All Forum Posts by: Chris Clothier

@Tanner Shore,

I'd like to share some additional questions for you to ask actual turnkey companies or management companies as you go forward.  Add the question about negotiating prices and costs of services to the list and you should have a pretty good start as you head down the RE investing road.  Best fo luck - 

Here are some questions that I have posted many, many times here on BP that you should be asking a property management company and absolutely asking any Turnkey company you are going to do business with. I'm happy to give what I think are the best answers to these as well. Again, I made this list based on my own experiences and published them in a book and trademarked them as the Turnkey Checklist.

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 offer rental or maintenance guarantees? If they answer yes, ask them why. Then ask them if they will put the guarantee on year three.

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 residents, 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?

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?

This last question is a biggie.  It is hard for some to answer because recognizing mistakes is hard enough as it is compared to admitting them.  Again, happy to provide answers to some of these that you should be listening for.

@Tanner Shore,

Here is a bit of advice before you get inundated with the messages about who to buy from and which cities are best and inevitably the messages about how bad Turnkey real estate is.

First, be cautious of the posts about buying from investors about buying from companies.  So long as the person posting discloses whether they are being paid for referrals or for posting, then take them with a grain of salt.  You will absolutely see posters on here shortly telling you to go with this company or that if you want a great deal and many are paid for those promotions or for direct referrals.  

Second, wrap your understanding of passive investing around this concept.  The word Turnkey does not mean anything today.  It has become over-used by everyone on all sides of the equation including those that don't really have a turnkey property to sell, but now the word is a great marketing tool. So, it essentially means very little today when you are trying to ask a general question that you would think applies to an entire niche or way of investing.  

As for buying a passive investment virtually, the answer to your question is maybe.  Some companies will be open to negotiation and others will not.  How the property is marketed or who you are buying it from does not dictate whether or not you can negotiate a price.  You can always ask and should always ask if you are not comfortable with the price and want to convey that to the seller.

Congratulations on both of your investments!  I loved reading about your future goals and assure you that you would not be the first investor who went the passive route to get started, but really wanted to get their hands dirty learning the ins and outs after that point.  I've got two pieces of advice for you.

1.  Be patient.  Reach out to local investors there in San Diego and take the time to meet (as best as you can today) and network with active investors.  They are EVERYWHERE in San Diego.  BiggerPockets itself is loaded with fantastic commentators who are actively investing locally and at a distance as well as passive investors.  

AND... a major reason to try and build your network locally is no one is going to tell you how bad your first investment is or try to belittle you in person like what happens on forums.  As an investor, as you are trying to grow and share, and in my experience, the bad form that occurs so routinely on forum sites just doesn't exist when you meet other investors face to face.  Good, hard questions are one thing and you should want them, but you just get to bypass the solicitations you don't ask for and the advice you didn't know you didn't need!  The real estate investor community is huge in San Diego and I am sure there are plenty of investors who will be happy to share and help you succeed over a cup of coffee or a beer.

2. Feel free to reach out anytime and pick my brain on active investing. Happy to spend time with you and introduce you to other REI clients who have done exactly the same as you in the past. It really is quite common for investors to use a passive investment to get started. It is very much like making that first jump off the diving board into a pool and using that as a springboard (pun intended!) into doing backflips some time later.

I love the most recent purchase you made and think you purchased a property in a solid area.  Let me know if I can do anything for you or if you have any issues where your expectations are not being met.  Congratulations again on making that leap and getting started and I wish you the best as you start gearing up for that transition to actively investing! 

Hey @Troy Gorospe,

As an actual provider, I can't give you advice on experience although I originally started investing passively back in 2003 in essentially turnkey properties before the marketing of the name really took off.  I wrote a book called the Turnkey Revolution and based a lot of it on advise I've given here on BP.  Here are some questions that I have posted many, many times here on BP that you should be asking a property management company and absolutely asking any Turnkey company you are going to do business with.  I'm happy to give what I think are the best answers to these as well.  Again, I made this list based on my own experiences.  

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 offer rental or maintenance guarantees? If they answer yes, ask them why. Then ask them if they will put the guarantee on year three.

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?

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?

Just going off of your post, I have always paid attention to the story that I'm being told.  A little humility goes a long way.  Just about every huckster tells of their mistakes and the troubles they went through.  I think that is an admirable quality.  It is what comes after that matters to me.  When someone's story suddenly shifts to "freedom" and includes second homes, quitting jobs, fancy cars, expensive vacations, toys like boats and other luxuries and the next line is that you can have this too..., that is when I know they are full of ...t.  I know plenty of straight up people who have the ability to have all of the above, and yet you would likely never know it.  

Those to me are the tell tale signs.  They are looking for investors who are after quick fixes, big scores and are willing to ignore the warning signs in hopes of a big payoff. 

Hi Adrienne and thank you for the colleague request. 

Pre Covid 19, very few investors have seen their properties before purchasing, but I would estimate that maybe half have met our team in person and viewed our operations before purchasing or closing.  In today's environment with the pandemic, those two numbers are closer to zero.  W have obviously worked very hard to earn our reputation and this helps tremendously when investors are unable or unwilling to travel.  However, I advise that at a minimum, every investor meets whom they are doing business with at the earliest possible convenience.  Review their operations and see how it makes you feel to meet their team and see examples of houses they are working on or managing.  

I look forward to yo connecting with our team and be sure to let me know if there is anything I can do for you.  Best ~

As long as you have the time, can I forward my calls to you as well, lol?  I have to say, I simply block and move on. You have more patience than I do by answering the call and actually answering the scripted questions!  Hope your doing well ~ 

Feel free to reach out to me with a direct message right here on the BP message system.  I'll be happy to connect and help you get pointed in the right direction whether it is with my company or with another one if we are not a good fit.   

Best to you -

Mikhailangelo,

I really appreciate the mention of my families' company as the type of company you would want to do business with if you invested out of state. To avoid confusion going forward, we changed our brand name to REI Nation in January of this year as it better reflects the fact that we are now operating in seven different southern and midwest cities. However, we will always have Memphis Invest in our tagline as we love the city that helped us start the company!

After reading your post here I have two pieces of advice that hope you will take to heart.

First, find local mentors right there in the East Bay area that you can meet with for coffee or lunch or something of the like.  There are so many investors from your area right here on BP and there are so many local meet-ups that you could probably visit a different one every night for a month.  These are going to be filled with investors of all level of experience and the best and most experienced have always been willing to share what they know.  I just spoke at a conference in Oakland and was blown away by how nice everyone was and how willing so many were to share their stories.  If I were in your shoes, before looking to go out of state, I would surround myself with local investors and some of them will be investing out of state and others will be house hacking multis like you describe.  All of them will be able to give you first-hand feedback.

Don't rush!  Be patient and attend local meetups as well as find local investors who you can talk with.  Certainly before you pay anyone for advice or join clubs and groups that cost a lot of money, you can buy an investor a coffee, lunch or beer and get a long way toward learning and understanding if you can invest locally or need to go out of state.

Second, when you are looking for mentors, people to network with and learn from or hiring someone to help you get started, you have @David Green right there in your area to work with.  He literally wrote the book on how to invest out of state on your own without going to passive, turnkey route.  He is also a local agent/broker who can help you determine if you can invest in east bay or not.  And, if you can't, he is someone who can certainly help you decide if you can do it on your own or if you need to buy from a company like mine.

You are in such a good situation where you have access to capital, good credit and are willing to house hack.  I hope you step back and put some effort into meeting other investors locally and really get the facts on house hacking there in East bay before simply deciding you have to invest out of state or hit the lottery!  I think you may find it easier than you think.  At a minimum, at that point you will be fully informed on your local market and maybe even working with someone like David to help you successfully go out of state.

Best of luck to you as you move forward! 

@Roee Hazut,

I thought one crucial line in your original post was very telling and some of the other commentators have stated the same line.  "I have never invested out of state".  If you take advice from someone whom you respect, but they have no experience with what you're attempting to do, the answer may not be very helpful.  The same goes for posters who have never invested out of state.  

It's interesting that the topic of Turnkey and the usual bashing of the niche came up in some of the responses.  Again, from investors who have not purchased out of state nor purchased properties from any of the companies they are so earnestly stearing you away from.  

My point is that you have to be careful who you take advice from.  Don't get me wrong, you have some excellent commentators on here who have been and still are very successful, but few that I have read who invest out of state.  If you want to know the ins and outs and the pitfalls to avoid when investing out of state, you have to go to investors who have actually done it.  When you find them, you want to listen to those who have done it for an extended period of time, preferably have a sizable portfolio (certainly more than one or two properties), have had success and failure and are willing to share their mistakes.  If they relatively new to real estate investing, have no mistakes or blame someone else for any mistakes made, move on, in my opinion.  

One more thing real quick.  Don't simply discount the advice you got from the two local investors or the advice from the other posters on here who have successfully invested close to home.  Knowledge is powerful.  As an investor, there are certainly advantages to investing close to home just as there are advantages to investing actively.  Your first priority should be to learn how to invest close to home and what is required to be successful.  Only then can you make an informed decision on if you need to invest far from home to reach your expectations.  

I speak with a lot of investors who want to invest out of state and my first question is always why.  Most simply say their market is too expensive while reality shows that they are assuming they can't because of price point.  There are plenty of reasons why investors go far from home and they are very successful.  But the most successful ones researched their local markets first and met with local investors to get their advice.  Then through education, they decided they needed to invest in other markets.

I have three basic pieces of advice.  First, I would follow the advice that @David green gives in his book because he is very knowledgable.  Take notes on the book and pay attention to the steps he advises.  Second, continue to meet with the local investors and really dig in to why they invest locally.  Ask how the market has changed since they first started and ask what mistakes they have made locally.  Don't avoid talking to them about investing out of state, but certainly ask them from their viewpoint and experience, what steps would they take if they were going to move invest out of state.  Maybe challenge them to help you think it through.  You may be surprised at the answers they give when they come at the question from that viewpoint.  Lastly, I would look for local investors who are investing out of state and hitting their expectations.  I would be careful at this point because like I stated, you want to learn from investors with some road behind them.  The best advice is going to come from someone who has been at it a while and experienced some ups and downs.  If they still invest out of state and give good advice about how to do it, I would offer to buy a cup of coffee or a beer and pick their brain.

Essentially, the road to hitting your expectations has already been paved and traveled for years by many investors.  You can miss the mark very quickly if you take advice from the wrong investors or make assumptions about what is possible both locally and out of state.  Be patient and spend some time consuming the success and failure of investors who are achieving what you want.  You'll know when the time is right and you should have clarity in your plan.