Flip Robinson and Mark Woodring explain why A class properties don't work well for turnkey investors. A class properties cost more and generate lower cash flow, making them better suited to appreciation strategies than the cash flow focus that turnkey investing requires.
Questions this video answers
Flip Robinson (founder, Freedom Real Estate Group) and Mark Woodring (director of investments).
Vlog number 31.
The 1% rule: the monthly rent should be equal to or greater than 1% of the purchase price.
Hey, everybody. Flip Robinson here and Mark Woodring again. I'm the founder or one of the founders of the Freedom Real Estate Group family companies, and Mark is our director of investments.
And today is vlog number 31.
Number 31. It's been a while since I've been here for the vlog, so I had to remember what I did there. But now we also do a podcast, the Real Talk for the Real Investor. And you'll see those, those come out weekly on your various different podcast routes. Routes, however you want to say it, but this is one of the shorter versions, sort of like a day in the life of our Freedom Real Estate Group F and our different team members. And so Mark and I handle the acquisitions and also some of the dispositions. But the main thing, and I've been doing this since, well, since 2015, as far as turnkey goes, what we're talking about is turnkey real estate and the different classes of turnkey or of real estate, I should say. And actually, you and I talked about the different classes, the A, B, C and D, which is all relative for your city, because C class here, it could be a D class or even a B class in your area. Yeah. And so the topic today is, today.
We'Re going to discuss why a class properties may not be a good fit for our turnkey investors.
Right. Because a lot of times they'll call us up and say, hey, I only want to do A class properties.
Absolutely. So, I mean, some of the things that jump right off the bat is that they cost more. They cost more just to get into. And as far as, like the turnkey model, of course, these particular properties are going to have a higher mortgage, so they're not going to be cash flowing as much. You would assume that on the turn, they're probably going to cost you a couple more dollars as well, because you have either a bigger house or just a nicer home. So that's going to cost you more money down the road as well. Like we said, there's going to be less cash flow. Another thing to maybe take into consideration would be like the risk level for it as well. Because when this market does correct itself, you know, the reason you buy that a class property is that you're hoping that the house appraises over time for more money. And so if this market starts to slow down or stagnate a little bit, you may be sitting there holding a property, it may still rent well for you, but you're not going to be making that what you thought was your investment. Right.
Right, right. One of the things that we always talk about in turnkey investing is we don't focus on appreciation, we focus on cash flow. And that turnkey is all about cash flow now. It's. There are so many different or different strategies as far as real estate investing. This isn't to say that investing in class A properties is not a good idea. It is just not a good idea for turnkey because one of the things, turnkey investors, they always call us and they always say, hey, is it a 1%? And what's the 1%?
1% would be if the purchase price is equal to 1% of the rent value or greater.
And sometimes you get those properties that are $280,000. You'd be lucky to get $2,800 a month. On some those properties, you're probably more around the 1800. So it's way below that 1%, which is a turnkey provider or turnkey purchaser. That's what they're always. I want my 1%.
Yeah, that's definitely hard. I don't even know if I know a market where an A class would get that 1%.
Exactly, exactly. And so the main focus, again with this, is just, just pointing out, you know, a class isn't a bad investment, but it's a different strategy. And because real estate can get very volatile, you know, not so much here in Ohio. I mean, you. The real estate spike is like, you know, it's not. Not like it is in some other locations.
Old standby here in the Midwest.
That's right. That's right. Well, anything else you wanted to add to that?
No, that's perfect. I think that sums up basically the, you know, the risk and advantages of a class.
Absolutely. Well, thanks again for joining us on our vlog. We try to keep these short and sweet, but again, we like to end these with what is it? Invest smart, live happy. There you go. Bye.
Take care.
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