DGS 203: How A Reserve Study Can Help Your Property Management Business With Aaron Lombardo
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.
[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 “LIL Effect”
[33:50] How to Stop Your Clients from Micromanaging You
“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.”
[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 they’re just managing just enough in contributions to maintain those assets over long term or they can increase that threshold so that there’s 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 you’re interested in growing in business and life, and you’re 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 you’re crazy for doing it. You think they’re 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. I’m your host property management growth expert, Jason Hull, the founder and CEO of DoorGrow. Now let’s get into the show.
[00:01:21] Aaron: I went in and got my undergrad, my bachelor’s in psychology. So I majored in family and marriage therapy and kind of the end of that I realized I didn’t 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 he’d literally moved across the country. And he kind of started by default just managing a rental property, a family’s 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 wasn’t, 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. We’ve grown it to eight states, and then we consult in several others. We’re in multiple markets within, kind of these states and subsets of these states, destination stops and so forth. And I’ll tell you what a reserve study is here in just a second, which is why I’m 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. We’ve done some really cool townships where we’ve done entire, small cities or small towns, airports And and then water treatment facilities. So we, we feel like we’ve 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 that’s 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 it’s just a piece of maybe the property’s 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. It’s just a harsher climate. And so their properties weather different, and if they don’t 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, That’s 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 haven’t heard of any property managers doing this. I’m sure some do or should be. So tell us about that.
[00:06:58] Aaron: Well, so the truth of it is there’s not a lot of well, let me rephrase that, a lot of property managers do that if they’re, if they have oversight in an HOA or some sort of governing body. We break our service down into two pieces. There’s the actual physical creation of the reserve study, and then there’s 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 we’re working with a property manager on a rental property or a multi-unit property, it’s usually the owner or, sometimes it’s the CFO or CEO that’s looking at this property from a strictly, revenue generation standpoint. And they’re 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. Let’s 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 don’t need to really worry about but every 30 or 40 years and those, long-term items usually have a significant cost that we’re 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 they’re just managing just enough in contributions to maintain those assets over long term or they can increase that threshold so that there’s 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 we’ll 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, there’s a dozen components that maintain what we would, you and I would just call a pool, right? Yeah, there’s 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, we’re contacting vendors, usually local vendors to that state or maybe that destination stop that town and city. So that we’re 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 it’s a lengthy report. It’d 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 don’t, and sometimes that their management or their maintenance men don’t see. Their maintenance men have a tendency to look at certain high visual items where we’re 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. You’ve heard of that?
[00:10:38] Jason: I didn’t hear that.
[00:10:39] Aaron: You didn’t 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 that’s 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 didn’t have the funds or reserves, right. They didn’t have the savings, just interchangeable word with reserves. They didn’t 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, preventable–
[00:12:05] Jason: wow.
[00:12:06] Aaron: –Problem. Now that’s 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 there’s probably a leak behind the stucco itself. Right. Stucco’s 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 that’s preventable If number one, there’s funds to do it and if number two, there’s 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 in…
[00:13:15] Jason: yeah.
[00:13:15] Aaron: …and 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 you’re 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 we’ve gone to some resorts in Mexico that have been around a long time, like decades. Yeah. And we didn’t 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 don’t know how long it’s been around, but it’s already has rust coming down the white sides of the building from the top. They had some nets to capture, I don’t know, maybe bird stuff or, I have no idea. Yeah. But they were torn and the room was mildewey and like, it just wasn’t 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 don’t 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. ‘Well, I’ve got this property that behaves very differently than this property. Right? And how do we appropriate these funds commensurate to the type of building?’ It really is dependent on the purpose. Like people, not any property is really identical. They’re not used the same way. They’re not used the same frequency. Yeah. They’re 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. It’s intentionally rusting, and it’s intentionally that way to keep the maintenance low. That steel on the outside will outlive all of us. And so the maintenance won’t 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, it’s got this high end deck and you’ve got this neat garden area and, you get into the inside, it’s 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 it’s 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. It’s a zero funding. It’s 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 they’re not intentional about the monies they’re setting aside for maintenance.
[00:16:29] Jason: So let me ask a question. So I recently bought a house. I’m here in it right now. Right? And it’s 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, I’ll 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? That’s the difference between maybe a typical inspector and a home inspector. An inspector might come in and they’re going to say, ‘okay, these are the things you need to do. These are the things that are really obvious.’ A home inspector has a tendency like we do, to really get their hands dirty. They’re 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 I’ve 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 that’s the difference. So when bought your home, you get a home inspection and it’s left to you, buyer, to say, ‘okay, well how do I feel about the fact that there’s this, that and the other?’ And you have to figure out a way to now negotiate that home inspection with your seller on what it means to you. What’s the financial, consequence of that home inspection? We take it a pretty major step, but one step further where we say, ‘okay, how long is that problem going to endure? When does it need to be replaced? And how much is it going to cost?’ And then we build a report that actually puts numbers, dollars, and timelines to that. There’s 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 they’re 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 there’s two pieces of that though, right? All right, so you’ve got, I mentioned in the beginning that you’ve got this kind of physical aspect the site inspection and then the data, and the vast majority, mind you, we don’t shy away from data, but we also know how to read it. So when we produce a report, it’s 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, it’s really what makes everything work. So now you’ve 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. I’m not a hundred percent clear on your audience, for example. But if we just take a property manager that’s managing to an investor, and I’ve been, in this circumstance, I’ve 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 there’s stressors, when there’s 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 shouldn’t 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. You’d be shocked Jason. How often as a vendor… so I’m usually brought in as kind of a vendor to augment what the property manager might be doing for the owner. And you’d be surprised how many times the vendor or the owner may call and want some specific details that the property manager, doesn’t 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 I’m constantly on the defence. I want to focus on the data and, not necessarily the complaints, but I’m a fly on the wall all the time. And one of the biggest complaints is that they’re I think is that they’re just not being heard enough. So property managers do a great job managing properties, but sometimes there’s 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 ‘I’ 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 they’re 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 ‘I’ 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. We’ll 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 couldn’t get it through him, you couldn’t 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 Brian’s 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 I’d 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 I’d spent a significant amount of time building that trust.
[00:23:48] Jason: That’s 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 didn’t trust us. He was always like trying to micromanage us and distrustful of us, and so I just started setting– we used an instant message tool to communicate most of the time, so I just started changing my status. I’m 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 didn’t have to ask me and say, ‘Hey, did you guys doing stuff? Or what are you doing?’ It just said, ‘I’m working on this and I’m working on that’. And I would just update it throughout the day. He started to trust me and then he started to ask me about my coworker, what’s he doing? Is he getting stuff done? I thought that was really funny. Yeah. Like acting like he’d– this guy like didn’t even know our names though. He like, eventually he just couldn’t 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, you’re 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 they’re, there’s a difference with being intentional. Yeah. Being strategic.
[00:25:44] Jason: Yeah. because if their intention is just to do their job, that’s not going to necessarily create trust. But if their intention is to create trust, then they’re 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 DoorGrow’s 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, you’re 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, you’re far more likely if you’re clear on that intention, then you just go into it and go, ‘well, I have a meeting.’ Right. Yeah. So, yeah.
[00:26:36] Aaron: Well, I couldn’t agree with you more. It’s so we’ve 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 that’s, listen to your trades. And I’m not talking about just hearing them out, I’m talking about like understanding, understanding their perspective. You’d be shocked how many, so I talk to trades a lot.
[00:27:00] Jason: Define trades. Are you talking about vendors that’ll 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 don’t 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, he’s really good at it, and they want him to solve a problem concrete related. But I can’t tell you how many times I’ve talked to vendors, I’m 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, I’ve been shocked. At how many things they keep close to the chest because they’ve learned, and this goes back to kind of the psych days learned helplessness. They’ve learned that nobody really wants their opinion. They just want them to solve a problem. ‘Solve this concrete problem, fix this tree,’ 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? They’re concrete or they’re trees and, property managers are leaving some profits on the table, in my opinion, because they’re 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 you’re 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 that’s 7% more profitable. That’s incredible.
[00:28:46] Jason: Yeah. That’s interesting. The last place I was in, we were renting and it wasn’t 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 that’s just my nature. He was telling me like, ‘these type of water heaters, they last this long, this other one’s going to go out soon. And if we put in one like this, I recommend it be this capacity because it’s going to last this much longer or do this’ 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 that’s the LIL effect. They really are a huge asset. So you’ve 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. There’s really no negative and it’s kind of rare that you can apply a strategy and not have, some downside of it. But it’s pretty easy to apply. Maybe a more listening and intentional ear. Yeah. Something that we’re noticing, that kind of goes along with this, and I think everybody’s probably feeling this at this point. I’ve been waiting for everybody to feel like the pinch of what’s going on, right. So, one thing that we’re 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 we’ve been doing that since inception, but I’ve 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 we’re seeing more of it. And on our end, we’re 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? It’s the old adage, that we retreat into our shell. And as people do that, unfortunately trades and property managers, when they’re 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 they’re 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 client’s asking the wrong group of questions, seeking for some semblance of balance of control. And as they push back, then they’re usually again scapegoated into some failure, some misunderstanding, some reason that the client needs to retake or re grab control. Yeah. And when they’re insecure and out of control, we often coach our clients to tell them, ‘look, let them. Give them a moment. They don’t want to drive the car. They don’t really want to drive the car. Yeah. They want to know that they can drive the car.’ Right. And so clients come, they feel uncomfortable, they want to regain control. And so we’ll tell our property managers many times, ‘ let them sit in the driver’s seat. It’s 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 and–
[00:33:04] Jason: Yeah.
[00:33:04] Aaron: –Scare the teen right out of his gourd. I mean, that’s how I learned to drive from a instructor. But it’s kind of–
[00:33:10] Jason: sounds like a mean instructor.
[00:33:12] It’s sometimes though it’s 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 I’m doing, this is what I’m doing. Let them see how you’re driving. Let them see every turn you’re making. And eventually they get to a point where they’re like, yeah, he’s driving fine. I don’t, they don’t want to drive. And property managers hold that close to the chest. I can’t let them get in. I can’t let them, do X, Y, and Z because that’s my job. That’s 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 I’ve 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. That’s really what you’re selling as a property manager. And so if you’re not using LIL and that framework, And you’re not going to get those positive consequences. And if you’re not making them feel safe, you’re actually going to have a higher operational cost in your business because you’re going to have a whole bunch of owners that are micromanaging you because yes, if they don’t feel safe, they’re 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 you’re 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, that’s really, really kind of the key, if they’ll filter everything through what you just said, if they’ll filter everything through this idea. Building that trust and managing that relationship that way and not the property. The property’s easy to manage. People are tough to manage. True. And if you’ll 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, it’s 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 they’re on their way out. Yeah. You know that they’re, they don’t trust you, that they’re 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 that’s frustrated or micromanaging they don’t know it yet sometimes, but they’re 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 that’s I think is really interesting is we’ll have clients in our coaching program and sometimes they’re just like grumpy and they complain about everything and they’re frustrated, but they stay. And then sometimes they’re really happy and they’re getting great results and then they leave. And so what we’ve learned to pay attention to, In the realm of client success is that it’s not even necessarily connected to whether or not they are happy or you’re 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 there’s 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 they’ll still stick with you because they see a future that includes you, and so they’ll stay with you, but it’s 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 can’t discount the 80 20 rule either, right? There’s a, there’s the law of averages and statistically speaking, it’s 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 I’ve 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 you’re going to fire, because I don’t think. I don’t 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 you’re going to end up with the same 20% of kind of high maintenance clientele. And if they’re profitable, then maintain it. And if they’re not, then call it and get to the 20% of higher profitability clients. Right. That’s again, coming back to intention.
[00:37:58] Jason: I would agree related, if you’re focused just on the currency of cash, but if you’re 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. That’s a great point. That’s so true.
[00:38:12] Jason: So it might not be worth it because it really, the goal of a business isn’t 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. That’s 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 it’s easily solved by just setting really good boundaries, expectations. And like you were talking about communication. Yeah. And that most owners, when they’re micromanaging like that, they just want to know you’re actually holding the steering wheel. That’s it. As soon as they recognize that, they’re like, oh, okay, I’m fine. And so a lot of times it’s just a matter of being stronger towards them. Like some of my clients, I teach them to say, ‘No, Mr. Owner, we’re not going to do that and here’s why.’ And then suddenly that owner disarms. But a lot of times if they say, okay, I’ll do that for you, the owner then goes, ‘oh, I now need to lead them through everything to get the results that I want.’
[00:39:08] Aaron: Yeah. Yeah. So that’s 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. It’s really, there’s 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, it’s not like it’s 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 let’s 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, you’re being an idiot. You need to do it this way. Is that a good case example.
[00:40:28] Aaron: It’s a great example. In fact, in downtown Boise there’s a highrise, I won’t 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 didn’t 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, that’s 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, it’s actually always designed for the property manager. So that’s 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 they’re 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 there’s 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 they’re willing to do this, then they could end up being a good client and it could be a good scenario.
[00:42:51] Aaron: That’s 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? What’s 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, we’ve 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 they’ve 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 you’re doing.
[00:43:48] Aaron: Yes. In fact, that’s, I didn’t 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 it’s my nature to kind of help people through that. And I don’t 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 you’re 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 you’re 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 don’t 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 he’s got like, a hundred unit building, or I get a different investor and he’s got a hundred single family units and I’m 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 it’s going to make them money?
[00:45:32] Aaron: Yeah. In a very rare circumstance, has it not really and I’m 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 don’t 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 we’ll go on. As long as I have satellite images, I’ll 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 I’ve got one guy and that’s all he does. He just looks at those virtual studies. He builds these virtual studies so we don’t 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 didn’t make sense. Yeah, it’s not cheap to to, again, to be candid with you, there’s 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 it’s 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 we’ve 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, I’d give my personal information out. So they can contact me directly at email@example.com.
[00:47:21] firstname.lastname@example.org, all spelled out northstarreserves.com is our website. They can call our office at (208) 365-0977 and we’d be happy to help out, put a quote. I don’t charge for any upfront consulting. We’ll 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 that’s 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, I’m really, I’m 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 you’re wanting to scale your operations, you just feel like you’re banging your head against the wall. You’re frustrated. You’re trying to deal with all these different tools and software and trying to figure out what’s the best way to scale my business. And to make a business that’s infinitely scalable? You’re going to need a lot of systems. And we’ve developed what we call the Super System. So you’re going to need a people system for hiring and vetting candidates. You’re going to need a system for operations in an operating system for planning that motivates your team instead of it’s top down pushing your team all the time. We have DoorGrow OS. We have DoorGrow Hiring. You’re 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 you’re wanting to grow your property management and you’re wanting to scale it, you’re wanting to get a really good coaching for your operator or operations person. You’re 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] We’ve been doing this for over a decade. We love growing and scaling property management companies, and we know that we can help you. If you’re 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, ‘Hey, I’ve got some leaks in my business people.’ So most of you have leaky websites that you’ve 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 you’re 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 that’s it for today. Until next time to our mutual growth. Bye everyone.
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