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Mitch Meets With Texas Apartment President, Mark Hurley

Episode 380: Mitch Meets With Texas Apartment President, Mark Hurley

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REIS 380 | Texas Apartment Association

 

Running a commercial real estate company is a tough hat to wear, let alone leading a statewide trade association that links the biggest players in the rental property business. For Mark Hurley, running the Texas Apartment Association is certainly challenging, especially with the coronavirus pandemic going on during his watch as the association’s president. Mark is not your stereotypical real estate investor, who is supposed to be aggressive in the way they pursue profit and growth. Building on his father’s legacy, he believes in the concept of small, consistent growth. Together with an organizational philosophy that creates the most satisfying working environment for employees, he has kept the company his father built afloat and growing even in a time of economic uncertainty and chaos. He now shares his journey and the lessons he has learned from it as he joins Mitch Stephen on the show.

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I’m here with the Texas Apartment Association President, Mark Hurley. Mark, how are you doing?

I am doing well, Mitch. Thanks so much. It’s a busy time for all of us.

Yes, it is. I’m sure we have a lot to talk about. First, I’ve got to pay homage to my sponsor, TaxFreeFuture.com. If you don’t have a tax-deferred or tax-free retirement plan, you have no idea the size of the tool that you’re missing in your tool belt. Check out TaxFreeFuture.com because you have no idea what your financial advisers are not telling you. There we go, I’ve got the bills paid, Mark. I don’t even know where to start with you because I’m going to bill you as a big operator. That’s an understatement. Tell us a little bit about your history because your father immigrated over here.

That’s right. He started buying properties when he was in Europe and we lived in Europe in 1985 or 1986. It was a few single-family homes that are highly leveraged. I remember one of my first jobs around the age of 15 or 16 was entering in rents. We were living in the Middle East at the time and wondering why after you put in the income and the expenses, it was all negative. The reason was as soon as he bought everything, the market crashed in Texas. He had houses that were worth nothing that the interest rates were 16% or 18% on. He didn’t know that you could walk away from those things because we were living in Europe. It was unheard of to walk away from debt. He kept paying on them.

In 1994, I had come to university in the States. He came over for about six months to try and manage those houses. He noticed that all around him were single-family homes that were about $9,000 for a single-family home that would rent for about $500 a month. He couldn’t believe it because the streets were full of people and people were renting these things, but they were so cheap. He decided not to get rid of the ones he had but to double down. He started buying these $9,000 single-family homes, as many as he could lay his hands on and we were still fixing those that he bought in 1994 and 1995 with every penny he had. In 1999, we’re still working on the outside. Putting up siding, roofs, and things like that because he bought so many distressed homes and we started to buy apartments.

You sell the same old adage. You buy when it’s down. Was it down at the time or were houses that cheap at the time?

REIS 380 | Texas Apartment Association

Texas Apartment Association: The simplest way to consistent growth is to buy a unit, make a small profit from it, and repeat that many times.

 

It was down at the time. He always said that if we’d come in two years earlier, we would have been many times bigger as a company than we were. He got it in the last few years when it was down. It was in 1991 and 1992 when they were bargains. They were bargains in 1994.

You guys have been in the business for two generations. Does it go back any further than that or is it two generations?

Two generations. My dad was a poor Irishman from a little village in Ireland. He was homeless for a while when he first moved to London. He had a bed that he shared. He had it in the day and someone else had it at night and made himself what he eventually became from there.

He’s a successful man and it took a village probably to keep up with him because he did all kinds of things everywhere, but I want to stick to the subject of apartments. Why is it such a common theme that a lot of the most successful people have slept on the floor for a long period of time? What do you think that is?

Adversity is probably one of the greatest teachers a person can have in their long term business life. I say that because my dad was always creating adversity for me and for all of us that worked with him in the village. He went through it. If you have a combination of somebody who learns from adversity, wants to continuously improve themselves, and knows how to work hard, you have some keys to success.

I’ve got it in my mind that there is no neutral. You’re either moving forward or you’re moving backward. There is no such thing as neutral. You want to park your money and say, “I want to park my money and be neutral.” It’s going backward every second. If that money is not growing, it’s going backward. Inflation, the powers that be, or the resources that are needed to stay in place. To sleep, we have to breathe. There is no neutral. Breathing is burning energy.

Adversity is one of the greatest teachers a person can have in their long-term business life. Click To Tweet

I agree. There’s that saying and I believe in it. It’s proven true. Either you’re growing or you’re dying. I would say that we buy most of our properties in bargain time because we feel like we need to be constantly growing. We will take less of a return and still keep buying small amounts even when prices are high because of that adage. If you’re not growing, you’re dying.

I do lots of little deals and we were talking before the show. You were talking about how you believe in consistent growth. I’m going to ask you about some more keys to your success, but one of the things you said was, “Consistent growth but it’s not big leaps and bounds.” I truly believe in that because you can learn to systematize and keep up with what you have when you’re inching along. If you make some mistakes or you get in a bad time where you shouldn’t be buying anything at all, but you buy a few it’s a whole lot different than if you go out and buy 2,000 apartments or something. What’s small in the apartment business, though? You said consistent growth in the apartment but what’s a small deal in apartment business for you?

Our smallest apartment community is 33 apartments and our largest was 300. We sold our first property ever for the first time in 2019 because it was in Fort Worth, and that was 300. Our biggest property now is 235. That’s the bat and we do a lot of single-family homes still because when things become too expensive, we keep going through the purchase of the single-family homes. One of my dad’s big lessons to me and he said over and over again is, “The way we’ve done well in business is to buy a unit, make a small profit on that unit and repeat it many times.” The small consistent growth aspect of this has made it manageable, it’s not too risky and it’s done over a long period of time. It’s amazing what compounding interest like that can do.

My forever play is storages. I like to buy boat storage on dry land, dry storage, and self-storage or mini storage for household goods. It’s amazing because I remember my first set was in 1991. I had thirteen little boat stalls in front of this park by the lake where I live. Those rents were $35 a month and nowadays, those same places are renting for $100 a month. My debt has consistently gone down. I didn’t have any debt on that one because it was $8,000 when I paid for the whole thing. The rents, in typical times are always inching up. They might take some dips and the debts are always going down if you have debt. The gap keeps getting bigger and the cashflow keeps getting larger. That’s what I like about the forever play. I can buy houses, fix them up, and flip them. I can buy houses, sell, and finance them, but all those things go away and I have nothing to do when they go away. When I sell the house, it’s done, it’s over, but the note can get paid off at any time by the note creator. The only thing I have control over is my long-term plays and it’s the same thing with the apartments. Did you become president of the Texas Apartment Association in 2019?

Yes.

How does that happen?

REIS 380 | Texas Apartment Association

Texas Apartment Association: Leading an organization like the Texas Apartment Association is like building a business – you learn to handle it a little bit at a time.

 

I’m going to be the longest-serving president of the Texas Apartment Association thanks to Coronavirus because my term has been extended. I was supposed to be done in 2020. That being said, I joined the Apartment Association to learn from other people in the business. There are many different aspects of this business and it’s a great resource as well. To get knowledge outside of your island, I suppose that, was a great way for me to do it. I joined the local Apartment Association and went to some of the committee meetings. Somebody asked me to be on their board. I then became president of the local Apartment Association. I started to attend Texas Apartment Association meetings, got into their executive committee, become an officer, and become president. It’s about a ten-year process.

It doesn’t happen overnight. You answer the question I was going to ask you, which is why but reiterate why?

You get to the point where you’re surrounded by a lot of successful people that work in our industry. They all have different goals. There are different types of business models within our industry. You can learn and get knowledge. They’re all a great set of teachers. When you get to the state level, they’re from all over the state and when you’re part of the national level, you see different models from all over the nation.

There has to be more to it than your ego or having a plaque on the wall says, President of anything, because you’re a busy man. I’m sure being president of this association doesn’t help you with your time schedule. It’s got to be tough. How do you handle your full-time business life and this being the president of the Texas Apartment Association?

It’s the same way you build a business. You learn to handle it a little bit better at a time. With experience, you get to know how to deal with these things step by step, and what’s the next thing to do. The other thing about it is, especially if you’re in a family business, it’s valuable. I became the head of our company because of my father. What I’ve managed to do within the Apartment Association I’ve managed to do by myself, not because I inherited it. That was important for my confidence too. As well as the fact that it’s an invaluable tool being able to lead people and being chosen to lead people not because you pay them, but because they’ve decided to follow you because it’s volunteers. It went from 26 single-family homes that were highly indebted to thousands of apartments and houses over the course of many years. It’s an amazing build, but we don’t have the corporate structure and the political machinations that an apartment association has. I learned a lot about corporate structure, politics, and all those things that come along with that like internal politics and lobbying through the Apartment Association.

I’m a member of Texas100.org and we are created to raise money for lobbyists to help control, regulate or oversee your seat and help try to guide the laws and regulations for creative real estate investors. It’s a whole other world. I’m like a fish out of water up there because I’m not used to politics. I have my own family run business and we get to do whatever we want to do or bend it however we want to bend. Up there, It’s the whole other game. I’m not sure why I’m not cut out for it but that’s why I’m there to raise money to get lobbyists in people that are cut out for it to go represent our industry. That’s what the Texas Apartment Association also does. It’s probably a big watchdog or watch group.

If you’re not growing, you’re dying. Click To Tweet

Yes, and throughout Texas, where we’re seeing eviction moratoriums, 60-day grace periods before even giving the notice to vacate being introduced, and property taxes rising at a time when we have a disaster on our hands. It falls on the Texas Apartment Association to go and do the best that it can for the rental community in Texas. It’s 15 million residents that all this will affect. TAA is looked on with big and has a big responsibility in all of this.

How has Corona affected the apartment community?

We were seeing a lot of laws being instituted by cities. Some of them may be unconstitutional. Sixty-day grace periods before you can give the notice to vacate is an example of that but collections overall have not been as bad as we initially thought they might be or feared. In April 2020, the average delinquency in Texas was about 10% to 12%. I don’t know what the average is on a normal day but it’s probably 2% to 5%. It’s not that much more above the average. The May collections have been a little bit better probably because unemployment benefits have kicked in, stimulus checks have been arriving and PPP loans have hit businesses. The fear is what will happen when the stimulus checks and the unemployment benefits run out in a few months’ time. We’re always worried about the next month. One of the biggest risk in the country, “What are you thinking?” He goes, “We’re planning it 120 days at a time.”

The only thing you can do. It’s unprecedented what’s going on. We’ve never seen this before. The weird thing is, I’m in the seller finance business. I sell my houses on 30-year fixed mortgages. My people have a lot more stake in the game. They would have at least 10% down. A lot of them put 12%, 15%, 20% or 25% down. Some of them put a little less than 10% but they had to fix the whole house up where they might have put another $30,000 with their sweat, labor, materials, and more money in. We’ve barely noticed a dip, but we’re worried about the same thing. People got their money. Maybe they have a little bit of reserves. Hopefully, a lot of Americans will learn that you have to put something away for a rainy day. There are too many people that can’t make it even 30 days. Our owner finance business hasn’t seen a problem yet and my storage is I have not seen a problem. I have about 1,600 doors there in the storage facility. I haven’t seen a problem there yet, knock on wood, but I’m hoping it’s going to pass pretty soon, but it seems it keeps dragging on and on.

This is probably the tip of the iceberg because the economic aspects of this will probably drag on for a lot longer. I don’t know how you put 33 million Americans back to work and without having that cash in the system for things to get back to normal. If you’ve got a 10% or more GDP drop and the average growth rate is 2% to 3% in the year, it figures to get back to pre-pandemic levels. It’s probably going to take a while. That being said, this is an exciting time for people to get into our business. I can see why your collections would be less than ours, because of the cultural mindset of the ownership and the investment in it for them, psychologically and monetarily is greater. I was talking to one of our interns. He was talking to me about, “Should I go into corporate after this? I want to stay working in this business. I want to be an entrepreneur. I want to own my properties.”

My suggestion to him is going back to TAA, and I know I’m all over the place on this answer, but my suggestion to him was, “Stay with us, and soon you’re probably going to see some amazing opportunities come your way. If you want to get the corporate experience, join the Apartment Association and you’ve got your bases covered with all of that. If I was you, looking back, this is probably the most exciting time to be in this business.” This is, possibly and I don’t have a crystal ball, like 1991 that’s coming up. I don’t know if it’s going to go there, but preparing for that now and hoping that and expecting it is going to happen, I don’t want any suffering to happen, but this is an exciting time to get involved and maybe the best time we’ve ever seen.

REIS 380 | Texas Apartment Association

Texas Apartment Association: This may be the most exciting time to be in the real estate business. You have to be prepared to seize the opportunities that will surely come.

 

I want to reiterate what Mark said. No one’s wishing anyone to have any suffering. That’s not the point, but it’s going to happen, whether we like it or not. We didn’t cause it. Mark didn’t cause it. I didn’t cause it, but wealth comes from chaos. I borrowed that from an anonymous source. I’m trying to find out who said that, but they don’t know. I wrote that on the cover of my first book every time I had to sign it for people. Wealth comes from chaos and there’s going to be some chaos from this. Competition is dropping like flies. Right around the corner, I predict that we’re going to see the results of this and it’s going to be manifested in lower prices in distressed properties from people who didn’t manage well, didn’t plan well, weren’t ready, or got hit hard, unfortunately. We are going to see opportunities.

During the last recession, I was buying a house a day, because I function primarily off of private money and I didn’t need a bank to buy my houses. For 45 days in a row, I bought houses and the problem was I didn’t have a system at the time. I was the house buyer and the house seller. By the time I looked up and I had 45 vacant houses because when you’re buying a house a day, you don’t have time to sell one. I got scared and stopped. I have since solved that problem by learning how to delegate and systematize. Mark, let me ask you, how many people around you does it take to facilitate you? Do you have any personal assistants? They used to call them Girl Fridays or whatever. It’s someone who’s like, “I need my dry cleaning.” “I need you to fund my tax return and drop it off at the deal.” It’s all over the map, whatever you need, “Mother’s Day is coming up, make sure I got flowers on the table.”

I don’t have any personal assistants. I never have. That may not be wise. I’ve often been told that I probably should. Our Texas company is down to about 100 people not because of this, but because we got more efficient. We use a lot of contractors for our labor and they’d be handy people off of Craigslist. That’s a whole other system that we’ve developed over the years to get our work done efficiently and less expensively. I can call on any of those people and we try to do a flat management thing. With Zoom, which we were using and Hangouts for quite a long time before this, I can speak to any of our managers at any time and I can ask them to do anything. To answer your question, I don’t have any of that. I probably would be wise to. My son is going to school at Trinity and is one of our interns. During Coronavirus he’s been in the house with me here. I’ve been using him to a certain extent as an assistant.

What a lucky young man to be able to be mentored in that way. There are other people who would give their arm to be locked up in a house with you for a half a year so they can figure out what’s in your head. You’ve got such a big life so much to do. You’re a master delegator, but what are some of the rules that guide you?

Small consistent growth has been one of them. We never go too far. We have a return that we expect and we try not to buy below that return. It was tempting in a few years to want to buy no matter what the price, especially when you’ve got cash sitting on the sidelines. I’m glad that we didn’t and we waited. We did keep growing a little bit to satisfy the hunger. We tried to stay out of debt. We started debt-laden and we were offered good debt terms when we first started buying in 1994 and 1995. We paid off most of that debt quickly. We have a little bit of debt, but we’re probably about 1% leveraged at the moment.

That’s not how we started but we always kept debt fairly low. We never went too far with it. We got out of it as quickly as possible and it became a virtuous cycle. We tried to buy services in bulk for our residents and charge them the costs that we paid. We might buy Wi-Fi for every resident in an apartment community and only charge them $10 but we know we’ve created value for them because they would have paid $80 for it by themselves. Wherever can do that, we do. We try to pay our vendors quickly. All our contractors get paid the day they finish the job.

The key to consistent growth is to run lean, watch your expenses very carefully, keep your debt low, and play it as safe as you can. Click To Tweet

We will treat them as we would a valued customer because we want them to finish quickly. We try to have a four-day turnaround on our units because the biggest settlements in Texas for at least for the past few decades, has been how quickly you can get the unit ready to rent to somebody, not whether there are people out there to rent it to. We spend a lot of time on it even though we deal with people that others may not think to deserve the highest level of customer service because we deal with poorer people. We try to get all our people focused on yes.

I could go on and on but I would say that having the people around you is one of the most important things there is. We do only four-day workweek with our employees because we want them to be rested, to spend time with their families, and have a select group of people that we work with. We pay them for five days, even though they only work for the four. That may sound insane, especially in our business, but we see a lot more productivity happen because of that. We see a much happier environment with employees who retain their customers because turnover is one of the biggest costs we see in my business

I love your outlook on the employees, the four-day work week, and paying them for five. That keeps people around because turnover inside your business is hard too. You train them, they finally get to know how to run everything in the culture that you want. When they leave, it’s exasperating to have to train over and over again. Do you have a pretty sticky employee base? Do they stay for a long time?

Yes, we have people that have been with us for the whole 25 years. I remember reading, coming out of college, do the interviews, and stick to 45 minutes and have a list. I’d see my dad do an interview with somebody for 2 to 3 hours. I thought that was insane. I thought, “I know something that you don’t know.” I kept talking to him a little bit about it. He was like, “I can spend two hours with them or I could spend 40 hours dealing with a bad employee later.” That has come to make a lot of sense to me. He used to be selective.

I learned from screening our prospective buyers to ask 10 or 15 questions that have nothing to do with the deal, the house, or anything to get them talking because you could learn about a person by what they’re telling you about their regular life. It’s been invaluable. That’s one of the keys to our interviewing process. To figure out who we want to select as a person that we’re going to give a 30-year mortgage to is to get them talking. People will tell you the damnedest things if they are not comfortable. Sometimes the damnedest thing works in their favor and sometimes it’s like, “Hell no.” I don’t even want to be in the same block as this person. Some of the things they tell you are unbelievable.

I could talk to you probably for a week straight and never finish. One of the reasons I do this show is the same reason that you have chosen to take on the weight of a presidential seat at the Texas Apartment Association. I get to talk and to be around successful people all over the nation and believe me, I learned a lot. You’re another fine example of why I like to do this show because what’s the chances of us being able to sit down this? If we didn’t have a common friend together, I probably would have never got to talk to you ever because your schedule would be packed. What are some of the takeaways before we wrap it up?

REIS 380 | Texas Apartment Association

Texas Apartment Association: Turnover is one of the biggest costs in this business. Focus on creating a much happier environment for your employees to improve productivity and retention.

 

First of all, I’ll say that what you’re doing with your questions to your buyers and asking them seemingly unrelated questions is exactly what my dad did. I’m not surprised that you do it. I agree with you. Having hundreds and thousands of people that do what you do, and having those opportunities to learn it’s like having hundreds and thousands of teachers. It’s an amazing way to learn. I learned a lot every time I talk to you as well, Mitch. I appreciate getting to know you. It’s expanded my thinking. For some of the takeaways, I go with what my dad said and these are all my dad’s lessons to me. Make a small profit on a unit and do that many times over.

Small and consistent growth is the best way to do it. As Albert Einstein said, “Compound interest is the greatest force in the universe.” We watch our expenses carefully. We’re going through them again as we build cash for what we expect might be coming to work. Work hard is necessary to become successful. We’ve kept our debt down to no debt or limited amount of debt so play it as safe as you can. That doesn’t mean to not take on any debt but don’t do what a lot of other people sweating crazy out there are doing or have done. Always be improving. Surround yourself with those hundreds and thousands of teachers that you can learn from and learn on a daily basis.

You left out one and I know what belongs on there because I know you, your story, and your dad’s story, but you operate at a high level of integrity too. I can tell everyone out there. It’s natural to you that you don’t even think to write it down but you’ve got to stay at a high integrity level because it takes years to build a reputation. It takes a day to ruin it. I know that because I’ve talked to you before. You’re a straight-up guy, don’t fudge anything, by the book you, you take care of people and treat them how you would like to be treated. I admire that about you. It’s easy to get jaded in the low-income rental business because they can wear you out. How do you keep from getting worn out? How do you insulate yourself from some of that?

I agree with you completely on the integrity reputation has great value even if it’s not about you in terms of how you can do well in business because of it. Sometimes it’s hard. We do customer service focus groups with our residents and sometimes we walk out of there shaking our head with some of them but then again, there are some amazing people amongst them as well. The vast majority of them are probably amazing people. I try not to think about it too much.

I did it. I had to get someone in between me and them because to you and me, that’s our money and our house you punched a hole in the wall. It can get emotional. If you get a manager in between them, I don’t want to degrade the manager, but they can’t have as much fervor as I do because it’s not their piece of sheetrock? It was my piece of sheetrock. I had to put some people in between and say, “Call me when the problem gets to this level. I don’t even want to know their names or what unit. I’ll tell you how to handle it and go over there and fix it.” I had it after a while. I didn’t have to put remotely close to the level you did but that’s how I ended up doing. I still have to do it to this day.

That’s a good point. I do have a general manager, Mike Rust and I have another development guy who gets involved a lot. His name is Corky Wolfe. Life has gotten a lot better for me since and it’s a lot easier not to get jaded because they’re there taking on those issues.

I would like to thank you for taking the time to come on. You’re a busy guy and I don’t want to drag you through the rest of the day, although I could easily talk to you forever. I’d like to thank all the readers out there for stopping by to get you some Mark Hurley, President of the Texas Apartment Association, the longest-running president ever due to COVID. He’s extended form which I’m sure he’s ecstatic about and happy to serve everyone. I’d like to thank TaxFreeFuture.com for sponsoring us. You have no idea what your financial advisors are not telling you. Please go to TaxFreeFuture.com. Watch the 37 little video vignettes and hear what they’re not telling you, why they’re not telling you and you can do with it what you want. Mark, thank you for your valuable time. I appreciate you.

Mitch, thank you. It’s an honor and pleasure. As always and talk to you soon.

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