JF1394: Increase Your Bottom Line By Creating Relationships Among Your Tenants with Pete Kelly

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Pete and his company, Apartment Life, help apartment owners create a strong community within their apartment complex. They have found that when tenants are getting along and have friends within the apartment community, they are happier, which leads to better reviews, and increased likelihood that they will renew their lease. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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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, Pete Kelly. How are you doing, Pete?

Pete Kelly: I’m doing great. Thanks for having me, Joe.

Joe Fairless: Yeah, my pleasure. Nice to have you on the show. A little bit about Pete – he is the CEO of Apartment Life, which is a faith-based non-profit serving the multifamily industry. He helps improve a community’s financial performance through online reputation, resident satisfaction and resident retention. Based in Dallas-Forth, or if you’re familiar with DFW, more specifically Euless, TX. You can learn more about his organization at apartmentlife.org.

With that being said, Pete, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Pete Kelly: Yeah, sounds great. Thanks, Joe. As you mentioned, I’m CEO of Apartment Life. We are a faith-based non-profit in the multifamily industry, and over the last 18 years we’ve been honored to serve 1.3 million apartment units and over 3 million residents from coast to coast… And if I were to explain what we do in the very simplest terms – we help people make friends. Our central belief is that relationships are not just good for the soul, they’re also good for the bottom line.

Joe Fairless: I certainly agree. The more that the residents know each other and connect with each other, the more they are likely to enjoy the living experience, and then ultimately stay longer, which is  a big cost (turnover). So tell us maybe high-level how you do it, and then we can get into some specifics.

Pete Kelly: Yeah, that sounds good. Well, a lot of what I’m gonna share is directed toward apartment owners, but I think the principles apply to people who own single-family homes or duplexes as well. If I could give one piece of advice, it would be that the relationships your residents have with one another is more important than you realize.

What we’ve seen is that a lot of apartment owners are focused on the physical amenities – the granite countertops, how nice is your pool, or your clubhouse, or your exercise equipment – and they’re also focused on services, like making sure they have good maintenance, bundling cable and internet, package storage, package delivery… But I think one of the often overlooked amenities is that the residents themselves are an amenity. In fact, I would say that they’re the best ever amenity that you can have, because good neighbors make for great neighborhoods.

Joe Fairless: Absolutely.

Pete Kelly: So what we’ve found is that the more friendships that a resident has in an apartment community, the more likely they are to renew their lease and be satisfied and boast about it online… So that’s what our company specializes in. We place one or two people in the apartment community, they’re kind of like the welcome wagon – they welcome new residents as they move in, they host all the parties and events, they look for opportunities to care for people.

Let’s say a young couple just had a baby – they might swing by, and on behalf of the management company bring them a small gift, and say thanks. Then 90 days before that resident’s lease is set to renew, they’ll visit them and they’ll say “How do you like your stay here? Are you thinking about sticking around?” What we’ve found is if they do that, it creates a sticky community where people are happier and they wanna stay, even when the rents go up.

On average, we’re saving owners $138,000/year in resident and staff turnover, and it increases their online reputation. So to summarize, if you wanna differentiate your community from the competition, I’d say be intentional about creating community.

Joe Fairless: I completely agree, and thank you for talking through that. One question that comes to mind – you mentioned that the relationships residents have with each other are more important than we realize… But the welcome wagon, as you call it, the 1-2 people that you place in the community – those are not other community members, those are people hired by the owner to then basically stay in touch with the residents… So is that the program, or is the program getting the residents who also live at the apartment community to get to know each other and build a community that way?

Pete Kelly: Joe, that’s an excellent question. We have two models of service. We have an on-site program where this Apartment Life team – they actually live on the property as one of the apartment residents. That’s our most traditional model, the on-site model… We also have an off-site model, because some owners don’t wanna concess a 2-bedroom 2-bath unit. But either way, not only are they engaging with the residents themselves, but they’re serving as a catalyst to help people make friends.

When my wife and I first moved to Dallas, we lived for about nine months in an apartment community. They would have parties, they would have events, they would put food out, but my observation was that everyone hung in their own relational group, they didn’t interact with each other, and I wondered “How much better would this be if there was a catalyst that was working the crowd, introducing themselves and introducing people to one another? How much more of a sticky community would that have been?”

Joe Fairless: So how does that play itself out? Let’s go with the on-site model… So we bring in a couple people who live on-site, and they are primarily from a business standpoint responsible for lowering turnover costs and increasing the bottom line; they’re doing events and they’re visiting residents 90 days before, “Hey, how’s your stay?”, but in terms of connecting one resident with another, how does that work?

Pete Kelly: Well, it’d be as simple as when you’re at an event and you’re mixing it up with the different residents, you’re like, “Oh, you live in building number two… Hey, have you met Joe over here? He lives in building number two.” Or “You said you’re into water skiing… I noticed that Bob over here is also into water skiing”, or hunting, or whatever the common interest may be. So they’re always looking both for their connection to the residents, because that helps people feel safe if there’s one person kind of looking out for them, making them feel welcome… But they’re also always looking “How could I connect residents with one another?”

Joe Fairless: Let’s do the on-site model. Is it typically a couple that moves into a unit?

Pete Kelly: Yeah, it would be typically a couple. It could be two singles, but the most common would be like a husband or wife, typically either before they have kids, or maybe only one, or empty-nesters. We don’t see a lot in the middle, because at that point families get bigger and it becomes unwieldy to do the program.

Joe Fairless: Sure. So a couple moves in, and they host an event… How do they introduce themselves to the other residents?

Pete Kelly: I would say “Hey, my name is Pete Kelly. I’m your Apartment Life team here. On behalf of the management team I want to welcome you to this community.” So they serve as kind of a liaison between the management company and the residents, they’re kind of an in-between. This isn’t their full-time job, so all of our teams have outside employment; this is what they do in night and weekends. It’s kind of like a part-time commitment that they would have to that community.

So they really straddle two worlds – they serve as goodwill ambassadors to the management team, but they also are themselves a resident, so they wear two hats at once.

Joe Fairless: And what is the incentive for the individuals to move on-site?

Pete Kelly: For the on-site model, their compensation is in the form of reduced rent. The owner would concess a 2-bedroom 2-bath unit which we would turn around and give to the team so that they could use that. In addition to that, the owner pays a management fee, and obviously, for any events that they would host, they would cover the cost of those events. We recommend $1,50/door to throw a decent number of events each month.

Joe Fairless: Okay. You said reduced rent – was it reduced, or is it free rent?

Pete Kelly: The owner concesses the unit to us so that we can lower the cost of the management fee to the owner. The team does pay a little bit to be part of the program. They pay roughly 30% of the rental value to Apartment Life, and what that does is that enables us to keep the management fee to the management company as low as possible.

What we’ve found is that when teams are having to pay a little bit, there’s a little bit of skin in the game, and it also gives us an ability to recourse if, for some reason, the team isn’t performing up to the standards that we need them to perform up to.

Joe Fairless: Sure. So as an owner, the investment is give a unit to your organization, so free rent, and then I should allocate $1,50 per month towards hosting an event, and they’ll handle everything else… And then what is the management fee?

Pete Kelly: The management fee would be $650/month, and that covers the cost of our going out and finding these teams, training, equipping and making sure that they’re delivering the results that they need to please the ownership and the management.

Joe Fairless: And then you mentioned earlier $138/year savings, and it increases online reputation. First off, did I quote you correctly? And secondly, is that net of your fees?

Pete Kelly: $138,000 gross savings. You would take the fees off of that. Typically, I’d say we would bring net over $100,000 in value.

Joe Fairless: Got it. Okay, so net over $100,000 in value, so clearly we’d have to determine what size of property we’re talking about, because a 50-unit wouldn’t have, I imagine, over $100,000 in value… So what size property are you referring to with that stat?

Pete Kelly: In our traditional on-site program, our core would be 250 units and above. So it’d be your larger traditional apartment communities, versus your small, privately-owned ones.

Joe Fairless: And to determine that net of $100,000 in increased NOI, what metrics do you show the owner?

Pete Kelly: There’s a couple ways that we go about it. We have a well-respected economist named Ron [unintelligible [00:11:30].01] that for a small fee ($200) will do a study, and we’ll cover the costs of that for the owners themselves. It involves a survey of the management staff and the residents to gauge to what degree is the program influencing their likeliness to renew, and the same for the retention of staff, because that’s one of the things we count about our program – not only does it make the residents’ lives better, it makes the management team’s lives better… So that’s kind of a hidden savings for the owner themselves – you have less employee turnover.

Basically, [unintelligible [00:12:05].20] he’s got a model and he can show you “Here’s all the factors, here’s all the assumptions”, and on average it saves $138,000/year, so if you take your costs out, that’s a net of over $100,000 in savings.

Joe Fairless: And it’s based on basically a survey that asks if they’re likely to renew or not, and if so, how much influence did the program have in that decision?

Pete Kelly: Yeah, exactly. In addition to that, we do an annual property manager survey and we ask the management staff “In your estimation, how many leases a month would you attribute to either a new marketing side, or renewals, how many would you attribute to Apartment Life?” Annually, that comes out to 42 leases a year… So if you know your turn costs and your marketing costs, you can extrapolate 42 — let’s say your turn cost is $2,000. You multiply 42 leases times $2,000 and that would tell you what your annual savings are.

So there’s a couple different ways you can approach it. Obviously, there’s a whole lot of factors that go into retention and resident satisfaction, so we have to lean on the preponderance of the data to quantify the value of what we do.

Joe Fairless: When you speak to a multifamily owner who has a 250-unit property, when would it not make sense for them to participate in this program, based on your perspective?

Pete Kelly: Well, it may not make sense if they don’t wanna concess the 2-bedroom 2-bath. For some people — we’ve had a lot of owners say “Hey listen, I know I’m always gonna have an unused unit, so to me that’s not really a cost. In fact, I’m taking a unit that’s not doing anything for me and I’m in a sense monetizing it to get this program that saves me money.” So depending on how you view the concessed unit – some people don’t like to do that, because that feels expensive and it looks badly on their books, but others are like “No, I’m gonna have that, so it’s not a big deal.”

So for the ones that don’t wanna concess it, we’ve developed an off-site model where instead of giving the team a 2-bedroom 2-bath unit, we pay them an hourly wage to execute the program on-site.

Joe Fairless: And that would be, I imagine, primarily the monthly events?

Pete Kelly: That would be primarily the monthly events. There’s other things we can do. For example, I’d say our core is the class A and the class B assets, but more recently we’ve been surveying tax credit properties with managing their [unintelligible [00:14:38].02] requirements. So we have an additional service that helps that, as well… So for tax credit property owners, that’s an additional value-add for them.

Joe Fairless: How much of a focus would the on-site group – regardless if they’re living there or not, assuming that they’re hired… How much of a focus is it of them to promote and quite frankly generate online reviews by doing these events, and taking pictures, and having the residents post them, or however you do it?

Pete Kelly: It’s actually an increasing focus of ours. Over the last year we’ve introduced that as an increased value-add, because as we’ve looked at the multifamily industry, everyone knows that online reputation matters. They don’t know how to quantify how much is one star versus two, or three stars versus four, how much is that extra star worth, but everyone knows that it matters, because it drives traffic.

So what we’ve coached our teams to do is on every welcome visit, every renewal visit, every partying event, whenever they encounter a satisfied resident, say “Hey, as a personal favor to me, would you be willing to go online and put a positive review?” That really helps me, because in a lot of ways we’re able to do this program as we serve the management team. And if we’re doing that well and it’s showing up in positive reviews, that helps us.

So they can make that appeal as a friend to a friend with their other residents, and it’s so much more powerful than if the management staff just hands them a card, “Hey, would you do me a favor? Would you go online…?” It’s more of a friend-to-friend appeal, so it kind of lands differently… And what we’ve found is that’s really positive.

I’ve met teams that will say “I’ve got phone numbers of 200 residents on my phone right now.” All they need to do is reach out to them, text them and say “Hey, would you be willing to do me a favor and go online and post a review?” So a lot of our teams have been able to see dramatic results in a short period of time by capitalizing on their relationships.

Joe Fairless: Other than the on-site event, how many hours would you say they spend basically cultivating a community and helping generate online reviews a month?

Pete Kelly: We would say for a traditional on-site team, which is the 2-bedroom 2-bath unit concession, that we would expect that the team would give on average, between the two of them, 20 hours a week to the program. That could be preparing the events, promoting the events, hosting the events, doing the welcome visits… So it does take a good bit of their nights and their weekends, so as we select teams, we have to make sure they’re able to commit to that, because there’s nothing worse than getting in there and realizing “I don’t have the margin really to do this effectively.”

Joe Fairless: 20 hours a week – did you say per person?

Pete Kelly: Per team. It would be typically husband and wife. If they’re doing a visit, it’s best for them to do that together, versus an individual showing up at the door and knocking. So yeah, most of what they do, they would do together. Maybe shopping they would do separately, but when they’re throwing the events, when they’re doing welcome visits, renewal visits, they would do this together.

Joe Fairless: For the online reviews – is that a metric that you report back to the owners?

Pete Kelly: Yeah. Every month we send a report to the ownership group or the management group (or both, really). It shows, at the very top, “Here’s how many positive reviews that you’ve gotten this month”, and it’s got a list of all the welcome visits they’ve done… When we do welcome and renewal visits, we ask “On a scale from 1 to 5, how would you rate your satisfaction?” and if there’s anything lower than a 4, we ask them “What would make that better? Is there anything the management team could do?” Sometimes just by asking that face to face, because they wear a slightly different hat, people will tell them things that the management team would never know… Like “Yeah, our carpet was dirty when we moved in…” So immediately – they don’t wait till the end of the month for these things – when they get that, they alert the management team, “Hey, here’s something you can do to move that three back up to a five, if you would take care of that.” But then at the end of the month they get a summary of all the visits, all the events, all the comments, online reputation, and they can see for themselves, “Hey, here’s the activity for the month.”

Joe Fairless: Based on your experience, what is your best advice ever for real estate investors?

Pete Kelly: I would say if you wanna differentiate your apartment community from the competition, whether you use our program or not, I’d say be intentional about creating community, because your residents are that hidden amenity that are often overlooked.

Joe Fairless: Yes, you have sold me on that philosophy, that’s for sure… And I didn’t really need selling, but it’s nice to talk to someone who’s solely focused on it… Because I would imagine most people know it, either consciously or subconsciously, but you actually have an organization that’s executing on that idea, and that’s the key… From what I’m aware of, there’s not another organization like what you do.

How many apartments are you all in? You mentioned earlier, but I missed the number.

Pete Kelly: Well, over the last 18 years we’ve served 1.3 million units. Currently, I think we’re serving around 130k-140k units from coast to coast.

Joe Fairless: It’s a lot.

Pete Kelly: It is a lot, yeah.

Joe Fairless: How many owners is that roughly? Is it heavy on one owner, or are you spread out?

Pete Kelly: We’re pretty diversified. Greystar would be our largest client; of course, they’re the largest management company in the nation, if not the world. We serve a lot of Lincoln… But we’re pretty diversified. We’ve got a pretty wide range of owners and operators that we serve.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Pete Kelly: Sure, absolutely.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [[00:20:30].24] to [[00:21:07].03]

Joe Fairless: What’s’ the best ever book you’ve read?

Pete Kelly: I would say Marshall Goldsmith’s “What Got You Here Won’t Get You There.” I love that book. He talks about 21 common behaviors that sabotage your career and relationships. I think it’s one of the best books you could read to advance your career and your relationships.

Joe Fairless: What’s the best ever project that you’ve worked on as it relates to your business?

Pete Kelly: That’s a great question.

Joe Fairless: It’s like choosing between children, right?

Pete Kelly: [laughs] I think the funniest thing we do is when we break into a new market. Currently, we’re in about 20 different markets around the United States, and we’ve got our eyes on 13. Just yesterday I was up in Oklahoma City, meeting with a group of owners and people in the industry, talking about what we do, and that is so deeply satisfying.

Joe Fairless: Why?

Pete Kelly: Well, I just think they love what we do, and when they hear about it, they’re like “This is brilliant. Why haven’t we been doing this the whole time? It’s just incredible.”

Joe Fairless: What’s a mistake you’ve made along the way over these 18 years, as it relates to how your business is set up?

Pete Kelly: Well, at the end of the day, our business rises and falls on the quality of the people who are executing the program. People really are our business and our product, so sometimes when you’re in a haste to provide an owner with a team or with a program, you can believe the best in the team that you’re placing on site, only later to discover they’re not quite mature enough, they’re not quite the team that you need… So I’d say one of the greatest mistakes is not doing enough due diligence on the teams we place.

This year we’ve just had an increased focus on raising the quality of our teams and the quality of the programming that we deliver to our clients.

Joe Fairless: What is something that you do now to help with that discovery process where you find the right people?

Pete Kelly: Well, we always do phone interviews, but I think the face-to-face interview is key. When you get with people face-to-face and you can read their body language and you can see “This husband and wife – do they get along? Because if they go through a divorce in the middle of this thing, it’s gonna get really ugly for the client.”

So I think nothing beats meeting with a couple face-to-face and really looking them in the eye and seeing “Are they mature? Are they [unintelligible [00:23:33].08]? Are they relationally-equipped to do this? Do they have the margin to do this? Do they have the heart to do this?”

Joe Fairless: And how can the Best Ever listeners get in touch with you?

Pete Kelly: Well, two ways… One is you can reach out to me via e-mail. My e-mail address is PeteKelly@apartmentlife.org. If you’re not ready to e-mail because you wanna read more, you can go to apartmentlife.org, our website, and you can read more about it there.

Joe Fairless: Well, Pete, grateful that you were on the show, talking about your non-profit and how you structure it, the focus being on creating a community, having team members on-site – or off-site, depending on which model it is, but basically having a presence that is solely focused on creating community, having events and connecting residents with each other, with ultimately from a business standpoint helping the NOI increase because it will decrease the resident turnover.

Thank you so much for being on the show, talking about the metrics that you follow and share, as well. I hope you have a best ever day, and we’ll talk to you soon.

Pete Kelly: Joe, thank you so much for having me on the show.

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