In this episode, Kevin Gardner owner of Multifamily Utility Solutions, joins the Podcast to explain how large multifamily property owners can earn more forms of income on their buildings. Kevin has unique business experience in negotiating with internet and cable companies to strike a favorable deal for the landlord. This allows the property owners to make an override on services their tenants are already paying for such as internet, cable, electric and gas. Every little bit helps so learn how you can make more forms of income on your large multifamily properties through this episode of the Passive Cash Flow Podcast.
(248) 930-4768
www.MultifamilyUtilitySolutions.com
—
The Passive Cash Flow Podcast is for beginner or experienced investors. Subscribe today to learn how you can diversify out of the stock market, build your real estate portfolio and own a part of a professionally managed property. Build your Passive Cash Flow!
Peoples Capital Group has been helping passive investors build wealth in NJ real estate for the last 10 years. Visit www.PeoplesCapitalGroup.com to learn more how Peoples Capital Group helps qualified investors build wealth and passive cash flow. Self Directed IRA’s and Solo 401K’s are accepted.
—
#NJRealEstateInvesting
#AaronFragnito
#PassiveCashFlow
#PCG
—
Kevin Gardner: I’ll tell people this all the time. If you’re on the bubble and you’re not sure, one thing I can tell you is that when you are a property owner and if you’re under a bulk agreement, you go back to the cable company and say, “This is not working out for me. I want to go and discontinue this contract and go to a non-bulk contract.” I’ve never seen it happen because they don’t want that. You’re on the contract they prefer. If you’re on a non-bulk agreement, and you say, “You know what? We want to switch to bulk, ” that’s where they want you to go anyhow. They’re willing to work with you on that.
[music]
Aaron Fragnito: All right, ladies and gentlemen. It’s Aaron Fragnito, your host of the Passive Cash Flow Podcast, back again with another episode. Our guest today is Kevin Gardner. How are we doing today Kevin?
Kevin: Doing great, Aaron. Thanks for having me on the show.
Aaron: Absolutely. Thanks for joining us. I wanted you to come on the show because you help people, landlords really make alternative forms of the income on things that their tenants are already paying for and already need. I thought it was really cool how you can not only just on the electric and gas side but also cable and internet, and that’s really cool too. I want to break into exactly what does Multifamily Utility Solutions do.
Kevin: First and foremost, we work with cable and internet. That’s where probably 85%, 90% of our business comes from and that’s where we can help owners the most. The reason we’ve tagged ourselves as utility solutions is because, in certain deregulated markets, we have an energy broker who can also help with electric and gas. We like to pride ourselves on really the subject matter experts when it comes to cable and internet, but we partner with other companies.
No matter what utility you need a solution for, we’ve got colleagues who we can recommend, whether it’s trash removal, whether it’s submetering for water, or things like that. We know people and we’ve got partnerships with them. We really do pride ourselves on trying to help in any and all the utility situations.
Aaron: That’s really good stuff. Being a landlord, we have all these utilities that we’re either paying for or tenants are paying for and there’s a lot of money exchanging hands. It’s interesting. I don’t exactly know how it works. For example, you said it works best for 25 unit properties. Let’s take the one that I just bought 25 units in Paterson, New Jersey. I just bought that in October with a number of investors. Let’s say we wanted to work with your group to make alternative forms of income on cable or internet, electric, gas, how would we work with your group and what would that experience be like?
Kevin: Sure. We did say that it’s got to be like 25 at a minimum to even qualify. The real sweet spot is roughly 100. 50 to 100 is a nice range and anything over 100 is a slam dunk in most cases.
Aaron: Nice.
Kevin: It’s like when you go to buy, who’s got the leverage? It’s just a game of leverage and that’s exactly what it is. If we’re negotiating for 100 units, we get a little bit more leverage, we get a little bit more of their attention than we do if we have 25. Nonetheless, the first thing we would do is all we would want to know is the name of the property. If you’ve recently changed it, the primary address, and the number of units. Then we’re going to dig in and see, first of all, who are the cable and internet providers on-site already and who’s available in that marketplace.
For those that are on-site already, we’re going to reach out to them and we’re going to say, “Hey, we’re working for Aaron, what can you tell me about the existing contract. Is there an existing contract in place?” Like we were talking about earlier, through no fault of anybody. I’ve never seen anybody intentionally not provide this in due diligence. Sometimes there’s contracts that don’t show up in due diligence because the owner that you’re buying it from maybe didn’t get it from the previous due diligence process.
As things get sold, things get lost. That goes on both sides because as cable companies get sold, things get lost. It just has happened. I’ve seen it happen over and over and over again. We do try and determine is there a contract already in place? Is there a opportunity here or is there not an opportunity here? If we’re able to determine that, let’s say, there is a contract in place, we get it from the cable provider and give it to you because it didn’t show up in due diligence. Then we put it into our billing or our tracking system so that we make sure that when it expires, we notify you so that we can renegotiate.
Aaron: That’s interesting. You’re in touch with, in this case, the cable company, right?
Kevin: Right.
Aaron: Let’s say out of our 25 unit property, half the people are paying for cable. That’s our assumption. I know it’s a small case. In your case, you’re going to actually negotiate with the cable company directly and try to essentially have some type of profit-sharing as far as all those cable fees that are being paid. Is that correct?
Kevin: Right. When I tell people that we help with the cable agreements, most people say, “We don’t pay for cable for our residents so we don’t need an agreement.” What they don’t realize is, for example, when you use the example of Paterson, Paterson may grant to Comcast and a non-exclusive franchise to operate in the municipality of Paterson. All that does is give them the access to the public easements, the public rights awards. They can’t give them the right to be on your personal property. If you’re a homeowner in Paterson and you sign up for service, you’re giving them permission to be on your personal property.
Those 12 or 30 people in your property, technically they have the right to become a customer and say, “I’m going to pay my bill, and this is what I want,” and all that kind of stuff and you run your credit check on me. They don’t have the ability to grant the cable company the right to be on your personal property. There’s an extra step when it comes to Multifamily and you’re, in essence, a gatekeeper and that has value. What we do is we represent you and we help determine what that value is. We’re in a unique position.
I used to work for Comcast. I’ve been on the other side, I understand all the terminology. I understand what’s fair and what’s not fair because I used to help determine what’s fair and what’s not fair. You have to understand, they’re not just giving you money to be charitable. It’s a, “What’s my return on this investment. Am I able to give more to a property that’s maybe 100 units and has 50 customers than I am a property that’s 100 units and have 25 customers?” Yes, because my return on that investment is greater. I want to make sure that I continue to have the ability to serve those 50 customers. That’s how we have the ability to do that.
Aaron: The same would go for internet, I assume that as well. The more customers you have for the internet, the more negotiating power you have to say, “We’re going to go with this provider or this provider,” depending on whatever they offer you. Is that correct?
Kevin: Yes. In most cases, what used to be called the cable company Comcast is no longer really just the cable company but everything comes in over the same wire. The access is granted for that wire and the services they deliver on that wire.
Aaron: As far as the process to negotiate back and forth with them, is it very in-depth? Will I have to do a lot as a landlord? How much of my time do you need to make this work?
Kevin: We try and make it as turnkey as possible. You may have to provide us with a letter of authorization but we’ve got a template, we fill it all in, we send it to you, it’s one page, you sign it. Then that gives us the authority to negotiate on your behalf but not the authority to enter into any agreements on your behalf.
We do for you is not binding in any way and the agreement you enter into will be with the cable company, not with us. We have an agreement with you that basically says if we get you money, you pay us a percentage of it but that’s it. We cannot negotiate. That works great because as we’re getting a percentage of what we get for you, then we have every incentive in the world to get as much as possible.
Aaron: Sure. Absolutely. Are there any other startup fees or flat fees or anything like that?
Kevin: No, not a single. There’s no hourly, there’s no retainer, there’s no anything. It’s we get a percentage of what we get you. If we get you nothing, we get paid nothing
Aaron: In that scenario, I like that win-win structure there. Let’s take the small building, for example. I know it’s only 25 units. We have 25 people definitely paying for internet, definitely electric and gas. Let’s just assume they’re all paying for cable TV as well. You’re going to go in there and try and negotiate a deal with those providers and work out some type of payment structure or profit structure that we’re going to get a piece, I guess, with the company ongoing, or is it more of just a flat fee upfront that the internet company is going to payout? How would that work exactly?
Kevin: There’s two types of agreements. One is what’s called non-bulk, or right of access agreement. All that does is let the cable company continue to operate on your property but their agreements and their customers are the residents. In that scenario, you don’t pay anything. We negotiate for usually an upfront door fee that says, if we sign this deal to help you market your services on our property, we’ll get X dollars per unit as a one-time fee. Then on an ongoing basis, we’ll get a percentage of the rep.
The other option is what’s called a bulk agreement. In a bulk agreement, what would happen is you would take over and say, “I’m going to give as an amenity, if I’m raising my rent, maybe I can add it and raise my rent buy more because the perceived value is more because you can buy at a discount if you’re buying for bulk,” but then you become the customer of the cable company for all 25 of those units. There’s pros and cons.
If you’re buying a property and you’re trying to raise and it’s in a competitive market, and you need something else to set you aside from your competitors or you’re going in and maybe your rent that you just bought is low, and you need to raise it, but you need to show them something in return, maybe you want to include it as an amenity and charge more than what you’re paying for it.
The downside of that is that you are then on the book, and you pay every single month for every unit regardless of whether or not they want it, use it, or whether or not the unit is even occupied. I’m not telling you which is best because it’s like when you buy a property. You got to determine what’s best for that property. What’s that property worth? That’s one of the first things I do with a new client is help understand your properties and what are you trying to do here? Did you just buy this one and you want to hold it for generations and generations and pass it on to the grandkids and all that?
That might be a different strategy than, “You know what, look, I just bought this, I want to flip it in 24 months and move on to the next,” or, “I want to do what I can to refinance it, so that I can take out the proceeds from that, the added value and go buy another property, but hold this one.” That’s what we want to understand because let’s face it, those are different strategies, and each of those strategies may have a different strategy for us or recommendation that we would make.
Aaron: Yes, of course. Also, I was thinking rent control’s one of the challenges we were up against in repositioning apartment buildings in New Jersey. A lot of times the tenants are like, “Yes, I’ll agree to that higher monthly rent because you’re doing all these different things to the property but rent control doesn’t allow us.” The landlord and the tenant can both be in agreement that this is the rent we’re going to pay and everyone’s happy but the government gets involved and says, “No, you can’t do that because you’ve increased the rent more than 5% of what the tenant was asked.”
It complicates things. It’s silly at the end of the day but it is something we’re up against now and then. Ideally, we can say, “Okay, we’ll include your internet or so,” but really you have to do it on a mass basis. It sounds like you would have to– First of all, everyone wants internet. The internet’s a safe investment, I would say, especially electric and gas as well. Cable TV I would not want to be on the hook for paying everyone’s cable TV bill because my wife and I haven’t paid for cable TV in five years. We’re millennials, we don’t like cable TV. Why the hell would we pay for cable TV? I have more content than I’ll ever need on Hulu and Netflix and Amazon. [crosstalk]
Kevin: m Yes, same way.
Aaron: Plus commercials. I’m not sitting through a commercial. That’s so yesterday, right? [laughs] You want me to pay for that? What is cable? [laughs] Oh my gosh.
Kevin: Right. We can split those apart and we can do internet only in some cases but, like you said, the cable TV subscriptions are declining so the cable companies are trying to do everything they can-
Aaron: Sure.
Kevin: -to try and make sure that they hold their market share on video so they love bulk. If you left it up to the cable company, they would say, “I would want a bulk contract over a non-bulk contract all day long.” I’ve got one customer that’s paying. It’s a dependable customer because it’s a multifamily property owner and I’m not running trucks out there all the time because everybody’s hooked up.
If somebody moves out, somebody else moves in. I don’t have to run a truck to disconnect somebody. I’m not worrying about collections, I’m only sending one bill, the operational costs are much lower. Plus, I get to count every single one of those units as paying customer, whereas before I might not even if they’re not using it. That’s their preferred way.
I’ll tell people this all the time, if you’re on the bubble and you’re not sure, one thing I can tell you is that when you are a property owner, and if you’re under a bulk agreement, you go back to the cable company and say, “This is not working out for me. I want to go in and discontinue this contract and go to a non-bulk contract,” I’ve never seen it happen because they don’t want that. You’re on the contract they prefer. If you’re on a non-bulk agreement, and you say, “You know what? We want to switch the bulk,” that’s where they want you to go anyhow. They’re willing to work with you. Just our recommendation is always when in doubt, that’s the safer bet.
Aaron: That’s interesting. I could see it working for certain– I guess if I was buying like a 55 or older community or something like that, that could be a good play there. I’ve seen it work with different trailer parks and stuff. I’ve seen that advertised. I think it depends who your demographic is but it’s definitely an interesting idea. I also am buying a hotel where internet’s included. I was trying to think how I could work that out. I guess you could use some type of bulk cable on that, right?
Kevin: Yes, hotels are a little bit different. It’s a different animal, a different business model, and different providers are available there because it’s to one site.
Aaron: That’d be a different setup. On the electric and gas side, how would that work exactly?
Kevin: What we do is we take your bills. It’s just for you, it’s not really for the resident as much as it’s just for you. Again, you have to have enough usage to make it worthwhile. If you’re in a situation where you’re paying, and it’s included in the rent, because that still does happen in some situations, and you’re paying for everybody, or you’ve got common areas, or you’ve got offices or pools or anything that’s going to drive usage, the more usage you have, the more likely we are to be able to negotiate a better rate.
That only pertains to certain deregulated markets. Not every state is deregulated. Not every market is deregulated. There are some in New Jersey, where I live is in Ohio there are some. If you get out to like in Oklahoma or Kansas or something like that, they’re not deregulated. Tennessee, not deregulated. It just depends. We’ve got a list on our website, but also, we can answer that question for anybody that’s interested.
Aaron: As far as getting the tenants to sign documents and working with them, I guess it depends on the structure you’re setting up. If you’re the internet provider, at the end of the day, you would have to get each tenant to either sign an agreement with you, or I guess the easier way to do is just working into the lease and you say, “Internet’s included in this building,” and then essentially rent’s going to now be a little bit higher because of that.
Kevin: Right. There really isn’t a lot of anything that you need to do. Let’s say you’re on a revenue share format where when somebody new moves in, you’re going to simply probably give them a flyer that says, “Look, Spectrum or Comcast, or Cox Communications, or Verizon, whoever it is who’s our preferred provider, here’s the numbers, we encourage you to call them.” You don’t have to take the order. You don’t have to fulfill anything, you don’t have to do anything. You don’t have to keep equipment. There really is not any considerable additional work other than encouraging them to go with the provider at the time they move in.
Aaron: Now if you do it the other way where you’re more involved and you’re actually paying the internet company for the Wi-Fi, you’re essentially going to have a router for each unit, or do you just put them all on one? [chuckles]
Kevin: No. Each unit has their own in most cases. There’s a couple of different scenarios. Like you can do a managed Wi-Fi, which involves purchasing more equipment, but you can then turn people’s service on and off. Not really a reseller but almost a reseller model. In all cases, the resident is responsible for the equipment and they have the right because the cable company in the billing system will put, 123 Main Street, Apartment A, Kevin Gardner, it’s being paid for already. These services are being paid for. If you want any additional service, then you got to go get it yourself.
Aaron: Right. Understood. It’s very interesting stuff. Listen, there’s always good ways to make multiple forms of income on properties. That’s all about repositioning apartment buildings is making multiple streams of income on the property. More forms of income add up over time even if they’re small. I know, over these bigger units, these fees can add up over some time. Just give us a quick idea, let’s say you had a 100-unit property, and one of your customers that maybe has the 100-unit property or so, what does someone like that make on annual basis with this?
Kevin: Thanks for asking my least favorite question because the upfront door fee, it depends on who the cable provider is, quite frankly, what region of that cable provider. Like Comcast, if you’re in Indiana, the offer is going to be different than most likely Comcast in Pennsylvania or Comcast in Colorado. It varies. I hate to not answer your question but the last thing I want is somebody listening to this writing down a number and saying, “Hey, how can I get this?” Because we have to figure out– The larger the property, the more we can get.
Certain markets, we can get more. In some markets, it’s competitive. If you’ve got Verizon Fios available and Comcast available, it’s going to be a little bit more competitive, so we’re going to get more. I will tell you that, what we tell people is on an average on a revenue share basis, so a percentage of that on a per door basis, you can expect to get about $2 maybe on average per door per month on average. $24, $25, $20 to $25 a year per door.
In your situation, it’s not huge but if you take that times the total number of units, and this is not just– We average it based on the number of doors, not just the number of customers because customers fluctuates. This is on average. If you have 100 doors, you might be getting an extra $2,500 a year. That’s right to the bottom line, so when you go refi, you can do the math on that.
Aaron: That’s just like having laundry in the basement or something like that but then you are paying more water, more energy, so there’s cost to that and you’ll probably end up, at the end of the day, making about $2,500 more from laundry in the basement anyways. Just these little things add up that could be something similar to storage units that we’ve done.
They do make a difference to the bottom line when that’s all that is really used to value these buildings. Every little dollar to the bottom line really helps your total valuation, your total cash-out refinance, which is our strategy on our properties, which is a great tax strategy, and this is how we pay our investors over time. Kevin, how can people reach out to you and learn more about your services?
Kevin: Our company is Multifamily Utility Solutions and our website is the same, .com. I’m simply kevin@multifamilyutilitysolutions.com. My phone number’s on the website but real quick, it’s area code (248) 930-4768.
Aaron: Great. All right, very good. We’ll put your contact information and your website in the show notes so our guests can check that out and get in touch with you. I’m Aaron Fragnito with the Passive Cash Flow Podcast, co-owner of Peoples Capital Group. As you may know, we buy apartment buildings in New Jersey and hotels and short-term rentals in Southern Vermont.
We focus on helping people invest in real estate passively and get the benefits of real estate like cash flow and tax appreciation, and equity growth over time without having to do the heavy lifting of being a landlord or a property manager. We’ve helped people invest in real estate for over a decade. If you want to learn more about that, go to peoplescapitalgroup.com and see if you might qualify, or you can check out more podcasts there and our webinars. Again, that’s peoplescapitalgroup.com. I’m Aaron Fragnito. Thanks a lot.
