Getting burnt out // Thinking Turn Key with MidSouth....

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Getting burnt out // Thinking Turn Key with MidSouth....

Derek Okahashi
Realtor · Mililani, HI · Member since 2017 · 107 posts · 47 votes

I am in a strong financial offensive mode in building my cash position right now. I basically work two jobs and save 5k a month. It's really one demanding job and then full time school (the GI Bill pays me to get good grades...for now). I have very little time after those two things, U.S. Coast Guard Reserves, fatherhood and being a husband. 

I've been trying to work with my out-of-state cousin to find a deal. He owns 30 homes with a partner and 10 or more of his own and brokers, flips, and wholesales but the right opportunity hasn't popped up there either and, I have to face it, he is a busy guy himself. I know there are deals in any market and I have been a business owner and forged these relationships that lead to opportunities in another space, but I don't have that kind of time any more. Really, any little amount of time I have left should be spent with my family or doing something for my health. 

All that said, I am considering just going turnkey with MidSouth Home Buyers to get my feet wet in this game. I met someone today who has 2 homes with them and is very satisfied. 

I appreciate your thoughts.

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Alex CraigBusiness Member
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
9y

Turnkey is certainly a good way to get into real estate with minimal efforts. I have seen quite a few people get into real estate via Turnkey, then like it so much, they build their own team and go out on their own.  Then there are some that never want to put that kind of effort. Terry is a good guy running a good operation. You will have to be patient as they have a waiting list, which sort of puts you in the same situation with your cousin. 

BTW, you are going to get a lot of anti and pro TK responses.  Everyone is different and you will simply have to find out what is best for you after speaking with Mid South.

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y
    Originally posted by @Derek Okahashi:
    Originally posted by @Ali Boone:

    Hey Derek! Turnkey sounds like it might be great for your situation. Any reason in particular for focusing on Memphis as the market to buy in? Is it just because you've heard good things about MidSouth?

    Thanks for your comment. I am not really focused on Memphis but back when I wrote this post I was interested in Mid South and they do a lot in Memphis. I also met someone with properties in Memphis so it was a topic of discussion. I have actually been looking at South of Nashville areas, Augusta, GA, and Phoenix. 

    What is Hipster Investments all about?

    Have you found anything around Nashville? I know there aren't any turnkey folks there, and prices are sky-high, but I love the city (used to go to school there) and would kill for a property there! Phoenix tapped out for cash flow years ago. Have you found anything there? I'm from Atlanta so am familiar with Augusta but not as an investing market. Anything good there?

    Hipster is based on my experience buying turnkeys. We help folks maneuvering through turnkey world.

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  • Derek Okahashi
    OP
    Realtor · Mililani, HI · Member since 2017 · 107 posts · 47 votes
    8y
    Originally posted by @Ali Boone:
    Originally posted by @Derek Okahashi:

    Have you found anything around Nashville? I know there aren't any turnkey folks there, and prices are sky-high, but I love the city (used to go to school there) and would kill for a property there! Phoenix tapped out for cash flow years ago. Have you found anything there? I'm from Atlanta so am familiar with Augusta but not as an investing market. Anything good there?

    Hipster is based on my experience buying turnkeys. We help folks maneuvering through turnkey world.

    I see things in Nashville that would cash flow a little before you factor in all of the things you should factor in (management, cap ex, vacancy etc.) The townhouse south of Nashville that I mentioned comes with a lot less maintenance because of the nature of townhouses but I also have not gone through the HOA docs thoroughly to see what may happen in a downturn and what other implications may be on investors.

    Phoenix I have not put a lot of effort into and have not found anything good. I was connected with a good property manager out there though so maybe if 2008 happens again (and therefore 2010 happens again), I will look to invest in Phoenix mainly because I know a good PM there. 

    Augusta: My cousin has a portfolio of 30+ homes currently in Augusta. He brokers, wholesales, flips, BRRRRs and anything else you can think of. He is not on BP but is a pro out there. With that said, I can't expect him to give up great deals that would make sense to keep in his portfolio. Example: a 10k home at auction needing 25k in rehab, managing contractors for 2 months, and then ARV = 60k. Only makes sense for him to tackle that himself. If I were to spend some time in Augusta I could get those deals and deploy my capital along side him while learning, but we aren't in a relationship where it makes sense to do those things right now. //// So if a good enough deal pops up there then I can tackle it. We have been analyzing deals for months and maybe I had some decent ones but I never pulled the trigger. Now he is selling one from his portfolio and that was the one I mentioned. As Lane stated though, exit strategy on an asset like that in a C- or D neighborhood will be tough. So idk...

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y
    Originally posted by @Jonathan Castillo:

    Hey @Ali Boone and @Lane Kawaoka given that you both have done TK as your investment strategy. I was curious to know what level of equity you purchase at. I am currently exploring this as I am a working professional and want a foundation of something to rely on as I get into doing something on my own later on with out or state investing. However, my concern is overpaying in equity value the norm? or paying at / below equity the norm?. I've seen some that the comps come about 10k less but they aren't properties with tenants in them and my thought is if its appraised at 10k less then I have to make that difference up in my cash. Thanks

    It varies between markets sometimes but for the most part usually the appraisals come in right around purchase price/market value. If you're working with a TK provider who knows what they are doing, at least. Some TK providers offer appraisal guarantees--like if it comes in $X below purchase, they will cover it. But in more cases, if an appraisal comes in low, I've seen a lot of providers go to bat and fight the appraisal. Oftentimes it works. And if not, sometimes they will help out the investor on covering the difference or they will let them out of the contract and move them to another property. Again, depends on the quality of the provider you are working with.

    Turnkeys are supposed to come with tenants in them. Are the ones you're talking about just not tenanted yet or are they being sold without tenants?

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  • Jonathan Castillo
    Austin, TX · Member since 2017 · 17 posts · 4 votes
    8y
    Ali Boone thanks for the response. Yes they have tenants in them. This one happens to be a duplex but I still don’t think it will get appraised at the listing price and even at the listing price It’s still over 1%. But I don’t want a property I’m going to be under on.
    0Reply
  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    8y

    @Ali Boone and @Derek Okahashi I like the Arizona market but I am biased because I live here half the time.  I find that the Arizona market can experience both cash flow and appreciation.  Rents have increased in the last year considerably.  

    I follow the lease option model which helps minimize expenses and maximize returns over a 5 year period.  So each time we buy a property we are getting around 60-80k in profit over a 5 year period of time that is split with between my partner and I.  We make on average about $100 each per door per month of cash flow.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Eric James:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Derek Okahashi:
    Originally posted by @Grant Rothenburger:

    @Derek Okahashi Could you/ would you want to just provide capital and earn a return on your money from your cousin?

     He is consolidating right now and doesn't really need funding for new projects. 

    you may want to consider quality performing first trust deeds.. let those that run rentals for a living deal with the day to day you just become the bank.. COC notes will generally out perform owning the asset .. and its true mailbox money .. no tenants toilets or trash or crime LOL

    I lived in palo alto for years so I know what you mean about 2 blocks you just cross 101 to EPA and back in the day it was VERY dangerous..

    What metric do you use to determine if your notes outperform owning the asset? If I recall correctly, you fund people using the brrr strategy. I haven't been able to figure out how to compare returns from this kind of investment in which you end up with $0 in the property.

     they are not MY notes first off.. and yes the brrr strategy if done right gives an infinite return.

    the appeal to many of notes is not dealing with tenants..

    Not getting locked into recapture issues on an exit no matter what the return.

    and being much more passive than being a landlord.. you would be a prime candidate for a note investor to fund .. your in the trench's let you do the heavy lifting.. that is if you can no longer BRRRR and if BRRR is your only way you buy them then that is a great strategy that I built a 30 million HML company on.. But most of the folks that buy notes are doing them in their SIDRA and BRRR has issues with SIDRA money.. Plus SIDRA is not the best place to own the asset for various reasons.. were notes are prime for it..

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  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    8y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Eric James:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Derek Okahashi:
    Originally posted by @Grant Rothenburger:

    @Derek Okahashi Could you/ would you want to just provide capital and earn a return on your money from your cousin?

     He is consolidating right now and doesn't really need funding for new projects. 

    you may want to consider quality performing first trust deeds.. let those that run rentals for a living deal with the day to day you just become the bank.. COC notes will generally out perform owning the asset .. and its true mailbox money .. no tenants toilets or trash or crime LOL

    I lived in palo alto for years so I know what you mean about 2 blocks you just cross 101 to EPA and back in the day it was VERY dangerous..

    What metric do you use to determine if your notes outperform owning the asset? If I recall correctly, you fund people using the brrr strategy. I haven't been able to figure out how to compare returns from this kind of investment in which you end up with $0 in the property.

     they are not MY notes first off.. and yes the brrr strategy if done right gives an infinite return.

    the appeal to many of notes is not dealing with tenants..

    Not getting locked into recapture issues on an exit no matter what the return.

    and being much more passive than being a landlord.. you would be a prime candidate for a note investor to fund .. your in the trench's let you do the heavy lifting.. that is if you can no longer BRRRR and if BRRR is your only way you buy them then that is a great strategy that I built a 30 million HML company on.. But most of the folks that buy notes are doing them in their SIDRA and BRRR has issues with SIDRA money.. Plus SIDRA is not the best place to own the asset for various reasons.. were notes are prime for it..

     Thanks Jay.  There are definitely advantages to notes.

    0Reply
  • Wendy Schultz
    Property Manager · Wisconsin and Florida · Member since 2017 · 346 posts · 227 votes
    8y

    Are you interested in STR, long term rentals or both? We invest in short term rentals and tend to cash flow $1000 or more with at least 20% cash on cash. It's a different ball of wax but if you choose a turnkey property, the extra work involved will be a moot point.

    0Reply
  • Ivan BarrattBusiness Member
    Investor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
    8y

    @Derek Okahashi the TK model falls apart somewhere after year 2 (usually by years 3 to 5). Study the term "turnover." It's a different expense than m/r or vacancy.

    It can be expensive tuition but if that's what you need to get in the game then do it. Just don't stop there.  Understand those who create wealth in real estate do so by solving problems. When you pay retail (or over retail as is often the case with TK) price for real estate someone other than you is receiving the value while you get a risky asset.

    As with most things in life it's easier to fail at real estate than it is to succeed.

    All the best!!

    1Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y
    Originally posted by @Jonathan Castillo:

    Ali Boone thanks for the response. Yes they have tenants in them. This one happens to be a duplex but I still don’t think it will get appraised at the listing price and even at the listing price It’s still over 1%. But I don’t want a property I’m going to be under on.

    Does the seller think it will appraise low? Remind me....this is a turnkey property? If so, have you asked the seller how they handle low appraisals, if at all?

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y
    Originally posted by @Shiloh Lundahl:

    @Ali Boone and @Derek Okahashi I like the Arizona market but I am biased because I live here half the time.  I find that the Arizona market can experience both cash flow and appreciation.  Rents have increased in the last year considerably.  

    I follow the lease option model which helps minimize expenses and maximize returns over a 5 year period.  So each time we buy a property we are getting around 60-80k in profit over a 5 year period of time that is split with between my partner and I.  We make on average about $100 each per door per month of cash flow.

    That sounds like a good deal. Some could argue $100/door/month is low, but if you combine that the fact that it's in AZ (which is tough for cash flow these days) and successful lease options, that becomes fairly enticing. Do most of your tenants exercise the lease option? In my experience, a very low % do. But sounds like yours are.

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  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    8y

    @Ali Boone time will tell. We started this model last year with 16 properties that we picked up. They all cash flow and we sold them on the lease option for 5-10% above the current appraised value.  Where we make the a good portion of the profit is that we buy the property significantly below market value and after the rehab we try to beall in at 75% of market value. Then we don’t have to pay realtor fees since we put end buyers into the properties. Also, they are paying down the mortgage over the 5 year lease until they exercise it. They also take care of most repairs (except for major mechanical issues which we take care of before they enter the house).

    The tenants that we have in our properties have shown high interest in purchasing the property and have put down high amounts of cash in some cases for the the option. So I suspect that we are going to have a higher than average rate of tenants that end up exercising the option.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Ali Boone:
    Originally posted by @Shiloh Lundahl:

    @Ali Boone and @Derek Okahashi I like the Arizona market but I am biased because I live here half the time.  I find that the Arizona market can experience both cash flow and appreciation.  Rents have increased in the last year considerably.  

    I follow the lease option model which helps minimize expenses and maximize returns over a 5 year period.  So each time we buy a property we are getting around 60-80k in profit over a 5 year period of time that is split with between my partner and I.  We make on average about $100 each per door per month of cash flow.

    That sounds like a good deal. Some could argue $100/door/month is low, but if you combine that the fact that it's in AZ (which is tough for cash flow these days) and successful lease options, that becomes fairly enticing. Do most of your tenants exercise the lease option? In my experience, a very low % do. But sounds like yours are.

    I have seen this model come and go.. and have done a bunch of these personally like over 50 ... can count on one hand how many exercised their option and bought.. just a glorifed renter is all.. but if your getting a premium rent and the tenant actually takes care of things and you know your in for the long haul that's fine..  If you get a larger up front fee then that is a good sign.. the one's I got those from were the few that actually paid me off.. but those were high end A class. and the lessor was white collar buyer who just needed a home in another state to close so they could move their equity..  credit repair folks and such.. NO did not happen for us.. they just have the renter mentality and will move on once their lease is done.  that was my personal experience.

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  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    I would suggest really sitting down and seeing how your time is used on a daily basis.  You might find that you can reallocate a good bit of it and outsource some items so you can get it back.  Literally write down what you do for an entire week and the times you do the activity.  There is always time to find, you just have to identify it.  Then free that time up and put it to a different use.

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  • Jonathan Castillo
    Austin, TX · Member since 2017 · 17 posts · 4 votes
    8y

    @Ali Boone Yes so the seller said if the appraisal comes below asking I can opt to remove the offer since I can write that in the PSA. The seller doesn't think it will appraise low but based on comparable's I see it coming in low.

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  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    8y

    @Shiloh Lundahl like you are alluding to I have seen the light and there is a big capex wave coming with these tks. Also its just too much stuff they can screw up.

    I got a 5k and 20k bill after a move out fee. @Jay Hinrichs is right in some respects the returns although lower on paper maybe closer in real life after the whole "tenant' human factor thing.

    Don't get me wrong I'm glad I did the whole TK thing but of to bigger things with value add especially in this market.

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y
    Originally posted by @Shiloh Lundahl:

    @Ali Boone time will tell. We started this model last year with 16 properties that we picked up. They all cash flow and we sold them on the lease option for 5-10% above the current appraised value.  Where we make the a good portion of the profit is that we buy the property significantly below market value and after the rehab we try to beall in at 75% of market value. Then we don’t have to pay realtor fees since we put end buyers into the properties. Also, they are paying down the mortgage over the 5 year lease until they exercise it. They also take care of most repairs (except for major mechanical issues which we take care of before they enter the house).

    The tenants that we have in our properties have shown high interest in purchasing the property and have put down high amounts of cash in some cases for the the option. So I suspect that we are going to have a higher than average rate of tenants that end up exercising the option.

    Man, that sounds awesome! Congrats! Sounds like you've definitely found a niche and are rocking it out. Keep doing what you're doing if you're getting those kinds of results! :)

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Ali Boone:
    Originally posted by @Shiloh Lundahl:

    @Ali Boone and @Derek Okahashi I like the Arizona market but I am biased because I live here half the time.  I find that the Arizona market can experience both cash flow and appreciation.  Rents have increased in the last year considerably.  

    I follow the lease option model which helps minimize expenses and maximize returns over a 5 year period.  So each time we buy a property we are getting around 60-80k in profit over a 5 year period of time that is split with between my partner and I.  We make on average about $100 each per door per month of cash flow.

    That sounds like a good deal. Some could argue $100/door/month is low, but if you combine that the fact that it's in AZ (which is tough for cash flow these days) and successful lease options, that becomes fairly enticing. Do most of your tenants exercise the lease option? In my experience, a very low % do. But sounds like yours are.

    I have seen this model come and go.. and have done a bunch of these personally like over 50 ... can count on one hand how many exercised their option and bought.. just a glorifed renter is all.. but if your getting a premium rent and the tenant actually takes care of things and you know your in for the long haul that's fine..  If you get a larger up front fee then that is a good sign.. the one's I got those from were the few that actually paid me off.. but those were high end A class. and the lessor was white collar buyer who just needed a home in another state to close so they could move their equity..  credit repair folks and such.. NO did not happen for us.. they just have the renter mentality and will move on once their lease is done.  that was my personal experience.

    Same with mine.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y
    Originally posted by @Jonathan Castillo:

    @Ali Boone Yes so the seller said if the appraisal comes below asking I can opt to remove the offer since I can write that in the PSA. The seller doesn't think it will appraise low but based on comparable's I see it coming in low.

    Appraisals can honestly come in who knows where a lot of the time. You could look at all the comps and expect something low and it instead come in crazy-high. Or vice-versa. If the seller has an out in place for you, that's perfect. Just go with it, see what happens, and go from there!

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  • Rashard Alomari
    Investor · Memphis, TN · Member since 2016 · 215 posts · 128 votes
    8y
    Midsouth Homebuyers is a great operation! Quality homes. Managed in-house. And the price points are solid as well! Good luck!
    1Reply
  • Zach LemasterBusiness Member
    Rental Property Investor · Denver, CO · Member since 2015 · 1k+ posts · 3k+ votes
    8y

    One of the best discussions yet I've seen on turnkey options.

    Thanks to all those contributing!

    Zach

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  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    8y

    @Account Closed it depends on which property. On some of our properties, we have none of our own money invested, on others we have up to 40k invested in one property. Obviously the properties where we have none of our own money into the property we have a much higher cash on cash return. The $100 each is the goal when we have none of our own cash into a deal. If I have cash into one of our properties then my own cash makes 12% APR and the $100 is over and above the 12% that I am making on my own money invested.

    For instance say we have a property with a current market value of 75k and we have a loan on it for 45k and after all expenses we are cashflowing $300 a month on it.  Let’s say I had to put 10k down to purchase it. I earn 12% on my 10k so about $100 on my money every month and then my partner and I split the remaining $200 cash flow each month. So we each make $100 out of the remainder of the cash flow but I also make another $100 because I have my own money into the deal. 

    We did it this way so in case someone wants to partner with us as a passive investor then they could put in 10k and get the $100 a month portion of the cash flow that my money is making on the deal.

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