Hipster Investments. Philly Report.

Transcription

1 Hipster Investments. Philly Report.

2 Hi everyone! I am typing this from an airplane flying back home to LA from Philly. I went to meet our turnkey seller and check out their digs! I have to admit I went out there assuming I wasn t going to be impressed. I hadn t put Philly at the top of my recommendations list over the last year or so because they had gone through a patch of long construction times and their PM customer service wasn t fantastic and in general they had just gotten harder to work with. Plus, the only pictures I was able to see were pre-rehab pictures (because the houses were moving so fast!), so I had start losing my spark about Philly. Well. I have to tell you I m impressed. Admittedly there are still some kinks in their system, mostly in regard to customer service on the PM side, but they are working extremely hard on that (so much so, the decision was made while I was there that they are for sure going to hire a customer/investor service specialist immediately!). The truth is that this company has performed so well that they have become one of the largest turnkey providers in the nation. Yes, that may sound intimidating to some or a turn off to others, but trust me they have gotten that big because of the quality of these deals and this market. These guys aren t joking around they are kicking tail and taking names! What I think I like most is the market. Philly has so much going for it, the growth in the areas where these houses are (West Philly, mostly) is solid and I am impressed with the amount of industry, jobs, and universities supporting the market. Locations I ve seen a lot of neighborhoods in my experience with rental properties, and especially turnkeys, and the areas this company buys in I trust all of them. I saw literally the A neighborhoods through to the D neighborhoods. Here are some notes about the locations of these turnkeys: If you are reading this, you are one of my clients, meaning you will mostly be seeing properties (the ones we list) in the B to B- areas. This is due to appraisals. The C neighborhoods are less likely to appraise well, and certainly the D s won t. If you are a cash buyer you have tons of opportunity for whatever you want, but if you are financing you want to focus on the areas that will appraise well. FYI some of these properties have the potential of giving you a significantly higher appraisal than the purchase price! I don t know of another market where that s an option for turnkeys right now. As with any market, it doesn t make sense to buy in the A neighborhoods because there s no cash flow so this company doesn t even deal with those. For the areas they do work in, I felt 100% safe and content in the B and B- areas, and even in the C s.

3 The D neighborhoods the seller works with are for a completely different set of investors, so don t worry you ll never see these properties listed. They did show me this area though so I could further see more differentiation between the classifications of neighborhoods. The D neighborhood was much rougher and is a much higher risk. The biggest risk with them is the tenant pool. It s a rough area, so the biggest tenant problems will come from that area. However, if you do have an adventurous streak and are interested in an appreciation play I admit that I m intrigued by this area. Everyone in Philly anticipates it to be the next big thing and the gentrification potential truly is huge. All the neighborhoods adjacent to this one are A neighborhoods, and I could see exactly why and how it has redevelopment potential. Too many reasons to list here, but if you want details ask me. So if I were going in for an appreciation play, I would highly consider this one. To be clear, I won t even present these properties to you guys unless you specifically ask me for them because this is not something most folks I work with are interested in, or have even half the risk tolerance for. Plus these properties are actually priced higher than the ones in the better areas (that s how strong the appreciation potential is, and they are fully redeveloped just as the normal turnkeys are). I wanted to tell you about this area, of course because if this is something that interests you then you can let me know, but more so to give you a picture of how in depth I got in checking out the Philly market. I mean, I for real dug into it! Even the areas where I needed to slink down in my seat a little so no one saw my blonde hair Oh, and you d likely have to pay cash for these properties they d never appraise well. (Not yet anyway! Muuuahhh ha ha ha ha.) No matter which classification of neighborhood you are looking at in Philly, even the A neighborhoods, these are all URBAN areas. If you aren t from the northeast and you are used to single-family or multi-family detached homes, you might not like this market. No offense to my fellow Californians who might fall into this category, but the seller laughed and said that it s notoriously the Californians who hate the urban row-house look! Urban areas like these are completely foreign to me even having grown up in the south and now living in California but I happen to have an adventurous streak so I m not leery about urban-looking areas. If you are leery or disinterested in them, I totally get it, and we definitely have markets with more suburban-feeling detached homes. The reality is that urban row-houses just aren t for everyone! So might as well be upfront ahead of time. But if you are down with some urbanness these are bomb-diggity. Properties As far as the properties themselves I love them! Some notes about the properties: Did I mention they are urban? Yes, every property in Philly is an urban row-house. No detached homes! I admittedly had never been in a row-house so was curious about the layout. I thought they were pretty cool actually. This seller has single-families, duplexes, occasional triplexes, and occasional fourplexes. I only got to go into single-families unfortunately as the multis were either tenanted or one unit was

4 tenanted so there wasn t a master lock to get into the vacant unit (they use the same door). I wish I could have seen inside a multi, but maybe next time. I saw lots from the outside though. The rehabs were great. Each one uses the same material so all the ones I looked at all had the same interior finishings flooring (hardwood equivalent), kitchen cabinets, bathtubs/showers, paint, windows (double-pane whoop!), everything. All appliances (hot water heater, HVAC, plumbing, etc.) are brand new. Roofs are also all brandnew. Remember, these properties aren t cosmetically rehabbed like a lot of turnkeys they are gutted from the inside out and rebuilt. I was super pumped to be able to go into a pre-rehab property. Shoooooo! So gross! Seeing this was great because it gave me a perspective as to how much really goes into each of these houses. The property I saw too was apparently on the nicer end of the disasters these guys purchase. It was so gross. This was such a testament to the fact that these guys aren t putting lipstick on pigs they are actually gutting them and starting completely over. Stunning transformations. I feel completely confident on the quality of these rehabs! I got a good feel of consistency on them (which goes a long ways for turnkeys). One note I do want to say in regards to the properties. It is common in this area to have flooring that is mildly sunken down. Aesthetically what this causes is a small gap (less than ½ between the center of a room s floor and the wall). This has freaked out some buyers in the past when they see it on their inspection report (don t forget- always get an inspection!). I talked in depth about this with the sellers. This is completely normal for Philly, and even the northeast, and it has absolutely no long-term risk for an investor in terms of anything they will have to fix later. It only causes a slight kink in the aesthetics. To fix this kink could cost thousands to tens of thousands of dollars. The seller has opted to not pursue that fix because it would only mean higher prices to the buyer (you) and there is no foundational (ha, great pun!) reason to worry about it. It s a rental unit, don t forget. If it was your primary house, sure, you might want to fix it, but this is a rental property--there s no need to fix it at the price it would cost to do so. I m an aesthetics-perfectionist and after exploring this in depth and seeing the properties, I d have no problem with this whatsoever if I were buying one for myself. The Company In terms of working with this company, and in thinking of them compared to others I have worked with (tons good and [turned] bad), I do give my endorsement for this company. I would buy from them in a heartbeat. I was actually starting to get antsy because I haven t made buying a priority lately and now this tour has re-sparked me. Two of the finished properties I went in had both just sold, but mannn I sooo wanted both of them! I liked the streets, the properties were adorable (or, super manly and awesome for you men out there who might not want adorable ), and they just seemed super solid. As of right this immediate second, this company is a little bit harder to deal with for anyone who is new to investing, nervous about investing, or requiring immediate response anytime there is a PM issue.

5 Specifically the buying process is great and they will help you tremendously throughout it, so no worries there, but the slightly more difficult part is on the PM side once you own it. It is solely a communications issue though, not a functionality issue. The seller was the first to admit that their major problem right now has been figuring out communication systems with investors. They ve nailed it out with tenants (I saw their systems, they are awesome), and now they are starting to work on communication with the owners (you). What happened with this company is that they grew so fast (arguably second largest behind MemphisInvest now) that they have really battled growing pains. They are managing properties right now! I was around these guys only just a couple years ago when those numbers would have only been imaginary for them. That s how fast their growth happened. And to be honest, I m surprised they are still functioning as well as they are with that kind of growth. That level of growth would be difficult for any business to keep up with and manage effectively. I was extremely impressed with how motivated the head guy is to get the communication with investors fix. As I said, he vowed while I was sitting there that he was going to for sure hire a customer service specialist to remedy the communication gaps (and I believe him.he called in a guy to make a call and literally started the process right in front of me. And anytime this guy has said he would do something in the past, he actually did it). In addition to this, some new software has been implemented to help with this and more software is coming. I was really impressed with it when I went through it on the computer. So the communication stresses will be ending, I promise. Right now they are better than they have been over the last few months, and they are going to only get better. So again, if you are brand new and anticipate needing nothing but immediate responses on PM issues once you buy, you might want to hold off for a few more months. But if you can keep your expectations realistic and know that if someone doesn t communicate something to you right away that it doesn t mean things aren t happening. I saw the office talk about a bunch of busy bees! This is a no-joke operation, and even on the PM side things are happening fast. All that needs to be fixed now is the communication of that work to the owner. If you are someone who gets itchy when responses aren t immediate, don t feel bad--i m one of those myself! I freak. I will completely catastrophize a situation if someone doesn t tell me what s going on. I ll think I got scammed, I ll think all of my money has been tossed into the ocean and I was either conned into thinking I own a property I don t really own or I now own a property that really only has three walls and my only tenants are non-paying stray cats. For real, I m one of those. I m calm about it, but I m that person. But, the hand-holding head-petting that I know I need and some of you will need or want it s coming with these guys. Potentially very soon. In the meantime, if you do want to go ahead and buy, I ll be your head-petter and make sure you have no reasons to freak out. Promise. Last Notes Two last [awesome] notes:

6 1. This seller does have a model for buying if you want to be in a position to force appreciation. You buy the property (under the seller s guidance) and you fund the rehab (that the seller actually does for you) and then YOU gain the equity. So, example you buy the junker property for $30k. You fund the $40k rehab. You re in for $70k, but the property will now appraise for $100k. That equity is yours, and if you refinance the property once it s done and tenanted, say at 20% down, you end up with $10k in your pocket (difference between $80k loan amount and the $70k you put in) and you still have the remaining $20k in equity. Boom! Caveats to doing this this is for the most part a cash purchase situation (can t get a mortgage until the end), and it is higher risk because it s not a performing property at the time of purchase. I d say of all of the sellers offering this model though, I trust this guy the most. They ve had great luck with it. This opportunity is open to anyone who is interested. Contact me if you are and I can give you more details. 2. Back in the old days of turnkeys, when they first got started, all of the properties listed were already rehabbed and tenanted and ready to go. The only thing that would delay your closing was just getting your due diligence done and then waiting on the lender to close (not an issue if you paid cash). Then as turnkeys got crazy popular, it turned into a situation of properties selling before the rehabs had even started (hence so many pictures of listed properties showing boards in the windows!). That s how it s been for the last handful of years, and it can be totally annoying waiting for construction times to close! Well, for the first time in probably two years at least, we are about to have properties that are completely ready available for purchase. In Philly! This seller is no longer going to list properties that haven t been rehabbed yet. Meaning, you can get inspectors in immediately and do your due diligence and if all is good, close as soon as your lender is ready days typically. Boom again! I can t believe this opportunity is coming back for turnkey buyers. It makes the process so much less stressful and its way more fun for buying {enter immediate gratification stage left }. So, anticipate those properties to be listed in the next month or so! We should have a webinar on them in April, I think? Be on the lookout and ready the pictures online of the properties are about to get BOMB! All Done Okay, well, I think that just about exhausts my trip to Philly. But I did just successfully kill a little over an hour of my six hour plane ride back home to LA with no internet! (I love airplane rides I refuse to buy Inflight Gogo or whatever it s called so I can for five seconds have a life that doesn t involve the internet ) If you want more information on the Philly properties, or the Philly seller, or an expansion on anything I wrote in here, or questions, or information about turnkeys in general.reach out! If you are getting this you are obviously on our mailing list (because I don t send this level of VIP info to the general public!) so you can either respond to this blast and it will come directly to me, or you can always me at ali@hipsterinvestments.com. Rock it out kids!