How to Find a Property Manager

Podcast: Play in new window | Download (38.5MB)

Subscribe: Apple Podcasts | Spotify | Amazon Music | iHeartRadio | Email | RSS | More

Chris Gantz – Patriot Properties Property Management

 

Podcast Overview:

00:00 “Instant Self-Showing Rental Advantage”
05:52 Apartment Leasing: Act Fast Strategy
12:36 Operational Success Determines Investment Outcomes
18:07 Madison Real Estate Investment Surge
22:43 “Challenges of First Property Investment”
29:56 Real Estate Market Evolution Gaps
32:30 “AI Transforming Company Operations”
39:51 Balancing Maintenance with Convenience
43:36 Maintenance Included: No Chargebacks Policy
52:08 Strengthening Client Relationships
54:10 “Value Add Strategy Explained”
01:04:09 Unconventional Property Account Management
01:05:49 Client Communication and Strategy Adjustment

Podcast Transcription:

Chris Gantz [00:00:00]:
I would say so. You know the Burr method, right? House hacking, I think that’s always a great way. One of the things I’ve always said is, in my opinion, you know, one of the fastest ways to make money in real estate is to fix and flip. So if you can find the single family home, you’re going to live in it, or the duplex, you’re going to live in it, fix it up. While you live there, you’re putting in all the sweat equity, do as much work as you can. Foreign.

James Kademan [00:00:33]:
You have found Authentic Business Adventures, the business program that brings you the struggle stories and triumphant successes of business owners across the land. We are locally underwritten by the bank of Sun Prairie. Downloadable audio episodes can be found in the podcast link funded drawincustomers.com and today we’re welcoming Slash, preparing to learn from Chris Gantz of Patriot Properties. We’re going to be talking about property management. So, Kris, how is it going today?

Chris Gantz [00:00:59]:
Good, good. Excited to be here.

James Kademan [00:01:01]:
Yeah, thanks for being on the show. I’m excited here because I’ve interviewed quite a few people in the real estate realm that are investors or real estate agents, things of that nature. I’ve never actually interviewed someone that has a business where they’re actually doing the stuff that the people talk about.

Chris Gantz [00:01:17]:
Sure, sure.

James Kademan [00:01:18]:
So there’s investors, whatever, figuring out the money thing, but actually finding the tenants, getting rid of the tenants if you need to. The clean up the mop up, the mowing, the plowing. Yeah, all that kind of stuff. Let’s chat about that.

Chris Gantz [00:01:29]:
Yeah, absolutely.

James Kademan [00:01:30]:
So let’s start with what is Patriot Properties?

Chris Gantz [00:01:33]:
Yeah, so Patriot Properties, we are third party management. We do a lot of management for our own portfolio. We have about 3,000 units across the state. We manage everything from multifamily being, our bread and butter, self storage facilities, mobile home parks, short term rentals, Airbnb. Shout out. Super host. We got it again. So congrats.

Chris Gantz [00:01:57]:
We. Apparently there’s a thing called like an ultimate host or something. So that’s when you’ve gotten it four times in a row, like a full year in a row. So we have that now as well. Wow. They don’t. It’s like a new thing to Airbnb. So they haven’t like given another badge for it, but internally we’re like, hey, good time, good job, rock stars.

Chris Gantz [00:02:18]:
So. But yeah, no, a lot of that is, you know, shout out to the team that we work with, the people that we have on, on staff. It’s not just me, so can’t Take credit for everything they’re doing. Really, I’m less involved in that side. That’s the team that’s running it. And so. And that’s kind of an interesting point of like the operation side of like what we’ve built and what we’ve scaled to is what it looked like when we started versus where we are today. So as far as nutshell, you know, property management, 3,000 units, state of Wisconsin, we’re knocking on the door of Iowa.

Chris Gantz [00:02:50]:
We’ve got ambitions to get over there, you know, kind of expand into the Midwest in a bigger way. And so we always look at that as far as expansion, expanding our geographies toward Milwaukee, up, you know, Fox Valley, Green Bay, eventually all of those areas. So right now we follow i9094 kind of throughout the state. And that’s been strategically kind of just happenstance. Right. Our clients are like, okay, well you guys are here. Will you go here? Kind of just moving the line a little bit every time.

James Kademan [00:03:21]:
All right, so does that mean that you have employees in all these different spots?

Chris Gantz [00:03:25]:
Yeah, yeah. So what’s interesting about the way that we operate is we, because we’re a newer, younger company, there’s a lot of benefit to. We don’t have a lot of old ingrained habits because of the way things used to be done. And so with technology, you know, the last five years, the last 10 years, there’s been so much that’s entered the space that we have a fully decentralized model, meaning we have an office in Wanakee. That’s our only office. So there’s no on site office at any location. Which is interesting because when we took properties over, there would be an office that was a converted apartment, was, you know, a space that could be converted to common area amenity. So we’ve done that taking those units to re amenitize them or put them back into the rental pool.

Chris Gantz [00:04:14]:
And so day one, when we have a property like that, we’re saving the cost of the unit, cost of the on site salary. And so like that’s typically very easy for us day one to pay for ourselves pretty quickly. So that decentralized model, the way that that works additionally is we have field staff. So our maintenance technicians in the field are all employees of Patriot Properties. Our cleaning staff double as showing agents. And then with the technology, we’ve also gotten set up with software like Show Mojo that lets us do self showings 24 7.

James Kademan [00:04:48]:
Oh, nice. Okay.

Chris Gantz [00:04:50]:
So yeah, those are, those are kind of the big differentiators. Because when we look at the competition locally, even, even nationally, the self showing piece is still in its infancy. So it’s not something that renters strictly expect because we’re doing it. People are like, whoa, this is amazing. I can just show up at 8am or 8pm and the thing that we pride ourselves on or the thing that we focus on is how do we be the fastest. Right? Because we can take class B product and compete with class A if we are just faster and so we have the ability or what we’ve done is, you know, same day showing, same day application processed by the end of the day, they get an answer that day. Whereas, you know, if you call up competitors, we’ll do this kind of audit, you know, what’s everybody else doing? And it’s hey, I want to see a showing and it’s okay, we’ll get you in this week maybe, or we’ve got an opening next week. And so it’s a lot of times a week to two weeks just to see the apartment.

Chris Gantz [00:05:52]:
By the time you submit that application, it’s still another week to two weeks, you know, depending on the level of capacity that the other competition has. But we’ve seen kind of that typical two to three week range of you want, you see the apartment online, you want it, it’s going to take you two to three weeks before you get an answer of, yep, you got a lease, you can take it. And so for us, we, you know, we drive the urgency with our tenants of, you know, legitimately. We only have so many of these units available first come, first serve. So if you want it, sign now. We’re signing these units before anybody even has a chance to look at the other properties, which realistically, they might like them more, they might desire them more. But we also try to have a value alignment of we’re not trying to overcharge ridiculously. It’s what is this apartment worth? What is fair? And let’s get that.

James Kademan [00:06:42]:
Yeah, I can see, you know, it’s interesting looking at the rental market around Madison, Wisconsin. Well, yeah, Madison, Wisconsin and the cities around. It’s so interesting to look at the range. I’ll look at a website like apartments.com and figure out, okay, one bedroom is this ish, two bedrooms this ish. But you’re talking like a 30 to 40% swing in what the ish part is.

Chris Gantz [00:07:05]:
Oh yeah.

James Kademan [00:07:06]:
And I don’t necessarily see why, I take it back, I understand why, but I, when I see a low end versus high end, to me, outside of looking in, it’s not necessarily obvious, like, oh, this is way better features or better parking or something, or it looks nicer, it’s newer.

Chris Gantz [00:07:25]:
Yeah.

James Kademan [00:07:26]:
It doesn’t always seem to be the case. It’s kind of like we pulled this number straight out of our butt.

Chris Gantz [00:07:30]:
Oh, yeah.

James Kademan [00:07:30]:
And they pulled this number straight out of their butt. And maybe it’s good, maybe it’s not.

Chris Gantz [00:07:34]:
Well, it’s interesting. It’s interesting you say that because the. There isn’t necessarily a conventional wisdom that permeates the pricing in the market. Right. And so what we do and what we’ve done is we have defined a strategy of how do we price the units? And like, very simple way to boil it down is what is the median income for that market? So let’s say Madison, Wisconsin. If we can get data boiled down to a neighborhood, we’ll use that. But let’s say Madison, Wisconsin, median income is $70,000, whatever it might be. And so we’ll take that.

Chris Gantz [00:08:08]:
We know our qualification standards. So one third of your rent, right. Or 1/3 of your income can be used to qualify for rent. And so if we’re backing that out, let’s say 100,000, just for easy round numbers, you can use, you know, divide by, let’s say 120. That make it easier, divide by 12. So you have, what is that, 10, 15 for 10,000amonth, right?

James Kademan [00:08:31]:
Yeah.

Chris Gantz [00:08:32]:
So 120 a year, 10,000amonth is your income. So you can rent up to $3,300. Right. That’s what you qualify for. Okay. And so that’s the way that we’ll price averages. So two bed, two bath is what we peg that household income against. And then one bed, one bath, obviously individual.

Chris Gantz [00:08:50]:
And so we price that way. You see all of the other people in the market, especially the mom and pops, where they’re pricing reactively to what everybody else in the market is doing. And so sometimes they’re good and they’re watching the market and they’re like, oh, these guys are charging $3,300 for this class a two bed, two bath. Great. We’re gonna price, you know, discount our vintage to this and. And figure out our price. But what’s more common is you get the mom and pops, the older operators that they’re like, this is just the price we’ve always charged. And so that’s why we’re charging.

Chris Gantz [00:09:25]:
So that’s where you get that big 30% swing where somebody’s like, well, I’m getting eleven hundred dollars. I used to get nine hundred, and I’m happy. But the market supports that unit getting 1400. All right, so it’s, it’s. I would say it’s a lack of, not to say a lack of education, but it’s a lack of capacity on the self managers to be able to be that active. That’s one of the big things, you know, that’s one of the things we tell people when we onboard with them all the time, is we’re an active manager. This isn’t just a passive investment anymore. We’re going to run this every day.

Chris Gantz [00:09:59]:
And so we’ll look at, you know, full portfolio every two weeks. What are the rent levels at every single property we have, what renewals are coming up, what’s eligible, so that we’re constantly moving the needle forward for our clients. And a huge part of that is, I mean, inflation’s been out of control. Right. Everybody’s aware of that. And so we had an insurance quote renewal, 20%. Right. And it’s like, okay, if the expense on the insurance is going up 20%, we have to keep up.

Chris Gantz [00:10:26]:
Right? Yeah.

James Kademan [00:10:27]:
That money’s got to come from somewhere.

Chris Gantz [00:10:28]:
Yeah. And so that’s, that’s a piece too. Is that active, Knowing the expenses are going up, how much are they going up? And then what is the level that we can, you know, combat that through the revenue growth and, you know, keep on track. And when we do these increases, we try to, you know, if somebody’s going to go up a significant dollar amount, we don’t just want to raise the rent. We want to try to be able to give something for it as well. So we have properties Canterbury in some prairie here, for example. We raise the rent over time. Got enough additional cash flow that we could support putting in amenity space.

Chris Gantz [00:11:03]:
So we added a gymnasium. We have plans to add a dog park, outdoor grilling station, patios, that kind of thing. And so that’s where we’re always back to the concept of how do you get Class C to compete with Class A? Right. The new development. We always look at these turns of, well, what’s the next thing we can additionally, you know, put into the unit to make it a little bit better to compete. And so I think that’s. There are other operators in the market that do that and do that well. But it’s not necessarily the common sentiment broadly, I would say nationally too, because you still have, you know what I say is real estate still an old man’s game.

Chris Gantz [00:11:42]:
Right.

James Kademan [00:11:42]:
All right.

Chris Gantz [00:11:43]:
So you get a lot of these guys that a lot of it comes down to risk tolerance, right? When you get to be 60 years old, 70 years old, you’ve done a really good job of building your portfolio. Now main goal is protection, right? How do I keep what I’ve built? And so ironically, these guys have the most capacity they’ve ever had. You know, they have the best loan to values they’ve ever had, they have the best cash flow they’ve ever had. But they also are used to doing things the way that they’ve always done them. So they don’t necessarily take that risk, so to speak of, well, let’s put the amenities in, let’s raise the rent a little bit. You know, that’s where you also see that keeps the market down, right? Or that’s, that’s where you also get that 30%, 40% variance. And well, what’s this guy charging versus what’s everybody else charging? Because they don’t need it. You know, not, not to say that they don’t want it, but they’re like, I’m happy with what I’m lazy to get it.

Chris Gantz [00:12:36]:
I mean, for lack of a better words, right? It’s, you know, you talk to these guys and they’d be like, no, we’re the hardest workers and, and they are, obviously they’ve built a good portfolio to where they are. But I think a lot of the sentiment there is, it’s just they don’t want to, they think of that as well. It’s just going to end up being another headache right now I’m going to have turnover now I’m going to have, you know, I’m going to have to do the work to solve for that problem. So I’d say that’s kind of where that disparity comes from is it ultimately comes down to just, there’s a wide range of operation where you have mom and pop, you have the gray stars of the world where, you know, huge company with great big robust processes in place and then you get, you know, everybody in between. And so that’s what’s interesting is it’s, you know, a four units. A four unit, eight units. An eight unit. But so much of it comes down to the success of that investment rides on the operation, right? You could fail, right? If you do nothing and don’t show up, it’s going to fail, right? If you put a lot of, you know, sweat equity thought, whatever effort into it, it’s almost impossible to fail.

Chris Gantz [00:13:44]:
And one of the things I remember, Matt Pacini said this and Matt Pacini’s good friend of Cody Wiseman, local of the Sun Prairie market. He always said, you can’t lose money in real estate if you never have to sell. Right. And so.

James Kademan [00:14:00]:
Sure, right. Over the course of time.

Chris Gantz [00:14:02]:
Yeah.

James Kademan [00:14:03]:
You can’t help but make money.

Chris Gantz [00:14:04]:
Yeah. You might get beat by the market, maybe, but if you never have to sell, you’ll be just.

James Kademan [00:14:10]:
Yeah. As long as your Runway is decades long, there’s no failing.

Chris Gantz [00:14:13]:
Well, I mean, you also have debt pay down over time, so it should be getting better. You have appreciation, you have depreciation, you have all these benefits intangibly. One that’s unique to real estate, too, is like you have these four intangible income streams, right. You have the cash flow from rent, but then you have those additional things that if, you know, everyone says, you know, buy it. Right. That’s where you make your money. But if you do that, it’s again, it’s. If you put any level of effort into it, it’s very hard to mess it up.

James Kademan [00:14:41]:
Fair. Totally fair.

Chris Gantz [00:14:43]:
Yeah.

James Kademan [00:14:43]:
It’s interesting. I’ve been looking at properties and I look at them as businesses, so I’m looking at ones that cash flow. And I look at them, I’m like, how can you price your business, essentially this property at a rate where you’re not making money or your negative cash flow?

Chris Gantz [00:14:59]:
Yeah.

James Kademan [00:14:59]:
I would never buy a business that’s not making money unless it had some thing, a reasoning for that.

Chris Gantz [00:15:06]:
Yeah.

James Kademan [00:15:06]:
On the flip side, I guess you look at Amazon.

Chris Gantz [00:15:08]:
Yeah.

James Kademan [00:15:09]:
Five years ago, they were losing money left and right, and people still invested. So.

Chris Gantz [00:15:12]:
Well, it is crazy because it is, you know, we’ve. We’ve come to realize that there are, you know, different types of markets. Right. There’s the cash flow markets, there’s the. Or the appreciating markets. And Madison is certainly more of that appreciation model where you get a lot of these guys that will come in and buy and they’re like, yeah, I know I don’t cash flow day one. But there’s upset on the rents. And the crazy thing with real estate is you’ll get buyers that have significantly different criteria.

Chris Gantz [00:15:39]:
Right. So you get the 1031 buyer, they’re like, I need an exchange. So I’m okay paying more because I’m avoiding this much in tax. And so there are a lot of people that when they look at it, they’re like, oh, I’m going to get this depreciation value. I’ll cost seg it. I’ll accelerate depreciation now. 100% bonus. Depreciation is back.

Chris Gantz [00:15:59]:
Right. So that’s a significant part of a lot of people’s strategy. So that’s where you see these guys that are buying in Madison. You’re like, how does that make sense? Right? And for us, we’re generally very principled on. We only buy if we have a 5% cash flow and we want upside if we can. But that’s so hard to find, right?

James Kademan [00:16:21]:
Very, very hard to find in this area, this market.

Chris Gantz [00:16:24]:
Yeah, well, especially in Dane County. But that’s where like you look at other markets that exist. And so we, you know, again, following i90, 94, you get markets like Lake Mills, like Cottage Grove, Fort Atkinson, you know, some of those kind of between Milwaukee, Madison, markets that are becoming very strong where you can get cash flow, but they also will have appreciation because, you know, Milwaukee and Madison continue to grow toward each other. Yeah, you get, you know, Cottage Grove with the Amazon distribution center. There’s all of those kind of big macroeconomic things that are happening. And so you can find some of those kind of secondary tertiaries or you know, I mentioned like knocking on the door of Iowa. We look at Dubuque, Iowa, and if you look nationally, you know, rent growth charts, Madison, Milwaukee, two of the hottest rent growth markets in America. We have like the eastern quarter of Dubuque or of Iowa in general.

Chris Gantz [00:17:18]:
So Dubuque, Davenport, kind of falling, Mississippi down. And they had virtually no rent growth, but everybody there is making as much money. So like Davenport, Iowa, the median income for Davenport is pretty close to Madison. And so like, by that metric, the rents should be the same. But if you look at what are actually, you know, what are the actual rents achieved, there’s a significant discount in Davenport. There’s a significant discount in Dubuque and you know, in Iowa at Mass. And so a lot of that, maybe it comes down to it’s just not a sexy market.

James Kademan [00:17:51]:
Sure.

Chris Gantz [00:17:52]:
Yeah. And so it’s. But like, that’s where the best deals are. Right? Because like you want to go buy somewhere sexy like San Francisco, like you’re not getting cash flow or appreciation. Right. You’re just hoping and dreaming. Right.

James Kademan [00:18:04]:
So just so you can tell people you own property in San Francisco.

Chris Gantz [00:18:07]:
Yeah, it’s. And I think that we’re seeing that bleed over where Madison, Wisconsin, the Midwest is becoming very desirable nationally. So you’re seeing East coast, west coast institutional money compete for some of these, you know, larger deals that come to market in Madison. And that obviously drives the price and the appreciation, you know, as to be expected. But it’s, you know, so that’s One of the things that we’re always looking at is like, how can you find those off market pocket listings? What you know, is out there, because there are deals to be had. You just have to find them before they hit the mls, right? Before they hit the, the market, before a broker gets to it. Because like you can price everything on comp and based on comp, everything, you know, is priced to the moon. And so, you know, if you can find that reasonable seller that, okay, we can avoid these realtor fees here, do it direct.

Chris Gantz [00:19:04]:
You know, we’re gonna make this a very easy closing for you. We’ve had some success with that and fortunately, like with our network, because we manage third party, we have a ton of people that are brokers, we have a ton of people that are contractors. You know, they’re very ingrained in this industry where, you know, it all kind of works together. So say a contractor is doing a roof and they talk to the owner, and the owner’s like, oh, I’m done, right? I don’t want to do this anymore. Right. And you know, their response is, well, I know a guy, right? And so that’s, you know, for us, that’s been a huge strategic benefit is just relying on our network, relying on the people that, that we work with as clients or that we work with as vendors and you know, seeing source there.

James Kademan [00:19:47]:
So how typical Joe that wants to get in the real estate world. So they’ve been listening to this incredible podcast and they hear all these investors are like, deals are out there, whatever.

Chris Gantz [00:19:58]:
Yeah.

James Kademan [00:19:58]:
Where would be the best place or a few places for them to start to try to find these deals?

Chris Gantz [00:20:03]:
I would say so, you know, the Burr method, right? House hacking, I think that’s always a great way. One of the things I’ve always said is, in my opinion, you know, one of the fastest ways to make money in real estate is to fix and flip. So if you can find the single family home, you’re gonna live in it, or the duplex, you’re gonna live in it, fix it up while you live there, you’re putting in all the sweat equity, do as much work as you can. And so that means learn how to swing a hammer, learn what you can. YouTube’s a great resource. That’s largely how we got into it, my wife and I. You know, first house, bought a hundred year old farmhouse, fixed it up, added a bathroom, you know, did a lot of education through school of hard knocks.

James Kademan [00:20:44]:
Right.

Chris Gantz [00:20:45]:
And so I think that’s a huge thing, is kind of back to the point of if you put effort in, you can’t fail. You know, do your research, obviously, on the front end. But I think there’s a large. I would say, generally speaking, there’s a large lack of confidence that people have. And the first deal is the hardest. Right. Because once you do that first one, whether it’s a duplex, a four plex, an eight unit, once you have it and you go through the process and you. Let’s say you put 3% down, you put 20% down.

Chris Gantz [00:21:13]:
Whatever your means are to be able to do it, you have the money to put into the repairs. Say you buy a house for 200 and you eventually sell it for 300. Maybe you put sweat equity of 40,000 in. Well, you just made $60,000. Right. And so you still have your day job. You made what you made, but, you know, you make $60,000. And for us at the time, it’s like, well, shoot, I made what I would have made working full time on you know, doing this house.

Chris Gantz [00:21:39]:
And so that’s kind of one of the first aha moments. And then the other huge one is for like a four unit, for example, is you get it. There is upside. You can push the rents and you go from, let’s say, a thousand dollars to twelve hundred. Well, you do that, the bank comes back and they’re like, okay, we agree this is worth more, arguably 20% more, because you raise the rent 20%. And so you go to the bank, you put 20% down, they’re saying it’s valued at 20% more. They essentially give you your down payment back. So now you’re in that property free and clear, Right? Well, not free and clear, but without any of your own capital in.

James Kademan [00:22:16]:
So the zero cash investment, essentially, with that little bit of arbitrage.

Chris Gantz [00:22:20]:
Yeah. And so if you can do that, obviously, you have to be able to support the additional cash flow of, you know, pulling your equity back out for that mortgage. But if you can do that, that’s the scale, right. That’s the model that’s repeatable. And so, you know, making sure you don’t want to pull it all out and be like, well, I know I have a roof coming, but I just pulled it all out to go buy another one. And now I don’t have money for the roof. Like, don’t do that. Right, right.

Chris Gantz [00:22:43]:
But I think a huge thing is it’s tough to say, like, finding that first deal, the duplex or the four plex, that’s definitely the most competitive market. Right. Because that’s where everyone’s starting, you still have the guys that are in it and have experience in it that will still look at those deals. So if there’s a good four unit they’re like wow, this makes all the sense. The seasoned investor is going to snatch it up, right? They’re going to be quick with it. And so it’s tough to say, you know, it’s to find that first deal, you know, it’s probably not going to be that grand slam. It’s not going to be 10% cash on cash day one and all the upside. But if you are able to, you know, back to the house hacking model, if you can do it where you’re like I can break even just on this first one, even where I’m not paying rent anymore because I’m paying myself essentially.

Chris Gantz [00:23:32]:
But I know I’ll get that forced appreciation, I know I’ll get that sweat equity from it. There’s, I would say that’s the most sure way to get started. And then once you have that first sale, right you sell that house the first time to go get that duplex fourplex next build. Well now you have capital and once you get the capital that’s where the game of real estate gets different. Not not say easier but, but now you have capacity and now you can go and you can do the eight unit, the 16. And once you get into those markets, you know, 16, 24, 50, I would say between 24 to 100 there’s a really small, shouldn’t say really small, but there is a significantly smaller pool of competition. So roughly like if you look in the Madison market there’s probably, let’s say a hundred guys or less that are dealing in that space.

James Kademan [00:24:24]:
Okay.

Chris Gantz [00:24:25]:
And so it’s no longer, you know, look at the Madison market is billions of dollars worth of real estate. So you have thousands of people looking at those duplexes, fourplexes, if not hundreds of thousands of, you know, it’s definitely brings it to a more math based purchase, right? So with the duplexes and fourplexes is tough because you have comp base, right? So based on income you’re like well it’s not worth this. But based on comp. People are selling their houses, single family homes for this people are selling, you know, their duplexes price per unit. So that price per unit model gets more important from that one to four unit range. Well, once you break up into that 8, 16 units, that’s when it starts to become truly cash flow based where it’s okay now the bank looks at it and they know you’re not going to live there. Right. And so now it is truly more of an asset, Right.

Chris Gantz [00:25:18]:
More of a passive investment where it is. What does the cash flow support? Assuming I’m not living there, right. Assuming I’m not getting to save on the rent, so I can’t just have it break even. Has to do a little bit more.

James Kademan [00:25:30]:
So do they. With a bank like that, do they ask for more money then a bigger deposit beyond the 20% to try to make up that difference for.

Chris Gantz [00:25:38]:
For like which purchase?

James Kademan [00:25:41]:
Yeah. So let’s just say you got a property for numbers. Let’s just say a million dollars and it’s bringing in enough cash to justify, I don’t know, 850,000 or something like that. You normally put 20% down, but you already ate up 15% in your lack of cash flow.

Chris Gantz [00:25:56]:
Yeah, yeah. I would say if you get essentially their appraisal gap, right. So if it appraises at, let’s say, 800,000 and you’re looking at the purchase price of a million, generally the bank will require the 20% down on the 800,000 value.

James Kademan [00:26:10]:
All right.

Chris Gantz [00:26:10]:
And then whatever the gap is, they’re like. And you have to fill that. So they’re not necessarily looking at, well, you bought another 200,000, that’s another X percent down. They’re looking at that. Of, well, you’re, you know, call it overpaying. Right. For lack of words of you’re overpaying by 200,000. And so it’s an interesting game.

Chris Gantz [00:26:31]:
I mean, in today’s market, if you get an appraisal, I’ve heard of so few people that the appraisals aren’t coming through.

James Kademan [00:26:40]:
Oh, interesting.

Chris Gantz [00:26:41]:
Because I mean, it’s the. Again, back to the comp base. It’s almost always that the appraiser would. First of all, they know what the number is, right. As far as what’s on the purchase document.

James Kademan [00:26:51]:
Do they really?

Chris Gantz [00:26:53]:
A lot of times they do, or they can figure it out.

James Kademan [00:26:55]:
Okay.

Chris Gantz [00:26:56]:
I mean, like, they can go and look like, hey, what’s it listed for? So, okay, let’s assume that they offer pull price, right. So that’s kind of not to say that that’s what they’re pegging it to. They just go on Realtor and they’re like, oh, it’s appraised at what it’s asking, right? They’ll do exactly, yeah. Oh, yeah. Oh, yeah. They’re like a dollar more. But. But it is surprising, like, how often that, you know, they get so close to the number.

Chris Gantz [00:27:19]:
So it’s, it’s typically never below. I mean, in the last five years, it’s been really rare to hear, oh, it under appraised by 5, 10, 50 grand. And so that person has to come to the table. It’s almost always you’re seeing people that, they’re like, oh, I got five, ten, fifty grand, you know, to the positive. Where now instead of me having to come to 20% to the table, the bank will let you come with 19%. Because they’re like, okay, you’re paying 800,000, but it’s worth a million. Right. Based on an appraisal basis.

Chris Gantz [00:27:51]:
So if you do it that way, ultimately it’s loan to value. Right. And they’re like, we’re taking not the purchase price, but what is the appraisal as the value.

James Kademan [00:28:00]:
Got it. The, the appraisal game just seems so interesting to me and I guess we’re going down a rabbit hole here. But it’s, it’s curious to me because I guess I live through the time, the 2008 and all that kind of stuff where. And I remember fixing a printer back when I had my printer repair at a mortgage company. They were printing W2s.

Chris Gantz [00:28:20]:
Yeah.

James Kademan [00:28:21]:
And I’m like, that’s an interesting choice.

Chris Gantz [00:28:24]:
Right.

James Kademan [00:28:24]:
That little dot matrix printer with a pre printed W2 thing. How much do you need to make to make this loan? Oh, yeah, it was an interesting game. I’m like, how would you be an appraiser back then?

Chris Gantz [00:28:35]:
Yeah.

James Kademan [00:28:35]:
And I wonder, like, well, Zillow and Redfin and all these guys, they’re essentially using software.

Chris Gantz [00:28:40]:
Yeah.

James Kademan [00:28:41]:
To appraise it. What do they call the Redfin estimate or something like that?

Chris Gantz [00:28:43]:
Like the Zillow Zestimate.

James Kademan [00:28:45]:
Zestimate.

Chris Gantz [00:28:46]:
There you go.

James Kademan [00:28:46]:
Yeah, yeah. Where they’re just pulling stuff.

Chris Gantz [00:28:49]:
Yeah.

James Kademan [00:28:50]:
So do you see appraisers, I guess 10 years down the road, are they still going to be a thing?

Chris Gantz [00:28:55]:
I would say it’s, I think it’ll look a lot different. It’s always tough to say, like, oh, this industry is going to be gone. Right. Because there’s a, there is a value to the product they’re putting out. But to the point of who has the most data? Right. Who can tell you the best number? CoStar. Right. Apartments.com.

Chris Gantz [00:29:15]:
they, I believe that’s part of their strategy. Right. They’ve been doing what they’ve been doing in rental space, but they just started homes.com. right. And so they started that not because they wanted to sell a bunch of homes or sell a Bunch of ad space on homes.com they wanted the data of what are homes selling for? Let’s tap into the MLS and now. And their model is to make CoStar, specifically the analytics product, the best it can be. And so. And like, you look at the people that use it, it’s graystar, it’s Heinz, it’s all the national companies and it’s the biggest players and in the local markets, right? And so the value there is for them to, you know, use that costar data.

Chris Gantz [00:29:56]:
It’s here is what’s really achieved, right? Here’s the real numbers. So like we say we’re basing off of what’s median incomes, right? We can tie to here’s what we think is possible. But then if you look at CoStar’s data, they’re like, here’s what’s actually being achieved. And there probably is going to be a gap between the median income to like, what’s actually achieved in every market. Because you’re always going to be playing catch up, right? You’re always going to be chasing it. But I think that’s as far as, like, is the appraiser individually going to go away? I think that you’ll see, I would say brokers and realtors as sales positions significantly different and call it evolution, where if you look at a broker today versus a broker 50 years ago. Well, the value of the broker 50 years ago was I have an office that people physically come into because they tell me they want to sell their house and I know where the houses are being sold and only I know, right. Well, now you have the democratization of that MLS book, right? So that value is completely gone for the broker because everybody can see everybody everywhere at all times.

Chris Gantz [00:31:03]:
And so I think, you know, that’s, it’s kind of looking at that concept of like, well, if the appraiser isn’t doing strictly what they’re doing today, what can they do better in their service? So maybe they take the Zestimate, but maybe also now they’re running their own projections. Like, hey, we’re running this on a higher level of data. Here’s a better appraisal. And, and so it’s not just based on comp. It’s not just like, now maybe they’re diving into here’s what is actually potential. And. And then give option abc. Hey, if this buyer is going to buy it to break even, here’s what it’s worth.

Chris Gantz [00:31:37]:
This buyer is going to buy it to put $200,000 in, and they have a history of that you know, looking at, give that to the underwriter. Okay, it could be worth this, right? So, like, maybe they get a tiered level of confidence. Call it where. Okay, if you’re the bank, how do you know the buyer? You know, how well do you know them? What do they say they’re going to do? So I think it could be a better tool for the buyers out there of, well, now you have more data, the bank has more data. We all have more comfort in what this can be. And so I don’t necessarily think it’ll strictly go away, but I think it’ll be drastically different just based on like all the stuff that AI, the new technologies have that’s out there. And again, just the access that everybody has to all of this different information.

James Kademan [00:32:20]:
Yeah, I mean, the Redfins, the Zillow, Trulia, all these things are. I mean, what are we talking last three, four years?

Chris Gantz [00:32:28]:
Oh, yeah.

James Kademan [00:32:29]:
That changed the game incredibly.

Chris Gantz [00:32:30]:
Oh, it’s, it’s insane. I mean, even like looking at AI. So for us, we like the company we are today versus the company where we were five years ago or the company we were even a year ago, three months ago is drastically different because there’s constantly new technologies. And so, like, for example, we started day one, AppFolio was the only thing we had. So that was, you know, appfolio, our project management software. And they have, you know, good resources built within their systems that you can solve for the basics. But then they’ve, you know, done their integrations or stack partners and they have people that specialize in the showing softwares in the data, in, you know, the accounting softwares, in the property maintenance softwares. And so we’ve tied a lot of those in and we’ve seen, you know, significant efficiencies in that where saving time, saving costs, saving across the board, where, you know, back to the point of velocity, where the, the metrics we base off of is how, how quickly can we have a tenant move out, get the unit turned over to a really high quality level, not just turn and burn, hey, you’re out, you’re in.

Chris Gantz [00:33:39]:
We still want to make sure that, you know, highest value concept is there as you’re getting, you know, fresh paint, clean walls, clean unit, new floors if it needs it. So it’s not. Here’s this unit that’s been rented continually for the last 30 years with no updates ever, you know, to keep them up to date, up to market, and to be able to remain competitive. And so I think that, you know, watching that technology, it’s who we are today is going to be drastically different than what our company looks like 3 months, 6 months, 12 months from now as well.

James Kademan [00:34:11]:
Sure. Fair. I want to shift more into the property management side because this, it’s interesting. So you talk to these real estate investors and they’re like, stick money in, get money out, rinse, repeat.

Chris Gantz [00:34:23]:
Yeah.

James Kademan [00:34:23]:
Everything’s magical. But then as you dig into it, you’re like, who. Who shovels? Who is mowing? And if the furnace breaks, what happens? Do we. Do we have a furnace guy? Are we trying to call every H Vac company in the world until somebody answers the phone?

Chris Gantz [00:34:40]:
Yeah.

James Kademan [00:34:41]:
Like, tell me about the. The bare bones. Somebody gets a rental spot.

Chris Gantz [00:34:44]:
Yeah.

James Kademan [00:34:44]:
They hire you guys. They got Patriot Properties, Right. Best in the biz.

Chris Gantz [00:34:47]:
Yeah. Yeah.

James Kademan [00:34:48]:
And day one, how do you figure out who’s. Let’s just take care of the simple maintenance rate on duplex. Fourplex, maybe not fourplex. Let’s start with duplex.

Chris Gantz [00:34:58]:
Sure.

James Kademan [00:34:58]:
You got mowing, and in the case of Wisconsin Midwest, you got shoveling. All that kind of stuff.

Chris Gantz [00:35:02]:
Yeah.

James Kademan [00:35:03]:
Who’s taking care of that?

Chris Gantz [00:35:04]:
So I’d say the. So, like, what we typically pitch to people when they come in is we can have our investors and our clients be as involved or as removed in the process as they want to be. So I always like to use two examples. We have younger guy has been building a massive portfolio, very active in finding deals, very active in doing the turn. So he’ll coordinate a team that he’s doing his own flips, right? He’s like, I’m gonna go do the flooring, I’ll do the cabinets. I’ll let you guys know when it’s ready to post. And then here we come and get the photos and do your thing. Then we have the guy that’s, you know, 80 years old, has owned this property forever.

Chris Gantz [00:35:45]:
And we, you know, send him his monthly reports, we send him a quarterly update, and he’s like, I forgot I had that. That’s where we all want to be, right? Yes, that’s the goal. And so we have that capacity to be 100% turnkey passive. We can pay the mortgage, pay the taxes, pay the insurance, handle, you know, if claims come up, evictions, whatever, anything that could possibly happen, we can handle it. And so that’s where, when we have these conversations with clients on the front end, we do somewhat of like a fact finder conversation where it is. What are your goals? Right here are the pointed questions. How important is cash flow to you? How important is appreciation? What do you want to do, do you want this one property to be retirement? Do you want to grow this thing and have this property buy your next one and your next one, your next one? And so everybody’s different. Right.

Chris Gantz [00:36:36]:
And so that’s one of the wild things about the third party management side is it’s, you’re not only managing the prop properties, but you’re also managing the people and all these various processes. And so I say that’s the start of the conversation, right. Is what are you guys looking for? What do you want out of this? And then from there we can have more pointed conversations of the strategies and goals to achieve that.

James Kademan [00:37:00]:
All right, so in the case of. Let’s just take mowing as an example.

Chris Gantz [00:37:04]:
Yeah.

James Kademan [00:37:05]:
So if the. I’m gonna say the landlord. Yeah, the landlord takes care of mowing, whether that’s through third party or they hire.

Chris Gantz [00:37:11]:
Yeah.

James Kademan [00:37:12]:
Joe Bob’s landscaping service, whatever.

Chris Gantz [00:37:14]:
Yeah.

James Kademan [00:37:14]:
Versus if the tenant takes care of the mowing, do you see a substantial or equal or any rent difference at all?

Chris Gantz [00:37:23]:
Yeah. So the, so the duplexes in single family are treated a little bit differently than like the fours and above. And so the four units and above, typically that’s all contracted, right. That’s all vended. And so we have a lot of staff in house and say we do about 90% of our work orders. What we don’t do is the technical side. So the plumbing repair, the electrical repair, the H vac, we have, you know, good vendor relationship for all of those things. But as far as the, when it comes down to like the duplex and the single family, it’s two models.

Chris Gantz [00:37:56]:
Like, what’s conventional is the tenant takes care of their own. So the tenant buys a mower, does their lawn, they shovel in the winter, they’re liable. The biggest point of, you know, when it comes down to like snow removal and some of those things is liability. Right. So as long as they, they know and we know, we agree. And it’s in your lease that you’re taking care of it. Then if you slip and you fall, well, you didn’t take care of it. Right.

Chris Gantz [00:38:19]:
And so.

James Kademan [00:38:20]:
Got it. Okay.

Chris Gantz [00:38:21]:
So that’s, that’s a big piece that we’re looking at in the back end. Right. Is how do we always cover for risk. Right. But as far as the, the other options of, you know, what’s a little bit newer and less conventional is we call it a one bill system. So everybody, you know that you see the people out there that get nickeled and dimed, you look at Airbnb recently did an update where they had the base fees and then they had all the hidden fees, cleaning fees, host fees.

James Kademan [00:38:49]:
Oh, my gosh, that’s insane.

Chris Gantz [00:38:50]:
Yeah.

James Kademan [00:38:51]:
And to the point, that’s more than a hotel.

Chris Gantz [00:38:52]:
Oh, yeah. Well. And people hate that, right? Because they’re like, oh, I can get this unit for $100 a night, and then they book, and it’s like $300. Yeah.

James Kademan [00:38:59]:
Did we say 100? We meant 500.

Chris Gantz [00:39:01]:
Yeah. They’re like, oh, the. The room is 100, but here’s all the services that you’re paying for. And so that’s one of the things that we’ve seen, even in the apartment side, that people like, that one predictable bill. And so with some of the single families, some of the duplexes, we’ll tell them, hey, we’re going to do the lawn care, because now you don’t have to buy a mower. We don’t have to follow up with you when your neighbor does their side, but you didn’t do yours. And then the city calls us and. And so we have some of that where we’ll do it.

Chris Gantz [00:39:29]:
And, like, the other thing with those is, like, the trim in the landscape. And so some of our owners that have beautiful landscaping on a single family home, they’re like, I’ve maintained it forever. This is, you know, my pride and joy. I’m moving out of state, but I want the landscape to remain really high quality. Guarantee this tenant’s not going to take care of the city. Right. And so we’ll let them know. Okay, we can get a contractor out here.

Chris Gantz [00:39:51]:
Let’s call it a hundred dollars a month, whatever it might be, to at least maintain it to a decent level. And so, again, that kind of comes back to the conversations on the front end with these owners of, what is important to you guys? What is the bare minimum level that we should operate at, and then somewhat in the market, too, of, like, what can we offer that makes us a little more competitive? And so, like, in Madison, most people are doing their own mowing, Most people are doing a lot of their own stuff. And, you know, it’s not to say our generations are getting lazier. Right? But the. It’s safe to say, well, the access to luxury, let’s call it, is you’ve got lazy bones laundry, you’ve got grubhub, you’ve got Uber, all of this groceries to your door. Well, yeah, so if you’re the type of person that’s willing to pay Jimmy John’s to come and Deliver a sandwich. You definitely don’t want to mow your lawn, right?

James Kademan [00:40:45]:
I mean, you want me to walk how many steps?

Chris Gantz [00:40:47]:
Yeah, yeah. You’re like, and now I have to buy a mower. And so the, you know, we’ll price for that, right? So we’ll say, okay, we’re taking care of the lawn. You’re paying $100 more than you would. Right. Or $200. And so we’ll have a price differential. And we actually have some properties where we’ll do all utilities included because we have enough historical data where we know, okay, here is high usage, most that they could have in an average month.

Chris Gantz [00:41:11]:
And so water, sewer, gas, all of it’s included. And we’ve actually seen, we can cover for the, you know, the expense and then have a little bit on top because essentially it’s an admin fee. Right. Of Right. You only have to pay us. You don’t have to pay gas, you don’t have to pay another bill for electric. You don’t have to pay all these other things. It’s just pay us and we’ll take care of it.

Chris Gantz [00:41:31]:
And so that’s something we’ve seen internally that’s been really successful and that the market wants, right. The, the renter base likes to have that.

James Kademan [00:41:40]:
It’s just simplicity, which people love that.

Chris Gantz [00:41:42]:
Yeah. Oh, yeah.

James Kademan [00:41:43]:
So I mean, myself included. So one check or one, one pull every month, I know what it’s going to be. It’s flat. I don’t have to be like, oh, it’s cold out, or it’s 90 degrees out. So my electric bills, whatever. Yeah, so it’s just, it’s easier to budget for.

Chris Gantz [00:41:58]:
Well, it’s also interesting to that point you end up with a higher quality of living because, sure, you might be paying more, but you’re not conscious of, well, I’m going to turn the AC off because I, I don’t want to run the AC. And so we went through a property recently and 56 units north side of Madison and kind of an older renter base, 1960s builds. And so you go in, it’s like 90 degrees right outside and they’re, you know, maybe the windows open, but they don’t have fans, they don’t have ACs because they’re so conscious of, well, I don’t want to run the AC because of this. And they probably, like, they can probably all more than afford it. It’s more so just ingrained in their habits of, well, I’ve always done this, right. I’ve always turned the AC Off.

James Kademan [00:42:44]:
And it’s like they’ve lived through that period of time where, yeah, it wasn’t ideal but they’re conscious of over of bigger world things. I guess that can happen.

Chris Gantz [00:42:54]:
Yeah. So, yeah, but it’s like if you did run it, how much more comfortable would you be? Right? Like if you are more comfortable, what is your quality of life? And so that’s kind of our philosophy around it of like, how do we, you know, have that baseline of service, of value that people use the units in the way they should be used. Right. Don’t underutilize it, use it for what it’s meant for. Because like the other thing is if people aren’t running the ac, it’s meant to be run, right?

James Kademan [00:43:20]:
Yeah. Use it or lose it.

Chris Gantz [00:43:22]:
Well, so, yeah, you end up that tenant lives there for a year or two years, never turn on the ac. In theory you’d be like, oh, it’s a brand new ac. But because it hasn’t been run for two years, you turn it on in year three and it’s like, well, this just doesn’t work now.

James Kademan [00:43:35]:
Yeah, the bearings are rusty.

Chris Gantz [00:43:36]:
Yeah, yeah. So it’s, there’s a lot to be said for having the occupancy to have that maintenance because then you always have that person that will let you know if there’s a problem. And that’s one of the things that’s an interesting point to make too is, you know, other companies, there’s chargebacks for basic maintenance. Obviously if you punch a hole through the wall because you just wanted to, we’re going to charge you back. Right. But like the things like the AC repair in our lease, it’s, hey, we told you there’s an ac, it’s broken, it’s our cost, right? It’s the owner’s cost. You know, the property is going to cover this because it’s in your lease, it’s, it’s here. And so that’s one of the things, especially with the, let’s say the older generations, is they have that fear because maybe that was the convention in the past of we’re going to charge everybody back for everything, regardless of whether or.

James Kademan [00:44:26]:
Not it’s charging the tenant back.

Chris Gantz [00:44:27]:
Yeah. Oh yeah. A lot of people used to do that. Right. And so it’s less common today. But you still get that mentality where people are afraid to put in work orders because, well, I don’t want to my rent to go up, I don’t want this, that or the other. Right. And so whereas for us it’s like, let us know.

Chris Gantz [00:44:43]:
Right. If there’s a problem, let us know as soon as possible because we want to maintain it. We don’t want you to have this issue that’s small today become a bigger thing tomorrow.

James Kademan [00:44:52]:
Right. I didn’t tell you the water softener was broken and therefore every water now destroyed.

Chris Gantz [00:44:58]:
Exactly.

James Kademan [00:44:59]:
Interesting. Tell me a story about tenants, because that’s always kind of a thing that seems to be overlooked.

Chris Gantz [00:45:05]:
Yeah.

James Kademan [00:45:05]:
I’ve had a friend who had, I think a boyfriend of a tenant kill himself in an apartment.

Chris Gantz [00:45:11]:
Oh, geez.

James Kademan [00:45:12]:
And so she got out of it.

Chris Gantz [00:45:13]:
Yeah.

James Kademan [00:45:14]:
I don’t want to deal with this.

Chris Gantz [00:45:15]:
It’s one way.

James Kademan [00:45:18]:
And just things like that, I’ve gone into places that I guess it always makes me think, like, I didn’t know people would live this bad.

Chris Gantz [00:45:27]:
Yeah. Oh, it’s shocking. Yeah.

James Kademan [00:45:29]:
I mean, disgusting.

Chris Gantz [00:45:30]:
Yeah.

James Kademan [00:45:31]:
Or so much junk or 50 cats or just the smell of whatever.

Chris Gantz [00:45:36]:
Oh, yeah.

James Kademan [00:45:36]:
Not to say everybody’s like that. It’s just one of those, like, oh, this would be embarrassing to own.

Chris Gantz [00:45:41]:
Oh, yeah. It’s. I would say so. Like, a lot of times we see this on the acquisition side because for us, like, there’s. There’s a high standard of the qualification. And so over time, you turn that tenant base and you’re again giving value. So you’re getting value. Kind of, let’s say, respect.

Chris Gantz [00:45:58]:
Gets respect. Right. So if they respect their apartment, you know, we take care of it. We know they’re going to take care of it, and so you get a result there. So I’d say that the crazy stories when we fill are more. So just people can be crazy. But, like, the crazy stories on acquisition is you go in and, you know, the hoarder stories, the. The people that haven’t cleaned in forever.

Chris Gantz [00:46:19]:
And so a lot of times on the walkthroughs, when we’re, you know, doing these walkthroughs at Acquisition, like, one of the rules that we have on the team is more so in unwritten rule is don’t open the fridge. Right. You know, you trust. Yeah. You. You do that and you just get hit with this wave and you’re like, all right, I’m out of here. So. So I’d say the.

Chris Gantz [00:46:44]:
There’s so many stories that we always joke in our office. We’re like, our all of our retirement plan is we’re just gonna put it all together in a book, go to Netflix and try to sell a TV show, Kissed Insanity. But one of the recent ones that was funny, we had a Tenant have no idea why they did it, but they. They had written poo poo on the wall. And we’re like, that’s weird, right? And then we realized it was actually art because, you know, the medium they used.

James Kademan [00:47:12]:
Oh, no.

Chris Gantz [00:47:13]:
Was poo. Right. And so we joked. We’re like, we need to go cut that out and frame it, you know, airtight, sealed. But like, this guy’s an artist, right? This guy’s. This guy’s on another level. And so there’s. There’s things like that.

Chris Gantz [00:47:27]:
There’s. We’ve had properties where, you know, again, buying at the acquisition. We’ve done a lot of value add syndication, where you’re buying the worst property in the best neighborhood. And so one of them, we had, you know, active drug dealing, weapon brandishing, SWAT was showing up and dog fights. Right. So, like, all four of those things were happening at this property. And that’s the type of thing, like, you can’t know that necessarily when you’re going through your due diligence.

James Kademan [00:47:56]:
They didn’t put that in the inspection report. Yeah, I mean, you can use shows up weekly.

Chris Gantz [00:48:00]:
Yeah, It’s. You can look at the police reports and like, okay, high level, but like, a lot of that stuff, sometimes it’s like, it doesn’t actually result in a true charge. So you don’t get a report. Right. That’s like, the police showed up, but not like they showed up and they’re like, hey, this thing’s happening. But it’s not enough to do the paperwork. And so the. That’s one of the things that we’ve gotten significantly better on our due diligence is plan for that.

Chris Gantz [00:48:26]:
No, like, when we go and walk. Get better notes of the tenants when you’re walking through the units. There’s. There are tells, right? There are giveaways, but that goes to the point of, like, we’re walking every single unit. Right. And so I can’t imagine there are some people that, you know, you hear they’ll buy a property and they see three of the units and that’s. That’s what they see and they buy. And then it’s like, oh, I didn’t know the other 80 were this.

Chris Gantz [00:48:50]:
And so I would say that’s. That’s how we avoid some of that. But it’s. Yeah. As far as the story side, we probably spend hours. Hours in all the craziness that you see in. In all, you know, varying types of ways. And.

Chris Gantz [00:49:04]:
And one of the things I always kind of sum it up to is it’s People live in these apartments and it’s their home and it’s their most comfortable place. Right. So you let down their guard and they’ll be who they are. Right. And some people, most people, I would say, on average, are great people, but some people are just crazy.

James Kademan [00:49:24]:
Sure. Fair. Fair.

Chris Gantz [00:49:26]:
Yeah.

James Kademan [00:49:26]:
It always makes me wonder when I’m looking at these places, and maybe it’s because I think, like, oh, here’s a deal. And you walk into it and you’re like, oh, yeah, no.

Chris Gantz [00:49:35]:
Oh, yeah, you.

James Kademan [00:49:36]:
If this was a dollar, I wouldn’t buy this.

Chris Gantz [00:49:39]:
Oh, yeah, yeah. There are. It’s. That exists for sure. And it’s. We’ve. We’ve seen a couple of those where it’s like, you would have to pay me. I’d still.

Chris Gantz [00:49:48]:
Still be hesitant. Yeah. I mean, over time, we’ve gotten better. A lot of that comes to capacity. Right. It’s like we have bigger teams that can handle more. So that buy Box has gotten bigger, so to speak, so we can, you know, say no less often, but there’s still plenty of times we’re like, yeah, this is. This is a dumpster fire.

Chris Gantz [00:50:09]:
Like, do we want to do this?

James Kademan [00:50:11]:
All right, we don’t have a ton of time, Chris, but I want to touch on a little thing as a landlord. So I get a property whatever, and I’m hiring a property manager. I’ve heard of people, I mean, a lot of people that are on the show, they’re talking about getting properties way across the country.

Chris Gantz [00:50:27]:
Sure.

James Kademan [00:50:27]:
Sight unseen. So they’re trusting their broker or property manager or something like that. Well, I guess. Let me back up a step. One guy mentioned, he said, first you find a property manager, then you find the property. I’m like, you’re talking about finding a property manager four states away.

Chris Gantz [00:50:42]:
Yeah.

James Kademan [00:50:43]:
How do you vet a property manager?

Chris Gantz [00:50:45]:
Yeah, I would say the. So we actually have clients that are out of state. So we’ve gone through this process with them and it’s. For us, it’s expectation management. Right. And for them, it’s. Again, it comes back to that conversation on the front end, that fact. Find.

Chris Gantz [00:50:59]:
What are your goals? What are you going to do? What do you. What do you want? What are you looking for? And so for us, we try to show our value very quickly right out of the gate. So, for example, this week we had a couple out of California. They have a four unit that they are under contract in Milwaukee. And they’re like, we. All we know is what we’ve seen on Redfin. So we looked it up 12 pictures? Yeah.

James Kademan [00:51:25]:
Five out of focus?

Chris Gantz [00:51:26]:
Yeah.

James Kademan [00:51:26]:
Five pictures. We don’t want to run out of film.

Chris Gantz [00:51:29]:
Oh, yeah. And so, you know, they’re looking at. They’re running off of projection and they are in the real estate industry. So they, I would say, are more educated than the average person in the sense that they have a reason to have more comfort with, like, what they believe. And so they call us and they’re like, we know this sounds crazy because we haven’t seen this, we’re under contract, we haven’t seen photos of the insides. And so they have a couple of local connections. They’re from this area, right? Lived in Wisconsin, moved out to California. So dad, brother, friend, whatever it is, they’re like, this guy’s gonna go walk this for us, and he’ll take some pictures, some photos, and give us his opinion.

Chris Gantz [00:52:08]:
And so what we’ll do in that situation, what we did is we sent somebody from our team. We’re like, we’ll also get the photos, the videos, we’ll do a check sheet for each unit and then we’ll highlight, you know, SWOT analysis, right? Strengths, weakness, opportunity, threats, all of that. And so that’s how we start the relationship. And obviously when you do one, you get the next one and grow, then that relationship is there, right? But I say the big thing on the front end for us is it comes back to that expectation, management of here is what we are capable of, right? Here are the technologies we use, here are the processes we have. Here’s, you know, we’ll give a blank copy of the lease, read through all 50 pages, if you want, right? And ask us as many questions as you want. Because for us, it’s communication’s huge, right? We’d much rather work with the people that call us all the time and tell us what they want. Call it, you know, squeaky wheel versus us, assuming we’re doing the right thing. And on paper, you know, valuations going up, everything is great.

Chris Gantz [00:53:10]:
And then you get a phone call with this person on an annual review and they’re like, well, I’m mad about this. It might be a super minor thing. Like, well, I saw the light bulbs are out outside, know when I drove past last week. And maybe it was an oversight, right? But it’s like that little detail is the thing that they focus on, not the fact that, hey, performance is great. We’ll get that solved today, right? But I would say it all comes back to, you know, asking your manager, like, what, you know, understand their processes, right? What softwares do they Use what, what is their philosophy? That’s probably a good point to jump into of like how we look at real estate. Um, I would say there’s two camps of thought with operational philosophy where it’s, there’s lost a vacancy, very easy concept. The unit’s empty, it’s not renting, I’m losing money. What’s very often overlooked is lost to lease, right? Opportunity costs where it’s sure the building’s full, but undervalue, right? And so the bigger loss long term is lost to lease.

Chris Gantz [00:54:10]:
Because if I have, let’s say a four unit that’s doing $1,000, it’s full, okay? In the short term, somebody moves out, I’m losing $1,000. But if the value of those units is $1500, let’s say you’re really losing $2,000, right? You’re losing 50% every single month. So by the point you rent out that first 1500, that second 1500, well now you’re doing 3000. So you’ve covered 50%. So you could have one vacancy forever because you’re doing 100% of the income based off three units compared to what you were doing with four. And so, and then scale that, right? So when you get a 200 unit complex, the. That’s the value add strategy in a nutshell, right? So when you can scale up and have every single unit, it’s, let’s say roughly in the markets we’ve been buying in, you see that, you know, rent achieved compared to market, especially with inflation, is probably 20 to 40%. Right? Back to the point of, like when you look on the market, there’s that 30 to 40% gap.

Chris Gantz [00:55:11]:
And so if there’s 20 to 40% upside there, let’s say at least every five units, right? When you update five units to market, you’re gaining a unit. So if you have 50 units, by the time you’re done, you’ve just added 10 units, right? So you’ve just added 20% in income. So you could in theory have 10 vacant units always. And you’re still achieving the same level of operation financially as you were at 100% capacity. And so that’s where, when we get these properties to this point, and typically it’s not fast, right? You’re not going to snap your fingers. And it’s next month, everybody out.

James Kademan [00:55:47]:
We’re getting new ones in at this moment, right?

Chris Gantz [00:55:49]:
We, we do have some clients that do that and they have been successful with it. And even if they’re that fast, it’s like six months Right. Where it’s day one, everyone’s month to month, send them the renewal to this level. We had a client do that. He had eight units in Fort Atkinson. And you know, great. This guy is great at what he does. He’s got a great eye for it, got a great mind for it.

Chris Gantz [00:56:13]:
And also just has, you know, a brass, brass pair. Right. All right, so. Because like, we look at him like that’s, that’s brave because, you know, maybe we don’t know the market well enough.

James Kademan [00:56:23]:
So he goes in there just guns blazing, everybody, this is what it’s gonna be.

Chris Gantz [00:56:27]:
Yeah. And so, so, like this one specifically, I think it was like roughly 800 average rents, 8 unit. It was a 3 bed, 2 bath, 2 bed, 2 bath townhomes, 2 car garage. Right. So like, very nice units. And market rate for those was, you know, if we look out at what we can get for them as they move out, sixteen hundred dollars.

James Kademan [00:56:46]:
Oh, they’re at eight hundred.

Chris Gantz [00:56:47]:
So they just found a deal where the property was just significantly under market. And it was. Somebody owned it for 30, 40, 50 years. They had it free and clear. They didn’t care. Right. Not that they don’t care, but they’re like, I just don’t believe you that you can get that level of rent. Right.

Chris Gantz [00:57:01]:
And so he went through day one, he’s like, all right, I’m going to raise it to 1400. So there’s still a $200 gap because all of those people, if they did look in market to get the same, same unit they’re paying for currently, they would be paying 200 more than what was being asked. And so that’s one of the things that, you know, we have these conversations with tenants oftentimes and, and, you know, people ask like, how can you justify raising rent on people? And it’s less of we’re taking advantage of anybody and more of they’ve been getting a really good deal for a long time. Yeah, right.

James Kademan [00:57:32]:
This is the market.

Chris Gantz [00:57:33]:
Yeah. And so that’s, you know, for us, it’s. We’re just correcting to the market because ultimately, you know, side tangent, if everything’s corrected to the market now, you drive further investment. Right. So you now get developers that will come in. So if we live in some Prairie wanaki and we’re like, I love Chick Fil A to come. Well, Chick Fil A is not going to come unless, you know, all of these rents are getting up, there’s new apartments being built, there’s new development, new jobs, all of that. Right.

Chris Gantz [00:58:01]:
So it’s, you know, I get asked the questions like, is it chicken or the egg? Do the rents have to go up or do the jobs have to come in first? Right. Or, you know, it’s. It’s tough to say, but I think that, you know, back to the Fort Atkinson model and back to the, you know, kind of lost lease and lost a vacancy concept. Is he. This client was well aware. He’s like, I assume half of these people are going to leave. The wild thing is not a single one left. Right.

Chris Gantz [00:58:29]:
So all they knew. Yeah, they, well, they all.

James Kademan [00:58:32]:
They’re able to afford it.

Chris Gantz [00:58:33]:
Yeah.

James Kademan [00:58:34]:
Yeah.

Chris Gantz [00:58:34]:
And so, and they, you know, they’re all paying. They’re all happy to be there. And, and like one of the things, like he’s like, day one, I, you know, resaled the parking lot, fixed the garbage around, you know, told everybody if there’s any problems whatsoever, work order wise, let us know. Right? We’ll get it taken care of. We’d.

James Kademan [00:58:48]:
So that’s the cool thing, right? Because now you have more cash to actually fix this stuff instead of being like, we’re upside down again.

Chris Gantz [00:58:55]:
Oh yeah.

James Kademan [00:58:55]:
I don’t care if the parking lot’s cracked because you can’t afford to live.

Chris Gantz [00:58:58]:
Oh, yeah. Well, so he’s, you know, that property specifically bought. The valuation at. Oh, the rents are $800. The bank is telling me that this is worth X. So it’s worth X. Well, he doubled the rent, double the value. Well, now he’s cash flowing twice as much.

Chris Gantz [00:59:11]:
So he can aggressively go back and give everybody more. Right. So that’s especially at scale. Like that kind of goes back to the amenitization point of like the 200 unit complexes we do where like Canterbury and some Perry is a good example is we have this 136 units and there wasn’t a gym. But people are paying enough. We can put the gym in, right. We can put in these common picnic spaces, patio spaces. How do we make this a more livable community? And can you continue to do so over time? And like, we’ll ask people what are the things they want to see.

Chris Gantz [00:59:45]:
Right. And I’d say fitness spaces and dog parks are like the two leading, you know, requests. Dog.

James Kademan [00:59:51]:
You’re talking dog park at an apartment complex.

Chris Gantz [00:59:53]:
Yeah. Oh, yeah. The. So I mean, call it as simple as like black chain link fence. Right. You throw, you know, it could be a couple hundred square feet, could be an acre, right. You know, depending on how big you want to go. But in today’s world, actually After Covid.

Chris Gantz [01:00:10]:
And this is an interesting stat that we’ve learned recently because of COVID So before the average renter, it was about 40% of the market had pets. After Covid, it’s about 80%, right?

James Kademan [01:00:24]:
80 versus 40.

Chris Gantz [01:00:25]:
Oh, yeah. And we saw this. It actually, we saw it up in Toma first because we had a couple of buildings that were strictly no pets, obviously, like ESA if they have them, but we’re doing no pets. And like, we hit this wall and like, nothing changed. We didn’t change pricing, we didn’t change promo, but, like, we just could not rent anything. And we’re like, well, let’s flip the switch. Let pets come in overnight filled, right? And it was again because of COVID Like, people just started, they’re like, I’m staying home, I want my pet, whatever the case was. Right.

Chris Gantz [01:00:58]:
So, yeah, we saw that population boom. And, you know, obviously you charge for the pets. You can, you know, get whatever $40 per pet. So there is an additional source there. So ironically, we see, you know, monthly charges as an additional income stream for, like, the pets specifically, not fees. But, like, that’s become significant enough that on these, you know, 136 unit properties, it’s almost the equivalent of two to five units worth of income just because people have pets.

James Kademan [01:01:25]:
And so talking like carpet replacement and all the. All the stuff from the damage of the pets.

Chris Gantz [01:01:29]:
Yeah. So they’ll still have a deposit. But like, one of the things kind of back to philosophical is we hate carpet. Right. And so the we. So, like, we do tons of flooring. And so like, we do our own contracting for flooring. We probably did a couple hundred thousand square feet of flooring across all of our properties last year.

James Kademan [01:01:50]:
Wow.

Chris Gantz [01:01:51]:
And so generally every time. So like Canterbury especially, we have kind of like a phase model, so phase one, two, three, four for updating units. So typically we’re not like, okay, this unit’s open. We’re going to do new floor paint. Got the kitchen, got the bathroom. It’s do some of it. Right. And the biggest ROI is new floor and paint.

Chris Gantz [01:02:10]:
And so we’ve taken all the carpet out everywhere we can. Sometimes if it’s an older building and you have to have it for sound dampening, we might throw carpet. We always segregate the carpet. So that way it’s split by a hallway so you don’t have to color match. Right. And so each bedroom is individually its own carpeted area. And then if the living room is high traffic and there’s poor insulation, then we’ll do that. But now you end up with, let’s say a two bedroom unit.

Chris Gantz [01:02:40]:
You have living room, bedroom one, bedroom two. So those three spaces, everything else is lvp. So as far as turn time, if you only have to do one room, you can rip that out, get it in pretty quickly. In theory, if a tenant was like, this is. For whatever reason, I need this replaced. All right, move all your stuff to bedroom two. We’ll get bedroom one swapped. It gives you some flexibility.

Chris Gantz [01:03:02]:
But generally speaking, if we can get away with 100% LVP, people will buy their own rugs. Right. TJ Maxx, Marshalls, they’ve got it figured out. Right?

James Kademan [01:03:11]:
Okay.

Chris Gantz [01:03:12]:
Yeah. And so the. And like that also gives people the sentiment of like, this unit is cleaner. Right. Because you’re not living in somebody else’s carpet. Right.

James Kademan [01:03:22]:
It’s like some filter. Well, it’s standing on a filter.

Chris Gantz [01:03:25]:
Oh, yeah. You rip it up and there’s mountains of sand and whatever else, it’s so hard to keep clean. Right. And so, you know, allergies, all of that stuff. We know. See that positive response. And so I think that’s a huge piece in the, in today’s world that the renter highly values that, you know, hard surface floor, whether it’s tile, whether it’s lvp. But I would say that’s a, a big thing that we’ve learned over time.

Chris Gantz [01:03:50]:
That’s been a huge value add.

James Kademan [01:03:51]:
All right, interesting. This is. So Chris has been cool. I learned a lot. I do. Just really quick, before we go, I’m landlord, I hire you. Am I getting a monthly. Hey, this is how things are going a weekly, a daily, an hourly, a yearly.

Chris Gantz [01:04:09]:
Yeah. So one of the things that’s interesting about how we set up versus what’s kind of unconventional too, is again, back to. Because technology has grown. You own the bank account, right? So it’s your bank account tied to your ein for the property, and you have access to that 100 of the time. So if you want to pull out owner distribution, you don’t have to tell us what it’s for. We’ll see it in the monthly reconciliation and we’ll book it that way. We’ll ask, hey, do you want to let us know what it is? We can put it under, oh, you bought a hot water heater, right. Or you went on vacation.

Chris Gantz [01:04:39]:
Either way, who cares? Right. It’s your money to use as you want. And so we have the monthly reconciliation. So all of the incomes, all the expenses, all of our clients get an automatic you know, roughly around the 15th, that they’re all reconciled. Here is the statement. And so that’s where we’ve been trending toward our preferences. If we can have everything in house mortgage, insurance, taxes, then at the end of the year, you have this, you know, annual cash flow statement, income expense for this property, it’s a hundred percent. Right.

Chris Gantz [01:05:11]:
There’s nothing outside of this like, oh, you were paying your own insurance, so you got to tell your accountant that. So that’s been, you know, a huge intangible value. And then for us, it also helps us understand cash flow position of the client better because it’s not, well, what is your mortgage? What is your insurance? What are your taxes? Right. We don’t know these numbers, so we don’t know how we can help you solve for, you know. Oh, is there a cash flow issue? Well, we’re looking at, we’re giving you a big check every month. We don’t know how much of that you get to keep. Right. So there’s a value for us to be able to know that and, you know, participate and give advice because of, you know, just knowing that data.

Chris Gantz [01:05:49]:
And so as a, again, clients have the ability, they let us know what they want to do. So at any point, we have some clients where again, we don’t talk to them all year, they get their monthly distributions. If the building’s full, all is going well. There’s not necessarily a reason to talk, but we have some clients, like one of our guys has a four unit, had a vacant unit and then got notice on two of them. Just happenstance, right? It leases timed up. And so he’s like, I’m going to end up with three vacant units. And so we’re like, well, let’s have a weekly call, you know, as we go through this process to give you transparency, to give you comfort, communication. Have you involved in what can we do as far as pricing levers? Well, let’s shoot for the moon on this one because we updated it and we’ve got a little bit of time next week we’ll drop it down 100, drop it down 200, and kind of have those conversations.

Chris Gantz [01:06:45]:
So I would say we’ve gotten to be more better at, call it kind of a la carte and customization because we’ve been building team out. So we’ve got a dedicated director of client relations now. So he is kind of main point of contact for all of our clients. So it’s no longer, you know, back in the day, we’d be like, here’s the Email for the finance team. Here’s the email for the maintenance team. Here’s the email for this, right? So we’ve done a good job of intentionally streamlining that. And, you know, our intention is to make that more robust in the future. But I say that’s as far as from the landlord talking to us as the manager.

Chris Gantz [01:07:23]:
Transparency is, you know, our number one goal. Right. We want to make sure, you know what’s happening. There’s never any unreasonable expectations. And we are very candid where we’ll tell people, like, we have some clients that they’re like, hey, I want to price at this level and I want to get, you know, this level of applicant, you know, credit score needs to be this much. And we’ll tell them, I actually saw one that we were our clients buying the property because the seller has a lot of vacancy and their criteria was 700 credit score and double deposits. And we’re like, well, that’s an extremely highly qualified person. And again, this product was like 1970s vintage.

Chris Gantz [01:08:02]:
We’re like, you don’t get to demand that, right? For this. It’s just simply, you’re gonna ask for it.

James Kademan [01:08:08]:
You may not get.

Chris Gantz [01:08:08]:
Yeah, well, that’s the problem. Like, why are we renting anything? It’s like, well, here are the levers, right? So maybe adjust. And so, yeah, I’d say ultimately all comes back to just that. Communication, expectations, and trying to drive that point as, you know, kind of our main goal with our clients.

James Kademan [01:08:27]:
Gotcha. Cool. Kris, where can people find you online?

Chris Gantz [01:08:31]:
We’ve patriot-properties.com that’s our company website. We have on that website all of our Instagram Facebook handles. Those are on there. I’m terrible. I don’t know the know them offhand. Nah, it’s okay. I also don’t exist online. I had to get rid of Instagram.

Chris Gantz [01:08:49]:
It’s too. Too addicting for me.

James Kademan [01:08:50]:
Oh, it’s like crack.

Chris Gantz [01:08:53]:
It’s tough. Yeah. So but yeah, find us on Patriot Dash Properties is the best spot. And we do have a page that, you know, we have a team that manages LinkedIn and. And all of that. And so you kind of see some of our clients that post a lot will repost and kind of show that. That network that we have, you know, highlighting some of the stuff that some of our clients are doing that, you know, is, in a cool way.

James Kademan [01:09:17]:
Nice. I love it. This has been authentic Business Adventures, the business program that brings you the struggle stories and triumphant successes business owners across the land. We are locally underwritten by the bank of Sun Prairie if you are listening or watching this on the web, if you could do us a huge favor, help the algorithm out and that helps us out. Give us a big old thumbs up. Subscribe and of course share it with your entrepreneurial friends, especially those friends that may be interested in getting into the real estate game or they are in the real estate game and they need a better property manager. Kris is your man. We’d like to thank your wonderful listeners as well as our guest Chris Gantz of Patriot Properties.

James Kademan [01:09:53]:
Chris, can you tell us that website one more time?

Chris Gantz [01:09:55]:
Patriot-properties.com Easy enough.

James Kademan [01:09:59]:
Past episodes can be found morning, noon and night at the podcast link found@drawincustomers.com thank you for joining us. We will see you next week. I want you to stay awesome and if you do nothing else, enjoy your business and authentic Business Adventures is brought to you by Calls On Call, offering call answering and receptionist services for service businesses across the country on the web at callsoncall.com and of course The Bold Business Book, A book for the entrepreneur and all of us available wherever fine books are sold.