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Property Management Mastermind Show

#155 Industry Updates Ft. Peter Lohmann

Nov 29, 2022 by Brad Larsen

If you could talk to yourself ten years ago, what kind of advice would you give yourself? Property management is a challenging industry to begin with, but when you’re starting your own company within the industry, sometimes we wish someone would just tell us what to do and what not to do. From property management tech to behind-the-scenes mistakes to avoid, this episode features Peter Lohmann, the CEO of RL Property Management, as he shares his unique perspective into the world of starting your own property management company.

Connect with Peter at https://www.peterlohmann.com 

Connect with Brad's team at www.rentwerx.com!

Brad: Hey, everybody on this episode. I've got Peter Lohmann coming on, and we're gonna be talking about all kinds of fun stuff in the industry that you gotta listen to. Welcome to the Property Management Mastermind Show with your host Brad Larson. Brad owns one of the fastest growing property management companies in San Antonio, Texas.

Anncr: This podcast is for property managers by property managers. You'll hear from industry leading professionals on best practices, new ideas, success stories, and lessons learned. This is your opportunity to learn about the latest industry buzz surrounding property management, as well as tips and strategies to improve your business.

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Brad: Welcome everybody to another edition of the Property Management Mastermind podcast. I'm your host, Brad Larson and today's guest, I have a repeat guest on Mr. Peter Lohmann coming at us from Columbus, Ohio. Now, I gotta tell you, Peter, I'm really digging what you're doing with the podcast you got going on. Uh, you've been guests and guest speakers for several different things in the industry.

Brad: You're one of those cats that has a really good idea of what the industry is going towards and where you are and what you have going on. Now, one thing, I, I grabbed you at the NARPM National Conference and I said, Hey man, we gotta do this because I, I think I can, uh, maybe look at you like me 10 years ago, like I would've grabbed myself in a time machine and said, you gotta do this, this, and this.

Brad: Couple things you surprised me on, but I do think you want to, uh, talk to us more about some of the things we're gonna chat on now. And so that was a completely worthless intro that we gave. But I'm gonna give you a minute to tell us exactly who you are. Go ahead. 

Peter: It's right. You'll get the hang of this podcast thing one of these days Brad . Yeah, exactly. Um, yeah, so, uh, thank you for the intro, uh, in all sincerity. I do appreciate that and it was great catching up at NARPM National. Um, I had a blast last time we came on, uh, your show and, and recorded an episode together. So just a little brief background for those who may not be familiar.

Peter: Um, I started our property management here in Columbus, Ohio almost 10 years ago now. We managed just over 700 units. We focus on single family and small multi-family residential rentals. Probably like 99% of your audience does. Um, and that's kind of the summary of it. Um, we got a couple other things going on right now, but uh, I'm mostly day to day, you know, here in the management company.

Brad: Nice, nice. We got lots to talk on. So one of the things that I wanted to bring up first was, uh, we had talked about. The sales side. Mm-hmm. , because you've gone onto a, I think it was one of the other podcasts out there and talked about how you don't do real estate sales, and so I grabbed you and cornered you because I've been accused of being a bully, and everybody tells me I'm a bully.

Brad: I cornered you. I said, Hey man, we gotta get you into the sales world. Mm-hmm. , like, we gotta get you coached up to where you can go and infuse this into your business, because I think you're losing a ton of value. And you're like, well, I'm. You know, doing my own sales. And what did you exactly tell me? And then I said something to you and it just like the light bulb went off. Do you remember that?

Peter: Well, I think we, yeah. So what, just to recap, so we don't do brokerage or sales. So anytime a property owner wants to buy or sell a property, we refer them out. And we have a couple, uh, realtors that we have referral agreements with where we get, uh, you know, a halfway decent referral fee for that if they end up closing and, you know, you, you, yeah, you, you're like, Hey, you really gotta look at this brokerage thing.

Peter: It's a big money maker. And I have heard some people say that, uh, before, and we can talk about some of the pros and cons, but I do remember the one thing you said that got my attention and started to get me thinking about it again, was the idea of cultivating like a marketplace within your property management business, so that instead of a client selling a property, Outside your network, so you no longer manage it anymore.

Peter: You, you focus a lot of effort on selling it to another client within your management business so that maybe you get the commission and you get to keep the, the, you know, management of the property, which is like a win-win. Um, that was something I hadn't really thought a lot about, probably because the last time I thought about this, we were much smaller.

Peter: But now that we're bigger, we have way more clients, way more properties. It is realistic that out of the 200 some property owners that we have, if one of 'em wants to sell, it's conceivable that one of the other ones might wanna buy it. So I'd be curious to hear, like, do you track what percentage of your properties that sell, say within your, your, uh, your business or anything along those lines, what's been your experience with that.

Brad: Yeah, we have some hardcore metrics. So our experience with the sales side is, we've done it from day one, but we've did it at a very low level, internal to the family business, uh, until about two years ago. Mm-hmm. . And that's where I brought on a hardcore sales division team, like dedicated real estate agents that do nothing but sell homes under, uh, a unique split with our company.

Brad: And so we have, we have a scaled split, it's like a staircase. And so the more transactions they close, the better their split gets. Mm-hmm. , but it starts at 50 50. And so if you say, okay, well you're gonna make a, you know, $8,000 commission on one sale, you know, you get half and we get half and we don't charge 'em any other, you know, BS fees or we don't have royalties like other, or Yeah.

Brad: We don't even have that junk. So it's a straight up deal, but they get all of our leads. And they get access to your customer database, is what you're saying? Correct. Yeah. And so we have, we have three standing orders at the business. We, first one is provide exceptional service, so weed wordsmith the heck outta that years ago.

Brad: And that's, that's one of our first standing orders. It's our mantra, it's our business, you know, tagline. But then it goes into get the business number two and number three is keep the business. So it fits right into everything because you're going to go to your owners in your inventory and say, look, I think you should buy five more properties and we can help you do it.

Brad: And so this is something that Brad Randall does quite a bit with his, with his organization out in Utah. And we did a podcast about this at, uh, PMMCON last year, this last iteration. And he talks a lot about getting his current investors to buy more properties and then bring them to him to manage. And so naturally you want somebody in your organization that you can control that is under your branding, that is going to.

Brad: Uh, be accountable to you so they don't try to poach your listings and then Yeah, do something weird with 'em. You know what I mean? And so those things are gonna be a big part of it, of just growing the business and providing exceptional service.

Peter: So is this guy just so it gets access to your, uh, your customer database, your clients, your property management clients, and is he kind of like reaching out to them one by one?

Peter: Hey Jeff, I saw we're managing a duplex for you. I'd love to grab coffee, hear about your plans, and then they go have coffee and he is like, Hey, have you looked at investing? There's this one part of town. I'm seeing a lot of good deals, a lot of the other, you know, is it or is it like a kind of a mass marketing where he's hitting them all, like quarterly? Like what does it actually look like? 

Brad: A little bit of both. Cause our, our portfolio, we have 1100 homes that we manage. That's probably about 800. 5,900 owners. Yeah. Wow. So we don't have any, yeah, we don't have any one chunk giant owner. But to your point, yeah. He does a, the whole team. So it's him, Manny, and these two really hit the owner's hard time hardcore.

Brad: And just like you said about once a quarter, we send out a unsolicited, uh, comparative market analysis. Mm. And so that's something that I learned a long time ago, is don't wait for them to come to you and ask about selling. Mm. You hit them up all the time. So you're literal. 

Peter: This is crazy. I wanna like pause here. So you, you're emailing your clients, your clients who you paid good money to bring them in. And you're, you know, there's all this discussion about churn, which I know we're gonna talk about. You know, you don't want churn. You're literally emailing your clients an updated, like estimate of their property value quarterly.

Peter: You're like, Hey, here's what we think your property's worth. Right? That's correct. Cause for me, I'm like, I'm like, put the lid on, like bottle that information, never release it. I'm gonna take it to my grave cuz I don't want my property owners to find out how much their property's worth. And then they might get silly ideas like maybe selling, cause that, that's my, maybe my backwater perspective on it. Maybe that's how you used to think. 

Brad: Yeah, and look, some people think like that. It's also the tenant side. We can talk that as well on the selling homes to a tenant. Uh, but on the selling side, as far as. Uh, owner of the property that you manage. We want to be top of mind when they decide to sell. And when they do decide to sell, we want first dibs on it.

Brad: Yep. To sell it to one of our investors to keep that home in the inventory so it goes in the same long along those same lines of point number one, provide exceptional service. So this, this is what we're doing. We're providing them free information, and then it goes back to 0.3, which is keep the business.

Brad: So we're trying to keep the business in house by taking that over that sale, selling that home to a potential other investor. And if they want to go open market and sell it to whomever. , we want to capture that commission now. It was pretty easy, you know, a year ago, let's say, to sell a home in our marketplace, as probably it was yours, where things have kind of slowed down a bit.

Brad: It's a Facebook post away, right? And then somebody can sell their home and they oftentimes come to you and say, yeah, Peter, we just sold our home. I sold it with my, my, uh, I sold it with somebody who, from Keller Williams, who I bumped into the grocery. And I just liked them and they sold my home for me. And you're like, wait a minute. You're like, 

Peter: we're always freaking out too. Yeah. It's like we're the, oh, what? Um, I dunno why you're still sending me, uh, my statement cuz we actually closed on the sale a couple days ago. It's like, what? I never, you didn't even told me. You listed it for sale. 

Brad: Yes. Ali agent's gonna be showing up at your doorstep asking for the keys. If you small board and you're like, you sold your property. You didn't even talk to us. We could have one sold your own for you two. We could have sold it to another investor, which would've streamlined the transaction. Mm-hmm. , you know, minimal inspections, minimal vacancy, et cetera. We could have done all that for you and netted you the same, if not more.

Brad: And they gave you some lame excuses. Oh, I just, you know, I use my cousin, right? Who mm-hmm. , who, you know, just got their license. And so those things started to drive me insane. I'm like, okay, we gotta get better at this. We actually hired an outside consultant. I did a podcast with her, uh, Debbie Lariviere and her business partner, and they came and did the seminar last year at the PMMCON

Brad: and it's all about, Honing in on the sales division and building that up. So we hired them at RentWerx and they came in and they took us from, oh man, I can't even hardly quantify what they did, but it was, it was like 20 deals a year. We were averaging for the prior three years, and we tripled, we did like 60 last year.

Brad: And so we captured all that business and one we got on the commissions of course, and two, we kept about half of those in the inventory. Nice. From 20 to 30. That's incredible. It gets easy. Yeah. And here, here's the deal. So once your team starts to get established and they start to sell a few of those homes outta your inventory, they start to identify the investors that will buy anything you put in front of 'em because they know, like, and trust you, and they know you're gonna manage it for them.

Brad: And so it's getting to the point. Now, if somebody wants to sell, we can capture that lead. It's a, a text message, one or two to an investor, and they're like, yep, I, I'll make an offer tonight. I'll write it up and I'll, I'll sign. Got it. And so it it's that quick. Wow. And so it took, it took a little bit to get there, but I challenge other people listening that they should really consider looking into this.

Brad: And so here's the other thing. As we talk about our inventory sales, we talk about the investors, but we also go to these investors that we work with and turn them into pocket listings. Okay. So, like I mentioned, if, if an owner wants to sell, we try to sell it to another owner. Yep. Who wants to buy. And so there's also ties into multiple property ownerships.

Brad: So we have a program called mpo, multiple property owners. So if you own four or manage four or more units, you get a super duper awesome deal. Yeah. We do a discount too. Yeah. Yeah. And it's advertised and we put it all out there and they see it and, and they, it's a, it's a giveaway, the farm deal. Right. And so we can go to the investors with three homes, You know, you buy one more home. Yeah. You get this super secret squirrel deal and it's gonna be a really good deal for you is mpo 

Peter: Yeah, we do, we do something similar to that. We, we have this thing we give to all of our new owners. I got the idea from Profit Coach and if you're listening it's like a little trophy thing and it's got these little bands on it.

Peter: So like the first one's the Real Estate Investment Award and then it's two plus unit award, then it's five plus unit award and there's different levels all the way up to 60 plus units. And so we send these out to new clients and we send them a little pamphlet with it that shows like the different levels they could achieve.

Peter: And we we're trying to use that as encouragement, like, hey, you're on a journey here. You know, you're almost to the getting the 20 plus unit band level. And every single one of these bands corresponds to a discount level. So every time they get a new band, they get a higher, higher and higher discount on their monthly management fee.

Brad: Great idea. Where do you steal that from? 

Peter: Um. Well, the idea for the trophy and all that came from Profit Coach. The idea for the like discount for higher, higher and higher units, you get more and more discounts. I think that we just came up with that because I was, I was doing a little bit of secret shopping in our, in our market, I really like multi-family, small multi-family, like five to 60 unit properties.

Peter: We wanna manage more of those. And as I was shopping some of our competitors who are in that space, I realized that we were way over market on the monthly management fee for like a 20 unit property or a 40 unit property. So I wanted a way to get our monthly management fees in line. With market for those properties without discounting like our single family and, and duplexes and stuff.

Peter: Um, but because even with the discount, as you know, we're making money on maintenance, we're making money on tenant benefit, we're making money in all these other ways, so we're still profitable, even if they're getting like a 30% discount on the monthly management fee. 

Brad: Love it. Man. That's a great idea. Brad. Randall would love that. One. Uh, one thing I also wanna talk to you about on the sales side is syndications. So I'm working through this now. I, I hired a coach, AJ Shepard. AJ and Chris Shepard. You probably know him. So I hired AJ to guide us on how to create a syndication. Also, Tracy Strike is one that has gone full circle on single family home syndications four times.

Brad: And so he's another really good resource on this. So hear me out. If you have X number of owners and they want to sell this syndication slash fund, whatever you wanna call it. Mm-hmm. , in theory, you could pull out a contract right then and there and the syndication that you control, that you put together is going to buy that home.

Brad: Yep. And so that's very simplistically put. Of course there's a lot that goes into that. It's not just like, you know, just cause there's the bur method, you understand with bigger pockets, the buy, rehab, refinance, all that good stuff. There's that. And then of course you have to have all the funding and the banks in line and the proper setup with your, you know, general partnership, limited partnership, all this other stuff that they're going to teach you how to do.

Brad: Yeah. But that's the next level. We're not there yet, but I'm going to be by spring. Now. A year ago, we couldn't do this. Right. If somebody wanted to sell, they'd be like, I'm not selling to you clowns, I'm gonna put it on the open. and I'm gonna watch the bidding war happen. I'm gonna sit back and entertain 10 offers in 10 minutes.

Brad: And they were doing it and people were like, well, the residential buyers were coming in from all over, you know, when they're trying to leave Ohio, which I don't blame, and trying to leave Ohio for Texas, of course. And they come down and they're like, I don't care. I'll pay whatever you want. You know, it's the cheapest thing I've ever seen.

Brad: And, uh, now we can do, we can get into this syndication discussion because the market is more in line with what it's been previously. Yeah. It's more sane. We actually have, it's more sane. We actually have an opportunity to work with that potential seller and say, okay, instead of you selling it open to market, uh, let us just work with you on purchasing it outright from you now so it never goes onto the open market.

Brad: Yeah. And so we're gonna take the full weight and force of the RentWerx brand and turn that into a syndication. 

Peter: All right. Well, let me give you some, Cons on the brokerage thing to, to defend myself a little bit as to why we haven't done it so far. And I, I do like some of your ideas here. I'm gonna think about them, but, so there's like three, there's three that I came up with as, as I was thinking and refreshing my memory on why we haven't done it thus far.

Peter: One is it's a distraction. It's a distraction from the property management core business. I always had in my mind this idea that you're gonna have all these realtors running around and they're gonna be. Um, kind of interfering or, or like, oh, I need access to this unit, or, no, my client wants you to fix this.

Peter: And like, kind of just messing up like our core property measurement operations. So that was one thing. Another thing is risk. So there's always property measurement itself is, is extremely risky and is reflected in the, the, the premiums that we pay for our ENO insurance and our liability insurance. But, Brokerage is also risky.

Peter: These buyers and sellers can get very emotional and get silly ideas about residential property disclosures and what the realtor said or didn't say. And like you see lawsuits all the time and earnest money disputes and all this nonsense around people backing out of contracts and all this other stuff.

Peter: So I always view like it's not, it's not risk free. And then the third thing is that we've always used it as a sales technique. Well uh, Mr. Realtor, we'd love to get your referrals because if your client ever wants to sell or buy another property, we're gonna refer them right back to you cuz we don't do brokerage in house.

Peter: So that was always like the third thing I was like, well, we use this now. Is that, how effective is that really? I don't know, like how many deal, I couldn't quantify how many units we've got from realtors who wouldn't have referred to us otherwise if it wasn't for that policy. I don't know. 

Brad: So a couple things. You're, you're spot on with all that. And it comes down to the risk tolerance of what you are capable of. Uh, if I said is, is, is it worth $500 a year to do that? You would say no. If it was worth $500,000 a year, an extra profit, you would probably say, yeah, yeah, it's worth it. Yeah, for sure. It just really depends on the volume.

Brad: Now I'm not advocating people go out and recruit a hundred agents. Recruiting realtors is the most mind numbing, , awful thing ever. I mean, in my first half of, of my real estate life, I was a Keller Williams and I was about to become a team leader, which is basically you're a fancy recruiter and you're not leading anything but recruiting interesting efforts.

Brad: Interesting. Noted. And I deferred from that. I turned right instead of going left, and I went and started my own gig on my own broker's license. But I've never been a big fan of, Uh, a hundred agents, a 500 agents. It, it's great when you see the checks roll in, but when they call you at seven o'clock on a Saturday evening and ask you how to turn on their laptop, yeah.

Brad: Then you start to get a little irritated. And that's real real stuff. Well, wow. Yeah. Poor, poor young lady, Shirley, who would, you know, she was pushing 70. She'd call me up when I was a, you know, 10, 15 years ago, I can't turn on my laptop, you know, was like, oh, I didn't wanna get out of this so bad. But the smaller scale stuff, now we have a referral program like you do, right? So we have a 5 55, it's called refer five 50 five.com. So you get, 

Peter: you come up with the best names for stuff. You got your 5 55 referral. What was the other, the four, uh, clients who have four units. What do you call that? Mpo, multiple property owners. Mpo. All right. What else do you got? What other, gimme some of your other good names here.

Brad: Well, the refer 5 55 goes back into what you were talking about is, uh, if an agent from Keller Williams, you name it, whomever Yeah. Refers us a deal for management. We pay 'em a little, a $555 check, right? As soon as they lease out the home. But we have a return policy guarantee, so we bring that sale back to that agent. Got it. Wherever they are. And so we don't burn any bridges at all. You don't wanna be known. 

Peter: Okay. So you still maintain that promise even though you have in house. Got it. That's interesting. 

Peter: We 

Brad: try to build those relationships even more. We have broker partnerships that we work with, but the other side of that is we have that small team in house, and one thing we didn't talk about is the tenants. And so we also hit up our tenants to become buyers. And you probably do. I've heard that , that's, that's something out that's so, you such change

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Brad: But I love it because you know a lot of people, I think you might have been doing this too, is you give 'em some sort of discount the longer they rent from you, and you can credit that back on their commission. Mm-hmm. as soon as they buy home through your broker. So hit 'em up. Now the, the, the naysayer will say, why would you ever encourage a tenant to leave one of your properties?

Brad: And I say, absolutely. You want to encourage 'em to buy because maybe they're going to buy and then hire you. That's one. Two is you can control their exit much better than if they were just to end the lease agreement. Here's my 30 day notice. I'm ending the lease. The time is up and I'm leaving. And you don't have any idea why they wanted to leave.

Brad: And they, you find out later that they bought a home. You're like, man, I could have helped you sell that. I could have helped you buy that home. And I could have worked out an early termination with you to where you could have left. I could have had another tenant ready to go right in, and there would've been no vacancies.

Brad: So you'd have been doing your owner a favor with a possible rent raise. So if you can control that exit of a tenant when they buy a home better, you have lots of opportunities inside of there to. Make a commission and ease that transition when that tenant leaves. So the owner ends up winning. Got it. So it really, it helps on both sides if you really think about the control of that.

Peter: Interesting. It's good stuff. This is good stuff. I feel like this is a who not how, for me, I need to bring in the right person who can build out this division every, I'm just gonna send him this podcast and be like, go listen to this podcast with Brad. Everything you just talked about. Come back to me in 90 days when it's all done and you'll get a big bonus. So if you're that person and you're listening, give me a call. 

Brad: Yeah, exactly. See, couple things. So recruiting, um, you would think it'd be easy to recruit this one key person or two key people to be on your real estate brokerage side because you can't give these leads out to like four or five agents. You know, you gotta have one key person. Yeah. Going to divvy up the leads.

Peter: The other thing is, we're not to do it all themselves. We're not realtors here. . So we would have to buy into that and start paying the stupid realtor fee every month or every year. It's, it's kind of expensive, 

Brad: right, cause you have to get into the mls. Yeah, we're not in the mls.

Peter: Any of that. Yeah. Yeah. So part of it that's getting discounted from the overall . 

Brad: Yeah. And so we would pay for the MLS fees on behalf of that agent. And then it's a, it's a, it's like a staircase, you know, as I mentioned earlier, and the commission. So that's their incentive, you know, they hit to a certain level of transactions.

Brad: And I go by transactions, not dollar volume, cuz they can't control if the home is worth 200,000 or 500,000, they can't control that. But they can control the number of transactions they're doing by the amount of activity that 

Peter: we do this with our, with our sales guy, our bdm, like there's a stair step, uh, for the commission.

Peter: So when you are recruiting these realtors, and, and I like, I totally agree that like you don't wanna have 500, you wanna have like two or three really, really good ones. Are you pulling in people that have tons of experience, big networks, they've been there, they've sold a hundred homes, or are you pulling in people who are newer, they're inexperienced and you can kind of train and model them in the way you want them to be?

Brad: I would prefer the hungrier agent. Okay. Now we got pretty lucky and we got a retired Air Force recruiter, so recruiters know how to sell. I mean, they are trained salespeople. I understand. He was an Air Force recruiter. Oh, and was probably, yeah. Yeah. He was probably within his first year of real estate, and so he brought 'em in and he's just, he's just been a perfect fit, killing it.

Brad: Right. Because he understands the sales process that follow up is key. And he's just a, he's just a solid character. And so you're looking for somebody like that. If they get to be a little big, they turn out to be a little snooty. And I don't wanna say mean things about that, but you understand, you've seen the agents that, you know, they, they drive Mercedes, they think they walk on water.

Brad: Yeah. Correct. Totally. Yeah. Correct. And so they're never going to really work out for you and the rookies, you're gonna have to teach 'em to tie their own shoes. So you kind of want something in the middle there. Okay. And yeah, that's, that's always gonna be one of the challenges on that, is finding the right fit.

Peter: You should, do you have like a little course on how to do this that you put together? I, or anything like that? All right. 

Brad: I wish, uh, you know how we found this one is we started posting on Facebook in, in certain areas? 

Peter: No, I mean, it's going to certain groups, like a course on how to build out. Everything you just described, or did you say you hired some, uh, consultants who helped you with it?

Brad: We did, yeah. Okay. We hired some consultants, some, uh, they are Middleton Elite coaching, and they did a seminar again at PMMCON last year. Okay. So they're on our podcast list. You can look 'em up and, and listen to their podcasts and, you know, I thought they did a really good job for us, so I'm up. Yeah. And they're gonna have a, they're gonna have a timeframe, you know, you're not gonna hire 'em for six years, you're gonna give 'em six years or, or six months or a year.

Brad: And that's about it. I mean, to me, you can't really, there's only so much they can shove down your throat to where you just gotta go out and do it. Yeah. Got it. Okay. Cool. Yeah, I thought that was a pretty good, pretty good shot on that. I know there's one more point I was gonna make on it, uh, but I totally forgot oh, well, 

Peter: That's all right. You'll think of it halfway through the next topic. 

Brad: Halfway through, yeah. Now, the other thing we wanna talk on is, I'm really glad to hear is buying and or purchasing a building. Right. So I mean, I really, I meant, uh, building or purchasing a building because, uh, you mentioned that you own your own building mm-hmm.

Brad: and we are in the middle of getting ready to close on our shell and then finish out in our own building. Oh, you're building right now. Okay, great. Correct, correct. And it's been a long time making, I mean, we're 10 years in business and we're just now getting to the point where we're, we're purchasing a building.

Peter: Yeah. We weren't too far behind you. We were renting, um, we rented for the first eight years and then we just purchased this building I'm in right now, um, a year and a half ago. So, uh, we're coming up on 10 years in business. But yeah, we were renting, renting, renting. We rented two different places and then a year and a half ago we bought this building and it's been great.

Peter: So I wanna hear you describe, Purchase or your build, but I wanna talk about some of the tax benefits that you can realize when you own your own building.

Brad: That's exactly, wanted to bring this discussion up because to me, I'm copying the folks ahead of me, uh, that are to, to me in the major leagues, like if you own your own building, man, that's like the next level.

Brad: So you're, you're there and you get it. And I look around like this market, like Brian Birdie, uh, he owned his own building or still does, uh, the late and great Kevin Knight, you know, he owned his own building, one of my mentors. And so I look at them, it's like, you know what? I gotta get there too. But it did take me 10 years.

Brad: And so what we did is we decided to, Bill from scratch. So I just happened to get lucky. There was a development that's in a really good location in the, in the area, uh, the building executive offices around 5,800 square foot. Mm-hmm. . And so, uh, I did that with an SBA loan. So there's lots of discussion points on that.

Brad: Some people say go to a local bank, uh, put 20% down. Some people say Go to a hard money person, you know, a private money equity person to do this. For me, I chose the SBA route, um, because it's 10% down. And it wasn't hard to qualify for that because if you are in business a long enough time, they wanna see just progress.

Brad: They wanna see consecutive years with strong numbers, you know, strong revenue, strong profits. And then they say, okay, well crap, you're wasting 10 grand a month in rent. Uh, the payment on a building like this is gonna be 10 grand. It evens out, right? Yeah. You're seeing that you're paying in that already. So what has your experience been so far in it?

Peter: Yeah, so, um, like I said, we rented and that was the right choice for us at the time, cuz when you're starting out, you're growing typically. So you don't want to buy a huge building, you're gonna occupy 10% of. So we rented and then we outgrew that, we rented another place and then, um, we actually looked at building as well.

Peter: We were getting pretty close to buying a piece of land and building on it, but it didn't work out. So we ended up finding this place we are now, which is a, um, it's like a, uh, warehouse condo arrangement. So there's like 20 units here and we bought one of the units. It's about 7,000 square feet. There's about 3,500 or 3000 square feet of finished office and then a big warehouse.

Peter: So it works great for us cuz we do a lot of our own maintenance. And so we have that warehouse space available. We've got some nice cubicles, we've got offices, nice little reception area. Um, the, one of the great things about owning your own building, I mean, of course. You're just like owning your own home instead of renting, like you're sort of capturing that appreciation and you're sort of paying yourself rent, which is all great.

Peter: The, the benefits of rent are the flexibility of course. So if your business is quickly growing, it wouldn't make sense to buy a place and then you outgrow it in 18 months. That's kind of a waste. But one of the nice things now is with all the remote talent and global team, uh, remote team members, global.

Peter: Is you don't need as much in house. So say, say for every two people you hire, one of them is a remote team member, you have a lot more runway in your office space than you did five years ago when that wasn't really a thing. So I think it makes more sense to buy and you can, you can spend more time in a space before you outgrow it, which is nice.

Peter: The, the real benefit though, of buying any real estate, including your own building, This cost segregation combined with bonus depreciation. If you haven't looked into this, it's a big deal. Um, if you buy or build a building, you can have something called a cost segregation study done. You have an engineer come through and look at everything in the building, from the wiring to the roof, to the furnaces, to the finishes, all, all the, um, capital items, and they'll produce a report that says you, these various items are at these various stages of life remaining.

Peter: And so instead of allocating. Like they usually do like 80% of the purchase price to the structure and 20% to the land or whatever. Anyway, you, and you have to depreciate that 80% over 27 and a half years. You get to accelerate a lot of those items. And the long story short of it is you get to write off a huge amount in one year.

Peter: And because of this law, which I think is phasing out at the end of this year or something, um, you can do even a bonus depreciation, which, which makes it even better. I'm probably getting a few of those details a little bit wrong, but the main idea is you can offset earned income, especially as a real estate professional with this bonus depreciation when you buy a building and do a cost segregation study. So we did that last year. It was great. It saved us a ton of money on taxes and highly recommended 

Brad: Great, great explanation because that's really a big part of it. Um, you know, we decided to maintain the office building. Concept here in this market where we are, cuz we wanted, we want to be the marquee player in the area.

Brad: Mm-hmm. . And so I have a, you know, I'm gonna have a big giant Marques sign on a 10 lane interstate called 1604 in San Antonio. And everyone's gonna be able to see our building and see our signage . But that was a conscious decision. Now the other side of that, Peter, is we could, we could almost go down the road of everybody working from home.

Brad: Right. You have, you have one little reception maybe. Yeah. Or not, you could probably get away without it. You could probably get, you know, do a roll, a post office box if you really wanted. And then everybody worked from home somehow. I mean, you could, you could go down that road. Yeah. People do this. People do.

Brad: I know. I know. And then they had the remote team members and, um, okay, well you gotta take into security deposit, do it electronically via wire. Okay. You gotta deliver keys. Well, you stashed the keys in a lockbox at the home. Mm-hmm. . Okay. They, they gotta walk in and pay rent. Nope. Nobody's paying rent in person.

Brad: You're all paying electronically. I mean, there's ways to skin that, but I think to me, it made more sense to allow the business to pay for the asset, which is that building. And so I'm very excited to have that as another investment that is a side, basically a side event of the property manager business itself.

Peter: Yeah. Yep. Yeah. It's like you, you get to buy a piece of commercial real estate or build and. You get to collect the rent every month and you never have to worry about not getting paid cuz it's your own business. So 

Brad: yeah, I was hitting up Mark Cunningham just a little bit ago. I said, Hey, do you own your own building?

Brad: And he said, no they don't. But they, uh, manage the property. For the landlord and they get a big discount. , I said, who do you know that owns their own building? You said Bonnie Barberini just bought one. Uh, so that's a pretty neat, uh, name drop. Kyle Hendricks here in San Antonio owns one. And so you own one.

Brad: I'm very excited to hear that because what I'm trying to say gang, is I think this is something you should all consider. Definitely. So if you, if you're think you're like, well, we're comfortable here in this rental space and all that, it's the same rent versus buy argument that we would give uh, people that are renting a home, right?

Brad: Why are you renting a home? Why don't you buy a home? Well, I don't wanna, I don't know if I'm gonna be here. Fine. Buy an investment property then. Yeah. Rent until you leave. But buy an investment home. 

Peter: Yeah. And the great thing is, you know, you went through sba, which is great, and if you talk to local banks, I really encourage you to talk to local banks here and credit unions and go to 'em and just say, Hey, we're a business.

Peter: We've been in business X number of years, we do X in revenue. Um, we're growing and we'd like to buy a building and owner occupy. Use those words, not just cuz it's the name of my podcast, but because if you say the word owner occupied, do a bank in relation to buying a commercial building, they in, you have their attention.

Peter: Right? Because they love doing owner occupied loans. They're lower risk for them. And typically you can do a lower down payment and pay a lower interest rate or even a longer modernization schedule if you're buying a piece of commercial property and you're gonna owner occupy at least 51% of it. So there's really good deals out there for commercial buildings to owner occupy in terms of the loans that are available.

Brad: Yeah, that's a great point because the local banks, again, they're gonna do roughly 20% down. At least that's been my experience. I mean, maybe somebody would do 15% if you have all your money with them. Mm-hmm. , which I don't encourage you because you should be banking with Enterprise. Now if, if you don't, that's fine, but expect 20% now.

Peter: So I know Enterprise, please place a bank in the Save of Ohio so that we can use you . Please, please, please. I'm literally shopping for banks right now because enterprises in Ohio and with interest rates going up, I'm literally getting 0% on our trust account right now. And if you saw the number that was in there, you'd cry.

Peter: If you're listening and you are a bank that operates in Ohio, please call me enterprise. Love you guys. Please open a branch cuz the state of Ohio won't allow me to bank unless there's a physical branch. 

Brad: What a bummer. Cause they've been fantastic for us. 

Peter: I know, I hear everyone loves them. Everyone loves 'em.

Brad: Yeah, yeah, yeah. They really have built themselves around the property manager industry, at least in that faction that Allison DiSarro has been fantastic to work with and her team. Yeah. Uh, and you know, it's not just, she's a great marketer, of course. Uh, but her team really does a good job for us. So this is not a, like a, you know, feel good episode for Enterprise but sponsored by Enterprise.

Peter: That's what, that's what you told me. The Yeah. Enough. Just kidding. 

Brad: Yeah, exactly. But there's a guy that does all the sponsorships, , you know, you got the big money going. 

Peter: So our, we actually bought an engineering company last year and also bought a building for that business to operate out of. So I actually own two buildings that two businesses operate out of, and I forget which one, but I think one of them, we did actually get 15% down.

Peter: Because again, this owner-occupied thing is such a big deal. And the other thing I would say when you're shopping for a loan is like these banks, these freaking banks, lemme tell you something about these banks. They all say the same stuff about customer service and helping your business grow and being a partner and offering solutions for blah, blah, blah, blah, blah, blah, blah.

Peter: Every bank, every local bank in your area has a focus. Okay? Some of them are focused on mortgages for homeowners. Some of them are focused on main street operating accounts. They want the deposits from mainstream businesses. Some of them are focused on coal, like whatev, like they're all, they all have like a different focus.

Peter: They all have a different geographic focus, and they all have a different type of product and customer that they love to do business with. Typically because the people who founded the bank came out of that industry. So what you need to find where you live is the bank that specializes in financing owner occupied commercial businesses.

Peter: And there's probably a few of 'em, cuz this is a pretty common thing in business banks like this type of business. But if you go to a bank that doesn't focus on this, they're gonna give you the runaround and chew up all this time and waste an unbelievable amount of time. They're gonna ask you a bunch of dumb questions and they're never gonna come out and say to you, this isn't really our thing.

Peter: They will never say that. They will just waste a bunch of your time. And the rates that you get back aren't gonna be good because the bank doesn't have an appetite. That's the word that they use internally, is we just don't have an appetite for commercial lending right now. We don't have an appetite for real estate.

Peter: Like it's the same thing when you're buying rental properties, right? You wanna find a bank that loves financing duplexes. Some banks hate duplexes. They don't wanna finance multi-family. They wanna finance the homeowner. W2 guy. Some banks love doing duplexes. They do a mil, they do ask 'em how many they do a year.

Peter: How many loans do you make for real estate investors every year? Right. Some of these banks love doing like the multi-family loans. They do 'em all day, every day. So you gotta find the banks in your area that are doing the thing that you're trying to do, go talk to them and you're gonna have the easiest experience ever.

Peter: Cuz guess what? They do like 500 of these a year. And the other bank you're talking to that's saying the same thing but you don't know it. They do like three of these a year and they don't know anything about what they're talking about when it comes to how to get the loan actually through. 

Brad: Yeah. I'm, I'm no expert on doing this. Right. I'm kind of stumbling through. We're gonna close on our shelf finally, sometime the end of this year and then the finish out. Oh my God. The finish out dude is just like so crazy. Too many decisions. No, it's so expensive right now. It's not even, it's not even, uh, I can't convey to you. How maddening it is because things are, I can't say double, but they're 25% more than they were a year ago.

Brad: Yeah. And then probably 40% more than they were two years ago. And just everything has gone up. So the finish out of becoming a stupid, high expensive endeavor, but we're gonna get what we want. So, for example, one of the things I wanted was, uh, a very secure entrance, or entrance is mm-hmm. . And so the only way to get into the building, you can get into the entrance.

Brad: Right. The little, you know, atrium eight by eight entrance. Yeah. Atrium. You can get in there, but then we have cameras get a Bosman or whatever.

Peter: Yep. Yep. We had that, our old office, cuz it was, it was on kind of a scary road, uh, like downtown. Yeah. 

Brad: Yeah, that's one of the things I really wanted, just to make the team feel safe. Yeah. So everybody, you know, has a good time. And then of course we got a big conference room in there and all that good stuff.

Brad: But that aside, so what we wanted to potentially touch on now is you and I did a podcast, I don't know, a year ago, year and a half ago about security deposits. And so you had a, we had a pretty good conversation about that to where people are coming into certain markets, certain areas, and I would call it a little bit of lobbying effort and the going to the decision makers and or lawmakers and telling them, Hey, you should allow this fee in lieu of a security deposit and then require that they purchase insurance. And so, back up a little bit and give us a paraphrase of what they did in Ohio and kind of what you did as an advocate to fight against it.

Peter: Yeah. So, um, in Ohio, in Columbus specifically, , there was a group that came in and lobbied our city council to, and they give it this very pleasant sounding name called Renter's Choice, renter's Choice Legislation, everybody. 

Peter: Who, who would be against renters getting to choose things? Yeah, so the idea is, um, you pass a law, uh, at the city level that requires landlords to allow tenants a choice when it comes to security deposit. They can either pay the security deposit full or they can pay the security deposit installments, or they can pay the not pay security deposit in lieu of a security deposit, alternative product, um, an insurance type type of product.

Peter: So, um, If, if a law like this has passed near you or where you live, it's probably been because of this lobbying effort by this group that just so happens to sell the insurance product that is getting basically mandated. Um, so yeah, I wrote a big blog post on this and you and I chatted about it kind of when this was really hot, like Yeah, it was like at least a year ago, maybe two years ago.

Peter: Um, cuz we were in our old office, I remember. Um, and so I haven't really kept up with it since I did all that research and compiled all that info. So I don't know what's kind of been happening recently in the space very much. I do know that that law did pass in Ohio, in Columbus here locally, but it was a watered down version at the very last minute.

Peter: They scrapped the part about, about requiring the insurance, but we do have to allow our residents the option to pay the security deposit and installments. So that has been a thing that we've just kind of adopted to and gotten used to here. Um, but yeah, that's, that's the kind of summary. 

Brad: Yeah, so we've had some big changes here in Texas. Property code 92.1 11 was adopted and went into effect 1st of September, 2021. And what that all said in a nutshell is if you're going to offer a fee, it's an optional offering. You don't have to offer this, but if you are going to offer a fee in lie bay security deposit, that fee is supposed to be the same as a security deposit

Brad: So wrap your head around that first. Yeah, exactly. Makes sense. You're squinting your eyes at me because exactly. Like why would you do this then? Why would you let somebody break up a security deposit, uh, interest free on a monthly basis? If you do that, if you offer a fee in lie security deposit, you're supposed to also purchase insurance with that fee.

Brad: That doesn't say how much. That doesn't say what your coverages are supposed to be. It doesn't say what a deductible's supposed to be. It doesn't even tell you what you're supposed to do with the spare change. Mm-hmm. . So if you collect 20 and spend 10, what do you do with the other 10? So all this been very vague.

Brad: I've gone through two attorneys. We finally figured out exactly how to do this. Uh, we went through, uh, RIS insurance to do this, and we got security deposit insurance. So we charge the tenant a certain amount per month. We got a little bit of an admin fee in there, and then we get $1,500 in coverage per tenant, and it's all mandated and it's all our website and all that stuff.

Brad: Mm-hmm. . And it took a lot of investigation to figure that out. And there's some pretty good players in the market that can help, but it's something that we, as soon as we get it figured out and implemented, they're gonna change it because yeah, the Texas Association of Apartments, they came out with a form.

Brad: And it totally contradicts exactly what the property code says. So I'm like, don't these attorneys talk to each other? Like, how do they have this property code saying one thing and the form saying the exact opposite? Mm-hmm. . So this has been, they just kind of like ruined a really good concept so far, and hopefully they can figure this out in the future.

Brad: But to your point, I think a vendor got to the lawmakers and said, Hey, why don't you do this, this fee, and then mandate insurance and we just happen to be lurking over in the corner waiting for people to contact us to, uh, be legally compliant. 

Peter: Yeah. Yeah. The, you know, these groups get a hold of these lawmakers and, um, it's just, I dunno if it's criminal, but it's, it's, it's unethical basically because you're giving the lawmakers half the story, right?

Peter: And the lawmakers aren't getting the other side of these stories. And there there's similar things happening around, um, Right around the same time we had a law pass saying that, uh, basically we have to accept section eight. Um, it's more complicated than that, but that's the two second summary. And what doesn't get discussed or what doesn't get presented to the lawmakers is like the unintended side effects of these laws.

Peter: It's like, You take medicine for something and there's a side effect. Well, what if no one ever told you about any of the side effects? Right? And you just weren't given that information. Like that would be horrible. Well, that's what's happening with the lawmakers is they're getting one side of the story, but they're not, they're not being told about the side effects.

Peter: So I think a lot of these, um, ideas around housing and trying to make housing more available and more, more affordable, um, they start with the best of intentions. Like we all would love for housing to be more available and more affordable for everybody. But you can't, it's like trying to take two plus two and make it equal five.

Peter: You can like move the blocks around however many different ways you want and stack 'em on top of each other and put 'em side by side and put one under the other. One. You still only have four blocks. You don't have five. So playing games with laws and making different rules about who you can accept and how they can pay and all this, that's not actually making any more housing.

Peter: In fact, it's actually doing the. Because the harder and harder you make it for landlords, the less and less they're gonna want to provide housing. Why would they go outta their trouble? All this, you're, you're going through this, all this hassle of building one office for you. Imagine how complicated and difficult it is to build a big apartment complex for all these different people.

Peter: The harder and harder you make that the less and less developers are gonna do it. It, it's just crazy to me. It's like, it's like these people are taking crazy pills or think they're just gonna move, move pieces around on the board and suddenly have twice as many checker pieces. Like, I don't know. It's, 

Brad: well, the, the red tape and regulation you mentioned is absolutely just killing the single family home starter business industry. Like nobody wants to build affordable housing, they call it because there's so much regulation, so much red tape and there's no profit in it because the powers at be just get in their way.

Peter: Affordable housing is the biggest scam. It's the biggest scam. It's like, imagine if there was laws that required there to be affordable cars.

Peter: Like you don't, you don't need that. Guess what? There's no shortage of cars because if you need an affordable car, you just buy a used car. That was my first car. I bought a used. And then my car after that was a used car. And just recently, like two years ago, I'm 37, I bought my first ever brand new car.

Peter: Right. And it's like not even a super nice one. Um, so all these rules around fair housing, they're just, it's so stupid. It's, it's actually the people who are making money on this. If you actually follow the money all the way back, it's actually developers ironically advocating for affordable housing because they get all these tax benefits and all this other stuff.

Peter: Um, it, so yeah, you, you actually just need to reduce and remove zoning regulations and, and all the other impediments to building more housing. And then people will build more housing. Cuz guess what developers want to do? They wanna build housing. They're in the business of doing that. They're in the business of, of making as many apartments and homes as they possibly can.

Peter: And the harder you make it for them to do that, the fewer they're gonna build and the more expensive everything's gonna become. So if there was actually a well-functioning supply line of homes and apartments that wasn't being held up by every single local jurisdiction requiring setback rules and shadow lines and parking and all this other crap, then there would be way more homes and apartments being built.

Peter: And then there would be more competition. This is America, right? So the, the housing providers would then be competing for the residents. And what does that mean? That means lower prices, not necessarily the best thing in the world if you're a landlord. But if we're truly trying to solve the affordable housing crisis, we need more supply.

Brad: Well guess what happens when something goes wrong with that? Whatever. It could be a broken toilet people lawyer up and lawyers sue. Yeah. And these builders then have to defend themselves from these attorneys, lawyers coming after them for no reason. And it just gets to the point where there's nobody advocating for anything to be built because these attorneys are just waiting for something to go wrong.

Peter: Oh, that's ing tear 'em down. Yeah. It's like when you think about it, it's like doctors, we need some sort of like tort reform in like the building industry. Is that like a big problem in Texas? Like builders getting sued? 

Brad: Yeah. Interesting. Yeah, all the time. Interesting. Builders getting sued. You got trucking company getting sued.

Brad: There are these blood sucking attorneys with billboards and commercials everywhere. Just waiting for somebody to call them because an 18 wheeler bumped. You know, and then they sue 'em for 50 million and guess what? The insurance is a scam there.

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About The Host

The Host of this Podcast is Brad Larsen from San Antonio, Texas. Brad is the founder and owner of RentWerx, one of the fastest growing residential Property Management companies in Texas that currently manages over 700 single family homes.