All Forum Posts by: Julie Macd

@Nathan Brooks I am really looking fro to working with you and your team.

As an update I am finalizing an agreement to buy a house through Nathan and Bridge Equity to get my investing plan on the road.

@Kalin Pfanmiller welcome to BP. This site is a fabulous source of information for learning and creating your network whichever way you decide to go.

While you have and will receive information on what others think you should do, the first thing to do is to determine your goals including how active you can or want to be in the process. Also what are you willing to do to advance your goals.

The flipping strategy is about making money today. Buy and holds are to build wealth. What is the balance between these you are looking for.

How active in the investments do you want to be and how experienced are you. If you are good with fixing things, then you can think about sweat equity versus the general contractor. However, if the thought of swinging a hammer just brings up images of bruised thumbs, then maybe not the best way to go (or is this just me). Even with a general contractor, you need to be able to manage the process to keep things on track.

When looking at rentals, would you mange your own properties or hire a property manager?

So define your goals, what role you want to play, and the time and energy you can and want to expend. Then decide if flipping or renting makes the most sense.

just my two cents

@Casey Miles The property management fees varied between 7 to 9% with the higher priced companies generally giving a discount with more properties. They also were more likely to include periodic maintenance visits in the fee. the lower fess would charge for any site visits.

@Charles McClure I am aiming for cash on cash of 12% or more based on my conservative estimates including capex, maintenance, insurance, property management, with 20% down with 30 year mortgage 5 % interest.

While property manager may technically make more money when the costs are higher, they may also lose customers if the costs are too high. As with all business ventures the PM has to balance customer service with the investors and their own bottom line. Also in the turnkey world, the profits come from the sale of the property to the investor and the PM is a key to maintaining the relationship. The property management may or may not be a major component of the income strategy of the operator depending on the goals of the business. That being said the PM must still be profitable to keep things going.

For the third point, if you buy pure turnkey (ie buy a fully remodelled property with a tenant in place) you generally are paying a retail price  with little equity. On the other side, this is the most passive of the investment models. However, some investors would prefer to be more involved in the remodel of the house. There is a better chance of gaining some equity by being part of the remodel process. From a turnkey perspective, in general you are looking at managing a property manager rather than a property. An investor looking at this model, generally is looking for passive investment rather than active day to day involvement in property management.

Last week I was in Kansas City, MO to meet with turnkey providers and get a better feeling for the city and what is available. Due to personal constraints I was only in town for 3 days which, while enough for initial meetings, was really not enough time to get to know neighborhoods, see more than a few houses and arrange follow up meetings. I wish I had planned for a week, but I was able to accomplish a lot in just a few days. I have received a lot of requests for information on my trip so here it goes.

I wanted to meet with companies with different kinds of TK models. Each company has a slightly different approach to their clients, tenants, and remodeling.This is important to consider when reviewing your own investment objectives and who you want to partner with. I live overseas, so communication especially through email and skype are important. I am looking for a partnership with the company that will be looking after my assets, so I need to know we have similar business objectives and approaches. This can range from the quality and quantity of the remodel (some focus on redoing almost everything versus doing just what is necessary), approach to tenant issues and on- going maintenance. Some management companies focus only on their own turnkey customers, and generally have a more proactive maintenance programme. Others are commercial property managers, some have in house maintenance, others all contracted maintenance etc.  On the property side, there are different approaches to your involvement in the remodel or upgrading of the property.

First, I decided to focus on turnkey companies which are based in the Kansas City area. There are companies which represent one or more companies that work in the area. They generally are paid a placement fee if an investor buys from their person on the ground.  While the initial customer service for the sale, and ongoing investment may be through the third party, the day to day management, upgrades, etc, are provided by the company on the ground. Therefore, it is important that you are comfortable with both. While the main contact was very responsive, I found the contact in KC was not as much so. As I said above, relationships and communication are important for me, so this implies a potential issue for me so I decided not to meet with the team on the ground.

@Nathan Brooks and Bridge Equity provide full service turnkey services. They perform high quality remodels and do a thorough review of all the work needed to update mechanicals, bathrooms, cosmetics, etc. They use the same materials throughout their property so are able to have volume discounts while using quality materials. On paper, some of their returns may seem lower than other companies. However, for their proformas, they use reasonable (complete) numbers from the beginning whereas, proformas from other companies maybe missing expense items or use unreasonably low numbers. With Bridge Equity, you can commit to the house purchase in advance, the purchase will only be complete once the work is done, all inspection items cleared, and a tenant is in place. They are a great team, very professional and customer service orientated.

On the other end of the development spectrum, I met with JK at Storybook Realty.They offer a hybrid turnkey business model whereby the investor purchases the property up front and they will manage the required upgrades and subsequent property management. The investor can then decide how much (or how little) of the upgrades should be done and when. While I did not see a finished house, from the walk throughs, JK is extremely knowledgeable about construction and the work that needs to be done. They focus on northern KC, and specifically areas with good school districts.

I also met with Steadfast Capital / Alpine Property Management. They also provide full turnkey services, but also provide the opportunity to invest through deeds of trust for the purchase. I met with their property management team who were very professional and knowledgeable. While I was unable to see inside the houses they presented as they were all rented, they met my criteria and at least one is a potential option for me.

No matter who you decide to work with, this is your money, your investment, and your decision. Decide beforehand what your criteria really are for investing, both in terms of the numbers, and what you expect from your partners. Know where and what kind of area you want to be in. Lower priced properties bringer higher risk but more potential cashflow on paper depending on tenant turnover. More expensive areas are ‘safer’, lower cashflow and more appreciation potential.

Do your own due diligence, research, and run your own numbers. While I believe most of the turnkey operators will try to provide an honest deal and numbers, at the end of the day, they are in business to make money and you so are you. However, their gain may not always be yours.If you are not comfortable with a deal, be straight forward and honest, but do not be afraid to walk away if it does not seem right or does not fit your investment criteria.

Thanks to everyone that I met and spoke with over the last month or two as I move forward on my investment journey. I will keep you posted as I pursue my investment journey.

@Tom Volpe I am also interested in turnkey properties in Kansas City. I will be travelling there next week to get a better feeling of the market/ neighborhoods as well as to meet with potential partners. 

Lots of people recommend the area, strong economy etc. The TK companies are mostly focues on the east and south. I will let you know what I find

You may need to need to balance your carrying cost versus the lower sales price.  Which is more important, your ego to not lose money or pay more each money in the hopes of getting a bit more.

Is it rented? or how much is it costing per month not sold?

The most important thing sometimes is to cut your losses, learn your lessons and move on.

Just from your description, you did not perform adequate independent due diligence on the purchase and relied on the agent. 

if you ask 10 people you will probably get at least a half a dozen answers because it is quite subjective.  Location is always a key component and can vary from market to market. Some definitions focus on the type of people that live there, others more on price. My version is below:

A properties are relatively clear - high quality, good location, high rents / prices generally upper middle class to high class neighbourhoods.

D properties - are in the poor areas or as some like to refer to as the war zones.

The distinction between C and B are less clear depending on the markets and who you ask.

B class: middle class neighbourhood, low crime, good schools. Good access to services, well kept houses, yards etc. Rents / prices tend to be in the mid range of the market.

C Class: working class neighbourhood, mediocre schools, some crime but still not bad. rents and prices generally are lower. More likely to have less access to services, and have higher turnover and vacancy rates.

So the first thing to do is look at the current situation for current house. Is there deferred maintenance or is it in pretty good shape? Will it need any major capital expenditures in say the next 2-3 years (roof, appliances, etc.) This will give you a good starting place on your operating  expenses.

Then you need to understand your local rental market, What will the house rent for? Is it a desirable neighbourhood or are vacancy rates high. Do tenants normally pay for all utilities including water, sewer, garbage, any assessments, etc. If the tenant normally covers all these expenses then there will be less out of pocket for you.

Once you have all these numbers figured out, you can then figure out the approximate cash flow of the property, which will be key to deciding. Also, how is the market? Are you in an area that will appreciate in the next few years or is it predicted to be flat or slow growth.

If you can break even or have even a small negative cash flow, and the market is appreciating, you may want to rent out the house for awhile, better than taking an immediate loss. You could then use your funds to househack a new property that can build some more equity.

If the cashflow is negative and / or in an area of slow or no growth, then you have to decide if you take the loss now or later. However, coughing up the money to sell, then you may not be able to buy a new property. 

Maybe not a definitive answer but a few points to think about to make your decision