Another Spartan Invest Turnkey Case Study

51 Replies

I recently purchased a property from Spartan Invest and wanted to post the details and make it an ongoing case study solely for the benefit of those looking into the company.  I really appreciated others doing this as I was vetting the company so i wanted to return the favor.  Though I am hesitant, will give some of the nitty gritty actually numbers of loan costs etc, just to show the true cost of what to actually expect

After a while if you don't see updates on the property's performance give me a bump and i will update with some details on actual returns

Property - 3/2 1250 sf in Birmingham.  $97,500

Projected Rent $925

Put under contract in July 2017 - This was an extensive rehab and took a while.  I don't think rehabs are usually this extensive

Rehab included new roof, windows, all new HVAC.  Interior was basically stripped to the studs and all new interior with the granite countertops and tile shower.  It even appeared that they had to run some new electrical and plumbing.  Basically as close to a brand new house without it being brand new. (i will post pictures soon)

We didn't close until Dec 1 2017 at which time there was already tenants in the house with a 2 year lease at $950/mo ($25 more than projected)!!!

The tenanting fee is one months rent, but it didn't sting to bad because the first mortgage payment was not due until Jan 1 2018.

Now the nitty gritty numbers

Down Payment $19,500 Loan amount $78,000

Loan Costs, Origination Fees Etc $2692.00

Govt Fees $204.50

Initial Insurance premium $757

Prepaid Escrow $425 (not a deductible expense, but still out of pocket)

Elective inspections: Home, Termite etc $592.00

TOTAL OUT OF POCKET: $24,170.50

PLUS legal, accounting, and title transfer fees: ++++ ongoing and pending

For the first year or so i plan on making a decent return as vacancy and maintenance will be low

MONTHLY INCOME 

$950

EXPENSES

$578 PITI (taxes are 945/yr, insurance is 757/yr)

$85 Property Management

This will leave $287 for me as cash flow.  An undetermined amount will be set aside for future vacancy and maintenance.

Overall, Spartan has been good to work with and have delivered as advertised.  There were always times it took a few days to return emails, but nothing totally unreasonable.  There was one week that emails had zero response, but found out later that the hurricane in Florida took out their server for a bit.

I got my second property under contract with them this month so hopefully things continue to roll!!

I do realized that i am a bit spoiled on my first property to have things go pretty well with such a good rehab, and having the place already rented out for more than projected.

If you want more specific details feel free to PM me.

PICTURES FORTHCOMING

Look forward to the updates. Thanks for posting!

Now that is what I call a full gut rehab..  that should service you well over the years..  100 to 150 a month for annual inspections and vacancy and capex over a 5 year run should be about right..  good luck with it.

Looks like they did a great job.

Glad to hear a success story, I think I just heard one of their owners on a podcast recently.

@Rob Hakes Awesome thread! Congratulations on your investment.  This is exactly the kind of information I've been looking for.  Much appreciated.

@Rob Hakes Did you use one of Spartan Invest’s preferred lenders? If so, would you mind sharing which one and/or how smooth your experience was?

@Jaye Seay I did use one of their lenders.  Graham Parham w/ Highlands Residential Mortgage.  They were very professional, helpful, and quick.  They understand the process with the turnkey's very well

I didn't too much rate shopping so i cant speak too much on how competitive they are.  I have heard that Ridge Lending is also good, but a bit more expensive because they are licences in all 50 states.

Interest rate with Highlands when i purchased was about 5% if I did 25% down and about 5.3% if i did 20%.  I elected to go 20%.  Also note that my credit score was over 800 so i imagine i got the best rate they could give.

I think i could have been more diligent in rate shopping, but with how smooth they made the process, and how tight i was with time, I went with them.

I will probably use them again.

Thanks for posting this thread. Between reading yours and a few other like Chris, I am sure I will join in investing with Spartan in the next few months.

@Rob Hakes  thanks so much for sharing your experience with spartan on BP, I spoke with maureen this week and she is very knowledgeable and comes across as good to work with.  

Their pro forma has a 4% vacancy and 4% maintenance expense with is on the conservative side though.

Will you buy any more properties with them based on the first purchase?

Originally posted by @Jon Zhou :

@Rob Hakes  thanks so much for sharing your experience with spartan on BP, I spoke with maureen this week and she is very knowledgeable and comes across as good to work with.  

Their pro forma has a 4% vacancy and 4% maintenance expense with is on the conservative side though.

Will you buy any more properties with them based on the first purchase?

 The 4% vacancy and 4% vacancy is not conservative at all.  It is on the low end of the spectrum IMO.

thanks, what is a more moderate vacancy and maintenance percentage in your opinion?

@Jon Zhou I am closing on another one with Spartan Invest at the end of the week. Though there have been bumps along they way I have nothing but good to say about how they have handled them.  They are a good company from my experience.

I would only use their pro forma as only a reference as it may not paint the entire picture.  For my calculations I figured my hard costs (costs that i can plan on based on their averages).  SO for this house that rents for $950 i can plan on $85 per month for management, $587 for the mortgage and then about $75 per month to cover turnover/tenanting.  They charge one month's rent to re-tenant and then half months rent to renew, plus an average turnover cost to get the place ready is about $1100.  So in a three year period (which is the average stay) you will spend at least $950 tenanting, $475 renewal, and $1100 improvements divided by 36 months.  That leaves me with about $210 left to put some aside for regular maintenance and possible future vacancy longer than one month say about $50/mo  

On the years that you have to do a full turnover, your returns will be meager if any.  

I still believe this is a better investment than a moderate risk mutual fund because i will see about 8% cash on cash, plus equity paydown adds another 4% per year.  And if the property appreciated 1% per year then that adds another 4-5% return because of leverage. This does not take into consideration extra income I should get for raised rental rates.

And it is almost tax free because of depreciation.

Spartan has made the process about as turnkey as it could be in real estate.

I think you just need to know its limitations.  You would make alot more if you could do your own rehab and purchase these houses at pennies on the dollar.  You also need to know that your exit options are limited for at least 5 years in my opinion.

It is a great investment for me.

Originally posted by @Rob Hakes :

@Jon Zhou I am closing on another one with Spartan Invest at the end of the week. Though there have been bumps along they way I have nothing but good to say about how they have handled them.  They are a good company from my experience.

I would only use their pro forma as only a reference as it may not paint the entire picture.  For my calculations I figured my hard costs (costs that i can plan on based on their averages).  SO for this house that rents for $950 i can plan on $85 per month for management, $587 for the mortgage and then about $75 per month to cover turnover/tenanting.  They charge one month's rent to re-tenant and then half months rent to renew, plus an average turnover cost to get the place ready is about $1100.  So in a three year period (which is the average stay) you will spend at least $950 tenanting, $475 renewal, and $1100 improvements divided by 36 months.  That leaves me with about $210 left to put some aside for regular maintenance and possible future vacancy longer than one month say about $50/mo  

On the years that you have to do a full turnover, your returns will be meager if any.  

I still believe this is a better investment than a moderate risk mutual fund because i will see about 8% cash on cash, plus equity paydown adds another 4% per year.  And if the property appreciated 1% per year then that adds another 4-5% return because of leverage. This does not take into consideration extra income I should get for raised rental rates.

And it is almost tax free because of depreciation.

Spartan has made the process about as turnkey as it could be in real estate.

I think you just need to know its limitations.  You would make alot more if you could do your own rehab and purchase these houses at pennies on the dollar.  You also need to know that your exit options are limited for at least 5 years in my opinion.

It is a great investment for me.

 Rob, the info on Spartan seems to be pretty good at this point.  However, I've read several times that they are underestimating the costs of Vacancy and Repairs.  Do they provide you with data to show why their estimates for vacancy and repairs are lower then what's traditionally seen?

It's literally the difference between whether you cash flow or not on the property, and i intend to call Spartan tomorrow to discuss this further.

Thanks!

@Mike Malfitani

As with any turnkey company or anybody selling an investment property for that matter, i would only use the pro-formas as a reference, but should not substitute your own due diligence for each expense item.  When you take into consideration the first months tenanting fee, renewal fees, and the cost to get a house rent ready, then I think that this would put you over the 4% and 4% maintenance and vacancy.  

I do think that Spartan has a 96% occupancy rate as they claim, but I don't think 4% of the months rent will cover the costs.  I would do these calcs on your own.

I recall at some point in the past asking about their proforma sheet and they are trying to present an apples to apples comparison with other turnkey companies.  There are major limitations with how accurate they can be because there are so many things out of their control on a single property, such as how a property is financed, rates, tax appraisals, and what happens with tenants on a given property. 

I know they do post their average turnover costs in their 'getting started packet' but i don't know if its included in the 4%.  Maybe @Clayton Mobley can weigh in if he has a minute.  

You will also notice that when they talk about returns they will typically talk about 'return on equity' which is not a true return on you cash because your 'equity' only includes your downpayment, not the other 5 grand in closing costs.  This is understandable because they have no idea if or how it will be financed.  The 'return on equity' number will always be high (15% plus), but I calculate my cash on cash return around 8%.  

I agree with Rob.  My cash on cash came to be about 7-8%

Originally posted by @Rob Hakes :

I recently purchased a property from Spartan Invest and wanted to post the details and make it an ongoing case study solely for the benefit of those looking into the company.  I really appreciated others doing this as I was vetting the company so i wanted to return the favor.  Though I am hesitant, will give some of the nitty gritty actually numbers of loan costs etc, just to show the true cost of what to actually expect

After a while if you don't see updates on the property's performance give me a bump and i will update with some details on actual returns

Property - 3/2 1250 sf in Birmingham.  $97,500

Projected Rent $925

Put under contract in July 2017 - This was an extensive rehab and took a while.  I don't think rehabs are usually this extensive

Rehab included new roof, windows, all new HVAC.  Interior was basically stripped to the studs and all new interior with the granite countertops and tile shower.  It even appeared that they had to run some new electrical and plumbing.  Basically as close to a brand new house without it being brand new. (i will post pictures soon)

We didn't close until Dec 1 2017 at which time there was already tenants in the house with a 2 year lease at $950/mo ($25 more than projected)!!!

The tenanting fee is one months rent, but it didn't sting to bad because the first mortgage payment was not due until Jan 1 2018.

Now the nitty gritty numbers

Down Payment $19,500 Loan amount $78,000

Loan Costs, Origination Fees Etc $2692.00

Govt Fees $204.50

Initial Insurance premium $757

Prepaid Escrow $425 (not a deductible expense, but still out of pocket)

Elective inspections: Home, Termite etc $592.00

TOTAL OUT OF POCKET: $24,170.50

PLUS legal, accounting, and title transfer fees: ++++ ongoing and pending

For the first year or so i plan on making a decent return as vacancy and maintenance will be low

MONTHLY INCOME 

$950

EXPENSES

$578 PITI (taxes are 945/yr, insurance is 757/yr)

$85 Property Management

This will leave $287 for me as cash flow.  An undetermined amount will be set aside for future vacancy and maintenance.

Overall, Spartan has been good to work with and have delivered as advertised.  There were always times it took a few days to return emails, but nothing totally unreasonable.  There was one week that emails had zero response, but found out later that the hurricane in Florida took out their server for a bit.

I got my second property under contract with them this month so hopefully things continue to roll!!

I do realized that i am a bit spoiled on my first property to have things go pretty well with such a good rehab, and having the place already rented out for more than projected.

If you want more specific details feel free to PM me.

PICTURES FORTHCOMING

Great info Rob.  2 questions: From what I'm reading, you selected the property, signed papers, but did there was no transfer of funds until the renovation was done?  Once the renovation was done did you bring in your own inspector verify all the work?  

Second question: How has your relationship/communication with the property management been so far?

Thanks Rob for your case study.

@Mel Hayes I did not have to transfer any funds until closing.  So on this property is was about 5 months after signing the contract that I actually had to put any money down.  There was not earnest money involved.  I did however have to pay out of pocket for the appraisal and the post renovation inspection.  So i guess there was 600-700 that I had to shovel out before actually closing.  The Inspection is optional, but i see it as necessary as i did not travel to Birmingham to look myself.  You can chose your own inspector, but i selected one of the companies that typically works with Spartan just for ease of process.  Spartan took care of the items that came up on the inspection and sent pictures of the repairs.  

The property management team has been just fine.  Just like the sales team it may take a day or two to get a reply email, but i have not had any pressing issues.  Both houses that i have bought from Spartan were already rented out a few weeks before closing so its been smooth sailing so far (i just closed on my second last week).  They did their monthly calls to report on the property, but now they are moving to giving the report via typed message on the property management portal that you can interact with them whenever you need.  One month i had an issue with the amount of rent (it was $30 off) but they quickly fixed it.

They have also had a few 'finishing touches' with there customer service.  About a month after I closed on the house they sent me a large gift package with a bunch of local foods and goodies.  BBQ sauce, pickles, chips, etc all made in Birmingham.  I thought that was cool.  Also after filling out a customer service survey, they sent a Starbucks card to show their appreciation.  These are small things, but go along way in showing they want to be proactive.

Anyway after re-reading my previous posts i probably am making this whole process sound really good and easy and like there are not many issues.  I think Spartan has there systems down, but it is still just a normal house that will most likely have problems and painful expenses and possible tenant issues.  I just think those are down the road once the 'new' house gets old.  only time will tell, but they seem to know what they are doing.  Its great for a passive investment

Disclosure: CEO of Spartan Invest

@Rob Hakes so sorry for the delay. I know you tagged me last week and I never gave you a response, so here it is:

With regard to our maintenance and vacancy, you are correct -  we use 4% for both on our property jackets because that is the closest round number to what our actual rates are. We track both of these data points (and many others) obsessively and update them daily, based on a 52-week rolling look-back period. So, naturally, they ebb and flow over time. 

As of now, I believe our maintenance rate is hovering right at 3.1% and our vacancy at 3.6%, so 4% for each is rounding up (we always like to be conservative while still using hard data). Several months ago, our vacancy rate had bumped up a bit due to our big expansion and all the rehab work underway, but it was still only 4.7%. Prior to that, if memory serves, it hovered between 3% and 3.7% for the past few years. I understand that these are much smaller figures than what people use for 'back of the napkin' math, but our focus is on providing hard data, and then investors are able to inflate their 'safety net' figures to their comfort level. 

As for our maintenance rate, it does include our net move-out costs. Since the tenant's deposit goes toward covering any damage or cleaning etc, it's only the excess cost that impacts the maintenance rate. Our average net move out cost is about $200 (we have a specific figure but I don't recall it off the top of my head, it hasn't changed too much over time). Since our average rent is $950, this means we most often have move-outs that cost less than the deposit, because the tenant worked to make sure they got their deposit back by taking care of the property. Other times, maybe after a very long tenancy when things need updating or deep cleaning, it may be a bit more. And, of course, the rare (but never completely avoidable) big move out pushes the average up. Still, with net move out costs included in that 3.1%, it's not too shabby. Because we do such extensive overhauls of our properties- putting in new capex items like flooring, roofs, HVACs, water heaters in 80%+ of our props- and because we work hard to keep our maintenance call-out time to 24 hours or less, our maintenance rate stays low. Never deferring maintenance and starting out with new capex items is the best way to keep those expenses low. We're also super picky about tenant vetting, and will wait until we have a solid, reliable candidate rather than just getting bodies in the door. The result is lower move-out costs and longer average tenancy (38 months) which keeps our vacancy and maintenance rates down.

Disclosure: CEO of Spartan Invest

Now, as Rob accurately stated, these are still just houses. Solid houses with great rehab work, but properties built for humans to live in, nonetheless. That means that someday, down the road, there will be bigger costs - that is true of all buy and hold REI. No water heater lasts forever. All we can do, as a provider, is to try to postpone those costs as long as possible.

As for our returns, Rob is correct again - we look at equity because that's one of the chief benefits of buy and hold turnkey rentals - your tenants buy you 75-80% of a house! Everyone has different return metrics that they prioritize, so we focus on providing folks with all the data they need to calculate their preferred figure, while also providing the figure we think best reflects the true value of a long-term Spartan investment. Of course, that being said, we don't include the tax benefits of rental ownership in our return calculations (because if you need those write-offs to make or break your returns, it's not a great investment to begin with).

Disclosure: CEO of Spartan Invest

Ok, after another classic Mobley ramble (I tried to break it up visually if that helps at all lol), the takeaways are these:

  1. We track our data and update daily
  2. We give you figures backed by hard data
  3. But please feel free to use whatever figures you think give you a good safety net
  4. We keep our maintenance and (as an indirect extension) our vacancy rates low by starting with new capex items, never deferring maintenance, and being verrrrry picky about tenanting
  5. No house is expense-proof, somewhere down the line we know (and so should you) that bigger things will come up
  6. We look at return on equity because free (tenant-paid) equity is one of the biggest benefits of rental REI

As always, if anyone has questions or needs info, or would like to take a look at some of our interactive ROI spreadsheets to see how the numbers work, feel free to reach out via PM.

Thanks again for keeping this thread going, Rob!

All the best to all,

Clayton

Originally posted by @Jay Hinrichs :

Now that is what I call a full gut rehab..  that should service you well over the years..  100 to 150 a month for annual inspections and vacancy and capex over a 5 year run should be about right..  good luck with it.

I spoke to them on the phone recently, was interested and for research purposes. It looks like the best we can find from these Turnkey companies (even the good ones) is a $250-$300 per month in cash flow, before maintenance and CapEx. So we are looking at $100-$150 mo. in true cash flow. I am just pondering to myself, is it really worth it to take out another mortgage for $100/month?

Originally posted by @Rob Hakes :

@Mike Malfitani

As with any turnkey company or anybody selling an investment property for that matter, i would only use the pro-formas as a reference, but should not substitute your own due diligence for each expense item.  When you take into consideration the first months tenanting fee, renewal fees, and the cost to get a house rent ready, then I think that this would put you over the 4% and 4% maintenance and vacancy.  

I do think that Spartan has a 96% occupancy rate as they claim, but I don't think 4% of the months rent will cover the costs.  I would do these calcs on your own.

I recall at some point in the past asking about their proforma sheet and they are trying to present an apples to apples comparison with other turnkey companies.  There are major limitations with how accurate they can be because there are so many things out of their control on a single property, such as how a property is financed, rates, tax appraisals, and what happens with tenants on a given property. 

I know they do post their average turnover costs in their 'getting started packet' but i don't know if its included in the 4%.  Maybe @Clayton Mobley can weigh in if he has a minute.  

You will also notice that when they talk about returns they will typically talk about 'return on equity' which is not a true return on you cash because your 'equity' only includes your downpayment, not the other 5 grand in closing costs.  This is understandable because they have no idea if or how it will be financed.  The 'return on equity' number will always be high (15% plus), but I calculate my cash on cash return around 8%.  

 I would like to know.. why the 1 month re-tenanting and 1/2 month re-up fee? This seems to me a conflict of interest. ie. They are incentivised to have a tenant stay 1 year (they get a $950 check every year) instead of 2 years (they get a $950 fee every 2 years). So there is no incentive for them to encourage longer occupancy. I would take $950 any day vs. just a $95 10% PM fee. 1 month to readvertise and first month's rent gone, that is 2 months you are out of rent. That is $1900 of rent lost.

Originally posted by @Andrey Y. :
Originally posted by @Rob Hakes:

@Mike Malfitani

As with any turnkey company or anybody selling an investment property for that matter, i would only use the pro-formas as a reference, but should not substitute your own due diligence for each expense item.  When you take into consideration the first months tenanting fee, renewal fees, and the cost to get a house rent ready, then I think that this would put you over the 4% and 4% maintenance and vacancy.  

I do think that Spartan has a 96% occupancy rate as they claim, but I don't think 4% of the months rent will cover the costs.  I would do these calcs on your own.

I recall at some point in the past asking about their proforma sheet and they are trying to present an apples to apples comparison with other turnkey companies.  There are major limitations with how accurate they can be because there are so many things out of their control on a single property, such as how a property is financed, rates, tax appraisals, and what happens with tenants on a given property. 

I know they do post their average turnover costs in their 'getting started packet' but i don't know if its included in the 4%.  Maybe @Clayton Mobley can weigh in if he has a minute.  

You will also notice that when they talk about returns they will typically talk about 'return on equity' which is not a true return on you cash because your 'equity' only includes your downpayment, not the other 5 grand in closing costs.  This is understandable because they have no idea if or how it will be financed.  The 'return on equity' number will always be high (15% plus), but I calculate my cash on cash return around 8%.  

 I would like to know.. why the 1 month re-tenanting and 1/2 month re-up fee? This seems to me a conflict of interest. ie. They are incentivised to have a tenant stay 1 year (they get a $950 check every year) instead of 2 years (they get a $950 fee every 2 years). So there is no incentive for them to encourage longer occupancy. I would take $950 any day vs. just a $95 10% PM fee. 1 month to readvertise and first month's rent gone, that is 2 months you are out of rent. That is $1900 of rent lost.

 This is common practice in the Property Management industry. Nobody works for free. You gotta pay to play my man. Property Management is actually a pretty thin margin business. If Spartan wasn't charging those fees they'd be out of business in no time.

Originally posted by @Andrey Y. :
Originally posted by @Jay Hinrichs:

Now that is what I call a full gut rehab..  that should service you well over the years..  100 to 150 a month for annual inspections and vacancy and capex over a 5 year run should be about right..  good luck with it.

I spoke to them on the phone recently, was interested and for research purposes. It looks like the best we can find from these Turnkey companies (even the good ones) is a $250-$300 per month in cash flow, before maintenance and CapEx. So we are looking at $100-$150 mo. in true cash flow. I am just pondering to myself, is it really worth it to take out another mortgage for $100/month?

personal decision.. keep in mind 100 a month was the gold standard prior to the GFC  and it was only POST GFC for that 4 to 6 year period were properties were priced rent to price ratios that allowed for much higher cash flow. market is swinging back to historic norms and the herd jumps in and lending has become avalaible again..

Its why our note investors never leave us.. its consistant. 

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