BiggerPockets

Hi Jason,

First of all, thanks very much for your service!!

The BP community is a good place to start. There are a lot of good people and good information here.

Of course, you can do a Google search for very specific phrases to target the markets that you're considering.

Aside from that, you may want to Direct Message some of the members on the BP site for suggestions or referrals.

Feel free to contact me with any questions.

Continued success!

I've looked at a number of these deals over the years. So, let me give you a series of assumptions you should make at the start. Then, do your due diligence to invalidate ALL of these assumptions. Then, realize what @Will Barnard says is very true. So, if you can invalidate ALL these assumptions and you're willing to pay something of a premium as Will describes, proceed.

1) The value of the property is less than the seller claims. You must do your own assessment of value.
2) The neighborhood is worse than the seller claims. GO THERE. If you are unwilling to get on a plane or in your car and drive the neighborhood, don't buy. Pictures can tell a far different story than what you see on the ground.
3) The true rent is lower than claimed.
4) You're buying a junker that has had a shoddy, cosmetic rehab. You're going to be hit with an ongoing stream of "repairs" that are really the result of a sloppy rehab.
5) Tenants are harder to find than the seller claims.

I've seen too many of these where a junk property is given some lipstick, sold at an above-market price with a tenant in place "paying" above market rent using the seller's management. The rent is being subsidized by the seller. A few years later you discover the real rent is much than you thought. Repairs are never ending. You try to find another PM and they just laugh that you own property in that area. You try to sell and discover you will take a significant loss to be rid of the property.

Now I have seen some deals where my assumptions are not true. Those are OK deals. Never as good as if you really invested your own time, but that's the tradeoff you accept for turnkey. But I've also seen ones where my assumptions are ALL true. You MUST do your own research!

Originally posted by Marco Santarelli:
While it goes without saying that your purchase price will be more buying a true turnkey property over a distressed or wholesale deal (because the work has been done for you); what is not necessarily true is that you will be paying full retail for it. I've purchased many turnkey properties over the years from 5% to 20% below FMV.

In most cases, it is true and I did state you can get small discounts to retail, hence your 5% example, but getting a deal 20% under market after all work is completed means the investor selling the property had to get one hell of a discount unless he/she plans on working for free!

Thank you all for the sound advice. Definitely some things to think about here. I guess the thing I need to ask myself is what would be more manageable: doing a lot of investigating on a turnkey deal or working a rehab from long distance. I started to look into turnkey deals because I actually found a great deal on a REO property in Colorado. It's a great deal as far as the numbers go and I'd get a great ROI but once I started thinking about the work that would need to be done to get it rented (I hope I'm not overestimating the work it requires) I realized I don't have the time to travel back and forth and I don't know the area as much as I'd like to (for finding general contractors, PM, etc.). Any suggestions? Is a rehab difficult from long distance? I don't want to get suckered into buying a "lemon" turnkey like David mentioned but at the same time I don't want to have a property under rehab that I can't check on regularly.

Jason, a rehab from long distance will require a person with boots on the ground there who can be trusted to get it done. This person would likely need to be compensated in such a way that the compensation aligns his/her interests and priorities with your own.

Will, Jon and David thanks for the realistic vision of the situation. I think I might hold off on the deal in CO for now and just keep saving and waiting for a good opportunity. I'm not sure where to start investing but I'd rather wait and do something that is feasible and realistic versus jumping into a 2 foot deep pool head first. I'm glad I found the BP nation to help me out.

Jon, according to the numbers the property I was looking at could have profited ~$130/door using very conservative calculations (I don't want to throw my money away :)). According to my agent it had four offers in the four days since it became available.

Turnkey properties are the only deals we would recommend to our out of state/country investors. Don't be lured by the very low priced properties with "super hero" sized returns, those are in very depressed neighborhoods where collecting rents and renters taking care of your property is a crap shoot. If your property is delivering 8-12% then that is a really great return on your money compared to any other place it could be sitting right now. You want recently renovated and rented properties. You might benefit from Section 8 tenants as the majority if not all of the rent is sent directly to you as a direct deposit in most cities.

Ben, you're welcome and I feel honored to serve. Thank you for your comment. I will remember that moving forward.

Jon, here are the numbers on the property:

Quadruplex
List price: $121K
Rehab costs: $5K
Monthly gross rents: $2000

I'm looking to buy and hold for the long haul. I was told by a bank that they will give me 30 year fixed @4.5% with 20% down. So if I were to buy it at list price the monthly mortgage would be $490/month.

$2000 less expenses (10% for management, maintenance, vacancy, $75/month taxes, and mortgage) is ~$800/month. The only variable not included is the insurance. That is the only thing I am unsure of. How much does it actually cost to insure a quadruplex? If it costs $300/month or less than the property will cash flow.

It seems like a pretty good deal to me, but I'm obviously new to this whole thing and need the wisdom of others. The only part I don't like about this deal (besides being 2000 miles away) is the money out of pocket. But even with the 50% rule I'd still get a 20% COC return. Is this a decent deal or am I crazy?

@Jon Holdman sorry about the confusion. I am actually stationed in Hawaii and I was off, it's about 3000 miles to Colorado. I'm from Utah originally. :)

Thank you for the feedback. I'll make some calls to research the insurance just for future reference. This seems like a great deal and even at $10K for the rehab the numbers look good since I would do a buy and hold for the long term. Now I just need to decide if I want to try to pull off a long distance rehab. Probably not though. I'll keep learning and looking.

I've looked at some of these turnkey groups as well and would have to echo a lot of Jon stated on their numbers.

It seems like you're paying full retail on the deals.

To me, what I would do is find an investor in the area you're interested in adding properties and seeing what they would charge you to do a real deal for you.

i.e. They find it, they rehab it, and they lease it.

To me, I think you'd be able to find an investor that would do all that for you for 5k. And that would mean you could probably be pretty likely to get into a house at about 80% LTV instead of 100% which is what you'd be paying for those turnkey ones.

I'm sure some investors would scoff at the 5k but thats still a pretty good chunk of money for most people and I'm sure you'll get some good ones that would take it.

Its basically like a wholesale deal but with a little more effort.
But 5k is still 5k. Plus, I could give my contractors more work and thats always a plus - people helping people.

I know I would do that in a heartbeat and I'm sure you'd find someone like me in just about every area.

As long as they're investing themselves and have 10 or more properties, then you should be good.