Podcast #15 – 9 Turnkey listener questions Part 1

I hope I’m not typecasting myself into just the turnkey or out-of-state hybrid (with agent assistance) dude. I see myself as an improving investor who does not know everything and building my network and experience to do bigger and better investments.

Questions from the Hopper:

  • Are you visiting these locations at any frequency and for the initial purchases, or are you able to have enough trust and working relationship with other professional resources at those locations?
    1. I visited the team a year later in Birmingham and Atlanta
    2. I felt really comfortable and was nice to see that they were a legit business
    3. Is it really needed from a business perspective? $2-$4k is what you make a year and you’re going to spend $1000 on travel/time?
    4. Do it, if you need the warm and fuzzy feeling or going to buy a bunch of them. Do you go to New York and shake hands with the executives of your mutual fund and stock companies?
  • Do you have any TK recommendations?
    1. Really? How lazy can you be, you need other to do your own due-diligence? You need to build a minimal level of People who ask these questions never follow through anyway. If you are that lazy find a referral person who will lead you to the “cave” and ditch your butt once they collect their referral fee.
    2. I don’t want to be held liable, things change
    3. I don’t care about the silly referral commission. I am looking to build investing peers to kick it in the future.
  • Well I need to narrow down my markets and look at the data
    1. I see this as an excuse to dumpster dive in “technical-Hell”
    2. There are about 8 markets that have good robust economies (not Detroit) and Rent to Value ratios that support viable cashflowing investments. Here are some in no particular order:
      1. Chicago
      2. Memphis
  • Indianapolis
  1. Birmingham
  2. Atlanta
  3. Carolinas
  • Jacksonville
  • Kansas City
  1. Ohio
  2. Questionable on Dallas (lacks cashflow and more of appreciation play but I like it for apartments)
  3. NOT Arizona/Las Vegas (too volatile IMHO)
  1. Stand on the shoulders of giants!
  2. I don’t see much difference in Birmingham vs Atlanta other than $20 per month cashflow. Atlanta being more of an appreciation potential.
  3. I had a conversation with another investor the other day and he was really into optimizing the data to find the best market. The response I gave was it is like raising young kids
    1. picking the right market = deciding what the kids wear
    2. picking the right vendor/rehabber = help your kid pick the right friendships

Send you kid with some decent clothes and emphasize on picking the right friends. I don’t have kids so what do I know about anything.

  1. I update a little heat chart outlining what I think how markets perform with cashflow & appreciation. Email me Lane@dev.simplepassivecashflow.com with “You name – TK Heat Chart Quadrant” in the subject line and screenshot of your iTunes review.
  • Tenant grade materials. I hear you mention this a lot, no garbage disposal, laminate floors, etc.
    1. No garbage disposal (number one annoying fix I see)
    2. laminate floors
    3. no carpet
    4. no garage door
    5. no washing machine/dishwasher
    6. We want happy tenants but the Goal is the rent (use a 20% IRR rule as a starting point)

 

  • I initially thought about Indy but wasn’t comfortable with the responsiveness of the TK I was talking to… so I backed off.

 

Remember these guys primarily rehab homes. It does not mean they are bad. Do you want to be paying for the extra bloat/overhead of someone to do sales all day long in the office?

 

  • Wow, the proformas/Rent-to-value ratios in Chicago and Florida are off the charts!
    1. Always use your detailed spreadsheet to account for all costs and verify each line item
    2. Chicago has 3x taxes and anti-landlord
    3. Florida had 2x insurance
    4. 2% investor tax upcharge in Indy
    5. In my opinion, when you add these market nuances, it really normalizes all the markets. To me, they are all the same… it’s the team in place that means more (KPIs for you computer programmers out there).

 

  • You talk about buying turnkeys three ways. Marketer, Hybrid w/ agent, and direct from the Turnkey Provider? What is the best?

 

Depends on your situation. A greener investor should go with a marketer or work with a mentor/agent. A more experienced investor can work directly. I personally switch between direct and with an agent.

 

  • Do you prefer to stay with newer homes say 1990+ or 2000+ or are you ok with old homes 70’s 60’s as long as they are in good neighborhoods and have been rehabbed?

 

I prefer newer because that means you will have a newer curb appeal however those come with a bit higher price. So it’s unclear if it makes sense in terms of value (utility/cost). I don’t discriminate older homes (granted they are not functionally obsolete such as hallway type kitchens cause people today like open floor plans). Renters can’t be choosy but if you have an option in the beginning, choose well.

 

There is something to be said about an older home that is time tested and has got the kinks out. Don’t forget about capital expenditures. I have heard that certain eras (I am making this up but 1980-1985) have used superior materials than today and vice versa. I think it’s too tough to know this for a passive level because the differences vary so much between the decades and individual markets that it’s not worth creating a thesis on it.

 

  • How do you manage your out of state properties? What kind of challenges are you facing there?
    1. All about managing via phone/email and keeping those accountable. Just like corporate America.
    2. Be firm and your leverage is to fire them and get someone new.
    3. I know I pay markups and could run it better myself because after all, “no one waxes your car better than yourself”
    4. Too many people have this old school mentality that they need to live near the rental and do everything. Read the E-Myth book and open your eyes. Don’t be a landlord, be an investor.

I bought my first Turnkey in 2013. Today with more and more stock market refugees the margins are getting smaller and smaller.

Just one HVAC going out guarantees that you will lose money (cashflow wise) that year for that property.

Review my article on the hidden ways you are making money with real estate. The cashflow is just the tip of the iceberg. Remember there are other ways you are making money and that is why it is worth the extra effort overstocks/mutual funds. But its not worth the extra stress if you are just flat out bad at this stuff.

I did not figure out how to do things until I got three or four of these things (overpaid by a few thousand each time) because I just did not know what the heck to do. But you cannot read your way through it. 70-20-10 rule where 70% is doing, 20 % is by peers/mentorship, and 10% is reading like this blog/podcasts.

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