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.]

Congrats Blake! Im sure you mentioned it but what neighborhood are you in? Also curious about which lender you used. Nice on the appraisal btw, maybe refinance and pull some equity out to get another under contract

[Chuck Van Court]

Hi Blake:  Congratulations on your great success!   Spartan clearly has an effective delivery.

The only area that still gives me pause and Spartan has been non-responsive towards answering my questions relates to appraised value and realistic exit options.  Did comps in your appraisal include purchases by home owners rather than just investors?  Would you be willing to share the appraisal? What do you foresee as your realistic exit options in say the next 5 years to 10 years?  

Thanks!

[Blake La Grange]

@Chris A. Thanks man! This house is in Moody. Nice area. Great schools. Standard B class property. I used Aaron Chapman at Security National Mortgage. Closing costs and interest rate is a bit high, but Aaron is a real pro and really stoked on him and his process.

@Chuck Van Court I had the same questions before I signed the initial contract. I was able to get on the line with Maureen and she was really helpful and said that 99% of the time, the purchase price is at or under the appraised value. If it came way under, then I would either pull out, or negotiate a new purchase price. The appraisal included homes in the area from homeowners as well, yes! I am not willing to show the exact appraisal, but I paid a hefty penny for it to get a really accurate and excellent appraisal. As far as exit strategy goes, I don't plan on exiting. And if/when I do, it will absolutely be a 1031 exchange. Once I have 10 of these, I will most likely sell them all, and exchange them for a better cash flowing asset (apartment complexes, new market duplexes etc...)

The notary is coming to our house today! Hopefully this all goes smoothly!

[Chris Ono]

@Blake La Grange - Congrats on the deal! Your appraisal value means instant equity! I've also used Aaron Chapman from SNMC and agree, he's a great guy!

[Clayton Mobley]

@Chuck Van Court I try not to stick my nose into these threads, biased as I am ;) but I wanted to pipe in and say that yes, as @Chris A. mentioned, we look at comps from owner occupants as well as investor-owned properties. One of the reasons we focus only on B/B+ properties is precisely because it's the best of both worlds in terms of cash flow and potential exit. Of course, you won't make any money if you sell a year or two into the investment - that's not what turnkey is built for. This is made for people who want to have a buy-and-hold cash flow generator for 10-20 years. That being said, we choose areas that provide solid reliable income (primary goal) but also have a good chance of appreciation. We look for areas with good rental demand (to further that primary goal) but also places that are attractive to potential buyers, areas that will likely become even more attractive over time- places with good schools, decent commutes, etc. 

While we will always prioritize cash flow over appreciation, we understand it's better for investors who *eventually* want to exit to sell to an owner occupant, not another investor. This is one of the main reasons I'm always so down on C/D class rentals - no one that can afford to buy a home is going to buy in those areas, you will always sell to another investor looking for a deal. The higher you go up the property class ladder, the better your resale potential is going to be down the road, but at a certain point (typically A class props) you're trading cash flow for appreciation and lucrative exits. Not that that can't be a good way to invest, many people prefer appreciation potential to current income. But, since we focus on generating income first and foremost, we like B/B+ class areas - the nice little overlap in the Venn diagram of income and appreciation. 

If you (or anyone else) would ever like to chat with Maureen about this or any other questions you might have, feel free to reach out to her directly or let me know and I will have her assistant get on the line to you to set up a time to talk.

Ok that's enough from me! Happy investing to all!

[Chuck Van Court]

@Clayton Mobley  Thank you for your reply.  I have been emailing with Maureen and her admin, but I have been unsuccessful in getting responses to a few questions for several weeks now. 

Regarding exit options: does your company offer any services and have any historical data regarding reselling any of your investor's properties?   

[Jon Zhou]

agree with chuck about the inquiry. Not every investment is a “forever” investment and shouldn’t be the only option for investors. 

[Blake La Grange]

UPDATE: 2/28 LOAN FUNDED. OFFICIALLY OWN.

Hey guys! I just received the payment slip for the first mortgage payment. I have one month paid because of escrow/closing costs so we now have 30 days to find a renter! Luckily, the property is gaining traction and we have a lot of people coming to see it!

I will keep you posted once we rent it out.

Thanks!

=

[Clayton Mobley]

@Chuck Van Court So sorry for the delay in my response. I haven't been able to give BP the attention I'd like over the last week or so. I am hoping that by now you have gotten some responses from Maureen. She recently did another podcast with Keith over at Get Rich Education and her inbox has been absolutely beyond the pale, so if there was a delay in getting answers I'm going to assume that bottleneck was the culprit. 

Without re-derailing this thread too much, I'd also mention (with regard to your other question) that the vast majority of our investors have not yet exited their investments, so we don't have much in the way of historical data for that kind of thing. As you know, TK is meant to be a long-term thing, and we mean 10-20 years, so if we had ample exit data already, after being founded in 2010, that wouldn't bode too well for our service quality ;) BUT what we do know is that housing prices and rents are continuing to increase, generally, and that fact - combined with our focus on B/B+ areas that attract stable and/or upwardly-mobile tenants - is a great indicator of the likelihood of selling to an owner-occupant down the road. 

Now, we don't have hard data on this yet (we'd need to hire an outside analyst and it would take time to verify long-term trends) but we also have seen an upward trend in comps in the areas we work in. Basically, it looks like (again, I don't yet have hard third-party data on this so I don't tend to bring it up) the work Spartan has been doing to produce high-quality investment properties is actually bringing up the average value in the areas where we invest heavily. This conclusion is based on increasing comps in areas where we work the most vs much less dramatic trends in other areas of the same class, but where we don't invest as heavily. And this trend makes sense: People that live near nice homes tend to take better care of their own, and nicer homes make for nicer neighborhoods, which attract higher-income residents, pushing prices higher, and increasing rents. Over time, that kind of thing can push a B neighborhood to a B+/A-, which drastically increases the likelihood of selling to an OO when you're ready to exit in 10-20 years. We always focus on cash flow first and foremost, but we still think the trends we're seeing on the ground bode very, very well for long-term Bham investments.

Anyway, as you know, I don't recommend making investments based primarily on the exit options. An important consideration, for sure, but not the most important. Maureen, as usual, is the best person to talk to about specifics (now if only we could clone her lol), so I will leave my ramblings at that. Hopefully you and she have already touched base and you've gotten the info you needed.

Ok, carry on! Sorry for the interruption!

[Jay Hinrichs]

@Clayton Mobley I think your post above is right on.. one should not buy these types of homes with the thoughts they are going to sell to OO. Not that the neighborhood may not support it..

but you take a home that has been a rental for 20 years and unless its in Palo Alto or some other insane high demand market.. your going to have to do a Major renovation to bring it to owner occ standards... and owner occ will not accept a home at full retail that is in rental ready shape.

I just went through this in Mississippi selling 11 of my homes they were brought brand new in 04 brick homes A areas.. and even those when I went to sell them.. Needed major updating as much as anyting everyone in those days thought tile counters were fine.. now everyone wants slab granite and stainless etc etc..

So your correct to advise your folks on the reality of selling owner occ.. not that it could not happen I sold all my owner occ but one... but the owner occ is very picky its not like a renter or a landlord.

I think the exit realistically is to another landlord unless they want to do a complete over haul like you do now before you sell them to these folks.. they will need everything brand new roof HVAC windows paint flooring up grade cabinets applainces.. for me just to sell mine I spent 5 to 15k on each home to get them sold..

so from my point of view your message is right one.. buy them hold them pay them off .. if some how they can get sold OO great but don't expect it.

[Clayton Mobley]

@Jay Hinrichs exactly, selling to an OO is always the wish, but they have much different buying psychology than an investor. They may pay more than market, but they also are going to be a LOT pickier. And as you said, you can always work in markets/areas that are more likely to support sales to OOs, but that's no guarantee. And even from a 'cash flow is king' perspective, when you finance a property and hold it long term, even if you only sell for what you paid, your tenants bought you 75-80% of the property! You put $20k down on a $100k prop, collect modest net income for a while, then sell 15-20 years down the road. Even if there is somehow zero appreciation, the $80k difference between your cash in the deal and the sales price is equity your tenants paid for. Selling with appreciation isn't the only way to make money on that sale, although obviously, it is very very tasty icing on the cake lol

[Jay Hinrichs]

@Clayton Mobley  agreed and that is why I think folks should not keep their little monthy cash flow they should throw it at the mortgage and get those houses paid for in 10 to 12 years.. since its not out of their pocket and that's when you get wealth in real estate when you own them free and clear are nearly so.

[Clayton Mobley]

Originally posted by @Jay Hinrichs:

@Clayton Mobley  agreed and that is why I think folks should not keep their little monthy cash flow they should throw it at the mortgage and get those houses paid for in 10 to 12 years.. since its not out of their pocket and that's when you get wealth in real estate when you own them free and clear are nearly so.

Exactly! One of the most successful strategies that we advocate for heavily is to get a nice little portfolio of 5+ props, the more the better (ideally all from us (of course lol) but can be multiple markets), use ALL the cash flow to pay off each mortgage in turn. Minimums on loans 1-9 and the rest from all the props onto loan 10, pay that bad boy off ASAP, then rinse and repeat with each loan until your whole portfolio is free and clear. This results in having amazing cash flow and tons of equity in a MUCH shorter period. Of course, not everyone can buy 5+ props right off the bat, and we understand that. But for those that have the capital to implement this strategy, it's a HUGE winner. 

Anyway, I think I've bogarted this review thread long enough - nothing stymies the flow of honest input like having the CEO posting all the time lol 

As always, thanks for the stellar input, Jay! Your two cents are always welcome ;)

Edited: Formatting and typo

[Jay Hinrichs]

@Clayton Mobley  well since I am the general population I have one more comment.

and since most OR I should say many folks on this site are just starting their journey.

there are many different opinions on how to do things... and of course.. mine is very conservative.

but most of the folks I know that are very very wealthy have balance sheets that are heavily weighted to assets and light an liabilities.. to the point of NO liabilities and all assets  :) Once you pay these off your cash flow just about doubles without having to buy another property..

[Clayton Mobley]

@Jay Hinrichs absolutely. I tend to promote leverage as a powerful tool - nothing feels better than having tenants buy you a property over time - but using your cash flow to pay that debt off as soon as possible is definitely the best way to lower risk and increase cash flow long-term. A little sacrifice (of cash flow) upfront for long-term benefits. But, as you say, everyone has their own ideas and priorities when it comes to investing. 

And while I don't think I'd class you as 'general' population lol, your experience and knowledge is always useful for new investors so keep it coming ;)

[Jay Hinrichs]

Last comment then I have to go sign a bunch of deeds for deals I am selling :)

the way I look at it is folks get 100 t0 200 a month.. why save that. it would take 10 years of saving that money to save up for another down payment.. if your going to do this you need to have money for downpayments coming from other sources than cash flow.. and I know me.. 100 to 200 a month would just get frittered away like I never got it.. so why not figure out what your cash flow is going to be set up auto pay at that higher number and let your tenants accerlate your pay down.   that's my final thought on the matter

[Laura Kusto]

This is an awesome thread! Thank you for starting it @Blake La Grangeand for all who chimed in - especially  @Jay Hinrichs and @Clayton Mobley - - I may be crossing paths with Spartan very soon.

[Jason Cory]

I'm in Birmingham. I don't know @Clayton Mobley personally but I know some of his employees. I've sold them properties & can say on one deal a couple of years ago his contractor made a boo boo with an estimate & was off around $15k if memory serves me correctly. True story, the man ate the loss & closed on the property without asking to amend the contract.

Integrity is difficult to find in this business but they honor their word the best they can. 

It may take a minute to get them on the phone but if you aren't buying from me you should buy from Spartan. 

[Blake La Grange]

UPDATE: SECURITY DEPOSIT RECEIVED

That means the house is officially rented! I imagine they will move right in on the 1st of this month.

Can’t wait to update you guys once the first months rent is deposited!

-b

[Blake La Grange]

UPDATE: TENANT MOVED IN + PODCAST RECORDING

The tenant is moving in THIS Friday! Excited to receive the first months rent.

ALSO, I will be on the Get Rich Education podcast with Keith Weinhold April 2nd describing this whole process. So tune into that when the time comes!

Feel free to message me if you have any questions about getting your first property. 

I'll update you guys when we get the rent check.

Thanks!

-b

[Rob Hakes]

@Blake La Grange 

Congrats man!  There is nothing like the feeling of getting that rent check rolling. It’s sounds like you got a good deal with lots of equity. 

I listen to GRE every week so I will definitely look forward to hearing the interview.  Do you know Keith, or did you get to know him through his podcast?

[Blake La Grange]

@Rob Hakes thanks man! Looking forward to it!
We got connected somehow. I think I reached out to him to share with him my story and thank him for his podcast. He then wanted to have me on the show. It was great getting to know him! He is an outstanding guy!

-b

[Mike Malfitani]

very excited to see how this turns out.  thanks for the thread!

[Blake La Grange]

UPDATE: PODCAST INTERVIEW

If you want to hear this story played out in more detail on Keith Weinhold's podcast: Get Rich Education...check it out here:

https://www.getricheducation.com/project/182-using...

Thanks!

-b

[Rob Hakes]

@Blake La Grange

I heard you on the podcast.  I appreciate your candidness and openness.  A very similar story to myself.  I took about 75K out of my house to get my jump start.

I too, was a Dave Ramsey follower, religiously trying to get my mortgage paid down.  No more.  This is such a better way.

Cheers to making money the fast way!