Rookie Podcast 29: Growing Your Portfolio with Turnkey Investing with Whitney Hutten and Lance Robinson

Rookie Podcast 29: Growing Your Portfolio with Turnkey Investing with Whitney Hutten and Lance Robinson

39 min read
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Expensive market? Busy with a career and other priorities? There are a lot of compelling reasons to consider turnkey investing in a more affordable area – where a local “operator” sells you a tenanted property designed to pump out cashflow from day one.

All you have to do is “turn the key,” hand things off to a property manager and… voilà! You’re rich. You can now kick back and sip margaritas on the beach. Right?

Well, it’s a little more complicated… as you’ll learn today from seasoned turnkey investors Whitney Hutten and Lance Robinson. Both have bought rental properties from turnkey operators in several different markets, and they tell us all about the highs and lows, reveal what they wish they would have known, and offer candid advice for anyone considering this niche.

When you’re done with this show, you’ll know the exact questions savvy investors ask prospective turnkey providers about neighborhoods, construction warranties, property management contracts, and how operators handle evictions and major repairs. You’ll also know how to handle a home inspection to ensure you know exactly what you’re getting into!

Look – there are a lot of turnkey operators active on the BiggerPockets forums. A lot of them are great teachers, too. But this episode is told from the investor/customer’s perspective… and it’s well worth a listen – or two!

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Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is Real Estate Rookie show number 29.

Felipe:
I used to feel more strongly about the right neighborhood or the right market and now I feel like the Feet on the Street and how are they going to handle when a problem arises is more important to me now than the market.

Ashley:
Did I catch a niner in there? My name is Ashley Kehr and I’m here with my cohost, Felipe Mejia. You know what movie that’s from?

Felipe:
No. Where is that from?

Ashley:
Tommy Boy.

Felipe:
No idea. That’s hilarious.

Ashley:
Yeah. All time favorite. You have to watch it if we’re going to continue to be friends.

Felipe:
Okay. Send it to me. Amazon it to me. I’ll definitely watch it.

Ashley:
I can’t believe you never watched it. Yeah. “Did I catch a niner in there?” hat do you call them, from a walkie talkie?

Felipe:
What? I’ve never heard that.

Ashley:
Anyways, today we are talking about turnkey properties, how to find a turnkey company, what to ask the turnkey company. And we have on Whitney and Lance who have grown massive portfolios starting out with turnkey.

Felipe:
Yeah. This is a really special show because there’s a lot of myths behind turnkey properties, buying them, how to get the right managers in place after that, how to separate them. It’s just a really good show of those who are looking to invest into a property that’s already ready. She explained it perfect. Key goes in. You turn it. It’s ready to rent. Lance and Whitney answer some crucial questions when it comes to investing out of state even with a turnkey property.

Ashley:
We also had a little fun hearing about a horror story that Felipe had in a property not related to turnkey at all but leaves some great advice as to what to watch for when closing on a property.

Felipe:
Whitney, Lance, welcome to the show. Super excited to have you hear today. It looks beautiful out there where Whitney is. Can’t really see the background for Lance but looks great. Hey, guys. Welcome to the show. Why don’t you tell us a little bit about yourself? We are gentlemen here so we’re going to let Whitney go first, and then Lance, tell us about who you are and what you do.

Whitney:
Awesome. Thanks so much for having me on guys. It’s a pleasure to be here. I’m a real estate investor. Pretty much everybody here on Bigger Pockets or at least BRRRR real estate investors. I started in 2002 with live-in flipping and house hacking and have scaled up through turnkey, BRRRR investing, and multifamily syndication investment. And so, I hold over 3000 in rental units currently and 1,400 self storage.

Felipe:
Nice.

Ashley:
Wow. That’s awesome.

Whitney:
It can be done guys. It can be done.

Ashley:
Lance, do you want to tell us a little bit about yourself?

Lance:
Yeah, thanks so much for having me on. I actually have a little bit of a different story. Now I’m more heavy in eCommerce as my day job. I actually own two different seventh degree eCommerce as my day job, two different seventh degree commerce businesses. I started in real estate back in 2011 and then from there probably at my peak owned 40 units. Now I’m down to just nine single family and I’ve done everything from the live-in, flipping, turnkey, buy-in rehab. So, now it’s more of an investment from in a old-time business.

Ashley:
Very cool. So, we have you guys here today to talk about turnkey. And we want to know the ins and outs of how to find a turnkey provider, Whitney, do you want to start and just kind of tell everyone what a turnkey provider is?

Whitney:
Sure. So, a turnkey provider, I like explaining it this way. It’s like a bar. It’s just not your bar. Okay. So if you know bar investing, the turnkey provider has already bought the property below value. They’ve rehabbed the property. And now, they’ve tended to the property too, instead of refinancing the property they choose to sell. So, they’re flipping it to another investor who can then carry on the business plan from there. So, the benefit for an investor, especially if you’re time-strapped or if this is kind of your first foray into real estate and you’re testing out markets and operators, you literally can put the key in the door and turn it and you should start generating income from day one.

Ashley:
[crosstalk 00:04:03] analogy?

Felipe:
Turn the key and then it works out. Whitney, tell us a little bit about the strategy that you used to scale and then we’ll let Lance speak after that.

Whitney:
You mean from my turnkeys after that or just getting into turnkeys?

Felipe:
Just getting inIt’s getting into turnkey, it’s just kind of picking your brain a little bit of how that worked and how you were able to scale that quickly.

Whitney:
So, well just really just being pretty fanatical about the entire process. I come from a business operations background and you know what you don’t know as an operator, you go find the person who does know it and you hire them, you hire the best. And so, my husband and I, we knew we’ve transitioned from live-in flipping and house hockey where we’re making buckets of money, but we didn’t have income. And we finally could put a word to what it is that we were actually after with our investing, the light turned on for us.
We’re like, “Duh, it’s rentals.” So we bought property here in Colorado but we realized that we weren’t able to cashflow. And for us, we had to get out of Colorado and the best way that we knew how to do that without having to figure out all the different puzzle pieces of construction and property management, market analysis, all this at one time was to go find the people that were doing already the best that had the best businesses. And, for us, led us into the turnkey environment.
Then more importantly, when we were vetting providers, we were also kind of exploring with them the question of whether they would actually help us over time transitioned into more of a rehab. Because we knew that’s where we want it to be. So, as far as, how did I scale so quickly, one, we had been saving rapidly for 10 years. I mean, David Green says it best, there’s no overnight success. It’s all that work that somebody did to get there. And so, we’ve been saving over 50% of our income live-in off of one paycheck.
And you can do it even off a single income. It can be done. And then also taking all of our capital from our live-in flipping and adding it to that bucket. That way, when we were able to go out of state, we were ready to pull this trigger. From there it was just mainly finding the operator. We probably didn’t go about it. I mean, turnkey review, views.com, all of these websites, they just weren’t there when we were looking for providers.
So, it was mainly networking on bigger pockets, creating a list of providers. Both people who reached out to us, they actually had businesses, but talking to other investors who were investing in turnkey and gathering all that information and then really creating a spreadsheet and spending the time to call these people and ask everybody the same question. So we compare apples to apples.

Ashley:
Lance, what about you?

Lance:
For me, it was interesting. I actually bought a property because I wanted to invest in real estate. And at the time I didn’t really understand the differences between cashflow or equity or anything like that. It was more of a longterm play. And I knew eventually it would make me a lot of money somewhere. And it happened to be just outside the Bay Area, California, had a bunch of equity. I sold it and then I started looking for where to invest next. And so, I did a 1031 exchange. So, I kind of fell into, a big sum of money for real estate investing.
And that’s how I started my journey of looking for the next move. And so, I started by looking at different markets and then just naturally from there it led me into finding turnkey providers. And actually I originally found them from bigger pockets and kind of similar at the time I had never heard of turnkey. It was hard to find these turnkey providers, but the idea of someone, buying and doing the rehab for me and then taking over the property seemed easy. And I figured, I can start buying that way. And then from there scale or kind of figure out where it goes from there.

Ashley:
What’s one piece of advice, you would give someone who’s just considering doing turnkey? What would be the first thing they should do?

Whitney:
Invite the operators.

Ashley:
Do they start there or should they find a market and then go for an operator or do they look for the operator first and say, “Hey, what markets are these operators in?”

Whitney:
Lance, I mean, I’ve heard you talk before on this. I mean, I think it can go both ways. I mean, I think both are very valuable strategies for me. I chose to go for the operator in the market at the same time. And that’s a lot to bite off and chew, you put all the investing cards and stock them in your favor. And Lance, I’ll let you tell your story here, but partnering with an operator that has multiple markets available allows you to diversify quicker and scale up faster. Part of it is just like that first deal get in and do it.
Find an operator that you know like and trust and you allow it to be in a really solid market. I mean, these operators aren’t necessarily operating in poor markets. I mean, the margin’s not there for them, they’re not going to be there. One, because they can’t make the equity and two, they can’t move the property to another investor. So, you should always double check it but they do kind of coincide and go hand-in-hand that the market and the operator.

Felipe:
Lance, what would you say?

Lance:
Yeah, I agree. I think from a market perspective you can always find the good pockets of any market. I mean, maybe there’s a fleeing population. I mean, you can always find those neighborhoods where people are still moving into, so you can really always make it work with the right amount of just research and market understanding. When it comes to finding the operator. It’s really important. Because Feet on the Street is the most important thing when it comes to real estate investing, right?
Being able to understand, trust the person you’re working with, the company you’re working with, both from, are they putting you in the right neighborhood, right? To how well are they doing their rehabs, being able to kind of vet them to understand the references, tracker kind of experience. So, I think all those things are important.
I think ideally if you can identify the right market, the right neighborhood and then the right operator, of course, that’s always the best fit but I used to feel more strongly about the right neighborhood or the right market, and now I feel like the Feet on the Street, how they are going to handle when a problem arises is more important to me now than the market. Especially as a rookie that doesn’t know everything to look for.

Felipe:
So, let me button here, Whitney and Lance, what questions would you say are key that need to be answered correctly when finding a good market but a good operator as well. So that, let’s say that I want to start somewhere new, what are those questions that I need to be asking to be successful in this?

Whitney:
I think you would start with the investment strategy. What is your overall goal? Right? And I think those two questions go hand-in-hand, right? Are you looking for appreciation? Are you looking for cashflow? Are you looking for a balance of both? Because knowing the answer to those two questions will help drive what market you’re going to look for. Then it’s the asset. What type of asset class do you want?
Are you A, B, C? What type of tenant do you want to deal with? Because there are different operators that cater to those different types of asset classes. And once you have kind of those initial steps covered those first three initial questions, and you can answer that it could take you a week, it could take you an hour. But once you kind of have that narrowed down, now you have niched down on the operator that you’re looking for.

Ashley:
That’s a really great point. They need to know what they want before they go and try to find someone who can get them what they want.

Whitney:
And it may require several conversations. I mean, I think it’s kind of a spiral if you will. Because you might know exactly what you want on paper and then you go talk to a few different providers. You are like, “Wow, no, I don’t want that at all. I want this strategy instead.” So, I think allowing yourself permission to change your mind over time is completely fine but you have to start somewhere.

Lance:
I totally agree with what we need to send too. I mean, some people want to get really involved and hands-on in the business. Some people make a lot of money and they hate their jobs and they want to, jump into, finding an operator where they can maybe help pay for parts of the process or maybe go for bigger upfront appreciation and then decide to hold or sell. Or you might say, “Hey, I dream of 20 years from now owning 20 doors or 1000 doors. And doesn’t look like a bunch of apartment buildings or does it look like single families?
And a lot of times where we’re from or the markets that we live in can shape what that kind of success looks like. So, I think understanding those pieces of it are really important going into it. I think after that, when we start looking for an operator, one of the simple things you can do is start gathering and understanding just from the forums of some basics, some things that we know are facts that have a little bit less arguments to them and start asking questions and seeing if the turnkey provider is a teacher or a seller, right?
And someone that’s going to take the time to understand where you should buy, why you should buy in that area or that market. Of course, they’re all going to sell their markets. But, see if that kind of passes the sniff test. Just as a blanket beginning to understanding of someone’s worth a future conversation with.

Ashley:
So, once you find a couple of turnkey providers, can you give us maybe three direct questions you would ask them. That something generic that anybody could use no matter what their strategy.

Lance:
So, you always see that they have A neighborhoods, B neighborhoods, C neighborhoods, I would start by asking how do you classify or define each of those different neighborhoods? Another good one is which one do you think is better and why? Maybe walk me through the differences and a third one, I was kind of focused on the neighborhoods. So, I think it’s really important. I would say the third one would be why do you offer C neighborhoods and what type of investors purchase in those neighborhoods.

Ashley:
Okay, cool. What about you, Whitney?

Whitney:
I appreciate it from a similar effect. I mean, you have to think of the providers, depending on how their business is structured, they’re your deal finder, they’re your construction. Maybe your property management as well, depending on whether they’re vertically integrated or horizontally integrated.

Ashley:
Can you explain that for everyone real quick?

Whitney:
[crosstalk 00:13:55]. Yes.

Ashley:
What the difference in that would be. I didn’t even know there’s two different kinds. If you could explain that please.

Whitney:
So, you have a turnkey provider if they’re horizontally integrated, they might find the deal, do the construction and then they’re passing it off to another partner who has a different business that is property management. So, that’s a horizontal integration. If they have everything in house or they’re finding the deal, they’re doing the construction and they’re holding the property management then that’s vertically integrated. That’s kind of an easy way to kind of think about it.
And there’s pros and cons to those different structures. And we can kind of dive into that. Because I don’t want to lose the piece where if somebody is just starting out, no matter whether the business is vertically or horizontally integrated, you need to know that where one part responsibility begins and the other one ends. So, telling us his point, he’s asking as if a deal finder, where are you invested? What are the markets? What’s this type of asset class?
What do you specialize in? I would also add onto that, they’re handling the construction. You need to understand what’s being rehabbed to what level, what are their thresholds, right? A lot of times these providers are saying there’s seven years left, they’re not going to replace it, but whatever it is, the HVAC, the water heater or whatever. And then when they hand an investor a proforma, they’re not putting capital expenditures and maintenance into the picture. So, we need to reconcile that from construction standpoint.
And then you have the property management, how are you managing the project? Are you doing it? If you’re not, I want to talk to the manager because I need to interview them as property management. If you are, I want to understand how you’re running your business. And, I think a lot of investors get really hung up on the numbers aspects, what their fees are, maintenance fees and stuff like that.
But when you hire somebody for property management, they’re your day-to-day operator, I want to know how they’re taking care of me as the investor, but also the tenant and kind of understanding their business model. Have they been tested? To Lance’s point, is this a new venture for them that they’re kind of building up on the side or did they have two or 300 units under their belt? And this is a legitimate business for them, not just a cost center.

Felipe:
Yeah. Whitney. That was going to be my next question. And I’m glad you brought that up. And this goes to Lance as well, would you typically go for the larger-scaled providers or smaller, or is it really just the way their business is set up? I mean, what is it that you look for?

Whitney:
I have a very heavy stark opinion. So, I appreciate to be challenged in any way. And a lot of it comes from experience. So, when I initially started buying it in Indianapolis, I bought a turnkey provider. He was horizontally integrated. His business partner, had the property management firm and had about 150 to 200 properties. I was very well taken care of. And then that company sold to a larger company that had 5000 units. I became a number. My tenants became a number. It was a horrible experience.
And then, on conversely, when I scaled up in Kansas City, I was with a property manager, he was very hungry. I was able to scale up my portfolio quickly rehabbing with him. I did some turnkeys and we also transitioned into the rehab portion but his property management company, he was trying to build it. He had only about a hundred units, but he didn’t have any sort of systems and skills behind him. I mean, property management operates on very thin margins. And so, he was a one man show and he had life happening.
His family was expanding. He had a baby and then he was like, “I’m going to sell the company.” And again, he sold to a larger entity. And so, I look for now property management companies that have about 300 to maybe 500 units under management because, I mean, it’s cost-effective and they have ability to scale. I’m well taken care of as an investor. My tenants are well taken care of. I’m not a number. I mean, there’s response there.

Felipe:
Lance, what about you, man? What do you think?

Lance:
I don’t have a super strong opinion on big versus small in general. I think if you’re too small there can be operational deficiencies. Once you get past that operational growing phase and you have processes in place for handling pretty much any issue that could happen. That’s when you’re probably in the sweet spot. Most of my properties are in Indianapolis as well. I mean, a couple of other markets too but for those properties, I have one property manager and I’m definitely not a number, but I’m definitely not the biggest fish, but I’m definitely a bigger one. And I love it. I think I get a lot of attention and I can go directly to the owner of the company and she helps me. So yeah, I’d probably agree overall with Whitney.

Ashley:
So once you get into these property management companies that are recommended by the turnkey provider part of their business, is there a certain way that you have to get out of a contract with them or are you stuck with them for a certain amount of time when you buy that turnkey property? Or can you take those properties whenever and leave and take it to a different property manager?

Lance:
So, I think I’ll feel this one. I have some firsthand experience with this in the past. Like everything in life, you should read every agreement you’re signing and you should give yourself the most flexibility, right? To make sure that it’s two way. So, one of my frustrations with turnkey operators is since they’re kind of doing everything or handing it to you with everything already done, you might get a really bad property manager. And if you’re the person doing the turnkey and you’re really good at it, we have in the properties, you’re not great at managing properties in general.
So, usually they might partner with someone that could be good or bad. So, I to have that flexibility when I get in there, if the property manager sucks to be able to have that my own property managers and switch the properties depending how integrated they are and where it falls, if they have their own property manager in house, for instance, they’re probably going to auto-sign it with a year term agreement with the property manager and the sock and you’re kind of screwed. So I would just be, that’d be wary of that. And just remember, just because it’s turnkey doesn’t mean it’s completely hands-on.

Whitney:
I think to add to that, I mean, a lot of times, what I see with turnkey providers is that they’re sweetening the deal by offering some sort of warranty on the backend maybe six months or a year warranty. And that allows them to kind of incentivize you to stay with their property management. So that’s a question to know upfront. If I buy with you and I don’t like your property management, are you now not warrantying your construction?

Felipe:
I didn’t even think about that. That’s really good. So, let me follow up with that question. And this goes to Lance and Whitney. Are you able to follow the rehab, decisions on what’s going to get made or whatever? For example, when I do my rehabs at my properties, I love to buy my own material just because of the points that I get on the credit cards. And then I pay that off with the [re-fi 00:20:45] whatever. But how involved are you or are you not allowed to be in the rehab of a turnover or whatever the case may be.

Ashley:
And how do you know that it’s being done correctly too? Do they have a third party inspector or anything like that?

Whitney:
Yeah. I’ve actually heard Lance speak to this. And so, I will definitely kick it back. But I will say that using answer, your first point is generally for turnkey you’re not involved in the rehab process. Now there is, and I will maybe have time to get into it, a process called BRRRRkey and that’s backing it up one step that you could be involved in the process.

Felipe:
I’d love to hear about that, but Lance, go ahead and take that one then, man.

Lance:
So, usually you’re not involved in the process. Usually, houses pop up when they’re ready to sell because they want you to buy what’s available. “Hey, we can only have five properties left. You got to buy one of these five. All these ones aren’t ready yet.” You don’t want to sell one that’s six months out when I have five others that are sitting here ready to go. So one of the toughest things is not being able to be involved. And truthfully as a new investor, you don’t really want to be involved because you think it’s so hands-off.
I’ve had really bad experiences in the past with poor jobs done on rehabs. One point Whitney made earlier was the age of major appliances, HVACs, things like that. We come into a property and you don’t realize that a roof might have five years livable life left them in seven years. And we just expect everything to be new and done. And some things don’t make sense to do. But what happens when there’s a leak in the roof and the house gets flooded, right? Actually that happened to my brother, how are they going to handle it?
So I’ll even add to that is one of the questions is understanding how they handle issues that happen after closing. And I’m not just talking about a warranty because warranty could last a year, but what happens 18 months later, the HVAC goes out, the roof collapses, something major happens. How do they handle it? How have they dealt with it in the past. And when we’re reference checking, I think it’s important to try to talk to one of those references that they made, right with.
I’ve seen on the forums that people will go in and call out turnkey providers and then all of a sudden, “Oh no, I don’t want my name to be bad on bigger pockets. So I’m going to go take care of it for them.” But what do they actually do when these situations come up because they are going to happen. I would also add even the best providers are going to make mistakes somewhere. Nobody shoots a hundred percent. So, you can try to vet the big stuff as much as you can. You should always get an inspection on the property.
You should always fly out and see the property and go through with the inspector and understand everything there is to know about it. I would never trust a six-figure investment out of state that I’ve never seen, never met with the person inspecting it. I would never trust them to pick the inspector. These are all things of just kind of that trust to verify, “Hey, I’m going to trust that you did a good job with it, but I’m going to verify all of this with me picking an expert. That’s going to tell me everything I need to know about the property so I feel a hundred percent confident to purchase it.
Because you’re not going to be able to sit there through the process, pick out the material, pick out the colors, understand why they are or are not doing things. And they’re probably not going to be very forthcoming with exactly how much they spend on the property either.

Whitney:
[crosstalk 00:23:49] a couple of other points to that. Things I see turnkey providers. And I think they do it as a service. I think the businesses are trying to actually make this a very smooth process for the investor but to Lance’s point and I want to reemphasize this you get your own inspector, you get a third-party inspector. Contact somebody else in the market. Okay? Because you want to have that as disconnected from the process as possible because it’s your purchase insurance.
If that inspector, “Oh, I guess the turnkey provider might actually offer an investor inspection. I would avoid those at all costs. They tend to be very abbreviated inspections and they can miss quite large things very often. And if the inspector suggests to do say a sewer scope or termite inspection, you do those things at least for the first few properties in a market. So, you begin to understand what the complications are in the market. Again, this is a six-figure plus investment for you. It’s your equity in the deal. You’re not forcing the equity in the deal. And so you want to guard your equity as best as you can.

Lance:
So, I wanted to add to that. It blows my mind how many people buy a six-figure investment out of state. And then they don’t want to spend a few hundred bucks or 30 minutes on their own inspector. Or a few hundred bucks extra on the sewer. It’s like you’re putting down 20 to $30000 to buy this property, but then you don’t want to, spend the time to jump on a $300 flight. You know what I mean? On the $300 inspection on the property and you’re just going to trust some random person you’ve never met before over the internet on the property.

Ashley:
That’s such a good point because so many people, I think they have it in their head to be that super passive successful investor. I can buy properties without even looking at them. I’m so great because I can do that. And I mean, it can go either way, but that, I think you gave a great point. Is you’re spending this much money. Why not go and have that tax write off and take your family for two days to wherever you’re investing out of state. But Whitney, I want to go back to talking about that. What did you call it a BRRRRkey?

Whitney:
Oh, yeah, a BRRRRkey.

Ashley:
That really intrigued my interest there.

Whitney:
So a BRRRRkey is a turnkey, except that you’re backing it up one step in the process. So, investor can find, and oftentimes we’re seeing turnkey provider shift their business model a little bit. So, they aren’t holding on to inventory especially in times like this. We don’t know where asset prices are going to go for the longterm, for the next year and half to two years. And so, I’m seeing some turnkey providers, they still have great deal flow and they’re actually kind of shifting their model.
So, what the investor can do is actually partner with that provider. They buy the property, they fund the construction. And that provider for a fee is taking care of the purchase of the property, the construction and so, that can actually allow the investor to be more hands on in the construction process. And then the investor can go and they’re working with their property management again, still very kind of as passive as you can get with a rehab and then refinance out the deal. So, now what is the benefit to the key provider to do this?
Two things, one, they’re keeping their crews busy, right? That’s very important if you have a business like this, you don’t want your best GCs walking off the job to go work for somebody else because you don’t have any work. So, they do that to keep their GCs busy. And they’re not holding on to inventory and they can actually generate income through fees and then eventually through property management and commissions on the sale.

Felipe:
[crosstalk 00:27:32]. There’s tons there. One of the questions that I would have that I would imagine that our listeners are going to be having as well is, can you give some examples of great turnkey, great examples of a very successful event that happened with that and then maybe a downfall or a pit that happened and then what you learned from each and how you can better your business by doing this. And I’m going to ask the same question to Lance if you don’t mind.

Whitney:
So, as far as purchasing turnkeys, I have two examples that I can share in Indianapolis. One, I hit a home run. It was in a very… It was in a B-class market, great schools, great location to downtown, single family residence. Really the construction was perfect. I mean, the tenant was great. The tenant had been underwritten properly, three times income, everything. It went swimmingly well. And it was one of my early turnkey purchases so, of course I was elated and I bought more. The next one, not so much. [crosstalk 00:28:34].

Ashley:
Before we go on to the next one, can you kind of dig into the numbers a little bit for us on that one?

Whitney:
Yeah. So, I bought it for $120000 and put 20% down because it was able to get a conventional loan on it. The cool thing about this one and this kind of goes back to what Lance was kind of alluding to, is your flexibility sometimes with construction. We knew that HVAC was at end of life. And so, I actually went back to the provider and had them escrow funds for the water heater. And I was just like… He didn’t want to give me a concession. He didn’t want to give me the cash. So, we escort funds and he said, if it does truly break within two years, I’ll replace a water heater. [crosstalk 00:29:18].
I got the water heater. So, you can negotiate kind of things like that. So, you have to understand your power a little bit as a buyer that you can negotiate these things in. So, I held onto it for two and a half years, and it was in a great appreciating neighborhood. The tenant was very well underwritten paid like clockwork every single time, no problems, no issues, except for the water heater going out. And we quickly replaced it. And I sold it two and half years later. And this is what gets me. Because people say you can’t make money in turnkey. So, you can’t, and you’re making the cashflow. And I sold it two years later for $145000. And so [crosstalk 00:29:55].

Ashley:
That’s awesome and you’re paying down equity the whole time with the tenants rent. That’s great.

Whitney:
The tenant was paying everything down for me. So, it was a great return on my investment. Again, I was incentivized to continue by buying more property and the second time around. Actually I would say it was my first property that became my first problem child. Within 10 minutes of ownership, all of a sudden they stopped paying. And this is when this property management change was going on. And I became a number in the system. And I was encouraged to work with the tenant but I didn’t know what was happening with the tenant.
Again, same type of house, 120, probably 125000, 20% down. And I had an eviction. I had to evict them. I offered them cash for keys. They wouldn’t take the cash for keys. And now I understood why, because they had lied on their rental application to get the house. And so, the couple that actually rented it had broken up. The guy had moved out. The girl had moved in her father who unfortunately was disabled. And his wheelchair had just scored the whole house. He had a dog and she was working nights and weekends. And she was hardly ever around. And the older man had a dog who he couldn’t let out of the house.

Ashley:
Oh no, I know where this goes.

Whitney:
I’m going to leave it right there. We can all out what happened. So, of course I was mad at this whole process. I’m like, “Oh my gosh, I have an eviction.” I mean, it’s not a matter of if it’s a matter of when that you’re going to have an eviction, I think, and they’re not as scary as they seem. It’s just, it’s not fun. It’s never fun to move somebody out of the house but-

Ashley:
But that didn’t deter you, right? You kept buying more. You kept going. Yeah?

Whitney:
Yeah. That really helped me work through my checklist of, I need to double-check property management’s placement of the tenant. And if I can dig deeper into, I probably would have asked more questions on where their income was coming from. I would ask more questions on the stability of the relationship. I mean, the property manager can’t ask these questions, but I can because there’s distance, right?

Felipe:
Whitney, have you found that property managers are open to feedback and then are they implementing that feedback? Are you finding or are they just stuck in their ways?

Whitney:
It depends on the property manager. I look at property management as not a vendor, but a partner. So, I want to underwrite them as such. If I were going through this process and the property management was like, “I’ll do everything for you. And I don’t want you involved in the process.” I think that for me is a red flag.

Felipe:
Interesting.

Whitney:
So, I would like to have property management that would allow me to, take a peek at rental applications, now at the end, depending on fair housing laws, they might make the end decision. If you have three equal candidates, they’ll make the decision on which one goes in there, but you can ask to oversee the application. That’s fine. Certainly you’re being more involved in the process and that takes time. But yeah, I mean, I think, I come at it from a business perspective. You want to inspect what you expect and if you don’t do that, you’re going to have surprises.

Felipe:
Right. Lance, what about you, man? What, what are some of the things that you dig into kind of waiting was saying. And then, can you give us a win and a loss and what you learned from each.

Lance:
For sure. Well, I think the next topic has got to be cash reserves after that. [crosstalk 00:33:28]. We’ve all got the good stories. I got so many good stories. So, I have a fantastic property manager. But every property manager, fantastic or not, there was a fault. And so, you always kind of, you have to learn and understand what they’re really good at and what they’re not great at. Good example, my property manager is really good at the vetting process, my main property manager, but they’re always under market rent on everything.
So, they get them filled pretty quickly. And of course they’re incentivized to fill properties. That’s how they get paid. But for me, there’s always that balance of, am I getting the most rent? How long is it sitting? So, my constant flux with them is you do a great job vetting, but we’re a couple hundred bucks on their market. So, I’m now in the last probably 18 to 24 months. Starts to micromanage that process and keep a spreadsheet on what the rents are, what the market rate is.
And I have my ways of going in and figuring that out to make sure. That’s one of the ways I keep my finger on the pulse. And I’ve noticed though that the more that I’m involved in that process and what I’m engaged with, “Here’s what the rent looks like. Here’s how I came up with it.” They give me more attention on my properties just from me paying attention to it. And a lot of people don’t pay any attention to it.
And they’re just, “Hey, we’re just going to renew them at the same rate. We’re never going to increase the rent, we’re never going to up anything and we’re going to keep it rented and it’s better longterm.” And so I think that’s a good way to just get forgotten about in the fold. And not that they’re taking advantage of you, but they just know who’s going to pay attention to this stuff more.

Felipe:
Now, Lance, before we keep going, let me dig into that a little bit. Do you feel like you get tenants that are staying longer with lower rents or are you seeing lower or more turnover at that?

Lance:
I don’t know a hundred percent. I don’t know if I have enough data to answer that. I usually try to do two year leases upfront. And then I try to fill it out on the renewal based on keeping the rent or increasing it, overall I like to keep tenants in. I’ll probably get to this later but now most of my properties are a hundred percent paid off. And so, I just don’t really have much debt anymore. So, for me, if someone wants to leave, if they’re that under market rent, I’ll be happy to let them go and take time to refill the property.
So, the keeping them longer term is a little less important to me now than it used to be. But with that said, though, I mean, if I’m increasing rent like 50 bucks and they want to move out on it, then I’ll say, “Hey, I’ll let you stay here.” I’m not trying to kick him out for that. But my first four years, I think, I never looked at the rent. And then I looked over and I had someone in a property at paying 995 and now the rent was 1350. And I was like, “Okay, I’m leaving so much money on the table by not paying attention to it.”

Ashley:
Well, thank you guys for sharing that with us. We’re going to move on to our next segment now. This one is called the MVP. But we’re going to switch it up a little bit. Usually we ask, what your most valuable player is and who really helps you in your real estate investing and to grow your business. But what we want to know, what everyone wants to know, who do you use as your turnkey providers?

Felipe:
Are they giving out the secrets?

Ashley:
Go ahead, Whitney.

Whitney:
So, I have a different tactic right now. So, I’ve scaled into rehab and then also into syndications. I actually utilize my own property management to pick up a lot of my properties right now. And some of them I get, their investors that just want to get out. And then others that I get that are rehabs. And I think that’s one of the best kept secrets. I think a lot of people are just trying to force it on the internet or through searches and the MLS, but that your property management can be really handy in building your business.

Ashley:
So, these are other investors who use the same property management companies that you do and you are there waiting for them to want to sell?

Whitney:
Yeah. I’m constantly asking every month my property manager will put out a list and I’m cherry picking the list based on what I want that month. If I know in no time, I’m like, “Okay, I’m going to go for that one, but if I have more time maybe I’ll tackle our rehab or something like that.”

Ashley:
That’s cool. Lance, what about you?

Lance:
I’ve done the same thing. I’ve leveraged my property manager too. [inaudible 00:37:50] bias. My last several properties have actually bought off the MLS though. So, I don’t buy turnkey anymore. I would say the person to start out with, but they’re not even doing turnkey anymore because the market’s just got too hot. So, I don’t even think I currently have someone I could recommend.

Ashley:
That’s no problem. Okay. So Felipe, you want to take us to the Rookie Request time?

Felipe:
Yeah, absolutely. So, I’m sure you guys have heard, but this part is, we’re basically going to ask you a question from any of our rookies, right? And anyone can call in and leave us a voicemail at any time. That number is one, eight, eight, eight, five, rookie. You can call in, leave a voicemail and we might play yours on the show. Again, that number is one eight, eight, eight, five, rookie. So, Lance, Whitney, are you guys ready for the question?

Ashley:
Yes.

Felipe:
Lovely.

Javier:
Hey guys, my name is Javier Beltran and my wife and I will be investing out of state in Lincoln, Nebraska. My question is with regards to property management. Right now, we have two properties and a property manage whom we trust and with we also do a good job. However, it’s probably smart to micromanage and ensure that she’s doing the things that we agreed upon. What are some tips and advise that you guys have to make sure that’s being done and that we can hold her accountable without being too invasive or intrusive. Thank you. Look forward to hearing back.

Whitney:
All right. I can start off here. So, when you’re starting off with property management, I mean you, and especially as a new investor, you’re nervous, right? This is a new investment. You just threw down five figures to get a six-figure investment. I totally get it. There’s a balance between micromanagement and then actually treating that person as if they were a partner. I think it’s totally reasonable to be very involved in the process. And if it were me, and this is what I do now, is that my team knows that I am following up with them at 8:00 AM on Monday morning.
Or Wednesday morning with everything. So, that gives them some flexibility for if we make any price changes on rentals, they can get it executed before the weekend. We’re taking advantage of that. I’m also not bombarding them on Monday morning with any sort of questions there but I think it goes back to inspecting what you expect and keeping kind of a running tab on everything. Just got to find that balance between micromanagement and then actual building that relationship and partnership. But that would be my kind of relationship advice for that.

Lance:
I think it’s like any business situation where you don’t really want to micromanage them, but I mean, you definitely have the right to be kind of invasive. I mean, you can ask a lot of questions, updates, ask for facts on where it’s at. A smaller example would be just, if you have a vacant property following up, “Hey, I want updates on how many applicants you’ve received? Why were these denied? What are the marketing efforts they can have. Can you send me the listing information, take a look at the pictures, just kind of having your finger on the pulse and then saying, “Hey, let’s do this differently or this differently, or, I think it also goes back to a scenario.
If you pay attention and you show that you’re paying attention, they’re going to give you more attention back on it. And they’re not going to ignore you as much. And if the same thing’s happening and you’re not asking any questions, you might just go to the back of the line of tenants and they might put a tenant in another property, keep someone happy that’s asking questions and kind of ignore you because they know that you’re not worried about it.

Felipe:
That’s interesting. I had a situation once, Lance, where I bought a rental property in a college town. So, I didn’t even dig into property management. I was like, “Oh, it’s a college town. There’s going to be tons of property managers.” Tell me why I bought the property. I dropped 20 grand to fix it up. It’s a quadplex and a duplex. It was really small town. Labor was cheap. It was going to be easy. I had it fixed up, fully rented out. I went to a property management company, I went to three actually. And they all said that they would not manage my property, that it had such a bad rapport in that area.
And to me, I thought it was a great property. It was cash flowing fine, but apparently it had had troubles in the past. So, for all our listeners out there, look at that as well. That’s another strategy that you can use to find out if a property is good to purchase or not, or if you’re buying from a turnkey property, find out who’s going to be managing the properties. I was dumbfounded when the property managers were like, “No, we can’t take it over.” All that to say, I ended up selling it, made a profit on it anyways, we all know real estate is forgiving, but it was really scary to find out that no management company wanted to put their on it.

Whitney:
That is a great strategy. And thanks for bringing that up. Before you purchase, the property management is another set of eyes along with the appraiser and the inspector on the property. And so, you definitely want to get their feedback. Something that Lance said, also make sure as an investor that you’re actually engaged into whatever [inaudible 00:42:36] they’re using like maybe AppFolio or Propertyware in reviewing the content that’s in there. So, you can review your property management statements, review all the maintenance tickets and stuff like that. And before you kind of pick up the phone and ask all the questions that might have been answered in that actual portal. So, try to engage into the systems that the property manager has set up for you and ask intelligent questions for sure.

Ashley:
You know the software is amazing that it’s so easy to get the information you need. I mean, you can pull a lease in seconds from your property manager, just from all the documents uploaded. You can get your owner’s report, you can get your P&L statements so easily. I used to use AppFolio and Buildium. And just now that I’m on the owner side of it, I loved being able to access all that because I miss being the one putting in information and entering the data.

Lance:
And it didn’t used to be that way. This is new. Now everyone has a software. So, I was working with PMs before there was software. And then you get the weird statements every month. And now it’s all software-based. It’s so much easier.

Ashley:
You can look it right up on your phone. Use the apps. So, nice. Okay, so we’re going to move into our random questions. This has a little bit to do with real estate, really not, but Philippe and I are each going to pick a question. So, go ahead, Felipe, if you want to pick one first.

Felipe:
And I’ll ask this directly to Lance, because he talked a little bit about apps. Lance, what are some of the apps that you use for real estate to run your business, run your show and what are some of the good ones?

Lance:
I use the basic ones like Zillow and Apartments.com frequently. That’s just the first thing that came to mind. I mainly use those for validating, based on home size, square footage, what rents are in the area, kind of keep a pulse on the market, what to expect and drill down to the neighborhood, get crime statistics, everything you need to know, I guess.

Felipe:
Whitney?

Whitney:
Oh, I can add onto that. So, I learned this by trial by error, you can actually get the fema.gov, you can actually hotlink the flood maps to your phone. And so, you can drop in the address and look up to see if the property is on a flood map. It was only one property manager in a particular market but that was kind of their stick they would pick up properties and flood areas and kind of, I think, hope that you weren’t paying attention but that’s always a great check. I like having a deal calculator on my phone, bigger pockets has a deal calculator. I like deal check IO. And then as my portfolio grows, I like using stesa.com to pull in all my bookkeeping and manage the performance of my portfolio.

Ashley:
I just started using Stesa, I’m testing it on one property right now. But I really like it a lot. It’s super easy. Usually I’ve been using QuickBooks, but I think I might convert into it. I like to be able to just take a picture of my receipt on my phone and it’s free. Where QuickBooks, to have the online version. You have to pay $30 a month, I think. So, for the next question, what is one fear or self doubt you’ve had to overcome or you’re even trying to overcome right now in your real estate investing career?

Whitney:
[crosstalk 00:45:46]. I’ll go first. For me, I have two struggles. I’ve worked really hard interpersonally to reframe everything as lessons or learning. So, even if it’s a failure or setback, it was an A student all through high school and college and I get trapped by perfectionism. And I think that also shows up in my deal analysis is analysis paralysis. And I really have tried to work very hard on breaking down those barriers and just making myself make offers on deals.
Because you will be amazed even if you’re like, “Oh man, this deal will never work. And you make an offer on it. And it maybe doesn’t apply so much to turnkey, but guys, you can actually negotiate turnkey prices. What’s the worst they’re going to say? No. I have really kind of gotten over my fear of perfectionism and actually quite honestly rejection, hearing that word now.

Ashley:
Lance?

Lance:
I would say moreso in the very beginning was making the first move, buying the first properties, shelling out that 20 ish K, 25K or whatever. It’s funny because there was always this huge fear of spending that money and like, “Oh, what if I lose it all?” And this is a relative conversation to the people that are listening to this podcast that have that kind of money. Because it is a lot of money. But if you’re listening to this and you have the money to spend on it, if you were to spend that and you literally lost it and everything just went completely horrible.
It took me a while to realize it’s not that big of a deal. It really is not that big of a deal. And what you’ll learn from it is a mistake that you’ll never do again. But when I was starting out, I had such a hard time parting with the money. And as time has gone on, my mindset’s changed, I’m starting to look back and realize that you’ll never learn or you’ll never be able to be successful in real estate without taking the step. And sometimes we kind of hide behind the analysis paralysis forever to prevent having to make the move. But really you got to have enough facts and then you just you got to go. So, that took some time to overcome.

Ashley:
Thank you guys. I think those are two of the best answers we’ve had on this question to actually explain how someone else can overcome that. So, where can people find out more about you guys, Whitney?

Whitney:
Yeah. So you can find me at ashwealth.com or email me at [email protected]

Ashley:
And Lance?

Lance:
I have no personal website. But, my personal email is lance1robinson, that’s R-O-B-I-N-S-O-N @gmail.com. And I love talking real estate and I have a bunch of friends around me that invest in turnkey now. So, if anyone has questions, I’d love to help out.

Ashley:
Thank you guys. Felipe, anything else? Any last questions?

Felipe:
No, I think we’re good. You guys have been amazing on the show. Thank you for all of your knowledge seriously. I mean two definite giants in the game which I think is great because our listeners are definitely going to be excited about listening on turnkey, on what questions to ask what you guys have been through. Thank you guys for both being on the show.

Ashley:
Thank you.

Lance:
Thanks for having me.

Whitney:
Thanks for having me too. Thanks.

Ashley:
I’m Ashley at @wealthfromrentals and he’s Felipe, @felipemejiarei. Thanks for listening. And we’ll see you next week.

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In This Episode We Cover:

  • What turnkey investing is
  • Doing due diligence to find a trusted turnkey operator
  • Why it’s always worth flying out to walk the property before purchasing
  • Hiring your own home inspector!
  • Whitney and Lance’s turnkey winners and losers
  • Managing your property manager
  • Handling an eviction
  • The role of cash reserves when buying turnkey properties
  • The “BRRRR-key” business model
  • And SO much more!

Links from the Show

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