JF1505: Eliminating The Maintenance Headache For Property Managers with Ray Hespen

Listen to the Episode Below (26:45)
Join + receive...
Best Real Estate Investing Crash Course Ever!

If you have ever managed a property, you know the huge headache that comes with maintenance. Ray and his company, Property Meld, have a solution. They have created an automated software just for maintenance. So turn on this episode if you manage properties and see how Ray can help! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Ray Hespen Real Estate Background:

  • CEO and co-founder of Property Meld, a maintenance automation software company
  • Launched the company in 2014 to eliminate the maintenance headache for property managers
  • Based in Rapid City, South Dakota
  • Say hi to him at https://www.propertymeld.com/
  • Best Ever Book: Outliers by Malcom Gladwell

Get more real estate investing tips every week by subscribing for our newsletter at BestEverNewsLetter.com


Best Ever Listeners:

Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


TRANSCRIPTION

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, Ray Hespen. How are you doing, Ray?

Ray Hespen: Hey, I’m doing well, Joe. How about yourself?

Joe Fairless: I am doing well, and nice to have you on the show. A little bit about Ray – he is the CEO and co-founder of Property Meld, which is a maintenance automation software company. He launched the company in 2014 to eliminate the maintenance headache for property managers. Boy, is it a headache too for everyone who manages property… And he’s based in Rapid City, South Dakota. With that being said, Ray, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ray Hespen: Yeah, so first of all, our office is based here in South Dakota, and so everybody gives us kind of a little [unintelligible [00:03:45].18] wondering what we are doing in South Dakota. What we’ve done is started calling the area Silicon Prairie. [laughter]

Joe Fairless: I think I’ve heard that before, by the way.

Ray Hespen: Yeah, somebody’s probably coined it, but we’re gonna try and steal it. Anyways, at the end of the day, any good business model is built on solving a problem, and what’s really interesting about ours is in the property management space, as you all know, and just real estate tech in general, it has historically kind of lagged behind, in terms of what other industries have been given… So the reason that we even came about was ultimately because my co-founder, David Kingman, who’s our CTO, he basically called me one day and said “It’s always terrible to be a renter and have maintenance done on your property.” Through that, and doing enough market research and talking to property management firms and landlords, we understood “Wow, this is ripe for disruption.” That’s essentially the genesis of Property Meld.

Joe, one thing that’s pretty interesting about me – at least I think it’s interesting – people will ask “Did you come from property management? Did you come from being a landlord?” and my background is actually in manufacturing operations. So being able to bring in a fresh perspective in another industry, to try and automate what we can automate in this industry, I think was a pretty interesting connection there.

Joe Fairless: Just so I’m clear – you said your co-founder asked “Is it always terrible to be a renter and have maintenance on your property?”, but why is it terrible to be a renter and have maintenance on the property?

Ray Hespen: So the notion is when people rent, it should be better than you living at the house, right? In a lot of leases, most of the repair items are not the responsibility of the renter. And what happened was in his particular instance – and he had multiple of them – is the fact that he was able to submit a request online, which is a great technology that allows him to do that, but he wanted to know what was going on. It’s a phone call to the management office. They don’t answer the phone. They get a call from a phone number that they don’t recognize and they let it go to voicemail, they assume it’s spam, and it turns out it was the person trying to do the repair. They call back, and they don’t answer, because [unintelligible [00:05:50].01] So you play this pretty insane game of touch and go just to coordinate and communicate, and it’s backed really heavily on pretty manual processes, i.e. the phone call.

If you think about it about every other experience that a consumer gets to have at this point, that feels antiquated and pretty archaic, and it feels like a really slow process to get it done.

Joe Fairless: Okay, I get it. So the renter is able to see the process for where their request is in the pipeline, or the queue rather…

Ray Hespen: Absolutely. And everybody understands Uber or Lyft – when you request somebody, you know where they’re at, you’re able to communicate with them, you know when they showed up, and — it’d be odd, but you know when they’re there; you know when it’s finished. So we basically apply that sort of transportation and ability to communicate to maintenance.

With our system, without a phone call, essentially a renter can submit a request, schedule, be reminded that it’s happening, being notified when it’s complete, asking them how it was… All of it is automatically and very seamless.

Joe Fairless: Got it. So the process where as a renter you submit a request, and you don’t hear back, and you’re wondering “What’s going on?” and it’s been a week or two, this would solve for that, period. My question is, from my experience, a landlord who is not as communicative as they should be, they’re not good landlords, so they’re not going to pay for a service like this because they don’t have their stuff together to begin with.

Ray Hespen: You know, it’s interesting you say that. There are right fits and wrong fits. We identify a right fit. And at the end of the day, one thing I wanted to kind of just point out is the fact that we’re saying we’re improving the renter experience, but ultimately it’s because it’s a pain to follow-up on maintenance for property managers. It’s the only reason that we’ve survived and built the company that we have. So you have the process — we understand what it’s like from the renter side, but if you think about the maintenance coordination that happens… I get the work request, I manage the property, now it’s my job to third-party vendor or a technician – I need to make sure and continuously follow-up… “Did you get a hold of the renter? Is it scheduled? When is it scheduled for? Is it done? Is the resident happy?” All those touch points should be happening within 24-48 hours, and as you continue to scale, it gets really problematic and time-consuming. There’s a certain point where you have to handle a full-time person.

But back to your original point – yes, if you don’t really have a care about that experience, it’s probably ultimately not gonna be a great fit; if you don’t have a care about streamlining that process, it’s not gonna be a good fit. One thing I think just in general – and Joe, this is actually a pretty interesting statistic… One of the big things, we say why you should care about that experience, just apart from online reputation, all the fun that that is now, but retention. If you have an investment property, and you have a renter leave, what does that mean? You’ve gotta go do an inspection move-out, you’ve gotta go through all that fun stuff with deposits. Now you’ve gotta have the place clean, shampooed; what repairs do you have to get done? You have to remarket the property, you have to reshow it, and then sign a new lease. It’s incredibly costly and timely. 31% of leases are not renewed, with maintenance being the biggest reason they didn’t renew. That’s a big number.

Joe Fairless: I would estimate it’s even higher than that. Whatever that study is, I believe you on that study; I think you’re even short-changing yourself. I think it’s north of 50% of people who leave, leave because of some sort of maintenance issue. What I did before I bought my first apartment community – while we were under contract, to be specific – I did research on all the apartment communities that I could find on apartments.com and in other places, that I found on Google, and I just read reviews. And this is also C-class, B-class properties, not A-class… So B or C-class properties, apartment communities in particular – the majority of the issues and the complaints are maintenance-related.

Ray Hespen: 100%. And if you even think about that, Joe, your apartment community, you’ve got your own Google location, right? If someone types in, what’s the first thing that pops up? It’s your Google reviews. [unintelligible [00:10:13].07] think about as the amount of money that you’re spending marketing that particular property, what is the click-through rate, or what is the drop-off that you’re losing because of that? How many people come to your website and they sit there and go “Never mind”, simply because of bad rating?

And like you said, maintenance is the number one driver of negative reviews. Nobody writes a negative review and says “Hey, the move-in process could have been better.” Nobody is adamant enough to write a review — I say that now; somebody will probably e-mail your show and say “Hey, I’ve got one of those…”, but you get my point. You’re 100% correct, it’s driven by maintenance.

Joe Fairless: So on Amazon when I order a package, or I order something, I go to check on the status, it’s like “Order confirmed”, “Order shipped”, “Order at the warehouse”, “Order en route” and “Delivered.” What are the stages of the process for your service?

Ray Hespen: The person managing the property ultimately has a little bit more transparency. What’s really neat about our process is the renter then can submit it and they’re kept up to speed the entire. They submitted it, there’s a confirmation of that; when it’s been assigned, we ask them to update availability times. When a vendor submits to them, or a technician says when they can get inside the unit if that is an option in that management’s process, it notifies them. It reminds them what that scheduled date is a couple of times, and then it lets them know when it’s done.

There’s a few ways that we hit it – either it’s through the in-app experience, which is entirely web-based and you don’t have to rely on somebody downloading it. E-mail and texting is huge.

It’s really funny, I’ve just read an article this morning… It says in 2019 they’re expecting 47% of phone calls to be spam. You have to find another medium to go through rather than phone, because people are just not going to answer. It keeps getting to be a deteriorating —

Joe Fairless: Wow, that makes me sad, actually… Because I hate text messages, I really hate them. I’d rather talk to someone on the phone. Really quick though about the process, because you started talking about e-mail and text, that that’s how people are notified. But just so I understand the actual process – first, they see “I can log in or I get a text/e-mail etc, and it says either my request was submitted”, number one. Then number two, it was assigned to someone. Number three, it shows their availability for when it’s going to be scheduled, and number four, it shows Done. Is it basically those four steps?

Ray Hespen: That’s it. And one other cool thing that I will tell you, Joe, is we talked about satisfaction and why it’s important; a couple reasons – online reputation and retention. But as we’ve done data dives in this, there is a 100% correlation to the speed of repair and the satisfaction. It seems like pretty straightforward, but does anybody have that data? And we’ve got just loads of it.

The other thing that we’re realizing about the speed of repair – it actually depends on the type of repair, too. HVAC issues – they need to get done faster than plumbing, and we can statistically say how much quicker you have to.

Joe Fairless: How much quicker do you have to?

Ray Hespen: You get a day and a half buffer to statistically get the same satisfaction of a renter, of an HVAC issue versus plumbing. You have more time with the plumbing issue.

Joe Fairless: Got it. How much time do you have with the A/C issue?

Ray Hespen: Right now we’re seeing about 3,5 days, but essentially that kind of changes throughout the year.

Joe Fairless: Right, and where you live probably, too.

Ray Hespen: Yeah… Oh man, there’s loads of data on this. But the reason why I say that is usually in maintenance coordination process flows, where you have somebody that has to get inside the unit. You don’t have a key, or using a third-party vendor, and they need to coordinate with the renter. It’s usually a multi-day process to get that scheduled time in. If you talk to people that provide maintenance services to these firms that manage properties, it’s getting a hold of a renter to get it scheduled is the biggest barrier to getting it done quickly.

We schedule 85% of our repairs in less than four minutes without a phone call.

Joe Fairless: How?

Ray Hespen: With our technology. [laughs] With the app. It’s the way that we coordinate between the person providing the services and the renter. Everything from how we collect information upfront from the renter, and their availability, and how we collect information from vendors and when they’re able to get out, and that sort of stuff.

Joe Fairless: So if I have an apartment community, 100 units, do all my residents need to download the app, or can they just go to a website and log in with some info?

Ray Hespen: Yeah, so… Some benefits to applications – you can track push notifications, small things like that. One thing that we really wanted to make sure with our product was simplicity. If we roll out with a client, you don’t want it to sit there and go “Here’s how you download the app…” You don’t need that barrier.

What’s really neat with our technology is ultimately as part of our onboarding process we get the information from the renters and our system submits, and it’s all web-based. So you click a link in the e-mail and you’re on your smartphone; it is built for mobile. 87% of our work requests are submitted from a mobile device, and there’s no barrier of “You have an Apple” or “You have a Droid”, “You need to go here and download…” It just works.

Joe Fairless: There has to be some percentage of renters that get annoyed whenever they have a plumbing issue and they call up the management office and they’re like “Hey, I’ve got a toilet overflowing” and if the manager says “That’s great, but submit that via your app.”

Ray Hespen: Yeah, absolutely. The way that our system works is we have an ability for each firm to essentially put emergency instructions that pop up. When a renter submits, there’s a big red button that says “If this is an emergency and you can define what an emergency is: fire, flood or blood…”, that’s the comical version of that — and you can put your own phone number in there. You want emergencies to come to you. That’s the whole problem, right? It’s your standard repairs that you don’t want to. We need to organize and we need to find an appropriate time to get out there.

Joe Fairless: What’s if it’s not an emergency but they call up?

Ray Hespen: Well, that’s kind of what our technology is designed to do. As part of not only filtering and putting that big button “If this is an emergency, click here”, a renter sits there and thinks “My refrigerator light is out. It’s Saturday night, I can’t get my midnight snack. This is an emergency.” The way that our technology is, they’re gonna click that button and say “Yes, it is an emergency.” That’s when you’re able to detail what is an emergency…

Joe Fairless: Right, I get that, but you’re assuming that they’re clicking a button, versus just calling up the office. That’s my question. So what if it’s not an emergency and they call up the office? What’s the standard process? Is it a) “Hey, renter, go fill it out online,” or is it b) “Okay, we gotcha. I’ve got this written down, and then it’s filed into the system, and you can check up on it later via this app”?

Ray Hespen: Exactly. It’s the latter.

Joe Fairless: Okay.

Ray Hespen: The property management firm can fill it out. But one important thing to know is the education of the renter. When we go out, we actually upsell you, whether it be your community name, or your property management firm, or your entity; whatever they know you as, we say “Hey, this person/entity has upgraded the way they handle maintenance using a system called Property Meld. Not only are you going to be able to submit, but you’re going to be able to submit, schedule, communicate, be able to see where your repair is at at any given time, and be able to reach out to us really easily.” So you’re giving them something.

The adage that I use a lot of the times is you can submit it online, but what are you really doing, as a perceived renter? It’s like “What am I doing? All I’m doing is I’m doing the digital data entry for my person who’s managing my property. It’s not doing anything for me as a renter. It’s just the process that I have to do to get it done.” Now it’s “I’m going to give you the same sort of self-service that you’re used to seeing in other places.” You’re able to order your groceries online and just run over and pick them up; order right from your smartphone, see your packages from UPS at a given time. I can see my Uber where it’s at. We’re giving you this now, and there’s a huge incentive to use it. Every single client that we bring on, that’s kind of a pretty common element that we’re seeing – they’re getting what they want, and you’re giving them a reason to use it, so those phone calls that are hitting your office significantly decrease.

Joe Fairless: You said earlier 3,5 days for A/C repair, from the day of complaint, and then 1,5 days after that we’ve got for plumbing, so 5 days approximately for plumbing. And there’s some variables, depending on geography, and stuff… If any, what’s a maintenance request that would need to be addressed shorter than the 3,5 days?

Ray Hespen: Well, and just so you know, that 3,5 days is a statistical cut-off, where it’s almost impossible to get it satisfied.

Joe Fairless: Okay, thank you.

Ray Hespen: I appreciate you clearing that up. It basically means your goal of your team is not to let an HVAC issue get past 3,5 [unintelligible [00:19:06].10] Whereas plumbing, it’s 5 days. That’s an important distinction. Obviously, with HVAC, a lot of companies try their best to get that done the same day or the next day. But 3,5 days – don’t let it go past that.

Joe Fairless: Anything shorter than that cut-off? Any other maintenance requests?

Ray Hespen: HVAC is the biggest one.

Joe Fairless: Okay.

Ray Hespen: And what’s really interesting too, Joe, there’s a whole lot of data that we’re starting to dig in. We’re looking to try and help educate this space. Even just knowing that you have a 1,5 day shift on being able to get one type of repair done versus the other, it kind of takes away that whole “first in, first out” kind of mentality. There’s a prioritization that needs to happen.

The reality is we’re continuing to delve into this data and try and identify these things that ultimately allow people to run a more efficient operation.

The other thing I wanted to say – when you use this kind of technology, our resident satisfaction for the entire platform is a 4,3 out of 5, and we believe that’s through a few things… Transparency into the process, and the speed at which things happen.

Joe Fairless: It makes sense. How much does it cost?

Ray Hespen: Up to 2,000 units it’s $1/door. The pricing standard is on our website. You can go to www.propertymeld.com and we have our pricing standardized.

Joe Fairless: Cool. The plumbing – let’s say that’s a five-day cut-off, like you talked about, and that’s a cut-off to get satisfied residents; after that, probably not gonna happen. So it shouldn’t be five days, ideally. Is there something with a longer period of time, where you can stretch it out a little bit if you’re feeling a little bit lazy?

Ray Hespen: There’s a few other categories. Landscaping is one of them, for example. A lot of exterior home repairs. But really a good rule of thumb is probably not to go above 5,5 to 6 days for most repairs, just in general. And I know that can be a stretch, but when you’re dealing with more cosmetic issues, is where we see the longer times. And those often times are at the approval of whoever the investor of the property is to repair them a lot of the times. Cosmetic issues a lot of times are not covered in the lease. That’s a discussion that usually happens with the landlord or the investor.

Joe Fairless: Yeah, and regardless of if a Best Ever listener works with you all or not, these are some questions that they can ask their management company, either that they currently have, or when they’re interviewing management companies. The question is “How long does it take you to repair an A/C unit?”

Ray Hespen: Most won’t know. [laughs]

Joe Fairless: Right.

Ray Hespen: Most won’t know. And here’s an important thing for our clients, what we really educate on – if you’re bringing on an investor, they wanna know “How often am I gonna get my money?” If I’m investing in a property and I want you to manage it, there’s two reasons I won’t get my money as an investor. Number one, if my property is not leased, which again, we’ve talked about the maintenance correlation to that. And then the second one is actually maintenance issues.

One thing that we’ve coached our customers as kind of a differentiation is our technology will also let the investor or the landlord that owns those particular properties or that building, whatever it might be – we let them know on service issues when they’re generated, when they’re scheduled, when they’re done as a value-add of service. There’s only two reasons you’re not gonna get rent – one of them is maintenance, one of them is leasing, and then our product obviously as a maintenance-focused product, is gonna let that investor know exactly what’s going on with that property, and an opportunity to get involved, if necessary.

Joe Fairless: Based on your experience as a real estate entrepreneur, what’s your best advice ever for real estate investors?

Ray Hespen: One thing that we’re more or less seeing is this industry as a whole cannot allow the consumer experience of today of a homeowner exceed the experience of a renter, or at least allow the gap to get too far. So we think about these kinds of services where you’re a homeowner now and you’ve got Thumbtack, you’ve got Angie’s List, you’ve got all these things that you can order service on the fly, to get somebody to come and repair something at your house. You’ve got smart home technology that you can implement pretty easily at your own property. So my encouragement is, and at some of the panels that I speak on, is making sure that the renter has a relatively close experience to that. Because ultimately, right now in the industry we have this awesome opportunity that people want to rent, and not buy. What we don’t want to have happen is what existed even 10-15 years ago, where rentals were what you did when you couldn’t afford to buy a home.

So you have to make sure that consumer experience for a renter is high, and we don’t allow the consumer experience of a homeowner to exceed it, because obviously, that’s gonna impact retention, the quality of tenants, that’s gonna impact rent prices that you’re able to pull as well, and the expectations are gonna keep climbing as you have these consumer-grade experiences and homeowner aspect improving.

Joe Fairless: Yeah, that’s great insight. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Ray Hespen: I’m ready.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:24:15].13] to [[00:25:00].22]

Joe Fairless: Best ever book you’ve recently read?

Ray Hespen: Outliers.

Joe Fairless: Malcolm Gladwell. That’s a good one. What’s a mistake that you’ve made in business?

Ray Hespen: Not staying focused on understanding what our objective and our mission is. We call that scope creep in the software business.

Joe Fairless: Best ever way you like to give back?

Ray Hespen: Time is the most valuable asset. I love kids, I love inspiring, I love being a positive role model if possible.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?

Ray Hespen: www.propertymeld.com. You can also reach us at info@propertymeld.com, and check out our social media accounts – Facebook, Instagram and LinkedIn, as well.

Joe Fairless: Ray, thank you so much for being on the show. A very clear value proposition, and how it can benefit property management companies, as well as individual owners, and very interesting, regardless, as I mentioned earlier, if someone ends up working with you all, just learning how long we have to address things in order to have a satisfied resident. From your team’s research, it’s 3,5 days to do the A/C, five days for plumbing, and you’ve got 5,5 or maybe 6 days for some cosmetic things.

Really interesting stuff. I enjoyed our conversation, I learned a lot, and I love how all of it is based on the research that you all are doing, so thanks for being on the show. I hope you have a Best Ever day, and we’ll talk to you soon.

Ray Hespen: Thanks, Joe.

JF1365: Cubicle Mates Turned Investing Partners & Podcast Hosts with The REI Rookies Jack Hoss & Josh Koth

Listen to the Episode Below (29:35)
Join + receive...
Best Real Estate Investing Crash Course Ever!

Jack and Josh worked together at their W2 job, sitting across the cubicle from each other every day and scheming of a way to break out. One day Josh’s whole team was laid off, he took advantage of that and started building a portfolio after emptying his IRA. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

 

Jack Hoss & Josh Koth – The REI Rookies Real Estate Backgrounds:

  • Hosts of the real estate podcast REI Rookies
  • Focused on creating wealth through conventional and creative real estate investing
  • Valley Property Partners – single family, buy and hold investors
  • Share their experiences and lessons learned as they work towards financial freedom
  • Based in Fargo, North Dakota
  • Say hi to them at http://www.reirookies.com/
  • Best Ever Book: Cash Flow Quadrant

Join us and our online investor community: BestEverCommunity.com


Made Possible Because of Our Best Ever Sponsor:

List and manage your property all from one platform with Rentler. Once listed you can: accept applications, screen tenants, accept payments and receive maintenance tickets all in one place – and all free for landlords. Go to tryrentler.com/bestever to get started today!


TRANSCRIPTION

 

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, Jack Hoss and Josh Koth. How are you doing, Jack and Josh?

Jack Hoss: Hey, it’s great to be on your show!

Josh Koth: Doing well up here in the upper Midwest. Summer finally hit… We’re hoping it’ll last more than a week this time.

Joe Fairless: Yes, fingers crossed for me, too. By the time this episode airs, I think you will be nice and toasty, that’s for sure. Looking forward to our conversation. A little bit more about Jack and Josh – they are the hosts of the real estate podcast called REI Rookies Podcast. They also have a company called Value Property Partners, where their main focus is buy and hold single-family homes, and they do some things to acquire wealth to buy those properties, like wholesaling, and fix and flipping.

On the podcast, they share their experience and lessons that they learn as they work towards their financial freedom, and they interview others as well. With that being said, do you two wanna give the Best Ever listeners a little bit more about your background and your current focus?

Josh Koth: Sure. Basically, we were both in IT and we were cubicle mates; we sat across the aisle from each other, and we would scheme how we could escape the cube life. We knew that passive income was the way to do that, we had both read Rich Dad, Poor Dad, and that kind of red-pilled us. Then it was just a matter of finding out the method of how to do that. All roads kind of led to real estate through our research, and then I was lucky enough to get canned with my whole team…

Joe Fairless: Congratulations.

Josh Koth: Yeah, thank you… So I suddenly had the time to go look at properties all day. So I started purchasing a few, and then just built up a portfolio over the next 6-9 month or so, and then Jack was watching from the cubicle and we decided to partner up. He just quit his job this year, and  now we’re both doing it full-time and lovin’ it. That’s my quick version.

Joe Fairless: Yeah, when you got fired, you started looking at properties and buying them and built up your portfolio… Did you get a severance package?

Josh Koth: No… I actually drained my IRA.

Joe Fairless: Okay.

Josh Koth: Fully red-pilled.

Joe Fairless: So you got fired, your income that’s coming in from your W-2 job is no more, and then you decide to start investing money and buying properties… Do you have a significant other in your life, besides your business partner?

Josh Koth: Yeah. She stays home with the kids though, so she wasn’t making any income for a few years. And actually, I had another side gig as a photographer.

Joe Fairless: Well, that’s very lucrative, I’m sure.

Josh Koth: Yeah, right… Definitely, in this day and age.

Joe Fairless: Right. So what was the conversation like with your wife when you were like “Okay, I got fired, so we don’t have any income coming in, but don’t worry, I’d like to take the money that we do have and then spend it somewhere.”

Josh Koth: Well, it’s really simple, actually. I showed her a comparison chart of our average returns of the IRA over the last 20 years, and I said if I was to pull all this money out and pay the taxes and penalties and invest it in real estate, assuming – I think I used a 10% or 11% rate or return, that I felt I was comfortable enough to guarantee that I would get… I had made up all the taxes and penalties within a couple years, and then my projection was doubled by five years, and then by 15 years or so it quadrupled… Versus leaving the money in. So she was pretty sold on that idea. She just is a cheerleader; she didn’t really know anything about the business per se or want to be directly involved, but she supported me in that choice; that was all I needed to blast out of the shoot.

Joe Fairless: And Jack, what are your thoughts about this?

Jack Hoss: Well, I actually think that the team being laid off – I was on that same team, and about two weeks before the team got let go I actually got a different role.

Joe Fairless: Within the same company?

Jack Hoss: Within the same company. So I actually think I took it harder than Josh. When I saw that whole team get let go, I realized that the corporate job wasn’t as secure that I thought it was. Soon after that is when I bought my first duplex.

Joe Fairless: Got it. How long ago was your first duplex? When did that happen?

Jack Hoss: It’s been…

Josh Koth: The spring of 2016.

Joe Fairless: So about two years ago you got your first duplex, and now you two are partners… When did you two partner up?

Josh Koth: Basically, I bought a few myself, Jack bought a few himself, and then we just kind of realized it’d be smart of us to double our efforts. We totally believe in the 1+1 can equal 5. Your accountability is there, your efforts can be multiplied… So we started buying a few together, and just have never looked back. That was about a year and a half ago… So about nine months into the journey or so we decided “Let’s just partner up.” I think we’ve purchased every property in that company’s name that we formed together ever since.

Joe Fairless: How do you divide responsibilities? Are things gonna get awkward? [laughter] Well, I should have to do all of this, but I do have to, unfortunately…

Josh Koth: I guess we got lucky, because when we entered into the partnership we knew each other fairly well, but you never know someone’s true personality until you’re trying to make a living with them. It can, like you said, get awkward, or get ugly. So I think we both got lucky though in that our personalities are very even-keeled, and we’re both hardworking, so we just divvied up tasks, and as people were able to do them, we were both putting in the time. There was no question of either one of us putting in the hours.

Things were happening, and deals were getting done, and we were being successful. We haven’t reached the point where we’ve had to question anybody’s motivation yet… Knock on wood that that doesn’t happen.

Joe Fairless: But specifically, what do each of you do? And if you need to use a deal as an example… I’d just like to know who does what.

Josh Koth: We kind of both talk to sellers when we do direct marketing… We can almost split that up evenly. It’s really kind of you kind of go out and find the connection, and if they bring you something, then you kind of take that deal to fruition. We don’t really have things split up as far as one person does acquisition, one does disposition… It’s kind of a blend.

I have my contacts that people know me and they bring me direct referrals. We both respond to calls that come in through our direct marketing, we both will text our agent that [unintelligible [00:07:41].05] offers on the MLS… It’s kind of evenly split down the middle so far. I think over time we’ll maybe settle into more official roles, where we divide up the tasks…

Jack Hoss: Yeah, I think what’s really helped us is that we do have a CRM that keeps us all accountable and on track. I know what deal he’s working on and I he knows what deal I’m working on, and it kind of works out from there.

Joe Fairless: So it’s almost you divide and conquer based on deals, not necessarily specific responsibilities within each deal. Okay. What CRM do you use?

Josh Koth: Rei.soluions.

Joe Fairless: Why do you use that?

Josh Koth: We did some mentoring with Matt Theriault, from Epic Real Estate, and it was something that his team teaches how to implement. We’re believers in not reinventing the wheel, and if something has something that they’re working and they can get it implemented in our business quickly, then… We just had them do it for us, basically, so we didn’t have to sit there and learn a CRM from the ground up. They just got it going for us and we just took off running.

Joe Fairless: How much have you two invested in mentoring?

Josh Koth: Oh, geez… We’ve gone to a couple events, and paid for mentoring, traveled a couple times; we’re going to Indianapolis at the end of May… I don’t know, probably 50k total.

Joe Fairless: And how do you justify that from an ROI standpoint?

Josh Koth: Since we left there and paid for them to implement the CRM, our deal flow at least doubled, versus what we were doing on our own previously, if not tripled. In fact, we’ve done more transactions as of May 1st than we had all last year. So the proof is kind of in the pudding there… And it was a leap of faith though, because you don’t think “What kind of return am I gonna get on this?” We didn’t look at mentoring as an expense, we looked at it as an investment.

We don’t wanna reinvent the wheel, so if there’s somebody doing what we wanna be doing, we’d rather just replicate their model and do it in our market. We’re in the upper Midwest and farther North Dakota here; there’s not a lot of people doing direct mail strategies and all the other things that are happening in bigger markets… So it was really a wide open playing field. When we talk to sellers, a lot of times we’re the only one that’s ever mailed them anything… That’s a good spot to be in, right? Not a lot of competition for off-market properties here.

Joe Fairless: And can you two talk to us about your business model?

Jack Hoss: I think we’re unique in this market as well. We still get about half of our deals off the MLS, but the majority of them come through referrals. Josh and I – part of that mentorship investment that we make is through joining as many networking groups locally as we can. Whether it is coming from a realtor, through a pocket listing, or somebody bringing a property to our attention… That’s been one of our best investments so far.

Josh Koth: Yeah, and our basic business model is we use private money to make cash offers, with no contingencies on properties, in order to get the deepest discount. Then we try to buy them cheap enough where we can go to our local regional bank here and do a cash-out refi, pay back the private lender with interest and pull out all the money used to acquire the deal, and then just keep doing that over and over.

That allowed us to go from one deal every few months to one deal a month, to now several a month… Just because now it’s just a matter of how fast can we purchase a property, get the deed recorded, do a cash-out refi… Now it’s just about streamlining the process and increasing our conversion rate with sellers, and just getting more marketing out there too, to just get more deals in the front end of the funnel.

Joe Fairless: Sounds like in order for a listener to replicate this type of model they’ll need deals, they’ll need private money, and they’ll need a lender to cash them out. Any other major important piece of that puzzle that you’ve mentioned?

Josh Koth: I guess networking and just getting out there and telling everyone what you do and being a part of as many networking groups as possible; that’s a big piece of it too, but I guess that just kind of plays into the lead gen… But that’s something that people can do when they’re getting started; it doesn’t cost anything, right? They can go to Chamber of Commerce events here, local BNI, your Master Networks chapters… You can go attend all these events for free, and just get your name out there and tell people what you’re doing.

On our podcast we kind of focus on beginner investors and kind of journaling our journey from the beginning, and we kind of try and boil everything down… So that’s one way that people can really take action if they don’t have a lot of money for marketing.

Joe Fairless: Any specific example where you’ve seen — the Chamber of Commerce, or a meetup or something result in money, profit to you?

Josh Koth: Yeah, in fact just last night when we were at our real estate investor — we don’t have a REIA club in town here, so we took over the local real estate investor meetup group…

Joe Fairless: How did you take it over?

Josh Koth: Well, there was a different guy running it, and we just became so active in it and tried to help out as much as we could that when he left to move to a different area of the country he just asked us “Hey, do you guys wanna take this over?”

Joe Fairless: Why would he ever wanna leave Fargo, North Dakota…? I don’t understand.

Josh Koth: For a lady.

Joe Fairless: Oh, okay… There we go. He followed love. Okay, fair enough. That’s even worse… [laughs] No, I’m kidding.

Josh Koth: Yeah, so it was for love…

Joe Fairless: Alright, fair enough.

Josh Koth: So when he left and he asked us to take over, it was just a matter of being in a position where we were so active that it was kind of an obvious choice for him to go to us, because he knew that we were passionate about it, and we had attended every event, and we tried to give a lot of good value.

Joe Fairless: And how many people were regularly attending that? Is it a monthly meetup?

Josh Koth: Yeah, first Monday of every month.

Joe Fairless: Okay. How many people regularly attend?

Josh Koth: Geez, last night it was almost a record attendance; it was like 30-something. Typically it’s 10 to 20.

Joe Fairless: Cool, cool. Anyway, I interrupted you because I wanted to hear how you took it over.

Josh Koth:  While we were there, I got a text saying someone had accepted our offer on a house here in town… And it was another investor group that was moving up into multifamily, and they needed the capital because I think there was some syndication going on and they had the opportunity to buy in at a higher level if they could sell this last house they owned… So actually they gave it to us at a great discount, and that was directly as a result of just being in front of people. Because we didn’t get it through marketing, we didn’t get it through any other paid source, it was just for being out there… And in fact, I think it was somebody we use to work with.

It’s a free marketing method – just telling everybody what you do. He saw that we were doing deals, gave us a shot at it, we made an offer, and that was it. He accepted.

Joe Fairless: With your business model you find deals where you can buy on a deep discount, and then you buy those with private money. You then get a lender — after you close, you then get a lender to do a cash-out refinance, or actually just put a loan on it… So what are the loan terms and what lenders do you use that allows you to — or I guess it’s just any loan, so I guess they’re not allowing you… But what lender?

Josh Koth: I don’t think the name will help, just because it’s a local–

Joe Fairless: Yeah, fair enough. If you wanna invest in Fargo, North Dakota, then talk to these guys and they’ll tell you who their team is.

Josh Koth: They’re called Black Ridge Bank, and they’re very investor-friendly. The guy that we talked to, he gets it… And he has the least amount of hoops that we’ve ever had to jump through when talking to lenders.

Joe Fairless: Yup.

Josh Koth: And then once you have a relationship built up, then it’s just a point of — we just send him “Here’s another one we’ve bought. Here’s the address, here’s the amount we’d like to pull out.” He knows that we’re making good deals and they’re gonna be well within his risk tolerance.

Joe Fairless: And what is that risk tolerance?

Josh Koth: Well, if we can get something — typically in Fargo-Moorhead here the tax-assessed value will be about 10%-15% below the market value of a property… So if we can buy a property for 80% of tax-assessed value, he has no problem giving us that amount of money, because he knows he’s still a good 20%-30% below market value.

Joe Fairless: Okay, that’s pretty easy.

Jack Hoss: It’s important to note that this is a relationship that’s been built up over the past two years, for him to get this comfortable… But we’ve heard time and time again, by other podcasts and training materials – it’s those local banks, with that local, more intimate relationship that you’re gonna get this type of return and relationship built up. We haven’t had a lot of success with the larger banks and corporations…

Josh Koth: Yeah, because they write everything in-house, and make all the underwriting decisions in-house, and they hold the loans, they don’t sell them off. So we’re not having to check a bunch of boxes that Wells-Fargo or Bank of America would require you to do in order to sell the loan.

And I think the terms are — I don’t even remember… They’re like 4-something percent, amortised over 20 years of the 5-year balloon… Pretty typical.

Joe Fairless: On single-family homes, the 5-year balloon?

Josh Koth: Yeah.

Joe Fairless: And what are your thoughts on doing that type of loan, versus 30 years…

Josh Koth: That was just what was offered to us, so we didn’t really have a choice… [laughter] But honestly, the average length — we were just discussing this with him the other day – of a loan in this type of situation is about three and a half years, so typically we’ll have either sold it, maybe wholesaled it to another investor, sold it to an occupant, or rolled it into something else. Rarely does the five-year mark ever get hit, and if it does, we just re-up.

People tend to get scared of balloons, like “Oh my god, I’m gonna have to come up with $100,000 all of a sudden one day”, and really, that’s not a reason to stop, because it’s a lot easier to reorganize debt on properties you own, than it is to acquire new property. So it’s not that we don’t consider it a problem, but we’d much rather have that problem, if you wanna call it a problem.

Joe Fairless: Sure.

Josh Koth: I’m just reshuffling the debt five years down the road.

Joe Fairless: As buy and hold investors, how do you think about the five-year timeframe where you said you might just get a new loan, but I think you just said most likely you’re gonna be done with that project… So how are you being a buy and hold investor, but being done with the projects within five years?

Josh Koth: You just never know what you’re gonna do? Our mantra is if you buy it cheap enough, all exit strategies are possible… So sometimes you need cash, so you have to liquidate one or two, and we’re not afraid to do that if we need to. If we know we’re gonna hold it for the long, long term, eventually I’m sure we’ll roll it into a like a portfolio type of loan, and maybe see if we can put together a package.

We’ve discussed this with them as an option, too. Say, take ten of these that we know are really solid, we’re gonna hang onto these long-term, and just roll them into one longer-term loan. That’s an option, too. We’ve only been doing this for two years and a couple months, so…

Joe Fairless: Are you gonna create a management company? I thought I’d be coy about it, but that didn’t work…

Josh Koth: No, we have no problem paying vendors for what they’re good at, and outsourcing things; we’ve just hired a local property manager to handle all the properties, and from day one we figured that expense into each deal, and we have somebody locally here manage everything.

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

Josh Koth: I’ve got one, but I’m gonna let Jack go first.

Jack Hoss: Well, I actually think my biggest one for me was get your mindset and know your numbers. I know that there’s a lot of analysis paralysis around real estate investing, but we also find that in our group people will do a deal for the sake of getting a deal done, instead of understanding your numbers, staying true to it, and then strike when the iron is hot. It’s great to have all of your numbers and your relationships in line and get that house in order, but you have to take that action when you are presented with the proper opportunity.

Josh Koth: The proppertunity… [laughter]

Joe Fairless: I like that one.

Josh Koth: My advice was to take action, even in the face of fear. I was just talking to a gentleman at our meetup last night, and he said he wrote his first offer and he was sick to his stomach. He thought he was gonna throw up. It was an all-cash offer, and then he called the agent back and canceled it and said [unintelligible [00:20:00].02] and action will cure all those fears. Because if he writes five offers a day for the next month, by the end of the month he’s not gonna be queasy when he writes offers anymore.

So I say no matter what, figure your minimum standards out that you wanna get out of a deal, and stick to that; figure out what price you wanna offer on each property based on that… And our mantra is the asking price is meaningless. We just figure out what we would pay… And just start writing offers like crazy.

That’s the number one thing when I talk to people that are just getting going, and they say “I can’t find any deals.” I say “Well, how many offers have you written?” They say “Well, there’s no deals out there.”  I say, “Well, you figure out the price you would pay, and offer that”, and just do it consistently, so many a day, and I guarantee you’ll do a deal eventually. And if it’s a true deal, even if you don’t have the money raised, the money will come, because people will want to be involved in a true deal.

Joe Fairless: On the money raise part, what terms do you provide to your private money people?

Josh Koth: Well, what we say is “What would you need to be able to do this deal?” [laughter]

Joe Fairless: “70% return in two seconds. Now, what terms do you offer?” [laughter]

Jack Hoss: Sold!

Joe Fairless: Oh, really? I’d like to do a deal with you then!

Josh Koth: You never wanna volunteer your highest rate that you’d be willing to pay right out of the gate, because you might be leaving money on the table. We’re just going in under the assumption that their money, if it’s sitting there in a CD or some other type of under-performing investment, if we can double or triple that rate of return, in something that’s secured by actual real estate, virtually no risk, we feel confident just asking. In our minds, we have our upper limit that we would go to.

Joe Fairless: What’s the upper limit?

Josh Koth: 12%. One percent a month is something that we would be comfortable paying for  a short-term use of money… Because really, we’re just using the money for 30 days, typically, until we can get a cash-out refi down.

Joe Fairless: And in that case do they “only” make 1% on their money?

Josh Koth: Yeah. If we borrowed $100,000, they’d make $1,000 if we held the money for 30 days.

Joe Fairless: And people do that, huh?

Josh Koth: Oh, yeah, they do. And we try to keep their money out in perpetuity. We don’t say “Here’s a dollar. See ya!”

Joe Fairless: $100,000 and make $1,000… I don’t know, maybe my mind is skewed, but I wouldn’t think that would be worth the effort.

Josh Koth: Well, that’s [unintelligible [00:22:33].23]

Joe Fairless: Yeah, but it’s 1% in reality… Oh, but if they keep it, you just keep rolling it. Okay, I hear ya.

Jack Hoss: We have quite a few investors who — they will lend us the 100k, but now it’s just one deal after another. Over a year’s time, that’s…

Joe Fairless: Yeah, 12% is great.

Jack Hoss: And it’s guaranteed.

Josh Koth: It’s exceeding what they’re getting elsewhere.

Joe Fairless: You just said “guaranteed.” That was Jack… Jack, you just said that was guaranteed – do you want another pass at that? [laughter]

Josh Koth: Well, the 1% per month is guaranteed; it’s just a question of how much money do we have of theirs out at any one time.

Joe Fairless: Well, it’s not guaranteed though… If your business goes flat, if  the property goes away… There’s some scenario I guarantee you an attorney who’s smarter than me can come up with where it’s not guaranteed. No return is guaranteed in real estate.

Josh Koth: But Joe, that’s scarcity mindset. We don’t like to think that way.

Joe Fairless: No, it’s legal. It’s liability. It’s “not getting sued” mindset, it’s not scarcity.

Josh Koth: Their Apple stock that they own could also go to zero too, so…

Joe Fairless: Sure, there’s risk.

Josh Koth: It’s much less risky than that.

Joe Fairless: I’ll agree with you on that, but there’s no guarantee of a return, in my opinion. Maybe your attorney says otherwise, but I do security offerings for our deals, and maybe my mind is just conditioned to approach it that way.

Josh Koth: You can never say 100% anything.

Joe Fairless: Well, no, just to not guarantee returns.

Josh Koth: Right. I guess we just haven’t had that problem yet… Knock on wood, right?

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

Jack Hoss: Let’s do it.

Josh Koth: Yeah.

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

Break: [[00:24:21].25] to [[00:25:05].12]

Joe Fairless: Best ever book you’ve read?

Josh Koth: The Cashflow Quadrant, by Robert Kiyosaki.

Jack Hoss: And I would say The Traveler’s Gift.

Joe Fairless: Who wrote that one?

Jack Hoss: Andy Andrews.

Joe Fairless: What’s it about?

Jack Hoss: It’s all mindset, and it’s actually kind of a Sci-Fi time travel… The person is about to experience death, and goes through back in time and experiences different life lessons from historical figures.

Joe Fairless: Best ever deal you two have done, that we haven’t talked about?

Josh Koth: One time there was a house on the MLS listed for 80k, and I ran the numbers and realized the only way to make a profit was if I got it for 30k. My agent laughed, said they’ll never take that… And he said “Do you want me to call the listing agent, see if they’ll take that?” I said, “No, put it in writing. Let’s just take a swing at it.” And the next day he called and said “Dude, they took it. They didn’t even counter.”

Joe Fairless: [laughs]

Josh Koth: Ever since then, every deal he does or any deal we do, always in writing.

Joe Fairless: Wow.

Josh Koth: That taught us a huge lesson… And to always submit the offer; even if you think there’s no chance in hell, they’re gonna take it, submit it anyways.

Jack Hoss: And that’s a great lesson to find that team member on the realtor side who’s willing to have that steel cup.

Joe Fairless: Yes, absolutely. What’s a mistake you two have made on a transaction?

Josh Koth: Sometimes rehab creep is bad. You think “Okay, I’m gonna spend 20k to get this rent-ready or to flip it”, and “Oh, while we’re at it, let’s change this and this…” and next thing you know you’re at 30k, and guess where that 10k is coming out of? Directly out of your profits. You’ve gotta remember, you’re not living in the property. It doesn’t need to be featured in Better Homes and Gardens. There’s a limit where your maximum profit will be reached. Don’t exceed that. We’ve done that a couple times, and [unintelligible [00:26:49].27].

Joe Fairless: What’s the best ever way you like to give back?

Jack Hoss: I actually have been volunteering at a youth entrepreneurship day here in town, and it’s been great… And I had my kids involved. That’s something that I really enjoy doing – helping the kids have the right mindset right off the bat.

Josh Koth: I actually just got hooked up with Junior Achievement locally here, and I’m gonna go in and speak about entrepreneurship to elementary school and high school kids. And honestly, we kind of do the podcast as our way of giving something back to investors that are just getting started. It does help us too, obviously, because just talking about the material is helpful to us, to just go through it all in an organized fashion… But that’s kind of our way of giving back to newbies, because obviously we don’t charge for the podcast or anything, so…

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

Josh Koth: Go to ReiRookies.com. That has a link to the podcast, and you can fill out the contact form and reach out to us on there.

Joe Fairless: Excellent. Yeah, all the podcast interviews are there, and you can see Josh juggling a house in a microphone, and Jack standing there with full confidence, just kind of smirking at you, like “What’s next, buddy?” I love it.

Well, I enjoyed our conversation. Thank you for being on the show, for talking about how you two partnered up, how it’s not necessarily a divide and conquer with certain responsibilities, it’s focusing on “one person does one deal…” Perhaps there’s a bit of overlap, but one person is a primary person for a deal, and then you’ve got an entity where you partner up on, with all the deals… And how you do the business model – finding deals that are cheap, and then getting them under contract with private money, and then having a local lender put a loan on the property, you pay back the private money with their interest, and now you’ve got a long-term rental, and then you’ve gotta decide what to do with it within five years, which is either sell it, or re-up on a loan, or maybe eventually you’ll put it under a commercial loan, with a portfolio loan.

Thanks for being on the show. I hope you two have a best ever day, and we’ll talk to you soon.

Josh Koth: Thanks, Joe. It was awesome.

Jack Hoss: Thank you.