JF1281: Scaling A Value Add Business, Investing In Multifamily & Self Storage with Callum Kerr
Callum built his valet trash service company to serve over 65,000 units and then sold to a large private equity firm. Now he focuses on multifamily and self storage investing. Callum shares great tips on how to scale a business as well as multifamily and self storage success stories and some things that went wrong along the way. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Callum Kerr Real Estate Background:
–Built and Sold Multifamily Valet Trash service company serving over 65,000 units daily
-Bought over 20 SFR’s in Tulsa in 2008 using underutilized financing/regulation
-Managing Partner on 3 MF properties (76 units), 24 low income SFR’s and focus on value-add in construction mgmt.
–Currently acquiring 3 Mini Storages with 444 units in rural Oklahoma
-Say hi to him at www.aptfacservices.com
-Based in Tulsa, Oklahoma
-Best Ever Book: Rich Dad, Poor Dad
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Callum Kerr. How are you doing, Callum?
Callum Kerr: Good, how are you?
Joe Fairless: I’m doing well, and nice to have you on the show. A little bit about Callum – he built and sold a multifamily valet trash service company, which serves over 65,000 units daily. He bought over 20 single-family rentals in Tulsa, Oklahoma in 2008, using underutilized financing. He is a managing partner on three multifamily properties and he has 24 low-income single-family rentals with a focus on value-add construction management, and currently acquiring three mini-storage facilities with 444 units in rural Oklahoma.
We have got a lot to cover, my friend. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Callum Kerr: Yeah, sure. Back in 2008 or so my brother and some partners and I started a valet trash servicing business, where we basically just picked trash up from doorsteps and took it to the dumpster. It was a value-add service for multifamily properties throughout the nation, and we focused in the Dallas metroplex and expanded into 12 states, built it up, sold it to a private equity firm out of New York and moved on to other things.
Since then, I got into single-family real estate; that was kind of during the midst of the financial crisis, and we then expanded into multifamily properties, and through that we kind of got exposure to the other side of the house on multifamily.
Lastly, my family has been involved in mini storage for 25 years, and I kind of helped them out along the way. We’ve been working to buy some mini storages, and we actually just started in that about three or four weeks ago. Currently looking at that, currently growing into that, and we’ve got some pretty big plans to build that out.
Joe Fairless: Well, let’s begin with the multifamily valet trash service company… What would you charge and what was typical for the apartment community to charge the resident?
Callum Kerr: It ranged all over the place, but we found that — basically, we’d seen a lot of people who had kind of not been utilizing the opportunity to build up ancillary income, and we would go in and suggest that these apartment communities charge their residents trash servicing, and then basically since everybody else is already paying for trash, why wouldn’t those guys?
We ended up charging somewhere in the range of 10-15 dollars a door, and the communities would charge up to $25-$30/door per month.
Joe Fairless: When does it make sense and when wouldn’t it make sense for an apartment community to take you on your offer when you are doing it?
Callum Kerr: I think it depends on the type of multifamily that you’re dealing with. Class A properties, obviously people are kind of wanting those types of services. Class D, class C properties – it’s a little more difficult.
Joe Fairless: What advice would you have for a property owner who has maybe like a class C property in a decent area, but they’re not sure if once they implement the program if they’re gonna get the revenue or if that’s gonna cause a bunch of issues?
Callum Kerr: What we’ve seen is it varies from market to market. You’ve got different communities, but the Dallas metroplex is kind of leading the way on different types of sources of income. These larger property management companies and owners are exploring different sources of revenue. Places like Tulsa – we’re years behind those people in the larger city, so it’s kind of a tougher sell.
I think it’d be best to kind of look at what other people are doing in your market, but also take a look at the opportunities that are out there. I’ve got a couple class C communities, and I can’t charge valet trash service simply because I just don’t think it would work, and they wouldn’t wanna pay for that.
Joe Fairless: What’s the best way to position it to your residents if you do decide to implement a valet trash service?
Callum Kerr: Typically, what I’ve told people in the past – at least with the property manager and the owner – we used to come in and say “Do you guys have friends and family who live in houses?” The answer is always yes. I’d “Do your friends and family have options to pay for trash service?” and the answer is usually no. “So why are your multifamily residents not having to pay for trash service? They’re able to get in there and provide a cleaner environment. You don’t have piles of trash being stuck outside the building for your maintenance guy to pick up twice a week, and you don’t have to worry about taking the trash out to a dumpster that could be a quarter of a mile away.” So really all it is is it’s not different than any other trash pick-up service, but the only slight tweak is it’s door-to-door, instead of it being in your driveway.
Joe Fairless: And then what if a resident has a bunch of trash, say for Thanksgiving? Or maybe it’s a birthday, that everyone doesn’t have the same holiday. How does that work?
Callum Kerr: From an operations standpoint, the trash management, if you will, is better flowed through smaller volume at a more frequent period, so we would offer five night a week pick-up from the doorstep and take it to the dumpster. With that you’re not seeing as much volume. You’re seeing smaller value, more frequent visits, and you’re not seeing huge influxes on the dumpsters, and the compactors are able to digest the trash a lot easier in that form.
Joe Fairless: Now, speaking more high-level, you sold it to a private equity firm… Why did you do that?
Callum Kerr: We ended up in discussion with several other large companies, and they came up to us and they had some growth plans, and they actually merged us into one of the current nation’s largest valet trash servicing company. The price was right, and we were able to just take that and move on.
Joe Fairless: What is the company now, if we were to look it up?
Callum Kerr: Valet Living.
Joe Fairless: Cool. Well, you were investing in 2008. It sounds like you were buying when everyone else was pulling their hair out; what gave you the insight to buy at a time when most people weren’t?
Callum Kerr: In Tulsa everything kind of hits a few years after everybody else. My dad’s employee actually was going through a difficult situation with her home, going through a divorce, and her credit was shut, and she was going to basically default. So we ended up contacting the lender, and negotiated the sale price, which allowed me to inherit about $30,000-$40,000 in equity. It started out the right way, and then I was fortunate that the market recovered a bit, and kind of grew it from there.
Joe Fairless: You’ve expanded into multifamily… In my notes I’ve got 76 units you’re a managing partner on. Is that accurate?
Callum Kerr: Yeah. We’ve expanded a little bit, but that’s pretty close.
Joe Fairless: And how are you acquiring? Can you tell us about it?
Callum Kerr: Yeah, sure. I got to a point with my single-family – very similar probably to a lot of your listeners; I wanted to build out my single-family portfolio so that I didn’t have to have a full-time job, and I could just do that. Once I got to that point, I realized that I was effectively changing my white collar job to replace toilets and deal with residents, and that didn’t really feel like it was the best path for me.
The only conclusion I could come up with was to either sell off some houses and go back to kind of treating it more as a hobby, or to just expand as quick as I could. The markets recovered, so buying every other house on the block wasn’t an option. Multifamily was the only realistic option that I had available. I started looking around, I had a lot of people coming to me, asking me advice on real estate and what have you, and before I knew it, I had access to a lot more capital than I realized.
We could find many deals that made financial sense, so we started looking outside of Tulsa, in some of the smaller suburbs. That’s when we started seeing disproportionate economics, and it started making a lot more sense.
Joe Fairless: Can you tell us about the first acquisition of multifamily, numbers and how you found it, that sort of thing?
Callum Kerr: Sure. We ended up making an investment in Skiatook, Oklahoma. It’s kind of a lake community just North of Tulsa, just outside of Tulsa County. There’s about 10,000 people there, and it’s doubled in size in the past 10-15 years. There’s currently three multifamily communities in the city, and there’s just a huge demand. The property we got was just under a million dollars, 32 units. The seller had let the property go into disrepair, and here were a bunch of drugs running through there… Most of my properties, I had minor higher income, higher quality tenants, but this was totally different for me.
So we ended up getting in, cleaning things up and building relationships with the residents, and kind of filtering out some of the bad ones. We just turned it around and it actually worked out great for us.
Joe Fairless: How did you do it?
Callum Kerr: For me – just relationships. Getting to know the people, talking to them. Most of the people there wanna live in a quiet, safe community, so I built relationships with the local police department, the local city officials… There’s a Walmart next door; I went and introduced myself to the manager, I went to some of the businesses around there and basically just introduced ourselves and told them we were planning to come in, be active participants, and everybody seemed really pleased with it. We kind of focused on building a reputation. In these small towns word spreads fast.
Joe Fairless: What specifically resulted from you meeting with the city officials and what were the city officials’ roles or titles?
Callum Kerr: The police chief, I met with him. They told us a bit about the history, a lot of stuff we already knew. We’ve got a good relationship and we can call them, and they call us when they get calls, and we’ve definitely had our fair share of calls. We’ve also been able to touch base with them and get their opinion on some of the potential residents and people who are hanging around.
I met with the city manager about a possible expansion, and they’re pretty eager to support us on that front. And even just the water utility department – we’ve been able to team up with their billing department so we can kind of keep better tabs on some of these residents who might be stealing electricity, or not paying bills and stuff like that. It’s been pretty good having the open communication with each other.
Joe Fairless: What resulted from the Walmart manager conversation?
Callum Kerr: It was a good conversation. We went over there and returned about five or six shopping carts, and just kind of introduced ourselves there… I didn’t realize how expensive those things were, so he was really appreciative of that.
Joe Fairless: How much are they?
Callum Kerr: I don’t remember, it was several hundred dollars.
Joe Fairless: Oh, man…
Callum Kerr: But when we were talking with him, he was like “Look, I appreciate this”, because there’s been a lot of theft that comes out of their place and goes straight to our apartment community. But we’ve also got — a lot of our renters are actually employees there. He agreed to tell his employees about our property, and we’ve kind of forged a partnership during their weekly meetings. He mentioned that he’d be happy to help push some of his guys, his employees and team there, if they’re looking for a place to live.
Joe Fairless: That covered the relationships with the city officials and local business people… What about your approach with the residents who were there when you initially took over? How did you approach that?
Callum Kerr: I personally went and knocked on every single door, and just chatted with each person. I asked them what their concerns and complaints were. There’s a lot of information, a lot of drama, but I think for me being able to chat with each person… I spent a full day there doing that, but it allowed me to kind of build a relationship, and I hope they felt they could call me anytime… And for the first couple months they sure did. Since then we haven’t had many major issues. We’ve been told by the local police department that they’re happy, so I think we’re doing it right.
Joe Fairless: I imagine that first day when you had a conversation with the families in the 32 units, my guess is that you were able to talk to maybe half of them, because the other half either weren’t home or didn’t answer. Is that correct, or did you get to talk to every one of the people who were living in the 32 units?
Callum Kerr: Probably a little more than half, but yeah, there were definitely quite a few that weren’t there.
Joe Fairless: So did you go back and talk to the others, or did you just say “That was my day to do it and then I’m gonna move on to other stuff”?
Callum Kerr: No, the first three or four months we had a pretty regular presence. I’d hired a maintenance guy to help me out and he and I were kind of going through a training. I’ve done a lot of rehabs myself, so I was kind of showing him how I like to do things. We had a lot of cleanup to do, and built out a maintenance storage shed…
We were on-site pretty regularly, so over the course of the first few months I feel like we were able to meet most, if not everybody.
Joe Fairless: In addition to the relationships and the conversations, I imagine you put some money into the property to then make it look better and improve the living conditions. If that’s the case, how much did you put in and how much did you put it into?
Callum Kerr: It’s kind of a struggle. We haven’t put much money into it. We came in with about a $50,000 to $70,000 budget for rehab, but we didn’t wanna complete the acquisition, go in and just start spending money. We wanted to get in, see what we needed to do, and then see where we could best allocate our capital.
Once we got in, we were able to increase rents by 20% for the new renters, and we were able to build the relationship with the renters. That alone kind of put us in a position to just kind of hold up on making significant investments. We did kind of toy around with a few things. We did a complete renovation of a unit, so that we could get kind of a budget of what it would take to completely redo a unit, and we learned a lot of lessons along the way. But after that — it was about a (I don’t know) $3,000 or $5,000 investment. After that, we haven’t really made many significant investments.
Joe Fairless: What were some of the lessons you learned along the way on that renovation process?
Callum Kerr: For me it’s a big focus on material… Material and sourcing. We ended up building out a standardized list. A lot of these larger communities that we dealt with, they call out some of these large companies like HD Supply, and have them come out and build a list of all the material… But we’ve found that the cost for a lot of the materials is kind of excessive, so by acquiring multifamily properties and with my houses I finally started getting some purchasing power, so [unintelligible [00:18:04].03] negotiate and I was really surprised to see how much those prices could come down.
That first renovation – a lot of our issues were related to figuring out which material we wanted and which stuff we could replicate for all 32 units, and the labor side of it, getting access to labor in and around Skiatook, just finding different things that people hop on… We’ve discovered through the bank teller at the local bank that there’s a grapevine that everybody chats on, and that’s there’s grapevine that everybody chats on, and that’s how we’ve started finding labor.
So it’s just kind of those weird quirk things where you can’t just find everybody on Craigslist, or something like that, and start getting connected.
Joe Fairless: How much did you buy the 32-unit for? Oh, you said a million, right? You’ve told me that.
Callum Kerr: Just under a million, yeah.
Joe Fairless: Yeah, just under a million, 32 units, and your budget for improvements was $50,000 to $70,000, right?
Callum Kerr: Yeah.
Joe Fairless: Okay. And when did you buy that?
Callum Kerr: Actually about this time last year.
Joe Fairless: About a year ago… What’s the occupancy right now?
Callum Kerr: Occupancy – we’re actually on a waitlist.
Joe Fairless: Wow!
Callum Kerr: Yeah, it’s been good. Like I said, we’re looking to figure out a way to expand, but I think until we expand, our struggle right now is how do we build a brand new building or two next to a 25-year-old building that’s not new, and increase the rent. We’re probably gonna be investing in painting the exterior and kind of trying to clean it up and kind of bring it from maybe a C to a B.
Joe Fairless: Does the thought come across your mind “Well, I’m on a waitlist, so I should be increasing the rent for the units”?
Callum Kerr: Yeah, absolutely. And we have. It’s just been really weird. The past month or so our phone’s been ringing off the hook. September-October – we had two or three vacancies. So [unintelligible [00:19:54].21] has been kind of the struggle, but we’re at that year point. This is our first time to be able to see all seasons, and how it works. But we’ve definitely been adjusting the rate as we can, and we’re trying to bring up some of the older residents, but we’re also not trying to force them out, because we’ve got some residents who’ve been there for 20 years.
Joe Fairless: What’s the next largest one you’ve got? How many units?
Callum Kerr: 36 units, and that’s in another suburb.
Joe Fairless: Is that on the waitlist?
Callum Kerr: That is a whole different beast.
Joe Fairless: Alright…
Callum Kerr: That is a full rehab, completely overhaul the resident base, and it is a different type of income-based residents. We ended up buying this one for about a million dollars, and reallocated about $120,000 in rehab costs. We went in and it’s just everything that you would think of just being an awful environment. It’s true.
We don’t have murderers or anything, but there’s drugs and there’s bed bugs, and there’s wood rot, and there’s people who haven’t been paying for months; it’s kind of fascinating from the standpoint of just seeing how the community operates… It’s very tribalistic, and we’ve been having to deal with that.
Joe Fairless: You bought it for approximately the same per-unit cost as the 32-units. How come it’s around the same cost/unit? It sounds like this is much more of a rehab and it’s not as nice of an area.
Callum Kerr: It has four more units, and the rental rates were higher. So from a cost/unit it was about 10% lower than the other property. It’s actually the exact same property… I guess somebody came in town in the ’80s and built a bunch of communities, 30 to 40-unit communities in and around Tulsa, so it allowed us to start bulk buying and get better discounts. With the higher rental income model it made more sense, for it to kind of cover those costs of rehab… And we changed our financing structure significantly. That helped out a ton.
Joe Fairless: What did you change about it?
Callum Kerr: Well, the first two we went in with 20% equity and worked with a bank, and the second deal we build it out with [unintelligible [00:22:25].18] appraisal, and we were able to come in with the initial equity much less than that. But we’ve got a budget that’s specifically allocated for improvements.
Joe Fairless: Same lender?
Callum Kerr: Yeah, actually.
Joe Fairless: Local bank?
Callum Kerr: Yeah. I don’t dive into the large banks. It’s a small bank, kind of a regional…
Joe Fairless: Okay, cool.
Callum Kerr: They seem to be the most flexible.
Joe Fairless: What is your best real estate investing advice ever?
Callum Kerr: Oh, man… Take action. I’ve got a lot of friends who come and ask me, try to run stuff by me. I think if you stay committed to it and you dive into it, then 9 times out of 10 you’re gonna be fine.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Callum Kerr: Sure.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Callum Kerr: Best ever book… I don’t read many books, so probably Robert Kiyosaki. I’ll just jump on board with everyone else.
Joe Fairless: [laughs] Do you listen to podcasts, or listen to any audio stuff or watch YouTube videos at all?
Callum Kerr: Yeah, I’m a YouTube junkie… I’m constantly looking at videos on how to do improvements and make things better.
Joe Fairless: Best ever deal you’ve done that you haven’t talked about with us yet.
Callum Kerr: I think it’s gonna be these mini storages. We’re able to come in and we purchase these things for pretty deflated prices, and it’s just easy. We just sit there and collect rent for people storing stuff.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Callum Kerr: Probably underestimating the quality of the tenant base in the community on that second property.
Joe Fairless: And how do you guard against that or mitigate that as much as possible from happening again?
Callum Kerr: I think it’s probably gonna be spending more time in these communities that we invest, get to know people before we close the deal, instead of after we close the deal. And just ask a lot of questions and get to know everyone.
Joe Fairless: Best ever way you like to give back?
Callum Kerr: I did the Big Brothers Big Sisters for almost a decade and I really enjoy that… Something I’ve been thinking about getting back into. I love the one on one; I’m not the kind of person that goes out and works with 100 people, I like the close face-to-face interaction.
Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about what you’ve got going on?
Callum Kerr: You can check us out on our website, www.aptfacservices.com. Check us out there.
Joe Fairless: I wanna make sure I got that right – aptfacservices.com?
Callum Kerr: Yeah… Sorry, it’s aptfac.com.
Joe Fairless: Aptfac.com. Got it. Because it didn’t come up the first time, but now it comes up! There you are. Alright, Callum. Thank you for being on the show, talking to us about a lot of stuff, from valet services with multifamily, when it makes sense, when it doesn’t make sense, how to position it to the management team who can then position it to the residents, and then why you went from single to multi, and then two case studies on multifamily properties.
One of them we went in a little bit deeper than the other (the 32-unit), and the focus on relationships that you have, especially starting out, and the results that that has generated for you and the property.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Callum Kerr: Thanks for having me.