All Forum Posts by: Clayton Mobley

@William Orrock For me, all you need to see to know to move away is '!!!!!'. Any time a sales pitch sounds like it could come from a used car salesman, walk away. Words like 'magical', lots of exclamation points, and (ironically), the phrase 'too good to be true' are all huge red flags here. Also, notice that they hedge by saying 'you might'. Not 'here's a 100% guaranteed way to do it' (even though that's the hard-hitting message of the rest of the text), just one clever little word to shirk responsibility for when this doesn't work for people.

Yes, it is possible to use leverage to turn a relatively small amount of capital into a lot of equity over time via tenant paydown. If you don't need the rental income right now, that process can be faster if you put all your cash flow towards your loans. HOWEVER, telling someone that they can retire next year if they just buy 10 homes scattered across the country (and we've all already addressed the fact that there's no way they actually work in that many markets, they get a referral fee from local providers) is reckless. 

In addition, most lenders are going to want 25% on every rental property, not just after the first 4, because the risks are higher on rentals than on primaries. Secondly, at the price point these props must be at to get 10 for only $167k in down payments mean securing financing may be harder than they let on. Aside from the issues we've discussed regarding what neighborhoods these properties are likely in, most big lenders don't like lending small amounts (since they make their money on interest and the interest fees wrack up slower with lower balances), so if you're looking at an average of $16.7k per prop at the actual down payment of 25%, that means these props are worth $66,800 or so and your mortgage would only be worth $50k. Some big lenders will finance a loan that low, but many will not. To get 10 such loans you'll need a really good relationship with a lender.

I think it's been established that this is a marketer who gets referral fees, so there's no skin in the game for them. They just want you to close on as many properties as possible so they can get their cut and move on. If you are looking for out of state rental investments, I would recommend looking at working directly with a real full-service turnkey provider, someone that will be responsible to you long-term since they manage your property long after you cut a check. Go meet them and tour the town, see some properties, shake some hands. Start with one property. If it goes well, you can expand your portfolio at whatever rate you wish. But diving into 10 all over the country right off the bat is unnecessary. 

Sorry for another long post!

@Jay Hinrichs I agree it does sound like Morris. And telling a new investor to buy 10 rentals (defffinitely C-class or lower by the price point) all over the country without knowing any of those markets is....wow

I realize I may have come off unnecessarily harsh in my critique of marketers so let me be clear:

There are absolutely some great folks running marketing companies who are not out to scam you. However, the nature of that type of investment requires that YOU, the investor, do all the legwork of vetting those investments, and any third-party PM companies or turnkey providers you may be contractually obliged to work with when buying a property from a marketer. 

The most reputable marketers out there are the ones who let investors know up front that they should 'trust but verify' and do their own due diligence. This is true for basically everyone selling you any investment. If their attitude isn't 'here's some data-backed info, but definitely do your own homework', then you need to move along. Any provider, marketer, whoever, that wants you to blindly trust their general return numbers, discourages in-depth questions, won't provide references, or can't accommodate a visit/tour, is not doing right by investors. 

I apologize to any marketers I may have offended with my little tirade. Many new investors get caught up in the hype of less-transparent businesses (both marketers and so-called turnkey providers like Morris) and those of us in the industry that are working to educate investors and facilitate mutually-beneficial investments get a little frustrated.

My advice would be this:

If you have $150k in cash that you would like to leverage into out of state turnkey investments, that can be a truly lucrative strategy, one many many of our clients employ (most of our clients aren't from AL). However, you should set your sights a little higher, on properties that are more likely to have stable tenants, in areas where there is some appreciation potential, and where you may, eventually, be able to sell to an owner occupant instead of another investor.

Investing in B/B+ class properties will put you in neighborhoods where nurses, teachers, skilled laborers, and other stable middle-class folks live. Places with good schools and easy access to job centers, places where people who can't afford (or just don't want) to own yet are still willing to settle down for a bit until they can. These people have more stable income, don't need government assistance to pay rent (Section 8 vouchers seem like free government money to investors but there are pleeenty of strings attached), and are more likely to stay longer if you keep your property maintained (or have a good PM). Your monthly cash flow may be lower than the paper figures for lower class props, but your vacancy, maintenance, and turnover costs will also be lower, not to mention fewer evictions. Consistent, reliable, moderate income is better than volatility in rental investments, especially if you're going to finance your purchases.

So how far can your cash go? Using Birmingham figures as an examples (since that's what I know), B/B+ turnkey props go for $85-125k. Let's take our average price of $100k. 25% for down payments is $25k. So $150k could cover 6 downpayments on MUCH more stable investments. Average cashflow is $250-350 (let's go with $300), so $1800 per month after all expenses and PITI. Keep it as income or plow back into paying down your loans faster (it's all tenant-paid anyway) to save on interest.

The point is, you have better options with $150k than properties that are almost definitely in C-class areas or below and are 'managed' by people you will never have a chance to vet. While it's not always necessary to go see every single property you buy, it IS HIGHLY RECOMMENDED that you go visit any provider you consider working with before your first investment. Tour the city, see their properties, meet team. After that, if your first property is a success, building your portfolio with that provider in that market is easy. BUT since these investments are all over the map, that puts you in a slightly more difficult position, vetting-wise. 

Plus, it sounds a bit like they are encouraging you to purchase without viewing. I'd say you should ask about flying out to visit (even if you don't intend to) and see what the reaction is. Say you want to see properties before buying, or at least just see SOME properties of theirs to view the workmanship and neighborhoods, and see if the response is 'come on out!' or ' well we don't do tours' or, always a classic, they just stop responding.

@William Orrock I second the advice you've already recevied regarding references. Any good turnkey outfit will be able to provide you with contact info for longer-term clients that will vouch for them.

My primary concern here isn't the claim that scaling quickly by leveraging 10 props right off the bat can bring in sizeable monthly income (although $5k is a bit high for 10 props), but rather what the figures they are providing say about the properties they sell.

If $150k gets you 10 down payments, and dp's for rentals are 25%, then you're looking at an average value of $60k per property. For true turnkey properties (as in not just cosmetic rehab - new roof, floors, HVAC, etc) $60k just doesn't leave enough meat on the bone for them to have bought in solid B-class areas, done great rehab work, AND made a cut on the sale price to you (how turnkey companies make money). We know they're not giving up that last thing, because what would it all be for? That means either the rehab work is lacking or, more likely, these properties are C/D class.

As a new investor looking out of state, I STRONGLY advise you to stay away from this asset class. The cash flow looks AMAZING on paper because values are so low, but the tenant pool is inherently unstable. Why? Because the lower down the asset class ladder you go, the more you are relying on tenants who wouldn't rent your place if they had any other choice. People don't rent in C class and below areas when they can afford something better. That means lower-income, unstable employment. These folks are one sick kid or one flat tire away from losing a job and missing rent. And while they absolutely deserve safe, stable housing, from an investment perspective the risks are simply higher. Buying 10 of these properties sight-unseen across the country sounds like a recipe for disaster.

Secondly, the number of markets they represent tells me this is a marketer, not an actual turnkey provider. Meaning they get a fee from providers in these markets to send them qualified buyers. They don't own the properties they sell, and they don't manage them. They've 'vetted' the providers they work with (so they are 'their people' in some respect), but you won't actually know who you're dealing with until after your money is already gone. The biggest turnkey company of repute only works in two or three markets. I have never heard of a reputable turnkey company that has actual staff and management teams of their own in this many markets. Many Turnkey Marketing companies conveniently drop that last word, because they technically do sell turnkey investments, but they don't own them, they dont have skin in the game long-term, and they are being paid to deliver you, the qualified investor to whoever is willing to pay the most in each market.

**Now, I have no idea what company you are referring to, so if this is actually a reputable turnkey company (not a marketer) that I simply have not heard of (despite being a turnkey provider myself and an active member of BP), then I apologize for any offense caused. If this company is, by any chance, Morris Invest, I recommend you search for the many threads regarding that company before you cut any checks.**

@Andy Ramdeen not to worry, getting started in REI is always a steep learning curve. As a turnkey provider, I try not to be too heavy handed with recommending that investment type, because it isn't for everyone. In your case, however, it sounds like a one-stop-shop is what you're looking for.

@Andy Ramdeen If you are wanting to buy from the same company that manages the property - and I assume not be doing any rehab work since you are at a distance and don't have contacts - then you're looking at turnkey, my friend. One company does everything - finds properties, rehabs them, updates things like roofing and HVACs etc, sells to investors, finds tenants, and manages the property long-term. 

If that sounds like the type of investment you are looking for, then you should start looking into turnkey companies in Orlando if that's the market you want to invest in. Make sure they are full-service - meaning they actually do everything in-house, rather than selling you a property and then passing you off to a 3rd party management company you didn't vet. 

Turnkey is a popular investment for folks who are priced out of their own market (like NY), but you need to do the legwork to ensure you go with a quality outfit. I agree with others here who have said it's a good idea to fly out to Orlando. Once you have an idea of who you want to work with (vetted and narrowed down to one or two providers) fly out and meet them, take a look at their inventory, drive around those neighborhoods at night, etc. It's an investment in your investment that will pay off big time in peace of mind, and it's still the best way to suss out scammers and 'too good to be true' claims.

A few other tips for investing in turnkey:

• You only close after rehab and inspections, a full-service turnkey company takes on the risk of rehab. Those 'pay to play' TK/BRRRR 'hybrid' outfits are basically letting you pay to take on risk you don't need.
• They should provide an appraisal and obviously have the place inspected after rehab, but also be fine with you getting your own 3rd party inspection and appraisal. If they balk at that, walk away.
• While you won't need a lot of updates during the rehab process or after a tenant is placed unless something goes wrong, you should be able to communicate with your team and have access to all your investment docs, leases, contracts, billing activity, etc. An online portal is best, but at the very least they should send you statements and check in once a month.
• If a company won't accept traditional financing or requires cash-only investments, I'd move along. Opinions differ on this, but to me, a company that requires cash has a liquidity problem that could be indicative of issues higher up the food chain in their business model. This is also a common trait of so-called 'turnkey' scammers like Morris Invest where they give you the 'LAST PROPERTY EVER ACT NOW' run around and make you sign a contract via email without having time to vet the property. Which leads me to:
• Don't waste time with used-car salesman tactics or false-scarcity manipulations. There will always be real estate, buyers and sellers and investors and tenants. If someone tries to convince you that you need to hand over money without being able to run your own numbers or AT LEAST see photos, it's time to move on.
• I'll say it again: GO VISIT! You should be able to see the city, tour the neighborhoods they invest in, see some properties to get a feel for the quality of the rehab work, etc. These people are going to BE your investment, so make sure you gut-check your decision. Once you've done this, a successful investment can turn into a portfolio without much additional legwork, so put in the time to make sure you're going with someone who will be around for the long-haul.

Good luck!

A few other tips for investing in turnkey:

• You only close after rehab and inspections, a full-service turnkey company takes on the risk of rehab. Those 'pay to play' TK/BRRRR 'hybrid' outfits are basically letting you pay to take on risk you don't need.
• They should provide an appraisal and obviously have the place inspected after rehab, but also be fine with you getting your own 3rd party inspection and appraisal. If they balk at that, walk away.
• While you won't need a lot of updates during the rehab process or after a tenant is placed unless something goes wrong, you should be able to communicate with your team and have access to all your investment docs, leases, contracts, billing activity, etc. An online portal is best, but at the very least they should send you statements and check in once a month.
• If a company won't accept traditional financing or requires cash-only investments, I'd move along. Opinions differ on this, but to me, a company that requires cash has a liquidity problem that could be indicative of issues higher up the food chain in their business model. This is also a common trait of so-called 'turnkey' scammers like Morris Invest where they give you the 'LAST PROPERTY EVER ACT NOW' run around and make you sign a contract via email without having time to vet the property. Which leads me to:
• Don't waste time with used-car salesman tactics or false-scarcity manipulations. There will always be real estate, buyers and sellers and investors and tenants. If someone tries to convince you that you need to hand over money without being able to run your own numbers or AT LEAST see photos, it's time to move on.
• I'll say it again: GO VISIT! You should be able to see the city, tour the neighborhoods they invest in, see some properties to get a feel for the quality of the rehab work, etc. These people are going to BE your investment, so make sure you gut-check your decision. Once you've done this, a successful investment can turn into a portfolio without muchnadditional legwork, so put in the time to make sure you're going with someone who will be around for the long-haul.

Good luck!

@Khari Lewis your first step is going to be getting really comfortable running numbers. Learning all the different aspects that make a rental a long-term success and how they fit together mathematically so you can make conservative, fair judgments about how much cash flow you'll receive on average vs the amount of risk you're taking on.

My advice to any new investors is not to invest in anything below $50k. There simply isn't enough meat on the bone for the turnkey company to be making any money AND providing the high-quality product you're looking for. Stick to solid B/B+ areas where nurses, teachers, and skilled laborers live, places folks like to set down roots and build a family. If you're looking for cash flow, this is where you'll find the most stable long-term tenants and manageable PITI payments. A-class areas are obviously better for appreciation, but your loan payments will kill your cash flow, and appreciation is never guaranteed - I prefer monthly income over a maybe-payday down the road.

If you're going the turnkey route, you're going to have a million options all over the country. While market is important, it's the team you choose that will make or break your investment. Use BP for the amazing tool it is to read reviews and get info. Reach out to teams you're considering and have a list of questions at the ready. Things like actual vacancy rate, maintenance costs, turnover, average length of stay - any good outfit will know these stats off hand. If you get wishy-washy answers to they need to 'get back to you', that's not a good sign.

Once you have narrowed down your best options to your top one or two, make the trip out to meet them. Looking folks in the eye is still the best way to gut check your decision. Plus, you can often tell a lot about how a company prioritizes customer service by just asking for a visit. If they don't offer tours or don't get back to you, time to look elsewhere. 

Also, re: your comment on the 1031 exchange, why are you not able to utilize that on prop A? If it's been in service for more than a year as a rental, you qualify, so I'm not sure why you would write off that option. You could sit tight in your current prop for 8 more months, use the Sec 121 exemption on the sale of that prop (B), and sell A via 1031 exchange to defer taxation and keep all your capital working for you.