The 2024 Recession-Proof Business

You got your first property when you were making how much a year?

68,000.

Now how many properties do you have?

Almost 700.

The real money isn't made in crypto schemes and NFTs and Airbnb arbitrage. It's in these boring businesses that have reoccurring revenue.

Today, 10 minutes or less, you're going to get a mental model for a high ROI return on investment to low ass pain. Can they say that on YouTube? Way to make money.

Peter is about one of the nerdiest.

Guys I've ever met.

I think he'd be okay with me.

Saying that he is not only a systems engineer, but also a former Eagle.

Scout, which I find hysterical.

Basically took all of his engineering ideas and ways to create a system once that will work continuously and applied it to property management. If you own a house and you want somebody else to rent it to pay you money, Peter makes that process seamless for you. And it's one of my favorite ways to make money in a recession.

We thought we'd take you guys to one of our rental properties so Peter could walk us through what it means to be a property manager and still get how much vacation you take a year, Six weeks. How do you do that? When you started out in property management, you had zero properties. Now you have a lot of properties, but you couldn't buy all of them when you were starting out as a W2 employee. Right. So what happened?

It turns out you run out of cash pretty quick when you start buying rental properties. The idea was, hey, let's start a property management company. We can exit our day jobs and while we are in the business of managing rental properties, we can continue buying them and building our portfolio.

Do you use the property management business as a deal flow source?

You get to see a lot of deals. Your property owners that you're managing homes and apartments for often come to you first with, hey, should I sell this? Should I buy this? And so you're getting eyes on a lot of this deal flow, some of it off market even. The other nice thing about being in the business is you see the real numbers. I think that's a big issue with folks getting started in real estate is they don't know how to predict the income and expenses for a rental property. And when you're managing hundreds of them, you know exactly how well they're going to perform, which means you can bid accurately and build a portfolio knowing that it's going to actually make the money.

We're in one of my Airbnbs today. What's cool about Airbnb is you can make more money up front, theoretically because your cost per night is so much higher. The problem is if the market starts to go down, you know, short term rentals, I have contracts for two days, right?

Long term rental management is extremely predictable revenue. I mean, I can tell you almost to the penny what my revenue is going to be next month and the following month and it snowballs really well. So as you start building your portfolio of homes and apartments under management, your recurring revenue gets higher and higher and higher. You can raise prices on exist existing owners. So unlike short term rental where it's highly variable and it's hard to know how much your income is going to be a long term rental management company, it's very predictable.

I asked you why you don't do short term Airbnbs, you said because it's a hospitality business.

Right? Which is true.

We have the coffee cups and the teas and you know somebody available 24 7. Whereas long term is a different beast. So if you had to compare the two, what is long term?

Long term rental management is much more towards passive income. Once you have a great system in place, you can pretty easily get team members up to speed on how to handle the day to day issues. Don't get me wrong, there's issues, but they're fewer and far between than short term rentals.

Here's why I'm obsessed with property management. I like to own these companies. First, contractual reoccurring revenue. Obviously if you own a property you have to pay rent every month.

That's every month.

Two sticky clients. That's a sticky one. Sticky. The contracts last a year on average, sometimes more. And people typically don't move. Most, most of my properties have the same tenants in them for three to sometimes 15 years. Next is no inventory for E Commerce and all of these big fancy sexy businesses.

You have to hold a bunch of.

Stuff until you sell it. Property management, not that that you don't have to chase cash. They pay up front. You pay your rent on the first day, not the 30th day. Also, no big expenses or what's called capital expenditures. You don't have to buy the actual house or a warehouse or inventory. You are just the middleman between the owner of the stuff, AKA the guy who owns the real estate and the renter. Next, these businesses are sellable af, AKA they're all these big companies like these that buy up property management companies because they want to aggregate them. That means that you have an exit for this business. You Build it for a year, two years, five years and then you sell it off to somebody else for 3 to sometimes 10x your revenue. You can also turn these into deal making machines. You buy the houses from the people who you manage them for. This is all about deal flow. So especially in a recession, I like these bad boys because If I manage 700 houses and I know that one of my owners of these properties is going to sell 20, I'm going to.

Be the first to find out.

So I might offer on those houses before they even go to market. And then lastly, it's a cash flow monster. You have those systems and processes in place. The cash flow comes in because you get paid, paid before you even do the whole service. So you are always cash flow positive. This is rare in businesses.

Very rare.

I think you've told me before that what's really important in picking properties not just for them to buy but for you to manage is there's a little bit of a Goldilocks theory going on here. Right? It's like not too hot, not too cold, just right.

Super high end properties. You would think that would be great, right? You know, people have money and the homes are nice and everything. Those very high end, A plus plus class properties are difficult to manage. They have unusual features. Right. They might have hot tubs or super intense landscaping. And the folks who rent those homes and apartments also have very high expectations. I expect the best and I give the best. So you almost trend back toward the hospitality when you're managing really high end homes and apartments. We like what's called class B, which is just kind of middle of the road, average rents or nicer homes and apartments and better school districts and nicer areas because you definitely want to avoid the low income areas. That leads to a very calm work environment for the property management company because everyone has reasonable expectations.

When you come into a property, what do you notice?

Yeah. So as we come up to a property on the exterior, I'm looking to see how well that's been maintained. You're looking at a few different things. You're looking at functionality. Does everything work? You're also looking at the finishes. What's going to be the perception of a potential tenant when they walk in to the rental home or apartment. So you have to sort of put on your renter hat and walk in pretending that you're shopping for apartment.

You basically take a little checklist like this and you walk around a property and you go, hmm, fridge works. Awesome.

Exactly.

Flooring looks clean. Because you're a crazy Systems engineer. Your notion has all of this listed out. You've got this notion like chock full of basically lists.

If you had to pick like the.

Top five checklists that are most important in property management, what are they?

There's a few processes you're gonna run over and over and it's really important to get them right. The ones that come to mind are your move in process, your move out process, your new client process and your lease renewal process. There is a ton of extremely powerful software you can use that makes things much easier. Oh, thank God.

I also use something called the rule of three. Every time you do something that has more than three steps that you do more than three times, you document it.

If you had three pieces of software that you couldn't live without, what are they? Why do you use them?

So the first is going to be your primary property management accounting. So software, I would look to either Buildium or Appfolio for that. Next is going to be notion. No doubt about that. You may have heard me talk about notion. I'm like a notion fanatic.

Not sponsored, but you're welcome to.

It's a company wiki, right? So instead of having to reinvent the wheel every time someone asks me a question, I just say, hey, did you check notion? And if they didn't, I say, all right, come here, sit down next to me, we're going to do it right now and then I'm going to send you a link to the notion and I never have to answer that question again.

Peter's notion is a thing of beauty. Every question answered, every process outlined, every plumber and landscaper listed and ready to call my man. And the reason why you do that is because Peter wants to take a five or six week vacation every year. He did it last year, he's doing it again this year. And the only way that you can do that is by creating a system that is airtight.

The third piece of software would definitely be Lead Simple. The processes we were talking about supercharges them because it integrates with your property management software. It allows me to automatically run lease renewal processes and a lot of the day to day kind of boring, repetitive operational stuff is just done and done perfectly every time.

I sometimes think you're one hire or one good tech tool away from a total different business. And so getting the cheat code to that is huge.

So since I just bought a couple property management companies and I'm buying another one, here are a few ways I've hacked it. I think you should try. I would elevate your ideal tenant by partnering with a local Realtor you trust. It's a win win scenario for you. Realtors want their tenants to find a great property and you want tenants who are high quality, won't complain, won't damage your property. A realtor can sniff these out for you.

I think when a lot of people hear property management, they're thinking the classic is tenants, termites and toilets. Right. It's dirty and busy and stressful. A lot of nonsense as a professional you don't want to be involved in. And I'm here to tell you that's changed a lot. You've got recurring revenue, high cash flow. You don't have to worry about chasing customers to get paid because you're taking it right from the rent. Making payroll, never an issue, because I know what our revenue is going to be.

Two is double down on scaling out your systems. Nothing you do for your rental property should ever take you longer than 10 minutes. Sending over a client contract, 3 minutes or less. Filing a maintenance request, 30 seconds.

One of your first hires was an outsourced accountant. Because you said that there's an aspect to property management that people don't think about, which is that it's kind of like an accounting firm because I think some people ignore this stuff. You hear the word accounting, you're immediately asleep. And yet actually accounting just means making sure you're getting the money.

There's a lot of accounting that goes on within a property management business. The good news is you don't have to do hardly any of it. You help me go in there. The modern property management accounting softwares combined with the rise of outsourced labor mean that you can very easily bring in an outsourced team member. Or there's a number of firms that have sprung up who specifically work with long term rental management companies to handle their accounting for them. The reason it's so important is because you're dealing with trust accounting. I won't get into all the boring details, thank you.

Okay.

But you have to be careful when you're hiring an accountant for property management because not every accountant understands trust accounting.

Number three is give back. You can work with local agencies to help you source tenants that are in need of housing assistance and a safe place to to live. If you're into this, you can find an agency who will usually fund the security deposit in the first few months of rent. Huge win for you.

You started with three things, as I remember, as a way to get each individual property. How'd you get the first one? How'd you start scaling up? And then how do you think are the best ways to go from 0 properties at 68k all the way to 700?

We've kind of figured this out. We've got a system now for growing property management companies. When I started, I knew nothing. I was floundering. I was trying different things, trying AdWords, trying SEO, trying content, going to real estate meetups, doing an email list. Right. All the things that you read about online. And so there's, you know, there's a few that really work there, and there's some that are a complete waste of money. But the reality is that kind of the hack here is that every time a piece of real estate transacts, there's a couple things to know about that. One, that's an opportunity to win a new account. Now, who's touched that transaction? Turns out a lot of people have realtors and brokers on both sides of the transaction. Mortgage agents, title company folks, lawyers, CPAs. There's a lot of people that are in a position to advise or refer business. I really recommend getting out networking, getting to know real estate investors and real estate professionals who serve real estate investors. Get them to know like and trust you, and they're going to refer business your way.

Now sit up a little. Yeah, so you're not looking slouchy. Let's give them a couple secrets. Like, for instance, if I was a realtor today, why should I start a property management company? Because I kind of think you should.

Realtors kind of have an unfair advantage here. They've got a few things going, going for them. One, they already have the necessary licensing, which is not a big deal to get, but if you already have it, great. So that makes it easy. Two, they have a lot of contacts in the industry already, so they likely already have real estate investors as clients. They know bankers, they know brokers, they know folks in the industry who are going to be in a great position to refer them. A lot of business realtors also know about real estate, right? They know how to look at properties, how to understand location. You know, the other thing is, I think realtors sometimes think about property management as the lesser than if I'm being real. But that is a really outdated perception. That's from back in the old days where there was no technology. You're talking file folders, keys everywhere. There's. There's no systems, there's no software. The reality today is, even in the last few years, the advancements in the tech that's available for property managers is Incredible. The dream of managing property beachside from your laptop, that's reality. I mean, that's just another day at the office for a lot of property managers.

The problem with real estate is you live and die by your most recent sale. And so if you're a good real estate guy and you're out there knocking on doors and you're slanging business cards at the party in order to sell these big transactions, when the market dries up, the market dries up. And so if you don't want to see your income go like this, but you want to have this crazy volatility of real estate and then pair it with the volatility of property management, which is more even, that starts to look like consistent cash flow, which is the name of the game.

So what did it about cost you.

To start a property management company?

Twelve hundred bucks.

And how much do you make per month per house?

300.

How many doors can you manage by yourself basically before you have to hire a huge team?

Almost 100 doors. Profit margins probably about 15%. YouTube is so much harder than property management. But let me give you one tip. Never give your cell phone number to a tenant. I just saved you years of pain.

You can still work a full time job, play the investment long game and get into rental property management. Now here's the truth. None of this is as easy as clicking a button on Robinhood. You have to do the work.

There's no get rich quick scheme here. You're not going to be poolside immediately.

But you can get there faster by stealing somebody's homework like Peter's. I never believe somebody when they say that there's a get rich quick scheme or passive income four hour work week. That's probably not real. This type of business can lead to generational wealth and that's the ultimate get rich quick. Not scheme, but plan.

Don't follow the gurus.

I think you should follow the boy Scouts instead.