Invaluable Data Processes with Neal Bawa

by Neal Bawa | Real Estate Hackers

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This show highlights how amazing real estate investors grew something from nothing. Learn their tricks to success each week using hacks that you can replicate in your own world. Then catch how each investor used systems and tech to scale their investments and where they see the world of tech moving in the future.

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NARRATOR: Welcome to Real-Estate Hackers where you’ll hear how real-estate investors grew something from nothing.

NEAL: Property management is going to become more tech. Our entire business today, is based off of a hack. What if you could put a thousand dollars in an apartment building project on your phone. With Youtube, with podcast, we catch up very quickly to a seasoned investor.

NARRATOR: Now here’s your Real-Estate Hacker host, Chad Gallagher.

CHAD: Welcome to the Real-Estate Hacker Show. We talk to actual investors, who use systems and tech so scale out their business and where they see this all going in the future. Before we get to this weeks guests, a few words from our partners and friends of the show.

SLATEHOUSE SPEAKER: This is show is brought to you by: Slatehouse property management. Slatehouse manages over 3,500 units across the Mid-Atlantic including Pennsylvania, New Jersey and Maryland. Property management is sure not the sexiest industry but what makes Slatehouse unique? It was founded by investors and engineers. Slatehouse has built or licensed over 12 different technologies to improve returns for investors and make better living experiences for tenants. Full time maintenance guys help work get done quicker at a reasonable price. Slatehouse manages properties for mainly guests on this show and has helped them scale their business while they focus on acquiring properties. For more information go to slatehousegroup.com. Call 717-413-6976 or email service@slatehousegroup.com. Look forward to talking to you!

CHAD: Welcome guys, another addition here real estate hackers podcast. I’m real excited and pumped. We got Neal Bawa today and what I’m excited about is we got someone on the podcast here who might be even more excited about data and technology than even I am. So thanks a lot for joining us Neal.

NEAL: Thanks for having me on the show. Yes uh this uh when I heard that your doing a podcast called real-estate hackers that was very exciting for me. My moniker in real-estate is the “Mad Scientist of Multifamily”. I’m known for my experiments. Ironically my most favored experiment, the one that’s got me the most visibility is the one where I hacked tomato growth in my backyard. That video goes nuts every time I I do an update on it but I I’d like to hack everything and and um so more than anything else I’m a hacker, I’m an experimenter. My past is very tied to it so it’s great to be on on a show like this.

CHAD: That’s awesome Neal and you you piqued my interest so uh what uh what was the tomato hack?

NEAL: So the Tomato hack was so I I’ve had a motorcycle accident so I hate bending right? So my back get stiff. So the first thing that I did was I looked at the various different ways of having elevated farms and I you know after looking at 5 different methods, I picked one called square foot gardening. It’s very famous you can look it up on Amazon, square foot gardening and my goal was to use the smallest amount of wood possible to get the maximum amount of yield possible and so I then I also ran experiments with what kind of food I would grow. 3 or 4 kinds of experiments and basically settled at tomatoes. I basically said “I’m going to be a tomato farmer” and then on these elevated beds which are 30 inches raised, uh first I tried to figure out what is the the least amount of depth that you need. So I tried 4 inches, 5 inches, 6 inches and 8 inches of depth and the short answer is you can grow perfectly awesome tomatoes with 6 inches of soil but it doesn’t work if you do it at 4 inches cause it tomatoes are stunted.

So I did a video about that and then after that I did a video where we I talked about what is more important. Is soil more important? Is sunlight more important? And what is the impact of LED lighting. So we we did this combo video where you know you could use you see in the video that on the left side I’ve got LED lighting and this is both uh blue and pink lighting and it’s on 24 hours a day. On the right side light’s on about 6 hours a day and you can tell the difference in growth. Like on the left side you see the Amazon Jungle and on the right side you see these these you know these these nice tomato plants but they’re clearly not overrunning uh the the area and then we did another one where we compared two different kinds of soil. So basically the bottom line was now I have tomatoes that basically are these mutant ninja tomatoes that kinda take over my backyard.

CHAD: Ha!

NEAL: And the end, at the end of the videos I tell people how do I use this to raise money right? So one of the things I do is I I have I live in an affluent neighborhood with you know 4,000 square foot homes and so one of the ways I have of connecting with my inves.. with my neigh uh neighbors is that I do this stuff and I tell my wife, tells my neighbors about it and of course I take these bags filled with massive fresh tomatoes and I deliver them to people and it’s a great conversation starter and so far I’m at about 600,000 dollars raised from the mutant ninja tomatoes.

CHAD: Hahaha! Alright, Uh I uh, that’s more than I even bargained for. So I love the story um, it’s sounds like a like a science experiment basically..

NEAL: I’m constantly experimenting. I do an experiment every everyday and there’s so many different experiments that I’m running at any given point in time and my failure rate tends to be about two-thirds right. So about two-thirds of the experiments fail. One-third either succeed or get morphed into something that becomes successful in eventually. So I think I have a pretty good high success rate with with my experiments but uh but it works yeah.

CHAD: I love that so much. I mean, one thing I talk about that’s like, that’s been a key to our success I I call it “we take a lot of shots” and uh I think, you know, one thing you see in people who are successful in real estate and really anything is that they’re not afraid to to shoot the ball or in your case, run experiments, realizing everything gonna work but being okay to have things that don’t work and I guess and maybe what you’ve gotten really good at and like I hear talk about with the audiences, running experiments that are not too expensive. I guess if there’s a uh if they don’t work.

NEAL: Yeah I I I can tell you another one that worked recently that I think part of your audience that likes raising money I think would love this experiment. So uh you know I I, we are a multichannel marketing company. We use 11 different marketing channels to raise money and we are very high volume syndicator. We currently are at run rate to raise about 50 million dollars this year so..

CHAD: And really really quick Neal, just to give people the context. So you were telling me you uh you guys syndicate for running for owning multifamily apartment complexes kind of all over the country and and now you own a whole bunch of units.

NEAL: Yeah so well over 2000 units. The portfolio is at 200 million it’ll be at 300 million even if I don’t buy anything because a hundred million dollars is in construction.

CHAD: Okay..

NEAL: Um, so um we have about 2000 credited investors that are currently looking at our projects. Uh we raised 20 million dollars in the last 90 days and these are 3 or 4 different deals and all of those are really tied to the experiments and I’ll actually give you on of those experiments on a link if you want that.

CHAD: Yeah

NEAL: So.. so you know there’s, we use 11 different channels to communicate with our investors, to talk with them, to connect with them, to find them and and nurture them, whatever you wanna call it and one of those methodologies if called LinkedIn and I was having a consistently low yield on LinkedIn. Cause we tracked the yield on every single channel and so we track it because we have software like Active Campaign that basically is spooky uh big brother kind of feel.

So for example, I know a lot about Chad Gallagher and I can you on this show tell tell people about what are some of the things that what what is the interaction that Chad has had with us right? Because we’re we’re kind of watching everything that you’re doing and my Linked interactions was pretty low even though I have 10 thousand plus people connected to me on LinkedIn and so I tried 3 or 4 different hacks. I didn’t like any of them.

Eventually, I came up with this hack on my own that um I’ve I’ve gotten some fame for I I I opened the Denver Money Raising Summit with this hack and the crowd just went nuts right? It just they wouldn’t they sh they they they like standing there and stopping me saying “please go through this again” right. Cause it was shocking to them that this thing could be done for so little money. So here’s the process but you gotta be you gotta be careful you have to follow this literally step by step right? You can’t break any of the steps.

CHAD: Alright, I’m excited. I’m excited

NEAL: You open your LinkedIn account right and make sure to the LinkedIn account is open. Now what what you need to do is create a new gmail account. Don’t use Chad’s regular account right? Go go create a new gmail account. Then google uh companies of the web that are selling accredited investor lists. Okay? And find somebody and buy a list of a thousand investors that are in your metro like so these are all accredited investors in your metro and now you have their names their phone number and their email address. Not all of the records might have email addresses but I it’s okay that  I it’s still worth while and pretty much 50% of the list is garbage but you’ve still got 500 accredited investors in your local market right? That are in this list, that are legit and I um the list can’t possibly cost you more than a thousand bucks. Probably a lot less than a thousand.

So now you you you take this this list and what you do is, you googl, you google LinkedIn contact sync template and you will find a link that tells you how to structure this excel spreadsheet that you’ve just bought so that LinkedIn can read it. Sorry, so that gmail can read it, not LinkedIn. So you’re looking for doing a gmail import. Remember this brand new account that has nothing? You’re trying to take all these accredited investors and stick em into gmail and people are like but am I not trying to connect to them on LinkedIn? Yes but this is a two-step process.

 It doesn’t work if you directly do this with LinkedIn right? So stick the investors into gmail. Now log out of the Chad regular gmail account and log in to this gmail account, very important that you do this first. Right? And make sure your LinkedIn account is closed while you’re doing it. Then open your LinkedIn account. Go to the contact, go to the network tab. In there there’s going to be a button there somewhere called contact sync, s-y-n-c. Click on it and in most cases 90% of the time you might have to log in and out a couple times to make this work.

 In most cases LinkedIn will give you a button that says “would you like to import all of your gmail accounts” and you say yeah sure I wanna do that. You click that button and because you’re already logged in sometimes it asks you to log in, sometimes it just accepts the fact that you’re already logged in and it’s now going to say “I am preparing your contacts sync contacts”. So go away, come back a couple hours later, refresh the page and now you’ll see something that says “Contacts synced. Your contacts are ready” Right? And so you click on that button and now you notice that LinkedIn is simultaneously allowing you to send invites to thousands of people.

Now I said a thousand investors cause I’m trying to keep your costs down. I do 10 thousand, right? It allows you to send an invite to 10 thousand people at the same time. Try doing this with LinkedIn manually, it’s gonna block you because it think you’re spamming people right? So it’s not gonna allow you to do more than 40 or 50 a day, it’s just gonna block your account.

CHAD: Right

NEAL: But because it thinks that these people are in your Gmail account, it doesn’t have the limit.

CHAD: That’s amazing

NEAL: So you can.. What is truly amazing that it doesn’t just allow you to send these once. It allows you to send them as many times as you want. So so you get the 10 thousand, you see the 10 thousand there you click on you know, connect and then a week later you go back and now it doesn’t say 10 thousand it has like 9,000 cause a thousand already connected with you. Click connect that sends it to the 9, then to the 8,000, then to the 7 then to the 6. So as you keep going, these people are all connecting with you and if you have a virtual assistant, make sure you tag them in LinkedIn so you know that they came in from the local accredited investor group that you bought and now start inviting them to your local meet up, where you’re presenting or maybe it’s your meet up or maybe it’s an event you’re hosting. Now, the initial yield is low cause it’s cold networking right? But what I found is that over time, because they’re connected to you on LinkedIn and you’re providing high quality content, this is important, none of this shit works without the high quality content.

CHAD: Right

NEAL: But as long as you’re providing consistent high quality content you’ll notice that a year later a bunch of those people have invested with you. It’s crazy, I mean you can raise millions of bucks this way.

CHAD: It’s amazing and that initial list? You’re just kinda buying that. Like that exists to you know just to buy accredited investor list in a geo area?

NEAL: Just those three words on Google, accredited investor lists and there’s a whole bunch of people selling them. Bargain, these people drop their prices very easily cause they’re selling digital content

CHAD: Right, there’s no cost.

NEAL: So like they say 18 cents per record, counter offer with 5 cents.

CHAD: Hehehe, I love that! But I I I guess the average thing to do would be to take those, put them into your CRM and start emailing them and what you’re saying is…

NEAL: It doesn’t work well. Because your gonna go to spam very quickly, your yield will be very low. LinkedIn doesn’t go to spam as quickly, right? And and when people are receiving your update because they’re connected to you on LinkedIn, that update is not coming from Chad Gallagher. It’s coming from LinkedIn. So it has a completely different level of authority than you could ever have, right? This is why when I use cold links for my links in the metro to invite to my meet up, I don’t send it from grocapitus.com, I send it from eventbrite.com.

You get a higher uh, you get a higher connection rate cause EventBrite is a brand right? You don’t know them, they don’t know you but they know EventBrite. I tried lots of different ones, EventBrite has the open rate I’ve tried a bunch of different ones in my experiments.

CHAD: Oh my gosh. Neal this is uh, I’m fascinated already. So, okay, I could you talk me through maybe some of the experimenting you’ve done. You experiment, so you talk about experiment raising capital. Have you experimented also for how you manage the properties?

NEAL: Yeah, I think so uh 80% of my experiments are related to property management because I find that one of my critiques and you know I often appear on podcasts just to take my frustrations out. So of the problems in our industry is we’ve got a lot of young people that has come in in the last 4 or 5 years and they’re just so much focused on buying buildings and raising money but I on facebook almost nobody ever posts anything about asset management, about property management, about systems, processes, trackers, audits. All of those things that really matter a heck of a lot more because if you think about it, if you’ve been a syndicator, by the way you know this, a lot of young people are like “what’s he talking about?” but you cannot scale a business of acquisition fees okay?

I can tell you very truthfully apart from my health care. My company has never paid me one dollar of acquisition fees and as you can tell, our 200 million dollar portfolio, we’ve had a lot of acquisition fees because those fees, you need to invest into systems, processes, you know structure, staff, asset managers, travel. That’s the investment, that’s what you’re getting paid to do, not to put money in your pocket. Every syndicator knows that we make money from the back end and we make money from the rents you know, once beyond the first couple of years.

So, I’m actually heavily vested into making experiments on the property management and asset management piece. So I spend a lot of time in doing that. In fact, if you go to my Facebook, this is probably one of the best ways to look at it, go to my Facebook and search for efficiency center and you’ll find that I hold these closed meetings in the San Francisco Bay Area that are 2 day events where we bring in all our operating partners at our cost and show them some of the stuff we’re doing. Get their feedback, improve what we’re doing based on their feedback. 2 days, just working on asset management techniques, extremely technology driven, very heavily technology driven but we’re looking at every sort of option that you can imagine in an efficiency center meeting.

These are not public, you can’t buy a ticket, you can’t get in unless you’re one of our operating partners but you can watch some of t he videos that are posted on Facebook where they’re telling you in the efficiency center summit.

CHAD: That’s awesome. I mean Neal, I love what you’re saying, you know I think you’re so right that people want to post on Facebook the “just closed on that 60 unit building” and don’t like to talk about the nitty-gritty of grinding it out everyday.

NEAL: Yeah, how many people Chad have posted “remember that building that I closed on a year ago? My investors are now 8%.” How many people have you seen post that? Right? How many have said posting “11 months in, my NOI is running ahead of schedule.” I can tell you, you probably get no one posting it cause the NOI is not running ahead of schedule. By the way, mine isn’t either. I have a number of properties running below NOI. Point is, I’m working on ‘em..

CHAD: Of course

NEAL: You fix that.

CHAD: So talk me though. I mean look, I’m definitely a kindred spirit here. We manage a lot of properties. We spend everyday trying to figure out how to eek out additional NOI against those properties. Some we own, most we don’t own and we look at big batches of data all the time. What are, maybe give the audience an example of something you’ve seen. Let me ask you a very specific question actually.

One thing that we go up against a lot, do you increase rent or not? An easy..  I mean there’s two people in different camps. One camp says, if a tenant’s paying rent, don’t increase rent at all, keep it flat. The other camp and frankly the one that we’re in is the one that says “well no, due to inflation and just market pressure, we actually do want to increase the rent” Every year 2 to 4%, not by a huge amount and we see very little drop off from tenant turnover from that. I’m interested to see what you’ve seen. Is this something that you’ve thought about or have any kind of data on?

NEAL: I think a lot of it depends, So there’s no good answer to that question because the question’s too broad. So, in my mind, the question has to be broken down. Firstly, what kind of city are you in? Is the job growth in the city at least 2%? Is the income growth in the city over the last 12 months 2%? If you’ve got 2% job growth in the last 12 months and 2% income growth, I would definitely be in the group of “let’s raise rents”.

Now the same applies at the neighborhood level because as you can tell, job growth at a city level may not apply to the neighborhood. So in my mind, a tool like neighborhood scout, which we use all the time, we pay for the most expensive subscription because we’re using the damn thing twice a day.

We use neighborhoodscout.com to figure out what is the increase in incomes in our neighborhood? What is the increase in jobs in our neighborhood? Is our neighborhood gaining jobs? Is it losing jobs? And if it’s gaining jobs and gaining incomes then I am very much in the “camp” of raising rents and you said 2-4%, I’ve been more aggressive than that.

I’ve raised 5 or 6 or 7% but one of my secret sauces is, that even though I have third-party property managers, I am raising I am creating tenant leads myself. Right so, this year we are on a run rate to create 20,000 tenant leads this year and we also have a massive call center in the Philippines that schedules appointments from those 20,000 leads cause the internet leads are very low quality. You know this, right? I mean they’re really really low quality.

The quality is really there in the first 60 minutes. So, think of this as a food that only tastes good in the first 60 minutes. Right? And I don’t believe that there’s any property managers in the U.S. structured to process that in the first 60 minutes so we built our own call center. You wanna know some of the appointments that we’ve set today? You wanna see those? So, here they are. Lakewood Oaks, Ashley Maple scheduled at 10:51AM, Katelyn Green, Kaze Burton, Windward Forest, Rene King, Martis Dean Burges, Alayah Brady, all of these, Shamayka, Rosemond. All of these are this morning’s appointments that we’ve scheduled. That we have, not the property manager, right?

So we typically will schedule 20 appointments a day. So we don’t believe in leaving our fate to the property managers, no disrespect intended, because we feel nobody actually pays our property managers enough to do all the things they’re supposed to do. We feel we’re the only asset manager in America that bluntly says all property managers are underpaid because you can’t possibly do everything. Reputation management, renewal management, delinquency management, community building, collecting rents, raising leads, processing leads, doing tours, doing renewals, doing rehab, all of that for 3%? That’s a lot.

CHAD: Yeah that’s, it’s fascinating. I think one thing I talk about the investors is I find.. We look at some of the like what leads to success or lack of success for an investor and I mean I do strongly believe I think we do a good job as a prime management company but the investor.. and I don’t care if you own 5 properties or a hundred and five. The asset management role is probably not talked about enough in not just multifamily just in real estate investing of raw. People wanna talk about passive income and if you were the direct link whether if you’re the property management company or not. If you’re the direct link between that property management company and the property there’s still going to be some, at the very least decisions to make and more likely, a whole, a bunch of things to kind of work through and I agree with you that that goes beyond the scope of what a property management company is typically gonna do.

NEAL: Yeah

CHAD: I think sometimes investors maybe take that for granted and don’t realize that their, there is a role there in the asset management of any property.

NEAL: I think some of it also is that property managers are so busy that there is a, to put it honestly, a little bit of “squeaky-wheel syndrome”. I know that some properties get less attention than others. One of my goals is to be the squeakiest wheel in my PMs portfolio.

CHAD: Hehehe. I hope our owners did not just hear that. No, I uh, that’s really fascinating. It’s an interesting service. I mean, I never really thought about it this way but I live in this world everyday. It’s interesting that most property management companies, us included, bill on a percentage of rent, which if you think about it, is very different than how most industries bill. I mean most of the time if you go Dominoes, you pay for a pizza and whether you complain or not, for the most part, most pizzas are pretty similar and yet in this industry there’s actually a huge variance in terms of how much time and also what kind of strategy you’re gonna implement as a property management company from property to property that isn’t always just dictated by how much money you’re gonna make from the property.

NEAL: Yeah and I think that model has pros and cons. I do think that it’s a useful model cause a model that’s a flat payment model has it’s own challenges but I think my argument is simply tied back to the fact that if you look at the menu of everything that a property manager has, it’s really difficult to do all of those things within that time constraint and that money constraint and so what we’ve done is we’ve basically taken the pieces that we feel can be systematized and move them over to the Philippines.

We do not charge our property managers a fee for doing this. We simply provide it as a service to our property. It is a owner’s optimization, our property managers initially hate it. Within 3 months, all are in love with it.

CHAD: That’s interesting. Yeah we have started employing. We have a virtual assistant team of about 10 folks that’s been really a game changer for our business. Honestly, even the quality of work has been really great. They also speak Spanish and English which is really interesting. So I’m a believer, for sure. I think it’s really interesting that you, you know, you’re basically not letting the fate of the property up to the property management company. You’re saying “look, I wanna hire a good company and I want them to do what they’re supposed to do but we’re gonna come over top and you know, we’re gonna also help source tenants” for example.

NEAL: Yeah we don’t wanna do everything that the property manager is doing but I think that sourcing tenants and processing tenant leads is a front end activity. If you could help with that and reduce the load on the property manager and give them the ability to pick better tenants, they’ll do it. Within you know, obviously fair housing laws being what they are but still a property manager has some leeway when he has multiple applications for the same unit.

CHAD: Neal could you maybe give us an example of an experiment that you tried, that you’re hopeful about that actually maybe didn’t go the way you were expecting or it just ended up being counter-intuitive to what you would have expected.

NEAL: Yeah actually when we got started with lead generation we were super hopeful. We spent you know I think these are things I cant give you exact solutions for because they’re a part of our secret sauce. So when we started doing profiling and finding tenants, we started giving them to our property manager. We were hopeful that we would you know, forever be in the 98% highly-occupied range. It didn’t actually happen. We, so the first 2 or 3 months of our lead generation efforts were pretty much a failure because we were generating massive numbers of leads but we weren’t really getting any more appointments and what we found was that the typical 200 unit property in the U.S. is structured for a certain amount of traffic.

If you double that traffic, you’re not gonna double the number of appointments cause you simply don’t have time to process them. If you triple the amount of traffic you’ll probably get a little bit of a boost to your incoming footfalls of the property but it’s not gonna be 2x or 3x which is why we had to basically eventually admit defeat that by itself, raising leads doesn’t work, we’ve gotta process them. Building the call center to process them was 10x more work. Why? You know because we had to figure out, we had to have redundancy , we had to have phone call systems and PBX’s that worked. We had to have recruiting processes, training processes, fair housing laws. I mean there’s so much stuff that we got into there because our first attempt which was simply to raise, to create lead flow for our property managers was a failure.

CHAD: And when you say lead flow, so I guess you’re differentiating between an appointment and a phone number to call to setup an appointment. Is that fair?

NEAL: Yeah. So a lead is simply a person that’s interested and you know we don’t even look at appointments we we’re more interested in shows at the property right? So what we were saying is “Well property manager, if I give you a hundred people that are interested, how many of those people showed at the properties? Is it 20%? Is it 30%?” And it was much lower than that. So not until we starting taking over those hundred leads and processing them ourselves real-time did we get to the 20 or 30%.

CHAD: Right and it’s a bandwidth thing right? That the property manager doesn’t have the time.

NEAL: They don’t and I mean they’re showing people they’re doing appointments. They’re also, a lot of properties have leasing agents that are actually doing a lot of paperwork. They’re calling you know, previous landlords, they’re calling you know previous, they’re calling employers. So, their job is not sell sell sell sell sell. It’s like sell then do a bunch of admin work then sell then do a bunch of admin work and most of them are working at the property from 9 to 5 where we both know that the real action in our industry is 2 hours before 9AM and 2 hours after 5PM. That’s when people are looking but I don’t know a lot of leasing agents that consistently work from 7AM to 8PM right? So you’re obviously losing a lot of heat because people are hot at that point of time when they’re doing their research and so the next they when you call them they’re not interested.

CHAD: Yeah, that’s fascinating. Have you messed around with some automated booking tech where the, they can schedule the showing themself or do you still believe in the call?

NEAL: So we automated a great deal but not the way that you suggested. So, one of the things we do is that we focus our live phone call attention on the people that are interested and then we use voice blasting for the people that are non-responsive. That way we’re not spending any phone time on non-responsive people and even among those non-responsive lists you know we get people calling us back, You see what I mean? So if you can segment your leads into higher quality and lower quality. You have people focus on the higher quality have voice blasting and text blasting focus on the lower quality then you much higher optimization. We found that even with the Philippines it was too expensive to do lead processing unless we mixed technology and outsourcing.

CHAD: It’s fascinating. Can you talk me through a little about.. Have you done some data analysis on.. I’m sure you have or have you thought about data analysis of essentially keeping maintenance costs down? Is that something you think about at all?

NEAL: I think, to me, we obviously we have benchmarks just like any other asset management company of what the maintenance cost of the property should be. What we found is the best way to get maintenance cost down is to get your retention up. So we tend to focus a lot more on retention efforts because also we tend to focus on community building, investor newsletters, highlighting good tenants, bringing in speakers, taco Tuesdays, pizza Fridays. Those sorts of things are what we are learning and implementing and we haven’t done enough of it to speak in an authoritative fashion but that is, that is our feel that maintenance cost is more tied to tenant retention than any other benchmark.

CHAD: Right because just turnovers, expensive, I guess.

NEAL: Turnover is just so huge I mean it’s the big elephant when it comes on the maintenance side right? I can go after a bunch of rabbits or I can just focus on the big elephant and the elephant is turnover.

CHAD: That’s fascinating and I’m sure as you evolve you probably have more data in the future cause what we think about a lot is how do you prevent turnover and you know you mentioned some of this stuff but interesting too to see is as you kind of evolve and the industry evolves, what actually leads to decreasing turnover the best?

NEAL: I think it’s a variety of things. Some we can influence some we cant a lot of turnover has to do with the job market and the rent growth that we are pushing through. So you know, internally we affect turnover through aggressive rent growth you know or rent bops and externally the job market is affecting it. So it’s a delicate balance, there’s no, we haven’t found a magic spreadsheet that basically leads us through this. Every property seems to be very different. So some of the properties, we’ve gone for “let’s not do aggressive rent growth let’s just pack the property 98% occupancy for a while” and once it’s at 98 then and only then will we start to be aggressive with rent growth. Push it down 95, reverse again, go back up to 98 then start pushing rent growth. Now this is more complex because you’re doing spurts of occupancy focused at work and then doing a spurt of rent focused work and you’re alternating those two but it my mind that may actually be the best strategy. It just means that your property manager has 2 different sets of marching orders depending upon what the occupancy is.

CHAD: Hm, that’s interesting. Talk me through a little bit about how your data analysis and I’m sure you probably spend a lot of time on finding new assets. Could you talk through kinda some of the data and tech that you’re excited about and you’ve been using in order to find an asset.

NEAL: Yeah I mean you know we’re almost at the end of the show. So what I would suggest is that you look at, I gave away a completely free course, I don’t even get people’s email addresses full disclosure, when I give this course away. I did, I created this course just because I wanted to connect to the multifamily community. The course is at udemy.com.

 I’ll tell you a little bit about it but I’d like people to have full access to this. It’s udemy.com the course is called real focus you can find it by typing udemy <space> Neal Bawa into the web and getting in turn it will bring you to the course. The course is about 3 hours long, I used 10 different metrics, 5 for cities and 5 for neighborhoods and these metrics are very highly defined in this course. They come with excel spreadsheets, they come with cheat sheets, they come with “how do you use the system next year?”, “how do you use it on large cities?”, “how do you use it on small cities?”, “how do you use it on super fast growing cities and super slow growing cities?”. It’s all there, the basics are that demographics really drive city selection and neighborhood selection and so the 5 elements of demographics at the city level are population growth, home price growth, income growth, job growth and crime reduction.

So we tell people about these but then we tell ‘em where exactly do you find this statistic for your property. How much crime reduction is necessary? How much job growth? How much income growth? How much population growth? Home much home price growth? What are those numbers? Where do you find them for your property? And how within 5 minutes do you tell if it’s a good area or not using an excel spreadsheet that we give away on udemy.com. So, it’s a very full course and then of course we replicate those on a neighborhood level.

CHAD: Neal I’d like you to react to something. It’s fascinating. One of my personal beliefs is that I hate it when people say real estate is local and it seems like one thing that you’ve done is to be able to use data and tech to frame out things that historically would’ve been local such as knowing a neighborhood. It seems like you’re almost implying “Look I can know a neighborhood without ever being in the neighborhood”.

NEAL: I used to say that. I think I’ve been proven wrong so many times that I don’t say that anymore. The truth is that all I’m able to do is to give you a list of cities that probably going to be a lot better for your investment and then within those cities point neighborhoods that are probably going to be better for your investment but what I found is that none of this, all it does it reduces the number of air fares that you’re going to buy but once you’ve picked your cities using the system you can’t reduce the number of times you’re going to go to those properties.

So there’s no substitute for local knowledge but I can save you from wasting your time on horrible cities that you should never be investing in and horrible neighborhoods that you shouldn’t be investing in. Over 10,000 people take the udemy course every year. The most consistent, people know that I don’t get their email address, they’ve never spam from me. They know that this is a pure give. It’s just a gift back to the community and so I get a very large number of reviews and you can read those reviews on udemy but I get a dozen emails a month from people telling me how they used the system and the number one comment from people is “Neal you saved me thousands and thousands of dollars of air fare” but in the course I mention a lot of time that it’s not a substitute for going to the location. It’s a way to narrow your funnel down.

CHAD: Yeah it’s fascinating. I think it’s important for anyone in data, it’s really into and passionate about data tech and real estate is a lot of these things they complement the more traditional approach right? of kind of feed on the street I guess and it’s not a substitute it’s a complement and then, when complemented it probably optimizes your time to your point.

NEAL: It optimizes time and it optimizes profit because if you pick the right cities you’re gonna have an incredible benefit. So I have a property that was picked this way. I just sent an investor update our to 29 investors. The top 3 lines of the investor update said “Income: 9 month high, Net operating income: 9 month high, Delinquency: $0 for 9 straight months”. I don’t know if there is anybody else that has a property like this.

CHAD: And you’re point is that this property ticked off all of your boxes basically?

NEAL: Well first, the city ticked off all of our boxes, then the neighborhood ticked off our boxes. Only then did we look at the property. I think the demand in that area is so insane that rent growth or no rent and by the way we aggressively raise rents at this property. In the end, it doesn’t matter. I mean, the tenants don’t wanna move out because they’re afraid, they’re fearful.

CHAD: Yeah. And I would imagine that you’re almost willing to, I don’t wanna say overpay but definitely pay a premium for a property like this because in a couple of years it’s gonna be worth so much more.

NEAL: I don’t wanna use that word premium because it sends the wrong implication but here’s.. I’ll give you an example. Columbus Ohio is a good market in my opinion amongst the rust-belt markets but there are places in Columbus where I would happily pay $80,000 a unit and there are other places where I would not pay 40,000. I think that’s the most fair way of putting in it. Is that a premium that I paid? Or am I just paying value either way?

CHAD: Right, do you have an opinion? What would you buy a property for the right price in any market? Is that how you think about the world?

NEAL: No

CHAD: I mean, any market is too great a statement but is that kind of how you look at things?

NEAL: I tend not to do that Chad. The short answer is I believe in the concept of headwind and tailwind. So if it’s a headwind market, I will not buy it. Like for example, Shreveport Louisiana is a market that I consider to have spectacular headwinds. So if the going rate at Shreveport was 40,000 a door and I had access to a property at 35,000 a door. Technically that’s huge, you have massive amount of equity built-in on day 1, correct?

CHAD: Right.

NEAL: I would not buy.

CHAD: Okay. So there are do-not-pass-go markets that you’re not even interested in.

NEAL: I’m not looking at them simply because I know that at this point, all the data in the T12 is based on the 9th year of a spectacular expansion. What happens when we hit the next recession in that market? There’s not economic fundamentals for the price to be valid.

CHAD: Right, it’s fascinating. Neal, there’s a question I ask most people, I’m gonna ask you but I’m very interested to hear what you have to say. What are you excited about from a technology or data perspective over the next 5 years that maybe you didn’t have access to before but you will have access with just evolving tech or evolving data platforms?

NEAL: Well firstly, we don’t have to wait 5 years. I’m excited about tools like neighborhoodscout. Their ability to be so decisive in showing me data. I’m excited about real.ai, companies like that that can basically show you the one property in the neighborhood that is significantly undervalued even if you buy it at 4 cap right? Because I tell people there’s plenty of properties out there that are better buy at 4 cap than some other property at 8 cap right? Because it’s about the money that is still left on the table.

CHAD: Right, so you’re saying just to frame this for our listeners, you know. If the going rent should be $800 a door and it’s right now rented for 600, the cap rate’s almost irrelevant.

NEAL: Almost irrelevant. I wanna use the word almost there but yes, I would say it exactly the way you said it. Almost irrelevant.

CHAD: Right. So you buy something that looks like well, a 4 cap or whatever. Under normal circumstances you’re gonna buy but if the rent’s $200 almost who cares what the cap rate is upfront. Obviously is something that you take into consideration but really what you’re trying to say is what’s the IR look like over the next 10 years and that’s gonna have more to do with where you’re gonna re-position the product then it works.

NEAL: Yes and there’s products like real.ai coming out. Right now they’re expensive but you said 5 years right? What I find is technology takes 5 years   to commercialize and to commoditze. So I believe that I could probably buy a subscription 5 years from now to a service like real.ai that gives me an incredible ridiculously stupid advantage over everybody else and at that point I probably won’t be buying 200 unit buildings for my investors. I’d probably be buying 50 unit buildings for me. Right? So I mean at that point, when I know that I have these ridiculous advantages then I’ll just keep growing my personal portfolio.

CHAD: And since you brought this up. I’m actually not familiar with real.ai, it’s the first time I’ve been exposed to it. This is a, it sounds like a platform that basically takes into account rents and costs buy says what really should they be in this market.

NEAL: It’s almost a platform that takes the underwriting process and automates it and gives you an answer saying you know, “here’s a heat map of this neighborhood and if you see these 3 or 4 properties based on their rents and occupancy from costar or whatever they get the data from”.

CHAD: Oh wow.

NEAL: These clearly are great buys and you see all these red here? These are over-valued don’t touch these. You see what I mean? You can look at that in you know, map view or whatever it is. There’s a number of these start-ups. I am not suggesting that you go and buy a subscription to real.ai right? They are an example on the sort of technology that is revolutionizing the art and science of underwriting in the future right? I also believe that the sort of services I’m building for my own apartment complexes will actually become commercially available in 5 years. Right now, the number one question I get is “So you generate 20,000 leads for your 6 buildings, why don’t you generate it for me?” The answer is, because there are secret sauces that don’t work when I generate those for everybody. They become known, right? So I’ve no intention of telling anybody but I know my secret will get out sooner or later because some people will do it.

CHAD: That’s interesting Neal. Do you have a hypothesis and I’m realizing here I don’t actually know your answer here but do you have a hypothesis that come back in maybe let’s say 10 years or 15 years, there won’t quite be this major differentiator of what I property sells for and what it’s worth because if you fast forward the AI tech like you’re saying, at some point that information leads to thing trending on the open market at more than the market price that they should trade for.

NEAL: That is exactly correct. So the opportunity in the real estate industry, the multifamily real estate industry in particular, is going to shrink over time as technology basically reduces the inefficiency, makes the information available not just to the potential buyer but to the seller themselves and so this commoditizes areas. The airline industry for example had huge margins before travel agents went out of business and now the airline industry is basically fighting over the last 5%. Right? So that’s their margin, the last 5%. Imagine our margins being reduced to 5% in multifamily. I’d be doing something else. People say “what are you gonna be doing Neal?” The answer is whatever else has margins, that’s what I’m going to be doing.

CHAD: It’s fascinating Neal. Last question for you here, so I was on a podcast yesterday, I made a comment and the host is someone, a very good friend of mine and he looked at me like I had 4 eyes when I said this, I wanna hear your thoughts on this. So, we were talking about real estate agents, so I have a fundamental belief that as tech and data increase over the next 10 years, I think and I made the comment, that you’re gonna see a major decrease in the number of real estate agents because that profession really moves in to free flow of data and tech and if you still need a real estate agent you’ll pay them for way less because what they’re running for you is a lot less and more driven by tech. I even made the comment like I wouldn’t be surprised if there was only 10% of the amount of real estate agents in 10 years as there are today. Would you agree with that? Or?

NEAL: No, I wouldn’t. I think that to me, that area has proven very very difficult to automate. It has so many different approaches have been had. The red fin approach, the zilo approach, you know there’s the FSBO approach. I think the industry has tried very hard over the last 20 years to take away the money that the real estate broker makes and they just haven’t been able to take away the fact that a brokers needs to physically show a property to a buyer, and the buyers feel a level of comfort in that. I do think that their margins will shrink.

I think that if a real estate broker makes 250,000 today, maybe 10 years from now they’ll make 150 but I think that will still be compelling enough for most of the brokers to still be there. So I expect a small reduction, I don’t expect a large reduction. That seems to be an area that is very very hard to automate. I’m certainly trying not to automate that one because I’m not interested, the mad-scientists are not interested in taking on the hardest project. They’re interested in finding loopholes and so far, a hundred different .com’s, a thousand different .com’s over the last 20 years have failed to take money away from the brokers.

CHAD: You’re more interested in the things no one’s talking about like “can I create a loophole around getting more leads for tenants for my units” you know.

NEAL: Yeah I think so. I think that there’s an industry growing up and creating more leads for brokers. You know, more potential home owners, more potential sellers. So the industry has been very successful in technology but what has happened is any attempt to remove the broker from the center of this transaction has so far been very unsuccessful and I think a lot of it has to do with the emotion of home buying and unless all of a sudden people change from Captain Kirk to Spock then I don’t see a lot of the world changing into the Spock side. I don’t think that changes.

CHAD: Neal, fascinating conversation. I could talk to you all day, one of the most data centric guests we’ve had on here. I think you’re a minority in this industry. It’s interesting, before I got into this I was in digital advertising and when I entered the industry it looked a lot like real estate does today. When I exited, it looked a lot like how you talked and it was just this change if it happens over the next 10 years. My guess is it goes a lot like how digital ad tech does which is more data scientists like yourself..

NEAL: Yep I think so. I mean you look at data scientists in tech. Today, the number one job in America is data scientists right? So just Google it and say “what’s the most-prized job in America?” and the answer is     data science and I think that we will have real estate data scientists in the future as well. I’ll certainly be on top of that particular queue but you can actually learn how to be a data scientist today. We have a web site. It’s called multifamilyu.com and it’s not really about multifamily, it’s about everything real estate but we’re multifamily guys so we called it multifamilyu.com and it stand for multifamily university. We bring in about 40 top of the line speakers. We audit every single slide of their slide deck. We remove the pitches, we hate pitches cause we don’t pitch ourselves on that web site. Well we pitch a little bit that’s not true. So we’re very careful to make sure that no one every accuses us of “hey we had an hour-long webinar with a nugget”. We’d much rather be accused of “There was an hour full of nuggets with a pitch that was a minute long”.

CHAD: Of course.

NEAL: And so we follow that process. About 25 to 30,000 people register each year for those deep dive webinars. They are free, there’s no advertisement running and there’s no high pressure sales pitches. We don’t get a kickback from those speakers you know, those commission checks? It’s all designed for people to learn. So check out multifamilyu.com. If you’re interested in figuring out the best cities and neighborhoods in the U.S. check out udemy.com or just udemy Neal Bawal on Google and I think that will give you your head start in data science.

CHAD: Neal this is fascinating stuff. I imagine on LInkedIn you’re also available to be connected with?

NEAL: I love LinkedIn, I love Facebook. In fact, my favorite way with connecting people is my Facebook grop. It’s called Magic of Multifamily so go to Facebook type in Magic of Multifamily. As it happens, it is by far the fastest growing group in America for multifamily. So we have about 3 times the growth rate of the industry because there’s a lot of a dorks and geeks out there that are frustrated that people don’t use data.

CHAD: That’s awesome Neal, count me in the dork-nerd column. You’ll have a plus one of your Facebook group and hopefully some more from this podcast cause we do have a lot of nerds that listen to this each episode. Neal, awesome stuff. We’ll probably have you come back again at some point, really fascinating. Thank so much for joining us.

NEAL: Thanks so much Chad, thanks for having me.

CHAD: Cool, bye!

CHAD: So that’s our episode of Real Estate Hackers thanks for joining us in your real estate investing journey. We come out with fresh new episodes weekly. Be sure to subscribe to the podcast and if you would let your fellow investors know about us. Also if you’ve ever hacked or found a unique solution to an issue in real estate space, hit me up. We may even share your real estate hack on a future episode. Check out our site at realestatehackers.com, on Instagram @realestatehackers or email me directly at chad@realestatehackers.com.

Real Estate Hackers is an on-air brand production. Huge thanks and shoutout to Eric and the team on airbrands. Be sure to check them out at onairbrands.com. This is Chad Gallagher, your host of Real Estate Hackers. Hope to see you at our next meet up or live event and who knows, you may even be the next guest hacker on our show. See you soon.