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Multi-Family Investments with Bruce Petersen

Multi-Family Investments with Bruce Petersen

Today, I’m talking with Bruce Petersen, a multi-family investor, and CEO and founder of Bluebonnet Asset Manager and Bluebonnet Commercial Construction.

After a 20 year career in retail, Bruce made his first real estate investment which yielded a 300% return and he’s been hooked ever since.

Today, Bruce syndicates large multi-family deals in central Texas.  Properties ranging from 120 to 300 units per property and he currently manages over 900 units in a portfolio, producing average returns of 8 to 9% annually for his investors.

Bruce is obviously a little different than our usual guest, but that’s a good thing.  Today we’re going to get a chance to hear the perspective of a successful real estate investor and why and how he has decided to successfully insource property management.

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Topics covered:

  • (01:17) – Background Leading up to Today
    • (02:10) – Bruce walks us through the mechanics of his first deal.
      • (03:40) – Discussing the spread between what Bruce initially anticipated and what actually occurred.
      • (04:47) – What the day-to-day operations looked like.
      • (06:04) – Margins and fees.
    • (08:19) – Bruce’s process for prospecting his next deal.
  • (09:47) – Driving Value Through Improved Operations
    • (10:04) – Bruce discusses the differences between smaller multi-family properties and larger ones.
    • (11:19) – The role investors have played in Bruce’s growth.
      • (12:49) – The difference in profiles between single-family investors and those actively engaged with multi-family deals.
      • (14:17) – Exploring the pros and cons for an unsophisticated investor looking to scale.
    • (17:19) – The real differentiators in operations that Bruce feels has allowed him to get dramatically more profitable.
      • (17:28) – The importance of empowering your staff and employees.
        • (18:46) – Using incentives to reduce tenant turnover.
        • (19:25) – Methods for holding your employees accountable.
          • (19:46) – Keeping eyes on the property.
    • (21:03) – How Bruce uses third-party management software to maintain profitability.
  • (23:14) – Employing Third Party Property Management Services
    • (23:35) – Whether Bruce plans to manage other properties he doesn’t own and why.
    • (23:46) – The factors that impact Bruce’s decision to continue managing his own properties.
      • (24:13) – Overall yield from investments.
    • (25:04) – The criteria Bruce would use to judge whether a management company is high-performance or not.
      • (25:29) – Key issues.
        • (25:39) – How employees and tenants are treated.
      • (26:53) – How to suss out how a management company addresses these key issues.
      • (28:27) – Bruce’s expectations regarding reporting.
    • (29:12) – Acceptable turnover rates.
    • (29:41) – Tenant screening processes.
  • (30:52) – Leveling Up
    • (31:07) – Whether Bruce anticipates or foresees a change in investment strategy in the upcoming future.
    • (32:03) – How Bruce has sourced his deals and advice for new investors.

Rapid-fire Questions:

  • (34:29) – Who do you learn from?
  • (36:58) – What piece of advice would you give to your younger self?

Resources mentioned:

  • LoopNet  (02:16) – Online listing resource for commercial real estate.
  • ResMan  (21:35) – Third-party management software recommended by Bruce.
  • BiggerPockets  (36:01) – The web’s largest real estate content hub and networking resource.
  • Jake and Gino  (36:13) – Podcast and educational resource recommended by Bruce.
  • Gary Vaynerchuk  (36:13) – Learning resource recommended by Bruce.
  • Grant Cardone  (36:13) – Learning resource recommended by Bruce.
  • Tim Ferriss  (36:13) – Recommended learning resource.

Where to learn more:

If you want to hear more from Bruce or want to get in touch and discuss investing, you can find him on his website at Apt-Guy.com.

Transcript:

Jordan: Welcome to the show Bruce.

Bruce: 0:01:15.7 Hey man, glad to be here.

Jordan: 0:01:17.8 Hey so give me a little of your background. How did you end up winding your way into real estate investing and property management?

Bruce: 0:01:24.7 Well, I kind of backdoored this thing I guess. I retired myself at 43 working for other people for, you know, 20, 30 years. And I guess about 25 years.

It was eating me alive so I decided to go out and try to figure out something else to do on my own. I retired myself from retail, believe it or not. 0:01:42.7 I was a big-box store manager for a lot of different companies. 0:01:47.2 Before that I was a stock broker in the early 90s.

But when I quit working for somebody else – because I just couldn’t get up and go do it one more day, I just had to stop. You know.

0:01:55.8 I started doing some research trying to figure out this real estate thing I kept hearing about. Found someone to, kind of, show me the ropes and, you know, it’s been the best thing I’ve ever done. The most profitable and by far the most rewarding thing I’ve ever done.

Jordan: 0:02:10.7 So, let’s just get into the specifics. First deal. Walk me through the mechanics of your first deal.

Bruce: 0:02:16.9 Alright. So the first one I bought was 2012. The end of 2012. It was 48 unit property in north Austin. And it was something I found on LoopNet. I don’t know if anybody knows what that is, what I’m talking about.

Jordan: Of course, yeah.

Bruce: 0:02:29.3 Ok. MLS for commercial. So I found it on LoopNet and I had developed a pretty core group of people around me that we all got to know, like and trust each other. Because I didn’t have any experience at all doing this. Right? I’m a retail guy.

0:02:49.4 But, we found this property. We did – we got it under contract. Did the due diligence. And I developed a good circle around me that they trusted me on this investment with no experience.

0:02:58.9 So, we bought it – I think it was September 29th of 2012. Our plan was to hold it for five to seven years and make anywhere from 10 to 12% returns while we held it.

0:03:10.8 So, the Austin market, of course, happened to everybody, and so from 2012 to 2015 our rents skyrocketed. We dialed in operations and we increased the value dramatically.

0:03:23.9 So I went back to my investors and said, “Look, I know we were going to keep it for five to seven years but wow, you know, let’s not get greedy. You know, if this market changes, I would hate to have left all this appreciation on the table.”

0:03:35.8 So we went ahead and sold it and made a 300% total return in two years and four months on that deal.

Jordan: 0:03:40.9 Wow. Wow. So, talk to me about the initial, kind of, pro forma. Like, operationally, the cash flow, aside from the sale, what was the spread or the deviation between what you initially anticipated and what happened? 0:03:58.6 It sounds like it was off in a good way.

Bruce: 0:04:02.2 Well it was off in a good way to some degree. Right? Again, it was my first one. Didn’t have any experience, I learned a whole lot of lessons on what to really look for in due diligence that I didn’t know on that first deal.

0:04:15.1 So, at the beginning, it was a little rockier than we anticipated, but then we hit our stride in year two. And we were hitting 12, 13, 14% returns quarterly. 0:04:23.0 Well, you know, annualized paid out quarterly.

0:04:27.9 So, again, we started off not really hitting our mark, but then after a year of, you know, bumps and bruises and going through a full rental cycle we started to hit our stride and that’s when we started to make up ground, and then we sold and just killed it.

Jordan: 0:04:43.1 And how many doors was that?

Bruce: 0:04:44.5 48.

Jordan: 0:04:47.3 Ok, 48 doors. So what did the managing – the day to day operations look like? Were you full-time figuring that out? Were you part-time? What was the labour like?

Bruce: 0:04:58.3 I was no-time, in that respect. Right? Again, I’m not a property manager. I have a management company.

0:05:05.6 So back then that was my first property. I took over and the seller had a management company in place. The bank, since I had no experience, they insisted I had third-party management, which made total sense.

0:05:19.2 So, I inherited their third-party management company – well, I inherited – I brought them on as my third-party because I didn’t have an office on-site either. 0:05:25.3 It was managed from a property down the street that – and they would just come down as needed.

0:05:32.5 So it wasn’t an ideal situation, but I told my management company at the time that, “Look, once I get my feet under me and I construct an on-site office, I’m going to directly hire my own property manager and I’m probably going to let you guys go.”

0:05:45.3 And we went into with that understanding and it worked out very, very well. So I built that office. A little 10×10, 12×12, something like that. Very, very small. But it’s all the 48 unit needed.

And I hired myself a part-time manager and a part-time maintenance guy and it just kept getting better from there. 0:06:01.0 Because now I’m 100% in control.

Jordan: 0:06:04.4 So, how did the margins change? Do you remember – I know this is quite a ways back, but do you remember the management fee you were being charged originally by the third-party company?

Bruce: 0:06:14.3 It was 4%. I think now, at the scale I’m at now, if I was to take my portfolio out, I could easily get it for 3%. But back then, for 48 unit and that’s the only thing I had for him, it was 4%. 0:06:28.8 And so, now, again, if I was to do it again I’d definitely be able to get it for 3%.

Jordan: 0:06:32.6 So did – when you said things get better, was that based on the fact that you just – net cost savings? Or is that more a byproduct of the fact that you had the control and were able to drive efficiencies that you couldn’t when you were doing it via proxy?

Bruce: 0:06:44.9 There’s really two things. So the first things is, you know, now I have a property manager on-site every day. Now she’s part-time but she worked five hours a day.

And so now there were eyes on property all the time. Where, you know, not to scare anybody, I’m sure a lot of your audience has dealt with this stuff too, but when I bought, pardon me, there were homeless people hanging around, there were prostitutes running around the property.

0:07:08.4 But now that I have someone there, sitting there all day every day, they realized I can’t just do what I want to at this property any longer.

Jordan: A scarecrow.

Bruce: 0:07:21.0 Exactly. So it started to clean itself up that way. But one thing I really, really noticed by hiring an experienced property manager, for me with no experience, she finally stepped in, she said, “Bruce you’re like most new owners.”

0:07:33.9 I’m like, “Uh-oh, that does not sound like a good opening to this conversation.”

She goes, “If you will get out of my way and let me lease these things. You want to over rehab them for this neighbourhood by a lot and I can rent the same price as you want and not put nearly as much money in.”

0:07:50.7 I was like, “Ok I trust you. I absolutely trust you, but I’m going to be watching.”

And she made me look stupid, right? 0:07:55.6 But that’s why you hire smarter people, more experienced people and listen to them and get out of the way.

Jordan: 0:08:04.1 Love it, yeah. Totally makes sense. So you go full-circle on this deal, you cash out, you’ve got a group of happy investors. And then talk me through your next prospecting process on your next deal.

Bruce: 0:08:19.1 So actually, that first deal spawned my next two deals. So one initial investment created three properties for me.

Because I made enough money in that first deal that gave me my investing dollars into the next two deals. 0:08:30.1 So really, that one turned into three.

But, in between, you know, I can get a little squirrel brained sometimes, and I decided, “Hey this real estate thing works spectacularly well. Let’s go do something else.”

0:08:44.1 Yeah, I’m real smart sometimes. So I went and started an oil services company. You know, chasing that hot industry back in ’13? ’14 I guess it was. Lost my butt in that market. Decided, ok I’m coming back home to where I know how to do it. It’s more rational and it’s much more profitable.

0:09:02.3 So I took about a year, actually about a two year hiatus but then I got re-engaged at the very end – December of 2015 we bought our second property, a 120 units, also in north Austin. Down the street from the first property. 0:09:16.7 And over the next 18 months we bought four properties total, for 860 units.

Jordan: 0:09:24.5 Ok, were they all roughly the same size or was there one, kind of, monster property there that held the majority of those units?

Bruce: 0:09:33.8 Well the first one, the 48 bought and sold, and the second one was 120, the third one was 256, the fourth one was 192 and the last one we closed in September of this year – of last year, I guess, was 292.

Jordan: 0:09:47.5 What do you feel like are the ranges of where the type of multi-family property really becomes a different animal?

Obviously there’s a difference between a 40 and a 400 unit property, but are there meaningful ranges or bands where you feel like you’re really dealing with a different animal based on unit count?

Bruce: 0:10:04.9 Oh, of course. You know, everybody talks about the unwritten rule of thumb, I guess, is 100 units. Right? 100 units and above, you can afford full-time inside and full-time outside.
0:10:15.3 So, the rules of thumb say one full-time in and out for every 100 units.

0:10:17.1 So that gets pretty good, because now you’ve got somebody dedicated there 40 hours a week. But, you’ve only got one person. If that person gets sick, goes on vacation, has maternity leave, has – whatever, that kind of throws a wrench in things.

0:10:34.2 So what I’ve come to learn, and I think everybody knows this after you get into this for awhile – you always hear it – it gets easier with size.

0:10:41.5 My 300 unit property is dramatically easier to run than my 48 because now I have three bodies inside and now I have four bodies outside.

0:10:50.7 So, it’s just tremendous – there’s a lot more specialization. If one person gets sick, hey there’s two people in the office to pick up the slack. 0:10:58.3 So yeah, it’s dramatically easier the bigger you get.

Jordan: 0:11:01.7 Yeah, that makes sense. I mean, obviously in some ways scale is going to – continuing to scale in terms of capital and deals, etc. is going to get more challenging.

But I hear what you’re saying in terms of having that infrastructure actually built out and present in place.

0:11:19.3 As you’ve networked with other investors, as you’ve – and by that I mean other people that are doing what you do – because the people that have actually gave you the capital, did they have a background in real estate or doing anything in multi-family? Or were these just contacts with capital that trusted you?

Bruce: 0:11:40.3 Contacts with capital that trusted me, for the most part. My first deal I had a private investigator, I had a math teacher, I had a bunch of tech guys. T

hey were looking for a way to invest their money into real estate but they didn’t have the time, or they just didn’t want to deal with what they perceived as the headache of managing the day-to-day operations of this company. 0:11:58.1 So, you know, that’s where all my guys came from.

Jordan: 0:11:59.6 Totally. Ok, love it. So this is – there’s some rich gold here I want to mine. 0:12:04.7 So, for a lot of my clients, they’re in the single-family management space. So they’re not really doing a ton of multi-family.

Occasionally they’ll be dealing with small multi – duplex, triplex, quad, whatever. 0:12:16.9 Or occasionally, they’ll get a mid-size multi-family – really a small multi-family property. Something that’s going to be 100 doors or less.

But, in terms of the persona of the people that they are interacting with, most of the investors – so I’m differentiating this from accidental landlords – most of these investors, they’re going to own five plus properties. And they are intentional, but they’re certainly an order of magnitude down from institutional.

0:12:49.5 How do you think that the profile of single-family investors differs from folks that are actively engaged with multi-family deals? Like, folks that are basically not syndicating, but actually owning one or more multi-family properties?

Bruce: 0:13:08.9 Well, you know, that’s tough, because a lot of times they’re the same. But, when you do start to get up there in larger and larger properties, much nicer properties, you’re dealing with a whole – much bigger set of sophisticated people.

0:13:25.0 The single-family guys and the guys who are going to go out and buy the four, six, eight, twelve unit property, I don’t mean this disparagingly, but they’re very often mom and pops. Right?

0:13:34.4 They just run it the way they run their personal budget out at their house. 0:13:39.7 That doesn’t really work when you scale in multi-family. You actually have a business. With a PNL. With staff. With benefits. You have all that stuff.

0:13:49.9 So, a lot of times when people are coming out of the single-family or the very small multi-family realm, they – sometimes, they can struggle because they have a hard time adapting to running a legitimate business.

0:14:00.5 So, it just gets much more sophisticated. Especially when you go out and start buying for some of these guys.

Now, you’re used to operating in a very small pond and now you’re getting into a much deeper pool that has a – they’re not sharks necessarily, some of them are, but they are much more sophisticated.

Jordan: 0:14:17.2 So what do you think about the pros and cons for an unsophisticated investor. Someone that’s taken that first plunge, they own their first property, and they’re really interested in exploring and scaling this.

What do you think about the level of complexity and accessibility for that person to either buy multiple single-family properties or to get in on syndicating and owning whatever? One-tenth of a multi-family deal.

0:14:48.2 If you were just advising another, you know, the math teacher, whoever, what would you say are the pros and cons of these two strategies?

Bruce: 0:14:54.7 Well, the second strategy where you’re just going to own one-tenth of the deal that you spoke of, I mean, that’s by far the easiest but it’s a lower payout. Lower pay off. Because now you’re just a silent partner. You’re a limited partner with really no say day-to-day.

0:15:06.8 Which is fine, which is what most people want. They don’t want to deal with the dead guy at the property. And, you know, the bed bugs and, you know, I can say that on your podcast because everybody knows what I’m talking about. I’m not scaring anybody.

0:15:19.7 They don’t want to deal with that stuff. So, it’s much, much easier if they just want to be invested and involved in real estate, it’s so much easier to find somebody that’s experienced and just invest along side them.

0:15:33.2 The other side of it now, you get somebody that’s coming out of the one and two unit properties and now they’re going to get into apartment complexes. You know, six to 12, 18 unit properties. The pay off is a lot higher. Because now things are valued on an NOI basis and not on a comp of your next door neighbour.

0:15:51.0 So, you can control your value a lot more in multi-family than you can in single-family. But, again, now you’re the one making the decisions day-to-day and it can get a little white-knuckled. It does.

No matter how good you are, how much you prepare, there’s going to be something that, you know, smack you in the face every once in awhile. You just got to be able to pick yourself up and keep moving.

Jordan: 0:16:13.8 So you’re saying you can control the value through operations? Is that what you meant there?

Bruce: 0:16:18.8 Absolutely. So I could go in and I can clean things up. I buy a lot of properties from multi-billion dollar companies. Well, these multi-billion dollar companies, very often, not always, they have gotten into this industry because they see there’s a lot of money to be made in their opinion.

0:16:34.1 So they come in, they buy and they flip an apartment complex. Which usually is one to two years. So they’re good at coming in and putting a cosmetic facelift on the thing.

You know, they upgrade the major systems, they do some landscaping, they paint. So they do a really good exterior rehab.

0:16:50.9 But, what I’m learning is, they’re not truly operators. They’re just deal makers. So they flip it off to the next guy.

0:16:57.3 Now I come in and buy that property that they’ve made look beautiful. Now I get the chance to come in and start to update their operations and systemize the operation and just make better decisions.

You know, clean up the place. Not let everybody and their brother in if you can fog up a mirror. You know, that kind of stuff.

0:17:15.4 So we dial in our operations and we get dramatically more profitable.

Jordan: 0:17:19.7 So, walk me through that. What are some of the real differentiators that you feel like have allowed you to get dramatically more profitable?

Bruce: 0:17:28.8 Well, again, you know, honestly, the biggest thing for me, and this is not a direct answer, I guess, but it’s a key to it for me – I empower my staff.

I tell them that, “Look. I’m hiring your to perform this duty. To have this job with me. This is what I expect and these are the tools to do the job.”

0:17:49.7 But then again, I get out of the way. I get out of their way and I give them a lot of flexibility, a lot of autonomy that they can make decisions day-to-day without having to consult me all the time.

0:17:59.2 So, I usually give them about – you know, it changes from property to property some, but if it’s a major capital project and it’s less than $1000, it’s a repair, it’s a cowboy project, whatever, just go do it.

0:18:15.1 Don’t ask my permission, don’t pass it by me, but I will see it hit my PL, my income statement, so just be able to speak to why you did what you did.

0:18:24.4 And same thing, like, with a renewal gift. Give up the $200 bucks. Anything above that you need to get me involved, but anything below $200, don’t bog yourself down, make the decision, move on, be able to support your decision when we talk about it.

0:18:39.0 So I believe fully in giving them autonomy. You know, I learned that from my first manager. Just get out of their way the best I can.

Jordan: 0:18:46.3 $200 for a renewal gift? You’re talking about paying the tenant for renewing the lease?

Bruce: 0:18:52.1 If it’s needed. It’s only on an as needs basis. Most of the time you don’t need to offer anything.

Some people will be on the fence, go, “You know it’s really pretty on the other side of the fence over there. The grass is a little greener and, you know, I’m thinking about moving.”

0:19:05.1 “Well I’ll tell you what. What if I give you a ceiling fan in your living room.” Because maybe they don’t have one right now.

Oh, well that’s only $50 bucks. A lot of times that’ll get us another lease. That’ll get them to renew. Well $50 bucks is a lot better than somebody moving out and having to turn that over. 0:19:19.8 So, yeah when it’s needed they have the authority to go up to $200.

Jordan: 0:19:25.4 So, empowering employees. I think for anybody that’s got even a remotely progressive mindset, it makes sense. But that said, the flip side of that is accountability.

What are the knobs, the dials, the KPIs, the metrics that you use, either daily, weekly, or monthly, to make sure that your empowered, smart staff is doing what you’ve asked of them?

Bruce: 0:19:46.1 Well the biggest thing is you can’t just, you know, give them all these parameters and then run away. You know, go to Spain for, you know, six years. Don’t do that. You have to still keep eyes on property.

If you’re going to act as a regional manager, let’s call it – because that’s kind of – that’s one of the hats that I wear – we’re about to bring on our first regional manager soon – but as the regional manager, I need to be visiting these properties.

As the owner – until I have a regional, I need to be visiting these properties. You know, at least once a month in my opinion. 0:20:15.7 You know?

If it’s a new takeover, or a property that’s struggling, maybe two or three times a week sometimes. 0:20:24.1 So, trust but verify, and of course, I’m able to manage everything also remotely from an PNO.

There are tricks you can play, I get that, but we’re really good at spotting most of those problems. And if you’re doing something weird, we’re going to figure it out.

0:20:37.6 My wife is a – her background is an auditor. As a CPA auditor for multi-family tax returns. Now that’s an unfair advantage, I understand that, most people don’t’ have that. But we’re able to, you know, watch our budgetary numbers and watch our PNO, watch the rent roll, the lease terminations, our dashboard. All that stuff. 0:21:01.4 I can do a lot of the management remotely.

Jordan: 0:21:03.8 What about third-party software? What’s in the mix for your management process?

Bruce: 0:21:10.5 So we’ve always used third-party management software. We’ve never spread-sheeted, we’ve never written it on the back of a napkin, for you guys that are going to buy a five unit property, please do not do that. At least do Excel.

But, if you plan on growing above that five to ten unit property, go ahead and get a low cost property software suite. That way you can start learning for your growth.

0:21:34.9 We use ResMan right now. We’ve never used OneSider or Yardi two of the bigger ones. ResMan is fairly reasonably priced and it’s as robust as we need it to be.

Now there might be something in YardI that we don’t’ have that I’m not aware of, but it does everything and then some that we need it to do.

Jordan: 0:21:54.0 I’ve heard great things about ResMan. They really seem like they’re an up and coming player right now. What about any other enders? Have you ever taken a look at Buildium, for example?

Bruce: 0:22:02.2 No. I know a lot of people that use Buildium, AppFolio, those two. But, no. I’ve never thought about leaving. I’ve not been dissatisfied in any way.

They’re very, very, very responsive. They’re like any growing company. Things happen every once in awhile. There’s a hiccup but they make it right. Right?

They – and part of the autonomy for my managers – a lot of the major property management companies, the big, big, big guys out there – I know from my experience in corporate America in retail, and I think the property management space is the same way.

0:22:35.9 If I have a problem with the software, either I can’t figure out how to make something work, or this report doesn’t exist that I would like to see, you have to escalate that through your organization. It has to go through two, three, four, five different levels before that end person can finally contact a resident.

0:22:50.5 We don’t do that. We give you access right away at the property level. 0:22:54.8 Management and above, not assistant manager, not leasing agent, anything like that. But the property managers can ResMan, they can text with them, they can chat with them, or they can call them directly. We give them that authority. 0:23:08.6 So it makes things run so much smoother.

Jordan: 0:23:12.9 Interesting.

Bruce: 0:23:12.3 Yeah, I don’t like red tape.

Jordan: 0:23:14.8 Yeah, I’m gathering that impression. So let’s go back to talking about contrasting what you’re doing now versus working with a third-party management company.

And obviously, at the scale that you’re doing it, it’s not that different, right? I mean, presumably you could begin managing other multi-family properties that you don’t own, if you wanted to. Fair?

Bruce: 0:23:35.6 That’s fair. And we’re thinking about that. But in the State of Texas, you have to hold a broker’s license, which we do not.

So we would have to, you know, figure that out if we decide to go that way. But yeah, we’re, you know, doing everything they’re doing. For the most part.

Jordan: 0:23:46.3 Alright, so how do you think that the – your yields would be impacted if you did choose to work with a third-party management company. Let’s just get passed the obvious things that could go wrong.

0:23:58.8 Let’s say that they were competent to your satisfaction, and for whatever reason, you just decided that you didn’t want to be managing that operations – how do you anticipate that the overall yield in your investment would change?

Bruce: 0:24:13.3 Really, it wouldn’t change from the investment standpoint. But, you know, the thing that would change, obviously, is I wouldn’t get that earned income from having a management company.

I have a management company, so I get the 3% management fee in my company that I pay all, you know, the infrastructure for that management company.

0:24:31.2 So it wouldn’t affect the investment directly. But, you know, I think it would probably run just as well provided, like you said, I find somebody that I like and trust. We’re on the same page and they allow me to at least be a little involved. I know I won’t get any say in the hiring and firing of staff. For the most part I know my place.

0:24:55.5 We’ve considered doing that, but I love everything about owning a management company, so I don’t ever want to give it up.

Jordan: 0:25:04.5 Fair enough. So, then let’s talk about, either what I might call, ‘buying criteria’ or in your case, what you think are just the criteria of what actually defines a high-performance, fully 0:25:15.7 Inaudible] property management company.

0:25:18.9 And maybe you can, kind of couch it in terms of if you were looking at a third-party vendor. Like, what are the key issues for you that if you get an unsatisfactory answer would just be a total deal breaker?

Bruce: 0:25:29.8 Well, you know, it’s the field good stuff right? Because it matters. It absolutely matters. Hugely.

0:25:39.8 I want to know how you treat your employees. How do you deal with a difficult tenant? There are professional and tactful ways and respectful ways to deal with this stuff, you know.

I believe firmly – I think it was the founder of Southwest Airlines, I think his name was Kelleher, that, you know, the most important people in my organization are not the tenants, believe it or not, it’s the employees.

0:25:58.1 If I take care of my employees, they will, you know, it’s just kind of by default take care of the residents and the tenants and everybody will be happy. Because they’re happy working there.

0:26:07.1 That’s the biggest thing. How do you interact with others. How do you deal with stress, because there’s going to be stressful things that happen.

0:26:14.2 If somebody gets in your face onsite, because, you know, even on an A+ property, you’re going to have some people get very, very upset for whatever reason. How do you handle that? That’s the stuff I want.

We can come to terms and agreements on, you know, what colour I think that toilet should be, you know, and what kind of landscaping I want to see out there. That’s all workable.

0:26:35.4 I want to make sure that we align fundamentally and ethically, I guess you’d say. I want to make sure that the character is there.

0:26:45.5 And I know that’s a really, you know, hard and fast thing to point to, it’s more in the ether, but that’s it for me.

Jordan: 0:26:53.8 Well how do you suss it out? Because I feel like the flip-side of what you just described is an equally nebulous and vague description from the management company.

“We’re number one.” “We care about our employees.” “We love our tenants.” “We do right by our investors.” Blah, blah, blah.

0:27:10.7 I mean, how do you dig into actually verify all of the things that you just articulated.

Bruce: 0:27:17.9 That’s a great question, because what I actually – I start asking questions about, “So ok what does that look like for you? Tell me some things that you’ve done. Tell me how you’ve really knocked yourself out for a resident.”

0:27:29.0 And not the canned interview questions. “So tell me some way that you went above and beyond the scope of your…” No! And no, that’s not what I’m talking about.

“Tell me about some of the community outreach stuff you’ve done. Tell me about some of the parties you’ve done. The fun little drawings or raffles. With your employees, what have you done special for your employees?”

Ok, it’s not – to me it’s not enough that they have a job, they should be happy to get a damn paycheque. I don’t buy that. 0:27:59.4 That want to feel needed and a part of something. Or they’re not going to be happy and they’re not going to stay.

0:28:05.1 And yes, it’s your management company at this point if I’m third-partying, but that affects my property, because you have a carousel running through my freaking property.

0:28:15.1 So I want to know, “How do you engage with your employees?” I want to know what their autonomous approach is. 0:28:21.8 Again, I empower people. How do you empower people if you do at all, and that’s the stuff that I want to know.

Jordan: 0:28:27.7 Now what would your expectations be in terms of reporting specifically? I’m curious what the deal breakers would be for you there.

Bruce: 0:28:36.2 Well see that’s tough because I’ve always self-managed so I have access to every report in creation. Right?

So – but I think the things that I would need to see – is I want to see collections. I want to see lease expirations and renewals. 0:28:50.6 Turnover rate is huge for me.

And then all the basic PNL, the rent roll, that kind of stuff. But my big things are turnover, obviously, you know, 0:28:59.4 [Inaudible] profitability, that kind of stuff. 0:29:02.5 And collections. 0:29:02.8 0:29:06.7

0:29:07.1 I was going to say, you can bill out at $200,000 a month, but if you’re only collecting $13 bucks, you’re not helping me dude.

Jordan: 0:29:12.3 So for turnover rate, what’s an acceptable range for you there?

Bruce: 0:29:15.9 Well, I know industry average last report I saw in 2014, was 54-55%. Totally unacceptable for me. I accepted to be below 40% and I have one of my properties in San Antonio right now, they consistently run below 20%.

0:29:33.7 Yeah. Now I know that’s not sustainable for most properties, most management companies, we just have a spectacular thing going at that property.

Jordan: 0:29:41.4 What about tenant screening? Best applicant versus first applicant. What are your thoughts on the process and the kind of answers that you would want to be hearing from a management company that would make you think that they’re actually doing that well?

Bruce: 0:29:54.5 Well, really, to me it’s pretty simple. Now, again, I’m more of a regional/CEO of my company, so I’m not the one, you know, in the weeds doing it day-to-day, so I don’t know all the down and dirty specifics.

0:30:06.6 But I want to make sure they’re actually doing it. I want to see – you know, it gets tricky. How do I verify you’re doing it, right? Because I can’t ask to go see an existing property’s lease files, right? That’s against the law. That’s private information. I can’t see that.

0:30:20.0 The one thing I can say is – this is not my phrase, my maxim, everyone said it throughout the years, but hire slow, fire fast. You know.

0:30:31.9 Take time to get to know them but then once you decide on somebody, give them a little while. If things don’t seem to be going well, you gotta make a move fast.

0:30:42.9 Don’t – you can’t be scared to have the difficult conversation, because it’s your business that’s on the line. 0:30:48.8 So, again, hire slow and fire fast.

Jordan: 0:30:52.2 Yeah, I hear ya. So how do you think that your investment strategy is going to – either the management company or the investment strategy is going to change over the next couple of years? What meaningful changes do you see on the horizon?

Bruce: 0:31:07.1 I don’t think it’ll change much. Because right now what I’m doing is buying fully stabilized properties anyways.

So it’s not like I’m buying a lot of deep value add, just completely neglected properties. Yeah, I’m not buying – there’s not many of them on the market right now. 0:31:22.3 Most of that’s already been run through the system and cleaned back up and resold.

0:31:27.4 So I don’t know that anything’s really going to change. The one thing I’ve got to keep in mind, for those of you that understand underwriting a property. I’ve got to go back to a higher cap-rate. Right now I’m buying at a 6 to a 6.25 for the most part.

But I’ve got to realize that as interest rates start to creep up quarterly now, I’m going to see my cap rate start to raise. To rise.

0:31:50.0 So, if I’m buying at 6.25, in a couple of years, that might be back to 7. You know, in a few years after that it could get right back to kind of more of a historic norm of 8. 0:31:59.3 So that’s the biggest thing I have to be cognizant of. But, again, I’m not really going to change anything.

Jordan: 0:32:03.6 So you say cognizant of, but I mean, it’s like you and the rest of the market. Right? How – and the market is obviously still pretty strong.

When you think about prospecting, etc. where have you sourced deals historically? In terms of deal flow, what’s been most effective for you to find the right deal?

Bruce: 0:32:24.8 You know, I was talking to a really good friend of mind the other day, he was trying to get into the space. He said, “Hey, you know I’m…” – I forgot what they’re called. Like, yellow letters or whatever, you know, 0:32:35.5 [Inaudible] I’m like, “Dude, quit doing that.” You know.

0:32:38.6 Now, having said that, it probably can work on a five to 12 year property. Something like that I would assume. Because those are mom and pop people.

0:32:46.8 A lot of them are just tired of it. So it can work, but he’s wanting to jump into a 100 unit property or bigger his first time out.

0:32:54.9 You know, he’s a developer, he’s got a lot of background in rel estate, so it’s not like he’s a complete newbie to this. But, like, “Look, dude, quit doing that. Don’t go down that road. Just develop relationships with the major broker players in your neighbourhood. And just get to know those guys really well. See if they’ll let you go to lunch. You know, buy them a coffee so they can get to know who you are and what you’re looking for.”

0:33:16.6 And that’s how I’m finding my deals. I have only done like, two to four – I guess you’d call them cold calls, in my life.

One of them actually bared fruit, but then they realized that they couldn’t sell the property because the loan they put on the property. But for the most part, I don’t believe that works in the space that I operate in.

Jordan: 0:33:33.8 Got it. So your point here is just to not waste time with TV infomercial style tactics. You’re not actually discounting the fact, the notion that the money is – the money is made on the buy.

Bruce: 0:33:47.6 Absolutely. Absolutely. Now – and if you just have that deep, ingrained in your soul because you watched somebody’s late night TV show like you said, or bought their books and tapes, “Oh that’s what I’m supposed to do.”

0:33:59.8 Well, at least hire somebody else to do that. You know? That’s not a very good use of your time. You know? Get somebody, you can pay them – get a high school kid. 8 to 10 bucks an hour or something. Have them do it. Show them how to do it but then let them do it.

0:34:12.0 Now, if it comes to phone calls, well you probably need to make your own phone calls. But yeah, that’s just not a good approach for me at all.

Jordan: 0:34:18.7 Makes sense. Well, I want to transition now to the rapid-fire section of the interview. I ask similar questions to almost every guest, and the first question is this. 0:34:29.5 Bruce, who do you learn from?

Bruce: 0:34:31.5 I learn from the other people – you know, there’s a very, very large contingent of individual owners in every major metropolitan area. So they’re not all the 0:34:41.8 [Inaudible] stars of the world.

0:34:44.9 So, I’ve become friends with many, many of them and that’s where I learn the most from now. I got started – I found a group that kind of taught me the ropes, showed me how to do it.

But then I had to go out there and do it myself, but then ongoing, it’s lots of podcasts like this. I read a lot, but most of it I’m just friends with a ton of other owners in Austin.

0:35:09.1 We get together, usually quarterly. About ten to 20 of us and we just share information. So that’s where I learn most of my stuff.

Jordan: 0:35:16.5 How did you embed yourself in that group early on? I mean, did you find Austin – did you Google ‘Austin real estate investors’? How did you meet these people?

Bruce: 0:35:26.3 Well yeah, you go to enough meet ups, enough different groups, you start to meet other people that are trying to do, or are actually doing what you’re doing.

And in fact, I’m going to a meetup tomorrow that somebody that I met on one of the online services, we’ll say – you know, they decided, “Hey I’m in Austin, anybody else in Austin want to get together and start a meetup?” Like, “Oh sure, why not?” You know.

0:35:49.3 All networking is good networking, but all that networking, you start to run into people – or at the apartment association is another huge resource. You’ve got a lot of other members that are going there to try to get educated themselves.

Jordan: 0:36:01.5 That makes sense. Are you a BiggerPockets guy?

Bruce: 0:36:06.1 Yep, that’s the group I was talking about.

Jordan: 0:36:08.5 What podcasts do you listen to other than the BiggerPockets podcast?

Bruce: 0:36:13.1 Jake and Gino. I – Gary V. Anything Gary Vaynerchuk does, I’ll listen to. I love that guy. We share a personality. I just love everything he does. I like Grant Cardone.

I don’t – you know, to be honest, I don’t know that he does a podcast. I think he does YouTube videos. But let’s see, what else. Tim Ferriss. You know, all that kind of – it’s not always directly multi-family or directly even business, but those are my big ones.

Jordan: 0:36:44.4 Ok yeah. Familiar with all of those. Good. Gary in particular is actually hard to keep up with. I think my appetite is probably to consume about 1/4 of what he puts out. It’s insane his overall level of content production.

Bruce: I agree.

Jordan: 0:36:58.9 Alright. So, Bruce, if you could go back to day one, when you just quit your retail job and you were looking to getting into real estate investing – if you could grab yourself by the shoulders and deeply impress upon yourself one piece of advice, what would it be?

Bruce: 0:37:17.0 Well, you know, I jumped right into multi-family, so I can’t say, you know, go to multi-family instead of single-family, but it’s something I heard Grant Cardone say the other day on BiggerPockets. That – I went pretty gib my first time out. 48 units. But I would tell myself to just go as hard as big and as fast as I can safely go.

0:37:36.6 You know, don’t make any stupid mistakes. Don’t get crazy, don’t get reckless. You know, as a syndicator, which I am, I’ve got a lot of people relying upon me for their return, so if I get reckless and lose their money, well my whole thing falls apart. Right?

So, but yeah, i would definitely go as big on that first property as you can possibly go. It just gets easier, faster.

Jordan: 0:37:59.9 I like it. Yeah. Go big or go home. And as a general business rule of thumb that the overall, kind of, philosophy that I adhere to is that small businesses are hard and big businesses are hard, so all things being equal, if you’re up for it, might as well choose to go after a bigger opportunity.

Bruce: 0:38:15.7 Absolutely. Gives you a better lifestyle my friend.

Jordan: 0:38:18.7 Bruce, if folks want to listen more. If you’re a property manager and you just want to see about how Bruce is syndicating his deals. If you’re an investor and maybe you’re interested in working with him, what’s the best way for folks to see what you’re up to and get in touch with you?

Bruce: 0:38:33.3 My website. I’m going to spell it out because it’s a little hard to understand on audio. It’s Apt-Guy.com, but it’s A-p-t dash G-u-y dot com.

Jordan: 0:38:44.5 Alright, perfect.

Bruce: 0:38:44.5 It’s on there if you’re interested, you know, I’ve got a form if you’re interested in investing. You can submit a form, you can contact me there, we can start a dialogue. But yeah, that’s how to get ahold of me best.

Jordan: Alright, we’ll link it up in the show notes. Bruce, I appreciate you coming on the show today, my man, it’s been a pleasure.

Bruce: Alright, my friend, thank you so much.