BiggerPockets

How We Fund Our Deals

Sunday, February 26

In the last 3 years Kelly and I have purchased 10 investment properties.  Of course we make no secret about this because we talk on our blog and social media about real estate all the time.  It’s kind of funny when we see friends that we haven’t seen in a while because we always get the same question.

Where are you guys getting the money to buy all these houses?!?

Most people think we get the money from one of two places…either an uncle just died, and we’re rich, or we’re borrowing the money from banks.  Well I hate to break it to everyone, but neither of these are true.  First off, we don’t have any rich uncles, and the banks just aren’t lending right now – especially not to investors.  Rather, we have figured out how to grow a money tree.

It looks nice doesn’t it!  No, no, no, that’s not true either.  You see, the main way we are funding the purchase of these homes is...

To continue reading the rest of this blog go to: http://drivetofreedom.com/2012/02/26/how-we-fund-our-deals/

Michigan Real Estate Market Indicators – December 2011

Thursday, December 15

We continue to see positive signs in the unemployment rate, foreclosure rate, auto sales and home prices...let us know your thoughts on this data...

This blog was originally posted on MichiganTurnkeyTV.com

market metrics, real estate, michigan, michigan real estate

A New Model For Turnkey Investment Properties

Monday, November 28

Over the past few months we've noticed turnkey investment companies popping up all over the place.  It seems that everyone has "the best" turnkey properties, and the systems in place to make sure the investor benefits from the long-term performance of the property.  The turnkey model is not complicated, and it is rather simple to replicate.  A typical turnkey investment involves the following sequence:

1. A distressed property is sourced and purchased by a turnkey company at a steep discount
2. The turnkey company renovates the property brining it to a state where it is rent ready
3. A tenant is placed into the property
4. A property management company is installed to manage the property
5. The turnkey company then sells the property to an investor looking to hold a property for the long-term

In this sequence there are several benefits for both the investor and the turnkey company:

Benefits to The Investor

• The investor receives a property that cash flows from day 1
• The investor does not have to partake in the management process to set up the property
• The investor can invest in markets outside of their local area looking in markets that produce higher returns

Benefits to the Turnkey Company

• The turnkey company collects profit immediately upon sale of the property to the investor
• The turnkey company gains the opportunity to sell multiple properties to the investor

The Drawbacks

These benefits are intriguing to many investors, but there are certain drawbacks with the typical turnkey investment property.  The key to successful long-term performance of the property involves proper setup (renovation and tenanting) along with competent property management.  With the typical turnkey investment, the turnkey company simply does not have a stake either of these things.  There may be tenant or repair issues with the property, or the property may not be managed correctly.  None of these things fall on the shoulders of the turnkey company, they fall on the shoulders of the investor.  Furthermore, if there are issues down the road, it can become extremely difficult if not impossible for the investor to remedy the issues because most times the investor is investing from abroad.

A New Model

This is certainly a dilemma, and as a turnkey company ourselves we do not want to put our clients in this precarious situation.  We have thought long and hard on how to solve these issues, and we think we have come up with a solution.  We would like to present a new model for turnkey investments - A Turnkey Partnership.

Rather than sell the property outright, our new model proposes that the investor and the turnkey company partner together to hold the property.  This presents several benefits for the investor and eliminates the full responsibility of the long-term performance from the shoulders of just the investor.

• The turnkey company has skin in the game because they do not profit unless rent is collected.
• By partnering, the turnkey company and the investor share in the long-term risk of the performance of the property.
• By partnering, the investor also benefits by having a partner on the ground with a vested interest in the performance of the property.

We like this new model so much that we're implementing it immediately at Michigan Turnkey.  Furthermore, we believe this new model will set us apart from other turnkey companies for a couple reasons.  For one, most turnkey companies are actually middlemen peddling other people's properties.  This really makes you question the concerns we raised earlier in this article.  They don't have an ownership stake in the properties they are selling, and as a result they cannot partake in such a partnership.  Secondly, we have found that most turnkey companies, given the opportunity, will not invest in the same properties they are selling to their clients.  This again raises critical concerns about whether you should be investing in a company that is not even willing to purchase their own product.

How to Invest in Turnkey Properties the Right Way - Step 4 - The Closing Process

Monday, November 21

Today we will continue our series on how to invest in turnkey properties the right way.  To date, we've covered the following 3 steps:

Step 1 - Selecting the Right Team

Step 2 - Set Up Your Business Structure

Step 3 - Step 3 Select the Right Property

Today, we will discuss Step 4 - The Closing Process.

Purchasing property not overly complicated, but there is a process to it.  There are several things that you should check every time you purchase a property, and we have broken them down into what you should do, and when you should do it.

Things to do Immediately After Coming to Agreement to Purchase

Send The Purchase Agreement, EMD and Proof of Funds to the Title Company

First things first!  Every offer you have to purchase a property needs to be in writing, and this is usually in the form of a purchase agreement.  The purchase agreement will list the following details:

• The name of the buyer and seller
• Legal description of the property
• Agreed to purchase price
• Amount of deposit
• Timing for when the purchase shall be completed by
• All agreements made between buyer and seller

It is very important that all aspects of the purchase agreement be in writing because the purchase agreement is the document that will guide the closing process, and it is the legal document that the title company will abide by to complete the transaction.

Now, once the purchase agreement is signed by both the buyer and seller, it needs to be submitted to the title company.  Along with the purchase agreement, the buyer will also be required to submit their Earnest Money Deposit (EMD) and provide proof of funds to close the deal.  Proof of funds should be in the form of a bank statement or a loan commitment letter.

The title company is a third-party that will act as a referee during the closing process.  They will abide by the purchase agreement 100%.  They hold the EMD and any other funds in escrow, and they will not release the funds unless directed appropriately by the purchase agreement.  Therefore, the title company protects both the buyer and seller during the process.  You should NEVER purchase a property without having a title company involved.

Request The Title Search and Title Insurance

Once the purchase agreement is sent to the title company, you (or the seller) should request that the title company conduct a title search.  A title search will discover any and all liens on the property.  Since you will be purchasing the property, these liens will become your responsibility, so you want to make sure there aren't any when you take ownership of the property.  One of the biggest mistakes we see investors make is that they take title to a property without conducting a title search.  We do not recommend our clients ever purchase a property with conducting a title search.

Now, once you have the title search completed, and there are no issues with the title you're safe right...

Title companies can and do make mistakes which is why there is title insurance.  You should always get title insurance when purchasing a property because it will protect you from being liable for any mistakes made by the title company conducting the title search.  Furthermore, in the US it is customary for the seller to pay for this insurance, so it should not cost you anything to get this protection.

Set Your Closing Date

Typically, you will want to set a tentative closing date immediately when the purchase agreement is submitted.  Most times this is somewhat flexible and you may be able to close on the property sooner or later as long as the change in time period is agreeable by both the buyer and seller.

Things to Do Within 7-10 Days of Submitting the Purchase Agreement

Conduct Your Inspections

Any inspections you will be conducting on the property should be completed during the period of time specified on the purchase agreement.  Typically this happens within the first 7-10 days after the purchase agreement is submitted.  You'll want to make sure to coordinate with your inspectors to make sure the inspections are completed within the time specified in the purchase agreement.

Setup Your Property Insurance

You are purchasing an asset, and as such, it is wise to insure your asset from damage or loss.  If you are financing the property, you will be mandated by the bank to provide property insurance to cover the cost of the loan if the property is damaged.  You will want to get your property insurance squared away at least a week before the closing date.

Interview Property Management Companies

If you are investing from out of the area, you will likely need to hire a property manager.  Within the first 7-10 days (or even before submitting your purchase agreement) you should interview the property managers you will be considering.  At Michigan Turnkey we will recommend one or more property managers that we have worked with in the past, and you should discuss with them how they will manage your property.

You will want to formally hire your property management company about a week before you close.  To do this, you will setup a management agreement with the management company which spells out all the responsibilities for the property management company along with the fees that they charge.  It is very important to get this in writing.

Things to Do 1 Week Before Closing

Review the Settlement Statement and Closing Documents

About a week before closing, the title company will provide you with the closing documents.  The most important document in this package is typically the settlement statement.  The settlement statement (sometimes called the HUD statement) is the document that provides the accounting for the sale of the property.  This document is going to list the purchase price, closing costs, tax prorations, rent credits, commissions, and any other accounting needed to complete the sale.  You should look over the settlement statement and the rest of the closing package very carefully.  Our experience has been that the 1st draft of the settlement statement contains errors more times than not.  If you see something that doesn't look correct you need to question it with the title company.

Arrange For Your Funding to Be Sent to the Title Company

Once you have reviewed and agree with the settlement statement, you will need to arrange for your funding to be transferred to the title company.  This is typically done by wire transfer or by certified check.  The title company will hold the money in escrow and distribute the monies according to the settlement statement after all of the closing documents have been signed.

Transfer Utilities

About a week before closing you should schedule to have all the utilities (gas, water, electric) transferred into you or your company's name.  If the property is rented, you may not have to transfer any utilities, but you should consult with your property management company to determine what utilities need to be transferred.

Things to Do At Closing

Sign The Closing Documents

On closing day, everything should be fairly anti-climactic.  The title company will have prepared all of the closing documents for you.  You'll want to read each of the documents carefully sign and return all of the closing documents.  If there are any mistakes or omissions you should consult with the title company.

Things to Do After the Closing

File Your Property Transfer Affidavit

It may be different in other states, but in Michigan you are required to file a property transfer affidavit within 45 days of purchasing a property.  This is the buyer's responsibility to complete, but it is something your property manager will be able to file on your behalf.  If you purchase from Michigan Turnkey we will offer to do this on your behalf as well.

Start Collecting Checks

Of course this is the whole reason you're investing in turnkey properties to begin with right?  If you have purchased a turnkey property you should begin collecting rent the first month after your purchase.  Enjoy!

Next time we will wrap up our discussion on Investing in Turnkey Properties the Right Way as we discuss Step 5 - Property Management.

Stay tuned...

This blog was originally published on MichiganTurnkeyTV.com

Is The Tide Turning in Michigan?

Friday, November 11

About 3 weeks back we published a post Detroit on a Comeback and Others are Starting to Notice…

Well, we're continuing to see this positive reports from national media outlets.  This time they're talking about Michigan's economy.  Bloomberg Businessweek published a story this week showing that Michigan's economy is growing at the 2nd fastest rate in the nation.  Click the headline to view the story...

The tide does seem to be turning...

Stay tuned...

This blog was originally published on MichiganTurnkeyTV.com 

How to Invest in Turnkey Property the Right Way-Step 3-Select the Right Property

Tuesday, November 08