March 20, 2023

JF3119: The Challenges of Scaling a Management Company ft. A.J. Leman



A.J. Leman is a full time high school teacher as well as a Managing Partner and Co-Owner of a property management company in Iowa City. He currently has over 230 units under management and is seeking to expand his portfolio and revenue streams as next steps in his investing journey. In this episode, A.J. discusses the challenges he’s faced trying to scale his management company while maintaining excellent resident services and the worst deal he ever made where he almost lost it all. 

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A.J. Leman | Real Estate Background

  • Managing Partner and Co-Owner of property management company
  • Portfolio:
    • General Partner of 250 multifamily units
    • Limited Partner of 100 multifamily units and a 27-lot mobile home park
  • Based in: Iowa City, IA
  • Say hi to him at:
  • Best Ever Book: The Alchemist by Paulo Coelho and Confessions of a Real Estate Entrepreneur by James A. Randel
  • Greatest Lesson: You are continually writing your own story. My life has been a surprising page-turner, so I think all of us are only one page away from really blowing the top off where we’re going today, tomorrow, and the next year.


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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and I'm here with AJ Leman. AJ is joining us from Iowa City, Iowa. He is the managing partner of several syndications and partnerships, as well as a property management company which oversees their operations. The real estate portfolio includes over 200 units of which he is a general partner, and he's an LP in another 100 units. He has a 27-lot mobile home park, all while being a full-time high school teacher. AJ, can you tell us a little bit more about your background and what you're currently focused on?

AJ Leman: Yeah, thanks for having me on, Slocomb. Great to be here. I love the podcast. I grew up in Illinois, moved to Iowa about 20 years ago; never thought I would stay. I bought a house in the great run-up in the early 2000s. I tried to sell it, couldn't sell it, so my wife and I decided to rent it out in 2011. And I thought at the time I would just own one rental and that would kind of be it. I was the teacher at the time. I'm still a teacher. But in 2018 a gentleman from my church tapped me on the shoulder, and - I'd always been kind of interested in real estate, and I told him I had a rental, and he said "Do you want to buy my portfolio on contract?" I didn't know what that meant. He explained it to me. From 2018 to about 2019-2020 we bought his 60 to 70 units in and around Iowa City. That sort of got the ball rolling on my real estate career, and we've acquired bigger parcels ever since. My brother started a parallel operation in Champaign, Illinois, which I'm an LP on, and in Chicago, Illinois as well, which we own some units there.

I couldn't find anybody to manage the properties, and I knew that if we were going to keep growing, I couldn't do it myself if I was going to keep teaching, so we started a management company, which manages all this stuff in Iowa City. So that's kind of a Reader's Digest version of my story.

Slocomb Reed: Nice. You talk about syndications and partnerships... So you were bringing on joint venture partners and raising private capital along the way?

AJ Leman: Yeah, so those first units we bought on contract, that was just my wife and I and a couple of my brothers decided just to kind of go in. We didn't need a lot of capital to get started, because we bought them on contract. This guy basically gave us the down payments, so everything was like 100% financed. We were able to make it work. As we started to scale, we realized -- we still didn't have any money, so we went out and found some investors. I did some bird dogging here in Iowa City, and I found an 18 unit, a 17 unit to kind of get us going. We scratched together down payments for those... I would call those mini-syndications. We didn't really have a private placement memorandum; it was kind of a friends and family deal.

More recently, we did a 126-unit a couple of years ago, and then about a 70-unit one this past year. And on those deals, we found an investor group, it was more formalized, and they have a preferred return, they have an equity percentage... So it's way more spelled out. I probably don't consider myself a true syndicator. At the same time, I'm not sure what else you'd call the deals that we've sort of cobbled together with the outside capital.

Slocomb Reed: I'm familiar. I've done everything except for the private placement memorandum. Joint ventures, other people bring all the money, and I bring the deal, and I operate it... So I get where you're coming from there. Is your entire portfolio in the Iowa City area?

AJ Leman: Yes, most of our units are in Iowa city proper. The mobile home park is just South of Iowa City. It's in a rural town called Washington, Iowa. And then in Illinois, most of our units are in Champaign, Illinois, which is the home of the University of Illinois. And then we have, like I said, a few up in Chicago. Most of our units when we started were in the rural towns outside of Iowa City, but as we've gotten bigger in scale, everything that we buy is now in Iowa City, or the neighboring towns, Coralville, North Liberty, very close by.

Slocomb Reed: So you said you started a property management company. Is that specific to Iowa City?

AJ Leman: Yeah, so it just runs the stuff in Iowa City. Although as we've gotten bigger in Illinois, one of the things we wanted to do is just take it over there. We're still trying to get our systems up and running well. It's been kind of a slog. Originally, I just managed everything by myself, and then I kind of hired a part-time helper, and then I realized "This thing's bigger than I can handle", so now we have maintenance staff, and property managers, and bookkeepers, and all the pieces to make it run with without me present. But to get all that together has been a lot more work than I thought. If I knew how much work it was going to be, I might have just hired somebody else.

But one of the problems is I really want to take really good care of my residents, and my buildings, and I didn't find anyone who could do it I think as good or as well as I could. I'm sure there's companies out there in this area that could, but I'm just particular about the way that we treat people in the assets that we have.

Slocomb Reed: I'm an owner-operator in Cincinnati, Ohio, and I'm being bombarded with messages from my maintenance guys, my leasing people; as we speak, I just got a message that I need to respond to. The ADHD I was telling you about, part of it is it -- I do have ADHD, but part of it is I'm covering for all the messages I get bombarded with while we do these interviews. Speaking to that point, AJ, I'm curious, both for the sake of our listeners, but also for the sake of myself - your management company in Iowa City, how much gross rent is it collecting? How many units does it have under management right now?

AJ Leman: We have I think about 235-ish units under management. And I could ballpark the gross rents for you real quick; the gross rents per month are -- I'm gonna say somewhere in the $250,000 to $300,000 range of gross rents every single month. So the way that I did it is I knew I can't take any calls. So when I started the management company, I gave half the equity away to my business partner here in Iowa City, who's a very small minority partner in some of the buildings that we own. But what that did is it aligned our incentives. So his whole job is run the management company, my whole job is to find deals, find the financing, find the funding, think bigger picture, and bring those into the company.

We thought about doing third party management; we really want to make sure our systems are good to go, we know what we're doing before we take on other clients. We've had people ask us if we can manage for them. So far, we've said no. I'm just reticent to do a bad job for other people. I'm not sure we could do as good a job. I'm not sure we would put the kind of care and energy in other people's properties that I would want to kind of hang our shingle on. So I haven't done that yet. We're thinking about it as a different revenue stream. So that's kind of the nuts and bolts.

Slocomb Reed: That makes a lot of sense. AJ, thinking about our listeners when I say this, and thinking primarily about our active and owner-operator listeners, not those who are just hiring a third party management company and then asset-managing; not those who are passive investors. I totally get where you're coming from. Going into my own background because of how similar ours are and our current portfolios are; yours is a bit larger than mine. One of the reasons I went into third party management was in fact to improve the services that I was able to provide. Were I not involved in third party management right now, I would not have the volume of revenue, or the volume of work to have a full-time handyman, a full-time HVAC technician, and then two effectively independent contractor full time rehab crews for me, going where I tell them to go, doing what I tell them to do, effectively when I tell them to do it. And that and a lot of other things; showing assistants, having virtual assistants who can facilitate a lot of our processes remotely... A lot of that becomes easier with scale. So my personal experience has been that offering third party management and having the opportunity to manage properties that I own to generate that revenue, but also to have those properties that need some of the same services that my property needs got me to a point where I could bring that kind of stuff in-house in a way that I couldn't before.

AJ Leman: That makes a lot of sense. I actually think I've heard you say that before. I thought to myself, "It'd be great to have a certified HVAC tech." We spend so much money on getting a plumber in there. Our guys are pretty good, right? But there's just some stuff you need a certified tech for. And definitely, HVAC is one of those things. So I've thought, from the maintenance point of view or the construction point of view, we could actually generate a lot of cash that way. And I think one of the things that has to happen for that is I'd probably have to step down to a halftime role at the high school, or eventually transition out, just because we would need somebody to manage almost that piece of it, especially the independent contracting piece. You know, if we're farming our people out to do apartment flips, or lipstick jobs, or something like that. That's encouraging to hear. So maybe I'm more ready than I think.

Break: [00:09:34.20]

Slocomb Reed: Asset managers - I think one of the things coming from this conversation is a good question to ask your property managers about what they have in house when it comes to maintenance. Because I can't tell you, when you're talking about that money you spend on HVAC, AJ, you're in Iowa... I'm barely in Ohio, but I'm still technically in Ohio weather-wise... I can't tell you how invaluable it was to have an on-staff full-time HVAC technician in the fall, servicing all of our heating equipment before we got into the winter.

AJ Leman: I believe it.

Slocomb Reed: First of all, the cost effectiveness of having that person in-house, because of how much work the portfolio has given him... But also, knowing that I have someone I can tell, "Okay, we're not installing anything right now. We're not going to take any more third-party jobs for the rest of September and October; we're just going to service every single boiler system, every single furnace in the portfolio, so that before it gets below freezing again we know everything's in tip top shape."

AJ Leman: It's a great idea. I think one of the things is sort of a self-limiting belief. I'm just a little bit afraid if I start that HVAC business, or have that HVAC guy, is it going to cost me more money in the long run? It probably won't. I'm kind of considering a bunch of different ancillary businesses - HVAC, lawn, snow... Because we already have all these properties that we could service, and then we could also get other clients as well. So you're kind of encouraging me to maybe take the next step, so that's good. I'm glad I came on here.

Slocomb Reed: I do want to ask one more question, AJ... For you and me, as well as hopefully for the listeners to get some value out of this, let me ask you - and I would encourage our owner-operating listeners to ask themselves as well... This is a question I grappled with a lot in 2022, and I'm still kind of figuring it out for myself. What are the resources or opportunities that you're seeing available to you based on your connections, your contacts, your human resources? What opportunities do you see for yourself that feel like low-hanging fruit for starting an ancillary business around your real estate?

AJ Leman: Well, I think a lot of the service type stuff we could do a good job, whether that's plowing, or whether that is the lawn care stuff, some of the simple landscaping... But I also think what you mentioned, a construction crew to flip units - a lot of my friends here who are in the apartment business are looking for guys who can put floors down, put countertops in, do the painting, get the unit make-ready; not full construction, but they're gonna go in and they're gonna do the unit in a week or two, and they're gonna go the next one. I think I could get a crew to do that... Even as much as I've got a friend in Cedar Rapids who has about 150 units, and he's got a construction crew, much like yourself, that when they're not busy doing his stuff, they're doing other jobs.

So I definitely think, as I talk more and I get around more people, my vision gets expansive. And I have to keep telling myself that I'm the author of my story. I'm really only limited by what I believe about myself and what the next page is going to say. And as an owner-operator, it's hard, because you can get bogged down in the weeds so much. You're saying you're getting some calls here and there, and you get one call and you think, "Oh my God, the roof is falling in on this one." You really can't get bogged down in the minutiae. So one of things I've tried to do in the last year is take myself out of that, and think more globally about, "Okay, where do I need to go with this thing? How can I leverage the management company and leverage these units and what own now to go to the next stage?" ...whether that's another building, or whether it's different businesses to start, where we can open up different streams and employ more people and make some more opportunity.

Slocomb Reed: You and I were talking before the interview... Can you tell our listeners what it is that you do as a high school teacher?

AJ Leman: I'm a business and finance teacher here at a public high school in Iowa. I've been one for 16 years now, almost 17. I sort of wonder "When am I going to stop?" I don't know. I get a lot of gratification out of teaching still. But what I do in the real estate world dovetails nicely with my curriculum. And what I do also makes me be a better property owner. A lot of former students are my residents. I know a lot of the parents; some of my former students are employees. So it helps me to be ethically honest with myself, with my business practices, with the way that we treat residents... That's the business that we're in. So it's sort of a full-circle moment all the time in the classroom, which is beneficial for me and my students, I think.

Slocomb Reed: AJ, let me say, as the father of an infant and an almost four-year-old that if I can send my daughters to a high school that has a business teacher, I hope they will be engaged in the things that you are engaged in in your "spare time".

AJ Leman: [laughs] Yeah, we have four kids ourselves. Two are here at the high school. And that's part of the reason I like to be here at the high school, is because my own kids are coming here... So t's definitely an enjoyable place to spend some time.

Slocomb Reed: AJ, are you ready for the Best Ever lightning round?

AJ Leman: Let's do it.

Slocomb Reed: What is the best ever book you've recently read?

AJ Leman: The best ever one that I recently read is "Confessions of a real estate entrepreneur" by James Randall. He's got some great stories in there; the deal creativity is a little bit dated, it's a little bit older book, but it's really fun to read and think about "I am only limited by my creativity in the field of real estate." And that is very true. And so it's a great read.

Slocomb Reed: That's awesome. What is your best ever way to give back?

AJ Leman: I'm a teacher, so my wife and I have already established a scholarship here at the high school. We plan to keep increasing that as the portfolio grows. We recently sponsored a family from Ukraine to live in one of our buildings, some refugees, which has been really rewarding and cool... So just some community stuff that we like to do.

Slocomb Reed: AJ, in your real estate investing thus far, what is the biggest mistake you've made, and the best ever lesson that resulted from it?

AJ Leman: Well, the biggest mistake or the worst deal that we did was when I started in 2018 my brother in Illinois wanted to start too, and I didn't have any money to invest in... So I cashed in all my kids' 529s, all the money that I had saved for their college. And by this point, I think it was around 35k or 40k. It wasn't a ton, but for me at the time, it was a lot. I was just starting out in real estate, I'm a teacher... And my brother and I invested in [unintelligible 00:16:50.13] flip house for us in a small town outside of Champaign... And it turns into a nightmare. It's like a textbook case for how not to do a flip house. We hired the wrong guy, he doesn't pay his contractors, he gets arrested for running drugs and guns in the house... We get liens put on the house by tradespeople who never got paid... So he put a mechanic's lien on the house... We pretty much lost almost all of our money. I lost about half immediately within the first six months, and I thought "This is a huge mistake."

Thankfully, with the other half of the money we had invested in some class D properties that turned out to actually cashflow and appreciate like crazy over the next five years, and it's sort of saved us. But what I learned was that you're never as bad as your worst deal, and you're never as good as your best deal. And I just have to remember that if I can just get some singles, I'll be okay. I don't have to go for the home run ever. Just get a base hit.

Slocomb Reed: On that note, AJ, what is your best ever advice?

AJ Leman: I guess my best ever advice is what I said earlier - our stories aren't written until we write them. And that's been true for me. My life has been a surprising page turner that I never really expected; I never expected to be in real estate. So I'd say that all of us are only one page away, one limiting belief away from really blowing the top off of where we think we're going today, tomorrow and in the next year.

Slocomb Reed: Last question, where can people get in touch with you?

AJ Leman: I'm on LinkedIn. You can look up AJ Leman. I don't do a lot of social media. We have an apartments website; if you check out our apartments website, That's our property management website. You can check those out and drop me a line if you have questions.

Slocomb Reed: Those links are in the show notes. AJ, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this conversation between a couple of owner-operating Midwestern homies, please do subscribe to our show, leave us a five-star review and share this episode with a friend you know that we can add value to through our conversation today. Thank you, and have a best ever day.

AJ Leman: You too.

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