Dec 02

When I was just a wee lad of six or seven I was given a book for Christmas, The Way Things Work.

I do not think any gift had made as much of an impact on my life as this. Learning so many fundamentals of mechanics, physics, electricity, plumbing etc as a grade school kid was a foundation that helped me understand so much of what I needed as a small landlord that initially had to make all my own repairs.

These fundamentals also helped me succeed in my prior career in manufacturing.

How different my life would have been if instead I had gotten the Tonka dump truck I thought I wanted for Christmas.

Today, when deciding what gifts to give my grandchildren, I try to find gifts that may impact their lives as much as this book impacted mine.

In fact writing this post brought back such memories, that I just bought a used copy for myself.

Jul 19

Perhaps excluding the likes of Amazon, Google, and Tesla, most well run, and effective businesses can achieve 10, 15, 20% or more sustainable improvement every couple of years by applying “Fresh Eyes” to their procedures and processes.

Your business is doing well, at least you think so. But you know it would do better if only you could just … [put your challenges and opportunities here] You say ‘I’ll jump on doing that next week, or after the vacation, or after Labor Day or by the end of the year.’ Sorry, buddy. Ain’t happenin’. You said the same last year and the year before and…

Let’s be honest you can’t see the opportunities and obstacles, and if you do, you cannot act on them. The excuses your staff and you have created to avoid doing what must be done have been internalized and are no longer even noticed. Processes that were in place and working have fallen by the wayside. You step over great opportunities sitting on your front step every morning, without even noticing them anymore or worse, curse them for being in your way.

We are blind to missed opportunities and obstacles because we are too close. In the past twenty-five years, I went from 175 to 200 pounds. I did not see even one of those pounds sneak up on me, but they are here today. Your business is the same, slowly getting fat, but not noticed.

‘Well, I’ll just have my staff take a look and make changes.’ Sorry, they have worse baggage than you.

What we’ve done at my company for many years now is to hire a temporary set of “Fresh Eyes.” This person must be a potential superstar, who is available to work for a couple of, or a few months. They are never hired to fill a current role.

Rather the “Fresh Eyes” position is to question everything we do. You know how it is easier to tell someone how they should run their business or their life than to do the same yourself. That is what we are looking for in a “Fresh Eyes” person.

Typically we hire people outside of the rental industry, so they have a different perspective than us. We’ve had a former Health Department inspector, a former Alderman, a couple of former community leaders, a former manager of a temp service. I lean towards people different than us, but who have proven themselves as leaders and producers.

The goal is to hit a sustainable 15% improvement with a two to four-month commitment to work with the “Fresh Eyes” employee.

To get value full value from this experience, you must remember that “Ego is the Enemy”* and do not allow yourself to feel insulted or defensive of your soon to be former bad ways.
——
*Ego is the Enemy is the title of a book on Stoicism by Ryan Holiday – It is worth the read. Find it on Amazon.

“MY OPPONENT IS MY TEACHER. MY EGO IS MY ENEMY.”
— RENZO GRACIE

Aug 23

We spent much of week two of our three weeks out west in the warehouse district of Los Angeles. I was shocked at how large LA’s homeless population is. I was also a bit shocked as how bad the area smelled – stale urine, extreme heat and no rain to wash it away is not very pleasant.

It is really a sad scene given the overall wealth of our country and of SoCal in particular.

An interesting real estate related concept in LA was the number of what appears to be privately owned SRO (Single Room Occupancy or rooming houses) Nice, modern buildings.

So even in this most economically, and probably socially, challenging housing environments, rental owners are able to find workable solutions by providing housing uniquely suited for a specific population.

The third thing I learned while out west for much of July is the most interesting. It has kept me busy for the past three weeks. … More to come 😉

Aug 05

Every year we spend about three weeks in the southwest. Typically it starts with four days at a database developer conference, this year and last were in Vegas. While I was honing my computer skills, my wife offered some classes and coaching for her Vegas area students of the Event Decorating Academy. We then rented a car and headed to Los Angeles to reconnect with vendors that supply the Event Decor Mart.

Carmen put on a couple of more classes and coaching sessions while in LA.  The trip ends in Vegas for the ASD trade show.  In general, I do not like Vegas. It is expensive, and we are not gamblers or night people. Although one night I did stay up to 11 PM;-) It is also triple digit hot every day.

I always return with a lot of new database techniques and skills.  More importantly to this conversation, I am a constant student of the housing industry, taking every opportunity to learn something while away from home.

 

First takeaway from this year’s trip: Short Term Rentals

 

We rented furnished apartments in both Vegas and LA through Hotels.com. These are units that the property management has set aside just for this purpose. If you have mid to upscale rentals, this might be an opportunity to increase your occupancy. It appears the going rate per week is around the half the monthly rent, plus a $100-150 fee per rental for cleaning.

Renting an apartment for extended work trips is a heck of a bargain for the consumer. The cost is half that of renting a hotel room in the same area. Plus you get a full kitchen to make your meals, which is important given Carmen’s extreme food allergies, and a washer as you are not going to make it three weeks without doing laundry.

In LA we stayed in a one bedroom at the Apex, just a block or so from the Staple Center. The Apex is a modern glass high-rise with a good sized living room, which Carmen needed for her coaching sessions.  In Vegas, we found a place half a block from the Convention Center – two bedroom, two baths, kitchen and laundry with a large living room for far less than the cost of a Vegas hotel.

From an owner’s perspective,  weekly furnished business rentals could help owners of mid to upper-end apartments in high demand areas increase their collected rent. I’m sure AirBnB also fits in here.

Municipalities often oppose things like weekly rentals and AirBnB because they cut into the hotel tax revenue. So if you are going to give this a go I would check local ordinances as well as with your city’s taxing authority to make sure you stay on this side of the law.

May 21

I wrote about unit fever a while ago. Recently I was speaking to a buddy and the subject came up. It is worth sharing again.

It is very easy to become a millionaire by investing in real estate…. simply start with five million.  Want to fast track your path to being a millionaire?  Start with only two million in the bank.

The above joke was originally about farmers, but our life and theirs are far too similar.  Both groups provide for fundamental needs, are hard businesses with high failure rates, both businesses rely too much on external factors and are both not well respected by society.  Another buddy of mine calls landlords “dirt farmers” and once told me that I should get into the day trading style of real estate.

You lose money in rental real estate by: paying too much for properties, buying at city assessed value for example; failing to consider all the costs associated with running the property, such as city sewer and water fees as well as the costs of compliance with all the rules that affect our industry; borrowing too much; and believing the broker’s or seller estimates of costs and vacancy rates…

The second greatest cause of owner failure is “unit fever” This is where one is fixated on ‘getting to 50 units’ or ‘owning a million dollars worth of real estate’ instead of focusing on the fundamentals of profitability. If your 50 units lose 5,000 a month or that million dollar commercial Class A office is 50% vacant, your checking account will be 100% vacant before long.

There is no “fun” in “fundamentals” no matter how you spell it. Fail at the fundamentals and fail financially.

Your success lies in knowing the true costs of running rental housing and accurate collection and vacancy losses that should be anticipated for the type and location of your rentals. Armed with this you must only buy properties that meet your performance targets within the confines of the economic realities of the market as opposed to some performa a seller provides you.

I remember back in 2005 or 06 when some kid (anyone 20 years younger than me) came to my office, telling me I was doing it wrong and offering to sell me an Excel sheet he had created to show the profit potential of well  leveraged near Southside housing.  Looking at his demo, I jokingly said ‘By the end of the decade Bill Gates will have to borrow money from you.” to which he replied enthusiastically, ‘Maybe not that rich, but very rich.’

Two years later he and his Excel buddies would be broke, their properties foreclosed and abandoned.  But I guess you can’t blame him entirely, some pretty smart people have done major worldwide economic damage with an Excel error.

The truth is the math is so simple all you need is a pencil and paper, okay a calculator may speed it up a bit, but not much.

How do you find accurate answers to costs and vacancy questions? The seller and their broker are probably the worst places to start looking for answers as they are both motivated to make it sound as good as it gets.

In the beginning, you should attend every local, in-person meeting of rental owners in your area. Get there early and talk to every old timer who will give you the time of day. Some will be curmudgeons, beat down by the realities of a hard business. But if you listen closely even they will help on your journey to enlightenment. Just don’t let the negativity wear off on you.

A side benefit from mingling with long-time owners is you may even meet one at the end of their career which offers you a good deal on some properties they are tired of, but of course do the math before committing. I met some people I ultimately bought properties from while networking at meetings. Seek out unusual opportunities as well. I met a group of Southside landlords that met for lunch every day. I bought properties from some of them, got maintenance connections from others and learned so much from all. Today’s new owner has a tool that we did not – Meetup.com. Go check it out.

A regret I have is that I was in the business over ten years before I joined the Apartment Association. I owe whatever success I’ve had to being an active member of the Association. Keyword “active.”

The other important tool for knowing your market is to limit your market. With few exceptions, the properties we own are within a 35 block by 35 block area, with the majority in a 15 block by 15 block subset of that area. I know these neighborhoods better than most people. That is a strategic advantage in both running the properties and buying wisely.


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