Tenant Selection and Service

Tenant Selection and Service with Norm Gadoury

[Start 0:00:00]

Norm: I started as a homebuilder. When the first recession hit, I figured I better do something else and I started buying multi-families. Then things got better, so I went back to building homes. I guess it is over, but we had the lengthy one that we all managed to get through and home building wasn’t coming back.

I was not old enough and did not have enough capital saved to retire, so I said, “I better do something.” So I started buying some multi-families in the town of Northbridge. There was an area in Northbridge, which was called The Village, which basically housed like 1,500 people that worked in the mill, Whitin Machine Works, in the area. They had gone through a little bit of a boom where people were buying them and converting them into condos.

That went over well for a few years, but then it just all fell apart and the banks were stuck with them, so basically I was able to get in at the bottom with the bank, and buying with some of my own money, used a lot of hard money, paid a lot of interest, points like everybody knows where the hard money is, but it was definitely worth it. I’ve accumulated several hundred apartments. It’s a lot of work. It’s a lot of work—

Rich: You don’t say.

Audience: [laughter]

Norm: As everybody knows, but everything is work, no matter what. But I think it’s worthwhile and I like to buy another couple hundred.

Rich: [laughter] So come see Norm after the meeting if you have a couple of apartments you like to sell. But you have developed some practices in your business that would not only enable you to take on more apartments and be successful, but actually make you enthusiastic about it because I definitely had weeks where I was like, “This is enough apartments. This is enough tenants. This is enough interest I’m paying. This is enough everything.” Has everybody ever had a week like that or maybe I’m the only one in the room that’s ever had a problem with landlording?

Norm: No. I’ve had many of those moments.

Rich: Yes, where I wanted to start a new life in Mexico and change my name to Juan or something like that.

Norm: Right, right.

Rich: What have you done to reduce the headaches in your business specifically as it comes to tenant selection? You don't have to go into crazy detail because this is a teaser meeting, but can you give us some broad strokes?

Norm: Well, I guess just from being the regular guy world, with this recession, this long recession that we have, not many people, there’s a few, where there credits weren’t affected. They didn’t lose homes, their lives fell apart.

I probably say I rented to a lot of people on my gut feeling. I get good money for rents, but we’ll say at the time, not recently say 5 years ago, I was getting $1,000 a month for a three-bedroom apartment and a young fellow 25 years old, with a couple of kids got a couple of grand, I figure and he can prove to me he’s got a job, I want to rent him an apartment.

Rich: All right. I’ve seen your application, so what—

Norm: Well, that was 5 years—

Rich: That was 5 years ago.

Norm: After coming all these meetings, listening to too many attorneys. Let’s put it like this, if my gut feeling fails, I got my application, so I’m in good shape.

Rich: Approximately how many units are you guys managing now?

Norm: Presently 232.

Rich: Two hundred thirty-two. That’s a big number. How many of those are you personally making the decision on renting right now?

[0:05:04]

Norm: All of them.

Rich: Okay, s you’re involved in all of them.

Norm: I have a great assistant, Nicole, who couldn’t make it tonight because Mr. Merlino sends me an email today to tell me I’m coming [laughter]. Big hand for Rich.

Audience: [laughter] [applause]

Rich: It was intended to be a reminder email.

Norm: [laughter] Yes, so anyways I had to throw him under the bus.

Rich: You really didn’t [laughter].

Norm: No [laughter]. You know Nicole interviews mostly everybody and she’s the one with all the paperwork, and so forth. She’s developed and she’s presented it to me. We get pretty good advice from our attorneys and these meetings. She’ll interview them and she’ll either call me the next day to go over, but it would say that on an average, we have 25 applicants for any vacancy that we review. It’s never right on the spot. We never give out an apartment right on the spot.

Rich: You just don’t take the first one that comes in with some money.

Norm: No.

Rich: You explore your options.

Norm: Yes.

Rich: And you’re choosy about who you—

Norm: Yes.

Rich: What that means, Norm, is that there will be times when you’re going to have to leave an apartment open for an extra weeks or 2 weeks or whatever—

Norm: Yes.

Rich: While you’re making that evaluation?

Norm: Yes. But we market, a lot of different sources, so the phone numbers and people coming from different areas, but usually we’ll screen 25 applicants before we choose one. Northbridge, where I live, is a typical small town, you know what I mean. If it’s my buddy’s sister or something like that, things like that, you kind of but not often. Most of the time it’s people I don't know.

Rich: Got you.

Norm: Yes.

Rich: As you’ve gotten bigger, you have Nicole who does a lot for you. You have an application process. You have a whole screening process in place, but it sounds like you’ve considered the tenant selection to be important enough that you stay involved in the final decision-making process all the time. Is that right?

Norm: Yes. Very seldom do I not say yes or no.

Rich: Interesting! Okay, Michael Gerber, who wrote the book “The E-Myth,” does anybody read this book?

Audience: [applause]

Rich: Okay! We have some applause from Michael Gerber. He talks about how important is it as you’re growing your business, to have processes and to be able to delegate, right? But he stresses the difference between delegation and abdication, which is Norm is not abdicating the responsibility because tenant selection is would you agree that’s a really big and important part of the business? Is this maybe the most important part?

Norm: I think being involved on all aspects is very important from mowing the lawn to picking the tenant.

Rich: Yes, so there are a lot of landlords with smaller businesses than you have who have really just stepped out to a much larger degree and maybe that’s why their turnover isn’t what yours is because when I talked to you and Nicole a couple of weeks ago—forgive me if I have it wrong—but I think you guys said you had 16 turnovers in the last 12 months or something low like that?

Norm: Yes, very low.

Rich: Out of 232 units, so that’s why Norm is here because if you’re doing the math, I mean that’s definitely less than 10 percent.

Norm: It’s way less than 10 percent.

Rich: Mine is way more than 10 percent, and of course it varies depending upon the quality of your apartments and the location, the time of year that you have vacancies and stuff like that, but that is a track record. That’s why we definitely want to learn what you’re doing. One thing you’re not doing is giving all the responsibility of your tenant selection away. You’re still maintaining some control over the decision.

Norm: I would say that I at least designed the guidelines that she has to follow like don’t even bring me somebody that’s not in this criteria.

Rich: Right, right, right.

Female Audience 1: What is your basic criteria?

Rich: Yes, what is your basic—well, you know what everybody knows that basic criteria like income and stuff like that. What are the two things that you have on your criteria list, Norm, that maybe not everybody who has a smaller business has?

Norm: I would say my first one I would think everyone requires and that’s ability to pay the rent, have a source to pay the rent. When I started out, I didn’t go this far but if somebody has social security disability and that’s what you’re going to use for that income, I want to see a letter from social security.

[0:10:09]

I never used to do that, and I have to say Judge Horan is the one that said “Norman, get a letter next time.” I’ve had a lot of fairness on my part in the courtroom, but the job, ability to pay the rent, how many people are going to live in the house, pets, things like that. You just got to meet them.

Rich: So you’re making sure that you meet them. Now you don’t meet everybody, do you?

Norm: No, no.

Rich: Okay. But if somebody like Nicole meets everybody in person?

Norm: Yes, yes. I got that you got the service dog thing and all that, but we don’t usually allow dogs, but you know, Nicole will call me up, and she’s got a 70-year-old woman with a little Shih Tzu and Nicole likes the lady. Yes, we rent it to her because that’s a little dog and that’s the gut feeling comes in and I’ve never been burnt on that. I mean you can tell. You can tell, and you have to be fair. I know the next question is going to be how we retain our tenants.

Rich: Yes, that’s my next question.

Norm: You know I don't have to tell anyone that living in the United States is not easy. It costs a fortune. It doesn’t matter what level you want to live at, you pretty much spend. It costs a lot. You have to be aware of that and we all like to be hardliners and intimidation does not work. That’s the worst thing you can do, but—

Rich: What would be an example of?

Norm: If you take a young guy, well, a young guy with a family, calls me up, “Norm, my frigging transmission went.” The guy has never been late. Why do you want to harass that kid with a 14-day notice? And I don’t, and I don’t.

Now, if he says, “Give me two weeks, in the next pay period, I’ll catch up,” and he doesn’t, well, all right shame on me. He got me for two weeks. But then you go right to the limit, and that’s how I went and it’s worked out because as you all know, you move them out, I can’t go to court by myself anymore. I got to pay a lawyer. Then I got to clean the apartment, paint the apartment, advertise, get another tenant in, lose 2 months’ rent before somebody comes in. Did I gain? No. Because there’s probably 70 percent, I’ll go 70 percent that in 2 weeks, he’s going to give me the rent that he fell behind.

I would say that’s how I retain my tenants. You got to be fair. You got to be fair. It doesn’t take long to figure them out.

Rich: I think your gut feeling is probably better than mine.

Norm: That’s because I think I’m a little more involved in my properties than you are [laughter].

Rich: I am not involved in your properties at all, sir.

Norm: No, your properties.

Audience: [laughter]

Norm: I’m sorry, wise guy.

Rich: I agree with that.

Norm: He’s such a wise guy. He’s such a wise guy. I would tell you [laughter].

Audience: [laughter]

Norm: He gets you because that young fellow, I’m probably going to see him 3 days out of the week for that next 2 weeks that I’m waiting to get my money.

Rich: Yes, got you.

Norm: And I think it works.

Rich: It sounds like it’s working, so it sounds like just treat people like human beings, paperwork and policies aside.

Norm: Paperwork is very important. I mean there was a time that I didn’t pay attention to it. I’ve lost money in the court and so forth, but paperwork is very important. You want to present to the lawyer all the ammunition he needs when he goes to court, you know the old saying cross your T’s and dot your I’s, and that’s really what works. That’s really what works and there is so much involved in housing and stuff.

[0:15:05]

I mean this morning on PBS, you’ve probably heard the radios, but it’s a ridiculous thing. In Boston, they’re trying to stop investors from buying expensive condos through trust and stuff like that because they sit empty and it’s taking a certain percentage of housing away from people that want to live in Boston like they’re going to buy those $3 million condos. You know what they want to do? They want to tax them at a higher rate [laughter].

Rich: Yes, of course they will. That seems to be the solution to a lot of things is restrictions and taxes. We’re going to go around for questions. I know this is kind of a surface discussion right now, and like I said, we’re going to bring Norman back with Nicole because she’s also a wealth of knowledge.

Norm: Okay.

Rich: We’re going to go over real quick to the part that nobody wants to hear about, Norman, and that is what is the condition of your apartments like and how does that relate to your ability to rent to the right people and collect 25 applications each time and to keep them long term.

Norm: Okay. All right, well the majority of my apartments are mill housings, mill housing from the 1900s townhouse style, 1,300 square feet 1,400 square feet per unit, mostly in Northbridge. If there was a condo market, they probably would sell, I don't know, $275,000 would be on the high side, $250,000 to $275,000, but there is no condo market, but I would have to say that 95 percent of them in 2 days, I could get them prepared to go on the market. They’d be ready to sell. That’s how good a shape they’re in.

Rich: Yes, I’m going to need you to elaborate on that because there are a lot of people who have apartments who could say, “Two days? I get mine ready in 2 hours!” because they aren’t doing nothing to it. I know that’s not what you mean.

Norm: Okay, all right.

Audience: [laughter]

Rich: What have you done over the course of purchasing these buildings and what have you done to turn up the type?

Norm: Okay, all right. Forty-two of these buildings were built between 1870 and 1910. I bought them. I gutted them all out. They’ve been all new wiring, new plumbing, new insulation, new furnaces, new flooring, new plaster, new woodwork, new doors. Did I miss—new windows, roofs, siding.

Rich: Right. This is brand-new. At some point, since you started purchasing them, most of them you’ve gotten since 2008, right? The vast majority of your units, is that accurate that you’ve gotten most of them the last 10 years?

Norm: It’s how when I bought the first one, 2008?

Rich: Not when you got the first one.

Norm: No.

Rich: Out of 232, I got the impression, correct me if I’m wrong, you know better than I do that a lot of those came in the last 10 years.

Norm: Yes, probably half of them have.

Rich: Half of them?

Norm: Yes, yes, yes.

Rich: You’ve been in business a long time?

Norm: Yes.

Rich: Half of them would be still 100 something, and it sounds like that you’ve rehabbed a lot of those or all of them?

Norm: Yes, not all of them are townhouse style. Some of them are four families, but pretty much, that’s what I do. I love apartments that are dumps. I love them. We just gut them all out and rebuild them. No Band-Aids to me.

You probably are saying that I probably should have built a brand-new one, but I’ve tried that and with the new codes, it’s not worth—well, I don’t want to say no. It is worth building brand-new ones, but it’s a long-term investment, but the older buildings, especially the mill towns. I don’t need to name one. There’s a lot of them all around Worcester County, the building inspectors love you. They work with you. They’d rather see a building be brought back to life through it than a fire trap.

Rich: Plus, I mean building on those lots isn’t even necessarily an option in a lot of cases because of zoning changes. They’re not conforming. You got setbacks. You got frontage. You rehabbed a building that was an absolute piece of crap on Providence Road in Rockdale.

Norm: Yes, the other one. It was all boarded up.

Rich: And it’s like 8 feet from the street or something like if someone were to tear that down, they couldn’t build something there, so you have to rehab it from scratch.

[0:20:05]

Norm: Right, right.

Rich: We have a question right back here.

Female Audience 2: Hi, Norm. My property is in Oxbridge and I have my first vacancy. I would like to know how did most of your tenants find you?

Norm: Craigslist for starters. I’m trying to think. Actually, Trulia and I don't think Zillow, but I know Trulia. That’s where Nicole comes in to play. She’s very tech-savvy, but I believe there are four different sites that once you post on one, the other sites pick up on it or something like that. Probably she’s—

Brian: Zillow, Trulia.

Rich: Yes, yes. Brian is saying Zillow, Trulia, and HotPads, all rolled in together.

Norm: Yes, yes. Brian, I think you’re right. That’s what it is.

Rich: Basically that’s the same place as we post all our things.

Norm: Yes.

Rich: And we don’t have 25 applications every turnover and we don’t all have that kind of retention. The part that I like to plug my ears is don’t want to rehab every unit, but in order to have the results that you have, that’s definitely an important part of your business model is to have really nice places to rent, it sounds like.

Norm: If you rehab it once the right way, it’s just general maintenance when the tenant moves out.

Rich: Got you! That’s how you’re just able to take care of cosmetic things in 2 days and get it re-rented.

Norm: Yes.

Rich: I think we have time for one, maybe two more questions. Anybody have a question in the back? We have a comment. Comments are fine.

Norm: Comment.

Female Audience 3: I would say, Norm, that it’s a testament to you because it’s word of mouth of the type of person that you are as a landlord. That’s why you get 25 applicants and that makes a huge difference. People know they get to know who you are.

Norm: Thank you.

Rich: I bet that’s true.

Norm: I don't know if that’s true, but it a compliment, right? I guess [laughter].

Audience: [laughter]

Rich: That was a good comment. We have time for one more and you two are going to have to fight it out. You can arm wrestle.

Female Audience 4: No. Just a quick question. Do you have trouble hiring people to do work because that’s what I notice with owning property is that it’s a nightmare. I mean plumbers, electricians. I mean I’m sitting here thinking about snow and it’s like you can’t even get people to return your phone call, never mind show up to look at the job. I mean it’s really nuts.

Norm: Yes. I very seldom hire anybody. We do everything ourselves. I have a lot of friends in the trades and it works out that way. In fact, I get phone calls all the time that people want me to manage their properties, and I say, “Why do you want me to manage yours? I’m just going to buy another one and manage my own.

There’s nobody out there, nobody. Plus, nobody wants to work, so that’s the other thing. You know it’s…

Rich: Yes. It’s not Norm’s fault, but not enough people are going to trade school.

Norm: No, no.

Rich: That’s really it. There’s not enough plumbers, not enough electricians.

Norm: It used to be that somebody owed you money, they mow lawns. They mow lawns [laughter]

Rich: Yes.

Norm: That’s not, you know…

Rich: Norm, are you going to be able to hang around for a couple of minutes after the meeting?

Norm: Sure, yes, yes. do you have like a 15-second or less question?

Male Audience 1: Outside.

Rich: You’ll just talk to him afterwards Is that all right?

Norm: Okay.

Rich: Cool. thank you. Let’s hear it for Norm Gadoury.

Audience: [applause]

Norm: Thank you.

[End 0:24:11]