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
    7y

    Just thought I would throw out another update on here.  Unfortunately nothing positive.  I just hit the 300 day mark since the last time I got paid rent from a tenant on this property.  Ouch, that hurts to see it in writing...... 300 days (no typo) 

    I was super excited about this property when I purchased it, but it has been a dud so far.

    1Reply
  • Patrick Shawn Faherty
    Fredericksburg, VA · Member since 2016 · 190 posts · 64 votes
    7y
    Originally posted by @Rob Hakes:

    Just thought I would throw out another update on here.  Unfortunately nothing positive.  I just hit the 300 day mark since the last time I got paid rent from a tenant on this property.  Ouch, that hurts to see it in writing...... 300 days (no typo) 

    I was super excited about this property when I purchased it, but it has been a dud so far.

     Wow, so sorry that you are experiencing that. On my call with Spartan this week Maureen (VP Sales) said they charge no management fee after 90 days and reimburse your mortgage beginning at 120 days. Is that your experience? 

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

    @Patrick Shawn Faherty

    Not exactly.  They have only charged management fees on rents received so i have not had to worry about that.  Had not heard anything about mortgage reimbursement.  Ahem.  

    They have been pretty good about making the turnover costs as reasonable as possible,  They have been very responsive when i reach out for updates, just no actual results in getting things re-rented.   

    0Reply
  • Gautam Venkatesan
    Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
    7y

    @Rob Hakes if the property is not leasing the issue is usually location and price. How many showings have there been and what is the feedback from your PM?

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

     @Gautam Venkatesan they did provide detailed data on the leasing progress. I don't know how much of a span this data covers.

    36 Leads, of those 12 were pre-qualified, of those 8 scheduled a viewing, of those 4 actually viewed the property.

    From me just watching the ad, they started the rental at $975/mo and they have dropped it a few times, now its down to $900/mo. Its been at $900 for a few weeks now. 

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

    Sorry your still going through this.  The two properties of mine that went through the eviction process have since been rented.  You may want to ask spartan about their section 8 program.  Both of mine got rented quickly under section 8.  Good thing is they only work with tenants that have a voucher that covers 100% of the rent so there’s pretty much guaranteed income each month.  If the tenant thrashes the place they get kicked out of the voucher program so hopefully they will take good care of the place as I know that’s a concern for section 8 tenants. All of my other properties with spartan have had little to no issues so I think it’s isolated to specific properties/ area, etc.  

    0Reply
  • Veera Vala
    Rental Property Investor · San Diego, CA · Member since 2019 · 28 posts · 10 votes
    7y

    Thanks a lot @Rob Hakes for your detailed response. 

    had a followup question (sorry its a basic one) but can you please elaborate more on "it is almost tax free because of depreciation"   How do they calculate depreciation percentage. I believe you're referring to Form 4562? 

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

    @Veera Vala

    i am not sure on the forms, but my understanding of the depreciation expense works like this:  For this house the cost of the building is approx $70,000 (you cant depreciate land) and the IRS allow you to depreciate the full cost over 27.5 years which equals about $2500 of depreciation expense per year.  So if my gains on this property (income minus expenses) are around $2500, then the depreciation expense would wipe out all the gains on paper, leaving me with nothing to be taxed on.

    I had my accountant determine my building value.  He got it from my closing docs and from some paperwork from the county I think.

    1Reply
  • Veera Vala
    Rental Property Investor · San Diego, CA · Member since 2019 · 28 posts · 10 votes
    7y

    Thank a lot @Rob Hakes for your explanation. This clears up lot of things. 

    0Reply
  • Jeremiah David Miller
    Member since 2018 · 2 posts · 1 vote
    7y

    Ive been following this thread and am curious on any updates. Would you purchase from Spartan Invest again? Have you looked into any other turnkey providers for future purchases?

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

    @Jeremiah David Miller

    Yes, I have updates.  Within the last few weeks both of the houses have been rented out.  On this house (from the original post), we decided to make it available to section 8 tenants and had to lower the rent price to finally get a good bite.  This process also takes a few weeks longer for them to get the voucher approval etc.  Spartan is starting to give investors the option to use section 8 to try and grow the pool of potential renters and have a more secure income.  Ill give it a try on this one and see how it goes.

    to answer your question on if i would use Spartan again...... Yes i believe in Spartan as a good team, however timing has not really worked out in my favor with how their local rental market has shifted.  In my opinion, I think for a long time they were the only dog in town and could easily fill their units at higher prices.  Now that Birmingham has become a target of investor money the last few years there are alot more nice renovated homes to compete with.  

    So because the purchase price of the house is largely dependent on the expected rents, I kind of bought at a high point, and now we are having to lower rents to be more competitive, and lowering my overall return.  

    So i probably would not buy another one quite yet, until I felt they had things priced to be more competitive.  They may have already started doing this but I have not actively shopped their current inventory lately.  

    I really like the model that Midsouth Homebuyers uses.  They claim to keep rents just below market rate, so they have the nicest home at a cheaper price to avoid situations like this when the rental market shifts.  I have been on their waiting list. 

    I still don't entirely blame Spartan Invest for the major problems i have had on this house.  For this one i am chalking it up to just a woe that most investors have to deal with every once in a while.  Hopefully things will get back on track.  Heaven knows i have some $$ I need to make up from this last year.

    1Reply
  • Patrick Shawn Faherty
    Fredericksburg, VA · Member since 2016 · 190 posts · 64 votes
    7y

    Thanks for the update Rob, and I hope things stay positive for you from here on out.

    0Reply
  • Jason Carter
    Rental Property Investor · Culver City, CA · Member since 2012 · 403 posts · 246 votes
    7y

    @Rob Hakes talk to @Antoine Martel. He's having huge success with his turnkey company. I'm biased, but there's a reason I invest my money with him and not with other turnkey companies. 

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Rob Hakes so just to recap, you basically went 300 days without any rent on a property and you consider that a success?

    I’ve bought a few turnkey. The biggest problem you’ll have is vacancy, and turnover. That’s why I switched to buying local, below market and multifamily. The returns are a lot better because my overhead is a lot smaller.

    Maybe your experience was an anomaly but I had multiple issues with the turnkey properties too, so I know it happens

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

    @Caleb Heimsoth

    No i don't consider a success.  I consider it a loss.  

    Is my post making this property sound like a success story?

    Or are you interpreting this thread as a success story because I remain optimistic about the turnkey model in general?

    3Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y
    Originally posted by @Rob Hakes:

    @Caleb Heimsoth

    No i don't consider a success.  I consider it a loss.  

    Is my post making this property sound like a success story?

    Or are you interpreting this thread as a success story because I remain optimistic about the turnkey model in general?

    I would say probably due to your general optimism, probably why I phrased it the way I did. 

    0Reply
  • Jeremiah David Miller
    Member since 2018 · 2 posts · 1 vote
    7y

    Rob, how has the last few months gone for you? Caleb do you recommend turn key properties at all for a new investor? 

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

    @Jeremiah David Miller

    The properties have been performing over the last few months.  Still have some issues with late payment, but i really like the late fees.  

    Both of my properties have been digging themselves out of the red for the last few months.  My last look at my own yearly projections will put both of them at a loss for the year.  Bummer that these have not been good investments thus far.  You buy these things hoping to get close to a 10% return and now i am just hoping to break even (cashflow-wise).

    0Reply
  • Josh Blackburn
    Cleveland, TX · Member since 2015 · 2 posts · 0 votes
    7y

    Rob, thanks for taking the time to keep this thread going. 

    I have started thinking of trying turnkey to get active and limit the time investment. 

    Great thread and a lot to think about! Thanks 

    0Reply
  • Kent Lau
    San Diego · Member since 2018 · 4 posts · 1 vote
    6y
    Originally posted by @Rob Hakes:

    @Jeremiah David Miller

    The properties have been performing over the last few months.  Still have some issues with late payment, but i really like the late fees.  

    Both of my properties have been digging themselves out of the red for the last few months.  My last look at my own yearly projections will put both of them at a loss for the year.  Bummer that these have not been good investments thus far.  You buy these things hoping to get close to a 10% return and now i am just hoping to break even (cashflow-wise).

    Glad to see that your properties have turned around. I was wondering, did they have to end up going with section 8 tenants? If so, what rents were you able to get?

    Thanks,

    Kent

    0Reply
  • Rob Hakes
    OP
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    6y

    @Kent Lau 

    We did section 8 tenants for the property from this original post.  We got market rent.  With section 8 they approve an amount that section 8 will cover then if the rent is above that the tenant pays the rest.   In this case the section 8 pays about 60%. It did take about an extra month to get the tenants in because of all the section 8 requirements and inspections. 

     Its been really nice to see the consistent rent come in.

    0Reply
  • Kevin Charles
    NY · Member since 2018 · 38 posts · 12 votes
    6y

    Thank you for the post. I've been reading about your experience. I hope 2020 goes better for you. Just curious if you could go back in time would there be anything you would do differently? As far as your vacancy issues, do you think location played a role? Seems like a lot of Birmingham investors have had long vacancy periods.   

    0Reply
  • Rob Hakes
    OP
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    6y

    @Kevin Charles

    Thanks for the post.  Good question.  

    I cant speak about the location even though i did as much due diligence as possible (google maps, online reports, etc) from my desk, i don't really know the areas.  This could have contributed to the tenant issue.  I think with the turnkey model we rely pretty heavily on the company to know which areas to absolutely avoid.  

    As far as the long vacancy goes - this situation was tenant specific as they did everything they could to avoid the eviction.  Once we got it back on the market it was a few months until we got it rented.

    Probably the biggest thing to reduce the vacancy length would be to make sure your rental price is not on the high end of the market rates.  It seemed we were a little high at listing and kept having to lower and lower the price till we got bites.  I think there was a run up in rental prices for a while (right when i bought) and then it cooled down once i had to re-tenant.

    I also think it is easier to ask a higher rental price on a brand new remodeled house in 'untouched' condition.  unfortunately we expect that to be what we can get from future tenants.

    In a few days i will post my actual returns for these properties too.  (spoiler - they are ugly)

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Rob Hakes:

    @Kevin Charles

    Thanks for the post.  Good question.  

    I cant speak about the location even though i did as much due diligence as possible (google maps, online reports, etc) from my desk, i don't really know the areas.  This could have contributed to the tenant issue.  I think with the turnkey model we rely pretty heavily on the company to know which areas to absolutely avoid.  

    As far as the long vacancy goes - this situation was tenant specific as they did everything they could to avoid the eviction.  Once we got it back on the market it was a few months until we got it rented.

    Probably the biggest thing to reduce the vacancy length would be to make sure your rental price is not on the high end of the market rates.  It seemed we were a little high at listing and kept having to lower and lower the price till we got bites.  I think there was a run up in rental prices for a while (right when i bought) and then it cooled down once i had to re-tenant.

    I also think it is easier to ask a higher rental price on a brand new remodeled house in 'untouched' condition.  unfortunately we expect that to be what we can get from future tenants.

    In a few days i will post my actual returns for these properties too.  (spoiler - they are ugly)

    first year is usually the best then things go down a little from there when you have your first turnover etc.. but 5 year ownership is a good spot to check to see if the investment was worth it or not.. Now in 5 years if the property has gone up a bunch that can mitigate your cash flow issues or lack thereof..  but if the property does not appreciate at all or much.. then it just is what it is.. 

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  • Michael S.
    Huntsville, AL · Member since 2018 · 577 posts · 864 votes
    6y

    @Rob Hakes - first off all, great job on the open and forthcoming updates you have provided us all on your turnkey investments over the past 2 years;  especially when things were not going well, you still had the strength to be open about the negative side of your investments and the losses.  I'm glad to hear that you're getting consistent rent now.

    A few things I was curious about:

    1.  What neighborhood were these properties advertised as being in?  Certainly they are not even close to A neighborhoods - to be honest, with the rent amount and Section 8 tenants, sounds like C/D class neighborhoods.  

    2.  After your experiences, if you could go back in time, would you have visited the properties yourself prior to putting pen to paper to see what areas your properties are located in?  If you've never been to Birmingham, there are some parts that are really nice, and some parts that can be as rough as inner city Chicago near Comisky Park. 

    3.  Given your experiences, would you choose less return for a better neighborhood with future turn key investments?

    My reason for the questions is purely curiosity - we typically only do A and high B neighborhoods;  while it definitely stunts the return, it also changes the quality of the tenants dramatically, and has a higher appreciation potential.  I personally couldn't buy a property sight unseen in a city I'm not familiar with - for example, when I see people on BP brag about their "great" find in Huntsville in area code 35816, it shows that they have zero knowledge of the city, and they are in for quite the surprise if they visit the area.  

    Best wishes for a successful 2020 with your properties.  
     

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