Turnkey Cap-Ex Ben Leybovich

[Sam Elder]

     Hi everyone, so just sitting here digesting the many cap-ex postings and discussions surrounding Ben and Serge's blog posting on Cap-ex. It really made me think and certainly has changed the way I look at real-estate and returns on same. 

     So my question is for those investing in the Turnkey model (such as myself). Even with a fantastic Turnkey operator (which I have) can you really expect returns of more than 4-5% cash on cash? Long term things look better due to amortization...but the cash flow is hardly robust when taking into consideration a fixed cap-ex (rather than percentage). 

So for those turnkey operators offering 8-10% returns...what does this mean. Cash on Cash? IRR long term? What are your thoughts on this idea of a fixed Cap-ex and it's effects on long term buy and hold investments via the Turnkey model.

@Mike D'arrigo (love the podcast)  @Chris Clothier 

Really just trying to broaden my knowledge here. Please point out any mistakes or numbers that seem unrealistic below. thank you.

    Let me give you my spreadsheet as I have developed it thus far for the kinds of properties we're looking at. 

Purchase Price	79700
Closing Costs	6000
Total Cost	85700
Rent	875/month
Management Fee	103.5/month
Repairs	43.75/month
Cap-Ex	141.02/month
Taxes	111/month
Insurance	43/month
Mortgage	332.6023418/month
Vacancy	26.25/month
HOA	0
Cap Rate	0.05691668611
Cash on Cash Return With Mortgage	0.04040710569
Cash To Close Deal using mortgage	21940
Loan Amount	63760
Monthly Cash Flow Without Mortgage	406.48
Monthly Cash Flow With Mortgage	73.87765825

Amortization Return (30 YEAR, FIXED RATE 4.75% RATE)	177.11/month
Internal Rate of Return with mortgage	0.1372767502
Internal Rate of Return Without Mortgage	0.05691668611

[Jay Hinrichs]

@Sam Elder  turn key is simply a moniker there Is nothing special about this.

in reality its the business of owning rentals.. how you come to find those rentals is a moot point.

Not exactly sure what Ben and Serge's pod cast was describing.. however any rental will have cap ex over time.. turn key is not immune from this.

the only properties that will be limited to cap ex are when you buy new construction and you have tenants that are pure as the driven snow..

You can mitigate cap ex in older as been likes to call them PIGS  IE 40 to 80 year old homes.

If you replace the major components at the time you purchase IE

1. Roof

2. HVAC and aircondiitioning

3. New pex piping throughout

4. Upgraded electrical panel and or wiring.

5. new dual pain energy effiecent windows.

6. Great foundation to start with.

7. proper drainage around the home and keep it that way.

8. cabinets and counter tops along with new bathrooms with all tile.

9. Limit carpet NO carpet is best.. Ceramic tile in the heavy traffic areas or snap in fake wood flooring

Even with all that you could buy a property in Dallas and have soil expansion issues that just can't be helped and end up with a 3 to 10k problem at anytime in the future.. YOu could have massive hail damage and have to pay your deductible on your insurance for new roof etc.

you could have the tenants from Hell that trash your unit causing major turn over costs.. I had one of mine do 40k in damage LOL.. in one house.

Rentals are Rentals are Rentals.. if people think they can buy these and not experience operational costs and ups and downs then your under a fall impression.. Can you mitigate a lot of this of course you can.. but buyers tend to want the most bang for the buck because this generation of investor is brained washed into thinking its all about cash flow .. appreciation is just luck or speculating.. I postuatle that you need to take that into account if you actually want to make any money in this business.. unless you have the ability to scale greatly or buy large Multi like Serge.. you need some appreciation to have a profitable investment down the line.   and many times that means buying A class for even or negative cash flow.. but you make 100k when you sell... takes a lot of months at 100 a month positive to get to 100k profit.