Another Spartan Invest Turnkey Case Study
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
Sorry for the late response. To answer a few of your questions
- The neighborhoods are advertised as B/C neighborhoods. I would say this one (the back property line is the birmingham/centerpointe line) is a C. I still bounce back and forth on deciding whether to go out and look at the property vs. just trusting what i see on Google Earth/Street. I know that i would have the most informed decision if i were there for a day or two scouting the area, but there is also the time and cost involved in all of that.
- Question 3. No i don't choose less return. I don't care what the neighborhood is like if it will produce a consistent return. At this point in my investing career i have focused more on a cash return rather than appreciation. Mostly because i can compound a cash return, but appreciation (if any) can take quite some time to realize. I do acknowledge that more returns CAN be realized via appreciation IF it appreciates well. Jury is still out I guess.....
Here are my 2019 Returns. I calculate them the same as I did last year. My cash on cash includes all closing costs and everything up front into the deal.
COC Return -13% (that is negative 13%)
Return with principle paydown not expensed -8% (again negative)
Actual cash lost out of pocket $ 3024.00. Blechh.
Here are some take away lessons from this one in 2019
- With a long vacancy it really gets ugly. It was almost $1100.00 in just keeping the place up while empty. Mostly utilities and mowing.
- Repairs are surprisingly high for a "newer" house. I have had a tenant in there since July and there have been 3 maintenance calls for around $240 each. Just different little things that need to be fixed up. I always planned on this number being smaller for the first few years because of how extensive the rehab. Spartan's maintenance estimates are definitely way low ball. My other house with them is similar with high maintenance expenses (sewer problems).
- The silent killers. While all this years turmoil was ongoing with this property the real killer is the county's aggressive property tax hike combined with the reduction in rent income as we had to lower the rent to get a tenant in. With that compression, even if i had a year without any maintenance or vacancy i wont hit my minimum 'hoped' for.
-The positives.........crickets.............check back in a year and we'll see.
@Rob Hakes unfortunately it’s not going to get better, it’ll likely only get worse. Your property taxes will increase substantially as they reassess to your purchase price. Your rent will not.
Long term with those maintenance calls, I suspect you’ll find you are losing money. When your tenant leaves it’ll be another 3-5k to get it rerented and another 2-3 months to get a new tenant. Your lost money will never catch up to what you “make”.
Throw in the idea of time value of money and it’ll be even greater
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#2 All Forums Contributor
- Real Estate Broker
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Rob now that U have some experience here is some general advice that is germane in any real estate market.
1. Always get a sewer scope as part of your home inspection. Sewer problems are almost # 1 for landlords and if the waste line is old it should be replaced by the seller prior to you closing.. My buyers of my new construction homes even get sewer scopes to make sure the line was put in without any belly's. Never buy a house without a sewer scope bottom line.
2. Vacancy be sure to read the fine print of your insurance policy.. many policies have a 60 or 90 day vacancy clause .. IE your home is vacant over 60 days they are not going to insure you for a fire loss or other loss's. As they know the risk inherent to vacant homes.. So you would then buy a vacant home rider to protect yourself. Ask me how I know this.. I have had a few fires and the first thing adjuster did was query the neighbors to see how long the home was vacant. devious those guys are :) but better safe than sorry.. So pull your policy and read it .. no one does LOL
3. on Tax's in many areas there is owner occ exemptions.. So when you check into the tax's and see they are 800 a year.. then the property loses its owner occ exemption and it jumps up double.. that's what can bit you. So be cognizant of that.. ask that question.. Tax's are pretty important to the cash flow investor. That's why Vegas even though you don't hit the 1% rule vis a vi rent and purchase price.. Tax's are 1/3rd as high based on value as most other areas of the county.. IE a 300k house will have tax's at 1200 to 1500 a year.. were in Texas that tax could be 6 to 7k a year HUGE cash flow difference. Granted price of entry is higher . but when you really run the numbers the 300k home with 2k rent will cash flow as good if not better than many of the so called cash flow markets. Also really low cap ex as these are 10 to 20 year old homes that are stucco and tile roofs. Etc.. I just mention because of was shopping this week. And was pleasantly surprised at what I saw. and Man those that bought in Vegas in 2010 to 2015 or so.. they just have to be smiling. Just an aside.. because I know many investors just discount properties out of hand if they don't come close to the 1% rule.
@Caleb Heimsoth I think that light bulb finally went off with Caleb that's why you see his posts these days to be a little different slant than in years past.
@Rob Hakes - It sounds like the area could be the problem as far as the problem tenants are concerned. I would take some time to educate yourself further to where you feel comfortable finding your own deals with an agent rather than relying on a turnkey company. I would never recommend relying on a turnkey company to tell you if the area is good. You really need to determine that for yourself by taking the time to fly out and visit the area and drive all the streets. And when you have a team in place (Agent, manager, lender, contractor, etc) You have the ability to ask all of them their opinions too as an extra layer of mitigating risk.
I think reading more books and paying for a flight will produce the best ROI you can get.
I guess its a good sign that haven't really had anything to post lately. Both of my properties with Spartan have stabilized and have been getting consistent rent (even through pandemic) without any maintenance costs. I think these buggers will actually be a boon to my portfolio this year rather than the drag. THat feels good.
Hope i didn't jinx it.
@Rob Hakes how was 2020? Better than 2019?
Thanks for asking. Yes 2020 was a breath of fresh air for my turnkeys, finally. Steady rents, without a bunch of big service calls. I think the pandemic actually helped with this especially for the tenant that is section 8. As far as the returns, i think this year dug me out of the hole from the previous years.
Here are the numbers for the Spartan Properties
Original property - Cash on Cash return of 6% and 11% if i don't count principle paydown as an expense
2nd Property - Cash on Cash return of 9% and 14% if i don't count principle paydown as an expense.
These numbers are as accurate as i can get them considering i considered ALL up front expenses as my cash in (not just the down payment, or 'return on equity' number) there was no creative handy work to make returns look better in these calcs.
Analysis - I think these CAN offer a better return than the stock market especially if counting equity as a return. They are, however low returns considering the risk of having some bad years interspersed. Still comparing them to 9-10% performing notes that have not missed a payment in 3 years.
The 2nd property shows some hope of appreciation as the Zestimate suggest that area has appreciated about 20% in the last two years. The 1st property has not shown any signs of appreciation. I know those are only estimates, but gives an idea of trends.
Overall - These could be good investments if i could raise my rents to match the increase in tax expenses. Could happen overtime. I have not approached refinancing to a lower rate, as I don't know if it is worth it.
Keeping fingers crossed again for 2021!!
Sooo. Years later.. Still reccomend?
Things have been very stable with these properties still. Both tenants are up for renewal within the next months, so that will be telling on how all that goes. If cash flow is your only metric, then these may not be the best investment just because how thin the margins are with purchase prices and tax expenses going up.
I definitely think that overtime these will be a good one for me as it seems all of the run up in housing prices continues to push up the value. Of course the Zillow estimates has them at about a 25% increase over the 3 years i have had them, but even if it were only a portion of that it looks pretty good.
2021 Update for year end:
Original Property (same section 8 tenant) - Cash on Cash return of 6% or 11% if i don't count principle paydown as an expense
2nd property - Cash on Cash of -6% (negative 6%) or -1% if i don't count principle paydown as an expense.
Certainly nothing to write home about for the cash on cash return. 2nd property had a bad tenant turnover. we rented it out again quickly but had to repaint everything and quite a few repairs. Basically didn't have much cash from these properties to reinvest, but didn't have to dip into my own pocket for expenses.
On the bright side. Cant go wrong owning property in 2021 right? Appreciation seems really good especially on property 2. If i were to sell for even close to what some comps are going for, then the windfall would heal many wounds. As of now im going to hang on to these, keep it passive and see what the future brings.
Bought 6 with Spartan... 3 evictions in first year.... sooo I'm not super happy with them.... but Covid too... sooo I'll give it another year before reviewing them
2022 Update for year end:
Original Property (same section 8 tenant) - Cash on Cash return of 7% or 12% if i don't count principle paydown as an expense
2nd property - Cash on Cash of 13% or 19% if i don't count principle paydown as an expense.
Again - My COC calculation takes my all in (downpayment, closing costs, inspections, entity setup fees, everything) vs actual cashflows.
Not a bad year. Home values holding well. Very stable tenants. Minimal maintenance.
Thumbs up for 2022
Quote from @Rob Hakes:
2022 Update for year end:
Original Property (same section 8 tenant) - Cash on Cash return of 7% or 12% if i don't count principle paydown as an expense
2nd property - Cash on Cash of 13% or 19% if i don't count principle paydown as an expense.
Again - My COC calculation takes my all in (downpayment, closing costs, inspections, entity setup fees, everything) vs actual cashflows.
Not a bad year. Home values holding well. Very stable tenants. Minimal maintenance.
Thumbs up for 2022
Jealous. I will say, their rehab work is great, but had the opposite experience with them on management. I just fired them and moved to a new management company this week.
Quote from @Jason Watt:
Quote from @Rob Hakes:
2022 Update for year end:
Original Property (same section 8 tenant) - Cash on Cash return of 7% or 12% if i don't count principle paydown as an expense
2nd property - Cash on Cash of 13% or 19% if i don't count principle paydown as an expense.
Again - My COC calculation takes my all in (downpayment, closing costs, inspections, entity setup fees, everything) vs actual cashflows.
Not a bad year. Home values holding well. Very stable tenants. Minimal maintenance.
Thumbs up for 2022
Jealous. I will say, their rehab work is great, but had the opposite experience with them on management. I just fired them and moved to a new management company this week.
Curious, what was your specific problem with management and who did you select for you new management? I bought 12 properties with Spartan throughout 2021 when interest rates were rock bottom and I haven't posted a review here yet, but my biggest complaint would be around handling of maintenance. For example, sending me a $500 bill with no explanation for 'refinishing' a tub in a house 11 months after renovation which had a brand new (not refinished) tub. Why would I be refinishing a brand new tub 11 months later? A second example, I received a small (<$100) bill for cleaning out a sewer drain line in which the plumber noted on the invoice that the tenant was pointing out a problem with the main sewer line being broken and leaking out near the road. For the next three months in a row I received additional bills between $450 and $500 each for cleaning out the sewer line. All along they were ignoring the problem of a broken sewer line and just blindly sending me bills to manage the symptom even though they had been told what the problem was from day one. After three months of this the tenant vacated. I would assume due to constantly having sewer issues, I mean I would probably bail too. This is still ongoing so I don't know what this will cost me in the end.
I have sent this and several other issues to the upper management and got no response. At some point I'll take the time to put a full review out here now that I have a full year on all 12 properties. I also have the eviction and rent collection issues others have but I don't see that as a direct fault of Spartan. There could be some indirect cause their due to lower quality properties attracting that type of renter, but at this point that is just speculation on my part.
Quote from @Kelby Loden:Very Similar experience! Even though I had 2 years leases with all my properties. 2 broke their leases and 2 went into eviction. Of the 2 broken leases, they had cleaning fees of $3,000. Didn't notify me, just billed and took out of the portfolio cash to pay them. Only reason I noticed was my payout was 3K less.
Quote from @Jason Watt:
Quote from @Rob Hakes:
2022 Update for year end:
Original Property (same section 8 tenant) - Cash on Cash return of 7% or 12% if i don't count principle paydown as an expense
2nd property - Cash on Cash of 13% or 19% if i don't count principle paydown as an expense.
Again - My COC calculation takes my all in (downpayment, closing costs, inspections, entity setup fees, everything) vs actual cashflows.
Not a bad year. Home values holding well. Very stable tenants. Minimal maintenance.
Thumbs up for 2022
Jealous. I will say, their rehab work is great, but had the opposite experience with them on management. I just fired them and moved to a new management company this week.
Curious, what was your specific problem with management and who did you select for you new management? I bought 12 properties with Spartan throughout 2021 when interest rates were rock bottom and I haven't posted a review here yet, but my biggest complaint would be around handling of maintenance. For example, sending me a $500 bill with no explanation for 'refinishing' a tub in a house 11 months after renovation which had a brand new (not refinished) tub. Why would I be refinishing a brand new tub 11 months later? A second example, I received a small (<$100) bill for cleaning out a sewer drain line in which the plumber noted on the invoice that the tenant was pointing out a problem with the main sewer line being broken and leaking out near the road. For the next three months in a row I received additional bills between $450 and $500 each for cleaning out the sewer line. All along they were ignoring the problem of a broken sewer line and just blindly sending me bills to manage the symptom even though they had been told what the problem was from day one. After three months of this the tenant vacated. I would assume due to constantly having sewer issues, I mean I would probably bail too. This is still ongoing so I don't know what this will cost me in the end.
I have sent this and several other issues to the upper management and got no response. At some point I'll take the time to put a full review out here now that I have a full year on all 12 properties. I also have the eviction and rent collection issues others have but I don't see that as a direct fault of Spartan. There could be some indirect cause their due to lower quality properties attracting that type of renter, but at this point that is just speculation on my part.
I go look at the bills and one is for $1,400 trash pickup. Only after I questioned it, did they send photos and an explanation. I tell them again anything over $200 to tell me first.
2 Months later They did it again with the other broken lease with a $1,200 repainting and cleaning fee. Again, don't tell me about it and just charge it. "It's our standard cleaning policy"
1 of my evictions is at month 13 and went back to retrial.... 13 months on what was sold to me as a good landlord state (Alabama)
I swapped over to Evernest. I'll update as I get through evictions and how the other properties do with the new company. It has been a learning lesson for me! :-)