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CREATE A PLAN FOR YOUR TURNKEY INVESTMENTS

The previous chapter discussed the questions you need to ask a turnkey company in the Turnkey Test. The last question was super important. You wanted to know if the company was humble. If it had been in business long enough to make enough mistakes to protect you, and were team members willing to share those experiences? More importantly, were they willing to set up a company with systems, processes, and a team all designed to protect you from making the same mistakes? Well, had you asked me that question, here would be my answer:

IN OVER MY HEAD

I was living in Colorado with my wife and our first child when the first company I had started on my own began to grow. It was generating enough extra money for me to begin investing in my family’s future. I had a vision for what I wanted that future to look like, but I knew that wasn’t enough. I needed a way to get there.

So, I made a plan. My goal was to buy enough properties to fund my retirement and provide a legacy for my children. My investment properties would pay for college and weddings, and I wanted to give each of my kids a house for graduation or as a wedding present. Could you imagine any better gift to give your kids at the start of their life as a family than an investment property free and clear?

More than anything, I wanted to give my kids something other than money. I wanted to give them an example of hard work and smart planning. Owning 15 properties free and clear was what it would take to achieve this, so that became my plan: acquire and pay off 15 properties.

I had fantastic connections in Memphis: my family. All of us were investing in single-family homes at the same time, and my dad was building processes to manage the properties. I trusted my family members and knew that they would help me achieve my vision.

Armed with this plan, I went out and invested. In the beginning, I made some good investment decisions, and along with those good decisions came a little bit of monthly income. I also made a few bad decisions, and with those bad decisions came a little less monthly income, even monthly losses. Over time, I got the hang of things and began to focus more and more on real estate.

I started buying properties with less and less due diligence. I started looking at riskier and riskier investments, because I thought I was the X factor. I was making good decisions, which was leading to more money, and my mind began doing bigger and bigger math. I quit focusing on fundamentals and trusting my partners who were managing the properties and started adding properties I was finding on my own.

By not doing proper due diligence and venturing further from what had helped me build a small and performing portfolio, I began to grow my portfolio faster and was adding greater and greater risk without knowing it. I was no longer following my plan. Little did I know that my vision of owning 15 properties free and clear was getting further and further away.

One day, I looked up and realized that I owned 57 properties.

Now, let me put this in perspective a bit. I didn’t own these properties free and clear. I had purchased them and put notes against them. To say I was overleveraged is a bit of an understatement. No one I was speaking with was advising me to do differently. Who knows if I would have listened, but money was easy to find, and I was all about buying real estate. I may have been borderline addicted at this point. I even purchased 11 houses in one day—and they all had interest-only loans against them. I was convinced that appreciation was where the future was headed.

The turning point for me occurred one Monday night when I sat down at my home office desk after working all day at my regular office and faced over 100 pieces of mail. Insurance notices, tax notices, monthly statements, bills to be paid. I was exhausted and for the first time became scared. What had I done? In four short years, I had destroyed what should have been a slam dunk.

I realized that I’d thrown my plan out the window. In doing that, I had created an unsustainable business cycle for myself. I was in way over my head, buried under the sheer amount of paperwork required to keep up with all those properties.

And then the 2007 real estate bubble burst.

Before I finish, I want you to understand exactly what the biggest mistake was that I have ever made as a real estate investor. I failed to follow my plan. Period!

I wanted to own 15 properties free and clear, and that was my plan. I didn’t need 57 properties. I began to listen to the wrong people giving me lots of advice on using no-money-down strategies and how equity and refinancing were the way to build real wealth. On paper, I was already a millionaire.

My mistake was letting other people turn my plan into their plan.

Overloaded with so many properties, I spent two years working hard and losing sleep trying to unload as many of them as possible. I took steep losses every month but found a way to stay current on all of the bills. After two years, I made the decision to try to work with lenders. All of the local banks were thankful that I sat down with them and worked out a restructuring plan. I was not as fortunate with the national banks and had several refuse to work with me. It was a difficult time, but I battled for several years to work out my problem properties.

If I had just followed my plan, I could have saved myself a mountain of money and headache. It took me five years to recover from that market crash. Today, I have a good-looking, safe, and high-performing portfolio. I’m back on track with my original plan. And I’ve never looked back.

A PLAN FOR SUCCESS

You’ve seen that laying out your vision, researching the market, and finding the right turnkey team are all key elements of successfully participating in the turnkey revolution. But if you don’t have a solid investment plan or don’t bother to follow the plan you have, you can still find yourself in hot water like I did.

Having a plan and sticking with it is important. It is the layout of your goals and the pathway to your vision. Your plan ties the two together. Without the plan, how will you know if you are actually moving toward your vision? How will you know if you are moving in the right direction? Without that plan to guide you along the way, it’s easy to get sidetracked.

If that happens and you run too far off-course, you could find yourself like me—buried under mountains of paperwork, dealing with growing pressure, and having to fight to stay afloat, or worse . . . you could lose everything. Your plan is the map that shows you how to get from where you are now to where you want to be financially 10, 15, or 20 years from now. It’s also the benchmark you’ll use to measure your success.

Without a plan in place, you will not know if you’re on the right course with your investments. You may have good investments, or you may have bad ones—but you won’t know which is which if you have no way to track the progress you’re making.

The benefit of having a plan is that you understand not only exactly where you want to go, but also what it will take to get there. By sticking with that plan and referring back to it regularly to measure your progress, you’ll be well on your way to success.

In this step of the Turnkey Safely System, I’ll teach you how to make a turnkey investment plan that’s right for you and use it to steer yourself toward the financial future you envision.

MAKE YOUR PLAN

The first thing to know about making your turnkey investment plan is that this is not something you should do on your own.

By now, you’ve identified at least one turnkey company that you’ll be working with to build your passive turnkey portfolio. This is the company that you are trusting as your partner to assist you with hitting your vision and staying accountable to your goals. You’ll need to schedule a call or sit down one-on-one with the company in order to make your investment plan. When you combine your clear vision of what you want to achieve and the company’s practical experience in the market, you’ve got a recipe for a successful plan.

I touched on this first step of the process in the last chapter. Your partner’s job is to advise you about what kinds of properties offer the right kind of income to fit your needs. At the outset, you may think you need 30 duplexes to achieve your goals, when really 15 newly built single-family homes in your target market offer a better return with fewer headaches.

If you try to create your plan without the company’s help, you might end up with those 30 duplexes and a plan headed toward total derailment. Your team’s combined knowledge is a great resource for which there is no substitute. It’s up to you to make use of the team’s expertise.

Once you’re sitting down to work on the plan, your partner’s team members should ask you a more in-depth series of questions about your goals than they did before, when you were figuring out if the company had the types of investments you needed in general. It’s important to communicate honestly and directly with your partner about this so that they can help you create a customized investment plan that’s truly right for you.

It may seem a bit unnatural at first, but you really have to open up with your partner about your assets and your abilities. You have to be aware of what your current account balances are and what monies you have to use for down payments on your properties. You need to be aware of your current credit score and what your credit situation looks like. Do you have retirement account monies as we discussed in Chapter 4 that could be used to build your portfolio? Are you self-employed, or have you recently started a new job? Are you planning on leaving your job in the near future?

Self-awareness and an ability and willingness to be open and honest will really help your turnkey partner to build a solid plan with you. Team members will be able to give you advice on how to best structure your investments and how to best reach your goals. Mostly, they will be able to help direct your plan so you actually hit your goals and create your vision.

Your turnkey partner will look at your goals and ask for the reasons behind them. Why do you want to do this? What’s motivating your investment goals, and what plans have you already set in motion to achieve them? Have you already set up college funds for your kids, or some other form of generational gifting? Are you putting money away into a retirement plan each month?

It may be that you’re starting from scratch on all of these things, and that’s fine too. What’s important at this stage is for you to be able to give the company a clear picture of your financial goals and where you are now in relation to achieving them.

This conversation lays the groundwork for building not only a successful investment plan but also a true partnership. The company needs to know that it is a great fit for you, and you need to make sure it is the right fit. If the partner you’ve chosen has sounded great to this point, but for some reason team members are not showing a lot of interest in your goals, path, vision, and ultimately success, then reevaluate. Make sure you are comfortable that your partner is truly a partner.

ASSESS YOUR RISK THRESHOLD

The second part of creating an investment plan with your team is to assess how you feel about risk. This is an important aspect of making any kind of investment plan, and it’s no different when it comes to turnkey. Specifically, determining your risk threshold will inform you about what kinds of properties you should consider buying and to what extent you should diversify your portfolio.

Your risk tolerance also plays a role in how you purchase your properties. How much leverage are you comfortable with? How much value do you place in communication with your partner? This is a great time to get really comfortable with how you are going to feel owning real estate investment properties far from where you live. If you sense any hesitation right now, discuss it with your partner. Your turnkey partner needs to help make a plan that gives you comfort when you sleep at night.

To gain an understanding of your comfort zone when it comes to risk, your turnkey partner will ask you another series of specific questions tailored in this direction. These will include things like: How do you feel about vacancies? How do you feel about move-outs, repairs after move-outs, and ongoing maintenance repairs while tenants are in residence? How do you feel about logging into an online portal to view the performance of your portfolio? How do you feel about having a property management team that makes a majority of the active decisions on your properties?

The reason your partner will ask these things is that some of the different categories of homes you can invest in may have greater potential returns but come with a higher level of risk. At the same time, as an investor, it may sound great to buy turnkey real estate, and you may think you are all in, but a really good company is going to uncover your questions and help you find the answers. If there is going to be an issue with the passivity of investing with a turnkey partner, a great company is going to guide you in another direction. There is no point in finding out later on that you really like the active side of investing and being passive is just too uncomfortable. Knowing how comfortable you are with what kind and what level of risk allows the company to make more streamlined recommendations for your investment plan.

LOOKING AT THE FULL PICTURE

For example, a single-family home that’s more than 40 years old is probably cheaper to buy than a brand-new home of the same size in the same neighborhood. At first glance, the older home looks like a better return on your investment. But for a fuller picture, you also have to look at the level of rehab and upkeep required for both houses and the risk entailed there.

The more expensive house is brand new, which means no or low rehab costs, and a lower risk of having to pay for repairs. Conversely, the older house may require significant rehab and is going to come with a higher level of risk related to repairs. Plus, due to changing building code regulations, the materials originally used in the older house may also require special handling to dispose of during any necessary repairs.

Another thing to consider is that the company you’re working with may have expertise in handling specific types of properties that mitigates a lot of that potential risk on your end. Some management companies, for instance, specialize in taking on older homes and renovating them from top to bottom. In this case, they may be able to do this more cost effectively, passing greater savings and less risk on to you, the investor.

Some companies actually specialize in building brand-new homes from the ground up. They buy infill lots from builders finishing neighborhoods and build new homes. These are then sold to passive investors as turnkey properties and managed by the management company. Again, these are two different scenarios and likely bringing slightly different returns, but each will attract a different investor with different risk tolerances.

In the first half of your conversation about making a plan, your job is to clearly and directly explain your goals and where you are in relation to them to the company. During this second half of the conversation, your job is to honestly and directly explain what kind of risk and how much of it you’re comfortable with.

Once you’ve discussed all of this with the company, it should be able to help you put together a custom-tailored investment plan that meets your goals. This plan should also take into consideration your current level of financial planning, your level of comfort with specific kinds of risk, and the level of portfolio diversification that will best help you achieve your goals based on the assessment of your risk threshold.

You’ll likely need to work with your turnkey partner to tweak the plan until it’s just right. But if you’ve checked all of these talking points off the list during the planning process, it will show in the end product: a customized investment plan that will map the road ahead for you, leading you to the financial future you envision.

DIVERSIFY YOUR INVESTMENTS

A good turnkey company will also talk to you about including diversification in your plan. The more properties your plan includes, the more you should consider diversifying as an investor, to protect yourself as much as you can. You can and should diversify within any given city. You can also diversify in different cities.

Some turnkey companies offer properties in multiple cities to begin with. If that’s the case, they can offer you that diversification solution. If your turnkey company is limited to one city, however, the next question you want to ask is, “Who else would you recommend I work with in another city?” That really shouldn’t be that big of a question, but like always, you are looking for signs that you are with the right company.

Diversification is a big deal. As I stated, you can diversify with different properties spread out through different neighborhoods in one city. There is nothing wrong with taking that route. But you may also want to further diversify by looking at other markets. If the answer you get is pushback that you need to only be doing business with the company you are on the phone with, dig a little further. Surely, if it has your best interest at heart and can’t help you diversify into multiple cities, then it can help you find another turnkey partner. It is your plan after all.

One important tip to remember: the more you grow as a turnkey investor, and the more cities you invest in, the more you lower your risk. By spreading your portfolio through multiple markets, you are reducing the risk to your portfolio of a market downturn. Having more than one turnkey partner may not sound ideal, but I would argue that it is better than buying all of your properties in one market only. Just something to keep in mind.

STICK WITH IT

Once you have your investment plan in place, the most important thing to do is simple: stick with it.

One way to make sure you stay on track is to get into a regular routine of reviewing your perfect day and your plan as often as needed so that you don’t lose sight of the bigger picture. Don’t delegate your responsibility here. This is your plan for your future. And it’s the best tool you have to help keep yourself on track to reach your financial goals.

The moment you lose sight of your plan, you become vulnerable to bad impulse-buy investment decisions. Someone from another company—not your management company, because the team there will know better—might call you up out of the blue and say, “Hey, we’ve got this great deal, and I think it would fit perfectly into your portfolio. Are you interested?” You will absolutely get solicited—by phone, by mail, by email—to buy the “great investment properties” from other companies. I know this to be true because it is exactly how I first fell down the rabbit hole as an investor.

If you’ve lost sight of your plan, you might say, “Sure,” when really, this particular property may be everything you initially set out to avoid in your investment plan—and for good reason.

Instead, when you get that call, it’s time to pull out your business plan. Does this new opportunity represent another step toward your goals in your existing plan? Does it fit with your plan for diversification? Ask, “Does this company that solicited me out of the blue even fit the ideals of what I am looking for in a turnkey partner? For that matter, is this even a turnkey opportunity?” If the answer to those questions is yes, it may be something to consider. If the answer is no, you’ve just saved yourself time, money, and headache, all simply by referring back to your plan.

And remember, sticking with your plan does not mean treating it like it’s set in stone. It may be that your long-term financial goals change over time. This is not a reason to chuck your plan out the window. But it may be reason enough to review and revise your plan from time to time.

Based on your actual investment experience, you may look at your plan and realize you’re making more than you expected from your investment, or less. If you’re making less than you expected, that doesn’t necessarily mean it’s time to adjust your plan. It just means it’s time to continue acquiring more assets until you hit your target income.

If you’re making more money than you planned for, that’s another story. If your investments are performing better than you expected, and you’re comfortable with your active and passive incomes, you may have additional money there that you’re able to do something more with. If you’re interested in applying that extra income to your long-term turnkey investment plan, now is the time to pull out your plan and make some adjustments to take advantage of that.

The bottom line is that your plan is what keeps you from buying a property just because it’s cheap, or because it looks like it offers good returns, or because the properties you already own are giving you a good return. None of these is a reason to go out and buy a new property. The only reason to buy an investment property is because it fits your needs and your plan. Period.

Making a plan to fit your needs and goals and then sticking to it is the key to successful turnkey investing.

CELEBRATE THE SMALL WINS

Here is that concept again. I am a big proponent of living in the moment. I had the opportunity to meet Turney Duff, former Wall Street highflier and author of the book The Buy Side, and hear him speak, and he said something that I love. He said he tries to live with his head where his feet are. In that exact moment and at that exact place.

Living in the moment while regularly reviewing your plan allows you to touch back to your vision and become more aware of all that you’ve accomplished so far. Don’t just celebrate the big win at the end, when you’ve reached your long-term financial goals. Celebrate the small wins each step along the way. Celebrate exactly where you are in that moment, and never forget to keep your head where your feet are. It will help you to navigate those no big deal days.

As your portfolio grows, you’re going to start to be able to see your vision become reality as your plan comes to fruition. The line of credit your bank gave you that’s going to help you buy your next investment property—that’s a win! So, do something to celebrate it. Mark the occasion in whatever small way feels special to you.

You will look up and realize that every lease you have on your properties has been renewed and you can expect another year of no vacancy—that’s a win! Celebrate it with a favorite bottle of wine or a dinner with your favorite person.

Your celebration could be something as simple as taking half a day off of work to take the kids to the park. Or maybe you and your spouse like to eat out, but you’ve been skipping dessert for the past six months to put that money toward the next step in your plan: saving up the money to buy your next property. Once you have that money saved up and you’re ready to start looking at houses, it’s time to celebrate. Order dessert.

You have a vision of where you want to go, and each step you take toward that vision should be celebrated—especially the small ones. Celebrating your wins will help you keep sight of your larger goal and how far you’ve come toward it.

You’re doing all of these things because you want a bigger and better future for yourself and your family. The sense of accomplishment and pride you’ll feel at having made progress toward that future will help you stay motivated to make necessary sacrifices now in the name of your future financial freedom.

Now you’ve learned how to make a successful investment plan and stick with it. In the next chapter, I’ll teach you the next step of the Turnkey Safely System: how to make your investments.

Creating an Investment Plan

Images Did I sit down with my team to create an investment plan, or have I been trying to do it all by myself?

Images How many properties do I need to include in my portfolio to reach my vision?

Images What is my time frame for purchasing these properties?

Images Does my plan take into consideration . . .

  My long-term financial goals?

  The steps I’ve taken so far toward meeting those financial goals?

  What kind of risk I’m comfortable with, and how much?

  The level of portfolio diversification that will work best for me?

 

TURNKEY MASTERY TIPS

Review your plan often to make sure you stay on target.

One of the best tips I can give you is to keep your plan close by and make a habit of reviewing it monthly. For most of you, there will be other investments, savings accounts, or income streams that all play a role in your plan. Keeping an eye on your progress will build your enthusiasm, and celebrating even the small wins will keep you inspired to stay on track.

Celebrate small wins.

“When was the last time I celebrated a small win on the path to my long-term financial goals?” Write this question down as part of your plan. Each time you review your plan you’ll be looking for the small wins and making sure you celebrate your steady path toward reaching your goals.

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