setup of yeah, so we took it, we took that property over maybe three years ago, two and a half years ago, three years ago, somewhere in there. Okay. So Smash Cat today, right? You’ve been doing property management for three years. You mentioned you have a team of 27. How’s your organization look like? You mentioned? So we’ve got, I would say, yeah, outta the 27 people. I’d say probably at least half of those people are construction and maintenance guys. And then we have specifically about the 450 units that we manage they. We have one office person, like the, she came from an institutional management company, so she’s really a solid A player.
She’s been instrumental. We have one leasing agent. We’ve got another one that we’re in the process of hiring. Cuz again, that, that’s all part of it too, right? Is if we’re replacing people and training people and all the things that we didn’t think about. And then the rest of it’s made up of maintenance and construction workers, and then we have.
Two guys that work for us remotely that are, they audit all of our books. So they work with, we have a, we, we brought in an accounting slash bookkeeping company that does all the bookkeeping for the properties as, as well as the management company. And then the two guys that we use for auditing.
They assist with that, but they, their main role is auditing all the transactions, all the bookkeeping, making sure that everything’s on the up and up. Cause a lot of the stuff that we do are 5 0 6 B or C syndications. And so we’re held, our bookkeeping and record keeping is held to a pretty high standard.
So we have to make sure that, that. We can’t afford to have a, somebody stealing from us and us not catch it or, a property get misbilled or, something like that happens. And I’ve seen that with people that try to manage themselves. It starts to get convoluted.
And I had a guy tell me once when I was getting started, I went to him, into his group and brought of a deal and I wanted to him to. Cog p with me. And he was like we wouldn’t, we won’t do it unless we take 70% of the deal. And he’s the reason being is because most of the people that do this, where they’ve always seen people fall apart or these deals go south, is the financials and the bookkeeping and the record keeping.
And it’s one thing to be on social media talking about buying apartments and syndicating, it’s a whole nother thing to actually be successful at it and execute what you told people you were gonna do. And that was of what. why he felt that way, and I can see why now. Just as extensive as it has to be.
Even cuz even if you’re buying, even if you’re using third party, what they’re giving you may not be capitalized correctly, or may not be, they don’t, most property management companies don’t understand all that. They’re just booking invoices and yep. Maybe supposed to be capitalized, but it was put in repairs and maintenance or whatever.
And all of that affects your depreciation and it all affects your taxes. It all affects, a lot of that stuff. And so you have to make sure that’s. Yeah. And the person that does the data entry at the property management team is also not a highly paid cpa. It’s a bookkeeper at best.
Or just a glorified secretary normally. And then, yeah, we found things misca categorized. We found income items in the expense. We found expense items in the income. We found other properties. Stuff in our property. . Auditing is absolutely a very critical piece of running the bookkeeping, especially if somebody else makes the lower level decision of what goes where.
Yeah. So you mentioned you do guys, you guys do a lot of value add, right? So one of the things we love to ask about is what value add items do you guys love to do? And we try to focus on the interesting stuff, right? Everybody can raise rent. Everybody knows how to apply rubs. Give us a few more income generating activities that you guys do, and then we’ll flip the question into the expense in a second.
So let’s start with the income side of things, right? Ways to increase income that are not raise rent and apply rubs. I think for us, the I took over a property and the, they, everybody, there seemed to be a lot of pets on the property and that was never something that, again, it’s not rocket science, when we looked at the, when we looked at the expenses or the income, they were not, they, like all the leases that we were looking at said no pets, but nobody was actually charging.
Pet rent or pet fees or whatnot. So that’s something that we really cracked down on and we were able to create a bunch of value just by that. We have another one that we went into it when we were going through due diligence, looking and figuring out like, how can we put in-unit laundry in an existing building already and it meat code and whatnot.
And the, it was expensive to do. But that was how we were able to get, three, $400 more a month in rent than what was on the proforma or what was, we could have kept it like a traditional C class with a common laundry room, or maybe you had laundry on the, on that floor or whatever.
Something that you find common in a lot of the, like the seventies and. eighties builds, , but we were able to retrofit it and go back and put laundry in the units. So that was something that was in expense. But again the amount that we saw rent increase was substantial that we were able to capture because of that.
Cuz we were marketing to a different type of tenant. I think that’s been good. We’ve done like covered parking, we’ve done common areas that we converted into. So storage units and then rented those out. We’ve done, I’m trying to think of what else that you would maybe haven’t seen before.
I don’t know. I think a lot of it’s pretty common sense on ways to add value, to existing stuff. But we’ve also had some stuff where we thought, oh, we could do this. And then when we start really digging into it and we’re like, no, it’s, there’s just no way feasibly to do it and it works.
Give us examples of those that’s interest. So I again we’ve tried to do doing the in unit laundry. It’s worked in some unit, in some buildings and it has it in some other ones. And then we had one parking, we had one building that we were, we looked at doing covered parking cuz that was gonna be up here in like central Ohio.
We get snow, we get winter, we get, and we thought that would be able to, we’d be able to do that. But then zoning came back and they were like, they went on, we started the project and they stopped by and we were like, Hey, the inspector was like, what are you guys working on? And.
we were trying to tell him and he is nah, you can’t do that. Or they wouldn’t allow it. They didn’t like the way it looked. And so that, that was something that we learned a lesson we learned there. Yeah. Expensive one. Yeah. Just, luckily we didn’t get too far into it, but that’s also why now, like we always, trying to sneak around permitting and getting, playing, like we try to swim in the same direction as the municipalities because it.
You might get away with it once or twice, but there’s gonna come a time where you get dinged and, if you would’ve just reached out to ’em and gotten approval or you would’ve just reached out to ’em and done, done it you would’ve probably been able to do it, but because you went out on your own and tried to circumvent them it, it co it, it can be costly.
So yeah, you don’t want to piss the code guys off cuz they can be very vindictive and. Yes, they can be. Yeah, they can manipulate that code to, to serve you or to hinder you for sure. Yep. Okay, so let’s flip the coin. Let’s talk about the other side of the equation. Ways to decrease expenses. For us it’s like we, when we go in we are, we’re usually doing head to toe renovations, so we go in and we always, like, when we do due diligence, we’re always like, what’s gonna, what is going to become a maintenance issue?
So even if it’s not broke right now, We fix it. So like we’re, know, we’re replacing toilets, we’re adding shutoffs or we’re replacing the water lines, like from, like that goes into the toilet. We always take a look at that. We always replace the the shutoff. Some of ’em, some of these older apartments don’t have any shutoffs, so we, you have to add those in there.
But we either add it or we replace it and replace the line. We always, like in the vanities, if we’re gonna replace the vanity, we always re replace the drain lines bathtubs, we’re always looking. Surrounds or are they tile or what is the situation? But we always try to get in there and swap up the diverters because those are, when you, when a tub is leaking or dripping all the time, that’s where your money’s going down the drain.
If you’re paying for water and sewer, traditionally water in that sense, cuz you’re not gonna be using sewer, but. We’re always, we always in due diligence figure out, okay, do we have to go through the wall like through the front of it to where we’re gonna have to tear up the surround or can we get through a closet or get through another unit?
Like how do we get to that? We always, same thing in the kitchens, drain lines, shutoffs. If we are buying something that has through the wall acs we always plan on replacing those. It’s part of the renovation cuz you can’t go through and make an apartment look really nice and keep this old smoke stain, stinky air conditioner.
And then sometimes what we’ll do is we always want to, we always check to see, are they running on one 20 or one 20 or one 10 or two 20? And if they’re two 20, We will sometimes on these older ones, they’ll have like floor based heating, but then they’ll have through the wall air conditioners.
, we’ll swap it out with an air, a newer kind of eco-friendly air conditioner that does both heating and cooling. And so those require there to be a two 20 outlet there. So sometimes maybe they’ve ran off a one 10 in the past and we’ll have an electrician come in and say, , can we convert this to two 20?
And if we can, then we do that because running those floor based heaters are very expensive. Yeah. And so for us is if we can make the elec, tenants, no matter what market you’re in, I always feel like tenants are paying electric. , not all markets that were we in, can we bill back water and sewer?
Because if we did, we’re like the only one doing it. Yeah. And so we sometimes will just build it into the rent but in those situations, if we can make the electric bill cheaper for the tenant, then we can, we know that we can raise our. So we it’s an offset that way. But yeah, we try to make everything new, light fixtures low flow stuff and all of that.
But when we go through, we, that’s why if you were to buy something from us and you look at what’s your repairs and maintenance budget? Our budget after we’ve gone through and renovated everything is almost nothing because we, know, we eliminate all the things that are gonna cause us maintenance issues.
And then for the next, whatever our hold period is, we have very little maintenance calls because everything’s. . Yeah. So you invest the CapEx upfront instead of dealing with the opex and the labor costs that come with that later on, because your maintenance guys will be working nonstop on work orders.
Your retention is not gonna be the greatest because your tenants are not happy. And so sometimes it, it’s worth it uh, to invest the CapEx upfront I mentioned retention. How is your retention looking like? Are you guys doing anything specific to increased retention? Like resident events or resident retention programs?
There’s all kind of ways people use that. Try to do things to increase retention. . Yeah, so none of this, I wouldn’t say any of the properties that we have we had to do any kind of retention program. Most of the stuff that we’re doing is we’re just creating such a better product than what else is out there in that class of asset that people don’t wanna leave.
We’ve got, we bought one last year. That the rents, the ma the majority, it was 113 units. The majority of the rents were three to $400 below market. And we’re, we’ve gone through and cleaned the place up and done a ton of exterior work, and then we’re going through and doing common space and renovating some, but we’re just taking people to market and they’re staying, I think it’s because we’re, again, we’re, our customer service is strong.
Our response to maintenance issues is strong. They know if it’s broke, we’re gonna fix it. They don’t have to be afraid to call. We’re, we respond to work orders quickly. Like I think. We provide pretty good customer service in a sea of. not great customer service in, like C class and I’d say like B minus assets.
. We have not really had to do it. We’ve done some things like dog parks and storage and like a sea cover park, things like that, that we are trying to draw people in. And I think that maybe that kind of helps as well. But for the most part, I don’t feel like we’ve had to do anything that’s really had to retain people.
I, I, we’ve done some different things. To bring people in upon stabilization. So if we bought a property and we took it from 90% occupied to 10 because we had to go in and rebrand and do tons of CapEx and whatever, like when you get done with all that, you have an empty building, how do you draw people in at that point then?
Yes, we’ve done concessions and lowered security deposits and done, first month’s rent free and, done concessions like that to get people to come in. But once they’re in, then the, after a certain time that goes, , yeah. That first month free the mo the 99 moving specials and stuff like that, that those from our experience have always came back to bite us in the behind.
So we don’t do those anymore. You, you operate in a hybrid mode where you self-managed some of it, your third party, some of it. How does a typical asset management look like? Who talks to the third party? versus who talks to the onsite? Is there a cross between them? Is it the same person split between asset management and property management?
How does that look like in your organization? Yeah. Great. Great question. So there’s the, there’s like the three of us I call it owners or executives. And then we have an asset manager. He’s got 25 years of a cons of development and kind of asset management experience. And. He oversees all the staff, all the properties directly.
He basically has a dashboard of all the properties and what they’re doing, and then we meet twice a week with him and say, okay, here’s, here’s where we’re at, here’s where we want to be. And then he guides the crew and the team to get there. We have, we set up specific KPIs and different metrics to make sure that we’re moving in the right direction.
But he’s definitely the, like it used to be myself and my partner here in Ohio, like we were, 12 hour days. Just grinding away, trying to, make sure that this, all this was gonna work. And then we were like, man, we gotta get there’s somebody out there that can do it better than us in a less amount of time.
And so we hired, we found this guy, we hired him, and he’s been phenomenal for us to continue to grow. But get some of those things off of our plate. Traditionally yeah he interacts with our staff does the leadership meetings like he does, he handles everybody. And then he also interacts with a lot of the third party folks, some of the third party that’s here in central Ohio, they’ll still call me.
To go over some things, but I try to push them off to talk to our asset manager. Like it’s like you have to train ’em, or maybe they can’t get ahold of our asset manager or maybe they don’t get the answer from him that they want. So they try to, they owe us to try to play Mom against Dad, and so I just.
Know that hap we start seeing that happen. We just push him back to the other guy and make sure that we, that we don’t want that. That’s kinda how it works. We’ve ju and it’s really, we’re set up no different than if we were working completely third party and we just had an asset manager and he dealt with the management company.
That’s kind how we set it up. Gotcha. So he’s working with the onsite and with the third. Yeah, so he’s not like in the office leasing apartments, like we have, he’s not the onsite person. Yeah, he’s not the onsite person. But yeah he’s. Like the head of everything on the ground.
Gotcha. That allows you guys to focus on other things that, that makes total sense. But yeah when they start with mom said, dad says go ask your mother. Yeah. . Yep. I’m back over there. Yeah, exactly. If you went back in time and met young and the premises that you can tell yourself that 2009 was the bottom.
By everything you can, what advice do you give your younger self? That’s a good question too. I think that, back then I wouldn’t have even have I wouldn’t have known what an asked asset in the liability was. So I think that would be the first conversation I’d have to have with myself.
But is. Making sure that you’re getting in the right deals. I think that there’s a lot of people that are, they’re just, at least up until recently the rates have gone up, so people have slowed buying, but people were just buying deals. Buying. I see it on social media all the time.
Oh, I, I got this under contract, not under contract and all this different stuff. And it all sounds great, but. But actually executing on the deals is you never hear that. So that would be something that I would say is like making sure you’re getting in the right deals, not just any deal.
And making sure that if you’re putting stuff under contract, that it’s the right deal. Like I’d rather do two deals a year or one a year than do 10 of the wrong ones. So that’s what we’ve always looked at as I feel like people just have a a race. It’s a race to scale.
It’s a race to get to a thousand doors. It’s a race to grow this big thing. , in doing that, I know a lot of people who have gotten burned because they bought something that they shouldn’t have. I actually just spoke to a guy the other day that did 10 years in prison because he bought a, he exploded his growth in that like 2003 to 2008 timeframe.
And then in 2009 when things were of crashing down and coming apart, some of the properties that he had were in central Ohio, but they were in areas that were drastically affected by the auto industry. And when it was collapsing and laying people off and. His he couldn’t pay for the property, stopped paying for themselves, people weren’t paying their bills, they were moving out.
And he started co-mingling funds between those properties and other ones trying to like, keep those ones afloat. And even though he had gotten advice from his legal team and from his accounting group who said that, yeah, you can do that, you can’t do that. And so he ended up doing 10 years in federal prison because of it.
And I just met him few days, few weeks ago. So I think that’s, That is something that I would communicate to myself back then even is that, yes, you wanna scale, but there, but scaling too quickly can kill you. And I think that’s something that, that a lot of people miss.
Everybody wants to get real big, but when you get that way and you don’t have the infrastructure, it can really be costly. . Yeah. It’s, I call it the sprint to the closing table while there’s a whole set of, there’s a whole marathon waiting for you right after that signature, right? That’s right. So that, that’s a very good insight and I absolutely agree with you.
I’ve seen people overscale too fast and. , they’re paying the price. I think in 2023, where we are right now, the market is different and it’s gonna be dramatically different in the next few years. And only the top operators are gonna come out of it. Let’s just say that. , with that said like before we’re wrapping up, what is your.
Outlook for 20 23, 20 24. Where do you see the economy? What are your plans? Are you still buying? Are you holding off? Give us your 2 cents. Yeah, so I’m gonna, we’re in an a unique situation because of where we’re at in central Ohio Intel is building 20, they’re investing 20 billion in our local market, and that’s phase one of five.
So they’re saying that they could go up to a hundred billion. I don’t, if the, if you followed Congress and what’s happened to that? And I follow it because I’m in the area, right? It’s 10 minutes from my house. But they passed the CHIPS act at the end of last year.
So basically this whole deal’s backed by the federal government. It’s happening and what’s happening here in central Ohio is just crazy right now. And so, in the county that I live in alone we have to be building 6,000 apartments or homes annually just to keep up with the growth that’s projected to be coming.
And it’s not projected, pull it out of the air. They’re looking at Chandler Arizona where there are other factories at and saying, look, in the last 20 years or whenever it was, I can’t remember the year that they built it, but as that they’re, they picked that spot and they invested there and what it did to that local area.
Just gearing off of those numbers, which this investment here near us is bigger than that. It’s like we, we can’t build enough, there’s not enough product here on the market, so for us, we’re digging in and going deeper in our own market because if you can buy it now or build it now, what it’s gonna be worth in 10 years is probably.
You’re probably looking at a Phoenix, Arizona, or Salt Lake City, Utah, or somewhere out in California where you know the paying 65,000 a door. , which is crazy to some of the people that I am around in central Ohio, or like Columbus for instance. Columbus, you’re buying stuff at a hundred, 110,000 a door.
That’s 30 minutes from where we’re doing a big development. We are we’re betting on our local market, we’re betting on our local economy. I think it’s different than anywhere else in the country. And I, I wouldn’t wanna probably be developing anywhere else, but, we know that we know what’s coming to our area.
And so it’s of a land grab right now where a lot of developers are buying. Anything that they can get their hands on that makes sense, obviously. We’re we should be breaking ground on our. Big development here. I would say in the fall of this year, it’s 200 apartments, 170 condos and 250 single family homes.
So the single family homes we will not build, we’ll sell that off, it, it makes sense for us right now to be doing that. So that’s what we’re working on. I And as far as the rates go, if you’re doing institutional right now, we’re seeing stuff from the low to mid fives.
If you’re doing. Depending on, I just did two refis. I was under 6% on those, and it was through like regional banks. , so it just depends on what. where you’re at and what you’re looking at. I think the tenant tenant class is important. The location’s important. I think that the stuff that was more tertiary markets and rural areas are getting squeezed right now a little bit.
You’re better to probably sit tight and just hang on. And if the cash flow is great, and I think that’s something that we’ll see too, is as people as their, maybe their debt service expires if they were interest only, or they were, maybe they were in bridge debt. We got bridge debt that was in six.
It was 6%. When loans were going out at three to three and half percent and bridge debt was six, six and a half percent. Like Yep, that was crazy. Right now bridge is like nine and a half to 10, so Yeah. Full digits. Yeah. So I we, I think if you. if that loan is coming to a close and you and the deal only worked because you thought you were gonna get in at four and a half percent still at the end of that, and now you’re having to get in at six or six and a half, or even, five and a half.
Like I said, if you get institutional, that could make your deal not so amazing anymore. Yeah. And that’s gonna cause a lot of pain in the near future. Yeah. So I, like I said, we’ll, I don’t know. I mean there seems to be like some waves happening already. I know there’s some pretty, pretty big players that are have, sounds like they’ve defaulted on some loans.
And then I know there’s some other pretty big equity groups that have caused put a freeze on anybody withdrawing their money and so some of the bigger players are. Bracy. Yeah. They’re like the first indicator that something could be coming. But do I, I just, I don’t think that we’re gonna see stuff that like, you’re, like you said, you’re picking up stuff in oh nine for pennies on the dollar.
I don’t see that happening, I don’t see that it’s a completely different type of economy right now than it was back then. And why we’re, where we’re at is different than back then. So I don’t know that we’re gonna necessarily see that. But the longer this. You’re, you’re gonna have to, sellers are gonna have to adjust their price, and buyers are gonna have to.
They’re gonna have to come off the 2009 numbers. I’ve seen a lot of that too, or, yeah, no I agree. I don’t think we’re gonna see the same level of shit storm we had back in the way. There was like a perfect shit storm and a lot of things were happening at the same time. , we’re not overbuilt like we were.
There are some pockets in the market in the market out there that are overbilled, but. overall as a country as multiple states. We’re not overbuilt as we were in 2008. So I think we have some room there. I do think there’s gonna be some blood in the water. I think there’s a lot of people that were playing the musical chair game in the last few years buying, selling, buying, selling, and buying, selling with the hope that when the music stops they don’t have a.
So now the music stopped and let’s see who’s got the chair, right? Yeah. And can they hold to that chair or are they gonna fall off? Hopefully not a lot of groups out there will fall off. I don’t wish that to anybody. , I wanna be respectful of your time. This has been a great conversation.
If any of our listeners wants to reach out, maybe invest with you guys or hire you guys to help them with their project, how can they find you? Yeah, so the, you can find me on all social media platforms. You just look up my name, Seth Teigel, and it should pull it up. You, if you’re looking to invest or learn more about that you can go to our website, it’s www.thestreamgroups.com.
And then we do I would say we. I, when I was in the fire service, I was always a I taught at the state Ohio, the Ohio Fire Academy, and I taught at one of the colleges taught paramedicine at one of the colleges. So I’ve always enjoyed teaching and giving back.
The Firehouse Bros is a, is our brand for education. And I don’t wanna call it coaching, but it’s, I’ve learned a ton over the years. When I got started, I wish I would’ve had somebody that could help me view training wheels for me. And that’s what we’re, what that, what we do through that is, is we offer that to people that are getting started or are looking to get started in commercial multifamily or commercial real estate in general.
Linking up with us through that website which is the firehouse bros.com and that’s our education platform. Awesome. And we’ll definitely make sure to put all those links in the show. . Thanks a lot, Seth. This has been a great show with a really good conversation. I appreciate your journey.
Absolutely. Thank you very much for having me. Awesome. And for you, the audience, if you would like to listen to more episodes, we’re on YouTube, iTunes, stitchers, SoundCloud, anywhere you can consume a podcast, we’re there. Would appreciate if you can leave us a review, one star, five star, whatever you feel we deserved.
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Episode 133: Tiffany Mittal
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth 📍 of the ups and downs of operating multifamily communities.
Welcome, everybody to the Apartments Operators podcast.
My name is Joseph Kazan. I’m your host, and today we have a special guest. We have Tiffany Al. Tiffany, welcome to the show. Thank you for having me on the. Awesome. So every time we let our guests introduce themselves, give us 30 seconds a minute of who you are, how your portfolio look like, how we got to where we are, and then we’ll take it from there.
Absolutely. I’m Tiffany Mitel and I’ve been in the multi-family industry for about 12 to 13 years now. I got into it through my husband who owns Multi-Family as well. As I got into it, I realized I not only loved multi-family, but I really loved the technology side of it. So as we’ve been going through our day-to-day management, I’ve actually went off on the side a little bit and have a technology company focused on multi-family industry, but still as an owner operator. Most of our portfolio, we have about a hundred units in San Diego. We’ve recently relocated our family from San Diego to Florida and moved our portfolio from self-managed to third party management, which has definitely been an interesting transition.
But we’re looking to grow our portfolio now out here. Florida in the East coast. So looking to to grow like most multi-family owners. Yeah. So that’s gonna be definitely a lot of interesting conversations. Just on that intro I’ll start with congratulations from escaping California. We’re in Texas.
We’re not in Florida, but Florida is a close it’s a close sister to us. And so you have about a hundred units all in California, which I’m sure has its own challenges. Yes. And you’d mentioned you were self-managing. Yeah, so we were self-managing for a long time and my husband comes from a family of apartment operators.
His parents have about 3000 units in Los Angeles. So we were well-versed in the self-management, but we realized as we went to go relocate our family to Florida, you can’t really manage apartments from that far away from self-managing. So we transitioned to third party management about one year.
Okay. So before we talk about that transition, cuz there’s definitely a lot in there, I’m sure. Oh yeah. Let’s start with the self-managing side of things, right? What were you doing? How did the operation look like? A hundred entities, not small change. So how was that? How was the day-to-day, who was doing what?
Tell us a little bit about that. We had onsite managers, so our portfolio consisted of two larger properties, a 36 unit and an 18 unit property. And then we have a bunch of duplexes and we have some student housing as well. Most of our properties were managed by some of our onsite manager. At our larger properties, they were also managing the smaller properties.
My husband was very actively involved with our maintenance techs, making sure that everything was running smoothly. We didn’t really have a lot of turnover. Most of our apartments were in B minus C plus areas, so we had. Quite a few of Section eight tenants. We’ve learned quite a bit about working with Section eight, but during Covid it really saved us, right?
Because our tenants didn’t have jobs, right? They’re all on section eight, not all of ’em, but probably 75% of ’em. So that was able, we were able to, through that. Really protect our income, but we’ve learned a lot by having Section eight tenants. It’s it’s challenging in and of itself. But what you do grit, what you do get, and it’s huge benefit, is long-term tenants.
You don’t really have a ton of turnover throughout. Yeah, so I don’t think we ever dove deep into the section eight with any of our guests, so let’s talk like that for a little bit. A lot of people have the cons and pros. The pros are pretty obvious, right? Money comes into the bank account automatically every month, no question is asked.
But there’s also some challenges that, that come with that. I know from our perspective when we had c class apartments and we had some voucher program housing kind of tenants, then you have the annual inspections and you have the inspection before they move in and so on. But how was, does it look like in a state like California, which I’m sure has a little extra than everybody else, everywhere else.
Yeah, definitely. So how does that look like? What would you. Recommend or not recommend for somebody looking into using section eight in their properties. I would say you still have the annual inspections, but we really use those to our advantage, right? So it gets us the ability to get in the unit, make sure that they’re taking care of the unit, get any service requests that need to be taken care of, handled right away.
Where oftentimes, some of our non section A tenants, they don’t want you in the unit because they’re either hiding a dog or hiding extra tenants. And so by getting in the unit through. Mandates of annual inspections, it gets you the ability to make sure that the unit’s being taken care of. Not all Section eight tenants are equal, right?
Like we prefer, we don’t necessarily choose one over the other, but we prefer the little old ladies, right? They are there, they’re happy. If that we’ve had a few Section eight tenants that have been challenging. , but we’ve worked through that process and the good part about having a challenging Section eight resident is if they’re too challenging, you call their social worker.
And that social worker puts ’em in line real quick because they don’t wanna lose their Section eight housing. They’ve had taken probably years to even get on the list. The sad part is there’s no really easy transition off the list. I think during our. Time that we’ve owned the apartments, we’ve only seen one tenant come off of section eight because they’ve, gotten a job and made it themselves and still been able to pay the rent.
And so it’s, there’s not a real easy solution for them who want to come off of it. Once they’re on it, they’re on it. And so we try to, selectively make sure that they’re gonna fit within the community and be a good resident to everybody else as well. Gotcha. That makes sense.
And like you said, there’s they’re not all equal, right? , they’re the old lady. It’s a single person in the unit, and she usually has a lot of flowers and a lot of plants. And she picks her the property and she’ll call and tell on anybody that makes noise or make something that they shouldn’t be doing.
But then again, you have the. Such an a tenant that will create a lot more wear and tear on the property. So yeah it’s a little bit of a balancing act between them. Unfortunately, you can’t just. Screen for, I only accept little old ladies, right? Yeah. Once you accept section eight, you accept section eight and there’s fair housing rules that come with that.
And I think in California as well, everybody has to accept section eight now. It’s been mandated, so we were a little bit ahead of the game because we were already accepting it. I think once you get in and understand the program, it’s just part of the process and it’s not actually as difficult.
So I haven’t heard about that. So California now mandates that you can accept. Accepting the voucher. Yeah. Okay. But they cannot mandate you to pass inspection. . I don’t know all of the nuances of , every part of that, but I know we weren’t impacted because we’re already accept accepting section eight.
So it wasn’t an issue for us, but there’s a lot of mandates that are put on landlords in California that definitely make it challenging to be a landlord in California, that as we look to grow our portfolio, we are looking outside of California. To more landlord friendly states. Yeah. I think Alameda County just announced that you cannot screen for criminal background anymore which is, that’s fun.
Yeah. That’s that’s, yeah, that makes sense. California. Yeah. And it’s ironically, it’s one of the most violent counties in, in, in California. I think it’s in the top seven or something like that in terms of violent crimes. Okay. So the decision came in and we’re moving to California.
Moving out of California, moving to Florida. So self-managing is not sustainable, especially because, like you said, your husband was very involved in the active day-to-day. . Then now come the search for third. . So how does that go? What do you look for in a third party property management? How did the process go and how did you end up picking whoever you end up picking?
It’s not an easy process. It’s. It’s almost like giving your children away for someone else to raise. These are our properties that we put a lot of time and energy into and it, the idea of giving it to somebody else to manage was definitely, I. Challenge that we had to overcome because we knew we needed to do that to grow and to move ourselves to a different state.
We interviewed many multi-family management companies. We chose a local company within, the area where our apartments are. They’re well known and. We, the different management companies that we looked at, they all had their, pros and cons. I would say looking for somebody who has the majority of their portfolio similar to yours.
So our portfolio, our buildings aren’t overly large. 36 units is our largest property. So looking for somebody who manages properties that are 50 units and under, or a hundred units and under. Their sweet spot. Managing for people who have a few hundred units up to a thousand units that really shows us, they will really understand our market.
They actually were able to push our rents $300 more a month than we were getting, and we almost didn’t believe that’s what they were getting. For the neighboring communities, but the rents have gone up so much in San Diego over the past year. So we’ve actually seen a huge increase in our income.
it took us a little while to get over the control aspect of it. Of, as soon as we left, there were seven air conditioners ordered for one property. And we’re like, how can you have seven air conditioners go out in one month after we leave? And then we dug in and tried to figure out how to solve that issue.
But I think where we. , even though we were giving up control actually heard this on another podcast, which is funny. And it helped us with our mindset shift. Even though we were giving up control of the day-to-day operations, we still had control over other areas we had control over. Where to invest, what to invest in, and who to invest with.
And that kind of shift of control over the operations, into control over where to invest and what type of assets to invest in, gave us that control feeling and how this focused on the future rather than the day-to-day operations. Yeah. And there’s always a challenge. Like I said, it’s a little bit of a baby and you handed it over.
Yeah. And. What we’ve heard from a lot of our operators that we interviewed is. I want to just reiterate what you said. You gotta pick a company that does exactly what your kind of asset looks like, right? If you’re doing student housing, they better be doing student housing. If you’re doing 200 plus units, they better be doing 200 plus units, but you’ll take a company that runs two, 300 plus units and give them a 20 unit or a 36 unit.
They will not run it as good. Yeah. Unless that 36 units is right across the street from the 200 unit, that’s a different source. Exactly. Exactly. So I think that was a very smart choice in searching for a property management company that, exactly that asset class that you have, you guys have, and then.
Yes. There, there is that aspect of I would send a technician to fix that ac and for them the easiest solution was let’s order a new one. . And there’s that. How did that conversation go? . That conversation was a difficult conversation at first. My, my husband calls our trusted maintenance guy who doesn’t work for the management company to go out to the properties to really see what was going on.
That. That was a little bit of a challenge and getting ourselves to pull back from that was a challenge. But I think once we got in there, we realized that maybe only two of those needed to be done. And we sat down with the management company and said, look, these are our expectations.
It’s not just for place, everything that needs to be looked at. It’s, you have to look in, see if the filters need to be cleaned, see if there’s something else, what’s really the problem. . And if it does need to be replaced, it needs to be replaced. But getting in there and setting the expectations with the management company of we can’t just have all this cash go out.
And I think another interesting way that we’ve approached it, which we’ve of learned from others as well, is not leaving a bunch of money. in the account. So every month we leave about $5,000 in the account. Everything else comes back to us. And the reason we do that is because if we leave all the money in the account, they’ll find reasons to spend it.
Oh, we need this new and this new, . So if it needs to be done, show me needs to be done, and we’ll make sure that the money’s available to get it done. , but not leaving money in the account except for just the minimum to cover payroll and any, small maintenance things that are required.
That’s been our strategy for the last year and our income has increased substantially. And I would say that our day-to-day stress of the operations has relieved a lot of time that we can now focus on, growth and future forward. . Yeah. Do you think some of the, let’s replace over, let’s try to figure out what’s going on and fix it has to do with the fact that these are smaller properties that don’t have full-time maintenance team on site.
Or is it. . It’s just an attitude thing. I think it’s just the way that they were approaching most of their properties. I think every owner has a different way they want their properties managed. I think it’s just setting clear expectations with the management company of what you expect and the way you expect things to be handled.
I think for them it’s a time thing. It’s easier to order it, get it replaced. The manager says it needs to be replaced, but we also had a new manager. Site as well. So they weren’t used to our, regular operations of how we would run things. And we know it’s not going to be the same, but some of those expectations just need to be set up front.
And so we don’t have those problems anymore. I think once we set those clear expectations, I think it’s constant communication. We meet with the management company monthly to review. Anything that’s coming up, any move-ins or move-outs any big expenses that are coming up. We had a few other expenses where we had to replace on the mailboxes at all the properties because some of them were damaged from tenant damage, and some of those were larger expenses that we didn’t really prepare for or didn’t really think that.
they needed to be done, but once we talked to the manager, we got pictures, it was obvious that it needed to be replaced. It’s just a, again, setting the expectations and having consistent communication with your management team. And then I’m sure as we continue, maybe those monthly meetings go to quarterly meetings, once we build a rapport of, expectations and.
But we’re getting there. We’re getting there. It’s it’s definitely a work in progress and I would say going forward as we buy assets in Florida or anywhere nearby here, we probably will move to third party management from the start, just because it’s allowed us to free up our time to focus on things that are bigger and more income producing.
Yeah and I think you’ll learn over time that. There is that level, that scale when you hit it, when you’re gonna flip again and go back into self-management or creating your property management company, because that’s what we’ve heard from over 90% of all the operators we’ve interviewed. As soon as they hit a certain scale, they switch back to self-management.
So don’t throw away those pro those procedures, keep them in the back door. You might need them again one day. Yeah. I would say that we’re focused on other things. Right now, like I said, we started a PropTech company. And so right now that’s our focus. Our focus is investment. And that kind of started out of a self need we had during the self-management process, as I’m sure you have seen We were having a struggle with a hundred units of getting technology companies to to allow us to use their product.
For example, we wanted to start a RUBS program and no one would service us. Unless you had a thousand units, they weren’t interested in you, you weren’t big enough for them, for their people to service the billing and bill our tenants for the water, sewer trash, but, . We had, incidences happen where one of our residents had running water and the neighbor calls us and says, the neighbor has running water all day.
And we get our manager in there and we find out that she’s not even home. And part of the problem was, she said when she got back is her dog has anxiety and therefore she let her shower on when she goes to work every day. And we were. , oh my God, we can’t continue to foot the bill because your dog has anxiety.
This is crazy. And in Southern California, water costs were so high. And that’s how I even got into PropTech was nobody would service us because we didn’t have a large enough portfolio. And so my husband said why don’t you go work. For one of these utility billing companies and backdoor our way in there, and then they have to service you by default.
So that’s what I did. I worked for a utility billing company in San Diego, helped grow that company from a hundred thousand to 20 million in five years, and I turned away people all day long who didn’t have a thousand units or more because it just wasn’t. Time efficient for us to spend the same amount of time on a 20 unit property as it was to spend time on a portfolio of 5,000.
And so I was so frustrated that no one would help us with our small portfolio. I said, these people like us, they don’t need these service companies. They just need a tool to do it themselves. So that’s why we started Utility Ranger, which is a D I Y rub software meant for the small owner. . And I left my PropTech and FinTech position to, to start this a little over a year ago.
And then We realized in this small realm, how do you reach these small apartment owners? And we realized you had to have a node. And I realized at that point that the node is Grant Cardone. Everybody knows him and everybody, follows him who owns apartments because he teaches people how to invest in multi-family.
And so about a year ago he bought half our company. Utility ranger and we launched it earlier this year and helping small owners just like ourselves of, democratizing the space of PropTech for owners to really help grow their portfolio. That same actually unit that one property, we got 36,000 of additional revenue that year, about a thousand dollars a unit.
And what people don’t realize, and I think I realized in that moment, Is when we had that 36,000 of additional revenue, Freddie Mac gave us a refinance on our loan and they gave us a million dollar increase valuation from that 36,000 of additional revenue and gave us a cash out refinance of 500,000, which we then used to buy another property and we were like, What does this look like across our portfolio?
How can we use this as a mechanism for growth? It’s not just about having your tenants pay their portion of the water bill. It’s really a mechanism for growth and getting that revenue from your expense line to your revenue line. and using that across our portfolio to really grow. So I thought, there’s no reason these small owners can’t have the same advantages the big guys have been having for years.
So that was really the genesis of starting a PropTech company focused on the small owners, is because we needed it and I knew other people like us needed it, and then they could see the same advantages that we saw and grow in the same. Yeah. So you were not charging anything before that on utilities? We weren’t charging utilities initially.
We started in about 2012 charging utilities, and that’s after I got a job at the company. In 2011, we rolled it out on our properties. We saw a huge increase. In N noi. We. Refinanced our properties, pulled a lot of money out to buy additional properties. We also rolled it out on my family’s portfolio and we were growing, a lot in this kind of smaller market, but we were moving up market.
And so, If you had, if you didn’t have a thousand units, nobody would pay attention to you. And that’s when I realized with people don’t need these companies. They just need a tool to do it themselves. So before then, yeah, we weren’t doing it. But now I can’t imagine not doing it. People think, oh, I just include it in my rent and I’m at market rent.
But if you’re at market rent, let’s say a thousand dollars and you’re not including it and your competitor has a thousand dollars in so if you’re not, sorry, if you are including it at a thousand dollars and your competitor’s not including it, they’re really getting 1100 and you are really getting 900.
So how do you compete in a market if you’re $200? , lower than your competitor on a per unit basis per month. It’s just not really a way to compete in that market. Yeah. It’s interesting because we actually started having conversation with operators and we were hearing a bunch of them doing a u-turn on the whole rubs, but not giving up that income just shifting into a fixed.
Fee. . Basically, if the average on a one bedroom is $65 then that would be the fee, or 35 or 45, whatever the number is. So they would do like an average and they’ll just put it as a fixed fee in addition to the rent instead of doing the whole Robs, because Robs probably gets you the most.
Money back. There’s no doubt about it. If you wanna squeeze, ever drop out of. Property, then you absolutely want to have rubs programs in place. But a lot of the operators, we, not a lot, but some of the operators we spoke with recently have shifted over into fixed fees because, It quiets down the noise, right?
You don’t have to have the conversation of Why this month I paid more than last month? Where is that fee coming from? Why? What happens if there’s a leak? Do you credit them or not? All these kind of conversations go away. when there is a fixed fee. And some of the resident would actually prefer that because that gives them the stability.
So what’s funny though about that? So let’s say you give them a fixed fee and we’ve seen this and I’ve seen this cause I’ve been in this industry for quite a while. Once you give somebody a fixed fee, let’s say it’s 50 or 60 to $65 a month, once you know that fee isn’t going to change, your water consumption changes dramatically.
Think about when you go to a hotel, right? , everybody does this. Your shirt’s wrinkly. You hang it up on a hangar, you put it in the shower, and you don’t think about it, and you can get all the wrinkles out because you’re not paying for the water and it’s part of your hotel amenities. Same thing with apartments.
If you know that your bill is not going to change, your water use is going to change, meaning you’re not gonna care whether you turn off the sink while you’re brushing your teeth, or you do a load of laundry with two pieces of clothing in there, or run the dishwasher with four dishes in there. It’s only when that bill fluctuates based upon the property’s usage that does that actually modify the behavior of the resident.
You want the resident to think that my, usage and my consumption is going to change my bill. Yes, you’re gonna have water leaks and yes, you’re gonna have incidences on the property. Many people move to a flat rate though because the dealing with utility billing companies, if you’re small, they won’t deal with you at all, so you have to do something.
Doing the RUBS formula isn’t necessarily so easy if you’re trying to do it yourself. . But also the service side of working with these service companies is giving them your bills. They’re giving you pre-bills back, you’re sending them. Questions back. They’re sending you questions back.
That back and forth really delays a lot of time, provides a lot of headache, and so that’s why a D I Y platform or a platform that you’re doing yourself, you’re not having that back and forth. You are dealing with it yourself. You can see immediately, did my water bill go up and change that kind of owner’s portion or commonary deduction?
You can change that on the fly. And you’re not going back and forth with a company. But doing it as a flat rate, although it sounds appealing as an owner because it sounds easy, you’re actually not incentivizing your residents to conserve. And that’s really should be the drivers. Not only do you want your residents to conserve, that brings the property bill down, but it allows them to start taking accountability for their usage and modifying their behavior because of.
Yeah. You’re absolutely right. And also I can see how it’ll be detrimental to reporting. Water issues. So if you have a runny toilet you wouldn’t report it, even though that’s the common thing we’ve seen anyways. Things report it. That’s a different story. But the reason they don’t report it is, so the funny thing is when we, my husband was really afraid oh, if we implement this, I’m gonna have all these residents leave.
And they’re gonna, but actually we didn’t have a single resident leave. What we had was a flurry of maintenance. And the maintenance request for leaky toilets or running toilets, leaky faucets, all of those things, because they realize that is going to change the amount that they have to pay.
But really, they weren’t getting us in the unit before because they were either hiding a dog or hiding additional occupants. Things that aren’t really beneficial for an owner or the community to not be aware of what’s going on. A leaky toilet can. Thousands of dollars at the end of the month just for a flapper being broken.
That’s a quick $5 fix. So you want them to, again, take that accountability and responsibility for their usage and make them, think about that when they’re using water or hearing their toilet run at night, you want them thinking about that because it will change their bill even if it fluctuates five or $10.
Yeah. That makes sense. Do you guys do value add when you buy properties or do you buy stabilize? How do, what’s your preferences? So I think it’s always really interesting to hear everyone’s strategies when they, what’s their business model. I would say as we look to transition our portfolio, we are really digging into the Florida.
Going to a lot of the multi-family events, really trying to understand the different areas. There’s a lot of learning curve when it comes to that. We do wanna transition our portfolio from more of a c class portfolio into a B class. We can sell our units, not that we’re going to right now, but we can sell our units in San Diego for three to 300 a door, 300 to three 15 a door, probably.
At a three and a half cap, four cap, we can buy units in Florida, in a B class unit for 200, a door at a five cap. It’s a completely different market. But there’s a lot of demand coming to Florida. So the way we’re looking at it in Florida is, our value. We do wanna get value add, but not in the same way a traditional kind of construction value add.
So one of the things we always look for is, are they billing their tenants? We wanna find someone who’s not billing their tenants. So it’s an immediate value add with no money out of pocket. But we do wanna do some, improvements on the property, but not heavy improvements. And then we also.
For areas that are adjacent to new development, so maybe a B class area that has some areas within there that are maybe B minus maybe even c plus. But the neighborhood is a B neighborhood, but they’re putting some big capital projects. Maybe there’s a big apartment community going in or a big commercial retail shopping area.
Adjacent to those areas because we know, and what we saw in California is when those big developments go in, these adjacent areas have a lot of pressure to improve. Whether they’re acquired for development or they just improve in the rents go up. So those are some of the things that we look for in Florida as we’re looking to acquire is adjacent to big developments.
Someone who’s not billing and maybe has a little bit of value add that we can then, take our expertise of doing construction and doing improvements and deploy that on those assets to improve okay, that’s great. In your existing portfolio. The way we value multifamily is always the same thing.
It’s a simple formula. It’s n no I divided by capric. That’s given the value. Obviously capits are significantly lower in California which increases your value. But as operators, we’re always looking at the no, I . So can you share, and especially since you guys have experienced, not only from yours, but from the bigger portfolio of the families Just a few tips and tricks to either increase income or reduce expenses.
And obviously employing rubs is one of them, right? Yeah, absolutely. But any other tips and tricks, something that works for you in a very challenging market like California? I would say that there’s a lot of areas that you can look into to increase your n o I. Some of the things that we do, we try to implement big cable deals where we’re we’re providing the cable, but we’re getting a backend credit from the cable provider as well that helps increase the noi.
We’re just now looking at whole property internet and these are things. Widely done on class A properties, but getting into C properties are not typically done as much, but as the world is changing. You can bring in wifi, you can bring in cable to help drive some of those.
N O i technologies. Rubs is a simple one, right? Take somebody who’s not doing rubs and deploy rubs and then see what else. It’s one of those things. Different industries have done this, like airlines and hospitality as there is commod commoditization of rental rates, you’re having to unbundle those rents, right?
You have to unbundle the water, the sewer the trash. You’re having to unbundle the cable unbundle. Why? If you can unbundle. , all of these things, you can actually drive n o i through these different technologies. So that’s one of our techniques that we use. We also try to improve the apartment by upgrading things whether it’s, countertops and, the vinyl plank flooring has been a big plus, and We’re not having to replace the carpet every single time.
We have a turnover. The longevity of changing materials when we do turnovers have helped us maintain higher profitability. That before it used to say, okay, 30 months was our kind of number of months that we knew. After that it. All cash flow, like we’ve already paid for the turnover.
Now that’s really come down and shortened Our time now is around 24 months of, once we pass that 24 months of, long-term tendency, we know that it’s just strictly profit after that. So we’re doing everything, whether it’s technology, whether it’s changing the materials that we use when we turn units over.
We’re looking at all of these things to improve our overall profitability, our noi. That’s great. We ask all of our guests the same questions if you could go back in time to your younger self what would be the best advice you could give? . I would say if I were to go back and tell my younger self, I would say be more aggressive with acquisitions, get the relationships right out the gate.
I think a lot of small operators don’t realize the relationships required with banks. The relationships acquired with brokers to make sure that you’re getting good deal flow in good. And not only take those relationships to. Whether it’s a line of credit, whether it’s a refinance product, use that money, be more aggressive and be more open-minded to different geographical areas.
I think we were set in stone and only investing in California, and we might’ve missed the boat in some great opportunities in some other states just because we were self-managing. So I would say, Be more open to different geographical areas for investment and be more aggressive early on.
Yeah that, that’s a good advice. Especially if you are in a not so landlord friendly state, . We would definitely, cause we’re brokers too, so we talk to investors from all over the country that want to invest in Texas and. The amount of pain that landlords are being inflicted on in states like California and Seattle and Oregon and and New York is it’s unbelievable.
And that’s why, yes, runaway, flee, escape, whatever you want to call it. Get out of there as soon as possible. You don’t have to go out physically, but get your money out of that. Get your investment into a more landlord friendly state that would help you feel a lot less pain. Make a lot more money as you say that.
Yeah, exactly. Awesome. Tiffany, I want to be conscious of your time. If anybody wants to hear more about Utility Ranger or maybe reach out and partner with you, invest with you guys, how can they find. Utility Ranger, you can go to utility ranger.com. Check out our software. We do a free 60 day trial for anybody who wants to set up their property and start taking control of their utility billing program themselves.
You can reach out to me. LinkedIn, Instagram, Facebook, Tiffany, Mittel M I T A l. I always have to spell my last name because everyone thinks I say Mitchell, but Tiffany Mitel and I’d be happy to chat with you, tell you about what we’re doing and get you started on a utility billing program yourself.
Awesome. Yeah, and we’ll definitely put links in the show notes for all of those. Tiffany, it’s been a pleasure. I really appreciate you coming up. It definitely brought a different perspective and our audience learned about a new tool they might be able to use. So thank you for coming on the ship.
Thank you. Awesome. And for you, the audience, if you want to hear more operators talking about multifamily, just subscribe. Listen to our podcast. We’re on iTunes, teachers, Google podcast, anywhere you can consume a podcast. We’re pretty much there. Give us a review and subscribe and we’ll see you in the next episode.
Thank you for listening to our show. If you wanna enjoy more episodes, please subscribe on iTunes, YouTube, Stitcher, or SoundCloud. For questions or feedback, please visit our site at www.aptopr.com.

Episode 134: Eric Upchurch
Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities.
Welcome everybody to the Apartments Operated podcast. Today we have Eric Upchurch. Eric, welcome to the show. Thank you very much. It’s great to be. . Awesome. So Eric, you have a very unique kind of story. Can you give the audience, I don’t know, 30, 60 seconds just about who you are, how you got to where you are right now and how you got to multifamily?
Yeah, sure. So I after college I chose to be enlisted in the military. Normally you’d be an officer, but I chose to be enlisted because I wanted to go influence younger guys that I was 24 when I went. I had also paid off all my college debt, so I went in debt free. I also got my master’s degree in aeronautical science while I served, I managed 27 guys in a special operations unit in the military.
When I got out my wife was from the Bay Area and so we moved back to the San Francisco Bay area. We had one rental property left behind in Savannah, Georgia, and it was barely cash flowing. Barely. But we didn’t buy it like that. We bought it as a primary residence. And so when I got back to the Bay Area, I, my head on a swivel, I had to really figure out, can I do this more intentionally?
and recognizing that a lot of people do this very intentionally and can make money at it. I started reading and going to conferences, getting educated, building partnerships over a 10 year period and I was doing single family stuff, actually started by live-in flipping, just whatever you can do.
And I was living, flipping in the Bay area, making. Family in tow with my kids living in the houses and my wife. And then and then stumbled across apartments. And and now we’re doing apartments storage. We’ve done one mobile home park and we have a student housing deal as well. And then, as a si an aside, my, my company, about six years ago, we started active duty Passive Income, which now teaches military members how to be intentional landlords.
Accidental landlords, which most of us are, most of us end up as accidental landlords. So we’re changing the face of what that looks like for military members. That’s fantastic. So first of all, thank you for your service. Yeah. And thank you for your new form of service, educating the people in service.
Yep. I think that’s a great cause and a great organization and every veteran I meet across, I try to send your way because It’s important to, to get that education. And like I said a lot of people get started in real estate by becoming an accidental landlord. And there’s so much to learn to do it the right way and being intentional about that.
So that’s great. So how is your portfolio looking like right now? How many units do you guys control and there’s a mixed bag of things over there, right? You said multi-family mobile loan parks. Yeah. And student housing. Yeah, we’ve gone full cycle on a few deals. One of those being mobile home park.
We, we bought and sold that. We owned it for about three years. Did very well on that. So just one mobile home park. One of my partners does quite a bit, but w right now as a general partner, I’m somewhere in the ballpark of 2000 units. And you know how that goes. It’s you’re 2000, then you’re 1000, then you’re 2,500, then you’re 500.
It’s depending on what you’re buying and selling. But right now we do have a couple multi-family deals in the pipeline. Smaller multi-family between 50 and 70 units. And then And then we closed an 88 unit a couple months ago that is a $400 delta on rents, or 400 and almost four 50 delta on rents.
So that was a great one we picked up. And then with partners, we have another 3000 storage units under contract that are about to close here soon. Wow. Okay. So there’s a lot going on. Yep. And how do you try to, how many markets, let’s start with that. How many markets are you guys in? I’ll just give you states right now we’re in Connecticut North Carolina, South Carolina.
We’ve been in and out of Georgia. We’re in Alabama, Texas, and we’ve been in and out of Indiana. So all over. So quite a few. Okay that leads to our usual question. Self-management or third party. Always third party. All of it. And how do you go about finding a third party property management in a new market or in a market where you know you’re not so happy with your current one and you wanna replace them?
Yeah, it’s always good to have one answer is cross-referencing. I love this one because when you’re entering a market, you can talk to your broker. Who do you know? Ask your broker who’s trying to sell you the property? Who’s the best is This is if you’re brand new and you don’t, if you don’t have boots on ground, which always recommend having somebody local in the market if you’re doing the deal, that helps cuz they’re gonna know the lay of the land.
They’re gonna know some people to ask. They’re gonna know the right questions to ask. You can always ask the broker, you can ask contractors, you can ask, you can cold call other apartment complexes and see who manages that, and then do your own research and call and interview them as well. But you want to have backups also.
So I always recommend, you have your one commercial. Pm that, that you’re gonna use. But behind them you want to know okay, who would I go to if it doesn’t work out? And thankfully we’ve had a pretty good run with property managers. I think we do a good enough job anyway of vetting them and making sure that they’re solid operators.
I always warn people when you’re buying commercial real estate, you do not. A part-time realtor, which you hear, I still hear all the time part-time realtor is the property manager on this 48 unit deal or whatever. They’re not paying attention and no offense to realtors, you’re trying to go sell houses and stuff and you stumble across a listing or somebody says, Hey, can you come manage this thing for me?
But if I go to. A website for a commercial property manager or for a, just say, property manager, and I see single family houses on that website. That is not my company. Yep. I want somebody who’s managing a 50 unit deal. If I’m buying a 50 unit deal, if I’m buying a 200 unit deal, I want them to have experience with a 200, 200 unit deal.
No, you’re absolutely right. And we’ve heard that multiple times from other guests on the show is you want a property management that manages the same asset class that you are buying. Yeah. Because I don’t care if they manage 3000 single family unit, they cannot handle a 50 unit apartment complex.
It’s just not the same animal. Nope. And. That sounds like a lesson you learned the hard way. Is there a story there? No, actually I, thankfully, I’ve just heard that enough times. It just, and it completely makes sense. So that’s just been my protocol from day one when I started in this business five years ago in, in multi-family five years ago.
I just heard that so many times from guys like you going, Nope, don’t do that. , all my mentors are saying, The things that I just said. Just so that’s just a standard protocol. Do not break that rule of. . Gotcha. Okay. And when you talk to those third party operators, right? What are you asking?
What is something that you want to hear from them? What are things that you really don’t want to hear from them? Other than I’m a part-time realtor. Yeah. Other than I only, or I have some multi-family and mostly single family. I don’t wanna hear that. But I want to know. what their, what day zero looks like.
What is the, what does the handoff look like? Are they prepared to hit the ground running? When that happens, that’s post acquisition, but during ac, during acquisition, what is their scope of work on due diligence? Are they capable of lease audits and walking all the units? And what does that package look like?
How much does it cost? What is their communication style? Are they willing to. Join us in a telegram group, like a private chat group where anything comes up immediately. They don’t have to email me and bog down my inbox if they need an answer. We want to give it to ’em as fast as possible. So what is their style of communication?
What is the expectations on that communication? How fast can we get ahold of them? How often do they like to have meetings? Usually we like to have a, especially when we’re getting through the stabilization period and executing the business plan, we want to have a meeting, a. At least sometimes if there’s construction going on, there’ll be two meetings a week, a PM type of meeting.
And then a construction project management type of meeting. So different focuses there. And really just you’re trying to ascertain their level of commitment, their level of of competence and then, and drive. I look at like, how organized are they and what systems do they have?
Are they capable of handling all the financial information that we’re gonna need and things like that. There’s tons and tons of questions. Capability is like the big thing. Capability and communication I think is the big thing that we have to understand right off the bat so that we know what to expect when we close this deal.
Yeah, I know. Absolutely. And I wanna reiterate something you said somewhere in that great answer. And that is when you are looking to work with them, how does handoff look like and even be before handoff? How does due diligence look like? So a lot of since we are brokers too, a lot of people tell me, yeah, I’ll pick a property management after we have something on the contract.
and I tell them, no you wanna work the other way around. Yeah. You wanna find that property management company ahead of time. They’re gonna be your quarterback, they’re gonna run the play. When you find something, they’re gonna help you with the due diligence. They’ll bring their contractors to help you with getting on the roofs and running cameras in under, in the sewers, under the building, and they’re gonna walk the unit.
because they know a lot more than a random inspector that, that has a website that says I inspect commercial real estate. Don’t use those. Use the property managers. . Another thing to consider is even before that, if you’re just looking at a deal, it’s say you’re looking at a deal in Indianapolis or something, you want to be, even before you are writing Lois, you want to have a PM in place because another thing they can do is drive by and take photos or tell you any dirt on the property.
Like, oh, oh, Oh, there was a shooting there. You don’t wanna invest there, or I would never manage there. Or, yeah, we used to manage that asset and it’s up and coming. They’ll tell you what’s going on in the streets, or they’ll say, Yeah, it looks and here’s a cool thing. They’ll look at your underwriting and they will also tell you whether or not your business plan even makes sense, especially if you’re remote investing.
When we’re riding an l o I on a deal, and I’ll just keep on saying Indianapolis we don’t know actually how the roofs look. But a property manager who’s going to be potentially on your team down the road will spend the time to tell you whether or not your underwriting or your business plan is going to work based on your analysis of whatever the om said on the age of the roof or something.
I’m just giving a small example, but it could be, the what is the condition of the windows or the HVAC system or. You gotta rely on them to tell you whether or not, I’m looking at all these, the market conditions and then the asset itself, and I’m going, oh, I think we can get a $300 rent increase.
You give them that information and ask them to bless it. Basically, is this accurate? And a good PM will tell you, yeah, you’re spot on. You can absolutely get that rent. If you put $5,000 a door into renovation or whatever your business plan is, they’ll tell you if you can do it or not. . Yeah. And especially the dirt, right?
Like you said. Yeah. When you start doing those larger deals, the property management companies that you work with is not some random guy off the street, or not somebody that started their business two years ago. Usually these are more experienced people that’s been in the business for a while that know the area and they’ll and it’s a very small industry.
The property management companies that survive for two, three decades are the ones that have been around and they manage that property at one time or another. Or they manage the one next door, or they manage one of the competitors. Like you said, they have the dirt, they know what’s going on. They’ll tell you, oh, that property that’s one has half first floor is half a basement.
They always have floods over there. It’s always an issue. Or the things that you can’t figure out from just an om that a broker sends you. And I’ll say, if you find a property management company that you really wanna work with and the person you’re talking to, the local rep or whoever it is, doesn’t know the information you’re seeking, ask for the regional.
or the VP and try somebody at that organization. If they’re a sizable organization or experienced enough in that market, somebody will have some kind of dirt. And another way you can get more information is reviews, whether it’s apartments.com or Google. Google reviews or whatever, or the actual website might for the asset, might have its own place for reviews.
You will see. People take it is very difficult to get people to leave positive reviews, but it’s really easy for people to leave negative reviews. So if you wanna know what’s the worst that’s going on, check out the review section. Yeah. And. to that point also, just don’t let it scare you. No. It’s a good thing to look at.
But like you said, it’s the people that are pissed and upset Yeah. Are the ones that are gonna go out there. So you can have 5,000 happy residents that are not gonna put a single review and then, Five that are super pissed and they’re gonna put the review so you can have a two story review average from five people while you service 5,000 successfully.
Yeah. And it’s an opportunity to discover value add if you see consistently reviews that are saying it takes 35 days for a work order to get processed, chances are you don’t want that property manager that’s currently managing the asset on site. And or if you see. . So there’s a value add there, right?
Or if you see someone says something like, there was a shooting across the street that’s valuable information to have, you’re gonna wanna check that stuff out and yeah, use, you’re right to your point, use your own filter. If somebody’s complaining about someone knocking on the door asking for rent this month, clearly , somebody’s doing their job and somebody’s not Yeah, they kicked me out.
They don’t say because I didn’t pay rent. Yeah, exactly. Awesome. Okay, how does life with at least seven, eight different property management look like? You said a weekly call with the property management. So how do you guys you gotta have a commanded control kind of situation when you have that many different organizations helping you guys.
So how do you orchestrate all. Yeah, at first, when you’re getting started in the business, it can be quite a bit of like different, figuring out different companies and who’s doing what and just organizing that can be a headache. But what I’ve realized is I’m starting to do deals with.
Some of the same people over and over again, and so it, it becomes more, I guess this is how people get vertically integrated at some point where they have their own, in-house PM and stuff like that. I can see how that kind of evolves over the decades in the business really, but, At first, it is pretty jumbled.
You’ve gotta have at least a couple people on your team that are solid asset managers, and that’s not something I’m always focused on. I’m attending the meetings and I’m giving input, and I’m making sure I’m tracking for my investors. And I understand all the things that are happening at the assets. But one cool thing that about.
Working with different, in different markets with different PMs is that you learn different strategies and you can actually cross reference those and say, Hey, have you considered this? One of my, you didn’t even have to say this part, but one of my other assets in Indiana, they do it like this.
Have you ever considered it and we really like it. Or if you’re comparing, communication styles with different PMs so that compare and contrasting is actually a benefit. To working in multiple markets with multiple PMs you also have the opportunity to somebody who’s company that’s maybe a national company.
That you’re working with. If you don’t like your current PM in South Carolina, you can ask your PM in Indiana if they have somebody in South Carolina, and oftentimes they will. So depending on the size of company you’re working with. So there’s a lot of benefits, but real at the beginning it’s just managing managing the day-to-day time, blocking those things and making sure you’re paying attention to who you’re talking to and learning.
A lot of it’s just learning, just hacking through. Just hacking through it. Just hacking, yeah. You can’t learn swimming by corresponding, sometimes at some point you’re gonna ha have to eat the water. Yep. . All your properties I’m pretty sure are in one way or another, a value add deal, right?
So we ask our guests, give us a few ideas to increase income and a few ideas to reduce expenses that are not the obvious one, right? That, that the deal you just signed with a $400 delta is phenomenal and that one is a given. , doing rubs is something that we’ve heard a lot over and over.
and that’s a given, if the area supports it give us some of the more creative stuff that you guys have been doing to increase income. Yeah. And then we’ll turn the conversation into reducing expenses. Yeah. So for increasing income, I actually have a list of 19 different things that you can do.
I heard recently somebody say if you’ve got a one and a half to one parking ratio, that’s a, that’s an indication that you could potentially do reserved parking. Not even covered parking, but if you talk to tenants that somewhere where they only have one parking spot per. Unit and you’ve got a mix of even three bedrooms.
They’re gonna need more than one parking spot if you’ve got three bedroom units on, on site, or even two bedroom units on site. So look at your unit mix, look at your parking ratio, and if it’s strained or constrained, one and a half to one ish. , you might be able to pull your, and this is always a good idea, to survey your tenants, send them all an email or a flyer, knock on the doors and send and give them a flyer cuz some people don’t respond to emails.
Collect information on whether or not they would pay for reserved parking. And here’s something that I thought was really cool that I just learned last week also. Is oftentimes you don’t even have to pay. So it’s an expense to put up signage and paint the reserved, paint the reserved sign on the thing.
Tow companies will actually pay to do that because tow companies are the ones that collect revenue off of towing those that are in the wrong spot. You don’t even necessarily have to pay for striping, res, striping the reserve lines and the word reserved or G one or whatever you’re putting on there.
And then the sign that says reserve parking, only towing companies can do that. So not only did you increase revenue, cuz they’ll pay. Whatever, 15 to $50 a month to have that reserved parking spot. But you might not have the expense of actually implementing it. So that’s a cool, fantastic. That’s a cool one.
You’ve got tech service package stuff like putting us b stuff. If somebody, depending on the asset class, not probably gonna work for C class, but if you have B class or. You can offer, we’ll put in some, a couple of U S B plugs. Those are, that might cost you 40 bucks, but you can charge probably 20 bucks a month for some tech upgrades.
A class probably nest those types of things, which is energy efficiency. That’s a reduction. Not only a reduction of. of your energy bill, but also they might pay for that ability because they can control it. , more effic effective, effectively trash valet. If you’ve got an older community or a lazy community, I’m just gonna say that I don’t know what else to say.
Or just somebody who values convenience, let’s say that. They can once a week put trash outside their door. Obviously you have to figure out how to do it without making it look ugly. But after, say, after 7:00 PM on Tuesdays, and then your maintenance tech goes by and picks up all the trash in a hallway or at, on the edge or whatever then takes it away.
And maybe that’s 15 bucks a month just for a convenience fee. So there’s also looking at the land, is there. A piece of land that is not being used. You don’t need a group of trees in an area that’s a half acre or a quarter acre on your property. Maybe you can’t remove the trees. I get that. May you have to check with arborists and all the other stuff depending on whatever state you’re in.
See if you can get it permitted to remove those or just find a chunk next to the road where you can do billboards, you can talk to cell tower companies and see if they’ll lease land and actually build a cell tower. Do your own research on whether or not that fry brains with five 5G cell tower stuff.
But what’s cool about that is you can start a contract, say it’s $50,000 additional revenue from at and t. You can then put another, sell another cell company on the same tower as well, depending on what the contract looks like. So potentially quite a bit of revenue. Yeah.
But they usually will pay like a big upfront fee to, to put the tower in and then a monthly on top of it. Yeah, exactly. . Yeah. So say $50,000 contract and then for five years and then you get say, I’m just making up like 1200 bucks a month, additional revenue. Yep. Yeah. Awesome.
Other than that, just the, yeah, and then the reduction, the expense part. Contracts we’ve increased the N O I on one asset. The first asset we ever bought, we increased the n o I by a hundred thousand dollars. Sorry. We increased the value by a hundred thousand dollars.
By reducing the garbage contract. We cut the garbage contract on half of the same service, different provider, and we cut it in half and it bumped the value of the asset by a hundred thousand dollars instantly. Little things like that, just looking at your cable. All your contract services, your vendors no, that’s great. The garbage thing is huge because if there’s anything I saw on almost every property I’ve been on is over usage or over capacity of trash. I just saw a 12 unit property with two. One double, one triple size dumpsters and you just need one double for a property this size. And the, you ask the owner, why is it there? And he goes I didn’t even know it’s there. And you ask the property management and they go that was there when we took over. And nobody looks at it and goes I can cut. X amount of dollars a month, which with the multiplier that we’re looking at in multifamily, could mean tens of thousands of dollars to the property value, if not more.
Yep. So trash is usually one of the first thing we’re looking at. When we’re looking to cut expenses. It’s a funny And yeah, like what how many days a week does the trash carrier come to dump it? If they come twice a week, do they need to come twice a week? If it’s never full, you don’t need them.
And maybe that’s a, an easy thing without. Having to change the contract around too much. Yeah, absolutely. Cuz you pay on trash. You pay per dumpster, per pickup. And I’ve also done the math of if I double the size of the dumpster, I can get less pickups. And then because the difference between a regular dumpster and a double dumpster.
Per pickup is not double the price. Yeah. So getting bigger dumpsters is cheaper if you can reduce the number of pickups. What else do you guys do? How do you go about investigating where can I reduce expenses? Survey. Honestly, if you can get, some of it’s not gonna be immediate because you’ve got to start managing the asset.
You’re gonna work on some stabilization at the beginning and whatever the business plan is. But then you start looking very intentionally and pretty quick within the first month, you might send out a survey to the tenants and ask them what they need. . And some of it’s gonna be value add, but some of it’s gonna be like, I need my sync to be fixed, or I need I need work orders to be faster. Whatever those complaints are, you can address ’em, and that might lead to a reduction of your highest expense, which is turnover. Just satisfaction of your clients, of your tenants is oftentimes the most drastic reduction. We actually spent $20,000 on a playground, which is not a very big playground.
And that when I went out to the property, when we had it installed, The tenant one of the tenants had his four year old daughter there, and he goes, this made all the difference. I’m not going anywhere. He goes, this is all we needed. I’ve been here a couple years and I’ve been asking for a playground for our kids.
This made all the difference. I’m staying. And I’m just like, unless you ask those questions, you’re not gonna know what the tenants need. Another thing is looking this is probably very common, but you look at water reduction and electricity reduction, even if you’re not doing rubs or not, or utility billback or not at all electrical or water or whatever you’re doing, you can look at ways to save just by doing little things like l e d lighting and some other stuff.
Yeah. No, I love it that you naturally transitioned into my next question, and that is retention. Because it is a huge cost when you have to turn over a resident and people don’t realize it, that, look, when I. In smoother operations versus when I’m gearing up for a sale or a refi, there’s two different strategies.
If I am gearing up for a sale or a refi, I want to get as much as I can from the rent. So if there’s a $50 gap or even a hundred dollars gap and the resident, the current resident refuses to increase the price they choose to leave over taking the higher. It’s worth it to, to put the CapEx to turn around the unit because the next tenant coming in is gonna pay a hundred dollars more with the multiplier.
It’s gonna help us get the highest valuation. But when we’re in stabilized mode, when we’re, we want smooth operation, I’d rather take a hit of $50 per month and not lose the tenant because it’s gonna cost me a lot more and it’s gonna take me two to three years to recover the cost. It’s gonna cost me to rehab and turn the unit around.
So retention is what makes a lot of your losses, operational losses if you don’t work towards retention. The survey is one great example of how to encourage retention. Yeah. As long as you act on what getting the survey what else do you guys do on your properties to encourage your attention?
Another thing is activities having tenant appreciation days or having a coffee bar in your leasing office, even if it’s a Class C asset, actually that’s a value add to you in a bunch of ways. It makes your Some of your tenants go, okay, I know I can on the way out, I can go grab a granola bar and give a granola bar to my kids as they’re going off to school that day, really convenient for me and grab a coffee or whatever.
And guess what the leasing agent gets to do. Hey, John, I know you’re late on your rent this month. Are we gonna be able to make that up? Or, Hey, whatever it is, right? And, and then you can do just asking your property manager like what promo type things like are we doing a back to school day? Are we gonna do an SP C A Adopt a dog?
Adopt a pet day? Which is, all these things are ultimately a value add to you. Thing like giving away a backpack or a granola bar or offering. A tenant to, to have a small dog or cat or something in their thing that is leading to them being more satisfied with staying at your property.
And so they do add to your bottom line, but they also reduce the expenses as well. . Absolutely. And you look at it and you go that’s gonna cost me money. But it doesn’t have to be expensive stuff. It can be as simple as we used to do Halloween c coming in with your kid and we’ll do face paint.
Well, a couple of face paint kits from Amazon is like 8, 9, 10 bucks a piece. So you buy two, three of them. Depends on your property size. You spend 20, $30 and the kids are happy and. The cool factor and you get pictures for your social media and you can use that for your marketing. So there’s always a lot of value.
We used to do like pool parties, so we would actually get vendors to come in and pay for the food or the drinks, or, sponsor the event. and they’re happy to do that. You are not out of pocket a lot of money and your residents are happy. So it doesn’t have to necessarily come out of your bo bottom line as an expense.
There’s gonna be some expenses, but it’s not gonna be nearly as much as it is if you were able to increase your retention. But let’s just say two residents, three residents, covers all those activities easily. So it’s definitely worth it. Yep, absolutely. So thank you for that. I appreciate it.
It was as great value to all of our residents. I’m sorry, all of our listeners . Yeah. And it’s March 20, 23. Inflation is going crazy. Interest rates are high. What is your guys’ perspective? Cause everybody’s interested in hearing about that these days. What is your perspective of where the market is going?
What are you guys doing? Are you sitting on the the fans willing to see what happens? Are you in purchasing mode? Wh where are you guys going? We’re buying I’m just making sure that I’m not buying anything. Lean it. It’s gotta be. It’s gotta be similar to this 88 unit that we bought in December where the value is clearly there.
Like the value, even if purchased and no renovation was done, there’s gotta be good meat on the bone. And those deals are out there. It’s just a lot of people are. Not willing to look for those deals. You might have to go outside of your typical deal criteria. Like I normally wouldn’t look at a 48 unit deal.
But when you see incredible value in it and you know that there’s a say and you know that there’s a rockstar property manager on there, on site then, and maybe also a team member who’s boots on ground. So there’s a lot, maybe just a lot more scrutiny in. The area who is local, who is the team?
To me it comes down to who I’m working with more than what I’m working with. It’s more about who is on the team, who is running the deal who’s doing what, and then you start looking at the deal. And when those two things match up. I’m not gonna be scared to buy right now but I am gonna.
I’m going to be more scrutinizing of the deals and stuff too. So I’m definitely still buying. I actually don’t mind not doing a deal for the next six months, but they keep coming I know that there’s gonna be a huge opportunity for deals in the next two years because I’m seeing a lot of deals even now, and, we’re doing storage stuff too, and we see a lot of kind of mom and pop operators, and we know in the next 10 years that’s gonna shift quite a bit from mom and pop to institutional as well.
So getting in early, building the portfolio and then, sell it to some hedge fund or something. . Yeah. And there’s gonna be a lot of opportunities in the next couple of years. There’s no doubt there is. I think I read somewhere between around 30 billion worth of loans to multi-family specific that are coming due this year, whether it’s bridge loans or older debt that, that was placed years ago and.
A lot of these operators are gonna find themselves in a spot where the refi doesn’t make sense and the property cannot handle the refi. So there will be some opportunities where these people are forced to sell and maybe even forced to sell at a discount. So yeah, a lot of our clients telling us, yes, we’re still in buying mode, we’re still looking for properties.
and just like you said, just gotta do more due diligence. Gotta make sure that we’re more conservative on the underwriting, but we’ll still buy. So that’s that. We’ve also heard other operators that say, no, we’re gonna sit on the sideline and see how that plays out. And that’s a legitimate decision either way.
But it’s good to know you guys are still pushing forward and you just guys hit the ground with a new construction, . Yep. So tell us a little bit about that. It’s not the same thing as buying something and stabilizing. So what got you into the new construction situation? The team then the deal is the short answer.
So I partnered with somebody who I knew. This is in Wilmington, North Carolina. He built the original, he was working for a a family office building, building multi-family apartments. He built about 3000 units and and he was trying to get out of the W two and go do it for himself. So we met and He said, Hey, I, have this one opportunity.
I know the owner, I know this. They’re open to selling off market. There’s a two acre parcel of land next door. It’s, so the current asset is two buildings. It’s 72 bed student housing deal, a stones throw from large university. Literally, you can see it across the street, behind.
There’s only a. Short woods between us and the the entrance to this university. He built the original 72 units is stabilized 97% occupied. And he’s, so we bought it for, with the land at 5.2 million. They had already, they built it in 2018 and they had already done phase one or phase two.
Stubbed in the the, all the civil engineering stuff, the water and everything for phase two. So that was already ready. So we already had the original plans for phase two, just needed to be refreshed with architectural engineering and civil and going through the re permitting.
So from when we bought this in October, we’re you. Four and a half-ish, five months in, and we have now, we have already cleared the land. We had to get land disturbance permits first to clear the land. We had to demolish two dwellings, two single family homes on the property. We had to evict a homeless person also on the backside, one of those properties unfortunately he was in a tent behind the back building.
And then built up the pad and now we have building permits and we’re ready to rock. So when we get done building this summer we will have 144 beds and they will be mirror image buildings. So it’ll be literally just building the same two buildings that are already there.
We’re building two more across the drive Yeah so that sounds like a great opportunity cuz you basically skipped the most painful part of development, which is the entitlement, right? Getting the building from the land from just a piece of land to a shovel already kind of land. So soon as like you guys zip through that because somebody else did the hard work for you.
So that’s been a great opportunity. , how is it? And I know you just at the beginning of the construction phase, right? But how is it working with development versus working with a property manager on an existing property? I would, in terms of operations wise, I would never do this unless I had a partner who.
I have the fact that he did this for a living for 20 years. Just looking at the Gantt chart on the scheduling for everything from engineering to, certificate of occupancy at the end. It’s just amazing to wa to see when everything is gonna happen in real time looking at it. And I just, I, unless you have it, it’s like when you get started in multi-family.
you wanna work with somebody who’s done it before, you just jump in and do it. So you, maybe you’re a co-sponsor the first couple times and you’re learning the language and you’re trying to figure out where you fit in and what’s what. It’s the same thing with development. You work with somebody to add value to that team that knows what they’re doing, and then you can go, oh, like I’ve learned so much about development.
I still don’t know what I’m doing. I wouldn’t be able to go and operate and build those things. But my partner. and any question I have and and that we do have, we have a property manager asset management call every week, but we also have a construction call every week. And so we’re walking through everything from, do we have all 72 tubs, do we have the electrical panels that everyone’s freaking out?
Do we have, we just got the invoices for all the trusses and all the all the roof pitches and all that stuff. So seeing the lumber quotes is really interesting to see come across. So I’m just learning a ton from, paying $120,000 in furniture. Cause these are furnished and so it’s an interesting thing that you wouldn’t necessarily experience unless it was student housing. So learning a ton. And like I said, I wouldn’t do it unless I had a partner who it’s old hat to him, yeah, that makes sense. And then I’m sure when you look at these things, we’re in a market where everything shifts a lot.
Yeah. Whatever. You quoted back, you said October, right? Yep. We’re not getting certain numbers today. Inflation is moving too fast and I’m hoping you don’t fish as much as logistics. Probably. Lumber’s the big one, right? And lumber took a dive since October. So we are looking at that and my partner here knows.
The business so well, and he’s actually, he lives in the market. He knows every contractor, he knows every subcontractor. He knows where to get the products at the right price that will deliver no matter what he can call in favors if he needs it. So that kind of like hyperlocal presence really matters when you’re doing something like this too.
So definitely recommend that. I wouldn’t say let’s go into a different market and do it even with the same team we have because you don’t know everybody. And The other part of it is when you know that you’re gonna get the right price on a thing, you’ve gotta be able to buy all of the stuff. If the price of the tub surrounds is X value and you know you can get at a steal if you buy it right now, you have to be willing and able to go buy it right now, for the reasons you talked about.
Because you need to make sure you’re not gonna pay twice as much in three months when you actually need the products. You. Yeah. And making sure you, you are capitalized correctly is also very critical. Cause while Wood took a nose dive since late last year, cement is still going up.
Yeah. So the, there’s a lot of that too is labor. You’ve got labor as one of your highest costs in in construction always. Yep. And the labor shortage. The labor shortage is, hate to say nobody wants to work, but there’s a labor shortage, , and so you, you can say it.
We don’t code on this podcast could say it. I’m just saying. I’m just saying. It’s like you, you gotta have the right team and and the right workers, the people who are motivated and willing to do it, and to keep those costs down too. Otherwise it’s we could do your job, but we’ve got another job over here and I’ve only got one workforce, and if you want me to bypass that one, it’s gonna be this quote.
or you can wait three months and it’s this quote, no, I totally understand what you’re saying. And it’s like that everywhere, all over the country. Every operator I talk to is facing the same challenges with labor. I just came back from a commercial real estate conference and the developers were on a panel and they go look, and we used to pay 14, 15, $16 an hour.
But the Walmart distribution center is paying 24 26 with benefits. Yeah. And we have to compete with that. So you either have to increase your prices by a lot to support that, or you’re gonna have labor shortages and labor challenges. So it’s everywhere. It’s not just your market. Yep. It’s crazy. I can’t imagine somebody who has a specialized skill in concrete going to work for Walmart cuz they pay twice as much, yeah, absolutely. And it’s not out in the cold or the heat or the weather and it’s some warehouse. So even Chick-fil-A is paying 18, $19 an hour these days. Oh, funny story about that. My kids, we were driving to Home Depot and there’s a Chick-fil-a Chick-fil-A in the same parking lot, and I was driving by and there’s a big sign and it says Chick-fil-A now hiring $19 an hour and we’re in California, and I don’t know what it is everywhere else, but it said 19 bucks an hour.
And my son goes, wait, they’ll pay me $19. Every hour to work there. , . And he was like, whoa. That’s crazy. Yeah. How old is he? He’s 13. Yeah. Oh yeah. That’s just absolutely insane. And then, again, the multi-family world. If you look at our labor, you’re looking at maintenance people, ground people make ready guys, why would I go paint an apartment or work hard or keep pick up trash for four?
It used to be 12. Right now it’s 14, 15, $16 an hour where I can go work at Chick-fil-A in an aced environment, flipping some chick nugget chicken nuggets. Yep. And I can make 19. Yeah. So the labor shortage is a, it’s across the c the country, across every industry that everybody’s facing right now.
So we’ll see how that works out with the economy the next few years. Eric, I wanna be respectful of your time. You’ve brought a lot of value. We ask everybody the same question. If you met younger Eric, let’s say 24 year old Eric that goes to the military what advice would you give your younger self?
What would be the best advice? I would say buy Bitcoin in 2010 and sell in 2020. I would say I, I honestly, I would, I love the path that I’ve I’ve taken so far, but I would tell ’em, I would tell my younger self to start investing. Or sooner. I didn’t really start buying multi-family until I was 37, and I would love to have purchased a here’s a military tip for anybody who’s listening, whose prior service, the VA loan, you put zero down on a fourplex.
Imagine that had I gone from one duty station to the next duty station and been purchasing real estate, but not just single family houses, just owner-occupied loans up to four units. You buy a fourplex, triplex, duplex, wherever you can, and building a portfolio. While I was serving, man, that’s the reason my company exists.
Now. No one is teaching that. Now. They are thanks to us, but no one was teaching that. . And so I would say to myself, go buy a fourplex, live in it with my wife and renovate some units and then turn over a profit sooner and just get my feet wet faster. Yeah, that, that’s a great advice, Eric, if anybody wants to reach out, whether it is a service person that wants to learn more about your A D P I program, or if it’s just a multifamily guy that wants to invest or partner, how can they find you?
And we’ll put everything in the show notes. Okay. Yeah, you can. We have 70,000 military members in our community. You can go to military real estate investing.com. That’ll take you to our Facebook group where the community currently lives. We’re about to transfer that over or add on to that in our private community.
But that’s free for anybody to join and tons of great information in there. Active duty passive income.com is the website, or you can also find me, if you wanna personally invest with me, it’s eric upchurch.com and find me on Instagram. Come find me on Instagram at real, Eric Upchurch . Awesome.
Eric, that has been a very great show. Thank you so much for the value, and thank you for showing up on the show. Thanks a lot, Joseph. Awesome. And for you, the audience, if you wanna listen to more great podcasts like this and experts like Eric, please subscribe. Please give us a thumbs up or a review on iTunes, teacher Amazon, wherever you consume your podcast.
We’ll, appreciate it and we’ll see you next time.
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