Why Chasing Door Count Can Tank Your Profits - with Taylor Hou

We challenge the door-count obsession and get honest about profit, overhead, and trust accounting. Taylor shares hard-won lessons from stabilizing acquisitions, launching FYXED to finance turns fast, and building flexible rent that boosts recurring revenue and valuation.

• branding that stands out and earns attention
• why overhead erodes profit faster than growth helps
• portfolio vs department vs pods depends on market fit
• trust accounting risks, reconciliations, separation of duties
• software switches don’t fix broken books
• acquisitions that rescued communities and stabilized ops
• financing turns and repairs without illegal shortcuts
• vendor discounts that offset cost of capital
• flexible rent as recurring revenue and better cash flow
• AI agents, efficiency gains, and the next consolidation wave

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Transcript

Stand-Out Branding And Origin Story

Tony Cline 0:00

Welcome to the Property Manchester Success Podcast, where we interview the leaders in the industry to uncover the secrets of profitability, efficiency, and achieving true freedom, whether it's your time, money, or lifestyle. I'm your host, Tony Klein, and I'm here to help you build a wildly successful property management business. Let's get to it. Welcome back to another episode of the Property Management Success Podcast. Today I'm excited to have Taylor Ho on the podcast. Taylor, how are you? Thanks for having me, Tony. Great to have you on. I noticed the signature uh cowboy hat. And uh we're gonna talk about some things really deep, but I want to I want to get the story. I've heard it a little bit before, but where's the cowboy hat come from?

SPEAKER_01 0:43

Yeah, so I I was born and raised here in Texas. And you know, I I I kind of see it as like, you know, you end up going to all these conferences, all these places, and you look across a room, and everyone I always say looks the same, but it's hard to distinguish anyone from a you know massive crowd. And so I always thought having a cowboy hat or something to uniquely identify me was this like I wouldn't call it a branding thing, but it was always a good thing. And ever since the first time I put one on, um, it it kind of stuck. It was, it's it's so easy to say, you know, like especially going into a big conference, whatever, like, oh, just look for the Asian dude in a cowboy hat. Like being able to just do that, like, like I'll I'll I we do this as founders, but like we'll blast uh, you know, like pre-conference, we'll send things to like attendees. And I'll always put something like, hey, P.S. You know, whether we can meet or not officially, like, come find, you know, if you happen to see, you know, the Asian dude in a cowboy hat, come say hi. I can't tell you how many times like random people will just be like, you, you know, like they're like Asian dude cowboy hat. And it's like clearly that works. And whether or not we end up doing business, whatever, that like that's kind of you know tertiary to it, but it's like this works, right? Things like this absolutely work, second nature with their purple branding, pest share, with their, you know, the orange sneakers, like those kinds of things absolutely work.

Growing Up In Property Management

Tony Cline 2:08

Yeah, I think you have to find a way to stand out. I don't know if you are familiar, I'm I'm sure you're with the reticular activating system where our mind, you know, everything is the same. All property management companies are the same until we're different. And what makes us different is the messaging that we put out there, that our uniqueness in the marketplace. And that's one of the things I've always noticed about you is you do stand out in the marketplace. And now that you have their attention, what are you going to do with it? And that's one of the things that I think is really interesting is what you've been able to find out about management companies and what makes them tick and their inner inner workings. And so I want to go back and talk a little bit about your background of how you got into the property management space. And then I also want to let people know that uh you've got some credibility in this space. And so kind of talk about, as we were talking a little bit when we were just setting up the show, that you also are still running a management company where you've done those roll-ups. And so I want to dig into that and talk a little bit about that. So, how did how did you get started in the property management space?

APM Help And Industry Accounting Gaps

SPEAKER_01 3:18

Yeah. Well, uh, I don't know how many people know this about me, but I actually grew up in this space. So my dad was the property manager realtor, my mom was the CPA accountant. And so, quite literally, back when, as early as I can remember, I would sit in my dad's Toyota pickup and he'd drive around in Houston and knock on doors to collect rent. I remember as a teenager in middle and high school, like uh we live in Houston, so it's really hot. But regardless, we would go climb up into attics in rental properties to replace hot water heaters. And I don't know if any of you guys have actually had to lug 200-pound hot water heater down from a third floor attic, like at like 140 to 50 degrees inside the attic. But like, I've done that more times than I can count. So, quite literally, I grew up in this space. But after college, uh, for me, I was UT at Austin. Um, there's a small company at the time that just so happened to be recruiting there, and it was called Appfolio. So my first job out of college was customer success at Appfolio, where effectively that was my first like professional experience in the industry. I became a product expert, supported, you know, if you were a customer of App Folios back in like 2011, 2012, you probably have emails from me because I supported thousands of customers at that time. And then I'll fast forward to um I joined a friend's company or startup after I did a startup, went to the valley, raised money, and all that kind of stuff. Went through tech people know this, it's uh 500 startups in the valley. Um I joined a friend startup called Dynasty. They're famous for Lisa and now Liam. And they were acquired by none other than App Folio. So they were doing essentially leasing and maintenance automation uh before generative AI and LLMs today. So that was back in 2016, 2017. That mark brought me back into property management. And while I was at that company, Dynasty, uh, we realized or I realized like there's this huge problem still in the industry, which is most property managers do not understand accounting. And so I set out to fundamentally solve that problem. Um and so I'm the founder of APM Help. So that's ApplePalmary H E L P dot com, where really the name is it was supposed to be kind of similar to PM Success. We were trying to help property managers just PM help. Um and back then, this is back, you know, yellow pages kind of kind of time, uh, there was a um a Facebook group that we were part of where they had an alphabetical order list of consultants. And so I was like, well, PM help, right, Tony, you probably have seen this, but it's like PM help is like down at the bottom of the list, right? Like, how do I get to the top? So I was like, well, let's just stick an A in front of it. And so hence APM Help was born. That was the branding of the name. It doesn't mean anything to anyone outside of the industry. Um, and now I I think we've done decently well in that, like when you think trust compliance, when you think property management bookkeeping or accounting, or at least if you're getting audited, people at least now know, or at least uh you know Tatropiti T and Gemini know APM Help is probably one of the best firms to help you know go through one of those.

Tony Cline 6:27

I want to dive into that a little bit um because you have some insight into the property management industry that most people don't have simply because of your access to their data. And one of the things you mentioned early on is door count really is irrelevant when it comes to profitability. And you know that I I think that's something that when you've been in the business for a while, you you come to understand that. But it is a big brag. People beat on their chest and talk about how many doors they have, or if somebody has fewer doors than that, they feel like maybe they're less than because, well, I'm talking to somebody that has 400 doors and I have 200 doors, or they have a thousand and I have 600, whatever it is. It feels like I'm I'm maybe not at their same level simply because they have a bigger door count. But you actually get to see the metrics of what really makes sense for companies when it comes to being successful. What are some of the insights that you gain from having access to that data?

SPEAKER_01 7:30

Yeah. Fundamentally, I would tell you the number one biggest differentiator when it comes to profitability, uh, and that this is like primarily like let's say sub even 5,000 units, okay, in residential property management is overhead. At the end of the day, I've seen plenty of sub-200 unit uh like, and I don't want to say like primarily single family, for all intents and purposes right now, scatter site, single family, small multifamily property managers, okay? The most profitable ones are the ones with very low overhead. And what do I mean by overhead? I mean essentially there's no middle management. It's effectively the business owner who is typically the broker, the licensed broker, and in charge of sales or BD, business development. And then you've got their operations team that's actually managing the properties. Okay. Those at that size or at a certain size, those are very, very profitable. I've seen plenty of them reach 20, maybe even 25% even of margins or net income. Or some in our industry will call it sellers' discretionary earnings and things like that. But effectively, like what is the cash flow that is spitting out? Those tend to be very, very profitable. And what you'll see is as you get bigger, inevitably with doors, you just don't have time or you need more people to be in more places. And so you start hiring people who are less utilized, but inevitably, as humans, we really can only manage a certain number of people. And once you get beyond that, you have to hire more managers. And as you start stacking managers or layers, your profitability goes down effectively to like nothing, if not negative. And I'll I'll give you very, very, and I've done this multiple times, I'll give you very clean examples or like numbers. You would think a million-dollar business is successful, right? Could be successful. It's not like you're a millionaire, arguably, if the thing traded at one time annual like revenue. A million-dollar business in our industry is barely doing$100,000 in profit. Let's just say, and it doesn't sound like a lot, right? But it's like that's 10%. Narpum has put out plenty of annual reports that say the average profitability of a management company is sub-10%. So a million-dollar revenue management company is doing, and I'm gonna just say a hundred thousand dollars. Well, what do you think happens the second you have to promote someone or hire one more person who is not that utilized? I don't know where you are, Tony. I can tell you where I am, but the typical person, bare minimum, where even in Houston, that's remotely good and has some staying power is gonna be sixty thousand dollars. That's not even including benefits, potential turnover, training, anything like that. Just straight up$60,000 all in, that person's gonna cost you probably a hundred grand. So your hundred thousand dollar gross doing you know, net 10% business on a million dollars in revenue. Once you hire that person, now that business is doing zero. Right? And a lot of people, just like you said, chase unit count. You know how hard it is to go from doing 10% and$100,000 in profit on a management company, a relatively small management company, right? To getting back to the same profitability with over, let's say, 500 units. Once you add more units, you add way more problems. And the biggest thing is you add middle management or overhead. And as you add that overhead that's not actually producing revenue, you'll find that it is stupidly hard to get back to sustainable, consistent profit.

Structures, Middle Management, And Margins

Tony Cline 11:22

I think most people realize that when you add somebody, you you effectively you get to a breaking point and you say, okay, I need to add somebody, and let's use your figure of$60,000. You you're adding that, but you're stair-stepping. You you are immediately adding that all at once. So even though if you're having, you're hiring somebody to help you with business development or operations or accounting or maintenance coordination, anything.

SPEAKER_01 11:48

It's nothing.

Tony Cline 11:50

You stair-step it, you immediately have that expense without necessarily generating the income at the same time to be able to cover that. And so property property management companies and and all businesses, but specifically ours, they go through this cycle where you start to have a little bit more cash, and so you decide to hire somebody, then you have no cash flow. Then you have a little bit more cash flow, then you have no cash flow because you your expenses stair step where your income increases gradually. And I think that a lot of times people are afraid then to grow because I need help, but I can't get help because it will mess up my cash flow. And if it messes up my cash flow, then either I don't get to take home any money or something else bad happens. And so they wind up staying, staying stuck in the business where instead of acting like a founder, instead of acting like the visionary, the one that's keeping their head up and looking at where the business is going six months from now or three years from now, they're in the weeds, they're driving around putting lockboxes on properties or whatever it is because they're afraid to pull the trigger to hire somebody. And I know you have a solution for some of this that I think we're going to talk about in a little bit, but I want to say just really quick, any other insights that you see about management companies? I do have one question about that as far as structure. So are you seeing companies being more profitable on the portfolio side, departmental side, pod side? Was there any takeaway? Was there any consistencies depending on the way they've structured their company?

Trust Accounting Risks And Reconciliation

SPEAKER_01 15:20

I wouldn't say there's consistencies across how they're structured. I've seen pod structures, I've seen department structures, they all work decently well because they're all very specific to maybe your market and how your market's working. Um again, I at the end of the day, it's when you add that like DM or the like when the founder no longer is the founder operating anymore, and you bring someone in, that's typically the biggest like change when it comes to profitability and cash flow. Regardless of if you're a department structure, a pod structure, a team structure, whatever those structures may be. Because a lot of times what you end up finding is in those structures, let's just talk about a pod structure, right? Like they're essentially like a self, I won't call it regulating, but like a self-operating unit. And as long as you don't have an extra manager in between and they report to you as the founder or the business owner, all of their performance effectively flows up to you. But once you stack that individual manager in between, that manager is taking all of it effectively. And a lot of times I've seen the founders, the business owners, they're now shoveling money to go support those managers or the COO that they bring in because they they hope and pray that that again you can grow or they can grow the business by double in a year or whatever it may be. When historically the only person that's successfully been able to do that was you, the founder, because you there's just so much that a founder ends up doing. It's just it's very hard to hire somebody to care as much as you do. Now, uh Tony, you did mention like what is something else that I've seen that honestly, and this is this is an I don't want to make this a shameless plug, but like there's a huge difference between a PM operator that actually understands the financials of their business versus ones that don't. Like I've seen plenty that have a hundred units that understand everything financially about the performance of their business versus someone at 500 doors who still doesn't actually understand that, you know, like they're they're actually there's a leaky bucket when it comes to reimbursements, right? Where they're fronting money for their owners and not actually getting money back. And it all comes back down to clean and timely financials, right? Both on the company side, but then also on the property, like the technically the PM side of the trust side.

Tony Cline 17:38

I think that's a really important uh point to hit at. Most of the people that I talk to that get into property management, they they don't set out to have this as a career path. Something they step in it like quicksand, and something sucks them in. And they come from a few different backgrounds. One is they're an investor themselves, and so they can't find anybody that can manage their property as good as they can. So they decide to start a firm. Another one is they're in real estate sales, and I've already have a license, and so markets good or markets bad, doesn't really matter. Something says, hey, I can use my license to also manage property. You know, client wants to buy an investment property, but they don't want to manage it. So the agent says, Well, I'll figure it out. And all of a sudden they start to build this portfolio of managed clients, and they say, Well, I guess I better get legit with this. And they they start. Very, very few people that I talk to come to property management with any sort of financial background. And so they're doing the best they can, but they've never really been taught, number one, how to actually go about running a profitable business or managing books properly or doing their three-way reconciliation. And so there's so many things on the money side that can get you screwed up and take your business down, even if you have the best operations, even if you have the the best ability to to go out and sell. And so I think helping people figure out and identify am I not the right one to be doing my my finances? Like how do how do you and I I know we we uh I'm really interested in the next product that you have, and I want to talk about the fact that you actually still, as we mentioned, uh are not just a property management vendor, but also a property management company where you've bought, sold, gone through acquisitions, and and so I want to touch on some of your insights from that. But if somebody's listening to this and they're thinking, I do hustle hard, I put in effort, and at the end of the month or the end of the quarter, the end of the year, I'm looking at and I'm like, I don't know where the money went, I don't know how to like be different next year than I was this year. What do what do you say to them? Is this something that you help them with? Do you help them with the insights, or is it just we give you the reports to to get your own insight? Like what's that look like?

Forensics, Software Myths, And Clean Books

SPEAKER_01 20:16

Yeah. So at least with APM help, we're not your like coach per se. Right. Like unfortunately, we're too busy just cleaning up uh PM companies and from the financials, like an accounting standpoint, um, and helping them understand, like, you know, here's what your property's financials actually look like, the ones that you manage, let alone actually dive in deep and get getting into their corporate books. You know, I I think it's you know, I'll come back to this, which is you you asked, like, well, how how does one realize or understand, like maybe I'm not the right person, but also maybe the person that's doing it today in my business isn't also the right person either. Because, you know, unfortunately in our industry, could in and and you I think you you you danced around this, you were very being very nice to our industry, but like we have a lot of accidental property managers in our industry. And and it's not like, you know, I'm not saying that out of like, it's like, oh, it's all your fault. Like, you know, you shouldn't be no, no, no. It's like, look, realistically, like they were real estate brokers first. And they had, you know, they did very well in the most recent up when it came to the real estate market. And they had lots of investor clients. And we all know the dynamics between like, well, do you really want to refer your investor client to a competitor that happens to do property management but is also a licensed broker? Probably not. So you end up saying, just like you said, I'll figure it out. Pay me 10%, I'll figure it out. Well, in that situation, you've got to figure out a bunch of stuff. But let's just focus on the accounting side. First off, if you don't even know what a bank reconciliation is, or you don't even know the difference between an income statement and a balance sheet, let me ask you a very simple question. Do you think you're the right person to identify or train the bookkeeper that is doing that work for your company and your clients? Right? So, like, unfortunately, it's like in our industry, we have accidental property managers who get into the business. They kind of, you know, do the accounting based on like knowledge-based articles and oh, it's easy. You hear the property managers, all of them say, oh, it's easy. You don't need an accountant or a CPA to do this. And and then they they grow, right? And that's fantastic because they're great at sales, they hustle. But then they're like, oh, but I I can't keep doing the like entering checks and paying bills and things like this. But it's so easy, right? Let me just hire somebody to do it. And then they come in and you train them. It's like, I hate to say, but it's like literally like the blind leading the blind to do something that is the one thing that actually can take your business down overnight. Like that's the one risk. If you're in a regulated, like that your state has a, you know, a real estate um uh what's it called? Like a uh a real estate board, it's a department of real estate, uh, department of licensing, something like that. That's the one thing where if you fail a trust compliance audit or review, they absolutely can revoke your license and shut you down. And so again, just I would come back to some of the best PM companies I know, right, that we've seen, small or large, they at least know what's going on with their books in a timely fashion, right? They're reconciled within the first week, which I understand it's rent week. That's the busiest week of a PM company. But they have someone dedicated to make sure their books are reconciled. And then secondly, similarly, their corporate books are done before the 15th. The following month. Right. Like all of us who've been business owners, like you tend to want to say we we we operate like logically, we operate based on objective measurements and financial performance and performance. Well, if you if you're not even doing corporate books, how can you make any logical decision for your business without data, without actual data, like that's like real? Otherwise, we're all just going off a feeling. Going off of feeling only gets you so far until everything comes crashing down and you're just gonna be like holding your hair out, like, what is going on? I thought I I you know we we grew, you know, 20 units last month. How are we still missing payroll or not having enough cash in the bank to make payroll? And shameless thing, I'm gonna do this. Whatever you do, do not borrow money from your trust accounts. Whatever you do, do not do that.

Tony Cline 24:36

Okay, I don't think that's necessarily a shameless plug. I think that's trying to keep people out of jail. No, no, fair.

SPEAKER_01 24:42

But I'm like, but but people like Tony, I shit you not, people do this all the time and they think, oh, I'm just gonna do it once and I'll get the money back next week because you know, all the ranks come in, we can pay ourselves, like, you know, and I get it, right? Because I I when I was growing my business, you know, if you're on not the bi-monthly payroll, but you're on the every two weeks, you're gonna have two months out of every year where you have three payrolls in a month. I know that feeling. And when that happens and you didn't get paid your management fees because that third payroll is that weird one week left in that last month, you're gonna feel that pinch and you're gonna look at the security deposit account and be like, well, there's half a million dollars there, and it's not like all my tenants are gonna move out. So let me just borrow the 20,000 from there and I'll pay it back the next week. Whatever you do, do not do that. Because one, that is illegal. And two, if the regulators ever find out, it doesn't matter that you gave the money back. The fact that you took it in the first place is already jail time.

Tony Cline 25:45

Right.

SPEAKER_01 25:45

Like that's not your money. Don't it's yeah, it's not your money.

Acquiring And Stabilizing PM Companies

Tony Cline 25:48

You cannot use it. It's in your account, but it's not your money. So Marsha Waters is the director for the Colorado Real Estate Commission under the division of regulatory agencies here in Colorado. And this has been a few years now, but she came in and spoke to our local NARPAM chapter when I was the president. And we had a discussion, she did a presentation, and then she uh we had a separate private conversation, and she told me that over 75% of the licenses that are revoked in the state of Colorado are revoked because of property management, and the majority of those are revoked because of mishandling trust accounts. And so it's not, it's not only illegal and bad practice, but it's the thing that they look for. So it's not like you're gonna slide under the radar. The real estate commission knows that this is what people do, it's a large amount of money. Business owners get in a situation, they don't know what to do to make that payroll, and they think that they're going to be able to use those trust funds that are not their money. They are they are entrusted with those funds to properly manage those funds. But so that's one thing. That's one reason why you really need to know not just where those funds are, but doing that triple tie, the reconciliation to be able to tie those out, make sure all the funds that are supposed to be there for the landlord are there for the landlord, supposed to be there for the tenant. The other thing I think that people get in in trouble with is not just mismanaging it or borrowing, but it's when they turn over the authority to manage those funds to somebody else. They don't necessarily you can delegate, but you're still responsible for what needs to be in those accounts. And the embezzlement that happens, I know a lot of people in this space that big names that have been burned, and they they now have better practices because you don't need to be burned twice, but a lot of people that have entrusted somebody, their local bookkeeper or somebody on their team, and they wind up being short tens or even hundreds of thousands of dollars. That's correct.

SPEAKER_01 28:03

And I'm I'm happy to give very specific examples of how this happens so that people, again, this is not a you know a sale. I'm just giving you experience of what we've seen. So um, anytime you're collecting cashiers checks, money orders, or cash, right, there are many, many places that are willing to cash those and they don't have to be banks, right? Because they're effectively certified funds. So for example, if you live close to or near casinos, casinos will cash those or issue markers against them. We have a we had multiple, unfortunately, very specific examples with clients where either they were going to be acquired or whatever it is, and all of a sudden they're like, wait, we're missing like half a million dollars? How's this possible? And like it literally happens all the time. So one of the easiest things you can do is never have one person responsible for everything about money at your company. If someone is the one collecting the money, so literally like, you know, collecting checks, collecting money orders, things like that, don't make them the ones who go deposit the money. Or let's just say you have um, you know, like, because there's plenty of PMs that have like a central office and maybe they have satellites or they have like apartment complexes and they have onsite managers that collect the money. If they're collecting and it's hard for you to deposit and they go and mobile deposit it, make sure they're not the ones responsible for reconciling. Like just always have quote unquote a separation of duties so that there's a second look on money. Like you always want that. We've seen way too many times where it's like, just like you said, the the the business owner, the prop the broker, the licensed property manager comes in, they build the business up. I'm too busy focused on sales and bringing new clients and whatever it may be. I hired a bookkeeper. And they, because they're not bookkeepers or accounts of sales, they're like, oh, just it's easy, you go handle it. And over, and I've seen this actually, there was a client of ours in in Colorado where we actually helped, we went all the way to the attorney general and eventually we're able to recoup the money. But it was the bookkeeper that was there for like 15 years that every year would siphon off like 5K, 10K, right? And and and and it doesn't have to be a lot, but over 15 years, it ends up being a lot of money. And and and just like you said, who ends up actually at fault or who's the one who gets left holding the like short end of the stick? It's the licensed broker. Yes, you can say all you want. Oh, I've got ENO insurance, I've got whatever insurance. ENO is errors in emissions. That doesn't cover fraud or like theft from your own employees. That covers your mistakes, but not necessarily like someone who's doing some kind of criminal thing. So just be very, very careful with those about those kinds of things. Reconcile your books. Please reconcile. I would say 99% of the time when we come in and we look at somebody and they haven't reconciled for a year, and they they ask us, like, how did this happen? It's like, it's like, come on, you you you haven't reconciled. How no, of course you wouldn't know that you were missing$20,000,$40,000,$500,000 because you're not reconciling. You don't even know that you're missing money.

Tony Cline 31:18

I I I certainly am not trying to throw anybody under the bus, but I've had private conversations with people that reach out to me for coaching services because their business is in a mess. And some of these clients we just can't take on because they're they're they're to the point where they need that deep forensic accounting help. But I have spoken with with business owners that have been in this proper property management space and have not reconciled their books for not just a year, but multiple years. And when it gets to that point, I understand why they wouldn't do it because it's so it's sort of like maybe a hoarder. It's like I understand why they don't throw their stuff away anymore because it becomes such a big issue to overcome that they just give up on on trying to do that. And and um I can't imagine the pressure and the stress that people feel we're in that situation. So uh Yeah.

SPEAKER_01 32:22

I just yeah, and and and to your point there, right? Like just because APML, for example, or competing firms like us exist doesn't mean we can help you solve a half a million dollar shortage. Like we don't we can't just magically make money poof, you know, appear, right? And beyond that, I should I should say this switching software does not solve your shortage either. Okay. I can't tell you how many times, Tony, where someone's like, oh, it's all ap folio's fault. Like it's like app folio's fault because I like I haven't reconciled it. It's at folio's fault. So let me switch to Rent Vine, and all of my money problems will miraculously be resolved. I'm sorry, that's not the solution.

Tony Cline 33:07

You mean you can't just you can't just switch software and like zero it out and start at a new balance, and like let's start over, let's start from scratch.

SPEAKER_01 33:15

That that that is not a solution. I I yeah, like every time someone comes to us as like, yeah, we're considering switching, or or we're we're going to switch, right, to you know, from you know, whatever propertyware to app folio, because you know, we haven't reconciled, right? Or because we just haven't figured it out. I'm just like, you don't understand. You haven't figured what tells what what somehow tells you that you're gonna figure out the new software and how to use that? If you haven't had the good practice, like I don't want to say once a hoarder forever a hoarder, but you have to break that cycle, get the books clean, and then at that point, if you still want to switch, fine. But at least now you're not switching on false pretenses of, oh, miraxis is switching software is gonna solve my money problems.

Tony Cline 33:59

Yeah. Yeah. All right. I want I want to give, I want to switch gears just a little bit because I want to make sure we cover the other two topics that I really am interested in talking to you about. So you have this insight where you've been able to see inside of other property management companies from a financial level. And then you also built a property management company. So tell me a little bit about that, kind of where you are now, how it came to be what it is, and maybe some insights you have there. And then I really want to make sure we leave time to talk about what you have going on at Fixed, because I think that's really fascinating as well.

Market Differences And Operating Lessons

Introducing FYXED: Fast Repair Financing

SPEAKER_01 34:35

Yeah. So um, my so I don't want to call it a roll-up, but realistically, like roll-ups have a bad connotation for private equity roll-ups and things like that. But at the end of the day, um I did not build a property management company from scratch. Okay. So for all of you guys out there hustling, going from one property to like 150, you have my respect. Okay. I would argue that is the hardest part. But what I did was I I came in, or not came in, but like as APM help, we come across many, many, many property management companies all over America who at, you know, at different stages and different times and things like that. And the first one that I ended up acquiring, um, effectively, the the owner was told, hey, they've got like six months to live. And so that was one where it was in 85 miles east of Portland in a small little town called the Dalles, right? Gorgeous place in the Columba River Gorge, but it's also kind of out there, right? The epitome uh example of like small town USA, right? 15,000 residents. And this company had about 400 units under management. And so as APM helped, because we had seen this cycle happen over and over again, where you know, small community property manager, they end up going and having no one to sell to, right? So they sell to like, you know, their competitor broker that's been competing with them for 15 years, right? And that broker, they're buying the business not because they're like, oh, I want to be a property manager. They're buying it typically because it's like, oh, I have 400 more homes to sell. Um and if it's a small town, there's less competition, things like that. And so they come in, and what ends up happening? Well, what ends up happening is they see half a million dollars sitting in the security deposit uh bank account, and they're like, ooh, they don't understand that that's other people's money. So they just start borrowing from it. Or they literally go buy a boat with that money. So we kept seeing that happen. I wanted to break the cycle. Our mission and my personal mission forever now has always been we want to clean up the industry and hopefully make it better. So we kept seeing that happen. We went out to our clients in Oregon and asked them, hey, we have this other client that really needs like ultimately a sale. We'd love to help broker something. We're not gonna take anything, right? We just we just want to help them, right? And pretty much nobody, right? And I understand this because it's in the middle of nowhere, but it's like nobody was like, oh yeah, I want to drive three hours to go manage homes in another town, right? Like that just didn't happen. So I did literally what I would think the hardest thing, because I'm based in Houston. So we were like, well, what if we tried this? What if we bought this thing and we tried to stabilize it? And we at least know because we're the accountants, like we're not gonna screw the community. Because whenever that happens and the security deposit, you know, goes from 500,000 to zero or 50,000 left, the people who would inevitably get hurt are the residents and the landlords in the local community. So that's what we did. So my first acquisition was April of 2019, 400 units. Uh, today it's stabilized to I think it's a little over 300 units, right? There was like one big owner of like 80 some odd units, and he eventually like took it back in house. But like ultimately, we stabilized that thing. We've kept everybody on the team that wanted to stay or who didn't want to retire effectively. And we've had it for now over six years. And that was stupidly hard. I'm relatively young. I thought it'd be easy, but I can tell you right now, like, doing essentially a day just to get there, because it's like there is a thank goodness a direct flight from Houston to Portland. I'd take that flight, and then it's a three-hour drive from Portland to the Dalles. And then, so you waste a whole day just to get there. So I'd leave on, let's say, a Sunday night or a Monday, spend the Tuesday through Thursday, and then take the either Thursday night or Friday to come back to Houston. I did that for six months straight, pretty much every other week, working to stabilize that company. We finally did it, we stabilized it. Um, I then did another acquisition in Denver. So actually in your in your town. Maybe you actually maybe have heard of the company name, but it was called Woodruff. Uh yeah, so it was Woodruff. Um, and you know, it was this interesting situation where he became a client of APM's, ran out of the blue after he liked, we cleaned everything up, we thought everything was on the up and up. He gets a letter from none other than the you know Department of Real Estate, Laura in Colorado, saying, Hey, we've reviewed everything. We didn't know he was already on a suspended license and had gone through this before. But essentially they were like, you have until Sunday to shut everything down because we're revoking your license. And I found out about that on Thursday. And so we had essentially a meeting on Friday. I was like, look, I can try. We can try to come up with something, but there's no way we can get this done on a weekend. But I landed on Monday, we got an extension, and we closed on Wednesday. And that business, uh, when I got it, it was a little over 200 units today. It's still over a little over 200 units, four brokers, right? Like they all, you know, Denver's big, so it's you know, kind of spaced out, scattered site, right? Um and that one we've had for now over three years, and we stabilized it, it's clean, everything's been on the up and up ever since, right? But those are, these are very, very, very difficult. And I can tell you right now, they are not very profitable because on the the like individual market level, we operate them at around 15% margins. But I still have to have a manager that oversees all the markets. Well, that manager is not cheap. That manager is like 200 grand a year. So, you know, like today we have like four markets, but out of the four markets, we maybe generate like 80K a market, right? So, like at the end of the day, we're not making a crap load of money here. We're doing it because we really just wanted to save those companies, you know, save the communities that they operate in. And if we can find a great operator in that community that we can then sell to, we'll try to do that. And that's actually one of the things that you know we're now working on for one of the ones that we've acquired. We stabilized it, we found a great operator, and we're like, look, honestly, we're not the best ones to operate these things because we're based in Houston or my team is fully remote. We're not actually in your community. So now that it's stabilized, it's good, good practices, good team, everything like that, good processes. We'd love to obviously broker something to then you know give it back to the community.

Tony Cline 41:04

Sure. So you you've now done that a handful of times. I think you mentioned you're you're up over around a thousand doors. And so you've got the experience looking into the industry from all of the other property management companies you sign to from APM help. Then you got to see what it's like to actually run these property management companies inside of these communities, and you got to see inside different communities. So it wasn't just this is what works here because I'm a genius. I cracked this one market. No, you got to actually see how it's different in each market. That's correct.

SPEAKER_01 41:40

Um Tony, it is it's completely different from Denver, which is a sprawling metropolitan area, to a small town where literally like it's one square mile. Like, not even, right? Like everyone can, you know, armchair warrior, like, oh no, the pod structure is best, or oh no, it has to be this way. It's like, no, sorry, until you've done this in multiple different markets, you don't I'm sorry, you're just you're an armchair warrior. You don't you just don't know.

Tony Cline 42:10

Yeah. Yeah. And and you know, there's pros and cons to each one of those structures. And so it's not just take this structure and and apply it. It's tell me what's going on in your market, what's going on in your company, what are your overall goals, and then you can figure out which one of those structures work best. That's right. Well, Taylor, I know so you you have the experience, like I said, of seeing inside other management companies, running your own, and then you said there's still this hole in this marketplace that I've identified. And I want you to share with us a little bit about what you're doing at Fixed because we've talked a lot about money in this episode. We've talked about how people get behind, how money affects your mental and your stress level. And so tell me what you're doing over there at Fixed and how that helps the typical property management entrepreneur with running their business and and operating at a high level. Absolutely.

Economics, Vendor Discounts, And PM Upside

Flexible Rent Powered By The PM

SPEAKER_01 43:17

And just for clarity purposes, it's F-Y-X-E-D.com. And this is 100% born out of the problems we saw as the accountants for property managers. Okay. Because remember, as bookkeepers and accountants, we're we can bookkeep, we can book transactions, we can keep those records clean and timely and accurate. But what we can't do is we couldn't solve when inevitably a rental property's had a tenant in there for five years and they've now given notice. And, you know, although that tenant's been there for five years, the property's been under the same management and ownership for over 10 years. Maybe when this tenant moved in five years ago, not much was really done. You know, like it was a good time, let's say. So they just moved in. Well, now in today's market, when they're moving out and you finally get eyes on that property, you realize, oh, this thing's more than 10 years old, right? For us to actually be able to get the comps or the market rents that the market is saying, right, we've got to put in probably$20,000,$30,000 into this thing. Or let's just say the more typical situation, a tenant is about to move out. You go in there and you're like, holy crap. This like it, they've destroyed the place. They've got young kids, there's, you know, they got to repaint the walls, right? They had dogs, right? The carpet's disgusting. So instead of you know replacing the carpet, let's upgrade it and replace it with LVP now and things like that. So point is, is you know, prop rental properties need money. They need money all the time. But it's not like investors, or especially these accidental landlords, it's not like they say, oh, I'm gonna budget 1% of the property value towards maintenance and upkeep or repair. And like they like escrow that money. So it's like say, you know, sitting in an account somewhere. Like that's not how you know rentals or property management works. Like you mentally budget it, but typically it's deployed in the market, let's say it's it's it's it's sitting on QQQ or SPY, or you know, like you say you budget it and you're like, oh, I'm good for it, but it's not like you're liquid. So if the property manager calls you is like, hey, Tony, sorry, very bad news, but like your HVAC went out, it's not covered by insurance. I'm gonna need$20,000 tomorrow. Because if I don't get that$20,000, your tenant is because we're in Houston, let's say, it's a hundred degrees. Your tenant's going to, you know, not only sue you and make matters worse, but they never Also, need a replacement of Airbnb or hotel and all that coverage as well. So I need$20,000 tomorrow. Yes or no? Right? Like, how many times has that happened? And how many times has the owner been like, uh, crap? Um, I don't have that, or oh, I can get it to you, but like I need like two weeks. And so that we've seen all too many times. And a lot of property managers will be like, oh, well, we'll cover it for them. And whenever I hear that, I'm like, how are you covering it for them? And they're like, oh, well, there's just money sitting in the bank account. I can just borrow from that. And and I know Tony's good for it. He's been a landlord of mine for 10 years. Again, you just did something illegal. You just borrowed money from your trust account, security deposits of other owners, to quote unquote lend to another owner without anybody's permission or approval. You can't do that. You can, if you're individually wealthy or you actually transfer money from your business account to cover, fine. But whatever you do, don't borrow from those trust accounts. Right. So fundamentally, what does Fix do? Fixed fronts money, right? We essentially do rent-based financing on rental properties that are all professionally managed. So we do not do this directly to landlords. It has to be with a third-party manager where we're essentially willing to cover, you know, repairs, turnovers, light improvements. Our kind of boundaries are up to a third of rent for monthly payback. Um, and so that can like goes into calculation of how much we can ultimately deploy. And we try to stay below 5% of the property's ultimate value, right? In the amount we were willing to deploy. The property does not have to be leased. Of course, we prefer that it's already leased because what we're really doing is we're factoring that lease. Or if you, if you know, like because this happens plenty of times, the property's sitting vacant. We have a term internally called vacant stalled. These are your properties that are sitting vacant. You've called the owner, you've asked them, you've pleaded them. Please let us help you. We just need$3,000. And the owner's like, well, I'll get to it. Or they have multiple partners on a deal. And so the owner has to then call their friends or their partners and be like, hey, I need you to contribute$500. I need you to give me a$500. Like, it's just slow. And so whenever that happens, we saw a huge gap in the market of, well, okay, well, what are the what are the current you know alternatives? Well, a lot of people will easily say, oh, HELOC. Well, one, HELOCs aren't for investment properties. Two, HELOCs are slow. Three, HELOCs are based on your landlord's credit, not actually the rental, like the performance of the rental property. Okay. And so in those situations where you need money tomorrow, right, to prevent you know further issues of the rental property, HELOCs aren't gonna work. Your landlord's credit card's not gonna work because your vendor's not gonna accept his credit card. Like there's just all these issues. And so what we did was we we ultimately built what we think is the perfect solution, which is our money's not based on your landlord's credit. We look, we actually underwrite the property management company. Not because the property management company is on the hook for the money, but we care if your books are clean. Because if your books are clean and the ultimately the trust account, like the the the properties you manage books are clean, we can pre-underwrite every single property for money. So, Tony, if you think back to when you were running a management company, if I literally gave you, you gave me every address and I gave you, here's what every single property is pre-qualified for. Without a question, you need$5,000 and we pre-quall for$6,000. You hit the request button, and I'll give you the money same day. Right now, that's asterisk, but obviously the owner has to sign, things like that. But but the point is, is like like this is not your like, oh, we got to go to a bank and submit historical financials and underwrite the owner for their credit. No, this is quite literally like you sign up, we slurp the data, look at historical financials, we run comps on all your properties, and we literally give you a prequall. This property we're willing to do$22,000. This property is$15,000. This property, yeah,$3,000. You don't have to take it, it doesn't cost you anything to do it, but now you have an option. And that's the biggest thing that we realized, which is most PM companies don't have any other option. Like they they call their owner and the owner's like, well, I don't have it. What can we do? And the PM is just like, well, you're the investor. You're supposed to have the money. Like, what do you mean? You're asking me what we can do. And so now, at least with fixed as a partner, you actually have options. Now, you know, these are all always an asterisk. We're not going to guarantee anything, but at least you have something you can say versus go figure it out. Or the probably just sits there vacant and nobody's making money.

Tony Cline 50:45

Here's something that that I think that hit me that I don't know that everybody thinks about this. So if you have a property that needs that$22,000 to bring it up to current market standards, if you're unable to do that, you have two choices. Let it sit vacant or rent it for below market. And if you rent it for below market, the owner loses money and the management company loses money because most management companies are not on a fixed That's right. It's a percentage of rent. They're on a percentage of rent. And so if you think about that, number one, if you're really working hard to do the right thing for your landlord, number one, it's how do we get this thing leased up? But how do we get it leased up where we're at market rent? And so that's doing right by your client. But also, if you're managing an asset that is an underperforming asset, you're probably attracting underperforming tenants because somebody that's willing to live in a property that has not been well maintained is probably somebody that's used to not maintaining a property. So the cycle just continues to get worse and worse. Correct. And you're making less money by doing more and more work as the management company. So I'm gonna ask you a little bit about creating this as a profit center, but even if there's nothing there that the management company can do as a profit center by employing something like this, you are still making more money because you're getting that property back on market at a higher rent rate.

SPEAKER_01 52:10

That's correct. And you didn't mention that many times when a property goes vacant stalled or whatever it may be, the owner's just gonna say, sell it. They've now moved in their head from I'm willing to deal with this to I don't want to deal with this anymore, just sell it. And if you're selling when the property is vacant, that's not good. Unless it's like a frothy market fine. But if you're selling for the financials, like the actual cash yield or whatnot, that's not good because there's no cash yield when it's vacant. If you had to lease it because you just couldn't put in any money, you're gonna sell it at a discount as well. So just like you said, it just becomes this like snowball effect of bad after bad after bad. And inevitably you're gonna turn that client or you're gonna turn that property. So having this available becomes very, very interesting. I can tell you right now, a lot of people immediately go to, okay, well, what is it gonna cost? What's the cost of capital? So I can, I can, I'll I'll pose this as a question to you, Tony. What if I told you that to the landlord it can be like four percent? Right? If I told you, Tony, I can give you four percent money for that twenty-two thousand dollars, right, as a landlord, what would you do, what would you say?

Tony Cline 53:18

I mean, that's that's cheap money. Do it all day. Well, it's no brainer, right?

SPEAKER_01 53:21

What about nine percent?

Tony Cline 53:23

Yeah. Nine percent is still probably better than they can get. I mean, it's way better than putting it on a credit card for sure.

SPEAKER_01 53:29

That's correct. Even at 14%, it becomes very interesting. And the reason is because, and and a lot of people are like, oh, this product's only for like my like landlords who don't have the cash. And we actually say, no, what's interesting is we've actually found it's the landlords who are rich, they have alternative investments and opportunities for their capital. Would you want to tie your capital up in an illiquid investment like a rental property, right, where you can really only capture that when you sell the thing? Or would you rather your money keep you know compounding an SP? Because think about it, if you were to sell your stock, right, you've now got to pay best case, long-term capital gains. That's a 15% right there that you get hit with, let alone the cost of capital of whatever other financing that you can maybe potentially get. So coming to somebody and saying, hey, look, it's 14%, not saying ours is, but let's just say it's 14%. Landlords who are savvy are be like, wait, no credit check? And it's really just I just sign here and I get the money. They'll like what we found is they'll do that all day long as well. Like you as a property manager, it's not your job to determine if this cost is good for you know your landlord or not. You should really just focus on let's give them options and let them decide. Um, and again, the big thing that we differentiate ourselves with is its speed. Quite literally, we've deployed funds the same day. We we're able to make decisions within five minutes of receiving a request because we've already pre-underwritten the vast majority of the properties that we see. Tony, I I wanted to go into one other topic related to fix, but I'm happy to go wherever you want to go first.

AI, Valuations, And The Next Wave

Tony Cline 55:14

Okay. So, really quick, because you threw out the number 14%. So I'm I'm thinking that might be what sticks in people's mind. So, how do how do you determine the the pricing? Is it is it different based on the portfolio? Is it based on cash flow? And we don't need to spend a lot of time on that, but just I want to know uh so people that are interested in this, what do they need to know to reach out to you and and how to engage with you around that?

SPEAKER_01 55:41

Yeah. So the cost of capital, it's less about one, it's less about like the it's 100% less about the landlord's credit. We don't even check landlord credit. Okay. Like how do you how are you gonna check credit on the LLC anyways? Okay. Uh so we don't check landlord credit. Secondly, we care about the the viability of the property management business because inevitably when we deploy the money, we're to like our biggest risk is that the PM company either loses the money, they go out of business, or whatever, because we've now lost our local partner, who's the one who's ultimately collecting rent to pay us back. So we care a lot more about the PM than the actual landlord. Now, of course, the property itself, but again, we have guardrails around like what we're willing, yeah, what we're able to essentially deploy to a property. There's guardrails around like the equity in that property and things like that. So the biggest factor on cost of capital to the what the landlord actually sees is discount from vendors. And this is this is a very interesting thing that we've borrowed from buy now, pay later, right? And merchant cash advance and equipment leasing companies, which are massive, right? These are massive industries. And what we found is ultimately your vendor, your electrician, your plumber, your GC, they will gladly take a 10% discount when they know they're gonna be paid when the work is done. Right. When they come in to any company, homeowner or property management company, and they're like, you know, I don't know if I'm gonna get paid the whole thing when I finish, right? Like, they're all also underwriting essentially or increasing the cost or doing whatever to be like, okay, let's add some buffer just in case here. But when they know that fix is like fares of contract and we're going to pay this. And if anything, we've already, we've already moved the money to the PM's trust account and it's ready. And all they have to do is finish the job. The PM goes, gets eyes on it. Yes, confirmed, and they pay. We've seen time and time again, vendors are willing to give 10, 15, even 20% discounts on their invoices because they know they're gonna get paid. And ultimately, they're trading. I'm giving a smaller discount to guarantee payment, but I'm also increasing volume of work. Because now the PM also is like, oh, Onyx plumbing is amazing. Every plumbing job, I want to work with Onyx because I also know that we can offer a better financing package to our landlords at 4% or 9%, which is better money than they can get anywhere else. And so that becomes this fortuitous cycle that becomes super, super interesting. The PM doesn't again, remember, PM holds not a liability in any of these, right? They just have to keep doing their job, which is collect rent, manage the property, right? Um, and inevitably, you know, we've actually seen PMs mark up. So the PMs will actually take 5% themselves, right? Or 2% or whatever it is, on top of the increase in management fees they're gonna get because rent has increased as well. Right.

Tony Cline 58:47

So that that's not a last point. So that was the that was the revenue stream that I was talking about. If you could figure out how to bring this program into a portfolio of, I'm just to keep the math easy, a hundred doors, a a percentage of those are going to say, okay, well, I wasn't planning on upgrading my property at this point because cash flow is tight, but I can see how replacing that worn-out five-year-old carpet at turn with you know, with more quality flooring, that can increase my rent rate. So I can wind up getting that paid back to me over time because I'm I'm actually increasing the the value of the home. And so as a property manager, that's a lot of work if there's no juice in the squeeze for the property manager. But if there is a way to create a little bit of extra juice from a property management standpoint, now all of a sudden this becomes one of my favorite tools of now I'm increasing the value of the property, getting more rent, and I'm providing a service where you know I always say, I am not somebody that wants to FEMAx my clients to death, but I am somebody who looks for ways to provide value and then to be appropriately compensated for the value that I deliver. That's correct.

SPEAKER_01 1:00:07

And what's beautiful about this model is if we can help you increase rent, you're again because most management companies are not flat fee-based, they're percentages based. Whatever you increase the rent by, you've ultimately also automatically increased your management fee by. And it tends to be a win-win-win all across the board.

unknown 1:00:26

Yeah.

Tony Cline 1:00:26

All right, Taylor, you mentioned you had one more topic, and so let's give you space to uh to address that.

SPEAKER_01 1:00:32

So we have a second product at fixed. I'm sure plenty of you guys have seen or heard of flex rent, right? Or it it used to be called best egg if you were on Appfolio. It's essentially giving your tenants the ability to have flexible rent payments, right? Um, but what those companies have done is they've come and they market directly to your tenants and they cut the management, uh, the management company out of the loop. So ultimately your tenant goes to them, pays them$14.95 call$15 a month for the ability to flex their rent. They then do that ability, you know, the flex rents with the best things, then front you all of the rent on time. And as a management company, you lose the data on whether you're or not your tenants are actually good or not, because you have no clue if they're paying late, if they're paying, they're splitting it. You don't have no clue because you you're essentially seeing, oh, all$1,500 plopped in on the first or on the fifth or whatever it may be. So one, you've lost now the data. You've also lost your late fee revenue, but you know, you're still being bucketed as you're the old property manager that doesn't have any options. You just want to be the slum lord that collects the 10% late fee, effectively, and five, you know,$5 extra every day that you're late. And as we've seen, more and more regulators, state level as well as federally, are coming after effectively managers. And and the most recent one, I think uh, I forgot who posted, maybe it was Peter Lohman, but it was like, you know, everyone is looking at management companies because a bigger and bigger portion of the voting population are renters now, right? And so it's getting more and more political, you know, support. So, or attention. So one of the programs that we've now developed or products we developed is essentially flex rent or on-time rent as we call it, but we power it through the property manager. So now, as the property manager, you can go to your tenants and offer a flexible rent program. You actually pick what you want to charge, but let's just use the same numbers$15 a month to be able to split your rent into two. First, you know, half on the first, half on the 15th. We as fixed, we front you essentially all of the rent as of either the first or, you know, on the, you know, right before it's late. Right. That way your cash flow as a management company is consistent, it's reliable, and ultimately you can pay your vendors and your owners on time every time, regardless of if your tenant needs a little bit more flexibility, if they're late or whatnot. And you haven't given up not necessarily all of your late fee revenue, but at least your offer, it looks a lot better. You're the one offering the solution now. You look like the good guy, and inevitably you get recurring revenue versus one-time late fees. And so, Tony, we talked about in this, I'm gonna bring this back to like acquisitions and selling, right? Or valuing your PM company. Because I've done this multiple times, and because we've also done this for like we were the you know, due diligence for other people buying. Whenever a management company, uh, you look at or you look to value a management company, you typically take one-time revenues, like, for example, maintenance markups, leasing commissions, application fees, things like that that are one time that you can't really consider like it's gonna happen every single month. We typically mark those down to almost zero. We give like zero multiple for that kind of revenue. But recurring management fee revenue, there's a big multiple on that. And so when you can shift late fee revenue to a monthly recurring flexible rent program where you're getting it consistently every single month, whether they use it or not, that tends to give you a much higher multiple and ultimately a valuation than one-time late fees, which again, if you've ever bought or sold a management company, you look at the late fee revenue, you're like, yeah, that's like worth zero. Because I have no clue if that's gonna keep happening or not next month or two years in the future. So um, that's another product, very, very interesting, solves a lot of problems for management companies. Um, and um reaching out, you know, look, we're doing this the unscalable way right now, right? If you're interested in anything we're doing when it comes to either accounting as well, but uh also financing cash flow problems to management companies, you're more than welcome to reach out to me. I'm everywhere at Taylor H O U, right? Or you can just email me. My emails are always the same. First name Taylor at whatever company it is, right? Whether it's fixed, fxvd.com, apm help. And if you want to talk robots, you can uh you can find me as well.

Tony Cline 1:05:00

All right. Well, Taylor, it's been a pleasure having you on. The the topic of money and finance, uh, people talk about how do I grow my management company or how do I uh automate my processes or how do I do all of these things. But the the topic of money, I don't know why, but it doesn't get the attention that it deserves in our industry because you can make a lot of money, but if you're spending a lot of money or you're not able to cash flow, like the the whole basis of having a good business is knowing and understanding where the money's going, where it's at, and then having that bridge to help when you have cash flow issues. So all of the information you you shared with us uh today was really insightful. So any any of the last words that you want to share as we wrap up?

Closing Thoughts And Listener Requests

SPEAKER_01 1:05:51

I'll I'll share this one last thing. Uh, we went through the ZERP era, the zero interest rate period, where there were these quote unquote nationwide uh property management companies that are coming in, they raised venture capital, they started paying arguably ridiculous prices uh for what ultimately became management contracts. I think we saw things as high as like 4,000, 4,500 for a one-year management contract. And ultimately, like those contracts may or may not have stayed. And they paid like five years for you know one contract kind of thing. So because of the wave of AI, we're seeing uh some initial signs that another wave is coming. Now, this doesn't mean you all go get ready to sell, right? Like it's it's selling season again or whatever. Like, no, but it's like if you're a really good operator and you're working on your business, I can tell you, and this comes full circle back to what we said earlier about like management or middle management ultimately eroding your, you know, the cash flow profitability of your business. What we're finding and seeing is with AI, if you're able to leverage it well, you're able to ultimately accrete more to the bottom line without adding headcount. Okay. Um, and and yes, of course, everyone's gonna be like, they're gonna start immediately thinking about like, oh, AI receptionists and oh, AI leasing agents and AI maintenance coordination. Yes, fine. That's fine. But right now we're also thinking just in general, everything is moving towards AI agents. And so your systems and processes have to be tight. Your data's gotta be flowing. And these are all problems in our industry. Like there's you know, management software, and then your leasing software, and then your maintenance thing, like everything doesn't talk to each other. AI and agents today are. Making it so that I would argue in the next year or so, you're probably gonna find some companies that come out of the woodworks that you've never heard of, um, that are going to have some pretty bold claims where they're effectively gonna say something along the lines of we're able to now do property management with zero humans outside of, let's say, obviously your necessary boots on the ground people and like the owner, but you're gonna see some very interesting stuff happening. And with that will come an appetite from investors, private equity, who are now looking at traditional old service businesses and saying, huh, if we can just say create an extra 10 or 15% to the bottom line, we can take a traditionally not profitable industry like property management, who on average is only 8%, and we can make it look like a rock star industry at 20%. And if that happens, we're gonna see another wave of buying. And ultimately, like, yeah, there's gonna be some big change. And hopefully some of that change sticks. But that's gonna be a big boon for our industry as well. So look out for it. If you're 65, hold on. You know, like in the next five years, you'll you'll probably be able to have another opportunity. Um, but if you're 30 or 40 and you've got another 20 years in this business, like get on, you know, get along for the ride because it's it's gonna be really, really interesting over the next couple years.

Tony Cline 1:09:16

All right. Well, that's a uh really good prediction. And uh I I don't know where the business is gonna be in three to five years, but I know it's not gonna look anything like it looks now. And uh so I'll have you back on and we can talk about uh looking back maybe 12 to 24 months, what just happened and and see if these uh predictions came true. Very good. Thanks, Tony. Thanks for having me. Thanks, Terry. Thanks for tuning in to the Property Management Success Podcast. We'll be back with another value packed episode to help you level up your property management game. If you've got something valuable out of today's episode, please share it with a friend or colleague. And don't forget to subscribe and leave a review so you'll never miss out on future insights and strategies and tactics. Until next time, it's your success.