JF1676: Taking Lessons Learned & Improving Your Business #FollowAlongFriday with Lennon Lee and Joe
Another edition of Follow Along Friday! Joe is joined by Lennon Lee who is a podcast host himself and real estate investor. We’ll hear about their most recent lessons learned in the business, how they improved their business because of that lesson, and how you can do the same. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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“You’re gonna have to do some things that you don’t enjoy doing” – Lennon Lee
Learn more about Lennon here: https://www.bldcapitalgroup.com/about-us
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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.
We’ve got Follow Along Friday, and we’ve got a special guest with us, Lennon Lee. He’s gonna be talking shop with me on today’s Follow Along Friday. Lennon, how are you doing, my friend?
Lennon Lee: Hey, Joe. Excited to be here, man. Thank you for having me.
Joe Fairless: Yeah, my pleasure. I’ve known Lennon for 3-4 years, he’s a great guy. He is the founder of Build Capital Group, which is a multifamily investing company. They recently purchased a large apartment community in Jacksonville, Florida. He’s also the co-host of the first real estate investing podcast in Spanish, and it’s called Se Habla Real Estate.
Lennon Lee: That’s it.
Joe Fairless: If you put me in a Spanish-speaking country for six weeks, believe it or not, despite me tripping over, say, “habla” just a second ago, I can communicate at the level of a first-grader.
Lennon Lee: Well, that’s good enough, man.
Joe Fairless: I can talk first-grader talk if I’m embedded in a Spanish-speaking country for a little over a month. Well, Lennon, looking forward to our conversation. We’ve got some things today where, as with all Follow Along Fridays, we’re going to talk about some lessons we’ve learned, but it’s more about how we can help the Best Ever listeners through these observations.
I know you recently closed on the property in Jacksonville and you’ve got a couple things that you have learned, as well as some mindset stuff, so… Do you wanna just kick it off?
Lennon Lee: That’s right, let’s get into it, man. So yeah, like you said, we’ve just recently closed on a 138-unit property in Jacksonville, Florida. We’re very excited about this deal; we’re already implementing the business plan. Things are going very well, and there are a lot of lessons learned during the process and everything, but a few came to mind, where we’ve talked about it.
The first thing, one of the most important things is building your team and vetting every team member that you’re gonna have, especially the property management company, which is at the end of the day, aside from (I guess) the bank, your biggest partner; they’re handling the operations and the day-to-day stuff. I’m not gonna get into the vetting of the property management company and all that, because I think that’s the obvious part, but if you do a good job at selecting your property management company, you interviewed several of them in the market… I guess you definitely understand that they’re the experts in the market, so I think putting trust into these guys once you start the operations is very important, we’ve realized… Because a lot of the work that you need to do upfront or going into the deal is understanding what relationship the property management has with the vendors, all the vendors for the property, from the maintenance guys, the maintenance company, landscaping, pool servicing – every vendor.
For us, it was important to tell the property management company “Hey guys, we selected you. Let’s go and talk to all the vendors, so we understand who they are and what they do exactly, but we are gonna trust you guys. We’re not gonna come here and say “This guy goes, this guy stays etc.”, we’re gonna give you a chance to prove that you’ve built a good relationship with these guys, and if you trust them, we’re gonna trust you guys.”
They were very appreciative of that, and that allows for a seamless transition into this relationship that you’re building with this team. That was very important for us.
Joe Fairless: It seems like that would be a typical response, where the multifamily owner trusts the management company and their vendors, but you said they were very appreciative of that, so have they come across other multifamily owners who don’t trust the relationships with the vendors, and therefore the owner tries to get into the details, and it messes the whole operation up?
Lennon Lee: Yes, that’s what they told us. They said “Well, our particular company – they recently started doing third-party management.” They’re a vertically-integrated company and they do their own management, but now they’re doing third-party; they’ve come across some clients (or potential clients) that from the get-go were trying to jump in, trying to change everything, change the vendors and do their own thing. I’m not saying that’s a bad thing, but if you do a good job, I trust in the team; you understand who these guys are and how they operate before going into the deal, then you wanna trust them, because it’s important for their relationship.
Obviously, you wanna keep them on their toes, and then if the vendor or whoever is not working, then take action, but… Placing that trust upfront, it allows for them to be more confident on the operations and what they do. That’s worked very well for us so far… So that’s a quick tip there.
Joe Fairless: Yeah. To me, with a property management company that has relations with vendors and contractors, they likely have more scale than what the owner would have… Because the property management company has multiple properties that they manage, versus the owner not having as many; usually, that’s the case.
Lennon Lee: 100%.
Joe Fairless: So the property management company has better pricing and probably more competitive rates that they receive, versus the owner. But I understand if an owner is wanting to get into certain aspects of honing a process, like maybe the website that the property has; maybe the website is archaic, or maybe there’s a process with the leasing office, where they aren’t entering into 2019, they’re still back in 1990, and doing something that could be optimized… And if you do find that as an owner, that’s a sign of some larger issues with the management company. Because if you do find that you need to optimize a lot of the process with the management company, then they’re probably not doing other things correctly or the best way, so you’re probably gonna end up switching companies… Because by the time you go to optimize all the things that are wrong or not running as efficiently, then you’re just recreating an entire company, and not only are you spending a lot of time on that, but you’re also probably upsetting the management company, because you’re messing with what they’re doing, and it’s just not a right fit.
So as an owner, if you see yourself doing that, then take a hard look at actually who you’ve hired, and they’re probably not the right fit anyway.
Lennon Lee: Exactly. That basically means you probably didn’t do a good job in selecting the property management company. And again, you can make that mistake, that’s fine, but that’s probably what it is.
Joe Fairless: So what else have you got? I think you mentioned the mindset stuff, too.
Lennon Lee: Yes. Well, this is something that I wanted to talk about, because I recently had a conversation with a potential partner, a company that works with French investors and they bring a lot of capital, and we have the same vision in terms of the asset class that we wanna focus on etc. So it has a lot of potential.
The other day he actually reached out to me and said “Hey man, we have come across a development project that we are potentially interested in. I just wanted to know if you’re interested in jumping onboard and doing something with that.” I actually said, “Well, thanks for the offer. That’s not what we do. We focus specifically on stabilized properties acquisitions, not ground-up development.” I explained why we do it, and I explained how capital preservation was at the core of our strategy, and cash-flowing properties from day one is a substantial component of that capital preservation strategy… So he actually came back and said “Well, I love the focus, the approach. I definitely understand, and I think that’s very valuable for your investors, that you’re keeping in your lane and staying true to what you preach.”
I guess the takeaway there is just that – the hyper focused approach, staying in your lane is paramount. There are a lot of shiny objects out there. As you continue to do deals and you get more in-depth in the industry and build more relationships, you’re gonna get pulled from all different directions, trying to do all different deals, in different markets even. I think that’s a dangerous game, because one of the things right now in this market being so hot is that you wanna be flexible. You have your criteria, you’re disciplined, but you need to have a level of flexibility to look at deals that might be a little bit outside of your criteria, just to improve that deal flow. But that’s a fine line there, between that and actually saying “Well, you know what, I’m gonna start doing development deals” or anything that’s outside of your realm of expertise.
So that’s a lesson learned, and it actually felt good that people appreciated that you have that approach and that you’re focused. This guy saw it, and I’m sure all of my investors definitely see it. When everyone sees it, that brings a lot of value to your business, for sure.
Joe Fairless: And it’s such a relief to be focused on one thing, and not have to assess other things, because it’s so overwhelming… It would be — I don’t know, because I’ve been laser-focused on what you said, cash-flowing apartment communities where we can add value. It is so refreshing to be laser-focused on that and not have to worry about “Oh, well this new development, or this fix and flip, or this hard money loan” or “This could be a good wholesale deal, or self-storage, or maybe we develop on this piece of land. Look, it’s close to the path of progress.” You can make money in any type of real estate investing, it’s just what do you choose to do, and then when you choose to do it, then stay focused on it. Because if you’re not having success in whatever aspect of real estate you’re choosing to do, one of two things – one is you’re going about it the wrong way; so just simply learn the process from people who have been successful doing what you’re choosing to do. Or two, that doesn’t align with what you’re naturally good at, and you need to reconfigure your role within that process, so that you’re doing what you’re naturally good at, and then bring on the right team members to help you take it to the other level… Because it’s certainly possible for you to be focused on one thing and then be bad at it, but that is because (mostly likely) you are using your talents inefficiently and ineffectively.
Say you’re really good at bringing capital to deals, but you’re trying to bring the capital, oversee the property management company, look at construction budgets, do the asset management, get the loan… But you’re terrible at all that other stuff. Well, just focus on what you’re good at, but you can still be focused within a certain asset class, as well as within a certain business plan within the asset class. I love that you mention that, because it does reinforce something that I believe strongly about.
Lennon Lee: Yeah, definitely. I know you do, and actually now that you mentioned it – you can make money on every type of real estate… I actually remember recently in Jacksonville I did a pop-up meetup event; I do monthly meetup events here in Miami where I’m local… But we’d just bought this property in Jacksonville, we were touring the property with some of our investors, meeting the property management team and doing some operational activities there, but I said “You know what, I’m gonna do a pop-up meetup, try to meet some other investors, and just network and have some fun…” One person actually asked me “Hey, I’ve seen you on different podcasts or videos, and I’ve been following you for a little bit.” This guy literally knew nothing about real estate or anything, but he was just curious; basically, his question was “So what is it that you’re so excited about? What’s that multifamily stuff? Tell me, what are you selling me? Sell me on it.”
First, I was like “I’m not selling anything. I’m an investor-first myself, so I’m basically providing opportunity for other people to join us”, blah-blah-blah… Which is all true and fine, but then I said — well, it’s a genuine question, right? At the end of the day, we’re all selling something; it’s not a bad thing, really, to be selling… So I was trying to figure out what is it really that we’re selling, what’s the product here, what’s the investment. And obviously, that’s multifamily real estate, and this and that, but really that’s not it, because you can make money on any type of real estate, any type of anything really, but that’s just the vehicle. Where are we going? What do we want to achieve? And I think that’s freedom. Financial freedom, or whatever freedom means for you; it’s different for everyone, but it is freedom at the end, and real estate is just the vehicle. Understanding that changes everything, because the way you communicate with investors, with partners, the way that you can build relationships with potential partnerships, if you have that same alignment of the vision or of what you’re pursuing and you have it very clear, I think that allows you to build stronger partnerships, stronger relationships for the long-term.
Joe Fairless: Yup, absolutely. It’s depending on where people are at and how they define financial freedom, financial abundance, generational wealth… Or ultimately it’s doing what you want with your time, and that’s what it boils down to.
Lennon Lee: Exactly.
Joe Fairless: I’d say 90% of what I do right now with my time is what I want with my time… But I’ve still got 10% that it’s like “Ugh, really? I have to do this? Alright, I’ll do it…” So in my opinion it’s really optimizing our life to spend time how we wanna spend it, I guess 100% of the time. I’m not sure if that’s possible. Perhaps it is, where you’re doing what you want with your time 100% of the time… But I’d say I’m at around 90% right now. And when you’re making good money and you’re at 90%, then you know what you’ve found what you should be doing, in my opinion.
Lennon Lee: Yeah, definitely. That’s the goal, right? A lot of people say, “Well, you only have to do what you love, only follow your passion, only do that”, and it sounds all good, but it’s not practical and it’s not reality; you always have to do stuff you don’t want to do and you don’t enjoy doing within that level of freedom that you’re talking about. So sometimes I think it’s good to stop and appreciate.
Right now I’m at a point that I feel like Michael Jordan was someone that actually has been successful at what they do and what they love; they’re always envious of these sports guys, that they actually get to play for a living and all that… And I’m doing what I love, and I’m doing what I enjoy and everything, but sometimes you get so caught up in the day-to-day grind and everything that it starts feeling like a job, or it starts feeling like work… Which is fine, but I think when that happens, you probably wanna step back a little bit and appreciate, “Hey, I’m actually doing what I love.” So appreciation for what you do, if you really enjoy it and love it, I think it’s also something that you wanna practice every day.
Joe Fairless: Yup. Chris Beard, the basketball coach for Texas Tech University, which is in the Final Four in Minneapolis — so I root for the Red Raiders, and if they do make the championship on Monday, Colleen (my wife; you know Colleen, but for anyone else) and I, we plan on going to Minneapolis to see the championship game, fly in Monday morning and fly out Tuesday morning, or something… So when they beat Michigan State on Saturday, we plan on doing that.
But anyway, I mentioned Chris Beard from Texas Tech because he talks about “Enjoy the process, not just the destination.” You’ve gotta enjoy the journey, because we spend so much time on the journey, and we are at the destination for a hot second, and then we’re onto more journey.
Alright, we’ve gotta keep rolling, we’ve got a little bit of time left… A couple things I have observed from some interviews I did last week – one is Michael Craig; he’s in Austin, Texas. He talked about how he paid a contractor $3,000, and then the contractor disappeared.
Lennon Lee: Ow…
Joe Fairless: And that’s not a unique story; that has happened to many people. The thing I learned from this though is the contractor was referred by his brother. He was allegedly a friend of his brother. So Mike asked his brother, “Hey, do you know a good contractor?” and Mike’s brother said, “Sure, I have a friend. His name is such-and-such. Work with this person.”
And it turns out after the contractor did a couple jobs and then just flew the coop, Mike asked his brother “Hey, how well did you know your friend?”, and his brother was like “I didn’t know him very well.” So what that made me think of is two things. One is when getting referrals, ask that person who’s giving you the referral how well do you know that person.”
Then on the flip side, when we give referrals, mention how well we know that person we’re referring to the person who needs the referral. Because I’m certainly guilty of this. When people ask me, “Hey, do you know someone who can do such-and-such?” or “Do you know someone who is good at X, Y, Z?”, I always want to help that person, so I’m always trying to connect the dots. Judy Robinett has a book called “How to be a power connector”, and she talks about how you can connect others and be very valuable for both parties. That’s true, as long as you are connecting them with good people. And I always think I am, but I don’t always know the people who I am giving out as referrals very well; I just know them kind of okay, in some instances.
So I’m going to start — when I give referrals in the future, I’m going to qualify that referral that I’m giving the person, I’m going to say “Hey, I recommend so-and-so because I’ve heard them on a podcast talking about it, or because I’ve worked with them once, or twice, or I’ve known them for three years, or four years.” That way I’m giving some context for my relationship with this person, so that the person who’s going to contact the referral – they know how well or not well I do or don’t know the person. I thought that was really interesting, something that can help out anyone, regardless of what you’re working on.
Lennon Lee: Yeah. I would guess that’s especially challenging in your case, since you talk and interview so many people…
Joe Fairless: A lot of people. 1,700 people.
Lennon Lee: Wow… Yeah.
Joe Fairless: Yeah. I’ve got three things and we’ll wrap up. Second thing is yesterday — I’ve got a four-month-old, about to be five-month-old daughter, and my wife Colleen was upstairs, doing some stuff, and I had Quinn (our daughter) downstairs… And I thought it’d be nice to just tidy up the kitchen while I had Quinn, because Colleen typically does that… So I tidied up the kitchen, I put all the stuff away, and then I noticed that Colleen’s phone was downstairs in the kitchen, and so was mine. And I know that Colleen loves having her phone fully charged; it’s just one of her things. And it was like at 82%. And my phone was at 22%. So I look at it and I’m like, “Hm… I’m pretty sure Colleen is gonna be happy with me for tidying up the kitchen, but what can I do to go above and beyond, so that she’s really like “Oh, wow, this is awesome.” So I plug in her phone, even though it was at 82%, and I had that puppy charging.
Sure enough, she walks down and she’s like “Oh, wow. You cleaned up. Thank you so much.” Then she walks over to her phone and she’s like “Whoa! My phone’s getting charged? Talk about royal treatment!” [laughs]
Lennon Lee: It’s the small stuff, man…
Joe Fairless: It’s the small stuff. And the point of this story is when we do renovations on properties, and we’re putting in $5,000 per unit, and we’re doing hardwood flooring, and we’re doing fixtures, and we’re putting in nice bathroom mirrors, make sure that you know what are those couple things that residents really truly care about, that can take the unit over the top, or take the living experience over the top. And it’s gonna be specific to that property and that submarket.
Sometimes it might be “Hey, we allow pets where others don’t.” Other times it might be a certain backsplash, other times it might be granite countertops. It just depends on your business plan, the submarket… But remember that you want a resident to walk into your unit or into the property and say “Wow, I’m getting the royal treatment. This is above and beyond what I was expecting.” And you can do that based on your knowledge of your target demographic. So first you need to know what they care about, and then once you know what they care about, then you can go to deliver on that.
Lennon Lee: And continuously be learning what they care about, because their needs and wants change along the way. You want to adjust for that, and understand what [unintelligible [00:22:28].24]
Joe Fairless: Absolutely. Your property manager will be letting you know that, and then there’s certain surveys you can do for ongoing evaluation of it.
Lennon Lee: Then the third thing, Danny Coleman – he’s based in Columbia, Tennessee… And by the way, the interview with Mike Craig will come out in about 30 days, and the interview with Danny Coleman will come out in about 30 days or so… So Danny Coleman, Columbia, Tennessee – his specialty is helping businesses find the right talent. I think he does more than that, but our conversation really focused on helping businesses find the right talent… And we went really deep in the interview process and how to attract the right candidates for your job that you have open… So if any Best Ever listener is looking to hire someone, or is currently hiring someone, then I’d listen up to this, because there’s some really good tips here… And listening to the whole interview, because I’m not doing it justice for what we talked about in total, but here’s some really good things I thought.
When creating a job posting, do three things. One is have specific instructions for how to apply to the job. For example, in the job description say “Write a cover letter and in the subject of your e-mail when you e-mail it to me or to the hiring manager put the name of the position, and the date that you’re sending it. And put the date in this format.” So be very specific; that way, you can initially weed out all the people who are mindlessly applying to the position or aren’t gonna pay attention to the details that you need them to pay attention to. So that’s one, be specific with how to apply.
Number two is in the job description write the reason the job exists, right out of the gate. If it’s an admin position, “This position exists so that the company’s CEO can use his/her time most effectively and is able to do whatever it is they do. This person is going to serve as the right-hand person for the CEO”, blah-blah-blah. Whatever the reason the job exists is, write that there. Then complement that right below – this is number three – with describing them as a person. “This position exists for XYZ reasons, and this is a little bit about you”, and then you talk about the actual person, you describe them. “You’re a detail-oriented person, you do what you say you’re gonna do, you always follow through. You have a knack for taking a project and running with it with little oversight.” That way, whenever they’re reading the description, they’re shaking their head like “Yup, that’s me. That’s me.”
So those are three tips when creating the job posting, and there’s a lot of other tips that Danny talks about for actually the in-person interview. He talks about opening up and mentioning a couple things about yourself as the interviewer, so that it then lets the candidate open up a little bit more and makes them feel more comfortable… Because you don’t want to learn about the best version of the candidate’s self, you want to learn about what is the person that the candidate–
Lennon Lee: Their true version.
Joe Fairless: Who they are on an ongoing basis, right. On interviews so often it’s easy to get caught up in “Okay, this is who I want to be and I am occasionally” versus “Hey, who are you really on an ongoing basis?” So asking them about their future plans, books they’re reading; “In one word describe what motivates you, in one word describe what frustrates you”, and just really getting a sense of that.
So we’ve gotta roll, because I’ve got a call with a new investor that starts in 60 seconds, so I’ve gotta roll out of here… But Lennon, how can the Best Ever listeners get in touch with you?
Lennon Lee: Well, the best way would be to follow me on Instagram. I’m very active on Instagram and on Facebook. My Instagram handle is @TheMultifamilyInvestor. I’ll also throw out the company’s e-mail; I always check the e-mail. Contact@bldcapitalgroup.com.
Joe Fairless: Cool. Hey, Lennon, good seeing you, good hanging out with you.
Lennon Lee: Always, man.
Joe Fairless: Thanks for coming on the show, and Best Ever listeners, I hope you got a lot of value from today’s conversation we had with Lennon. I hope you have a best ever weekend, and we’ll talk to you again soon.