All Forum Posts by: Anton Ivanov

@Sal Mazzone

You've got the approach to this by doing thorough research and due diligence up-front instead of blinding buying into the whole "passive investing" thing, so I think your chances for success are much higher because of this.

One thing I can tell you from experience buying turnkeys is that they routinely inflate their cash flow, cap rate and ROI numbers. I'm at a point now, that I don't even look at the numbers they post on their website or send you in the PDFs - I do my own cash flow analysis and always run my own numbers.

It's more time consuming and tedious, but it's saved my butt more than once. Make sure you're allocating enough to vacancy, maintenance and cap ex and using the new property tax numbers you'll be paying. Those are some of the most common problem areas.

Great post and I think it highlights one of the biggest problems with turnkey investing - a lot of people think that it is an easy, hassle-free and guaranteed way to purchase cash-flowing properties in any market.

It's certainly marketed this way and that's what turnkey companies want you to believe. The reality is that there are tons of bad turnkey providers and even more bad turnkey properties. You still need to research the market, the neighborhood, the property and the team you will be working with. If you don't, it's almost akin to gambling - your potential risks spiral out of control.

I've always treated turnkey acquisition as just another source of deals. I still do thorough research before buying any turnkey property, do my my own cash flow analysis, etc. Me and my wife bought 4 turnkeys last year and will likely buy more in the future. 

Have there been problem? You bet. Was I surprised? No - because I didn't have unrealistic expectations to begin with.

@David Bell

There isn't much you can do about that until, like you said, the property value appreciates or you pay down the mortgage enough to warrant a cash-out refinance to stay leveraged. But aside from investing with partners or using other's money in creative ways, you will usually have an up-front equity investment in all of the properties you buy & hold.

If you're going solo, your options for minimizing your up-front investment are limited. You can buy cheaper properties or use home-owner's programs like VA or FHA (which require you to live in the property).

But again, I wouldn't call this a problem. Most people I know all started small, with 1-2 properties and grew their rental portfolio over time. It's a slow but steady approach that works.

@David Bell

I'm not sure why you say that "you won't be able to get your money back" out of the first property. If you are using financing, which you should probably be, you will only be tying 20-25% of the purchase price, and if you're purchasing cheaper properties (< $100k), that's not that much cash.

If you continue saving money out of your regular income and all of the cash flow you start receiving from your first rental property, you will likely have enough money to buy your second in about a year. As your rental income continues to grow, you will be able to save down payment funds quicker and buy rental properties faster. It would help if your regular income and your savings rate grew as well in the mean time.

The process is slow at first (1-2 properties a year), but as time goes on, you will be able to grow faster and faster.

Mind you, this is just the traditional approach, which doesn't involve any crazy financing or anything else but bread and butter buy & hold.

@Matt Ray

There are a lot of different factors to consider and what you place emphasis on will largely depend on your RE investing goals, risk tolerance and available cash for property purchase. I say this because what matters to some people may not matter to you and vice versa.

With that being said, here are some things you can look at:

++ Geographical Location ++
- How far is it from where you live: The closer to you, the better, so you can go there to look at neighborhoods and properties when looking for deals or if something happens. If not close, look for a place with a non-stop flight from your city.
- Climate: I prefer milder climates, as extreme hot or cold temperatures tend to wear the properties more. This will reduce maintenance costs and capital expenditures. There is also some evidence that suggests most people would prefer milder climates to any extremes and are actively moving there.
- Disasters: No significant probability of a natural disasters like hurricanes/tornados/floods/fires, unless you're OK with the risk or going to pay for extra insurance.

++ Population ++
- Size: I think focusing on metropolitan areas with a population above 1 million is a good start. Markets smaller than that can be good, but you really need to know the area to estimate rental demand. With populations above 1 mil, it's usually a safer bet.
- Growth: I like to see a progressive population growth over the last 5-10 years, or good reasoning why population growth is expected within the next 5-10 years if it hasn’t been present in the past.

++ Economy ++
- Diversity: No dependence on a single job sector/industry – availability of diverse job opportunities.
- Job/Economic Growth: Progressive job and GDP growth over the last 5-10 years, or good reasoning why job growth is expected within the next 5-10 years if it hasn’t been present in the past.

++ Real Estate Prices ++
- Median Price: How much is an average house worth? Depending on your available cash at hand and the type of financing you will be using, you will not be able to invest in some markets because entry points are too high for you.

- Cash Flow vs. Appreciation: I tend to lean more toward cash flow, however I like markets with strong demographics that will naturally yield appreciation. I never invest on appreciation alone, but it's a nice bonus when it happens.

- Average Rent to Value: In some markets prices are really high, but rents are not. Other markets prices are low, but so are the rents. Ideally you would find a market that has lower prices, but higher rents. I like markets that have an average 2% Rent to Value ratio.

++ State Legislature ++
- Some states are more landlord-friendly than others. I don't put too much weight on this, but if I can't decide otherwise, I will look at this.

Hope this helps!

@Anthony Nguyen

I'm a buy & hold investor so my need for software may not be as high as some other folks. Gmail and Google Calendar are definitely must-halves. If you're going to use Gmail and have an iPhone/iPad, download their app instead of using the built-in mail, I like it better (also can try Google Inbox).

I have my Google Calendar synced to my iPhone's calendar, and Google Contacts synced to my phone as well, so looking up people's contact details is a breeze.

And finally, I now do all of my property analysis, projections, comparison on my phone. I used to use Excel, but it just didn't scale well and I couldn't export PDF reports.

Hope this helps!

@Rob Terpilowski

Regardless of how you find your deals (turnkey or not), I would definitely visit the city, neighborhood and property before purchasing, ideally during its inspection and also meet with your PM team who will be managing it after purchase. This will save you a lot of headaches that come with buying sight unseen.

As far as turnkey or not, it all depends on your time commitment and how much work you'd like to put in to finding and managing your team. If you find a market that you like, plan to buy 10+ units there eventually and don't mind spending the time to finding and building a good team, you will be more profitable that way in the long run.

If you're looking for 1-2 properties and want to spend the least amount of work finding them, turnkey is probably better, although your COC returns will be lower due to buying at MV. And don't forget to still do research on the city, neighborhood, property and the people you will be working with even if buying turnkeys. Not all turnkey properties are in good neighborhoods and are good investments. I've seen plenty of terrible turnkey deals.

@Chris Schoonhoven

I agree with Stephen that finding a true "trunkey" property with a 20% discount of MV is a bit unrealistic. I know some turnkey providers do offer discounts to their repeat clients, but it's usually on the order of 2-5% and not all do this.

If you want to buy at such steep discounts, you will have to do it more traditionally, finding the deal and doing the rehab yourself or with a local partner or project manager. More risky, but potentially more profitable, so it all depends on what your goals, risk tolerance and time commitments are.

Ed,

Your equity or loan pay-down (which are inversely proportionate) in 3 years will not affect your cash flow in this case. Your loan payments won't change until you pay off the loan or refinance and how much the home is worth or how much of the home you actually own do not affect cash flow either.

The factors that will affect cash flow in 3 years will be rent (which could be higher if the rent in the area goes up) and operating expenses (which could increase due to inflation).

I was in a somewhat similar situation a few years ago, except I bought a duplex and live in one of the units. I analyzed deals as if I was buying them strictly for investment, so I calculated the cash flow I would have if I bought and rented it out right away. I don't believe it makes much sense to attempt to predict cash flow in 3 years because a) it will not be much different than it is now and b) it's based on assumptions that you can be wrong about (like rent appreciation).

Nobody can tell you what the real market value of the home is. I think your best bet is to use a collection of sources, trow out the outliers and average it out. You can look online, but I would focus on recent comparable sales or ask 2-3 realtors what they think they could sell the home for.

I suspect when you run the property analysis through DealCheck, you are seeing negative COC and ROI because you plan to use a VA loan with no or little downpayment. I could be wrong and the home may just not cash flow. In either case, you should look at the current year analysis and look at factors that are reducing the cash flow, COC and ROI.

Perhaps the home can't be rented for that much, but is a "hot" neighborhood, so the prices have been driven up faster than rents. Perhaps the taxes are high. Perhaps you may need to put down a larger down payment if you want the home to cash flow more. It's hard to know for sure without looking at the actual numbers, but I hope this helps!

Anton

@Aaron Henes I've bought several turn-key properties through Norada last year and have had a good experience. Marco, who runs Norada, is very knowledgeable about real estate markets in the US and can help you find the one that better fits your investment goals. He can also walk you through the actual acquisition process if you've never bought rental property before.

I would, however, encourage you to do your own due diligence when analyzing the market and the actual property you are looking at. Not all markets where Norada advertises properties may be right for you, and not all properties may be good deals. If you do your own thorough analysis of the metropolitan area, neighborhood and property, you have a much better chance at being satisfied with your investment.

For example, I'm not sure what market/property you are looking for, but given the $6k out of pocket number, it's likely a cheap property in a B/C neighborhood. It may be a great cash flow play, but definitely warrants a thorough analysis.

Feel free to PM me if you got any specific questions.

Anton Ivanov