Does this sound legit?

Question

So I found this company through a friend and met with them last week. I want to break down their model and see if there are any issues some of you seasoned veterans may be able to point out.

Here goes,

What they do is buy houses wholesale using Hard Money and have their team do the rehab (i would pick from a list of houses), then refinance at 75% ARV conventional. They find renters and do the property management for 10% and you're locked into that for 1 year. All said it would cost me roughly 15-20k to get into a rented out house cashflowing a couple hundred bucks and do realistically no work other than fund it. Anyone heard of anything like this? Thanks in advance.

ALSO I'm a newbie so if i left out any important figure let me know lol

Shawn Ackerman · Answer

@Nick Bitz I'd analyze this deal just like any other deal.  I'd look at the cap rates, COC return and the NOI for a potential property to make sure the numbers work.  Is this company willing to provide you with all expense information? is the property rented and performing from day 1 or do you have to buy, they do the rehab, then place the tenant?  Ideally as a new investor you should get into an asset that is already performing with a tenant package you can thumb through to verify the tenants ability to pay(rent 3 x income.)  sounds like a great option however you must do your due diligence.  Believe half of what you see and none of what you hear!  As the saying goes in Missouri, "SHOW ME".

Jean Norton · Answer

Actually there are several companies that do this all over the country.  Those of us seasoned investors will want to do it ourselves, (and I've done it), however if you're just looking for cash flow with ownership that isn't a bad way to go.  But know, these guys intend to make a profit from their work.

As with all deals verify they are a legit company and find others that have bought from them before.  If you're still nervous, I have friends in Cleveland and Cincinnati that do this.

Ralph C. · Answer

kinda doesn't look or sound too good.

Nick B. · Answer

Never heard of them but these lines in bold look either lame or suspicious (from the contacts section of the website):

Corporate Headquarters: 7000 NE Loop 820 North Richland Hills, TX 76180 Email: email(at)yourdomain.com Phone: 817 . 727 . 4215 Fax: +00 (0) 000 0000 000

I had to replace @ with (at) for auto-moderator to accept this post.

Nick Bitz · Answer

@Nick B. wow another Nick B. Its www.pprtx.com

Chris Clothier · Answer

Nick,

As a new investor, be patient.  Lots of investors got burned with this model and lost a lot of money.  I'm actually surprised to hear people are still doing it, although who knows if you are dealing with a company or just individuals.  Basically, you are taking 100% of the risk if you are buying the house before it is renovated.

They need you to take them out of the hard money and they make their initial profit on that deal.  You buy it from them and they make their spread.  Then you fund the renovation and they oversee it - most likely making a profit here too.  Then you are locked into a 1-year management contract with a company that you have heard good things about - but still, locked in either way.

If returns are being discussed at all it could be considered a security which means they would be violating Texas state security laws by tying an investment and return to the property management (management of the investment).  It is tricky depending on how they word things, but the simple fact that in order to do business you must use the management company for one year, means it would most likely be considered a security.

Bottom-line, as an investor, you take 100% of the risk.  Your money is at risk the whole way and you are locked into a management contract.  So any delays or issues, most importantly your ability to refinance or rent the property, fall 100% on you financially.  To be fair, you would be doing this anyway if you found the house and hired the crews to renovate your property.  In this scenario, someone else has done both of those things for you and that is the difference.  They are promoting the opportunity to investors and getting paid for you to take the risk.

It may be completely legit, but your risk definitely comes into play in this set-up and your reward needs to be big.

Rosston Smith · Answer

I recommend asking for references ad vetting thoroughly before jumping in.

Nick B. · Answer

@Nick Bitz, would you mind sharing the company name?

Gena Kirkwood · Answer

I just read something like this on FB from Jean Norton. Are you putting the $10-$20k down up front? What happens if the rehab costs more than what the scope of work says? What happens if they can't find a tenant to put in it immediately? I wouldn't put money down up front on a deal like this. There are companies that are already selling Turnkey properties that have been rehabbed and already have a tenant in them along with management included. That is happening in my local REIA group right now. The other sounds like a scam and as a new investor you should stay away from that. If you have $20k to invest now, then start wholesaling properties and add to that $20k so that you can do your own deal.

Shawn Ackerman · Answer

LOL!!! @Nick Bitz you have the right attitude.  In this case I'd get a scope of work from them with estimated costs of the rehab.  Also I'd get references from others who have used the company in this capacity.  I'd also question what sort of protections they offer regarding tenant placement and going over budget on the rehab.

Does this sound legit?

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