My TurnKey Investing Strategy. Feedback please.

[Andrew M.]

So, I know this has been discussed a million times on this site. I just wanted some feedback on my strategy over the next 5-10 years or so. 

Here's a little background about me. My wife and I are both employed (W2) and make about $60,000 a year in household income. We have about $30,000 cash currently and no debt. Our monthly expenses are under $2,000.

My plan is to invest in turnkey SFR in the Memphis market. I would like to buy between 15 and 20 gradually over the next 5-10 years. I expect the houses to all be between $100K-140K. I expect these to each rent for $800 - $1,200 per month. My cash flow goal after ALL expenses (including PITI, management fees, all maintenance and a reasonable allowance for vacancy) is an average of $200 per month per property. My plan is to finance these with traditional mortgages, 10%-20% down.

Here's what I'd like to know: 

Are my cash flow goals reasonable and achievable? 

Is there another market that you think would work better for my strategy?

Is securing that many traditional mortgages possible?

What are some difficulties I may encounter? What suggestions do you have for me?

If some experience property investors wouldn't mind sharing some wisdom I would greatly appreciate it. Thanks for your time.
 

[Chris Clothier]

Originally posted by @Andrew M.:

So, I know this has been discussed a million times on this site. I just wanted some feedback on my strategy over the next 5-10 years or so. 

Here's a little background about me. My wife and I are both employed (W2) and make about $60,000 a year in household income. We have about $30,000 cash currently and no debt. Our monthly expenses are under $2,000.

My plan is to invest in turnkey SFR in the Memphis market. I would like to buy between 15 and 20 gradually over the next 5-10 years. I expect the houses to all be between $100K-140K. I expect these to each rent for $800 - $1,200 per month. My cash flow goal after ALL expenses (including PITI, management fees, all maintenance and a reasonable allowance for vacancy) is an average of $200 per month per property. My plan is to finance these with traditional mortgages, 10%-20% down.

Here's what I'd like to know: 

Are my cash flow goals reasonable and achievable? 

Is there another market that you think would work better for my strategy?

Is securing that many traditional mortgages possible?

What are some difficulties I may encounter? What suggestions do you have for me?

If some experience property investors wouldn't mind sharing some wisdom I would greatly appreciate it. Thanks for your time.
 

Andrew,

Nice job introducing yourself and laying out a bit of your strategy.  It is kind of "30,000 foot-ish" so hard to give in depth feedback, but enough to start with.  And with the responses you've already received, hopefully I can give you some things to think about as you move forward.

First, you have to know that on a site like BiggerPockets the responses are going to run the gamut.  Unfortunately, you often have no idea what the experience or expertise is of the poster.  Here is my advice on what you posted and my advice on some of the comments from others.

Based on what you wrote, I would suggest trying to find an experienced real estate investor who can answer some of your questions about why you are investing.  Your goals.  Not that crap about "know your why" or "how to calculate your freedom number", but why you are actually investing in real estate.  I had this grand plan when I first started in 2003 to own 50 inexpensive properties in Memphis (I think at the time I described them as cheap) and I want to make $200 a month.  I was a passive investor at the time living in Denver with a full time job running my first start-up.  I also flipped houses in Denver because everyone told me I was supposed to learn to do it myself and invest close to home.  Problem was, I had no idea how these actions were going to lead to my goals of building long-term wealth and having a portfolio I could pass on to each of my kids.  That was goal, I was just doing a bunch of stuff blindly.  Fast forward, I almost drowned in all the paperwork of owning that many properties and the cheap, crap properties that were easy and cheap to buy became the bane of my existence.  I'm not sure I ever saw $200 monthly per property across my portfolio and I owned 57 properties at one point.  It was a disaster because I was just doing stuff with no real understanding.  And by the way, I flipped two properties in Denver and made a killing.  I thought I had it figured out and lost every $ of profit from those on the third.  I realized I am a much better business man than I am full time real estate developer.  I became a passive investor right then and there.

You need to connect with a local investor in Atlanta if possible.  If not, start listening to the BP podcast and find persons whom you feel you can connect with and reach out.  You need to surround yourself with people who are successfully doing what you want to do.  You will become the 6 people you surround yourself with so be careful who you listen to.  The naysayers and posters constantly posting all the reasons other investors can't do something are the ones who are not where you want to be.  Choose carefully!

I agree with many posters on here about the number of properties and the cash flow. Both are arbitrary. It doesn't have to be a set number of properties and it does not have to be a set cash flow number. My personal advice is that I would rather use leverage to acquire properties than hold them. I want to buy properties where I can fashion the calculations to reduce principle and own the asset free and clear in the shortest time possible. I often am cash flow neutral but pay off assets in 8-12 years. I don't need cash flow and I have a solid, steady income so I don't put money off to the side as a "no-big-deal" fund. I know that move-outs, maintenance and Capex will occur, but I take precautions to limit those exposures as much as possible. In your case, over a 15-20 year period, if you are able to purchase 1-2 properties every 3-5 years, you could own 8-10 properties inside that time frame and if you purchase properties that are a better long-term value investment, you may see rents from $1100 to $1400. If your average rent is $1250 and you own 8 properties, your monthly gross income would be roughly $9000 monthly. Ten properties would be $12,500 monthly. Rather than trying to figure out how many $200 rentals you can acquire, think what your real long-term goal is and ask mentors or investors who have achieved that goal to assist in the best strategy. That is my first advice. I just think you may be a bit premature in laying out a plan and I just hope you exercise patience before moving forward. Hopefully every poster on here would agree that there is no need to rush.

Now, my other advice is to understand that the word turnkey means absolutely nothing today on this site. It has been hijacked so many times that you need to forget it and understand it is simply a marketing term. On some level it means that there are some passive elements to the investment. Someone bought something and they are selling it. That pretty much sums up what every turnkey property has in common! From there, you really have to understand that it is up to you to dig in and get to know if the person or company you are doing business with is going to help you reach the goal you have set for yourself and the strategy you are using. I mentioned taking steps to reduce my exposure to maintenance, vacancy and Capex. You absolutely can reduce those variables, especially in the relatively short period of the first 7-10 years. Not every investor and certainly not every company that markets "turnkey" real estate believes in or understands how to do that. There are definitely differences in companies and the actual value they bring you as an investor. Figuring out how to align your needs and expectations with that value is your challenge.

Any poster on here who tells you definitely will or that you will not make money with a certain strategy or investment has no idea what they are talking about and probably not worth taking seriously.  Each person has there own experiences, but none are in your situation and none can tell you exactly what outcome you will achieve.  There is a possibility to achieve what you outlined in your post by purchasing turnkey properties in Memphis.  Yes, you can hit those goals.  You can also lose a lot of money and miss your goals.  Your job is to do your homework on the front end and align your expectations with the best decisions based on knowledge, facts and doing your own homework.

I would read what Rob Hakes has to say and definitely pay attention to his story. He has documented his experience so far.  But remember, he made decisions and had expectations and he can share with you what he did and how it has turned out...with that particular investment and company.  He has taken the time to document it.  He has not taken the time to go on every thread about Turnkey and simply tell the poster that they were definitely going to lose money.  If you are going to learn lessons from investors, learn them from those that are giving details and sharing the good, the bad and the ugly.  And remember, your job is to make an educated investment decision.  All of the horror stories plus all of the homerun stories only amount to data and education.  

Two last things in my ridiculously long post!  @Matt R. is one of those guys that I love reading and for years have told myself and probably him as well that I want to meet up out in Cali for a beer and a surf lesson next time I'm there.  I admire and respect his posts and think he gives great level headed advice.  However, lol.  If we're going to use sports analogies, if my math is correct, a batter laying down 10 bunts is batting 1.000, has 3 runners on base and 7 across the plate.  Those bunts may not be sexy, but over time and adding up, they amount to a lot of wins.  I work with a lot of investors who have no need nor desire to go any public forum, they just love the consistent and reliable realization of hitting their goals and expectations.  Many with well over 10 bunts!

Lastly, investing does not have to be an "or" strategy.  You can have "and" strategies.  In other words, you can invest in passive, turnkey real estate and be an active investor.  You can invest in passive, turnkey real estate and invest in index funds or syndications.  You don't have to choose just one.  It's not invest in one or the other.  I have invested in syndications and while they have been good, I didn't "own" the asset and I could not borrow against the asset.  I have lent money in real estate deals and earned great returns, yet I didn't own the asset when it paid off.  I buy the same dollar amount of an index fund on the same day of every month, and even with the recent corrections, I am still in the black on my investments in the market.  And you know what, the whole time I am making those investments, I have a resident paying off my mortgage where I leveraged a high-quality property passively.

Hopefully this long post sheds some light on your next steps. I'm sure in a city like Atlanta you and find investors who have traveled the path you are discussing and can help shed some light for you. If you have any trouble finding one, reach out and I'll help connect you. I know two investors over there with REI clubs and several on here that are active. Best of luck to you ~