My first Turn Key deal - its not impressive...

[Mike E.]

Ok so I am extremely embarrassed to put these numbers out to the public but hopefully someone can learn from my amateur mistakes...

I bought a house in DFW area from a Turn key provider, apparently the best in the business (Memphis Invest). I flew out, spent the day and was satisfied with everything I saw. So I am ready to make the move... Well hit some hiccups along the way and ran into much higher insurance than what was proposed - by about $500  The estimated number on the initial estimated sheet looked like this-

Purchase - 128,900

20% down - 25,780

closing costs - 1,500

Rent approx - 1,225-1,325

Est Prop Taxes - 2,329

Est ROI - 13.46%

Est cash flow after fixed expenses- 13.46%

Hooray! Right? Nope, wrong... Here are my actual numbers 

Purchase - 128,900

Down payment - 25,780

Closing costs -  2,966

Prop Taxes - 2,842.8

Insurance - 190.58

Rent - 1295

PM Fee - 129.5

Actual cash flow after expenses and 5% vac and 5% expenses - $92.80

Actual ROI - 3.7ish %

Folks, not that I didn't know before, but ALWAYS, I mean ALWAYS check ALL of your numbers. Also, never take anything for face value when dealing with anyone. I thought I could trust my "adviser" but that clearly is not the case. I am quite embarrassed as I clearly did NOT analyze this enough... I did work my numbers, but when everything shook out at the end these are the real numbers. I found myself half way into this deal with my earnest money on the line and almost walked away the day of signing as i wasn't feeling comfortable, but I clearly should I have.  I really wanted to make this work for me as I am a busy professional that doesn't have the time to go to auctions/hunt through mlls/finds deals, rehab, list, repeat... I am also in market that you cant buy and cash flow out the gate, we are also on the high end of the market fluctuations right now in So California. 

I am definitely going to look at other strategies and perhaps other turnkey companies to see what else might possibly make sense. I have a goal to acquire many more properties in the coming years, my primary target currently is 10 in the next 6 years. I have already bought 1, so 9 to go! Any tips, advice, strategies or opportunities are welcomed- please PM me. 

[Chris Clothier]

So, I held off from posting on here yesterday because I felt like the best course of action is always to call the client directly if someone is not happy.  That is what any good business owner should always so first.  Second, I listened to what he had to say and immediately offered to buy this property back full price plus cover his closing costs.  No dollar figure, no profit number and no sale is worth my families' or companies' reputation.  I made this offer to Mike based on a couple of things:

1.  He had just closed on the property two weeks ago.
2.  I felt that his experience in closing this property was not up to our standards.  He had too many questions and I felt we did not do enough to answer his questions adequately before he closed.  

During the call he took responsibility for being a grown and informed investor and I took responsibility for my team not making sure he was fully satisfied and completely happy with the property and the numbers. I think he struggled to take me up on my offer because he ultimately made the decision that the investment was the right one for him and he closed.  That showed humility on his part and I appreciated it.  Upon further inspection of the numbers, there are a few things that he and I cleared up.

1.  Taxes are $2,369 on this property.  That is pulled directly from the tax certificate and $40 higher than 2014 which is the number we originally gave him.  The Hud-1 was a little confusing and Mike believed that his taxes may have been over $2,800.  They are not.

2.  The property is in a flood zone, but an small, odd one at best with a drainage ditch located a couple of streets away.  The property was listed with flood insurance when it was sold and we were able to provide insurance at a cost of $150 per month to Mike.  He did a lot of due diligence and worked hard on his own to find adequate insurance and eventually went with a policy that had a higher premium and lower deductible. He felt the insurance we provided had too high of a deductible.  That is a very fair assessment and the insurance costs ultimately eat deep into his return.

3.  Lastly, the property was occupied with a paying tenant at closing.  They had signed a 2-year lease and paid the first year in full.  There was some confusion as to was he receiving the full rent from day one which only added to his angst.    

I want to be clear that we do not have a policy nor do we have a guarantee that we will buy properties back from investors.  We do, however, work very hard to make sure that every investor is fully informed and fully prepared and happy with the investment that they make.  We do not deal with these types of situations often if ever!  

But in this case, I thought that we as a team could have done better before Mike closed and met his expectations.  We didn't in this case and, with such a short period of time having passed, I did not hesitate to offer to buy the property back 100%.   

Mike was extremely professional and helpful to me yesterday on our call.  Ultimately it was his demeanor on the call and his handling of our conversation that made this an easy call for me and hopefully I earned the ability to get a "do-over" with him on other properties in the future. 

 As for this one, it is a great property and it will perform.  I have complete faith in the incredible team that we have in Dallas.  However, with it being located in a flood cert. zone and lenders requiring that insurance there will be little room for error.  It will either go into a Clothiers' personal portfolio or possibly an investor with a larger portfolio who will use this property to round out their holdings.