All Forum Posts by: Snehann Kapnadak

@Darius Ogloza I'll have to go back to my owner statements to put that together, but all in all I have made money and have not lost money on the investment. Even during the turnover, the money I had saved up from the rents covered for all the associated costs. I never needed to pull from my personal funds.

@Joseph Crunkilton Good to hear that I'm not alone with the "not perfect but a good learning experience" with turnkeys :)

@Caleb Brown Yes I still have it now. I like the cash flow.

@Ali Boone The former. From a turnkey provider who also had in-house property management (which they've since shut down).

@Robert Lomonte Thank you!

@Caroline C. Thanks! Yeah I think I would've spent more time in the analysis paralysis phase. I had a turnover and ended up switching PM companies and I'm happy with the one I have now.

@Megan Brooks I actually had slightly outperformed the 15% projection (~16%) due to some initial miscalculations with my mortgage amount, so that was a pleasant surprise. The turnover was purely from the tenants: they were a couple and had breakup, one of them moved out and the other couldn't afford the rent on their own and so they moved out as well. It wasn't related to the property or the PM team.

@Joe M. Thanks for reading!

@Erik Tsou That's okay, don't be too hard on yourself! My advice would be to just start slow but be consistent with your actions. So every day do one small thing that will help your investing career, whether that's reading a book, understanding what a Cash-on-Cash return entails, talking to a local lender, etc. And in a few months or a year you'll have learned so much and will be ready to move forward. Hope that helps!

This week will mark the 3-year anniversary since I purchased my first property, a turnkey single-family home, in Kansas City, Missouri.  After receiving a lot of questions from prospective investors on my purchase, I thought it would be helpful to show the lessons I learned after owning it for the past 3 years.

To quickly set a baseline, here are the purchase details of my turnkey property:

1. Picked a Better Submarket

My thinking at the time: Since this would be my first property of hopefully many, I wouldn't take much risk and speculate on appreciation. Instead, I would focus on a property that cash flows at least $200/month.

What I should have done instead: Looked at Neighborhood Scout and conducted further research on finding a better submarket to invest in.

Location, location, location. Everyone knows that that's the golden rule of real estate. I believe I picked my market, Kansas City, for the right reasons, which include:

Diverse economies

Positive net migration

Declining unemployment rate

Landlord-friendliness

Rising personal income

However, I neglected to pick an optimal part of town by choosing to invest in the Independence submarket. And while Independence is a safe area, it is more of a cash-flow submarket with little appreciation potential. It's a "B" neighborhood, if you will. There are not a lot of employers moving in and around the areas, there are no major developments being built, the list goes on. If you ask many locals, they'll recommend Grandview, Raytown, Northland, Blue Springs, and other areas of the city that are "B+" to "A-" type of neighborhoods that are seeing more appreciation growth.

2. Worked with a Local Lender

My thinking at the time: A national lender will have broader reach and economies of scale to give me a lower interest rate and lower closing costs.

What I should have done instead: Found a local lender who I can build a relationship with for the long-term.

My lender was Chemical Bank, which is a national lender that's been around for a few years. They were easy to work with and quoted me a favorable rate at the time. However, if I knew I wanted to stay in this market for the long run (I do), I should have picked a local bank or credit union to build a relationship with. Fostering that relationship would have potentially led to favorable lending terms such as lower rates, closing costs, and the ability to get more creative financing down the line.

3. Negotiated the Purchase Price

My thinking at the time: Since I was buying the house as a turnkey product, I just assumed that the price of the property was final.

What I should have done instead: Figured out what purchase price would meet my returns criteria and then negotiated down to that price.

Believe it or not, I didn't try to negotiate on this property! Biiiig rookie move! The appraised value from the previous December was $92,000. I was buying for $80,000. So I had $12,000 built in equity already, right? WRONG. The market changes quickly and the value of my property dipped down to $78,000 soon after I bought it. I should have negotiated with the provider to buy the property for 10% - 15% off appraised value.

There are iterations of the turnkey model, but here's a general overview of how turnkey providers make their money. They:

1. Buy the property off a wholesaler or bank when it's in a terrible condition -- Say ~$25,000 for my property (Not verified but let's use this as an example)
2. Rehab it to make it functional by renovating the interior and exterior: roofs, water heaters, electrical, kitchens, etc. -- ~40,000
3. Find a tenant, screen them (or so they say), and sign them to a lease.
4. Add a property management (PM) company. Sometime the turnkey provider does the property management in-house (this was the case with me) and other times they outsource it to a 3rd-party firm.
5. Decide what profit they want for the property, either as a percentage or dollar figure, and market the property at that price -- $80,000 (a $15,000 profit)

So in theory, I could have negotiated all the way down to $65,000.01 in order for them to have still turned a profit. Thankfully, the property has appreciated a little bit since then, though not as much as I would have liked it to. This is a function of the submarket -- see point #1 above.

BONUS! Bought a Duplex Instead of a Single Family Home (SFH)

My thinking at the time: It's my first property. Buying a single family home today > Waiting for a "good" duplex deal to come across my plate tomorrow.

What I should have done instead: Start with a small duplex or triplex (contingent on price) and skipped over SFHs.

This is probably one of the more controversial debates on this site: to begin investing in smaller properties or to go big. And it was a decision I thought about a lot during my analysis process. It was only when I went through a vacancy for 4 months in 2019 did I realize the value of having multiple units. Multiple units = multiple sources of rent inflow = ↓ the risk that a tenant will not be able to pay your mortgage.

For new investors, I recommend being patient and saving up a little more so that they can qualify for a property with more than one unit, such as a duplex or triplex.

Closing Thoughts

The goal of this post was to help aspiring real estate investors get out of the dreaded "analysis paralysis" phase and to take action. Turnkey properties, while not entirely risk-free, can be a great way for busy professionals to invest in real estate without having to build a team from scratch. I've learned a lot from my turnkey investment and it jump started my passion for real estate. While there are some things I would have redone, as outlined in this post, I have no regrets with moving forward with the purchase!

Thanks for reading and please let me know your thoughts!

Hey All,

My firm is looking to revamp their website. I wanted to know if you have any recommendations for designers or services that have experience with creating websites for commercial multifamily. We'd want to have an investor portal along with the capabilities for multimedia, a blog, marketing, and a few other features. Kind of like the Ashcroft website, Cardone Capital, 37th Parallel, Fundrise websites.

Please let me know, thanks!

@Ashton Levarek Good post. I'm in a similar boat where I want very badly to get up to doing the 100+ deals with a team. But like others have mentioned here, nobody is going to give me their capital until I have more experience. This includes "everyday people" who aren't necessarily sophisticated with real estate -- they're not going to fork over their money if you don't have a track record. I think starting small, even with 4plexes and smaller multis, solves the trick with these people because they'll be able to see some sort of track record. Then when you have built up a base + the knowledge that'll come with managing those properties, you can start pitching to the more sophisticated investors who have the capital for larger deals. That's my $.02 but I'm also learning like you. Interested to see what others say as well. Good luck!

Welcome @Gerardo R Gonzalez and thanks for your service in law enforcement! 

Question 1. Putting 3.5% down for the FHA loan will only work if you live in the property for at least a year. If you're unable to move into a property like that, then you shouldn't bother looking into the PMI for the low downpayment and just focus your efforts into buying an investment property with 20% down.

Q2: Yup, as George mentioned, the book on Estimating Rehab Costs (found in the Bookstore section of this site) will help you.

Q3: Yes you should start analyzing deals but keep in mind that you don't necessarily need to use the BP calculator to analyze deals. You can use Excel spreadsheets if you want, or just start with a simple calculator for what the purchase price is, rehab needed, ARV, etc. But first before you analyze anything, you should know what those terms mean in more detail. There are a ton of books and info that go over all those terms in an easy-to-understand format. If you want to use their calculator, Brandon Turner has several recordings of how to analyze a deal using it and will walk you through it. Check out the Webinar section of the site.

Hope this is helpful and hope you're staying safe too!

@Ashton Levarek Good post. I'm in a similar boat where I want very badly to get up to doing the 100+ deals with a team. But like others have mentioned here, nobody is going to give me their capital until I have more experience. This includes "everyday people" who aren't necessarily sophisticated with real estate -- they're not going to fork over their money if you don't have a track record. I think starting small, even with 4plexes and smaller multis, solves the trick with these people because they'll be able to see some sort of track record. Then when you have built up a base + the knowledge that'll come with managing those properties, you can start pitching to the more sophisticated investors who have the capital for larger deals. That's my $.02 but I'm also learning like you. Interested to see what others say as well. Good luck!

Thanks everyone!

@Evan Polaski Thanks for laying it out so clearly. I was aiming for the former, as I'd like to be part of sponsor team, but if they can't fit me in, I would want to hand it off to them and take the acquisition fee. I will definitely put it in the PPM or contract, depending on the route that the deal ends up going through.

@Todd Dexheimer Got it, okay thank you!

@Charles Seaman Thanks for your comment. Good point about the informal agreement.

@Todd Dexheimer Got it, thanks. I hear you on reinvesting the AQ fee back into the deal, but as I'm a non-accredited investor, I wouldn't be able to do that unless the deal has been structured to let NA investors on the LP side. But I would if I could. I'm a big fan of your podcast by the way, keep up the good work!

@AJ Shepard Makes sense to be transparent from the very beginning. Thanks for your insight! I think it works for vertically-integrated business models to not charge the AQ or AM fees, if they're getting PM fees throughout the deal. The worst thing to do is fee-ing the LPs to death!