Listen to hear how Ryan Wehner sells all his CA investment properties right before the great recession. He then decides to start a property management company while sitting on his futon and grows the company into managing over 25,000 units. Ryan is a guy that trusts his gut and takes consistent action.
Table of Contents:
- Where To Listen To The Podcast
- Pay Now and Play Later or Play Now and Pay Later
- Growing Up in an Entrepreneurial Environment
- The American Dream
- Property Management Company Using Leverage
- Having a Property Management Company as a Partner
- Serving Is the Nature of the Business
- Keep the Ball Rolling
- Do Better Than the Rest
- The LeakAware Software
- Ryan Outside of the Property Management Company
- How to Reach Ryan Wehner
Pay Now and Play Later or Play Now and Pay Later
Darin: A little background about Ryan Wehner. He is married, has three sons, ages 6-10, and lives in the DFW area. He's originally from California and grew up with an entrepreneurial dad who taught him a great lesson that you either pay now and play later or play now and pay later. Ryan chose to sacrifice and pay early in his career and was rewarded handsomely for doing so.
So actually, this is the first time that Ryan and I have had a personal conversation together. Ryan started the property management company that I used on my first syndication, Wehner Multifamily. They manage over 25,000 units. And I've been very pleased with the partnership of working with them. So I'm very excited to hear his perspective. Compared to all the prior guests that we've had on the show who have been more focused on actually the syndicators.
This is a property management company owner, and he's going to be coming at it from a different angle, which I think will give everybody a great perspective on running these deals.
Ryan, if you could just start by a high level on Wehner Multifamily, and I don't know, are you an investor in any multifamily deals also?
Ryan: Wehner Multifamily is a third-party property management company. The assets that we do third-party management are in Texas, Oklahoma, and Arkansas. We're limited to Little Rock in Arkansas, but I think we have about 17,000, 18,000 units in DFW, let's call it 3,000 units in San Antonio. And then we have about 1,000 in Austin, and soon we'll have about 1,400 units in Houston, and then we have a pretty large presence in Oklahoma City.
A Property Management Company That Started in a Trailer
Ryan: Wehner Multifamily was started around 2007-2008. I like to tell people that it started on a futon with a laptop. I started from the ground up and I was the first employee.
Darin: Where were you living?
Ryan: I live in Dallas in 2006.
Darin: That's where you started.
Ryan: I grew up in Southern California.
Darin: That makes sense because I see a lot of pictures, and I'm like, "This guy looks like a surfer dude guy. He's just laid back, and he built this huge company." So it does not surprise me that you're from California.
Ryan: Yes. So I grew up in Seal Beach which is in Orange County. It's just south of Long Beach. I went to UC Santa Barbara, graduated in 2000 with business economics. After the five-year vacation/party, it's been pretty much a 20-year sprint. So when I got out of college, I worked in finance as a financial analyst for a company that raised money for media and technology companies in the middle-size range. And then a couple of years out of college, I worked for a land development company called Lennar Land. I worked in their land development section. During this period, as soon as I graduated from college, within months I was making six figures in the financial industry. But what I did was I lived in a trailer in an industrial park.
I saved all my money, saved every last penny I could. My friends made fun of me, and I bought duplexes and condos and stuff in Southern California. A lot of people may not know the history of real estate in Southern California, but if you bought around 2000, 2001, '02, '03, even up to about 2005, everything was just going way up in value.
Taking Risk in Real Estate
Ryan: I did very well, on basically financed as much as I could. I was at the duplex having a make-ready done, and the cleaning lady was coming in, and she knew me pretty well. Her name was Rosa. She's like, "Mr. Ryan, Mr. Ryan," she's so excited that she's buying a house. She knew I was very interested in real estate. Then she proceeded to tell me she was getting a $470,000 stated income loan.
This was about the third quarter of 2005. I thought, "Well, I've had a lucky run. My whole net worth is tied up in this kind of lucky upswing in California real estate and this doesn't smell right. I feel like the sky's about to fall." I'm paying her $75 or $85 a unit to clean an apartment. So as soon as I left, I called a friend of mine that was a broker and basically, decided, "Hey, let's coordinate this, within the next couple of weeks I want to list everything. I want to sell everything." A lot of people there thought I was crazy. "How could you sell now?" And that's usually the best time to sell is and they're saying, "Why are you selling now?"
I started looking across the United States where I wanted to do an exchange. And I did some research and I liked DFW and I liked Atlanta primarily because they were both Fortune 500-friendly. They had two of the largest airports. At that time, the end of 2005, it kind of rolled in the prior 2006, '07, relative to the rest of the United States, they were pretty depressed real estate pricing, especially with regards to commercial real estate. So I thought that would be a good place for me to exchange my property into.
If There's a Will, There's a Way
Ryan: I quit my job and I came out here and that's the example of me living on a futon with a laptop and just started pounding the pavement, looking for deals. And I did find two deals off-market. Literally, this was after three or four months and hundreds of phone calls and driving everywhere and one of the deals ended up being a grand slam. I still own it today. One was a solid double. I sold that about eight, nine years ago. I just 1031 my money in. One of my oldest brothers or a few of my brothers co-invested with me with the idea that I thought I would just get it set up, have a third-party property management company manage it. Then I'd go to Costa Rica and surf.
Darin: Do you surf?
Ryan: Yes. I grew up on the beach. Not a lot in the last 10 years candidly because I'm pretty landlocked. So the idea was to do that and then leave and go surf and start a propane distribution company or something down there. Best laid plans. It didn't quite work out that way, I ended up meeting my wife at Holy Trinity Catholic Church. Then I had issues with my third-party property management company, the company no longer exists. I kind of undiplomatically fired the property management company.
I wouldn't have done it the same way today, but a lot of F-bombs and all that stuff. So I ended up just taking it over myself. I just figured, "Well, I have time for this, and it's running a small business," so I kind of got my hands dirty. I tripped on myself a lot, but where there's a will, there's a way. And both of the properties did very well.
Growing Up in an Entrepreneurial Environment
Ryan: During this period I decided that I would stay a little bit more long-term in Dallas. I got my broker's license, started to represent buyers out of Southern California and South Florida mainly. So I would go and screen deals and look all day long for deals. I was doing about five or six deals a year. And I kind of got pulled into a property management company kicking and screaming. For the first few assignments, the company wasn't even set up. So it was the end of 2006 and 2007, I don't think I was legally incorporated till the beginning of 2008. But they'd come out, we'd look at several different deals. They said, “Hey, we would like this deal, but we've heard so many horror stories from everywhere that we are going to mandate that you manage it if we go ahead and do this.”
So I got kind of pulled into the business kicking and screaming. As the business started to progress, I found some good team members to oversee a lot of the not-fun part of the business. I grew up in a family of entrepreneurs. My father was one of the largest contractors. He was a high school dropout but turned into one of the top five contractors in the late-eighties, early-nineties in California. So I know how to run a business just by witnessing it my entire childhood. During summers, I had to drive around with my dad to all the different job sites and stuff. So I just kind of got an intuition for that. The same type of employee base in property management is construction in many ways. And so that business just started to build upon itself.
The Power of Word-of-Mouth
Ryan: It wasn't marketed. I didn't do marketing up until a couple of years ago. It’s all word of mouth and building the best mousetrap and getting the best personnel on-site and at our headquarters. So 2008, '09 happened, the Lehman crash, the market collapse. It became very difficult, especially to somebody who’s only representing buyers and relatively new to the game to continue brokering deals and making a living with it. I just kind of doubled my efforts in the property management company and when we doubled every year through that downturn. We’d take certain properties that now we wouldn't take that are more dangerous neighborhoods that we wouldn't take now, but we took a lot of foreclosures and REOs.
We had a, not a technical partnership, but we were kind of the go-to for City National Bank. They’d bought some lenders here with the loss-share agreement with the federal government. And so we were just kind of their go-to every time and built a brand. Really, there's no secret sauce, we just try to get one 10th of a percent better every day. So if you can get 35%, that's 35% better a year, so that's what we tried to do.
Darin: Let me hit it on a few things there. One was that you started this thing, when you got out you're making six figures, you could have kind of built up your lifestyle, had the sweet car and the sweet place to live. But instead, you chose to sacrifice, live on a futon, save up your money, get into real estate and start a property management company.
I think that's a common theme that I hear with a lot of successful people is that they sacrificed early so that they can enjoy the fruits later.
Freedom Comes After Sacrifice
Darin: I think that just in general, the American way is when you get a raise when you hop from one company to the next company. Then you end up buying the nicer car, the nicer house, and people are unhappy in their job, but they feel like they can't make a change. So you were smart to have bootstrapped yourself like that, lived way below your means, which gave you flexibility.
Ryan: And freedom.
Darin: Absolutely. That's what so many people are looking for, is freedom of their time and freedom of money.
Ryan: Like you said, the perfect thing is you have to sacrifice to get there. A lot of people want their cake and they want to eat it too. Since I was four years old, it was always drilled in my head constantly, "Hey, Ryan, you can pay now and play later, or you can play now and pay later."
It's up to you, though. I was learning about leverage, not on 200-unit complexes, but my father would say, "Well, Ryan, I have this 10 unit and I paid $100,000." These are old prices, right? This is aging me. But he would say, "Look, I paid $100,000. I got a loan for 70 from the bank, the person selling it to me, loaned me another 10. Then I had to use $20,000 of savings." I was learning those basics when I was six years old.
Even though my father ended up being very wealthy, from when I was very little. I have three older brothers, they experienced more of this, every weekend we were mowing the lawns at the properties. We were doing those things. Now, after it got to a certain point in my teens, we weren't out mowing lawns anymore.
The American Dream
Ryan: My father has always been a huge proponent of "you don't have any control over how smart you are, how good looking you are, but you have complete control over how hard you work and how many sacrifices you're willing to take." And so a lot of times people ask me, "Well, how did you come up with this idea? You've been so successful in your business."
What I tell them is that the property management company has been around since at least the days of Rome. So it's at least 2000 years old. It's not a new idea. It's not some fancy concept I came up with. You are aware of some of our software's and stuff. We've done that and have helped the business, but the core line business is not complicated.
It's about getting the best people, always sticking by your morals, and adhering to your integrity in all cases. That's just how I was raised, little did I know that would be a huge benefit in running a business, especially the property management company, the space that we're in, which is if people trust you because you have integrity, you get more business, you can even usually charge a little higher management fee if they know that they can trust you, what they're seeing is what they're getting.
So I've been very blessed. I'm the American dream, right?
Darin: Yes. And you know what, you brought something up. So I go to a lot of real estate conferences, but I also go to a lot of entrepreneurial conferences and just hear from different speakers that are wealthy and have done very, very well for themselves. I hear that concept over and over.
Property Management Company Is an Ancient Business
Darin: There are so many people out there that are trying to find the one idea that nobody else has come up with and they feel like they can't start their own business unless they find that idea.
But in reality, most businesses, they're already out there, you're just going out and doing it better. You're solving an issue that other customers are receiving by using different vendors, different partners, and you're going out and making it better. So you don't have to recreate it.
Ryan: Yes. Ricardo, our tree trimmer for my house has one of the largest tree trimming companies in probably a five-mile radius. I know for a fact that he's a multimillionaire and he trims trees. And that's been around for probably longer than 2000 years. He just does it a smidget better, he's always on time, he's honest and forthright with his employees. So he keeps the good ones. And so surprise, surprise, he lives a very comfortable life.
I think that's part of it. Part of the sacrifice of living under your means, especially when I was starting my business and even let's call it up to about 2012, those periods. If I lived at my means not below, and let's say I had a client that was abusive or not reasonable. But I was living right at my means and it forged the growth of the business hanging on to certain clients that are abusive or unreasonable or insatiable, they have insatiable expectations.
If you're comfortable enough to go, "Hey, I don't need this to make the mortgage. Guess what, you have 30 days to find somebody else." You free your mind, you enhance your moxie, if you will, to be able to get better opportunities.
Living Under Your Means
Ryan: Where if you're in a situation where you're spending everything you make or even more with debt, then you put yourself in a metaphorical vice grip that you have to stay there and keep taking the pain.
Darin: That's a great point in being able to choose your customers. If you're right at the cusp, then you don't have that luxury of being able to choose. And not many people bring that up. I think that's a great point.
Something else that you brought up, which I think is important is that you got into real estate, you started seeing the benefits of leveraging real estate and growing wealth. Then things got a little bit haywire, real estate got a little bit crazy and you noticed that. So back in that timeframe that you mentioned, 2002 to 2006, I was actually on a loan trading desk trading large portfolios of residential and multifamily loans. I kind of saw the same thing, as our biggest competitors at the time were Washington Mutual and Countrywide and in 2005, and moving in 2006. I saw it.
We were losing market share because I was working for ABN AMRO and they would not go down the credit profile spectrum and I'm thankful they didn't. But at the time we were losing market share because Washington Mutual and Countrywide, were writing all these stated income loans. I told my wife, I was living in South Florida at the time, "This just doesn't make sense. This is going to end badly." When real estate prices are going up 15, 20% a year, and incomes are only going up three or four, like at some point something's got to give. So you had a gut feel and you took action and liquidated everything.
Darin: Not only did you liquidate everything, but you said, "I'm going to look in the entire US and look for what markets are attractive to go and redistribute that capital. Props to you for doing that. That's fantastic.
Ryan: That's another part, it's called taking action.
You can read, you can go to a million seminars and read a million books. If you don't take action, it's just all fantasy.
Darin: Yes. Look, that's so important to listen to podcasts, read books, meet other people that are doing what you want to do. Hire mentors, but at some point, you got to take action, or else it doesn't mean anything. I'm going to put you on the spot a little bit here. Just discussion point, none of us has a crystal ball, but in this COVID situation, we're recording this near the end of September. It'll probably not air for another four or six weeks.
Ryan: Is it going to air before or after the election?
Darin: Probably it might even be election week, it's plus or minus, right around that point in time. So we don't have the crystal ball in terms of what's going to happen there either. I have conversations with my wife and other people and I feel like we're in a weird time right now because we had all of a sudden, all this huge unemployment. So much stimulus that went out there, and most likely they're going to come out with another round of stimulus. But when I go out, man if you're in the Dallas market or you go out to Legacy West, and it doesn't look like we just had the middle of a recession. People are out, people are spending, people in restaurants.
Property Management Company Using Leverage
Ryan: Boats are sold out, ATVs are sold out, everything's sold out.
Darin: But to me, it just feels like there's something not right about it.
Ryan: You're leading the witness, but you're leading me in the same direction.
Darin: Go for it. Tell me your thoughts on this whole thing.
Ryan: I don't know the future. So just like you said, and let's give you a little bit of historical information, I did use leverage. I learned about it when I had no assets and I wanted to make my mark and all that. I've kind of done the inverse. I'm probably a lot less leveraged now than the overall market. Just to clarify, I'm probably at a thousand units and I'm probably at a 40 LTV if you combine them all. So I'm very, very low leverage now. I don't usually do cash out unless I have a partner pushing for that. But typically if I have a refinance, I don't take any cash out and stuff. Because I kind of look at real estate, at least now, and probably over the last seven, eight years, it's a get-rich definitely over the long-term thing.
Ryan: I don't have the appetite to quadruple it in two years with that leverage multiplier because I don't need that to live a good lifestyle for the rest of my life. I'd rather not lose and gain a little bit year over year. Didn't have that luxury when I was 23, right?
Darin: No, in the beginning, you're in growth mode and you're in full leverage mode. And then after a while, you get to capital preservation.
Ryan: If I had two or three years in the economy, you'll just struggle through it.
Economy in Real Estate
Ryan: I don't really want to do that at this point because what do I have to gain? I don't want a private jet. It's not my driver. My whole driver's freedom and be able to wake up and do what I want that day, every single day.
So that's just one kind of disclaimer a little bit, but in terms of the economy going forward, I am baffled. I know that we have the Fed put or where they've printed $6 trillion. What I would say is I have a lot of liquidity right now. I'm not jumping into deals with a lot of leverage. I am putting a few deals together not enough for my own liking, but working on a 100-unit deal and another 80-unit deal, I put together a few months ago.
I can just share with you my personal experiences. I'm going in 40% down, I'm doing lower leverage deals, even on the ones that I'm currently buying because I think that gives me some wiggle room if there's a correction. In terms of we're in a little bit of a rock and a hard place that there is, I think some asset inflation with respect to real estate, stocks, primarily other things that I'm not really tracking.
The catch-22 is they've printed $6 trillion. I know they printed a lot of money after 2009, but I think it's being done at like quadruple the pace right now. So I know the smart people are saying, "Well, there was no rampant inflation before, it's not going to happen." I'm of the belief that smart people will explain what happened last week when the dollar went down 30%. All the smarter economists will start talking about what happened.
A Guy Who Follows His Gut
Ryan: I don't see that. I studied economics in college. What I learned during that is that they're right less than 50% of the time. So I don't know if there's going to be another black swan event or I'm not exactly sure how it's going to happen. It's identical to when I left Southern California.
I wasn't in the midst, on the front row seat, understanding all of the derivative markets and so forth. But I knew enough to know that there is gravity and at some point gravity takes hold. My advice to people, so experience share with what I'm doing, is I also don't think it's a great idea to hold onto a lot of cash right now. That's the catch-22 because cash in and of itself is an asset. And I think it's at risk over the next 12 to 18 months, I could be wrong.
It's under some inflationary risk. Then I think that if you look at a real estate deal and it just barely pencils, I would steer clear of that. But there are people that are smarter than me that are charging those deals. I don't know what perspective they're looking at it from, but I'm not nervous about being in DFW or even in Oklahoma City. I'm actually not nervous about being in Houston at a decent value and with a little lower leverage. Now, that's what makes me feel more comfortable. There are ways to do the math, where you're going to have more leverage and just more reserves. There's a lot of different ways to skin the cat. I'm a pretty simple guy. I just follow my gut.
Having a Property Management Company as a Partner
Darin: But you know what, you're consistent. You ended up feeling something in your gut back in California and you liquidated. And you're not necessarily saying that you're liquidating everything now, but you are saying that you know what, you've got liquidity and that you're going to every deal very carefully and with low leverage. So you have shifted your focus based on where we're at in the market and in the cycle.
Ryan: I shifted my focus somewhat to that probably two or three years ago, which was probably two or three years too early. I don't pretend to be a market timer.
Darin: Well, that's the other thing I would say is that a lot of times there's a pretty big lag between when some people see stuff and when the stuff hits the fan. So when I told my wife back in 2006. But if you ask anybody when the great recession was, what do they say? 2008. I was a couple of years early on that one, and so who knows what's going to happen, but I appreciate your perspective on it. Talk about how a property management company is such a key component as a partner for a property owner and a syndicator and talk about some of the benefits of really leveraging the experience of a strong property management company.
Ryan: Sure. So there are the basics. I look at it a little bit differently than some property management companies. The Wehner Multifamily tends to be a geographically cluster itself because we see that we get more economies of scale and a large referral and viral recruitment and stuff. We have a lot of properties in certain areas and it helps with marketing as well.
What a Property Management Company Consists Of
Ryan: So I think that if you have a regional player that knows that market, that has a large employee base, that they can use as a stepping stone to recruit their employees. That's the basics of the business. You need to have the best employees. So you want to have that network of employees.
If you self-manage, you have a great manager. I tell people that when they self-manage, you have a great manager, you're married to the manager. If you fire him or her, or she gets sick, you're in big trouble. When you have a large property management company that can pull other resources that fit that exact scenario, it's a huge benefit. I would say, that's probably the biggest benefit. Then there are all the conventional things, which is the pricing on things that we get is going to be much more beneficial than what an individual can get. And I know there's an economics term for this. I don't remember what it is, but we have somebody who focuses on water usage every day and monitors that, they're specialists.
Then we have somebody who focuses on interior make-readies, the paint quality of the paintwork from the different paint contractors. We have a specialist there, you have a specialist in accounting. Then we have a specialist in reconciliation. We have a specialist with regards to marketing.
So when you have a larger organization, you can basically set up your business to have people that are an inch wide, but a mile deep versus when you have a smaller organization, they're an inch deep and a mile wide. So you tend to find a lot of issues and inefficiencies in that second scenario.
It Pays to Have a Professional Team
Ryan: So you get specialized services, you get group pricing discounts, and you have a larger network for recruitment. I think that those are the three largest areas of leverage that you get with the larger professional player, not to mention, you don't have to be at the property. In one of my properties in San Antonio, there was a fire this weekend on Saturday. I wasn't getting on a plane, I'm flying down there. The regional manager called me, said, "Here's what the case is." Said, "You better reach Israel," our construction supervisor. He got on the phone, they handled it. He was there yesterday morning.
So it's just peace of mind that I don't have to leave my family in the middle of the night to fly down there and see what's going on. And I've been there, remember the first couple of assets, I was the regional manager, I was everything. Right?
Darin: Right. So, I can share a little experience from myself. So before owning any multifamily, I'm part of a multifamily mentorship group. I went and asked a lot of syndicators who do you use as a property management company? What's the good, the bad, and the ugly? Who do you like? Who's helped you execute your business plan?
Through all those conversations, I ended up selecting to work with you guys. And that's kind of the extent of what I knew. So I was going off of the recommendations of other people that I had built relationships with. Now, that was a 76-unit townhome community, about 20 minutes South of Fort Worth. And we purchased that at the end of 2018. So we've owned it for a little less than two years.
The Advantage of Having a Property Management Company
Darin: Well, at that time, Wehner has been a fantastic partner in a number of different areas. So first of all, I had a lot of syndicators telling me, "Hey, Darin, once you close, you're going to end up having a lot of turnover. A lot of people are going to leave, tenants." I'm like, "Ah, I don't think that's going to happen with my property. Maybe your property, but not mine." Sure enough, it does. So all of a sudden, we're mid-nineties occupancy and we drop into the low eighties and I'm like, "Holy cow, we've got all these units available." Our property is pretty small, so 76 units. So we have one leasing manager and one maintenance person.
I'm like, "There's no way that one guy is going to be able to rehab all these units and get these backup." So I called the regional and, "No problem, Darin." Well, we've got all these other properties, like you said, clustered in the DFW market. And we'll just pull some of the maintenance guys off of some of these other properties and we'll come down there and we'll bang them all out." I was like, "Wow." If I was self-managing, that would have been a nightmare for me to figure it out. Right?
Ryan: Plus you were being billed at their hourly wages. If you were on your own. You would be hiring a make-ready company that really wasn't going to be interested after they got paid.
Ryan: And even sell products that our same company can sell.
Darin: So you guys brought the team out there, you guys turned the units over. Then the leasing manager leased them all.
Empathy Makes a Better Syndicator
Darin: Then all of a sudden, it was a scary two- to the four-week time period for me as a new syndicator, a new owner. I was like, "Oh man," my investors are going to be like, "What did I get myself into?" But what happened was now all of a sudden, instead of just turning a few units and then having to wait till the next month to turn a few more units, we were able to turn all those units, upgrade them and get higher rents. We were getting another, $150 to $200 per unit. And so we had that for a much longer period of time during the year and ended up being a good thing, but it was scary at first.
Ryan: It is. I get more nervous when I have investors or clients than when I'm just investing with my own money. I guess I don't feel like my reputation is tied up, and when it's my own, I just make the decisions and move on. But I know that the angst that you probably had probably more with regards to your reputation versus, "Oh, we're going to collect five grand less this month, then next month, then after that."
It's hard to kind of stomach that part of it because I can tell the type of personality you have, is that you're the empathetic type of person, usually makes you a better syndicator, but it also makes you stay up late at night when you have an extra four or five vacant. Whereas if you just own it yourself, you put the same effort towards it, but it wouldn't put knots in your stomach. Because you have to explain it, but you only have to explain it to your wife.
Serving Is the Nature of the Business
Darin: Exactly, it cuts both ways though. It puts more pressure on the challenges. But it's also that much more exciting to me because as we work together, Wehner Multifamily, us, and we improve the property and eventually we have some kind of exit strategy, or refi, or sale. It's not just Darin Batchelder and my family that benefits financially. It's like 44 other families that I get to help grow their wealth too. So it cuts both ways. It's nerve-wracking when we have a challenge.
Ryan: That is a huge part. And that's one of the things that I didn't really touch upon about building a business and stuff. There's this kind of neat media or kind of unfair media narrative that the business owners, especially wealthy ones, are just out trying to make money. What's great about our country and the free market is it's really about serving others. That's the only way you make money.
So when you are wired to want to serve others, surprise, surprise, you do much better in the business arena. That's one of the most personally satisfying things of my business is all of the people that myself and more specifically, my company have benefited in terms of their retirement, in terms of the syndicators, even your investors were helping benefit them.
But then there's even the lender, our properties are currently on their loans, which are in funds that are supporting different.
Darin: It's a huge ripple effect.
Ryan: There are huge ripples everywhere. And when we do something, let's call it 5% better than our competitor, that really has a big impact on the health of the loans that support the properties that we manage, the overall retirement benefits to the investors.
Helping Others in a Property Management Company
Ryan: Making an assumption that most of your investors are using it for retirement and not to go buy a Ferrari, once they cash out, but each his own, they can do whatever they want, but I feel we're helping their retirement. In many cases, we're helping them put their kids through college in 20 years from now.
Those 3% or 4% or 5% improvements seem like peanuts, but over a 10- or 15-year period you know the Law of Sevens, that's a big difference in terms of what college they can send to them. Do their kids need to take on loans to go for this? Do they get to their vacation home in their mid-fifties? All these things or do they just make enough money to even be able to retire or are they going to have to go on the government dole in their sixties? It's a very self-satisfying thing there, not to mention we've created opportunities as you know that we've taken on a private equity firm as a partner a little over a year ago.
But it just felt very good. Obviously, it felt good for me and my family. It was a huge windfall. I'm not ashamed of my success or even financial success. I kind of look at it as more of a scorecard than my driving factor, but there were a few employees that did very well with our company. Many of them probably would have done pretty well anyway, but there's a few that I really get that I bet would not have done as well unless they had worked in my organization. That just brings a lot of joy to me that very significantly, in a very short period of time, affected their whole family tree.
Treating Clients’ Assets as Your Own
Ryan: Obviously, they affected my family tree as well. But it just makes you feel really good when you can enrich the people around you. That's a big reason, especially the people that are close to you in your inner circle, they have to be people that share the same values.
Our company, the motto has been forever treating the clients' assets and finances like they're your own. That's basically the theory that I went into, it's the golden rule of business.
It's why I fired the One Group. I said, "If I'm going to do this for other people, not treating it like it's theirs, I'm treating it like it's mine." That's just been the culture of our company.
And look, I treat it like my own, our employees treat it like it's their own, but that's not to say we don't make mistakes because I make mistakes with my own money. I make mistakes with my own assets. But if the intention is there, if that's your "why", surprise, surprise, you end up doing better serving your clients better. In the country that we live in, you get paid for that attitude in business, right?
Darin: Absolutely. Congratulations by the way. Look, when you were sitting down in that futon, did you ever think that you were going to grow a company to 25,000 units that you were managing?
Ryan: Goodness, no.
Darin: So how did you do it, man? You did it one step at a time.
Ryan: Only 1% better or at one-tenth of a percent better a day. And that's how the business grew.
Keep the Ball Rolling
Ryan: I wanted to make a good living. I told you from the beginning – wake up every morning, four out of five mornings. Wake up doing exactly what I want to do that day. It's never five out of five, but four to five days, if I can wake up and do exactly what I want to do, that's a big deal to me. That's my goal, to be able to raise my family. I have three children now and I wanted to be able to raise my family, have them have a comfortable lifestyle. That's the main goal that I had and that's what my vision was back then.
When you get to a certain size, there are certain things about businesses or at least my own theories and how I grew it, which was that I need to get it to 25,000 units and take on all the stress of continually growing 30-40% a year in size for half a decade. I didn't need that for our lifestyle.
What I determined was, when I had my second in command, let's call it the top 20 people in those supervisory roles, to keep the best people engaged, the pie has to constantly be getting bigger. So it did put pressure on me, not because I want to have a Ferrari, so I was trying to grow the business, but I felt like we had to continually healthily grow the business to keep the best employees. Because in business, you're either growing or you're shrinking. Rarely and for very short periods of time can you actually be flat.
For people to keep being fully engaged, the pie has to continually grow. That's one of the things that makes a CEO and a founder stressed. You got to keep the ball rolling.
Just Go Out and Do the Things You Want to Do
Darin: There's a lot of listeners that are either looking to get into real estate for the first time or they're in real estate, but they want to scale up maybe from residential to multifamily. Or they're in multifamily, and they want to really scale up into syndication and really start blowing it out. I've had a lot of people talk to me and they're like, "There's so much there. There are so many things I have to do. It just is overwhelming."
Look, you didn't think to yourself when you were sitting on that futon, "Man, I got all these things I have to do to get to 25,000 units, man." You just go out and take action and start and then try to improve every day, as you said.
Ryan: 100% of it is constantly trying to improve. Constantly take those opportunities that fall on your lap. As I said, I didn't have a design to have a property management company before that futon.
You take the opportunities that come your way. You're going to have certain ones that are better and certain that are not as good. Then you just have to go out and act, and you really consistently have to go out and act. You have to go and try things consistently. Don't worry about being told no, don't worry about failing.
Darin: Or what other people think. That holds a lot of people back.
Ryan: Yes, it does. For me, it's always been, I guess, a double-edged sword, it's obviously worked great. You've probably heard, Darin, I wore a collared shirt today because I thought we were going to be on camera.
Darin: He is in a collared shirt, but we're audio-only, so it won't be visible.
Venturing Into Houston Market
Ryan: I think people know, at least in DFW that had been in multifamily now while Ryan's the guy that has a T-shirt from Target and uncombed hair. Most of our best skills are a double-edged sword. So our biggest strength is usually our biggest weakness. I think my wife, Buffy, is like, "I love it that you just don't care what other people think, but in certain cases, I really hate that you don't care what people think."
Darin: That's great. You mentioned markets, that you're really getting into the Houston market. So talk about why you like Houston.
Ryan: I'm not going to talk in terms of investments yet, but we love the market in terms of property management.
So I just want to put that layer on it for your listenership if we went in about four or five years. I want to say four years ago, we went to Oklahoma City. Actually, we were offered to underwrite a deal and see if we could manage it by somebody that you probably know, Dustin Miles.
He was having trouble within that market. So we spent a lot of time in those days just saying, "No, we're not interested." We were always turning down other markets. My wife is from Norman, Oklahoma. I kind of knew the market, and I'm like, "It's only two and a half, three-hour drive. Let's just go take a look at it. Let's underwrite it, let's see what the deal looks like. And then let's see what if we're not interested in managing it, let's just go ahead and vet some other management companies in the area." You know Dustin, he's a great guy.
Darin: Absolutely. He's actually going to be on the show probably the week before you.
Do Better Than the Rest
Ryan: I was like, "Either way, we just need to help him out." I just liked him. So we went out there and then we underwrote the deal and looked at our whole due diligence process and people go on my website and watch the video, it's a 10-minute video, shows all of the proprietary software and everything that we use and technology to do everything.
But we went out there, did that, underwrote the deal, looked at the market comps. Then I spent a lot of time, a good two weeks trying to find a replacement property management company for him. We had a lot of difficulties finding competent management companies for those types of assets that C, maybe he was calling it a B back then, but it was really a C-plus or whatever. It was either somebody working out of the back of their truck, or it was some multinational property management company, those fly in a region once or twice a quarter.
We knew that was going to go over like a fart in church, just wasn't going to work on that asset that needed to be repositioned. We put a lot of resources up there, did his deal and that's when I started reaching out to brokers and stuff up there. Not because I loved Oklahoma City real estate values, but because I'd love the competitive landscape for property management companies if that makes sense.
So really in a property management company, you just need to be doing better than your competitors. Oklahoma City, OKC, those areas, they're always going to have lower rent. Or not always, but over the last 50 years, they're always 20% less on rents.
Opportunities in Houston Market
Ryan: At least over the last five years, there's always a higher vacancy factor up there. As long as we're at the very peak in the market in terms of occupancy, I don't worry that it's 91 versus in DFW or at 96, I'm worried that we're at 91 and all the other competitive properties are at 87, we feel good.
We'd like to be 95 everywhere all the time with no loss to lease, but we have to live and plan a reality. You don't outrun the bear, you just outrun the guy next to you is kind of the approach we looked at there. And that's what I liked about OKC. That's where we see a huge opportunity for us in Houston.
They have some professional management companies down there that we'll have some of the competition while it's down there for us. But there's a lot of product that we specialize in, that C to the mid-B range. There's a lot of product there. There's a lot of apartment buildings there that are not being professionally managed. We see a huge opportunity for us to make a big splash there. We're going to put all of the resources. We're basically considering it a loss leader. And we're going to be overstaffed there because it's a large market.
There are a few key players there that serve clients nearly as well as us. They don't have the proprietary technology that we have. And they don't have the leak detection software that we have. They don't have the products sourced directly from China as we have. So we have some competitive advantages there. Plus, there's just a huge amount of apartment buildings there that are our bread and butter. We think that we can make a big move into that market.
"If You Build It, They Will Come"
Ryan: Currently, we're in a situation where we think that there are relatively high odds that the deal closed. And it's a very large, just south of a 1,000-unit deal that we're working on right now, as well as a few other ones. It really makes it easier for us kind of inside baseball, if we have a huge anchor to start with. So not as much of a loss leader.
As a loss leader, you have to be as open as possible with the idea that we're going to go down there, show our mousetrap. And then usually the business comes, kind of to take a phrase from Field of Dreams, "If we build it, they will come."
Darin: They will come.
Ryan: So they come and see that we're doing, then we tend to start getting huge referrals from brokers, other property owners that are looking to have their assets salvaged. And so we're very excited about that. We have recently entered Arkansas into Little Rock. So we're very excited about that opportunity as well. It's obvious, it's not as large of an opportunity there.
Candidly, I don't know a lot about the market there. I know that our VP of ops spent a lot of time there in his old company. He's actually spent a lot of time in Houston as well. So I have people that are deeper in their fields that know that stuff versus me, which I think, Darin, you've been a client and we've spoken in person right now and probably not before. Maybe in passing at one of the events, but I've become more of, over the last five, six years was pre the sale or the partnership of the company.
Ryan's Role in the Property Management Company
Ryan: I've gradually, probably over the last six-seven years become more about working on the new product, the software, the apps, the Chinese relationship, the office we've built in China, and building the team. Candidly, I couldn't even honestly fill out a lease I don't even know how to fill a lease, and I don't know how to change a toilet.
Darin: I'm glad you're bringing this up because that was a question that I had. I think that other syndicators had it when you did have the partner come in and you had the capital event, "Is Ryan going to stay on board and what's his role going to be?" So if you could talk about that and I think that you also mentioned to me something to do with a software platform that you have as well. So maybe talk about two things.
Ryan: I think my official title is executive chairman, something like that. I've never been a big titles guy, but for the most part, I'm doing exactly what I did probably two years prior to taking on the partnership, which was mainly business development and looking at new market opportunities, and building out software and systems.
I'm still exactly in that same role. Fernando is more involved with the business development and less of the operations than he was pre-partnership, so we brought in a very high-level VP of operations, Sergio. He's wonderful. He's been a large company, he's much more professional, much more adult-type of a person than maybe myself. I don't want to say professional, but that kind of gets the point across. It's just more, he wears blazers. He's very involved.
Darin: He comes from the corporate world.
Ryan: He's an entrepreneur, fly by the seat of his pants type of guy.
Fernando and Ryan
Ryan: It's been a wonderful partnership. Fernando and I started to work, we weren't unsolicited, we went to some investment bankers through the end of 2018 and learned from different investment bankers, and made our selection around. I think it's probably about February of 2019, we made our decision on who we worked with. They were very helpful through the process, and we really did it in a very methodical way. And they went to market kind of just the same way that one of the large brokers would go to market with the apartment asset. And literally, during the IOI phase of the process, which is equivalent to the LOI phase of an apartment building, we had 23 offers. Fernando and I met with formal meetings with 18 of those groups.
We spent a month and a half, and these are all four- or five-hour meetings, a lot of times going out for dinner afterward. That was a very exhaustive process. But I wanted to make sure that we had a partner that would really serve the company and by extension the clients and the employees as well, that really fit our culture and what I thought was actually needed going forward. And I think that Fernando and I were great at building a company probably up to about 20,000 units. We'd just made it up as we went along the entire part of the business.
It was around 19,000, 20,000 units, we're like, "We need another adult in the room to help us." It's had to experience growing a business from 5 million in EBITDA to 10. I don't really want to learn the hard way like we've done in the last 12 years, or for him like nine or 10 years.
Selecting the Team of Property Management Company
Ryan: He came in about three years into it, but as you get bigger, the mistakes cost 20 times more. And I have enough gray hair as it is. I don't want to look exactly like your hair.
Darin: Thank you very much. They couldn't even see that, so.
Ryan: That's why we really wanted somebody. The group that we selected and then during the follow-up final offers, they were not the highest price, but they were near a fully operations-focused private equity group. So the two principals, one was with Bain Capital for a long time, was not Bain Consulting, but Capital. They actually had improved businesses. The other person who worked there for a while was also the CEO of a Fortune 1000 company for 10 years of his life.
They were totally focused. They got it right at the beginning. It was all about the employees and secondarily our processes and tech. And what they helped us do was, Fernando and I have done very well, and even Alan did well at hiring property-level people, construction, where we weren't very successful or not at the same level as the group we brought in is bringing in those C-level suite executives.
We had a lot of false starts. We just didn't look at it the right way. Literally, Sergio, Tiffany, in finance and accounting, all the top five people that they brought in, they on average had 15 to 20 hours of interviews. They've met with five different groups in Boca Raton where our PE group is. They met with us, they'd take personality tests. Then they called all of their references. They call what they call off references that weren't given, they'll call other employees, go through their network to see what the person's really like.
The LeakAware Software
Ryan: It is amazing, the difference in quality and you waste a lot less time with picking the wrong horse. It's amazing how I'm just blown away by at least 75% of the people that they brought in on that C level side.
And it's really, really been a blessing to work with them. I am involved in the prop and the business, but a lot of the significant changes and improvements that are taking place are not completely driven by me anymore, which is nice. And really, I feel honored to have my name on the company's logo, what they're changing it into. I really feel honored to be a part of it.
Darin: That's great that you guys went through that exhaustive process. And I could tell you from a customer perspective, I'm very appreciative. Look, you're bringing in team members that are not only going to help Wehner Multifamily get to the next level but are going to help Darin Batchelder and all the other property owners and syndicators do that much better on their properties. So we could leverage the experience from your entire team. So I'm thankful for that. Talk about the software piece of things and how that kind of plays in.
Ryan: Now you may be aware of this, Wehner Multifamily has software called LeakAware.
It's a mobile-enhanced software basically with an app. So our maintenance tech will type in the meter reading every day. And it'll let you know if there are spikes, we'll have it attached to the meter. Then there's a template that goes to every single one of the units that's attached to that meter and a full workflow device that makes them go and check every water source that's attached to that meter.
Monitoring Through the App
Ryan: They have to take photos if there's a leak. And then it creates a workflow device that is kept accountable by the supervisors. They'll have a summary of which employees have which leaks or which meters are leaking. So they can look at it and keep everybody accountable.
So that is still free with Wehner Multifamily. What I did carve that out of the transaction. So although it's provided for free to Wehner Multifamily, I am currently working on an enhancement of the software, which is going to add on a piece of hardware that we have semi-exclusive use of hardware. It's called the Sentinel. We attach it to the meter. It does the readings every 10, 15 seconds.
So there's no maintenance guy and monitoring a maintenance guy to make sure he's putting in the meter reading. It literally measures the water meter constantly. Then we're enhancing the software for it to work better. And then it's fully API'd with that piece of hardware. So kind of like what you've experienced now, other than a little bit better graphics, some better usability functionality, but the main difference is your maintenance person doesn't have to go and make the meter readings every day, they'll know when there's a spike within five seconds, or it's called 15 seconds to be fully accurate. They'll give you a reading right to their phone and to the supervisor's dashboard immediately.
That's something that I'm going to be taking to market. Of course, Wehner is going to have an opportunity to buy the hardware and to API that with the software. And so we'll be offering that to Wehner and they'll obviously have the software part for free, but it's a very cost-effective solution for monitoring leaks immediately.
Significance of Early Leak Detection
Ryan: The software organizes the water sources that are attached to that meter, and then creates a workflow and accountable process to make sure that things are being fixed. First of all, inspected in time, and then repaired in time and in a very simple aggregated manner. So our director of operations, our director of facilities, he can look at every one of the regional managers and know the regional manager.
I don't want to use a real name. I'll use Lisa, regional manager Lisa, she has 75 meters under her, two are in red. Those two that are in red, they're behind on doing the internal inspections of the red meters by two days, or they've been done on time, but they have five days to repair it and they're over scheduled and it summarizes it all. So you can see things in a snapshot if you are a supervisor and then it gets more granular as it goes down the hill, down to the maintenance tech.
Darin: Well, that's exciting. I think that that's also going to be a differentiator for you moving into that Houston market to be able to differentiate yourself between the different property management companies. For the listeners, for those that are large syndicators and have lots of properties under management, you know that water is a big expense item. So if you can be on top of saving money by detecting leaks early on it's such a critical component. For listeners that are just getting into it or just growing, just keep that in mind that you will see when you look at your P&L that water is a significant component, and it's very important to have a strategy behind monitoring and staying on top of that.
Painful Effect of Water Leakage
Ryan: To add one thing to that, one thing to keep in mind, even people with a lot of multifamily experience that sometimes don't know it to this level is most municipalities have tiered water pricing. So in many cases we may, through our locating the leaks and then monitoring the water meters, let's say on average, we only say 15% of the quantifiable units of water, most cities, most municipalities, they charge a lower rate. Let's call it for the first 10,000 gallons than 10,000 to 20,000 gallons. They might go from 0.01 cents to 0.03 cents. So as it goes up, it has an exponentially painful effect on your bottom line, right?
Darin: I didn't realize that.
Ryan: Sometimes you can save 10% water usage, and it's actually, you're saving 25% of your water bill. And it's for obvious reasons, the municipality wants to encourage lower use of water, for a myriad of different reasons. Sometimes it has to affect their sewer systems and everything else. So it has a huge impact there.
Another thing that you know about DFW is it's some of the most expansive soil in the country. It can create a lot of foundation issues, that happens anyways, when you have underground leaks and you have expansive soil, it creates huge issues with regards to foundations, and not to mention it can create mold issues within a wall, which can create black mold. So there's a lot of things and that's why I'll be working on this LeakAware, which I'm working on by myself, not really through Wehner, but there we have some things where maybe we can get some credits back from insurance once we get the volume of users up.
Darin: Fantastic. No, I'm glad you brought up those points.
Ryan Outside of the Property Management Company
Darin: So Ryan, what do you do outside of work for fun besides surfing?
Ryan: I don't do it right now, but I live right off of the White Rock Lake, so I do a lot of biking. I have a six-, eight- and a 10-year-old boy. So the 10-year-old's Lincoln, he goes to Cistercian School up in Irving. And then I got Augustus. We call him Gus, and Sterling and they go to St. Thomas Aquinas and they're playing soccer, football, basketball.
Darin: You've got some busy weekend years coming up where you're just traveling around with the boys for sports.
Ryan: Yes. And then I like to do sand buggies, so I have a Razor that I grew up going to the sand dunes. So I still have it out there in California and myself and my boys have quads. So we fly out there and go with my family and friends three, four times a year and then do a couple of snowboard trips. And I just got a vacation place around my family in Seal Beach for us to go visit. My boys have literally nine other cousins live there in Seal Beach that are within the same age range. My parents have 17 grandkids. Nine of them are in that same age range as my boys right there in Seal Beach. So it's really cool. It's like, "Are we going to have a sleepover?"
Darin: Yes. It makes it a lot of fun.
Ryan: It's not about the beach and everything, it's all about their cousins. They just want to be with their cousins the whole time. So that's about it.
Darin: Awesome. Well, good family fun there for sure.
Learn About the Wehner Multifamily
Darin: Ryan, if people want to reach out to you or want to get to know you better or know more about Wehner, what's the best way for people to reach out?
Ryan: Sure, if they want to learn about Wehner, in a more of a general sense, I would encourage them to look at Wehner Multifamily, that's wehnermultifamily.com. You can read about it. Then there's a video with a very handsome symmetrically faced gentleman, it's about a 10-minute video to show a lot of our technology and our due diligence process and stuff.
So if you want to learn about Wehner on that, if you have more specific things, I'd really encourage watching the video up there because it does explain a lot about our business and our process. It's kind of a frequently asked question thing, but you can just watch it for 10 minutes.
Then if you want to reach out there's any info at Wehner Multifamily. If you have some more specific things, I don't typically give out my personal email because I'll be bombarded, but if you go through info at Wehner Multifamily, and you shoot an email and you have a request to speak with me, they'll relay it to me and then I'll reach out to you. As you know, Darin, I'm a busy guy in the property management company, so I can't do 50, 60 calls a day.
LeakAware Service Offering
Ryan: I'm a short attention span type of guy. So I wouldn't even be equipped to do that, but it usually has to go through a little bit of a process for me to get engaged. But they're very responsive. If you have a property, you watch the video, you'll see how you can have all the properties that you're looking at underwritten and you just upload it to our website. It's all confidential.
So that side in terms of here in another two weeks, we're going to be launching outside of Wehner Multifamily, the LeakAware service offering to all customers. And there, email@example.com and he'll get right back to you and explain to you the stuff. We'll have some video tutorials on it, and I'll probably meet with Darin here. I'd love to meet you if you're not afraid of getting the air disease, I don't fully buy in all of it, so.
Darin: I'm not afraid, I am out and about, my friend. So I would love to get together for a beer anytime.
Ryan: And we'll get together for a beer, and I can show you LeakAware and how it works and kind of go from there.
Darin: That'd be great. Well, I appreciate you, I appreciate your team. And I appreciate the partnership and you guys helping our property execute on our business plan. I appreciate you coming on and sharing with others. And I look forward to working with you and your team more. Listeners, I hope you enjoyed that one, and until next week, signing off.