Experience with USREEB?

[Andrew R.]

Hi, I'm looking for input / review on working with US Real Estate Equity Builders (USREEB) in Kansas City, MO. They do mostly turnkey-ready investment homes.  Thanks for any input on this company. 

[Christina Carey]

@Vince Scolari I can't speak for anything in Kansas City, but many of the properties I'm seeing USREEB advertise here in Dayton, OH are priced solely according to cash flow, not a realistic appraisal value. Most are also located in C/C- neighborhoods with little-to-no potential for appreciation. A single-family house in a residential neighborhood will be appraised using the sales comparison approach, and most appraisers don't bother completing the income approach section of the report, because it simply isn't relevant.

So, when you try to sell something like the above-mentioned properties whose price-to-value ratio is skewed, getting anything close to what you paid will be difficult, if not impossible. A lender will order an appraisal for a financed buyer, and the only thing they will care about is the value according to the comps. If you're lucky, you'll get a clueless cash buyer who doesn't perform their due diligence and is happy just to write a check.

In the last few months or so, I've been called upon by numerous out-of-area buyers to independently verify market value, neighborhood type, etc. for several of USREEB's properties. In some cases, they didn't reach out until there was already a purchase contract. Many times, the buyer was already skeptical of the deal (or deals - some involved more than one property), and my opinions only confirmed what they already were thinking. In all but one case, it took only a few minutes for me to determine there was simply nothing to support their asking prices on those properties - or anything close for that matter. So far, not a single investor who has contacted me over a USREEB property has followed through with a purchase.

Now, I'm not saying that all their properties in Dayton are bad deals - I do see a couple advertised right now at retail prices, with a realistic rent projection. I also see a couple that are rather optimistic on asking price, as well as rent though, so looks like 50/50 potential odds of a fair deal overall, pending further research of course. Based upon this thread, it seems like the vast majority are happy with their KC investments. They also have a much longer track record in KC than they do here in Dayton. Maybe they have a better team in place there vs. Dayton; it's more difficult to manage remotely when you aren't intimately familiar with the market here, and don't have direct eyes on the day-to-day, like it appears things are in KC. Time will tell, I suppose.

By the way, if you're paying retail price for a property - and you will if you want a turnkey rental - it should be fully stabilized at that price. What does that mean, you might ask? It means that all the major capital improvements (roof, windows, HVAC, electric service, plumbing system) are new/newer and are verified as having substantial life remaining, AND the finishes are all in good repair, and in line with what's expected for the neighborhood in which the property is located.

For example, a house in a B+ neighborhood should not have a 60-amp service with an old fuse panel, nor should the kitchen remind you of your grandparents' house that hasn't been updated since they bought in 1950. In Dayton, air conditioning is not optional; if the tenant must suffer with a window AC unit, unless you're in a D area, your rental rate will also suffer. In any neighborhood in any city, a roof that has only "a few years left" warrants a discount equal to the cost of the improvement. Same goes for a 30-year-old furnace, or a 50-year-old house with original windows. In other words, a property that will need thousands upon thousands in capital improvements within the first few years is not in retail condition and should be priced accordingly.

But I digress .... I'll echo the other posters over the course of this year-long thread: no matter who is selling, or where the property is located, please, please, please, for the love of all that is holy, do your due diligence! That includes independent verification of market value, projected rents, neighborhood quality, and property condition before you close the deal. By the way, that also includes a plane ticket - at the very least you should visit a new area once, before making your first investment there.

Also, know what you're buying! What one person calls a 3rd bedroom might only be a room in the basement with no secondary egress ... or it's a finished attic with six-and-a-half-foot ceiling that doesn't qualify as living space at all, much less a bedroom, unless maybe you're one of the lollipop kids. This may sound silly, but verify the number of bathrooms. You may find that the "second bathroom" is only a toilet in the middle of the basement and IF there is a "shower", it's just a faucet on the wall near a floor drain. I've been in locker rooms with more privacy. Do you think these things might have an impact on the rental rate? I'd love to say I'm exaggerating just to make a point, but sadly, I really do encounter properties like that around here. All. The. Time. Real estate agents are absolutely the worst offenders in this arena.

Anyone can put numbers in a spreadsheet and make it look pretty. For those of you who are afraid to spend a few bucks before you invest your money in any new city, think about what it would be like if some unforeseen life event forces you to liquidate, only to learn that you spent $95K on a property that was only worth $50K when you bought it a year earlier. How does that $500 plane ticket sound now?

Bottom line is this: trust, but verify. Do your homework before you write the check.