James: Hey audience, welcome to Achieve Wealth Podcast. This is James Kandasamy. Achieve Wealth focuses on commercial real estate and especially focusing a lot on Value Add Real Estate. And today we have Kimberly Radaker Bays from Dallas, Texas. Kimberly has done almost 430 million of assets specifically multifamily.
And this is just under her own asset management. And you know the 430 million represents almost 7200 units. Currently, they still own like 5000 of those units. And they focus a lot on deep Value Add which is an asset, not say an asset class, it’s a type of Value Add that you know, gives you the highest return, right.
So they have done almost 10 deals up to now. One important thing that I want to mention before we bring Kimberly live is that Kimberly owns; construction management, property management, asset management and she also owns materials management, which is an important aspect of Value Add in vertical integration as well.
So hey Kim, welcome to the show.
Kimberly: Hi, thanks so much for having me.
James: Good, good. So I mean, you own a lot of units. You have been very successful in your Value Add Real Estate acquisition and you’re playing in one of the hottest market, Dallas. So, can you briefly walk our audience and listeners through on how was your journey since the day you started? What year did you start? And can you just walk through your whole experience?
Kimberly: Well, I started in 2007, with some single-family houses and kind of did that when my kids were really little. And then as they got a little bit older, it was harder to take them into Value Add, fix and flips and rental houses and that sort of thing when they were getting into stuff. And so, took a little bit of time away from single families and then got into multifamily in 2011.
So bought the first property, was a 77 unit property in Irving, Texas. And went full cycle with that one in only 15 months and then did 1031 into 244 unit property. While we still own that one, we brought 444 unit property in Arlington. And then kind of as we sold, it just kept growing. So purchased three properties in 2015, which have now all been sold.
And we bought three in 2016, three in 2017 and seven in 2018. And then one so far this year. So all of those, we still own; the 2016 and on, we still own at this point. So that’s 4874 units across 14 properties scattered all across the Metroplex, Easter Garland and West to West Fort Worth so.
James: Awesome. Awesome. And you do a lot on deep Value Add, right? So can you explain why did you choose deep Value Add?
Kimberly: I guess we weren’t scared of it. And we had sort of a knack for it from doing some of the single-family stuff that we had done previously. So we got started with that. And so because we do self-managed because we have our renovation teams in-house because we have the materials import it’s a lot easier for us to undertake some of those projects.
I mean, there’s some of those projects that I definitely would never hand over to third party management. It would just be a real mess if you did, probably so it really takes an awful lot of hands-on stuff. And even then there’s plenty of speed bumps that roll along with deep Value Add.
We have a property that we purchased almost two years ago, that had 200 hard down units that hadn’t been occupied in at least 13 years that we know of. My guess is closer to 16 or 17 years. So that’s been an ongoing project. And it’s definitely hit various little bumps along the way with city inspectors and various things.
And, you know, pipes that hadn’t been used in forever, most of the copper was gone, all those sorts of things. But we finally have all, almost all the way back online so.
James: So when you analyze deep Value Add, right, I mean, I’m sure you look for the value like you bought deals where there was a lot of units down and I think there’s a lot of mismanagement and I mean, is that kind of deal easy to find nowadays?
Kimberly: No, it’s not. The ones that are that deep Value Add are very, very few and far between at this point. But there is a ton of Value Add still available, just kind of depends on what you’re looking for. So there’s a lot of properties that have had some work done to them. But maybe more of the exterior has been done in the units, haven’t seen as much on the interior.
And there’s also a lot of room for Value Add on the management side. There’s a lot of owners particularly that have owned for a long time in the market that haven’t kept up with the rental increases that DFW has seen over the past five years. And so oftentimes, even a property that’s in pretty decent shape, you can go in and definitely do some renovations and add some value there. But a lot of value can also be generated just by getting all the units up to the market.
James: Yeah, I know it’s harder to find the deep Value Add nowadays. And for example, the last deal that you did, you bought one deal this year, right? Can you describe how many units is that? And can you describe the characteristics of that deal?
Kimberly: Sure, absolutely. So that property is 650 units in Dallas. And that one actually is a pretty good example of what I’m talking about as far as just making a difference in management. Some of the units have been renovated, not quite to the way that we would renovate them. So there’s some stuff that we’re adding to that.
But they’re at least kind of some partial renovations done there. But they have third party management on that site and occupancy had really dropped. And they replaced the third party management company and the new management company to get it filled back up, but not really at market rents. And so the rents were quite a bit below.
So just kind of walking in the door, we were able to lease many of the units for $100 or $140 more the day after we took over than what the prior management was leasing for right before then. So there’s a lot of Value Add that we’re achieving just by taking a step up closer to market.
James: So Dallas is a very hot market, I’m sure. I don’t know, I’m not sure about this or is there a lot of people looking for that kind of deals and how did you get that deals? Why did the broker bring it to you or you have to go through the entire bidding war process?
Kimberly: On that one, there was sort of bidding but it was, one of the things I think that really helped on that one it’s the broker that we’ve had transact with many times before, but also sort of a neat story. The seller and I ended up on a panel together at a local conference in the offer process. And so I think it was right when we were at best and final.
And I was like, hey, this is the property that you own right? And he’s like, oh, yeah and so anyway, we became kind of friends through the whole transaction. And even a little bit before that. So I think definitely, that relationship with the seller helped as well. So there’s a lot of sellers that we’ve purchased from that helps us find deals.
It is a very, very competitive market right now. I will tell you, we’ve looked at probably 120 deals since then and there’s two or three that might work out depending on kind of where the pricing shakes out. So but that was, you know, it’s really, really hard to find anything in this market at the moment. But there is something occasionally.
And there are some things that we’re able to do that some other groups might not be able to because of the import because of the stuff that we have in-house because of those synergies and cost savings that we’re able to achieve.
James: Got it. So, I mean, you said you underwritten like almost 120 deals, right? So do you do a sniff test? And can you explain to us what a sniff test and all of that 120 deals?
Kimberly: Sure. Well, I have somebody that helps with acquisitions and gets everything kind of loaded up for me, runs all the preliminary underwriting. So that definitely helps a lot because being able to do that all by myself would be very challenging. We also had an intern this summer that helps with some of the properties that we get less than ideal data for as far as bad formats.
And when you get, you know, a PDF rent roll that doesn’t convert well and all those sorts of things. So, but definitely, we have sort of a preliminary underwriting that we do and the spreadsheet that we’ve built in terms of what we feed in and what we can get out of that. And then obviously, much more detailed if it passes the initial sniff test.
But there’s a lot that we do look at, just in terms of what percentage is renovated, the general area, what we think we can do with the property. Fortunately, because we own in so many different areas of the Dallas, Fort Worth metroplex, it makes it pretty quick and easy to underwrite a lot of the properties because we can look at them very quickly.
And we own a lot of properties, that would be a comp or we have owned something that was a comp or we’ve already evaluated something that was a comp. And so oftentimes we’re able to look at the rents and kind of know whether or not something’s going to work pretty quickly.
James: Got it, very interesting. And I mean, because you know, deals are hard to find, right? And you have to have that big funnel of deals and that’s a great tip to use some interns to do some underwriting. Because underwriting does take a lot of time, especially when you have you know, rent roll in PDF that doesn’t convert and look at a lot of things inside the rent roll. and how’s your company structure right now? I mean, I think you are like the CEO and how many people working for you? Asset Management, underwriters analysis? Can you describe —
Kimberly: Maybe 160 people under the total umbrella. So we own the management company. So that includes both management and maintenance personnel that are out on the sites, regional managers, our accounting department, the material sales division, the guys that work in the warehouse, all the guys want our renovation crew. And then as well as you know, people that handle a lot of the investor relations, the acquisition and underwriting all those pieces.
James: Did you say 60 or did you say 160?
James: 176, okay, I was writing 60. So yeah, that’s a big crew. And so you have the whole construction management, property management and materials as well, right. So can you describe how is the materials companies being set up on top of the property management, construction management, or maybe the whole, how the whole chain of vertical integration works? And how does it benefit in terms of giving you a value proposition for you to win deals or do very well in certain deals?
Kimberly: Sure. So in this multifamily is sort of our, the materials’ import arm, also we have a graphics division. So we have started doing signage, both internally and for other groups as well. So materials and graphics both do internal business for our projects. And then also, a good amount of sales is from other investors in the area. So we have, we do sell the parts.
But as far as to our properties, one of the big advantages were able to have it both on the graphic signage, branding and then also on the materials’ import. We pass all of that through it just basically loaded costs. So I mean there’s some cost allocation just in terms of the staff at the warehouse, in the storage facilities and those sorts of things. But it’s all basically at cost.
And so that’s a huge saving to our investors, that translates into additional return for them. We also, the construction arm is really a big partner to the property management arm. What we do for the construction is really the internal stuff. There are tons and tons of great general contractors as far as the exterior. It’s very easy to get different people to compete on projects.
And there are quite a few really good players in town. But the interior renovations are really something that a lot of construction groups struggle with. And so that’s the biggest reason that we brought it in-house. A couple of times we’ve tried using third-party vendors and every time we have, we’ve always sort of regretted it and brought everything back in not too long afterwards.
So we really have enjoyed having that piece. The big thing that enables us to do is we’re actually, our renovation crews are actually, the person that’s managing though this is kind of plugged in through our property management stuff so we know exactly what the status is. We know when a new unit is coming up. We know how to prepare for it and schedule it, to get everything ready to go on that front.
James: Got it, got it. I mean, do you have any partners of managing this 176 people company?
Kimberly: My husband now kind of runs the exist side of the business with the materials and construction and graphics. He kind of took that over. He was healthcare executive for a long time and then came in, join the team a few years ago. But otherwise, I don’t have any actual direct partners, just an outstanding team of people around me so.
James: Wow, that’s very impressive. You’re managing 176 people.
Kimberly: It’s really long term place, that are very close friends and everybody really does an awesome job. I’ve got a really strong team around me, certainly couldn’t do this without them. But as far as actual partners, don’t have partners at this point.
James: Absolutely. That’s really impressive.
Kimberly: Had some partners earlier on but they —
James: Yeah, I don’t think, ever interviewed anybody, I mean, even though I interview a lot of operators relating to someone who has, you know, $430 million in assets under management, I think 5000 units are pretty common. But someone who has completely vertically integrated, including materials and have 176 people to manage, that’s a big accomplishment. And congrats to you.
Kimberly: As I said, I have an outstanding team around me.
James: Yeah, absolutely. Absolutely. The team.
Kimberly: [inaudible 0:13:34] the whole leadership team is really incredible and each plays their own piece of things very well.
James: Okay. And I want to give credit to your materials companies exponential materials group, right?
Kimberly: Right. And so we actually rebranded recently as exist multifamily. So from the EX from exponential and then import services and technology, because we actually are developing some technology to help with the Value Add process. And then we have the import division, obviously.
James: Okay. So let’s talk about that.
Kimberly: Multifamily, what we rebranded as this spring.
James: What technology are y’all developing to help with the Value Add process?
Kimberly: Well, so the pieces that we already have kind of completed and ready to go are all of the due diligence pieces. So both the lease audit and the unit walks, getting counts for all the units so that we know exactly what we need to have in our material kits to do the renovations. So that piece of it’s done.
And then we’re just continuing to work on integrating it into our property management software. So that a lot of the things that we have to do a little bit more manually now, in terms of processes to walk through, you know when units need to be walked, what the processes, what pieces they need and all of those sorts of things will be much more automated as we go through them. So we just keep automating more and more pieces as we can.
James: Got it. So what you’re saying is you are creating a due diligence software. So when you do your due diligence also on top of giving what needs to be changed, it also it gives you the materials needed to change and also packages into certain kits?
James: Oh, that’s awesome.
Kimberly: Think about our material business through. Right now, it does due diligence, but it’s really more going to be Value Add software when everything is kind of complete. It’s really going to manage the whole Value Add process, really kind of cracking some of the key pieces of asset management along with the due diligence process, the materials, supplier acquisition, tracking and kind of really being able to monitor staff and progress very easily, even when remote. So it’s all a work in progress. And everything always takes a little longer than you think it will.
James: Yeah, I mean, creating software and a structure does take a lot of time. But at least you have a really good vision to integrate the whole process because I know I do a lot of Value Add as well. And you just have to manage, how many units we have, what is the cause and you know, do the exact right thing for that particular unit or not, right, because after closing, you know, yeah, we are running like 100 miles an hour, right. And we don’t have a team.
Kimberly: Sure, absolutely. So, my husband, Matt is actually really, really good at kind of all of that process flow stuff. So he’s been kind of really leading a lot of the stuff on the development side. But we do have the due diligence available. So it’s really convenient for us because, the material side of the business, we actually offer kits to our customers.
So we will come out, walk through the various floor plans at your property, get it you know, accounts for this is how many vanity lights, this is how many cabinet poles, this is how many tiles you need if you’re going to replace the backsplash, all of these things, make the whole parts list so that the manager is actually able to call and just say, hey, I need a kit for AHU and B1 this week.
And we will deliver a single box that has the ceiling fan, the tile and everything that you need for that unit, exactly down to the precise number that you need in that box. So that everything could just go into the unit, everything gets installed, all the trash goes back in the box, and you can throw it out again.
James: Wow, that’s awesome.
Kimberly: So it’s a really cool feature that we have that is unusual from us to the materials suppliers.
James: Got it and how much volume do you all do? Or how much revenue you all do in your materials business? Just to get the scale of how much it —
Kimberly: Think we are going to hit about 5 million this year if memory serves.
James: And that’s for everything, right? When you guys use for yourself and you sell to others.
Kimberly: Right. We’re probably about a 30% customer would be my best guess at the moment. The other 70% is all third party business.
James: Wow, 70% is for other people and 30% is for yourself.
Kimberly: I mean, we’re starting to do some of the marketing efforts on that now. And now that we own 100% of it. But everything that it’s grown to that point has all just been kind of word of mouth. A few other friends of ours that were investors were like, hey, can we get some of this stuff, too? Yeah, sure, we can work through that. And so it’s just kind of grown from there.
James: Got it. That’s very interesting. And let’s go into to Value Add, right. So let’s say your budget got cut into half, right, let’s say you’re supposed to have a $1 million in rehab budget, now you only have 500,000 rehab budget, right. So what are the most important things that you would prioritize in a Value Add repositioning of multifamily?
Kimberly: So I think a really big piece of it is just hitting the Wow. So there’s obviously different, you know, arguments about how far is too far and what you need to renovate in particular unit. But basically, the thing that I have found is, you just want to make sure that you have enough there to get the Wow.
So if you don’t have enough, you don’t want anybody to ever be looking at it and go, oh my gosh, it’s this beautiful apartment. Oh, there’s that brass doorknob over there. So I’ve seen some other renovations that other people have done. So I’ll say don’t forget the inexpensive details that make the Wow work, even if you are kind of cut on budget.
So there’s definitely some bigger things that are more expensive. But some of it, a lot of the unit interiors make a huge difference. You know, as far as making sure that everything is fixed up nicely, I mean, you know, get I guess getting a rehab budget cut in half would never be a very fun thing.
James: Yeah, that’s what I mean, it forces you to think right, what is the most valuable Wow you can get right. Let’s say you can spend $1 and get that big Wow versus spending $10 and getting smaller Wow. So which one is the biggest wow versus the amount of the money —
Kimberly: I mean, if the painted exterior is really horrible, then that can make a really huge difference. If it’s in pretty good shape and it’s not in bad condition, then that’s probably on the lower end of things. So it sort of just depends on that particular properties. There are certain properties where I would say the exterior has to be a huge piece of the Wow.
And you absolutely have to get that right. And then there are other times when it’s like the exterior really isn’t bad. So if you focused on your interiors for a while you could probably get your rents up and then generate enough income to be able to check most of the exterior.
James: Got it.
Kimberly: Apologized for the ringing in the background.
James: No worries, no worries. So what’s there a deal, a deep Value Add deal that you have done? And you know, you had set an expectation in terms of proforma and what you can expect, but when after you close on it, you realize your proforma was completely out because of something, right? Can you describe that kind of deal? And what did you learn from it?
Kimberly: We haven’t had any that we weren’t able to work through the proforma. I mean, there’s certainly been bumps in the road and everything. I suppose with [inaudible 0:20:51] one of the properties that we have right now as I said, we’re coming up on two years. And finally, now all of the down units are going to be done before the two-year mark.
But we were really kind of hoping when we walked into it that it was going to be done in a year. And we hit various different problems along the way. One big thing was when we got the first building online, everything was fine. People were moving in, everything’s been working great. But we got to the electrical inspections on the second building. And electrical inspector came in and said, well, you can’t have electrical panels in the closets in new construction.
I said, well, it’s not new construction, it was built in 1974. And they’re like, nope, you can’t have it in new construction. So we have, I mean so kind of had to pause on work for several months while we work through that issue because we didn’t want to continue working on the rest of the buildings without knowing whether or not that was going to be an issue that we were going to have to move later on.
So there was definitely some delays regarding stuff like that with the cities. The cities are always a little bit challenging to work with. So those can cause some timing delays, which can impact proforma a bit. But we’ve been very fortunate, we’ve always been able to really hit the rents that we were projecting. Oftentimes, you know, there can also be issues on any project with property taxes, property taxes are really a big thing.
And so one of the, we’ve shifted some of our underwriting for stuff that we’re looking at now. Dallas County and Tarrant County are completely different in terms of how they respond and what you have to do on underwriting and new properties at the moment. So Tarrant County, we have numerous lawsuits pending that are about to be filed, I guess, based on property taxes. But all of those basically got assess, 97% to 98% purchase price.
James: Wow, both in Tarrant and Dallas County?
Kimberly: Just in, Tarrant County,
James: Oh, in Tarrant, okay.
Kimberly: Dallas County was much, much more forgiving. But then Dallas County also has some of its own issues as well. So you know, there’s some really good rent growth going on in Tarrant right now. And we’ll see how all the litigation turns out on the properties taxes, but that always takes a long time to play through. But that’s definitely been a big piece of the underwriting at this point, in terms of how things are impacting the performance of the portfolio that we bought in the middle of last year.
We’re actually very fortunate, I guess. It’s partially in Dallas County, partially in Tarrant County. And so we were way over budget on property taxes on the Tarrant County side, but way under budget on the Dallas County side. And netted out to about $3,000 below budget across the whole portfolio, six properties.
James: Okay. Wow, that’s interesting.
Kimberly: It’s amazing how close you can tie out to your performance in a way that’s completely unexpected.
James: Yeah, I think deep Value Add, I mean, it offers you a lot of parameters to be forgiven, right, in case you found something that is not as what you thought about because there’s so much of upside that you can make mistakes and still come out really good.
Kimberly: Oh, absolutely. That’s very, very true. And also, I mean, just anytime you have a good rehab, I mean, any deep Value Add, you’re going to have a really large rehab budget. So even though things can go wrong, it’s still a small percentage, just exactly to your point. You know, if you have a million-dollar renovation budget and you encounter a $200,000 expense you weren’t expecting, it’s not any big deal. If it was a million-dollar renovation budget, that’s a pretty huge deal.
James: Yeah, absolutely, absolutely. I mean, I realized that, whenever I do deep Value Add, you know, there’s just, you find things that you didn’t expect in the beginning before you close. But you know, you always have some things to work around because you have so much cash to play around, right, in terms of Value Add?
Kimberly: Well, we try to be really conservative too in terms of what we budget, make sure that we have some contingencies. I always try to make sure that we have a decent bit of cash on hand like that’s really one of my big focuses, is trying to make sure that we always have enough cash in the bank. That when things don’t go quite as planned, it’s not the end of the world for anybody, you know.
A huge priority for me is to make sure that we never have a cash call, we never have and I don’t ever plan to if there’s any way I can avoid it. So that’s one of the big things that I really focused on is making sure that I maintain enough cash. We have enough cash at closing, to be able to do what we need to do, cover some bumps in the road, cover a few delays.
Make sure we’ve got some contingencies just in case, you know, as you’re going through your Value Add process occupancy slips a little bit more than you plan, all those things I try to really plan for and try to hang on to the majority of any cash flow. And so we’ve got everything really sort of wrapped up at least the big line items taken care of and completed.
And then at that point, we know what kind of cash we have to work with them. And we can start paying it out but without ever having to worry about missing a distribution or cutting a distribution or anything else. So that’s always just a constant kind of steady or steadily increasing process after that.
James: Got it. So what are the tools that you use for asset management? I mean, you have like 5000 units right now. And can you tell us some of, you know, tips and tricks in asset management that you’re using nowadays to manage all these 5000 units?
Kimberly: Well, I guess we’ve got a lot. I mean, I’ve been very, very fortunate over the past year because I used to do a lot of the oversight on the accounting side very personally, I still do review the financials every month. But I’ve been very fortunate to really build out the accounting team.
Got some great people on the accounting team now, to where getting to the point where the last couple of months, by the time that the financials have actually gotten to me to review, I really have basically no questions. And so that’s definitely sped things up a lot. I think we’re getting some really good interaction between the property managers and the accountants.
So that they are asking the right questions, we’re getting the right information back. If something isn’t working well, it’s getting put in front of the Director of the Operation or the Regional Manager so that we can address stuff and change policy. So that’s a big piece of it, is really kind of the interaction between the asset management, the accounting, the property management, getting all the teams to kind of work together.
We obviously have, you know, an inordinate number of spreadsheets and different tools and reports that we look through as far as the out of our property management software to determine kind of how the assets performing. Got monthly reports that kind of track where we’re going on the projects, where things are heading, where we’re over budget, where we’re under budget, how we want to prepare for all of those things.
James: Got it. That’s very interesting. And before I forget, so are you, I mean, I know a lot of deep Value Add does need a lot of short term loans. And are you still doing short term loans nowadays?
Kimberly: We do bridge loans. I am not a huge fan of huge prepayment penalties. So I really have sort of shied away from doing most of the, if any long term loans. We did one, we were actually able to sell and kind of the buyer covered a lot of the cost of getting out of that loan. But that was multimillion-dollar prepayment penalties that would have been owed.
So that can definitely have a big impact on returns in the future. So especially because a lot of our investors are really looking to increase their net worth so we do shorter-term hold periods. It never made sense to me to get tied into a 10-year loan if the plan is really to hold three to five years. So we’ve been very, very fortunate recently.
We’ve been able to work with a lot of really good bridge lenders. We have a bank that has done several loans with us, some that have already been paid off and some that we still currently own. And then also a life insurance company that also does some bridge loans. So we try to really look for things that give us a decent bit of exit flexibility.
So that have prepayment penalties that burn off within two to three years at the longest. But then hopefully that have some extensions available or that have longer terms than that, to give us some flexibility so that we don’t get caught in terms of having to refinance in a really tight window.
James: So aren’t you worried about now, where we are at in the market cycle? And you know, bridge loan does costs certain expiry, right after a few years. Aren’t you worried about that or do you think that risk is mitigated?
Kimberly: Not really because like I said, so the properties that we bought last summer, we actually have a five-year loan with a two-year extension available. That has basically no prepayment penalty, once you’ve paid about two and a half years of interest. So I can enter and we actually are able to pull various properties out sooner as long as we still hit that interest reserve.
So if we sold one today, we would have to hold the others maybe two years and 10 months or something instead of two years and six months to break even on that. But really we have pretty much free exit from two and a half years to seven years from purchase. So that gives a long time that you can still sell some things ahead of time, if you know things stay good for longer. And at the same time, if things go bad soon, you have time to hold through.
So been really looking for stuff, not real short term. The real, real short term bridge loan two years, you know, with some extensions and that sort of thing, I think can be kind of risky at this point. But we’ve been able to get quite a bit of stuff that’s, you know, sort of a five year fixed, but that’s free and clear exit after three, sometimes with some extension flexibility in there.
So it’s got a lot of, you’ve got long enough to ride through things. We’ve also been able to find some of those, fortunately, that are bridge loans that are fixed rate, which is very nice. So it is a little bit higher interest rate than a Fannie or Freddie. But having that extra flexibility really matters to me, because even with like a Fannie Mae loan, yes, you have time now to get through a downturn.
But none of us really know where the economy is going to be 10 years from now or 12 years from now, either. So on any of those, it’s really just sort of oftentimes a three month free and clear exit at the end. So that’s still a very narrowed point of time to transact or to refinance. Even if it is a long, long time from now, it’s still a pretty narrow window to hit.
And so a lot of the loans we’ve been able to do, give us quite a wide window of, you know, a couple of years in which we can transact or refinance, whenever it makes sense with the market.
James: Got it. Very interesting answer. I really like having a five years fixed rate. And after that another two more years extension because I thought the bridge loans only three years plus two looks like the other options as well available on that.
Kimberly: There’s a lot of different options. I mean, there’s a lot of people that are just doing like a three plus one plus one or a, you know, three plus two kind of thing. But there are definitely others that will do different options. And that will get more creative and really do what it needs to do in order to meet your project.
And so we’ve been very fortunate to find some of those and develop good relationships with some of those lenders that think a little bit outside the box. And we’ve been able to structure some stuff that really does give us a nice window in which to exit it sooner or if it’s later just depending. Because nobody quite knows, everybody thinks something’s going to happen, but nobody knows when.
James: Got it. Very interesting. So can you name your secret sauce to success, like a couple of secret sauce, that you think, you know, this is my secret sauce to success?
Kimberly: Well, my team is a huge piece of my secret sauce to success. The fact that [inaudible 0:32:22] barely needs any sleep certainly helps. So I think a lot of it really is just how hands-on most of us are with the projects, with the process. Even as we’ve grown, obviously, each of us has smaller and smaller pieces across.
But we really do pay attention to those things, we pay attention to the details. I think it’s been really important that we do genuinely care about our team members and our employees. I think that they get that and I think that gets us better people. And for the most part, it’s allowed us to retain better people. Obviously, this is a very, very tough labor market.
So anytime there is a position that’s open, it is a challenge to fill it. And it’s a challenge to find the right person to fill it. But I think some of that really kind of genuinely caring about the team has made a difference for a lot of other people. Other secret sauce, I guess, I always kind of looked at the renewals a little bit differently than was standard in the property management industry.
I think things have shifted a little bit more towards my way of thinking about it now. But I remember when I first kind of joined the industry in 2011, everybody was very used to well, okay, are we going to do a 3% increase or we’re going to do a 5% increase? Everything was the percentage increase over what the person was paying at the time.
And so one of the things that I always looked at was, now you really have to look at it in a more finite dollar amount. Because if you have somebody let’s say that’s already $20 over market, for whatever reason, maybe they took a short term lease the first time around and then you’ve got somebody else that’s 150 below market, why would you give the bigger increase, if you do a percentage increase to the guy that’s already paying over market, then you went to the person that’s hundreds of dollars below market.
So really kind of structuring some unique formulas to try to balance things out. That’s one of the things I’ve learned a lot about as times gone on. It was always kind of my original, foundational idea was that you should give a bigger increase to the person that’s further below market. But then also really kind of gotten to fine-tune a lot of that through the years.
And it varies it through various seasons and through different properties and different areas of town. But really have found kind of a matrix of stuff that I do to try to find the right balance on renewals, so that we get as much more additional rent as we possibly can, without dropping occupancy too far.
James: So what is that metrics? Can you share it with the audience? How do you decide, let’s say, —
Kimberly: It’s a lot more complicated than that. I don’t even know the [inaudible34:49]. As I said, I guess that’s part of the secret sauce. I will give some of it, but it is just kind of, you know, really bouncing through and finding the right balance. Like I said it varies considerably property to property.
I have some properties where they can, you know, you can bump people straight up to the market even if it’s $150 increase, it doesn’t matter. They’ll just pay it. And I’ve got others where you know, if there’s if it’s nearly that large, then you, you just kind of able to tweak it, going through it.
James: Yeah, we do a lot of that, too. I mean, when someone is below market, we usually go person by person and make sure you know, is there anything that you can do to upgrade and don’t hurt them, right. I mean, you give them something and you do partial increase, rather than just completely bring them to market.
So that some of the things we do as well, find the right metrics, I guess, right. Is there a proud moment in real estate ventures that you think I’m really, really proud of this particular moment and I’m going to remember that for my life? Can you describe that moment?
Kimberly: I guess there’s a lot of really big things. I guess, one of the biggest is just hearing some of the investor testimonials that we’ve done recently. This is the first time that we’ve ever had a five or six C offering open which allows us to do advertising to the greater populace. Everybody before was just a five or six B where somebody had to already be on our list prior to the time that the offering open.
And so we actually had some of the investors come in and do testimonials. And that was pretty cool to really, I’ve heard a lot of stories. But to have people that were actually willing to even go on video and tell their story and tell about the difference that it’s made in terms of what they’ve been able to do with their family, people that have been able to retire, that didn’t expect to be able to retire.
People that were able to stay home with kids or retire early or take trips that they never thought were possible. That’s been a pretty huge thing to kind of just really hear the difference that it’s made to people. I mean, that’s sort of the biggest goal is to make a difference. And I guess one of the other really proud moments is just kind of some of the programs that we have at the sites as well.
We partner with a lot of level 1C3 that do different benefits. So we’ve got some that will help with during hard times to cover rent, we do Angel trees for some of the residents. We’ve got vendors that have work through us to try to help various residents along the way. We have an organization that actually teaches classes to improve job skills and financial management skills with some of our properties that are in a lower-income area.
And so I actually remember when he was calling, the nonprofit was calling to work with us and you could tell I guess, well, you know, he kind of gave us his pitch and whatever. And we’re like, yeah, that sounds great, we’d be happy to help. And he just kind of didn’t know what to do with it. It was kind of funny. He had —
James: Because everybody rejected them, right?
Kimberly: He had more objections ready but had no idea what to say when somebody just said, sure we can do that, we’d be happy to, we’d love to work with you. So that was pretty cool to relate. We work on trying to bring programs and really try to make a benefit to the residents as well make sure that we’re taking care of the people that take care of us.
James: Yeah, it’s amazing how many people treat, you know, real estate as just a money-making tool, right. But I mean, it’s more of a life-changing tool, right. You can change a lot of people’s lives by not only collecting rent but providing other services that they may not have access to which a landlord can do, right.
Kimberly: I mean, it’s a huge way to really benefit the lives of others. I mean, yes, we make money for the investors. And we’re very fortunate one of the cool things about our company is that we have had lots of smaller investors. There are lots of investors that have been with us since early on, that have doubled and tripled and quadrupled their net worth.
And so there’s many of them that were not accredited when they started with us that now are and so that’s one of kind of my own personal goals is to help 100 people become millionaires, that that’s kind of what my personal goals. But then also just the difference that it makes to employees. We try to give everybody a great place to work.
And so, you know, when we first started with that first property, we had one manager and one maintenance guy, two employees, I think there were six contract guys that were helping with some rehab, but that was about it. And now we’re over 176 employees. And all of those people have a good solid job to come to where they’re treated like family and where they have benefits and everything else.
And we’ve given the employees opportunities to invest periodically throughout the projects. And so that made a big difference for them as well. And then just really making a difference for the residents. We try to give them a good place to live, yes, we do increase their rent. So sometimes we are the big bad wolf in that regard. But we try to at least give them a really nice place to live.
We try to take care of things, fix things when they’re broken. It’s amazing the properties that we’ve bought that have had tarps on the roofs and you ask the residents and they’re like, oh, we didn’t. But why didn’t you tell us sooner? We didn’t really think you were going to do anything about it. It’s been like this for three years.
Like, why should anyone have to deal with a roof leak for three years, that’s just ridiculous. And so it does make a difference to go in and clean up some of those properties that have been sort of ignored or just treated as an ATM.
James: Yeah, it’s amazing on how much people owning apartments, but never really cared for the apartments. It’s a complex asset class to manage, right? I mean, you have to manage the property, you have to manage rent increases, you have to manage tenants or to manage vendors, you have to manage banks, right?
There are so many things that you have to manage and it’s just not easy to manage. And not many, very few property management company can do that. And whoever can do that, they need to be really good at it.
Kimberly: It is definitely a challenge. There’s a lot of investors or people that have been interested in investing. They’re like, oh, I want to do what you do. And I’m like, okay, well, make sure you think through it really carefully first. It’s a great thing to do. It’s a great business to be in, don’t get me wrong. But this is not easy. This is not just I’ll buy an apartment, you know and it’ll print checks. And it’ll be so simple.
You’re going to to have staff that has to run them. And even if you have third party management, you still have to watch the third-party management company. And you have to figure out how you’re going to step in when you have, you know if there’s an issue with that. And there’s a lot to keep up with and a lot to manage if you really want to do it well. It is a pretty forgiving asset class as you mentioned, especially on the Value Add side.
So you know, yes, if you’re trying to hit 100% return and you know, you only hit a triple oh, shocks, we only made 80%.
James: Still awesome.
Kimberly: So far we’ve been able to hit our targets, but that is definitely much easier. I suppose than buying something that’s really just cash flow, where all you have to do is upset one resident and your occupancy slip just enough that you’re not making quite as much as you thought you would before.
James: Yeah, correct. All right, Kim, why don’t you tell our audience how to find you and how to get hold of you?
Kimberly: Sure, you can reach out to us at exponentialpropertygroup.com is our website. There’s lots of information on there, as well as some of those investor testimonials that I talked about. Some pictures of the properties that we own and have managed and also ways to contact all of us for any more information that we can provide.
James: Awesome, thanks for coming into the podcast. It was one of the huge Value Add podcasts. I mean, you gave a lot of Value Add advice, at the same time, you give a lot of tips about Value Add as well. So really appreciate it and thanks for coming in.
Kimberly: Yeah, thanks so much for the opportunity. I really appreciate it. I’m glad I finally got to meet you.
James: I’m really glad to meet you too. Thanks.