Rent to Retirement experience

25 Replies

Hello BP!

Here is my frank 2 cents! I recently closed on my 1st out of state property and in the currently in the process of closing on a 2nd one after learning about turnkey rentals and coming across rent to retirement on BP. 

Setting right expectations and communication is very important to me since I usually refer my friends/family who are very much into rental investing to someone that I have had a pleasant experience with.

1st out of state property - I worked with Eric who is very knowledgeable, highly responsive and frankly went above and beyond to address all my questions/concerns. Property had a tenant right from day one and I was put in touch with lenders, title, property management, insurance providers who were all great. Property pricing/ROI aligned with the original expectations on website. Appraisal came in 22K over purchase and I had an excellent start to my out of state investment/passive income journey and so far have a good cash flow on this property in the past 3 months. Overall a very pleasant experience for a 1st out of state rental investment. Do your own DD to take into account a higher risk than what is mentioned i.e vacancy/capex items/insurance rates and other costs since somewhere down the road you might be up for surprises if this is not factored in and you just go based on the numbers on the site (which is generally true for any turnkey investment and not just RTR)

2nd property - This is a new build and again Eric has helped me with every step in the process to educate me on how the overall process works and put me in touch with private lenders, builders etc. Land permit takes 2months followed by a 6months of build cycle.

To start off I went based on my previous (set) expectation on the numbers that were on the site. 

Land cost - Turned out to be 44% higher than what was on the site since overall prices started shooting up. This also might mean resale value will be higher. But I was thrown off by this large jump which probably as a buyer anyone would!

Private loan cost - 8% rate (signed a contract/promissory note). Now that the land permit is back 2 months later as expected, this rate is not being honored and is going up to 10%

Build cost - Signed a contract based on the price on website as of Apr 24th which said price is valid till May 1st. Signed a contract for the price mentioned on the website. Today I am being told the price was only valid till the day mentioned on the website and now overall costs have gone up my build cost is up 10%.

Though I understand this is a very common scenario for new builds where original price can change significantly for any reason including the recent lumber pricing (which B TW has gone down 3X since the time I signed contract), I did not factor such drastic price changes. I would have preferred if the right expectations were set right from day one in which case I would really have cared even if price went up 20%! . However to note this also does mean resale value for these including the rents can now be significantly higher but as a buyer hasn't been a pleasant experience. Which might change in a few months as we move through the process. But a lesson for me was to not go based on the numbers on any website and not just RTR for new builds. 

I will continue to update my overall experience as I move forward with my passive investment journey

Wouldn't it be easier and much more predictable to buy existing rental units with renters already in them?  

@Arjun S. crazy to hear that your 1st investment property appraised 22k over purchase price being that it was already tenant occupied. Which market is this in? 

Also couldn't agree more, setting expectations upfront is extremely important and something I advocate to all agents, PMs, contractors, etc. 

Congrats on your investments. 

@Michael Dumler   @Arjun S.  22 thousand is a blip in the market in some areas.  Don't put too much stock in appraisal value increases. It is about your cash flow if you are buy and hold, although appreciation is nice.

I will be curious to see how the new build goes, if you roll all your costs into the mortgage, do you still expect to cash flow?  Are rents rising enough in your area.

@Arjun S. thanks for sharing.  Would love to hear more about the new build. We are considering one with RTR in Cape Coral.  Is that where yours is?  We purchased two with them in Indianapolis.  One is going well, the other has had some significant bumps.  They are doing their due diligence to make sure nothing was missed, vs us just having bad luck :(.  But we are ready to go with our next investment this year, but I’m feeling some cold feet!


Thanks for sharing your experience!

Congrats Arjun, were both new construction? both SFR? do you mind sharing the breakdown of the numbers?

@Josh Caldwell : Absolutely agree and this is what I will probably stick to going forward. However since most of these are significantly older properties, one bad experience is all it takes to ruin it for someone starting out. Newer builds you have a peace of mind when it comes to maintenance and in general way lesser things to worry about combined with a significant appreciation potential if you are early in the game. In my local market I have new construction and my experience was very pleasant. Note: This was just 1-2 months before signing RTR contract and prices didn't fluctuate a single $ and was as promised (was assured they will bear any unpredictable price hikes which they did) . Note: This is the time when all costs were significantly shooting up

@Michael Dumler : My 1st property was in Illinois and probably I was just a little lucky since this is not common from what I have heard in that market. Illinois insurance and taxes are significantly higher than other markets with 100yr old homes. Yes absolutely important to set the right expectation since if the price increase was communicated, I wouldn't bother much even if later I was quoted a 15% hike in price as far as it was justified and overall market was in an upward trend

@Colleen F. : Yes agree! I am told rents are up 5% but appraisals should come way higher than previous numbers. I still expect it to cash flow 300-400$ around. Equally curious to see how this pans out overall.

@Anita Anand : Hello Anita! Yes new build was in Cape Coral. I am guessing mine was a one off and since market swung a lot during this time frame, I got caught up in the price hike. One other person in family I referred also bought this property a month later and my new pricing is same as theirs. So in general just add 8-10% to the build cost, land(may be 20%) but this at least will be before you sign any contract so you can decide early on, capex/vacancy and other costs around 5-10% range instead of 0-3% and make sure it still makes sense. Since this is a new build lower % isn't too bad here for starters. Also add a 12-15k for private lender interest for 6months at 10% (assuming this won't continue to jump) now that the overall prices are up unless you plan to pay cash.

@Arjun S. - Thanks for the feedback you have posted - very excited and happy for you on our first investment together.  Having said that I did want to address your concerns and the points you made regarding the new build in FL.  There have been many factors here that have lead to some frustrations and I understand and hear what you are saying.  Let's address each point that you have made.

First, we can start with land cost.  When we undertake a new build we are really dealing with two purchases and two costs if you will.  The first being the purchase of land and the second being the construction cost.  We do our best to budget, study and analyze the market so we are delivering information as accurately and quickly as possible.  However, when markets are appreciating in an unprecedented rate, sometimes that is not always possible.  Take the case for land - when we first started working in this market lots were going for $15k and this is what we budget for in our pro formas.  Land prices began to soar as demand rose in that area and competition for the same lots of land became fierce, thus driving the prices upwards.  Add in the fact that some hedge fund managers came in and started buying large parcels of land and the price rose even further.  The current retail price for lots is right about $40k right now, but we are still able to source lots at $30k and sometimes a little lower through our connections in the area.  It's something we try to predict as accurately as possible but we are at the mercy of the market.  We also have to source land that you can actually build on without a ton of additional hassles and/or expenses.  Meaning - we want to source land that is designated to not require additional flood insurance, or have too much shrubbery and/or trees to clear, as well as not have additional factors like too much rock to clear - thus narrowing the pool of lots we can choose from.

Next, we move to lending - talk about a moving target.  As you know the banks have been changing rules and interest rates often this year.  Again, I share everything I can as I have the information.  The biggest change in this market occurred when in April, Fannie and Freddie lowered the percentage of investment loans they would buy from the banks from 17% down to 7% - this sent many investors into a frenzy as their pre approvals for construction loans on investment properties vanished.  This left us looking for other options for our investors, including private money lenders.  As these changes occurred many investors now found their interest rates had risen (even in the conventional realm) and some lenders that we have worked with for years no longer could support our investors.  We have worked diligently for new sources of lending and we were able to secure another source for most investors.  In your case, the private lending source that we were able to secure is funding a number of deals for us and our investors.  The funds they are securing is also at a greater cost - and fortunately or unfortunately this means the cost of the funding is increased as well.  Again, not something we knew about or anticipated, just dealing with the factors at play in the current market and this particular set of circumstances.

Finally - the build cost.  This is the second part of the total cost of construction and again, we have seen steady increases in material costs.   As you pointed out, yes the cost of lumber has been levelling out - which is one factor - but there are other factors at play as well.  For example - supply chain logistics - many contractors I work with are still having a hard time getting materials, even as prices begin to level out, the demand is still sometimes higher than the supply which leads to price increases that are put on the builder, and ultimately the investor that is purchasing in the market.  The good news is that these price increases are also reflected in property prices and appraisals that are coming in - so it's not a one-sided game.  Specifically - I believe when we started the properties were appraising for $270-280k, whereas as of today we have appraisals coming in (pre construction even) at $310k!

In summary, I know this response is long but I wanted to address each and every point you have made and assure you I always want to communicate clearly the details I have when I have them to make sure you and all the investors I work with have all the information they need to make good investment decisions.  We at R2R (and of course myself personally) don't like being surprised by lending restrictions, interest rate changes, price increases, delays, or lack of labor force either - but it's part of the world that we are operating in - especially in high demand markets.  I hope this has answered your questions and concerns - you know you can always reach out to me directly with any other concerns or questions and I feel ultimately you will be very pleased with the end result of your investment experience and that these frustrations in the beginning will end in an investment that has resulted in not only a cash flowing opportunity for you as well as an asset that has equity built into it day one.  

@Eric Winkler : Thank you for the very detailed post. Yes absolutely agree on the logistics and justification behind these price hikes and agree overall market is trending upward which might hopefully like you mentioned also mean higher appraisal cost at the end of the day. But as a first time out of state buyer and not having experienced these price hikes on other new builds I bought in the local market around the same timeline, definitely cannot say I am pleased with the price hikes I guess. But hoping prices continue to go up and at the end of the day this might take a complete U-turn making it a very pleasant experience to justify these price fluctuations. And thank you for all your proactive responses/help for all questions/concerns I had every step down the road! Makes the journey better with every step forward

Originally posted by @Arjun S. :

@Sam Sala: Hello Sam! 1st was a 100yr old property and 2nd a new build. Both SFR.

Sure I can send you the details offline

Thanks, that would be amazing!

@Anita Anand

Have you checked with a local realtor in Indianapolis about the neighborhoods of the two homes? 

Bad Stuff usually happens in real estate investing with loose tenant screening criteria and location of the asset.

If its maintenance, then the home inspection report can help you out.

I would be looking at all numbers before comitting more dollars to turnkey .. If you like a city, then go to local realtors and pick their brains on B class neighborhoods and a good property management company

Congratulations on your investment and many thanks for sharing your experience regarding RTR.  I'm very interested in receiving an update on the new built.  Last month I reached out to RTR for my first out of state property.  Had a great first impression and quickly became interested in the new builds.  Made a trip to personally meet with the broker, builder, property management and get familiar with the area.  Overall it was a good visit, but was very unsatisfied with the builder for the model home selected.  Currently looking at an alternative and after reading your post will be rerunning numbers.  

Congrats again and looking forward to getting an update. 

@Rodrigo Ceja hey!  Just read your post here and I wanted to circle back, I know you were upset the builder missed his appointment which I characterized as abnormal for him.  We did discuss your ability to working with our other builder as an alternative, you could still use the same lot selection team and property manager.  Shoot me a message and we can see about connecting you with the other builder so you can see if they align with what you are looking for or just schedule a call with me.  Have a great day!

Originally posted by @Don Miller :

@Arjun S.  How is it going now that you're further in the process?  Any updates?  Was the overall quote with R2R originally in the 275k range they currently have or was it lower when you began?

Thanks

Hello Don,

It was lower originally and I believe every 30-45 days prices went up on the site. In my case it was 266K (vs 238K that it should have been based on original discussions and contracts). So far still waiting on permits and ETA for completion was around Nov/Dec i.e about now. But new date is sometime mid next year. However there is no firm date since it depends on when permitting is approved (which I see is the case in several states and even locally on a few other properties that I am pursuing)
 

Originally posted by @Rodrigo Ceja :

Congratulations on your investment and many thanks for sharing your experience regarding RTR.  I'm very interested in receiving an update on the new built.  Last month I reached out to RTR for my first out of state property.  Had a great first impression and quickly became interested in the new builds.  Made a trip to personally meet with the broker, builder, property management and get familiar with the area.  Overall it was a good visit, but was very unsatisfied with the builder for the model home selected.  Currently looking at an alternative and after reading your post will be rerunning numbers.  

Congrats again and looking forward to getting an update. 

Yes always good to run your numbers and do your DD. Visiting in person is the best thing to do if you can. I recently visited the location myself a week back and definitely the area has a lot of potential but is yet to be developed (Mostly empty lots as of today). So considering the comps are already higher, it definitely is a good investment over the long run when the place actually develops and we start seeing more inflow.

Originally posted by @Arjun S. :
Originally posted by @Don Miller:

@Arjun S.  How is it going now that you're further in the process?  Any updates?  Was the overall quote with R2R originally in the 275k range they currently have or was it lower when you began?

Thanks

Hello Don,

It was lower originally and I believe every 30-45 days prices went up on the site. In my case it was 266K (vs 238K that it should have been based on original discussions and contracts). So far still waiting on permits and ETA for completion was around Nov/Dec i.e about now. But new date is sometime mid next year. However there is no firm date since it depends on when permitting is approved (which I see is the case in several states and even locally on a few other properties that I am pursuing)


Thank you for your response!  That is helpful.  Did the changes in price affect your financing situation?
 

Originally posted by @Don Miller :
Originally posted by @Arjun S.:
Originally posted by @Don Miller:

@Arjun S.  How is it going now that you're further in the process?  Any updates?  Was the overall quote with R2R originally in the 275k range they currently have or was it lower when you began?

Thanks

Hello Don,

It was lower originally and I believe every 30-45 days prices went up on the site. In my case it was 266K (vs 238K that it should have been based on original discussions and contracts). So far still waiting on permits and ETA for completion was around Nov/Dec i.e about now. But new date is sometime mid next year. However there is no firm date since it depends on when permitting is approved (which I see is the case in several states and even locally on a few other properties that I am pursuing)


Thank you for your response!  That is helpful.  Did the changes in price affect your financing situation?  

No there was no issue with financing and they took care of it. However my interest rate for private lending was changed from 8% (that I had in the contract) to 10% before closing. 

Originally posted by @Don Miller :

@Arjun S. Thanks for the info.  Was that through one of R2R's recommended lenders?  Smooth process other than the rate increase?

Yes it was through their recommended lender. Other than rate increase and permitting delay everything else was smooth and taken care of. But have to wait until it's all finally built and rented out to get a better final picture :) I am hoping all these price increases will be negated by the final appraisal once they are in, since these 6 months should add a decent amount of appreciation than the said numbers.