SPEAKER_01 0:00

Welcome to another episode of the Real Estate Real Life podcast. That last episode about anti-fragility really teed us up for this episode. We had to go straight into recording this episode. We're just so excited to share a really critical concept with all of you. Hope you get a ton of value out of it. And that is the concept that we believe. I said I almost wanted to say fundamentally, and y'all are gonna get that joke here in a second. We fundamentally believe that fundamentals are the most important thing in any area of life. Fundamentals are the most important thing in any area of your life. Fundamentals are more important than teamwork, is more important than tactics, is more important than strategy. So said the opposite way, strategy is the least important. Tactics is more important than strategy, teamwork is more important than tactics, and ultimately fundamentals is the most important of all of them. Nick really honed this in his career in technology, and it has been a guiding force for us throughout our entire real estate investing journey. And the journey makes so much sense through this lens that we started with one single family home. You know, our very first investment property was really investing on training wheels. It was my personal home that I lived in before we were married. So I was already familiar with the mechanical systems and the little quirks and those sorts of things about the home. It was just about two miles away from where Nick and I lived after we got married. So it was very easy for us to take care of it as we were self-managing it, take care of the maintenance. We had to build a team with the two of us before we brought in anyone else, even additional part-time help. It was just the two of us at first. And then tactics are the thing that change the most often. We talk about how our strategy has generally stayed the same across 15 years, across wild changes in real estate, single family, multifamily interest rates, geopolitics, technology, AI, our own family, you know, going from zero children to now soon six, going from zero employees to, you know, well over 60 now, probably 75 if we include all of our virtual assistants and those other types of supports. Fundamentals is more important than teamwork, is more important than tactics, is more important than strategy. Nick, take us away on this masterclass.

SPEAKER_00 2:25

This is something over the course of a you know 15-year-plus career in enterprise software. This is something that just like slowly dawned on me. So the privilege to get a bachelor's degree in computer science and a bachelor's degree in ministry, and I had a like an incredible education that I got in computer science. And in my computer science education, they really drilled me on fundamentals. And I I was young, I had zero appreciation for just how rigorous that education was. So to give you some level of how extreme my professors in school were on fundamentals, we actually built an entire computer from scratch in Excel. And if if anyone has any idea of how a computer works, it's basically like an abacus. And it's just a really, really, really big abacus where you can move the beads around very quickly. So we literally built that abacus, you know, one bead at a time and started incrementally stepping through how different features and technologies and strategies were were added to like like we started with like the original you know mid-century computer and then built it all the way today, and eventually built you know, an interpreter to write our own code that could be interpreted and run by this computer that that we built from scratch. And then when I got into the industry, I was really thrust into this kind of paradigm that was myopically focused on strategy. And and there wasn't a lot of care consideration for did your programmers actually know how to write in that code language? Did your team have the fundamental skills they needed? Did your team have the computers they needed to like write code quickly, or would were the computers slow and freeze up? In software engineering, in particular, if you have one slow person on the team, so to speak, like the team can only move as fast as the slowest player. And if one developer checks in one bug in a piece of code, that can ruin the work of a hundred skilled engineers. And this was something that was very confounding to like executive leadership. They're like, if we just spend X number of dollars on payroll and we get a slick consultant to tell us what you know technology stack or programming language we should use, then we're gonna have success. And there was very little appreciation for the fundamentals or the teamwork. And then, you know, in my terminal role in the in the software engineering world, I was managing about 13 teams of engineers, and my job was explicitly to create tactics. So executive leadership at Mayo Clinic would say, here's the strategy we want you to undertake. And often that was that strategy was determined in a vacuum, you know, completely divorced of the fundamental abilities of the engineers working on the project and whether or not those engineers worked well together. And I had to be that tactical bridge of like, how the heck do I get these people to make this this strategy happen? And over and over again, the thing that I observed was if you just had good people who could do the job, and you were relentlessly focused on making sure that they could do the job and had the tools they needed to do the job, they would figure out some tactics that worked really well. And so just as an example, one of my teams participated in this like coding challenge across all the male clinics. There's hundred hundreds of engineers in this coding challenge, and many of the other teams focused on a top-down strategy approach and wrote, you know, thousands of lines of code to you know find a solution to this problem. And you know, I uh the team that I was leading, that I was coaching, I said, well, just stop for just a second, forget about forget about the strategy here. Like what would be the what would be the shortest path? What would be the most laughably simple way we could solve this problem and not get too caught up in the strategy? And they actually wrote a solution in Microsoft Excel. The most childishly simple because we all knew how to use Microsoft Excel. This was not a complex problem, and and they ended up, you know, it was actually the only team that completed a working solution, and they did it in literally 1% of the time of the next fastest team. Over and over again in our real estate business, we do exactly that. Exactly that. We check in with our maintenance guys and we make sure that our maintenance guys have the tools they need to do the job. We have these robotic stairclimbing appliance dollies. They can literally climb a staircase so one person can manage huge materials or appliances to get them up staircases and stuff. And it's a game changer. Now you only need one person instead of two people to do what would ordinarily be an insurmountable task. We make sure that they have good communication, you know, technology. We make sure that they work together as a team. We check in with them, and who wants to be on a team with someone else? Like we really aggressively manage our team to make sure they're able to work together successfully. From a strategic perspective, we are constantly rallying around the competence of our team and formulating tactics that that facilitate that strategy. So we observe the opposite to be the case in the industry where you have some private equity firm that says, okay, this is a hot market with compressing cap rates and we're going to deploy capital into this market. At no point did they ever stop to ask, do we have people in this market that can actually run the deal? Do these people know how to do their jobs? Are they excited to work together? And then somehow there's an asset manager, a property manager, some people who are supposed to come up with some tactics in the middle, exactly like when I was in that enterprise technology role. And so it might seem childishly simple, but like we have a property in Austin, Minnesota that's doing extraordinarily well. And so I'm always talking to that site manager. I'm like, what why are things going so good? Like, what is it about? Is it is it this market? Is it that you're just an exceptionally competent site manager? Is it that we got a good deal? And we could say, okay, well, we've had this successful property, we're just going to go deploy more capital to this market, we're going to go buy more deals. But until we understand what's made us successful there, we would be fools to try to build a strategy around that. It's difficult to explain how different this is from the way we see most groups operate in the real estate private equity space.

SPEAKER_01 8:11

This concept is essentially married to another one of our favorite concepts, which is the idea that complexity is the enemy of execution. Complexity is the enemy of execution. And I will see this time and time and time again of well-meaning, very smart, very hardworking people, people that, you know, have all the ingredients, and yet for whatever reason, they're wrapped up in making things more complex, adding layers and layers and layers to things. I believe fundamentally that there's some level of ego there. I don't think these people are egomaniacs or anything like that. I think they're good, hardworking, creative, intelligent people, but there's some sort of draw of like whoever has the most sophisticated system or the most clever solution sort of wins. And we are big believers in kind of the exact opposite of that. To this day, we are running, you know, nearly a half a billion dollar portfolio off of principally Google Sheets. We have a Google Sheet for everything under the sun. I just, I love kind of walking in, you know, a Nick's office or even like our home computers, and there's just like spreadsheets everywhere, and they're all color-coded. It's a beautiful sight to behold. And I see him interacting with those spreadsheets, and they're very easy to update. You can update them from your phone. Many people can be in them at the same time. You can all see as you're changing each other's fields and data. There's a chat function right inside of us. This is not an advertisement for Google Sheets, but it sure does sound like it. But the idea is people will come to us and say, like, oh man, what are you using for blah, blah, blah? A Google Sheet, a Google Sheet. We manage all of our personal net worth on a Google Sheet, our personal cash flow on a Google Sheet. The entire company meets on a Google Sheet every Monday morning for the first meeting of the week where every single person has some sort of key performance indicator that they need to report on based on their job duties for the company. There's sheets for every single utility bill in the portfolio, vacancy, portfolio-wide cash flow, like you name it. There is some sort of sheet for it. Nix tech background about not wanting our data beholden to an app. And then if you want to change apps, how do you export it and import it into the next one? And there's many technical layers there, but fundamentally, it's the idea that complexity is the enemy of execution. Fundamentals are everything. And the simpler you can keep things, easier it is to scale. And when you focus on what is actually most important, which is value creation, value creation at the level of the consumer. So it's value creation for our residents, value creation for our investors, and then ultimately value creation for our team members as well, right? That they have lucrative, productive careers that give them a sense of meaning. If we can focus on those three things, that's everything. And we don't need these like ultra sophisticated, fancy dancy solutions to things that is really just noise, right? We talked about that in the episode right before this one. You've got to know what the signal is and filter out all the other noise. And I think that that has always been a pool for us as humans to want to make things more complex, to want to make a problem bigger, to want to have some sort of fancy solution to something, like maybe it shows off our smarts or our creativity. And this is my call to you to focus on simplicity, to focus on scalability, to focus on fundamentals. And I'll wrap this episode by sharing something vulnerable for Nick and I. For years, as we were scaling this company, we would hear from well-meaning people. You know, you will hear this theme time and time and time again, where we might disagree with something that someone told us or advice that someone gave us. And yet we we recognize that we surround ourselves with good, well-meaning, loving people that, you know, generally have our back, that are generally, you know, trying their best. And for years, there would be sort of this drumbeat of, you know, isn't it cute that y'all do single family? And oh my gosh, I'm I feel so bad for you that you have to do property management. And I mean, people people would use the phrase brain damage. If literally, literally, if I if I had to deal with the the brain damage of a property management company, I just wouldn't do it. There's just kind of all these things kind of poking fun at or outright insulting, but at least in a in a polite professional way, the the day-to-day work that we were doing. And there were times when that created a lot of confusion in our minds. And we would come back from, say, a mastermind event or a coaching experience we had had, or maybe we had the opportunity to talk with someone who was, you know, many steps ahead of us in the journey, and we would hear those sorts of drum beats, and we would come home together and we would say, like, are we missing something or are we being stupid? Like, you know, what what do we learn here? What do we take away here? And we would ultimately decide that our belief that focusing on the fundamentals and focusing on real value creation was paramount to everything else, was paramount to everything else. And so we're passing that lesson on to you in the hopes that it resonates with you. It might be an idea that's different from what you're hearing elsewhere. That doesn't mean to say that we, you know, shun technology or shun progress or shun the development of complex ideas, but whenever possible, we are always thinking about how do we focus on simplicity, scalability, and the fundamentals in our personal lives, in our business, in our real estate portfolio, in the way we manage our team members, the way we interact with investors. How can you take that lesson and apply it to your life? How can you hear this episode? And there's an area of your life that maybe you've had a, you've been kind of accidentally sucked into making it more complicated. How can you focus on the fundamentals and create massive clarity, massive progress, massive scalability in that area of your life?

SPEAKER_00 14:18

I'm going to share a couple very concrete examples for you. So we have this document called Leasing Principles. It's about a dozen bullet points that gets shared with every new leasing agent who gets onboarded. And it just says one of these bullet points, for example, every member of the leasing team must possess deep excellence and expertise in the following activities. Excellence in these areas is more important than any process. I'm reading you word for word this document, responding to an inquiry, soliciting application, doing a tour, sending a lease. Like that's that's it. And as we have grown, like it might seem childish that we would hire someone, we're you know a half a billion dollar company, and we'd hire someone and say, hey, it's really important that you know how to respond to an inquiry. In fact, it's more important that you know how to do that than anything else, than any process or anything. Only outcome matters, not activity.

SPEAKER_01 15:07

But let's say that one again. That is so important for all of us. And again, I'm always the one that's like, okay, how do we take these lessons and apply it to real life? You know, Nick and I's energy with each other is I I fundamentally see real estate as a way to practice big decision making and then you know, take those, take that decision-making capacity and apply it to all domains of life, hence the name of the podcast, Real Estate, Real Life. Only outcome matters, not activity. Only outcome matters, not activity. In the last episode, we shared how the mornings getting five children ages 10 and under out the door is pretty challenging, right? Like hardest part of the day. How many times in one day can you say yes, put on your shoes? Yes, you need to take snow boots. You have lived in Minnesota since the day you were born. Yes, you need a lunch. Yes, you must eat breakfast. Yes, you must put your dishes in the sink, right? All of these things. The outcome is raising a child who can take care of themselves in the morning, who can wake up and execute and get to their own schooling, their own work, their own whatever it is that they're doing as they're a productive member of society. The activity is irrelevant. How we get there is irrelevant. Only the outcome matters. Only the outcome matters, not activity. Do not get sucked into the idea that just because you were busy means you were producing value. Think about ways that you can simplify all of the processes of your life. Children, your marriage, your work, your commute, grocery shopping, paying the bills, your exercise routine, your food routine. Like I could just I could go on and on and on for many minutes, naming all of the domains in life. What is the outcome that you are after? How you get there is largely irrelevant.

SPEAKER_00 16:57

Another very concrete example I'd mention in the business is it's very common for us to see deal pitches and and for that pitch to be really myopically focused on the strategy. Well, we have a well-diversified portfolio, and we're getting uh a very robust capital stack in place to support this acquisition. And we have like they just it's clear that they are very concerned about looking the part and and and they're almost fabricating complexity for for the sake of it. And the best pitch I ever hear for a deal is we own the thing across the street and it's doing great.

SPEAKER_01 17:33

I like how you brought out your Oklahoma accent for that.

SPEAKER_00 17:37

That was good. And we and we do literally own a lot of properties across the street from one another because if if you have a team that's firing on all cylinders, you have people that understand the fundamentals of how to lease a unit, how to close a maintenance ticket, and you buy something across the street, there's a darn good chance that thing across the street's gonna do well. And one of the last things we ever look at is are we getting you know Fannie Mae or HUD debt? Are we what what's the going in or the exit cap rate? Like, like, can we run this thing? That's the fundamental question that we're always asking when we're looking at at doing a deal. Another example I'd mention is we have an army of just extraordinarily competent people we typically hire for competence and culture fit, not necessarily experience, because we believe that fundamentals are more important than teamwork, or more important than tactics, or more important than strategy. So we have like one team member who seems to be really good at walking a unit and seeing what needs to be done to make that unit just amazing. Like, what's the what does the approach to the unit look and feel and smell like? And what's the first thing you notice when you walk in the unit? So we created a whole turn coordinator role here in the last you know month for that person. We created a strategy, or I guess in this case a tactic, wrapped around the competence of that person. There's one other person they tend to work with really well in the company. So we actually created a team around these two people that just they work well together. So, you know what, we're going to create a team that revolves around the competence of those people and their ability to work together. And we know we're going to be fantastically successful. And the worst thing we could do is say, hey, we've got this gap in the company where our turns aren't good. Who can we put in that position and have a top-down approach? So everything we do, it's a it's a bottom-up approach, focusing first on fundamentals. And you in your in your personal life, in your in your real estate journey, for example, like where is your competence? Where where is your asymmetric advantage as we often describe it? Where are you a skilled operator? Where can you bring a ferocious amount of of local area knowledge? All real estate is hyper-local. We we fundamentally believe that when you go buy a one-off property, you're trying to actively manage on the other side of the country, but it it seems like those deals often don't work out well. And when you buy something that is across the street from your home or your office and you know what you're doing, I had a friend who reached out at 10 o'clock last night and they had an opportunity to buy a house. This is their first rental property, but this house is like right down the block from them. I had a little five-question interview I did with them, and I'm like, yeah, sounds like a great deal. You should buy it. Sounds like you would very competently operate that property. This person does not know any, has never listened to a real estate investment podcast in their life. They're a skilled business owner, so I know that those those skills will translate. And there's a property that they're getting a good deal on that's in a good location that's like right across the street from an area where they have fundamental competence. And I know that they're going to be very successful with that property regardless of the strategy. They said, Well, am I going to rent it? I'm going to, am I going to flip it and sell it? And I said, It doesn't matter. It doesn't matter. You're going to be very successful with this property because you have the fundamental competence. I hope that resonates with you. I hope this concept makes sense for you. This is something that we use not just to coach people on buying their first rental property, but but on us buying our next property and our you know our half billion dollar real estate portfolio. This is a concept that's impactful to you, that resonates with you, that you think could be valuable to share with someone, Elaine and I would appreciate it if you would share that. And failing that, if you'd like and subscribe, please uh please do so as well. And we look forward to offering you some value, some nuggets of wisdom on the next Real Estate Real Life podcast.

SPEAKER_01 21:09

The Real Estate Real Life podcast is for entertainment purposes only and should not be construed as investment advice. All investing has risk, including the potential for loss of capital. Investors are encouraged to consult your trusted professionals such as an attorney, a CPA, financial advisor, whoever is important to you in your financial decisions before making any investment decisions.