Build Wealth the Smart Way | Aaron Robertson

In this episode, we dive into the core principles of achieving success through sheer hard work and unwavering discipline. We explore the powerful mindset required to overcome obstacles and maintain consistent hustle, drawing inspiration from various entrepreneurial journeys. This discussion provides practical motivation for anyone looking to elevate their work and reach their goals. Property management has the greatest advantage in building wealth through real estate. 

00:37 Starting the Property Management Journey

01:04 Challenges and Opportunities in Property Management

03:07 Acquiring Properties Through Management

08:12 Financial Strategies and Wealth Building

17:25 Market Trends and Economic Impact

21:51 Conclusion and Final Thoughts

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Transcript

 On a macro level for yourself, what's your big mission to build wealth? What's the why behind it? 

Few reasons. One, launching a property management company at just about 40 years old, wiped out all the cash I had, and definitely have some retirement to recover in a short amount of time. So one thing, it's important to me to get caught up quick, we would love to have our kids around us as we're older, but my wife and I don't want them to take care of us.

We don't want to have to lean on them for that. My parents had to do that. Her parents had to do that as they got older. So we wanna avoid that by being able to afford the care we need. So that's one reason. The second reason is to set an example for my kids that 

Aaron Robertson, thank you so much for being with me.

I am excited to get into your property management business. I hear where you started and then really how your real estate investing tax. Fix really, and how you've acquired some residential and commercial property. So super excited to have you. Thanks for being here. 

Glad to, thanks for that. That'd be great to spend some time with you.

Yeah, absolutely. All right, cool. So, so you started your management company in 2015. You started from zero. Just kind of walk us through that, like what you, what got you into property management and then, you know, kind of where has it grown since then? 

It's kind of interesting how I got in property management.

I originally wanted to be an appraiser, and so I went to college, took all the classes to be an appraiser, and while I was there I thought, well, I'll take all the real estate classes too. Then, uh, when I graduated, I started calling around for appraisers and, uh, in California at that time, you had to have 1500 hours on the book, uh, with a mentor.

And so I started calling around asking who could help with that. And all of them weren't very kind to me. It was clear they had no intentions of training their competitor, and they were very forward about it. Heard some, some harsh things. One guy did say, you know, I'm happy to do it for you. You will work all 1500 hours before I sign you off, and you don't get paid.

I was like, wow, that's like 30 hours a week for nine months and I still have a job. So that's kind of hard. So, uh, the opportunity to go into appraisal unless maybe you have an uncle that'll sign off that you've done the hours or something, kind of evaporated for me. Um, and then I decided to go get my real estate license.

Previously I was, uh, running restaurants for garden restaurants. I ran an olive garden specifically. And I was really looking for a way to get out of working every holiday and every weekend. As you know, if you jump into sales, right, you can expect to work every holiday, every weekend, every Sunday for your open houses.

And really just wasn't interested in that. So dove into property management. That's how I ended up landing here. 

Yeah. Some about, uh, recurring revenue too that, uh, is very intriguing, right? I mean, of course we're sticking or stacking nickels to make a dollar a lot of times. Man, it's recurring. I love it. I always compared, you know, real estate sales and property management is one you get to marry.

That's property management and one you get to date. 

So true. 

I never did sales, so I don't really understand that world that well. I've always stuck to property management, so kudos. Okay, so cool. So you guys are around a thousand doors. 12 employees have scaled a a nice portfolio. You know, my objective is to really shed light on the ability to use a property management company as a wealth.

Foundation, if you will, to generate wealth in outside of property management. I view a single source of income as a risk in life. And finding additional sources of income just gives so much peace of mind. And you have been able to acquire some properties through the management company. Kind of kind of talk me through like what was that paradigm shift like, Hey, I'm gonna, I'm gonna talk to clients here and maybe we can acquire some doors.

Sure, sure. So a couple things, you know. I think property managers are very blessed to really be on the front line for when maybe trouble is brewing. A couple indicators sometimes that we'll see, like maybe as an example, I have a young lady that gifted two fourplexes from her grandmother, uh, this was probably a year ago.

I think grandmother also gifted her about $150,000 worth of deferred maintenance. And I don't think the grandmother left behind any cash. So, you know, as we're working through with this owner and we're seeing how she has to go about finding money or utilization of credit cards or refinancing to get money.

Pretty big indicator that she's in financial trouble. We know that she wants to hold onto the units basically because she wants to, you know, further her grandmother's memory and gift. But we're starting in this example to see the writing on the wall, that it might be time for her to maybe sell one of those to us at a good rate because she can't afford the maintenance, have the extra cash on hand to the other.

So one I think is really just listening to your clients and what's happening. I think they're pretty honest with us. At least mine are, you know, if I call 'em and tell 'em their water heaters blown out and they use the F word, it's pretty obvious they don't love owning their rental. That can give you some, some real key indicators.

I think that they may be on the fence about wanting to part with it and the timing might be right to maybe have a conversation with them. 

Yeah, I love that. I think, um, so often clients are willing to kind of share the, the several D's in their life, right. Divorce distress. You know, distraction is often a thing, you know, and if we just ask the questions, a lot of people don't want to ask, but look, hey, it's tough sometimes owning a rental property, especially if somebody isn't a professional at it and they don't treat it like a business, if you will.

And it, and oftentimes I've, I feel like, uh, it's just a huge opportunity just to have a conversation. So tell me how, like when you have those conversations, kind of, how do you guide those when you're listening to your clients? To into a purchase opportunity. 

Sure. So like in the last one that we did for a commercial property, we started talking about future budgets as kind of a great way to open that door.

You know, maybe mention that you've been to visit the property, that you can see some capital expenses coming in the near future and what that might look like cost-wise. And then you can gauge, you know, how they're feeling. You know, if you mentioned, you know, we're probably due for exterior paint, probably looking at a roof in five years, you know, and you start talking about 20, $25,000 worth of repairs, you can quickly see if they have that or they don't.

We're kind of blessed in our area. The properties don't appreciate here as quickly as other areas like maybe the bay or down south of us. So, you know, the position that we're in is a lot of folks have held it thinking that, you know, after 10 years of ownership, they would be up, you know, $150,000 and they're more like 40 or 50.

So by the time they pay their capital gains taxes, there's not a lot left. So they don't want to continue to just keep putting much money in it unless it has a large cash flow. But talking about future expenses and what's coming is a great way to gauge where they're at. We do that for two reasons. One to kind of see how long they'll be willing to keep the property in amazing condition.

That way we're managing decent properties to, you know, their willingness to provide good properties to the market, right to them. So the people that are renting them. And then if we can see that they're wobbling, then we start to think if the timing is right, uh, for maybe approaching them on a conversation to pick it up.

Obviously, we're also blessed because we have all the numbers, right? I, we create the p and l so we know exactly where every dollar went, and we don't have to infer any details. Maybe for those that don't know what I mean by inferring details. I was looking at a commercial deal last week. It's a 30 plex.

The owner's maintenance for last year was roughly about $3,000, so that seems pretty far off to water eaters. Right. You know, so we, we had to infer that that wasn't gonna be very accurate. And after digging in, we found out he's handling all of his repairs. He's billing all of the, uh, items out to his commercial plumbing business for the complex so he can take deductions on his business instead of on the rental.

Sort of tax advantage. So, but that, that gives you those opportunities to have the real world data that we really need. 

How do you compare cashflow versus appreciation? You mentioned appreciation's not a big thing in your area, so are these cashflow plays for you? 

Almost always. Yeah. Yeah. Unless we're under the impression the property happens to be in a great.

Place, you know that it's all about the location and that holding up for the future will change the appreciation. Then we're always looking for the cash flow as well as tax deductions. Obviously we're looking for the depreciation schedule so we can take advantage of, of the real estate in order to keep the money that we earn in our brokerage, of course.

And bonus depreciation is a beautiful thing, isn't it? 

Yeah. I'm not upset about the big, beautiful bill in Thelan. So we contemplated whether or not we should build a, build a new office due to the advantages and, uh, thinking about that right now for next year. 

Yeah, I love that. Hey, we're on a mission to make this podcast the very best for you, our incredible listeners.

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By subscribing, you're not just helping us grow, you're helping us create more content that's crafted with you in mind. So thank you for being here, and if you haven't yet, hit that subscribe button now. Your support means the world to us. Let's talk about kind of the financial side. So as you. Evaluate these uh, properties.

Are you paying cash for these? Are you asking for some traditional lending or even some private finance, if you will, like seller finance options? Like how do you negotiate these terms? 

Depends on the owner and their position, which usually we have a pretty good idea of that too, whether they own the property free and clear.

But that's usually our first question. We always wanna explore all different sorts of ideas. Anytime we're having a conversation with somebody. Um. Because even though you might have a great lender and you might be able to get some pretty favorable terms, an owner might just offer you 5%, you know, over seven years or something like that for a pickup.

Why wouldn't you do that? And there's no reason not to, you know? So we try to leave that door wide open. First question we usually ask is, do you own a free and clear? You know, if you were to sell it, what's your expectations? What, what do you plan to do with cash? So you can see if they're looking to move it to maybe another opportunity if they're looking to buy a houseboat because it's retirement time and not, that was always the plan.

So we leave that wide open and it's kind of our experience maybe a little bit due to their inexperience, that they will share a vast amount of knowledge with you without having to, uh, create a lot of follow up questions. 

What would you tell a property manager that, uh, has never bought any real estate and never bought any real estate from their portfolio?

Hurry up. 

Yes. Yes. I think if you have the cash and you can do it, I think it's a great, a great place to put your money. I mean, obviously, you know, follow the, follow the guidelines that everybody wants to be diverse, so you should have money in lots of different places. But I think we have a huge advantage as a property manager.

One, we can curb the entire management fees. So that would take some properties that don't cash flow at all for a property owner and turn it into a $300 a month win for us, because we're able to control the cost of that on our side through our business. So I think that's a huge advantage. You know, it allows you to kind of bend the rule a little bit.

You know, some folks have this rule that it must cash flow. You know, there are times that I'll buyer property that's a few hundred dollars upside down a month, not really think anything of it, only because I think I could give that $200 that month to the Edward Jones guy and see how he does with it. Or I could put that in real estate.

I'm quite confident if it's real estate I own and manage, I'll do much better than the 200 a month, you know? So we're not afraid to buy properties that might just be a little bit upside down. And when we're at, in California, we have rent control. So sometimes you might have to buy a property that's upside down and it may be that way for two years based on how quickly you can move the rent.

You know, so, but, but for the property managers out there that aren't buying from their portfolio, I would definitely tell you to dig into it. If you have the cash, I mean, it's a great place to park some money. You'd know it's gonna be managed. Right. It's kind of interesting the, the properties that are in, in our database that we own, uh, you know, I think the team manages those twice as well.

They really don't wanna have a misstep on it. If Jolene and I, 

what if a property manager doesn't have any cash? Like how do you advise them to start to build some wealth? 

Two things. I would probably look at my books very closely and see how much cash I could begin to set aside and start that journey on some sort of a percentage.

You know, even if it's only 3% of your, your net, so that you can put that to the side and start getting prepared. But sometimes an owner maybe doesn't want to part with a property and doesn't want any cash up front. We're entertaining a conversation about three months ago where an owner really hates owning the property.

It, it, for whatever reason, keeps him up at night, which is crazy because the issues he's, he experiences with us in the middle, in my mind, are, it's like reading an article. There's not really anything happening, but it's, it really bothers him for whatever reason, you know? So we entertained a conversation with him with no money down on a piece of property, pretty heavy payment, but he wants to avoid paying all the capital gains taxes up front.

So, so be willing to have that conversation because, you know, in the past we bought properties with no money down or what I would consider no money down. I mean, if it's less than 10 grand, uh, to get a, an escrow open and pick up a property and transfer title, that's kind of no money down really. So don't be afraid to have those conversations.

Just never really know what somebody's willing to do and what their goals are. So always ask, you know, if you sold it, what would you do with the money? And that's, I think that's a great opening question to figure out where they're headed. 

Yeah, totally. Great. Great opening question. Alright, so let's look.

Let's look at the management company a little bit here. So I feel this is a personal feeling that the industry doesn't actually charge enough for the value that we provide the industry, the the marketplace. What is your thought process on. Gaining the fees, the revenue, if you will, from the clients that are warranted as well as the tenant.

I know California is a little different. It's harder to squeeze a lot of that, but, um, I'm of the impression we should be increasing our revenue through fees, a fee structure annually, at the very least. How do you kind of, uh, you know. Think through that process because that is the lever we have to pull to gain more cash to invest, if you will.

I'm thinking of a couple things. I think one, it's interesting that you said that because sometimes when I'm say at a management presentation or, or a train my business development manager to do the same thing, you know, and they say, you know, you tell their management percentage, they look at the red and they say, oh gosh, you know, that's like, that's like $145 a month.

And I've trained him and I say myself, well that's probably less than you're paying the landscaper and they have a little less responsibility than we do. They go, oh. So I think in our industry it's kind of sad. I think everybody's been used to just throwing out this percentage and they just leave it there for years and years, and for whatever reason that the number is like six.

I don't know where that magic number came, but it's like every new property manager, that's just where they start having nothing to do with the cost of running their business or labor or overhead or anything. It's hard to compete with those folks. It really is. But I think you're absolutely right. You know, we should be providing good service for the value and what we're charging the clients.

And there's a lot of times we have to help people understand, like in our market we do personal showings. I have a full-time person that does that. Obviously he's not free. So when they say, you know, I'm also interviewing X, Y, or Z, and they charge seven and you charge almost nine and say, well, I know X and I know Y and I know they pass keys out to the property.

Are you comfortable with that? No. So well make sure you're comparing apples to apples as you interview everyone. They probably save a lot of money not having a company car, offsite, workers' comp, you know, all these different things. A full-time employee to handle that. So I mean, yeah, they, yeah, they, you know, much more economical rate than we do.

But fact of the matter is they're not providing the service we do. But yeah, I, I wish property managers would charge more. 'cause there is always the part where you're stuck. You can only go so far and then you are the most expensive property manager in your marketplace. And then if you go too much farther, everybody just sees it as unreasonable.

So you, you can't just stretch until everybody else is willing to kind of drag along a tail with you. So. 

I love that. I think one, one kind of fallback that we have in the industry is that we're really bad at communicating the value we provide really bad, not just as an industry, but in individually, like you said, like, Hey, we're going, you, you need to compare apples to apples here.

This other management company doesn't do these other things, but. That's on the sales cycle. How do we, how do you communicate those things during the actual client cycle when they're a client? Hey, these are the things we are providing and this is why we charge what we charge. So they're not questioning the value or the fees in which is on their owner statement.

Well, two things. I think there's the learning how to sell that from the very beginning before you get 'em signed up. But then I also think it's probably even more importantly to slow down your churn rate and to communicate that along the way. Uh, lemme give you an example on something that we do. You know, uh, probably many property managers out there are now familiar with lead simple.

Or they use maybe monday.com or asuna, some processing software. And we have a huge subset of owners that really, we don't interact with them a whole lot. We don't have to call them for permission on anything. They just kind of leave us alone. And so we have different processes and whether an owner chooses to be involved or not.

It changes the amount of communication they get and the property owners that are not involved as much actually get quite a bit more communication through our processing software because we want them to understand how hard we're working. You know, because you haven't heard from us, doesn't mean we didn't do anything for you.

So it's actually built into our processing software to over communicate a little bit when they've said, I don't really wanna be involved. So they get an email that says, Hey, it's time for your lease. We're handling it all. Kick back, relax. Don't worry about it. Hey, we had the conversation. Hey, we're initiating a new contract.

Hey, it's all done and complete. Hey, your tenant signed a six month or a one year. So they're getting all of this. We're working, we're working, we're working, we're working. So they don't lose the idea that we're value. I'm sure anybody that's got more than 50 doors has probably been in a conversation whether they're like, Hey, property owner, uh, you've left me a message that you want to take over the property.

How, how and why? Well, you know, nothing ever happens. I mean, I'm just paying you to hang out. And you're like, oh, so we managed. It's so good. We're getting fired. That's not a happy feeling, you know? And usually they circle back, but it super sucks To lose a year worth of revenue, pick up a home that was managed fantastic and it hasn't been for the last year.

That always is a bummer, but you really have to communicate that value all the time and just never let the gas off. 

Oh, I love that. Yeah. Yeah. This is a constant beating of a drum, uh, that we struggle as an industry to do. Look, I know there's a lot of podcasts out there, and hopefully this one right here is providing you with a ton of value.

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We appreciate you very much. Alright. Let's look at the macroeconomics here a little bit. So California has had an outflux of citizenship. I think they lost. Over a million people the last few years. Um, how has that affected markets? Have you guys seen slowing of market economies and rental rates and those, those types of things in your market?

Up here on our neck of the woods? No. You know, I'm way up here in the very northern end of Northern California. I mean another 150 miles and you're just going into Oregon, right? So we're in a, we're in a really special climate that's here. We are super short on housing right now. You know, in our market, you know, for half a million dollars you could buy a four bedroom free bath, brand new house, fresh outta construction.

I mean 2,500 square foot, super nice finishes. And because of the way things work in our market, that's sort of also the only house a contractor can make any money on when they build it and sell it. So that's all that's been built here basically for probably four years. But our community is still growing.

So we are incredibly short on housing, so those things really aren't affecting me. I do have friends that run property management companies down in, uh, Walnut Creek, and they've said that that's pretty tough. You know, not only that, but you know, our governor's really interested in, uh, not paying any attention to maybe crime or homelessness.

So, you know, a lot of neighborhoods. You really can't get somebody to enter the unit because it's driving to the unit. They weren't happy with what they saw and the weight of the showing, and they, they just say never. Nine, he tells me he's, you know, having some real challenges with that. 

On that new build house that you described, what is that type of house rent for?

So we kinda, in our area have, due to the median income and, and the way incomes are here, we really can't crest $3,000 on, on virtually any unit. Which is a, a super bummer. So most oftentimes, if a house like that comes on the market, it'll rent anywhere between 20 703,000. But once we break the 3000 mark, there's very few people in the community here that's able to pick that up.

So they just sit forever and the owner bleeds cash so much on the front end that it makes it not worth it. It's kind of interesting in our market right now as well, because the housing market is so soft where we're at that I actually have just listed our third fresh, brand new out of construction home for a builder.

He hasn't been able to get 'em sold. And you know, you probably already know, but construction loans aren't made to keep enjoying. You really need to get that off your books. And, uh, so now we're renting them. So for the property mayors out there, that's another great way to maybe pick up some extra doors, get some relationships with your, you know, top three builders in your area.

Um, and talk to them about maybe renting them out for a year until the market returns, uh, is maybe a great way to pick up some properties. Keep in mind, that's probably gonna be pretty short term. Um, it's not gonna be a long term solution, but what we found is. A lot of times the tenant will end up buying it from the builder, and if they don't already have an agent involved, then we can pick up a referral fee.

Usually equal two months worth, I mean, two years worth of management. So, um, they can still turn into other monies elsewhere. 

No, I love that. Yeah. If the build costs were a little bit cheaper, it'd probably be a really good marketplace for build the rent. We used to work with the builder a lot that he'd build a place, rent it for two years and then sell it, and that was just his rent and repeat strategy.

It was really cool, but it's gotten a little bit tougher to. Make the two years cash flow, but as a builder you sometimes can, because they could keep their costs down. But for us, uh, who are not builders, that was a tough one to always swing, you know? So pretty interesting strategy. Okay, cool. So like on a big macro level for yourself, what's your big mission to build wealth?

Like what's the why behind it? 

Few reasons. One, you know, launching a property management company at just about 40 years old wiped out all the cash I had and took, uh, quite a lot to launch it. So, you know, I definitely have some retirement to recover in a short amount of time. And now that I'm getting older, I mean, you can see all this gray and 

cash doesn't have as much time to work.

So, one thing, it's important to me, get caught up quick. 

We have kind of an interesting theory that we would love to have our kids around us as we're older, but we really, my wife and I don't want them to take care of us. We don't want to have to lean on them for that. My parents had to do that. Her parents had to do that as they got older and really strange relationships.

So we wanna avoid that by being able to afford the care we need or. You know, I don't want my kids cleaning my house, so to speak. So that's one reason. The second reason is to set 

an 

example for my kids that, you know, if you work hard, you will hit goals and you can take great care of yourself and others around you.

Um, and then my wife and I also donate quite a bit of money to local charities because our community does house four of our children and seven of our grandkids. So we're very passionate about making sure that our community does well. And you know, if you have the wealth to, to do things, then you can help a lot more than if you don't.

That's right. I love that. It just, uh, it snowballs in, doesn't it? So kudos. Aaron, thank you so much for your time. I love this conversation. I love that you are buying within the real estate and thinking, asking those questions, listening to clients, and then obviously have a cool perspective on building revenue in the property management company.

Uh, thanks so much. Any parting words before we, uh. 

You know, one of the things that, that I think could be smart for most property managers to take a look at, and in some states it's harder than others, but we're doing incredibly well with our re residents benefits package, how to grab some extra funds out of the tenants, but even more so, it's not about the money, it's about better care of the properties and better care of the owners.

So we chose to do ours through second nature, but we've signed up just about 400 clients or tenants through, uh, our RVP and now it's producing quite a bit of revenue every year for us. So make sure. Know, and the smaller you are, the more, probably more important this is and easier to roll out is those ancillary fees and things you can do.

Extra service offerings are really, really important. And then lastly, I know of a lot of property managers that I spend time with that when a unit comes up, uh, and it's time for the owner to sell it, if they don't handle sales, they're not passing those offer or referral fee to a, you know, a broker who can get that sold for them.

I think, I think everyone should entertain that if you're not, because you know, there's times we get referral fees that are, you know, four and $5,000 at a time. Um, so they're absolutely worth their weight in gold. So if you're, if you're in the property management game, I think you should really have a relationship with the broker and where you can pass those along if you're not selling them yourself.

Two huge nuggets. Thank you, Aaron, for those. Not sure. Alright, cheers. If today's episode hit home, share it with a friend and be sure to subscribe so you don't miss the next one.