A Podcast | Preston Walls

Pete Neubig: All right. Welcome back, everybody. As promised. I have Preston Walls with Walls Property Management. Preston, thank you so much for taking time out today to be on the podcast.

Preston Walls: Hey, Pete, thanks for having me.

Pete Neubig: All right, so when we talked first, before we get into what we're going to talk about, which is using AI and rental analysis and how you gone down that path. Just give us a little overview. Let's talk a little bit about Walls Property Management.

Preston Walls: Yeah. You bet. I've been a property manager for 20 something years. I learned the business from my father, who retired in 2008, and manage about 850 doors all in Seattle.

Pete Neubig: So you took the business over from dad?

Preston Walls: I did. He was a real estate developer, and we built a couple of buildings together before he retired. And he's a buy and hold guy and followed in his footsteps of acquiring, renovating properties. So kind of buy, renovate, refinance model and then also new construction of some building when the market allows and yeah, just acquiring a portfolio and managing that portfolio as it's grown.

Pete Neubig: I smell a whole other podcast topic. I may have to get you on again and talk a lot about just the transition and then the development as well, because I find that fascinating. And I think more and more of us property managers may be able to get into that. We'll see. But that's a future episode, ladies and gentlemen. So.

Preston Walls: Well, us developers have a lot of free time on our hands these days with interest rates where they are, and rents being pretty flat, at least in Seattle for the last six years or so. It's been lean times.

Pete Neubig: So all right, let's talk a little bit about that rent. The rental stuff. So you're using a product called  LOFTx.ai to do your rental analysis. What kind of led you down this path?

Preston Walls: Yes. Good question. I approach this, I mean, as an owner operator. I can look at my headaches and what's causing the greatest challenge. And I've asked myself, what could a computer do that is better than the current model? And I looked at a lot. And one thing that kept coming back was thissue of market comps and thinking, how can I use technology, right? Because previously, the property managers were doing this and there's always this misaligned incentive of property managers doing their own comps. Right. Like, do you set the bar low so you don't have to show it very many times and your job's easier? Or do you try to be hero and set the bar high to show what a go getter you are. And oftentimes, and it sits vacant. And if you have different property managers with different ideas of how they should go about doing their job, you lack consistency as a company. So I moved it to a virtual assistant handling all of it to try to have that consistency. And we built it in an Excel spreadsheet. And you know, the challenge with that is the links would get stale. By the time I looked at it, the unit would get rented. And so there was a data integrity issue. It was still subject to human interpretation. Right. Like, if there's not a relevant comp within your radius, do you change the age of the building to something much older than your subject property? And they were making different assumptions than I would have made. And so how can we create a rules-based engine to think about this? And this is something that you talked about way, way back on a podcast with Michael Parker. Episode 140. You're talking about AI tools and you asked him, is there an AI tool to do ranked comps? And at that time, it was nearly a year ago that episode 140 aired, but neither of you were aware, but, speculated that somebody was out there working on it. And sure enough, the guys that had LOFTx were working on it at the time, and they've rolled it out. So it's essentially a revenue management tool that integrates with AppFolio. So it pulls all my static data from AppFolio. It knows the address, the unit number, the number of square feet, bedrooms, bathrooms, year the property was built. It goes out into Zillow. So it uses market data. It doesn't run into the real page conundrum of using competitors data and aggregating competitors data. So it uses Zillow data to pull in comps in the market. If something goes off the market, it automatically brings in new comps, and based on the comps that it's finding it gives you a recommended rent for that unit. And it also goes over time so it knows when your lease is expiring, when the unit would become vacant and factors in some cyclicality into the market. Right.

Pete Neubig: Like in summer it might actually raise the rent a little bit, in the winter it might lower the rent.

Preston Walls: Yes, exactly. So yeah. It factors the seasonality in there. So it's one fewer thing that you need to think about. But in terms of workflow it works from a property manager could have their portfolio buildings in there. They would go set the rents where they think it is. The regional manager would come in, adjust or approve those rents and then go to the virtual assistant to take the information out of LOFTx updates the property management software and send out the notifications to residents. That's the main use case that I've been using it for.

Pete Neubig: All right. So I'm going to you know, I'm a detail guy. So I'm going to ask some more detailed questions here. But so the original challenge though, like how are you getting your comps before? Like did you have to pull them off a Zillow? Like can you run reports off of Zillow and get comps like, I'm in Houston and we're very blessed. We have an incredible MLS that not only has sales, but it has a leasing as well. So I could run a report pretty easily. Beds, baths, you know, days on beds, baths, you know, square footage. I can even drill down into like a neighborhood or subdivision, things of that nature. But the challenge that we have is still. Okay. Well, the range is this, we where do we list it at? Right? So I know we're very blessed. So how does how does it work in your market before?

Preston Walls: So. Yeah. Previously I was using an Excel spreadsheet using Zillow data and the virtual assistant assigned to lease renewals and market market data was searching on Zillow putting  filters in, creating a new search for each different unit if there were multiple one bedrooms or two bedrooms that could all be solved with the same data. But pulling that data into the Excel spreadsheet and including a link to the Zillow listing. So that I could go, and then they would send me an update, "hey, I've got this page of the Excel sheet updated. What do you think or give me, give me your feedback on pricing." And, you know, there were formulas. Here's the average of the rent comps.

Pete Neubig: Were those stuff built into your spreadsheet or was that something that Zillow had and it was downloaded in.

Preston Walls:  It was part of our spreadsheet.

Pete Neubig: Part of your spreadsheet so, you had to build all that too.

Preston Walls: Yes. It was a pain in the ass. You know, and we had one for every month of either vacancy, turnover or lease renewals. Right. Because we've got to price these for lease renewals as well. Yeah. It was it was a very manual process. It took a lot of time. And the data integrity that  went into it was either got stale quickly as soon as leased or it just, you know, there was there was something off especially as you get into unique floorplans or sizes or kind of the edge of your cases is a much harder price.

Pete Neubig: Yeah. The ones that are not the square peg in the square hole. You know, I've heard of some property management, some areas of the country, where they actually have to call each other to find out, like, "hey, you went to this house in this neighborhood, would you rent it at, you know," and I'm like, Holy crap. So this would definitely using a product like this would definitely help them out. Because the MLS or the data is just not there. Now, one of the challenges that I've heard in the past, and this a long time ago, but I heard the information in Zillow is really not that great. Has Zillow kind of tightened that up as far as you know, based on using your LOFTx? It's your LOFTx.ai that the data looks pretty solid now?

Preston Walls: I would say the data is very good. The caveat that I would issue around it is the data that is bringing in is advertised rents, not leased rents. So if you're getting some aggressive property managers that are listing their properties high, it's going to skew the rent because you're not going to get low rents because those are going to get taken off the market quickly. They're going to get leased and moved up. So the skew of the data may be a little bit high. But you've just got to, it's uniform, and you've got to price that into your pricing.

Pete Neubig: All right I'm going to pivot real quick. And I'm going to come back to the leasing thing. I'm going to hit you with a left hook that you weren't expecting here. What's your take on like. You know, I've heard some property managers are nervous about Zillow. They have all the data we're going to have. We're going to be forced to pay big fees to be able to access their information and all that stuff there. Where do you think that this Zillow thing is going to land?

Preston Walls: That is a great question. I mean  Zillow has done a tremendous job at aggregating under the radar as many rental search sites as possible. And they've effectively created a monopoly on search. And they're gradually tightening the screws on reducing the building size that needs a paid account. And when your building gets turned off of Zillow because you have not played by the rules, and you want to write a fee agreement, your lead spigot shuts off immediately.

Pete Neubig: Yeah I noticed that.

Preston Walls: So this going to play out for a few more years. I think how it eventually gets solved is, there's a different type of intermediary that becomes predominant. This summer, we have several leasing interns in the office that are helping us out during our busy season of tours and showings. So these are college age students and their take on marketing or their effort to market is creating TikTok videos and they've been going through and creating these kind of fun, catchy, fast action, lots of clips, you know, one minute long marketing videos that are essentially a tour of the building and the unit. And one of the units that they've created a listing for has over 50,000 views on TikTok. And yeah. I mean, I had this it my initial reaction was you look you spent your time making a TikTok video like what's this? But it's gotten a lot of traction. And it's hard to quantify that conversion to two leads because it was so new, we didn't have a conversion metric in there and we've since  adjusted that. But I see Zillow evolving  into a different medium. Especially as short form video content gets gains in popularity, particularly with the Gen Y and Gen Z.

Pete Neubig: I know apartments.com is really... They're pushing. I've seen their commercials pretty much everywhere. So they're trying to I think compete with Zillow. So that'll be interesting to see how that plays out as well. All right.

Preston Walls: Yeah. Apartments.com has a similar business model but less heft and less scale than Zillow. I think apartments.com rather loses to Zillow and the industry shifts towards video.

Pete Neubig: I just I look at Zillow and I just see an incredibly lost opportunity for NAR. It's like,  how is the National Association of Realtors not own something like this? You know, just the incredible short sightedness of them. And you have all these MLS, but there's little fiefdoms. I think in Dallas there's like three MLS. You know, I'm like, oh, and they're not they're all this disjointed. No one talks to one another. It's kind of interesting how Zillow just took this opportunity. And they have to monetize at some point. Right? I mean, they've lost money for probably a decade. So they're getting that they're gonna have to monetize. And where the product, where the clients, that we're going to have to pay for it. Absolutely.

Preston Walls: Right. Yeah. And from Zillow's standpoint, it's the right kind of revenue, right? This recurring fee based revenue. That's not subject to the whims of the for sale market that tends to be more volatile. So it makes a ton of sense for them to move in that direction. And they will continue to extract money from smaller buildings.

Pete Neubig: Yeah. All right. So you had a huge pain point. You found this product LOFTx.ai, and so talk tell me a little bit like, how it's implemented. Is it just like an agent that goes on AppFolio, is its own software that you have to log into and set up so that it connects to AppFolio? How does all that work for us non-technical folks?

Preston Walls: Yeah. So it's a separate website that you log into with its own interface. But when during onboarding, when you set it up, the LOFTx team takes your AppFolio login information and connects the API to LOFTx. So it's pulling all of your back end data and it's populating it into it. So that's how it knows when each lease is expiring and all the data for that.

Pete Neubig: When the move outs happening, when the property's going to be rent ready, all that good stuff. So does your property managers have to work in the LOFTx.ai, or they can just work in AppFolio.

Preston Walls: They work in LOFTx, so they go into LOFTx to see the comps, to see the information that it has and then to make their pricing recommendation. And then I'll go through and review those. And then the VA also has access to it. So once once I say these are all ready. They're approved. You can go in and take that data, prepare the renewal rate, increase letters.

Pete Neubig: And then LOFTx most likely as an API with Zillow is kind of what I'm guessing?

Preston Walls: Yeah it does. And one of the great things about it, you know, when we're doing this manually, one data that Zillow does not have is year built of the property. LOFTx has gone through the tax assessor's website to pull the gear built on the property because, you know, big frustration is you have a property and you're comparing it against another property that's plus or -50 years different, right. There's a big rent difference for the age of the building, and perhaps being able to use that as a criteria was a big win and a big unlock.

Pete Neubig: Do you happen to know -- and I don't mean to put you on the spot here -- but do you happen to know if LOFTx has API with others, like apartments.com, or rent.com, or anything like that, or is it just Zillow and the tax records right now?

Preston Walls: Right now it's only Zillow. So Zillow is the only source that it pulls from. I'm sure they could get it from other sources, but yeah Zillow's the only source that I use or have used for rent comps. It's the most robust that I've seen. So the data has been been pretty good.

Pete Neubig: So you talked about the old way where it takes a lot of manpower and it takes time and, you know, stuff gets stale. What are the results of using this tool now?

Preston Walls: I'd say one is better revenue optimization. I had a much lower confidence in the rent comps and the market rents because one, I was dealing with a limited subset. The data instructions were, get three market comps. And you know, I would often disqualify one of those. So I would have a limited number of comps now, with ten comps I have a lot more confidence in what's out there. With the seasonality, I can predict better where the rent's going to be when that unit is coming vacant. And it takes a ton less time. And everyone's happier, right. Because the time that it's replacing is the grunt work of searching, searching for data. And that data was previously transcribed onto an Excel spreadsheet. So it's eliminated the data collection aspect which was never a glamorous task.

Pete Neubig: Yeah. So basically allowing your team to focus more on a task at hand versus getting the data to do the task at hand.

Preston Walls: Exactly. Yeah.

Pete Neubig: Does it paint a picture for your owner? Like, can you send a report to your investor owner that says, you know, days on market, or this or most properties are, you know and have you know... we need to do these upgrades. Does it kind of help with painting a picture for setting expectations for your own client?

Preston Walls: The picture it paints for owners is around market rents, comparable rents for the building. "Hey. Your unit's coming  vacant in August. Here's where we think the rents will be based on these ten comps. Here's the average of those data. Here's the thumbnail of what the comp properties look like. Here's the data on those properties." And being able to send that in a report in a PDF, to an owner, it goes a long way to say, "oh they're on it. They have this tool. it's pricing it." It's not just a property manager saying, "hey, here's what I think the rent is, or here's where I know I can get it rented. So that's the big unlock.

Pete Neubig: I would say you're doing it. Just hit the button. Right. Like, here's the property and then boom, button, generate report, email report done. Right. It's like that simple. Yeah.

Preston Walls: Yeah. Absolutely. They have in the works a market analysis report for properties that you do not yet manage or do not yet own as a prospecting tool to go out to other owners to say, "hey, here's what the tool thinks your property's worth. Here's where the rents would be if, if were your manager for this property." So yeah, being able to use it as a prospecting tool portfolio has a similar tool  that they try to use to solve this, but it is far inferior. I was looking at it this week on one of my properties as comparison. And one of the comps was more than three months old. Right. And, you know, especially in the summer when rents are moving quickly and there's a lot of demand. Three months is an eternity. And it also doesn't have any picture or static or any link. So you can track down additional information. The one advantage to AppFolio is, those are signed leases. So they're actual data, not listing data. So there's some value there. But just the user interface of being able to see the property and to click on the property to get more information and see all the pictures of what the comps look like to make sure that it's a valid comp. Yeah, it's been a great tool.

Pete Neubig: We had a tool. I'm trying to think back in my Empire days, whereas on our website --  and you can enter your property's home address and actually give you what it would rent for. I think PMW was our provider at the time. --  And they had this tool and it worked great. You know if you can get people to your site. We would get a lot of leads from that tool. We did find out a lot of residents we're using it versus a property owner. We had to kind of put guardrails around it. But yeah, so having a lead generator like that, because people are interested, they want to know what their property is renting for. And just like you pointed out, in a lot of markets, there's really no good way to do that. You can also use this as a way to build a referral program with agents, especially if you guys are having that trouble. I'm sure agents are having that trouble. And you can let them use that tool for their properties. And all of a sudden it's like, oh, by the way, you know, Walls Management Company can manage this property for you. So I think there's some creative ways to use these tools to generate business for sure. And partnerships.

Preston Walls: Yeah, absolutely.

Pete Neubig: So tell me a little bit more about like, so on your team now, you probably need less team to do more leases. Is that a true statement?

Preston Walls: Yes. Absolutely. I mean, I would say the virtual assistant that was dedicated to lease renewals was probably spending 25% of their time on digging up market data and market comps updating this Excel spreadsheet. Right. And that time is freed up to spend more time going deeper into the renewal. So, one thing that we hadn't updated in far too long was market prices for all of the kind of non apartment rent items, parking stalls at all of the buildings. Garage spaces, storage spaces. Right. There's a lot of nuance too. Is it an open stall, or covered stall, or garage. Each of these are priced differently. And so being able to look at that across the portfolio, that opened up time for that. And we also spend more time being able to customize these renewals. So whether it's short term extensions or negotiations on these renewals, the lease renewal specialist has more time to devote to that.

Pete Neubig: So it's allowing you to clean up your database, do an audit, it's allowing you to give a more consistent service to your clients. It's allowing you to be more consistent in your pricing, and is it increasing customer service as well? With the reporting? I'm sure that helps with your residence. I'm sure you can get back to them much quicker now.So how's it affected the customer service? And can you tell, is satisfaction increasing and with reduction of churn, reduction of move outs, things anything like that?

Preston Walls: I mean, it's hard to say because I haven't used it for a full year yet to look at churn, but from an ease of process, yet it has eased things tremendously. It's sped up the process from pricing to getting out renewals. There's also a regulatory compliance aspect so you can set rules in it. Seattle has maximum rent increase amounts for renewals. And it's different for month to month leases. And all of this takes a lot to navigate. So you can set up a rule for building or unit or the entire portfolio so that an increase doesn't grip one of the regulatory, issues in place. So enhanced compliance is one and I think it's helped with our just employee satisfaction, right? Because people are working on higher level tasks and more customer facing tasks which are more enjoyable than  data collection and data entry.

Pete Neubig: Yeah. And like you're saying, you're actually able to give them higher level projects. Right. So it's kind of a win win all around. Clients are happier. My guess is you're getting properties leased quicker, which we'll know probably by, you know, next year. You'll know that for sure. And  your data is getting better. Customer satisfaction. So all all the things. This exactly what technology is used for. A lot of people say, well, if you if you use too much technology, you lose that. You know, that personal relationship. I think in this case, you've actually used technology to increase personal relationships by giving them the reports, by getting to them earlier, quicker. Being able to be more responsive and giving them better data that they can make decisions on. So I think it's an incredible win for your organization.

Preston Walls: Yeah. I mean, that's that's exactly it. the technology unlocks more time for resident correspondents and faster response times.

Pete Neubig: Is there anything else about the product or about your process that I haven't asked that we need to go over?

Preston Walls: The other things I like about it, there's some vacancy analysis. You can visualize which properties are having vacancy issues, ditto with delinquency. And then it superimposes vacancy plus delinquency on a chart so you can see your entire portfolio on a graph and  the bubbles get bigger and more red as they get further out of this curve. So you can.

Pete Neubig: Big red dot, "take care of me. I need help". Now you guys still to go into the property and do your photos and any kind of, video and all that good stuff, right? That it doesn't.  Obviously you can't help with that, but do you have do you have, realtors do that? Who goes into the property and kind of gets the property market ready, I guess, or marketable ready?

Preston Walls: Yeah. Our property managers are responsible for that. And during the summer with an intern team, they've got some free time when they're not doing TikTok videos. They shoot some marketing photos for the property, too.

Pete Neubig: I love it. We're going to see a. After this episode drops, we're going to see a huge uptick in property managers doing TikTok videos to get their properties leased.

Preston Walls: Wow. I know, I know one thing. It won't be you or I that's starring in the TikTok videos, because that will that will definitely not lead to 50,000 views.

Pete Neubig: There is a reason why NARPM doesn't want video for the podcast. I still make sure we do it. But there's a reason why they only want audio. Because, as we say in the in the industry here, I got a face for radio, right?

Preston Walls: Oh, you and I both, brother.

Pete Neubig: All right, well, Preston, thanks so much. Well, let's hit a quick commercial break, and then we're gonna put you on the hot seat. You ready?

Preston Walls: I'm ready.

Pete Neubig: All right. We'll be right back, everybody.

Pete Neubig: All right. Here we go. Preston Walls, you are officially in the lightning round. Are you ready?

Preston Walls: I am ready. I can't wait for my pineapple.

Pete Neubig: Spoken like somebody who's listening to the podcast. All right.

Preston Walls: Oh. I love them.

Pete Neubig: Here we go. What is your org structure?

Preston Walls: We try to centralize as much as possible. So we have a pretty thin property management team supported by a large number of virtual assistants.

Pete Neubig: Is it more like departmental, or is it more like hybrid, where the property manager is kind of like the hub, and then the VA's are kind of spokes in a support multiple property managers.

Preston Walls: The VA's support multiple property managers. So the VA's handle a task across the entire portfolio. We have maintenance coordinator, a lease renewal specialist, marketing and accounting VAs

Pete Neubig: Got it. That's more departmental. Where property manager is kind of like head of them, right? So they kind of manage the departments. Do you use BDMs or salespeople to help get you property management contracts?

Preston Walls: No, we do not. We've been less focused on growing the third party property management and more focused on just managing what's there. My growth comes through acquiring new buildings on my own or new construction of assets.

Pete Neubig: You know, one of the things that I always surprised, I'm somewhat surprised these days is how many property management company owners don't own any real estate, or they own very few real estate and I came from the investment side. But I got to be honest with you. When I started Empire, I didn't buy a property for seven years, and then when I sold the Empire, I bought more property. And I think what happens is a lot of us get caught in the day to day and we get busy, and next thing you know, a year or 2 or 3 go by. So, you know, if you're listening to this, we need to make time because we actually have a lot of, you know, when owners want to sell, we actually have first crack at it. Right? If it's a good deal, we should jump on it and buy that deal. And then of course you get to retain management. Right.

Preston Walls: Indeed. Yeah, I would much rather not miss an opportunity to buy something good than be chasing a management contract. So yeah, I made the decision to focus more on the acquisitions than acquiring management contracts.

Pete Neubig: That is another podcast that we can do when I want to have you back on. Talk about, how you kind of cherry pick and grow your portfolio by your own acquisition of properties. All right. What is one piece of advice you'd give someone just starting out in the property management business?

Preston Walls: A little bit more than you think you need to for your key hires. Particularly property managers. We've spent just so much time and headache on on turnover within the local staff. I would pay a little more in temps to retain those talents longer.

Pete Neubig: Yeah. Property management is a difficult job and people do get burnt out. So if you can give them some good money and then offload some stuff using remote team and I. All of a sudden they're making good money. They're not as stressed. They actually maybe take a weekend off every once in a while. It'd be nice for them, you know. All right. We're going to get into our food portion now. Does pineapple belong on pizza?

Preston Walls: I am a sucker for dessert. And canned pineapple is awfully like dessert. So, does dessert go on pizza? Absolutely.

Pete Neubig: All right, listen, we're still going to be friends, but we're not gonna not gonna eat pizza together.

Preston Walls: I knew you wouldn't like that.

Pete Neubig: All right. If you had to eat fast food, what would be your go-to? What's your go to?

Preston Walls: Ugh man. I got snookered into this one because my kids always go there. And when I go into this chain, I single handedly raise the median age in the entire restaurant by multiple years. Chipotle.

Pete Neubig: Chipotle. Okay. I thought you said yes. He's the way you. Where you going with that? But Chipotle. Yeah. Okay.

Preston Walls: There is never anyone in Chipotle over 20 years old.

Pete Neubig: I love Chipotle man. I think a great place, great restaurant. But you're right, I think the last couple times I was in there, I was the oldest person there by about 20 years now. And I think about it. All right, all right.

Preston Walls: You'll never look at it this day.

Pete Neubig: What was your first job?

Preston Walls: My first job was at Patrick's Fly Shop when I was ten years old. I had a fishing obsession, and needed a job to pay for all my gear. So I tied flies and I swept things up and spun chenille on cards for the shop.

Pete Neubig: Very cool. Are you. Are you still a big fisherman?

Preston Walls: I love to fish. Yes. I get out any chance I can.

Pete Neubig: So that would lead me to believe. What's your ideal vacation? You take in the family fishing, or is that your thing? And take the family somewhere else?

Preston Walls: Yeah. If I go fishing with the family, they're not going to see me very much. So I will not bring a rod along if I'm going on a family vacation. The temptation is too great.

Pete Neubig: If you could have dinner with anyone alive, who would it be?

Preston Walls: Oh. That's easy. Warren Buffett. I would  relish that opportunity to just take on business, on  growth. I would particularly like to ask him about technology and this evolution of technology where we find ourselves right now. I mean no one on Earth has navigated as many  technology business cycles as he has and I would love his take on how he sees this playing out.

Pete Neubig: All right. Last one. Are you a dog or a cat guy?

Preston Walls: I'm a dog guy. Particularly, dogs that can can swim and fetch things.

Pete Neubig: All right, man, you are off the hot seat. If someone's listen to this and they want to reach out and learn more about what you do or just kind of connect and talk shop, how do they get in touch with you?

Preston Walls: Yeah. Wallspropertymanagement.com is the website. My email is Preston@wallspropertymanagement.com. And if you want to call me, (206) 465-4059. And I love connecting with the network and talk and shop.

Pete Neubig: And if you're listening to this and you're not part of NARPM, shame on you. Go to narpm.org. Or give them a call at (800) 782-3452. And if you want to be cool like Preston and get some remote team members, give vpmsolutions.com a try. We're the only marketplace built for and by property managers. So built for the property managers, by property managers. It's a free marketplace to use. And once you find them, you hire them and you pay them through our platform. It's a direct hire model. The remote team member pays the platform fee. Preston, thanks so much for being here again. Thank you everybody. We'll see you next time.

Preston Walls: Thanks, Pete.