John Warren is the President at Forte Properties, Inc., a top-performing real estate brokerage that specializes in selling real estate in the one- to four-unit space and acquiring value-add apartment buildings.
In this episode, John discusses the nuances of investing in Chicago, Ill., and takes us inside the day-to-day operations of managing a 154-unit multifamily portfolio.
John Warren | Real Estate Background
- President at Forte Properties, Inc.
- Portfolio:
- 154 units
- Based in: Chicago, IL
- Say hi to him at:
- Best Ever Book: The Complete Guide to Buying and Selling Apartment Buildings, by Steve Berges; Traction, by Gino Wickman
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm joined today by John Warren. John is based in Chicago, Illinois. He's president at Forte Properties Incorporated, a top-performing real estate brokerage that specializes in selling residential one to four family investment properties. They also acquire value-add multifamily buildings and have a commercial multifamily portfolio of 154 units. John, can you tell us a little bit more about your background, and what you're currently focused on?
John Warren: That was a really good intro. My day to day is mostly focused around keeping the operations going for 154 units, and continue to do acquisitions. And then on the brokerage side, I run a real estate team, so I get to interact with a lot of really cool people, helping them buy and sell real estate, lease real estate, answer questions about the housing provider... So I have a lot going on. It's a full life, and I love every second of it.
Slocomb Reed: Nice. So the first thing I want to ask, John - I have interviewed a few people for this podcast who poopoo the Chicago market for a variety of reasons, primarily with commercial multifamily, which I imagine your 154 doors are in Greater Chicago, right?
John Warren: Yes, we're mostly in the near suburbs, but few of the buildings are in Chicago proper; everything is within say 30 to 40-minute drive... So very much in the Chicago area.
Slocomb Reed: Okay. I've interviewed some people on this podcast who avoid Chicago for a handful of reasons, one of them being the way that possibly just the city of Chicago, but possibly larger counties are handling property taxes. And then there's other more tenant-friendly legislation there that you wouldn't expect from the Midwest, but Chicago being the size of city that it is, is fairly blue, to my understanding. Can you speak to some of those things? I hear that there are some hurdles you have to jump investing in Chicago.
John Warren: I agree with the property taxes being something to really understand... I wouldn't call it a hurdle; I've always found the taxes to be fairly transparent. When you look at the county tax portal website, you can look up what your assessed value is before you purchase the building, and if you're buying for double the assessed value, you should anticipate that they will chase that in the near future. So we can always get a pretty good dial on where our taxes will be. So that's one of the things that I talk about a lot with clients too, is understanding the tax bill is going to be your number one expense in Chicago most of the time, the real estate taxes. So it's an important one to understand, but I don't necessarily find it to be a barrier here. I think that if you buy a building with the correct taxation in mind, and the numbers work, you should feel comfortable moving forward with it.
When you think about landlord-friendly versus tenant-friendly legislation, Chicago definitely slants towards tenants, which is another thing to be aware of. But again, I don't think it's a deal breaker. [unintelligible 00:04:24.02] more onerous things, like rent control in place... So it's still a place where you can do business. If you do have to go down the eviction route, it can be frustrating; the process is definitely slower than it would be in some of the more landlord-friendly states... But at the same time, the amount of opportunities that are here to me are a reason to do business in Chicago; there's quite a few small to mid-size multifamily buildings. So if you're looking to buy, there's a lot of opportunity here, versus maybe a smaller market, where there would be much less deal flow.
Slocomb Reed: We're recording in the beginning of February 2023. I'm an apartment owner-operator, I operate a similar-sized portfolio to you here in Cincinnati, Ohio... So I have some curiosity, both Midwestern markets Chicagoland area, of course, significantly larger... But what are you seeing right now in that one to four family space when it comes to transacting for your investor clients?
John Warren: It's been a tough season here for about six months to a year, with low inventory, where a lot of folks would really like to buy, especially our house-hack clients, who would like to buy a two to four unit building, and there's just not a whole lot for sale. And obviously, pricing being a little higher after last year's run-up has been tough, and also the higher interest rates. But we're still finding things for people to buy; most people are having to get a little bit more creative, maybe than they did, say, five years ago. So we're seeing people looking at things differently, through a different lens. Maybe people are looking at doing short-term rental, or maybe they're looking at it as a lifestyle adjustment, where it's not so much [unintelligible 00:05:57.25] but it will help reduce their cost of living.
There's different ways people are getting deals done, but it has been a challenging six months, I'd say, with the interest rates going up. This is going to be a really good year for a lot of our clients that are looking to acquire. It's honestly been a really good couple of years though for people who did buy real estate; a lot of people have sold and done really, really well... So I think that goes to show that there's two sides of the coin. I think a lot of newer investors forget that they probably will eventually sell it. It's nice when prices go up... So I've seen both sides of it over the past year.
Slocomb Reed: I'm a residential agent as well, and I would say -- I've transacted a lot, probably not as much as your team, but I've transacted a lot in that two to four family space, personally, and representing clients and working with other agents, helping them with their clients. And I would say, specific to property values, and not necessarily inventory, that there was steady growth heading into the pandemic, and then property values just skyrocketed. There was a lot of capital looking to get deployed for yield. And the popularity of house-hacking I don't think is going to go anywhere, ever.
Coming out of the pandemic, with all of the talk about inflation and interest rates, here in Cincinnati I have my finger fairly well to the pulse; property values have not receded at all in that asset class, two to four families. I would say it's likely a part of that low inventory that you're mentioning, but demand has been incredibly high. So with interest rates doubling for this product in the course of under 12 months, property values didn't go anywhere and demand for the inventory available remained steady here, keeping property values buffered up. Is that your experience in Chicago right now?
John Warren: You could have just talked about Chicago and substituted Chicago for Cincinnati... But yes, prices just exploded after the pandemic. And there was a huge run-up in pricing from 2021 to 2022. And kind of like you referenced, when we look at a graph this year with our sellers and we say "Hey, prices aren't going up 12%, but they're moving more flat, or up 1% or 2%", that's still a huge win, especially when you look at how high they went so quickly in two years. But I agree, there's very low inventory, so we don't really see prices going down at all in the near future, even with the increased interest rates. There's just too much demand and not enough supply.
Slocomb Reed: Oh yeah. And better to be lucky than good. I've refinanced all my two to four-families in September and October of 2021, so I'm more than happy to ride out this wave and see that my property values are not decreasing with all of the activity in the market.
John, this is going to end up being a more pointed conversation for a couple of Midwestern residential agents who are operating a commercial multifamily portfolio. I know that our listeners will gain some value from this, whether or not they're invested in markets like ours, with assets like ours... But I want to ask you - you said you're heavily involved in the day to day operations of your 150+ unit portfolio?
John Warren: Yeah, I'm very involved. So all my friends here in Chicago always call me a control freak, but I can never 100% let go, which is why we chose the vertical integration route, versus using a third party manager. I wouldn't want to drive any third party management companies insane, so I'm still very involved in the day to day operation. We've got a great team. We've got a property manager, an accountant, a couble maintenance guys, we have a pretty good sized operation now going, but I'm still very involved, especially [unintelligible 00:09:39.17] CapEx, major unit turn decisions, things like that. I still kind of want to know what's going on at this point. So yes, very involved.
Slocomb Reed: Let's talk shop a bit here, John. As of today, my management portfolio - it's growing, but it's 165 units, and some of that is third party. You were talking about vertical integration... When my acquisitions didn't scale as fast as I wanted my operations to scale, I decided to take on third party clients. You said you have a property manager, an accountant, a couple of maintenance guys... Is that your full team?
John Warren: Yeah. If you wanna know the full team, we have a property manager, an accountants, one assistant who switches back and forth between the realtor business and the management side, as needed. And then on the ground, we have three guys that are working for us full-time, the fourth guy that sort of came along for the party, he was let go by somebody else, and needed some work; he's related to one of our guys. And then we have quite a few people that I consider people that work with us regularly. They're [unintelligible 00:10:41.25] 1099 guys that work for whoever they want, but we consider them part of the team. So the maintenance and construction team is huge. Those guys are the lifeline of your business. I'm sure you know that.
Slocomb Reed: Absolutely.
John Warren: But the people that are getting stuff done on a day to day basis. That's it - you can't speak too highly of those guys. They're the ones that are the hands and feet of the business, and they're providing customer service for the most part to the residents when things break or go wrong.
Slocomb Reed: Asking much more so for myself here, hoping our listeners are following along, thinking about vertically integrated, active operations here... Operating a similar size portfolio to yours, I have avoided the hiring a "property manager" to be an employee of my management company. I've avoided that because of what I perceive to be the complex layers of responsibility involved in being a property manager, I would much rather have the complexities fall on me, and focus on hiring people for more of the day to day work.
I have people who help me with showings and move-ins and move-outs, and with simpler apartment turns; they're the ones who are building out the punch list. Where I get involved - in the more significant renovations and building out which renovations will yield an ROI and which will not, so that we're not spending our money or my clients' money needlessly, on things that will not increase revenue. Tell me what your project manager employee does.
John Warren: It's interesting that you said property manager and project manager...
Slocomb Reed: Yeah.
John Warren: There's a lot of overlap, or maybe a confusion about what a property manager is... So maybe what I'll do instead of trying to explain is I'll just define what my property manager is. He is a virtual employee, so he is not on the ground, and he fields all of our maintenance calls, and he also takes care of a lot of our re-leasing. So we have upcoming lease renewals, he's handling the renewals side of it. You're very well aware. It sounds like we actually have a lot of similarities in that. The complexities of CapEx renovations, business plan execution, I guess, if you're the operator - that's really more where I still want to take responsibility. I think it's really hard for somebody that is a manager, that doesn't understand what the business plan is to make these big decisions. I even would say it's impossible for that person, without having an understanding of the budget and how things are supposed to operate. So I'm still the one that's making most of decisions on these unit turns; but they're not regular unit terms. They're really the first time we've touched these buildings, and many of them have not been touched in 20 years in any meaningful way in a unit turn, so we're doing pretty substantial renovations as part of the value-add plan.
So I actually think we have a similar level of involvement from what I'm hearing. Where I'm not really involved would be more your routine maintenance, like "My toilet's clogged. My sink faucet's broken." All the maintenance guys that we use are very competent, and they can pretty much handle them on their own. And it's just A text message is all it really is for my manager. He's very, very competent and kind of knows when I'm needed, versus when he can just get one of the guys to handle the issue. But that is a tough thing, and it's interesting that you're doing more third party; for me, that's been the challenge of third party, is that you have to think through a different lens that I'm not really that ready to think through, because I'm really more focused on executing our business plan, versus manage profitably for somebody else.
Break: [00:14:17.12]
Slocomb Reed: I have interviewed a few people on this podcast, a few who have used third party property management to scale their operations, and improve on the execution of their own business plans or their own portfolio. I've aired 160, 170, maybe more than that episodes in just over a year, and I can think of two other people I've interviewed off the top who've gone into third party management for the sake of being a better investor. So it's not very common; it's complex, it's not high margin, like some other service provider or vendor positions you can put yourself in as you scale... So I get where you're coming from there, for sure.
And when you talk about your property manager being virtual, that resonates with me a lot as well. One of the first things that I did was put a virtual assistant on payroll to basically be on the phones 40 to 50 hours a week; all of the tenant inquiries, all of the prospective tenant inquiries, the Zillow and Apartments.com leads that come in... It's amazing. I've had to show apartments within my portfolio a lot recently, while I'm going through an employee transition, and some of the people who I'm showing apartments to thought that my tenant relations VA was an algorithm, was just automated responses, because of how quickly she was getting to things. But it's so invaluable to have that resource, that asset; someone who's just on the phones all the time, communicating with everyone. "Hey, your rent is now late. When are you planning to pay? Don't be surprised when you see the notice on your door." "Hey, your lease is up in a couple of months. What are your plans? Are you ready to sign a new one-year lease?" Those kinds of conversations, just having someone to go through those cycles is incredibly helpful when you are our size.
Another similarity I'm hearing between the two of us is that with portfolios our size, there's a level of decision-making that we're not ready to delegate yet, and also a level of activity that's still involved as the portfolio scales. I am very much looking forward to being at 250 and then 400 doors when I'm able to delegate a lot more of the in-person activity of operations and property management.
One thing I'll say, last [unintelligible 00:17:30.28] Midwestern owner-operator question here before we move on with the conversation... Given our somewhat older apartment inventory, I've been told that you need a full-time maintenance person on staff for every 100 doors that you have. That experience is not panning out for me. Really, with 165 doors that I'm managing right now, I can't keep one maintenance person busy full-time. Now, that being said, I also buy more significantly distressed assets, that require a lot more renovation up front, so a lot of my stuff, my fixtures and things are newer... But that full-time maintenance person per 100 doors - is that your experience in Chicago?
John Warren: So it's funny that you ask about that, because that was a transition I made last year. We didn't have enough maintenance help. And now we've probably gone the other direction, we have too much maintenance help. But at the same time, we're taking a lot of the general contracting in-house. So I really am in the process of right now looking at a team we have and saying "Who here is really part of our general contracting or unit term team, and who here is a maintenance person?" And what is maintenance, kind of like you're referencing? Is maintenance [unintelligible 00:18:44.13] the sewer main, which is something that's happening right now, while this podcast is being recorded, in one of our buildings? Or is it cleaning the hallways and changing lightbulbs? There's a vast array of things that could be done by a maintenance person. So I wish that I had all the answers that I could deliver to you in this podcast, but I feel like I'm still figuring this stuff out.
And we're growing fast and trying to prepare ourselves for that 300 to 400-unit spot you just talked about... So I feel like I'd rather -- when talent comes up, I'd rather acquire the talent, than be always behind the eight ball. That was the worst answer to your question I could have put together.
Slocomb Reed: No, I get why you're saying that's a bad answer, but I also resonate with it completely. Going through the Traction process - Traction, the book by Gino Wickman - I realized that one of my core values professionally, but also in life in general, is adaptability. And I very much feel the need to be nimble with the portfolio size that you and I have. Of all of the people W-2 and 1099 who work for me presently in maintenance and rehab, apartment turns, HVAC etc. it feels like firm labels and rigid job descriptions are just more harm than good. I have some people, each of them has some skills, and really the most important thing I can do is remain adaptable, nimble. As issues come up, figure out who of my people is the best way to address it, and just deploy them, whether they are my full-time maintenance person, or whether they are one of my rehabbers who has worked for me for over a year and who I trust to be in an occupied space even if they're a 1099. John, are you ready for the Best Ever lightning round?
John Warren: Let's do it.
Slocomb Reed: Awesome. What is the best ever book you recently read?
John Warren: I recently read Traction, which you referenced earlier, and I found that that book has been changing the way that I run my business.
Slocomb Reed: That's a book that I need to go back to every 18 months, for sure, and pick out the things that I'm finally ready to deploy in my business. What is your best ever way to give back?
John Warren: Best ever way to give back for me is to run a meetup. We actually run a meetup, me and a friend of mine who's a local property manager, here in [unintelligible 00:21:10.07] area, and we are joining up with a larger organization called the NBOA in Chicago, where we can get better informed, help investors connect with the movers and shakers in the area.
Slocomb Reed: Nice. Shout-out to local meetups, for sure. John, I want to ask this question twofold, both as a broker and as a commercial real estate investor - what are the biggest mistakes that you've made, and the best ever lessons that resulted from those mistakes?
John Warren: As an investor, that's a fairly easy one to answer. You referenced earlier in the show old building stock. And I have left a lot of plumbing in place that I deeply regret four years later. One particular building, that was my first gut renovation, I had the perfect plumber, and I should have hired him to do the job; it would have cost about $3,000 for 19 units to have everything be brand new, and still I decided to keep all the old stuff in there... And I've had to pay the price. And I learned that lesson over and over and over and over again. So lesson learned - as an investor, when you have the wall open, change the plumbing, the electrical, the HVAC. Take that opportunity. It's an opportunity cost. So that was a big lesson for me.
Slocomb Reed: Oh, yeah. We're in markets that still have lead supply lines, cast-iron drain lines, not to mention knob and tube wiring and aluminum wiring. So I totally get that - if you're opening the wall up already, for sure. And then as a broker, biggest mistake and best ever lesson resulting from it?
John Warren: Early on as a broker I didn't know who my ideal client was, so I wasted a lot of time doing things with Zillow leads... And like many brokers, I listened to whoever was advertising to me online. As I became more experienced and figured out how to work in a geographical area, I was more successful, and I was able to find who my ideal clients are, people, my tribe. So somebody that here is listening and is a newer broker, I would recommend them think through who they actually want to work with, otherwise you have to spend all your energy trying to help everybody and you end up helping nobody.
Slocomb Reed: On that note, John, what is your best ever advice?
John Warren: For me, my best ever advice is to always think about the people on your team, how you can help them. Early on as an investor, I always thought about myself, how can I get the lowest interest rate, cheapest attorney, the contractor that was the cheapest. Now I like to think in terms of relationships - how can I help other people? And in turn, that helps me, because I get to work with the same awesome group of people, whether that's a contractor, an attorney, a lender... It's helped me build my team; always looking out for the other people on my team. So I would recommend somebody always thinking about others, and how you can help them, not just about yourself, as you build.
Slocomb Reed: That's awesome. Last question, where can people get in touch with you?
John Warren: The easiest place to get in touch with me is just by email, jwarrenbroker [at] gmail.com. Or I can give out my cell phone number. I'm pretty easygoing. You texted me at 2am, I'm ignoring you, just like I am the tenant who is texting me. So it's all good. Yeah, I'm always pretty easy to get in touch with.
Slocomb Reed: Great. And those links are in the show notes. John, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this conversation between a couple of residential agent apartment owner-operators in the Midwest, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a best ever day.
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