All Forum Posts by: Jay Hinrichs

@Account Closed

on a side note it took a huge amount of travel and time from home to build that business. I have enough frequent flyer miles to almost never have to pay for a coach ticket again.. and a few million points with Hilton... So not all bad.. And met a ton of really nice people and made them some good money along the way...

@Account Closed

Having grown up in Cupertino and living up in Napa when I started investing out east I had no clue when I started.. Just like Ali pointed out. So I got burned every which way you could.. But I was in the business and could absorb the loss's ,, I did not like it,, Lost Millions in the down turn.. but am here to fight another day but instead of being semi retired like I was in 08 I have to work fulltime now for another 5 years or so..

As to your question. I did see the flaws in out of state investing and came to the realization that owning 1 or 2 of these could be a huge burden if they don't go right so I decided to scale it as a business.. And it was primarily partnership issues that created my sale of the assets..

If you can scale this up and have the wherewithal then your going to DIY you would do what I did.. Went to each of my markets and made the rehabbers and PM's my Partners not the vendors.. I provided the capital they did the work.. We all had a vested interest. So to that end we got the deals at TRUE wholesale ( if there is such a thing) But the same prices a TK company pays for them.. Our rehab partner did work for cost. And since we owned them we self managed.. So no leasing fee's no management fee no mark up on maintenance etc etc.. And we were adding 10 to 15 properties a month in our 5 markets.. We never really got traction in Memphis so just have a few there,, but we had assets in Atlanta Bham Indy Jackson,

So that's how I did it.. I just took what I saw was the vulnerable parts of the business IE paying too much to begin with,,, getting hosed by the rehab contractor and the critical element Property management and brought them under our full control with every key aspect an owner not a vendor.. Makes a huge difference when like in Atlanta when we bought 50 homes.. My partner there was a PM and a good rehabber but had no ability to get financed. WE solved that he did the work and we sold to a hedge fund for a nice profit last July and he walked with a very nice pay day and we did as well.

The other markets the values have not risen and since we are at wholesale we can sell for what we are in them... but that's about it. And since we did bring them in for basically wholesale the cash flow we enjoyed was pretty nice. But its a ton of work.

So that's how I did it.......

At the end of the day I was forced to foreclose on a lot of really nice couples that had this dream of owning a few rentals so I saw the heartache personally. A troubled rental property is almost as bad as going through a divorce on the emotional side. that was my personal experience.

@Aroldo Villarreal

Have dealt with this many many times. I think if its a rental then your probably good to go.. as long as everything is working.

And its a little know problem to those who do not live in Texas and MS.. But on the other hand if it cracks and you have issues the tenants may not be able to live there while your fixing it.. So you could lose a tenant and rental income.. If you fix it now.. And a good foundation company will give you a life time warranty then you will not have to worry about it going forward and or if it does crack or move you have the warranty .

@Pete Tam

Well from my point of view as an owner of 350 in 6 of the cash flow markets . And a lender to many turn key operators over the years. 2k plus loans.. my points are my personal experiences taken from doing it not writing about it or reading about it.

I sold all my houses to my X bizz partner in Oct.. so I am down to 20 something out of state rentals. and continue to liquidate them..

We killed it in Atlanta,, other markets we are lucky to break even. that is a fact.

Cash flow can be very consistent with sec 8 as long as your manager is really on top of it. , my experience is with the majority of these homes since they are 50s to 80s built they have maintenance issues. And of course tenant induced issues.

West Coast perspective is not a mid west reality... On top of that when I was foreclosing on 200 plus homes ( I was the lender and it was my money) in 08 and 09 I lived in the mid west for a year. So on top of being an out of state investor I spent a year pounding on doors.. working with the tenant base.. finding new managers etc etc. And those that I were foreclosing on were 100% of area investors that bought TK homes and who could not make them work and walked because we were hard money and did not report to the credit agencies... No lender was immune in those days. What happened was that these homes were and are tough to manage and the out of area investor just got feed up and walked.. Not all of course I had 460 loans on the books when this all came crashing down 260 worked out 200 walked. So that's my personal experience.. I sold those houses off as OREO and the next Investors have them now.. And they keep in touch as I owner financed a bunch of them. And they go through there issues. But I owner financed them with ZERO % interest and 20% cash down so they had skin in the game and I had a 98% collection rate on those.. IN fact I am selling one of my last ones with this kind of financing to someone here on BP

It can go smoothly but if it does not its a bear that you can take to the bank.

@Jay Y.

At the end of the day its all about NET returns... If your buying a few Cash flow properties out of state and say your making 10% ROI Net.. But the asset never goes up and probably will actually go down... AS you would not be able to sell it for what you paid from the marketer and the Turnkey guys. Because they have high powered concentrated marketing efforts.. You as an investor would not be able to link in with a Marketer who can get top dollar.. So then your just out there on the Local MLS.. So even though you have cash flow now Most of these assets will produce loss of capital if they are sold in the very near future... The only TRUE appreciation I have seen in the Market place in the last few years was ATLANTA... If you got in at the bottom and did not pay way to much.. Or if you did a few years ago you will be able to exit for what you paid for it. And your getting it a little bit in Texas right now as TExas is soup de jour for IP. But nothing like what happened in Atlanta.

So it would be fun to see at the end of the day if you bought a rental in San Jose CA or socal and its 1k a month negative for 5 years lets say...that's 60k out of pocket. But it goes up 200k over the same time. well that's a gain of 140k.. for this example...

buy 100k of cash flow 10% ROI ( which most try to get and many don't REALLY get that much because of expense's and vacancies) But say you did get that for 5 years... And lets say you could sell the asset for what you paid for it after all costs ( highly unlikely in most markets if its been a rental for 5 years as I stated but lets just say you could) well that's 50k profit. Over the same amount of time.. Your San Jose property is most likely going to have a Techie paying big rent so vacancy and maintenance will be negligible or non existent.

I think this is the Argument that Aaron Mo is making...

NOw if the house in San Jose does not go up or goes down.. Which can happen but not too likely then the out of state deal looks attractive. But if you sold your out of state rental for true market at the time which will usually be 20 to 30% less than you paid for it that also cuts into your NET profit.

Now the issue Is your priced out of CA market and your only option is Mid west.. And that is why the Mid west Turnkey market exists in the first place.

Also Jay Many fee's are not on the HUD and as you state there are all sorts of back end deals going on. But all within their rights to do in a free market economy. Its caveat emptor when dealing with these marketing companies and Rehab sellers.. Or in another way to put it Due Diligence is a must. Trust but verify.

@Jerry W.

Jerry who you callin an old dog 60 is the new 40... At least that is what I am told and heck I can't comprehend myself being 60.

Anyway a lot of good points being made... I think one of the important factors for investors and where they run into trouble with the "turnkey approach" is that they tend to think its akin to investing in a mutual fund just buy it and sit back and relax... Ali does make a good point it is just one method of buying.. at the end of the day owning any rental anywhere requires the Investor to engage and use much more due diligence and active participation ( in most cases I know some get very fortunate and have one tenant stay 5 years and its neat and nice) but that is not the norm in the rental business in most place's.. To Anish point of mark up being 3k or so..

That is just not reality for a turnkey product. That's more in line for a wholesale flipping fee... Having seen thousands of HUDs over the years.. Profits are much greater than this on the turnkey side.. I mean if Ali is brokering these deals to clients and I assume that is what Jerry was alluding to I would suspect her fee is greater than 3k per house. In my experience a 3k fee to a marketing person would be at the low end and fee's are generally 5 to 7k and or up to 10% of purchase price and then the turnkey operator is making on average 10k or more per deal..So really when buying through a marketing company which is one more layer removed from the TK company most deals if we are using Anish logic will be 20 to 30k over market or what you can do on your own if you lived in that market or spent a month in a market doing it yourself... No one in this business can take the risk of buying rehabbing and reselling and only make 3k.. Anish is right if you want the assets at market you need to do it yourself pretty simple really...

And this is the big reason you have this Mid west and West coast debates that goes on.. So much of the Mid west to East rental market is driven by LA or SF based investors.. So when an investor who lives in the area buys a home they are going to pay market most of the time and or if they are doing it themselves... Just like if you were in LA and wanted a rental you would go to MLS craigs list and drive up to and buy it.. And a rehabber on the west coast is a turn key guy in a way he is buying renovating and selling a home.. Just not adding the PM component. There are no turn key companies to speak of on the west coast not in the same way there are in the mid west... You have investor rehabbers on the west coast.. In the mid west and East you have companies that are rehabbers but add the PM component and they coined the Term "TurnKey".. And they deserve a profit just like any other rehabber on the west coast would get for finding and rehabbing the property and taking the risk's associated with that.

Then the marketing companies they deserve a fee for their services.. they are just cutting out what on the west coast would be a Real Estate brokerage activity.

I guess that begs the questions how do these marketing companies get paid if they are not licensed RE brokers or maybe these Marketing companies have RE license but I know in the past there was a lot of unlicensed activity going on. ... I know it happens every day but it is one of the nagging questions. The buyers have no recourse with a non licensed agent if your buying through a licensed agent that has E and O you have a level of protection to some degree.

And of course the Turnkey companies as long as they OWN the asset do not need a license.. Anyone can sell their own properties.

@Eamonn Cottrell

I spent 9 wonderful months at Reunion there in Madison. and some of my best rentals in the USA are right there in Madison as well.

@Account Closed

there was a lady in Sacramento who taught a Sub 2 course in the day can't remember her name... I have not done any sub 2 in CA. In Oregon and Washington they passed laws about 08 or 09 on this activity.. And also to be specific its sub 2 when your seller is in Foreclosure.. If the note is not in foreclosure then the law does not apply.. Sorry I did not make that distinction in pre previous post.. In Or and Wa you must be a licensed foreclosure consultant to work with those in Foreclosure... Of course the law is broken everyday as investors either don't know the law or just ignore it.

@Account Closed

Just and FYI it was a big deal here in Oregon and Washington.. I amassed most of my rental from 2000 t0 2009 on sub too's and had a much to large profile to be under the radar and when the new laws came into effect we stopped Sub too's cold turkey... I do believe sub too to be one of the best stratigeies out there as long as it complies to state law

I got a vote from Bill Gulley today... :)