My experience with REI Nations

[Andrew Brown]

I am a very busy medical professional working in emergency medicine. I have been investing heavily in the stock market with good success but have always been intrigued by real estate investing for passive income with the hope of an early semi-retirement. Knowing myself, I know I want a good first experience because if things end in disaster, I would likely not invest in real estate again. That's what got me first interested in turn key rentals. I ran across REI Nations from this blog. The first thing I noticed comparing them to other turn key companies is they are definitely higher priced with lower COC returns. But they have been in the business a long time and seem to have a good reputation so I decided to include them in consideration.

I just signed a contract with them on a place in Jacksonville AK. 185k for a newer construction (1990s) brick house currently rented for 1350 the first year and 1400 the second. 

Depending on calculations used, on the riskier side it comes out to roughly 3000 a year after expenses (10% management, 4% vacancy, 4% maintenance). That makes for a COC of about 7%. Much lower than other turn key providers but about what I am getting on average with stock/bond investing.

I know one will not get rich turn key investing, but I feel like it is an easy(ier) first step into real estate investing. If my first property with them is very successful I may continue with the passive approach. If it isn't I can always change strategies, thankfully I have time on my side (32 years old going on 60 I feel sometimes haha).

I am one who over analyzes, always have been which is why I went into medicine. And I know there are others like me, so I'll keep a record as best I can about my experiences. This is definitely well outside my comfort zone and to be honest I'm actually terrified. So far I am not fooled into thinking I am going to make tons of money, but so far have been impressed by the customer service and reputation of the company and hope I experience a good first time rental property investment.

[Chris Clothier]

Originally posted by @Andrew Brown:

That makes sense @henrichs. I am just torn, I really want to get into real estate but I want to make sure my first property has a high likelihood of success because knowing myself if the first one ends in disaster I likely won't want to continue. I know nothing is perfectly safe but I know there are some better deals than others. Unfortunately I have yet to be able to build a community for mentorship and I am trying to figure all this out through self studying.  I am wondering if Cris Clothier has some input or guidance for me with it being his company. It seems he is very well respected and was the reason I actually went with REINations in the first place. I'm a little nervous about a cash on cash return of only about 6 percent in a market that isn't well known for appreciation. Comparing that to say the stock market at around 8% yearly average it seems to be moderate risk for low reward? I know it's not accounting for appreciation or equity pay down, but it also won't be overly helpful in helping to fund additional deals which is my long term strategy? Not sure if I'm looking in the right market, if I might find better deals with REINations in other markets or perhaps other properties in this current location. I know how well respected the company is but with the volume they do I have no doubt some properties/markets are better than others and I honestly have no idea how to differentiate, I have read the books/articles/podcasts etc with some degree of analysis paralysis on the sidelines. The other thought is although I am a fairly high earner, I also have student debt some of which at around 7 percent interest (although currently at 0 and isn't compounded) but perhaps it makes more sense to pay off higher student debt first. Especially if right now the best REINations can offer is a cash on cash return around 6%, assuming this property is on their highest coc return level.  However with mortgage interest so low right now it is cheap money for leverage, and I want to start my wealth push early to help fund and early partial retirement in about 20-25 years. 

Andrew,

Looking forward to connecting tonight, but wanted to give you some insight and response here in case you get on the site before we talk. 

First, the last concern you should have with REI is what to do in case you decide not to move forward. It is unusual for us to have that happen, but we're not concerned with earnest money. We are concerned with making sure you are comfortable and confident in your decision. You've been great to this point and communication has been good so I can assure you not to worry about your earnest money. If we decide not to move forward, that is not at risk.

To your questions about taxes, the current tax rate was set in 2021 and is not going up when you purchase your property.  In Arkansas, they asses home values yearly for special district taxes like medical, schools and any special tax districts.  They assess the values every 5 years to establish real estate taxes and those assessments will occur next year.  However, after values are established, they will then establish the tax rates.  So your taxes may go up, they may not go up.  That is up to the city and what rate they choose to tax based on the new values.  Same goes for Memphis.  Those properties are being assessed this year and the values are sky rocketing, but the city council has not established the rate yet, so while values are up, we are not sure just yet what is going to happen with the actual taxes due.  

What we show on the PE is the tax assessors tax value and our team rounded it up to an even number.  That value was established in 2021 so I am confident you will not see an increase once you close.

As for your question on insurance, the quote received is the final cost.  Any fees are always included so there are no missing fees to reduce your expected return. 

I love that you read my book and can fully empathize with where you are in your desire to get started.  It can be overwhelming and we can easily get knocked off course.  Again, when we talk tonight we can make sure that you are confident in what to expect and how we will deliver those expectations.  As for should you make this purchase or pay off student debt, I have an interest in this scenario which cannot be denied.  But, I have also been in your shoes where I needed advice and the advice I got was not in my best interest.  I'm not going to do that here, but I am going to tell you how I am viewing the current RE landscape.

Interest rates continue to be at historical lows.  The ability to borrow against an appreciating asset for 30 years at below 4% is a very compelling reason to borrow against good assets.  You should remember from the book, I haste using leverage for long-term hold, but like to use it to acquire assets. I position my loans to be cash flow neutral.  You could position yours to apply to your student debt.  Many economists believe we are entering into an inflationary period, however, we are already in an inflated period with real estate that is showing no signs of slowing.  Material prices are up across the boards while labor continues to climb.  Add to this the fact that housing starts have been behind for the better part of 15 years since the last recession while demand is up.  Those two factors mean that housing prices and the cost of borrowing will most likely not go down in the near future and likely go up.

That alone is not a reason to invest.  If you can confidently acquire assets that are in demand AND pay off your student debt at the same time, then the above factors possibly come into play.  If a resident is going to reduce your principle while also providing an income stream to apply to your student debt, that is a very good thing.  You can use the additional revenue generated from an asset that you own and control to reduce a separate debt.  You should not be in a hurry and never make decisions out of fear of missing out.  I am very confident that you will be in a good position to invest in two years and fear of housing being more expensive or borrowing costs being higher is not a reason to make a rash decision to invest today. I look forward to speaking later because It does sound like you are financially secure and these are not rash decisions.  You simply have some questions and we need to make sure you have good answers and understanding before you can move forward with confidence.  If, in the end, you don't feel this is the right time or the right investment, I'll be happy to help make sure you have a good plan for when you do decide to invest!