All Forum Posts by: Mike McKinzie

Several people have asked me what Turnkey we used.  We used Mike D'Arrigo, who has a post in this thread.  His Turnkey company does NOT have a PM company, so you get to choose anyone you want.  They have some they can refer you to, but there is no tie between the Flipper/Turnkey company and the PM company.  Mike is excellent on getting back to us.  Also, we, too use Affinity Insurance and have been OK with them.  The rates are great but the service is average.

If I may suggest a book to read, and one that you can read in about 20-30 minutes, pick up a copy of "The Richest Man in Babylon."  It is basically a story of a young man asking an older, wealthy man HOW he became wealthy.  There are some great financial lessons in that little book.

Yes, I did go with a Turnkey Company, one that is very active here on Bigger Pockets.  I got an appraisal and a Home Inspection, that I ordered and paid for.  The house appraised above the sales price and the TK company fixed all of the issues mentioned in the Home Inspection.  I also had the sellers not only video the house, but video a drive up and down the street.  I checked the house and neighborhood on Google Earth.  I did my Demographic research on the area.  I talked with previous clients of the Turnkey Company.  I even listened to a Webinar put on by one of the Turnkey Owners.  Like I always say, DO YOUR RESEARCH!

Matthew, there is lot's of good advice on this thread, and some of it is better than others.  My father passed in 2012 and left us some property but I was already in the business so that was not the problem.  My father made some wishes known regarding the property that my sister and I decided NOT to keep because it was NOT financially sound.  We did NOT dishonor him by not following his wishes.  Without going into a long story, my parents made a complete MESS of their estate that took us over three years to straighten out.  My father had Alzheimer's for 12 years and for the first 6 of that, he was making some really poor decisions but no one wanted to tell him he was wrong.

Anyway, here is the way to look at this situation.  You have a property, let's say that it is worth $500,000.  That property will require annual property taxes, insurance, upkeep, management and other miscellaneous expenses.  Using just a round number, let's say it cost $1,000 a month to maintain the property, not doing any Capital Expenditures.  At the current $1,400 a month, you would net $400 a month, or $4,800 a year.  Currently, a 10 Year Treasury Bond is paying 1.77% and you would receive $8,850 a year on that $500,000.  This is why everyone is posting that you are LOSING money, because much simpler, much LESS of a headache investments would pay a LOT more.  Now let's say you raise the rent to $2,500 a month and still spend $1,000 a month on expenses.  Now you make $1,500 a month or $18,000 a year.  This beats the 10 Year TBill but is still only a 3.6% return on your capital.

No one on Bigger Pockets can tell YOU what is BEST for YOU.  We can only tell you what WE would do if we were in that situation.  I WAS in that situation and sold the property, and more than doubled my monthly income.  But, that was best for me.  My father had a $500,000 house and was only getting $3,800 a month for it and I couldn't sell it fast enough.  I turned it into over $8,000 a month income.  (in California on the sell side)

My best advice to you would be to do very LITTLE the first year.  Make sure the house is in good shape and LEGAL/SAFE.  Let the tenants know that you are the new owner and that any 'agreements' with your father are null and void.  Be professional and kind.  Charging market rent is NOT evil or immoral.  You gave them notice and now you should follow through with it.  If you do decide to re-rent it, I would suggest a one year lease.  Don't sell, don't refinance, don't do anything drastic.  Take the time to learn more about real estate.  Read about what kinds of deals and how they were done here on Bigger Pockets.  Read about strategies.  Learn different avenues of real estate investing.  Find a top Realtor in your area who is experienced with working with investors.  Find a Real Estate Investing Club and go to some of their meetings.

You have a great opportunity here and the worst thing to do is to make a 'rash' decision.  Take your time, learn as much as you can and then create a deliberate plan.  

I am signing the closing docs tomorrow on my first Kansas City rental.  My research shows that it should be a solid market.  It won't be the appreciation of a Coastal Market, but it will be solid income and should provide a slow and steady appreciation.

Will, great to finally hear good news.  While not anything like this, when I was a broker, I did have one escrow last 7 years, where the buyer and seller stayed with it.  My longest eviction was 9 months, nothing like yours.  Great job!

"This, however, was afterwards of use to me, the impression continuing on my mind; so that often, when I was tempted to buy some unnecessary thing, I said to myself, Don’t give too much for the whistle; and I saved my money.

As I grew up, came into the world, and observed the actions of men, I thought I met with many, very many, who gave too much for the whistle.

When I saw one too ambitious of court favor, sacrificing his time in attendance on levees, his repose, his liberty, his virtue, and perhaps his friends, to attain it, I have said to myself, This man gives too much for his whistle."

Benjamin Franklin

For instance, I can buy the Exact Same Pair of Sketchers at a Sketcher Outlet store or at Nordstroms.  $50 or $150, for the exact same thing.  Therefore, me thinketh, YOU CAN PAY TOO MUCH FOR A WHISTLE!

Hey BP, I have a question now. I have been investing for quite a while and never had an LLC. My father invested his whole life and never had an LLC. But now that I am considering forming an LLC, I am getting quoted very high prices for an LLC. My estate Attorney wants $2,000 plus $250.00 for every deed drawn up. He also said I should have separate LLCs for properties in different states. If I go his route, I am going to be out over $20,000.00 start up and very high annual costs. Therefore, I am asking if anyone has a referral on forming an LLC in Southern California. And, how much should it cost? I see Legal Zoom commercials all the time, but have never used them. I could draw up my own deeds for zero or have an Escrow Company draw them up for very little. But I would really like to know how to form an LLC that will not cost me thousands and thousands of dollars just to form. Thank you!

No such thing as too early either, I bought my first rental at age 19, WITH NO MONEY DOWN. A divorce cost me half my portfolio, oh well! But any age is fine, just don't get in a hurry, build it slowly. I held my first rental a year, sold it and then purchased a triplex. Held that for a couple of years and then purchased 2 four plexes. Then high interest rates hit, FHA was 18%, and things got tough. I sold the 2 four plexes for LESS than I paid for them, those things happen! But I retired at age 50 so I guess it is all good. The first three or four rentals are always the toughest, it's a new field with many nuances. You rent to the wrong tenants, you get screwed by a handyman, you have to do an eviction, your property gets vandalized, and so much MORE FUN!!! It is not a get rich quick scheme, because if it was, EVERYONE would be doing it. Somewhere between 90-95% of people who buy ONE rental, never buy another one and quit the business of being a Landlord. So go into the REI world with open eyes and be ready for some hard work. For those that love it, it can be very financially rewarding.

We own property in six different states and will be adding number seven shortly.  PM fees are always negotiable.  If I have multiple properties with one manager, I get 7% monthly fee.  Finding a new tenant costs me ZERO in CA and CO.  And between 50% and 70% in TX, OK, AZ, TN.  Most have a small lease renewal fee, between 5-10%.  Only one company charges me a commission for repairs and I believe that is a total RIP OFF.  As a matter of fact, most PM's gouge a lot!  Finding a good PM is like finding a Gold Mine.  Be ready to FIRE a PM if you are not happy with them.