2208 FBF: Landlord Friendly Markets, Tenant Retention & Self-Management App Bixby by Mark Smukler

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

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I've been following Jason's company ever since 2007. I went through a seminar in his Newport beach office by Fashion island and I've been listening to Azales podcast since then. Always wanted to buy some more, but a couple years ago we went on the property tour in Cincinnati and it was great. We loved Missy and her team and we actually sold our Texas property and did a 1031 exchange with two of Missy's properties in Hamilton, Ohio and they've been working out great for us ever since. And this just in 2017. Yeah, last year we sold our home in Chino Hills that we lived in for 25 years, raised our family and all that and we're taking all our proceeds and we're going all in on rental properties. And the funny thing is we're kind of following Jason's lesson to the T and it's working out great for us. We're not going to buy again in California. We're renting actually in Newport Beach, California. I got into real estate investing because I've been a student of the stock market for years and years and it just doesn't seem to make sense to me anym besides what Jason says. It just seems like the guys at the top make sure that they win and you don't win. Which, you know, it's just I feel the same way even before Jason said that. And the fundamentals don't seem to make sense to me, but there are fundamentals in real estate and income property investing that aren't going to be able to be changed by high frequency investors or anything like that. It's the fundamentals are there and they're going to stay there. I'm fine with income properties. You know, the slow and steady approach approach.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome listeners from around the world and thank you so much for joining us today. This is episode 1178. 1178. By the time you hear this, I will be in China. Yes. So I'll be, I don't know where I'll be exactly. Maybe I'll be at the Great Wall of China, who knows? But I will be doing some episodes and reporting from there. I just wanted to record some of these in advance because, heck, you know, with a censored Internet, you don't know how the uploading of content will be and using a VPN and whether it'll all work. So that's why we're doing stuff in advance. I've got Adam here with me to help with the intro portion of today's show. Adam, how's it going?

It's going well.

Good, good. So you have a question. This is, I guess you, we could say this is a listener question because you are a listener to the show every episode. Every episode. That's for sure. So what is your question?

So as part of our self management week here, I have to ask if you're looking into, if someone is doing this all themselves and they're looking and we, you say you want to have landlord friendly states. What aspects actually make a state landlord friendly? And, and in your opinion, what are the two to three most important factors when trying to determine that?

That's a good question. You know, as real estate investors, we want to invest in geo arbitrage, our investments. We want to invest in places that not only have good cash flow, good prospects for growth and so forth. Right. We want to be, if you will, in the path of progress, as they say. But we also want to invest in places that are friendly to our CAUs as landlords, as investors. So if we have to evict a bad tenant, which every investor will have to do that at some point. Okay. I had to do it on my very first rental property I bought when I was 20 years old. I had to evict my very first tenant. So, you know, like I've told the story before, I could have given up. That could have been it. Right. Thankfully I didn't. I kept going and made tons of money in real estate. So you want to be in a place that's friendly to Your cause. So generally speaking, places with left wing political leanings are not friendly to landlords, whereas places with right wing political leanings are landlord friendly. The other clue you'll have to what's landlord friendly and what's not is if you look at the three types of markets, linear, cyclical and hybrid markets, which we've gone over extensively in past episodes, linear markets tend to be landlord friendly and cyclical markets tend to be tenant friendly. So for example, in the socialist republic of California, my home state for the vast majority of my life, that is a very tenant friendly state, if you have a bad tenant and you have to file an eviction against that tenant, it is very easy for that tenant to contest the eviction. It's very easy for them to play the game. We call these squatters. Okay? You don't want squatters, right? People that know how to play the game and can really just screw you around as a landlord and they can cost you a few fortune. There's a thing, Adam, called physical vacancy and another thing called economic vacancy. When it comes to a property, right, you always want your vacancy rates to be low and you might have an economic vacancy at the same time that you do not have a physical vacancy. In other words, what that means is the tenant is there, they're in the property, it's physically occupied, but they are not paying you rent. So it is economically vacant, right? So this is not a good thing. And this leads to bad cash flow problems. So you don't want to have this. So places along the west coast of the United States are all cyclical markets, and they all tend to be tenant friendly markets. The cyclical markets in the northeastern United States, these expensive cyclical markets that are all of these are pretty much crashing now around the country. They're having big problems. These are all tenant friendly places, okay? If you got a dispute with a tenant and you go into court, the court generally, most of those judges in those left wing areas will assume that you're the big evil landlord and you're taking advantage of the poor little tenant. You're a bad person. Bad person, Right. That's how they look at it.

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

And so places like that are tenant friendly and we want to avoid them. Now, Adam, you might know this, but I'll just ask you anyway. Do you know the most landlord friendly state in the entire country.

I don't know the exact answer, but I would guess Texas or Florida.

Those are good guesses and those are pretty landlord friendly. Okay. Now again, it also goes, you know, county by county because if you're in south Florida, in the Miami area, Right. You're going to find that that's a lot more tenant friendly. Okay. Even though the state of Florida generally is more landlord friendly. Right. And Texas is much more landlord friendly. Right. Don't mess with Texas, as the saying goes, but the most landlord friendly state in the union. Now I'm going to tell you, and I've told you this before, but that doesn't mean you have to run out and buy here because there's lots of other landlord friendly places. But if you had to pick one state, the most landlord friendly state in the country is. Drumroll, please.

Arkansas. Yes, Arkansas. In fact, the left wing liberal NPR did a segment on Arkansas's landlord friendliness making landlords look very evil. And we played it on the air. We played a part of that segment that they did about how in Arkansas tenants can literally be jailed for not paying rent.

So that probably means that Texarkana would be a great city to investment, possibly, since it's in, you know, it's right there on the border.

Yeah, right there. It might be. It might be. I, I don't know, I can't speak specifically to that one. But again, there's more to investing than just landlord friendliness. So, you know, don't think, oh, it's all or nothing. I got to do Arkansas only, right? No, that would not be a good decision. So calm down. Just know that there are many landlord friendly places in the country and generally speaking, the ones with the right wing politics will be landlord friendly and the left wing, left wing, liberal, left leaning politics will be tenant friendly. So that's it.

If you're a right winger and a landlord, you are evil in these left wing places. You're the big evil land baron, you know? Yeah. Little does the judge know that you're just trying to make your mortgage payments on this little investment you bought. But hey, heck, you walk in, you're guilty until proven innocent as the big evil landlord in any liberal left wing.

Edit that.

In any liberal left wing place. Okay. So, yeah, hope that helps. Adam.

Absolutely.

Any other thoughts on that one or questions about it?

I would say how do you, how do you determine, like how do you find out those things? Where can people go? Do they just have to, you can ask local laws or what?

Yeah, well, checking the local Laws is way too complicated. Right. Because you know which law exactly. What about it? You know, what are, you know, a lot of it boils down to like, what are the time frames? Right? Once you file an eviction notice, you know, how quickly can you get them out? How much time does the tenant have to contest the eviction? Meaning they say, hey, you know, this isn't right that the landlord's evicting me, blah, blah, blah. So a lot of it boils down to these sort of procedural things, right? And you can ask the managers, the property managers in these markets and you might want to ask a non self interested manager, for example, just go on the line.

That'S just, you know, go on their Internets. Yeah, on those Internets. Yeah, yeah, go on those Internets and just call a random property manager in a market you're thinking of and ask them, you know, ask them how hard is it to evict a tenant? You know, how hard is it to get a judgment against a tenant if they owe you money, if they don't pay the rent or they've damaged the property and you know, get a sense of it from them. That's probably the easiest way because, you know, researching laws, that's just way too complicated. There's too many laws. It's not like you just look up the law and say eviction law in so and so, state and city. There's a lot of nuances to compare. And hey, that's why we have lawyers and courts and judges and the whole industry built around that. But generally speaking, your right leaning political places are going to be landlord friendly. You know, that's where the vibe is that people should be accountable and they should pay. You got to pay to play, you know, if you want a house, you got to pay because someone else can't provide it for free. Like, you know, AOC and Bernie Sanders think everybody should.

Landlords should invest for the benefit of tenants. Yes. Just so tenants can have a place to live. You should buy lots of houses and give them to the tenants for free. Oh, maybe not. All right, Adam, you ready to get to our guest?

Let's do the more of our self management.

Yep, we're talking self management this week. Yesterday, today, tomorrow. That's really our focus this week, more on self management. So let's get to our guest.

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It's my pleasure to welcome Mark Muckler. He is co founder and CEO at real estate software firm Bixby. They make it easy for owners and property managers to provide top quality service to their tenants and residents. This is another great self management tool to add to your arsenal of so many great tools nowadays. Mark, welcome. How are you doing?

Great, Jason, thanks so much for having me on the show today.

And you're coming to us from New York City, is that correct?

Yep, that's right. Live from Midtown Manhattan, right across the street from the Empire State Building.

Fantastic. So this is a great little app you have where basically starting at zero cost, you know, up to a dollar a month or $3 a month depending on the, you know, the size, you could even go bigger than that. It basically allows, if I'm correct, owners to communicate with their tenants through an app to provide amenities like moving storage, dry cleaning, pet care, massages on call, massages, etc, etc, maybe food delivery, I don't know, you've got a whole bunch of things in there. And collect payments, manage maintenance issues. What does it do?

Sure. So we really look at the product from two angles. One is as a productivity tool for owners and managers to streamline communications, work order management, payments and anything else as it revolves around the tenant relations component of their management operation. And on the other side, we see it as a virtual amenity, a way to help tenants have a better, more comfortable and convenient experience in the building or property by connecting them with products and services that help them solve anything, ranging from getting your dry cleaning done or storing some of your belongings, or even finding discounts and promotions from local vendors.

Okay, so you have about 25,000 doors on the platform now and you have some big institutional managers, it looks like, and owners, but also people with just a few single family homes can use it as well.

Right?

Yep, that's exactly right. So today we work with groups ranging from Graystar and Alliance who have several hundred thousand apartments as third party managers. But we also work with do it yourself individuals, small businesses who run single family home portfolios or you know, smaller portfolios, often under 10 units or 20 units. So we really see the platform as a solution for all portfolio types and sizes.

Okay. You know, it's sort of shown as an app. Does the owner manager really do everything from an app on their phone or do they, can they use it at their desktop as well?

Yeah, you can definitely use it as your desktop. So in addition to the mobile application, we also offer a web application and really depends on the user. If you're kind of at your office, we tend to see managers using the web application more and then when they're on the run, the mobile application and tenants tend to split as well, depending. I think younger tenants tend to use the mobile app a little bit more and older ones tend to use the web app a little bit more.

Okay, so you can use it either way. Take us through the process. If I own a portfolio of single family homes and I am self managing them, I basically tell my tenants to get on this app and they can pay their rent through the app, they can message me, they can handle maintenance requests and then have the other home services and perks and things like that, right?

Yeah, exactly. So it's a way for an owner or manager to really aggregate a lot of things that they're probably doing through disparate systems. For example, you might have a property manager who's communicating with their tenants through text and email, but then maintenance requests are coming through a form on their website or maybe through something like Zendesk, you might even.

Or just email.

Or just email. And then you've got payments that are maybe coming through check in the mail or Venmo or PayPal and are maybe being accounted for in QuickBooks. So what we're trying to do is for both the owner and manager, as well as the tenant or resident, bring all of those things into one place. So you can imagine you're a tenant and you move into a new building and you get an email from your property owner manager that says, hey, welcome to our community portal. This is what you use to get building announcements. So if there's ever inclement weather or issues at or around the property, this is how the property manager is going to send those messages. And what's good for the owner and manager is that instead of having to pick out individual emails, they can message either a single tenant or a single building, or a group of units, or even the full portfolio all from one place. And they can trigger email notifications or text notifications and then view kind of a history of those communications through their manager side account. And then whenever a tenant has an issue at the property, rather than picking up the phone and calling the landlord, they can submit a maintenance request through the application which will get distributed to the owner and anyone else on their team and they can then update the status. So set it to under review or in progress, which lets the tenant know that we got your issue, we're thinking about it, we're working on it. They can Also assign it to the correct employee. They can even dispatch it out to third party vendors. They can continue to have a conversation about the issue and even upload images. And then when the repair is complete, they can set the status to complete. The tenant then has an opportunity to rate their experience and leave a comment which the manager can use internally, maybe even ask them especially the good reviews to post them on things like Yelp and Facebook and really just stay organized on all of the different issues that may be happening at the property level. And then lastly, of course, collecting payments. So very simply, either by ACH or through credit and debit cards, a tenant can submit a payment which gets directed into the owner's bank account and then you can view reports on payment history.

Okay, good. So talk to us more about the payments. I mean, every owner listening loves to collect rent. I don't blame them. How does that work? I mean, there is a fee for collecting payments. You know, we've had some other providers of just payment processing and tenants screening platforms on the show, like, like Cozy, for example. You're not doing the same thing they're doing. Exactly. So give us a little bit of an overview of how that all works.

So I think Cozy is a nice platform, especially kind of for smaller do it yourself owner managers. And they kind of focus in on the screening and background checks and then the payment component of it. And I think we really just go a lot further in that tenant experience. So after they've signed their lease, become a tenant and kind of beyond just the activity of collecting payments, which is a really nice day and time of the month for the owner and not so much for the tenant. So we try to add value as much as we can to the tenant experience so that they're more likely to stay in the building or the unit and increase retention at the ownership level and reduce turnover. So payments on our side, we take payments through ACH or bank to bank as well as card. ACH transactions cost $1.95 and card transactions are 3%. In most cases, these fees are passed along to the tenant as a convenience fee in place of having to, for example, send a check in the mail. And we find that in most cases, while the card fee might be relatively high, especially when you're talking rent payments of $1,000 plus, but the bank payment of $1.95 seems to be very reasonable for the tenant so that they don't have to get an envelope, cut a check, get a stamp, and make a trip to the post office.

Yeah, okay. Okay, great. So 3% on the credit card payments. The tenant will hopefully cover that cost as a convenience fee, as it were. But only $1.95 on the bank payment. Bank to bank payment, just debiting a bank account, which is pretty good. You know, I got a question for you about this, and one of our clients brought it up recently, but it was through a property manager. When it comes to a bank payment, you know, once the money's transferred, it's done. But on a credit card, as most people know, charges can be disputed. How possible? And how long is that period, if you know, know the answer, where someone can dispute a charge on rent? I mean, that's sort of a new one.

Yeah.

You know, and this is otherwise known as a chargeback.

Yeah, exactly. And I think to an extent it sometimes will depend on the card provider, but we usually see, I think, about 30 to 45 days where an individual has an opportunity to dispute a charge against their credit card. And I think even longer when you're talking about cards provided by groups like American Express. So on the one hand, I think it's a real benefit to landlords in terms of if you provide flexibility in how you collect payments, it is more likely that you will be paid on time and in full. Right. Just because you're giving tenants the option of paying, however, is convenient for them rather than restricting them. At the same time, card transactions are better than ACH payments because they're instantaneous. So those funds, while they can be disputed, they do hit your account immediately rather than versus through the ACH network, which takes about three to five business days on average to kind of go through the clearinghouse process. So I think those are some benefits to using a card transaction. But there's certainly drawbacks, for example, much easier to dispute. Probably the number one kind of drawback.

Interesting. What else do you want people to know about the app or just property management, real estate, investing practices, best practices in general?

So I think there's a couple best practices that we've seen to ensure that an owner or manager's operation is working as efficiently as possible. Some of the kind of KPIs that we see our clients talk about are maximizing net operating income, or noi. And oftentimes that's a function or scientifically it's a function of two things. Maximizing revenue, which is rental income. This is going to be a function of the number of units that you have or rentable square foot, as well as the dollars per square foot or rent that you can demand, and then minimizing Your operating expenses and obviously revenues less expenses equal operating income. So one thing that we really focus in on, on the operating expense side of things, is turnover. We feel that turnover is one of the highest contributors to operating expense across a portfolio. And I think we see something like $3,000 as being the average cost of a single turnover if you're including things like maintenance time and cost and foregone rent. So, for example, if you have a month of vacancy due to turnover, we often see about 2,000 to $3,000 as the cost of that unit being vacant during the month. And I think another cost that I didn't include is leasing and marketing of that unit. So what we try to really focus in on is, is helping owners and managers reduce their turnover, knowing that that's going to probably have the most significant impact on their bottom line. And candidly, when it comes to reducing turnover, we think that the biggest impact is responsiveness. So tenants, while seemingly and in reality very demanding and increasingly so, as kind of a new generation of tenants and residents enter the market, most tenants don't expect for their maintenance repairs to be fixed immediately. I think what tenants really do expect, however, is a clear line of communication. So if I'm a tenant, I don't want to submit a maintenance issue about a leak and then nobody respond to me for the next seven days. I don't expect for that leak to be fixed tomorrow. But in the next 24 to 48 hours, I do expect somebody to contact me to let me know that they received my request and are starting to work on it. And that goes so much further or just very far in my experience with the management company, versus necessarily that leak being fixed in that same day. So we think responsiveness goes really, really far in creating a good relationship with the tenant and a relationship that really goes beyond just the professional tenant landlord relationship, which can really have an impact on my decision to stay in the unit at the end of my lease. Because I'm not just renting a space from you, but I enjoy doing business with you and I trust that you can take care of the space that I'm renting, right?

Yeah, yeah. Keeping tenant turnover to a minimum is very important, just very costly. When you have turnover, it always is good stuff. So in terms of any thoughts on real estate investing in general, obviously you got into this because you like the asset class. You know, also maybe your thoughts on the future of property management, how it's changing, how the game is changing with technologies like this.

Yeah, certainly. So I'm a huge fan of the asset class. I think it's a really, really great way to generate passive income over time while building up assets in your portfolio. So I think it's absolutely should be part of anybody's investment portfolio as much as possible. However, I think managing property is not always easy and generally speaking it's not easy. So unless you're ready to make a commitment to the properties that you own, we always recommend to consider hiring a third party manager whose job it is to oversee the asset, both the built environment as well as maximize revenues and ensure that the space is being to put to use as much as possible. Yes, it's going to cost you a management fee, but I think ultimately it's really worth it unless you're ready to kind of get your hands dirty and be more active at the property and tenant level. And what we're seeing is more and more individuals start to enter the asset class. Hopefully barriers to entry will continue to fall. A lot of times that has to do with lending rates essentially and the cost of, of capital and the ability to lend against an asset. But we're excited by property management and real estate ownership, particularly kind of income generating real estate. Start to be more inclusive of general retail investors. And we think that a platform like Bixby is absolutely allowing more passive investors to participate in the market because it's. It significantly reduces the time and inconvenience associated with managing assets and tenants.

Good to hear.

Thanks for joining us. Just give out the actual website if you would.

Absolutely. So you can find more information about bixby@www.livebixbe.co that is L I V E B I X B Y CO and you can also follow us IVBIXBY for more information and highlights on the property management industry.

Thanks Mark.

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