Jorge and Rafi discuss the reasons real estate investors should not purchase turnkey properties, and explain Graystone’s innovative turnkey process that boosts investor’s profits.
00:00 Rafi: Okay. Good afternoon everyone. In this new year of Graystone Brown Bag sessions. And I say new year because we were just watching a new person being sworn and elected, all that kind of stuff. We had someone in our office, actually crying when they saw the plane. I’m sure there’s other people actually happy because of that. So hey, we just… It’s a historic day anyway.
00:29 Jorge Vazquez: Absolutely.
00:30 Rafi: Any way you look at it. So, again, this is the Graystone Brown Bag sessions. I am Rafi.
00:35 JV: My name is Jorge.
00:36 Rafi: Again, the purpose of our sessions is to answer one questions from our viewers regarding real estate investing. A couple of things that I always like to mention. Don’t forget to follow us, and the notifications are either here, or here, or here, or here. [chuckle]
01:00 JV: Somewhere.
01:00 Rafi: Somewhere. Make sure that you just follow. And then if you join us, make sure you share to your timeline. That way all your friends can be part of our content. And again, little by little, we build an audience. Like right now, we have a couple of you joined. That’s great. And today’s question actually came from Stephanie, one of our clients. And her question was very singular. She asked, “Should I buy a property that is already rent-ready?” So, someone bought it. Someone did all the repairs, all that kind of stuff. “Hey, it’s rent ready, so you don’t have to do anything about it. You just put a tenant and that’s it.” So our point is that you should or you should not? The answer is?
01:50 JV: Right. And I get that question a lot, Rafi. We talk to investors on a daily basis. We probably get about 50 to 100 inquiries a month. And a lot of investors, they first think that that’s a better idea. So they’re always looking at, “Let me get a property that’s already renting, ’cause that way I don’t have to put a lot of money or time into it.” The idea of cash flowing right away kind of makes sense.
02:20 Rafi: It’s like when you’re buying a car, a lot of people like to buy their car new, and everything’s ready to go. But your argument is that they should not.
02:28 JV: They should not because, think about it. Let’s think about this. If you have a property that you purchase, you purchase right, and you rehabbed yourself and now you’re renting, and that property’s cash flowing correctly, meaning it’s giving you the cash flow that you’re looking for, why would you sell? The only reason that you will sell it would be two options. One, because it’s not performing as good as the rest of your other portfolio.
03:00 Rafi: Got it. Got it. Got it.
03:01 JV: Or because you wanna try to get prime for that property. You want to get retail, so you want to squeeze the equity out of the property. So, let me repeat that again. So, any sellers out there selling properties already turnkey, which means already rented, only gonna sell the property… They’re only gonna sell it in the case of having a bad tenant or the property’s not cash flowing as they expected.
03:32 Rafi: Yeah, so they will keep it, if everything’s okay.
03:34 JV: Otherwise they will keep it.
03:35 Rafi: They will keep it.
03:36 JV: Or because they want to get their equity back.
03:40 Rafi: Got it.
03:40 JV: They want to be able to sell it retail.
03:42 Rafi: Got it. Got it. Got it.
03:43 JV: So I’d rather… What I tell investors is, I’d rather you buy it, you buy the distressed asset, and you put the equity into it. You repair it and input the equity into it, and then you have a property that you know what the repairs were done on the property, so you know the property in and out. So you know the property on the outside and the inside, and you also know the tenant. You don’t know the history of the tenant. It’s not the same of taking over somebody else’s tenant a “problem”, because you know this person versus you starting from scratch with somebody new.
04:26 Rafi: Got it. So, kind of the argument like CarMax. It’s better to… What the hell was that?
04:34 JV: Sorry.
04:35 Rafi: Something fell on that side and… Whatever. But basically getting that car at a lower price and then what they do is they do the repairs and that kind of stuff, and then they almost basically sell it retail, versus buying it brand new where basically a dealership made most of the money. Now, you say do it yourself. So, are you advocating that they buy the property and do the repairs themselves?
05:00 JV: So the terminology is doing a turnkey process or having a turnkey process. Instead of buying a turnkey property, which means a property that’s already cash flowing, you buy a turnkey process. So, you join a company that could offer you that turnkey process and…
05:18 Rafi: We do #turnkeyprocess.
05:19 JV: Turnkey process.
05:19 Rafi: That’s us. If I see someone out there with turnkey process, royalty. So turnkey process. Okay, so walk me through that. I get that property that is distressed. I know, basically, the numbers. So, what would be that turnkey process that someone should have?
05:37 JV: That’s a good question. You wanna have a team that has experience, and that they could provide you the testimonials. They could provide you the data to confirm that they’ve done this before.
05:50 Rafi: Got it.
05:51 JV: Once you do that, then you want a team that has experience allocating the asset, rehabbing the asset, and managing the asset.
06:00 Rafi: So basically three key components of that turnkey process.
06:01 JV: Three key components, that’s it.
06:03 Rafi: You have the acquisition part.
06:04 JV: Acquisition.
06:05 Rafi: So, you need to have a team of experts to help you with the acquisition part. Because, again, to find an off-market distressed property, you don’t go to a computer, CLO MLS. It’s up market. So, you need to have someone that has a connection there. Then the second part will be that general contractor, right?
06:23 JV: Correct.
06:24 Rafi: And I know that that’s a very important… I think that’s one of the questions that we get asked the most in terms of general contractors. When we get a general contractor team, what are the key things that you’re looking for in that contractor? What are the key things that they should have and that you need to see to say, “You know what? We’ll work with that company.”
06:44 JV: That’s a good question. So with the GC, a general contractor, you could either… You have two main points, right? So you want experience and affordability. So you wanna make sure that you get someone with experience but that’s not gonna kill your deal because they’re charging you too much. And you don’t wanna go with a regular Joe, the carpenter or your neighbor, to do it because they could kill your deal too by not repairing the property.
07:16 Rafi: No [07:16] ____.
07:16 JV: Right, right, right.
07:19 Rafi: Inside joke there. [chuckle]
07:21 JV: So, it’s something in between. In our case, we’ve been working with so many GCs in the past. We have weed out so many of them, kept the ones that are good that fit into that criteria.
07:35 Rafi: That model.
07:36 JV: That model. They’re perfectionists. They do things the right way but at the same time, they understand this is important. How to rehab a rental versus how to rehab a flip.
07:49 Rafi: Right. But rehab is a rehab. You’re saying that for a rental perspective versus a flip perspective, there’s different rehabs?
07:58 JV: Absolutely. Absolutely.
08:00 Rafi: Give me an example of something that will be different in terms of rehabbing a rental versus rehabbing a flip.
08:04 JV: Okay. So, typically for a rental, you’re gonna wanna do things that are more heavy duty for the usage of that tenant, not things that are necessarily nicer looking. So, anytime the…
08:17 Rafi: For example.
08:18 JV: For example, you’re gonna put a vanity. Rather than looking at how pretty it is, it’s more like how durable it is.
08:25 Rafi: Got it.
08:25 JV: Because how many years are you gonna have that property rented for? That should be your focus. So, you gotta make sure that the person working on that property understands that constant, that they don’t go for what looks good for a rental but what’s affordable and what makes sense for the life of this rental. And I see that mistake done over and over again with investors that are doing things on their own that they’re like putting too much money into rental property…
09:03 Rafi: Got it. Got it.
09:04 JV: And then…
09:05 Rafi: Yeah, they put granite kitchen countertops…
09:07 JV: And you don’t need to do that.
09:08 Rafi: Very nice stuff. But really when you’re renting, let’s make sure that it works and that you don’t have to fix it again, basically. If you get those things, then you’re good to go. I will add to that. You mentioned affordability, you mentioned experience. Let me tell you what this is, communication. When you’re getting that quote, are they replying in a timely manner? Understand that sometimes they have other jobs, so they’re not gonna reply right away. But you need someone that within a couple of hours replies back to you. You need someone that gives you updates on a consistent basis. And again, communication is key because that’s where suddenly, hey, you ask him to do something, they didn’t do it. There’s no communication, it’s done. So, I will definitely add that to the key with the GC.
09:53 JV: Absolutely. Absolutely.
09:55 Rafi: Now, we talk about precision as being one team, that general contractor team, what would be the next team? We talked about three teams in this turnkey process. What would be next team that we will add there?
10:08 JV: The third team will be the property management. And that’s important because some people think, “Okay. Well, I’ll go with Coldwell Banker right away. That seems like the logical step to do [10:19] ____ company.”
10:19 Rafi: Or by themselves.
10:20 JV: Or by themselves. By themselves. So let me reframe that, that most people think, “Let me do it on my own”.
10:25 Rafi: Yeah. They can do it themselves.
10:26 JV: And I always tell investors, “Wear one hat.” Either the investor or the landlord. It’s very hard to do both and not get emotional when somebody is not paying your rent, and you tend to make the bad decisions when you get emotional. So, either one. But even at that point when you determine, “Okay, it makes sense to have a property manager,” you gotta figure out what is their focus. Because a lot of investors also make this mistake of saying, “I wanna go with the Coldwell Banker. I’m gonna go with this big firm,” without really doing the research. Are they concentrating on your neighborhood? Is your property gonna be one among another 50 or 60 that they have available right now?
11:15 Rafi: And we’re not saying that the Coldwell Bankers of the world are bad.
11:17 JV: No. No, no, no. We’re not. We’re not.
11:19 Rafi: We have great friends. You know who it is. She’s in my Facebook so I don’t wanna… [chuckle]
11:22 JV: Right. No. We do business with Coldwell Banker all the time. But what I’m saying is, you wanna have a team that understands the psychology of the area that you wanna gain on.
11:33 Rafi: Right. I think that 10% average, some people charge less, some charge more, but I think that’s the best invested 10%, if you do it right. Because really, I think from the property management’s perspective, they take the whole process, turnkey process, makes it a process. Because then, yes, you may be able to manage one. One person calling, one person payments, all that kind of stuff. But we want growth. We have this Facebook Live when we have our company because we want our investors to grow. And once you start having three, four, five properties, managing all those things, managing payments, there’s laws that protect tenants that you need to know, you need to understand. If there’s an eviction, what happens? How you can do it. There’s a lot of little that… I call them land mines in that property management process where… We’ve seen it. We’ve had investors. Actually, we’ve had out-of-state investors that decide not to have a property manager, and it ended in the bad. We had to pick up the pieces, and we had to actually probably gonna have to have a property manager take over and go from there. And remember, investors, the biggest expense for a landlord, for someone that has rental properties, is vacancy.
12:55 JV: Vacancy. Right, right.
12:58 Rafi: Fixing the toilet, that’s 100 bucks. Fixing the ceiling fan, that’s 100 bucks. Not having a tenant, that’s 800, 900 bucks a month. So if it’s three months, you lost almost $3,000. So, a property manager makes sure that there’s a happy tenant, and a happy tenant means there’s a happy investor on the other side. So, again, this is one that I think GC, some of you guys out there are good at it and can do it, but I think if there’s one piece of the pie that I would say always outsource and make sure you have a process and it’s in your place, is property management. People, don’t underestimate it because we’ve seen it. We have seen it where it’s crazy. It’s crazy.
13:41 JV: I’ve actually had clients that they’re like, “Man, I’m fed up with this. I want you to dump my properties,” and things like that. And I’m like, “Let me look at your assets.” When I look at the assets and they’re like, “Whoa, they’re beautiful. What’s wrong with that?”
13:56 Rafi: They’re great, yeah.
13:57 JV: And he’s like, “Well, this hasn’t paid… ” And it’s just like, “You don’t know what you’re doing”.
14:02 Rafi: Exactly.
14:02 JV: You don’t have the time. Of course, you’re gonna get burned. All it takes, Rafi, is one phone call. One phone call a year to piss you off. One phone call on a Saturday night could ruin your day to piss you off and say, “I don’t wanna do… I don’t wanna be a landlord.” Put things in perspective.
14:20 Rafi: There’s people out there that… They’re great, and I know…
14:22 JV: I’m gonna take the sunglasses off for a little.
14:24 Rafi: There’s a request for that? So, our beautiful eyes, look at them. There you go.
14:30 JV: So, we’ll do it without the sunglasses for a moment.
14:32 Rafi: Let’s do that. Last minute, we’ll do it.
14:34 JV: The whole idea of the sunglasses is to make a difference.
14:40 Rafi: Look cool, look different. The lights here in this studio.
14:43 JV: Make it fun. We’re not hiding anything.
14:46 Rafi: No. Hazel? No, not hazel. They’re black. But anyways, again, property manager, back to our point. Make sure you hire someone there because it’s one of those things that you do. Well, we always said 15 minutes, so we’re hitting that mark. I think everyone is watching the inauguration, so there’s no questions. Let me see. Do I see questions? No. There’s no questions there. But…
15:10 JV: Hello, Magaly.
15:11 Rafi: Magaly Mendoza. Hey. She just liked the page. So make sure again that you follow us so you know when our next Facebook session is. We’re trying to do it every Friday around lunchtime. So, between 12 and 1-ish, you’ll see us there. And where can they find us?
15:30 JV: They could always find us at homes4income.com. That’s homes, the number four, income.com.
15:36 Rafi: Excellent, excellent. And again, make sure that you share this live session. Make sure that you follow us, like us on Facebook. We’re on Twitter, too. We’re in YouTube too. We’re not on Snapchat.
15:51 JV: Snapchat, no.
15:52 Rafi: I’ll have to ask my kid. I don’t do Snapchat, but I’ll have to ask my kid how to do it, but we’ll promise you that soon we’ll be on Snapchat. Allan, get working on Snapchatting. Okay? So, that’s it for today. I’m hungry, so I have to go get lunch. I know you had lunch before. He cheated. He had lunch before.
16:12 JV: I couldn’t wait.
16:13 Rafi: You couldn’t wait?
16:14 JV: No.
16:14 Rafi: Well, that’s okay. So remember, next Friday, around lunchtime, Graystone Brown Bag sessions. Hope you join us. I’m Rafi.
16:22 JV: This is Jorge Vazquez. Thank you for your time. I appreciate it.
16:24 Rafi: Excellent. See you next Friday.
16:26 JV: See you.
Graystone Investment Group
Graystone Investment Group is an experienced real estate wholesaler in Tampa Bay. We serve clients who flip homes in as little as 30 days, as well as clients who hold high cash flowing rental properties.
Unlike other wholesaling groups, we provide clients with a turnkey process at no extra charge. We find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years.