REI Nation Experience

14 Replies

I know there has been a lot posted about REI or Memphis Invest. I thought I'd post about my experience. I've researched them for years. What I found useful was that they seemed to have a high number of investors that were happy. I went through their "approval" process and in the samples they sent me 3 out of 8 properties achieved a roughly 8.5% cash ROI or better. They seemed really intent on buyers creating a criteria before getting properties sent to them. My criteria was 9% ROI but I'd consider anything above 8%. On their facebook page, they posted in February that they bough 144 properties. I thought I was about to get an influx of properties that met my criteria.

So far 1 month later.....1 property met my criteria. After 3 out of 8 in their "sample" were 8.4% or higher. Only 1 property in 6 weeks was sent to me that was above 8%. I bought it. However, that property under appraised by $10k. I know that it's common with Turnkey companies to overvalue their properties. I agree with another recent poster that their renovation list is a bit vague. Most of the renovations to this property were paint, or "service". I'm fine with that honestly, but when it doesn't appraise, it makes me question the renovations and the value they actually provided. They said they bought 144 properties in February, and I only saw 1 property in March that met the criteria that was prevalent in their samples (that's 0.7% of actual properties vs. 37% in their sample meeting that criteria). And then that 1 property that met the criteria didn't appraise. You have to sign an agreement that you will come up with the cash if the property appraises up to 10k below the purchase price. I signed it and I'm going to honor it. All I will say is I'm very unclear of the value that the buying team provides. It seems like the main value is the property management and not the buy side. I'm hoping that they can rent the property before I close. I'll update in a few months with how it's going. My plan was to buy 5-10 properties this year with REI, but it seems like that's near impossible with the criteria I have (which seemed very reasonable based on their samples).

I would not put so much on an appraisal report.

A number of reasons might be the answer for this lower appraisal report:

1- What city is this property located? is it in A cheap city that has vacant properties selling for far lower than turnkey rentals? if yes then you got the answer, an appraiser will never come in with the proper value of A turnkey, because they rely on local comps even though those comps need much work and the principal is already done and cash flowing.

2- These turnkey sellers usually purchase there properties for far below market value, if this is the case the appraiser might appraise for A lower amount due to the previous sale on the property.

I don't know what turnkey seller specifically you are talking about of, but if their customers are happy then you got your answer, if their customers claim they were ripped of then you got the answer as well.

I'm a more seasoned investor so I won't just write off the appraisal. It's more cash out of pocket so it lowers the ROI. Also the comps they provided were pretty realistic so I didn't even fight it. On past appraisals in my investments I've fought the appraisal and won. This one seemed pretty reasonable. With that being said, the appraisal isn't my main concern. It's the fact that such a small amount of properties meet the numbers that were prevalent in the sample. Then the 1 that did meet the criteria didn't appraise. My acknowledgement of investors seeming happy was based on internet discovery. That isn't always an accurate representation.

@Kevin Collins I definitely think that turnkey companies have their place for certain investors however with that said you have to understand that you are paying for ‘convenience'... in short there is no free lunch. Kevin I'm not saying it's a good or bad investment and this is nothing against your personally but at some point you will HAVE to fully dive in and fully understand the scope of your investment whether it's turnkey or anything else if you are going to a chance at ‘controlling' the outcome you are seeking. When it comes to turnkey investments you are paying for convenience essentially you are approaching it like a stock or paper asset when it is very much not... meaning that at some point it needs to be actively managed and evaluated and etc., etc., etc. for example finding cash flowing investment properties which meet your ROI goal of 9% is NOT HARD heck almost every state (and likely every state) has a market which will achieve that but what does 9% mean without a dollar value if 9% is = to $200 or more okay that's okay but if 9% means $25/mo. or alternatively if 50% ROI means $25/mo. doesn't really matter much since although labor differs from area to area it doesn't differ that much and also doesn't really leave much room for error — so your minimum accepted ROI should also be couple within a minimum accepted $$ value (cash flow) and other minimums as well (i.e. min. equity, property types, property classes, etc.)

Lastly as I mentioned achieving a 9% ROI is not hard and is achievable in every state; the HARDER part is to 1) achieve that AND 2) achieve 10-20% min.equity on the buy in or ARV AND 3) meeting your min. $ value AND 4) buying in a good/stable neighborhood/market AND 5) buying with some type of upside AND 6) etc. etc. etc. —- Again I'm not saying you have to do these things; it all depends what type of investor you are and what you are looking for however it is important to understand that if you shift the responsibility of either identifying the invest property or managing or any other aspect there WILL be a trade off — in this case the turnkey company has delivered on your goal of 8-9% ROI (projected... so TBC) and in return you have traded some of the other benefits of investing in RE for the convenience of not having to do much more than to look over the properties they have sent you and funding it from the comfort of your home, office, etc. ... again if this is the goal then you are on point but if the goal is to also partake in ALL of the other benefits of RE then you should understand that and not be surprised that it's not a ‘stellar' investment that checks all the boxes.

@Ricardo R. you made the assumption I haven't done my homework and don't understand how turnkey works. I definitely have. My feedback is specific to REI vs what they marketed to me thus far (as I said 1st property with them). Of course you pay a premium with a turnkey company. How much is too much though? As you said 9% is not a hard number to achieve. From the REI sample that seemed to be the case, but thus far it seems that that is actually a pretty rare return to get from them (hence my feedback). Second since there is "no free lunch" how much is too much? Numbers are based on a price paid for the property. If the property doesn't appraise you are then overpaying for the property in exchange for a turnkey experience.

From my experience so far it looks like the benefit of turnkey from REI is purely on the property management side (also tbd as they've yet to manage it). If I'm paying above market for a property then the better return would be if I just work with a realtor to buy properties on my own in these neighborhoods and turn the management over to REI. Then an appraisal works to my benefit and the quality of the property would be very close (as I said the property I purchased had relatively cosmetic renovations such as painted cabinets). I'm just weighing the alternatives.

@Kevin Collins I apologize; my response came out a little rough around the edges and I assume that you certainly have done your homework prior too.... but that is a bit of my point... nothing will change when you go and work with a realtor and find investment properties yourself... figuring out what the property is worth IS PART OF THE ANALYSIS (if that's important to you) and because of this it is no different than other than you should now be verifying what the realtor will tell you it's worth as opposed to what the turnkey is telling you. When you mentioned you did your homework on the turnkey property, if that were the case you would have had a really good idea what the property was worth before you offered on it (of course sparing the occasional rogue appraiser, which may be what happened to you... idk) and certainly before the appraisal. Again, you certainly don't have to verify it this way and to some extent that is why most invest with turnkey companies - it makes it easy and is a sort of one-stop-shop but I think your definition of doing your 'homework' may be different than my definition. If the turnkey company gives us an idea what the property is worth, our verification doesn't go back to the turn-key to question about the value, no we instead turn to third party i.e. independent re searches that verify the value - and same with all other information given to us by turnkey companies, realtors, sellers or whomever your are interreacting with.

"If the property doesn't appraise you are then overpaying for the property in exchange for a turnkey experience."
<<< Correct, that is exactly what I am referring THIS IS your tradeoff most of the time when using turnkey companies AND WILL CONTINUE to be your tradeoff even when using a realtor IF YOU DON'T VERIFY YOUR NUMBERS. 

"If I'm paying above market for a property then the better return would be if I just work with a realtor to buy properties on my own in these neighborhoods and turn the management over to REI." 
<<< Correct here as well,  again this is tradeoff, it all depends how hands on or hands off you want to be. 

@Kevin Collins well I apologize if it comes off condescending, it is difficult to translate 'tone' in a forum but at the end of the day you are in a forum seeking out advice... I am just attempting to give you my view point and possibly highlight some points that may be a bit painful to hear but which are nonetheless true and which may help in the future, idk. 

"There is an obvious advantage to buying on your own vs buying straight from a turnkey if the properties are overvalued."
<<< Of course that is what I am trying to tell you but don't confuse 'advantage' with 'different' -- if your goal to is maximize your return than you should be more hands on; if your goal is more to save time and hassle then let someone else do it all for you; in the end you get what you put in. 

I hope this helps, I'm sorry for being so blunt. Best of luck to you moving forward and I am certain you will do great with this property as well any other future ones you acquire. 

@Ricardo R. yea I think the problem is you just assume your point of view is correct any other point of view is wrong.  That’s why you say condescending things like “it may be painful for you to hear” or “ I’m sorry for being blunt”.

Anyways you have flip flopped on your point of view which is confusing hence my disagreement.  You said in your last post you agree there is an obvious advantage to having a realtor over buying from a turnkey provider. However earlier your previous post you said “nothing will change when you go work with a realtor yourself”.  Obviously those are conflicting statements and confusing.  No need to clarify them at this point. I just find them confusing and not helpful to my original post.

@Kevin Collins  you are asking for advice and I am taking time out of my day to actually give you a different view point in an attempt to help and assist you but you are upset it doesn't quite conform and confirm your thoughts in the way you expected. Okay best of luck to you.  I've posted a vote for your original post, good luck and do great things! 

Originally posted by @Kevin Collins :

@Ricardo R.

From my experience so far it looks like the benefit of turnkey from REI is purely on the property management side (also tbd as they've yet to manage it). If I'm paying above market for a property then the better return would be if I just work with a realtor to buy properties on my own in these neighborhoods and turn the management over to REI. Then an appraisal works to my benefit and the quality of the property would be very close (as I said the property I purchased had relatively cosmetic renovations such as painted cabinets). I'm just weighing the alternatives.

 Hi Kevin,

That's exactly what I did! I had a great experience with my TK provider, but I also started searching the MLS for properties in the same area and came to the realization that I could just buy some properties myself and hire a PM. I was lucky enough to find a property just a few blocks from my TK purchase that was in excellent condition, fully tenanted with two units, passed the inspection with flying colors and is grossing close to the 2% rule. Why pay the premium for a cosmetic rehab and TK service when you can do most of it yourself? Of course, I would only recommend this to someone who is familiar with the area. BTW, I agree with you about the condescending tone of some of the responses in this thread.

@Kevin Collins

It was great speaking with you today!  I really appreciate you taking the time and digging in together so I was able to get a full picture of your expectations and how we can do a better job for you and other investors.  I prefer to try and connect first before responding on here.  I think we both agree that my team could have done better on the front end at setting your expectations from us on timing and availability of houses that meet your needs.  We try to go slow on purpose so we can listen more and give solid feedback.  I think we missed an opportunity with you to firmly set the right timeframes.  Hopefully after our conversation, you have a better feel for what to expect.  

On our side, your post and our conversation were both very helpful.  As I expressed on the phone and I have already spoken with Rick as well, I am confident that we have the inventory that meets your needs to build out your portfolio in a faster time frame.  I'll also add that it has nothing to do with posting here.  It has to do with the professional way you've handled yourself, the good communication with our team and the fact that you are closing your first house with us.  We absolutely prioritize growing our clients portfolios and they still account for close to 65% of our monthly closings.  I've spoken with the team and they understand that it is our job to meet your expectations once we've helped you set them and I can assure you that we will.  

I also checked in our executive meeting and your property is being marketed $100 above the range we gave you and has a resident application.  That does not mean it is approved, but it is a positive.  I feel confident we will have it occupied and possibly at a higher return than anticipated at closing.  The closing team will keep you up to date as you move toward closing and I will keep my eye on it as well.  

Again, thank you for being direct.  Our goal is to be perfect and since that is almost impossible, the next best is excellence.  When we miss, even a little, we don't mind being held accountable, fairly.  You know how to get a hold of me in the future and I'm always happy to help however I can.  I look forward to reading the rest of your updates on here for the community.  Best - Chris

Thanks @Chris Clothier .  I can't convey our conversation much better than you already have.  From my experience, I really appreciate the fact that Chris picked up the phone and called me.  I was able to give him my perspective and I got to hear his.  I think we both ended up in a much better place.  I will say Chris comes across about as fair and customer oriented as anyone I've ever dealt with in real estate.  He genuinely listens and wants to partner.  I'm going to continue buying from them and will update from time to time on how it goes (I expect it to go well after chatting with Chris).

I know a lot of folks that started with 1 or 2 properties that they bought from A turnkey rental seller and then went on their own, after all, purchasing and owning A rental property is the real experience it is far more hands on then any course your listen or video youll ever watch, so for someone that has the funds and is eager to learn the real way, and is okay to not make his full top profit of their first few investment properties it would be an idea for them to start with A turnkey seller.

But as mentioned here, it definitely comes with A certain price tag, although for some starters they can pay up even more when they start on their own, and with A turnkey seller they'll actually save money.

It all depends on the investors capabilities, experience, guts, funds avail, time (if you got they full time job besides real estate) etc...

Kevin/Ricardo, et al, thank you for this dialogue.   It's been very helpful to me as I consider another TK property, and being able to sit on these types of conversations is exactly the value I was seeking for the price when I joined BP.  It also serves as a great example of what I tell my college age daughters - email/text is a very hard place to have serious conversations without at least one person getting rubbed the wrong way by what can be inadvertent phrasing by the other party.  In any event, good luck to everyone!!!