LIVE from Broker/Owner: Becoming Your Own Biggest Client with Tracy Streich

There's always somebody that's going to buy your real estate company. You kind of have a rough idea of what the multiple is. You know, it's, you know, maybe it's 1, maybe it's 1.5, maybe it's 2. But, you know, you look at that and say, okay, based on my door count, based on my revenue, what's my company worth? And I've got that idea in my mind. And then I look at my real estate portfolio and I know that that number is 5 to 6 times Wow. What my— so I've got— if you look at it, say I've got 800 doors, right? I've got 720 doors over here worth X, and I've got 80 doors over here worth 6X.

Wow. That are easier to manage.

That are easier to manage.

I'm really excited to get into conversation with Tracy today and be able to share it with all of you live here at Broker Owner on Amelia Island in Florida. We've got some beautiful weather. I loved the keynote speaker we just listened to. It really set the stage for the rest of the week. So I'm really excited. I don't know about you all, and I'm even excited.

Yeah.

Tell me a little bit about yourself, your background, how you got into real estate. And we'll just take 2 or 3 minutes and we'll kind of get into the main topic.

All right. So as I noted there, I bought my first house that I flipped with a friend of mine. Somebody's one of my high school buddies. It's like, hey, my grandma died. We've got a house in Tulsa. We don't know what to do with it. Do you want to buy it? And so we scratched together, rolled some nickels and bought this house for cheap and flipped it. And I was like, that's a, it's a pretty good deal. I kind of like doing that. So on and off over the next several years, we bought some rentals flipped some houses. I was a real estate appraiser, which was in the early 2000s a great business to be in. I mean, we were literally doing 30 appraisals a week. You know what you pay for appraisals. So but there was a hamster wheel, right? I mean, if you leave, you go on vacation, you're not doing any appraisal reports or inspections. So I was doing that. Then the market crashed and we went from doing 30 a week to 1 a week. And all of a sudden I was like, okay, what am I going to do now? And that's when property really went on sale. And so I partnered up with another guy who had a lot of money. I had a lot of time and I just started buying, buying houses and flipping. And we'd go to the sheriff's auction.

It was a great time.

I could walk out of the sheriff's auction even with all the competition and buy 11 houses in one Tuesday.

Yeah.

And so we were just cranking them out, flipping them because my, my theory at the time was first-time homebuyers could still get a loan because they weren't part of that group that caused the crash that had jacked everything up. So we were just really hyper-focused on first-time homebuyer homes that we would buy, renovate, and sell. And then an attorney friend of mine called and said, hey, I've got some clients that have a— they've got a lot of 1031 money from some oil and gas interests, and they think they want to buy some rental can you help them? And that's because he just knew I had some rentals. I said, yeah, I've got 11 flips right now that would be perfect rental homes. So I met with them. They said, yeah, we want them and we're doing all the work. And they said, but you got to manage them. I mean, we're not managing. I was like, I've got 11 of my own rentals and you've got 11 here. So I think I can do that. And that kind of got the ball rolling.

Yeah, love it.

And that's what actually got me to NARPM after they did that. In like 2011, I was like, I'm going to do this. I better figure out how to actually manage a property. So I got online and found NARPM Broker-Owner Conference was happening like 6 weeks in Vegas. I was like, yes, I'm going to Vegas.

What year was this?

2011.

Okay, so this was fairly early days.

Yes.

How big were the conferences back then?

Not nearly as big. I mean, there was— I bet you there were a broker-owner back then. There were 200 people and— wow. 10 vendors.

Wow.

So it was, it was pretty small. And the first time I went, I didn't know anybody. I know there's a lot of first-time attendees here, but it was just like, okay, I'm just going to go figure out what I don't know. And as I found out, I knew nothing clearly. I mean, I still remember my business partner at the time when I was just managing ours. I was like, we got to hire somebody who knows what they're doing because this is a lot of work. And that was just with 11 properties. So yeah.

All right. And so you've been on a journey since then, not only growing, obviously, your management company, but what we're here to talk about today is growing your own portfolio of rental properties. So and one of the things that's really struck me in the last— so I've been in the business about 11 years and managing rental properties. What's interesting about the business that we're in is we get to see all the numbers, right? So we know the actual income and the actual expenses on a long-term basis. Of what it basically, what you get out of a single-family rental or small multifamily. And it kind of feels to me like we're already doing the hard part, right? We're already doing the legwork, the ops, the day-to-day, the boots on the ground, all the hardest parts of rental properties. And so it always has kind of felt like to me, shouldn't we get a piece of the action? So it feels like We're making our clients wealthy, right? Like, why should we settle for the scraps? Why should we settle for a small percentage and none of the asset value increase?

Right.

You know, we've got the operational chops. We know how to do this stuff. We have our finger on the pulse of the market. We have valuable relationships with lenders, with brokers, with title companies. We even find out sometimes about properties that are coming up for sale before the general public. So The reason I wanted to get you on stage and have this conversation in front of this crowd is I want to learn from you on how you went from 0 to 80 units or more that you own now. So you're, I'm sure, your own biggest client, whereas I only own 8, right? And I've been distracted, quite frankly, in the growing of my management company, and I haven't put enough emphasis on investing in my own rental properties and growing my own portfolio. So we're going to really get into the weeds on how you did this, why you did this, what you look for, what's made you successful here. And I really want to start with the first thing is like in property management, we're so busy, like we're running a million miles an hour in all directions. How did you find the time to actually go and look for and acquire your own rental properties?

Well, I think I was a little bent that direction because that's the way I started. So I already had that at kind of front of mind. And it helps as you scale your property management business, as your property management business gets larger, as the owner, there's really— if you, if you're growing it correctly, there's less of the day-to-day.

Sure.

You have to do. So I think one is I've got a great staff and they take care of most of the day-to-day where I can just focus on, on the day-to-day stuff in our particular meetings that we have set up. And then if there's anything of like a really high urgency, you know, we got a, yeah, a letter from an attorney or something, and let's say review this before I just, you know, shoot out a reply, something like that.

So do you guys run on EOS?

We don't.

Okay, but you figured out a system such that you're not constantly firefighting as the—

Correct. Yeah, yeah. If, if it comes to me, then it's, it's already gone through a couple people that are like, uh, well, yeah, let's see what we can do. And then they feel like they need kind of the last opinion of the broker owner before they shoot something out. But I like to give them freedom as well to like, look, if, if you can solve a problem and it's a couple hundred bucks, that's just— I don't, I don't want to know. I don't need to know. Just fix it.

But it seems to me even before you would have had enough doors to sustain a great staff with, with managers, you obviously carved out time to be buying property all along, right?

I think when I think back at it in the beginning and there's— I mean, you're going to hear from some, some keynote speakers here, particularly Chris Clother on the last day, that that's what they do is they find property, renovate it, sell it to their investors. And since that's kind of how I got into it with my first client was renovating and then selling to them, I always had that in the back of my mind like, hey, I need to constantly be bird-dogging properties and find stuff that even if I don't want to keep it in my portfolio, that might work for one of our investors. Because then, you know, we talk about kind of one of the big things at NARPM is tracking your cost and cost per leads and things like that. And you're like, well, if I can buy a house, renovate it, sell it to my investor and make $15,000 to $25,000 selling it to them, and it's still a great deal for them,, then my— the cost for that lead for me was like it didn't cost me anything. I actually made money.

Well, you've got negative, right? So the SaaS guys, like the really sophisticated marketing folks, they would say that you have a negative customer acquisition cost, right, in that scenario because you're actually getting paid to add a door under your own management.

Right.

So that's awesome.

We're always looking to do that. And then we did at one point over the past 7 years, we've done 5 real estate funds. A couple of those were some duplex communities. The others were some kind of targeted areas in town where we said, okay, the geographic region is, you know, the river over this street and this street, and we're going to target that area knowing that it's kind of a hot area, that it would be easy to raise funds from local people in Tulsa because they understand, oh, Brookside, everybody wants to be in Brookside. And we went and bought. And what I found out is it's a little harder than you think. You're like, okay, we're going to raise a couple million dollars and go buy X million dollars worth of property. And you buy everything that's on MLS in like 6 weeks. You're like, here, now what? We got to buy some more. But so we built those funds up, stabilized those, raised some rents, and then we've since sold those off on all 5 of those funds. But that was, again, that was us identifying property bringing investors to the table. Yeah. And we did that because we wanted to grow the management, right? Like we've got a fund that we're putting together, syndication we're putting together. Then guess what? We get to choose the manager and the manager's us.

Yeah. So the, the way I, the way I relate to this, when I show up to the office Monday morning, I'm just not thinking about buying properties. I'm not thinking about identifying them. I'm not thinking about wholesalers. I'm not thinking about off-market deals. All I'm thinking about is growing my management company and putting out the fires and dealing with the team. So is this just like, are you naturally drawn to that side of the business because that's how you came up? Or was it like, yes, we do have all these problems with the management company. I don't care. I'm going to ignore all that for the next 4 hours and I'm going to focus on activities that are going to lead to us growing our portfolio, and I will deal with the management stuff later. Or was it just— it was, it was more of a natural, like, cadence for you?

So I'm going to say yes to both. Okay. I feel like it is a natural cadence for me, but I also— I, I like— I put things in my calendar. So like all weekend long, my Monday morning is full because if anything comes up over the weekend, I put it in my calendar for Monday morning. That's what I take.

So why is that? Why is stuff coming up over the weekend for you?

Well, a lot of it is things that come to my mind that I'm like, oh, I want to make sure I talk to my staff about this, or here's a good idea I need to talk to Derek about. So I just basically put it on my calendar. So then I get the reminders. I take care of that Monday morning, but I will schedule some time where I'm like, okay, I need to put this block to, you know, maybe I need to just put out some feelers with some wholesalers or just make phone calls. So, you know, hey, I'm still here. A lot of that stuff just comes to us now because I've been doing it a long time. But I think what you're probably getting at is where are we sourcing all those deals? And I, I have trained my property managers, my maintenance coordinators, everybody. Like, if, if you get a sniff or a hint from one of our current owners that they're in a bind, they need cash, they need it fast. They want to sell, maybe they, maybe they're not going to buy, but they just want to sell. I need to know about that as soon as you get off the phone with them, because I am calling that person within an hour of the conversation. It's kind of like the lead, you know, speed to lead on a, yeah, on a property management deal, right? I mean, you get somebody that calls in and you don't call them back for 3 days, they might have, they've moved on to somebody else. So I want to get a hold of them before they get anybody else, before they call their sister's brother's cousin that's also a realtor that sells one a year, right? I want to— I want to talk to them and find out what's going on. What do you need and can we help? Because I want to be buyer number one. Yeah, we don't always buy it, but I want the opportunity to.

So I feel like, wouldn't they just say, though, hey, Tracy, that's great. Like, I know that you manage my properties or that we, you know, but wouldn't I make more money if I just went out on the MLS and market it publicly? Why would I want to sell it to you? You're telling me you're going to save me money on commissions.

Okay.

But it seems to me that if I got it in front of 300 people and had 20 buyers walk through it, I'm going to get a better price. So why, why would I even entertain the conversation?

So that's why I want this kind of what David was saying in there is setting the frame and figuring out what, what do they want and what do they need? Because some people it does make sense. Like, Okay, I'm going to refer you over to the guy over here at Caldwell Banker, and Jim's going to put your, put your property on the market. And that is the best deal for you. Some of them, you know, again, you go back to that, we know the property, right? So I'm going to pull it before I call them. And so I don't say I call them back in 3 minutes. I'm going to look it up. I'm going to look at our latest pictures. I'm going to look at, I mean, did something trigger this? Did we just have to replace a roof or an HVAC or something that they're like, oh my gosh, I've spent You know, for all my last dollars, for us lately, it's been expensive turns, right?

Yeah.

So what has happened to trigger this with them, to make them think, I'm out, and then start the conversation with them? Because I feel like across our entire portfolios, there's two owners. There's the owner that needs to buy more property, and then there's the owner that has no business owning property. And yeah, you guys know that owner, right? It's the— your air conditioner's out and it's August and we've got to replace it. And they're like, where am I going to get the money? I'm like, that's a— maybe you need to sell, right? You don't need to be an owner. So if they're one of those, maybe they're just a one-off and they want to sell because it just happens to be a house they inherited 3 years ago and it was easy to rent. And now they're like, you know, my motivation's changed. My, my kid's going to college and I want to cash out. So we've got money for college. And it's varied so much that I like to, though, I want to find out what they need and then walk them through their options, which includes here's your full retail sale. Sure. And the question I ask—

you don't try and hide that?

No, no, no, no. I give them, I give them at least 3 options. Okay. When I talk to them. So I don't want anybody to think like, hey, well, it's kind of a backhanded, underhanded thing. Sometimes you're the easy button.

Yeah. If they're, if they're in a hurry, they're already in, you know, in theory they already know, like, and trust you as a real estate professional. So just to set the scene a little bit, tell me about your portfolio. How many units? What kind of units? Where are they located?

Okay. So for the most part, so 100% are in Oklahoma. Okay. 99.9% are in Tulsa. We've got one in Oklahoma City. And we've just been slowly buying them. We've, you know, bought some in bulk, some one at a time. They are what I would call just B-class homes.

Single-family.

Single-family. Single-family. Single-family. B-class. I mean, I don't do— I started out like a lot of real estate investors, like this is what I could afford. And I bought the $23,000 house in the bad part of town.

We started that way too.

I had the whole experience of you know, getting paid rent at my house, apparently, that drugs was being dealt out of. And he put a wad of cash through my window and the largest bill was a $5. And I didn't count it. I was just like, thank you, I'm out of here. Yeah. So, you know, we don't— I don't want any of those houses. Yeah, those are gone. Yeah. So I'll let the new guys that are trying to, you know, come up, figure it out. They can do that. They can do that now and pass that.

So do you have any— do you have any Section 8 that you kind of inherited or—

We've got a couple on Section 8. I'm not necessarily scared of Section Section 8. I mean, I think Section 8 personally is very overlooked because they have constantly raised their fair market rents.

How is the local administrator for you? Because ours in Columbus is— I don't have a problem with Section 8. It's dealing with the local administrator that's painful.

It's unbelievably difficult. Okay. And that's why, unless we've got a specific reason for, you know, that's a, that's a house, we'll do Section 8. I would say out of those 80+ properties we've got, 4 or 5 on section.

Yeah. Okay. So and one of the things that's been really attractive to me about the idea of building up our own portfolio of properties that we own and manage, well, for one, obviously, is, is wealth building. We all know as professional property managers that you can build a lot of wealth through owning rental properties. That's not news to anyone in this room. And we're seeing our clients, especially those of you who have been in the business a long time, you've seen the net worth of your clients grow drastically over time if they have a buy and hold mentality. I'm really not a fan of our clients who are trying to almost do like the stock market version of rental properties where they're buying and selling and they think this neighborhood's doing this and they're going to try and sell because it's at a peak and they're, they're playing these games. The folks I see that are most successful and have the highest consistent disbursements are just the folks that buy a bunch of properties and forget about them. They don't— they are— they don't even— they don't pay any attention to the market value or anything. They just let it ride. Yeah, it's a great way to build wealth. I'm not going to harp on that. This isn't, you know, a seminar on how to invest in real estate. But the other thing I find interesting about building your own portfolio of rental properties, and this is where I want to get your take on it, how much easier is it to manage a home that you own versus a home that somebody else owns?

A lot.

So would you say like, would you say it's like 10% easier? 50% easier?

50 to 70%.

Okay. So you're saying like you could manage, you know, if you, if you could manage it, it's like the equivalent of 100 third-party homes. You could probably manage 200 or 300 with the same number of staff if you own them.

Yeah. Because Well, here's what I tell our owner clients. I mean, they're, they're, they're really concerned about maintenance, right? That's a— yes, they are concerned. That's a lot of communication. It's a lot of back and forth. And my office is, you know, 50 feet from our maintenance coordinator. Right. So she, she treats me like anybody else. She's going to send me the email, says, hey, I've got this. She knows who I like to send my work orders to. We're going to send this over here. I look at it, reply back, yep, sounds good. It's a little bit bigger of an issue. She just walks over and says, hey, this is happening on 1234 West Main. What do you want to do? Oh yeah, um, I want you to send Joey out on that, and then, you know, if he's got an issue, he can call me and I'll let you know what to do from there. So the communication is like lightning quick instead of You know, if you're my client and we say, hey, we need this and we say, well, did you get 3 quotes? And right, we didn't—

we do this last year.

It's really expensive.

Why is it so expensive? That's my whole year of profit. You know, you got— have you heard this before?

Yeah. So, you know, it— we, we look at it as— so Derek and I look at it something— we're investors, right? We deal with all of our investor clients and we understand it's going to cost money to do this stuff. So I'm not, I'm not beating, beating my maintenance coordinator. She can't help it if something breaks. Yeah, she's just the deliverer of the message. But as I tell my clients, it's like the same staff that works on your house, the same people that roll out on my houses. I mean, I trust them. We vetted them. I don't need 17 bids because I've already been through that.

You know? Yeah.

You know what the, what the fair occasionally, you know, It's like with any business, you get a plumber that was great for 4 years and all of a sudden he's— yeah, he's not calling back, he's charging more. You brought somebody in and out. I mean, there's, there's a little bit of that, but it's just so much easier on my personal stuff because we're, we're right there. It's like the team— I want to say they work for me because they do work for me, but it's like they work for my company that owns the houses, but I'm right there with them.

Yeah.

So I mean, they know they're my houses. That helps, right? Most of the vendors know they're my houses. Yeah. Or they'll ask, is this one of yours? This one you own? Yes. Okay, we're on it. I mean, I know— I mean, they're not charging me any more or less, but they know they want to get it done quickly and impress me. Yeah, impress me, because we send them a lot of business and they want to maintain that and feel like, hey, we did a good job for the owner. Okay, so that helps.

Yeah. So in this part of it is at least as attractive to me as the wealth building part is if I can manage 1,000 doors but I own 500 of them, it's like managing 600 doors. It's just so much simpler. You're not getting beat up every time you, you know, scope a turn or an AC goes out. All those conversations just go away. And I love that. It's just— it seems to me that it would, it would bring a calmness to the office, to the operation, to have a lot of a significant percentage of the properties being owned and managed by you. And it also gives you a little bit more leverage over those clients who are giving you trouble, right? You're not so beholden to them anymore because you know that you have your own portfolio. This client is only a tiny percentage of your overall management revenue. And I think you told me, would you say that you've built more wealth through your real estate investing activities than your actual management company value?

For sure. So As you know, there's plenty of people here that will buy your management company, right? And so who's that going to be? Is it one of the big guys or is it somebody like me that's in an adjacent market? Maybe I want to expand, but there's always somebody that's going to buy your real estate company. You kind of have a rough idea that what the multiple is, you know, it's, you know, maybe it's 1, maybe it's 1.5, maybe it's 2. But, you know, you look at that and say, okay, based on my door count, based on my revenue, What's my company worth? And I've got that idea in my mind. And then I look at my real estate portfolio and I know that that number is 5 to 6 times. Wow. What my— so I've got— if you look at it, say I've got 800 doors, right? I've got 720 doors over here worth X and I've got 80 doors over here worth 6x.

Wow. That are easier to manage.

That are easier to manage. And you kind of touched on this a while ago. And I think the, the way to look at it is as a property manager, you've got it with your staff. You've got two things that create drama in the office. You've got tenant drama where somebody is going crazy, they're making accusations or they're not paying rent and you're trying to collect, blah, blah, blah. And you got owner drama.

Yep.

Right. So I've been in on an email that, you know, sometimes these owners, I don't communicate directly with them, but they feel like if they find my email and tag me in that email along with everybody else, that they're going to get some special treatment. So, well, and they eliminate the owner drama.

The owner drama is the stuff that keeps me up at night, right? Too, because it's, you know, they could report you to the Division of Real Estate. They're much more likely to come out with the big guns if there is a real issue, whereas tenants, you kind of feel like you got a system. Well, you know, you go to eviction court, you've been there 100 times.

Yeah. If you got a tenant that says, I got a lawyer, I'm going to sue. Okay, you didn't even pay your rent, right? Versus I've got an owner. I've got an owner that owns 15 houses. They've got some resources and they say, I'm going to sue. Right. You're like, oh, that's a bigger deal. Yeah. But we, I mean, as being the owner on that portion of the portfolio, that totally eliminates all that drama.

Yeah, I love that. So let's talk about the financing piece a little bit. So, you know, buying real estate's not cheap, especially if you want to get into the nicer school districts and the nicer homes that rent for more and have more of a stable tenant base. So, you know, I assume you're bringing some equity and it sounds like you've raised some funds. How about the debt piece? Where are you— where are you financing these properties?

So we don't have any of the funds anymore. So everything is now just totally ours. I think the first key is you need good local lending relationships. So you're— for us, it's the midsize banks. It's not the, you know, Bank of Americas or Bank of Oklahoma. For us, it's, you know, it's your— for us, Grand Bank or Simmons Bank or things that are— they're mid-sized banks, couple billion dollars in assets, but they're not, you know, they may be in our market and a couple other places around.

So is this— is— are these credit unions or are they just smaller regional local banks?

Smaller regional local banks. That's where we bank. We bank with them. So we start that relationship there. You know, if you haven't shopped your banking in a while, so a lot of people Well, we have to have our bank has to be in Oklahoma.

That same thing in Ohio. They have to have a—

so we can't, we can't use some of the vendors that are here. So you go to them and tell them like, hey, I've got, you know, $1 million, $1.3 million in tenant deposits and owner reserves.

They drop the phone and drive over.

Yeah, right. I mean, they need that deposit. Yeah. What they live off of. So you start there, you build a relationship, you do a couple of deals with them. They've got to know you're going to perform. And we've done that long term now. So we've got 3 banks in the area that I can— I mean, I could pick up my phone right now, call Trevor and say, hey, I found a house. These are the details. I need X amount. What's your rate right now? And he'll say, all right, we'll have it done in 20.

And this is the guy that can actually make it happen. He's not just a paperwork, correct? Okay. That's really interesting. And do I always feel like these local banks, though, they really want that deposit relationship that you were talking about, but you just said you work with 3 of them. So how do you handle the other 2 that really want you to move over to them? Yeah, they work with you anyway.

It's been a little, little give and take on that over the years. I would— it would take a lot for us to move our deposits now just because we're happy with it. The system's set up. But those other guys still want to do loans and they want to do loans. They need loans. Those loan officers, they need loans on their books that are performing and we never miss a payment.

So I mean, yeah, that, that's big. And when, when your clients are looking to invest and purchase some of these properties that you're, that you're trading around between clients or sourcing and you decide to sell to a client, are you making these introductions? I know we have a vendor here, a newer one who's an expert in lending for real estate investors. Are you facilitating those introductions and relationships?

For sure. When they're asking us, hey, where can I finance this? What do I do? We're setting them up with those guys. I like one of those bankers we worked with for a long time. I referred him a heart surgeon. And I mean, that guy brought over millions and millions of dollars.

Wow.

So even though it's not my money, I still have a better relationship with that banker because what I, what I gave.

Yeah, I love that.

So we, for the most part, and I'll just to kind of give some rough numbers, let's say.

Yeah, let's, let's— I wanted to get to that. So let's walk through a specific example of a property that you, that you purchased. How did you find it? How did you buy it? What did you do afterward? How do you make the decision on whether to hold it or flip it or turn it over to a client?

So Like many of you in here, I've read— my mother-in-law, of all people, gave me Rich Dad Poor Dad.

Love it.

Classic. In the late '90s.

Who here has read Rich Dad Poor Dad? Raise your hand. Wow.

Look at that. All right. So I read that book and that was right before that first deal. I was like, maybe I could do this, right? But I kind of started in the early 2000s when money was real fast and easy and we would buy stuff, renovate, close again and have $0 in it. And they were giving us $35,000 checks of closing. Like, hey, this is great. Yeah, they're paying me to do this. So I kind of started in that era of like, use as little of your own money as you can, right? So I've tried to push that through and like, it's, it's obviously harder now, but with these relationships that we have, we've been able to do some of this stuff. So One example I was telling you about, I had a— I had an owner call me. He was a stay-at-home dad. His wife was the— made all the money for the family. She got laid off. They had 3 houses that were totally paid for and rent was, let's say, call it like $2,900 for total on those 3 houses. So $1,000 a month, $1,000 a month or $3,000 a month not paying the bills. So he calls us, we need to sell, we need to sell fast. Okay, so let's, let's start the process. You need cash. That's a yes. And you want to sell the houses?

Yes.

That's our way. We're going to get some cash. Okay. Here are your options. One, I ask them, what do you think they're worth? They said, I think they're worth $125,000 each. I was like, that's maybe all right. But that's our starting point. All right.

Okay.

So let's talk about selling them full retail. You've got 3 houses. All tenanted with 3 different expiration dates.

Mm-hmm.

So maybe one's month to month, maybe they're not. But let's, let's look.

Okay.

You could sell this one in 2 months. You could sell the other one in, you know, 4 months. You can sell the other one in 6 months because they're under lease.

Okay.

Well, that's a little bit of a problem. Maybe we can buy out their lease, whatever. Let's say we get them out. You're, you're telling me right now you're strapped for cash.

Yes.

All right. Well, you want full retail when they move out. We've got to do some renovations if you want full retail. All right. So let's just say it's at a minimum we're doing carpet and paint or flooring or whatever. And, you know, you got to get them off the— oh, that should be $2,500, right? Yeah. No, that shouldn't be $2,500. That's going to be more like $10,000 to $12,000. Now, I mean, it's since last time you've done it, things have gotten more expensive. Yeah. So we walk through that and say, okay, so we start backing it off. Okay, now you're kind of in that first-time homebuyer range. Well, you're going to pay— can we even say this now? Now you're going to pay me 3%. You're going to pay them 3%. That was before all this stuff started going down. They're going to ask for closing costs because it's probably going to be an FHA buyer. They're going to do an inspection. I'm telling you right now, they're going to find something because that's what happens on inspections.

So you're okay. So you've identified a client. What kind of summarize— you've identified a client.

And this came from my property manager. She came in and told me, she said, hey, they need to sell.

They're in distress. They need to sell. They're not distressed, but they've made the decision to sell. And you're— you then get on the phone after you do a little bit of research and you start walking them through the different scenarios. Yes, Mr. Owner, you could sell retail. Here's what that would take. Right. Or I think I know where you're going. You say you can sell to us. We're not going to make you do any of that. We're going to save you on the commission. And here's what that would look like. And I'm sure you have to tread a careful line here because you are— you're a fiduciary for this property owner client. You need to act in their best interest. So you're, you're threading a fine line here because you are trying— you need to give them by law the best possible advice, right, for them. So you have to be objective. You can't like tune those numbers to make your proposal look good so that you can acquire the property at a, at a steal, basically. So that— I'm sure that that takes some experience. And what I'm also hearing here is some sales, a little bit of sales, right? Just like in the presentation we just heard, you're setting the frame, you're controlling, you're asking the questions, and you're walking the client through in a way that's showing that you're the expert. But you also have to, to be their advisor, essentially.

So, so I backed that number off. So let's say he said $125,000. So that's $375,000. It's just like, you want to write a check for that? I didn't want to write a check for that because I didn't think they were worth that at the time based on where their rents were. We inherited them from somebody else, so they were under-rented. They needed some repair. And so I said, okay, so let's back out all these numbers and we start working it down, say, okay, this is what an investor such as myself— maybe it's somebody else, maybe it's Peter Lohmann— wants to buy it. So if we don't want to buy it, we do want to be able to offer it to our other investors because we want to keep it in-house. Sure. So maybe we pass, but I say this is what an investor would pay for it.

All right.

So I get him down and I say an investor is going to pay— I think we ended up at like $375,000. We were at $270,000.

And in that scenario, let's just pretend that, that this client wanted to go that route. Would you then blast all your email, blast an email to all your existing owner clients and say, Hey, great news. We have a property that's currently under management by another owner. They're interested in selling. If you're interested in buying, please reach out. We can facilitate a quick and easy transaction because the property is already under management. So are you sending those type of emails out to your clients?

If we don't want it, if you don't want it, we're sending it out.

And how frequently is that happening for you?

You know, I would say 5 to 8 times a year.

Okay. So pretty significant volume. And do you find that you get— you find buyers that way? Like, yes, almost all the time.

So let me finish this scenario.

Okay.

So another one, we did that. So then I'm thinking, I don't want to spend any of my own money. All right. So I tell them $270,000 And then I said, but are you willing to owner carry it for 60 days if I give you a significant— like, I'll write you a check for $30,000. So you got money to live on, but I want you to owner carry it. A seller note. Yeah, seller note at that $270,000 for 60 days. For 60 days. Because then I get it deeded over to me. I go to my bank, have it appraised. I know it's going to appraise for more than 20%. Boom. I pay him off. And I've got it with $0.

Okay.

Right. I said, but if you just want cash, like I write you a check tomorrow, I'll do $240,000. So I wanted it to be significant enough that I really wanted him to owner carry it. I didn't want to spend any of my money. So I walked him through that, what that would look like. You know, you're protected, we'll paper everything up, we use an attorney, blah, blah, blah. And he said, okay, yeah, that sounds really good. I'll call you back tomorrow.

And I think what's interesting, I want to put a point on this, is I don't think this would work if you just went and cold-called grandma. No, no. And said, oh yeah, we got the relationship, we're going to do the 68, we're going to carry the note. I mean, there's no way. But because you have this existing relationship, they already know, like, and trust you. You've already been managing their property for a number of years. They know who you are. They know where you live. They know where your business is. They're willing to sort of take that risk of having— of carrying the note themselves rather than getting paid by the bank on day one. So I think that's a big advantage we have as property managers that we're not taking advantage of is we have these great relationships with property owners and that lets us get more creative with the financing than you could with just going to a random person off market that you cold called for sure.

So and they call back the next day and it's like they said, we just want the cash now, which shocked me because I really thought he wanted the owner carry. So, okay, well, let's get the title work done. We paid him and then we just went to the bank and refinanced it and pulled our cash back out. And now, I mean, that was 3 years ago on that. I looked at those numbers. Those houses now are worth about $500,000 and we've increased the rent almost $4,000.

I love this. So it's—

and we at the end of the day have $0 in that deal. I think a couple of things I want to pull out of our own dollars.

Yeah. One of them is give people options. Yes, people, people love options. And you hear the HVAC techs always talk about this. If you're friends with anyone who owns like a big HVAC company or a plumbing company, they train their techs. When you go in the house and you diagnose the issue, give the homeowner options. Homeowner, here would be the cost if we repaired your 15-year-old unit, and here would be the cost for an equivalent brand new one. You think you know what they should do or what they want to do, but you actually don't until you ask. And people love because then they feel like they're empowered and they don't feel like you're railroading them. So that's really cool.

And then just 2 months ago, we had one of our California investors called, lost his job. He had 4 houses and these were like A-class houses. And some of them he had bought, one of them he had just bought like last October. So he had paid them down to hardly anything. He's like, I need to sell them. I need to sell them fast. And so we're talking through the numbers again. Full retail is not really an option when you're 4 months into a 12-month lease. So I was like, okay, let me see. We really need to sell this to an investor. So I'm working the numbers, came to a dollar amount. It's not something we wanted to do. The banker I just talked about had called me the same day and said, I've got a new client that wants to buy rental property, but he just wants A-class stuff. I was like, okay, like, is he serious? So I called that guy And he's like, yeah, I want. So we sold them to a brand new client, 4 properties plus 1 on our list that we wanted to sell. We packaged it up with those. So we sold a new client 5 homes, made commission, got what we wanted for our investor that needed to get out, got a new investor in, and now we got to keep management after making commission on all 5 of the homes. So for that, for us, that's, I mean, that's a huge win and it worked out perfect. That's the example of reselling the property that you're already managing to somebody else that you're going to continue managing.

Yeah, I think what I'm taking away here is I think the mindset I had going into this is, oh, I need to buy more rental properties, so I need to figure out how to find off-market deals. I need to be putting up these bandit signs. I need to, you know, be cold calling and everything. But it sounds like what you've really done successfully is leveraged your existing network of property owners. And it sounds like maybe a lot or even the majority of your deals have come right out of your own existing network. So you're not— it's a lot different than standing up an operation from zero, like a wholesaling operation where you have to build this massive outbound. You've already got a huge number of properties that you know the details of. You have relationships with the owners. So it sounds like it's a combination of like keeping your ear to the ground of those little hints when someone might be ready to think about selling and jumping on those opportunities and then even sort of prompting and promoting the discussion among your existing property owners and facilitating those transactions.

Yeah. So I will say, I mean, we buy— I bought stuff from wholesalers. I would rather pay whatever the wholesale fee is and not have to do all that work. Like I'm willing to pay them. Certain ones that I know and trust that I know that aren't like screwing us on the deal. But yeah, it's just— I mean, we sent out a letter just last month in our spring newsletter and the first thing in there was like, hey, just a reminder, if you want to sell, call us first. Yes, I did notice, even though we're very proactively doing this, I mean, we lost just this year 7 homes that the owners have sold and didn't go through us. Like, we got the, we got the, hey, I'm selling my house, I'm letting you guys know, like, what? Where did that come from? Yeah, we don't want that call. We would rather be the referrer to, you know, if I refer it to someone over at Coldwell Banker, at least maybe I get 25% on it on the way out the door. Right. They did all the work to sell it.

Yeah. So I want to— I want you to raise your hand if you've ever emailed all your clients and said, Let me know if you're ever interested in selling your property. Yeah, less than half the room. And we've done that maybe once or twice. And I think we really should get on a cadence of not only putting it, sending an email out sort of specifically on that topic, but reminding our clients during other conversations, during other communication, hey, and by the way, if you're ever interested in selling, we may be able to help facilitate that.

And that's— I mean, that's it. It's just like it's almost like a casual thing. Right. You don't want them to feel like you're just pounding them with it. It's like, oh, by the way, just keep it in mind. Yeah, right. And then it's up to my staff to, you know, read this, read the signs, so to speak, when they call in. If they feel like, hey, something's going on here, you may want to call them and find out.

Yeah. So if you were to ever sell your management company, how would that work with all these properties that you own that are under management by your management company?

You know, we've talked about that. Now that I manage, you know, you manage 800 properties. If you were to go to managing 80, I mean, that almost seems like a cakewalk for— and, and there may be somebody in here that manages 75 and like, man, I'm, you know, it kills me every day of the week. But it's— I mean, now that we know what is your own unit, when it's your own units, it's different. So we've talked— I mean, for me, that's selling my property management company is not my retirement plan, so to speak. I mean, my portfolio of homes is my retirement plan. And the whatever we get for management company, if we were to ever sell out, that's just like bonus.

Yeah. So in your setup, the management company is really just facilitating the larger wealth-generating asset, which is the portfolio of rental homes. Yeah. Whereas I think the way a lot of property managers, including I, have been thinking about it is the management company is the thing that is growing in value and maybe our plan for retirement or what have you. So I love that you've, you've kind of deviated from that and the management company is fulfilling a purpose, but it's not the be-all end-all, you know, and you've seen the Iceberg Report that tells like how many, how many people actually own homes.

You see all the media, it's like, oh, it's Big Brother and, you know, the black BlackRock, they own all the rental homes in all the world and they're trying to keep everybody else down and they own like such like it's like a half of a percent or something. Yeah. I think as a property manager, when I tell— when somebody's calling in and I'm like, yeah, well, I mean, we understand, we, we own 80, 80 homes ourselves, but all of a sudden there's like a switch in their mind like, oh, whoa. But I don't want that to be a discouragement for people listening to the podcast or people in this room say, I, You know how long it takes to get to 80? Because I'll tell you, it's going to take a second. But I think that number is like 5. Like, if you— most people own 1, maybe 2 rental homes. So if you tell them you own 5, you own 2 to 3 times as many as they do.

You have local star power.

That's it. That's the star power. I know, I understand this market because I own in this market.

That's great.

I know how you feel. When you get a call from the maintenance coordinator that says, I need money. Yeah.

Yeah. Well, this has been great, Tracy. Thank you so much for taking time. We're going to wrap it here. All right.

Appreciate you, Peter. Yeah. Thanks, Tracy.

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.