All Forum Posts by: Chris Clothier

Texas is such a different state though in how they treat property taxes and what they use them for. True, they are high and rents are not rising as fast as home values which is raising the taxes. But those taxes are directly used for public infrastructure being built and improved. I know that equity value is almost always inaccessible so it's not liquid unless we refinance or use a HELOC to realize it. The other option is selling, but that is not usually an option without a 1031 for a long-term hold investor.

In San Antonio, Houston and the DFW metro-plex, you have some of the highest and fastest growing areas of the country in jobs and migration. People are moving to these cities for the jobs, the climate, the schools, etc. I think we can continue to count on modest rent growth, nothing crazy but small yearly increases. Enough to notice the growth but not squeeze residents to move. And I also anticipate tax growth slowing down a bit as the dollars needed for growth slow down. I don't think rents will necessarily catch up meaning annual higher cash flow in those cities may not be possible, but value creation is real. And when an investor wants to review selling (usually 7-10 years in), the IRR on those properties (depending on area and how long ago they were bought) will be exceptional.

 Jay,

We've researched and visited Jackson so many times over the years I've lost count.  Good luck to Bob.  If he's holding them, then he knows the risks going in and can decide for himself if he likes the results.  However, if they are being sold to another investor that is an entirely different story.

We have held off moving into Jackson, MS because we have such a high responsibility to the investors who ultimately own these properties.  We manage these homes and the economics make it nearly impossible to make money over the long-term unless you live there and are actively managing them. And I mean very active.  I too have invested in these areas and price points semi-passively and it just carries so much risk.  Those numbers reflect just how rough these areas are and how challenged they are for residents.  51% of the homes for sale in Jackson are priced under $100,000.  On paper, it looks like a so-so bet, but if you are passive or semi-passive, it comes with the kind of risks that just tilt the scales massively against success.  I would venture to say more than half of the properties we've viewed down there vacant and in need of major work were rentals being given up by the owners.  

@John Pocher

One more thing, any investment you make like this is best described as semi-passive.  The hands-off part is that someone else is doing the heavy lifting, but as na investor, your monthly role is to manage your manager.  You have to stay on top of your portfolio.  It prevents you from freaking out with a move-out or an expense.  It helps you to be in control of your semi-passive investments where you are heavily relying on someone else's expertise for your success.

Whatever you do, be patient.  There is no need to rush.  Quality investments exist in every market in every period.  It just takes patience and clarity and you can will find an investment that make you comfortable and meets your expectations.

Tim and John,

To the first question, I've never heard of Sharestates and I would definitely consider length of time in business for any company you chose to work with.  That is part of your due diligence.  As for Rent to Retirement, they are a legit service provider with a long record for you to review.  I've talked to Zach a few times and discussed the industry in general and how they operate and we operate to see if there is any synergy.  I also know a few of his team as well.  We have never done business together, but I can tell you from my conversations and experience as a turnkey provider, they are a good company looking to point investors in the right direction.

As far as the next question you asked, below are questions you need to ask any turnkey provider you are going to do business with.  A few companies you can research and certainly look to connect with would be Pinnacle investments (@Mike D'Arrigo) who operate midwest like KC and Indy, JWB (@Gregg Cohen) who operate in Jacksonville, FL, Spartan Investments in Birmingham, Memphis Turnkey and Memphis Cash Flow in Memphis and Texas Turnkey in Houston and Albuquerque.  There are others, but I know each of the owners of these companies and they are all good.  Their not all on the site here, but they are good people and I believe each of them encourage appraisals and inspections.

That is a big thing and you asked a great question.  If a company is selling something and they don't want you to use 3rd parties to inspect and get an appraisal, in my opinion, that is an issue.  It raises the risks.  Even on new built properties you need to get inspections and appraisals.  Now, that doesn't mean both will turn out perfect and if they don't then there is a problem.  An appraisal is an opinion and I for one don't always agree.  However, it is important that you are able to get one as an investor and have a good understanding with your turnkey provider as to how that appraisal is treated.  Same as inspection.  You should always get one - period.  In the end, they are a great tool for a company like us to evaluate our team and processes.  If we see a certain item get called out by multiple inspectors, then it is something we need to train on internally.  At the same time, a prefect house is almost impossible to come by, so focus on the ability to get one and make sure you get it.  Then deal with how the report comes out once you have it in hand.

Here are some questions I would suggest you ask any turnkey provider you want to do business with:

Two important things to remember. One, if they don't have time to spend with you and answer your questions in detail and discuss them, in my opinion, move on. Two, a key about asking questions is to ask a mirror question. Many companies have learned how to sell and how to market and certainly how to answer questions like this. Often answers are scripted and your job as an investor is to ask the right questions in the right way to answer for yourself whether you can trust what you re hearing. It is also important to remember that investors like myself always advise meeting who you're going to do business with. That is important because it allows you to see for yourself if the answers you heard match what you see on the ground. A mirror question is where you ask what is the average vacancy rate each month. Write down the answer. Sometime later in the conversation you ask the mirror question of what is your average occupancy each month. Write that answer down.

A high quality company will be on top of their KPI's and their numbers will match. A 3.5% vacancy number will match a 96.5% occupancy number.

Lastly, after you have their numbers research what you were told. I'll never forget a conversation with an investor who was amazed that a turnkey company had a 1.5% vacancy rate and a 98.5% occupancy. It sounded amazing. He asked how many properties they managed and the answer was roughly 1500. He then went onto their website online and researched their property management online and was shocked. Their website listed 198 properties for rent. They had an ad online for prospective tenants advertising 200+ vacant rentals. Their true vacancy rate was roughly 13% not 1.5%. But they felt like they had to market a low rate to "keep up with the Joneses". So ask your questions, get your data and do your research.

Are you an investor?

Do you own in the exact neighborhoods you are selling?

How many investors do you work with?

Do you own all facets of the operation?

Do you market rental or maintenance guarantees?  (Guarantees are a tough issue.  Just make sure you are paying for quality and not over-paying for a guarantee)

Do you defer maintenance?

How many properties do you manage?

Do you own the properties you sell?

How long have you been in the business?

What is your average vacancy rate?

What percentage of expiring leases will renew their lease each month?

What percentage of signed leases fulfill their full term?

What is the average number of days a property is vacant between tenants, move-out to move-in?

What percentage of billed rent do you collect each month?

What is the cost of an average repair bill after move-out?

What are your management fees?

What percentage of collected rent goes to yearly maintenance on average?

What is your average number-of-months occupancy per property?

What is your average occupancy rate?

Can I order an appraisal before closing?

Can I order a 3rd party inspection before closing?

What programs do you have in place to keep residents happy?

What customer service programs do you have in place?

Will you call me every month with an update on my portfolio?

How many team members are dedicated solely to providing service to your clients?

What has been your biggest mistake as an investor? How do you protect your clients from making the same mistakes?

Good luck as you get moving forward!

 Kevin,

I've been in the space for the past two decades and have had the unique position of meeting and getting to know many of the companies in the space.  I will say that the word Turnkey is used quite a bit and the meaning of the word has really been muddied over the years, especially recently.

If you are referring to a company that purchases, renovates, markets, rents, resale the home to a long-term investor and then operates a management company that will manage the property, then I can give you some examples of where to start looking and who to start investigating.  I would Google these companies to find their online footprints and to read what is out there about each.  You can also search them through BP and ask actual investors about their experiences.  *As a side note, there is nothing wrong with sending an investor a private message asking for feedback.  There can be a stigma about Turnkey and many investors simply don't post because they are not up for the responses telling them how they should be active instead of passive.

REI Nation - my families company and we operate in a dozen southern cities.
JWB - Great company in Jacksonville, FL. been around for a long time
Texas Turnkey
Ohio Cash Flow
Pinnacle Investments
Spartan Investments
Memphis Investment Properties
Memphis Cash Flow

I am sure there are other operators in Kansas City, Indianapolis, Ohio, but I don't know enough about their operations to mention them.  I have met each of the above companies and masterminded with some.  I believe each does in-house management and are at a level where they have good reputations and you should at a minimum be researching.

There are so many other companies that offer variations and in my opinion, that is where you get a lot of disconnect and missed expectations for investors.  

My advice is to be patient.  Ask questions and spend some time doing research on the companies and cities.  There are differences between all of the companies, but you will hear very, very similar messaging.  I am a big believer is length of time in business and size and scale.  Yes, my company would be at the top of the list in both, but I know how hard it is to meet investors expectations.  Most everyone tries to compete on spreadsheets.  It is crazy what some spreadsheets show today for returns.  Astronomically high and impossible to achieve.  Lastly, this is a mostly passive investment.  The best investors who find the most success are the ones who manage their investment companies.  The ones who take the time to review performance and spend a little time managing the managers.  Real can be a fairly passive investment, but should not be entirely passive in my opinion.

Good luck and let me know if you have any questions.  Happy to give you whatever direction I can.

Thank you for the interest in Memphis and my families' company. Memphis Invest rebranded a few years back to REI Nation once we had moved into over a dozen markets across the Southeast and wanted to properly represent the company. Memphis is still our home and main headquarters and where the owners spend most of their time. Dallas is our second HQ and has a good number of our executive team there as well. We are situated across the Southeast from Texas to Alabama and have optional plans to expand to the eastern seaboard and down through Florida.

As Zach stated in his response, you can look up both Memphis Invest and REI Nation and find multiple forum discussions. I warn you in advance that some go on for a lot of pages! One of the things you will find consistent is whether the forum is a discussion about a huge win or an issue an investor is having or had in the past, we are always responding. After two decades in business and managing close to 8,000 single-families for investors like yourself, we are not perfect, but strive to be! We are always looking to communicate and be transparent with the good and the bad.

Feel free to read the forums and interact with past investors.  Most are perfectly willing to share their experiences and will most likely be the most open through the messaging system.  If I can do anything for you, please feel free to reach out.  If we are not a good fit and you are interested in Memphis, I'd be happy to help you find other companies in the city who might be able to hit your goals.

Best of luck as you get started!

 That is awesome and a great move by you guys.  Apologies, I was not aware that you were doing you own projects now.  As you know, using your own money to build out a team, acquire the projects and see them through adds a lot of pressure, but also adds a lot to the final product you are offering.  Are you doing management yet or is that 3rd party?  Either way, I will make sure I include you guys in those that are physically building their own projects.  Good luck!

 Chris,

I appreciate your mentioning my families' company as one your looking at.  There are a few good actual turnkey companies out there in my opinion that offer good properties, but most importantly have good management.  The biggest risk that most investors overlook because they believe their definition of Turnkey is the same definition of the person they are buying from, is how well was the property renovated and how good is the property management.

Of the companies you listed, only one company actually purchases a property, does the renovation themselves so they are fully aware of the issues before and after, physically handles the marketing and renting of the property so they are fully aware of the on-the-ground rental situation and only one company offers the physical management of the property going forward allowing for quick and transparent information and updates. That would be REI Nation.

The other three companies are much more like MLS alternatives. You might even say they operate like dating sites. They collect information on either you or a property and seller or both and then match you up. In some instances, the other three companies are making thousands of dollars on a transaction being paid by the selling company. But, they are not buying, renovating or selling anything, rather acting like a marketplace or matchmaker and getting paid for those services. You can certainly imagine a scenario where whomever pays the most, regardless of quality of product or service, is going to get the most recommendations.

REI Nation does build about 50 properties per year from the ground up, but that is a very attractive property and can command a lot of demand from investors. I'd recommend you spend some time researching areas of the country experiencing growth in population and jobs. Then research actual Turnkey companies in those areas. Reach out to some and go through the actual process of learning about them and who they if you have not already.

I would suggest sticking with companies that offer all of the services in house as there is one point of contact and one responsible party.  There is nothing wrong with the other companies you listed and each serves a need in the investment community or else they would not be in business.  However, if you are interested in building a long-term relationship with your investment provider and wanting to build out a portfolio that you can rely on for future equity, income and wealth growth, your relationship with the actual providing company is the most important.

Be patient and don't be in a rush. Right now, cash flow is of super low importance.  The most important thing is buying quality assets that will hold and appreciate in value.  Same with rent.  In the future, rates will come down and when they do, expect values to strengthen and go up.  That is when you refi and drop your note and increase your monthly revenue - maybe even creating the scenario where your assets are going up while you are able to keep more of the revenue.

If you have more questions, ask away.  Best of luck - Chris

@Josh Haney,

To be clear, Turnkey investing is a easily recognizable marketing term to describe a semi-passive way to invest using others knowledge and legwork to invest in a property.  There is no real definition of it as many people today use the term to describe what they do, but what they do can vary wildly.

In short, my definition in 2007 was a property purchased, renovated, rented and managed under one roof.  As an investor, your responsibility was to build rapport with the operator and keep a close eye on the financials and management company.  It is very passive, but not entirely.  Today, it can mean any number of things including many companies who are popular here on BP where they don't actually do anything with the houses.  They are turnkey promoters.  They promote a companies properties to investors who initially think they are buying from the promotional company.  After the sale, the promotional company gets paid by the seller of the property like they are an agent.  Difference is the fees far exceed in most cases what a normal RE transaction would be with a Realtor.  

You also have Realtor companies who advertise turnkey houses where, just like the promoters, they are simply guiding you to purchase a property that they know little about and usually off the MLS.

My family has owned and operated REI Nation and are considered the gold standard in the Turnkey industry, but I will be the first to tell you that there are several good companies and in many instances, investors are right to choose to work with a Realtor or promotional company. So much of how you are going to invest will depend on how much time and effort you are willing to put into getting to know who you are going to be in business with in the future.

Investors who spend time getting to know a turnkey company that is actually buying, renovating, selling and managing an investment, have been the most successful historically when making this type of semi-passive investment.  Every other short-cut brings more risk and a higher degree of missing the mark.  

I have personally seen thousands of investors find exactly the results they expected with their Turnkey investments and likewise many who realized it was not going to be the best investment for them.  Do your research, reach out to some TK companies and be patient.  You will be able to determine for yourself fairly quickly if turnkey investing is right for you or not and which route to take.

@Heather Johnston,

Wow, you jumped in with both feet and generated quite a bit of buzz for your questions!  I will leave the Morris Invest questions for the others.  I personally feel you and any one else can do better as far as picking a quality partner to work with, but that is a personal decision on your part.

As for buying a passive investment that is turnkey in terms of ease of entry, I think there are several very high quality providers in the industry including my families' company as @Jay Hinrichs pointed out.  However, I will point out that a lot of people use the word turnkey and describe it like it is a noun -encompassing and defining anyone using the word to describe their business.  That is simply not the case.  There is no definition of what Turnkey means.  It is just a popular term and generates a lot of interest. 

There are very good companies that market as turnkey providers and like any industry there are very poor performing companies as well.  There are also companies that never buy or sell anything - they simply promote and Jay mentioned several of them.  I'm not as big a fan of the promoter route as it adds financial stress to the deal, but they are obviously a needed resource in the investment community as evidenced by how much volume they do.  In the end, it comes down to how you personally connect with whomever you decide to do business with.  It does not matter if you are going the DIY route, using a provider offering a turnkey route or even invest in paper as @V.G Jason suggests.  

In the end, you need to invest in a way that makes you feel comfortable and with whomever makes you feel comfortable.   Then, when discussing it here on BP, you are going to get dozens of responses telling you how you are wrong and someone else has a better answer!  It is just part of the way the site has developed and it's been that way since 2008 when I first joined.

You have a lot of enthusiasm and are applying yourself to learn.  That is awesome.  Just be patient.  You don't need to have all of the answers on day one, but you need to fully understand the investment you are making and why before you pull the trigger.