All Forum Posts by: Chris Clothier

Suzanne,

If you want to properly align the risks you are taking with your expectations, then you have to meet the people you will be relying on to manage your investments.  You have to meet the agent, the property manager, the renovation crews and se for yourself the entire operation.  With single-family homes, this is much more important than the property itself.   When it comes to multi-family properties, I would think meeting the team is still very important, but you would have to see the property too.  Your investment is simply too important to not take the time.  It is a minor expense - especially if you decide not to move forward after seeing what you see.  At that point, the expense will be small compared to the risks you would have faced had you not met them.  Then again, if you meet them and you really like the team, this may lead to even more investments.

Best of luck to you ~

Matthew,

Best advice that an experienced investor will ever give to a new investor is to slow down!  I think as you learn more about not only this market but others as well and surround yourself with a better agent that won't be so hard-pressed to downplay all of your options, I think you will find good opportunities.  

I believe they will be a little higher priced and you will have to uncover hidden value such as companies that hold down move-outs and turnover costs allowing you to use lower calculations in your worksheets.  No matter what, take nothing on faith.  Make sure you dig deep to make sure what you are being told is accurate for the long-term.  Using the word Turnkey like is actually means the same thing to different companies can lead you to trouble.  Unfortunately, there is no single definition any more.  It is much more of a buzzword used for marketing.  I'm not sure you will find everything you are looking for if you were to purchase Turnkey, but you may find that what you give up in return, you get back in safety and less-hassle.  

Either way, be patient and be careful.  I love that you wrote that you are not going to rush into anything.  That is a sure fire way to raise your risks and increase the likelihood that you would lose your investment.  Hopefully other readers will see that line and realize that they do not have to rush into anything.  

@Matthew Pruitt - Your profile doesn't show what market you are in.  Would Memphis be an out of state market for you?  If so, there are plenty of strong secondary and tertiary markets where you can find discounted properties that may produce a positive cash flow.

What has made Memphis so strong IS all of those turnkey companies who manage the properties.  Probably more than any other market, the Turnkey industry has been professionalized in Memphis with companies at almost every price point and level of finish.  S, what makes it attractive for passive investors makes it unattractive for active investors - especially out of state.

My advice would be to look at secondary and tertiary markets for the particular deals you are after.  You are likely to find less competition at that level.

Alex,

I was alerted to your post when you mentioned Memphis Invest and had to laugh a little bit about the pricing comment about Memphis Invest. I want you to know that this is not going to an attack for the comment, but I push back fiercely when the integrity of our company is questioned. I looked and couldn't find you in our database, so that meant I really needed to respond if you had formed an opinion without speaking with us.

We do not price properties above market value. We price them appropriately for the value and service provided by our company and that opinion is shared a vast majority of the time by independent appraisers. Occasionally, properties are appraised below our sales price, but again, that is an appraisal opinion we do not share.

I will also say that there are two sides to the value equation. It is difficult to apply it to a piece of property, but not that difficult to apply it to a real estate service. Value is determined both by the price you pay for something AND the service you get in return. You will be hard pressed to find another company coming close to offering the same value in service. That is kind of why I wrote the rest of this post. To help you understand where real value comes from in the Turnkey niche and to invite you to visit us if you want to learn how to start your own company. There are no secrets with us. This is hard work and it takes dedication to being better than average.

Memphis Invest has been around for 15 years now and is managing close to $680 Million in asset value for passive real estate investors from all over the country. When I see comments about taking advantage of investors I think of another company out of New Jersey who may have ruined the lives of hundreds if not thousands of real estate investors over the last couple of years...not Memphis Invest. (As an interesting side note, the owner of that company owned a handful of passive investments out of state and had a knack for marketing.)

I think about the millions in net rental income sent out to investors from our management company in May or the fact that our average length of occupancy per unit is at 59 months. I look at our data showing that our rental price per unit is on average well-above our competition in most of the six markets we operate and I just wonder how someone can look at that as taking advantage.

I think of the over 600 leases that were set to expire in the first half of 2018 and how our company renewed those leases with the residents rather than let the property go vacant. Seeing as how our management company keeps the first month of a new lease and our average rent is over $1200, we "gave up" the opportunity to make $720,000 in revenue so that our owners could realize those dollars as rental income. That is called alignment of interest.

I saw that you are marketer. You listed that as a skill you really thought would help you start a Turnkey company. Unfortunately, marketing is not really the top skill to be great at locating good properties, buying them properly, renovating them to at or above retail standards eliminating deferred maintenance and then acquiring quality, long-term residents and managing them properly. No, marketing is important for sure, but white papers don't help with any of that.

You have to be committed to being better than everyone else in your industry every step of the way. You have to commit to the small things like pulling permits on every job even when no other companies do it. It seems like a waste of money, yet it is imperative if you want to separate. Otherwise you're likely to be average and I can guarantee you that the last thing anyone on BP or anywhere else needs is another average Turnkey company.

Memphis Invest is a a green apple in a box full of red. If you need help understanding the analogy, read Becoming a Category of One by New York Times best selling author, Joe Calloway. Then read his follow-up, Being the Best at What Matters Most where he featured Memphis Invest and Premier Property Management.

When you are done, if you really want to be an exceptional Turnkey company then you are more than welcome to visit us here in Memphis. There are no secrets. We will be happy to show you around and help you understand for yourself exactly how intricate a company like this is.

We have over 90 team members in six cities. We have spent in the high seven figures on technology and infrastructure. Our offices are tied together and our teams in the field implement mobile technology to keep data updated in real time. We are planning to roll out a custom built property management platform later this year for Premier Property clients. This investment in technology and people is really the backbone of our success.

Yes, we charge an absolute premium for our services, but we are not your average company. Our clients get 100% of what they expect from us in service, return and value. That has helped us elevate into our own category and that was entirely by design.

So again, if you ever want to see what that looks like in person so you can decide if you think you can offer a Turnkey service in your city, you are welcome to come and visit. We will be happy to help. We have had dozens of entrepreneurs from all sorts of customer service industries come visit our company to learn from us. A few real estate entrepreneurs have even been mentored by us as they started their Turnkey companies. There are no secrets with us.

Many of them are thriving today. No matter what, they all walked out with a sense of just how hard it is to be exceptional. Anyone can be average - that just never interested us all that much.

These are so basic and yet they are FUNDAMENTAL if you are going to be successful as a passive investor.  Whether you are buying across town or across the country, passive investors raise their risks when they fail to follow even these three basic tips.

 Darrin,

I can't see Caleb's original post on here to say definitely what he meant, but you illustrate a point that I think he was making and many of us have been making for years.  You are a landlord.  You are experienced and most likely local to your properties.  You are a perfect example of who can and should be buying 50k properties all in after purchase and rehab.  It can be done by active, local, hands-on investors.

When you add in the last step of selling these properties to a passive investor Turnkey, thereby adding in your profit, it makes it unsustainable and likely a very bad investment.  There is simply not enough spread in the deal unless you like selling things for little to no profit. 

When a property is sold Turnkey (this being the key word) at $50k, someone is going to lose and it is almost always going to be the passive investor.  From having read many of Caleb's posts here on BP, I believe that is what he meant.  The economics do not work at this price point for a good, quality turnkey investment.

@Michael Ohman - Awesome introduction!  Very clever and nice job of laying  out a bit about yourself.  Since you've been here for a while, thanks for finally posting.

After reading through your thread, make sure you reach out to and connect with @J. Martin.  I think that would be a great connection for you since he is located there on the west coast (San Fran area) and spends a lot of his time traveling the world.  He has figured out how to invest and capitalized on his time to give himself the ability to build a lifestyle that lets him travel.

I don't want to share his entire story and say anything wrong.  If I were in your shoes, I would reach out to him to pick his brain on how he went about investing.  There are a ton of other investors on here from you area so hopefully you have sought them out as well.  Some will be active investors, but many will be passive and will have good tips and thoughts on investing outside of California.  I would make it my mission to personally meet as many as I could before I actually bought anything.  Spend some time with them over coffee or a beer and learn everything you can.

Best of luck to you!

@Maria Dantas - You've learned a tough lesson here, but you also did more than many past investors by jumping on a plane...just a little too late to avoid the headache.   I know nothing about you, but hopefully you are smart enough o move past some of the more negative comments on here and pay attention to the comments that are going to help you move forward.

It has been said on here many, many times how impressive the Morris Invest podcast and videos are.  They are very persuasive.  He is an excellent marketer and has done a remarkably good job of getting his marketing message out to the masses.  Even Bigger Pockets had him on their podcast and he was very convincing.  

Unfortunately, there is one thing that I tell people all the time that investors need to hear and it is never said by him...  

"Take Nothing on Faith!"

You absolutely must dig in, check the facts, ask really tough questions and refuse to take anything you've heard on faith.  You must verify and do your own due diligence.  It is vital to your success that you know EXACTLY what you are investing in and are comfortable that the super slick marketing story that you have heard on videos and podcasts actually matches what you are seeing on the ground.

I, like many other commentators on here, really have no interest in bashing Morris.   It gets old.  However, as long as investors are getting hurt, when the stories are shared, we will all jump in and help however we can.  As @Joe Splitrock noted, this guy is just one of many who are working from the exact same playbook.  Cheap, junk properties are in big supply in every major city and there are many, many companies out there doing exactly the same thing he is doing.  And they are hurting a lot of people while lining their pockets.

All he needs is someone who says they can get them cheap and will do the work and companies like this have their opportunity.  That is all Morris is selling - Opportunity.  He sells opportunity - not reality.  He paints a picture that could happen and makes some statements that may or may not be verifiable (such as renting to nurses. i.e. - he may have rented to a nurse once so the statement is true).  He is simply telling a story to a buyer.  Whether it will actually happen or not does not appear to be relevant to his business model.  These are great marketers and there are many of them out there.  Morris just happened to go on the BP podcast which made him very visible here.  As you can see, he does not come on the site and comment and bashes it in some of his commentary as a site full of elitists that are jealous.

The reality is, you have a $50k problem.  You will most likely lose some money on it, but you should not lose everything.  Regardless of how good it sounds to invest relatively small amounts of money in these low-price, challenged areas of cities, they are best left to local investors who are going to be very hands-on.  

Out of state, passive investors whether they are new or not and whether they are are buying Turnkey or not, are ultimately responsible for the verification of what they are buying.  Right now, you can tough it out with this property, but my advice is to make a plan to get rid of it as soon as possible and if it pencils out to a loss, then your first loss will be your best loss.

Don't waste any more dollars or time on this price point.  Dump it - take a loss if you have to - and then make a plan for being a smarter real estate investor going forward.  You've been duped, but you're going to be ok.

 For everyone reading this post -

$5,000 to renovate a property is an absolute joke!  That is hardly enough money to do the basics of any clean-up and basic repair on a property.  This needs to become something that investors look at and take as common-sense in the future.  

Darren, I know this is your first deal and believe me I have made some crazy bad investing mistakes so this is process of living and learning as you go.  There is no judgement.  These junker properties are being sold by con men and you were conned.  They took your money and made a fantastic profit.

You have to understand that the economics do not work on a house being sold for $48,000 Turnkey.  There is not enough money for everything that needs to happen.  The house has to be bought, renovated, borrowing costs paid and profit cleared and all of that has to happen for less than $50,000.  I have been doing this for 15 years and there is not a single class of house that allows for this Turnkey. 

A typical company will want to make $10,000 to $15,000 for their time and work.  Lets take the bottom number and say its $10,000.  That leaves $38,000 in the deal.  Cost of money will probably run between $3,000 and $5,000 of this time period so lets say that leaves $34,000 in the deal.  

If the home is 800 sq. ft. because it is a junker in distressed parts of the city (because those are typically the houses that will sell cheap), a typical renovation will cost between $20 and $25 per square foot.  That allows for flooring, electrical, plumbing, roofing, all mechanical systems, pulling permits (which you will find that many companies choose not to do because of costs) painting and general clean-up afterwards.   Let's say a company spends $20 per foot and does a decent job of renovation.  That is $16,000 for a renovation and I can promise you that does not even come close to bringing a older, cheap property up to proper standards.  

For smaller houses, it costs more per square foot because the materials cost the same no matter how big the job is.  It costs what it costs and there are fewer feet to spread the cost over.  So a 2,000 sq. ft. house may be $10 a square foot and a 1,000 sq. ft. house may be $20 a square foot.  Same cost for same job, but different calculations based on size.

That leaves closing costs, which will run between $2,000 and $4,000.  Again lets take the middle number and say they are $3,000.

If my math is correct, that leaves a purchase price of $15,000.

If a property is selling for $15,000 today, that means it is in the worst of the worst areas where there is absolutely ZERO demand for housing.  If there was any demand in major cities, then there are local buyers and hedge fund buyers buying everything they can get to build portfolios.  Where there is home owner demand, you will never find houses being sold this low.

In your case, they say $5,000 in renovation with means roughly $4 per square foot if it an 800 square foot home.  Less if it is bigger.  This was a dupe job from the beginning looking for out of state buyers who would pay in advance and hopefully never come visit the job.

These price points are best left to local investors who are able to be in the middle of their renovations and management.  They are tough to make money and virtually impossible if you  think you are buying Turnkey.  

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Your best option right now is to assess where you are with a 3rd party inspector.  Hire a third party management company (not whomever was recommended, but someone else who has no part in your deal) and find out what it can rent for and how much true demand you have.

In the end, you may be able to keep the property and make money with it or your best bet may be to dump it.

What you hopefully learn in the process is to evaluate the numbers you are being given and do the math backwards.  Low cost housing is low cost for a reason.  There is low demand and very high risk.

Hopefully you can pull out of this and get your money back or keep it and get it set straight to make a profit.

Best to you ~

 You're sharp to recognize this as a good way for a company to get started.  A company that does not have access to capital has to give a big part of the deal to a buyer in order for them to pay in advance.  I am positive that there are good people out there who are operating under these conditions and treating investors the right way.  Unfortunately, this leaves a buyer wide open to fraud and that is absolutely happening today.  

You see this currently happening with a company being widely discussed here on the BP forums who has buyers pay for the house and renovation on the front end before the work has been done.  They then take months to complete the work, but as has been pointed out, the out of state buyers are rarely going to check on the houses and those that have checked, have discovered that little to no work has been done.

What happens if the company goes out of business after you have paid?  Most people are going to look to get paid first and pay the bills second, so what happens if their original assessment is too low?  What happens if it requires more money to complete the renovation?       There are simply so many ways for an out of state buyer to lose in these situations.  

Buying out of state is already high-risk.  When an investor is having to raise their risks by paying in advance and providing all the capital to buy at discount in order to make a strategy work, for me, it just raises the risks too high.