All Forum Posts by: David Hodge

@Chris Clothier thank you for tagging curt. Typo :)

I just sold my Memphis turnkey rental!  Since buying rentals from turnkey providers is a hot topic, I decided to post about my experience. Hopefully this post can help a few people in their real estate journeys!

I purchased this single family home for $90,000 in late 2015 from Curt David (BuyMemphisNow).  I put 20% down ($18,000 down).  It had a tenant in place before we closed on a 2 year lease. The tenant resigned another 2 year lease back in 2017.  So there has been no vacancy in the three years we held it.  There were two repairs. We had to remove a rotting tree and fix a plumbing issue.  Other than that, things could not have been any smoother.

Our actual monthly cashflow over the three years was about $250 ($3,000 per year). This is an annual cash on cash return of 16% ($3,000 / $18,000).  I’m ignoring closing costs in this post due to immateriality.

In addition to the cashflow, about $100 of each mortgage payment went toward reducing my debt, and increasing my equity.  This adds up to $1,200 a year for a 6% annual return.

A couple months ago I realized I had to sell the property for health reasons.  I needed the cash.  I was a little worried about what I’d be able to sell it for since I’ve heard horror stories about people not being able to sell for what they purchased the property for.  I knew I bought it a good area, so I was hoping I’d be able to get out without losing too much.

I ended up selling the house for $110,000!  That’s $20,000 MORE than I purchased it for!  I did have to pay commissions and closing costs of around $7,000, so my net gain from appreciation was $13,000.  That’s around $4,800 per year ($13,000 / 2.7 years) for an annual return of 27%!

My total annual return on this investment was 49% ANNUALLY (16% COC + 6% debt paydown + 27% appreciation).

My advice for anyone who is considering to buy from a turnkey provider is to first, make sure you go with someone who is very reputable. Second, buy a NICE property in a NICE area! Houses that sell for $50K are likely not going to do well. The house I bought from Curt did NOT have the absolute best numbers when looking at the COC calculations. But I'm so glad I went with the nicer house in a more desirable area because I got VERY RELIABLE tenants who never missed a payment and my property went up in value a pretty nice amount!

Overall, I’m very happy with my turnkey experience.  I know that making a 49% return without doing much work is not the norm, but I wanted to post this to show that you CAN make good money from turnkey if you are wise in what you buy and who you buy the property from.  You’ll likely make more doing it yourself, but there’s a learning curve and WILL take a significant amount of time to catch on to things.  For those people who make good money at their day jobs and can’t afford to put time into real estate, I think turnkey is a great option.  At least it was for me!

Eric Fernwood I appreciate the detailed responses. Great info! I’m still having a hard time believing over the long haul, 2-3% for repairs and capex is realistic. Let’s assume there are no routine repairs because the tenant stays for 20 years and fixes everything himself, and when he moves out the paint, carpet etc are all in great shape. So we’ll assume 0% for repair. The capex alone would be well over 3%. 3% on a home renting for $1,000 would be only $360 a year. If you determine the cost of each major component and divide by their expected lives and then add them all up, you’re likely going to get much more than $360 a year. I’m going to guess a roof here in Vegas would cost $6,000. Divide that by 30 years and you get $200. That’s almost the entire $360 budget and we haven’t even considered the garage door, paint, flooring, cabinets, counter tops, hvac, water heater, plumbing, windows, doors, dry wall, showers, toilets, landscaping, fences, etc. 3% is extremely optimistic. I understand the outside of he house might last a bit longer than in other parts of the country, but in that case I’d drop capex from 10% to 9%. Let me know if I’m missing something here.

Terry Lao yes I agree, the formula should include vacancy, repairs and capex. Maybe I misread but it looked like he was saying his formula does not. For corporations, I’ve never heard of their financials showing property below the line. At least under GAAP it should be depreciated over its estimated useful life, like you mentioned. But that’s for the actual P&L. When looking to buy rentals, we should be doing our best to project into the future. At some point in the future you’ll need to make significant investments to keep the property afloat, so hopefully no one is passing on these expenses as “incidental.” Capex, repairs and vacancy will likely eat up 10-20% of your rents over time. Congrats on the success with your 4plex!

Eric Fernwood where are your clients getting cash flowing properties in Vegas? Also, can you explain why you don’t account for vacancy, repairs and capex in your calculation? Of course these are all hard to predict on any given property in any given year, but they are still all guaranteed expenses that WILL hit you. So once you factor in 5% vacancy, 5% repairs and 10% capex, are they still cashflow positive?

I purchased from Curt Davis at BuyMemphisNow about 2 years ago. Only one repair in two years and the tenant just resigned a 2nd 2 year lease. It's been a great experience! If you're interested in Memphis, I'd give him a call. There are a number of reputable TK companies in Memphis so call a bunch!

@Anthony Greco I really enjoyed driving for dollars back in Colorado, before moving the Nevada.  It helped me learn my target area quickly, got me more comfortable with negotiating directly with sellers, and taught us the basics of direct mail.  We even hired out some high schoolers to write our letters.  We got very close to closing on a great deal, but ended up having to move closer to family empty handed.  We didn't get the great deal we were looking for, but we learned a lot!  My response rate in CO was around 1%, but we only mailed out 2 rounds, which is typically not enough to see great results.

I would be very interested in hearing about others direct mail experiences here in the Vegas area.  

Long story short, I recommend you consider direct mail! 

I do corporate tax. My clients range from small private start-ups to multinational public companies. Working long hours, while raising 2 kids with my wife, makes it challenging to push on toward our real estate goals. We own one rental, but have big plans for the future in real estate!

Thank you all for the help.  The deal ended up not happening.  They definitely want to sell at some point, but they decided not to until a health issue is resolved.  We offered to lease the property back to them at a steep discount for a period of time, but they decided to hold off for now.  It was a big disapointment because the discount we would have gotton on this was above our goal of 20% and the cashflow was pretty decent for a rental in the Denver area.  We are going to follow up with them multiple times over the next year, since we know they want to move, once the time is right.  

Bill S. Thank you for your responses. The seller is willing to sell for what they owe on the mortgage. If the repairs are $20k then we will be at a steep enough discount to profit a decent amount if we had to turn around and sell. If it turns out to need closer to $40k then we would break even after realtor commissions. I'm hoping it's closer to $20k. If so, we should be under contract by next week. I will stay conservative with my rent per your suggestion. Always appreciate your insight!