All Forum Posts by: Chris Clothier

So I know that you are an appraiser and you may have felt that was an attack or placing blame, but it was not.  My company has a long track record of how we work with clients and I have a very long record here on BP of being very up front. 

We are very well-versed in the value we bring to the market place.  That is a consistent and reliable return on investment and tailored to investors who want to invest for the long-haul.  The return they get and the manner in which it is delivered both are strong factors with our investors choosing to purchase our properties at the price we choose to list them.  

As a buyer, I have paid above what an appraiser says is the value of a property many times because I am buying for a specific benefit.  It is not perceived it is real.  The return I get on my capital is much more important to me in some cases than a value an appraiser gives me.   I have placed many assets into my portfolio in appreciating markets or in path of progress areas, where the value I get both immediately in return and experience and over time, is more important than a number an appraiser says the property is worth. 

Last month, we had 28 deals close with financing.  Of those 28, 23 were shown to the investor on the front end as possible appraising below purchase price.  So yes, we do show that to investors and we do expect them to see the value of our company.  That is not hidden.  Of those 28 that closed, 27 appraised above the range that we gave and only one came in with a value inside the range.  We did have 30 possible financing deals and two investors chose not to move forward after deciding not to put above 25% down.  Their earnest money was returned no questions asked and we sold those properties to other investors.

So, You and I probably differ in our approaches to investing which is perfectly fine.  I thanked you earlier for leaving your comments.  You have left your thoughts on the experience you have had and the lack of value you see in that process.  That is perfectly fair and I have no argument with that.  I simply wanted to correct the statement about required management and I regret that you were told that by one of our team members that it was required for two years.  It is not.    

 Josiah,

If that is what you were told on management - and I am not questioning that - then you were told wrong.  That is not nor has it ever been our policy.  Please do send the spreadsheets you were sent to me.  I would like to review what you were sent.  

The management fee is 10% of collected rent plus first months rent.  We divide that into thirds for purposes on the sheets because of a mixed inventory and a shorter track record in Dallas.  So I have no problem with you stating it as 12.75%.  

Through 11 months we have only turned over 18% of our entire portfolio under management which would be the 4th year in a row to have lower than 20% turnover.  I think we can adjust the 1/3 number down to 1/5, but again, we haven't out of wanting to be more conservative.

 Hi Josiah,

Thank you for posting on here.  I can't speak to the exact properties that you reviewed or the numbers, except to say that we don't have properties that perform as low as you listed, although you may be using your own calculations based on the data we provided.  That is always a good idea if you are more comfortable that way and it does help you to  see if you are comfortable before moving forward. 

I do know that we have had 5 properties put under contract so far this week with most being in Dallas and Houston.  Properties tend to move within a matter of days due to high demand.  

Also, we are managing just under $350 million in asset value for roughly 1100 investors.  Assuming every owner purchased at full value, which is not correct but is an easy piece of data to metric, based on rent paid to owners net of all fees, maintenance, lost rents, uncollected rents - net, net, net - and assuming a cash on cash return (not calculating in any use of leverage) the annualized return for the month of October was 8.08%.  Not all properties perform that way monthly - some better, some worse, but I am confident that even the properties you reviewed will perform better than you expect.  So you are correct with that one statement - we are not advertising nor offering double digit cash on cash returns, but can show monthly factual data for investors to see how reliable and consistent their actual return will be.

Also, I did want to clarify two quick things for you from you post.

1.  We do not require 40% down to purchase a property, but we want to be transparent and direct on the front end.  We are not appraisers, but can easily see data and having been in this business for over 12 years, we are no longer surprised by the values that can come in on properties.  If we feel that a property could appraise low, we always show that on the front end and go very conservative with values.  We would rather you be prepared for a worst case scenario than expect 25% down and then be faced with a decision later if it appraises low.  So, if you were shown a property or two properties that showed 40% down, that is a reflection of us showing you that a bank will lend based on appraisal and require you to bring the difference to closing and we want you to see a worst case scenario on that property.

2.  As for our property management company, you are never required to use our management.  That is not a requirement to do business with us nor are you forced to use our company for 2 years.  

That is a value added service and even those that choose to use our service can opt-out with a 30-day notice.  On our end, I can't recall an investor having ever purchased from us and opted not to use our management as that is where our reputation has really been built.  But again, I wanted you to know that it is not required that you use our management.

It is always our goal to help each investor we talk to figure out if we are a good fit or not - BEFORE - moving forward and without them getting glitter-eyed over unrealistic numbers.  It is good that an investor can redirect their energies if we are all able to see early on that we are not going to be able to meet their expectations.

On that note, feel free to reach out to me directly if you have specific questions or want to ask exactly how our portfolio performs.  You can even reach out to me if for any reason you are not satisfied with the answers you get or the performance of our team while you were talking with us.  I am always happy to listen to see how we can deliver better.

All the best to you and good luck as you continue building your portfolio in Dallas.  I love the market and it is quickly growing into our largest market and may overtake Memphis this year or next.

We were asked by a client today if we were operating in the Portland, OR. or Seattle, WA. areas.  We are not - nor are we planning to.....

So, the next question was do we know of any companies similar to ours in either area.  I think they are interested in a very passive process and high-level, good touch, quality property management.  Perhaps investors or even service providers in the area could reach out on here and let me know of whom I can pass on to our client to call?  

@Karolyn Son,  Feel free to reach out to me either on here or by private message.  I sent you a message and the company I referred you to for help in Birmingham, Spartan, also commented here on the forum.  I am sure they will help if they can.

As for Memphis and my families' company, I am humbled that you are interested in working with our team and continuing to invest in quality opportunities with turnkey properties.  If you would like, I would be happy to forward you a short e-book I wrote outlining steps that investors in your circumstance should follow to successfully invest in other cities.  I am sure it will help you build confidence in your decisions and find the investments and experience you expect when dealing with a turnkey company.  Send me a private message or reply on here and I will be happy to forward it.

All the best as you move forward  -   

Chris

@Josiah Mosley - 

I have known Than Merrill and the other owners of Fortune Builders for a number of years - going back to 2009 - and have done business with him both professionally and personally.  My family is providing passive investment services and property management services not only to Than and his business partners, but also for their families (brothers, parents, extended families).  We also work with their students providing passive investments should they need them or choose to work with us.

The reason for telling you all of that, is that unlike @Curt Davis - whom I have also known for years, worked with and provide service to his company today - I have had the opportunity to get to know Than personally and interact with thousands of the students that are part of the Fortune Builders team.  I attended the Fortune Builders event in San Diego last week and spent hours of my own time with some of their students who simply wanted to hear how my own experiences can help them and pick my brain for what I could share.  

I can honestly say after having already attended dozens of FB events, each time I attend, I pull something new out from surrounding myself with highly motivated and intelligent people actively working in the real estate investment industry.  My company is considered one of the top passive investment companies in the country and is one of the most respected and without a doubt, we have been influenced from many things we have learned through our relationship with Than, Paul, Konrad and JD.  We have sent several of our renovation project managers through their renovation bootcamp.  You cannot put a price on the real value you get out of associating with the best. 

I have also met dozens of other educators in this industry and have a brother in the industry.  So I know top-notch people and find it easy to separate the wheat from the chafe.  Than Merrill and his partners at Fortune Builders are the best of the best when it comes to providing real-time information, ideas, techniques, guidance and support for their clients.  Is it free?  Absolutely not - nor should it be.  They are super responsive and for those that are going to be successful anyway....they really, really drive the success rate forward quicker.

You CANNOT learn everything you need to know at a local REIA nor can you learn everything you need to know at the library or even online at BP. They are all great resources and BiggerPockets.com is by far the best of all three, but you have to spend an incredible amount of your other most precious asset...TIME and you have to teach yourself.

Paying for real estate education is all about leveraging one resource - money - against another - time.  If done properly, you are able to reduce the learning curve and save yourself an incredible amount of time and possibly even money by reducing mistakes and having accountability in place to help you get started quickly.

They are not free, but they are excellent at providing the service they offer.  In the end, if you are willing to implement what you learn and actually take action...then learning from them and surrounding yourself with the best may be a good route for you to take.  

Hi @Vivian Hernandez,

Here are a few possible red flags to consider when thinking about buying any passive investment, but especially if it is marketed with that really, shiny, sparkly, super-attractive word Turnkey.

Just remember, that Turnkey, in this industry anyway, has no real meaning.  It is often used to attract attention to a property or a company without any clear and defined meaning from one company or property to another.  So do not think that every time you see the word Turnkey, you can evaluate two opportunities evenly.  You really have to dig in and you may find you can, but often you cannot.

Here are some possible red flags and I say possible because these are just things to make you more aware, not necessarily written in stone.

1.  Brand new companies
2.  Short length-of-time in business (less than 5 years).
3.  Services are outsourced - meaning they do not own the renovation company and they do not own the management company.
4.  Guarantees are heavily marketed.  Meaning the guarantee is more important that the product or service itself.  Anytime the guarantee is put front and center and is made to be the highlight of how a company sells property, you should definitely slow down and dig deeper.  Nothing wrong at all with guarantees, but they should be marketed as a backstop and discussed long after the more important aspects of a deal.
5.  The company.individual you are buying from tells you not to include vacancy and maintenance when calculating your return.  Usually a company will say something along the lines of "we have done all of the work and you should not have these expenses for a while so don't include them".  
6.  You are required to join a club or pay fees to view opportunities.
7.  The company is super small, 2-4 employees.  This makes it very difficult for them to be responsive in times of need.
8.  Property prices are very low.  Not for your area, but for the area you are buying.  It is very, very difficult for a company/individual to purchase a property, renovate to a proper standard with no deferred maintenance (especially for an out-of-area passive investor) and make a profit while keeping the property priced low.  
9.  Returns are super high.  It is possible as a passive investor to make a very good return with Turnkey.  Very good is going to be up to you as an investor, but it should be a red flag that makes you be much more aware of everything(!) when you see a return on a Turnkey property of 15-20% cash on cash or 25-30%+ on levered returns. 

Again, this list is not exhaustive and by no means do these things mean you should not buy an investment.  These are the things you look for as an investor before you buy.  There are examples of new companies doing great work.  Bigger companies do not mean they are always better.  More expensive properties are not always renovated any better and more expensive does not mean better quality.  Higher returns do not always equate to deferred maintenance or poor quality.  These are just the red flags that I have seen over the past 12 years and think you as a buyer should be aware of as you move forward.  Red flags mean be cautious and ask more questions - not turn and run.  You will know when you dig deeper if you should more forward or not.

Best of luck - 

 That's not totally accurate, but not too far off either.  The business just move to different parts of town. The Grocery store closes and opens a new store 3 miles down the road where median income is higher.  With the anchor of a strip center gone, the other stores follow suit.  The barber, the gas station, the nail salon and the sandwich shop all move to the new strip center down the road in hopes of a higher return.  Because of the already depressed economy nobody moves into the old strip center so it becomes a huge eye sore.

Economic studies show that the people of Frayser still spend the money, but the percentages of people that spend dining dollars, food dollars and frivolous spending dollars outside of 38127 are staggering.  

I'll give you another example.  A new shopping center opened up in Collierville.  Stores closed down throughout southeast Memphis and even stores in Germantown closed up because they wanted to be at the new shopping center.  A place like germantown just releases the space.  But in other areas of Southeast Memphis, it was anchor stores closing down and no knew anchors stepping in.  These become white elephants and you are right.  It is often churches that step into those spaces and the tax revenue for the city is forever lost.

 Like I said, I really like that you are trying to highlight good things.  We all know the city gets stepped on constantly from other investors who have their own opinions and in some cases their own agendas.  The reality is that this is a fine city for investment done in a practical and proper way.  With due diligence and patience, this city is a great place for investors to find solid and consistent as well as safe returns.  

We may disagree as for parts of the city to invest in, but it is good to know that there are quality people and companies out there that will help investors navigate these tough areas.

You said price and management were the most important factors.  I happen to think that the partner you choose to work with is what will really help make or break you in these areas.

 I think I remember from an earlier post that you said you were not a lifelong Memphian, but had transplanted here.  I bring that up because you may not know about the history of our city and the people here.  If I am mistaken and you are a lifelong Memphian, then I want to take a second to remind you of a few things.  You can take a look around many areas of Memphis: downtown, uptown, midtown, soulsville, binghampton, the medical corridor and most notably Beale street.  

When you do, what you may not realize is that all of those areas were run-down, decrepit and in some cases deserted not too long ago.  My grandfather was an entrepreneur here in Memphis as was my father as am I.  I remember when you did not go downtown for anything.  I remember how excited everyone in Memphis was when Beale street re-opened and the first couple of night spots moved in.  There was a time when there were more homeless people on Beale street than there were buildings.  Today, it is a thriving business and entertainment district.  Once abandoned and falling down buildings in Binghampton now have cupcake stores, dance studios, restaurants, art stores and breweries.

Less than 10 years ago it looked like Overton Square needed to be completely demolished and now you have a new parking garage, chocolate stores, movie theatre and a dozen new restaurants including some of the best restaurants in Memphis.  Property values in this area are going up and the movement to revitalize continues to move West.

As for downtown, in the late 80's - less than 30 years ago - you did not go downtown.  There was not south bluff.  There was no south main.  Hundreds of now occupied buildings south of Beale street from the River to Danny Thomas were vacant.  Today, many of those buildings on the West side are condos, businesses, shops, bars and restaurants.

So while I appreciate the comment, this city is far from down and neighborhoods and areas all around the area will go up and down, but the city itself with continue to grit and grind.  This is a very resilient city and there is no possibility of it sinking.