Turnkey rentals are hot right now, as there’s a huge segment of passive investors that want to own rentals. If you’re primarily wholesaling properties right now, you may consider evolving into providing turnkey properties to those that want to own rentals. Tom Olson has evolved in this same manner…and joins us today to talk about why it may make sense for you. Don’t miss this FlipNerd episode!
Mike: Hey everyone. It’s Mike Hambright from FlipNerd.com. Welcome back for another exciting Expert Interview show where I interview great guests from across the real estate investing industry to help you learn, hopefully inspire you and teach you a few things.
For today’s show I’m joined by Tom Olson. Tom Olson is based in the Chicagoland area, but invests in number of states around that area. He was a Midwestern real estate investor that has bought and sold well over 1000 houses and is running a really high level operation in terms of units. He also owns a construction company that is very sizable and does quite a bit of business. In terms of his wholesale deals, in fact he posts a lot of them on FlipNerd.com, so you can even get in on the action which we’ll talk about a little bit today.
But Thomas historically has been a really high volume wholesale operator and is moving more into the turnkey space because they’re seeing that that’s where the market is shifting, adding more rental ready properties into the real estate investing communities. So we’re going to talk about that. Talk about Tom’s wholesale operation and why turnkey rentals make sense if you’re looking to build up a rental portfolio and don’t want to have to do as much for the work yourself. Before we get started with Tom today though, let’s take a moment to recognize our featured sponsors.
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Hey Tom. Welcome to the show.
Tom: How are you doing Mike?
Mike: Good, good. Good to see you, good to see you again. For those who don’t know we’re in a Mastermind group together and have a lot of common friends. I know Tom really runs a very impressive business and it wasn’t always that way though. I know you didn’t start in this space. Maybe you could take a couple of minutes’ Tom and tell us about yourself and how you got into the space you’re in now.
Tom: Yeah, absolutely. My journey actually started when I was 12 years old. My 8th grade history teacher, I was sitting at lunch and he pointed at me to come over and I came over to him, he was like, “Hey, how do you like to work on Saturday?” I was like, sure. All 12-year-old boys want to work, at least they used to. I’m not sure if they do now.
Mike: Not anymore. That’s probably illegal for a teacher to ask you that now.
Tom: But back then I loved it. I still love to work today. Like I’ve said before, my wife gets mad at me for working late sometimes. So he asked me to work on Saturday, it was a 12 hour day. My first day at work was a 12 hour day and starting construction. And I actually worked for him all through high school, all through summer. I remember going to basketball practice and working with him probably illegal hours now up until sometimes midnight, at night.
I went to a private school and paid my way through the private school because I wanted to stay there, my parents couldn’t afford it at the time. So I’ve been in construction from then all the way up until about . . . well I bought my first rental when I was 19 years old.
Mike: Oh, wow.
Tom: So I’ve always loved real estate and I’ve always loved the passion of real estate. I feel like God’s led every step of the way to be where I am today. Which is why I love where I am at, this is my dream job being a real estate investor, being able to buy and sell real estate. Like you said I own a construction company as well that started in 2003 I think I’ve owned that since about 2003.
Mike: And that’s primarily a remodeling company? Do you build or anything like that or primarily . . .
Tom: No, we don’t do new built but we do a lot of rehabs for investors. Obviously some of those are for ourselves but we do a lot of rehabs for other people and even people in the group that we . . . we talked about lots of people buy from me and I do a lot of their rehabs with the construction company.
So that’s kind of where I got started in as far as rehabbing goes. And about 10 years ago I actually started working with investors and at the time this was 2006 when construction really already started to go down. People didn’t realize it that construction had started going down way before the actual crash in 2008. So I was trying to find new work at the time. So I actually started hooking up with investors and I had no idea what I was doing at the time.
Mike: That’s how we all started.
Tom: Basically what I was doing is I was going and finding them deals which now we would call that a bird dog or a wholesaler. I was finding them great deals, I was doing a budget for them and I was saying this is how much it would be, I would run their accounts for them and a lot of these guys were out of state investors already so I already kind of had that under my belt. And I didn’t realize I was doing what I was doing but I was creating this platform for myself, for this whole idea before myself and what I’m doing now of wholesaling and buying and fixing property.
So what I would do is I would find a house for them, I would send it to them, I would say to them how much the rehab would be, we’d bid on the house, they would get the house, I would do the rehab, I helped them get it listed with a realtor. So I’d do all the work for them and I didn’t realize I was doing it for nothing and basically the only thing I got out of it was guess what, I got to be the contractor.
Mike: Right, right.
Tom: That was my big thing that I got to do. So that’s kind of how I got started. About five years ago I hooked up with Wayne and with Foreclosures 4 Cash, which now the company’s name is Good Success, wholesaling houses and we’ve wholesaled about 1000 houses together. So that’s kind of where we got started and it’s been really good. I think this year we’ll hit about 300 houses this year wholesale.
Mike: That is awesome.
Tom: Within the last couple of years we’ve also just noticed this real shift in turnkeys and for us buying houses, fixing them up for us and renting them. We have a property manager that works in our office as well, highly recommend. And we’ve just seen that right now since we’re right outside Chicago and Illinois taxes are very high, Indiana is a great place to own turnkeys. And I’m sure you’ve seen that too.
Indianapolis is another pretty good market. But I actually prefer my market over Indianapolis because the rents in Chicago are so high. And the reason why they’re so high is because their property taxes are double where we live. So you couple that with about the same rent. Somebody that will rent in Chicago for $1300 might be $1200 here but still I’m selling those same houses turnkey for $90,000, $100,000 and it’s a very good market to do that with.
Mike: Yeah, yeah. So maybe you could kind of take a step back and talk about how in terms of people that are listening like how they can kind of learn from how things have evolved in your career or your businesses and how to be aware of how things evolved.
So you crammed all that into a really small space but if we break it down a little bit like things kind of happened, business cycle change and you had to evolve to kind of accept that. We’ve actually talked about that a few times lately on the show with different guests but I think that we’re in a unique market right now.
We’re definitely higher up the curve than we were a couple of years back, to where it feels like there’ll be another shift coming. I don’t know if it’s six months or three years away. But I think I see a lot of investors now that haven’t been through different cycles and they don’t have their ear to the ground to figure out where do I pivot from here if I have to pivot.
And maybe you can just kind of share some insights on, I don’t know if you have this, well I have a weekly meeting and I think to myself what I’m going to do next or it just happens to you. But nonetheless you know there are cycles and not everybody is prepared for change when it comes and it always comes in this industry. So there’s a question in there somewhere for you Tom. I want to see if maybe you could kind of share some of thoughts on how people could kind of plan for changes in their macro environment business cycles to always be looking for opportunity I guess.
Tom: Sure. That’s kind of a loaded question.
Tom: At the same time there’s many different answers.
Mike: Yeah, yeah.
Tom: Too many different questions I think that you asked there. The first thing I would say is, let me go back to turnkey I think if anybody is going to buy turnkey, from me what I prefer is the boring market. I really prefer Midwest, Alabama, places like that where you don’t have these huge spikes. A lot of places that you’re talking about right now even Dallas where you’re located, I do think Dallas is probably closer to its peak. We’re not even back to 2008 levels yet.
So keep that in mind and for me I still think we’ve got two more years of steady growth in my market. I do think obviously New York, California, around the outskirts, East Coast, West Coast, definitely they may be slowly shutting down even but. So as far as turnkey, the reason why I like it so much is because owning rental properties in those boring markets where you don’t really care if the property goes up or down in value, you’re still making the same return on investment that you wanted to make initially. So that’s the first thing.
The second thing as far as how do we make sure that we know what’s going on next. Well that answer to that is connecting with people just like yourself. Probably the main reason why we’re a part of Collective Genius and many other Masterminds, this isn’t the only one that we’re part of, but going to local REIAs or going to big events or just knowing what’s out there, reading in the market, making sure that you don’t get caught sometime. A lot of us got caught in 2008, I wasn’t one of those people. I do know many people that did get caught really bad in 2008 not knowing what was going on.
Tom: So I view those high levels masterminds. We just looked at our budget we’re doing for next year and we’re probably going to pay about $100,000 this year in travelling, masterminds, meeting type things that you talked about because we want to make sure that we don’t get caught like that. We kind of view that as our trusted advisors almost. And it also gives us ideas that we might not be looking at right now. You’ve always got to be open to change. Without change you’re always going to be stuck. If you’ve never read the book, “Who Moved My Cheese?’
Mike: Oh, yeah.
Tom: Super, simple easy book but it really mentions all that.
Mike: Yeah, I think one of the nice things about, we’ve talked about turnkey, or let’s you talked about buying boring markets. I think the underlying lesson there is buy properties that are cash flowing and don’t worry about appreciation and some of those things which if you get them and you probably will over time they’re great. That’s great. But kind of count that as gravy. So don’t buy assuming that you’re going to have some massive appreciation. Just buy things that are kind of stable.
In markets like where you’re at, a lot of the markets in the Midwest or the Southeast or even a lot of like smaller Texas markets, the rents haven’t gone down, rent’s have gone up. So it’s like even if the value on a property and this time most markets were just because the property value got cut by 20% doesn’t mean the rent went down by 20%. The rent probably stayed the same or maybe even went up. So that’s kind of what you’re saying there right?
Tom: Yeah, and actually that’s exactly what happened. We’ve got a market in our area Merrillville, Indiana which the rents basically went up $200 a month when the market crashed because everybody was going from ownership to rental really fast. So the rental market is super strong and I think that’s a national thing still. I think that the rental market is still a lot stronger than it was pre-crash and I think a lot of people are just choosing to rent. They don’t want to go through that again.
But you’re absolutely right. To me I feel it’s more of are you an investor or are you a trader? And I know being a wholesaler the way I think of viewing myself in the market, I’m day trading houses. I do. I buy and I sell same day, make a couple of thousand dollars and I move on. I make a funny joke about this but I always say that I tell you the key to any business that you ever do for anything, it’s summed up in four words. It’s buy low, sell high. It sounds so stupid in selling but really that’s what we do. It’s with time, it’s with anything you do. But that’s what we do in real estate, it’s what day traders do, they’re just buying lower than they’re selling. Whether they sell first or not, if [inaudible 00:14:53] in the market, but that’s what we do as wholesalers.
But as an investor, as a true investor having that rental as a vehicle to create wealth because you might get long term appreciation, but also to have that constant mailbox money every single month that comes into your account. You don’t have to worry about maintenance if you have property management in place. But it’s like a very heavy dividend stock if you think of it [inaudible 00:15:23] market. So it’s something I’m not really worried about the price of the stock or the value of the house. I’m more worried about, am I making sure this is a good investment long term?
Mike: Right, right. You’ve moved more into the turnkey space because there’s a need for people that want to buy properties that are ready to go. Not everybody wants to buy an as-is house and have to deal with fixing it up and finding the tenant themselves and all those things. And the beauty of folks that are listening, if their ultimate goal is to own a rental property that doesn’t mean that they have to do all the things along the supply chain to get it there.
So it’s kind of no different than let’s just use Walmart. They wear a few hats in some areas but they buy products from a wholesaler or a distributor that are marked up and they know that those people are making money and they’ll just kind of handle the retail portion and they don’t really worry about well am I manufacturing my own toilet paper so I can kind of squeeze every ounce out of this. I just want to specialize on the rental part and it could be because I’m a doctor or a lawyer, a professional, I have a job. I don’t have time to do all that stuff.
So there’s this general kind of movement of people that are tired of investing in the stock market and tired of investing in things that they can’t trust. And maybe saw like a big chunk of their retirement even in the past month or two the market has taken a huge dip. I don’t even like being an investor in the market anymore. I like to have several real estate but unfortunately we have some retirement accounts and stuff that are stuck in different things that just got hammered a couple of months ago. My wife was like “We lost these huge chunk in like one week.” I was like, this market is kind of scary. I don’t even know what I’m doing out there anymore even though historically . . .
Tom: Self-directed IRAs.
Mike: What’s that?
Tom: Self-directed IRAs.
Mike: Yeah, yeah. It’s complicated. But my point is there’s this general movement in rentals as an asset class. So therefore there’s more need for you to provide a turnkey solution to people that has a house that might be rental ready or close to it. May have a tenant in, yes or no potentially.
But the lesson I want people to learn here is that if you’re interested in buying rental properties, you don’t necessarily have to do all the work. You can buy them, that are kind of further along the supply chain and closer to a rental ready than buying them as a wholesale property as-is and having to deal with contractors and all the stuff along the way. Can you maybe elaborate on that a little bit?
Tom: Absolutely. I’ll go back to the stock market because I think a lot of people get this all confused. They think if I buy a house then all of a sudden now I have to be the one that gets a tenant, fix the toilet, do all this dirty work. But think about that when you buy a stock in Walmart, are you the one hiring and firing, cleaning up the messes? Absolutely not. You have to think of it like an investment.
And the great thing about owning properties is there’s so many more extra benefits that come along with it. But just like owning a stock, you don’t have to do any of the work. And I’ll be honest with you, the key to turnkey, I don’t care where you buy turnkeys, the key to turnkey is making sure that the property manager is vetted.
Tom: Nobody else in my opinion matters as much as that property manager. You make sure that that property manager is an honest person, there’s nobody that can really mess up a good turnkey deal worse than a property manager. But that property manager is like the managers of Walmart or the CEO basically of Walmart when you buy stocks.
The other great thing about this is you can leverage your money. Right now financing rates are so cheap and you can leverage 80% of that, so you can buy in $100,000 house for $20,000 of your own money. So if you have $100,000 today, instead of buying $100,000 worth of stock or $100,000 worth of property, you can basically buy $500,000 worth of a stock and leverage that to be able to make quicker more gains, long term appreciation and all the benefits that go along with that. Does that answer your question?
Mike: Yeah, yeah. Yeah, yeah. Talk a little bit about one of the things that’s kind of changed over, I think the past few years has been kind of significant in this regard, is people’s comfort level I guess with buying properties that are not where they are. Obviously the rental market is a huge market. Something like one in three homes in America is owned by a real estate investor. But I think historically a lot of people like them to be kind of close to where they are in case they need to get involved somehow.
I’ll tell you just this week for the first time in, gosh, probably a couple years all my rental properties are in the Dallas area, I never drive past them. And a couple of days ago, literally two days ago my wife, we were going somewhere, and she was like, “Oh let’s go drive by this house,” because we were right by it. I was like no, no, no. I don’t want to see it. I don’t want to know, I just don’t want to know. We don’t manage our own rentals, I don’t want to know.
And sure enough we drove past it and there was some peeling paint and it’s like “Oh, they need to do this on the side.” She was like, “We need to go drive past the other house. Sometime we need to schedule like a week and go drive by our houses.” I was like no way, because I don’t want to know. So that realization that I have it in my market and I go out of my way to not drive by past them. Kind of makes sure you understand that, if you don’t want to drive past them then it doesn’t matter where you are relative to where they are right?
Tom: Yeah. I’m probably going to say something here that really most people may not understand but it makes sense to me. So I couple that along the exact same way of my construction company. I basically run that construction company from two meetings a week and that’s it. I don’t want to know anything that happens in that company that’s bad news. “Oh we forgot to do this or for some reason this got missed” or whatever. I have people in my company that handle that for me.
So that’s the exact same way, I’m to the point myself I would rather not own locally and own somewhere else even though I think my market is probably one of the best markets in the United States to own properties, just because of that same thing. But what I’ve learned in my business and I think it applies here as well is if you have the right people in place, they’re actually better at making you money than you are. It sounds stupid and I know that there’s a little bit of people who are like, ‘Well if you want it done right, you have to do it yourself,” and I know that there’s a lot of that. Nobody is going to take care of your property as well as you can. I just have seen that to be not the case.
I see myself make decisions because of emotions that if I think if I was making that same decision for somebody else and I was trying to look out for their best interest, I wouldn’t have made that decision. It’s lost me a lot of money over the years in my construction business and I’ve learned that from my standpoint that if I have the right people in place they’re actually better at making you money than you are.
And I think it’s the exact same analogy here with a property manager. If you have the right property manager in place that really cares about his people, the people that he’s managing for, then he will be way better at making you money than you are. And think about it, if their whole job is to rent houses, who’s going to get that house rented when it’s taken? Is it going to be you or is it going to be them?
Tom: They’re experts at it. Everything you said is about leveraging other people and not leveraging them in a bad way, but leveraging their expertise. This is the service they provide, this is what they want to do. My property managers his goal is to have 1000 doors. But to me that just sounds like complete brain damage. I don’t ever do that in my life. But that’s what he likes to do. This is what he’s wanted to do. So I’ve had to learn over the years that people actually like to do what you hate. And I think that’s the best answer I could come up with.
Mike: Yeah. I don’t know exactly what your model is but turnkey is a broad term. Some people say “Well, I sell properties, they have a tenant in place, they have property management in place and we’ve got it fully warrantied” and they just can’t go wrong. Then there are some people that are like “Well I have property and it’s ready to move into. I don’t have a tenant in place or property management.”
So there’s all different kind of levels. Maybe you can share your thoughts on . . . I’m not saying that any of those are right or wrong. They’re just different flavors and I want people that are listening saying that, “Wow, I like the idea of a rental ready property.” Maybe you could share some thoughts on kind of a few different flavors that exist out there.
Tom: Sure. And we kind of kind of do all of those. We have not gotten as far as guaranteeing rents or guaranteeing maintenance. But we do guarantee any repairs that were done in the rehabs. So we’ll guarantee that for a year and we’ve learned a little bit about exactly what to do. Obviously we’re looking for B or C neighborhoods, we don’t want war zones, we don’t want that kind of stuff.
But we want to make sure the furnaces are good, we want to make sure that roofs are good, electrical systems, plumbing systems. We obviously want to give the renters a nice place to live. So normally we have new flooring, new counter tops, new paint, all that kind of stuff is done. That’s basically what we’re saying.
Mike: Yeah, and then just to clarify, you have a partnership with a property manager.
Tom: Yes I do.
Mike: That if you sell some of your turnkey you say here’s who is managing it or here is who we recommend in this area where it’s a little bit of a done for you solution, right?
Tom: Absolutely. Let me go back to your question because I kind of got lost there for a second. So yes, there are times where we actually will sell a cash deal to somebody who wants to own it as a rental. And I’ll tell them, “Hey, I can do this all for you. You’re going to get this great cash price.” And those are the people honestly they’re going to get the best deal. Because they’re buying cash, they’re willing to take on the risk of whatever the rehab is. Obviously we’ll have an estimate upfront and pretty good estimate but you never know what’s going to happen when you open up a wall. So they’re going to take on that risk and that’s more risky and that’s fine but I think that it could still be done for them.
I only recommend and I only push, I basically say “You’re going to manage this yourself, or you’re going to find your own manager or you’re going to use my manager,” when I’m selling them. So I don’t recommend anybody else. I only have this one person that I do recommend. I don’t have any agreement with him. I don’t make a penny of off him, he doesn’t allow it. I know a lot of guys that they charge 10 but they’re actually only getting 8. We don’t do any of that. The guy gets all the money. So I don’t have any kind of a relationship like that with him at all. But I do trust him, he goes to my church, a really good guy. I’ve known him for a long time and he has a really good system in place.
So I do sell houses like that. The whole thought is, yeah let’s get this property all the way to rented, managed and then sell it. But the demand is just so high and I get emails every single day. “Hey, you’ve got a new rental property.” So then I just kind of get sucked in to letting them have it pre-ready rehab, pre-rented or sometimes we’ve just finished it and we’re like, okay, let’s just start marketing it. But the whole goal is to get it rented, is to get it managed.
Tom: So I guess does that answer your question?
Mike: Yeah, yeah. I just want to talk about some of the different scenarios in terms of turnkey is how done is it. And people might want different solutions like you said. So Tom we’ve got just a few more minutes. Maybe you can talk about for people that are listening right now, they’ll say, “Wow, I like the idea of buying a turnkey rental or something that’s largely done for me.” And they are not necessarily looking in your market in the Chicagoland, Indiana or Michigan area and they’ll looking at other markets. What are some of the questions they should, people that they’re looking at to work with, people they’re kind of talking to that they may work with. What are some of the things that they should look out for, types of questions they should ask in terms of a turnkey provider?
Tom: Yeah. I would definitely want to know what is it going to take for this house to be able to rent? Obviously if it is rented, great, then you kind of have all your numbers in place. But what are your numbers is probably the first thing. What’s guaranteed?
But again, I’m going to go back to that property manager. My opinion that property manager is so much more important than all that. You can make a mistake with a rental and still make money. That’s totally opposite from a fix and flip. Of all those people that I know who’ve done fix and flips, you make a mistake in fix and flip almost every time you’re losing money.
But with a rental you could weather that out, you might not make money for the first six months or the first year. But eventually you’ll make money with it. That’s why I like the rentals because I really feel like it’s probably one of the least risky things as long as it’s a good house in a decent area with a good property manager.
Mike: Good management.
Tom: So the questions I would ask would be with the property manager. I can just give you my preference. I don’t know that these are the only questions I would ask, but how long have they been in business? You don’t want some newbie, is definitely a question I would ask and how many doors are they managing currently. In my experience the best ones are between 100 and 400 doors. I have come across some of them with more doors that have good customer service.
But it’s just been my experience those people that are managing 1000, 2000 doors, they’ve got systems in place but they’re normally slower systems. And for me, if I’m in California or I’m in Dallas and I want to rent a property in Alabama per se, those are questions I want to ask. And do they have systems in place? The biggest question is turnover. So how quick can I get this place rented? Is it a really strong rental market or not. In my area for instance in my area, if you put Craigslist post out that you’re going to have an open house, you’ll have 30 people there on Saturday.
Mike: Wow, for a rental?
Tom: Yeah, for a rental.
Tom: So know like really how quick is it really going to take to turnover because that’s where you lose the biggest bulk of your money is when there’s somebody not in the place that’s not paying. The other things I’d be concerned about is the county. How long does it take to get somebody out if they’re not paying.
Mike: Oh, sure. Yeah.
Tom: There is definitely some places in some areas that are not landlord friendly. I think Indiana and Texas are perfectly most friendly landlord states, 15 days and they’re gone. But that’s something else that I would definitely be concerned about.
Mike: Those are great questions for people to ask for sure yeah. I definitely appreciate you being with us today. For folks that want to learn more about you, your company or they want to find out about you do a lot of deals that you ultimately are selling onto other investors and they can obviously find some of your deals on FlipNerd.com as we talked about, but where else can they go to learn about you and maybe get in touch with you or your company?
Tom: Sure, absolutely. My construction company is OlsonPropertyServices.com. So that’s O-L-S-O-N propertyservices.com. And the goodsuccess.com is the website to find out properties.
Tom: So yeah it’s www.goodsuccess.com would be where they can find . . . and obviously like you said on FlipNerd we’ve got almost all our properties loaded on there and many other sites as well. But not as good as FlipNerd.
Mike: Of course not.
Tom: Yeah, if you need to get in touch with me that’s fine. If somebody would want to email me directly I’m totally fine with that. It’s [email protected] So [email protected]
Mike: Awesome. Well Tom, thanks again for your time today, appreciate you and I hope to see you soon.
Tom: Cool. Thanks Mike.
Mike: Take care. Have a good day.
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