Alexander, or Xander as he likes to be called, is one of the partners at CR of Maryland, a real estate investment company based in Baltimore. The company specializes in turn-key properties after having evolved from doing fix and flips and buying rental properties. Today, we find out how they’ve catered to the demand in the market driven by professionals looking for passive income.
Xander’s business partner has been in the real estate business since 2004 when he was happy doing fix and flips. In 2011, Xander got into real estate, met his business partner, and have been working together ever since.
Xander met his business partner by chance after getting introduced through a broker. They worked together where Xander found and presented deals. Later, they decided to start their own company.
While they initially did fix and flips, they realized that they’re only as good as their last flip. In 2015, the fix and flip space became more competitive, so they transitioned to running their own property management and bought rental units by themselves.
Rental properties have the benefit of being long-term and providing consistent, steady cash flow while building equity every month.
They never planned to get into turn-key until 2018 when they ended up with a ton of properties. Deciding to test the waters, they wanted to see if people would be interested in buying their rental properties.
People in and outside the country showed great demand for their turn-key units leading to them shifting their focus and 90% of their energy there.
A good rental deal can be described as having an average price point of $155,000 when being sold. Usually, their company does a full gut rehab putting in a new roof, windows, HVAC system, gutter, kitchen, bathrooms, and flooring.
They find this to be the safest way to have long-term cash flow because deferred maintenance can eat up your cash flow. With rents of $1,400-1,500 a month, they reach 12-15% net cash-on-cash return.
The Baltimore market has a limited supply of quality homes. Typically, the properties they acquire are Class B properties cash flowing at $1,300-1,800 a month and catering to the huge, working-class population.
The demand has been crazy with them getting 15 online tenant leads a day. Their leasing teams actually work 7 days a week as they can barely supply enough product to keep up with the demand.
With already 360 rental properties under their management, they’ve continued to add 10-12 newly renovated rentals a month. On their turn-key side, the company adds 12-15 new properties each month.
The number of properties they manage means that they needed software that could streamline their process. For that, they’ve been using for property management, Propertyware
The pandemic meant that they had to mitigate risks. They froze their hiring, started working remotely and got personal equipment for their maintenance team.
The real estate inventory has shrunk more than it was due to the pandemic, reaching a historical low. At every price point, buyers have been fighting over homes.
Home values haven’t dropped, so there were no crazy price changes in rental, but rental demand is very high.
Some adjustments were needed on the rental side as they had to waive late fees, figure out a solution through payment plans, and suggest employment opportunities for their tenants.
The company doesn’t have a problem finding clients for their turn-key properties. They’ve worked with groups and networks that educate potential markets on the opportunities in turn-key properties. Some people reach out to them after finding them online.
They even have a waiting list of over 20 buyers that have already been vetted and are ready to buy.
Their average client profile is someone between 35-50 years old, working with a good-paying job, have savings, money in stock and a retirement account, and know about real estate but work full-time. Most are out-of-state.
The idea of putting in $30,000-50,000 down payment on a house without needing to do anything and getting a 14% return is perfect for them.
Working with a good team matters. For the company, they believed that finding truly good people over time can change your business.
Software is also important. It made things much smoother and allowed them to run 30-40 homes out at the same time.
The launch of the Entrepreneurial Operating System in 2019 transformed their work, gave clarity on who does what, and enabled better communication with their frontline employees.
Other software they use includes Salesforce for handling all types of leads and Asana for construction management.
The acquisition is a huge challenge for them as they have to compete with hundreds and thousands of investors. Half of real estate is working with people. They already did the numbers, and they know they need to walk 30-40 homes every week to get the 2 deals they need to close.
Their team of agents would scour the multiple listing service and auction sites looking for homes, spending 40-50 hours a week hustling online.
In the local space, they typically face delays with lien certifications and public records. In construction, they deal with the same challenges as other investors, issues with contractors not showing up.
When looking for properties they will convert to their turn-key space, they look to acquire old units that are probably unlivable at $30,000.
They then spend $70,000-75,000 on the rehab and sell it for $150,000-160,000.
They don’t like properties that have been partially updated as they don’t trust the quality of the rehab done.
Alexander is usually heavily focused on talking with turn-key investors. But he’d still touch base with the acquisitions department, interact with the construction team for status updates, and check-in with the property management team.
Their property management team oversees a job from start to finish, working 8-10 jobs at a time. They’ll handle all the subcontractors, manage the budget, order materials, and give approvals.
They have hundreds of contractors they have on their list that they work with because they want to maintain quality. So they’d routinely remove a contractor that did a poor job.
Xander believes that we can only be good at certain things, and we can’t be good at everything.
In a past deal, they found out that they’re not good at building homes. They made a multitude of mistakes that caused them to take a loss.
Because their plans kept changing, they realized that they could have worked with a builder to partner or consult with.
To avoid making preventable mistakes, find 1 or 2 people who are in the space you’re working in. Watch how they’ve struggled and succeeded, and learn from their mistakes.
Another lesson that Xander realized is that you can’t spread yourself too thin.
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