All Forum Posts by: Austin Fowler

Thanks for clarifying those points that I had recalled you had made on previous threads, and sincere apologies for paraphrasing inaccurately in regards to average hold period. Also thanks for the insight on how your company works. It's clear that REI Nation is a league above most if not all other turnkey providers, which helps explain why your client's operating costs in the first years of ownership are so much lower than a typical turnkey or other investment property, and why your average tenancy is longer. From reading your posts and from your stellar track record and reputation in the industry, I believe your data to be accurate despite not having any firsthand experience with your company. Perhaps your renovations, systems and management are really that good. You've obviously not just doing a lipstick cosmetic flip and outsourcing management like a lot of "turnkey"/ turn and burn providers are. I would never recommend that anyone underwrite a typical turnkey property or other investment property using such low percentages of rent for maintenance and capex, as in my experience most rentals will have operating costs that far exceed the somewhat arbitrary number at the end of that equation, but you've obviously got great data to support your recommendations on how to project cashflows for your properties, so hat's off to you. Thanks for taking the time to chime in.

So SDIRA wealth & REI. Have you encountered any issues during that process you described from lending to repairs prior to closing with REI? If so, what and how were they mitigated?

Well put Jeremy.  Challenging the status quo or the norm is exactly how we built our company and achieve the result we do, so no big deal at all.  And, as I said, sometimes in a 2-dimensional conversation, questions, challenges and even answers can seem way more than they really are.  I like the conversation and appreciate the back and forth and like to read what other posters think.  Like you, I don't always agree, but when an investor is talking about their own experiences, who am I to question them, right?  I can post my opinions, but I try to remember to respect the approach others are coming from. 

I don't know if you have read it on here before, so I will post it again, no investor should take data or information on faith.  Anyone you work with that is going to provide a service to you needs to earn your faith - your trust.  That includes my families' company.  We take our responsibility and an investors' returns very seriously, but no one cares about your money more than you.  You are responsible for your investment and so you are responsible for every company you hire to provide service.  Be careful and patient and make companies you want to work with earn your trust.  

Outside of all the nonsense in this thread, how have you enjoyed the turnkey process? Which have you used and would recommend? And what's the process like for an OOS?

@Austin Fowler

This has been an awsome thread, great read, and educational. Thank you for sharing your perspective and investment strategy. This is an example of how creatively is almost limitless.

I had thought of doing this many times in the past, but never to such details because I do not have a complete understanding of fractional banking at this level. If it's working and you know the risks and willing to take it, great. Its definitely cool to create money infinitely.

I focus on small multifamily and it works for my risk tolerance and vision/goals for generational wealth. I know others may do it SFRs or flips or syndication. Just do it.

I would love to learn more. I may, or may not, try it, but it's good to have resources.

My questions is the time value... your W2 is substantial. There sounds like a lot of administrative work behind your current model, even if there is no hands on at the rentals. Is the returns vs risk worth it you while, even as it grows?

I kinda made REI a business about the same time you did but with a W2 of about 1/4 of yours. With multifamily, I was able to meet, then beat, my W2 within 2 years. I have since quit the W2. The cash flow continues to grow and net worth scaled much faster and higher than you model. That's not to mean any disrespect to your numbers. This is just from a risk/reward/passive income comparison. I average about 4 hours per month and and probable drop it to 2 hours but Im spending time networking for more deals.

I guess the real difference is the 100% finance factor, equaling to infinite returns... that's the jewel of this whole thread.

Congrats! And again, thank you for sharing.

 I appreciate your reply and your ability to accept constructive criticism/"tough love". To address your question above, I would invest in what has worked for me in my market (value-add multifamily), but that will not be the same for everyone in every market. I always recommend that investors leverage their own personal strengths or whatever gives them an unfair advantage over the competition. The ability to do that is what sets real estate above other investment vehicles IMO. I have had success in finding off-market small multifamily buildings that are in distressed condition, buying them at a discount and forcing appreciation quickly by fixing them up and raising rents which works well because multifamily property value is based on cap rate more-so than comps, whereas single family is always based on comps not cap rate so it's harder to force appreciation. If an investor is good at sourcing off-market deals, then that is their advantage which they should leverage. Another may be good at rehabbing efficiently and so flipping becomes their forte. Another may excel at something else and they will do best focusing on that. Almost all successful investors that I know have an unfair advantage. Most also stay local to one area or just a few areas that they have intimate market knowledge of, literally house by house and they have many personal connections in the market (PM's, trades, agents, title companies, lenders, birddogs/wholesalers, etc.). Without that, the risk increases substantially. 

For your business model, it seems that you're good at raising capital, deal structuring, and you have a neat banking-style approach to acquiring assets. I think buying larger assets with more cash flow may be a better fit for you than turnkey SFRs. I'd reach out to some commercial brokers in favorable locations (strong fundamentals, recession-proof markets considering where we are in the market cycle and the economic forecast calling for recession) and see about getting into the multifamily space. I have no problem with turnkey for certain investors, but it doesn't seem to fit your model IMO. I'd be concerned primarily about the lack of positive cashflow given your projections. From what I know about REI Nation is that they are very well-regarded and considered the leaders in the space. However the way that they project cashflow has been discussed and debated at length in these forums and what you should know is the 4% number comes from the assumption that owners only hold these assets for a few years and don't do anything major to them (the owner has discussed his justification for the lower-than normal operating cost projections on here, not to put words in his mouth but my understanding from reading his comments is that because they rehab the properties well before sale, and because most of their clients only hold a few years, the assumption is they won't have the normal expenses involved with maintaining properties over time). That's fine and I get it, but what this essentially means is that the projections only work under the assumption that investors will only hold for a limited time, won't ever need to do anything major to the properties, and will basically kick the can down the road for the next owner in regards to repairs, maintenance, and capex. My issue with that is in my experience capex issues don't follow a schedule. They come up for me randomly and often at the most inconvenient times. Also if you plan to hold more than the average REI Nation client, then you need to adjust the operating expenses to a normal estimate. I don't like using percentages personally, because they're derived from a somewhat arbitrary number. I like to total up everything I think the property will need during my hold period and divide that by the number of months in my intended hold period to get a more accurate operating budget, in order to have adequate reserves and predict overall cash flow beyond a single perfect month or year. For example if the roof is 15 years old, has a life expectancy of 20 years, and my intended hold period is 20 years, I can extrapolate from that how to budget for the new roof. I do this with all the major expenses: mechanicals, appliances, roof, finishes, driveway, sewer line, landscaping, etc. This is a much more accurate way to come up with a budget but obviously more time consuming and requires real expertise and construction experience/ knowing what all these things cost. I pad these numbers out for unknown expenses of which there are always, always a few. I would consider this actual conservative underwriting and using a percentage-based approach as more of a "back of the napkin" type starting point to see if it's worth doing a deeper dive, and nothing more. Creating an actual budget for an individual property almost always comes out to a lot more than what one might expect (which is why so many investors in low-rent SFR's fail), so I only invest in properties with high rent and minimum $300 monthly positive cash flow that can cover all the expensive things that properties need over time. So I'd recommend using more accurate budgeting as if you're planning to hold the properties long enough to incur some of the actual expenses related to operating a rental over time. Of course in order for turnkey investments to be attractive for investor clients, running the numbers in a way that shows them cash flowing positively is a must and so we end up with a woefully inadequate repair budget that only works when the investor will not own the property long enough to have any repairs. Also a large portfolio of SFRs is less liquid than a few larger assets. Your worst case scenario is a run on the bank coming at the same time as several big-ticket capital expenses, tenant issues or a market downturn/transition to a buyers market, preventing you from being able to sell quickly if needed and cash out investors as necessary. Owning fewer, larger assets would give you economy of scale which creates more cashflow, less legwork on acquisition and management, more liquidity, etc.

 No, Redfin (or any of the online estimating tools) are not known to be very accurate and can often be way off. I think Redfin claims 3% margin of error for on market properties and 9% for off market. I've seen quite a few in my market that are off by several hundred thousand. You need a good local Realtor to pull comps from within the past few months and adjust them accordingly. Comps (and also appraisals for that matter) have been really tricky this year because the market has been so dynamic and inconsistent. Certain properties are sitting on the market without getting any offers while others are still getting multiple offers well above-ask in the first weekend. So pricing right now absolutely requires in-depth local market knowledge on a not only a block by block but a house by house level. If you want an accurate idea of what your properties are worth in today's market, ask a local Realtor with recent sales in the immediate area for their opinion. There's no way a robot can do what a local Realtor can because the data by itself does not have enough information on what is a real comp and what isn't (mainly property condition/level of updating and finishes which can make a big difference but also hyper-location for example the algo might consider a comp right next door a perfect comp but if it's across the tracks in a different neighborhood or in a different school district that is less desirable, the estimate will be off while a human/Realtor would see that difference due to knowing the area and be able to adjust that accordingly).   

@Austin Fowler Have you considered using your capital to invest in larger JV deals? That's what we're looking to do next year. I like the JV model over the syndication model because you can structure them however you want and you can pull money back out via refinancing while keeping ownership (which you can't really do in most syndications), and you can benefit from economies of scale that you find in the commercial real estate space with experience operators.

Thanks for sharing your journey so far and good luck on your future endeavors!
 

3) There is no equity buffer buying at market rate - there is no built in equity. You having a personal savings buffer is not the same thing as an equity buffer. Yea I too have lots of brokerage funds, cash funds, money outside of RE - I would not consider these personal funds an equity buffer. Buying under market value is the equity buffer. The business needs to be profitable without use or guarantee of my personal funds. Borrowing personal money to fund a bleeding business is literally the definition of having an unprofitable business. 

4) SFR CAN be a low risk asset when bought correctly. REI Nation is not in the business of making you money - they're in the business of making themselves money (just look at the estimates they use - it's your job to underwrite more realistically). They make money every step of the way - I'm sure you've heard the saying "You make money when you buy". I would ask how you would answer the question?

5) If I had an essentially unlimited 8% loan - there is a lot I would buy before I bought 100% financed, market priced SFRs. If you want the cashflow and tax deductions, why not buy a mobile home park? Apartment complex would be a lot more stable? At the minimum buy something under-market value - this is the key to being an investor - buying a good deal that you can add value to. Undervalued stocks - yes. Undervalued RE - yes. I would buy a business - health/life/group insurance (which is what I run in addition to my W2 and RE), a carwash business. If I was stuck on doing SFRs, I'd be making sure I bought properties I could add value too. With big funds, I'd buy bigger more stable places - not SFHs.