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Setting Goals & Tracking Numbers for Your Rental Investment Property with Ali Nazar

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Ali Nazar joins us today to unpack setting goals and tracking numbers for your rental investment property.

Ali is an ex-CTO of a company called Waypoint, deploying billions of dollars investing in single-family homes across the United States. Now, Ali is President at Mynd Property Management.

Watch the Podcast Here

Full Transcript

Alex Osenenko: Hello dears. Welcome to the next episode of The Myndful Investor Podcast. Those of you who are watching on video are in for a treat. We’re in our brand new, recently constructed studio here at Mynd headquarters.

Steve Rozenberg: And we’re together. How rare is that?

Alex Osenenko: And we’re together, right. We’re not on Zoom-

Steve Rozenberg: Yes.

Alex Osenenko: … in different parts of the world so. My partner in crime, Steve Rozenberg, is also here.

Steve Rozenberg: Yep.

Alex Osenenko: Steve, how is it going?

Steve Rozenberg: It’s going good.

Alex Osenenko: It’s going good. And we have a very special guest, but before I introduce him, let’s talk about the subject, the topic today. We’re going to sort of unpack setting goals and tracking numbers for your rental investment property.

Alex Osenenko: I think this episode will work for folks who are just starting out and thinking about like how to set, as our guest Ali says, investment thesis. And it will also work for those who’ve been at it for a while, to be able to deploy better controls in managing and optimizing the property. So, let me introduce our guest.

Steve Rozenberg: Sure.

Alex Osenenko: Ali Nazar, welcome.

Ali Nazar: Thank you.

Alex Osenenko: It’s great to have you, Ali. Now, Ali has got a pretty impressive resume and report card. But I’ll go short, and then I’ll let you introduce yourself in terms of your experiences and what they meant, and how they translate into the current role you have. So, Ali is a ex-CTO of a company called Waypoint, deploying billions of dollars investing in single-family homes across the United States.

Ali Nazar: Single-family rentals.

Alex Osenenko: Single-family. Very successful company, successful exit. And now, Ali is President at Mynd Property Management. So Ali, maybe tell a little bit about your background and how you arrived at this table here.

Ali Nazar: Sure.

Steve Rozenberg: I was just going to say this table.

Ali Nazar: Well, you guys invited me. That’s how I got here.

Steve Rozenberg: That’s right, yeah.

Ali Nazar: I’m born and raised in the Bay Area, so very one of the few who is like a local person here. And I graduated in the mid ’90s with a technical degree, which was one of the greatest times ever, it was dot-com boom.

Steve Rozenberg: Right.

Ali Nazar: So I was able to get all these job offers and as a young kid not knowing much, I was given an offer to work for a company based in San Francisco that was from Hawaii. And they said, “Hey, would you like to go to Hawaii every three months and man our operation center?” And I was like, “Yes.”

Steve Rozenberg: Let me think about this one for a second.

Alex Osenenko: I think in your book I read that you specifically had so many job offers it was like, hey, this has Hawaii written in it, I’ll go for that.

Ali Nazar: Yeah. That was the choice. So I worked for this company called Digital Island. I was the, I think around the 25th employee, and it went to 2000 people, an IPO.

Steve Rozenberg: Wow.

Ali Nazar: That was dumb luck. I chose the Hawaii, but it was really smart company. And it was in the middle of the dot-com boom. It was kind of an infrastructure hosting company. So I learned a lot about high growth companies from that experience. I was there for six years.

Ali Nazar: And then as you mentioned, I wrote a book. It was after that experience, where I took a little time off and traveled the world, and when I came back and got back into the professional game, I’ve cofounded a company with a friend of a friend, that was a marketing services company for real estate investors. And they were flipping, mainly doing short sales. And we built this tool that will ingest data from all over the place.

Steve Rozenberg: Was this during the crash, or was this…

Ali Nazar: This was before.

Steve Rozenberg: Before the crash, okay.

Ali Nazar: This was 2003 when I cofounded this company.

Steve Rozenberg: Okay.

Ali Nazar: And so we were basically like automated leads for real estate investors, of off-market leads, they weren’t listed on the-

Steve Rozenberg: Was this a national, or it was just California?

Ali Nazar: It was national.

Steve Rozenberg: National, okay.

Ali Nazar: So we had at our top, at our height, we had about 1000 customers.

Steve Rozenberg: Wow.

Ali Nazar: And we were doing great and then the crash happened. And all of our customers were flippers, and if they were holding multiple shared assets, they lost a lot of value overnight.

Steve Rozenberg: Yep.

Ali Nazar: And so our company kind of went under too, because we didn’t have any more customers. And it was during that time that I met Doug Brien, who had just started Waypoint, the early incarnation of Waypoint, which was one of the first movers in the single-family rental space. So I hooked up with Doug and Colin and became the chief technology officer there. And we went out and built a platform.

Ali Nazar: When I met them, they had about 20 houses, all in the Bay Area. We ended up buying 17,000 houses across the United States-

Alex Osenenko: Holy cow.

Ali Nazar: … across 12 markets, that was $3 billion worth of homes. So it was this machine that we built.

Steve Rozenberg: Sure.

Ali Nazar: We thought about it we had like five different businesses we were running, we had an acquisition arm, a construction arm, a leasing arm, a property management arm and a repairs and maintenance arm. And that all kind of worked in concert to build this portfolio that we actually took public. We got to ring the bell in the New York Stock Exchange.

Steve Rozenberg: Nice.

Ali Nazar: And so it was a great experience. And so both through the flipping experience I have, and that experience, learned a lot about real estate, specifically small residential properties all around the country. And then we sold that company and I was part of a team that came to Mynd. And Mynd has a lot of the DNA of Waypoint after we sold. The founding team is a lot of the same people from Waypoint.

Steve Rozenberg: Gotcha. Now, question, when you talk about Mynd now managing properties, and I’m just curious about this, are there a lot of takeaways from the Waypoint from scaling and growing in that? Because you owned those, and now it’s a third-party operation.

Ali Nazar: Yeah.

Steve Rozenberg: What takeaways did you get that you’re implementing or saying that’s not relevant anymore? Or because of sign of the times and technology maybe we don’t even need to do that anymore? What are some things that you’ve learned from that?

Ali Nazar: Yeah. Well, it is the biggest difference between the two companies that we’ve run is that at Waypoint we were the owner. So we could make business decisions, like we’re going to talk about investment thesis and how you manage your property to maximize to your thesis. Well, at Waypoint we had one thesis so we can manage all to that concept as opposed to in Mynd, we have lots of owners who have lots of different ideas of what they want out of their property.

Steve Rozenberg: Sure.

Ali Nazar: So that’s probably the biggest difference and, but the reason that we started the company was that we wanted to provide the same kind of professional-level national property management services to small residential owners, that we were building at Waypoint.

Steve Rozenberg: Sure.

Ali Nazar: Because we thought this should exist. It doesn’t exist in the country.

Steve Rozenberg: Right.

Ali Nazar: There’s no national provider.

Steve Rozenberg: There’s a large void in this industry of investors, the persona of what a property management company does and what they actually do, and a lot of it is just friction in the industry. And it’s, a lot of it is lack of communication, lack of technology, and you’ve got all these different parts and systems and being able to put it together into one frictionless operation, I guess, is the key. And I just, I think it’s something that’s… What I’ve learned from property management is that you’ve got, you basically have three customers. You have the resident, you have the investor. And then you have the contractor vendor, essentially. Unless you have that in house, but generally you have three. And everybody has a different definition of happiness.

Alex Osenenko: Right.

Steve Rozenberg: And so when you guys had Waypoints your definition of happiness was, that is how it is.

Ali Nazar: Yeah.

Steve Rozenberg: And now you have to, you know, you could provide great customer service to the owner, but if you’re not having the property occupied, they’re going to go, “You guys are great, but we’re not making any revenue so I can’t use you anymore.”

Ali Nazar: Sure.

Steve Rozenberg: So it’s a very interesting dynamic. And I’m curious, before we even get into the thing, because I know this is something a lot of property owners want to know about is, how do you balance that on such a large scale? Because not only is it different personalities, different people, but now you got different regions.

Ali Nazar: Yeah.

Steve Rozenberg: And different challenges with the… You got snow removal, you’ve got other things that you don’t think about, but is a challenge that you have to explain to an owner that maybe lives in California saying, “I don’t understand why do they need a heater? I don’t need a heater I live in LA, it’s fine.” It’s like, “Well, we’re in North Dakota and you need a heater.”

Ali Nazar: Sure.

Steve Rozenberg: So how do you do that and explain that on a large scale?

Ali Nazar: Well, we did have a large scale at Waypoint. We were in 12 markets, I think seven states. We were in Chicago, we were in Miami, like very different places.

Steve Rozenberg: Wow.

Ali Nazar: So I think the way that we approached it is the same at both Waypoint and here, which is around, can we come up with a kind of a base level of standardization? That’s really valuable. So we know that there’s some things that you have to do in property management, for example, you want to minimize vacancy, that’s really important. Like if you’re trying to hold out for 10 more dollars a month in rent, but it takes you another month or two to rent it, then it’s kind of a waste.

Steve Rozenberg: Right. Yes.

Ali Nazar: So that’s one thing. It’s minimizing the vacancy, minimizing the repair costs, and then trying to maximize the rent you could get. So those three things I think are kind of similar across all property management situations that you’re in.

Steve Rozenberg: Absolutely.

Ali Nazar: And then I think, so let’s say there’s 60, 70% of the stuff that is standard across all markets. Then every market has local flavors that you have to deal with, like you were mentioning some of like the repairs and maintenance stuff. There’s preventive maintenance stuff. Like in Chicago, you need to winterize before the winter comes.

Steve Rozenberg: Right.

Ali Nazar: So those local teams, so the way we’re set up at Mynd, which is the same way at Waypoint, everything’s built around a local team. So we have a local person on the ground, and they are in charge of that kind of 30, 40% of stuff that’s local flavor. But then they have a big platform underneath them that kind of automates a lot of the standard stuff that has to happen as far as property management.

Steve Rozenberg: Makes sense.

Ali Nazar: Another big thing is communications. We’re really, really big on communication. We have a cool owner app, we have all sorts of ways to make sure that we get back to people quickly, efficiently, clearly. I think a lot of times there are stuff that happens you know, water heaters break and stuff happens in the course of operations of a property, but as long as we clearly communicate, and make sure that everybody knows kind of like what the next steps are then we’re good. And those are kind of common things across everybody.

Steve Rozenberg: Yeah, I used to always think that the three reasons why an owner may leave a management company over frustration is lack of communication, vacancy, or maintenance. And normally, it’s because they’re not making money because it’s a revenue making business. But I also think the education to the owner, and if, you know, people are becoming investors, and they’re getting into this, it’s a matter of understanding and putting it in terms of, if you own a car, and you’re driving your car down the road, you could get a flat tire, and if you get a flat tire, you are going to have to replace that tire. If you own a car and an air conditioner goes out, right, wrong, indifferent, you still have to fix the air conditioner, because now there’s rights and obligations that you have as a owner of the business of your rental property that you’re obligated to do.

Steve Rozenberg: And so sometimes, if you can put it in that, which I think goes into setting goals and having the thesis of how you’re going to set up your investment strategy, I think the education of investors… And you had said earlier, if you’re a new investor, I think that if you’re an experienced investor, you may you want to grow and 10X your size, you’re limited by your knowledge, your experience, and maybe your ability to think to scale, right? I mean, I’m sure you didn’t have enough money to buy, $17,000 in your pocket. You had to go out and learn how to raise money and all that. So that’s something that was different. So I think a lot of people even watching this, wherever they are in their journey, I think they’re going to learn how they can improve their model, whether they’re brand new, and they’re saying, “How do I even get on this ferris wheel of real estate? Or how do I-

Alex Osenenko: Improve and [crosstalk] scale?

Steve Rozenberg: … how do I make this go faster?”

Alex Osenenko: So let’s do this. Let’s start unpacking, because Waypoint probably spent millions and millions of dollars building that whole prescription model and investment thesis. And what we can do, what we will do today is unpack individual components, put them out the light, examine them, and help you, listener, as well as me, and you-

Steve Rozenberg: Yeah. Absolutely.

Alex Osenenko: … to learn a bit more on how to develop our own investment thesis. So let’s start with the goal. Ali, you mentioned there’s really two major sort of directions when you are picking out your goal. Can you talk to those please?

Ali Nazar: Yeah, I mean, I think the first step I think, is to understand how long you want to hold something for and typically how much return you want to get. And there’s different ways to calculate return. You can do a cash-on-cash return, you can do an IRR. There’s different calculations that you can Google up and find the calc. But that’s kind of like, you want to be able to understand, here’s how I think about how long I’m going to put this capital to work, and what my expectations are for returns. And there’s two main drivers of returns. There is appreciation. And then there’s the net operating income or the cash flow from operations.

Alex Osenenko: Can I ask about the outcome? I’m not experienced investor like you guys are so I’m asking for the benefit of our newer folk that are listening. And so, start with the end, that’s what you were saying, right?

Ali Nazar: Mm-hmm (affirmative)-

Alex Osenenko: And you mentioned there’s different ways you can calculate what that end looks like. But does that mean like if my daughter is going to college in 10 years, that property is going to pay for her? So that’s my investment thesis? Is that correct?

Ali Nazar: It could be. Yeah, you could say, “Look, I have $50,000 right now,” which remember, you’re going to use debt to buy something. So you need the equity side. So like I could buy, it’s a 20% down payment, and I’m looking at buying a $200,000 house, then I need 40 grand to get in. And that is my kind of equity that I’m putting in. If I need 10 years from now, that to be X amount to pay for college, that’s like I’m trying to set a thesis around that timeline.

Alex Osenenko: Gotcha. So that’s how you… Start with the end?

Steve Rozenberg: Yeah, and I got a question, Ali. I talked to a lot of people that they want to get involved in investing and I’ll ask them, “Why are you doing this?” And they don’t have a defined like, “I have a 10-year, I need an X number.” It’s more of what the safety and security of what that is going to give them. And I explain to them, I said, so it’s not necessarily a dollar amount, because you’re not quantifying that. Because what $10,000 is today, is not $10,000 in 30 years from now.

Ali Nazar: That’s right.

Steve Rozenberg: But it’s the feeling of the safety and security to be able to have that potential freedom to say, “You know what? I am okay because I have my bases covered and whatever that number is, as the horizon and working backwards.” How do you quantify that for someone?

Alex Osenenko: Yeah, that’s a awesome question.

Ali Nazar: I think what you’re talking about is, like a lot of people I kind of think of it as playing Monopoly. Like you’re trying to get as many houses on the board-

Steve Rozenberg: Planting seeds, right, yep.

Ali Nazar: … that’s giving you some cash flow. And that’s kind of the Rich Dad, Poor Dad thing, right? It’s like you want to own assets that are paying you. So if that’s the route you’re going then you can come up with what’s your monthly burn that you have to cover.

Steve Rozenberg: Right.

Ali Nazar: So what is it that if you could quit your job, because I had 5,000 coming in a month, 10,000, whatever that is for your lifestyle, then that might be your goal.

Steve Rozenberg: Right, but what I’m talking about is people that say, “You know what, I’m a doctor, I don’t need the money right now. I can defer the cash flow, I can even go negative if it’s a higher appreciating property. I want this in 20 years when I retire, that I’ve got these huge trees now planted, and I am good to go.” So how do you quantify what that number would be with appreciation and everything going on to say, okay, what does that number need to be in 20 years from now? Because what it is today is different. And that’s the thing, a lot of people ask me that. And I tell them well, first of all, whatever your expenses are, you can extrapolate out with inflation and other things, but at some point it’s a guess. Because they really want that feeling of safety and security, and that’s why they’re buying the investment property for the down the road, not for the cash flow purposes, but for the appreciation. But I don’t know how to actually put a number to that.

Ali Nazar: Well, there’s a lot of statisticians and models out there that try to predict future appreciation. It’s interesting, a lot of them will try to predict appreciation at a market by market level. But actually, inside a market there’s lots of neighborhoods and lots of variabilities, and not all the appreciation is going to be the same. So we actually developed an algorithm at Waypoint where we had a very small grouping of properties and we had forecast for appreciation at that level. And some of the biggest drivers… And that was a sophisticated model that we spent a lot of money to develop, but for regular investors, I think you can think of some major kind of I think, macroeconomic factors that are driving appreciation. And those are things like job growth which directly drives population growth, and there’s lots of projections out there for that kind of stuff that you can find online.

Ali Nazar: Also, land use constraints is a big one. So like we’re here in the Bay Area, so there’s a lot of jobs and not a lot of places to build.

Steve Rozenberg: Right.

Ali Nazar: So like that’s going to create appreciation because more demand. It’s a supply and demand thing. So there are models out there you can look at. If you look at, like Zillow has a automated valuation model and they’ll show you the curve of what’s happened over the last X amount of months or years. And then I think they give you a little bit of a forecast too. So there’s tools you can get out there as well. But I think a good investor, if you’re looking for appreciation, generally speaking, you’re going to be on the coasts.

Steve Rozenberg: Sure. East or West Coast.

Ali Nazar: Yeah, where the big job centers are.

Steve Rozenberg: Right.

Ali Nazar: If you’re looking for more of the cash flow, but the problem with the coasts are usually the real estates more expensive so you need more capital.

Steve Rozenberg: Right, so you may be negative in cash flow, but it will go up in value.

Ali Nazar: Yep.

Steve Rozenberg: And what I what I tell people, is I say, just like, I equate it to flying an airplane, if you’re going to Hawaii, you may be on a heading all the way, but you’re going to be adjusting and correcting the whole time, wind, weather, all that stuff. If you have your investment strategy, I think it’s your responsibility as the investor, as the CEO of this business that you own, to constantly assess and analyze the data. And if it’s not hitting the numbers, if it’s not tracking then you can sell it, you can see if you can increase. I mean, that’s when you make those decisions. But buying it and saying, “Okay, I hope in 30 years this comes through,” that to me is irresponsible for people to assume that that’s going to happen without looking at the numbers. And I don’t know if it’s a… I say every three to five years you look, you assess, has it performed as you as you planned, what is it trending, what are the job markets doing? And then from there, you can make a decision as to you know what, I’m going to take this cash and deploy it somewhere else and sell it.

Steve Rozenberg: When I had properties that were losing money, and we finally made the decision to sell them, what was interesting was that when I talked to people, and finally someone said, “Why don’t you guys just sell these properties?” And I said, “I don’t want to sell them, I’m losing money.” And he said, “What do you think you’re doing every month right now, you’re losing money every month.” I said, “Yeah, but that’s not all at once.” And he’s like, “Just rip off the band-aid and you can deploy that money and the energy to something positive.”

Alex Osenenko: Well, to be fair, you started with buying more property.

Steve Rozenberg: Well yes, I went the other way and bought more thinking I could get through it. Yes.

Alex Osenenko: Multiple, multiple times you went ahead and tried to fix it by buying more? [crosstalk]

Steve Rozenberg: Yes. Which is not the right way to do it for the record, but yes.

Alex Osenenko: Fascinating. But so let’s take a, sort of elevate for a second. Two major kind of I guess, tracks for a goal is appreciation, coastal, cash flow, more inland. Check your stuff every couple of years, check your portfolio, be the CEO of that of that investment vehicle. But let’s unpack the specific things because we don’t have all the time in the world. I know we can chat here for like a 10-hour flight. Just nonstop. But let’s unpack the components-

Steve Rozenberg: The variables.

Alex Osenenko: … the variables, thank you, that we need to sort of… And I think, Ali what is the first, most important component in the property construct?

Ali Nazar: Well, I mean, I think there’s… I’d put it in two things. One is the how you set your basis. So that’s like, what are you going to pay for it? And part of that, I would say is any fix up cost for it as well. So it’s really hard to make money in real estate if you pay too much for it.

Steve Rozenberg: Sure.

Ali Nazar: So that’s a big key. That’s where that first business that I cofounded, we were trying to find off-market deals because then we could make an offer like we’ll give you 90% of what we think it’s worth, all cash, close in a week.

Steve Rozenberg: Right.

Ali Nazar: So there’s ways to try to find deals. So that’s the first step is you got to understand what your basis is.

Ali Nazar: And then it’s about optimizing the monthly cash flow. And so if you think about that, it’s just like an income statement. So the top of an income statement is revenue, minus expense, and then you get your profit. So revenue in this business is rent. So that’s one of the biggest drivers is you have to be able to understand, how much will this rent for? If I could buy it for this price, how much can I rent it for? Or if I buy it for this price and I put in another 20 grand, can I increase the rent by $100 or $200?

Ali Nazar: That’s a lot of what we did at Waypoint was trying to understand market by market if we put a certain kind of amenity in the house, how much more rental power could we get? Like, for example, in Dallas we learned, if we put in an outdoor barbecue, we could charge a lot more for rent.

Steve Rozenberg: Really?

Ali Nazar: People love to do that.

Steve Rozenberg: Makes sense.

Ali Nazar: So there’s all sorts of things like that that’s market specific.

Steve Rozenberg: Sure. If you did that in California they’d be like, I’m not paying for it.

Ali Nazar: Yeah, they might not care.

Steve Rozenberg: But one question I have is, and I know we’re going to get to this a little bit, but when you’re when you’re factoring in the acquisition, you had said, you’re putting in some maintenance costs, does the age of the property… What is the variable, if you’re buying a property that was built in the ’20s it’s going to have a lot more maintenance than something built five years ago.

Ali Nazar: Yeah.

Steve Rozenberg: Is there some kind of algorithm that you guys came up with to be able to plan that and say, hey, it’s x for x? Or how’d you do that?

Ali Nazar: Yeah, I think you’re hitting it on the head. I mean, the best proxy… Well, first I’ll say nobody has any database that really you can rely on. So like here’s the operating costs of everything. There’s lots of stuff out there, but that’s very hard to know. We actually think at Mynd, once we’re at national scale and we have hundreds of thousands of units on the platform, we’ll have the best data set around how much it costs to maintain things.

Steve Rozenberg: Right.

Ali Nazar: But short of that, I think the best proxy probably is the age of the property. Also, I think asking, if you have a good agent that’s representing you, or you know other owners in the market, asking around. Good property managers, they should have a good idea of what the operating costs are for that particular asset. And most places you have neighborhoods that were built at the same time, there’s some people that have expertise in that.

Steve Rozenberg: Right. There’s going to be trends and there could be deferred maintenance on that particular property. But typically, if you saw it, if the roof is bad compared to the other roofs or other things, I guess you would see those things if they deferred and did not do maintenance issues on that particular house.

Ali Nazar: Yeah, I mean, there’s the deferred maintenance stuff, which you totally should be able to get in an inspection. So before you buy the property, and if it’s going to be a rental property-

Steve Rozenberg: Absolutely.

Ali Nazar: … definitely should get an inspection and then you can understand kind of what kind of renovation costs I might have. The go forward maintenance costs, that’s a little bit trickier to predict. I can tell you a Waypoint what we did was we would invest mostly in the systems of the house, like the electrical, plumbing, the things that if they break, when someone’s living there, it can cost a lot to fix and it could be a bad customer experience.

Steve Rozenberg: Sure. Right.

Ali Nazar: When you’re flipping, it’s almost the opposite. Like you kind of don’t care about that stuff. [crosstalk]

Steve Rozenberg: Just hurry up, get it, make it pretty and move on.

Alex Osenenko: [crosstalk]

Ali Nazar: But from a rental perspective, if you put a little bit more upfront, hopefully you can minimize some of the long-term.

Steve Rozenberg: Sure. Makes sense. Okay. What do you got next, Alex?

Alex Osenenko: Well, so we talked about rent, but we didn’t talk about how to maximize it. So I think maintenance and renovation costs, renovation methodology is come to it. So what are some maybe tips and tricks on maximizing rent?

Ali Nazar: Yeah, well, I mean, a big one is when the unit is available. So there’s in property manage, they call it expiration management, where you never want to have your residents or tenants, or your unit being vacated in the fall or winter. Because most people are moving in the spring or summer. So there’s a supply and demand here where you don’t want to come out in the market when nobody’s really looking.

Ali Nazar: So that’s one thing you can do. Obviously, we just talked about… Go ahead.

Steve Rozenberg: Sorry. You just hit something really, really interesting. Like, how do you do it? Like, some tips?

Ali Nazar: Well, what we do often is if, let’s say that we’re taking over a property that has a 12-month lease that’s already kind of expiring in November, and so we just have to deal with that. We will try to put in a 16-month lease for the next person just to get it staggered to come in. And 12-months is somewhat of an arbitrary number. You can put whatever you want out there. And so if you’re smart, you can try to manipulate it so that it’s going to come free, like ideally it comes free in March-ish time [crosstalk]

Steve Rozenberg: Spring, I was going to say springtime.

Ali Nazar: So then you can turn it and get it looking good. So by April or May, it’s on the market and looks really good. So that’s one thing you can do.

Ali Nazar: One of the most important things for renting we found is you have to have great pictures online.

Steve Rozenberg: Yes.

Ali Nazar: Most people these days are looking on Zillow or Trulia or Zumper for their new rental property. And we know for sure, hands down, better pictures gets more click-throughs.

Steve Rozenberg: Absolutely.

Ali Nazar: Get really good pictures. We do 3D tours at Mynd. We think that’s a really great way to like make it pop.

Steve Rozenberg: Is that like the Matterport type camera?

Ali Nazar: We use a different vendor.

Steve Rozenberg: But similar? Okay.

Ali Nazar: It’s kind of the same thing, yeah. So we’ll do, when you on board with us, we’ll go do a photo shoot of the whole thing.

Steve Rozenberg: Those are great. Yeah.

Ali Nazar: And it goes up. Not only does it give you really great pictures and a 3D tour, it also gives you a blueprint or a-

Steve Rozenberg: Floor plan.

Ali Nazar: … floor plan, which is great. So you want to make it pop online because that’s where the leads come. So obviously, the more people you have that are interested, the better shot you have getting a higher rent. And then obviously, you want to make it look good. You might not necessarily stage it, but you want to have it be clean. You want to have to be fixed up properly. You don’t want people coming in seeing a bunch of trash on the ground. That first impression is big.

Ali Nazar: And in renting properties, what’s really important is being able to strike fast. Most people have to move pretty quickly. So if they opt in and they’re interested in renting, then you got to be on top of it and be able to grab the lead right when it comes and [crosstalk]

Steve Rozenberg: Do you recommend, if let’s say you have a property for rent and, somebody watching this, they have a property for rent, how many days after it’s vacant do you say okay, maybe you need to drop the rent or something? Because sometimes you do it too soon. Sometimes if you just keep it up there for a long time now it looks stale, and they’re going what’s wrong with this property? So what is the recommended theory on that?

Ali Nazar: Yeah, it’s a good question. There’s a whole school of thought around revenue management, which is how big kind of multifamily reads think about pricing their rental inventory. And we subscribe to that as well at Mynd. So basically, when you think about the rental price, we do comping, right. You’ll look at in the neighborhood, what are the things that look similar to that unit that they’re going for. So we’ll come up with a price that we think this is the market price at this moment in time.

Steve Rozenberg: The median average or the-

Ali Nazar: Yeah.

Steve Rozenberg: Is that… Okay.

Ali Nazar: Well, you’re making adjustments because you might not get a model match on that particular unit. So you’re making your best educated guess. And that’s what good property managers can do for you. So here’s what we think it is. So what we do here at Mynd is we will set a go-to-market price. Right when we find out someone’s moving out, we’ll start to pre-market it online at a little bit of a higher price than what we think it should go for. Because if we’re able to throw out a line and we get it higher, that’s awesome.

Steve Rozenberg: Absolutely. You got nothing to lose.

Ali Nazar: So it goes out, usually we’ll keep it at that price until it’s been vacated and on the market for a few days. And then we’ll drop it to what we think market price is.

Alex Osenenko: Got you.

Ali Nazar: And then every week after that, we have a team reviews the rental inventory, we’ll look at how many hits we had online, how many showings, applications, how much demand there is for it. And if we think the demand’s good and it hasn’t rented, we’ll give it another week or so. But if there’s no action online, and we’ve got all the right pictures up and everything, that means probably the price is too high. So then we’ll start to cut.

Ali Nazar: But what we do at Mynd is we’re very collaborative with our owners. So our portfolio managers will be communicating with the owner throughout the whole vacancy process. Obviously, if you’re an owner, and you have vacancy, you’re worried because you’re not getting income.

Steve Rozenberg: Sure. Absolutely.

Ali Nazar: So we kind of up our game during the vacancy process.

Steve Rozenberg: Communicate more.

Ali Nazar: So we’re communicating a lot with them. That’s right. So we’ll make suggestions like hey, you know, you didn’t get a lot of traction this week, we think you should cut it 25 bucks. And we have a whole team that’s a pricing team-

Steve Rozenberg: Assessing.

Ali Nazar: … giving those suggestions.

Steve Rozenberg: And I think what’s important, you said a couple things that I think if you weren’t paying attention you’d miss, is that number one, that its product or price. If people are not calling its price, if they’re calling, they’re going, and now they’re not buying, it’s the product. So there’s either, it’s one or the other.

Steve Rozenberg: But on top of that, the management side of it that just goes to show the knowledge in the team and being able to have that conversation to say, “Listen, this is what’s going on.” Because if I have a career and I have a job, the last thing I’m going to do is want to go down there and say, “Well, maybe we should paint the door. I don’t know, maybe the door. Maybe we should change the doorknobs.” I’m just guessing, where you guys have the data that’s showing them, “Mr. Owner, this is what the data is showing and this is what’s best for you to get this rented to get the cash flowing.”

Steve Rozenberg: So the over communication, because that’s when people get nervous. They’re like, “What’s going on back there? What are you guys doing? What’s happening?” But over communicating is so so important, I think. And I think that’s, as investors, when you have a property, that’s when you get nervous is when it’s vacant because you’re going to go towards worst-case scenario. And not talking about if it gets vandalized when it’s vacant and all the other things that could happen when it’s sitting empty. You want to get it rented as quick as possible. And so I think that’s great.

Ali Nazar: But also it goes back to the investment thesis. So sometimes people might not want to cut at all. And they’re comfortable keeping it.

Steve Rozenberg: Sure.

Ali Nazar: Because that’s how you compute a cap rate. If you want to keep your rent high, because that translates to higher value, you might be able sell for more. Or I think like in a rent control environment, like we’re sitting here in Oakland, which is a heavily regulated market.

Steve Rozenberg: Right.

Ali Nazar: Once you set that rent, it’s hard to get it up again.

Steve Rozenberg: Yeah, that’s a good point.

Ali Nazar: So some owners are like, “You know what, I don’t want to drop this.” And that’s fine. We’re in a service business so we’re going to give you our best advice, but you might have a different thesis of what you want and that’s fine, too.

Steve Rozenberg: How do you, when someone’s an investor and let’s say they’re holding out because they want that, and all of a sudden they get a trigger that says, “You know what, now I’m in a desperation mode. Now I put myself in a bad financial corner. Now I need to drop it,” or, “I want you guys to relax your standards of who you’re going to accept because I want someone in tomorrow,” what’s the best advice you can give an investor that puts themselves sometimes unknowingly in that position? And how not to get in that position?

Ali Nazar: Yeah. I mean, it’s a great question. It’s this is one of the hardest things.

Steve Rozenberg: Yeah.

Ali Nazar: It’s a marketplace with lots of variability. So I think ultimately price is the best lever. I don’t know that you want to relax screening standards. We don’t do that.

Steve Rozenberg: Yeah. Absolutely.

Ali Nazar: And there’s fair housing issues, there’s all sorts of stuff around that. But we have a standard. We’re really aggressive. We get great residents. We want good residents because we want to have them pay on time, take care of the place, and that’s a lot of-

Alex Osenenko: Well, Mynd is guaranteeing that so that’s-

Steve Rozenberg: Yeah, we’re financially backing [crosstalk]

Ali Nazar: So we want to make sure-

Alex Osenenko: There’s an alignment here. Yeah.

Ali Nazar: Yeah. But I think, yeah, it’s probably price. And that’s where you should listen to expert advice, honestly, I think. And try to act before you get painted into a corner. Because if you’re desperate then you might have to drop it $300 or something as opposed to 50.

Steve Rozenberg: Yes, yeah. It’s like, I can’t pay my mortgage now, now I’m in a bad position. And like you said, the communication and all that is key. Which the next thing we’re going to talk about is the vacancy, right. So if you have a property, what do you suggest is the way to forecast vacancies and how do you factor that into the equation into the financial math of having that rental property?

Ali Nazar: Yeah, it’s a good question. Well, the way that we underwrote it Waypoint was that, and I think it typically done, is you take a vacancy, on small residential I think we model that a third every year will turn over. So once every three years someone moves out.

Steve Rozenberg: That’s also geographical too, right?

Ali Nazar: It can be.

Steve Rozenberg: If you’re in a transient area that’s maybe military or something else, those numbers could be different?

Ali Nazar: That’s right. And you can get vacancy statistics online. A lot of that comes from the census. But you can come up with a number. So if it’s a third every year, then instead of just saying, every three years, I’m going to have three months of vacancy, or two months of vacancy, we would just build that into-

Steve Rozenberg: [crosstalk 00:32:35], got you.

Ali Nazar: … an average per month cash flow. You get some tax, vacancy tax every month, that just accounts for that time when it will be empty.

Steve Rozenberg: So, so far what I’m hearing is, the numbers are telling you the story of how to do this. I haven’t heard one thing about emotion. I haven’t heard one thing about knee-jerk reaction. It’s the data and the numbers are telling you the story. It’s like the report card of the house.

Ali Nazar: Yeah.

Steve Rozenberg: Whether or not we the investors choose to listen to that, or how we decipher that information, or how we interpret it, which I think is the challenge a lot of investors have, especially when they’re new. And I did this when I was first buying properties is I could make those numbers mentally do whatever I needed them to do to make it be a good deal. All of a sudden it’s like, well, if I bump the rent a little bit more, and if I get the property, and it’s not three years, maybe I get two years, maybe a tenant will stay an extra year. And all of a sudden, wow, these numbers are great. But the numbers are, what the numbers are. And that’s what’s so important is the numbers are telling you.

Steve Rozenberg: Again, that’s why you have to purchase it correctly. Like you had said, you overcoming a price acquisition mistake is very tough. But it just, you know, for Alex, like you’re thinking of buying a property, that’s something you think about. The last thing you want to do is try to manipulate the numbers to have it fit your scenario. It’s like I really love this area. I think I could make it work and that’s the mistake a lot of people do. And all of the sudden like, but I need 1800, it’s like, but the rents are 1600. It’s like, you don’t understand Alex, it’s not going to rent for 1800 and that’s when you’re like, now I’m in a bad position.

Alex Osenenko: Well, what I don’t understand is how people even do this on their own without a team around them.

Steve Rozenberg: It’s hard.

Alex Osenenko: Like I’ve had a rental, we moved out of the house, I couldn’t afford it anymore, starting a business, we moved out. I didn’t want to sell it so we rented it. Like I had a property manager right away do everything because I’m scared to death of making a mistake and there’s a family going to live in there. I don’t know how to deal with situation like, what if they have a gas leak? How do I deal with that? How do I get sued? I need proper insurance so I have my insurance guy. How do people do it without a team? I know people who do it without a team, they just do it.

Steve Rozenberg: I think the perception is is they think that they’re saving money, they think they could do it better. I think the biggest, and I’m curious of your thoughts, is the biggest mistake or problem in this industry of being an investor is that we equate living in a house that we live in to owning a rental property, especially if you lived in it. You think it’s very similar. I lived in the house, they’re just living in the house. What you don’t realize is now you own a business. It’s just four walls and a roof. It’s the business running inside of that four walls and the roof that’s going to make or break you. Because we all know many people that have gone bankrupt, owning four walls and a roof, and other people bought that house and they became successful.

Steve Rozenberg: I’m sure if you looked at the first house you ever bought, and think of maybe all the mistakes you made, and if you were to go back and buy that same house, you would probably run it completely different.

Ali Nazar: Or maybe not buy it.

Steve Rozenberg: Or maybe not even buy it. Exactly. And so I think a lot of times, we think we can do it better. We think we’re saving money. But I mean, every book or lesson that I’ve ever read, I have never met anyone who’s successful in anything and they said, “I did it all myself, I didn’t have any help and I did everything.” Business owners, real estate, they all have teams. And I think that they understand that it’s not a one-man show. And you’re limited by your knowledge, and you’re limited by your experience, and you’re limited by your self-doubt. All these things I think are limiting you. Like you said, how would you know to do all these things? I’m sure now, if you had that rental property, you think differently, just even-

Alex Osenenko: I didn’t have washer and dryer, like should I get it? That’s a lot of money.

Steve Rozenberg: Yeah. Am I legally obligated once I give it to them? Who’s responsible? Who owns it?

Ali Nazar: [crosstalk] might get higher rent?

Alex Osenenko: Yeah. I don’t know that.

Ali Nazar: The way that I would think about it I think, zooming out, is think of yourself as an entrepreneur. An entrepreneur has, their time is precious. A lot of times you’re trying to figure out things that are not super clear, like what will it rent for? Like, what’s the vacancy going to be? And I think good entrepreneurs, they get a diversity of opinion. They get a lot of different inputs. And they make smart decisions.

Steve Rozenberg: Yes.

Ali Nazar: And then they hold themselves accountable to those decisions and learn from them. That’s how you get better.

Steve Rozenberg: Yeah. I think the only caveat to that I would say is if they don’t know their North Star, where they’re going, the information they get from people, that’s maybe your opinion on your destination, your opinion, and I’m going okay, which way do I go? The answer is you’re going this way, you’re just taking information and you’re extrapolating what’s important to you based on your goals. So I always tell people, don’t ask people’s opinions until you know where you’re going. Because you’re going on their ride to their destination.

Steve Rozenberg: You’re going to go, “Ali, is this a good deal?” Well, if you’re a flipper, you’re gonna go, “Oh, no, that’s a horrible deal.” Based on me flipping it. Alex is gonna go, “That’s a great deal.” I’m going well what should I do, I have two people? Well, based on my goal is this I can take it and extrapolate that. And the problem is, a lot of people, they don’t know what their end destination is. They haven’t written their thesis. So they don’t know where they’re going. So they’re just kind of bobbing around. And now they’re going, man, I’m more confused than ever. Ali, I’m going to go on Ali’s train because he’s going that way. And all of a sudden Ali goes, “Hey, I’m a flipper. I don’t buy and hold.” And you’re like, oh, that would be good to know.

Steve Rozenberg: And I think that’s the challenge that a lot of people have in this industry is that there are no rules. There’s no playbook that tells you, you should have a team, you should have a thesis, and that’s why I think that there’s a lack of information. I think there’s so many people out there that show you how to get the deal, how to buy it cash-on-cash, and all the numbers. But no one ever actually shows you what do you do on day two? When the resident moves in and they say, “I lost my job and I’m not leaving, and I can’t pay my rent.” How do you handle that? If you’re Alex and you’ve never owned a property, what do you do?

Alex Osenenko: Honestly, knowing what I know-

Steve Rozenberg: Right.

Alex Osenenko: … being in this business that many years, I wouldn’t put myself in that position. Like that 8% or flat fee or whatever-

Steve Rozenberg: Whatever it is.

Alex Osenenko: … the PM charges, like that’s a lifeline. I call him up like, my tenant just called me, deal with it. Deal with it.

Ali Nazar: Yeah. Well, everybody’s in a different position, right?

Steve Rozenberg: Sure.

Ali Nazar: Like if you have a ton of time and you’re interested then you could do it. If you have a full time job, you’re in like a different mode of life, then you probably want to hire an expert to do it because it’s a lot of work. I mean, that’s the bottom line is running and operating a real estate portfolio, even one unit can be a lot work.

Steve Rozenberg: It’s a business.

Ali Nazar: Yeah. I self-managed my units for a while and I got very familiar with my residents because they called me all the time. It took a lot of time.

Steve Rozenberg: Well, I mean, look at what just happened here. They just passed the new ordinance about background checks in Oakland. If you’re not up on the law, and you’ve got a regular job, and you’re not paying attention to what’s going on, and all of a sudden you do something, and now all of a sudden you violated a law and you’re going, I didn’t even know about that. They’re gonna say, “That’s not our problem, it’s your responsibility because you’re running a business.” And that’s-

Alex Osenenko: So it’s both time and risk and exposure.

Steve Rozenberg: Absolutely, yeah.

Alex Osenenko: Let’s nail this to the wall and finish up because we have only about five minutes left or so. So, I think another big line item, that we want to talk, so vacancy is an expensive, but manageable aspect, with some smart renovations and smart moves, as you call expiration management, all the things we already discussed. Repair maintenance, to me strikes as like a big, unknowable thing. How do you manage that?

Ali Nazar: Yeah, it’s a hard one. I think getting an assessment of the major systems, those are the places where you’re really going to have a lot of expense. So what you want to do is minimize the big expenses. So the roof is a big deal, the plumbing system, the electrical system, the appliances. So I think when you do an inspection on a property up front, trying to get some understanding of like, what’s the useful life of those major systems is a good way to underwrite that property. Because it might be fine if the roof is shot if you’re getting a screaming deal on it. Because then you can just-

Steve Rozenberg: Factor it in.

Ali Nazar: … say oh well I have to put another 10 grand to replace this roof and I’m still going to come out below market. So I think that’s a big one is the having an understanding of the viability of the systems in the place.

Steve Rozenberg: How did you at Waypoint in so many different markets, how did you guys know and understand all the different property codes and laws associated with all the different regions? Like how does someone, let’s say I’m looking to buy a house in North Dakota, how do I learn that in that area? I mean, besides a property management company that knows it, but how does someone else know that stuff?

Ali Nazar: Yeah, you have to have local experts. So property managers, or some inspectors, general contractors. So we had, at Waypoint we had what we called construction superintendents. So they worked for us and they would do scopes, they were inspectors basically. And they would manage a general contractor.

Steve Rozenberg: So they were like QA, quality assurance for Waypoint.

Ali Nazar: They do the scope up front and then they’d do the QC on the back end.

Steve Rozenberg: Got it. Okay.

Ali Nazar: So yeah, but you do need the local expertise and knowing what to look for. And like here in the Bay, where I’m from, it might be different what you look at in Berkeley versus Fremont.

Steve Rozenberg: Sure.

Ali Nazar: Those towns are maybe a 40 minute drive away, but the construction is different, the land is different-

Steve Rozenberg: The zoning [crosstalk 00:41:30].

Ali Nazar: … everything’s different. So I think that’s a big part from a repairs and maintenance perspective, is get local experts upfront so you can kind of underwrite.

Steve Rozenberg: Part of building your team.

Ali Nazar: Part of building your team. The other big part of the team is having a handyman. So we have handymen that we vend this out, but we also have our own staff. Because it’s so important because a handyman can cover most of the issues that are going to happen once it’s occupied. But you don’t want to be in a position where you don’t have a good trusted vendor.

Steve Rozenberg: Because then you’re then you’re reacting emergency and you’re maybe calling someone that you don’t know, you have no relationship with, and now-

Alex Osenenko: And you’re paying twice as much for maybe not as good of a service.

Ali Nazar: And they do a bad job. So you want someone who you can trust. And obviously again, like a local person who understands kind of how that house might need to be fixed. So those are I think, some of the things you can do to mitigate it, is make sure you inspect it up front, and make sure you have great vendors that you can trust and rely on. We’ve experienced at both our companies were vendors, we call it they get kind of fat and happy after a while. They just are, they know they’re going to get your business every time and they start to not do as good a job. So it’s probably a good idea-

Steve Rozenberg: Yeah, it’s a natural evolution of that business model. Yeah a lot of times.

Ali Nazar: So it’s a good idea to kind of turn them over once in a while. Then you shop the market a little bit. This is again for the property management company, they do that for you so you don’t have to do it. But if you’re self-managing then that would be the way to do it.

Steve Rozenberg: Sure. Makes sense.

Alex Osenenko: Interesting. So last piece, let’s talk about this. You’ve added this to the agenda, because I didn’t know this is a variable you can control or some… But it is piece of that sort of expense side of your profit and loss statement as an investor, taxes HOA and insurance. Can you talk a little bit about that? What is the variability here? And what’s the risk?

Ali Nazar: Yeah. What you have, like if you just think about it in an income statement, which is how you get to like profitability of any kind of business, you’ve got revenue minus expenses. We talked about revenue is the rent, two big expense categories are the vacancy, and repairs and maintenance, those are things that you can manage. So if you’re smart, know what you’re doing, have experts on your team, you can minimize the impacts of those things to your revenue.

Ali Nazar: So there’s another set of expenses that you really you can’t do much about. It’s just kind of set for that property, is based on where that property is. So taxes, property taxes, so there’s wildly different types of… Like you guys in Texas have very high property taxes because there’s no state income tax, versus places in California where it’s lower, but we get huge state income tax. So that’s a big difference you need to understand. Sometimes taxes can be property to property with Mello-Roos taxes. So you have to underwrite that and understand what that is, but you really can’t control it, you have to know it up front.

Ali Nazar: Same thing with HOA and insurance. HOA, if you’re in an HOA, you’re going to have to pay that number every month. And you need to know what that is and build that into your pro forma, which is your estimate of how much you’re going to make. It’s just an expense that you have to cover with enough rent. If you can’t get enough rent to cover the HOA fees, then you probably shouldn’t buy that property. And then insurance is another one, which is just kind of like it’s required. To get any kind of loan on the property you have to have insurance. And it’s variable so it changes. We were just discussing before we got on the air around my rental property in California, the price has gone up for insurance quite a bit over the last couple of years because of all the wildfires. And so the insurance companies, they’re having to pay out a ton for all these homes that have been destroyed.

Steve Rozenberg: They’re not paying it out. They’re recycling it from the… Yeah.

Ali Nazar: So that’s another part of it. And those are some things that you don’t control. Other property taxes, those can change too. I live in a city where they’re always passing new school bonds and stuff, and those end up as additional property taxes on the city tax.

Steve Rozenberg: And in Texas, you have what’s called a MUD tax, which is Municipal Utility District, which is the water district. So if you don’t even know about it, all of a sudden, they’re like, “Hey, you didn’t pay your MUD tax.” And I’m like, I don’t even know what that is. And they’re like, “It’s your MUD tax.” So again, it’s on you to know what they are and you have to pay those.

Steve Rozenberg: And when you’re talking about HOA fees, I remember I had some townhomes in Houston at one time, and I had like five or six of them. And by the time I owned them for the first five years, the HOA taxes went from like 120 a month per unit, to like 265. Well, the rents didn’t go up as accordingly, so what did that do? That just ate into my cash flow. And there’s nothing I could do about it because other people were not paying their HOA dues. So the people that are paying, they just increase that. And that’s the challenge in condominiums and townhomes. They can increase it if they need to and they’ll do whatever they have to do.

Ali Nazar: It’s a another risk factor.

Steve Rozenberg: It’s a variable.

Alex Osenenko: Because they can get a lawsuit and like my association, so I mean, we all as homeowners, we probably experienced a lot of that. So translate that into sort of having a bit more risk with HOA’s.

Steve Rozenberg: Well and I think it goes back to what he said originally, is when you buy the property, if you buy it wrong, things happen, right? All of a sudden these expenses go up. Well, what does that do? That could eat into your cash flow, because if you can’t raise the rent, it’s going to come off… it’s going to eat up whatever’s left to your cash flow and sometimes overtake it. Now you’re in a bad position because you purchased it wrong.

Alex Osenenko: Well, this was fantastic, guys. I really appreciate it. I mean, as a listener, you can probably tell we’re all very passionate about what we do here at Mynd. So not to throw a sales pitch but to say look, if you want to, if you have questions about property management, or things we’ve discussed, like happy to talk. Hit us up at Mynd.co, M-Y-N-D.C-O. And you go to right locations and just kind of choose where you are and you can just submit a form or call us for whatever location you’re in and we’ll be happy to chat with you and see if we can help you out with property management. Steve, thank you for your time. Ali, always a pleasure.

Steve Rozenberg: Thank you sir. Appreciate it.

Ali Nazar: Thanks guys. Thank you.

Alex Osenenko: And to talk more, and Ali we’ll look forward for you joining, are you going to join our Facebook group?

Ali Nazar: Yeah. I am on your Facebook group.

Alex Osenenko: Oh, got to get you, yes. [crosstalk]

Steve Rozenberg: Are you on the Facebook group?

Alex Osenenko: Yes I am. So we’re at my…

Steve Rozenberg: If you want to go to the Facebook group it’s the Mastermind Real Estate Investment Club. And on there there’s a lot of investors, Ali, myself, Alex, there’s a bunch of people on there. And again, it’s a place that you can converse, engage, have conversations about maybe questions or issues that you have, and be able to get real-time answers from people like us. And as well, you can join you can ask questions all that.

Steve Rozenberg: Also if you do like the show, make sure you please leave a review for us here on iTunes. Like it, subscribe, let people know about it. That’s how we get more traction. And again, thanks, everyone for watching today. Appreciate it and we will see you next week for another episode. Bye-bye.

Alex Osenenko: Thank you.

Ali Nazar: See you.

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