All Forum Posts by: Axel Meierhoefer

@Tucker Cummings Thank you. I understand that Dennis might have gotten frustrated by a failed deal. 

You are right and as I said, I was aiming for 1% rules, good neighborhoods, and most importantly, high-quality TK providers who offer the three main things, "renovation - sale at or below appraisal - property management" out of one hand.

I have been cash flow positive with each property from day one and as the scarcity of properties has kept increasing the rent levels have increased as well, so my cash flow is growing actually faster than I thought.

To me, the goal was to reach my "Time Freedom Point" where I no longer have to exchange time for money and can do what I am passionate about all day long. That number is about $3500/month give or take and I am there by the end of this year.

I will keep adding to the portfolio as long as I have new funds coming in and don't need to use the money, but pretty soon I plan to semi-retire in my dream location. That means I will focus on real estate mentoring and gardening - that's it :)

@Account Closed You are right, which makes a great point how important the quality of the TK provider is. I can see with my different providers that diligence when it comes to tenants is very important to avoid some of the things you mention. I rather have a few extra weeks of vacancy and then have great long term tenant than having a turnover every year.

Maybe that's why I feel lucky. I had no rent losses since I started, even through all of 2020.

@Martin Neal Yes, totally. That's why I always recommend to have a set of principles and criteria and then stick to them. It used to be that everybody in real estate always said "location, location, location". That is important, no doubt, but for out of state investing, I would say "quality of TK provider" is probably more important in the long term.

The TK provider that's successfully serving clients for 10,20,30 years will probably be successful going forward.

@Trago WAllace I totally get it and that's why I always answer the following way when asked about TK providers: "The most important thing is the quality of the TK company and they must, must, must do all three covers of the success triangle: Renovate - Sell - Property Manage

I am sorry to read that you had such a bad experience but it sounds a lot like the three things I insist on might not have been in place.

I agree that BRRRRing is a great approach. The issue I, and many other folks living in expensive areas, face is the fact that it would take an insane amount of down-payment money to get started.

There are many ways to be successful in this game. Mine is to find really good TK's that perform closer to the two well-performing properties you had.

@Bob S. Thanks. I agree that it is very hard to build a team from a distance. I know David Green wrote a book about it. I have been building remote teams for a long time in manufacturing projects and it is really a matter of how well you can motivate the people on the team and at the same time trust them, even though you are not around and they know that. In my case they get a salary at the end of each month.

I am sure there are many good examples, but In my case, if the people are dependent on the money they hope to make working with you, it is much harder than when they are excited and motivated. The problem with real estate is that it always only pays at the very end of a deal and often people wont want to wait or get tempted to cut corners.

The reason I love Turnkey is partially the fact the the providers are living in the communities they serve. They know exactly how things work and who can help and what's normal. More importantly it's their job and their boss is right there every day.

I am basically just the bank in the background checking the results. I work with the owner of the TK provider and all the services that company provides are done by employees the owners hired. To me that is much more likely to be successful than trying to convince someone 1800 miles away that when he does a good renovation job I will pay him a bonus - in about 5-7 months.

@Account Closed Yes, that's true. I even posted most of my list and asked folks here on BP to help me complete it and they had a bunch of additional points. I guess the slogan would be "Have a list and stick to it" :-)

@John Nachtigall Good point. Yes, that is true. In my case I couldn't do the flip and manage myself because all the properties in my area that I could get to in a reasonable drive , even distressed, are in the $400k's. In most cases they need $80k - $100K to turn them back into something good. Yes, you can sell them for $650k and make $150K (minus holding costs, financing costs, etc.) on the sale if everything works week. My big problem always was that I didn't have $80K for down payment + reno-money in my bank account.

If I were in a location where I can buy a distressed property for very little and then make even just $20K on the sale, I see how I can work my way up to better and better situations, but having to have $150K - $200K to start was not my reality. 

In dozens and dozens of calls I have with people interested in my approach they also tell me that living in an expensive area makes it even harder to save anything.

I agree that there is a lid for each pod. My pod was expensive area with very little to save. OOOS TK was the lid.

@Andrew Rosenberg Yes, I looked into it. The issue is that as the investor, I don't really have much control. The other thing is that the syndications, at least the ones I have looked into always seemed to aim for an exit after 5-7 years. Yes, if appreciation is good that might be a good deal, but to me it is actually more interesting to hold the properties because the tenants pay off the loans and while the property appreciated it will ultimately make more passive income (with mortgage versus without mortgage due to pay of) and in the mean time I can borrow against the equity and use the money to add more properties. None of that really appears to work in syndications. Finally, in a syndication I have not seen that I can put 20% and the bank is paying 80%. The ones I saw all want 100% of my money as the investment.

It's possible that there are others but the ones I looked at were that way.

@John Morgan You are right, that would be a problem. In my world (so far) the reality is that people don't want to move out. I actually have one property I am going to change and need to do some work on for that to work. The lease is coming to an end and when we informed the tenant that we are not renewing she did anything I could imagine except begging on her knees.

I have found there are a few things to consider and combine that lead to tenants who stay:

1. They like the property and are ok with the rent they pay for the value and service they receive

2. They call the property home

3. They have a stable job that allows them to work, have money left to enjoy life and pay rent on time

4. The relationship with property management is good, so the little stuff is not called in all the time and when there is something serious, the PM is handling it quickly 

5. The market is stable or improving, meaning moving to another property will not cost less but probably more, if you can find one at all

6. The size of the property is such that the development of the family is easy. Have three bedrooms when you only have 1 child, and if you get more, you can still expand the family without needed a new house.

7. Having hobbies that cost money, so instead of saving the money goes into those hobbies and the ability to purchase a house and make a down payment is low.

There are probably a bunch more but that is the combination I see and when it is present (or at least most of it is), the tenants stay and renew. That does not mean there there is no turnover, but its minimal.

The other thing I did when I started was developing a reserve account. For my 10 properties I have $30K in it. That came from putting 15% of all rents aside. In my contracts I have a clause that states that the TK provider covers all repairs in the first years and has to make sure that a tenant is in the property from day 1 (ideally at day of closing). Completion of repairs can't be more than 2 months ago and if there is no tenants the TK provider pays the rent until they find the first tenant.

All this helps to make the majority of decisions in the purchasing phase and then just enjoy the ride. 

I can't tell how that will look like 5 - 10 years down the road, but so far it works well.

@Dennis Wayne Not sure how to respond to that statement. The numbers are always in the eye of the beholder. What yuo would call bad might be acceptable to me.

In 2020 my properties appreciated by 9% and produced almost $3000 cashflow per month. No rents were missed and repairs were very minimal.

Reserves grew to $30K and now the 15% I used to put aside to build the reserves are coming to me as cash flow. I am in the process of buying 3 more properties.

My strategy to hold all my properties in well preforming locations , which is far away from San Diego, where I live, means that the valuations in my area are irrelevant. You are right they are very high and performance is very bad, but since I don't own any investment properties, it doesn't really matter to me.