All Forum Posts by: Rob Hakes

Here are my 2019 Returns.  I calculate them the same as I did last year.  My cash on cash includes all closing costs and everything up front into the deal.  

COC Return -13% (that is negative 13%)

Return with principle paydown not expensed -8% (again negative)

Actual cash lost out of pocket $ 3024.00.  Blechh.

Here are some take away lessons from this one in 2019

- With a long vacancy it really gets ugly.  It was almost $1100.00 in just keeping the place up while empty.  Mostly utilities and mowing.

- Repairs are surprisingly high for a "newer" house.  I have had a tenant in there since July and there have been 3 maintenance calls for around $240 each.  Just different little things that need to be fixed up.  I always planned on this number being smaller for the first few years because of how extensive the rehab.  Spartan's maintenance estimates are definitely way low ball.  My other house with them is similar with high maintenance expenses (sewer problems).

- The silent killers.  While all this years turmoil was ongoing with this property the real killer is the county's aggressive property tax hike combined with the reduction in rent income as we had to lower the rent to get a tenant in.  With that compression, even if i had a year without any maintenance or vacancy i wont hit my minimum 'hoped' for.

-The positives.........crickets.............check back in a year and we'll see.

@Michael S.

Sorry for the late response.  To answer a few of your questions

- The neighborhoods are advertised as B/C neighborhoods.  I would say this one (the back property line is the birmingham/centerpointe line) is a C.  I still bounce back and forth on deciding whether to go out and look at the property vs. just trusting what i see on Google Earth/Street.  I know that i would have the most informed decision if i were there for a day or two scouting the area, but there is also the time and cost involved in all of that. 

- Question 3.  No i don't choose less return.  I don't care what the neighborhood is like if it will produce a consistent return.  At this point in my investing career i have focused more on a cash return rather than appreciation.  Mostly because i can compound a cash return, but appreciation (if any) can take quite some time to realize.  I do acknowledge that more returns CAN be realized via appreciation IF it appreciates well. Jury is still out I guess.....

@Kevin Charles

Thanks for the post.  Good question.  

I cant speak about the location even though i did as much due diligence as possible (google maps, online reports, etc) from my desk, i don't really know the areas.  This could have contributed to the tenant issue.  I think with the turnkey model we rely pretty heavily on the company to know which areas to absolutely avoid.  

As far as the long vacancy goes - this situation was tenant specific as they did everything they could to avoid the eviction.  Once we got it back on the market it was a few months until we got it rented.

Probably the biggest thing to reduce the vacancy length would be to make sure your rental price is not on the high end of the market rates.  It seemed we were a little high at listing and kept having to lower and lower the price till we got bites.  I think there was a run up in rental prices for a while (right when i bought) and then it cooled down once i had to re-tenant.

I also think it is easier to ask a higher rental price on a brand new remodeled house in 'untouched' condition.  unfortunately we expect that to be what we can get from future tenants.

In a few days i will post my actual returns for these properties too.  (spoiler - they are ugly)

@Pak Wu - What a total bummer.

I am really surprised that their initial reaction was to have you sell the property. Especially after a they just rehabbed it and sold it to you a few months prior. Were they going to try and sell it to another one of their investors? (if so that is puzzling because if the so property was so hopeless that they recommended to sell it, you figure they would want nothing to do with the property either, unless the sales commission was that important to them)

These turnkeys definitely have limited exit options the first few years.  If they can get a tenant within a few months, and they can figure out the issues with the wacko neighbor, you may be best off to stick it out.  

Sounds like a bad situation, and hopefully the tenant left it in good enough condition there are not tons of turnover costs.

@Kent Lau 

We did section 8 tenants for the property from this original post.  We got market rent.  With section 8 they approve an amount that section 8 will cover then if the rent is above that the tenant pays the rest.   In this case the section 8 pays about 60%. It did take about an extra month to get the tenants in because of all the section 8 requirements and inspections. 

 Its been really nice to see the consistent rent come in.

@Jeremiah David Miller

The properties have been performing over the last few months.  Still have some issues with late payment, but i really like the late fees.  

Both of my properties have been digging themselves out of the red for the last few months.  My last look at my own yearly projections will put both of them at a loss for the year.  Bummer that these have not been good investments thus far.  You buy these things hoping to get close to a 10% return and now i am just hoping to break even (cashflow-wise).

@Caleb Heimsoth

No i don't consider a success.  I consider it a loss.  

Is my post making this property sound like a success story?

Or are you interpreting this thread as a success story because I remain optimistic about the turnkey model in general?

@Jeremiah David Miller

Yes, I have updates.  Within the last few weeks both of the houses have been rented out.  On this house (from the original post), we decided to make it available to section 8 tenants and had to lower the rent price to finally get a good bite.  This process also takes a few weeks longer for them to get the voucher approval etc.  Spartan is starting to give investors the option to use section 8 to try and grow the pool of potential renters and have a more secure income.  Ill give it a try on this one and see how it goes.

to answer your question on if i would use Spartan again...... Yes i believe in Spartan as a good team, however timing has not really worked out in my favor with how their local rental market has shifted.  In my opinion, I think for a long time they were the only dog in town and could easily fill their units at higher prices.  Now that Birmingham has become a target of investor money the last few years there are alot more nice renovated homes to compete with.  

So because the purchase price of the house is largely dependent on the expected rents, I kind of bought at a high point, and now we are having to lower rents to be more competitive, and lowering my overall return.  

So i probably would not buy another one quite yet, until I felt they had things priced to be more competitive.  They may have already started doing this but I have not actively shopped their current inventory lately.  

I really like the model that Midsouth Homebuyers uses.  They claim to keep rents just below market rate, so they have the nicest home at a cheaper price to avoid situations like this when the rental market shifts.  I have been on their waiting list. 

I still don't entirely blame Spartan Invest for the major problems i have had on this house.  For this one i am chalking it up to just a woe that most investors have to deal with every once in a while.  Hopefully things will get back on track.  Heaven knows i have some $$ I need to make up from this last year.

Dwight K Schrute-

@Veera Vala

i am not sure on the forms, but my understanding of the depreciation expense works like this:  For this house the cost of the building is approx $70,000 (you cant depreciate land) and the IRS allow you to depreciate the full cost over 27.5 years which equals about $2500 of depreciation expense per year.  So if my gains on this property (income minus expenses) are around $2500, then the depreciation expense would wipe out all the gains on paper, leaving me with nothing to be taxed on.

I had my accountant determine my building value.  He got it from my closing docs and from some paperwork from the county I think.