Competing Against 3% Management Fees with Todd Ortscheid

Peter Lohmann's Podcast. Peter Lohmann's Podcast. Peter Lohmann's Podcast. Brought to you by Lead Simple. Yum. Airlines got their margins up in the late '90s to very significant margins. They were making very good money after, you know, taking basically 20 years to figure out how to survive in post-regulation. And what they found out was, as soon as that happened, all these new entrants came into the market and started undercutting them on fares. So, what did they have to do? Well, they had to come up with ancillary revenue. That's where things like bag fees and rebooking fees and all this other stuff came from. That was for them to get back their money so they could make money again. Property managers have basically done the same thing. We went through this over the last decade or so, looking at profitability in the industry. We realized it was minuscule, and everybody started charging ancillary fees to fix the problem. But as a result, what are we going to have now? We're going to have the companies who have done that realize, "Well, I don't need a 30% margin. I can survive on a 20% margin." margin. So they'll start cutting back their management fee, which is the big part that gets advertised, and it puts the squeeze on anybody who hasn't gone in and done what they needed to do to boost their other revenue. So I think that's really where we're starting to get in the market at this point.

Welcome back to season 3 of Owner Occupied on operational excellence in property management. Owner Occupied is a show about property management in the real world. I'm your host, Peter Lohmann, co-founder of RL Property Management. For season 3, I have a different guest each week and we go deep into conversation about what actually works when trying to grow and streamline your property management business. Thanks for listening. Now let's go.

All right.

Welcome back to Owner Occupied, everyone. I am so excited to introduce Todd Orchide. To the audience, Todd O, as he's known in the industry. If you're on some of the Facebook groups and affiliated with NARPM, you probably know exactly who I'm talking about. If you know me from Twitter or my email newsletter, you may have no idea who Todd is, and I'm so excited to introduce him to you. So Todd, if you wouldn't mind just taking maybe 1 to 2 minutes, give us a quick backstory background of who you are and what you're up to these days, and we're going to dive right in.

Sure. Yeah. Thanks for having me on the podcast, Peter. I really appreciate it. I've been in property management now for about a dozen years, maybe just a little over that. I was previously in the airline industry. I was an airline pilot for 14 years before this, which is kind of what gives me my background in processes and checklists and all that. But, you know, about 12 years ago, I decided to dive into property management. My father owned a very small property management business, about 60 doors. I basically took that over and decided to grow it, and we eventually went into multiple markets, grew to about 600 doors. I've scaled back a bit since then. I sold off a portion of the business, went back to a single market as I've started to focus more on consulting and training. Which is really what I spend most of my time doing nowadays. But I do still own the property management business, so it's based out of Atlanta, which is where my main house is.

Okay, beautiful. I love the story, and I think the pilot backstory is always, you know, people are very interested in that. We're not going to dive too deeply into that today, but I know you've talked in detail about that and its impact on, honestly, your sort of views on life and business, and that's That's really interesting. I do want to ask you today about organizing a property management company. I've written about, and a lot of folks talk about, is it pod, departmental, portfolio style? And these are big questions, right? And I get asked a lot from folks who are starting a management company or just starting to get to the point where they're bringing on employees, what's the best way to organize a management company? And you had some really interesting thoughts about which of these you feel is the right one. And I wanted to dig into that a little bit because I was really interested in your take on this. So what's your style and why do you prefer that?

So, I mean, I think a lot of the question really depends upon is someone trying to scale their business or not? You know, if you're trying to stay small, you know, you're not planning to really grow into a big business, then I think it's fine to stick with the old school portfolio method. You know, you've got a property manager who handles everything for those properties. Nothing wrong with that for a small business. If you're not planning on scaling, that works. The question really comes in when you start to decide, okay, I want to actually scale this business and start to grow. And then I see a tendency among a lot of property managers to try to keep this same idea in their head that they want to have this single point of contact, and they're trying to structure everything around that idea. And that's kind of where the whole pod idea comes from. I've heard different names for it— squads, You know, there's a lot of different names for it over the years. The basic idea is, you know, have roughly 3 people that manage these properties and then break all of your properties up into these different groups of 3 people who are going to manage it. And one of those people in that pod or squad or whatever you call it is the primary point of contact for the owner. I think this is a mistake because number 1, it's basically solving for a problem that doesn't really exist. We're basically trying to solve for the problem of single point of contact., which I really don't think is something that we need to be worrying about. That's an idea that people have, that everybody wants a single point of contact. But when I look through my business relationships that I have as a consumer or as B2B, none of them are like that. I really can't think of any company that I do business with where I have a single point of contact. This seems to come, in my view, from the real estate agent mentality, where you're the real estate agent, you're acting for a principal, and it's just the two of you working together. But, you know, I think even that is dying nowadays as real estate teams become bigger. And now, you know, people who down here in the South are familiar with Mark Spain— if you see a real estate sign for Mark Spain saying he'll buy your house and you call the number on it, you aren't going to talk to Mark Spain. You're going to be talking to one of 100 different people he has in his call center who are his customer service people. And, you know, there's a reason for that. You can't scale it unless you do it that way. And that's why I'm really a big supporter of departmental structure for a management company if you want to scale. You've got to get away from the idea that a specific person has to be interacting with the owner all the time.

Yeah. And I think I agree with most of that. Now, we're departmental, so I'm in agreement in terms of I like that arrangement. I do hear— I mean, I've definitely even heard from clients, to play devil's advocate for a minute, you're on the phone with a potential client and they say, hey, will I be dealing with you, or who's going to be my point of contact, because I don't want to get bounced around. So is this something where it's a matter of retraining your clients and kind of like, we know best, or how would you respond to that?

Yeah, I think it's really a matter of setting expectations from the beginning. You know, when you first onboard a new owner, typically they've been talking to a business development manager or you know, whoever your company has in that sort of role, you just have to do the handoff right. So, you know, you have to make sure that that BDM, the salesperson that brought them on, is setting the expectations that, hey, when you have an issue, the way you reach us is this shared email inbox or this shared phone number that's going to go to, you know, customer service. And if you set that expectation up front, people are, you know, ready for it. They don't expect anything otherwise. The problem comes in, you know, if you're the BDM who signs them up and you don't really do a good handoff, and now they're still trying to interact with you, or they don't know who to talk to. Doing the expectations from the right— from the beginning is really where this problem gets resolved, in my view.

Yeah, I completely agree with that. And I honestly think setting correct expectations is like 90% of this business, both with tenants and with property owners. And it's actually super hard to do well. We've experimented with videos, email series, attachments, I feel like no one reads anything anymore, and so you end up spamming them with over and over and over the same information, and still they haven't consumed it. We even— we're to the point now where every new owner, they get mailed in a box a couple things from our company, but one of them is literally a nicely printed copy of our owner handbook, like professionally printed, not just Xeroxed off and stapled together. Because I'm like, all right, well, maybe if we get it like, you know, hard copy in their hand, they'll at least glance at it.

You know, there's, there's probably some truth to that. I mean, if you look at, you know, magazines, for example, you know, it used to be magazines would come to my office, and when they came in, I would read them. You know, I would actually put in my hands and flip through, and I'd read through it, you know, the NARPM magazine or whatever it was. Now all the magazines are electronic, so they just send you an email, and usually what I end up doing—

oh yeah, I made them send— I make them send me the hard copy. Of the DARPA magazine. Exactly. It took me like 5 emails to get them to still do that. Yeah, because it's easier, right? Every— you know, you just grab it, you know, throw it in your briefcase or whatever, take it home. You can read it while you're watching TV or making dinner or whatever. Awesome. And so like, just one more point on this because I thought it was interesting, like the Facebook interaction I'm thinking of— and by the way, maybe follow Todd on Facebook, maybe not if you are easily offended. And I'm saying it doesn't matter, Democrat, Republican, liberal, conservative, he's going to make you mad. So just go into it knowing that and you'll be fine. And actually, we're going to talk about this, but one of the things I really like about you, Todd, is that you don't conform to any— a lot of people say, oh, I'm independent thinker, blah, and they're not. But you actually are. I feel like there is no box to contain your opinions on business and life. So we're, but we're going to come back to that. The Facebook exchange I'm thinking of, you said something like, our industry is trying to reinvent something that apparently works fine for every single other company in the world, which is to organize in a departmental structure. Go to any Fortune 500 company, they're organized by departments. They're not in squads. So I was trying to think through, is that true? I'm thinking about some of these bigger companies. And the only counterexample I can think of is we bank with Chase and they did assign me a business banker. And they've been— actually, it's amazing. We've banked with Chase for over 10 years now. I think we've only had 2 business bankers. And sure enough, I can text or call that guy and get a really quick response with anything I need. But that's the only company I can think of that's like— so maybe it's like the exception that proves the rule or something.

Yeah, I mean, the only example I could think of— we, we do our payroll through Paychex, and they assign us a— I can't remember what the title of it is— but some sort of account manager where I can email them at any time. The problem there, of course, is we've went through probably a dozen different account managers with Paychex. And so, I mean, we're constantly getting a new email saying, hey, your new person is this and your new person is that. So then it just reminds me of why I think this is a bad idea. I mean, if you're just going to switch out the person all the time, then why does this matter? But yeah, I mean, my general view on it is like you said. I mean, if you look across the business world, it's very difficult to find a successful large business that's trying to do something in anything other than a departmental fashion. And there's a really good reason for that. It's because when you specialize in something, you become very, very good at it. When you try to be a generalist, you're never going to be very good at anything you're doing. You're always going to be just mediocre in all of these thousand things that you have to do. So if you, if you're a portfolio manager and you do everything from accounting to leasing to maintenance, you're never going to be the expert in any of those things. So, you know, that's why I think it's so much more efficient, much better service to really let people specialize and go by department.

Yeah, great point. All right, I want to ask you about management fees. So you made a comment recently, a huge PM company in Atlanta is regularly offering management fees as low as 3%. And you went on to say that you don't have an issue with that because they're profitable, they're growing, they're making it work. And you ask a provocative question, which is, what would you do if you had this as your biggest competitor? Are you able to compete with a 3% management fee? If not, you'd better get your ancillary revenue game up to par. So I love this. And one thing that I've been kind of sounding the alarm on here in our industry is that this fee-maxing deal There's limits. The nature of capitalism and free markets is that profit margins get competed away. There's no magic pixie dust within the property management industry that makes us immune to that. So what we should start to see eventually is that as the margins in our industry have grown, which they have, documented proof of that through the NARPM and ProfitCoach profitability studies, What we should start to see is that a new group comes in and undercuts on price because instead of using those savings to boost their margins, they're going to use those savings to lower their prices and attract business. So it looks like maybe this is that. I'm just curious to hear you talk a little bit about what you're seeing and if you kind of agree with that general line of thinking.

Yeah. I mean, Jeff Bezos famously said years ago, your margin is my opportunity. And I mean, that's really the way this all works. That's how business, like you said, that's capitalism. If there's giant margins in a business, it's just an invitation for someone to come in and say, "Well, you're doing a 25% margin. I will gladly do that for 10% and capture all of your market share." That's just how capitalism works until it eventually works its way back to a stabilized long-term margin that everybody can live with. It is unlikely that we are going to see 40% profit margins like you see from some of the property management companies continuing indefinitely. What's going to happen is that stuff's going to start to be trimmed back. I look back to my experience in the airline industry for this. Airlines got their margins up in the late '90s to very significant margins. They were making very good money after taking basically 20 years to figure out how to survive in post-regulation. And what they found out was, as soon as that happened, all these new entrants came into the market and started undercutting them on fares. So what did they have to do? Well, they had to come up with ancillary revenue. And that's where things like bag fees and rebooking fees and all this other stuff came from, that was for them to get back their money so they could make money again. Property managers have basically done the same thing. We went through this over the last decade or so looking at profitability in the industry. We realized it was minuscule, and everybody started charging ancillary fees to fix the problem. But as a result, what are we going to have now? We're going to have the companies who have done that realize, "Well, I don't need a 30% margin. I can survive on a 20% margin." So they'll start cutting back their management fee, which is the big part that gets advertised. And it puts the squeeze on anybody who hasn't gone in and done what they needed to do to boost their other revenue. So I think that's really where we're starting to get in the market at this point.

Yeah, it's so interesting because it feels like, as a participant in the marketplace and in the industry, it feels like price doesn't really matter. Like, it seems like companies charge whatever they charge, and consumers don't necessarily shop on price because there's so many other factors at play. And it's like, who's actually calling them back? And like, who did they get referred by? And the price question itself isn't clear to consumers because of all the ancillary fees. And this one has a breakup fee, and that one has a markup on maintenance. And so what it kind of feels like to me right now is that price price is not a big factor. And it, and I think among a lot of property management company owners, it feels that way too, because all the advice you hear day in and day out is raise your prices, raise your prices, raise your fees, raise your revenue per unit, right? And there's so many reports coming back that it has no impact on acquisition and has no impact on churn. But we know that, that this can't be sustained indefinitely. Matters. People are not going to pay more for the same thing. And what I think we haven't seen so far with maybe this 3% example being the counterexample, I feel like what we haven't seen is a well-executed, ancillary feed-up, operationally streamlined new competitor come in to a market and start chewing away market share aggressively. Now, what we have seen is big VC-backed companies who don't know what they're doing undercut on price and then fail spectacularly 18 months later. So is this coming now? Is that what you're observing with this guy in Atlanta, or where are we here?

I think it's very market-specific. So I think the reason it's a problem here in Atlanta is because the market is so saturated with property managers. I mean, if you look at how many managers there are, there's literally hundreds of property managers in the Atlanta market all competing for the same— we have 300 and some members of NARPM just in Atlanta. That's unreal. It's crazy. And basically Orlando, where I was previously, I had an office down there, it was really worse there. I mean, the squeeze on margins there, on the prop, on the management fee anyway, was very tight. You know, I remember when I used to drive to my office in Orlando, I used to pass by a management company that had a sign out in their front, in front of their office that said, hey, 5% management fees, come to us, we're cheaper than the competition. So, I mean, it had already started there, and now it's really starting, I think, to spread to some of the bigger markets. If you're in a smaller market, a tertiary market, I don't think this is going to be as big of an issue because reputation matters more and there's just not as much competition. The problem in some of the bigger markets is you have literally dozens of companies with 4+ stars on Google. They've all got good reputations. They're all offering great service. So all people really have to look at is, Well, your price is lower than the, the other guy who also has a 4.5-star rating. So why am I going to go with you?

Yeah, I think there's something to that idea of it's market by market because we really haven't felt it here in Columbus. I haven't felt price pressure in that way. So this episode is brought to you by PropertyMeld. PropertyMeld is designed for property management professionals ready to transform their maintenance process by making data-driven decisions to increase productivity and lower maintenance costs. From resident submission to work order completion, PropertyMeld lets you diagnose your maintenance workflow at a granular level and analyze which part of the process is holding you back. Stop blind decision-making and start allocating resources to the parts of the maintenance process that actually need improvement. User-defined automation allows you to eliminate low-value, time-consuming parts of the maintenance process by reducing communication issues, scheduling inefficiencies, and staffing pitfalls. PropertyMeld switches the focus from mundane tasks to big-picture NOI, preventative programs, and investor relationship building. Over 800 of North America's leading property management companies have chosen PropertyMeld, leveraging an approach that is night and day different from the status quo. PropertyMeld provides maintenance benchmarking unlike any other platform. Over half a million units on the platform platform, 1.7 million maintenance requests, and nearly half a billion dollars in maintenance repairs run through the software annually. It's time to join the pros and make decisions based on reality instead of assumptions. Partnered with top accounting software, PropertyMeld provides an integrated solution dedicated solely to optimizing maintenance. Visit propertymeld.com to learn more and join the new standard of property maintenance. Okay, very interesting. So on this topic of competition, I want to talk a little bit about mergers and acquisitions. And famously, our industry has some VC and private equity-backed folks executing roll-ups and valuations are high, probably at an all-time high, I think it's safe to say. It's a great time to be selling a management company, not a great time to be buying one. I'm interested in where's this all going to shake out 5, maybe 10 years from now, who's going to be left standing? Who's going to be gone? Like, is this— some of the big guys like to paint this picture of like, don't be left in the middle. You either need to be huge or you need to be boutique or you're going to become irrelevant. You know, I don't know if I completely agree with that. I'd love to hear your take on this.

Yeah, I mean, I am somewhat in that camp, I guess, where I think that a lot of the middle is going to be weeded out. That's not to say that everybody in the middle is going to be weeded out. I think, again, I think that's market specific. But I think especially in the bigger markets, I think that's really going to happen. What you're going to end up with is boutique operators that are able to offer that more white glove service, and then you're going to have the big companies that are more systematic, and maybe their fees are lower. I don't think there's going to be a lot of, say, 800-door management companies in the middle there in most of these big markets. But I think it's a process because we've seen, as you mentioned earlier, we've had lots of VC-backed companies come into this space and try to do this, several of them have basically bailed out and they've instead tried to go and do things like managing for institutional only, going after the REITs or buying their own properties. Some of them have gotten big funding to go out and acquire their own properties instead of doing third-party management. There's a lot of that that's happened. The difference right now, I think, is that there are a handful of these big companies that are actually managed by people who know property management really well because they've been doing it for many years. You look at companies like Evernest, HomeRiver Group, Pure, they're all owned by people who know the industry. So I think they might have better luck doing this than some of these outsiders who have tried to do it. But again, I do think it is still going to be market-specific. You're not going to have these big companies pushing their way into Moline or Rockford. That's not where they're aiming. They're aiming for big markets, at least for now. I think your risk on this is a lot higher if you're in a big market than if you're in a more tertiary market.

Yeah. I think a lot about the value of a national property management brand. I'm so fascinated by this concept of, is the value of a brand, and specifically a national brand, famously McDonald's is the same wherever you go. If you're in a foreign country or a state you've never been to before, you can stop at a McDonald's, order a Big Mac, you know what you're getting. Brand value. There's a set of minimum standards and expectations that you're basically paying for when you buy a brand. Now, in property management though, like, what do I care if the brand is national or not? Because I'm here and my rental is here. It's not like I'm driving across the country leasing up properties on my vacation or something. So, but, but if you look at other industries, some industries seem to be extremely resistant to this concept of a national brand and It's been tried and tried and tried again. And these rollups, they come and go. I mean, there was big waves of rollups every 10 to 12 years, it seems like, and they fail. And then it's just like, no, you can't roll those up. It doesn't work. You know, it's been tried 3 times before. And like, what, what's going on? Like, what is the situation with property management? Is there value in a national brand or is it just the value of a centralized backend operations? Like, what is the thesis behind these rollups, do you think?

Yeah, I mean, I don't think the brand is that big of a deal for it. I'm not sure it's about that. I think it's more about operational efficiencies at scale. I think, at least the theory is, if you get it big enough, your per-door cost by centralizing things is going to be reduced over and over and over again as the scale grows. Whether that's actually true or not, I don't know.

I think that's the billion-dollar question right now.

It is. And I think you know the Profit Coach guys. I mean, they've done some research on this and you can actually see where there's like, as your door count grows, your margin usually shrinks. So, I mean, you're adding layers of middle management, you're adding C-suite level talent. There's a lot that goes into it as you scale. I wonder where that door count is where it actually becomes more efficient because it's not, I don't think.

Yeah. Is there another plateau? Somewhere off their graph to the right.

Exactly. I don't think anybody knows the answer to that yet. I mean, the biggest one we really have at this point, I believe, is HomeRiver Group at 40,000 or so doors. I think they're the biggest operator. There's other companies that do this for their own properties, but nobody's doing it third party, I think, any bigger than that. And I have no evidence that they're doing it more efficiently than, say, you are. So I don't know where that number is, if it exists.

Yeah, and I sometimes try to think about like, where would those savings come from, right? I mean, there's some obvious ones like centralized backend accounting, centralized leasing. Maybe there's some negotiating power with some of the software vendors as you get to scale. But I mean, there's just not a lot of fat to trim in the first place with what we're doing. I was talking with someone the other day and I was arguing with them about how stupid it is that attorneys at big law firms have to be on call 24/7. Like, they literally, if a client calls, they have to answer. It doesn't matter if it's their wedding day or whatever. I was just talking about how dumb this is, and the person countered and said, well, when they're paying $1,200 an hour, that's how we, you know, when they say jump, we say how high. I said, you know what, that's kind of funny because our clients pay us $100 a month and they expect the same thing. That's what I mean by, there's not a lot of fat to trim here in this business. Yeah, I don't know.

Yeah, it's crazy. I think a lot of the fat that you can trim is just as easily trimmed at the small level as it is at the big level, because a lot of what you're able to trim is things like going to international outsourcing, automating your leasing, using call centers. I can do that just as well as a big guy can. I don't know where that secret sauce is. I'm sure someone will find it eventually that makes it really make sense to do this. But right now, I think what it really is is just a whole lot of venture capital looking to get into the space. That's why this has really taken off and why so many companies are starting to be rolled up, is just because there's so much money in the space being thrown around. I don't think there's any real advantage at this point on a per-door cost basis or revenue basis for doing it.

Yeah. I think that growing a national property management company has to be one of the hardest things I could ever conceive of doing. My hat's off to the guys who are making a run for it. I'm pretty friendly with Matthew Whitaker. I believe in what they're doing over there at Evernest, and I wish them all the best from the bottom of my heart. I've thrown that on the too-hard pile personally. I think I've gotten really clear with myself that I'm not going to go national because Man, that sounds like a lot of work.

Yeah, I mean, I tried to do this, as you know. I mean, I acquired a company in Florida. I was looking at companies in South Carolina and North Carolina. I even made offers on them. And even in just those 4 states, you have problems with trying to make this, you know, because it's so— it's not just state-specific, it's even municipality-specific or county-specific in many cases. So I mean, when you look at like the insurance industry, they really only need to worry about 50 markets. And in a lot of cases, insurance companies aren't even in all 50 states. For us, it's not just the 50 states if you want to go nationwide. It's granular down to the county or the city. It's just incredibly complex to try to nationwide scale this thing.

Yeah. I think you've hit the nail on the head in terms of one of the major complexities. Everything from laws to just custom, what's customary in that market in terms of leasing fee, or do you allow tenants to Like, do you do pre-leasing, right? Do you show the unit while it's still occupied? Or what's the average turn time? Like, in some markets the turn time's like 5 days or get the hell out. And in our market, it's— I'm happy if we get a turn done in 2 and a half weeks. It's just very, very local. Yeah, it turns out real estate is a local business, I guess. So I want to talk a little bit about PM Assist. So you and Abby do some consulting work And I'm on the record as saying I've never seen a vendor become a property manager, which maybe that tells you something about the difficulty of the business that we're in. But I've seen many property managers become vendors and some of them fantastic ones at that. So you've gone that road. Tell me a little bit about why you did that. What's been your experience? I'd love to hear about PMAssist.

Yeah, I mean, it really started off— PMAssist really just started as a training program that I put together in 2020, right after the coronavirus outbreak. And all these fears and everything were out there about, you know, I'm not going to be collecting management fees, you know, the state and the federal government has stopped me from collecting late fees, you know, what can I do to make sure my revenue is coming in? So I mean, I had spent several years revenue maxing my business, so I put out this course. It was basically just 9.5 hours worth of content of me telling you 75 different fees you can charge and providing the language for it. So that's kind of how it started, and it just kind of sat there like that for a couple years. Until finally, you know, Abby said, well, you know, we should do more with this. So, you know, that's when we started actually doing one-on-one consulting. And, you know, when we started really digging into LeadSimple, we decided what we really needed to do was offer for clients the, the possibility of full process buildouts in LeadSimple, not just building out the process itself but automating it. So, you know, that's most of what we're doing right now is LeadSimple buildouts. That takes up most of my time. And then we also do have a number of you know, one-on-one consulting clients that we work with on lots of different things. But, but that's most of the business is LeadSimple buildouts.

Okay, that's super interesting. There's a very limited number of folks doing LeadSimple buildouts, and I think there's huge demand for it. And so when you talk with a potential new client and they say, I hear all this great stuff about LeadSimple and process automation, we have nothing documented— so are you able to take somebody like that from zero to you've got your 5 or 6 core processes fully built out and mostly automated. If you're able to deliver on that, that's unbelievable value. I don't care what you're charging. So you must have gotten a good system down. Like, what are the— maybe briefly, like, what are the keys to success with helping someone through that process?

So I mean, we start off with the templates that we've built. We basically built them out for each of the major property management accounting software. So, you know, if you've got AppFolio, we have a process for that. If you're on PropertyWare, we've got that, and so on. So we have the, the basic framework of all those processes, and then what we do when we go with each client is we have a questionnaire for them for each process that basically asks all the details for how their business works. So even if they don't have a written process already, which sadly most property managers don't, then they can work their way through our questionnaire and we can get all the information we need to be able to customize that template for their business. So, you know, it is more expensive, obviously, if you have a very customized operation, you know, and we have to do a lot of extra work. But it allows people who don't have their processes fully documented to come in and have something built in a relatively short time frame that's actually going to be working for the way they want things to work in their company.

Okay, so this is a done-for-you service. So you do an intake process and you say, okay, go away, I'm now going to build this out, I'll call you when it's done. Then you walk through the finished product, maybe there's some back and forth, and the final delivery is here's your LeadSimple, here's your processes built out, here's your Zapier account running in the background, and call us if it breaks. Like, what does that look like?

Yeah, basically. I mean, that's, that's how it works for most of our clients. Now we do have a few clients who want us to basically teach them. So, you know, we'll do Zoom calls where we show them how to build out automations and how to build stuff in LeadSimple, you know, how to structure your conditional logic, all that kind of stuff. Some people just want to learn it so they understand it. So we do that for some people, but the average client, they just want it done. So, you know, we just go through and we build it, and when we're completed with it, we provide them with videos that shows how the process works that they can use to show their team, you know, this is how you're going to work through this process going forward. Here's the stuff that's automated that you don't have to deal with. And, you know, it's just basically a set it and forget it. And then if you have any issues with it after that, you know, if something breaks or whatever, we'll come back in and fix it. Or you can also come back to us and say, hey, we loved all that that you did. Now we've got this other process we want to build out that's fully custom. Can you do that for us? And sometimes we get that stuff too. So, but yeah, that's really how it works. Try to make it as easy as possible for people.

Yeah, that's amazing. So you got a consulting business and your management company, and I assume your management company is kind of on autopilot since you had it forever and very— you're very process and systems-oriented guy. When you think about your consulting business and your management company, and you think about how much time you're spending in each one of those businesses, and you're thinking about sort of the enterprise value of each of those businesses and the growth trajectories of them, what conclusions do you come to? I had kind of a broad question, but I'm interested in like, what is it like to be a vendor in the property management space versus an operator?

What I enjoy more is being a vendor because, you know, I know, I know so many people in the industry. I really enjoy working with property managers. I like helping people improve their businesses. So I mean, that's really where I like to put my effort because I just enjoy that more, you know. From an enterprise value, I mean, honestly, you know, the property management company is worth a lot more than any of those businesses because they are highly dependent upon me. So I mean, if you're talking the consulting business, it's is not a set-it-and-forget-it type thing. It requires my involvement. That's what most of my time goes into. So it's not very valuable as an entity, but it does very well for me as long as I want to continue doing it. The property management company, though, like you say, is basically— it takes an hour of my time a day. It's basically running itself at this point, and I don't need to worry about it. So, you know, it's more of a traditional business with a solid enterprise value. But I also have Always There Repair, which is another vendor that I own, which is a maintenance hotline company. And that's more like the management company. I have very little involvement in it. It has a director of operations who runs things and it does have, you know, real value to it. So it kind of depends on what kind of vendor you want to set up. Does it need you? Are you the secret sauce or, you know, is the systems the secret sauce?

Love it. Okay. So Always There Repair. And is that, that's like a maintenance hotline, emergency, after hours type deal?

Yeah. Yeah. We do everything from, you know, after hours all the way up to full coordination.

Okay, got it. And that's fascinating. So you've got two companies that are— I don't call it passive income, but limited involvement, established. You're very clearly not selling your time, which is kind of famously the thing that everyone tells you to stop doing, right? You gotta stop selling your time, you gotta separate your time from that, blah blah blah. But now you've waded back into that pool with PM Assist, and it sounds like you're getting a lot of fulfillment and enjoyment out of that. How do you think about, like, what's it feel like to sell your time versus have a self-running company for you?

I mean, it's different because I haven't been in that position for a while. For the longest time, you know, I was able to, if I just wanted to go on a 1-month vacation, I could go do a 1-month vacation and I would have no issues. You know, I could be out in the middle of the ocean on a cruise ship and everything would just be running. And that's not the case right now with the consulting business. I mean, it requires my involvement. So, I mean, it's very different. But, you know, as far as the personal enjoyment I get out of it, you know, I love doing the consulting work. So, I mean, as long as that's the case, I don't see an issue. You know, if that sometimes doesn't become the case, I'll have to train someone else how to do what I do. But, you know, we're not to that point yet. So, you know, I'm not, I'm not overly concerned about it yet.

I relate to that deeply. I do a very limited amount of coaching work, about 3 hours a week, and it's not something I'm looking to turn into even a business really. It's just, I find it really fun. Right? You get to take somebody who's just starting out or early, and you get to shortcut just years of pain and headaches that you've had to figure out, banging your head against the wall every which way. And it's very rewarding. I definitely feel that. And if you're thinking about working with a LeadSimple consultant and you want Todd, now's the time until he gets bored with it and hires somebody to do it for him. So don't wait. That's awesome. Today's episode is brought to you by second nature. Most property managers can't survive on management fees alone, which means you need new revenue streams. But if you just charge an owner or resident without bringing new value, why would they continue to use your company? There's a better way. We need to create new value and create a rising tide for all boats so residents, investors, and managers win. The most powerful place to start is a resident benefit Benefits Package, or RBP. It's a collection of ancillary services and products that professionalize an experience residents pay for and stay for. Second Nature is the industry leader in this space, and I'm a happy customer, by the way. Their RBP hits triple-win outcomes like ensuring 100% of residents have renters insurance, air filter delivery, rewards cash and credit score bumps for on-time payments, on-demand pest access control, and more perks customized to your portfolio and needs. Residents get convenience and higher levels of service. Investors get protection against risks and costs, and managers get a new profit center they can use to build their business. SecondNature is the only 5P National Vendor of the Year because it is fully managed by them. So that means less work for you and your team. Thank you to SecondNature for sponsoring this episode. So the other thing I wanted to touch on with PMAssist, came across a fascinating Facebook post that you made not that long ago. You said, and by the way, this is not sponsored by PMAssist or anything. Todd and I are just having a conversation, business owner to business owner. I talk about things that are interesting to me. So have you been wanting— this is what you said— have you been wanting to get PMAssist to build out and automate your lead simple processes or implement your fee maxing strategy for you but just can't afford the expense? Well, we have a new option for you. For a single-digit equity percentage in your business, will do it for no charge and continue to remain on even after the work is done as ongoing consultants to help the business. Whoa, this is new. This is different. This is like, wow. I had to like set my coffee down when I read that when I was prepping for the show this morning. Tell me about this. This is so fascinating. Like, where did this idea come from? How do you think about valuation? Have you had anyone take you up on this yet? Like, This is cool.

It was actually not my idea. I can't take credit for dreaming it up. It was suggested by a client. It was someone we were talking to on Discovery call, and they said, hey, I really want this, but, you know, I can't really afford it.

You know, I—

it's, you know, thousands of dollars that I just don't have in my pocket. How about I just give you a chunk of my property management business, and, you know, then you can build it all out. You'll have an ownership stake, so you'll reap the rewards. And I said, well, that's an interesting idea. I've heard of revenue shares before. I know some consultants who will do fee maxing for people and then keep a share of the increased revenue they've done. I didn't particularly like that though from my perspective because there's so many acquisitions that are going on right now where your revenue stream could disappear a year after you've created it. So that didn't appeal to me. But the equity stake, if you've got the equity, you're basically always going to reap the rewards of that as long as it's non-dilutable. So that was appealing to me. So that's why we went live with it and said, "Hey, if anybody is interested in this, talk to us." And we have actually had, after that post, some management companies reach out to us. So I think it will be a viable way for us to do things. And I like it because it's creating, again, passive income streams for me in the future from these other management companies in other markets And one of the greatest things about doing the consulting work is I get ideas from consulting clients too. So, you know, all these business owners I'm working with, they have great ideas that I haven't heard before. So I'm able to leverage those into other, you know, services we can offer or recommendations I can make to clients. And so, you know, working with all these different people, it really makes a difference on that.

Some of these young guys coming up, guys and gals, are super smart and I'm working with a couple different folks who are really early on right now, like under 50 units, and sometimes they'll ask me a question and I'll kind of go on this big long-winded, uh, fancy ramble about how they should do this, and if you do this then you could do this, and, and then that'll lead to this. And they'll kind of quietly listen to me go on this big thing, and then they'll say, oh yeah, we're already doing that. I'm like, oh man, these guys are going places. Like, they've got some stuff figured out.

Not the industry it was 15 years ago, man, that's for sure. Everything has changed.

Yep. Okay, so the equity thing is one of the things that comes up for me when I think about this is like, all right, ABC Management Company, they've got 500 doors, it's a couple million in revenue maybe, and they're like, hey, we need you to come in, we're going to give you X percent, you know, some single-digit percentage, and then you're like, okay, great, and you spend, you know, dozens of hours, maybe 100 hours building out, consulting, helping, and then they're like, okay, great, we've given you 5% equity. You do whatever paperwork to, you know, I don't know, just making up a percentage. End of the year comes, you're all excited to get your K-1 and they're like, no profitability. You're like, what the heck? Then you could dig into it. And turns out the CEO took a $200,000 salary and bonus to his wife who also works in the business, $300,000. And there's no, no profit quote at the end of the year. Like, I don't know, maybe I'm a pessimist. But like, have you ever thought about this?

No, I mean, you're— if you're a pessimist, so am I, but I generally refer to myself as one. So I mean, that's definitely something I thought of when I was discussing this with Abby and we were coming up with it. It comes with changes to the operating agreement, obviously. So in addition to just having the percentage of the shares that you're going to be getting, it's also limitations on things like, hey, you can't pay yourself more than the NARPM benchmarks say you're supposed to.

Oh, that's a great one.

Yeah. I mean, we're trying to structure it in a way where, not trying to limit the business, I mean, you should be able to run your business mostly how you want, but you can't just pay yourself a ton of money so you can avoid paying distributions. So those things do have some protections built in for that. But I mean, I think overall it gives somebody something where it's not just a one-time consultancy, it's not just something you're paying on an ongoing basis for consulting. Hey, you've got this person who has a vested interest in the business, who really wants it to go on, who, you know, will come in and help because of that, which I think is, is somewhat unique. So, you know, I'm looking forward to the first clients we, we work with on that.

Yeah, that's the beauty of that arrangement is it's aligned incentives. You help the business be more profitable, you get to share in that profitability. And that's classically one of the challenges of consulting work is You're always either overpriced or underpriced because there's no way to truly capture the value that you're creating. And so it always kind of feels like, like either the buyer or the seller of the consulting service feels like, man, that other guy really got one over on me, right? It's like I spent 3 hours with them and delivered an extra $300K a year in profit. You know, that's the feeling on the, on the seller of consulting services. And then on the buyer side, Maybe they spent 30, 40 hours and felt like it didn't move the needle at all. So classically a difficult pricing problem. And so that alignment of incentives, if—

Though you and I talked about this as far as my training course a while ago where you said, "Hey man, this thing, you're only charging $1,000 for this. This is crazy." And I mean, you're right. I mean, someone takes the course and they implement even say 75% of it, they can double their company's revenue. So I mean, I've charged them $1,000 for something that's going to make them— in some cases, millions of dollars, where it just seems crazy, but it's kind of hard to figure out how to structure it any other way because you can't charge people based on their company's revenue or anything else. So I mean, it's a weird situation. So I definitely get what you're saying.

Yeah, yeah. And I think about incentives a lot because I think there's some sort of messed-up incentives operating in our industry from the principal agent. Side, which is our client and our management companies. There's like a lack of alignment there that we both feel, I think, as our customers feel it and we feel it. No easy answers there. I've thought about that 6 ways from Sunday, and we try to get creative with our pricing even to solve that, and I don't think it really did. So, okay, one more question about PM Assist. I saw something about a fully automated management agreement process. Tell me a little bit about what you guys are automating on that side, because that sounds interesting.

So I mean, that's basically the first process we build out for every client is they're, you know, taking them from the signature of the management agreement up through the completed onboarding of the, the owner and the property. So, you know, we make sure to automate basically all of it. So, you know, in LeadSimple, all you have to do is check off a task as completed. The management agreement goes out for signature. When the management agreement is signed, it automatically triggers the onboarding process in LeadSimple. Emails go out for the owner to fill out their onboarding form. All that data gets pushed back into LeadSimple automatically. You know, everything is basically happening automatically with no work required on the part of the property manager. So I mean, we build that out right from the lead stage all the way through the property onboarding stage to automate it.

Super cool. And what e-signing solution do you use?

We prefer to use PandaDoc, but you can basically use anything that will integrate with Zapier. I mean, that's the big thing, you know. I always tell people, whenever you're looking for any software, always make sure it connects to Zapier because that's where it gives you all the millions of different possibilities. But, but yeah, I mean, we, we love PandaDoc. It works really well. But DocuSign works, you know, Adobe Sign, you know, pretty much anything where we can embed some sort of field that'll trace itself back to LeadSimple, we can make it work.

Okay, does Adobe Sign have a Zapier thing?

Uh, I believe so. I think I used it years ago, but it's been a long time since I've None of my current clients use it, so I couldn't say for sure.

Okay, interesting. All right, we're going to loop back to M&A, I think, to close this out. Under what scenario might you sell your management company? Like, is, is this a, you know, the profit it spits off every year is just so low effort that, you know, they have to pay some ridiculous multiplier? Or, you know, it's hard. I think every property management company owner gets bombarded with these letters and emails, and you get the feeling like these valuations are probably peaking right now and we're not going to see valuations as high again potentially for many years. So what are the factors here for you?

So I mean, it is very difficult for me to envision a situation where I sell just because of the fact that it is a basically passive revenue stream at this point for me. Very little of my time goes into it. So when I look at that, it's difficult for me to justify it. Now, is there a price where I would sell? Absolutely. For me, I think it's more about who is doing the acquiring. And without naming any names, there are some companies I agree with their philosophy and some companies who I don't. So, you know, it's more important for me to look at it from that perspective, as, you know, is this company, you know, do they have the same kind of goals overall that I do as far as helping the industry, advancing the property management profession, and all that? Or are they just looking for, you know, a get-rich-quick scheme? Because I have no interest in the latter. So that's important to me. It's also really important to me that if I were to sell, everybody who works here gets taken care of. So I mean, if a buyer is coming through and says, well, we'll buy you but all of your staff's going to be laid off, that is a no-go right from the very start. So, you know, it's really more about, you know, obviously the price matters, but if you come and offer me the right amount of money, or even, you know, a multiple of the right amount of money, I'm still going to turn you down if the other things aren't the way they're supposed to be. And I have talked to a number of companies about potentially selling. That's always on the table. It's just got to be the right company and the right price.

Yeah, I think that makes sense, especially since you're going to be in the industry with your other businesses. And so it's not like you can just sell and ride off. I mean, you could, but you're not going to sell and ride off into the sunset. You have a reputation in the industry., and people are going to find out if you kind of just took the money and ran, so to speak. You know, I've heard that same sentiment echoed from a lot of folks that I really respect about the employees being taken care of. I think about that from my own perspective, and I feel like I would— when I think about it from the acquirer's perspective, it's hard to make a guarantee around the employees, right? Because they don't know your employees. They don't know how they're going to react to a transaction. So I feel like if I were to ever sell, I don't have any plans to, but if I ever did, I would have to get somehow comfortable with like, well, I'm going to give my employees a piece of the sale price, basically give them a big fat check as a thanks. And I'll say, I hope you're able to continue working here, but if you're not, hopefully this helps ease the transition. I know you're going to do great. 'Let me know how I can help.' I don't know if I would let that hold up a transaction for me.

That's one way to deal with it. I mean, you're still making sure in that case that, you know, your team is somehow taken care of. I mean, the way I've done it as the acquirer— I mean, I've done a few acquisitions— I've always put in a clause that said, you know, such and such employees won't be terminated without just cause. So, you know, I still have the ability if somebody is just, you know, they hated the acquisition, they're mad at the world because of it, and they're a bad employee, I could still get rid of them at that point if I have to. To. But if they're doing their job well, you know, if I don't have any just cause to get rid of them, I shouldn't be able to get rid of them just to free up some more profit or, you know, hire other people that are on my favorites list or whatever the case may be. So that's how I've done it as the acquirer, to make it, you know, more comfortable for me to feel like I have the ability to get out of a bad employee if I need to. But I mean, from my perspective, I would just— I would have to know that my employees were— they had a job., you know, when it was all said and done, because I would not be selling anything that had value if they hadn't done the work, because I only work an hour a day on that business. So it's certainly not me that's creating the value at this point.

Sure, sure, that's fair. Yeah, and I, I've always liked your advocacy for employees and the labor side of things. I think our industry is dominated by conservative voices, really, and, you know, obviously we're all capitalists here and we like making money and don't really make apologies about that. But I find that your voice brings a balancing force to that discussion. I think you were involved with the labor unions at the airlines if I remember right. And I've always kind of believed that you need a balance between the power of government, labor, and corporations, I think is the best way to do it. I picture a trio, right? And they should never be happy. They should all be angry all the time because they feel like they're getting like the short shrift, that probably means it's about imbalance, right?

That's what we always said at the airline industry about mergers. If both sides are equally unhappy when it's done, then it was probably a fair merger. And I think that's true in a lot of things. I agree with basically your general premise there. There needs to be balance. There always needs to be checks and balances. Otherwise, one side is always going to get out of control. And that's how our government was structured from the very beginning. I think it's important in the employee-employer relationship to have some sort of balances there. So yeah, I mean, I was a labor union leader for about a dozen years when I was at the airlines. I basically see both sides of that. I see how the employees look at things and I see now as the business owner for a long time now, the business perspective of it. But I still do, I'm a firm believer still in labor unions and balance in that area. So yeah, while I am a capitalist, I do see the other side.

What would you do if your employees tried to unionize?

Basically say, okay, I don't see any sort of problems there. Having been— we have a phrase in the labor union field where we basically say companies get the unions that they deserve. If you've got a really angry workforce, that's because you probably treated them like dirt. So I don't have concerns about that. So if my employees wanted to unionize, it would just be, all right, let's sit down and talk about what we're negotiating then.

Love it. All right, so there's a little taste of the dynamic viewpoints you can enjoy by getting to know Todd a little better. I think that was a perfect— encapsulation of like the enigma that is your sort of socioeconomic positioning and policy preferences. We will end it there, Todd. This has been really fun. For folks who want to learn more about you and kind of follow along with your journey, where can they do that?

Thanks for having me, really enjoyed this. Uh, everybody can go to propertymanagerassist.com, that's the PM Assist website, um, or maintenance if they need maintenance help, alwaysthererepair.co.

Great.

All right.

Thank you, Todd. Thank you. Thank you for listening to Owner Occupied. 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.