#220 Leaving a Teaching Job to Start a Turnkey Rental Business

0:00I think there's probably a lot of people who are listening who don't really understand what a turnkey operation is so can you kind of break down how that works yeah so everyone sees online they see these wholesalers they're like hey TurnKey rental $30,000 collected 500 bucks that's not what I do that's I do a high level TurnKey so what that means is like all your Mechanicals or your majors are like your capex items have 10 years of life Plus on them so if you're unfamiliar what those items might be think of like your roof your furnace your hot water tank your kitchens baths Windows stuff like that so if the roof is older than 20 years we replace it right because the typical roof has 30 years if the furnace is older than 10 we replace it typical furnace has 20 25 years

0:49hot water tanks older than five we replace it because given a hot water tank 15year life we always throw a new kitchen just a small like rental grade kitchen where mostly most these homes are 1500 sare ft in the Aon can't market so there's not like I'm laying out 20 kitchen cabinets you know it's it's not possible and then in the bathrooms you know new tub new vanity with the tub surround we don't do any tile cuz it try to cut down on the maintenance if you have like grout stuff like that so just a a tub surround always works well for that easy on the cleanup so we sell like a highle turn key and typically these are cash flowing like $3 to $400 after purchase and then we provide Property Management on the back end got it okay yeah so so you basically find the properties you

1:37rehab them and then you sell them to somebody who wants to just hold them but not manage them you know they want to use you as the manager so you'll manage them for them so you're basically handling all the pieces of the operation and they get a turnkey rental property as a result yeah so you get the depreciation the cash flow the appreciation and then you get the pay down the principal pay down right from your tenant so whether that's you know I mean most these price points are you know 115,000 to70 depending you know if you're buying a duplex a single family you know what area of Aon can you're in if you're in suburb you know and typical rents are like 11.95 to we had a single family that was rented out for $650 and some duplexes that were rented in the 2000 Mark but

2:26you know I mean your cash flow in that 300 bucks usually Plus and just having that principal pay down every month and the depreciation and appreciation so it's always stuff people forget about they just look at the cash flow but they're not thinking about the tax benefits yeah absolutely I guess and one question that I think comes up a lot when people start thinking about this is why why not just keep all these yourself like what what's what drives you keep a lot so okay so I mean you can't keep everything my big thing is is my my risk tolerance level right so what I do with a lot of these is like let's say I sell 10 Turn Key Rentals I'll go buy in cash and make my own TurnKey rental so it's debt free so that's kind of the other part of this right I

3:15guess I could keep all of them I always said if everyone just stop buying turn keys tomorrow I'd refinance them and have 60 additional rentals to my you know 40 or 50 now and some of these I do keep when I buy them I keep them for a while and then tenant moves out I'm like hey needs like a big rent out here so he might as well do a turnkey and sell it right and get all the cash back out of it after we put it into it so I have a few like that have been T been there for two years paying way below Market but you know there's no maintenance calls and I just hold on to them and when they move out I'll go ahead and renovate it and sell it nice nice That's great and are most of the buyers who are buying the turnkey properties is are they buying them in their self-directed IRS or is it just a regular purchase of

4:03the dscr loan or how how does that the financing work so typically the why them in their personal name and then transfer them over into an LLC just for better rates and stuff like that I've had some people buy them in a trust you know I mean I I've seen you people use the down payment from their Ira things like that not a ton of Ira buyers because you don't get the depreciation in your IRA I believe if that's correct right so I do a lot of Ira flipping myself for Lending to to people out of my IRA so I'm totally familiar with the self-directed stuff it's a great vehicle to help build taxfree retirement money for sure yeah got it okay and I guess how do you as a turnkey operator like if somebody else was looking at this model who's

4:51Listening and they're interested in maybe creating a turnkey operation how how does the the operator get paid Beyond you know obviously a management fee for managing but what does that look like yeah so I mean you get it's just like flipping a property right so you get paid on the sale of the property something that's different about flipping a property to a turnkey person is it's I don't want to call it an intimate relationship but I always try to make it more of a personal relationship I always if someone listens to this that's talked to me on the phone on one of my people that bought it I always say hey it's it's it's I always want to talk to the person buying it I don't want them to feel like there's the buyer the seller and then like two real in between and we're going to battle it out no I want you to feel like you're getting the the buyer and the seller on the same page I'm setting you up for Success because I I know something I

5:40Do as a turnkey operator if there's a maintenance call within the first 30 days of that tenant moving in I take care of it I have to take care of it it's my reputation like if you had someone move in and then day one there's a a situation that arises that was a rehab situation it looks like how terrible does that look right yeah yeah looks looks terrible so I always I take care of it you know and half the time I don't even tell people if something goes wrong that the management company's like hey this happened I'm like all right send in a guy be handled in an hour you know and that's that's key because then if you're able to respond to the service calls immediately you have a happy tenant right they already have one of the best houses in the neighborhood they're getting top- notot service from a PM company and quickly too you know and that owner is going to be happy too because there's no maintenance bill right yeah so

6:28There's always situations I mean I've had one of the worst things I had a a sewer line collapse after purchase right which was terrible right you're like that is like the worst nightmare could ever happen but what did we do we took care of the sewer line after closing you you couldn't find one MLS deal like that where someone's taking care of the situation after closing oh right absolutely absolutely we still have inspections but you know stuff sometimes gets missed or you know sometimes it's something stupid like hey my keys don't match I don't have a key for the back door like yeah you know so that's an easy swap and that's not a big deal but you know things do arise you can sell 300 plus homes stuff pops up but if you're going to be an elite turkey operator you have to go back and make sure that things are right yeah my personal opinion absolutely

7:18Yeah that you know it's funny because when I was first getting started with real estate I'd go to a lot of conferences and stuff and there I remember seeing a lot of TurnKey operators there that were kind of bigger in the space and I thought that must mean they're they're successful and then you'd go a few years later and find out that they were sued by a whole bunch of people and they're no longer in existence because right these guys would go out and find you know a ton of properties rehab them you know not do that great of a job on the rehab sell them create this huge management problem for themselves because now they've got all these tenants calling all these management issues they're not doing a good job there and so all these people thought they're getting something turn key and it was this nightmare that never cash flowed and so they're complaining and suing and so you know so how it seems like

8:06The management piece of it you know everything else seems great but then the management piece seems like the most challenging aspect of it is that the case for you and if so what do you do to make sure that you can still maintain a viable management business yeah so the management is the long-term relationship that's always the toughest part so we want to make sure that you know you're just provide first thing you always have to get good tenants right tenants make everything so having a great leasing department is always key number one situation okay if you get a great leasing department and you're getting really good qualified tenants it's going to alleviate a lot of stresses right because nonpayment is the biggest stress right in my opinion right if you're not collecting rent can't make any money right yeah next thing would be your your rehab right so

8:55Like there's there's things that happen during rehab that were consistent issues right when P tenants would move in so we'd highlight those we'd spreadsheet them and I'd send out to all the rehab Crews hey when you're rehabing the property make sure your checks check in X Y and Z and I just send a group text to all my all my contractors or my project manager always group text me with everyone that's working not that I read every text but it's always there if I need to go back and check something right yeah so I always we always you know things come up we're like hey you need to make sure you're doing X hey you need to make sure all the door handles match before you leave that was a big issue we were having right we couldn't find keys these places so at the end they would change the door lock so everything matched every time and just just making sure I'm was on the same page cuz the guys that are doing my rehabs they're not just doing one rehab and leaving these guys I've had guys that been with me for four

9:43Plus years now they did my the first guy that did our first rehab is still with me today that's unheard of in this industry it' be four plus years you know 10 probably 15 to 20 houses a year the guy's been doing for me so I mean that's huge right and that's the kind of relationship that like I think really goes a long way because they're not just doing one house and they're leaving you know I don't I don't want that because I I train them to hey you're going to buy this paint you're going to buy this cabinet you're going to buy these flooring you're going to buy so all the skews are the same in every house you could walk into a house in akan Canton barbon Ohio wherever it may be and it's going to look identical on the inside with the paint the cabinets the floor the carpet everything nice that's a great system 's no yeah

10:32Yeah absolutely and so your actual management team then is it is it in-house employees or is it all outsourced are are we have a management team so there's multiple people in the office right so you have someone handles like you know releases and maintenance and you have someone that does like deck collections on water leases whatever it might be right day six you're late for rent you're getting an email a text and a call period we're going to find out what's going on right and that's that's the way it's got to be and if you're not paid by the 15th boom you're getting tagged with a three-day notice to vacate or pay and you can't let it go on right you got to be on it immediately so I got my in-house office staff and then we have maintenance men as well so we have three maintenance guys

11:21That go around and handle whatever needs to be handled which is which is huge right because you're able to dispatch people within 24 hours of the maintenance call so one of the things I think tenants get upset with they put in a maintenance call my landlord never fixes anything well that's we do it yeah we're there you know and that's that's something that I think is super important to make sure you're timely because then they tenants want to stay right they want to be there because everything's kept up right and then we also something we do that might be a little different everyone's like hey let's maximize the rent I want to be top of the market we don't do that we're not at the top of the market so like let's say rent in that area is like 1245 1250 we're going for 1225 you're leaving $25 on

12:09the table but that person can never leave your house and get a better deal right if the market rate's 12250 next year it's going to be higher than 1250 and you have the most updated house on the Block they're never going to leave cuz what kills cash flow vacancy whether short-term rentals long-term rentals midterm rentals if you have vacancy that kills cash flow so we always try to make sure we're just a a stitch below that that high point in the market which is really been helpful to Our Success I think in the beginning I kind of learned that hey we were renting at the top of the market we had a lot of turnover and that was something that we've kind of evolved you know which is interesting yeah yeah I just think it really I mean would you move if you were had cheaper rent than everyone else around you right exactly no

12:58it makes sense do you raise rent because that's always a question if you have a good tenant do you you know when their lease is due do you raise the rent yeah we do so we always try to shoot for something and it's it doesn't matter if you raise it $25 $50 or $10 you need to get them in that mindsight year one there's going to be a rent increase oh okay yep so like we've taken $10 if they're a great tenant and we're they they're like yeah you know we try to like let the tenant set the the precedent right we're like hey you know we do have your lease coming up we really want you to stay you know the owners usually do want to rent increase because of increased taxes Insurance whatever you know is there an amount that I can go to fight with the owner that to to battle for you that you're comfortable with so you're already setting them up for the thought that hey I am going to have a rent increase let me tell them what I want to

13:46Pay that makes sense interesting and then usually they're like I can do 15 bucks I could do 25 bucks more so then you take it and you they've already you're grooming them for an increase every year now is what you've done oh