Return on Rentals “No Limits” Investing Relies on Clarity, Focus, and the Right Equation.
Hall and Fuller believe that successful investing hinges on consistency. Part of that “clockwork” relies on all parties in a transaction being clear about a couple key definitions.
Turnkey Rental: a real estate investment purchased rent-ready, often with a tenant already in place and paying rent.
Cash-Flowing Property: a property that is generating regular income at time of purchase.
When Garrett Fuller and Dallas Hall, co-founders of Return on Rentals, talk about their company, the first thing you hear is “no limits.” Immediately thereafter, the two enthusiastically delve into the near-obsessively organized process they use to purchase, rehab, lease, and sell hundreds of turnkey properties annually to investors building their portfolios though cash-flowing, turnkey rentals in multiple markets around the country. “We cast a very large net and we are clockwork,” said Hall of the process, which the two built together starting in 2010.
“We have a very simplistic model. We have the same metrics, the same rehab standards in every city, and we have boots on the ground in every one of our markets,” he continued. “It means that we can move a very large quantity of properties to real estate investors both within the United States and internationally. We’re meeting the demand for turnkey, cash-flowing rental properties in very competitive, attractive markets and providing investors access to the deals that they really want to buy.”
Where It’s Working
Return on Rentals currently has a presence in three major markets and those markets’ commuter suburbs: Detroit, Michigan; Cleveland, Ohio, and Buffalo/Niagara Falls, New York. “We are constantly creating new avenues of acquisition that allow us to continue generating the volume of properties our investors expect from us,” said Hall, noting that the company has largely moved out of its fourth market, Indianapolis, Indiana, thanks to oversaturation and inflated pricing.
“We are always working to generate new, creative networks that help us find better and better ways to buy properties at a discount,” added Fuller. “The housing market is constantly evolving. Four years ago, we could hop online, contact local bird dogs, dig up deals by the dozens. Now, it’s a little harder. You have to think a little farther outside the box.
“We only operate in markets where we have 100-percent confidence. If we don’t have it or something changes our outlook, we move somewhere else.”
Given that Dallas and Fuller personally vouch for every property they sell, this level of caution and measured consideration is not surprising.
Interestingly, both founders are constantly on the lookout for signs in any market that a ceiling is approaching in home values, despite their model focusing on cash flow rather than appreciation. Many turnkey operators, including the Return on Rentals founders, refer to appreciation over the short- or long-term as “the cherry on top” of any turnkey rental purchase. This is because as prices rise, inventory tends to become tighter across the spectrum, particularly at the “starter home” level, which is where most turnkey rental properties reside.
As long as the properties are cash-flowing, many investors will sacrifice buying at a deep discount in favor of reliable monthly income. Return on Rentals, however, prefers to snag both for investors whenever possible. “The key to getting around that issue and keeping our inventory available to our investors is creative purchasing,” said Hall. “For example, we have a great relationship with the land bank in Detroit, which lets us buy direct and for less in a market that we expect to have a long run remaining.”
Establishing Clear Definitions
Hall and Fuller credit much of their success in the turnkey industry to their dedication to sticking with the parts of the process they are good at and avoiding the many distractions that often plague turnkey providers. “There are a lot of turnkey companies out there that are vertically integrated, both selling the properties and running the companies that manage those properties for investors. For me, though, that model simply does not make sense,” said Hall.
Hall and Fuller believe property management, like property acquisition, is best left to the experts. “Property management is a very tough business. I have a property manager for my investment properties and I recommend property managers unassociated with Return on Rentals for my investors because that way there is no overlap of interest. We are for our investors. Period. If they’re not collecting rents, then we don’t have a business model, and that’s the end of the story,” explained Fuller.
Another benefit of staying firmly in one lane is the amount of investor support that the company can offer its investors after they make a purchase. “The property managers we recommend are uncontrolled third parties and we get no financial benefit from an investor’s relationship with them, which frees us up to fully support our investors if they do have a problem,” said Hall.
“There will be issues that no one sees coming from time to time when you do the volume of deals that we do,” he added. “Our model delivers a cash-flow property with tenants in place, but if you end up with an issue with the management company or an unforeseen complication, we’re able to step in and help you precisely because we do not owe the management company anything.”
Hall cited a company practice that will, in some cases, allow investors to use Return on Rentals’ contractors rather than handling repairs though the property management company. This can save serious expense on a major repair job because property managers are often paid a percentage-based fee for handling this type of work.
“Our managers expect this from us because they know at the end of the day, our objective is clear: keep costs as low as possible for our clients. That may mean we’re available with our crews to make sure they can get discounted work, materials, and labor,” he said.
No Middle-Manning Here
When Hall and Fuller first began working together, they were colleagues at a large turnkey company based not in the real estate business, but rather in what Hall refers to as “the seminar business.” The company that employed them presented turnkey opportunities to real estate investors in an educational setting.
Over time, they worked together with their team to build up that company’s property division and eventually created Return on Rentals as an independent company. “It was so important to me to have control of the assets and be able to personally vouch for every piece of product that was sold,” explained Hall. “I had to have my own company so we could raise money, build teams, and scale our networks.”
Hall and Fuller agreed at the outset that everyone working within their company and with their investors would have to have skin in the game in order to create and maintain a relationship with their new company. “It’s not just for our needs, but for the clients’ needs as well,” Fuller said. “Everyone is fully vested, and no one is middle-manning deals. We’re fully committed to the success of our clients and everyone in the company understands that their success and the business’ success hinges on client success.”
This philosophy has led to a unique brand of what Hall and Fuller refer to as “post-settlement care,” wherein Return on Rentals helps hold all parties involved in the transaction accountable and keeps things transparent even after a property has closed. “When you run a high volume, there are going to be issues from time to time. Not all tenants are perfect. We pride ourselves in helping people through those issues, especially in that first six to 12 months when the property and process may be new to the investor,” said Hall.
A Core of Creativity
In a business so dedicated to focusing on its specialty, it may be surprising to discover a layer of creativity lurking just beneath the surface of the highly regimented, aggressively transparent, and thoroughly delineated organization. That creativity recently led to the discovery of an exclusive source of deals for the company and a way to help newer investors get started in real estate.
“When we speak at events, we always are very clear with our clients and potential clients that whether you have two dollars or $2 million, we’re going to sit down with you and have a consultation so that you leave on a better path than you came on,” said Hall. That desire to help all real estate investors has manifested itself in a wholesale training program that uniquely positions trainees to wholesale directly to a major market player from the very outset.
“If you are not yet in a position to buy turnkey rental properties, maybe you want to wholesale properties instead,” said Fuller. “These wholesalers can earn a $5,000 assignment fee simply for connecting the dots. It’s great practice for the future because real estate investors need good sales and negotiation skills and it can set someone with very little capital on a path toward having plenty of it to invest.”
The program, which launched this year, has already yielded some big successes. Hall and Fuller seem barely able to contain their pride as they interrupt each other to relate the story of one of their wholesale students who recently closed on 15 different properties at once.
“We don’t even know exactly how he did it, but he found a buyer who had some significant assets that he wanted to allocate to real estate. He found the guy 15 properties, they closed, and it earned our wholesaler $75,000,” Hall said. “That just happened in the last couple months, and he’s one of our first students!”
That mindset of keeping everyone involved and invested in the success of Return on Rentals and the associated excitement when any one member of the company succeeds is key to the organization’s ongoing growth and success. “Everyone we work with has seen the long-term vision. No one is taking shortcuts,” Hall said. “The only way to succeed in this business and do high volumes of deals is to put out a good product and stay focused on your goals.”
Signs of the Times
Dallas Hall and Garrett Fuller run their market research division based on Warren Buffett’s famous statement, “Be fearful when others are greedy and greedy when others are fearful.” To that end, many of the signs most investors believe indicate “trouble” pending in a market are, for Hall and Fuller, signs that things are about to get interesting and potentially profitable.
“These are things that happened in the wake of the housing market meltdown that were pointed out as terrible signs of the times at the time,” said Hall. “In reality, those things opened up the markets for our investors and we really took off. It was like shooting fish in a barrel for our clients to get great properties at incredible prices.” The two cited three signs that typically are interpreted as bad news for a market that can be good news for real estate investors:
• Increased inventory levels
• Massive foreclosures and distressed property sales
• Significant decrease in home ownership
“When these three things coincide in the same market, it sends a lot of people running scared for the sidelines,” explained Hall. “However, for a turnkey rental owner or provider, these signs indicate that a market is ripe for entry because as people leave their homes they need rental housing, which pushes rents up, and at the same time it is easier at this point than any other point in the housing cycle to get deep, deep discounts on properties that are ideally suited to be cash-flowing rentals.
“In markets where these three things come together, you’ll see rent premiums skyrocket and, with them, investor rates of return.
“Of course, you must remember that we are operating in a very specialized position. We don’t flip to the retail market. The majority of our investors are cash buyers that realize when a market is in trouble, the iron may be hot for them to invest.”
Nobody’s Perfect: A Picture of Post-Settlement Care
Return on Rentals prides itself on steering clear of conflicts of interest by focusing solely on providing turnkey rentals to clients rather than getting involved with any other aspect of turnkey rental service. However, that focus sometimes means they find themselves in the role of advocate for a client during the post-settlement period.
Garrett Fuller pulled back the curtain on what that role may look like with a recent, real-life example:
“Last year, we had a client buy a property. The tenant had been in place about three months before there was a divorce and the husband left. The wife tried to keep up with the rent but ultimately came to the manager and told him she simply had to give up. She left her deposit and she moved out.
“Within 72 hours of her departure, the home was burglarized and the furnace was stolen. There was already going to be downtime since the tenant left on short notice so this made the experience a really rough run, especially for a new buyer. This is the type of situation where Return on Rentals might step in.
“In that case, we helped with rent concessions, provided some insight and guidance on the remodel, and we assisted with some of the fees associated with re-leasing the property as well.
“We’re not obligated to do any of that. Post-settlement, the deal is legally done, but we understand that customer experience is what makes or breaks a company long-term, so we and our partners are always willing to work together to try to help investors out.
“That’s where the benefits of everyone being vested in the company really come out: When we all work together to try to turn a really negative experience that no one could have controlled into a positive one that protects our investor’s interests and our own.”
Hands Off: Why Self-Directed Investors Keep Their Distance from Turnkey Properties
There are two typical investor responses to a prolonged bull market on Wall Street: You either dance around the room as you check your stock portfolio each morning and (admit it) throughout the day, or you cradle your head in your hands and wonder when the worm is going to turn.
If you’re the latter type, then the odds are good that at some point you’ve wished you could put some of your retirement capital into real estate and, furthermore, you’ve probably at least considered setting up a self-directed individual retirement account (IRA) or 401(k) in order to do exactly that.
“I’d say that self-directed investors are probably at least 50 percent of our business,” said Return on Rentals co-founder Dallas Hall. Turnkey rentals are ideally suited to the needs of self-directed investors because they can be a fully automated, hands-off investment. This is critical to maintaining the advantages offered by self-directed retirement accounts.
“The whole ‘SDIRA Game’ is a game of keep-away from prohibited transactions, and turnkey real estate can help the IRA win that game,” observed Kaaren Hall, CEO of uDirect IRA Services, a California-based IRA administrator.
“Interactions with real estate in an IRA must be handled by third-party professionals or you risk losing, conservatively, 50 percent or more of your IRA if the IRS determines you’ve violated any of their rules on handling investments personally in that account,” explained Bryan Ellis, host of the educational podcast “Self Directed Investor Talk.”
In the past decade, an increasing number of investors have been willing to take that risk in order to free themselves from the risks associated with conventional assets like stocks and bonds. “Since the housing crash and then the financial collapse, we’re seeing more and more of this,” Dallas Hall added.
He speculated that people are moving toward self-directed investing precisely because the stock market has been on such a long bull run. “For any cautious, smart investor, it’s a concern that this run has gone on so long. Taking control of their future and investing in assets like real estate is the natural response.”