All Forum Posts by: Chris Clothier

 Please be careful before you go forward.  This is an example of why I am not a fan of classifying properties as A, B, C, D, etc...  That classification really doesn't mean a thing and is absolutely abused by sellers to hook an interested buyer.  You are interested because in your mind a B class property has value.  

As @Alex Craig already noted, at this price point and in that area of Memphis, there is nothing that any investor should ever classify as B.  That rental rate is low in Memphis today.  The only resident that will look at property in that area and at that price today is someone earning between $25,000 and $34,000 on the high end and that is well below median income in Memphis.  Data tells us that a resident looking in that price range is not a long-term stable tenant in most situations.  They are much more transient and that has to be factored into your decision making.

Please re-read what Alex said and shake away the thoughts that this is a good investment.  It may pencil out on paper as a good risk, but it is not.  Unfortunately, this looks like a low-cost, low-risk investment, but in reality it is a low-cost, very, very high-risk investment where in most cases the investor will absolutely lose.  There are some very high-quality people on this forum who have been active for a long time and investing in Memphis for many years.  All will gladly point you in the right direction without trying to sell you on their companies.  

As to your original question - absolutely.  There is nothing wrong with inquiring about pricing and trying to negotiate.  Now, negotiating just for the sake of negotiating makes no sense.  Only negotiate to the point where the investment brings the value you are looking for as an investor.  If it doesn't - try to negotiate.  If it does, make the investment. Best to you, Jamie.

Are you familiar at all with Salesforce?  I am asking because we have used the platform to custom build all of our programs to manage purchasing, renovations and management.  IT may be way more robust than what you are talking about, but it works.  I think @Douglas Skipworth  and @Daniel Hyman's ideas about QB and QB online are probably your best solutions.  The best part of that solution is that it is easy to find someone with QB knowledge to help you customize it to give you exactly what you need and train you on how to operate it each month.

Congratulations on your new venture and best of luck as you guys build a portfolio!

Best - Chris

@Billy Maloney - This is a great share by you and I am fired up to hear that you are pushing out of your comfort zone and figuring out ways to continue building your portfolio.  Great find in hiring @David Greene as well.

There are so many investors who get started buying a turnkey property and then use that experience as the springboard to invest themselves.  They use the experience of getting started and declaring that "I am an investor" as that impetus to go and do more and build their portfolio.  As much as a I would love to be the one you build your portfolio with, there is no better story you could ever tell me than the one you told here.  To know that you are having success and moving forward is huge and personally I'm excited for you.

A lot of investors are going to find inspiration and strength from this post.  Best of luck as you keep building.  You are absolutely a "real" real estate investor and learning that if you can envision it and are willing to be diligent, you can achieve it.

Best to you ~  

@Snehann Kapnadak - 

Reading your posts and responses on here, first you should be congratulated for trying to build a plan and then for reaching out and asking for feedback.  My entire portfolio is Turnkey, but I am not the investor you want to hear from.  I own a TK company and you are looking for advice from truly passive investors like yourself who come from outside the RE world.  Hopefully, you will get a few responses because they do exist.  Along those lines, maybe look up Mike McKenzie (i believe I have that spelled correctly) on here.  

Mike has built a portfolio mainly using the method that @Phillip Dwyer describes but has purchased from Turnkey operators as well including one here in Memphis ( I believe that is the case).  He has also built his portfolio in multiple different cities while me maintained his own work and lifestyle so he may be a great connection for you.

Here is my advice though based on a couple of your responses.

1.  I believe you speak of using leverage when you are buying as a negotiation tool.  I'm not sure how much a negotiating tool that is going to be in the real world.  Yes, buying multiple properties is good, but that does not necessarily mean you will get a better deal from a management company or a TK company if you buy everything from one company.  So to Phillips point, if you find three good property management companies in three cities, you may get the same negotiation advantage as you would with one company.  You just never know until you get moving forward.

2.  Diversification does not equal decreased risk.  In fact, it can equal more risk.  It can equal a lot of things, but simply diversifying across multiple markets does not equal risk reduction.  The only way to reduce risk when buying passively, is to know how each piece of your team or each piece of a Turnkey team operates and influences the next piece.

You reduce risk by paying close attention to the location of the property.  Proximity to services, schools, transportation, jobs, crime.  Each of these will play a role in how risky a property is.

Second, risk is reduced by the renovation that is done.  The more extensive a renovation and the more work that is done to prevent deferring maintenance and costs to late, the less risk their is for the investor.

Third, the better the location and renovation, the more attractive that property looks and the easier to attract a higher qualified tenant.  Higher qualified tenants are also more likely to pay a higher rental rate if they can clearly see the benefit of renting that property.

Which brings you to property management.  A quality property management company is going to manage better properties with more extensive renovations and use those to their advantage to attract better tenants and hopefully at stronger rental rates.  They are also going to provide services to their residents to increase the length of stay and reduce both turnover and inflated maintenance issues.

If you truly want to reduce your risk, the most important this you will do will have less to do with buying in multiple cities and more to do with building the strongest team possible that adhere closest to what you value most in your investment.  That will be the best way you reduce risk.

I think its poor management really, but that is an over-generalization of all destruction.  Obviously, bad management is not always the reason, but, If a management company does not answer calls or respond to tenants needs then frustration leads to eventual move-out and lack of care for the way the property is left.  Even to the level of doing damage.  To the point of this conversation, low cost houses provide less revenue for a management company.  So in theory, they could, stress could, lead to fewer resources for the management company, poor management and more damage by the tenant.

 JP - this is way I hate the whole A,B,C,D ratings for neighborhoods.  The ability to play games with unsuspecting investors is too great for anyone to rely on these types of classifications.  Price point and the rental rate of a neighborhood are far better ways to classify a neighborhood.  As @Curt Davis said, I have yet to see a neighborhood with $60,000 houses that I would rate as a B neighborhood!  Price doesn't match the obvious positive feelings meant to be felt from rating a neighborhood a B.

 Dean, you got off cheap if that is your worst move-out in those areas!  Would you agree though that the really bad move-outs are still outside the norm even in these low price areas?  My experience was that my costs were relatively the same as other areas per sq. ft., I just had more of them and more often which destroyed all of my pre-purchase calculations and expectations.  

 Well, that took a turn I wasn't expecting, but just as bad.  I think the only way you can go into this investment is if you can honestly afford both payments every month.  There are no guarantees and the one you listed above is very risky.  Probably very unlikely that you will have your property occupied and paying if you are banking on people you know who are moving to the area.

Beyond that, if the properties are in the right area and if rentals are even allowed then this might be a good investment, but as you can see, there is a lot of reaching and justifying here.

I would pass on something beyond your reach and keep looking.  Opportunity is out there.

@Ben Leybovich - I probably used 1,000 more words than needed yesterday!  You nailed my point that today's passive investor needs to be careful.  Very careful.  Too much attention is paid to numbers and returns advertised and way too much discussion about was this included or was this not included in a companies pro forma, while very little discussion is given to how difficult it is to actually make an asset perform for a passive investor.  It is even more difficult when investors expectations are not tempered with frank discussion about reality.  I think yourself and investors like @Matt R. as well as any others who post advice on running calculations and numbers play a vital role when determining if a property meets an investors needs.  You guys help answer Tim's original question in how do I analyze quickly.  I just think in today's environment, the way that analyzed return is going to be achieved and how secure your actual investment is are critical.

There is so much competition at every step of the way in a true turnkey company and opportunity that it is so difficult to get quality, long-term residents into properties.  Passive investors would do really well in protecting their investments if they would pay attention to how returns are delivered and how their investments are going to be managed.  Each will play a huge role in whether an investor like @Tim Greenfield will actually make the cashflow on a property that he expects.  That was my whole point. 

By the way, it was those precise pigs you were discussing that I lost a lot of money on in my portfolio.  Like you, I learned my lessons!  Looking forward to connecting again soon ~ Be well.

 Can you expand a bit on the 'guaranteed rent'?  How is the rent guaranteed?  I have an idea, but I don't want to make assumptions.  I can give you some more advice, but I'd like to hear your answer on this first.

best, chris