My First Turnkey - Elite Invest, Chicago
Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes
My First Turnkey - Elite Invest, Chicago
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I've purchased 2 properties through Elite. I liked the work they did on the rehab on the two properties I purchased, but in all four units, it took them a month or more to place tenants. My expectation was that the tenants would be in the property when we closed. And one unit has been vacant for 4 months now. When I asked about it, I was told to call back in a month and check on the status. I was disappointed that they weren't proactively sending me emails letting me know of the status, and expected me to put in the effort to contact them about it. The PM I have for my other multifamily unit is much more proactive with their communication.
Also, the projections they gave were high. I expected as much out of someone trying to sell a property. The 3 units that are rented ended up short of the rent projections they showed me. But with everything else I've experienced, I wouldn't recommend Elite as a PM.
61 Replies
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes10y
Hey folks, it's been a little while since I provided an update and see a few new posts since my last appearance, so thought I'd chime in.
So I had one tenant start on 8/1, another started on 9/1, and I'm told I have a third starting 10/1 (e.g. lease just got finalized, etc.). So I'm able to see rent + expenses already hitting my Appfolio account for 2 of the units, so I expect to see the building full now any day.
The rents were pretty much right on target. The first one rented at $1250, which was exactly as advertised, and the second rented at $1300 which was above advertised, and in line with what Alex verbally said was likely.
So those are the positives. There are a few nitpicky negatives which, in my view, boil down to proper expectation setting if you are new to this type of investing, which I am.
- Make sure your projections account for the fact that you aren't cash flowing from day 1. It ultimately evens out, but plan to pay your annual insurance premium, plus first and second month's mortgage (maybe third as well), plus any other incidentals without any rent income to offset those items. For me, that was another ~$5k cash out of pocket after closing ($1900 insurance, $1450 + $1450 mortgage pmts). By the time your units are filled, likely in a staggered manner (one unit at a time), and you starting seeing income hit your account, you're probably 2+ months in. Add another month because they pay out your balance at the end of each month, so by the time you accumulate a balance you then have to wait until the end of the month.
- You start seeing expenses hit your account immediately, so you quickly go to a negative balance. This is because of how they operate the accounting function. All charges hit everyone's accounts unit by unit, with no awareness of whether a particular unit is new or under warranty. So all you have to do is monitor it, and reach out every few weeks to ask them to reverse the charges. They quickly do it, but the burden is on you to keep tabs. Not a big deal if you are expecting it and are ok managing it.
- The descriptions for the "maintenance charges" are so non-specific as to be useless in some cases. Not an issue yet because I'm just having them all reversed, but at some point they will actually be mine to cover, and I'll start pestering them for more info. Again, I'll probably tolerate a little nickle-and-diming, but we'll see how that plays out.
Regarding the question on 4bd vs 3bd - the volume certainly favors the 3bds, both from the perspective of available inventory, and rentability (e.g. I think more people have vouchers to afford the 3bds vs 4bds). But I'm fine with the time it took for mine.
So, I'm still overall positive on my experience. I'll buy another one in March / April after I've saved enough for another down payment. Ultimately, I think Alex and his team stand behind their service and their products; they don't claim to be perfect, they tell you where to expect some uncertainty, they seem to improve in response to feedback (e.g. they ramped up the number of leasing agents they had as soon as vacancies started creeping up a bit, etc.). Given the logistical nightmare of dealing with the city of Chicago, and operating in these neighborhoods, I think they do an amazing job.
- Investor · East Bay, CA · Member since 2014 · 156 posts · 48 votes10y
Great updates!
Your point about the time you make various payments to when you actually get the rent flowing in is important. I always try to keep cash in the bank (2~ months) for odd situations. Money transfer delays, possible vacancies, non-payments, etc.
Alex did mention to me (way back) that the 3 beds were the sweet spot, but if you want to maximize your bedrooms/loan, the 4s are good. I have 3-3bd, and 1-2bd.
@David Fitch, are you looking at another triplex? Duplex?
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes10y
I'll stick with the triplex so I can maximize the number of units I get per loan, but not necessarily 4bd units. I'll make that call once I'm actually looking at inventory with money on hand to purchase.
- Investor · New York City, NY · Member since 2015 · 388 posts · 563 votes10y
I have a question for this thread, and please forgive my ignorance, as I've never invested in a property labeled "turnkey," though I've invested in "properties" for 13+ years. Can someone enlighten me about the difference between "turnkey" and "other" kinds of real estate? So far, the only difference I can see between turnkey and "normal" investing is that when "fraudulent" charges are levied by the "turnkey" provider, the investor must uncover that activity on his own. Oooh, a treasure hunt!
Are there any other upsides to "turnkey" investing besides these sporadic treasure hunts?
Thanks in advance!
MG
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes10y
Turnkey is just a term that refers to a breed of company that does everything in house - they buy the properties, they rehab them, they sell them to investors, they find and place the tenants, and they run the property management company. The pitch to investors is that you are almost entirely hands off, since they do everything you don't have to do any coordination.
The only difference between TK and what you're probably used to is that historically the above functions have been separate or self managed (e.g. maybe you find your own deals to purchase, or you find the contractors / rehab crew yourself and negotiate that, or you find a RE agent to place tenants, and you research different property management companies, etc.).
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes10y
For those that are currently Elite owners - do you have any tips / tricks for using Appfolio? The general ledger view is somewhat useful, but it's hard to map that against budgeted income & expense because the rent / charges just hit your account whenever (e.g. I'm already seeing 2 months worth of rent hitting in the same month, etc.). I feel like I need to dump that data into something else where I can more easily group the numbers. Curious to know what others have done.
- Minneapolis, MN · Member since 2014 · 1 post · 0 votes10y
Does the property management charges of 8% ( in case with Elite) include finding tenant as well ? Or will there be a separate charges (like one month rent) for finding renter once the initial tenant leaves.
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes9y
Quick Update:
One of my units appears to be in "abatement". Translation: Section 8 stopped paying rent because something failed inspection in response to a tenant complaint. Piecing it together from notes entered in the PM portal, it seems the tenant on the first floor had two break ins, and complained about the second floor unit being too noisy (accused them of running a day care, but not sure if that is substantiated).
So as of now, I have not received November rent for the first floor unit. Both of the others are habitually late, but they seem to eventually trickle in after a few weeks. One of the earlier tenant supplied checks bounced, and we haven't caught up there yet. Ultimately, so far I'm still well beyond covering the mortgage but it will be interesting to see after a full 12 months what the actual return ends up being. I'll also be curious to see how much has to be repaired (and the cost of that) to get them rented again.
Aside from the above, which is largely expected in this neighborhood, I feel like I have to babysit my portal more than I'd like. The maintenance charges sometimes have no meaningful description, and I observed on my own that I hadn't gotten a Section 8 payment on Nov 1. I emailed the PM about it 3 days ago, and haven't heard back yet. I just saw a note posted in the portal yesterday noting the abatement issue, but nothing about what that means for the unit - is the tenant gone? Or is something being addressed and then Section 8 will pay? Not clear if my email from 3 days ago prompted them to look into it, or if it was just coincidence that I emailed and then 2 days later there is a status posted in the portal.
Hopefully things get resolved and the building gets to something resembling a steady state.
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes9y
Sorry, I just saw your question. They place the first tenant as part of the purchase.
Subsequent placements cost one month rent, just like any other RE agent or PM company would charge. The 8% monthly fee is on top of that.
Thanks for continuing this thread. It has been very insightful for gaining a glimpse at what it is like to purchase and own a turnkey 2 flat in the Southside of Chicago.
I'm interested in purchasing one too. How long have you owned your building? Despite the issues you have encountered this far, are you still considering purchasing more units from the turnkey provider?
- Rental Property Investor · Newcastle, WA · Member since 2016 · 86 posts · 39 votes9y
@Michael L., @David Fitch - Great threads and posts about Elite. I am also considering the company and posted a question a day or two ago on Michael's thread, I thought I would bring that question here for anyone. Specifically, with the Trump administration coming in, are there any thoughts on how Section 8 vouchers may be affected? I'll add another question, when you visited, how did you feel about the neighborhoods? Thanks.
- 9yMark AinleyBusiness MemberProperty Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
@Jesse Kindra We manage and own many properties with section 8 tenants. I am also involved with an non profit that get the majority of its funding from HUD for permanent supportive housing. The non-profit, Facing Forward to End Homeless, has had many conversations about this very topic. The conclusion has been that HUD funding has been very secure and the odds of a reduction are very small. I think Trump is just saber rattling, but in the end I don't know that anyone has the stomach to reduce housing vouchers.
Lastly, from the studies that I have seen from HUD (I'm not trying to argue politics, just telling you what I have read), homelessness is a bigger cost on society than providing housing. When people are homeless it shifts cost on to the hospitals.
If you have further questions about this, please reach out directly. I don't want to clutter up this thread.
GC Realty & Development LLC4.61094 Reviews - Rental Property Investor · Newcastle, WA · Member since 2016 · 86 posts · 39 votes9y
@Mark Ainley - Thanks Mark. The intent isn't to clog up this great thread or to argue politics. Instead, just to get a sense if there may be an impact on funding for housing vouchers with a change in administration as this could impact the returns with Elite which rely heavily on Section 8 (as I understand from this thread). As I'm used to investing in B neighborhoods, I'm trying to get a better handle on the stability of housing vouchers as a potential investor. Thanks for your input!
- Livermore, CA · Member since 2016 · 44 posts · 13 votes9y
Hi @David Fitch @JR Hinds it's been about a year now. How are things going with Elite Invest? I am looking at buying something with them.
Thanks for sharing. - Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes9y
I had a few months of vacancy in one of the units that hurt the overall return as compared to the projections, and a few higher than expected charges (had a $500+ repair charge for something, don't recall what).
I haven't tallied it up recently, but if I had to spitball I'd say I've netted about $12k over the last year, including the disbursement I'll be getting soon. I put a bit less than $80k down (maybe $78k including closing costs etc), so ballpark $12k/$78k is about 15% return on cash invested.
I'm pretty happy with that - it hasn't been perfect, but it's a high risk investment area, and I'm sure they have to deal with high employee turnover and low skill workforce, which adds to frustration that we feel about things not getting fixed quickly, or unexplained charges, etc.
For me, as long as I'm making around that 15% mark, I'm fine - I'm banking on the longer term appreciation anyway. I've been convinced for a few years that a lot of the major development will shift south over the next 20 years, which will make these 2-4 unit buildings very valuable. The same 3 unit brick building Elite sells for $300k - $320k, would cost over $2M on the north side. It's not unreasonable to think these will head that direction over a long enough investment timeline. Even if they only hit 800k, or $1M on average, it's still a great return when you combine cash flow + appreciation.
https://chicago.curbed.com/2017/7/26/15983862/chic...
Anyway, I signed up for another 3 unit to close later this year, so I was happy enough to be a repeat buyer.
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes9y
I hadn't reviewed my income / expense in detail in a few months, so this question prompted me to get that all sorted since I'm coming up on the one year mark. Here are the specifics:
- Gross Rental Income - $37,869
- Expenses - $24,859.45
- Net Income - $13,009.55
Elite's PM portal is a bit clunky, so I made some of my own decisions on how to account for various items. A number of things show up as a "positive" number in their portal, and without massaging the data, would appear to contribute to the "revenue" side of things. Some of those I categorized differently and use them as expense offsets, instead of income. I just pull the data into a different tool that's actually better at proper accounting.
So, for example, if you get a tenant paying $1250 in rent, and they pay a $500 move in fee, and Elite refunds you a $750 credit, the $1250 shows as a negative, and the $500 + $750 show as positives. I don't count the $500 or the $750 as rental income. If you just lump together all the positive numbers in the portal and call it income, you'll be high balling your actual gross rental income. Instead, I have an expense category for "Tenant Sourcing". The $1250 is counted as an expense in that group, and the $500 + $750 are counted as offsets in that category. So, that expense category nets out to zero dollars, and the positive numbers are not inflating my income category "Rental Income".
Anyway, that sort of stuff aside, the details of my expenses are as follows:
- Repairs & Maintenance - $1787.27
- Tenant Sourcing Fee - $0 (however, there are $5085 worth of debits / credits in this group, as described above)
- Insurance - $1660
- Mortgage Payments - $14,456.70
- Landscaping Services - $1440
- Utilities - Electric - $928.04
- Utilities - Gas - $1133.64
- Property Management Fees - $2885.52
- Utilities - Water - 568.28
Unless I fat fingered something, those should add up to the $24,859 expense total, resulting in $13,009.55 in net income. With total down payment of about $80k, that's cash on cash return of 16.25% for year one.
I should point out the big caveat (in my view - there may be others). While that number looks very close to the projected returns from the inventory spreadsheets, once you get to year 2 and beyond, you don't get reimbursed for the tenant sourcing fees. Since I ended up with 4 tenants (one flaked out and left), that resulted in the $5085 worth of sourcing fees. If I hadn't been reimbursed, my total expense would have been $29,944.45, resulting in net income of $7924.55, or just under 10% cash on cash return from my $80k down.
Add to that, that as years go by I expect maintenance costs to go up as the rehab becomes less "fresh". So the returns could be even less than 10%. The flip side of that criticism is that 3x units at a market rate of $1250/mo for 12 full months is $45,000 gross instead of $37,869, so if I get some years with little or no vacancy, that additional revenue more than offsets the sourcing costs, and you're back to or above my current 16% return. (quick napkin math gets me to about 19% based on $45k revenue and $29.9k expense = $15k, over $80k invested = ~ 19%).
So, hopefully that additional detail helps. I still think it's a good alternative investment vehicle, but as something that diversifies against other types of investments. I wouldn't put all or most of your investment capital into these based on the simplistic view that you might see 18% annual returns (you should never put everything into a single investment category anyway, but it's worth reiterating). I think you need to believe in the appreciation upside here as well (which I do), in order to make these more attractive than keeping your money in the market.
- Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes9y
@David Fitch - I have been following this market very closely and spent quite some time understanding , I am likely to spent some more time to look for exist strategy for my MACK investor friends.My two cents :
a. Roller coaster ride has started therefore make sure you can finish the ride from this point onward and enjoy it fully
b. If you have to get away, what are the options? Most important is to find one who is willing to take it from here.
Personally I would not take it.
Good Luck
Vivek
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes9y
Yea, exits are problematic for any multi-family property. Your market is limited to other investors, so obviously liquidity is something to be aware of. I don't think that's really unique to Elite though; just to this investment style in general.
I think I recall Elite saying they occasionally have existing investors that find themselves needing a quick 1031 exchange, and if there is no inventory ready for immediate purchase, they sometimes broker that type of sale between their customers.
Beyond that, I'm sure it's appealing for folks that live in that area to be an owner-occupied landlord. With a 3-unit, the owner would essentially live rent free, as the other 2 units would more than cover the cost of the property.
- Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes9y
@David Fitch - It's just not for MFH but true for any property bought at a premium. Always look for selling the property before you decide to buy, also properties should always be for sale though you have no intention to sell them in near term.
The link from BP from a different market can help with the exit strategy:
https://www.biggerpockets.com/forums/311/topics/22...
Good luck
Vivek
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes9y
Thanks Vivek.
I agree in principle with what you're saying, but I factored all of that into my buying decision, so it's not a new data point for me that is suddenly concerning. My financial situation is such that, barring some catastrophic event that is unlikely enough not to factor into my decision, I will not need to sell these anytime soon.
These investments represent a small % of my overall net worth / investments, so I can float them as long as required even in the worst case scenario.
I paid $275k; I put down about $80k; I owe $190k on the mortgage. With net income of $13k, that's just over 6 years to recoup my down payment (not factoring in the tax benefits, which probably get me closer to 5 year payback period). That means, after 5 years even if I could only sell them for $190k (unlikely based on comps that I can already see today, let alone 5 years from now), I'm not losing any additional out of pocket. Of course, that would also mean I made no return on my money over 5 years, but again, we're talking the "very bad" (and also very unlikely) scenario here.
The point is - these should not be viewed as liquid investments. If you approach them that way, that's a flaw with the investor, not the investment. If you need to get in and out of investment vehicles within a few years, stick with stocks / options / bonds / anything liquid. I find that almost always, when someone loses their shirt on a RE investment, it's because they were spread too thin and forced to sell at a loss because of timing and inability to float the investment through tough times.
Anyway, my two cents.
I recently had another challenge with them. They hadn't collected the housing authority rent for 4 months. I reached out to them several times about it over the last 3 months. Finally, after getting frustrated and reaching out to Alex, Elite contacted the housing authority and got the problem fixed. But I'm getting tired of putting in so much effort to manage them. My other property managers have never required so much oversight.
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes9y
Thanks JR - that's not good; doesn't CHA pay automatically every month? Mine seem to hit on the 1st of the month every month. Or is it that Elite just never got it properly registered with CHA to begin with?
- 9yMark AinleyBusiness MemberProperty Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
@David Fitch We see it all the time with CHA...they don't process something, or something missed on the tenants end, or a "T" not crossed on our end. If a PM doesn't have systems or catches in place to followup, CHA will make minimum attempts to followup with the PM. The bigger issue is the longer it takes to realize what is going on the higher the risk of never getting that back pay. We took on a new client in January that had a tenant move in August 2016 and come January they just got it all straight but the kicker is they lost Aug-Dec rent. 1st and 15th when you see you don't get rent from CHA get all over the PM to get all over CHA until you hear a plan for next steps.
It is fairly easy to get to the bottom of any non payment issue with CHA so don't let anyone tell you different.
GC Realty & Development LLC4.61094 Reviews @David Fitch - They should be paying automatically every month. This was a new tenant, so I think that was the issue. But there's no reason that Elite should have taken 4 months and several pings from me to get it fixed.
@Mark Ainley - You're darn right. Also, Bryan mentioned the show you guys were on a while back. I hope that's turning out some dividends for you. I'll make sure to pop by and say I to you guys when I'm back in Chicago to watch my Cubbies.
- Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes9y
Agreed, that's a long time.
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