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Welcome to our first episode!
In this inaugural episode of Real Estate Investing Unscripted, Matt talks to Chad Gallagher, Founder and CEO of SlateHouse Group, a Philadelphia-based property management firm focused on building better experiences for tenants and owners alike. Chad discusses why he founded SlateHouse Group, how technology can disrupt the industry, and why his company always strives to be on the side of transparency.
"It's not about silver bullets - it's evolving processes, data and tech."
Listen in for great insights on leveraging technology to help streamline property management, operations and more, and see how you can scale your real estate business.
Matt Rodak:
Welcome to the very first episode of Real Estate Investing Unscripted. I'm your host Matt Rodak, founder and CEO of Fund That Flip. Since it's our very first episode, I thought I'd give you all an idea of what you can expect from us here at the show. Now, there's nearly an endless amount of content out there for real estate investors, right? There's online forums, online training, books, mastermind groups, and certainly other podcasts. And a good majority of this content that is out there is designed to provide you with a playbook or a guide on best practices on how to think about building your real estate business. And by all means, you should take in as much as you can from all of these great resources out there.
However, if you've been in the business long enough or if you plan on being a real estate investor, you will know that there is no silver bullet. There are no rules that work 100 percent of the time. In fact, the best real estate investors that I know are masters of improvisation. They use the best practices and they have a strategy that provides them direction, like a North Star, if you will, but they also know that if they're going to be successful, they must improvise. In other words, if real estate was a play or a movie, you might think of it like somewhat unscripted. Well, there's a plot and a theme. The actors are given the ability to improvise in order to make the most out of the show.
And that brings us to our podcast theme, "REI Unscripted". Our show is focused around our guests' unique experiences, the edge cases, if you will. What we're focused on here are the scenarios that aren't written about in the best selling books or taught by others. What we'll do here is learn about those unique experiences from the experts that are living it each day, and then how those guests improvised to win the day, or what lessons were learned that they are now implementing to grow their business. So with that, I'm very pleased to introduce our first guest. His name is Chad Gallagher. He's the founder and CEO of SlateHouse Group. Welcome to the show, Chad.
Chad Gallagher:
Awesome. Yeah, super pumped to be on here. This is great.
Matt Rodak:
So I'm going to give a little bit about your background and company and then feel free to fill in any of the gaps that I leave out. So Chad's company, SlateHouse Property Management, they manage--how many doors are you guys up to now?
Chad Gallagher:
3,000 units.
Matt Rodak:
So over 3,000 units. You guys have an in-house brokerage? I think last time we spoke - 12 agents. You've got over 100 full time employees. They're serving I think more than a thousand different property owners. Maybe more at this point. You guys are operating primarily out of eastern PA (Pennsylvania), greater 'Philly' (Philadelphia) markets. Is that right?
Chad Gallagher:
Yeah, I'd really say central and eastern Pennsylvania as well as central and southern New Jersey. Basically we go from like Trenton, Philly, to Harrisburg and York in Pennsylvania. And we're growing, so exciting!
Matt Rodak:
I think one of the things that I love most about your business is that you guys are leveraging a lot of different technology to drive efficiency. One, which I think is important to provide a first class experience to your tenants, but also those thousand different property owners, I think what you guys are using like 12 different systems, you've got some of your own built in-house tools and the result of this is keeping costs low and like I said, services high. You guys I think have some of the lowest property management fees that I've ever heard of. And I think obviously operational efficiencies that you guys have built as well as that technology allows you guys to do that. So that's super cool.
So needless to say, with over, you know, over 3,000 doors, you've certainly have some unique experiences, which I look forward to hearing more about. I think before we jump into that, I'd love to just have you tell us how did you get into this business? Everyone that I talked to that owns properties or is kind of in the property management business is always like, “It's a hard business.” How did you get your start, and how did you get to where you're at today?
Chad Gallagher:
Yeah, so I actually have an engineering background, so I've always been kind of a math and tech nerd at heart. I worked in digital advertising for about 10 years, eventually running a mobile advertising company. And what happened was my best friend from growing up, he--it's kind of funny story. We were going to a bachelor party of one of our friends, and this is like back in 2010 when people were rushing out of real estate, not into real estate. And his pitch to me--we were in the car for four hours driving to Pittsburgh--and it was basically, you know, we're both kind of, you know, math and tech nerds, and said we should start using data and technology to figure out how to invest in real estate, but do it with the long-term in mind. And so, you know, don't be so bothered by cycles of real estate.
At that time real estate was almost a bad word, but it was, “Let's just invest for cash flow and be patient and use data and tech to make decisions.” And so we did that. We started doing some investing. We were self-managing the properties. We both had full-time jobs, and we interviewed a bunch of local property management companies to try to find one to give our properties to and left that actually disappointed because no one was really utilizing tech the way we thought it should be done, in a way that could allow us to scale. And so we made what was actually a hard decision to have my business partner, Nate, leave his job as a math teacher and basically go start and run our property management company. And, from there, it's been a wild ride.
Matt Rodak:
How many doors did you guys have at that point when Nate made the jump into full time?
Chad Gallagher:
Yeah, I think we owned maybe 10 to 15, but we also knew there were a ton of other investors like us who had similar problems, so all in we probably had 100 to 200 units under management that either we were already managing or about to be managing once we kind of made that jump. But yeah, that was kind of crazy.
Matt Rodak:
So what led then, and are you guys still actively building your own rental portfolio or at this point, are you mostly maintaining what you have and trying to grow the property management business?
Chad Gallagher:
I'd say the focus is really on the prime management business. I'd say once a month we come upon a deal that we just can't turn down and we do pick up a property here and there, but that's not really the focus at this point. The way I look at it is: no one wants our property management business to be run better than we do. Right. So it's managing. I mean, we're up to about 200 units now and all we think about is how do we get those run better and smarter. As we optimize our own property management company, it benefits us as owners but also benefits all of the other owners we work with.
Matt Rodak:
Yeah. That may be the first time that I've heard a positive outcome from a bachelor party. So that's, that's cool. So you guys have been doing this almost a decade now. You're up to 3,000 plus units, you know, you certainly probably have seen some interesting things that you don't read about in books or hear in a lot of different places if you're thinking about getting into real estate. What I want to do is kind of pick your brain on some of the different things that you've seen at different life cycles of the property management--call it tenant lifecycle, if you will.
Chad Gallagher:
Sure.
Matt Rodak:
And I broke this down in three different phases because I like the number three and you can add or subtract as you see fit, but I see this as: you've got the first part of the phase where you're showing tenants the units, you're screening them, you're getting them signed up and moved in, right? And then there's the phase where they're moved in there paying rent. Hopefully, you know, you guys are getting maintenance requests. Things are breaking, there's natural disasters, you know, all of that good stuff kind of during the time that the tenant’s living in the property. And then the last phase I kind of see is, when the tenant’s moving out, right? Whether that's voluntary or involuntary, different things that have to happen in that phase.
When you guys are showing the properties, you're screening tenants, you're getting them signed up. Do you have any unique experiences or just maybe even more anecdotally, you know, how you guys think about doing this maybe differently or how you've had to improvise in the past to improve your business and get better at this phase of the business?
Chad Gallagher:
Yeah. So I mean, I guess I'll just give just one very specific example. I mean, obviously things have changed over time. One thing I think about is how do we make it as easy as possible for a tenant to both find a listing, but also to even schedule a showing. And that sounds like such a little detail, but if you think about how that normally happens, the normal experience for a tenant working with, you know, your regular landlord is they see the listing, maybe they see it on Craigslist or whatever. They see a phone number and they call the phone number, it's probably 7:30 at night on a Sunday. They're calling. The landlord doesn't answer because they're--they have a life, and they're doing their own thing. And then Monday morning landlord calls tenant back, but now the tenant’s at--hopefully--their job.
And so now you're playing phone tag and trying to figure out what times work, maybe you're emailing back and forth, but it's just not a great experience. And so we actually leverage three or four different technologies. All come together integrated where the tenant can--on their mobile phone--find our listing across 100 different websites including our own, but then can actually see when the local property manager is available to show the property, can actually book the showing right on their phone that very second. And then that showing pops up on the property manager's calendar as well as the tenant's calendar, and now the property manager, without ever having to do anything, now has the showing on their calendar. And the prospective tenant has never had to email us or call us if they didn't want to.
So that's a pretty big change. And then I think that it all kind of starts with me, my background in mobile, right? I'm kind of obsessed with mobile in general. I mean, we know that it's a pretty crazy number, 75 percent of all of our website traffic now comes from mobile devices, which is just kind of breathtaking, right? If you think about how that, how fast that has grown, even just a year and a half ago, that number was 50 percent. I think the world of finding tenants is someone who is on their smartphone who wants to figure out how to get in that unit to see it as easily as possible.
Matt Rodak:
Yeah. This is interesting, and we see the same thing in our business, right? There's probably a lot of leakage in good quality tenant leads without this type of system. Because if you make the call, you get the voicemail, and the guy calls you back on Monday, you're at work. If two or three other landlords have gotten back to you and something scheduled before then, you may never ever see that tenant again. I got to think your kind of your sales funnel, right? You're getting more people actually through to a conversion which is seeing the unit, just by simply automating this. That's really interesting. How long did it take you guys to kind of figure that out? Or was that something right out of the gate that you were like, “This is a big pain point for everyone. Let's fix this. Like, right away.”
Chad Gallagher:
I mean, when I look at our business, it's interesting. If you're not in the business, you think, “Well, that's pretty simple, right?” Tenant pays rent, show tenant apartment to get them in the apartment, tenant pays rent on the first, if there's a maintenance issue, go fix it. It's interesting. Property management, what makes it so difficult is just all these little things that can happen. How do you operationalize them to do them right every time. Out of the gate we were posting on Craigslist, and we had a phone number and that was going to Nate and he was, at first he was actually a math teacher. He was literally jumping out during lunch to call back a tenant saying, “Yeah, I can show it to you. It's gonna have to be after 4:00.” So, yeah. We've come so far.
And I think that most of the things we do in our business, they're not silver bullets. There are things that we have just evolved over time. But I actually think my experience of kind of building the business stuff, and I think real estate, in general, it's not about silver bullets. It's all evolving processes and data and tech and ways of doing things, and you're just trying to get incrementally better. Right? For us it was, “Okay, let's use tech to post this on more than just Craigslist. Then let's make sure we have a full time receptionist who can answer the phone when the phone rings and schedule appointment. Then let's figure out a way for someone to schedule that on their phone. Then let's integrate Google calendar.”
That's how I think about a lot of this stuff. A lot of the tech that we utilize, whether it's our own investing or on the property management side, a lot of it we just kind of keep evolving everyday thinking, “What is the process that's not working well, and then how do you fix it?”
Matt Rodak:
It's never really done, right? And are you guys doing any type of tenant qualification on that mobile application to make sure you're getting people that are actually worth spending the time to go out and show the unit, or what does that process look like?
Chad Gallagher:
Yeah. The actual application side of it doesn't happen until after they see the property. Our perspective of this--and there's lots of arguments on either side--but we find that by forcing a tenant to apply before they see it, they get nervous about just the upfront application fee. Any amount of time it takes to apply,
Even just more simply like are you asking questions around like, “Do you have a credit score above 600? Do you have a job?” What we try to do is be as frank as possible. And just open with these tenants and say, “Look, here's what we're looking for: credit score, income requirements against the rent amount. If you've had evictions in the last five years, don't apply, right, because it's not gonna work here.” So we try to look for things. We put that actually in our ads because--the way I look at it--let's not waste anyone's time. Let's just be as transparent as possible. I think that's another theme we've found in the business of trying to run like a forward-thinking company is we always want to err on the side of transparency. And some people may think that's a little strange to put all that info out front before they see the apartment or how transparent we are with our owners. But I think that's the way to run a company.
Matt Rodak:
Yeah. I totally agree. We tell our sales guys and gals that people don't mind hearing “no.” As long as they haven't invested a lot in getting to that “no.” So the quicker you can get them to a “no,” with a reasonable explanation as to why, the better off. I'd imagine that kind of same principle applies here
Chad Gallagher:
Yeah, for sure. And I would just say the other thing that's really interesting, we try to avoid one-off policies. So when we first started it's interesting, you know, a tenant would apply and every person you're kind of taking on a one-off basis and you're saying, “Well, their credit score is this, what do you you think?” And now, I mean we try to just put very specific rules and procedures in place that allow people to make pretty cut and dry decisions. And it's never, it's not always that easy, but throughout the company we found the more strict to the policies are, and the more black and white it is. I always tell our guys, it's like, you know when you go to McDonald's and order a Big Mac, you don't negotiate what the price is, right? You order the Big Mac, you know that the burger is coming, you know what's going to be on it, you know what it's going to cost because the price is right there, and because of that, you just pay and you walk away. And in real estate--for some reason more than other industries--it feels like everything is negotiable sometimes.
I just think that I've started to find that a lot of forward-thinking companies are trying to move away from that and move towards more transparency and less negotiation. I'm finding their results mirror our own, which is no one likes negotiating. The reality is everyone likes transparency, whether that's tenants or owners. And so we just try to be really clear up front of how things work.
Matt Rodak:
Makes a lot of sense. Let's move on to then the second phase. You've shown some tenants, you've got them through the application process, they get moved in. And you start with collecting the rent. Then things occur throughout the term of the lease, not maybe for all the tenants, but for some percentage of your tenants. How do you guys kind of think about leveraging technology and thinking differently about managing a tenant that now is in one of your properties?
Chad Gallagher:
Yeah. I think about it as there's two main things that come up. One is making sure people are paying rent. And then the second is home maintenance. We kind of break these out and then have different workflows for each on the rent and collection side. Some of these things are basic: you can pay rent online. But the one thing we think is really important--and again, I think some people may disagree with this--but we file the eviction on the 16th of the month, every month. If the tenant hasn't paid, that's when we file. I mean, that's a tough thing to have to do, to have a very strict standard. But we find that really hard processes like that are a lot easier than living in the gray area.
Matt Rodak:
What led to that business decision around: on the 16th, it doesn't matter who you are, what excuse you have, how good of a tenant you've been up to this point, it's the 16th--we're moving on it.
Chad Gallagher:
Yeah, what we found was just that it is really hard to make a good judgment call when to file an eviction. We started looking at data: we evaluated this person, therefore, we thought the right judgment call was to not file for a month because they're going to get back on track. What we found was the reality is, we don't think humans are capable of making that call. There's just no evidence that the call was being made properly. And so what we decided to do was just be crystal clear with all our tenants. Here's how things work. It's terrible, and I hate it. It's the worst part of the job, but it actually kind of helps. I go back to my McDonald's analogy. If you go up to the counter and you say, “Hey, I want a burger, but I want to pay you for it in two days.” Mcdonald's doesn't say, “Okay, I'll let you pay in two days.” And so because of it, no one complains; they just order a burger and they pay for it. We've actually found it's just better for everyone if we have a really clear procedures like that. It actually makes our managers less stressed. They don't have to kind of a play judge and jury every month.
And then on the flip side is home maintenance, which is surprisingly a really tough challenge to figure out how to quickly and cost effectively fix problems in the home. There's all sorts of stuff we do for that. I'll give you one really cool tech example of what we do. All our maintenance guys are full time employees, which is really strange and a little unusual in the industry. Most people hire contractors, but we like employees because then they're dedicated to our company. We're able to train them over time. They really like our company. They like working for us. So there's some, you know, they care about their work a little bit more. But then we do something that you couldn't really do with contractors which you put an app on their phone that tracks everywhere they go. It sounds super "Big Brother"-- and that's not what we're going for at all. But what it allows us to do is two things.
One, our maintenance guys actually clock in and out of a job on their phone, which is pretty slick. We can properly assign a bill to each job. The other thing it allows us to do is make sure that someone is where they say they are. It sounds pretty basic, but anyone who's worked with a maintenance crews before realize that, you know, sometimes someone says they’re somewhere, and the reality is there somewhere else. We had a guy one time who was working on a job that just kind of took too long. We looked at his GPS, and it turned out he was supposed to be in Harrisburg, and he went to Philadelphia for the day. I mean, what a great use of tech. We can call the next day and say, “Hey, this is not gonna work.” I think that’s the kind of stuff you can do when you're really adopting cutting-edge technology.
Matt Rodak:
Is that tech that's available out there for people, or is that something that you either built in house, or took something else that had a different use case, and applied it for your particular business?
Chad Gallagher:
I would say most of the tech, probably about two thirds to three quarters of our tech, is licensed and then integrated together. Then I would say a quarter of our tech is home built. We're probably building more as we go, but I will say the integration piece is really crucial. These technologies softwares that we leverage, they don't just come out of the box ready to rock and roll. There's definitely a lot of customization and integration. We use lots of different technologies that we have to kind of integrate together. I think it's not always the easiest, and sometimes the manual stuff feels easier because you don't have to kind of roll out this new tech. But long term, I always tell real estate investors, if you want to scale your business and you want it to work on autopilot, you have got to invest in technology.
Matt Rodak:
Yep, it's only way. I like to say I try to put myself out of a job everyday by automating something, either with technology or a process. Let's move on to maybe the last phase. Now you hit on it a little bit with: tenant, now it's time to move on. And maybe we can focus in on the “involuntarily leaving the property through an eviction process.” We talked a little bit about your guys' process with 16 days. You just move on it. Maybe you could share with us: what have you seen that, in your opinion, is the most creative thing that a tenant has tried to stay in the property after having not met their obligations to pay rent?
Chad Gallagher:
Yeah, that's a good one. The most absurd is we had a tenant who not only tried to convince a judge that we weren't filing correctly, but then tried to convince the judge to call all of the other local judges in the city to tell them we weren't filing correctly. And you just start thinking to yourself, “That's just so much work. What if you just paid your rent on time?”
I think the good news at a company like ours is we actually do file properly. We abide by landlord and tenant laws. But the thing that I find that that's really a little unfair to owners--and we're seeing this more and more all the time--is each local judge taking the law and customizing it to how they think the law reads. I talk to landlords all the time. They're just so frustrated by the fact that, not only do you have to know the law and follow the law, but you almost have to know how the local judge interprets the law, because some tenants are willing to spend a lot of time trying to figure out ways around paying rent.
Matt Rodak:
And it's probably the case that the tenants may know more about the law and the loopholes and the judges than you guys do because they've been through at a time or two before.
Chad Gallagher:
For sure when we first got started. At this point now we're kind of past that intro period. I remember our first couple of months just being shocked at the knowledge of landlord/tenant law some of these tenants had.
Matt Rodak:
Well, maybe you should hire them.
Chad Gallagher:
I'll give you one more tenant story. We had a tenant who bought a property actually and a bunch of people who weren't paying rent. We evicted them. We're in there to clean the property up on like a Thursday morning. One of the tenants comes flying into the apartment building, screaming at us and saying that they're going to burn the property down. And you know, our maintenance tech thinks, “Wow, this person's really had bent out of shape,” talks to them a little bit, says, “You know, I'm sorry; you hadn't paid rent, we have to do this.” And so then it turns out that night the building actually burned down and the tenant followed through on their claim, which was one of those horror stories that make people scared of real estate, I guess. It's one thing to say you're going to do something. It's almost even another thing to burn the house down, but to say you're going to burn it down and then three hours later actually do it is taking things to a whole new level.
Matt Rodak:
Yeah, you have to maintain some level of optimism about the population at large when you deal with some of these stories that happened in real estate. For every one of those guys, they're still, you know, a thousand people that just want a nice place to live, is what I always try to tell myself in this business.
Chad Gallagher:
Yeah, for sure. I mean, it's weird, right? I find that the more we do this that, we had like 3000 tenants, and 2,900 or more are great people. They like working with us, pay their rent on time, you know, take care of the property, owners love them. It's definitely that long tail that gets a bad rap for real estate overall. And you just try to push through that and remember that the majority of homeowners and tenants are actually good people. It's just some of these crazy stories that stick out in your mind.
Matt Rodak:
Look, you’re running out of time and you got to jump. You're a busy guy. Last question that I wanted to get in is--you guys are obviously killing it, you’re up to 3,000 units. It seems like you've done an awesome job building a scalable business. And I'm curious, what does your business look like two years, three years, four years from now? Where do you guys want to take this?
Chad Gallagher:
Yeah, that's a good question. When we started out being kind of a central Pennsylvania company, we found there was a need for what we do and more places. We expanded into New Jersey, the Philly area. That's going well, and we're looking to expand. I think as we look towards the next couple of years, probably two things. One on the product side, how do we build and leverage more tech to create better experiences for owners and tenants? With that kind of engineering background--I'm really passionate about that and always asking our team, “What else can we build into our license?"
And then on the geography front, we're already getting requests in neighboring states and cities. The idea is to keep operationalizing it, and allow us to grow into more geographies where people frankly want to invest more but are having trouble because there's not quality property management at a decent rate. We charge six to seven percent as a management fee. What we're hearing is that's a bit unusual, on the lower side to some other areas. So yeah, adopt more tech and then expand into more geographic locations. That's what the next couple years look like.
Matt Rodak:
What's the goal for number of units you want to be at by, say, 2020?
Chad Gallagher:
I think over 10,000 units by 2020 is our goal. And then the long term goal of the company is to build a company that can handle 40,000 units. They sound like huge numbers, but the trick is all around using economies of scale and operational efficiencies to run a better company. And if we do that, everything else will come together.
Matt Rodak:
That's awesome. So let's get outta here on this. Listeners out there, that have got properties, maybe they're managing themselves. There's people here listening that have smaller property management companies than yourself. What parting advice would you give to those folks, if there's one thing they can do right now today to be a better property manager. What would that be?
Chad Gallagher:
That’s a good question. I've really hit on the tech side of things pretty hard. It probably sounds pretty cliche, but I would think about, what is the thing that is causing you the most trouble? Whether it's tenant related, home maintenance, what's taking the most of your time? And then I would just become obsessed with finding the technology that you can use to automate it or create better operational flow. But I think that's the big one -I just think real estate for some reason compared to other industries has not been disrupted by technology as fast as other industries have. It’s a huge opportunity to be a better landlord by using more technology.
Matt Rodak:
We're not putting people on the moon. It's all about execution. It sounds like you guys are doing exactly that. So Chad, I really appreciate your time. Last thing, where can our listeners get in touch if they want to learn more about what you guys have to offer from a services standpoint.
Chad Gallagher:
You're always welcome to email me: Chad@slatehousegroup.com, or just go to our website. It's www.slatehousegroup.com. We have a whole bunch of stuff on there, YouTube videos of different things we've learned over the years of investing, and always looking to help people grow their investing, however we can.
Matt Rodak:
Awesome. Thanks for your time. Check out his YouTube channel. Tons of great content on there. Really appreciate the time. Until next time.
Chad Gallagher:
Awesome, thanks so much for having us. This is great.
Matt Rodak:
Thanks, Chad.
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