First deal with 150-250k
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votesOriginally posted by @Ken Badziak:
I love leverage. If you can find a turn-key provider that will work with conventional loans, then great! They do exist, but most of them want cash.
That being said, even if you paid cash, you'd still be using leverage... When you refinance and pull equity out a year later.
I'm sorry Ken, but I have to comment here before Travis gets sent down a long path to frustration and confusion before he gets started. I have no idea where this notion that a majority of Turnkey companies will require all cash??? I know a majority of the best companies in this business and every one of them worked their backsides off to provide properties that will qualify for financing. Most have contact information for multiple different lenders that specialize in working with non-owner -occupied properties.
When lenders refuse to finance a purchase, it is because there is a high risk in financing that property. Why will they not finance $50,000 properties? Because the default rate of homes financed at those levels is too high. It is not worth the risk and the time spent on the file.
The same goes for refinancing that property. Banks that will not finance a purchase are not going to be rushing through the door to refinance them either.These price points you are talking about, three properties purchased free and clear for $150,000 and Turnkey for that matter is a disaster waiting to happen. $50,000 all in would include all closing costs incurred by the buyer and ignores that he would need to keep reserves off to the side, which at this price point should be a minimum of $10,000 per property.
That leaves him for $40,000 to buy the property, including closing costs from a Turnkey vendor. What will the buyer get...absolute junk! It has been shown over and over again that a Turnkey provider cannot purchase a property, fully renovate that property to a level eliminating most deferred maintenance and make a profit that allows them to make money, cover overhead (team, systems, physical location, property management) all for $40,000. It CANNOT be done at a level that an out-of-area investor should absolutely expect.
It looks great. It sounds great and the people selling low-cost, cheap junkers love to tell the story about how easy it is...but it is not and this is where investors get seriously hurt. This is where investors lose thousands and thousands of dollars and that is if they are lucky enough to be able to get any of their money back out.
@Travis M. gave you the best advice on here and that is to get your money working for you now. Earn a nice return on your money while you learn exactly where you want to invest and what you want to invest in.
You will be able to find opportunity in the single-family market and the multi-family market if and when you choose to physically own property. I would figure out what I don't know first, learn the best way to build your passive portoflio second and then decide the route you want to take.
Do not let your money burn a hole in your pocket and please do not waste it chasing high returns on risky investments. Right now it is more important for you to earn a smart return on your money. Much more important than buying assets if that is not the smart return.
42 Replies
- 10yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Ken Badziak:
Engelo Rumora , I'm gonna have to give you a call!
No problem mate,
I'm slammed until mid August so just send us an email and I'll get admin t schedule a time for us.
Thanks and speak soon
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes10y
Right on. You are welcome. When we compare those returns to even to the best residential TK returns same time frame or any time frame the actual difference in profits is yuge. When we compare the obligations/liabilties both legally and financially the difference is yuge again. When we compare the potential headaches and rest (loans, evictions, capex, transaction hassle/cost, management etc) it is yuge again. One might expect 300% to 600% the next 10 years as well. The growth rate for this real estate niche ( senior assisted living facilities) is double digits annually into 2030 by all accounts. Basically you can ride on the coat tails of the aging population growth and the known needs of that projected trend. There are other reits into hotels or malls or office space that could have better short runs but maybe not as solid plays long run.
- Flipper/Rehabber · Crown Point, IN · Member since 2009 · 482 posts · 216 votes10y
Travis,
We work the south suburbs of Chicago, like Dolton,Blue Island and all of the rest of them. We also do Northwest Indiana. I didn't see you post as to whether or not you're flipping or holding. If you're flipping, please be careful where you buy in the south suburbs and Northwest Indiana. Some of the cities are not the best for flipping. I can get properties that would range in price from $45k to $100k. It just depends on where you're buying and what your criteria is. We have a rehab crew, realtor and property manager for buy and holds. If we can be of service, message me and we'll go from there.
- 10yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Travis M. has said regarding TK and listening to the Turnkey Reviews podcasts. However, I will disagree about the ability to find a good TK company that will work with financing. We always encourage clients to use leverage to their advantage if it is within their risk tolerance. Of course, some people just don't ever want any debt, and that's fine, but you can really establish a great starting portfolio right off the bat with $250k in capital and good financing.
For example, if you put 20% down on 10 $100k properties (so $200k down with $50k for reserves/closing fees etc) and you don't need the rental income to support you now, you can let your tenants pay down all your loans at an accelerated rate. Dedicate all your flow to paying as much of loan no.1 as possible and minimums on 2-10 until 1 is paid off, then dedicate flow to No.2 with minimums on 3-10 etc). With this strategy you can pay off all your loans quickly and end up with a free-and-clear portfolio in a relatively short period. Then you've got nothing but flow, which you can use for your living expenses or reinvest in additional properties. As long as you have a provider you trust and invest in quality properties with low turnover and good expense rates, this model is a winner.
I've heard good things from very new investors who listened to Clayton Morris' podcast, but you may want to check out this thread: https://www.biggerpockets.com/forums/92/topics/320... regarding their actual business model. Not to say the podcasts aren't very useful, but they seem to be a very new outfit that only accepts cash investments because they don't like the 'red tape' of working with banks (aka appraisals etc) so I'd read up on people's actual experiences before pursuing that specific avenue.
Of course, being the CEO of a full-service turnkey provider in Birmingham, AL, I obviously think TK is an amazing RE investment and perfect for first-timers because, as Ken correctly noted, it takes the emotion and hassle out of it. You still have to do a ton of due diligence when selecting a provider you trust (which is the most important factor, even more so than market, I'd say), but once you find a partner the rest is quite simple.
If you've seen any of my other posts, you'll see I harp on this point a lot. In fact, I see the same "what should I be looking for" queries so often that I've actually developed a list of specific metric-driven questions I think any investor should be asking of the TK providers they consider. I've already rambled enough for now so I'll leave it at that, but if you'd like a copy of this list feel free to shoot me a PM. No matter what market you invest in, any good TK provider should be upfront and transparent about some key metrics, so if you're considering this type of investment you can easily weed out the less-than-scrupulous providers by asking few pointed questions.
Anyway, sounds like you're on the right path. Best of luck with whatever RE investment you choose!
Clayton
- Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes10y
Originally posted by @Travis M.:
Hi guys, I am looking to make my first investment but I am overseas, ive been working and saving everything I have so I can have some freedom to do what I want when I get back to the US. I have between 150-250k to spend and I really do not want to mess up with my first investment.
1. Any advice on which type of property I should look at (small muliti unit or large)
2. Should I wait until I get back to the US to start? (next summer, but something about waiting is killing me, as I am eager to start)
3. Also targeting the FHA loan but I understand there may be a maximum loan size for this, any experience with exceeding their maximum?
Travis,
If you want to be more hands on, then take the BRRRR approach.
Buy-Rehab-Rent-Refinance-Repeat.
By doing so, your $150K can be leveraged across 10 properties.
Small multi's (2-4 units) are plentiful here in Chicago but you have to be careful which areas you buy them in. If you want to be more hands on then it makes sense to get back to the US. Otherwise, work with an active partner who is willing to put some skin in the game. I don't like turnkey investments necessarily because most providers do not put any skin in the game - they sell you a property at 100% of market value and they profit from you continually by doing the Property Management. In all these, the TK provider has ZERO RISK and therefore nothing to lose if he/she sells you an overpriced property and mismanage the property to the ground.
- 10yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Ken Badziak:
I love leverage. If you can find a turn-key provider that will work with conventional loans, then great! They do exist, but most of them want cash.
That being said, even if you paid cash, you'd still be using leverage... When you refinance and pull equity out a year later.
I'm sorry Ken, but I have to comment here before Travis gets sent down a long path to frustration and confusion before he gets started. I have no idea where this notion that a majority of Turnkey companies will require all cash??? I know a majority of the best companies in this business and every one of them worked their backsides off to provide properties that will qualify for financing. Most have contact information for multiple different lenders that specialize in working with non-owner -occupied properties.
When lenders refuse to finance a purchase, it is because there is a high risk in financing that property. Why will they not finance $50,000 properties? Because the default rate of homes financed at those levels is too high. It is not worth the risk and the time spent on the file.
The same goes for refinancing that property. Banks that will not finance a purchase are not going to be rushing through the door to refinance them either.These price points you are talking about, three properties purchased free and clear for $150,000 and Turnkey for that matter is a disaster waiting to happen. $50,000 all in would include all closing costs incurred by the buyer and ignores that he would need to keep reserves off to the side, which at this price point should be a minimum of $10,000 per property.
That leaves him for $40,000 to buy the property, including closing costs from a Turnkey vendor. What will the buyer get...absolute junk! It has been shown over and over again that a Turnkey provider cannot purchase a property, fully renovate that property to a level eliminating most deferred maintenance and make a profit that allows them to make money, cover overhead (team, systems, physical location, property management) all for $40,000. It CANNOT be done at a level that an out-of-area investor should absolutely expect.
It looks great. It sounds great and the people selling low-cost, cheap junkers love to tell the story about how easy it is...but it is not and this is where investors get seriously hurt. This is where investors lose thousands and thousands of dollars and that is if they are lucky enough to be able to get any of their money back out.
@Travis M. gave you the best advice on here and that is to get your money working for you now. Earn a nice return on your money while you learn exactly where you want to invest and what you want to invest in.
You will be able to find opportunity in the single-family market and the multi-family market if and when you choose to physically own property. I would figure out what I don't know first, learn the best way to build your passive portoflio second and then decide the route you want to take.
Do not let your money burn a hole in your pocket and please do not waste it chasing high returns on risky investments. Right now it is more important for you to earn a smart return on your money. Much more important than buying assets if that is not the smart return.
- Miami Lakes, FL · Member since 2015 · 133 posts · 83 votes10y
Originally posted by @Chris Clothier:
Originally posted by @Ken Badziak:
I love leverage. If you can find a turn-key provider that will work with conventional loans, then great! They do exist, but most of them want cash.
That being said, even if you paid cash, you'd still be using leverage... When you refinance and pull equity out a year later.
I'm sorry Ken, but I have to comment here before Travis gets sent down a long path to frustration and confusion before he gets started. I have no idea where this notion that a majority of Turnkey companies will require all cash??? I know a majority of the best companies in this business and every one of them worked their backsides off to provide properties that will qualify for financing. Most have contact information for multiple different lenders that specialize in working with non-owner -occupied properties.
When lenders refuse to finance a purchase, it is because there is a high risk in financing that property. Why will they not finance $50,000 properties? Because the default rate of homes financed at those levels is too high. It is not worth the risk and the time spent on the file.
The same goes for refinancing that property. Banks that will not finance a purchase are not going to be rushing through the door to refinance them either.These price points you are talking about, three properties purchased free and clear for $150,000 and Turnkey for that matter is a disaster waiting to happen. $50,000 all in would include all closing costs incurred by the buyer and ignores that he would need to keep reserves off to the side, which at this price point should be a minimum of $10,000 per property.
That leaves him for $40,000 to buy the property, including closing costs from a Turnkey vendor. What will the buyer get...absolute junk! It has been shown over and over again that a Turnkey provider cannot purchase a property, fully renovate that property to a level eliminating most deferred maintenance and make a profit that allows them to make money, cover overhead (team, systems, physical location, property management) all for $40,000. It CANNOT be done at a level that an out-of-area investor should absolutely expect.
It looks great. It sounds great and the people selling low-cost, cheap junkers love to tell the story about how easy it is...but it is not and this is where investors get seriously hurt. This is where investors lose thousands and thousands of dollars and that is if they are lucky enough to be able to get any of their money back out.
@Travis M. gave you the best advice on here and that is to get your money working for you now. Earn a nice return on your money while you learn exactly where you want to invest and what you want to invest in.
You will be able to find opportunity in the single-family market and the multi-family market if and when you choose to physically own property. I would figure out what I don't know first, learn the best way to build your passive portoflio second and then decide the route you want to take.
Do not let your money burn a hole in your pocket and please do not waste it chasing high returns on risky investments. Right now it is more important for you to earn a smart return on your money. Much more important than buying assets if that is not the smart return.
Hey Chris, thanks for the reply. Valuable information indeed!
Like I said before, I don't own any of these $50k properties yet, but having done some research and listened to quite a few podcasts and read blog posts here and elsewhere on the Interwebs, I would feel comfortable investing in them.
That being said, however, the argument can easily be made that there is a far better tenant base available in $80-120k houses, and the barrier to entry between a $100k house isn't that much more to a $50k house, when financed. If I had cash to go all in on a $50k house in reality I might just as easily rather go for a down payment on two $100k houses...
IRT turn-key providers mostly wanting cash, I've talked to maybe half a dozen at this point. Each and every one of them made it abundantly clear that they either flat out want cash, or very much prefer to work with clients who have the cash to plunk down. I guess I just haven't talked to the right ones yet. Your company I haven't yet talked to, but Memphis Invest is definitely on my list; right now I was focusing on areas where I can get to easily through my company (we don't hit Memphis yet, but I'm sure that'll change soon...)
But yeah, overall, I'm inclined to agree with you. Perhaps for most investors $50k houses aren't the best way to start, but $80-120k houses offer more opportunity, both in higher class tenants and more possibility of appreciation...
- 10yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
@Ken Badziak I think to be fair, all sellers would want cash and it definitely makes a transaction easier if you are selling a property. I think I would see it as a red flag, having been in the industry for so long, if a turnkey company preferred all cash or basically said it's all cash or you can't buy our properties. In my eyes, I would read into that reply that they didn't want any third party inspection, verification or interference in their sale.
I hate painting with broad strokes, but I have yet to hear from an investor buying cheap turnkey properties and owning them for 5,6, 7 years or longer and making money. Instead, we get the daily calls from people who need to offload something that is literally sucking their money dry and we get calls for help from people owning all over the place. Indy, Memphis, Ohio, Michigan, Illinois, Georgia, Missouri, Mississippi, Alabama...its the same story and the only common denominator is that they bought a super cheap turnkey property with a super slick sales pitch.
So I tend to go a little harder with my warnings about these props! :)
Lastly, all of your points about demand and clientele are correct as well. There is strong demand at higher price points for quality management and quality renovated properties. It just takes a patient investor to really think through their strategy and realize the benefit of 2 or 3 homes at a higher price point as opposed to 4 or 5 properties at a lower price point.
- 10yDean HarrisBusiness MemberReal Estate Agent · Memphis, TN · Member since 2015 · 1k+ posts · 1k+ votesWould 5 houses with a ROI's in the "teens" be a better situation for you? I just closed a 5 house package with a client of mine with those returns and there are plenty more of those opportunities in Memphis, TN! I'm happy to answer your questions and show you how it's done! Memphis is my home town and I have been in real estate for almost 15 years. I love the investment opportunities here in Memphis. My way isn't the only way either. There are plenty of good options in Memphis and BP is a great place to learn!! Good Luck!
CrestCore Realty4.713 Reviews - 10yAlex CraigBusiness MemberReal Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
@Travis M. had a good radio show today about financing. He may be able to provide insight into some options here.
- Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes10y
@Travis M. , you can find a good building close to Downtown in that price! There are a lot of neighborhoods close to Downtown u and coming and if you buy in one of them, you'll have cash flow and build equity.
If I were you, I would purchase two properties, a 3-4 flat as owner occupied and a second property as investment.
- Howell, NJ · Member since 2015 · 37 posts · 6 votes10y
Hi all and sorry for the late response, I just wanted to reach out and express my appreciation for all of you, it feels good to be part of a community willing to help, I know that when I build as much knowledge of my own I will be looking to pay it forward... @Chris Clothier @Alex Craig @Wendell De Guzman and everyone else your discussion and advice is really appreciated
As a first time investor it is tough enough, but also as someone who likes to be in control, the whole investing from a far on the first go around is even tougher. Your discussions have moved me closer to pulling the trigger but also more comfortable in my patience
thank you all!
- Investor · Indianapolis, IN · Member since 2013 · 80 posts · 64 votes10y
I wouldn't rule out a modest commercial property in the mix. Triple net leases and no headaches. Tenants continuously improve the real estate at *their* expense and for the most part you are just leasing the dirt underneath the structure. You may even get lucky and land a national retailer who will sign a long lease backed up by corporate. Downside is risk of dealing with lengthy vacancies. Look for decent commercial in a gentrifying neighborhood.
- 10yDean HarrisBusiness MemberReal Estate Agent · Memphis, TN · Member since 2015 · 1k+ posts · 1k+ votes
@Travis M. is extremely knowledgable as well as the Memphis Invest team members. My initial post was letting you know about a different product that I provide. Point being, there are many options in Memphis and some of the most reliable people are on this thread!
I did discuss financing options on The Memphis Real Estate Hour yesterday (shameless plug) with @danbutler. We discussed 6 different ways to obtain financing and our response was awesome! This is valuable info for new investors no matter which product you choose to buy!
CrestCore Realty4.713 Reviews - Investor · Chicago, IL · Member since 2015 · 166 posts · 67 votes10y
@Travis M. is right! You can get something "close" to downtown within your price range. It won't be in the gold coast - and not why would you want that, anyway? You can find 3-4 flats that cash flow in the $550-$1M range for sure. Yes, it's tenant friendly city (which is a GOOD thing in my opinion), however the landlord-tenant ordinance does not apply to owner occupiers in 4 unit or less buildings. So just get yourself into a product that will out price the people who don't care about an eviction. You want something that will attract people who are afraid of getting an eviction on their record.
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