REI Nation (formerly Memphis Invest)

Rental Property Investor · Seattle, WA · Member since 2020 · 23 posts · 11 votes

Does anyone here have any experience with REI Nation (formerly Memphis Invest)? We have been interacting with them for the past two months and have had the following issues :-

1. Cash flow negative - On all the properties sent over to us, with the amounts they charge and the cost of the house, the properties are cash flow negative (around $2K loss per year). I realize that some of the markets are crazy but their price seems too high.

2. Renovations cost - We were quoted around $50K each on renovations for multiple homes but when we asked for a breakdown, the numbers didn't match up. They also claim to provide a higher quality of finishes but do not provide any appliances - fridge, stove, microwave, washer, dryer, dishwasher etc. or maintenance on them.

3. Taken up within a few minutes - There is a known sales tactic to create FOMO but I find it surprising that most of their properties get scooped up in a matter of few minutes or so they claim.

4. Fees charged - They charge a 10% property management fees and 1 months rent (8.33%) for every new tenant. We have also heard that they charge a 15% fees on top of repairs and fixes. Is this standard?

Curious to see what other people think and if anyone is familiar with similar companies with more favorable numbers for investors.

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Chris ClothierBusiness Member

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

Originally posted by @Ashish Yadav:

Does anyone here have any experience with REI Nation (formerly Memphis Invest)? We have been interacting with them for the past two months and have had the following issues :-

3. Taken up within a few minutes - There is a known sales tactic to create FOMO but I find it surprising that most of their properties get scooped up in a matter of few minutes or so they claim.

Curious to see what other people think and if anyone is familiar with similar companies with more favorable numbers for investors.

Good morning Ashish,

There are numerous posts on BP about Memphis Invest where many investors comment on my families' company. Some go back over a decade so you can certainly find feedback on our company. Many of those investors are also happy to talk privately in the messages as the mere mention of buying Turnkey can sometimes bring out negative comments from investors who simply don't like the niche. Again, if you search you can find many threads about our company including experiences from like-minded investors. Here is a recent one for reference:

https://www.biggerpockets.com/...

I would start with a search of those threads to gain some perspective on your questions. I want to make sure I address a couple of your concerns because I know you have spent a considerable amount of time with Blake and Ashley up to this point. It would appear that you may have put something under contract without really being ready and I know that is not a comfortable feeling. I would recommend that you take some time before going under contract again. We are certainly not the right fit for every investor and actually say no to more investors than we say yes to. Again, the service we provide has to fit the needs of the investor so reading your questions on here and knowing how much time our team spent with you, I think reading the threads and connecting with other investors will be really good in helping you decide if we are the right company to meet your expectations.

As for your questions, none of our properties will produce a negative cash flow if we have done our jobs and continue to operate the same way going forward. As for what you can show on paper, all of our data on a performance evaluation comes from our portfolio and historical performance of our company. If an investor wants to include higher expense or make other assumptions that may negatively impact the return they see on paper, then they should absolutely run their numbers that way. When that is done, a property may not look so good to that investor. There is nothing wrong with that. Every investor has to be comfortable with their expectations, but remember that paper calculations and real world returns do not always line up. Again, we have two decades of performance data to back up how and why we run a performance evaluation. If that was not clear to you on the front end, I'd be happy to explain that data.

As for renovation costs, I am not sure what would not be clear in our scope of work provided at the sale of every property. Perhaps you had not seen one yet, but our average renovation cost per property is going to run near $45,000. We pull all permits on every job, use licensed contractor work only and seek to limit or eliminate all deferred maintenance. Our annual renovation budget including maintaining our clients portfolios is near $50 million. I can understand that sometimes it is hard to fathom how work is done and how renovations are performed at that level in 9 different cities, but speaking with other investors who have been with our company and experienced our renovation and management processes will help. As for appliances, these are provided by the residents themselves. Our average length of stay is approaching 5 1/2 years so residents are happy to bring their own appliances just as if they would upon buying a property. The biggest impact this has is reducing the number of low dollar maintenance calls for an owner. Through data we identified that just over 50% of all maintenance costs were appliance related and this was a major factor in lowering investors returns. We provide value in other ways to our residents as evidenced by the average length of occupancy. Now, this is not the case with every property in every city, but it is the case with a majority of our properties.

As to the comments on creating urgency, that is not a tactic we use. We do our best to avoid it with our clients. I even went so far as to advise you earlier to slow down a bit. If we are the right fit for an investor, then we will locate and make available to you a property that fits your needs. Sometimes, there are other investors whose portfolio that property also fits and sometimes we are unable to hold a property for any length of time. There is simply too much demand. But, we also go out of our way to help first time investors with our company reach a level of comfort with that first purchase. The reality is that we have no waiting queue. We do not require any deposits to get in queue. We don't publish a list of available properties. Everything is very one-on-one. Now, we do have more qualified investors wanting to purchase a property than we physically renovate and release in a month. And, roughly 65% of our sales each month go to an existing client continuing to build their portfolio, so it require patience. But you should never have a feeling of FOMO. If we are right fit, it will work.

Lastly, traditional property management is usually filled with a buffet of charges. We have reached a scale where we have a handful of charges for different services. We have also reached a point where our reputation and performance speak for themselves and we are not willing to discount our work. That devalues our team and the services we provide. However, so far in 2020, our maintenance costs including Capex and our 15% mark-up on services performed will equal 5.1% of collected rents. That 15% charge is a revenue source that ties directly to the service the resident receives from the maintenance team. Calls are answered live, dispatched and the resident is communicated with. Once the service is completed, the same team contacts the resident to make sure they were satisfied with the service they received and to confirm that there are no other issues we need to address. This personal connection is a major factor in keeping a property occupied nearly 5.5 years on average.

There are a lot of companies here on BP that offer passive investment opportunities and many that market with the word Turnkey. Reach out to me and I'd be happy to make some recommendations. Some may show better paper returns and some may show the same. Either way, few are able to provide the level of customer service to both clients and residents that we are able to provide. That has real value for some investors and absolutely none for others. We completely understand that view point and are happy to recommend other companies who we know personally and know they do a great job.

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Filipe Pereira
Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
5y
I can't comment on REI Nation (besides the fact that it sounds like a super corny name, LOL) or on Memphis Invest, but as a property manager I can say that #4 is a bit pricey for what it is.
First, you want to make sure they are only charging that 10% on COLLECTED rents. If they are charging 10% no matter if the rent is coming in or not, then you have a conflict of interest. The 1 month's rent to fill a vacant unit is typical.
Secondly, most PM firms who do charge 10% don't typically upcharge repair work on top of that (again, conflict of interest), so I'm surprised to see that here, especially at 15% - that feels steep.

Lastly, check for lease renewal fees. Lots of PM companies "forget" to tell you about that one, and it can be 1/2 month's rent depending where you go.
4 Reply
Soh Tanaka
Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
5y
@Filipe Pereira I think it's mostly a myth that collecting a fee regardless of what you collected in rent is a conflict of interest. Think of yourself. If you suddenly realized that your management agreement says you will collect x% of the rent regardless of what you actually collected, would you start working less while the units are collecting less/no rent? I don't think so. While I'm sure there are some PMs out there who will slack off if he/she can collect fees regardless of the rent paid, for most of us, it's not all about money.
2 Reply
Filipe Pereira
Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
5y
I wouldn't ever have to contemplate that because that's not how we charge, but I understand what you're saying. I think you hold our peers in this industry to a very high bar, but I think many of them would fall short of that bar when actually analyzed. It's unfortunate, but that's my perception, even as a property manager.

If it isn't about money, why charge the pm fee on a vacant unit in the first place @Soh Tanaka?
7 Reply
Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
5y
Originally posted by @Ashish Yadav:
Does anyone here have any experience with REI Nation (formerly Memphis Invest)? We have been interacting with them for the past two months and have had the following issues :-

1. Cash flow negative - On all the properties sent over to us, with the amounts they charge and the cost of the house, the properties are cash flow negative (around $2K loss per year). I realize that some of the markets are crazy but their price seems too high.

2. Renovations cost - We were quoted around $50K each on renovations for multiple homes but when we asked for a breakdown, the numbers didn't match up. They also claim to provide a higher quality of finishes but do not provide any appliances - fridge, stove, microwave, washer, dryer, dishwasher etc. or maintenance on them.

3. Taken up within a few minutes - There is a known sales tactic to create FOMO but I find it surprising that most of their properties get scooped up in a matter of few minutes or so they claim.

4. Fees charged - They charge a 10% property management fees and 1 months rent (8.33%) for every new tenant. We have also heard that they charge a 15% fees on top of repairs and fixes. Is this standard?

Curious to see what other people think and if anyone is familiar with similar companies with more favorable numbers for investors.

Good morning Ashish,
There are numerous posts on BP about Memphis Invest where many investors comment on my families' company. Some go back over a decade so you can certainly find feedback on our company. Many of those investors are also happy to talk privately in the messages as the mere mention of buying Turnkey can sometimes bring out negative comments from investors who simply don't like the niche. Again, if you search you can find many threads about our company including experiences from like-minded investors. Here is a recent one for reference:
https://www.biggerpockets.com/...
I would start with a search of those threads to gain some perspective on your questions.  I want to make sure I address a couple of your concerns because I know you have spent a considerable amount of time with Blake and Ashley up to this point. It would appear that you may have put something under contract without really being ready and I know that is not a comfortable feeling. I would recommend that you take some time before going under contract again. We are certainly not the right fit for every investor and actually say no to more investors than we say yes to. Again, the service we provide has to fit the needs of the investor so reading your questions on here and knowing how much time our team spent with you, I think reading the threads and connecting with other investors will be really good in helping you decide if we are the right company to meet your expectations.
As for your questions, none of our properties will produce a negative cash flow if we have done our jobs and continue to operate the same way going forward. As for what you can show on paper, all of our data on a performance evaluation comes from our portfolio and historical performance of our company. If an investor wants to include higher expense or make other assumptions that may negatively impact the return they see on paper, then they should absolutely run their numbers that way. When that is done, a property may not look so good to that investor. There is nothing wrong with that. Every investor has to be comfortable with their expectations, but remember that paper calculations and real world returns do not always line up. Again, we have two decades of performance data to back up how and why we run a performance evaluation. If that was not clear to you on the front end, I'd be happy to explain that data.
As for renovation costs, I am not sure what would not be clear in our scope of work provided at the sale of every property. Perhaps you had not seen one yet, but our average renovation cost per property is going to run near $45,000. We pull all permits on every job, use licensed contractor work only and seek to limit or eliminate all deferred maintenance. Our annual renovation budget including maintaining our clients portfolios is near $50 million. I can understand that sometimes it is hard to fathom how work is done and how renovations are performed at that level in 9 different cities, but speaking with other investors who have been with our company and experienced our renovation and management processes will help.  As for appliances, these are provided by the residents themselves. Our average length of stay is approaching 5 1/2 years so residents are happy to bring their own appliances just as if they would upon buying a property. The biggest impact this has is reducing the number of low dollar maintenance calls for an owner. Through data we identified that just over 50% of all maintenance costs were appliance related and this was a major factor in lowering investors returns. We provide value in other ways to our residents as evidenced by the average length of occupancy. Now, this is not the case with every property in every city, but it is the case with a majority of our properties.
As to the comments on creating urgency, that is not a tactic we use.  We do our best to avoid it with our clients. I even went so far as to advise you earlier to slow down a bit.  If we are the right fit for an investor, then we will locate and make available to you a property that fits your needs. Sometimes, there are other investors whose portfolio that property also fits and sometimes we are unable to hold a property for any length of time.  There is simply too much demand.  But, we also go out of our way to help first time investors with our company reach a level of comfort with that first purchase.  The reality is that we have no waiting queue. We do not require any deposits to get in queue. We don't publish a list of available properties. Everything is very one-on-one. Now, we do have more qualified investors wanting to purchase a property than we physically renovate and release in a month. And, roughly 65% of our sales each month go to an existing client continuing to build their portfolio, so it require patience.  But you should never have a feeling of FOMO. If we are right fit, it will work.
Lastly, traditional property management is usually filled with a buffet of charges. We have reached a scale where we have a handful of charges for different services. We have also reached a point where our reputation and performance speak for themselves and we are not willing to discount our work. That devalues our team and the services we provide. However, so far in 2020, our maintenance costs including Capex and our 15% mark-up on services performed will equal 5.1% of collected rents. That 15% charge is a revenue source that ties directly to the service the resident receives from the maintenance team. Calls are answered live, dispatched and the resident is communicated with. Once the service is completed, the same team contacts the resident to make sure they were satisfied with the service they received and to confirm that there are no other issues we need to address. This personal connection is a major factor in keeping a property occupied nearly 5.5 years on average.
There are a lot of companies here on BP that offer passive investment opportunities and many that market with the word Turnkey. Reach out to me and I'd be happy to make some recommendations. Some may show better paper returns and some may show the same. Either way, few are able to provide the level of customer service to both clients and residents that we are able to provide. That has real value for some investors and absolutely none for others. We completely understand that view point and are happy to recommend other companies who we know personally and know they do a great job.

Podcast Guest on Show #224
REI Nation4.576 Reviews
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13 Reply
Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
5y
Originally posted by @Soh Tanaka:
@Filipe Pereira I think it's mostly a myth that collecting a fee regardless of what you collected in rent is a conflict of interest. Think of yourself. If you suddenly realized that your management agreement says you will collect x% of the rent regardless of what you actually collected, would you start working less while the units are collecting less/no rent? I don't think so. While I'm sure there are some PMs out there who will slack off if he/she can collect fees regardless of the rent paid, for most of us, it's not all about money.

Soh,
You make a valid point about what a good management company actually does. However, whether it is a conflict of interest or an imbalance, I do think collecting a fee when a property is vacant or no rent is collected would tip the scales too far toward a management company. I will say that in times like these, the pandemic and uncertainty created by government intervention, that may change. If a company is set up to be paid on collected rent and the government does not allow for rent to be collected or makes it permissible to not pay rent, even if it is deferred, a management company can no longer collect revenue. They are still managing those assets, but unable to pay their bills. In a scenario like that, then a management company and clients have to figure out a new model.

Podcast Guest on Show #224
REI Nation4.576 Reviews
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0 Reply
Hanna M.
Member since 2018 · 22 posts · 20 votes
5y
Purchasing my second property through REI Nation now and have been nothing but happy so far. I don't know what you mean about cash flow, every prospectus they have sent me has shown significant cashflow. You must not be reading them right. The first property I bought through them cashflows well after all expenses. It was the easiest purchase ever, too. I think their management fees are fair and well within what management companies normally charge.
4 Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
5y
@Filipe Pereira - most PMC's we know CHARGE a markup on maintenance, including us.
Many investors are VERY cheap and think the monthly management fee should cover everything.

We try to be fair about it and do not charge a markup on maintenance under $300.
If something is over $300, we do not consider it maintenance work, we categorize it as a Repair or Rennovation and charge a markup as it takes a lot more resources to handle than a simple maintenance issue.

[email protected]248-209-6824
Logical Property Management4.9451 Reviews
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1 Reply
Bradley Chapple
Rental Property Investor · Northern Colorado · Member since 2020 · 40 posts · 55 votes
5y
Originally posted by @Filipe Pereira:
I can't comment on REI Nation (besides the fact that it sounds like a super corny name, LOL) or on Memphis Invest, but as a property manager I can say that #4 is a bit pricey for what it is.
First, you want to make sure they are only charging that 10% on COLLECTED rents. If they are charging 10% no matter if the rent is coming in or not, then you have a conflict of interest. The 1 month's rent to fill a vacant unit is typical.
Secondly, most PM firms who do charge 10% don't typically upcharge repair work on top of that (again, conflict of interest), so I'm surprised to see that here, especially at 15% - that feels steep.

Lastly, check for lease renewal fees. Lots of PM companies "forget" to tell you about that one, and it can be 1/2 month's rent depending where you go.

100% agree. Conflicts of interest can be tricky and they're usually most damaging at the subliminal level. Although I think people usually have the best of intentions, there's always that shadow of a doubt where the investor is wondering, "But, are they really trying to fill that vacancy?"
Sometimes I even wonder if the first month's rent for filling a vacancy is a conflict of interest. I know that statement will ruffle some feathers, because after all, the PM is spending money on marketing, walk-throughs, credit checks, etc. I get it. But, it often makes me wonder what incentives the PM has for keeping the tenant in the property when they make more money from turnovers. Keeping the tenants in the property is what makes the investor the most money. Turnovers can be profit-killers even before the PM takes a huge chunk.

3 Reply
Filipe Pereira
Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
5y
Originally posted by @Bradley Chapple:
Originally posted by @Filipe Pereira:
I can't comment on REI Nation (besides the fact that it sounds like a super corny name, LOL) or on Memphis Invest, but as a property manager I can say that #4 is a bit pricey for what it is.
First, you want to make sure they are only charging that 10% on COLLECTED rents. If they are charging 10% no matter if the rent is coming in or not, then you have a conflict of interest. The 1 month's rent to fill a vacant unit is typical.
Secondly, most PM firms who do charge 10% don't typically upcharge repair work on top of that (again, conflict of interest), so I'm surprised to see that here, especially at 15% - that feels steep.

Lastly, check for lease renewal fees. Lots of PM companies "forget" to tell you about that one, and it can be 1/2 month's rent depending where you go.

100% agree. Conflicts of interest can be tricky and they're usually most damaging at the subliminal level. Although I think people usually have the best of intentions, there's always that shadow of a doubt where the investor is wondering, "But, are they really trying to fill that vacancy?"
Sometimes I even wonder if the first month's rent for filling a vacancy is a conflict of interest. I know that statement will ruffle some feathers, because after all, the PM is spending money on marketing, walk-throughs, credit checks, etc. I get it. But, it often makes me wonder what incentives the PM has for keeping the tenant in the property when they make more money from turnovers. Keeping the tenants in the property is what makes the investor the most money. Turnovers can be profit-killers even before the PM takes a huge chunk.

I'm of the belief that lease-ups are a profit center for property managers. Most of the time it's the most laborious thing we do (in terms of labor hours) and by far the least profitable. Especially if the property manager isn't making a cut on the renovation / turnover costs between tenants.

I tell ya what - by reading some of the comments on this thread - either my fees for what we do here in Connecticut are way too cheap, or some of these folks are way too pricey, lol. I'd never want an owner to think I was choosing a more expensive vendor "just to make a bigger cut" so I refuse to take a percentage on that stuff. To each their own, of course.

Personally, I'd rather just raise my rates before feeing a client to death.

3 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
5y
@Ashish Yadav I never bought from them but I visited them and went through the whole process (before purchase) in 2017. I thought they were expensive then, and I imagine it’s the same or worse now, given the market. That being said, I have purchased turnkey in memphis and so I am familiar with the market. I’ll give my opinion on your points below:
1. It won’t be cash flow negative if EVERYTHING goes perfectly. If you have a tenant leave or major capex, you will lose money. If a tenant leaves after 2-3 years you can still lose money. Good rehabs are important, but regardless of that rehab, you will have turnover costs. Turnover costs (rehab) plus mortgage payment plus lease up fees can easily run 4-5k total. I once had a tenant leave 9 months apart (In memphis) and I had to repaint that whole unit. Think what 5 years would look like. If you do cash flow, your total return won’t be great. 6-8 percent long term, potentially less. This doesn’t include appreciation, but at this point that would be minimal.
2. In my experience, this is around correct. I think it was around 40k when I looked into them
But that was a few years ago.
3. I was quoted most properties go under contract in 48-72 hours. This is much slower then minutes but it’s still quick. It could be faster now, market is very hot and they sell a quality product.
4. At least in memphis, this fee structure is common for every major PM. It’s similar in other major “cash flow” markets too. Where I live in Raleigh, NC it would probably be slightly expensive, but this is entirely market dependent .
Let me know if you have any other questions
1 Reply
Soh Tanaka
Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
5y
@Filipe Pereira I try to surround myself with good PMs, so maybe I'm biased. That said, I know PMs don't have a good reputation in general.
Regardless of rent payment status, PMs have bills to pay. It's like some vendors charge for an estimate because it costs them to go to do so, while others offer a "free" estimate (but charging a bit more for the service to pay for the "free" estimate.)
Nothing wrong with what you are doing. Just voicing my view here.
1 Reply
Soh Tanaka
Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
5y
@Chris Clothier The way I look at it is just like how you look at the mark-up. There's nothing wrong with charging when you are providing a great service. Oftentimes the amount of work PM has to do is more when there's no/less rent payment.
On a different note, you and your team did an amazing job creating a well-respected company.
1 Reply
Soh Tanaka
Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes
5y
@Bradley Chapple Well, since you brought it up, let me "ruffle some feathers" :-) If I'm an evil PM who wants to make money from the turnovers, do I intentionally put bad tenants, hoping that they will move out in a few months so that I can place another bad tenant and collect the renewal fee again? And even if I can do that repeatedly (which I don't think I can,) you will just dump me and write a bad review on Google.
0 Reply
Joe Semifero
Engineer / Program Manager / RE Investor · Dexter, MI · Member since 2015 · 86 posts · 30 votes
5y
@Chris Clothier @Soh Tanaka  @Filipe Pereira,
I am very interested in property management as I do my own and have considered starting to do property management in the nearby areas of my local rentals. I have some questions about the fees and would appreciate your honest and informed feedback.
As discussed, it appears the main costs for a property owner are the monthly fee collected as part of the rent, potentially mark up on repairs, and lease/re-lease which could be a fee or percentage.
- What is the rationale for a percentage of the rent? I have to assume it doesn't cost more to manage a more expensive home. Is this not true? I would guess it would actually be less expensive or the same cost to manage the higher priced homes, but maybe this isn't the case. I have heard of companies charging a flat rate per property, and with lower rents, this seems like it would do a better job covering actual costs of managing a property than a percentage of rent, which could be very low.
- What part of the business is covered by the monthly fee assessed against the rent? Is it something other than the monthly collection of the rent, regular bookkeeping, and answering questions from residents? I'm trying to make sure I am not skipping over some expense. Also, it doesn't appear this covers the costs of maintenance or leasing as these services are charged for separately. Is this the cost to, "keep the lights on," and have the staff, office, etc., in place?
- For charging a fee for a maintenance item, what is the rationale for a percentage of the maintenance cost? I just had to repair a furnace with a $400 part, and the labor was an hour. It seems counterintuitive that the same one hour repair with a $10 part would be (at 15%) $1.50 versus the $60 for the $400 part. Again, wouldn't it make more sense to make sure the associated costs of the repair and follow up, etc., are covered with a flat fee, instead of leaving it to the price of the service to determine the cost? It also seems like this would not necessarily encourage the issue to be, "fixed right the first time," or might encourage the use of inside maintenance people. (Hopefully inside maintenance people would be more reasonable on price, though, for labor and repairs.)
- How do you handle turnover costs and repairs? When we have a tenant move out we do a complete walk through, note items to be addressed including things the exiting tenant might not have noticed, etc., and then set up the repairs to be completed. Is that part of the lease fee, the maintenance fees, or both?
- On the lease side, I have seen one month rent to place, one-half month rent, and a flat or minimum fee for placement. I have also seen the same for re-leases, although not a full month from anyone on a re-lease.  Same question: Why is it relative to the rent of the house? Is it harder to rent a $1500/mo house than a $800/mo house? My experience has been the lower rent houses have been more work, not less. For instance, let's say you simply said you were going to charge $1000 for a lease placement, regardless of rent. Wouldn't that encourage higher rent properties, potentially in nicer areas with better tenants?
I would love to hear back from you and your experiences and how your business has been affected by these different areas of the property management business. Thanks.
1 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
@Ashish Yadav I think this could be a problem with your expectations. Turnkey properties are the easy button of real estate investing. They are not the highest return on investment, because they involve the least effort. It is like going out to the restaurant for dinner versus cooking at home. You pay more at the restaurant, but you don't have buy the food and cook the meal. You also get a chef that has cooked the same meal a thousand times, so they are likely to do better than you can at home.
You seem to want a low selling price, high return, super low management fees and you want a huge list of properties to choose from. That is just not realistic in this market. If you enter into business with them from unrealistic perspective, it is bad for you and worse for REI Nation.
REI Nation has been around forever and they are one of the most trusted turnkey brands. Their brand is more valuable than a single deal. What I mean by that is they are not going to take short cuts or leave you stranded if there is a problem. With their experience, they know how to do it right so the properties hold up and stay rented.
5 Reply
Bradley Chapple
Rental Property Investor · Northern Colorado · Member since 2020 · 40 posts · 55 votes
5y
Originally posted by @Soh Tanaka:
@Bradley Chapple Well, since you brought it up, let me "ruffle some feathers" :-) If I'm an evil PM who wants to make money from the turnovers, do I intentionally put bad tenants, hoping that they will move out in a few months so that I can place another bad tenant and collect the renewal fee again? And even if I can do that repeatedly (which I don't think I can,) you will just dump me and write a bad review on Google.

I enjoy having civil discussions with people of differing opinions. It's how we learn and grow. So please take anything I say with a grain of salt. I was only trying to point out that a conflict of interest doesn't necessarily have to be there for someone to believe it's there. Belief is a powerful thing, and it's rarely based on hard facts or tangible proof.
I have never been a PM, so it should go without saying that I don't have all the facts. But, when I owned my IT consulting business, I had a "No solution, no charge" policy which I used to mitigate any perceived conflicts of interest. I never wanted my clients to think that I simply came in, poked around for a few hours, and then handed them an invoice without solving their issue. If I didn't have that policy, would I ever take anyone for a joy ride? Absolutely not. But clients don't know that, because they don't know me.
Granted, I know residential property management isn't the same. I get it. But, human nature is human nature, regardless of the industry. With that being said, this perceived conflict of interest highlights a vulnerability that exists in the PM industry that leaves it open for disruption by a new type of PM who comes along with a different model that eliminates it. All of this is theoretical, of course, and I'm only playing devil's advocate, but if I can't discuss this type of stuff here, I don't know where else I ever could. :-)

5 Reply
Bradley Chapple
Rental Property Investor · Northern Colorado · Member since 2020 · 40 posts · 55 votes
5y
Originally posted by @Joe Semifero:
@Chris Clothier @Soh Tanaka  @Filipe Pereira,
I am very interested in property management as I do my own and have considered starting to do property management in the nearby areas of my local rentals. I have some questions about the fees and would appreciate your honest and informed feedback.
As discussed, it appears the main costs for a property owner are the monthly fee collected as part of the rent, potentially mark up on repairs, and lease/re-lease which could be a fee or percentage.
- What is the rationale for a percentage of the rent? I have to assume it doesn't cost more to manage a more expensive home. Is this not true? I would guess it would actually be less expensive or the same cost to manage the higher priced homes, but maybe this isn't the case. I have heard of companies charging a flat rate per property, and with lower rents, this seems like it would do a better job covering actual costs of managing a property than a percentage of rent, which could be very low.
- What part of the business is covered by the monthly fee assessed against the rent? Is it something other than the monthly collection of the rent, regular bookkeeping, and answering questions from residents? I'm trying to make sure I am not skipping over some expense. Also, it doesn't appear this covers the costs of maintenance or leasing as these services are charged for separately. Is this the cost to, "keep the lights on," and have the staff, office, etc., in place?
- For charging a fee for a maintenance item, what is the rationale for a percentage of the maintenance cost? I just had to repair a furnace with a $400 part, and the labor was an hour. It seems counterintuitive that the same one hour repair with a $10 part would be (at 15%) $1.50 versus the $60 for the $400 part. Again, wouldn't it make more sense to make sure the associated costs of the repair and follow up, etc., are covered with a flat fee, instead of leaving it to the price of the service to determine the cost? It also seems like this would not necessarily encourage the issue to be, "fixed right the first time," or might encourage the use of inside maintenance people. (Hopefully inside maintenance people would be more reasonable on price, though, for labor and repairs.)
- How do you handle turnover costs and repairs? When we have a tenant move out we do a complete walk through, note items to be addressed including things the exiting tenant might not have noticed, etc., and then set up the repairs to be completed. Is that part of the lease fee, the maintenance fees, or both?
- On the lease side, I have seen one month rent to place, one-half month rent, and a flat or minimum fee for placement. I have also seen the same for re-leases, although not a full month from anyone on a re-lease.  Same question: Why is it relative to the rent of the house? Is it harder to rent a $1500/mo house than a $800/mo house? My experience has been the lower rent houses have been more work, not less. For instance, let's say you simply said you were going to charge $1000 for a lease placement, regardless of rent. Wouldn't that encourage higher rent properties, potentially in nicer areas with better tenants?
I would love to hear back from you and your experiences and how your business has been affected by these different areas of the property management business. Thanks.

Joe, I was just about to ask a similar question... namely the 10% for "property management" + the 15% maintenance fee upcharges + the 8.33% placement fees. I have always been curious about what the 10% actually covers anything (besides collecting rent) since most property management companies seem to charge extra for everything they do for you.
I'm not asking this because I'm cheap, either. Cheap isn't exactly the right word for someone who seeks to understand what their money is getting them, because anyone who does otherwise is probably a fool... and you know what they say about fools and their money.

1 Reply
Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
5y
Originally posted by @Bradley Chapple:
Originally posted by @Joe Semifero:
@Chris Clothier @Soh Tanaka  @Filipe Pereira,
I am very interested in property management as I do my own and have considered starting to do property management in the nearby areas of my local rentals. I have some questions about the fees and would appreciate your honest and informed feedback.
As discussed, it appears the main costs for a property owner are the monthly fee collected as part of the rent, potentially mark up on repairs, and lease/re-lease which could be a fee or percentage.
- What is the rationale for a percentage of the rent? I have to assume it doesn't cost more to manage a more expensive home. Is this not true? I would guess it would actually be less expensive or the same cost to manage the higher priced homes, but maybe this isn't the case. I have heard of companies charging a flat rate per property, and with lower rents, this seems like it would do a better job covering actual costs of managing a property than a percentage of rent, which could be very low.
- What part of the business is covered by the monthly fee assessed against the rent? Is it something other than the monthly collection of the rent, regular bookkeeping, and answering questions from residents? I'm trying to make sure I am not skipping over some expense. Also, it doesn't appear this covers the costs of maintenance or leasing as these services are charged for separately. Is this the cost to, "keep the lights on," and have the staff, office, etc., in place?
- For charging a fee for a maintenance item, what is the rationale for a percentage of the maintenance cost? I just had to repair a furnace with a $400 part, and the labor was an hour. It seems counterintuitive that the same one hour repair with a $10 part would be (at 15%) $1.50 versus the $60 for the $400 part. Again, wouldn't it make more sense to make sure the associated costs of the repair and follow up, etc., are covered with a flat fee, instead of leaving it to the price of the service to determine the cost? It also seems like this would not necessarily encourage the issue to be, "fixed right the first time," or might encourage the use of inside maintenance people. (Hopefully inside maintenance people would be more reasonable on price, though, for labor and repairs.)
- How do you handle turnover costs and repairs? When we have a tenant move out we do a complete walk through, note items to be addressed including things the exiting tenant might not have noticed, etc., and then set up the repairs to be completed. Is that part of the lease fee, the maintenance fees, or both?
- On the lease side, I have seen one month rent to place, one-half month rent, and a flat or minimum fee for placement. I have also seen the same for re-leases, although not a full month from anyone on a re-lease.  Same question: Why is it relative to the rent of the house? Is it harder to rent a $1500/mo house than a $800/mo house? My experience has been the lower rent houses have been more work, not less. For instance, let's say you simply said you were going to charge $1000 for a lease placement, regardless of rent. Wouldn't that encourage higher rent properties, potentially in nicer areas with better tenants?
I would love to hear back from you and your experiences and how your business has been affected by these different areas of the property management business. Thanks.

Joe, I was just about to ask a similar question... namely the 10% for "property management" + the 15% maintenance fee upcharges + the 8.33% placement fees. I have always been curious about what the 10% actually covers anything (besides collecting rent) since most property management companies seem to charge extra for everything they do for you.
I'm not asking this because I'm cheap, either. Cheap isn't exactly the right word for someone who seeks to understand what their money is getting them, because anyone who does otherwise is probably a fool... and you know what they say about fools and their money.

@Joe splitrock

For everyone commenting, this is turning into a really good forum on property management which in the end will be very helpful to the original op. Since its Christmas Eve, I am not going to be able to type a thoughtful response just yet, but I really look forward to jumping on here in the next day or two and give my thoughts from having done this the past two decades. Looking forward to continuing the conversation!

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0 Reply
Joe Semifero
Engineer / Program Manager / RE Investor · Dexter, MI · Member since 2015 · 86 posts · 30 votes
5y
@Bradley Chapple - I agree with what you are saying. I really am trying to understand the business model. There has to be a profit or companies would not be in the business. That, and I know there have been many businesses that have not done a good job or have folded up shop around here with a similar fee structure, so it would seem property management is not where people are making an excessive profit off of investors.
I think the other thing that is difficult for investors is they are, almost by definition, self starters that do things on their own. I'm sure lots of people look up and say, "How hard can that be? Get a tenant, collect a fee for placing them, and then just collect the rent every month for a fee." What could go wrong?
People are amazed when I tell them I manage over 30 rentals and work a full time job. I think I am OK at doing the PM thing, but again, they are my properties. No one cares about your properties more than you, right? And our model is to over-deliver, under-promise, and keep tenants happy. Or motto on repairs and renovations are that we don't want to come back for 10 years on an item, so we try to put in decent quality and do it right. We expect good communication, and we aren't slow to address issues that are a problem, be it repairs, rental payments, or things as mundane as parking issues.
I don't know if what my business partner and I do is scalable, but I would like to find out a bit more about the business side of property management. I consider myself an amateur (even though I do make money at it) and I would love to hear more from the professionals.
1 Reply
Filipe Pereira
Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
5y
Great post about the "No solution, no charge" policy @Bradley Chapple. Love it.

@Joe Semifero, I'll give you my best shot. I of course didn't write the book on property management, but I've been doing it for a few years in CT, so these responses are based on that.
Q: What is the rationale for a percentage of the rent?
That's a great question, and to be honest, one I don't have a great answer for. I'd ask the same thing about real estate commissions. Those are also based on percentage, and your question also applies in the same. I think it helps to compensate fairly given the market. I.e. an expensive rental market will also have higher cost of living, so therefore the percentage model makes sense. HCOL areas have higher everything (again - I recognize this is a bad answer)

Q: What part of the business is covered by the monthly fee assessed against the rent?
I can't post what we do on this thread (I'm reminded often that is considered self promoting by the admins, lol) but I can send you a list if you'd like. Generally speaking, anything you can think of that you would do as a landlord, the 10% would cover. Anything you would hire someone to do - mowing, snow, plumbing, etc. is not included. Keep in mind, we are property managers, not property maintenance.

Q: For charging a fee for a maintenance item, what is the rationale for a percentage of the maintenance cost?
100% agree with you on this one, and that's why we don't charge fees for maintenance items.

Q: How do you handle turnover costs and repairs? When we have a tenant move out we do a complete walk through, note items to be addressed including things the exiting tenant might not have noticed, etc., and then set up the repairs to be completed. Is that part of the lease fee, the maintenance fees, or both?

This is a part of the 10% fee that's based on collected rents.
Q: Why is the lease fee relative to the rent of the house? Is it harder to rent a $1500/mo house than a $800/mo house?
Why does a plumbing job in the rural areas cost $300 but the same job in a nice city cost $500? Supply and demand? Capitalism? Probably a mix of both.
1 Reply
Joe Semifero
Engineer / Program Manager / RE Investor · Dexter, MI · Member since 2015 · 86 posts · 30 votes
5y

Looking forward to the comments, Chris! Hope you have a very Merry Christmas!
1 Reply
Filipe Pereira
Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
5y
I think the capacity of what a person can do in terms of working a full time job and managing properties will largely vary on what other life commitments that person has @Joe Semifero. Some people have maximum flexibility with their 9-5 and other people have to be figuratively "tied to their desk" at work. Some people have 5 kids, some people have no kids (I personally prefer dogs, ;) )

You get the point. I think one person is capable of managing 100-125 doors if they are in decent neighborhoods and that person doesn't have a full time job. I really think property management is a luxury for MOST beginner investors unless their life is already super jam packed.
0 Reply
Lynnette E.
Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
5y
Originally posted by @Bradley Chapple:
Originally posted by @Joe Semifero:
@Chris Clothier @Soh Tanaka  @Filipe Pereira,
I am very interested in property management as I do my own and have considered starting to do property management in the nearby areas of my local rentals. I have some questions about the fees and would appreciate your honest and informed feedback.
As discussed, it appears the main costs for a property owner are the monthly fee collected as part of the rent, potentially mark up on repairs, and lease/re-lease which could be a fee or percentage.
- What is the rationale for a percentage of the rent? I have to assume it doesn't cost more to manage a more expensive home. Is this not true? I would guess it would actually be less expensive or the same cost to manage the higher priced homes, but maybe this isn't the case. I have heard of companies charging a flat rate per property, and with lower rents, this seems like it would do a better job covering actual costs of managing a property than a percentage of rent, which could be very low.
- What part of the business is covered by the monthly fee assessed against the rent? Is it something other than the monthly collection of the rent, regular bookkeeping, and answering questions from residents? I'm trying to make sure I am not skipping over some expense. Also, it doesn't appear this covers the costs of maintenance or leasing as these services are charged for separately. Is this the cost to, "keep the lights on," and have the staff, office, etc., in place?
- For charging a fee for a maintenance item, what is the rationale for a percentage of the maintenance cost? I just had to repair a furnace with a $400 part, and the labor was an hour. It seems counterintuitive that the same one hour repair with a $10 part would be (at 15%) $1.50 versus the $60 for the $400 part. Again, wouldn't it make more sense to make sure the associated costs of the repair and follow up, etc., are covered with a flat fee, instead of leaving it to the price of the service to determine the cost? It also seems like this would not necessarily encourage the issue to be, "fixed right the first time," or might encourage the use of inside maintenance people. (Hopefully inside maintenance people would be more reasonable on price, though, for labor and repairs.)
- How do you handle turnover costs and repairs? When we have a tenant move out we do a complete walk through, note items to be addressed including things the exiting tenant might not have noticed, etc., and then set up the repairs to be completed. Is that part of the lease fee, the maintenance fees, or both?
- On the lease side, I have seen one month rent to place, one-half month rent, and a flat or minimum fee for placement. I have also seen the same for re-leases, although not a full month from anyone on a re-lease.  Same question: Why is it relative to the rent of the house? Is it harder to rent a $1500/mo house than a $800/mo house? My experience has been the lower rent houses have been more work, not less. For instance, let's say you simply said you were going to charge $1000 for a lease placement, regardless of rent. Wouldn't that encourage higher rent properties, potentially in nicer areas with better tenants?
I would love to hear back from you and your experiences and how your business has been affected by these different areas of the property management business. Thanks.

Joe, I was just about to ask a similar question... namely the 10% for "property management" + the 15% maintenance fee upcharges + the 8.33% placement fees. I have always been curious about what the 10% actually covers anything (besides collecting rent) since most property management companies seem to charge extra for everything they do for you.
I'm not asking this because I'm cheap, either. Cheap isn't exactly the right word for someone who seeks to understand what their money is getting them, because anyone who does otherwise is probably a fool... and you know what they say about fools and their money.

Best I can figure out the 10% does not cover collecting rent.   Its more like processing rent that is voluntary paid. If they had to collect the rent to get paid it would be different; they don't. They get paid whether the rent is collected or not.
0 Reply
Tushar P.
Member since 2019 · 332 posts · 171 votes
5y
Originally posted by @Filipe Pereira:
I think the capacity of what a person can do in terms of working a full time job and managing properties will largely vary on what other life commitments that person has @Joe Semifero. Some people have maximum flexibility with their 9-5 and other people have to be figuratively "tied to their desk" at work. Some people have 5 kids, some people have no kids (I personally prefer dogs, ;) )

You get the point. I think one person is capable of managing 100-125 doors if they are in decent neighborhoods and that person doesn't have a full time job. I really think property management is a luxury for MOST beginner investors unless their life is already super jam packed.

Property management seems like easy money. I guess PMs like say “10% of the rent” instead of “more than 50% of the profits with no skin in the game”, just like how agents like to say “3% commission” instead of “$/hr” 😏
I was thinking of buying some rentals but maybe I should buy some PM companies instead 😉

1 Reply
Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
5y
Originally posted by @Tushar P.:
Originally posted by @Filipe Pereira:
I think the capacity of what a person can do in terms of working a full time job and managing properties will largely vary on what other life commitments that person has @Joe Semifero. Some people have maximum flexibility with their 9-5 and other people have to be figuratively "tied to their desk" at work. Some people have 5 kids, some people have no kids (I personally prefer dogs, ;) )

You get the point. I think one person is capable of managing 100-125 doors if they are in decent neighborhoods and that person doesn't have a full time job. I really think property management is a luxury for MOST beginner investors unless their life is already super jam packed.

Property management seems like easy money. I guess PMs like say “10% of the rent” instead of “more than 50% of the profits with no skin in the game”, just like how agents like to say “3% commission” instead of “$/hr” 😏
I was thinking of buying some rentals but maybe I should buy some PM companies instead 😉

That's funny! Try managing tenants for at least 30+ units and you will find out just how "easy" it is (or more accurately isn't). Dealing with complaints, repairs, non payments, every excuse in the book, etc. Is it profitable? Sure, if done right. Is it easy? No - otherwise everybody would do it themselves!

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