All Forum Posts by: Keith Schulz

Not to be the pessimist, but I tried one out of state "turnkey" investment, and I'll agree, it was the worst mistake of my investing career. I'm sure there are some good opportunities out there. However, I will never again buy a property I can't lay my eyes on monthly. 

I bought the property in Indianapolis from one of the turnkey networks (I won't mention names, but the owner is a Bigger Pockets member) for $47,000. The property was "fully rehabed" when I bought it, and there was a tenant and property manager in place. I had followed this investment group for years and trusted their knowledge and network, so I did not actually visit the property in person prior to buying (first two mistakes, trust, and not visiting the property).

About 3 months after buying the property the tenants started falling behind in rent. I was immediately on the property managers case about it, and she kept promising the tenant was a good tenant and that she could get caught up. The tenant got close to caught up, but then got further behind each time. Against the property managers will I told it was time to get rid of that tenant and find someone new. The manager assured me she would, and that the property was still in good condition. The next tenant was the same situation. 2-3 months in falling behind in rent, and I started asking the manager more and more questions about the tenants and property condition. She assured me all was good. 

I'm a pretty trusting guy, but I started to sense I could not trust this manager and I scheduled a trip to personally check on the property. The manager told me she would meet me there so I could go in to see the property. Of course, she didn't show up and I couldn't get in because the manager hadn't given the tenant proper notice. At that point, the property manager was fired, the tenant was asked to leave, and I started interviewing new property managers. A new manager was told me the property needed $20,000 worth of work to get back in rentable condition and that much of the work that had been done previously was poorly done and not to code. I ended up cutting my losses and selling the property for about half what I paid for it. 

The bottom line was I lost $20,000 and change, but learned some good lessons. Thankfully it was a small loss in the grand scheme of things. I blame myself more than anyone for not doing more due diligence on the company I bought through, the manager, or the rehaber. My biggest mistake was trusting that since it was through an investment group I assumed they were on top of things, and I thought I could trust the people they were working with. WRONG. The rehabber, was terrible, and the property manager ran the place into the ground, but it was all because I was far enough away that I didn't check on things in person or hire a 3rd party to regularly check on things.

BE VERY CAUTIOUS IF YOU DO OUT OF STATE TURNKEY INVESTING. I'm a real estate guy, but if you want a hands off blind investment where you are looking strictly at the numbers, stick to stocks and mutual funds. I hope this doesn't completely turn off those of you looking at turnkey options, but I hope you learn from my mistakes and you don't make the same mistakes I did. Do about 4 times the due diligence that you would, if you were investing in something locally. 

A place that I bought several years ago had smokers and cats in one unit just prior to my purchase. I pulled all the carpet out, and I painted the entire place including the subfloor. The subfloor I painted with Kilz primer to try to seal the cat urine smell. In any case, this in addition to cleaning every surface seemed to do the trick. 

It's because of this property that I no longer allow cats or smokers in rentals! 

I am an agent and investor, and if you are going to do at least one deal a year, I'd recommend getting licensed. As a licensed broker I have easy access to all the MLS data (most importantly comps on recent sales and market activity info). I also have the ability to schedule showings quickly and when it's convenient for me.

Finding investor friendly agents can be a challenge, because the top agents generally don't want to spend the time to write 10 offers to get 1 deal done. I find more rookie agents that like working with investors because they have more time available. 

The perfect example is I wrote an offer for myself last night that was a lowball offer. If I had been working through another agent, I'm sure they would have discouraged my offer because it's so far off list price. ...but it's cash, no contingencies, and the property has been on the market awhile. So I figured it didn't hurt to try. 

In any case, find an investor friendly agent, or get your license yourself. 

@Phillip Kim

If your passion is real estate why not keep your day job for awhile, and start investing while you have a steady income. In addition you may want to consider getting your real estate license and selling a few houses on the side too. Both of these things will help you learn the ins and outs of real estate while still maintaining your income. Once you start generating enough income on the side then drop your day job. 

I started out as an investor in my 20's and so many friends started coming to me asking real estate questions that I decided to get my real estate license (only after referring many friends to Realtor friends of mine). Now I own two businesses, a RE brokerage and an RE investment business. 

Follow your passion, but don't drop the day job too quickly until you have a solid plan and income. 

@Luke Aubut having a license definitely helps with quicker easier information gathering when looking for comps and analyzing deals. It allows for faster response time to look at properties and make offers in an active market like we have. Having a license also reduces the sale costs if you are flipping a property. Although, in the current market I'm not finding many deals on the MLS. The last property I bought was at foreclosure auction and the one prior to that was an off market deal.

Hi Luke,

Welcome to Bigger Pockets. It sounds like you are doing all the right things to learn and get started. Hopefully with lots of reading and paying attention to other members experiences you'll alleviate some of your fears and make fewer mistakes than we all did! 

I started as an investor and eventually became an agent after referring 7 or 8 friends in a year to an agent friend of mine. Now my wife and I own and run a small brokerage. If you do more than a couple deals a year it could be worth getting your license again. 

In any case, best of luck,  go make it happen!

Keith

Hi @Chris Adamski, I'm an investor and broker in the Madison area. My wife and I own a small real estate brokerage (the two of us and 3 other agents) if you are interested in talking. Are you looking just to hold your license somewhere to do your personal investing? Or are you planning to operate as an agent for others as well?

Unless you live right near the IL/WI border, I would agree with Mindy and stick to just focusing on your territory in Wisconsin. I'm not sure how far south of Madison you are. I'm in Verona (just southwest) and I rarely venture as far south as Janesville or New Glarus for sales or investment opportunities. 

Pete and Gary,

There was nothing that forced me out of the rentals I sold. I could have held them through the down turn, and I did hold onto one duplex. During the downturn the properties I had locally were rented and cashflowing the whole time. 

I did have some big challenges all happen at once:

• Two tenants in a row at a house in Indianapolis lost their jobs. It turned out my property manager there was letting the property getting run into the ground, and not telling me about repairs that needed to be done. 
• A stray bullet (from two cars shooting at each other) went thru the window of one of my Madison properties (unexpectedly in a B class neighborhood) missing an innocent tenant by a couple feet. 
• Another property had a basement that flooded and needed a drain tile system. 

Additionally, my life situation changed and the rentals interfered with my personal goals of buying a house in a good neighborhood with good schools for my young growing family. High leverage meant high debt to income ratio which made it a challenge to buy the home I wanted for my family (which was far more important). 

The bottom line is nothing forced me to sell any of the rentals, but the combination of all this in the middle of a market downturn and vanishing equity gave me new perspective on risk and a new baby gave me new perspective on time management. As a result I made some business and life decisions to operate a different way. I know the typical investor mentality is buy as much as you can  with other peoples money, and that used to be my perspective. ...but now the decisions I've made couldn't have turned out any better. It gave me more time and money to focus on my real estate brokerage and my family. I'll take a paid for house, a paid for duplex, and a debt free business any day over a whole bunch of highly leveraged properties! 

That being said, I'm not here to debate if cash is a better approach than investing with borrowed money. I can respect other investors methods as long as they are ethical. This is simply my perspective, and approach. 

Well to be honest my recent flip really was in the middle because I did use a small amount of equity line in my home to pay "cash" for it at auction. Although, I knew I'd only need to use that money for a couple months and I'd be entirely out of debt again. I guess my position is to never borrow on multiple properties at at the same time again, and to not buy rentals that will have long term debt.  

I feel like not relying on my renters to make my next payment or not needing to sell that flip within a month helps me make wiser business decisions and be choosier with tenants. Ultimately it leads to a lot less stress in life.  

Hello Bigger Pockets Members,

I’m re-introducing myself because I’ve been inactive on Bigger Pockets for quite awhile time. I’m a real estate investor and broker from Madison, WI (currently live in Verona, WI). I bought my first duplex 17 years ago at 23 years old, and I lived in half of it for a couple years. In the years to follow I bought several other rentals and found myself highly leveraged going into the 2008 down turn with a boat load of debt. At that point, I actually became an agent and sold off several properties. I weathered the down turn mostly unscathed, but after watching a couple friends go bankrupt using similar strategies, I completely changed my perspective. I’ve gone Dave Ramsey style, debt free, and I’m sitting on a little over a half million in paid for real estate. I now own a small 5 agent real estate brokerage (Great Rock Realty). I recently just sold a flip property that I partnered with a friend to buy at foreclosure auction, and now I’m ready to buy more.

Also, I’m curious how many others out there are doing a conservative or all cash investing strategy. It seems like most investors are going the heavily financed route. I understand there’s better cash on cash returns with leverage. However, life is very comfortable and stress free debt free! 

I'll try to start paying attention to these forums again and hopefully I'll make it to a local meetup sometime soon. 

Thanks,
Keith