Seth: Hey everybody, how's it going? This is Seth Williams. You're listening to the REtipster podcast. This is episode 212, and today I get to sit down and have a conversation with Chris Clothier.

I've followed Chris for years as a writer on BiggerPockets, and Chris is also a well-known speaker at various conferences. Chris is the co-owner of REI Nation, formerly known as Memphis Invest. This is a family-owned investment firm that specializes in assisting real estate investors around the country in developing their portfolios of investment properties. Today, I'm going to talk with Chris about how his company works and where he sees the real estate market headed in the coming months.

Somebody like Chris, who has been in the game for as long as he has and seen the different highs and lows of the business, has a lot to offer in terms of perspective and lessons learned, so we're going to cover a lot of ground along the way.

So, Chris, welcome to the show. How are you doing?

Chris: Man, I'm doing fantastic. Thank you for having me and the introduction. Good to be here.

Seth: Yeah, absolutely. So how long have you been in the real estate business? When and how did you get started?

Chris: I bought my first home in 1997, so almost 30 years ago. But I got into really taking investment property seriously around 2002, 2003. Luckily for me, I was running or building a successful business and had some disposable income back then. And since 2004, I've had a rather... whatever, "large" is a relative word, but I've had a big passive portfolio of properties. I got started—I won't go into all the details, but I will tell you, I actually got started by watching a late-night infomercial.

Seth: I remember those. I've seen plenty of those.

Chris: As anybody that's been this long will kind of sheepishly admit, I bought Carlton Sheets' program. I was probably attracted to the boats and the fancy cars—who knows? That was 2004. But the bottom line was I bought it. I consumed some of it. There was so much junk that they sent me; there's no way I could consume it all. But I consumed just enough to get an idea of how to get started. And I deployed one of their ideas to become an accidental landlord.

I really wasn't prepared and wasn't really even going to move forward, but I had a home to sell. And I ended up trading my home with another person who wanted to buy it. My house was on land, unrentable. Their house was right next to a university, highly rentable. And that's how I got involved. They wanted to buy my home, but they needed a buyer for theirs. It was kind of junky. No one was interested, but I was. And so I bought theirs to enable them to buy mine. It cost a lot less, so I was able to swing it. And then I turned it into a rental property and learned a lot of lessons along the way. But that's how I got started—it was really accidentally.

Seth: REI Nation, that's a family business, right? So was your family already in it and you kind of joined with them? Or did you get them all into this by going out on your own?

Chris: I started working for my family when I was 17. I've got an older brother, two years older than me, who didn't go to college. He went straight into the family business, which at the time was grocery arbitrage. We were buying something low and selling something high, filling a need. So that's the business I learned.

Chris: I moved to Colorado and started my own grocery arbitrage company, which is where I had the disposable income to build an investment in real estate. When I moved to Colorado, though, my father—we had built several companies together. My brother had moved to Florida to do his own company. I moved to Colorado to do my own company. And my dad didn't want to do another grocery company, so he started learning real estate on his own separately. I started investing in real estate in Denver on my own. We were not discussing real estate. And then my older brother was doing the exact same thing in Florida, as we were all earning money.

It just so happened that at a family Christmas or Thanksgiving, or something along those lines, we got together and started talking. The prices in Memphis made it easier to invest there than in South Florida or Denver. My dad at the time had started the original version of REI Nation and was working with local FedEx pilots.

The way this company really started was he would give talks at REIA conventions or REIA associations—real estate investor groups. His talk was always about how he went and found the houses, stabilized them, leased them up, and was earning passive income. And most of the people, as you and I probably know, that when you go to these meetings, there's a lot of people in the room that want to do real estate and they just don't. They don't have time and they're not going to learn. So he was approached by a lot of FedEx pilots, saying, "Look, can you do this for me? I'll give you the money if you'll go find the house for me and set up this whole system you've got where I can earn passive income, and I'll let you profit from it."

And that's exactly how we started. He figured out that if he could go buy the house and fix it and put a resident in it, he could sell it at a premium to a busy professional that did not have time. And then when we met, we were all looking around, like, well, we're at our own real estate conventions or associations in Colorado and Florida, and they're full of people that need this—the same person's in that same room. And I began to sell properties to Colorado investors in Memphis when I was out there. And that's how I got into the business with my dad. In 2008, I moved back to Memphis and joined as a full-time partner.

Seth: So to make sure we're all on the same page, a turnkey rental property—that's like if I buy a turnkey rental from you, that's a property that is rentable, it's got a tenant in it, and I just buy a cash-flowing asset. Is that what this is?

Chris: Yeah. So a couple of things real quick for your audience. Number one, "turnkey"—it’s a word that I hate now. We started using it back in '07 because it's descriptive of "easy, all the hard work has been done for you."

The problem today for anybody watching this is that turnkey doesn't really mean anything anymore. A lot of people use the word because it's very catchy and it attracts a lot of attention. And a lot of companies like us, who've been out there for a very long time, built kind of this industry, but it's changed. Today, turnkey doesn't really mean anything. You have to be super careful.

As an investor, the way that I tell investors to look at turnkey is that you do business with a company that takes all the risk on the front end. So you don't have that risk. So exactly as you just described it, a true turnkey investment to me is when someone else has identified the property. They have purchased it and renovated it. So they put all the risk upfront.

In turnkey, where the company owns the management company as well, they have bought it, they've renovated it, and you can hire their management company after you purchase it to manage that investment for you.

Seth: That seems like a pretty key differentiator because the seller of the property really does control the quality of the product, right? Whereas if they just send you out to some other PM, it's like, who knows what you're going to get?

Chris: And they're responsible. There's no finger pointing. There's no management company saying, "Well, the renovation—those guys, they're responsible," and the other way around. You're buying from somebody who knows the full cycle of the home. So number one, they chose to own a property in a certain area. If it's a highly risky area, then you know you got a company that's super risky. If they own the management company, then they're responsible to you for the results that you achieve. So who you bought it from is also responsible for the results you achieve as an investor.

That's the first thing. That, to me, is what true turnkey means. Today, some companies say they're turnkey, but really what they do is they find the home for you. You need to buy it, and they'll manage the renovation that you need to pay for. In the end, 100% of the risk is still on you.

And then there's a lot of companies that say, "I'll buy it and sell it to you, but I don't manage it." That's, as you noted a second ago, for somebody else. And so therefore, if the performance is poor, it's not on them.

Believe it or not, there's actually companies today that market themselves as turnkey companies, but what they do is they help you get pre-qualified and they give you advice, but they're telling you to go buy from this other company. They don't buy anything. They don't sell anything. They don't renovate anything. They don't manage anything. They get paid to deliver you as a qualified investor to a turnkey company.

And I explain this to people all the time: that their product is you. A turnkey company's product is the home. An advisor company's product is you. You are the qualified investor that they're delivering to a turnkey company. Doesn't mean they're bad. I'm not knocking anybody. It's just what the industry has grown into.

And to me, if you can deal directly with somebody, look them in the eye, you know who you're buying from; that's turnkey. If things go great, fantastic. If things go wrong, you have one person to call and say, "Look, this isn't going the way I expect."

Seth: I appreciate you explaining that. I didn't even realize the range of different versions of this product. And sometimes it's not a product at all—you're the product. I didn't know all that.

Chris: And again, these kinds of industries grow from demand, right? If nobody wanted to hire a turnkey promoter, they wouldn't exist. So because there's demand for it, they do exist. But when somebody has a bad experience and they tell the rest of the world about it, everybody gets lumped into this good or bad.

For us as a company, I'll tell you directly, we don't work with any of those promotional companies. And it's by choice. Even though they have qualified people ready to buy, the reality is that there's good and bad in every industry. There's good and bad CPAs, good and bad managers, good and bad everything. And we just don't want our brand or our name to ever be associated with somebody that's not at our level of expertise or quality.

Again, I'm not knocking anybody else. I'm just telling you that we built a brand over two decades and we really care about it. So we don't risk it.

Seth: Did you like invent this term, “turnkey rental?” Is that something that you guys came up with or was that around already before you started doing it?

Chris: There was a magazine that did an article on us in 2007. I remember him calling us and saying, "You guys are a turnkey company. Everything's turnkey. It's just like you just step right into the investment. It's ready to go." He's like, "I'm going to name the article and put you all on the cover, and it's going to be turnkey real estate."

And that's the first time we had ever seen it. And really, I do think that was the birth of the industry. So it wasn't necessarily us. It was a writer that coined it. It worked back then because everybody was—there was only a handful of people that were doing that business.

Seth: So I guess when we're talking about your version of turnkey rental properties, now that we kind of have a good understanding that you guys are the property managers, you kind of do everything for the most part.

For that type of investment, what kind of person do you think should or shouldn't be pursuing turnkey rentals from you guys? Like, what do they want, have to want, or expect? And if they have the wrong expectations, when should they not even be going down this road?

Chris: Yeah, great question. A lot of this is going to have my personal philosophy of investing. For us, the perfect client that we work with is generally someone who has assets that they want to put into real estate and they have choices. They could go into the stock market. They could go into syndication. They could do anything, but they choose to go into physical assets because of the ability to leverage and the ability to depreciate on their taxes. There's just a couple of different nuances that say, "I want to go into holding physical assets."

They don't always have experience, but what they do not have is time. They just do not have time. They don't have time to go find the homes and manage themselves and all these other things. So they have full-time jobs or W-2 incomes, that type of thing. They also don't have the time and they readily admit, "I'm not going to study and learn. It's not my forte." I've generated this money that I need to earn while I'm earning my active income.

So that for us is the perfect investor that says, "I have money that I want to put into building my future, building a portfolio, but I don't have time to do it on my own." Now, the next differentiator is when they come to us and say that their number one desire is cash flow. This is where it gets really dicey for investors.

What I tell people is I don't invest for cash flow in the sense that it's become today. When I invest, all my homes have a positive passive income. But every dollar I get will eventually be spent on the house. So I don't have any money for dinner, for vacation, or for treating myself—every dollar that comes in goes to the home.

So I don't look at a monthly cash flow. I look at it knowing when I bought a home that I'm going to generate more income than I'm going to have in expenses on a majority of the months I'm going to own this. There will be a month where it's vacant and it needs work, so all the money I made the previous years—that's what I'm going to use to renovate this home, bring it back on the market or hold it while it's vacant.

So a lot of times investors come into it wanting to make two hundred dollars a month in cash flow. And the question I always ask them is, "Is this a number that you need for living off of?" And when they say no, I'll say, "Then do you want cash flow or do you want consistency? Do you want stable, or are you looking to maximize on paper what it says you're going to make each month?"

Because what you're doing is—to me, the way cashflows are created today is they use phantom expenses that don't exist every month, but they do exist. I think a lot of investors today don't work well with turnkey; they're the ones that come in and they're like, "I want to tack on all these future expenses and I want there to be this big positive number at the bottom line." But I don't know why I've got 9% in vacancy and 27% in maintenance and these different numbers. I don't know why I'm doing this. I just know that when I plug it in, it's got to have something left at the bottom.

You're not ready to invest yet. You need somebody that's going to walk you through what your true long-term objectives are. That's the big thing. It cannot be like, "I need to make a monthly cash flow." If you need this money to live on, you don't need to be buying turnkey real estate. You probably don't need to be in real estate, period. You need to be in something different. And if you're coming with a number that's arbitrary, I need to talk with you and kind of help you because this is long-term.

That's the other thing to understand. There's nothing unique about turnkey that makes it perform differently. It just means that someone else has done the heavy lifting for you and they've taken those risks. So what you're buying should be a stabilized, consistent asset that's going to produce over time. This should be a seven- to 10-year horizon. If you sell before that, good. But again, it should be that this is an investment I'm making because I don't have the time to be active. I want to hire the best, and I just don't want to lose money. Over time, I want someone else to pay my debt down, and I want to have every expense that I could have in the next seven to 10 years funded by the resident. I want them to provide an income where I've invested.

That's my base. Ten years from now, we'll see how much they pay down for me, how much it's gone up in value, and what type of tax advantage I have. That is very attractive to a lot of investors, both new and experienced, because they recognize that there's a spot for risk and there's a spot for low risk. And this should be a low-risk investment.

That was a long answer. I'm sorry, man. But it just gets nuanced as they're coming through. There's a lot of checkpoints along the way that say, "You need to do something else." You probably want to be more active, or you should be over in a syndication instead, or maybe you shouldn't be in real estate at all. And we often tell people that our real job—I mean, there's 130 people that work for me here. And there's a small group that we call portfolio advisors; they're licensed real estate agents. They work here with us and they only sell our product, homes that we own.

But the reason they're licensed is that they have a responsibility. Our job is to tell people, "no.” That's our real job. “This is not right for you. You're going to be unhappy with us and we're not going to like having to deal with that.” So we get you pointed in the right direction because when it's the right fit, it works really well.

Seth: So when you say the words "passive income," what do you mean by that? Like, how many minutes per month should you have to pay attention or do anything? What do you mean by that?

Chris: What I tell people is you cannot be passive about your passive investments. Passive means that it's not your full-time gig. It's not the number one priority on top of mind. You are hiring the best to guide you with your investment. So passive means that you're going to spend one to 10 hours a month thinking about this investment.

Mostly that will be every month your property manager tells you, "Here is your ledger. Here's all the money that came in. Here's all the money that may have gone out. And here's what you received." And your job is every month to check: Did all the money come in? What went out? Make sure that the management company didn't double-bill you. And make sure that this isn't the same bill that showed up in June and showed up again in December because everybody's human. We've made that mistake before.

Nobody is 100% perfect. So your job is to be in the details. That's it. And it doesn't take more than—I know investors that are like, man, they have amazing spreadsheets and they'll spend 10 hours a month, but they've got—I mean, they're constantly calculating net worths and returns. "If I sold today, what would my IRR be?" That's fantastic.

Then I've got other investors that spend about an hour and their bigger thing is, "How much did I make? How much did you deduct? What was the amount?" They keep their ledgers. They go back and they look, make sure they didn't get double billed. And then they're good. "I made more money this month than my notes cost. I'm all good. My account for passive turnkey investing is growing. And at some point in the future, I'll make a big deduction from it to cover some costs, but right now we're going up." That's okay. That makes sense.

But anybody that thinks that it's, you open the mailbox and you get a check—that's not it. We have some investors that never look at anything we send them, and I can't force them to. But when they call and they're upset about something or they're confused, we absolutely do our best to help them, but it generally is a "now let's go back and look." Let's go back and look at what you missed along the way and make sure that you understand.

So a good passive investor understands that they, on a monthly basis, need to spend time in their investment, but it's not their number one top of mind every day.

Seth: Well, that's a good distinction to understand. When you said earlier, I want to misquote you, but something about how you're not investing for the income because pretty much all the money is going to go back into the home. Is that just to maintain it or is that to actually make it worth more to improve the house?

Chris: Oh man, good question. So a lot of really smart people that I respect tell me I invest the wrong way. I'm okay with that. I keep a reserve roughly anywhere from five to 10 percent of the value of the home. Now, the bigger the portfolio, the lower the reserve I keep. Today it's about five percent because I've got a larger, more valuable portfolio. So I don't keep as much in reserve.

But there's two things I do. When that reserve account grows, I pay off the principal. So I want to reduce the amount of interest I pay every month. That'll be the single biggest expense I'm going to have over the lifetime of this investment. And I just love the flexibility of having equity.

A lot of other investors are of the mindset that I can make more with that cash than I can by reducing principal and lowering interest. And I respect them. But for me, in my life experience, I got caught at one point overleveraged. And so for me, I have my reserve account that all my rents go into and I pay all my expenses out of. When it grows greater than 5%, I'm taking that extra money and I'm putting it towards principal and paying my notes down, lowering my future interest costs and really strengthening my balance sheet.

Because now if I need to go to the bank and borrow or re-lever anything along those lines, I'm in a really strong position. And I have in the past used my equity so that I was constantly reducing my principal. So I was growing my equity. And then, of course, the properties are going up in value too. And I've gone back to banks and said, "I've got an opportunity to make an investment, but I don't want to put any of my cash into it." So I just use my equity and straight in.

So now what's happened is I've grown my expenses, but then I add the new income coming in from it. I'm right back at my 5% number in my account. And every time it goes up, I just reduce principal across my portfolio. And I do that based on when notes are due. So my next note that's due is the one I'm reducing principal on first. That's my strategy.

It's worked very well for me because I'm disciplined with the amount of money I keep off to the side. Early on, a couple of times, I had to put additional money into a home, like if I had a really bad experience, but when my portfolio was smaller. But once I grew it to scale, there was always enough income and enough growth in it where I could just pay off principal and not worry about having to re-add. To me, I could go back to where it's disciplined over time. Just have a plan and follow it. That's what we tell people—just be disciplined.

Seth: So it sounds like even though a person shouldn't plan to make a bunch of cash flow on it, there still needs to be some cash flow to either maintain it or to pay off the principal. Like there's a plan for that money. It's not just to like spend it wildly on yourself.

But I wonder, in your opinion, what should that cashflow coverage ratio be? Like, is there a certain percentage you should be making above and beyond the interest and principal and expenses and all this stuff? Like, how do you know when it's enough to justify the investment?

Chris: So the way I look at houses is on a cash-on-cash basis. You and I both know that when you add leverage, then it becomes a mathematical calculation. The more I put down, the greater my monthly piece will be. The less I put down, the less I'm going to make each month. So I use everything for cash-on-cash first. I'm looking to make anywhere from five and a half to six and a half, maybe a seven on a cash-on-cash.

One of the reasons why that's my number is that I'm also looking to invest in median-priced homes. I do not invest in low-priced junk. I also don't invest in high-priced stuff. To me, it's practical. It's not because of money. It's because these are rental homes. Either side of the median, 5% to 10%, maybe 15% on either side of the median, is going to be the largest percentage of qualified renters in any market.

I also say median price for a particular area, like for Memphis, I'm looking for median-priced homes in certain parts of the city. The reason why it's median price is that, again, it's right in the middle. And I look on either side of it, which is where the highest percentage of two income earners, qualified people—there's a reason why it's median because that's where it's landing. So that's where the people are going to be that can afford the rent.

It's also where the rent makes sense. So I don't drop low and do inexpensive stuff because, while it may be inexpensive, it's never a better investment in my eyes. And then I don't do the expensive stuff because there are fewer people that are earning at that rate. And if they are earning, they likely can purchase.

So there's fewer renters. And I know that because of that, there's going to be competition. I'm looking for a solid five-and-a-half to six-and-a-half long-term resident. From there, then I look at, okay, so if I'm going to leverage this home and I want there to be additional money every month—I know what I'm earning, I know what my leverage costs. Do I need to put a little bit extra down and I'm going to earn against that? Or do I want to put a little less down? Then that cash goes into my real estate account that I pull from. Does that make sense?

So it becomes a "who are you and what are you looking to do" type of scenario. But you and I again, the costs come. You will pay maintenance. You will have a vacancy. When a vacancy occurs at the time, it's going to suck up 24% to 32% of your income for that year, 24% to 36%. It could suck up as much as 48% if you have an extended vacancy for any period. So you just have to understand that and know that going in that those costs will come. So you're looking for who's going to do the best job at keeping my property occupied.

Expenses—they don't always come in nice little even chunks. It's what we call chunky. You can have no expenses for a long time and then get a whopper of a bill. But when you spread out over a 10-year investment and it comes out that it was 4.1% of your monthly income, fantastic. Or it was 7%, whatever it ends up being.

Every dollar you make, you always put aside into your real estate account. As long as you're not trying to live off that money and you're, like we said earlier, disciplined with it and just putting it there, at that seven- to 10-year mark, you're going to make money. We tell investors all the time that your first three or four years may be fantastic, but in year five, you may lose money.

So you spent more than you brought in in year five, but over five years, you brought in more than you've spent when you add it all together. We have a lot of investors that, the first time that happens, they're upset. They're like, "This is the worst investment I've ever made. I'm losing money right this minute." You are, but that's why you put that money aside for the first four years, because the resident gave you that money. They gave you the money to pay all this bill.

Seth: I know back when I was very early in my real estate career, and I know I've talked to many people who have a similar idea, this idea of like, "I want to own 10 rentals or 20 rentals and just live off the income from that."

It sounds like, and I don't want to overthink this, but it sounds like if that's your goal, then this might not be the strategy for you because you're not supposed to live on any of that income. Or if somebody did want that to be true, how many of these properties would they need to truly be able to live off this kind of income? Say if you wanted at a hundred grand a year or something.

Chris: Sure. So we have some investors today that don't work. They live off their portfolio. For them, the way that works is they own their portfolio for cash and they live off the revenue. Now they could—their choices are to keep the cash in a savings account and just spend it in little pieces or put it into real estate. Now the rental income becomes the money that they get each.

I tell people all the time, it's so hard because we're not financial advisors. And we have to—I mean, people ask us financial advice all the time. You try and stay away from that as much as possible. It's pretty simple math. You've got this; you're earning five and a half to six and a half percent return. So if you've got a million dollars, you know, you're making 55 to $65,000 a year. That's what that is. Somebody says, "Well, I need to make a hundred thousand." Well, you need more than a million dollars to do that.

And when you take a million and you leverage it into $3 million worth of real estate, but you have to cover a note at today's interest rates, you're probably not going to hit the $100,000 mark. There's a reality of what you have to start with and what it will generate. The big thing I tell people is that if you're looking in the future to change the way you can retire, to impact the way you can retire, four or five houses can be very impactful.

If you have a time horizon that says, "I'm going to own these; I'm going to have a resident 100% pay this off for me. All my income that comes on these properties, I will 100% put back into it. At some point in the future, I may have to put some more money in on my cost basis because I may have to do a full renovation in 12 years.” Okay. “I know that going in, but in 12 years, my property may be worth 50% more.”

That's a small amount of appreciation. Maybe it's worth 100% more. Who knows? But the bottom line is that if I buy the right asset in the right place, it will go up in value and someone will pay it off for me.

And you'll look at income there that someone else paid off for you. And that income now can greatly impact the way you're able to retire. Maybe it won't be a hundred percent of your retirement, but it'll impact the way you can retire. I was one of those investors when I first started back in 2004, and I built my first portfolio. I wanted 50 houses that produced $200 a month in income. That's super round, right? That's what everybody comes up with. 50 at 200, I make a hundred grand a year. I'm fantastic.

That was not a reality. I didn't realize I couldn't borrow enough money to own 50 houses. I bought junk when I first started. I had a really, really poor portfolio, very challenged. And my cost to hold it over time was twice as high as I thought. The appreciation was less than half of what I thought. They actually lost value during economic hardship. Like, I didn't know anything. I was just buying things because, you know, it looked like it was going to cashflow on paper. And I didn't know what cash flow was. I thought cash flow was, "Oh, I get this rent and I'll take 5% for this and 3% for that and 4% for that and 3% for that and that's my cash flow, and that's what I can have to spend." I was foolish.

I talk a lot today about the impact you can have, like the way that real estate can be impactful in your life if you do it right. But I don't know that I've ever seen a piece of real estate that was quick and easy and overnight solutions. I haven't seen that.

Seth: It's interesting. A lot of that, whether you're foolish or not, I feel like some of it is kind of luck, like what you talked about. You can buy houses and they can drop in value, which a lot of people don't seem to realize is possible these days because they've been going up and up for so long.

But I lived through the '08, '09, '10 crisis and I remember seeing values plummet and just be like, "Wait a minute, this isn't supposed to happen," but you better believe it can. And you could look at that and be like, "Oh man, I was a fool." But it's like, maybe, but maybe you just got really unlucky, you know, and maybe you were a fool now, but you got really lucky when values were going up.

Chris: Yeah, and you're right. Like "fool" is a—I mean, it's an easy word to be thrown around. And the reality was, I didn't invest from an educated standpoint and I didn't mean somebody else had to educate me. I just didn't respect what I was doing. I didn't value my dollars or my money. I was just willy-nilly out there doing stuff. And I didn't listen to advice from other people that I probably should have listened to. I didn't seek advice and that's okay. There's nothing wrong with that.

But I think when I look back today and I say foolish, what I really mean is I didn't respect how powerful real estate was. And to your point that it doesn't always go up and it's not cupcakes and rainbows all the time.

So for our industry, turnkey real estate, it's not the magic bullet. It's not the magic solution. It is a methodology to invest for people that don't have their time to trade. They only have money to be able to trade.

Seth: You make a good point in terms of how a rental property, even if it doesn't throw off tons of cash flow, can be hugely instrumental in your retirement plan when it happens. I know a lot of people in the self-storage industry and either other people who own warehouses and stuff; the reason they were able to get there was because they had a rental that didn't cash flow, but they sold the thing and could 1031 exchange into that next thing. So the rental itself wasn't that awesome, but it played a very pivotal role in giving them the stepping stone to get to that.

Chris: For whatever reason, the way the tax code has been written the last 80 years or however long the 1031 exchange has been around—a hundred years. It's very advantageous to invest in real estate, not just single-family homes. There are—I mean, from the land that car washes sit on, little self-service car washes—I know people that that's their main thing. I know people that their main thing is owning laundromats and they own the land that it's on and the business itself, or they own the land and they rent it to businesses. And I know people that invest only in little strip mall centers.

And the power of understanding that, hey, over time, well-operated things that are in the right locations are going to go up and down and up and down. But eventually, if you look at the chart, it goes up and to the right and it's going to come down. I mean, there's always going to be these little corrections and stuff. But over longer periods of time, it just keeps making its way in that direction.

Seth: I assume a lot of people who buy these turnkey rentals from your company probably don't live in the town, in the county, or maybe even in the same state where the property is located. So what kind of due diligence process should they be going through? Is there something they should be checking to make sure that you're a good company or that the property is good or the neighborhood is good? How do they go down this checklist to make sure they're getting into a good situation?

Chris: Most will not take me up on this, but I'm going to say it anyway. I wish that everyone we did business with would come and meet us in person before they closed. Because it's not so much the home. But if you have the chance to go see the home, sure. But likely you won't know anything about it. To the first point you made, we sell hundreds of homes a year. Our main offices are located in Memphis, but we also have offices in Dallas and we operate in 12 cities.

And we have a team on the ground in all 12 of those cities, but our backroom operations are Memphis and Dallas. So we have people around the country that buy homes, let's say in Houston, Texas. They don't live in Houston. I don't live in Houston. They buy home from me. They've never met me. So let's just say they're in New York City. They're in New York City buying a home from a company in Memphis that's located in Houston; they've never seen the home or met the person. And it's a quarter of a million dollar investment. That's highly risky.

We're a quality company. But I would love if you would meet me first, because if you did, you would be able to look in our eyes and view our offices and see that, hey, this is a real company with a CFO, a board of directors, not just core values on the wall that say, "This is what we believe in," but you can see it on a daily basis. This is how they operate. That would be great. That's the number one piece of due diligence everyone should do. Who are you doing business with?

The house, I don't think matters as much because somebody from New York City is going to Houston; they're not going to know where they are. I've had so many people tell me that they want to buy a home because it's so cheap. And I tell them, "Is it cheap compared to where you live?" And they're like, "Yeah, I couldn't buy a house this inexpensive where I live. I couldn't build a garage here."

And I tell them, "But where you're buying that house, you're asking me if it's a good deal. You're so far over true value, but you say it's cheap because you're comparing it to where you live instead of where it's at."

So most investors don't know the nuance. And so get to know who you're doing business with. That's the biggest piece of advice I can give you. Go see who they are; meet their offices. If you're dealing with a company that's got a great website and the story you hear is really good and you go meet them and the eye test doesn't match, you know, you're like, "Wait a second, I don't see a team here." And your offices aren't quite at the level—not everybody has to have a beautiful office, but you understand what I'm saying. Like your office isn't tidy, this isn't really clean. But yet you tell me that the message is you're a top-level company that does the upper-level work and you're the best company in whatever. And you start... All the things that are said to market to you don't match what you see.

That's what you're looking for. You want to know that the way they made you feel through their marketing matches the way you feel when you're there on the ground and looking at and seeing it. And the same can happen if they will take you out to see houses. We take people out to see houses. And if you go to houses and you've got this high quality expectation, but you get there and you're like, "Well, man, there's a lot of work that needs to be done to these houses." And they say, "No, no, no, it's okay. You only do the work that it has to do to get it rented."

Well, as a smart investor, you should know that this is all going to—I'm going to have to pay for all this at some point. That's my biggest thing. Like the number one thing, meet who you're doing business with. And then beyond that, always get a third-party home inspection.

You won't always know what it means, but if you're ever with a company that says you can't get an inspection, don't buy. Never buy something that you can't get an inspection done yourself. What I meant by you won't always know what it means is that you may get an inspection that says there's a whole bunch of verbiage in there that is a little scary-sounding.

So you need to be able to have a company that says, "Don't worry about that. We're fixing all these things," but there might be something on here that, "Hey, what they're saying is that get an independent roof inspection. We've done it, but if you want to hire one, do it." Make sure that you feel confident or whatever. You should always work with somebody who says, "It's your home; it's your inspection. You need to do that."

I suggest you don't ever buy from people that say you can't get a lender; you have to pay cash. It's not uncommon in the turnkey industry.

Seth: Really? People that say you can't get a lender?

Chris: Yeah. You have to pay all cash.

Seth: Why would that be?

Chris: They say that lenders slow things down and they're volume and quick. And it doesn't mean they're bad companies. It's just that you have to understand what's their reasoning. And if they tell you, "Look, we have no trouble selling all of our houses. You can't find negative reviews on us. But the reality is that if you want it, it's a cash transaction. And we close generally seven to 10 days." And here's how we operate.

There's companies that have their own management companies in place; this is the way they operate. They buy it. They renovate it. They manage it. But they sell all cash. They will also tell you it holds down your closing costs. It holds down their closing costs. You don't waste money. There's a reason behind it. But also, you have to acknowledge that makes it riskier. You don't have a bank now telling you values and you better be committed to the long term.

Because, you know, if you go to sell it a year or two later and it's not the same value to someone else that it was to you or the company that sold it to you, you don't have a lot to stand on. So the good news about buying from a company that allows you to use a bank is that at least then you still get a third-party value and a third set of eyes looking at it. And that's a good thing.

And then the last thing I would say is to all your listeners, it's still real estate. There's nothing special about this. If you wouldn't do it for a house you were going to invest next door, or if it would seem fishy, then this is the same thing. If it seems fishy, then it's going to seem fishy. Don't do anything that you feel like you have to do.

The last piece of advice I'll give everybody, and this isn't turnkey; this is everything, but I say this all the time: Don't rush. Don't be pressured.

I don't know about you, but I've invested the last 22 years on a regular, routine basis. We just bought an investment of—it was a commercial building, but we just bought it a couple of weeks ago. We're absolutely investing right now because we know that a lot of times we're dollar cost averaging on the interest rates. Interest rates are high, but I've got stuff that's low and eventually they'll be lower again. And so if it's a good deal, it's a good deal. If it's not, don't buy it. You can buy investments at all times and all cycles.

Seth: Given our current situation in the world and in the country, are you bullish on real estate or bearish? What direction do you think things are going? Got any predictions for the next year or so?

Chris: I definitely think that with the current political administration, there's definitely a drive to push investment and investment in real estate. So I think that most pieces of real estate outside of big, large commercial buildings are in a really good spot. I also think from what I can see on the commercial buildings that a lot of it's where you are, as all real estate is. I think that they may be through some of the worst and they've got some tough years ahead, but they're kind of like, as far as the market is concerned, I think we're kind of just bouncing around the bottom here as far as single families go.

I don't know if it's going to be quick or slow or how long it's going to take, but I am—we're buying, put it that way. And we've ramped up our team on our side; we are preparing for more volume in 2025 than we had in 2024, and then more volume in '26 than we are in '25. So we've got our lines of credit together and kind of our game planning out.

I know that we're still behind. No matter how you look at it, there's not enough homes for single-family formation. There's more people that are living multi-generational under one roof than at any point in the past. So I just think that depending on certain markets of the country, there's going to be opportunity and there will be demand. And even if it's like traditional 3% to 4% to 5% appreciation, I definitely see that in the markets that we're in across the Southeast. I think that the Southeast is positioned really well.

Now, the other thing too is that if you just read between the lines on the east side of the Mississippi, whether it's the upper Midwest, the Sunbelt, or down in the Southeast, there's just a lot happening and a lot positive. There's a lot of movement to those areas, both in jobs and people. So I'm thinking we're in a good spot in the next couple of years. It's going to be as good as any time to be able to buy and hold. Just own it; allow time to do its job.

Seth: I do wonder, with the shortage of inventory, do you ever do things like build to rent, like new construction? Or is that not really a game you're playing?

Chris: No, we've done it. We've done it. But construction costs are crazy. And builders, their holding costs are up. Land costs are going up. It's not like there's a lot of room there. We do when and where we can. The one thing we avoid that we do not do, and we had the opportunity even a couple of weeks ago, we will not do an entire neighborhood of rental properties. I don't think that's ever good for the investor on the back end.

Seth: You mean like building an entire neighborhood?

Chris: Correct. So we had a chance a couple of weeks ago to buy every home in a neighborhood and the last remaining lots to build, and all of it is rental. They've done some unique concepts, like there's a neighborhood pool and a workout center. So it's almost like a horizontal apartment complex.

Seth: Why is that not a good thing?

Chris: For us, an apartment complex is owned by one owner. They control everything. 240 homes owned by 240 individual investors is not a good thing. At any given time, you have a percentage that are vacant, battling one another; that's not good. I've got a large percentage of my clients that are upset.

So if it was something that we were going to own ourselves and maybe syndicate, but that's not what we do. Not that we wouldn't ever do that, possibly in the future. It's just a different strategy of selling, but that would be the only way I would see a neighborhood being a good idea is if you had one owner and then you syndicate it out. But when you have 200-whatever individual owners in there, there's a percentage that are always mad.

Seth: Yeah, I can see that.

Chris: Their house is vacant, unoccupied, under-rented, whatever. And one owner says, "Drop my rent by $300 to get it done because it doesn't matter. I just want the revenue coming in and I love the investment." But somebody else says, "No, I can't afford that." He drops his and I got to drop mine and I can't do that. And that's why.

Seth: Awesome. Well, Chris, thanks so much for coming on the podcast. It was great to talk to you. If people want to find out more about you, work with you or anything like that, what's the best place to go?

Chris: Look, our website, REINation.com is the number one place to learn about us as a company. And I invite everybody to check it out. And there are multiple places on there where you can learn more about our company and get into a one-on-one call. They're not trying to sell you. They just want to answer your questions and help you understand and learn.

I can also be found—look, I'm all over BiggerPockets. If it's okay with you, I'll get my email because I'm happy to. It's chris@reination.com. So happy to answer questions or get you directed to the right person on our team that can if you're interested.

Seth: Sure. Awesome. Yeah. And I will include that email address, the website, all this stuff in the show notes, retipster.com/212 for this episode. And Chris, thanks again. It was awesome to talk to you. And hopefully we'll talk again soon.

Chris: I really enjoyed it. Thank you.

Seth: You bet.