July 20, 2023 • 32 mins
Massively Increase Your Net Operating Income™ with The TCO Method™
Andy discusses the benefits of automating as many repetitive processes as possible that are a time sink or an opportunity for complications, human error, or failure and how it can benefit your organization to do so.
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Episode Transcript
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(00:00):
[Music]
(00:24):
Welcome to the TCO Method, the only show focused on helping you massively increase your net
operating income. I am Andy McQuade and I want to thank you so much for tuning in to this
episode of the program. Got a couple of announcements I wanted to make and today we're going to talk a lot
about automation and why in 2023 or later if you are not automating as much stuff in your business
(00:55):
as you possibly can, you're doing it wrong. So first for the announcements,
starting in August of 2023, which is a couple of weeks from now, I'm going to have some interview
episodes lined up and live that'll come out on weekends, so they'll come out on like Saturday or
(01:21):
Sunday and my first guest who is confirmed now is going to be the cost-seg king, cost-seggregation
king, Yona Weiss, which is pretty awesome. So we're going to record his episode the first of August
and hopefully it'll be done by that weekend or the weekend after. I'm going to try to do at least
(01:46):
two a month, but we'll see. Everybody that I want to have on to interview is going to bring some
skills to the table, some information built around, helping you make more money, helping you keep
more money in Yona's case, but he'll go into the ins and outs of cost-seg and how it works and why
(02:11):
you should be doing it and what to look for and what not to look for and all that fun stuff.
So that's that. The other announcement is that this is the I think 20 second episode of the TCO method
and finally, finally, we have a firm date on when the TCO method website will be up from the developer,
(02:36):
so that's good. It'll be up before August 1st. It's supposed to be done by next Tuesday, which
I think Tuesday is the 25th. So look forward to that, so I can stop sending people to
anemicoid.com to look at stuff because everything TCO method is not there. And then, yeah, that's it.
(03:05):
The rest of this episode, let's talk about automation and get right into it. So in 2023,
you should be finding ways to automate everything.
Two reasons. I do this a lot. I number things a lot. Must be an ADHD thing. Anyway,
two reasons. One is every time you have a manual process, a manual activity,
(03:30):
you create another point of failure, meaning things can go wrong. Humans are human, right?
Most of them, at least, they're going to drop the ball. They're going to screw up. Things
are going to go sideways. Computers and automation can also screw up, but it's garbage in, garbage out.
(03:57):
If you mess it up when you create the process, you will get a messed up product.
But there's enough tools in the marketplace right now that are streamlined in a way and have
enough users where they've probably seen just about every stupid mistake that could be made.
(04:20):
And hopefully, they've adapted it. Just like everyone else should be in business,
they've adapted it to the lowest common denominator. The single point of failure in most processes is
the people. So if you remove people from the process, in a lot of cases, you're going to get better
(04:41):
results. I'm not going to say all cases because there are some things that just you need a human being
to be involved in. But in addition to removing the point of failure, it creates time
to do other things that involve generating revenue for your business.
(05:04):
This is a little bit more tied into larger organizations that use an ERP of some kind.
So an ERP is enterprise resource planning. Talked about it a little bit in the last episode.
The whole point of automation is to reduce the cost for each process you do.
(05:24):
And it's going to create time for your employees to come in and help you make more money.
To be more efficient to get more done. An efficiency play.
TCO method focuses on lowest total cost of ownership, which doesn't mean
cheapest junk, cheapest software, cheapest, whatever to get you by today. Your decisions today
(05:54):
are going to have long-reaching consequences for the entire time you own the property.
So your goal shouldn't be to be as cheap as possible today to stay in budget.
Your budget's important. You need to have a budget. We've talked about that too. However,
most operating budgets for real estate are based on the last 60 years of experience and business
(06:25):
practices, participating in the race to the bottom and buying the cheapest stuff to get you by today.
Regardless of if that cheapest stuff costs you two or three times more in the long run
and blows your budget five years from now, they're still focused on that cheapest piece of junk
(06:50):
to move forward. You have to look at your budget in a way that addresses those opportunities.
I'm being very politically correct this morning for some reason and I don't know why. So
the two things, opportunity cost, make more money, generate more NOI through better activity,
(07:11):
better efficiency, making sure things are getting done better so that your people can spend their time
doing things that add more value that can't be replaced by a computer. This is not an excuse to
fire people. A well run office is still going to need a manager and maybe an assistant manager if
(07:35):
it's big enough and some leasing people. The manager has to wear a few different hats. It's still
going to need maintenance. You're probably still going to lean into the one maintenance person for every
hundred doors, right? But the goal is to minimize long-term costs. So what can you automate? There's
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a bunch of stuff and I'm going to talk about the one that's not really in my wheelhouse, which is
leasing in collections. Like I don't do anything with those. That's not my problem. I help people find
stuff that fits their definition of curb appeal. You can automate a ton of stuff to make your people
more efficient. I think I've said that about 22 times so far in the last 10 minutes of recording.
(08:21):
What I want you to understand is that you're going to have to spend money to automate stuff.
It's not going to happen by accident. It's going to cost you time to set it up and troubleshoot it.
Right? So you've got labor and it's going to cost you for whatever software you're going to implement.
Whether you're adding a module to an existing suite of stuff that you already license or whether
(08:48):
you're looking for something new. So your ERP, your software, whether it's Yardy, whether it's one
site, whether it's real page, whether it's building them, whether it's whatever. NAMEA, NAMEA operating
system. Some of them will have modules that you can use to automate processes to plan ahead,
(09:12):
to simplify workflows, to make sure things are happening in an efficient way. But you have to use
them. Sometimes you have to pay for them and turn them on. Other times they're already there. And
you just don't know how to use them or you're not using them. Or maybe you are using them, but you're
not using them to their best, most efficient implementation. So you could hire a third party
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developer to help you work with that stuff internally. You could call the vendor and try to work
through it yourself. But the reality is that most property management companies are not technology
companies. Some of them are adopting some really amazing stuff, which will probably do a different
episode on at some point, but they're not technology companies. So finding an in-house
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IT person or an in-house technology developer, if you're not going out and specifically hiring
for that role with somebody who has that experience somewhere else, it's going to be a real rough time.
And your time is valuable, right? How much is your time worth? How much is your people's time worth?
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What's their total comp? Are you going to saddle somebody with developing these systems for your
whole organization? That's a question you have to ask. If you are the owner, this may not be the task
for you, unless you're really, really tech savvy. But anyway, automate your leasing. A lot of your ERPs
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will give you the ability to build a website for the property or properties that you are
leasing out. It can create a tenant portal or your tenants to log in, look at their rent balance,
pay their bill, schedule work orders for maintenance, put in complaints or reports or leave good reviews
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like there's a ton of stuff you can build into these that allow your tenants to have a more
integrated online experience with where they live. When you get into app development,
some of these providers also have apps available that your tenants can put on their phones.
And they can do the same things they can do on a website. They can pay their rent, schedule work orders
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for maintenance, leave complaints. Sometimes they have Bluetooth activated keys for their rooms.
If it's a higher end property or for common areas like the gym, the pool,
tennis courts, whatever, if it's a garden apartment somewhere that has a little bit of tech built
into it. But your leasing side can also build a tour calendar and a tour schedule
(12:10):
appointment center into that website. So, prospective tenants who don't like talking to human beings
can go fill out a forum, drop their cell phone number in and schedule an appointment like with a
calendar plug in to do a tour of a suite that they're looking to lease, which is awesome because
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you're taking, again, you're taking those points of failure out. Mixed results from what I've heard
because there's a lot of people who will schedule those things online and just ghost and never show up.
And then you've got people sitting there with their thumbs in their butts, which is where
opportunity cost comes in. What's it costing you for that person to be sitting around waiting
for someone to show up or to be 20 minutes late or whatever. So, having people with many hats can
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help you defray some of that cost. But else can you automate? Automate your rent payments
should be the very first thing that you do. Every single survey, every single study, every single review
that I have seen since the onset of the pandemic, right? So, 2020
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has touted the positive results of automating rent payments from your tenants.
Not just having an online portal, but that's helpful. Not just having an online portal to pay the rent.
But having your payment processor that's in your system set up in a way that allows your tenant to
(13:44):
buy default. It defaults to automatic rent charges on whatever payment form they put in, whether it's a bank
counter, a credit card or debit card, whatever. It defaults to tapping that on the first of the month
every single month. And if they don't want it to, they have to uncheck the box and make it so
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it's a manual process for them every month to go online and pay the bill, whether it's on the app
or on the website, it should be integrated and it should create visibility for them either way,
right? And it should be the same thing if you have amenities that you would charge your tenants for,
those amenities should be either included in the rent or you should have like a menu where they
(14:36):
can pick and choose what they want, all a cart and pay for their access to whatever amenities
you're going to have on campus. So, the reason you automate, the reason why automated rent payments
were so good is because your collection rate goes up by like 20 or 25 percent for on-time rent
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payments just by having that automated auto-deduct set up every single month as a default in your system.
Who doesn't want to collect their rent on time more often? Are you serious? And the fact that you're
not paying a human being to be involved in that process on your end is huge. You're taking a
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couple points of failure out because now there's no human being involved in collecting that rent check,
going door to door or waiting for them to to to to walk up to the office or
mail you the payment depending on how you process that side.
You don't need to pay one of your employees to go chasing them down when their rent is late,
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right? You can automate workflows when rent is late for the people who don't do automatic payments or
for when their payment form is declined. So, as soon as they get declined or as soon as their payment is
late it automatically generates an email and it flags your leasing manager and it flags your
your tenant and says, "Hey, your rent is late." And then, you know, five days it does it and then 14 days
(16:09):
it does it and then you can start evicting people. Provided it meets the legal criteria for your state.
Doesn't work that way in New York because New York is a hellhole for multi-family operators.
Sorry, New Yorkers, it might be home. I grew up here. I will never ever have a residential tenant in New
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York State. Ever. I will burn my house down first. All right, so, automating rent payments. You can
also and should also automate maintenance. What do I mean by automate maintenance? What's the biggest
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cost on your labor? If you've done process costing, right? Which we've talked about, if you know
what every maintenance call costs your organization. From the time that phone rings in the office
to the time the job is complete, you should know what your time between the call coming in
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and the thing being complete costs you for every single step of the process. Well, what do you mean?
I will do an episode on process costing. I will eventually. It is very dry stuff and half the
list is going to tune out immediately. So I'm trying to keep it as simple as possible for the show.
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But your maintenance people waste more time with touching everything manually and having
discussions with the front desk and driving around either on campus or two stores. In a lot of cases,
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then they do actually doing the work in the unit with the tenant or when the tenant's not there,
just going into the unit and taking care of the problem that they reported. A lot of these ERPs,
just like on the leasing side and the rent collection side have stuff built in to do maintenance requests.
It does take some technology, right? You have to have your maintenance crew equipped with some sort
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of smart device, iPhone, iPad, Android tablet, Android phone, doesn't matter. Most of the operators
have both versions. And when a maintenance request comes in, whether it's through a phone call,
which is what you want to avoid, that's why you build the online module because literally
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over 80% of tenants surveyed referred to enter maintenance requests via an app on their phone or via text.
That's a huge number. They don't want to get on the phone and talk to somebody. They want to
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lick and type, let them. You're removing another point of failure and you're creating a paper trail
instead of a phone call where something can get lost in translation between what the tenant is saying
and what the person on the other end of the phone is hearing. Now you have it in writing,
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like that in and of itself is a no-brainer. You're going into somebody's home. Yes,
you own that property. I get it, but you're going into their home legally. It is theirs while that
leases an effect. Make sure you have a paper trail and it's accurate and it should be completely
thoughtless or it should be completely a no-brainer to have the tenant provide that written documentation
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for you. Again, you're removing a point of failure. You're removing a point of stupidity that could
go sideways. Always plan your systems and your apartments and your operation for the lowest common
denominator. It's perfect. All right, anyway, I'm done being excited about the maintenance automation
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thing. The call comes in or the email comes in, the text comes in, the automated work order comes
in and then your guys need to walk up to the office, pick up a piece of paper, talk to somebody,
drink a cup of coffee, walk to the unit, get inside if they can. See what the problem is,
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figure out what they need to fix the problem if it's not something simple. Go to the shop if they
have a shop on site, see if there's stuff in there to fix it. If there's not stuff in the shop to
fix it, then they either have to order it online and wait for a couple days, which reduces your
time to repair or increases your time to repair. I mean, sorry. Or they have to get in the car, drive
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to Home Depot, drive to Lowe's, drive to whatever. Maybe buy something that's in in spec or not in
spec and we're not talking about purchasing standards and operational stuff, specifications for products
and whatever, that's not relevant. I'm talking in reality right now, not in what your plan should be.
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So they're going to drive to the store. They're going to have another cup of coffee. They're going to
talk to the guy at the pro desk or they're going to wander around looking at tools and be in goofy.
Think about three other things they need to buy while they're there. Maybe they're side project for
their kid and then they're going to buy everything and then they'll come back. So your windshield time
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is ridiculous and you're just hemorrhaging money as part of process costing. Right? Because your
total comp for your associate, for your employee, for your maintenance guy is significantly higher than
their hourly rate for a lot of reasons. Again, this is not a process costing episode, but it is important.
And then they come back to the property. They go to the unit if they can get in. If not,
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they have to schedule it more downtime, more hands in the cookie jar, more points of failure.
They eventually get in. They fix the problem. By the time it's all said and done,
you've paid through the nose for labor for whoever took the call, scheduled it and entered into the
the ERP system, whether it's ERD or one site or whatever. You've paid for the maintenance guy to shop
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drink coffee and talk to people, walk back and forth to the office or maybe get in a scooter or
get in a whatever vehicle golf cart you've got on property to get back and forth from the office
if it's a big enough campus. And lots all nice and the problem is fixed. Do know how much money
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you could have saved. How many hours of labor could have been spent on doing other things that can
help you make more money? Fix things faster, be more efficient. So with the automated systems,
the entry is made on an app or on the website or via text. It automatically logs it to that tenant
in the apartment. So now that's a step taken out for whoever's in the office. When it's logged, almost
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instantly it goes to the maintenance person's iPad, iPhone, whatever. They get it, they have a certain
amount of time to acknowledge that they see it. And then it already knows what the other stuff they're
working on is because this isn't the first one. So it says, hey, you've got an opening here and you
schedule it for this. And they'll say yes and it'll send stuff to the tenant to let them know it's
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there. And all this is being done via computer with no no phone call, no knock at the door,
instant saves you time. Time is money. You can cut your maintenance turn time and interaction
by over a third. Sometimes in half just depends on the property layout and the type of building. And
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like I said, there's a lot of moving parts in real estate and there's no two properties that are
identical because of people, because of tenants, because of geographic location, market dynamics,
the whole thing. It needs you need to be adaptable and flexible and so do your systems.
But it can still cut down your costs on the labor side by a lot. It keeps your guy from walking
(25:01):
back and forth to the office and talking. Some of the systems have the ability to have an inventory
management system baked in where if they've got a shop on site, it'll tell them what products are
there. It'll show them a picture of the exact product. So like if a faucet is broken,
it'll say, hey, we have this cool ceramic valve that you can install or if it's actually broken,
broken, it's like, oh, hey, here's this faucet. We've got three of them in the shop. Grab it when
(25:25):
you can. Right? And then you just check it and log it off and it goes and gets booked to repairs
for that specific unit. Data is your friend being able to see patterns and information is your
friend. So part of automation's beauty is that by default, you're creating data if you're doing it
correctly. Now I still work with a lot of operators who just order whatever in bulk and throw it
(25:52):
in the shop and then stuff that's taken for repairs, but it never gets logged into specific units
for what was used. So there's no inventory management at the shop level that's being done. And so costs
can spy a lot of control. If you build the systems correctly around it, you're basically creating a
(26:13):
store inside your office for that property or for that company that you can log in a sign
to where the problem areas are and you can start to see patterns. Right? You can start to identify
what the lowest hanging fruit is from an opportunity standpoint for things to break all the time.
(26:34):
Like, yeah, you can kind of do it by going through your purchase records, right? You can go through
when you can see, oh, well, you know, we used 15 bath faucets and three kitchen faucets and 44 valve
stems and 17, uh, diverter valves and all this other stuff, which is fine. But for how long?
How accurate is that? Are you placing monthly orders, weekly orders, buy monthly, once a quarter,
(27:00):
every day, every week is everything being logged accurately from a product to product standpoint?
Or is it just a bill that's getting tossed in and when you need to find out how much of
something you have to manually go through and work that process and figure out what all those things
are? You would think that you would want the granular data so you can see where your failures are
and do things to minimize them because you're going for total cost of ownership. You want to minimize
(27:27):
the impact long term. So you, you should be finding ways to automate your purchasing.
You should be finding ways to automate your invoice payments, not just to your subcontractors,
but to your vendors that sell you product, contract management for your subs. Part of your contract
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management should be copies of the contracts online in storage. And it's not necessarily an automation
thing, but it should be there so it saves time later. Part of technology adoption is adopting it
in a way that uses it to its full potential or as close as you can possibly get, but it takes a ton
(28:14):
of time to set up at the beginning. This is not there is no get-rich-quick thing in real estate. This is
another thing where you need to build the systems and processes and expectations and then hold people
accountable for keeping them under control. So when you're contracting a sub, automatically you
should get a W9 and an insurance certificate with you named as the additionally insured if you can
(28:38):
and a copy of the contract and it should be in their file. The units that they're working on
could be baked into the system to tally repair costs, capex costs, operational costs,
buy the unit, buy the door. Like it's fine to say I'm going to budget $17,000 per unit
(28:59):
for every unit in here to do full rehabs. Cool, $17,000 is a good number if you're not ripping drywall
off and changing electrical employment and all that stuff. That should count for a studio
and for a two bed bath and a half. That's $17,000. The studio will be less but the two bed bath
and a half will be more. So depending on your unit mix it should be something where you're
(29:23):
you're automating that, but if you can see granularly what's being spent and you're doing what I
suggest which is semi-centralized purchasing where you're buying the product and setting the standards
and making sure that the stuff that you need is there, right, you're going to manage that as a project
manager as a GC, almost to make sure things go smoothly, to control your costs. You pay your subs more
(29:50):
so they show up but you're taking all that extra work out of their hands. All of this goes into the
automation thing, all of this goes into the big data collection thing, all of this goes into making
more efficient decisions so that you can grow your NLI over time. These are all things that have to
happen. You need to be doing the things in your business every single day that will pay dividends
(30:14):
down the road. So that means you have to spend the money now to set the systems up correctly.
It's worth doing because you're going to generate the information, you're going to generate the
granular data so you can make better decisions further down the road. This works really, really well
(30:34):
for buy and hold and value add investors who are who I work with primarily. Automating all your
things, I mean all your things, maintenance, leasing, contract management, even keeping all your
records, right, not just the purchasing and processing but knowing every serial number for every single
(30:55):
appliance, hot water tank furnace, you name it that's attached to every single apartment.
Having that information ready means that you don't have to tag maintenance to go and find the
serial number when there's a problem if it's still under warranted even if it's not. All of those
records, all that information built into your systems will make you more efficient and will save
(31:20):
you money long term. That's all I got time for. Just ran a little bit longer than I intended.
Automate everything. Your systems have ways to do it. You don't have systems you need to get some.
Please like, hit the bell if you're on YouTube, subscribe, leave me a comment, leave me a review
(31:41):
on Apple podcasts, Spotify, Stitcher, wherever you get your podcasts. Have a great day.
Make sure you tune in. Beginning of August for Yona Weiss, the cost segregation king,
as he comes on the program to answer everybody's burning questions about how they can keep more of their
(32:02):
money. Have a great day.
(upbeat music)
[MUSIC]
[Music]
(00:24):
Welcome to the TCO Method, the only show focused on helping you massively increase your net
operating income. I am Andy McQuade and I want to thank you so much for tuning in to this
episode of the program. Got a couple of announcements I wanted to make and today we're going to talk a lot
about automation and why in 2023 or later if you are not automating as much stuff in your business
(00:55):
as you possibly can, you're doing it wrong. So first for the announcements,
starting in August of 2023, which is a couple of weeks from now, I'm going to have some interview
episodes lined up and live that'll come out on weekends, so they'll come out on like Saturday or
(01:21):
Sunday and my first guest who is confirmed now is going to be the cost-seg king, cost-seggregation
king, Yona Weiss, which is pretty awesome. So we're going to record his episode the first of August
and hopefully it'll be done by that weekend or the weekend after. I'm going to try to do at least
(01:46):
two a month, but we'll see. Everybody that I want to have on to interview is going to bring some
skills to the table, some information built around, helping you make more money, helping you keep
more money in Yona's case, but he'll go into the ins and outs of cost-seg and how it works and why
(02:11):
you should be doing it and what to look for and what not to look for and all that fun stuff.
So that's that. The other announcement is that this is the I think 20 second episode of the TCO method
and finally, finally, we have a firm date on when the TCO method website will be up from the developer,
(02:36):
so that's good. It'll be up before August 1st. It's supposed to be done by next Tuesday, which
I think Tuesday is the 25th. So look forward to that, so I can stop sending people to
anemicoid.com to look at stuff because everything TCO method is not there. And then, yeah, that's it.
(03:05):
The rest of this episode, let's talk about automation and get right into it. So in 2023,
you should be finding ways to automate everything.
Two reasons. I do this a lot. I number things a lot. Must be an ADHD thing. Anyway,
two reasons. One is every time you have a manual process, a manual activity,
(03:30):
you create another point of failure, meaning things can go wrong. Humans are human, right?
Most of them, at least, they're going to drop the ball. They're going to screw up. Things
are going to go sideways. Computers and automation can also screw up, but it's garbage in, garbage out.
(03:57):
If you mess it up when you create the process, you will get a messed up product.
But there's enough tools in the marketplace right now that are streamlined in a way and have
enough users where they've probably seen just about every stupid mistake that could be made.
(04:20):
And hopefully, they've adapted it. Just like everyone else should be in business,
they've adapted it to the lowest common denominator. The single point of failure in most processes is
the people. So if you remove people from the process, in a lot of cases, you're going to get better
(04:41):
results. I'm not going to say all cases because there are some things that just you need a human being
to be involved in. But in addition to removing the point of failure, it creates time
to do other things that involve generating revenue for your business.
(05:04):
This is a little bit more tied into larger organizations that use an ERP of some kind.
So an ERP is enterprise resource planning. Talked about it a little bit in the last episode.
The whole point of automation is to reduce the cost for each process you do.
(05:24):
And it's going to create time for your employees to come in and help you make more money.
To be more efficient to get more done. An efficiency play.
TCO method focuses on lowest total cost of ownership, which doesn't mean
cheapest junk, cheapest software, cheapest, whatever to get you by today. Your decisions today
(05:54):
are going to have long-reaching consequences for the entire time you own the property.
So your goal shouldn't be to be as cheap as possible today to stay in budget.
Your budget's important. You need to have a budget. We've talked about that too. However,
most operating budgets for real estate are based on the last 60 years of experience and business
(06:25):
practices, participating in the race to the bottom and buying the cheapest stuff to get you by today.
Regardless of if that cheapest stuff costs you two or three times more in the long run
and blows your budget five years from now, they're still focused on that cheapest piece of junk
(06:50):
to move forward. You have to look at your budget in a way that addresses those opportunities.
I'm being very politically correct this morning for some reason and I don't know why. So
the two things, opportunity cost, make more money, generate more NOI through better activity,
(07:11):
better efficiency, making sure things are getting done better so that your people can spend their time
doing things that add more value that can't be replaced by a computer. This is not an excuse to
fire people. A well run office is still going to need a manager and maybe an assistant manager if
(07:35):
it's big enough and some leasing people. The manager has to wear a few different hats. It's still
going to need maintenance. You're probably still going to lean into the one maintenance person for every
hundred doors, right? But the goal is to minimize long-term costs. So what can you automate? There's
(07:56):
a bunch of stuff and I'm going to talk about the one that's not really in my wheelhouse, which is
leasing in collections. Like I don't do anything with those. That's not my problem. I help people find
stuff that fits their definition of curb appeal. You can automate a ton of stuff to make your people
more efficient. I think I've said that about 22 times so far in the last 10 minutes of recording.
(08:21):
What I want you to understand is that you're going to have to spend money to automate stuff.
It's not going to happen by accident. It's going to cost you time to set it up and troubleshoot it.
Right? So you've got labor and it's going to cost you for whatever software you're going to implement.
Whether you're adding a module to an existing suite of stuff that you already license or whether
(08:48):
you're looking for something new. So your ERP, your software, whether it's Yardy, whether it's one
site, whether it's real page, whether it's building them, whether it's whatever. NAMEA, NAMEA operating
system. Some of them will have modules that you can use to automate processes to plan ahead,
(09:12):
to simplify workflows, to make sure things are happening in an efficient way. But you have to use
them. Sometimes you have to pay for them and turn them on. Other times they're already there. And
you just don't know how to use them or you're not using them. Or maybe you are using them, but you're
not using them to their best, most efficient implementation. So you could hire a third party
(09:40):
developer to help you work with that stuff internally. You could call the vendor and try to work
through it yourself. But the reality is that most property management companies are not technology
companies. Some of them are adopting some really amazing stuff, which will probably do a different
episode on at some point, but they're not technology companies. So finding an in-house
(10:05):
IT person or an in-house technology developer, if you're not going out and specifically hiring
for that role with somebody who has that experience somewhere else, it's going to be a real rough time.
And your time is valuable, right? How much is your time worth? How much is your people's time worth?
(10:27):
What's their total comp? Are you going to saddle somebody with developing these systems for your
whole organization? That's a question you have to ask. If you are the owner, this may not be the task
for you, unless you're really, really tech savvy. But anyway, automate your leasing. A lot of your ERPs
(10:49):
will give you the ability to build a website for the property or properties that you are
leasing out. It can create a tenant portal or your tenants to log in, look at their rent balance,
pay their bill, schedule work orders for maintenance, put in complaints or reports or leave good reviews
(11:12):
like there's a ton of stuff you can build into these that allow your tenants to have a more
integrated online experience with where they live. When you get into app development,
some of these providers also have apps available that your tenants can put on their phones.
And they can do the same things they can do on a website. They can pay their rent, schedule work orders
(11:39):
for maintenance, leave complaints. Sometimes they have Bluetooth activated keys for their rooms.
If it's a higher end property or for common areas like the gym, the pool,
tennis courts, whatever, if it's a garden apartment somewhere that has a little bit of tech built
into it. But your leasing side can also build a tour calendar and a tour schedule
(12:10):
appointment center into that website. So, prospective tenants who don't like talking to human beings
can go fill out a forum, drop their cell phone number in and schedule an appointment like with a
calendar plug in to do a tour of a suite that they're looking to lease, which is awesome because
(12:31):
you're taking, again, you're taking those points of failure out. Mixed results from what I've heard
because there's a lot of people who will schedule those things online and just ghost and never show up.
And then you've got people sitting there with their thumbs in their butts, which is where
opportunity cost comes in. What's it costing you for that person to be sitting around waiting
for someone to show up or to be 20 minutes late or whatever. So, having people with many hats can
(12:57):
help you defray some of that cost. But else can you automate? Automate your rent payments
should be the very first thing that you do. Every single survey, every single study, every single review
that I have seen since the onset of the pandemic, right? So, 2020
(13:17):
has touted the positive results of automating rent payments from your tenants.
Not just having an online portal, but that's helpful. Not just having an online portal to pay the rent.
But having your payment processor that's in your system set up in a way that allows your tenant to
(13:44):
buy default. It defaults to automatic rent charges on whatever payment form they put in, whether it's a bank
counter, a credit card or debit card, whatever. It defaults to tapping that on the first of the month
every single month. And if they don't want it to, they have to uncheck the box and make it so
(14:09):
it's a manual process for them every month to go online and pay the bill, whether it's on the app
or on the website, it should be integrated and it should create visibility for them either way,
right? And it should be the same thing if you have amenities that you would charge your tenants for,
those amenities should be either included in the rent or you should have like a menu where they
(14:36):
can pick and choose what they want, all a cart and pay for their access to whatever amenities
you're going to have on campus. So, the reason you automate, the reason why automated rent payments
were so good is because your collection rate goes up by like 20 or 25 percent for on-time rent
(15:02):
payments just by having that automated auto-deduct set up every single month as a default in your system.
Who doesn't want to collect their rent on time more often? Are you serious? And the fact that you're
not paying a human being to be involved in that process on your end is huge. You're taking a
(15:25):
couple points of failure out because now there's no human being involved in collecting that rent check,
going door to door or waiting for them to to to to walk up to the office or
mail you the payment depending on how you process that side.
You don't need to pay one of your employees to go chasing them down when their rent is late,
(15:46):
right? You can automate workflows when rent is late for the people who don't do automatic payments or
for when their payment form is declined. So, as soon as they get declined or as soon as their payment is
late it automatically generates an email and it flags your leasing manager and it flags your
your tenant and says, "Hey, your rent is late." And then, you know, five days it does it and then 14 days
(16:09):
it does it and then you can start evicting people. Provided it meets the legal criteria for your state.
Doesn't work that way in New York because New York is a hellhole for multi-family operators.
Sorry, New Yorkers, it might be home. I grew up here. I will never ever have a residential tenant in New
(16:34):
York State. Ever. I will burn my house down first. All right, so, automating rent payments. You can
also and should also automate maintenance. What do I mean by automate maintenance? What's the biggest
(16:54):
cost on your labor? If you've done process costing, right? Which we've talked about, if you know
what every maintenance call costs your organization. From the time that phone rings in the office
to the time the job is complete, you should know what your time between the call coming in
(17:24):
and the thing being complete costs you for every single step of the process. Well, what do you mean?
I will do an episode on process costing. I will eventually. It is very dry stuff and half the
list is going to tune out immediately. So I'm trying to keep it as simple as possible for the show.
(17:44):
But your maintenance people waste more time with touching everything manually and having
discussions with the front desk and driving around either on campus or two stores. In a lot of cases,
(18:08):
then they do actually doing the work in the unit with the tenant or when the tenant's not there,
just going into the unit and taking care of the problem that they reported. A lot of these ERPs,
just like on the leasing side and the rent collection side have stuff built in to do maintenance requests.
It does take some technology, right? You have to have your maintenance crew equipped with some sort
(18:32):
of smart device, iPhone, iPad, Android tablet, Android phone, doesn't matter. Most of the operators
have both versions. And when a maintenance request comes in, whether it's through a phone call,
which is what you want to avoid, that's why you build the online module because literally
(18:57):
over 80% of tenants surveyed referred to enter maintenance requests via an app on their phone or via text.
That's a huge number. They don't want to get on the phone and talk to somebody. They want to
(19:18):
lick and type, let them. You're removing another point of failure and you're creating a paper trail
instead of a phone call where something can get lost in translation between what the tenant is saying
and what the person on the other end of the phone is hearing. Now you have it in writing,
(19:39):
like that in and of itself is a no-brainer. You're going into somebody's home. Yes,
you own that property. I get it, but you're going into their home legally. It is theirs while that
leases an effect. Make sure you have a paper trail and it's accurate and it should be completely
thoughtless or it should be completely a no-brainer to have the tenant provide that written documentation
(20:06):
for you. Again, you're removing a point of failure. You're removing a point of stupidity that could
go sideways. Always plan your systems and your apartments and your operation for the lowest common
denominator. It's perfect. All right, anyway, I'm done being excited about the maintenance automation
(20:31):
thing. The call comes in or the email comes in, the text comes in, the automated work order comes
in and then your guys need to walk up to the office, pick up a piece of paper, talk to somebody,
drink a cup of coffee, walk to the unit, get inside if they can. See what the problem is,
(20:56):
figure out what they need to fix the problem if it's not something simple. Go to the shop if they
have a shop on site, see if there's stuff in there to fix it. If there's not stuff in the shop to
fix it, then they either have to order it online and wait for a couple days, which reduces your
time to repair or increases your time to repair. I mean, sorry. Or they have to get in the car, drive
(21:23):
to Home Depot, drive to Lowe's, drive to whatever. Maybe buy something that's in in spec or not in
spec and we're not talking about purchasing standards and operational stuff, specifications for products
and whatever, that's not relevant. I'm talking in reality right now, not in what your plan should be.
(21:46):
So they're going to drive to the store. They're going to have another cup of coffee. They're going to
talk to the guy at the pro desk or they're going to wander around looking at tools and be in goofy.
Think about three other things they need to buy while they're there. Maybe they're side project for
their kid and then they're going to buy everything and then they'll come back. So your windshield time
(22:08):
is ridiculous and you're just hemorrhaging money as part of process costing. Right? Because your
total comp for your associate, for your employee, for your maintenance guy is significantly higher than
their hourly rate for a lot of reasons. Again, this is not a process costing episode, but it is important.
And then they come back to the property. They go to the unit if they can get in. If not,
(22:35):
they have to schedule it more downtime, more hands in the cookie jar, more points of failure.
They eventually get in. They fix the problem. By the time it's all said and done,
you've paid through the nose for labor for whoever took the call, scheduled it and entered into the
the ERP system, whether it's ERD or one site or whatever. You've paid for the maintenance guy to shop
(22:57):
drink coffee and talk to people, walk back and forth to the office or maybe get in a scooter or
get in a whatever vehicle golf cart you've got on property to get back and forth from the office
if it's a big enough campus. And lots all nice and the problem is fixed. Do know how much money
(23:20):
you could have saved. How many hours of labor could have been spent on doing other things that can
help you make more money? Fix things faster, be more efficient. So with the automated systems,
the entry is made on an app or on the website or via text. It automatically logs it to that tenant
in the apartment. So now that's a step taken out for whoever's in the office. When it's logged, almost
(23:47):
instantly it goes to the maintenance person's iPad, iPhone, whatever. They get it, they have a certain
amount of time to acknowledge that they see it. And then it already knows what the other stuff they're
working on is because this isn't the first one. So it says, hey, you've got an opening here and you
schedule it for this. And they'll say yes and it'll send stuff to the tenant to let them know it's
(24:12):
there. And all this is being done via computer with no no phone call, no knock at the door,
instant saves you time. Time is money. You can cut your maintenance turn time and interaction
by over a third. Sometimes in half just depends on the property layout and the type of building. And
(24:37):
like I said, there's a lot of moving parts in real estate and there's no two properties that are
identical because of people, because of tenants, because of geographic location, market dynamics,
the whole thing. It needs you need to be adaptable and flexible and so do your systems.
But it can still cut down your costs on the labor side by a lot. It keeps your guy from walking
(25:01):
back and forth to the office and talking. Some of the systems have the ability to have an inventory
management system baked in where if they've got a shop on site, it'll tell them what products are
there. It'll show them a picture of the exact product. So like if a faucet is broken,
it'll say, hey, we have this cool ceramic valve that you can install or if it's actually broken,
broken, it's like, oh, hey, here's this faucet. We've got three of them in the shop. Grab it when
(25:25):
you can. Right? And then you just check it and log it off and it goes and gets booked to repairs
for that specific unit. Data is your friend being able to see patterns and information is your
friend. So part of automation's beauty is that by default, you're creating data if you're doing it
correctly. Now I still work with a lot of operators who just order whatever in bulk and throw it
(25:52):
in the shop and then stuff that's taken for repairs, but it never gets logged into specific units
for what was used. So there's no inventory management at the shop level that's being done. And so costs
can spy a lot of control. If you build the systems correctly around it, you're basically creating a
(26:13):
store inside your office for that property or for that company that you can log in a sign
to where the problem areas are and you can start to see patterns. Right? You can start to identify
what the lowest hanging fruit is from an opportunity standpoint for things to break all the time.
(26:34):
Like, yeah, you can kind of do it by going through your purchase records, right? You can go through
when you can see, oh, well, you know, we used 15 bath faucets and three kitchen faucets and 44 valve
stems and 17, uh, diverter valves and all this other stuff, which is fine. But for how long?
How accurate is that? Are you placing monthly orders, weekly orders, buy monthly, once a quarter,
(27:00):
every day, every week is everything being logged accurately from a product to product standpoint?
Or is it just a bill that's getting tossed in and when you need to find out how much of
something you have to manually go through and work that process and figure out what all those things
are? You would think that you would want the granular data so you can see where your failures are
and do things to minimize them because you're going for total cost of ownership. You want to minimize
(27:27):
the impact long term. So you, you should be finding ways to automate your purchasing.
You should be finding ways to automate your invoice payments, not just to your subcontractors,
but to your vendors that sell you product, contract management for your subs. Part of your contract
(27:52):
management should be copies of the contracts online in storage. And it's not necessarily an automation
thing, but it should be there so it saves time later. Part of technology adoption is adopting it
in a way that uses it to its full potential or as close as you can possibly get, but it takes a ton
(28:14):
of time to set up at the beginning. This is not there is no get-rich-quick thing in real estate. This is
another thing where you need to build the systems and processes and expectations and then hold people
accountable for keeping them under control. So when you're contracting a sub, automatically you
should get a W9 and an insurance certificate with you named as the additionally insured if you can
(28:38):
and a copy of the contract and it should be in their file. The units that they're working on
could be baked into the system to tally repair costs, capex costs, operational costs,
buy the unit, buy the door. Like it's fine to say I'm going to budget $17,000 per unit
(28:59):
for every unit in here to do full rehabs. Cool, $17,000 is a good number if you're not ripping drywall
off and changing electrical employment and all that stuff. That should count for a studio
and for a two bed bath and a half. That's $17,000. The studio will be less but the two bed bath
and a half will be more. So depending on your unit mix it should be something where you're
(29:23):
you're automating that, but if you can see granularly what's being spent and you're doing what I
suggest which is semi-centralized purchasing where you're buying the product and setting the standards
and making sure that the stuff that you need is there, right, you're going to manage that as a project
manager as a GC, almost to make sure things go smoothly, to control your costs. You pay your subs more
(29:50):
so they show up but you're taking all that extra work out of their hands. All of this goes into the
automation thing, all of this goes into the big data collection thing, all of this goes into making
more efficient decisions so that you can grow your NLI over time. These are all things that have to
happen. You need to be doing the things in your business every single day that will pay dividends
(30:14):
down the road. So that means you have to spend the money now to set the systems up correctly.
It's worth doing because you're going to generate the information, you're going to generate the
granular data so you can make better decisions further down the road. This works really, really well
(30:34):
for buy and hold and value add investors who are who I work with primarily. Automating all your
things, I mean all your things, maintenance, leasing, contract management, even keeping all your
records, right, not just the purchasing and processing but knowing every serial number for every single
(30:55):
appliance, hot water tank furnace, you name it that's attached to every single apartment.
Having that information ready means that you don't have to tag maintenance to go and find the
serial number when there's a problem if it's still under warranted even if it's not. All of those
records, all that information built into your systems will make you more efficient and will save
(31:20):
you money long term. That's all I got time for. Just ran a little bit longer than I intended.
Automate everything. Your systems have ways to do it. You don't have systems you need to get some.
Please like, hit the bell if you're on YouTube, subscribe, leave me a comment, leave me a review
(31:41):
on Apple podcasts, Spotify, Stitcher, wherever you get your podcasts. Have a great day.
Make sure you tune in. Beginning of August for Yona Weiss, the cost segregation king,
as he comes on the program to answer everybody's burning questions about how they can keep more of their
(32:02):
money. Have a great day.
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