Another Spartan Invest Turnkey Case Study

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Another Spartan Invest Turnkey Case Study

Rob Hakes
Murray, UT · Member since 2016 · 162 posts · 166 votes

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

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y

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.

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  • Rob Hakes
    OP
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    8y

     I will post the actual costs of the eviction once it is all said and done.

    1Reply
  • Jason Goslinga
    Member since 2018 · 17 posts · 3 votes
    7y

    @Rob Hakes Hope all goes well and get some new renters in

    0Reply
  • Adrian Kar
    Member since 2018 · 18 posts · 5 votes
    7y
    @Rob Hakes anything happen with this? I’m looking into Spartan too.
    0Reply
  • Rob Hakes
    OP
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    7y

    @Adrian Kar

    Unfortunately nothing new on this.  Supposedly there are still major delays at the sheriff's office on evictions.  I have not gotten any rent since June.  The tenant is basically squatting there.  Spartan checks the house (drive by) weekly to see if tenant is still there, and they have scheduled to get inside the house to see the condition of the inside.

    It has not been a first good year on this one.  I have toyed with the idea of using the '12 month buyback guarantee' but don't know if that will get me much ahead, unless there is just some bad fundamentals with the location of the house.  hard to tell as a long distance investor.  

    The other house is doing good. 

    Spartan has increased their communication and have had very quick response times especially over the last few months.

    1Reply
  • Adrian Kar
    Member since 2018 · 18 posts · 5 votes
    7y

    Man, that absolutely sucks! I guess that isn't the fault of Spartan / property mngr. Could happen to anyone I suppose. It seems most other people have been happy with them otherwise and it's good to see your other house is doing well.

    0Reply
  • Jared Friedman
    Investor · Studio City, CA · Member since 2016 · 38 posts · 54 votes
    7y

    I’m in the exact same boat with one of my spartan properties.  My tenant stopped paying since May and we’re going through the eviction process. It’s been 3.5 months since the court date for the eviction  and I’m just waiting for the sheriff to kick them out of the property.  I’m getting the same feedback that the sheriffs office is backlogged with evictions. It’s just a waiting game right now which is super frustrating.  Spartan did a walk through of the property a few weeks ago and everything looks fine for now but who knows what happens when the time comes to vacate.  All my other properties are doing fine but this definitely hurts. It’s frustrating that’s there’s nothing else that can be done. So far the costs of the eviction has been around $600 bucks for legal fees but that’s the least of my worries. I don’t know what else to do other than wait and hope for that these people are decent enough to not trash the place.  One thing I found out is that spartan will rent to people with a 550 credit score which is a little bit of a concern and lower than most other property managers. At the end of the day these things are bound to happen at some point so hopefully it’s just a bump in the road. 

    1Reply
  • Johnson Lo
    Los Angeles, CA · Member since 2017 · 22 posts · 7 votes
    7y
    @Jared Friedman thanks for sharing your experience. I bought a property from Spartan back in May of this year and recently found out that the tenants just vacated without notice in November. Even around September and October I was getting worried because the tenants didn’t pay on time and Spartan had to charge a late fee penalty.
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Jared Friedman:

    I’m in the exact same boat with one of my spartan properties.  My tenant stopped paying since May and we’re going through the eviction process. It’s been 3.5 months since the court date for the eviction  and I’m just waiting for the sheriff to kick them out of the property.  I’m getting the same feedback that the sheriffs office is backlogged with evictions. It’s just a waiting game right now which is super frustrating.  Spartan did a walk through of the property a few weeks ago and everything looks fine for now but who knows what happens when the time comes to vacate.  All my other properties are doing fine but this definitely hurts. It’s frustrating that’s there’s nothing else that can be done. So far the costs of the eviction has been around $600 bucks for legal fees but that’s the least of my worries. I don’t know what else to do other than wait and hope for that these people are decent enough to not trash the place.  One thing I found out is that spartan will rent to people with a 550 credit score which is a little bit of a concern and lower than most other property managers. At the end of the day these things are bound to happen at some point so hopefully it’s just a bump in the road. 

    I know its a little difficult to comprehend  however the average credit score in MS n AL is 600.. so in rental dominated areas fico is not the main driver for deciding who to rent to..  just know that you have a good company doing everything they can to keep your investment secure.   

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  • Jon Zhou
    Sacramento, CA · Member since 2017 · 20 posts · 28 votes
    7y

    Is it concerning to hear all these negative outcomes. One or two months vacancy with a tenant like that or a foreclosure will cause negative returns for many years. 

    Is this something that is spartan related or Alabama related, are there many stories like this with Memphis i

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Jon Zhou:

    Is it concerning to hear all these negative outcomes. One or two months vacancy with a tenant like that or a foreclosure will cause negative returns for many years. 

    Is this something that is spartan related or Alabama related, are there many stories like this with Memphis i

    its just the rental business by and large that's why you have vacancy factor baked into your proforma's  .. keep in mind you could get a tenant that stays 5 years.. as well.  and of course we don't hear about those .. 

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    4Reply
  • Fabio A Becker
    Carthage, NC · Member since 2016 · 21 posts · 3 votes
    7y

    @Rob Hakes hope there has been some resolution on this so far.  I have a property with M.I. that seems to be going down this path now (bi-monthly payments getting later and later).  I have been looking at Spartan and have read great things. I think @Jay Hinrichs is correct that this is the nature of the business sometimes.  If I had an eviction process with any of my other properties that are not held through turn key, it would take up much more of my time and energy...maybe something to be said about that.  Best of luck and would love to see any updates on this if you're willing/able.

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y

    This can happen anywhere but It's not clear why it is taking so long to evict. Alabama is a fairly landlord state. 

    0Reply
  • Clayton MobleyPro Member
    Birmingham, AL · Member since 2014 · 875 posts · 947 votes
    7y

    I usually don't like to pipe in on our review threads unless tagged since it seems a little....nosey.... but I saw @Mike D'Arrigo 's post and wanted to offer a little clarity on his question.

    The issue with the eviction timelines is definitely not ideal, but it is resolving. Basically what happened is this: over the summer, one of the leads on the eviction teams had to have back surgery. During that time, the Sheriff's office was down to just one eviction team instead of two. A backlog developed while the other team was benched. Both teams are up and running now, but of course it takes time to slog through that kind of mess. Things are picking up, generally, but obviously for individuals dealing with a long eviction process it feels like forever. 

    In terms of speeding things along, there is little anyone can do. Alabama is definitely a very landlord friendly state, and we win the majority of eviction hearings, but that doesn't make the process go any faster. If a tenant declares bankruptcy or just refuses to leave without the police knocking, it just takes longer. Our PM team does weekly drive-bys to make sure properties are being maintained and spends countless hours trying to convince evicted tenants to move along peacefully, but that's about all that can be done. 

    We work hard to try to avoid these situations with thorough tenant screening, but no system is perfect. Evictions tend to be more common this time of year as people end up needing to spend more because of the holidays. It's a bad situation all around - for our investors, for us, and for people who lose their homes - so we definitely try to avoid it at all costs. We are always working to speed things along and improve our tenanting and management practices wherever possible so we can minimize the frequency of evictions and keep our tenants and investors happy. Our average length of stay is still 38 months, so most folks stay a long time, but I know that's little consolation to our clients who are dealing with evictions.

    Just wanted to offer a little background on why the eviction process is so sluggish right now and reassure folks that we are aware of the problem and doing anything we can to move things along.

    Hope everyone is enjoying the season, whatever that means to you and yours.

    All the best,

    Clayton

    2Reply
  • Rob Hakes
    OP
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    7y

    Thanks for the response @Clayton Mobley.  It did seem odd things dragged on so much once it hit the sheriffs desk. That adds some clarity. I was talking to one of the Spartan staff and they also mentioned that the current sheriff was voted out this election and is now in the lame duck phase. Once the new guy starts, they were going to team up other prominent PM companies in the county to really emphasis the importance of speedy evictions to the new sheriff. 

    Anyway, on this property I just got news that the tennant was packing up on their own accord and should be gone shortly. I’ll keep you updated. 

    0Reply
  • Clayton MobleyPro Member
    Birmingham, AL · Member since 2014 · 875 posts · 947 votes
    7y

    @Rob Hakes yes the election definitely has made things less of a priority, unfortunately. Hopefully, the new sheriff will put more effort into moving through this backlog, we certainly will be advocating strongly for it. In the meantime, all we can do is try to push things forward however and wherever we can. 

    Thank you for your patience and understanding, we know this is frustrating and we will work hard to get you a tenant in place as soon as possible.

    All the best,

    Clayton

    0Reply
  • Jared Friedman
    Investor · Studio City, CA · Member since 2016 · 38 posts · 54 votes
    7y
    @Rob Hakes. I had great news this week when spartan called and the sheriff came and evicted my tenants. Looks like the place was left in decent shape and everything went smoothly. Spartan was great throughout the process but unfortunately these things happen in real estate. There is light at the end if the tunnel.
    2Reply
  • Rob Hakes
    OP
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    7y

    Just thought I would add an update after my year end review of the numbers.  Also, things are still being worked out on the eviction.  The tenant moved out on their own a month ago, but because they left a few 'non junk' items (an operating computer hooked up to some operating cameras) Spartan felt that it was too much of a liability (and really strange like they know how to work the system) to change the locks and get new tenants until the items were removed by the tenant, or the Sheriff officially did the set out...So now we are back waiting on the Sheriff.......

    As far as the years returns: I will compare the performing property to this non-performer.  

    My calculations represent an actual cash on cash return.  I included the downpayment, closing costs, legal fees..everything out of pocket and compared it to the actual cash received from the properties.

    Non Performing Property COC ROI annualized: -10.19% If i add equity paydown -5.71%

    Performing Property COC ROI annualized: 9.52% If i add equity paydown 13.65%

    Initial analyisis: I basically broke even with the two properties and all of the loss from the non performer was paid by the performer.  I don't think the first year will tell the whole story because their are some front end expenses (legal fees, rent up fees) that shouldn't be there in year 2

    THE GOOD - Even though a property went vacant for 6 months, my other property was able to sustain the losses, so no out of pocket from my personal account.  If i include some of the non direct returns like equity paydown and possible appreciation (even if half percent per year) then overtime this will be a really good investment.  I also feel like Spartan plays honest and straight forward so i feel like i have a long term partner.  I cant imagine this would happen like this again in year two.

    THE BAD - Off the bat on this property I broke the first two investing rules of Mr. Warren Buffett.  #1. Don't Lose Money #2. Don't forget rule 1.  Fortunately this house was only a minor drag on my whole portfolio, but i have other investments (performing notes) that have had zero issues with payment, and none of the variability and liability, with similar returns to the performing house.  I don't know if i am sold on the turnkey model yet, but certainly don't have a good enough sample size or duration to know

    THE UGLY - One of the most shocking facts that makes me nervous about the performing house was that it took almost $700 in late fees to get the return up to 9.5%.  What if the tenants start to pay on time?  This year was a bad sample size however as i only had it rented about 8 months so the 'annualized' return projects out what happened in the 8 month period and it was heavier in expenses (legal, rent up fees, etc)

    Hoping for a good/better year in 2019.  Its good to know that when it got really bad, I'm still okay.   

    3Reply
  • Logan Ho
    Rental Property Investor · Aiea, HI · Member since 2016 · 33 posts · 11 votes
    7y

    Thank you for sharing and breaking it down like you did.  If someone were to just read the thread it sounded a bit scary but you breaking down the numbers and putting it into perspective helped ease the negativity.  It definitely adds validation to what other say that you need to try and start off with a few properties instead of one to help even out the bumps.  Best wishes for the upcoming year!

    0Reply
  • Chuck Mader
    Investor · Punta Gorda, FL · Member since 2015 · 35 posts · 30 votes
    7y

    @Rob Hakes

    Did I catch that - 1/2 months rent to renew a current tenant?

    1Reply
  • Account Closed
    Gaithersburg, MD · Member since 2009 · 80 posts · 47 votes
    7y

    What's the exit strategy on a property like this.  Assuming you don't hold till you die and kids inherit.  Would it have value on the open market or will you sell to another investor

    0Reply
  • Rob Hakes
    OP
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    7y

    @Account Closed

    I don't know for sure, but the exit strategy would be limited for at least five years. You would need to pay down enough equity to at least cover your closing costs/commissions and still get your capital back.  

    I doubt that you would get market value (what i paid) if i turned around and sold it to another investor, but with how hot cashflowing properties are right now, i just might.  

    In purchasing turnkey properties like this i would not count on selling the property within a few years as a viable exit strategy.  

    My goal is to probably hold for 10-15 years and sell while the property still has some good life in it. That way i still get my COC returns that I want and can realize some equity gains with a 1031 exchange before the property starts needing major repairs again.

    Not a liquid investment.

    1Reply
  • Rob Hakes
    OP
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    7y

    Another update on my Spartan properties.  Things are moving along like quick sand.........

    We did finally get the tenant evicted about a month ago and are close to getting another tenant, so the first property has still gone since last June/July without any income.

    On the second property I just found out that the tenants are ditching out at the end of this week.  They were about 50 days late on payment and decided they were done, so i will have both of the houses vacant.  

    I am not going to try and sugar coat this with hope and perspective.

    But I have not lost hope.

    2Reply
  • Johnson Lo
    Los Angeles, CA · Member since 2017 · 22 posts · 7 votes
    7y

    @Rob Hakes thanks for the update. It is good to have a long term perspective on it. My property was vacant since November and just recently I got a call that they found a tenant.

    0Reply
  • Jon Zhou
    Sacramento, CA · Member since 2017 · 20 posts · 28 votes
    7y

    My concern with turnkey is when there is a vacancy for a few months , how many months of years of “cash flow are you losing? If you cash flow $200/month then 3 months of $800/mortgage without rent is like 12 months of positive cash flow gone? does that sound 

    2Reply
  • David Katz
    Member since 2018 · 46 posts · 31 votes
    7y

    Very odd that its two separate deadbeat tenant issues.  One can be an anomaly, but two starts to becoming much more concerning.  Without knowing more, I would assuming that either the tenant screening process needs some fixing, or you are buying in a property class that seems to be attracting the type of tenant where problems arise often regardless of how hard you screen 

    0Reply
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