In this interview Christopher D. Clothier, a nationwide real estate investor and expert, shares with Mashvisor his insights on becoming and remaining a successful investor with turnkey properties.
Christopher D. Clothier, author of The Turnkey Revolution: How to Passively Build Your Real Estate Portfolio for More Income, Freedom, and Peace of Mind, is a nationwide real estate investor and speaker. Clothier is also an active writer publishing real estate, leadership, and endurance training articles weekly. He oversees the weekly publication of the Memphis Invest Weekly Article Roundup, where he is a partner.
Why is real estate investing the best way to make money?
Real estate can be a great investment for a few simple reasons. Unlike other investments, real estate is easy to understand. Everyone needs shelter, and providing a quality home in a desirable area will create demand for your property. There is no magic formula nor complicated numbers to understand. It does take a certain level of understanding, and it is an investment, meaning mistakes can be made. But real estate can be a relatively simple investment, and with a little bit of knowledge, anyone can invest in real estate.
Is real estate investing possible as a part-time job or do you have to give it your full time and attention in order to succeed? In other words, is passive real estate investing possible?
This is a tricky question, because one person may be very good at actively investing in real estate in their extra time, and another person may have no extra time to give! Each investor’s situation will be different. Some will only successful if they are a passive investor hiring a team to handle their investments because they simply do not have the time to devote to actively managing their properties. Passive investments, whether it be investing in real estate funds, building your own team to handle your investments or even turnkey, many feel is the fastest growing segment of real estate investing.
There are endless options and opportunities in the world of real estate investments. What sets turnkey properties apart from other property types?
Turnkey can be compared to two separate types of investments. Investing in a fund or a REIT (real estate investment trust) where you own shares of a portfolio is one type. The biggest benefit to turnkey in this comparison is that with turnkey investments, the investor owns each particular piece of property. They do not own a share of many properties, they own the title to their investment. This allows for a huge advantage – using mortgage leverage. An investor can own a $100,000 investment property and only have to use a fraction of that to purchase the property by using a bank loan. That is not possible when buying shares of a REIT. The second form of investing is where the investor is directly responsible for finding their investment properties, hiring the contractors to repair the property, budgeting the deal, filing permits, hiring the management company, etc. Even as the investor plans to have a management company which feels very passive, they are actively involved in each step of the process. A turnkey property, in true definition, handles all of these steps before the investor purchases a property. It requires little time up front before making a purchase.
What are the most important benefits and drawbacks of investing in turnkey properties?
The biggest benefit is leveraging other experts’ time. The biggest drawback is making sure you are working with experts and that you are getting value for your investment. It can be very rewarding to know that you work hard each day to provide and excel at your chosen day job. While you are working, someone else is working hard and excelling at managing your investment portfolio. That is a tremendous benefit in that it requires very little of your time each month. The biggest drawback is understanding what you are actually getting for the dollars you spend buying a turnkey investment property. It simply is not enough to get a property that has a great return on paper. Anyone can make a piece of paper with numbers look good. In order to avoid the pitfalls and drawbacks, a passive, turnkey investor needs to focus on purchasing the absolutely highest quality properties in the best areas and with teams that have years of experience. Experience in renovating properties to the highest level, how to choose the best neighborhoods, how to provide a high-level experience for residents so they choose to live in properties for longer, which limits move-out expenses and vacancies. Buying a turnkey property is a long-term, buy and hold investment. Investors who find the most success are the ones who choose the highest quality providers and properties.
Your family-run business Memphis Invest focuses on turnkey properties in the Memphis, Dallas, and Houston real estate markets. Tells us a bit about these markets. What are the trends there? What makes them good places for real estate investments?
Our family has long sought to expand into other markets as demand for our services has grown rather than expand into lower priced homes in our existing markets. Today, we operate in Memphis, Dallas, Houston, Oklahoma City, Little Rock, and St. Louis. Each of these markets is unique and offers slightly different opportunities, but they are also all similar in that they offer affordable housing, growing job markets, and solid and sustainable industries providing jobs and stable population growth. There may be better markets in some respects, but these markets are within our footprint and allow our top-level management team to be visiting each market weekly and training our teams so that each property in each market performs the same. It is important that investors have a high-level of confidence that a property in Oklahoma City is going to perform as well as a property in Memphis, and we have achieved that.
What are the three top indicators which real estate investors should focus on in order to distinguish between a good real estate deal and a bad one?
When discussing turnkey properties in particular, location, price, and renovation scope of work. Too often, the word turnkey is used to describe properties and companies because it is a popular marketing term right now and not because they offer a quality turnkey service or property. As with any commodity, there will be a low-price leader in every industry and quality leader. Investors should always buy the highest quality they can afford. Low price properties in challenged neighborhoods are best left to active, local investors. Properties where little work has been done and there are no records of permits should be left to local, active investors. It does not bother Memphis Invest in the slightest that we are often referred to as one of the most expensive turnkey options in the industry. We are also referred to as the highest quality with the highest standards for customer service and property management. That reputation comes from choosing the best neighborhoods, doing the highest renovation, and providing the highest value for the price paid.
What’s the #1 piece of advice you would like to give to new real estate investors?
Be patient! There is no need to rush in today’s real estate environment. If you are going to invest passively in a turnkey property, then be patient. Research the best cities, find the best turnkey company, and spend time getting to know them. Make sure they understand your desired outcome and expectations. When they have earned the right to do business with you as an investor, then you move forward. If they tell you that you need to invest today, quickly, before all the good deals are gone, then they are not a good company, and you need to find someone else to work with. Be patient.
In your writing and coaching you always focus on the negative effects of stress. Real estate investments are major financial transactions and business endeavors, thus it is only natural for new investors to be nervous at first. What are some tips you can give them to eliminate the stress?
The biggest thing you can do as an investor is pay attention to how you are treated. Is there a rushed atmosphere to the buying process? Are you constantly reminded that you need to take action quickly? How does the company you are working with make you feel? Does it seem too good to be true without any explanation of the downside. Stress is created when we are unsure of which step to take next. That is the exact opposite of how you should feel. You should feel completely comfortable, taking your time and moving forward at your pace. Remember, take nothing on faith. Even a company with a track record like Memphis Invest should have to earn your trust.
What’s the secret to growing a million-dollar real estate investment portfolio?
Patience and movement. The real secret is learning how to be constantly progressing your portfolio forward without rushing. Adding a new property on a regular basis and reducing principle are two easy ways to increase the value of your investment without rushing. Buying fancy watches, cars and generally spending whatever income you receive from your investments as fast as you receive it is the quickest way to stall your investment. Be patient and always move forward. There will come a day when you look up, and you reach your desired outcome.
You’ve just released a new book The Turnkey Revolution. What’s “revolutionary” about this book?
Buying real estate has always been considered a time intensive endeavor and one that you must be hands on in order to successful. At the same time, the thought of buying a property across the country was almost unthinkable for the average investor. The turnkey process, the true turnkey process, makes that easily attainable for the average investor and allows anyone with a desire to invest to get started.
For more tips on how to start investing in real estate and always buy the best rental properties, keep reading our blog.