Negotiating turn key properties

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Negotiating turn key properties

Jamie Henkin
New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes

When purchasing a home from a turnkey company, do you negotiate the price based on comps for the area, or do you purchase it at the list price?

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

@Jamie Henkin 38127 is C and D class. If your seller told you it was B class, he is either blatantly lying to you or is possibly the least educated real estate individual in the business. What is the address? 

901-848-9028
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    Jamie,, head the sage advice from the Memphis pro's  out of state 30 to 40k props in major metro areas of the US are not B class by a long stretch..

    I really like @Chris Clothier  and the answer is simple its economic obsolescence .. the economy in the immediate area supports under the average wage .. this in turn brings in your most transient tenant base, by far the toughest to manage and even a great property manager cannot manage those that are lifelong tenants with all the issues they have.. We all stratify ourselves generally speaking in our living conditions based on income... higher income better schools .. lower crime, stable areas... low income is the opposite...

    Now when your talking about smaller semi rural areas this can be mitigated somewhat because even though incomes are low ... you don't have the same issues you have in the inner cities and areas that are heavy to subsidized housing..   For instance a city like Kokomo IND... 45 miles North of Indy.. you can buy a 30k home there and not worry about all the stuff that will happen in a bigger inner city.. I have done a bunch there.. but your tenant base is still low income.. and they are even there more transient than in the higher income areas... but you won't have the crime and destruction you will have in low income areas of these other cities.

    good luck. !

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  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    9y
    Originally posted by @Jamie Henkin:

    When purchasing a home from a turnkey company, do you negotiate the price based on comps for the area, or do you purchase it at the list price?

    You can try to negotiate, but some providers hold pretty firm on the price. Many times these homes are treated like an actual investment into the stock market. It just depends. I would always do research before of course. 

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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Jamie Henkin:

    When purchasing a home from a turnkey company, do you negotiate the price based on comps for the area, or do you purchase it at the list price?

     Interesting history on that one. It sold for 42k in 2002 and 4k in 2016. It has changed hands about 10 times since 02. It is not worth a penny more (maybe less) than it was 14 years ago. What do you think is different now as far as the next owner making it profitable?

    It is possible every owner lost money on this house in the last 15 years. The sellers who purchased for 4k in Oct 2016 will likely be the first to make a profit. There could be another 15 year run of no profits after that. When one factors for inflation this historical profit picture is worse. Obviously 42k into Cardiff by the Sea back in 2002 is the exact opposite and how one could compare/contrast residential investments as well. 

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  • Hadar OrkibiPro Member
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    9y

    @Jamie Henkin I'm new to Memphis too and just starting to get an idea or the suburbs etc. 

    Thanks to people like @Alex Craig @Curt Davis @Dean Letfus @Chris clothier and more who contributed here on the Memphis BP forum.  This zip is Frayser as far as I know.... 

    Do yourself a favour and work with someone more reputable. Good luck and keep at it, don't let one dishonest persone set you back. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Matt R.  there has been plenty of money made on this one.. each time someone found it impossible to manage because of the tenant base.. they dumped it for a loss .. wholesaler picked it up sold it to the next person who thought it was a great idea.. and the cycle repeats.. a ton

    @Hadar Orkibi  AU investors got hammered in Frayser.

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  • Jamie Henkin
    OP
    New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
    9y

    Hadar I'm working with Norada Real Estate and First Premiere Properties LLC in Memphis. They are a vendor for Norada. As far as I can tell from meeting them and checking references they are reputable. It's just that this is not a good deal apparently.

    Matt thank you for looking the house up.  I also thought the sales history was strange.  I saw a comp for the area, much younger house with 2 Ba for 39k

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Jamie Henkin  Not to toot my own horn.. but I have as much if not more experience at this than most of the folks selling it .. ( just because I have been doing it so long 20 plus years) longer than pretty much anyone I know.. and having a west coast bias  IE I live here .. raised in Cupertino so I understand high priced RE and how this stuff seems to good to be true.

    All these companies are fine companies.. but your talking about real Estate and tenants.. the Tenant base in these areas is unmanageable end of discussion.

    Most of the players started in these areas and left them years ago and will not touch them.. why some folks are still marketing these I don't know.. but save your money and buy better asset class you will be thankful in the long run.. and I say all of this based on my PERSONAL experinces I have owned over 350 of these personally.

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  • Jamie Henkin
    OP
    New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
    9y

    Thank you Jay!

    0Reply
  • Hadar OrkibiPro Member
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    9y

    Thanks @Jay Hinrichs yes i know, i will not buy in Frayser, i don't need to and especially been out of area. 

    @Jamie Henkin i heard about Norada RE, they advertise on Podcasts etc, I think they are Promoters of TK providers... not not the actual source, I like to work with the source as much as possible, unless the deal is good anyway.  I would go back to whoever told you its B area and find out the reason to that? there should be no reason.. because its not, its just misleading. 

    You better off working with the locals in my opinion, Im going to. 

    Cheers 

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Jamie Henkin:

    Hadar I'm working with Norada Real Estate and First Premiere Properties LLC in Memphis. They are a vendor for Norada. As far as I can tell from meeting them and checking references they are reputable. It's just that this is not a good deal apparently.

    Matt thank you for looking the house up.  I also thought the sales history was strange.  I saw a comp for the area, much younger house with 2 Ba for 39k

     Figure any house that has never been worth more than 50k in the last 20 years and including today (2017) is not really an investment for 99% of regular out of state buy and hold investors. A local who gets this for 4k has the best chance of making it work as a buy and hold or flip in this case. You could rent out one parking spot in Cardiff and made more profits easy. This is what some would call a wallet biting eyesore. Good luck with your search!

    Jay there was one guy who picked this up for 12k in 2012 and sold it for 20k in 2016. That 20k buyer sold it for 4k in 2016 six months later to this current seller apparently. 8k gross in four years, minus taxes and insurance, perhaps turnover, code violations, theft etc..idk if anyone made a penny but I get your point. Honestly from what I saw it does not look like this house has been occupied since 2012 and basically abandoned if it were not for the last guy coming in at 4k. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Matt R.  you would cringe at all the deals I fund from reverse equity from AU investors who got sucked into the hoods of America.. I suspect 500 to 1 billion AU dollars lost .and that could be conservative.. they just did not understand and know what they did not know about tenant quality and sustainability on a cash flow level

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Matt R.  to be fair my cleints are local that buy and hold and understand the asset class its what they do for a living.. FAR CRY from WEst Coast investors thinking 30 to 40k houses are some great find.

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  • Steve OlsonPro Member
    Real Estate Agent · Pleasant Grove UT and Hurst, TX · Member since 2014 · 128 posts · 63 votes
    9y

    Hi everyone, Steve Olson here and I work with Norada, who is assisting Jamie in locating investment properties.  Some great points on this thread from some people in the Memphis market I have known a long time and respect.  

    @Jamie Henkin, looking forward to chatting with you more about this tomorrow.

    I'll throw my hat in the ring everyone else here and say that this isn't a B class property.  Norada's website uses some 3rd party data to determine neighborhood class and it works most of the time. But in this case, it didn't, for a couple of reasons 1) @Alex Craig (while his choice in sports teams is questionable, his knowledge of Memphis and Little Rock real estate is not) made a great point about some good B class areas being just down the street.  In a midwestern market like Memphis where neighborhoods change quickly, a tool that relies exclusively on "distance" might not do the trick. You'll see some good data but it may not apply to your property (the reverse is true as well).  2) The use of "A, B, C" neighborhoods isn't always an apples to apples conversation.  There seems to be some disagreement out there about what these letters mean, yet many talk about them like they're talking about the same thing.  Many times they aren't.  In this thread however, I agree with how everyone is using them.  C neighborhoods = potential if you know what your'e doing and are on the ground...but C neighborhoods often = big problems for out of state investors who want a more hands off approach.  

    It's not a perfect science, but I've noticed that in most midwestern markets like Memphis, Indianapolis, Kansas City, etc...Anything that has a true market rent of "around" $800 and below is almost definitely a "C" property.  As you move higher into the $800's and approach $1,000, you're likely in "B" territory, and as you pull away from $1,000 you're getting into the A's.  At least by my standards anyway.  This is a great way to quickly tell if there is a flaw in the data you're getting.  A property that rents for $600 a month and is an "A" area just doesn't exist.  It's a golden unicorn.  Ask whoever you're working with about it because something is just off there.  

    The whole debate of "C" class properties really centers around expectations. I'll echo @Jay Hinrichs in saying that you're dealing with tenants here.  And tenants in this price range are so much more volatile than say, $1,000 a month tenants.  Out of state investors and many international can get sucked into a proforma and think they're basically buying a treasury bond with a guaranteed yield.  Sure, it's low cost and looks very attractive.  And like @Matt R. said, some savvy investors can really make these work because they have the right expectations and know how to drive these kinds of investments.  But in the end, you have a HIGH chance of getting hammered by vacancy and turnover and then...your only exit is to another investor for a huge discount...and then the whole circle of life starts over again.  @Jamie Henkin, you and I will talk tomorrow about how, given what you're trying to achieve here, a solid B class deal from somebody like @Alex Craig will be a much better choice.  Talk to you tomorrow!

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  • Jamie Henkin
    OP
    New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
    9y

    Thank you for your input Steve!

    1Reply
  • Rob Gillespie
    Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
    9y

    Jamie,

    Speaking as a major turn key provider in the Cleveland market, I say it is absolutely ok to negotiate and show comps to lower a price. This is a business and there is a lot of money involved, if anyone is uncomfortable with that, I would be surprised. 

    Good luck!!!  ( can I have 1/2 of what you save for advice? LOL)

    0Reply
  • Etienne Manning
    Professional · Columbus, OH · Member since 2016 · 38 posts · 3 votes
    9y

    Nice thread .

    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    @Matt R. you nailed it with the sales history.  Basically the sales history tells you that every individual that has owned the house has given up and sold, most if not all at a lost.  I receive inquires about properties all the time from out of state owners, mostly MF, and the first thing I look up is the sales history. My question to the individual inquiring is always to the effect of, "what are you going to do different then the past 5 owners in the past 10 years have done to be successful?" 

    901-848-9028
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  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    @Steve Olson I won't even comment on the team comment. I am going to save all of that trash talking for next year when Memphis plays UCLA in football at Memphis.

    Although Steve being out of state, he knows the Memphis market well and have worked with him on many deals. @Jamie Henkin you are in good hands as Steve is one of the good ones when it comes to affiliates. Still always do your due diligence because as Steve said, with Memphis being a little complicated, accurate models can still be a tad off. This is a classic example of C class being close to B class and throwing off the model.  There are C class homes in Midtown Memphis and literally you go a few blocks over and there is a million dollar home. A classic example is Jackson Ave area of the Evergreen area.  If you are South of Jackson, then homes appraise for about $90 to $100 a sq ft. Go North of Jackson and homes appraise for about $60 a sq ft. Go North of Henry past Jackson and they go for $30 a sq ft and this is all within a .5 mile.

    901-848-9028
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  • William S.
    Rental Property Investor · Overland Park, KS · Member since 2015 · 492 posts · 234 votes
    9y

    @Jamie Henkin

    I have negotiated with a turn key company. I simply said x amount of $/month is my goal and based on my analysis with the price point we are not there. I have found the lowest rate, etc on my end to get to this goal. Can you reduce the price so I can achieve my goal and we can continue to do future business together.

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  • Kraig Kujawa
    Investor · Orlando · Member since 2016 · 151 posts · 72 votes
    9y

    This is an amazing thread. Thanks to all that have contributed. 

    I'm investigating the viability of turnkeys and wanted to know if anyone could share thoughts on zipcodes to aim for or avoid in Kansas City. (Lots of good info about Memphis here already)

    Thank you!


    Kraig

    1Reply
  • Shawn F.
    San Jose, CA · Member since 2017 · 13 posts · 3 votes
    9y

    Hi @Kraig Kujawa, I'm not familiar at all with KC, but ran across BP member Eric P's KC heat map a few weeks ago that might help you. I'd like to see more maps like it for other markets!

    https://www.google.com/maps/d/viewer?mid=1J1Fb7qd_8tJsHuRclmIhlDC3GHI

    0Reply
  • Jessica Singh
    Member since 2020 · 39 posts · 10 votes
    6y

    Hi @Jamie Henkin, It has been almost 3 years. How has been your investment with Norada? I am thinking of invesing with them and wish to get some pointers. 

    Feel free to message messeage me if easier to answer there. Thank you. 


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