Matthew Whitaker - Growing to 7,000 Doors

The way I think about our business is it is an education business. How fast can I get what is in my head into our team members' head? And so we do that through a number of ways, but through videos. I'm always shooting videos, content videos, and lessons I've learned. And it becomes more and more important. I'll say something and I'll feel like I'm just repeating myself, but when we've had 25 people that have started in the last 6 weeks, they have never heard me say it, and I just said it 6 weeks ago. And so just repeating yourself often as a leader, I think, becomes super important as you continue to scale the business.

Welcome to season 2 of Owner Occupied. On the business of property management. Owner Occupied is a show about property management in the real world. I'm your host, Peter Lohmann, co-founder and CEO of RL Property Management. For season 2, I have a different guest each week and we go deep into conversation about what actually works when trying to build and scale your property management business. Thanks for listening. Now let's go. Hey Matthew, welcome to the show.

Thank you. I'm pretty pumped to be here.

Awesome. I'm really excited to have you on as a guest. I've prepared a list of hard-hitting questions. No, I'm just kidding. They're mostly going to be easy. But I'm really pumped to have you here. Why don't you go ahead and just take a couple minutes to introduce yourself for those who may not be familiar with Evernest and your background?

Awesome. Glad to do it. I've been in the rental house world since I was 23 years old. I bought my first house when I was 23. Always swore I was never going to be a property manager or a real estate broker. Today, I'm both. If anybody understands the real estate world, back in 2007, 2008, I was buying and selling houses. When the market crashed, I owned about 30 rental houses that I couldn't sell. So I started a company at the time called Golden Key. That ended up changing to GK Houses, which a lot of people still know us as. And then about 18 months ago, we changed our name to Evernest. And so we obviously got into the property management business at that point and started managing for ourselves and managing for other people in Birmingham, Alabama. And really realized about 2013 that the management business was a pretty good business. We had always heard it was hard to make money in property management. We just didn't find that to be true. And we actually found it to be, while it's a really hard business, it's a very cash flow forward business. It's an interesting business that when people pay you or your tenants pay you, you pay yourself first and then you send the money to the owners.

Yeah. There's no accounts receivable in our business. That's something that's always been nice.

It is. So it was kind of an exciting business. And I bought my partners out in 2013. And we kind of set this goal to grow to 25,000 homes under management. So that's how people know us as the people that are trying to shoot for 25,000 homes. And today, at that time, we managed about 250 to 300 homes. And today we manage almost 7,000. And we're in 17, 18 markets and opening a new market about every 6 weeks. And things are good right now because the market is, even though the market's softening, I think that's a that's good for real estate investors and good for property managers. And we're really excited about continuing to chase this 25,000-house goal, which we hope to be there before 2025.

Beautiful. I love it. So you mentioned you're in multiple, multiple locations and states, and I want to jump right in with taking a property management company to multiple locations. I know a lot of property managers And I would say 90 to 95% of them only have one location. They manage in the city in which they live. They've been there for many years. They know the geography inside and out. They know the market inside and out. They've got brand recognition. But you've successfully jumped that hurdle to moving into multiple, not only multiple cities, but multiple states, which brings a lot of challenges around different regulations, state by state, even city by city in our business, there can be different regulations around rental housing. Tell me a little bit about that decision initially to go into a new city or a new state and how your experience has been in terms of what you centralize versus what you leave in the hands of the local operator.

So the way we thought about this and the way I've consistently thought about it is property management companies at the local level are, I call them boutique property managers.

Are—

that's a great business and it's a great lifestyle business and it's just one that's always going to be there. These big groups like us that are growing, we're never going to be able to replace the local property managers. So if there's a story out there that people are telling that the local property manager is going away, that's just not true. But things are changing in the industry. And so the local property manager I've always thought of, if you look at it through the lens of Jim Collins, Good to Great, It's kind of like the genius with 1,000 helpers, right? You have somebody that has built up years of mental models around how to handle certain situations, and they're really good at that, and they become kind of the brain of the whole operation. And they have a team of people that are highly capable, but they basically go out and act on the decisions that the owner makes. And the challenge with that is the business cannot grow past that the owner's ability to make decisions. And so what we see in the industry is that somewhere around 200 to 400 homes, depending on market, depending on how many clients they have, that an owner can't make all the decisions. And so you start to have to rely on others to make decisions. And for whatever reason, I call it going from managing houses to managing people. For whatever reason, they can't do that. Because they're the great technician. If you look at it through the lens of the E-Myth book, they're great technicians. They just never— they don't realize or they've never learned the skill set to become a business owner. And so I never— I've always been a voracious reader and always understood that there was this chasm that you had to go across and that one day it was going to be all about how my ability to manage and lead people. And so I always looked at the business through the lens of that. And when we're in Birmingham, Alabama, there's 1.2 million people here. We knew if we were going to grow 25,000 houses under management, we weren't going to do it in Birmingham, Alabama. So we knew we were going to have to manage remotely and manage multiple teams. And so we just really early started hiring highly capable people that were not from the industry. At one point, we would say we don't hire property managers. No, we don't. We We don't say that anymore because we do see a benefit to hiring people that are from the industry, but we were just trying to find the most talented people we could find. And then we were kind of selling them on this whole vision of let's grow a big business, let's grow it in multiple locations. And so we literally went out and found some really talented— they were young people at the time because the idea was they were going to move to go run the markets for us. And that's how we did it. We started in Nashville. A guy moved from here in Birmingham up to Nashville to run that office. Same thing happened in Chattanooga. And we just kind of dipped our toe in the water, right? Nashville's very easy for us. It's like a 2, 2.5-hour drive. I could make it up there in a day. And so it felt very risk-free. But as we continued to grow, we continued to expand where we were willing to go. And so we went to places like Denver, Little Rock, Now we're in Detroit. So now we're willing to go anywhere because we just realized, hey, if you have a really capable person, and this is like, I think people always hear this, but I think it's a nugget that if you'll actually let it sink in, it's really important. The people that run our markets, if that person is a talented leader that runs our markets, our markets run really well. And if that person has a gap anywhere, then it gets exposed. And it's one of the markets that we have to manage fairly tightly to make sure that it stays on track. And so it's an old saying, but hiring really capable people. And we created this whole process we jokingly call the grinder to find awesome people. And it worked. And we continue to refine it and continue to find awesome people.

Yeah. And I'll give a shout out to your podcast, Matthew, 300 to 3,000, which I enjoy quite a bit. You go into a lot of detail about the grinder and your process for hiring and onboarding, which I've gotten value out of. So if you enjoy my show, you'll definitely enjoy 300 to 3,000. So in terms of moving into new markets and putting a great operator in place and hiring great people, I'm hearing a lot of focus from you at Evernest on people. That's definitely been a theme that in listening to you and reading what you've written, I want to kind of Talk about the flip side of that, which is the systems and process. I'm kind of a systems and process guy at heart with my engineering background. How important was the Evernest playbook or the systems and process on the backend, whether that was a written manual or a piece of custom software or a collection of software? How important is that in enabling you to manage across states and across locations, or is it really more about, hey, if you get the right person, they're going to figure that out, they're going to put the right stack in place that works for them in their market, and you're not as worried about a consistent process state by state by state as long as you have the right person?

Well, and you kind of hit on that in your first question because you asked what we centralize. So I think we can kind of get into that with this question as well. I have the original Evernest, or what it was, Golden Key playbook actually sitting in a box right here. It's a binder. It's a ring binder. I keep it just because it's so fun to go back and look at where we came from. I think systems and processes are a living, breathing document, especially as you're scaling fast, because I think of it as like a pipeline. We're shoving houses or residents or whatever down the pipeline. And as you scale, that pipeline starts to— as you start to put more pressure on the pipeline, it starts to show where the system is failing. At the pipeline, maybe it's at the joints, they're starting to spray out because you're putting more down it. And so the way I think about it is, do you need to continue to patch the pipeline or do you have to go back and rebuild a bigger pipe so that it's not as much pressure going on it? And you're constantly having that discussion internally. Is this leasing process, can we continue to roll along with it even though it's got these kind of holes and we can just kind of fill these holes with people? Or do we build a bigger pipeline? And so we've, again, been having those constant conversations. The thing that I have found is that when you hire great people, they cover up a lot of those sins that you create in your processes. So it allows you to be more intentional, more strategic with your processes. And when you're growing fast, there are a lot of times that people have to go out of process to make something happen. And so when you have talented people, they're able to take something out of a process and then know where to deliver it back into the process.

Yeah. Expertise is knowing when to break the rules.

Yes. Yes. And that happens a lot with new owners, frankly. When the new client comes on board, you want them to have a good experience. And so you don't want to just take them down a process that says, "Step 1, step 2, step 3." You do if that's very efficient, but anytime you need to go out of process to make that a good experience to get started, you need to do that. And so the way we're thinking about it now, and I've actually reached out to you, I sent you a picture of us watching one of your videos. The way we're thinking about it now is, hey, we need to essentially redesign the whole thing. Maybe we're doing it right, maybe we're doing it wrong in some areas, but rethink the whole thing. We're dividing it into what are our major processes and who needs to own those major processes. We're getting that all from the book Scaling Up, which is a Verne Harnish book. We are moving, I don't know if you've heard our podcast, but we're moving from EOS to Scaling Up. And that's a slow thing too. But we're basically assigning owners to the process and then creating a new place for all of our processes. And you're right, though, processes are a means to scaling fast because the things we found is that when your processes are out of date, it's hard to train people. And we're bringing on 3 to 4 new team members a week, and it just creates a whole lot of friction in the system. Of scaling.

So when you guys are, are at HQ there in Birmingham and you're taking a look at some of the data that's coming back from your various offices, and maybe you discover a problem with, say, your lease renewal process, you know, for some reason— just, I'm not saying this is happening, just an example— for some reason lease renewals aren't getting out on time, or you're getting a lot of complaints from owners that they're not being renewed to the market rent. They're just, they're not keeping up with rents. So in that example, would you sit down with kind of the leadership team at HQ, take a look at the existing process, bang out a new process, and then ship that out to all your local offices? Or would it be more like, would it be more like bottom up where you'd get a great idea from someone locally and then you'd kind of share that with the other operators at the other location? Like, I'm really curious, like in the details, of how that actually works when you've got multiple offices?

Well, when you have really talented people, boots on the ground, you're constantly getting ideas from bottom up. And so one of the ways we try to increase the level of communication is we bring all of our, what we call our management team, which is a little bit different than kind of like corporate industry term, but our management team, these are people that are managing people. So it's either somebody that's running a market for us or somebody that's running a department for us. We bring them to Birmingham every 2 months. We have a 24-hour meeting. Not the whole 24 hours, but—

It's like the 24 Hours of Le Mans. You're just—

We're just going hard for 24. Yeah. Yep. No, we bring everybody. It's a lunch-to-lunch meeting, lunch one day to lunch the next day. And the whole idea is that we're increasing the level of communication and basically able to push down vision into the organization. And then they're able to share with us what are problems that are going on at the market level and also share with each other because a lot of this is collaboration. So I would say it is definitely a combination where if we had a problem with our leasing process, first of all, there's somebody that owns either our lease renewal or our leasing process. That would be kind of in our lease renewal would be in our tenant comm processes, leasing would obviously be in our leasing processes, but we would make somebody own that process. And then they would collaborate with the boots on the ground, with the most believable people and say, "Where can we improve this process?" And honestly, it's very organic. It's actually constantly going on in the background. And so we don't get a lot of those, "Hey, there's a problem with this process." because they're constantly— they've been empowered to constantly fix it as they go.

That's fascinating. Um, I love the idea of bringing the leader of each location together every, uh, would you say every month, every other month?

Every other month. We do have a— like, every month we do connect, but it's over Zoom. And so every other month it's in person right now.

Fantastic. So going back a few minutes, you mentioned sort of the, the dichotomy between thinking of yourself as managing houses versus managing people. And I think that's so, so important. And it was— that was a journey for me. I came from an engineering background. I worked as an engineer for 5 years, and in that time I never managed a single person, like not even one. I never, never had a direct report. And my— I didn't have great bosses either. And so when I started this company, we had zero units, zero properties, zero employees. So it was all me for a while. And then eventually we got to the point where we needed to hire somebody. And so I had to figure out, okay, how the heck do you manage people? And I went through that journey of thinking of myself as a property manager to thinking of myself as like a people manager. And that was challenging in and of itself. But right now I'm going through sort of the next stage of the journey, which is going from managing the people who are doing the work to managing the managers. And that's been another challenge because you're so far removed from the actual work that's getting done. You couldn't jump in and help if you wanted to, and not that that would even be the right move. So you have to rely so much more on your direct reports who are, who then themselves have direct reports. So I'd love to hear from you a little bit about your own journey and how you learned You're obviously a very effective manager of managers. Tell me a little bit about that journey for you. Did you have a great role model? Did you read a great book? Did you figure it out the hard way? And selfishly, I'm going to try and take some nuggets here for myself as I'm on that journey right now.

That's great. I hope I can help out. So again, the way I look at my education, and I've never really worked a job for anybody. The way I always thought about my education was very similar to essentially reading books, and then those people became my friends. The way I read a book is I will read it over and over and over again until it almost is seared into my memory so that anytime a situation comes up, I can recall what the books say about that. Because it's just shocking to me that you can take famous people like Sam Walton, Walt Disney, and people have written entire books on the way they thought, the way they acted, the way they grew a business, the challenges they faced and how they handled it, and then try to go about life alone. So you can learn from these famous people and they can almost become your friends.

[Speaker:PETER_LOHMMANN] Yeah. Books are an incredible value, right? $20 for an unbelievable— a lifetime worth of knowledge. It's It's truly astounding.

Yeah. Lifetime worth of knowledge. And then I'm not like a Warren Buffett or a Charlie Munger that can read a book and then recall it perfectly. I know that I need to go through it 4 or 5— I mean, I've read certain biographies probably 8 to 10 times. And so that's how I learned to manage people was through books and through audio. So I like to listen to audios too when I work out or when I'm driving down the road. And so that's really where I learned it. And of course, obviously getting back to hiring really talented people, what Jim Collins said is, "If you have to manage them, you hired the wrong person." And so you really are just providing direction and leadership. We've got an incredible leader, a guy named Gray Hall, who now runs our brokerage business. And I meet with him once a month in our one-to-one, and I'm really just providing direction and context. And providing life lessons from my life, from my leadership journey, so that he can learn it, right? He's 29 years old, 30 years old, and he's starting to manage people. And he grew the brokerage business from just him to there's probably 15 people in there now. And so he's learning, but he's getting to extract value from me. And so obviously having a built-in mentor, not everybody gets to do that, but you can You can go learn from mentors through audios and through books. The other thing I would say is it was really scary for me once the business got bigger than my ability to jump in and fix it. It also got scary for me when it got bigger than my ability to write a check to fix it. And so just being able to rely on really quality data And simplifying that data to, I can see that there's a canary in the mineshaft here and something's going wrong, and I can dig into it because I have the context because I did it just like you did when I first got started. You have the unbelievable ability to have done it, and now you can jump in and have context. Now, what's scary is when you start hiring managers that have no property management background and they're learning the business for the first time and they don't have the context and they haven't screwed it up the same ways that you screwed it up. And so it really becomes— the way I think about our business is it is an education business. How fast can I get what is in my head into our team members' head? And so we do that through a number of ways, but through videos. I'm always shooting videos, content videos, and lessons I've learned. And it becomes more and more important. I'll say something. And I'll feel like I'm just repeating myself, but when we've had 25 people that have started in the last 6 weeks, they have never heard me say it and I just said it 6 weeks ago. And so just repeating yourself often as a leader, I think becomes super important as you continue to scale the business.

Let's take a minute to thank this week's sponsor, Landlord Verification Online. So my favorite type of sponsor is a service that we're already using, because this is a company that I believe in and I'm excited about sharing because it's been so successful for us. So what is Landlord Verification Online? Well, most property managers agree that getting rental history reports is a big pain. It's the slowest, most manual part of the rental application process. And the thing that makes it frustrating is you're relying on other people. Well, Landlord Verification takes this pain away. They automate the process. And take it out of your hands and into the hands of experts who do this all day, every day. So we've been using Landlord Verification Online for about a year, and for the 7 years prior to that, we were doing this in-house. It was slow, it was annoying. Every time it's like, hey, is this application done? No, we're still waiting on the rental history report. All that changed once we started using Landlord Verification Online because they are somehow able to get reports faster than even our dedicated in-house people. So let me share some data around this because they track this. They're very data-oriented company. 45% of reports are completed in under 2 hours, 80% in under 8 hours, and they're excellent at preventing fraud. 5 data points are used to verify landlords, starting with property ownership and relation to the tenant.. And we all know how fraud has become a major issue in rental applications. The service is free to property managers. There's no subscription or setup fees. There's a nominal fee that you can pass on to the tenant and simply increase the application fee. Check out Landlord Verification online. Go to landlordv.com. That's landlordv.com. I want to move now toward a little bit more of the tactical. You guys are obviously acquiring property management businesses at a pretty good clip. I want to talk about churn. So churn is the concept of we started the year with 100 units and we lost 15 of them over the course of that year. That would be a 15% annual churn. We've done small tuck-in acquisitions here in Columbus a couple times now, and it's been our experience that acquired books of business churn out faster than organic units that we acquired just through our normal sales process. I'm curious if that's been your experience as well. You may not be comfortable sharing actual numbers. If you are, that's fantastic. If not, no worries. And I'd love to hear a little bit about your latest and greatest techniques for keeping churn to a minimum, either on organic units or acquired units.

It's kind of funny you mentioned this because One of the things that The Rockefeller Habits talks about is a quarterly theme, and our quarterly theme is all around churn. It's like, here are our goals around churn. And so we have the whole company just focused on churn right now. So it's a good time to ask this question. We are just north right now of 20% in terms of churn. Now look, one of the great things about this industry is we can all sell away exactly why that is, right? Owners are selling. We all got great stories, but we think that healthy churn for our industry is probably around 15% in a non-sales market where there's kind of equal buyers and equal sellers. And so we're focused right now on getting our churn below 20% and ultimately trying to get it below 15%. So we've set some goals with our team and we're saying, Hey, look, we want you to get below this. If you get below 15, you're going to get this reward. If you get below 18, you're going to get this reward. If you get below 20, you're going to get this reward. Obviously, if you get below 15, it's a much bigger reward. So it's just like anything, when you put a focus on it, people are thinking about it all the time. And if my goal is to collect money and I go out and ask everybody, "How much money did you collect today?" At some point, people start thinking, "Oh gosh, I need to start collecting money." And so we're talking about churn a lot. I agree with you that what you buy probably will churn out more. Now, there's like some really early churn that you get that is just like you are never going to save them. They're just not happy with anything, and any kind of change is kind of like the straw that broke the camel's back. You also have to think about it, you know, you're buying that in the middle of the life cycle of that client. So if you get an organic unit, you're getting it at the beginning of the life cycle, and if you're buying it, you're buying it somewhere in the middle. And so you just have to look at it through that. Now, the thing, I actually just learned this 2 weeks ago at a conference. The thing I'm excited about and what we're doing is, I'll tell you what we did first and then what I learned. What we're doing, what we decided to do was let's look at independently audit each unit that's going out. In the past, what we've done is self-reported it. And yeah, that was helpful. But as you know, if I'm a client and I'm pissed off, I may come to you and say, "Oh, I'm selling." And then all of a sudden that gets marked as an owner selling. And we don't even pay attention to that client going out the door. But what we're doing is getting our training department now to go back and audit. We're auditing everything going forward. And then we're going to go back and do an audit of everything we've lost. Because much like you, we keep all our emails. We're able to kind of like have visibility into all that. The only thing we don't have recorded as phone calls, but we're able to go in and kind of see what happened here, what led to it. And somebody that's believable can look at that and say, "That's not really an owner selling. That was an owner that's pissed off and they're just not willing to tell us that they're selling." And so we're going to do that audit, but we're going to see it also as a training, like a way to train people. So we're going to be able to level up our PMs and say, "Look, we lost a client the other day because of this." And yeah, we paid the, you know, we're essentially paying the education of that one, but we're going to essentially use that same lost client to educate everybody on this is not the way you handle these types of situations. So if this ever comes back up, this is the way you're going to handle it. And so that's our education part. We had already arrived there. What I just learned is one of our kind of like competitor, friendly competitors has a quality control department. They hired a quality control person. And I don't want to go too far into their— they were probably sharing some of this in confidence, but their whole thing is they're constantly monitoring sentiment analysis around emails. You can tell before a client gets to the point of their head exploding that they're getting more and more frustrated. And so having somebody that's constantly monitoring that, that can jump in Listen, when they told me this, it was just like, I didn't even, I'm embarrassed to say I didn't realize that people actually did that. And I was like, I can go hire that. And then when they told me how much that costs, I'm like, if that person saves like 16 clients, like they pay for themselves. It's just not a big ticket to pay.

I can 100% see this because clients who are becoming unhappy in my experience, their frequency of communication changes. And it actually could go either way. They may start emailing you almost every day demanding an update or with a complaint or calling every day, or they just go silent. You previously heard from them maybe once every few weeks, and then all of a sudden you haven't heard anything for 3 months and you're like, oh shoot. And the old saying about if they're not talking to you, they're talking to your competitors. So that is fascinating. And I feel like that could be pretty easily, I feel like you could even have some AI or something that would just be looking at the email frequency and the language and get pretty close.

That's really interesting. I think I agree. There actually is AI out there around sentiment analysis that says that can essentially predict, and I don't know how to institute this with us, but can— so if anybody's listening, wants to reach out and help us with this, but you can predict the tone of the email based on the words, based on the, I guess, the number of exclamation points, if it's in all caps. But it would be nice for somebody to have a dashboard that maybe it only gets it 80% right, but jumping into 4 out of the 5 emails that are issues and making sure that those get resolved and you close the loop on those makes for happier clients long-term.

This is reminding me about a telephone provider I heard about recently called Dialpad. This is all hearsay, so I might be getting the details wrong, but apparently, If you use Dialpad, the system is listening for keywords and phrases, like sentiment analysis basically of the audio that's coming from the customer. And if it hears certain words around, I don't know, maybe it's like cancel or refund or unhappy or something, it'll actually pull up, like the employee who's on the phone, it'll pull up little like tips and tricks and articles and talking points live on the call so the operator can just read off, "Okay, it sounds like you're thinking about canceling. Have you thought about da, da, da, da, da, da?" And I think that's really, really interesting. And I feel like it's along the same theme of what we're talking about here.

Well, what we do, we always have to remember too, what we're doing is something that's very hard. The whole goal of property management is to solve problems. If there are problems, there's naturally going to be frustration around those problems. And so it takes talent to manage for multiple people in these houses and deal with multiple residents and multiple personalities. It's just a really hard skill for people to master. I don't think of QC as, oh, we're going to be on top of you and we're micromanaging you. I think of QC as we're going to constantly level up your ability to handle these types of issues. That way, they're not as stressful for you because you know how to handle them and you can keep people on the team longer. I mean, the worst thing that can happen is to lose somebody that's been managing properties for you for 2 or 3 years. They develop relationships with all your clients. And because they get burned out, and it is a burnout position, the PM, tenant comm, we bifurcate those 2 positions. But you're constantly dealing in people's frustrations and trying to close the loop. And you honestly, another thing that a lot of people have a hard time with is they leave every day and loops aren't closed. And you have to be okay sitting at home eating your dinner and knowing that things aren't perfect out in the world.

Yeah. You got to know what fires to let burn. That's how I've heard that put, and I think that's so true. Beautiful. So I want to talk, I just got one more small point on kind of acquisitions and churn that I want to get your input on. So when you buy a book of business or you acquire a property management company, and we've done this too, where you do a little tuck-in here locally, the customers that you bring in, the property owners, they're accustomed to a certain way of doing things. Well, Jeff always called me before he signed the lease. Susie would always check with me before hiring a lawn vendor every year so I could approve the pricing or whatever it is. Now, when you bring them into your organization, obviously things are going to be different. And I'm fascinated by the tension between wanting to kind of do right by that new client and make them feel comfortable and make them feel like you care while still adhering to some sort of like a standard operating procedure or your operating manual. 'Cause if you constantly make these one-off exceptions, you're just going to run around and you're not going to succeed, right? 'Cause it's not scalable. So is there like a time limit where you're like, okay, whatever they want for the first 6 weeks? Or do you come down hard and you're like, no, this is how we're doing it. If you don't like it, see you later. Like, how do you handle that?

[Speaker:SHANE] So the way, first of all, we move on to our processes day one. We tried to do it like a bank where we were just kind of, slow rolling it out to where people wouldn't notice. And what we found is that anytime you deal with old processes and our processes, the handoff between those two, it's unclear who has the ball and there's just more dropped balls. So what we would say is we'd rather drop— we'd rather lose clients doing it the Evernest way than to, than to try to like do it both ways and then lose clients because we're dropping balls not executing. At the end of the day, clients want— they want you to execute. They want you to do a good job managing your homes, their homes. And what we have found is that how the sausage gets made is not as important as them having the confidence that you're looking out for their best interest. And so a lot of this is around building trust immediately with them that you know what you're doing, right? And so we have a series of emails that go out when we buy a business, and generally it's 3 to the owners, and it basically is just trust-building emails. You know, here's what we've done. Obviously, we're doing something right because, you know, we started with 250 homes and now we manage 7,000 homes. And you just can't build a good business by not taking care of people. And we try to tell our story and where I came from. So all those are just trying to build trust. Now, we do know that there are two places to go here. There are people that have what we call an exceptions list. And we actually go through that with the old legacy owner. And we say, "What are the things that are kind of outside of process that you do for people that are kind of different?" And so we do create that list. And now it just depends. Sometimes we have a conversation and people are like, "Oh, well." That was never really a big deal to me, but they always just did it. And then you realize, well, they've been doing it just because they've always done it that way. And then sometimes it is something really important. I would say the thing that's the most important that we do flex a little bit is around when people get paid, because one of the things we found is that a lot of people are relying on that payment to pay a mortgage or do something with. And so building trust around when they get paid is pretty important. Now, the goal is to move it onto our cadence and we pay twice a month. And so what will happen is we'll start communicating 90 days out, "Hey, we're going to switch, but we're going to keep the old cadence for the next 90 days." So we're warning you it's coming so you can prepare financially for what that means for you. And then in 90 days we switch and we're constantly communicating that. But I think pretty much there's not a lot you can't accomplish by Giving people fair warning and then over-communicating to them that you're going to do that and watching them kind of settle into the new normal. So we haven't found it to be as complicated. And I think people— one of the things I have found from legacy sellers is they think, number one, they always think they do the business the best way. And that's just kind of human nature, I would imagine. But they always think that their business is more complicated than it is. And that their relationship with their clients is more important than it is. And not that it's not important, it is important, but they think it's more important than it is. And what we have found is people don't think about their property manager on a regular basis. And if you execute, after about 60 or 90 days, they go back to not thinking about you anymore.

I love it. And I love that you have a clear position on this. You're like, "No, we're doing it the Evernest way." We're going to document some exceptions, we're going to make an exception around the payment for 90 days, but we're going to go by the book. I think that clarity probably makes it easier for everybody because there's not this uncertainty around, well, maybe we could make an exception for this. And I have to imagine that the, the incoming property owners are happy about the getting paid twice a month thing because that's very unusual. And who doesn't love getting paid more frequently, like not having to wait If a tenant pays rent late, you don't have to wait until the next month. Yeah, that's great.

They do like it, but you'd be surprised. Some people pay every week, or some people pay when they get the payment, especially some of these smaller operators. Again, converting from that to twice a month, I agree that it's a big deal that we pay twice a month, but some people are used to getting paid almost immediately.

Okay. Let me transition. I want to chat a little bit about a hot topic in the industry right now, which is resident benefit packages. We call ours a tenant benefit package. There's a few different names, but the idea is you roll up a package of benefits for the resident, and it could be things like renter's insurance, filter delivery, after-hours maintenance, online payments, maybe some stuff you're already doing, and you charge a tenant a fee for that. This is gathering momentum it's the big topic of conversation in our industry, as I'm sure you're aware. Something that I think about a lot here is, well, really two things. One is, where does the fiduciary duty to the owner fall here? Because mathematically, if you as the property management company— and by the way, we do have a resident benefit package here, so I'm not accusing you of anything— but almost by definition, if you're charging an extra fee on top of the rent, Some would say that's rent money that's not going to the owner. And so that's kind of the one piece of it that I sometimes get to thinking about. Like, now, of course, we disclose it and everything else. And I think there's a lot, there's a lot to the argument that residents look at the base rent, and that's how they're shopping. And whether or not there's a fee thrown in when they go to sign the lease probably doesn't affect things. Sure. The other piece of this that I think about is, you know, there's this concept in economics of customer surplus, which is the difference between what you're charging your customers and the value they're receiving, right? And if the customer surplus is zero, no one's going to hire you, no one's going to buy your product. As long as there's a positive customer surplus, they're going to engage with your service or product. And the greater that surplus is, in other words, the more value they feel like they're getting for their money, the more sticky they are as a customer and the more excited they are about your business because they're like, oh my gosh, this is an incredible deal. I only pay X per month and they do that. So this resident benefit package, I worry sometimes that we're closing that gap on the customer surplus. In other words, for the property owner or the tenant, in both cases, are we chipping away at goodwill in the long run? I'm curious if, if you guys think or talk about this internally, if you have like any insights or just general thoughts on the topic.

Yeah, a lot to unpack there. So I, when I first heard about the resident benefits package, and this was 4 or 5 years ago, the thing I really wanted to understand is, is it true? Are we truly providing value for the resident? Or are we just trying to make more money? And one of our core values is integrity. And if we can't truly feel like we're providing value for those dollars, then to me, it's not worth making more money just because you have somebody pinned in a corner. You've got them ready to sign a lease, they're ready to move, and then, oh, we're just going to spring this benefits package on them. So to me, that was step one is I wanted to make sure I need to be 100% sure that we're providing value for our residents. The second thing is, one of the things I like to look at it through the lens of is, what is the amount of money we're getting per unit that we manage? And for us to have great team members, going out and hiring talented people is not cheap. And I think this industry for so long has been people have underpaid for property management services and then they've gotten a level of person that is not what they expect. And they have to realize that some— that money has to come from somewhere. And so if we can provide value for residents and then get money from doing that, from providing value, then it can help everybody. Because when the resident's dealing with a talented team member, that's nice, because you have a competent person on the other line. When the owner is dealing with a talented team member, everybody wins. And so, not to use the resident benefit package, they call it, one group calls it the triple win, but I do believe it has to be looked at through the lens of that. And if it doesn't, if you don't look at it through the lens of that, then, and it's not a benefit to everybody, then you shouldn't do it, right? Speaking about chipping away at goodwill, I don't know. I see all of us heading in a direction where we want things easier. We want things— for instance, I just was staying at an Airbnb at a conference that you and I are both familiar with. And the checkout, usually we had to strip the bedsheets and put all the dishes in the dishwasher. Take the trash out. Take the trash out. But this one said, "Don't do all that. We've got it." And it was like, man, I would stay with these people again because that's one of the biggest pains in the butt, which is why I would go stay at a hotel. Over an Airbnb is I'm essentially doing a lot of the work for them. Well, I think we're headed that way and people are willing to pay to have any, all, essentially pay one price and then get a bunch of services like tenant insurance or resident insurance included in that because it's a benefit to them too. And so to me, you don't chip away at the goodwill if they think that they're getting a good deal for it. I think you chip away at the goodwill when you're forcing people to pay for something they just, they don't, they wouldn't normally want.

Let's take a minute to thank this week's sponsor, AppFolio. Some of you may not know this, but AppFolio has a podcast. It's called The Top Floor. And season 3 of The Top Floor launches in June, which means if you're listening to this episode, the first episode from their new show is out now. So Search for The Top Floor in your favorite podcast player. Go ahead and subscribe. And while you're at it, you can check out their back catalog. Seasons 1 and 2 include many episodes on very relevant topics such as employee hiring and retention, maintenance best practices, single-family rental management, and many other topics. I want to take a minute and also highlight the extremely high production quality for The Top Floor, as well as the quality and the level of the guests that they're able to bring on the show. You're able to hear from folks that you don't hear on the other property management podcasts and topics that are highly relevant but not often discussed. So if you go to appfolio.com/the-top-floor, that's appfolio.com/the-top-floor, you can easily search and access all of the old episodes. You can discover bonus content like research reports. Articles featuring their guests, and you can subscribe there as well. So thank you again to AppFolio for sponsoring the show. Go check out their podcast, The Top Floor Season 3, launching now. Thank you again to AppFolio. I'm curious if, if you were speaking with somebody who owned a property management company and they weren't quite ready to sell, but maybe they were thinking about in the next 1 to 2 years, you know, an exit, what would be your suggestion to to put this really bluntly, maximize the sale price. You hear a lot about property management company owners who suddenly, it creeps up on them and now all of a sudden they want out. They reach that burnout phase and suddenly they can hardly even think straight and they're totally done. And you as a potential acquirer, when you approach that person, their books might be a mess, their pricing might be all over, they may be still intimately involved with the property owners. But for somebody who's thinking ahead, they're looking forward, what are some kind of basic things they could start to put in place now, maybe roll out over the next year or two, that would really position that company to be attractive to somebody who was looking to purchase?

[Speaker:ROBERT_LEONARD] So the way we look at it is market, right? And not a lot of people can affect what market they're in, but market is a big thing, right? If we want to be in a market, we may pay up to get a business in a market. If we want to add on in a market, tuck in in a market, then we may pay up. So market is a big thing. The next big thing we look at is client concentration. So the last thing you want is if you have one big client that's making up an inordinate amount of your homes, then you need to go out and build the business outside of that client and make sure that client is a smaller percentage. Of the homes. The third thing is we look at the type of homes, right? What do these homes rent for? In our opinion, anything from $1,200 to $1,800 rents is more desirable than north of that or south of that. And that's obviously dependent on the location as well. In other words, we would pay more money for those down the middle of the fairway rents than we would pay for the high-dollar rents or the low-dollar rents. And just looking at your portfolio and essentially getting rid of those low-dollar rents, because we know that those are a problem. It's hard for owners to make money when the rents are $600. There becomes a lot of friction and you end up doing a lot of work for those owners. Specifically, what can they do? I mean, other than looking at it through the lens of those three things, is go out and grow the business. And it's hard to do it when you're burned out, but growing the business and Having a lot of happy customers, happy clients, not being the center of the whole business is really important to us too, right? If the owner has all the client relationships, unless that owner is retiring and it's obvious that they should retire, then it becomes a real challenge for us because they're the genius with the helpers and everybody wants to call the genius. And all of a sudden we come in, Even though we can still provide a similar product, it becomes, "Oh, well, Susie never would have been that." Let's see. You're right. I mean, when the data is not clean, it becomes a little more difficult for us to value the company. For us though, it's more about revenue. If your expense data is not clean, it doesn't become as important because we really look at it like we're going to come in and essentially put our expense structure underneath your revenue. And so it's really just about being focused on what the revenue items, what's being generated. Are you generating too much revenue from any one bucket? There's no such thing as generating too much revenue from property management fees or leasing fees, but there is such thing as generating too much ancillary revenue, we think, whether that's through maintenance or brokerage or something like that. The other thing I would say in terms of putting dollars in your pocket is making sure that your trust account is triple tied. We found a ton of people that just went through an audit, a state audit, and their accounts not triple-tied, and they don't have enough money in their account, even though the auditor signed off on the fact that they did.

Yikes.

Yeah, you would be— the triple-tie is a really hard thing for people to understand. I, I have to like sit down and draw it out every time I go back through it, right? When I try to explain it to somebody, okay, this has to tie to this, tie to this, tie to this. And I think people that get into the PM business, as they grow, it becomes more and more complicated, right? Because you're dealing in bigger and bigger dollars, more and more transactions. A pro tip, where we see the most people screwing it up is around credits, owner credits, tenant credits. They're not actually moving the cash. They actually think the software moves the cash for them. And so they they've not been reimbursing the cash for the credits for a long time. And as you know, $75 here, $100 there builds up over time. It turns into tens and hundreds of thousands of dollars over the course of time. And so just being really intentional, maybe even getting a third party to come in and audit that is good. But I would say, just thinking through the lens of a seller, What we look at mostly is the profile of somebody that either wants to get out of the business because they are going to do something else, they're maybe burned out, want to go do something else or retiring. And just build the business prior to your exit. If you're 2 or 3 years out, now's probably, as the market softens, going to be a great time for somebody to go build that business.

You guys are sort of living— you're backing up your words with actions in the sense that your company puts out a ton of content for property management entrepreneurs who are looking to grow their business. And I'll mention 300 to 3,000, the podcast, again. I thought that was a fantastic idea. It's a long game, right? So you're putting out— you're literally producing content about how to grow your competitors in theory, right? You're helping people grow From 300 units to 3,000 units by laying bare the playbook. Here's how you manage people. Here's how you set up your office. Here's how you handle owners. You guys have covered a wide variety of topics there. And at first glance, and even when I first saw this, I was like, what are they doing? Why are they helping other property managers? This is the opposite of your instinct, right? And the old world is, maybe my parents' generation, keep it close to the vest, right? Keep your— you guys figured something out, don't tell anybody. You cracked the code of scattered site management, why would you give that away for free? Are you out of your mind, right? But I think the idea is, hey, what we're actually trying to do, you know, I'm inventing this as if I'm Evernest, but what we're trying to do is we're trying to buy quality sizable property management companies in order to grow our business. So it follows from there that we need to help people grow quality, sizable property management businesses. How can we do that? Well, we could maybe write some articles here and there, but that, you know, people aren't reading blogs anymore. And we could write a book, but you've gone the route of, hey, let's produce a podcast, let's share it widely, let's have on guests. And I think that that level of sophistication and long-game thinking in marketing is quite rare in our industry. I'm fascinated by sort of the level at which you guys are operating. Is that something that has just come naturally for you? Is this someone on your team who's like, "Hey, listen, here's how we got to do this," and were you the guy who's like, "No way, we're not giving away all our secrets," right? This just isn't something that you see every day. I'd love to hear a little bit more about it.

I think this kind of taking a step back, it kind of combines what our core focus is, which is to develop people personally and professionally. So we actually have a passion for that. And we have a 250K Club, used to be called the 25K Club, where we literally stop our company once a week for an hour and we just talk about leadership and growing our people in our organization. So This kind of aligns up with that. And one of the things, if somebody's not familiar with our industry, our industry is so fractured and so cottage. The top 10 third-party property managers manage less than 1% of the whole market combined. So, oh my gosh, you know, we're not in a race against, you know, it's not like we're Walmart and Target where we're competing for minute market share. What we see is if we educate people and they grow their businesses, it doesn't really affect us if they end up becoming a competitor, right? Because there's so much greenfield out there that we're not really running into people on a consistent basis. But what we think is there'll be a handful of people that'll listen to our podcast that'll grow their business from $300 to $3,000, which by the way, also creates value with a company, right? Because a 3,000-unit business is way— will pay at least 10 times more than a 300-unit business.

Well, yeah, one would hope. Hopefully there's a multiple increase in there too, I would think.

Yeah. But just at a minimum, it's reasonable to think it would be worth 10 times as much. And so what we think is that it would be way easier to go buy one 3,000-unit business that's been listening to us and almost built their business using some of the same techniques that we use, and maybe they have a similar culture, and we can easily fold that into what we're doing versus buying 10 300-unit businesses and having to transact 10 different times and deal with legacy people. And we've also found, frankly, the talent level in the 3,000-unit business, because you have to grow an organization and you have to grow a business, is generally better than in the 300-unit business. And so we get more legacy people that are willing to come over. What's been interesting about the podcast is, number one, I never knew— I'll go to these conferences, these people will show up and they'll feel like they know me. And so that's kind of a unique thing. And it's kind of fun that people are listening and kind of following along. And we have owners of property management companies that are even making their team listen to it every 2 weeks. And then their level 10s, they'll talk about it, what the lessons that they learned. So our education that a couple of guys in Alabama, me and Spencer, and Spencer's a good friend and has done a great job of essentially owning the podcast. And I jump on and kind of do my song and dance, but he's owned it and done a great job building it. But we both have a passion for education and it's kind of neat how this thing's gotten legs and people are using it to grow their organization. And that's okay, right? Because it kind of goes back to what our core focuses, which is to develop people personally and professionally. And so we think that it's going to have, in the long run, it's going to have a positive effect on our business. But if it never does, then that's okay. And we actually have bought a business out of it. And so that's great. But as much time, energy, and effort as we put into it, one business is probably not worth the return if we didn't feel a little bit of a touchy-feely, we're kind of living our passion. Of educating people.

It's the modern way. You hear a lot of talk on Twitter about building in public, right? You're sharing your playbook, you're sharing your trials, your challenges, your wins, your failures. It engages people in a way that I think just putting out a course or sharing very dry kind of information just really wouldn't. So I really admire you guys for that.

Well, look, can I say something too about it? I think one of the things too, I think I forget who said it, but there's a quote out there, something to the effect of, "You found a friend when you realized somebody else had that same challenge too." Like, "I never realized, oh, you too?" And I don't know the exact quote, but I think the point is people look at Evernest from the outside and think, "Oh, they have it all together." We're doing press releases and we bought this business, we bought that business. But to really be transparent about what's going on internally, the challenges that we're having. I mean, right before I jumped on here, I got an owner that is one of our bigger clients in one of our markets that's pissed off. And he's on vacation out of the country. And he's like, where is so-and-so who's running that market? And I'm including the owner on this email to this vendor. And it's kind of, that still happens. And I still have owners that have my cell phone. I still have tenants that have my cell phone. And so I think people think that once you get to a certain level, you have to stop grinding. And it's a grind at every level. And so when people see that I'm out grinding and people see— and you're great about sharing your trials on Twitter, and it's kind of fun to see all the transparency that you have out there. I think it endears you to people. And I think people are appreciative that they know that It's hard for them, but they also know it's hard for you, and so that makes it somehow easier for them.

Yeah, 100%. 100%. So you mentioned right at the beginning of that answer that what was the $25K Club is now the $250K Club, and I think you may have dropped a hint on your own show that your, your sort of BHAG has been revised. If you're willing, and we can cut this if this is not something you want to talk about, but I'd love to hear It sounds like you guys have a new goal, a new north star. I'd love to hear a little bit about that.

I've looked back to see where I read this, but Gino Wigman, who founded EOS, at one point said, "When your BHAG or your 10-year target becomes your 3-year target or 3-year goal, then you need to set a new one." Because the last thing you want to do is accomplish it and then essentially, apparently, companies will accomplish these big goals and then they'll be kind of lost for some period of time. And so our $25K goal at the beginning of this year became our 3-year target. We're 3 years away from this thing. And it looks like we're— it's entirely possible we're going to hit it. We've got some kind of cool things that are going on in the background right now that are very exciting and lead us to believe we're going to hit it. But one of the things we didn't want to do is stagnate after that. And so we said, "Well, we don't want to set another 10-year target. Let's just set out to the end of the decade." And we said, "Well, what could we do then?" And we decided to 10x our 25,000-house goal and go to 250,000 homes or doors under management. Yeah. So everybody's really excited about it. And we changed the name of our 25K Clubs to 250K. And it doesn't mean that 25K is no longer important. It's still 3 years out, right? And we're going to have a big party when we hit that.

Got to throw a big party.

Big party. I think we have some ideas of what that's going to look like. But absolutely, making sure that you continue to set vision for your team is incredibly important and find something that's a hook for them that they can really sink their teeth into that's easily transferable. And so taking $25K to $250K, we may be disappointed that we didn't set it higher, but taking $25K to $250K, we felt like was an awesome Goal.

Yeah, I think that'd be okay if you hit 250, a medium success, as my mom would say. Okay, great. So I want to wrap with your advice for a smaller property management company that's trying to grow. You know, you mentioned one of the ways to increase value is literally just more units under management, company growth. Marketing, you guys are great at marketing. You've got a number of different podcasts. I'm sure you have some incredible email lists going. Marketing is always a challenge for a small business owner. To do marketing well, it almost requires full-time effort. And there's a number of vendors in the space in general for small business, not necessarily specific to property management, who claim to offer marketing help. We'll do your website, we'll do your AdWords, we'll do pay-per-click. A lot of them are really expensive. A lot of them don't end up delivering. So I struggle with advice for folks who ask me about folks who are smaller than me, I struggle with advice to give them because frankly, we spend a ton of money on an outsourced marketing group who's delivering great results, but it's not something I could have afforded even a few years ago. What would be your suggestion to a smaller company, say around that 300 mark, that is looking to grow and doesn't have a $50,000 a year budget for marketing?

I am amazed, and I think you are a testament to that at the reach you could get through social media. And the person that's managing 300 doors has stuff in their brain that people want to know. And if they'll just be transparent with it and post it on a consistent basis, then they'll be thought of as a thought leader in that industry or in that market, or in that industry in that market. And there's all sorts of niches that are market-specific and asset-specific that people can build on. And if somebody will just be— I think what happens is, yeah, I think of marketing not in terms of dollars, but more in terms of discipline. The dollars will come if you're disciplined to your marketing. And where I would start is on things like free, LinkedIn, Twitter, I'm very active on LinkedIn. I know you're very active on both Twitter and LinkedIn. And you've done an amazing job. In one week, from two random people that you should never know, I got, "Oh, Peter Lohmann says this," or, "Peter Lohmann says that." And literally people you should never know. One of them is a great friend of mine that's actually an investor in our business. And he lives in Colorado and he runs a family office. I mean, it's like just, you should never know this guy, but because of social media and because you've stayed extremely disciplined to posting, then you've done a great job of reaching those people. And it was just like eye-opening to me. And I think at the end of the day, it's not about the money, it's about the discipline. If you're willing to put in the hard work, and hustle and consistently post and consistently improve yourself so you have better stuff to post, then people are going to beat their way to your door because you'll be seen as the expert. And I'm sure your Twitter handle and your LinkedIn posts have generated all sorts of opportunities for you that wouldn't normally have been available to somebody because you've stayed consistent to that. And the thing about it is, Spencer and I have this conversation all the time. It's not one podcast episode that's going to push us across the finish line. It is the fact that we post it every single week. If you're talking about our— we've also posted an Evernest Real Estate Investor. We post that every week without fail, 52 weeks a year. We take 2 weeks off. And we post our 300 to 3,000 every 2 weeks. And we're going to do that relentlessly. We're going to do that every single cadence. And I think that's where marketing people get in trouble versus not having enough dollars. Because if you spend a bunch of money and then back off and spend a bunch of money, that's not going to work nearly as well as starting to get the marketing flywheel going and just constantly pushing on it on a daily or weekly basis.

Love it. I think we'll end there, Matthew. I really appreciate you coming on the show. This has been so much fun. And if people want to learn more about you, follow you, I've obviously heaped a bunch of praise on your podcast, 300 to 3,000. Anything else you want to mention? Nope.

You can definitely follow me on LinkedIn. And if you have something you'd love to talk about, you could email us at podcast@evernest.co.

Perfect. Thank you so much. Thanks, Peter. 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.