Kyle Mitchell & Gary Lipsky: Episode 702

Transcript

[0:00:31] JB: Today’s guests are quick to explain that asset management is not the sexy side of real estate versus for example, closing 30-million-dollar deals. However, they believe asset management is the most important part. Kyle Mitchell and Gary Lipsky are the managing partners of APT Capital Group. Together, they have a combined 50 years of experience in the industry. Now, in their new book, Best in Class: How to manage your multi-family asset, avoid mistakes and build wealth through real estate, they are taking readers step by step through the process of successful property management. On Author Hour today, they share the importance of building a team, why it’s so crucial to be proactive in this industry and some of the mistakes they made when they first got stared. Hi Author Hour Listeners, I’m here today with Kyle Mitchell and Gary Lipsky, authors of Best in Class: How to Manage Your Multi-Family Asset, Avoid Mistakes and Build Wealth Through Real Estate by Kyle Mitchell and Gary Lipsky. Kyle and Gary, thank you so much for being with us today.

[0:01:43] GL: Yeah, thanks for having us.

[0:01:44] KM: Yeah, it’s great to be on, thank you very much.

[0:01:46] JB: First of all, can you please tell our listeners just a little bit about who the two of you are and how you came to write this book?

[0:01:53] GL: All right, I’ll go first. Yeah, I’ve been a lifelong entrepreneur. I started investing in real estate in 2002 and really got the bug for it but I had other businesses going on and so I sold one of my businesses at the end of 2006 and got into real estate full-time in 20017 and you know, I love the creative side of real estate and the business side of real estate and as Kyle and I kind of removed, partnered up and working together, we saw that there was nothing else out there like this, a book that kind of taught everything there is regarding asset management. We had learned a lot through doing it ourselves and through our podcast and a summit and said, we wanted to put something out there that a lot of people can learn from and take advantage of the mistakes and the lessons learned that we’d made as well and so we put together everything someone would need to know to be really good at asset management into one book and then that’s how we came to this and Kyle, throw in all the missing pieces.

[0:03:03] KM: Yeah, you know, my story is a little bit different because I was a W2 employee up until about three years ago and Gary’s been an entrepreneur his whole life. I came from the golf business and in the golf business, I was in operations and management. When I switched over into the real estate industry, I did see also along with Gary that there is a real need for people to understand more of the operations and management side of owning real estate. There’s a lot of people out there teaching on how to do your first deal, how to raise capital, which are all things that people need to be aware of and learn and educate themselves on but when you’re buying real estate, at least multi-family real estate, which is what our book is about, you’re buying a multimillion-dollar business. If you don’t have the education background or skills to manage a multimillion-dollar business, then you’re setting yourself and your investors up for failure. It’s really important for us to educate people on a niche that both Gary and I have a lot of background and experience in, which is asset management which is not just hiring a property management company and then letting them execute your business plan, it’s really putting systems in place to hold them accountable and managing the manager. Like Gary said, we saw a huge need for this, a gap in the market and we both have experience in that and a lot of passion and teaching on this topic.

[0:04:23] JB: Why do you think there is that gap of why are there so many books to help people get their first property but very few that covers what happens next?

[0:04:34] KM: I think because it’s just not the sexy side of real estate. Buying multimillion dollar buildings, 10, 20, 30-million-dollar buildings, raising millions of dollars of capital, that’s the sexy side of real estate. Holding people accountable, building systems, plugging in numbers in a spreadsheet, managing a budget, managing projects, that’s not the sexy side of real estate and so I think it doesn’t get enough attention. I do think however, it’s the most important side of real estate because it is – the difference, it’s what’s going to separate you from being a successful real estate investor to being either an average or a failed real estate investor.

[0:05:13] JB: Yeah, no pressure.

[0:05:15] KM: Exactly.

[0:05:17] JB: Okay, you say that you interviewed more than 150 operators to get their expertise for the book, that’s really cool. I’m wondering, what were some of the most common pieces of advice you got from your sources?

[0:05:33] GL: It definitely varied and Kyle and I picked up things that maybe we didn’t fully know and wanted to – someone to teach us or people that had a really interesting story. Those were the people that we reached out to, people that have been doing this for a long time and they were gracious in sharing their knowledge. I wouldn’t say there was one comment. I guess, the one common theme is just it’s hard work, putting in the work and everyone makes some mistakes and they learn from it and sharing those mistakes is really helpful for up and comers. I guess that would be the common theme.

[0:06:18] KM: Yeah, I’ll add to that, I think when you get started in business or really in anything, the more work you put in upfront and think about where you're going to be in the end. Beginning with the end of mind, being proactive, putting in time upfront for a result that will later get shown is something that’s really key in running any business. I think that was for me, a very common theme is putting in the effort and the work like Gary said, the hard work upfront to build the systems, to have the vision and to hold your teams accountable to execute your business plan.

[0:06:57] JB: People need to know that it’s going to be a lot of hard work or they’ll wind up in trouble as you’ve kind of said, once the hard work comes. I see that you picked the order of the book based on the journey of a typical asset management. Can you briefly take us through the steps of that journey?

[0:07:18] GL: Yeah, it starts with building a team, you can’t – real estate is a team sport and you can’t do it alone. Although some people do but it’s much easier to build a team because you’re not going to be an expert in everything and so that’s where that team comes about. Then, when you find a property, you’re doing due diligence. You’re inspecting the property, the interiors, the exteriors, the leases, the operations, every facet of that purchase, you’re really delving into and that’s such a critical phase because you’re trying to uncover everything that you need to know to make an informed decision if you should go forward with that purchase or not. Then you go into budgeting, planning out all the things that you need to do for the property, your proforma for the first year and it’s a living document because things will change and you may need to pivot but the budgeting pieces is so critical. Then you get into financial analysis, you’re monitoring how you’re doing along the way and we also talk about legal, either you’re keeping yourself out of trouble for yourself, your investors, for your property. There’s so much involved and you need to seek the help of experts and not do it all yourself. Again, going back to team. Kyle, you want to continue from there or?

[0:08:41] KM: Yeah, absolutely, the one thing also that a lot of investors don’t talk about right now is the disposition and investor relations side of it. Renovation management. We take you step-by-step through kind of each and every asset management key component to get you all the way through the end, even including your sale and disposition and your return of capital to the investors. Yeah, the two are my favorite topics towards the end of the book is going to be renovation management, really holding your teams accountable on that project management side and then investor relations. How to treat your investors, how to communicate with your investors, how to keep them involved and feeling comfortable with their investment.

[0:09:20] JB: That’s a lot.

[0:09:21] GL: Yeah, this is – we’ve put a lot of hard work and a lot of time putting this together but we’re really proud of it and really excited and it forced us to raise our game as well I few didn’t – if we couldn’t fully communicate it, we know we needed to do a better job of learning a particular topic. That was a nice benefit of writing this book.

[0:09:45] JB: When we teach, we learn, right?

[0:09:48] GL: Absolutely.

[0:09:48] KM: Absolutely.

[0:09:50] JB: You say throughout the book, you discuss the importance of being proactive versus reactive when you’re managing assets. Can you talk to us a little bit about that?

[0:10:02] KM: Yeah, we use what’s called key performance indicators, KPI as many companies, most companies utilize those and they have what’s called lagging and leading indicators. We utilized that data to be able to make decisions about the business and the health of the business based on some of those leaving and lagging indicators, we don’t wait for things to happen in the business, right? When you wait for things to happen, it’s too late, whether that’s an unhappy employee or your occupancy for your property going down or maybe the amount of collections that you’re getting from the residence. Crime for example, you want to stay ahead of things and so you know, it’s almost being able to look into a crystal ball and see things before they happen and you don’t always, you’re not always able to do that but by having that proactive approach, by utilizing tools and data and information, you can utilize those things to make better businesses decisions and educated business decisions and so that’s what we mean when we talk about being proactive versus reactive.

[0:11:05] JB: You can’t rest on your laurels. Would you say that being reactive is a common mistake people make in this industry or is this industry just not made for people who are reactive in the first place?

[0:11:17] KM: I think in any industry, I think people tend to be more reactive than proactive, being proactive does take additional effort and it takes know how, you know? I think experience is a big deal in any industry but one definitely in this industry but I just think a natural reaction of people is to be reactive and not proactive and so I always tell people, if you are one of the very few that are proactive, you can separate yourself from your competition immediately.

[0:11:46] GL: Going back to what Kyle said earlier about that, the sexiness part, you know it’s just not sexy as a management. People are – they want that new deal, the next deal that they could put on social media and whatnot and say, “Hey, we got a new deal” and they forget sometimes that dissolve other deals they need to manage. Yeah, I think just like any other industry, there is plenty of people that are not proactive and react to, you know, wait until a problem to happen and then react versus being much more on top of it and avoiding mistakes because of things they do and that’s what Kyle and I do. We’re trying to avoid something from happening because we’re so proactive.

[0:12:25] JB: What are some of the common mistakes, people who are new to this industry tend to make?

[0:12:31] KM: For me, it’s hiring a third-party property management company and expecting them to do everything for you. You know, expecting them to essentially manage your investors’ money, manage their investment and execute the business plan. It is your duty as a lead sponsor and asset manager to execute on your own business plan to work in tandem and as a partner with your property management company but ultimately, to hold them accountable to your business plan.

[0:12:59] GL: Yeah, if you really hold your property management company to their feet to the fire, the difference in profit that you’re going to create for yourself, for your investors is a huge difference from those that do not do that.

[0:13:17] JB: Were there times and I am wondering if you can share some of your own experience, experiences of times when you learned important lessons that wound up in the book, “Oh, I see now why this aspect of the process is so important.”

[0:13:35] KM: Yeah, I can share one certainly that was for our first two properties. You know, one we were able to work through, one we’re working through now so it wasn’t something that completely derailed the investment but it definitely was a lesson learned and it’s the type of debt you put on the properties. I think a lot of time, people only think about the immediate impact it’s going to make on the investment but not the overall impact and again, I say begin with the end in mind. You want to know how every decision you’re going to make is going to affect the overall investment and the end of the investment. Putting on the right prepayment penalty and debt on your investment or your property based on what your business plan is, is extremely important and so always begin with the end in mind. We put on some prepayment penalty that is more for long-term holds and in this scenario, the market appreciated. It was – everything went according to plan and better and so we were able to exit our property early but because of that, our prepayment penalty was massive and we had to work around that and you can read in the book how we got around some of those things but you know, always begin with the end in mind.

[0:14:44] GL: You know, we didn’t have the systems in place when we started. I mean we had the operational experience. Between Kyle and I, we have over 50 years, so we were able to quickly kind of implement that but having better systems, it was you know, and our systems continually to improve every day as we learn new things. This systems piece is very important. It saves time, more efficient, you’re able to make better decisions.

[0:15:14] JB: Even if it’s not sexy, that’s just part of it.

[0:15:18] GL: Exactly.

[0:15:19] JB: I want to return for a second to the 150 operators you interviewed. You said there were some things that you weren’t expecting. What were some their wisdom that surprised you?

[0:15:34] KM: For me, it’s everyone has a different approach, everyone has a different philosophy. It does all boil back to being proactive, staying ahead of it beginning in the end in mind but you can have a 100 different people have a 100 different business plans and still execute on them flawlessly and be successful. It’s just important to have that plan and put together that plan but it was amazing to hear from so many different people. Gary and I learned a ton during writing this book. You know, we’re definitely better asset managers because of it and then we also used experiences from our own properties as well but everyone has a slightly different outlook on how to execute but everyone has the same common theme, which is be proactive, begin with the end in mind.

[0:16:20] JB: Is there anything you’re doing now or plan to do in the future that will be different as a result of researching and writing this book?

[0:16:28] GL: Well, you know we constantly want to improve. I’m not sure I could pinpoint one thing. You know, I know Kyle mentioned what type of loan we use but you know, there is that constant strive for improvement that we apply to everything that we do. What we would never say we know it all because we learn things every day and will continue to learn things every day and I think that’s really important for us to have that open mind that even someone new to the industry could bring a great new idea, so we’re open to that.

[0:17:03] JB: You mentioned at the beginning of the book that speaking of some of the [un-suck-see 0:17:06.5] aspects that you’ve got a chapter on tools. Why was this important to include? Is it missing from most conversations?

[0:17:18] KM: I think we just wanted to provide people with resources that they could access today to help them improve their asset management, right? That’s why I love the book too, you can flip to any chapter depending on where you are in your journey and get information on that. This is not to be read from start to finish. We would love for you to but if you’re in disposition, you can go to that page. If you need some example or tips on tools that we use and we found successful, there’s a chapter for that. The tool section I think there’s a lot of people out there that if they can just implement these tools alone, it will help them be a better asset manager. We really thought the tools was an important piece and that is something that will be updated as technology updates because it constantly changes and we’re going to go ahead and update that section on our online resources as things evolve.

[0:18:07] JB: What are some of the tools in here? Can we tell our listeners?

[0:18:11] KM: Yeah, absolutely. Some of the tools that we use is like an investor portal, right? How we manage our investors, how we communicate with them, how we manage their portfolios. Other things are things like an underwriting tool, what we use, how we’ve used them and then things like project management tools. We use Trello as a project management tool to manage our renovations and it’s a simple tool to use. The important thing there is that we’re utilizing a tool to help us become more efficient to stay ahead of things to be able to see things and communicate with our teams in real time and that’s been a huge help. There’s a lot of tools like that that are in that chapter.

[0:18:46] GL: Yeah, we also have tools that where we – how do we get our KPIs, our CRMs, so if someone just implements a couple of these tools, the amount of time they save and the amount of information they’ll be able to process will be light years ahead.

[0:19:00] JB: Yeah, it’s a really helpful practical advice beyond the more general information. Thank you for sharing some of that. What’s the one thing you want readers to take away from this book?

[0:19:15] GL: For me it’s don’t operate in a silo. You know, this book has a ton of great information out there and this isn’t the only place, certainly our website, there’s others. There is so much good information out there and people share what they’ve learned, what they’ve done correctly and so you seek advice from others. You know, I seek advice from others too. If I don’t know something and when you’re buying real estate, you know you are talking a huge investment of time and money so don’t operate in a silo, seek information whether it’s this book, someone else’s book, a podcast, a conference, wherever.

[0:19:57] KM: Yeah, for me it’s to understand that you’re buying a multimillion dollar business when you are getting involved in real estate and you should be educated and prepared to manage that as if it was a multimillion dollar business.

[0:20:10] JB: Kyle and Gary, it’s been a pleasure speaking with you. Again listeners, the book is Best in Class: How to manage your multi-family asset, avoid mistakes and build wealth through real estate. Guys, in addition to reading the book, where can people go to learn more about you and your work?

[0:20:26] GL: Yeah, you can go to APTcapitalgroup.com or assetmanagementmastery.com.

[0:20:33] JB: Great, thanks so much.

[0:20:35] GL: We appreciate it.

[0:20:37] KM: Thank you.

[0:20:40] JB: Thanks for joining us for this episode of The Author Hour Podcast. You can get Kyle Mitchell and Gary Lipsky’s book, Best in Class: How to manage your multi-family asset, avoid mistakes and build wealth through real estate, on Amazon. You can also find a transcript of this episode as well as previous episodes on our website, authorhour.co. Make sure to subscribe to The Author Hour Podcast for more interviews and insights into life-changing books.