All Forum Posts by: Chris Clothier

Even though I own the original turnkey company with arguably the best reputation in the industry, I find myself leaning toward @V.G Jason's advice.  I'm not sure you know enough to invest in properties yet, much less programs.  I'll also add that I'm uncomfortable reading all the tax advice here.  I would have a highly qualified CPA on retainer if tax strategy played a significant role in my investing decisions.  Don't ever forget that most of us here have something to sell.  

I've been consistent with this advice over the years, so this is nothing new.

You live in one of the best markets of the country for investing in high-quality, single-family homes with fantastic upside probabilities over the next decade.  My family's company has our second headquarters right down the road in Grapevine.  The greater DFW metro is an excellent area to invest.  I think you need to spend some time learning about the area and how you might be able to take advantage of it and build a portfolio right there in your backyard.  That doesn't mean you have to do it all yourself, but you don't need to pay anyone to teach you anything or deliver a packaged-up "opportunity" that you start earning instantly.

As I noted above, everyone has something to sell.  Some sell classes, training, seminars, groups, etc., and none makes you money.  They all require more time and/or money from you.  Some are selling you.  Which means they sell qualified leads/investors to 3rd party partners, and they collect fees - sometimes very, very large fees - from those 3rd party partners.  

So, when you are on here, reviewing advice and responses, you want to always know who is selling what.  Is someone selling me properties and giving me the most glowing terms possible?  Is someone selling me too-good-to-be-true opportunities full of sunshine and rainbows?  This is what you have to figure out.  Then, you have to determine what outcomes you expect.  They cannot be to simply get into real estate.  You have to have an expectation.  At that point, you can determine, at a minimum, if the dollars you will spend will get you to your desired outcome.  Until you reach that point, I wouldn't spend $1.  

As for V.G.'s advice to never buy turnkey, I agree that you should never buy the word "turnkey."  It is overused and has lost most of its meaning.  However, suppose you determine that your best way forward is to hire a company that handles the complex tasks for you, and you understand that in doing so, there are both positives and negatives. In that case, I believe several high-quality operators are out there, and not all are on BP.  Unfortunately, in my opinion, there are more poor companies using the word turnkey to advertise, and investors make lousy buying decisions daily because of it.  Some of the bad reputation for the word is deserved.

My advice right now is to do nothing.  Be patient.  Reach out to people here on BP and ask if they can spend 5-10 minutes with you talking through strategy and opportunity.  Reach out to other BP members in Dallas and find out if there are meet-ups.  Learn the opportunities there and how they might fit your busy schedule.  I don't think any investor can afford to abdicate all responsibility to a coach or a program and think that they are going to get the best bang for their buck.

If you have more questions, please don't hesitate to reach out.  Feel free to reach out privately to me or any other investors on here who have been in your position.  Ask us how we've built our portfolios, especially the passive ones.  I think with a bit of time and patience, you can create a strategy that you have enough confidence in to not have to post it here and ask what everyone thinks.  That should ultimately be the goal.

Best of luck to you - 

Connect with @Gregg Cohen here on BP.  His company is one of the original Turnkey companies in the industry, and we have known them for years.  Great company with an excellent track record.  Jacksonville Wealth Builders is the name of their company.

Best of luck with your next property!

 Max,

BiggerPockets recently had me on the podcast featuring Turnkey real estate on BiggerPockets Episode #1049 .  I love how direct you are with what you need.  There are not many companies vertically integrated that take the financial risk on the front end.  You are wise to limit your scope to a particular type of company.

I have been in the industry for the past two decades, and from my years in the business, I can recommend a couple of other companies outside of my family.  Look into Texas Turnkey.  They operate in Houston, TX., and Albuquerque, NM.  You should also look into Jacksonville Wealth Builders.  They operate in Jacksonville, FL.  Both companies are fully integrated.

We are in a dozen southeast markets, and I was surprised to read your comment about investing in NW Arkansas.  We have visited the market multiple times in the last six months but remain uncommitted to expanding.  It is tough to crack, but it has so much potential.  I understand not buying more up there, but your initial investment there will turn out well.

You can check out the BiggerPockets video podcast and leave a comment if you have questions.  Best of luck as you move forward!

 Gotcha.  Those were the addresses I had found earlier in the thread.  As I said, Royal View is the best property, and you should not expect repeated evictions or failed leases.  That is not normal for that area, but it is sometimes how things go.

If you Google the street view of the Parker property, you will see that, in my opinion, it is not an area you want to be in long term. Of course, everyone gets to set their expectations. We invest in 38109 on a limited basis when a client requests properties in the area, but further north and east. It looks like it is for sale now at $112,000, and I wish you the best of luck getting it sold.

@Damon Albers

I hate the alphabet rating system because it is such an arbitrary thing that boils down many important factors to one letter.  Neither of these properties is a median-type homes in Memphis, no matter how you measure.  They certainly are not above average which B+ implies.  The 38128 is slightly below the median and is in a decent area, but definitely an area on the more challenged end of the spectrum in Memphis.  Your experience is not normal for Memphis and not normal for this zip code.

The 38109 property is likely an absolute no-go for out-of-state investors.  This property, in particular, is in an area many local investors will not own, visit or even entertain as an investment.  There is zero demand from owner occupants and little to no demand from local investors.  If you can dump this property for break even, I would make that move as soon as possible.  I'm not trying to be hyperbolic.  These are not great investments and while the experience is not typical for Memphis, nothing I've read or seen should lead you to believe your experience will improve.  

Best of luck to you as you go forward.  Not sure I can offer any help, but if you need advice or direction, I'm happy to help if I can.

@Silas Melson

@Nicholas L., @Jay Hinrichs and @V.G Jason have done an excellent job of laying out a flaw in your thinking, and I will take it a couple of points further.

1. Turnkey is a marketing word.  In the sense that I think it should be used, it means that the risk was taken by someone else.  They used their money, time, and resources to offer you a complete investment, including in-house management.  They are selling you something they own.  Yes, you will likely pay close to or at retail value if you are buying a quality property that has been properly renovated.  If you are working with a reputable company, then you buy the property, hold the property and look up 7-10 years down the road and have a home that has increased in value and a debt that has been reduced by your renter.   This is not get rich quick.

2.  There should be cash flow on day one.  It's just not how you and most other investors think about it.  The income (rent minus management) should cover the costs (principle, interest, taxes, and insurance) depending on the property's price point.  Cash flow is the amount left over that you deposit into your real estate-only account.  Not spending money.  Not dinner money.  Not car note money.  Not replacement and quit my job money.  You will need this money in the future.  It was given to you by the renter to pay the bills on this property.  When there is a vacancy, a leaking sink, a drip from the roof, a fallen branch from a tree, storm damage, a rough tenant, a potato down the toilet...whatever expense comes up in the future, and they always come up, that is what the cash flow is for.  I want to keep 5-10% of the property's value in this account.  When I exceed that amount, I reduce the principle.  So, the only things I spend cash flow on are property expenses or principal reduction.

So, why buy turnkey?  Because you don't have the time or the knowledge or the time or patience to acquire the knowledge to actively invest.  Spend time finding the best company you can in a market you have researched.  Do not buy junk.  Do not mistake low cost for low risk.  Don't mistake high cost for low risk.  Meet who you are going to do business with before you buy.

Then, buy properties where 1. There is a high probability that every dollar you collect in rent will cover every dollar of future expenses. 2. there is a high probability that due to location and price, there will be demand in the future for this property, so it will increase in value.

Good luck to you as you get started.

 Rafael,

Whether in Memphis or any other location, my advice is to stick to homes priced near median value and in areas that are stable with pricing.  If you choose to purchase from a turnkey provider or build your own team, don't be swayed into cheaper areas.  Median-priced homes will attract the highest percentage of qualified residents looking for rentals and the highest percentage of owner-occupied home buyers in the future.  Cheap homes for an area are cheap for a reason - low to no demand from local investors or owners.  Regardless of paper returns, as you noted, these are the homes located in areas that suffer first and the most in an economic downturn or other times of distress.  Be patient in your decision making and understand the local pricing and economics of an area.  

 I am joking with this comment, but I was going to ask if you were new to Biggerpockets with your cash flow comment.  It is pushed over and over and over, especially on social channels and from service providers, and often interchanged with other terms and defined differently constantly, but mentioned again and again.  To the point where a new investor can be forgiven for not knowing there is any other reason to invest in real estate.  It's super frustrating when you work with investors every day, and the common refrain is I want to buy a passive turnkey property, but it must cash flow. No discussion about why.  There is no consideration for risks, areas, quality of the house, renovation, or management.  Just make sure it cashflows on paper according to how I read in some thread to run my numbers!  

End of rant - continue!

Hi Eric,

To be direct, this is not a property that a local, experienced investor will buy.  If it sells, especially at that high price, it will be to an out-of-state investor who does not know better, and they will compare it to the pricing they could pay for a similar house in their local area.  So the justification is, the price is really cheap when compared to what I can get close to home.

In reality, this particular property is not inexpensive for the area it is located and the condition it is in.  You mentioned appreciation and how the property has appreciated 60 something percent since 2000.

It has not.

Same goes for rents.  Residents can pay $1600 for rent and be in nicer areas of Memphis with better food, school, job, and transportation options.  The likely market rent in this area is as low as $995 and probably no higher than $1195 and a lot of the rent will depend on condition of the property.

Pull up public records on the home, and you will see it initially sold in 98 for roughly 50k.  It has bounced around and sold multiple times through the years - sometimes as low as 8k, but multiple times below 15k.  This is not an up-and-coming area.  It is a very challenging area with little development, very little redevelopment, and few food, business, or transportation options nearby.  When you see low sales prices in history, these are likely local investors.  When you see mid-50s and I think there was a 65k sales price, those are likely owner occ.  If it sells for 85k, that will be an out-of-state investor who didn't know better.  

@Justin Albrecht Congratulations!  Best of luck as you keep investing and building your portfolio.