All Forum Posts by: James Wise

@James Wise Just like any model, there are good operators and bad operators. We all, thanks to you, have heard of our Portuguese friend, who gave turnkey a bad name in Indy. 

I think the important thing is to follow the laws and have everything spelled out in the contracts. But in addition to that, I also connect my tenant buyers with lenders to help them get ready to exercise the option. You can check out my videos to see some of the tenant buyers that were super grateful to become home owners. It would be great to meet up sometime and I can go over the way we set up our lease options to help people buy the properties which is what I really want.  Because in reality, as soon as they exercise the option, I can redeploy that capital into another under valued asset and build wealth quicker. 

@Chris Clothier Here is a competitive analysis of the differenced between the turnkey option and the lease option partnership that I referred to on the other post. Let me know if I did a fair analysis of the different models.

The differences (with benefits and drawbacks) between a turnkey property and the lease option partnership that I do.

Turnkey benefits

• - The property including all major repairs and minor repairs have been completed. There are no surprises about the property.
• - Management from the company that was involved in the rehab and knows the property will be managing the property for continuity and accountability.
• - That management company has vetted possible tenants through their professional screening process and have selected the most qualified tenant for the property.
• - The management company offers a hands-off approach including coordinating and managing repairs, getting the property rent ready after a move out and placing a tenant from a pool of applicants that may be waiting for a property to be ready. This may lessen vacancy time frames.
• - The management company keeps track of finances and offers reports to the owners that are prepared for their accountants for tax filing.
• - The owner has full ownership and control of the property and can make all decisions such as when to sell, or may decide to operate the property according to their own wishes even if those wishes are against the recommendations of the property management company. Of course it this becomes an issue for the property management company, they may chose to stop managing the property.
• - The owners don't share any of the equity growth with the management company.

Drawbacks of Turnkey properties

• - They are usually purchased at market value (or sometimes just a little bit above) so that after paying closing costs the investor who purchased the turnkey investment has a lower net worth than before the purchase.
• - There is no discount or created equity over and above the amount that is used as the down payment for the home.
• - The management company charges a management fee of 10% - 15% which can be a little higher than average property management companies, but that cost may be offset by higher quality of services.
• - The management company also charges for other services such as fee for coordinating maintenance and repairs, and turnover and releasing. Some companies may include in their contract that property management fees much be paid for the length of the agreement regardless of if the property is sold or removed from their management. Additionally, they may have in their contract that if the property is sold that their company will broker the sale through their own brokerage company.

Lease Option Partnership Benefits

• - The property is purchased at a discount which creates instant equity at the start of the investment. So the money partner increases their new worth quickly as the property forces equity usually through repairs. Thus the money partner may realize a higher profit within a 3-year period of time than they may get with other investments such as a 25% or higher return per year for the 3 year estimated length of the investment.
• - The money partner doesn’t need to worry about the financing or keeping the debt in their name which may reduce risk for the money partner.
• Long-term tenant to reduce turnover. This tenant has paid $3900 or more for the option to purchase the property within a 3-year timeframe so they are often a more invested tenant compared to the average tenant.
• - The tenant may be granted permission to customize the property such as painting the property to their liking or upgrading flooring or customizing bathrooms which can create more feelings of a sense of ownership in taking care of the property.
• - The rents are usually $100-$200 higher than the average rental amount which can create a higher monthly cashflow.
• - Tenant takes care of most of the fixes and repairs for the property, except for large ticket items that should have been taken care of before the tenant occupied the property. This is usually rare, and the cost of these major repairs can be negotiated to be reimbursed at the sales closing when the option gets exercised.
• - The exit is defined according to the option period.
• - There are very low management costs since the property has long term tenants that take care of their own repairs. The only costs are hourly wages to an assistant to respond to the tenants if something comes up like a question about the online payment portal system or something else. This is not very common after the first month or so as the tenant buyer gets settled in. The only other cost is to the book-keeper who gets paid hourly to categorize a few transactions a month which takes less than an hour a month.

Drawbacks of the lease option model.

• - There is risk in that the rehab has not been completed and the financing has not been secured so there may be unforeseen issues with the home or lending process that may cost more than the estimated costs which can then reduce profits.
• - The tenant buyer may decide to not exercise the option or may decide to terminate the lease early which may produce a profit less than the projected returns.
• - The money partner is not the only owner of the company which owns the property and thus has limited decision making over the property. The money partner may decide that they want their money back early and may not be able to get their money out of the property until the tenant exercises the option or moves out and the property sells or according to the verbiage of the partnership and operating agreements.
• - It may take longer to find a tenant buyer compared to a regular renter.

Let me know if I have missed something.  That applies to any turnkey operators as well.

I am so glad that I stumbled upon RTR because my experience has been exceptional!

From the time I started the initial consultation, Tommy was very helpful to provide all the information I needed to have before making my decision to go forward with the rental property. He also connected me to his team of experts who were able to guide me through the process of choosing the right rental property. In addition, they connected me to the preferred lenders who also helped with closing on the property within a short period time. The property company they use was also very thorough in the way they handled the property. After the inspection was completed, they quickly addressed what needed to be address on the list which was not much, then they sent me pictures of the work done. No sooner had we even closed on the property than they found a tenant ready to move in. Everything was handled in such an organized manner from the initial stage, to end. Being an out of state investor and having a full time W2 profession along with other responsibilities as a mom, this was exactly how I wanted my investments handled. Again, I’m so glad I found RTR and I will definitely be getting more rental properties with them. I cannot recommend RTR enough, they are the best!!

@James Wise investors don't understand how HARD this is, so they don't appreciate the professionals that can actually make it happen!

 Gotta fact-check everything that dude says though: the number is actually 8-9% from Canada. We get 20% of our cars from Mexico, so perhaps he confused Canada with Mexico, which would not be surprising at all.