I've received an offer to buy the following 3 turn-keys that I'm currently evaluating. They are currently being renovated and I haven't received any additional information yet, but I'm doing some basic due diligence. Thought it wouldn't hurt to throw it out to the community to see what others have to say about this potential deal.
Property on Harrison Ave, 63135 in Saint Louis. 1927, 1580 Sq Ft, 3br/2ba for 116k. Projected Rent 1300.
I've done the following:
Looked at Craigslist for similar rental comps and found rents going for $725-855 for 864-1056 sq ft. Not much data here. Considering my potential property would be 1580 sq ft, I could see rent being potentially $1300 but not sure how many people could afford that.
According to Zillow. Median home price in that zip is $65.5K. According to rent-o-meter, the rent projection is "way-too-high" when I plugged in the address. Based on the results of 15 listings (small sample size):
$750–$1,050 - 80%
$825–$1,013 - 60%
To me, the company's projections are way too high. They offer no rental guarantee period as well, but they did say that the unit will be rented with a tenant for sure at that price when they are finished with the unit. The number seems to be so much higher than usual that I think they made a mistake on it but I pointed it out and have gotten no response yet.
Good advice I received from a BP Pro that I'm going to follow-up with:
Call local realtors to see what they could sell the property at to get a rough idea of the value to make sure I'm not overpaying.
Call local property management firms to line-up a back-up PM if the turn-key company's PM is bad, and also to confirm rental rate. I think everyone should always use at least two different property management firms from all the reading and learning I did on BP to protect themselves in case something happens to the primary firm.
As you can see from this post, I'm very skeptical of this 'deal' and feel like an idiot that I spent the wire fees to wire over the money at this time. They said I needed to do it to 'hold' the deal, but I wish I had ran all these numbers prior to doing that because wire fees are expensive!
Are there any locals or experts in St Louis or 63135 that could chime in on this turn-key deal? I also have 2 other deals in Indianapolis from this same company where I haven't confirmed any of the numbers but they did yield a good COCR if they are accurate (which I don't think they are after doing the due diligence on the first deal).
Indianapolis package they offered:
Merts Dr, 46237, 1972, 1200 sq ft, 3br/1ba for $87500. Projected rent: $950
Tower Ln, 46257, 1978, 1250 sq ft. 3br/2ba for $86000. Projected rent: $1000
Note: they said these are fully renovated turn-keys with work done on roofs, HVAC, and all the big CapEx items so let's give them the benefit of the doubt and consider these pristine, A+ renovations (I will trust but verify, haven't done so yet, I will look at all SoW and verify the dates of all the major CapEx items and fly into these cities and tour these homes myself before I buy).
This is my first time purchasing so I'm taking everything I learned on BP and doing super careful due diligence because I'm investing from out of state (San Diego) and want to make sure that I'm not burned. The company does have a great reputation, but I've already found some huge red flags. For example, the investment adviser told me on the phone that all maintenance issues were warrantied for 6 months but when I read the paperwork sent by a different person at the company, it said all major expenditures over $250 were covered by the company over the first 90 days, and anything under came out of my rents. I will give my adviser the benefit of doubt here as I wrote him an email about this issue yesterday and will give him a chance to respond (he says he's too busy to respond at this time). Again, I trust but verify and the whole situation smells off but I'm still in the due diligence phase and there is a possibility that someone made a mistake in the paperwork I was sent so I'm not writing him off yet. Another thing was that they didn't have a budget for vacancy or CapEx and I used my mentor's spreadsheet to budget for those items properly. In the excel spreadsheet they sent me, the numbers were extremely optimistic with missing expenses. They did include 8% management fee, taxes, insurance. however, their maintenance fee was $500 for the year for the $116k place, and $350 for the $87.k and $86k place in Indy which according to another post I put on BP, every professional laughed at and said was ludicrously low.
Anyways, I'm thankful BP exists. So many people have given me great advice and I'm following through with this and my real life mentors advice to make sure I don't get burned. I have limited capital available so a mistake starting off with be crippling.
Feel free to chime in, make fun of me, or call me names for getting suckered into the wires and finding all these red flags afterwards. Do note that at least my earnest money deposit has been confirmed in writing by the investment adviser to be fully refundable and that it just means these properties aren't held anymore. Reading all this text I wrote, I do feel pretty foolish, but considering this all the cost of education.
At least I do NOT have "analysis paralysis". I've been working hard on verifying all the information and give people the benefit of doubt but verify every single number, and read every single contract carefully to not get burned.
Thanks for everyone's time. I hope this post helps other newbie out-of-state investors realize even turnkeys aren't 'easy'
I'm going to give my 'investment adviser' another week to pull the paperwork together to justify their numbers and to analyze it. From what I've done so far, it seems these aren't deals at all.
I wouldn't rely on Zillow for estimating rents in the area. I'd suggest calling a few property managers that are present near the property.
I suggest calling investors and networking on the phone.
That Saint Louis property is in Ferguson which has been in the national news a fair bit over the last couple years as you may have seen. There has been a lot of residential flight from the area as a result. $1300/month seems absurdly high as this is a relatively low-income/working class area. It's not a war zone or anything like that, but definitely a C/C-minus area. A quick search of rentals on Craigslist shows several 2-3 BR homes nearby asking $625-750/month. That seems more realistic in mind and jives with the $65.5k average you mentioned.
I have seen a lot of STL investors on the forums mention doing well with SFR in this area. That said, because of the negative perception of Ferguson right now, make sure to buy really, really right as I imagine you'd have trouble re-selling in the near future.
Those Indy houses are pretty small houses. Most 1k homes are much bigger than that in this town.
Use rentometer.com to verify those rents.
Also, what are the ARVs of those homes?
@Ray Lai It is almost impossible to invest in the Ferguson and other similar cities without knowing the area extremely well. There are solidly middle class areas of Ferguson that could have homes worth $250k. However, you could walk 4 blocks and find yourself into a totally dilapidated slum. The property you mentioned does not have good highway access, you can likely hear planes landing and taking off at the airport and it seems to be in the Mcluer South school district which is one bad year away from losing accreditation. I would not consider this an ideal location unless you plan to use section 8 housing.
@Ray Lai , a quick way to determine market rents is to simply search Zillow for what is currently being market for rent in that area. I did it for the St Louis property and I didn't find one property listed for over $1000/mo. So their projections are way out of whack.
The particular house you are looking at was last listed for rent at $995/mo. I don't know if that's what it ended up renting for, however.
Something else about the Ferguson. They just passed what I consider to be a very anti-investor ordinance that has a lot of difficult rules around crime-free housing. Read about it at http://www.stltoday.com/news/local/metro/florissan...
Hope that helps you make a more informed decision.
To you investing success,
@Ray Lai I have seen a number of these measures pass. It has always been my understanding that these laws are meant to dissuade out of state investors who don't take care of their properties and hide behind the anonymity of an LLC. Have you heard that local landlords are being targeted?
@Max Householder Yep, I did that too and used Craigslist. Couldn't find any properties with rents over $1k so thank you for confirming that my analysis was OK. Thank you for the super helpful link on the anti-landlord laws being passed there!!! That is huge, and I had no idea. Very grateful for the critical information that I would've missed.
Everybody thank you so much! I had so many red flags and I consider this a very good lesson. I hope I can get my deposits back from the company as everyone has confirmed that the rent projections were way too high and that I was tricked into wiring over the money. I have in writing from the rep that those deposits are 100% refundable, hopefully I can get it back. This experience has made me realize that turnkeys can be pretty dangerous because they can put any random number in a spreadsheet. Another note is that the 'investment adviser' has not given me any information that I asked for since I wired the money over on Monday and when I expressed concerns just said something to the like that these properties are hot and if I don't want them someone else will buy them.
Thank you everyone for your expert advice. I think I'm done with turnkeys and will do it the old fashioned way.
Originally posted by :
@Ronald Perich Yep, I did that too and used Craigslist. Couldn't find any properties with rents over $1k so thank you for confirming that my analysis was OK. Thank you for the super helpful link on the anti-landlord laws being passed there!!! That is huge, and I had no idea. Very grateful for the critical information that I would've missed.
Don't thank me yet. I was just corrected that Florissant, MO passed the ordinance, not Ferguson. That said, there was no way you were going to get $1,300 a month for the property.
I personally think Ferguson isn't a bad area. They have really done a lot to try and keep that community vibrant and there are some very nice homes, shopping, and eating choices in that town. And some of the older homes have beautiful style and architecture.
If you see others for 25% cheaper then they are using hyped up rents to oversell. So, don't buy. Find a better wholesaler like Brett Snodgrass instead of a turnkeyer.
@Edward Rhoads Agreed, only way their numbers on the spreadsheet worked was by over-inflating rents so dramatically. I'm guessing this is how turnkey companies typically get investors to buy turds because there's no recourse if it's missed during due diligence.
I'll probably buy from a wholesaler and do the rehab myself and steer away from turnkey providers unless it's a turnkey provider that is very prominent on BP and has a pristine reputation as buying an out-of-state inflated priced property with poor numbers sounds a great way to lose a lot of money.
@Ronald Perich Thanks for the update on the ordinance and being honest about it. Even without it, the key issue is that the rent is way over-stated and that dropping the rent from 1300 to 995 (which is still high but doable), the COCR drops to below 5% or $105 cash flow per month. Not worth the risk IMHO. If I wanted such crappy COCR returns, I could even find that in a C neighborhood here in San Diego, which is what that neighborhood sounds like from what people have posted in this thread.
If you can get a good contractor that is the way to do it. Don't use Kelso construction though.
@Ray Lai It looks like this is not going to turn out how you had hoped, that's pretty well established. But I want to point out the best parts of this ordeal:
1) You took the first step and it's more than 99% of would be REIs ever do.
2) You took the second step when you noticed the issues, by getting fast, free and helpful advice here on BP!
3) Hopefully the wire-fees are all it will cost you. If so, you didn't lose anything because you gained a lot of knowledge, and more importantly the confidence to take another step for future opportunities using the knowledge you gained.
Assuming you are on wechat, we have an active group of out-of-state investor based in CA. Feel free to ping me if you are interested. @Ray Lai
@Ray Lai I will Just try to call investors, or perhaps, There is Consulting Investment Firm in the Area If you really want a more acquired number. For a small fee they will do a Investigation in deep.
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