All Forum Posts by: Jay Hinrichs

The turn key business has been alive and well for 15 years or so now.. There are very few who survived 07 to 09.. So what you have now is a whole new crop of turnkey companies. And or the turnkey companies moved markets changed who they had selling their properties.

However when I started loaning hard money to I would say 7 to 10 Turn key guys here is how it went.

First I would say 80% of the buyers came out of the LA basin.. Mike Harris's radio show.. Jay and Bill down in San Diego, Nick Vertucci in Irvine, Marshall Reddick, You get the drift. These are the marketing companies. they then reached out to the wholesaler rehabber in the markets they wanted to work in.

Or the wholesaler rehabber reached out to them and said I have product. Many Started in Detroit before the melt down. Memphis had always been a hot bed with Memphis invest the Reedys LCS etc etc. North Carolina had Carolina liquidators , Jackson MS had 5 or six different companies.. One guy that sold a bunch was Demetris Mathis, Bob Lucroy, Walter Woofard, Brad Miller, then in Birmingham you had Justin Harrison, Aaron Adams at Alpine in Indy, And Jerry Cohen and his Son Sean who I loaned money to many times, I see Sean has gone into hard money lending. and the list goes on and on. Now other than Memphis invest and the Reedys I loaned hard money to each and everyone of these turn key operators clients and in many cases to them personally.. The clients came from the Radio shows in LA and San Deigo.. And some from SF there was a Doctor somebody I forget his name... So we loaned the turn Key operator short term money to secure the asset.. usually 3o days or so.. Then when they matched the home up with an LA investor through one of the marketing companies mentioned above we then did the 60% to 65% Hard money loan of ARV to the LA investor.. So now the LA investor is MY client. The loan would pay off the short term loan ( Pay me off and I made a fee there) I would escrow rehab funds and The Turn key provider and the Marketing company be it MIke Harris Jay and Bill Nick Vertucci any of these guys they got their profit as well. So now everyone has made there money. And its now me and the turn key company rehabbing with me controlling draws and I had independent inspectors to do draw requests and confirmations. Then the LA buyer would get a RAte and term refi at 75% LTV sometimes 80 and would very often get cash back at closing. So there you had The RAdio promoters promoting not only no money down but up to 8k cash back per closing and we can do 4 at once.. And with the lier loans and such it was one easy sell. So Refi happens I get cashed out and we do it again.. So at my peak ( not to be confused with Peak in KC) I was doing between 60 and 80 of these each and every month. And you can do the math we made 5 points plus junk fees and 15% interest I had credit line with my local banks at 6 to 7% so we were making not only the points but the spread.. BUT WE TOOK ALL THE RISK IF IT cratered.. And this went on for 4 to 5 years... Life was good right.

Everyone was making money.. Well then the excrement hit the fan.. I had about 700 loans out and everything came to a screeching half AUG of 08.. We were like the titanic and once we went into neutral then reverse we did 3 months of loans and got stuck with them. I was in Europe most of October going OH crap what am I going to do.

Well this is when I learned about PM and how hard it is to manage mid western properties. Some work fine but many have problems and major problems. My two hundred loans went under because the owners in LA were newbies did not know what they were really doing they had been sold a passive turn key program the guys on the ground are now doing something different because they are not making any new sales.. And the La investors failed big time.. this is were most of your 08 to 2011 foreclosure inventory comes from in all these markets , Granted it was a lot of sub prime Owner Occ but it was a crap load of investors who just could not keep properties up and running.. they were undercapitalized to start with. they were sold a program that called for positive cash flow,, they were really getting negative cash flow and of course the 8k per house they took out at closing is sitting in the driveway either on wheels a Jet ski or was that fabulous trip they could never afford. IT was a melt down of epic proportions.. I personally lost about 3 million in this down turn.. I paid all my creditors off never defaulted on my underlying bank loans and learned more than just about any person in the country about how turn key works.. I know I saw all the HUDS. I funded well over 2000 of these.. And after all this call me crazy but I went out and bought 350 homes the last 3 years.. And I just sold them all in Oct.

So what you have now is the new turn key guys.. The Cohens are not turn key anymore they are hard money.. Clothier and Memphis invest exploded as there was a huge vacuum in the space.. Atlanta became soup de jour and was hands down on of the best markets.. I bought 50 homes there from 09 to 2010 and sold them last July and made 50% profit. So just getting part of the 3 million I lost when the economy cratered and all the LA turn key investors and owners went pear shaped and turtled up.. NOw you have a whole new crew of turn key. Mike Harris is still on the Radio so is Jay and Bill,,,, Nick Vertucci has rocked it the last few years. Aaron Adams has gone from a great property manager to a great turn key guy in his own right.. Clothiers have such a good reputation as turn key gurus that they have a big following.... then there is me the little engine that "could" that made much of what went on happen I spent 2 years in limbo hell foreclosing on La folks and securing my assets Had to move to the south knocked on doors it was night mare of epic proportions I went from the penthouse on the cruise ship coming into Venice to cruising the Hood in Memphis looking at barred up windows caged Aircondioning units and talking with tenants that knew me to be a lamb to the slaughter.. Everyone paid there rent to someone.. just a night mare... I suspect in certain markets we were defiantly market makers. And the turn key guys that turned and ran and did not help their clients I would not deal with again. Those that stuck it out we are doing things today NOt as big as I was but substantial and fun.... So today I fund not only mezz financing for half a dozen of the guys in the bizz but do 5 year financing for them as well Ala a Peak product. WE fund almost a million a month of that paper and growing. And since I have the outlets and long history with my guys I have this down its me and 2 great gals that run it... I have a new mezz model that just rocks it and makes those deals so streamline its great. And I can tell you I am not by far the cheapest but I am by far the fastest and most reliable once I provide a credit facility for one of my turn key guys.. In addition I have 3 of the best off shore providers in my camp as well.

So there you go no mystery to this.. and other than the big cash out when folks bought the properties the business is really quite simple.. buy a bombed out foreclosure that an investor walked away from because PM was cruddy. And or they tried to do it themselves which is another recipe for disaster in the B and C class of any of these mid western markets... For the first 3 years after the great collapse all the turn key guys went to promoting IRA buyers.. all cash 60 % of all houses are bought with cash.. So other than my mezz financing there was no need for the hard money to put them in title and then do a rate and term refi so that business for now is gone probably for good.

And depending on when and where people are buying there are some really good buys.. BUT it really really comes down to one thing. Anyone can buy a foreclosure and Johnny lunch bucket can do the TIP TOP reno.. its all about PM without it your destined to fail in my Humble opinion and personal experience. further its my sincere belief that C properties are NOT an appropriate investment for anyone who does not live and work in the area. Yes some will work but many are disasters. I just had a lady e mail me from AU a few minutes ago.. She is investing with me in Oregon... And 2 of her 3 rentals are vacant and she paid full pop for them 80k a piece from one of the top Memphis turn key guys.. No matter who's fault it is she is just sick she is sitting over there not knowing what to do.. And for her to come here is 5k plus loss of work time.. Etc etc. Even people from LA or SF its a 1500 round trip if you got to go to one of these markets.. So my point is for arm chair passive and to be very conservative and safe investors need to look at much better properties pay more expect less cash flow but make it up with a true property that can be sold for a profit down the track.. C properties no matter were they are will never sell for more than wholesale value plus rehab plus a few bucks for profit for the rehabber.. Unless you have a highly organized well financed marketing machine that can move them for more than market value.. The turn key guys and marketers can do that YOu as an individual cannot 97% of the time.

Phew that my take on this

Marvin,

I personally think any up front fee is a red flag.. except for maybe a credit pull and an appraisal. especially for big deals. there is a company in PHX can t recall there name they advertise they will do 1 mil to 200 mill.. Guys with no money to pull off a 10 mil deal will call them.. they will give some bs and have you send in what you have only to tell you your are preliminarily approved but its 10k for DD or 20k or whatever and they fund very very few deals if any and live off the othe DD money its a JOKE>

The reason everyone and their brother is a hard money lender in CA. is because they got sick of being landlords. I was at FBI meeting in Redonodo last year about 45 investors when they each got up to introduce themselves they said and oh by the way I loan hard money.. so they are lending their own money.. not necessarily a company... Norris has a really nice 8 year product at I think 7 to 9 % for those that want to hold CA rentals. And can t get bank financing.

hard money in the mid west and east coast is still 20 to 25% APR.. Unless of course its lazy money or someone you know.. And you can pay those rates if your flipping 30 to 60k houses and quickly % profit is much higher in those markets than the west coast by and large. I fund a number of turn key operators that make 20 to 30% net margins on their deals and cost of capital even paying me my hard money rates they still make a very nice spread and they do volume.

Here in Portland hard money is 4 and 14 for 9 months.. 2 and 12 for 90 days ( that is what I charged locally) 1 point 18th.. etc etc. State of Oregon cracked down on individuals making hard money loans. You can only make 4 a year other wise you need to be NMLS licensed or use a broker.. this is on any loan that is on or originated in Oregon.. property can be anywhere in the country if you originate in Oregon you need to be NMLS licensed.. this is for 1 to 4 units. 5 and over commercial and new construction is exempt.

We also have useray for any loans on sfr's that are 50k an under. I personally went inactive with my NMLS license in Aug. And operate now out of a state that does not interpret the safe act in this manner.. But I keep the license if I ever need to activate I don't need to go through all testing etc....

Jerry w.

The turn key business has been alive and well for 15 years or so now.. There are very few who survived 07 to 09.. So what you have now is a whole new crop of turnkey companies. And or the turnkey companies moved markets changed who they had selling their properties.

However when I started loaning hard money to I would say 7 to 10 Turn key guys here is how it went.

First I would say 80% of the buyers came out of the LA basin.. Mike Harris's radio show.. Jay and Bill down in San Diego, Nick Vertucci in Irvine, Marshall Reddick, You get the drift. These are the marketing companies. they then reached out to the wholesaler rehabber in the markets they wanted to work in.

Or the wholesaler rehabber reached out to them and said I have product. Many Started in Detroit before the melt down. Memphis had always been a hot bed with Memphis invest the Reedys LCS etc etc. North Carolina had Carolina liquidators , Jackson MS had 5 or six different companies.. One guy that sold a bunch was Demetris Mathis, Bob Lucroy, Walter Woofard, Brad Miller, then in Birmingham you had Justin Harrison, Aaron Adams at Alpine in Indy, And Jerry Cohen and his Son Sean who I loaned money to many times, I see Sean has gone into hard money lending. and the list goes on and on. Now other than Memphis invest and the Reedys I loaned hard money to each and everyone of these turn key operators clients and in many cases to them personally.. The clients came from the Radio shows in LA and San Deigo.. And some from SF there was a Doctor somebody I forget his name... So we loaned the turn Key operator short term money to secure the asset.. usually 3o days or so.. Then when they matched the home up with an LA investor through one of the marketing companies mentioned above we then did the 60% to 65% Hard money loan of ARV to the LA investor.. So now the LA investor is MY client. The loan would pay off the short term loan ( Pay me off and I made a fee there) I would escrow rehab funds and The Turn key provider and the Marketing company be it MIke Harris Jay and Bill Nick Vertucci any of these guys they got their profit as well. So now everyone has made there money. And its now me and the turn key company rehabbing with me controlling draws and I had independent inspectors to do draw requests and confirmations. Then the LA buyer would get a RAte and term refi at 75% LTV sometimes 80 and would very often get cash back at closing. So there you had The RAdio promoters promoting not only no money down but up to 8k cash back per closing and we can do 4 at once.. And with the lier loans and such it was one easy sell. So Refi happens I get cashed out and we do it again.. So at my peak ( not to be confused with Peak in KC) I was doing between 60 and 80 of these each and every month. And you can do the math we made 5 points plus junk fees and 15% interest I had credit line with my local banks at 6 to 7% so we were making not only the points but the spread.. BUT WE TOOK ALL THE RISK IF IT cratered.. And this went on for 4 to 5 years... Life was good right.

Everyone was making money.. Well then the excrement hit the fan.. I had about 700 loans out and everything came to a screeching half AUG of 08.. We were like the titanic and once we went into neutral then reverse we did 3 months of loans and got stuck with them. I was in Europe most of October going OH crap what am I going to do.

Well this is when I learned about PM and how hard it is to manage mid western properties. Some work fine but many have problems and major problems. My two hundred loans went under because the owners in LA were newbies did not know what they were really doing they had been sold a passive turn key program the guys on the ground are now doing something different because they are not making any new sales.. And the La investors failed big time.. this is were most of your 08 to 2011 foreclosure inventory comes from in all these markets , Granted it was a lot of sub prime Owner Occ but it was a crap load of investors who just could not keep properties up and running.. they were undercapitalized to start with. they were sold a program that called for positive cash flow,, they were really getting negative cash flow and of course the 8k per house they took out at closing is sitting in the driveway either on wheels a Jet ski or was that fabulous trip they could never afford. IT was a melt down of epic proportions.. I personally lost about 3 million in this down turn.. I paid all my creditors off never defaulted on my underlying bank loans and learned more than just about any person in the country about how turn key works.. I know I saw all the HUDS. I funded well over 2000 of these.. And after all this call me crazy but I went out and bought 350 homes the last 3 years.. And I just sold them all in Oct.

So what you have now is the new turn key guys.. The Cohens are not turn key anymore they are hard money.. Clothier and Memphis invest exploded as there was a huge vacuum in the space.. Atlanta became soup de jour and was hands down on of the best markets.. I bought 50 homes there from 09 to 2010 and sold them last July and made 50% profit. So just getting part of the 3 million I lost when the economy cratered and all the LA turn key investors and owners went pear shaped and turtled up.. NOw you have a whole new crew of turn key. Mike Harris is still on the Radio so is Jay and Bill,,,, Nick Vertucci has rocked it the last few years. Aaron Adams has gone from a great property manager to a great turn key guy in his own right.. Clothiers have such a good reputation as turn key gurus that they have a big following.... then there is me the little engine that "could" that made much of what went on happen I spent 2 years in limbo hell foreclosing on La folks and securing my assets Had to move to the south knocked on doors it was night mare of epic proportions I went from the penthouse on the cruise ship coming into Venice to cruising the Hood in Memphis looking at barred up windows caged Aircondioning units and talking with tenants that knew me to be a lamb to the slaughter.. Everyone paid there rent to someone.. just a night mare... I suspect in certain markets we were defiantly market makers. And the turn key guys that turned and ran and did not help their clients I would not deal with again. Those that stuck it out we are doing things today NOt as big as I was but substantial and fun.... So today I fund not only mezz financing for half a dozen of the guys in the bizz but do 5 year financing for them as well Ala a Peak product. WE fund almost a million a month of that paper and growing. And since I have the outlets and long history with my guys I have this down its me and 2 great gals that run it... I have a new mezz model that just rocks it and makes those deals so streamline its great. And I can tell you I am not by far the cheapest but I am by far the fastest and most reliable once I provide a credit facility for one of my turn key guys.. In addition I have 3 of the best off shore providers in my camp as well.

So there you go no mystery to this.. and other than the big cash out when folks bought the properties the business is really quite simple.. buy a bombed out foreclosure that an investor walked away from because PM was cruddy. And or they tried to do it themselves which is another recipe for disaster in the B and C class of any of these mid western markets... For the first 3 years after the great collapse all the turn key guys went to promoting IRA buyers.. all cash 60 % of all houses are bought with cash.. So other than my mezz financing there was no need for the hard money to put them in title and then do a rate and term refi so that business for now is gone probably for good.

And depending on when and where people are buying there are some really good buys.. BUT it really really comes down to one thing. Anyone can buy a foreclosure and Johnny lunch bucket can do the TIP TOP reno.. its all about PM without it your destined to fail in my Humble opinion and personal experience. further its my sincere belief that C properties are NOT an appropriate investment for anyone who does not live and work in the area. Yes some will work but many are disasters. I just had a lady e mail me from AU a few minutes ago.. She is investing with me in Oregon... And 2 of her 3 rentals are vacant and she paid full pop for them 80k a piece from one of the top Memphis turn key guys.. No matter who's fault it is she is just sick she is sitting over there not knowing what to do.. And for her to come here is 5k plus loss of work time.. Etc etc. Even people from LA or SF its a 1500 round trip if you got to go to one of these markets.. So my point is for arm chair passive and to be very conservative and safe investors need to look at much better properties pay more expect less cash flow but make it up with a true property that can be sold for a profit down the track.. C properties no matter were they are will never sell for more than wholesale value plus rehab plus a few bucks for profit for the rehabber.. Unless you have a highly organized well financed marketing machine that can move them for more than market value.. The turn key guys and marketers can do that YOu as an individual cannot 97% of the time.

Phew that my take on this

Four C's of lending... Collateral , Credit, Capacity and Character...

Organized does not hurt. I got a turn down this week where I thought it would be a slam dunk.. I am building a nice spec home in Lake Oswego Oregon. I paid cash for the Lot 100k paid cash for all the permits 40k ( I know I know its insane here) and wanted 250k vertical for a house I will sell at 625 to 640 ish.. He said we love you but we don't know you your tax returns and business are too complicated and by the time I go through all of this I could put the same time and energy and do a big loan to a big builder..

Moral of the story I should have been asking him for 10 loans for 2 million then it might have been worth his time. I thought hey just get my foot in the door.

Owe well I will build it with cash and have a nice payday in sept.

good luck.... times are much tighter now.. when all the crap hit the fan banks had no one in their REO departments they are well staffed now.

I see your in Yuba city... In my early days 80's I worked with and got the development up on Hammaton smartsville road ( right above Beale AF base) approved and started. I also worked on and got the last phase of lake wildwood done.. OH what crappy timing we get it all done.. WE built the first phase of wildwood 125 lots or so.. I have them all pre sold on the pink report...for 70 to 125k each... I am the broker and had a small equity piece. Going to make a killing at 33.. And then the Earthquake and the war.. And there ya go we never closed one lot and the whole project went down the tubes it was not until the early 2000's that someone finally got that one going again.. We had done the first Mello Roos bonds in Nevada county and it was a nightmare.. The one in smartsville just went through a plane ole foreclose.. I was up there last summer and was pleased to see the two projects I put through entitlement phase 25 years ago were finally built out. Oh the old days. good luck on your short sale.

Was searching MLS just now.. Looking for buildable lots in the Portland Or. metro area.. 2 million people in the metro area.

Exactly 144 lots on the open market that are shovel ready and 5k sq ft to 15k sq ft.

this in a market that traditionally builds 4k to 7k new homes per year, 1990 to 2008...

in 08 we build 10,000.. in 09 we built 700 and just about every builder developer and sub went broke or left for Mexico.

1500 in 2010

2500 in 2011

3500 in 2012

4000 in 2013.

No one prosecuting any new plats from 08 to now.. WE have a huge shortage of land obviously and lot prices in many areas have doubled in the last year.. Average price last year was about 80k today 169k...

So what to do buy every lot today at market price and corner the market. Could be a good thing. Wait for prices to come back down ( don't think so) we have an urban growth boundry so no sprawl allowed.. You think existing homes are going to rise... I think so pretty easy to see that. Is this why every new home I build is sold at or before the framing stage YUP...

but we really can push prices too much because we play heck with appraisals.

Wild times in reverse of 07 to 09

There is a really cool town called Hood River ( world famous for Kite boarding on the Columbia river) I am just finishing 24 lot subdivision there last 4 are in the air... Was checking on lots last night there and there were less than 10.. And Only 3 new construction homes on the market with 2 of them being townhouses on almost vertical cliffs ( so not for everyone) so one SFR on the market.. I had a lead on 5 of the last lots left in one of the lst subs. not on the market I offered on 3 lots all cash close in 30 days 100k a piece. Hope to get them.. Now the spreads are not what you guys talk about in texas and other areas. I will build 2200k sq ft for about 200k all in. ( subs are higher in this little town of 8k) and will sell at 410ish.. and happy to make 50k a door net all in...However will be in and out within 4 to 5 months house will close within 3 days of the CO ( certificate of Occupancy)...

JLH

There are two types of developers... One type in CA is someone that generally buys 1 lot and builds a house or does a tear down or a simple lot split.

Like Palo Alto were I lived for years a developer was a GC that bought tear downs.

When development includes infrastructure Off site on site water storm sewer gas elec cable etc. that's completely different.. Getting loans for this type of development IS REALLY hard right now.. maybe in another year.. I used to get these from my local bank at 80% of appraised value 100% financing.. I have 1 24 lot project going through entitlements right now in Portland. And have started talks with 3 banks.. One flat said no land period.. But we will give you vertical.. The other said we only lend to those we know well and we like you but have not done business with you.. And my core bank that I am probably going to get some funding from. But I think I will need to probably bring 50% cash equity into the deal.. So land and build out is 1.4 I will need 700k in cash to take this down .. then they will give me 4 specs at a time and of course lot releases. The lot releases they want now are also accelerated. Even before the huge down turn the last 14 lots I bought I had to pay off lots at 125% so the last 2 or so were free and clear. which was a forced saving but hell on cash flow.

Development is wholly regional what one does in one region and what one does in another is completely different.

One last point.. IN Oregon. our land is pre zoned and environmentially entitled. In Ca. you need years big EIR;s etc etc. It can take 3 to 10 years or longer to get entitlements. In Oregon I did one 112 lot subdivision got it approved in 120 days and built within 9 months.. Never happen in CA you would be lucky to build one home in that time.

AS others have posted depending on the area of the country land can have no value or negative value as shovel ready lots are available for less than construction costs.. IE I bought a subdivision just south of Atlanta airport 18 months ago from a bank.. 3500 a lot finished.. Could not build them for 25k a lot with the land free...

Lots in our market in the North west are JUST now this year being developed again ( IE infrastructure going in) as lot values have risen dramatically in the last 12 months. Prior to that there had been no lots developed in 5 years.. And or very very few and mainly multi family sites..

As a private lender/ hardmoney lender I have done these deals as JV's pref return % of profit. And they have worked well, but I stood with my finger on the trigger ready to take it over if the developer stumbled.

engelo

You know my stance.. But this is what I have been telling the Aussies for 4 years now.... If you live in the area and can be hands on these houses will work fine.. But if you live across the pond the management of them will eat you alive.. Plane and simple ... Same with inventors that live out of state.

And the only market for them is other cash flow investors that want to get the same deal you did.. If one has the cash and wants an annuity type income that works.. But from my end loaning money is much much easier and at the end of the day you will make more almost guaranteed.. Let someone else have the TTT's I know that's against conventional thinking here. But I just sold my portfolio in Oct. I had 350 of these babies and am glad to part with them.. I am collecting a few a month again but very very selectively.

Engelo have you let your brothers and sisters in OZ know about this site..?