All Forum Posts by: Chris Clothier

@Kyle Myers - Have you tried Shelter Insurance?  Bill Brewer is a high quality agent (really good customer service) over here in Memphis and North Mississippi but i am not sure he operates in the Little Rock area.  He is with Shelter and may be able to give a recommendation if he does not handle that area.  Good rates, good service and familiar with working with investors.

@Jay Hinrichs When we first started we used this plan.  We look today at companies doing this and it just screams "brand new" company, "I have no money to operate" as a company, and "I want to put all the risk on the buyer" as a business strategy.  We were brand new to it and thought this was a good way to go about building our company, but quickly realized it made us look weak.  That is a broad stroke and you just talked about a 12-year old company still using the model successfully.  I would imagine they are very good at their unique value offeringl.

That is just my opinion as an entrepreneur and not as an investor.  As an entrepreneur, I would look to get out of this model as soon as possible just because I feel it makes me look weak as a company to investors.

As for @Marlene Goldenberg , she can decide how it makes her feel and obviously she was excited about this deal.  I think you and I are giving her the same advice that she needs to have all of her financing and planning in place before signing a contract and moving forward.  There is just too much risk, in my opinion, to go about this investment without being crystal clear on exactly how it is going to perform from start to refinance and beyond.

@Marlene Goldenberg - 

I can't speak to your specific deal because I am not sure of your expectations nor your long-term investment plan.  However, when you read the other comments on here you should get a sense from a couple of people that this is a high-risk style of investment.  Probably way more risk than what any investor should take unless they are very experienced with long-term relationships in place to manage that risk.  In this scenario, it doesn't look like that is the case.

Your biggest risk is the refinancing.  In 2009, there were thousands if not millions of homeowners and investors who had refinancing in place ready to close on a Tuesday and suddenly on a Wednesday, without warning, the rules changed and they were stuck with properties that they had borrowed hard money to purchase, home equity lines to purchase, cashed in stock investments to purchase, borrowed money from friends and family to purchase ~ all with the plan to refinance most of that money back after the deal was done.  A vast majority had nowhere to turn and could not refinance their money and ended up in very bad situations.  I would not go into a deal where the definition of success is dependent on being able to execute a refinance at the end if I did not have long-term, experienced relationships in place and had experience doing deals this way.  

Best of luck with however you move forward.

I would call Terry Kerr at Mid-South properties and get his opinion on the homes, the street, the area and see if he would be: 

A.  interested in buying from you so you can make a quick wholesale deal 

or 

B.  would manage the deals for you since you live in San Diego.

Either way, I would not attempt to purchase these houses and manage from afar.  I would not attempt to manage the managers from afar.  I would suggest you either wholesale them to someone who actively works in that area or you hire a company to do everything for you.  

There are some other investors on here who invest in the Frayser area of Memphis and they may speak up or reach out to you about buying these deals from you.  Either way, I would definitely get the opinions of some investors who deal with these streets daily before moving forward.

Good luck

So last weekend, we had an investor meet n greet on Friday night and Saturday morning in Dallas, TX.  Just a low-key chance for investors to get to know our company and mingle with other investors. So, on Saturday morning, I asked this room full of real estate investors - about 140 in all - who in the room knew about, was active on or just plain loved BiggerPockets.com and this was the response!  

Pretty damn cool @Joshua Dorkin, @Scott Trench, @Brandon Turner, @Allison Leung, @Mindy Jensen (and anyone else I am missing here!).  You guys do great...

@RI N. One thing that is missing in this conversation is the simple fact that the word "Turnkey" is just a marketing term.  It has no real meaning ~ especially not today.  It is over-used as a shiny-object marketing ploy and more often than not, it is used by companies that are lacking some key elements that many of us who have been in the passive industry for a while, believe need to exist to be a true turnkey opportunity.  

As a consumer, you need to look carefully and verify the services being offered.  That is critical to the true value of a passive investment.  You are asking questions about what you can and cannot do and about the value of a property and I would answer by telling you that you determine the value of an investment.  A good third party appraiser (or two or three) can give you an educated best guess of price value, but only you can determine if you are overpaying or underpaying because true value involves so much more than simply price.

To your questions about do Turnkey companies negotiate pricing and rent correlation, you will get exactly zero of what you don't ask for.  So ask for it.  The worst that can happen is your told no.  A company like mine that is crystal clear about the value we provide and having no trouble with demand for our services, we may not be willing to negotiate.  That is not a bad thing, it just means that a company can say yes or no.  As a consumer, it should be very clear for you to be able to decide if you want to do business or not.  You should not feel guilty and neither should a provider.  We both should be able to communicate with no issues.  IF you find that it is difficult to communicate or the company is being wishy-washy and evasive or overly eager to get a deal done, you probably don't have the right company.  And if the company is up front, but you are not fully satisfied, then you can always decide not to do business.

The main thing for you as a consumer is to know exactly what you want and be comfortable with taking a while to find it.  Be patient.  A good company is not going to try and sell you.  It should be a comfortable fit.

As for rent ratios, again I will refer to my business and experience.  My advice is to forget about the business practice for a moment.  A good business is going to price their properties appropriately.  By that I mean, they will not under or overprice a property.  It will be appropriate based on the property itself and the value of the services provided.  This is where it will get tricky for you.  You will have to decide based on your due diligence whether or not the company is big enough, profitable enough and staffed properly to provide you the services you expect.  The only way those things occur is if they first make money and second use that revenue appropriately to build a business that provides great service.  If they fail at either of those, then in many cases you will not be a satisfied passive investor.

Back to the business practice of it appearing that companies price their properties based on rent ratios.  If you are able to identify that as a pattern, then you know that the company believes their value is providing that return on a consistent basis OR they are trying to make as much money on each deal as possible regardless.  I can't fault a company in either scenario.  You, however, get to decide after you determine that is how they price properties whether an individual deal is good enough based on the value provided by that company for you to buy.  How they price is really irrelevant.  What they provide to you for that price is the only thing that matters.

A good company will always be upfront with their pricing strategy and how that fits into the unique value proposition they offer a client when buying from them.

Hopefully, that helps.

 Charles,

You've selected a quality Turnkey company to start your process in JWB.  They are very good and I know them well.  They originally modeled our company many years ago and have since taken off in their own direction and done very well.  We still mastermind together and share feedback on best practices and programs so god luck with that process.  As for Norada, another good choice for market and company advice.  Marco has been in this business for a long time and while his name is well-known, he has always struck me a low-key businessman who flies under the radar without all the flash of pomp and pageantry.  To have been in this business as long as he has and have such a  good reputation should tell you a lot.  He may not provide actual properties or be hands-on in the turnkey process, but he provides a great deal of value for the clients that work with him.   

As for Jays' point, many, many companies that advertise turnkey properties are simply not good enough business persons or profitable enough businesses to provide a true customer service experience.  Still fewer even think about it because it looks like such a daunting task.  In reality, it is not all that daunting at all. I talk all the time about "value" and the experience an investor has buying turnkey is as much about perceived value as it is about price value.  The two should line up.  So the more you pay, you should expect to be doing business with a higher level company that can provide better interaction and customer service.  Not enough investors EXPECT a company to provide great service to them.  Often, investors completely overlook this part of the equation and simply buy based on price.  They get a company that simply does not have the foresight or the ability to provide customer service.  

Best of luck to you as you build your portfolio.  Sounds like you are moving in the right direction.

 1st - Guarantees, in my experience with them, are a complete sham meant to bump up the price, bank on not having to be enforced and are THE primary selling feature by companies advertising them.  That does not mean that all guarantees are offered for this purpose nor do I think that all companies offering guarantees are bad.  I have simply been around this business for far too long and I understand fully the technique, purpose and use of guarantees.  

If a consumer is hell-bent on buying from a company because they love the idea of a guarantee, then they should ask the company to offer that guarantee starting in month 37.  At a bare minimum, it should be offered in month 13.  Why?  Because any good company is going to stand by their work in both renovations and tenant placement during the first year.  Doesn't mean they are going to pay lost rents, but many will and many will not charge to re-lease the property.  Many companies will cover any repair work needed during that first year because they understand it is the right thing to do and they all conduct business this way without ever mentioning the word guarantee.

In other words, choose the company that does not need to offer guarantees to earn your business.  Choose the company that can let you talk to as many client referrals as you need and when you ask what happens when there is maintenance or a move out - listen closely to those clients about how the company handles their business.  That will be all you need to hear. 

2nd - IMO, you should only deal with TK companies that sell their own properties. Otherwise, they are not in control of the transaction. Too many try and sell directly off the MLS or they try to sell other people's properties and call the service Turnkey. Here are the problems with that: 1. they do not control the property 2. they do not know the condition of the property 3. they most likely will ask you as a buyer to close the property with your own money and fund the renovation and they will manage it for you. THAT IS NOT TURNKEY! That is paying someone to find a property for you and manage the renovation. There is a big difference. 4. they are simply trying to make money off marketing the word turnkey.

So for me, if they are not selling their own properties, I immediately worry if they are a profitable company - hell if they even have a company or are simply a one man show or nothing more than a real estate agent using the word turnkey to attract buyers.  Neither is necessarily bad, but I want to know on the front end.

3rd - Asking about a maintenance team is important, but it is more important for you to understand that volume is the real key to driving prices down - not multiple bids.  An in-house maintenance team is still going to cost you money as an investor because that team has to generate revenue.  It will often be the same price as a contractor who does hundreds of jobs or millions of dollars in revenue with a company a year.  So the question is important, but it may not necessarily mean a lower price to you as an investor.

You are asking some great questions.  Good luck to you as you keep exploring your options.  

Jay, We do have a dedicated team of 4 that call every client every month.  It is part of our onboarding process for clients and a huge reason why 63-65% of our 52 monthly sales on average go to existing clients.  We would have never experienced the growth we did if we did not have a customer service team.  After the first couple of years, some clients ask to back the calls down to quarterly or only on major occasions, but a vast majority love that we call every month.

The problem with property management and the turnkey business is that investors expect the worst and accept poor quality in every phase.  It does not have to be that way.  Successful businesses know how to scale their teams and services and spend their dollars wisely to build long-term businesses.  

I know of two companies, ours included that call every client every month.  The other is JWB out of Jacksonville.  I know a ton of other companies who have sought our advice and ultimately decided that was too big of a leap.

In reality, it is simply understanding what your unique value proposition is to the marketplace and consumer.  For us, as for every turnkey company the consumer wants peace of mind and a consistent experience without fear.  When they are contacted every month, good or bad, there is no fear.  There is open communication and it leads to trust, comfort, and rapport.  That is the real key to building long-term relationships.  Not high paper returns but staffs so thin you can hardly provide quality.  You and I have both been in this business a long time and we both understand that precious few companies offer all of those questions.  Yet, every company could if they committed.

FYI, we have 3,600 doors and growing by 50+ a month for roughly 1250 clients.  

I have family in Southern Cal now and a growing network of business interests over there, so I am there quite often.  I will be back there next weekend speaking for Linda Pleagas at a couple of events she is putting together in the LA area.  You oughta come by and say hi if you are in the neighborhood.

@Paul Kochendorfer ,

Here are the questions I was referring to.  It is a pretty good start and if asked properly (and you take good notes) you should be able to separate the high-performing companies from the poor performing companies.  Many of the questions are designed so you can ask the same question in a different manner or even ask the same question from the opposite angle and see if the answers align.  When they don't - you know the company/person is using anal extraction to come up with their answers.  

This is not an exhaustive list, but this should be a pretty lengthy conversation and be a great starting point in your search for a quality company.

 Key Questions to Ask…

•Are You an Investor?

•How many investors do you work with?

•Do you own the properties you sell?

•How long have you been in the business?

•What has been your biggest mistake as an investor?

•Do you own all facets of the operation?

•Do they offer guarantees (biggest marketing fraud in this industry, IMO)?

•Do you defer maintenance?

•How many properties do you manage?

 •What is your average vacancy rate?

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

•What are your management fees?

•What is your average # of months occupancy?

•What programs do you have in place to keep tenants happy?

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