210. How To Build Generational Wealth Beyond Your PM Business with Shawn Johnson

Speaker A: What we realized early on, if we're going to be entrepreneurs, it doesn't come with a pension and it doesn't come with a 401k unless I'm the guy contributing, you know, like the, the, the company I'm working for is not putting into it. So in order to create autonomy in our lives, we had to have additional streams of income. Otherwise, if I get hit, if I'm the guy at the business and that that business is the only provider for my, my family and I get hit by a bus tomorrow, what does that. That's the mindset that we had early, early on. Uh,

Speaker B: Welcome to another episode of the Profitable Property Management podcast. Today I have Shawn Johnson on the podcast with me. Sean, thanks for coming on.

Speaker A: Hey, thanks for having me. I'm honored.

Speaker B: I'm excited to have you on. We've known each other for a while and you're in a, uh, different phase of life than when we first met. When you and I first met, you were an active operator in the game, grown your business, hell bent on building the best property management company possible. And some things have shifted for you since then. I want to talk about the story arc of your journey in property management, but what I want to know is this. When you exited your property management business. Can you just describe it for me at that point in terms of size, uh, heads, market. Give me some flavor of where you were at in your management company prior to exiting.

Speaker A: So we were in seven markets, um, approximately, if I look back, about 1200 doors, thousand to 1200 doors, I think, um, and approximately 23 employees, uh, at the time. And this was scattered across various markets in the US So they were not, um, close markets. You know, we were in New Mexico, Arizona, Colorado, um, North and South Carolina and the Florida.

Speaker B: And how long had you been in the game leading up to that exit?

Speaker A: That was about our tenth year. Was, uh, at that stage, so ten years prior.

Speaker B: And how long since the exit?

Speaker A: It's been three years.

Speaker B: Three years. All right, so some, some, some time to get some distance, to reflect on it.

Speaker A: Trying to get my gray hair to not be gray anymore.

Speaker B: Yeah. So you earned your spurs with, with your time in the industry. And one of the things that I'm interested in talking with you about is not just your journey as an operator, but really the transition for you. There's been a lot of folks that have exited the industry over the last handful of years. We saw a ton of industry consolidation of M and A, and the outcomes for folks afterwards are quite disparate. Some folks have almost immediately started another property management company. Some folks have retired, retired. Other folks have started new ventures doing different things. What does that three years look like for you? Like walk me through kind of the, the mindset of what you experienced mentally post exit.

Speaker A: Oh, that is probably the most odd experience I've had. Um, you really don't mentally prepare for something that as well as you think you can. So just uh, you know, in full uh, transparency here. I didn't actually want to sell as the CEO, but it was the right time to sell the business. Um, so not being in a position to want to sell causes you to uh, have not looked forward. What am I going to do when this does actually sell? And so I don't know that I was ah, emotionally or mentally prepared. I always told myself like there's going to be a morning period to, to not be in the guy, right? To go into the office and, and running and operating the business. Um, um. And so those three years were really great reflection time. Um, um, like I've been able to do this or X or Y and Z, but now what do I need to do to continue to create value? And so it took me a while to really refine that thought process. Um, and, and really refocus. Um, so it was a lot of brainstorming, a lot of testing, a lot of I'm um, going to do this and it kind of fail. Um, and just reiterating a lot of reiterations.

Speaker B: I want to talk about the energy amidst that reiteration. What I've noticed is that you didn't immediately jump into something else. You've taken some, some time. And when I think about the pressure and the burden of starting the business the first time, when of course you have a lot of lofty ambitions, but in general for most folks survival is the motivation and you ain't getting too fancy about all these grand ambitions because you are trying to pay your bills and feed your family. I uh, remember those first few years as me willing something into existence. I wasn't hoping it was going to work out. I was completely committed because the alternatives looked quite grim. That's really different energy than approaching a business. An opportunity and a possibility post exit. What would you say has been the, what been your experience on the impact of the background energy that you've brought to thinking about new opportunities and pursuits on this nexus between desperation versus freedom and optionality?

Speaker A: Yeah, I think the biggest thing is that you, I was able to take money out of the equation. So when you're you know, in survival Mode, it's how do I make the dollars so I can pay you my bills? Um, and luckily Kristen and I, my wife and I had set up our lives that we didn't have to rely on the money anymore. And so the focus becomes how can I create the most value for others versus like I gotta make the dollars make sense, you know what I mean? So like, what's the biggest impact that I can have, um, for the industry I do care about and have exited, essentially exited. I still have quasi management company that manages my, my portfolio. But um, um, it really became like an impactful thought process like how do I actually make an impact instead of just um, sitting back and retiring, if you will. Because to me um, retirement was kind of a thought process like maybe I'll retire someday. Um, but the reality is I, I don't even think there's a lot of sexiness to retirement because I would much rather do something I really enjoy that, um, can pay if you will, but makes an impact, uh, to the people I serve. And if I could do that in a manner that um, fits my passions and wants in life, then that's the route I'd like to go.

Speaker B: So you're able to step back and think about what's next and obviously you've landed on some stuff. I'm excited to get into that. Let's go back to the story of establishing the management company. How did you get into property management in the first place?

Speaker A: Great question. I, uh, was flying helicopters professionally and I had a great 7 and 7 schedule back then. And my sister in law at the time, we had just moved to um, back to my hometown in New Mexico. And my sister in law at the time said, you know, there's not a great management company. You guys should really look into starting a management company. And we had previously owned a business. We had a full service car wash in southern New Mexico and we had sold that and we were looking for the next business uh, to really start. And my wife didn't have um, work to move up there. I was, you know, again I was flying professionally and so she decided to start it. And when I was not working flying uh, helicopters, I was working in the business. And we grew that um, like you said, we were in the survival mode for two years. We didn't touch a profit for two years. It was just like we are going to will this thing into existence. Um, and at first we had like really low goals. It was if we can just get to a hundred doors, we'll be happy. Right? And then it's like, oh, there's a hundred doors. So what's the next, you know, what's the next milestone that we can achieve, you know? And um, it was really on our mission to just be the best management company and the biggest market, uh, share that we could in our market.

Speaker B: And what was the market?

Speaker A: Uh, Farmington, New Mexico.

Speaker B: What big city that people would have heard of?

Speaker A: Is that approximate to big, uh, city? Not. But Durango, Colorado is, is probably the most known tourist, uh, area that's near us. It's an hour away. Albuquerque is 2 1/2 hours southeast of us.

Speaker B: What's the population of Farmington?

Speaker A: 50,000.

Speaker B: So this is a small city. This is officially a small city that you're managing and makes sense it wouldn't be a super competitive landscape. You're growing the business, earning your spurs. At what point did the business get stable and did it become obvious to you like that this was going to work and this was going to be a real going concern?

Speaker A: Yeah, I really think it was right at the beginning of two years we thought, wow, there's, there's profit here that we haven't touched. Um, we've been reinvesting everything that we've made. Um, and I had a, you know, I had a good cushion of security of a job, a W2 job. And uh, it was at that point that I quit that W2 job to just go all in on the business. And so that was kind of the, okay, we can make this happen. And I think if I dedicate my time fully and Kristen's fully in it, then we could scale it faster.

Speaker B: And how would you describe this shift in your priorities and awareness in becoming an oper, uh, an entrepreneur? Going from just being an operator, running the hand crank, keeping things going, to actually having an identity that was commensurate with building something of value.

Speaker A: I think for me it was understanding the need to hire good people to take on the tasks that I didn't enjoy doing. So I don't like to go inspect properties, I don't like to go post three day notices, those types of things. And how can I hire now somebody to take on that role and accelerate this so I can focus on the business itself, running the business now that was not an easy transition. Um, I think with any new leader, what happens, you start hiring people and they start knocking on the door and asking every single question. Um, and I didn't even know how to navigate them, to think critically on how to answer the questions themselves. Um, but that was kind of the shift. Like there's something more to this and we can scale this. We could provide um, a job for other people and create value for more than just ourselves. And how do we do that in a, you know, in a manner that makes them at the biggest impact in our marketplace is really the mission at that point.

Speaker B: The staffing mix that you're kind of getting at. Like when you hired folks on early, were you hiring folks in more junior roles and kind of progressively laddering up in experience?

Speaker A: Yeah, exactly. We started with a uh, you know, front receptionist and then it started with an assistant property manager. We were always going to be the property managers, you know. And uh, and then, then it was like okay, we need to hire a property manager to, to scale a different portfolio and expand the portfolio further. Um, but so yeah, it was always like a ladder of progression.

Speaker B: What I find interesting about that is that that's what most businesses do. And what's interesting about that is that it really impacts your frame of expectations of what is possible. Opposite order is, is possible you could hire somebody really senior at the outset and slowly over time, uh, replace lower, lower, lower positions under them. Most people don't do that. The implication of doing that is that when you're hiring folks more early and more junior, you tend to not be fully aware of the level experience that you're actually hiring. Meaning if human labor and potential could be put on a 10 point scale, you know, it can't, it's not really fair. But just bear with me for the exercise. If you're hiring a seven and you know you're hiring a seven, that's one thing you can really wrap your head around, that the pay, the skills are there, it's matching. If you're hiring at a level four and you're thinking you're hiring a little set, uh, at a level seven, that's a different story. And that's where most operators tend to be is their expectations of knowing what to look for is constantly being re left leveled and reset based on the most experienced, most capable person that they've come in contact with. And your exposure to this tends to map to the level of success that you've experienced. So early on your universe of what's possible is small and therefore you think smaller. And that's the vicious cycle of this negative self affirmation of hiring folks that are less capable, less experienced, not generating an amazing outcome, conditioning you to think that therefore, well, you just gotta do the job yourself, et cetera. What would you say to somebody wanting to break out of that cycle or at Least accelerate the timeline of the awareness of how much you can delegate even if your business is small.

Speaker A: Yeah, if I had to look back, uh, what I would actually do is I would track my time by the 15 minute interval and put them into two different buckets. I'd put it into a bucket of. Does this create value for the company or is this just a, you know, one doll dollar task, $2 task, if you will, three dollar four dollar tasks. I would uh, separate out into a different bucket and then I would, I would separate those into. Does this create um, an energy around it that I enjoy or is this a suck for me? Like I don't like doing this and I would hire based off of that instead of here's the roll and I want somebody to fit this square peg, I think. And that would, I think would allow for further, I would say like further growth in a person. The other, the other fallacy I think that young business owners have or just new ones is that we want to hire the seven but we only want to pay for a four because we feel like the finances only can afford the 4M.

Speaker B: It's a risk hedge.

Speaker A: It's a risk hedge instead of an investment.

Speaker B: Mhm.

Speaker A: Um, and that, you know, I do look back and I was like that's not, that wasn't the wisest decision. I would have much rather hired a high caliber person. We did get around to that. I did recruit a person, ah, that I was paying like six figures plus some um, um, and really took the business to the next level until complacency sat in. And we were talking about Peter Print, the Peter principal earlier today and it was totally, that it was time to make a decision and because we weren't now meeting KPIs and now I'm paying the the 7 level but only getting a 4 performance if you will. So the opposite happened.

Speaker B: What got you here won't get you there.

Speaker A: Exactly.

Speaker B: Tell me more about that. As the company scaled from 0 to 1200 and some odd doors, that obviously is a really big shift in organizational structure in uh, levels of management, the need for middle management, et cetera. What shifted and what broke along the way and what allowed you to keep scaling.

Speaker A: The biggest thing that breaks I think is process or at least did for us. And then um, people, I think the focus has to be that just because you have a technician good at a role, they, they don't automatically make a good manager. And that's so often that you see business owners. I made those mistakes. Um, but then hiring quality management to Actually run the business would have been. Now we're in a small tertiary market. Right. So the, the specific um, labor market isn't really geared towards finding exceptional property managers, but you might find good people managers that could uh, produce an outcome, uh, that you're really needing to grow a business. And so we, we struggled with that sense. The other, the scaling part when you're, you know, when we did a merger and we're at 1200 doors to figure out what works in one market versus what will work in another market was mind blowing to us. We thought we would generate economies of scale and they would be relatively easy to find. And it was the exact opposite of the truth. It was uh, it was schlog. And I think we went, we went through two full iterations of processes to figure out um, what was right. But the third iteration really felt like we were on that uphill climb again, that we were making great progress. The other problem was clearly defined policies. When you do a merger, um, how customers are treated or how situations are, uh, handled at a frontline staff level is different per company. And to really marry that into a clear policy and then the process formulates, um, after that was a mistake that we made. We tried to do process first and then policy. And it really like, let's define what we want the outcome to be based, uh, on, based off of these policies and then work it backwards. Keep the end in mind in order to create the process that should be driven.

Speaker B: Love that policy always precedes process. Let's give some more exposition and tell some more of the story to help people connect the dots. So you start the company, you grow it to hundreds of units and then you decide to merge. And that merger drove further growth. Tell me a little bit about that merger story.

Speaker A: Four of us were in a mastermind together. One um, that was not in the mastermind was my wife who is my business partner. Um, and then uh, Matt Tringali's business partner, Danny Plutoman was also not in the mastermind. Um, and we decided to form a, you know, a national brand. At first it was talks about how can we compile our resources to, to be a better, stronger company, um, so that we can use those resources. But then it formulated it, let's say, you know, if we're going to do that, we might as well just merge, right? We just might as well just go all in. Um, and that was, that was the, that was the actual outcome. Um, but running, you know, multiple companies, multiple, uh, different ways of operating those companies, um, in different marketplaces. Is not an easy task. And uh, it, it came at a high stress, um, of marinating different people. And, and you know, one of the things that we did probably that, you know, hindsight's 20 20. You, you said it. What got you here won't get you there is we took a lot of the middle management of those smaller companies and put them into higher management roles of a bigger company. Um, and that's not, uh, necessarily a skill set that somebody just jumps into. Um, those should have been vetted a little bit better, if you will. So, man, I can go days talking about that merger.

Speaker B: So there's. How many disparate companies was it?

Speaker A: There were four.

Speaker B: Four disparate companies coming together in four different markets or more than four markets.

Speaker A: So, uh, Chris and I's company had two markets, uh, time of merger. And then I guess, uh, you can consider Tringali's. Matt Tringali's is two markets. He had some South Carolina stuff, if I remember right. Yeah.

Speaker B: Okay. So a handful of markets here. This is one of the things I'm really interested to talk with you about. We talked about this at, uh, lunch. Prior centralization, the opportunities that exist. Centralization is the seedbed. It is the foundation of consolidation, roll up merger efficiency. If people understood there implicitly was no efficiency in merging, we would see less mergers. It's the buy in. It's the. Annie, is this idea that you're going to unlock some kind of transformational efficiency at the scale that you are at of. You said around 1200 doors. What did you see in the gains associated with centralization while emerging? What part of that promise played out and showed up and what part of that promise did not materialize in the way that you had thought it would around efficiency of the combined entity?

Speaker A: Yeah, um, I think maintenance can be centralized to a certain degree when there is understanding that there are market nuances. Um, and we experienced that, uh, pretty well. Um, accounting can also be centralized, um, very well. Well, I think really simply you could standardize the challenge there is that one company may have a certain process that we pay our owners on, you know, every Friday that there's a. Funds in the bank account or something. And that's not a, um, that's not a scalable tactic, if you will. Um, so to then, to then standardize and then centralize, um, is kind of the method you have to go with. But accounting can definitely do, uh, be done. Well. What can't be done is things like, um, certain services that are market specific. So I think we mentioned at Lunch today. But one of the challenges we had was like gutter um, cleaning service, um, that doesn't exist in New Mexico. Why? Because, um, well, it's desert and there's really not anything to clean.

Speaker B: Gutter cleaning and snow blowing were both probably misses in that market.

Speaker A: Big misses. Right. So like you can't. If you go to a client and ask, you know, we're implementing a new service and it's going to be gutter cleaning to a New Mexico client. They're going to say that you're stealing money from me because there's no such thing. Scam, It's a scam, you know, um, so we found that like those types of things were very challenging. The other part was the regulatory side. In one state you may be able to give a three day notice to pay or quit. But in say for Colorado they've gotten really progressive with their landlord tenant laws and I think it's like a 15 day or something like that. Now, um, that is very difficult to standardized. So now you have to delineate a process specific to a state and therefore it's a totally different system to follow. Um, which causes complexity and complexity in business is not a good thing 99% of the time. I haven't found it to be a good thing at all yet. Um, as simple as you can make it is the better outcome that I found. And um, so those are just some examples. There's so many different things that I found that decentralization, even after we did acquisitions, was uh, the best method to allow the operator who knows the marketplace to have the relationship with their staff and their staff to the client was far more valuable than we trying to centralize into. You're going to email me and you're gonna get a ticket and we'll call you from some central operating place, um, you know, whenever it's convenient for us to get back to you every 24 hours or whatever. I found that this, the decentralization was far more valuable to the client than it was to uh, to us.

Speaker B: Okay, so let's get specific. It's more valuable to the client, but what are we aiming at? What's the goal? Uh, that value to the client, where does that come back to the pm? The centralization efficiency argument is the value that comes back as you get to cut labor, expand profit margins. But you're highlighting value for the client, which obviously should translate to value for the pm. Where does that value show up? On the P and L or in the business model?

Speaker A: Well, I think that on the P and L. It shows up in the churn, um, side of things. And, you know, Johnny Client has been dealing with Stacy, property manager for five years. And now, you know, we're trying to centralize and find economies of scale. And so now Stacy's job is, you know, not there anymore. Cause we have consolidated roles, if you will. Um, that's when the churn happens. We lose that high level of knowledge at the frontline position that has been dealing with, knows that property intimately. And now they are no longer at the company. So you replace them with maybe a remote team member or somebody or less skills or less knowledge. And just that, uh, it doesn't really matter how many notes we put in the property management software about what that property is about or that tenant is about. The, uh, nuance of knowledge that occurs in somebody's mind when they're servicing a client is just naturally lost. And so you get churn and that, that hurts the bottom line. Um, I guess the biggest thing is that the reputation then starts to suffer because the customer satisfaction is gone. The customer experience. I used to deal with Stacy, and now I don't deal with Stacy. I'm going to go find a small property management company I can have a relationship with. And that's what we saw.

Speaker B: And that has its own cascading effects around the internal morale when you start seeing the shift and the churn and complaints from around that. What I hear you saying is that Stacy, in this example, she is the world's foremost expert@, uh, 123 Apple Tree Lane-property. You're paying more for this level of autonomy, acumen and expertise. And the trade off that centralization offers is we could hire somebody else. We could, we could replace Stacy, if we're being honest, for somebody at a lower level of skill, lower level of pay, and at face value. What's in between is profit margin. Right. Money you're able to suck out. What you're highlighting is that there is a service quality line. There's a threshold. And when you go below it, the idea that you're going to save money or make up money on those margins is a fantasy because you end up losing the property. This is probably the thing that has not been highlighted well is calibrating against that minimum viable line to maintain the client in place. Any theoretical gains that require you to dip below that level of quality, they're not real. Because if the client leaves, so does any of the labor savings you could have achieved. Is that a fair summary of what you're saying?

Speaker A: Very fair. Yep.

Speaker B: What's interesting Is hearing you articulate this about efficiency and centralization. You went further into centralization from this experiment. What was the next leg of the journey? Where did that story, how long were you in that merger structure and where did that eventually land? What was next?

Speaker A: Yeah, so it was about two years we were in the merger structure and I felt like we were on the uphill client of let's decentralize. And then we sold the company, um, we sold the company to pure uh, property management and they were on a path to centralize, um, uh, on a large scale. A lot.

Speaker B: Tens of thousands of units.

Speaker A: Yeah, yeah. I mean we were so tiny. I had a very small sample size compared to what they were uh, going through and are going through now.

Speaker B: Got it. So you go into this environment having learned some lessons about centralization versus not you join into pure, uh, again similar to all of the roll up M and A players is focused on driving efficiencies and gains through centralization. We were talking at lunch about the setup that either enables or hinders centralization. I highlighted a couple of factors like geography, regulatory environment, type of asset class. What did you see as the baseline elements that will make it either easier or harder for you to centralize that are just kind of like the background circumstances that either uh, stack the deck for you or against you?

Speaker A: Ah, I think a big one is like you said, the asset class. The other one is, and I think it's overlooked a lot is the format in which the property management company was servicing the client prior to. So what is their level of communication to the client? Um, when are they expected to hear from um, the property management client when a notice of vacate happens or going through an eviction. Um, and when those uh, they only face those differences when the, when the bad thing, uh, or whatever in, in the cycle of the tenant happened. So for instance I've been through a, uh, you know, say I'm a client, I've been through an eviction with my previous company and they communicated well through that process and I heard from them, um, from you know, A, A through Z stages. Now the new company has acquired me and now I'm going through a new eviction and I haven't heard from them. That's a totally different recipe than what I was expecting. So the expectation was because a new company bought, I expect that my property's taken care of the same. And so what does the client assume? That they're not doing anything, the tenant's never going to leave, I'm never going to get my rent payment um, and those are the things that I found were really challenging to overcome on how to standardize because you don't know actually those instances until you face those instances on how to set the expectation with the client. When we bring on a new client, um, organically, not through acquisition, um, we're able to sit down and have that conversation. This is what we do. And when this happens, this is how we handle that. But through an acquisition, it's a totally set of expectations that were set before you acquired. Right? And so uh, doing that at scale, over dozens and dozens of um, businesses that have been acquired, you um, have 30, 40, 50 different ways of doing something. Probably the same thing. Right? Um, so that, that became a very big challenge. Now I guess there's probably some level of acceptance that you hope the client will have. But the reality is is that you know, you have uh, the targets, the Walmarts. Now we have a bigger company. I would rather deal with my Walt's hardware store than my, my Home Depot, you know what I mean? So I want that personal relationship when I walk in, they know my name type of relationship. Um, and so it seems like just when the wind shifts, it's time for me to move on and find a new property management company.

Speaker B: What I find interesting, what you're highlighting about all this nuance and the different setups and all of the really rich nuance that exists within property management is that that comes in spades with scale, particularly multi market, multi geography, multi regulatory environment. One of the things that I've heard you articulate that really makes a ton of sense to me is that the efficiency is not necessary. It's not all bad. For example, think about the regulatory environment. You're in 10 different markets and it's um, more or less regulation. Just the typical nexus that you see from the coasts versus inland. A uniform approach there will arguably leave some level of money on the table. And you brought up the example of evictions. If within your portfolio the regulatory environment varies between a market where you can get a non paying tenant out in 20 days versus the fastest you can get them out is four months splitting the difference and just going in the middle. That doesn't create efficiency. It may create uniformity, but that's not the same as efficiency. Tell me more about any other examples on that point.

Speaker A: Yeah, I think it's, it's naive to think that we'll just take the most strict regulatory body and we'll institute that as the standard of the company. Because um, the stakeholder, which is the client in this case, um, is the one that gets the brunt of that decision. So if it takes double the time that they were normally used to, because we've standardized a process, um, therefore they're losing, what is it? It's like every, every four weeks a house is vacant. Eight percent of your annual cash flow. Um, that's big. So you double that, now you're at 16. It's hard to recover a cash flowing property if you want to be net positive for a client. You know what I mean? So that's just one process that we're talking about. Um, think of it on um, a pet instance or a liability, uh, problem. I don't know, there's a million ways you could go with that. But um, I think simply just thinking that we're going to take the strictest regulatory body and make that the standard across the uh, nation is uh, a fallacy.

Speaker B: Or you're going to split it right down the middle. You're going to take whatever the variance is and you're going to peg it right to the middle in order to create uniformity. That can also leave a lot of opportunity on the table. This disparate, uh, variance, market by market, it creates opportunity and it's the ability to service and navigate through that that creates this richness within property management. You meet so many different operators and while a lot of the building blocks are the same, there's also so much nuance. What I see is that owners don't have an implicit interest in the business of property management per se. Like when the owner signs up with you, they don't necessarily care if you're running a profitable business. What they want are the things that relate to them, quick response times, knowing that you're hiring competent vendors, et cetera. There will always be, there will always be a guy swinging, swinging a hammer in a truck. There will always be a realtor. A failed realtor, should I say that, is now a professional property manager. And what I find interesting about that is there will always be a need and a desire for people that will be maximally available. Get to the job now and they may not be running an efficient, profitable business, but they are creating value in the marketplace. How do you think about the value that a big property management business can create versus a small local mom and pop operator? When it comes to customer facing value, what are the kind of the arguments in favor of either side when it comes to customer facing value?

Speaker A: Yeah, so I would, I would say that a client, a customer, really cares about three things in the property management space. As a landlord or owns, you know, an investor, they care about the best tenant, they want the best tenant in the shortest amount of time and they want their property taken care of. Where I think the bigger companies uh, can really differentiate, uh, themselves is the services that will secure the property. So can I get a better rate on my insurance? Can I get um, better benefits for my tenant? Can I get benefit, better benefits for me as the client? But really you gotta overcome the two hard ones is can I get a good tenant, the best tenant in the shortest amount of time? And that's like, if we're standardizing, um, based off of regulatory bodies, it's really difficult to split the difference. It's always better to go to the strictest in each individual market versus trying to standardize at a, you know, economies of scale methodology. Um, that is if that is a challenge. So for instance, like if we were lackadaisical on leasing because our, you know, our main market is, you know, Southern California or something like that, we're used to leasing properties in 30 days, um, making up numbers. But then we have a market here in you know, New Mexico for instance, um, that we can lease properties in seven days but we're not attentive to that and we default to the, the 30 day method of Southern California, for instance. That is not servicing that client in the orange. Probably the most important thing they care about is letting, letting the property as quickly as possible to the next tenant.

Speaker B: M. You're highlighting a lot of nuance here. It's a complicated.

Speaker A: See I have that gray hair. Prove this.

Speaker B: It's a complicated game. So you learned a lot of lessons in the property management game and you've been exited for the last three years as you've taken time to um, reflect on the best and worst of it. What did you personally as a human being with one life to live, what did you get out of being an active operator? What was that was a 10 year, 12, year, 11.

Speaker A: Ish. Yeah.

Speaker B: What would you reflect on was like at a really high level, the best and the worst of what you've taken away, like at a human level, um,

Speaker A: the best thing I loved is leading a team. I loved the office environment, the people, the, the staff. I loved developing leaders. Um, that was probably my favorite thing. Second favorite thing was like property management is the gateway drug to building some serious wealth. Yeah, like I love that too. That is super phenomenal. The things I didn't care for is that I always felt like it was hard to get some, a client from the mindset that You're a gopher. Go for this, go for that. That versus the, the expert. Like, I want you to call me when you, like, you gotta stump, you know, I mean, like, you're really stumped on how to handle a situation because you need advisement. That was a hard thing to get people to shift to. And I think there's a lot you can do. But there's that default, especially in America, like, we're a DIY country. So many. I want to go just go fix that plumbing myself. You know what I mean? Instead of, like, we'll hire an expert that's going to be licensed and insured so that if they tripped and fall that they're, you know, you're. Your tenant's not suing you to high heaven. Um, to really look at you as the expert in the industry was. It was a challenge. Didn't love that part.

Speaker B: Makes sense. Common refrain there.

Speaker A: Well, I mean, I think it's the, the gen. You know, we're the middleman in a tough situation. We have, and it shouldn't be, but we have sometimes two opposing entities. We have a tenant and a client. Although if a client viewed the tenant as an asset, we would probably get over this opposing entity issue. You. But they don't. A lot of times it's more of a convenience. They're conveniently paying my mortgage. They're conveniently, you know what I mean, paying down my loan. Um, and that's unfortunate because you're stuck in the middle, uh, in the property management space.

Speaker B: Totally. That's a whole nother podcast on how to relate and identify with the tenant there. When you mentioned the bit about the wealth creation along the way, you have taken more time off here the last couple years. You have some new endeavors that you're up to right now. But, but the optionality that you've been able to create for yourself as a result of this stint of a decade plus in the industry, how much of that financial freedom and optionality was created by creating an asset, growing it in enterprise value and selling it, as opposed to investing in real estate and using the passive income associated with that as, uh, a cash flow vehicle?

Speaker A: Yeah, for us, it's hard to put like a, a, a direct correlation, but most of our direct wealth has been from the property management company while owning it and investing in properties within the portfolio. From the portfolio. Um, and then there was ancillary business through that because people and we had a reputation in the marketplace knew that we not only managed properties, but we invested in properties. It came with the Phone ringing. Right. Like, hey, I'm ready to sell my house. Would you buy it? For instance, uh, one of our best cash flowing properties is my dad's neighbor had an, a failed barbecue restaurant. Um, and he had this big business, big uh, building in town, and it was sitting Vacant and the U.S. department of Agriculture said, you know, we really want to occupy this space, but it's set up for a restaurant. We need to, you know, redo that into a office space. And so Kristen negotiated, uh, that lease for two years before we even closed on that property. But that, that, um, that became a asset for us because people knew we were in the investment space. Like we were looking to buy properties and we knew they knew we had a property management company. So that's one of when we sold the business. The money that we got from the business didn't go to buy more real estate. We, we took a little bit higher risk in some investment. So we bought shares and softwares and um, uh, even some crypto, uh, mining investments. So, you know, a little bit higher risk because we can take some higher risk because we had the, the assets and the cash flow of the, the investment properties.

Speaker B: So the investments that you made in the rental properties and the bump that you got from that, I'm hearing you saying, like, obviously you acquired property, but when you say the phone ringing off the hook, do you mean ringing off the hook with people wanting to sell you properties or also people wanting you to manage their properties knowing that you are an active investor in the same market?

Speaker A: Um, mostly just just wanting to sell their property as an investment? Yeah. And I'm not saying like ringing off the hook, like five calls a day, I'm talking like three or four a month. Um, but that's pretty awesome for a lead source on buying investment properties.

Speaker B: Did you find that there was a bump to marketing because of the credibility associated with the fact that you were an active investor?

Speaker A: Sure, sure, I think so. I think there's a lot to be said about a property manager that understands what it is to be, uh, an investor that owns rental properties. There's a, for somebody that manages properties but has never been a rental property owner, they have a different perspective. And not that it's, it's wrong or right, it's just different. You understand that like, you know, when a, uh, plumber says that we'll replace the toilet for $500, that's highway robbery, you know what I mean? And, uh, you'll push back, you know what I mean? Because there's cash flow on the, on

Speaker B: the line here, what I find interesting is I know this to be true. Having done coaching work with a lot of operators that came from the REI side and had to get over the hump of over identifying with the investor to the degree that they weren't making any money.

Speaker A: Oh, yep.

Speaker B: They were so averse to any kind of fees. They were so averse to anything that would disrupt the cash flow. And seeing that kind of necessary shift to really land somewhere in the middle. In the middle being like running a sustainable business that can actually provide a high quality of service which does require profit.

Speaker A: It. Yeah, that's interesting. Um, I could see that because they're in the frame of mind that it's always about the bottom line as an investment company or an investor. And if that is true, then it also has to be true for the property management company.

Speaker B: Right.

Speaker A: And those things, although it seems like, um, they don't coincide well because if I'm profitable as a property management company owner, then therefore the client can't be profitable. But that's not true. Right. We can find a lot more, uh, value in the services we provide and charge accordingly by doing things that are valuable to the client, like leasing their property to great tenants, leasing it as quickly as humanly possible, like being a dog about getting that thing leased. Right. Um, not placing tenants that are going to damage the property, not utilizing vendors that are going to overcharge or not do quality workmanship. That's where that value's regained. And I see a lot of pure investors that don't do the property management side gravitate towards. I want a cheapest plumber. It doesn't matter if it's quality sometimes, you know, I mean, I'm just worried about the bottom line. I just want the job done. And um, I think that's where the two kind of marry together.

Speaker B: Tell me about the real estate portfolio that you built specifically through running the property management company over this 10 years.

Speaker A: I don't know the exact number, but it's about 30 doors, single family doors that we got from clients that are wanting to sell. M. Um, that we were. When they were wanting to sell, we would listen to the pains like, why do you want to sell it? A lot of times it was going through a divorce or this was in a receivership and I am the trustee and I don't know what to do with this property anymore. My mom lived there and now I live in New York. And we were uh, the convenience to buy the property. For instance, when somebody's raising their hand and it's tenant occupied. Well, the tenant doesn't get disrupted. You get to buy a property and the tenant doesn't even know it exchanged hands.

Speaker B: Mhm.

Speaker A: You don't have to prep the house for sale. We'll buy. We've been managing this property for X years. We know the condition of the property, so we're going to buy it as is. That's um, a convenience where somebody's not. I got to, you know, if I put it on the market tomorrow, I got to replace it. The roof. I know I have to replace the roof. Well, I'll buy it in the condition it's in and I'll face the roof problems myself.

Speaker B: And you're de risking it. Your uh, ability to negotiate is different because you understand the risk profile, having managed it.

Speaker A: Exactly. Yeah. So it is always, you know, it's like, what is it? What would this house bring on the open market? This is what you can get. You know, we'd always present that. But in order to get that, you know, the roof is bad. So that has to, you know, that's going to come back on an inspection. Um, you're going to pay 6% or whatever the number is in realtor fees. You're going to put like closing costs, um, title insurance, the whole shebang. And what we'll do is we'll match that price, but you get the convenience. Now we're not disrupting the tenant, we're not going through a bunch of inspections. You're not having to replace the roof, you're not having carrying costs during that time. And we're going to write you the same net out, but with all these

Speaker B: conveniences, how would you structure the average deal?

Speaker A: It's hard to say average, but, but if you want to do it at scale, you don't want to tie up a bunch of money. So it was always, would you be willing to carry the note? That was the terms. I would never say, will you owner finance this? That scares most people off because they start thinking banks. Although the outcome is the same, the language means something different. And so would you be willing to owner finance this house if we were able to solve the pain that you have today with the property? Say the pain is like, I don't have the money to replace the H Vac. That's okay, Hey, I will replace the H Vac. If we can buy it at, you know, your current mortgage amount and you own or finance that or take over the mortgage. How do we do that in practicality? Well, you're going to have, you're Going to sign a warranty deed that goes to me so that I now am the new owner. I'm going to sign a special warranty deed. So if I default it goes back to you. So I don't, I've never defaulted. But if I defaulted, you have this security and a special warranty deed that it goes back to you. And then we're going to have, have um, online access together. You can always make sure that that payment is paid. I'm going to set this up on recurring payments. I'm not even going to touch it. It's just going to get paid and I'm not going to think about it. And that's kind of the things that we would, we would talk them through the security of selling a house on a owner finance.

Speaker B: Out of 10 properties in the, in the portfolio that were sold, what percentage of those properties ended up going through this process? And what was your, what was your buying criteria? Access is one thing. Choosing to actually do it. Is it different?

Speaker A: Yeah, we had benchmarks, um, so um, we didn't want single and double wide trailers in our portfolio personally. Uh, but we also didn't manage those so it was easy to weed that out. Um, we typically like to stick to B class properties and we like, like more than one bathroom. One bathroom was challenging unless we knew that there was an opportunity to actually add value to that house. And then when it was vacant then we would add a bathroom and then we could, you know, explode the value because we've added a, a bathroom. Um, and then as far as you know, the standards of the property management company are benchmarking of what properties we would manage, vetted a lot of um, the ones that we would already own. So if it was in the management it we would typically want to own already fit the criteria if you will, because we were strict on what man properties uh, we would manage. And as far as percentage goes, like for every 10 that sold, we were probably one or two that we had the opportunity to buy and actually would buy it.

Speaker B: So this whole kind of idea of like the insider trading of the fact that you're already in this position, it's incredibly advantaged as you uh, how long were you in the business before this opportunity became obvious to you?

Speaker A: Six months probably.

Speaker B: Six months?

Speaker A: Yes, six months.

Speaker B: So you already had the, did you already have a portfolio prior to starting the management company?

Speaker A: We owned, uh, just our personal home. So nothing. Yeah, I think you know, my taste of real estate was bought a house at 20, sold it at 22 and it made some Money, Um, it was an anomaly. It was in 2006 that occurred. Um, and of course 2008 happened two years later. But the bubble was, you know, prime at zero. And so made money off that. That gave the seed. Like, oh, there's, there's money in this real estate thing. And I remember setting this goal when I was 27 years old. Uh, well, when I was 22, I set a goal for 27 that I said, I'm going to own three rental properties by the time I was 27. I didn't achieve it. But that was a, that was one of those moments in your life. You're like. I felt like a loser because I couldn't reach a goal that I had set for myself. And I was very intentional about that goal. I just didn't achieve it. But it actually m. Like put a fire in my belly. Like, like there's money in this real estate thing. I see the potential now what do I need to do to actually do it? And I think property management, the uh, company itself, uh, I wouldn't say that it was the only avenue we would have got into the real estate investing space, but it certainly was, um, an accelerator to it.

Speaker B: How do you think about, as a real estate investment professional now being separated from the management company? How do you think about asset class? What asset classes do you hold right now?

Speaker A: Um, just BNA.

Speaker B: So BNA, but single, multi, commercial.

Speaker A: Okay. So, um, we have 43 single, uh, and commercial. So single family and commercial. Those are um, duplex or smaller. And then, uh, the commercial that are in there, uh, fourplex, five plex in Albuquerque, New Mexico. A office space that's U.S. department of Agriculture in uh, Farmington. And then we have two office professional suites, um, in Farmington as well. That's all the commercial. The rest are single family of duplex or smaller. So pretty much singles. And then we have a 357 bed apartment complex that's that was done off a GP syndication in Oklahoma. M. Yeah.

Speaker B: So was that unrelated to the management portfolio?

Speaker A: Totally unrelated. Yeah. I don't even consider that any cash flow because, uh, that was student housing purchased six months prior to Covid. So that one's really been a break even property for five years now.

Speaker B: Yeah, I'm sure that was rough. The day for the GP is the day that the implications of that dawned.

Speaker A: Oh, the world's shutting down. Great.

Speaker B: Yeah, perfect.

Speaker A: So is the college.

Speaker B: So let's talk a little bit about contrasting cash flow. You've experienced operational cash flow. I was able to be part of the conversation and journey with you through profit Coach talking about cash flow. There's been a whole industry wide conversation around the importance of profit and yet the type of profit coming out of a going concern, an operational entity versus the type of cash flow coming out of the properties that you own. How would you differentiate, delineate and ah, how do you relate differently to these, you know, same, same types of dollars coming out of these two circumstances?

Speaker A: Yeah. The way I look at it is how many properties do I can I own? Well, let's flip the, the answer how many properties do I need to manage versus one that I need to own

Speaker B: to create the equivalent cash outcome, the

Speaker A: equivalent cash out cash flow outcome. Because that's, that's not equating the other four ways to make money in real estate. That's the, you know, the, the primary cash flow that everybody thinks is the most sexy. But so for us, like our portfolio, it takes 33 houses to manage versus one property owned M that's the cash flow equivalent. So that's how I view it. Um, the other part of that is the, maybe the more emotional side. Well, when I own the property, I don't have to go negotiate with myself to go replace the H Vac, I just go replace the H vac. Right. Because I'm the owner and I want to do what's right by the tenant instead. You know, when you're managing your property, then it becomes a, you know, over the spending limit of the maintenance, uh, reserves and I got to go to a client to get money to go to the vendor to actually make the service happen. That's the different part that I also like. Now I would never advocate to replace all of them to not do property management because I think property management again is just such a gateway drug to real estate investing and they work great together. Um, but it's nice to then either scale your cash flow because now I've owned a property and again the equivalent 1 to 33. I've increased my cash flow because now I own it versus should I, you know, squash the management side, make it smaller and make my investment side bigger? I don't know. I don't, I wouldn't say there's a great answer to that. It's more of what you want your own lifestyle, you know, and what you want your cash flow to be. But um, they work so hand in hand. I would never like advocate like you shouldn't be a property manager because it's such a great way to invest in real estate.

Speaker B: How would you contrast the volatility of the cash flow that you experienced in running an operating business versus the volatility in the cash flow from the assets that you own.

Speaker A: Oh, that's, uh, I think volatility gets minimum minimized when there's scale. So for instance, if you own one rental property and it becomes vacant, it. That hurts. It's painful. How I would advise to remedy or lessen the blow is take all the rents for the first year and put it in a bank account, and then, um, take the cash flow after that. Take a reserve fund, if you will.

Speaker B: A buffer.

Speaker A: A buffer. But the property management, that's what I love about property management. It's recurring revenue that's contractual. There's really not, uh, with some exceptions to some marketplaces, some seasonality to them, there's really not a lot of ebbs and flows. Um, obviously leasing season's the best if you have a leasing fee. But the, you know, the property management, uh, side seems to always be very stable. I think that's the attraction of why realtors get into the space. Cause, you know, they're. They're starving every 30 days, right. They got a new job every 30 days they've got to provide for. But in the real estate investing space, I think, think it becomes naturally easier with the ebbs and flows as it scales because of the cash flow and the loan. Like, we keep about, uh, 45% LTV, so, you know, we only leverage about 45% of our properties or 45% of the value of our properties are leveraged. So what does that mean? So 10 of them goes vacant. It doesn't hurt. Still, I have enough cash flow to, to handle the rest. Um, 20 goes vacant. I'd still be fine, you know what I mean? So I think that just comes with scale and season. Seasoning or maturity of the. The portfolio.

Speaker B: When you say seasoning, do you mean like in the technical sense of like a whole time?

Speaker A: Yeah. Hold time? Yep.

Speaker B: Is it like, how does the cash flow from these properties compare to the cash flow that you, you had, like, peak cash flow from the PM business when it was at its peak?

Speaker A: Um, it's almost, uh, it's almost one to one.

Speaker B: It's almost one to one, yes. And how much time are you spending managing these properties now?

Speaker A: I spend less than an hour a week, uh, because my managers, my property manager, Janelle is in Jamaica and she does everything. So if I have to get involved, it's like a major item them to service, you know, or to deal with.

Speaker B: Hour a week. Comparable size cash flow.

Speaker A: Yep.

Speaker B: How much time were you spending when you were running the management business on a given week?

Speaker A: So at the.

Speaker B: Very.

Speaker A: Well, when we, after the merger, it was full time, you know, 60 hours a week or so. Um, before the merger, when it was just Chris and I's business, uh, in Arizona, in New Mexico, we were spending two hours a week. Week. Uh, we had developed our team and they would actually make those comments like, why are you here? You know, it runs better when you're gone. You know what I mean? And we appreciated that because we were traveling and spending a lot of time with our kids and, and whatnot. Um, and really just focused on hitting milestones and benchmarks and, um, we would run a, you know, our level tens, um, at that time. And that's, that's it. Really.

Speaker B: What is a level 10? For those that don't know.

Speaker A: Oh, EOS. Sorry, EOS level, uh, 10 meeting. I don't even. I haven't done it so long I don't remember specifics anymore.

Speaker B: But you're rusty with it.

Speaker A: Yeah, I'm rusty.

Speaker B: Shout out to eos. Our company still operates off of that. So the, uh, intentionality that you had around wealth creation through real estate, it's a really market outcome for you. What I'm seeing is that you worked so hard to build this management company and you sold it. And for most folks, that's the whole thing that's like, stick in the landing is pursuing this enterprise value and hoping someday in the future it'll be enough. What I'm hearing you say is that the proceeds from the sale of the management company were. It was, it was a bonus. It was something on top. It was not your nut. Your nut was the assets that you had accrued along the way through the vehicle of the management company.

Speaker A: That's 100% true. What we realized early on, if we're going to be entrepreneurs, it doesn't come with a pension and it doesn't come with a 401k unless I'm the guy contributing. You know, like the company I'm working for is not putting into it. So. So in order to create autonomy in our lives, we had to have additional streams of income. Otherwise, if I get hit, if I'm the guy at the business, and that business is the only provider for my family, and I get hit by a bus tomorrow, what does that do to my family? That's the mindset that we had early, early on. So how do I diversify my income streams so that if something happens, whether the rentals go away or if the Lawsuit happens. We've heard so many, many big lawsuits in this industry. Not, um, even a liability with the management, uh, company, but they have to defend it. And hundreds of thousands of dollars go out the door to defend it.

Speaker B: Theft, embezzlement.

Speaker A: Yeah, all of the things that can happen. How do I, how do we have autonomy in our lives that our lives are not going to be rocked by that situation? And that's why we, you know, like, double down on real estate investing.

Speaker B: Building this fortress of cash, this fortress of balance sheet strength built on the back of assets is now, with several years of distance between running the management company. It's where you've landed as what you are putting your energy into going forward is helping other people achieve generational wealth. And I think that's what I find interesting, is that that term is totally legitimate. What you were talking and I, what you and I were talking about before the show was this early on in business, it's easy to focus on size for the sake of size.

Speaker A: Who has the bigger bag, more doors will save. Yes.

Speaker B: Who can have the biggest bag of wealth? And what's really interesting about that proposition is that it is, by definition exclusive because it's driven, by comparison, more. As compared to what? It's just more than you. I just want to have more than you. And that's the human condition. That's human nature. And it's by definition exclusionary simply because of the math implicit in it. Whereas folks aiming at freedom are operating with a completely different set of priorities. And financial freedom can be tailored down to whatever your dreams and aspirations are. Now, if you need 10 yachts, then, yeah, you need a big bag, but

Speaker A: you out of freedom, uh, most people

Speaker B: don't need 10 yachts. This vision of freedom, the thing that you're excited about, and I see this passion with this is, is like, this is doable. This is achievable. What I want to hear from you is you've experienced it. Have you talked to other operators that have gone down this same path? Are you one of one, or do you have other peers that have gone down the same path?

Speaker A: There's actually several, um, that I keep close in contact with, um, that have in their own way figured out how to create generational wealth in real estate beyond the property management company. Um, I see, you know, the build the rent strategies that have happened. Shout out my man.

Speaker B: We're on the same website.

Speaker A: And then, uh, there's a, There's a fella in, um, in Phoenix, Arizona, similar path that Chris and I took. Like, I Buying. I buy properties from my rental portfolio, and it's, it's been viable. And, uh, I think he had like 75 doors. It's phenomenal. You know, Point is, is that it is not a reinvention of the will, and it is completely doable. And we are at the forefront of the opportunity if, if you understand how to seize the opportunity. I think what we see so common that the folks that have the least to lose aren't willing to take any risk to gain, and the folks that have the most to lose are always willing to take the risk to lose. Does that make sense? I mean, the risk factor? Um, well, I think I look back in my childhood and we were always told this lie. This lie is go to college, get a degree, go get the best job you can, work your butt off, save 10% and invest 10%. And then someday when you're old enough, you'll get to retire. Well, by then. And then I'm old and I don't want to. You know what I mean? I won't be able to enjoy it. And they say save 10%. That's like the worst advice you can give because it's undeployed capital. Money in a savings account loses at least the inflationary rate every single year. That's not even. Yeah. And it's going up. That doesn't even include the opportunity cost on that dollar. So savings is a terrible, uh, way to think about. But yeah, this is not a, um, uh, what would you call it, a genius thing. You know what I mean? Like, it doesn't take. Smarter people aren't the rich ones. Those are the people that have only failed more and figured out, to reiterate and then moved faster.

Speaker B: What's been the impact on your family and your personal life in choosing to aim at freedom instead of aiming at the largest number of dollars possible?

Speaker A: Oh, that's a good question. Um, I think just time with, with family, travel, um, we go on pretty extravagant trips, get to, like, shut things off and just focus on the family and be present. Um, um, this is probably the biggest thing. The other opportunity is, like, we get to send our kids to private school and have to go to public school. And not that there's anything wrong with public school, but we wanted our kids to go to private school. That was extremely important to us. Um, yet I think just like, uh, allowing the kids. I think the biggest thing for me is allowing the kids to think that life doesn't have to have limits if you don't put the limits on yourself. So how Can I, you know, I'm probably brainwashing both of my kids. We had this kind of conversation, you know, like how do you think outside of a 9 to 5 we're you know, kids are put into the schooling format and it's almost like an indoctrination format. You got to go to school from 8 to 3 because uh, that's what you do. And you're going to learn how to deconstruct a sentence and conjugate a noun. And I don't even know if those are real things but you know they do that in school. School. And so therefore which they'll never use those skills in the real world. How do I, how do I indoctrinate them in my mindset like to be an entrepreneur. How do you create value for other uh, somebody else that they're willing to pay for? That's how we uh, that's how the world turns right? Is people willing to take risks to create a value for somebody else in exchange for money. And how do I get my kids to think that's probably the most important thing on the freedom side is that I've gotten to think outside of, of a 9 to 5 job.

Speaker B: Another way to put that is you just have more time to think.

Speaker A: Yeah, that's a good point.

Speaker B: More time to think, to plan, to express your unique set of priorities in whatever way is fulfilling and rewarding to you.

Speaker A: Yeah, there's that great book by Keith uh, Cunningham, the Road less Stupid. And he says go think you'll thank yourself later. You'll thank me later. And it's so true. Like if you just, if we all just took a second to think there's so much value in that and that has given the opportunity uh, more than I actually expected. Cause you think you just fill your time with you know, nuance and non important things but you actually get time to think and, and uh, how do I create value? Is, is always been on the forefront.

Speaker B: I really believe in the significance of what we're talking about in this conversation. This pursuit of freedom. My journey looked like helping facilitate a conversation around growth. How you know, really sales, marketing. Early on in my career first I was doing lead gen, then I get into the CRM game. CRM was natural focus us and realizing somewhere along the way that you could grow a big business and not make any money. That was a little demoralizing. It was confusing. You could have a big business and not make any money. What would be, who would want to do that? And then realizing more common than we

Speaker A: thought actually Isn't it Etsy? That's never been in the black. I think they've been in the red

Speaker B: since day one, which is insane. Yeah, insane. So realizing that profit is important and then pressing past profit and realizing that freedom is what is important, the biggest bag of, of profits, that's not really the aim, that's not the goal. It's freedom and that biggest back of profits. That's a very competitive space. But freedom really is for everybody that wants it. Freedom is the democratized vehicle for changing people's lives. And it's doable, it's within striking distance. It's a function of intention and belief that it's possible. And being ran out of the people that have done it obviously changes the calculation of that belief system. The pivot that you've made more recently is to focus on helping other property management entrepreneurs build generational wealth through a specific construct and program that more or less mirrors what you did yourself. What's the name of the program? Give me some more of the details. What's the focus and opportunity for folks that may have interest in this?

Speaker A: Yeah, so it's called the generational wealth format for property management company owners. And it's really designed for those property management company owners that are making some money and um, making good money, but they don't know how to actually make that into an asset. How do we turn that good cash flow into a snowballing flywheel of money and assets so that I can leave it for my, you know, my generation or leave a legacy behind? So, you know, in order to do that you have to have clear frameworks of, of where your finances are. So a rock solid, um, financial structure. I believe that your business and your personal finances should be simpatico. Do they mix? No. We don't have our personal life.

Speaker B: You don't live out of the operating

Speaker A: account, you don't live out of the operating account. However, um, if you've got a healthy life, uh, financial life, if you will, personally, that helps your financial life and the business and they work together. Um, so often we don't even know where our money's going. Right. Most people, people, we start making more money and we start living up to those means again. And then we start making more money and then we live up to those means again. And we never keep that spread, if you will, to reinvest in actual assets or cash flowing assets or for legacy, if you will. So setting up a framework for that. A lot of that is understanding wealth mindsets. Uh, like there are specific ways that rich People think, think differently than poor. The poorer thinks the purpose of money is to pay my bills. I'm in survival mode. I gotta pay my bills.

Speaker B: A consumption orientation.

Speaker A: Consumption. The middle class, they think I gotta pay my bills on time so I can build and maintain credit so I can buy a car or a house that I can't afford to pay cash for to impress people that don't care about me and I don't care about them. That's the middle class. Does that not fit? That's fair. Fair. But the rich things about money is I've got to make money, make money. My babies need to make babies. And I never take or uh, never withdraw my, my initial investment because I live off the interest and the outcome of the money.

Speaker B: Protect the principle.

Speaker A: Protect the principle. Because that principle, like for instance, if I was to buy an Apple stock 20 years ago, that's different than me buying one Apple stock today. Mhm.

Speaker B: Mm.

Speaker A: That's never touching the baby. Right. So that you know, the, the, Well a uh, wealth framework or wealth mindset is so empirically important to figure out. Um, and, and so I, you know, I, I'll talk about the other phases, but the, the really the, the point is, is like how do I even come up with this construct that will be meaningful to property managers is I interviewed 53 property management companies and I found that um, just like general society, most property managers are just like most Americans, you know, living patient. 68% of Americans are living paycheck to paycheck, um, no different than a business owner. Although 88% of business owners, um, or 80, 88% of millionaires own a business. That, that, that just doesn't uh, you know, one to one ratio here. So you got to get out of that, that poor uh, mindset if you want. Well like just spending as much as I make is not gonna get you to a wealth generation. So the next phase is how do we then maximize the two levers? We have two levers in business, right? We can increase revenue and we can decrease expenses. And that delta is what we can use to reinvest in the business, invest in other assets, uh, other income streams and so forth. Part of the program is to, is to make that spread wider for you. How do we find the opportunities in the business to do that? And then utilizing the systematic approach of buying rental properties from, from your clients. So when they call and say I don't like or to get them to call and think of you when they are ready to sell, I don't like owning this rental Property, you know how to handle that situation and talk to them with creative finance in mind. So I'm not leveraging more cash out and pull in that investment into your own portfolio. Now I love making money for other people. Property managers are great at making money for other people. But you also need to make money for yourself. And money that doesn't just come by the month and go by the month. Right. We want money that prints money month over month. And then the last really important framework in the generational wealth framework is to focus on how do we set this up on a legacy for your family. So if you died tomorrow, all of the assets that you've been able to accumulate, including your uh, your business, doesn't go to the state probate and gets, you know, decided by a judge. So the ways, you know, the ways to think about that is living revocable trusts, setting up those assets into LLCs, having a clear will and a beneficiary when you pass away. And how does, how does that actually get settled when you're no longer here to advocate for your, yourself? Um, and that's kind of the, you know, the eight week uh, format that is, you know what I love about this is like it doesn't just focus on one single spectrum of the business, one little avenue of the business. It, it thinks about how do we, how do we have a goal in mind of generational wealth and wrap those into a program that takes uh, somebody through a journey of a transformation.

Speaker B: So this is an opportunity to reset focus for folks. That's a, a big part of what I'm hearing. There's obviously specific technical language around the mechanics of how to get a deal done, how to facilitate it, how to structure, how to finance. But I think the biggest takeaway for me here is that this is just an area for an operator to recalibrate their zone of focus in the business. And for me that works. What I've seen time and time again is that when we think about change and what drives a different outcome, we have the intention, which is simply the will to do something and then we have all the mechanism, the practical mechanics of how to get it done. We tend to over index on the mechanism, the specific how, the enticing complexity which is the excuse and the reason why I'm not actually doing it, and underplay sheer raw grit and will. I know for myself, the people that I am around tend to create a massive amount of gravity for me. When you think about a uh, change in any pursuit, think about like losing weight for an example. When you go and work with a personal trainer. Is them telling you that if you lift heavy objects, it will tear muscle fibers. Like, is that the key unlocked and enabled things? Probably not. It's the presence of mind, of having somebody else that is deeply sympathetic to your goals, that believes that you can actually change and that has done it themselves and can show you the way. That's the opportunity that I'm seeing here is for somebody that's been running the same business 2, 3, 4, 5 years to just shift what they're, they're aiming at and shift their orientation for somebody that's curious about like, the specific, um, cadence of, of conversations with you and what that looks like if somebody enrolls, like, what are they experiencing over the next couple weeks?

Speaker A: Yeah, so they, they get eight weekly live, uh, sessions, then they're group sessions and, and with a Q and A at the end to solve any, you know, any questions initially. And then there's weekly coaching calls on top of that. Um, and those can go in perpetuity. The point is, is like, we. I know that it takes time to set up a framework and to really lay the foundation for these, uh, concepts and these, you know, not concepts, but these, these actual, uh, actionable items. And so hop in and hop out anytime for as long as needed to achieve the goal that you're looking for. Because I trul. To take somebody through that journey. And so when something arises or for instance, they've got an opportunity to invest in something to help coach them through that investment so they can actually make the investment into their portfolio. Um, and then it's a community of other property management company owners who are going through this together. And what I've seen through these is just so magical to be able to balance ideas off of. I'm going to put the, this question out to the group and this is what I think will happen. Then the group has ideas on how to solve that problem beyond, um, myself. And uh, I think a mastermind type of culture is super valuable, um, in these formats.

Speaker B: I think about that popular phrase the obstacle is the way. And I think about the transformation between having a owner complaint about how much they hate this property, go from something that's triggering and feels like a burden to like, I smell an opportunity here that sounds really exciting to flip the script on complaints and turn them into opportunities.

Speaker A: Oh, it's totally. And I think where the industry has kind of landed is, is a lot are real estate agents. And so their natural gut instinct is, I'll sell the house for you. And I'll just solve that problem that one time payday. Yeah, one time payday. And that sucks because you might make ten grand today. Today, but where is it tomorrow? You know what I mean? How can I, if I, if I make an investment that's not 10 grand, we're talking hundreds of thousands of dollars over, over years of, of assets, you know. So, uh, yeah, thinking through, like somebody's going through a problem, they've got a pain, and how can I solve that for them? The viable option, in my opinion was always how can I buy that from them?

Speaker B: How much more advantage do you think you are as a real estate investor? Because now it's kind of flipped. Before it was like you're dabbling with rei. Now you're primarily rei, no longer actively in the PM business. How much more advantaged do you think you are as a REI operator? I should say, given the experience and the acumen that you have in being able to effectively internalize the management of your own portfolio as opposed to the version of yourself that's outsourcing the whole thing?

Speaker A: Uh, I don't know. I would say the advantages is that I know the intricacies of property management and that was huge as a operator. And the other part is that when I wasn't, uh, a property manager, I understood the intricacies of owning properties. And so I don't know that there's a massive advantage, if you will, but there's definitely a better perspective, I think, on both, you know, both routes, I think. Am I answering your question correct?

Speaker B: Well, I think so. I mean, I think it's an interesting answer. If you had to choose between, I guess maybe another way to phrase it would be what would be the difference for, for you and the yield on your property is managing them in this current paradigm versus if you went to go find a, um, retail third party property manager.

Speaker A: Okay, so that's a way better way, uh, to think about that. So, okay. It's massively different and I'll tell you why. Because all of the fees that I had in my management company are the fees that I have in my investment properties. Therefore my 10 tenants will have the same structure as my management company.

Speaker B: The fees just flow to a different place. Yeah, exactly.

Speaker A: And they go straight to me. Right. That's why the cash flow is so high. Um, and I'm operating it as a business, not as a single asset class. So that is like my port, my rental portfolio is operated like a management company because the value that I learned in the management company transformed into, to the, ah, the Portfolio. So the leasing fee. Well, yeah, I charge that to a tenant. Of course I do, because I did it in the management company. Of course I charge them a pet fee and a monthly recurring pet fee.

Speaker B: Uh, and provide the commensurate benefits.

Speaker A: Absolutely, yeah, sure, we provide, you know, a resident benefits package, for instance. But the average property or the average investor doesn't have those type of, types of fee structures. They think, well, it's a rent collection and, and that's it.

Speaker B: You know what I mean?

Speaker A: And that's where their margins are squashed.

Speaker B: And this isn't even speaking to operational efficiency.

Speaker A: Right.

Speaker B: Because there is no permissions back and forth. There is no calling about the reserve. There is no bickering about a home warranty.

Speaker A: Yep, that's right. And I pay a highly skilled Jamaican to take care of my properties. That's another efficiency. I think most, um, investors don't realize that their management could be done, you know, at a scale. And you know, there's, there's a certain scale for an operator to hire a professional property manager stateside M versus, you know, there's some number that I should internalize that there's a step up. Yeah, there's a step up somewhere. And wherever that is, I don't say think many of them would realize to do, uh, that on a remote team basis basis.

Speaker B: If somebody is listening to this and actually wants to go to, you know, do the Full Monty and go down this, follow you along this journey, how. Where would they go to go find more information?

Speaker A: Yeah, they could go to my website. So, Sean AustinJohnson.com I had to make Austin in there because there's a beautiful gymnast named Shawn Johnson spelled the same way.

Speaker B: Sean austinjohnson.com and this is something that I fundamentally believe in, specifically the idea that freedom is accessible to the masses. It's a matter of intention and orientation. You've actually offered something specific to the listeners of the profitable property management podcast. And that is $1,000 off on the course. Where could somebody go to get details on.

Speaker A: Yeah, so go to the website. Sean austinjohnson.com and then ppm. Proper ppm. Yep.

Speaker B: Let's close here. I've asked this closing question to a number of folks on the podcast and I want to ask you. I know that entrepreneurship is something that's really deeply meaningful to you. Sean, what's your take? Are, ah, entrepreneurs born or bred?

Speaker A: I lean towards the bread side, um, because I think just about anything can be learned. And um, I think once, once a fire in someone's belly. They're willing to go to the end of the earth to figure it out. Definitely.

Speaker B: Bread squarely and firmly rooted in that camp. Man. Man. Uh, I am not so cleanly decided.

Speaker A: No, no.

Speaker B: I mean, it's a rich conversation. I think that entrepreneurial thinking can be learned. I have no doubt of that. And that gives me great encouragement and joy to know that it's not an exclusive club. The willingness to suffer, the willingness to chew glass for an extended period of time, delayed gratification. There's more of a born part on that side for me. The more suffering you go through. And I don't wish suffering on anybody. But that temperament and that willingness to go through that, that's hard to explain in a book. Nor is it moral or necessarily worthwhile. It's just some people have that bias and inclination and I mean, to be honest, kind of get off on it. And you and I are one of them. I'm grateful and also grateful for everybody, mentor, and every lesson that I learned along the way. I want to thank you for the mentorship that you're providing the industry, sharing your story and giving back instead of like, leaving and being off an island somewhere.

Speaker A: It's tempting.

Speaker B: I, I appreciate that you have this passion and that you're. You're here to, to share like, and pass it on, pass it forward.

Speaker A: Yeah. Wealth is my favorite thing to talk about. I enjoy it. I love. You know, I've been mentoring a lot of individual, uh, through this process, not just in the property management space. I've got another meeting tomorrow morning, uh, for coffee to just mentor a, ah, fellow that's flipping houses. But I love this subject because like you said, money really only means one thing, and it's freedom. And when we could gain it, your lives change. And it's so fun to see somebody transform through that.

Speaker B: And there's also some real beauty in unhooking from the comparison game, where the size of the bag is fundamentally defined by the size of other people's bags. Like just unhooking and getting off that treadmill. There's some freedom, mental freedom disconnected from financial freedom in that.

Speaker A: Oh, totally. Yeah. I had a, uh, guy on my podcast mention the thing that robs me the most of my joy is the comparison of others. And I think that is so true. If we stop that, we could probably gain a lot of jokes. Joy in our lives.

Speaker B: Yeah, Run your own race. Everybody will spend the time differently. But there's real universal agreement that having the time and having the freedom that is the enabler of whatever it is you want to do that brings you fulfillment and satisfaction.

Speaker A: Tomorrow is not promised.

Speaker B: Let's leave it there. I appreciate you coming on. Until next time.

Speaker A: Thanks Jordan.

Speaker B: That's it for this episode. Hope you enjoyed it. You can check out other episodes along the way. If you're watching this on YouTube. Appreciate a subscribe. Any comments? I'm always here to engage. If you're listening on an audio platform, would really appreciate a review. It's a great way to help other people find out about the show.