Originally posted by @James Wise :
Not to derail the thread or anything but a thought I had while reading through this thread. Why do you and other "traditional" turnkey operators choose to buy, fix and flip properties as opposed to just brokering property to investors then managing it for them?
The amount of money you make is not all that much more than we make when we broker deals for clients but you have to put so much more of your money into the deal and are bottlenecked at what you can afford to buy and flip at any given time.
Just curious if you or other "turnkey" providers ever looked into a different way of going about things than the normal route of buy,fix and sell? To me the juice that comes from buy, fix and sell was never worth the squeeze.
I believe @Douglas Skipworth company does things like we do. What are your thoughts on this Doug? Making an average of 7k to me does not seem worth the capital investment when I can likely do 3 brokered deals in the same time frame and make an average of 2k per deal without having to deploy all of that capital. Did you guys every look into more of a traditional turnkey model?
Ok, while you asked me a simple question, I tried to keep the answer simple, but I tend to be long winded, so here goes.....
2k a deal vs. 7k a deal is a huge difference, especially over 90 properties a year. Also, my wife makes all offers on the MLS homes we acquire, thus we get a commish on the front end too, typically on avg about $1,500. I don't see it being a big risk as we have more demand for our houses then actual houses; typically we have it under contract to sell during the renovation phase. While we do have margins greater then 7k and we have had double digit margin profits this year, I will certainly take on some deals known up front that the margin will be below 7k simply b/c we do know it will sell and a big goal for us is to grow the mgmt company. Also, I will take on lower margin deals to not only keep up with demand, but also to keep my guys working. I have been handing out paychecks every Friday to mostly the same guys for almost 4 years. I can't afford to lose any of my outside labor.
If the only homes we were selling were homes 2000 or newer, then selling TK may not provide the advantages we provide over just brokering deals. That is the approach that a lot of the Hedge Funds went. But since the majority of B class homes sell in our market are older, I certainly see the advantage our clients get by purchasing TK. The homes that investors would buy in the Realtor space where they get a discount from buying TK would likely be dated and need some repairs that the seller may not be willing to make. Keep in mind that sellers in this space are not going to fix every minor issue, often time leading to higher maintenance in the first few years when they should be banking cash flows. I believe our model of renovating these older homes to retail ready and then fixing 95% or greater on the inspection report will best position investors who leverage for success. Anyone who gets conventional financing or has loans on their properties knows the importance of reducing maintenance.
All that being said, I am brokering 2 deals for friends of mine looking to sell. It is a nightmare and a lot more challenging since I do not control the deal. Even though in both cases I have informed the buyers to expect more then normal issues on inspection report, once the inspection report came back, it was like that conversation never existed. I have presented these buyers our homes that are retail ready for the area, but they say the price is to high. Obviously I find this confusing; the discounted home that is non TK has older systems (roof, HVAC, Federal Pacific Panels) and is priced 12k under ours is a pass and the homes with all those items updated, new and TK is to expensive. No win situation.
Bottom line, I find the TK model easier to control and while the margins have gone down every year, the volume makes up for it, especially since we are growing the PM business at the same time.