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Scott Brady on An Innovative Take on the Expansion Model

Scott Brady on An Innovative Take on the Expansion Model

Today, I’m talking with Scott Brady, the owner of Progressive Property Management, which manages over 500 properties in Southern California.

Scott is also a real estate manager that’s developed an interesting non-traditional expansion model that uses real estate agents to manage properties.

In today’s episode, you’re going to learn about Scott’s unique approach to property management, how this strategy helps his company get ahead, and see what of that you can apply to yourself.

The truth is, Scott’s model is novel. It’s different. Take it or leave it. But even if it’s not for you, what’s interesting is how Scott thinks about and approaches the business.

It’s that mindshare that I value which is why I brought him on the show today and know you’ll get a lot out of this.

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Topics covered:

  • (01:13) – Background Leading up to Today
      • (01:18) – Scott shares how he got into the property management industry.
      • (02:28) – Detailing the business model Scott used when he first started.
        • (04:05) – The first major pivot he made in deviating from the traditional model.
          • (04:08) – Using surveys to understand the market better.
          • (05:42) – Pursuing transparency, value offers and customer service to establish trust with the owner-manager segment.
          • (06:18) – Employing a new pricing model.
  • (09:27) – Leveraging Real Estate Agents
      • (10:54) – Discussing the economic model used.
        • (11:40) – The profile of realtor that best fits the model.
        • (13:35) – Realtor expectations regarding back office services.
        • (16:17) – How branding works in this model.
        • (16:48) – How the financial splits differ if agents are sourcing leads.
          • (17:28) – Why Scott centralized marketing.
      • (19:27) – Average revenue per door.
        • (19:31) – Breakdown of fees.
      • (20:21) – Lead generation and customer acquisition costs.
        • (22:15) – Zero sum marketing.
        • (22:49) – Discussing growth differences between a traditional model and the agent-based model.
          • (24:18) – Optimization opportunities.
        • (25:16) – Breaking down where the leads are coming from.
          • (26:11) – Details on running seminars.
            • (27:43) – Sourcing property owner lists for direct mail campaigns.
        • (28:08) – Discussing sales and marketing infrastructure.
  • (29:31) – Leveling Up
      • (29:37) – Proactive expansion strategies.
      • (32:12) – Addressing the ‘growth at all costs’ mentality.
      • (33:45) – Scott addresses whether there is a need to evolve his vision when scaling up.
        • (34:08) – Adopting the Australian real estate business model.
        • (35:25) – No end to scale.
      • (37:19) – Future ancillary revenue opportunities.
      • (38:53) – Establishing virtual branches.
        • (39:03) – Getting Yelp and Google to recognize them as physical locations.
        • (39:41) – Quality control.
          • (41:07) – Training.
        • (42:14) – Building a cohesive culture.
        • (44:26) – Dealing with geographical constraints.
        • (46:12) – Acquisitions and contracts.
  • (51:02) – Tying it Together
    • (51:22) – Scott’s advice for smaller firms attracted to the idea of growth.

Rapid-fire Questions:

(53:21) – If you could do it all over again what advice would you have given yourself at the beginning of your career?

Resources mentioned:

  • NARPM – Provides resources for residential property management professionals who desire to learn, grow, and build relationships.
  • Geek Real Estate Marketing – Marketing resource recommended by Scott.

Where to learn more:

If you would like to get in touch with Scott and learn more about his business model, tune into the show for his personal email address.

Transcript:

Jordan: 0:00:01.1 Welcome closers. Today we have another episode of The Profitable Property Management Podcast coming at you. This is Season Three on profit.

I’m your host Jordan Muela and every week I interview world-class property management entrepreneurs and industry experts who share actionable insights to help you grow your property management empire.

0:00:17.2 Whether you manage 100 units or 1000, this broadcast is designed to help you see the big picture and give you the tools and tactics that you need to get to the next level.

0:00:27.1 Today, I am bringing on Scott Brady, the owner of Progressive Property Management, which manages over 500 properties in Southern California.

0:00:36.7 He’s also a real estate manager that’s developed an interesting non-traditional expansion model that uses real estate agents to manage properties.

0:00:45.4 In today’s episode, you’re going to learn about Scott’s unique approach to property management, how this strategy helps his company get ahead, and see what of that you can apply to yourself.

0:00:55.6 The truth is, Scott’s model is novel. It’s different. Take it or leave it. What’s interesting is how Scott thinks about and approaches the business.

0:01:05.2 It’s the mindshare that I value in what he is doing. That is why I brought him on the show.

0:01:09.4 Welcome to the show Scott.

Scott: 0:01:11.8 Good to be here, Jordan. Thank you.

Jordan: 0:01:13.4 So let’s start from square one. How did you get into property management?

Scott: 0:01:18.1 I probably got into it the same way a lot of people did. Is that I’ve been in the business since about ’97. Became a top realtor. Was selling about 50, 60 homes a year.

0:01:26.8 Then I thought, gee, the way to riches is to own a real estate company. So I joined with Koa Banker as a franchise.

0:01:32.7 And at probably at the peak we had about 80 to 100 agents and then of course the recession happened.

0:01:38.0 And so I was able to take stock after that. I was – and I decided that this had been my second recession and I’d be a fool to go into another recession not prepared.

0:01:49.2 And so, I sat on different boards. CAR, California Association of Realtors, my local board. I go to a lot of retreats.

0:01:56.3 And I just looked at real estate as being in arguably dire straits in the next 20 years and I thought, “Well property management. That’s what I need to do.”

0:02:04.3 Of course, I talked to brokers I knew and trusted, and pretty much every single one said, “Yeah, don’t do that. That’s a terrible decision. Just do what you do well. Be a top realtor again. Hire more agents. You’ll do fine.”

0:02:17.9 And I just didn’t think that was a real viable choice looking ahead 20 years.

0:02:21.7 So it was about 2012 after two or three years people telling me no, no, no, that I started to get into property management.

Jordan: 0:02:28.6 So you lowered yourself. You condescended to get into property management. When you got into it, what was the playbook that you were planning on running?

0:02:39.3 Because the model that you currently run, the expansion model with real estate agents that we’re going to talk about, that’s a really interesting concept, but is that where you started?

Or did you start with the traditional portfolio-based management like most companies?

Scott: 0:02:50.9 Yeah, where I am now is really just a series of pivots.

0:02:54.8 So no, I started with a traditional model. I didn’t know what I was doing or how to do it. Nobody would help me.

I didn’t join NARPM, so I was just in my little bunker by myself. And I probably made every mistake in the book. Overspent.

It took me a year to get my first 20 doors and I probably spent $50,000 dollars. And then it took me another year to get to 70 doors and I spent another $50,000 dollars.

And I kind of realized after two or three years, that this wasn’t a very sustainable business model. 0:03:26.8 I was doing everything – if I had an assistant.

And I just realized that this was going to be – you know, I had interviewed a lot of companies and all these companies had been in business 20 years and were managing 200 doors, and I just didn’t want that business model.

0:03:41.5 I kind of looked out – you know, if I wait 20 years to get to 200 doors I’ll be dead.

0:03:45.5 And so, and that’s just not how I roll anyways. Kind of like, well, I want to do it a little differently. I’ve never gotten a business and done it the same way.

0:03:52.7 And so, yeah, I definitely floundered horribly for the first two to three years. 0:03:57.3 I didn’t really start getting my wits about me until about 2014 where I made probably my first major pivot, if you will.

Jordan: 0:04:05.2 Alright, walk me through the first major pivot.

Scott: 0:04:08.4 Yeah, I was really ignorant. I assumed property management was like real estate, that nobody managed their own properties.

And I ran into somebody who I met through somebody else, who said yeah, “Whoever can get to the 80% will win.”

0:04:22.2 And I went, “What are you talking about? What 80%?”

And he goes, “Well the 80% of the people who manage by owner.”

0:04:28.9 That was completely out of clear blue for me. I had no idea that was true, so I did what any good MBA student does. I said, “Well, is that true?”

I couldn’t find any information from CAR or my resources, so I decided to send out surveys. 0:04:40.7 I sent out at least 1000 surveys. Random. To investment property owners locally.

0:04:46.1 And I simply said, “Do you manage by owner? And if yes, why? And what it would take to have you hire a property management company?”

0:04:55.7 And 80% was correct by the way. 0:04:58.5 And what I found from those surveys is really how I totally changed my business so that I was pursuing 0:05:04.1 [Inaudible] as you probably say, the blue ocean. Not the red ocean.

0:05:08.6 We don’t have an investors in Southern California, for the most part. The prices are too high.

So you deal with by owners, for the most part. 0:05:14.6 Unless you’re going after big multi-unit buildings, which I was not at that time.

0:05:19.6 And so, the survey said, basically really four things. That “We don’t trust you. We don’t believe you. We don’t like you. And you charge too much. You property management companies.”

And so that’s sad.

I said, “So what would it take for you to hire a property management company?”

0:05:32.2 And by the way, I went out not as Progressive Property Management, but as the Brady Consulting Group. So it looked like I was a neutral third party.

Jordan: Nice!

Scott: 0:05:41.6 Yeah, I still have the Brady Consulting Group.

0:05:42.5 So what they said was, “Well, if we could believe you, if we could trust you, if we could like you and if you charged a fair price, I would be more inclined to use a property management company’s services.”

0:05:52.4 So that was the big pivot. I got rid of my website. Got rid of my marketing. Got rid of everything I was doing and I said, “Well, let’s become transparent so they can believe us. Let’s offer really compelling value propositions so they can trust us. And let’s also provide stellar customer service. Let’s make it a lynchpin of the company so they know that when they hire us they can expect the same.”

0:06:18.8 And lastly, the biggest one was I priced as if I was managing 500 doors when I was managing 100.

Jordan: 0:06:26.0 With the expectation that you would be able to grow into that model.

Scott: 0:06:25.3 Yeah. Now that I feel like I was resonating with the marketplace, I figured ok, let’s price it – because that was important to them in my marketplace.

And so I priced more aggressively. And set my offer to different pricing points. 0:06:36.4 But that was the big, big pivot. 0:06:38.7 And about 2014 and low and behold, I started getting leads and calls.

And to explain my marketplace, I’m Southern California. I’m based in Orange County, which is about three million people.

But we’re not ten minutes away from LA County, which is I believe six million people, seven million people and Riverside, which is a million people.

0:07:00.7 So we have a very big geographic area and I started locally, but then the marketing started taking affect, I was getting leads pretty much all over Southern California.

Jordan: 0:07:10.2 Alright, so let’s break this down. So, for those of you listening at home, he talked about two things.

First, asking. Caring enough to assume that there is actually meaningful knowledge within the market that you don’t currently possess.

And secondarily, acting.

0:07:24.2 Either of those things are things that a lot of people would dismiss. Right? The assumption is the information is inside the house. “I need to read more books. I know the business. What does the consumer know.”

0:07:34.2 Secondarily though, re-pivoting around what you heard, that’s not something that’s specific to property management.

Had you already had a similar experience on the real estate side of things? Of trying to reorient in a deeper way around the customer expectations? Because that concept transcends residential property management.

Scott: 0:07:55.1 Correct. Yeah, and that’s actually happening right now in real estate. Real estate is becoming the land of the liked, not the land of the experts. And if you’re not pivoting in that space you’re going to be out of business very soon.

0:08:06.2 So for me, it wasn’t a matter of choice. It was either grow the company or kill the company. After two years, the real estate market was picking up again.

0:08:15.0 I could go back to being old Scott Brady and selling 60 homes a year. Or bringing in another 40 or 50 agents and suffering through their none productivity. 0:08:21.9 Which it was. 0:08:24.1 And I really had to do it in order to stay in the business.

And I realized at that time – now I am part of NARPM. I love going to NARPM conferences and your growth summit.

0:08:34.7 But at the time, there was no literature out there. There was no book on how to build a profitable property management business from a to z. There still isn’t that book by the way.

0:08:44.3 And so, you kind of have to learn through the school of hard knocks, unless you join NARPM and your local chapter and then they do reach out a little bit.

0:08:51.4 But I will tell you, I said so the other day, is that I’m glad I didn’t discover NARPM until 2016 because I already had my business model, and I was less affected by the conference and doing what everybody else was doing.

0:09:04.3 I was kind of already set in my ways and I could still use some of the software, of course, and the systems and people like you and LeadSimple. 0:09:10.3 But I wasn’t a slave to the standard way of doing business.

Jordan: 0:09:16.0 The herd mentality. Yeah, sure. That’s going to be the case in any industry. 0:09:18.5 So this first pivot happens. Wanting to radically reorient around the customer expectations. It’s what everybody needs to do. It’s really where you live or die.

0:09:27.9 What was the next pivot or turning point after that?

Scott: 0:09:33.1 So, I still had a bunch of agents. About 20 agents at the time. And I’m starting to get these leads all over the place.

And I realize it was not cost effective for my staff to get in a car to drive 45 miles away. Which, in Southern California, can be an hour and a half. An hour and a half back, would be there entire day.

0:09:47.2 But I didn’t want to throw the leads away. 0:09:48.6 So I had realtors that lived all over the place and I said, “Well man, if I can do this, maybe they can do it.”

And I said, “I’m going to let you do property management, because…” once again, maybe it’s a Southern California thing – 50% of the realtors, these are the people that pay $1000 to $1500 a month to call themselves a realtor, don’t do a single deal in a year.

0:10:08.9 A top producer in our marketplace will do maybe three or four or five transactions. That’s a good producing realtor.

0:10:15.0 And so, I had a bunch of realtors suffering. They were not selling real estate. They wanted to stay in real estate.

And I thought, “Well maybe we can do something for them and go back to the way real estate used to be.”

0:10:25.7 Real estate used to be that the broker provided leads to their agents and they paid a healthy split for that privilege, but everybody was happy.

0:10:35.0 And so, I figured well, let’s kind of go back to that and I can then help them get property management. Train them. Give them the sales ability, do the operations, but then they can create stable income in these areas.

0:10:46.0 And that’s really the genesis of about 2014 of letting realtors in my office do property management in their respective areas.

Jordan: 0:10:54.3 Alright, what’s the splits? What’s the actual economic model?

Scott: 0:10:57.7 So this is kind of throwing darts on the board. I had to try it a few times to see what worked.

And I kind of looked at my cost for operations were at the time. It still runs about — per door, runs about $20 dollars. 0:11:08.4 And now, of course, the other side of it doesn’t cost me any money.

So I did a 65/35 split on management income. 0:11:14.7 And then we – the real estate splits different, So they do the owner and tenant issues. They do the lease ups. And then we do all the back office and training.

Jordan: 0:11:29.8 Got it. So the average real estate agent that is doing this has never done property management prior to this, correct?

Scott: 0:11:35.2 That’s correct. Never.

Jordan: 0:11:37.7 Got it, so what about training? Ramp up? Quality?

Scott: 0:11:40.9 Yeah. So what we find is agents who sell two or three homes a year, know real estate.

They can do a leasing contract, they can put it on a multiple listing service, they know how to negotiate a lease.

0:11:49.0 They also – they already have owner abilities. They know how to interact with owners. 0:11:53.7 They deal with buyers, so they can deal with tenants.

So they kind of know the business. The only thing they don’t know are the laws, of course. 0:11:59.4 And the software. We happen to use AppFolio. It could be any software.

But once, if they got it, and this is the hardest thing about this business model, because now we had agents every month, is if they do too much business, this isn’t attractive.

0:12:14.5 As I say, the property management business is the nickel business. It’s the dime business. Real estate is the dollar business.

0:12:20.6 So if you’re selling ten to 20 homes a year and making a hundred to two hundred thousand a year, you don’t want to do property management. It’s beneath you.

0:12:25.9 And if you’re doing zero deals a year, you’re just not competent. You don’t have those skill sets I just mentioned.

0:12:30.8 So there’s sort of a happy medium. That somebody is doing three to five deals a year who’s got the time, who’s got the ability. Who gets it. Who understands that this could be a way to really survive, and not just survive, but thrive in any real estate market.

0:12:44.3 Because if you’re managing — I’ve got a guy now managing 100 doors, he’s going to get five, six thousand dollars a month in steady income.

0:12:51.7 The other nice thing about it is one of my frustrations about the real estate business, is that in California, they’re independent contractors.

0:12:58.3 So, if a shop opens up across the street and they’ve got a better coffee maker or they’ve got a better split, or whatever, your entire office could walk out the front door and your business is worth zero. Nothing.

0:13:10.8 Once they buy into this program, if you will, they don’t ever leave. Because I keep the doors. 0:13:17.0 They get hooked on the stable income and they can still sell real estate.

0:13:22.3 So it worked out, you know, way after the fact. I didn’t know at the time, but it turned out to me to be the perfect business model for that angst I always had about your realtors coming in asking for a better split because they can get that down the street.

Jordan: 0:13:35.2 Now, the inverse side of things. How do they feel about the mother ship and the back office services?

Do you ever get any pushback? Are they in the weeds about their expectations towards the quality of the back office service support?

Scott: 0:13:48.7 No. It’s key that we – I always say I judge them on two things, compliance and customer service. And they just mean the same thing.

0:13:55.6 So our customer service and operations is high. We 0:13:59.0 [Inaudible] high level. I mean, I think that the testament to that is one of the surprises of this business model, which I discovered two years later.

0:14:07.1 Is, if you look at my Yelp reviews for my branch, we manage 350 doors, right? They’re good. You know, they’re four out of five stars.

0:14:14.0 But I had some staff that didn’t show the love and weren’t as kind as others. 0:14:19.0 If you look at my branches, which I think we’ve got about eight branch Yelp reviews, they’re all five stars. Not one four star review.

0:14:26.1 Because if they get it, they see these owners as being a future listing. And you can manage 30 doors really well. You can manage 50 doors really well. You get to 150, your day can get busy.

And so, I find – we don’t give them too many doors to manage. Their happy plane is 50 to 100, but then they’re very happy.

Jordan: 0:14:47.5 Got it. And they’re hooked. 0:14:49.5 [Inaudible] the opportunity to have the big listing, to have the big luxury property, the dream – chase the dream right.

Scott: Exactly. That’s true.

Jordan: 0:14:59.2 But their nut is covered and so the offsetting activity to supplement them is not working at Nordstroms, it’s within the realm of real estate. So the synergy is tight.

Scott: 0:15:08.5 Yeah, you’re not an Uber driver that has nothing to do with real estate.

And also, on a kind of philosophical angle, which I’ve learned – when I got in real estate 20 years ago, Monday was office day. Tuesday was caravan day. Wednesday was preview day. Thursday was whatever. There was something every single day for you to do. 0:15:25.3 Training day Thursday, whatever.

0:15:27.0 Most real estate companies, there are some exceptions – Tuesday could be Sunday, could be Friday, there’s no structure anymore.

0:15:34.5 And I guess brokers like that, but I find agents are lost. They don’t have purpose. There’s no structure to their life and so – but if you’re managing 30 doors, that’s 60 tenants, that’s 30 owners. 0:15:47.6 You’re engaged. You’ve got something to do on a Monday morning and I feel it also gives structure, purpose and it gives meaning to a lot of these agents.

0:15:56.9 Some of the agents who have come on board with me were lost. 0:16:00.1 And now they have absolute direction and they would take a bullet for me at this point. Is 65/35 the right number? I don’t know. I love 50/50. 0:16:08.6 But that seems to be the right number for me. But anybody out there listening, if you can get 50/50 and your agents are thrilled, do 50/50.

Jordan: 0:16:17.4 How does the branding work? Are all of these progressive branches?

Scott: 0:16:21.0 Yeah so, in California I have my corporation, which is Progressive Property Management Inc. And then I DBA under that, Real Estate company.

So I have Partner’s Real Estate Group and we’re starting now another real estate company, Progressive Real Estate Group.

So you actually have two business cards. 0:16:36.9 You have your Partner’s Real Estate Group card and you have your Progressive Property Management card.

0:16:40.6 So that when you go to a listing interview, you’re not a property manager. And when you go to a property management meeting, you’re not a realtor. You can do both.

Jordan: 0:16:48.8 Got it. So back to the splits. What if they’re – are they bringing in these doors themselves? Are you giving them to them? Do the splits differer?

Scott: 0:16:57.0 So, the only thing that differs – so that was my last big pivot, we can talk about that – and that was really a year after that.

So about 2014, I guess 15. So I’m sending these realtors as branch managers, we call them, to manage properties.

0:17:09.3 And I said, “Great, I’m going to give you all the marketing tools. I’m going to give you all the things you need to go out there and get doors. You’ve just got to pay me money and I’ll send out the marketing material and I’ll do the Google Ads or whatever it might be.”

0:17:20.9 And here’s what I found after about nine months to a year. They wouldn’t spend the money. Just flat out wouldn’t spend the money.

Jordan: I get it, makes sense.

Scott: 0:17:28.5 Yeah. Realtors are like, you know what, they just want to sit there and have the phone ring.

And I said, “Does it work that way?”

0:17:34.7 So I decided to then – tell you what, I trust my system, I know it works, so I centralized all the marketing and then once I converted a lead to a door, then we sell that door to the individual agent.

0:17:46.3 And we found that they were happy to pay me four months management income for a door, but wouldn’t spend $400 dollars to do marketing. They just wouldn’t do it.

0:17:54.3 And so, they’re happy and unhappy. And so they can either buy a door from us and we – our goal is to add about 30 doors a month.

0:18:04.0 So hopefully each one is buying one or two doors a month. 0:18:05.9 We’re now at 700 doors by the way, not 500. Just this year.

0:18:11.3 Or they can find a door. And the example I can give you on that – I hired an agent up in Pasadena and her first door – is that she knew a guy who knew a guy who knew a guy. And he was building a 27 unit building. New construction in the city of Pasadena.

0:18:26.3 And once completed, the rents were about $80,000 dollars a month. And she’s charging whatever, 5%.

0:18:31.5 So her first door created revenue for her at $2800 a month. 0:18:35.0 And she didn’t buy that to me, she found it.

So part of what I look at this business model as being is that right now I have about 15 branch managers. I have 15 business development managers.

0:18:44.3 And I want them to go out there and add their own doors through their own efforts because they don’t have to pay me. That benefits them or they can buy doors from me.

Jordan: 0:18:50.8 So the split remains the same. The only difference is if you feed them the door there’s a one time fee.

Scott: 0:18:55.4 That’s correct.

Jordan: 0:18:57.2 Totally makes sense that they wouldn’t want to spend money. Because in general, small business owners tend to underweight – they have no sense of the intrinsic value of what it is they’re paying for.

And the perceived perception of potential loss of that money spent on marketing outweighs the potential game.

0:19:12.9 You obviously are thinking completely different about this. You’re exploding the delta.

0:19:18.7 Talk to me about how running that game is going. In the markets that you’re in Southern California, I’m imaging rents are fairly high. 0:19:27.5 What is your average revenue per door ballpark?

Scott: 0:19:31.5 So, we average about – the goal is about $100 bucks per door per month. On just management fee. We have other fees.

You know, that we charge tenants and owners. But that’s the base fee. 0:19:42.5 And that’s about right in our marketplace.

So, they’re collecting about per door – their income is about $65 dollars a door in base management fee. 0:19:50.8 Where they make most of their money, where they’re really excited, is the tenant acquisition fee.

0:19:54.7 So typically in Southern California, you’re charging anywhere from 35-50% per tenant acquisition fee. 0:20:00.5 And they keep, on that one with me, most of them are keeping 90% of that tenant acquisition fee. 0:20:07.4 So that’s where the big bump is for them.

Jordan: 0:20:08.7 Got it. So, the 4x multiple that was – that you described to purchase the door, that’s roughly $400 dollars based on the $100 dollars a month that you just quoted?

Scott: 0:20:19.8 That is correct. Exactly.

Jordan: 0:20:21.7 Alright. So then flip side. Customer acquisition cost. What are you doing for lead gen? What is your per channel CAC? Walk me through all of that?

Scott: 0:20:29.2 Yeah. So on the lead gen side – so my goal was to be zero sum marketing. That’s the goal.

The goal is I spend $10,000 and I sell 30 doors and I get back $10,000. $11,000 dollars. We’ve been a little short of that.

0:20:42.5 So, if my – and my acquisition cost’s running about $200 dollars a door. So I’m spending ten and I’m actually netting out – it’s costing me about five right now.

0:20:49.0 We’re dumping a lot of money into SEO though right now for each of our branches. 0:20:54.2 Redoing my website to be super video friendly. Growth Summit thank you.

0:20:57.9 So, we’re being very aggressive. 0:20:57.1 We still do direct mail but not as much. We do geek marketing. 0:21:02.8 So probably, we’re receiving monthly about sixty leads a month for all our different sources, all our different channels.

And we’re closing right now anywhere between 30-50% of those depending on the month.

Jordan: Got it.

Scott: 0:21:11.9 Then we turn around and sell those doors to all the agents.

Jordan: 0:21:15.3 And so, what would you estimate your customer acquisition cost is?

Scott: 0:21:19.6 Well net – so spending $10,000 to get – depending on how many doors right? So, we’re spending approximately about – gross we’re spending about $400, net about $200.

Jordan: 0:21:31.4 Got it. Ok. So it’s working then. This is a viable machine you can run for some time.

Scott: 0:21:37.7 Well, the ultimate goal is to be zero sum right. So, spend $10,000 sell $30,000. Then why not spend $50,000 to sell $15,000. Right?

The idea is, as a machine keeps – because we are – and we’ll talk about the trends in our state – we’re walking into a California renter’s state. We’re walking into I would say probably the best market ever for property management in the history of California.

0:22:03.4 We’re looking at possible state-wide rent control. Just cause eviction. All this kind of stuff. So, right now I’m really trying to build the machine, the infrastructure, to absorb those doors that will be coming down the pike in the next two to four years.

Jordan: 0:22:15.5 So the zero sum marketing thing you described, that sounds fantastic to essentially have a time to pay back of zero.

But realistically, most companies don’t and that’s fine. The existing time to pay back that you described is still pretty speedy.

0:22:29.5 So that’s what I mean by saying that the existing model is sustainable. So, you’re doing both.

If you were just running this playbook, this kind of different novel agent-based playbook that may be the idea might be that you’re just opening biased or you’re just pumping this thing because it’s the one pony that you have. 0:22:46.5 But you have both sides of the business.

22:49 What kind of growth are you seeing on the existing portfolio that you’re managing on the traditional side versus in this agent-based model?

Scott: 0:22:57.9 Yeah, so my main office is now 350 doors. And it’s the retail branch. The regional branch. And the goal for that branch is to add ten doors a month.

So if we’re adding an average of 20 to 25, we’re still keeping about half to a third in house. 0:23:13.0 And for my traditional branch where I have two property managers and the normal kind of thing.

0:23:17.4 And then the other piece I’ve just added – so I do seminars throughout Southern California to realtors.

0:23:24.5 And you wouldn’t be surprised, it’s called, “How to Build a Profitable Property Management Business”.

And we bring them in and I just had one on Friday with about 40 agents. 0:23:33.0 And, of course, at the end of that they realized they can’t build their own profitable property management business. It’s complicated, it’s too expensive, it’s too difficult. Might was well just come work for me.

0:23:41.2 And so, those seminars is what drives in the agents that then I can sell the doors to in these outlying areas.

0:23:49.0 So, that model – and then some of those agents, you wouldn’t be surprised to hear, they manage their own properties. 30, 40, 50 properties illegally, usually. They haven’t told the broker, usually. So what I have been doing – or legally. They’re a small property management company.

0:24:04.7 So we just started sort of a wholesale division where I will either DBA their property management company under my company, or they’ll just get absorbed in.

0:24:12.9 And once again, they deal with owner/tenant issues and we just do the back office. We just do the 35%.

Jordan: 0:24:18.7 Got it. And so, is there any kind of an optimization opportunity? If they’re doing it illegally, or at least kind of under the radar, presumably they’re doing it less than professionally.

0:24:30.0 Are you able to say when you basically fold in and roll it in to your portfolio, to what we’re doing, we can optimize your revenue per door via x,y,z practices? Is that part of the sell?

Scott: 0:24:41.2 It’s part of the sell. Once they get frustrated – because if they keep their name, we’re not going to sell them doors. We’re not going to do the front-end, the training, any of that stuff.

But if they fold it in to our company, of course, then they become a part of our universe. 0:24:51.3 And then, of course, we’ll not only sell them doors, we’ll help them promote, add their own doors, find their own doors in their marketplace.

0:24:59.5 We just added 60 doors that way. 0:25:02.1 So it’s sort of an experiment, but in our marketplace, there’s just a lot of these people out there managing ten, 20, 50 doors.

0:25:07.7 They don’t want to sell the portfolio, they want to hang on to it. They want to hang onto the income or the relationships with the owners. That’s fine, we’ll just do the back office for them.

Jordan: 0:25:16.7 Alright, let’s go back to customer acquisition cost, which the customer acquisition cost and the volume at you’re operating at – in my mind, that’s working.

What I’m hearing is that you’re able to drive a decent level of leads and your time to pay back is pretty quick.

0:25:30.2 So you mentioned a couple of those different channels. Is there one channel that’s more dominant? Is it like five channels but the bulk of the leads are coming from one channel? What’s the breakout?

Scott: 0:25:39.1 So the breakout is, Google Ads, we use Geek Marketing. We’ll eventually wean ourselves off Geek.

Because I understand the negatives on Geek is that they’re getting the juice, we’re not getting the juice.

0:25:48.3 So eventually the plan is to replace Geek with our own Google Ad marketing campaign. 0:25:52.4 But we do use Geek and that probably generates 40 leads a month.

0:25:56.2 We still do direct mail. I’ll drop about 8000 pieces. And that, once again, generates about 20 leads a month.

0:26:04.1 And then the other piece we do is Yelp. We spend about $500 dollars to $1000 dollars on Yelp. That generates about five doors a month or so.

0:26:11.2 And then, the last piece would be local landlord seminars. So I’m a big believer in at least every two months, I’m having a seminar with local investment property owners, and that generates for us a good number of doors as well.

Jordan: 0:26:25.2 Do you partner with anybody on those seminars?

Scott: 0:26:27.4 So the local 0:26:27.6 [Inaudible] is very basic. It’s super simple, everybody should do it in their marketplace and become the expert.

All we do is send a direct mail out piece to local investment property owners. Invite them to a free seminar for three hours.

0:26:39.7 We bring in an insurance guy, a lender of course, bring in a plumber. You can bring in an attorney, if you will.

0:26:47.5 And then in that three hours we tell them, “If you’re managing your own property, you’re in the property management business”.

0:26:54.0 And the whole effort for three hours is to have them discover they don’t know what they don’t know.

0:26:59.2 We give them a quiz, where they fail, of course. On all the laws. And then we talk about insurance situations. We talk about how to find the best tenant. All these different things, for three hours.

0:27:06.8 And we generally get 40 to 50 people in the room. 0:27:10.3 Generally from that I’ll add about five to ten doors.

But then the rest go in the database, and I guarantee you, when they need a property manager, we’re going to be that company because we’ve shown them that kindness and the love and we gave them the tools to be a better property manager.

0:27:25.5 It costs me maybe $1000 to put it on. And my vendors will kick me back $500. So it’s a net cost of $500 dollars. By far the most cost effective way to add doors.

Jordan: 0:27:34.2 Where’s the $1000 dollars going?

Scott: 0:27:36.9 Direct mail. It’s really the only piece. I’ll do it in a local area. An office. And we also provide a lunch costs another $50 bucks.

Jordan: 0:27:43.5 Where do you get the list for direct mail from?

Scott: 0:27:46.2 So I know that California is different on this. So we have title companies here. And that at no cost they give us all the off-site owners.

So I can at any time – I have a list right now of a million investment property owners in Southern California. 0:27:58.0 And I can get that anytime I want.

0:28:01.1 So I know there are other list companies out there doing that. And at least in Southern California, I believe all of California, that’s a freebie from the title companies. They’re easy to secure.

Jordan: 0:28:08.7 Got it. So in terms of just the sales and marketing program that you’re running in general, do you have any assistance? Do you have a marketer? You seem abnormally into managing all of this stuff.

0:28:21.8 My gripe with most property management companies and small businesses in general, is that they operationalize service making the widget, the good, sales and marketing is like this little kind of side novelty thing that is done when it’s necessary. Just in order to get the leads.

0:28:38.0 What kind of infrastructure do you have to be able to run these kind of campaigns?

Scott: 0:28:42.6 Yeah so, my job here at this company is to add doors, add agents and add investors. We are actively looking for investors and buying property and fixing, flipping, that kind of stuff.

But I have a business development manager, and her job is take all the leads, convert the leads to doors and sell the doors to our agents.

And then also provide training for them, assistance, help them through the first few doors as they kind of get their feet wet. 0:29:05.5 Answer any questions they might have.

0:29:07.8 So I have a business development manager, that’s her only job. Is to do that. 0:29:11.2 And really, if you – we’re managing 700 doors.

I have a front desk person, I have an operations manager, I have a business development manager. And that’s really it. 0:29:21.5 I’ve got two property managers at my office for the 350 doors. And then I have 15 branch managers.

0:29:26.1 So we’re managing 700 doors with really, arguably three staff members.

Jordan: 0:29:31.9 Do you ever throttle growth based on ability to onboard? Like turn growth down?

Scott: 0:29:37.2 No we never do it. We can with the number of branches we’ve got, we could easily add 50 to 60 doors a month.

It’s just not that hard to do it. Because the branch managers are doing all the legwork, doing the lease ups, doing the meetings and all that kind of good stuff.

0:29:50.4 So one of the nice things about the business model – there are really two nice things about the business model, and once again, I only know Southern California, is I can add virtual branches throughout Southern California.

0:29:58.6 Meaning, I tell The Bureau of Real Estate, I have a branch in Rancho Cucamonga. I really don’t have a branch at Cucamanga. I got a guy in his jammies, in socks, sitting in his office.

0:30:08.4 But to the world, it looks like I have a branch. To Yelp, it looks like I have a branch. To Google, it looks like I have a branch.

0:30:14.4 And I can put those all around. Rather than having bricks and mortar. Which I only have one brick and mortar branch. That’s where I’m sitting right now.

0:30:20.1 And so, the benefit is I can run really lean and put everything back into marketing. Right now, my goal in the short term is to be the biggest property management company in Southern California that doesn’t need to make a profit. If I want to I can make a profit. Real estate is free to me.

0:30:36.9 So real estate now is gravy and the property management business now is really what pays for everything. And it pays for the marketing.

0:30:44.5 So, my goal is if we were to be up another $2000 dollars next month, I’d spend another $2000 on marketing.

0:30:50.9 The time is right now to add these – the seasons now – these agents are getting desperate. We have a terrible real estate market. Not enough sales, too many agents. Much gnashing of teeth.

0:31:01.3 So the time is now to do these seminars and add agents and sell them on the dream. Sell them on income stability. Before rent control happens. Before the recession happens. Before all that. Because then it’s just – you’re too busy to be doing all that kind of stuff.

Jordan: 0:31:14.8 Alright. So let’s talk about just following this train of thought. A lot of what I’m hearing, particularly on the lead gen side of things and never turning off the lead gen. That’s real estate 101.

0:31:25.3 So when I think about my background with real estate education, whether it be Keller Williams or whoever, the essence of the mega agent philosophy, in large part, is never turn off lead gen no matter what.

0:31:40.9 That is the capacity constraint that you obey. You obey the lead gen and the growth side of things, not the other way around.

0:31:46.8 Of turning it on and off and basically treating it like a part time kind of mess.

That said, as you’re leaning into that and as you’re talking about growth, a lot of people hear that and it’s like, “Wow, another one of these growth at all costs guys. Don’t make any money. Scott, this is my lifestyle. I’m doing this so that I can send my kids to college, have a nice lifestyle, etc.” 0:32:09.1 Walk me through how you think about all that.

Scott: 0:32:12.4 It’d be tough to do if you didn’t have a real estate side of the business, right? So these realtors I’m trying to hire judiciously so they sell as well. And that’s really what pays the bills around here.

0:32:21.7 And of course, I sell real estate. I sell doors we manage. I sell multi-unit. So my own income’s in there too.

0:32:28.0 But I believe what Steve Murray said is true. That you’ve got to be super nichey and small and there’s no shame in that. There’s no shame in managing 150 and 200 doors and charging 8% and with fees and making a nice living.

0:32:40.6 But no-man’s land in the future, particularly Southern California, is going to be 500 to 1000 doors. 0:32:45.7 They is going to be some big players.

When they see that over 300,000 doors need to be managed in Southern California, there’s going to be some players that see opportunity in that. So I’d rather be there first.

I can always ramp it down when the recession hits. When the phone rings off the hook and we’ve just got to put a sign over the front door. 0:33:03.7 That’s not the market we’re in right now.

You’ve got to spend money to add doors in Southern California. I don’t know about the rest of the country. But if you’re not spending money, you’re not adding doors. You’re losing doors right now.

Because the market’s so hot people are selling the rental properties and trying to extract all the income out of that. 0:33:19.2 So, I get it.

And theres’ a time and a place in order to then start really taking out the money. But not right now. In my opinion. If you’re adding 30 doors a month, why not 50?

0:33:30.0 It’s my job – is to get the word out to all these people who are self managing that this is madness. And there’s a better way. And the time for that’s now, not later.

Jordan: 0:33:43.1 0:33:45.0

0:33:45.1 So you’re knowingly being opportunistic. You believe that there’s a window in time to really go after market share.

Talk to me about what the vision looks like at scale though. What is the end game? Is it 1000 doors? Is it 2000 doors, 3000 doors? Where do you see this train going in let’s say, five years, for you to define this playbook as achieving success?

Scott: 0:34:08.9 So I may be naive. I think I’m too old to be naive. Hopefully I’m not.

I think this is the next big viable business model for real estate and property management. There is no reason why we don’t have 100 agent branches throughout all of California allowing agents to run stable income and sell real estate as well.

0:34:25.6 There’s no reason why we’re not managing 50,000 doors. 0:34:29.0 That we don’t have operation center, both in San Diego, Orange County, LA, Sacramento.

0:34:34.6 There’s no reason why this business can’t be a real viable business model for realtors and property managers. 0:34:42.5 And the fusion of the two worlds.

0:34:44.4 For too long, there’s been this – property management was the red headed step child of real estate.

0:34:50.9 And I see our – the future is really the Australian business model. 0:34:56.2 In Australia, as you may know, I talk to the Harcourts people.

The margins on real estate are so bad, because they’re on an auction model where the total commission’s typically 2.5% or 2.1%. That Harcourts, the biggest real estate company, manages 80,000 doors.

0:35:12.4 That business model I think is probably what it’s going to look like in the United States. 0:35:16.6 So I think California might be the first one to adopt that business model and I’m ok being the first one to go streaking the quad.

Jordan: 0:35:25.3 So, this is interesting. So what you’re saying is, in terms of first principles, you don’t see any reason that this cannot scale to a significant degree.

You don’t have a near term endgame of saying you want to get to 1500 doors and then flip that portfolio.

Scott: 0:35:39.7 No, absolutely not. When I see the lives I’m changing. The realtors that were lost and now have something to do.

When I see the staff that’s earning a great living and love what they’re doing – because I call this business model, it’s kind of the In and Out business model. 0:35:54.3 In and Out Burger business model.

0:35:55.8 You can start at the fry machine but end up as a branch manger in South Orange County. 0:36:01.7 You can go from making $12 dollars an hour to making six figures. And be on your own time when you want to do it.

0:36:08.7 It’s – when I go to these seminars and see people, you know, their eyes light up with opportunity. I think it’s life changing. And I don’t know why you’d want to stop one more life.

0:36:19.4 I think this is a model that gives me great joy to know that I can’t be run out of town by a new business model. 0:36:26.8 Matter of fact, I’m going to run other people out of town with my business model.

0:36:31.0 So now, stopping at 1000 doors seems foolish to me. Stopping at 5000 doors seems kind of silly too. I think this is something that could be — and also, think of the number doors, Jordan. We’ve got a million and a half rental properties in Southern California. A million of which being managed by owner. Why would you stop at 1000? And walk away from the 999 – yeah, I just think that there’s too much opportunity to do that and too much fun doing what I’m doing.

Jordan: 0:36:56.1 So the observation that I’m making here is that you can look at the existing paradigm and say what you are doing needs to be a – basically reasoning by analogy.

We need to think of it in terms of the existing known types of management companies. 0:37:10.6 You’re saying, “I don’t really care about that.”

Philosophically, principally, is there any reason that we can’t scale this model. Your answer to that is no.

0:37:19.9 When you think about the growth though, you’re positioning yourself around this relationship with the property manager, and the truth is, there’s all kinds of ancillary revenue opportunities, ancillary businesses.

Talk to me about your view on the strategic positioning for other, either current or potential future ancillary businesses that can be plugged into this asset, this nut that you’re building.

Scott: 0:37:44.0 Yeah. So once again, this is Southern California. My next business I’m going to build is an escrow company. I’ve owned them before. Profit margins run 30%.

0:37:52.2 So all your agents use your escrow company. 0:37:54.4 You can own title business. We already own a maintenance company, so it feeds the maintenance company.

0:38:01.5 So there’s all these other revenue streams that are out there. Insurance, of course. 0:38:06.7 So I think once you’ve got – to me, the key – what I have to do is build an unassailable brand. I’ve got to build something that nobody else – all of us have to create a barrier to entry to what we’re doing.

0:38:17.8 And that’s what I’m trying to do on a daily basis. 0:38:20.7 So if anybody out there who sees this, says, “I want to do what Brady does.” Have at it.

It only took me five years to get here and spend the money I did to do it. And come up with the marketing I’ve got.

0:38:27.9 But I do believe, as an industry, we should embrace this. 0:38:32.2 So if you’re managing in Austin, and there’s a community that’s 45 minutes away, why don’t you have a virtual branch there with a branch manger there who’s providing revenue to you.

Both in management income, late fee income, tenant income, leasing income, of course management income, and then on top of it, real estate income. 0:38:51.9 To me, that’s just a logical move.

Jordan: 0:38:53.7 So some of the nuts and bolts of actually doing that, the virtual branch. You’re saying that Yelp and Google consider it a real physical branch. That’s a pretty big deal. How are you actually getting that done?

Scott: 0:39:03.8 Well, I have people. Google sends a card to your address and you just confirm it with a code. Yelp does the same thing to confirm it’s a physical location. That’s all they care about.

Jordan: 0:39:16.1 A proper residence makes no difference.

Scott: 0:39:18.0 No difference. And then you put it on your website, so it’s there as well. And then we – now we SEO it on our website.

So now we get the SEO love because it’s an actual physical branch. 0:39:30.9 So, yeah. It’s just – to us, in our marketplace, it makes no difference whether it’s a bricks and mortar or somebody’s condo.

Jordan: 0:39:41.4 Let’s go back to quality. Because I think that’s going to be an ongoing hangup for somebody thinking about getting into this.

0:39:46.8 How do you QA the boots on the ground activities?

Scott: 0:39:49.9 Yeah. So the most critical part of this is definitely the branch manager. The quality of the branch manger.

And I have found to date, for every five we hire, and we’ll test out with a door or two, one really has the wherewithal to keep it and do it properly.

0:40:07.1 So we’re getting better with the selection process. Motivation? How much do you sell? What do you see your future?

Because in the end, you’ve got to be – you know, we’re the get rich slow business. Got nothing against get rich quick business.

And you’ve got to make sure they realize that they’re not going to also become a branch manger and have 30 doors.

0:40:22.1 I could, if I wanted to, start selling doors to certain places. I’m doing that right now. We just opened a branch in Long Beach. 0:40:28.7 And I had a lot of doors there. We just kind of picked up and I’m going to sell him 30 doors day one. 0:40:31.5 So that’s kind of a unique situation.

0:40:34.3 And I think also, it’s very important – no if they leave, I get the doors back. They don’t get to take the doors with them.

0:40:38.5 And I just had something – I resold the doors that somebody left the company. They got moved out of state, I just resold his doors to somebody else. Interestingly.

0:40:46.7 And long term, you asked about long term, if my branch manger in Riverside, north Riverside, he manages 100 doors, soon to be 150. If he decided to leave the business, I might open a branch there. A physical bricks and mortar branch, you know, now I’ve already got a positive cash flow on day one. Right?

0:41:04.5 So yeah, you’ve got to pick the right agents and have them go through that process.

0:41:07.5 On the training side, they go through a week of training. Shadowing operations. Shadowing my property managers.

We do quarterly meetings. I find the ones that get it get it really quickly though. After one or two doors, they’ve got it.

0:41:21.8 If they’ve been selling real estate relatively well, they know customer service. 0:41:27.2 They know to answer the phone. Be communicative.

You know, all we got to do is teach them the laws. 0:41:31.3 I think property management is complicated in some ways. If you run a company. Though very simple in other ways.

0:41:38.6 Everybody who’s worked for this company has never done property management before. Every person I’ve hired, you know, come in a little dinged and dented.

We put a little bondo on them, we fix them up, we slap a paint job on there. Go ahead you’re a property manager. You know?

0:41:50.7 And they learn our culture and how we do business. 0:41:54.5 But I find – I get people from hotel business – amazing. Amazing people from the hotel business.

0:41:58.9 For the property management side, for to come into my office. 0:42:01.9 But the branch managers is agents that sell – a certain age, you know, they’re kind of like 40 to 50. They’ve been in the business five to ten years. They’ve been selling three to five homes a year and they’re not attached to their brand.

Jordan: 0:42:14.6 Now do they feel like that they are a part of the progressive organization or machine? Do they ever see each other? Do you do like any kind of ongoing team exercises or anything like that? 0:42:26.4 What about cohesiveness of culture?

Scott: 0:42:28.1 Yeah, so right now not great. So we have two annual meet parties a year. You know, holiday party and we do a summer party.

And they come in all the time for different things. They come in to drop off paperwork or see us and then we always have lunch with them. 0:42:41.7 That’s something we’ve got to do better.

Just what we’re doing right, this is something we should be doing. I tried to do an intranet within the company, didn’t work. Nobody adopted it. So I had to get rid of that.

0:42:53.2 So we haven’t quite found the perfect tool to create that company culture. But it hasn’t – because it is a wide geographic area.

0:43:00.7 I mean, from my person in south Riverside to here, that’s at least an hour and a half ride, one direction with traffic.

0:43:06.9 So, right now it’s, they buy in and once they start getting doors – and really also, I think they’re dealing with the operations side. They deal with my operations manager constantly.

0:43:16.4 That kind of creates the bond. 0:43:18.6 We depend on them – what I kind of like about this system, it’s mutually dependent.

I depend on them to provide great customer service and do the right thing with tenants and owners and follow the law. If they don’t, of course, they call us. If they don’t know what the answer is.

0:43:30.2 And they depend on us to process properly and take care of the clients in the backend. So it really is mutually dependent relationship, which isn’t so much true in real estate anymore.

0:43:39.7 You know, you hire a realtor and you just hope they sell well. They begrudge your split, you begrudge their split. There’s just a tense stand off, right? In the industry.

0:43:47.9 They don’t begrudge our 35%, I don’t begrudge their 65%. They appreciate what I do and I appreciate what they do. So there really is a mutual appreciation going on within the company.

Jordan: 0:43:57.2 Well, I really love the doggedness of your determination. So when you describe this model, it’s easy to think like, wow this must have fallen into your lap or you found some secret.

But when you say things like, you’re finding that one in five of these relationships is actually viable, that’s a grinder.

0:44:12.5 Now clearly it’s worked out and it’s worthwhile, but you’re putting quite a bit of effort into actually getting to the point where you’re making it work.

0:44:20.2 Now granted, that’s not the same thing as hiring five full-time employees and having 0:44:24.0 [Inaudible] work out.

0:44:26.3 In terms of expanding this model, do you have – is it still constrained by geography? Meaning, do you have anybody in San Francisco? How far have you pushed it?

Scott: 0:44:35.3 Yeah, so we – you definitely have to have bricks and mortar and operations center within, you know, I would say within 30 miles of your branch managers.

0:44:44.4 So the next push for us is LA, which is a huge market. So we would open a bricks and mortar in say, Pasadena area that can reach South Central, it can reach the valley, it can reach San Gabriel, it can reach San Bernardino.

0:44:56.4 Because tenants do want to come into your office to drop off stuff or whatever they gotta do. 0:45:01.7 So eventually you’re going to have to have a bricks and mortar for every ten branch mangers. I think the number is for every 300 doors you need to have a bricks and mortar.

0:45:10.9 And then that bricks and mortar also does property management though. So if I do a bricks and mortar in say, Pasadena, then we’re also going to start doing property management in that area and build a retail branch there as well. 0:45:20.1 So we would do both.

The quickest way to do that is to just inherit the doors from an agent who leaves for some reason but I don’t’ have that luxury.

0:45:25.5 So, yeah. I think Sacramento will have to have bricks and mortar. You’re going to have to have it close to your ten branch managers so they can come in for the culture, for the training, for the everyday work we do in property management.

Jordan: 0:45:38.3 So how will you actually do that? If you build a bricks and mortar in Pasadena, are you going to wait until you have some prior traction? It’s kind of a chicken and an egg thing right? With this model.

Scott: 0:45:49.1 To Pasadena, I’l definitely grow it organically. I think for Sacramento, I’m going to have to find a property management company. I am starting to kick around acquisitions. Trying to send the feelers out on other property management companies.

0:46:00.7 I think definitely up there, if somebody believed in the vision, I don’t know if it’s a joint venture or an acquisition, whatever it might look like, but there’s no reason why this wouldn’t work in Sacramento. 0:46:09.1 I just have to find a like minded property manager.

Jordan: 0:46:12.6 Now what about terms of an acquisition? If you were to sell Progressive, would you be able to cleanly sell all those contracts? Or would there be any kind of a liquidity or exit event for the agent?

Scott: 0:46:22.2 No. We have all the contracts. All the branch managers sign a very lengthy legal document about the relationship. I have first right refusal on all the doors, or anybody who buys me. 0:46:32.7 So, the answer is there is no issue on that.

Jordan: 0:46:37.9 Wow! Wow, wow, wow, wow, wow. 0:46:38.7 So there’s just a lot of opportunism here.

I think the way that some of us might look at this opportunity as asking ourselves, “Would I go for that arrangement? Would that be attractive to me?”

0:46:50.7 But that’s not necessarily the best way to look at it. It’s circumstantial to the individuals for that person who has some part – a part-time side income. They have some entrepreneurial hustle.

0:47:01.7 But it’s a grind, it’s not quite working. I can see the attraction of what you’re offering, even if it comes with those pretty significant stipulations. 0:47:09.7 If people are willing to go for it, more power to them.

Scott: 0:47:14.0 The push back I get is, “I don’t want to get into real estate. I don’t know that world, I know property management. These realtors are going to sell homes, I don’t want to deal with that.”

0:47:23.7 Which seems bizarre to me. I think probably you would know, 20-30% of our property management companies sell real estate. Right? 0:47:29.3 They sell their own, they do both. A good percentage.

0:47:33.0 So if you’re not in it, you should be. You’ve got a huge competitive advantage over all your real estate competitors.

I mean, you know, real estate for you is gravy. 0:47:41.9 I’m kicking around doing a reduced cost real estate company. Why not? I can.

0:47:45.7 You know, more and more agents aren’t going for a brand or a broker, they’re going to a business model.

0:47:51.0 So if you’ve got a business model that makes sense, people are abandoning brand left and right right now in our marketplace. 0:47:58.0 Because it’s not what matters anymore. All that matters is the agent not the company or the broker.

0:48:04.3 So, if you’ve got a better business model, you can communicate that properly. These real estate seminars are fun because you tell them what our business is about and if you’re 0:48:12.9 [Inaudible] and four get it, that’s great, that’s a pretty good conversion rate in my book.

Jordan: 0:48:17.2 Yeah, that is an interesting distinction between real estate and property management.

On the property management side of things, it functions like most businesses do. Where at least with any modicum of scale, there is a brand name that you lead with.

0:48:29.5 Whereas, on the real estate side of things, even for the large teams, it still is the Dave Thomas Real Estate team.

Scott: Correct.

Jordan: 0:48:38.7 It’s tied to that individual. Which frankly, is hard to scale. And I think that is at least part of what has caught up in the fact that a real estate business ceases to be a business when you try and sell it and you find out that best case scenario, you’re 0:48:51.8 [Inaudible] multiple is like 2x or something even lower than that.

Scott: 0:48:56.5 No, real estate companies right now have no value. I think Steve Murray mentioned it at the Broker Owner.

Right now real estate companies almost have no value. The disrupters are disrupting. The Australian model could be the reality, which is an auction type model. 0:49:11.6 The margins are razor thin.

Agents have no – they’ll go wherever the best deal is for them. 0:49:18.6 I think selling a real estate company, you know – I do seminars all the time, and I’ll ask 100 realtors in the room, “How many of you think the way real estate is bought and sold, will look the same way in ten years as it is today?” 0:49:31.1 And not one hand goes up.

Jordan: Yeah.

Scott: 0:49:32.6 So, if you knew that, you knew that the industry is in dire straits. That it’s certainly going to be totally different in ten years, what are you doing today to prepare for that?

And property management companies, we’re talking to them. If you know in California, we have a renter state coming.

We’ve got more and more people who aren’t going to manage by owner. 0:49:51.4 And then you’re stuck in your mom and pop, one location, and you don’t appeal to somebody 30 miles away or 20 miles away because you’re not local. What are you doing about that?

0:50:00.4 And either you’re spending money to build bricks and mortar or you can do it virtually. 0:50:05.7 And once again, all state laws are different, but it’s certainly more cost effective to do it virtually.

Jordan: 0:50:13.4 So let’s go back to this idea that Steve Murray presented at Broker Owner. Talking about there being an opportunity for going for scale or doing the boutique thing.

We noticed in the benchmarking study that we did that there were definitely cyclical cycles of infrastructure investment where profit goes down. And then being able to harvest the benefit from that and profit going up.

0:50:31.4 And that cycle can happen at local stages of the overall business growth. 0:50:35.4 When you come into contact with these conversations around growth with property management companies, what goes through your mind on this specific level?

Growth can feel like a little bit of a guilt trip. Right? Like, of course you should grow. Everybody should grow. Bigger, bigger, more, more, more doors.

0:50:51.2 And for a lot of the smaller operators that don’t have that skill set, it’s really easy to kind of poo poo or look down on that or have a story like, “Well, yeah, you can scale but you’re not going to make any money. There’s no profit at scale.”

0:51:02.4 What is your sincere counsel and advice for your average mom and pop operator somewhere between 2-300 doors that listen to my podcast? Maybe they went to PM Grow.

0:51:14.2 They’re attracted to this idea of growth but maybe they’re not fully in touch with the realities of it. What’s your advice and counsel to them?

Scott: 0:51:22.3 As far as I know, when people value your business, they’re valuing all your income streams.

And if you’re just a one-trick pony, you’re a property management company, then you’re possibly at risk of a competitor or a down mark or whatever it might be.

0:51:34.3 By having multiple income streams, by having multiple virtual branches, by having multiple channels: retail, virtual and wholesale, you’re far more appealing to investors.

0:51:46.1 And I find that adding doors solves all problems. 0:51:50.6 It makes my agents happy, it makes my branches happy. It makes my operations group happy. When the phone doesn’t ring, I get absolutely apoplectic.

0:52:00.2 You know, that’s my job to make the phones ring. And growth to me solves a lot of problems.

Yes, do you sacrifice profitability, that may be, but as you said, at some point you can turn the spigot off.

0:52:13.2 Particularly when you hit recessions or there’s a fundamental change in the marketplace, which is going to happen in my marketplace here very soon with rent control.

0:52:21.0 So I am absolutely sacrificing profit to build a bigger machine, a bigger infrastructure to absorb far more doors in the future.

I remember when I was only 300 doors. If we added ten doors in a month there was like, “Oh my god, we’re maxed out and crazy busy.”

0:52:36.1 There’s no reason why we can’t add 50 doors in a single month. 100 doors in a month. And why would we turn those doors away if they’re good doors?

0:52:43.6 Particularly in that more multi-family. 0:52:46.8 So there’s no sin in being a 200 door manager but I think there’s far more opportunity in managing 2000 doors.

Jordan: 0:52:55.1 Yeah. And some of the segmentation in that conversation is really helpful. Like, for example, when you’re looking at a company that is really aggressively growing, you can look at profitability before sales and marketing. Right?

0:53:06.9 You can back out some of these investments that are reflective of specific business priorities. Whether that be the lifestyle route or growth at all costs.

0:53:17.7 There’s additional nuance in that conversation, that’s part of what we attempted to explore in the benchmarking study.

0:53:21.7 Well, we’re getting close to our time here. I have a final question for you, and that is this: If you could go back and rewind the clock to, let’s say, five years ago when you were early on in this adventure, what is the one piece of advice that you would have done everything within your power to get your former self to have fully embraced and believed?

Scott: 0:53:43.8 That’s a good question. Probably at the time I wasn’t aware of it, but now, of course, I am, is I’m embracing video.

I believe the future of our industry and the future of every industry is they’ve got to like you before they trust you and do business with you.

0:53:58.4 And if you do a good job of having them like you, it doesn’t matter how many doors you mange, doesn’t matter how long you’ve been in the business.

0:54:05.7 When I got in the business and people would call with a lead they would say, “How many doors you manage?”

I’d say, “Oh, four.” You know?

“How long have you been in business?”

“Like a year.”

Good luck, you know.

0:54:13.0 But if they say, “I like you. I like the way you do business. I love everything about you,” who cares about how many years.

0:54:18.7 What we are finding in the real estate side, you know, my top realtors have very little, let’s say, experience. They’re not top – they haven’t been around 20 years, they don’t have degrees, they haven’t sold a billion homes, but they’re selling 40 homes a year.

0:54:31.4 Because the community likes them. Likes their videos, likes what they put out there.

0:54:34.2 So I would day one, have decided what I want to be when I grow up and regardless if I’m 200 doors or 2000 doors, make sure the community likes me.

0:54:43.9 And the easiest way, of course, is the video. 0:54:46.0 You guys played that Founders Brewing video, or Marcus Sheridan did, and that was, to me, very life changing.

0:54:53.0 So I think day one, building your brand around having people like you. Finding out who you want to like and make sure they like you back. Mutual attraction.

0:55:00.6 That’s I think the most compelling value proposition of all. 0:55:05.3 Is when I like you and you like me, what’s going to get in the way of us? How long I’ve been in the business? No. Who’s going to care? 0:55:11.8 So I think 0:55:13.9

0:55:15.5 Listening to blogs. I didn’t listen to podcasts or this type of stuff until two years ago. To pick and choose. To listen to Jordan. To listen to Alex. To listen to Brad Larsen. Whoever it might be.

0:55:28.6 And just absorb and say “ok”. Taking what somebody’s doing and what I may not work for somebody in Austin, but it might be perfect for somebody in Sarasota.

0:55:36.4 And decide what you want to be, what you enjoy doing. 0:55:41.1 I love all these branch managers. I love giving them an opportunity to make a living in real estate.

0:55:46.4 And in property management. 0:55:48.2 I love the fact that we have five star reviews. I love all that.

0:55:51.6 But if you don’t love branch managers and you don’t love managing people and you don’t want to do that, don’t do it.

0:55:56.2 You know what it entails when you’ve got 15 branch managers. So, I love problem solving. 0:56:03.2 If you love what I love, then run with it. Run with this business model.

Jordan: 0:56:10.1 So the nut of what stood out to me there was just eschewing the lie that if you build it they will come.

Scott: 0:56:20.4 Yeah. A mistake.

Jordan: 0:56:23.4 Truth is, nobody cares. You’re the same as everybody else. There’s 30 other guys saying the same thing that you’re saying.

And quality and service is not enough. Get off that train, be like Scott Brady, and embrace the soft side of the business and operationalize sales and marketing.

0:56:41.2 Fundamentally believe that it cares. And learn to fall into that constraint.

0:56:45.6 At the end of the day, the businesses that grow in any industry, it’s the best sales and marketing organization that wins. Period. I don’t’ care what industry you’re in. That’s my takeaway from this interview.

0:56:58.6 Scott, I appreciate you coming on the podcast. If folks would like to get in touch with you and find out more about what you and your company are up to, what’s the best place for them to go?

Scott: 0:57:07.0 Probably my email. I’m up at 5:00 in the morning every day checking email. It’s my name, ScottBrady1963, the year I was born by the way, at Gmail.com.

So if they email me and if they want to do the local landlord seminar, that’s run through the Property Mastermind – Property Management Mastermind through Brad Larsen. They can take a look at it.

That’s the easy baby step anybody can make in any market. Is reaching out to your local investment property owners and saying, “I love you. What can I do for you? How can I help you?”

You know, become their property manager before they even need a property manager. 0:57:40.4 And you’ll learn so much and you’ll grow so much and it costs you so little. And on top of it, you might even get business from it.

0:57:46.9 But that’s an easy baby step to make rather than leaping all the way to what I’m doing right now.

Jordan: 0:57:52.4 I’m with you on that. My endorsement for that is not on the level of the strategy for lead gen. I’m sure it works for lead gen. The mental leap you’ve got to get over is that doing that sort of thing is your job.

If you believe that as an extension of your values, communication, reaching out to the market and being in touch with people is important, then get over the lead gen implications and just start embracing getting in front of your market.

0:58:13.1 I love that idea, really accessible entry point. Appreciate you coming on the show, Scott. Let’s stay in touch.

 

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