Latest / The Accounting Podcast / Best Metrics for Property Management and Development (from the Best Metrics Podcast)
Transcript
- Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Katie: Welcome to the Best Metrics podcast. Each episode, we meet with industry experts to discuss how they evaluate financial statements, what metrics they commonly use, and how their clients have improved. We'll also gather suggestions of how you can incorporate the same insights and processes into your own practice. Thanks for listening and enjoy this episode. Glenn Dunlap: Hello and welcome to another episode of the [00:00:30] Best Metrics Podcast. I'm your host, Glenn Dunlap, and today we're exploring the metrics and property management and development, from overseeing residential and commercial properties to navigating complex regulations and financial strategies. Property management and development offers both challenges and opportunities for CPAs looking to support their clients needs. This time, we're joined by an industry expert. Our industry expert today is Kenya Brooks, who's going to give us some insights into into this, into this industry. Kenya brings over 25 years of accounting expertise, [00:01:00] consistently exceeding expectations with her servant leadership approach. Graduating from Southern University in Accounting, Kenya launched her career at Hunt Realty as a project accountant before honing her skills at Stream Realty Partners in property management, development, accounting, transitioning to Leading Streams corporate accounting team. Kenny's journey then led her to survive CPAs and advisors in Dallas, where she's played a pivotal role in helping a dynamic team focused on meeting the evolving needs of clients. Kenya's unwavering dedication spans across commercial, [00:01:30] real estate and professional services, embodying the essence of an indispensable partner. Kenya, it's wonderful to have you join us today. Kenya Brooks: Thank you. Glenn, this is exciting. Yeah. Glenn Dunlap: Welcome to the podcast. I think, you know, as we were talking off camera, we just launched today. Everything went live today on our first episode. So we're we're excited to have you join us. And um, so before we jump into some of the, you know, details on some of this stuff, let's take a moment to to highlight Savile. So Savile stands one in the in the top 200 firms [00:02:00] in the country's nationwide has about 160 employees or so, if that if I'm not mistaken, that. Is that sound about right? Kenya Brooks: Correct. We've got about 63 CPAs on staff. Um, we are gearing up in the next month or so to have our summer intern class come in, and there's a rumored to be about 40 people coming in. Glenn Dunlap: Oh my goodness. Kenya Brooks: Yes. Glenn Dunlap: Um, how many how many different locations do you have? Kenya Brooks: We are one location, Dallas based. Um, we [00:02:30] are one of the long standing CPA firms here in Dallas that has not been bought out by larger firms. We have acquired one firm, and that's actually how I began my career with Savile. So interesting. Okay, I was with a smaller financial services company, being a financial services started by one of my cast partners, and she was [00:03:00] looking to, you know, do some planning for her family's succession. And Savile's values lined up with her values. They pretty much made an offer she couldn't refuse. And five years later, four years later. Let me do the math. This is not an accounting podcast. Um, four years later, here we are. Glenn Dunlap: Yeah, well that's fantastic. Kenya Brooks: So, um, but it's been great. Savills and amazing company. [00:03:30] Um, it's, um, a very Zen place. I just became a partner this year. Savills been around since 1965. And like I mentioned earlier, it's one of the longest standing CPA firms that has not been acquired. And yeah, we're holding firm to that. I know a lot of firms have been, uh, delving into private equity, and we like our culture so much [00:04:00] that like while yeah, it's out there and we're exploring it, I think that's one of the things that will keep us from participating is that we don't want any other group coming in to change our culture, change our structure. Glenn Dunlap: Yeah. Well, so a couple of things in that. So one, congratulations on the, the the partnership. Uh, that's uh, you know, making partner. That's an exciting time. It is. Thank you. Yes. Yeah. So that's great. Um, and the second thing I would say is just having known, [00:04:30] uh, you and several of your partners, but not knowing specifically, um, the values, um, I can, I can say that I would have I would have pegged that anyway without you having to tell me that just based on the way that you all have, uh, operated and and the things that I've seen about your firm. So that's, uh, that's it's it's it's a fact. You guys do live that out. So that's that's, uh, fantastic. So love to love to hear that. Yeah, absolutely. Tell us specifically about your cash practice. What's what's happening within the cash team. Like how [00:05:00] big is the team. How many clients do you serve if you don't mind sharing some of those things? Kenya Brooks: All right. So our cash team is up to about 20 people currently. Okay. Um, growing. When we came over, um, four years ago, there were about seven people at Savile, and it was not an established cast practice. Cass was the holding place for people waiting for opportunities in tax and audit. Glenn Dunlap: Oh, interesting. [00:05:30] Kenya Brooks: However, as we know, Cass practices are like the way to go at this point. Yeah, that's right, it's the trend. So they brought us in because we had a strong practice, um, even though we were super small. So we came over with about another 7 or 8 people. Okay. And have now grown to. 20 or so. Um, and that growth obviously, you know, there's been some [00:06:00] turnover in that, but. We have turned this into a true caste practice. Um, coming over here with, um, revenues hovering around 1.2 million, growing that over the last few years into upwards, close to 5 million. So it's been exciting. It's been a lot of hard work. Like I would not lie. Um, but I'm excited for the growth. I'm excited [00:06:30] for the future. And I'm also really, really happy that we are supported by the firm. Um. It's it's been tough. This is a tax driven firm. So everything that we've earned I mean like we've really had to earn it and yeah. Yeah like nothing's been given and we. I'll be honest, the first year we were here, we did not operate at, um. [00:07:00] You know, our best. And we were able to turn things around. And we've seen like upwards of 15 to 18% growth over the last three years for sure. And just embracing technology. Um, yeah. Products such as, you know, what peer review offers. Um, I ran into you and got to meet you start building a relationship at the Bot Keeper conference. That's right. So that's [00:07:30] been beneficial. Um, just exploring ways to make the practice more efficient and allow us to focus on being those advisors to our clients. Glenn Dunlap: Well, I think that I think that story will resonate very well with our listeners when we think about the, uh, you know, the, the transitions that are taking place inside, uh, the firms where, you know, when we when we started selling [00:08:00] and we were trying to get in, it was forecast was even sort of coined as the as the name it was outsourced accounting I think was really kind of what people were calling it more than anything else. But I had so many people tell me, don't, don't try to sell into that space because that's the stepchild of, of, you know, of the firm that all the power sits in tax and audit and there will always be that. But I do think that Cass is kind of growing into its own. And so but there also been a lot of missteps in terms of technology and trying to figure out [00:08:30] how to how to do those things. And it's a different, um, it's a different revenue model. It's a different client relationship. There's a lot of things that really are that that challenge firms to sort of shake up the things that are sort of the traditional method for all of those things. So it's, uh, it's an interesting time. It's, uh, you know, we'll, uh, we'll circle back on that and explore some of that at some point. Kenya Brooks: I was just going to say, I definitely agree with you. Um, we felt like the stepchild the first couple of years and year over year. It's still [00:09:00] an exercise in explaining to our tax partners, particularly what we do. Yeah, I tell them we have been doing this long enough, like we were cast before CAS was cool. That's right. And just making them understand that our models are different, um, the way that we generate our revenues is different. And I've sort of coined us as the cash cow of the firm. You know, with tax and audit, [00:09:30] you tend to bill in cycles. With CAS, we're able to bill monthly and keep the cash flowing for the firm. That's right. We don't really get caught up in like the ah, cycles that they have because we're on top of it. It's not seasonal. So yeah we're showing them different things. And also just over the past I would say the last two years, I finally [00:10:00] feel like we have a voice at the table and that when decisions are being made related specifically to tax and audit, it's now, oh, how will this impact CAS? So finally, we're getting a little bit of recognition. Um, we just had a new partner come in on our family office side, and he was amazed at the amount of revenue that we generate. And he was like, I didn't realize [00:10:30] the CAS practice was this strong. He's like, you guys should, you know, have more say about what's happening around here. And I'm like, we're getting there. Um, the good news is my partners and I are very vocal, and we get in there and say, hey, we know this works for you guys, but it does not work for us. We're not going to be able to implement this. What else do you have? You know, that's great. Glenn Dunlap: That's great. Well, I'm sure that people are thumping [00:11:00] their dashboards or, you know, walking their dog a little faster listening to that because they all think they know exactly what you're what you're talking about when it comes to that. I think it's, um, you know, those are those are definitely challenges. So, um, let's, let's switch over a little bit to the, uh, just, you know, to the, to the metrics that we're talking about in this particular industry. So, um, you know, real estate, property management, uh, this is kind of the way I typically approach this is to think about, like when you have somebody, uh, you're [00:11:30] looking at a new prospect and they hand you a set of financials. So they're giving you some of their historical financials, PNL balance sheet, cash flow statement, potentially. Probably not, but probably PNL and balance sheet. But like, for sure, one of the first things that when you when you're looking at a, um, you know, property management or real estate company, what are the things that that you are naturally sort of drawn to right away on their financial statements? What do you look for? Kenya Brooks: I'm usually drawn to the PNL, and I want to see like a month over month comparison. [00:12:00] Okay. I want to see how you've been trending, which sometimes people get caught up just in what the year looks like or what the month was like, but I want to see how it compares month over month. Okay. And the reason I want to see that is because a lot of times in property management, there are fluctuations based on seasons. When you're looking at utility bills, when you're looking at repairs and maintenance, [00:12:30] I want to know what your trend is. And are you aware of the fluctuations in those various accounts? Glenn Dunlap: So do you look at one month always, or do you look at, you know, trailing 12 usually. Kenya Brooks: Ask for a trailing 12 okay. If they are not able to provide that then I want to look at. Your budget versus actual. And that's also going to gauge how well you are performing. [00:13:00] A lot of times our clients, they think budget. Glenn Dunlap: Huh. Well, I thought you're gonna. Glenn Dunlap: Say they're gonna say what budget? Do we have a budget? Kenya Brooks: Well, that's what I was going to say. They think, you know, the budget is the end all be all for their financial success. And we preach the budget is a guide. If you're exceeding it, great. If you're not, it's okay. Maybe we did a poor job of budgeting. Or [00:13:30] maybe things are just that great and you didn't anticipate it. Maybe there was a shift in the economy that wasn't anticipated. But that's right. Obviously if you're following the trends, you know, when the economy is going to turn. But a lot of our clients, they crack me up because they always say, well, can I just change my budget? It's going to make my numbers look better. Glenn Dunlap: And it's like, no, we're not. Kenya Brooks: Changing the budget every single month. Obviously, if you get wind of something that's going to, you know, impact [00:14:00] the budget down the line, we can make adjustments. However, that's where we go into a variance analysis. So, you know, we just need to be able to explain why the trend has changed. Glenn Dunlap: And use it to learn for next year's budgeting process. Like yeah yeah that's right. That's right. So I mean we've built a few forecasts on our day. And I think the thing that I always tell what I would always tell clients is that the one thing I can guarantee you is that this is going to be wrong. Uh, the question is, what is going [00:14:30] to be wrong, high or low and across the, you know, all those different counts. But, um, but it should be a pretty good guide, as you said. It should be. Kenya Brooks: It should be a good guide. And I get concerned when you're working with these clients who can't explain why, why the budget is so different from the actual numbers. And I'm like, okay, we need to dig into this. You know, you projected revenue of $1 million this year. We're at half a million. Did you not make [00:15:00] some leases that were anticipated? Did you have some unexpected move outs like let's dig into it, what happened here? And just making them understand that because there was a fluctuation, sometimes it's going to, you know, impact the entire year. Sometimes it's a timing difference. Yeah. And a lot of our clients, they don't like to budget. They just want to take things as they are, take it day by day. And I'm like, [00:15:30] how can you plan without a budget? And we work really hard to guide them to that budget model so that they know at least what to set their sights on. They can provide this to their lenders and say, hey, this is where I'm projected to end the year, and the lenders are happy because, you know, they want to see that you're making money, not losing money. And these clients, though, they [00:16:00] a lot of them come to us because they need they need assistance. If they had all the answers, they wouldn't need us. So we try to guide them to use the budgets, guide them to make good decisions on how they are using the dollars that they have. Aside from the typical accounting services, we work with our clients. If they're trying to hire accounting staff or need, [00:16:30] you know, determine that they need a controller or even a CFO. We work with them, figure out what their needs are, and help them interview so that they get the right people that can provide that consistent and continued service that we have been providing. Right. Glenn Dunlap: We try to. If I think about the. Glenn Dunlap: I'm sorry. Um, if I think about, like, the real estate and property management and I think about their PNL. How many of those things are, first [00:17:00] of all, they probably don't have I. My guess is, is there's not a lot of labor. There's not a lot of things on that. So there's probably more almost all real estate related expenses on that. Is that fair or would am I thinking about that wrong? Kenya Brooks: Honestly, it depends on the size of the asset. If we're talking say for example, multifamily, okay, you're going to see some labor because you're going to have like your maintenance staff, okay, provided, um, payroll. You're going to have [00:17:30] probably a property manager. Usually those are going to be the most expensive expenses that you see on the PNL. Okay. Then going into um, obviously insurance, property taxes, those have been growing out the wazoo. If you follow, um, the insurance trends, you'll see they're finally starting to come down a bit. But they really, uh, exploded [00:18:00] over the last couple of years. Just I don't know, these guys are saying they're not making money, but I believe it was Chubb just a few weeks ago announced record earnings. And so now it's you know, starting to tank a little bit which is good for you know property owners. But. Those property taxes, insurance and then payroll expenses usually tend to be where the bulk of the dollars go. [00:18:30] As you know, if you're following real estate trends, leasing revenues are. Like. I mean, I don't even know how people are affording to lease right now, but that's where the money is. And if you look at growth in your cities, yeah, there's so much multifamily construction going on. So obviously there are people out there to lease to. Kenya Brooks: So you're going to look at your revenues [00:19:00] and you can charge pretty much whatever you want as long as you've got a good product, because people need places to live. And I don't know how they're finding the dollars, but I know I live in a suburb of Dallas, and the rents around me hover around 1600 to 2000, and this is typically for a 1 to 2 bedroom space. And that's a lot. And that's more than most mortgages. [00:19:30] But we're also finding that a lot of young people can't get a mortgage or they don't want it. They want the amenities of home ownership without the responsibility of it. So with the clients we're looking at how much rent can you charge? How many units do you have? Are you maintaining these units? Well, are you, you know, refurbishing as you go or are you waiting to do a major overhaul at one time, which [00:20:00] then, you know, typically gets into some sort of lending, but just making sure that when we look at these budgets that you're being consistent about the expenses and you're being realistic and looking at the economy, you know, are you accounting for the increase in construction costs? Are you accounting for higher interest rates? Are the dollars that you're [00:20:30] using is it making sense for you? Katie: Business owners are surrounded by data but are desperately looking for the insights they need. Using benchmarks and industry metrics can be a great way to start a conversation with your clients and provide the clarity they need. The only challenge is having access to solid metrics for your clients when you need it. That's where our sponsor peer review data can help. Peer review data enables you to turn tax, audit or client accounting files into meaningful [00:21:00] reports and insights by comparing your clients to thousands of other companies within the same industry. Peer review data will help you to show your clients how they are doing, how they're doing against their peers, and how they could be doing better. Quickly connect to apps like Qbo or Xero, or import trial balances from many other applications, and you'll have comparative reports ready in minutes. Go to Peer Review Data.com to get started, and see how you can get back in front of your clients and grow your consulting revenue. [00:21:30] Glenn Dunlap: Okay. So so a couple things you said. So when you're thinking about like, um, maintenance and repairs and, you know, I could think of that as a couple of ways. It could be, uh, repairs and maintenance as a, as an expense item. It could also be something where they're investing. You could see that as a, uh, as a, as an asset or a balance sheet. Glenn Dunlap: Item as well. Right. Glenn Dunlap: So, so, um, kind of think do you, as you're advising these clients, are you looking [00:22:00] at a number that kind of tells you that repairs and maintenance, maybe it's a brand new unit so that or, you know, a set of units so that there may not be a ton of repairs and maintenance on, on that side. So there's probably an age issue for the property. Right. But then there's also reinvestment and capital improvements. How do you gauge that? And is it is it just kind of a mix of those things, the age, the, you know, kind of where they where it stands or maybe when they last refurbished it or those kinds of things or how do you I'm just trying to figure out from an accounting perspective, how do you how do you advise somebody in that space? [00:22:30] Kenya Brooks: It's definitely a mix of things. I've got clients that have only brand new multifamily units right now, and then I've got some. I'm like, you're a borderline slumlord, you know? Glenn Dunlap: Right? Yeah, yeah. Kenya Brooks: But what we're looking at is, is it marketable? So obviously the brand new units, those are going to go like hotcakes because everybody wants the brand new things with those clients. We're [00:23:00] advising them. Obviously you're going to need to keep something in reserves because you're going to have, you know, that tenant turnover and you're going to need to do minor cleanup, which most of that can be expensed. If you've got older units, older properties. Yeah. Then you, you know, at some point you're going to have to do like a major remodel. And again, depending on the type of loan that you have, you may have [00:23:30] reserves tied to that loan. But most times you don't. And hopefully you've come pretty close to paying down a significant portion of that debt that you had to acquire it. But there's usually some sort of loan. Um, I've experienced over the last couple of months with one particular client, they've had a couple of fires in their building. So now we're dealing with insurance proceeds. Glenn Dunlap: Yeah. Kenya Brooks: Then you have to think about, okay, [00:24:00] if I've got to redo, you know, these ten units, does it make sense to do all 30 to bring them all to the same standard? Because I'm going to have trouble charging a consistent amount of rent if someone's paying for, you know, maybe some appliances from, you know, the late 1900s versus the latest and greatest appliances that, you know, just came off the market, you know? Right. [00:24:30] So just chatting with them and understanding, you know, what their goal is. That's always key. I do enjoy that. You know, while a lot of our clients are not. Financial statement savvy. They know their industry. They know their niche, and they can make sound decisions. They just don't know how to account for it, which is where we come in. Glenn Dunlap: And [00:25:00] yeah. Kenya Brooks: Again, if you're going to do a major remodel, obviously that's going to go on the balance sheet versus the income statement. But they don't know that. And we've had to, you know, redirect them in that manner. Sure. Glenn Dunlap: Yeah. So it's interesting is there are there is there a rule of thumb or are there rules of thumb related to or repairs and maintenance or capital improvements or, you know, is it is it tied to the value of the assets? [00:25:30] Is it tied to revenue. What. You know. Glenn Dunlap: We. Kenya Brooks: Typically I remember again, I'm I'm a mature accountant. So um, starting back in the 1900s like I mentioned before. Yeah. Glenn Dunlap: Um. Kenya Brooks: You know, it's like, oh, this is going to cost you $1,000, $1,500. Capitalize it. I've seen those numbers go up. Right. And it just depends on what it is. It's it's different with [00:26:00] multifamily versus a commercial office building because with the commercial office buildings, depending on what types of improvements you're making, let's say you're in a 20 story building. You've got to redo your AC units. You're going to want to capitalize that because you're talking, you know, thousands and thousands of dollars, but you also have the ability to depreciate [00:26:30] that. And a portion of that can be charged back to your tenant. So you have to think about it from that perspective. Whereas in apartment complexes that's usually just a landlord expense. You're not I mean, you're charging your rents, you're not going to get anything more than what you're able to charge for rent. So it just depends on the type of property, how you're going to treat certain things with. Multifamily units. The [00:27:00] biggest expenses might be replacing appliances. Maybe an AC unit, but an AC unit that's got a cool, you know, I don't know, 1200 square feet versus what it takes, you know, to cool again, a 20 story, story office building that's going to be different. So it just it just depends. Glenn Dunlap: Okay. That's interesting. Are you seeing occupancy [00:27:30] rates change over. Have you seen that change over the last few years. Kenya Brooks: Multifamily is increasing. Um, vacancy rates are very, very low. On the flip side, office buildings occupancy is terrible. Um, thanks a lot to, you know, the pandemic. Right. And I. Glenn Dunlap: Can't even worse. Glenn Dunlap: To. Right. Kenya Brooks: Exactly. I can relate that even to our building. We had, um, a major government agency [00:28:00] lease about I think it was maybe 5 or 6 floors in our building, and they were going to mandate that their employees return to the office. Well, the employees said, we're not going back to the office. Glenn Dunlap: So. Kenya Brooks: They're just paying for space in this building. But I see that turnover then affect the food vendors in the building. Our building has like a food court, and I knew it [00:28:30] was bad when the McDonald's closed. If a McDonald's can't survive, right, it's not looking good. And this is, um, the building we're in. It's been a Dallas staple for forever. Um, it's connected to a major hotel, but like, the food vendors are just not doing well in this building because there's not the the. Glenn Dunlap: You know. Kenya Brooks: Typical worker occupancy. [00:29:00] Like it's just down. Glenn Dunlap: Yeah, yeah. The things that I see, see on the real estate side, on the commercial side in particular, that they're holding the lease rates up because that's maybe you can maybe you can tell me if I have this wrong, but that they're holding the lease rates up because that they're able to multiply that times their square footage to, to determine the valuation on the building, which is how they've financed it. So if they have to drop their lease rates, then the then they're going to have to that lowers the valuation. [00:29:30] They might be end up end up out of their covenants. So they're they're trying to hold the lease rates, lease rates. Glenn Dunlap: Up. Glenn Dunlap: Even though occupancy is down. Uh, just so that they can, uh, you know, not fall out of compliance, but it seems like that's a, you know, only can be sustained for so long. That's it's. Glenn Dunlap: Hard. I mean, we're. Kenya Brooks: Seeing, like, clients who were major real estate, you know, movers and shakers for years and years. They're letting their, [00:30:00] you know, buildings go into bankruptcy. They're letting them be foreclosed on. They're just like, I can't do it. I can't sustain it. I can't find the tenants. So I'm curious, though, um, I've noticed a lot of. Developers here in Dallas. They are building these buildings so that they can be like multifunctional. So it may have been designed as a school. But when the time comes, [00:30:30] they can convert it into like a senior living facility. Glenn Dunlap: Yeah. So yeah. Kenya Brooks: I'm seeing a lot of buildings, particularly downtown. You know, they're starting buildings that you never thought would have apartments in them. That's what they're doing. And you're seeing more of the multi-use versus just, you know, single use properties. Yeah. But they're having to put a lot into it. And I don't know, it's kind of distressing. And I feel like. I've [00:31:00] seen the trends over the years. You know, real estate market tanks. I've always been thankful that I'm here in Texas because we're usually not as impacted as the rest of the country, but it's starting to impact Texas. I mean, we still see the cranes, but most of the cranes now are not for office buildings. It's for multifamily buildings. And I'm just like, how many more apartments can we have? Glenn Dunlap: You know. Glenn Dunlap: It does seem like it's a huge [00:31:30] well, the other part is those houses haven't gone away. So, like, where are all these people coming from that are, that are filling up these apartments? Right. Glenn Dunlap: So, you. Kenya Brooks: Know, we've had an influx of people from like California. Um, I feel like people are coming from everywhere. And we just kind of want to say, hey, Dallas is full right now. Glenn Dunlap: Um. Glenn Dunlap: That's right. Yeah. Well, and supposedly all of our kids are still in their basements, you know? So it's that that hasn't changed. [00:32:00] Glenn Dunlap: Allegedly. Right? Yeah. I'm just trying. Kenya Brooks: To get mine out of high school, so I'm looking forward to it. And we don't have basements here. So, um, I tell him he can live in the garage, maybe. Glenn Dunlap: And convert the garage to an apartment. Kenya Brooks: Nope. Not converting it just as is. Glenn Dunlap: No. Glenn Dunlap: Yeah. That's funny. Yeah, we do have basements, and there are a lot of kids. None of mine, thankfully. Glenn Dunlap: But, um. But, um. Glenn Dunlap: Well. So let's talk about the balance sheet a little bit. So we talked about some on the [00:32:30] income statement in terms of budgeting and that side. So what what are some things when you're looking at a you know property management like on the on the balance sheet. What are what are you know, what are you looking for. What are some red flags. What are you know, what are the things that you would want to talk to them about? Kenya Brooks: Uh, typically if we're noticing your receivables balances going up, your payables balances not changing because you're not able to pay your bills, that's a problem. You know, obviously, when [00:33:00] times are good, the money's flowing. No one worries about things. Um, but during times like these, you do have to have some difficult conversations with people because they don't want to sometimes face the hard truths. Glenn Dunlap: Right. Kenya Brooks: Which again, you've got, you know, a tenant who has not been able to make rent for 2 or 3 months. You've got to decide your next step. Are you going to [00:33:30] evict them? Which again, that's still more money coming out of your pocket. So you're dealing with the loss of the rental revenue, and you're having to pay your attorney to do these filings for you. Then you've still got to clean out the unit and get that next person in. But we're looking at cash, you know. How's your cash flowing? Um, are you bringing in the amount of money to cover your debt, cover your usual expenses? If [00:34:00] you're not. Are you having these, you know, are is your paperwork in order? Are you following up with these tenants? Are you reaching out to make sure that, you know, if they're still occupying the unit so many times nowadays, and this happens even in commercial spaces, people move out in the middle of the night. No. No warning, no clues. You just show up and they're not there anymore. So making [00:34:30] sure our clients are staying on top of their collections, making sure that, you know, we're paying the bills for and with them as they need to be. But just looking at things, you know, did we budget for this capital improvement? I know you have this grand idea, but realistically cash is not flowing. Can we really afford to do this project right now? Glenn Dunlap: Right. Glenn Dunlap: So or [00:35:00] capital is going to be really expensive or you know exactly. Glenn Dunlap: And borrow the money costs more. Kenya Brooks: So it's like, do we really you know, what's the priority. How how should we, you know, gauge paying the regular bills or do we want, you know, this flashy razzle dazzle monument sign, you know. Glenn Dunlap: Yeah. So yeah. Kenya Brooks: Sometimes, you know, you lose sight when things get dark. People lose sight of what they should be focused on. And it [00:35:30] is difficult sometimes to redirect their thoughts because they don't want to talk about it. But a good business owner, um, is going to appreciate the advice. And then again, this is Texas. So we've got more savvy business owners. They know what's coming, and a lot of them get out of the deal before it sinks. Glenn Dunlap: Um yeah. Well that's that's good. So it's good. Well, so is you mentioned, you know, receivables [00:36:00] and payables. So is when I think about commercial real estate, I don't think about there being, um, or even residential real estate. I don't think about there being receivables. Uh, in is there a is an are days that you would expect to see on this. Kenya Brooks: Um um, we typically, you know, advise the clients to. Reserve, you know, for bad debt. Sure. But. With residential. You don't want [00:36:30] to see anybody spilling over into that 31 to 60 day column. Glenn Dunlap: No, it's. Kenya Brooks: Like you need to start addressing this now, but it happens. Um, I do get a kick out of there's still some people and I believe when I was renting, I was one of those people who always paid early. So you still see some of that, but it's not as prevalent as it probably was in a different economic period. So, um, [00:37:00] but yeah, so with residential, you've got the receivables. Um, you don't want to see those numbers going up, but they do, because again, people are challenged right now. Yeah. And the rents are so expensive. I'm telling you, I don't know how people are affording to rent right now, because I just feel like that money could be put into a home. But. Lending is tough right now as well. And. Glenn Dunlap: I [00:37:30] don't know, you mentioned Turkey. I think. Glenn Dunlap: It's changed. I think it's really the I think the, um, the approach has changed. And so, you know what the this next generation is looking for, I think they're looking for flexibility experiences, you know, not as much about the material or the the accumulation of those things as, as, uh, their, you know, their parents or grandparents were. So it's, uh, it's a, it's a different dream. Glenn Dunlap: It is, it is and it's still there, but, um, a [00:38:00] different one. Kenya Brooks: For some of them it's it's just the reality. But others, like you said, they're looking for experiences. They want to be able to move around. They don't want to be tied down to anything. And I get that. Um, it's that when my son goes to college, I'm going to get, you know, a place in one of these downtown high rises come out of the suburbs. But they have that flexibility right now [00:38:30] to do it. And they're doing it clearly by, you know, again, the number of units you see being built, the occupancy rates being so low like somebody living there. And they they're doing it well. Glenn Dunlap: So that's right. That's right. Well when the pandemic hit and it was work from anywhere, I had employees that were in their 20s and single and said, do you care where anywhere is? And I said, I don't care as long as we have meetings that are going to be on Eastern Time and you're going to need to show [00:39:00] up. And so I don't care where in the world you go, but I'm not going to start having meetings every, every hour of the day to to catch up with that. And they would do Airbnbs for a month in different locations. And so they just took off and went, you know, more power to them. I, you know, I was the guy that was still back here strapped with a couple of mortgages, you know. Yeah, I wasn't able to do that. Um, all right. So ah, so we looked we talked through that, the cash flow. I think the tenant collections is good. You know, [00:39:30] it's, um. I suppose everybody approaches that differently as they're, uh, you know, how they how they, um, you know, the way that they invoice and bill the follow ups with that, the phone calls or emails or whatever it is that they're doing to, to to handle that. But you've, but you walk people through kind of a typical credit and collections policy for that. Kenya Brooks: Now I'll be honest, we typically don't dabble in that piece of it. Um, like we try to stay very far removed. [00:40:00] Um, and one we're not, I guess, close enough to it. Um, most multifamily, uh. Space owners. They they have their teams and that's their responsibility to deal with the collections. But we are asking the questions when we're seeing that things are not moving. So we don't we don't really provide the policy or guide them on how to collect. We're just saying, hey, [00:40:30] we noticed these things. What are you doing? Just to keep it, you know, at the front of their minds. And then same with, um, you know, I mentioned payables. If we're seeing that, you know, you've got bills that haven't been paid for 60 to 90 days, it's like, no, really, what are we doing with this? And if you know there's an issue with the invoice, then we need to get that addressed and not [00:41:00] just have it sitting as a liability on your books. We are seeing, you know, some clients again, I mentioned earlier, they're struggling to pay these mortgages. So you've got interest accruing. You've got, you know principal not being paid. You're getting those notices from the banks. But. The banks are in a bad situation too. So it's they're drawing it out a little bit longer than normal. Glenn Dunlap: Because they don't want. Kenya Brooks: It. Yeah. Glenn Dunlap: No, they. Kenya Brooks: Can't [00:41:30] handle it. No. So so it's just it depends. Um, and like I said, normally things hit here in Texas last. Um, we're usually the last to see the impacts of the change in the economy. But we have clients who have, you know, buildings across the country. And just depending on the market that they're in, they are having to let some of those buildings go into foreclosure because [00:42:00] they don't have the leases to sustain it. Glenn Dunlap: When you when you think about helping a client make changes in this, uh, how many of those changes are. Like 30, 60, 90 days. How many of those changes are year and a year and a half? Two years, three years, I guess. I mean, I'm I guess what's going through my mind is I'm thinking about, like, it may really be difficult to change rents or, you know, until you, you know, line up the tenants and it seems like a [00:42:30] certain level of occupancy that's going to start to work itself out. Uh, but that may that's not going to be next, may not be next month. Right. That's something that could take months to, to get turned or, um, you may have a series of events that would, would require, uh, a higher than normal investment in, in things. But like, I mean, I it's, it's almost, it's almost like this is a, this is a slower ship to turn, I guess is what I'm trying to get to as a whole. Right. This is not something you're probably going to impact in in a very short period [00:43:00] of time. Kenya Brooks: It is. And I mean with real estate. Patience is the game, and hopefully you have those equity partners outside of your lender who can help you float and, you know, kind of ride the tide, if you will. Yeah, but if you don't have that, you're going to lose out. And what drives a lot a lot of these, um. Property owners here in Dallas [00:43:30] is they've got usually equity partners that are friends and family. Glenn Dunlap: Yeah. Kenya Brooks: And that's what's going to drive them to make good choices, make the right decisions, because they're going to have to answer to their family and friends. Glenn Dunlap: It's like, right. Kenya Brooks: You just lost me $1 million. No, we're not hanging out at the lake this weekend, you know? Glenn Dunlap: So awkward Thanksgiving conversations, right? Kenya Brooks: Again, you [00:44:00] see the trends. So when you start seeing these things happen really before, I mean, you're listening to the news, you're listening to the news and the economy, and you're listening to people kind of project what things are going to look like. So you have to start pivoting. Then you can't wait until I run a set of financials for you. Like, you've got to have a plan. And I'm not saying, you know, we don't encourage our clients to [00:44:30] every time, you know, this economist says, oh, we're going this way. Like, you don't. Glenn Dunlap: Jump, you. Kenya Brooks: Know, every time. But you do have to take heed to what you're hearing, no different than with your personal finances. Um, right. So you can't wait until you're in the middle of something to try to make a change. So it's always gradual. It's always keeping an ear out, keeping your eyes open when you start seeing that [00:45:00] that tenant who's always paid you on time is lagging. You know, first it's a couple of days, then it's a couple of weeks, then they're dodging you. That's when you, you know, you start taking action when you see the couple of days change. Hey, how are things going? You know, are you okay? What can we do to help? Right. But if you wait until, you know, they're now. Two, three months behind. They're never [00:45:30] going to recover. And you're the only one losing out because they're going to move on and they're moving on before you've taken action. So even their ability to move on to the next place is not impacted because you haven't acted. Glenn Dunlap: So it's it's definitely it's a cycle. Kenya Brooks: Yeah. Glenn Dunlap: Yeah. It's a and I think the interesting thing about this as you said, so um, a couple of things I heard in that is it's, you know, you've, you're investing in real estate because it's a, it's a [00:46:00] longer term place. So you're going to be patient through that. There, there are things that, um, um, that you'll just, you'll have to endure in some of those cases. So hopefully you've got some patient capital. But the flip side is, is you also can't just sort of sit back on your heels that you need to be proactive with the things that you can control. So go after the, you know, pay attention to the to the details of the of the clients, the collections, the, you know, the those things that will turn on you quickly. Um, so that's that's [00:46:30] interesting. The interest rates have gone up. I'm sure that that's, that's impacted people's ability to borrow. Is this something where you see a lot more happening on the equity side than on the debt side? Kenya Brooks: A lot of things happen on that lending side. So I work with some clients who do development and, you know, they present to the bank, you know, here's my plan. I'm going to contribute this much in equity, and I'm seeking this much in financing. Whereas [00:47:00] it used to be you might come to a bank with about $5 million in equity, and you might get a loan for 50 million. Yeah. Now you're coming with 30 million in equity and barely getting 30 million from the bank. And what I'm also seeing is that on occasion, those terms are changing after you're in the loan, and it's making it difficult for these developers to even finish up their projects because [00:47:30] things are changing so quickly and it's so unanticipated. But again, I think I have somewhat of a jaded view being in Texas because again, even the. The bad things are not so bad. Glenn Dunlap: Here, right? Kenya Brooks: But I can't imagine being, you know, in other markets. Um, so it's it's a good time still to be in Texas. Things are still. [00:48:00] Glenn Dunlap: Yeah. For sure. Yeah, yeah. Well, and I think, I think across the country that's um, there, there are pockets that are, that have done, done okay through this and then others have really struggled. I think it's um, it's a sign of the economy and the, uh, way the government's interact with people and all that kind of stuff. I mean, it's just all sorts of things that have changed, uh, changed rapidly in the last five years, let's say, with, you. Glenn Dunlap: Know. Kenya Brooks: Now, one thing I can say, like being with client accounting [00:48:30] services and advising clients, is that when we're in the good times, you don't hear from clients. They don't care about you raising fees. They don't care about anything because it's like, let the good times roll. The money's flowing in. But when we get into economic times like these now, these same clients, they're wanting to meet monthly, whereas, you know, in the past you may have talked to them annually. Now you're meeting monthly. They're [00:49:00] wanting you know, they're like taking a fine tooth comb, going through their financials and wanting to know every single detail which. For us. You know, again, being with the public ferm that drives up what it's going to cost them. And so we're like, okay, let us, you know, continue to advise you and guide you per these specifications, [00:49:30] not you trying to dictate how we do things. Glenn Dunlap: Right. Glenn Dunlap: Yeah. Glenn Dunlap: So. Glenn Dunlap: You know, kind of thinking about like some you mentioned good times, bad times. I mean, are there things uh, um, and this is where I really kind of wade into water that I'm, I have it's outside of my. And this is really not probably not much about best metrics. Uh, but I'm just since we're on the real estate property management thinking about that, do you, does your firm do a lot or do you recommend that they look at cost [00:50:00] sags and stuff, cost segregation studies or things that might help them from a tax perspective, especially in a down time like this? Kenya Brooks: We do. Um, and honestly, in in the downtimes, most clients are going to request it and we don't do them internally. But we have, you know, some people on standby. Glenn Dunlap: Yeah. Kenya Brooks: But, um, they do ask for those. And, um, they're always looking for ways to cut [00:50:30] the expenses. Um, thankfully, um, I think the good news is the IRS has been so bogged down. Um, there hasn't been a lot of legislation changing those laws as quickly as they were changing. Yeah. So people are. Finding that, you know, you can get some momentum with the things that you've already had on deck. Um, not a lot changing in that regard, but [00:51:00] if they're looking at, you know, purchasing a new asset, they're almost always going to want to do a cost seg to get the maximum benefit. Glenn Dunlap: And then I guess it's thinking about from a from a revenue standpoint, do you see people looking at at doing solar leases or cellular leases or things like that. Do you see offsetting some of the stuff that's. Kenya Brooks: Always been a trend. Just [00:51:30] because it's extra income without you really having to do anything. So those are still happening. Um, that that hasn't changed a lot. Okay. Um. Glenn Dunlap: So I wonder if solar might be more in Indiana. We probably don't have as much you. Glenn Dunlap: Know as I know you know. Glenn Dunlap: As a hit rate as you would in Texas. But, uh, yeah. That's interesting. Glenn Dunlap: Yeah. Um. Glenn Dunlap: So, Kenny, this has been I've enjoyed this. I don't know if there's [00:52:00] anything you want to add on, but I think for in terms of the conversation around the, the panels, the balance sheets, the, you know, the metrics, as we've kind of talked through some things, kind of, you know, it's if I'm a if I'm a young advisor or somebody new thinking about real estate, property management, there's a there are a lot of things to consider in that, I guess, as I'm kind of thinking about a summary from this, I'm thinking about the the long term element of this being patient that you're going to be in it. And yes, you know, you're going to have to recognize [00:52:30] it. It's going to take take time to to move some of the needles, but also then being active and accurate, uh, you know, uh, you know, just moving forward on, on, uh, when you see things that, that need, um, attention to, to jump in and to take care of those things right away, um, so that you are days don't grow and that your AP is not, uh, getting out of hand and those kinds of things, but, uh, and then you kind of have to deal with whatever's happening in the market, your local market, the interest rate markets, the lending markets, all those things are [00:53:00] things that you're going to have to account for and deal with. Kenya Brooks: And I would just advise someone who's new to the industry to. Find them a mentor who's been doing it to get that guidance. Um, again, real estate is tricky. You do have to have that patience. But at the end of the day, for accountants, it kind of is what it is. You're just always going to follow the number trail. [00:53:30] You're going to look for ways to advise your clients. You're going to, you know, teach them to use their budgets. You're going to teach them to follow those trends. And it's one of the areas that I think is not as quickly changing as others. So if you're going to do real estate accounting, I feel like you'll have a place for a very long time because everyone needs wants [00:54:00] real estate. So it's going to be here much like accounting. Uh. Glenn Dunlap: Yeah. So I mean, the trends might be moving away or there may be more not necessarily moving away from single family homes. But if you think about the trends where like we've talked about the, um, you know, rental units are are going up everywhere, uh, for all of us so that the trends might change from that perspective. But at least, um, but, you know, the accounting of it is exactly. Kenya Brooks: The methodology will not change. Glenn Dunlap: Yeah. Glenn Dunlap: Yeah. [00:54:30] That's right, that's right. So. Well, this has been great. I've really enjoyed the conversation. Kenya, I appreciate you joining us today and uh, and look forward to continuing to work with you. Kenya Brooks: Yes, sir. Thank you for having me. This has been great.