Special: Peter on The Multifamily Wealth Podcast

Welcome back to Owner Occupied. We're nearing the end of season 3. Next week, we're going to be back for the season finale with Mark Cunningham, which you're going to love. In the meantime, I thought it would be fun for listeners to get to hear some more from me on the other side of the mic. Today, you're going to hear an episode of the Multifamily Wealth Podcast with Axel Ragnarsson. Axel is a fantastic interviewer and is building both an amazing real estate company and a very successful podcast. This is actually my third appearance on the show, so if you like it, you can search for my other two episodes. I got special permission from Axel to republish this episode of his show in the Owner Occupied feed. So thank you, Axel. I'll let Axel take it from here. Welcome back to season 3 of Owner Occupied on operational excellence in property management. Owner Occupied is a show about property management in the real world. I'm your host, Peter Lohmann, co-founder of RL Property Management. For season 3, I have a different guest each week and we go deep in a conversation about what actually works when trying to grow and streamline your property management business. Thanks for listening. Now let's go.

What's going on, everybody? Welcome back to the Multifamily Wealth Podcast. Joining me for the, for the second time is Peter Lohmann. Uh, how we doing, Peter? What's going on, man?

Doing awesome. Yeah, excited to be here and appreciate, uh, you invite me back.

Yeah, yeah, absolutely. I think, uh, we've only had maybe 3 or 4 2-time guests. Um, so it's a, it's a pretty small, pretty, I guess, a small list I should say. You're in, you're an elite company. I'll go ahead and label it as that. Um, and we're 105, 106 episodes into the podcast, so wow. The reason I wanted to really bring you back is to talk about, one, property management, and two, operations from an asset management standpoint. And obviously a lot of the listeners of this show are operating multifamily assets. I mean, the vast majority of them are. And as we enter a period of uncertainty here in the marketplace, we're recording this in late August. This will probably be up late September, early October. But I think it's going to be time for investors to invest in operations, whether that's time, staff, just resources, software, whatever they're investing. And what better person to talk about it than you, who's someone who has really dialed in the operational side of his business within just from a business setting, but also day-to-day in property management. So I want to get to a lot of stuff, but let's give the listeners a refresh on your background and how you got into property management and real estate.

Yeah, absolutely. So my background is engineering, actually. So my degree is in electrical engineering, and I worked as a control systems engineer for about 5 years right out of college. And that was here in Columbus, Ohio, where I still live. And during that time, my partner and I, who is also an engineer right out of college, we both started buying rental properties. So this is starting in 2008. We bought our first rental property. And from 2008 to 2012, we started investing in single-family rentals. We would buy 1 or 2 a year while we were working our W-2 engineering jobs. And then in 2013, we kind of put a plan together. And long story short, I quit my engineering job and started RL Property Management, which is the company that I still operate as CEO. So my partner and I own that company 50/50. As we do our real estate. And then most recently last year, we bought an engineering firm. But from 2013 till through today, I've been operating this property management company and growing it from basically from zero. So today we manage just a hair over 600 rental units. Those are all located here in central Ohio. They're a mixture of single-family rentals and small multifamily. And my partner operates the engineering company full-time. So he's out of the management company altogether. So that's 30 seconds.

[Speaker:TREY_LOCKERBIE] Love it. No, that's great. And was the objective when starting the management company to kind of build out some infrastructure to manage your own assets and to also do third-party, or was it exclusively, "Really, I want to start a third-party management company because we see a gap in the marketplace"? What was the driving force behind starting it? Because I think a lot of folks start management companies for different reasons is what I've found.

Yeah, it was more of the latter. So we had kind of— we were self-managing our own properties. We only had maybe 6 or 8 at the time. And just because we're engineers, we had put together some standard forms and procedures of how we wanted to manage our own units. But really, we did see an opportunity in the marketplace because everyone we talked to either hated their property manager or didn't know of any good ones, didn't trust them. And we're like, hey, You know, it seems like everyone needs a good property manager and, you know, maybe we could do this. How hard could it be? Famous last words. So that was really the impetus behind it is this is a way for us to get out of our day jobs as engineers and provide a valuable service, something we already have some experience in. We've got skin in the game and that they're going to be basically the company is going to be managing our own rental units and still does. So that was why we got started.

Robert Leonard: Yeah, that makes total sense. And what were some of the reasons that people gave you that they didn't like their current management companies? And actually, let me rephrase that question. What are the typical reasons why people are upset with their current management company? Where are management companies falling short in providing a great service for their clients?

Ian Formigle: Yeah. A few different areas that we hear a lot from customers who come to us. Number one reason by far is communication. I'm going to give like word for word. I've heard this probably 100 times. I just can't get anyone to get back to me. That's like— and if you're listening to this and that rings true in your heart with your management company, you know what I'm talking about. And that's by far the most common issue. The other ones I see a lot is like my management company can't get my properties leased, they can't get my properties turned over. I never know what's going on with my portfolio issue. You know, you hear issues with, you know, they're not getting enough rent for my units or they're spending too much on expenses. These are the types of things that you hear over and over again from our, from prospective clients who are kind of shopping around.

Mm-hmm. Yeah, it's funny. I think you're familiar with Alex from Mosey, right?

I feel like you— Yep.

I know.

I know Alex is— I don't know Alex, but I know his content very well. I'm a big fan.

Yeah. I think we're probably in the same boat there. And something that he says that I find really interesting is, great business model is just doing what somebody else is doing in half the time. And I feel like that's so true in property management, whether it's turning a unit or leasing a vacancy or replying to an email or getting back to someone's missed phone call. It's like, if you're just faster with all of that, then you have a much more competitive business. But I want to talk about how you actually built your business because From afar, what I find really interesting, I mean, a couple of things I find really interesting, but one thing I find really interesting as an observer of you growing your business through Twitter online and just following along is your pricing structure as a management company. And correct me if I'm wrong, because I'm going to give the listeners some context and obviously you can dive a little bit deeper into it, but I don't believe you charge a leasing fee and I don't believe you charge a percentage of gross in terms of how you actually compensate yourselves for managing other folks' assets. What's the reasoning behind that? And, and yeah, you know, how have you found the market to respond to that? Because it's a little bit outside of the norm, I believe.

Yeah. Yeah. Happy to talk about the reasons behind that. I still think they're really good reasons and I'm going to explain what those reasons are in retrospect. If I could go back, rewind 9 years to when we started the management company, I would just use the same pricing everyone else does. I would set it right in the middle. And I'll tell you why. Because when you're on the phone with a prospective client, so somebody who owns rental properties, they're considering hiring your company to manage it. You don't want to spend a lot of time on the price of your management services, just speaking as like a business owner, because what you really want to be doing as a, as a small business owner is explaining your value and how you're going to help your client. Succeed with their property. And as it turns out, you know, let's say the management fee is right around $100 a month. Well, whether it's $90 or whether it's $100 or whether it's $110 or whether it's $80, $10 a month per unit in the grand scheme of things is completely immaterial when you think about what a property manager is responsible for, right? I mean, what's the cost of an extra week of vacancy per year? What's the cost of maintenance that's getting ignored and not responded to? What's the value of a property manager who is keeping your financials organized and keeping your leases renewed and getting units leased quickly and to great tenants?

Right.

Far, far, far exceeds the monthly cost. Right. The old saying price is what you pay, value is what you get. So on a sales call with a prospective client, I— it turns out we ended up spending a lot of time explaining our pricing, which is unique, right? Because it's different. Right. So I'll explain that briefly now. So we don't charge a leasing fee because we think it's super important to align our incentives as a property manager with the owner's best interests. And if you're a property owner, you want minimal turnover, right? You want tenants to stay in the property as long as possible. Well, if I'm their property manager, and I'm making a leasing fee every time you have a vacancy to go find a new tenant, I'm kind of like subtly incentivized for turnover, which is the opposite of what you want as the owner. So I recognize that as an issue with the pricing model for traditional property managers when we started the business. And so from day one, we've never had a leasing fee. We still don't. I think I'm one of the only companies in the country that doesn't charge a leasing fee. The other thing that's different is we charge a flat rate instead of a percentage of collected rents. That's not as unique. There are other companies that do that. The reason we do this is partially to kind of filter out the lower-end properties because, you know, our pricing is right on our website. You can go check it out. The fact is it just takes a certain amount of time to manage a unit regardless of what the rent is. And so it doesn't make sense to charge like a percentage of the rent. In fact, it's actually the opposite. The lower the rent, the harder it is to manage. So it should be like somehow inverted. So we just set the monthly fee to basically what it costs for us to manage a given rental unit plus some margin, and that's what we charge. So there's pluses and minuses there. I mean, for people who have higher rent units, it looks like an incredible deal. And that's actually good because we want to manage those units. The downside for us is our fee doesn't really keep up with inflation automatically the way it does if it's, if it's a percentage of rent.

So We have to do periodic price increases, which is a little bit of extra work. But— Yeah. No, that makes total sense. And I think that it's interesting how, at least the time that I've spent in the business, 6, 7 years, I've noticed a lot of property management companies start to tweak their pricing, to start to play with how they're actually being compensated. Because I think most people who aren't familiar with the property management business model probably think it's a little bit more lucrative than it is, or that you're bringing home more than you are. I'm involved as an investor. Investor in a property management company and it's a pretty brutal business. And if you are managing a property where you have, maybe you're implementing some kind of significant business plan on behalf of a client, right? And there's a lot of vacancy and there's a lot of turnover in the first 3, 5, 7 months of ownership, there's really no revenue. Like you're basically getting paid or you're not getting paid to do all this work, I should say. And I got to imagine that it's going to continue to change in the industry because what's the incentive for a property management company to continue taking on value-add type projects from clients if they're not really making any money during that period of time? That's the hardest work, which is just an interesting dynamic. So that's almost— I'm telling you what you already know. That's almost just like commentary for folks that might be listening. Like sympathize with your property management company as you go through that process if they charge, for example, a percentage of gross, because they're really just working for free for a while. Now with that being said, how have you approached building your business? And let me clarify that because in our business where we're bringing on third-party clients, it's very, very hard to kind of manage the staffing required to grow the business. And property management is a relatively staff-intensive business. And I think that it's easy for property management companies to grow in a disproportionate level to their staff. And next thing you know, their service isn't really being delivered effectively. How have you approached that balance as you've grown the portfolio over the years and as you've brought on more units and owners and subsequently folks in your team?

Yeah, well, I think you nailed it. A lot of property management companies do outgrow their staffing. They get all excited about adding new units to the portfolio. More units under management means more revenue. And, you know, that's exciting to anybody, any business owner. But if you fail to keep up with your staffing, the service quality suffers and then you end up taking a massive step backward as your clients churn out. So I kind of recognized that from the get-go because of the complaints I heard, which was like the impetus for starting the company in the first place. And so we've been very cognizant all along of maintaining adequate staffing to support the properties that we're managing. And so it turns out that as a property management company, the majority of your expenses are labor. Probably it's by far the largest expense. It's not even close to anything else. All the other incidental expenses like the software and the computers and the office rent and everything else is like a drop in the bucket. And so the, the risk is if you staff up to make sure you're meeting your service demands and you're getting back to clients and tenants and you're getting properties turned and properties leased and all the rent collected on time. If you try and just solve that with people, it's a train wreck. That's actually almost as bad or worse as not hiring enough people because now you've burdened your business with too many people on payroll and you're unprofitable, basically. And so that doesn't actually help anybody because if you're not profitable, you're going to lose enthusiasm for the business. You're not going to be able to reinvest in the business. And so your service quality is going to suffer again to the detriment of your clients. So you need to find a way to meet and get all— property management is essentially tasks at scale. I've said this before and probably not my idea, but how do you get all those tasks done with the minimum number of staff, but in a way that's meeting the minimum standards for responsiveness and quality? Well, there's a few things you can do here, and this is basically what keeps me up at night, is how do we automate things? What can we stop doing? What can we standardize on? What can we put into a checklist? These are the types of solutions that you need to employ as you grow and scale your business. Everything's easy when it's like 2 or 3 employees, but as you get 5, 6, 8, 10, 20 employees, You need systems and processes and standards for how you do things in order to make sure that you're not just chasing your tail all day and getting nothing done. So that's, that's something that I'm like totally laser-focused on as the company grows.

Yeah, that's great. And I think, you know, even if, even if you're listening to this and you're not somebody who is looking to start a property management company or own a property management company, it's a good conversation to have with a potential property management company that you hire is What's your team look like so that you can ensure that they're able to support their management portfolio and that you're going to get a good level of service? Now, I want to switch gears a little bit and talk about asset management specifically as it relates to— Well, actually, let me start here because I think it's really interesting. You seem passionate about delineating the difference between property management and asset management. And I do think that a lot of smaller investors specifically blur that line or they're just unfamiliar with where that line is. So maybe just take a couple of seconds to kind of describe the difference between the two. And then I want to talk about how great investors work with their management companies. Sure.

So the way to think about this is strategy versus tactics. Asset management is a strategy. Property management is the tactics. So as a property manager, I'm boots on the ground, I'm getting the work done, I'm collecting rent, I'm leasing properties, I'm handling maintenance requests. That's property management. These are like if you to translate this to like big apartment communities, these are the onsite staff, right? These are the people who are there at the property. Asset management is strategic decisions, right? How are we going to reposition this property? How are we going to finance this property? What should the branding be, right? Should we be remodeling and improving the units during turnover or should we just kind of be doing the bare minimum? How are we going to position the property and the rents within the marketplace? Or is it time to sell the property and do a 1031 exchange? Or how— where should the rents be set relative to the market? These are asset-level decisions or asset management decisions, and the property manager can give you maybe some guidance. They can give you their own experiences and share what they're seeing boots on the ground. But you— it's not going to work well if you're asking a property manager to be an asset manager. And unfortunately, when you have like a single-family rental or a very small multifamily, if you're a new investor, it's just not— you don't know what you don't know. It's not like it's your fault or anything, but you're just— you kind of feel like, well, hey, this is the property manager. I mean, I hired this guy to manage my property. Why is he coming to me now and asking me these things? But the reality is the property manager doesn't know what your goals are, right? They don't know what your— how well-capitalized you are, what your 10-year plan is, and what your vision was when you originally bought the property. So you need to have kind of a clear distinction in your mind as to what the responsibilities are of the property manager. And if you feel like you want them to be doing asset management activities, that might be a different pay rate or a different relationship that you have with them, because in order for them to be effective as a property manager, they need to be close to the metal, right? They need to be concerned themselves with specific tenants and vacancy rates and like the details of the property. They're not going to be head in the clouds like thinking 10 years out. It's just not how most property managers are wired.

Mm-hmm. Yeah. You know, I've used the analogy of It's kind of like a general manager, a head coach, and then the quarterback, right? And there's a different role for each. General manager maybe being the owner of the property, the head coach being the asset manager, and oftentimes those two people are the same, right? There's really only a difference in those roles in really large organizations, but the head coach is calling the plays and the quarterback's executing on the plays. And if you have a really great quarterback, he can help you call some plays. Tom Brady has input, into what plays are being called because he's unbelievable at what he does versus maybe a poor quarterback who's just kind of barely executing what he's being told to do. And thinking of it in that way really does help to get on the same page, fundamentally speaking, and to avoid a situation which is any discourse based on faulty expectations. Now, how do you find or what are some commonalities in investors you see that asset manage really well? Do they have regularly scheduled calls with you? Or if you're watching other dynamics outside of you and your company, do they ask for regular KPIs? What are some traits that you see that separate the great investors from the ones that are just kind of handing the keys over and maybe aren't checking in too much?

Yeah. Now I'll speak from my experience. And we manage mostly small multifamily and single-family rentals. So I'm not managing big apartment buildings, like 100+ units. But we do have clients who have like 70 units, 50 units, 30 units. And so that is, you know, a substantial portfolio and they need and they do need to be thinking kind of as an asset manager of that. So what I see in our successful clients, the ones that are sort of growing and adding to their portfolios and they're and we see the numbers, right? That's the beauty of being a property management company is You see a lot of stuff on LinkedIn and you see a lot of stuff on Twitter. Well, guess what? I see the real numbers. I see what you're actually getting in your bank account for your property that you're bragging about, you know, just closed on, right? So the property owners that are successful, you know, they tend to be really clear on what they're trying to achieve and how they're going to get there and just drive toward that. They're not, they're not— you would never hear a successful— I don't want to say never, but the type of client that I'm thinking of doesn't say something like, you know, I think maybe it might be time to sell because property values are up. You know, that's not in the calculus for them because they, they have a plan and they're sticking to it. They're not, they're not going to be kind of speculating in the marketplace in that way. So, you know, they tend to be very clear on what their plan is. They tend to be very clear with us on how they like to see their properties managed, right? Like, I want my properties to be kind of top notch so that when the unit is turned over, we're keeping up with the neighborhood. And right, so that informs how we're going to handle how much we spend on a unit turnover. They tend to be very clear about what their long-term goals and plans are, which again, that informs how we spend money at the property. If I know you're selling the property in 2.5 years, I'm probably not going to invest in a bunch of long-term expensive capital items because why bother if you're going to be selling? But if I know you're going to be holding for 15 years, well, I might think, approach things completely differently in terms of replacing furnaces, energy efficiency, And those long-lived capital items where you can actually realize the benefit of it.

So I think that's what comes to mind for me. [Speaker:TREY_LOCKERBIE] No, that's a good answer. And I think I've been guilty of the indecisive approach to just owning property. That's something that early on I had to deal with a lot where we set a plan, we're going to renovate the units to this level, we're going to try and lease here. And then the market starts to grow and rents are going up and then a unit vacates and we're like, oh, we could kind of achieve close to the rent if we We just lease it as it is versus doing any renovations, and maybe the plan's changing, but there's a miscommunication throughout that process. And I've noticed that relationships that I've had with different property management companies have been strained as a result of a lack of clarity. So I mean, I think that's one of the best things you can do, and I appreciate you saying that, is get on the same page, create some kind of a business plan that is reviewed and agreed to before closing, and then have the wherewithal and be well-capitalized enough to see it through and don't create confusion by changing things on the fly. Because if you put yourself in a manager's shoes, right? And boy, you could probably attest to this. There's so much that you have to keep track of, that a management company has to keep track of from client to client, building to building, tenant to tenant, resident to resident. It's just, there's so much happening that It's very easy if the systems aren't extraordinarily dialed in for things to get lost in translation along the way. And that only creates drag from an operational standpoint for both you as an owner and then from a property management company as well, which no one's happy about. So the other topic I want to touch on is leasing because obviously you have a very well-developed leasing process because your objective is to own a tenant for a while, right? You want them living in a property for an extended period of time because you're not charging leasing fee and you're lining incentives. And I oftentimes find, at least in my own assessment of different property management companies that I've worked with or currently work with, because we're in different markets, the leasing process is different. It's not very standardized across different companies. What does your guys' process look like and how do you think great property management companies separate themselves from a leasing standpoint?

So the leasing process actually starts before you even list the property for rent. And it's critical that you get the unit turnover process dialed in so that the property is looking its best when you list the property for rent. I see a lot of landlords and property managers who are very anxious to get their rental listing up, which I can understand. Who doesn't want to get the, get the property leased quickly, right? The problem is that initial kind of one week when you first list a unit is so critical. It's like your golden window. You ever heard of like the golden hour in photography? It's like that one hour in the late afternoon, that initial one week or so when you first list a unit, that's your golden hour. You don't want to miss that opportunity. And if you jump the gun and list the property before it's ready, then your best prospective tenants are seeing a unit that's not ready. And it may be a big turnoff for them because despite whatever you or your property manager says, oh, this is going to be repainted and this flooring is going to be different and everything, they can't, they can't imagine that. And maybe they may not even believe you because they may have had bad experiences with other landlords. So I highly encourage get your turnover and your make-ready process really dialed in. And then as soon as it's done, that's when you list the property for rent. Obviously, you got to get really good photos and the rental listing itself is very important. So get all the description and the detail text, great photos, and make sure that the rental listing is appearing correctly on every rental listing site that you've syndicated and pushed it out to. Okay, so now your rental listing is up. What are some things you can do to get your property leased faster and to better tenants? So we use a self-showing lockbox service so that tenants can schedule their own showings and actually go to the property, let themselves in, and do a self-guided tour. This is becoming more and more popular. There's a bunch of these services: Rently, Tenant Turner, ShowMojo. We've been using this for like 6 years. Honestly, we've never had like a security issue or anything like that. It sounds crazy, but it actually works really well. They make the prospective tenant validate their ID, you know, take a photo of their ID, and they actually, they do like a, they require credit card and they do like a $1 charge on the card to make sure that's valid. That seems to be enough to keep people, keep the riffraff out and keep people honest when they're doing these self-guided tours. The beauty of the self-guided tours is twofold. One is it allows folks to, to schedule. You ever go to like get your haircut or, or book some kind of a service and you're like, I wish I could just book this online. Why do I have to call in? This is annoying, right? Like your doctor's office, right? Why can't I book my doctor's appointment on their website? Well, you can with one of these services. So even if you're doing agent showings, you're not doing self-showings, If you get one of these softwares set up, sync it with your leasing agent's calendar. People who are interested in seeing a unit could just book and schedule online. They don't have to call in and you're playing phone tag and it just takes forever. So this is beautiful. And when you add in the self-guided showings, it's, it's just like rocket fuel for your leasing process. So I highly recommend that. And then of course, all the standard stuff applies, like following up with people, calling them back, replying to their emails. After they see the unit, follow up, see, you know, how'd you like it? Do you have any questions? Kind of all that normal stuff applies. I will say the number one thing, if your property's not leasing, you need to do a little bit of analysis, right? And you can break this down in this way. So if you're getting no showings or like very, very few showings, you need to look at the rental listing. And make sure it's showing up right. Make sure your photos are good. That first photo is really important, so make your first photo pop. If you're— if that stuff looks good and you're still not getting any showings, it's a problem with the price. Your price is too high. If you're getting showings, a bunch of showings, bunch of showings, bunch of showings, and like no applications, then it's an issue with the unit. There's something about it. The curb appeal or the carpet's too old or you need to repaint that one room or just something's like turning off, right? Turning off prospective residents. So I will say 95% of the time it's price. People are like, why isn't my unit renting? What are you guys doing? I'm like, it's priced too high. You won't let us lower the price. You're over market. And there's this counterintuitive thing with pricing where some investors and accidental landlords, they have this idea where they're like, oh, well, we want to get really good tenants, so we'll just set the rent really high. And then we're only going to get good tenants. It's like, no, that's actually not how that works.

If only that's how it did work.

Yeah, I know, right?

Make more money, get better people.

That's a, that's a perfect— Yeah. Like, oh, wow, you must be the first person to think of that. So it's actually the opposite, right? It's completely counterintuitive. But if you— the type of tenant you want living in your property, someone with good credit, no criminal history, solid employment, people, people like you and me, basically. Think about yourself. If you were shopping for an apartment, you're looking for a deal, right? You know the market, you know you're a good tenant, you're going to be shopping around, you're going to be looking at every option. You're going to be like comparing this to that to the other option. Just like shopping for a car, you're going to want a deal because you know you're a good tenant, you're well qualified, and you're going to take your time. So if you want to get a great tenant like that, you need to be right at market price or even a little bit below to secure those great tenants who in the long run are going to generate the best NOI for your property. Now, if you're a bad tenant who has criminal history, evictions, whatever, you're willing to pay whatever. You're willing to pay above market to anyone who will just accept you as a tenant. So if you set your rent really high, counterintuitively, you may be getting a bunch of applications from people who aren't qualified and they're just hoping, hoping, hoping that someone's going to accept them and they're willing to pay an extra $200 a month just to anyone who will take them on as a tenant.

Yeah, that's all of that's killer. And there's one piece of it that I want to dial in and then I want to probably have some more follow-ups. But when you talk about setting the really good first impression, right, that first week, that golden week, right, comparing it to the golden hour. It's funny you say that, right? Because I watch Million Dollar Listing on Bravo just as I'm cooking dinner and it's just a mindless TV in the background. And they always say on that show, whenever the buyer makes the first offer after they list a property, they're always like, "The first offer's usually the best offer." And that's like every single agent on every single version of that show says the same thing. And I think it's true from a rental perspective as well. It's similar to sales where you're going to get the best offers and the most qualified buyers right when a property hits the market or within that first period of time. And then once it goes stale, people know it's there, they kind of forget about it. Now, as a follow-up question to that specific part of your process, because this is something that we're trying to figure out internally is how do we handle showings when a tenant gives us notice that they're not going to renew their lease? They have 60 days left. They said, "Hey, we're going to move." Do you start trying to show that or lease that unit as they're winding down their lease term, or do you wait for it to go vacant and you clean it out, prep it before you start the leasing process?

Yeah. Great question. The phrase that we call this, or the term we use, is pre-leasing, which is just like you're saying, trying to get the property leased before the old tenant moves out. I will say this is highly regional. So in some parts of the country, this is— everything's done this way. All the tenants know about it, all the landlords do it, all the property managers do it. It's just the way things are done. In other parts of the country, it's like completely unheard of. And if you try and do this, the tenant who's living there is going to be like, What are you talking about? You are not bringing strangers to my house. So now that said, it's kind of commonplace in Columbus, Ohio. It's extremely commonplace with student rentals.

It's actually how everything is done with student rentals because you have one week to—

yeah, with single-family homes and stuff, not as common. And with apartment buildings, not as common because in a big apartment building, you're presumably going to have like a model unit., and so you don't have to do that. So it's kind of a case-by-case thing. And we offer it as a service for property owners who are on our higher level plans or for property owners who have above, I think it's like 10 units or more with us. You automatically get it as an option. But from a property management perspective, it's extremely labor intensive and difficult because you have to coordinate with that current tenant who may or may not agree. Right. And what are you going to do? You're going to go in at gunpoint. And like force your way into the property. Now they say no. What are you going to do? The, the worst you can do is like fine them if you have like a fee in your lease that says noncompliance with preleasing or something. But so you're dependent on compliance or participation from the current tenant. You're also counting on the fact that the current tenant is keeping the property in good condition. It's not leaving a big mess everywhere, doesn't have a crazy dog. Right. So it's all these factors. So but if all the stars align, it's a great thing, right? And you can get the property leased or at least get some showings prior to the old tenant moving out. So we do it and we have moderate success with it, especially if we have participation from that current tenant. The problem you run into is like there's this weird time period where, okay, so you're trying to prelease, trying to prelease, trying to prelease, then that tenant moves out. Well, now what? It's like, do you keep showing it now that it's vacant? And what we've found is no, we actually take it back off the market, let the turnover process finish, and then we put it back on the market fresh. That kind of resets the days on market, makes it show up in everyone's searches again. I don't know that that's like the be-all end-all best answer for all time, but that's what we're doing right now.

No, it's helpful. And I think you're right when you say that it's very area dependent. Like for example, I live in Boston, you know, there's a lot of student rentals, right? And that's how they have to do it. But even outside of that, Properties aren't going vacant before they're being shown. Just the whole city of Boston, regardless of student rentals or not, it's just somehow most of the city's on a September 1st lease cycle. That's just most of the city, which is unlike the rest of any other city that I've really understood from a leasing standpoint. So me, all my friends, anyone I know that lives in the city, everyone's assumed that they're either moving or renewing their lease around September 1st.

[Speaker:TREY_LOCKERBIE] That's crazy. That must be a logistical nightmare with the moving trucks and—

[Speaker:ROBERT_LEONARD] Oh, it's chaos. The weekend of Sometimes when it falls on a weekend, it's truly chaotic. And not only that, each lease usually ends a day before September 1st, so people have to kill a day and a night. So everyone gets their stuff in a U-Haul, sleeps in a hotel or sleeps at a friend's house.

Preston Pysh: This is really dumb. Boston, get your shit together. This is stupid. This is completely a waste of economic resources.

Like— Jay Gould: It makes no sense. And if you go and drive any of the busy streets in downtown Boston or near any of the universities, They call it the— there's a town in Boston called Allston, right? It's like a suburb and there's a lot of colleges in Allston. It's like 50 minutes outside of the city. But if you drive down the main road that runs through Allston, there's just free signs and couches and furniture for 3/4 of a mile, right? And that's where everybody goes to get their stuff as they're moving into their new apartment is somebody else's couch. But anyways, I could get sidetracked on that all day. But I think it's an interesting thing to talk about because I think different owners have different expectations where they know that the existing tenant's moving out June 1st and they give their notice on April 1st and now they're like, "All right, well, let's start showing the unit so we get a tenant in June 7th or June 5th," right? Or whatever. But you're right, I think it's challenging to do that because it goes back to your point. You're kind of setting a weird first impression if you're walking people through and their kids are home and they're running around and someone's cooking in the kitchen and it's like, You can't really see the space.

But yeah, and I think you're right. There's a big expectation mismatch. We run into this all the time. If you're an individual landlord, you're self-managing maybe 1 or 2 properties, you have the ability to do a lot of things that just don't work at a big property management company. Yeah, things that are better for you, right? Like you can do all the showings yourself. You can go over and meet the current tenant who you have a personal relationship with. And they're willing to give you the benefit of the doubt, right? You can run around and meet 3 different vendors and get 3 different price quotes to get the AC replaced and pick the best one. Like, you can go over there and supervise the painter from Craigslist who's half the price of like the painting company. There's a lot of things you can do as an individual investment owner that just, just you can't—

doesn't work. You can't do it at scale.

It's just you can't do it at scale. And it unfortunate because we want to deliver the best value for our investors. But there's just certain things that— what's really happening there is that you as the individual landlord, you're not accounting for the cost of your time. And so once you factor that in, it's like, well, what was your hourly rate for like those getting those 3 quotes and all that? Like you saved, you saved $150, but you spent 15 hours messing with all these? I don't know, I wish I could like solve this and make it like a win-win-win for everybody. I— they're just, you know, and the time to turn a unit over is another one where like our tenant turnover or our unit turnovers take longer than some guy who's just like out there every day after work. He's stopping by the property. It's just like bang, bang, bang, bang.

We're like, yeah, but our guy's like a week out and, you know, I don't know. Yeah, it's, it's an, it's an impossible thing to solve for. And that's why, I mean, it's just The only thing you can really do is set rigorous expectations up front and just screen out the owners that are probably going to be a pain in the butt to work with. So we talked about leasing, getting the best person into your unit, leasing quickly, getting the best price. Now tenant retention, which is the other component of the goal here, specifically for you guys not charging a leasing fee. I mean, I imagine you got to— probably done the math behind the scenes. You got to keep someone for a couple years on average or whatever it is to break even on that. How do you keep people longer? Like, what are some things owners can do to keep folks in their units for a longer period of time?

Number one thing you can do is on the tenant screening on the front end. Now, there's things you can do once the tenant is in the property to increase the likelihood of them renewing. Obviously, be responsible on maintenance. That's far and away the number one thing. Treat them fairly, make them feel valued, make them feel heard, be reasonable on things like late fees. Maintain the property well, all the basics, right? You got to nail those. And if you get all that stuff generally right, I think you've done all you can do to influence the likelihood of them renewing the lease. Now, some people are going to have a kid or buy a house. There's nothing you can do about that. But the tenant screening is 95% of it. If you get the right tenants in there, they're way more likely to be in there for the long run. Not only because I think they're more likely to renew, but also because they're less likely to get evicted or have other issues. So I just recorded a whole webinar on tenant screening. We use like the Big Five, which is credit, criminal, eviction history, rental history, and income verification. All that stuff's got to be checked, verified, and up to our minimum standard before we approve a tenant to sign a lease with us. And I'm a huge believer in credit scores. I've looked at white papers, I've looked at graphs and statistics that are collected by these credit bureaus who develop specific credit scores for landlords and apartment operators. And they do analyses on tens of thousands of leases and units and they score, they adjust their scoring models to account for predictive factors around evictions and skips.. And if you use their credit scoring and you set a minimum, like I will not approve a tenant below a 600 credit score, you will have a better experience and a better outcome. I don't care what anyone says. I know a lot of people are like, oh, credit score's crap. You know, as long as they've got a job, you know, you hear people say all kinds of things like, well, as long as they've got a job, or as long as you go and look at their previous house and it's all kept, they keep it clean. Or even say people are like, I've heard Oh, I go and look at their car in the parking lot and I see if it's clean on the inside.

Like, you know, all these crazy ideas. I have a good credit score and my car is an absolute mess, so I don't know how it's done.

Yeah. Yep. So it's all about that credit score. Highly predictive of outcomes and, and of course, all those other tenant screening factors.

Yeah. No, that's, that's really important. I mean, I think the big one is maintenance, right? I mean, that's probably just whatever majority percentage of that whole process. Like if somebody's shower doesn't work for for 4 days, they're going to hate you the rest of the time they live there. So I mean, I think that's par for the course, but the other stuff's really important as well. I mean, do you guys do anything from what you might consider to be above and beyond from a level of service, from a level of— I don't even know if I'm asking the right question, but do you do anything outside what you see other people do to make a tenant feel special living in a unit that you manage?

Yeah, I think that we do a few things. Now, part of this is just executing on the basics very well. That's true. And that's, that's actually not easy to do at scale and across, especially across a scattered site portfolio where you're not right, you know, at a big apartment building, the property manager is right there. They can just walk over and rekey the lock or whatever the issue is. But a scattered site, it's much harder and all the units are different and they're all spread out. So executing on the basics well is a big part of it. We do offer— we try to make things easy for the tenant as much as we can. So we offer things like online rent payments for free. We don't charge them to pay, to pay rent online. We also offer this thing called Pay Near Me, which lets them pay with cash at any CVS, Walgreens, or 7-Eleven. They can walk in with cash and with this little slip and they can pay their rent right there and it automatically goes on their ledger. There's nothing we need to do on our end and they don't have to like buy money orders and mail them or come down to our office or anything. So that's, that's been really great. We also, of course, we offer like 24/7 after-hours emergency maintenance. So that's something that you may not get from an individual private landlord, right? If your landlord is Joe Smith and he's on vacation, he may not take your calls, right? Or he may not answer his cell phone after hours. Or nights and, you know, nights and weekends. But we have a whole team that does nothing but that. So we also have a renter's insurance master policy. So if you— we require that all tenants buy renter's insurance. That's really important. As the owner of the property, you want all your tenants to have renter's insurance because it provides liability protection. So if the tenant accidentally starts a fire, you can actually file a claim against their renter's insurance policy and then you don't have to touch your policy, which is a beautiful thing.

Yeah, it also provides the tenant— I'm just going to quickly interrupt. Like, that's a huge tip. Like, that's such a small but really, really significant one that I just wanted to highlight.

So anyways, yeah, keep going. And even things like if the property becomes uninhabitable due to some act of God or whatever, again, the renter's insurance policy is going to kick in and provide that tenant somewhere to live and now they're not bothering you like, well, you got to give me somewhere to live because, you know, your property has, you know, big, big problems. So those are some of the things that we do. So the renters insurance master policy is a blanket coverage for every property we manage, every tenant. They can— they're automatically enrolled in that if they don't have their own policy. So we charge a nominal fee. We call it a resident benefits package that covers some of these things and is just a Because we're providing this at scale, it's very efficient and economical for them.

Yeah. That makes total sense. Quick follow-up.

Do you guys use a third-party answering service for maintenance or do you guys have that in-house? Yeah. We do use a third-party service called Abodia. We've used them for probably 6 years now and had overall a good experience.

Yeah. That's awesome. No, I think we got to do that. I mean, we've been experimenting with other ones, but we haven't adopted it as well as we should have. But I mean, that's huge, right? If somebody can answer the phone at 11:30 at night, competitive advantage right there. All right. So we're coming up on our time here and I want to get to these last 4 questions that I ask every guest. And I'm just going to shoot them at you. Quick answers, long answers, totally up to you. But the first one for you is, what has been your most significant business-related failure and what did you learn from it?

For sure. So significant business-related failure, I'll share, I'll share one that's front of mind right now, and I've been talking about it publicly, is our client churn this year in 2022 has been bad. So client churn is like, so we started the year with X number of clients. How many of those clients that we started the year with left us during the course of the year, right? And this is actually like a something that SaaS companies, software as a service, this is a key metric for them. So third-party property management companies, and this is talking about client churn, so the property owners kind of different from the tenants, property management companies tend to have churn rates anywhere from like 15 to 30%, I would say. So if you start the year with 100 clients, you lose 20, that's a 20% churn rate. And our churn rate for the first half of this year was really bad. It was higher than it had been in a long time, and I wasn't happy with it. So you can't fix something if you don't know about it. So I had one of our team members do a deep dive and figure out what is the issue here? Why are people leaving? So she was able to do an analysis and figure out what percentage of them left because they sold the property, what percentage of them left because they were unhappy. If they were unhappy, what was the issue? Right. So we were able to really like look at the sum total and try and pull out recurring themes like what is it specifically that people are unhappy with? And for those who sold their property, was there anything we could have done to kind of prevent that account from churning out? Could we speak to them about the advantages of long-term ownership of real estate? Right. Because there's massive transaction costs if you're selling your property and buying another. Man, that's like you're destroying a ton of economic value. Anyway, that was probably our biggest failure that comes to mind and something I've been thinking a lot about.

[Speaker:TREY_LOCKERBIE] Yeah. It's really interesting because it's like if somebody decides to sell, I mean, it has nothing to do with your ability to provide a great service. I feel like that's the inherent challenge of a management company is other service businesses or other businesses in general usually losing business as a result of some kind of maybe significant macroeconomic shift, and that is technically out of your control, but usually it's something that was in your control, whereas that's not. And it's an interesting problem to solve for. So I don't want to get hung up on that, but I'm just reacting to that as you say it. It's interesting how property management's different than other businesses in that respect. But number 2, what do you feel is one of the best decisions you've made in your career?

Best decisions I've made in my career. Oh man, let's see. Um, so I think, you know, I've talked about this pretty publicly, but I decided late last year to take off the month of June this year, the whole month, totally disconnect, no contact, and I think that was probably one of my better decisions, not necessarily because like I did anything amazing during that month off. I did get to do some cool stuff, but that's not why I think it was the best decision I ever made. I think it was the best decision I ever made because it acted as a forcing function to get me out of working in the business because there was still, even though I had been pretty good about getting stuff off my plate, delegating, systematizing, hiring the right people, there was still some stuff that I was doing kind of on a weekly or daily basis that I shouldn't have been doing. And it's weird, but it's almost like laziness. You're like, well, this only takes me 15 minutes a week. I'll just keep doing it. Like, because to train someone else, I'd have to like type it all up, record a video, show them how to do it, have them do it a few times, check their work, talk with them, give them feedback. But because I knew I was going to be gone for a month, I was like, I didn't have a choice. This stuff's got to get done when I'm out, and I do not want to get dragged back to the office. So I have to figure out how to get all this work done without me being involved. So that was really, really good because it forced me to get all that stuff completed, off my plate, and now I'm able to focus on higher-level things like issues like client retention. You know, now I have time to dig into that and do these analyses and problem solve and come up with like a a high-level solution to that problem rather than like, oh, I'm— I have to stop what I'm doing and pay these bills or something like that. So I think that was—

I was pleased with, with that decision. Yeah, no, that's, that's great. And I like how you described it as laziness because I am the victim of this myself where I'm like, oh, I can fill out this loan application. I've done that a bunch of times and it's like, that's not— you shouldn't do that.

But it's—

but you're right, it's, it's more pain in the short term to to find the discipline to delegate, which is a whole nother conversation. But, but yeah, it's a very good one. Third here, what is one skill or trait that you would attribute your success to?

Hmm. So I think I have a way of breaking down systems and processes envisioning how they should go and then building that solution. So like, we're big on checklists here. We have a lease signing checklist, we have a de-management checklist. And in like thinking about how all the pieces and parts work together and what makes sense to have on a checklist and what doesn't, I seem to have a good ability to, to get that stuff done. I enjoy doing it. It's, it's fairly easy and fun work for me. And I've tried in the past to outsource that and have other people do it. It doesn't always go quite the way I envision. And so I feel like the ability to scale up the way we have to 600 units, if I hadn't had that strength early on of like how to create these checklists and these systems and these processes, And we've, we've really, we've collected a lot of those onto our Notion page. And for those who follow me, you've probably seen me talk about it. If you go to my Twitter page, it's like my pinned tweet is like a walkthrough of our company Notion page. But that's been just killer, right? And that was part of what allowed me to stay, to stay away from the business for 5 weeks was I tried to take everything that was in my head about how you, how you do property management. Get it into a Notion page, get it in checklists, systematize it, and then you can have that work done by others. I definitely attribute a lot of my success to that skillset that for some reason, you know, it must be the engineering background or something, but—

That would be the— somebody listening probably going, oh, he's an engineer. That's why he thinks like that. But I was just going to say, that's got to be— I was like, if that wasn't your answer, I would have been like, oh, I don't know, man. I think it's because you're unbelievable at creating systems because from afar, that's That's definitely your personal special sauce, at least from somebody watching from the sidelines perspective. Last one for you. What is a piece of advice you'd give yourself before starting your real estate career?

Think bigger. Looking back, we bought our first single-family home in 2008. So I've been at this a minute and there's a lot of people who have gotten a lot richer than me who didn't start until 2015, right? But they thought big. They bought big buildings, they bought— they brought in big investors, and they didn't mess around for very long, if at all, with single-family rentals and duplexes and fourplexes. They went right for the heart or the jugular, right? And they're like, no, we're buying a 50-unit building. I don't care how, we're just going to get it done. If I could go back, I would do that. I would I would swing bigger and move up that ladder faster because I think that's, that's where the big money is, just to be really blunt about it. And like the skills that you develop along the way of like, here's how you lease a property and here's how you get financing and here's how you talk to an investor. Well, those things are the same whether or not you're dealing with a duplex or a 200-unit building. And from what I understand, it's actually somewhat easier with a larger building in some cases. So why not just do that rather than trying to like solve this puzzle of how you manage 100 single-family rentals all over the place? So that would be my advice. Swing bigger, think bigger. I think going back, that would be what I would tell myself.

Yeah, you know, I think it's so much easier said than done when you're looking retroactively to be like, 'Cause I think everyone in the moment, right? It takes such a while to train yourself to do that, that when everyone looks back, they think that's the case. But again, I've now mentioned it twice in this interview, but Alex Hormozi, I mean, I'm a big fan of his stuff, but one of my favorite things that he regularly tweets out is, if you're going to do it at some point, why not just do it today? Right? And I think that's such a really, it's a really powerful thought. But anyways, Peter, I really appreciate you taking the time and sharing just a ton of great info for everybody. And I think this is going to be an episode people return to as they either hire property managers or as they dial in their own operations as we enter a period of time where you got to lease effectively, you got to manage effectively, you got to retain your tenants, and you really need to focus on that part of your business. So this has been great. If folks want to connect with you, where can they find you?

Yeah. Best place to keep in touch with what I'm up to is my email newsletter. So if you go to my website, peterlohmann.com, you can sign up there, or if you go to my If you just search my name on Twitter, you can go to my profile page there and sign up for the email newsletter there.

And I'm very active on Twitter just talking about all things property management and small business. Yeah. Follow Peter on Twitter. He's a great follow on there. And get on Twitter if you're not on Twitter yet. If you're active on social, yeah, get on the real estate Twitter world. I've been getting active there myself. It's a really cool place.

But anyways, man, thanks again for the time, and I'm sure we'll be staying in touch. Thank you. This was fun. 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.