February 23, 2020

JF2000: The Hybrid Turnkey Model with William Robison #SkillsetSunday

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William is a returning guest from one of our very first episodes, JF09. William has been focusing his efforts on growing his Hybrid Turnkey Business and shares some of the benefits of having a successful business that purchases many deals a year including discounts with local contractors, plumbers, electricians, and materials. He also shares how he prepares to negotiate the terms of a bulk deal with a vendor. You would think it would be easy but it takes a lot of work and many no’s before he finds the right partner.

William Robison Real Estate Background:

Best Ever Tweet:

“They get too comfortable with their cushion job, and we have to sometimes rein them back into a good spot or move on to another.” – William Robison


Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, William Robison. How are you doing, William?

William Robison: Doing great, how are you?

Joe Fairless: I am doing great, and looking forward to our conversation. Because today is Sunday, we’ve got a special segment for you, Best Ever listeners, called Skillset Sunday. The skillset you’re going to learn is a hybrid turnkey model. We might have talked about it on the show before, but it’s always good to get an additional perspective on this from a different person.

First off, if you recognize William’s name as a loyal Best Ever listeners, props to you, because I interviewed William one other time, and that one other time was episode 9. It was titled “One critical component of building a real estate business.” I have no clue, I do not remember what that critical component is… It’s been five years, so if you wanna know what that is, then go listen to episode number 9.

William has been in real estate for 15 years. He started a brokerage in 2008… Maybe I should listen to that, too. It’s important that I know what that critical component is building a business. He’s helped dozens of investors to purchase hybrid turnkey investments totaling over 500 acquisitions, renovations and daily property management. Based in Kansas City, Missouri. William, do you wanna give the listeners just a refresher of your background? …and then let’s roll right into talking about the hybrid turnkey model.

William Robison: You bet. As you mentioned, 15 years in real estate; that was after two corporate downsizings I decided to jump out of the corporate world and go into the much more exciting and lucrative opportunity of real estate. I have never looked back. It’s been an exciting ride. I’ve worked with investors for the majority of those 15 years. I did a little bit of REO during the debacle and bust in ’08, plus or minus, and for the last 6 years I’ve been working with investors to build out their own personal portfolios.

Joe Fairless: Got it. So what is the hybrid turnkey model?

William Robison: Sure. A lot of people are very familiar with what a turnkey real estate investment is. It’s typically a single-family house, where a company has gone out, acquired the property, done some renovations, got that property leased up, and then selling it out to investors as a passive investment.

What a hybrid turnkey property does is it offers them a little bit more transparency, and it gives them the opportunity to capture that built-in equity that can be built through that process. So what we do is we help an investor capture a property from the open market, whether it be an off-market transaction, from the courthouse steps or MLS, we put them through a renovation process using our construction department, and then finally we put them into the property management for the long-term. So what that does is it gives them transparency of the process, they get to know exactly what’s going on going into that property, and then they get to capture some equity along the way.

Joe Fairless: Yeah, so that’s the ideal model if you’re looking to buy single-family homes… Because if you buy on the MLS and it’s move-in ready, then you’ll be paying a premium, whereas here you can capture some of that equity, as you mentioned, through the renovation process… Assuming that the  renovation process goes according to plan. Yeah, that’s a big variable in this… What are some ways that you’ve seen it go wrong, and then how do you mitigate that from happening?

William Robison: There’s always the hidden items that you’re not going to know when you start. There’s rarely ever going to be the $10,000 [unintelligible [00:04:33].07] against the sheetrock inside the wall that we find on HDTV… But there’s rarely ever a surprise; usually, it’s just a decision-making process of “Hey, this roof has 5-7 years of life left. Do you wanna continue forward and have a cap ex later, or do you wanna take care of it now and have a durable product for a long time?” And there’s several more examples like that…

Joe Fairless: What are some more?

William Robison: Some more might be opening up the flooring and finding the sub-flooring needs to be wiped out, opening up a wall in the shower and we have to replace a shower valve, rather than just retiling the shower out… That’s a couple hundred dollar difference, so it’s never anything that’s just outlandishly going to completely blow a budget. And we do bake in a little bit of  a contingency budget; the majority of the time, that’s going to be covered through that.

Joe Fairless: How do you know what contingency budget to bake in?

William Robison: Typically, just a few percentage points of the overall budget. After going through roughly 10,000 houses in  my career, I have a pretty keen knowledge of what we’re looking for on a property. We typically have a pretty solid understanding of what we’re going to have. Sometimes we’re gonna estimate on the high side and come in a little bit less if we don’t know exactly what we’re going to find; we’re going to make an assumption that it’s failed, and we need to fix it.

For example, buying an REO in the wintertime in Kansas City, where the pipes freeze – I’m gonna assume that the pipes are broken, and we’re gonna plan an expense for that. If we get in there and we like the lines, and the lines hold pressure – fantastic, we’ve just saved $1,500.

Joe Fairless: When did you start doing the hybrid turnkey model?

William Robison: Hybrid turnkey started almost six years ago today.

Joe Fairless: Okay. When you think about the business, six years ago, as far as this business model goes to today, what are some things that have been optimized on your side?

William Robison: Volume pricing. We’re able to capture some volume business from various contractors, from some suppliers… Rather than buying a stainless steel appliance package that is a very good, mid-grade brand, and paying $2,100 on the shelf, I’ve got that negotiated down to $1,400. So there’s just some volume priced in by buying dozens or hundreds of x on the marketplace… Same thing happens with our plumber. We went and looked and saw how much we were spending in plumbing in a given year – it was about 80k – so we were able to go out to a variety of different plumber vendors and say “This is the amount of money that you can capture. Are you willing to give us some volume pricing discounts?” etc. Same thing with our electricians, and our roofers etc.

Joe Fairless: On that plumbing example, you spent 80k a year on plumbing… What’s a reasonable discount to ask for?

William Robison: It depends on exactly what’s it gonna be doing for you. A lot of what we’re doing in that 80k is sump pumps, and line clearing, and water heater change-outs… Small items; nothing that’s ever hugely drastic… But we’re able to capture usually a 30% discount to what we would have paid out in the market.

Joe Fairless: That’s substantial.

William Robison: Yes. Line clearance, for example, costs you $100 to $120 for a main stack; we’re paying $65. So it’s just  cost savings that you  get by doing more than 100 a year.

Joe Fairless: Do you have to go to multiple plumbers before you get one that says “Yes, I’m good with that.”

William Robison: Dozens.

Joe Fairless: Dozens? [laughs]

William Robison: Literally, dozens. Yes.

Joe Fairless: You go through literally dozens, and then you finally find a taker?

William Robison: You know, America has done a fantastic job of bringing STEM (science, technology, engineering and mathematics) to the educational world. It’s been a fantastic thing to help put America on the map, but…

Joe Fairless: Not the trades though.

William Robison: On the flipside, on the trade side we’re stalling a lot. So all of our trades are highly maximized on the amount of business that they have, and the only way that we can go in and capture a discount from them is to offer them an opportunity to have more consistent work, less advertising budget, and find ways to help them save money, so that they can help us save money on the flip.

Joe Fairless: I’m glad we talked through this. So your talking point to them is you have more consistent work, and maybe you ask them “How much do you spend on an advertising budget?” and they say “X amount.” And you say “Well, you’ll spend X amount less, as a result of that.”

William Robison: Right.

Joe Fairless: Any other talking points that you give them?

William Robison: WE try our very best to do the majority of our work Monday through Friday, 8 to 5… So we’re gonna have that rare phone call that’s gonna be Saturday night at midnight with a flooded basement that we need help with, but the majority of the business that we’re gonna be giving them is during their optimal times that they want to have business anyway. So if there’s an emergency type plumber, we can offer them the opportunity to have a little bit more family time at home, and give them some volume during the daytime.

Joe Fairless: I’m glad that we talked about this, because it might be counter-intuitive to some listeners that you had to go through dozens and dozens of plumbers to find one that was qualified, and would accept your deal of “Hey, I want 30% off.” Because on the surface, people might think “Oh, well – yeah, if you give someone a lot of business, then you would get a discount”, and that makes sense, and you just have to go to a plumber, or maybe two, if the first idiot turns you down… But the reality is, as you said, they’re in such high demand – the good ones are, especially – in such high demand… And they don’t need this type of structure, because they can go and be busy Monday through Friday already, and get premium pricing through single-family home primary residence owners.

William Robison: Another good point is that our plumbers rarely stay with us for a very long time. Every once in a while you’re gonna run into somebody that has price creep; they get way too comfortable and they try to increase their prices, and some of the standards that you set in place for a few different items, that you can… The rest of the items start to  have a little bit of price creep, and they get too comfortable with a cushion job. We have to sometimes wrangle them back into a good spot, or move on to another.

And sometimes it becomes very comfortable, they outsource it, they hire somebody else to take on our business, that person doesn’t take care of us well, and we have a staffing issue that we have to correct. And half the time, that means we have to change our vendor.

Joe Fairless: Good info for really anyone working with vendors over the long-term, or contractors and subcontractors… Just to keep a watchful eye for price creep, and just check — if you’re doing the same type of stuff, keep those invoices and check them over time if they are going up… Which I would expect them to go up a certain amount over time, just because of inflation… But make sure that it’s still in line with the market and you’re also still getting whatever discount or agreement that you had agreed upon with them.

William Robison: Exactly. A question that we get often is why don’t we have 3 plumbing bids on the sump pump. And as you can see, if you have a vendor who’s willing to give you really good pricing, and only do it at this amount of volume, if I go and spread that out over three, then I’m gonna get less of a discount. So if I take that 80k and drop it down to 27k per vendor, I’m no gonna get that same level of attention, I’m not gonna get the same level of service, and I’m certainly not gonna get the same level of discount.

So yes, we want to make sure that we’re on point on price, but we also want to make sure that we’re maximizing for the vendor that is giving us the discount for that volume. So it becomes a little bit entrusting, working with a variety of our investors, especially on the property management side, where they’re looking for “Hey, can I get three bids on this?” “Sure. Push comes to shovel, I’ll get you two  more retail bids that are gonna be 30%-40% higher.” But having trust in your vendors if you’ve built a good, solid relationship with those people, have a little bit of faith in what they can do, but also make sure that there’s transparency of what’s happening at the same time.

Joe Fairless: Anything else that we haven’t talked about as it relates to the hybrid turnkey model that you think we should?

William Robison: You know, six years ago when the market was coming out of a big downturn and there was a lot of foreclosure inventory on the market, and people were able to BRRRR and do all kinds of fantastic financing methods, and purchase properties at extreme discounts – that was a fantastic time, and if you bought during that time, kudos to you. I still believe that we’re in a good market; not only Kansas City but several other good markets around the country offer the same… But we don’t have that same discount that we had five years ago.

Recognizing where we’re at in the market is an important factor, and I also still think that we have quite a bit of upside, because we don’t have enough inventory out there to take care of the demand that exists for rentals. We’ve got a new generation coming to the marketplace, looking for rental properties because they don’t wanna be tied down to any particular location… And within that, we’ve gotta be able to provide them with the supply, and get that sent out to them.

Specifically in Kansas City, there’s a lot of class A multifamily built out in the downtown area. Fantastic, great location, close to everything, lots of entertainment… But those same people are now having children, and when they’re 2, 3 and 4 years old, they start thinking “I need to go to the suburbs, where there’s parks and sidewalks and good schools.” And that is where we’ve built our business.

So within that, let’s say that we’ve got a hybrid turnkey property that we’re gonna have an all-in of 150k; that’s gonna be quite a bit more than we had five years ago, but the ability to replace that is still substantially higher. I cannot build a house for less than 190k in the market areas where these houses exist. That means we still have a window of appreciation available for those that are willing to look at  appreciation as part of that investment model.

Joe Fairless: Is that what you look at, the replacement value?

William Robison: That’s just one of the factors. Obviously, we’re looking at cashflow. Cash flow is getting compressed. All across the country we’ve got a large group of the national Wall Street players (like BlackStone) that are buying up thousands and thousands of properties around the country… So we’ve gotta be able to compete with those guys. But the replacements scenario is definitely still a piece of the puzzle.

There’s two different factors to look at in an investment – what’s  your cashflow, whether that’s positive, flat or negative; what is your appreciation historically and what’s expected… And what kind of equity can you gain out of the investment. So there’s two different ways to look at it, and we try to make sure that we’re amplifying that for the particular investor’s needs… And sometimes we need to modify their needs. If they’re thinking “I need cashflow today” and they’re 25 years old, getting ready to go into their prime earning years, they don’t really need that investment to perform for them until years down the road.

So we try to educate them into the direction of looking at IRR, that it’s gonna perform for them much better over the course of the next couple of decades.

Joe Fairless: As long as it’s cash-flowing out the gate though, and you’ve got the right management in place… 2008 hits and if it’s cash-flowing and you have the right management and you have a long-term loan on it, you still should be fine.

William Robison: You’re stable, right. You’re in great shape, and you’ve got more [unintelligible [00:16:45].19] coming into play for those that are unfortunate enough to fall to the next recession.

Joe Fairless: Yup. 3 immutable laws of real estate investing – if you google that, Best Ever listeners, I have a bunch of articles on that. 3 immutable laws of real estate investing, Joe Fairless.

Well, William, I enjoyed our conversation. How can the Best Ever listeners learn more about what you’re doing?

William Robison: They can certainly reach out to us, they can check out our website, which is very long, designed for Google – KansasCityInvestmentRealEstate.com. It’s the best place to find out some information. They can also email me directly at william@kcinvre.com.

Joe Fairless: William, thanks for being on the show, talking about the hybrid turnkey model, talking about the biggest risk in that, which is the execution of the improvements on the property, and then how you mitigate that… And then we got into the weeds on volume pricing and contractors, and I’m glad we did, because that is relevant, as I mentioned earlier, to really anyone who’s looking to negotiate a discount with a vendor.

The three talking points that you have is more consistent work, less advertising budget, and doing the work during the hours that they want to work.

Thanks for being on the show. I hope you have a best ever weekend, and we’ll talk to you again soon.

William Robison: Sounds great. Thanks so much.

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