Spartan Invest - Birmingham Turnkey Case Study

Buying & Selling Real Estate
9yFollow

Spartan Invest - Birmingham Turnkey Case Study

Chris A.
Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes

Hello BP Community!

In efforts to give back to the community, I wanted to document the process of acquiring my first turnkey property through Spartan Invest. I know when I was first researching the forums, case studies like the one I am attempting to do were very helpful and provided me lots of insight into the process of acquiring a turnkey property through a full service turnkey provider. 

Part I - Making contact

I first made contact with Spartan Invest by reaching out to them through a link I found on their website. The response time was great and I heard back from their VP Sales, Maureen within 24 hours. 

Part II - The Discussions

From the time we made contact (almost a month ago) up until now, Maureen has been more than accommodating. Communication has been really good and any questions I had were answered. What I really appreciated about everything is that she was very transparent. There was a slight fall-out in communication a week ago but it was because Spartan Invest is currently growing very rapidly and it seems like their team is overloaded. They are now currently looking to hire new help in order to meet the demands. I just want to note that during the week where they dropped the ball on communication I began to worry and was considering crossing Spartan Invest (SI) of the list. I decided to reach out to the CEO @Clayton Mobley who is very active on the forums to see what was the cause and he was very responsive and explained the situation. Maureen (who spearheads all sales) was on a business trip and was swamped, but when she returned she made sure to reach out to me and explained everything. She was very transparent once again and openly took fault and owned up to the lack of service during that time. Not only did she admit to her lack of service, but also provided a solution to what SI was doing to remedy this. I personally really appreciated this "find solutions, not excuses" approach.

Part III - The Properties

Before being able to start seeing what properties were available, I had to provide pre-approval for a loan. SI recommended a lender that they typically use due to the familiarity the agent (Graham Parham) had with their type of deals. Of course, Maureen ensured that she was willing to work with any lender I chose as long as she was able to vet them before hand. Main reason for this was she wanted to make sure that the lender would be able to close the deal. I decided to go with Graham and up until this point the service and responsiveness from him has been excellent and their rates were what the market commanded as well. 

Once I was pre-approved, I began to receive pro-formas of available properties. One thing I liked about SI was that their pro-formas were very well made and allowed the flexibility for you to change and add your own contingencies when doing financial analysis. 

Part IV: Putting a Property under Contract

Once I found a property I was interested in and committed to get under contract, Maureen passed my off to Scott who would be my personal representative throughout the rest of the process. I want to note that before committing to getting the property under contract, I was provided with Scope of Work being done on the property, the PM agreement, and also a draft of their typical sales contract. As of now I am currently getting a contract underway this property. I shall update as I progress! 

Cheers!

7Reply
397 views

Most Popular Reply

Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
9y

@Jay Hinrichs, the funny thing about monthly calls to a client, the bar is already set so low for out of state investors.  In my experience, most come into an investment expecting the worst and happy if there is any communication at all.  To have a company that says they will call you monthly and actually do it is a HUGE differentiator when it comes to buying Turnkey properties.  It is why we do it, it is why JWB in Jacksonville does it, and it is why Spartan does it.

I actually had a TK company come visit me for advice in our offices who advertised their great customer service and the fact that they called clients monthly.  He was astonished when I introduced him to our seven customer service team members.  He told me they only said that because they saw us saying it.  They didn't actually do it because they didn't believe we actually did it.  It was unbelievable.  So the fact that a TK company provides a monthly call once you own the property should be seen more as a long-term commitment than anything else.  

So, why don't more do it?  It takes that commitment to long-term.  It takes big money, time, team member commitments.  A company has to hire someone full time to handle a position like this.  And then a commitment to hire more team members as you provide service to more investors.  It takes a firm belief that by providing better communication and raising the bar for what investors expect,  you will attract your ideal clients.  Ideal clients are those that are buying not because a piece of paper says they will get a good return, but because the actions of a company and the commitment they show to being great tells an investor that they will be able to sleep well at night.  @Chris A., this fact should provide you with a lot of comfort at this point.

So even if the conversation is nothing more than everything is going great with your property, providing that contact, that monthly check-in, that call each month is a really big deal.  At least it is to the investors that I want to attract...

Podcast Guest on Show #224
REI Nation4.576 Reviews
WebsiteView Page
7Reply
See this reply in the discussion

136 Replies

Jump to latestLatest
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    @Larry Fried good catch! Yes I did! Thank you (: for the catch and all the previous help you offered me when I first started! Can't believe that was only 2 months ago!

    0Reply
  • Larry Fried
    Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
    9y

    You bet, @Chris A.  And congrats on this first investment.  It is really good to have a 2 year lease.  I look forward to hearing how it continues to work out for you.

    1Reply
  • TJ P.
    Investor · WI OH · Member since 2015 · 113 posts · 36 votes
    9y
    Originally posted by @Chris A.:

    Considering they bought the foreclosed property at $34K and I am buying it for $82K - no clue how much they spent on the renovations (maybe around 20K?), but seems like Spartan was able to make a pretty nice profit? 

    Cash flows work for me so I guess good deal for both parties.

    Would love to hear peoples thoughts

     Some thoughts and ?'s for you.

    According to my calculations(plenty of variables) using the #'s you provided, this deal appears to CF somewhere between $150- $190/m(you may have put this in the thread but I missed it). I think this is possible due to the very low taxes and ins in AL. So the question I typically ask with these kind of TKs- Did/does it concern you that it doesn't even meet the 1% rule or is the fact that it CFs is what you were going for? 

    I understand that TK companies have to make a profit but with the market "tightening", I am seeing/reading a lot about OOS investors plunking down larger down-payments to make the #'s "work". Personally, I am doing some HML with friends until some credit issues resolve then will likely go the TK route. I spend a lot of time in AL (went to school there) and hope to move back eventually. I worry some that the #'s I want to get (20% down/ $200m CF on B properties/areas) may not be available in cities I want to invest in ....or at all. I hope that you'll keep us posted on additional acquisitions; they are very helpful.

    1Reply
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    @TJ P. You are absolutely correct on your assumptions - depending on how much you are putting away for maintenance and vacancy I am making between 160 - 200 a month CF. I wasn't too worried about not meeting the 1% rule because it was pretty darn close and mainly because I believe in the ability of Spartan's PM company to take care of my property and manage consistent CF per month. Looking back at it now there could have been many different TK providers that I could have gone with that would have offered better returns and properties that rent for sometimes even higher than the 1% rule. I still believe there are many opportunities in the market to achieve what you are looking for. I would definitely talk with different providers and give them your criteria - I don't doubt you will be able to find an investment that fits your needs even with the recent "tightening" in the markets. My two cents would be find a good lender to work with and be patient and wait for the right investment to come along. Make sure you trust and believe in the work of the TK provider you end up going with - at the end of the day it is the PM that will make or break your investment - at least that is what I believe.

    If you can build your own team to buy and renovate properties then find a good PM to manage them obviously you can far exceed the returns you are looking for - but i guess the reason for you going TK route is you want very passive - like i did. 

    I will make sure to update this post every now and then but if you have any other questions feel free to DM! I will help in any way I can.

    1Reply
  • Jacob Glawson
    Birmingham, AL · Member since 2017 · 13 posts · 4 votes
    9y
    Chris A. Hey Chris, one thing I'm wondering about is the exit strategy here. The areas where Spartan is rehabbing the homes are not great. I live in Birmingham and have been looking at spartan too but I'm worried I would be buying the most expensive house in an area that already has little appreciation. If you buy an $80k house in a neighborhood where all the other houses sell for $50k and below, how do you ever sell it later? Any concerns there?
    0Reply
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    @Jacob Glawson Exit strategy is one I struggled with. But bear in mind that this is a long-term investment and typically with turnkey properties you dont bank on appreciation. That being said the three exit strategies that come to mind:

    1. Sell to another investor

    2. Sell to a person looking for a home

    3. Seller finance to tenant

    I agree that I do not know if down the line I will be able to sell the house at what I purchased for and the fact that it was purchased at a significantly higher price than what other homes around the area sell does worry me a bit. However, I figured the longer I hold the property the less of a risk that becomes. I went into turnkey investing knowing that the principle I put down for the investment would not be liquid. 

    Because I am an OOS investor - could you elaborate on the areas Spartan rehab's homes. From my research they seemed like your typical B neighborhoods - crime rates are low and school district (at least the one where my property is) are good. 

    @Clayton Mobley maybe you can weigh in to answer Jacob's question.

    0Reply
  • Jacob Glawson
    Birmingham, AL · Member since 2017 · 13 posts · 4 votes
    9y

    So, I spent some time on the Spartan Invest website this morning.  The properties they are showing as available for sale are actually, if Zillow is to be believed, priced in line with other properties in the area.  Maybe I was looking at something else.

    So, if the info is correct, I think you are ok there.  I wouldn't expect a ton of appreciation tho but something is better than nothing.

    0Reply
  • Christine M.
    Investor · San Francisco, CA · Member since 2015 · 16 posts · 8 votes
    9y

    Thank you for sharing, @Chris A. What a beautiful house! I think the cost of renovation would be more than $20k with new metal roof, granite countertops, new floor, and new HVAC, etc. Is this a 3 bedrooms 1 bath? 

    @Clayton Mobley Hi Clayton, are the properties shown on your website still available or they are just featured properties? Thank you. 

    0Reply
  • Clayton MobleyPro Member
    Birmingham, AL · Member since 2014 · 875 posts · 947 votes
    9y

    Hey @Chris A., good to hear from you - and glad to see your investment is moving along nicely! I think you answered @Jacob Glawson's questions perfectly - Tk is a long-term investment focused on cashflow, not appreciation. So the focus is high quality properties with low expenses (which is where new HVACs and new roofs come in, keeping maintenance rates low over the long-term) that we can keep tenanted reliably. A TK investment is not a liquid asset, as you pointed out, and we always tell prospective clients that if they can't or don't want to part with their downpayment for 5-10 years, then TK may not be for them. Remember, the point of TK is for you to have tenants paying off your mortgage for you, while you pocket the extra and build your portfolio. Ideally, you'd build up to a handful of doors and start devoting all your flow to paying off that first loan, then whittling down the others until you're free and clear on the lot. It's not a get rich quick plan by any means, but it is exactly what it claims to be: a source of consistent, reliable, passive income. 

    That being said, we are seeing good trends here on the ground in Bham, and we definitely don't think appreciation is out of the question. We're attracting millennial entrepreneurs like crazy and our downtown renaissance has really revamped this southern city into a cosmopolitan hub. Over the next several years, I think appreciation is definitely going to be a factor, but that's not what we base our model on. We're conservative in all things, and appreciation is just too fickle to bet on.

    Exit strategy-wise, we try to invest in areas that have good rental demand as well as good owner-occupant demand. Given the high end rehab work we do and the fact that we never defer maintenance, the odds of being able to sell to an owner occupant down the road are pretty good. Again, that's not the focus of the investment - ideally it would keep cashflowing indefinitely! We're also noticing a trend of increasing values in some of the areas we invest in, which may (we don't have hard data on this yet) be a result of our investment props pushing up the average value and setting the bar for property maintenance a little higher. Just like a junker prop can tank the value of the house next door, an updated and well-kept prop can help boost it's neighbors' numbers. Since prop comps are based on other nearby properties, having a Spartan property in an area can have a real impact on the comps pulled for other properties - a rising tide lifts all boats!

    2Reply
  • Clayton MobleyPro Member
    Birmingham, AL · Member since 2014 · 875 posts · 947 votes
    9y

    @Christine M. With regard to the cost of rehab, I believe it was a bit more than $21K - but this is due to the impact of economies of scale - we're able to get wholesale prices on fixtures and supplies, and streamline our processes, plus our team has years of experience executing top-to-bottom rehabs quickly and efficiently. Economies of scale are one of the biggest reasons TK companies are able to handle bigger volumes than an individual fix-and-flipper. If an individual were to do the same rehab, it would likely cost much, much more and take much longer, especially for a first time investor. Of course, you have to also account for all the labor that is put in to ensure that Chris' property had a paying tenant before he even closed (actually with a higher rent than anticipated, tacking on anther 1.3% to his ROI), including utilities costs, marketing expenses, hiring a photographer, admin costs, and allllll those work hours. Plus all the labor that went into finding and purchasing the property in the first place.

    So yes, Spartan made a decent profit on this property - without that margin, we'd only be earning from annual PM fees and the occasional leasing fee, while doing much more than just the work of a PM -  an inefficient business model to say the least. I notice that many companies try to downplay the fact that they make money on these investments, which I think is bizarre. A business doesn't succeed because it loses money.... but a business making money doesn't need to mean the investor has to lose out. If you do your job right, everyone can get what they want. 

    Basically, when you go the TK route, you're paying someone else to do all the legwork- the weeks and months of property research, getting inspections, doing rehab, handling unexpected issues, marketing the prop and vetting tenants. The value of your own time and peace of mind is what you get in exchange for that 'extra' equity - money is what you put in, value is what you get out. Knowing that everything is handled professionally and being managed well allows you to put your time and energy into expanding your portfolio, working your W2, or enjoying time with family. While it's no secret that it's possible to get more equity and a higher ROI by doing it all yourself (though, like everything else, it's not guaranteed), it takes a ton of time, hard work, patience, and focus. For people that go the DIY route, the increased ROI (if they get it) is their compensation for months of hard, unpaid labor. Turnkey allows you to put idle money to work with little to no effort, like being paid for taking the day off!

    To answer your other question (much more briefly, I promise!) the properties on our website are primarily listed as a representation of the types of properties we invest in, prices, and neighborhoods. Our inventory is moving so quickly right now it is impossible to keep the site list updated accurately, though we are working towards a revamp when time and schedules allow. If you're curious about what properties we currently have available, feel free to shoot me a PM and I'll get you in touch with my co-founder and portfolio guru, Maureen Mccann. She's the best person to speak to about what we have that would suit your specific needs and goals.

    If you, or anyone else, has any questions, always feel free to contact me here directly.

    Best of luck to all!

    Clayton

    2Reply
  • Christine M.
    Investor · San Francisco, CA · Member since 2015 · 16 posts · 8 votes
    9y

    @Clayton Mobley Clayton, thank you for being so transparent. 

    0Reply
  • Rob Hakes
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    9y

    @Chris A.

    Thanks for posting all this.  I am currently looking at buying from Spartan and really appreciate your honest and thorough review.

    Any pointers or suggestions before I proceed?

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Chris A.:

    Considering they bought the foreclosed property at $34K and I am buying it for $82K - no clue how much they spent on the renovations (maybe around 20K?), but seems like Spartan was able to make a pretty nice profit? 

    Cash flows work for me so I guess good deal for both parties.

    Would love to hear peoples thoughts

     If you are happy with it long run that is all that counts. I think a large percentage of OOS TK buyers eventually regret it but thats another story. If cash flow is your only goal maybe check this link. Good Luck!

    https://www.biggerpockets.com/blogs/5937/61324-can-you-cash-flow-more-renting-out-a-car-than-renting-out-a-house

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Chris A.

    You bought a service first and foremost... You bought RE second....

    2Reply
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    @Rob Hakes I would say before starting on anything - make sure you know your own personal criteria and what exactly you are looking for in your RE investment. Make sure to ask all questions and clarify anything you are not comfortable with. Working with turnkey providers, properties go fast - you need to be able to receive the available properties, crunch the numbers, then make a decision. This is why knowing exactly what you want is key and also never feel rushed - wait for the right property to come. 

    Things like:

    1. Expected COC returns

    2. Estimated maintenance/vacancy savings

    3. Specific criteria for type of house you are looking for

    a. Age of property

    b. Septic vs. connected sewage

    c. school district, neighborhood, etc.

    0Reply
  • Jaye Seay
    VA · Member since 2016 · 35 posts · 24 votes
    9y

    Thanks for this thread! It is very helpful as I am just beginning to investigate Spartan Invest. I will be speaking with Maureen in a couple of days.

    0Reply
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    @Jaye Seay congrats on taking the first step! Maureen is very knowledgeable and is always straight to the point. Best of luck! If you can ask her for a Birmingham Market update and share! Any current insights would be great to hear - I know they highlight older information back from 2014-2015 but am curious on any new insights to the market 

    0Reply
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    Update - June Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    Will update again next month! Cheers! 

    3Reply
  • James You
    Real Estate Agent · Los Angeles, CA · Member since 2017 · 125 posts · 37 votes
    9y

    @Chris A. hey chris! been following this thread for awhile now, and thank you for sharing your journey with the community.  its great to hear and see that your investment has started to perform, hope it will be a snowball effect from here on.

    Were you able to review and compare different areas of Birmingham?  What area did you end up investing in and what factors did you consider in choosing the specific area?  

    I've connected with Spartan as well, and now I'm in the process of reviewing different micro markets of the city and determine which areas I should look after.   

    0Reply
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    @James You the markets I ended up looking into were hueytown (35023), center point (35215), and Chalkville (35235). Main factors I took into consideration for neighborhoods were school district and owner occupancy %. However, more than neighborhood I believe you want to set your own individual criteria in terms of cash flow vs appreciation, COC goal, age of house, price of house, school district, crime rates, etc. and then see what neighborhood that ideal house falls into. Spartan works in great neighborhoods so I would worry more about the individual characteristics of the ideal house you are looking for rather than specific neighborhood. Once you give Spartan what you are looking for they can present you with some options. Best of luck and congrats on taking the first step!

    1Reply
  • James You
    Real Estate Agent · Los Angeles, CA · Member since 2017 · 125 posts · 37 votes
    9y

    @Chris A. Thanks for your input

    0Reply
  • Rebecca K.
    Gilroy, CA · Member since 2016 · 41 posts · 21 votes
    9y

    Spartan spends around $30,000 on renovations, something they are pretty transparent about and which I appreciated.

    Chris, I appreciate all the chronicling and posts you made. Thank you. 

    1Reply
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    Update - July Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    Will update again next month! Cheers!

    0Reply
  • Andrew Frishman
    Ridgefield, CT · Member since 2017 · 101 posts · 60 votes
    9y

    Two questions:

    I always assumed Memphis/ Alabama were great cash flow Markets... at the expense of low property appreciation.

    1) Are these properties expected to appreciate??

    2) What are expected Vacancy rates on these properties? 

    Thanks for all of the great info in this thread.

    Andrew

    0Reply
  • Chris A.
    OP
    Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    9y

    @Andrew Frishman

    1) Depends on the area, but the neighborhoods that cash flow I dont expect to appreciate. So no, I do not bank on appreciation - strictly cash flow

    2) Again depends on many factors, I factor in 5% vacancy in my calculations I know Spartan has hard data of what their vacancy rates have been across all their properties. Maybe @Clayton Mobley can chime in here.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free