kathy fettke real wealth network
Saint Augustine, FL · Member since 2013 · 9 posts · 0 votes
kathy fettke real wealth network
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesJerry w.
The turn key business has been alive and well for 15 years or so now.. There are very few who survived 07 to 09.. So what you have now is a whole new crop of turnkey companies. And or the turnkey companies moved markets changed who they had selling their properties.
However when I started loaning hard money to I would say 7 to 10 Turn key guys here is how it went.
First I would say 80% of the buyers came out of the LA basin.. Mike Harris's radio show.. Jay and Bill down in San Diego, Nick Vertucci in Irvine, Marshall Reddick, You get the drift. These are the marketing companies. they then reached out to the wholesaler rehabber in the markets they wanted to work in.
Or the wholesaler rehabber reached out to them and said I have product. Many Started in Detroit before the melt down. Memphis had always been a hot bed with Memphis invest the Reedys LCS etc etc. North Carolina had Carolina liquidators , Jackson MS had 5 or six different companies.. One guy that sold a bunch was Demetris Mathis, Bob Lucroy, Walter Woofard, Brad Miller, then in Birmingham you had Justin Harrison, Aaron Adams at Alpine in Indy, And Jerry Cohen and his Son Sean who I loaned money to many times, I see Sean has gone into hard money lending. and the list goes on and on. Now other than Memphis invest and the Reedys I loaned hard money to each and everyone of these turn key operators clients and in many cases to them personally.. The clients came from the Radio shows in LA and San Deigo.. And some from SF there was a Doctor somebody I forget his name... So we loaned the turn Key operator short term money to secure the asset.. usually 3o days or so.. Then when they matched the home up with an LA investor through one of the marketing companies mentioned above we then did the 60% to 65% Hard money loan of ARV to the LA investor.. So now the LA investor is MY client. The loan would pay off the short term loan ( Pay me off and I made a fee there) I would escrow rehab funds and The Turn key provider and the Marketing company be it MIke Harris Jay and Bill Nick Vertucci any of these guys they got their profit as well. So now everyone has made there money. And its now me and the turn key company rehabbing with me controlling draws and I had independent inspectors to do draw requests and confirmations. Then the LA buyer would get a RAte and term refi at 75% LTV sometimes 80 and would very often get cash back at closing. So there you had The RAdio promoters promoting not only no money down but up to 8k cash back per closing and we can do 4 at once.. And with the lier loans and such it was one easy sell. So Refi happens I get cashed out and we do it again.. So at my peak ( not to be confused with Peak in KC) I was doing between 60 and 80 of these each and every month. And you can do the math we made 5 points plus junk fees and 15% interest I had credit line with my local banks at 6 to 7% so we were making not only the points but the spread.. BUT WE TOOK ALL THE RISK IF IT cratered.. And this went on for 4 to 5 years... Life was good right.
Everyone was making money.. Well then the excrement hit the fan.. I had about 700 loans out and everything came to a screeching half AUG of 08.. We were like the titanic and once we went into neutral then reverse we did 3 months of loans and got stuck with them. I was in Europe most of October going OH crap what am I going to do.
Well this is when I learned about PM and how hard it is to manage mid western properties. Some work fine but many have problems and major problems. My two hundred loans went under because the owners in LA were newbies did not know what they were really doing they had been sold a passive turn key program the guys on the ground are now doing something different because they are not making any new sales.. And the La investors failed big time.. this is were most of your 08 to 2011 foreclosure inventory comes from in all these markets , Granted it was a lot of sub prime Owner Occ but it was a crap load of investors who just could not keep properties up and running.. they were undercapitalized to start with. they were sold a program that called for positive cash flow,, they were really getting negative cash flow and of course the 8k per house they took out at closing is sitting in the driveway either on wheels a Jet ski or was that fabulous trip they could never afford. IT was a melt down of epic proportions.. I personally lost about 3 million in this down turn.. I paid all my creditors off never defaulted on my underlying bank loans and learned more than just about any person in the country about how turn key works.. I know I saw all the HUDS. I funded well over 2000 of these.. And after all this call me crazy but I went out and bought 350 homes the last 3 years.. And I just sold them all in Oct.
So what you have now is the new turn key guys.. The Cohens are not turn key anymore they are hard money.. Clothier and Memphis invest exploded as there was a huge vacuum in the space.. Atlanta became soup de jour and was hands down on of the best markets.. I bought 50 homes there from 09 to 2010 and sold them last July and made 50% profit. So just getting part of the 3 million I lost when the economy cratered and all the LA turn key investors and owners went pear shaped and turtled up.. NOw you have a whole new crew of turn key. Mike Harris is still on the Radio so is Jay and Bill,,,, Nick Vertucci has rocked it the last few years. Aaron Adams has gone from a great property manager to a great turn key guy in his own right.. Clothiers have such a good reputation as turn key gurus that they have a big following.... then there is me the little engine that "could" that made much of what went on happen I spent 2 years in limbo hell foreclosing on La folks and securing my assets Had to move to the south knocked on doors it was night mare of epic proportions I went from the penthouse on the cruise ship coming into Venice to cruising the Hood in Memphis looking at barred up windows caged Aircondioning units and talking with tenants that knew me to be a lamb to the slaughter.. Everyone paid there rent to someone.. just a night mare... I suspect in certain markets we were defiantly market makers. And the turn key guys that turned and ran and did not help their clients I would not deal with again. Those that stuck it out we are doing things today NOt as big as I was but substantial and fun.... So today I fund not only mezz financing for half a dozen of the guys in the bizz but do 5 year financing for them as well Ala a Peak product. WE fund almost a million a month of that paper and growing. And since I have the outlets and long history with my guys I have this down its me and 2 great gals that run it... I have a new mezz model that just rocks it and makes those deals so streamline its great. And I can tell you I am not by far the cheapest but I am by far the fastest and most reliable once I provide a credit facility for one of my turn key guys.. In addition I have 3 of the best off shore providers in my camp as well.
So there you go no mystery to this.. and other than the big cash out when folks bought the properties the business is really quite simple.. buy a bombed out foreclosure that an investor walked away from because PM was cruddy. And or they tried to do it themselves which is another recipe for disaster in the B and C class of any of these mid western markets... For the first 3 years after the great collapse all the turn key guys went to promoting IRA buyers.. all cash 60 % of all houses are bought with cash.. So other than my mezz financing there was no need for the hard money to put them in title and then do a rate and term refi so that business for now is gone probably for good.
And depending on when and where people are buying there are some really good buys.. BUT it really really comes down to one thing. Anyone can buy a foreclosure and Johnny lunch bucket can do the TIP TOP reno.. its all about PM without it your destined to fail in my Humble opinion and personal experience. further its my sincere belief that C properties are NOT an appropriate investment for anyone who does not live and work in the area. Yes some will work but many are disasters. I just had a lady e mail me from AU a few minutes ago.. She is investing with me in Oregon... And 2 of her 3 rentals are vacant and she paid full pop for them 80k a piece from one of the top Memphis turn key guys.. No matter who's fault it is she is just sick she is sitting over there not knowing what to do.. And for her to come here is 5k plus loss of work time.. Etc etc. Even people from LA or SF its a 1500 round trip if you got to go to one of these markets.. So my point is for arm chair passive and to be very conservative and safe investors need to look at much better properties pay more expect less cash flow but make it up with a true property that can be sold for a profit down the track.. C properties no matter were they are will never sell for more than wholesale value plus rehab plus a few bucks for profit for the rehabber.. Unless you have a highly organized well financed marketing machine that can move them for more than market value.. The turn key guys and marketers can do that YOu as an individual cannot 97% of the time.
Phew that my take on this
78 Replies
- 12yKathy FettkePro MemberRental Property Investor · Los Angeles, CA · Member since 2014 · 104 posts · 180 votes
Joel,
I can see how you would expect that being in the position I am in, that I would take the best deals for myself. I certainly have that opportunity to do so. However, the opposite is true. We have so much demand for properties and so little inventory available that I actually end up with the left overs.
I can't tell you how many times I've seen property I wanted to buy on one of our tours and whispered to the seller that if no one wanted it, I'd take it. Inevitably, the one I want gets claimed by one of our members as it should be. Anyway, most of my money is the bigger deals these days, and those profits are shared.
And yes, Joel, you are absolutely right. There is a market out there of people who are looking for what Real Wealth Network offers. A very BIG market, actually. Everyone has a "tribe," and mine is busy professionals who don't have time to make hundreds of offers, fix toilets or oversee renovations. They want passive investments. They want it "done for them" or they won't get it done at all.
And they love Real Wealth Network because we are like a "Yelp" for turn-key real estate investments. Sure, we do our initial due diligence on teams, and most don't make the cut right off the bat either because their rehabs are crappy, they don't have enough experience, they can't keep up with demand, or their customer service stinks.
Those property providers who do make the cut are presented to our investment club, where they go through a second round of due diligence. After they pass the scrutiny of over 14,000 members - if they still manage to stay on our referral list, that means their renovations are top notch (verified by independent inspections), their prices are fair, property management is excellent, and they operate with integrity. And most importantly, the members who bought from them rave about their success.
Are these the best deals out there? I already said a "do it yourselfer" can probably get better numbers by marching the streets, making hundreds of offers, hiring crews, managing construction, finding tenants and managing those tenants - but that's awfully hard to do from out of state, or worse, from out of the country.
I will take your advice and post some of these opportunities on your marketplace. The states we like are Texas, Indiana, Ohio, Florida and Pennsylvania, so any discussion about Chicago is really a mute point when it comes to me or Real Wealth Network. It's not our focus - but maybe a good discussion for another forum.
- 12yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Kathy Fettke:
My one request - PLEASE STOP making assumptions about me. It's unfair. Happy to answer questions but getting tired of false accusations from people who don't know a thing about me or my company.Hey Kathy -
@Joel Owens was right about how long I have been on here and at times, especially early on, I got a lot of push back to my message. But that is what is great about this place. You will be challenged and questions will be asked and sometimes they come from people that simply are not going to like any answer you give. You and I have known each other for a couple of years now and I manage about a dozen or so portfolios for your clients. I can tell you that BP is a great place to reach out to investors. Some will like your message, some will not and some won't care either way but will give you their respect because you are open and honest to discussions.
Plus you meet other, very intelligent investors that can challenge traditional thinking and that has helped me to grow my own understanding and thinking about real estate.
Make sure you do not go silent on the site. I would get involved on all kinds of topics now just questions about your company. You know a lot about real estate and have a lot of experience. Share it and earn the respect of the community and you will see a great benefit to your company.
- 12yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Mike H.:
I'd point out that someone else actually started this thread when they asked what we thought of the RWN. So I blame Noel for this. :-) (That is meant to be taken with humor - just in case Noel is wondering.).Thanks for adding a little levity! Sometimes humor helps bring the discussion back into focus...
- 12yKathy FettkePro MemberRental Property Investor · Los Angeles, CA · Member since 2014 · 104 posts · 180 votes
Mike H,
Since this is a forum for learning and hopefully not just a place for tearing people down as part of their initiation to BP, I've got a few questions for you.
1) Please describe these phenomenal deals that you are finding for yourself. What did it take to acquire them, what price did you pay for purchase, did you renovate and if so how did you do it and how much did it cost? What are the rents you are getting? And overall, how many hours do you put into each asset you've acquired?
There's one caveat however - those people don't have the time, ability or desire to do the work you've done. They want YOU to do it for them. How would you help them?
I really am curious as to how you think you could do a better job than I am doing.
Would you help all those people find deals by doing all the legwork gratis? Or would you charge for your time and expertise - especially when those people are more than willing to pay a small premium for it.
Please be honest in your reply.
- Dallas, TX · Member since 2013 · 4k+ posts · 744 votes12y
I doubt Mike H. will respond I think he is new to the real estate business.
Joe Gore
- 12yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Kathy Fettke:
Mike H,
Since this is a forum for learning and hopefully not just a place for tearing people down as part of their initiation to BP, I've got a few questions for you.
1) Please describe these phenomenal deals that you are finding for yourself. What did it take to acquire them, what price did you pay for purchase, did you renovate and if so how did you do it and how much did it cost? What are the rents you are getting? And overall, how many hours do you put into each asset you've acquired?
2) If you were like me, host of an international radio show and frequent guest expert on Fox Business News, CNN, CNBC and NPR, which led to exposure to thousands of people who heard what you have to say and then want you to help them find similar properties, what would you do?
There's one caveat however - those people don't have the time, ability or desire to do the work you've done. They want YOU to do it for them. How would you help them?
I really am curious as to how you think you could do a better job than I am doing.
Would you help all those people find deals by doing all the legwork gratis? Or would you charge for your time and expertise - especially when those people are more than willing to pay a small premium for it.
Please be honest in your reply.
WOW
lol
- Investor · Chicago, IL · Member since 2011 · 74 posts · 35 votes12y
"For example, we picked up 27 waterfront townhomes in Portland that were 70% complete before the bank failed. The loan was $12.8M but we bought the project for $3M. We finished it out and sold retail. Investors got 20+ IRR.
Latest projects are similar - an unfinished resort in Tahoe that was $38M that we tied up for $2M and a foreclosed subdivision in Tampa that was $160M that we got for $16M. We still like single family buy & hold rentals, but these bigger projects are too good to pass up and our network loves them because we only partner with successful developers how have 30+ years experience. "
Nicely done.
- Investor · Long Island, NY · Member since 2010 · 99 posts · 23 votes12y
I'll answer the original question on this post. Since we have been a bit side-tracked.
Yes, I have dealt with RWN and purchased a property via their network. I have never met Kathy Fetke but I do listen to her podcast. I signed up to RWN since it was free I had nothing to lose. I was pleasantly surprised that someone from RWN actually wanted to speak to me to better understand my goals and what I was looking for and not try to sell me anything. She introduced me to one of the providers from their network and I ended up purchasing a property. I am still in the early stages of the property purchase but so far my expectation has been exceeded. I would say it is semi-turnkey. I say semi-turnkey because while they are coordinating everything I am dealing with their contractor and paying directly, which I prefer to do, so this is a good thing.
We all know that real estate sales are public info, so I have a good idea what the turnkey provider paid for the property and I know they made a good profit even with RWN's cut. However that is fine with me because I am satisfied with the numbers I am paying and my expected COC.
- Real Estate Investor · Member since 2013 · 866 posts · 487 votes12y
Originally posted by @Mike H.:
...
And it seems real interesting that almost all the chicagoland properties were removed from your site over night. Where did they all go? They were "bought" the same night this discussion happened to start up? Yesterday, there were 25 or 27 properties listed on there. Today, there are 4.
Just happened to time out that way? :-)
@Kathy Fettke, maybe I missed it in the thread but did you ever address Mike's question above? That does seem to be a rather interesting coincidence.
- 12yKathy FettkePro MemberRental Property Investor · Los Angeles, CA · Member since 2014 · 104 posts · 180 votes
Hi Duncan,
Great question. I was trying to figure out where Mike was getting his info. And I was frustrated that his attack on me was for properties we featured for a tiny window of time a few years ago. So I went into our property website to figure out what was going on and found a bunch of stale properties that were over 2 years old that had already been bought by hedge funds. My first reaction was to fire my web manager (haha, I didn't do it.)
I knew Mike was on a witch hunt and would bring this up, but I'd really rather you all focus your attention on our current deals. Honestly, Chicago has never been my city of choice because of it's tenant-friendly laws, high taxes, cold weather - plus Mike's right - the cash flow from that provider wasn't very impressive (and I apologize to those who specialize in this market...).
So why did we originally post those properties on our website? I tried to explain it in other posts so I'll state it in a different way here. Real Wealth Network's tagline is "the real estate investor's resource" but it really should be changed to "the passive real estate investors resource."
There is a market for people who want to buy rental property and they want it "done for them." They come to us daily from all over the world asking if we have vetted teams in the cities they want to invest in. Some people love Chicago and want to invest there so we wanted to make sure we had vetted a few worthy companies in the area. We did find a company that we believed had high standards, integrity and experience. We posted their properties on our website so if someone liked those numbers, good for them. If they didn't like the numbers, they'd look at a different market featured on our website.
I personally was surprised at how many people liked the numbers in Chicago. It's not like we were hiding anything. The pro forma's are posted on our website for God's sake! (and remember - they include vacancy and maintenance reserves, which further lowers the stated ROI). Either way, people can take it or leave it. Some took it. Those who wanted something else looked elsewhere like TX, OH, or PA.
You never know why people choose the areas they choose. Maybe they have family in Chicago or like visiting the area so they want to buy property there. Or 6-7% returns are fine for them.
If you think of us as the "yelp" of passive real estate investing, would you criticize yelp for posting a restaurant that offers food you don't like? Or would you simply use their resources to find the food you want?
So yeah, in answer to your question, I took those properties down because they were old, stale, unavailable and not even anything close to what we offer today. I knew I'd get $H!7 for it because I knew Mike was on a mission. But I figured if I was going to be in hot seat, we might as well be talking about stuff we're actively doing, rather than spending all this energy grilling me over some properties that we profiled years ago and that are no longer available because hedge funds gobbled them up.
So let's talk about what we're doing right now. Joel, who started this post, met us on a tour in Ohio. The properties he toured are not our best deals numbers-wise - just being honest. (Hopefully he knew that before he came on the tour as the pro-formas are posted on our website.) However, on the flip side, the property provider offers stellar customer service. A lot of our members will gladly pay more to be taken care of and not have to deal with issues.
Those who want better numbers will go to the providers who are "semi-turn-key". That means they source the property for you and then oversee the contractors and refer you to a proven property manager. It's a little more work but the cash flow is a bit better.
Those who want even better than that just use the REO agents we recommend and oversee the renovation or do the work themselves.
And for those who want TOTALLY passive and don't want to do any work at all because they work 80 hours a week at their own jobs, we recommend our syndications where they probably get the highest returns of all, and those deals are managed by operators and developers with 30+ years experience.
So there's hopefully something for everyone. I hope this helps.
Next question? :-)
- Real Estate Investor · Member since 2013 · 866 posts · 487 votes12y
Originally posted by @Kathy Fettke:
Hi Duncan,
...
I knew Mike was on a witch hunt and would bring this up, but I'd really rather you all focus your attention on our current deals.
...
There may be some really wonderfully interesting nugget in the rest of your very long reply, but honestly I stopped reading after the line above. I don't know Mike, but, in my opinion your calling his questions and comments a witch hunt is uncalled for and seems more like an attempt at misdirection than explanation.
I asked about this because it was a very interesting coincidence that was left just hanging out there in the wind. You going in and removing the stale properties is fine. Had you come back and let everyone know you did it and why would've been much much better. Doing it and hoping no one would notice or even worse would think Mike was doing something underhanded... well... like I said, it was an interesting coincidence that turned out not be coincidental at all.
But, what I find most troubling is you seem to feel like someone asking you a question you don't like is some how conducting a witch hunt. I'm sorry, but to me that attitude sets off all kinds of red flags with me.
I know nothing about you or your service and to be perfectly honest I have not read anything in this thread that would make me want to know more or to make me want to send someone to you to learn more if they were looking for the type of deal your service targets.
Good luck to you. I'm out.
- 12yKathy FettkePro MemberRental Property Investor · Los Angeles, CA · Member since 2014 · 104 posts · 180 votes
Wow. Very eye-opening. Thank you.
I guess I was feeling attacked, and responded defensively - which is never a good idea.
I like the way you reframed it to simply being questioned by Mike. And as you can see, I really am more than happy to answer - perhaps too happy as my posts are WAY TOO LONG!
Apologies to Mike. Wish I could retract the words "witch hunt" but I don't think you can do that on this site (unlike FB where you can say stupid things and then delete them. :-)
Thanks all for keeping me on my toes.
@Chris Clothier You were right that there's lots to learn here. :-)
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Kathy Jay Hinrichs here I am new to BP been on here one week,,, Looks like I have been missing something here on BP. I guess just busy helping turn key guys buy their inventory. From my one week on this site my thoughts are this.
1. Some really savvy investors who are going to do it their self no matter what, and they get the true wholesale deals.
2. Newbies wanting to learn the business and trying not to make a big mistake and learn the business. And for me with almost 40 years at this most of what gets talked about I forgot 20 years ago :)
3. Wide variety of of investors from New construction to rehab turn key and crowdfunding to everything in between.
For those who are new to Kathy I only met her once and had a nice lunch together at a Linda Pilagas event.. We talked a bit.. Never did do any business but I live in Portland OR. and am familiar with the condo deal she did and it was a winner,, they got in at the right time and flipped out at the right time.
However from my perspective comparing those types of transactions to Turn key in middle America is like comparing a Yugo to a Mercedes..
AS a hard money lender whose niche is funding Turnkey companies in the Mid west and some west coast.. I have played in most markets mentioned here. From Chicago, Detroit ( got out before the melt down thank god) Indy, Memphis, st. Luis, Jackson, Birmingham, Atlanta, Orlando, Charlotte, Ft. Myers, Dallas ,Houston. And the west coast Oregon WA. CA.
That all said I too do what someone like Kathy would do I get requests all the time and I have to vette the turn key operator before I step in and create a lending facility for them.. I am super picky and only do business with a handful of TK operators that I personally like... I don't want to be funding someone who is providing poor product doing shoddy work or does not have PM fully under control.. Even though I am in and out of the deal I am concerned that the end buyer ( usually CA or off shore) gets a fair shake. And on Foreign websites and Forums I am well known as the contrarian trying to help these people.. AS many foreigners get totally messed up and loose their money because they do not know what a Ghetto is or a good area from bad..
That all said.. There is value for someone doing it all for you. And yes Someone in Kathy's position is really just acting as a Real Estate broker on steroids and on a national stage.
And this is something I mention to the off shore investors. Buy the time they pay their marketing company the member fee usually 3 to 5k so they can look at the super secret inventory.. pay 5 to 10k to fly and tour. they could be in a property 20k before they even bought one...
My latest financial product is flying off the shelf I have my Mezz of course, but I introduced a NON RECOURSE 5 year product for foreigners and IRA buyers. and that is going very well. And I only offer it through my hand picked turn key companies. So its the same vetting process I use for the Mezz.. Make sure these companies are vertically integrated and have PM well under control. See in my humble opinion.. anyone can buy a bombed out Rehabber anyone can hire Johnny the rehab contractor to put it back together. But it all comes down to PM Period end of discussion.. This is where I see out of area investors just get killed.
In the down turn in 08 I had close to 50 million out in my hard money company and 700 loans on the books.. Well by 2010 I owed 200 of those houses. And this was my money not investors. I owned these..period. So I had to move from my Home in Portland.. Took my Airplane.. Based myself in Jackson MS. ( central to all south east markets I was in) and proceeded to knock on 200 freaking doors... And that is when I learned the PM lesson...
Kathy's bigger deals are for accrediteds I am sure.. So 90% of the audience here probably could not invest if they wanted to.
At the end of the day RE has treated me well.. And I love its my life. And I continue to grow different divisions and try to stay in front of whats hot.
Like now.. New construction is red HOt.. so I started building about 1 year ago. And have about 80 lots ahead of me so inventory set for the next 2 years here in Portland.. Then keep the little dollars coming in with my lending and life is good. Look forward to contributing on BP
And Kathy I will be in La in the spring lets hook up in person and see
- Dallas, TX · Member since 2013 · 4k+ posts · 744 votes12y
I like your post where you vetting turn key operator before you do business with them, and I think it is always best to vette hard money lenders because you have a lot of them talk a good game and wasting people's time but cannot deliver or provide verify references or show they have funds to loan. Jay I am sure you are a hard money lender and where can the fine and friendly folks here at BP find where you have done some deals
Joe Gore - 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Joe,,
Your exactly right... the lending world is full of wanna be brokers that have to talk to their investor blah blah blah..
I choose who I do business with not the other way around..
Are you a turn key operator?
But if I have to qualify my bona fides on BG I can certainly do that will the moderators allow that?
Being a newbie I don't want to get a bad wrap before I start.
Having the amount of experience track record and client base. I don't need to advertise I don't have a web site , I get referred business and those are the best kinds.
And most of my Turn key guys would not like me disclosing our business relationships.
But if you contact me privately I am sure we can have a nice discourse on the subject.
Ok wife is yelling at me got to go pick out sinks and stuff for new house I am building.
- Dallas, TX · Member since 2013 · 4k+ posts · 744 votes12y
Thanks for the reply.
Joe Gore
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes12y
@Kathy Fettke just to clear up a few things I wanted to let you know how I viewed all the responses.
First @Mike H. was not on a witch hunt, he was correct in his 4% to 8% returns in a C neighborhood, and you disputed that was the actual return.
Mike came across as fair, with a logical argument, he did not take cheap shots and gave an honest opinion. He even posted some pretty nice things about your company and its previous podcasts.
Your responses were not that good up until near the end, and those were much better. You directly addressed the issues he raised and your responses were professional, and factual.
For the record it is hard to take criticism and not react emotionally, it happens all the time in my business. We all have the same initial reactions and some of us are just lucky in that we type so slow we have time to rethink our answers. My secretaries will not send out some of my initial responses to other attorneys and when I look at them again a day later I agree and do a new letter. We are human and we all have good and bad days on how we treat others.
I like the ability to have folks be honest on their evaluations and even if others are offended. I have seen several smoking deals posted that then have had someone from the same town say that is a ghetto, I would never buy there and I think whew they may have saved me a lot of time doing due diligence.
Your last few responses raised your standing with me and I believe most of the folks following this thread. @Chris Clothier has a huge amount of respect from those who follow on this site. If you keep to posting like your last 2 posts you probably will too. You do a lot better when you address the issue and not go after the person. I would say good luck to you, but it is pretty clear you are doing very well.
On this site there are a lot of folks who rip off others by selling turnkeys. I have had several messages that with very little looking showed the prices were very inflated and I was likely to have huge regrets if I bought. Twenty years ago I would probably not have been able to see the danger. You are in the position that @Jack Tucker is, in that your profession has a lot of shady unscrupulous folks taking advantage of others. You can over come it but you have to earn their respect, even if it seems unfair.
I hope to see you participate on this site more in the future. Maybe you can save someone from one of the bad turnkey operators.
- Real Estate Investor, Flipper, PM, vacation rental, Wholesaler · Athens, GA · Member since 2013 · 260 posts · 210 votes12y
@Jerry W.Good summary and advice all around. Thanks for the shout-out, but although I'm flattered to exist in the same sentence as these pros, we are nowhere in the league of @Kathy Fettke or @Chris Clothier or @Marco Santarelli .
I have the utmost respect for these folks (and others) while learning from each post they share. I'm also learning from the investors that are not fans of turnkey businesses to understand their concerns. It seems like INTEGRITY and TRANSPARENCY is key. But here's the meat of my reply:
I'm wondering as a turnkey company grows and you want to scale by working with more outside service providers, there must be a certain amount of control that is lost in the process. Hence, while your core company's integrity remains strong, there's an opportunity for a PM/contractor/marketer/etc to slip in past the vetting system who might think it's ok to operate in the grey areas from time to time. This leads to bad things for the investor and parent company.
Focusing on solutions here, this is not any different than a challenge in other scaling businesses. Perhaps if a growing company applied a solution similar to what is done in a franchise model - standardized services / methods / etc - the business's core integrity would be less likely to be compromised by these outside contractors. The challenge is to offer guidelines without completely dictating how these various providers, probably already successful in their own right before working with you, run their businesses under your flag... However, because they ARE under your flag they are already putting YOUR brand equity on the line - you should assert plenty of control.
No doubt that this approach is already done to a certain extent. Maybe more rigorous standardization during vetting and periodic audits could help keep the operational quality aligned. This may already be common sense to the successful folks, and just my personal little "ah-ha" moment. If so, thanks for humoring me.
The 2-10 rule says that if you do a customer right, they might mention their good experience to 2 friends... BUT if you do a customer wrong, they will tell at least 10 people to stay away from you. Or in this case, the thousands of BP members. :)
- 12yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Jerry w.
The turn key business has been alive and well for 15 years or so now.. There are very few who survived 07 to 09.. So what you have now is a whole new crop of turnkey companies. And or the turnkey companies moved markets changed who they had selling their properties.
However when I started loaning hard money to I would say 7 to 10 Turn key guys here is how it went.
First I would say 80% of the buyers came out of the LA basin.. Mike Harris's radio show.. Jay and Bill down in San Diego, Nick Vertucci in Irvine, Marshall Reddick, You get the drift. These are the marketing companies. they then reached out to the wholesaler rehabber in the markets they wanted to work in.
Or the wholesaler rehabber reached out to them and said I have product. Many Started in Detroit before the melt down. Memphis had always been a hot bed with Memphis invest the Reedys LCS etc etc. North Carolina had Carolina liquidators , Jackson MS had 5 or six different companies.. One guy that sold a bunch was Demetris Mathis, Bob Lucroy, Walter Woofard, Brad Miller, then in Birmingham you had Justin Harrison, Aaron Adams at Alpine in Indy, And Jerry Cohen and his Son Sean who I loaned money to many times, I see Sean has gone into hard money lending. and the list goes on and on. Now other than Memphis invest and the Reedys I loaned hard money to each and everyone of these turn key operators clients and in many cases to them personally.. The clients came from the Radio shows in LA and San Deigo.. And some from SF there was a Doctor somebody I forget his name... So we loaned the turn Key operator short term money to secure the asset.. usually 3o days or so.. Then when they matched the home up with an LA investor through one of the marketing companies mentioned above we then did the 60% to 65% Hard money loan of ARV to the LA investor.. So now the LA investor is MY client. The loan would pay off the short term loan ( Pay me off and I made a fee there) I would escrow rehab funds and The Turn key provider and the Marketing company be it MIke Harris Jay and Bill Nick Vertucci any of these guys they got their profit as well. So now everyone has made there money. And its now me and the turn key company rehabbing with me controlling draws and I had independent inspectors to do draw requests and confirmations. Then the LA buyer would get a RAte and term refi at 75% LTV sometimes 80 and would very often get cash back at closing. So there you had The RAdio promoters promoting not only no money down but up to 8k cash back per closing and we can do 4 at once.. And with the lier loans and such it was one easy sell. So Refi happens I get cashed out and we do it again.. So at my peak ( not to be confused with Peak in KC) I was doing between 60 and 80 of these each and every month. And you can do the math we made 5 points plus junk fees and 15% interest I had credit line with my local banks at 6 to 7% so we were making not only the points but the spread.. BUT WE TOOK ALL THE RISK IF IT cratered.. And this went on for 4 to 5 years... Life was good right.
Everyone was making money.. Well then the excrement hit the fan.. I had about 700 loans out and everything came to a screeching half AUG of 08.. We were like the titanic and once we went into neutral then reverse we did 3 months of loans and got stuck with them. I was in Europe most of October going OH crap what am I going to do.
Well this is when I learned about PM and how hard it is to manage mid western properties. Some work fine but many have problems and major problems. My two hundred loans went under because the owners in LA were newbies did not know what they were really doing they had been sold a passive turn key program the guys on the ground are now doing something different because they are not making any new sales.. And the La investors failed big time.. this is were most of your 08 to 2011 foreclosure inventory comes from in all these markets , Granted it was a lot of sub prime Owner Occ but it was a crap load of investors who just could not keep properties up and running.. they were undercapitalized to start with. they were sold a program that called for positive cash flow,, they were really getting negative cash flow and of course the 8k per house they took out at closing is sitting in the driveway either on wheels a Jet ski or was that fabulous trip they could never afford. IT was a melt down of epic proportions.. I personally lost about 3 million in this down turn.. I paid all my creditors off never defaulted on my underlying bank loans and learned more than just about any person in the country about how turn key works.. I know I saw all the HUDS. I funded well over 2000 of these.. And after all this call me crazy but I went out and bought 350 homes the last 3 years.. And I just sold them all in Oct.
So what you have now is the new turn key guys.. The Cohens are not turn key anymore they are hard money.. Clothier and Memphis invest exploded as there was a huge vacuum in the space.. Atlanta became soup de jour and was hands down on of the best markets.. I bought 50 homes there from 09 to 2010 and sold them last July and made 50% profit. So just getting part of the 3 million I lost when the economy cratered and all the LA turn key investors and owners went pear shaped and turtled up.. NOw you have a whole new crew of turn key. Mike Harris is still on the Radio so is Jay and Bill,,,, Nick Vertucci has rocked it the last few years. Aaron Adams has gone from a great property manager to a great turn key guy in his own right.. Clothiers have such a good reputation as turn key gurus that they have a big following.... then there is me the little engine that "could" that made much of what went on happen I spent 2 years in limbo hell foreclosing on La folks and securing my assets Had to move to the south knocked on doors it was night mare of epic proportions I went from the penthouse on the cruise ship coming into Venice to cruising the Hood in Memphis looking at barred up windows caged Aircondioning units and talking with tenants that knew me to be a lamb to the slaughter.. Everyone paid there rent to someone.. just a night mare... I suspect in certain markets we were defiantly market makers. And the turn key guys that turned and ran and did not help their clients I would not deal with again. Those that stuck it out we are doing things today NOt as big as I was but substantial and fun.... So today I fund not only mezz financing for half a dozen of the guys in the bizz but do 5 year financing for them as well Ala a Peak product. WE fund almost a million a month of that paper and growing. And since I have the outlets and long history with my guys I have this down its me and 2 great gals that run it... I have a new mezz model that just rocks it and makes those deals so streamline its great. And I can tell you I am not by far the cheapest but I am by far the fastest and most reliable once I provide a credit facility for one of my turn key guys.. In addition I have 3 of the best off shore providers in my camp as well.
So there you go no mystery to this.. and other than the big cash out when folks bought the properties the business is really quite simple.. buy a bombed out foreclosure that an investor walked away from because PM was cruddy. And or they tried to do it themselves which is another recipe for disaster in the B and C class of any of these mid western markets... For the first 3 years after the great collapse all the turn key guys went to promoting IRA buyers.. all cash 60 % of all houses are bought with cash.. So other than my mezz financing there was no need for the hard money to put them in title and then do a rate and term refi so that business for now is gone probably for good.
And depending on when and where people are buying there are some really good buys.. BUT it really really comes down to one thing. Anyone can buy a foreclosure and Johnny lunch bucket can do the TIP TOP reno.. its all about PM without it your destined to fail in my Humble opinion and personal experience. further its my sincere belief that C properties are NOT an appropriate investment for anyone who does not live and work in the area. Yes some will work but many are disasters. I just had a lady e mail me from AU a few minutes ago.. She is investing with me in Oregon... And 2 of her 3 rentals are vacant and she paid full pop for them 80k a piece from one of the top Memphis turn key guys.. No matter who's fault it is she is just sick she is sitting over there not knowing what to do.. And for her to come here is 5k plus loss of work time.. Etc etc. Even people from LA or SF its a 1500 round trip if you got to go to one of these markets.. So my point is for arm chair passive and to be very conservative and safe investors need to look at much better properties pay more expect less cash flow but make it up with a true property that can be sold for a profit down the track.. C properties no matter were they are will never sell for more than wholesale value plus rehab plus a few bucks for profit for the rehabber.. Unless you have a highly organized well financed marketing machine that can move them for more than market value.. The turn key guys and marketers can do that YOu as an individual cannot 97% of the time.
Phew that my take on this
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes12y
@Jay Hinrichs thanks for taking the time to update all of us on this. Was very considerate of you. Gives me a lot to think about.
- Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes12y
thank you for this perspective @Jay Hinrichs , very useful. Wish I could vote more than once.
- Nashville, TN · Member since 2013 · 21 posts · 3 votes12y
Thanks for a great posting. Yes right on! My PM in Memphis said the exact same! At first I was looking at the B and C 'so called deals' and my PM said stay away from all the C areas, and most of the B ones too.
Some of those properties on paper look like the bargain of the century. But these are the properties that have had a gorgeous rehab, look great and have sat vacant for 4 months! Ouch! Then the poor ol PM has to offer discount rent, free rent periods and finally allow renters with a less than good credit history to rent cos these are the only ones that will rent the property. Which investor in their right mind would want the risk of a property that won't perform.
PM TIP: Spend a bit more, accept a more realistic ROI and invest in the areas where there is higher renter demand from renters with great credit and they will not only rent faster and longer but way less hassles.
Zelda - Real Estate Deals USA
- Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes12y
Originally posted by @Jack Tucker:
@Jerry W. Good summary and advice all around. Thanks for the shout-out, but although I'm flattered to exist in the same sentence as these pros, we are nowhere in the league of @Kathy Fetke or @Chris Clothier or @Marco Santarelli.
I have the utmost respect for these folks (and others) while learning from each post they share. I'm also learning from the investors that are not fans of turnkey businesses to understand their concerns. It seems like INTEGRITY and TRANSPARENCY is key. :)Jack -- You nailed it. Integrity and Transparency is at the heart of it. It's the only way to earn people's trust and build a good long-term reputation. At the end of the day you won't please everyone and you never will, but as long as we work to raise the bar and set the example for others to follow we can only help our industry.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
Let's try to keep this about the post topic company. If we want to expand in general on turn key companies then a new general topic about it might be best.
- 12yKathy FettkePro MemberRental Property Investor · Los Angeles, CA · Member since 2014 · 104 posts · 180 votes
I'm back from a wonderful anniversary weekend and now have a moment to answer some questions that I overlooked.
@Jerry W. You said, "As I understand it your company hooks up with rehabbers and property managers, and you do the national/international marketing for them after doing due diligence to make sure the prices, neighborhoods, and management are reasonable?
I suppose I would have to look at your site to be able to judge the value you bring to your investors. Are you following up on companies you recommend to see if their price structure or business model changes? I realize I may be getting into an area that is explained on your site."
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The answer is yes, we do initial vetting on turn-key companies, property managers, renovation teams, lenders and insurance companies. We have a very long list of due diligence items we check out. We are happy to give you that list if interested.
The second part of your question is where my job gets really interesting. Do we follow up to see if the companies have changed? Honestly, we try to but it's challenging at times. We really have to rely on the feedback from our members to see if anything is changing.
Most of the companies we vet are smaller outfits or even mom & pop shops. Sometimes the four D's hit them (Divorce, Death, Disease or Drugs) and things change. What may have been a solid company last year may be suffering to survive this year.
For example, we had found a wholesaler/property manager in Cleveland whom we really liked. He was finding great deals, overseeing the renovations, barely marking them up, barely charging for management, and overall an honest, jovial guy. People liked him to the point where he had dozens of investors on his wait list. This addresses @Jack Tucker 's comments about how to grow as a turn-key operator without messing up.
Our Cleveland guy didn't know how to do that (I'll call him Bill to protect his identity). He tried to keep up with demand by hiring a contractor to oversee the renovations. This new guy ended up pocketing most of the rehab funds and just doing lipstick renovations. When problems arose as they always do when things are covered up, "Bill" started to sell some of this properties to pay for the renovations that should have happened. He was a man of integrity.
However...that same year, his wife got cancer and his cousin was shot and killed in a bar fight. He lost it at that point and his management company started slipping up.
By the time our members let us know what was happening, we were able to jump in and find several new property management companies they could switch to. Surprisingly, many stuck with "Bill" out of loyalty, even when the evidence was against him.
Here's my tip: As soon as you see problems, REACT QUICKLY!
This same situation happened in Dallas, where the turn-key operator/property manager was offering great service for years, but then he got a neck injury. Three surgeries later, we started to notice he was getting loopy - perhaps from all the medication. It was a hard decision, but we had to advise our members to move on and find new management. Some stuck with him out of loyalty while those who reacted quickly saved themselves from loss.
Bottomline: there's really no such thing as a "truly turn-key" investment when it comes to real estate. There is always risk. The key is that you have to know how to respond to it when it happens. We do our best to act as a watch dog for our members, but there's only so much we can do.
When we see problems on the horizon, initially we try to help the provider get their systems back in order. We give them the member feedback and brainstorm ways to improve. If they don't improve, we tell them we're going to stop referring people until they can get it together. Then we warn our members that they may want to make adjustments - like changing companies to protect themselves.
We also stay on top of it by visiting the provider often, and performing both inspections and appraisals on their product. I am open to any suggestion on how we can improve our process of being a "watch dog." But honestly, it seems BP is doing a really good job of it as well!
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