Cash Flow Champs Real Estate Podcast

Prashant Kumar- At a higher level, we briefly discussed the strategies to improve top-line revenue and reduce operational expenses. Now, I would like to delve deeper into this topic and share some valuable insights with our audience. Specifically, I would like to understand what specific actions you are taking to enhance revenue and decrease expenses.

Given that we have limited control over the debt, it’s crucial to focus on these two key aspects. So, could you share with us the specific steps you are taking on a day-to-day basis when you communicate with your Property Manager (PM) and hold them accountable to the plan?

Please feel free to elaborate and provide some context.

Sandhya Seshadri- Initially, when acquiring properties, it’s important to purchase properties where current rents are significantly lower than comparable properties in the market. One way to do this is by conducting competitive shopping to understand why a similar property can charge higher rents. It could be due to amenities or upgrades, such as providing washer and dryer connections, which are always in demand. Reserved and covered parking is another amenity that residents are willing to pay extra for, so it’s worth considering. Conducting surveys with residents to understand their preferences is also important. By looking at things from the customer’s perspective, you can find ways to add value to their living experience. This is crucial, especially when dealing with residents who have limited income. If your rent is significantly lower than competitors, you may need to raise it, but make sure to give residents enough notice beforehand. Do I need a copier? As one of the examples, I suggested buying instead of renting some of those things. Are my marketing budget and outsourcing expenditures being allocated properly? We only outsource what our maintenance team cannot handle. For instance, we employ an HVAC-certified maintenance person to avoid calling someone else for air conditioning repairs, which can be costly. We also attempt to conduct make-readies in-house, but staffing enough people is difficult. Therefore, if we have ten move-outs and ten make-readies to perform the following month, I inquire if my property management company can lend me personnel for that week, and I am only billed for the extra hours worked that week. Instead of upgrading the entire unit, focus on upgrading elsewhere because outsourcing can cause expenses to increase. My other suggestion is that if your unit is already pre-leased and renting at market rate, and you’re meeting your goals, don’t invest in fancy upgrades. A basic make-ready and a nice paint job can work wonders on a property, as it becomes a potential upgrade for the next buyer to consider.

Do I need a copier? For example, instead of renting, why not just buy some things? Is my marketing budget being spent in the right places? Should I consider outsourcing only those things that my maintenance cannot handle? For instance, we employ an HVAC-certified maintenance person, so we don’t have to call someone else for air conditioning repairs, which can be expensive. Another thing we do is try to do make-readies in-house, but staffing that many people can be difficult. For example, if we know we will have ten move-outs and ten make-readies next month, we ask our property management company to loan us people for that week, and we get charged only the extra hours for that week instead of contracting the entire unit. Whenever you contract things out, the expenses can get out of hand. Instead of upgrading the entire unit, upgrade elsewhere.

The other basic advice I always give is that if your unit is already pre-leased and in high demand, and you are already renting it at market rent, there is no need for fancy upgrades. Stick with a basic make-ready and a nice paint job, which can do wonders for a property if you’re already pre-leased at your market rent. Then, it’s a potential upgrade for the next buyer to do it.

If you did everything at a platinum upgrade, there may not be much upside left for the next buyer in two or three years when you sell it. Keep track of outsourcing your materials directly, maybe from a supplier. For instance, some people buy bulk flooring directly from China. Some of the vertically integrated companies do that, but we also know some direct suppliers, so they can get it to us much cheaper than the typical companies from which our PM outsources it. Some of them can even install it for us. Always get three bids for everything. Whether it’s your lawn and landscape, pest control, valet trash, or just trash, get bids.

Let’s say you’re not billing anything for trash and pest control. If you charge an extra $5 for it, it may not seem like much money, but at $5 times 200 doors, you’re earning $1,000 a month. At $12,000 a year on a five cap, that’s $240K. So little things quickly start adding up. Find the hidden pennies on the couch. Where else can you cut back on your expenses? Go line by line. Is your website necessary, or can you do a Facebook marketplace ad and push your property that way instead of having a fancy website? Where do your leads come from? Track your salaries as well. If you can do your work with few personnel, that’s always going to be a big one.

For example, in one of our properties recently, when we took over, we needed more hands on deck just to get everything turned and the right kind of residents. But once we settled, around the four to five-month mark, we didn’t need a leasing assistant. So we took our property manager, gave her a raise because she had done a fantastic job, and she said she could do without a leasing agent.

If you upgrade everything to platinum, there won’t be as much upside left for the next buyer when you sell it in two or three years. Therefore, you should keep track of your expenses and try to find ways to outsource your materials directly from a supplier. For instance, some people buy bulk flooring directly from China, which is cheaper than outsourcing from a typical company. Always get three bids for everything, even for simple things like valet trash or pest control. These small expenses can add up quickly, and finding ways to cut back on them is crucial.

Examine your expenses line by line and look for hidden pennies on the couch. For example, you might consider whether you need a fancy website or can do a Facebook marketplace ad instead. Track where your leads are coming from and look for ways to reduce your payroll expenses. Sometimes, you can eliminate certain positions if someone else can take over those tasks.

It’s essential to have conversations with your employees and listen to their problems. You can learn a lot from the people who do the job every day, and they can come up with creative ideas to improve efficiency. Consider implementing cameras to monitor lease violations, such as setting trash out in the wrong place or doing vandalism, and charge a fine to discourage residents from doing it again.

Hosting community activities can also help reduce crime and build a stronger community. For example, you can organize an Easter egg hunt, which is relatively inexpensive but can have a positive impact on your residents. Taking money out of your marketing budget for these activities can be beneficial in the long run.

Saving money on payroll is an excellent opportunity, so be sure to look for similar chances. Have conversations with your employees, and listen to them. I make it a point to have lunch with them every couple of months and ask them to tell me everything, all their problems. I tell them that I will solve at least two problems and add the others to my list. The employees doing the job come up with creative ideas, so it’s best to ask them. Another thing that I suggest is using cameras to monitor lease violations like vandalism, trash, or funny business in the laundry room. Take a printout from the camera footage and show it to them as evidence, then charge them accordingly. Every little detail adds up to operational efficiency, and the residents get the message too.

Community activities are also an inexpensive way to build a community and reduce crime. The Easter Bunny and Easter egg hunt are some examples of these activities. This will also help neighbors to know each other and feel comfortable talking about any issues they have.

Retention and renewals are other significant target for us. Good customer service, timely service orders, and maintaining market rent all help with renewals. We focus heavily on renewals as it’s the biggest source of cutting costs. If a resident can’t afford to pay more, but they are arguing over $50, remind them of the cost of turnover, which is around two to three grand.

When trying to cut costs, focus on renewals and think about the ROI every time you spend money. Sometimes, it’s better to keep the tenant rather than argue over a small amount.