August 24, 2023 • 36 mins
Massively Increase Your Net Operating Income™ with The TCO Method™
Andy talks all things appliances, from service to expectations and what to avoid and how to generate some extra NOI with incidental income with your business.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Bells and whistles is cool as they are.
(00:03):
Need to be looked at as potential points of failure
when you're considering your appliances.
[Music]
(00:33):
Welcome to the TCO Method, the only show.
Focus on helping you massively increase your net operating income.
I am Andy McQuade.
Thank you so much for tuning in.
Today, we're going to go back to operations.
We're going to talk about something that for whatever reason has been a hot topic on LinkedIn for the last, I don't know, a week, maybe.
(00:55):
For those of you who don't know, I spend a lot of time on LinkedIn,
networking with people in real estate, commercial real estate mostly.
And for whatever reason, this particular item has been a hot topic this week.
I don't know why.
So, it's going to be appliances today.
(01:16):
I'm thinking about calling the episode appliances to be or not to be.
That is the question.
And not just because I'm cheesy and love to just use random titles.
But the reality is that depending on what type of investing you're doing, appliances and providing them is a major factor.
(01:43):
We're not providing them, which we'll get into a little bit.
So, I guess the first qualifier I need to throw out there is I use to sell a lot of appliances.
And by a lot, I mean millions of dollars a year that I was responsible for.
(02:06):
So, when I was at the big orange box, I dealt with somewhere between 25 and 40 property management firms, depending on what year it was and what my focus was and all that.
But in between 2015 and 2018 when I exited, I was working with mostly large buy and hold value add commercial multifamily operators.
(02:36):
And so, one of the things that I was able to figure out and do well was providing the appliances for apartment complexes.
So, I would utilize the programs that we had in place and I would help them coordinate their buying power, their buying volume versus buying them direct.
(02:57):
This is not a sales pitch for the big orange box or the big blue box or any of the other ones out there.
What happened between 2015 and 2018 is not necessarily able to be reproduced today.
I speak from personal experience.
So, I had one client spending over three million a year with me. I had another client spending a couple million a year with me.
(03:19):
And we were putting appliances into apartment complexes in six different states.
I had clients with properties in 17.
But really, I got involved in the larger projects when they were doing a value add rehab.
So, I would provide those appliances for them. I would negotiate with the manufacturer to get them a special price that was significantly more attractive than what would normally be offered by using the big orange box or going to a pro desk or being purchased directly from the manufacturer.
(04:00):
So, domestic branded appliances, we would do everything that the mom and pops would do.
We would obviously take their money, place the order, get the truck there, have the guys open the appliances at the back of the truck, bring them into the unit.
If they didn't open them in the truck, they would open them in the unit, take the boxes off, take the garbage out of the unit.
(04:27):
They would not make final connections. They would just set them up and get them ready to be pushed into place and connected.
And we were cheaper than buying it direct. We were cheaper than doing the work yourself. We were cheaper than going to a mom and pop. We were cheaper than whatever.
And it was the exact same appliance. There is no, there are certain products made for box stores that are specifically offered only at box stores because they have cheaper parts inside.
(04:59):
Appliances are not one of those things unless something has changed. Whether you go to a local mom and pop or a big orange box or whatever, typically the supply chain is relatively the same.
You buy a whatever brand refrigerator of model number X and it's exactly the same across all of them. No big deal.
So now that I've qualified the appliance thing.
(05:26):
There's really a few key things I want to talk about because there's the question, especially in smaller multi-family, right, non-commercial multi-family.
So six or fewer doors. I guess it depends on the state, right? Each state actually has its own legal definition of what commercial multi-family is.
(05:47):
Some states, it's four or more. Some states, it's five or more. Some it's six or more. Some it's ten or twelve or more.
The legal definition is not really what I'm talking about. I consider commercial real estate named apartment complexes, whether they're garden apartments, whether they're towers, whether they're midrises, it doesn't matter.
(06:08):
If it has a name for the community, I consider that commercial multi-family. If it's just a six or a twelve or a ten, it's just randomly located someplace.
I don't consider that commercial. I consider that small, small multi-family. Relevant for this conversation, that specific naming convention.
(06:33):
But what I want to really focus on is three things. One, how do you qualify what brand or model number of appliance that you want to use?
Two, do you provide appliances at all? Commercial multi-family, the answer is 99.95% of the time, absolutely yes, with one exception that we'll get into.
(07:05):
And three, and this really doesn't apply to commercial multi-family, but I've seen it done and it's terrible. Do you buy used or do you buy new?
So most of my large clients were and still are value add multi-family operators. Sometimes it's buy and hold, sometimes it's buy, value add, lease up, almost complete the work, and then sell it with meat on the bone.
(07:35):
When you're choosing appliances, the first thing that people think of is other than cost, curb appeal. What does this look like in my unit? You walk into an apartment that has almond or off-white or whatever they call their color at the time, appliances.
And you know it's dated because I couldn't even order an almond appliance after like 2016. So you know it's not going anywhere. You also have to watch out for appliances that are a flash in the pan.
(08:13):
Right, they come out one year like black stainless. Black stainless was sharp. However, have you tried to find a replacement appliance that matches? Probably not.
So for your curb appeal standpoint, again, this is not just a conversation about how do I make this look pretty?
(08:41):
It's a conversation about what am I going to be able to put my hands on five or seven years from now that's still going to be available that matches the other units in here. So I'm not replacing three or four appliances at once when only one of them dies.
And I'm ready to put that unit on the market and lease it again.
(09:02):
Black stainless ain't that one. Let me tell you. And I had a couple clients who insisted they needed it. And right now they're dealing with trying to find something that matches. So what they're doing is they're putting either black or regular stainless suites of appliances into other units and stealing working appliances from other apartments and moving stuff around to try and get it all to work.
(09:27):
And it's a nightmare. So let's just qualify the curb appeal side pick colors that will still be available and still look good in that unit when one dies or when you're ready to turn it and do a make ready and get a new tenant in.
(09:50):
That leaves black white and good old fashioned stainless. Probably not clean steel. There's been real availability issues issues with clean steel and untrained eye can't really tell the difference.
But it is very apparent. What the difference is once you actually get into it. Now we've talked about the curb appeal side.
(10:13):
While you're looking at availability you have to look at the repair ability. There are plenty of inexpensive import brands of appliances out there on the market.
I will tell you from personal experience that the challenge remains with all of those manufacturers being able to repair that unit when it goes down.
(10:41):
Now for something like a fridge hopefully you have the availability to have one sitting around in the bone yard or in a shop in storage in a garage somewhere.
So you can make the swap in the middle of the night if you need to.
So your tenants not putting a claim in against their renters insurance for a faulty fridge and ruining all their food in that freezer.
(11:02):
Hopefully not everybody does right people are listening to this are going to have scattered sites they don't really have a place to keep an extra fridge or an extra stove or an extra whatever.
And that's fine really when you look at it you only really need the fridge because if they have a stove whether it works or not they are not going to starve right they can't cook but they're not going to starve.
(11:26):
So if you think of the microwave goes down same thing if the dishwasher goes down you have hands and a sponge and a sink.
As long as those are all working you can wash your own dishes. I digress.
But when you're looking at making a choice right you want to align with a vendor or a brand or both.
(11:47):
For ease of use for ease of repair for predictability for buying power.
You don't want to just buy whatever happens to be on sale because it's cheap.
Well a lot of those cheap import even if they look pretty stainless.
Fancy all the bells and whistles tablets built in right touchscreen tablets built into the doors anybody who's ever worked in property management and use those has learned very quickly that getting them fixed is almost impossible even before the pandemic you couldn't get them fixed in a reasonable amount of time.
(12:29):
People were getting quoted three to six months for parts.
You can't not have a working fridge for three to six months you kidding me what is that just throwing things out by the curb.
Bells and whistles as cool as they are need to be looked at as potential points of failure when you're considering your appliances.
(12:54):
If you're in an A plus luxury apartment complex and you're putting in viking and sub zero products this probably isn't a conversation for you because they don't really suffer those issues.
Bells and whistles are expected and they have a strong repair network to take care of them when they happen.
But for consumer brand appliances that you would walk into a box store or a mom and pop shop work find online to get delivered.
(13:26):
You need to be considering what is the availability of repairing this thing and what is it going to cost me if it goes sideways right you need to look at the quality reviews most of them are fake now so it's really hard.
So you need to talk to your peers right we talked about discussing with your network and leveraging your network to find out about other people.
(13:48):
You need to find out about the products they're using as well right not just about the vendors they use not just about whose trust were they do business with and who's not.
You need to be talking to them about products will what brand of appliance you're using.
And not every answer is going to be qualified from a.
Position of authority or knowledge a lot of people do things just because they've always done them that way without ever thinking about or looking at.
(14:17):
The long term impact on their business.
It's literally what I get paid to do is to show these people all the stuff that they're not looking at that costs them money.
That they don't even know or is costing them money nobody lights money on fire because they think it's fun they do it because they don't know they're doing it.
(14:42):
They've never thought further down the road and they don't have a strategy for how they deal or how they manage their purchasing and procurement products election and all the other stuff.
You need to avoid things that are going to cost you money in C and B apartments if you are putting up water to your ice makers.
(15:10):
Water dispensers in the doors of your appliances.
You are doing it wrong.
You have the chances of failure escalate insanely high and insanely fast when you have plumbing connections made to those types of fixtures because the first time that tenant pulls that refrigerator out from the wall and doesn't know that the water connection or doesn't think about the water connection.
(15:43):
Tiny plastic elbow on the back top corner of the fridge or bottom of the fridge depending on which one it is.
They're going to snap that tiny plastic elbow off or they're going to pull the pipe out and it's just going to piss water all over your floor.
The tenants downstairs are going to be real unhappy real fast so how do you avoid it no ice makers no water sorry by bag dice get a countertop ice maker do something but don't don't provide that for them right that's not something you want to do.
(16:20):
You really shouldn't even be allowing them to do counter top dishwashers and counter top ice makers because that's just huge huge potential for things to go sideways.
But people will still do it no matter what's in the lease so repair ability is a thing parts availability is a thing having a qualified repair network is a thing when you look up a brand of appliance look up their support network make a couple phone calls hey how far are you guys out on getting parts for this XYZ refrigerator with an iPad in the door.
(16:55):
I think you'll be very unhappy with the answers you hear by domestic brand even though one of the domestic brands isn't really domestic anymore because it's owned by a company from China.
Most of their manufacturing is still here and they still have a very strong support network leveraging your buying power for appliances as a side note if you're buying direct you're probably losing your shirt.
(17:20):
I say that from experience because they break up all of the different properties.
And all the different projects as different customers doesn't matter if they're all owned by one massive corporation and they're all operated by one massive property management firm.
(17:41):
They won't give you the pricing that you should have for that whole corporation as one entity.
They will break up the pricing based on utilization for each individual property separately.
(18:02):
That's how I got the business at the big orange box is I would take all of their properties and pull them into one giant client because that's how I treated them.
And then I would take all of the different models of appliances that they needed and all of the annual usage for those replacement appliances or what I knew was coming on projects.
(18:28):
Now I would put them all on a contract and I would lock their price for a year.
Did you even know that was a thing? Probably not. Can you still do it? Good luck.
Once you've gotten past the selection stuff right avoid the stupid bells and whistles pick a brand that has available repair ability.
(18:50):
Then you got to look at do I want to buy used or new in a large multi family operation the only use appliances in my opinion that should be used are the ones that you take out of a unit where you're replacing it and getting it repaired putting it downstairs.
Because you control it when it was new you know what was wrong with it you know everything that happened to it you took it out of an apartment because it stopped working.
(19:20):
Put it in your shop put it in your bone yard have the repair guy fix it there while the replacement appliances up in the unit whether that one was another one you fixed prior or a new one that matches the old one.
What that does for you is it allows you to keep matching product number one so your curb appeal doesn't shift right you can tell when you walk into an apartment when it's a mishmash of different years and different brands of appliances that it just doesn't look great.
(19:50):
You walk in and you'll see a hot point fridge you'll see a may tag dishwasher and you'll see a world pool range or a frigid air range and you'll see a magic chef microwave.
Yeah they're all black but they don't really align and maybe that's okay in a see unit right especially when it's changed hands a bunch of times and had a bunch different operators there.
(20:15):
And has an early had a value had rehab done but when you're going for long term curb appeal when you're going for long term viability reusing your old stuff is intelligent it's smart it's good for your business.
Now does that mean you want to keep those all men appliances in in the in the mix only if you have to.
(20:39):
Honestly like if you've done a partial rehab and you still have some units where people didn't want to move you couldn't bribe them to go to a new refurbished unit to so you could get into theirs it kind of is what it is.
Maybe you need one maybe you don't keep it running but reality is that most of the time you're going to want to put new appliances in there's probably people listening who were like I use use the clients showrooms all the time and I love them.
(21:08):
And I don't ever have any issues and blah blah blah reality of it is that I've run the numbers six ways from Sunday and I not once have ever run into a situation where use the appliances have worked out long term from a cost standpoint you can put a new strip of no bells and whistles appliance into a see unit with a full warranty.
(21:33):
And it works out to last longer and operate better and have less issues than the use appliances that have been refurb by mom and pop locally every single time.
Not once is anybody actually put it on paper compared it side by side with real service numbers real length of use and had it work out there's a ton of anecdotal out there but when you actually ask for the proof in writing.
(22:02):
Like okay show me all of the places you've installed use appliances across all your properties install dates in service dates and disposal dates when they stop functioning or need to repair and all the repair work orders and all of the costs incurred to manage those things and it looks a lot like the battery operated smoke detector that you have to put nine volt batteries in or double a batteries in that you're in every year doing something to the time.
(22:31):
And yet we still have that conversation so it shouldn't really surprise me or disappoint me that we're having a conversation about appliances in the same way and there's always the chance that you buy new appliance and you get a bad run.
I had a client who bought I don't know 120 refrigerators from a reputable domestic brand and they all had bad timers and there was a lot of work involved in getting the manufacturer to acknowledge that the timers were all bad.
(23:00):
And then to provide the parts they didn't provide the labor it was still within the one year parts in labor they didn't want to provide the labor because it was 120 appliances.
It may be very cranky but it happens luckily it was an inexpensive part that once the person learned how to do it it was a 15 minute fix but it still costs a lot of money to do now luckily the complex was under construction and there were already guys in the units so the
(23:29):
additional cost to make it right in 95% of cases was very low it was the extra 15 minutes to swap the part but the reality is they shouldn't have had to do it and it was pre pandemic there was no excuse for not being able to provide the labor at that point.
Anyway, you want to know who it was podcast at tco method dot com send me an email I will be glad to share if the numbers work they work but I've never once seen it work out where I used appliance works out better than a new.
(23:58):
You don't have to put a thousand dollar range self cleaning glass top monstrosity in to replace a used for burner coil electric with no window that's not at all a fair comparison but if you compare a new stripped down range to a used range those new stripped down ranges will outlast them every day.
(24:25):
Same thing with refrigerators same thing with microwaves the reality is that components have a useful life inside these devices and it's the major components that take the wear and tear that are not replaced in the refurb process.
Thank you by a refurb range they change maybe the coils right the burners and maybe they change the igniter if it's gas but they're not changing the electronic circuit boards the stuff that's really expensive to fix that's a deal breaker it's not part of the refurb process you can refer best of for a hundred bucks replace the drip pans put in new coils new wiring harness is if they've melted clean the oven.
(25:12):
It's not rocket science the next thing that I want to discuss is the question of do you or do you not provide appliances and for some smaller operators the answers know.
And I'm going to call that into question for a couple reasons one is if you're in a market where appliances are typically optional and the availability for you to generate more net operating income.
(25:40):
By charging them for providing appliances is there why would you not and I say this again based on experience you can make more money by providing the appliances you can also reduce your risk what do you mean I have to fix those appliances if they go wrong this is why we don't use use appliances junior
(26:02):
okay you spend a lot less time repairing them if you're buying strip of new appliances versus used ones with 30 day warranties thrown that out there the other risk avoidance thing that you're putting in the mix is everybody needs appliances do you really think that your tenants are going to be super duper extra careful to not bang into the walls
(26:29):
and baseball and door frames while they're moving appliances in and out of that place they rented from you how much does it cost to fix that I don't care about your security deposit because if you're to the point of having to keep their security deposit to make up from the damages you're already losing because very rarely does a security deposit actually cover the amount of damage these people do when they're hard on a unit.
(26:53):
But I want to talk about your security deposit and how that's all taking care of if they're moving appliances in and out of your house in and out of your apartment in and out of your building something's going to go wrong they're going to tear a hole in the floor they're going to scratch your doubts the floor they're going to dent the door frame they're going to put a hole in the dry wall they're going to snap off a bump stop on a door they're going to snap off of something
(27:22):
something's going to go bad maybe just avoid the issue completely by providing the appliance and charging for it again where does it work out in your favor over time everybody who says that they've never had an issue or it's a minor issue that happens once in a while has never really done the process costing the risk analysis the cost benefit analysis whatever label you want to put on it they've never actually put it on the floor.
(27:51):
Never actually put it on paper and tracked it because if they did if it wasn't just anecdotal and living on cash flow they would see that it doesn't work out in their favor in the long run avoid the issues opportunity cost is real puts your capital to work where it will make you more capital don't just light money on fire because you've always done it that way.
(28:20):
You need to change how you're thinking about these things the other part about generating extra and a while by providing appliances where you can in markets where you can right where it's not expected to just be part of the rent is in unit laundry right you have you have options depending on what type of building it is whatever so around 2015 or 2016 my clients my biggest clients when I was at the big orange box started doing
(28:49):
in unit laundry is part of their value ad rehabs and they would charge whatever extra per month to provide those laundry units they would provide the washer and dryer and charge money for in unit laundry and it could have been an all in one unit installed in the kitchen in an island used to do that for one of my clients was an import brand but it was the only one available that I could get my hands on.
(29:18):
I could get my hands on the compact it fit under a counter and inside a 24 inch wide cabinet space slam dunk easy money can only wash small loads was a condensing dryer so it vented into the kitchen so if couldn't put it underneath for my countertop unless you know it was properly prepared to receive it kind of like when you have a dishwasher under for my countertop and it's just pushed back
(29:47):
against the wall a little too far in the vent comes out and it just takes that particle board and swells it up and flakes it apart over time kind of like that but in the right space it worked same thing with compact stackable laundry with a dryer and a washer in a closet couldn't do venting to the outside because it was on an inside wall but again the condensing dryer was a big deal however
(30:15):
you have to have the right door on there is no matter how many times you would tell a tenant to leave the door open while the laundry was washing they wouldn't do it and then the whole closet would fill with mold and then you as the property manager would get the phone call that this is terrible wise this happening
did you read in the use and care instructions for your apartment when you moved in that you had to leave the door open while doing laundry but they don't care even if you again even if you keep the security deposit not you have mold.
(30:44):
And one lesson that I wish I had known before I started selling these things is it is worth the time in probably 85 to 90% of cases number one in 100% of cases it's worth it to put a louvered pine painted door there in case they do close it.
(31:07):
The second lesson is tear all the drywall out and put mold resistant drywall in purple board green board blue board whatever brand it is I don't care mold tough mold armor mold resistant drywall is the way to go I don't think you need to go to the extent of tiling it or putting in a curty vapor barrier water proofing system or anything like that in there but a real good drywall
(31:35):
with a coat of like zinser 3 3 2 1 kills something as the base primer and then a decent top coat of paint in a semi gloss will save you so much money in the long run.
The in-unit laundry is great because it's optional and you can charge whatever 50 75 100 dollars a month for providing those appliances for your tenant.
(31:58):
Now there's something to be said for having laundry on site as well I can't believe in 2023 I'm still talking to people about coin operated in the amount of labor involved versus return when compared to everything being digital but again here we are I used to avoid coin out boxes like the plague when you do an actual study of the providers of coin op services you don't actually win.
(32:25):
You do make some cash flow and you you can when things are going right make some money off it when you compare it to keeping it in house and doing everything digitally digital cards providing supplies at the dispensary all all the craziness that you can get into in doing value add adding and I why.
(32:46):
I know there's a bunch of people who are going oh my god I make much money on coin op I mean yeah okay cool if you are good with paying yourself like 20 bucks an hour I guess if you're okay with people cutting open your machines and stealing your money okay whatever but I'd rather just have a credit card system on the wall with a bunch of blank cards that you can sell and charge for where they can swipe their debit card their eb t card or their credit card and buy stuff.
(33:15):
And then they can use that same card to buy supplies and single serve packets and then they can swipe it on the machine they can set up an auto recharge function so it taps into their credit card or their bank account every single time that needs to be refilled automatically without them having to do it you don't have to have a human being involved in it at all completely automated other than the initial setup and teaching people how to use it but this is what differentiates.
(33:43):
The ones who scale and the ones who don't in all things the more hands that are in the cookie jar and the more points of potential failure in the more points of exposure and risk there are the slower and less able they are to scale it up and be successful I know plenty of people who love going and picking up all their coins I know people who have gone I don't want to do that anymore to paint the button it's not paying me enough now I'm going to hire this other third party company to come in and meanwhile that third party company doesn't fix the stuff in time your audits turn up that they're not actually paying you what.
(34:12):
They're not actually paying you what they're supposed to be paying you as your share of having those units there the machines get old and they never get replaced they're constantly breaking you can make a lot more money on it bring it in house and doing all that stuff yourself and it's very little lift to your team and you can buy a reputable brand that doesn't break every six months or three months you can keep a couple of common parts like door latches from tenants who just pull them open.
(34:41):
Don't wait for them to unlock just in case anyway I digress but the opportunity to generate more money through incidental sales of stuff through having an onsite laundry is huge the other part is just because you have in unit laundry doesn't mean you can't make money off of all the things that go into it you can sell single serve packets through an automated machine at the main office or leasing office or
(35:10):
somewhere on site and it doesn't take cash so it's all credit based and it'll spit out dryer sheets and single use detergent things and ferric softener things and whatever else goes in there whatever doesn't matter and it adds N.O.I.
why the margins are stupid you pay 50 cents for this freaking packet and you sell it for two bucks yes you have labor involved in loading it and maintaining the function and all that kind of stuff but it's pure margin why are you not doing it I think that's all I have to say about appliances today reputable brand availability repair ability new versus used and additional
(35:57):
sources of income to help you spike your net operating income make your property all good stuff minimize your risk minimize your damages supply the appliances yourself have your guys do it please if you are on YouTube watching this right now hit that bell and subscribe if you're listening on Apple podcast Spotify I heart radio Google podcast wherever podcasts are found please subscribe like
(36:26):
comment leave me three or four stars five stars send me a message let me know what you think podcast at tco method dot com have a great rest
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(upbeat music)
Bells and whistles is cool as they are.
(00:03):
Need to be looked at as potential points of failure
when you're considering your appliances.
[Music]
(00:33):
Welcome to the TCO Method, the only show.
Focus on helping you massively increase your net operating income.
I am Andy McQuade.
Thank you so much for tuning in.
Today, we're going to go back to operations.
We're going to talk about something that for whatever reason has been a hot topic on LinkedIn for the last, I don't know, a week, maybe.
(00:55):
For those of you who don't know, I spend a lot of time on LinkedIn,
networking with people in real estate, commercial real estate mostly.
And for whatever reason, this particular item has been a hot topic this week.
I don't know why.
So, it's going to be appliances today.
(01:16):
I'm thinking about calling the episode appliances to be or not to be.
That is the question.
And not just because I'm cheesy and love to just use random titles.
But the reality is that depending on what type of investing you're doing, appliances and providing them is a major factor.
(01:43):
We're not providing them, which we'll get into a little bit.
So, I guess the first qualifier I need to throw out there is I use to sell a lot of appliances.
And by a lot, I mean millions of dollars a year that I was responsible for.
(02:06):
So, when I was at the big orange box, I dealt with somewhere between 25 and 40 property management firms, depending on what year it was and what my focus was and all that.
But in between 2015 and 2018 when I exited, I was working with mostly large buy and hold value add commercial multifamily operators.
(02:36):
And so, one of the things that I was able to figure out and do well was providing the appliances for apartment complexes.
So, I would utilize the programs that we had in place and I would help them coordinate their buying power, their buying volume versus buying them direct.
(02:57):
This is not a sales pitch for the big orange box or the big blue box or any of the other ones out there.
What happened between 2015 and 2018 is not necessarily able to be reproduced today.
I speak from personal experience.
So, I had one client spending over three million a year with me. I had another client spending a couple million a year with me.
(03:19):
And we were putting appliances into apartment complexes in six different states.
I had clients with properties in 17.
But really, I got involved in the larger projects when they were doing a value add rehab.
So, I would provide those appliances for them. I would negotiate with the manufacturer to get them a special price that was significantly more attractive than what would normally be offered by using the big orange box or going to a pro desk or being purchased directly from the manufacturer.
(04:00):
So, domestic branded appliances, we would do everything that the mom and pops would do.
We would obviously take their money, place the order, get the truck there, have the guys open the appliances at the back of the truck, bring them into the unit.
If they didn't open them in the truck, they would open them in the unit, take the boxes off, take the garbage out of the unit.
(04:27):
They would not make final connections. They would just set them up and get them ready to be pushed into place and connected.
And we were cheaper than buying it direct. We were cheaper than doing the work yourself. We were cheaper than going to a mom and pop. We were cheaper than whatever.
And it was the exact same appliance. There is no, there are certain products made for box stores that are specifically offered only at box stores because they have cheaper parts inside.
(04:59):
Appliances are not one of those things unless something has changed. Whether you go to a local mom and pop or a big orange box or whatever, typically the supply chain is relatively the same.
You buy a whatever brand refrigerator of model number X and it's exactly the same across all of them. No big deal.
So now that I've qualified the appliance thing.
(05:26):
There's really a few key things I want to talk about because there's the question, especially in smaller multi-family, right, non-commercial multi-family.
So six or fewer doors. I guess it depends on the state, right? Each state actually has its own legal definition of what commercial multi-family is.
(05:47):
Some states, it's four or more. Some states, it's five or more. Some it's six or more. Some it's ten or twelve or more.
The legal definition is not really what I'm talking about. I consider commercial real estate named apartment complexes, whether they're garden apartments, whether they're towers, whether they're midrises, it doesn't matter.
(06:08):
If it has a name for the community, I consider that commercial multi-family. If it's just a six or a twelve or a ten, it's just randomly located someplace.
I don't consider that commercial. I consider that small, small multi-family. Relevant for this conversation, that specific naming convention.
(06:33):
But what I want to really focus on is three things. One, how do you qualify what brand or model number of appliance that you want to use?
Two, do you provide appliances at all? Commercial multi-family, the answer is 99.95% of the time, absolutely yes, with one exception that we'll get into.
(07:05):
And three, and this really doesn't apply to commercial multi-family, but I've seen it done and it's terrible. Do you buy used or do you buy new?
So most of my large clients were and still are value add multi-family operators. Sometimes it's buy and hold, sometimes it's buy, value add, lease up, almost complete the work, and then sell it with meat on the bone.
(07:35):
When you're choosing appliances, the first thing that people think of is other than cost, curb appeal. What does this look like in my unit? You walk into an apartment that has almond or off-white or whatever they call their color at the time, appliances.
And you know it's dated because I couldn't even order an almond appliance after like 2016. So you know it's not going anywhere. You also have to watch out for appliances that are a flash in the pan.
(08:13):
Right, they come out one year like black stainless. Black stainless was sharp. However, have you tried to find a replacement appliance that matches? Probably not.
So for your curb appeal standpoint, again, this is not just a conversation about how do I make this look pretty?
(08:41):
It's a conversation about what am I going to be able to put my hands on five or seven years from now that's still going to be available that matches the other units in here. So I'm not replacing three or four appliances at once when only one of them dies.
And I'm ready to put that unit on the market and lease it again.
(09:02):
Black stainless ain't that one. Let me tell you. And I had a couple clients who insisted they needed it. And right now they're dealing with trying to find something that matches. So what they're doing is they're putting either black or regular stainless suites of appliances into other units and stealing working appliances from other apartments and moving stuff around to try and get it all to work.
(09:27):
And it's a nightmare. So let's just qualify the curb appeal side pick colors that will still be available and still look good in that unit when one dies or when you're ready to turn it and do a make ready and get a new tenant in.
(09:50):
That leaves black white and good old fashioned stainless. Probably not clean steel. There's been real availability issues issues with clean steel and untrained eye can't really tell the difference.
But it is very apparent. What the difference is once you actually get into it. Now we've talked about the curb appeal side.
(10:13):
While you're looking at availability you have to look at the repair ability. There are plenty of inexpensive import brands of appliances out there on the market.
I will tell you from personal experience that the challenge remains with all of those manufacturers being able to repair that unit when it goes down.
(10:41):
Now for something like a fridge hopefully you have the availability to have one sitting around in the bone yard or in a shop in storage in a garage somewhere.
So you can make the swap in the middle of the night if you need to.
So your tenants not putting a claim in against their renters insurance for a faulty fridge and ruining all their food in that freezer.
(11:02):
Hopefully not everybody does right people are listening to this are going to have scattered sites they don't really have a place to keep an extra fridge or an extra stove or an extra whatever.
And that's fine really when you look at it you only really need the fridge because if they have a stove whether it works or not they are not going to starve right they can't cook but they're not going to starve.
(11:26):
So if you think of the microwave goes down same thing if the dishwasher goes down you have hands and a sponge and a sink.
As long as those are all working you can wash your own dishes. I digress.
But when you're looking at making a choice right you want to align with a vendor or a brand or both.
(11:47):
For ease of use for ease of repair for predictability for buying power.
You don't want to just buy whatever happens to be on sale because it's cheap.
Well a lot of those cheap import even if they look pretty stainless.
Fancy all the bells and whistles tablets built in right touchscreen tablets built into the doors anybody who's ever worked in property management and use those has learned very quickly that getting them fixed is almost impossible even before the pandemic you couldn't get them fixed in a reasonable amount of time.
(12:29):
People were getting quoted three to six months for parts.
You can't not have a working fridge for three to six months you kidding me what is that just throwing things out by the curb.
Bells and whistles as cool as they are need to be looked at as potential points of failure when you're considering your appliances.
(12:54):
If you're in an A plus luxury apartment complex and you're putting in viking and sub zero products this probably isn't a conversation for you because they don't really suffer those issues.
Bells and whistles are expected and they have a strong repair network to take care of them when they happen.
But for consumer brand appliances that you would walk into a box store or a mom and pop shop work find online to get delivered.
(13:26):
You need to be considering what is the availability of repairing this thing and what is it going to cost me if it goes sideways right you need to look at the quality reviews most of them are fake now so it's really hard.
So you need to talk to your peers right we talked about discussing with your network and leveraging your network to find out about other people.
(13:48):
You need to find out about the products they're using as well right not just about the vendors they use not just about whose trust were they do business with and who's not.
You need to be talking to them about products will what brand of appliance you're using.
And not every answer is going to be qualified from a.
Position of authority or knowledge a lot of people do things just because they've always done them that way without ever thinking about or looking at.
(14:17):
The long term impact on their business.
It's literally what I get paid to do is to show these people all the stuff that they're not looking at that costs them money.
That they don't even know or is costing them money nobody lights money on fire because they think it's fun they do it because they don't know they're doing it.
(14:42):
They've never thought further down the road and they don't have a strategy for how they deal or how they manage their purchasing and procurement products election and all the other stuff.
You need to avoid things that are going to cost you money in C and B apartments if you are putting up water to your ice makers.
(15:10):
Water dispensers in the doors of your appliances.
You are doing it wrong.
You have the chances of failure escalate insanely high and insanely fast when you have plumbing connections made to those types of fixtures because the first time that tenant pulls that refrigerator out from the wall and doesn't know that the water connection or doesn't think about the water connection.
(15:43):
Tiny plastic elbow on the back top corner of the fridge or bottom of the fridge depending on which one it is.
They're going to snap that tiny plastic elbow off or they're going to pull the pipe out and it's just going to piss water all over your floor.
The tenants downstairs are going to be real unhappy real fast so how do you avoid it no ice makers no water sorry by bag dice get a countertop ice maker do something but don't don't provide that for them right that's not something you want to do.
(16:20):
You really shouldn't even be allowing them to do counter top dishwashers and counter top ice makers because that's just huge huge potential for things to go sideways.
But people will still do it no matter what's in the lease so repair ability is a thing parts availability is a thing having a qualified repair network is a thing when you look up a brand of appliance look up their support network make a couple phone calls hey how far are you guys out on getting parts for this XYZ refrigerator with an iPad in the door.
(16:55):
I think you'll be very unhappy with the answers you hear by domestic brand even though one of the domestic brands isn't really domestic anymore because it's owned by a company from China.
Most of their manufacturing is still here and they still have a very strong support network leveraging your buying power for appliances as a side note if you're buying direct you're probably losing your shirt.
(17:20):
I say that from experience because they break up all of the different properties.
And all the different projects as different customers doesn't matter if they're all owned by one massive corporation and they're all operated by one massive property management firm.
(17:41):
They won't give you the pricing that you should have for that whole corporation as one entity.
They will break up the pricing based on utilization for each individual property separately.
(18:02):
That's how I got the business at the big orange box is I would take all of their properties and pull them into one giant client because that's how I treated them.
And then I would take all of the different models of appliances that they needed and all of the annual usage for those replacement appliances or what I knew was coming on projects.
(18:28):
Now I would put them all on a contract and I would lock their price for a year.
Did you even know that was a thing? Probably not. Can you still do it? Good luck.
Once you've gotten past the selection stuff right avoid the stupid bells and whistles pick a brand that has available repair ability.
(18:50):
Then you got to look at do I want to buy used or new in a large multi family operation the only use appliances in my opinion that should be used are the ones that you take out of a unit where you're replacing it and getting it repaired putting it downstairs.
Because you control it when it was new you know what was wrong with it you know everything that happened to it you took it out of an apartment because it stopped working.
(19:20):
Put it in your shop put it in your bone yard have the repair guy fix it there while the replacement appliances up in the unit whether that one was another one you fixed prior or a new one that matches the old one.
What that does for you is it allows you to keep matching product number one so your curb appeal doesn't shift right you can tell when you walk into an apartment when it's a mishmash of different years and different brands of appliances that it just doesn't look great.
(19:50):
You walk in and you'll see a hot point fridge you'll see a may tag dishwasher and you'll see a world pool range or a frigid air range and you'll see a magic chef microwave.
Yeah they're all black but they don't really align and maybe that's okay in a see unit right especially when it's changed hands a bunch of times and had a bunch different operators there.
(20:15):
And has an early had a value had rehab done but when you're going for long term curb appeal when you're going for long term viability reusing your old stuff is intelligent it's smart it's good for your business.
Now does that mean you want to keep those all men appliances in in the in the mix only if you have to.
(20:39):
Honestly like if you've done a partial rehab and you still have some units where people didn't want to move you couldn't bribe them to go to a new refurbished unit to so you could get into theirs it kind of is what it is.
Maybe you need one maybe you don't keep it running but reality is that most of the time you're going to want to put new appliances in there's probably people listening who were like I use use the clients showrooms all the time and I love them.
(21:08):
And I don't ever have any issues and blah blah blah reality of it is that I've run the numbers six ways from Sunday and I not once have ever run into a situation where use the appliances have worked out long term from a cost standpoint you can put a new strip of no bells and whistles appliance into a see unit with a full warranty.
(21:33):
And it works out to last longer and operate better and have less issues than the use appliances that have been refurb by mom and pop locally every single time.
Not once is anybody actually put it on paper compared it side by side with real service numbers real length of use and had it work out there's a ton of anecdotal out there but when you actually ask for the proof in writing.
(22:02):
Like okay show me all of the places you've installed use appliances across all your properties install dates in service dates and disposal dates when they stop functioning or need to repair and all the repair work orders and all of the costs incurred to manage those things and it looks a lot like the battery operated smoke detector that you have to put nine volt batteries in or double a batteries in that you're in every year doing something to the time.
(22:31):
And yet we still have that conversation so it shouldn't really surprise me or disappoint me that we're having a conversation about appliances in the same way and there's always the chance that you buy new appliance and you get a bad run.
I had a client who bought I don't know 120 refrigerators from a reputable domestic brand and they all had bad timers and there was a lot of work involved in getting the manufacturer to acknowledge that the timers were all bad.
(23:00):
And then to provide the parts they didn't provide the labor it was still within the one year parts in labor they didn't want to provide the labor because it was 120 appliances.
It may be very cranky but it happens luckily it was an inexpensive part that once the person learned how to do it it was a 15 minute fix but it still costs a lot of money to do now luckily the complex was under construction and there were already guys in the units so the
(23:29):
additional cost to make it right in 95% of cases was very low it was the extra 15 minutes to swap the part but the reality is they shouldn't have had to do it and it was pre pandemic there was no excuse for not being able to provide the labor at that point.
Anyway, you want to know who it was podcast at tco method dot com send me an email I will be glad to share if the numbers work they work but I've never once seen it work out where I used appliance works out better than a new.
(23:58):
You don't have to put a thousand dollar range self cleaning glass top monstrosity in to replace a used for burner coil electric with no window that's not at all a fair comparison but if you compare a new stripped down range to a used range those new stripped down ranges will outlast them every day.
(24:25):
Same thing with refrigerators same thing with microwaves the reality is that components have a useful life inside these devices and it's the major components that take the wear and tear that are not replaced in the refurb process.
Thank you by a refurb range they change maybe the coils right the burners and maybe they change the igniter if it's gas but they're not changing the electronic circuit boards the stuff that's really expensive to fix that's a deal breaker it's not part of the refurb process you can refer best of for a hundred bucks replace the drip pans put in new coils new wiring harness is if they've melted clean the oven.
(25:12):
It's not rocket science the next thing that I want to discuss is the question of do you or do you not provide appliances and for some smaller operators the answers know.
And I'm going to call that into question for a couple reasons one is if you're in a market where appliances are typically optional and the availability for you to generate more net operating income.
(25:40):
By charging them for providing appliances is there why would you not and I say this again based on experience you can make more money by providing the appliances you can also reduce your risk what do you mean I have to fix those appliances if they go wrong this is why we don't use use appliances junior
(26:02):
okay you spend a lot less time repairing them if you're buying strip of new appliances versus used ones with 30 day warranties thrown that out there the other risk avoidance thing that you're putting in the mix is everybody needs appliances do you really think that your tenants are going to be super duper extra careful to not bang into the walls
(26:29):
and baseball and door frames while they're moving appliances in and out of that place they rented from you how much does it cost to fix that I don't care about your security deposit because if you're to the point of having to keep their security deposit to make up from the damages you're already losing because very rarely does a security deposit actually cover the amount of damage these people do when they're hard on a unit.
(26:53):
But I want to talk about your security deposit and how that's all taking care of if they're moving appliances in and out of your house in and out of your apartment in and out of your building something's going to go wrong they're going to tear a hole in the floor they're going to scratch your doubts the floor they're going to dent the door frame they're going to put a hole in the dry wall they're going to snap off a bump stop on a door they're going to snap off of something
(27:22):
something's going to go bad maybe just avoid the issue completely by providing the appliance and charging for it again where does it work out in your favor over time everybody who says that they've never had an issue or it's a minor issue that happens once in a while has never really done the process costing the risk analysis the cost benefit analysis whatever label you want to put on it they've never actually put it on the floor.
(27:51):
Never actually put it on paper and tracked it because if they did if it wasn't just anecdotal and living on cash flow they would see that it doesn't work out in their favor in the long run avoid the issues opportunity cost is real puts your capital to work where it will make you more capital don't just light money on fire because you've always done it that way.
(28:20):
You need to change how you're thinking about these things the other part about generating extra and a while by providing appliances where you can in markets where you can right where it's not expected to just be part of the rent is in unit laundry right you have you have options depending on what type of building it is whatever so around 2015 or 2016 my clients my biggest clients when I was at the big orange box started doing
(28:49):
in unit laundry is part of their value ad rehabs and they would charge whatever extra per month to provide those laundry units they would provide the washer and dryer and charge money for in unit laundry and it could have been an all in one unit installed in the kitchen in an island used to do that for one of my clients was an import brand but it was the only one available that I could get my hands on.
(29:18):
I could get my hands on the compact it fit under a counter and inside a 24 inch wide cabinet space slam dunk easy money can only wash small loads was a condensing dryer so it vented into the kitchen so if couldn't put it underneath for my countertop unless you know it was properly prepared to receive it kind of like when you have a dishwasher under for my countertop and it's just pushed back
(29:47):
against the wall a little too far in the vent comes out and it just takes that particle board and swells it up and flakes it apart over time kind of like that but in the right space it worked same thing with compact stackable laundry with a dryer and a washer in a closet couldn't do venting to the outside because it was on an inside wall but again the condensing dryer was a big deal however
(30:15):
you have to have the right door on there is no matter how many times you would tell a tenant to leave the door open while the laundry was washing they wouldn't do it and then the whole closet would fill with mold and then you as the property manager would get the phone call that this is terrible wise this happening
did you read in the use and care instructions for your apartment when you moved in that you had to leave the door open while doing laundry but they don't care even if you again even if you keep the security deposit not you have mold.
(30:44):
And one lesson that I wish I had known before I started selling these things is it is worth the time in probably 85 to 90% of cases number one in 100% of cases it's worth it to put a louvered pine painted door there in case they do close it.
(31:07):
The second lesson is tear all the drywall out and put mold resistant drywall in purple board green board blue board whatever brand it is I don't care mold tough mold armor mold resistant drywall is the way to go I don't think you need to go to the extent of tiling it or putting in a curty vapor barrier water proofing system or anything like that in there but a real good drywall
(31:35):
with a coat of like zinser 3 3 2 1 kills something as the base primer and then a decent top coat of paint in a semi gloss will save you so much money in the long run.
The in-unit laundry is great because it's optional and you can charge whatever 50 75 100 dollars a month for providing those appliances for your tenant.
(31:58):
Now there's something to be said for having laundry on site as well I can't believe in 2023 I'm still talking to people about coin operated in the amount of labor involved versus return when compared to everything being digital but again here we are I used to avoid coin out boxes like the plague when you do an actual study of the providers of coin op services you don't actually win.
(32:25):
You do make some cash flow and you you can when things are going right make some money off it when you compare it to keeping it in house and doing everything digitally digital cards providing supplies at the dispensary all all the craziness that you can get into in doing value add adding and I why.
(32:46):
I know there's a bunch of people who are going oh my god I make much money on coin op I mean yeah okay cool if you are good with paying yourself like 20 bucks an hour I guess if you're okay with people cutting open your machines and stealing your money okay whatever but I'd rather just have a credit card system on the wall with a bunch of blank cards that you can sell and charge for where they can swipe their debit card their eb t card or their credit card and buy stuff.
(33:15):
And then they can use that same card to buy supplies and single serve packets and then they can swipe it on the machine they can set up an auto recharge function so it taps into their credit card or their bank account every single time that needs to be refilled automatically without them having to do it you don't have to have a human being involved in it at all completely automated other than the initial setup and teaching people how to use it but this is what differentiates.
(33:43):
The ones who scale and the ones who don't in all things the more hands that are in the cookie jar and the more points of potential failure in the more points of exposure and risk there are the slower and less able they are to scale it up and be successful I know plenty of people who love going and picking up all their coins I know people who have gone I don't want to do that anymore to paint the button it's not paying me enough now I'm going to hire this other third party company to come in and meanwhile that third party company doesn't fix the stuff in time your audits turn up that they're not actually paying you what.
(34:12):
They're not actually paying you what they're supposed to be paying you as your share of having those units there the machines get old and they never get replaced they're constantly breaking you can make a lot more money on it bring it in house and doing all that stuff yourself and it's very little lift to your team and you can buy a reputable brand that doesn't break every six months or three months you can keep a couple of common parts like door latches from tenants who just pull them open.
(34:41):
Don't wait for them to unlock just in case anyway I digress but the opportunity to generate more money through incidental sales of stuff through having an onsite laundry is huge the other part is just because you have in unit laundry doesn't mean you can't make money off of all the things that go into it you can sell single serve packets through an automated machine at the main office or leasing office or
(35:10):
somewhere on site and it doesn't take cash so it's all credit based and it'll spit out dryer sheets and single use detergent things and ferric softener things and whatever else goes in there whatever doesn't matter and it adds N.O.I.
why the margins are stupid you pay 50 cents for this freaking packet and you sell it for two bucks yes you have labor involved in loading it and maintaining the function and all that kind of stuff but it's pure margin why are you not doing it I think that's all I have to say about appliances today reputable brand availability repair ability new versus used and additional
(35:57):
sources of income to help you spike your net operating income make your property all good stuff minimize your risk minimize your damages supply the appliances yourself have your guys do it please if you are on YouTube watching this right now hit that bell and subscribe if you're listening on Apple podcast Spotify I heart radio Google podcast wherever podcasts are found please subscribe like
(36:26):
comment leave me three or four stars five stars send me a message let me know what you think podcast at tco method dot com have a great rest
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