Turnkey: MemphisInvest vs. Norada vs. JWB?

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Turnkey: MemphisInvest vs. Norada vs. JWB?

Vincent Park
Real Estate Investor · New York City, NY · Member since 2016 · 7 posts · 8 votes

I wanted to open up a forum discussion on which Turnkey company would be best for beginning investors. Clearly, all 3 companies seem to be reputable in the industry, and offer quite good returns on investment. I wanted to ask seasoned investors on their thoughts on which would be the best option for the criteria I am looking for:

- Minimal down payment (<$20K if possible, 20-25% down payment options)

- Minimal involvement in property management, and frequent updates on financials

- Areas with good appreciation potential

- Minimal tenant turnover / vacancy

- Good Cashflow (>$300/month) and ROI (12-15%+)

Let me know what your thoughts are, and perhaps some additional criteria that I should consider.

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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
Originally posted by @Dustin Cook:

Forgive me if my memory is wrong, but when I spoke with Memphis Invest about a year ago I think they told me that I should be prepared for their properties to appraise for less than the purchase price.

This is insane to me ... if the property appraises for less than the purchase price, that means that you are buying a property above fair market value and have NEGATIVE equity day one. What do your exit strategies then look like? How many years of $200-$300/mo positive cash flow (if that in reality) will it take you to claw back this negative equity just to get back to break even? And as discussed, there is no appreciation in these markets, that's why the cash flow appears to be so good. And what if it does not work out as rental as anticipated and advertised, what then? Well, then, you'll likely need to put more money in to make it ready for sale, in addition to the difference between what the house appraised for and what you purchased it for (assuming you could even sell it for appraised value), you'll need to add an extra 10% transaction fees to sell to your losses ... your down payment would be mostly if not all lost and you may even need to bring more cash to the closing table just to get out from under it.  Doesn't sound like a very sound investment to me. 

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  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    10y
    Originally posted by @Dustin Cook:

    Forgive me if my memory is wrong, but when I spoke with Memphis Invest about a year ago I think they told me that I should be prepared for their properties to appraise for less than the purchase price.

    This is insane to me ... if the property appraises for less than the purchase price, that means that you are buying a property above fair market value and have NEGATIVE equity day one. What do your exit strategies then look like? How many years of $200-$300/mo positive cash flow (if that in reality) will it take you to claw back this negative equity just to get back to break even? And as discussed, there is no appreciation in these markets, that's why the cash flow appears to be so good. And what if it does not work out as rental as anticipated and advertised, what then? Well, then, you'll likely need to put more money in to make it ready for sale, in addition to the difference between what the house appraised for and what you purchased it for (assuming you could even sell it for appraised value), you'll need to add an extra 10% transaction fees to sell to your losses ... your down payment would be mostly if not all lost and you may even need to bring more cash to the closing table just to get out from under it.  Doesn't sound like a very sound investment to me. 

    11Reply
  • Dustin Cook
    Investor · Los Angeles, CA · Member since 2015 · 73 posts · 44 votes
    10y
    Originally posted by @David Faulkner:
    Originally posted by @Dustin Cook:

    Forgive me if my memory is wrong, but when I spoke with Memphis Invest about a year ago I think they told me that I should be prepared for their properties to appraise for less than the purchase price.

    This is insane to me ... if the property appraises for less than the purchase price, that means that you are buying a property above fair market value and have NEGATIVE equity day one. What do your exit strategies then look like? How many years of $200-$300/mo positive cash flow (if that in reality) will it take you to claw back this negative equity just to get back to break even? And as discussed, there is no appreciation in these markets, that's why the cash flow appears to be so good. And what if it does not work out as rental as anticipated and advertised, what then? Well, then, you'll likely need to put more money in to make it ready for sale, in addition to the difference between what the house appraised for and what you purchased it for (assuming you could even sell it for appraised value), you'll need to add an extra 10% transaction fees to sell to your losses ... your down payment would be mostly if not all lost and you may even need to bring more cash to the closing table just to get out from under it.  Doesn't sound like a very sound investment to me. 

     Agree 100%.  I would want built in equity especially if I were to buy in a market like Memphis.  

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    what do you mean built in equity? If you buy a home for $80k and put down 20% you in theory have created equity with your down payment. Is that what you are referring to? 

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  • Dustin Cook
    Investor · Los Angeles, CA · Member since 2015 · 73 posts · 44 votes
    10y

    No, I meant I would want to buy at less than appraised value in a market like Memphis.

    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    @Dustin Cook

    I got it.  What makes that tough at times can truly come down to the appraiser.  Some of them when selecting other comps to use for your purchase, if there are plenty of them a lot of times they will just bring the value in say $100 over your purchase price when there are plenty of other higher values and every so often they will bring the value in closer to other higher market value homes.  This for your scenario then puts your deal in the hands of the appraiser.  What % or $ amount higher would you be looking for, just out of curiosity? 

    Thanks!

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  • Dustin Cook
    Investor · Los Angeles, CA · Member since 2015 · 73 posts · 44 votes
    10y

    I don't have any set number.  I would be much happier paying closer to full price in an A grade neighborhood with very low vacancy and better chance of appreciation than I would in a B-/C+ neighborhood with higher vacancy and lesser chance of appreciation.  

    I do get your point of being at the mercy of the appraiser.  When we bought our primary residence our appraisal came in low because a direct comp of basically the same house next door had just sold.  The appraiser didn't take into account that ours had a nicer rehab and had the foundation repaired and permitted.

    0Reply
  • Nithin K.
    Bartlett, IL · Member since 2016 · 14 posts · 7 votes
    10y
    I am evaluating these turnkey companies as well and plus some more. I am yet to have my first call with MemphisInvest, they have a lead time of a week or so to set up a call apparently. Norada gave me mixed signals, the properties seemed overpriced for the market. Make sure you ask them their definition of A, B and C neighborhoods. Plus there are pros and cons of them not being local to the market. JWB - they haven't yet shown me any offerings or real numbers, but some past case studies based on which I ran some cash on cash return calculations myself. They do not meet the range what we keep hearing here as 'good' for investment. I am yet to understand what is their USP, what keeps them going. They also strictly need you to use their own property management and if you sell your property, you do need to use them as your broker. Also things like they get to keep the tenants late fee. Take a look at the copy of their property management agreement at their website. Anyway there is one thing I can tell you, all these companies show returns based off of different calculations and they also differ in what they include and exclude in their math. If you want to compare apples to apples, make sure you have your own excel spreadsheet. Please DM if you want more info. I also had a general question to the group, When you all do cash on cash return calculations, the 200-300 cash flow that you say- is that including or excluding the principal you are paying on your loan? Do you also consider the tax savings, to meet the 200-300 cash flow? BP's calculator does not use these two to meet the cash on cash return, so far as I understand.
    1Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    @Nithin K.

    Give me a call sometime, though I just had my 4th child I would still make time to speak with you :)

    Property grades will mostly differ depending on who you are talking to and also that specific market.

    The gross cash flow is calculated by taking into account PITI , property management fees and anything else like vacancy or repairs, capex, etc....

    Thanks!

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  • Nithin K.
    Bartlett, IL · Member since 2016 · 14 posts · 7 votes
    10y

    I will be happy to talk to you Curt - I will let you spend the weekend with the baby and reach out sometime next week.

    Abt my question though- the general consensus for investors here seems to be that 200 is a good cash flow number- net. Honestly, no turnkey company seems to be able to give that, unless you put >25% downpayment, factor in your tax savings , pay the principal portion of your mortgage from that 200 and some also want you to add an appreciation factor to meet that 200 ballpark

    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    10y

    I will agree that trying to hit $200 net after all expenses, V&M, capex, etc... is difficult.  

    Some other companies that market our homes for sale, when we put it into their proforma with adding in appreciation and some other factors, that does help the ROI and cash flow out.

    My personal philosophy has been to just present people with the simple gross cash flow figures and then let them account for additional factors and lets see what the numbers look like. Note that I do tell them about vacancy and maintenance but most already have their own % they like to factor in. 

    Talk to you soon!

    Curt Davis - KAIZEN Realty538 Reviews
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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    I have had a few investors call me about commercial real estate considering different investment avenues. Some decide to go with commercial and others stick with residential.

    I have reviewed some of the examples given by the TK companies and even the well established ones I found to be optimistic meaning I wouldn't use those projections myself.

    It's a choice of what is acceptable to the investor. I agree that in A areas you will have generally strong appreciation and rent growth due to demand.

    In those C to D areas the cash flow is the main driver. I would not want to buy at a peak in a a C to D market. That's a good way to get upside down on value and watch your down payment evaporate.

    It's not my thing but apparently thousands of investors and more love to buy them. I think the low down payment and affordability to get started is a main draw for some. 

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  • David Hodge
    Rental Property Investor · Laguna Niguel, CA · Member since 2015 · 142 posts · 98 votes
    10y
    Vincent Park 12-15% ROI probably isn't very realistic if you want to be in a good area. After accounting for vacancy, capex, maintenance, monthly management fees and placement fees, debt service, insurance and property taxes, you're probably not going to be anywhere near 12-15% if your buying at solid B class property. Maybe if you buy C. On the other hand, if you're including the debt pay down in that number, like I've seen others do, then it seems about right. I bought my first rental from Curt Davis at BuyMemphisNow about 7 months ago. It couldn't have been a better experience. We got a 2 year lease, haven't had any repair issues and have the best management taking care of our property. Message me if you have any questions.
    4Reply
  • David Hodge
    Rental Property Investor · Laguna Niguel, CA · Member since 2015 · 142 posts · 98 votes
    10y

    @Allison Karrels your vacancy was only 15 days? That's impressive! Did Premier start marketing it well before the tenant moved out? Did you have to push for this or is this typical for them to market early? I'm crossing my fingers to have a similar experience when I get to this point!

    0Reply
  • Alex Franks
    Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes
    10y
    Originally posted by @Marco Santarelli:

    Thanks for your feedback @Yoochul C.!

    I felt the topic was important enough to be a podcast episode.  :)

    Continued success!

    Marco How are you ? Did not realize you had a podcast as well. Seems to be the new it things for all the folks. Going to send you an email the first round of the new construction rentals in SC they flew off the shelf. 36 being built 10 at time and half  under contract already..

    Look forward to speaking some time soon.

    We did pick up another 252 lots in Charlotte NC

    Alex

    1Reply
  • Allison Karrels
    Investor · Gainesville, VA · Member since 2014 · 118 posts · 76 votes
    10y
    Originally posted by @David Hodge:

    @Allison Karrels your vacancy was only 15 days? That's impressive! Did Premier start marketing it well before the tenant moved out? Did you have to push for this or is this typical for them to market early? I'm crossing my fingers to have a similar experience when I get to this point!

     I am not sure if that is the norm or not - this was my first turnover with them.  I know they were all over the turnover.  They did a walk through on tenants last day and then had the maintenance crew in fixing all the little things within the first week and a week later they said they had an approved application with a 2 year lease.    It helped that there was nothing major that needed repair. 

    The turnover was May and not the peak of summer so that might have helped with the quickness.  Time will tell over the next few years how other turnovers go but you can tell they very organized and it is in both of our best interest to get a new tenant in place.  

    0Reply
  • David Hodge
    Rental Property Investor · Laguna Niguel, CA · Member since 2015 · 142 posts · 98 votes
    10y

    @Allison Karrels that's good to hear! Congrats on a successful first turnover! 

    0Reply
  • James WachobBusiness Member
    Real Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 890 votes
    10y

    @Vincent Park when are you planning a trip to Memphis? I'll take you out for some BBQ and show you some great properties!

    1Reply
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    10y
    Originally posted by @Jayson Trierweiler:

    What does JWB stand for? I've heard of the other two.

     Jacksonville Wealth Builders

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  • Allison Karrels
    Investor · Gainesville, VA · Member since 2014 · 118 posts · 76 votes
    10y

    I like the idea of JWB - but getting insurance in Florida can be a real pain.  My current insurance provider, USAA, limits me to 4 houses in Florida. 

    0Reply
  • Willem Botha
    Investor · Centurion, Gauteng · Member since 2016 · 45 posts · 44 votes
    10y

    Very interesting to see all the comments and suggestions. I am a rookie foreign investor and will most probably start of with turn key investment. Since I am no way near my potential investment I do not have any preference of state (at the moment). 

    Thanks for all the valuable information, I will keep on investigating and get the ball rolling as soon as possible.

    0Reply
  • Nithin K.
    Bartlett, IL · Member since 2016 · 14 posts · 7 votes
    10y
    Originally posted by @Allison Karrels:

    I like the idea of JWB - but getting insurance in Florida can be a real pain.  My current insurance provider, USAA, limits me to 4 houses in Florida. 

    Hi Allison, what do you like about them ? 

    0Reply
  • Adrian StamerPro Member
    Real Estate Investor & Agent · Richmond, VA · Member since 2013 · 319 posts · 167 votes
    10y
    Originally posted by @Ron B.:

    I agree with @Henry J.

    Please double-check the pro-forma numbers and use your own judgement. Sometimes the pro-forma numbers provided by TK companies can be optimistic and may not account for some of the expenses

     Quoted for emphasis 

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Curt Davis I agree with your premise on running the numbers... if investors are buying in these markets that are well known for stable pricing IE not much if any real appreciation .." you should not expect it and it should only be a bonus " we hear that time and again someone must have coined it and so these investor repeat it LOL... but if that's the case then building a ROI porforma and throwing in any kind of appreciation is not going to be accurate..

    the only real appreciation that I have seen in the 7 markets I personally work in is on the wholesale side were you guys picked up houses for 20 to 25k before rehab.. now they are 25 to 35k.. and that generally has not translated to any benefit for the long term buy and holder.. they will always be competing against the very organized sales outfits like you guys.. so there is no way they can sell a home for more than what ever you or MI or any other turn key company is selling it for your all fishing out of the same barrel.

    what the turn key buyer wants to keep in mind is just like our thought process out here on the west coast were break even or even a little negative is just fine and dandy.. your tenant is paying your house off your real profit or gain is when your properties are paid for and someone else has paid for it.. to me any spendable cash flow on a rental is TOTAL gravy and over a long hold period you pump a lot of that back into the home as turnover and cap ex on rentals is far more than any proformas .

    So in my mind Turn key  for the WHY mid west has  that @Joel Owens is wondering about.

    1. simply the new starter property choice for those priced out of their own markets this is the number one driver..

    2. Ease of product coming to the busy investor.. they don't have time to do the shopping.

    3. Constant bombardment from public media and internet that RE is the way to get rich and retire etc etc.  so with these turn keys the average person can get in the game.

    IN my day coming up starter real estate WAS Land.. IE lots and land.. In our best year in 1977 we sold 800 lots... those were lots my dad owned  LOL... and he probably sold 5,000 over a 20 year span.  and our adds were " get yourself started in Real Estate"

    Turn key mid west rentals are the starter real estate for todays beginner and move up investor.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Curt Davis  and just like modern turn key that focuses heavily on LA market which is the NUMBER 1 driver of Turn key... our family had offices in LA for a decade with 20 some agents working for us selling LOTS  and land in Northern CA.. we did fly buy programs.. the whole marryann.. same exact methods as you folks use today just done old school... was no internet then.. was no cell phones.. was no texting FAx's were just coming into vogue and we were just getting rid of carbon paper  LOL.

    Its the exact same premise and maketing skills  just a little different product.

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  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    10y
    Originally posted by @Allison Karrels:  

    getting insurance in Florida can be a real pain.  My current insurance provider, USAA, limits me to 4 houses in Florida.  

    Sounds like it's time to shop and requote your policy.  You can probably find greater coverage, in all your states, for a similar or lower price.

    1Reply
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