All Forum Posts by: Adrian Kar

this is not different than any other flipper.. these companies that sell rentals all fixed up and ready to go are rental house flippers.. then you have retail flippers.. they buy houses fix them up and sell them to a home owner.. obviously the goal in either business is to make a profit for your efforts and risk

we have pivoted in the last few years to new construction.. and we sell 100% of our homes to homeowners.. can they go buy a lot and build for less.. In some instance maybe.. in many others no.. they cant get the sub pricing we get.. 

Not to mention remote rehab has its own very real risks.. when your not on the job basically daily. 

BRRR is how Turn key companies operated almost exclusively prior to 08.. you had the west coast marketing company you had the in market company that sourced rehabbed then managed the asset.. the difference was Our company we put the west coast investor into title.. so they could do a rate and term refi once rehab was done.. this worked because we did volume and the in market teams did not want to lose us as a source.. also the in market teams did not have to pay holding costs.. so their price points to the west coast investor was lower.. as they had no cost of capital.

In todays market the TK company has a holding cost .. I don't know any that do this with cash out of pocket.. so not only do you have to source you have to rehab and you have to pay a bank or investor holding cost while you get the property ready to go and sold to the end buyer.. 

this is why many TK companies well maybe not many but some only deal in cash.. the loan process the west coast investors go through will cost the TK company money for a home that is sitting and waiting for financing to come through this eats in to the bottom line.

so one needs to take all these factors into consideration..

@Adrian Kar I'll second the advice you've gotten so far from @Michael Thompson and @Jeff Schechter , while this model is possible, it's often not what you think.

On the worst end of the spectrum, you have a Morris Invest situation, where they sold the idea of buying sub $50k props that the investor then pays to rehab under the direction of Morris. But what happened was....well a nightmare. Read some threads about that whole situation to get an idea of where it can go.

Of course, not everyone is Morris, but both Michael and Schecky made some important points to keep in mind. Firstly, turnkey companies make money by doing the rehab, using economies of scale and great networks to force equity, and then selling at market value. We are almost always able to get a better value and better work done, and make a bigger profit, on a property than the average retail investor, for a lot of reasons. So why would a company want to give you the benefit of that equity? 

The answer is that they aren't. We call this 'pay to play', but really you're just paying to take on risk you wouldn't have if you went straight turnkey, and to give up control you would have if you just DIY'd the whole thing. You pay for the rehab, but they control what happens. You don't show up on site everyday and give your two cents, there's not really any hands-on learning. 

What you do have is all the vacancy risk of having an extended rehab. You own the prop, but no one can live in it, so where's the benefit to you? The company isn't beholden to you for getting your monthly income flow started from day 1 the way a full-service TK outfit is, so there's plenty of benefit to them in terms of letting you take on the risk of rehab. You're not there to see what's actually being done, so it's easy for a company to do less than stellar work without you knowing, or allow delays to drag (which means more time without cash flow) because it's doesn't much matter to them. 

Of course, this makes it sounds like it's all a scam. And while there definitely are some scammers out there, it really comes down to how the turnkey model operates, and that model not really being conducive to individual investors taking the reigns of rehab. Any turnkey company that operates successfully for any length of time has their rehab processes 'dialed in' as Schecky said - we have streamlined processes and wholesale vendors, we get wholesale discounts and we do the same thing for every property, so we can get things done efficiently and maintain a consistently high standard across inventory. A turnkey company that lets you pay to play isn't going to give up those savings to do a custom job on every property, it would be a massive waste of money for everyone involved. So they're going to do the same job they would do anyway, but you get to pay as you go AND shoulder the risk of long-term vacancy, unexpected rehab issues, etc. Even a company that does great work consistently, and you end up with a solid rehabbed property, isn't really giving you any real world rehab experience, they're just letting you come along for a ride they were already taking, you won't even get to choose the music.

If you want to get your hands dirty, you're better off building a team in the market of your choice, flying over to meet and greet, see their work and look them in the eye, then manage that team from afar. If you want to minimize risk and just have a cash flow property that's rehabbed and tenant-ready, start looking into solid full-service turnkey providers in markets with numbers you like, fly out to mee them and see their work/inventory, and then let them do the work. 

What you're looking for does exist, but it's not the route I'd recommend.

Start with cities in the Midwest...St. Louis, Indianapolis, and Memphis.  Remember, that you need to have a strong 4:  real estate agent, lender, contractor, and property manager.  Once you decide on a market and get the key four people in place, then I would move forward. 

@Carter J.

you can set your portfolio buy going one to one and a half hour east in riverside or san bernadino county. thats the way i started initially and i still hold those properties from 2010. 

once equity has built up locally, you can scale to OOS using the equity appreciation.

of course in la county and orange county, prices are high but then there is watts area where a few investors specialize and do very well. 

there is a still a lot of action here...