All Forum Posts by: Rob Hakes

@Eric Mitchell

Good Questions.  I started buying some out of state turnkey properties over the last few years.  yes they get better cash flow than what you can get in Utah.  It seems that "the 1% rule" is the becoming the buzz word for most turnkey providers and that is all they need to say to get an out of state investor to pull the trigger.  It is only an indicator of if the deal is worth looking at.  

There are some markets i would not buy a turnkey property in at 1% because of the taxes.  Also a lot of the providers right now are starting to sell properties below the 1%, just because that is what out-of-staters are willing to pay.  Also, now that interest rates are going up, the 1% isn't looking as good. 

Turnkey can be very passive, and you can make money, but things are looking tighter and tighter right now.  

Lending may be a good play right now.  You can get some performing mortgage notes that pay close to 10% and take a lot of the risk, and headache out of real estate investing.

Good Luck.

@Account Closed

I don't know for sure, but the exit strategy would be limited for at least five years. You would need to pay down enough equity to at least cover your closing costs/commissions and still get your capital back.  

I doubt that you would get market value (what i paid) if i turned around and sold it to another investor, but with how hot cashflowing properties are right now, i just might.  

In purchasing turnkey properties like this i would not count on selling the property within a few years as a viable exit strategy.  

My goal is to probably hold for 10-15 years and sell while the property still has some good life in it. That way i still get my COC returns that I want and can realize some equity gains with a 1031 exchange before the property starts needing major repairs again.

Not a liquid investment.

Just thought I would add an update after my year end review of the numbers.  Also, things are still being worked out on the eviction.  The tenant moved out on their own a month ago, but because they left a few 'non junk' items (an operating computer hooked up to some operating cameras) Spartan felt that it was too much of a liability (and really strange like they know how to work the system) to change the locks and get new tenants until the items were removed by the tenant, or the Sheriff officially did the set out...So now we are back waiting on the Sheriff.......

As far as the years returns: I will compare the performing property to this non-performer.  

My calculations represent an actual cash on cash return.  I included the downpayment, closing costs, legal fees..everything out of pocket and compared it to the actual cash received from the properties.

Non Performing Property COC ROI annualized: -10.19% If i add equity paydown -5.71%

Performing Property COC ROI annualized: 9.52% If i add equity paydown 13.65%

Initial analyisis: I basically broke even with the two properties and all of the loss from the non performer was paid by the performer.  I don't think the first year will tell the whole story because their are some front end expenses (legal fees, rent up fees) that shouldn't be there in year 2

THE GOOD - Even though a property went vacant for 6 months, my other property was able to sustain the losses, so no out of pocket from my personal account.  If i include some of the non direct returns like equity paydown and possible appreciation (even if half percent per year) then overtime this will be a really good investment.  I also feel like Spartan plays honest and straight forward so i feel like i have a long term partner.  I cant imagine this would happen like this again in year two.

THE BAD - Off the bat on this property I broke the first two investing rules of Mr. Warren Buffett.  #1. Don't Lose Money #2. Don't forget rule 1.  Fortunately this house was only a minor drag on my whole portfolio, but i have other investments (performing notes) that have had zero issues with payment, and none of the variability and liability, with similar returns to the performing house.  I don't know if i am sold on the turnkey model yet, but certainly don't have a good enough sample size or duration to know

THE UGLY - One of the most shocking facts that makes me nervous about the performing house was that it took almost $700 in late fees to get the return up to 9.5%.  What if the tenants start to pay on time?  This year was a bad sample size however as i only had it rented about 8 months so the 'annualized' return projects out what happened in the 8 month period and it was heavier in expenses (legal, rent up fees, etc)

Hoping for a good/better year in 2019.  Its good to know that when it got really bad, I'm still okay.   

@Colten Roney

Last year i started using The Jones Group CPA out of Orem, now that i have some rental properties, and am house hacking. They seem to know what they are doing and has a lot of REI clients.

@Adam Bileckyj

I think some people diversify just for sake of diversity. Think of what Warren Buffet meant when he said "diversification is protection against ignorance. It makes little sense if you know what you are doing." I think in the stock market game diversification is good because there is so much left up to the whims of the day on Wall Street. Not as much with REI.

If you started to diversify in REI right off the bat, you may be shooting yourself in the foot. Each asset class in RE takes years to learn the ins and outs.

Learn what works well for you and stick to it..............unless you find something that works even better.  Because there are so many good ways to invest in Real Estate, i think that diversification happens naturally as you seek better ways to apply your capital and stick to what works.

just my two cents.

Thanks for the response @Clayton Mobley.  It did seem odd things dragged on so much once it hit the sheriffs desk. That adds some clarity. I was talking to one of the Spartan staff and they also mentioned that the current sheriff was voted out this election and is now in the lame duck phase. Once the new guy starts, they were going to team up other prominent PM companies in the county to really emphasis the importance of speedy evictions to the new sheriff. 

Anyway, on this property I just got news that the tennant was packing up on their own accord and should be gone shortly. I’ll keep you updated. 

@Kevin Christensen I would suggest starting small and very passive.  All it will take is a year or so of consistent auto deposits into your bank account with minimal effort.  Not many people would not like that.  Then she may start to see the vision.  

Things may backfire if your first deal is a fix er upper that takes all of your time and resources and you only have a few thousand to show for it.  It may be tough to convince her if your grand plans of financial freedom have you tied up on weekends and have a drain on your account.  

Go for a passive base hit, rather than hoping for a grand slam that may end up confirming all of her concerns. 

@Adrian Kar

Unfortunately nothing new on this.  Supposedly there are still major delays at the sheriff's office on evictions.  I have not gotten any rent since June.  The tenant is basically squatting there.  Spartan checks the house (drive by) weekly to see if tenant is still there, and they have scheduled to get inside the house to see the condition of the inside.

It has not been a first good year on this one.  I have toyed with the idea of using the '12 month buyback guarantee' but don't know if that will get me much ahead, unless there is just some bad fundamentals with the location of the house.  hard to tell as a long distance investor.  

The other house is doing good. 

Spartan has increased their communication and have had very quick response times especially over the last few months.

@Jaiden Olsen - i found myself in a very similar situation a few years ago.  I started doing the 'get your debt paid off' scenario for about 5-6 months, but after really looking at the numbers i stopped and went the other direction.  I ended up doing a cash out refi, and pulled 75k out to invest in a few deals.  The cash out refi is good because the rate gets locked in long term, but the heloc is good because you can keep using it and using it without refinance costs.  I probably should have done a heloc..... but hind sight.... anyway I am really glad i took the leap.  I would say it will change my financial life forever.

The main thing you need to look at is the arbitrage number, or the difference between the interest rate of the Debt, and the ROI of the investment (I use cash on cash for my calculations, as I don't want to depend on appreciation for returns). I think i borrowed at 4.5% and have got most of my money in small deals that kick off about 10%, so i can make the spread after extra amount of mortgage, or heloc is paid.

The problem you may face now is finding a deal that will get a return that is attractive enough.  I think alot of people are getting sucked into some deals hoping for appreciation and calculating that into their return.  Too risky for me.  If i am borrowing to make an investment it needs to be pretty low risk and mostly passive.

DO you know what direction you want to go with investing?  Are you looking for out of state rentals? passive or flipping? 

That is another upside of the HELOC is you don't pay any interest unless the money is used so you have time to shop around. when i got the cash from the REFI it was cool to look at the account statement, but it took almost 12 months to get it all safely deployed.

Good Luck!

What if the next financial crisis is not a "crash"?  I think we all know the current landscape of things will change but it may not be that values plummet as they did in '07-'08. What if the next financial crisis is continued inflation/hyper-inflation, with values going up?

Remember that for years the country was going under 'quantitative easing' which pumped billions of fiat money into the economy.  I think we are starting to finally see the velocity of this money over the past year or two now.  There is way too much cash in the system to have a "crash" like we remembered it.  

I think some areas are topping out now (the areas that always have major swings) because wages are slow to keep up.  

I do agree the current financial landscape will not stay for long, but i don't think it will be a drop in home values.