All Forum Posts by: David Hodge

@Dave Williamson you might also want to include the placement fee the management company will charge for placing a tenant. Usually first months rent or 1/2 of first months rent.

I completely understand why it is popular for the TK providers.  That's my point... If they were great long term investments they would prefer to keep them rather than get a one time $20k pop.   Their business model is sound... sell for top dollar to an out of state investor that doesn't know any better,  manage it (more money made on repairs and turnover) and then have the opportunity to resell it a few years down the road when the investor doesn't get the profits that were projected and is ready to pull the plug.    Rinse and repeat. 

Joe,

Just because TK companies don't hold on to the properties themselves doesn't mean they arent good investments. Why don't flippers hold on to all their properties? Because they need the cash now to continue growing their business.  Sure, you probably aren't getting a killer deal but that doesn't mean it's not a good investment for someone with little time on their hands.

The Bham turnkey we are discussing here is a different story of course. I can't even say what I truely think about them. They are disgusting people 

My wife and I were a couple weeks away from closing on a property in Kansas City through Maverick. We had a couple red flags but convinced ourselves that they weren't big deals. Then a fellow BP member uncovered more suspicious stuff and we finally decided to back out.  After backing out we found out the guy who was actually selling the property had a VERY sketchy history in real estate.  I have absolutely NO TRUST in Maverick.  It's very clear they either do not vet their providers AT ALL or they are just incompetent.  To add insult to injury, the seller yelled at my wife on a conference call between her, maverick and the seller and maverick said nothing.  Do your own research to find good TK providers bc Maverick isn't doing it for you.

@Account Closed thanks for pointing that out.  Im guessing there's no way to really predict which areas will become Memphis in the future is there?

Thank you all for the responses! 

 @Roy N. I appreciate the detailed response. I've been including my reserves for capex in the denominator AND expected average annual capex in the numerator so I think I've been double counting capex. My projected return was getting hit twice. On paper my returns are looking a little better now! Regarding the future income, I also do calculate the IRR to make sure that's lookin good too.

@Kevin Trumbull just so I understand.. you include the reserve in the denominator when analyzing a deal but you don't include the capital expenses that will pull from the reserve in that initial analysis?

@Matt Motil thanks for the response. It almost sounded like you were saying you would include the $5K cash reserve in the numerator but I'm pretty sure I read that wrong. I'm just asking how people account for any cash reserves. Someone who is ignoring cash reserves is going to have a much better COC return (on paper) than someone who has a really large, conservative reserve fund for a rainy day.

The calculation for CAP rate is clearly defined so everyone should be calculating it the same way. There are obvious benefits to having a uniform calculation. On the other hand, Cash on Cash Return seems to be calculated a variety of ways. I think most people know to include all your expenses in the numerator but it's the denominator that doesn't seem to be very consistent. What do you include in the denominator? I'm sure everyone includes the down payment (assuming its financed) and closing costs but do you typically include cash reserves? I believe cash reserves should be included since this is money you typically can't touch for other purposes. You didn't technically pay this amount to anyone but it is part of the "investment" you need to be a conservative investor. I personally hold about $5K per property in reserves. When I remove this from the denominator, my COC increases by 2%-3% which is quit significant! Are you calculating COC the same way?

 Kevin, I'm not yet a Memphis expert so hopefully others will comment but from what I understand 38127 (Frayser) is really rough. I'm sure there are alright areas but I'd stay away.  I know the company you are planning to buy from is one of the best around though and they do sell there.  If they are managing it then youre probably ok but I personally would still stay away.

I hear 38128 (Raleigh) is a great area!.... That's about all I know. Haha

@Kellis Landrum just to be clear on what I was saying above... I think buying TK is a great idea (I'm doing it myself) but you have to have realistic expectations.  The reality is you probably won't be able to turn around and sell it for what you paid the day after you buy it but that's not really a concern if you are in it for the long haul. Message me if you have any questions :)

I am buying turnkey in 38115 as well! You should only buy turnkey if you plan to hold it for a long time. You might buy at the fair market value but that doesn't necessarily mean you'll be able to sell it for that amount. I know that doesn't really seem to make sense but if you are selling to another investor (which a lot of these areas are sold primarily to investors) then they will most likely require a discount and if they are willing to pay the fair market value then they'd probably rather buy from a reputable turnkey company. Wouldn't you? If there is a high owner occupancy rate then I think you might be able to sell at FMV but don't bet on it!