Not thrilled with your local real estate market?
Invest long-distance in a turnkey rental property.
Brian interviews turnkey investing expert Ali Boone of Hipster Investments about how to do due diligence on real estate investments long-distance, how to build a trusted team of property managers and contractors remotely, and how to succeed in long-distance real estate investing.
Ali even offers listeners a free copy of her e-book: NOT Your How-to Guide to Real Estate Investing: Life Lessons on Hacking Your Mind Before You Hack Your Wallet.
Pro Tip: Looking to explore turnkey properties around the country? Check out Roofstock, an online platform for browsing turnkey rental properties.
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Brian Davis: Hey, guys, happy to say it is 2p.m. our regular weekly broadcast over Spark Rental. Instead of Deni joining me today. I actually have Ali Boone of Hipster Investments. Welcome, Ali. We’re so glad to have you.
Ali Boone: I’m so glad to be here. I feel bad. I’m taking Deni’s spot.
Brian Davis: Well, you know, something tells me she’ll get over it.
Ali Boone: She’s, like, kicked back, having a day off. No problem.
Brian Davis: Oh, yes. She’s on a beach somewhere sipping on a margarita.
Ali Boone: Hey, I want to do that. Well, It’s 11 a.m. my time. So, It’s 5 o clock somewhere.
Brian Davis: Well, there you go. So, we are going to talk today all about turnkey rental property investing and in particular, long-distance investing, since so many investors aren’t thrilled with their local real estate investing market, at least right now, with everything so overvalued, at least on the coasts. Before we jump into that, Ali actually has a special giveaway for you guys today. Ali, tell us about what it is you’re giving away and how people can score it.
Ali Boone: So, I have set up a link. It’s a good question. What’s the link? So last summer, I put out my first book and it’s available on Amazon, but I set up a link for you guys to be able to get it for free. Digital copy. So, the link is. So, my company’s name is Hipster Investments dot com, so it’s Hipster Investments dot com slash Spark Rental.
Brian Davis: And you guys, I will add a link to that in the comments here. And just for reference Hipster Investments dot com slash Spark Rental is out in the comments. So go there and you will see how to score a free copy of Ali’s book and we will be giving it away available permanently or just for the next twenty-four hours. How does that work?
Ali Boone: Oh, it’s a 24-hour thing.
Brian Davis: All right, great. I mean, you got to move. That’s right.
Ali Boone: It’s just like the twenty twenty-one real estate market. Right? You know, this is all help for you. This is in support of you. Like you got to do it quick.
Brian Davis: Yeah. You snooze, you lose in this market. All right. So, let’s start really basic and fundamental here. For people who aren’t familiar with the term turnkey property, what is a turnkey property? Why should people invest in them? Give us the high-level overview of what turnkey properties are.
Ali Boone: Yeah, it’s a great question. So, the term turnkey actually refers to the condition of a property technically. So that would be, so the metaphor is like you stick the key in the door, turn it and you’re making money from day one. Some people may have slightly different variations of what this means, but in general, a property is freshly rehabbed. There’s no work pending and preferably there are tenants and already paying rent and, in most cases, property managers on standby to take care of the property for you. So, again, if you already have tenants in pain and you don’t have to do work on the property, you get to start making money on day one that you own it. So that’s the condition. The term refers to the condition of the property. You could buy a turnkey property next door to you. But when most people are talking about turnkey rental properties, they’re talking about properties that are purchased from turnkey providers. So, there are actual companies out there and essentially, they’re just like glorified flippers. Let’s be honest, they just are pumping out a lot of properties and selling them to investors versus your normal, like individual flipper. So, these companies go out there in cash flow in markets.
Ali Boone: They go out, find a bunch of distressed inventories. They buy that inventory, they rehab it, they place tenants, they have property managers on standby. So, you as the buyer get to just pick out your property. So, there’s really no work involved other than basic due diligence, which you absolutely want to do. So, the advantage to this is I know for me, I was looking into real estate investing. I was looking at all the options. I was trying to get into investing as much as the next guy. And I kept being held off from it because I was not trying to get another job. I’m not really very handy. I don’t want to flip properties, all that kind of stuff. And so, this turnkey idea kind of slid across my desk and I was like, wait, you mean I could invest and not do all that work? And that’s what they’re really set up for. So, there are a few different kinds of categories of people who would be fantastic for this, which is me who prefers to be the lazy investor versus putting a lot of work into something.
Ali Boone: Brian, you had mentioned a lot of the markets are so overpriced right now. I live in Los Angeles. You can’t buy a castle and rental property in Los Angeles. So turnkey is a way for me to buy one thousand, two thousand miles away from me. And it’s a setup that is a little bit more conducive to out-of-state investing or nonlocal investing. So, if you’re in an expensive market, Turkey may be an option for you. And, you know, we’ll be quite honest. There’s a major downside to turnkeys because right now they sound perfect. Right. The downside is you’re going to pay market value for this. And a lot of investors are getting into real estate wanting to do a value-add deal where you buy the distressed property, you put the work into it, and you force the appreciation. You’re not really going to have the option here. Yeah. So, you’re going to pay more for a turnkey, but you get what you pay for because the work’s already done for you. But that is a downside that can mess people up sometimes. So, you know, there are pros and cons to every strategy, and that’s the one for turnkeys.
Brian Davis: Yeah. I mean, so Turnkeys are a great way to make rental investing truly passive, or much closer to passive anyway, rather than going out and trying to score a great off-market deal and then renovating the property. And none of that is really passive investing in the true sense. Yeah. So, let’s spend some time talking about buying long distance because that’s something that a lot of real estate investors have questions about. They’re confused about how to do it safely. So, let’s start with how do you verify property’s condition when you buy property’s long distance, how do you make yourself feel comfortable with the due diligence and inspecting the property, and so forth if you never actually lay eyes on it yourself?
Ali Boone: So, the good news is about that, given that we’re in twenty, twenty-one and we have this thing called the Internet and also, I mean, we’ve become like the kings and queens of working virtual right. So, like you can do this virtually, which is nice. You know, thirty years ago this would have been a very different story, can’t believe I just said 30 years ago when we didn’t have Internet, but 30 years ago this would have been a lot harder because you didn’t have the Internet or, you know, cameras or whatever. Honestly, the due diligence part is the hardest. But I think this is true for any real estate investment strategy. I know when I started buying turnkeys, the major thing that I had not learned as thoroughly as I would have liked to at the time is how to do proper due diligence. And I started investing in turnkeys 10 years ago, and I’m still coming up with new things. I’m like, oh, I would definitely make sure to check that. You know, it’s a learning process and you’ve got to give yourself a little bit of room to be OK. If you don’t do it perfect from the get-go, that’s fine. But the biggest message, I think what turnkeys that is missed, is that you do need to do due diligence because these properties are advertised as hands-off. Someone is doing all the work for you. And for some reason, that seems to give people permission to be like I don’t have to do anything, like no, you need to verify everything.
Ali Boone: And so, you mentioned the property’s condition. Absolutely, Get a third-party home inspection. I mean, this is for any strategy to never buy a property without inspection, although in today’s market your kind of have too sometimes. But turnkeys. So, allow for inspections, which is nice. So, you’ve got property inspections. Once the provider does the repairs from the inspection, you want to see videos or pictures or whatever. You know, we have tools like Rent fax pro, different online programs that can give you neighborhood market rent comps. You can plug in an address, get a full report. You want to verify all the numbers. I would say the two biggest things that you really want to check up on are the numbers. Make sure that when they say, oh, you’re going to be getting eleven hundred dollars a month in rent, that that’s actually a feasible number. And taxes, insurance, all the quotes, all of those check out and then the property inspection, those two things alone. If those completely check out, you’re probably going to be OK, because anything that happens much past that, you can probably, you know, do something with, some of it would be neighborhood, your tenant pool, things like that. But yeah, I mean, really, the due diligence, I created a whole document that describes all the steps I would take interviewing property managers, but definitely the home inspection and running the numbers.
Brian Davis: Well, so you just mentioned property managers and I want to spend a little time talking about your local partners and support personnel because that’s a huge component of this. You know, I talk all the time about real estate investing is a team sport, which is something I’m sure you know well, you know, being an investor that buys all over the country. So, you have to have contractors all over the country and potentially realtors and property managers and all of these support personnel in many different markets. So how do you go about screening, hiring local support partners? What are the main support partners and personnel that you always, always, always work within each market? And tell us a little bit about how you work with local support personnel.
Ali Boone: Yeah, so this is one of the kinds of distinguishing things about turnkeys is let’s say I live in Los Angeles, and I want to buy a property in Kansas City or somewhere. So really, the two ways that I can go about doing that is if I go the non-turnkey route, whether the property’s rehabbed or not doesn’t really matter. But who are the team members I would have to put together? I’d have to have an agent of some sort. I’d have to have a contractor, handyman or, you know, to whatever extent the property needs work. And I would need property management. So, I would be responsible for finding all of those people. And I’ve known, some people where like an agent knows a really good contractor who knows a really good property manager, whether they all know each other or not. But it’s up to me to fill those positions. With turnkeys, Everything is in the House to some extent. As far as the turnkeys go, you don’t have to find an agent, a contractor, a property manager. That all comes with the property. And that’s one of the big advantages. And so, then the question becomes, when you’re doing it on your own, you have to interview and figure out how you want to choose, each individual team player, whereas the turnkey provider, the only individual that you really want to kind of talk to in more depth is the property manager, because they’re the ones.
Ali Boone: That’s all I mean, got we could go for hours about property management drama, but now your property manager essentially is going to make or break your investment. Not to sound overly dramatic about it, but it’s true. So those that part of the team you may interview kind of separately, whatever, but as far as contractors, all of that, that’s all done for you. So, it really becomes a matter of choosing which turnkey provider that you want to work with. And that’s it. It’s almost a little bit of a longer conversation of how to choose that. And that’s one of the biggest conversations as well. How do I know which turnkey provider to go with? And it’s a little bit unfortunate because it’s kind of overwhelming. I would say that reviews online are not overly accurate. There’s not many reviews of turnkey providers online, they’re the best thing is if you know someone who had a really good experience with a turnkey provider, go with that, work with references.
Brian Davis: Referrals are always the best way to find people.
Ali Boone: And then pass that if you don’t have anyone for referrals and you don’t really know where to start. I say Skip worrying about which provider to work with. Just look into all of them and see who is in a market that you like and who offers properties that you think you like. And look at it from the perspective of doing due diligence versus trying to figure out who to work with if that makes sense. It’s almost like a, you know, top-down approach versus bottom-up approach. If I go to Kansas City, I have to start from ground zero and build everything up. I have to build the team-up. I have to figure out the properties. I have to figure out the neighborhoods, the turnkeys, If you go to a turnkey provider and say, hey, I want to buy one of your properties, they’re going say, OK, here’s five we have available, just pick one you like and then verify everything, if that makes any sense versus trying to get to the point of the property, start with the property and work backwards and just make sure everything checks out. I mean, you know, as good as I do that there’s very little about a property that you can’t verify. And again, most of us aren’t trained to do one hundred percent perfect due diligence. But that’s to me, easier to figure out how to verify everything than to create things because I’m not a market expert. If I go to Kansas City and I’m like, what neighborhood should I buy in? I don’t know. And everyone’s like, I’ll start with the crime stats. Like, I live in Venice Beach. If I went by the crime stats, I would have been beheaded at least five years ago. You know, I don’t know if that makes any sense. It’s just a different way of, you know, whichever route you’re going, it’s a different way of navigating them.
Brian Davis: Now, there’s something the emotion there that we kind of glossed over. And I just want to spend a minute talking about this. So, you’re talking about turnkey investors that also serve as property managers. Correct. You buy the property from them and then they stay on and manage the property for you.
Ali Boone: A quick clarification on that. So, when you work with a turnkey provider, they are going to offer property management that comes with the property. And it may be one of two versions it’s going to be an in-house property manager, meaning their company. It’s not the exact same person, but it’s somebody in that company’s umbrella like it’s the property management division, or they outsource the property management to a third-party property manager. Everybody always thinks that they want in-house property management. Honestly, I’ve run the pros and cons list of in-house versus third party, and to me, they completely balance out. I don’t see one. There are downfalls of in-house also. So, property management will come with a property. But the important thing for everybody to know, and this is where it gets a little more critical, kind of was talking about doing that separate due diligence on the property manager. You don’t have to use the property manager that comes with the property. You have the property. Yeah, you can use anybody. So I recommend interviewing the property manager that comes with the property, just as if you were building your team from the ground up and also interview a couple of other ones, completely separate because that property manager, I heard a quote one time, I don’t know if you’ve heard it, but there was a guy that said I would rather buy an average property with an excellent property manager than an excellent property with an average property manager. And it’s one hundred percent true.
Brian Davis: Yeah. And it is true.
Ali Boone: It almost doesn’t matter what you buy. It’s in the property management. Well, that’s a statement that’s not totally accurate, but it makes the returns. You can have a really terrible property and if you have that great of a property manager, they’re going to make it work. But so, the property management really is the key. So, yeah, I’m glad you brought that up because it’s so important. People just assume they have to use the one. And honestly, the one that comes with them isn’t always the best. So, and I’ve I don’t have any of my original property managers. I’ve switched all of them out at some point over the years. So, yeah, the property management factor is by far the biggest one.
Brian Davis: So, we have a question here from Cristina Colon, who is a regular who I love. She says, how do you get in contact with these turnkey providers, with these companies? So how do you find them?
Ali Boone: There’s a couple of different ways. A lot of them have websites you could just reach out on the website. So, this actually brings up kind of one other point that’s really important. So, if you’re thinking the turnkey route, there’s really two kinds of turnkey companies. There are the turnkey providers who do exactly what I said. They go by the properties, you buy the property from them, and they’re the direct turnkey providers. And then there’s the turnkey marketing companies and there are less of these. But what the marketing companies do is they’re not the ones with the properties. If you go to one of their websites, you’re going to see multiple markets worth of properties. So, what the marketers are doing is they’re partnering with turnkey providers to, you know, because like, let’s say that you want to buy a turnkey, and you’re like, well, you know, I have one hundred thousand dollars and I don’t really know which market, you know, I’ve got certain. That I’m trying to achieve, if you go to a direct turnkey provider and say, what’s the best market, where should I be investing, they’re going to be like. This market because that’s the only place they have property. Of course, the turnkey marketers have multiple. Turnkey marketers, they may have really expensive properties and more of appreciating markets.
Ali Boone: They may have the cheap cash flowing. You know, it’s like, oh, well, do you like urban or suburban? Do you like single-family or multi-family? They are a little bit better at the portfolio type of thing and you don’t pay any difference in price if you go through a marketer versus the provider. There’s a whole list of reasons I prefer to work through the marketers rather than going direct to the providers. So that’s the thing is that if you want to buy a turnkey, you can go direct to the providers or if you see a turnkey marketing company or even somebody like me who’s just entering the world, you can ask those people, talk to them first, get a feel for what property or what market may be good for what you’re trying to accomplish. And they can make that introduction. So that’s how I like to do it because I like to come in with a team. I’m like, OK, mess with me I dare you. I got my entourage back here. That’s how I look at it.
Brian Davis: Well, so let’s talk about what you do and hipster investments for a minute here. So, do you consider yourself a turnkey marketing service or tell us about what you offer through hipster investments to your clients and to real estate investors across the country?
Ali Boone: So essentially, it’s a turnkey marketing company. It’s funny because when I started it, that was not my intention at all. And over the years, as the whole thing built up and I just kind of was going with the flow, I was like a turnkey marketing company for sure. But the way that I look at it is there’s the turnkey providers. Then there’s the layer of the turnkey marketers. And technically, Hipster is absolutely a turnkey marketer. But I have oftentimes. If you go to a normal turnkey marketer, they’re going to send you directly to a provider. Sometimes if you come to me, I may send you to another marketer, which does, you know, a lot of people in the equation, but also quite the bigger support team you have. But my whole role, I kind of almost see myself as hipster, not a hipster. I was going to say hippie maybe, but I kind of almost am more like a concierge service. I run the Facebook group and my whole idea is really to just get everyone talking. I want to help people get turnkeys, because even with turnkey marketing companies if you’re brand new, you may not even know which marketing company to work with. So, like I have videos on the turnkeys’ Facebook group where I literally just go through every company that I know something about. It’s just objective information. If you come to me and say, do you prefer some company? Yeah, I absolutely have preferences, but oftentimes I’m just going to lay it out objectively because who may be a fit for one person may not be a fit for another person.
Ali Boone: So, I’ve almost kind of seen myself. I don’t want to say step above the marketers because it’s not a hierarchy type of thing, but I’m almost a step outside of the marketers also, even though technically I am one because I started as a turnkey buyer. So, this whole thing started, and hipster came to be because I was buying turnkeys at that time. Nobody knew what they were in. They’re like, what are you buying? You’re not swinging hammers. I was like, no. And so, I was telling everyone about it. And so, it was really just like a here’s who I bought through. Here’s who I had a good experience with, you know, that’s all I’m not going to tell you what to do. I’ll just tell you what I’ve done and what’s worked and what hasn’t. So, it’s a little bit of a different mindset than just being a marketing company. But essentially, that’s what I do, is if you come to me, I’m going to tell you, you know, you can tell me what are your goals? What what’s your budget? Do you have preferences? And I also help support you through the whole buying process, whatever you need. I used to tell people that I was a glorified matchmaker. piecing everyone together. But over the years, I’ve come to realize that more of my title is Emotional Support Dog. And I don’t know that I would call the marketers emotional support dogs, but that’s kind of my jam, right?
Brian Davis: So, if someone wants to buy a property in, say, Kansas City, even though you don’t live in Kansas City, they come to you and they say, hey, I’m interested in Kansas City. And you say, well, you know, I can point you towards these three turnkey sellers that operate in Kansas City. But if you tell me what you’re looking for in general, your broader investing goals, I might actually find you a better turnkey provider in, say, Houston, Texas, so you work with turnkey sellers all over the country and you will connect investors with turnkey sellers that are appropriate for their investing goals. Is that a good way to sum that up?
Ali Boone: Yeah, absolutely. And it can go a couple of different ways. You know, some people just want one market end of story, you know, that’s it. So, if they come to me and say, hey, do you have any providers in Kansas City, I’ll say, well, you know, here are the names. I do work with one who honestly is not my favorite turnkey provider, you know, and here’s what I’ve seen. They put out good properties. The experience tends to be Pretty decent, but, you know, there are some turnkey providers that I’m just like Bowing at their feet because it’s hard to find good customer service with turnkey. I mean, some people are moving fast. But then the flip side of what I was about to say is if you come to me and say, hey, I think I might be interested in Kansas City, but I’m kind of open to anywhere when I’m thinking of where I want to recommend for you. It’s a combination of a market and the properties fitting your goals, but also the quality of the turnkey provider. If you’re brand new and you’re terrified of going through this process, which a lot of people are, I’m not going to send you to the gnarliest turnkey provider, I know there are some that might make you cry. They have great properties, but, you know, it’s it. But if you’re more experienced and you can handle yourself maybe the best fit is the little rental turnkey provider. Versus if you want the experience, I’ll say, you know, you might want to go this way. So that’s kind of where I come in is tailoring those recommendations. But again, if you say you want a particular market, I may also tell you that I don’t know of any good turnkey providers. They’re not to say there aren’t any. I won’t personally recommend a company that I don’t have some level of knowledge or experience with.
Brian Davis: Understood. We’ve got another question here from Edwin Torres, who is another regular who Deni and I love. He asks, with a turnkey property for the before and after purchase, do you get a breakdown of how much it would cost to bring the property to living standard? Now, from what you said earlier, turnkey properties are already in living condition, right? Yeah. And might have a tenant already in them and paying. Or if they don’t have a tenant, then move in. Ready?
Ali Boone: And that’s the downfall because turnkey property is already fully improved. I mean, it’s done. And if you go into a turnkey saying, you know, maybe I’ll fix something up to force appreciation, these are fully rehabbed, the works done.
Brian Davis: Yeah, absolutely. So, let’s talk for a second about some of the greatest challenges that you’ve seen, novice investors, or at least, people who investors who are new to investing long-distance, which is one of the biggest challenges that they face. And what are some of the tips you have for them to make sure they don’t lose money on their first long-distance turnkey deal?
Ali Boone: It’s all in the due diligence. That’s the number one biggest mistake that I’ve seen over the decade. Because I was by my own turnkeys. And then obviously I start working with a lot of people. So, I’ve not only seen my own experiences, but I’ve also seen hundreds of other experiences to. I don’t know that it happens quite as much today, or maybe I haven’t seen it quite as much because I don’t know just because I’ve been preaching it. But maybe people figured it out in the earlier days because these properties were advertised as hands-off rental properties, which I’m one of the culprits. I have an eBook calling them hands-off rental properties. And I really saw people embrace that to too far to an extent. That’s why I now don’t call them hands-off rental properties because it’s like hands-off, brains off. And so, what people are doing is just assuming that everything is perfect, and everything’s done for them. Yeah, that’s one hundred percent how it should be. But I always say if there’s humans in the equation, there’s room for error. I mean, this is real estate.
Ali Boone: Nobody’s perfect. These people are moving fast. And there’s been maybe in all of that time two or three just total freak situations that could not have been picked up in due diligence. I mean, that’s the case with any real estate. Sometimes crazy things just happen. But for the most part, I would attribute most of the challenges that people face to a lack of due diligence. They didn’t check up on things before. And again, this is a little bit of a double-edged sword because it’s the due diligence that matters so much. But it’s also really hard to learn because you don’t know. How do you know what you don’t know? What should you be checking out? What questions should you be asking? What things do you need to verify? And then how do you verify them? So that’s a lot of what I’ve been really trying to work with people because let’s be honest, if I recommend some killer turnkey and someone goes and buys it and something terrible happens, guess who looks bad, right? So, I have a very invested interest.
Brian Davis: Won’t work with you in the future.
Ali Boone: And it’s not technically my responsibility because you as the buyer, you are 100 percent responsible for doing. All I can tell you is, hey, I have reason to believe that this will be a good deal, or these would be good people you might enjoy working with. However, while that’s technically true, I absolutely feel responsibility. And part of my responsibility is to send you to people that I trust that have the best chance of things going well. And number two, to help train you on how to do that due diligence, because I don’t want to just kick you off to the curb like they’re great. It’ll be fine.
Brian Davis: And you make your money from repeat business, right? I mean, you’re trying to establish long-term relationships with people, with investors.
Ali Boone: And I mean, have you had a bad review written about you on a Bigger pocket? It is almost unrecoverable. And that’s and that’s the thing with marketers to the providers. They have a vested interest, obviously, but honestly, they have so much business if something goes wrong. That’s why I like hanging with the marketing companies because they’re going to look as bad as everyone. You know, they have a very invested interest. So, it’s really that due diligence component. And it’s so hard because it’s like how do you learn it? How do you know how to interview a property manager? But I would say the number one thing that people can do is try your best to learn the due diligence. I’m happy to help whatever. But if you’re willing to step up and do whatever needs to be done to fix a problem or to address a problem, that is going to make all the difference. Because I’ve seen people just kind of go into the property and they’re like, cool. And then something happens and they’re just kind of. they’re not like bow up like, no, this is my investment, I’m the boss of this investment. This isn’t working. We’re going to fix this. You have to be willing to step up because it’s the really, really passive people. Once you buy this property, the property manager is managing for you, but they don’t really have a stake in it. It’s your money, it’s your property.
Brian Davis: At the end of the day, this is your money.
Ali Boone: In theory they have an invested interest because, they don’t want to lose your business and everyone. But how much are they making? Property managers don’t make a lot. So, they’re not making a ton off of you. You are the one who needs to care about your property and never assume that a property manager or anyone is treating it as it should be treated. So just a quick example to kind of describe this is there was a guy who bought a turnkey. It was a great property. And I checked in with him. I was like a year or two later because, we’ll check-in and just see how things are going because I try and stay on for support after you own the property, too. This isn’t just about selling the turnkey. And he said, yeah, you know, it’s mostly been going well, but the cash flow hasn’t been what I was expecting. And I was like, why? And he said, well, there ended up being a couple of big repairs that really cut into the cashflow. I was like, what is a fully rehabbed property? The dishwasher had exploded or whatever happens, the dishwashers. And it flooded the floor. And he had paid seven thousand dollars to repair to fix the floor. And my first question was, did you call your insurance company? Because that’s like the dream way to get hello. It’s the best way to get a new floor.
Ali Boone: It’s when your dishwasher explodes. And he was just like. Oh, I don’t really think about that, so without, anything, he just slaps seven thousand dollars down and it was like, oh, it’s this kind of thing where I don’t want to be on your toes because I also want you to kick back and drink a margarita and relax and not worry. It’s the whole point of having, everyone do work for you. But at the same time, I always just kind of keep one eye open. And if something suddenly isn’t going right, I jump on it. I’m like, hey, what’s going on? And I make decisions. Be willing to stand up and make decisions. That alone will change the whole fate of your investment. And this is for any strategy. But I did I made a video one time that it was called something like don’t be a victim to your turnkey process. It’s because people just kind of kick back and they assume everyone’s doing everything for them. And if it’s not working well, no you are in charge even though you’re not the one you’re the boss and remember that and do what it takes. So, if you’re willing to step up, that changes everything, even if you don’t know everything about due diligence, being willing to make a change or to make a decision. GOLDIN Absolutely golden.
Brian Davis: So, we’ve got one more question here from Christina. She says I’ve seen turnkey properties that do not meet the one percent rule for rentals. What kind of cap rates can we expect on this kind of investing strategy?
Ali Boone: Let me guess. You’re looking in twenty twenty-one the one percent rule has swirled the toilet, my friend. So, I mean, here’s the thing. The rules, the one percent, when I started buying turnkeys, a two percent rule like meeting the two percent rule, it was so easy. People reach out now. They’re like, hey, what are the numbers on your turnkeys look like? I’m like, you don’t know. Don’t worry about it. Those are rules. They are not mandates. They are not even rules. They’re just guidelines to help you kind of shop to get an idea of whether a property might cash flow or not. If a property doesn’t hit the one percent rule it doesn’t mean it’s not going to Cash-Flow. The other thing, which is a, I don’t want to say a newer mindset, but it’s a mindset adjustment that people are really, really having to adopt this year because of the housing market. With prices going up, most properties now are not meeting the one percent rule. Period. And what I’m seeing, and this is kind of a different conversation, but what I’m seeing is people are having to start adapting.
Brian Davis: Reframing their mindset.
Ali Boone: Like they’re having to reframe. Yeah. Thank you. They’re reframing their mindset because, over the past ten years, it’s been very easy to be a consumer and buy investment properties. You can invest with a consumer’s mindset, meaning, you know, the interest rates are low, the prices are cheap, everything’s only going up. Everything’s been more or less easy as far as investing goes. Guess what? Tables are turning. Interest rates are going up, although they’re still at all-time lows, prices are high, cash flow squeezed. It’s like, oh, well, the one percent rule was easy. So, what if we can’t meet the one percent rule? Does that mean we just don’t invest? Absolutely not. There are five ways that a rental property makes money capital appreciation, tax benefits, equity build via mortgage pay down, and hedging against inflation. So if you come into a scenario where you’re not getting the cash flow that you want, first of all, forget the rule, see what the actual cash flow is, because if you’re so positive cash flow, it may not be a deal-breaker, but you want to look at all five of those profit centers, because the question needs to be how is this property going to make me money? And if people only care about cash flow, cash flow by itself is not how people get rich off of real estate. Cash flow is really, put a little extra money in your pocket. Yeah. You build enough of it up. You can get to financial freedom, but that’s a lot of two hundred dollars a door type of building. What really makes people wealthy are the other profit centers. And there becomes an issue of speculation. You don’t ever want to invest just for appreciation because you have no idea what’s going to happen.
Brian Davis: Right the market could crash again tomorrow.
Ali Boone: Oh, yeah, absolutely. And so, it’s one of five different profit centers. And so, what I’m seeing a lot of today is people just ruling out investing because something doesn’t meet the one percent rule. First of all, the rules drive me crazy because while they’re valid, the intent has really been I think the intent is good. But the phrasing of them and everything else has become very misleading because now it’s told people, well, if it doesn’t meet the one percent rule, it’s not going to be profitable. That’s a thousand percent. Not true. Right. So, you have to learn that. Look at an investment. I was just looking at the mortgage interest rates, historical one’s last night in 1981, the interest rate on the mortgages was sixteen-point six three percent.
Brian Davis: Yeah. hard to imagine in today’s context.
Ali Boone: Think about that. If you had a property in nineteen eighty-one that. Met the one percent rule, but you have a sixteen-point six three percent interest rate on your mortgage, do you think that one percent rule property is going to cash flow? No, not even a little bit, but a lot of people got very wealthy during those years. So, it’s about really looking at your mindset and learning how to analyze a property more fully. So, with all of that said, that’s my soapbox. St. Louis, I’m working with properties right now. They easily meet the one percent rule. And the other problem right now is a lot of the markets and even the turnkey providers are just flat out of inventory. St. Louis is meeting the one percent rule. I think Cleveland is pretty short on inventory, but they’re probably going to hit the one percent rule for the most part. But one thing to why this has become such a big conversation is because existing properties are in such low inventory like turnkey providers can’t get foreclosures right now. They can’t get the inventory. A lot of people are switching to new construction. As soon as you get into new construction, your cash-on-cash return right out of the gate is probably going to be in the like one to three percent range. And people are like, but that’s terrible. But your cash flow is going to be very minimal. They’re certainly not going to hit the one percent rule, not even close. But again, you’re looking at the whole deal because there’s a whole lot that comes with new construction in certain markets that can well make up for the cash flow. So, again, bigger perspective and look at the full deal versus if you’re buying like a declassee property and it’s really cheap. If that sucker doesn’t meet the one percent rule, I would definitely not buy it because it’s that risk-reward trade-off. But a brand-new construction house in an owner-occupied neighborhood in a highly appreciating market. Screw the one percent rule.
Brian Davis: Yeah. And by the way, we added a link here to the cash flow calculator on our website. It’s totally free. And it also calculates your cash-on-cash return, which is way more important than things like the one percent rule. So, yeah, run the numbers for each individual property before even thinking about buying. Yeah. And make sure you get your expense number is accurate.
Ali Boone: And it’s a quick thing on that when you’re looking at them. as far as turnkeys go, I’ve seen several turnkeys lately, I think it’s in Oklahoma City or somewhere like that where they are low cash flow, they’re low cash on cash returns and those are older existing properties, turnkey style. Oklahoma City is not necessarily a highly appreciating market by any stretch of the imagination. And what I’ve seen. So, it’s like, OK, cool. But if I’m going to take that level of cash flow, I think I’d rather have new construction and an appreciating market. And so that’s something if you’re looking at the turnkeys, this is why I tell people to shop around to look and see what multiple providers have said, OK, this cash over here for this purchase price. Here’s what I’m getting for that. Same over here, same over here. And look at those and compare it because that’s what’s going to tell you. I don’t want a low cash flow property in Oklahoma City because where’s the rest of the profit coming from? Or it’s even like overpaid in Oklahoma City. But if we’re talking about some of the Florida markets right now and its new construction, yeah, I’m fine with lower cash flow. So, yeah, that you mentioned, you know, looking at all that stuff. But those are that’s a quick turnkey example of what I look for when all the different opportunities present themselves.
Brian Davis: I want to be sensitive to your time here, but I want to circle back to your free book. So, Hipster Investments dot com slash SparkRental is where you can go to get a copy of your free book. And just give us a quick recap once again, your book’s title and what people can expect to learn when they read it.
Ali Boone: The book is called Not Your How-to Guide to Real Estate Investing Life Lessons on Hacking Your Mind Before You Hack Your Wallet. And my favorite thing about working in this industry, I am such a mindset nerd. I love mindset. I love psychology. I love all that comes. My background is in engineering. So, I actually I of course I love psychology, but it’s kind of cool because the real estate investing industry is complicated. It doesn’t necessarily have to be hard, but because it’s so complicated, it makes it hard. And we all know there’s a huge dropout rate as real estate investors. We didn’t learn this in school. If you type in how to be a real estate investor, it’s like go flip a house, go wholesale, OK? You don’t know who to turn to. You don’t know anything. And so, the idea with my book is I wanted to take a step back before all the how guides because most of the real estate investing books are how to do this, how to flip a house, how to wholesale. And I wanted to look at the mindset component. I also try to put some humor in it because it can also be a little bit of a stoic industry.
Ali Boone: But it describes the industry. What are the challenges, what makes this industry harder? So, it’s kind of a different perspective on what comes with being in real estate. And then it talks about things to consider for yourself. If you’re trying to figure out your journey or you’re trying to figure out a better way to do the type of investing that you’re already doing. So, it’s different things to look at your strengths. My favorite chapter is I have a theory that there are three true currencies money, we all know time and sanity are the two that people leave out. And so, in any instance when I want to get something, whether a service or product I’m paying and one or more of those currencies and like turnkeys, for example, I’m going to pay more money, but I’m keeping all my sanity also. And tons more time I spend on all my properties when things are going normal. Less than an hour a year, if even that when things are fine. So that’s my favorite chapter. And then at the very end of the book, two major things back there. There is actually a how-to guide.
Brian Davis: I feeling it was in there somewhere.
Ali Boone: Spoiler alert, but it’s more of like an either how to get started or how to. It’s the six steps that I used without even knowing I was using them to get out of my corporate job because my whole reason for being here is I wanted out of my corporate job. I didn’t know how that was going to happen. And these were literally the exact six steps I took to get out of that. And they’re the same steps that you can take to get into real estate investing or if you’re already in real estate, that’s fine, too. And then the last part of the book is I actually interviewed five or six. I think it’s six, including me and very successful investors in very different strategies. And the interview questions are the same for all of them, where it’s kind of like painting a day in the life of because you can have some investor guru shell off the rooftops of flipping houses is great. But what does that actually entail? Like what does your life actually look like? What is your skill? What skills are required? Because there is a big failure rate.
Ali Boone: So, I was trying to paint an actual day in the life of with different strategies so you can get a feel for, tying that back to what are your strengths, what natural skills do you have, all that kind of stuff. And I’m obviously bias because I wrote the book, but I really like it. It’s to me, it’s more of a fun read than a lot of the books. And I call it the prerequisite to the how-to guides because I think if your mindset is not in the right place, there’s not a how-to guide in the world that’s going to help you. So absolutely pausing. Take that step back, look at the big picture and then make your decision and the whole goal is you may not be super successful right out of the gate, but it’s to lessen the chances of falling out and really try and set yourself up for the best chance for success that your path can change later. It can whatever. But how can you get into this industry a little more gracefully than most of us got into it.
Brian Davis: So, we’ve got a coming in from Jason Augustus’s. I love mindset, too. It’s hard when you are around people who don’t have a similar mindset. If you go into any kind of investing with the wrong mindset, then even if you get if you earn good returns, you may not be happy with those returns because you went into the wrong expectations, or your goals were not aligned with that kind of type of investing. So, yeah, you do. You have to go into any kind of investment with the right mindset.
Ali Boone: To that point. I even say in the book there to me, there is no deal worth losing sleep over at night. I don’t care how high the returns are, if you are stressed to the max or in fear, you know, whatever, if just like you said if it’s going against your natural grain. If you’re losing sleep, not worth it like I even out of state investing, obviously I’m a big advocate for it, but some people will lose sleep. Doing it OK, fine. Not worth it. This is we’re not in it for just the money. We’re in it for time, sanity. This needs to be a bigger picture. But yeah, the mindset is it’s crucial. And I think most of us are probably in a similar boat where our families and friends are like, don’t do that. That sounds terrible. There’s a lot of naysaying around this. And so, interacting with other investors and really working and getting confident with your own mindset is important because you’re going to have a lot of people telling you that you’re wrong. So, yeah.
Brian Davis: So how can people get in touch with you with hipster investments if they want to explore buying a property, long-distance turnkey property somewhere else in the US from where they actually live?
Ali Boone: So that link with the free book has contact information for me on there. If you’re on Facebook, you might be on Facebook listening to this. Oh right. I guess everyone on here is.
Brian Davis: Broadcasting live on Facebook, although we have this as a podcast and a video stream afterward.
Ali Boone: Anyone on Facebook who’s not currently in the turnkey rental properties Facebook group just type in turnkey rental properties. That’s my group. It’s an amazing group. It’s I, I didn’t even know it was going to take off when I started. It has been fantastic. I love it. But my contact information at that link you can always go to hipster investments dot com. I do turnkey mentoring. I can connect you with turnkeys. I’m going to St. Louis in a month to work with a provider directly. I’ll be taking videos, so definitely be in the Facebook group for that. And I do one on one real estate coaching. I also do group coaching, which we actually have a coaching event, a group coaching event tonight. All those links are basically if you’re in the group or on the mailing list for hipster, you’ll get all that stuff.
Brian Davis: All right, great. Well, Ali, thank you so much for joining us today. This was a lot of fun, and we look forward to having you back soon.
Ali Boone: Yeah. Thanks so much for having me.
Brian Davis: All right, you guys, we’ll see you next Tuesday, 2:00 p.m. Eastern, 11:00 a.m. Pacific. Have a great week. Let us know what you want to hear about next time. All right, Ali, thanks again. We’ll talk to you soon.
Ali Boone: You bet.
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