Property Management Sucks: How Jon Bombaci Scaled to 1,100+ Real Estate Units Without Losing Control

Jon Bombaci (00:00)
First off, property management sucks.

Anyone that tells you otherwise, either they’re not doing it right, or they’re lying to you for some reason. So it’s brutal. We property manager because we kind of have no choice. So we own 1100 units. We manage our own units. We help a lot of people buy real estate, we have 70 agents on the team, every agent on the team is investing themselves. The 200 units that we manage that we don’t own 250 ish, their past clients, their people we help buy buildings, their agents on the team. like, essentially, I run the property management company the way I want the property management company run for my assets.

Dylan Silver (02:01)
Hey folks, welcome back to the show. Today we’re joined by Jon Bombaci a real estate investor, agent and founder of Candor Investment Group operating across New England. After house hacking his first three family property at 22 years old, he and his wife scaled into owning more than 1100 units while also managing over 1300 for clients to a vertically integrated real estate operation. Jon, thanks for taking the time today.

Jon Bombaci (02:27)
Thank you. Happy to be here. Yeah, it’s been a it’s been a heck of a ride over the last decade or so.

Dylan Silver (02:32)
Now, ⁓ started house hacking, how has that mindset persisted today?

Jon Bombaci (02:39)
So I mean, honestly, like it’s a, it’s a huge staple of our, of our business. So, um, when I graduated college, um, I went to buy a house like everyone else. Um, and the bank told me I couldn’t afford a house because I had too much debt. Um, I had, I had student loans. I, I financed a convertible car like a fricking idiot. Um, and I, and I couldn’t, I couldn’t qualify for our house, but then someone told me I could use rental income to help qualify cause it improved my DTI and I was a finance major and I was like, I don’t know what DTI stands for, but I’m not going to say anything cause like,

finance major, know fricking everything. So I went to the bank and I was like, Hey, like, can I buy a three family? They’re like, Oh, yeah, like you can’t buy a single family, but you can buy a three family up to $300,000. I was like, that’s pretty cool. And so I found a three family in Connecticut bought it for $195,000 because the bank told me I could, I lived in it for five years and then realized after five years that the two tenants down below were paying 100 % of my mortgage. And I was like, that’s pretty cool. Paid off my student loans, paid off my car was working for a fortune.

hundred company in finance competing against people from Ivy League schools. And I realized that my debt was gone and I was maxing out my 401k and I felt really good about life.

And they were still checking the bar bills at night, still processing credit card debt, still trying to pay off their tuition. And that’s when I realized I’ve been living for free for five years and was like, that’s fricking awesome. When I jumped into real estate later, like I really resonated with that. And our goal was to help as many people as possible reach financial dependence through real estate. And house hacking has turned into a staple with us helping people get started in New England, because the price of getting started here is so expensive. You can’t just jump in with a quarter of a million dollars and buy a building like that.

that’s not reasonable for people. so leveraging house hacking, leveraging these types of things and buying a million dollar asset with 30 grand is huge. And so like that’s been a huge story for us where we’ve helped about 500 people reach financial independence since 2019 through real estate. And like house hacking is the staple we jump into when someone comes to us as wanting to get started, doesn’t really have access to capital ⁓ and our market is just so expensive.

Dylan Silver (04:39)
Now, when folks are looking to use house hacking as a strategy to get into the on-ramp of real estate homeownership, is this something that they need to have a lender who really understands how this is going to work and kind of work in tandem with the lender?

Jon Bombaci (04:55)
So, so yes, I mean, ideally the agent you’re working with gets it because like you can guide the lender through it. Like it’s all in the underwriting docs. It’s all something there’s FHA guidelines. Most banks have the ability to do it through either portfolio loan or residential. It’s just, you need to be able to explain it to them in a way that doesn’t make you look like an idiot.

And so as long as like you have an agent or someone that’s done it before guiding you, like anyone can get a loan for it. It’s just, you have to present in the right way. Um, we had a client last week where they’re like, Hey, I went to my lender and they denied me. And I was like, great, introduce me to your lender. And then a quick email, quick description, the same thing that they said to them, just a little bit different. And they’re like, Oh yeah, like we can approve you up to a million bucks. Like it’s

It’s just framing it a little bit and if they go to the spreadsheet and they put it in, the computer will say, yeah, green light. But if you don’t explain it right, sometimes it just gets lost in translation.

Dylan Silver (05:43)
Now, one of the things that’s interesting about this, and it’s surprising, think, especially to folks who are not familiar with this strategy, is that the house hacking will enable you to use the potential rental income as earned income. So if you have a certain amount of earned income and you’re being capped by that, those rents will increase your total cash flow effectively, which you’re showing the lender.

Jon Bombaci (06:53)
Exactly. the issue I told you about is they were already living in a three family and the lender’s like, you can’t buy anything else. You have no income. And I was like, Oh no, they’re going to rent out the unit they’re living in for 2,500 bucks before they buy. they’re like, Oh, that changes everything. Because now you got the $2,500 in the unit you’re living in plus the rent from the two units in there you’re buying. So I got an extra $7,500 of income, which goes right into the spreadsheet. And like that just fixed the problem.

Dylan Silver (07:20)
Now, I do want to pivot here, Jon. You also are managing a tremendous number of units and ⁓ property management, I think, has been particularly tricky. And I think a lot of people, especially multifamily investors, will say it’s challenging not just to manage these properties, but to also find good property management. As someone who’s scaled and who manages so many units, what are some of the keys to success at scale?

Jon Bombaci (07:44)
First off, property management sucks.

Anyone that tells you otherwise, either they’re not doing it right, or they’re lying to you for some reason. So it’s brutal. We property manager because we kind of have no choice. So we own 1100 units. We manage our own units. We help a lot of people buy real estate, we have 70 agents on the team, every agent on the team is investing themselves. The 200 units that we manage that we don’t own 250 ish, their past clients, their people we help buy buildings, their agents on the team. like, essentially, I run the property management company the way I want the property management company run for my assets.

We offer it to other people. And if they’re like, Hey, it doesn’t quite work for us. Can you change something? It’s like, no, we can’t, but like, I’ll give you referral to another property management company. You can use them. I know the guy. If you have any questions, let me know. But I mean, if you try to run a property management company for profit, you’re going to kill the real estate. Like it’s just, you can’t do it. Our goal is we keep as much money as possible inside the assets. The assets have the multiple, the assets have the cap rates. can, know, any dollar that’s left in the real estate is a great return.

Any dollar that comes into the management company as profit doesn’t help the business because there’s no multiple on it. And trying to force profit into the management company really is a very difficult balance when you’re trying to manage the units.

Dylan Silver (09:00)
Now, when we see properties become distressed due to operator inefficiency or due to property management, do you think some of that may be because property managers are effectively cut in corners to turn a profit?

Jon Bombaci (09:15)
I don’t know if it’s cutting corners, but I mean, essentially like it’s a business. they’re, trying to, to try and turn a profit. And it’s like, you either do it right. And it costs a lot of money. And like, you might not have the money or you do it slightly less than right. And you save a little bit of money. But the problem is, is when you start going down that path, those mistakes turn into potentially very costly mistakes. And so it’s, it’s a very difficult balance where it’s like, if you do it the right way, the client might never be able to afford it. If you, if you do it a little bit of it at a discount, because like you’re trying to,

hit the numbers, like it sets you up for larger issues later on, right? Like, you should really replace the roof, but it’s going to cost you, you know, 50 grand. And it’s like, well, I don’t have 50 grand. It’s like, okay, well then don’t replace the roof. But then it’s like after three years, like the roof caves in and you’re like, what the hell you weren’t managing the property, right? And they’re like, yeah, but like you couldn’t afford to do it. So we did the best with what we had without really explaining to you the danger that was going on here.

Dylan Silver (10:07)
As someone who started small and now has a substantial portfolio, I often hear people say, well, look, if you’re gonna buy 10 units, buy 50. If you’re gonna buy 30 units, buy 50 because at 50, can afford a property manager. What’s your thoughts on

Jon Bombaci (10:25)
So I’d say start small, right? So I say kind of the opposite, start with five, start with six.

self-manage at the test of ability, try to get it within 30 minutes of where you live, understand how to do it, even if you don’t like it. Then when you hire a property manager, you know what you’re paying them for. I think where a lot of people struggle is they go big too fast and they don’t understand how the mechanics work. They don’t understand what the property manager is doing. They don’t understand if they’re getting taken advantage of or they’re getting a great deal because they haven’t lived through it yet. And so I normally encourage people start small, get to know it, start with something that you can afford, maybe with friends and families, do something that’s like, like it’s learning.

you might get into it and realize you don’t want to do it. Aren’t you glad you figured that out at six units instead of 50 because now you’re signing yourself up to something that like you don’t have a choice. Like it’s now a big financial burden that you can’t walk away from. And like you might find out that you don’t like dealing with tenants and you’d much rather be a GP or an advisor without having to actually do the day to day operation.

Dylan Silver (11:19)
I want to talk about hold times because this is something that has been coming up pretty frequently on the show here. It seems like people are potentially pivoting from shorter time horizons from even before 2020, where it seems like there was a golden era for multifamily to longer time horizons. And I know you’re in New England. I’m in the Sunbelt in Texas, so two totally different markets. Do you think that we’ll maybe start to see longer hold times on some of these multifamily deals?

Jon Bombaci (12:22)
I think if they’re distressed, mean the idea with real estate is time heals all wounds in real estate. And so when we normally do projects, we normally have like a pretty big timeline, three to seven years. And the idea is like, if everything is good, we can hit our numbers in three years, we’ll get everyone their money back and we’ll execute it in a short timeline. But if something’s wrong in the market, we wanted the ability to hold longer, and so seven years is normally like where we say it, like that’s kind of the end of it, but then normally we throw in a caveat.

out

that the managers reserved the right to extend it beyond seven years if it’s in the best interest of the project. Because at the end of the day, something bad happens tomorrow. It’s not a matter of if real estate will get back to where it was. It’s a matter of when. We structure all of our debt. We don’t do variable rates. We don’t do fixed. We don’t do floating rates. We always do five year fixed rates. We always do the ability to extend for five or 10 years with caps and floors. So then that way we’re set up in a scenario where something bad happens.

Like we can let time do its thing. The investors might not be happy about it, but the goal or the primary thing is to protect the asset, protects the capital, and then execute it the best that you can. like you don’t, you don’t have control over what’s happening in the market and to pretend like you do or to build a strategy that like pretend like it does is either setting yourself up to get lucky or to get hurt.

Dylan Silver (13:42)
Yeah, you mentioned variable rate that I was just gonna ask you about that because it seems like there were so many people who got burnt by variable rate that.

Jon Bombaci (13:50)
Yeah, no, I mean, it’s crazy, right? I mean, the rates went up so fast.

no one could have predicted it. Like, you know, locking in variable rate at 3 % because you’re like, this is fricking awesome. It’s free money. I don’t want to pay three and a half for fixed debt. Like it’s going to be free forever. And it’s like, and it’s, was, it was something that even like our advisors were telling us, why are you paying more? take the cheap debt. And it’s like, no, cause I won’t be able to sleep at night. Right? Like it’s just, it was just something that went against my core. spent 10 years in corporate finance for a large insurance company. So I’m probably the, the scarthest little investor that you’re ever going to meet, but that.

protected us where you know we think about or I always think about the worst-case scenarios and I structure the financial products to protect against that because it’s just you you can’t control what happens outside of outside of outside of what you can control and the financial markets are something that’s way bigger than something that I have any say

Dylan Silver (14:41)
⁓ Development in the multifamily space, I am down here and there’s so much development happening, but I think maybe over development in the case of where I’m at in Austin, Texas. What does development in the multifamily space look like in New England?

Jon Bombaci (14:55)
We stay out of it. I don’t understand it enough. I don’t have the time or the energy to do it. I’m not a construction guy. I’m a finance guy. I’m an operations guy. So we tend to buy preexisting multifamily. We know we buy distressed. We focus on operations. We focus on forcing value. The new construction that happens here is like, you you’ll, build a four unit, but you’ll sell it as condos. Like it’s very hard with the cost of stuff and the permitting and everything else in New England to build something small that you can rent out.

And then it’s really the big guys, the ones that are building the 400, 500 unit portfolio of like buildings. They’re the ones that got crushed with like the change and like so much so that like, I don’t understand it enough. I’ll stick to what I know. and occasionally we’ll, we’ll, we’ll throw a two family up or something, but we’ll sell it as condos because like holding it as rentals just doesn’t make sense when like they’re worth 500 grand. can’t rent them for five grand a month. Like it’s just a losing battle in terms of a return of equity.

Dylan Silver (15:49)
Now, you mentioned ⁓ there being like two distinct arenas and I’ve seen this as well. The folks who are developers over here and then the folks who are doing value add ⁓ and purchasing maybe some not distressed, but properties that could use some TLC are in a distinct separate group. I’ve also seen people though migrate from one group to another. ⁓

What has made you stay, you know, I’m gonna stay strictly where I’m at and not touch this other ⁓ venture over here.

Jon Bombaci (17:02)
So I’ve just seen so many people get burned, right? I mean, you always make mistakes when you do something you don’t know. For us, it’s like when we enter a new market that we don’t know, we always kind of dip a toe in, we do a small project with our own capital, with like a 12 or 18 month timeline to get in, to get out, so we can understand the market, understand the city hall, the jurisdiction, the building commissioner, because it changes, like even the courts, the evictions, like so much changes from region to region in New England that like…

We always go in assuming we’re missing something. We do something small. We get our feet wet. We figure it out. And then we decide to deploy big assets into the area. Once we understand what we didn’t know. But I mean, from my standpoint, I always go in assuming I’m missing something. And my job is to figure out what that is and to solve it as quickly as possible for the least amount of money, because there’s no such thing as a deal that doesn’t have problems. It’s just, you might not know what the problems are.

Dylan Silver (17:52)
I’m pivoting here, Jon, value add in this space, what would that generally look like? And is this, potentially ⁓ a huge rehab or would this be, you know, potentially more superficial finishings?

Jon Bombaci (18:05)
So it depends. our core strategy, right, is we tend to buy big portfolios, right? So the last thing we just did was we bought $45 million portfolio up in Maine. It was 105 buildings over five different cities. It’s a monster. Like it’s the biggest project we’ve ever done. But the idea with it is we cut it up into different portfolios. And so we’re managing it as three separate projects.

We took all the properties that make no money, the properties that are carrying down the portfolio, the 20 % that are hurting the financials. And we put it on short-term debt with a goal of selling them within 18 months. And most of them are single families, two families and three families. And so our goal there is to fix them up and get them ready for house hackers, make them FHA ready, make them VA ready, improve them, vacate a unit, sell them into the asset class that we know. The second tranche is the biggest tranche. Our goal is just stabilize.

increase rents, 50 bucks, don’t fricking touch it. Let it go. Let it run what it does. Put it on a maintenance plan, clean the hallways, but like just let it go. And then the third tranche we’re setting up for refinance. They’re the best buildings, the biggest buildings, the most potential for us to get value out of it. And we’re hitting those really hard with common areas, utilities, unit upgrades, rent increases, because if I can drive the value up, I can get access to the capital on the refinance.

but essentially like it can’t be a one size fit all because if you do everything the same way every time and they’re different business plans, you’re going to put too much money into a five and seven year hold and you’re, you’re gonna, you’re gonna run out of cash and you’re not going to see the return, but I can put as much money as I want into the fix and flips or into the ones that are T enough for refinance because I know if I spend the dollar now, I’m going to get a return on that dollar very quick.

Dylan Silver (19:32)
Mm.

Jon Bombaci (19:48)
where we’ve gotten burned before is by putting too much money into a long hold. And then you renovate a unit, you get it all nice, you increase the rent, then you got to evict the same tenant in five years and you’re putting another $30,000 into the same unit. And if you look at the math, it’s like, that was freaking dumb, but like you did what you thought was the best thing at that time.

Dylan Silver (20:08)
We are coming up on time here, Jon. Any new projects that you’re working on, and then as well, is there anything you’d like to say directly to our audience?

Jon Bombaci (20:15)
I mean, so, so I didn’t really get a chance to touch on a whole lot, but I mean, we’re, really big on helping people reach financial finance to real estate. run 12 free meetups across new England every single month. So like the idea is there, there are two or three hours after work from six 30 to eight 30. And that’s been a lot of our growth. That’s been our network. Right? So our goal is, you know, the old saying net work equals net worth. We’ve grown the network.

tremendously through free meetups. People show up, we help them, we answer their questions, we get them going in ways that like the internet can do, but you need to know where to look. You need to know what podcasts to listen to. And we kind of get everyone in a room and then that way they can find what they want without us really doing anything at all. would encourage anyone at any stage, whether just starting off or very experienced, try to get out there, try to meet other people in your market or in other markets that you want to enter. Go to meetups. If you can’t find a meetup, start a meetup. ⁓ We have a lot of

We’re expanding quickly, but I mean, that’s been our kind of secret is doing something without really knowing what we’re doing and then letting the network fill in the gaps for us. And that’s far better and more fun than trying to do it on your own. Right. Real estate is a team sport. The stronger the team, the easier this thing gets. If you try to do by yourself, and I know a lot of people that try to do it by yourself, it gets really lonely and it kind of sucks and you’re dealing with a lot.

⁓ and then you start resonating with other people that are doing the same thing. And if you, if you don’t find the right group, it can turn into a death spiral pretty quickly. I know that’s not, you know, like, yeah, use Candor for your stuff. Like I know that’s kind of like the thing. yeah, we will help you buy and sell. And we will, if you’re in New England, we’ll help you buy and sell. We’ll take care of you. You’re to work with a good agent. But the most important thing is grow your network, no matter where it is. And like everything’s going to get easier and it’s going to help you solve problems and see around corners.

in ways that you just can’t do on your own.

Dylan Silver (22:01)
Jon, thank you so much for your time today. Thanks for joining us.

Jon Bombaci (22:04)
Yeah, no, thank you for having me and I’m sure you’ll get my contact information, my email, myself, anyone wants to get in touch, feel free to do so. I normally just take 15 minutes with people that have problems and help them any way I can.