Ultimate SPC Guide to Turnkey Rentals & Remote Investing

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Dear prospective turnkey investor,

The following is my constantly updated guide to turnkey. (Updated 5-2020) Email me for any additions or feedback. In the spirit of the Hui Deal Pipeline Club where we crowdsource due diligence together!

I don’t flip or wholesale or do any of that. When I started off I was working a w-2 job and I was not looking for another job or chore. I am all about leveraging my money and more importantly, time. For people like you and me who live in places (Seattle, West Coast, Hawaii, East Coast, to name a few) where the Rent to Value ratio is 0.5% or less, we have no other option. It drives me crazy when the Real Investor Peanut Gallery (internet forums known for big pockets small wallet) say we are overpaying… well if I didn’t have a life and I had the time to lick stamps and swindle distressed buyers I could buy a distressed property at a discount too and probably do it better ūüėČ

Download the free “real” hourly wage calculator here &¬†get access to our share drive here.

I don’t know about you, but I have full-time professional job that earns more per hour than most folks even in real estate and more than these Turn Key providers do. So I’m like sure… I’ll pay retail and rely on their volume and expertise. But you have to find the right ones. Investing for cashflow is not a get rich quick schedule but a prudent way to build lasting wealth a few hundred dollars at a time.

Turnkey rentals are a PITA but if you don’t have much money or time you don’t have any other choice. Have more than $200K? Start thinking about transitioning to being a passive investor.

For the 1,000th time¬†😁¬†–

After over 1000 strategy calls with investors and coaching clients over the past couple years here is what I tell W2 employees… For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool/good for you… but just remember why we got into this… To be free from a JOB. A lot of us (80%) who stumble upon simplepassivecashflow.com and start drinking Kool-Aide will be financially free in 4-7 years pending taking action. So I always urge people to start with the end in mind and take a more passive approach.

Do the math here… you with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.

If your net worth (income minus expenses) is under $200,000 or barely save $30,000, syndications are not for you. Stick with these Turnkey rentals despite what Gurus (who are trying to sell you their program) tell you for now. They have a little higher gains (a lot more volatility) but a syndicator who is willing to put you in a deal with more than 10-20% of your net worth is asking for trouble.

Update – 8-2018 – Almost done selling the rentals on Roofstock!

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Turnkey Exit Game (2018-2019)

I began listing my Turnkeys on Roofstock.com who are a lot cheaper than a regular broker and there are more investors that are looking for an occupied rental property. So it is good how you don’t have to go without a tenant and miss out on the monthly rent checks. The downside is that its really easy for buyers to put in lowball prices which gets pretty annoying. Although the certification process was not too bad since my property management took care of all the home inspections with the Roofstock inspector. Out of 10 rentals a couple of them sold in the first few months of 2018, the action dipped dramatically. I¬†was not desperate to sell because the properties were stabilized and giving good cashflow and I did not want to have too much liquidity. I was fortunate to find a lot of syndication deals to go into 2nd half of 2018 to go into which motivated me to sell these properties more.

“I honestly believe it is a fine balancing game. You can have a PM that is methodical and takes their time finding a “better” long term tenant and it may cost you a couple months of rent but you hopefully make it up on longer tenancies, less evictions¬†and less turnover costs. On the otherhand, you can be like one of my prior TK PMs and burn and turn the property quickly fill with a “decent” tenant but may have more risk of evicting and a costly turnover due to damages. The type and class of market greatly affects which side is easier. When I starting learning about the small margins PMs make for the amount of work they do, I can see why some prefer the latter. They dont have to pay for the evictions, fines, and renovations. Also, since margins are small, they more likely have to take on more rentals, which then gives less time and attention to your property. The task is finding a PM with a great system in place and operates in line with your investing strategy but you have to understand it may be hard to get it all.

I agree with Peter, work the PM, see if they can get it leased using promos or by lowering rent. Lowering rent by $25-50 a month for a year is less than another month vacant (unless your rent is less than $600).

This is from my limited knowledge and experience but is one of the reasons I got away from SFH. With my limited time, I didnt want to have to deal with emails about missed rents or costly make readies. I also dont have the capital to scale quickly enough to mitigate the effects of each incident.

What I found worked well was to rehab the 3-5 of the properties after the tenants just happen to turn over. Each time I was able to do 10-25K of rehab to get it close to retail status. Part of that cost was to just get the property cleaned up which I would have incurred anyway if I got it back online as a rental.”

“Honestly, I am hesitant to buy more at this point. Unless you have contacts out there that you can tap, getting into turn keys requires a premium that I’m not sure is worth it if you have to buy from a marketer. This transaction was off market which helped, and even with the 10% decrease in rents I can still make money, but it’s frustrating leaving it all up to a PM that’s out of state. I’m a control freak and like to stay on top of people that are doing jobs for me, so it’s been difficult for me to just sit back and trust that every effort is being made to rent my place. But, then again, I have one property there and know that I’m not a huge priority in terms of his other property owners that he deals with. I understand this. I kind of did this as a learning experiment knowing that I could face challenges. The problem is exactly what Lane talks about all the time – inability to scale effectively and difficulty in limiting downside risk. Even if you have a portfolio of 10-15 properties, you’re bound to have a big loss at one of your properties every year – whether it be HVAC, eviction, roof, vandalism, etc. I think, for me, I will concentrate on only syndications going forward unless a great deal presents itself. I believe in being really good at one or a couple of things and trying not to spread myself too thin trying in order to learn all sorts of different asset classes at this point in my journey.”

Mastermind member & Accredited investor

For those who have rentals, you understand how ~20% of renters are like gold. They stay a long time (3 years plus) and are perfect citizens. A couple of my rentals had such tenants which I still own today and will likely rehab a bit to sell retail then. Part of this protocol is contributed to the fact that I don’t really the proceeds of these sales to go into the next syndication because my W2 day job and cashflow¬†keeps me going. Only a couple of the renters I felt I sort of “forced” or did not renew¬†their leases because I felt I needed to get my equity out and working again. Don’t worry I was nice about that and I gave them a heads up and worked with¬†their schedule while waiting till the springtime so I could time a summertime sale.

$338 dollars for an eviction that does not come with a $30,000 repair bill! Priceless!

Sorry, I don’t really have time to write a full report on all the numbers like other websites… I had other better things to do at the time like close bigger deals. But most of the deals I made $10-25K from the sale after it was all said and done, one I lost money on (dog poop house see images below), and a few I pretty much broke even on after all the headache. In the end, I felt like it was all luck and predicated on getting a couple of buyers to get into a bidding war for my property (a situation that would never happen in a soft market).

Turnkey Rental After-life

Today I buy apartment buildings like this 193 unit in San Antonio where I work with deal finding specialist on my team but it took me almost ten years to get there.

When I started this blog/podcasts I was totally into these Turnkey Rentals. I even started to blog on a couple of them in detail:

Rental #4 – Birmingham

Rental #5 – Birmingham

One of the cool things about investing in real estate is that the properties create a paper loss. For single family homes, you can take 1/27 the value of the property (minus land value because that does not devalue over time) per year for 27 years. This is what is shown below. A cost segregation juices this deduction as it puts the asset on a more aggressive depreciation schedule which front-loads as much depreciation as the tax code allows. This is one of the reasons why bigger deals are better because they can support a 5-8K cost segregation study.

Paper losses due to depreciation!

I moved onto bigger more scaleable assets mostly because of stuff like this happening every few months:

“I do have some unfortunate news.¬† My crew showed up this morning and there was an empty police car in the driveway along with a note from the officer.¬† Overnight, the outdoor section of the AC unit was cut and stolen (no sign of breaking in).¬† My crew said he spoke with the neighbors (to the right of the home) and at about 1-2 in the morning a black truck was going around the neighborhood cutting AC units and taking them.¬† The neighbors called the police and they came out to do their work.¬† I called the Dekalb County Police and asked them what I would need to do and what the next steps are.¬† They said, if we want a copy of the police report to come down to the office and present them the case number and if there is any news they would let us know.¬† I have attached photos of the card the police officer left along with photos of the damage.¬† It is very unfortunate and I do apologize this happening.¬† The AC just got inspected and serviced yesterday and everything else is running smooth.¬† I am waiting to hear back from the HVAC tech about what it is going to replace the missing unit and repairs to the lines, once I receive the service report.¬† I will be sure to keep you up to date with any news or information.¬† Please let me know if you have any questions.¬† Once again, thank you for your time and I do hate that this has happened.”

As much as I poke fun at the asset class and jokingly call it “turkey” instead of turnkey rentals it all started here and is the foundation of my investing portfolio.

When I first started buying the rehabs done by the turnkey guys in the blue-collar areas, if you posted “hey I’m looking for turnkey” in the forums you get the usual suspects soliciting you for marked up properties. It’s off market because they rehab it for the investor with more durable and less visually appealing materials than your normal retail product. I‚Äôm all for the wholesaler to make money because they do spend a lot of time and money on mailers and advertising but the layers of middlemen who add no value is excessive and is almost as bad as Wall Street.

Breakdown of where Class D, Class C, Class B renters live. Source

I bought my first couple rentals back in 2009-2012 in Seattle (Primary market/no cashflow). As the prices started going up I was forced to go out of my comfort zone and purchase out of state rents because I needed cashflow in order to achieve my goal of replacing my W2 income as an engineer. I bought one I Birmingham, without seeing it and set up a professional property management company to manage the day to day. That was proof of concept for me to sell my two Seattle rentals and buy 9 Properties in 5 Months via 1031 Exchange.

I work with a lot of engineers and a lot of them say they get analysis paralysis because they like data. I call them out of it and tell them they are just scared and losing $500 of opportunity costs and time per month! A real engineer would look at the numbers. IF rent minus expenses (with contingency) minus mortgage is greater than THEN fricken do it!

Example of capital expenses that need to account for in your expenses and contingency.

Let me be clear, I don’t flip or wholesale or do any of that. I have a W2 job and not looking for another job or chore. I am all about leveraging my money and more importantly, time. For people like you and me who live in places (Seattle, West Coast, Hawaii, East Coast, to name a few) where the Rent to Value ratio is 0.5% or less we have no other option.

It drives me crazy when the Real Investor Peanut Gallery (internet forums) say we are overpaying… Our time is better spent at our high paid professions that we busted out buts going through a couple decades of schooling for.

Being a passive investor is simple. Spend your time making the big bucks at work and invest for yield.

Unlike broke people, passive investors don’t need great deals they just need better¬†than average.

My full-time professional job that earns more per hour than most folks even in real estate and more than these Turn Key providers do. So I’m like ‚ÄúSure… I’ll pay retail and rely on their volume and expertise.‚ÄĚ Its all about leveraging your highest and best use, which maybe your day job.¬† Sorry.

The problem is that you have to find the right property and people to work with. And have a mentor so you are not getting screwed. Investing for cashflow is not a get rich quick schedule but a prudent way to build lasting wealth a few hundred dollars at a time.

When I first started buying the rehabs done by the turnkey guys in the blue-collar areas, if you posted “hey I’m looking for turnkey” in the forums you get the usual suspects soliciting you for marked up properties. It’s off-market because they rehab it for the investor with more durable and less visually appealing materials than your normal retail product. I‚Äôm all for the wholesaler to make money because they do spend a lot of time and money on mailers and advertising but the layers of middlemen who add no value is excessive and is almost as bad as Wall Street.

“I don’t work with top tier turnkey providers….¬†For the same reason I don’t buy a Dyson Vacuum..¬†I’m cheap and buy value and buy the sub-100 dollar Shark brand from costco with the excellent return policy.”

These days’ people in the Hui Private group are not on internet forums. They say its 95% of active people who are not high paid professionals and marketers. Here is some of the chatter:


Out of State (Remote/Absentee) Landlord Abuse

Its no mistake that all your providers/property managers/maintenance staff know you are not there to verify every little repair or check every bid of potential in-house or third party work ūüôĀ

The most important thing to do is to grow your network…

So you can bounce ideas off other investors and not a salesperson. I still do free calls but please review the free content I have put on this website first. No, I do not just give recommendations to good people to buy from because things change and I am not going to throw my brand around like that. And by the way¬†that’s an “ask-hole.” I know your character and the trajectory of your success but how you add value to others first instead of taking first. Some people are unaware of this which is why I’m saying something so I aplogize. This could be the reason why people are not helping you out and you feel like a lone wolf.

Webinar with 2018 trends is sent out to Hui Deal Pipe Line Club members sign up below:

I don’t really see much difference in the secondary markets with robust economies (Memphis, Kansas City, Birmingham, Atlanta, to name a few). I have tried to set things up so my different markets complement each other. For the most part I buy in the 1.1-1.3% RV range. I take home 70% in 2015 but now in 2017, I buy in the 0.9-1.1% RV range and take home 60% of the rents after all expenses (vacancy and Cap ex).

I made this diagram in 2016 and it illustrates some of the popular “secondary markets with robust economies” that a lot of out of state turnkey buyers like to invest in. Things have changed a little but as you can see you can either have appreciation or cashflow. It’s tough to get the best of both worlds.

I stress NOT to spend too much picking a market. If you sign up for the newsletter as a Hui member you will get more than enough data to create analysis paralysis. The biggest thing you can do is vet the people. As you can see the same principle is what I use in my syndication due diligence: 50% people & 50% the numbers of the deal.

There are three ways to purchase a turnkey rental:

  • Marketer – I would not recommend going through a marketer, they don’t even invest themselves and they did not add any value. The only one I can recommend is Marco but that is because I know like and trust the guy. By the time I bought my 3rd rental I knew way more than those folks did. Unfortunately, I probably overpaid by a few grand on each of those first few properties not knowing what I don‚Äôt know, Work with me only if you want to compress time and want me to look over your shoulder to get my unbiased opinions and guidance. Plus you will be setup with a plan and not shoot yourself in the foot like I did by buying a dozen non-scalable investments.
  • Direct from Turnkey Provider ‚Äď You cut out the middleman and go direct to the source, theoretically getting the best price. Just know that you are not represented by a broker who supposedly has a fiduciary responsibility to you. (BTW never trust a broker) The transactions are done with their paperwork and their rules. They are the pros and it’s dangerous for a newbie to go down this route. There are household Turnkey Providers (TKPs) out there but I call them the ‚ÄúPrada of Providers‚ÄĚ. You pay for what you get and often times more than what it‚Äôs worth – I‚Äôll just say you are paying over 105% of retail.
  • Hybrid method – When I was going through my buying spree in 2015-2016, I was going (off market) via an agent that had a fiduciary responsibility to me to check all the BS that the providers give you – this is what I recommend only after going through the process a few times. Usually, the agent helping you is not an investor and does not really know what type of amenities/floor plans and locations are best for rentals. You will need to drive the ship. Note: I see brokers all the time trying to sell junk to new investors.
  • Another cool site out there is Roofstock which is where I sold my turnkey rentals to step up to syndications. Use the link get a $500 credit when you register…¬†They give me $50 credit but I don’t think I will buy another turnkey rental again ;P

You seemed bored reading… There is no such thing as turnkey. Check out these disaster photos from an eviction that ended up being a $37K repair bill… https://photos.app.goo.gl/R4PZLuOLGHONO5Rl2

Random Tip:¬†The first year of ownership will be rough even though you inherit a tenant in a supposed turnkey property. I strongly urge you to clean house (with the tenant) and start new (even though you have to pay your property manager a lease-up fee). That way you don’t have to inherit “step-children” tenants and can start out on the right foot to set the right expectations. This also eliminates excuses from your property management company because they put the tenants there themselves. I made this mistake because I wanted to save $500 bucks by not having to pay a lease-up fee and not have to go through a couple months of vacancy off the bat. Again me being a cheapo.

Random Tip: Vacancy will kick your butt. Often when it rains it pours. Assume 8-10% in your underwriting. That does not include the property management lease-up fee that could be a full or half a months rent which could be another 5-10%.

Random Tip:¬†Those of you buying your own rental properties with Fannie/Freddie loans are aware and probably agree, the appraisal piece of residential real estate investing isn‚Äôt a foregone conclusion leading to a successful closing. Your deal could be shot down but an appraiser that can’t seem to understand how a $30k house with $20k of rehab can be worth $70k in a couple months.¬†¬†Remember the¬†vast majority (over 95%) of appraisers cater to almost exclusively the ‚Äėowner-occupied‚Äô property appraisals.¬† Very few appraisers are well versed or adept in our¬†non-owner occupied¬†properties, especially when we throw in a distressed sale, rehab/renovation work etc.¬† As a result, we find ourselves (all of us) on occasion on the other end of a short appraisal that will either kill our deal or significantly reduce our profit margins.¬†¬†Now I just want to mention so no one takes this as reckless that appraisals do serve some purpose to determining value but for more sophisticated investors find appraisals a little annoying.¬†A little backstory… Pre-2008 crash appraisers did not really have much control. There was little regulation and they could easily be bought off at the job site with cash or others on the job favors. Don’t want to get your imagination going too much but its was a little crazy and one of the many factors that lead to evaluations going up and up to unsustainable levels.¬†Government got involved and fixed things a bit. They mandated that if you were going to get a government sponsored Fannie or Freddie loan that you needed to go through an AMC (appraisal management company).¬† This is the third party that the regulatory agencies of residential financing require we use for ordering an appraisal.¬†Some lenders (Hui¬†members will and especially¬†Mastermind¬†members will get referrals) operating within confines and strict regulation of housing/lending have created a short-list of ‚Äėself-managed‚Äô AMC that allows lenders to¬†create preferred panels of appraisers in all the markets we lend in.¬†¬†In other words, you get to hand appraisers that you know. When an appraisal order goes out, it now goes out as a¬†random selection¬†to this preferred panel of appraisers vs the master pool of appraisers within the entire AMC database.¬† We‚Äôve found this greatly reduces the possibility of a short value.¬†This is why I like investing in real estate or when I know the right people because it’s essentially like inside trading. Join the¬†Mastermind¬†and collaborate on our latest vendor lists.

Stay away from providers who…

  • Don’t allow financing or a finance contingency because they are selling above market value (which will be revealed by an appraisal)
  • Don’t allow your own independent property inspection or referring inspectors to you
  • Are not realistic with their pro forma’s (i.e. they don’t include vacancy or maintenance projections or use unrealistically low vacancy factors) – just don’t take anyones proforma ever!
  • Require you to pay for any renovation upfront – sometime this works if you have worked with them in the past
  • Sell only in cheap or low end neighborhoods (Class D or C) and never trust what they say what Class it is.
  • Can’t provide a scope of work for the property
  • Can’t provide references of repeat investors

Dealing with sending these letters out to those who just throw it away just to saw compliant to the law as a landlord.

As I was in the middle of my 1031 buying spree (#6 of 11), a lot of TKPs started to come out of the woodwork and offered their properties to me and gave me the royal treatment (discounted prices from what they normally offer). I got to meet a lot of them via meetups and national conferences because I had this podcast and they were interested in getting at the Hui Deal Pipeline Club ecosystem. Since I was pretty experienced and they liked working with me they offered me referral fees to simply send guys like you over to them with a simple “CC’ed” email. Sort of like a referral source where they would give me $1000 per home sold. I thought it made sense for them because it was a lot cheaper than paying $6000+ to a Marketer (#1 above), but as you know when you go with a marketer or this sort of referral program the buyer (you) don’t really get any value add. That said if you want $500 credit at Roofstock use this link.

Personally, I’m not really into picking up $1000 referral checks and passing you off to the TKP (never to hear from you again) since I’m more looking to give back to other investors and build my network for my larger syndication deals in the Hui Deal Pipeline Club. I think turnkey rentals are ok for people starting.

Nothing is worse than paying $30K to fix your property up then getting an email like this

After over 1000 strategy calls with investors and coaching clients over the past couple years here is what I tell W2 employees… For those who are able to save more than $30k a year or have substantial liquidity (over 200k), being a landlord and especially flipping is a lot of work. If you like it cool/good for you… but just remember why we got into this… To be free from a JOB. A lot of us (80%) who stumble upon simplepassivecashflow.com and start drinking Kool-Aide will be financially free in 4-7 years pending taking action. So I always urge people to start with the end in mind and take a more passive approach.

“I have B- class rentals and high that rent for at least $900 a month and I am still having a hard time selling dang properties to other cheapo investors

Too many tax returns for each state

Do the math here… you with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. This is the fundamental problem I have with Wall Street who takes too much fees off the hard-working efforts of the middle class.

I currently work with one business who I can align with because they offer sort of a hybrid between the marketers (I know you know the reasons why to stay away from them) and going straight to the TKPs since you lose a lot of the protections when you do that and it’s sort like signing agreements in the “wild wild west”. The reason I do it this way is that I get a licensed agent that has a fiduciary responsibility to your best interests and guides you through the transaction as you buy through the TKP. Basically, it’s like having MLS agent to cover you for the off market deals. All the properties are aggregated from only the good TKPs and the same price that you will find on the weekly digest that is sent out by the local TKP. This is the way I buy my properties and if nothing else it’s good for browsing what’s out there.

Can you please recommend a good turnkey provider? You said you would help… (If you are a part of the Hui and need a referral to some turnkey providers email me)

If you would like to build your tribe of investors to source deals and vendors together as we as get bi-weekly guidance calls – apply here.

The short answer is not really. A provider will try to size you up and try to pull a fast one on you when they get the chance. I will not endorse anyone! The only way to protect yourself is to network with other investors by providing value first ‚Äď if you are a cheapo. If your net worth is over $300K, have at least $50k liquid, and have a time crunch (kids) I think it‚Äôs a no brainer get me on your team and stop screwing around.

There is really no reason why you cannot put in an offer on a property and start collecting $300 a month with a $25K down payment in under 90 days. Someone who is still ‚Äúreading‚ÄĚ, ‚Äúcontacting investors‚ÄĚ, or ‚Äúpicking a market‚ÄĚ frankly lacks focus (finish one course until success) or scared of making a move. Every day you don‚Äôt do anything is $500 a month of opportunity costs!

My rentals in Seattle were cash flowing each with $600-800 a month but it was because I bought at the right time and I did not look at the numbers like a sophisticated investor does. Although my cashflow was good (bad in terms of percentages) I realized that my return on deployable equity was very low, in fact it was under 5%. Now each rental I get typical cash flows by $350 but I think of it like $250 to be conservative and more importantly, my money is not being lazy. I think if you’re making less than 8 percent you’re better off in the stock market despite my aversion toward stocks or mutual funds. A sophisticated investor does not say ‚Äúwell‚Ķ at least I‚Äôm able to cover my mortgage‚ÄĚ. They are constantly monitoring their return on equity.

I wasted a lot of time in 2012-2013 looking for rentals in King, Snohomish, and Pierce County (Washington state) and nothing cash flowed. I still have the spreadsheets where I underwrote how crappy the Cashflow was. Now prices are even worse.

I helped dozens of people with this out of state investing game and have pretty much figured it out after making a bunch of mistakes that I didn’t realize till later – this is why it makes me laugh with the ‚Äúdo it yourselfers‚ÄĚ.

Lively commentary in our Facebook community. #Livewhereyouwantinvestwhereyoucanevict

One mistake I see people making is going after these sucker properties that only can be sold to “Californians,” “Hawaiians,” or any rich person not from the area perceived to have trees that money grows on, from a trust fund, and drink seven Mai Tais on the beach everyday. (Personal Note – I have lived in Hawaii for about six months now and I have only been the beach twice).

These types of people (not follows of SimplePassiveCashflow.com) like to pay a plumber for ten hours to fix a small toilet leak.

Sucker properties are in the wrong area that none of the locals would touch with a ten-foot pole. They are C or D class properties that the Broker calls “B-Class or good area” and usually cost sub $60K for $750 rents a month.

“It may look good on paper but stick to rents that are higher than $900 a month”

Rent-o-meter – a good service to getting rent comps.

It’s going to be a culture shock to many. Many Class C and B tenants might not have bank accounts and pay you via money order that they have to spend 10 bucks at Wal Mart. I don’t know how much that costs because I avoid Wal-Mart for obvious reasons. Trying to figure out how much your tenants owe you when they are late all the time. The below ledger is supposed to be a more high-end A- rental!

The second thing I see newbies doing is buying 2-8 unit properties after hearing all the good things about multi-family and scaling. I think most highly paid professionals will graduate to syndications (which is why I structure business and own investing around them) and therefore will need to sell these SFHs to move up. The exit strategy on selling 2-8+ just is not there. They look good on paper but the exit strategy kills you. If you are thinking you are going to hold on to these properties for cashflow for 7+years think again because that is not what sophisticated investors do because they monitor their ROE and they know the cap-ex tidal wave will hit them in year 5-12 taking back all those profits from the earlier years.

How many turnkey homes are people buying. Here is one data set I found from one popular turnkey provider. Takeaway – most (82%) get a few properties and the rest don’t get it or are too lazy.

The main thing is building the relationships and knowing who has the integrity out there. More importantly, you have to buy a few and go through the process of buying/selling and operating a while to learn how this mouse trap works. Tactically, it’s no different than what I have learned in corporate America (although I’m trying to leave the rat race) by setting expectations and keeping people accountable via email remotely. Trust but verify and financial freedom will be yours.

Tips for remote investing:

  1. Electronic checks: https://www.deluxe.com/echecks

  2. Faxing: https://www.afax.com//

Join our tribe?

I built everything on this website to be able to help out as many people get to financial freedom as a way to give back. However the biggest part of investing especially as you net worth goes over $250,000 is that all the knowledge will not help you. Instead it is all your network. This is where joining the eCourse for insider information and the Passive Investor Accelerator & Mastermind comes in. I thought I could do it all alone which is why it took me so long to get to 11 rentals myself. Until I found other high net worth investors to bounce ideas off of I was just another Joe investor out there.

Frequently asked questions (Join our Mastermind to build a network of other investors to bounce vendors off of):

FAQ from past coaching clients and questions you ask:

I just wanted to do a little research on some markets to start diving in on the few contacts you gave me. What should I focus on (although you say macroeconomic numbers mean little compared with building a relationship with people?

Here is just a tip of the iceberg but for now, I would dig up data on population growth of area and media income. Maker sure you dig a bit deeper on submarket think Arlington vs Dallas. The details are in the Sub market which needs to ultimately verified in a site visit. The thought here is that the more desirable areas have that built into the pricing. You are trying to find value. Also, check up large employers moving in or other new development. Those are the signs or future expansion.

Where is your spreadsheet with turnkey providers because I am lazy and want to just copy what someone else does?

That might have been smart a few years ago but things have changes and good providers have gone out of business or more expensive. You don’t need to be a super active investor but by not putting a minimal amount of effort you are shortchanging yourself the necessary lessons that will minimize a big mistake down the road. If you need the provider list sign up for the Hui Deal Pipeline club and it is in that share drive.

Here is a strange thing about turnkey providers. Today in a hot market it makes more sense for a flipper to flip to retail (and not a [cheapskate] turnkey investor).

I started buying Turnkeys way back in 2013 and most the providers of the time are not around or stepped up to retail flips as I said.

It’s very difficult to find TKPs these days. It’s like trying to find a good Junior Engineer… once they get good they leave for more pay and better conditions.

What’s the deal with REI Trader and the partnership with Simple Passive Cashflow?

I would do your own due-diligence and learn about rentals by talking to as many people as you can.

I know eventually, you will find that working with my team is the going to be the optimal path forward as I am committed to mentoring you as an investor so you will continue on this investor journey to bigger and better deals.

I stand behind REI Trader and support you through the entire buying process – I don’t just pass you off to the Turn Key provider and say peace out…

The properties have good value for the purpose of rental real estate. The due-diligence that we do after the purchase contract is signed is the secret sauce and the unfair advantage over other turnkey options. Yes, there are a few perennial Turn Key companies however you will pay over market rates (110% retail).

The broker that helps you with boots on the ground with REI Trader is property agnostic. In fact, they don’t care if you buy that property or not.¬†¬†We know you will buy the right one eventually.¬†¬†We want to build a relationship with you the investor. Most clients buy one property, come back for more, and tell their friends.

Where do I find tax information in Birmingham?


Every State/County/City taxes is different and requires some digging. This is where having a network to support you and co-source you duediligence is important.

Should I be concerned about a septic system?

Do you know if it was inspected after you purchased? What future maintenance should I expect? Will the property management company know when it needs regular maintenance?            A lot of properties have septic in Center Point and most PMs have this down to a system. We went through this including myself as before.

On another property the investor hired his own septic tank inspection. They checked in and said it was not working but when we sent our own service out to reconfirm, it was working as required. Often some of these third-party services are not as honest as they should be with out of state buyers. Regardless, the home warranty you receive covers septic service. This is just an FYI for future purchases where a septic tank is involved. This property is on city sewer so we don’t have these issues.

How much and what comprises the attorney’s fees that will be split 50/50?¬†¬†¬†¬†¬†¬†¬†

Typically, on financed transactions it’s about $650 split 50/50.

What if there are issues getting an inspection(s) completed with tenant in place?           

This is an issue with the seller not being easy to work with and could be grounds for you to back out.

If there are delays, we then have both parties agree to an extension of the inspection period with an addendum. Only time this happens is if your inspector can’t inspect and provide report back within the 14-day period.

Sample inspection report

How do I decide on an offer price?

Property in good condition and in a good area that meets the preliminary numbers go fast. Dude, it’s a sellers’ market and anyone can swoop in and grab it. I have seen the amount of turnkey buyers go up exponentially in the past few years as everyone is jumping on the band wagon. News flash incase you missed it… Real estate has been good for the past decade.

From the rehabber/flippers prospective to complete project geared more toward the retail buyer to take part of the emotional buyer market. Selling to cheapskate and annoying investors like us just does not make sense on many fronts. So don’t we a whinny investor and don’t try to make like you have leverage.

Properties that have a tenant in them are often owned by investors and non-owner occupied owners. The good thing is that it’s a numbers game and they have a profit that they are looking to get. The bad news is that the property performs as an income producing asset (that’s why you are buying it) and the sell is content holding on to it indefinitely ‚Äď after all it cashflows.

Turnkey sellers will allow minimum flexibility on their pricing. Remember, they don’t have to sell and sometimes it does not make sense so move on if that’s the case. That being said, the average discounts I have seen is about $1500 off asking price. Seller is asking $69,900 and I would suggest initial offer of $67,000 and see how he responds. Point is know what is a deal and know the price.

The numbers looked inflated and offered no better advantage than other ¬†‚Äúsafer markets‚ÄĚ. So out of curiosity i checked the same address on Zillow and ¬†lo and behold, he jacked the prices for me. ¬†i.e. ¬†same address on Zillow ¬†70-80K ¬†he presented below as ¬†110K price with 1k rent.¬†¬†Do not go to Zillow when looking at this kinds of properties.¬†Zillow is showing un rehabbed values and especially since it was vacant or distressed before.¬†That’s why the turnkey rehabber bought it in the first place.¬†The best¬†thing to do is contact a PM (who has MLS access) and talk to them about the evaluation of price. You can also connect with another¬†realtor¬†to get evaluations (you should be doing this anyway because at some point you are going to try and no use direct turnkey providers). Third, you can go back to the TKP and ask for comps sales. They should have MLS access and be able to pull this up for you. As an educated buyer, you should know the going Rent-to-Value Ratio for that class and area so if you determine the rents it will draw in from the future property manager you can determine the fair price.

How to handle property inspection report          

You really need a mentor or have someone look over your shoulder who has done this before and knows what is fair. Here is my advice:

Have a 5-10 minute call with the inspector. Tell him “look I know we aren’t going to get much more than 2-4K of repairs” so‚Ķ

#1 would you buy this?

#2 what repairs will bite me in the next couple years?

#3 what is the best use of 2-4 of work?

#4 do you have any contractor contracts I can have?

Take this to the seller and negotiate but just know they have a line around the block waiting to buy their property sight unseen. Even without appraisal and all cash.

I am looking at new build turnkeys. I like how its new, in a better area, and less issues than a 30 year old house would have. Thoughts?

Normally, I don’t recommend these types of new builds especially in new areas. When a recession these are the first to go offline ass opposed to mature communities that have been around for a while and established homeowners.

This is what I think of (First 2 min) –¬†https://www.youtube.com/watch?v=MesrrYyuoa4

¬†Numbers wise its 200k a unit and 1700 a month at best. This will not cashflow… its not 1% Rent-to-Value Ratio of more.¬†¬†Download the analyzer –¬†https://simplepassivecashflow.com/analyser¬†And see how some of¬†their Pro Formas are non realistic.¬†

I want to make my own turnkey company? I know a rehabber?

Here is a spreadsheet with the math behind making your own turnkey company.

Calculating Taxes.¬†¬†Are these numbers correct?¬†¬†Do I need to verify these?¬†¬†Do I need to do this before putting a property under contract, or can I wait until afterwards?¬†Taxes are based on the value of the property. Typically when you buy a property that was fixed up the current value is very low. This is why if you go on ZIllow and look it up it looks like it’s worth about half of what its selling for. 1-3 years you have to assume the price will come up and you need to calc out the increase on taxes. Hopefully this is offset with appreciation which we don’t really count on.¬†Insurance.¬†¬†Do I need to due diligence this now?¬†¬†Or wait until a property is under contract.¬†¬†I don‚Äôt want to create more work for myself if not necessary at this time.¬†Use this like to get at least one quote from this provider. Mastermind members please email me for another possible contact.¬†Need to do this now! The analyzer has a good rule of thumb but you should be engaging with a good insurance guy. Preferably one that specializes in rentals and not your normal owner occupied policy.¬†

Flood and Earthquake can be insured but are typically not included in your standard policy. They are separate coverages that you need to specifically ask for in most cases. They are expensive and traditional agents don’t push them because they are afraid to scare the client with prices. Flood coverage is traditionally backed by the government and sold by independent insurance agents. Clients need to be aware that floods and mudslides, (although often difficult to distinguish) are two separate things and you need to make sure you have coverage for both. If your area has a flood and that causes a mud slide that takes out your back sliding glass door and then your home floods, this will, in most cases, be ruled as a mud slide not a flood even though the flood causes the mudslide.. It is more important to get the right coverage that WILL PAY WHEN YOU NEED IT, then it is to get the lowest premium. (I know that goes against the cost savings grain but it is the truth)

Let me know if you need anything more. This is just a quick surface explanation to let you know that YES you can insure against Earthquake and Flood but you have to ask specifically for it and also be prepared to pay. I can share some crazy horror stories of multifamily properties that have had floods due to Tenants that didn’t have coverage and cost them a mint as it flooded multiple floors and units…. I would only be concerned if it was in a FEMA 100 year flood zone.

¬†Some thoughts from the Hui:¬†“I see flood excluded regularly but you should make sure to have sewage backup coverage. I think flood is separate coverage. Not to get all tin-foil hat, but the act of war and civil unrest exclusions always bugged me. That can be a convenient gray area for the insurer….think hurricane Katrina and Harvey aftermath.”¬†“you cannot call in and add it to your policy last minute. There is a moratorium on flood coverage, which I believe is 90 days. Put simply, if you have property in a flood plain, get flood insurance.”¬†“Hurricane would be covered (wind)”¬†“California resident here‚ÄĒsadly earthquake insurance is prohibitively expensive. The premiums are high and the deductibles are ridiculous. You have to have a total loss to make it even remotely worth it.”

Sample criteria just to get you thinking [Comments]:

– REI Rehabbed properties, as opposed¬†to one‚Äôs just brokered on their site.¬† [???]- Prefer new Roof and HVAC (I also want to get sewer line inspection done) [The roof is the one thing other than safety issues that I fight hard on negotiation post inspection – a roof with 10 year life left does not have much room for negotiation]- Don‚Äôt like basements?- Garages are ok. (Storage) But not important [Another thing to break – most Class C don’t have them]- 85-100k purchase prices seems about right for Centerpoint. ¬†I‚Äôd go higher, but I worry that 120k houses might be hard to rent in a downtown for 1200. ¬†Also i hear there‚Äôs a lot of competition for the 120k house. Gets bought in hours. [You have a good grasp on the market. This is where you need to pick a path based on your personal investment strategy. Do you want more reliability or returns – luckily we are talking about minor decisions¬†between 85-120K.]-¬†extra bath is a perk, but not a dealbreaker. [This greatly impacts exit sale however another bathroom is just another place for a plumbing issue to come up which is the most frequent issue that pops up at $150-400 ]- Prefer all electric, no gas (Section 8 tenants don‚Äôt like the separate gas bill)

I think multi-family properties are my future 1-2 years from now.  Would you start 4-8 units or get a partner and go bigger?  

¬†This depends on your trajectory (how much money you have and earning ability). High paid professionals I work with are going to go into bigger deals I would recommend going with SFH because you will likely sell in a few years and vault into bigger stuff. 2-8 units have a horrible exit strategy as only people who want them are cheap investors. “looking for a deal man!”¬†My buddy FI Fighter also calls these Turkey rentals too but I disagree with his sentiment about going for the “best assets.” I believe you can invest in undervalued value add Class C and B assets as long as you have a capped time horizon. This is why I like to look for 1975-1990 properties because our business plan is the squeeze out the last of the value of these properties with still having high single digits of cashflow as the hedge to a downward turn in the economy. You can’t really do much with a 1960’s property. You really have to go through 500-1000 deals to find one of these and you are not going to find these being in the game with only 6 months of experience and no track record. This model is not infinitely scalable (and too small for the institutions to bother with) but what small sophisticated investors are quietly doing in the 2-8 million dollar asset range.¬†Link to get a free quote on renters insurance¬†

Where do I get a loan?

First off do not go to a big bank lender like Chase, Bank of America, Wells Fargo. Even worse they use the same guy that got them their primary residence. Don’t use those guys cause now you are buying a remove non-owner occupied rental!

You are getting an investment property that you are not going to live in. It is a going to be a little different and a typical residential owner occupied property and the drone working at those big banks will just mess it up as the file gets passed from the sales guy (the one you interact with) to the underwriters (people who cover the banks butt).

Not all lenders are created equal. And it always preferred to work with a lender who is an investor too or works with other sophisticated investors to draw the best practices as opposed to it being a blind leading the blind experience.

If you are serious buyer let me know and I’ll connect you with who we use.

What do you need to get loans?

  1. Credit: a high credit score is essential to your ability to borrow. At least a 620 credit score. The higher score the better the rate and terms. Ideally 740-780+ for the best rate.
  2. A 20% downpayment on first ten financed properties. 25% for 2-4 unit properties. If someone tells you otherwise… you need a new lender bro! The 10-limit rule is a federal guideline for Fannie Mae/Freddie Mac.
  3. You debt to income (DTI) needs at 50% or better.
  4. You need adequate cash reserves (401k or retirements funds do count)
  5. Provide documents – you will have to provide your lender a lot of documentation
    ‚ÄĘ Two most recent signed federal tax returns; all pages, all schedules
    ‚ÄĘ 2 years tax returns if self-employed, have rental properties, or non-salary income (retirement, pension, etc.)
    ‚ÄĘ Two most recent W-2s
    ‚ÄĘ Two most recent pay stubs
    ‚ÄĘ Two most recent bank statements; all numbered pages
    ‚ÄĘ Rental agreements, mortgage information and/or HOA documentation (if applicable) for any properties currently owned
    ‚ÄĘ Social security, retirement and/or pension award letters, and 2 years‚Äô 1099s

I coach our students so they don’t stay anything negative on the record so the lender does not get spooked. This is an example of knowing what you don’t know and where you are going to pay for your education in terms of a mentor or mistakes.

Although lending terms change check out this discussion on loans for 1-4 unit income properties here.

A couple of rate sheets for a turnkey rental. 

Recent lending changes December 2019

For all you investors still looking to get your own turnkey rentals or direct ownership deals there are some recent changes as of December 2019 on borrowing standards as it relates to how FNMA and FHLMC are looking at using rental income for qualifying.

Basically, if you own/rent currently and have a year history, lenders can use all of the income.

If you own/rent and don’t have a year lenders can offset the payment.

If you don’t own/rent and have no history then lenders can’t use any of the rental income.  This could become an issue for some of our borrowers who live rent free and are trying to get into the investment game.

If you need a referral to a lender. Please shoot me an email at¬†Lane@SimplePassiveCashflow.com. I don’t get paid for it (that would be illegal anyways)… I only want to help you get to financial freedom and for you to find your endgame.

Were you set with lenders?

Is your issue credit score? Check this out to boast 100-150 pts.
If you are over your 10 property Fannie Mae/Freddie Mac limit, I have a lender that can lend on the below criteria.

Investment Properties Only
$75,000 minimum property value (each property)
Gross living area greater than 750 sqft (per building)
Less than 5 acres
Copies of leases
Rent-Loss insurance
Licensed/professional property manager, where required by law
Lending to entities only in Georgia, Hawaii, Massachusetts, New Jersey, New York and Virginia
LTV limitations on properties owned under 1 year
5% max LTV reduction in Cuyahoga County (OH) and Cook County (IL)
7 properties maximum; 4 properties minimum (Portfolio Loans)

Each property must qualify separately for DSCR requirement
Single Family: 1.0 on Property Value of $250,000 or greater
Single Family: 1.2 on Property Value less than $250,000
2-4 unit property: 1.2

660 minimum Credit Score
No bankruptcies within 4 years
No foreclosures, short sales, deed in lieu within 3 years
Minimum of three open trade lines for at least 24 months; Authorized User and Education accounts do not qualify
One Tradeline limit must be a minimum of $500 to qualify; all other Tradeline limits must be a minimum of $1,000 to
Mortgages late payments over prior 12 months may not qualify
Non-mortgage tradelines may not exceed 1X60 over prior 12 months. Excludes medical, EDU, utility.

3 months liquid reserves
Other Terms:
Prepayment Penalty
Escrows Required for Property Taxes, Hazard, Flood (in flood zones)
Escrow for HOA/Condo/COA dues in: AR, CO, CT, DC, FL, HI, IL, LA, MA, NH, NJ, PA, TN, WA, WV
Default Reserve of 1 month PITIA
Personal Guaranty for all owners/members/shareholders

PS – If you don’t want to screw around and make mistakes you don’t even know about check out our¬†mastermind.¬†Setup a short coaching call because it will be worth it. Don’t be like me and buy 10 of these SFHSs because it will be a pain to sell them later to go into more scaleable syndications.¬†And really you have to get over the¬†perceived risk… the riskiest thing is staying in garbage stock investments. Yes I have had 10-15K repairs but its not like its going to kill you if things go bad.

Here are more resources:

  1. *The Analyzer Video Walk Through- https://youtu.be/qr8M6NMBhRw
  2. *Download 2018 Buy & Hold Analyzer Spreadsheet – https://drive.google.com/open?id=1kMAn962d52UN-ObKNWmjT11z6gqATR1I
  3. *SPC005 РSo you want to buy a Turnkey Rental Рhttps://simplepassivecashflow.com/podcast-5-so-you…a-turnkey-rental/
  4. SPC014 Р22 questions to ask a turnkey provider Рhttps://simplepassivecashflow.com/podcast-14-22-qu…turnkey-provider/
  5. SPC015 – 9 Turnkey listener questions Part 1 – https://simplepassivecashflow.com/podcast-15-9-turnkey-listener-questions-part-1/
  6. All the SFH related material –¬†https://simplepassivecashflow.com/tag/sfh/
  7. Link to get a free quote on renters insurance
  8. Lenders, turnkey providers, provided in the Passive Investor Accelerator & Mastermind-Mostly Accredited high paid professionals to connect with personally and build your own network (currently 60 members)
    -27 modules of content in a closed membership site
    -Bi-weekly Zoom Video calls (25+ on-demand recordings a year plus all library of past calls)
    -Now with a membership coordinator check-in’s to help facilitate what you are doing and connect you with the right people in the group (if you are shy)

Refer me to a friend via email and I will personally send you both my spreadsheets of usual suspects of turnkey providers plus the questions I used to ask them for due diligence. And let me know if you would like a referral to my exclusive partners.

Here are the books I think you should read before moving forward.

In closure…¬†Turnkey rentals is where most people should start but its really the gateway drug to syndications and scalable generational wealth.

***Put a red circle on your calendar 60 days from now and see where you get… and how much of your family’s time you waste as you consume websites, books, and podcasts.

You know what I mean ‘Jelly Bean’


“I started the Hui Deal Pipeline Club because I want to see each of you get to your goals financially so you can focus on what is really important to you. There are other fundraisers out there that will train their investors down to 10-15% IRRs on crappy deals and do “deals to do deals” or to pick up acquisition fees. Between investing alongside you folks and wanted to grow my track record the right way with the best product I know you guys will keep coming back and bring your friends.”

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