Buy, Renovate, Sell, Manage: Chris Clothier's 8,000-Door Model

We are successful on 82% of our first leases getting them to renew. Wow. And then once they renew once, that getting that second renewal is somewhere around 78%. So once you get them to renew the first time, that's their home. And unless you are really bad at management or they suffer some form of good or bad, like they, they get a new job and now they can buy, or they lose a job and they can't afford it, They're not leaving, but it's all dependent on that first lease. You've got to get that first lease renewed to hit those numbers.

Welcome to Peter Lohmann's Podcast. You're listening to season 7, brought to you by AppFolio, our presenting partner. Thanks again to AppFolio for sponsoring this season. More on them later. Now let's get into today's episode. We're back and I'm excited to introduce Chris Clothier, co-founder of REI Nation. Welcome to the show, Chris.

Hey, thank you very much for having me.

So I think I first saw you on stage, I think at a NARPM event years ago, back when you guys were Memphis Invest. And I remember being very, very impressed by not only your delivery, your talk, but also the operation, like what you guys are doing at scale. So Just to set the stage and make sure I have some of these numbers right, you guys have about 8,000 doors under management. Is that right?

That's right.

Yeah. And my understanding is the model is y'all find properties for sale or off market, you buy them, renovate them, sell them to investors, and then mostly retain management of those properties for years and years. Is that right?

That's right. That's right.

Okay, awesome. So that's a, it's a very unique model in our space and it is, Really interesting way to grow doors under management. And I love to just hear more about how that's going lately. And I know, like, if I think back to when I first got in the industry 10 years ago, 15 years ago, wholesaling was a big thing. You don't hear as much about it anymore. So is this still a big part of what you guys are doing?

So you mean buying from the wholesaler? The—

Yeah. Not, not to imply that you guys are wholesaling, but I'm, I'm just curious if your growth these days is still Are you guys still very active in this, in this motion of buying, renovating, selling to investors?

Absolutely we are. But, but as you know, we all would know right now, challenging times with prices and markets and returns. But we, we kind of offer something a little bit different. It's not necessarily just based on the return. A lot of it's based on the, the, the secure asset itself. You know, the fact that owning a piece of real estate and allowing a renter to pay it off over time, Is still a sound investment. There's math involved. You know, you gotta, you've got to get, you know, the right companies, you've gotta collect the right amount of revenue, you've gotta have the right rates. But, you know, in general, not much has changed for us as a business. At our peak, we were selling 100 homes a month. Today we're doing around 40 a month. So it's still, it's definitely dropped down tremendously, but it's still going active and Part of our ability to do that is we purchase and manage in 11 different cities across the Southeast. So we're really geographically close so we can manage that many cities, but it allows us to still do good volume. Yeah.

Okay. And what percentage of those homes that you sell end up staying with you under management?

Yeah, 100%.

Oh wow. Okay. Is it part of the sale agreement or how's that work?

No, it's, so it has to be separate in order to, for us to not be marketing a security. Got it. So the, the performance of your investment is not tied to us being your manager. It's going to perform how it's going to perform. Now, we are really good at what we do on the management side, which is, and it's a, it's a third-party service offered to everyone. And so they, of course, they most take it, I say 100%, You know, occasionally I think in a year if we sell 500 homes, we're going to retain management on 490, 495 of them.

Okay.

Yeah.

Because I presume that's kind of part of the pitch or part of the advantage that folks are bringing in. It's like, hey, we're, you know, we know this property, we renovated it, we manage it for you. So it reduces downside risk for them. That's kind of the pitch to the investors.

Well, you nailed it. The downside risk is is the entire pitch. Okay.

You

know, it's, they are, you know, the biggest impediment to people buying, of course, today far from home, which is a, is a key component for us with the volume that we do, is that being in the know, kind of knowing what's happening, knowing who to call, not having to search around for answers or even wonder what's happening. And so the way we address that is One company identified the property, renovated the property, manages the property for you going forward. You're not calling the person you bought it from if there's an issue and they're saying, hey, call the management company, or you're not calling the management company and they say, well, it's not our issue, it's really the person you bought it from. It's one continuous person that has been in control of this property that is responsible kind of for its performance. So It just really streamlines, takes a lot of questions out of it for investors that it builds their trust that they can, you know, if there is an issue and there always will be, you know, we both know that when you're managing real estate, there's going to be a problem at some point, especially if you build out a multi-property portfolio. And just having the knowledge that there's somebody there that you can speak with that knows everything about the property from the day that they identified it to the day that you have an issue is a big selling point for us.

Okay. I have so many questions about this whole thing and I want to start with what's the hardest part? Is it finding the properties, renovating them, dealing with the owners afterward, just the traditional property management part of it? Like what is the challenging part? Finding the capital? So curious.

That's great. I mean, today the most challenging part is finding the right property.

Okay.

So with, you know, with us, I want to, I would love to tell you that there's a whiteboard over here to the side of me that has like our entire business plan, you know, step by step. There's not. We started in 2002 selling. Those were the first time that my dad looked to actually sell any properties. He started buying properties here in '86. And we just, so we have this knowledge of the market and we have the knowledge of what it's like to be a to own another business and to have this and it be a passive investment. And so, you know, there was a, through the years we made all these decisions that at the time it was the right business decision, but it turns out to be a great decision for investors, if that makes sense. So I don't want to, I don't want to toot our own horn and say that we knew what was best for investors. We were just, we were trying to do what was right for us in business. And one of the decisions we made was we only buy median-priced homes. So we're only buying in the, in the, a very narrow segment of any city that we're in. And there's, all the cities are similar, but we only buy in this very narrow segment of price point. Now what that allows us to do is, you know, the homes are very similar. The materials you use to fix them or repair them are very similar. The way they are managed is similar. The price that they're going to get on rent is similar. It's kind of like making a cheeseburger at every different McDonald's around the country. Everything is very, very similar because we stay in our niche. We don't delve down into lower-priced homes in markets and highly challenged areas. We just don't. We don't go into the luxury homes. We don't do multifamily. We don't do short-term rentals. We are just, we're very vanilla, median-priced homes. They have the highest demand of rental or, or of number of renters. They have the highest demand of number of qualified home buyers on the backside. That's, that's why it's the median price. And so we just made a decision a long time ago to do that. Today it's hard to find those.

And how tempting has it been to, I really admire your discipline. You said we only do median, we don't do short-term rental, you know, we don't do this, we don't do that. And that's, yeah, that speaks to me. I, I'm very, I'm very big on that type of thinking. But how hard has it been to resist the temptation when you see 3 homes for sale on a market that meet your buy box and 500, you know, low income or some, you know, short-term rental or whatever? Like how hard has it been to resist that siren song?

Very hard. And the, and really the funny thing is the reason why is that, you know, people think that we have this massive marketing budget or, or in the past they thought we've had this because they see us a lot of places. Like we were, we were an early adopter on BiggerPockets. And we were an early contributor there and we were the first advertiser there. So we were, and it was never spent a lot of money. It was just, we spent a lot of time building our brand. And for instance, we get 500 hands raised a month right now. People that come to us that they're interested in buying houses, half of them want something we don't provide. So they disqualify right off the bat.

Which is what? What do they want?

Well, like they, they owner financing or, you know, they want to do, they don't, they don't have money, so they want, they're looking for us to partner for them or, okay. You know, owner carryback, all these kinds of different things that we just, you know, you have to be qualified right off the top. And so, but the other half, they're qualified, but they want, like, they're all in. Like, I want the lowest priced homes in your market. I want, You know, I'm, and it's always this fallacy of, I live in a high-priced market, you know, I can't build a garage for $100,000 and I can get a 3-bedroom, 2-bath house in Memphis for that. And I'm telling 'em that the reality is that the local Memphis investors won't drive down those streets. So the only people that are going—

It's the same thing here in Columbus, man. It's like, yeah, I'm like a broken record with that.

So we, and we turn 'em away. And I've told this many times, I've said this, you know, and you hit the nail on the head that there's so much demand for, I think it's a lack of knowledge drives demand for something that investors don't need to be buying, but they want it because they, you know, whatever, there's a fallacy. They think that that's the, what it is, is they think if I can buy a $100,000 house, and I'm going to use financing, I'm only risking $20,000, $25,000. And so it's low risk. A $200,000 house, I have to risk $50,000. So it's more risk. And I try and explain to them that the $200,000 house is not going to go down in value and is going to stay occupied. The $100,000 house is going to turn over constantly and will not hold value. Correct. So you risk 100% of your investment. Even though it's less. Yeah. It's, so it's a, it's a false dichotomy, whatever. So,

yeah. The other thing I always want to shake these folks and, and ask them is like, haven't you, speaking about these investors, I'm like, haven't you ever wondered why none of the Columbus investors have bought these 5 properties you just sent me? Yeah. Like, has that thought ever occurred to you? Like, oh, here's a home for sale for $80,000. It's been listed for 3 months. It's been circulated on 50 billion email lists yet. None of the local investors, you know, they're all, they must all be stupid and you must be smart, Mr. Investor. That, that must be the answer. You're from a, you're a big shot from LA and us little idiots here in Ohio don't really know anything about real estate. Is that what's going on?

It's sad to say, but it, and I think you've nailed a part of it. There is a, there's a bias against Midwest.

Yes.

And South.

There

is people in general sometimes, or can't, or there certainly can be. I've, we've both experienced it where You just, I need to educate you on how to do business. And because of that, you don't know what you're talking about. I want to buy these houses. And I've had,

yeah,

I've had it happen many times and it's, but I've, so back to your original question, there are, you're right, there's hundreds of homes and there are even more buyers for them. And we could easily, it doesn't take much capital, doesn't take a lot more time. You could make $10,000 to $20,000 per transaction and I could do 100 of them a month. And I will not do it primarily because I will lose whatever I make on it. I'll lose all of it in having to hire people, having to spend time and the energy to be able to manage that product down the line.

Yeah. You're also going to lose a lot of reputational capital when, of course, those investors experience long vacancy, high turnover, expensive repairs, tenant damage, everything else. So totally get it.

And most of our growth is Investor, current client-driven

referrals.

Yeah. Or even them building their own portfolio. They— Oh,

okay, great.

So

they buy more, they have good experience. So, okay, I'm ready for my next one, you know?

100%.

Yeah. Do you have like an age limit on the house? Like, will you not buy homes older than 1980 or do you have like a cutoff?

No, no. And yes, it's, it's accidental. It's, it's, it's driven by the product, you know what I mean? There's not a lot of medium-priced homes that were built pre-1950 for where we buy. And so just by that virtue, we don't buy that. And most of what we buy today is built in the '70s and '80s or newer. Occasionally we'll get the 1960s market when you're at the bottom end of a median-priced market. But so I think it's just more driven by What's the pricing telling us in the market? So we've obviously, as a company, we started buying at one price point and through the years, you know, the price of what we buy has gone up and to the right on charts. Sure. So it's just as, as, as the values have risen.

Yep.

The price we pay has risen because the neighborhoods are still the same.

I always have this fantasy of being able to set a cutoff of like, we won't manage homes built in 1978 or older because of the lead paint thing.

Right.

You could just completely do away with all those disclosures and the risk and yeah. But that's more than half of our properties, I think. So we're nowhere near being able to do that.

Not there yet. Yeah. Yeah. No, I think it's just driven by, for us, it's, it's more driven by we want to be in the same neighborhoods, we want to be in the same types of properties, and they generally tend to be built '70s, '80s. But, you know, and the outliers become the newer houses and a couple older ones.

Got it. So

yeah,

in terms of, you know, you buy a home and you get it ready and then you sell it to the investor, that renovation process, I'd love to hear a little more about that. Like, do you have some type of a standard renovation package? Are you buying HVAC units by the hundred? You get some deal? Do you have some flooring you really like? Just, just gimme a little flavor of it.

Yeah, no, we've, so we've definitely developed an outline. For what we do and how we do it. We, of course, we use accounts with Home Depot and Sherman Williams Paint and Lowe's, you know, you, so we have ability to be able to, you know, get our parts and pieces and stuff there. So we have a, every house we buy gets the same standardized list of here's the items that are going into it.

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No, it, it will depend 100%. And especially in today's market when you have to be like, the spreads aren't there.

Sure.

You know, so you have to be, you have to be very careful with every dollar you spend or Because there's 2 things you can't do. You can't mess the investor up on their investment because then they won't buy again, but you also can't do something for free. So we're very, very careful before we ever buy anything. But this goes back, we've got these, just these different basic reporting things, and this stuff goes back for almost 20 years.

Wow.

Monthly and quarterly. So we know exactly from the price all the way down to copper and nails at And that's all priced at Lowe's off the SKUs. And then, but we also have the number of days it takes us to get an owner to approve a move-out list, the number of days it takes to get started after approval, the number of days it takes to get completed, then marketed, then re-rented. I mean, you, we track every little piece of data to see where any hiccups may be happening, where we need to try and find even a little bit of improvement, a day or 2 here or there. It's not gonna—

let's jump into that. Yeah. I love that. Where, where is all that data living right now?

So it, it lives, we basically use Salesforce that runs most of what we do. There's some stuff kept, like strictly property stuff is kept in PropertyWare, but performance data is kept in Salesforce. I know you're gonna, you're gonna love this, but we, uh, we've, we've built a data lake, a data house, and it has Now we've got big data query built into it. So like, I mean, we, the insights that AI is allowing us to see now, you know, Google Docs was where everything has been kept in the past and it's very manually driven. We take it from Salesforce, we organize it through Google Docs and it's fantastic. I mean, we've just got loads and loads of data. Now all that lives in the, in our data house and I mean, instantaneously you can pull stuff up by market, by year, by quarter. Tell me what it was 10, you know, 10 quarters ago. Give me the trends. I mean, we can, there's all kinds of stuff we can ask today and get it like instantaneously on our fingertips. So to your question, we do really, what we want to do is the highest level renovation we can without over-renovating. And then of course driving the cost up for the next owner. But we also don't want to leave them with a bill and a surprise. 'Cause we want them to have an experience that was above and beyond what they expected when they bought real estate, especially because most of our buyers are buying far from home.

And presumably if you did, I can only imagine how many emails you get a week that's like, you sold me this house and the hot water tank, blah, blah, blah. You know, and you're like, all right, no problem. We'll, we'll make it right for you. You know? So you have every incentive, much, much, much more so than the average flipper to get the details right. Right. High quality materials. High-quality contractors, not fly-by-night folks who are going to be gone because you're counting on these subs, I'm sure, to go back in many cases and fix problems with installation or whatever the problem, you know.

Look, we have, so number one, we offer a 1-year warranty on the house, whether we touched it or not. So if I determined the hot water heater was good and it was serviced and it was working just fine, and month 11 it goes out, I mean, that's, I'm replacing it. So one, you have to, if you're going to offer that type of warranty, you better be really, really good at what you're doing or you'll go out of business. And then number 2, we do some unique things. Happy to go into all the details about it. But one of the unique things we do is we call every one of our clients every month. So we have a customer service team who's dedicated. All they do is call clients every month and just say, All your rent's collected. There's no issues, no bills. You're good. Do you have any questions for me? Kind of thing. Build relationship, build rapport so that the day there is an issue, they will answer the phone. They will work with you quickly to get it resolved.

How many owners is that? Are you able to share that?

Yeah, we've got over 3,000 owners.

Holy cow.

Yeah, I have, we have on average there's 300 owners per, so we have 11 ladies that work on that for us. We have a distinction called the WOW Group, and it's silly, but you've, you know, when you buy 5 or more houses, you essentially have a million-dollar-plus portfolio with us. We are wowed by your commitment to work with us. So you're a member of the WOW Group. You get discounts and other, you know, little things. But so we have our WOW customer service team who they deal with a lot fewer clients. They may have 100 clients only, but of course they have a lot more houses to keep track for them. But that holds down that call of, you know, I'm really mad, the water heater busted. We still get them, but they happen in that monthly call. You know, I've got bad news for you. The water heater busted, but this is what we've already done to proactively help you. This is what we're doing to get this mitigated and fixed quickly. It really saves The, we don't make everybody happy all the time, but we don't have complaints. You don't see a lot of people out there anywhere on the internet saying that, that we screwed them. Doesn't mean everybody's loved everything about the investment, because again, as we know, it's real estate, things happen, but never been accused of under-renovating and overselling. Put it that way.

Sure. So what you're describing sounds great. I mean, Growing to 8,000 doors, 3,000 owners sounds, I mean, yeah, let's go buy some houses, fix 'em up, sell 'em to people, retain management. Why haven't, and I'm belittling the complexity to make a point, why haven't more people done this? Like, it seems like an intuitive, and you, I mean, I literally, I must have seen you or someone else at the company. I'm sorry, I can't remember who this would've been probably 8 years ago at NARPM.

Yeah.

And I remember specifically it was about BiggerPockets. You jogged my memory when you mentioned that. So it's not like you've been hiding this model. You've been very open and public about it. Why haven't more, why do you think more people haven't done this?

It takes risk and it takes hard work. And the, the very simple reality we have had, so we've had masterminds before that we've invited companies to come in. At NARPM on stage, I invited anybody that wanted to come in. You could spend a day with us free of charge. Happy to let you sit with any of our team leaders, sit with the owners. There's no secrets at all. And we've had a few companies take us up on it. And I'll never forget, there was a company, there were 2 partners out of Atlanta. I don't remember the name of the company and I wouldn't say it anyway, but they, it was a long time ago. They came in and they spent a day with us. And at the end of the day, the guy, they said, look, we're in business to retire. We're in business to hire people to run our business for us. We're entrepreneurs because we want to do other stuff. Y'all work too hard. Y'all, this is, we're not interested in this model. And

I like that they were so upfront about it. That's something I would say. Yeah.

They were direct. They were like, I have zero desire to work as hard as y'all do. And I'll remind you, I don't buy houses. I don't sell houses. I don't renovate houses. I do none of that. Like, we're so far removed from that today. Instead, we manage the people that manage that and we manage our expectations. Put it that way. So we had this little phrase that we developed a long time ago. It's called inspect what you expect. And so we do go to the houses. We do track, like I told you, all the numbers. We have all the data. You can tell very quickly where your issues are with the data. You don't have to be out in the market. And so we inspect what we expect. We work very hard. We're in here every day. We tell people all the time, we're, we don't play golf very well. I like to, I like to play golf now, but I play golf like 2 rounds a year. So we're not a, we don't have a weekly Friday golf game. We don't take martini lunches. You know, we're in the office. My dad's the first guy in the office at 6:45 in the morning. And then we're here every, you know, every day unless we're on vacation or out, you know, out of town, something. So we genuinely like doing this. And that's been the biggest impediment to other people doing it is that it's hard work. At one point we would go to bed at night with a little over $80 million in debt over our heads because that's how much we That's the operating cost, you know, the spread

between when you buy, renovate, and then

finally

sell. Yeah,

sure. You gotta hold those houses.

If you're growing, that's gonna be growing. Yeah,

absolutely. But, you know, unlike other management companies, and I'll tell you a story about Matt Whitaker in a second, 'cause I know that I like Matt a lot. I know that he's joined your other, the other venture you've got going on,

Crane.

Crane. Yep. So anyway, before I go there, we, you know, We made money on every single property that we manage today. So we manage 8,000 houses and we were profitable bringing them into our management company on every one of them.

Sure.

And highly profitable. So, but we've never, ever, I don't have a business development manager. I've never marketed to third party to try and pick up third party random people that need management. We've done it a different way and it's taken, you know, it takes a lot of money. It takes a lot of, you have to have great systems. You have to, not to pat us on the back, but you have to be a good leader. I mean, you have to, because we have 130 people that work for us.

I was gonna ask you. So yeah, thanks for sharing that.

Yeah. You can't have a, you can't have an organization with a, like this without a lot of really good people.

That sounds like really lower than I would've expected. I guess that tracks. That's about 60 doors per person. That's, that's about right.

And it's, and for us, we're siloed, so we don't, we don't operate with the manager model. It's, you know, departmental, departmentalized.

Okay. So those folks who you were saying that call the owners once a month, they're not, they're not like the, the property manager for that owner. No. They just, they're checking in.

Yeah.

Okay.

They are strictly, I'm here to get you answers if you need 'em. And I try and, They want to anticipate because they get used to, they build a relationship so they know what answers owners want before they call 'em. But then anytime there's an issue, that's the other thing. They're not, they're not waiting till next month to call 'em about an issue that happens today. They're picking the phone up and calling 'em even if they've already talked to 'em this month. So we just, we're, we identified, and I think this, this is true for any business, we identified the biggest fear that investors have. about owning property and having a property manager is communication. It's the biggest fear is I won't know what's going on and therefore I'm going to get, I'm going to get the wool pulled over my eyes somehow, some way.

True.

So all we did was, I will call you every month, so you will never worry about that. And those people, you know, it's funny, When we did it, they don't make any money for us. They don't buy anything. They don't sell anything. They're not part of the management process. They are strictly there to do nothing but call the owner. And if they have nothing to talk about, we've trained them to be, well, last month you told me it was your wife's birthday. If they're talking to the husband, did y'all have a good dinner? Yeah, it was fantastic. Great. And then make a note because next year I'm going to send you a gift card to your favorite restaurant and say, here, dinner's on us this year.

You

know, that's, they're trained to do these things to create an experience for that investor that's completely different than what they had heard about or expected. And that's what makes them buy again. That's what we don't lose properties unless they are selling. So rarely, rarely will we have a request from somebody to move their management to somebody else. It happens. I don't want to say like we're perfect, but that's just such a rare thing. It's not anything that we worry about. Our biggest threat to us is the fact that people that have owned houses for 8 to 10 years, they probably should be selling. I mean,

why not refinance?

Well, what they do is they 1031 exchange into a newer property.

Sure.

You know, these renovations, even no matter how good they are, they're not going to last 7 to 10 years. 7 to 10 years is your max for a really good renovation before you start having real CapEx issues and even just the basics start coming back around. And so Our biggest threat is how do we create this scenario where they just simply don't want to sell? So today we buy houses back from our investors. We buy them back to create the ability for them to be able to 1031 exchange, or we facilitate investor-to-investor transactions so that they can, you know, the new investor can buy it at a discount. They know they're getting it with deferred maintenance. The new investor made a great return and then they 1031 exchange into another property.

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Yeah, it definitely, it flips with scale. So early on, every, you know, you were, for lack of a better way to put it, we were flipping homes. We flip homes and then we manage it going forward and we're flipping 'em to investors. So I would say for the first decade, if not a little bit longer, the first half of our journey in business, the flip side of the business was definitely the driver in the profitability. But then, you know, when you reach 4, 5,000 homes, just by sheer scale, it's going to be hard for a flip business to stay with the growth of that company.

Yeah.

And when we were doing in 2022, 1,000 homes, and I mean, you know, so when you add all of that revenue onto the P&L of the management company after 1 year, I mean, it's, there's no way that your sales business is going to be able to keep up with that. So sales today is its primary, the primary reason why we still buy and sell today is to keep up with any investors that are truly selling their home. Like they don't want us to buy it or they want to maximize their return, which I completely understand. Then we will act as their realty company and we'll sell that on the open market. Now that's a home that we lose management. And when that happens, of course I don't want to go backwards. So, you know, we're to now we're going to do maybe 400 homes this year, between 400 and 450. And I will, I anticipate losing 400 homes this year to investors that are like, I'm at that age where I'm ready to be done. Yeah. I need to maximize it so I can't sell it at a discount to you or another investor. Totally get it. You know, so that's primarily why we buy and sell today is to continue our growth. And then we're, we begin exploring something we've never done before, which is, you know, third party, a company that grows and, and looks to offer services outside of what we buy. So,

so I think, I think I read that was a recent thing that you just started opening up to third-party management.

That's right. Yeah. Yeah. And it's, I mean, it goes back to that conversation I was telling you a few minutes ago about with Matt Whitaker. I mean, I met Matt, I'm not sure how many years back it was. Just a great guy, perfect guy to be able to bounce ideas off of, very open with information, willing to share.

Well, let's not say too many nice things about Matt. He'll, you know, that's right. I mean, they'll get to his head and he has issues,

but

don't we all? Just kidding.

Yeah. But one of the things that was really funny, he and I were having coffee, I think at a NARPM event or an IMN event, one of the other. It was so funny. I told Matt, I was like, I wish I had your business model because your business model is this one of, there's just, it's just this growth engine, this machine that, and he's got it and he knew how to build it and had a great vision. And so it was excellent. And of course he says to me, well, I wish I had your business model because, you know, and his point was he has to spend money to, like, he has to market and do advertising and you, You know, it's not like you get this big influx of capital when you bring houses on. It's a, it's a long-term place. You have to do high volume. Whereas for me, I make money every time I bring a house in.

Yeah.

But I have all the risk on the front end. I've gotta borrow the money, identify the house, spend the time renovating it. And so it was just, it was a, it was really, it was comical when we were talking because I think it's a respectful thing. Like we both, we both respect the business model of the other person. We're both achieving You know, high growth models and success doing it completely differently. The reality is that now we need to, I have to change what we're doing if we want to continue our growth. I want to grow 1,000 doors a year like we did in '22. And the best way to do that is we've identified now is to, we're probably going to buy and sell between 400 and 500. That'll be our limit. I need to go find another 500 houses across 11 to 12 markets. Or find management companies to acquire that meet our criteria, if that makes sense. So it's interesting. It's a really interesting time to me to be in the real estate management business, especially single-family homes. So

yeah, fascinating. So what's interesting about your property management business, which is very different, I mean, it's different in the obvious ways, but the not so obvious way is all of your investors, I'm sorry, all of your clients, are intentional investors, what we would call intentional investors, as opposed to accidental landlords.

Right.

Which makes up a big proportion of our customer base, these accidental landlords. And for most property managers, that's true. Most property managers, probably something like half of their customers, clients moved out of the house and just decided to rent it out instead of selling it, or inherited a home or through whatever circumstance. They're just kind of like, They didn't get the home with the intention of buying it as an asset that's going to deliver an ROI. So they have a very different mindset. Now, investors have their own challenging mindsets to deal with. Yeah. And so I'm curious, now that you're taking on third-party clients, are you finding that those third-party clients are easier or more difficult to deal with or satisfy compared to your Your OG, you know, investor clients?

Well, I'll let you know when we get some.

Okay. Yeah. This is very new then. Okay.

Very.

But so if you own a rental property in Memphis, you know, please reach out.

It's so new that like we're, we're looking for other investor, other property management owners to talk to, to educate us like about a business development manager and onboarding them and what responsibilities.

If only there was like a community. Yeah,

exactly.

Property managers sharing best practices online somewhere. And

that's fantastic. Yeah. So that's, it's, it's interesting. You may have a, an application or something, or a, a, a waiting list somewhere that might have my name on it because we're, I, and I will, I'll tell you, that's why I love like being in those communities or going to, you know, different events like that. Because even though we've been doing this for a long time and we've got 8,000 properties under management, And we know that we've been successful, that we've done something well. Like we do it really, really good. But man, there's so much to learn.

Yeah. There's always more to learn.

Wow.

And, and AI is shaking everything up really big.

Yeah. Yeah. Oh man. I, I, I'm sure you wanna talk about that too. Like it's, AI has been revolutionary for us. So it's been like, that's the, that's the beauty of this. If you're willing to keep learning and, and willing to openly share, Man, there's just, there's so much, so much opportunity for growth and development. So.

Absolutely. I want to come back to that AI stuff. A couple more questions for you. Do you guys have any institutional clients? And I don't know how you would define that. Just curious.

So the answer is no, but we do have a partner that we signed a partnership a year ago. No, what am I saying? 3 years ago that we developed our own balance sheet portfolio. So 3 roughly, well, today it's 250 of our 8,000 homes are owned by us with our partner, which they're not a, they're a fund. So you could call that institutional, but that's, yeah. Outside of that, we as a family, we own roughly another 100 of the homes. The other 7,900 or so that we're managing today are all Just

got it.

Individual investors, you nailed it earlier. They wanted to be in the investment space and yeah, they, so they bought from us. Yeah.

So there's, you know, there's a bunch of these big institutional groups that own single-family homes and we've seen them shift their management strategy, especially in the last year. KKR-backed ventures. Darwin has been on the receiving end of a number of these. As things have moved around, there was the news about AvenueOne. If you were approached by a group that said, hey, we have, I don't know, hundreds of homes in a metro area where you operate, we'd like to talk to you about managing. Is that something you would entertain or is that just so different that it wouldn't be a fit?

I think that at our size it would be, well, one, yes, we would entertain it.

Okay.

And I think that our size allows us to do that without risk. If somebody came and said, we want to, again, let's be crazy here. If they said, we want to bring you 5,000 properties and they fit your model and we give you this amount of time to onboard 'em and bring it all in, we would be a little more, I think we'd be a little slower to say, we would say yes, I think, but we would definitely be a little slower because that's a place where If you develop and you build out systems and teams to handle that kind of volume and one owner more or less, at that point they would be 40% of our portfolio and then they left. Now you've built infrastructure and you've hired people and you've developed a team to manage that volume that's gone. You would, so I think we would be super intentional about the way we took on that type of project and we would build in safeguards for the money we were going to spend, the team we were going to develop. But I, you know, it's interesting. I had a conversation recently about multiple hundreds of homes that, again, to your point, a recent shakeup has kind of left a few different portfolios sitting out there without great management options. And current management is not meeting the needs, but it never could because it wasn't built to do what it's being asked to do now. And so I had a conversation and I confidently answered that it would not be an issue for us to take on 300, 400, 500 homes very quickly. We, sure, when we were a lot smaller, we did it in St. Louis. That's how we went into the St. Louis market. We took on 300 homes at one time, onboarded them all in one week.

Ooh.

And that's how we started the St. Louis market. Otherwise we wouldn't be up there. So anyway, so I had that conversation yesterday. It's, it's very interesting. It's just not, you know, we were never built to, to manage that type of business. But now

that we've got

scale,

I mean, what strikes me is like, it's, there's certainly no question that you can manage the homes. You're obviously managing homes at scale. I think the challenge with those accounts is not the management of the properties or the onboarding. That can all be figured out. It's the nuances of the customer and their expectations and requirements. We need a separate trust account for da da. We need you to do this reporting that you've never done before. We want you on AppFolio. We want you, you gotta come out here and meet with our investors. Like, I, I can only imagine or speculate what the requirements are that are gonna be completely different than some guy who owns 2 homes with you. Right. And the institutional— Yeah. Appetite to deal with a customer like that. Like, I never had the appetite. I'm too stubborn. I'm too arrogant. I'm too whatever. I'm just like, no, I'm not, I'm not setting up a separate trust account for you. I'm not doing that. Like, it's actually gonna introduce more errors on our end. So no, I'm not even interested. Right. So it wouldn't even go past that. Right. So how, how have you thought through that or, or have you gotten that far?

Well, we got, luckily we have the experience of signing a deal with our partner a couple years ago, and it took us almost 2 years to negotiate that. And so to your point, you know, it starts with this laundry list of this is how we're gonna do it. And we end up with, This is what we will do.

Yeah.

And you need us, we don't need you mentality. Now they're a great partner and I, you know, we love being in business with them and I think they would say the same thing about us, but I don't blame them. They just, you know, they, they had a lot that they asked for. They had a lot of lawyers that were involved and it took a very long time because there was a lot of stuff we just were not going to do and they had to be comfortable with that. And I don't blame them for, Taking their time to get comfortable. We had to prove to them that we knew what we were doing. And it would be the same if somebody wanted me to take that on and they wanted a, you know, a bunch of things. We would, we would obviously push back and do what you just did of, of, you know, this is why that doesn't, that's not a good idea. Mm-hmm. And, and the errors that it could introduce and the way that could go bad, the amount of time it puts on us. That was our big thing when we signed on with the partner that we don't work for you.

Yeah.

We, we provide a service to you, but if you want to monopolize the time of our CFO doing a bunch of silly work for you, this will never work. And so, you know, it took, it took time to get them comfortable with, this is a very successful company that does really good at what they do, but they're not going to change to, you know, to do something new for us.

I love that. I mean, the, the discipline it takes to Hold your ground for 2 years while a deal is coming together. I mean, that speaks to like, I mean, you could have easily at any point over those 2 years said, that's close enough. Let's just, let's just give 'em the rest of what they're asking for and get started. Right? It wouldn't, it be nice to end this year with 6,000 doors? Wouldn't it be nice to add 300 homes and just, we can, you know, do a press release. And so that's, I think I'm really detecting this theme of like, disciplined approach to this business. We aren't doing this, we aren't doing that. You probably say no more than you say yes throughout many parts of the business. And I think that's why you're at the scale that you're at. I see, I'm constantly talking to property managers who are just saying yes to everything, whether it's because they need the money or they, a lot of times it's not even that. It's like they have this almost like a moral component where they just feel obligated to help people. And I, I love helping people. I love that for them. But you're not actually being helpful if you just say yes to everybody and then don't execute well on anything.

Right. And, you know, do you have, do you have partners in your management business?

I have one 50/50 partner. Yeah.

Okay. So I think that The, our greatest asset is that there's 3 of us. You got my dad, myself, my younger brother. My dad's in his mid-70s. I'm in my mid-50s. My brother's in his mid-40s. So it's not like any of us are spring chickens here. We, you know, but my dad does have more experience than us. He's got 20 years on us. And so—

Does he remind you of that quite often?

All the time. And he's still, he's the CEO and will be. He's funny. He says that, that his, they'll wheel him out here, wheel him out of the office under a blanket, which is morbid, but that's

his,

he loves working. But he and I have both started multiple companies. We both have failed many times and we both have succeeded many times. This is just the one that has succeeded at the greatest level and allowed us to go and even start even other companies. My younger brother, by virtue of that, he's, he's the one with the college degree. He's the one that grew up in this industry. He's got a, he's got a, a different mind. I would say yes initially to everything.

Mm-hmm.

I've never seen an idea that wasn't good. And

classic visionary. Yeah.

Oh yeah, absolutely. And then you've got my brother who will never say yes. He is like, I need to, no, no, no, no, no. We, Like, I've got a lot of questions. You got my dad?

That's my business partner.

Okay.

Yeah.

Good. Well then, then you have—

He needs to know what, you know, let's see a plan. You know, what are the numbers? You know, have you thought about this? Yep.

So there's, there's my, that's where I was driving, that it really, really helps to have different, you know, things that people are good at. When my, when my dad, one day, as we all know, we're all gonna pass away. When he's no longer here as the CEO, We've already long decided, again, my younger brother will be the CEO. I'm the older brother. You know, everybody would think, well, wouldn't that be you? No, it will not be me. It'll be him. I like talking to people. I like speaking on stage. I like writing. I like communicating. I like building, you know, relationships and building our brand. My dad and brother, they like being in the nitty-gritty and the details. I like running our sales team. I help our sales team and train them. They like, you know, the management side and the renovation side of going through all the details of the cost all the way down to, The little minute line items that, that the, the, an example of that is my dad at one point a year ago was like, office supplies are outta control.

Mm-hmm.

Like, yeah, again, it sounds dumb, but how many blue pens do we have sitting in people's desks around the office? And why are we buying another box of blue pens? It, and, but his point, and he will make that point in front of the same guy That is in, that is responsible for 30 renovations at, at an average of $50,000 apiece.

Yep.

Because he's like, if, if the box of pens matters to me because it's $5 we don't have to spend or $15 that we shouldn't be spending, that's how much it, it, when I tell you that I want the best price possible for the work we do, because we, you know, vendors for that work for us, We are their primary source of income. And if I'm gonna be your primary source of income and, and keep you, you know, responsible. So our thing is, if we'll pay you in 7 days, so we don't make 'em wait. So if I'm gonna get you paid every 7 days and help you be, you know, hire people and, and keep a consistent business going, you're going to give me the best price. And if you, if you can't, don't do business with me.

Mm-hmm.

And, and we, we have a saying, I have a saying, That there's only 2 ways to do anything. Okay? There's the right way. And I do this in front of audiences and everybody's like, and the wrong way. And I'm like, no, it's you do things the right way or you do them again. That's it. And, and I, I look at my wall next to me. We give this example, like, if you're gonna quote me $100 to paint this wall and somebody else comes in and says, no, now that, that is a $200 paint job. I'm not automatically hiring the $100 guy. I'm telling him that there's only one way to paint this wall. And so if it's sloppy and all over the place, you're doing it a second time or you're not getting paid. And you're, so it's a, there's just these, and go back to your word disciplines. It works when you have partners and people that you can bounce things off of that can help you develop the systems and the ideas and the the strategies that are going to keep us moving directly in the area that we set out for. Sure. We don't get too far off this path. I bring every idea to the table because I love them all. And we end up, out of 100, we do 1. It's fantastic. But that way we see everything going on and we've got lots of opportunity, lots of debate. We bring our leaders in, we let everybody kind of hear what's going on and And help us drive. But in the end, what it means is a very cohesive group that when we commit, you know, we're all in.

And love that.

So

love to hear as we get to the top of the hour a little more about your acquisition. You mentioned you're potentially looking to acquire property management businesses. I know you bought the M&A report that we produced.

Yeah.

Be curious to hear your impression of the report and then what you're seeing In the market, where are you buying? What kind of companies, what sizes are you looking for?

So again, just like doing third-party management, we haven't bought any companies yet. We have whatever the words we want to use here, dry powder, big war chest, all those goofy things that somebody on Wall Street came up with. We have it and The interesting thing about what we would be looking to do if we were to purchase companies, number one, I'm not, you nailed it earlier. There's, I don't know how many companies there are out there that are super disciplined with a particular market and property type. And I'm not interested in acquiring companies that manage anything for anybody anywhere. That's just, that will not work for us. I've got some leeway. We have the ability and we're confident enough that we can take on companies that have some mixes, but there will be, there will definitely be a line that we will just not be able to go across. Then

in terms of the quality of homes under management or like, yeah, yeah,

yeah.

They need to be in that median range you were talking about.

And the type of home.

Yeah.

I don't mind, like there's certainly areas of Memphis that are below median price that I would acquire Management companies that manage those areas. But if they had, if they were too skewed towards the, just the really rough challenge and you can just look at the data and see that the average length of occupancy in a year is 6 months, I'm not interested in that. We don't have turnovers. I mean, we literally, the last time we turned over, had more than 20% of our portfolio have a vacancy in a year was 2014.

Hmm.

So that's how low and tight we keep our move-outs. Yeah.

Be like an 80% renewal rate-ish.

That is correct.

Yeah.

But we do 2-year leases.

Okay.

So we, we are successful on 82% of our first leases getting them to renew. Wow. And then once they renew once, that getting that second renewal is somewhere around 78%. So I mean, it's once you get them to renew the first time, that's their home. And unless you are really bad at management or they suffer some form of good or bad, like they, they get a new job and now they can buy, or they lose a job and they can't afford it, they're not leaving. Yeah.

So that, so that would be 2. When you say the first renewal, they had initial lease 2 years, renewal 2 years. So by the time you even get to that second renewal, they've already been there 4 years.

That is correct.

Okay. Wow.

And that's 78% of the time that's successful.

Wow.

So, but it's all, it's all dependent on that first lease. You've got to get that first lease renewed to hit those numbers. The, the other 18%, now they're back into that, they're back into that cycle. And if you, you know, you, the math goes through, you, there are houses that never get longer than a 2-year lease. It's a small number, but You know, those are that, that's that outlier house that's in the wrong area, the wrong neighborhood, that kind of stuff that you just, you're like, okay. But anyway, so we're, we're looking for well-run companies, you know, people that they like what they do. They want to, you know, see their name continue. We're not interested in, in, you know, if it's another market of, of sucking everything in and, and getting rid of people's names, that kind of stuff. We're, we're just interested in looking out there and looking around and seeing where the synergies exist and where it would be a good fit to bring them in. Somebody that does a mix of multifamily and single-family, probably not going to be our forte again, but we're so early on, we're not 100% sure yet. And so even that could change once we get a little more educated on and talk to other owners on, hey, what's the need out there? The good news for us is that, like I said, we, from a financial standpoint and from a team standpoint, we get a lot done with a small number of people and, but with lots of room to grow. And that's not because we use AI to replace people, but AI that sits alongside people and makes them more efficient at what they do. We feel like there's a lot of room for us to be able to grow. And so we're looking at geographically companies that fit and make sense for us.

Is this only in markets where you're already operating?

Well, you heard me say earlier that we went into St. Louis, so no.

Okay.

No, we could. And here's the really interesting thing that for us is that let's just say that we were to move into markets that we're not currently in. I'll pick the Carolinas for instance, 'cause it's moving across the country from Texas to Carolina. Any company that we picked up would have a group of investors that likely don't overlap our own. Maybe they are active investors or maybe they're accidental landlords or a mix of both. But either way, that introduces new markets for me to sell my current investors that roughly, roughly, I would say today, 40% of our current investor groups, that's around 1,200, are actively looking to buy. It needs to make sense. And when they're not, they're not like today, but over the next 2 years they will add a property.

Sure.

At some point, if it makes sense. Giving them a new market to diversify into will unlock them buying, but also the opposite direction. Investors that have never been, never had the opportunity that the company that manages your property is the company that takes all the risk. They use their own money to identify, renovate, and place a resident into. Now it's just a return. Does the math work for you? And it's not a hard sell. And so if, again, if you pick up a management company with 500 or 1,000 or whatever the number ends up being, and they've got a couple hundred investors, now you're looking at a couple hundred new investors that very many, you know, a few of them will raise their hand and say, yeah, what you offer is something I'd be interested in doing.

Yes.

And I like Dallas. You know, I currently own something over here in the Carolinas, but I love Dallas or I love Memphis. Yeah. Whatever the reasoning is.

So you'll be able to extend You'll be able to extend the return on an acquisition in a way that most buyers won't be able to.

Absolutely.

Really interesting.

Yeah.

Well, Chris, this has been awesome. I loved hearing more about your business model and your— I love the family part of your business. That's really cool to see. For people who want to follow along with the REI Nation journey or yourself, where is the best place to do that?

Look, I'm, I am of course reination.com, our website, and I'm all over it. Do a, we do a, an okay newsletter. I say okay because I'm talking to a guy that's got a great newsletter.

Thank you.

And then we, but we're on all the social channels. We're very, you know, we're very active out there. You can find us, me again, Chris Clothier. I don't, I don't mind talking real estate with anybody anytime, whether it's on X or Instagram where we're at, or on BiggerPockets. I mean, there's all the places that investors look and talk, or even management companies and business owners look and talk. That's where we are. And look, we just, again, like we, to round it back out to the beginning, open book. This is such a, it's such a unique and great business to me anyway, and love talking about it. So I'm available to talk to anybody anytime.

Awesome. Thanks again, Chris. And listeners, hey, take him up on that. Love to see, you know, some connections come out of the show. So thanks again, Chris.

There you go. Thanks.

I hope you have enjoyed this episode. If you like the show and want to get connected to the community, you can follow me on Twitter @PSLohmann and subscribe to my email newsletter on my website, peterlohmann.com. I try to share as much valuable property management content as I can on a regular basis. Thanks again for listening. And have a great week. Bye.