• Stay vigilant about your financial statements and to make sure that you are not being overcharged for services.
• The use of property management software is important for managing real estate investments effectively.
• Understanding the financial statements provided by property managers is crucial to identifying potential problems and maximizing profits.
• Choosing the right property manager for your investment can be challenging, but it's important to find one that is knowledgeable and experienced in real estate.

‍

Vikas Gupta  1:14  

Hi, everyone. Welcome to the hacking real estate podcast. Today's guest is Taylor Ho. Taylor is the founder and chief happiness officer at APM. Help, a company dedicated to empowering local property managers with enterprise level tools and strategies. With a background shaped by growing up as the son of a realtor and property manager and CPA Taylor never anticipated becoming a direct reflection of his parents professional expertise. However, he now helps over 1000 professionals nationwide and running their businesses more efficiently. When he's not revolutionizing the property management industry through Pay pm help. Taylor takes on the role of a dedicated tour guide for his three beautiful children, cherishing moments of family joy and exploring the world. Taylor, welcome to the show. In your own words. Can you tell us a little bit about your real estate journey? Yeah, absolutely.

Taylor Hou  2:08  

And I had no idea where you got this. This. I did. I typed this. Cool. Um, yeah, I guess my real estate journey. You kind of explained it. I grew up literally, you know, I remember in middle school, right going around and a little pickup truck my dad knocking on doors. Well, I didn't knock on doors. What that knocked on doors, collecting rents. Right? So this was definitely in the age pre ACH and everything right. And I think the other distinct memory I had was, you know, I live in the Houston especially right now in the summer, it is exorbitantly hot. Imagine, you know, 120 degrees outside, but going up into an attic, right? And going to have to like replace water heaters at rental properties. That was my summer gig. And we didn't have any tools or tech to help us. And so it was like you're draining water heaters. And there's the thought tankless back then, right? These are tankless water heaters, you know, 50 gallon ones. Yeah, hundreds of pounds. And like the hardest part is like trying to twist the water heater perfectly to fit down the staircase, the attic staircase, right? Like, it was ridiculous is tons of sweat. I mean, I've been doing rental property stuff since middle school. But beyond that, I think the main thing is straight out of college instead of going to a big oil and gas company. I was in supply chain management. That's kind of the thing that for you to do. I ended up joining a small startup at the time called AppFolio absolutely no longer is obviously a small startup and yeah, I was just customer support at that time became a product expert and helps 1000s their customers use AppFolio better.

Vikas Gupta  3:48  

Oh wow. I didn't actually think I know that you were actually Handyman in middle school. So that's that's pretty incredible.

Taylor Hou  3:54  

That's you know, families, family, visitors child labor, right.

Vikas Gupta  4:00  

That's the way you get the right margins, right, that off off income statement. labor cost. Absolutely. So how did you get from App folio to where you are today?

Taylor Hou  4:10  

Look, I've been an entrepreneur all my life, I guess I went to AppFolio lasted seven months before they fired me. And then essentially, I bumped around I did an a completely unrelated startup went to like 500 startups in the valley. It was in like video production. point was I was an entrepreneur, and then eventually moved back to Houston and got just started consulting prop techs, and we call them prop techs today, but obviously back then it's just like real estate startups kind of stuff. And then eventually, actually was invited to join another prop tech for a very close friend of mine. And it was called dynasty. And at the time, they were trying to do the stock market for real estate. And so you hear about like some startups like arrived homes and a bunch of people who are doing like fractional shares or securitizing you know real estate or rental property. Yesterday, we were trying to do that before the crowd funding bill passed. And so it was extremely difficult at the time, we had to get like a FINRA broker, dealer license all kinds of crazy stuff. And inevitably, we actually went from acquiring properties securitizing, essentially setting them up as an LLC that owns they're doing all that legwork. And then having, like I said, Hong Kong investor effectively buy shares into that property. So effectively ownership from Hong Kong with a click of a button. It was amazing. We proved like there's demand there was interesting demand here, then, not my decision. But if that's what this startup then kind of pivoted to a different direction, which was actually something related to property management, which is leasing automation, right. So now we hear a ton about these leasing automation leasing API's, they were actually doing it before AI, you know, obviously became this massive hyped up thing, this was way back in like, essentially 2017 2018. And essentially, after a year of pivoting, they sold a required by none other than AppFolio. And so that kind of brought me back into the AppFolio world. But while I was at this, this startup, my job was actually to find kind of like portfolios of rentals, that were cash flowing rental properties, and ultimately, like, stabilize them and work with that, how do we manage these things? Right, because at the time, it's like, you find a lot of these cash yields, not in tier one tier two cities, that tends to be your appreciation plays, right, you find the cash yield ones in suburb and Nan, kind of the New York, San Francisco kind of places. And that was, again, that kind of threw me back into the property management world having a worker, you know, partner with local property managers, and you have to understand right as regulated products, right, like, we had to have clean financials, we had to have financials we could trust because we had to report those to shareholders of those properties. Well, we found out pretty quickly, we couldn't trust anything, these local property managers giving us not because we couldn't trust them. But it was, unfortunately, because like most of them, they're not accountants, they're realtors, right. They're brokers, they want to help investors buy and sell properties. And inevitably, when these investors asked like, Well, I'm not in here, I'm not local, like, I need someone to manage this thing for me. And usually, an investor will ask the broker like, do you know, a good property manager? Right. And I don't know about you guys, but I don't know if I can ever say or recommend a property manager, right? Like, they typically aren't great. And a weird thing about the industry, obviously, I'm sure everyone's aware, it's just like, Most brokers and property managers have to have a broker's license. So if I'm a broker, and I refer to another property manager, I'm effectively referring my investor client, to a competitor, right? So there's tons of reasons why I shouldn't be referring. Right. And so then hence, you know, the broker, or your realtor who effectively helped you buyer or representative on that deal, now turns into your accidental property manager. And so we were working with tons and tons of accidental property managers, they're not accountants, they don't actually know what they're doing. And you layer on top, the fact that most of these are small mom and pop businesses, right, and they don't have the time or the resources nor the knowledge, unfortunately, to know how to learn and AppFolio a building a property where rent manager, these are big ERPs, these are big accounting software's Long story short, realize there's a huge problem. If we ever want to truly unlock fractional ownership in real estate, like at scale, where it's truly like a stock market kind of thing. You have to have consistent financials, you got to have controls in place. You know, like, that's a very long winded way to say like, we're currently I wouldn't say like glorified accountants, we love what we do. We clean up the industry, we clean up the books, and hopefully we then help property managers become much better.

Brandon Hall  8:50  

And so how did you make your way over to APM?

Taylor Hou  8:53  

It was, I'm the founder of APM. And effectively, after I left dynasty, we went our separate ways. I realized, like, if a dynasty or a future incarnation of a dynasty, where's the stock market, real estate really wants to achieve scale, they're gonna have to rely on local property managers, but you need the boots on the ground AI unfortunate is never going to replace that person locally. And that person, at least right now is still in charge of the finances. And so, you know, and it was kind of also a thing where this was early 2017 My wife was also like, Taylor, no more startups. were pregnant with our first kid, you need to make some real frickin money, right? And so I kind of had this ultimatum of like, Okay, I gotta bring home some bacon, or I think I'll get a real job at some big company and my souls gone, right, I lose my soul. So I kind of like the lowest hanging fruit for me was like property managers who used that folio who needed help cleaning up their books, right? Or they get hit with an audit, right, which is all fine, you know, accounting related. And so then they would find me on Facebook on LinkedIn. They're like, Hey, I remember you like what If we paid you, you know, hourly to help us clean up the books like AppFolio is not necessarily willing to help us do this, because I really just need someone to do it for me, not kind of tell me how to do it. Like, I just don't have the time to actually figure this out. You know, it's, you're pretty typical, I guess, founder kind of startup story of like, pay me right and start at $50 hourly rate. You know, now we're at $500 an hour for audit consultant, like consulting specifically. And we figured out pretty quickly as well, again, very, very lucky. Most entrepreneur journeys, like there's a lot of luck involved too. Right Place Right Time. You know, we had clients that unfortunately came back to us after I cleaned up the books and train their people. And they were like, Taylor, we're back in the same spot, are accountants were poached by a bigger firm, right? Or, you know, whatever, they retired, whatever reason, right? These are small mom and pop businesses. And so hence, your they're like, We can't keep doing this, right? What if we just paid you to do our books for us? And Brandon, I mean, you got your CPA, right? Like you have a firm like, this happens a lot. We specialize not in the corporate books of a CPA, like have a property manager company, but very, very specifically, the trust accounting properties accounting. And the easiest way to explain this as like a property management company typically will manage, let's say, 200 to 500 rental units. That's not one set of books, that's 200 sets of financials that you have to produce every single month. Right. So of course, in the world of software, software makes this a lot easier, but you should probably have some level of accounting to be able to use these things appropriately. Yeah, you know, I think it may be a disservice to the industry, but Lee AppFolio is the buildings of the world kind of say like, Oh, you don't need an accountant to use our software. Right. But then the on the other hand, right, it's like, but brokers who do property management are regulated, right, and and can be audited. What are those audits? Their accounting, their audit, and trust compliance? And that's all accounted? Yeah, I don't actually know if I answered your question. But

Brandon Hall  12:02  

no, it's all good. How big is APM? Today?

Taylor Hou  12:04  

Big? Or how big? And in what like, What metric?

Brandon Hall  12:08  

How big is your team?

Ad  12:08  

Okay, so I've got I've got over 200 people. Wow. Yep. So I guess decently large now? Yeah, I mean, getting continue, obviously growing. But I think right now, especially with the whole AI wave, that my job I think my job is is to maintain everyone that's currently here, while capacity improves, right, but because we're leveraging AI to make everyone much, much more efficient. 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 at azibo.com/hr E. That's az ibo.com/hr. Eat.

Brandon Hall  13:10  

Yeah, yeah, we're seeing the same thing and the accounting space as well. It's the same same sort of concept. Do you offshore any of your employees any important? Sure,

Taylor Hou  13:18  

yeah. So out of that 200. We've got about 50 or a quarter of them here based in the United States. And then the rest are now grants. We have a good bit of engineers as well, that are also global. But we do have a bit in like the Philippines, for example. So we see a lot of the real estate industry has, I wouldn't I wouldn't really call it outsourcing. But they've they're leveraging VAs or remote assistance. Right. and the Philippines in both places.

Brandon Hall  13:41  

Yeah, it's really common these days. I know a lot of people maybe listening to this might be like, Oh, my gosh, you're offshore. But I have a fraction probably not. If we got a bunch of software engineers listening to this are probably very used to that. So yeah, but the the CPA space at least has held out for a long time. I mean, firms have been doing it. But there's this like whole crowd that is very, very anti that. But now what's happened over the past 12 months is well, what's happened over the past few years is the CPA shortage has just become astronomical, like people are not graduating with accounting degrees. So what's happening is salaries have been pushed way up, and frankly, probably where they should be anyway, on real terms if you look at the past two decades, but now it's like really putting a squeeze on firms and firms are starting to look at outsourcing outsourced options that we offshore to we offshore in the Philippines and India. And it's amazing. I mean, you can you can provide great lives for those folks while simultaneously you know, being able to provide better service and higher efficiencies for your clients. So

Taylor Hou  14:43  

absolutely. And usually, I'd say like there's top two questions that people ask us in general because everyone's trying to think about it. It's an I don't want to discount how hard it is to make the first leap right like that first hire is the hardest hire and it is absolutely difficult. I obviously like we got very lucky, right? We posted on like online jobs.ph found one person or two, those two people are still with me today, even six years in one of them. Bless her heart her name's blushy. I'll give blushy a shout out. She ever hears this. But like she, she helped me go from her and one other person to 150. And she led that charge. Right. So I got again, exorbitantly lucky to have like, my first hire actually was able to help us like scale that team

Brandon Hall  15:30  

my, my first outsourced hire, or offshore hire was also in the Philippines. And you talked about like making that first jump. This is what we talked about with our clients too, because it's like, yeah, you could totally go and do it. But let's tell you the story about when Brandon did it three times and failed every single time. Because I remember the first time I did it, I was just like, Oh, it's just like anybody, you know, they get it. They have an accounting background, they'll be fine. You hire them, you go, Okay, here's three days of training. You got it. Good. And then you review the books. And you're like, why are you booking? Lowe's, two food costs like that's not this Lowe's home improvement, not not Lowe's grocery store, and, you know, they're just not. But anyway, so what we do now is we have this entire guidebook for them. And it's full of videos and full of written content that's very easily searchable and indexed and everything and that that was the unlock for us with the offshore team. But that takes a lot of time to put together, right?

Taylor Hou  16:26  

Oh, no, absolutely. Because like, we're still in the mode of like, we're still doing cohorts, and then we'd do trainings and realistically for us, because we're also not just your typical accounting, per se, like we're very client or it's trust accounting is a little bit different. I mean, yeah, we have a three month process of training initially, they've got to be able to pass that obviously. And then beyond that, even just going from your the behind the scenes bookkeeper to let's have you actually do client facing stuff. Oh, man, that's that's a whole nother jump as well. Absolutely. The lives that we're able to support. It's fantastic. Obviously, a lot of people are like, hoping you're paying them so little. It's like, a lot of times we're paying more than Doctor wages over there. You would be shocked. Yeah. You know, they live better lives than I do here. Right?

Brandon Hall  17:13  

Don't bring that up on Twitter, though. Yeah, yeah. Yeah, no, it's it's good. It's, it's a good business model. And now AI is coming in, it's gonna make everything it's gonna make everybody more effective is going to expand anybody's ability to work on more things, or higher level things, which is just great for everybody, in my opinion. So Taylor, kind of shifting gears a little bit. Do you have a real estate portfolio?

Taylor Hou  17:38  

So I do, but I, so I'm, I don't know how old I look. But I'm 31. How old? Am I? 30? I'm 34 right now.

Brandon Hall  17:47  

Yeah, that sounds pretty old. If you can't remember your age, I'm just

Taylor Hou  17:53  

scare. I don't know, you know, how, what typical size of real estate portfolio people, you know, with a 34 have, I think my story is, you know, my first townhouse that I bought downtown Houston, right, like, that's my primary residence for like, three, four years. And then during COVID, like, was able to effectively move to the suburbs, but then I turned that into a rental. So you're pretty typical, like, got my fantastic sub 3% 30 year fixed rates. Obviously, we're benefiting from this, but I also got into a market pretty early. So that's one. And then, you know, the real estate that I personally own tend to be related to. So I also have I happen to own property management companies myself as well. Oh, cool. And so in a lot of states, like Colorado, as an example, to be a licensed collar, like property manager, you have to, unfortunately, have a brick and mortar address. And so like, I kind of use that as an excuse to be like, Okay, let me go, you know, acquire a property, like actually buy an investment property, where my team actually is. And so, you know, there's obviously a lot of tax advantages to doing that as well. And so, yeah, so I have two other properties. One is wholly owned up in Oregon, and the other one is actually a little mini partnership with some friends.

Brandon Hall  19:05  

So on the property management businesses talk to us about that, like, what what made you get into it? And do you own a majority stake? Are you like, kind of like a passive investor in these businesses?

Taylor Hou  19:16  

Yeah, sure. So, you know, this, this was actually something that I would never have. Thought I would do. Let's just put it that way. In the course of my primary business, which is 8pm help. You know, we're cleaning up property management company books, we're trying to get them to pass an audit. We're trying to make them better. But a lot of times, there's kind of two scenarios that would happen. One, they'd come to us too late. They're ready on a suspended license. Unfortunately, they've been through an audit, they failed it or didn't pass, and they put on a suspended broker's license, and then like, usually a year and maybe a year to 18 months later, they come back for a follow up audit. And on the follow up audit, what's really actually happening is they're trying to see Did you fix this things? We can't earlier. And if not, we're revoking that license. In certain situations, when that happens, it's a very abrupt, your license is ending in like tomorrow, right. And in those situations, it's a fire sale. But it's even worse than a fire sale, because it's not like there's a liquid market of like, property management companies being sold. Like this is not like stock where you can just buy and sell it, right. And so, in those situations, you know, the people who end up getting hurt, obviously, tend to be the employees of those companies, but also the renters, right, the renters and the landlords that have entrusted the property management company to manage those properties, it's a really jarring experience to like one day just get like this notice, like your management company shut down. And sometimes a lot of times, it's like from the regulator that says, this is a, you know, license suspension, they are no longer operating. And you kind of like you kind of like left holding, like, Well, what do I do? Where do I send my rent, the owners are like, well, who, who's gonna manage my property. So in those kinds of situations, we've been able to, you know, federally have a playbook to come in and kind of white knight like, take over, stabilize it again. And of course, like, make sure all those violations are all the issues that were there are no longer there, and get them to the point where like, it stabilized, everyone's happy and we have not impacted like the community, right consumers, who are the renters, and of course, the owners. So I've done that a couple of times. And then other ones tend to be also, you know, these are small mom and pops, I'm pretty sure everyone, right, like, understands, like, you build kinda you these businesses, you build a real estate investment portfolio one day, you're gonna die, right? One day, it's gonna all come to an end. And usually, most people are like, Well, I'm gonna pass it on to the next generation. With real estate, that tends to be a little bit easier, right? Because real estate doesn't come with employees and feelings, right? Like you're passing along an asset management company. On the other hand, I don't know about you guys. But if you grew up in property management, you probably want nothing to do with property management, especially like running a management company and dealing with all those issues. And so we saw multiple times where, essentially, a lot of property managers like they've been in it for 3040 50 years, they're still running it, because their kids just don't want to run it. And so we can you kind of kind of see two examples where like, it's kind of forcefully handed down to the kids. And the kids are like, I don't want to deal with this. And so then just things start unraveling. Or you see a management company sold to a competitor, that's typically a real estate broker that sees property management as Oh, that's a, you know, 200 rental units, that's 200 Commission's that I can get, right, they see it as leads, they don't understand that when you manage properties, there are a bunch of other regulations and things you have to do to make sure you're running these properties. Well, right. And so then you end up you know, I don't know about you guys, but if you see a bank account with, let's say, $500,000 in it. And yeah, you know, like that $5,000 of security deposits. But you also have to realize, after see, you know, having access bank account, like the balance never really goes down. You know, like, it's always like 500,000, like for ad and then 500,000. Again, like, you know, nobody's really using the 480,000, that just kind of sits in there, right. And so unfortunately, we've seen too many times where people who don't actually understand the business of property management, the regulations come in, see a lot of money sitting there, and then go and buy a boat with that money. And that obviously becomes a problem. Our mission, right, that APM help is to clean up the industry try to make it better, right? Obviously, when we kind of see these things happening, we're just like, how can we prevent this? And so we lost the resort, we've kind of had some opportunities to come in, you know, when we realize an owner needs an exit, right? We'll kind of come in, put our hat in the ring and say, Hey, maybe if you guys are interested, we'll you know, we'll do something. Now, technically, I've not officially done it under APM help. I've done it at under a separate company. I am a majority shareholder in that company.

Vikas Gupta  24:13  

I want to come back to well, I want to come back to a lot of what you said. But there's one thing in specific so you were telling talking about how right a property manager can get into trouble. And then they may just have to, you know, their license gets revoked, and they have to, you know, dispose of or the business has to go away immediately. So for me, not in the property management business, but thinking about it from like the landlord side. Like that sounds like a nightmare scenario. So for our audience who might be worried about their property managers or might be looking for a property manager, like what are like what is the diligence they should be doing? What are the top things they should be looking at? And like what are the red flags that they should watch out for?

Taylor Hou  24:54  

Fantastic question. I don't know if this is, this is a leading question or not, but I appreciate it. My The answers are always there typically to be accounting related, because that, that that's what we specialize in. But I can tell you right out the gates, for example, if I was an owner and I was evaluating a property manager, one of the first questions I'd be asking is, when do you send distributions? Right? And there's not technically a real answer here or a right answer. It's more so how they respond. I'll give you an example of how they will respond. One could say, oh, we're gonna send you a distribution on the 10th. No matter what, I would say there's a red flag there, if they say that. Another one, which realistically is probably the most realistic answer is, we actually have no control over when we send distributions, right? We are kind of beholden to when rent is paid. So once rent is paid, and it's finally cleared our bank, then we try our best to not hold on to your money, we're going to send a distribution as quickly as we can. Okay. And usually that that revolves around some kind of cycle, right? So it's gonna be as close to let's say, you know, that soon as Friday, let's say of a month, okay. But then now you have some interesting new solutions that are come out where it's like these property managers have. And we offer a solution like this, where we're actually guaranteeing a rent roll for a property manager to enable them to actually make distributions on time consistently, every single month. Right? So those are really, really innovative and really, really new. And But realistically, just timing on distributions, timing on certain things, can really help you understand like, how truly does this property manager understand what they're doing, and what the limitations are. And I'll go back to that red flag I was talking about earlier. Unfortunately, a lot of times what we hear or see is someone who's like saying, I will guarantee you your distributions will be sent on the 10th, let's just say, or the fifth of every month, well, we tend to see in those situations is they're actually borrowing other owners money to front you your rent, or your distribution. property management companies, they're not liquid, it's not like they have a million dollars in the bank that they can just keep fronting money on. Right. So inevitably, what ends up happening is they're guaranteeing it by essentially dipping into security deposits, to essentially guarantee that your distribution set and that is absolutely highly illegal.

Vikas Gupta  27:16  

Got it. So one red flag, big red flag, if they guarantee rent distribution date, what's another one I should be looking out for?

Taylor Hou  27:25  

So specific now this is one not necessarily one you can do before you pick a PM. But like, if you're working with a PM, and this happens to you, these are the typically reasons why people will change or start looking elsewhere. If they ever bounce your distribution, they bounced a check. That's a problem. Realistically, if I was an owner, I'd be asking for monthly financials. I mean, if they cannot produce your monthly financials on a timely basis every month, that probably means they're not even doing a bank rec, right? I'm sure Brandon is well aware of how difficult it is to do a bank rec on a timely basis. Right? Regardless, for it doesn't matter what company or what business banks tend to be the last thing on anyone's minds. But at least in our world, we see it as it's the most important thing to be doing. Because if you can't reconcile the books, you know, nothing else matters, right? The accounting you I can I can give you a million dollars in income with a journal entry, doesn't mean it actually happened.

Brandon Hall  28:20  

It constantly shocks me how many accountants just don't reconcile to the bank at all, like ever. Because when you start doing that, you start seeing the journal entries, you start seeing duplicate payments, where the software messed up or, you know, oh, our bank connection failed. So reconnect it and now we've got 30 days of duplicates that we're not reconciling out, it's, it's pretty wild. But that's the ultimate form of accountability to it's just like, that's your ultimate matching to make sure that whatever you're putting on that p&l actually happen.

Taylor Hou  28:50  

Yep. For what it's worth, right. Like we try to lead the charge for our industry. And we do daily bank recs literally every single day. We have a team and department and software that goes in looks at their bank transactions, and you know, clears off the transactions in your software, right? If it if something's not matching, you betcha we're gonna send the PM, we're gonna send your property manager, hey, here's a discrepancy. Like, why is this not in the software? Or, Hey, did you realize that, you know, you actually left off a digit right or a zero, you know, like, but again, like, the reason, quite frankly, why we do daily bankruptcy as well as like, if you do it monthly, right, like, property managers are busy Majan you do it monthly. And guess what, at the end of the month on the statement hits, it's rent week, rent weeks, one of the busiest weeks for a property manager, right? So they're not going to get the bank rec done and rent week. So now you're really actually talking about 4045 days out, and 45 days out if you had a discrepancy on the first of the prior month. Or you can remember, right like now you're spending extra time trying to dig up and figure out like what this transaction was and we're not even talking about having multiple team members, right? Like we're just talking about you so you It's a sore topic for us. I'm sure Brandon can relate. Yeah, I mean, so thought of is going back to like, other things that you should be looking out for, like, if they cannot produce you financials, like if you ask for it, and they, they don't just go into their software, run a report and send it to you, I would say there's a flag there, they should be able to do something like that, especially if the month has been closed out. If we're sitting on the second day of the new month, and you're asking for the prior month, okay, fine. Maybe realistically, they're not done yet. But let's just say, you know, worst case, right? You're in the second month, right? We're in July wanting your asking for May, that no question they should be able to give you may financials?

Brandon Hall  30:42  

And how long do you like, let these issues go before you terminate and move to another property manager?

Taylor Hou  30:52  

I think that, unfortunately, depends on where your properties are.

Brandon Hall  30:57  

Right? Because if you're in a tertiary market, how many options do you have?

Taylor Hou  31:01  

Exactly? So so that that that tends to be? That's why I would say, like, yeah, look, if you're in tier one market, you should be looking the second they are not able to respond, right. But if you're in, you know, again, a tertiary market, right, you really only got like one or two options. Unfortunately, those other options probably aren't even that good, either. Right? So it's definitely really tough. That and that tends to be you know, one of the things like, we would suggest in that situation, shameless plug is like, those property managers need help. They should really be you know, as an owner, I'd be pushing them to say, hey, you know, you like you need help. Why don't you go research this Google, you know, experts, right, go go Google some property accounting experts and see if they're willing to help you.

Brandon Hall  31:45  

So I have a three unit property and a tertiary market, Hickory, North Carolina, used to be furniture capital of the world until China started building all the furniture. So everybody left hickory, but a lot of the property managers in that market are and I guess, you know, I haven't used all of them. But I've used a couple. They don't even know they know what software is like. It's just fascinating. It's like, you have to be the software person. And but luckily, we work with an amazing property manager. Now they actually they're from Charlotte, and they acquired a for a property management firm in Hickory. So they expanded into hickory, and they use AppFolio. And they all I'm like sitting here like taking notes because I'm lying. Yeah, yeah, my guy. He checks that hX hX. We're good. We are solid.

Taylor Hou  32:32  

So hickory reminds me what is what do you mind sharing? What is this property? manager's name? It's

Brandon Hall  32:37  

Scarlet properties. Scarlet properties, okay. Okay. Okay. All right. Actually, great. If you are investing in Hickory, Charlotte, you should use them because they're great.

Taylor Hou  32:47  

Yeah, very good. I'll give you one more one more tidbit when it comes to accounting or financials with property managers, if you ever see because unfortunately, this happens, especially with AppFolio client property managers, if you see a beginning balance, and an ending balance, not match when they give you different statements or different cycles. There's a big problem. I think a lot. A lot of people don't understand this. But property managers they make money from you, the landlord, right, they make money, obviously, collecting rent, but really their customer is you. And look, I'm in the property management world, there are literally classes and courses on fee maximization, right? Like how do I maximize the revenue per door that I manage? Right? And so you kind of have to understand from the property manager standpoint, right, they understand this or most of them do. And so, you know, late fees, app fees, like move in fees, right, like all these kinds of fees, you as the landlord probably are none the wiser, you probably have no idea that they're charging your tenants or your property, these fees. But in reality, those are fees that the property manager is gonna make. So I would say just when you're evaluating PMS as well, you know, the typical, you know, fee structure is like eight to 12%. Right? If you're looking at pricing, and you're shopping, and you see like, Oh, this one's flat fee, it's $79 a month. Right? Like, I guarantee you, they're making it up elsewhere, right? Like, you absolutely pay for what you get in this industry. And I would say you absolutely want your property manager to be incentivized to benefit you. Like the more rent they collect, they get paid more, don't let them do a flat fee thing. Because if you're doing flat fee, they're gonna be charged. You're the one who's paying for their profit, I guarantee it.

Vikas Gupta  34:35  

You said look for if the beginning balance and ending balance on different statements don't reconcile and then or don't tie and then you talked about different fees they could be charging. So is is the mismatch in the beginning and ending balances indicative of fees that they're charging are those two, and if so, like, how do I identify that?

Taylor Hou  34:56  

Yeah, so that specific issue has to do with what's called support Last fees, suppress fees or fees or income that are pass throughs from the property back to the property manager. And many, many times, they'll like, essentially, there's a mismatch, what's happening is like, in one month, like they collected it, but then in the next month, maybe they refund or they over collected, and then there's some mismatch that happened. And so when they rerun or run the statement for the next cycle, something happened that they changed the past on. So hence your beginning balance is no longer going to match the ending balance they sent you previously. That kind of stuff happens a lot. Yeah, it's the bane of like Brad and his company's existences. Right when he when he gets, you know, financial statements that aren't matching. He's like, what happened? How can the history change?

Brandon Hall  35:48  

Oh, my God, I haven't. So it's like, it's every month, you because you're totally right. So you go through it, because here's what happens, right? Property managers, they cut your check, and it hits your bank account, but the checks 6000 bucks. And so the question is, how did we get the 6000 bucks? What is everything that went into 6000 bucks not to go not to go look at the property management statement. And what you know, if you're on like a 20 unit property, it's a lot of work to go and split out the 6000 bucks, because now I gotta go and figure out what were all the rents collected on all the 20 units? What were the utilities, what were the repairs, and I've got to go and basically go into QuickBooks split out all that stuff up, and then the net amount is $6,000. Right? So that's how we know. But then the next month, it's like, well, wait a second. Things aren't matching up. Right? We've got a beginning balance, that the classic one this is this, how we always find out the classic one is we always look at the I don't remember the report in AppFolio. And it's basically a rent roll that shows how many times the person has been late and what their outstanding balances.

Taylor Hou  36:51  

So like probably a delinquency report or something like that. But yeah, yeah,

Brandon Hall  36:54  

delete it. Thank you. Thank you. Yeah. So that one always wigs us out, because because in this one month, you'll see you know, Joe Schmo has 600 bucks outstanding. And then next month, you see Joe Schmo has $483 outstanding, and you're like what? And then you go through the report, you're like, Okay, I don't see any payments from Joe Schmo. So how did Joe Schmo was? Like, where did they get reduced? And then they're like, Oh, well, we applied some of the security deposit. You're like, What in

Taylor Hou  37:23  

the world? Yeah, we apply it? Yeah, we applied there. We adjusted the charge. No. And Brandon, you reminded me because like my firm, we actually attempted to do bookkeeping for like landlords who had multiple property managers reporting to them. So we were in QuickBooks Online. And we did not realize how difficult it was to bookkeeper for a landlord. Right, especially like, property managers have different times date, like, like one will send you distributions reports on the 10th. The other will do on the 15th. This one will do it on the 30th. Right. And then, on top of that one thing that $6,000 distribution you got let me make this very clear for you guys. That is not income. That is also unfortunately, not always net, either. Your distribution is just what your property manager happens to want to send to you. Right? They could be holding on to more money as well. Right? So don't think because a lot of times people are like, Oh, well, that's it. Like, like when it comes to tonight, and I write urine reporting and tax law. Like they're like, Well, I got this amount in my bank. Why are you telling me my income is this amount more? Right? It was like, Okay, well, again, the amount that hits your bank is not income. That's the distribution amount, right? Or that's your disbursement. That's, you know, that's your owner payment. That is not the income you collected minus the expenses, right. And so,

Brandon Hall  38:49  

it is it's very challenging, you're absolutely correct. If you are doing the accounting at the landlord level, it's, it's hard to do and to Azibo credit, since this is an Azibo podcast, that is what they are trying to help solve, which is awesome, because you need that. But even at a certain point of scale, when you start outsourcing that to some accounting for our man, it is, that's tough.

Taylor Hou  39:14  

Well, and no offense to the Brandon Hall CPAs of the world, but most accounting firms and local firms don't specialize in real estate or property management. So when they're getting different p&l, different reports and God forbid property manager software's their owner statements do not tell you the whole picture, right and Owner Statement is almost useless, right? You really need to be getting a Statement of Cash Flows p&l balance sheet, right like your standard sets of financials for your CPA account to actually do anything meaningful. Otherwise, like an Owner Statement from employee was an example most of these it literally just cash in and cash out. What does that mean? Cash in like that could be security deposit money.

Brandon Hall  39:56  

Exactly. Sometimes we just transfer our security deposit over Yeah.

Taylor Hou  40:00  

Yeah, they're just transferring in and out secure deposits and owners are like, Wait, that's income. And I was like none other than that, that's the property manager collecting a deposit, and then transferring it suck because they forget, they're transferred it six months later to the security deposit account, you know, like, all these kinds of things like property based or property management, accounting, real estate accounting, it is hard, right? Especially when you have different software's and people who don't understand accounting, trying to figure this stuff out. Right, let alone local CPAs. Who are accountants trying to figure this out? It is just extremely difficult, hence why you hire experts.

Vikas Gupta  40:37  

It sounds like if I'm in the market for a property manager, the first question I should be asking them is do you use APM? Help?

Taylor Hou  40:43  

I love that one day.

Vikas Gupta  40:46  

So Taylor, I have to ask, you've said a lot about at folio so far, is there anything else that you'd like to say about them or other PMS is in general,

Taylor Hou  40:55  

I should note very quickly, we love at folio. I only, you know, my personal experience has been primarily with that folio, right? I used to work there. My first, arguably hundreds of customers were all at folio customers, and so at folio was what we live, breathe, eat every single day. But I should note, like, all the problems, let's say that I had maybe mentioned with AppFolio. These are problems in general that exists with all of the pm software's right, it's not limited to just AppFolio. Now, they may not be the exact same issues, but they all have their quirks, and they all have their issues. And usually, I would say almost the number one question people ask us is like, what's the best software? What should we use? And I almost always now respond with it's the best software to use is whichever software you're already currently using, right? Like, unless you're coming from let's say, QuickBooks or spreadsheets, fine. There are absolutely better alternatives. But if you're already on building them, or you're already on AppFolio, realistically, those software's they're all feature parity, pretty much between each other, right. And so what you should really be thinking about doing is cleaning those cleaning up that database, and then really investing the time with yourself and your staff to actually learn those software's. And that's really hard, don't get me wrong, that's a really hard thing to do. And that, ultimately, is why most people have a lot of these problems with these software's, right, it's because the unfamiliarity with these systems, it's akin to like, let's say, moving from Windows to a Mac, or Android to an iPhone, right? Like, there's always going to be differences. And if you don't actually invest the time to learn them, you're probably just you know, on your phone, you're just going to be using messages and phone calls, right, and the apps that you already use, and you may not necessarily fully take advantage of everything that that new, let's say software hardware is going to

Vikas Gupta  42:46  

give as in pretty much everything software, it's not the magic wand, right, you actually have to implement it properly, use it properly, and train your folks to use it properly. And if you put the right information in and you set it up properly, you're gonna get a lot more out of it than if you just sort of try and make it work on the fly.

Taylor Hou  43:03  

A fair job for all the pm software's is they all tend to say, you know, if you switch to us ever, all your problems go away, let's be realistic. Realistically, these are massive big ERP or enterprise resource planning, software's like everything to run your management company gets put into these software's. I hope anybody listen to the pod of these audiences, anyone in property management, real estate, like you invest the time to actually learn those software's Taylor,

Vikas Gupta  43:31  

if you don't mind if we can go into our three closing questions? Absolutely. All right. Sounds good. So question number one, what is your favorite book, and it doesn't have to be real estate related.

Taylor Hou  43:42  

There's this book called high growth handbook. And I'm sure you can find this on Amazon. But effectively, it's like, if you're building a startup or doing anything related to startups, they kind of lay out the playbook, but also like, giving context at different stages along your journey. And it's like, at this point, you don't need to worry about a CFO, right. And like, at this point, here are the things that you need to look out for. So I referenced this book a lot. It's on my shelf right behind me. I don't know if it's a favorite book, but I is the only book that I actually open occasionally. So yeah,

Vikas Gupta  44:17  

that's a great one. i i have that on my Kindle bookshelf. I love it. Well, great. Well, question number two, from your perspective, in real estate, what's more important to you appreciation or cash flow?

Taylor Hou  44:29  

I'll answer a little bit roundabout and the way that like, I think people need to understand that most investment properties aren't going to do both. You have to kind of understand which bucket you want, right? Do you care about cash flow, which tends to be like you actually want the cash for income? Or are you wealthy enough to wait for the appreciation so the eventual sale and get the capital gains on appreciation? So, you know, whenever I hear people come to me and like, oh, let's invest in this property. It's like, it's gonna be You know, pay the mortgage, and it's gonna appreciate I'm like, Yeah, sure, maybe right. But like, what do you really need to like, let's kind of focus on one strategy and often, you know, really go deep on that. So it's not necessarily saying I don't, you know, I personally don't care. Which one, I just want to know very clearly which strategy we're going for which property we're investing in, is this cash flow property? Or is this appreciation property? Because there are tons of different tax consequence consequences, but different tax strategies when they're different? So yeah,

Vikas Gupta  45:32  

yeah, I think that's certainly I think one of the themes that I've been stitching together in my head across all the various episodes that we've done is there may not necessarily be a right way to do this. But the wrong way to do this as if your investment doesn't match your strategy. And then our final question is, you know, more of an open question, what is one final piece of advice that we didn't get to touch on that you want to leave our audience with?

Taylor Hou  45:55  

I think this is more relevant recently, to me, especially like Mark macro economic times, and things like that. I have a lot of doctor friends and lawyer friends who like send me syndication deals, and I'm like, Oh, this is, this is gonna be amazing. And blah, blah, blah. Like, I would kind of just say, in general, right? Like, you know, I think all of us in real estate understand, like, if it's a listed property, it's probably not the best deal anymore, right? In certain situations, but then beyond that, you know, like, if, you know, like if I started to be a doctor, and now I'm running syndications, like no offense to the doctors that do very well, but like, they're great at marketing. I don't know how great they are at evaluating rental properties or big multifamily assets. Right. And for what it's worth, I'm pretty sure the vast majority that the assets that are coming crashing down right now, right early on, tend to be the syndicated deals that there are pretty slick, like slim margins to begin with. Right? It was, you know, definitely long shot. So just be careful out there, right, especially the short term world who very recently had a I had a meal. someone's like, Oh, my God, like, I want to invest in short term right now. I was like, right now you want to give us a short term, like maybe five years ago, short term was probably you can make some good decent money. But like now, like short term kind of feels a little bit like timeshares again, right. Like, you know, like who's really making the money and short term. You know, I almost feel like it's the people who are putting those deals together. And the managers, right, like the managers are making like 18% on your money, right? Yeah. So

Vikas Gupta  47:35  

that's great that one of my closest friends is a doctor from childhood childhood friend, I think, a week or two ago, he was messaging me and he's like, Have you heard about real estate syndication? One of my one of my co workers has been saying he's been making 12% a year 15% A year in syndication. How do I get in on this? It's like, make sure you know what you're doing before you send your money to someone.

Taylor Hou  48:01  

Yeah. And yeah, those are just a whole that's a whole other episode in and of itself. So someone's gonna be holding the bag, that's for sure.

Vikas Gupta  48:11  

Well, listen, this has been a fantastic episode. Lots of great content. Taylor, thank you so much for being on the show.

Taylor Hou  48:19  

Thanks for having me. Thanks for inviting

‍