Simple Passive Investor from California

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Simple Passive Investor from California

Mabel L.
Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes

Hello! I'm so happy to have stumbled upon BP through the Madfientist podcast and now, I'm addicted to listening to all of the BP podcast!  

My husband and I are in our late 30's and are about 4-5 years away from reaching financial independence and of lately, I've been thinking about how to speed up that process and create additional streams of income.

I have bought and sold a couple of properties (including land-lording) so I have a little experience here and there.  The podcasts however, have opened up so many different ways of approaching real estate that I had never thought of and has actually helped solidify the kind of investor I definitely do NOT want to be.

At this point, I am really interested in turnkey properties. I think it may be a good fit for all of the following reasons:

#1) I can't seem to find properties with good cash flow around here (in SoCal).

#2) I don't know anyone out-of-state that can help me acquire, rehab, manage properties.

#3) The idea of putting a team together to do #2 is not attractive.  I like simple.  Sounds like a lot of work (at least I can admit it!)

#4) Time is precious.  I have a full time job (Middle School teacher).  I do not want to spend my nights and weekends looking at ugly houses much less flying to places to investigate. (Instead, I grade papers and plan lessons...much more exciting!)

#5) I HATE landlording.  

#6) I know finding good tenants is actually quite easy if the location is prime (I own in SF and just sold in Pasadena - plenty of high-quality renters, never a vacancy).

#7) I am happy with decent returns, I do not need to squeeze every possible penny out of a transaction.  I believe everyone can win.  

I am really interested in hearing from those that have experiences with turnkey companies, especially how to go about evaluating property managers/managements. 

I'd also love it if anyone can offer how they compared the TK companies and what were the determining factors that helped them choose a particular TK.  

 The TK company I've read over and over again is Memphis Invest (which I'm at this point quite convinced they are a sound and reputable company) so I would love to hear from anyone with experiences with a different company. 

Thanks BP for providing this forum and to all who have generously contributed to BP!

~ Mabel

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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y

I agree with Jay. Stay local in CA and your returns will likely smoke what you could do with an out of state turnkey over the long haul. It will NOT likely be 100% passive, though. You could put your money to work locally in a pool or individually placed through a mortgage broker issuing Hard Money Loans. That would be totally passive. Lots of good groups like the Norris Group in SoCal doing this.

If you insist on 100% passive and out of state REI, then I think there are better investment models than turnkey. For one, if you qualify as an accredited investor (if you are near financial independence then you likely will), then you could look into private placements whereby you could be a passive investment in an apartment syndication. In other words, you would invest in a large apartment complex, get a preferred return of 8-12%, and the syndicator who puts together and manages the deal takes or splits profits above the preferred return. Larger scale and better aligned incentive structure than with a turnkey operator IMO.

So, a few options for you, but out of state turnkey would be just about the last option on the list I would advise you to choose. I'm sure there are plenty of turnkey operators and those that are marketing for them that would disagree, but the difference is I'm not trying to sell you anything.

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  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    10y

    Thanks for sharing all the stats here. 

    [email protected]
    0Reply
  • Bruce Olsen
    Lender · Pasadena, CA · Member since 2013 · 74 posts · 11 votes
    10y

    @Mabel L. - Congratulations on being so close to independence so young!

    My wife and I also live in Pasadena; perhaps we could meet for coffee and share our investing experience with you two.

    0Reply
  • Amy Wan
    Attorney · Los Angeles, CA · Member since 2016 · 284 posts · 314 votes
    10y

    @Manolo D.@Jeff Greenberg can you post a link to the LA BP meetup? I just looked on meetup and there are so many real estate meetup groups, wasn't sure which one it is. Thanks!

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    @Amy Wan I don't think there is one on meetup, I think it's posted here on BP under events or something. But it is UnUrban Cafe Santa Monica (you can google), every 2nd Saturday at 11am.

    0Reply
  • Adam Bontrager
    Investor Relations Manager · Cleveland, OH · Member since 2015 · 117 posts · 50 votes
    10y

    @Mabel L.

    As some of the other contributors have mentioned, both turnkey and crowdfunding are excellent option for passive real estate investing.  Of these options, crowdfunding will require the least input from yourself on an ongoing basis.  While turnkey is relatively passive, you will still need to make various decisions and be involved on a regular basis.  Crowdfunding, on the other hand, is almost entirely passive.  Returns on real estate crowdfunding are great as well.  

    RealtyShares.com is a site that has a pretty good track record.  

    Also check out Brelion.com.  They've just put up a new construction project with a 16% projected annual return.  https://brelion.com/public/33

    Feel free to reach out with any questions.  Onward and upward!

    0Reply
  • Clayton MobleyPro Member
    Birmingham, AL · Member since 2014 · 875 posts · 947 votes
    10y

    @Mabel L. at the risk of being called a vulture, I'd still like to welcome you to BP ;) The reasons you outlined for being interested in turnkey are spot on and, while there are definitely ways to make money closer to home or through other avenues, if you find a provider you really trust, turnkey can be one of the easiest ways to generate passive income.

    Full disclosure, I am the CEO of Spartan Invest, a full service turnkey outfit in Birmingham, AL, but being on the other side of the contract doesn't mean we providers don't have plenty of useful information to share! As has been pointed out before, such a well thought-out and turnkey-positive post is going to attract a lot of attention, both good and bad. But as you said yourself, it is possible for both parties to win. So take that influx as an opportunity to be introduced to the best (and yes, also probably the worst) that BP has to offer in terms of TK providers. There are a ton of sketchy  'providers' out there, but if you know what you're looking at they are pretty easy to pick out.

     Always watch out for people that throw around a lot of pro-forma estimates and can't back up the figures they use with actual data. Any provider worth their salt should KNOW what their vacancy and maintenance rates are and be upfront about other costs like leasing and management fees. They should also be able to tell you what their typical and minimum lease terms are and what the average move-out cost is so you know how often you're likely to incur additional expenses because of turnover. Ask about deferred maintenance and what kind of upgrades the provider does during refurb - are the upgrades done going to last or did they do the bare minimum to make the property rentable? Do they defer maintenance? Does the sale price seem grossly over-inflated even with refurb costs? Can the company show exactly why that price makes sense? Industry standards have everyone showing super simplified numbers on their property jackets, which can make things look a lot rosier than they are. If a company you speak to drags their feet about showing you actual concrete numbers on a real property in their portfolio, I'd move on.

    All that being said, you clearly know what you're about if you're going to be financially independent at such a young age. Take advantage of BP and all it has to offer, do your own due diligence and make sure you go through any numbers that are provided to you to make sure that they actually add up. If you have any questions, there is always someone willing to chat, or you can drop me a line any time.

    Best of luck on your new adventure!

    Clay

    1Reply
  • Ben StoodleyBusiness Member
    Lender · San Diego, CA · Member since 2014 · 264 posts · 161 votes
    10y

    @Mabel L. you definitely have gotten a ton of good information on this post and it will all come down to your personal opinions regarding how much money and time you want to spend on this. There are always good deals, finding them is the hardest part, as you've seen. In my opinion, the bigger metro areas of CA is always a safe bet to invest in because of the ever growing draw to live here. The high priced homes keep renting as the only option for the vast majority of people living here. I live in SD and would feel comfortable buying rentals here all day long, because I know the rental market very well. Yes, the cash flow is lower because of the CAP rates but it's such a strong market that you don't have to worry as much about the serious losses. These markets always tkae the least hit and rebound the fastest. Long term more passive investments are still very doable here, as there are places of SD expanding with increasing values. I would try to focus on those areas of expansion.

    Investing in a HML fund is also a great option. That would be my number 2 option for you, in my biased opinion (I am a HML). It is a huge market in CA, tons of great lenders out here. But with anything, make sure to do your due diligence. Unfortunately, there is a little bit of a negative connotation surround Hard Money still to this day. There are a few scammers and unethical people in the hard money world. Stick to the bigger companies that have a lot of experience with a great track record. Make sure to ask about their foreclosure processes, how that affects the backend investors, how often this happens, what the average annual ROI is for the back end investors, etc. 9.5% annual ROI for an investor in a HML fund is very doable and very passive.

    Good luck!

    0Reply
  • Jeff Greenberg
    Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
    10y

    @Amy Wan

    https://www.biggerpockets.com/forums/521/topics/31...

    Try this link

    0Reply
  • Perry L.
    Investor · SAN FRANCISCO, CA · Member since 2012 · 42 posts · 10 votes
    10y

    Market is the smartest guy in the room. He already sorts things out for you. In recent years, the buzz word is gentrification. 

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    10y

    Hi @Mabel L. -- Welcome to BiggerPockets!

    Your post title caught my eye as it's similar to my podcast's name:  Passive Real Estate Investing.

    Your list of seven reasons are spot on!  I could tack on several more, but the point is clear -- you're looking for a reputable team/company to help you build a passive income stream with quality rental properties in good markets, and in good neighborhoods.  True?

    BP will be helpful, as will many other resources available (free and paid).  My first rule of success is to educate yourself -- which it appears you are doing.

    Remember to let your investment goals and criteria drive your decisions so you're not led astray.

    Please post any new questions.  I'm familiar with many/most TK companies.

    Continued success!

    1Reply
  • Richard Carlino
    Professional · Orland Park, IL · Member since 2016 · 8 posts · 1 vote
    10y

    My company is a Hard Money Lender. Flipping homes has risen 20% in the last quarter. If you are looking to earn a good income being a passive investor, please weigh the risks involved with this type of investment. There are steps that companies can take to reduce the risk. Average returns are around 10%. Our returns have been around 18%. And investors should look into what steps Hard Money Lending companies have put in place to keep the risk to a minimum. Banks have over 1,000,000 attached properties in their shadow inventory. I feel that right now there is a better ROI investing with hard money lenders than rentals. The rental market is strong, but you can be selective on what to buy and hold. Some of our investors are using their profits to acquire rental properties while keeping their initial investment liquid. My real estate company manages these properties at a reduced fee.

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    10y

    @Mabel L. Memphis Invest is a very well respected and reputable company. If you decide that Memphis is right for you, they should be on your short list. If you want to take a look at Kansas City or Indianapolis, I'd be happy to help you in either of those markets.

    0Reply
  • Rachel Bier
    Investor · Napa, CA · Member since 2016 · 77 posts · 80 votes
    10y

    Hi @Mabel L., I'm also a big Mr Money Mustache fan and found BP through the forum on his site about 6 months ago, we're on track to FIRE in about 8 years and found ourselves looking for other ways to push our passive income streams. BP has been an invaluable source of info and ideas and I feel like we've achieved a lot in a relatively short amount of time. We're based in Northern California and have one SFR up here that we bought in 2008, in the past few months we've bought 3 turnkey SFR in Kansas City and will most likely buy more this year. In addition to directly buying property we've opened self directed IRA's and invested in PPR's note fund and Peer Street. If you can make it up here I would suggest going to the RE Networking Summit in Oakland August 27th & 28th, it's organized by @J.Martin and there's a ton of great speakers that regularly contribute to BP. I'm really hoping to be able to go, but work might get in the way!

    1Reply
  • Peter Brach
    Investor · Pasadena, CA · Member since 2016 · 44 posts · 11 votes
    10y

    Hi Mabel,

    I am really in alignment with your approach. Doing a deal on your own can be a lot of work and risky. I agree with the person who suggested looking at out of state syndications with an experienced team makes sense. It is ideal to work with someone who is an expert a particular region as well. With few exceptions, L.A. is not considered the place to be for acquiring cash flowing properties. 

    0Reply
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