All Forum Posts by: Chris Clothier

Look in the BP book store and read David Greene's book on Buy, Rehab, Rent, Refinance, Repeat.  What you are looking for doesn't exist today as a stand alone company/service already packaged up and ready to go.  However, I am 100% positive there are agents who can help you make offers on properties and have the contacts to assist you with the rehab, rent, manage parts.  Be cautious.  I'm not sure it is going to be a nice, neat, clean offer or package, but David does a good job of laying out steps to building that team.  You may find two or three pieces under one roof and need to find several roofs to get that next property and the next and the next.  Good luck!

 V.G, 

The first thing to understand is that a lot of companies and individuals have used the word to Turnkey to describe themselves or their company and many operate differently. You listed companies that buy, renovate, sell and manage properties as well as companies that do two or three of those things and one company that is a promoter. Promoters specialize in helping smaller companies without sales teams in finding buyers for their properties. They all use the word Turnkey to describe the experience you will have no matter how they operate. Memphis Invest is the same company as REI Nation. The name change occurred in 2019 when REI moved into our 4th state and it made sense to use a brand highlighting we were no longer just working Memphis and Dallas. We had been planning the brand change since 2015 when we first started using the brand REI Nation to buy properties.

I have a couple of pieces of advice and I understand you're not asking here on BP for my input.  You want to hear from investors who can give real life experience and probably beyond the past year or two.  

1. In my experience, investors are more apt to share a real experience in private messaging. Many have shared on here that they are investors and shared part of their story, but area also passive investors and not super active on the site. Try sending direct message to anyone who has posted that they have bought. May take a little bit of time, but I know several REI Nation investors who tell me that they connect on an almost weekly basis with investors wanting to get the "real story" . I would imagine there are other investors making the same connections and sharing stories privately good and bad.

2.  Due diligence is massively important.  Yes, you should at a minimum meet who are going to do business with and the management of your properties is by far the most important factor.  However, even a good management company is going to struggle with a poorly renovated house with issues.  Should you visit a property you are buying?  Maybe.  It will depend on how you feel as an investor after interviewing who you want to do business with and meeting them in person.

As for numbers and neighborhoods.  I hate the A,B,C scale of neighborhood grading.  It is arbitrary and easily abused because it can be deceptive.  In my experience, the best judge of a quality property is price point. The further below median price for an area, the lower the demand will be for the property.    As for the numbers, I think the two best questions you can ask and should ask from any provider are "why" and "how".  

Everyone uses different numbers for different reasons.  The question an investor should ask is, "Why do you use these calculations"?  You want to hear how they justify the numbers they show.  Then ask, "How do you make a property perform to those numbers"?  

The reality is, most investors can tell when they are being fed bs.  It really comes into focus when you meet in person.  Do they have the team to perform to the level you expect?  Can they actually perform as good as they will need to perform based on how they present themselves and the way their numbers read on paper.  In the end, you can then decide if you even need to see properties based on the eye test.  

Good luck to you.  Hopefully you get a few more responses here from actual investors.

Well put Jeremy.  Challenging the status quo or the norm is exactly how we built our company and achieve the result we do, so no big deal at all.  And, as I said, sometimes in a 2-dimensional conversation, questions, challenges and even answers can seem way more than they really are.  I like the conversation and appreciate the back and forth and like to read what other posters think.  Like you, I don't always agree, but when an investor is talking about their own experiences, who am I to question them, right?  I can post my opinions, but I try to remember to respect the approach others are coming from. 

I don't know if you have read it on here before, so I will post it again, no investor should take data or information on faith.  Anyone you work with that is going to provide a service to you needs to earn your faith - your trust.  That includes my families' company.  We take our responsibility and an investors' returns very seriously, but no one cares about your money more than you.  You are responsible for your investment and so you are responsible for every company you hire to provide service.  Be careful and patient and make companies you want to work with earn your trust.  

@Austin Fowler  what a great thread this has grown into.  It is so hard sometimes to read intent on a 2-dimensional forum like this.  It sure read like some of the commenters were more interested in arguing they were right rather than understanding what you have set up.  Either way, you've done a great job of communicating and answering posts.  Kudos to you.  

When you and I spoke a couple of months back, I did not fully understand the structure and did not know you had a Reg D fund set up.  Now that I have read through this entire thread, I have a much clearer picture.  I think you are going to do fantastic not just because of your openness and willingness to answer questions, but because of your years of life, work and real estate experience.  Good luck to you and I am sure we will continue to be talking.  Let me know what I can do to help.

@Steve K., One thing that is not correct in one your statements is that owners sell their properties in short-time periods.  Now, we do have owners that 1031 exchange properties as their investment ages and roll into newly renovated properties, but even that is not common.  We lose a fraction annually of what a traditional management company loses in their portfolio.

We also don't just blindly put out data.  We have multiple data sets of how properties perform from year one to year 10.  Our best data right now is between year one & year seven because we have at least five years for each set (although some sets are larger than others and the larger sets give us better data), but as I'm sure you're aware, the more properties and time that get added, the clearer the data becomes. 

I read a lot of your posts here on BP.  As usual, I think your posts are good and thoughtful on this thread.  I really liked the way you described how you approach future costs by not using random percentages and instead looking to calculate costs based on a hold period.  You and I are similar in our approaches, although I do not set aside nor account monthly.  I simply have more than ample reserves to cover any future expenses and when rents do not cover maintenance costs, I send payment to the management company and add to my cost basis.  I'm not worried about calculating monthly cash flow.  Mine will fluctuate from time to time, but remains relatively stable and positive.  I invest for capital preservation and for the leverage advantages.  I had a great conversation on here last week with another investor who explained that I use leverage all wrong.  Like this one, it could have easily gone sideways but we ended up having a great conversation and in the end I learned to look at leverage slightly differently. He didn't change my mind, but his way is right to him, my way is right to me and at a minimum I will look at future deals through his lens before closing.

As for REI data and what we show investors, we know in the first five years, median maintenance costs for an owner will be 2.4%. Exactly half the properties are higher and half are lower. The lowest 25% of properties perform at $0 (zero) maintenance costs for the first 5 years and highest 25% being just under 4%. As ownership reaches 10 years, the median grows to roughly just over 4% including move-out costs, maintenance and any Capex items that may have occurred. The lowest 25% is 1% maintenance costs over 10 years, the middle 50% is 4% and the highest 25% is at 9%. A vast majority of the higher maintenance occurs between years 8-10 which in our data are houses renovated between 2011 and 2013.

We fully expect our data to continue to improve and our 10 year renovation costs to come down dramatically over the next five years.  As a company we had completed less than 2,000 renovations in 2013 and are well over 9,000 renovations now.  We've learned what works and what does not work from a front end renovation approach and what items truly help a property perform over time.

Same goes for management.  On the management side, we are 30 days away from completing our 6th straight year with less than 14% of our total portfolio experiencing a move-out and our 8th year with less than 19% of our portfolio experiencing a move-out. When you remove the properties we have rented since January 2021 from the data (since they have not had an opportunity for renewal), the median length of occupancy of our portfolio is over 5 years. We successfully negotiate a new lease after the original 2-year lease on just over 80% of all leases and 98% of those renewals come with a growth in rent.  If you can keep a happy resident in a well-renovated home through great delivery and service, you can reduce vacancy and reduce maintenance.  We sincerely believe we can push an average length of occupancy per lease to over the current seven years we are running.  So much of it has to do with how you treat the home and the resident living in it. 

One risk for Austin and his plan is what happens after 10 years? We do not have the data for those years and we fully understand that over time, maintenance and Capex have to take place. There will always be move-outs and the data is from an average and median standpoint so there are good and bad results that make up the data. However, we've been excellent at setting the right expectations and delivering a reliable experience over the first 7-10 years. Those years are critical. I think as Austin scales his plan to include more homes and gets rid of any poor performers that he purchased elsewhere (1031x), his larger portfolio should perform to the same average as our overall portfolio. And, unless I missed something, Austin can easily pick the right time should he choose to exit his portfolio and 1031 exchange into a newer investment portfolio or even new investment. His return will be infinite on any deals he has no personal money in, and the portfolio itself is highly likely to have a remarkably good return for being SFR.

I don't think we are wishful thinking or unrealistic in any of our expectations although I do fully believe that there is no way a random company could achieve the results we are achieving.  It is intentional.  It is so much more than just buying a house, doing some work to it to get it rent ready and finding a renter.  There are 100's of processes, decisions and intentional acts that we take beginning to end that we know many property renovators and managers never think of.  You cannot apply any of our numbers to a random property, person or company that uses the word Turnkey to promote themselves.  Years ago we had a best-selling author write about our company and our strategy for becoming a category of one company.  There are several good companies out there and owners that I personally like and think they are outstanding, but there are only a handful of companies I would recommend.  I also believe most would say that we are a stand alone when it comes to how we operate.  We have been in business longer than anyone and were never interested in just making money.  We wanted to build something that had never been done before.  We are still interested in being the best we can be which means we still have a lot of runway in front of us as a company.

I will add that 65% of our monthly sales go to an existing client building their portfolio and our clients range from very diverse backgrounds and experience.  That speaks for itself.  Today, we are managing just under 7,700 properties with a value north of $2 billion.  Roughly 3,000 client accounts own those properties.

@Jeremy Horton So, yes, we are absolutely in business to make a profit. Who would want to do business with a service provider that wasn't profitable?  However, the home sales are more of a revenue generator.  Yes, we are profitable, but the profit comes from managing such a large portfolio.  It is not even the single houses that do it, but the fact that we add hundreds of properties a year to the portfolio without losing many that makes the scale highly profitable.  Home sales generate the revenue to be able to operate with such a large team across the 12 cities and the technology to manage it.  We want to be profitable and to earn a fair compensation for the service we provide.  In return, we will go above and beyond when necessary to hit an investors expectations. 

In your shoes, I would absolutely looking for another property management company to interview at a minimum.  You may not hire a new one, but you need to get multiple opinions about the house and the plan going forward.  Lastly, you want to confirm the condition of the property and that you had a tenant originally.  Nothing you are describing is a turnkey in my opinion.  You want the company you purchase from to be responsible for the management.  That way there is no finger pointing.  They are responsible for everything happening with the property.

That's really good.  Thank you for the breakdown.  We've hijacked the thread, but it is worth it to get a good bird's-eye view and I appreciate the detailed way you explained the scenario.  

I generally understood the explanation before hand and again, ignoring property values, interest rates and micro-market climates makes sense because they cloud the math (i.e. - don't sell in a down market, don't refinance into a higher rate, etc.). Their could be all types of scenarios where you don't refinance or don't sell, but all things being even and assuming we are making decisions based on the right market scenario, you've illustrated the power of using the 30-yr. mortgage to its full advantage.

I don't use 20% down because of the points charged by GSE to reduce the 25% down to 20%.  I'd rather put the 25% down and not pay the points and have the equity.  The difference is minimal, but the points can be as high as 3.  I'd rather have the equity.  I'm on to 30% now because I do non-conforming today and my rates are better at 30% down.  After what you laid out, I will likely run out each scenario and let the math show me the differences if that particular lender has options for downpayment percentages.

More than anything, I appreciate the explanation because I can make decisions based on more information.  Whether I change or not, I like having the information so I'm not using my bias to just assume the way I have done it over the past decade is still the best way.  Lastly, do you have thoughts on interest only loans for real estate?

Thanks for the reply - Great points - and again I learn to look at something from a differing view.  

I understand your points, I think, but, how does the current market affect your argument?  Math may be math, but how do the current market value of a property, the current interest rate environment, even the location of the property affect the math if at all?

On the equity comments.  For discussion sake, let's use a $100,000 property.  If I put 30% down and borrow 70% and pay it off in 10 years using every dollar from rent and not putting in any additional money.  Technically I've earned no return on my $30k, but have paid back the bank their $70k.  The next day, I borrow $30k on my equity in the property and purchase another $100k property.  Ignoring rates for this conversation, I now have $100k in notes on $240k (original property worth more now) of property and my original $30k still in the first one since I used 100% of the rent to pay it off?  If that is the case, I would have used $30k to buy $24OK in property over a 10year period, but have not gained much else at that point.  I am trying to see the upside and the downside of this scenario.  

If I sold the first property for $140k (plausible over a random 10-year period),  I would have $140k and could then use that to acquire $450k worth of property (at 30% down).  I would have $140k of my money in, but would own more property, earn a higher gross rent in theory, but would also have roughly 3 times the debt.  Faster, likely more profitable, but also possible higher risk.  

Early on in my investing career, I used maximum leverage.  The fallacy of my thought process was that rents remain stable, interest rates don't matter and price points compared to the market all fluctuated the same.  After 2007, I spent 3 years scraping every nickel every month to keep up with debt payments in a declining market.  The particular areas I was in did not hold value in price or rent and the properties faced constant repair issues.  I share that because the math said I was doing the right thing just in the wrong neighborhoods and price points.  I was not emotional, it was just real estate and I was simply following exactly what the economics said I should be doing.  Ever since, I have learned that people are a big piece of this puzzle and emotions should come into the equation (in my opinion).  Sometimes, the math lines up correctly, but the strategy may call for more caution.  

Dean, here is my advice. If your family wants to invest near where you live and they want you to be their boots on the ground, I would immediately begin looking for a mentor in the fix and hold side of the business. You could also look for a mentor in the property management business. Is there a local REIA in your area? Make a posting here on BP that you are looking for someone to help you learn the business. Here is the proposition I would make.

If you find someone who can help you find, renovate and manage a property, you have an end buyer already in place.  There is limited to zero risk to them as long as your family is on board with the property.  They have the expertise and you act an an apprentice in the process.  You have to show up, take notes and ask questions.  As long as you are willing to do that, you would be partnering with someone with experience and limiting their risk as long as they are willing to teach you in the process.  You may find yourself with a job short-term and a long-term career in the real estate investing world.  

Many of us have found mentors (including me) to tag along with or to help get started.  I used one in Denver, CO. in 2002 and they helped me wholesale 3 deals and complete my first fix/flip.  They made money with no risk and I learned some valuable lessons including that I didn't want partners.  But the deals I did paid for my education.  In your case, it would be the same.  Your families' money would face lower risk and you can gain the experience you need to start doing this on your own.  My .02 cents.

Good luck with whichever route you go.

 One of the things I hate about reading some of these posts, is it is hard to tell the tone of the conversation.  Many of your posts across the site are really good Joe.  I don't agree with them all, but I respect your views and learn from many of your posts.  But this one comes across not like advice on what to do, but condescending (the way I read it) and from the view that regardless of personal goals/expectations, there is only one right way to invest in real estate.  In my opinion, your points are great but they lose their appeal because it is so argumentative.  It is so, "I'm right and any other way is wrong".  

If the reasons are personal for investing a particular way, isn't that strategy the right one?  I personally hate holding real estate with long-term leverage.  I like using leverage to acquire, but seek to reduce the principle in the shortest time period possible.  Why?  It's personal.  My learned experiences and experiences watching others for the past 25 years tells me leverage is good when used correctly and can wreak havoc when even slight mistakes are made.  

Now, when I have my assets paid off, I can re-leverage and use that same dollar a second time.  Or like me, use the same dollar a third time.  I'm not investing for the cash-flow today so I structure debt for principle reduction and quick pay-off.  But, that is my plan and the one that I am comfortable with.  I've had many investors who I respect try and tell me that I should use leverage differently, but when I look at my portfolio, I sleep well. 

 My opinion would be you got the best answer when you read the last couple of responses.  This has possible disaster written all over it because you have zero experience investing yourself and it involves family.  If you are involved at all, your payment would be learning a few things about real estate without the financial risk.  If I were in your shoes, as much as I would want to earn $$$, I don't see how that would be good for them or you.  None of this is to be discouraging, I'm just not a fan of allowing yourself to be in a situation with real financial consequences if it goes poorly, when you have no experience and no reason to think you will be successful with your relatives' money.