Are you aware of how much money you would need to protect and potentially replace all of the assets in the properties you manage?
Join Jason as he chats with Aaron Lombardo from North Star Reserves about what a reserve study is, and how having one completed can benefit your property management business.
You’ll Learn…
[01:21] Who is Aaron from North Star Reserves?
[05:09] What is a Reserve Study?
[16:30] What is the Difference Between a Reserve Study and an Inspection?
[20:14] A New Concept: the âLIL Effectâ
[33:50] How to Stop Your Clients from Micromanaging You
Tweetables
“Property’s easy to manage. People are tough to manage.”
“Retaining a client, you’re continually selling them on why they should be with you. It involves trust.”
“One thing that property managers incur too much is blame.”
“Each property is a business and it needs to be able to be maintained.”
Resources
Transcript
[00:00:00] Aaron: what the reserve study really does is creates kind of an internal bank of their own funds and we help them manage a threshold so they can have a zero base threshold where theyâre just managing just enough in contributions to maintain those assets over long term or they can increase that threshold so that thereâs a nest egg if you will, a buffer or padding
[00:00:21] Jason Hull: Welcome DoorGrow Hackers to the # DoorGrowShow. So if you are a property management entrepreneur that wants to add doors, make a difference, increase revenue, help others, impact lives, and youâre interested in growing in business and life, and youâre open to doing things a bit differently then you are a DoorGrow Hacker. DoorGrow Hackers love the opportunities, daily variety, unique challenges and freedom that property management brings. Many in real estate think youâre crazy for doing it. You think theyâre crazy for not bebecause you realize that property management is the ultimate, high trust gateway to real estate deals, relationships, and residual income. At DoorGrow, we are on a mission to transform property management business owners and their businesses. We want to transform the industry, eliminate the bs, build awareness, change perception, expand the market, and help the best property management entrepreneurs win. Iâm your host property management growth expert, Jason Hull, the founder and CEO of DoorGrow. Now letâs get into the show.
[00:01:21] Aaron: I went in and got my undergrad, my bachelorâs in psychology. So I majored in family and marriage therapy and kind of the end of that I realized I didnât want to be in psych. I love it. I love people, but I migrated very quickly into the construction industry. And I worked for the third largest builder in the country and managed multimillion dollar budgets as far as from the building side and construction. Was recruited by the largest builder in the state of Utah and spent quite a bit of time with them working through kind of their ranks, managing, again, oversight on millions of dollars in purchasing materials, actually building the structures from the ground up. That experience led me into the general manager position with them on their custom home division quietly running this custom home division. They were really a track builder and they had all sorts of, different styles, designs and levels of building from commercial to residential, and they had this quiet custom home division that was really exciting. It allowed me to really apply my psych trade into sales, dealing really with high-end buyers and executors buying properties and interacting with those properties as investments and so forth.
[00:02:33] And ultimately that kind of landed quite a bit of interaction with building the actual communities themselves, HOAs, working with those HOAs. And then I had an opportunity to really jump ship and partner with a friend of mine in rental management. The short version is that he had a deal to buy a pump company fell out from underneath him after heâd literally moved across the country. And he kind of started by default just managing a rental property, a familyâs rental property. Anyway, long story short is he needed somebody to come along and help out with that, both on the HOA management and just generally the business. So, We ran this business, we expanded it over two states, Idaho and Utah. In the end, we separated. He took the rental management, I took HOA management. We both have grown those. I really enjoyed the HOA management side of it. It provided a lot of opportunities to interact with property managers as their competitors, but also with the boards. And so it was really by forced majeure that I had to take a deep dive into kind of the rental management, interacting again with real estate, which is where maybe my education wasnât, but my passion certainly was. And then I had an opportunity to buy this little mom and pop reserve study company out of Emmett, Idaho, and this was just a retiring couple that I had actually used their services several times in the rental and hoa management industry. And I just loved the idea of getting back into the budgets, but it afforded me the opportunity as well to get into the field doing site inspections for these properties while managing these budgets.
[00:04:08] And so I did, we sold the HOA management company. We bought this little mom and pop. Weâve grown it to eight states, and then we consult in several others. Weâre in multiple markets within, kind of these states and subsets of these states, destination stops and so forth. And Iâll tell you what a reserve study is here in just a second, which is why Iâm here with you, I suppose, Jason, but we do, reserve studies and site inspections for golf courses and country clubs high rises. We do commercial properties and strip malls. We do a lot of homeowners associations that have clubhouses and buildings that they have to maintain in streets. Weâve done some really cool townships where weâve done entire, small cities or small towns, airports And and then water treatment facilities. So we, we feel like weâve got a real, broad gamut of these things. These properties of different sorts. Some are owned, by a governing body like an hoa, and some are owned by real estate investors or owners that are looking to track their costs. And thatâs where the reserve study comes in itself.
[00:05:09] Jason: Got it. Cool. So tell us what is a reserve study?
[00:05:14] Aaron: Right. The magic question. So a reserve study is really just a 30 year outlay of all income and expenses and using that contribution is what we call it, a contribution of that revenue to reserves or savings to maintain and repair all their physical assets over the course of 30 years. So it takes in a lot of aspects of that, right? You have the revenue that comes in and we call that the contribution. And itâs just a piece of maybe the propertyâs total revenue and then that contribution will fund the future maturation of all of those assets from the replacement of the roof to the maintenance of the plaster in the pool ceiling on the streets, et cetera, et cetera. And so it really takes, the full gamut. It includes inflation and the cost of inflation that compounds over time. It includes the useful life is what we call it in the industry for each individual item, right? Not everything wears the same and not everything wears the same in different. Locations. Our California clients have properties, in Spokane and in Spokane. Itâs just a harsher climate. And so their properties weather different, and if they donât take that into account and really understand the nuances of that it catches them off guard because of the weathering that occurs in a different, in different places.
[00:06:29] Jason: Right. Just like cars in winter areas with the salted roads, the undercarriage gets rusted out. California no issue with that. So, Thatâs right. At least not in SoCal. All right. So, cool. All right, I get that. So how do you go about doing these reserve studies and how does this relate to property management? I really havenât heard of any property managers doing this. Iâm sure some do or should be. So tell us about that.
[00:06:58] Aaron: Well, so the truth of it is thereâs not a lot of well, let me rephrase that, a lot of property managers do that if theyâre, if they have oversight in an HOA or some sort of governing body. We break our service down into two pieces. Thereâs the actual physical creation of the reserve study, and then thereâs the consulting on how to use the reserve study, our other kind of group of clients, aside from just HOA property managers. Are, owners and business owners. So, typically when weâre working with a property manager on a rental property or a multi-unit property, itâs usually the owner or, sometimes itâs the CFO or CEO thatâs looking at this property from a strictly, revenue generation standpoint. And theyâre looking at their total expense load and we build that expense load. So it comes in two parts. The first part is really just the physical creation of the reserve study that involves a site inspection. So we perform a physical site inspection where we comb through every piece of this property. Letâs use a high-rise as an example. A high-rise might have everything from a generator tucked into the parking garage to, common area, boiler units that are serving all of the rental units above, and the roof and the windows, and all of the pieces.
[00:08:07] In a typical high-rise, there might be 80 to a hundred components. That all have a varying degree of cost. Some of them need to be touched or maintained on an annual basis, and some of them you donât need to really worry about but every 30 or 40 years and those, long-term items usually have a significant cost that weâre trying to help our owners avoid loans on.
[00:08:29] Right. They can essentially, Jason, what the reserve study really does is creates kind of an internal bank of their own funds and we help them manage a threshold so they can have a zero base threshold where theyâre just managing just enough in contributions to maintain those assets over long term or they can increase that threshold so that thereâs a nest egg, if you will, a buffer or padding that allows, far more flexibility on how to use those funds for the improvement of those physical assets.
[00:09:02] So the first part of that is just performing the site inspection, converting those physical assets into usable data, right? So weâll document every aspect of, the pool as an example, right down to the pool pumps. Pool pumps and pool plaster and the pool deck and the pool cover. I mean, thereâs a dozen components that maintain what we would, you and I would just call a pool, right? Yeah, thereâs a dozen components that would maintain that. We break those down, they all get a useful life. We convert that into data that has a useful life, a term for its expiration, and then a cost associated with that. In the process of that, weâre contacting vendors, usually local vendors to that state or maybe that destination stop that town and city. So that weâre finding out the local pricing and we plug that in commensurate to, their actual costs. And then we produce what we call a reserve study.
[00:09:55] And itâs a lengthy report. Itâd be a hundred page report. Half of that is usually a very detailed page over page breakdown of every component, what we discovered, what our actual site inspection uncovered. And oftentimes we uncover problems that they donât, and sometimes that their management or their maintenance men donât see. Their maintenance men have a tendency to look at certain high visual items where weâre in the process of discovering from a construction standpoint. What are the forthcoming or future problems that they might incur? A great but terrible example, and this has brought the whole industry kind of forefront. Everybody at this point has heard about the Florida condo that literally fell, and it was a horrible tragedy. Youâve heard of that?
[00:10:38] Jason: I didnât hear that.
[00:10:39] Aaron: You didnât hear about that? All right.
[00:10:41] Jason: No. So when I was in Mexico and there was a hotel, or like a condo building next to one of the resorts we stayed at, and it won all these awards for design, but it like started sinking and collapsing.
[00:10:52] Aaron: Oh yeah thatâs a different one. So, so this Florida compound really a preventable tragedy and a terrible tragedy. So this had a pool on an upper deck. So it was like a parking garage and imagined large concrete with rebar columns underneath upholding that pool and the structure above it. And over the course of probably decades, there was corrosion from the pool. Now pool chemicals are just brutal on everything that they touch right, even the concrete. And over time they noticed some corroding that had leaked into cracks and fissures in the concrete and had corroded, the rebar, which is kind of the structural integrity of the columns themselves. Long story short is they didnât have the funds or reserves, right. They didnât have the savings, just interchangeable word with reserves. They didnât have the reserves to fund repairs. And after decades of that type of corrosion, the columns gave way and the whole pool inside of the structure gave. And once the structure started to give, it was a cascading effect. And multiple stories of this condo complex fell and killed people, and it was just a horrible, preventableâ
[00:12:05] Jason: wow.
[00:12:06] Aaron: âProblem. Now thatâs about as dramatic as these circumstances get mind you. Right. Most of the time what we see is we see, gutters, for example, that are leaking off into the the wall and we know the cues and the primers that are kind of indicating that thereâs probably a leak behind the stucco itself. Right. Stuccoâs a permeable material. Yeah. But if it gets beyond the paper, behind the stucco, then you have wall issues and we see that. Pretty often where rain gutters are not skirting all of the snow, ice, and rain away from the building. So all of thatâs preventable If number one, thereâs funds to do it and if number two, thereâs eyes that can pick it up. So we help discover both of those. We help outline, highlight those potential problems and sometimes those problems in live. And then we help ensure that they have a plan of how and when those funds will occur in order to maintain and replace and repair all of those assets.
[00:13:07] Ultimately the purpose of any property is to maintain and increase the value of that property, right? No investor wants to get inâŠ
[00:13:15] Jason: yeah.
[00:13:15] Aaron: âŠand not come out on the back end, however many years that might be, and not earn a profit at some level or another, either from the sale of the property or for the ongoing rental of the property. And that can only occur if youâre maintaining the property in a condition that it can do so, in my opinion, in optimal condition.
[00:13:33] Jason: So one of the things that comes to mind, so my wife and I like taking trips to Mexico and weâve gone to some resorts in Mexico that have been around a long time, like decades. Yeah. And we didnât realize it because the rooms seemed new, the paint, but we saw maintenance people on this building. All day long, every day there were just people doing the grounds, doing painting, like everything. And it looked great. And then we just took a trip to Puerto Rico and we stayed at this modern kind of new sort of looking resort. I donât know how long itâs been around, but itâs already has rust coming down the white sides of the building from the top. They had some nets to capture, I donât know, maybe bird stuff or, I have no idea. Yeah. But they were torn and the room was mildewey and like, it just wasnât what it looked like in the pictures. It was just starting to show some wear and tear, and we were just kind of like, why donât they maintain it? Which was interesting.
[00:14:27] Aaron: Well, and this is the second piece of what we do, the consulting piece of this because we have conversations like this all the time. âWell, Iâve got this property that behaves very differently than this property. Right? And how do we appropriate these funds commensurate to the type of building?â It really is dependent on the purpose. Like people, not any property is really identical. Theyâre not used the same way. Theyâre not used the same frequency. Yeah. Theyâre not in the same climate zone, et cetera, et cetera. And I think of a similar building that you just described in Montana. So we did recently did a site inspection on this architecturally really fascinating building. And they kind of jammed it into the corner of two main intersections. Okay. And the whole building architecturally is steel. Itâs intentionally rusting, and itâs intentionally that way to keep the maintenance low. That steel on the outside will outlive all of us. And so the maintenance wonât be going into the exterior of this building. It was designed for a very low maintenance exterior. Now, the interior finishes are different. The interior, itâs got this high end deck and youâve got this neat garden area and, you get into the inside, itâs got this, really nice elevator and all of these things require a high level of maintenance in order to keep functionality optimal for that particular property.
[00:15:42] We do some properties for investors that really intentionally just want to strip out and, for lack of a better term, it sounds bad the way I say it, but, we treat it a little bit differently. They want to strip out every dollar that they can because itâs just not a high valued property to them, wherever it might be or however they might be using it. In which case we can put together a plan that. Creates basically what we call a baseline funding. Itâs a zero funding. Itâs just setting aside just enough to fund the needed maintenance to meet those financial goals. Again, being very intentional, right? I think most investors and executors fail when you have multiple properties and they start using funds from other properties to carry another or theyâre not intentional about the monies theyâre setting aside for maintenance.
[00:16:29] Jason: So let me ask a question. So I recently bought a house. Iâm here in it right now. Right? And itâs over a decade old and we had a home inspection and most people connected to real estate are very familiar with a home inspection. How does a reserve study differ from a home inspection, maybe on like a single family residential property?
[00:16:51] Aaron: Yeah, Iâll be real candid with you, Jason. I think that the home inspection is very similar. Matter of fact, I have seen some really great home inspections where they will outline potential problems, right? Thatâs the difference between maybe a typical inspector and a home inspector. An inspector might come in and theyâre going to say, âokay, these are the things you need to do. These are the things that are really obvious.â A home inspector has a tendency like we do, to really get their hands dirty. Theyâre looking for the little primers, the little cues that indicate that you have a leaking water heater, that the roof shingles are coming up on the ends and, stuff like that. And so Iâve been really impressed with some home inspections. The only real difference is taking that home inspection and converting it into datas, dollars, and timelines. So thatâs the difference. So when bought your home, you get a home inspection and itâs left to you, buyer, to say, âokay, well how do I feel about the fact that thereâs this, that and the other?â And you have to figure out a way to now negotiate that home inspection with your seller on what it means to you. Whatâs the financial, consequence of that home inspection? We take it a pretty major step, but one step further where we say, âokay, how long is that problem going to endure? When does it need to be replaced? And how much is it going to cost?â And then we build a report that actually puts numbers, dollars, and timelines to that. Thereâs no more guesswork. The math now has a voice.
[00:18:17] Jason: Got it. Got it. Okay, cool. Now I can see how this would be useful for rental properties, which are not just a home to live in, but they are a long-term investment and theyâre basically, each property is a business and it needs to be able to be maintained. It needs to run well, especially if their goal is to have it accrue in value over time, or for it to be making them a certain amount of money each month. Et cetera. So, okay.
[00:18:47] Aaron: Now thereâs two pieces of that though, right? All right, so youâve got, I mentioned in the beginning that youâve got this kind of physical aspect the site inspection and then the data, and the vast majority, mind you, we donât shy away from data, but we also know how to read it. So when we produce a report, itâs usually a lot to digest. And the second piece of that is, well, now what do we do with this data? How do I actually use this data and apply, and this kind of gets into the human element. So this is where it speaks to my psych degree, my salesmanship, if you will, which I just really love people. I think as much as we love properties and I do people, itâs really what makes everything work. So now youâve got to know, well, how do we take this data? And apply it to a property and in some cases apply it to manage the owner themselves. Iâm not a hundred percent clear on your audience, for example. But if we just take a property manager thatâs managing to an investor, and Iâve been, in this circumstance, Iâve been that property manager managing to a CEO of a home builder that had multiple properties we were managing and they have certain expectations and sometimes those expectations are based on their feel, their gut feel.
[00:19:59] And it was always better to manage that executor, that owner, that CEO with actual math, with the actual numbers where I can push back without it being a gut feel on my end. So I have what I call the LIL effect, like coin that myself, LIL, like little, the little effect. So one thing that property managers incur too much is blame. When thereâs stressors, when thereâs misunderstanding, when maybe the profitability is not there. Yeah. Property managers inadvertently end up being the scapegoat for owners that have left the management to the property, but shouldnât be leaving maybe the profitability to the property manager. Right? So we have what we call the LIL effect. So, and the LIL effect simply is the first L is listen more to your clients. Youâd be shocked Jason. How often as a vendor⊠so Iâm usually brought in as kind of a vendor to augment what the property manager might be doing for the owner. And youâd be surprised how many times the vendor or the owner may call and want some specific details that the property manager, doesnât know or is fine deferring to us because we do some consulting.
[00:21:14] And then they open up about all sorts of problems and complaints and Iâm constantly on the defence. I want to focus on the data and, not necessarily the complaints, but Iâm a fly on the wall all the time. And one of the biggest complaints is that theyâre I think is that theyâre just not being heard enough. So property managers do a great job managing properties, but sometimes thereâs a pivot point that they miss with their owners, their clients, their executors. And so the first L is just listening more to the client. The âIâ that we have in the LIL effect is Intention, so being very intentional about building trust. I know a lot of property managers that are really good in the industry because they just, are honest and they just naturally build trust. But if theyâre not intentional, they leave so much of that trust on the table and they can build a lot of trust by being intentional. So the first L is for listening more to your clients. The âIâ is for intentionally building trust. In fact, an interesting story to go along with that. When I worked for a builder I was told at the very outset that there was an architect, very difficult to work with. Weâll call him Brian. And Brian was impossible.
[00:22:26] Brian did things his way and he was just difficult to work with. He was the head architect, so everything had to run through him, and if you couldnât get it through him, you couldnât get it done. And I had to get stuff done through him as a fairly new employee with this builder. And I determined right in the beginning that I would figure out a way to earn his trust. And I decided early on that I would just believe everything Brian told me. I would just take it at face value, trust, the fact that he knew what he was doing. Now everybody knew that he was emotionally driven, right? And a fascinating thing came out of this, Jason, I learned over the course of, less than a year, took some time, but I learned over the course o of that year that number one, I earned Brianâs trust by hearing him out, asking questions strategically, and being very intentional about building that trust. The other thing that actually was quite fascinating to me is that I learned to really respect Brian. I gained a relationship with him and I could get things done through Brian that nobody else could, simply because Iâd been intentional and at the time it was kind of accidental intention. Yeah. And it was a phenomenal relationship that he and I had. He was pretty rough around the edges, had his way, but I had, I could bend his ear, unlike most people could because Iâd spent a significant amount of time building that trust.
[00:23:48] Jason: Thatâs interesting. I had a job working at HP and there were two of us on a team. We managed this software called Concentra, which was this workflow for all of their PDFs and documents for all their computers, printers, at everything to move through to make sure that there was some sort of quality. And it, it went through legal and it went through everything else. And so there were us two nerds and our boss was in, we were in Boise and our boss was in Texas. And I noticed he didnât trust us. He was always like trying to micromanage us and distrustful of us, and so I just started settingâ we used an instant message tool to communicate most of the time, so I just started changing my status. Iâm like, how can I make him feel safer and trust me? So I had the intention. To build trust. And so, and the way I did that is I just communicated through my messenger status, showing what I was working on all the time, so he didnât have to ask me and say, âHey, did you guys doing stuff? Or what are you doing?â It just said, âIâm working on this and Iâm working on thatâ. And I would just update it throughout the day. He started to trust me and then he started to ask me about my coworker, whatâs he doing? Is he getting stuff done? I thought that was really funny. Yeah. Like acting like heâdâ this guy like didnât even know our names though. He like, eventually he just couldnât even remember our names, which is sad.
[00:25:02] Aaron: But that level of transparency, solves all so many problems before they occur.
[00:25:07] Jason: Yeah. So I like that. Yeah. Property managers need to listen more to their clients and they need to focus on the intention of building trust because really, I tell my clients sales and deals happen at the speed of trust. Yeah. In order to get clients, but keeping clients. Same thing, retaining a client, youâre continually selling them on why they should be with you. It involves trust. Yeah. Trust goes, they go.
[00:25:33] Aaron: It does. And it really is about being intentional, right? Because again, I know property managers who are quite good at it, but theyâre, thereâs a difference with being intentional. Yeah. Being strategic.
[00:25:44] Jason: Yeah. because if their intention is just to do their job, thatâs not going to necessarily create trust. But if their intention is to create trust, then theyâre far more likely to do it. Yeah. This is interesting too becausewe have a tool we use with our clients so they can get more out of their day and we call it DoorGrowâs Daily Planning. We have this daily planning exercise, and the goal is to map out, part of the daily planning exercise is to figure out what are all the appointments you have for the day, and then what intention do you have for each of those? Because we find just by having an intention and being clear on what your intention is with a particular outcome, youâre far more likely to get the result ironically. So, if your intention is to go into a conversation and win, or create a win-win or to benefit them or whatever, youâre far more likely if youâre clear on that intention, then you just go into it and go, âwell, I have a meeting.â Right. Yeah. So, yeah.
[00:26:36] Aaron: Well, I couldnât agree with you more. Itâs so weâve got listen more to the clients, right? So to finish the LIL effect, intentionally build trust. And the last one, Is really one of the most undervalued, and thatâs, listen to your trades. And Iâm not talking about just hearing them out, Iâm talking about like understanding, understanding their perspective. Youâd be shocked how many, so I talk to trades a lot.
[00:27:00] Jason: Define trades. Are you talking about vendors thatâll do work on property?
[00:27:03] Aaron: Yes. Yeah. Yeah. Your concrete guys, your maintenance guy. The, these are invaluable people that, sometimes I think property managers donât reach out to these trades. At the level they could because they see a guy that, you know, just for lack of a better term, just eats concrete for breakfast. He knows concrete. He loves concrete, heâs really good at it, and they want him to solve a problem concrete related. But I canât tell you how many times Iâve talked to vendors, Iâm usually gathering price and I can speak their language and I know all things construction from the ground up. So I can get into those conversations and as I do that, Iâve been shocked. At how many things they keep close to the chest because theyâve learned, and this goes back to kind of the psych days learned helplessness. Theyâve learned that nobody really wants their opinion. They just want them to solve a problem. âSolve this concrete problem, fix this tree,â whatever it might be. And so they have learned over the years to just keep those things close to the chest. But what they have close to the chest is often little golden nuggets of understanding of both property and profitability. They have ideas on how to turn a property more profitable in their little, bucket of trade, right? Theyâre concrete or theyâre trees and, property managers are leaving some profits on the table, in my opinion, because theyâre not getting those vendors, not building the trust with those vendors to glean the little pieces and it goes back to, I forget the name of the book, 1% Better, where if youâre gathering 1% better and you talk to 15 different, vendors and they all can provide you, you know even half a percent profitability better, suddenly you have a property thatâs 7% more profitable. Thatâs incredible.
[00:28:46] Jason: Yeah. Thatâs interesting. The last place I was in, we were renting and it wasnât managed by a property manager and the owner took two weeks to replace water heater because he was just being super anal and trying to figure out the best one. Basically a problem property managers can solve for people. And one of the plumbers came out and. He like was badmouthing the owner saying that he was being cheap and then he like, but the level of detail this guy was because I was just curious in asking questions because thatâs just my nature. He was telling me like, âthese type of water heaters, they last this long, this other oneâs going to go out soon. And if we put in one like this, I recommend it be this capacity because itâs going to last this much longer or do thisâ like the level of detail he knew about water heaters. Brands of water heaters and how much, putting the right one in and what it could save you in the long term and doing the long term. I was like really impressed. Yeah, so this rings very true to me. Everybody that is really an expert in their craft. And this guy ran his company, so we were lucky that he was the one that came out, I guess. The level of expertise that some of these vendors or trades, or not sure they call them tradies, yeah. That they have is really yeah, it, I can see how it could be a huge asset.
[00:30:04] Aaron: Huge asset. So thatâs the LIL effect. They really are a huge asset. So youâve got, listen more to your clients, the intentional of building trust, and listening to your trades and vendors and anyway, that LIL effect will produce positive consequences every day of the week. Thereâs really no negative and itâs kind of rare that you can apply a strategy and not have, some downside of it. But itâs pretty easy to apply. Maybe a more listening and intentional ear. Yeah. Something that weâre noticing, that kind of goes along with this, and I think everybodyâs probably feeling this at this point. Iâve been waiting for everybody to feel like the pinch of whatâs going on, right. So, one thing that weâre trying to do here for our business is just constantly be on the pivot where, well, what are our clients feeling? Yeah. What are they experiencing? What are their hardships and challenges? What other problems can we solve? And weâve been doing that since inception, but Iâve been waiting since kind of some of the overall damage from where it started with Covid. When is this downstream damage going to really start affecting just masses, right? And profitability and properties and so forth? And over the last four to six months weâre seeing more of it. And on our end, weâre ready for that pivot. And what that pivot looks like is when people are pinched financially and emotionally. And additionally, right now politically, when people feel pinched in corner like this, yeah they have a tendency to retreat into corners, right? Itâs the old adage, that we retreat into our shell. And as people do that, unfortunately trades and property managers, when theyâre feeling kind of this trifecta of pinch, they have a lack of control. This goes back to the psychology. They have a lack of control. So what do people do when theyâre losing control of one thing? They go and gain control of another, right?
[00:31:51] Jason: Yeah. They start micromanaging other stuff.
[00:31:54] Aaron: Yes. And asking all the wrong questions in that micromanagement, right? And so they start micromanaging, they start trying to regain control. And I see sometimes property managers pushing back because again, the clientâs asking the wrong group of questions, seeking for some semblance of balance of control. And as they push back, then theyâre usually again scapegoated into some failure, some misunderstanding, some reason that the client needs to retake or re grab control. Yeah. And when theyâre insecure and out of control, we often coach our clients to tell them, âlook, let them. Give them a moment. They donât want to drive the car. They donât really want to drive the car. Yeah. They want to know that they can drive the car.â Right. And so clients come, they feel uncomfortable, they want to regain control. And so weâll tell our property managers many times, â let them sit in the driverâs seat. Itâs like taking a teen, and you remember the old driving the cars, they had a brake pedal in the passenger seat where the instructor could sit and slam on the brakes andâ
[00:33:04] Jason: Yeah.
[00:33:04] Aaron: âScare the teen right out of his gourd. I mean, thatâs how I learned to drive from a instructor. But itâs kind ofâ
[00:33:10] Jason: sounds like a mean instructor.
[00:33:12] Itâs sometimes though itâs like that the property
[00:33:14] Aaron: manager would be wise to step aside for a moment and let them get in. Actually a lot like you did with, telegraphing. Almost over transparency. This is what Iâm doing, this is what Iâm doing. Let them see how youâre driving. Let them see every turn youâre making. And eventually they get to a point where theyâre like, yeah, heâs driving fine. I donât, they donât want to drive. And property managers hold that close to the chest. I canât let them get in. I canât let them, do X, Y, and Z because thatâs my job. Thatâs my responsibility. And they guard that tenaciously and that actually leads to more distrust in the moment than trust.
[00:33:48] Yeah, I actually
[00:33:49] Jason: teach. And Iâve had a podcast episode on this subject before, but I actually teach clients that the one thing that people want to buy from a property manager is not property management. What they want to buy is safety and certainty. Yeah. They want to buy peace of mind. Thatâs really what youâre selling as a property manager. And so if youâre not using LIL and that framework, And youâre not going to get those positive consequences. And if youâre not making them feel safe, youâre actually going to have a higher operational cost in your business because youâre going to have a whole bunch of owners that are micromanaging you because yes, if they donât feel safe, theyâre going to create safety. Yes. In the form of leading and micromanaging you. And if the only positive way to push back on that is to let them know that you know what youâre doing to showcase the expertise and let them know that you are better at this than them. Yes. Based on proven history and results. Yes.
[00:34:44] Aaron: I, that is such a great point, Jason. Matter of fact, thatâs really, really kind of the key, if theyâll filter everything through what you just said, if theyâll filter everything through this idea. Building that trust and managing that relationship that way and not the property. The propertyâs easy to manage. People are tough to manage. True. And if youâll manage to those, like you said, those, those expectations with their end goal then you can manage the property kind of on, on the side. In fact, itâs interesting. I would also say that anytime, That they see Anytime that, our clients see micromanagement from their clientele, that should be the first cue that theyâre on their way out. Yeah. You know that theyâre, they donât trust you, that theyâre not trusting and that eight, eight out of 10 times 80% of the time, I would say that when you have an owner or property manager or an executive body thatâs frustrated or micromanaging they donât know it yet sometimes, but theyâre already beginning the process of finding somebody who they feel that can do a better job and they never do.
[00:35:50] They only find somebody to solve a problem for a minute. But the problem is really, like you said, trust, expectation, those relationships, because the property is not the challenge.
[00:36:01] Jason: Yeah. I mean, there might be one counter to this. So one thing thatâs I think is really interesting is weâll have clients in our coaching program and sometimes theyâre just like grumpy and they complain about everything and theyâre frustrated, but they stay. And then sometimes theyâre really happy and theyâre getting great results and then they leave. And so what weâve learned to pay attention to, In the realm of client success is that itâs not even necessarily connected to whether or not they are happy or youâre getting them great results or not. Which is really weird, but client retention is based on whether or not they still see a future with you or not. And that thereâs a future plan. And so as long as they have a future goal, a future roadmap, they might be miserable as they do all of it, but theyâll still stick with you because they see a future that includes you, and so theyâll stay with you, but itâs very easy for them to start creating a new future the second they start not having a good experience with you, they start to imagine, man, it might be better with somebody else. Yeah.
[00:37:00] Aaron: And with that, you canât discount the 80 20 rule either, right? Thereâs a, thereâs the law of averages and statistically speaking, itâs been proven, a thousand times that. 20% of your clientele is going to be 80% of your time expenditure. Right.
[00:37:13] Jason: Which is why you should probably fire 20% of your clients.
[00:37:17] Aaron: I knew you were going to say that. I set you up, Jason. I knew you were going to say that. I the truth is Iâve actually watched property managers do that very thing and they just end up with the different 20%. Right? Right. Yeah. So better, the better way to do it is if youâre going to fire, because I donât think. I donât think the idea is lost. I think you got to look at profitability and Yeah. Which ones are really not making you money, right? And those are the ones to let go because youâre going to end up with the same 20% of kind of high maintenance clientele. And if theyâre profitable, then maintain it. And if theyâre not, then call it and get to the 20% of higher profitability clients. Right. Thatâs again, coming back to intention.
[00:37:58] Jason: I would agree related, if youâre focused just on the currency of cash, but if youâre focused on the currency of like your peace of mind and time and other things, then it might not be worth it.
[00:38:10] Aaron: Some. Thatâs a great point. Thatâs so true.
[00:38:12] Jason: So it might not be worth it because it really, the goal of a business isnât just money. The goal of a business is to give us more freedom, more fulfillment as a business owner, more of a sense of contribution and more support. Thatâs why we build a business, why we build a team. And so some owners are stealing that from people, and I think a lot of times itâs easily solved by just setting really good boundaries, expectations. And like you were talking about communication. Yeah. And that most owners, when theyâre micromanaging like that, they just want to know youâre actually holding the steering wheel. Thatâs it. As soon as they recognize that, theyâre like, oh, okay, Iâm fine. And so a lot of times itâs just a matter of being stronger towards them. Like some of my clients, I teach them to say, âNo, Mr. Owner, weâre not going to do that and hereâs why.â And then suddenly that owner disarms. But a lot of times if they say, okay, Iâll do that for you, the owner then goes, âoh, I now need to lead them through everything to get the results that I want.â
[00:39:08] Aaron: Yeah. Yeah. So thatâs great.
[00:39:12] Jason: Interesting stuff. All right, so, now a lot a lot of my clients are managing small multi-family units, single family residential, maybe some condos. There might be some association management. When does it make sense to reach out to North Star?
[00:39:28] Aaron: When they want to use and empower the actual math is what I call it, when they want to use and empower the actual revenue versus expense load for decision making processes. Okay. Itâs really, thereâs a balance between the revenue and the expense load, and in almost all cases, the expense load is higher. So when I call it a balance, itâs not like itâs an equal balance. The expense load over time is higher when you factor in the revenue with profitability, et cetera. So how do we empower the math to make decisions based on the actual dollars and cents and not just aesthetics?
[00:40:08] Jason: Okay, so letâs take an example. Should they reach out to North Star if they have an owner that they can tell is not doing things mathematically effectively so that they can actually leverage your data in insight to say to this owner, youâre being an idiot. You need to do it this way. Is that a good case example.
[00:40:28] Aaron: Itâs a great example. In fact, in downtown Boise thereâs a highrise, I wonât mention it. And very nice, very, kind of high end highrise. And the property manager called us, this is actually just a couple years ago, but I still play this one out because it changed everything. And they were ready to spend $50,000 just on a furniture rehab. And long story short is the furniture was already nice. I mean, high end from the lobby to the rooftop. And in the end we ran through reserve study, helped them see that a $50,000 was not only not in the budget, but a gross overspend. They still spent 15 grand, but that other 35 went to a future roof project that they were not only not prepared for, but didnât have properly funded. So the answer is yes, to I would say anytime that a property manager wants to help mitigate or remove the emotion from the pushback that they might get with their owners or executive body and using the math to make those financial decisions, thatâs an appropriate time to call North Star. Another great aspect of having a reserve study and having the proper financial is creating continuity. So once you start that decision making process, owners and property managers get really good at creating continuity for that decision making process, and that reduces the time expenditure on a property that reduces the discussion, meeting time, expenditure with their owners. And so we call it continuity. In fact, we have a continuity program, which is really a consulting program that we use the existing study to take them through a year long process of decision making and preparation where we are basically on retainer by the course of the year to interact and help create that continuity. Directly, itâs actually always designed for the property manager. So thatâs create continuity for the property manager to use the financials to manage those long-term decisions.
[00:42:20] Jason: So I imagine another use case would be theyâre about to take on a rough property and I get questions like this, should I take it on? Yeah. I mean, often the answer is no. But if the owner is amenable to like fixing it up, making the changes necessary, but a lot of times thereâs a lot of emotion in it for them. Yeah. And so if they can connect them to the math and to reality through something like working with North Star then, and theyâre willing to do this, then they could end up being a good client and it could be a good scenario.
[00:42:51] Aaron: Thatâs correct. And we resist all things boiler plate, right? We like to tailor it to the real circumstance. We do use some boiler plate numbers to help owners get to a basic understanding of profitability and whether or not to buy a property. More often than not, Jason the questions usually: I want to make an improvement on an existing property, and should I? Whatâs the downstream cost and the downstream cost of maintaining that improvement? Yeah. Right. We want to resurface the streets and, or we want to we want to add in a bar to this, to this, mini restaurant or a bar area. And so you, weâve got to look at, where the cost expenditure is and the long-term maintenance of that improvement.
[00:43:33] Jason: I would imagine that property managers, if theyâve even done a few of these situations or scenarios with you, learn an immense amount of insight and knowledge just by through association with what youâre doing.
[00:43:48] Aaron: Yes. In fact, thatâs, I didnât start this business doing the consulting side of this. I started with just, reserve studies, right? We just produce a reserve study, we produce the math, and itâs my nature to kind of help people through that. And I donât push back on people with meeting and the time expense of meeting.
[00:44:05] I help them through it. But that has evolved over years into really a full consulting program because youâre exactly right, property managers when they really know how to use it They need less of my expertise on the reserve study and more of my expertise on using the reserve study to manage again, people right, to manage expectations of people, to manage tough conversations with people. Property managers have more longevity in managing a property. I find when one, they have that trust, and two, they do have some profitability because youâre right, it is about those people. But their investors want to see good financials. And when the property manager can focus on intentional trust while at the same time producing transparent and profitable financials, I mean, I donât know why anybody would want to leave a property manager that is performing at that level.
[00:45:00] Jason: Yeah. So I think the next question somebody would have is, this has to be really expensive. Would it make sense? Like say I get an investor and heâs got like, a hundred unit building, or I get a different investor and heâs got a hundred single family units and Iâm going to bring in this portfolio. Is this something that. Is financially going to make sense? Is there a way for this property manager to convince the owner to do this, and for the property manager to be able to afford to do this in a way that itâs going to make them money?
[00:45:32] Aaron: Yeah. In a very rare circumstance, has it not really and Iâm just being very candid, in a very rare circumstance, has it not financially made sense. In fact, in 2019, and it just happened to be a good timing in late 2019, we created what we call a virtual site inspection for those properties were financially, they just donât maybe have the volume of assets to merit a 30 year full reserve study in the consulting. Yeah. And and so we do a virtual site inspection, which is a little bit more boiler plate, but weâll go on. As long as I have satellite images, Iâll do a virtual site inspection from satellite imagery. I can usually get some really great street view images and I can build a reserve study without ever leaving the office. We have staff here and Iâve got one guy and thatâs all he does. He just looks at those virtual studies. He builds these virtual studies so we donât ever have to mobilize. We did that because that got the price, the mobilization costs down and therefore it got the price of the reserve study commensurate to producing well, just a profitable report, so it didnât make sense. Yeah, itâs not cheap to to, again, to be candid with you, thereâs a lot that goes into it. Sure. On a high rise, we might have, 80 hours into a full study with the site inspection and all the data gathering. So itâs generally not cheap. And so we do try to find balance in that.
[00:46:49] Jason: Got it. Well, this is interesting. I think weâve gotten a lot of info from you. I appreciate you being here on the show.
[00:46:57] For those that are curious or interested in maybe doing their first, reserve study or in connecting with you, how can they get ahold of north Star Reserve?
[00:47:10] Aaron: Well, for your customers and clients, Jason, Iâd give my personal information out. So they can contact me directly at aaron@northstarreserves.com.
[00:47:21]aaron@northstarreserves.com, all spelled out northstarreserves.com is our website. They can call our office at (208) 365-0977 and weâd be happy to help out, put a quote. I donât charge for any upfront consulting. Weâll take anybody through their property, their needs just to make sense and vet out whether or not it even makes sense. And I I feel thatâs just ought to be industry standard, and help people make sure it makes sense in the first place. Right.
[00:47:52] Jason: Awesome. Well then hopefully everybody reaches out. Right? I appreciate you. All right, awesome. Well, we appreciate you being on the show, Aaron. This was really insightful and yeah, Iâm really, Iâm going to be curious to see how this could help benefit some of our clients as well. So thanks for coming on.
[00:48:09] Aaron: Yeah, thank you. Appreciate you, Jason. All right, so check out northstarreserves.com. Now, if you are a property management entrepreneur and you are wanting to grow your business, add doors, reach out to DoorGrow. We can help you do this if youâre wanting to scale your operations, you just feel like youâre banging your head against the wall. Youâre frustrated. Youâre trying to deal with all these different tools and software and trying to figure out whatâs the best way to scale my business. And to make a business thatâs infinitely scalable? Youâre going to need a lot of systems. And weâve developed what we call the Super System. So youâre going to need a people system for hiring and vetting candidates. Youâre going to need a system for operations in an operating system for planning that motivates your team instead of itâs top down pushing your team all the time. We have DoorGrow OS. We have DoorGrow Hiring. Youâre going to need a system for documenting processes. We have DoorGrow Flow, which is a flow chart based software for mapping out processes and having your team run processes through. So if youâre wanting to grow your property management and youâre wanting to scale it, youâre wanting to get a really good coaching for your operator or operations person. Youâre wanting to get really good coaching for your BDM or your salesperson to grow and scale and add doors. We are the best at this, so reach out to my team. We have a plethora of coaches and resources.
[00:49:32] Weâve been doing this for over a decade. We love growing and scaling property management companies, and we know that we can help you. If youâre willing to just do what we tell you to do, so reach out to DoorGrow. We would love to help you out. And if you want to test just something, test your website, go to DoorGrow.com/quiz test your property management website and see how effective it is. Usually this is enough to get people to wake up and go, âHey, Iâve got some leaks in my business people.â So most of you have leaky websites that youâve gotten from people that are not DoorGrow, and your website is leaking you leads, deals, and money every single week. You could potentially be getting twice as many leads in deals if youâre scoring an A on this DoorGrow Quiz. But most are scoring a D, C, or sometimes an F, right? So take this quiz, check it out, DoorGrow.com/quiz and grade your website. And thatâs it for today. Until next time to our mutual growth. Bye everyone.
[00:50:30] Jason Hull: You just listened to the #DoorGrowShow. We are building a community of the savviest property management entrepreneurs on the planet in the DoorGrowClub. Join your fellow DoorGrow Hackers at doorgrowclub.com. Listen, everyone is doing the same stuff. SEO, PPC, pay-per-lead content, social direct mail, and they still struggle to grow!
[00:50:57] At DoorGrow, we solve your biggest challenge: getting deals and growing your business. Find out more at doorgrow.com. Find any show notes or links from todayâs episode on our blog doorgrow.com, and to get notified of future events and news subscribe to our newsletter at doorgrow.com/subscribe. Until next time, take what you learn and start DoorGrow Hacking your business and your life.
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