Steve Crossland on How To operate a Low Effort High Profit Company
Steve has built a profitable property management company, and the reason I wanted to have him on the show is that he is known for having some clear constraints and parameters of what he is optimizing for.
Steve is pretty much the opposite of one of these guys that’s trying to get to 10,000 doors at all costs. He’s running a clear, tight playbook and there’s a level of intentionality around balancing profit and growth that I want to tease out and discuss on the show.
So this should be an exciting episode for anybody that is managing less than 500 doors and is kind of wondering, “Do I need to – do I have to grow? Can I be profitable where I’m at?”
If you want some more clarity around those types of issues, then this should be the episode for you.
- (01:21) – Background Leading up to Today
- (01:27) – Steve shares how he got started in the property management industry.
- (02:13) – Lessons learned from managing multi-family homes.
- (03:09) – Steve’s wake up moment from analyzing profit versus effort.
- (04:47) – Qualifying potential clients.
- (06:34) – Steve explains the shifts he had in his mindset.
- (07:43) – Focusing on net dollar per door.
- (11:26) – What Steve’s business looks like today.
- (11:37) – The role of the property management side of the business.
- (14:14) – Peak Profit Over Scale
- (15:07) – How Steve maintains clarity on the different pieces of his business.
- (15:15) – Making decisions based on the math.
- (17:38) – ‘Task shaming’.
- (21:34) – Why Steve self-imposes a 100 door cap.
- (21:52) – Reverse-engineering from his financial finish line.
- (23:54) – Limited amount of yearly churn.
- (25:59) – Speculating why lower revenue doors tend to have higher labor costs.
- (27:56) – What is required for a property manager to run a solo/small setup and maximize profitability
- (30:33) – Steve’s thoughts on lock boxes and remote viewings.
- (32:03) – How Steve maintains high-efficiency.
- (32:11) – Obtaining authority for decision making from his owners.
- (34:08) – Discussing the industry average profit percentage of 6%.
- (38:35) – How those numbers were calculated.
- (39:42) – How Steve developed the high-authority fiduciary mindset.
- (40:59) – Building his portfolio around this.
- (42:11) – Discussions with owners to qualify upfront.
- (45:05) – Limitations when it comes to Steve’s decision making powers.
- (47:19) – Assimilating new owners into this arrangement.
- (52:22) – Teaching a team of employees how to work with this mindset.
- (54:49) – Steve’s opinion on pocket listings and dual agencies.
- (1:01:48) – Steve share’s his thoughts on the future of Keller Williams in the property management industry
- (15:07) – How Steve maintains clarity on the different pieces of his business.
- How to Operate a Low Effort, High Profit, Small Property Management Company – Steve’s NARPM presentation.
- The Millionaire Real Estate Agent; Gary Keller (1:03:06) – Recommended resource from Steve.
Where to learn more:
To get in touch with Steve and learn more about his business, head on over to his website, AustinPropertyManager.com.
Jordan: 0:00:00.0 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.
0:00:16.6 Whether you manage 100 units or 1000, this broadcast is designed to help you see the big picture and to give you the tools and tactics that you need to get to the next level.
0:00:25.5 Today, I’m talking with Steve Crossland, the owner of Crossland Real Estate Team, a local team in Austin, Texas working with KW.
Steve has built a profitable property management company and the reason I wanted to have him on the show is that he is known for having some clear constraints and parameters of what he is optimizing for.
0:00:47.3 Steve is pretty much the opposite of one of these guys that’s trying to get to 10,000 doors at all costs.
0:00:52.3 He’s running a clear, tight playbook and there’s a level of intentionality around balancing profit and growth that I want to tease out and discuss on the show.
0:01:02.4 So this should be an exciting episode for anybody that is managing less than 500 doors and is kind of wondering, “Do I need to – do I have to grow? Can I be profitable where I’m at?” 0:01:12.9 If you want some more clarity around those types of issues, then this should be the episode for you.
0:01:18.6 Welcome to the show Steve.
Steve: 0:01:21.5 Thank you.
Jordan: 0:01:21.5 Alright Steve, let’s just get some background. How did you get into property management?
Steve: 0:01:27.4 I was renting an apartment and the apartment manager in 1990 quit and came and asked if my then girlfriend and I wanted to become the property managers. So, we took it over.
And it was an 18 unit building. It was in foreclosure, owned by a bunch of doctors. 0:01:45.0 Everything was in the tank in Texas back then and it was birth by fire really.
0:01:53.7 Over half the units were delinquent. I learned all about evictions real quick.
0:01:59.0 Moved from there to take a job at a 68 unit apartment and eventually started managing single-family homes and other multi-family properties.
Jordan: 0:02:10.0 So do you still do some multi-family today?
Jordan: 0:02:13.7 What did you take away from your time doing multi-family that influenced how you did single-family?
Steve: 0:02:21.7 My biggest ‘aha’ or wakeup with the multi-family was when I managed a bunch of fourplexes.
0:02:26.9 I had done the property management business kind of as a side gig for awhile. Had a degree from UT Business School and was a computer programmer. 0:02:39.4 And quit that job in ’94, did some remodelling and some other things.
0:02:44.7 But finally just decided, “Why don’t I try the property management full-time.” 0:02:50.1 And so I did.
I grew it from basically 12 doors to over 100 the first year. 0:02:59.0 And a lot of the growth was multi-family. Were fourplexes, eightplexes, duplexes, and eventually got up to about 240 doors.
0:03:09.3 And one day, I just made a spreadsheet and started running the numbers on which of these units are actually creating profit and which are not.
0:03:16.9 And it was really clear to me – I don’t remember the exact number, but it was – I also paired the income per unit with what I called an ‘effort score’.
0:03:30.8 And I just made that up. I just figured I worked three times as hard per fourplex, eightplex unit as I do on a nice single-family home. 0:03:40.3 So I gave those an effort score of three.
And then, mashed it all together with the numbers, and lo and behold, I’m spending 87-90% of my effort on properties that produced 17% of the gross income.
0:03:56.7 And so, I mailed out letters to all my fourplex owners that same day and fired 25 of them. 0:04:05.8 So I chopped 100 doors.
0:04:07.5 And it took a month or two for those to kind of shake out and I didn’t even try to sell them or hand them off or anything. I just got rid of them.
0:04:14.3 And then I went down to like 135, 140 and suddenly I didn’t have anything to do. All my work went away. No more evictions, no more police coming to the places. It was like – and I thought, “Man, I am like working half.”
0:04:36.5 I got back over half my time and I gave away hardly any of my income. So that was my big ‘aha’ with multi. 0:04:42.0 Now I only stick with single-family, except in a rare case. A one-off kind of thing.
Jordan: 0:04:47.8 And to further qualify that, I’m guessing that you’re fairly discriminating in terms of the actual type of single-family that you take on.
Steve: 0:04:57.2 Yeah, I like to say we take the Honda Accord of rental properties. Has to be a good property.
0:05:04.1 The number one criteria I look for is will it attract a good quality tenant. 0:05:08.4 If it won’t attract a good quality tenant, and by that I mean somebody with good credit, verifiable income, you know, they’re going to be able to finish the lease, then I won’t take the property.
0:05:22.5 I have some good friends that take properties that don’t fit that criteria and they make it work really well for them, but my niche is just to stick with the bread and butter, peanut butter and jelly sandwich, your everyday rental house. 0:05:35.0 They’re not high-end, they’re not low-end, they’re kind of right in the middle.
Jordan: 0:05:41.3 Got it. Yep, that makes sense. So, in terms of the overall kind of management philosophy, you talked about this analysis of – basically a portfolio analysis which is so critical, and it’s amazing how that gets overlooked.
0:05:55.6 But it is also understandable, at least in the sense that there’s inertia, and the thought is that the more revenue the better. 0:06:02.7 It can pay more salaries. It can feel like all dollars are created equal when you’re trying to cover your expenses, if you’re not doing that analysis.
0:06:12.2 When you did the analysis you acted within one day, which is pretty quick to run a spreadsheet and then send out these letters.
0:06:18.4 You didn’t even attempt a fee increase or anything like that? You just outright decided, “Ok. Got it.”
0:06:26.3 So, I have to assume then that what was broken for you there was not just the revenue per door equation, but it was primarily the effort, the labor equation.
Steve: 0:06:34.8 Well, the primary thing that was broken was my mindset. I had joined NARPM early on.
I was exposed to the messaging that we get at the conventions with the, “Grow, grow, grow, what are you doing to grow your business?” All these classes are about growing. 0:06:53.9 And then you’re encountering people that manage hundreds or thousands of properties.
0:06:59.8 I think at my first NARPM convention in San Antonio in 1996, I think at that time I probably had about 65 doors. 0:07:08.6 And I felt like a small guy.
Jordan: Yeah, right.
Steve: 0:07:12.7 It was just kind of weird. I mean, there’s ego involved, there’s – you feel like you’re less than.
0:07:18.4 And then, so every time I’d add another fourplex or I added another duplex or another really, really crap house, I didn’t care what it was. 0:07:30.1 I really felt good and I felt like I was succeeding and growing my business.
0:07:36.1 And it wasn’t until I did the math later on the back end that I said, “You know, that’s not really what I should be doing.”
0:07:43.3 So, I fixed my mindset. And I really just started looking at the bottom line, which is the net dollar per door.
0:07:52.2 How do I increase my net dollar per door? How many of those doors do I need to create the income that gives me the lifestyle that I want and will deliver me to my eventual financial finish line that I’m trying to get to?
0:08:07.3 So, to me, what I’ve come all the way around to believing is that unit count, you know, how many doors, is the absolute worst, dumbest measure of success that we can use in property management. 0:08:21.5
0:08:21.5 It can be effectively used as an internal measuring tool if we’ve attached to it our internal numbers and we know what each door means.
0:08:30.3 But just to meet a guy at a NARPM convention, and if they manage 50 or 500 or 5000 doors, we tend to assume that the higher number person is somehow – knows something the rest of us don’t.
0:08:47.5 And I think maybe the smaller number people like me, maybe we know something that the higher number people are getting ready to figure out eventually. 0:08:54.6 Unless they’re doing it right. Let’s just say that.
There is a proper way to scale up. There is a proper way to watch your numbers and grow big and make it all work.
0:09:04.8 You know, if you’re managing 4000 doors and as the owner of the company you’re netting $10 bucks a door per month, then good for you, that’s a pretty good business.
0:09:15.7 But, you’re spending all your time dealing with employees, attorneys, business issues, and I don’t want to spend all my time doing that.
Jordan: 0:09:24.9 Alright. Well, so that was a mouthful, but I have to say, on the whole, on this point, Steve and I are in agreement.
0:09:31.8 There’s a lot that’s wrapped up in that. He distilled it down to mindset. Works for me. 0:09:36.1 I think the mindset is the foundation of all good things that come to us in business.
0:09:39.7 But what I would say is that the idea of using doors as a success metric is broken for a variety of goals.
If you want to get to 10,000 doors, then just – which, really, doors in that sense is a proxy for a nut of wealth for wealth creation. 0:10:00.0 Using doors blindly as a metric is still a horrible idea.
0:10:02.8 If you want to be small and have a lifestyle business and be profitable, doors is going to be a weak metric.
Profit, ultimately, is going to be the most effective mechanism for getting to where ever you want. If you want to go grow aggressively, and you want to throw a bunch of money back into the business on sales and marketing, it has to come from somewhere.
0:10:18.6 There has to be margin to put it back in the business. 0:10:21.1 So I’d say pretty categorically for pretty much all goals. Unless your goal is stress and poverty, profit’s the place to focus.
Jordan: 0:10:30.9 So let’s talk a little bit about the industry norms. We recently performed an industry benchmarking study. We looked at a sample set of 50 property management companies and we pulled out some pretty interesting data.
0:10:42.8 One of the key things that we highlighted in that study was that the industry average profitability, when we adjust for owner compensation, was right at 6%.
0:10:54.3 Which is not a particularly inspiring number. 6% is a situation where something bad could happen. You could have an accident and conceivably go out of business with that level of margin.
At the same time, you do own a job. There is a some freedom for being a business owner. 0:11:12.6 And for a lot of business owners, they’re not getting ahead because they’re not thinking about this profit equation.
0:11:20.2 You have the brokerage side of the business, you have the property management side of the business, do you also have some rental investments yourself?
Steve: 0:11:26.3 Yeah.
Jordan: 0:11:26.7 So how do you think about the overall mix of activities that you’re engaging in for wealth creation? Where does property management kind of fit in that overall portfolio?
Steve: 0:11:37.9 Well, property management is kind of the foundation of everything. Frankly, I could make more money if all I did was real estate sales.
But that would be an up and down roller coaster. 0:11:48.0 You kind of got to plan decade to decade.
We tend to go in four to seven year market cycles in Texas. 0:11:55.3 Right now we’re at the tail end of our seventh year of pretty strong appreciation and value growth in homes. 0:12:01.5 So a lot of owners are probably going to be selling and cashing out.
0:12:04.9 Although, I don’t want to get sidetracked on that, but we don’t see it letting up like it normally would in a normal cycle.
0:12:14.7 But, I’ve always said that I believe a property management dollar is a more valuable dollar than my real estate commission dollar.
0:12:22.5 A property management dollar is a more valuable dollar because it is a recurring, dependable, good market bad market, it’s just stable and steady that comes every single month, no matter what.
0:12:38.9 And I would rather have more guaranteed dollars every month, or fewer guaranteed dollars every month than more dollars in a hot sales market but then the market tanks and you’ve got to figure out how you’re going to keep things rolling.
0:12:55.7 So, the property management and the sales side of my business work off of each other. 0:13:01.2 I sell homes to investors that will sell into the portfolio.
0:13:07.6 Already this year I’ve sold five or six out of the portfolio. I’ve got four or five more coming online. So I’ll lose properties to that but I’ll make a sales commission when we sell them out and I’ll dip down from my 100 door max.
I’ll get down to 92 or 90, sometimes by July or September, and then I’ll build it back up during the off season when I really don’t have much going on. 0:13:31.6 So, that works for me. 0:13:35.4 And it throws off a pretty good income, actually.
0:13:38.7 The other thing I do is just try to live really cheap. I mean, live on a third or half of what I earn every year and plow it all into real estate investing, my retirement accounts, and all of that.
0:13:52.0 And not let the lifestyle fluctuate with the income. Just kind of keep a good steady lifestyle. 0:13:58.9 And in those good years, make sure that that money is put to work and not simply spent.
Jordan: 0:14:03.7 Which is great for the business. Right? You’re actually – you are the person that you’re selling to. You have investments yourself. It’s not a speculative thing.
0:14:14.8 Coming back to the unit economics situation – when we looked at some of the other stats from the study, average revenue per unit of $164 bucks. Average profit per unit of $12 dollars.
0:14:27.5 Again, those numbers are anchored against that average profit margin of around 6%. What we see here on the whole is that there is definitely a very, very wide chasm between the folks at the top of the market and the bottom of the market.
0:14:45.8 And what was interesting or notable – what stuck out to me was how low, in terms of profitability, people were able to get as a result of the subsidy that can come from other business units.
0:14:57.0 Whether that comes from the brokerage side of things, whether that comes from maintenance.
0:15:01.3 It’s easy for there to be a little bit of fog in terms of breaking out each of the individual pieces cleanly.
0:15:07.5 How do you maintain financial clarity on the different pieces of the business?
Steve: 0:15:15.5 Well, my math is really, really simple. I expect every door I manage is going to throw off about $180 dollars a year. Our month gross commission.
And if I annualize that and then multiply it by 1.5, that will capture all the additional fees like leasing commissions, renewal fees.
0:15:39.4 So each door should be producing about $270 per month, gross commission income. 0:15:45.0 You multiply that out, I expect the business to do roughly $300 a year gross commission income, give or take.
0:15:53.2 And there’s no overhead really, for the property management business. 0:15:57.8 I can run it on a laptop with a cell phone. I have software. I use Promise software.
0:16:05.0 I don’t spend any money on advertising other than, you know, like using ShowMojo and things like that.
0:16:11.5 So, what I call profit as a sole owner-operator may be different than what a big corporate entity call profit. But I take everything that makes it down to me. Everything.
0:16:26.2 And I divide it in to the gross number. 0:16:28.8 And that’s usually going to be about 85-90%.
0:16:32.2 And it’s low overhead, it’s real easy to run. I don’t have any employees. I probably work about 1000 hours a year on the property management business. 0:16:42.7 And, that includes doing the sales listings and things like that.
0:16:46.3 So, when you run it small and tight, there’s a lot of benefit that can be derived from owning a property management company.
Jordan: 0:16:56.9 Alright so.
Steve: 0:16:59.6 The downside is I do everything myself. Almost. Pretty much everything.
Jordan: 0:17:04.5 Which, you know, is it a downside or is it not, really depends on what your goals are. For those of us that plan on working and having jobs – there are various categories of entrepreneurs.
0:17:15.3 Some folks want to be completely out of the game, want to be on a beach somewhere, some of us don’t.
For me personally, anytime I think about an exit or selling a business, part of what I factor in is that I will always be working because I enjoy it. It’s what I enjoy doing.
0:17:29.4 And so, as such, you know, is it a downside to be working in the business? If you enjoy doing it, no.
Steve: 0:17:38.5 A lot of the messaging we hear – I mean, you hear about fat shaming, body shaming, slut shaming and all this, there’s this thing, I guess you would call, ‘task shaming’.
0:17:50.9 Where people say, “Well, if you’re doing that you’re working ‘in’ your business, not ‘on’ your business.”
0:17:55.9 And people that preach – which I think is malarky. I think that I’ll do what I want to do with my life, and if I scan something or I’m entering my own new tenant into my own software, for somebody to say you’re working ‘in’ your business not ‘on’ it, and then to say it in a way that says that that’s less than?
That’s really saying that as people who wake up everyday, as human beings, we get up we start our day, we do work, that there are some tasks that are worthy of a business owner and that there are some tasks that are unworthy of a business owner.
0:18:39.1 There is nothing unworthy of my time if I can get it done better, cheaper, faster and with fewer errors and mistakes than I can do it hiring somebody. Then I’m just going to go ahead and do it.
0:18:52.3 So I think there’s a little bit of that too. Where – and I fell into that also as a business owner. I owned a brick and mortar building. I still own it, but I rent it out. I don’t work out of it. I had employees, I had a full-time maintenance guy.
0:19:08.0 I had an office secretary that worked part-time. I had a full-time leasing agent. And I kind of felt like I was running a ‘real’ business.
0:19:16.2 But I had 240 doors and they were stressing all of us out. And I found that that’s not my jam. I don’t want to be on top of people trying to figure out how to make them do things right and keeping track of what other people are doing.
0:19:33.8 One of the analogies I use for that a lot of times is that, some of us want to be on the field with the ball in our hands, some of us want to be on the sidelines calling the play, sending the plays in and out. We’re on the field but we’re over there calling plays.
0:19:48.5 And some of us want to be up in the skybox planning strategy, you know, the big picture stuff.
0:19:56.0 And everyone should find out, “Where do you want to be?” You know? Are you a guy like me that wants to be on the field with the ball in your hand because you just love it?
Or do you want to be on the sideline calling the plays, or do you want to be up in the skybox? If you want to be up in the skybox, then you’re the guy that wants to grow to 10,000 doors and create that big massive business that’s scaled up. 0:20:19.2 What I do works very, very well for me. I’ll just say that.
Jordan: 0:20:24.2 Yeah, that’s great. So, I’m really digging this. What I’m digging is your pushback against generalized advice.
0:20:31.4 As human beings, we want less complexity, we want to generalize, and part of – sometimes what that means is ripping out the context that makes a piece of advice useful in order to broadly apply it.
0:20:45.6 So where I’m going with that is, you have the luxury of making the decisions that you just described as a by-product of the fact that you’re running a healthy business with strong underlying unit economics.
Your revenue per door is high. The business is profitable, etc. 0:21:02.9 If you don’t, if your revenue per door is at $100 bucks, that’s where there actually is quite a bit of credence given to, “Hey, you do need to outsource, you can’t be affording to do these things.”
0:21:14.3 There’s pressure that comes from disfunction that can require you to behave in a certain way. 0:21:21.1 But you can afford to call your own shots when the business is healthy. Whether that means growing big, staying small, there’s just way more freedom and latitude that you’re actually afforded. That’s the takeaway that I’m getting out of what you’re saying.
Jordan: 0:21:34.6 So, I love that. When you do think about growth, you mentioned a 100 door cap a second ago. Talk to me about that.
Is the hundred number basically the constraint of what you can manage yourself? And you’ve just personally decided that you don’t want to manage other people? That’s where that 100 comes from?
Steve: 0:21:52.8 It comes from backward engineering my financial plan so I can get to my financial freedom finish line. That point in time where I can quit working forever should I so choose and never run out of money.
0:22:06.7 I’ll live off the wealth that I accumulated, I’ll live off passive income from rental property and if I do do any kind of work at all, it could be work that I do for pleasure or fun. But not because I need it to live on.
0:22:22.9 So, when I look at that, and let’s just make up some hypothetical numbers – let’s say somebody wanted to retire with three million dollars.
0:22:32.6 They could figure out how much money they have today, what year they want to retire with today’s equivalent of three million dollars, and they could figure out how many years they have to get there and you can – there’s all kinds of calculators online that you can go figure out.
0:22:47.9 How much do you need to grow your net worth every year or every month to get there to that finish line.
0:22:53.6 I figured it out and then I figured out from that how much do I need to live on, how much extra do I need up and above what I need to live on so I can feed the, you know, the wealth building. 0:23:07.9 And 100 doors gets it done and then some. I mean, it really does.
0:23:11.2 So, that’s all I’m doing. I’m not on this planet to own a business and be all – have all my ego and my purpose and mission tied up in my business.
0:23:23.8 I’m here to be the best dad I can be, to be the best friend that my friends can have. I’m here to serve my clients, to be the best property manager they can have, but that doesn’t define me.
0:23:35.0 And when I kind of think about what do I want an average day to look like, who do I want to be spending time with, what does a successful day look like for me, it doesn’t really have anything to do with adding doors.
0:23:47.0 Because I already know that the number I have gets me to where I ultimately want to be. And I don’t have to focus on that or think about it.
0:23:54.9 I’ll add one other thing. It’s really nice when you cap at 100. I only have to replace about ten doors a year.
That’s less than one lead a month that I have to convert into a new account. I turn away a lot of business. I send them into my property manager friends. I’ll cherry pick them.
0:24:12.5 If a really good one comes along and I’m maxed, I’ll still figure out a way to get that one in because I know I’m going to lose a few later on. 0:24:21.3 So there’s a lot of benefits to only having a limited number of – a 100 door portfolio that you run and operate yourself.
Jordan: 0:24:30.6 I love it. So constraints is what keeps coming up. Right? There’s so many examples where constraints breed good things.
Regardless of whether or not the constraint was the goal, the fact that it exists is it’s a forcing function. 0:24:41.8 Parkinson’s Law would be an example of that. Right? The work expands to fill the time assigned to it.
0:24:47.4 You’ve chosen the 100 doors and if every property manager entrepreneur that was listening to this, if tomorrow you had to pare down to 100 doors, we’re pretty sure that what would happen in the process, the sloughing off that would take place, would, in many cases create a lot of wealth.
0:25:04.5 We just did that for one of our clients. Was managing around 800 doors. We did a portfolio analysis. We looked at what were the bottom performers.
And, I’ve got to say, it is a little odd to me – I would kind of gutturally intuit that this makes sense, but I don’t see any direct correlation between the doors that are – basically where the revenue per door is the lowest and them taking up the most time.
0:25:33.7 I don’t have any explanation for that. We do see that correlating, and those are the ones that get cut.
0:25:39.1 And so, your median, your average numbers in terms of your profit per door goes up and obviously it’s cutting out a huge amount of time.
0:25:46.1 If anybody was to pare down to 100 doors, that act of the forcing function would require some really hard thinking. It doesn’t mean that it’s the right answer, that it’s a thing to do, but constraints bring a lot of good things.
0:25:59.9 Back to that. What are your thoughts on why – do you see the same thing that the doors where the revenue per door is lower tend to end up actually having the higher labor costs as well?
Steve: 0:26:11.4 There’s anecdotal examples where it doesn’t, but in general, when I think of lower end doors I’m thinking back into the ’90s and early 2000s when I had mine. 0:26:26.1 I had some Section 8 property.
You’ve got your very cheapest, lowest-end, affordable housing that the city has so you’re attracting people that are living paycheque to paycheque. 0:26:35.9 They don’t always communicate real well.
And you can’t design your business with the homogeneity that – I have a homogenous set of houses that attract a homogenous set of tenants.
0:26:49.5 We have one system, one way of doing it for everybody. There’s no exception handling, there’s no special anything that has to happen.
0:27:00.6 And when you can do that and run everything exactly the same way for everybody, then it just cuts out a lot of the effort.
0:27:08.6 So, I don’t have any proof or evidence that the lower value doors require more effort, but it just seems that they probably do when you have people that are going to be more exposed to financial hardship than my tenant working at Dell Computer or over at FreeScale and they’re on a six-figure salary job.
0:27:30.5 They don’t pay their rent late. They know how to go online and put on a repair request. They know how to communicate when their repair man calls. Everybody just kind of knows how to get done whatever needs to get done.
0:27:44.8 And that just takes all the work off of me. I don’t’ have to help them figure it out. I don’t have to be on the phone. I don’t have to get a translator. I don’t have to do anything different for anybody.
Jordan: 0:27:54.2 Yeah, yeah. Totally makes sense.
0:27:56.4 So, let’s talk about some of the permutations or how we might be able to stretch this metaphor of what your business looks like for other entrepreneurs.
0:28:05.2 Obviously, this isn’t going to apply for somebody that’s trying to get to 10,000 doors.
0:28:09.2 But for that person right now that’s managing 2-300 doors, you mentioned that you’re managing 100 doors half time.
0:28:15.9 It’s high margin so, therefore, theoretically you could manage 200 doors at full-time. Correct?
Steve: 0:28:26.8 I could probably do two or three hundred. If I leveraged up the virtual assistant and hired a full-time leasing agent.
I already have my maintenance outsourced to my main vendor and he’s the first responder on most of my calls. 0:28:40.4 And we have software set up to handle all that.
0:28:45.2 Actually, I’m talking with somebody right now to help document what I do, because it’s all in my head. So I can document all of those systems and start handing off more tasks to the virtual assistant. 0:28:59.8 And have it more documented.
Because I’m 55, and so I’m now I’m thinking, “Ok I’m over the hill, I’m coming on cruise control here. I’m at cruising altitude, but what if something happened to me? Am I still going to be doing this in ten years?” 0:29:14.4 Probably not.
So, now I’m thinking at this stage of the end game, how can I make the business as automated and operational without me as possible.
0:29:25.7 That’s just my latest thing that I’ve been thinking of. I’ve got a long time to work on it, but that’s where I’m heading with it.
0:29:33.1 I think all of this now – we don’t have to add employees, and brick and mortar, we can do a lot with virtual assistants. 0:29:39.1 And there are some big companies that are really doing that effectively.
Jordan: 0:29:43.6 So, having honed this idea of being profitable small, and put a lot of thought into it, you think that you could double the size of your portfolio, get to 200 doors without any additional full-time employees, is that what I’m hearing you say?
Steve: 0:29:57.0 Yeah, I could do that easy. I mean, I did 240 by myself back when there was no technology. It was all manual. Phone calls from newspaper ads in the paper and you drove out and met people and nobody had a cell phone. You know, everything was old school.
0:30:15.0 I did have a full-time leasing agent but I did half of the leasing myself. Now, with ShowMoJo, I can deploy a platoon of agents by just adding them into my software and I can cover any amount of showings that I need to without having to hire an agent at all. I just pay them commissions.
Jordan: 0:30:33.1 What are your thoughts on self-showings and lock boxes instead of paying the commission?
Steve: 0:30:39.5 I don’t do those. I know that they’re done effectively by some property managers, but I’m just not there yet.
Jordan: 0:30:45.7 Got it. So, potentially of interest but it just hasn’t worked out this far?
Steve: 0:30:51.2 You know, I like meeting people at the property. I like talking to them. I think a human being should be there to open the door to make sure it got locked up, to answer questions, to provide a service.
0:31:04.2 I’m not knocking the people that do it. If I was in rural Montana and I had some place 50 miles up the mountain then I’d put one of those boxes on there for sure.
0:31:13.1 The traffic in Austin is really, really bad and there have been days when I’ve thought, “Man, you know, it would be nice if I just put one of those boxes up here and let them come let themselves in.” But, I’m just not there yet.
Jordan: 0:31:27.1 Alright, so when we talk about the kind of labor efficiency that you’re getting, I want to hear more about what you don’t do. I want to hear more about scope of services. You’re apparently operating pretty efficiently.
0:31:42.1 The number one plague of profitability in this industry, is the phrase, “We’re staffed for growth.” Which is another way of saying, “Making money is not a priority for us.” That’s another way of saying the same thing.
0:31:56.0 Tell me about how you can operate with this kind of efficiency. What don’t you do?
Steve: 0:32:03.9 Well, I don’t do probably 90% of the things that other property managers do.
0:32:11.8 First thing I don’t do is I don’t take a property that I don’t think is a good fit. 0:32:17.8 I won’t take the owner, I won’t take the account. If they’re not buying in to, you know, how I’m going to do things.
0:32:24.9 I don’t get permission to do things. If you were my tenant and you put in a repair request today, that your AC crapped out in a 100 degree heat, my AC guy goes out there, he calls me, he says it’s a goner, I’m telling him to swap it out.
0:32:42.2 The owner will find out about it later but we’re moving forward. 0:32:43.9 And I already got all the permission I need from my owner in the management agreement.
0:32:48.6 So I operate with a high level of pre-authorization and decision making power. I rarely talk to an owner. Very rarely. I communicate to them through a note on the monthly statement if something’s needed.
0:33:02.1 Or I’ll call them and talk to them if I have a kind of a one off thing that I have going on that I need to talk to them about.
0:33:09.4 So, the main thing I don’t do then, is over-communicate with my clients. I don’t over-communicate with my tenants. We just keep everything barebones and run it really, really lean.
Jordan: 0:33:23.8 Got it. Love it. Ok. So the push back then is that maybe that approach is going to be harder to scale.
If you are trying to get to 500 doors, all the scrubbing you’re doing to qualify owners and properties. Right? 0:33:40.7 Like, some of these things do – pretty directly push back against a high-growth premise. Is that fair to say?
Steve: 0:33:49.2 It’s fair to say. But let’s say you can run 100 doors at a 75% owner-operator profit margin where 75% of your gross is coming right down to you.
You know, on your tax return or on an owner benefit. Some way. 0:34:04.3 It’s the number you would produce if you were selling the business.
0:34:08.6 Let’s say if you grew to 300 and had 25% profit. What have you really grown? What have you actually grown? 0:34:20.2 I’m trying to grow my bottom line, not my unit count. I don’t really care about the unit count.
Jordan: 0:34:22.5 Steve, 25% profit in this industry is great. Because 6% is the average.
Steve: 0:34:31.4 I think that’s probably a little bit low. I don’t know what the polling or how that came about, but I would expect most mom and pop property manager, owner-operators aught to be able to bust out at least 50% profit margin. 0:34:46.6 If they don’t, they’re doing something terribly wrong.
Jordan: 0:34:49.8 Wow. Guys. I am deeply enjoying this. I am deeply enjoying Steve perspectives and assumptions about how other people behave based on how he behaves.
Steve: 0:35:01.3 These aren’t complicated numbers. I mean, the numbers really aren’t that complicated.
Jordan: 0:35:06.5 Yeah so, Steve, I’ve got to tell you, this was not a survey. This was an actual study.
We got around 70 companies to provide us their full operational and financial data. 0:35:15.1 We didn’t ask people how they think they’re doing. We got the actual data, went line by line item.
The 70 got boiled down to around 50 that actually had complete enough data for us to work with.
0:35:27.5 The average was 12% before we adjusted for the noise around owner compensation, people kind of distorting things to avoid taxable income. 0:35:37.4 But it did come down to 6%.
So this is mind blowing when you think about contrasting what Steve is advocating versus doing something dramatically less profitable at scale.
0:35:48.0 And when I say scale, I’m talking about three or four hundred doors.
0:35:52.3 That’s what’s kind of a little perverse and warped about this situation, is that you may like or not like Steve’s philosophy of staying at 100 doors.
You may like or not like the implications of being one of the less successful guys at the NARPM event telling him about your 100 door portfolio, but at the end of the day, for you to be making an equivalent absolute dollar amount profit that Steve is making at those kind of margins at 6%, you’ve got to be managing a lot of doors to get to that same equivalent.
Steve: 0:36:22.2 It just blows my mind what you’re telling me. I have no idea what those people are doing. To me, a property management business, if you’re running it at an owner-operator, small mom and pop – by mom and pop, I really mine, you know, up to about 300.
0:36:38.3 Or maybe a husband and wife couple, or a two person team. Maybe with one or two employees. Should be able to handle that pretty easily.
0:36:46.5 It should be a pretty profitable business. And these aren’t – I mean, these are dollars that are relative to the community that you’re operating in.
0:37:00.3 So, for somebody in a little town in Iowa, if they’re making a six-figure income then maybe they’re upper-middle class in their little town.
0:37:12.1 If you’re only making $150,000 in The Bay Area, you’re not really making – you’re not living a middle class lifestyle unless you bought your home a long time ago. 0:37:22.0 So these are relative dollars.
0:37:25.4 In my city, my average rents are $1900 for the homes that I manage. But our average homes now in Austin, in Austin proper, you’re paying about $5-600,000 dollars to get anything really close in. 0:37:39.9 Our major metro area, we’re at about a $300,000 dollar median.
0:37:45.0 So how much does somebody need to make to be at the, you know, the median income for Austin? You need to be making about $80-100,000 dollars a year.
0:37:53.9 It’s easy to double or triple that in our market as an owner-operator property manager.
0:37:59.7 Now, if I was in another market where the average rents were maybe $1000 or $800 but you can buy a good home for maybe $150,000 or $120,000, then I wouldn’t need to make as much and I’d still be able to live my upper-middle class lifestyle and plow away plenty for the retirement – you know, for the financial freedom finish line.
0:38:23.5 So, I just can’t believe how somebody would even stay in the business for 6% profit, unless they’re taking a big healthy salary before that 6% gets computed.
Jordan: 0:38:35.9 Well, so the way we calculated that – that’s where the 12% went down to 6%.
We developed our own pay scale of what we thought a market-based wage was, and we backed out any form of owner compensation and we replaced it with that. And that’s where it adjusted and came down from 12% down to 6%.
0:38:53.6 But I hear you. It’s definitely some challenging math to work with.
0:38:59.3 I’m really interested with what you said previously about just kind of noting people being down on working ‘in’ the business, you’ve got to work ‘on’ the business.
0:39:07.6 It makes sense. Like, the nut of that idea seems to make sense but again, the context is important. The context is relevant.
And for a lot of folks, they don’t have enough economic productivity being driven by the business to justify doing anything other than working like a dog to make the salary that they’re making. 0:39:27.7 You obviously have defied that expectation.
If you’re thinking about the delineation that you have between the high authority versus the low authority that you previously articulated, can you kind of talk me through that mindset.
0:39:42.5 Were you always that way? Was that also a shift? And how do you think other folks respond to this high-authority fiduciary mindset. 0:39:51.2 Because obviously a lot of folks simply aren’t there.
Steve: 0:39:55.2 Well, I kind of lucked into it. I backed into it. So, I built that business that I talked about earlier. I scaled it down. When I sold it in 2004, I had 135 doors.
0:40:07.3 And I was out. I got out of the business. I never meant to be a property manager my entire life. 0:40:13.1 It was good. I took a year off. I took my family on a six week vacation. For the first time in eight, ten years, I didn’t have a pager. 0:40:25.4 Nothing could happen that would of required me.
0:40:27.9 So, I had a whole year off and I had a whole year to kind of think about what kind of business did I want to do next.
0:40:34.5 Started a little telecom company. Tried business brokerage. Neither of those really panned out. 0:40:41.1 I ended up getting sucked back into real estate in ’05 but selling. To investors.
0:40:45.3 And I did that and we had a really strong market in Austin and it was a really good gig. 0:40:51.9 And they kept asking me to manage the homes that I would sell them.
I’d say, “No I don’t do that anymore.” 0:40:59.4 But in ’08, I finally started to crack a little and I thought, “You know, if I just took a little 50 unit portfolio, I could do that in my sleep.” You know? That would be nothing.
0:41:09.1 And so, the first investor I said, “Ok, I’ll do it but you have to give me 100% authority. I’m making all the decisions. I’m not going to call you for permission.”
0:41:20.5 He goes, “No, that’s what I want. I don’t want to hear from you.” Like, ok. 0:41:26.1 And then that’s the script. I started building it.
0:41:29.4 Every single door I take I get organically. I meet the owner, I go look at the house, I talk to them on the phone. And I make sure that they understand that there’s a whole spectrum of property managers.
0:41:44.4 Some of the communication styles. Some inform their owners about everything. I mean, they have software that essentially Tweets the owner when the tenant puts in a repair request. It dings the owner when they send a repair guy. It dings the owner again.
0:42:02.9 They hire these outsource companies to call the owner and get permission to spend $200 dollars or whatever. I don’t do any of that.
0:42:11.1 I tell the owner from the front end, “If you hire me, I’m making all the decisions, you’re giving me permission upfront to handle the property. You trust me. I’m never going to pester you with anything. If it’s something big and important, I’ll let you know what I did and why I did it, but it will always be what’s best for the property and what’s best for your property in preserving the asset.”
0:42:37.7 And then I literally give them the air-conditioning example. And then I give them a water heater example.
0:42:41.7 If your water heater craps out, we’re swapping it out. 0:42:45.4 We’re not wasting any time. I’m not going to have the tenant calling me, wanting to know when it’s going to be done. It’s already being done.
0:42:54.4 And so, I have a nice stable of about 75 owners with 100% buy in. 0:43:00.5 And I never get one iota, not one bit of trouble. At all. From any of them. Period.
0:43:08.2 When I go and I teach a workshop on how to get the authority you need up front so you can run your business the way you want, property managers literally don’t believe me.
0:43:19.9 They just don’t believe me sometimes. They’ll raise their hand and say, “So you’re telling me you’re just going to swap out that AC and you’re going to email the owner and tell them they need to send you $5400 dollars.”
0:43:31.4 And I say, “Yeah.”
“Well why wouldn’t they be upset?”
I go, “Because we already talked about it when they hired me and it’s not an unexpected event.”
We don’t know which five or ten properties every year we’re going to have to swap out a unit on, but it’s going to happen. 0:43:48.1 Why shouldn’t I have already prepared for that and give the best service I can to my tenant?
We don’t take home warranties, I only use my vendors and they have high authority themselves.
0:44:00.5 So they don’t call me and say, “Hey Steve, this water heater’s a goner.” They call me and say, “Hey Steve, this water heater’s a goner, we’re swapping it out.”
And I’m like, “Good. Have you already told the tenant?”
And they’re like, “Yeah, we’ve already told the tenant, we’ll have it here in a little while and we’ll get it done.”
0:44:16.0 So, to me, that’s the way to run this business. If you’re running it that way, you don’t need a bunch of staff because you don’t have all this communication going on that’s a permission based property management business where you’re constantly seeking permission to do the most mundane, predictable, routine things to the property that you should have already gotten permission to do before you even took the account.
0:44:37.7 And it should be in your management agreement that this is how it’s going to go.
Jordan: 0:44:43.6 I love this. So this is part of the qualification process. On the front side, you tell people this and some people are going to say, “That doesn’t work for me.”
0:44:49.4 And you can part ways and you never work with them in the first place. 0:44:51.9 At the end of the day, communication is everything.
0:44:55.6 Unrealistic expectations are resentment waiting to happen. So, if the owner has some unrealistic expectations, you can sniff them out on the front side.
0:45:05.5 I am curious, somebody’s listening to this though and I know they’re thinking. They’re thinking, “What are your reserve requirements? Are you truly saying you have no authorization caps or limits?” What’s the deal there?
Steve: 0:45:16.0 It’s five hundred, written into the management agreement. But then there’s some exclusion written in that excludes air conditioning, water heater, roof repairs or – how do I have it phrased?
0:45:28.0 Any no option situation or no choice – it’s like there’s no option. We’re not going to not replace the water heater. 0:45:37.7 There’s nothing to talk about. 0:45:41.0 At broker’s sole discretion. At broker’s sole discretion.
0:45:45.6 So, I essentially have a blank cheque within the scope of those major mechanical things, or if a big tree – we just had a massive windstorm in Austin. It hit up north, but it blew down a bunch of trees.
If a big, giant tree fell on the roof of one of my houses, I’m sending my tree guy out there to chop it up and haul it off. 0:46:04.5 It may cost $1100 dollars, it may cost $2000. It may cost $600 or $800, I don’t know. 0:46:11.3 We don’t care. We’re going in and getting the tree down and off the property and we’re going to make it safe.
0:46:17.7 Those are things that are no option. We’re not going to leave it there while we get bids. While I try to get a hold of the owner to get permission. It would be dumb.
Jordan: 0:46:26.8 Have you ever been burned? Paying for that – what I’m hearing you say is you’re paying for that out of pocket.
Steve: 0:46:35.5 I don’t pay for it out of pocket. I get billed by my vendors, so we don’t pay anybody up front or upon completion. They bill me. So there’s typically a 30 day bill out. I’ll just email the owner and say, “You need to send me money.”
0:46:48.6 And then I give them a link to pay lease and they can go fund their account with a credit card or a chequing account and put the money in. 0:46:53.9 But no, I’ve never been burned.
Jordan: 0:46:59.3 Wow. Because you’re qualifying these people on the front side. You’re telling them how they work, you’re making sure it’s the right owner and the right property.
Jordan: 0:47:06.3 So, again, context. It’s like you’re giving advice that could be completely dysfunctional, nonfunctional advice for somebody that’s managing 500 units and they had no discrimination for how they built that portfolio, right?
Steve: 0:47:19.8 Yeah. I think it’s easy for me to say all the stuff that I say, but let’s use this as an example – what if I bought a 200 unit company and all of these owners are pre-conditioned to how their old property manager did things.
0:47:35.4 How do I assimilate them? How do I be like the Borg and say, “You will be assimilated”? 0:47:41.5 You know, I did that back in ’98. I bought somebody else’s property. A management company. It was 68 doors.
0:47:50.8 And when I sat and went through the owner on each account and she’d go, “Oh and for this one, she really likes to get her money by the 6th. And this one here, even though the management agreement says there’s a $300 dollar repair cap, she really wants you to call her about anything.”
0:48:06.0 And there were all these exceptions that had to be built in. 0:48:09.6 And I bought that business in September of ’98 and in November I mailed out a letter to all of the owners and to try to get them normalized.
0:48:21.4 “So these are the changes I’m making to the management agreement. This is how things are going to go.”
0:48:27.7 And I lost 16 of those houses. And you know what? The rest of them were all onboard and doing it my way, and so I was happy to lose them. I was happy to let them go away because I’m not going to – every owner gets their money the same day of the month. Period. That’s just the way it goes. 0:48:47.6 There’s – I’m not doing anything different for anybody. Period. I will let them go, find another property manger.
Jordan: 0:48:56.2 So anytime I think about making significant changes, I tend to think about a basic framework that says, on the downside, what’s the worst that could happen. On the high side, what’s the best that could happen.
0:49:06.2 When people hear part of what you’re advocating, some of the natural response may be, “Well, my owners may not like it.” Or, “It could introduce friction.” 0:49:14.5 And that’s a real possibility.
But most owners can – most property management entrepreneurs can quantify how bad that could be. 0:49:23.8 What I’m observing here is that the potential upside of having the level of authority that you’re talking about, is really disproportionately weighted in how efficiently it allows the business to operate.
Steve: 0:49:36.4 I can more massively leverage the operational friction that happens in this business simply with the level of authority that I have, than other people can do with two additional employees.
0:49:48.9 And all of the communication involved and getting stuff in writing or calling the owner or getting bids and all of this.
0:49:58.0 If you’re the decision maker and you have full latitude to just make the decision and you’re also operating as a fiduciary – I am only doing things that are in the best interest of my owner and preserving that asset.
0:50:09.5 And one of the assets I’m preserving is the landlord-tenant relationship. 0:50:16.1 When these tenants get really good maintenance service, when things go really well for them when something breaks, then they’re more likely to stay and renew the lease.
0:50:25.3 So all the way around, there’s no aspect of my way that doesn’t make sense.
0:50:30.8 Now, if I grew bigger, how could I delegate that down to staff and teach them how to operate with that mindset? I don’t know, that may be tough.
0:50:39.7 It may be easier for, you know, when you’re the one and only. That may be easier so it may be tougher to you know, make it trickle down into staff.
0:50:49.0 But, it can be done, it can be done. And you just start with the management agreement and you start with the onboarding and the expectations that are set with that owner at that first meeting when you’re explaining to them how things are going to go.
0:51:04.7 I believe this. I believe almost every owner could be a great owner. 0:51:09.5 I think that most property mangers have a mindset or a belief that more communication is better service.
And it’s not. 0:51:19.0 It’s just more communication. It’s more opportunity for confusion and for things to get fouled up.
0:51:27.6 I think a lot of property managers take people that would be a perfectly good owner in my system and they onboard them an acculturate them into their system of over communication and they actually turn them into pesky, bothersome owners.
0:51:44.2 They invite them to become what they say they don’t want. But they’ve invited it with their policies and procedures and their communication by involving the owner in everything they do.
Jordan: 0:51:55.3 Sure. Conditioning. And obviously there are some obvious cases where that becomes a liability. I’m thinking about tenant screening, etc. 0:52:00.6 There are obviously some obvious bright lens that have to be put in place.
0:52:06.2 I like the way that you put that. You are talking about a mindset, but I have to assume that that could be pushed down, in so much as the mindset of the fiduciary thinking is being codified in policy. 0:52:19.4 If it’s being codified in a contract.
Steve: 0:52:22.1 I think a good leader could do it. I think a good – let’s say you take a retired tech guy out of the tech world. Maybe he retired from Dell and he’s going to start a property management company. And he ran a big team or managed a big division.
0:52:37.8 A guy like that or a gal like that probably knows how to manage people and how to lead them by setting the example and doing things like that.
0:52:47.8 I’ve always been more of a solo operator. 0:52:50.4 I’m the first to admit it, one of the reasons I’m small is because I just don’t find any joy in managing people and trying to coach them and get them to do things the way I want.
0:53:01.7 Way back in the 80’s I managed Domino’s Pizza Restaurant and I managed a big one over by UT campus and we’d have to hire like 70 drivers every August and train them and get them going. 0:53:12.6 It just drove me crazy. People, I don’t wan to deal with employees.
0:53:18.9 So, when I hear owners say, “Oh, I never talk to an owner, I never talk to a tenant, my employees do all that”, I think, “Yeah, but you have to deal with employees.” I don’t have to deal with any employees. 0:53:31.4 I don’t deal with anybody not coming into work, calling in sick, you know, whatever is going on. It’s just me.
Jordan: 0:53:39.9 Yeah. So going back to what I said earlier about the word staffing for growth really just being a huge problem in this industry. Folks bring on the staff to do the work so that they don’t have to do it.
0:53:51.4 And then the idea is that it all balances out because once we do that, I’ll work on growth. The problem is that most property managers, very few property managers have really cultivated the skill of sales and marketing.
0:54:02.8 It’s a separate skill set. It’s not the same thing as property management. It’s not somewhat similar. It’s its own distinct skill set.
And if your goal is to aggressively – let’s say you want to get to 1000 doors within four or five years. That’s something you’re going to have to operationalize in the same way that you’ve operationalized all aspects of property management.
0:54:22.3 So if you’re not willing, or you haven’t demonstrated the capacity to operationalize sales and marketing in that regard – so basically you’re making a bet.
0:54:32.2 You’re hiring the staff that’s eating that – that’s introducing that labor cost, eating your profit margin, on the bet that you can grow into it.
0:54:39.9 And it’s that lag where people get in trouble. Because oftentimes, growth just doesn’t materialize.
Steve: 0:54:45.9 Yep.
Jordan: 0:54:49.9 I’m sure you’ve seen that before. You did – on the fiduciary concept, I am – this is a little off topic but I am curious to hear your opinion on pocket listings.
0:54:59.3 So basically, with the churn – I would say that globally we’re seeing a trend of churn being hirer because of the strong sales market.
0:55:07.7 A lot of non-investor, accidental landlords that wanted to get out, they wanted to flip their properties. So that overall unit churn translates to revenue churn but you can plug the leak by passing those sales onto the brokerage side of the business.
0:55:23.0 Even better if you can take that property and sell it from one owner to another owner.
0:55:29.0 Do you have any experience with that? 0:55:29.6 Do you have any opinion on dual agency and that whole thing?
Steve: 0:55:33.3 Well, I don’t try to double side any of my sales listings. And really, because – and there’s a little bit of fuzzy grey area between what is really property management income and what is sales team income.
0:55:48.8 My profit on the sales team is not nearly as high as the property management because I have two sales agents that do all the buyer listings and I give them a 75% cut.
0:56:01.8 So, I’m only getting 25% of the buyer sales but I don’t ever have to go drive a buyer around or do anything, I have two agents to do that.
0:56:10.1 On the listings, I take those myself. But if you were my seller and we were putting a property on the market in Austin, Texas, there’d be no rational reason not to give it full MLS exposure.
0:56:21.5 I just put a listing up on Sunday. We had multiple offers. It went under contract today. 0:56:27.1 I just put another one in today in our MLS as a ‘coming soon’. That one I’ll have live Friday.
0:56:37.5 We price it, we stage it, we photograph it, we do everything with the intention of drawing multiple offers from the full market that’s out there.
0:56:47.0 In this kind of market, today, it wouldn’t be – it wouldn’t be right of me to say to an owner, “Hey, oh you want to sell your house? I have another one of my owners who would buy it from you. Here’s what it’s worth, you should sell it.”
0:57:00.9 Because a lot of times, they’re selling it 5-10% over market value with the exposure to the full market and the multiple offers that come in.
0:57:13.1 If we were in a balanced market where it’s neither the sellers nor the buyers with the upper hand, I wouldn’t have such a problem doing that.
0:57:21.0 But in this kind of market, we don’t know what the house is worth. We have to let the market determine what it’s worth. You know.
0:57:31.0 But this is another revenue – what do we call it, profit center within the property management business, is sales.
0:57:39.6 One of my property owners, because I have good one to one relationship with her, they’ve got a new job out in California – hired me to sell not the home that I manage, but their home that they lived in.
This is a $600,000 dollar home, which is kind of on the upper for our market. That would be low in California. 0:58:00.5 They’re having to buy a dump for a million bucks out in California. They’re so sad. 0:58:04.2 I mean, this is a really, really nice $600,000 dollar house.
0:58:09.1 Well, they hired me to sell it and I sold it. Well, that’s an $18,000 dollar commission and all of it goes to my bottom line.
0:58:16.9 It’s not any harder to sell a house than it is to lease it. In fact, it’s more work and more liability to lease a house than it is to sell it.
0:58:28.6 Is that commission income, is that – it ties directly back to the property management company because it’s an existing property management client? Or does it go onto my sales team side?
0:58:43.8 When we sell to an investor who contacted us because they were looking for a property manager but they haven’t purchased a home yet and then we sell them one and we sell it into our portfolio, I think that’s income from the property management business.
0:58:58.1 We could split it out and kind of calculate it and call it a referral or do something like that. 0:59:03.8 But there is a synergy between these two operations that I think a lot of people are not capitalizing on. 0:59:07.6 They’ll run a maintenance company. 100 doors isn’t enough to do that.
Or they’re have other profit centers within their business. But for me, the sales operation is one of the biggest, best things to marry on to a property management company if you can do it effectively and provide really good service to your owners. 0:59:27.2 It’s a 1 + 1 = 3.
Jordan: 0:59:31.1 It’s a needed service. Right? It’s not a stretch. This is something that these people absolutely need. Somebody is going to do it, it might as well be you.
Would we look at calculating lifetime values for our client? This is something that we’re looking at factoring in.
0:59:44.3 Basically, you can know in advance what percentage of your properties are going to – what percentage of your churn rate are properties that you will actually capture on the sales side.
0:59:55.7 And I think there is a very strong argument for that being factored into the overall customer lifetime value.
Steve: 0:59:59.1 We’re capturing pretty much all of them. I mean, all of my owners – I won’t say all, but essentially every one of them let me list the property. They already know me, they already trust me.
They already see that we’re not just a property management company, we’re a full-serviced company. We’re affiliated with Keller Williams, so I fly the KW banner when we’re doing sales and on the leasing.
1:00:24.1 And then the property management is just a separate brokerage. 1:00:26.6 But we’re kind of one unit but two companies within that.
1:00:30.9 The average sale, I was figuring this out earlier – it used to be a lot higher. 1:00:37.7 The average sales commission is equal to about three or four months – or three or four years of the gross property management commission.
So when I close on a home that I’ve sold out of the portfolio, I’m taking away from the closing table, three and a half, four months of the future income that that property would have brought in to me had it stayed in the portfolio as a management property.
1:01:03.1 But it’s super easy to replace and it just kind of turbo charges the annual total gross when you add property management and the sales all together, that big top number that you end up with in QuickBooks is pretty sweet.
1:01:18.7 So, would I sell? It’s like asking, “Would you give away this property for four years, three and a half, four years worth of management fee income?”
1:01:29.8 Some managers would, some wouldn’t. 1:01:31.1 It used to be five or six years of income but the ratios have – the sales to rent value ratios have gotten out of whack in our market.
Jordan: 1:01:39.8 Right. And really, depending on the health of your business and how much revenue you’re extracting on the management side also helps you factor in that equation.
1:01:48.0 I am curious – I have a couple of clients that work in the Keller Williams network. Any opinions or take on where Keller Williams is moving?
1:01:57.9 Obviously there was some big announcements that came out within the last couple months. Do you think they’re really going to make an honest and significant dent in the property management universe?
Steve: 1:02:10.0 No. I don’t think so.
Jordan: There you go.
Steve: 1:02:14.6 They don’t even let managers manage property. I mean, I did it because I’m a broker and I have a completely separate corporate entity.
1:02:20.4 But Keller Williams is very risk averse. Their compliant structure is very strong. The training is very strong. I love the people. The technology is weak.
1:02:31.9 And that’s just proven by the fact that the in house technology that is given to agents for free, the adoption rate is very, very low.
1:02:40.3 None of the big high producing teams, none of the high producing solo agents are going out and doing all that production with the in house tools that are given to them. They’re going out and using third-party software and technology to do it.
1:02:57.8 But I love the people, I love the brand, I love the training. 1:03:01.9 Gary Keller’s book, The Millionaire Real Estate Agent is like a bible to me.
1:03:06.8 Everyone should read that book. Even if you own a pest control company or any kind of small business at all. 1:03:16.7 It says right in there they have the seven levels.
1:03:19.5 But not everybody is going to want to grow to that seventh level. 1:03:23.1 Some people are happy at one or two. And that’s somebody like me.
I’m really, really happy with the income I can generate on a small, closely held, really tightly run ship. 1:03:34.9 I have no desire to build a big team.
I saw those in 2008 when our market came down and you had these agents that had ten, 20 buyer agents of separate office, all this overhead and it all just came crashing down. 1:03:50.7 Because they weren’t built to survive a dip. And that’s what we had.
1:03:55.3 So, I think it’s better to run lean, keep it steady. Just make more when the market’s really good, but when it’s in a dip, you’re already set to keep cruising. You don’t have to worry about how you’re going to handle that.
Jordan: 1:04:08.8 Yeah. I love it. Well, Steve, if folks want to get in touch or learn more about your business, where’s the best place for them to go?
Steve: 1:04:17.1 They can go to AustinPropertyManager.com and just click the contact form and shoot me a message.
Jordan: Alright, sounds good. I’m going to, with your permission, I’m going to link to the presentation, “How to Operate a Low Effort, High Profit, Small Property Management Company” that’s hosted on the NARPM website. Are you good with that?
Steve: 1:04:37.5 Yep, that’s fine. That’s the one I do and it’s the opposite mindset of what NARPM people generally preach. But that’s why I do it. I think people should hear the other side of the story.
Jordan: 1:04:54.4 Yeah, I am so with you. At the end of the day, if profit is the goal then we’re speaking the same language. 1:04:58.6 I appreciate you coming on the show today and let’s stay in touch.
Steve: Yeah, no problem. I enjoyed it. Thanks.