Owner Occupied Episode 20 - Bonus Episode with Q&A Part 2

Welcome back to Owner Occupied. I got a great response from the last episode, which was sort of an FAQ or a Q&A. I get asked a lot of questions on Twitter, and I took some time in the last episode, if you didn't catch it, to just, uh, respond in detail to a few questions from Twitter followers. I was a guest on Chris Power's podcast, The Fort. Go check that out if you haven't. And, uh, ahead of that event, he had put out, uh, just a question on Twitter that if anyone had ideas of what they'd want to ask me about. And so I took some of the questions that weren't addressed on that podcast and just kind of piggybacked on those and brought them over here to owner occupied. So let me jump right into part 2 here. I've got 4 questions, uh, that sort of remained from the, the first episode that we didn't have time to get to. So let me start with the first one. Chris Barth says, how long did it take him to set up his processes? What was the worst thing that happened when he did not already have a process in place when trying to deal with an issue? And who is tougher, the landlord or the tenants? So we got another multi-part question here. Okay, first part, how long did it take me to set up my processes? You know, I was thinking about this. I think it was around 2 to 3 years before we really started to get dialed in. You know, we had some existing processes in place from when my partner and I were self-managing. We had a handful of rentals that we owned. That we were self-managing while we were working as engineers. And so just being engineers, we had put in some, put together some systems and processes for managing those. So we started with those at the management company. And as the company grew and we added more units, we had to add a lot more. And so part of it was just the time it took to develop those. You're not really going to have a process for something until you encounter the scenario in which you need it. Uh, and those take time, right? Like, we didn't get our first lease renewal, for example, probably for the first year. So we didn't have a lease renewal process until at least a year in. Um, and also, when you're operating at a very small scale, you just don't really need a process for a lot of things. Like, receiving rent— I didn't need a process for that because I was the one doing it. Once we got bigger and we hired some folks, we needed to actually document that process. There's a really great book on systems and processes called Work the System. It was written by the founder of a, of an answering service called Centratel, a really big answering service, a big company, very successful. And the, the founder has written this really interesting book that I read recently. All about how to document your systems and processes and how that should actually function and work. So really highly recommend that book. I'll try to link to that in the show notes. Okay, let's see here. What was the worst thing that happened when we didn't already have a process in place? That would probably be a fire. We had a fire at a multifamily property that we managed This was just a few years after we started the company. And we had no process for that. Now we do, we actually have a checklist that's called uninhabitable unit checklist. So if there's any type of a disaster, whether that's a tree fell on the house, a car crashed into the house, flooded out, you know, fire, whatever the case may be, we have a checklist that we go through to deal with kind of the fallout from that. So Yeah, that was a, that was an experience. I think until you've gone through dealing with a fire at a rental property you own, you know, my mom, we grew up on a horse farm, and my mom used to say, she was a trainer and instructor, she would say, you're not a real rider until you've fallen off 7 times. You know, maybe it's, you know, if you're not a real, real estate investor unless you've dealt with a fire at one of your properties. Okay, let me get to the third part of this question here. Let's see, who is tougher, the landlord or the tenants? Definitely the landlords. So the property owners, our clients. The tenants, you know, we've developed the systems and processes to handle the tenants and pretty much anything that could ever come up has been dealt with before, documented. And in dealing with tenants, you really have the upper hand as a landlord. I know that there's been a lot of tenant-friendly legislation that's been passed in recent years, particularly in some states and in some cities. But at the end of the day, you are really the one who's controlling that relationship as the property manager to the tenant. You're bigger, you have more financial resources, you are literally in control of where they live. So there's a certain amount of power there. Now, a super, super savvy, sophisticated professional tenant could probably wreak some havoc on your company if they really wanted to, but that's very rare. Property owners, I find, are harder to deal with. There's just a greater variety of situations that can come up. The power dynamic is more equal. And in many cases, the property owner feels that they are the one who should be in control. And that can lead to some clashes. Property owners will often have very unrealistic expectations. And so dealing with that can be very difficult. Because if you don't meet their expectations, it doesn't really matter what you say, they're just going to feel like it's an excuse. So, you know, we've had some really, you know, let me, let me put it this way. I don't lose any sleep over tenant interactions. I do still lose sleep over some client interactions, whether that's a larger client threatening to leave or, you know, an ex-client that owes us money, or just maybe a larger new client that I really want to make sure we do a good job for. Those are our customers. We have a fiduciary duty to our clients. And so, I've talked before that property management is so poorly defined. You can't even get 10 property managers to agree on what's in scope in terms of residential property management. So imagine how difficult it is to educate and explain to a client what's actually included in what we're providing for them and what isn't. So that leads to a lot of frustration and just bad feelings on both sides. Let me put it that way. Okay. Let me jump to the next question here. This is from Russell Lowry. You may have heard of Russell. He's my podcast co-host for all of season 1. I had a great time in person I got to meet Russell at a conference we both went to in LA called Reconvene this year. Fantastic conference. I had a blast and it was phenomenal to actually meet Russell in person. Believe it or not, we did 18 episodes together and I had never met the guy. So we went out to dinner, just the two of us, and getting that face-to-face time was fantastic. Russell, if you're listening, it was great to see you in person and I can't wait to hear some more about how things are going with your various ventures. Various businesses. So he asks, how has the idea of adding value to every interaction changed your business? So I did a— I think a major portion of one of the episodes in season 1 was about this idea of adding value. The gist of it is that I used to walk around looking for how I could extract value from situations and relationships. Now I try to walk around looking for ways to add value and not necessarily trying to calculate what I'm going to get out of it. I'm not perfect at this, but it's definitely changed the way I look at the world. Russell's asking, how has it changed my business? I think a lot of it has to do— it's the type of thing that comes through in a way that may not be explicit, but people sense it. Customers, tenants, vendors, potential partners, they can feel this when they talk to you and when they interact with you online or when they do business with you. If you walk around with sort of an extractive mindset or What can I get out of this? You may not explicitly say that, but it can be felt right there. You know, I think everyone has had the experience of doing business with a person or company where it just seemed like they wanted to get as much as they could out of you, and they had no interest in reciprocating if they didn't have to. You know, if there was no one making them do something, they were not going to help you in any way. I had a real estate mentor years ago. He suggested you should always leave some meat on the bone for the next guy. And this was as it related to real estate deals. So when you go to sell a property, he felt that you should leave some meat on the bone for the next guy. I think there's really something to that. So I have felt that my approach as it's evolved and as I've matured has made my business more successful. I think we have lower turnover with our clients and our employees because of this kind of subtle shift. I take the opinion as well that what goes around comes around. You know, your reputation has a way of preceding you after a while, and if you become known as somebody who's just gonna bill for every second of their time and is always looking out for number one, that's gonna— that's— you're gonna become known sooner or later among your peers within your industry. Like, oh yeah, that guy, you know, I wouldn't probably mess with him. Or, you know, how, you know, he's always looking out for number one. You've heard people say stuff like that, and you don't want that. You don't want that. You want the opposite of that, right? You want to be known as somebody who's easy to do business with, who cares about others, puts other people ahead of their own interests. And as a fiduciary, you know, in Ohio, a property management company is a fiduciary. We have a duty to our clients to act in their best interests. And so that goes hand in hand with this idea of adding value. So thanks for that question, Russell. Okay, next question here from Jonathan Wasserstrom. He says, where, if at all, does he see tech improving the status quo? Where do I see tech— apologize, my voice is cracking today. I don't know what's going on. I'm still, I'm still growing up, I guess. Where do I see tech improving the status quo? So I've talked before about how I view property management software as really being in its infancy In a lot of ways, property management software has not evolved with the scale that many property management companies are now operating at. And I think there's a long, long way to go in terms of making workflow and process-oriented software for property managers and for real estate investors. So that's a big area that I think a lot about. Where else do I see tech improving the status quo? You know, obviously there's the remote work argument to be made. Technology is enabling a global workforce. Most every property management company that I know of who's operating with any sort of scale is bringing in global workers. They're more competitive. In almost all cases, they tend to have a better attitude than some American workers, and they're happy for the work. They love the pay, and why not, right? If, if, you know, if American workers are going to say that, well, I should be able to do my job from home, I don't want to come into the office, you know, there's part of me that's like, hey, be careful what you wish for. I can carve out some remote positions, but If I do that, that sort of, you know, that's not a guarantee that I'm going to give you that job. I'm going to look for the best global talent. And if there's someone in the Philippines who speaks perfect English, is highly educated, and feels that $6 an hour is a very high-end middle-class living for them, I'm going to hire that person. Why wouldn't I? And I have done so. You know, technology is making that possible, right? Zoom, Slack. Email, of course, but a lot of the tools that we're using right now are changing the game. So that's going to help margins, it's going to help scale, and it's going to help make property management over the long run probably more affordable for more real estate investors. Okay, what, where, how else am I seeing tech improve the status quo? I don't want to get into the Zillow and Airbnb thing. I've talked a lot about that. Tech improving the status quo. Nothing else really comes to mind here. Property management is tasks at scale. It's an inch deep and a mile wide. So technology, it can do some things, but there's a lot that really, it just comes down to a human making a decision or going to the property or cashing a check. There's just, you know, it's not a tech play. It's a human-to-human business, boots-on-the-ground type thing. It's kind of like you could ask the same question about any home services business, like a plumbing company or an HVAC company. How is tech improving the status quo there? It's improving communication. It's making things a little bit more efficient. It's making the customer experience probably a little bit better, online booking and things like that. But I don't see it affecting the core value proposition very much. I would say that. All right. Last question here from Patrick Dieter. He says, any of the VC-backed competitors getting traction in Columbus? And bonus question, what's your favorite Jeni's Ice Cream flavor? Okay. VC-backed competitors getting traction in Columbus. There's two that I know of in Columbus. Evernest, although I don't think they're technically VC-backed. Actually, yeah, I think they might have some private equity backing of a sort, but I think it's mostly friends and family financing that business, if I remember right. So Evernest purchased a competitor of mine here in Columbus, a pretty sizable one. They had about 500 units under management, and that was about a year ago they did that. And so now they are, they are here, they are local. They're competing with us for new clients. So, um, that is real, that is happening. And then HRG, Home River Group, that's another huge conglomerate. Uh, they have a multi-state presence. Again, I don't think they're technically VC-backed. They might be private equity-backed, um, or some other type of, uh, institutional funding. Uh, they're here as well. They have a much smaller presence. I think they have a tiny little office up north Somewhere that is technically servicing all of Columbus, but I really haven't seen or heard much from that group at all. Anytime I check out their website, they have very few rental listings and just not a lot going on there. So I have not seen, you know, I have a blog post where I track the top 10 or 15 largest VC-backed property management companies. I'll try to link that in the show notes. And none of those other groups, to my knowledge, have a presence in Columbus yet. I know of at least a couple that are trying to get into Columbus and would like to be here, and I think it is on their plans, but as, as far as I know, none of them are, are present here in, in the greater Central Ohio area just yet. I will be curious to see when that happens because There's a lot of speculation that, oh, these guys are going to come in, you know, they're going to undercut and take all the business. And then there's a, there's like a counter narrative that's happening in the industry. Oh, you know, these big VC-backed companies, they're experiencing incredibly high churn and they don't have the local presence and the local touch. And I get a bunch of business whenever they open up because they lose all their customers. So it's kind of like this two sides to it I keep hearing about from kind of both sides of the industry. So I'd be really interested to actually experience that for myself and, and actually find out, you know, what is actually the effect on the local market. Because if a big player really did come in with significantly lower pricing, that will have an effect over the long run. Um, as a customer, why would I pay more for the same thing? Doesn't make sense. I would, you know, if someone's going to offer me a $65 a month management fee versus $95 a month management fee for essentially the same thing, I'm going to take the $65 one. Now, there's a lot, you know, you say all else being equal. Well, there's a lot that's covered in those few words, and in many cases things will not be equal. But, you know, I don't, I don't see any reason why a VC-backed management company who is happy to run with poor unit economics for a few years I don't see any reason why they couldn't deliver a great product for a lower price if they're spending someone else's money, right? We operate out of profit, but a VC company, a VC-backed company doesn't need to operate at a profit. They're trying to, you know, it's a land grab, right? That's what the VC guys say. Go out there, grab the land first and worry about what you're going to do with it later. So of course, the flip side of that is, of course, you, you're losing clients all the time due to attrition. And so, you know, the churn rate is, is significant in our industry. And it's, it's, it's not like it actually isn't a land grab because you don't own these clients. They're going to churn out in a couple years, 2, 3 years, sometimes 1 year. And now you paid all this money for this land you don't even own anymore. So you really got to know your numbers. If you're, if you're making a land grab, you got to make sure you're not overpaying for that and you can make your nut before the client decides to sell the property or switch managers. So, okay, so favorite Jeni's ice cream flavor? I really like brown butter almond brittle. That is one of my favorite flavors. Jeni's is a local company here in Columbus. Jeni Brittenbauer, the founder, she had her first scoop shop here in Columbus, and it's a hometown favorite. If you haven't experienced Jeni's Ice Cream, get some. It's fantastic. Some of the highest quality ice cream available anywhere in the world. My runner-up for that is honey vanilla. I know it's kind of boring. I love the— I love vanilla flavor. A lot of people feel like vanilla is just like a generic non-flavor, but vanilla is a flavor. So those are my two favorites. Thanks for those questions, Patrick. That's all I have for today. This will wrap up this little kind of inter-season or intra-season bonus 2 episodes. I've been getting my wheels turning about how to make season 2 fantastic for Owner Occupied. I'm really thinking hard about what guests I want to bring in and what questions I want to hit them with. So, if you have any suggestions on guests or format or anything like that, I'm happy to hear that. You can reach back out to me through Twitter or, or email, however you like. Thanks everyone for listening, and I will see you next time.