• Self-managing rental properties can be more efficient and cost-effective, but it depends on the nature of the asset and whether or not you have the time.
• Trust is key in finding reliable team members, including real estate agents and property managers.
• A real estate investor should focus on cash flow rather than betting on appreciation in uncertain market conditions. Long-term, appreciation is much more attainable.
• Plumbing and roofing issues can be major expenses and should be thoroughly evaluated before investing in a property. Inspection is important, as well as expecting 5-10% of the property cost in renovations.

Vikas Gupta  00:00

Hi, everyone. Our guest today is Chris Chu, a West Point graduate, former army captain and business leader who also happens to be the co-founder and chairman of Azibo. In fact, Chris hired me. So thank you very much, Chris. It's great to be working with you again. His impressive resume also includes roles at Andreessen Horowitz, Hewlett Packard, KKR and McKinsey, Chris, good to see you. And welcome to the podcast. Thanks for joining us.

Chris Hsu  01:20

Oh, thank you, Vikas. You were a good hire.

Vikas Gupta  01:24

Thanks, Chris. I hope so. So, Chris, in your own words, can you tell us your story in general? And it was as it respects to real estate?

Chris Hsu  01:36

Yeah, look, I would say that, you know, I'm a, I'm a real estate entrepreneur, started in real estate back when I got out of the Army in 1998. And really, was inspired because I was I gotten out of the army where, you know, I didn't realize that I was kind of poor. And then I got into the real world as a civilian and started working and bought a house and realized that I was poor. And so I was looking for ways to generate cash flow. And, you know, I heard a radio show back then. And, you know, I tell a lot of folks that there was no such thing as podcast back then I was actually listening to am radio, and heard these guys that were like multimillionaires that had bought like storage units. And I just thought to myself, You mean those things on the side of the road? And, you know, it's all the conversation was all about cash flow, and just a simple real estate philosophy. And, you know, I'd gotten really interested in it based on that, and then I just started reading books, about, you know, buying, buying your first rental property, that kind of thing. And then some friends of mine, were married to folks that were in the real estate business and started asking lots of questions. And then one guy said, hey, look, I'll train you how to do this kind of entrepreneurship, gave me his tools for evaluating things. And, you know, we just, we then did our first property. And that's how it was, it was really just a desire to not be poor anymore.

Brandon Hall  03:12

So what was your first like, couple rentals that you picked up? Did you start with storage units? Or did you

Chris Hsu  03:17

actually I wouldn't, I wouldn't smart enough to figure out how to value this. So somebody told me about this, this, this tax rule that if you live in your house 2-5 years and you rent it for 3 years, and you sell it, you can sell it without paying all the taxes and all the tax benefits associated with it. So I basically bought a different house, moved into that house and rented the house I was in. And that was kind of the first way that was such an easy way to do it, because I already had a loan on it, you know, everything was already set up. And it was just an easy glide path to get into real estate and, you know, ended up selling that house. You know, three years later, I think for two times what I paid for it, which for me was you know, I was I was hooked, and you know, I leveraged that thing. 90% So two times what I paid for it with 90% leverage was, you know, kind of a crazy return for a guy that didn't really didn't really have much. And you know, I was hooked. That's all it took.

Vikas Gupta  04:20

That sounds like your story similar to Brandon's story, crush it on his first property and hooked ever since

Chris Hsu  04:26

now, on every property. So I will talk about the ones where didn't do didn't go out go so well. I always loved the real estate investors where everything they touch with great I'm like, Yeah, I'm not really sure. I believe that would

Vikas Gupta  04:41

definitely want to come back to that. But fast forwarding to today, what does your current portfolio look like?

Chris Hsu  04:46

Yeah, you know, it's funny, I've got a real mix of properties right now. And you know, I've got about 20 units across short term rental. You know, vacation rental and apartment building and single family rental home duplex. So I've got a good mix in the portfolio. And, you know, I think, you know, I put that on a little a couple years ago, and I'm kind of evaluating, you know, what, what I think the right path to go is, you know, as far as where the markets headed, and where I can actually really make money.

Vikas Gupta  05:29

So one thing that I think is really interesting, and would be interesting for our audiences. With, with your intense career, you still self managed. So can you can you talk to us about that decision? And, yeah, how you ended up there?

Chris Hsu  05:44

Yeah. So the self managing thing is, it's a great question, I will tell you that I've done fully managed, and I have some managed buildings. So I have a mix in my portfolio, but I do largely self manage. You know, there are a lot of management firms that will take anywhere from 10% of your gross to 50%. And you have just found that, like, what happens oftentimes, is when there's a problem, there's a plumbing issue, whatever, guess what happens? You're paying on 10%. And guess what, you get the call? Yeah, hey, you know, we got a plumbing issue, what do you want me to do about it? And, you know, I just got to the point where I'm like, Why do I need you. And so, in a lot of cases, like, for instance, on the short term rentals, you have to have manager because it's just, there's so much turnover on those that you can't stay on top of it for long term rentals. You know, where you have a year or longer lease, you can manage those fairly well, especially with the tools like Azibo and, and you know, other kind of finding renters and if you buying a place in a good in a good location, there's a lot of times they rent themselves, there's a shortage of housing. And, you know, like, we have an apartment building in Cincinnati not far from the university. And, you know, we I don't think we've, I don't think I've had a month of vacancy, other than to, to remodel a unit. And, you know, there's a sign on the building, and we get calls all the time around that. So it really does depend on the nature of the asset and whether or not you you have the time. Nowadays, with Azibo, and all those other tools, you can automate a lot of stuff. And one of the things I love, finally, we got the whole application process and the onboarding flow in Azibo. So like, once you get a tenant, all you need his their email and their phone number, they can apply online, you can do a credit background check. And then that flows right into an application, the application and onboarding. And I just, I mean, it takes two minutes to, to do that. And so that that's, that's a big, big ad. So I think that's that's part of it is I just not really sure that some of the managers take away the headache and they take away the money but they're not sure they take the headache.

Brandon Hall  08:15

So you're are you doing are you managing at a distance are your properties like local to you, geographically?

Chris Hsu  08:21

Mywife won't let me have any properties anywhere near our house.

Brandon Hall  08:26

You take self managing to the next level!

Chris Hsu  08:30

I do have a unique environment to where I like my apartment building. I have a it's not a typical property manager, I pay her hourly. And if we haven't turnover an apartment or something like that, she'll do that for me. And she's great. But there's not like a monthly take, because all the rent collection, everything else is all automated. You know, it's really pick up the coins in the laundry mat. You know, if there's a plumbing issue, call the plumber. And by the way, she's got my Azibo debit card. So like pay the plumber, it shows up in my Azibo account, I tag it, label it, boom, it's done. And then I get a receipt from her. But that's a much more efficient way to do things.

Vikas Gupta  09:17

How did you find your sort of local informal?

Chris Hsu  09:21

Yes, it's typical, like you buy in real estate agents, they all know, then the your, you know, we have a trusted agent that we bought a bunch of properties in Cincinnati through and and I say, look, I really like it in somebody that's not a property management firm. Yeah, more of an independent person that I could pay hourly, that's dependable and reliable. And if this this this woman in particular happened to be working in the real estate office, not a real estate agent, but more of a sport. And this is great income for her. It's just you know, she can make a decent amount of money and that's all kind of in the area that she lives in. Yeah, she's super reliable, just a wonderful, wonderful person and it's more of a personal relationship now then, you know, then then then then working with a big, large firm. And I think you could do that, like, I mean, you know, I could scale my business with her, I could double it with her easily and probably triple it. Because once you get a system in place, it's it's, it's pretty easy.

Vikas Gupta  10:26

I mean, that's one of the key themes that we've heard, I think consistently from all of our guests is the importance of the team. And there's different constructs of that team. But the key theme is, like no one is here doing it completely alone. And the other key theme is the importance of the real estate agent and how they can be your gateway into building your team and your broader support network, especially for doing that distance. For Sheila, how did you find your agent day?

Chris Hsu  10:53

Yeah, so it's interesting. So I've been looking all over the country for a place to buy rental homes. And in I live in Nevada, and the prices in Nevada were really high in California and Nevada. The cap rates were really low. And so I'm a cash flow investor. So I just looked around at where they were good cap rates. And you know, Cincinnati had really good cap rates. I mean, there's Nashville 10 years ago used to be phenomenal place to invest, that trains out of station. In then we happen to have a friend of my wife, who we kind of honed in on on Cincinnati, and a friend of my wife is a real estate agent there who went to school with her very, very close friends of ours. So I called her and said, Hey, look, I'm interested in investing and you know, do you do rental homes and then we just started the process. And you know, it's so important, because all the contacts that I have in Cincinnati, I've never even seen the properties all come from her. And you super it's been it's been a really good experience. You got to find somebody who you trust. That's the most important thing and like trust is just key because especially when you're buying these things at a distance sight unseen, you got to know that the inspector that you're hiring, as is reputable and trustworthy. And the whole the whole all the search downline, I will tell you, I think the the biggest service provider that I've struggled with is plumbing. Think plumbing is tough. I mean, you know, rental property. It depends on where it's at. But plumbing is my number one issue.

Brandon Hall  12:43

So I want to back up something you just said a minute ago, you said that Nevada, California, they had high prices, low cap rates. So you started looking around for markets that had better cap rates. Describe the process on how you evaluated markets, like how did you actually find Cincy? Because I feel like I feel like people can look for markets for like five years, you know, I mean, there's so many market

Chris Hsu  13:08

cap rates by MSA. Now. I just started looking through them and saying like, which you have, I've lived all over the country. So I've, I've spent, I spent a year living in in Kentucky, just just south of Cincinnati and had three job offers in Cincinnati at one point in time. So I'm familiar with the, the kind of the environment there economically and the job base is just amazing. Like, the amazing job based super stable, right in the middle of the country, great access to airports. So that kind of that type of stuff. And then looking at Cap rates, there's other places in the country with with with better cap rates, but you also need somebody that you trust to buy them. And you need to you like for me is all about like, is it a stable market? Like the thing about the coast is, you knew when when I bought these several years ago, you knew the coast, real estate market is going to get crushed. I mean, I don't know. It'd be a rocket science to look at a chart that goes like this. And then at some point in time, it goes like this. And, and so I just didn't want to touch that. Because one of the things I've learned over the years is if you bet on appreciation, you're toast. If you if you're a real estate investor, you're betting on appreciation, you're testing and you can make money on the way up. But the problem with real estate is when you're long real estate and it goes down 30% And you're a lover, that can be ugly.

Vikas Gupta  14:36

You mentioned that you you bought the property several years ago. How are you thinking about today's market environment? And how are you thinking about, you know, investing versus operating your business? Yeah, sort of sitting out for a while.

Chris Hsu  14:49

Yeah, so I was I mean, it kind of my plan was to just keep doing this strategy for a while view, buy them, stabilize them, get them cashflow positive, and then just keep doing it. Um, I started getting really spooked about where the economy was going, probably towards the end of 2020 2020 ish. Maybe it's 2021 Sorry. Because just the massive amount of fiscal stimulus that had gone into the economy and the interest rates and where they were at, you know, just really believed that inflation was going to spike. And that if a cost knows is I'm like, obsessed with finances and economics, I spend, you know, all of my free time reading about finance and economics, which is kind of not really that exciting, but I like it. And I just was convinced that interest rates were going to spike and, and that the economy was going to slow and real estate was gonna get crushed. So it was super important. Like, I just stopped investing, I was, I was looking at a bunch of stuff. And I just told all, my real estate agent said, I'm not buying anything, probably for two to five years. And I'm just going to operate what I have and optimize cash flow, the flip side of that was rents were going up like crazy, I mean, rents. You know, I mean, anybody who's listening to podcasts that owns rental property, you know, if you haven't raised rent, you need to raise rent. I mean, Cincinnati is an example last year, rent was up 28% year over year, but it's I've never seen anything like that before. Because it's just a shortage of properties. And they're still massive, under I mean, over employment, we have too many people, we don't have enough people to work. And so I think that that was a good formula for making money on what you currently have. And so that was kind of my thought is let's just stabilize, you know, focus on operations, focus on improving our buildings focus on getting our rents up, keeping as much of the cost down because I mean, utilities have gone through the roof across the board. That's, that's been a real headwind. But if you can, if you can get your rents up, then structurally, you can manage, you can manage better. And so that's really been the focus that we've had,

Brandon Hall  17:23

How has your investment strategy evolved? Since you started all the way up till now?

Chris Hsu  17:33

I would say when I started, I was like, it was much more a bigger part of my overall portfolio of investing, because I just didn't have a lot of money. And so I was like, That one thing needs to work really, really well. And now I look at it as more of a diversification place. So for instance, last year, when the market got crushed, I mean, the stock market, you know, my real estate book was flat, if not slightly up. And, you know, my wife has given me a really hard time about shifting money away from the market, into real estate. And then, you know, last year, I said, Look, you know, our number one performing asset, and the book was our real estate assets. And, you know, and that's, that's what I like about him. And the other thing I like about him is you don't have to sell on the market bad, you don't have to sell them if you if you if you put the right amount of leverage on an asset. You know, even if the market goes down 30%, you don't have to sell it in look, I do think real estate markets are pretty resilient over a long period of time. If you have the ability to cashflow, and hold an asset for 10 years, you can make a lot of money on it, even through the downturns. And so I never count on appreciation, and it doesn't even exist in my models. So I just, I just focus on cash flow. And that's a tricky thing, too, because a lot of assets you can't you can't touch because, you know, the prize assets are not going to have great cap rates on

Brandon Hall  19:01

You mentioned that you had some bad deals. So let's talk about some failures. What What were these deals in 2008 2009 by chance?

Chris Hsu  19:12

No! There were deals that did before that and I was trying to sell them in 2008 and 2000. And actually, the worst one ever was single family home had crushed. I mean, the rents were double what my hauling expenses were just cash flow like crazy. But we wanted to sell it because we're getting to the end of the two to five years and wanted to take that money and invest in other assets. And we got an offer it was really good it was but it was like 5% below our asking price. And we're like no 5% below our asking price. No way. They're lowball on us. And like we said no, and then market collapsed. And we, you know, held on to that property for a long time, and ended up selling it for 30% below 40%. Below like, is this kind of like, it just taught me a lesson about the rational nature of pricing, like an assets worth what that last person is willing to pay for. And, and I learned that lesson the hard way. And by the way, if you throw on carrying costs and worry costs and everything else, maybe I should have taken that off for a run. So yeah, that was a important lesson. The other one, roof issues, and plumbing issues kill you. And they kill you, they kill your returns. And like, you know, if a property looks gray, but it has a roof issue, and make sure somebody goes and actually gets on that roof and looks at it, it's going to cost you a fortune. If it's got plumbing issues, you can't see plumbing. I mean, especially the old buildings, you know, I got one right now that, you know, is just constantly, every two weeks, there's a major plumbing issue. And I probably poured 20 grand into this. Yeah, in the last two years. Now luckily, everything else about the buildings working really well. But like, plumbing is eaten up almost all my all of my profit. And my whole knock on wood is that as we kind of knock out each one of these things that stabilizes. And we would get to a point where we're not seeing that but like, you know, those are the two big big issues. That that over many, many years, I've seen that care will eat up your your profits.

Vikas Gupta  21:51

If you own rental units, but don't want to pay for expensive software, check out Azibo, the smarter way to manage your rental properties. With Azibo. You can automate rent collection, find quality renters, simplify accounting and tax prep, get a bank account designed for real estate investors, and save on rental property insurance. All of these services are free through Azibo. Join 1000s of real estate investors who trust Azibo to manage their rental business in one convenient platform. Sign up today azibo.com/HRE.  Is there something that you wish you had done differently with this particular property that you think might have given you insight into these issues? Or is it just one of those things? You can't see it? You can't see it?

Chris Hsu  22:42

That's a really good question. I mean, I really wish there was a better way to inspect plumbing. I really do. I mean, it's it's, I don't know the best way to do that, to be honest with the inspectors, they just look at it from the outside, you can't really tell if there's a plumbing issue or not. I think sellers are not very good about disclosing those issues. And so if there's not, so there's not a lot of recourse around that. I think I think that that would be my biggest issue as far as everything else related to diligence, I think was was good. I think one other thing was, there was a structural issue. There was a big patio that was out overlooking a kind of a ravine. And a lot of our tenants were, you know, barbecuing and hanging out out there. But like, you know, inspector came in and said, this thing is structurally unsound. And, you know, it cost me twice what I negotiated to repair that thing. But it's like, you can't, you can't have a structurally unsound deck. In your I mean, the liability associated with that was just huge. So you just, you know, bite the bullet. So it's those things. I mean, I'm what I do now, Vikas, and, and used to do, but I kind of got away from it is I just put a big capex number in the building, just assume you know, 10% 5% to 10% of the purchase price, you're going to need to put back in and repairs. If you just can't see, you can't foresee all of them You budgeted over, you know, 5-7 years. I also, you know, I, I tend to put a little bit less leverage on my rental properties only because, you know, I'm trying to cash loan and, you know, leverages, you know, my cash flow there. Yeah, there's cash flow, to me includes interest payment It's like you have to deduct that. I don't take principal payments into my cash flow count, because I basically principle to me is just Is it paying yourself dividends? So because you, you're just getting more of the equity. So I look at it more from from a debt perspective, what is, you know, what is my cash flow net debt payments, meaning the the interest portion?

Vikas Gupta  24:20

When you're building your model on that five or 10%. Right? Because if you're, if you're levering up three to one, then that's a pretty substantial increase on the amount of equity cash you need to have on hand. Are you budgeting that upfront? Are you budgeting that over three years? Like how are you thinking

Brandon Hall  25:27

What's one thing that you wish you had known two to three years ago? Like, if you go back in time and give yourself a piece of advice, maybe going into 2020? What would that be?

Chris Hsu  25:38

Well, I mean, maybe take that question and roll it back a lot, a lot. You know, 20 years, I would say that I wish, when I was dabbling early in my real estate, entrepreneurism, that I would actually have gone from single family homes, to quads, and apartment small apartment buildings earlier. Because the headache of a single family home is greater per unit per person than, you know, an apartment. And, and I wish I would have had the, the, you know, kind of the risk tolerance 20 years ago, to get into small apartments, and, you know, anything from 10 to 50 units. I mean, I think once you get above that, that's kind of starts to become a full time gig and a lot of capital at risk, and you need, you know, it's just a different animal. But I do think that there is a real benefit to having scale in one location, and you just you can generate more income off of off of less headache, I guess, would be that, the way I would think about it, I wish I knew that 20 years ago, and it was interesting, people probably said it and told me that but like, at the same time, I didn't have the risk tolerance nor the capital to do it. But that'd be the advice I'd give young folks that are getting into this space, and, and, you know, have had success with two or three these things is, you know, take some risk in and go for more kind of scale. Don't go beyond the means that you have but looked at take, you know, a couple of single family homes into, you know, quad apartment building, etc. And the principles that you use to manage single family homes are the same. It's just you just get more scale, is that that'd be one piece of advice that I give folks. And yeah, I know, the other piece of advice I would have given myself in 2020 is to take a shitload more debt. Sorry, you might want to strike that. Like, I mean, interest rates are dramatically higher. And, man, I was probably a little bit too conservative on the debt side, I wish I had a locked in more, more debt at the rates that we had back then. I mean, I think I was choking on a it was a four and a half percent loan on on my portfolio, I find that I basically bought bought it all cash, and then did a kind of a dividend recap refinanced it out. And, you know, I didn't I think I probably went at 50% leverage, I could have gone higher, I didn't. But if I did it again, all over. But a lot more on it. Just because rates are were so low back then,

Vikas Gupta  28:43

I'd like to switch gears and talk a little bit about your inspiration for founding Azibo. And how you went from spreadsheets to software.

Chris Hsu  28:55

Look, I think it was a combination of a lot of things. I mean, I had spent some time at at a venture firm, as an advisory partner to entrepreneurs. And you know, but as an advisory partner, I was basically helping them build their business or scale their business, they had already been through the phase that Azibo had just just just gone through, which is start up to, you know, real business that scaling. And I was bringing kind of my experience to help them get to that next level. And I was so inspired by these entrepreneurs that had built these businesses from nothing with literally a whiteboard, and on a wall and and then all of a sudden they're they're leading scale businesses that are global in nature, and it's all software based. And I'd spent a lot of time in my career in software. I'd also spent a lot of my career in financial services. And so I met some other entrepreneurs that were thinking about an idea and some other investors who were Thinking about idea of creating a financial services platform for that small independent landlord, based on the backbone of a bank that was designed for the use case of landlords. And given the intersection of like, you know, being an entrepreneur and real estate, having spent a lot of time in, in Financials into having built a lot of software, I thought, wow, this is, this is what I want to go do. And you go from a big high level concept of like, there's a gap in the market serving independent landlords with a financial services to like, What the hell do we do? And, you know, I jumped in and partnered up with some of these guys and got some funding from the venture capital community. And then, you know, there was this this kind of romantic period of excitement like, Oh, my goodness, I'm gonna go build this like amazing juggernaut of a company. And I'm an entrepreneur. Now, you know, I'm not a what I used to call myself as a Wantrepreneur, you know, and now I'm an entrepreneur or entrepreneur, so a wants to be an entrepreneur, but never does it. You know, I kind of jumped in with both feet. And then I realized, like, wow, there's a big idea here. But that's about it. You know, what, next? And I'll leave you with that. That was a kind of a moment of truth.

Vikas Gupta  31:31

Yeah. Thank you, Chris. Well, the what next worked out well, for me.

Chris Hsu  31:36

That was what next what next week. Next? What I realized I needed actually somebody who could like, lead this whole thing.

Vikas Gupta  31:43

One thing that I wanted to ask you based on, it's come up a few times, you've talked about cashflow over appreciation, and you've talked about a strategy of buying, stabilizing, and then either selling or maintaining, what does that stabilization stabilization process look like? Does that mean you're buying assets that are cashflow negative, and you're bringing them up to cashflow positive? Or they're already cashflow positive? And you're just trying to make them look better?

Chris Hsu  32:11

Yeah, that's a great question. So there's just when you do a transaction, where you have existing tenants, there's just a whole period that could last months of making sure you get the deposits, right. Like, you know, there's no easy ways example, as you buy a, you know, 20 unit building 10 unit building, and making sure that all the records associated with that prior landlord are solid, and that you you're then circling back with each tenant to make sure that you what they think that you have is what the landlord gave you. And that took us on, you know, on my last building, apartment building that took probably six months because the landlord had terrible records. And I was going back and forth with the tenants around, well, I look, here's the receipt for the check that I gave him my cat deposit, it's like, you know, that's not in, I think there's a real opportunity for a platform like Azibo. To make that process super easy. Where it's like, the the leaving landlord has to say, here's what I have, for each one of these tenants, the tenant has to verify it, then the gaining landlord gets all that information, and it just flows right into the system. There's that there's getting them onto a new rent collection platform. So the building I took over was all checked. Well, I went I just immediately do overnights and I don't accept checks at all. I feel like I hate checks. I hate them with a passion, even though Azibo allows you to deposit the check. My wife came in my office the other day, and she goes, there's a stack of undeposited checks on your desk. It's like I'm sorry. Like, just as a pain, where's Azibo just goes in and I open that thing up. And it's like, oh, there it all is done. I don't know about other landlords, but I literally it takes me three months to deposit a check just because like, second, I'm lazy. I just have to log into my mobile app. And then like, take a picture of it. But I didn't like take it, take it take it like do all this stuff and like, yeah. So anyway, so that's another thing like you gotta get everybody on a payment system. A lot of tenants aren't used to using a payment system because landlords have been doing checks so they have all kinds of issues. So then you're back and forth with tenants making sure that all of that then by the way, the next thing that happens, and Brandon, I don't know if you've seen this, but like, then all of a sudden he's like, oh, here are all the maintenance things that we told the last landlord about that they didn't do. And you go through them you're like, Come on, man. Like it's it's stuff that when you have safety issues and like just basic functionalities and my stove doesn't work well. Well, that would have been nice to know. So you gotta go through you gotta feel So all those things, right? And then you get to a point where you're like, okay, everything is now kind of working like security, like we have to put in security cameras, because the previous landlord took the security cameras with them. And, you know, like, one month in there was a breakout. And it's like, crap, the security cameras are gone. Switching over all the utilities, like it just that all takes, I don't know, six months to just get right. And then once that's right, and it's all automated, everything's right. Then it just flows. I don't know. Brandi, I, you probably had something to add.

Brandon Hall  35:40

Yeah, no, I was gonna comment when you were talking about you acquire a property and then you find out about all that deferred maintenance that the prior landlord did not do and also did not tell you about, I've had that same experience to you. We picked up a 20 unit properties 10 duplexes on one big plot of land back in 2021, and 2021. And yeah, that deferred maintenance it took, it's probably six to eight months of work and through, you know, I'll call them like maintenance tickets, if you will, but just just getting all the systems back in operational order that were not when we thought that they were so and we learned a lot along the way to about how to conduct better due diligence on these larger mismanaged properties. So,

Chris Hsu  36:24

exactly, that's 100%. And I think once you get to a point where you're like, when's it gonna rings? And you're done ring, you're like, oh, wow, okay, now, then you start getting into the issues that are just ongoing issues, like the plumbing issues, the, you know, the tenant that doesn't pay, which is remarkable to me on my on Azibo, like, my tenants don't pay, and they're like, oh, they sent me all these, like, literally the same tenants every month are late and every month is a different excuse. And I think they're now it's like, almost two years, I think they're starting to rotate excuses. And I like you've already used that one. But it's like, all you have to do on Azibo is use a credit card, and you get 30 days of float on that credit card. So it costs you nothing. So instead of paying, you know, 50 days, $50 for being late five days, and then $10 a day for every day thereafter, just use your credit card, and then don't like that's all you have to do. And it costs you less than then the five days late. And then oh, by the way, you don't pay all the rest of the late fees. And you could pay that credit card off in 30 days, and you're good. Like I did, I don't know, they just still they'd rather pay, you know, crazy late fees.

Brandon Hall  37:50

Well, and I can tell you from an accounting perspective, that's definitely the way to go have the online payment portal with your tenants rather than collect the cash rather than collect checks. Because not only am I very similar, it's like, yeah, I've got a stack of checks on my desk, that I've got to process and that is just the most like obnoxious task to do. But not only that, it it can make your accounting harder as well. And I can say that from my personal experience, but also through offering accounting services to landlords of various shapes and sizes. When you don't have a streamlined rent collection system. It's very difficult to scale your rental portfolio. I mean, that that is one thing that you have to figure out along the way is how am I going to at scale, collect rents and minimize my accounts receivable. Essentially, every rent check that's overdue, is a receivable you don't want that when you're a landlord, you want the cash in your pocket. So that's often something that we oftentimes something that we help kind of smaller landlords as they're transitioning to middle medium sized landlords help them with in my firm and my CPA firm

Chris Hsu  39:03

in Britain. I'll just add to that, because I think you're 100% Right. You know, if you've got electronic payments coming in, it's all automated and you also then automate your outgoing operating expenses from that same account. Look, you don't have to be managing that on a constant basis like it just it flows and as long as you look at your balance and your balances, you know enough to pay your mortgage. You're You're good. Like that's it and that's the way I kind of manage I don't even touch any of the the incoming and outgoing the bill the bills are all just paid and you know, any of the of the maintenance expenses get put onto the debit card and it shows up just like any other expense and you can tag it and put it in the right bucket. But like that ability, just have the in and out match. And you just look at the balance like that is to me the thing that like I just gives me so much calm

Brandon Hall  39:59

Well, that's also how you self manage, right? When you've got that system set up, you don't need a third party Project Manager, you can make phone calls to your vendors. That's all the property manager will be doing at that point anyway. So yeah, I mean, that that removes the middleman saves you 8% on gross rents, right? So you eliminate that property management fees, using good software to automate collections, automate payments, track, everything, ultimately pays for itself, through not having to utilize a third party property manager. Now I know some people listening are probably gonna be like, well, that's ridiculous to say, not to use a property manager, but like, I don't have a property manager on some of my rentals, some of them I do, but some of them I don't. And a lot of our clients to at the CPA firm, self manage now, where you see the property manager is actually adding significant value is those larger 50 unit properties where you've got the professional management that's doing market analysis and telling you and really enabling you to make better decisions. But like the for unit type product, you know, that's something where you can cut cut that property manager out relatively easily today,

Chris Hsu  41:08

I totally agree with that. I think once you get above a certain threshold, you're gonna need property management. And, you know, for the, the vast majority of the market that we serve, they're independent managed, because, you know, they essentially have anywhere from five to, you know, 100 units, you know, that once you get these things stabilized, like, for instance, I don't even think about a sales strategy. I'm not, like, my, my, the assets that I am accumulating once they're stabilized and cash flow, and I have a system, just generate cash flow. Like, you know, my, my kids kind of make fun of me that, um, uh, you know, why are you doing all those? Like, what, because they hear it from my wife, and you know, they give, and I'm like, oh, but it's okay, if you don't want that. And your inheritance is fine. I'll give you some.

Vikas Gupta  42:00

Well, great. This has been fantastic. I think lots really good insight and tips and lessons for our audience. I think before we wrap, we'd love to do our three closing questions, Chris. So question number one, what is your favorite book, and it doesn't have to be about real estate.

Chris Hsu  42:19

You know, the one that's top of mind right now is because I just gave it to my daughter to read and it's a book I read in high school and I reread recently. It's, it's Dale Carnegie's How to Win Friends and Influence People. It's an old, really dated book. And the examples that they use are like, from the 20s, or I don't even know what period of time. But it is just so remarkably true, on how to just create lasting relationships in in today's day and age. And the reason it came up is like, during COVID, I think we lost. And especially with all the video and everything, we just kind of lost that human connection. And so I listened, I read it, I thought it was formative in my childhood. And then I recently listened to it on podcast. And I just like, the lessons were just amazing. And it just comes down to basic things like, look people in the eye, face them, shake their hand, you know, treat them with the respect, like really, truly make people think that you care about them genuinely say please, and thank you. I just summarize all that. You know, there's, there's a lot more to it. But like, I just I, the reason why I'm excited about this is because I've got you know, I've got two teenage daughters and younger daughter and I just, they're going into this world and they live in this digital instead of whatever. I don't know all the stuff that they use anymore. And they're like this all the time. And I'm like, No, put that down and look people in the eyes and shake their hand and say hello, I am so and so. And anyway, so I was more focused on it for them. And then it was something that I just remembered, oh my goodness, this is like, truly one of the best books I've read about leadership, business. interpersonal relations.

Vikas Gupta  44:12

Thanks. Yeah, I think my dad gave me that book when I was in high school to

Chris Hsu  44:16

see, hopefully that's gonna continue to be a tradition.

Vikas Gupta  44:23

I certainly will. Maybe middle school if they're there. They're ahead of the curve. The second question, second closing question, which we've touched on quite a bit is, you know, are you a appreciation investor or cash flow investor or what do you think is more important when investing in? You've clearly said cash flow multiple times? So instead of rehashing that, is there any final thing you want to add with respect to cash flow versus appreciation?

Chris Hsu  44:49

I do you think the friends and a lot of friends that kind of hobby, real estate investment in the ones that have gotten in the most trouble? Were ones you put on lot of leverage, assuming appreciation. And, you know, I just think the combination of an appreciation model with leverage is dangerous leverage is a double edged sword. As you as I mentioned earlier, you can make a ton of money when you're lever up, you can also lose a ton of money. So I would just say that that would be something to really think about don't listen to the hype. I remember when we were investing, we started this little kind of club in like 2005. And everybody was like, Oh, you gotta you lever up and you're like, the markets going like this. And I was like, I'm gonna cashflow guy. And I was like the loser in the corner of the room like the cashflow guy, that's the cashflow guy. And everybody else was like buying condos on the beach in Florida, sight unseen, levered up, you know, auctions kind of craziness, and they all lost a ton of money. And cash flow investor, remember?

Vikas Gupta  45:56

All right, in our final question, is there any final piece of advice that you would like to leave the audience with?

Chris Hsu  46:03

I think real estate is something you just gotta love. I mean, people say it's in your blood. Like, there's a lot of headaches, and, you know, I complain about it a lot, is that, but but I like it, it's like one of those things where it's like, complain, but I like it, you know, it just has, it's just has to be in your blood, like, you gotta like you got to be willing to take the headaches. And then, you know, I also like people, and so like being able to evaluate like a tenant, like a great thing that I love is is like when you get a credit report from a tenant, somebody who thought they were going to be the perfect tenant, and you get the credit report, you're like, God, I'm not doing that. Is that that part of real estate that I love, but the biggest thing is, if you're gonna get into it, it's got to be in your blood. It's got to be something that you love doing. I don't know, Brandon, if you have a similar perspective.

Brandon Hall  47:00

Yeah, well, I kind of take that approach with anything that I get involved in. Just knowing myself and it's interesting hearing you say it too. I thought it's just a me problem. But like, I just I can't get excited. If I can't get excited about something, then I'm not going to do a good job executing whatever is needed to make that thing successful. So a very much, same same page with that if you're not like excited about real estate, if you're not excited about if you're not going to go read 15 books on how to make it all work. If that doesn't sound interesting to you, if you're not going to go and you know, call up local landlords that you're aware of and take them out to lunch. If all that sounds boring, then real estate is probably not for you.

Vikas Gupta  47:43

Great. Well, thank you so much, Chris. I think this has been an amazing episode. We really appreciate you joining us. No problem.

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