All Forum Posts by: Kevin D.

I am doing due diligence on turnkey companies and one of the recommended company is Memphis Invest. I know that @Chris Clothier mentioned that he runs things differently (honesty, integrity, customer service), yet I'm researching his property management group and the reviews are, simply put, atrocious, both on YP and Google Reviews. I am not making any accusations here, just presenting the facts as I found them. I will readily admit that what I found may be wrong and my information may not be correct.

The conflicting advice on here is great and of course, the investor is solely responsible for his or her purchase. However, based on the supporting evidence, I am not so sure if there is such a thing as a true "turnkey" investment.

Thank you everyone. Your advice has been invaluable, both in saving me money and aggravation. What not to do is just as invaluable as what to do. I truly appreciate it.

@Gautam Venkatesan that is precisely the advice I'm looking for. I thought it looked off. Yes, Texas is supposed to be a high property tax state so the 2500 figure surprised me. Here is the link to their numbers http://investorlink.net/uploads/finance/122/86f76c...

What is the property tax average for Dallas Ft Worth based on 150k? There are no HOA fees, and the company provide their own pm so I assume that's the number they are basing it on.

Hi,

I am looking to investing out of state. My primary goal is to have a passive income stream without requiring too much headaches (I know, asking a lot). With investing out of states, I want the property to be as hands off as possible because I just cannot be there. With that said, I am thinking of purchasing new developments in relatively nicer neighborhoods. I am looking for cash flow areas and do not expect appreciation although it would be nice. If the investment turns out to be more trouble than its worth, I want to be able to sell and recoup my money back with minimal hassle (wishful thinking I know).

For those in the area, can you tell me if the numbers the turn key company provide seem reasonable?

150k for a 1800 sq ft new build in the Red Oak TX area. ARV is supposedly 170k (I'm not counting on that). Income is expected to be 1400 a month. With property taxes, 5% vacancy, 7% pm, insurance, maintenance reserves, come out to about 5800 per year.. After debt service, cash flow should be about 300. That's not bad if the property can be a long term rental with relatively few headaches.

Do these numbers look right? Thanks in advance for your advice.

@Johnson H. I never even considered ARM loans. That's why you guys are pros and I'm not. With those types of loans, what happens when the loans get called in 3 to 5 years? I assume these investments are for resale rather long term buy and hold?

 Thanks, @Account Closed Your input is always fascinating. I'm not doubting your numbers, just playing devils advocate for my own edification. I am trying to separate the cost of homes for use as a primary home (which doesn't have to make sense) versus buying homes for investment. A 10k gross, even if we disregard maintenance and compute 0% vacancy, still doesn't seem to give us the numbers to make the investment worthwhile. A 1.5m loan is unlikely to get us a 3% loan rate even if we somehow manage to convince the lender that it is a primary home.

What I'm getting to is this: why compare a 2m home with a 50k shack? Why not compare a 2m investment here with a high quality 2m investment elsewhere that has a ROI many times the one in the Bay Area, where it's value isn't dependent on appreciation but on cash flow? How do we know that the appreciation is not dependent upon the low interest rate and speculation that is unsustainable? Isn't appreciation based on cash flow the more reliable indicator?

This is a fascinating discussion and I'm soaking it all in. However, the business degree side of me is constantly crunching numbers that my brain can't fully comprehend based on the appreciation model. 

Isn't the run-up in the Bay Are the result of a confluence of forces: low interest, strong economy with high paying jobs, and cash from foreign investors (Chinese and Indians) and start-up stock option cash outs? Isn't there going to be an end game to this as one, two, or three of these forces end?

Take @Account Closed Example of the Redwood City unit for example. For a 2m property, straight cash is great with gross of 3x1800 + 2500x2 = 10400. What is net after taxes and expenses? Property tax is about 20k. So even if we expect 5% cash on cash return is that the best use of 2m cash when that amount earns more in mutual funds but is truly passive?

Now, if we use leverage, 500k down and 1.5m in loans, at 5% makes it a 8k mortgage not including taxes. If the rates go up 1%, the monthly payment increase 1k to 9k. The historic average for mortgage rates were 7-8%. When that happens, a 25% increase in appreciation, the monthly payment would also increase by 25% assuming the same 5%, or 40% if rates rises to 7%. If mortgage payments go up, sales price must go down right? To me, I just don't see how prices could appreciate indefinitely.

Income does not go up as fast as property appreciation whereas mortgage rates are trending up. Rents are tied to income so can the rent keep up with the property appreciation?

I must be missing something because, ultimately, if REI is an investment and not pure speculation, the numbers have to make sense right?

Hi Cory,

I have some experience in evicting tenants. Normally, the first notice is a 3-day pay or quit, not 30 day when he failed to pay the rent. At this point, do not collect any rent from the tenant or he would have satisfied the payment portion and you'd be back to square one. I truly hope that it was AirBNB and not the tenant who paid that or it'd be a long protracted battle. 

If the tenant knows what he's doing and file a reply through the court system like mine was, you could be looking at 3 months before you can evict. Good luck!

Hi Anja,

I'm a fellow newbie myself and planning to attend the same meeting. Hope to see you there!

 Hi @J Martin,

Thank you for the clarifications. That is very educational and I have much to learn before I pull the trigger on my next investment. Cash up front and refinance down the road may be a path I want to look at.

As for my adventure in landlording, here it is: I selected the unit based on fundamentals, rent income exceeding expense with plenty left over. 3 units were rented, but 1 were not. The unrented unit, we went in and remodeled. We posted it on Craigslist with interior pictures and we had tons of hits and requests. However, the number that actually showed up were less (did they do a drive by and left?) and they were not so enthusiastic once they get there. At first we just didn't get it. Why did we get so much interest initially but hardly anyone followed through? 

Well, first, I insisted on credit checks and work history. This is the way it should be done right? My mother, who is a savvy lady (she earned her fortune through real estate without any college education) told me that I can't insist on credit and work history with these kinds of tenants. Oops... mistake #1. I bought a property in an undesirable neighborhood.

Nevertheless, I insisted that we wait for a renter with good qualifications. My old-school mother said just rent it to the first next tenant who wants the unit. She always purchase duplexes and SFH and has never had issue with nightmare tenants (she's lucky). Eventually I relented because how bad could it be? Oops...mistake #2. I got a nightmare tenant. I literally got threatened by them for wanting to inspect the unit, then they stopped paying rent. After three months of eviction process (which they prolonged for as long as possible), we kicked them out.

After 3 years of owner where on paper the rent justified the price but with extraneous costs mounting and rotating tenants, I finally realized I made a huge mistake. No matter how good I spruced up the unit, I am putting lipstick on a pig. I have no control over the neighborhood. It may look like the Playboy Mansion in the inside, but if people fear for their lives, they just won't live there. I put it on sale and sold it with a small gain and called it Landlording/REI university 101 lesson learned. If I consider the time and effort I put into the property based on my work salary, I'd say it's a loss. Lesson #3: I'm a lover, not a fighter. I am not a sweat equity person and would prefer to invest passively, so flipping homes is out of the question (unless it's a no brainer). I'd rather be buying and selling decisions rather than be at the front line. I prefer to have someone manage my property for me in the future.

I'd probably also avoid multi-units because of exactly that, it requires more active management than duplexes and SFR. Good luck with Oakland. You know the area more than I. The only thing I know about Oakland is the war stories my buddy who grew up from Oakland told me about dodging bullets (literally). =)

So why did I stopped investing in REI after that? Well, right before I sold the unit, we lost half our income. No, my wife didn't lose her job but she might as well have. She co-signed for her uncle for a home in Stockton quite a few years back. Everything was fine while prices appreciated but then the crash happened. Asian people cosigned for their family because of family obligations and the knowledge that family won't screw over each other... right? Yeah, about that... his house was underwater and so he decided to walk away from it. It was nice of him to let my wife know ahead of time though. He moved up and left without letting anyone know about it. Apparently he's now ostracized from his extended family but he did it anyway. She had a good cry about it and then we had to make a decision to take over the house or to let her credit go. In the end, we decided to let it go. Continuing to pay for it meant we would be saving the credit of her uncle while taking a loss on the unit all the while the unit would still be under his name and we would have no decision power over it. We let it go and her credit with it.

So we went from a two income with two mortgages but a sustainable DTI to one income, two mortgage over the limit DTI. This is why we've been on the sideline for so long. We just couldn't get conventional loans based on one income with two mortgages. I put our money into the stock market and saw 30% returns on it which is nothing to scoff at. However, seeing how real estate is getting the same gains (in my area) yet people are buying it with 80% leverage makes me wake up at night in a cold sweat. She still has four years left on her foreclosure but we want to get back into REI. However, I wonder if we should wait a little more for the other shoe to drop--interest going back up to normal and depressing home prices even further.

I hope this has not been too winded and TMI.