How Being a Techie Leads to Success in Apartment Investments

Before my self-established Financial Independence, I was a Technical Product Manager for 13 years with several high-tech companies.  When going through a career transition between Tech and Real Estate, I noticed that my years in product management and the technology world prepared me to be a stronger apartment syndicator.  I want to share these discoveries with my fellow techies who are thinking about harnessing the power of real estate investing.  

1. Strategic Thinking to Lead the Way

Any seasoned product manager knows that you get paid the big bucks for your strategic thinking. The ability to be creative and see the larger vision of a project 2-5 years down the line is required for a project manager.  This also applies to leading a team on an apartment syndication.

Projections and deal structuring are the key to success in apartment syndications.  It is complex and crucial to make the correct projections and mitigate the risks involved in a project. There are ambiguities with the market 2-5 years into the future.  I found applying the strategic thinking learned in my years of being a technical product manager helps me see correlations of macro-economics related to the project more than some of my competition.  This recognition still allows me to structure deals and find opportunities where there could be hidden value. 

For example, being able to see the impact the pandemic has had on privacy and separation of space allows us to implement amenities and features in our apartment project ahead of our competition. 

We know this for sure: If we want to win in any competitive market, we have to generate original ideas in adding value to a project to achieve a better cash flow or equity gain.  

2. Applying A/B Testing to Maximize Return on Investment

A/B tests is a common practice used in software development.  It consists of a randomized experiment with two variants, A and B.  Testing is conducted using audience segmentation to find the winning treatment of a website or a software product.  Quantitative data is collected and analyzed to derive the conclusion. 

In apartment investment, I was able to borrow this idea to implement two different layouts then test and collect data to see the return on investment (ROI) regarding certain upgrades.  A common newbie mistake into multifamily from single family investing is overdeveloping a property.  In other words, brand new syndicators may put too much work and investor funds into a property that does not translate into an increase in the income generated by the property (i.e. increase in monthly rents).  

When I lead a syndication, I test out these types of upgrades in two separate apartment units that have the same layout.  Perhaps this upgrade is cosmetic, like new flooring.  It could also be an amenity such as new appliances.  We adjust the pricing of the units to see the return on investment in relation to the upgrades.  It's like an experiment, and it's fun!  

Only if I have proven out a set number of units yielding the same result, I would then scale it (rinse and repeat) to the majority of other units. This testing allows me to spend a lot less on unnecessary upgrades and features. 

As a result, my units are usually not the prettiest on the block but are producing top rents in the market.  They get sold at a price point that is close to the next level finished product because the income is optimized, but there are more opportunities for future investors to take it to the next level.  In other words, when it's for sale, investors will see the potential and will be more likely to buy.

Unlike software A/B testing, which requires a large amount of traffic and data to reach conclusion, apartment A/B testing requires a lot less data to help us reach conclusion. A rule of thumb that I often use is, five units rented within the same quarter at a certain price point leads us to a scalable model.  Truth be told, a good asset manager is always in testing and learning mode.  This is the way to maximize yield.

3. Using Agile Development Method to Manage Assets

It is pure chaos to ship a new website, app or digital product. My former Tech World positions required numerous project management skills.  Agile development describes a manager who advocates for adaptive planning, evolutionary development, early delivery, and continual improvement, and it encourages flexible responses to change.  It usually involves concepts such as minimal viable product, rigorous prioritization, frequent but short team sync and a short development cycle.  It advocates for early, frequent shipping of products vs. the traditional waterfall model which involves heavy planning and long product cycle.

The idea is that through rapid iteration, we ship more often, learn from customer feedback and adjust frequently to improve products continuously.  By breaking down a large project into small steps that can fit in a specific timeframe, it forces the team to think about how to be lean and agile in responding to external market adjustments.

Construction and real estate development cycles involve months of preparation.  However, how you run your team and deliver certain products doesn’t require this much time.  Leasing and team building can adopt this rapid iterative process. When a project requires heavy leasing activities or value-add work, we apply agile development methods to our marketing plan and execution.  A special task force of 3-5 people is put in place.  We use Scrum, an agile framework for developing, delivering, and sustaining complex products, to plan for our weekly deliverables. Retrospective is then conducted monthly or weekly to improve team accountability depending on the project. This has helped the team stay focused and organized to implement our value-add plans quickly. 

4. Use Software to Increase Productivity and Maximizing Yield

Being a techie exposed me to the benefit of technology in terms of helping increase productivity and maximizing yield.  Here are a few that I use on a daily basis.  The value of these comes in the organization, management, automation, and remote capabilities the software provides to my work as a syndicator.

We use Asana to organize our marketing and asset management projects.  Combining Asana with Slack allows us to build a global team that consists of virtual assistants, contract workers and partners.  Zoom was a crucial part of our operation even before the pandemic.  Technology allows me to be able to manage my properties remotely but still have my finger on the pulse of the project. 

We advocate new technologies that will help us manage all aspects of operation and marketing. Here is a list of software that we use to manage our projects.  This is not an exhaustive list, however.

5. Data Driven Decision Making

Data driven decision making is a common practice in software development and apartment investing.  If we analyze any sound operation, the leaders are constantly looking at the data for areas of improvement.  Collecting and analyzing macroeconomic data, such as migration patterns, helps predict market cycles and profitability.  Using these data, we can spot a hidden gem or a pitfall in a property of interest.  

When there is a difficult decision to make about a property, I look to the data because the data doesn’t lie.  Finding correlations in the data and spotting patterns helps me better predict the market and performance of a project. This allows me to see beyond the cosmetic finishes of the asset but rather what it is - an investment. 

6. Systemize and Automate Everything

When I was a technical product manager, part of my job was to spot the inefficiencies in the business of our customers then generate software solutions to fix those issues. Years of training to come up with how to automate consumer tasks and business rules set me up for success in building a business.  I see systems and processes everywhere. Thirteen years of product management made me acutely aware of how to automate the system.  

For example, when adding a monument sign to the front of an apartment complex, some would say this is the project.  However, my mind will go into overdrive to try to see how to break down the project into weekly and monthly tasks.  I start seeing common tasks such as design, applying for permits and installing signs as subtasks that can be delegated to various people with different skill sets. Then I think about how I can replicate the same project for the next deal.   This automation and systems creation helps me add more time back to my own calendar in the future.  The more work I do now in setting up a plan other team members can follow helps take me out of the equation.  I’m now free to focus on bigger things and create more value.

What type of technologies are you using in your real estate business?  What skills do you have that you can start implementing in your side gig or small business?  If you start practicing some of these strategies now, the learning that will happen will benefit you when you are operating a multi-million dollar apartment complex.

Tips, Real Estate FoundationsElisa ZhangComment