How can you effectively grow your PMC if you’re already overworked, short-handed, and doing everything possible just to stay afloat?
In this episode, Andrew and Thad are joined by Kevin Hommel as he shares his personal insights on leading finance and operations at a C-suite level and growing his PMC to 7000+! Listen as he answers YOUR property management questions about culture, finance, efficiency, employee retention, and all things operations.
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Hosted by Andrew Smallwood and Laura Mac
Featuring Kevin Hommel and Thad Tarkington
Produced by Andrew Smallwood, Laura Mac, and Carol Housel
Edited by Isaac Balachandran
Episode Transcript:
Kevin Hommel
The culture has to be evident when you come to the building when you're talking to somebody from the company. Anyone who encounters or interacts with your business needs to be able to feel your core values coming through when they meet with you and when they explore your company online or if they talk to somebody else about you. So it started with that. Every meeting, every meeting room, you have to have your core values right there. And everybody in that room has to buy into those. And so that starts with the people process and that's the side of the business I think most owners don't want to deal with. Outsource the people to a staffing agency because they need somebody to screen apps or I need somebody to make sure my work workers are under control and maintenance. But if they're not the same kind of person that's going to live out those core values, then you're not going to get that experience.
Andrew Smallwood
I just want to say thank you to all of you, all the triple-winning property managers out there. If for some reason you're not a member of the Facebook group, it's just a private place. We actually just crossed 700 members of that private group last week, and we vet every single person coming through. So what you'll see is different about other Facebook groups is it's not a bunch of vendors just spamming their local painting business or other stuff you might find in property management groups out there. We're putting a lot of great content in there. There's a lot of great information on events and things like this that you can take advantage of. There and just a great place to have a great conversation about how to do property management differently. So I met Kevin a few years ago when he was a CFO and was helping a company go from a thousand doors to well over, I think 50 550 700. By the time Kevin and the leadership team were done working in the capacity that they were, I think that companies now over 7000 units, which is pretty exciting and a lot of great results from a retention standpoint, both on the owner and the resident side, that stood out as very unique. Certainly, anybody getting to 7000 units that aren't their own, that don't have billions of dollars of capital to buy them all themselves, that's attracting investors and residents alike is interesting and I think the average tenancy, Kevin, was something north of five years by the time you were down there and it's continued to grow since over six years, I think almost seven years. And average tenancy I saw recently that we're going to dig into that and understand that. But not a lot of property management companies and the people that are here have CFOs in their companies. So I thought it'd be cool to have a different perspective and some things you could share from that. But what I love about Kevin and I'll tell you just a story some of you may know Kevin actually from a Southern States Naka event in Nashville, Tennessee, back pre-pandemic B.C. before COVID when we got together in person for conferences, we had this cool like a rooftop social event. Over 200 people registered somehow and more people than were at the conference registered for the social event. Don't ask me how that happened, but it was a lot of fun a lot of people there, and Kevin as he was kind of transitioning out of this executive role I mean he's passionate about beer, and let me tell you I am passionate about tasting Kevin's beer. So any time of going through Memphis I'm like, dude, what do you have in a growler? What can we have? And I'm like, Kevin, is there any way we could have a beer by a property manager for property managers at this social event? And like he and his buddies, I mean, they brought kegs of beer, which of course went empty pretty quick anyway. And they were serving it the entire time. Like it was cool the way that they showed up to it and did it. It was cool to see. So it was a really fun time. Some of you may have met Kevin there, but he's just one of the nicest guys I know. And one of our good mutual friends, Ben Trombley, had this to say about Kevin, and of course, he's a great executive. Of course, he's got a finance background. But what I know Ben appreciates about Kevin is he's a big developer of leaders, right? He doesn't believe in just being a leader. He believes in developing other leaders. And so I think there's a lot of wisdom we can get about leadership, development, culture and, you know, how to develop people where, again, now that he's not in his position, the business has continued to grow on a great trajectory beyond them. And a lot of people would say that's a mark of a truly, truly great leader. So, Kevin, I'm going to run out of breath before I ever run out of nice things to say about you. But thanks for being with us today, man. Appreciate you taking the time.
Kevin Hommel
Yeah, you bet, man. I appreciate that answer. I'm not sure there's much left to be said after that. I see a lot of people on the side want me here so I can make them happy, too. Happy to oblige.
Andrew Smallwood
Yes, we do probably before this day is over. This event is over. We want to know what's the best name for a property management beer pass. Like, is it eviction ale? Is it, you know, is it a rent is due rattler? I don't know. But we'd love to see your most creative beer names in the chat. What's a great property management beer name? And maybe Kevin, it can work on a special recipe for us at some point in fad. I, I, I want to give people a very quick introduction, if you don't mind. For those who don't know you, co-founder and CEO, it's second nature that's out of Raleigh, North Carolina. If you don't know who second nature is, go to, I repeat a second nature dot com and check it out and sad. I know we're going to be talking a little more about culture and core values and some things like that as a part of this today. With that said, I'll kick things off with a couple of questions and immediate curiosities and we can discuss them together and let the questions flow in Kevin, I've got one down here which is, you know, looking at things through a financial lens, you know, what's your opinion? Different people have different opinions on this. But the financial drivers of the business, you guys have had a lot of success and you've even consulted people now, other companies to help them have a lot of success and duplicate a lot of the things that you all did. Tell us a little bit about what you see as some of the critical keys to what drives the business and what should managers be focused on and paying attention to?
Kevin Hommel
Yeah, I wrote down some notes I may go back towards the spreadsheet that you guys build. And but I think the number one thing that anybody involved in leadership and management companies should be familiar with is profit and loss. And every single line on that should have someone in the company assigned to that line to not only understand what makes it their all your revenue streams that you have, how you add doors, what a new door adds to your company and revenue and all that. But below the gross profit line, the expenses and understanding that a lot of expenses in a service company are an investment. So your people ratios and your software costs and everybody here uses the software for management. So understanding what builds the PNL and why each one of those things is important to the business, understanding which ones aren't maybe figuring out ways you can save costs by cutting those things out. But then also I think it's one of the more important factors in driving revenue into the company is how do I get new doors? Right. And so understanding your sources of marketing, what's effective marketing where are you wasting money? Where are you seeing fruits? So it just comes down to tracking everything, which is a theme. And what you were asking about yesterday when we talked. So be a data junkie and focus on the PNL. Where does it come from? Why is it important and how do I get into the business?
Andrew Smallwood
And I'd love to, you know, listen, not every business is going to have a COO, CFO, et cetera. But there's a lot of people who I'm looking for accounting help or bookkeeping help or, you know, some expertize around this. Can you share some of the distinctions like, you know, what are the key gaps you've seen in companies that you're consulting as far as some level of accounting or finance? Expertise, how does that translate into problems that their team or owners, or residents may experience? And you know what are the, I guess, pieces of advice or best practices you might offer for helping people to close this gap?
Kevin Hommel
Yeah, number one is somebody in your organization needs to understand trust accounting, and everybody understands this on this call, but understanding that if you get it wrong, like, how do I go find that error and fix it? So I think that when I see management companies that are thriving do well, is they either have someone on staff that they're just always accounting and understands trust accounting or they have a really good relationship with it with a CPA firm that has that person on staff. So in the beauty of our age right now with technology, is it doesn't have to be somebody in your home town? I mean, we could do this right here and have a meeting about finances and an accounting with someone in California, or I'm in Memphis, so East Coast, North Carolina is a financial hotspot. So you have a lot of people that understand this business and the barriers aren't there too. So those relationships that used to be. So I would say the number one thing is in the accounting area, have someone that you can go to and talk about trust accounting and everybody's going to last is private. Don't co-mingle anything, have your separate accounts and make sure you're following your local real estate laws and how you separate money and all of that, and understand what those laws are. And then there are a lot of CPA firms that will offer fractional services to small businesses because they know they can't afford that six-figure salary and all that goes along with that. Right. And the taxes and benefits and everything else. So they're happy to provide that service. And for some dollars per hour as opposed to, you know, six figures a year, it's a good investment.
Andrew Smallwood
That's great. I want to dig in a little bit because not just a finance guy, you're an operational leader, right? And part of the executive team I'm just thinking about, you know, some of these kinds of outstanding stats we've heard. I've just loved to understand what's underneath them. And I'm asking for my curiosity here because I know questions are coming in the chat, but I'm just seeing like four or five different beer names here, tiers of victory lager, late pay lager, make ready, like good homebrew. These are fantastic. Keep them coming and keep the questions coming too. We need a more dark beer for a moratorium ale or something Porter Taurean. All right. Anyway, I digress. Kevin, a question on like the resident retention and the owner retention you all SAS seem to be a huge key to, you know, again, not only just the just attracting an owner that who gets their first home or their second home but turning that into that helping them get to their second or third, their fourth investment over a period of years with you, you know, more and more that seemed like a big part of your guy's success as well as this long resident tenancy. Can you talk about what are a couple of things that go into ultimately how you guys have retained and even grown inventory among your owner base and retained residents? What were some of the key strategies or things you guys did differently?
Kevin Hommel
Yes, so I was at a turnkey company that also had management. Management is the long-term relationship with that investor. So it's natural. I mean, we grew the management company organically from our turnkey operation. We didn't take on doors when I was there. I think they do now, from people who didn't buy from the turnkey side. So it's there was a natural feeder into that, but they still asked owners would ask all the same questions about management, what are your policies, what how do you do you're of screening, that kind of stuff. So all of it still had to be important. And what I think created the exponential growth was that we put so much focus on the service side in management, right? So not just because they're going to buy a house from a turnkey division, they're going to move it to management and they don't want to deal with the possibility of moving it to another management company. If they're not happy, let's make sure they're happy. And so everything that you needed, think about it, running a business, let's put all of that into the management division and it needs to be like it was running its own separate business. And then every performance indicator, every item in our culture, our core values, all that has to show up on the management side as well. And that leads to retention because you bring the same values to the management company, right? If the number one and two things that owners can't stand you guys, probably if I ask this, you would also you would say two things. I can't understand my financial reports and I can't get anybody to call me back. And so if you do those two things well, you're going to keep owners. But if you do everything at an exceptional level, you're going to keep owners, you're going to continue to add owners, and you're going to have those owners tell their friends about them. Focus on your Google rating. That's another thing that Andrew, you, and I talked about yesterday. A lot of management companies, if you search most metro areas, the average management company has a Google rating, probably under two and a half stars out of five. And so if you can be a four or four and a half and be above everybody else, then you're going to get those phone calls from people that say, hey, I'm exploring management. I've got, you know, six properties in your market and I'd like to talk to you about what you do. You're going to get that first conversation just based on that. So those are probably the things that we did well to grow and to grow the doors and keep the doors right. If we serve the client, we serve the resident extremely well, then the resident wants to stay. I mean, who likes to move? The owners don't want to move management and so you're just continuing to build that relationship after the sale. That's really what we focused on.
Andrew Smallwood
Because part of this in part, great service is what are the things you're doing. And we can dig into that if people are interested in that. But there's also an attitudinal thing. And I feel like you guys have you mentioned there's like a saying in your company that, you know, it started with the leadership team but was throughout and repeated over and over again. And to me, it's a little different perspective than what most would hear could you share that or anything else that you guys did to drive a culture of service across the whole organization so that people are showing up to each interaction and wanting to be very responsive right? Wanting to make sure things are clear, figuring out those problems and solving them? How did you guys do that?
Kevin Hommel
Well, one, we had I mean, and I see this in a lot of businesses now, even outside of property management, real estate and all, it's just that the culture has to be evident when you come to the building when you're talking to somebody from the company, anyone who encounters or interacts with your business needs to be able to feel your core values coming through when they meet with you and when they explore your company online, or if they talk to somebody else about you. So it started with that. Every meeting, every meeting room, you have to have your core values right there. And everybody in that room has to buy into those and so that starts with the people process, and that's the side of the business. I think most owners don't want to deal with outsourcing the people to a staffing agency because I need somebody to screen APS or I need somebody to make sure my work orders are under control and maintenance. But if they're not the same kind of person that's going to live out those core values, then you're not going to get that experience unless they're only talking to you, right? So that's what we did. And it started with when I was there and we were probably 2011 or 12. I think we had maybe ten or 12 employees when I left we were over a hundred. And what we got to is instead of me and a few other executives doing all the interviews, we trained other people how to do the interviews and we said, You don't want to let anybody through the round of interviews that you wouldn't love to come in and go to bat with everybody. And that's the mentality that we brought to hiring. And if you do that, well then only those kinds of people make it on board. And then you have employee retention as well, which we know creates a lot of efficiencies. So all of that doesn't work at all if you don't focus on hiring well. So, define what your core culture is. Define who you want to join you. Andrew, I think I told you yesterday when we were talking that I would rather find somebody that I know that's going to come in and hustle and teach them everything about property management. Then find somebody who's a property management expert that is leaving where they are because maybe they're bitter that they didn't get a raise when they wanted or whatever. It's going to be a completely different experience.
Andrew Smallwood
And we had a lot of people, Kevin, submit questions about hiring, and I want to get that involved in the conversation here. I'll just take all of our time asking all my questions, but.
Kevin Hommel
I'd love to hear from y’all too. Because you guys do that well, I think.
Thad Tarkington
Yes. So one of the things I'm hearing from you, Kevin, is that like if you look at conventional wisdom, a lot of people would say, if I want to make more profit, I need to pay people less to your point. All right. Let me outsource to a staffing agency to just check a box on a spreadsheet or fill some service function. And I would imagine, you know, what you're talking about here. Is investing in people and processes delivering an amazing experience? You know, we might run at a lower gross margin on our management, but our sales and marketing are half the costs. So are our net margins 15% higher or something? Like that. Right. And so, you know, I'd be curious, you know, what have you seen in your consulting versus your operation days where you step into a property management company and what areas like that would you say the conventional wisdom does this if you want to get more profit or you want to, you know, have a better outcome and you're actually saying, you know, a lot of people are looking at that too simplistically. And I'd be really curious from, you know, given your financial background, I think there's often this expectation like finances, just like don't spend any money cheap. And I can tell you hundreds of stories where like, you know, you got to make the strategic investments, and then it pays off. But I'd be curious about your perspective and how do you approach those? How do you do the math when it's not cut and dry? You know, there's this kind of qualitative component to a good people attract better people and you know, you kind of create this flywheel. So I'd love to hear more like, you know, what are the common areas you see where conventional wisdom is wrong? And then how do you go about analyzing and making decisions would be, you know, just curious to hear what you're seeing out there.
Kevin Hommel
So an area where conventional wisdom is right is understanding what drives your profits. Like we talked about or what drives your revenues, what your profits. But also this is a service business. Like we don't sell a product if somebody comes in to buy unless you have a shop that sells t-shirts with the logo on it and stuff like that. So I do want a purple shirt, by the way, Andrew. But the so you have to look at a service business differently than you would look at the way a corporate company or Wall Street would analyze. I've heard people say we should have between 27% and 33% payroll. Well, not in the service industry. You're probably going to be 50 enough because that's where your investment is. And then I think even higher than that. If you're going to invest in super high-quality people, you can't be afraid to offer awesome incentives. You can't be afraid to let people participate in the upside. If you want your business to grow, you can't do it all yourself as the leader. And so you need other people to help your business grow. And so giving them the opportunity, say if you're part of that growth, however you put it to a metric or put it to just overall doors or whatever you want to do, but allow them to get paid when they do well and the company does well as a result of that. I think that would be foolish not to take that approach. I do see a lot of corporate-minded owners in this industry, especially at bigger companies, because a lot of times a management company will get to a certain size and they'll bring in a very corporate CEO or somebody like that or a CFO, and they're making decisions based only on the bottom line and I don't I mean, that's not a way to make decisions, right? If we understand everything below gross profit on a PNL, then I understand what should make it to the bottom line. I need to focus on the top line at that point. And so if you're if everyone in your company is helping you focus on that top line, then I think it's I mean, it's a win for everybody.
Thad Tarkington
So so one thing you mentioned, you went from ten to 100 plus employees during your tenure so something I see all the time is a comment of like, I'm struggling to scale my business, A or B, I'm struggling to enjoy my business. It feels like, you know, I'm working 100 hours a week or, you know, I can't get out of the weeds and, you know, the comments, people just don't do the job as good as me. Now from my perspective, one, I would challenge that and say, like, you know, most people are going to be better at certain things and you, you know, you might be good at some things, but hiring people that are better than you at a certain function and that's really how you scale. And the other part is, you know, I think a cost of scaling is a maybe that employee doesn't do it exactly the way you do it. You know, debatable whether it's better or worse. But accepting a different way of doing things is just that cost of scaling and getting out of the weeds. But, you know, that's something I see all the time in forums and conversations in the industry. I'd be curious kind of what was your experience and perspective and were there any aha's where like you hired someone and it felt tough to give away control and maybe hiring for an example that you handed over to your team, but then, you know, you realized they did it better, you know, drove that flywheel effect you mentioned of like, hey, they're the ones working with them. It was like that extra kind of check and culture, culture lift. So I would be curious kind of your experience scaling and delegating you to know?
Kevin Hommel
Yeah, yeah. It's a mindset and you have to have that mindset. You have to understand that delegating is uncomfortable, but you have to understand what it takes to delegate. Well, if you're there there are two things you can do and they're both wrong. If you don't delegate, you can't grow right because and so on. And so you may do everything perfectly, but you're going to have a very small management company and that may be OK for somebody or you want to grow and so you delegate, but you don't have the follow-through. You don't have the hey, come back around and make sure you made the decision the same way I might have. Or we came to the same decision. At least you might have gone about it differently, but you put you got there. So that follow-up, it's mentorship of I'm handing this off to you. I trust you to do it. I'm going to come back around after you do it and make sure that we are on the same page. Still, that's difficult to do naturally for a lot of people to go that route. So it's super important. My motto that I used to talk to our executive team about and this is one of the things, Andrew, we that we pushed it as far into the organization as we could only do it you can do. Right. So if I'm looking at my workload, I in this not my son, my words, it's Andy Stanley. If you know who he is, he's a fantastic leader and he's one of my mentors early on in my career, he would always say that only do it all you can do. And it's not that I don't want to do anything else. So this is all I'm going to do. It's the things that only I want to do or can do. Maybe it is looking at the bank balances, maybe it's wire money. If you buy a property or something like that, the controls that you need to have to make sure you don't open yourself up to risk everything else should be something you're willing to delegate. If you have that person, I'm prepared. So then the responsibility is on you. As the leader delegator do that well, and then that task never has to come back to you again. You just have to have the metrics in place to make sure that it's going the way you wanted it to go. And that was our mentality from the executive team through the team from interviewing got to the point where I wasn't even involved in interviews in the last two years because our team was fantastic at it better than I ever was. So that in accounting I didn't want to get involved in bank reconciliations and all that other stuff. So I just had a team that could do that, and I had a spreadsheet that came to me once a month with dates. They're all reconciled and they all are zero and massive right.
Andrew Smallwood
That's great that if you don't mind cutting in, we got a couple of questions in the chat, and Jim Smith, we'd love to bring up a couple of good questions. We can just bring you up to ask those live. That would be great. Jim, good to see you.
Jim Smith
Oh, thank you. Appreciate your putting these together. They're informative. The question comes from a personal experience that I had. I had a person that offered me a. I've only been an employee for two and a half years of my life and I told the guy that I was like, I would give him at least two years, no more than three. But he offered me a pretty good salary. And I said, no, let me take a base pay, but give me a percentage of whatever I produced over and above your current revenue, which I ended up being the psychic between the second and third highest paid person and the largest builder in town because I set it up that way. Have you seen that structure set up for property management as far as hiring quality employers to come in with the company? You're forgetting about all the other things that you want. You're looking for quality. But just from a standpoint of motivation, for me it was again, the money was merely a scorecard. I didn't care about the cash itself so much as I did. Well, let's see what I can do. I sort of had my target on what can I do to produce better for the company, which meant that I was going to be bettering my bottom line. I'll shut up and listen to what you have to say.
Kevin Hommel
No, it's great. I mean, you're right on point. And it's back to the way that company is the mindset of the leadership of that company. That's a great structure. If they know they can trust you to bring them the right kind of owners and properties that fit their box. You know, everybody has their box of where we manage and what price points we manage and all that. That's a tremendous opportunity for you to have the upside because your production produces revenue for them, profit for them. They should share that with you. The questions that I would get into with you in structuring that scenario is I want to make sure you understand our core values, our philosophy, and what we don't want, right? Not all revenue is good revenue. So understanding from my vantage point as the executive these are the kinds of revenues we don't want. Right. We don't want. And it's different for every organization. I personally don't like one property owner. I would rather steer clear of them unless I know they're continuing to build their portfolio and maybe even they want me to be a part of helping them build that. Because in my experience, there, it's either 100% or zero and they're either super happy and or difficult. And where you have a customer service responsibility to all your investors. One, property owners do have a lot of needs. And so you have to weigh that in and say, all right, our philosophy is we only want investors that are continuing to build a portfolio. We want everybody to get off one. And so if somebody is on one, it needs to be a to a golf one. I would turn you loose on that. So you'll get all those people to five somehow and then you get to participate in that.
Andrew Smallwood
Yeah, you know, Thad I don't maybe I'm putting you on the spot here, but when I hear like compensation and how things are incentivized, you know, I remember even a change at second nature from when I started to how things are now, maybe you could give that as an example of just making sure you're picking the right target to incentivize. Right? Like, what are you trying to create, you know, and ultimately move the focus towards and making sure it's done in a way that is building the kind of business that you want to build? I'm not sure if you're comfortable sharing that. If I should come back to Kevin with a question.
Thad Tarkington
No, I mean, I can jump in here. So I remember early on, one of our a mentor of mine we were talking about this topic and they said if sales compensation specifically is like the rudder on the ship, it drives behavior and you know that I think it's worth a lot of thought. And specifically starting with, all right, what are the outcomes you want to drive as a business from, you know, how are we going to treat our customers? How are we going to treat other internal employees? And then designing a compensation system that achieves those outcomes takes you to know, it's one of those things where I think hundreds of hours going in to think about it might seem silly, but once you start to figure out what are those levers, you know, how do we account for these? You know, an example I'd give to a Kevin set is, you know, let's say you have a business that has maintenance revenue and then it has managed it, right? You know, you have different gross margins. And so if you do a simple all right, we're going to give you a percentage of revenue. Well, then really what you're telling the team is, hey, let's just go get any kind of revenue. I don't care if it's 30% gross margin or 2% gross margin, because I get 1% of that. And, you know, I just for the business, you know, grab it you know, the 30% gross margin is the objective. And so I think, you know, as we think about compensation, really, OK, what are the outcomes we want to drive and then you know, it's not just about how do you get revenue, how do you service the customer. Are you designing a system where, you know, people might use the word residual or things like that, you know, are you designing something that incentivizes "I take care of that customer for a long time". And, you know, I think you see a lot of kind of all these corporate organizations. It's like, you know, sales are known for overpromising under-deliver. Get the contract signed, throw it over the fence, and then, you know, they don't care what happens. You know, I've heard stories of companies where like, you know, reps are like, yeah, I signed the same deal three times in three years and we never bought it. Yeah. But I got paid every time. Right. And that's, you know, not a win for the company, not a win for the customer. And you start to see these abnormal activities, you know, we're salespeople, you know, maybe something out of the norm. So I think for us, it's something we spend a lot of time thinking about. You know, every year we revisit our structure and say, OK, you know, what are all the things we want to accomplish? Where have we seen somebody not get rewarded for doing the right thing and how can we address that? You know, where have we seen people not focus on the right things because they're getting rewarded for something that would be suboptimal for our customers, you know, the experience when to deliver. So, you know, I think it's something, you know, we spend a ton of time thinking about. In our case, we incentivize, of course, you know, revenue growth, bringing in new customers, but we almost equally incentivize you know, the longer term, you know, are we keeping, you know, our service level up? Are we meeting expectations? So, you know, our organization, if you're you know, if we work with any customer and you know, are they happy in year two and three drives? Yes. As much compensation as you know, are we able to bring them in the door? Is that something? You know, how we've approached it. But I can tell you, it's you know, you spend 5 hours going down this rabbit hole and eventually got all right. We just got to scrap that. That's not going to work. You know, there's you know, there's all these different pressure points of like, well, what happens if we do a deal this way? And then I think, you know, we've also found there are concessions. You have to make some stuff just you know, you don't want to make these things overly complex. I think we've been a victim of that. Where, you know, it took a year to figure out the comp plan because we're like, why did you do this well? And this one in a million scenario solves this problem. Right. So I think thinking through, you know, how can you tie it to, you know, the service you want to deliver and put in an ample amount of time and there are things worth it. And so that's kind of how we've approached it.
Andrew Smallwood
I heard that reflected in Kevin's answer to of like making sure, you know, which type of customer we bring on, right? The one-door customer or this customer. There's probably a different lifetime value. There are different margins on those because this one has higher needs and services here, right? This one, we're more equipped to meet where they're at and deliver a great service right away. And it just gets me thinking about, you know, the compensation is what we're talking about, but it's just thinking about what is that Triple Win outcome, right? And defining and focusing everybody on that if it's paying rent on time, right? Like as an example, we know that's good for the resident. We know that's good for the investor, we know that's good for the team. And it's going to create the Triple Win experience that helps us build our business in the right direction. And so taking the time to be very thoughtful and define what is that Triple Win outcome in clear and simple terms and then get on the you know, on the task of, OK, how do we create that Triple Win experience? How do we get there? What's the new approach to getting there? That drives a lot of great innovation and results easier.
Thad Tarkington
One thing I'm thinking of on just on this, like here's where my head is going, like when I think about, all right, we don't want the investor is one home. He's like, I can barely afford to pay a maintenance bill. Like please take care of this. They're going to be a tough customer and then you think about that person that, hey, I only have one home, but I'm trying to build a 20 home portfolio. And so as I think about potential business development, compensation is it like, hey, I bring that one customer, I get paid, you know, could you do a bonus structure where, you know, every time this person adds a property, even though you didn't necessarily sell them, we're going to structure it where you get an incentive. And then those are the subtle things that in those conversations, you know, I'm just imagining if I'm doing business development, we have it and I'm in a conversation and I'm like, wait, this person just told me, you know, they want to build a 20 in a portfolio. You know, I'm going to, I'm going to focus on that deal that's going to attract the right customer versus you know, if I'm not getting that residual or that that structure long term, I might say, Oh, they only get one. That's what I get paid on. Push them to the side and I might go all-in on this duplex customer you know, that has maybe I get a 20% more commission, but they're going to be a mess for the business. And so I think just thinking through those little pieces of like, you know, what's the ultimate goal? And in that case, you know, you know, are you incentivizing downstream effects that they may not be responsible for? You know, they might not be the ones to upgrade them to 20 units. But knowing that going in, you know, it can attract the right kind of thinking, the right kind of conversations.
Kevin Hommel
So yeah and you have to define the win and Andrew you said it and you said it too. What is the outcome? We're looking for the incentive position by position and it's and it can be different. I mean you don't have to have the same incentive structure across all companies. So if I want to incentivize portfolio managers to this, which is your business development, your customer service, your business development this way, maintenance this way, leasing this way. I mean, it should all produce the win. And if the win happens, everybody's happy. As you said, the trip wins.
Andrew Smallwood
So yeah. So we've got a couple of things. Laura, I think, has got some folks queued up. I think Jan, we're bringing up Jan had something she'd like to share.
Jan
Hi. Yes, well, I was thinking about what Jim said about how you get people on board to reward them or to incentivize them to be part of the process. And when we hired our people who manage our website that was a real question for us. I have for a very long time, I have paid all of my staff on some formulas out of commission and some formulas based on results. And so I think that you know, hiring somebody to do your website is challenging because, you know, there are a million people out there that say, oh, I can do this for you, I can do that for you. I mean, we get all this spam email every week saying, you know, we looked at your website and, you know, it has this many errors in it and we can do this for you and that for you. So I think it's a dilemma as to how to hire somebody to do the website. But we were able to do that specifically in our vacation rental business when we contracted with people who wanted to help us with the website, we said, OK, that would be great, and here's how we're going to compensate you and we showed them our current levels of reservations and exactly what the vacation rental business was doing. And so they agreed that they would be compensated based on how much additional production we were able to do based on the new website that they developed for us. I think that was ten years ago. And so the original contract was for, I'm thinking three years and then at three years, you know, we said, Well, we're going to renegotiate it. Well, what ended up happening was that it was so profitable for us and them that we just kept them on as a percentage of what we do. So they are continually incentivized to improve the website and to help us improve our performance because they get compensated that way. Yeah, they stole.
Kevin Hommel
A trick from commercial real estate. If you've ever gone through a commercial real estate lease all right.
Jan
That's great.
Kevin Hommel
A lot of them will say, Are you asking me this? But to guarantee you that I'm going to maintain the rest of the property and make sure that I put the right kind of other businesses in here with you, I'm going to take I'll take 3% of your revenue. So their upside is your success as the business, and they make more which is a win for everybody again. So it's not just staff and it's not just owners and it's not just residents, but your vendors are part of that also. And the impact of that experience. Just as much as somebody you're paying on the payroll.
Andrew Smallwood
We had a long conversation. And Sam, it's good to have you up here. I'll let you jump in right after this. So, you know, we do what we call success-based pricing, right? There are certainly a lot of vendors out there. Like the day you turn it on, you're being charged a certain amount for every unit, even though the value of actually adopting across all those units is going to trail that. Right. And we said, well, the way we're going to do this is property managers are going to collect revenue first. We're going to invoice cost after that, it'll be cash flow positive on day one. And we felt more comfortable philosophically aligning to we deliver value first and then and then we're paid after that. Rate, which is not necessarily the way it's always done, but we are seeing more and more people adopt that approach. Sam, it's great to have you up here, man. Thanks for being on here again. I heard you have a question.
Sam
Yes. So I'm considering starting to put into a maintenance company. I love the concept of the turnkey thing. I'm very investor-focused naturally. So my question is more about I recognize that you want to run your books and everything separately, but do you do things to try to incentivize people, meaning you artificially reduce the margin, maybe on your property management side as you could relative to your competitors or things like that? I'm just curious to see what you think about two business units and trying to reconcile possibly I don't want to call it a loss leader, but having one may be subordinate to the other for the benefit of symbols. Are you talking about having the turnkey and the management side? Yes. Yeah. Well, yeah. Then there are businesses I have friends in this business in Memphis, too, and other companies, and across different metro areas the turnkey business is the I mean, it's the unknown, right? It's the variable management is the one that once you have them if you're doing your job well, you know, you have them for a long time.
Kevin Hommel
Are you talking about having the turnkey and the management side? Yes. Yeah. Well, yeah. Then there are businesses I have friends in this business in Memphis, too, and other companies, and across different metro areas the turnkey business is the I mean, it's the unknown, right? It's the variable management is the one that once you have them if you're doing your job well, you know, you have them for a long time. That's the annuity. So whatever it takes on the turnkey side or if you have a good relationship as a management company with a property provided that you can trust their quality, then do whatever you need to do to get those doors in. If you're confident in the way you got your management company set up that will just continue to produce for you on that side.
Sam
Yes.
Kevin Hommel
Yeah. Well, yeah. Then there are businesses I have friends in this business in Memphis, too, and other companies, and across different metro areas the turnkey business is the I mean, it's the unknown, right? It's the variable management is the one that once you have them if you're doing your job well, you know, you have them for a long time. That's the annuity. So whatever it takes on the turnkey side or if you have a good relationship as a management company with a property provider that you can trust their quality, then do whatever you need to do to get those doors in. If you're confident in the way you got your management company set up that will just continue to produce for you on that side.
Sam
So it sounds like you would do the turnkey side as a means to drive clients to the management side. So you were trying to realize your profit on the management side and not as much uncertainty side. So or is that wrong? And thinking better?
Kevin Hommel
No, I think it's and it's not the mentality behind it. It's just the way it happens. You're going to make a profit once on the house that you sold, right? You're going to make a monthly profit annual year over year over years managing that relationship with that owner. Well, for that house, and if they add more doors outside of you of your sales side, then that's just pure management profit there. And you're getting that because you deliver it on their experience from the one house you sold them. So anyway you can focus on a good relationship with somebody that's following doors to you that fit your box is is a good philosophy.
Andrew Smallwood
Sam, I want to keep you up for a second because I want to ask a follow-up question or two on this. Kevin, like, you know, as an example, did you guys ever discount your management fee? Right. If somebody is using you for full turnkey and hey, we're making a lot on the rehab, we're making more here. And so as opposed to a, you know, x, y percent management fee, we're going to do that -1 or 2%. Right. As an example, or was it ever the other way around as an example? Hey, normally this rehab, everything would be like this, but we're going to give you a 5% discount, you know because you become a full management client for a period of at least two years. Or was there any kind of changes or where they truly run like independently? This will be a business and we want to fuel this business, but we're looking at them as kind of two independent pieces from a PNL standpoint.
Kevin Hommel
Yeah. So and I probably should give a disclaimer for everybody in case you are in this kind of you want to make sure that the investor knows they do not have to use your management company if you sell the property. Right. That's a no-no. You can't tie stuff like that together. So the way you do that incentivize that investor to use that is yes. If you buy from us management, right, is this percentage, we might even do the renewal on leases or first-month placement fee is lower or something like that to incentivize them to come to your turnkey company first. The other thing we would do is, is I know after I left there and I see this and other management companies, if a property is brought to the outside of their normal sales funnel, then that's higher management, right? Right out of the gate and it's usually one to two points higher than just on the straight management. Right. I see a lot of companies in Memphis. That's just kind of our market here. We'll go 75 or 80% of the first rent replacement if you buy it from us, if you don't it's the entire first-month renewal might be 250 over here, but it's 195 if you're with us, that kind of thing. So yeah, incremental cost savings because you came through us and you know, we captured a lot of revenue multiple ways through that relationship.
Sam
Incentivize the other way too and now that you've done one with us, now that we're into another, you know we're going to discount the GC fee that we have on the renovation or however you do it. So are you kind of doing it in both areas to some level? Because I know that in your example also you were talking about how you are trying to grow from or finding the right demographics that love and want to continue to invest in the turnkey business. So would you then incentivize the other way and now that you've done one with us, now that we're into another, you know we're going to discount the GC fee that we have on the renovation or however you do it. So are you kind of doing it in both areas to some level?
Kevin Hommel
I mean, you could we weren't, but yeah, you could. I mean, if you're we had a mentality that we are more and you might have experienced this talk to that group after I was gone. Even our mentality was we're going to give you the best experience and that's going to come with the best property. It's got everything done to it that you need to do as a passive investor investing from of state rice and the management experience is going to be phenomenal with customer service and accounting and everything that we put into it. So we didn't feel the need to do that. If you come back around now, what we did do is if you bought one, then you might get I'm going to just use numbers. You might be an 8% instead of nine or ten. If you go to five, we're going to drop you down another point. And then I know after I left, I think they were adding more teams. I do see this in other management companies. If you've got five and then you go to ten, that investor costs you less for those extra five doors than five new doors cost you with five new people. So it certainly makes financial sense to give them a break on that. And I think everybody on this call would rather have one investor with him and ten investors with one.
Thad Tarkington
That I was quick, I've I had Laura tee up a poll. I wanted to pull the whole audience here and then maybe we can well, we'll keep this conversation going. But you had mentioned early on, Kevin, that you're focused on the turnkey as your source of growth versus going and grabbing investors. But it also sounded like a good web presence to attract people who already had a portfolio was also key, you know, so you're heading both growth engines. But one thing I'd love to ask the group, but I think Laura's going to throw this pull up now and answer this. I would say more pragmatically today versus like optimistically for the future is turnkey and in attracting investors to grow a key focus in the business or is it an afterthought? And it's just been management and traction unit. So simple two options, but I'd love to get a sense of what this group's kind of focused on today.
Andrew Smallwood
It's cool to see this live as the first 15, 20 people are answering this here. This is cool. So sharing results. There we go. So it looks like about a three-quarters one-quarter split there.
Thad Tarkington
What's funny is, yeah, this is something I talk with a lot of folks about one-on-one, and, my non-official number is always like 80, 20, which it looks like it's pretty close to. But I think it's interesting cause something I've noticed when I talk to folks has gone this hypergrowth, you know, 100 units to thousands or thousands to 7000. And Kevin's case a lot of times you know, they're saying, hey, we are getting the mom and pop, we are getting the units that already exist. But it seems there's all like a common theme is once we get those units, we're creating an investment plan. You know, we're driving more units out of our existing customers and our best customers. So it's interesting to see that. And I think you know, I'd be curious kind of your you know, is this how you guys got started? Was always your strategy a caveat? Is this something you guys kind of migrated to overtime and you know, curious if you have anything else there, but appreciate it for answering that, by the way? I was curious. So, yeah.
Kevin Hommel
That's cool to see that. That's about the split that I would have thought, too, because it's so much more operationally challenging to be a turnkey business and property management. You can do property management. I have seen several companies and I've had a few clients that have hired me as their turnkey and they want to start management because they understand I'm handing that door off and now I'm losing control of that relationship to a company I don't own I see fewer management companies saying, Hey, I want a turnkey. You're probably better off just funneling your energy into building good, solid relationships with people that are turnkey without management, you know, and as long as the values are aligned, it's a great partnership. I've even seen some management companies offer some incentives back to the turnkey company for the right kind of introduction, not a tie or a kickback or that just, hey, if we manage this property for your client and all you do is just make the handoff in the interest of introduction to us, then there's that opportunity for them to win that client for life. When you get into operations about running renovations and your contract, your team has to expand exponentially. It's, it's, it's a lot more challenging, that was always our business model. I've seen it work all three ways, right? So we're all in line. We do this and we only do this or we don't do this.
Thad Tarkington
So appreciate that, Kevin. And I'd be curious, anyone who's got a counter perspective, you know, could be from the 70%, could be the 30 who was like, Hey, I want to go into turnkey. And it just, it bombed. It wasn't strategic or it, you know, I heard him, you know, feel free to jump in. But I'd be curious if anyone had has had a different outcome or experience with that, but.
Andrew Smallwood
We'll give people a breath in case they want to jump in on that question there. But Kevin, just so you know, we've got attendees who are concerned about your wellbeing in Memphis, and we know there are storms there. If, if Kevin cuts out just know he may be taking cover under a kitchen table or in a bathtub or something like that.
Kevin Hommel
Yeah, the sirens are not on. So I think we're good right now.
Andrew Smallwood
All right. Wellness check done.
Kevin Hommel
Appreciate it.
Andrew Smallwood
We had a question come in from Andy.
Andy
My question is mainly I'm at the point I'm a small company. There are just two of us. Property managers are working. We're at the point where it's getting tough for us to do everything on our own and grow would you advise now bringing on somebody and hope you grow enough to make their wages or wait until you get to the point where you have enough that you're more comfortable with making sure you can pay their wages?
Kevin Hommel
Yeah, that's I mean, it's a great question and it's a struggle for all business owners. No matter what business you're in. Right. I think that it comes back to your philosophy and your risk tolerance. I tend to believe that if you can tolerate the risk of the salary that you have to pay or the wages or even if it's part-time, define clearly what you would want them to come in and do and create a window of time where they have the opportunity to give you what the results you're looking for in that investment in their there. So if you say I'm willing to put six months into somebody's and I believe as the owner of the business, that if I do my job, hire well-trained, well, this person will pay for themself after those six months. I think you've defined your risk period. Then it's on you to make it happen. I think it's very difficult in this business to grow without the investment because ultimately your service is what ends up suffering. So if you can find a way on the people that you already have, maybe outsource some of the financial sides, that's accounting for a smaller fee per month and you don't have a full time, then that person can reallocate some of their time. There are all kinds of ways to get creative in adding to your team and keeping that cost as much as possible. But yes, I think it's worth the risk if you have the right plan. Once you make that decision to hire them and you hire the right person. Right, you do your people process.
Andrew Smallwood
Well, I'd love to hear even more from the crowd. Yeah. If somebody out there has had something they've been through that before, that very decision, how they went about it, it would be great to hear someone's story, your experience, and Andy, we encounter people all the time. I will say this is actually why a lot of people come to second nature sometimes because they say, hey, I'm at this point and I've got this level of profit. But to hire somebody like I'm going to have to go through this valley for a period of time where my business is not making money and delivering money. Do I have enough savings here to make it through this patch in enough faith, right, that this person is going to bring on the new units and revenue that we need to get to the other side of this to scale? And when you think about a question that Evan put in the chat earlier, what's the average property manager making well, looking at the Nahum accounting standards, profit coach results, et cetera, typical revenue is $170 per unit per month and your management fees were typical. People are typically collecting at a 6% margin. So calling it a $10 per month profit margin is what they're getting. And so it's why we see people say like, how could I turn that ten into 20 or 25, right. And strengthen my profit margin, right. On the units that I'm currently doing. And put me in a position where I can make an investment right into salary like that. I need to do this first and then that second. If my risk tolerance, as Kevin was alluding to, is I'm not so comfortable going into the red or giving a red for a multiple-month period. It's not the position I'm in. I'm not ready to make that kind of decision. Let me do this first and then it puts me in a position to do that. And as that person brings on more units, right, again, they've still got those additional revenues that are scaling with them. So looking for opportunities like that is a way we've seen a lot of people successfully approach that and get to that kind of next step or stage. Anyone want to offer something here for? And if you've been on the other side of that, maybe you were a one-man shop or one-woman shop, so you hit 100 units there somewhere and eventually that you realized that wasn't going to work anymore. And you got to the other side of that how you went about it.
Michelle
I just mentioned to Andy privately that we just did go through this and we chose to step up first before the growth came. So because we didn't want customer service or the client experience jeopardized whatsoever, so in it, it worked out very well.
Andrew Smallwood
Michelle, thanks for sharing. Great. I think it.
Sam
I think it depends on where you are and what you're trying to accomplish. I know that for me, at least right now, I am probably hiring a person just to be a little bit preemptively for the growth. But it's also about what it is that they can do for you. So if you're working on a lot of processes that can free you up to due process so that you can grow sustainably, that's one of the hugest benefits. But when you're first starting in property management, you're kind of do it all and it's all in your head and it's not on paper. So I think that if you're to a point where you want to make this a career and you want to do that growth, having that person and starting to teach them in the areas that you do so that you can work on the business and not in the business that that's that'll pay dividends mountains of times over. So it depends on what you're trying to accomplish and making sure that you're very thoughtful in what freeing up your time is going to do for the business.
Andrew Smallwood
Sam, thanks for adding that. I think. Kevin Patterson, Laura.
Kevin Patterson
So I wanted to just comment on her being a single person. We started our business. I started property management because I felt like I hit the pinnacle of real estate. I was making. Over $1,000,000 a year and I got burned out. And so I started as a single person. It took me over a little over a year, but with every extra dollar I had, I would hire staff to help grow the company to where we're over $1,000 now. But I think in today's age, with the VA's as cheap as they are, I don't know. I think hiring a VA to help you out is substantial these days. I think that's the way to go, in my opinion. We didn't have them when I started in 2014 and I know they were there, but they weren't anything that I was aware of.
Andrew Smallwood
It's a great point. We see a lot of people doing that of, you know, labor is such a big cost line item and you know, certainly, a lot of people who have gone through a global talent strategy in a remote talent strategy are seeing a lot, a lot of dividends from that and putting their business an in a great position where they can have more staff help, especially if you think about things that can get done, you know, outside of ours and everything like that. And it's just a challenging hiring market right now. We got a lot of questions coming in advance of just how hard it is to find talent. And it's not just costs that are inflating. Wages are inflating. Right. It's interesting to see how people are approaching that. A lot of different ways people are doing it. So, Andy, thanks for the great question and the great conversation that sparked if anybody has some appreciation they'd like to express for Kevin and Thad for joining us today, we'd love to see that in the chat, your top takeaways or just something you'd like to express that was helpful to you today? We'd love that feedback. That qualitative feedback helps us make these more and more relevant for you as we do more and more of these. So it's super appreciated. We'd love to see that in the chatbox. Kevin thanks for the time and for being so generous with both your time and your wisdom today. Thad, thanks for jumping on with us. Just love the questions you ask and also the perspective you shared. And hey, listen, I can talk about hiring, but I do keep one credit to my name, which is hired Laura Mac efforts to get Laura Mac on the Second Nature team, and anybody who's encountered Laura Mac knows how good she makes that decision on a daily basis. Laura, thanks for everything you do. And that's Triple Win lives possible.
Laura Mac
Thank you. Thank you so much.
Andrew Smallwood
All right, everybody. That's it. Happy Triple Win-sday.
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