My experience with REI Nations

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My experience with REI Nations

Andrew Brown
Member since 2021 · 8 posts · 12 votes

I am a very busy medical professional working in emergency medicine. I have been investing heavily in the stock market with good success but have always been intrigued by real estate investing for passive income with the hope of an early semi-retirement. Knowing myself, I know I want a good first experience because if things end in disaster, I would likely not invest in real estate again. That's what got me first interested in turn key rentals. I ran across REI Nations from this blog. The first thing I noticed comparing them to other turn key companies is they are definitely higher priced with lower COC returns. But they have been in the business a long time and seem to have a good reputation so I decided to include them in consideration.

I just signed a contract with them on a place in Jacksonville AK. 185k for a newer construction (1990s) brick house currently rented for 1350 the first year and 1400 the second. 

Depending on calculations used, on the riskier side it comes out to roughly 3000 a year after expenses (10% management, 4% vacancy, 4% maintenance). That makes for a COC of about 7%. Much lower than other turn key providers but about what I am getting on average with stock/bond investing.

I know one will not get rich turn key investing, but I feel like it is an easy(ier) first step into real estate investing. If my first property with them is very successful I may continue with the passive approach. If it isn't I can always change strategies, thankfully I have time on my side (32 years old going on 60 I feel sometimes haha).

I am one who over analyzes, always have been which is why I went into medicine. And I know there are others like me, so I'll keep a record as best I can about my experiences. This is definitely well outside my comfort zone and to be honest I'm actually terrified. So far I am not fooled into thinking I am going to make tons of money, but so far have been impressed by the customer service and reputation of the company and hope I experience a good first time rental property investment.

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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
5y
Originally posted by @Andrew Brown:

That makes sense @henrichs. I am just torn, I really want to get into real estate but I want to make sure my first property has a high likelihood of success because knowing myself if the first one ends in disaster I likely won't want to continue. I know nothing is perfectly safe but I know there are some better deals than others. Unfortunately I have yet to be able to build a community for mentorship and I am trying to figure all this out through self studying.  I am wondering if Cris Clothier has some input or guidance for me with it being his company. It seems he is very well respected and was the reason I actually went with REINations in the first place. I'm a little nervous about a cash on cash return of only about 6 percent in a market that isn't well known for appreciation. Comparing that to say the stock market at around 8% yearly average it seems to be moderate risk for low reward? I know it's not accounting for appreciation or equity pay down, but it also won't be overly helpful in helping to fund additional deals which is my long term strategy? Not sure if I'm looking in the right market, if I might find better deals with REINations in other markets or perhaps other properties in this current location. I know how well respected the company is but with the volume they do I have no doubt some properties/markets are better than others and I honestly have no idea how to differentiate, I have read the books/articles/podcasts etc with some degree of analysis paralysis on the sidelines. The other thought is although I am a fairly high earner, I also have student debt some of which at around 7 percent interest (although currently at 0 and isn't compounded) but perhaps it makes more sense to pay off higher student debt first. Especially if right now the best REINations can offer is a cash on cash return around 6%, assuming this property is on their highest coc return level.  However with mortgage interest so low right now it is cheap money for leverage, and I want to start my wealth push early to help fund and early partial retirement in about 20-25 years. 

Andrew,

Looking forward to connecting tonight, but wanted to give you some insight and response here in case you get on the site before we talk. 

First, the last concern you should have with REI is what to do in case you decide not to move forward. It is unusual for us to have that happen, but we're not concerned with earnest money. We are concerned with making sure you are comfortable and confident in your decision. You've been great to this point and communication has been good so I can assure you not to worry about your earnest money. If we decide not to move forward, that is not at risk.

To your questions about taxes, the current tax rate was set in 2021 and is not going up when you purchase your property.  In Arkansas, they asses home values yearly for special district taxes like medical, schools and any special tax districts.  They assess the values every 5 years to establish real estate taxes and those assessments will occur next year.  However, after values are established, they will then establish the tax rates.  So your taxes may go up, they may not go up.  That is up to the city and what rate they choose to tax based on the new values.  Same goes for Memphis.  Those properties are being assessed this year and the values are sky rocketing, but the city council has not established the rate yet, so while values are up, we are not sure just yet what is going to happen with the actual taxes due.  

What we show on the PE is the tax assessors tax value and our team rounded it up to an even number.  That value was established in 2021 so I am confident you will not see an increase once you close.

As for your question on insurance, the quote received is the final cost.  Any fees are always included so there are no missing fees to reduce your expected return. 

I love that you read my book and can fully empathize with where you are in your desire to get started.  It can be overwhelming and we can easily get knocked off course.  Again, when we talk tonight we can make sure that you are confident in what to expect and how we will deliver those expectations.  As for should you make this purchase or pay off student debt, I have an interest in this scenario which cannot be denied.  But, I have also been in your shoes where I needed advice and the advice I got was not in my best interest.  I'm not going to do that here, but I am going to tell you how I am viewing the current RE landscape.

Interest rates continue to be at historical lows.  The ability to borrow against an appreciating asset for 30 years at below 4% is a very compelling reason to borrow against good assets.  You should remember from the book, I haste using leverage for long-term hold, but like to use it to acquire assets. I position my loans to be cash flow neutral.  You could position yours to apply to your student debt.  Many economists believe we are entering into an inflationary period, however, we are already in an inflated period with real estate that is showing no signs of slowing.  Material prices are up across the boards while labor continues to climb.  Add to this the fact that housing starts have been behind for the better part of 15 years since the last recession while demand is up.  Those two factors mean that housing prices and the cost of borrowing will most likely not go down in the near future and likely go up.

That alone is not a reason to invest.  If you can confidently acquire assets that are in demand AND pay off your student debt at the same time, then the above factors possibly come into play.  If a resident is going to reduce your principle while also providing an income stream to apply to your student debt, that is a very good thing.  You can use the additional revenue generated from an asset that you own and control to reduce a separate debt.  You should not be in a hurry and never make decisions out of fear of missing out.  I am very confident that you will be in a good position to invest in two years and fear of housing being more expensive or borrowing costs being higher is not a reason to make a rash decision to invest today. I look forward to speaking later because It does sound like you are financially secure and these are not rash decisions.  You simply have some questions and we need to make sure you have good answers and understanding before you can move forward with confidence.  If, in the end, you don't feel this is the right time or the right investment, I'll be happy to help make sure you have a good plan for when you do decide to invest!

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  • Andrew Brown
    OP
    Member since 2021 · 8 posts · 12 votes
    5y

    I would greatly appreciate some guidance, if there is anyone here that I could pick their brains about this deal. I am just realizing now that the projected property tax is based upon the previous value of house not the sell price/post renovation. This seems to be a very large oversight on their part on the proforma. It decreases cash flow from 3700 a year to 2700 a year the first year. And about 3200 the second year with about 50k down. It makes for a cash on cash of about roughly 6 percent not accounting for equity pay down/appreciation. What is everyones thoughts?

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y

    keep in mind rental real estate prices for risk reward.. everything being equal.  

    so it really depends on if your looking for solid SAFE returns as opposed to higher risk higher return assets.. personal decision.

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  • Andrew Brown
    OP
    Member since 2021 · 8 posts · 12 votes
    5y

    That makes sense @henrichs. I am just torn, I really want to get into real estate but I want to make sure my first property has a high likelihood of success because knowing myself if the first one ends in disaster I likely won't want to continue. I know nothing is perfectly safe but I know there are some better deals than others. Unfortunately I have yet to be able to build a community for mentorship and I am trying to figure all this out through self studying.  I am wondering if Cris Clothier has some input or guidance for me with it being his company. It seems he is very well respected and was the reason I actually went with REINations in the first place. I'm a little nervous about a cash on cash return of only about 6 percent in a market that isn't well known for appreciation. Comparing that to say the stock market at around 8% yearly average it seems to be moderate risk for low reward? I know it's not accounting for appreciation or equity pay down, but it also won't be overly helpful in helping to fund additional deals which is my long term strategy? Not sure if I'm looking in the right market, if I might find better deals with REINations in other markets or perhaps other properties in this current location. I know how well respected the company is but with the volume they do I have no doubt some properties/markets are better than others and I honestly have no idea how to differentiate, I have read the books/articles/podcasts etc with some degree of analysis paralysis on the sidelines. The other thought is although I am a fairly high earner, I also have student debt some of which at around 7 percent interest (although currently at 0 and isn't compounded) but perhaps it makes more sense to pay off higher student debt first. Especially if right now the best REINations can offer is a cash on cash return around 6%, assuming this property is on their highest coc return level.  However with mortgage interest so low right now it is cheap money for leverage, and I want to start my wealth push early to help fund and early partial retirement in about 20-25 years. 

    0Reply
  • Andrew Brown
    OP
    Member since 2021 · 8 posts · 12 votes
    5y

    @Chris Clothier

    0Reply
  • Cody Benedetto
    Member since 2021 · 67 posts · 52 votes
    5y

    @Andrew Brown the 1st one is a learning experience, focusing on CoC is important but getting started is the hardest battle. Keep in mind the other wealth building parts aside from cash flow that aren't factored into CoC: tax benefits/depreciation, appreciation, loan pay down building equity.

    2Reply
  • Joseph Vu
    Member since 2020 · 32 posts · 18 votes
    5y

    I was the same way. I was over analyzing everything, and it took forever for me to pull the trigger. I recently closed a property with REI nation this year. The COC was a bit on the lower side, but its been pretty much hands off the last 4 months. Rent is been flowing in with no issues. Granted, i dont think i should see any issues within the first year *knock on wood*.

    I believe getting decent cash flow will be harder to obtain with turnkeys with the increase in interest rates. Another issue i have noticed is that inventory is very low. Iv been wanting to buy more turnkey properties from REI nation, but after my first one, their traction slowed down a bit. I been going to other turnkey companies but their supply was also limited. So if you really want to get into real estate, I would def pull the trigger!

    1Reply
  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    5y

    @Andrew Brown I am going to send you a DM about of a hybrid model of investing that creates better returns than the turnkey model you mentioned above. It’s a lending model so it’s passive. But it has a learning component where you can be part of the projects in order to help you learn how to build your own system that takes much less time to run than a regular rental business yet it generates much better returns and it creates equity.

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  • Peter M.
    Rental Property Investor · DFW, TX · Member since 2013 · 953 posts · 910 votes
    5y

    @Andrew Brown You could also look into RE crowd funding. For me the benefit of RE over the stock market is that you can have an impact on returns. Stock market, crowd funding, and turn key are all the same in my opinion-youre paying someone else to do the work so your returns will always be lower unless you find that penny stock unicorn.

    2Reply
  • Michael S.
    Huntsville, AL · Member since 2018 · 577 posts · 864 votes
    5y

    @Andrew Brown - I can't comment on REI Nation, because I have never bought a turnkey deal. That said, they seem to have an excellent reputation on BP when you search through the forum here.

    I think you tried to choose a very "safe" real estate investment for your first one. Your COC is marginal, but it sounds like you went for perhaps a B neighborhood property to lower your risk, which is wise for your first investment. Granted, I am totally guessing, as I don't know anything about the location you have chosen.

    Now, if you want honest feedback, here's my thoughts:

    -if I had student loans at 7%, the only real estate I'd be buying would be a house hack and/or an amazing "unicorn" deal (50% return on a flip, rental in an A+ neighborhood that's almost impossible to get a rental in, etc).  Otherwise, I'd get the debt paid down or first get it refinanced at a much lower rate.  I still have student debt but at a much much lower interest rate. 

    -have I done deals with 6% COC? Absolutely. But only with a BRRRR, where I have minimal cash parked, or again, the rare rental opportunity in an A+ neighborhood where the appreciation is tremendous. Heck, I've done transient negative COC deals because the property was in an amazing location. 3 years later, it's positive COC (increases in rent) and appreciated 25%. But I would not do a 6% COC with 20%+ cash sunk and/or without a projected appreciation of higher than 5%/year.

    -I think you will get a lot of value in your first investment - not monetarily, but in your education on real estate in general;   I learned a tremendous amount from our first investment.  Each investment you make, you will learn more nuances of real estate investing that will allow you to be more successful with each subsequent investment.  This education from experience is way more valuable than "guru" education, and better than reading 50 books before taking the plunge, as you have taken action and actually have a property in your possession that a tenant is paying down the note on.   Good luck with your journey.  

    1Reply
  • Chris Levarek
    Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes
    5y

    @Andrew Brown Real estate investing is a constant learning process. You can't necessarily get it wrong if you look at it from that perspective. Get started and learn then improve and continue. As stated, risk profile and returns are only part of the valuation of a good investment. Other factors such as tax benefits, possibilities to learn a strategy and simple good feeling of credibility/honesty of partners can be important to choosing a deal as well.

    I also am a working professional(IT engineer) who invests passively. I got started with an active investment into duplexes out of state and I have some stories! Happy to provide some guidance if you ever want to chat sometime. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Cody Benedetto:

    @Andrew Brown the 1st one is a learning experience, focusing on CoC is important but getting started is the hardest battle. Keep in mind the other wealth building parts aside from cash flow that aren't factored into CoC: tax benefits/depreciation, appreciation, loan pay down building equity.

    YUP COC is just one cog in the wheel end of the day its all about IRR that's the metric.

    I bought a bare piece of land in Northern CA for 27k in 96. never produced a dime of income and had to pay tax. sold it jan of 2020 for just under 2 million.. that's IRR not COC extreme example but appreciation in quality assets is a key component to long term wealth building.. And I believe REI Nation recognized this some years back and that's why they focus on Quality assets that might have a little less COC out of the gate but have long term viability and hopefully substantial appreciation over time.. not to mention best in class customer service Hands down.

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  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    @Andrew Brown Take a deep breath and remember the maxim that the perfect is the enemy of the good.  The $40,000 or so you have in this deal may seem like a lot, but in fact it's a pittance when compared to all of the dollars you will be investing over the course of your life as a medical professional.  You are learning.  My first substantial investment - putting money into tech and telecomm in March 2000 - was a disaster for which now, 20 years later, I am most grateful.  

    The property tax issue you encountered is a common mistake new investors make as new assessments come only after the close of your transaction.  You can usually estimate the amount by which your tax assessment is likely to increase by consulting the many websites that carry this general information.        

    As a new investor in directly held real estate you need to start somewhere and buying a low cost turnkey from a reputable provider is not a bad way to enter, provided you understand (as you appear to do) that it's not going to make you rich.  Many come on sites like this to boast about their outsized returns or to sell you on a sure-fire system that will make you millions but it's best to filter out the noise.  Whether you make 6%, 7%, barely breakeven or even lose a few grand in this transaction is almost beside the point.  Is this an asset category you have faith in and are willing to ride in more complex deals some day should be the key takeaways from this initial venture.        

    3Reply
  • Andrew Brown
    OP
    Member since 2021 · 8 posts · 12 votes
    5y

    Thank you everyone for your insight, this has been very helpful! My overall question at this point is with about 40k in student loans with a greater than 7% interest rate, should I try and back out now and hope they understand that with the reduced cash on cash expectation it makes more sense for me to pay off my student loans or should I just take the hit and keep moving forward? I feel it may make more sense to try and back out since the projected cash on cash will be lower than my student interest rate then buy from REINations in 1-2 years once I have enough cash saved up again after paying down my high interest loans? Has anyone tried to work with REINations about backing out prior to closing? I definitely learned a valuable lesson so far, and honestly REINations has been great to work with, but with accounting for the increase in property taxes that was not accounted for in the proforma, my cash on cash return seems to be higher paying down higher interest debt.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    The IRR that Jay mentioned above is actually not a magic. Investor can just invest in tech city where wage increases has double percentage return year over year. If you buy at the right time, you'll get a bonus. Everybody in Bay Area has experienced the same :)

    So in your location, 7-8% CoC in B class in balanced/cash flow market is pretty moderate. Good luck. Your investment most likely will yield 10-14% IRR in the future. Good luck.

    0Reply
  • Tushar P.
    Member since 2019 · 332 posts · 171 votes
    5y

    6-7% coc can be obtained with absolutely zero effort by dumping money in Fundrise or any public reit. Why invest in a non-passive activity to get the same?

    I don’t invest in rentals, but if I did it will be for appreciation, in a location that can beat the stock market appreciation over the long term.

    1Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    Perhaps this is a good learning experience.

    0Reply
  • Stacey So
    Investor · Dallas, TX · Member since 2017 · 16 posts · 10 votes
    5y

    @Andrew Brown what is the return on investment on this deal? I would compare that with your student loan interest rate, instead of focusing only on CoC. I invest with REI Nation however I have no experience backing out of a contract so can't speak to it.

    1Reply
  • Andrew Brown
    OP
    Member since 2021 · 8 posts · 12 votes
    5y
    Originally posted by @Stacey So:

    @Andrew Brown what is the return on investment on this deal? I would compare that with your student loan interest rate, instead of focusing only on CoC. I invest with REI Nation however I have no experience backing out of a contract so can't speak to it.

    Depending on the data points used IRR seems to be somewhere between 6-10% yearly if sold if 5 years. Interest rate on loans 7.3 percent

    1Reply
  • David Rosenhaus
    Freehold, NJ · Member since 2021 · 77 posts · 43 votes
    5y

    @Andrew Brown

    It seems to me that if you are making enough revenue through your day job to pay down your loans and invest, then your goal should be passive cash flow. Turnkey rentals would seem to be a good way to go here. As time goes on you buy more and more... the cash from the rentals pays off your student loans while the properties appreciate. When your loan is finally paid off you will have huge passive cash flow coming in, in addition to the equity in those properties. Seems like a pretty solid plan to me.

    0Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    5y

    IT as always personal, the risk one takes and the values one holds.  I do not like to get less that 1% of the cost of the investment in rent each month.  So for me to be interested in the property you are buying at $185k, I would want rent of $1850 a month.  So, for me, the house you are buying does not pencil out.  That, by the way, is what investors call the one percent rule.  It is not possible to achieve in some markets, but is in others.

    I buy old houses and do not have a problem with that. However you are buying a 40 year old house and without a very good 'profit' or any money for CAPEX. Your basic units are all reaching the end of their lives. So unless you have a new roof, kitchen cabinets, counters, bath vanities, showers, flooring, HVAC, plumbing, electrical, etc. those expenses are likely in the next ten years. You do not have the cash flow to cover this.

    For the student loans, with that interest rate I would want to pay them off.  However, I would gamble that $10k will be forgiven.  So, I would pay off $25k and keep paying the last $15k, hoping for the forgiveness to be processed before I got to the last $10k.

    Buy what you choose to do will be right for you!

    0Reply
  • Khaled El DorryPro Member
    Casselberry, FL · Member since 2016 · 111 posts · 54 votes
    5y

    @Andrew Brown I also have a demanding W2 job that I enjoy and I get about the same returns 7-10% with turnkey and I’m completely happy. If I were a full time investor I would be pushing for higher returns but quite frankly my alternatives are either put more money in the stock market or keep cash in the bank which just loses value overtime. Once I pay my properties off I will be able to generate $900-$1000 per door and that’s assuming no rent rise whatsoever which is quite conservative. My advise is to do what’s best for you and what you’re comfortable with. There is no right or wrong answer and all depends on what you can stomach risk wise.

    I don’t depend on appreciation as that is gambling for me and happy with the lower returns because that works for me. Having said that I just refinanced all my properties and they have all appreciated quite nicely that I can almost make my money 2X over if I wanted to sell.

    0Reply
  • Stacey So
    Investor · Dallas, TX · Member since 2017 · 16 posts · 10 votes
    5y

    @Andrew Brown

    Personally I would pay off the student loan first because I'm conservative. I'm assuming it isn't a federal loan given the interest rate. If it is, I would assume some of it will be forgiven like @Lynnette E. said and pay off some but not all of it. Re getting out of the contract with REI Nation- speak with your portfolio advisor at REI. Worst care you will lose the earnest money.

    0Reply
  • Hunter Montez
    Flipper/Rehabber · San Antonio, TX · Member since 2021 · 6 posts · 4 votes
    5y

    @Shiloh Lundahl I would love to hear about that model as well ! Sounds intriguing..

    0Reply
  • Dusty Laurin
    Rental Property Investor · New Braunfels, TX · Member since 2020 · 39 posts · 18 votes
    5y

    @Andrew Brown thank you for sharing your experience and thoughts! We have been considering several different companies (including REI) and strategies for our second purchase. It will be good to hear more about your experience with REI as you go along. 👍🏼😊

    1Reply
  • Gary L Wallman
    Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes
    5y
    Originally posted by @Andrew Brown:

    Thank you everyone for your insight, this has been very helpful! My overall question at this point is with about 40k in student loans with a greater than 7% interest rate, should I try and back out now and hope they understand that with the reduced cash on cash expectation it makes more sense for me to pay off my student loans or should I just take the hit and keep moving forward? I feel it may make more sense to try and back out since the projected cash on cash will be lower than my student interest rate then buy from REINations in 1-2 years once I have enough cash saved up again after paying down my high interest loans? Has anyone tried to work with REINations about backing out prior to closing? I definitely learned a valuable lesson so far, and honestly REINations has been great to work with, but with accounting for the increase in property taxes that was not accounted for in the proforma, my cash on cash return seems to be higher paying down higher interest debt.

    Stay in the real estate deal. Inflation will make your home appreciate and your debt cheaper, IMO. Further your 6% return will likely be tax free due to your property's depreciation for tax purposes. So depending on your tax bracket you may be receiving more like a 10 or 11% COC on an after tax basis. I'm not a tax or financial advisor so take my opinion for what it is. I have done this for 16 years and now have over a hundred doors free and clear.

    Respectfully,

    Gary

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