Turn-Key Rental Properties

Mike: Welcome to the FlipNerd.com podcast. This is your host Mike Hambright. And on this show, I will introduce you to VIPs in the real estate investing industry as well as other industry as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level. We have three new shows each week which are available in the iTunes store or by visiting FlipNerd.com. So without further ado, let’s get started.
Hey, it’s Mike Hambright from FlipNerd.com. Welcome to another exciting VIP flip show. Today I have with me Lori Greymont, who is the CEO from Summit Assets Group. She’s a radio host, and she’s an expert on turn-key rental properties. So before we pick Lori’s brain though, let’s take a moment to recognize our featured sponsors.

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So welcome to the show, Lori.

Lori: Thank you. You’re welcome.

Mike: Glad to have you on. So tell us, for those who don’t know you, I know you, because we have some mutual friends and a few different capacities, but why don’t you introduce yourself and tell the group a little bit more about you.

Lori: Sure, Mike. Well, I started in real estate way back when. I was about 11. My mom would buy these houses subject to, and we’d move into them. We’d move into what we would call the broken houses, we’d fix them and then about two years later, we’d sell them. And so that was a lifestyle I grew up in. And I thought I would never want to get involved in that.
So I went to college, got an accounting degree, went into accounting and realized that I really did have a passion for houses. And so I started buying and fixing houses, and flipping them here in California. And then I decided, well, why limit myself to California, and so I expanded nationwide. And since 2010, I’ve bought and sold over 1,600 homes.

Mike: Wow, that’s amazing. I’m always intrigued by it, because I’m an investor as well. I invest in my market, the Dallas, Texas market here, and I’m always intrigued by people that are doing things in other states. I’ve become so accustomed to wanting to see every deal, because my money is on the line. But it’s really been an eye opener largely through the show talking to some other folks as to what they are doing. So I’m always intrigued by that.

Lori: Yes.

Mike: So what are the markets that you primarily invest in?

Lori: So back in about 2008, 2009, I were doing bulk REOs. And we ended up in the Southeast, so we were in Jacksonville, Atlanta, Birmingham, and some of the other metro areas around there, and in 2009, I saw the bulk REOs were starting to dry up and knew that I had to make a change. And so in 2010, we sold everything except what we had in Atlanta and Birmingham, and so we built teams in those areas to focus on buying, fixing, and renting the properties we have there.

Mike: Okay. And what made you zone in on those areas? Was it any reason in particular?

Lori: Yeah. You know, there are seven metrics that we look at when we assess a marketplace on whether it’s going to be viable because what we are creating is passive income. We want a market that’s going to have jobs that’s not like all one sector such as military. We want to know that the unemployment there is good, that there is a desirability for people coming out of college to stay there and rent. And so we look at some different metrics, and both the cities that have the metrics that say that they are going to be long-term viable cities for rental properties.

Mike: Okay. And you run kind of a turn-key model, right?

Lori: That’s correct.

Mike: For those that aren’t familiar with that term or maybe have heard it, but don’t fully understand what it is, tell us what that is?

Lori: Sure. So what it means is that we go out and we find some properties, we rehab them. And a lot of people, when they do rehab, will do it to a rental quality. We like to do ours to a resale quality, and then we market it for a renter and when the renter moves in, it’s creating passive income or cash flow. And so we sell the investment, basically turn-key, ready to start receiving money to our investors, and that’s why we call it turn- key.

Mike: Okay, and are you at that point providing a property management service, or do you hand that off as well?

Lori: Right. So I live in California, and the properties aren’t obviously in my backyard. So what makes sense is to partner or joint venture with local people on the ground that have got the property management experience and the people take care of it. So we have a joint venture with our property managers, and they know that they better manage all of our properties well, or we go find another property manager. So we have kind of have the gorilla mentality when we say jump, they say how high, because they know that they have a whole book that will go with us if they go somewhere else.

Mike: And so do you stay involved other than some general oversight with the property managers. Do you stay involved with the deals after you’ve sold them?

Lori: Absolutely. So we have a gal in my office here that contacts every client every month and ask them first of all, have you received your statement, and then the most important question, have you looked at it? You would be surprised at how many people make investments into these properties and never look to see if they are making money.
And if they’re answer is no, she’ll say, “well, I’ll call back tomorrow,” kind of forcing them to look at it. And then she asked them is there is any questions. Is any changes that maybe shouldn’t have been there, or do they have any concerns? Sometimes they will receive some tax bill that they don’t know what to do with or a letter from the county that they have to respond to, and so we just help them through the process. We want to make sure that they are successful.

Mike: Yeah, and for these investors that you bring on, talk to us a little about the service that you provide. Are these one-off folks or are they folks that have come to you and say I effectively want to buy 10 or 20 houses, and I have this much to spend. Talk about the relationship side of what you do there.

Lori: Well, typically, people will come to us, and they’ll say I just want one. But usually by the end of the year, they’ve bought four or five, and the process was easy for them, and it performed as we stated it would perform. We have clients who has brought at many 20. We have clients that are down into the one or two range.
The thing that is nice about the home is the price, especially for people who live here on the coast. Here in California or even in New York, the prices are the size of what most people have in their IRA. We’re talking maybe $80, $90 a 100,000. Well, out here in California, you use that for a down payment. So there’s really no way for them to invest and they’re not earning anything. The thought of gosh, I can buy a whole house, walls, roofs, everything for $100,000 and get cash flow off of it is a no brainer.
And so they usually buy one, or two, or three. And we spend a lot of time with our investors up front. If you go to our website, you’re not really going to see inventory listed there, because everybody has an individual investment plan for what their goals are. Maybe somebody wants to buy it for ten years. Maybe someone wants to buy it for five years. Maybe it’s somebody who really doesn’t care if it’s in a nice neighborhood, but they want high cash flow. Maybe someone really wants pride of ownership. So we have some questions, and we put together a plan, and then we help them execute on the plan that works for them.

Mike: Okay, so in that space, it seems like this is a more popular space than it was just a few years ago.

Lori: Yes.

Mike: Just generally speaking, in real estate investment, it’s always pretty much been a mom and pop business, but it’s becoming more of an institutional business where there is institutional money coming in obviously, but I think people are starting to find ways to, whether it’s working your group or even some of the national management companies that are now franchising out, and people can own properties in lots of markets and have them rolled up into one statement. It’s just becoming more practical to use real estate as an investment vehicle versus the market, I’d say, the stock market.

Lori: I think that there is a lot of truth to that. If you go back to 2008, 2009, people were afraid of real estate because of how much it had dropped, but now you look at the volatility of the market, and they’re thinking, well, the house didn’t disappear. Yes, the value may have, but the house is still there. It stayed there. It’s a physical asset. And so they are now moving towards that because it provides something tangible.

Mike: Yeah, no, I agree with that. And do your folks, I know you operate in Atlanta and Birmingham, do they care if they are in California? Do they care where it’s at, or is it more of the opportunity they’re presented more so than I’m going to put everything in Birmingham but stay out of Atlanta.

Lori: Yeah, you know you get some people that have a perception that Birmingham is maybe not as sizzle. It doesn’t have the sizzle that Atlanta has, but the reality of it is that it comes down to what the numbers are. And most of my investors, by the time they’re making a decision have gotten past the emotional side of buying a home and realize that it’s an investment. Ninety-nine percent of my buyers never seen their houses except for the picture that we send them. I mean they just buy them sight unseen. And the cash flow comes in and then they go “oh well, let’s do this again.”

Mike: It’s funny. All of my rentals are in my market here. We have a decent-sized portfolio, and I will go out of my way to not drive past one, because I just don’t want to know. I’m intrigued sometimes, but I don’t want to know. I have a property manager. I don’t manage my own, and he does a far better job than what I could. I’m very blessed in that regard. I just don’t want to know. My sponge is full, and I don’t need any more problems. I don’t want to see that somebody is parked in the front yard or whatever it may be, so.

Lori: Well, you have to take the emotional piece off of it, because a lot of times, we look at houses as a home that we’re going to live in, and if somebody is not treated it the way we would treat it, then that kind of sets off our senses, and we get a little offended, and we’re going to make decisions that are wrong. The reality is that if you’re buying investment properties for the number or an investment, don’t go look at it. I mean you wouldn’t drive by Johnson and Johnson because you own their stock and go, oh I don’t like the color the house is or the color of the building is. Don’t do that with these. Buy it for an investment purpose.

Mike: So talk a little bit about, we were just talking about, how the market is changing to where folks are more comfortable using that as an everyday investment, more comfortable with not necessarily the need to see it. So just talk about the general trend of using this real estate as a marketable product and I guess where you see that going over the years to come.

Lori: Well, I do see people using this as an investment tool. It’s not like it’s new. It’s just that it’s coming back into being comfortable after the recession hit. So people are starting to realize, well, if I have all of these pictures, I have an inspector go out, and I have an appraiser go out, you know really, that’s already three professionals that have seen the house. I don’t really need to see it.
And so it’s sort of like a stock portfolio, and that you’re building something based on the numbers and verification of those numbers that you don’t need to go visit it. So I really think people are going to start buying more and more all from relationships. Most everybody that we sell to has met me or met my team members at least once or twice. They may find us on the Internet.
I do have to say I do have a couple of people in Bolivia and Israel that found us without ever meeting us and have bought quite a few properties that way. But for the most part, it’s about relationship and performance, and when they start to see those two come together, then they stay with us, and they want more.

Mike: And let’s talk about the company’s role as ongoing performance. I know there are some turn-key providers that will sell a house and once it’s sold, they’re out. You know I packaged something and I sold it. Maybe they’re either property managing it or not. They just hand it off and say, this is somebody that you should work with.
But let’s talk about responsibility for making sure that that performs. Of course you want the best for your clients, but do you have a legal obligation, or do you position yourself as a service provider on an ongoing basis?

Lori: There is no legal obligation, but there is moral, and we work hard to make sure that every property we purchase is a rentable property in desirable areas and that it’s performing. Now we can’t control what the market does. We can’t say, “oh yes, so and so is going to move in in 30 days,” but we try to help. We work with the property managers and their marketing. If we discover that there is a property that hasn’t rented in 90 days, and we set the expectations with our client so they know what to expect in those types of situations.
But we stay in contact every month. We’re talking to our owners to find out what’s going on. We’re looking at their profit and loss basically to see that it’s performing. And we’re there to answer any questions, so it’s not drop and go. We don’t just sell them something. We’re involved in the relationship with them.

Mike: Right. But I know with even some of my rentals, we have the house, we’re ready to go, and somehow we have a couple of houses that we probably should just sell them. They’ve got some bad juju. We have to evict three tenants in one year.

Lori: But don’t sell it. I have a theory for this. Okay, so first I’m going to go back just a little bit. Every person that buys property has been to some kind of real estate course, and they’ve learned how to buy it. And they’re out searching Zillow and Trulia and trying to make sure they’re getting the best price. And they will even postpone buying a house for six months or 12 months just to try to analyze and save $2,000. I mean really. Okay, so you spend all of that time to buy the house. And let’s say it’s a long-term investment for 10 years. So you’ve just spent six months trying to buy a house and you haven’t spent any time learning how to make it profitable for the next ten years.

Mike: Right.

Lori: That’s when you make it profitable is when you’re holding it. And there are many different ways through managing it, charging pet rent, and all of those kinds of things to make money. Your most costly investment in the house is the turnover. Whenever you have a tenant, it’s a turnover. And so a lot of people are afraid to have their house sit empty for 90 days, because they’re thinking, “Oh my gosh, it’s not renting.” But if it means turning down the wrong tenant, because you’re going to be evicting them six months later, you could have saved yourself money by leaving it empty, right?

Mike: True.

Lori: Okay. So now the other thing that I tell people is that if you are looking at this as a ten year investment, and you have turnovers in the beginning, which is typically, it kind of goes into bunches, don’t go selling the house. What you need to do is look at what it’s doing every year. And do an ROI for that investment for its lifetime, and look at your whole portfolio and sell the bottom ten percent, because it might just be a blip on that property. And they do, they go through cycles.
One story of mine, I brought three properties in Huntsville, and in those three properties, over a few years, we had like five or six turnovers. It was excruciating, because we also had a mortgage on them. I thought, “Oh my God, I’m going to lose my shirt.” But in the last five years, we hadn’t had but two turnovers, very minimal turnover. So it goes in spurts, so suck it up.

Mike: Yeah, no, and that’s one of the benefits of having a larger portfolio, because you can absorb those things and you can weather the storms. And I know, I assume for your company in and turn-key providers that when folks have that first one, you’ve got a vacancy. You’ve got 100 percent vacancy, so you feel every bump in the road because there is nothing else there to offset it.

Lori: That’s right. And that’s why it’s good to have the right people helping you through that, because if you make decisions that cost you more money, then you are even further behind. And so you just want to be wise.
I always say wait until the end of the year, give every property two years of performance before you start chomping it, so that you can usually get through the acquisition and the bumps that come with that.

Mike: Yeah. Well talk a little be about how the folks that you work with, how the evaluate a deal. So, you know, a lot of wholesalers or rehabbers tend to evaluate a deal as a percentage of the after repaired value is meaningless for a rental owner. Are your folks, are you evaluating deals usually on the basis of multiple rent or ROI numbers? How do you kind of evaluate that?

Lori: Yeah, it’s typically on our ROI or cash on cash return. You know, most of the people that buy ours are buying all cash, and so they can always get an improved ROI if they finance it. But what we do is we show people that in a typical rental market, you’re going to see an 8 to 12 percent ROI. And if you see anything higher than that, there is a very good chance you’re going to have a lot of turnover which will then affect it. If you see anything lower than that, you’re typically in a very appreciating market, and so you’re going to see appreciation but that means that your cash flow is going to be less. And so you just really have to decide where you want to be in the continuum of investing long term.

Mike: Sure. And how about when you’re building those assumptions, what do you typically factor? I know that there are some rules of thumb out there that people factor in for vacancy, maintenance cost and things like that. Is that using an assumption based on your experience in those markets?

Lori: Oh yeah. You have to look at what the market is. So in the Atlanta market and the Birmingham market, we use the assumption of five percent for vacancy. Now because we had just rehabbed the houses, and we also offer a home warranty, we typically budget in $500 for the year for any maintenance issues because the home warranty covers quite a bit of that.

Mike: So where do you see companies like yours going over the next few years when California is not typically seen as the best place for rental properties, and there is this huge movement to the South, which is probably benefiting Birmingham and Atlanta, and just probably continue dismay with the stock market.
It’s funny, I was a finance undergrad. I worked with a large bank when I got out of college originally, and I was investment focused, and it was interesting that one of my biggest lessons was in the first year or so I was on the job. I was basically preparing performance statements for massive money managers. And the benchmark that everyone was trying to beat was the S&P 500, and it was like why doesn’t everybody just invest in the S&P 500?
And it was just the wake-up call of all of these guys are chasing an average that pretty much nobody can beat over extended periods of time, which just eliminates the need for investing. So I just had some early dismay with the market. At this point, I don’t think we have anything in the market, and we invested in real estate and a few other hard asset classes, so I think it’s a general movement. I mean there’s no such thing of the blue chip stock anymore. And I think that a lot of people are just dismayed that they feel like invested in the stock market is not that different than going to a casino. There’s just so much financial engineering going on that nobody really knows if they are investing in a sound company any more.

Lori: Right.

Mike: I just totally set you up I think for your answer.

Lori: You know, the reality is, people aren’t going to give up on the stock market because that is what’s called the traditional investing, so we’re the non-traditional. So they’re still going to keep some of their assets there. But I still do see people move more towards the hard ass that’s with real estate being passive income being one of them.
For us, what we do is access the different marketplaces when we find that the cost to rebuild is equal to what we’re buying at, then we figure that that marketplace has matured, and we look for another marketplace to go to. Right now Atlanta and Birmingham are both still we’re buying and selling under the cost of rebuild, so they’re still viable markets to get some spread as far as the growth goes and certainly for the cash flow. So we’re stay in those markets and then as we start to see things change, we’ll look at other markets, and we’ll let our owners know that we’re looking at other markets and then maybe they’ll want to consider selling.

Mike: Yeah, that’s great. So for folks that want to, I want to talk about your radio show here in a second. But for folks that want to learn more about some of the assets groups, where do they go?

Lori: Well, we like to talk to people, so pick up the phone. I know this is like weird technology out there, something called the telephone. It’s the think that you text on, it actually dials still. And so we encourage you to call us. Call us at area code 408-782-9162, 408-782-9162, or if you want to send us an email, just shoot me an email, [email protected], and we’ll get back to you.

Mike: Awesome, awesome. So let’s talk a little bit about your radio show. You’re on a radio show and how, you’re on Real Estate 360, how long has the show been on? How long have you been on there?

Lori: Well, I’m a co-host, so it was started by Joe Cucchiara. It’s been on, I think this is its fourth year, and I’ve been doing it for two years now. And I take one of the days and I get to interview experts and have a great time learning. So it’s really wonderful.

Mike: Talk a little bit about the focus of the show for those who aren’t familiar with it?

Lori: Sure. It’s called Real Estate 360, Anything and Everything about Real Estate. And so I just find anything and everything about real estate. We talk about people who are in construction, green initiatives. We talk about inspectors. We talk about how sometimes real estate agents try to skew transactions that they try to hide things that are on inspection reports. I mean there are just a lot of things that we try to talk about. Trusts, we just had a gentleman on land trust, and he was sharing a lot on that. Every topic, any topic, we just share.

Mike: Yeah, it’s an interesting business, isn’t it? Anybody that I have mentored and coached, when they come into my system, I always tell them you’re going to be the life of the party at cocktail parties for the rest of your life, because you’re going to have some crazy stories.

Lori: That’s right.

Mike: Awesome, awesome. Well, Lori, thanks so much for your time today. We definitely appreciate you sharing more about turn-key rentals and learning about you and your company.

Lori: Thank you and thanks for inviting me on.

Mike: Absolutely. I look forward to talking to you some more soon.

Lori: Sounds good, Mike. Thank you.

Mike: All right. Bye, bye.
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