All Forum Posts by: Chris Clothier

Ok, Biggerpockets, I need some advice from all of the Chicago, Illinois users....Any advice on where to go to get a great taste of Chicago? 

Sabrina,

You need to re-read your last two posts very carefully.  You make a lot of claims and once again lay a lot of blame falsely onto other people.   

Just to be clear, You have NEVER done business with Memphis Invest.  

You purchased your properties from Memphis Cash Flow and I have no idea what makes you think it was on my recommendation.  Again, we have no relationship with this company and ZERO affiliation with the Los Angeles based affiliate company you joined and bought from.  That was entirely your decision making and long before you reached out to our property management company.

Your property management was with Marathon Management.  Again, we have no affiliation with them at all.  But I think I described them pretty damn accurately earlier about how they do business.

The second you mentioned our name on here I was alerted and immediately asked Nate Gray who you were and if you ever did business with Premier Property Management.  He just sent me the details including all the emails from you, the amount of work his team put in to helping you and reminded me that this is the reason we DO NOT manage for outside investors.  He laid out the details for me including your income/expense on your properties.

In 2012 you reached out to our management company and asked us to take over management of your properties. You were experiencing vacancies and rising maintenance costs.  We broke our rule of not managing homes that we did not renovate and agreed to take on the last three properties you had in Memphis even though you were told at the time that we did not want to manage the Chelsea Hill property.  We do not have a Section 8 account and do not actively advertise for section 8 tenants because we do not manage in traditionally Section 8 areas of town. Nate advised us not to manage the properties at all, but the Clothiers over ruled him and decided to bring them in knowing the poor experience you had already had with the properties buying from Marathon through the affiliate company.  We had been getting a lot of calls from people asking for help and took some on.  You left your properties with our management company for a little over 2 years and removed them in November of 2014 which is approximately when you put them up for sale. You collected a little over $62,000 in gross rents on your two good properties during that time!  I will be happy to forward this to you so you understand that I know EXACTLY what I am talking about. 

On the two properties you collected $62,000 in rents, you also had just over $10,000 in expenses including management fee, lease up fees and maintenance. That is 17% over a two year period.  Doing the math, with 9% management fee (I believe one reason you decided to leave our management and sell was we raised our fee to 10%), that leaves approximately 8% of collected rents over a two year period went to any lease up fees or maintenance. That is 4% a year. On crappy renovated properties, but in good areas. I think those numbers are pretty damn good, but you may have expected something better.  We didn't set your expectations, we simply tried to help an investor and I think Premier did a pretty damn good job.

Your Chelsea Hill was a complete disaster from the beginning, a magnet for vandalism and we wanted nothing to do with it since we do not manage homes in this area, but we took it on to try and help you. You chose to list the property for sale after a couple of months and later sought out another management company. Mark Saller, who is the listing agent for Premier Realty listed it for you at the price you wanted. It was a crap property then, it is a crap property now and you are going to have to sell it to an investor and at the price you own it for at best and it does not matter who lists it.  You can be mad at Premier Realty for not selling that one property for you, which is the only one you asked him to list, but if you are being honest, that is a property that has nothing to do with listing agent and everything to do with being a bad property.  This is not an owner occupied area.  It is a rental area, hard to get to , hard to find and in general not an area that we invest and as your case illustrates, not an area we want to manage.

So let's be real clear here. My company never promoted any turnkey company to you. We never sold you property. We gave you real advice on a very poor property on Chelsea Hill and stabilized your other two properties getting you a consistent and reliable income. You removed those properties because you did not want to pay 10% management fee and wanted to sell.  That ended your relationship with Premier Property Management and your last response to us was that you appreciated our help and our offer to assist you in the future should you need it.  That was November 2014. 

When I started responding on here, I wanted to help you, be clear with you and give the full details for all the readers who were taking this thread off the rails (in my opinion).

  My fault for not checking to see if we had ever done business earlier because I would have liked to disclose we had managed your properties in the past.  That makes me look poorly that I was not aware of that fact.  I would have liked to tell the real story before you placed your false comments.  

But now you have made false mention of my families' companies and tried to tie us to your problem when it appears to me, we did nothing but help you form 2012 to 2014 with a poor investment decision.  

Again, to be VERY CLEAR - YOU NEVER DID BUSINESS WITH MEMPHIS INVEST.  YOU ASKED OUR MANAGEMENT COMPANY FOR HELP - WE RESPONDED YES EVEN THOUGH IT WAS THE EXACT SCENARIO WE TRIED TO AVOID BECAUSE WE HAD NO IDEA HOW BAD THE SITUATION COUlD BE - AND THAT TEAM PERFORMED EXCEPTIONALLY WELL UNDER THOSE CIRCUMSTANCES AND HAD NOTHING TO DO WITH SETTING YOUR ORIGINAL EXPECTATIONS.  

Best of luck to you with your issues, but from this point on I'm out - you are quickly burning bridges with people who probably could have helped you and would have helped you again.  

 There are currently a few properties listed near you.  I am not a Realtor, but would suggest you maybe contact the realtor who sold the property you referenced.  They would be familiar with the property that sold and the buyer and tell you the difference, if any, between your property and that one.  I just looked up on Redfin real quickly and you have a 3/2 listed at $99,900.  There is a 4/2 listed at $110,000, a 4/2.5 listed at $110,000 and a 3/2 listed at $111,000 all within 1 mile.  However, just from pictures alone, they look a little nicer with what look like more upgrades.  If the property looks better then may be it will have some success now.  Also, it shows that it has been listed for over 150 days which is probably hurting the activity on it as well and leading to some of the low offers because investors see that number as a possible desperate buyer that would want to dump and run.

Maybe check in with the other realtor and get their view on listing your property.

I was not involved in the sale of these properties, but have sat back and watched this thread for the better part of a day and what fascinates me is how easy it is to get the result you want from other people.  The thing that makes BP so great is that you can get unfiltered advice and usually from people that, besides a picture, are anonymous strangers.   That is also the bad part.  Due to no filter and anonymity, sometimes the comments are just thrown out there without any real thought about facts and details. It is unfortunate, that after @K. Marie  Poe stopped asking questions, no one really picked up where she left off.  It was obvious that things did not add up from the original post to where the thread took off.  

This is not about should you buy Turnkey or not.  This is about the basics.  This is about buying smart and being honest here on BP with all of the details and sharing ALL of the pertinent data if you truly want the users to help you.  @Jay Hinrichs, you're getting a couple of votes or that last post, but as much as I like you, I'm not one of them.  You make a lot of assumptions in your response and you castigate @Curt Davis when he is the only poster on here actually trying to help Sabrina achieve her original question.  He is the only one being honest about her options and solutions and the realities of her situation.  Yet, you knock him for his honesty about what it would take to sell to a turnkey company and then you knock him for his honesty about the value of her properties and the fact that blaming will not get her closer to her goal.

I would think that many of the smart investors and commentators on here would really want all of the data and details before really coming to a conclusion.  Big props to @Michael Lauther for his straight forward and pragmatic comments about buying midwest turnkey properties and the way you have to be brutally honest with yourself if you are going to be successful.

As for Turnkey, who cares about that debate?  No one is going to change their minds on this and that is ok.  As for your comment @Cal C., I own a turnkey company and I will gladly share this thread.  For most of us running reputable companies, we love having these types of threads shared because they really help to define the good and the bad in both turnkey companies and investors.    

Here are a few facts that were left out that are easy to know if you are familiar with Memphis.  Why they were left out of the original post, I have no idea, but when put into context, a lot of commentators may feel differently.

1.  There was an AFFILIATE company out of Los Angeles who worked very hard to get Memphis companies to sell properties to their clients.  First red flag - They charged people money to be a part of their group and then those people would get access to their turnkey properties.  Second red flag - They pushed the no-money out of pocket investing, positive cash flow, sit on the couch and collect mentality so any investor coming through them was set up for failure from the beginning.  Jay, you have harped on this topic and here is a real life example of a buyer who bought through them and how their expectation was not met - but does that mean someone got screwed?  

2.  The company selling these properties is not a big company and they do virtually zero marketing.  They rely solely on affiliate relationships for sales.  The owner is a very good real estate investor and a fantastic business man with a great reputation.  He does not sell on customer service, he does not sell on great management - hell, he doesn't even sell on doing extensive rehabs.  He sells based on being a small company with low overhead a small management company and they do low-end rehabs to sell properties below market pricing to investors.

3.  @Alex Craig is spot on with his analysis of the renovations done to these properties.  They are not extensively renovated and still have deferred maintenance to this day.  I am quite sure the same holds true with Lazini and the poster already said that the Chelsea Hill property had to be boarded up because it was being vandalized.  

I was not there when these properties were sold.  But, I am familiar with what was going on at the time and how companies were selling including the Affiliate company in LA.  I am very confident that none of these were sold as short term investments.  I am quite sure they were absolutely sold as long-term buy and holds beyond a 10-year hold.  

Now lets look just real quickly at the houses themselves and the posters original post.

The outrage from BP posters came from this investor being taken advantage of by a Turnkey company who overpriced the properties, lied about value and did shoddy work.  This company does not have a reputation for those things...  

All three properties were purchased in early 2010 (this data comes from the assessors website so if it is wrong or Sabrina says she paid more....I'm just listing what is on the gov. site):

3381 Kings Arms purchased for $76k 

3958 Chelsea Hill purchased for $35k. 

9265 Lazzini Cv purchased for $70k. 

Again, that is from the property assessors website so perhaps they are wrong, but this is exactly the way the sales were recorded.  Perhaps the affiliate company and the turnkey company both mislead the buyer about the amount of work that was done or the amount of deferred maintenance needed, but I highly doubt these properties were sold at or above retail value.  Maybe Chelsea Hill was sold as a great area of town, which again, would be wrong, but like I said, they don't look overpriced to me based on what I know about Memphis.  And at $35,000 I have no idea how a buyer can think they are being over priced.  @Ben Leybovich, there is your under $50,000 pig property that is almost impossible to have success with as an out of state investor.

Are the properties any good?  Chelsea Hill is an area of town that we do not want to buy or manage.  Kings Arms is a nice area and a good property.  Lazzini is in a nice area and also a good property, but is an abnormal property at 2 bedrooms in a 3 bedroom area.

So I don't think any of these properties are sold too high.  Not for the area of town and not for the work or lack thereof that was done.  Only the OP knows what her expectations were for renovation.

What about the claim that they were listed at 25% below market value with no bites? I know other posters thought that was a little odd. Well, here is what the MLS shows:

3381 Kings Arms was listed at $109,900 that is 44% increase in 5 years!!!  No way that property is listed at 25% below market value.  IN fact, it was overpriced.  It has been dropped to $99,900 and as was pointed out by Alex, it may still be slightly over-priced considering the lack of retail updates.  But if it is sold at $89,000 based on lack of upgrades, that is still a capture of equity or appreciation, whatever you want to call it and would probably be slightly below retail value based on the lack of updates.

9265 Lazzini Cv. was listed on the MLS at $95,000. It is no longer listed, but again, at 95,000 that is not 25% below market value. That is at a whopping 34.7% mark-up and priced right at max value for that property in that area. It may be priced perfect or may need a little less to move to a retail buyer.

3958 Chelsea Hill does not show to have been listed on the MLS.

So were they ever listed at 25% below market value? Doesn't look like it, but that is the claim that sent BP into a frenzy. How can these properties not sell at 25% below retail value and not get a bite unless this buyer was screwed by a company? Or, they are not listed on the MLS.

OP claimed that selling all three as a package was preferable and that she just wanted to get out of them at break even or possibly a little profit.  It sounds like Chelsea Hill will be the challenge for a package.  Curt Davis has offered to help with that multiple times here on the thread and was even asked by Linda Pliagas to reach out and try to help you.  He has done that.  He has stated that he thinks he can help you break even at worst.  At least give him some props for trying to help and offering to help if he can based on the original post.

I get how BP works.  I have been posting and writing articles here for almost 6 years now and understand which comments to laugh at and which to really dig into.  The best way to make BP work is to be willing to be honest and ask for analysis and advice based on all the facts.  These properties were bought with no money down from an affiliate and from a  vendor who is usually pretty up front that he does not believe in over renovating and likes to keep prices low.

To me, it sounds like a bad deal all the way around, but not the way the OP has described and certainly not the way the thread took off.  It sounds like she wants to move on to other investments, but her long-term properties in Memphis are not going to let her realize a big profit. If she truly wants to sell, then with all the details on the table, there is bound to be a buyer on here and a solution that can help her get out of the properties at a break even if not a little profit.

 That was a quick reaction by Curt so maybe didn't come out exactly right on his part.  He is an agent and easily could list as he has done for other investors.  At the same time, no one knows the details yet as to what was done to sell the properties.  Now that the BP community is aware, I am sure these properties will get sold at what the owner needs fairly qucikly unless they are in really bad areas.  

 Hey Jay,

Unfortunately, this could be one of those old scenarios that you are very familiar with where a buyer borrows short term financing (Hard money) to purchase a property with no money out of pocket.  It is then rate/term refinanced - not at 70% of value, but at current amount with a new rate and a new term.  So the buyer is in the home at full purchase price with no money out of their pocket.  I think that is what Curt was alluding to about having to pay at some point if you happen to purchase the property with deferred maintenance and/or close to retail price.  You benefit from a  return which cannot be calculated if you have zero out of pocket.  If things go well, you are earning $$$ when you put nothing in.  Again, unfortunately, It looks like these properties were bought with deferred maintenance, which effects everything including the ability for them to stay occupied and possibly at a high value.

So I think it is less an issue for Memphis and much more an issue for the way some companies operate and attract buyers.  This is about as bad as it can get for an out of state buyer expecting one scenario and getting another.

 Not entirely.  First, there is such a thing as Class A Turnkey properties.  We have built close to 40 properties in  in-fill neighborhoods from the ground up and investors have purchased those properties for the purpose of long-term buy & hold.  They are absolutely A Class properties in great neighborhoods and our price points on those are between $160,000 and $189,000.  We've even begun working more and more opportunities in Germantown, which is absolutely A Class. There is a lot of demand from renters in these price points.

As for the properties you described as B Class, I would say that both Alex (as the owner of his company) and my family (as owners of ours) as well as at least one other vendor in Memphis all migrated up the chain to find better properties in better areas of town.  Do they all fit your definition, probably not, but a large majority - by a wide margin -  of what we sell in Memphis does.  Dallas and Houston are almost 100% your definition of B and up.  

I am going to agree with @Alex Craig that you are spot on with your criticism of Turnkey as it applies to those companies that use it simply as a marketing term to attract eyeballs to their subpar properties, management and operations.  There are a ton of choices for buyers today and much of what is marketed as Turnkey can be described as high-risk crap.  Here in Memphis there is crap marketed everyday that fits the warning label of your articles.  And to Alex's point, it is not just the house that is crap, but the company or operator themselves.  They have no way of being able to deliver a consistent experience for the investor.  They don;t have the business experience, acumen or team so the investor loses quite often.

Lastly Ben, the biggest risk for a buyer today wanting to purchase Turnkey is that there is no definition.  It has become a buzzword with no meaning.  Buyers have to be so cautious and really do their due diligence because it is difficult to tell companies apart from their marketing.  Today more and more companies are simply copying the marketing of companies who are bigger or more established and the buyer has no idea of what distinguishes the good from the bad.  Buyers Just have to be super cautious if they are going to purchase Turnkey.

If you have not already contacted or hired your inspector, Jason Lovelace is who we use for home inspections on all of our personal holdings and he is often used when out of state clients search for and pick an independent 3rd party inspector.  He is a good guy and does a thorough job.

 Hey Doug, I hate that we were not a good fit, but I am actually happy for you as an investor that you didn't change your criteria or buy based on the fact you liked our company.  That ends up being the best advice you can give any investor.  That is what makes successful investors happy with their investments - staying true to your plan and your expectations and not compromising.  Your decision makes it easier for us as a company and helps us to provide a good experience for our clients because you made a good buying decision for yourself.  I wish you all the best with your investments.  Be sure and give me a shout if you are ever looking for other passive investments.  We have other select opportunities that may - or may not - be a good fit as well.  Take care -    

@Lance W. - You need to contact a local real estate attorney, I would suggest Craig Beard, to initiate a letter asap demanding return of the property, canceling your current contract and requesting documentation of all repairs and rents.  Craig can also read your management agreement from a legal view and advise you on your options.  I would be happy to initiate and introduce you to Craig and he will be happy to help.  Ata  minimum he could certainly give you advice without charge and then advise you on what it would cost for him to send a letter on your behalf.

You also need to contact MAAR - Memphis Area Association of Realtors - and file a complaint asap.  They will be very helpful and assist you with the legal process as well if you have questions.

Lastly, I would contact you previous management company and advise them of the situation that has occurred over the last 10 months.  

Memphis is a "small" big city and this type of thing can really damage his reputation.  You mentioned the name Frank on your last post and I do believe many of us in the city are aware of who you are talking about and this may not be the first time he has done this to an out of area owner.  At this point, it looks like he has stolen from you and created a perfect scenario where you may not be able to do anything about it unless you want to take him to court.  Many who commit this fraud bank on the fact that you will not take them to court over what is a small amount of money (he hopes that you consider it a small amount for a big hassle).  

in 2004, the property manager I used, before starting our own company, ran a very similar scam and the only way we got our money - and she went to jail - was by initiating a lawsuit and complaint to MAAR and police.  This is almost verbatim what happened to us and I can tell you that $5000 in possible stolen money is enough to have him arrested if he has committed fraud.

Don't be passive, you need to act quickly and hire help to get it done.  There are plenty of people here who can give you advice and help to get your mom her money and her property without any more losses.