Spartan Invest Turnkey Case Study

[Blake La Grange]

Hey guys!

Just wanted to start a case study based on my experience with Spartan Invest out in Birmingham AL. After some experience with purchasing my primary residence with a detached guest house (first cash-flowing deal), I was excited about passive RE investing. I tried wholesaling, and couldn't pull the trigger because of all the moving pieces that had to be put together. I knew it was something I COULD do, but didn't WANT to do. So, turnkey it is. After having a conversation with someone from Morris Invest, I was disheartened to see how they do things, and started searching through my podcast library. Norada RE started to get me thinking about other turnkey options, and I stumbled across some interviews featuring Maureen McCann who is the Sales Director and Partner of Spartan Invest. I was super impressed with the Alabama market. The numbers are shockingly amazing. I was even more stoked on Maureen and Spartan. After already being prequalified...I decided to reach out.

September 14th: First attempt.

Called their office and also emailed them. Got on the phone with a pleasant receptionist who told me it would be best to chat with Maureen. Was told she was out of town on vacation and that I would receive a call back that day or tomorrow.

September 15th: Second attempt.

Called at the end of the day, was told that Maureen was still settling back into the office. 

September 18th: Third attempt.

I found Maureen's number online and just texted her. She responded within minutes. Got on the line with her immediately. Chatted for over an hour. Was totally sold on her and Spartan. Turns out we share our hometown! Answered all my questions, was really helpful and sweet. She also walked me through some deals and strategies that could be beneficial for me. It was SO much better than my cold, 3 minute phone call with someone from Morris just looking to sell C- homes at 40k. Was thankful for Maureen. Could not be more stoked on her. Was told she would follow up with an email introducing me to her assistant. Got sent an email telling me I was on the waiting list and that it would be a month before I could get any properties sent to me. She also sent some property examples of some of their recent work. 

October 4th: I get sent a batch of properties.

I was excited to receive the property list 2 weeks early and immediately went through an analyzed all 12 that were sent to me. I was told I had to act fast and let them know if I wanted one and if I wanted to order for multiple inspections as well. I tossed out every property that didn't at least cash flow 300/month. I landed on 2. Picked 1. Here are some numbers on the property I liked:
-117k purchase price

-1100 rent

-B neighborhood

-Cash flow: 230-330/month depending on how you analyzed the deal

I asked to reserve that one, and opted to throw in the inspection reports. I got an email shortly after saying that it was mine and they took it down from others being able to have access to it. Was sent a contract to sign. It was more of a formality showing that it was reserved for me. They would start renovating it and it would most likely close on Dec. 1st. Note at this point, I haven't put any money down.

October 5th: Had questions about purchase price and appraisal

Was able to email them and see if I could get on the phone with Maureen. She was available within 24 hours. Was told that it's very rare the appraisal comes in lower than purchase price and if it did, they would make it right. Was excited about that answer. I just wasn't used to paying the asking price. Here in San Diego, my offer on my primary was significantly lower than asking. That's just how it works out here in this type of market. Either way, was encouraged by my conversation and Maureen told me she was excited about the deal I got. I signed the contract and waited.

October 10th: reached out to be sure my contract was effective

I didn't hear back and usually am used to a more active role with this kind of stuff. I was prepared to set up my lender with these guys but evidently (after not hearing back, trying again, then getting a response a few days later) they were already on it. Super cool! I asked for some renovation photos. Was told I would get some when the time comes. Was also told to sit back and take their lead. I was happy to do so. 

I will keep you all posted with as much detail as possible and hopefully we can analyze this together. I also hope this encourages investors to take the plunge and TRUST but VERIFY.

-b

[Chris A.]

@Blake La Grange glad to see you starting your own case study! More and more people need to do this and share their experiences! Your experience sounds very similar to mine and rest assured Spartan's makes the process very easy and hands off. I typically like to be very involved, but once I let Spartan take the wheel, it was a breeze.

2 questions for you:

1. Which lender do you use?

2. How did you analyze the deal? Would love to see the numbers you used

Cheers!

[Blake La Grange]

@Chris A. I love that you chimed in here. It's encouraging to me and other investors to have this community to invest and discuss together!

1. I found my lender through Norada RE. His name is Aaron at Security National Mortgage. He is AMAZING. Been doing this forever. Spoke my language. Looked at my current situation and told me we can do it all day long. Such a pro.

2. I just plugged in my estimated mortgage (20% down using my HELOC, 5%, 30 year fixed blah blah), Insurance, Property Taxes, Property Management...then worked out my Cash Flow and COC. My COC is through the roof because I'm using no cash (HELOC). But my Cash Flow is in the 350/month area. I then factor in 4% vacancy and 4% maintenance, then that brings it down to around 250/month.

Hope this helps!

[Vivek Khoche]

@Blake La Grange- Congratulations! 30 seconds review it's going to be a stretch.

Good Luck

Vivek

[Anthony Bertolino]

Hey Blake,

Thanks for the post. As I stated in Chris's thread, I have yet to do research on the turnkey investment approach but it seems quite lucrative for the likes of us with full time careers.

What made you go for this approach?

I will be following along with your posts.

Cheers!

[Jay Hinrichs]

would also be great if you would leave a review on turn key reivews.. the good operators need to be recognized and turn key reviews gets thousands of hits a month.. its free and no squeeze page or spamming.

@Blake La Grange  after owning well over 350 of these types of homes.. 4% vacancy and 4% maintenance is about less than half of what its really going to run you over a 5 to 7 year term its more like 10 to 12% for each.. sometimes you do better but rarely.  so caution you on trying to make your numbers look good.. instead of dealing with reality.. if you do better great but under capitalized investors are the one's who lose proeprties.. NOt saying your under captilized however you want to be realistic also.

[Blake La Grange]

Hey Jay Hinrichs

Thanks for chiming in (as you always do on these threads).

After analyzing the data at Spartan their numbers are something like 97% occupancy. 2 year leases. Good stuff.

Even if it did hit 10% vacancy and 10% maintenance which is asinine to think that 20% of the income goes to that...I am still a happy camper with my strategy.

Thanks for the input!

[Jay Hinrichs]

@Blake La Grange  just run your numbers like a stress test if you run that at 10 and 10 and you do better your laughing .

if you hit them your not shocked.. if the deals don't work then reassess... I have been buying these since 2001.. and have owned probably 55 to 65 homes in Birmingham personally.. so have a little bit of working knowledge.. I agree though Spartan does a superior job.. all in all.. my partner there in B ham always speaks highly of them. Red roofs and all..

one month of vacancy is 1/12 th  of income. pretty tough to have a tenant turn over take less than 30 days by the time the tenant moves out turn over happens new tenant moves in.. if you can hit those 2 year leases then you can cut that down a bit.. but folks break those leases as well.. and most turn overs are going to run 1200 to 2k.  but some will be better but you will see... in the long run this is what it cost to be a landlord.

[Jay Hinrichs]

@Blake La Grange  so at turn over you vacant a month and you have a ONE MONTH RENT up fee.. unless your PM is doing it for free which most don't do.. so that's two months rent right there.. first year your fine its subsequent years you need to be planning for.  like I said just be uber conservative in your numbers so your not disappointed.. things just never go as planned.. its always takes longer and it always cost more.. LOL..

[Blake La Grange]

Super helpful Jay Hinrichs ,

I notice you seem to be the in house “well actually” guy on here. Do you recommend a better way to do turnkey that excites you and encourages you to tell others?

Would love your thoughts.

-b

[Jay Hinrichs]

@Blake La Grange  I think your fine I have followed the Morris thread those folks I can't believe are still buying that stuff given the horrific customer service they are talking about on the threads and investing in the D class  markets that we all know simply never perform over time.. I think your doing the exact right thing your buying at the top of the B ham market.. anytime you buy at the top 1/3 of a given market your chances of a bad day go down exponentially...

although many will go for those urban core high yield props but I don't see those as a good place for inexperienced investors or first timers.. I see those for folks that can buy 10 to 20 of them and income average them.

[Blake La Grange]

Jay Hinrichs
SUPER helpful. I seriously don’t know how Morris gets away with what they do. Those markets are so scary. Appreciate your insight, thought, and encouragement. I’ll keep everyone posted as time goes on :)

[Soh Tanaka]

Just curious, how much is the property tax and insurance?

[Dan H.]

Originally posted by @Blake La Grange:

@Chris A. I love that you chimed in here. It's encouraging to me and other investors to have this community to invest and discuss together!

1. I found my lender through Norada RE. His name is Aaron at Security National Mortgage. He is AMAZING. Been doing this forever. Spoke my language. Looked at my current situation and told me we can do it all day long. Such a pro.

2. I just plugged in my estimated mortgage (20% down using my HELOC, 5%, 30 year fixed blah blah), Insurance, Property Taxes, Property Management...then worked out my Cash Flow and COC. My COC is through the roof because I'm using no cash (HELOC). But my Cash Flow is in the 350/month area. I then factor in 4% vacancy and 4% maintenance, then that brings it down to around 250/month.

Hope this helps!

I think your COC thought is interesting because it is your money. If you wanted you could place this money in stocks, bonds, note, reia, etc.

My point is that it is not other people’s money.  It is money that is yours that you are trying to leverage better than its previous use.  

To word it differently I seldom have cash for a purchase. I take it from another source whether it is my brokage account, a refi of a property that has excess equity, etc. this is not the same as using other people's money, a zero down purchase, or obtaining all investment back out such as with the BRRR method or other forced appreciation, value add effort.

As has already been pointed out your maintenance/cap expense is way to low.  Your vacancy is too low if you PM has a significant charge for placing a new tenant.  For example if the pm charges a full month rent you typically will have 2 months of lost rent at tenant turn over.  If the PM has zero charge for this your number is slightly aggressive but ok. I use 5% vacancy on my self managed but do better than this but I suspect if I had a PM running things they would not be able to regularly get the next tenant in as quickly as we do. 

@Jay Hinrichs has a lot of experience but my cap expense estimate spread sheets show that I do not achieve his 12% number if it includes maintenance and cap expense.   Basically I claim your 4% maintenance is more than a factor of 3 low if it is meant to cover maintenance and cap expense (but I trust Jay is achieving the numbers he indicates but my spreadsheet show I cannot achieve 12%).  

Good luck

[Blake La Grange]

Hey guys!

Hopefully I can answer these questions with clarity:

@Anthony Bertolino I wanted to leverage other people's experience and knowledge so that I could be in a safer position to invest out of state. TK is a no brainer for someone like me (own my own business, have the know how and time to invest out of state, but) would rather have the safety-net of a TK to be the best boots on the ground possible.

@Soh Tanaka Insurance: around 880/year...Taxes: around 1162/year.

@Dan H. I totally agree with everything you said. Note, I never claimed I am using other people's money to invest. I am just using my HELOC to move equity from one house to another. Same amount of equity, controlling 2 properties. Regarding my estimates being too low, thanks for your opinion. It seems as if everyone has an opinion ;)...I have looked through countless spreadsheets of historical data to average those numbers. Thanks for looking out, but I have done due diligence. And again, even if I am paying 20% total for maint/vacancy, I am still a happy camper. Maybe @Clayton Mobley can weigh in and speak to my estimates. It might be best to hear it from the horse's mouth :)

[Dan H.]

Originally posted by :

Hey guys!

Hopefully I can answer these questions with clarity: ...

@Dan H. I totally agree with everything you said. Note, I never claimed I am using other people's money to invest. I am just using my HELOC to move equity from one house to another. Same amount of equity, controlling 2 properties. Regarding my estimates being too low, thanks for your opinion. It seems as if everyone has an opinion ;)...I have looked through countless spreadsheets of historical data to average those numbers. Thanks for looking out, but I have done due diligence. And again, even if I am paying 20% total for maint/vacancy, I am still a happy camper. Maybe @Clayton Mobley can weigh in and speak to my estimates. It might be best to hear it from the horse's mouth :)

I was responding to "My COC is through the roof because I'm using no cash (HELOC). " The HELOC does not apply to help your COC because a HELOC counts as Your Cash versus 0 down or other people's money.

4% of $1100 is $44. That is about what my spreadsheet indicates the cap expense is on a kitchen. A hot water heater is ~$8/month (Cost ~$1200, lifespan 12 years (144 months): 1200/144=$8.33). Basically you need to verify the cap expense numbers you are provided and your 4% estimate for maintenance/cap expense did not give me confidence that you verified the numbers. @Jay Hinrichs has 40+ years of experience. If he can achieve 12% of rent for maintenance/cap expense on a rent of $1100 for SFR it is because he has 40 years of experience because I cannot cover maintenance/cap expense on an SFR for $132/month (or even that close to $132/month). I suspect I may be able to achieve this with apartment units. So my hope you do your due diligence on actual cap expense costs.

Good luck

[Blake La Grange]

thanks @Dan H.

[Rob Hakes]

@Blake La Grange

Thanks for sharing your experience.  I have been in the process of getting my first property with Spartan Invest for the past few months as well.  Your initial experience seems very similar to mine.

I selected a property towards the end of June, and they just finished this last week with the renovation.  It seems that they had to do a lot on this one so it took a while. I will be starting the closing process in the coming week.  Hope things go well with your.  I will let you know if I hit any major bumps during closing. 

[Justin R.]

Very cool - I hope you'll continue posting updates on the experience ... know that I (and others) will be following along.

While the sales experience is interesting for something like this, it's really the ongoing operations that will make it a successful investment or not.  I'm prone to put weight on Jay's guidance - it's based on significant experience backed by significant data and matches the general guidance shared elsewhere on the forums. I haven't seen anyone stand up and say, "I've been doing this for 10 years and those numbers are way off."

Anyways, watching these things is how we learn...

[Blake La Grange]

@Rob Hakes Good luck on that! Please keep me (and all of us) updated on your deal!

@Justin R. I will definitely keep you and everyone posted as things progress. I am so thankful for @Jay Hinrichs and his experience. It's so awesome that there are pros on here to help people toward their investment goals. Going back to the numbers, I'd like to clarify some things. The reason I have been so lax on the percentage for maintenance and vacancy, is because I am leveraging Spartan's knowledge and have done plenty of due diligence to know that I am a good spot to minimize all the red flags that come with this business. With that to say, if I can be crystal clear, even if I am estimating 20% total for maint/vacancy, I am still super happy with this deal. Again, maybe @Clayton Mobley and speak into their estimates and how they estimate.

Have a great weekend everyone!

-b

[Jay Hinrichs]

@Blake La Grange  as long as your happy then that's all that matters.. as long as you have some realistic expectations just INCASE  then that's great... I find in this business some things go cheaper than planned and some go as planned and some go way over budget.. its always good to error on the caution side is my motto..

I think you will see most of those that give feedback on BP usually comment about under estimating running costs.

[Blake La Grange]

@Jay Hinrichs totally agree. Thanks Jay for your thoughts. I'll be updating everyone as things move along!

[Clayton Mobley]

@Blake La Grange my apologies for this delayed reply! I didn't receive a mention notification and only stumbled across your posts when I was sifting through my billion keyword alerts and saw you mention my name. Better late than never I suppose ;)

To answer your questions - we don't estimate our rates, we track them daily and use actual data from past performance. We hear the whole 'that's too low, you're underestimating' thing quite a bit, but data is data. Just to be clear on which items we're discussing, here are some notes I give any prospective clients about our ROI spreadsheets, with thread-specific addendems for clarity:

1. There are three pages to each of our spreadsheets. The first is meant to be an apples-to-apples comparison to other companies that leave out maintenance and vacancy, which is not accurate. But if you don't have numbers to compare like that, you often don't get a chance to explain why it looks like you have lower returns....such is the state of the industry right now.

2. Ok, so with that little disclaimer out of the way… we try to combat this bizarre industry standard by adding two other pages to each spreadsheet that are where the real info is. The second and third pages show real-world ROI estimates for both 15 and 30 year notes, including amortization tables to show you how having tenants pay down your loans increases your returns each year.

3. As I mentioned, we use figures based on our actual, historical data. Since those numbers have decimals, we round for ease of use. In general, we use slightly inflated figures - partly to keep things conservative and partly to account for changes in our expenses over time. For example, we use 4% for both maintenance and vacancy but our actual rates are 3.1% and 95.3%, respectively. We understand that as our portfolio ages, our maintenance rates may go up a bit, so we build in a bit of a buffer. However, because we do such intensive rehab and the vast majority of our props close with brand new CAPEX items in place, we estimate that it should still stay at 4% or below.

4. In terms of our occupancy rate, we spent most of the past couple years in the 96.1 - 96.9% range, which is fantastic. This is why our ROI sheets show 4% - adding in a bit of a buffer for future changes. However, as you all have noted on this thread, we have enjoyed a bit of a boom lately (thanks to you guys getting the word out there!) so we currently have more than 100 properties under renovation as we scale up to meet increased demand. Our current occupancy rate, therefore, has dipped a bit in the last six months, and now hovers in the 95.1% range. This is still way above the industry standard, but it does give a vacancy of more than 4%. That being said, we expect it to pop back up again as we continue to improve and scale our operation.

To lend a little credence to that supposition, I recently spoke with Scott (our development coordinator) who gave me some great stats. Of the properties that have closed or will close in the current quarter, 57% will close with a tenant in place! That means more than half of our new investors (or those who are expanding their portfolio with us, thanks guys!) won’t experience a single day of vacancy before they start cash flowing. We have very stringent requirements when it comes to both rehab quality and tenanting, so while we promise that the downtime between property selection and closing, though annoying, is worth it in terms of minimizing maintenance costs, maximizing resale value, and attracting quality tenants, we’re also pretty proud that we’ve been able to place so many tenants for our investors before closing documents are even signed. Looking further back, our average rate for the previous three quarters is 37.7%, which isn’t quite as amazing, but I think the difference between these two figures speaks to our efforts over the last year to scale our operations and staff to meet needs. 20% is a considerable improvement over the course of a single year.

The flip side of that coin, of course, is that 43% of our new sales this quarter will close without a tenant in place, so it’s not a guarantee that we find the perfect person right away, but we are working hard to make sure each and ever client has a responsible, clean, employed tenant in place as soon as possible.

5.Ok back to the ROI calcs. We also use a 9.4% prop management rate on our spreadsheets, but our actual rate is 9%. This is just to keep the ROI estimates conservative, not because we anticipate it changing. This also leaves in a buffer for when you have a tenant change and helps account for the possibility of a new leasing fee. This likely won't happen every year (can't be promised, but our average tenancy is 37 months, minimum lease is 24), but having that buffer built in helps keep your ROI estimate on the conservative side of realistic.

Again, with regard to maintenance (which seems to be the primary subject of discussion here), we understand that this rate may go up as our portfolio ages, and we are upfront about that. While we do install brand new vinyl flooring, granite countertops, new HVAC systems, and new roofs in 80% of our rehabs (sometimes those items are already pretty new) we know that the longer you hold a property, the more likely it becomes that a large cost will come up. This is one reason we incorporate a bit of a buffer, and we always encourage clients to keep a cash reserve in place for unexpected emergencies. That being said, we never defer maintenance (keeping long term issues to a minimum) and our maintenance rate does include net move-out costs (after accounting for security deposits), so we feel this is as comprehensive a figure as could be offered. 

Now, if you want really be conservative, all the blue cells on our ROI spreadsheets are changeable, so you could always put in a higher maintenance figure to plan ahead for future capex items. Then, in years where there isn't anything big to take care of, your returns will be even higher than our projections. It's up to you how you want to plan for the future, we just provide our actual historical data as a jumping off point, so at least you have an accurate place to start.

I hope that helped answer some of your questions - I know it’s yet another typical mammoth post ;) If anyone has any questions please feel free to shoot me a PM or tag me here. I’ll try to check in more frequently. I try not hover on these threads because I feel like having a lot of input from a Spartan shill like me sort of defeats the purpose, but I also don’t want to keep missing questions from people when BPs tagging mechanism fails.

All the best,

Clayton

[Blake La Grange]

@Clayton Mobley thank you for your insight and information! Seriously, so thankful to be working with a company that the CEO responds and weighs in when needed :) All the more reason to be excited to move forward with you guys!

-b

[Justin R.]

@Clayton Mobley Really appreciate and am impressed that you've taken the time to share those details.  From the sounds of things, Spartan is treating their clients right, operating as best it can, and overall doing good.  I'm cheering on everyone involved in the quest to exceed all financial projections.

As you said, data is data.  It's up to the investor to figure out which data to act on.

A couple things taken from the most recent NAA operating income and expense survey (the subject market is in Region IX).  This data spans ~150k units across the various US regions and with varying ages:

FWIW, the economic loss percentages are at essentially historic lows.

Note this isn't apples-to-apples to this conversation since that data is derived from operating larger apartment communities that have economies of scale, staff on payroll, and other significant differences.

Just data.

[Blake La Grange]

Super helpful @Justin R.

I love looking at the actual data. Data is data.

-b