Calendar icon February 24, 2022

Triple Win LIVE: Security Deposit Alternatives with Todd Ortscheid


In this Triple Win LIVE, Todd Ortscheid, CEO of Revolution Rental Management, talks with Second Nature’s Bob Hansen and Laura Mac. Listen to the way Todd breaks down security deposit alternatives and why a professional property manager should consider moving away from traditional security deposits (hint, it’s all about creating a triple win). We hope you enjoy this “lobby bar” discussion featuring your peers in the PM industry!

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Hosted by Bob Hansen and Laura Mac
Featuring Todd Ortscheid
Produced by Andrew Smallwood, Laura Mac, and Carol Housel
Edited by Isaac Balachandran

Episode Transcript:

Todd Ortscheid
What I would point out is if these companies like Rhino are out there offering this, it's because there's a lot of money to be made on it. That's why they do this. You know, it's just the same reason that we are in business for property management because there's money to be made.

So if you have the ability to do this in-house, if the risk doesn't bother you, if you've got the time to implement it, why are you going to let somebody else make the money that you can make? Find a way to make that money for yourself.

Bob Hansen
Hopefully, no one jumps since Andrew is not here and I'm the host tonight with my good friend Todd, I think probably people saw some photos of Andrew. He was gallivanting along with the White House and some lunches in Salt Lake City yesterday.

There's a rumor he was out on the slopes, shredded, making some noise, and someone from the Olympic Committee saw him out there. They knew all the good things he's done to the community and said, Hey, we, we need some gold medals at Beijing, and can you head out there?

And he got a plane and went to Beijing and all of a sudden last night pops first gold so the guy can do it all. So when I'm just I'm just here filling in for the day. Always great to have the esteemed Todd outside and with me.

We've conducted a few panels in the past, so appreciate you being here with us and just seeing all the great, lovely faces, friends, customers, prospects. We like to hang out with. Thanks for joining us today. This is a lobby bar environment that we want to create.

So if you do have a beverage, feel free to pour one. Since we are giving out a whistle pig, I purchased my first bottle of Whistle Pig a couple of months back. We're going to have a bottle left, so I poured a little beverage.

Feel free to join in. I think I saw Todd for something a second ago. Todd, what are you? What are you sipping on there, Todd?

Todd Ortscheid
I've got a Knob Creek single bell rye. This was a gift from a property manager, Nick back up in Maryland. So it's very good if you haven't tried it, by the way.

Bob Hansen
We'll have to give that a try. So I was good, I got my health in, I got a little workout at lunch. I got the mine clear, which allows me to have a treat and have all the whiskey at the end of the day or so.

Thanks. Thanks for that, everybody. Well, today we're here to talk a little bit about security deposits. I know that we've had a lot of great questions come in. I think we feel that 20, some 30 questions already. I would encourage folks as we're going through this to ask questions.

As we go about different things, we kind of want to just define the status quo. I guess people touch what we are going to give away a bottle of whiskey. It will be a drawing winner, must be present.

So I'd say, get on. Tell your friends who's ever on at the end of the day here, where to give away that nice, nice perk. So that's all I've got in the House House. I guess the house tips for the day, but we wanted to find security deposits.

There are a lot of standard ways of doing it. There are some alternatives out there. Todd is going to kind of walk us through a little bit about what he's doing and we'll go through a triple win live on how Todd's impacting his business there.

We had a revolution and today the status quo, right? Like, let's think about it from the resident standpoint, the investor standpoint, you know, your property management team, yourself. So what are some of the I guess what are some of the problems that are faced with security deposit accounting?

I should say security deposits in general as you think about it. I know leading up to this, you know, I went to my former property management days. I started thinking about all the crazy things that happened with security deposits and whether you're managing in Illinois and you got 30 days to get it back to them. And if you're managing a Cook County, you got to put it in a separate bank account with 1%. I was managing properties in California for 21 days to get those out. Now the rules are different everywhere. They become a hassle a bit.

The residents got to come up with a lot of money upfront and move in which they may or may not have. You know, there's $30 billion locked up in security deposits across the country as of today that no one's making any money on, right?

So those are some of the things that we've identified as problems for the resident. You know, for the investor, you know, could mean more days of days on market when you have a, you know, a property that's for rent, you know, with that tenant, maybe not being able to come up with the first month's rent for the

PM team sometimes could be a source. We've pooled our friends out. There could be a source of a negative review taking a full month's deposit, two months deposit. Sometimes at my own company, we were taking two-month deposits regulation around it.

I kind of got into that a little bit. You know, if you go and Google, let's say Chicago property manager sued due to a security deposit, I think to give you a tip in any city that you're going to see horror stories of people getting sued for not having all the money is tied up in one bank

account and mixing it in with their regular funds. Right. People not paying the percent or the 10th of a percent that might be on the interest. All those things that get folks in trouble, right? Those are the problems for your team.

And then, you know, the different time, the different timing frames that you have to get that back, you got to get receipts from your vendors are doing the work. How do you apply that to the security deposit accounting when you're sending it back?

Those are all things that I've witnessed. We've heard from our clients. Todd, anything on your end that you know, you'd add to this on how the status quo is defined today and some of the issues that it faces with our or our residents, our investors, and our property management teams.

Todd Ortscheid
I don't think there's anything I would add. I would just really point to that part where it talks about the investor and the fact that you know, they're rot getting anything out of having this deposit. It's dragging out how long it takes to get a tenant when you can't find people who have the available cash, especially when people are starting to offer security deposit alternatives. You know, you're just making it harder to play somebody, making it take longer and costing them money. And all of our focus should always be on making sure the investor gets the best return on their investment.

So, you know, the way to do that is not by having these big security deposit amounts and we're seeing even bigger security deposit amounts the property managers and landlords are requiring now because of the risk that was brought on after the eviction moratorium, everybody got more skittish.

People started increasing. What they expected for security deposits makes it even harder for somebody to be able to afford it. So it's just not good for anybody.

Bob Hansen
Thinks and we've got a good crowd of folks that are managing all across the country would love to hear from some of you and Laura's behind the scenes kind of typing down some of this for us, and we'll share this with everyone later on.

But what is what are some other things you're seeing today is like the status quo and the issues that security deposits bring to the table. Karen, I know you're on your show is good for jumping in, how about in California?

What are you experiencing out there, Karen?

Yeah, I was going to say the 21 day for us here and the security deposit disposition is just it's tough, right? Like you said, getting vendors to get the receipts, get the estimates completed in a timely manner. And then you know what is considered normal wear and tear, they disputed?

Well, of course, the famous right. It was better when I left it than when I gave it to you that whole back and forth. So I think that for us, it's always a challenge and just, you know, kind of avoiding those.

Conflicts with the tenant when they come, when they move out, coming back at us and questioning us why we're deducting certain things.

Todd Ortscheid
You know, Bob, if I could jump in there, Karen, maybe you think about something to talk about the 21 days? You know how it is here in Georgia? I see Regina's also here. You know, when you held a security deposit and you have to do a move-out inspection in Georgia, it's basically the only anti-landlord bit of legislation we have in the state. But it says we have to do that inspection within three days and then we have to give the tenant an accounting of it within five days of when they moved out.

So, you know, we have a full 30 days to send them their money, but we have to get that inspection and everything done in that very short timeframe. It makes it very difficult. We can't use on-site pros because of that.

You know, we have to go do it ourselves. We have to make sure we're staff to do it. And if you don't hold a security deposit, you don't have to do that.

Bob Hansen
And I guess tied in in the rare occasion if it ever happened, right? If you can't get that done in the three to five-day timeframe, as you mentioned, you're basically having to supply back the full deposit, right?

Is that is that the alternative if you can't get out there?

Todd Ortscheid
Yeah. I mean, you could risk it and not do that, and then the tenant could challenge it. And then if they do, then yeah, you're sending them that hold deposit, no matter what they've done to the property, that money's all going back to them.

Bob Hansen
Brian Birdy, I know you've had at least you know, you've come across some sort of a security deposit, you know, frustration or an issue at some point by some tenant or an investor. You got anything you can share with the crowd that you've experienced down in Texas.

Brian Birdy
Well, we went away from securing deposits about two and a half years ago. I just wanted to share some of the benefits that we've kind of seen from that. You know, there's the obvious one is a lot easier for a tenant to move in there.

Rather surprised. It draws a lot of attention to your properties when they start recognizing that you're not going to require the equivalent cash down by others. We actually doubled the amount of financial obligation that we're collecting by not collecting the security deposit, which has really helped our owners in the long run.

But the statistics that we've followed as we've looked very closely at because there's this philosophy that was out there, right? I give you a cash deposit. It's time for me to leave. The majority of people leaving believe you're not going to give me my money back, and since I'm not getting my money back, I'm not really concerned about I'm not going to destroy your place, but I'm really not going to clean up too well because if I do all that work, you're still going to keep my money anyway. Well, now you were nice enough to let me move in and not have to give you all this money.

Everything has gone well, and now it's time for me to leave. And I can recognize that if I don't leave the property in good shape, I'm going to have to pay for it. And it just starts to change their mindset about leaving a property.

And we watch the numbers and we have seen a reduction in overall security deposit claims or move out claims because there are not really deposits, but claims based on them moving out. The number of what it's costing to turn a property over has gone dramatically down.

While we had increased how much we've projected, so we've almost eliminated a turnover cost to our owner and that is the most vulnerable time for us as property managers, because that's when the landlord decides, do I want to keep this asset any longer?

And so if you can keep them enroll a new tenant and keep their costs down by making sure that you turn it over and they certainly have to pay for things, that's their responsibility. But a lot of times we didn't have enough money to pay for things that weren't their responsibility and that would make them sour on

being a landlord. And next thing you know, you start losing inventory because of that. I've seen in the last two years a turn in the other direction and a lot less churn. And it all comes back to this simple product that really works if it's run right?

Bob Hansen
Well, I think Brian kind of brings us to the next part of the conversation is what are some of those alternatives? You know, I'm not sure what Brian is using, and later on, we'll come back to Brian and see if you can share that with us.

You know, some things that come to mind in terms of, you know, opportunities as this lease lock, you know, the pure insurance play surety bonds, right? Love to talk through that little bit like a triple win lens.

You know, in terms of the tenant, the investor, and the property manager. Todd, have you had experience with those companies in the past? I know you're doing something on your own today, but prior to that, had you sourced or looked at some of those options either?

Todd Ortscheid
I had looked at them. I didn't actually end up using any of them. I had spoken to Brad Larson, who was using I believe Obligo if I remember, right? I know that Rhino's another option. I know they're out there.

And I had talked to various people who had used them, and they all had downsides that, you know, for me, it just didn't make sense for me to use them because, you know, depending on which product you're looking at, some of them are only going to approve some tenants, so they're not available to everybody.

I didn't like that myself. I wanted everybody to be able to have an option. It might be a different fee that they have to pay, but I wanted everybody to be able to have some way of not having to pay a deposit.

So that was big to me, but it was also an issue of claims. So I didn't want to have to get to the end of the tenant move-out process and then me or my staff have to go through a process to request money from somebody else in order to make the landlord whole or to get that stuff taken care of. And you know, anytime you're dealing with an insurance product or, you know, a bond, you know, any of these sorts of things, you're always going to have to deal with that sort of thing where even if they're very good and, you know, some insurance companies are fantastic, you know, they're going to remit the money really quickly, but really quickly still means you're having to go through a process and do it and wait for the money to come in. So for me, that just wasn't ideal. That said, you know, for some property managers, that might be the best way to go just because they're more risk-averse than I am.

I'm admittedly, you know, not that risk-averse. I'm willing to take these risks to get that extra money. Some people aren't. So that's something everybody has to take into account. But it's also, you know, a question of implementation.

It's a lot harder to implement your own program than it is to just onboard somebody who has a ready-to-go program. So some of its bandwidth, you know, how much are you able to put on your plate?

And you know, how much work can you put in to implement something yourself? Some of it is just how much risk am I willing to take? You know, there's a lot that goes into it, but those options are there.

People feel better about them. But for me, I started off straight from the security deposit alternative in-house.

Bob Hansen
You know, some of the things that we've heard or seen in some of these alternatives, whether it be Rhino or jetty or surety bond or, you know, the half a dozen others are, you know, claims can take up to 30 days, you know, some is mandatory.

It's not an option. You know, while they have good websites and it's easy to roll, you know, some have better pricing than others. You know, I think Rhino recently and I think they've had some, some staffing changes there.

So there have been some issues, maybe with Rhino horn. I'd be curious to folks, as is anyone here on the call today using any of those other all? So they can maybe share some experiences with the rest of the group, whether it's Obligo or whether it's Rhino or surety bond or Jedi, you know anyone here using alternatives like that today and can share with us the pros.

Laura Mac
The cons Jonathan said that he used to use Rhino. Jonathan, I don't have you have any experience you want to share there.

So when I was that age I, we used Rhino to great success. I thought the team that we worked with was incredibly responsive. They did a very good job of onboarding tenants and working through issues that we may have had getting things going.

It was a pretty neat solution because it was just kind of set it and forget it. Once we got everything on board, which did not take long for us to onboard like a week, maybe I had a really good experience with them.

Now that I'm with Todd Revolution, I like our process significantly better. But if I had no torch side to run things for me, the best option to use was certainly Rhino getting started.

Bob Hansen
Anybody else using any others or anyone using Rhino currently?

Brian Birdy
I'm using Rhino, and so I've been using it for two and a half, so I looked at Obla Go, I looked at least lock. I looked at Rhino when we did this back in. I don't know, late 2019. And I just liked the process a little bit better.

We actually evaluated doing it ourselves and it wasn't for the risk purposes, it was just as we looked at everything. We were kind of like, Let's baby step and let's see how this thing works, understand it, and move forward now.

Today, I'm very glad that I went the way that I did because Texas has come in and basically eliminated doing it yourself. If you collect any money and holds it yourself, you have to consider it a security deposit, even if you name it something different and you've got to treat it like security forces.

So they pretty much eliminated doing it yourself in our state. So I was glad that the choice I made ended up paying off in the long run, but it's worked out really well. You know, timing has not been a problem with them.

Communication has not been a problem. If you're active and you work with the people and you know what's going on. It works out pretty good and we're pretty sizable. So we do a lot of these and we really, you know, you've got to learn how to work with another company.

That's the way that it always is. You know, you got to figure out the best way for both to work, but we've worked it out. We've had very few problems. The few little hiccups we had, we worked them out and they're fine.

But timing of getting paid has not been the problem. Now it's not instantaneous, but it's within days and there is a process and you do have to submit, but they're pretty good at one communicating and two paying on time and three paying the highest.

The highest that we've claimed, I think, was about 70 $400. That was a full claim. The full coverage, they paid it all in 72 hours. So that's the worst right now. We haven't had that many, I think collectively in two and a half years, I've maxed out the policy probably four times.

So most of the times it's a small claim or it's, you know, there are even times now that there's no claim. I mean, people have actually giving the house back the way that we would want them to. So and I don't know if you can give this program credit for all that, but it's nice when that happens. Recently, we had an individual who wanted to dispute Rhino. They wanted to come to me dispute, and I said, I have nothing to do with it. I don't have your money. And the dispute resolution actually got Rhino to dispute them.

And then they called me and said, Could you please be on the call for informational purposes? And I said, Sure, because I just want to hear what's going to happen. They disputed back and forth, negotiated, and Rhino actually agreed to eat a little bit of it, and they settled it and I went all right and I had beyond my time. I have to put anything in there. So I made my fool claim. I got fully paid. I spent all that money. Then the two of them ended up solving it without me being involved in it.

So that was just another step. But that's the only company I've worked with. But I just like how they are doing this. They've been around long enough. And in my case, in my state, I don't have another alternative.

I can't do it myself.

There's no question about that. Bryan, how much of the security deposit would you had been holding on that property where you said you collected 70 $400?

Brian Birdy
Not that much. So when we first started, we used to do one and it was actually whatever number I have. You add about 250 bucks to it because that's what we used to do. So it was either one month's one and a half months or two months.

Based on your your criteria of how much risk we thought we were. And we figured that was as much cash as we could kind of get from anybody. And once you got past that, people just wouldn't rent your house anymore.

So when we went to Rhino, we just did the math and said, Let's double it. So now, two, three or four months is required and so on, that 70 300. Was probably a four month pause. It was probably an 18, 25 times four.

And so there is no way the best side ahead was half that, which means $7,000 worth of damage that I would have only had 30 $600 to cover. And the owner would have been eating some of that and probably real pissed at me, the world and and being a landlord type deal.

Instead, we cleared it all. I use Rhino Josh Ryan.

Bob Hansen
I would like to come back to you a little bit later on. Maybe you can tell us. I guess you can bet it out. I'm sure you've done a good job of when you're looking at going with Rhino and you look at the others, what were the pros and cons versus the other alternatives out there and what

made you ultimately go with Rhino? But I want to kick it over to Jonathan, who had a question that will come to Matt afterwards.

So it's really more trying to answer Stephen's question about the scale up of credit. The neat thing, and it's kind of just what Brian had answered. We had a criteria or two where if you met certain credit requirements, it was one and a half times rent.

If you only met certain criteria, it would go up to two times. That's how we had it structured. Just to answer that question for, you know, what we're talking about with credit, things like that. And then Rhino gets to have their own internal process to where they determine how much they're going to charge the individual tenant because as property managers, we don't get into that at all. We don't negotiate how much they pay monthly. It was pretty great. And we noticed when I was looking at these kind of companies, I looked at some share busters and some other things like that.

The part that really sold me on Rhino before I joined Revolution was the fact that if we approved the tenant, then Rhino would approve them, whereas sure, Bester has restrictions for it. Look, they have to meet this credit criteria or we will not cover them.

And back in Birmingham, we had a massive amount of low-income type of housing, you know, six, $700, some properties that servicer and a lot of these other options would not have covered that. They didn't want to have anything to do with low rent model type of security deposit.

Rhino, on the other hand, was like, we'll take anything that you got. We don't care if you’re approved, we approve them. It doesn't matter what the price is, we'll do it. That's what sold me on it ultimately. But again, I agree with Todd here.

If you can do this yourself, clearly that is a much better Model.

Bob Hansen
Thanks, Jonathan. Stephen, how about up in Toronto right now in Canada? What's that?

Oh, no, no, no. In Toronto, that's a swearword. No, no, no, no. I'm on the West Coast holidays. Yes, that's OK. That's OK. My question for Todd originally was so we have to do everything in-house here because I mean, we don't have any other deposit alternatives up here.

I mean, we barely have Second Nature. So it's good that we have those guys. Maybe they'll give me an extra vote for the bottle of whiskey. But my question was, so if you're doing this in-house, how are you growing funds like our U.S. growing funds to make sure that you have enough funds?

If you have to do a pale one day of a bunch of BS, or is that required or hardly managing IBS if you're doing it in-house? Thanks.

Todd Ortscheid
So I would say when we started out, I was setting aside money on the books that was purely for this. So when the money came in on those waiver fees, I had an asset account or, excuse me, a liability account where we were keeping that in just so we could make sure that we had that money in case we needed it. As time went on, I think it was probably six or nine months in and I realized how much money we were collecting on this. It became clear that I no longer needed to do that because there was just so much money every month that we were collecting on this that it was just not possible that we were going to have a problem. So what I just ended up doing was I budget a line item for our income and I budgeted a line item for our payouts. And I just put make that as part of our budget.

So we planned for it and it's not an issue. There's no legal requirement, at least in our state escrow. Anything for this because it's it's technically not a security deposit, it's not anything we would have to escrow money for.

But you know, that's what I did when I started, and then I realized it wasn't necessary.

That makes sense. And I guess as a follow up to that or is it are you? We only require you to pass up to one month's rent here, so there's no sliding scale. So are you doing it on anything that's just their primary security deposit or not in the secondary one?

And also, is there a sliding scale to that as well?

Todd Ortscheid
There is a sliding scale on our fee, so I can cover that when we go through the whole thing. There's not a sliding scale on the owner for. We just protect them at a flat rate based on the rent.

But we do on the on the fees that we charge a tenant, I can cover that in more detail when we go through it.

Bob Hansen
Thanks, everybody. Matt, the magnificent. I think you had your hand up a little while back. Question coming your way, which got.

Matthew Tandy
Is more of a common name, but I actually just told Laura for time crunch. I can do it after Todd. It's going to present Perfect.

Bob Hansen
Brian, I'm going to come back to you real quick pros and cons on how you decided to make your decision and go with Rhino at the time.

Brian Birdy
So it's a lot of the things you already heard. one is Rhino doesn't disqualify anybody. It's scalable based on who you are. So if you have awful credit or bad history or whatever, you're going to pay more for the same policy.

I define the amount the policy is going to be. I heard one person out there and you just said if just had $5,000 for every house, it'd be fine. I said, Well, then go to Rhino and require 5000 from everyone and they'll what they pay for that will depend on themselves.

But you can. There's not. There's no nothing that says what you have to do. So he just gets 5000 on every house and he feels very comfortable. We just took our scale. It worked well. The fact that as soon as you sign the lease, if you've approved them, they're approved with, I think, Jonathan said that was a  huge part of it. The second one is once your lease is signed and you have your dates, they will protect you to the end of the lease. Whether the tenant pays rent, pays the policy does anything. You're protected the whole time, so it's not like it's going to disappear on you.

Now, when I first did this, I felt like I was tied taking all the risk because I'm like, This sounds good, but are they really going to do that? But now, two and a half years later, and I have seen them cover people who weren't paying for the policy because they were covered under that thing, and I've seen them pay a full amount. I've seen them do what they just did last week on negotiating, and I'm like, Okay, so this works in Obligo. Number one thing I didn't like Obligo every tenant has to give them access to their bank account, open and direct access to their bank account.

And I'm just like, I wouldn't want that. I wouldn't want to ask anybody to do that, and they don't approve everybody. So I mean, it's great if you're highly qualified and you're willing to share direct access to your bank account to a third party organization.

I don't know. That just seemed like a hard sell for me so that I kind of went away from that. And as I looked at all the others, they very quickly faded on those things, one being the timing in which they would do it, how they would qualify them, and the fact that I would be protected the whole time. And so I said, I'm just going with Rhino, and I've never run into a reason, you know, to stop.

Bob Hansen
Brian, appreciate the advice and the feedback to everyone, the crowd here. I did just see Todd would be doing if it wasn't profitable, that's a good segue way into our next part. You know, hey, this is a triple win live.

We're going to go live. We're going to talk about how Todd rolls out his security deposit alternative process here. And I would say, for the sake of us, a lot of us being NARPM members, right where it's OK to try to talk in generalities versus specific numbers.

But what that Todd the floor is yours, my friend. Let's talk triple went live and how your security deposit applies to to what you're doing in the group here.

Brian Birdy

Todd Ortscheid
So our program is pretty simple. So when everybody, whenever anyone applies to rent from us, we score every application just like I'm sure a lot of you guys do. It's not just an approval or a decline, it's it's a score.

So, you know, we there's 1,000,000 different ways to do this. You can use vantage scores. You can just go purely by credit. Everybody has different models. We use property where his air score, you know, that works well for us or real pages, I guess you would say.

And you know, we look at that and then we offer the tenant two different options. We say you can either pay a security deposit on this sliding scale. So like Brian said, our scale was always one to three times.

The rent was our security deposit scale. And no, the lower your score on property was high score or previous to that. The credit score, the more you had to pay a deposit. So we offer them that you can either pay the security deposit amount based on your score or the alternative is you can pay a monthly security deposit waiver fee. And basically all of that waiver fee is doing is it's buying you the privilege of not having to pay a security deposit. It is not insurance, it's not money set aside to be used for damage later.

It's nothing like that. All it is is you pay this nonrefundable fee and you don't have to pay a security deposit. So what we found is about 70% of the people that we rent to now, and we've been doing this for about two years now.

About 70% of the people select the security deposit waiver option rather than paying a deposit. And it's across the board if you look at the scores. When I first started doing this, my assumption was the only people who are going to take this are the people who are the worse scores.

You know, they have bad credit, they don't have money set aside. That's who's going to take this. And what we actually found was our very first person who signed up for it was someone with an eight something credit score is like 8:40 something.

He was CEO of a publicly traded company. He had millions of dollars in the bank. And I actually asked him, Why are you taking the waiver option? Doesn't seem like it would make sense for you? And he just said, Well, I would rather pay monthly than give you a big chunk of my money.

And you know, I said, OK, that sounds great to me. I think he ended up staying. He might actually still be in the property, so I'm still collecting that fee from him every month. But for him, that was preferable.

So we found that that's the case across the board, you know, people of all different scores, like the ability to just pay that monthly fee rather than paying a big deposit. So what we do is we take that.

Like I said at first, we escrowed it. We don't do that anymore. Now we just included it as part as a line item in our budget. We have an income account and an expense account. I project out what we expect our pay out to be on that guarantee to the owner.

And that's what we do. We get into a normal security deposit amount to the owners of the tenant moves out and they owe money, and they were on the security deposit waiver program. We will cover that up to whatever the normal security deposit amount would be if you pay that out of our funds.

Now we still go after the tenant, so we send them a statement that says this is the damage on the property or this is the unpaid rent. Whatever it may be that they owe and they move out, they still get sent a final statement.

The beauty of it is, is it's not a security deposit claim statement. We're not pulling any money from a deposit. So this statement is our statement. It's not something that state requires that we have to comply with a bunch of regulations.

This is just us telling them, You owe us this money, pay us. And then of course, we go through our collections process if they don't. So we're still able to collect all that money, even though they've paid us that nonrefundable fee for years in some cases.

So that is just money in the bank and then we can go after them for that money. What we found as we've done this so far over the past couple of years, like I said, 70% adoption rate and we've had a 67% profit margin on this so far.

I suspect that's going to trend down just a tiny little bit and probably rest around 60 60% is probably where it's going to end up. But I might be a little pessimistic on that. I tend to be conservative in my financial projections, so it could be better than that has been so far.

So, you know, it's it's wildly profitable, the amount of money you make on this, you know? one of the downsides, obviously, when you do this is you're not holding a bunch of extra money. So those of us who use enterprise or, you know, other companies that do other banks that do analysis, banking and pay out, you know, credits for that or pay your bills, you're not going to get as much money from that anymore. But the amount of money that you're making off of this program is several times what you are making on that. So, you know, you're losing a small amount in exchange for a big amount.

So we found it's it works very well. We haven't had any problems with it. Owners don't care. We disclose it upfront in our management agreements. Nobody even mentions it. Tenants love it. It's something that you can market to people in your listings.

It's it keeps our days on market low. We have on average, 1010 is our days on market for the past year or so. So, you know, I have seen no downside and I've made a lot of money, so I'll just put it that way.

Bob Hansen
We have a question, Todd, coming in from Blakely. Or maybe we can bring Blakely up and his gun Blakely. Thanks for joining. Thanks for sending the questions and we appreciate that ahead of time too. And now you have a question here for Todd.

We'll kick it to you.

Todd Ortscheid
All right. Hey, Todd, how are you? Great. Good to see you, man. Good to see you do. So what if you know, let's say you have 300 owners already on boarded and you roll this program out in the summer and you obviously notify everybody.

What if an owner cancels, say, mid tenants.

Bob Hansen

Todd Ortscheid
And they, like, act as.

Matthew Tandy
If they didn't get your updated.

Todd Ortscheid
Terms of agreement, etc. And they want.

Bob Hansen
You to.

Todd Ortscheid
Still ensure after cancelation.

Brian Birdy
Or they're upset that you have no money to give them on a cancelation.

Todd Ortscheid
How would you handle that? So honestly, it's it wasn't an issue for us because our management agreements and leases always said that if management terminates MiddleEast, the security deposit gets returned to the tenant. So, you know, it was never something that we had to deal with because they were never going to get any money in the first

place. And I kind of modeled that that was a Brad Larson idea, if I remember, right? We just didn't like to deal with the fact that, you know, there was someone who was unlicensed who, you know, didn't know how to deal with security deposit law.

Our view was, I'm not going to turn that over to an individual landlord anyway. So we had always for years built into our contracts. The deposit goes back to the tentative management terminates. So it just never was an issue for us.

And, you know, I encourage people to do things that way. I just I think it's crazy to take escrow money and give it to an unlicensed person who doesn't know what they're doing. So that's kind of my philosophy on that and why I've never really had an issue with it.

Bob Hansen
Thanks, Don. I guess a question that I have is you think about from the lens of the triple, when and as we talk about that, it's Second Nature. It's you know, how does the tenant, the tenant benefit? How does the investor benefit and how does the property manager benefit?

I think, Todd, clearly for you guys, right, there's a great revenue opportunity per door for you, which I know is a big topic in the industry. I know for the tenant, if they don't have to come out of pocket with one month or two months of rent, that's a huge win for them.

You touched upon a few things like vacancy and days on market for the owner. I'd be curious to know what are some other conversations that you're having or even Jonathan. I know he's newer to the company, but he's on the business development side.

What are some other things that are topics that come up when you're talking with investors or you're trying to onboard as it applies to your program?

Todd Ortscheid
Jonathan, how about you? You've had a bunch of conversations with prospects here in the last month and a half hour. How many of them complain about a security deposit waiver paragraph in our contract?

Exactly zero. The deal is this when we're when we're talking about security deposit alternatives. If you mentioned one or two benefits for them, that should be enough. Stop talking. There's no reason to continue that conversation. Your benefit is that you have shorter days on market.

That's lower vacancy that is dollars in your pocket, that is quantifiable dollars in your pocket. And there's no real reason to continue along that conversation. Every one of us on this call have enough other benefits and features that we can then carry the conversation to to explain why they should choose us for proper management.

That should be a blip. If I spend more than 30 seconds discussing our security deposit alternative option for a homeowner, then that is a very odd phone call. I've never had it. Even when I was at a time, we did the same things.

I've never spent more than two or three minutes tops on any of that conversation, even when we were using Rhino on the kind of conversation it was. You get why that's good for you, right? The answer's always yes.

No one is going to be. But I won't mention the security deposit is not yours, Mr. Homeowner. It's not. It's never yours until so it shouldn't even be a conversation.

Todd Ortscheid
There's kind of a misconception among a lot of property managers that they're required to hold a security deposit. And I do I do consulting. I hope a lot of people do acquisitions. So I look at a lot of leases and management agreements.

I have never actually seen a management agreement that requires the property manager to collect a certain amount of security deposit. I've just never seen it. I'm sure it's out. There was probably a contract in some state that some real estate or some realtors association has created that says you were absolutely required to have a security deposit when you release the property. But in Georgia, it doesn't exist. Florida, not there. I've never seen one. So, you know, most of you probably already have the ability to do this tomorrow. You don't even have to ask your owner's permission.

You can just do it. And that's basically what we did. I mean, all of our new contracts. Do you have a disclosure in it that talks about it? But when we started the program, we just basically told people, Hey, this is what we're doing.

And nobody cared. They just said, Oh, I'm still covered in the same amount of money, why do I care? So, you know, it's it's really a smaller issue than a lot of people think it is.

Brian Birdy
And in my case, Bob, one of the easiest things is they're covered at twice as much than they would have been with mine at no cost to them or to me. And so that's the easiest solution. Why should I go with this?

Well, we're collecting twice the amount of financial protection in case something goes wrong. But doing it in a way that lowers the pain point on cash to get into your property. So let me protected by having more money but rented faster to get rid of your vacancy loss.

It's a win.

Bob Hansen
Laura. Laura just chimed in on Blakely. There was a question earlier there was one that I was trying to tee up a little bit and you guys have somewhat addressed it. But there are often owners, right? And I can totally understand this for some of us say, Hey, I'm skeptical about this program because it makes me feel

like you may not claim as much and I'm out of pocket to fix appliance or a broken door or whatever it may be, right? I think guys are doing a good job of addressing that. But if there's that specific question from a from an owner, Todd Jonathan Brian, how do you guys, how do you handle that specific question?

Todd Ortscheid
I think Brian had the best answer to that when he started out talking about the numbers, and I wish I had that data that Brian has been keeping such close track of on the turnover costs and everything. I have not.

I'm ashamed. I don't have those numbers, but that's great. Great information that you know.

Brian Birdy
What did you just say? I'm collecting numbers that you don't have, right? It's crazy. Is that possible?

Todd Ortscheid
That's that's such good information. I mean, you can take that to any client and say, Hey, one of the best PMS in the industry has this great data that shows that the turnover cost actually goes down. You know, we're we're spending less money to get these properties ready because the tenants actually take it seriously that they're going  to owe money. So, you know, it's I think it really does change the dynamic. And Brian is absolutely right. How many times when we look at and we've probably all seen those anti landlord Facebook groups and everything where everybody's always talking about how awful we all are and they always say the same thing.

Well, I'm never going to get that security deposit back. Landlord's always going to keep it. Everybody just goes into it. They pay that money and they consider that to be the sunk cost of being a tenant. They're never getting that money back as long as they live.

That's their mentality. And this changes that equation completely. So I think it's far better and far safer for the landlord to do it this way than it is to do it the old fashioned way.

So just in terms of business development, if we're going back to let's, let's pretend that we have to have this conversation any further with the homeowner. one of the things that I've learned from Second Nature and Bob and Andrew and Tyler, these guys, the the experience of the tenant is paramount in this industry.

Our product is tenants. It's not all the systems, it's not all the organization. Our product to the homeowner is the tenant. Now we can go into psychological studies about making tenants happy and how they treat products better or treat the properties better.

But you can have that conversation just from a logical standpoint with your home life. Let's talk about the resident experience in your property, and if we give them the best experience possible, they're going to feel appreciative of this address and of you as a landlord and those of us as a property manager.

The better experience you can give them, the more likely they are to take better care of your property, pay you on time, stay in your property, lower your vacancy cost. It's I mean, it is like a literal triple win.

In this case, it's the it's one of the better descriptive services that really land on this. It's an incredible option.

Bob Hansen
That's great. And love your use of the triple win. Thank you, Jonathan, and I will tell everyone here joining us. They, like Second Nature, is very interested in this product and it's something that we're doing a lot of research on.

And who knows that it may be something you'll see us for a while down the road at some point as an option if you guys want to take advantage of it.

So get on it, Bob, get on it.

Bob Hansen
Maybe that's where Andrew's at today. Who knows? Maybe he's already back from Beijing and working on it. You never know. So awesome. Well, I'd like to kick it over to a couple more questions. We'll wrap with a couple updates and a giveaway for that bottle of whiskey, but we probably have time for another two, three to three

questions from the crowd. But he wants to talk.

Laura Mac
About light and Steve, he's got his hand up for us.

Hey, thanks. So I'm I'm newer to using Rhino. But one thing that we found, I think almost by accident that they have, which is another big benefit, is also have a program associated with the security deposit that covers months of rent. And that has been a really neat program for us. Now we're only using it with a handful of people. But if you have somebody who's close to qualifying, they look pretty good, except maybe they're not really where you want them to be or you'd like him to be income wise, but they seemed like a good tenant. They have a program and you can dial it up however much you want, where they'll cover the security deposit plus rent. And at least in New York, I'm in the Buffalo area where we've had so many moratoriums and it's very tenant friendly being able to have a program where you can tell the owner. Hey, we don't have a security deposit, but we have a basically a program in place that covers security. Deposit plus some rent. That's been very, very interesting to a lot of the owners. And that's Rhino. I'm sure Todd's doing it in-house anyway.

Brian Birdy
But actually, Steve, the way that it works with Rhino, if you set it up with them, is that they are doing a surety bond on behalf of that tenant to cover any financial obligation.

The lease defines if the tenant is responsible for it, rent damage, late fees, whatever it might be. If your lease says they owe it and they don't pay it and you have a policy, you can make a claim for anything the lease says they're responsible for.

You just have to prove the lease says it, and you have to prove that they owe it. And then in my two and a half years of this, they pay for it. Easily, quickly.

Todd Ortscheid
So the only thing I would point out on this is so obviously, Brian doesn't have an option. He has to do this through somebody else and there is another option in Texas called steady. You can. That's they've got a product out to actually do the same thing that covers the new requirements in Texas.

But what I would point out is if these companies like Rhino are out there offering this, it's because there's a lot of money to be made on it. That's why they do this. You know, it's just the same reason that we are in business for property management is because there's money to be made.

So if you have the ability to do this in-house, if the risk doesn't bother you, if you've got the time to implement it, why are you going to let somebody else make the money that you can make? Find a way to make that money for yourself.

Brian Birdy
That's what I did. I did the numbers every month and I went across and said, OK, because my whole thing was if we spend too much money, if we burn through all this, they're not going to renew us.

They're not going to stay with us, they're not going to go back and let me be their client and lose money. So I've tracked it every month, even on our worst months. They make money. They don't make as much, but they make money every month.

Now they've got an operation to run with that, but they make money from me every month to the point where I started thinking, I should be doing this myself, right? When Texas decides, No, you can't do that. So then that was the end of that.

Bob Hansen
So one thing you can't do in Texas, no. Matt were to come back to you, but I think you had a question your hand up.

Matthew Tandy
Yeah, a few comments. A question that first, actually, for Brian, two things. one, we have the same background. I think we both found it on the internet somewhere. two is before I get to my comments on this, Brian, I had a question about the Texas is the issue that about collecting money up front is that the issue that it gets caused by the scary deposit.

Brian Birdy
They basically said if a tenant pays you any money that goes against it. I don't know how the exact words they've had, but if you're collecting that in lieu of a security deposit, then you have to hold it, collect it and treat it like a security deposit.

And if there's no damage, return it to the tenant when they vacate. If it's not being used to correct things that they're so they basically turned any self-funded security deposit pricing program into a security deposit. The only reason I think it captured in that is I don't make any money off of this.

I don't make money on this but know this. I ran this and pushed it out. The same time, I pushed out my resident benefit package, which they could easily afford now because they're not putting a security deposit. I raised all of my tenant driven fees.

I increased about sickos all along with this because as I didn't collect thousands of their dollars, they didn't care that there was $10 here every month and $5 there every month. And at the end of all of that, I made more money because I went to the resident images that I went to the Sekuru Deposit Replacement program. I'm just not making it directly from.

Matthew Tandy
It makes sense. All right. So let me give some of my input real quick on this. I and Todd and I several years ago before he implemented this, he and I were both talking about this at a conference somewhere, and I started implementing my first.

He is next and we took great, not very different approaches, but his he lives in Georgia and Florida, and they have a bit different everything in California. So Karen’s over there nodding. She's like, Yep. So let me give some input.

And Brian, this may actually be something some version of this may matter. And for those who know me, I'm very legally minded. I read all the codes, all the laws, word for word, multiple times a year because I love it.

But here's what we do. first off, I do want to make one point for anybody who's smaller and thinking, What do I do? In my view, if you're a small go with Rhino or someone, there is a cost return and a cost benefit analysis.

You outperform if you have 30 properties. Yeah, you may be collecting money on stuff, but you're not going to pay that 7000 dollar claim. So go with Rhino for the beginning. Don't feel like you have to jump to the top.

But what we do is we do something different. We call ours a security deposit payment extension program. Payment extension program, we ran this through all the attorneys through the through the state board of Insurance, everyone signed off on it.

So we feel pretty confident on that, although I'm not an attorney, so keep in mind just information purposes. Here's how we do this when we there's two parts. Number one, when we screen people or residents, we have a system we created.

It's a rubric called Tenet Clear, and if you're well-qualified, you hit 18 points or more. If you're not well qualified, you can basically buy points kind of like buying points on a mortgage and you can get yourself up to there, but each point costs you.

A certain monthly amount is fantastic. It's a great financing thing we do to get slightly less qualified people. Now, if someone wants to, what we did is if right before COVID, we increase our salary it to two times the rent that's maximum allowed in California can't do higher than that.

Our military, it's one X. So keep in mind, we have properties and rent for four or $5,000. So you're asking someone to come in with 8000 $10,000 I and that can be tough. But the benefit is this number one, if someone pays that and our clients are well secured, that's a good amount chunk of change.

Going to Todd, what you said. It you'd be surprised the amount of people sign up for it. You really don't need to lie because the simple reason that many people have money still have money because they understand a good deal when they see one.

And in our case, what ours is, is that we extend our program is that OK, resident, you have three choices no one pay the full deposit, no to pay had this year, pass it and enroll in a program where your monthly fee.

Brian, it doesn't cover any part of damages, security deposit or anything. All it covers is the administrative costs to us of overseeing of letting you enroll in that program that buys you 45 days more to not pay that scary deposit and that resets every 30 days so they can't just get by it.

So every 30 days, it resets. And if they don't pay their program fee, then the entire Singapore's is it. The remainder is due immediately. And if they go to another client, yes, what it's do immediately, Todd, by the way, I wrote down about your transcript.

The reason I'm totally going to implement that is fantastic. That's a final puzzle, pieces missing so huge value. I just want one other couple of things here. Our scale is two to 3% for, well, for well-qualified four to 5% for people who had to buy points.

I just had someone well-qualified 3000 all month rental just today signed up for the program. I will make. They signed up for the 80% reduction, we never do it completely. I will make $120 a month for what? Guys, how many claims that they had?

Todd, you want to guess how many claims I've had?

Todd Ortscheid
I'm maybe zero.

Matthew Tandy
zero. That's right. Now keep in mind, we do collect a small masquerade passes, so we have had to go against a scary past, but we always have at least 20% and we do have a clause in ours. Brian, this does not work with Rhino, but I'm giving this for informational purposes.

We are says in our program and disclose, disclose those is that if you if your resident has not paid 80% of this great deposit, we will pay up to the equivalent of one month secured plaza will bridge that gap.

So we do have a coverage limit they got. But here's the thing. Every other manager is a one month, one month anyway, not two months. So they still get the same protection they would if we didn't have the program.

We just collect the money, and it's fantastic. I've had three clients do go to another question. I've had three clients push back. two of them really easy. We got on a phone call, had a conversation, talked about the benefits, you know, going back to to what was said earlier by Jonathan.

You know, you say a few benefits. You shut up, right? That's it. You don't try to get into the nitty gritty and the legal stuff. one person. And they were fine. The other person left over it. That person had one property.

I have made far more than that one client, and I didn't like that client anyways. So it's a win win win on that. Again, the clients, when the residents win and it's harder for residents, something on all of these programs for everybody.

If they're considering moving during a rent increase and they're considering moving to, let's say, Todd is a competitor and he doesn't offer this, they're considering moving. Guess what? They don't get back when they move out to plan for their budget for moving, that begins to create it.

Related: How to write a rent increase letter.

So now the other place is asking for one x or two execute buys it. You're not going to get it. And so they say, you know what is cheaper for us to stay put? So there you go. That's some of my input.

I share a variations in in between the programs, and Brian again is a payment extension program. They're paying for enrollment in the program. That's it.

Bob Hansen
That's great. Matt, thanks for bringing that insights, everybody. We're going to stay on a little bit longer, but I know some people blocks an hour here. We've kind of hit that our time time mark. A couple of things, one who's going to broker owner. Will get excited. I think there's some names I've seen out here. I'll be down there. Maybe if you put in the chat, if you're going to be out there, just want to let you all know.

Brian Birdy
There's one rule, though.

Bob Hansen
Your party at your house, right? The new house.

Brian Birdy
Yeah, I don't know if it'll be done yet, but hey, rule rule for you is keep that freaking cold weather up there because it's nice now and we want to have a nice, warm ish broker or at least cool broker owner.

We don't need any more that snow or ice crap we had last week.

Bob Hansen
Hey, man, if I'm coming south, I'm looking for the warm weather, so. I love it. Real quick, so second, nature, along with on site pros, leads a couple other vendors. We're going to be sharing some information coming out soon, but we're going to be hosting with these vendors and events at the Suite six, the three that were really the Elite eight basketball game. There's going to be opportunities for folks to win a ticket to the game. There's also going to be events on Sunday night and Monday night that include a Texas Hold'em poker tournament. 27 players on Sunday.

27 players on Monday will take the top four players from each night. They're going to compete on Tuesday night. There's going to be awesome prizes. There's also Brian has graciously donated and actually go attend a Spurs game with with someone.

Brad Larsen has donated a foursome to go play golf at his golf course. So it's going be a lot of cool things happening. News will be coming out here shortly. Wanted to give it to you all first. There will be a watch party of sorts that Jordan Wailer and Phil Allen will be running on March the 17th for a couple of hours there in the afternoon and again on Sunday, March the 20th. That's where our At-Large contest will happen and you can find yourself a spot into one of those events. So more to come on that.

Please look out for that should be fun and look forward to spending time with all of you. And then, like I said, Second Nature, we're strongly considering getting into this space. Thank you for all the advice and feedback you all have shared today on security deposit alternatives.

That's something that you might be able to see come this the latter half of this year. And Laura, I want to give you the the kudos. Laura's idea. Let's let's give away a nice bottle of whistle pig we've seen.

I think Todd likes the whistle pig. We're not going to get away with the super, super fancy stuff, but we're going to get a nice bottle out to someone. And this whistle pig is not your thing and you want a big water jogger.

There's something else comparable that we can send your way. We're going to do that. So I think Laura's got a nice, nice wheelie or they're going to spin, right?

Laura Mac
Yeah, I have a we'll have names. I tried to get everyone who submitted a question or asked the question, Brian, are you on there? Because if you're not a bad, you know, where is Brian Birdie?

Bob Hansen
You got Adam.

Laura Mac
OK, hold on. I got to add Brian, I did Adam.

No, don't put birdie on here. Wins everything, own whiskey.

Todd Ortscheid
And on there.

Laura Mac
But he didn't necessarily. He was like, I wasn't a host.

Brian Birdy
I was a participant. You just ask me questions. Oh, there you go. Look at that. You are all in because we know who's going to win.

For everyone and.

Bob Hansen
Everybody before everybody bounces. I do want to thank Todd as well for jumping on today, sharing his secret sauce with everybody. Just a great community of people like to share and we love that. So thanks, Todd. We really appreciate it.

Laura Mac
And then on the 23rd, guys, we're doing another one of these with Greg Cohen talking about long term leases. I think most of you have signed up for that, but just to plug that. All right.

Bob Hansen
Laura, let's spin that will spin it. Well. You got wonder.

Matthew Tandy
They pay international shipping costs.

Bob Hansen
In that time that's untreated.

Well, it's with very wry, heavy you Canadians like, you're right. Anyway, that'll be perfect. We do.

I would like to donate a wine bottle to Todd because I owe a bottle to Todd for a long time. So if you could please send it to Todd for me. That would be great. And that will save you shipping it to Canada and probably get seized at international border or something.

But yeah, if you would donate it to Todd, that would be amazing.

Todd Ortscheid
I'd bill you are the man. What the hell?

No problem, bill.

Bob Hansen
Just for that one. I'm gonna have to go to the Crown Royal Editor. I don't know the Canadian ice.

Todd Ortscheid
OK, so I got to know Stephen Carlisle Canadian whiskey. What should I get? You have something to recommend for me.

Oh yeah, yeah. I've got a few options for you all, Emily.

Todd Ortscheid
Then me, something that I was just talking to Jonathan about this the other day, wondering what would be a good Canadian whiskey. So I'd love to get that list.

Also, I'll send I'll bring some down next time I go down the states. It's been a while since I've been down there with the border being closed, but next time I go down, I'll smuggle some down for you.

Todd Ortscheid
Thank you. And I'm.

Bob Hansen
Guessing I.

Will get it.

Bob Hansen
Steve is not going to recommend this, but I will give you a little and my my grandmother worked downtown. Chicago told she was 78 years old, raised four kids after her husband passed off 39 years old to the day that she died at 96.

The FBI showed up once a month, asking questions about Chicago politics on fun stuff. But she had one Manhattan today and that was with Canadian club whiskey. So probably not what you're recommending, Stephen, but it did. It did her well.

She was a fine sound mind until the day that she died, so I drove. Kevin Patterson is still on the call. He had a question. Those who want to stick around, we're going to just keep it flowing for a little bit longer.

But. Or Laura may have had that teed up, but.

Laura Mac
Yeah, I can read it to Todd. I think it's a great question that Todd might be excited to answer. OK, Todd, are you going to stick around?

Todd Ortscheid
I'm just going to sit here and drink with Jonathan anyway, so.

Brian Birdy
What the heck is that bottle? He's got another one on the way.

Laura Mac
All right, I'm going to post it in the chat and then I'm going to read it out loud. I believe that is you. You two did. Narrative, no doubt. OK.

I like to do better.

Laura Mac
Thank you, student, it's hard. OK. You touted for many years about not scaling and staying small while maximizing fees. What? What changed your mind to start to scale and move so fast moving and move into different areas around the country?

Brian Birdy
Oh, wait a minute, I can tell you the answer to that. He he taught a class with me. I taught big, he taught small, and he listened to me. And the day after that is when everything in Todd's life changed.

I'm taking full credit for it of whether it's the truth or not.

Todd Ortscheid
Yes, that's that's not the truth. But I'll let you take the credit there.

Does that mean that I owe you my job? Yeah.

Todd Ortscheid
There you go. That's true. No, it's it was interesting. I actually I still say, if you want to be that one man, show, one woman show, whatever it is, I still say that's a fantastic way to make money.

There's no doubt about it. You know what Steve Croslin pointed out for so many years is true. You can make an enormous amount of money staying at 100 units, thereabouts fee maximizing being efficient, doing it yourself and putting away a bunch of money.

You know, it worked for him. Making can work for a whole lot of people. I know a lot of people making money there, but I will say that's a boutique operator. That's what you're doing. You know, you're you're trying to appeal to that owner who's looking for that one person show and you own a job.

You know, you don't have a bunch of other people working for you that you can just disappear for six months, you know, last year. So, you know, I probably you probably saw that I went on the road for two or three months and I wasn't working very much.

I had other people taking care of that stuff. You can't do that if you're a one man show. So there are downsides to that, but that is a viable path. What really changed for me was we managed about $350, I think, when I was really advocating for that, and that's kind of in that middle ground.

You know, that's between that one man show and the big company. And I really what I came to believe was that that's going to disappear. I don't think there's going to be a lot of those mid-sized companies that stick around for very long.

I see a lot of consolidation going on. I see, you know, a lot of venture capital and private equity money pouring into this industry. And there's even more now than when I kind of changed my tune a year ago.

You know, Pure is out there now. They've got they just received, I believe, $50 million if I remember right from venture capital. That's what's going on right now. So, you know, I think a lot of those small companies are going to have a really hard time competing in that environment.

And what we're going to be left with is the boutique operator, you know, the Steve Crossland model and the bigger company that's, you know, thousand doors plus. And I think that number is going to keep growing as to what constitutes a big company.

I don't think there's going to be a whole lot left in between because part of the problem is it's really difficult to compete with. You can't provide the service level that the boutique operator does, and you can't provide all of that, you know, scale that the big company does where that big investor might want to have someone who's in multiple markets and all that kind of stuff, you can't provide that. So you're really kind of in no man's land, unable to be anything to anybody. And I just don't think that works long term. I think that disappears.

And that's why I made the decision. I said, You know, I don't want to be the boutique operator. I don't want to own a job. I want to be able to do whatever I want whenever I want to do it.

And if I want to pick up and go to Vegas for three weeks and not work at all, I want to be able to do that. And you can't do that boutique. So that's why I made the decision.

You know, I'm just going to scale and, you know, we have got Jonathan here to help me do that.

He offers me a very lucrative whiskey package, guys.

Matthew Tandy
Let me let me add to that, I know I made a comment on this, but going to Todd in my first company when I had 3500 doors, you know, the hardest part was a time in between that middle level when we only had, you know, two offices and a couple hundred doors.

This is also before Second Nature none of the companies that made life so much better. So I back when we started on Tenant Pro, I saw the. And then when I started over in 2015, I it was so much more exciting and fresh when I had under 100 doors.

Is that boutique level? It's just so. Nice, you had that relationship and yeah, crap happens. But hey, I'm back in that middle stage right now. Higher, but not not quite where I want to be. It's tough, guys. You know, it's yes, you have employees and you have things like this giant.

Of course you were there, too. I mean, before you went over to the revolution. It makes a big difference when you have more a few more brains that Typekit get it, and it does give you that freedom that time.

If I had to choose, I would probably, you know, obviously I'm growing large and that's always been my skill died. I think you'll still lose that bet with r.p.m.. I saw the. But if I wasn't scaling large, I'd probably go to Steve Croslin method and just do 100 doors.

You just keep on. So he had 100 and highly profitable, highly easy, good relationship, people. That's a great way to go. That in between there is just it's tough and it's where frankly, most people burnout.

I think if you're attempting to be scalable and you don't have a specific person working your BDM slot, it becomes so difficult to hone in on your operation and also spend the kind of time that you need to on this step.

I mean, I spend hours all day long just creating content to then in turn, speak to the one or two leads that come in off of the content. I mean, I spent the time we were here last night until eight or 9:00, which is great because it's fun because we're also friends.

And so that makes things a lot easier. But those conversations or the the time it spins for Todd to specialize in making sure that what I'm selling is sharp as all can be, and I know it's after hours and I'm a potty mouth, so I'm trying to be clean here.

I mean, it's Todd sharpens this to where I can sell it. It's very, very, very easy to sell a Todd or shine system. And if you have one person building the system to perfection and the other person whose job it is is to understand what the system is and be able to sell it.

It makes it easier, and you can scale infinitely if you if you at least have those two pieces in place, but you've got to get those pieces in place to do that.

Brian Birdy
And I think our definition of sizes is going to change. I mean, because I've I've been over 1000 as high as 15 hundred, I never got any larger than that. But you know, a number of years ago, that was really a large company.

But I'm not. I mean, I'm still over 1000 and I'm not a large company anymore. Not when you really think about it, you know, and you see those that are growing around you. I mean, I'm like, You know, what is it going to be?

What's the number going to be to be? And I don't like, I don't want to go compete with the big boys. I just want to be great at where I'm at. But eventually, what's going to happen like Todd, is that you're going to find an opportunity in another location and the next thing you know, you're going to start growing and it's a lot that's the fastest way to grow anyway. I can move to another close location or another area and do what I do there and grow faster than trying to expand where I'm at now, once I'm at the size that I'm at.

No matter how many doors you have, they all have their own problems, they're all different kinds of problems. It just changes what the problem, what the focus is, is the bigger you get, your focus is no longer on the business, the day to day like, Todd said.

But it's on it's on people and staffing and keeping them and training them and making sure they're happy. And because you can't continue to just go take three weeks off if you don't have people doing the job because you know you lose a few people or somebody goes off and has a baby on you like me.

And next thing you know, you realize you've got to get back in and work again because somebody's got to do it.

Matthew Tandy
I do remember when you were pregnant, Brian, it was shocking to us all, but there's a new emoji out for you.

Brian Birdy
That's right. Pregnant man.

Matthew Tandy
So, you know, just.

To that, that was the most brilliant thing you can set in this entire call.

Matthew Tandy
You know, I'm here to give those high quality content materials there, Brian. Well, he's just like, I was going to ask when he started when with my first company, Brian, when did when did you get into management?

Brian Birdy
I started helping my dad out in 1997.

Matthew Tandy
OK, so a little while.

Brian Birdy
You had about 50 doors and he was being overwhelmed by it because he was running his entire business with the three ring binder and a pencil.

Matthew Tandy
All right. So I came in in the next level, the next wave 2009 right at the height of everything and at Folio Sorry property, where ineptly were both kind of newish and not many people were using them. The only big software that was tech enabled was at that time was What's the apartment one guy's?

Yardie already already.

Brian Birdy
Bringing in our Premiere, everybody in Naran was using promise at that point in time.

Matthew Tandy
Yeah, promise, promise. And we use Tenet Pro, which, you know, if we wanted to use it in different locations, we had to tunnel in remote into it, using to meeting you guys. Remember that? All right. So the brain, this is exactly right.

Is that what? What is small? What is everything is just changing. There was a time when everybody and Brian this is probably you'll remember this prior to May 2000, late 2008, everybody said, Oh, well, you know, a small area, how many doors I can imagine handle, and that should be somewhere between 50 to 100, depending on their capabilities. And now we have, you know, we can have one manager with with all of our staff in our Mexico office. I, you know, doing some other things. We can have one person handle 250 300 doors and do deliver amazing, excellent service.

And it's so much better too, because we didn't have. Filter delivery from Second Nature. We didn't have utility hookups through citizen home solutions or any other service. We didn't have those things and we definitely didn't have cell phones really working through.

So the reality is is that the tech has enabled us to do more and that's a light people skill. But one thing, Brian, that you said, you said, Well, you know, you could go there and you just kind of grow.

I'd say that the biggest challenge I've seen in people growing and tide, you probably have experienced some of this right when you're trying to decide to open up that second office in Florida a couple of years back is that for those who have grown a large company in one location.

The biggest problem I saw in all my acquisitions, everything else is that their systems and their mindset and their staff's mindsets and everything they're doing are built for one location and the challenge of scaling. Whether you're scaling to multiple locations or you're just trying to go from a boutique to you, kind of let yourself go and you

suddenly find yourself A350 doors, that is not growth with intent. And Bob, I know you read a lot of books doing, you know, the importance of Second Nature knows the importance of growing with intent and our systems. Lots of companies, you know, you don't have consistency in four door.

It gets a little messed up. Hey, pull an all nighter fix. Your inventory system doesn't work that way in our industry, right guys. So you have to take that time to think. Figure out where you actually want to be, and if you're just letting yourself go, you're going to end up with terrible systems.

You're going to end up on the wrong end of a dry audit or whatever your local thing is. Department of Real Estate out here and you're going to end up on the wrong side of some IRS issue. You're going to end up with being sued by residents and owners who may very well win.

So make sure you know what you're doing. Don't accidentally grow to 350 400 doors taking what small hundred 50 yet that's still boutique nowadays. I know is at 100 Blakely in response to your thing, but 150 200 is still small with today's tech.

So those are my things. Again, tech enables us to do more. It makes what small and medium is scale look just like, Brian said. But for heaven's sake, do do your do your staff a favor. Do your staff favorite.

Todd, you talk about this all the time. If you're not growing with intent, that means you're not putting the systems in place, and that means your staff are going to get burned out and they're going to hate it.

And that's a terrible thing. No one wants to come enjoying the job every day, even if they know they're doing good things.

Please do yourself a favor. I mean.

Matthew Tandy
Don't get them drunk all the time, like Todd does with Jonathan. Don't listen to Jonathan right now.

Only after hours, Matt.

Matthew Tandy
It's only two here and I'm taking my coffee.

So, so as a medium like, I'm not operating a business, I'm not running the whole thing like Todd does, but I sell our team and your bd, ms everyone on here, your team should be able to sell your team.

And if your team is not happy, they're harder to sell. If you know Jason is pissed off and she's not answering ten, it calls because she's pissed that she's only making $0.04 a day or whatever the hell like that, you're BBM.

No matter how good they are, it's not going to be a sell. Well, Jan is great at answering Senate calls. No, she's not. She's pissed. If you're not, if you're not treating your employees well, then it doesn't matter how good of a team you have.

It doesn't matter how good of operations you have if you're a team of pissed at you because you're being a greedy bastard. You're not going to be able to grow. It's just that's just the way it is.

Bob Hansen
Well, guys, I don't know about you. I've got to hop here soon. Great, senor. Thanks, everybody. one thing if everyone's going to grow, I don't. If you are. But second, nature and pure are splitting the sponsorship for the rooftop party and we've decided on a big hair don't care theme.

So you know, if you're going, you might want to go ahead and check out Amazon and rock some, some big, flowy eighties hair. So I hope to see you on the road.

Andrew Smallwood
That's all for today's Triple Win Property Management podcast. Thank you so much for listening. Thank you so much for sharing a piece of your life with us. We do not take it for granted. I also want to give a shout-out to Carol Housel for everything she and our team does to make this possible.

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