Jason Hartman and Investment Counselor Adam discuss some listener questions from Brenda and Roger. They discuss how Jason’s family was able to make real estate investing work in California. Later on the show, Jason hosts guest Frank Barletta, Co-Founder and CEO of UpTop, as they talk about how his software can help self-managing property owners.
Investor 0:00
I always have had an interest in investing in general and educating myself about different types of investing. And I’ve always kind of come back to real estate in general because of all the things that we we discuss on your podcasts all the time. I read you know, a lot of real estate books and I think a lot of people probably talk about that Rich Dad Poor Dad book which opened up some some new thoughts in my head, especially the actually the 1031 exchange they mentioned in that book. And my medical partner is the one that actually turned me on to your network because he he had invested with you. And that’s how I came specifically to to your podcast. I spent a lot of time educating myself before diving in. The method that I hadn’t started my investing with you was was through this 1031 exchange. Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most Historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:39
Welcome to episode number 1205 1205. Thank you so much for joining me today. We are going to talk about a another piece of technology that can help you with management or better yet, self management. We just want to make you an empowered investor and help you become a independent. So you can make the decision that you need to make on how you’re going to manage your properties and your entire portfolio from a position of power. You don’t have to have a property manager. But you can have one if you want. You can make the decision because you have the capabilities and the tools to do what you need to do. And that’s what today’s episode is about. We will have a guest speaking about this technology in a few minutes, but first for the intro portion. Adam is here with me and we wanted to do a little q&a. Adam, welcome back.
Adam 2:33
So our first question is from Brenda Harris. Hi, Brenda. Thanks for listening. And she says, You are no fan of California real estate yet you reference the success of your aunt in Sacramento. How was her success possible?
Jason Hartman 2:47
Oh, Brenda, Brenda, come on. Seriously. Her success was possible because she started in the 70s. And the question that’s good to ask has always come from What, right compared to what? Yes, my aunt and late uncle now had purchased and built quite a big real estate portfolio. And they did that in the Sacramento, California area and still own I think my aunt has only sold one house in her life. And you know, they follow the old school plan, and it worked out because time will make everything work. The question would be, though, if they were to invest in areas if they did the same thing in areas that were number one diversified, and number two had better rent to value ratios. Instead of owning give or take 100 properties, they might own three or 400 properties. Okay. You know, we just don’t know, because the compared to what question, the dogs that don’t bark question is an unknown. We don’t know what they would have done. We don’t know how it would have gone but I can definitely tell you that By investing in the northern California market, they have sacrificed a lot of cash flow over the years. Now, I don’t know what the rent to value ratios were in the 70s, when they started investing, or even really in the 80s, even in the 90s, I would have to speculate a little bit. But certainly in the last 20 years in the 2000s, those rent to value ratios in Sacramento have not been desirable. What hides a lot of mistakes is that the asset class is so powerful and I think it is fair to say their mistakes, okay? That the asset class is so powerful that the rising tide of the asset class of income property, especially when you have a lot of equity in it, and you haven’t done the refi to die plan and you haven’t equity stripped along the way. It feels like it’s working better than it really is because You have a free and clear property that’s worth $425,000, for example, and your rental income on that property is 1900 dollars a month. anybody listening would say and Brenda, I’m sure you would say to, that’s a lousy rent to value ratio. But if it’s free and clear, and you’ve got 80 or 100 or 120 of those properties, producing 1900 dollars a month, and you’ve got a bunch of lazy equity in them, it feels like it’s great, doesn’t it? But it’s really not great. It’s really a mistake, because you could get a $200,000 property and get 1900 dollars a month out of it potentially, right closer to that 1% rent to value ratio. So I’m not saying that my aunt did it right. Okay. What I am saying is that she did it. And just because the asset class is so powerful over the years, being frugal constantly investing more buying more properties? There’s a certain amount of momentum that is absolutely doing it right. Couldn’t have done better. I think it could have, at least from probably in the 90s. And onward. Before that, you know, the rent to value ratios may have been actually quite good in that area. I just don’t know. I don’t have the data. I hope that makes sense as an answer. Adam does kind of being on the sidelines and quarterbacking that question that answer. Does that make sense to you?
Adam 6:33
Yeah, it makes sense. I just had a quick follow up question to that. How is your quest to convince your mom to sell any of her properties going?
Jason Hartman 6:40
Oh, not very well. You know, my mom and my aunt, they grew up in in the Great Depression. Well, you know, my mom was, you know, she’s too young for that. But my aunt is older my aunt’s 10 years older than my mom. Okay. And so they saw that their parents, my grandparents definitely were Very impacted by the Great Depression. They were having kids during the Great Depression. They had that mentality that was the right mentality before 1971 when the game changed, the mentality was save for the rainy day, buy and hold. And I still believe the buy and hold philosophy. As long as that rent to value ratio stays somewhere in line when it gets out of line, I believe in the BI and 1031 exchange for better rent to value ratio properties. Okay. That’s what I believe that I’ve done that myself several times and so many of you listening Of course. So you want to constantly be making sure that your equity doesn’t get lazy, that you are doing 1031 exchanges to optimize your rent to value ratios, maximize cash flow, and maximize good quality long term investment grade debt. Your properties so that you get to take advantage of what we call inflation induced debt destruction.
Adam 8:07
And the next question we have is from Roger, and Roger said he would like for you to address large capex expenses, and how you account for them or if they’re accounted for in the 4% reserves that you recommend?
Jason Hartman 8:20
Good question. So here’s the problem. You know, we have talked throughout many years about this idea that real estate income property, you know, it’s messy, it’s a little hairy, okay. Everything is very fragmented. And to answer this question, it’s no exception. We always say embrace the fragmentation. The fact that it’s so fragmented is why the opportunity is here, if it was as simple and unfragmented, as the financial markets was the stock market, where it was a largely perfected marketplace, because there wasn’t Any play, so to speak in what a stock prices and you know what you can buy it for and what you can sell it for at any given time. That is a quantifiable thing. There’s no judgment call to that. The price is the price, take it or leave. Okay? With income property, though it’s much more fragmented. And the problem with putting cap X on a performance is this. When you buy that property, I don’t know exactly what you bought. Okay. So I don’t know if you bought a brand new house, or if you bought an older property and if you bought an older property, what level of rehab was done on that property? It’s very fragmented, every local market specialist and not just that every specific property itself are different. They’re doing different rehabs on different properties. They do different rehabs in each market. Some do this massive rehab. where they go through and kind of replace everything and you’re going to pay a premium for that you can pay a higher price for that house. Some do what you know what I’ll call the lipstick on a pig, okay? Where they just kind of make it look good, and they don’t do much. And you’ll get that house at a much lower price, but you will end up paying for it later, ultimately, because not everything was replaced and and rehabbed if you will. So you know, the major systems in house the plumbing, heating and electrical systems. Heating, of course, is a generic term. It includes air conditioning, hva AC will call it and the roof right, these are major items, and they’re expensive, and you definitely need to plan for them. The 4% reserve question that you asked should be combined with the maintenance cost that is in the performer, and what we instruct and we constantly catch them, but we don’t catch everyone. So I want to make you your own best advisor. Okay. We don’t catch everyone, we instruct our local market specialist to increase the repair and maintenance cost if the property is older, and we have a couple metrics for that, where if it’s, I don’t have the chart in front of me, but if it’s older than, say, 2000, just as an example, you have to bump up that repair and maintenance cost as a monthly percentage of income. And if it’s brand new, it can be lower. And if it’s even older, you know, maybe before 1980, then you have to increase it even more. Do they always do this and listen to us? No, they don’t. It is a constant job to keep track of them and keep track of every property. So become your own best advisor. Look at your inspection reports very carefully. If there’s one thing you definitely want to read carefully. It is your inspection report to know about the physical nature of your property and what you are buying. And don’t be afraid to get estimates or quotes on Any scope of work items that come up in that inspection report and don’t be afraid to ask our local market specialist, in essence, the seller or at least the broker to the seller to fix items and bring them up to snuff for you and pay the very low cost of a re inspection, where that inspector comes back, takes another look. And they make sure that these punch list items that you raised are actually done, the work is actually completed. So I hope that helps answer the question. But again, it can’t be answered directly, definitely have at least 4% of the value of each of your properties in reserve for any contingency items might be a repair item might be a vacancy. It might be an eviction, whatever, at least 4% in reserve, maybe a little more 4% is the minimum. So if you have a property portfolio and say you have 10 $100,000 properties in that portfolio, I want you to have at least $40,000 4% of that million dollars in the bank. In reserves. I don’t want you to touch it except for these contingency items that I just mentioned. You do not spend that money for any other purpose, that money is your mark for your property contingency plan.
Adam 13:26
And I also think it’s important Roger, whenever you’re purchasing a home, especially through our network, that you ask the local market specialist to straight up I want a scope of work for what you did and when you did it to this property. So that way, you know, okay, they replace the roof. It should last this long. You know, make sure that you’re planning correctly for those purchases in the future.
Jason Hartman 13:48
Absolutely. Because they will come and we don’t want you to be surprised. We want you to be ready. We want you to plan for this stuff. Okay? expect the best but prepare for the worst. When you get this scope of work, I want you to require them to give it to you with a degree of detail. Okay? Don’t just say new roof. Okay? spec it out what kind of roof spec out the details about it, okay? Don’t let them get away with vague paperwork. You want your paperwork to have detail and specificity to it. Okay, you know, people are lazy, they want to be as vague as possible so you can hold them to it and they don’t have to spend a lot of time preparing it. But any scope of work that you get from any contractor and, you know, it might be the local market specialist, or the seller, or it might be an outside contractor. Make them detail it out. You want details, details, details, not just vague things, okay. You want them to itemize things. You want them to detail things out and you want specificity on air. So Hope that helps.
Adam 15:01
Sounds good. Well, if you have a question for us, please do not hesitate. Go to Jason hartman.com slash ask and submit your question and we will get to it as soon as we can. And you can hear your name and your question on the podcast.
Jason Hartman 15:15
We love your questions. So keep them coming, keep them coming. And without further ado, let’s get to our guest and talk more about becoming an empowered investor. It’s my pleasure to welcome Frank Barletta to the show. He is the CEO and co founder of an app that can give you institutional grade power as a mom and pop investor. And the app is called up top and Frank, welcome. How are you? Thank you very much for having me, Jason. I appreciate it. It’s good to have you. You know, it’s so great to see how there are so many tools in the marketplace that formerly were only only available to sort of enterprise level companies and landlords and now The technology is just trickling down. So mom and pop investors with very small portfolios can take advantage of this, right? It’s a great opportunity today to be in technology and also to be able to provide that level of expertise and tools to anyone from the institution to the mom and pop. It is awesome.
Frank Barletta 16:19
So tell us about the application now. Is it an app? Is it desktop software? Is it both? You know, give us an overview. We’ve created an ecosystem. And the ecosystem is a cloud based product that allows landlords and property managers of any size to connect directly with the tenants and prospective tenants. We do have mobile apps, and those mobile apps have been designed to create a phenomenal experience for renters. So renters want to do things on the go, they want to find their next apartment, they want to pay their rent put in their maintenance requests. So we’ve developed mobile apps and a web app for them to do that. So on any device and for your landlord and property manager or agency, you can use it on any iPad or any tablet as well as any computer desktop browser.
Jason Hartman 17:06
Okay, what does it do? Tell us a little bit more about what it does. I mean, you described it when you talked about the tenant side. But there’s a lot of back end stuff available to landlords too, right?
Frank Barletta 17:17
Yes. So up top is the first free end to end rental ecosystem. And when we think about how everyone does business in this space, we think that there’s a couple different buckets of services that are provided. So you have your your marketing side, you have your lease up, and then you have your back office. And what our tops designed to do is facilitate or streamline the entire process and the property management or the management process, end to end at no cost, again, to the landlord property manager or to the agency. So that’s for marketing your current or existing vacancies. You have the ability to screen and communicate in real time, you can have Lisa sign online, you can collect rent, you can use our accounting tool to generate courts and manager expenses, as well as offer a maintenance solution. So your tenants can let you know when there’s issues, you can record them, you can submit those at third parties that you work with, and really just manage the entire experience in one place.
Jason Hartman 18:15
Good stuff. So tell us about the marketing. I mean, what specifically would an owner do? Maybe you want to kind of take us through the steps, does your system syndicate ads to different rental property platforms or give us a little more of an idea about that?
Frank Barletta 18:30
We’ve created our own iOS, which is an internet listing site. So similar to what a Zillow or apartments calm is, as a core business, we’ve developed ourselves. We also know that we are new to the space and to maximize traction, and to ensure that there’s brand awareness and that the units are that are vacant or have the most exposure, we do syndicate as well.
Jason Hartman 18:52
So what does a landlord do? They sign up for your service, I guess at the website, right
Frank Barletta 18:59
grant So they would sign up a go through an onboarding process. And if they’re looking to list their vacancies they list similar to any other iOS, they put all the information that they believe is important for any prospective tenant to know right into our app. And they push published marketplace and we’ll send out to all of the different places that you would want them to go to, as well as through our own channels live up top calm is an iOS that renters are finding in various cities growing in 30 states and we’re able to attract tenants as well as same thing, we want to make sure that we get maximum exposure by pushing on to other places as well.
Jason Hartman 19:39
I assume that includes pictures and maybe videos or virtual tours.
Frank Barletta 19:41
Exactly. Okay, Shin amenities, all of the important things that are necessary and what’s really great about us is as a tech company, there are things we may not know. So we like to have a close relationship with our clientele, so they can tell us the things that they see the things that they feel are important or would make their jobs a lot easier. So that we can help them we can build that we do that on a new costs.
Jason Hartman 20:03
It’s interesting, Frank that this is it’s becoming such a large, I can’t even call it a cottage industry. But it’s like a large behind the scenes interesting. I mean, you know they, we hear a lot about FinTech. This is really a segment called rental tech, right? kind of tell us who some of the big players are in the rental tech market, and what makes up top different.
Frank Barletta 20:26
So the rental tech focus is really a new focus. And unfortunately, the market is very segmented. If you think about how everyone does business today, you have your needs for an iOS, you have to list your vacancies. There are tools for communication or tools for online lease signings, there’s different property management software’s as different maintenance tools, different types of FinTech products to collect rent. There’s so much that’s out there. What we want to focus on is re segmenting the whole space and transforming it into Instead of having to pay for software and use several things that you don’t need, go to one place and not pay for something that you do need in terms of how new this industry is, there have been property management software’s, and there have been internet listing sites out for many years. But there hasn’t been much love or attention put on to this space. And we hope that we will be and continue to be the catalyst and the game changer in that space to drive more growth.
Jason Hartman 21:28
I mean, we’ve had a few of the players in the marketplace on the show, really quite a while ago. I mean, we even had him speak at one of our conferences, we had the cozy people at the time, their thing was mostly centered around simply rent collection and screening. But your app really sort of does the end to end solution. Tell us how that works. I mean, where’s the business model for you guys making money is it on the Is there a fee for the collection and the payment transfers or It sort of just a float on that money out there with with all of your users. What’s the business model for you guys,
Frank Barletta 22:06
our business model is focused on the transactions. We empower the landlord and property manager to do a full screening of the prospective tenants. There’s a cost of doing that business. So obviously, if you wanted a credit and background check, there’s a cost to the Bureau’s like Experian and TransUnion and these different vendors, so we have a small fee on top of that to resell the service. And if renters want to pay their rent online, instead of paying with paper check, they can either do credit card, debit card, a check a ch, and there’s a small convenience fee that allows us to continue to grow our business. It’s a lean model. And while you’ve mentioned cozy, which is a great tool, and it does focus on a few things. I want to emphasize that that doesn’t really segment how people do business. It just adds additional tools that are necessary. What we focus on is improving bottom lines. And if I can say, we are innovators in the space by allowing everyone to abandon their current way of doing business for a new process that’s going to make their operations much smoother, save them time, save them money and make them money. I think that’s a conversation that hasn’t been had before. And that’s something that I’m welcoming and putting a big emphasis on.
Jason Hartman 23:26
Yeah, good stuff. So property management companies are using your system. And then individual owners are also using it right? Yes. Okay. Is there any distinction that you want to share about the way a manager would use it a management company versus an individual
Frank Barletta 23:43
really depends on the organization themselves. So your typical property managers have several clients, the ability to onboard their clients and their portfolios as easy as possible is key. So we’ll say property manager a Has 10 clients, each client has their own bank accounts, each client has their own portfolio, we’ve designed our product to make that so simple that recording at the end of the month, transactions that happen in real time get paid to the right people on time. We’ve made it so that everything is very seamless. And if they have clients that want to log in and see what’s going on or just be responsible for moving, who joins their community, that is something that we’ve done and enabled for independent property owner or managers, a property owner here in this scenario, they’re welcome to go in and use the tool on their own at their own pace. They get all of the support that they need from our team chat with us talk to us, we provide as much guidance as we can. And it’s really designed to help them save a lot of time and money in the operations aspect. Being a landlord is not easy, being a property managers not easy. So making it so that their time to be reallocated to improving their practices and making their product better. And just enjoying the things outside of work, I think is very, very important, I believe is very important. So that’s something that we wanted to put a lot of emphasis on as well.
Jason Hartman 25:10
So are there any geographical restrictions? Or does it work? nationwide in the US
Frank Barletta 25:16
nationwide currently in 30 states and growing?
Jason Hartman 25:20
Okay, why is it in 30? states only? Is it because, I mean, it also drafts, leases and manage leases. Want to ask you about that. But is there a reason it’s not in every state yet, just coming out of stealth this year? So fully with our early markets, we focused and we’re able to grow from there. I would say, give us another 12 months, and we’ll see how many more states we can we can get into. Yeah, I mean, 30 states is definitely impressive. But the reason I asked that question is it’s a platform, right? So why wouldn’t it work anywhere? I’m just kind of curious about that. Is there a legal issue or
Frank Barletta 25:54
not at all? It’s mainly marketing and just outreach Okay, no limitation on here. Graphic it was more. That’s where we’ve been able to do business so far and grow so far, the opportunities everywhere. So expect us to keep going.
Jason Hartman 26:08
Sure, sure. So if someone uses your system in some state in which you’re not sort of open yet, it’ll still work, right? I mean, it’s a platform, right?
Frank Barletta 26:18
Yes. There’s no limitations. We have people that take our system, they set it up there in other countries traveling and they’re managing their business on the road. So yeah, really? no limit to what can be done. Yeah,
Jason Hartman 26:32
good stuff. And when you say their business, I just want to distinguish, of course, real estate investing, like any endeavor is a business but it’s not really a business business in the way that some might think of it. It’s, you know, an investment portfolio. So they’re managing your portfolios on the road, right? How does it handle the leases? Do you have sort of standardized lease documents in there and other tenant documents, and it does it through a signing platform like a DocuSign or tell us a little bit of That how it handles leases. Our system is we’re not a legal company
Frank Barletta 27:03
systems not designed to provide legal expertise or boilerplate templates. But we do allow is for your property owner or manager to use their own leases that and we encourage to get from their own legal counsel to you as our online lease signing tool to have it uploaded, have your forms ready to be signed and for the transaction to happen within the platform.
Jason Hartman 27:28
Okay, great. So they can upload their own leases and just make it all work from there and do it via e signing. Awesome. Another thing that just frustrates owners and tenants when owners can’t take care of it easily is maintenance issues, maintenance issues. So how does your platform handle that?
Frank Barletta 27:49
couple different ways? renters can go on our mobile apps into their account and submit a maintenance request on the fly? We take photos could take a video You can put in all of the details that are required to let the landlord or property manager know, hey, I’m having this issue. Please help rent permission to enter the unit all of the details that are really important. We also provide a free hotline which is built on our back end with some AI that listens to the phone call automatically knows who the tenant is, assigns the transcribed maintenance request to the account that is appropriate for and also includes a voice recording so that if any maintenance person or team member of the property management side listens to it, they know exactly what’s going on and don’t miss a detail. That’s pretty cool. It’s also designed to know who the vendors are, who your contacts are. So if you have a specific plumber that you want to have all the maintenance requests go to that a plumbing, you can also have it assigned and auto assigned. Same thing goes for electricity and appliances or if you have a general super, you can do that as well. So it’s versatile and obviously growing. The focus is really on making Making the process a little bit more streamlined, a little more automated, and much more to come from that, of course.
Jason Hartman 29:05
Excellent. So I was going to ask you about the way it in engages with the contractors and the service providers, or any of those people on the platform already in does it do anything with that, if you will, and I don’t exactly know what question to ask you or how to phrase that but or is it strictly the maintenance people that each individual owner or manager put in their network? Or is there a network already,
Frank Barletta 29:30
at this time, it is focused solely on the vendors that are being used by the individual account holders, God?
Frank Barletta 29:39
Anything is possible?
Jason Hartman 29:40
Yep. Okay, good stuff. Good stuff. Anything else you want people to know maybe? Any questions I didn’t ask you wanted to share.
Frank Barletta 29:48
I want to put emphasis on up top being a tech company and not a real estate company. And the reason for that is we work with industry professionals and industry leaders. leaders to learn and ensure we’re continuing to innovate through our technology process and ability to develop enterprise level software. We want to continue to add value to the market by working with as many people as we can, and taking a different approach than what’s currently out on the market.
Jason Hartman 30:19
Excellent. And give out the website. If you would live up top calm,
Frank Barletta 30:23
please visit. We’d love to work with you,
Jason Hartman 30:25
Frank, thanks so much for joining us and keep up the good work.
Frank Barletta 30:29
Thank you very much for your time. I really appreciate it.
Jason Hartman 30:33
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