3rd Party Asset Management with Mike Taravella
Hiring a third-party asset manager for your real estate portfolio offers numerous advantages. These experts bring valuable expertise and experience, saving you time and effort in managing properties. They optimize your returns by minimizing vacancies and controlling operating costs, while also effectively managing risks associated with real estate investments. Asset managers provide detailed financial analysis, adapt strategies to market changes, and ensure compliance with regulations. Additionally, they offer access to extensive networks and resources, enabling you to make informed decisions and maximize the performance of your investments. Today, we're diving into it with Mike Taravella.
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Launch Pro: www.crelaunchpro.com
Key Takeaways:
Hiring a third party asset manager can allow an owner to take a step back from day-to-day operations and focus on other goals or investments
An asset manager acts as the CEO to oversee finances and hold the property manager accountable
It makes sense to consider an asset manager once a portfolio grows to around 20 units
When onboarding a new asset, an asset manager will evaluate financials, goals, timelines, team members, and identify any issues or opportunities
Turning around an underperforming property requires fixing maintenance issues, improving marketing, addressing tenant complaints, and ensuring the property manager is actually completing tasks
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community, and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com.
0:25
Welcome back to the commercial real estate investor podcast today we are interviewing live from the studio, Mike, you are actually the first guest that I've had in the brand new studio. So I hope you're enjoying it. But today, we're gonna dive into third party Asset Management for your assets. Hiring a third party asset manager is a way for you to really take a step back, they're basically a CEO, right, you become the board member, they're the CEO, they run the portfolio for you, they report to you. So the you don't have to deal with the property managers, you don't have to deal with the leasing agents, you don't have to deal with any of the issues on the property. So if you actually want true passive income, you're gonna have to go with a third party asset manager, although there's no such thing as true passive income, because then you have to answer where's my k one? There's always gonna be something, there's always going to be something. So I've known Mike for years, he's been very involved in the multifamily community owns a few apartment buildings himself. And we're looking to grow that portfolio. But Mike, that's a very brief introduction of you. Tell us a little bit more about yourself. Yeah. So I have the opportunity to pick the sexiest route and commercial real estate but being a CPA for five years and being absolutely miserable with that. But the opportunity there was I got to just really work with like Dan Gilbert and launch startups and just see nobody has systems. So the bigger these companies get, you think they have crazy good systems? They don't. They're really bad. That's the secret. Yeah, he's good at this. Yeah. And so I just took that because I look at a screen printing company in college and just really realized we didn't have systems and so I just took that with my career and saw these companies have these like, large companies that you think are banding together and like they have no idea what they're doing either. So took that approach and then just evolved in the real estate I did two single family houses was a terrible landlord don't do it. And if you're in the here listening to Tyler, you're already a step ahead. And then just did you know gave about a year of education and adding value to other groups got the opportunity to work Knoxville, and you know, acquired 607 units as a GP. And all those are syndications. So I'm not going to be that like I own this many doors.
2:30
As a GP, you have the right to living in Kentucky. I knew LPS that are like no no, I own 10,000 units. Those units are real. Well, I put $50,000 into five different people's it's like okay, you don't know what it does. Yeah, it's but I own one share of one REIT. So I own millions. Millions. Yeah, well, you said I own the web Shadid and apartment complexes. Yeah, and boy does a cashflow.
2:56
But I think the biggest thing is just seeing the system for syndication group. And, you know, Tyler's a big influence and helping me go independent. So when independence started, and his holdings moved to Nashville, now me and Tyler better friends, I think. And, you know, I think just the value, I realized, I'm never going to be the deal in person, I'm always going to be the crazy person doing the asset management, because I just love the conflict. And just like the always adding value and optimizing. And so just working with property managers and showing new systems and ways to just protect the downside help the owners make more, because the days of 20% rent growth are over. And real estate will always continue to average 3% rent growth. So just finding those ways to cover your downside. You know, there's just a lot of people who bought a lot of deals, and now they're like, Oh, we we need some help on the asset management side. So we're doing some consulting and just hoping to help our investors grow and scale and take over the world. That's great. Yeah, those those are the pros and cons of becoming friends with me, I will pressure you into starting your own business. And I will also probably tell you, you need to move to Nashville, because I made I mean, I was started with by being a CPA in Michigan. So like we're we're lightyears leaps and bounds ahead, taking steps taking baby steps. And we're just jumping in the live chat. He's saying What's up guys, Edwin, what's going on, man? Thank you for joining us. Let us know if you have any questions on asset management as we're going live here. Mike, what is asset management? Let's let's start the conversation off with that because I think there's a lot of misconceptions around what Asset Management actually is. Yeah, so I think the biggest thing is like Property Management handling the day to day operations of the property, so residents, contractors, etc. The Asset Management is the ones handling the financial decisions of like representing ownership, but also making sure the property managers are holding them accountable. And I hate the narrative the Manage asset manager manages the property manager just because you underwrote a deal wrong. It's not the property managers fault. So you guys got to clap and work together to make sure that the business plan is executing as best as possible. But I look at it as like an accountability chart the property you have to hold the property manager accountable because your investors are gonna hold you accountable to give them to pay them back then
5:00
money. So, so asset management, you're looking at budgets, weekly reporting to make sure people doing what they said they're going to do, you'd be surprised. I mean, Tyler, you know, but not every property manager does what they say they're going to do. And so just making sure you have the system to hold them accountable with your weekly numbers, your project management system, and then the financials so that you can pay your investors. Yeah, it's very true. So if you're looking at it from like a business or chart, your property manager is basically a VP of operations. The asset manager is the CEO of the company, and you as the owner could be a board member, right you are you're serving on the board, you're kind of advising giving them you know, advice where you want to and where you need to. But at the end of the day, the asset manager is fully responsible for kind of taking your plan and coming up with their own plan. And bringing that vision to life so that you can take a step back and go focus on what you're better at, you know, maybe you've got a W two job, or maybe you've got, you know, other real estate assets that you want to go acquire, it frees you up to go focus on that. So talk to us about when, like, what point in a portfolio doesn't make sense to hire an asset manager or third party asset manager? Yeah, I think it just depends. Generally, the clients that we've been taking on are bought one to three deals that have a high paying w two, they know the benefits of real estate and kind of rode the train up. And now they're like, oh, man, so I think it's like, the sooner you have these conversations, the better. We've been doing it just on a like consulting basis, or we can help on the front end on the partnership side. Because
6:33
deal guys are people are not the best at holding, and no one wants to hold the property managers are beyond those discussions and look at the numbers because acquisitions, people want to buy deals, investor relations, people want to raise money. So that's critical piece that everyone doesn't really talk about is like, Oh, now that I bought it, and I pocketed the ACC fee, they're like, shit, now I gotta take care of this thing. So I think it just the sooner you have that realization, and that conversation, because I can work with like, you know, talking to investors, and like the scale. So like, if you have 123, I mean, we've talked to family offices, I'm just onboarding their stuff. So wherever you are, in the process open to have a conversation. But generally, we've seen about 100 to 200 units on their first or second deal and realize, like, Oh, this is a lot more work than I thought it would be, we can help in any step of that process. Yes, I mean, when you're coming in on the asset management side, or when you're buying real estate, a lot of people like the idea of owning real estate, you hear all of the time, hey, it's a very passive investment, you don't really have to do much to it. And that almost always proves to be wrong, unless you're buying a triple net Walgreens, where all they're doing is sending you a check every month. And so you know, if you've bought real estate, and you're you've determined, hey, I don't want to be a landlord, I am tired of dealing with this. Selling the real estate may not actually be your best option, though, that is the first thing that comes to mind is I'm just going to sell it, get rid of it and move on, you could hire a third party asset manager to come in and kind of run the show for you. So talk to us about what your day to day looks like when you're when you're onboarding a new asset. And then what it looks like moving forward. Yeah, so I always start off by asking the owner, what are their goals? Are you trying to flip this or trying to get out of this, you want to hold it for 10 years, because it really determines where the money needs to go. And then I always start by doing like a deep dive on the weekly numbers. So we have a weekly document that we measure physical, economic, and our marketing, because I need to understand what's happening. And obviously, like, generally, the easiest are like, hey, our occupancies 80%. And we need to get at least up. But like if you measure those weekly numbers, you get a baseline of where the business issue is because a lot of people property managers will say, Oh, our occupancy is low. So we need to cut rents. Well, is it a rental issue? Or is it a marketing issue? Right? Do we need to go on apartments, calm Zillow, realtor Facebook marketplace? And so we're just really focusing on just like establishing baselines does everyone pay rent the first or the last day of the month?
8:58
So the beginning, we're just asking a lot of questions like who, what, where, when, how, why, right. Who's the property manager? Do we have a construction crew?
9:07
You know, do we need money? Is there a capital call? Is it a loan due coming in three months, one of my clients is like, hey, our loan expires in March, and we're under heavy construction left. So it's just like, understanding the timelines and the goals and asking what does success look like? And then from there, just introducing myself to each member, manager, assistants, whomever. And I try to build as much you know, because there's a lot of finger pointing that generally happens. I know. You'd be surprised. Oh, yeah. But I'm trying to be an ally and have all the communication go through me so that I understand who's doing what, and I have an idea, but it's just who's doing what, how can I help and add value to each of those team members to buy that goodwill to then help like the other day I called a power company for an hour and a half so that our construction crew can get power on for 30 units for construction. So like
9:57
it's cast in every sense, but a lot some of the times
10:00
was just like, hey, we think managers doing this or that something's happening here. And we just kind of keep asking questions. And you'll, you know, with our in about 300 million and AUM for consulting we you see trends of bad actors and performers. But also it's like, a lot of the times, it's just minor tweaks like, is this funnel broken? Is this fixed? So
10:19
long story short, ask a lot of questions, establish those baselines on weekly rhythms so that you can make quicker decisions that affect your monthly financials. I mean, because you're running these real estate investments, like a business, and a lot of people get into real estate and they don't, they don't treat it like a true business, you got to treat it like it's an actual business as if it was the same as opening a dry cleaner shop or opening a retail boutique, you got to look at the p&l and manage it as if you're running a company because you are in all reality, just because it has a building with it doesn't necessarily mean that it's not a business. What questions should somebody ask an asset manager as they're going through this process? I mean, if let's, let's say, you know, somebody in the audience wanted to interview you about coming in and taking over their asset, what should they be asking you to make sure that they're covering their bases? Yeah, I think the biggest thing that I see is like, Tell me about a time that worked and didn't work, because I'll be the first one to tell you of all the mistakes I made, like our January at my building was seven, my 36 unit was 74% occupied, and I didn't act fast enough. And then I ended up having to take it over and do daily meetings with our property management team. And then three months, we went from 74%, occupied 60% economic to 95% physical and 90% economic and there's every day. So I think it's just understanding like, what are the baselines? Like, what is this person? What am I doing versus what is, you know, someone else doing? And I think the biggest thing is like, what do you measure? How often do you measure it? And why? Because a lot of people in our industry can throw jargon at you, but they don't really understand like, like, I was on a call and someone was like, Do people invest in tiny homes? 80%, ami, and I'm like, for nonprofit are like, Yeah, but what does it mean? How much am I making? Like, what are the projections and like, people just throw jargon, but like, what does it mean and why? And I think just like, tell us about like successes and failures. Because if someone doesn't have a failure, they're just don't have enough experience. And that's someone I wouldn't want to go with. But I always leave with like, what the fuck happened? Or even worse, they're lying to you. They're just not being truthful about about their failures. I mean, walk us through that. Let's treat that as a case study. So you've got this apartment complex, it's 74% occupied, and you had to step in, and pretty much run it with the property manager on a day to day basis. What did you start doing that helped turn it around? Yeah. So I think in November, you know, I hate on property manager, he seasonality. That's, that's the first red flag because yeah, unless it's like the week of Christmas and Thanksgiving Day, but at a certain point, no matter what the price is, someone will rent out a unit because it's housing. And so I think the biggest thing was we realized marketing wasn't going, we were getting leads in but no one was buying. So we were people inquiring about the property, but no one was applying. So we got apartments.com to get more leads into the door. And what ended up happening was January 13, I went on site and like these turns are god awful. Like there's nails sticking out of the closet door handles, they couldn't open, it was disastrous. And so from that point on, right, it's, the first thing we did was refix all of the turns. Because if if they're crappy turns, you're not getting rent, renters. And if you're getting renters, you're not getting good renters. And so we fix that. And then more people on site saw me, so I was visiting the property three, four days a week. And residents, it was so bad, I introduced myself as the owner, because that's how bad it was. And so residents would come to me get like, tell me their horror story of what happened. And then I would confirm that story with the manager because you just gotta gather as much truth as possible. And then from there, it's just like blocking and tackling issues. Because if people aren't paying, there's a reason why sometimes it's like, they just don't have the money. But like, I had residents who didn't pay for five months, and I thought I was getting evictions. So
14:14
yeah, so just gather as much truth as possible, and then write those wrongs as fast as possible, because residents will come in and want like I had a call the other day of my son wants to live here. Can you help because we fixed those truth like those wrongs? That's great. So So do you think that it was a property management issue? Or was it a property maintenance issue or what was the breakdown? The breakdown was the property manager was telling you what you want to hear, not what was getting done. And so that's why like, the lie caught my manager and was, he said, I, they filed the eviction, and we should be getting ownership of the unit January 13. I called the courts I called the courts. When is the writ which is when you get the possession back, and they said, We don't have it. I called the courts.
15:00
He ended up failing the eviction January 13. So like earlier that week, I saw the unit turned on, like, these are terrible, the units out, were evicted, we're not there. And from that point on, we had a checks and balance of like, everything you do has to have a group message with the other person, like a vendor getting paid or resident, like, there has to be proof of work done because or else like, it didn't get done. So to the trust, but verify that we learned in our like audit career, but it was just like, I haven't like PTSD about it, because you're just like the wave and like, and like resin 20, like we turned 21 units, and three months. So and this is year two of owning it. Year one, we paid out 10% cash on cash. Year two, we paid zero, because like all of these lies, and like, we're back up to like 90% occupancy, and we just did our distribution. But like, we were two renovations away from having no money. So it just like it gets real. And so I just want to that's why like LPS or GPS that are like, I don't know what's going on with my deal. We're just here to be a resource for you. So they understand because anyone can tell a good story, but like, the numbers don't lie. Yeah, I like that trust, but verify. Because I mean, that's I see too many property owners
16:15
blindly trust their property manager, and they're not necessarily going out and looking into the data, or they're not diving into the p&l, or they're not walking by the property and talking to their tenants, I think it's always a great idea, if you're going to be owning real estate, to introduce yourself to the tenants, you got to get to know them. The most successful landlords that I've ever seen are the ones that are very involved in their properties, for obvious reasons, right. That's why the properties are successful. But they'll also go on site, and they'll introduce themselves to the tenants, they'll give them their number in case there's anything that's going on. You know, there's, there's some pros and cons to that part too, right. So you want to be careful with who you're giving that number to, or maybe it's an email address. But, you know, it just gives them that direct line of communication that, you know, if ever, your tenants are getting frustrated with the property manager, or something's not getting done, they have somebody else, they have another resource to, you know, call or get a hold of, instead of going to Google and leaving you a bad review and not paying their rent it, you can help mitigate the situation. We've got a really good question in here from NBS trc. How is asset manager success measured? How do I know that they are truly creating value on the property? Yeah, I think the biggest thing for that question, which is great question.
17:28
I think it goes macro as am I paying distributions? That's always like the easiest way am I making money? But then from there, right. Is it Is there an Occupy physical occupancy? And I think people overcomplicate Asset Management? Are we physically occupied at market
17:45
if we if not, our marketing needs to get fixed. Then once our physicals good, are people paying rent, if people aren't paying rent, right, then you got to an eviction issue. If you have people in you have people paying your only risk is your property manager stealing from you, or money leaving or supplies leaving, because if you have people in you have paying market rent, you should be making money. And so we I think a lot of people break down like crazy, you know, variances and analysis, but like those are the three metrics we look at. We have people and we have people paying and are we overspending, if you check all those boxes, you should be making money, obviously, the market you can't control. But then there's other ways to optimize, like other income and stuff like that. But those are like the three basic measures that we use. Yeah, I mean, it makes a lot of sense. And you create a lot of systems. I mean, you are the master when it comes to systematizing. Everything utilizing vas, I mean, talk to us through the reporting that an asset managers should be putting together to maintain their accountability, right, kind of like what you were just talking to, are they providing reporting on a weekly, monthly quarterly basis? And what would that typically look like? Yes, on a weekly basis, we're measuring physical, economic and our marketing. And so it always scares the owners when it's like the third day of the month and they're like, why is our economic 40% Or like, yeah, it's still time. So like, but we'd like to measure those every week because then you establish baselines like are half the residents paying the first week are they paying by the end of the month because I think that's very telling. So we do that weekly, I share it with them I do like some of them are not the most you know, some of them are so busy they're like I need like a two second version. So I'll do a loom they can watch it whenever they can to x speed it whatever they can was the easiest to digest. But some of them just like the numbers and like to look at it and check the box. So we do a weekly reporting on that. It takes like three minutes to like review it because it's just we got someone in we didn't we collected rent we didn't. And then a monthly basis, we're looking at financials, we're looking at income statement, we're looking for variances month over month, like 10 to 20% and five, like two to $300 because it's easy to make an noi look really good if you leave out a bunch
20:00
have expenses but if there's like, I mean we've had and that's like the hardest part of incentivizing property managers is if you get physical anatomy, economics should be good. But if you anytime you do like an noi bonus, property managers leave out bills on purpose. And then there's a drawer that you have to pay like 10 grand and bills. So we just we tried to bonus based on physical and economic but then I know and then a quarterly basis, we do like a little presentation just to kind of like show like, here's the T three, here's what's going on. Here's the capex. We were working on like the more quarterly because it depends if it's a JV or syndication. But you know, I'm just in constant contact like I treat this the same with my investor relations. If you call me I'm gonna either answer and or call you back as soon as possible because we're running and gunning. And I don't want you know, I think right now investors are very easy to like not answer the phone, when it's not going well. And even through the shit was I have like my otter I recording of all my property manager calls and I share that with my investors if they want because it just like,
21:03
shit gets real another level of accountability. Oh, Otter AI has saved like, one investor call me he's like, can you share the otter AI from this call, which is a transcription service with your every Zoom meeting, because literally, he got he allegedly got served paperwork. And during the same time as our column, we can literally be like, this never got mentioned during their entire call. And then I got hold my property manager accountable because we had every single call transcribed. So every time he lied, we pretty much had it time stamped.
21:33
You could go back, and that's that provides pretty solid evidence for court. Yeah.
21:39
Yeah. No, I mean, that's, I mean, that's like, that's the role of a property manager is making sure that you're not gonna get sued somehow, and people are gonna get this, like, when people I tell people like, I almost got it, I was like, we almost had title, we almost sued her manager and people gasp, like, if you do this long enough, you're going to get sued gonna be in a lawsuit? It doesn't matter what you do, or how good of a person you are. Yeah, there's, there's plenty of that stuff going on out there. So earlier, you mentioned that you had a process to where to hold your property manager accountable, where if something was happening, they were copying you or they were copying a vendor, there was always another person in that process. And, you know, like I said, You are You are the king, when it comes to setting up processes to run these assets the right way. Walk us through some of the systems and processes that you have in place that help make your life easier, because if nothing else, if I mean, if somebody's listening, you know, maybe they're not in a at a point where they should be hiring an asset manager, I don't want to make everybody's lives easier. Yeah, I think the biggest thing is just like have one spreadsheet where you measure the same thing over and over and over again, when I show people my spreadsheet, they're like, This is amazing. I'm gonna like it's measuring physical and economic on a weekly basis. And like having that scorecard in your life, like, whether you're losing weight calling brokers like, I can't tell you how many brokers I called are my favorite is when people who are like cracking the industry, they're like, there's no deals. And then my first question is, well, how many brokers Did you call? 00? And I'm like, wow, congrats. You. Did I worked on loop net? Yeah, there's nothing. Yeah. So it's like, you have to measure your lead measures. And I think a lot of people in any business are doing it wrong for like, when I was helping, like the startups with Dan Gilbert, to now it's like, right, you have to get, like you said, it's a business, you have to get customers that come in, you have to have customers that buy and you have to have a good product. Right? So measuring, measuring, like physical occupancy, if you have a property or like brokers called if you're brand new, but like, really think about what moves the needle, because like, if you called Tyler, once a month, or I do it every three weeks with brokers, that's a lot of times and then building rapport with them that they're gonna find deals, and they may not be the perfect, every deal is not going to fit your but you can if you say no, great. So I think I'm just measuring a scorecard for what you're doing in any business will put you in the 1%. And you can track like, how many like, then results will come and just take a lot of time? Because right now, there's a lot of question where the markets going. But if you control how many brokers and investors you call, you will make money. It's a matter of when not if, yeah, I mean, figure out the KPIs that you are most comfortable with or that you feel are going to move the needle the most, document them and just track them over time. Yeah, I mean, it's like 10 years from now, if you called Five brokers a day for 10 years, like you're, if you don't get deals, then something else catastrophically happened, but like, we'll help you along the way. But not many people think of our industry is like a 10 year business. Well, so let's let's get into how much an asset manager charges. So how are those because you're third party? Is it based on a percentage? Is that a flat rate based on the deal? How do those typically work? Yeah, so we're generally you know, for our introductory, like if it's like a set and forget it, and it's like not a heavy lift for doing like one to 2% of cash basis income, we'll say not accrual. So, if you don't know what that means, we'll connect later but we're doing just like cash on cash because
25:00
As his basic reporting, as we get to those heavier lifts, it can be like, even if you want me on our like an hourly rate to sit on property manager calls. But once we get into the heavier lifts, that's when we can get into the heavier fees. Because like there's some buildings that are like, heavy construction need a lot more hand holding. And just like there's a lot more balancing. So we'll tailor the experience to whatever you need. But we've we're doing 60% occupied building and 80% occupied 29 units, 200 units. So we have the team that can block and tackle whatever problem you have. It's just a function of how much how much help do you need, but we can, we can do it. And like Tyler said, we have the systems. But we've have we have three team virtual team members across the world that work around the clock to make sure we're growing the business so we're just we're leveraging that talent and just trying to help as many people as possible. Well, Mike, this has been great man. If anybody in the audience wants to reach out to you get a hold of you talk about asset management or ask you about your stand up comedy career. How can they get ahold of you add value add Mike, or Mike at value add like.com for emails and stand ups coming soon and for showcase December 10. So we'll see what happens. There you go. I love it. Thank you all for joining us. We will see y'all on the next one. This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com
This conversation explored how Neighbor.com helps commercial real estate investors unlock hidden value in their properties through self-storage and vehicle parking solutions. It also discussed trends in the storage industry and opportunities to generate new income streams from underutilized spaces in offices, multifamily, and other commercial asset types.