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Andy Propst on Managing the Balance of Growth and Profitability

Andy Propst on Managing the Balance of Growth and Profitability

Today we’re talking with Andy Propst, the man, the myth, the legend, the CEO of HomeRiver Group.  

Andy built his management company to 3,000 doors before handing off the reins so he could focus on founding HomeRiver Group.

HomeRiver Group was formed in 2016 by combining several leading single-family-rental property management companies from around the country. Their multistate footprint and unified national platform position it to provide clients with a unique combination of deep local market knowledge and centralized operational, asset management and reporting capabilities.

Andy’s got over 15 years of experience in the industry and today we’re going to be talking about how people can actually make money in this industry by running a property management business as a business.  

This is a conversation filled with lessons I know a lot of our listeners will be able to immediately apply in their property management businesses.

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Topics covered:

  • (02:08) – Growth vs. Profitability
      • (02:19) – Andy discusses the opportunities he sees in the marketplace that justifies scaling with an aggressive strategy.
      • (05:32) – Myth versus reality when it comes to scaling.
        • (06:25) – The milestones of scale.
          • (06:46) – The 400 door mark.
          • (07:06) – Operating according to numbers rather than ‘feelings’.
        • (10:07) – How hiring a CFO dramatically increased revenue for HomeRiver Group.
          • (12:05) – Andy discusses how the CFO relationship has evolved.
  • (15:56) – HomeRiver Group
    • (16:04) – What the business looks like today?
      • (16:27) – Key metrics HomeRiver focuses on.
        • (16:32) – Budget versus actual.
        • (17:59) – What the forecasting portion of the budget takes into account.
        • (18:46) – Using budgetary performance as a motivator.
    • (20:10) – The biggest issue for HomeRiver when making an acquisition.
      • (21:51) – Common denominators Andy sees where companies can make immediate improvements.
        • (22:27) – Ancillary income and the failure to take action.
          • (26:47) – Answering objections on charging ancillary fees, specifically for maintenance.
          • (28:14) – The benefits of running an in-house maintenance service.
    • (29:20) – The scope of HomeRiver’s in-house maintenance service.
      • (29:59) – How large they were when they first implemented it.
    • (35:31) – Utilizing the quarterly goal strategy to full effect.

Rapid-fire Questions:

(37:53) – If you could do it all over again what advice would you have given yourself at the beginning of your career?

Resources mentioned:

Where to learn more:

If you want to learn more about HomeRiver and follow their journey, find them on their flagship site, HomeRiver.com.  And to get in touch with Andy directly, tune into the show for his personal email.

Transcript:

Jordan: 0:00:01.0 Welcome closers. Today we have another episode of The Profitable Property Management Podcast coming at you. My name is Jordan Muela, I am your host.

And today, we’re going to be talking with Andy Propst. The man, the myth, the legend, the CEO of HomeRiver Group.

Andy has grown a number of property management businesses and now he’s taking the reigns for a conglomerate and he’s going to do that at scale.

0:00:28.5 HomeRiver has been around since around 2016. Andy’s got over 15 years of experience in the industry and today we’re just going to be talking about how people can actually make money in this industry by running a property management business as a business.

That’s the topic that I want to dive into. And the reason I wanted to have Andy on is because he’s actually done the work.

And some of the logic and the perspective that is driving the play and what he’s pursuing with HomeRiver Group, I think a lot of our listeners at home actually can apply and can learn something from.

So, Andy, welcome to the show.

Andy: 0:01:04.0 Thanks man, for having me. It’s great to see your bald face again. You look great.

Jordan: 0:01:09.8 Bald head and bald face. Beardless.

Andy: 0:01:11.9 Yes. Bald face and head. That’s right.

Jordan: 0:01:14.3 They can 0:01:14.7 [Inaudible] that I’m beardless.

Ok. So, my man, I wanted to have you on to kind of do a deep dive on what it means to actually run the property management business like a business.

0:01:24.0 Here’s what I mean by that. We see outside capital coming in to the industry and we know that that’s a byproduct of math and spreadsheets being run somewhere by someone.

0:01:34.9 And based on that data, a decision was made to deploy capital. That is different than what typically happens within the industry.

And when people think about spending on sales, marketing, typically they’re not doing an analysis that’s like,”Well, I could deploy my money in a hedge fund, or I could run a sales and marketing campaign.” 0:01:51.3 The perspective is different.

I feel like you sit somewhere in the middle. In the sense that you are a true mom and pop operator. Like, you came up bootstrapped in the industry. You’re not a hedge fund guy.

But at the same time, you’re employing some of that – you’re getting some of the leverage from that databased thinking and perspective.

0:02:08.6 So let’s start here, what is the opportunity that HRG sees in the marketplace that justifies going after things at scale with an aggressive strategy?

Andy: 0:02:19.9 Yeah, I mean I think, I think initially HRG came to pass – obviously we had an amazing private equity firm that saw this opportunity.

Our private equity investors were central in the Rheology Roll Up 0:02:33.7 that happened decades ago.

0:02:37.9 And so they saw the opportunity in real estate. To scale it, to put it all under one big franchisor.

And they thought, “Man, there’s one industry in real estate that hasn’t had this opportunity to roll up, to get to scale.”

0:02:53.4 And they looked at a lot of the numbers that you’re talking about and said, “Boy, this is an interesting opportunity.”

0:02:59.2 There’s not, as you know Jordan, there’s not a lot of industries out there that aren’t in some type of a roll up consolidation strategy mode. 0:03:05.6 And so, this is one of those areas and so they took a shot at it.

0:03:08.3 But what was the actual question?

Jordan: 0:03:15.2 The actual question is just what is the opportunity. So when you say they did some of that math, like walk it out. What’s the thesis of deploying the capital. 0:03:23.2

Andy: 0:03:23.3 Well I think the thesis is being a pioneer in the roll up, is big. Right? Being the first. It’s the hardest.

I liken it to Lewis and Clarke crossing the country. The first time across the country is a very difficult haul but you’re rewarded and you’re remembered forever. Right?

0:03:49.0 I cross the country on a regular basis on an airplane, nobody gives a crap about that right?

0:03:53.4 So I think there was a little bit of sexiness in it, but the recurring revenue, the demand for institutional business to come in and buy up a bunch of single family homes.

0:04:05.1 You know, what Warren Buffet said back in the early 2012, 2011 about this industry. 0:04:11.4 And being able to scale it, it was kind of like him throwing down the gauntlet and saying, “This can’t be done.”

0:04:18.0 And it kind of turned a lot of lightbulbs on for a lot of these smart money guys. 0:04:23.1 And I think that’s kind of what kicked off – you know, you have three or four different companies trying to do a national consolidation of property management.

0:04:32.0 But when they started looking at the numbers, they saw a lot of operators that weren’t really operating efficiently. There wasn’t a lot of scale. There was a lot of manual labour, intense labour and not a lot of technology.

0:04:48.2 And they said, “Boy if we could figure out how to plug some of these technology pieces in, hire the right people, consolidate things like HR, accounting, sales and marketing, etc.,” then they think we can increase those margins which, you know – we typically look at property management companies that are running on the low end, maybe 10%, that margin, to 25% on the high end.

0:05:13.4 And how can we get one large company as close to 20% as possible. 0:05:21.0 Because when we start looking at larger companies, we start seeing the margins start to shrink a little bit.

0:05:26.3 So, that’s kind of the key of what these guys are looking for when they’re trying to do a roll up strategy.

Jordan: 0:05:32.9 Got it. So let’s talk through more about what is myth versus reality when it comes to scale.

For mom and pop operators that feel a little bit threatened by this scale concept, there’s a lot of poo pooing of, “Yeah, you could scale, you could grow, but you’re just going to lose your shirt, so what’s the point?”

As opposed to staying at three, four hundred dollars and making solid coin. 0:05:52.9 By contrast, the folks that are in a dogged pursuit of scale, in some cases, can lose a near-term focus on the underlying business dynamics that at any form of scale are going to have to be preserved.

I.e., having a hell bent focus on growth. Having your customer acquisition cost scale out. Having your churn get out of control.

Where do the benefits of scale, above 1000 doors really kick in, in your mind? 0:06:22.6 Is there a magic sweet spot? What’s your sense of things?

Andy: 0:06:25.8 Well I think there’s a couple milestones in management, in property management companies that I think free up the business.

The CEO, the president, who’s ever running that business – I think we see a lot of companies kind of get stuck at 400 doors.

0:06:46.4 I don’t know why we always hear that number, but once you hit that 400 door mark, it’s like I’ve got to hire another manager, basically, mark.

0:06:55.2 And so, once they can make that leap and hire another manager and then start to build a mid-level management layer in their business, that frees them up to start thinking more strategically.

0:07:06.3 You start looking at numbers that are driving the business. Start focusing on things like KPIs, you know, some type of a vision for the company.

0:07:15.0 And then I think the most – the best thing that I probably did in the business, and I did it about 1000 units too late, was I hired a CFO that really could…

0:07:28.1 My special sauce in property management, it’s not digging into the numbers, it’s not the details, it’s having a wide vision of what we’re trying to do, and then portraying that vision to the people and getting them excited and moving forward.

0:07:45.8 But we hired a guy, his name’s Ross, he’s our CFO. He was a CPA.

He had technology background so he was able to start doing things with the system and pulling out information that was very vital to our operations that we are just not seeing because we’re running our business on feeling.

0:08:08.1 Which, I would say, is 99% of the property management companies. “This doesn’t seem right, we need to make a change and we need to do this.”

0:08:16.2 And then we hired Ross, and Ross was starting to pull information out of our system that would blow our minds, that we didn’t even know was there.

0:08:23.2 And we had backdoor access. And we were looking at all these things that really drive our revenue.

Just something as simple as – we have all these maintenance guys out there and they’re doing these very small maintenance – these very small maintenance items.

0:08:38.7 Maybe they’re changing a flapper or they’re putting on a door or something. 0:08:44.1 And we can’t really charge that much for it and there’s not a lot of margin.

0:08:46.0 He’s like, “Look at what we’re doing. We’re sending all these maintenance guys out to do all this work. It’s really not driving a lot of revenue, but then we farm out all the HVAC, all the plumbing and there’s huge margins.”

He’s like, “Look, if we can farm out all the little stuff and start focusing on the big stuff, our revenue’s going to go way up.”

0:09:06.0 And it was super simple. It was like an aha moment. 0:09:08.1 We still do some of the small stuff, but it’s like, we can’t farm out HVAC, we can’t farm out plumbing.

Any of these big jobs that are larger margins for us. Just stepping back and looking at the numbers, it was like a lightbulb went off. And we started taking advantage.

Hiring people to take advantage of those missed revenues and now we’re able to increase our maintenance margin by 5-10%.

Jordan: 0:09:36.5 So what were you optimizing for at that point of the business?

Because when I look at a number of different scenarios, like the one that you just brought up, it feels like, in many ways, there is no right answer.

0:09:44.9 For example, if it’s a lifestyle business and your goal is to avoid headaches and inconvenience, then just the category of maintenance in general just represents a lot of unpleasantness of co-ordinating unskilled labour.

0:09:57.2 In your situation, at that point in time, were you optimizing for scale? Were you optimizing for margin? 0:10:03.5 Like what was your goal that made that a no-brainer decision for you?

Andy: 0:10:07.5 Yeah, I mean, I was – I belong to an awesome group called Entrepreneur Organization. Right?

And so we get together on a forum on a regular basis and talk about all the things that are working in our business. The things that weren’t working in our business.

0:10:23.4 And I was talking with this, basically a board of advisors, and I was saying these are the difficulties that we are running against.

0:10:31.8 And we flirted around with hiring a part-time CFO. 0:10:34.5 They have these CFOs for hire. Basically.

0:10:37.2 And it wasn’t – and he was trying to put us into this program that they put every business in. And it just didn’t seem to fit the property management bill.

0:10:47.7 And I looked at how much I’d have to spend on a CFO and it was a lot. A good CFO. And this guy just kind of came at us out of nowhere.

0:10:56.6 He was the CFO for the local Girl Scouts. And I approached him. It wasn’t a business that was exciting to him at the time and we were able to pluck him up.

0:11:06.3 And then – I really plucked him up because we had our property accountant or are corporate accountant was struggling at the time, which turned out to be great because Ross was able to kind of come in and challenge her.

0:11:18.4 And we looked at our — our biggest issue was dealing with the maintenance. 0:11:22.8 I mean, we were really good at providing maintenance but we weren’t really good at making money at it.

0:11:27.7 And then, you know, we were not – we were not properly making our forecast. Our cash forecast. We weren’t managing cash the way we could.

0:11:38.7 Taking the money out of the business when we should. Leaving it in the business when we should.

0:11:42.7 And Ross was able to come in and look at everything and help us make those adjustments. Along with a lot of the technology that we currently have.

Jordan: 0:11:52.3 Got it. Love it. So, by hiring a CFO, you brought somebody that could speak dispositively to various situations. Meaning that that person’s word is truth. Specifically when it comes to metrics.

0:12:05.8 Talk to me about how that CFO relationship evolved. 0:12:08.8 Because what’s interesting about the CFO role, is that it’s somebody that’s able to challenge, or should be able to challenge the leader of the organization and have their authority be rooted in something other than their opinions.

0:12:19.7 Because it’s supposed to be numbers driven. 0:12:21.5 So what does that dance or that interplay of relationship look like? How has it evolved over time? And particularly for folks that are thinking I can’t afford a CFO right now but I could use somebody to hold me accountable.

0:12:36.7 I mean, it may sound a little bit unpleasant, but the reality is, we all need a reality check from time to time.

0:12:42.2 What does that relationship look like today? Do each of the HRG locations – is there a high-level CFO over folks? How does all that work?

Andy: 0:12:50.4 Yeah, we have a corporate CFO. She’s based in Minneapolis. And she does a great job. She’s kind of the big picture CFO.

We still have Ross locally that helps us drive the technology that he’s rolling out to help increase revenue in certain areas.

0:13:09.9 But, again, it’s so empowering being able to know that your gut feeling is either right or wrong based on what the numbers are saying.

0:13:17.9 And it just opens up whole new opportunities to see the true threat to the business, the true opportunities, and then take advantage of those based on the actual data that’s coming back.

0:13:30.6 And all these property management systems, as good or bad as they are, you know, — depending on what kind of data you’ve put into systems depends on what kind of data you can pull out.

0:13:40.3 So it’s so important. You know, we have this input versus output. 0:13:44.5 If you go around our office, it’s above doors. “Input equals output”.

You know, whatever it is you put in the system, make sure it’s right. Make sure it’s tagged right. Because we are so – the information in the system is probably worth more to us than the business at times because it drives our behaviour one way or the other.

0:14:05.0 And you obviously want to have a trusting relationship with your CFO, but it’s easy to trust them when the numbers they are giving you are the actual numbers. It’s not some opinion.

0:14:14.9 Which, again, I grew my business based on judgements, you know, feelings and a lot of the time – I think I read some quote that we’re wrong 70% of the time over time.

And that’s not a good way to run your business. 0:14:29.8 If over the course of time, every decision you make you turn out to be wrong 70% of the time, you’ve got to be able to surround yourself with people that are going to give you the right information to help mitigate that 70% down to 50% or 49%.

0:14:43.0 You know, if you’re investing money in the stock market, if you’re right 51% of the time, you’re a billionaire. Right?

0:14:51.8 So you’ve got to have those numbers, you’ve got to have those people around you that are – that have the feeling that we’re doing the right thing, but also have the numbers to back it up.

Jordan: 0:15:01.6 Yeah absolutely. 0:15:02.2 So when you talk about being wrong 70% of the time, the first thing that comes to mind is the 6% adjusted profit margin number that came out of the bench marking study that we just did.

0:15:12.2 At 6%, that’s not a lot of margin for error. If you’re operating at 6% and you’re wrong 70% of the time, that may be the difference between you going out of business or not.

0:15:24.8 When we looked at overall picture of profitability in the industry, we saw about a 90 point spread between the top performers and the bottom performers.

0:15:32.9 And a lot of that had to do with adjusting for salary and compensation. 0:15:38.4 And that’s part of the financial picture, right?

0:15:40.7 In order to actually – you talk about good input in, good data coming out. 0:15:45.1 Actually running your books in such a way where you’re not optimizing for nominal games with tax avoidance, etc. You’re optimizing for actually having true financial clarity.

Andy: Right.

Jordan: 0:15:56.9 So in a HRG paradigm, what is the roll up count at? How many individual offices are there?

Andy: 0:16:04.8 Boy, I think we have probably ten to 12 offices. You know, like head offices.

Jordan: 0:16:14.2 So I’m curious to hear from you. How do you benchmark that group of offices? What do those individual offices held accountable through at least – what are they aware of, of their relative performance versus the other ten or 12 offices?

0:16:27.7 What are the key metrics that you really try and focus each operator on?

Andy: 0:16:32.3 You know, the primary metric is our budget versus actual. I mean, you know, taking the time to set a budget.

Every operator sets their own budget and then obviously, our finance accounting, CFO team, looks at those budgets, and then looks at the actuals and then compares them.

0:16:50.9 And then, obviously, we have of those ten to 12 – and some of them are lumped in with other locations. So, I’m trying to remember specifically how many there are actually showing on the bar graph.

0:17:02.4 But the fact that revenue is important – but how we are performing versus budget is kind of the main driver.

0:17:11.4 So, we have all of our operators put together a budget, we agree on the budget, and then they go out and try to do their best to hit that budget.

0:17:18.9 And it’s crazy if you’re talking to property managers all over the country, just regular mom and pop operators – from 200 to 2000, you know, and I’d love to hear if you have any other opinion on this, but it would seem to me that maybe 5% of them operate on some type of a monthly or annual budget.

0:17:38.2 And just being able to have that in place and then, you know, doing everything you can in your power to execute the budget or the goal put forward, really drives good performance, good behaviour. Keeps people in guard rails on what they should spend and how they should grow their business to hit that budget.

Jordan: 0:17:59.6 Got it. And so, what about the forecasting portion of that budget? Does that take into account growth, hiring.

Andy: 0:18:07.5 Absolutely. Growth. Yeah, everything. All the future expenses, all the future revenues. And, we’re trying – each location wants to try to add either 10-20% growth year over year and that’s what we try to project into that budget.

Jordan: 0:18:23.0 So it’s something that was invested in then? The point is, it wasn’t …

Andy: Absolutely.

Jordan: Got it. 0:18:27.3 So I think that’s the disconnect. This is the disconnect between concepts like planning, culture, budgeting.

You can go to a seminar, get excited, take a half hearted crack at a doc, but if you’re not really invested in it long enough for you to actually change your behaviour based on that, that’s where things tend to fall off.

Andy: 0:18:46.4 Right. And what’s cool about HRG is, you know, on a monthly basis we’ll send out a form that basically says, “Here’s all the different operations and here’s who hit budget and here’s who missed budget.”

And it kind of brings out a little bit of the competitive spirit. 0:19:04.2 Because you don’t want to have your bar, your budget bar up here and then your revenue bar down here. Right? You want it to be like this. You know?

0:19:12.0 People calling you up and say, “Way to go, you crushed your numbers.” Or, “Hey man, let’s go, let’s pick it up” sort of thing.

0:19:17.8 So, just the reporting and the transparency of what we do, I think adds a lot of motivation for people to go out there and perform well and produce a great budget and great actuals.

Jordan: 0:19:32.5 Did you have the budget piece in place prior to bringing on that CFO.

Andy: 0:19:35.3 No, no we did not. But we had it prior to HRG, because we had our CFO in place.

Jordan: 0:19:42.1 Got it. So that’s – so the budgeting process was something that the CFO helped you actually put in.

Andrew: 0:19:48.0 Absolutely.

Jordan: Got it.

Andrew: 0:19:50.0 We tinkered around, we had set annual goals based on revenue and met revenue and margin and stuff like that.

0:19:50.0 But as far as putting in there, and every line, and what we’re going to do every month over the year with a growth chart in there. No, we didn’t do that prior to 2014.

0:20:10.3 And I’ll tell you what, I mean, I don’t – I would have never been able to do what I was able to do with Park Place and merging that together with HRG, without having somebody like Ross in place that can get those financials to where they’re 100% dialed in.

0:20:30.7 Because that’s one of our biggest struggles that we have when we’re going out to eventually acquire somebody.

0:20:35.4 Is that the financials aren’t always tight. You know, the property calendar’s a little funky. The corporate accounting’s got some issues. There might be a lot of personal stuff being ran through there.

0:20:48.1 None of which is a deal killer, but it just takes a lot of time for us to get through all that data to get a proper valuation on the business.

0:20:55.0 Plus, you know, we want – when we’re out acquiring companies – we want to give them their actual valuation. But, sometimes it can take us a couple months just to get to that number.

Jordan: 0:21:05.5 I believe it. Yeah. When you combine the general process that’s required to standardize anybody’s books with the pressure associated with doing actual due diligence, I can only imagine.

Andy: 0:21:17.8 My best friend’s a commercial banker, right? So, he does this 100 times a year. Financing companies.

There’s nothing specific or nothing special about property management. He’s like, “I’ve never ran into any industry that has basically their accounting and stuff like that in place.”

0:21:38.3 But man, if I’m at the 1000 to 1200 unit range, I would be fervently looking for a CFO. And then get ready to get on a rocket ship.

Jordan: 0:21:50.0 Love it. Great advice.

0:21:51.1 So, when you go into offices when you’re doing this due diligence process, when you have the books cleaned up to be able to see what you really need to see, what are the common denominators and factors where you see immediately identifiable opportunities for improvement?

0:22:06.9 Meaning, we’ve got these three areas where I know if I plug you into my playbook, I’m going to be able to raise your revenue per door, lower your churn, whatever.

0:22:15.1 Like, what are the common levers that you tend to find a lot of low hanging opportunity around for existing operators when they come into an HRG paradigm?

Andy: 0:22:27.2 Yeah, I mean the simple one, the low hanging fruit for sure is ancillary income. It’s so crazy because everybody – all the operators that have been doing property management for more than a year know about all the revenue opportunities, the ancillary revenue opportunities.

0:22:43.4 But they for some reason really struggle to execute them. I don’t know why.

0:22:48.5 I went and did a speech at a NARPM chapter in 2010, so eight years ago, and I talked to a gal – I introduced this eviction protection model and how our margin on that is around 80%. Right? 0:23:04.6 No brainer. No flippin’ brainer. Right?

0:23:06.8 And I saw this individual at Broker Owner, and every time I see her I’m like, “Did we get eviction protection?” Because she always asks me questions.

0:23:16.6 We are eight years later, Jordan, and we have still not implemented eviction protection. For whatever reason.

0:23:22.1 Because everybody wants to get it perfect or they want to work out all the kinks or they’re worried about their owners or tenants.

And every time you add some type of ancillary income, there’s always a little ripple. 0:23:34.9 But I’ve never added any ancillary income that’s been like – it’s exploded, it’s blown up in my face.

0:23:40.4 But there’s technology out there that makes a lot of these ancillary revenue opportunities easy to implement into your business. And for some reason, a lot of operators don’t take advantage of it.

0:23:55.0 But if you look at our numbers at Park Place versus what we saw – and I’d love to see where you’re at – but our revenue at Park Place, about 31% of it’s property management. 0:24:06.3 And then we have 70% that are other fees. 31% property management, 70% other. Right?

Jordan: Wow, that’s going to set a record.

Andy: 0:24:16.0 We can’t make payroll on our property management fee. Not even close. So we’ve got to figure out another way to make that revenue.

Whether it be maintenance, ancillary revenue like eviction protection. Offering filter easy or a million other things. 0:24:33.1 And if we don’t have that, we’re not profitable.

Jordan: 0:24:34.9 What are average rents in your market?

Andy: 0:24:38.0 In the Boise market, we’re probably, on single family homes, $1500.

Jordan: 0:24:47.7 Got it. Wow. So where there’s a will there’s a way. You’ve simply chosen to make it a priority and executed against it.

When you’re kind of speculating at what might be the hangup, why somebody may or may not implement a program like that, what comes to mind, for me, is the lack of clarity on governance.

0:25:04.8 Meaning, making no distinction within a company between being an owner, an operator in the business or being acting like a board advisory capacity.

0:25:17.9 What I mean by that is, in a lot of small business, the shareholders are the same person that’s running the business, and it’s that shareholder function that tends to get under represented.

The interests of the shareholder are not thought of and not served and it’s the operator that’s more served. 0:25:37.1 Even though it’s the same person. Right?

0:25:37.0 Because the shareholder says, “Yeah, Andy we’re going to do that program. I don’t care about the details. You just need to do it. You just have to implement it. Because you can and it’s going to make us more money and it’s going to serve the customer.”

0:25:49.9 Therefore, the feelings or the emotional orientation towards it is irrelevant. 0:25:53.3 Or it’s the same thing for maintenance. The surface area of excuses for reasons why you can’t do things is much larger in a paradigm where there is no financial accountability and there are no numbers that are being calculated.

0:26:08.3 Even when you wade through that stuff there is still things like, “Well, our churn is high because it’s market conditions. There’s nothing we can do. It’s a sell off, etc.”

But bringing data in definitely at least kind of starts and kicks off some of that conversation. 0:26:22.7 The ratio that you just shared though, of 31% of revenue coming from management fees. I mean, that is insanely low. That’s a really aspirational place to be.

I think some people hear that and they naturally think like, “Well, you know, are you doing right by the customer? Are you just making up fees to charge people for?”

0:26:42.6 I think that’s another hangup that people have. 0:26:44.5 Any feedback or thoughts on that objection?

Andy: 0:26:47.0 Yeah, I mean look, our maintenance drives 50% of our total revenues. So, if you look at our ancillary fees, it’s probably about 20%.

0:26:54.5 So, maintenance is a huge part of what we do. Obviously, that we’re managing so many multi-family – I think a lot of people say that paid maintenance is a conflict of interest if you’re running that inside of your own business. We found that to be the exact opposite.

0:27:10.6 When we third-party stuff out, our owners don’t like the price, they don’t like how long it takes to get things done. 0:27:17.7 Especially our tenants.

So by having control over our maintenance department, and how fast we can do turns – I know there’s property management companies right now in Boise, Idaho that are taking more than 30 days to do a turn.

0:27:30.3 And that’s not because they’re bad property management companies, because they can’t get vendors out to properties fast enough to get these things turned.

0:27:36.6 Our average turn time is less than five days. 0:27:38.4 So, you could argue both ways, but I think – I don’t think we’re representing our customer’s best interests if we have to let a property sit for weeks because we don’t’ have the vendor base to take care of that stuff.

Jordan: 0:27:50.8 I concur. And it’s really interesting, just philosophically. The view that that someone can be cleanly segmented out. Like somehow that’s not a part of the core value prop of what property management actually is.

0:28:02.6 How can you argue or think that maintenance is somehow this standalone thing that can be segmented out.

And that it’s not – whoever’s showing up and doing the work ultimately is representing you one way or the other.

Andy: 0:28:14.4 Yeah. And I think, if you look at like the larger property management companies in this country, I can’t think of one that’s operating without some type of in-house maintenance mechanism.

0:28:26.5 And I think that allows them to grow and scale quicker because they have that control. You can only grow so fast if you’re dependent on third-party maintenance, and they’re not growing as fast as you’re growing – and it’s really hard to find third-party maintenance right now.

0:28:44.5 Because a lot of those guys that were doing handyman work back in 2008, 2012-13, are now building houses and making three times as much doing that than fixing flappers or something like that. Right?

0:28:56.5 So, we have to – we spend a lot of money on trucks, on advertising on these trucks to try to attract the best maintenance guys.

Because they get their own vehicles and whatnot and that also helps the branding. 0:29:11.1 But, really, our number one reason why we do that is because it attracts good maintenance folks and that’s a struggle for every property management company that’s running their own maintenance right now.

Jordan: 0:29:20.8 What’s the scope of maintenance? Are you servicing other units outside of your portfolio?

Andy: 0:29:26.7 No. I mean, honestly we don’t. Just because we have so much to do inside. I mean, occasionally we’ll do a commercial job or something like that.

But just with regular maintenance and turnovers, our office in Boise will experience up to 2-300 turnovers a month. 0:29:41.1 That takes a lot of coordination.

0:29:43.8 Again, that’s something you couldn’t do if you were trying to manage outside vendors. I just don’t know how you could do it. You would have to have 15, 20 different turnover companies and manage that. Where it’s pretty easy for us to manage internally, having our own maintenance guys.

Jordan: 0:29:59.0 How large were you guys before you had in-house maintenance?

Andy: 0:30:02.9 I started at Park Place, and in 2008 – September 2008, I started Park Place at 200 units and by the time we hit 201 units, we had maintenance. 0:30:14.7 I immediately started doing maintenance.

Jordan: 0:30:18.0 Got it. So maintenance is a really interesting topic, simply because all of the myth and the legend and the speculation that goes on about whether or not you can or can’t make money doing it.

Andy: 0:30:31.2 I want to go back to your original question though, which is what are these – when you go in and you look at these companies, like what are they missing? What are the revenue opportunities they’re missing.

0:30:39.4 Obviously we talked about ancillary fees. The other one is, there are so many companies, it’s crazy, Jordan – we talked about this with the Buildium – NARPM survey, you know, maintenance was the most difficult thing you have to deal with. Number one.

0:30:56.0 But almost half of the companies, or I don’t know if it’s half – there’s a lot that have specifically in their management agreement that they don’t mark up or charge extra for coordinating maintenance.

0:31:08.2 Even though it is the number one struggle in property management. Bro. Right? That’s crazy sauce.

Jordan: 0:31:15.2 Connect the dots.

Andy: 0:31:16.0 Yeah, so if you have that in your management agreement, I’m sorry first of all. Second of all, you should start a maintenance company today and start taking advantage of this huge revenue opportunity. 0:31:27.1 Again, that drives 50% of our total revenue in Boise. Right?

Jordan: 0:31:31.5 So think about this way. What a horrible growth crutch. Another horrible growth crutch, in my opinion, is we have nothing to do with the brokerage side of the business.

We would never think about selling a property. 0:31:41.7 Therefore, we’re going to get all these realtor referrals. These are horrible growth crutches.

Andy: 0:31:46.2 Especially in this market. Especially.

Jordan: 0:31:49.4 Especially in this market. But it’s not like these folks that are using these tactics also have an aggressive BDM program and aggressive realtor outreach program, pay per lead, whatever it may be.

0:32:00.0 If that is what you’re viewing as basically being your marketing program, it ain’t going to cut it. What you need is actual infrastructure, lead flow, etc. And to have a brand presence and a brand story to attract people. 0:32:16.3 Not a program of basically gutting your own profits.

Andy: 0:32:19.7 Yes. Yeah. And for some reason, somebody a long time ago had a competitor or something that was over-charging or marking up or not disclosing that they were marking up maintenance bills.

0:32:33.2 And so, somebody said, “Boy, we should just be completely transparent”, which I think is a good idea.

We’re not marking up any maintenance. That’s one of our – we’re going to charge the same as everybody else. We’re going to charge whatever x percent management fee.

0:32:47.7 But we’re not going to mark up any maintenance. 0:32:50.7 And like you said, it’s a growth crutch.

It takes 50% of your time and you’re not going to make any – coordinating, in my opinion, coordinating vendors, etc., is just as hard if not even more difficult than coordinating our maintenance guys.

0:33:03.1 So why would you give away that service for free. Obviously it’s a question. I shouldn’t ask why because it’s a little judgemental, but ask yourself, like, “Why are we giving this away for free?”

0:33:18.5 Because it’s so much work. Everybody knows. I mean, it was the number one by 10% higher than the next one, which is “I can’t manage my business without being distracted all the time.” Right? 0:33:27.9 Which is a huge issue.

But maintenance was number one. 0:33:31.2 And there are hundreds, if not thousands of property management companies that are not making a single dollar managing maintenance.

Jordan: 0:33:38.9 So let’s take it full circle. By having goals, and clarity on your numbers – by having a target of knowing where you want to go and then tracking your progress towards that, you can know what’s going to work, and what’s not, and course correct.

0:33:53.7 And maintenance could be one of those issues where if your overall revenue per door is low, that could be the difference factor between you getting to your financial goals at the time that you actually want.

0:34:02.8 And when you know that’s the case, then you’re in a position to make a decision.

0:34:07.6 Maybe you want to do the maintenance thing, maybe it’s ancillary revenue. 0:34:09.3 Whatever it is, the number, the metric that is the constraint, is what has to be moved in some way shape or form.

0:34:16.2 And that accountability is where creativity starts. Right? And that’s where – there’s no judgement in this business.

Lifestyle, scale, whatever you’re into, my desire is to see entrepreneurs thrive according to their personal goals. Whatever that may be.

0:34:32.7 And the creativity that can come when you actually know what you’re going after. And maintenance is an area. Right

0:34:40.9 I think about – I was just at San Diego NARPM chapter, the topic of maintenance came up and in the back of the room is a client that is not making money via maintenance and in the front of the room, somebody raises their hand and says, “You can’t make any money on maintenance here because you have to full disclosure on any form of maintenance markup.”

And that was like the story. Right? 0:35:00.0 That was the story why it’s just not possible. The guy in the back of the room that’s a client.

He got off of that story train and he figured out a way to get creative. In that case, I think it was a vendor marketing program. Right?

0:35:13.0 I’m sure that you’ve heard that idea before. Basically just pooling money together for a vendor marketing program as the company grows, units grow, maintenance tickets requests grow, etc.

0:35:26.2 The creativity of entrepreneurs is always going to solve the problems once the burden and the urgency is actually there.

Andy: 0:35:31.0 Right. I mean, we got – I think one of the secrets for us to kind of get over the hump on a lot of these opportunities is we read an awesome book, Mastering the Rockefeller Habits by Verne Harnish.

He had a follow up book to that called, Scaling Up, which kind of came in before Traction, which is so popular right now in the property management space, which is an awesome book.

0:35:52.6 But, you know, the quarterly theme, which we’ve talked about before, just taking one big idea and executing it every quarter and doing it quarter after quarter after quarter.

0:36:03.0 Just take one of those ideas. Maybe it’s starting a maintenance company. Or adding a new ancillary fee.

0:36:07.5 Don’t come back from a conference and say, “I just heard about all these fees, let’s start all these fees.” Because it’s just going to fall on its face.

0:36:13.1 But if you just say, “Hey, based on the numbers, based on where we’re at, based on what we want to do, we’re going to have this quarterly theme. We’re going to have a special day. We’re going to launch this and we’re going to make this a priority this quarter and we’re going to have very clear objectives for each person on the team to help us get there.” Right?

0:36:31.3 Whether it be – another great trick, you say, “Hey man, where are the opportunities.” I feel like there’s a lot of overhead in this business because property managers don’t take advantage of getting their tenants to pay online. And they’re so busy.

0:36:44.4 They have tenants coming in to their office all day long. Sometimes all night long, dropping off rents, bugging them with maintenance issues or how bad they are.

0:36:57.6 And we just said enough’s enough and so we made it a quarterly thing that 100% of our customers are going to be on ePay. And we took a quarter and we knocked it out.

0:37:05.0 And at that time, we had 3800 doors. 0:37:07.9 So, if we can get 100% of our clients, our customers on ePay, in 90 days and we have 3800 of them – at the time we had about half of them on ePay – anybody can do it.

0:37:19.6 But it’s got to be a clear focus. You have to have – individuals have to have specific jobs and they have to execute those jobs.

But taking one of those ideas, a creative idea like you mentioned and executing it inside of a quarterly theme on a quarterly basis, anybody can do it.

0:37:36.2 I don’t care if you’re all by yourself or you’ve got 100 employees helping you. I think you can make big changes on that quarterly basis.

Jordan: 0:37:43.0 Focusing the beam of light of your effort on a single point, focus always wins. 0:37:49.0 While I want to wrap up here, Andy.

37:53 In terms of the advice that you wish that you could have given yourself back in 2008 when you started, what is one piece of advice that you really think would have moved the needle if you could have fully rocked and bought into ten years ago?

Andy: 0:38:08.7 I think some of the major – some of the major things that we did, that I wish we would have done a long time ago – I wish we would have put more effort into our hiring process early on.

0:38:24.7 And not just, “Oh my gosh, we’re growing so fast we need anybody that we can hire.” 0:38:29.8 Taken a little bit more time, made the right hires.

Because – and especially now where the market’s so good and you know, there’s a lot of turnover in property management because 2010, nobody was hiring anybody. Right?

0:38:43.5 Property managers were growing, they could choose whoever they wanted to. But still, with our hyper growth, we didn’t have all of our hiring – and I think, I don’t know if there’s anything more important in property management than hiring the right people. 0:38:59.9

0:38:59.4 So, we’ve really dialed that in over time and we’ve kind of put these skill drills and profiles out there to really nail down – we talked about score carding, etc.

Really nailed down a solid hiring process with group interviews, peer to peer interviews, you know, skill interviews and finding the right people.

0:39:22.4 And we’ve seen kind of our turnover level off, go down, and we’ve seen our talent go up. 0:39:29.3 We have better talent now in a very competitive hiring market than we did in 2010 when we could have hired anybody for any amount of money.

0:39:38.2 Man, I wish I would have had those skills of hiring the right people in place from day one. Boy, I think it’d be even a different story today. 0:39:47.3

Jordan: 0:39:47.5 Well, so have you read Ray Dalio’s book, Principles?

Andy: 0:39:51.6 Yes. No, I listened to it.

Jordan: 0:39:56.0 Ok, same here. I was about to claim I had read it. I haven’t. I listened to it as well. The baseball cards concept in that book.

Andy: 0:40:04.0 Yes.

Jordan: 0:40:07.0 Have you guys thought about putting that place?

Andy: 0:40:07.2 No. I mean, we have obviously – we utilize the accountability chart from Traction, which is somewhat similar, but no, I don’t – I haven’t actually went out to the printers and got baseball cards yet.

Jordan: 0:40:21.8 I love the baseball cards concept.

Andy: 0:40:24.4 Are you doing that? Are you doing that at LeadSimple?

Jordan: 0:40:26.9 We haven’t implemented it yet.

Andy: 0:40:26.9 See, you’re just as bad. It’s like, “Man this is an awesome idea” but we don’t get around to doing it. So, we’re just as guilty as everybody else.

Jordan: 0:40:35.4 There’s no doubt about that, it’s a process and a journey, that’s for sure. But getting the inspiration and then driving it all home, that is key.

Thanks for coming on the show. Thanks for doing what you do in the industry.

0:40:44.5 If folks want to learn more about what you’re up to and just kind of follow along with your success, what’s the best place for them to go?

Andy: 0:40:49.5 Man, I just think have – if you have a minute and you’re interested in what we’re doing, I’d just go to our website, HomeRiver.com. Pretty easy.

HomeRiver.com and you can tinker around on there. There’s some fun videos of me standing there being awkward with my awesome partner.

0:41:08.1 So it’s probably worth just watching those videos just because they’re so awkward.

Jordan: 0:41:11.1 Well hey, take it all the way home for me then. For folks that are maybe, kinda, sorta thinking about either a merger, or an exit, but they know that it’s definitely not today, what’s the right timing or the right stage of folks that are minded that way to actually jump in a conversation? What is the process look like? Just to make it look a little less intimidating.

Andy: 0:41:30.1 Yeah, I mean I think, you know, I have this conversation with a lot of people because they’re just kind of interested in what we’re doing.

I think everybody needs to immediately start building their business to one day sell. 0:41:42.9 And I think one of the biggest issues – and I think you’ll agree with me on this, in property management, is they build this property management company as a revenue stream and that’s it.

0:41:49.5 All I want to do is kind of keep the lights on, and that’s great for your needs today, but long term, you want to think about growing that business to sell it.

I think one of the things that we did, honestly, was hire that CFO and that really got us more in that mindset of just – instead of just driving growth, driving revenue, nothing else really mattered, right?

0:42:09.4 But I mean, if they want to have that conversation with me, they can reach out to me by email, APropst@HomeRiver.com.

And if it’s not something you want to do today, or maybe it’s something you want to do two years from now, I’m happy to have a conversation with anybody. To kind of say, “This might be a direction for you that will get there one day.”

0:42:31.7 And, you know, it’s a very interesting topic. It seems to be more relevant every day. I think you would agree with that too.

Andy: 0:42:39.5 Yeah, there’s no doubt about that. It gets a lot of air time. Well guys, as you know, Andy is somebody that I think well of. He’s a smart operator in the industry.

He’s done it, he’s doing interesting things. 0:42:50.3 So if you want to reach out and get in touch, he just dropped his email. Thanks again for coming on the show. Let’s stay in touch Andy.

Andy: Thank you. Appreciate it.