All Forum Posts by: Brandon Leong

@Laura Kaspari-Hohmann

I've flown to KC to meet with the company that you are working with. It's one of their better properties. They are nice to work with, I almost bought a property from them. Through my own calculations, I don't get the numbers you are getting but I use pretty conservative numbers. For me, it doesn't meet my numbers, so I would back out.

I use:
10% Vacancy
15% Maintenance and Cap Ex

Note that the property tax for this house is pretty high for the KC area. I think that's what eats up most of the cash flow for me.

However, it's still positive! So it depends on how you feel about the metrics. 

Also, check that this place can really rent for such a high number via craigslist and other websites, there's never a guarantee that they find a tenant who is willing to pay at the 'projected rent rate',

Originally posted by @Andrew Johnson:

As @Account Closed says, I'm a big believer in pick some area where you have some kind of connection.  Just someone to tell you where the "wrong side of the tracks" are.  You don't have to be a real estate investor to know what areas you won't drive through a 2:00 a.m. on a Saturday.  But guess where the best projected pro-formas are?  You don't *need* that data to make a decision but newer investors on BP seem to put a lot of weight in 8% vs. 10% cash-on-cash returns.  They don't go through the next step of determining what that actually means (in dollars) at the end of the year.  If you have $25K to invest in a down payment (for the arbitrary $100K house) that works out to ~$40 per month.  

So you're basically talking about two pizzas a month determining a "good" vs. "bad" investment.  Focus on the area, the pizza money (in this case, LITERAL PIZZA MONEY) will work itself out over the long-term. 

 
I agree with Tyler that the focus between 8% and 10% CoC is too strong in many cases. It all depends on your comfort level. It's easy to find proformas that are returning 12% or more but they are in C neighborhoods. Some people are able to handle that type of risk though.

I just closed on my first turnkey property in KCMO. I have no connections there, but before I bought there I spoke to a lot of people on BP and then I flew over myself to take a look at properties. After meeting face to face with inspectors and turnkey providers, it gave me the comfort level I needed to go for it.

I like Indianapolis and KCMO, but I've heard good things about Memphis as well.

@Tony Xu

10% CoC is not actually bad given that it's a good place, though I generally use conservative numbers. At the price range of $85,000, it's going to be tough to find a place that is a 'freshly' rehabbed house (which I assume means very little items on the inspection report).

I felt the same way as you and decided to take a place at 8% CoC in a better area. 

@Tushar Shah

I just closed on my first turnkey property in KCMO! I also flew over to KCMO to take a look at properties as well. I met with Nick and a bunch of other companies like USREEB. I would really like to see the numbers you are using to calculate your CoC, 10% is great if you are looking at houses in good areas. From my speaking with other investors, getting into turnkey business is not as lucrative as a couple of years ago. Back then, 12% CoC was normal! Anyway, good luck on your investments!

@Tony Xu

My girlfriend and I just recently closed on a turnkey property in Kansas City! Looking at your inspection list, I don't see anything too outrageous. However, it is a smart idea to negotiate and get the turnkey provider to fix the major items and most (hopefully all) the minor ones. 

What I really want to say is that don't simply back out of the deal because people on BP are telling you that it is an awful inspection report. You're looking at an older house in a lower-middle income area, of course, it's going to have some issues. If my inspection report came out super clean for that type of house, I'd be suspicious of my inspector! Back out for the right reasons, do your due diligence, if you still feel uncomfortable then back away. Just don't let people here scare you

On that note, the house is older (1944 correct?), from what we've seen make sure to take a look at the foundation, houses built at this time may be built on cinderblocks.

The plumbing is also an interesting issue, ask the inspector what they think the lifetime of the current plumbing will be, they may suggest you go back to the turnkey provider to hire a plumber at their expense.

It should be noted that a house in Kansas City for $85,000 is probably in a B neighborhood, so keep in mind that the area and tenants will most likely not be pristine.

Speaking with inspections, we were told that there are two types of houses, ones that have termites and ones that will get termites, everyone is fighting this issue. We were able to split the cost with the turnkey provider for an initial termite inspection and treatment. 

Good luck with your investments!

Originally posted by @Peter Schuyler:

Originally posted by @Chris Clothier:

 @Kyle Scholnick

Key questions to ask a Turnkey company.  Pay close attention to the answers they give you and take notes.  If they do not want to give you the time to answer your questions, then you do not want to do business with them.  If they are irritated by the questions, definitely move on.

These are the KPI's that any quality turnkey company will measure and track and should be able to give you an accurate and correct answer at any given time.  If you pay close attention to the answers, you can do simple math to determine if they were just giving you answers you want to hear to sound smart or if they actually know how their company is performing for clients.

•Are You an Investor?  Do you own in the exact neighborhoods you are selling?

•How many investors do you work with?

•Do you own all facets of the operation?

•Do you offer rental or maintenance guarantees?

- IF they answer yes, ask them why?  And then ask them if they will put the guarantee on year three.  Guarantee are used as a sales technique and should be a red flag for an investor.

•Do you defer maintenance?

•How many properties do you manage?

•Do you own the properties you sell?

•How long have you been in the business?

•What is your average vacancy rate?

•What percentage of expiring leases will renew their lease each month?

•What is the average number of days a property is vacant between tenants - Move out to move in?

•What percentage of billed rent do you collect each month?

•What is the cost of an average repair bill after move-out?

•What are your management fees?

•What percentage of collected rent goes to yearly maintenance on average?

•What is your average # of months occupancy per property?

Three most important questions you can ask to learn a little about their mindset as business owners and how they are going to treat your investments:

•What programs do you have in place to keep tenants happy?

•What customer service programs do you have in place?  Will you call me every month with an update on my portfolio?  How many team members are dedicated solely to providing service to your clients?

•What has been your biggest mistake as an investor?  How do you protect your clients from making the same mistakes?

 I really like these questions, but as a investor, I thought the first question would be what are your typical investor Return on Investment numbers or Cash on Cash numbers?

I agree with Peter, always good to get what the turnkey provider *THINKS* the cash-on-cash should be. However, from my experience, these numbers are always inflated, though I usually use more conservative numbers when doing my own calculations.

Hey, Mike!

Just closed on my first turnkey property, it was a long and arduous journey, but I finally got here!

1.
If you are using a turnkey provider, most likely they are going to manage it in-house or have a trusted company do it for you. Otherwise, your best bet is to ask fellow landlords about who they use for property management.

2.
To find a good turnkey provider is the biggest trick and can be a difficult process, not that many online resources. I found that the best is just to Google for turnkey providers in the area you want to buy. Most turnkey providers won't give you their list of inventory until you give them a call either. After that, I personally think that it is best to actually fly over and meet them in person to try to get a feel of what they are all about. This also shows that you are serious about buying!

3.
Don't know about other options (for out of state investments), if you find out, shoot me a PM!

4.
Depends on what research you are looking for. Google is always a good and all the big real estate websites, Trulia, Zillow etc can be a good source of information. My first stop when looking at a specific property is to look at the Trulia crime map, it's an easy way to rule something out.

Everywhere you go in the real-estate business it seems that there are horror stories. The trick is just doing stringent due diligence, so much so that you are comfortable with whatever you are investing in. There will always be an element of risk and nothing is a sure bet. This is very difficult to get over since real-estate is such a 'trust' business. You have to trust many people, from contractors to lenders to inspectors. As a general rule, I think you should meet all these people in person. But that's a personal preference, I have heard lots of people who don't do that.

Anyway, good luck on your journey!

@Kevindra Singh

Hey! Yeah, I finally bought under my name. Figured it was too much of a headache to set up an LLC and I wanted to start the process as fast as possible so I would not lose momentum.

I do have a property manager for the house, my investment strategy is strictly buy and hold because I don't have the time to actively manage properties.

I think the crux of the H1B is that you cannot "work" for anyone else, even yourself. Of course, there are some gray areas there but I'd rather stay clear of the IRS, if they want to mess with you, they can."

Good luck!

Thanks @Steve Swanson!

I did an inspection on the house as we are considering picking it up, the foundation has in fact moved roughly 2 inches. Which is not entirely surprising for a house that's 70 years old. 

We are getting a structural engineer/foundation guy to look at it and see what needs to be done. 

Rich Kniss Thanks for the reply. Yeah, I know that USREEB has a big presence around KC. We did also notice that although this home is in 64219 (an area to avoid), it happens to fall in the Raytown school district. We are still considering the are, some homes right around are in pretty bad shape.