Episode 122: I Prefer Smaller Multifamily Assets with Mandy McAllister – The Apartments Operators Podcast

Mandy McAllister is a multifamily real estate investor, mindset ninja, eternal learner, coach and connector. She followed volleyball to Mercer University in Georgia where she was awarded Top Graduate in Marketing. 

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Show Transcript

Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multifamily communities. Welcome everybody to The Apartments Operator Podcast.

Today we have Mandy with us. Mandy, welcome to the. Oh, hi. I’m so excited to be here. Thank you, Joseph. It’s our pleasure. Usually we start the conversation with giving our guest a few minutes to tell the audience a little bit about themselves, about their portfolio. When would you take a little bit and introduce yourself?

Sure. I Mandy McAllister, I’m out of Chicago, land Illinois. Don’t really love real estate investing right here. So the bulk of my investments are in Indiana, the Indianapolis area, and we’re under contract for an asset in northwest Indiana now. I really started investing in small multis, that’s really my wheelhouse.

Small meaning like four to 50. in that neighborhood. I think that, in terms of growth moving forward, where we’re looking, I think there’s meat on the bone in these smaller multis. So that’s what we like to own and what we like to operate, how we like to gain scale. So that’s me in a nutshell.

Awesome. So how big is your portfolio right now? 252 units. All in, if you include the 47 that we’re under contract, . That’s fantastic. And that’s all from small properties. How many properties is that ? So it’s one, two it’s maybe a dozen or so. Okay. I learned pretty quickly that, if you do a small multi, you get quicker scale, but if you do a cluster of them, you get this economies of scale, i, I think that there’s it’s a kind of, in multi-family people tend to thumb their nose at smaller stuff, but what matters most to me is the cashflow. And I get a lot more of a bank account sometimes from the six unit than I do 130 unit, yeah. First of all, that’s fantastic, right?

You’re the first guess we have that is having that point of view. And I would love to dig deeper because. Over the last few years that we’ve been doing multifamily, I’m leaning towards what you are talking about right now. So we’ve done all the way up to 236 unit properties, and like you said, I can see my smaller ones performing better, but the more important part is we can turn the smaller ones a lot faster.

exactly. The ease of implementation of that business plan on a 47 unit versus a 470 unit it’s a very different animal, yeah, it’s absolutely. That kind of guides us to the first question we ask everybody. Are you self-managing or are you using third party? Third party in everything I own from my fourplex to the, larger, small.

Okay. So right now you have third party. Is it one third party company that controls all your 250 units? Nope. So it’s one, two, I have four total property managers. And for the record, not all were created equal . Okay. Then let’s dive into that one. Let’s start with the decision to go third party and not in-house.

Yeah. Was that outta necessity, was that an intentional , there any thoughts to change? In terms of when I started I started building a fourplex, a sixplex at a time, and I was a full-time medical device sales rep. I’ve actually just announced my retirement. So in 72 days I am no longer a W2 employee.

I’m solely a real estate investor. Congratulations. So I’m pretty pumped about that. , thank you. So that was, that’s outta necessity, right? And then when we started, understanding that I don’t love Illinois, I don’t love the way we govern our state. I live here because of family, but I wanna invest my dollars where I really feel like the government is doing good things for bringing in jobs, bringing in growth of G D P, so that population continues to grow.

And that, for me, equals Indian. And I’m two, two and a half hours away from that market where I live right now. Only having. , call it a hundred units right there. It makes sense to have third party as soon as we scale up to maybe 300 or so, is our goal to reassess if it makes sense to take some stuff in-house.

, we’ll reassess then. But we’re continuing to build that footprint in the Indianapolis area so that we can reach a point that we, it makes sense to, to bring something. . Okay, so it is on the planes, right? , it’s not an ideology of, I never want to do my own management. Cuz we’ve seen that from a lot of our guests and it’s kinda it’s understandable there’s a lot of brain damage in mul in property management.

I, I say that from firsthand cuz we have our own property management company. But it does give you a lot of control. So there’s pros and cons either way. , okay. , you’re dealing with four different property management company. How do you pick one? How do you assess a property management company when it comes to taking over your properties?

And like you said, not all of them are equal, right? So yes. Maybe I’ll start with some hiccups that I hit. So I’ve hired property managers that were friends of mine, just acquaintances, like networking stuff, people that I really liked without doing a ton of, oh, due diligence, oh you manage properties.

I’ve got this small property there. Will you manage it for me? And. that ends up, actually every major mistake I’ve made in investing is because I trusted someone, because they were my friend, not ha and then didn’t do large, due diligence on the backend. In this case, this property manager is an incredible human and I’m glad he is my friend.

But this, my property is not managed in the way that I want it managed. I don’t the attention to, alright. The place across the street is getting 200. more in rent. How, what do I need to do in order to achieve that or to achieve closer to that? I need your professional advice as the expert in this market.

Short of getting that, like I, that is the type of partner I want in a , property manager the ones that have gone really well. We discussed full on business plans. They also, in both cases of the really two, the two really good ones, they both own property that’s similar to mine, not far from mine.

So they’re managing their own and they’re managing mine. So the chance to really see how does the rubber meet the road on your reporting, on how you look at things, on the decisions you make. In both, gosh, it goes all the way down the four, all the way up to the 53. You. Help me understand how you deal with this in your portfolio.

Nothing is more true than how somebody deals with their own stuff, yeah. And I totally agree with what you just said. I just wanna recap that little nugget, right? Is finding the property manager that owns a property similar to you is a real game. , but I know that if I’ll manage somebody else’s property, then I’ll treat it like mine.

But I also know that I have the perspective of an owner and not just a property manager. And that perspective is very different sometimes. , and is the source of the main challenges everybody’s having with property management companies because they look at it as a business of managing instead of business of.

and it’s a real problem sometimes cuz they’re not always on the same level of goals. , it’s not aligning the. And as the asset manager, so in the 53 unit, we, it’s a joint venture, but we have a couple of like syndication type things including an asset management fee.

So you said the business of owning versus the business of managing. There’s also the business of optimizing, so it’s my job as the asset manager and once that switch really went on, Having managed this LE 53 unit asset, managed this 53 unit, that’s the brain space that I applied to my own portfolio of these, fours and sixes and eights and what have you, that I am in the proc of the business of optimizing these, and I have to hold accountable and ask for advice where necessary from these third parties, but I am the optimizer.

Yeah. So in your size, there’s a lot of investors that own properties in the 4, 6, 10, and 20 that fall into the default of hiring a residential property management company that manage single family versus a commercial property management that knows how to handle the bigger ones. , what don’t you, what?

Your philosophy in this. Are you hiring single family management companies or commercial? What is your experience? The closer to your goals you can get that your property manager aligns with, the closer to your goals you will achieve, for instance. My very first small multi that I took on was near a college town, and I realized that, an unfurnished rental managed by a mom and pop would get $400 a door.

But if I put the branded college rental guys on it, then I’m gonna get $800 a door. So what is it that you wanna do? If you want to be, if you’ve got a fourplex and you have a, somebody who mostly manages single family, that could be a good fit. But if you venture into the eight or 12, like that’s a full on community with shared space and things like that, that you are likely going to be best served in reaching your goals with aligning with someone who does that.

One thing I’ll also tell you is I acquired in a market that was poised for incredible growth. The thing didn’t happen to make that incredible growth happen. However, I didn’t really check out in that mistake that I made. The there aren’t a lot of property managers that deal in small multi in that market that I’m in.

I should. Figured that out before acquiring, getting so intoxicated by the, oh my God, this growth is coming. I’ve gotta buy something quickly. Let’s do it. Really making sure those third parties are in place. If you’re gonna depend on that they exist and that you’ve interviewed them before, acquisition is a really huge deal.

Something that I would tell my former self to make sure I didn’t. Yeah. You got a really good point. From my experience managing. The 20 to 40 50 unit is one of the biggest challenges out there because it’s too small to sustain its own full-time personnel, like a maintenance guy or a leasing agent.

But it’s too big for the small guys to handle with one leasing agent that leases all the single family, right? . It’s a very challenging size to manage and like you. There’s just not a lot of property management that’s their size. That’s their niche. So for the 53 and for the 47, we’re partnering with a group like these markets in Indianapolis.

Our kind of, I guess good news, bad news is there’s not a ton of extra large apartment buildings, , like most of them are in the sub 75 range, so the partner that we have has, something. , I don’t know. We have a 53. They have, I don’t know, it’s 80 or something in that neighborhood, like maybe two miles away.

So what we do is we have one of their people that works on, that come to our property two days per week. So ultimately our goal is, put two or three of those 53 units in a close-ish proximity. Then we have one full-time person that can be bought between the three. . Yeah. That’s one way to do that.

That’s a great way if you have a joint venture with someone that owns not so far away. Another way that we’ve noticed that people can do is if you have a 20, 30, 40 unit property and across the street or half a mile away, there is a hundred or 20 or 200 unit property, then find that property management and see if they’re willing to take on your little.

As a little satellite kind of thing, cuz you can run everything from one office. You can send the maintenance guys over and just pay for the hours instead of hiring people that you can’t afford on a small property. . That’s actually a really great hack. So if you are, this is something that I haven’t done, but you just gave me a brain thought that, maybe somebody listening, if you’re acquiring a 20 unit and there’s a, there’s another apartment building around the corner, go figure out who their property manager is and see if you can use that exact same hack that Joseph talked about as a proactive type of a thing.

Yeah. And. , it’s a huge difference in cost of management, right? . if you’re dealing with a company that, even if they have their own crew, but they need to send the maintenance guy to your property, then you’ll pay for mileage and you’ll pay for time for the travel and all that. Versus if he’s across the street and he’s just crossing the street, you’ll just pay for the time he’s on your property.

, right? So it can help a lot with reducing cost as well for and think about knowledge of the. Oh yeah. In terms of knowing where rents can be pushed, knowing if a ratio, utility billings thing will work. If you’ve got the guy around the corner who’s the big dog managing, like you, you know your safety and numbers, right?

Yeah. And your EUC agent is the same leasing agent. They can divert people based on the layout, based on the budget market survey happens once, doesn’t have, you don’t have to pay for the market survey and so on. So there’s a lot of value. . So are your project are all value add stabilized? What is your preferences?

Great question. I’ve recently changed my mind on this. If you’re coming up in learning multi-family, in the last call it five years the hotness was everybody’s gotta do value add. I need a value add. Value add. And right now, so my master’s degree is in economics and my, that part of my brain is firing because we are, we’re pretty hot in the market in terms of acquisitions right now.

The one thing we have going for us is super low. So the way that I choose to look at this is if I could lock in a really long term, low interest rate, non-recourse agency debt from the jump and then, ride that out all the way through, that is an ideal, that is an asset under itself into itself, having that long-term debt locked in.

We previously were looking very value add heavy, but if you have to bridge loan into that your, your cashflow that you’re getting, if we got an eight year. interest only term on that 53 unit. Oh, wow. Eight years of io. That’s fantastic. So if what you want is cash flow, why not?

And another point there too. in the value add underwriting space. Right now, you’re, you are not gonna look at an noi, apply the cap rate and pay that for a value add asset. You’re gonna have to pay for the opportunity to hopefully be able to achieve the rents that you think you will, right? Yeah. So if I’m paying for 75% of the upside anyway for the chance to do that heavy lift, why wouldn’t I at least consider doing something that’s already in place that’s s.

And lock in that debt and write it for cash flow from the jump. We are not scared of stabilized assets and our 53 unit was a stabilized asset. Specifically it was a reposition, it was a, an assisted living turned into a multi-family. So they filled it up at below market rents much like you would, like a anybody who does like a build to rent situation, you fill it up.

Exactly. You. , like with undermarket rents, and then your entire business plan is just bump rents to where they belong. Do you know what I mean? Yeah. So there’s a lot of ways to skin a. . Okay. So speaking of that give us a few ideas cuz I’m sure you’ve done quite a few value ads. And we usually ask for our guests to give us ideas of what they do to increase income and what they do to decrease expenses.

But we take off the easy ones, right? So increasing rent and rubs is the easy ones on the income. What else do you guys do? And I’m really interested to see if you. Different kind of ideas on the smaller properties versus the bigger properties that we’ve seen so far. So I’ll tell you my favorite ninja trick of all time.

So in the, in my very first little baby four unit that I did by a college town, I handed it over to the managers that had already branded themselves as college rental guys. We charge an upcharge for wifi. So I pay for the wifi and they pay me for that so that juices my N O I a little bit, right?

Because what college kid isn’t going to get wifi and Joseph, let me tell you the best part about this. If they’re late paying their rent, we turn off the wifi and then those kids pay their damn rent. That’s cute. It’s that is a ninja trick if I ever heard one. It’s it’s twofold in terms of lessening spend.

There’s, the, we haven’t done a lot of stuff that’s outside the realm of What is common and easy. So I, me adding value in that way. We’ve just done all the layup stuff. We I will say too, if you are not doing a pet rent make sure you do a pet deposit that’s non-refundable and make sure you’re doing a monthly pet rent.

because if you add 10, 15, 20, 20 $5 to your, top line, it doesn’t cost you anything really. That goes straight to your bottom line. Yeah. And that, that can really do some big stuff. Yeah. We actually split the deposit to half of it is refundable, half of it is non-refundable, and there is a pet rent.

Yeah. Smart. So we do all of it . That’s great. What about retention? Do you guys do anything special around retention of your residents? ? During Covid, especially on my small stuff, we offered Visa gift cards if they’d be willing to stay. The, if rent was $800, we offered up to 400 bucks for them to, continue their, Because gosh, the keeping your hands around your make readys, like that’s your turns.

That’s a lot of the time that I spent on the phone. Asset managing for the 53 is, okay help me understand why this took that many hours type of stuff. Yeah. A friend of mine has done, raffles. That’s not something I’ve instituted yet, but, your biggest turnover, your biggest, fee, your biggest loss of income is in the turns, especially in college towns, in these college rentals because they’re a transient group, right?

Like . I didn’t live anywhere for two years in a row in college. . Awesome. That’s one of the, that’s one of the reason I understood housing. It’s kinda like you can have the perfect property and the top level service and everything is awesome, but they will still leave after a year because they wanna try something new.

Exactly. Or because their chemistry partner lives over there and they want to go there. It’s that and the headache of. 19, 20 year old stupid kid. But here was my hack on that, I’ll tell you. So I chose to only acquire one bedroom units cuz think about the avatar of the kid who’s gonna rent a one bedroom apartment in college.

Yeah. It’s a grad student or it’s a super bookish kid who wants to be alone and to study. So we’re pretty aggressive in offering things to have them stay cuz those turns really kill us. But like I mentioned at the. , instead of getting $400 a month rent, I’m getting $800 a month rent.

Like there, there comes a point, a tipping point where it makes sense to maybe try to deal with the turnover. But the having one bedrooms like really helps out with the headache cuz of the type of person it attracts. That makes sense. So we pride ourself as a podcast to be the one that doesn’t sugarcoat then don’t fluff anything.

Cuz you know, there’s a lot of podcasts out there that just show you the rainbows and lollipops. , everything is awesome. Everybody that shows up on, on the podcast is super successful and that’s great. But that’s not life, right? . So if you don’t mind sharing a little bit of how we called it earlier, hiccups or challenges or some even horror stories, if you have any with our audience just to, give them the reality of things.

And not just the is that a lot of the groups out there promise. I wanna preface this. , my biggest problems, my biggest things to overcome and learning lessons have come in a, in my first fourplex, it’s the gift that keeps on giving. But because the property manager is so strong, because the third party is so strong and they do this all the time the headaches that I have personally felt have been minimal.

So initially, when I acquired this in 2016, we had a period that some of them were set up as furnished student rentals and some of them were not. One of the homeboys that was in the unfurnished rental turned out he his extra job was selling drugs. So to, to get him out of there and to make the other residents who were like 19 year old.

and, like to make them feel, and their parents feel warm and fluffy. Like we had to do a lot of, jockeying for position and moving in and moving out. And, a lot of that headache was felt by my property manager for 10% a month. Best 10% your friend Mandy has ever paid was over the course of of that headache.

My, my friend Maureen Miles in that I don’t know I’m sure you know her, but in. drug dealing management thing. Like I, I got to share my favorite of her hacks, and I bet you’ve heard it, but she had a property in Atlanta that was a little troublesome, and it was it was largely the friends coming in that were the drug problem.

She posted that, we are allowing the Atlanta Police Department to train their drug sniffing dogs over the course of the next three. So she posted this everywhere. And lo and behold, the problems left another hack for your people. But in terms of other issues that I’ve had that, that can, that question mark property manager that I should have bet vetted better in the leases that we agreed upon said that they were, said that we were collecting for.

A full year and a half under management. I didn’t even notice that it was just a sixplex, like I took my eye off the ball. I didn’t even notice that they weren’t charging for heat, even though my lease said that they were the trust but verify thing and if you’re playing in this super small, multi, the Florida, call it eight neighborhood, , if you gotta do you can’t manage what you don’t measure in the 50 ish whatever that neighborhood you’re gonna get really good reports and a lot of attention from your property manager and the 10 and below, you’re gonna have to really fight for stuff.

What I would say, my hack on that to keep my eye on the belt ball better. , there’s an app called essa, it’s assets backwards, S T E S S A. It’s basically like a mint.com or something that basically prepopulates everything and runs these really elegant reports on your super small multis. you I, so that I’m managing the manager more appropriately. So if you screw up like I did do some things, put some things in place so that you are not able to mess up. . Okay. I gotta, I’m sorry, I gotta repeat that. That little thing that you were talking about, that $6 fee, right?

And help people understand, it’s oh, it’s just six bucks. Here’s how it ties to our earlier conversation about property management versus ownership, right? That six bucks a month is $7 20 a year, right? In terms of 10%, how many units that property, . My the one was six bucks. The it was, they weren’t charging for heat, so it was like No.

How many units? Yeah, but how many units? It was a six unit, but they weren’t charging $120 per person, so it was $120 per winter month times six unit. Okay. Yes, but it’s a big problem. Okay. For them it was $12. Yeah. Per. Yeah. Times six. I see what you mean. I see what you mean. Yeah. So for 60 bucks, it wasn’t worth the extra effort of somebody diving deep on their end, making sure that every little contract fee is being charged, right?

Yep. We’ve hit the same situation, but with $50 fees over 236 units. So for us, it was a much, much bigger loss. Yes. But again, the way we compensate property management c. , it ended up being a loss of about 80 bucks a month for that property management company for the fees that’s in charge. And for us it meant hundreds of thousands of dollars after cap rate calculations in the property value.

Yes. So ownership versus management perspective, this is where the rubber misses the road really. Yes. Is that it’s just not worth putting the extra effort on their. because they’re running a business of management and they don’t have the perspective of ownership. They don’t care what the value of your property is, they just care what they collect and put in the pocket.

. . So yeah. So that little thing you mentioned happens in every little size of property . And it’s really the main challenge with dealing with third party property management. , and it’s, if you can. , a biweekly call, a weekly call with a, that your ownership is such that you can demand that call with them.

It’s easier to keep your eyes on it’s not easy, but it’s easier than to let it slip if you have a six unit here and a four unit there, so I, it’s a free app that I have nothing to do with. So if you’ve got smaller stuff and you’re managing managers seriously, consider putting something in place that you can measure something so you can manage it.

Yeah, that makes total sense. . Okay. I wanna be conscious of your time. If you could look back to younger man, and, let’s assume you can, and I keep repeating that for everybody. You can tell her that 2009 is the bottom by everything. Okay? . Other than that, , what is the best advice you could give?

I I have started this group, aspiring Women Achieving More, and it’s a lot of super high performing women. And I think largely, especially women. So being one, I’m gonna give my advice as a woman that I think that we more than men even tend to struggle with imposter syndrome type stuff.

The fear of what if the needing to feel completely a hundred percent prepared before we take that first step. I would say, Mandy at 19 is the one who got interested in real estate investing. Mandy at 35 is the one who took the first actual step in the direction of financial freedom that, my advice is to myself that.

You are not going to learn anything or get anywhere until you start taking steps. Do not be afraid of screwing up cuz you’re gonna, yeah. You gotta take a step, make it metered. Learn all you can learn because you know you’re gonna get to a point that you know all you can know. But until you take that first step, if you see a step 800 this life you want for yourself, you know you’re never gonna get there unless you can get from step one to step two.

So believe in. , take that plunge and the net will appear. Yeah. The people that don’t do mistakes is usually the people that don’t do anything. Yes. Awesome. That’s a great advice. Can you tell our audience where they can find you? We’ll obviously put everything in the show notes, but if they wanna reach out to you, if there’s a woman that want to join your group, or if there’s an investor that wants to invest with you, how can they find you?

Sure. So the, I have a catchall website, mandy mcallister.com and on it you can learn a little more about the women’s group, aspiring Women Achieving More and My investment firm, good Fortune Capital. And if you are looking at smaller stuff for your own accounts and you’re interested in knowing exactly how much you need to reach certain levels of financial freedom, check out my blog cuz I have a calculator of that helps you figure out how much you need in order to reach that financial freedom and leave your.

Oh, that’s awesome. We’ll definitely link to that calculator. Mandy, I wanna say thank you so much for coming up on the show today. It was awesome. It was different than our usual crowd of guests and it was a lot of value add to our listeners, so I really appreciate you coming up. . My pleasure, Joseph.

Thanks for the invitation. Absolutely. And for you, the listeners, if you want to hear more of our podcast, just go to anywhere. You subscribe to your podcast, iTunes teacher, Amazon, SoundCloud, and so on, and a special request. Just give us a feedback. It doesn’t matter if you hate us and it’s a one star or you love it, it’s a five star.

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