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The Property Management Show is pleased to welcome Matthew Kaddatz onto the podcast. He’s the senior director of product at Appfolio, and before joining Appfolio, he co-founded a property management company in 2006, right before a major recession.
We’ve been talking to property management experts about how they moved through that recession and what they’re planning for the potential new recession that is coming for the real estate industry.
We asked Matt to tell us about his property management company and what things were like when he got started.
Remembering Real Estate and Property Management 2006 – 2008
Matt was just getting out of college in 2006, and real estate was red hot. His degree was in computer science, but he knew he didn’t want to be a programmer. So, he found an opportunity to grab a management agreement from family friends who were developing a property. He managed the properties they developed for them.
Admitting he was a bit naïve just out of school, Matt says he imagined he was going to be a millionaire making money in real estate. But, about a year and a half in, he realized he had no idea what he was doing. He spent some time learning the business.
Those first couple of years were not about growing a business but about learning how to do property management.
Then, the 2008 recession arrived, and the housing industry fell apart.
Identifying the Signs of Trouble
Something weird was going on in 2008, Matt knew. He wasn’t as connected to the industry as he is now, but Matt knew something was wrong when his dad was laid off. Matt’s father had his own business and then sold that business and began working for the company that bought it. It was an insurance company he worked for, and they were in front of the rest of the recession.
He had never seen his father without work – ever. Matt realized that things were going to get a lot worse before they got better. His dad being laid off was the canary in the coal mine.
Soon, there were foreclosures and an astonishing number of people simply abandoning their houses. They just disappeared.
Matt lived in a second-home community. There weren’t a lot of permanent residents in the neighborhood, and a lot of people were willing to give up their second home in order to save their primary home. Around 20 percent of the homes were simply left, and the home values in the area were cut in half within 12 months.
This was a scary time to be in real estate.
Matt was managing properties right over the border with Mexico, in Rosarito Beach. The drive from San Diego was about 45 minutes. It was a high growth market in 2006, but in 2008, construction crews had stopped building and sales teams had stopped selling.
Everything changed substantially.
The property management industry is resilient, and Matt had plenty of business with community associations as well as property management contracts. And, he was running a maintenance business, too. While the market stopped growing as aggressively as it had been, the business model they were working with was sound. They got through the recession.
Making Difficult Decisions During Real Estate Recessions
The business Matt was running was built with a partner, and around 2008, it became clear that growth and expansion was not going to happen. They had been banking on a lot of new construction, and that wasn’t going to happen.
Matt’s partner left the business to pursue other opportunities. This was challenging for Matt because the partner had been leaned on as a fluent Spanish speaker. He had also been running most of the maintenance activities.
It was a hard decision, but for the business partner, it was the right one. There was enough recurring revenue coming in that the business could still support itself. Anyone who was in foreclosure was hesitant to make any kind of move with their homes, whether it was going to be to rent them out or try to sell.
Matt survived and then exited the business himself.
Going through the recession as an entrepreneur didn’t necessarily drive him out. He loved building the business, and it was fun to learn how to run a property management company. Matt liked solving complicated logistical problems.
But, he missed working with a larger group of people. He missed collaboration and colleagues.
The company was small; they worked about 450 units and had 30 employees, most of whom were on the maintenance team. Matt wanted to be part of something bigger, so he joined a large firm out of Texas. They had done a great job building a business, and Matt was happy to be offered an opportunity with them. They had more resources and a lot of colleagues. Matt felt like he could continue to grow.
He was also happy to utilize his software engineering background. The software he had used in his property management company was what he had cobbled together. Some of it he built from the ground up and some of it was integrated with Quickbooks and other existing programs.
Property management software is much different now than it was 10 years ago.
Working with Appfolio
Now, Matt is on the vendor side for one of the biggest property management software companies in the country.
He’s a product leader, and he likes being in a position where he can deliver products that his clients really need. He enjoys finding the product that’s most successful for his customers.
Matt knew he had grown his company as much as he could. He was looking for something outside of property management. And then, he ended up at Appfolio. The company resonated with him because they’re customer-centric and trying to build really good products.
It’s rewarding to impact small business owners.
How to Prepare for a New Recession
We may be at the cusp of new recession. What is Matt’s advice?
Matt says this is different from the 2008 recession. In 2008, no one knew what was happening. However, we’ve been talking about the coming recession for over 12 months. It’s unlikely this one will be as bad as the last one. The fundamentals are also different. The housing market is intentionally being slowed down by the Fed to ease inflation.
If you can hold on, Matt says, it will be a different world at the end of this. There’s lots of cash on the sidelines waiting to see what happens. Some people, he says, are excited about the recession. They know it will be a good opportunity to buy.
Don’t put all of your eggs in one basket, Matt advises. For example, running a maintenance operation with your property management company can be profitable. Homes will always need maintenance.
Thanks for listening to the podcast. If you have any questions about Matt or his stories, please contact us at Fourandhalf by filling out the form below.