Michelle is the owner and broker of Acorn + Oak Property Management. Her and her team have over 1000 units under management, and still growing. They take a customer service approach to their company, and that really sets them apart from other companies. They even have tenants that wait for a unit to open up, just so they can rent from Acorn + Oak. Hear different tips and advice that you can use to set yourself apart from your competition. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Michelle Ketchum Real Estate Background:
- Owner/Broker in Charge of Acorn + Oak Property Management and managing partner of Acorn + Oak Triad.
- Have been an active property manager and Realtor since 2009
- Active in property managements throughout North Carolina and is leading Broker in the area
- Based in Durham, North Carolina
- Say hi to her at www.acorn-oak.com
- Best Ever Book: The Four Hour Work Week by Tim Ferriss
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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, Michelle Ketchum. How are you doing, Michelle?
Michelle Ketchum: Hey, Joe. Doing well. How are you?
Joe Fairless: Good! I'm glad you're doing well; I'm doing well as well. A little bit about Michelle - she is the owner and broker in charge of Acorn + Oak Property Management, and she's been a managing partner of Acorn + Oak Triad. She has been an active property manager and Realtor since 2009, and her company does property management throughout North Carolina, and is also a leading brokerage in the area. Based in Durham, North Carolina, and you can say hi to Michelle at her website, which is in the show notes link.
With that being said, Michelle, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Michelle Ketchum: Absolutely. Michelle Ketchum, owner of Acorn + Oak Property Management, down here in Durham, North Carolina. We've been in business since 2013, so we just celebrated our five-year anniversary here in the triangle...
Joe Fairless: Congrats!
Michelle Ketchum: Thank you! Really amazing growth since the beginning. We're currently managing just over 1,000 properties in the triangle area, and just having a really good time doing it. We focus on mid to high-end rental properties; that's anything from a single-family home, to townhomes, to -- our largest client owns about 90 units in Durham... So everything in between, as well.
Joe Fairless: 90 units - is that an apartment community, or does that person have 90 single-family homes spread out?
Michelle Ketchum: It's some small multifamily complexes, with like 14 units here, 20 units there... They're kind of all in the same neighborhood, but just split up a little bit.
Joe Fairless: Got it. So in the case of the 20-unit, that would be a 20-unit apartment building, or 20 single-family homes around each other?
Michelle Ketchum: Well, this particular client - that would be a 20-unit apartment building, but we do have some folks that own 20-30 single-family homes. There's a pretty good market down in this area for student housing, so we work with a lot of those landlords too, that are renting out big homes to UNC Chapel Hill students, and some Duke students, and things like that.
Joe Fairless: Okay. I'd love to dig into some of the intricacies of managing 20 units, versus student housing, versus single-families... But first, before we started recording you said you were doing some research on the show and you took issue to my no-fluff approach... Can you elaborate on that?
Michelle Ketchum: I did... I've been listening to quite a few of your podcasts and I know that it's your signature line to say "no fluff", and I'm a pretty fluffy person; I mean, I'm not girly, but I do bring a hands-on, heart-led approach to property management, which I think has really been the key to this company's success - the fact that we are compassionate, we try to do the right thing, not only for our clients that own the property, but for the tenants that are in place. We really want it to be a win/win/win, the third win being for us, the property managers.
But anyways, so I was a little nervous about not being maybe as hardcore as what you're used to... But fluff isn't always bad.
Joe Fairless: Fair enough, I agree to that - fluff isn't always bad. From a compassionate standpoint, how does that come to fruition as a manager, that would be different from perhaps another company that's managing properties?
Michelle Ketchum: When I started Acorn + Oak, one of the very first things I did was just research on other property management companies in the area; that's a good place to start when you're starting a new business - what's the competition doing? What are they lacking? And what I felt time and time again were complaints actually both from the clients as the property managers, but also a lot of tenant complaints just that they weren't being treated very fair. They were going weeks on end without any communication for different maintenance requests, they ordained a lot from security deposits just because... And I really took that to heart, and I would say almost everyone out there has been a renter, and a lot of us still are, and I just really wanted to bring this philosophy that everybody matters to my business.
So some things that we do are -- for instance, a lot of times property managers will charge a non-refundable pet fee, and... We're all dog owners at Acorn + Oak, so it's really important to me to just kind of not do that anymore. You can collect an extra deposit, which will basically do the same thing as a fee would do - rectify any damage if there is any damage done by the pet... But just things like that, where we're not nickel and diming tenants just because we can, and really just giving them nice places to live, treating them fairly, and just really making it an experience about them as the customer, and really thinking about them as the customer, and then the property as the product, and the property manager and the client as kind of the business owner. You always wanna make sure your customers are happy.
We just really led with that approach, and it has absolutely helped and made us one of the best companies in the area to rent from. We have tenants that specific land on our website and have heard great things about us, and they're like "We're renting from you. It just depends on when the right house comes up, but we are renting from your company."
Joe Fairless: Wow.
Michelle Ketchum: So it really does matter.
Joe Fairless: Oh yeah, creating a property management brand is not something a lot of property management companies do to the extent where people are requesting to live at their properties. That's not very typical. What are some other tactical things...? Because I'm gonna admit that when I heard you say "compassionate", my first thought was "So her company will let it slide if a resident is late on the rent, and then that's gonna hurt my bottom line." Selfishly, that's just what I immediately thought.
So one, can you address that? And then two, just some other tactical things that you all do that other management companies might not do.
Michelle Ketchum: Sure. Specifically for late rents - it's our policy that if somebody is late for the very first time, we'll waive their fee and reduce it from whatever it was down to a dollar. So it's still on our records that they paid late, but we reduce it and they get one freebie. And then it really just depends. There's tenants of ours that have rented for years and years and years, and maybe they had a late payment their first year, and now it's year four... So they've been great tenants, but guess what - they're people, and life happens, and their car broke down, or the kid had to go to the hospital, and they've had some emergencies come up... So we don't necessarily just automatically waive that fee, but we think about it, and we talk to our clients, and of course if they're troublemakers we're not just gonna keep waiving fee after fee; we're going to charge those fees, and potentially not renew if it becomes a real problem.
But for those people that have been great and they've just had a situation come up in life, we're gonna be compassionate about those things.
But at the same time, we can play hardball when needed, for sure, and we're not gonna let people just take advantage of us.
Joe Fairless: From a fair housing law standpoint, how do you walk that line of doing it on a case-by-case versus just uniform, regardless of what the situation is? Educate me on that part, will you?
Michelle Ketchum: Yeah, it's really important, and that's why we do allow it one time. We do make note of it. It's not based on anything else except that's just our policy, for the first time... And then after that, it gets into -- again, we just have those conversations with the client; it's not like we're just making the decision for them on if we should waive it, but we're giving them the option, and at the end of the day it's their money, so they really have the ultimate say on if they want to waive it or not.
Joe Fairless: Some other tactical things... You mentioned instead of a non-refundable pet fee you have a refundable pet fee, correct? So what are some perhaps other tactical things that you all do?
Michelle Ketchum: Some other ways that we make it tenant-friendly - and still again, with any of these ideas, they always have the owner's bottom line in mind.
Joe Fairless: Sure.
Michelle Ketchum: Going back to the pet fee vs. deposit - we still are protecting the owner's investment, and usually what we do when we do the deposits is we'll do something higher... You'll see a lot of times where it said maybe a non-refundable $250 pet fee - what we'll do is we'll charge a $400-$500 refundable pet fee. So we're charging more, but the tenant has the chance to get all of that back if their cat just lays around like a pillow and doesn't do anything to mess up the house.
So again, we're keeping the owner's bottom line in mind, always... But another thing that we do too is we don't make it easy for the tenant to break the lease, but we also don't make it completely financially horrible for them to have to do so. We live in a really transitional area, where there's a lot of professional people, they're getting promoted, or sometimes they're getting fired or being laid off, and we don't want them to have to stay in a lease they can't afford... Or again, if they got promoted, then they've got a great opportunity to move away. We don't want to make them pay 2, 3, 4 months rent to break a lease, or a huge termination fee... What we do is we give them the option of advertising the property on their own, finding a tenant to take over their lease, and they have to pay rent, obviously, through that term, until the day before the new lease starts. They're also required to have the property professionally cleaned... But that's it. So they can get away with it for almost the cost of a house cleaning, and a little bit of their time.
For the busy professional we do offer a service where they can pay us and we'll re-advertise for them, and really just do our best to find someone to take over that lease. And a lot of times, the owner of the property - they don't skip a beat, right? They've got rent coming through, they have the tenant pay for the professional cleaning and anything that needed to be done during the turnover... The tenant wasn't paying an arm and a leg to break their lease. It just makes it a little (I think) fair, and a little bit more flexible to rent with us.
We also really do a lot of nice things for our tenants throughout the lease. When they move in, they get this awesome welcome box that's beautifully hand-crafted with a card from us; it's got everything from [unintelligible 00:11:47.04] coupons to local business, a roll of toilet paper... Just a little welcome box saying "Hey, we're happy to have you here. We're gonna treat you well while you're here. Welcome to your new house."
We do monthly gift card drawings every month for tenants that pay rent on time... So we just don't always approach it as "Ding-ding-ding! We're gonna ding you with a late fee, we're gonna ding you with an early termination fee..." It's like, "Let's support you if you're doing what you're supposed to do." So we do monthly drawings every month for tenants that pay rent on time, we do renewal gifts, and we actually have a tenant appreciation happy hour thing coming up next month where we're having all these raffles, and just having them stop by our office for some ice cream and beer.
Joe Fairless: Yum! Sign me up.
Michelle Ketchum: If they're of age.
Joe Fairless: Of course, obviously. With the monthly gift card drawings, how much is that gift card worth and how many gift cards are given out every month?
Michelle Ketchum: We do two right now, but as we continue to grow, we're probably gonna need to up that... But we do two $20 gift cards to a local business. We don't generally give out gift cards to chain restaurants or anything like that; we're trying to support our local restaurants and shops and everything. They also get a really awesome Acorn + Oak T-shirt... So it's about a $30 value.
Joe Fairless: Cool!
Michelle Ketchum: But hey, they're paying their rent on time. For doing what they're supposed to do, there's a chance they can win something cool.
Joe Fairless: Absolutely. Have you noticed any benefit as a result of including local businesses in your marketing approach?
Michelle Ketchum: It's probably just something I haven't noticed, but this area is such an awesome place to have a small business and to have a local business... So it's just being part of the community. That was another really important piece of starting a company - I want it to be an active, supportive part of this amazing community and culture that we have down here.
I think we kind of just rub each other's backs. Some of our clients are business owners in the area. Some of our tenants are business owners in the area... So it's just nice to keep it local when you can.
Joe Fairless: The renewal gifts - how do you determine how much that gift is and what do you give them?
Michelle Ketchum: It's pretty standard. It's another $20 gift card to a local ice-cream shop here in downtown Durham, and it just says, basically, "Thanks again for renewing. We're so excited to have you! Enjoy an ice-cream out on us." Usually, $20 should get you two fancy ice-creams, so... It should get you two ice-cream cones.
A lot of our renewals are happening in the summer, so again, it was just kind of a fun thing to do in the summer months.
Joe Fairless: And you have over 1,000 properties that you're managing. If let's say you get 75% of those residents renewing, then you're investing $15,000 in that local ice-cream shop for these renewals... So do you have some sort of deal negotiated with them, where you save some money on these gift cards?
Michelle Ketchum: You know, I don't... But I should.
Joe Fairless: That local ice-cream store owner is gonna hate me. [laughs]
Michelle Ketchum: [unintelligible 00:14:56.16] Yeah, exactly. Again, so this is five years old. When I started, it was me, working at my house, with nothing. No brand recognition, nothing. I literally started from the ground up with this thing... So the renewal gifts - those have kind of come along over time; that was actually something that we developed last year, so it wasn't something we've always done. So it's only a year old, but you're right, I should be talking to this ice-cream shop about getting some sort of discount.
Joe Fairless: Don't tell him/her that I mentioned this, because I don't wanna be on their bad list.
Michelle Ketchum: I won't...
Joe Fairless: Let's talk about the differences in managing a 20-unit versus a single-family house... Because you started out doing single-family homes and you have a 20-unit in your portfolio that you manage. That's accurate, yes?
Michelle Ketchum: Yes.
Joe Fairless: Okay. What is the difference between managing the single-family and the 20-unit, and how did you evolve your team and the process to be able to do that?
Michelle Ketchum: Obviously - or maybe not obviously - managing a 20-unit apartment complex is gonna be... It's a small building, chances are the layouts and the floor plans are exactly the same, so there's gonna be less work as far as producing marketing and remembering paint colors and all of that. It's gonna be a little bit easier if it's in bulk, and generally those clients pay a little bit less in management fees... But it's really not that much different in anything else.
The way that we structure it - some of our agents work for maybe two or three clients; we've got a couple people at our company that really love multifamily. They've come from the apartment complex world, so they're just bringing that expertise and they're working with those kinds of clients.
Then we have other people that really love working with the investor that's just getting started and they're buying a single-family home this year, and a townhome next year, and all that. But the way that we approach it really is we try to do everything in batches. So even if it is 20 single-family homes versus one building with 20 units, we're still really trying to do batches and kind of keeping them as a portfolio. If we're doing inspections, we're gonna inspect either that one building with the 20 units, and we're going to inspect those 20 homes at the same time.
I don't know if that really answers your question, but we try to kind of make the single-family homes into sort of like a multifamily, just with a little bit more drive time in between... But the way that our agents are set up too is - when you start as a property manager with Acorn + Oak you're kind of given a territory, and usually that territory is pretty close to where you live. So the idea is that you're not having to drive from Raleigh to Durham and to Chapel Hill; really, the idea would be let's condense your territory into maybe a five to ten minute drive from your house, so that you can easily serve these tenants and these properties and these clients.
Joe Fairless: So for a Best Ever listener who's got a 20-25 unit, maybe a 30-unit that they are looking to purchase, would you say it does not matter if the property management company currently does apartment buildings and they're only doing single-family homes?
Michelle Ketchum: I think it can be done, but I think it helps to have a company like ours, that has the experience from both sides. So with the multifamily that we're doing right now, we're doing things differently, and there's also a whole side for like cap ex, repairs, there's a whole side for budgeting and specific reports, because it's just a little bit different.
So I would say that it's not necessarily a deal breaker; I would always hire a property manager based on their personality and how you all mesh together. That's me personally. I would choose just getting along with them and having the same ideas and philosophies on how you wanna run that property; it's gonna be more important than their experience, because I think the experience kind of goes both ways. If you did multifamily, you can learn how to do a single-family residential home, and vice-versa. But at Acorn + Oak you don't have to choose, because you get both - you get the great personality and the great service, and all of the expertise... But maybe in other markets, I would say that I'd probably go for, again, just kind of "How do I feel about this person?" I'm kind of a gut person.
Joe Fairless: Yeah, it makes sense. In terms of the student housing, the last question I was kind of leading you - but I shouldn't have, because then you said basically you didn't do many different things for the single to 20... So I won't have a leading question this time, I'll just ask you - is it different with student housing, versus singles, versus apartments, and if it is, how so? And if not, then we'll move on.
Michelle Ketchum: Student housing is definitely its own animal, and I think "animal" can sometimes be the right word. [laughter] You just have to have different expectations, and that's really any kind of real estate investing. You just have to have really good expectations on what this is gonna look like.
For student housing, specifically for what we do over at UNC Chapel Hill [unintelligible 00:20:13.18] Some of these students are moving at August 1st. By September 24th - literally, less than two months into their lease - they have to tell us if they're going to be staying for the next school year. So they're making decisions about renewals really quickly. It's important to start advertising those student rentals.
I'm giving an example - if someone wants to move in August 1st, 2018, so their lease runs through July 31st, 2019... So by September 24th, 2018 they're telling us if they're gonna be staying from August 2019 through July 2020.
Joe Fairless: Wow.
Michelle Ketchum: Yeah, they're having to make those decisions. But that's cool, chances are they know if they like the house, moving kind of sucks, so they usually tell us, and we start advertising October 1st for 2019-2020 leases... And it's just crazy, it's a frenzy, and all the students at UNC know that it's the time to advertise, so the advertising is a little bit different, there's obviously a lot more moving parts, because sometimes you've got four people living together, and they've all got a co-signer, and maybe four groups of four people with four co-signers, so that's a lot of people...
So it's different in that way, and then the expectations are they're gonna leave couches at the curb, they're going to leave trash in the house... The houses are definitely gonna need a deep clean when they move out... I've had great tenants, and I'll say, I was like a pretty mature undergrad, so I'm not saying all undergrads are this way, but we've also had tenants that have had mayonnaise fights on their way out, and now there's grease stains all over the walls... So you have to expect that a mayonnaise fight might happen, and just be prepared that we're gonna have to [unintelligible 00:21:57.03] we have a nice deposit as well for these student rentals, so...
A lot of the times too you have to understand that - specifically in UNC Chapel Hill - you can live off-campus I believe as soon as you're a freshman, so a lot of these people are going from living with their families to being out on their own, and they have no idea what an air filter is, or a water filter, or a [unintelligible 00:22:24.09] filter... And I was asking myself, I'm like "When did I learn about air filters?" I don't know, but there was a time in my life when I learned about air filters.
So it's really kind of like taking these kids under your wing too, and showing them how to live alone, in a house, without their parents. That's why a good property manager takes that off your plate, so we can be the den mother.
Joe Fairless: Many unique challenges there, that's for sure. When you were talking about the mayonnaise fights - I never had a mayonnaise fight, but in college we rented a house, and it was in Lubbock, Texas; it was like $200 each of us, and there were two of us, so like $400. We had a wrap around couch we found on the side of the road, and since it was a wrap around, it wrapped around in a corner, so in that corner there was a little open spot behind the couch, in between the couch and the wall, and we would just throw our empty beer cans in that corner, instead of taking them to the trash can.
Michelle Ketchum: And this is not unheard of, yeah.
Joe Fairless: Good, good, I appreciate you backing me up on that one.
Michelle Ketchum: And I hope that in my title on your podcast website it says something about mayonnaise fights, because we really want people to click and listen, like "What is she talking about..."
Joe Fairless: [laughs] That's right, that's right. "Student rentals and mayonnaise fights. Wanna learn more? Listen to this show." Well, what is your best real estate investing advice ever?
Michelle Ketchum: My best advice would be to just do it. I think a lot of people are scared, and if you have the right property manager helping you along the way, it's really not that bad. And a lot times too we're getting clients -- so we actually don't do any general brokerage; we don't help people buy or sell property, we only do property management. We wanna do one thing, and we wanna be the best at it that we can. But we get a lot of people that contact us first, they're thinking about investing here and they wanna make sure that they've got a good property manager in place before they even start looking... Because again, the property management will make or break your deal.
So I would say don't be scared, do it, educate yourself, get some advice... It's not for everybody; more people could do it, but I think they're a little nervous. So get educated, learn, and if you feel like it, start out with one, see how it goes, and then you'll get the bug and you'll be having 90 properties.
Joe Fairless: Between single-families, student rentals and small to medium size apartment buildings, what has the highest profit margin for you as a management company?
Michelle Ketchum: What do we make the most money on?
Joe Fairless: Yeah.
Michelle Ketchum: It's probably just your middle of the road single-family home. Our student rentals rent for a lot of money. You said you were paying $200 in Lubbock, Texas. UNC Chapel Hill houses are going for $800/bedroom, and they're not marble, quartz, gold-plated houses; they're basic homes, but it's all about location.
So the rents are high there, but a lot of times we end up discounting our management fee for those... So for us it's probably just the people that own the single-family homes, taking them up one at a time.
Joe Fairless: And why do you discount your management fee? Because from what you describe, it sounds like they're much more time-intensive, those student rentals.
Michelle Ketchum: Our management are an initial fee ($395), and then 10% of the rent... Which I don't know that I've seen anyone charge more than 10% yet. And if people have more than one single student house, again, this can get kind of pricey. So a lot of times they're kind of coming in knowing that they can get it for cheaper. We're usually settling -- we don't stray too far from 10%, and some of our clients do pay 10%, but because we know that could be a pretty large management fee... I mean, it is a lot of work, but it's just different work.
Joe Fairless: Yeah, it's more entertaining work.
Michelle Ketchum: It's definitely more of a surprise.
Joe Fairless: It sounds like it's really more entertaining.
Michelle Ketchum: Yeah, exactly.
Joe Fairless: We're gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Michelle Ketchum: Yes!
Joe Fairless: Cool. First, a quick word from our Best Ever partners.
Break: [00:26:18.25] to [00:26:59.00]
Joe Fairless: Best Ever book you've read?
Michelle Ketchum: I love The 4-Hour Workweek by Tim Ferriss, and I think I've just been sort of in love with Tim Ferriss, but I also like Tools of Titans by him; I'm reading that right now.
Joe Fairless: Great book... Both of them. I completely agree. I have a quasi-man crush. I have a Tony Robbins full-fledged man crush, but Tim - quasi-man crush; I love most of the stuff Tim does and talks about. What's the best ever business deal that you've done? Either a property, or a client transaction, or something else.
Michelle Ketchum: You know, I think when it really boils down to it, when I first started the company, again, I had very little. I had some experience working for another company, but Acorn + Oak was brand new, and I got my first client that had 30 properties, and he totally whittled me down... But that was such a monumental point for my business.
You always kind of wonder, like "Am I gonna make it? Am I gonna make it? How long is it gonna take?" and as soon as I got that client, I was like "I'm in. I'm all of a sudden legitimate", and it really started to roll in after that. So he's a current client, and we butt heads sometimes, but at the end of the day we actually have legit love for one another... So I always say that he's been my best deal.
Joe Fairless: What's a mistake you've made on a deal or a transaction, or in business?
Michelle Ketchum: I would say that there was a deal -- and it wasn't even that big of a deal, but it was a multi-unit building, and again, because I'm this fluffy person, we had a verbal contract... I felt like I did a lot of work, I did a lot of reports, I did a lot of inspections, and I thought everything was good to go. I'm used to people doing what they say they're gonna do, and right before the deal closed, they said "We're gonna go with another company, and I felt really used... But it was a great lesson in business - get your contract signed.
Joe Fairless: What's the best ever way you like to give back?
Michelle Ketchum: I really enjoy... Again, I haven't been a business owner for super long, but I've had quite a bit of success - and success to me isn't money, but I've had this rollercoaster ride, and so I'm now in this point in my career where people are actually wanting to sit down with me and hear my story and hear the do's and don'ts, and I really love getting into this mentorship field... Especially, like I said, Durham, North Carolina is just a wonderful place to have a local business, and I'm always up for like supporting people that wanna venture out on their own. I love being in a position where people actually want my advice, and being a mentor.
Joe Fairless: And how can the Best Ever listeners get in touch with you and learn more about Acorn + Oak?
Michelle Ketchum: Our website is a great place. There's actually a video on there as well. That's acorn-oak.com. Or my e-mail, which is Michelle@Acorn-Oak.com.
Joe Fairless: Lots of lessons learned in our conversation. I'm so grateful that we were connected and that you're on the show. One is the differences between managing single-families versus small to medium-sized apartment buildings, versus student housing... The unique challenges in particular with student housing -- well, this is actually a pro, having a longer lead time to fill vacancies... But then some cons - having a lot of co-signers, having a lot of people within each of the properties, and it can get messy with mayonnaise fights... As well as some ways that you have positioned Acorn + Oak from the ground up, to be differentiated by taking that compassionate approach, hands-on, heart-led approach, as you say, and some specific things that you're doing - the refundable pet fees, welcome box with a card, monthly gift card drawings for residents who pay on time, renewal gifts of $20, and then coming up, a tenant appreciation happy hour with ice cream and booze.
Thanks again for being on the show. I'm grateful you were on the show. I hope you have a best ever day, and we'll talk to you soon.
Michelle Ketchum: You too. Bye!