How a PowerPoint Helped Launch 4 Businesses ft. Mehdi Khachani
Mehdi Khachani moved to the United States from Morocco in 1999. He and his wife stumbled into real estate seemingly by accident — after moving into a building with unimpressive property management, they decided that they could do a better job. They presented a PowerPoint to the building owners and were promptly hired as the new property managers.
Today, Mehdi is the CEO of the JMK Group, which is a vertically integrated company with a brokerage, contracting, property management, and investment team focused on multifamily syndication. In this episode, he discusses the challenges he and his wife encountered when taking on their first property, why he advises against other investors taking property management in-house, and what practices and tools give them an edge over the competition.
Mehdi Khachani | Real Estate Background
- Chief executive officer of the JMK Group, which is a vertically integrated company with a brokerage, contracting, property management, and investment team focused on multifamily syndication.
- Portfolio:
- GP of 511 units
- Based in: Miami Beach, FL
- Say hi to him at:
- jmkpropertyinvestment.com
- jmkpropertymanagement.com
- jmkre.com
- jmkcontractor.com
- Greatest Lesson: Misfortunes can often lead to blessings.
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TRANSCRIPT
Ash Patel: Hello, Best Ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel, and I'm with today's guest, Mehdi Khachani. Mehdi is joining us from Miami Beach, Florida. He is the CEO of JMK Group, which is a vertically-integrated company that has a brokerage, contracting, property management and investment team focused on multifamily syndication. Mehdi's portfolio consists of being a GP on 62 doors. Mehdi, thank you for joining us, and how are you today?
Mehdi Khachani: I'm doing great. Thank you so much for having me, Ash.
Ash Patel: Awesome, man. Great to have you here. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?
Mehdi Khachani: Sure. So my background essentially - I'm originally from Morocco, I moved to the US in '99, and I've been here since then. I love real estate, I'm very passionate about it. We've founded with my wife the JNK Group company; we started with a property management business about 10 years ago, and then we added with the general contracting business, the brokerage and the investment. And we are also real estate investors, and through our investments, we were able to generate enough rental income to essentially achieve financial freedom, and now we have the opportunity to focus on the business and grow it.
Ash Patel: Mehdi, most people outsource property management, and that's where you started. Why was that?
Mehdi Khachani: Honestly, we lived in a building that we thought could be managed better, so we offered the ownership of that building to start doing the management, and they believed in our ability to do so... And that's how it all started.
Ash Patel: What was that conversation like?
Mehdi Khachani: This is very interesting -- actually, I prepared a PowerPoint presentation. And at the time, I was still working, I had a W-2, and I had more of a corporate profile... So what I knew to do is get a PowerPoint presentation together, and I went through what we could deliver for the building, and they loved it. Eventually, it was also a decision based on relationship; they knew us on a day-to-day basis, and they said "Okay, let's do this."
Ash Patel: Alright. And they fired their property management company and hired you?
Mehdi Khachani: Yes. We were on-site, we were living in the property, and that was also very appealing to them.
Ash Patel: What were the challenges you encountered in doing that?
Mehdi Khachani: Okay, so the first property, this property that I mentioned, it's a homeowner association, so it's a bunch of condominiums in one structure.
Ash Patel: A lot of fun meetings...
Mehdi Khachani: [laughs] Yeah, we started with the property, with the HOAs, and then eventually, we were focusing exclusively on multifamily apartment buildings now, and commercial properties. But the challenge is, is having too many cooks in the kitchen; people having different agendas. Some people not wanting to spend a dime on the building, and others wanting to make the building the next greatest thing, without thinking about what they're spending. So reconciling all of that... It was challenging to some degree, and getting people to unite behind the project and a plan. That was for that specific property the challenge.
Ash Patel: Well, that's interesting. What advice would you give somebody that is dealing with an HOA? How do they navigate the totally different sides of people?
Mehdi Khachani: Well, I'm gonna be very, very direct on this one... First of all, unless it's your primary residence, I don't recommend buying a condo. But I wanted to shape the direction of the building. I would definitely get engaged; be on the board, and listen to conversations... You have to be a very good listener, and figure out where people stand, and then try to find consensus. But in terms of investments, I don't think condominiums are a good asset class. And one of the things that happen when you are part of a condo is you can get hit by a special assessment; you have very little control over the assets.
Ash Patel: Well, my question was more if somebody was in your shoes, where they were the property manager and had to deal with the condo association, what advice would you give them?
Mehdi Khachani: Be a good listener, and build relationships?
Ash Patel: Alright. Try not to have a target on your back, right? So what was your next step after started managing this property?
Mehdi Khachani: So then once we had that one property under management, we went to other buildings. And we managed this one property, the board is very happy with us, [unintelligible 00:05:09.22] great things we have done for the property in terms of managing costs, and improving the tenant base, and all that good stuff... And then eventually, we started attracting more properties under management, and what we quickly realized is that a property management company, managing HOAs, at least from our experience, hasn't been very profitable, and it's resource-intensive. You mentioned the board meetings - when you manage an HOA, there's a lot of bureaucracy in making any type of decisions; instead of dealing with the group of investors that own the entire building, you're dealing with individual owners of condominiums. So we shifted very quickly our strategy and focused on apartment buildings.
Ash Patel: How did you acquire more apartments to manage?
Mehdi Khachani: So that's a very good question... I did Google ads, we were on Yelp, and then we joined the Association of Property Managers. And then word of mouth; people were happy with the work we'd done. A lot of the owners -- some of the owners actually in the buildings we managed owned condominiums in other buildings. So they will tell us, "Hey, this is another building that I belong to, and I think we could improve our property management. Do you wanna take us on? I would like to introduce you to the board." Then we will meet the board and present our services.
Ash Patel: What do you see a lot of property managers doing wrong?
Mehdi Khachani: I think, first of all, just to put things in perspective, at least from my perspective, having been in day to day of a property manager, it's an extremely challenging job. So your audience - my recommendation is hire third party property management, instead of being involved yourself, because the return on your time is gonna be very, very limited. It's a resource-intensive business with very, very small margins. But I think property managers do what they can with the resources that are available to them; I think the way to run properly a property management company is to charge adequately. Because a lot of property managers -- it's a low barrier to entry type of business, so anybody can do that. And what happens is property managers who offer their services at a very low rate, and as a result, they stretch themselves too thin, and have to manage too many buildings at once per property manager. The ratio of property managers to buildings is not good. So as a result, they're not delivering the level of service.
Ash Patel: Mehdi, in your area, what is the going rate for PMs, and what do you charge?
Mehdi Khachani: That's a very good question. Are we talking about apartment buildings, or a condominium association?
Ash Patel: Oh, no, just apartments.
Mehdi Khachani: The going rate, we start at 5%, 6% and up, depending on the size of the building. Obviously, if you have a bigger property, economies of scale, then we're willing to negotiate that rate. The minimum wage charge is 5%, 6%.
Ash Patel: And that's what you charge.
Mehdi Khachani: Yeah.
Ash Patel: Okay, so you're in line with all your competition.
Mehdi Khachani: We're in line.
Ash Patel: What makes you better?
Mehdi Khachani: What makes us better? Customer service and technology. So customer service - we're a boutique property management, so when we take a customer, we are not seeing that customer just as a transaction. We're seeing it as a partnership. Actually, we have clients that we invest with, on their deals. And that's how committed we are. We really want to establish strategic partnerships with the people we take onboard. And when customers interview us, we are also interviewing them. We are very selective, and we want to see a fit between our company and the client.
Aside from that, technology is essential. Like I mentioned, it's resource-intensive, you have to be very, very strategic in terms of how you allocate your resources... And technology helps us build efficiencies and work more effectively and deliver very good service, with fewer resources.
Ash Patel: What specific technology have you implemented?
Mehdi Khachani: Definitely the software we use, the property management software is a big one.
Ash Patel: What do you use?
Mehdi Khachani: AppFolio. That's worked out very well for us in terms of maintenance. In-house, we've created a maintenance operation, and that's because we're also licensed; in the state of Florida, we're a licensed general contractor and plumbing company. So the plumbing -- maintenance has its own software for dispatching technicians. We also use web-based applications that help us gather data from customers, and address their needs. We leverage also JotForm, which is a tool that's worked out very well for us to gather data for specific requests, and turn those requests into actionable deliverables.
Ash Patel: And you have in-house tradepeople?
Mehdi Khachani: Yes, we do.
Ash Patel: Is it just a pain point that you got tired of paying high prices and waiting for them to be free?
Mehdi Khachani: It's a mix. But definitely, I think, the same way property management was a pain point for us... And by the way, I didn't mention it, but we did also on our own properties that we put under management for the company. [unintelligible 00:10:14.19] we also saw it as an opportunity for incremental income. There is a massive demand for home services in general. We do have remodels, kitchen remodels, and all of that is in-house.
Ash Patel: Alright, so you do that for single family homeowners.
Mehdi Khachani: Single family homeowners, for apartment buildings, we do a lot of commercial...
Ash Patel: Interesting, okay.
Mehdi Khachani: That's a separate business, by the way; a completely separate business. The general contracting business has a maintenance operation that we leverage for the property management. Just once we come in -- in Miami specifically, and maybe it's a problem nationwide, but I think it's particularly the case in Miami... If you call a vendor and he shows up, you're very fortunate; and customers have told us that this is not only from us.
Ash Patel: Yeah, it's a common problem now. And also, there's a lot of property managers that just suck. So finding a good one...
Mehdi Khachani: [laughs] Yeah.
Ash Patel: So Mehdi, I've only heard of very large property managers investing in people's deals... Explain that dynamic to me. It's nice to see a smaller boutique PM company also investing in people's deals. Are you investing as they're taking them down, or do you get equity later on for managing the property?
Mehdi Khachani: No, no, we invest as they take it down. We're actually bringing our own cash into the deal, and we get an equity. We have a preferential rate because of the relationship, but we go in, we find it still makes sense; if the sponsor has done a good job, we want to show that we have skin in the game. We also manage the property.
Ash Patel: Yeah. And do you also bring in other investors? Do you help them raise capital?
Mehdi Khachani: Yeah, so our business - it's four businesses: the GC, the brokerage, the property management and the investment. On the investment side, we do two things; we find deals, and we raise money. We have raised money for sponsors, we've joined GP groups and brought in all our expertise to the table. And it adds also more credibility to them as they tried to pitch their deals.
Ash Patel: That's great. I love that model, you're a one-stop shop. You're the partner that we want.
Break: [00:12:27.01] to [00:14:23.19]
Ash Patel: Do you manage commercial buildings as well?
Mehdi Khachani: Yes.
Ash Patel: And when I say commercial, non-residential commercial.
Mehdi Khachani: Yeah, we do retail, we do commercial offices, we do industrial... We're very local, though; primarily Palm Beach, Broward and Miami-Dade County. But in terms of the investments, we do the Southeast of the US.
Ash Patel: And you personally putting money - would you rather invest in multifamily, or non residential, commercial, industrial?
Mehdi Khachani: It's interesting so far - you know this 62 units that you mentioned; those are units that we own. Me and my wife were the founders of the company. We're primarily focused on multifamily. That's kind of our area of expertise in terms of investment, and we're looking to diversify into commercial. We haven't gone there yet for investment purposes.
Ash Patel: Is it because you see the higher returns in commercial?
Mehdi Khachani: Yes. Ash, from my perspective - and it's maybe my self-limiting belief... But I do have the impression that you need to have stronger financial means; because if you have a vacancy, it can be a heavier weight to carry on a commercial property, versus multifamily. Multifamily, you own a 50-unit building, you lose a few tenants... First of all, there's no vacancies; it's very small now. But the risk is much lower from our perspective.
Ash Patel: Yeah, you're right, the risk is lower, but you're capped by your comps, right? You can only do so much in renovations... And at some point, you reach a ceiling on what you could charge for rent. Whereas with commercial - yes, there's the risk of vacancy, but if you buy a center that has a couple of vacancies and you fill them, you've added a massive amount of money to your NOI. And then if you can increase a commercial lease, you don't have to do renovations. As a matter of fact, your tenants will often do the renovations for you, on their dime.
Mehdi Khachani: Absolutely.
Ash Patel: So I'm primarily a non residential, commercial investor, so industrial, office, retail, warehouse... And the ability to increase NOI is much greater in those asset classes than it is with multifamily. And also, barriers to entry.
Mehdi Khachani: Yeah. And the cap rates are more attractive than residential.
Ash Patel: Yeah. I've interviewed people that have bought in hot markets residential real estate at two and a half caps. You'll never hear of a commercial deal going for two and a half cap. As a matter of fact, you can still find eight cap deals on LoopNet and Crexi.
Mehdi Khachani: Yeah. Ash, when you say residential, is it's less than five units, or...? Multifamily, okay.
Ash Patel: Like $20 million apartment complexes, at two and a half caps. Right? That's --
Mehdi Khachani: Absolutely. I understand your point. The only thing I would say is, when the price of the asset is based on comparables, that's where I think you have no control. If you own a house, or building up to four units, then you can invest whatever you want into the property, your price is going to be capped by how much your neighbors have sold the property. But as soon as you go to commercial residential, I mean multifamily of five or more, then you have some form of control; your net operating income is going to determine the value of your property, assuming the cap rate is constant.
Ash Patel: Yes, I agree with you. Now, how do you increase NOI?
Mehdi Khachani: Okay, so you run it better, you measure your expenses, or you increase rents; and the rents is determined by the market.
Ash Patel: Yeah. And often through renovations, forced appreciation, dog parks, covered parking, that kind of stuff, right?
Mehdi Khachani: Yeah.
Ash Patel: Now, the beauty of commercial real estate - and I thank you for having this debate with me... But the beautiful thing about commercial real estate - and again, when I say commercial, the Best Ever listeners know it's non-residential commercial; you can take a mom and pop convenience store, and if they leave and you sign a Dollar General to a 10-year lease, you've now changed that cap rate. A mom and pop store is gonna go eight and a half, nine cap. A Dollar General is trading at four and a half cap. So just there, if all things are equal, you've dramatically increased the value of the property. And often, Dollar Generals are just going to pay more in rent than a typical mom and pop, right? So you could have potentially added a million dollars to the value of the building through that forced appreciation, not only in NOI, but in cap rate as well. We're not bound by cap rates due to comps. We are based on similar tenants. So national tenants, typically mom and pops trade at a similar cap rate. But increasing from a mom and pop tenant to a regional, or to a national tenant dramatically reduces your cap rate. So I encourage you, man; keep diving into that, and --
Mehdi Khachani: Thank you for the education session, because honestly this is inspiring for me to hear.
Ash Patel: A lot of people think commercial is too expensive... And almost in any market, I can find you a commercial building. It can be a mixed use building that's priced the same as a single family house, right? You could find older, mixed use buildings that have one retail, a couple apartments above, and that's a good way to get your feet wet with commercial real estate. Because often, those apartments will pay for all of your expenses. And the profit comes from the commercial, or vice versa. Right?
So push yourself, man. Listen, you've built a great company, you've expanded into things that most people probably wouldn't have... So keep going; you're on the right trajectory.
Mehdi Khachani: Thank you for inspiring me to grow into commercial. I assure you next time we talk, I will have possibly done something in this space.
Ash Patel: Fnd a commercial deal and let's come back and revisit; we'll have another conversation. Hey, this was a great conversation, man. Give us your best real estate investing advice ever.
2 :Okay, so there's many things that come to mind. I think I'm gonna do one that's a little bit more generic, in the sense that it's helped me personally; you want to surround yourself with people that have achieved what you want to do in the future.
For example, hearing what you've done, Ash, on the commercial side, I definitely want to replicate or see how you've been successful. That would be my advice - just surround yourself with people that are ahead of the game, and are doing what you want to be doing; like Tony Robbins says, proximity goes a very long way.
Ash Patel: Incredible advice. And Mehdi, the last thing that I'll touch on is managing commercial properties... It's still 4% or 5% property management fee. However, you're dealing with professional business owners, versus tenants. And often, we manage most of our commercial properties ourselves, because once you have your systems in place, there's nothing to do. If there's a plumbing backup, it's usually on the tenant to handle. So a lot of things just fall on the tenants, and you don't get a phone call every time a sink is clogged. So awesome, man.... Are you ready for the Best Ever lightning round?
Mehdi Khachani: Let's do it!
Ash Patel: Alright. Mehdi, what's the Best Ever book you recently read?
Mehdi Khachani: The best ever book I've recently read... Vivid Vision. Great book. Actually, it's the second time I read it. It's a great book about establishing a vision and working towards that.
Ash Patel: Mehdi, what's the Best Ever way you like to give back?
Mehdi Khachani: Most recently we've done launch initiatives in the properties that we own, where we offered the office supplies to the kids who live in our buildings. A lot of our buildings are workforce buildings, so that was a very nice way for us to get involved in the community and give back, and I also brought my own kids to buy the supplies, and distribute them, which was a beautiful experience overall.
Ash Patel: That's a great touch. And Mehdi, how can the Best Ever listeners reach out to you?
Mehdi Khachani: They can go on my website, jmkpropertyinvestment.com. My email is Mehdi [at] jmkpropertyinvestment.com. And if any of you listener needs help, or wants to use our services, I'm all here.
Ash Patel: Mehdi, thank you again for your time today, man... Coming here in '99 from Morocco, through way of Canada, and kind of by accident getting into the property management business, just because he thought you could do something better, and then building a great business out of it... Thank you for sharing your story with us.
Mehdi Khachani: Thank you so much, Ash, for having me and for the opportunity.
Ash Patel: Yes, sir. Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review, share the podcast with someone you think can benefit from it. Also, follow, subscribe and have a Best Ever day.
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