Jacob Garza believes that no one will manage your properties better than yourself. As GP of over 2,000 units, and also co-founder of a property management company, Jacob has been able to follow this advice and scale his portfolio over the last 10 years. In this episode, Jacob shares his strategies for self-managing his rental properties and how he was able to grow his businesses.
Jacob Garza | Real Estate Background
- Co-founder of REEP (Real Estate Equity Partners) which focuses on acquiring under-performing, income-producing, multifamily investment opportunities in Texas.
- Portfolio: GP of 2,374 units worth over $274M.
- REEP is currently celebrating their 10th anniversary.
- Based in: San Antonio, TX
- Say hi to them at: REEP Equity: https://reepequity.com/ | REEP Management: https://reepmanagement.com/
- Best Ever Book: Good to Great: Why Some Companies Make the Leap and Others Don’t by Jim Collins
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TRANSCRIPTION
Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I’m Slocomb Reed. This is the world’s longest-running daily real estate investing podcast. Today, we have Jacob Garza with us. How are you doing, Jacob?
Jacob Garza: I’m fantastic, Slocomb. How are you?
Slocomb Reed: Doing great. I’m excited about this interview. Jacob is a co-founder of REEP, real estate equity partners, which focuses on acquiring underperforming income-producing multifamily investment properties in Texas. Current portfolio, they are the GPs of 2374 units worth over 274 million. REEP is currently celebrating its 10-year anniversary. Congratulations, Jacob.
Jacob Garza: Thank you on that one.
Slocomb Reed: They are based in San Antonio, Texas. Jacob, tell me how the last 10 years have gone with REEP.
Jacob Garza: Well, like a lot of things, they started out very slow, until we get our legs, and from that it’s taken off. We started with a 24-unit apartment complex. My wife and I were both co-founders of REEP Equity, and we’ve also self-managed. I’m kind of a different tool, if you would. When we bought our first property 10 years ago, we actually did all the maintenance on it and Arlene did the leasing on it. Prior to that, we had a very large exit with a software company so we were able to take our time, if you would. Fast-forward to today – yeah, we’ve just got about 2,500 units under management, we do our own management company, we’ll talk more about that later, we raised –I forget the number now– $100 million, we’ve done full-cycle on 13 properties, and those also include refinances, and we deployed about $100 million and CapEx. So like a lot of your listeners, that’s our story and that’s where we are today.
Slocomb Reed: That’s great. Starting slow for you means starting with a 24-unit?
Jacob Garza: Yes. It seemed like a big behemoth goal at that point; we bought one and we were so overwhelmed. But yeah, that was it.
Slocomb Reed: I’ve been there literally with a 24-unit. It wasn’t my first, it was fifth or sixth. And self-managing… Man, I’m even bad with a hammer and a paintbrush. So there are some things that I couldn’t do myself, which I’m fortunate to say, because it forced me to find good people for that. But I know how daunting a 24-unit can feel. [unintelliigible [00:06:13].22] the first commercial property. You said you guys self-managed back then and you own a management company now; so you guys are still fairly self-managed, even with 2500 doors?
Jacob Garza: Yeah, we’re totally self-managed. We have a president who runs REEP Residential; our building – we’re on the fourth floor and they’re on the second floor. It’s a traditional accounting and property management company; full accounting, HR, whatever else they do down there. But yeah, that’s what it is. For your listener’s knowledge, Arlene and I actually went third party, Slocomb, when we hit about 350 units. The story behind that is we weren’t large enough to hire anybody to run it, so we were running; and then we couldn’t buy anything, because we were literally running a management company. So we went third party for about two years.
Slocomb Reed: 350 doors, couldn’t manage it yourselves and grow… What year was this?
Jacob Garza: 2015.
Slocomb Reed: 2015. Okay, please continue.
Jacob Garza: Yes, thank you. We went third-party, and that was the best piece of advice, because it actually allowed us to focus more on raising money, buying, relationships with brokers… And we got about 1200 units, and then brought it back in-house in 2017. The rest is history, and it’s where we are today,
Slocomb Reed: How many doors did you have when you brought it back in-house in 17?
Jacob Garza: 1,200.
Slocomb Reed: 1,200. Gotcha. What made that the right time to bring management back in-house?
Jacob Garza: There is enough management fee income coming through the door; we can hire some good staff. So we opened up an office, we hired an accountant, we hired an HR person, an accounting clerk, and then someone to run it at a director level. Not like with the president we have today, but certainly not a regional either. Still, when that happens, the director was able to run the management company pretty much by themselves; a little guidance from me… I have experience with startup companies. But this made all the difference in the world, and allowed us to continue to raise capital, and have relationships with the brokers, and buy properties, so it worked out.
Slocomb Reed: I’m going to be selfish for a moment here and just hope that the Best Ever listeners get value out of me asking questions on my own behalf, Jacob… I self-manage, I’m at 65 doors, and I’m looking to double my portfolio this year. It’s January 2022 when we’re recording. I self-manage, it’s just me, no other partners that are active enough to be involved in property management or asset management. The only way that I can stay efficient with my time right now is by hiring virtual assistants. Even with only 65 doors, hiring a virtual assistant, depending on how you count, 20% to 40% of the cost of a local full-time employee with the same skills, that allows me even just at 65 doors to have one person full-time on the phones, handling all prospective tenant inquiries, tenant concerns, everything in the leasing process that doesn’t have to be done in person.
I do have one full-time maintenance technician on staff, I have some decent rehabbing subcontractors, and then I have another VA who’s helping me with back-end things, bookkeeping, tracking financials, things like that. What I’m asking for here is when I get to 350 doors, I expect that I will still want to self-manage. So why is it that you decided when you were that size, that it was time to let go? Do you think you should have done it sooner? And is there anything that you have learned since then that would have helped you remain self-managed, as opposed to needing a third party?
Jacob Garza: I think one of the first questions was, should we have done this sooner? And like a lot of things in life, the answer is yes. However, I can tell you, you can’t change history; it is what it is. We’ve learned so much in running the management company. Again, still, it would have been better earlier rather than later, but we learned so, so, so much. Even today, it just continues to pay really big dividends for us, because I do believe this is the decade of the management company. We can talk more about operational execution and how that juices the returns [unintelligible [00:10:40].21] your proforma. What was your other question? You had three really good ones.
Slocomb Reed: The other question here is, you say you should have given it up sooner. One of the issues that we face in Ohio, particularly in Cincinnati where I am, is that our market rents are so much lower than so much of the country that finding quality third-party property management that’s paid on a percentage of gross revenue… Our gross revenues are so much lower in so many places, including a lot of the places where you’re invested in, in Texas. It’s really hard to find quality third party property management for 10%, much less for less than that, of our market rents.
You just said this is the decade of the property manager, which makes me feel, Jacob, like I need to stay in control, even though it is very enticing to find a third-party manager… And hiring a third-party manager would help me free up my time to grow. Again, Best Ever listeners, I’m really asking on behalf of myself, but I really also hope that you’re getting value out of this, too. I feel like Jacob has an abundance of knowledge that he’s sharing with us right now.
The real question is, how can I stay in control? How can I continue to self-manage –because I know that self-management will mean that my portfolio performs better than if I hire someone else– and still be able to continue growing the portfolio?
Jacob Garza: In a perfect world, you definitely want to stay in control. Grow the company to where — you say you want to double in size this year, correct?
Slocomb Reed: Yes, it’s just 65 to 130.
Jacob Garza: No, that’s significant. Getting there’s probably burning the midnight oil and maybe hiring an extra VA, I don’t know… But at some point, bringing somebody on board that’s there, that’s tangible, that can help run these… Are these single families, duplexes, a couple of them?
Slocomb Reed: Predominantly C Class apartments, and predominantly one bedroom. Specific to one-bedroom C class apartments – the turnover rate is high. We’re good at being aggressive about leasing, but also that means that they’re very hands on.
Jacob Garza: So while you’re getting and doubling in size — it’s just all you; let’s just say it’s you for now, because you want to stay in control. I agree with that by the way, I think that’s the strategy to go with. You mentioned something about leasing online. So some of the efficiencies that we have done to help maximize the less time it takes is all of our lease applications, all of our forms, our TA lease, every one of those are online. As a matter of fact, you cannot sign anything; because that’s what’s happening with user software…
Slocomb Reed: 100%. between my virtual assistants and my software, my electronic signature software, my property management software, it’s all online. When someone tells me they need a paper application, we tell them it’s only online. Frankly, in a C class area, someone who can’t handle an online application – I look at them as less employable, and therefore less qualified an applicant. Because if there’s someone who can’t handle opening a link in an email, then that’s not somebody I must have in one of my apartments anyways.
Jacob Garza: I like that. That’s a nice nugget there. So the point in that is just try to automate as much as you can. Because when you do that, it’s less for you or your VA is to do, while you’re buying more and just making that transition into “Yes, now I’m going to bring somebody on part-time or full-time”, to help you. That’s going to be your game changer. If you could get there, then you’re focused fully on… I’m assuming you syndicate some of these, or all of them?
Slocomb Reed: Not yet, no. I do have partners on some of my deals, but they’re active partners.
Jacob Garza: Okay, the more you’ll be able to find other opportunities and work with your partners to close more deals. Then it just begins to scale; then you get to 300 and you’re a whole different shop at that point. You’ve got some lieutenants, I call them, that’s taking care of the day-to-day. The good news is you’ve been there and you know what it’s like. You can’t BS the BS-ers, as they say. I don’t know, I’d put money with you, because I know you’re going to take care of it. I wish you all the luck. I think you have a lot going for you and you’re right there.
Slocomb Reed: Jacob, thank you. I want to ask a little more specific question here, and then I want to move on to a comment you made previously. Outside of maintenance, the guy who turns the wrench or rolls the paint roller, I am the only person in-house locally. I totally feel the compulsion that you have that you’re giving me to hire someone part-time or full-time to be here locally. For my first local hire outside of maintenance and renovation, what responsibilities should I be looking at giving that person? What is it they’d be taking off of my plate, from your perspective?
Jacob Garza: Okay, if you could color code the work that you currently do, you’ve got what I consider gold time, which is like family time, time that you maybe spend with something you want to do, maybe you want to write a book or something that’s just really, really your time. Below that, you’ve got green time, and those are some of the things that you just have to get done. And then below that, you’ve got brown time, which is really wasting your time watching YouTube videos and spending hours on TikTok. So you want to try to give up as much of that green time as you possibly can; and I don’t know what that specifically is. I’m assuming you want to continue to buy more properties, spend more time cultivating your investors, and managing them. Showing an apartment, making a move in, doing a punch list on something – all those, in my opinion, you can teach somebody to do and manage it. Then you can, from that point, continue to grow your business.
Break: [00:16:29] – [00:18:38]
Slocomb Reed: Jacob, I want to go back to what you said about this being the decade of property management. Except for two years between 2015 and 2017 when operationally it made more sense to go third-party so that you could continue growing, you guys have kept property management in-house, you have it in-house now, and it sounds like you will, for the foreseeable future. The decade of property management – how is it that keeping that in-house has played to your advantage for the last few years? What is it that you’re projecting about self-management moving forward that is going to help your portfolio outperform other similar portfolios?
Jacob Garza: Sure. I think this is a fact – no one’s going to manage your properties better than you will.
Slocomb Reed: I feel that every day. Yes.
Jacob Garza: And if everyone could do it, they would. It’s a special breed; my wife wouldn’t do it. She likes buying and then she likes raising the capital, but there’s something inherent in both of us that we just like that. Today, that’s a huge advantage for us. That to me, the fact that we like to do it and we can do it, no one else is going to manage our properties better than we will. And you’re right, we have no intention of handing this off to anyone else.
For the foreseeable future, what makes us competitive is we have an opportunity, like you, to create your own culture, your own caring individuals that actually come to work every day. And hearing this from you, and me, they know why they’re there; there’s a real sense of purpose. You and I have a chance to treat these employees the way we want to be treated. Because the link is the property, us, and ownership. There’s that conduit that sits between and there’s a real energy, if you would, that goes through there, that – we’ve got some owners that really care, not only about the property, they care about us. When you start building that — and there are so many other intangibles that I could talk about with how this works. It has nothing to do with property management, nothing to do with treating people right, giving them guidance, and giving them a roadmap. They come to work with a purpose, they’re on a team, and they’re fulfilled.
I know all of this sounds, perhaps for some people, like whatever, but it’s really the absolute truth – so you have an opportunity to really build something pretty special, and with a purpose. And I’ve always said, any business I’ve ever operated and owned, if you take care of the ultimate end user, everything will take care of themselves. In this particular case, it’s the renter. If you take care of them, they’re going to pay the mortgage, they’re going to pay the landscape, they’re going to pay the water, and they’re going to pay us the money that’s left over to hit our proformas. That’s what we’ve been able to establish here at REEP, and it’s worked very well for us.
Slocomb Reed: Absolutely. You know, with all of the tumult of Coronavirus the last couple of years –again, this recording is January of 2022– I saw within my own sphere and within the off-market lead generation I’ve been doing for the last couple of years, that it is particularly the non-local real estate investors who went and hired a big property management company that they had never heard of before, that they didn’t do much vetting on; those are the people who had a hard, hard time with rent collections when COVID first hit and people were getting laid off. We got the feeling that a lot of C and D class renters especially, were using COVID as an excuse to not pay rent, whether they had the money or not. It was the people who didn’t have a local presence, who didn’t have the ability to adapt to the changes in the market, in the economy, in the world, whose portfolios suffered the most. Those are the people that I’ve been buying from, frankly, for the last couple of years.
Having that control, having the ability to adapt to the changes that come in a time like the last few years – very beneficial. Are you seeing anything coming in the next few years, Jacob? Any shifts in the housing market, in the economy, otherwise in the nation or in Texas, that you think are going to be challenges for property management to adapt to?
Jacob Garza: Yes. For us in Texas, it’s the growth. I grew up in Dallas and I moved to San Antonio in 2008, after I sold my third software company. Dallas has been growing ever since I was a kid; I’m kind of an old guy. Everybody thought in ’16 that Dallas was going to implode and Dallas is going to stop slowing down. But the challenge we have here is how do we keep up with the massive influx of corporations and people coming in. And I don’t see any slowdown, in general, we can include some of the other southern states with that, because people are leaving other states and they’re coming in. I’m going to speak for Texas because that’s where I am. It’s been a challenge, to some degree, for talents, not as hard for some other management companies. It’s been challenging to buy properties that are not a two cap, for example, because equity is finding its way to these particular states, Texas including. So for us, it’s about maintaining that constant focus on buying the principles right and not getting over our skis, if you would.
Slocomb Reed: Yeah. It’s acquisitions in markets with lots of growth. I think it’s clear to everyone that that’s difficult, unless you’re willing to buy a two cap in Waco, Texas. You’re going to have trouble with acquisitions in a place that’s growing. Outside of acquisitions, this sounds to me Jacob like you’re describing a dream scenario. Everyone is moving in, the employers are bringing jobs… Are there specific challenges that that presents in the management of your current portfolio? You did say it makes finding talent more difficult, I believe. Please continue.
Jacob Garza: Yes, that’s it. My pretty good educated guess is most people who work on site would much rather work for an owner-operator than a fee-base, for the reasons I was talking about earlier in the broadcast. For that particular reason, I don’t think we’ve had a more difficult time bringing in people; the days of $1,200 per unit payroll – that’s what it is in Texas – those are gone. You have to pay these people right, our investors know it, and they know; in reality, we’re not spending any extra money, we’re investing it. They stay on our properties and they take care of our properties. We just opened up a 401K this year too, so… We’re just trying to stay nimble, trying to listen to the marketplace that’s out there and treat our employees right. Because I go back to it – this is a decade of the management company, and we’re in a good spot, Slocomb, we really are.
Slocomb Reed: Yeah. Jacob, to your point, I was interviewing maintenance technicians — I made a great hire recently. I’ve gone through a couple of interview processes, a couple of hiring processes in the last six months. The majority of people who made it to the phone interview in my process told me that one of their biggest frustrations was when they came across a problem and they reported it to their supervisor, and their supervisor had to go get approval from one or two other people or companies before they could fund the repair, replace the vent hood, or the door, or whatever… Everyone I spoke with, you could hear their excitement when they heard me say, “You’re calling me when there’s an issue and I am making a decision with you over the phone as to what to do next, and then you get to go solve the problem right there.” So you’re right, not only because owner-operators care more than third-party managers, and I don’t want to over-generalize there, but also, we are nimbler, because it’s much easier for us to make quick decisions, and big, bold decisions when necessary. Jacob, we could go for another hour, but that is not the best real estate investing advice ever podcast is. Are you ready for a lightning round?
Jacob Garza: Yes. Thank you.
Slocomb Reed: Awesome. Jacob, what is your Best Ever way to give back?
Jacob Garza: It’s treating our employees right. We’re very charitable, my wife and I, and I’ll leave it at that.
Slocomb Reed: What is the Best Ever book you’ve recently read?
Jacob Garza: It’s not recent, but it’s Good to Great, by Jim Collins. That’s my go-to book, and I love that book.
Slocomb Reed: The last time I read it I didn’t have any employees. So I need to go back and reread it now that is more applicable. Jacob, what’s the most money you’ve lost on a deal?
Jacob Garza: Fortunately, none. We have not hit our proformas before; it was early on, and bought some properties we really shouldn’t have, or property we shouldn’t have. So we’ve been very fortunate in that sense.
Slocomb Reed: What’s the most money you’ve made on a deal?
Jacob Garza: 340% return.
Slocomb Reed: In how long of a timeframe?
Jacob Garza: Two years.
Slocomb Reed: Oh, wow.
Jacob Garza: But that was back in the day, Slocomb, when cap rates were falling. I could have gone to sleep for two years, woken up, and still would have made money.
Slocomb Reed: Yeah. Not a relatable circumstance in 2022, so we’ll move on. Jacob, what is your Best Ever advice?
Jacob Garza: For people that are out there that want to invest in real estate either passively, as a sponsor, or on your own, you just have to not skip any steps. You have to find someone who can help you, a mentor, or get educated. If you’re an LP, you just got to know your sponsor, get to know them, pick up the phone, call them and ask them questions. That’s the best advice I would give in real estate. If you don’t feel comfortable with them or in a hurry to get off the phone with you, then they’re not right for you.
Slocomb Reed: Great. Jacob, where can people get in touch with you?
Jacob Garza: My email address is the easiest, it’s jacob@jacobgarza.com. It’s just basically my name. Send me an email, I’d be happy to help out in any way I can for anyone out there.
Slocomb Reed: Great. Well, Jacob, I’m hoping we can have you back on the podcast or one of your partners so that we can continue this conversation. But for now, Best Ever listeners thank you for tuning in. If you’ve enjoyed this conversation with Jacob Garza and me, we ask that you follow and subscribe to the podcast, leave us a five-star review, and share this with someone who you think can benefit from what Jacob has shared with us about self-managing your portfolio as you grow. Thank you and have a Best Ever day.
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