All Forum Posts by: Axel Meierhoefer

@Drew Sygit I am sure they could be good but would not help for investments in Cleveland :-)

I am looking to expand my investments in Ohio and like to get into the Cleveland area. So far I have been in the Dayton Cincinnati area and work with a great TK provider.

I hope the community here can give input which proven TK providers in Cleaveland and the surrounding area I should consider.

Here are the criteria I always apply:

1. - TK finds the property in A and B class neighborhoods that need renovation
2. - Renovations include all major systems and I as an investor get to see/sometimes expand the renovation - SOW
3. - Sales price is at or below appraisal value
4. - TK is responsible for full-service property management @ 10% of rent or less
5. - Rent income is between .85 - 1% of the sales price
6. - Property is offered financeable (TK does not only offer cash-only options)
7. - TK offers warranties on renovation work
8. - TK aims to secure long-term rentals (multi-year)

Ideally, I am looking for a Cleveland TK that meets or exceeds all these criteria. If you know any, let me know their names and contact data, and please share your own experience with them. That's always the best way to know they keep what they promise.

Thanks in advance for your input

I find it interesting to contemplate your situation but it appears to me that you haven't really stated your goal very clearly. For me the main reasons to finance something as a primary residence rather than an investment property are:

1. You can normally get financing with a significantly lower down payment, something like 5% or 10% versus typically 20% for investment properties. You stated that you want to put 15% down for property 3 and then renovate it, which will cost you money to do. To me, that makes no sense. If you were truly using it as owner-occupied, you should put as little as possible down, eat the mortgage insurance, use the saved funds to renovate. When all is done and 6 months have passed, you refi keeping 20% equity in the deal or get a commercial mortgage and then rent it. As Matt and others stated, you should stay 6 months anyway and you can then refi as occupying owner and later rent. As long as you initially owner-occupied it after purchase and then rent it, you can keep it as such.

2. As an investment property you don't get exactly the same interest rates as you would as on owner-occupancy but if you compare with the same % downpayment the difference is not very large (especially on a monthly basis).

To me, I focus on generating cash flow and enjoy any equity gains from appreciation. It reads like you are also developing a passive income portfolio.

If that is actually your goal, I would not put so much focus on getting each property financed as OO first, but focus on good performance for the time when you rent it.

@Kiet Ho one aspect that has not been looked at much is the value of money over time

Your $200k can buy you 5x houses in today’s dollars and tenants pay them off for you- potentially in 15 years.

If you look at the value of dollars then, you probably only get 2 or maybe 3 houses for that money.

If you buy cash you basically park your money. If you leverage you get ownership of more assets and ultimately more equity over time.

The argument about toilets and faucets is the main reason I recommend investing using turnkey providers.

I pay them a reasonable fee and they work for me. We do that for all kinds of things, like care repairs, maintenance on our systems like home appliances, A/C and consider it normal.

For me it is normal to look at investing in residential real estate using turnkey providers as normal, which includes all the services needed to make the deal work. It’s not that different to leasing a car.

@Katie Panzica I can say that both @Chris Clothier and @Zach Lemaster are right. As a TK investor myself, I have found that the criteria you use to determine who to work with are more important than the question about the single company versus multiple company aspect.

Companies have different clauses in their agreements that you want to be familiar with before deciding who to work with and develop the relationship.

The other aspect is the list of criteria that you put on the services you are paying for. In my case, one of the most important criteria is the "All under one roof" criteria. It means that finding a suitable property (I call that the "ugly duckling in a friendly neighborhood"), renovating at a great quality level, putting a fair price on that property so that the appraisal will come in at or above that price and a fair rate for the property management - all by the same company - "under one roof" is probably the most important criteria for me.

After that comes "Performance" and then a few others.

@Nathaniel Prince I would start with what @Carl Millsap posted. 

What's your goal? 

Do you want to create cash flow to reach what I call the "TFP"? That the point in time where you no longer have to exchange your time for money because your passive income covers or exceeds all your expenses? If that's the case, you should follow a strategy that gets you to your TFP sooner rather than later. The term I try to get people to use for that approach is "Performance"

If you rather aim for appreciation of the properties in your portfolio, your purchases and sales would be different. 

It might sound pedantic, but being clear about terminology has helped me make sure I can determine what my next steps should be (or if people ask for my help, to make sure we speak about the same things).

With that in mind, I don't understand why you say that you did not get the ROI you were expecting? I don't know about your property but just as an example:

If you bought for $300K with $100K down payment (33%) and you made $100K appreciation in 3 years, you got 100% return on your investment(ROI) not even counting tax benefits and assuming $0 cash flow. If you put less than 33% down or had at least a little cash flow, you have even more than 100% ROI.

I would say that's awesome.

Naturally, you never know if past experiences will be the same in the future.

If I had/owned that property I would get a HELOC or all-in-one loan. You can probably only get 80% of the equity but if you had $100k appreciation and probably your downpayment + some principal, you might have closer to $125K equity, which should give you about $100K in your HELOC or AIO-loan.

With that money, you can buy 5 well-performing properties @ $100K each from a turnkey provider and use the positive cash flow to pay back the HELOC/AIO-loan.

If circumstances ever require, you can use the cash-flow money for expenses and you still have your original appreciating asset + 5 more assets. If you are lucky, they don't just perform well, they might also appreciate on their own, even though it will probably be at a lesser rate than your core-property.

In the current environment, it is a very smart strategy using low-interest rates as leverage. I am retired Air Force myself and building a passive income stream for the time after your service ended is a great approach I wish I would have known about when I was still on active duty.

Last point: I suggest taking advantage of your financing benefit as a military member. While I would love to see you follow the suggestions above, I would also look for a triplex or 4-plex and buy it for yourself using your zero-down VA loan.

If you stay where you are for 2 years or more and then PCS, you can get a new VA loan in the new assignment location and if the military requires you to move sooner you automatically get your eligibility back in the new location. I believe it's part of the military clause. Same as when your tenant is military or joins the military, you can't mandate them to stay.

I called it my "Hensel & Gretel- Strategy" when I was still on active duty. I left a house I bought with zero-down VA loans in each assignment base, rented it out after I left, and had a small portfolio that I consolidated into a real cash-flow portfolio when I retired. The locations were not always the best performing, but with none of my own money to lose and all the time in the world, ultimately the houses either appreciated or the rent was good and sometimes even both.

Sorry, I typed too much already. If you like to talk about it, let me know in PM and we can set up a call.

@Taylor L. Thanks for the support and appreciation, Taylor

@Aj Parikh

Yes, agreed, although in my cloud people (myself included) are in it to generate passive income and cash flow. THE $50K properties might be nice as a learning experiment (if one can afford that) but the risk to not get cash flow is pretty high. It's great when it works and everybody considering it needs to determine how much risk in deals like that they're willing to accept.

You are totally right about the bandwidth. To me, my bandwidth is very narrowly focused when it comes to investing for passive income, which is needed because I have a bunch of other stuff, not related to investing, I need to put a lot of my bandwidth towards.

@Taylor L. Thanks for the kind words

@Aj Parikh I did it with two different TK providers and am now starting with a third. I would do it again and am doing it again. David's book is great. I just never seem to find people to form a team far away from home and really following my requirements. Maybe it's due to the current market, but the folks who are interested are not that successful in the different areas described in David's book and seem to suffer from "shiny object syndrome".

When working with the TK providers I use, it's their business and their livelihood. Maybe that is an important difference and everybody has to decide how well you can form a dependable, trusted team far away from home versus working with a provider who is doing what you need as a passive income investor - it's their core business on a daily basis.

@Kevin Romines @Stacy Voss I also found, when researching the basis for the interest calculation to differ. Some seem to use US-prime rate and others use Libor. The differences are not very big and adjustments are mild, but that is also something to be aware of as it might surprise you, depending on the lender.