One of the big advertisers on this site is very heavily trying to sell my turn key investments that they have found and they are going to manage in Texas.
The problem is that those properties are selling for less than 1% of their own rent estimation. e.g. a 3Bd2Ba in Forest Hill, TX for about $111k. They claim it should rent for about $995-$1095 a month. A craigslist rent search in this area shows lots of similar homes in the $800-900 range.
On the other hand my experience is that 45-50 years old homes require more maintenance than newer homes and this is why I budget 8-10% from the rent on that. I also have found that you usually loose at least a month to rehab a home and put a new renter in there. Sometimes way more if the renter leaves without a notice or you have to evict it. For this reason I have budgeted 8-10% of the rent too.
When I contradicted the sales guy on those he came up with the following statistics:
- Maintenance: On our 2700+ properties under management, the average maintenance was sub 4% last year.
- Vacancy: Our average tenant length of stay is 36 months.
- Rents: This is a statistic that we track monthly, and it hovers between 95-97% of our properties that rent at the high end of the rent range that we give our investors on the front end. Last year, 0 properties rented below the rent range.
When I asked for any guarantees on those numbers, they said that no-one can guarantee them.: "No sir, we don't guarantee those numbers, and neither would your stockbroker."
What are your statistics on that?
Is it responsible to pitch to the unsuspecting investors such low numbers (on 50 years old houses)? What will happen when one has to do a major repairs and/or has to replace the roof?
The turn key operator gets to pick them up cheap again from a "motivated seller".
Good turnkey properties should be fully rehabbed or redeveloped, so there should be no looming large maintenance items. That's why you get an inspector out there to confirm the true condition of the property. A good turnkey company will make their properties, regardless of age, in good enough condition that it shouldn't be a huge worry.
What level of rehab was done? There are only so many things that can generally break in a home...and if this was a full rehab that included plumbing, roof, hvac, etc....what's left that you are really concerned with that would make the difference between a 5 year old home and a 50 year old one?
The problem comes when a rehab just is cosmetic while leaving all the mechanicals/structural deficient.
The amount of rehabbing was not disclosed. I didn't even want to dig deeper because the stated ROI was too low and the expected rent was too low comparing with the price.
I felt that they are trying to milk the "California Buyers" because there are not so many good deals here. And I kept telling them that within 2hrs drive I can find better deals. The 8% ROI calculated by them was more like 5% ROI when accounting for the higher expenses.
It looks to me that TX real estate in 2015 is like Dot-COM stocks in 1999. Let see how will the things go with the low gas prices this year. I expect the rents to stop going up for a short while.
Trust your instincts. Believe that sometimes people are just bold face liars. Believe its entirely possible that this guy could just be making things up.
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