Engineering Luck with The Real Estate God

Peter Lohmann's Podcast. Peter Lohmann's Podcast. Peter Lohmann's Podcast. Brought to you by LeadSimple. Yum. It's tempting to kind of get into the nitty-gritty. Like, it's tempting for me to go on the ground level and like help out with the leasing of our property. Like, that would probably help. Maybe I could get another $50 a month in rent on a few of the units. But it's at the end of the day, that's not going to drive anything versus me doing that versus me finding another deal that's going to 2 to 4x. It makes no sense at all. And that's why I do think there's such a good pitch for third-party property management because you're like, "Look, this isn't what you should be focusing on. Just give it to me and focus on the important things, drive revenue to your company." So yeah, it's always shocking to me when people spend so much time on the property management aspect of it as a GP. To me, that means I failed. That means if I'm spending a ton of time and I'm really worried about the small numbers in a real estate deal, that means there's not enough margin in the deal and I failed on the acquisition side. I think every single time I buy a property, I should be able to make money even if there's a monkey running the property. That's how big I want my margin to be. And I don't mean to denigrate property management. That's literally how big I want my margin to be, that I'm so confident if I took the worst person in the world to run it, it would still make money.

Robert Leonard: 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. Welcome back to Owner Occupied. Thank you for tuning in today. I'm really excited to get into conversation with The Real Estate God. So if you're like, what the heck does that mean? On Twitter, The Real Estate God is an anonymous Twitter account who talks a lot about real estate investing and a whole bunch more. So we're going to get into everything that he's been up to. He's got around 90,000 followers on Twitter. He's got a real estate university. He's got an amazing email list. And I've learned a ton, like literally Forwarded his emails multiple times to my business partner. I mean, the guy is a really clear thinker on a lot of topics. So excited to get in conversation with you today. I'd love to have you give maybe a 1 to 2 minute background for folks who may not have followed you on Twitter or subscribed to your emails, just to sort of give some context, and then we'll get into it.

Definitely. Definitely. So my background is kind of in— right out of school, I went into institutional real estate, private equity world. Mainly what I focused on was office and hospitality with some other sprinkling of other asset classes. Did that and really did really well. Most of the office was in San Francisco. Most of the hotels were kind of along the Eastern Seaboard until COVID hit. COVID obviously kind of destroyed the entire office market, especially in San Francisco, which ended up being kind of like a jumping point for me to start my own firm. So 2 years ago, I started my own firm. We focus really on kind of small, like $2 to $10 million, maybe $20 million really deals kind of across asset classes, but geographically focused and really just looking for 1 to 3 home run deals a year. So not looking for anything crazy, not looking to scale, just looking for a few mispricings, kind of come in, scalp it, and move on to the next deal. And we've been able to do that so far. In addition, I also run an online education platform. Which has a few different arms to it, but it's all run through that Twitter account. Excellent.

And so you're doing a small number of deals per year, and what asset classes are these deals in?

So I look at everything. I mean, right now I own a multifamily deal. Really only bought 2 deals since I left, and obviously a lot of that's due to where the market is. One of those multifamily deals, bought it for $2.6 million in September 2021. That's under contract to sell right now for 6.4, and that's after rates went up 300 basis points. So we really kind of got screwed a bit there, as crazy as it sounds, but it should end up being a really good deal. And we're really happy about that one. I think it'll probably be a 4 to 5X at the project level if it goes through, obviously. And the other deal was a short-term rental kind of hospitality deal where it was an old motel on 14 acres and there's around 30 units. They're all different cottages kind of laid out throughout the acreage and basically just going in and kind of gutting the entire property right now and getting it up and running for the summer. So the idea is to really turn that into, from a motel that was getting rates around, let's call it $120 a night to a higher-end hotel, short-term rental property, whatever you want to call it, that's doing $300 to $400 a night. So that's in the process right now. That's actually taken a ton of time, and I can get into that if anyone wants later on. But that's also a reason why I haven't bought as many deals recently, because the renovation there has actually taken up way more time than I thought it would. But the deal's going really well.

Okay, cool. And do you have LPs on these deals, or is this your capital?

Some LPs. So usually it's 30 to 40% GP capital, and then the rest is LPs.

And I know, you know, A lot of folks in the property management space, a lot of folks in the audience aren't real estate investors actually. Third-party management is so all-consuming, has been my experience, that it's hard to carve out time to go find deals and to do the networking that's necessary to have LP capital sort of waiting in the wings. And it's a real shame because property managers are in a perfect place to build a great real estate portfolio. And I actually think that your mindset around this, which is you only need to do a few home run deals to be set for life, like that pairs really well with property management because property managers are busy and they're not looking to build necessarily like a full GP platform with a bunch of employees. Really just property managers in, in— if I could paint like the ideal picture here, they would just do 1 to 2 deals a year, take advantage of their real estate professional tax status, you know, do some fun depreciation and cost seg work to really lower their taxable earned income. And you've got a great education platform that, you know, I actually think a lot of folks in my audience could benefit from because you're very focused on the dynamics of the deal. How do you find a deal? How do you evaluate a deal? How do you close a deal? How do you turn around a piece of property? I've learned a lot through consuming the content that you put out around these topics, and we're going to get into some of that. Before we do that though, I want to start kind of more broadly, which is one of the reasons I started consuming your content had to do with your writing around mindset. You're kind of known as a real estate guy on Twitter, but on your email list, especially some of the earlier issues that I got, it was a lot on sort of leveling up your mindset. So I want to give the audience a taste of this, and I'm going to read from one of your emails that talks about delegation and opportunity cost. So we're going to— I want to do a quick pull quote here and then get you to put some color on this. So, quote, once you get control of a task, you should never drop back down again to having that task take up a significant amount of your time. There will be this urge you feel inside of you to feel guilty about the fact that the task you used to spend so much time on is no longer on your plate. You may even feel guilty about having a lot more free time. Don't feel guilty. You put the work in, you paid your dues, there's no reason why you shouldn't reap the rewards of your hard work. Move on to bigger and better things. Really can't emphasize this enough. A lot of people delegate but refuse to give up control and end up yo-yoing between having their subordinate do the work and doing the work themselves. These people always end up making good money, but never as much money as they could be making, end quote. And the reason I picked this is I think for property management company owners, this is— it couldn't be more relevant. This is something I see over and over with property management company owners is they end up being busy all the time. And when they finally do achieve some leverage and scale and are able to delegate, it's like they do feel guilty about it and they end up backsliding a little bit. So I guess if you could just talk a little bit about this, how did you come to this realization? Where did you learn some of these ways to think about delegation and kind of moving, moving up in a way that gives you more leverage?

Yeah. I mean, I think it kind of just comes around organically and the way I view when you're running a business, you as the owner are probably going to be the best person for every single task because you care the most. And obviously once you start getting, if it's a really niche business, maybe not. But for example, I think I could probably do the property management of my properties better than the way we currently handle it, but it'd be taking away time from something that I could do that's worth way more to us. So basically the way I view it is that you have, you're basically the most skilled person at the company. And if you're spending your time on the lower leverage tasks, that means either no one's spending time on the higher leverage tasks or someone who is less qualified and going to make less money is going to spend more time on the higher leverage tasks. And it's actually kind of funny because in my business, which is a little bit, it's tied into property management but a little bit different, Something like property management is a task that it almost doesn't make sense for me to be fully involved in. Because if you look at a real estate deal, there's kind of 3 actions you could be performing at any time as a real estate GP. You basically have acquisitions, then you have value-add asset management, and then you have stabilized asset management. And look, they're all important, but basically when you first buy a property, so much of it's tied into the purchase price, right? Like say you have a deal that's a value-add deal, probably 80% of your capital stack or 80% of the total cost basis is determined the day you buy the property, even on a value-add deal. For a stabilized deal, it's your entire basis is determined the day you buy it. So like to not spend the majority of your time on acquisitions as a real estate GP just makes makes no sense to me. Not to say that property management isn't important because I think it is. I just think that if you're talking about what's going to drive the most revenue to your company, it is clearly acquisitions followed closely by value-add asset management. But once you get into the stabilized kind of portion of it, you're almost by definition not adding value, you're maintaining value, which is very important, but actually less important for me because I'm doing more of a flipping model every 3 years or so rather than holding onto a property forever, in which case the maintaining would be very important. So that's kind of how I view it. It says you have to figure out what the highest leverage task is and you should be spending almost all your time on that task. And anything that brings you away from that task really doesn't make sense. So me, whenever I'm not spending a ton of time on acquisitions as a real estate GP, I know something's very, very wrong. And that'll go for different— it's different for each kind of business you're running. But anytime you're running a business and the thing that's like driving the majority of revenue, you're not spending a ton of time on, there's a big problem there and your revenue's going to suffer.

Yeah, that brings up a few things for me. One, I wish I could record that and play it back for all of our clients because I think everyone who runs a property management company intuitively understands that our clients shouldn't be messing with property management. I mean, that's the whole point they hired us. And I, if I could just get our clients to leave us alone and go spend more time doing whatever their highest value activity is, whether that's their day job or their side hustle or finding new properties to buy, they would be way better off spending a few extra hours a week messing with that stuff than bothering us about why the toilet replacement was $400 instead of $300, or arguing with us about whether or not the tenant should be paying a late fee or something like that intuitively makes sense to me. It's like, dude, you own real estate, go find more real estate to buy and let us manage the property you already have and stop interfering with it. So there's like levels to this, like, so that's like our clients versus us. And then for us as property management company owners, we also shouldn't be spending time dealing with tenants or even the property owners. We should be out doing the high-value activities for us, which at the property management company ownership level means bringing in new business, forging partnerships, finding other management companies to buy, you know, financial forecasting, like whatever the things are, like, like you said, that are going to drive, drive revenue.

Yeah. And I think what a lot of people don't get is It's tempting to kind of get into the nitty-gritty. It's tempting for me to go on the ground level and help out with the leasing of our property. That would probably help. Maybe I could get another $50 a month in rent on a few of the units. But at the end of the day, that's not going to drive anything versus me doing that versus me finding another deal that's going to 2 to 4x. It just, it makes no sense at all. And that's why I do think there's such a good pitch for third-party property management. Because you're like, "Look, this isn't what you should be focusing on. Just give it to me and focus on the important things. Drive revenue to your company." So yeah, it's always shocking to me when people spend so much time on the property management aspect of it as a GP. To me, that means I failed. That means if I'm spending a ton of time and I'm really worried about the small numbers in a real estate deal, that means there's not enough margin in the deal and I failed on the acquisition side. I think every single time I buy a property, I should be able to make money even if there's a monkey running the property. That's how big I want my margin to be. And I don't mean to denigrate property management. That's literally how big I want my margin to be, that I'm so confident if I took the worst person in the world to run it, it would still make money.

Robert Leonard: Yeah. And I think that when I reflect on why this is such a problem for people, there's two things that I notice. One is people have a hard time differentiating between high-value, high-leverage tasks versus tasks that aren't. And I want to ask you about, you know, what does it mean to be working on things that are high leverage or high value? And the second thing that comes up for me is people's inability to think clearly about opportunity cost. They see that they can— you know, I see this with our property owners all the time. You know, we'll run into property owners who have 15 properties, and yet they're still loading up a lawnmower in the back of their truck and running around cutting the grass because they don't want to pay the guy. And it's like, Yes, you're saving $5 a cut, but what, what are you not able to do because of that time that you're spending? So like, have you figured out a good way to sort of communicate this concept of opportunity costs and then how you select between or how you identify what are the high leverage, high value tasks that you should be working on?

Yeah. So me and my business partner talk about this a lot, actually. And basically like, well, We'll get in moments, like right now is actually a moment where we're way too tied into the value-add asset management just because of that property we're saying where we're renovating the units. And it's not like a normal kind of multi-renovation where in a multi-renovation that's like kind of lower income, whatever, your Class C multi, every single renovation is plug and play, right? Slap on gray floors, tap the cabinets. Like it's a total joke. It takes 2 seconds. When you're doing it for a hospitality property and every single cottage has a different floor plan, it becomes way more of a headache. So that's kind of an example. What we'll do is we're like, look, how much money do we want to be making? And you kind of start off with there because that's your goal. You're running a business to make money and you kind of just distill it down and be like, all right, is this action helping us towards that goal? And 9 times out of 10, the answer is no. And it's literally that cut and dry. So we'll look at it and be like, hey, The way we've been working the last 2 months, we're not going to make the money we want to make. So what needs to change? And on the real estate GP side, what needs to change every time is you need to find a new deal that's even better. That's it. So it really is extremely simple when you drill it down. I think people just kind of forget what they're doing for a minute. They forget it's about making money. They forget it's about making money in the easiest way possible, doing the least work possible. And they just get so tied into the idea Like the example you had before, the guy cutting the lawn, right? It's almost like the American dream type thing where, "Oh, I'm rich, but I'm still cutting the lawn." That doesn't make you virtuous.

It just means you're working on the wrong thing. Yeah. Man, there's some loss aversion psychology at work here where if you don't cut the grass, You know you're losing $5, but if like the upside isn't certain, I guess is a different way of putting this, or it's distant. Like if you invest an extra hour a week that you're not cutting the grass and building your real estate business, like 2 years from now, your net worth might be $500K more or whatever. But that's like, it's not, the path isn't as clear. It's like murky. Whereas I know I can save $10 if I go and cut this grass. There's something about that I think makes it harder for people.

[Speaker:ROBERT_LEONARD] Yes. It's very not tangible, especially in the real estate business where you don't know, say my next deal could be $2 million or it could be $20 million. It makes it really hard to back in. If you start looking at it from just any sort of reasonable perspective though, you think, "All right, even if it's a $2 million deal, I'm probably going to make more than $10 on the deal." Which I think feel like people never get to that step because like you said, it's like a certain loss versus an uncertain gain.

Today's episode is brought to you by the RentWorks Mastermind Summit. I recently came across an opportunity that I want to share with my audience. Many of you know Brad Larson, an industry leader in our space and the owner of RentWorks, managing over 1,200 units. He's the founder of the Property Management Mastermind Podcast, one of the few property management podcasts that I personally recommend. Brad also runs an absolutely stellar conference called the Property Management Mastermind Conference, PMMCon. In our last conversation, he was telling me about their newly created Rentworx Mastermind Summit. This is a limited opportunity, small group training session for 2 days taking place in their brand new office in San Antonio, Texas. Rentworx is opening up all their books to the way they run their business, including all their forms, procedures, and cutting edge methods that make Rentworx a true industry leader. The attendance is limited to 6, so it's a very small group allowing for a lot of one-on-one attention. They plan on covering every facet of the management life cycle, including large-scale tax planning by their CPA firm and new business development by the Biz Dev Mastermind team. Some of you may not know this, but Brad was also instrumental in the creation of the NARPM accounting standards. With that experience combined with their accounting team in place, you'll find one of the best running, most profitable management companies around that continues to add consistent organic growth every year. Attendees will be able to soak up that knowledge with a money-back guarantee if they're not 100% satisfied with the experience. Visit rwmastermind.com to learn more and sign up before they're gone. Thank you to RentWorks Mastermind Summit for sponsoring the show. A theme that's emerged as I was preparing for today's show, reading through your old emails and, and listening to some other shows you were on is that One of the themes I've observed is that you're very deliberate about selecting your environment, and this shows up in a few different ways. One that I noticed was you talked about how you specifically didn't join a huge investment banking firm. You weren't going to go and beg them for a job and just be one of a million associates or whatever. So that was one way I observed that. You also You talk about, so in your email, the best investment you'll ever make, you talk about developing a high-quality network and leveraging that network. Again, selecting your environment, who's around you. In Engineering Luck, which is another article you wrote, you talk about like being around people who are capable of conferring luck. So basically selecting deliberately where you're going to spend your time. Like literally what are the other people who are around you up to? In the hours that you spend with some of the time that you have. So I'd love to hear you talk a little more about some of these themes and how you came to be thinking so clearly about these items.

Yeah. No, I think a lot of it stems from most people not having a clear goal. So you should have a really, really clear goal if you want to get anything done. And I'm sure you have a really clear goal. You have a business, you know where it wants to be. But really the hard thing is having a clear goal before you have the business. And I think what I was able to do really well was when I was in college, I knew I wanted to one day run my own real estate private equity firm, and I knew I wanted to do it earlier on. I didn't want to wait till I was 40, and I knew I wanted to start off with smaller deals. So with that kind of relatively defined end goal in mind, it makes the path that I'm choosing very easy. If I got an offer from Blackstone, I would not take that offer because it doesn't help me towards my goal. It may be better in the short term, But it doesn't help me towards my goal because learning to do billion-dollar deals doesn't really help me that much when I'm doing $2 million deals. The other thing is when you're in a huge company like that and you're siloed, you're only working on a small part of the deal. You have zero responsibility. So I always think, maybe not always, but 9 times out of 10, you want the place where you're getting the most responsibility early on because the money's inconsequential in the beginning. It's completely inconsequential. It's all about what you can learn and your knowledge should be compounding way way more than your dollars early on. So to me, it's all about creating kind of that straight line where you're like, all right, this is what I want to be doing. How do I reverse engineer that in the quickest way possible? And in real estate, if you're trying to do smaller deals by yourself, the best way to do that is go to a shop where you can have a ton of responsibility early on, where you can learn as much as possible early on. You're kind of across the entire deal spectrum, right? Like I was able to work on deals that were the acquisition part of deals, the asset management part of deals. I was able to just kind of look at every single agreement through the entire company. I had access to pretty much everything, which almost no one has once you start getting to bigger firms because it's completely siloed. Another thing is a lot of the bigger firms, their strategy is reliant on the fact that they're big. People at Blackstone wouldn't get a deal unless they worked at Blackstone. That's the only reason why they get deals. That's not good. You don't want to be reliant on other people. So it all factors in. And that's not to say working at Blackstone isn't a great job. It is, right? If my goal, for example, was to run a $10 billion firm one day, I would've gone and worked at Blackstone. That would've made sense then. But I think a lot of people confuse these things and they go for the prestige when it doesn't really make sense. And I see this all the time with people who ask me career questions and they'll be like, look, I'm in college right now. I want to start my own real estate private equity firm. "I think I'm going to go to law school." I'm like, "What? What does that have to do with your goal?" And the funny thing is once you point it out, they all realize it. They're like, "Yeah, I don't know what I was thinking." But for some reason, people just have this mental block where their end goal isn't clear, so they're not really able to reverse engineer the quickest path.

[Speaker:Trey Lockerbie] I think that that is precisely the summary, which is that the end goal isn't clear for most people. And I think that out of everything you just said, that's what stood out to me the most, which was right at the beginning, You said, I wanted to run my own private real estate private equity firm. That statement, you said it so quick, but I want to highlight the importance of how specific and clear that statement was. You didn't say I wanted to make money. You didn't say I wanted to be famous on Twitter. You didn't say I wanted to have a high-paying W-2 job. Like, it was really crystal clear what you wanted to do. And so everything like flows down from there because just as you pointed out, like it's just a yes or no question. Is this, is this getting me closer to my goal or not? That's how you make decisions on whether you should or shouldn't be doing something. But the hard thing is to figure out what you want to do. Once you're super clear on that, everything downstream of that is just really easy. Because you're just like, is this taking me closer to my goal? Yes or no?

And I completely agree.

Yeah, completely agree. I think what most people do is they select too nebulous of a goal or they're afraid to get really specific because they don't want to close opportunities off. They want to be opportunistic forever. They're like, well, if I say I'm going to do real estate private equity, like, well, what if I get a really good job offer and I could— they get all confused and wrapped around the axle about like, well, this could happen, or what about this? And it's a good way to just spin your wheels and go nowhere. So how did you get so clear on that goal? Where did this come from? And maybe for others who don't have such a clear goal, what's the framework one could use to get there?

[Speaker:ELLIOT_BISNOW] I think it's a really good question. I think in general, you have to decide what person you are. And sometimes some people are money-focused. I certainly was. Other people are focused on other things, which is fine. But if you're money-focused, there's maybe 5 to 10 professions you should be in. And these are really easy to figure out. You just look at the richest people and see what they're in, and it's all pretty much the same thing. There's not that much variation in it. You're either in high finance, tech, or you're running a business. That's 9 times out of 10, that's what you're doing. So that's kind of the first thing is even when I was younger, I always knew I wanted to make money. And I looked around, looked who was making the money. I was like, "All right, I want to work in finance." So the way I fell into real estate was almost lucky in that I basically worked for a startup on campus and it kind of provided jobs to entry-level people. And I became good friends with the CEO. After a while, I would just get drinks with him on Friday and stuff, became good friends with him. And one day he's like, "Hey, what do you want to do?" And I was like, "I don't know. I want to work in private equity." He's like, "Okay, one of my best friends runs a firm. You want to work there?" I was like, "Sure." So I ended up, I just interviewed. The interview was actually hilarious because looking back now, it's kind of insane I got the job. They asked me like 2 technical questions. I just completely butchered both of them and then talked about fishing for like 20 minutes and they were like, "All right, you got the internship." So I really didn't deserve it at the time. But after that, I ended up seeing kind of First of all, how much the CEO of the company was making. Second of all, there was this guy who's my mentor now and actually a business partner of mine. We worked together a lot, worked out of that office, and he was a true one-man shop. At that point, he had probably between $100 million to $200 million AUM just all by himself. And I was like, "Wow, I want to do that." So that's how it ended up crystallizing for me. And I really want to point out that the fact that I chose real estate private equity isn't important. If I had chose VC or a hedge fund or whatever it is, it would've been the same result. It's all about being really clear on what you want because at the end of the day, once you choose a task or a career with uncapped potential, you're fine. You just need to put your head down and have a clear goal about it. So I think that's really what's important. And which one you fall into isn't that important as long as it's very, very high income and uncapped.

Kind of go down the stack a little bit, talk about property management. This is nominally supposed to be a show about property management. So I'd love to hear how property management is done at the properties that you own or have owned. And we talked about property management being relatively low on the value totem pole, but you've had a lot of experience running properties. And I think the audience would love to hear from an owner-operator's perspective, how you think about property management because you sort of represent in a way our clients.

Yeah, definitely. And I think the first thing, and I mentioned this before, I think the first thing about property management from a GP perspective is that you shouldn't be relying on it. If your deal is relying on property management to make your margins, I think you've made a big error and you need to go back. So everything I'm saying is colored based on that because if your deal doesn't have enough margin, it's a bad deal and it's not the property manager's fault, it's your fault. So that's kind of how I look at it. Basically what I do is I generally try to take someone who's living at the property to be a live-in super as kind of the first line of defense. And they'll handle anything that's very, very low level at the property. Some of the properties that matter are usually Class C or so, maybe B, you could argue. So that's collecting rent checks, dealing with minor repairs, coordinating with contractors, anything like that, they'll be kind of dealing with on the ground level. Then anything that gets kicked up further, I actually just hired an employee in January. He handles that. So he'll handle anything that gets kicked up, maybe a unit turned and he's like, he'll talk to us and be like, all right, do we want to renovate this one or leave it as is? And it's just kind of things like that start popping up. So we, like, I don't really handle much of the property management at all anymore. It's usually kind of first line defense is live-in super who usually knows the tenants really well. And then second line defense is kind of my employee. And then anything more than that gets kicked up to me. Like obviously it's a refinance sale, Anything like that will be pretty big in there. We're obviously reviewing the P&Ls. We kind of do the accounting every month together, me and my business partner, on them just because we think it's important. But we don't really deal with the low-level property management stuff unless it's value-add, in which case we'll step in.

Okay. What property management accounting software do you use?

You would hate to hear we use Excel.

I mean, I don't hate it if it's working.

Okay, yeah, we, we literally just have it— we have, we have it lined up in Excel and we just, we just kind of have it always balanced.

Sure. Okay. And so do you— oh man, yeah, this is, uh, I wasn't expecting that. So like your security deposits, you're tracking those in Excel, you've got them in a bank account somewhere, no issue with—

yes.

Okay.

Correct. And my business partner handles most of that stuff. Like he handles most of the bank accounts. But yeah, we basically have it tracked perfectly down to the decimal.

Yeah. So yeah, and I think, you know, that's interesting, like to hear that perspective because for us, we're in it all day, every day. We're thinking about software and technology and process automation because, you know, we, so I mean, our property management company manages about 600-some units. For 240 different property owners, and every single one of those owners needs a monthly accounting statement and a bunch of other stuff. So, but when you're owning your own stuff, that's a whole layer of complication that's just gone. And sometimes I fantasize about how much less work it would be if we owned all 600-some units that we currently manage. I think about 30 to 40% of our firm's time is spent with client-facing activities that just wouldn't need to be done if we owned and managed that stuff directly. The fact that you can get away with Excel is, is sort of illustrative of my point there, which is when you own it and manage it yourself or manage it like directly, meaning you're not using a third party, everything is so much simpler.

So nice. Yeah, I know. I'm actually curious about how many employees do you have to service that portfolio?

Well, we've got in-house maintenance, and that's like 7 techs plus a manager. And then, but altogether we have like 22 or 23 people including those, that in-house maintenance.

Wow. Yes, that's more than I would have thought, actually.

Yeah. So third-party scattered site management, because most of what we manage is single-family rentals or small multifamily, like under 10 units. Most management companies, the average is about 50 to 60 doors per full-time employee is the benchmark. So we try to run on the higher end of that.

Yeah. No, that makes sense. And I guess the other thing I'd add is the reason I'm able to run things this lean is my business model only involves holding a few properties at once. So if I was in a position where we had 500,000 doors, the systems would be completely dialed, but they just, they don't really need to be the way, the way it stands. Okay, great.

So I want to come back to the theme of like your environment and who you're around and what, you know, what situations you put yourself in. So I got another pull quote here from your Engineering Luck article. So here's what you said. I saw a tweet the other day that discussed how you could save $1,300 a year by making coffee yourself instead of buying it from Starbucks. This is exactly the mindset you have to rewire. First, $1,300 a year isn't even an amount of money that you should be worrying about on a yearly basis. Second, the issue with this mentality is it leads you to always be on the defensive rather than the offensive, and defensive people rarely, if ever, get lucky. So at its most basic level, the formula for creating luck is: 1, being around people who are capable of conferring luck, and 2, finding those who satisfy number 1 who are more likely to like you specifically and therefore confer you the luck. So share a little bit about what this means for you in terms of what does this mean in practice in your day-to-day life?

[Speaker:ROBERT_LEONARD] Yeah, yeah. And I think when I first brought out that article, the tagline was kind of like spend money, create luck. And I think that's extremely accurate because it's almost impossible to get lucky without spending money in one way or the other. Which I don't think people really think about because it's not intuitive, but once you boil down the activities that create luck, it almost always involves spending money. But basically, there are gradients, right? So let's call it the first tier is you're in your house, right? What are the odds that you get lucky from your house? Zero. I mean, maybe you win the lottery. Literally zero. I guess it's a little different now with the internet in that if you're reaching out to people on the internet, it's possible you get lucky through that. But basically what that means is you need other people to give you luck. And we're not talking about luck as in winning the lottery, though I just joked about it. We're talking about luck as in real opportunities coming your way. Those come through other people. That's not magic. It's always coming from someone else. So if you're not meeting a lot of people and not meeting a lot of high-quality people and not meeting a lot of high-quality people who also are predisposed to like you, you're not going to get lucky. And the examples I use in those articles, are, let's say I'm Italian, right? Would I get more lucky at an Italian restaurant or a Japanese restaurant? Probably an Italian restaurant, right? And it may not be that much of a difference, but it's there. And that's kind of how it works with everything. Like you can figure out, maybe you're going to a golf club, right? Where other people are like you, maybe they grew up in the same type of areas, they have the same values, they're more predisposed to like you. Versus if I went to an area, went to people who maybe didn't have the same background as me. And obviously this gets— people will say it's whatever these days, but it really is the truth. People tend to like people who are like them. You can disagree with the premise, but it still exists. And that's kind of the way to get lucky. So going back to the previous example, say you're at home, you're not going to get lucky. Say you're at a Starbucks, maybe you could get lucky, maybe you wouldn't. Say you're at a really high-end coffee shop or maybe you're at a members-only club that you're at all the time. Those type of things, you just get exponentially more likely to get lucky. And realistically, I belong to a golf club. Sorry to keep going close, but I belong to a golf club. Almost every time I go to the golf club, I get someone who wants to be an investor. Almost every time. That would never happen in most people's day-to-day lives because they're not around people who are one, capable of giving the money, and two, in a position to like them enough to give them money.

Yeah. And to give a few more examples here, just for the audience who hasn't read this whole article, when you're talking about people who could confer luck on you, I think of potential investors, I think of potential clients, I think about potential partners in future business ventures, I think about people who may have a property they're looking to sell, I think about brokers who may throw deals your way if you're friendly with them. I mean, there's a lot of different— I think people's imagination here, it needs a little bit of stirring. And it's the old saying about your net worth is your network, or vice versa. It's hard to overstate the value of a broad network of not like best friends, but people who know, like, and trust you and that have maybe seen you and observed you over time on a trajectory of success and either like you and want to see you succeed or want to get a piece of what you're up to or just anything along those lines.

Yeah, I completely agree. And I think the funny part about that statement is like your network is your net worth. Is it has to be the right network. I know people who know tons of rich people, tons of them, and those people would never give them money. They would never invest with them because maybe they don't like them, maybe they don't think they're competent enough, whatever it is. Meanwhile, there could be one person who knows one rich person and that's the person who gives them to invest. So your network is important, but equally important is having people who actually like you in your network and who are willing to confer the luck. And I think that's the part that a lot of people miss on.

Yeah, and, and I like the, the direction you were going there with like clubs, restaurants. Like there's something about showing up to a place consistently over time where you're likely to run into the same people. I read a great article recently— I had read it years ago, but I was reminded of it— talking about how people like VCs, investors, They invest in lines, not dots. Are you familiar with this? No, I'm not actually. Okay. So the, the idea is like when you first meet someone like a VC or a rich person or a potential investor, the first time you meet them, they're never going to invest with you. Like they're not going to give you money because to, to them, you're a dot. All they know about you is just what you say, which could or could not be true. What you claim about what you've done in the past or what you're going to be doing in the future. Again, this is all kind of speculation from the perspective of this person who just met you. And so what this person, what they want to invest in is not a dot, but a line. They want to see that you are executing on what you said you were going to do, that you're moving up in the world, you're doing things, you're involved in things, you're accomplishing things, and you're building a track record over time. That's a line. A vert— like, you know, a line on a graph that's going up and to the right. And so you, you could be an amazing dot with an incredible net worth, an incredible network, and all these things you said you've done. But if that person just met you, that's kind of irrelevant. And they're much more likely to invest in a line who may be way, way, way below the dot, but the trajectory is going in the right way and they're seeing like a consistent execution.

Yeah, I think it's funny you said that because I think the only time that you see people invest with you after they met you for the first time is when they get a referral from someone who's already invested with you. And I actually think, so we do something pretty, I guess, unique in our deals that when we're raising equity, we'll always take it, me and my business partner, I'm saying really, we'll take it from people who are influential within certain friend groups. So I would never take, say I'm raising for my college friends, I'm going to take the person who is most influential among my college friends and put them into the deal because once it does well, they're going to tell everyone else. You know what I mean? And I do that with my friends from back home. Now they're from a golf club and you're able to put, we never have really a capital stack that's full with all people from the same spot because it's almost wasting references. And there's certain people who are just hubs for being a referral, which I think is really, really important for growing out your investor base or your client base, whatever it is.

Yeah, it's like an influencer strategy, right? You're partnering up or aligning yourself with folks who are likely to spread the word. I mean, it's a rational thing to do, even if that person theoretically can negotiate worse terms, like for you, worse terms, better terms for them. It's still probably the right rational thing to do if it's going to lead to a higher demand for your deals in the future.

Exactly, exactly. And obviously you're kind of betting on yourself too, because if you don't execute, then it's even worse because it's amplified in the wrong direction. So you're kind of forcing yourself to execute as well.

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And upskilling.

So you talk a lot about like the value of trying stuff, learning stuff, gaining experience and skills, and not worrying as much about like the technical ROI as, as in, as thinking of it as like an investment or a learning experience. So what I'm interested in here is like, as it relates to upskilling and getting expertise in different areas, What are some of the meta skills that really remain relevant as you grow as a leader and manager and build out an organization underneath you? Like, I think early on, the skill sets that we develop, like maybe underwriting would be a good example. They're really valuable and necessary, and you need failures and experience to learn how to do those things. But that's not something that's going to carry with you through your whole career. But other skills like learning how to manage people, that's a skill that's never going to not be useful. So just curious to hear you talk a little bit about this theme.

[Speaker:ELLIOT_BISNOW] Yeah, I think this is actually— it's funny because it's really prevalent in the investment banking world where you'll have someone who's a great analyst and associate and then just completely falls apart at the VP level because it's actually a completely different skillset. And really what's happening there is you go from You go from being someone who's good at executing to someone who's good at making money. And at the end of the day, in every company, once you hit a certain point and every company, every business, it's all about being good at making money. And I think that's what a lot of people never grasp is you could have the best Excel skills in the world, you could be the best underwriter in the world. If that doesn't directly translate to you making money, at a certain point you're kicked out. And they're not the same thing at all. To give an example, I was probably the worst modeler in my company. I was just good at knowing the deal was good or not. If you put me in Excel, I was slower than everyone else. I was just good at actually figuring out, all right, is this a good deal and does it fit with our broader picture? Can we raise for it? All of that, right? That is at its core, that's how you make money in real estate, right? You don't make money in real estate by modeling the best. And I think that's what a lot of people don't realize is the skill. If the skill doesn't directly translate to making more money, it's pretty much useless at a certain point.

Yeah. And I think when you're at a, when you're at a job, when you're a W-2 employee, you need to be thinking about what if what you're doing is tied to the revenue side of the business versus the expense side of the business is the way I've heard this articulated before, like bookkeepers, accountants are on the expense side of the business. They're tracking the dollars and cents. They're not bringing in money. Salespeople, marketing, right? These, these folks are driving revenue. They're bringing in dollars for the firm. And so the money is just naturally going to flow that direction. And like when you're thinking about your role within an organization, the classic example that I— that, that made this really clear for me was lawyers, you know, The big law, it's crazy. A lot of things they do over there. But one thing that they're really smart about is the attorneys who end up making partner. They're not the attorneys who are most skilled at law. They're the attorneys who forge the most client relationships and bring in the most business for the firm. That's the people that make partner. And the reason they make partner is not because the other owners of the firm feel like giving, giving them money. The reason they make partner is because if they didn't make partner, they would leave and take a bunch of business with them. That's, that's the only reason they— that they're made partner. It's, it's a selfish move by the owners of the firm in the interests of them, not because they felt like this guy deserved it or earned it. No, none of that matters at all. Has nothing to do with years of experience or how smart you are or what you got on your, like, you know, tests or anything like that. It's literally, oh shit, this guy has leverage because a bunch of clients really like him and he's bringing in a bunch of clients every month.

Like, I guess we have to make him partner. Pretty much. And I think at a certain point too, there's, there's basically a skill level like threshold. And once you're over that threshold in any career, it's almost useless to learn more of the skill. And a lot of people don't realize that. It's like once you're good enough at Excel, your time isn't best spent learning another Excel shortcut. Your time is best spent making a relationship with an investor who may bring in a deal or making a relationship with a broker who might bring you a deal, whatever it is. And that was actually pretty much what I did. I didn't focus on the technical skills at all once I had kind of the fundamental competency and all I did was focus on bringing in new deals. So I would try and We had a portfolio of office buildings. I at one point almost had it sold to Starwood because one of my friends worked there. At another point, I almost had a Korean pension fund actually come in and almost buy one of our office buildings, just all through relationships that I had built that basically I should have been spending time— everyone else was spending time at Excel at my level and I just never really did that. And I think that's kind of the entire difference. It's at a certain point, You've hit the level of skill necessary to be successful. So skill isn't the differentiator at that point. You need to figure out what is, and it's almost always sales and relationships.

And I think, you know, one thing we haven't touched on yet in this conversation, but it's highly relevant, is the value of an online network, you know, social media, Twitter, whatever, you know, your preferred platform is. You and I wouldn't be talking today if it wasn't for Twitter. And a lot of the relationships that have led to some of the most interesting things I've been involved with over the last few years have come through my social networks as well. And I think things have changed a lot even in the last 5 years with what's possible here and whether or not it's rational to spend time on these things. I think even maybe 5 to 10 years ago, When I think about like engineering luck, tweeting about random stuff probably wouldn't have been very high on that list, whereas today I feel like it is. So you've been very successful in leveraging your online presence, even anonymous as you are, to building your online education business and probably a bunch of other stuff. How'd that happen? How's that been going for you? Tell me a little bit about how you— how that fits in with your overall strategy.

Yeah. So first off, it's something I really like doing and I totally agree with what you're saying that it's probably one of the best ways to engineer luck. I seriously believe this, that you are insane in 2023 if you don't have a business-facing social media page, absolutely out of your mind. There's no reason why you shouldn't have it. It costs $0 and you could reach millions of people with one click. So to me, that's insane when people don't have that. But going to your main point, the way I got into it is I just started tweeting about real estate. And I think most of my growth actually initially was probably through the mentality pieces that you've talked about. And I've had a ton of those over time. I've actually had less time to kind of write recently, so I haven't made a ton of them, but I've put out a lot of that content over time and that led to a ton of growth. And I think I also kind of came in at the the right time within the growth of real estate Twitter. I think that played a large role as well. Because if you look at actually how fast I've grown, it's not that fast. You look at someone like car dealership guy, he grew fast. If you want to learn how to grow fast, talk to him. Same with strip mall. So both of them I think are way better than me in terms of growing fast or anything like that. I think really I succeeded probably despite being really poor at growing, just because I think the content was there and the quality was a bit different and unique than everyone else's.

The piece that comes to mind here is Creating Your Own Yacht, which is an article you wrote. I want to do one more pull quote just because I like your writing a lot. The average person goes through life and nothing they do compounds. Their investments don't compound, their skill sets don't compound, and their relationships don't compound. Instead of using one of the most powerful forces in the world to make their life easier as they get older, they start from scratch every single time with everything they do, making their life unimaginably harder. It really is a massive disaster, and it's completely avoidable. That's such a great piece of writing. But talk a little bit about this idea of compounding and creating your own yacht.

Yeah, the, the idea of creating your own yacht in, in its essence is to be able to create some sort of vehicle where people come to you. That's what it is in kind of its most clear form. And most people never accomplish that. That's why most people network. That means nothing. They're going out to network. That means they're just annoying someone until they tell them to go away. So you want to do the exact opposite of that. You want to have reasons why people would come to you. And bringing up Twitter again, Twitter's a great example. If you have an influential Twitter page, people are going to DM you. They're coming to you, you're not coming to them. You're setting the terms. And not only are you setting the terms, they already know a ton about you. It's not like you have to go through the paces of, who are you? What do you do? Blah, blah, blah. They know a lot about you. You have social proof and you can kind of move forward in a relationship that's very much happening on favorable terms to you. The average person, when they meet someone new, the relationship starts just flat-footing because neither of them know anything about each other. And there's no reason why they'd be predisposed to like them or feel impressed by them or want to invest with them or anything like that. So Twitter's a good example of that. I think there are tons of other examples of that. I've talked about this before. Any sort of conference that you set up is a great example. Moses Kagan's conference is a really good example of that where everyone's going there, you're setting up the conference, they're there to see you almost. They're obviously there to see other people, but they're there to see you. And it's really a brilliant way of kind of making people come to you, almost kind of elevating yourself above them in a way too as well.

Oh, totally. And every good experience they have at the conference is going to confer status to the person who threw the conference, even if they had nothing to do with the person they ran into at the cocktail party or whatever.

Exactly. So it's all about creating kind of those type of vehicles. And it could be so simple, right? It could be maybe you throw like a 4th of July party every year. Who knows? Something as simple as that, but you're kind of known for that. And everyone who's there also knows who you are because it's your party and they're impressed by you because it's your party and they want to be friends with you because it's your party. It's a way of networking where people are coming to you where you're not the annoying one. You're the one who is seen as having value and they're the ones looking to get the value from you, which is how you want to start every relationship. And just to go deeper, because I don't think we talked about it, the reason I got this idea in the first place was Aristotle Onassis basically, back in the day he was a shipping tycoon, held all his meetings on his yacht. And I just thought it was the most egregious display of power you've ever seen. You step onto his yacht, you're just on his territory. And it's just such a good example of making everyone come to you on your terms. It's almost impossible to not want to know the person who is letting you get on his yacht regardless of the reason you're there. So that's kind of where it came from. And it's It's really about creating situations, environments, whatever you want to call it, where people are coming to you, not the other way around.

Yeah, and this is all back to this theme of, of selecting your environment, constructing your environment. I'm on the record as talking about your environment is make or break, and this is everything from what you see on your commute to where you hold your meetings to your favorite breakfast place and who's there and what's it like. I mean, early days in property management, we used to manage a lot of low-end properties and I would drive around those neighborhoods to do showings or meet the owner or whatever. And I would get back to my office and I would be depressed. I like, literally, because you're surrounded by poverty and failure and violence, even more important, violence, rundown buildings, just police sirens. And like, you get back and you're just like, you just feel like doing nothing because everything's falling apart and it's anarchy, right? But then I'll go to a meeting or a conference that's in a really fancy hotel or has a great view or is in like a really high-end part of the city, and I'm like, I can do anything. This is— I could own buildings, I could drive Porsches. Like, you come back from it and you're all like hyped up and amped up and excited about the future and what's possible. Like, it really impacts you. There's something deeply on a psychological level that's operating below the level of your consciousness that who you're around and what you're seeing sets up in your mind what you believe is possible.

Yes. And I think not only what you believe is possible, but it actually shapes your current reality. If you hang out around bad people in bad situations, bad things are going to happen. It's not a question of if, it's a question of when. An example that came up recently is the subway in New York. So I never ride that thing because I don't want to be locked in a metal tube with insane people. I don't see that as a good outcome to my day, but people do it every single day. I understand the money argument, I understand whatever it is, but ultimately every single person who's riding that subway knows it's a very, very bad situation for them to be in. They're putting themselves in danger every single day. And there's no doubt about it, they're saving $5 on Uber, whatever it is, to put themselves in physical danger every day. And something may not happen, but eventually something probably will happen. And almost everyone who's been on the subway has some bad subway stories that could have ended up with them being seriously hurt. So I think that's a great example of it. A lot of people are unwilling to cut things out. Even back when I first got out of school, I never rode the subway. I walked. I had no money back. I was eating ramen for 2 or 3 meals a day. I just refused to go on the subway because I didn't want to be locked in a tube with insane people.

Plus it's too hot down there.

It's that too, but it's really like, it's so much of it's choosing your environment. To me, it's insane. They're not only risking money, they're risking their life. You don't know what that person has. They could have a knife and you're locking yourself in there with them for an indeterminate period of time. Every single day. And it's just, I think it's the reason I'm pressing it so hard is I think it's indicative of how they live the rest of their lives. They're just kind of unaware of the situations they're living in and how a simple tweak could really make not only their day better, but their future better. If they had figured out a different way to get there or are just putting themselves in constantly better situations instead of worse, it can completely change their life with really very, very simple tweaks. So yeah, I think stuff like that's incredibly important, and I've always been shocked that people aren't able to see that it's inherently just a pretty poor risk-reward.

[Speaker:TREY_LOCKERBIE] Yeah, I think it speaks to just the crowd mentality. You strike me as someone who just doesn't— what other people are doing is irrelevant to you, and you remind me of my business partner in that way, in that just there's just something in other people's brains that, that gravitates toward, well, all these other people are riding the subway, so I guess I'll just do that. And like, they don't take a step back to think about, you know, what's the risk-reward here? What's the opportunity cost? Some of these, you know, higher-level ways of thinking about things. I don't want to make it sound like most people are stupid or anything, but it's just, it's not on their radar in the way that for you it's front and center, and why would you not, right? And That's unusual, and I think that's why your message has resonated widely. So I want to make sure we talk about your Real Estate God University, and you recently launched something new, which is the Real Estate God Accelerator Program. Some of those who are listening may be interested in figuring out how to buy multifamily property or commercial property, are very familiar with how to operate these buildings, but not so familiar with how to find them and find limited partners, don't understand what's involved with closing a deal like this. So if someone was interested in learning more about that side of real estate, would this be a good match for them? Maybe share a little bit about what someone could learn and what you're up to with it.

Sure. Yeah. So the accelerator program, basically, I mean, I've been on Twitter for 4 years. I get I don't even know how many questions every day through DMs, on regular feed, whatever it is, email. So I'm pretty familiar with the problems that most people are facing when they're getting into real estate. And I think fundamentally the way that real estate is taught, and actually the way that investing is taught, is taught incorrectly. It's basically always taught from kind of a top-down approach where it's like, this is what worked for someone else, now go do it. Which to me doesn't really make a lot of sense. Because every person has different skill sets, they have different resources, they have different goals, they have different risk preferences, and they have different everything. They're all completely different people. So what the accelerator program does is it takes kind of a bottom-up approach where the first thing you consider is the person. You consider who they are, what they want to do. You take into account their skill set, their resources, their goals, and their risk preferences. And you craft an investment strategy that's meant for them specifically rather than just some strategy that they heard from Warren Buffett that may not be applicable to them. So that's the point of the program. And basically what it is, it's an 8-week program. The first 4 weeks are basically focused on teaching the real estate fundamentals. And then the next 4 weeks are laser-focused on getting you a deal, basically taking this strategy that we created during the first 4 weeks, and trying to find a deal. And basically you and I, me and the student look at deals together and then figure out what price we like them at and we send an offer in on the deals. And obviously you're never sure if they're going to hit or not because it's real estate. But at the end of the program, you will have at least a done-for-you strategy that you can use rinse and repeat going forward that gives you the parameters necessary to find a deal. You just need to wait for the right pitch.

Perfect. That sounds awesome. So yeah, I mean, just to speak for a minute about my own experience, I'm inside the Real Estate God University, which is where you've collected basically everything you've ever written, every podcast you've ever been on, email, Q&A. I mean, there's probably hundreds of articles or other pieces of information that you've collected and put inside here for folks who are interested in sort of a self-directed path. And then for folks who are interested in more of a guided path, it sounds like the Real Estate God Accelerator program is the perfect match for that.

Yeah, no, I appreciate that. And I think they're both meant for different things. One of them is more of, like you said, the university is more like a library of content that you can just read at your leisure versus really more hands-on applicable. We have a goal in mind and we're going to accomplish it. You're going to buy real estate as soon as possible.

Love it. I think there's going to be some awesome success stories out of that because for a lot of people, they really just do need that nudge of a little bit of peer pressure, a little bit of like, oh, I paid money for this, and that's going to get them to finally get out of analysis paralysis and do something. So there's a lot of value there.

Yeah, no, I definitely think so too.

Awesome. Well, you've been generous with your time today. I appreciate it. For folks who want to follow along with your journey and keep up with what you're into these days, where can they do that?

Mainly can do it on Twitter, The Real Estate God on Twitter, and it's @therealestateg6. That's kind of where I do most of my work. I have an email list as well, which I think you can sign up through the link on Twitter.

All right. Well, appreciate it today and have a great rest of your week.

Great.

You too. 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.

Mm-hmm.