All Forum Posts by: Rob Hakes

Thanks @Jay Hinrichs and @Bob Woelfel for the input.

Bob - I appreciate your commets about personal development.  Probably the toughest thing to quantify and measure, but the most important.

Another update on my Spartan properties.  Things are moving along like quick sand.........

We did finally get the tenant evicted about a month ago and are close to getting another tenant, so the first property has still gone since last June/July without any income.

On the second property I just found out that the tenants are ditching out at the end of this week.  They were about 50 days late on payment and decided they were done, so i will have both of the houses vacant.  

I am not going to try and sugar coat this with hope and perspective.

But I have not lost hope.

Hey all, I am sure there have been similar posts, but I thought this would be a fun one to get some fresh insights.  As a relatively new investor ( 2years ) I am looking for anybody that has had any amount of success in RE investing to share the top 3 things that have measurably contributed to your financial success in RE.  I am thinking of things (situations, principles, actions) that have ACTUALLY moved the needle for you now that you look back with hind sight.  Things that if you did not have, it never would have worked.

After much thought, mine are different than what I thought they would be.  They are:

1 Appreciation. Especially on my personal home (hello cash-out and heloc)(this is ironic, seeing that i don't really invest for appreciation)

2 My punch the clock W-2 job.  As much as i hate to admit it, this has been a big factor in being able to get funding and fund my everyday needs so i can keep my RE earnings buying more RE

3 Good Teams.  Of the few investments that I have, they almost completely rely on a good team to make it happen.  I couldn't do most of it myself (PM's, Brokers, Banks)

What are your top 3?

This is going to sound distasteful to anybody reading this comment that has lost money from MI but:

There has been nothing more entertaining than opening BP on my lunch break and having another Morris Invest thread with updates to read.  It is like reading a good true crime novel in real time waiting with baited breath for this guy to finally get snagged, but he just keeps going and going.  

I've actually learned a ton from following this saga.  I really hope the courts can act swiftly and stifle this guy.  Just please don't take away my mid afternoon 'soap opera' that has found its place in my weekly routines.

@Eric Mitchell

Good Questions.  I started buying some out of state turnkey properties over the last few years.  yes they get better cash flow than what you can get in Utah.  It seems that "the 1% rule" is the becoming the buzz word for most turnkey providers and that is all they need to say to get an out of state investor to pull the trigger.  It is only an indicator of if the deal is worth looking at.  

There are some markets i would not buy a turnkey property in at 1% because of the taxes.  Also a lot of the providers right now are starting to sell properties below the 1%, just because that is what out-of-staters are willing to pay.  Also, now that interest rates are going up, the 1% isn't looking as good. 

Turnkey can be very passive, and you can make money, but things are looking tighter and tighter right now.  

Lending may be a good play right now.  You can get some performing mortgage notes that pay close to 10% and take a lot of the risk, and headache out of real estate investing.

Good Luck.

@Account Closed

I don't know for sure, but the exit strategy would be limited for at least five years. You would need to pay down enough equity to at least cover your closing costs/commissions and still get your capital back.  

I doubt that you would get market value (what i paid) if i turned around and sold it to another investor, but with how hot cashflowing properties are right now, i just might.  

In purchasing turnkey properties like this i would not count on selling the property within a few years as a viable exit strategy.  

My goal is to probably hold for 10-15 years and sell while the property still has some good life in it. That way i still get my COC returns that I want and can realize some equity gains with a 1031 exchange before the property starts needing major repairs again.

Not a liquid investment.

Just thought I would add an update after my year end review of the numbers.  Also, things are still being worked out on the eviction.  The tenant moved out on their own a month ago, but because they left a few 'non junk' items (an operating computer hooked up to some operating cameras) Spartan felt that it was too much of a liability (and really strange like they know how to work the system) to change the locks and get new tenants until the items were removed by the tenant, or the Sheriff officially did the set out...So now we are back waiting on the Sheriff.......

As far as the years returns: I will compare the performing property to this non-performer.  

My calculations represent an actual cash on cash return.  I included the downpayment, closing costs, legal fees..everything out of pocket and compared it to the actual cash received from the properties.

Non Performing Property COC ROI annualized: -10.19% If i add equity paydown -5.71%

Performing Property COC ROI annualized: 9.52% If i add equity paydown 13.65%

Initial analyisis: I basically broke even with the two properties and all of the loss from the non performer was paid by the performer.  I don't think the first year will tell the whole story because their are some front end expenses (legal fees, rent up fees) that shouldn't be there in year 2

THE GOOD - Even though a property went vacant for 6 months, my other property was able to sustain the losses, so no out of pocket from my personal account.  If i include some of the non direct returns like equity paydown and possible appreciation (even if half percent per year) then overtime this will be a really good investment.  I also feel like Spartan plays honest and straight forward so i feel like i have a long term partner.  I cant imagine this would happen like this again in year two.

THE BAD - Off the bat on this property I broke the first two investing rules of Mr. Warren Buffett.  #1. Don't Lose Money #2. Don't forget rule 1.  Fortunately this house was only a minor drag on my whole portfolio, but i have other investments (performing notes) that have had zero issues with payment, and none of the variability and liability, with similar returns to the performing house.  I don't know if i am sold on the turnkey model yet, but certainly don't have a good enough sample size or duration to know

THE UGLY - One of the most shocking facts that makes me nervous about the performing house was that it took almost $700 in late fees to get the return up to 9.5%.  What if the tenants start to pay on time?  This year was a bad sample size however as i only had it rented about 8 months so the 'annualized' return projects out what happened in the 8 month period and it was heavier in expenses (legal, rent up fees, etc)

Hoping for a good/better year in 2019.  Its good to know that when it got really bad, I'm still okay.   

@Colten Roney

Last year i started using The Jones Group CPA out of Orem, now that i have some rental properties, and am house hacking. They seem to know what they are doing and has a lot of REI clients.

@Adam Bileckyj

I think some people diversify just for sake of diversity. Think of what Warren Buffet meant when he said "diversification is protection against ignorance. It makes little sense if you know what you are doing." I think in the stock market game diversification is good because there is so much left up to the whims of the day on Wall Street. Not as much with REI.

If you started to diversify in REI right off the bat, you may be shooting yourself in the foot. Each asset class in RE takes years to learn the ins and outs.

Learn what works well for you and stick to it..............unless you find something that works even better.  Because there are so many good ways to invest in Real Estate, i think that diversification happens naturally as you seek better ways to apply your capital and stick to what works.

just my two cents.

Thanks for the response @Clayton Mobley.  It did seem odd things dragged on so much once it hit the sheriffs desk. That adds some clarity. I was talking to one of the Spartan staff and they also mentioned that the current sheriff was voted out this election and is now in the lame duck phase. Once the new guy starts, they were going to team up other prominent PM companies in the county to really emphasis the importance of speedy evictions to the new sheriff. 

Anyway, on this property I just got news that the tennant was packing up on their own accord and should be gone shortly. I’ll keep you updated.