All Forum Posts by: Kathy Fettke

@Schelley Stamps Wow. I am just seeing this! I guess I haven't been very active here... It really means a lot that you listen to The Real Wealth Show. I will give you a shout out on the next one!

So... I'll keep this short. We did some homework and here's what we found in regards to the Chicago company that supposedly is selling garbage product:

- 47 homes were purchased through our network from 2011-2012
- Those homes are currently 100% occupied
- Average cap rate: 9.2%
- No one has changed property management
- 75% of those purchases (32) were leveraged so the price they paid was verified by independent local appraisers supported by open market comparables.
- Real Wealth Network has not received one complaint about this team.

Anyone with more specific questions about those properties, feel free to message me.

Thanks for listening everyone and I really appreciate all the support I've received in private messages. :-)

We know interest rates will climb this year, and continue to do so steadily over the coming years. How do you think this will affect your business and the housing market in general? Personally, I think it will affect the high priced markets more (CA) than the affordable areas (Midwest and South).

Hi Jorge,

We are buying land, entitling it and selling to builders. There is huge upside to it, but requires tremendous experience and due diligence. I've been in the real estate investing biz for 17 years, but in land development for only 3 so I partner with developers who have 30+ years experience because entitlement is tricky.

Our latest land deal is interesting. We got entitlements on a property off Hwy 5 near Lake Shasta in Northern California and are building a "Wine Village." It's a way to showcase local wineries that are hidden in the hills off the beaten track. They can lease a space at our Wine Village and get exposure to thousands of tourist which helps them build their brand. As a result, they are willing to pay much higher leases than other commercial buildings would get. This is what our development team found to be the highest and best use of the land. Once stabilized and cash flowing, we will sell to an institutional fund looking for 6% caprates - it will have a nice upside at that point, but in the meantime we'll cash flow a bit til that happens.

I do like your idea of using raw land for agriculture. It seems to me that farmland is going to be in great demand in years to come, but I"m not an expert on farming so I won't be of help in that regard. Just a gut feel.

I'm back from a wonderful anniversary weekend and now have a moment to answer some questions that I overlooked.

@Jerry W. You said, "As I understand it your company hooks up with rehabbers and property managers, and you do the national/international marketing for them after doing due diligence to make sure the prices, neighborhoods, and management are reasonable?

I suppose I would have to look at your site to be able to judge the value you bring to your investors. Are you following up on companies you recommend to see if their price structure or business model changes? I realize I may be getting into an area that is explained on your site."

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The answer is yes, we do initial vetting on turn-key companies, property managers, renovation teams, lenders and insurance companies. We have a very long list of due diligence items we check out. We are happy to give you that list if interested.

The second part of your question is where my job gets really interesting. Do we follow up to see if the companies have changed? Honestly, we try to but it's challenging at times. We really have to rely on the feedback from our members to see if anything is changing.

Most of the companies we vet are smaller outfits or even mom & pop shops. Sometimes the four D's hit them (Divorce, Death, Disease or Drugs) and things change. What may have been a solid company last year may be suffering to survive this year.

For example, we had found a wholesaler/property manager in Cleveland whom we really liked. He was finding great deals, overseeing the renovations, barely marking them up, barely charging for management, and overall an honest, jovial guy. People liked him to the point where he had dozens of investors on his wait list. This addresses @Jack Tucker 's comments about how to grow as a turn-key operator without messing up.

Our Cleveland guy didn't know how to do that (I'll call him Bill to protect his identity). He tried to keep up with demand by hiring a contractor to oversee the renovations. This new guy ended up pocketing most of the rehab funds and just doing lipstick renovations. When problems arose as they always do when things are covered up, "Bill" started to sell some of this properties to pay for the renovations that should have happened. He was a man of integrity.

However...that same year, his wife got cancer and his cousin was shot and killed in a bar fight. He lost it at that point and his management company started slipping up.

By the time our members let us know what was happening, we were able to jump in and find several new property management companies they could switch to. Surprisingly, many stuck with "Bill" out of loyalty, even when the evidence was against him.

Here's my tip: As soon as you see problems, REACT QUICKLY!

This same situation happened in Dallas, where the turn-key operator/property manager was offering great service for years, but then he got a neck injury. Three surgeries later, we started to notice he was getting loopy - perhaps from all the medication. It was a hard decision, but we had to advise our members to move on and find new management. Some stuck with him out of loyalty while those who reacted quickly saved themselves from loss.

Bottomline: there's really no such thing as a "truly turn-key" investment when it comes to real estate. There is always risk. The key is that you have to know how to respond to it when it happens. We do our best to act as a watch dog for our members, but there's only so much we can do.

When we see problems on the horizon, initially we try to help the provider get their systems back in order. We give them the member feedback and brainstorm ways to improve. If they don't improve, we tell them we're going to stop referring people until they can get it together. Then we warn our members that they may want to make adjustments - like changing companies to protect themselves.

We also stay on top of it by visiting the provider often, and performing both inspections and appraisals on their product. I am open to any suggestion on how we can improve our process of being a "watch dog." But honestly, it seems BP is doing a really good job of it as well!

@Duncan Taylor

Wow. Very eye-opening. Thank you.

I guess I was feeling attacked, and responded defensively - which is never a good idea.

I like the way you reframed it to simply being questioned by Mike. And as you can see, I really am more than happy to answer - perhaps too happy as my posts are WAY TOO LONG!

Apologies to Mike. Wish I could retract the words "witch hunt" but I don't think you can do that on this site (unlike FB where you can say stupid things and then delete them. :-)

Thanks all for keeping me on my toes.

@Chris Clothier You were right that there's lots to learn here. :-)

Hi Duncan,

Great question. I was trying to figure out where Mike was getting his info. And I was frustrated that his attack on me was for properties we featured for a tiny window of time a few years ago. So I went into our property website to figure out what was going on and found a bunch of stale properties that were over 2 years old that had already been bought by hedge funds. My first reaction was to fire my web manager (haha, I didn't do it.)

I knew Mike was on a witch hunt and would bring this up, but I'd really rather you all focus your attention on our current deals. Honestly, Chicago has never been my city of choice because of it's tenant-friendly laws, high taxes, cold weather - plus Mike's right - the cash flow from that provider wasn't very impressive (and I apologize to those who specialize in this market...).

So why did we originally post those properties on our website? I tried to explain it in other posts so I'll state it in a different way here. Real Wealth Network's tagline is "the real estate investor's resource" but it really should be changed to "the passive real estate investors resource."

There is a market for people who want to buy rental property and they want it "done for them." They come to us daily from all over the world asking if we have vetted teams in the cities they want to invest in. Some people love Chicago and want to invest there so we wanted to make sure we had vetted a few worthy companies in the area. We did find a company that we believed had high standards, integrity and experience. We posted their properties on our website so if someone liked those numbers, good for them. If they didn't like the numbers, they'd look at a different market featured on our website.

I personally was surprised at how many people liked the numbers in Chicago. It's not like we were hiding anything. The pro forma's are posted on our website for God's sake! (and remember - they include vacancy and maintenance reserves, which further lowers the stated ROI). Either way, people can take it or leave it. Some took it. Those who wanted something else looked elsewhere like TX, OH, or PA.

You never know why people choose the areas they choose. Maybe they have family in Chicago or like visiting the area so they want to buy property there. Or 6-7% returns are fine for them.

If you think of us as the "yelp" of passive real estate investing, would you criticize yelp for posting a restaurant that offers food you don't like? Or would you simply use their resources to find the food you want?

So yeah, in answer to your question, I took those properties down because they were old, stale, unavailable and not even anything close to what we offer today. I knew I'd get $H!7 for it because I knew Mike was on a mission. But I figured if I was going to be in hot seat, we might as well be talking about stuff we're actively doing, rather than spending all this energy grilling me over some properties that we profiled years ago and that are no longer available because hedge funds gobbled them up.

So let's talk about what we're doing right now. Joel, who started this post, met us on a tour in Ohio. The properties he toured are not our best deals numbers-wise - just being honest. (Hopefully he knew that before he came on the tour as the pro-formas are posted on our website.) However, on the flip side, the property provider offers stellar customer service. A lot of our members will gladly pay more to be taken care of and not have to deal with issues.

Those who want better numbers will go to the providers who are "semi-turn-key". That means they source the property for you and then oversee the contractors and refer you to a proven property manager. It's a little more work but the cash flow is a bit better.

Those who want even better than that just use the REO agents we recommend and oversee the renovation or do the work themselves.

And for those who want TOTALLY passive and don't want to do any work at all because they work 80 hours a week at their own jobs, we recommend our syndications where they probably get the highest returns of all, and those deals are managed by operators and developers with 30+ years experience.

So there's hopefully something for everyone. I hope this helps.

Next question? :-)

Mike H,

Since this is a forum for learning and hopefully not just a place for tearing people down as part of their initiation to BP, I've got a few questions for you.

1) Please describe these phenomenal deals that you are finding for yourself. What did it take to acquire them, what price did you pay for purchase, did you renovate and if so how did you do it and how much did it cost? What are the rents you are getting? And overall, how many hours do you put into each asset you've acquired?

There's one caveat however - those people don't have the time, ability or desire to do the work you've done. They want YOU to do it for them. How would you help them?

I really am curious as to how you think you could do a better job than I am doing.

Would you help all those people find deals by doing all the legwork gratis? Or would you charge for your time and expertise - especially when those people are more than willing to pay a small premium for it.

Please be honest in your reply.

Joel,

I can see how you would expect that being in the position I am in, that I would take the best deals for myself. I certainly have that opportunity to do so. However, the opposite is true. We have so much demand for properties and so little inventory available that I actually end up with the left overs.

I can't tell you how many times I've seen property I wanted to buy on one of our tours and whispered to the seller that if no one wanted it, I'd take it. Inevitably, the one I want gets claimed by one of our members as it should be. Anyway, most of my money is the bigger deals these days, and those profits are shared.

And yes, Joel, you are absolutely right. There is a market out there of people who are looking for what Real Wealth Network offers. A very BIG market, actually. Everyone has a "tribe," and mine is busy professionals who don't have time to make hundreds of offers, fix toilets or oversee renovations. They want passive investments. They want it "done for them" or they won't get it done at all.

And they love Real Wealth Network because we are like a "Yelp" for turn-key real estate investments. Sure, we do our initial due diligence on teams, and most don't make the cut right off the bat either because their rehabs are crappy, they don't have enough experience, they can't keep up with demand, or their customer service stinks.

Those property providers who do make the cut are presented to our investment club, where they go through a second round of due diligence. After they pass the scrutiny of over 14,000 members - if they still manage to stay on our referral list, that means their renovations are top notch (verified by independent inspections), their prices are fair, property management is excellent, and they operate with integrity. And most importantly, the members who bought from them rave about their success.

Are these the best deals out there? I already said a "do it yourselfer" can probably get better numbers by marching the streets, making hundreds of offers, hiring crews, managing construction, finding tenants and managing those tenants - but that's awfully hard to do from out of state, or worse, from out of the country.

I will take your advice and post some of these opportunities on your marketplace. The states we like are Texas, Indiana, Ohio, Florida and Pennsylvania, so any discussion about Chicago is really a mute point when it comes to me or Real Wealth Network. It's not our focus - but maybe a good discussion for another forum.

Hi Joel,

Thanks. I prefer civil and must say my first day on Better Pockets felt like a battle zone. Whew!

Gotta set the record straight - I bought 3 properties last year from turn-key providers. How is that "cherry picking" out of the thousands of properties available?

Second - Our target is 9-12% cash on cash returns on fully rehabbed SFR's (including all new electrical, new HVAC, new plumbing, new roofs, new appliances) in B neighborhoods.

Third - we see returns in many neighborhoods are declining as prices are increasing so we have turned our attention to foreclosed developments, apartments and commercial buildings.

For example, we picked up 27 waterfront townhomes in Portland that were 70% complete before the bank failed. The loan was $12.8M but we bought the project for $3M. We finished it out and sold retail. Investors got 20+ IRR.

Latest projects are similar - an unfinished resort in Tahoe that was $38M that we tied up for $2M and a foreclosed subdivision in Tampa that was $160M that we got for $16M. We still like single family buy & hold rentals, but these bigger projects are too good to pass up and our network loves them because we only partner with successful developers how have 30+ years experience.

My one request - PLEASE STOP making assumptions about me. It's unfair. Happy to answer questions but getting tired of false accusations from people who don't know a thing about me or my company.