All Forum Posts by: O'brian R.

@Alex Craig - Great blog read by the way.

@Matt R. - the math looks right to me.

@Chris Clothier - was a pleasure to meet you this weekend as well. Was a great event and opportunity to speak to a handful of investors looking for low risk and consistent returns.

@Alison Michel PM me and I can share the excel sheet I put together.

Amazing how much great info can be shared in just 1 day! Lot of great points being made here, especially like how side tracked this thread got with the debate of caging A/C units :)

@Jake Kucheck

1) I wouldn’t be surprised. Irvine Pony league baseball? I haven’t met another guy with my first name so yeah, I get that a lot.

2) Turnkey isn’t the be all end all strategy for me. But it’s definitely an attractive option since I’m looking for consistent returns that come with low risk rather than shooting for home runs that come with much higher risk. I know several people who invest in turnkeys for a couple reasons, but primarily because they value low risk investments, have a full-time career, live in an overpriced market where properties don’t cash flow, and are buying out of state where they’re not personally familiar with. All of these conditions apply to me as well, which is why I’m interested.

Though in the long run, I agree with your approach in assembling my own team because I’d learn so much more with this approach and I’m fascinated with RE investing that I just want to be more involved than the average TK investor. I also think being more active in doing my own research, assembling trusted team members, etc. (even with an out of state purchase) would set me on the right path to larger gains in the future. I’ve actually been taking this approach in looking for a property in Dallas/Fort Worth. Problem is that doing this from another state takes a lot of time to assemble the right team that I can trust. And not to mention, I’m new so there’s just a lot I still don’t know. More potential upside going on my own, but definitely greater risk than investing with an experienced TK with top-notch rehab/PM/service that generates modest returns.

15th works and I agree, the Grind worked out well.

@Curt Davis The point I'm making is to just be conservative when running one's analysis. So even if a rental is fully rehabbed with a tenant in place at the time one is considering to buy that property, one should still treat it as if it will need regular maintenance and experience vacancy. In the case of a turnkey that has very little maintenance/repairs during the first year or two and no vacancy because it was just rehabbed and rented at the time of purchase seems to represent the best case scenario. Here a 5% maintenance and 5% vacancy may well be valid for the first year or two. Longer term however, I'd be more comfortable bumping those numbers to 10% maintenance (at least) and 8% vacancy. This way, I am building contingency into my investment so that I can better handle unexpected expenses in the future. I won't know what that expense may be (h20 heater, new roof, etc.) or when it will occur, but that's exactly why I'd want a margin of safety accounted for in my analysis.

@Dewayne Gammel Running numbers from a worst case scenario is definitely what I plan to do regardless of what reasons a tk may tell me. Sure it's rented out now and fully rehabbed, but what about in 10 or 20 years? Budgeting that extra expense now creates a good margin of safety and if it's still cash flowing with those conservative numbers, I'll pull the trigger.

@Dean Letfus Whole heatedly agree with you. Thanks to you and @Kevin Perk for sharing comps in the area to give me a perspective of where their price stood.

Thanks @Melodee Lucido, @Dave Olverson, @Robert G. for your comments and support.

@Mike D'Arrigo Maybe someone here can explain how the property taxes work in Memphis better than I can. I only learned this stuff a couple days ago. Though from what I've researched, properties are appraised every 4 years. Based on the appraised value, 25% of the appraisal is considered the assessed value which is subject to both county and city taxes. The current county tax for a non-Memphis resident is 4.42% and the Memphis city tax is 3.42% of the assessed value (i.e. 25% of appraisal). I didn't forecast what the future tax rate would be, but rather estimated what the appraised value might be and applied today's tax rates. I used an 80,000 appraisal just because in the past 4 appraisals since 2001, the appraisal came out to about 63k (2013), 81k (2009), 81k (2005), and 75k (2001). I don't quite know why the 2013 number is so much lower than the other years. You're right, property taxes definitely seem like they can vary over the years so my thinking was to just take the high estimate and if never gets appraised that high, only better.

I'm not fixed on the Memphis market. Being in Southern CA where there's so little cash flow if at all, I'm open to looking into any out of state market where there's both cash flow and growth. I'm still new...like 2 months new, so I've only gotten so far as researching Dallas Fort Worth and now Memphis. Perhaps from this thread, I'm learning that I should start considering other markets as well.

@Dewayne Gammel 15 properties and still considered a newbie? I don't even know what that makes me then. Thanks for sharing your numbers. Always appreciate actuals. Great returns you're getting by the way. I noticed you're budgeting 22% (10 + 12) for repairs/maintenance and replacements. How old is your property by the way and what condition was it when you purchased? I didn't see it, but does your PM not charge a leasing fee for when new tenants are placed?

@Brant Richardson This PM also charges a month's rent for new tenants. I captured this fee in the row "tenant turnover (every 2 years)". Since it's a 2 year lease, I figure worst case I'd have to pay a full months rent every 2 years. So every year, I would budget for half a month's rent spread across 12 months.

If there's anyone not too shy to share their actuals with a turnkey, I'm sure myself and others would be interested.

@Kevin Perk You're right, tenants wouldn't have any incentive to keep the property in good condition if they know that they're not going to receive their deposit back, but I think what the PM meant is that from their experience (kind of like @Dean Letfus), they generally need to use the deposit to repair some damage that the tenants cause. Your point about one day selling in an area where mostly investors have purchased and will be prospective buyers is a great point. That and over time, my cash flow will likely get worse due to repairs is exactly what I'd be worried about with such a property.

@Chris Clothier Thanks for you input. I think many investors who purchase TK are doing exactly as you're saying, buying a perceived value that is suitable to their unique situation.

@Ali Boone Thanks for checking my work.

@Matt R. PM me and we can talk more.

That's really interesting about out of state owners in that area.

As for the reserves, I figured I'd budget the 10% for maintenance whether it is needed or not until I have $5k set aside to deal with any larger items. Also with turnover, the turnkey provider says that they'd keep the tenant security deposits to used toward making the property rent-ready again and any leftover is given back to me. They said keeping the security deposit is standard in TN, which is news to me because out here in CA I've always gotten my security deposit back as a renter.