Spartan Invest - Birmingham Turnkey Case Study

Spartan Invest - Birmingham Turnkey Case Study

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!

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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...

See this reply in the discussion

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  • Seattle, WA · Member since 2017 · 1 post · 1 vote
    8y

    I just wanted to chime in to say a big thank you!  for sharing all the details of your journey with us.  As someone exploring TK investing, its very useful for me.  Keep up the good work!

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Update - January 2018 Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    This marks 9 months of rents collected and no maintenance (:

    Will update again next month! Cheers!

  • Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Jared Friedman:

    I own 5 properties with Spartan and I'm closing on my 6th pretty soon. I purchased based on a referral from a colleague of mine who has long term experience with them (5+years). I have only owned for a little over a year and things are going as expected. Some properties rented before I closed. Some took a few months to rent. All in all no investment will be perfect. 

    Long term with anything is hard to predict so due diligence is everything. I own and manage a few rentals in California as well that I personally rehabbed and rented. I cash flow very little with my California properties but I have seen appreciation between my two Cali rentals top $500k in the past 5 years. My turnkey properties however cash flow nicely- around $300-350 each but I am not expecting any appreciation with those. I think its all about diversifying your entire portfolio and not owning just one type of asset. 

    Nice. It will only take 59 more years for two cash flow properties @ $350 per mo to equal what the two Cali did in 5.

  • Irvine, CA · Member since 2017 · 45 posts · 4 votes
    8y
    Originally posted by @Clayton Mobley:

    @Chris A. Thanks for the shout out. @Andrew Frishman to answer your questions:

    1) While appreciation is definitely not the focus of turnkey (cash flow is king!) the Birmingham market has experienced modest but steady growth. In addition, the revamp of our downtown area and influx of millennial entrepreneurs has made the city a bit of a hotspot. The trends we're seeing on the ground bode well for future growth, but of course you can never guarantee appreciation. That's why we never try to use that as a selling point - it's the icing on the cake. However, RE in Bham retains its value over time and typically produces modest appreciation. We've also noticed that the average prices in some of the areas we do the most work in have been going up, possibly as a result of our high-end rehabs pushing up the comps for other properties on the market. We don't have hard data on that yet, but if we get some I'll definitely share.

    2) We track all our performance metrics obsessively and update them daily. For the last several months, our occupancy rate has hovered right around the 96.5% mark for the previous 52-week rolling period, so a vacancy rate of 3.5%. Of course, we know that these things ebb and flow a little bit, so we always use a slightly inflated rate of 4% on our pro formas just to maintain a conservative estimate. However, our minimum lease term is 2 years, but our average is 3, so many of our tenants stay for quite a while. Our thorough rehab work, updated capex items, and sub-24-hour maintenance call out turnaround time keeps good tenants happy, so we don't anticipate our occupancy rate dipping in the foreseeable future.

    The real estate demand in Bham is strong, and our population is getting younger (which bodes well for future growth as the millennial generations settles down and starts families). There is strong demand for both rentals and owner-occupied properties. Turnkey is a long-term investment, but the upside of investing in high quality SFR props in B/B+ areas is that you are more likely to be able to sell to an owner-occupant (who is more likely to pay market or more based on emotional attachment to an area or house). A C/D prop isn't selling to an OO , just other investors (who will always want a deal and haggle, just like you or I would). A props can absolutely sell to OOs, but unless you find an incredible deal, your PITI will eat up your cash flow, which makes it purely an appreciation play for 15-30 years . The B/B+ class is right in the sweet spot of cash flow (as the primary goal), moderate appreciation potential (icing), and exit flexibility (back-up plan), which is where we like to be. While life sometimes happens, people don't (or shouldn't) get into a turnkey investment expecting to pull out a year or two later, that defeats the purpose of this investment type. If you do have to sell early, however, a well maintained, updated property in a family-friendly neighborhood is much more likely than a higher or lower-tier prop to provide consistent, reliable, passive income, and then sell at market price or above.

    Ok that's it from me! Don't want to bogart this thread any longer ;) Thanks, Chris, for keeping such a detailed log of your experience with us. You know where to find us if you need anything!

    All the best,

    Clayton

     What are your definitions for A, B/B+, C, and D class properties and locations?

  • Clayton MobleyPro Member
    Birmingham, AL · Member since 2014 · 875 posts · 947 votes
    8y

    @Kevin Yi I don't want to bogart this thread a second time with my ramblings, but the general answer to your question is this:

    A - Where most people wish they could live, if money were no object. Great schools, nice parks, well maintained homes and lawns, large properties. These are the areas that people aspire to live.

    B - A much larger swath of the housing market. Where most upwardly mobile, stably employed people live. Lots of nurses, educators, management, and other professionals. Homes are not quite as big, but are still well maintained. Depending on the area schools are anywhere from decent to great. Near employment centers. Assuming you can't afford to live in an A neighborhood, you would most likely be perfectly happy to live in these areas - especially younger people looking to set down roots or start a family. 

    *Difference between B-/B/B+: When a B neighborhood has great schools, very nice homes, high values, etc, you're in a B+ area. If its an area with more modest but still well-maintained properties but a slightly lower income area (more factory or other blue collar workers, but still stably employed) then you're looking at more of a B- neighborhood. For example in Birmingham, Spartan's average property value for the B-range is $100k, but we also do B- and B+ properties in the $75k and $125k ranges. 

    C - Lower income, often Section 8 tenants. Many buildings or homes are not well maintained, either because homeowners and tenants can't afford the upkeep or (often) because landlords defer maintenance and cut costs to maximize short-term profit margin. A lot of good hardworking people live in these areas, but due to the lower average income they become riskier areas for investment, because people living paycheck to paycheck (regardless of the reasons why) are just one sick day or one flat tire away from missing rent. If you go into a neighborhood and think "I wouldn't live here if I had the choice" that's probably a C neighborhood. 

    D - Very low income, almost all Section 8. High crime, low-rated schools. Again, the people that live in these areas are often still hardworking tenants who deserve a good place to live, but they are extremely risky areas to invest in because of all the issues mentioned above. Homes are poorly maintained, a lot of shabby apartment buildings, lots of people on the streets during the day, etc. If you go into a neighborhood and think 'I wouldn't walk around here at night' that's probably a D neighborhood. 

    If you're wondering about specific zip codes in Bham, here's a thread where we discussed this a while ago: https://www.biggerpockets.com/forums/311/topics/22...

    Hope that helps!

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Update - February 2018 Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    This marks 10 months of rents collected and no maintenance (:

    Will update again next month! Cheers!

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Update - March 2018 Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    This marks 11 months of rents collected and no maintenance (:

    Will update again next month! Cheers!

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Update - April 2018 Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    This marks the ONE YEAR ANNIVERSARY of rents collected and no maintenance (:

    Will update again next month! Cheers!

  • Sacramento, CA · Member since 2017 · 20 posts · 28 votes
    8y

    @Chris A. that is great news, I'm on the waitlist currently, what is your plan with getting more homes with Spartan?

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    I could be wrong about what is normal in Alabama as I am not familiar with that market at all, but a 500 dollar lease renewal fee is extremely high in my experience. I use two different PMs in two different markets and their lease renewal fees are under 200 dollars. The cheapest one is 100. I agree that finding a tenant, coordinating repairs at turnover, showings, marketing etc all cost time and money so I am fine with a leasing commission. That being said paying 500 dollars for a lease renewal seems expensive, by at least a multiple of 2. I understand PM is a tough and small margin business. That being said I like PMs who keep their fee structure simple. Percentage of rent, new tenant fee and maybe a small markup on maintenance costs. That’s about it in my mind. Most months there isn’t a lot going on, unless you have bad tenants. Look at the OP, he had a year where basically nothing happened. My own turnkey experience has been pretty similar so far. Just something to think about
  • Pasadena, CA · Member since 2018 · 25 posts · 1 vote
    8y

    For those who bought from Spartan Invest, how long did you have to wait to start getting properties? I was told 4 weeks but not sure if I understand their definition ofwait list. Here is what I was told "The wait is approximately 4 weeks. What that means exactly is this: Once I've received new inventory from my acquisitions team, you will be able to review the inventory about 4 weeks after I've started distributing the list."

    Thank you!

    @Jon Zhou

  • Murray, UT · Member since 2016 · 162 posts · 166 votes
    8y

    @Li Tolentino

    I think it has changed a lot in the last year for turnkey companies all over the country.  When i got my first one with Spartan last June, there was basically no waiting list and lots of properties to choose from.  For my second one in December there was about a 1-2 month wait.

    Another turnkey operation I was working with put me on a 5 month waiting list last May.  That 5 month wait turned into an 11 month wait and just starting being able to view properties this week.  With the combination of more investors with more cash, and less and less supply, I think it will only get worse.

    I have also noticed that prices are going up a bit too.

  • Irvine, CA · Member since 2017 · 45 posts · 4 votes
    8y
    Originally posted by @Chris A.:

    Update: 05-01-2017

    Renovations are officially done and appraisal and inspections are to happen this week. 

    Already a tenant ready to move in once the place is ready. (great news from the Spartan team)

    Breakdown of investment:

    Price: $82,000

    All in Investment: $22,400 (20% down @5.25% 30 year)

    Rent: $795

    Tax: $320 annual

    Insurance: $510 annual

    Cap: (will let everyone calc on their own because it seems like everyone has their own way)

    CoC: ((will let everyone calc on their own because it seems like everyone has their own way)

    All in all the process has been very smooth and Spartan Invest has been very patient with me and the team has been able to answer all my questions and step me through the process. Although communication may have been a little loose at times, when important events occurred - Spartan always made sure to reach out. Lack of communication was subject to my own high standards for communication which I admit can be over the top and a lot to ask for. 

    I will post pictures once I receive them from Spartan and will update monthly with any news!

    How is your tax so low?

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Thanks for  bringing that up! Totally forgot to mention spartan screwed up the tax in the pro forma they gave me. My annual tax is actually 745 i believe. Also just for the record, Spartan compensated me for their mistake.

  • Irvine, CA · Member since 2017 · 45 posts · 4 votes
    8y
    Originally posted by @Chris A.:

    Update: 05-01-2017

    Renovations are officially done and appraisal and inspections are to happen this week. 

    Already a tenant ready to move in once the place is ready. (great news from the Spartan team)

    Breakdown of investment:

    Price: $82,000

    All in Investment: $22,400 (20% down @5.25% 30 year)

    Rent: $795

    Tax: $320 annual

    Insurance: $510 annual

    Cap: (will let everyone calc on their own because it seems like everyone has their own way)

    CoC: ((will let everyone calc on their own because it seems like everyone has their own way)

    All in all the process has been very smooth and Spartan Invest has been very patient with me and the team has been able to answer all my questions and step me through the process. Although communication may have been a little loose at times, when important events occurred - Spartan always made sure to reach out. Lack of communication was subject to my own high standards for communication which I admit can be over the top and a lot to ask for. 

    I will post pictures once I receive them from Spartan and will update monthly with any news!

    How many bed, bath, and square feet is the property?

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    @Kevin Yi 850sqft 2bd1ba

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Update - May 2018 Rent Collected!

    $850 Rent collected (795 rent + 55 late payment fee)

    ($71.55) Management Fee (9%)

    ($27.50) Management takes half of late fee

    _______________________________________________________________

    $750.95 in my pocket this month. 

    No Maintenance costs (: - talked with the PM and their response:

    "Hi Chris! Per the notes, looks like there was a "personal emergency" that came up but the tenant has let us know that payments should be back on track for next month. This tenant has been great and timely with payments so we won't start to worry yet, but if it becomes a pattern, we will make sure we put a quick stop to it. Thanks and hope you have a great rest of your week!" 

    Will update again next month! Cheers!

  • Sacramento, CA · Member since 2017 · 20 posts · 28 votes
    8y

    Thx Chris, how much are you cash flowing on this property monthly and what’s your next step with spartan, are you happy enough to buy another property?

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Update - June 2018 Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    Will update again next month! Cheers!

  • Investor · Arlington, VA · Member since 2012 · 1k+ posts · 491 votes
    8y

    This is awesome!  Thanks for sharing!

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Update - July 2018 Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    Will update again next month! Cheers!

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    8y

    Update - August 2018 Rent Collected!

    $795 Rent collected

    ($71.55) Management Fee (9%)

    No Maintenance costs (:

    From now on expect monthly checks to be collected on a regular basis - will only update when something out of the ordinary comes up! Hope this thread has been useful to everyone!

    Happy Investing!

  • NJ · Member since 2018 · 28 posts · 8 votes
    8y

    @Chris A. Thanks for sharing your journey. I am new to BP and was reading this thread which was very informative. Looking to get into my first TK in the near future and have started talking to a few folks.

    Regards,

    Royston

  • Contractor · Oahu, HI · Member since 2017 · 28 posts · 17 votes
    8y

    @Chris A. Thanks for starting this discussion. I'm curious, what neighborhood/zip code of Birmingham is your property located in?

  • Los Angeles, Cali · Member since 2017 · 53 posts · 54 votes
    7y

    Update 03-20-2019

    Since the last time i've posted, I have been collecting rent regularly. There was a case where the tenant paid rent late, but we are now up to date with all payments. Just heard great news from PM - they have just resigned the tenant for another 2 years (cant believe its been 2 years already!) at $805 a month (previous was $795)

    Cheers!

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