Ep #333 – Ryan Wehner – 22,000 doors under management
Here is some of what you will learn:
Due diligence process
Creating an Operating forecast
Dialing in exact capex costs
Importance of data driven audits
Questions to ask a management company
Key performance indicators to keep an eye on
How to work effectively with a property management company
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Full Transcript Below:
Ryan Wehner – 22,000 doors under management (Ep333)
Intro: Hi! I’m Rod Khleif. Each and every week I record an interview with a thought leader that I know you’re gonna get a ton of value from. Now here on YouTube are the video versions of my podcast, Lifetime Cash Flow through Real Estate Investing. Now to make sure you get the latest information please subscribe and hit the notification bell. Let’s get started.
Rod: Welcome to another edition of “How to Build Lifetime Cash Flow through Real Estate Investing”. I’m Rod Khleif and I’m thrilled you’re here. And I know you’re gonna get tremendous benefit from the General we’re interviewing today. His name is Ryan Wehner and he’s the president of Wehner Multifamily a huge multifamily property management company. In fact they manage over twenty-two thousand doors and just a very impressive company. Actually just watched a video on his services and very very impressed with the level of diligence and prep work that they do to help an operator as they’re evaluating a property. So we’re gonna dig into that Ryan welcome to the show my friend
Ryan: Hey! Thank you! Thank you for inviting me
Rod: Absolutely you know I just watched that video and it’s you know shame on me for not watching it sooner because it really speaks to how you’ve embraced technology to enhance the operators due diligence process. So can you speak to that a little bit? Talk about some of the different pieces that you’re utilizing to help you know an operator evaluate a property. I know you have this whole process you go through and you create a lease audit and then an operating forecast based on you know getting engaged on a deal. So can you speak to that a little bit?
Ryan: Yeah sure so typically when a potential client comes in to us and we get most of our referrals from current clients. They’ll be looking at a deal to make an offer and we’ll go in there put together a preliminary operating forecast or a budget, an operating forecast because we don’t deal with the debt but we will go in through their source data from the over 22,000 units that we manage and actually do a physical market survey of the property every time a request is made. In our experience, it’s better to do it that way than to just go off a costar ALN. So we get more accurate data and we get better input on what the actual interiors of the property look like and the exterior. So that’s how we really are able to put together a pretty accurate preliminary forecast for you to make an offer. Let’s say that you have your offer is accepted and we end up doing the due diligence, a big part of what we do that’s maybe a little bit different is we’ve created technology. We have an application called Suite Inspector that’s proprietary to our company that will actually go in because we consider the interiors especially at C and B Class assets to be death by a thousand cuts. So we really like to go in there instead of doing this
Rod: Yeah you’re holding your finger up and feeling the wind yeah
Ryan: Yeah you really like to go in there, we go in there and then we and it’ll completely inventory the entire interior of the units usually be about 350 anywhere from 325 to 400 different inventory list items down to every outlet. And then we build a template it goes into the cloud it gets put on all of our tablets and then our due diligence team will come in about a day or two days later and walk all of the units. When I say all, 98 percent plus there’s usually one or two that we can’t get into for whatever reason. We do that we really look for an example 100 unit deal will evaluate about 35,000 line items. We square it on a one to five basis one being replacement 2 being major repair or minor replacement like a mouse and a faucet three being a minor repair for being fully functional with useful life or five be brand new. And then on the back-office myself, the COO and the Director of Operations, we would get together we look at the deal we then we look at the market survey and with comparable talk properties are doing and we really want to not just make an inventory of what’s there right now but build what the schedule is what we’re going to do in the future. So for instance if we have a fully functioning refrigerator but across the street they’re getting $150 more or in rent but they have stainless-steel appliances, we will price out replacing all the appliances on that cost legend. So it really gives us a data-driven it’ll give us a thirty five thousand point thing where we’ll know exactly how much money we’re going to spend on upgrades, how much we’re going to spend on deferred maintenance at each turn, and then we’ll get a per unit turn basis of what it’s going to cost. In our experience we are accurate within a five to seven percent range and this is true in D and C Class assets as well. We really like to do it by data so that we can we leave no stone unturned internally we call it the full cavity search I mean we look everything to make sure that we’re not guessing. We really want to take as much of the guesswork out as possible. Same thing with the lease audit I think that it’s pretty conventional but we go through and data dump all of the leases with somebody in their office going through them all down to how recently they moved in. For instance if we go into a property I’m going to use a 100 unit example because it’s an easy round number and we see that it’s being marketed as 99 percent occupied and we determined that 60 of the tenants have moved in in the last four months, we’re really going to hyper analyze those most recent movements, make sure that they haven’t stuffed the property. If they stuffed the property we’re going, when it gets to our operating forecasts or final one, we’re really going to underwrite more turnovers on the front end. So that we’re going in there with their eyes wide open that the expectations are reasonable. Hopefully that’s answering most your questions. A lot of the other stuff that we do is pretty conventional. So as far as we all have our preferred roofer, do a roofing report we don’t do that internally, asphalt, HVAC systems, or any other major systems like a large boiler we’ll bring in third parties. And then we also scope all of these sewer lines to see if there’s we have a plumber scope all the sewer lines. Incidentally we have a scope we’ll use it for operations but not for due diligence because the risk is too high if we miss something
Ryan: Overall theme is, I’m just going to give you a little visual, I think of a property more underwriting and intelligence is a big, all we do is not those things into lists cut those into lists and we have all of the data put together and then we aggregate it together to the operating forecast
Ryan: You have a much lower margin of error. It sets the expectation right for the operator who with the property management that we both have the same expectations. And so that we know because it’s not a profitable business and property management if you have an unsatisfied client it really isn’t. So that’s part of it. Secondly as you know sometimes you go through the due diligence and you have to do a REIT raid and versus going to a seller and just saying hey the unit’s interior look bad there are 20 that were bad and we want a $50,000 REIT rate. When you pull in there with, hey it really is bad literally we have fifty seven out of these hundred units where the refrigerators are on their last leg or leaking and so when you have the data it gives you a better argument for your REIT rate. So that’s a very large part that we have with respect to the interiors and on the exterior stuff, it’s pretty conventional. I mean I think companies do hopefully I answered your question
Rod: No no no that it’s it’s a you know it was really impressed when I saw you know those resources that you can provide to an operator. All things that the operator needs to be doing themselves but when it’s data-driven like that and you provide these you know I saw these you know charts and graphs you know relating you know when you do your lease audits. I saw that you know you do a risk factor audit you know based on concessions based on things that are missing in the files and based on you know what you just described if they’re you know they could be trying to cram people in before the sale you know all very powerful stuff and you know and the fact that you get such a tight accurate, your numbers are so accurate around expenses initial capex and then you know in your operating forecast it’s just it’s very very powerful
Ryan: I’m sorry that, for a lot of operators that are doing their first larger deal or you know maybe the first one that they’re doing on their own, they may have a little resistance from some of the lenders especially if they’re sponsored by Fannie Mae or Freddie Mac, any of the agency debt. When a lender sees that you have this much statistical data on the collateral it it’s been very useful for them to even get the loan in the first place because they have the backup in a statistical basis and as we know all lenders, bankers want that data
Rod: That’s crack cocaine for them you know. So you put it together for it. So let me ask you some rudimentary questions because my listener base is, I mean I’ve got numerous people that have thousand-plus doors that listen to me consistently and then I’ve got you know people that are just getting rolling that frankly have started with small multifamily, maybe have not started there yet but you know they aspire to do larger deals
Ryan: In one to two years they’ll have thousands of units
Rod: That’s right that’s right. So let me ask you this what questions should someone ask a prospective third party property management company you know just high-level. I mean not all the high/low you know but detail what are some important things they should look for when they’re evaluating someone like yourself
Ryan: So there’s no like magic question but it’s really you know how did they do the reporting? is it GAAP reporting? that’ll be accepted by a General Accounting forget what the other AP stands for but right I mean that’s a very very significant part that if it’s a smaller company that may has more foots on the group, feet on the ground and a certain area could be a great fit. You have to make sure that they have the back-office capability to handle with the reporting and everything. Secondly you know and these aren’t like a direct question but something that you really want to determine because all the neat processes and everything, I can have the greatest processes in the world I don’t have a good manager in the seat, it doesn’t really make much of a difference. In my horrible processes and I have good manager in the seat, I’m gonna have a good outcome anyways it’s typically how it works. So I would really kind of determine how they generate their employees, where they are in terms of when did when you talk to them try to get a sense if you know they you especially have you been referred to them by another client that if they’re really prepared for the growth and most of the growth preparation is not at the back office and all that, it is being able to bring in the people. We’re in a tight labor market. They have to have the best people. If they have the best people and culture, the properties will do well even with some mistakes which are they’re kind of baked into the K
Rod: Sure so dig into their employment practices, dig into how they keep their people happy, how they screen their people, and how they bring them in.
Ryan: Do they have a very exhaustive approach to get hired and do they fire quickly?
Ryan: Those are two very very important aspects of the of the personnel. Another thing I would look is and this isn’t really a question but this is just how to evaluate a property management company, if you’re looking at an A-class property you really want to see if this property management company specializes in C, maybe even D, B- and if it’s an A-class management company and they try to do it C properties. It’s not a good fit it’s like trying to put a flat screwdriver and a Phillips head it just doesn’t work. For instance we focus on B and C class assets a little bit of D and we have a little bit of A but A is not our bread and butter
Ryan: You have to make sure that you’re putting the right the group that fits in the same kind of what your ballpark of what you’re trying to do, that they, I believe that this is debatable but I believe that it’s good to have a management company that has a local presence in the area versus one that flies around to little cities everywhere I just don’t think that they can give the unannounced visits by supervisors. That way, so that’s kind of my own opinion but it’s why
Rod: I agree completely. I agree completely. You need you need to be aligning with management companies that are managing the asset class you’re buying and they need to have a local presence I totally agree with those two pieces. Now let me ask you this, what should someone expect from their property management company? you know what obviously you know actually the reporting, how consistent should that reporting be and then what sort of a communication channel as an example does Wehner setup with its clients with its operators?
Ryan: So I can tell you about what Wehner does, some of what we do is as maybe what the remains make the companies would consider overkill but really, we have depending on the size of the client if it’s a hundred unit deal. I mean we’ll have a regional manager and a regional maintenance for each property. If it’s during, you’re gonna purchase it or even if it’s being bought you really want them to have looked at it. You want to have met with the regional manager make sure that you have good communication rapport with that person that’s important but you just want to make sure that the maintenance supervisor is competent. You may not be, a very seldom are they actually great communicators. You wanna make sure that they’re competent and then you want to make sure that you get their reporting, how we do it, all of our clients have we have a cloud-based software that we use it’s called Resnick and I think most large management companies use cloud-based softwares. So you really should have what we do is give immediate access to all the rent roll, all the tenant data, and it’s only it’s read-only access change data but and they have immediate access to their bank account and the profit and loss. As we do it, we for the prior month we provide the full financial packages and in that we have the profit and loss cash flow statement the balance, the general Ledger’s in five other boring sheets of paper. So what we have is by the 10th of the following month we provide all those reports in an email. Some companies do it on the 15th that’s totally fine even if they do it by the reason we try to squeeze it into the front of the month is that if there’s something that we have to change, we don’t want to already be half three weeks into the month you pivot. You really want to have monthly reports it doesn’t have to be on the 20th you really want to have the most important things that you you don’t necessarily need to be going to the P&L mid-month but what you do want to know is where they’re collecting what type of occupancy they have, what type of turnover is occurring that month. We have in this some specific to our company, this may be overkill we have what we call a daily report that we’ve paid to have developed and interacts with our software that with the management software. So they get our clients if they elect to, they get every five days a week they get a basically when we consider that 10% of the data, they give them 90% of the picture. So it’ll have you know what have we collected? what is total to be collected? What’s delinquent? what’s bad debt? what’s the vacancy rate? which units are vacant? how many of those are ready? what is pre lease? what’s pre-lease occupancy? how many work orders are open? So it’s really about and that’s about
Rod: oh wow that’s very impressive
Ryan: So that’s something that you can keep a daily log on. Most of our clients only want it weekly so you can set it up weekly but if you could get that weekly that’d be fine. But we don’t really would dissuade somebody from doing is getting the whole rent roll and looking at it every day. When it’s about much information you just won’t look at it. I mean that’s just human nature so you really just want it to be a snapshot if you find an issue with delinquency or bad debt, then you then they’ll usually log into the resident software and start looking at the details or talk Regional Manager
Rod: How often do you typically should someone want to talk to the regional or who would they be talking to more consistently?
Ryan: We’ll be talking to the regional definitely the most consistent if it’s during the beginning of a property and we have lender lists and stuff like that that you know we have to have this roofer place and this repair or the loan documents, then there’ll be more involvement with both the regional and the maintenance supervisor because I really like to bifurcate those things and let the regionals focus on leasing, collecting, and retention. And the staff in the office not sewer replacements that they have no idea never done one
Ryan: We try to have a silo thing where we have people that are an inch wide and a mile deep versus somebody knows a little bit about everything. Somebody in the company that knows a little bit about everything and that’s me among are those
Rod: All right what do you expect from your clients? what do you expect from your operators?
Ryan: Very basic, we like to be, set the same expectations on the front end whether we’re taking over a transition or we’re doing the due diligence on a purchase but we really want to all be on the same page. What we don’t want is we give them a forecast and then they go raise money by puffing up certain numbers. We really want to be all on the same page and then very basic human decency to my employees. Handedly employees are harder to get at least for my company than clients are sure in most cases even if I can you know. Keep in mind that we have a system especially if here in C or you bought a D or you bought a B- there’s literally hundreds of judgment calls that have to be made monthly. So I encourage people to use common sense that hey you make a hundred judgment calls and you would have now that you’ve thought through and after the fact you would have bought a cheaper type of toilet paper. I mean we need to use some common sense on some of those items. Those are the main things that we expect. The other thing is we have people on insides of the extreme are tend to be the problem to kind of like our politics right now. So we have people that want to count every toilet paper square and they spawn people down and details that really don’t push the needle. And then we have people that you know call us once every two years we really think that it’s a happy balance in the middle where you have involvement, you’re at least involved on a monthly basis looking at your reports so that if you want something different, that you bring it to our attention and a more quick fashion but if you’re buying a deal that has huge maintenance things and construction projects and maybe a huge reset of rental or it’s buying it at sixty percent occupied, then really you need to be in bold weekly until it’s stabilized then it’s a monthly thing. You really you should have a weekly involvement. if it’s something that is a high priority in in other words it’s going to affect the operations on site, that’s the highest priority things, then when you send an email, the regional, that property management company should get right back to you within 24 hours. If it’s a to-do list that you want you know have reasonable expectations that if it’s not high priority that they have a week or two weeks depending on how priority is
Ryan: … or a little bit of common sense
Rod: You also manage the repositions on properties as well yes? You get a tire reefer
Ryan: Yeah our particular company and this isn’t everybody and in fact we don’t even do this in San Antonio. I also have a construction management company of over 900 employees. About 140 of them are in my construction division and so on that side it’s a fully different entity and so it’s always you can go to somebody else and 99.9% of our clients want to use us because they know that we’re going to competently manage the process. So you get some of the one-size-fits-all but as as far as if you’re in Florida or something there’s great property management companies that do not have a construction lien. I’ll just wait anybody from using a property management company that doesn’t have that resource in-house as well. Make sure that you don’t be afraid to ask questions politely and question and we love having a second set of smart eyes look over what our assumptions are so that we can get to the best conclusion. Even candidly sometimes a client I’ll say hey can’t we do it this way and then we go we never thought of that and then we implemented across the other 170 of our assets
Rod: Sure it come in all the time. You’ve got to be open and receptive to them that’s great
Ryan: You get a great perspective when somebody has you get a even if it’s somebody that doesn’t have a lot of experience if they have their money involved in it. They tend to poke holes through things and find great solutions that we may not find ourselves
Rod: Sure sure yeah you know I used to have an another life I had a company with 60 employees and I used to have these ideas for improvement events and we’d put up a white board and all the staff would come up with ideas and was crazy we have implemented 60% of those ideas I mean you know these are people that are in so employees sometimes do as well. So let me ask you one last question if someone is evaluating a management company do you recommend they go site visit mystery shops some of the assets that they’re managing? what sorts of things would you do in your evaluation process?
Ryan: I think that’s a great great idea and like I said you got a layer that all common sense. So if you’re gonna buy a B+ asset or a B asset, you probably should go look at the properties that that company manages that are B assets versus going into they may manage some deals in Dallas and or Fair Park. You really shouldn’t compare Fair Park and South Dallas
Rod: Those are A areas correct?
Ryan: Those D
Rod: Those are D okay I didn’t know I don’t know Dallas well enough to know what’s the worst and what’s the best
Ryan: I’m sorry then and I should have been more educational on that. You’re gonna be looking at one of their C-properties they’re managing for C-class asset or their you know basically we don’t really
Rod: Yeah no no that’s that’s very insightful yeah we’re actually buying a Dallas asset right now, we’re raising money for it right there and it’s you know I was telling you before that you know it we’re gonna check out your outfit and see you know and start some dialogue and I and I’ll see you next week as well I’d love to shake your hand. but well listen I really appreciate you being on the show Ryan I know you’re a busy guy and very very impressed with what I’ve seen and would love to get to know you a little better and you know and definitely
Ryan: Me as well
Rod: Yeah and definitely endorse you after if we end up working together for sure. So I appreciate your time my friend
Ryan: Thank you so much and I appreciate. Can I give them my information?
Rod: Yeah what’s the website?
Ryan: So it’s a Wehner Multifamily that’s Wehnermultifamily.com , if you want to email us with any questions its firstname.lastname@example.org and we’d love to help anybody that we can
Rod: Your target market right now is Texas and Oklahoma correct?
Ryan: That is correct
Rod: Yeah awesome
Ryan: Really at this point don’t have an appetite to go outside of those
Rod: Sure why should you if you’ve got that big of an infrastructure where you’re at you know focus is power. Alright my friend, pleasure to meet you
Ryan: I appreciate it’s very nice to meet you too. You have a great program I appreciate it very much
Rod: Thank you buddy alright take care talk soon see you bye
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