Ask About A Real Estate Company
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated almost 5 years ago, 03/01/2020
Spartan Invest Turnkey Case Study
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
@Rob Hakes thanks for listening! Hopefully it is helpful for some people with equity in their home. I'm hoping to refinance to get a bigger HELOC to do more investing!
Stoked to be on a similar path with you!
This thread has been awesome!
@Blake La Grange Thanks for doing the case study, and being so transparent about it! I have looked into turnkey myself and actually stumbled upon this thread by researching Spartan. Hope you keep us updated as this continues to progress.
Thanks @Justin Harrod!
Hopefully it's been helpful :)
-b
Congrats on the great deal. Now did Spartan Invest did the tenant search and sign for you as part of their management agreement or you had to do that yourself?
@Johnny Le they did everything!
@Blake La Grange I listened to your podcast on GRE and read through your case study, it has been a great learning experience and thank you for sharing your knowledge. I am in the midst of investing in my first Turnkey RE property and hope to start this with Spartan Invest over the next month.
Thank you for the words of wisdom and will keep the group posted on my experience.
@Brendan Chisholm my pleasure man. So glad it all has been helpful!
-b
Great Podcast Blake! Thank you for sharing your journey on there. The appraisal coming in $30k more than you bought it is amazing. I just closed on a property with Spartan last week. It appraised for $6k more than my purchase price so I’m happy about that.
@Johnson Lo congrats! It's so great that these homes that Spartan sells are priced so well!!
-b
Originally posted by @Johnson Lo:
Great Podcast Blake! Thank you for sharing your journey on there. The appraisal coming in $30k more than you bought it is amazing. I just closed on a property with Spartan last week. It appraised for $6k more than my purchase price so I’m happy about that.
Can you provide details of your purchase and figures?
@Blake La Grange@Rob Hakes Fellow Ramseyites. I do not dispute the power of living of a debt free life but l would say that to use debt to buy responsible investment properties is something that I have embraced just like both of you did. I am also on the waiting list for Spartan and this thread from Blake and @Chris A. was very helpful to fill in any gaps such as the PM cost of onboarding and lease-ups. I do own SFRs in the twin cities in a partnership but planning to buy a property in Birmingham as well.
Thanks for doing this, it was so informative. Did you ever go to visit in person or did you do everything from out of state?
Hey all, sorry to barge in uninvited, but @Ahmed Iqbal mentioned in a note to me that it might be helpful for him and other potential investors if I put a post on a thread about exit strategies. I'll try to keep this brief (ok, brief for me ;)
The TL;DR is: Basically, the lower you go on the property class totem pole, the less likely you are to sell to an OO.
So, as many people have discussed here and elsewhere, turnkey is not a short-term investment. I think we're all on the same page there. If you buy a turnkey property, a real one, you'll be paying market price for a fully rehabbed, rent-ready property. If you sell a few years down the road, you won't be making anything on that transaction. Tenants haven't had time to make a substantial dent in your loan, and closing fees will eat up any meat on the bone.
So, let's assume we're all talking about long-term exit strategies, 15-20 years down the line when tenants have bought you 60-80% of a house (depending on loan term and accelerated pay down, etc). Naturally, the goal will always be to sell to an owner-occupant. That's the group that pays market or higher, falls in love with a home and buys based on emotion. The other option is to sell to another investor, who is going to try to get as good a deal as possible (and can we blame them? it's what we'd all do). Many people say that turnkey properties only sell to other investors, and while that's sometimes true, it's not 100% true. Like literally everything else in REI, it depends on the location and the individual property.
Of course, we know that the nicer the property, the more likely it is to sell to an OO. In Birmingham, properties in the Over the Mountain zips (Homewood, Vestavia Hills, etc) are easy to sell to OOs because everyone wants to live there and the people that can afford to rent in those areas can usually also afford to buy. It's all higher income, A class properties. Investors mostly don't look in those areas anyway because the cash flow is so low.
B-class properties can go either way, really, depending on the area. In places like Pinson and Trussville, you'll find more standard B properties, with fantastic rental demand but not as high appreciation potential. These properties rent quickly and have low turnover, so they are great for cash flow investors. However, you are less likely to sell to an OO (assuming current trends hold stable over the next decades) - these areas are great for rentals, which means that's where investors go.
On the other hand, places like Grayson Valley and Chalkville are popular among renters with families because of the schools, which means it's also popular among OOs for the same reason. This is the kind of area where you could have a 50/50 chance to sell to an OO vs an investor.
The closer you get to high-end props (like Leeds and Moody, which have a mix of A and B, but more As) the better your resell potential becomes. The flip side is that they also tend to be pricier for the exact same reasons.
So, if your focus is on cash flow, a B property in a working-class area near employment centers is going to provide better monthly income but will likely sell to another investor down the road. If cash flow is secondary to appreciation, get the nicest property in the nicest area you can afford with numbers that still work - you won't make much each month but you're more likely to sell to an OO down the road. In B/B+ areas with a pretty even distribution of rentals and OOs, look at neighborhoods with good schools and easy commutes, wherever possible, to maximize the chances of getting an OO buyer. Think about the type of home you would buy if you weren't able to get into the high priced A areas. Most people want the same things in a home, so if exit strategy is a primary concern try to buy a property you would buy (or would have when your income was lower) for your own family.
And remember, exit strategy is an important consideration, but it shouldn't be the deciding factor in any turnkey investment. There's no surefire way to know what any area, in any market, will look like 20 years from now. This is why we always focus on cash flow as our primary goal, because the future is never guaranteed.
Hope that is helpful, though perhaps off topic for this thread right now, sorry. This is mostly so future researchers can see my take on this in one place ;)
All the best,
Clayton
@Blake La Grange how is your home with Spartan Invest doing this year?
@Kevin Lee it's literally all over this thread and explicitly told in the podcast
@Jason Goslinga excellent! Could not be happier :)
@Blake La Grange how have things been after the one year mark? Things still going good? Thank you.
@Blake La Grange Finally got through this thread. Thank you for sharing it. Alabama is on my list due to their low property taxes and I'm very interested in Spartan Invest. Can I ask why you chose to use the HELOC over a home equity loan? I'm asking from a beginners point of view.
Thanks again and also to everyone else who added information to this thread.
-Shawn
@Blake La Grange Hi Blake, I am a newbie and currently trying to be a good student in BP. I wanted to thank you and the BP team here for this thread and all the information you have provided me.
Question, similar to @Joanne Ngo's
I will have to guess that you have never visited this property in person, right? I can speak for many newbie out here who are really scared $hitless to purchase anything from OOS lol. Looking for some courage here :) thx all!
Very helpful thread! Thanks for all the great information. @Shamim Arman I'm not super experienced but I can share my recent experience purchasing OOS sight unseen if you would like - feel free to PM me.
To all,
Yes I have not seen the property in person! Also, chose the line of credit for greater flexibility and liquidity.
@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: 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. 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, ClaytonOriginally posted by @Clayton Mobley:
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.
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.
Better late than never ...
You understand the limitations of your using actuals for only the first 10 years of the lifecycle but I am unsure that all readers have this understanding.
Virtually all components on a house have a lifespan greater than 10 years. This is especially true of large ticket items like roof, electrical, plumbing, HVAC, windows, hardscape, and foundation. It is also true of all those less costly items that add up like water heater, fence, paint, refrigerator, most flooring, etc. Therefore, I cannot imagine how your number is as high as 4% (very little should already need maintenance/replacement) but I can also tell you that it will not remain 4% going forward 10 more years. How do I know this? 1) I have seen the numbers that @Justin R. posted from apartment associations about the cost associated with large unit apartments. The cap expense/maintenance for a apartment in a large unit apartment will be significantly less than for a SFR but their numbers are significantly higher than 4% (starting at about 6% depending on the region of the country). 2) I have filled out a spreadsheet for my properties with cost and expected lifetime to derive a best estimate of forward maintenance/cap expense costs and my costs are significantly higher than for the apartments which makes sense because they have economy of scale on pricing and because they share an infrastructure (roof, foundation, hardscape, etc.) across a lot more units.
I do not know how forthcoming you are (you seem quite forthcoming in your responses - Bravo) with the fact that you know that 4% is not adequate to cover the lifetime maintenance/cap expense costs. I want to point it out for those that are not experienced enough to determine this.
I do appreciate you responded and that your response appears to be an honest response. When I initially saw the 4% value I figured it was literally pulled out of the air so that it appeared to the TK investor that it was accounted for. It is not fully accounted for with 4%, but you do indicate how the number was derived.
Hi all -
Newb here, so please forgive me if my questions are a little mundane. I've read through this thread, and I am a little confused about taking a loan VS. Cash buy. I believe the Spartan owner and another poster said something about taking the cash flow and putting it toward the loan is the best way to go - that way you're paying down the loan quicker and building the equity.
But I'm not totally sure I understand this logic. If you can buy a house for $100k cash or put $25K down on each of four houses, isn't the latter better? You're essentially quadrupling your returns with leverage. And if the cash flow is covering the loan on each of your four mortgages, why would you want to pay it down sooner?
I am asking this because I have about $200k in cash to spend, but I'm not understanding the value of buying a house outright and tying up all my money. For one, it'd take liquidity away. But it would also reduce the potential tax write offs - like mortgage interest, right?
Would appreciate any feedback.