June 30, 2018

JF1397: Turning Down A Deal You Love When Considering All Factors with Mandy McAllister

Mandy had a deal lined up that she was in love with, and ended up passing on it. When a town banded together to keep a factory out of their town, the potential lack of working force jobs made her no longer want the deal. Being able to pass on a deal that does not perfectly align with your strategy is an important skill to have. Mandy also runs us through some of her deals that she did purchase. A lot of great content added by Mandy in this episode! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Mandy McAllister Real Estate Background:

  • Expert in repositioning underperforming small multifamily assets
  • Found success with her own deals in student housing as well as urban centers while also investing passively in syndications
  • Her passion is to help others define their path to financial freedom
  • Say hi to her at http://goodfortunecapital.com/
  • Based in LaGrange, IL
  • Best Ever Book: One Thing by Gary Keller

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Mandy Mcallister. How are you doing, Mandy?

Mandy Mcallister: I’m just living the dream, Joe. Thanks for having me.

Joe Fairless: Alright, living the dream – I love that. Let’s see, a little bit about Mandy… She is focused on under-performing small multifamily assets. She founds success with her own deals in student housing, as well as urban centers, while also investing passively in syndications. Her passion is helping others define their path to financial freedom. You can learn more about her company at goodfortunecapital.com. Based in La Grange, Illinois, which is a suburb of Chicago. With that being said, Mandy, will you give the Best Ever listeners a little bit more about your background and your current focus?

Mandy Mcallister: Yeah, absolutely. I dJoe Fairless: id both undergrad and my masters in business, and through the whole dot-com bust I was working on the floor of the Chicago Board of Trade. At that time I saw the commodities and the farm ground really hold their values and really thrive during that time, so that really kind of informed my focus on hard assets.

From there, I kind of grew my career into medical sales and made my first property purchase in 2008 in an up-and-coming neighborhood in Chicago, with the end game of renting it out as soon as I moved, which I did a couple years later.

I didn’t really make another purchase until 2015, which is when I got into that small multifamily near Illinois State University, and really chose 2017 to make it kind of a focus of mine, to give it the attention that it’s due, and joined a mentoring group and really doubled down. I invested passively, and really I’m looking for deals right now in the Kansas City area that we can syndicate on our own.

Joe Fairless: I asked you right before – which I usually don’t, but we met in Chicago at — what was that conference…? Midwest…?

Mandy Mcallister: The Networking Summit?

Joe Fairless: There you go, it’s a mouthful [unintelligible [00:03:07].20] conference that they put on in Chicago. We met there, and I thought you mentioned the deal that you were working on, so I briefly just asked you the latest deal, and you said “Well, we actually just walked away from a deal”, so tell us about that.

Mandy Mcallister: Yeah, through this mentoring group that I’m a part of I met my business partner, Jen, who’s down in Kansas City, and for the last 8-10 months [unintelligible [00:03:33].24] every deal that crosses our desk. We’ve found something in a tertiary market that we really like – a 53-unit; our LOI was in at 2.3 million. It was an opportunity to kind of position a  C asset into a B, and really make it a place that people would really wanna live. But being that it was in this tertiary market, doing kind of our due diligence and underwriting, talking to a property manager who we intended to bring in, and kind of the local commerce group, we learned that Tyson Chicken was planning to bring in a processing plant, but that the people who lived in this little town kind of banded together and said not to Tyson, which meant that it was gonna be significantly harder to bring in these working force jobs moving forward… So we took that as kind of a sign that we needed to pass on this deal and focus on something that has more long-term jobs associated with it.

Joe Fairless: Huh… It’s interesting, because I think a chicken processing plant is a unique thing that I imagine a decent amount of communities would have an issue with… So in my mind, that doesn’t necessarily mean the town is against jobs, it’s just against smelling death every day.

Mandy Mcallister: [laughs] I grew up on a farm; chicken are really smelly animals, I’ll tell you that… But the perception of the commerce group and that property manager was it was much, much harder — there were a lot of industry passing on this small town because of that, that they were banded against… So we chose to pass. Was it wrong – I don’t know, but it is what it is right now.

Joe Fairless: Got it. All other fundamentals with the deal made sense?

Mandy Mcallister: You know, there was maybe about $100 under market rents. It was a little bit off the beaten path, but it was directly between Kansas City and Lawrence, Kansas, where the University of Kansas is. The only reason — actually, me and my business partner went out and had some conversations with residents that were there, and people in local businesses, and the sense that we got from that was people really only lived in this small town because it was super cheap to live in a small town, and that kind of didn’t really give us the warm and fuzzy.

Joe Fairless: How much (if any) money did you lose as a result of backing out of the deal?

Mandy Mcallister: We didn’t lose money. We were at the best and final stage, and walked away at that point.

Joe Fairless: Oh, okay. Alright. So you had submitted an LOI and you hadn’t been awarded the deal, but you were in the process of being either selected or not selected, based on who they picked…

Mandy Mcallister: Yeah, so best and final was down to us and one other buyer.

Joe Fairless: Okay. Would there be a price that you would purchase it if the other buyer fell through and the broker came back to you all and said “Hey, the other one didn’t work out. Are you interested at a certain price?”

Mandy Mcallister: That’s something we would absolutely reconsider, and we’ve submitted so many LOIs at this point at prices that make sense… So we’re kind of just staying close to the rim, hoping something does rebound. So we’d absolutely consider it, but at the end of the day I am a buyer of real estate, I’m not a seller, so I wanna make sure that I’ve mitigated risk in terms of long-term stuff as best I possibly can.

Joe Fairless: When you’re submitting the LOIs, do you submit at the purchase price that is your best purchase price initially, or do you have a different approach?

Mandy Mcallister: Yes, we  stress test in such a way — we look at about a 15% vacancy, because that’s just about as bad as they got in the 2008 downturn, and we really try to go in with something where we have some room to negotiate… Which has probably resulted in why we haven’t taken anything down yet… But we have structured things such that there is that room for negotiation.

Joe Fairless: Okay. So you haven’t recently purchased something… What was the last one you purchased? Was it the Illinois State University small multifamily one?

Mandy Mcallister: Yup, on my own. I did go in on a syndication in the past year, as a passive investor, but on my own, the ISU property was the last one I bought.

Joe Fairless: Okay. We’ll talk about each of those. The ISU property – you said it was a small multifamily… How many units is that?

Mandy Mcallister: It’s four.

Joe Fairless: And what was the purchase price?

Mandy Mcallister: Get this… Buckle up, Joe… 120k. [laughter]

Joe Fairless: Okay… That sounds pretty good. For the Best Ever listeners who are in like Brownsville, TX or something like that, they’re like “That’s about market rate right there…”

Mandy Mcallister: Right. [laughs] Well, I’m in Chicago, so that’s kind of why — I looked in my backyard a and a couple hours out, so…

Joe Fairless: Okay, so 120k… What’s the rent?

Mandy Mcallister: I noticed a pretty significant difference in terms of rents for furnished student rentals, versus non-furnished rentals. We bought  from a guy who was self-managing and renting it out unfurnished at about $400-$450/month, depending on the unit. Then we repositioned that and aligned ourselves with one of the two go-to property managers that were student-focused, and in that first year we were able to lock down tenants at $725 to $775, because we were furnished student rentals.

Joe Fairless: How much does it cost to furnish each units?

Mandy Mcallister: Furniture lasts a little while; we’re not replacing that every single year… But the initial revamps that we did – it was new flooring, the furniture and paying some attention to the parking lot… It ended up being about $5,000/door, so I think all-in, the furniture was maybe just shy of $1,000 of it.

Joe Fairless: And each unit is commending $775 in rent, approximately? $725, $775 – I’m just using one of those numbers… So $775?

Mandy Mcallister: Actually, that $775 was if they were a shorter-term tenant; so if they stayed 10 months instead of the 12, they paid more. If they were the full 12, that’s when they paid the $725. We’re actually right now up to $835, being just a couple years here.

Joe Fairless: Wow. That shatters the 2% rule, and the 2% – it shouldn’t be a rule, should it? It should be the ideal scenario, right? I’ve never purchased a house that has 2%, but you did, you purchased a — it’s 2.4%, the $725, because it’s $30,000/unit… How did  you find that deal again?

Mandy Mcallister: That was straight off the MLS, it was just looking for these unfurnished rentals in the middle of a pocket of furnished unit rentals.

Joe Fairless: Wow, that is quite the find. And when you are now looking at syndicating, in between you passively invested in a deal… What did you look for, prior to passively investing in the deal?

Mandy Mcallister: I actually got involved in that as a result of being a part of this mentoring group. I knew that I wanted to move towards syndicating my own deals, so for kind of a learning process, I found one that I wanted to be a part of… And actually, a teammate through the mentoring group is the one who was offering this up for passive investment.

Basically, the reason I thought it was a home run was because it was beginning at 104 units, with 26 that would soon be coming online. So the 104 would go to 130, and actually ended up appraising for about 2.8 million more than the purchase price, after those additional units went online… So that was something that I absolutely wanted to be involved in, and I also chose to self-direct some funds, so that I knew the process of going through a self-directed IRA, so that I could potentially help future investors on deals of my own.

Joe Fairless: The 26 units – were they built from the ground up, or were they distressed and then renovated?

Mandy Mcallister: It was kind of a hysterical story here… The previous owner had taken adjacent units and put kind of a spiral staircase through the ceiling and floor of two units, and made them one kind of much larger unit, but it didn’t commend as much rent as the two did separately. So [unintelligible [00:12:11].19] for a significantly higher NOI.

Joe Fairless: What have you learned by investing passively?

Mandy Mcallister: The process in particular, investing with my self-directed IRA funds is for sure not nearly as easy as click buying a stock… So kind of knowing the timeframes of wiring funds and things like that was super-informative, and also seeing the sorts of communications that come out, and kind of knowing the sort of hand-holding that I was allowed along the way has been really helpful.

Joe Fairless: What aspects of the communication would you apply to a deal that you do when you syndicate one?

Mandy Mcallister: U think that every step of the way, roughly every month right now as we’re ramping up and changes are happening to these units that are coming online, we’re made aware. So without having to recreate the wheel, this team has done  a really great job of syndicating this — it’s providing me and every other passive investor with a little bit of knowledge just through an automated mailer that they put out monthly right now, and then I think that they’re planning to move towards quarterly once all the changes are made complete.

Joe Fairless: What would you do differently? I’m sure there’s something that you’d do differently whenever you do your own deal that you’ve noticed…

Mandy Mcallister: I do think that they’ve done a really great job. I know a lot of other syndicators that do some video stuff… I would really love an opportunity to put together a video for potential investors, because people take in information very differently. I would love maybe a webinar of some sorts to walk through those significant PPM documents… But other than that, these guys did a really great job.

Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?

Mandy Mcallister: Figure out what you like to do, what you’re really good at, what you can get really passionate about, and just keep doubling down on that.

Joe Fairless: What is that for you?

Mandy Mcallister: I really love the people part of this, kind of the networking, how I met you… The spreading the word, preaching the gospel of multifamily real estate is really my thing.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Mandy Mcallister: More than ready.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:14:41].04] to [00:15:17].04]

Joe Fairless: Okay, what’s the best ever book you’ve read?

Mandy Mcallister: Gary Keller, The One Thing… Especially because this is my side hustle. If I didn’t have the ability to really hone in and focus on what the next great thing is, I wouldn’t be accomplishing anything impactful.

Joe Fairless: What’s your full-time job?

Mandy Mcallister: I sell medical devices.

Joe Fairless: Best ever deal you’ve done?

Mandy Mcallister: I’d have to say it was a fourplex that really taught me a lot of things… It taught me about scale, it taught me that the repositioning the best use for an asset is the one that matters, not how it’s being used right now.

Joe Fairless: What’s a mistake you’ve made on a transaction that you did? That 4-unit.

Mandy Mcallister: We didn’t walk each of the units before signing papers, and two of the four had become vacant, and I wasn’t aware. But it ended up a blessing in disguise, because we were able to reposition, but it was a real gulp moment.

Joe Fairless: What would you do differently if presented a similar situation?

Mandy Mcallister: First of all, I’m gonna be systematic and walking every single unit before close, not just at the inspection.

Joe Fairless: How far in advance of closing should you walk those units?

Mandy Mcallister: In very close proximity. I’d wanna walk them the day of or the day before.

Joe Fairless: Best ever way you like to give back?

Mandy Mcallister: To the investment community, I started a meetup in Chicagoland that we call the Life and Cashflow Apartment Investors, which has kind of a [unintelligible [00:16:44].18] And in general, I work with a group called the Foundation for Community Betterment, where we identify someone in need who has continually given back to the community, and raise money for very specific needs.

Last we’ve raised money for a wheelchair for the daughter of a police officer, so it was very impactful to see exactly where those dollars were going to be used.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Mandy Mcallister: Check me out on my website, GoodFortuneCapital.com, or shoot me an e-mail at Many@GoodFortuneCapital.com.

Joe Fairless: One other thing I wanted to ask you about – we talked about Chicago… You got pre-qualified for agency debt without ever having got that debt before, so how did you do that?

Mandy Mcallister: I really thought that you had to have had that debt to qualify for agency debt, which is a real catch-22, but it turns out because of my passive investment history, because I’d done small multifamily, because my partner had done a bunch of fix and flips and had single-family rentals, they were willing to work with us, with the Freddie Mac Small Balance Loan program, which was pretty cool.

Joe Fairless: So it pays to invest passively in deals for being set up in the long run if you’re looking to do it more actively, as well as having the right business partners partner up with you.

Mandy Mcallister: For sure.

Joe Fairless: Sweet. Well, thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Mandy Mcallister: You too, Joe. Thanks.

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