All Forum Posts by: Rob Hakes

@Andrey Y.

I have thought about putting some $ into a syndication.  I have looked at Holdfolio because they don't require the investors to be accredited.  Seems like okay returns.  I think it was around 10-12% but i don't remember how that income is taxed.  

@Andrey Y.

Also to address your question about the high tenanting fees.  If you have found a PM that does not charge them that is awesome.  I would make sure their business model provides them sustainability so they are around long term.  That it not common, so if they are a good stable company i would hold tight to them.  

I don't think the primary incentive of the turnkey companies is to churn through tenants to keep getting fees.  From a primarily monetary point of view they will be better served to keep good investors coming back to buy more properties as they do make good money on the 'flips'.  They do have to provide good returns to keep investors lining up or the real money making arm of the company (rehab and sell) would not last long.

Just my two cents.

@Andrey Y.

Definitely valid questions.  With real estate investing it all boils down to the math so if you're not satisfied with the projected returns then it would definitely be too much of a hassle with all of the headache of purchasing a home.  I asked myself the exact question 6 months before i took the plunge into turnkey.  I like that @Jay Hinrichs pointed out the steady nature of note investing. My person REI journey started with the intent of doing note investing exclusively because of the hassle free nature.

I did find a note that i was able to purchase a fraction of ($17,000) that pays 10% for 12 years. Truly mailbox money, and no downpayment. In fact i don't even have to pay the note servicing fee. The only expense for this investment was the $15 to wire the money to the broker. After this deal, that is still faithfully paying, i remember looking at some turnkey deals and really turning my nose up at them thinking the exact same thing "why would anybody to this for $150 a month" here is why i have changed my strategy to a turnkey that may pay 10% ROI versus a virtually no hassle note investment

Downside of notes:

-Vacancy on Money.  With an amortized note you are getting back some of the principle every month.  This means less and less of your money is deployed capital until after x years it is all gone.  This really hurts if you don't have enough notes in the pot to grow quick enough to re-deploy capital.  With a rental your capital is always deployed, and it won't disappear in x years.

-Taxes.  Again a simple math equation.  interest income is taxed as regular income while a rental property is wildly taxed advantaged.  

-Availability.  I think a good note needs to be on a property that is good enough collateral that you can comfortably foreclose upon if needs be.  This is tough if i only want to put about 20k into each deal as i don't want a note collateral to be a 20k property.  This is solved with buying a fraction of a note, but i have learned that they are not as easy to come by.  @Jay Hinrichs if you have any suggestions on where to get fractional notes for smaller investors my ears are open.

-No Upside potential.  Notes are not going to have the potential to appreciate, or get equity pay down, which are icing on my projected returns.  Notes have limited ability to produce anything other than the interest rate.

So where i don't mean this to be a post on note investing, maybe this helps answer the question of why go through all the hassle of a turnkey property for relatively low cash flow.  I also look at the ROTI, or return on time invested.  With a good turnkey company I am not having to really put too much effort into the investment.  So for something that all i have to do is check my bank account once a month, ill take the $150 all day long.

I think there are some better returns out there if you are willing to not go turnkey, and sacrifice the time that may need to put in.    

@Eddie Aviles

I think that as long as you keep a positive arbitrage, the math will always work out in favor of higher leverage. Or in other words if your ROI is higher than the amount you borrowed (Borrow at 5% to make a 10% ROI) your net worth will always be bigger in the end.

However, If you are in need of cashflow now, then constantly leveraging is going to kick the 'cash flow' can down the road even further and may work against your goals.

Also leverage only works if you are actually getting the returns you need so it is higher risk.  I would only be aggressive with leverage if you were really comfortable with the actual investment and it was a lower risk opportunity otherwise it could all blow up in your face.

So if you go by the math alone- leverage, leverage, leverage. But some may want to take the safer road and be okay with not making quite as much.

@Blake La Grange

I heard you on the podcast.  I appreciate your candidness and openness.  A very similar story to myself.  I took about 75K out of my house to get my jump start.

I too, was a Dave Ramsey follower, religiously trying to get my mortgage paid down.  No more.  This is such a better way.

Cheers to making money the fast way!

@Derek Okahashi

Derek,

Depending on how many houses you want, you will be wise to look at other turnkey options because of the waiting list.  I got on their list last June, with no target date yet in sight. Their 5 month waiting list is turning into a 9-12 month waiting list.  And because they are having to push the purchase prices up in order to keep up with demand, there is a good chance you will have a low appraisal and have to cover the difference out of pocket.

I found a lot of success with Spartan Invest, and have two houses with them.  I posted about my experience under 'Another Spartan Invest Turnkey Case Study'  I share all the numbers and details.

Good luck

@Mel Hayes I did not have to transfer any funds until closing.  So on this property is was about 5 months after signing the contract that I actually had to put any money down.  There was not earnest money involved.  I did however have to pay out of pocket for the appraisal and the post renovation inspection.  So i guess there was 600-700 that I had to shovel out before actually closing.  The Inspection is optional, but i see it as necessary as i did not travel to Birmingham to look myself.  You can chose your own inspector, but i selected one of the companies that typically works with Spartan just for ease of process.  Spartan took care of the items that came up on the inspection and sent pictures of the repairs.  

The property management team has been just fine.  Just like the sales team it may take a day or two to get a reply email, but i have not had any pressing issues.  Both houses that i have bought from Spartan were already rented out a few weeks before closing so its been smooth sailing so far (i just closed on my second last week).  They did their monthly calls to report on the property, but now they are moving to giving the report via typed message on the property management portal that you can interact with them whenever you need.  One month i had an issue with the amount of rent (it was $30 off) but they quickly fixed it.

They have also had a few 'finishing touches' with there customer service.  About a month after I closed on the house they sent me a large gift package with a bunch of local foods and goodies.  BBQ sauce, pickles, chips, etc all made in Birmingham.  I thought that was cool.  Also after filling out a customer service survey, they sent a Starbucks card to show their appreciation.  These are small things, but go along way in showing they want to be proactive.

Anyway after re-reading my previous posts i probably am making this whole process sound really good and easy and like there are not many issues.  I think Spartan has there systems down, but it is still just a normal house that will most likely have problems and painful expenses and possible tenant issues.  I just think those are down the road once the 'new' house gets old.  only time will tell, but they seem to know what they are doing.  Its great for a passive investment

@Mike Malfitani

As with any turnkey company or anybody selling an investment property for that matter, i would only use the pro-formas as a reference, but should not substitute your own due diligence for each expense item.  When you take into consideration the first months tenanting fee, renewal fees, and the cost to get a house rent ready, then I think that this would put you over the 4% and 4% maintenance and vacancy.  

I do think that Spartan has a 96% occupancy rate as they claim, but I don't think 4% of the months rent will cover the costs.  I would do these calcs on your own.

I recall at some point in the past asking about their proforma sheet and they are trying to present an apples to apples comparison with other turnkey companies.  There are major limitations with how accurate they can be because there are so many things out of their control on a single property, such as how a property is financed, rates, tax appraisals, and what happens with tenants on a given property. 

I know they do post their average turnover costs in their 'getting started packet' but i don't know if its included in the 4%.  Maybe @Clayton Mobley can weigh in if he has a minute.  

You will also notice that when they talk about returns they will typically talk about 'return on equity' which is not a true return on you cash because your 'equity' only includes your downpayment, not the other 5 grand in closing costs.  This is understandable because they have no idea if or how it will be financed.  The 'return on equity' number will always be high (15% plus), but I calculate my cash on cash return around 8%.  

@Blake La Grange 

Congrats man!  There is nothing like the feeling of getting that rent check rolling. It’s sounds like you got a good deal with lots of equity. 

I listen to GRE every week so I will definitely look forward to hearing the interview.  Do you know Keith, or did you get to know him through his podcast?

@Jon Zhou I am closing on another one with Spartan Invest at the end of the week. Though there have been bumps along they way I have nothing but good to say about how they have handled them.  They are a good company from my experience.

I would only use their pro forma as only a reference as it may not paint the entire picture.  For my calculations I figured my hard costs (costs that i can plan on based on their averages).  SO for this house that rents for $950 i can plan on $85 per month for management, $587 for the mortgage and then about $75 per month to cover turnover/tenanting.  They charge one month's rent to re-tenant and then half months rent to renew, plus an average turnover cost to get the place ready is about $1100.  So in a three year period (which is the average stay) you will spend at least $950 tenanting, $475 renewal, and $1100 improvements divided by 36 months.  That leaves me with about $210 left to put some aside for regular maintenance and possible future vacancy longer than one month say about $50/mo  

On the years that you have to do a full turnover, your returns will be meager if any.  

I still believe this is a better investment than a moderate risk mutual fund because i will see about 8% cash on cash, plus equity paydown adds another 4% per year.  And if the property appreciated 1% per year then that adds another 4-5% return because of leverage. This does not take into consideration extra income I should get for raised rental rates.

And it is almost tax free because of depreciation.

Spartan has made the process about as turnkey as it could be in real estate.

I think you just need to know its limitations.  You would make alot more if you could do your own rehab and purchase these houses at pennies on the dollar.  You also need to know that your exit options are limited for at least 5 years in my opinion.

It is a great investment for me.