The Dirty Truth About Turn-Key Real Estate Investments

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People seem to be talking a lot now days about “turn-key” real estate investments.  In concept this sounds really good – easy.  You buy a house that has already been fixed-up, has a tenant already in it, and in most cases ongoing management can be part of the deal.  So, all you do is sit there and collect cash flow.  I am not dumb, but I am confused…

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What about Control?

First of all, if I chose to place my bets on real estate in lieu of handing my money over to a stock broker with apparent talents on loan from God, it is in large part precisely because I trust myself to manage my investments better.  Real estate as an investment vehicle allows me to retain control by not outsourcing the management; this is one of the key characteristics of real estate investments.  Even if I don’t choose to personally be the manager on site, I am free to hand-pick, train, and manage the manager.  I get to see the books whenever I need to, and I am able to respond to management issues and market fluctuations quickly!  Control is the greatest advantage inherent to real estate – isn’t this the point?

Strategic Management

But the issue goes deeper, since by purchasing turn-key investments you are effectively resigning yourself to the status of a Retail Investor – an investor whose strategy is to be satisfied with investment returns present on day one, without the aim of substantially improving upon those returns through strategic management.  The way I see it, the ability to improve returns which is inherent to the real estate market more so than any other market is why sophisticated investors get involved in real estate in the first place.

Related: 4 Most Common Mistakes When Buying Turnkey Real Estate

Efficient Market Hypothesis

The Efficient Market Hypothesis is a theory that the price of a security at any given time reflects all of the available pertinent information.  That is to say that at the moment you purchase the asset, the price that you pay reflects the true value of that asset – price setting is efficient.  This theory has been around since around the 1960s, and while there may be appropriate application for this theory relative to paper assets, it is completely inapplicable to real estate – and that’s a very good thing.

Real estate is an inefficient market, which carries two advantages.  First of all, price-setting in real estate is solely a function of the “meeting of the minds” between the seller and the buyer; the two people, or entities, who make decisions based entirely on their respective circumstances, and having very little to do with the market at large.  This makes value in real estate very much a moving target.  It also means that a skilled negotiator may be able to negotiate a price which is considerably below the intrinsic value of the asset, which is impossible to do with most other asset classes.

Related: How to Negotiate: 7 Real Estate Negotiation Tips

More importantly, the inefficiency of the real estate market allows the investor to apply principals of strategic management and expandability to increase intrinsic value.  At times the value is represented with equity, while other times the increase is respectful of income.  Regardless, wherever you place the emphasis in a particular transaction, the inefficiency can result in an increase of investment return, which is hugely advantageous.

By purchasing a turn-key investment, however, you’ve foregone the opportunity to fully capitalize on the inefficiencies of the real estate market.  You’ve allowed someone else to negotiate the lowest possible price and to apply the principals of strategic management to increase their investment return, while you are paying a price which is much closer to retail.  In my opinion, this is not the way to maximize returns in a real estate portfolio.

Sellers of turn-key real estate certainly do provide a service for those buyers who don’t have the time or expertise to find, negotiate, repair, and manage assets themselves.  But if you, as a buyer, are lacking in one or more of the above categories, you owe it to yourself to consider whether real estate really is the most appropriate investment vehicle for you.

Are you a retailer of turn-key investments, or considering purchasing one of those?  If so, you are likely slightly irritated, and possibly even offended by this article.  Want to talk about it?

Photo: MSVG

About Author

Ben Leybovich

Ben has been investing in multifamily residential real estate for over a decade. An expert in creative financing, he has been a guest on numerous real estate-related podcasts, including the BiggerPockets Podcast. He was also featured on the cover of REI Wealth Monthly and is a public speaker at events across the country. Most recently, he invested $20 million along with a partner into 215 units spread over two apartment communities in Phoenix. Ben is the creator of Cash Flow Freedom University and the author of House Hacking. Learn more about him at


  1. Real estate investors don’t have to be handymen or Realtors (they often are, though). Real estate can be just one facet of their overall portfolio. Many investors make that initial money they invest elsewhere because that’s what they do best (their day job). Just because an investor chooses a property that’s been taken care of rather than a fixer upper, it doesn’t mean that it is a poor investment choice.

    • Thank you for your comment Lee!

      Turn-key real estate is not necessarily a poor investment – presuming you’ve chosen the right kind of investment. However, my point is that turn-key investments, even the properly chosen ones, just do not capitalize on all of the available benefits that come with the investment vehicle. Turn-key is an OK way to hedge inflation and generate average returns, but most of us jump in because we look for above-average returns.

      Thank you for reading Lee!

  2. Great article but I don’t think it would have dissuaded me from buying the turn key properties I own. Without regard for what the flipping side of the turn key operating makes off of me, or the property management side, I am making an outstanding return on my properties. I am not a handy man, and I don’t have a network of handy people, and I am sure that had I bought the same houses and tried to rehab them myself or with my own hired contractors, that it would have cost a lot more than the cut the turn key companies received, especially when factoring in what I make at my day job. Not all of us do rehab / flipping for a living and a good many of us have no intention of ever making it our primary job.

    Basically we are two different types of investors with completely different sets of priorities.

    • Chad, thank you for the comment! Obviously there is more than 1 road to Rome. You are wise to be honest with yourself as to your strengths and limitations and I am glad that buying turn-key is working out for you.

      Thank you!

  3. Is there value to be added by sourcing properties cheaply, renovating them effectively, and managing them efficiently? Absolutely. That is, after all, how the turn-key company is making their money.

    The problem is that for a retail investor looking to buy 1-4 properties, they simply don’t benefit from any economies of scale. For instance, recognizing what kind of work a property needs, having a good idea of how much it’s going to cost, finding a trustworthy contractor, overseeing renovations, etc all take time, experience, and involve a large element of beginner’s risk. “Rolling up one’s sleeves” may very well be a poor value proposition over buying an already renovated property. This is especially true for someone investing outside of their own location due to a dearth of local opportunities (Manhattan dwellers for instance).

    I think that most turn-key investors don’t have any illusion that they’re getting a great deal (I hope). At best, they’re getting a hassle-free average deal. They’ve simply done a cost-benefit analysis and outsourcing the problems associated with direct real estate buying and ownership was the better choice. Certainly, if you’re buying a large number of properties, or are a full time real-estate investor, it makes a ton of sense to add value in at least a couple places in the value chain rather than working with a turn-key company, which is extracting the easiest money for itself.

    • John,

      I agree with everything you say. I suppose the question mark in my mind relates to the validity of “retail investing” in the real estate market. This is why paper markets were created – to sell products to retail investors who want hands-off investments with average returns. Isn’t the point of RE to be able to do better John? It is the one investment vehicle which lends itself to being able to do better 🙂

      Thank you for commenting John

      • Agreed, but unfortunately there are very few paper vehicles for investing in single family rentals that I’m aware of. There are a couple recently established REITs (SBY, RESI) but they have high fees, short histories, and are still in build-out mode.

        Any other paper opportunities that I’m missing?

      • Ben,

        I am also in the paper market and own various index funds including an REIT fund. They are all performing “average” and that is fine but they don’t perform anywhere near my rental properties.

        What John wrote is exactly what I was clumsily trying to communicate. I live far away from my properties and the market in my locale is pretty much garbage unless you include a ton of sweat equity. For me it was just math. Even after the “house cut” I have properties that are flowing cash better than any paper investment I own.

        I still think your article is great for anyone that actually wants to get involved in the nuts and bolts of rehabbing and cash flow investing. If I enjoyed doing the labor or was between jobs, I might dive in and start doing it myself.

  4. Your point is valid, our returns per property can be much higher with much more equity if we devote our time to finding, purchasing, renovating, marketing (for sale or rent) and directly managing our assets. those that do not are likely to have smaller returns. I guess investors have to decide the tradeoff. What is their time worth. Is it worth that extra equity, greater cashflow, greater ROI? If it is, then go for it. I think that is a great way to start out and bootstrap.

    I invest to grow my time. The ability to direct my 24 hours as I see fit, and the surplus in income to allow enrichment of that time is my primary focus. Real estate (even turnkey investments) is far better than most other investments to reach my objective, . The trade off is it does take more time achieve that greater return. I am willing to make that trade up to a point. As my portfolio grows, collecting every nickle is actually counter to my overall objective. I then trade some of that income back for my time. I trade 10% of my gross cashflow to my pm for more time each day, just as i trade my $100/mo for a lawn care service, or $1000/mo for a company that has packaged my families food.

    I trade some of those minutes to manage my PM because a mismanaged pm could cost me future income that effects my ability to buy that time back. I weigh my cost vs benefit. I do waste my fair share of that time, but that is a growth opportunity for me.

    While I jumped into philosophy a bit, my point is this, we all need to sit back and figure out why we invest. Until we have that in mind, the best ROI in the world amount to a hill beans in the long run.


    • Jason,

      I agree with you that time is the most precious commodity indeed. However, there is a difference in our approaches and it is this: In order to maximize your time – you outsource. This may be a fair trade-off.

      I take the approach that in order to maximize my time in the future – I have to invest time today to build systems whereby eventually I will not need to outsource. In the end, I will marginalize myself down to the function of managing the managers whom I will train to manage my assets. I am very committed to retaining control, and yet achieving it passively. Just so I make this disclaimer – even today I do not perform physical labor at any of my units. I am the manager only!

      Thank you so much for commenting!

  5. Sorry Ben, while you beat around some valid points that every investor should consider, your arguments are extremely ignorant. I’m the first person to tell anyone that you can definitely make higher returns if you lift the hammer yourself and do all the work yourself. Although to be fair, those extra % points on your return are really just compensation for the time you spend working on that property. Regardless, I do encourage anyone interested in working the hammer to do so because a) it’s a great experience and b) you do get things cheaper.

    However, for you to say that anyone who can’t- find, negotiate, repair, and manage assets themselves- should reconsider whether they should even be in real estate is really ridiculous. I’m in real estate as my full-time gig, I’ve done very well at it, I get excellent returns on my properties, and I promise you that I don’t know the first thing about negotiating or how to properly do it. Not because I’m not capable of learning it (I’m really smart), but because I have no desire to learn it and could care less.

    To speak more to the idea of not putting so much manual labor into something, the point of real estate investing for a lot of people is the ability to create lifestyle design. I have been able to pull myself out of my corporate job and now work from home in my pajamas,I can travel for fun anytime I want to wherever I want, I can do whatever I want during the day which for me includes the beach, the gym, rugby, happy hour, you name it, and I only answer to myself for anything work-related. For me, this is my desired lifestyle. I can only do all of that because I hire other people to deal with my properties. Whether it is the turnkey provider to find and rehab the houses or the managers who oversee it, if I were doing all that work myself I wouldn’t have the lifestyle I do right now. To insinuate that to be a good investor you have to be in the trenches with all your properties is completely wrong. I’m pretty sure someone like Robert Kiyosaki or Buffett or Gates or any of the big boys don’t lift any hammers. And you say that you have no say over the management of the turnkey properties, you absolutely have complete control over the management of your property. You aren’t buying a house that someone else owns, you own it outright, therefore you control it. The property may come with managers, but you are in full control as to whether you even keep those. I’ve fired plenty of managers before. All in my control.

    I’m not contesting your opposition to turnkeys, because turnkeys really aren’t for everyone. I highly encourage those who can or want to be in the negotiating or rehabbing or whatever arenas to do so. What I am contesting is your incredibly ignorant statements in this article. One being that an investor isn’t worth their salt if they aren’t doing every step themselves, and the other being that the point of real estate investing is to do better than the average returns. Investing is not a competition. It’s a tool to get a positive return on your money. If someone is doing that, and is comfortable with how they are doing that, but maybe they aren’t getting as high of returns as their neighbor, who are you to tell them they aren’t doing it right?

    I could debate retail prices versus turnkey prices or to landlord or to not landlord all day long, but the more important thing every investor needs to understand is there are several ways to be successful in real estate and it’s up to you to find what works best for you. In doing so, understanding that others are doing what they enjoy and value as well is key for building teams and making connections. Telling someone what they are doing is wrong or slamming a particular idea you don’t agree with is immature and the fastest way to burn a bridge, which, in this industry is a really dumb thing to do.

    Officially my longest comment ever.

    • Ali,

      Let me start by saying that I appreciate and admire success in its’ every incarnation. The reason I enjoy BP as much as I do is because it affords me the pleasure of being around people, which includes you Ali, who know success very personally – this inspires me very much. I am appreciative and humbled by you taking the time to read and respond!

      Ali – you and others seem to be making an interesting and very erroneous presumption that I know how to work a hammer or any other tool besides the violin 🙂 Not in this article, nor in any article at any time have I suggested that Do It Yourself is a good idea. NO NO NO! I outsource everything down to the last screw. My life’s circumstance dictates that I must. Perhaps you would understand me a bit better if you familiarize yourself with my story by following the link to my website.

      I negotiate deals and financing and I build management systems. I understand construction enough to speak intelligently to the guys doing the work and to ensure that I am not taken advantage of. But that’s it. OK – sometimes I sneak away and go help cause it’s fun, but that’s very rare.

      We can argue the Turn-Key thing to death but it won’t change the following truism – One of the main advantages of real property is expandability of returns, sometimes referred to as forced appreciation. We can improve income and decrease expenses, which results in an improved NOI which in turn capitalizes to a higher value, and all of this is a function of strategic management! You can not do that with turn-key, nor does it even enter into the equation.

      You are right – there are a ton of ways to be successful and one can certainly do very well with turn-key, especially in appreciating markets. My thesis, however, is not that turn-key can’t be done or that it can’t create returns – sure it can. But one can achieve higher returns by managing one’s own transactions since doing so presents opportunities to exploit the inefficiencies of the market, which I think should be the goal.

      I appreciate and welcome your thoughts Ali!

      • I’m going to venture to say the reason myself and others made the presumption that DIY was the way to go is because you said “find, negotiate, repair, and manage assets themselves”. Just taking a guess…

        Regardless, it doesn’t matter in this context if you personally lift the hammer or hire someone to do it…both of those take time and effort. Neither of which I care to do put towards my properties more than necessary. Managing contractors couldn’t possibly stress me out any more. I don’t want to do it.

        Why should maximizing returns be the goal? I think positive cash flow is the goal. Always. Appreciation of any sort is a bonus. Yes, if you can force it, great, do it. If you’re happy, as am I, with the nice steady cash flow off properties and having not a stress in the world about thinking of how to improve them, rock on.

        Quite the bashing article to then say you have no problem with this method. Clearly you do. If you don’t, you sure just blew a lot of smoke.

        • Ali,

          Real estate in any of its forms is a better proposition than most other investment vehicles because of CF and tax breaks. However, inherent to RE are several advantages, one of which is expandability – capacity to improve the CF thereby backing into the increased value (this only works in multi which is why I stay away from singles). Equity is a bonus, I couldn’t agree more. But expansion of CF is a HUGE asset. Turn-key does not provide for expandability and thereby by definition the technique does not capitalize on one of the inherent advantages of real estate as an investment vehicle. For some people the tradeoff is worth it, for me it’s not – this is what the article is about.

          I specialize in creative finance. Capacity to buy property with nothing down and still generate CF is the other HUGE advantage of RE. This is impossible with turn-key. Why? Because there is no expandability.

          Some prefer to trade a 25% down-payment for hassle-free ownership and OK cash flow. I understand, but do not concur. When I started I did not have any spendable cash so my goal was to not have to put 25% down. And even now, I have 3 year-old twins and no corporate job with 401k, and medical bills get to be expensive at times. I still prefer to finance property as close to 100% financed, specifically because I know how to do it and see no reason to do anything but. However, due to this expandability of income has to be built into anything I do. I buy assets that do not work properly, and I manage them into perfect working order. Lots of time and effort at first but smooth sailing down the road. This, I think, maximizes all that RE has to offer. You may not agree, and that’s OK – we can still be friends…

    • Can I just say thank you for your comment… I’m in the market for turn key properties and you have restored my hope, not just in turn key, but in the entire real estate process… again, thank you…

    • Ricardo D'Alessandro on

      I might be new to real estate and also be two years late to this article… but I agree with Ali, not all of us want to spend one millisecond longer than we have to on ensuring that our investments are achieving their intended goals. For folks like us, turn-key solutions sure do sound appealing. This article almost scared me into believing this “dirty truth”. I’m very grateful for Ali’s comment and the dialogue to keep the differing perspectives alive — thank you!

  6. This is a great article, however, it really depends on what your objectives are. Buying, fixing and flipping takes a whole lot of time and that time equates to value. What is that time actually worth to you. In some cases by the time you acquire the property, hire contractors, finish the work, list the property and then sell it, you are talking of 2 weeks to 90 days depending on the type of rehab needed. That too is time lost and one could argue that for the lost time one could have made an average return on a turnkey investment. It also all depends on what is average, 6, 8, 10 or even 15%??

    There is a reason the housing crises came about and that needs to be also factored in.

    • Great article! Enjoyed it! I just had a question. When I hire a buying agent to get a piece of real estate is my identity hidden from the listing agent? Would the buying agent usually just say my clients offer? May be a stupid question and I guess when would it become public?


    • Peter,

      I don’t fix and flip. I buy and hold. But, I buy undermanaged assets that can be turned around, which is where I create above average returns. While this requires intense management at first, but the CF is more automatic later on…

      Thank you for your comment.

  7. “We can argue the Turn-Key thing to death but it won’t change the following truism – One of the main advantages of real property is expandability of returns, sometimes referred to as forced appreciation.”

    There a several truisms available to real estate. You pointed out a key one, which is why many people make good money if they can tackle the concept of fix-and-flip, buy-and-hold, or perhaps what you’re suggesting: fix-and-hold?

    But some of the other truisms of real estate are its terrific tax laws and the well established ability to leverage. Stocks (not mutual funds) have also demonstrated a strong ability to make money (see Warren Buffett), but the risk imbued with leveraging stocks isn’t so easy to hedge against.

    The properties I own are certainly turnkey, but for a very specific reason. I bought them in another part of the country because the rental market just isn’t good enough in my own area. To buy something, fix it up, and put it on the market would require way too much capital and not yield enough rent to justify it. Also, the long term maintenance costs that come with finding something a seller would part with at a huge discount simply don’t exist. My units are new, totally occupied, and the only thing I’ve paid for has been management fees and a couple lawn mowings.

    I also bought these properties all at once. They were all ready to go and yielding cash pretty quickly. If I had bought them non-functional, I would have had to coordinate remote teams, possibly putting out a lot more money, or simply worked on them one unit at a time. So yes, I “shelled out money” to get them ready to use immediately. The real question to me is, would I have netted more money or less in the long run if I had found discount property, and poured money into repairs/contractors/permits. Maybe, maybe not. That’s called risk.

    I paid to avoid that risk and instead invested in my bigger goal: long term net worth. My plan is to knock out the loans by finding top notch renters that can afford the relatively high rents these properties command. In the next five years to be able to sell at least one and cash in on accelerated depreciation to take as much of that tax free as possible. Then I plan to reinvest and keep the leverage going as I buy more property.

    It’s possible to write an article titled “The Dirty Secrets of Buying Beat Up Properties”, and point out the hidden costs such as contractors, the embedded risk of betting on appreciation (which I don’t), and other issues. But I don’t think it’s very constructive. It would probably sound arrogant and imply I knew more than others, which I don’t. I prefer to write articles discussing total cost of ownership, and lay out all costs and risks, pointing out how more risk does equal more reward. But with real estate you don’t have to go to the far end of the risk spectrum to beat the pants off mutual funds sold with high fees in 401k plans. But that’s just me.

      • Phil Fourie

        Ali, I know this is an old thread, but I am sure there are many folks who read these threads when they signup to Biggerpockets. I have enjoyed your comments and was just wondering – how many units or turnkey properties do you currently own?

        Appreciate your time and wish you every success!

    • Well articulated article. You’re correct that one could right a very similar article regarding the other end of the investment spectrum (“beat up” properties versus “turnkey” properties).

      I can say from nine years of experience that there are some investors that will only ever fix-and-hold and others that will only ever buy turnkey properties. Neither one is wrong, and both can make the argument that their strategy is “right”. Each to their own.

      Turnkey investing is perfect for a large percentage of real estate investors because it benefits them and aligns with their strategy. Period.

  8. Michael Ristau on

    As a seller of turnkey homes, of course this article strikes a cord at first glance with me, but then if it isn’t going to cause a bit of ruckus, it won’t start conversation. I applaud you for replying to every comment instead of just posting and running.

    My question is, when it comes to one single family home, home much can you really improve the property with “strategic management.” Assuming you buy a turnkey home from a group that has a good track record and one that tends to find good property managers, I am personally not seeing a huge upside by intensely managing the managers etc.

    That being said, you can still buy turnkey and choose not to use the management- you are buying the property not a life long management agreement. The owner of the company that I work for self manages 20 properties nationwide and has admitted that it is not for everyone but it has been a good experience and he enjoys the higher returns. Then again the majority of our clientele have more money than time and as they work a day job, they find it easier not to self manage but look forward to doing so one day when they transition to full time investor.

    About the retail pricing – yes, you probably can negotiate a bit of a better price without a middle man but that makes sense that turnkey sellers actually want to make money to do a job. Some people have a hard time with the idea of this (paying someone even one cent to be in the middle) even when the property has 18-20% cash on cash returns. In my mind, if it has awesome returns already, do you need to beat the seller into submission? I think its win win for all parties. If the return doesn’t meet an investors goals, then it doesn’t meet his/her goals regardless of whether some money is left on the table.

    Lastly, turnkey companies like ours have leverage with property managers since we have dozens of accounts that we can potentially move if the manager doesn’t fix problems to our satisfaction for an investor. Try getting leverage on a property manager 8 states away when you own one property and are paying them $50 a month!

    There are pros and cons to everything. Glad we can all come here to explore both sides.

    • You’ve hit the nail on the head Michael – there is nothing we can do in SFR market. In fact, a 3/2 is a 3/2 house is a 3/2 house. You could put a gold-plated toilet in there, but if the market has established that a house like this, in this location, with these amenities is worth x and y, then that’s what yours is worth. When we rehab a flip, we do not actually create value but instead bring the house into the type of physical condition which makes it worth what the market says it can be worth. We have many more options than that on the commercial side, which is why I play there 🙂

      But you are right – there are pros and cons to everything. Thank you so much for your post Michael!

  9. I think what is happening here is understanding the difference between working in real estate and investing in real estate. Those who love creative finance and negotiating a deal, buying lead lists, cold calling, and managing renovations can make a great return. Great returns. Those who invest in real estate can still earn 10% pretty consistently while having someone else pay down their debt while they wait for appreciation. Both are terrific choices for the right person. If real estate is not your day job, it’s still a great tool for building long term wealth.

  10. Chris Clothier

    Ben –

    I usually enjoy reading your articles, and not that I didn’t this week, I just think your headline is completely misleading. You are an intelligent guy and I have seen your website and blog. You could have done much better with this topic. I was expecting some really well thought out arguments about turn-key investments, but instead I’m not convinced you really know what they are or why investors purchase them.

    Personally, I do not like the term “Turn-Key” because it has no real definition in real estate. It can mean completely different things to different investors and even the providers who use the term to describe their company and their properties. There is no point in even trying to define it. I prefer to call it passive investing as it more accurately describes WHY people buy the properties in the first place. There are many ways investors can participate passively in real estate investing including what has already been mentioned from buying notes to investing in a reit and buying a turn-key property just to name three.

    Your article does not address anything about turn-key investments that could be categorized as a dirty little secret. But you did expose what many in your position believe. It would appear that you are a realtor, you have developed your own line of products to sell to other people and you are threatened by the fact that a company or individual will buy a property (using the negotiation skills you wrote about), fix up that property, sell that property to an investor and then manage that investment for the investor. But in reality, you are not threatened by the company at all. You simply cannot understand why anyone would allow that company to exist by buying their products and services. This is what you wrote:

    “Sellers of turn-key real estate certainly do provide a service for those buyers who don’t have the time or expertise to find, negotiate, repair, and manage assets themselves. But if you, as a buyer, are lacking in one or more of the above categories, you owe it to yourself to consider whether real estate really is the most appropriate investment vehicle for you.”

    That paragraph alone would alienate nearly every one of the 700+ investors who work with my company. Many of which are highly successful business men and women. Some of them are entrepreneurs, executives, teachers, doctors…a tremendously diverse group of backgrounds and experience. Many of them are very successful investors – not just real estate investors. They all have done their homework and chosen an investment vehicle and opportunity that fits their needs both in security and return.

    To suggest that someone needs to consider if real estate is an appropriate investment because they are not an active investor or because turn-key investing is not a “technique” you teach and then put that headline on it is probably not an indication of your best work. I love to write articles that will have an edge to them and hopefully get some comments going, but I think if you read some of the responses real closely you’ll realize that people buy these types of investments for very specific reasons. And being ignorant of how to invest in real estate is not one of them.


    • Chris,

      I appreciate your comment; it is thoughtful and I will do my best to address each point.

      I have been a realtor for a bit over a year – I’ve been investing for a lot longer than that. I struggled for a long time underlying a value of an agent. Personally, I have not used one in years nor have I bought from the MLS in years – there are better ways. But, some people benefit from an agent’s input. Besides, having a license puts me “in the know” as it relates to my market – so, I have a license. Only a small portion of my income comes from licensed activities, so being threatened by retailers is something that I can not really understand Chris. While you and others may feel that my article missed the mark, simply excusing it due to an argument like “threatened by turn-key investors” is a mistake. I may not have been eloquent enough in stating my thoughts, but I do have thoughts on the subject that are worth considering in my opinion.

      Chris – if I understand your business model correctly (please correct me if I am wrong on this), those 700+ successful highly paid professionals and business people buying from your company have very different objectives for investing from me and you. You know this. They are converting highly taxed earned income into passive income, and most importantly they are paying for tax shelters. Their cash flow comes from their jobs/businesses, as such passive income from property is less important to them than other considerations. While I understand this thinking, and it makes sense for some I suppose, two things are true about this:

      1. They are certainly not capitalizing on all of the available benefits inherent to real estate. It’s impossible to say anything to contrary, and it’s one of the main points I make.
      2. They are, therefore, by definition retail investors.

      This is not what I, you, and a lot of others are doing. Our businesses are in RE. We are building CF and with it our financial independence and wealth within RE. You and I have different methods, but both of us try to exploit all of the available inefficiencies. This makes us very different from most of your clients, and that was the point of the article Chris.

      I hope this clarifies some of my thinking Chris.

      • Chris Clothier

        Ben –

        I appreciate the reply and yes, your thoughts on a particular topic as well as any other commentators are relevant and valid. Still, I had a hard time seeing where you were exposing some awful truth about turn-key investing except for the fact that a lot of people like to poor mouth it as a strategy and insult those investors who exercise it as a strategy. Somehow, I do not think that was your point, but that is what came out.

        Also, you are incorrect on my investing strategy. I invest in several other passive real estate investments. I am paying a premium for the expertise and convenience of investing with other groups in other areas of the country and in different asset classes such as multi-family. I could do all of it myself and capitalize on more of the efficiencies available to me. But, as an investor, I am happy with the return I am getting and the service they are providing to me. In essence, I understand EXACTLY what each of my clients experiences when dealing with my company because I am going through the same process with other companies.

        I am doing it to grow my monthly passive income (cash flow), build an asset portfolio that will provide more passive income than I need at a future point and allow me to pass on a generational wealth building portfolio to my children. That is why i invest in real estate and those are the same reasons my investors invest in real estate.

        If you believe that investors pay a higher price for turn-key real estate or pay a premium for services they could provide for themselves…just say that. I think that every commentator would agree with you and guys like me would say you are right – I do that – and it is worth every penny to me. I think every one would agree with you 100% that by choosing to by in a passive model where there is mark up and premium for someone else’s time and effort, we are not geting the highest return or as you say exploiting all of the efficiencies in real estate that are available. Where we would disagree with you is that it does not matter! Who cares? These opportunities exist precisely because they are needed by a segment of the investment market that wants them.

        None of this is a personal attack – I am just not sure I am able to make sense of the title of the article and the information presented. The two don’t correlate for me and unfortunately it looks like instead of exposing the secret of turn-key you are exposing the fact that many people have a dim view of the investors who buy them. So, in my opinion, this article missed your intended mark but I still look forward to your next one.


        • Chris,

          None of this is taken as a personal attack. An intelligent conversation is never a bad thing, even when it is a disagreement. Furthermore Chris, your level of expertise is something to be admired, and I do indeed, and thusly I appreciate your comments.

          You are helping me crystallize my thinking…When you invest in turn-key you do so with complete understanding of what’s involved. You are not looking to be told something is a good opportunity – you can and do decide for yourself. Furthermore, you know enough to be effective at analyzing the manager’s performance. You are simply willing to pay for the management.

          I do not believe that this is the key with all of turn-key “passive” investors – you know what I am saying Chris. They better be dealing with some extremely honest managers…

          Knowledge drives success. I can easily get on board with what you are doing. And about the title – perhaps you are right…

  11. Hi Ben,

    Just a few quick points I’ll try to make,

    % returns are not as important as the overall total value of an investment. Do you why large hedge funds invest in penny movements in stock prices? Because you can do it with billions of dollars. ½% return of several billion is much, much more money than 50% return on, say a $300k property. So you’re overemphasizing the importance of “returns” as a sole factor of long-term profitability. One investment is scalable, the other is much less so.

    Which brings me to the point of time several people mentioned. Yes, you can get higher returns (per property) fixing up a property and then selling/holding it. However, all of that takes time and expertise. Time costs money via an opportunity cost at the very least. Expertise – I see plenty of people who try to be experts at everything, all parts of the value chain and they usually achieve mediocrity. Extrapolating your explanation of “forced returns”, why wouldn’t I then just pursue buying raw land, designing and engineering a building, managing the build, and then selling or leasing it? There is a reason people outsource and buy a semi-finished product at some sort of premium. Expertise and efficiencies of scale bring value to everyone in the value chain. If I can buy one property for $50k, fix it up, rent it, then sell it for $100k in 4 months I’ve made 100% returns and $50k. In the same amount of time, I can buy a market mispriced home for $100k, sell it for $120 without doing much of anything a month later and do that 3 times in the same 4 months. I’ve made only 20% return on each flip, but I’ve made more money overall. This is purposely an over-simplistic example, so please no diatribes about how I forgot about transaction costs etc.

    You also contradict yourself with the explanation of efficiency market hypothesis. You explain how RE markets are not efficient (which I agree, they are very much not) but then argue the opposite point that if you’re buying a turnkey investment, you’re not getting a good return because the market has already bid up the price (which assumes some efficiency in the market). It seems you’re playing a straw man with this topic and it doesn’t really support your point.

    The fad of writing one-sided articles with provocative titles like “what you don’t know about x” or “top 10 reasons you’re doing Y wrong” really needs to end. I know its very effective, but I think it burns out a reader base quickly.

    My 2¢

    • Omar,

      I agree with your argument relative to the “asset base” – a 2 mil portfolio cash flowing or appreciating by 10% is a lot better than a 200k portfolio doing the same thing. This is why leverage is key! This is also why I practice 100% leverage – I can build a larger asset base this way 🙂

      As to the efficiency, I don’t believe that I am contradicting myself at all. Here’s my thinking:

      Price setting mechanism in the SFR market is Comparable Market Analysis. On the other hand, price-setting in multi and commercial is a function of income. This means that if you have a 3/2 house, the only thing you can do to force appreciation is to rehab the house – turn-key eliminates this opportunity. As such, to gain appreciation all we can do is sit and wait for inflation to do its thing. The market does set value of a SFR in excellent condition, that’s the problem with houses.

      In multi, on the other hand, the value is a function of income, and there are lots of things that we can do to improve the NOI and back into value, which is why I play in this space.

      The reason I am not interested developing land right now is because in my marketplace I can buy deficient assets at much better price than developing new ones. And the reason I don’t hold land is because I like CF.

      Nothing in life is free. We either have money, or we need knowledge. It’s easier to do buy turn-key, and I suppose even that in some cases it makes sense (you guys are starting to rub off on me), but fundamentally it doesn’t capitalize on all of the available potential benefits.

      Thank you for talking the time to write a thoughtful post!

  12. “They are certainly not capitalizing on all of the available benefits inherent to real estate.”

    No one capitalizes on ALL available benefits. The key is to capitalize on ENOUGH benefits that it becomes a no brainer on whether or not to put spare cash into real estate or something else like a mutual fund. But to besmirch someone who only has enough spare time to be a “retail” investor and imply they aren’t good enough is beyond me.

    ” They are, therefore, by definition retail investors.”

    And here is where creating castes of real estate investors benefits no one. This clearly is intended to show that “retail investors” are of lessor quality and status. I don’t understand the constructive benefit of this. There are many, MANY people that could invest in real estate, but don’t. Probably because they hold full time jobs and assume that to dive in, they would have to quit and become a full time contractor. They think real estate is out of their reach, when in truth, it’s one of the most powerful wealth building tools available to the middle class.

    Are doctors, lawyers, and engineers supposed to drop their professional careers in order to become full time, “real” real estate investors? Strangely enough, they would probably have less net worth after 25 years because their massive influx of capital would vanish.

    I think finding options for people like that, where they can synergistically pour big income into real estate instead of 401k-wrapped mutual funds would result in terrific growth! Every read “The Millionaire Next Door”? Doctors and lawyers are the worse at actually accumulating net worth. It’s because they work so many hours and also spend so much money, that there is not money and time left to build any net worth.

    If they could re-route a piece of their cash flow into real estate, whether you call it a descriptive “passive” or inflammatory “retail”, they results are historically clear. They would certainly fare much better than if they put the same amount in 401k-wrapped mutual funds, even including some amount of a match.

    P.S. 10% return on retail real estate? I assume with a petty 4% growth over time, leveraging 4-to-1 would yield 20% average growth. Sounds pretty good to me.

    • Greg,

      If you had any idea how many times high-income people approach me to buy their property. They offer owner financing and all the rest of it just to entice. Unfortunately, what they have makes no sense, and it never did as far as I am concerned. Having money is not qualification for investing – knowledge is!

  13. Its true that you can get more out of an investment if you put work into it. Your analysis totally ignores the value of time and effort of the investor. I make a very good living doing what I am good at. I use real estate as one part of a diversified investment strategy. I would like to maximize returns/time ratio. So for me turn key is a good solution. You still have to do due diligence. And I dont give up control. I choose my property manager and I can change them when I want. I set up a team in a city I want to invest and then leverage them for multiple properties in the same city. Also, I live in CA, a high cost area. The best investments for me are out of state. Managing projects out of state is very difficult.

    If you are an investor with cash to invest but no time (opposite to most starting out here on BP) and a desire to invest out of your area, turn key is the best way in.

    • Anish,

      I understand your perspective. I suppose that if I were an investor with capital who was interested in passive cash flow, I would look at notes and/or private lending. One can generate very good passive returns with paper and both can be done long-distance. They do require quite a bit of knowledge, but once you know what you are looking for this can be lucrative.

      What makes it OK in my mind to assume the liabilities which come with the ownership of bricks and mortar, of which there are plenty, is precisely that fact that I am here, and I manage my own assets which enables me to respond to issues quickly! That’s just my perspective on RE – I suppose many disagree…

      Thank you for your thoughts!

      • I have looked at notes. But I do not believe I have the knowledge or time to underwrite properties, especially in other states. Having said that, I have invested in a private placement fund that does hard money lending, so I see the value of it.

        As part of a diversified strategy, I look at returns. If I can cover all costs including PM and reach my goals, I consider it a successful investment. I view investing as a means to an end. Its not about optimizing the return to the max on every instant. My time is worth far more to me than the extra 1% yield I could generate by fixing a property.

        Thats not to say what you are doing is wrong. But I wouldn’t make a blanket statement that turn-key investing is somehow bad.

  14. People looking to make money in real estate often call themselves investors, but their idea of “investing” is negotiating short sales, going to foreclosure auctions, scouring the world finding “needle in the hay stack” deals, or doing rehabs and “flips”. All of these are active forms of real estate TRADING that involve controlling distressed investment properties, improving their value, and reselling the investment properties for a short term profit. Admittedly there is a lot of money to be made being a real estate trader, but it is a JOB. I have purchased a lot of distressed property in my life and I have made a lot of money doing so. However, finding and buying distressed properties is hard WORK and time consuming. If the trader doesn’t show up to work, nothing happens. You have to add the value of your time invested to the purchase price to the property. Considering that 9 in 10 “needle in the haystack deals” never close, you are investing a lot of time to get that one deal that does work. A Hassle-Free Cash Flow investor ( is a passive investor who wants to monitor his real estate cash flow and supervise the team that manage his investment properties. The more passive you want to be as an investor, the more appealing turn-key investment properties are.

    • David,

      I could not agree with you more. Trading (flipping) is very hard work. I don’t flip precisely because I don’t want another job. I find undermanaged assets (multi-family), I bring them into excellent working condition, and I hold them. I am basically a buy and hold guy, but the extra step of “fixing the systems” is where I generate higher returns. Willingness to do this step is also the reason why I can do 100% financed deals, which is always my goal.

      It is true that in the beginning of my ownership of an asset, I put-in significant energy into management (I do not do the work myself; everything is outsourced). But once stabilized, ownership becomes a rather passive enterprise.

      We are basically on the same page in that we both want stable passive cash flow, but we obviously go about it differently.

      Thank you for commenting!

      • David,

        I could not agree with you more. Trading (flipping) is very hard work. I don’t flip precisely because I don’t want another job. I find undermanaged assets (multi-family), I bring them into excellent working condition, and I hold them. I am basically a buy and hold guy, but the extra step of “fixing the systems” is where I generate higher returns. Willingness to do this step is also the reason why I can do 100% financed deals, which is always my goal.

        It is true that in the beginning of my ownership of an asset, I put-in significant energy into management (I do not do the work myself; everything is outsourced). But once stabilized, ownership becomes a rather passive enterprise.

        Thank you for commenting!

  15. “Sellers of turn-key real estate certainly do provide a service for those buyers who don’t have the time or expertise to find, negotiate, repair, and manage assets themselves. But if you, as a buyer, are lacking in one or more of the above categories, you owe it to yourself to consider whether real estate really is the most appropriate investment vehicle for you.”

    I take huge offense to the second sentence in the above remark. I am a professional who has a full-time day job. I researched for a long time what a good investment strategy would be while I am still working and I now have a SFR that I feel is an extremely appropriate investment vehicle. Still, even without having the traits you seem to believe all investors should have or they shouldn’t be investors, AND giving away 10% of my profit every month to a PM, I am doing quite well. Your article seems to convey to people that they shouldn’t invest in RE unless they can “find, negotiate, repair, and manage assets themselves”. I think that is doing a disservice to those people like myself who are on the brink of REI.

    • Michelle, the sentence you quote invited you to consider whether turn-key is the right thing to do. You’ve considered it and decided that for you it is – mission accomplished… 🙂

      As a high-income professional your goal is not to replace earned income with passive cash flow; it is not to get out of the proverbial corporate “rat race.” It’s great that you have such high market-ability and training in your field that you are able to feel secure and satisfied with earned income. This is not my circumstance, nor is it the circumstance a lot of others find themselves in which causes us to enter the game of real estate.

      While it works for someone in your situation specifically because you have much less aggressive goals behind your investing (it is just another asset in a diversified portfolio), my thesis in this article is simply that turn-key does not capitalize on all of the advantages that come with RE.

      I must say that I do not concur with investing somehow being a passive activity not requiring much knowledge, skill, and involvement. Being a CPA is not passive, an attorney, an engineer, a doctor, an athlete – all these require knowledge and expertise which take time and effort to develop. Why should investing of any kind but especially RE be any different?

      Thanks so much for commenting!

  16. Henry Halley on

    Here in Phoenix AZ turn key investments would have already been purchased at wholesale once, minimally rehab’d, occupied by questionable tenant with a shaky credit and locked into a “lease purchase” by companies like IPX before they are again sold to new and unsuspecting investors. Priced at retail value and speculated to be worth at least fifty percent more in the next 24 months. This would clearly a red flag for savvy investors and a deal too good to be true for an investor who does not have the time to do his homework. Your article hits it right on the nail. Thanks Ben!

  17. You might have missed something there – “Sellers of turn-key real estate certainly do provide a service for those buyers who don’t have the time or expertise to find, negotiate, repair, and manage assets themselves…”

    How about “don’t have the inclination”? I suppose you could call my company a sort of turnkey operator, since we provide not only buyers’ agent services, but also manage the portfolio afterwards, top to bottom – our clients are all out of country (often 2-3 continents away too) – there’s just no way in the world they could invest in our market (Japan) if they were to follow your advice. As is, they’re free to (slightly) drop yields for the joy of having someone else manage everything on their behalves, while they’re free to find the next deal.

    Should they “not invest in real-estate” simply because they prefer to invest out of country or state, and have more profitable things to do with their time then micro-manage each and every 20-50K property in their 2-5 million dollar portfolios, in your opinion? If that’s the case, I beg to differ.

    • Ziv,

      You are right – turn-key works for some, and perhaps I could have defined the objectives more clearly. Your client’s goal is not to maximize the investment returns with RE. For them, RE is just another vehicle in a sophisticated portfolio, which serves a purpose, but increasing returns is certainly not it since that requires capitalizing on principals of expandability which requires management.

      Your clients are “retail investors” as described in the article. They make their money some place else and store it in RE because they feel that this protects the buying power of their wealth, provides shelters, etc. This is fine, but this is quite different from what I and many others do in RE – we maximize cash flow, which backs into maximizing wealth. We don’t just “store wealth” in RE; we create it. We don’t just change the face-value of income from earned to passive for tax benefits. We maximize returns, which is a function of management and knowledge and does not jive well with the concept of turn-key. Thoughts?

  18. I’d agree that by virtue of being remote, their ability to maximise profits post purchase is limited, as is their creative management potential. That’s why they buy mostly fully managed condos and such, with as little hands-on required as possible, and try to maximise their profits pre-purchase as much as possible.

    But some of us are 100% property investors, not necessarily doing anything else or investing in anything else, just geographically diversifying holdings and spending our time managing foreign contractors and turnkey operators instead of tenants, subdivision or construction/rehab teams etc. still real-estate investors to boot, just a different kind.

  19. Nice post,
    I agree with you although I think some people have taken the post a little too literally. Obviously doing the entire project is a better deal for anyone. Getting the most return etc. You can then hold the property and in essence its turn key for you saying you separate your companies into separate entities.

    On the other for someone with limited real estate knowledge, being able to buy turn key is great. Especially if your turn key rehabber gives a discount for buying early. (I like to give end buyers –if I don’t hold– a property at 80% or less of arv if they commit to buying immediately after rehab. I get a little profit from all angles. Not quite as much as retail but lets face it Id lose some on money holding costs and if I had to use realtor etc. The turnkey buyer gets in with equity and cash flow even with a 100% financed loan. (I know thats tough but they still are possible when you give them the place at 80% arv.

    I don’t think I can justify telling my private money partners that the return on their money for the rehab is a great deal if I tell an end buyer that using their money to make the same kind of returns or greater is a bad deal. Pretend the end buyer is paying cash and not pulling equity back out. Its as if they are a private lender but in the situation above they can make even higher returns counting equity, depreciation, appreciation etc etc. So turnkey is typically, at least with properties I get a better deal than the private lender who’s money fixed the rehab gets. In fact it makes sense to allow the pm partner to hold the property if they would like and keep it themselves, refinancing out the money to buy more. They keep their money in play all the time.

    That strategy I just recently did. Never really thought about it like that though until now so Im glad I wrote this comment.

  20. Ben, I’m new to REI, and planning my first acquisition in the next 3 to 6 months. i am trying to learn ALL I CAN about REI, and Bigger Pockets, with articles like yours are helpful to me. I get to see more of the advantages of one style of REI over another. I also get to see some of the downside of a certain style; ie: lesser returns via Turn key.
    That being said, as a newb, with a day job in Information Tech, I find Turn key appealing for my entry point. I can get in a market hotter then my local one, and still enjoy 10%+ returns.
    I have also thought of transferring my current self directed IRA into Real Estate or Notes.
    If I move the IRA into real estate, I WANT TURNKEY. IRA rules won’t let me do the rehab myself, and 10% year after year reinvested still beats Wall St mutual funds, not even counting any potential property appreciation. An IRA would have to be managed at amrs length due to IRS rules so it might be an excellent vehicle for my entry point to learn more about active REI while holding my day job with W2 verifiable income, as my experience skills and comfort grow.
    With the article you authored, and the dialogue you have sparked, your insights have helped me to get a bigger picture of the ups and downs in this facet of REI for me to help compare it against Note Investing, or other investment vehicles entirely.
    Thank You!

  21. When it comes to purchasing turnkey properties, IMO, it boils down to what I feel is a overall life rule: You either spend the time, or the money. For some investors, it’s not as beneficial or desirable to go through the process of finding, renovating, placing tenants in a property, dealing w/ them on their own, etc.–and that’s fine, as long as they’re willing to spend the extra money to have it done for them by a turnkey company. On the flip side, some investors would rather do all of that themselves for arguably less (but more sweat equity).

    Both of these are fine–it’s all about what works for you. But whichever direction you go in, you have to do your due diligence & know what you’re getting into, is all.

  22. All of these comments are great…I too am a foolish New Jerseyan trying to get into the real estate market and watching the horror stories. NJ and NYC is just not realistic for cash flow; especially for anyone with less than $1 million.

    I am considering turnkey as it is my only option it seems to get a good return. I am sure our comments would be better served by calling out companies that have done those a disservice and highlighting those that are doing phenomenal work and making our money WORK. With everyones experiences here; this blog has the potential to be an amazing resource for people.

    Does anyone have any recommendations?

    • Yes, NJ and NY along with many of the other coastal markets are very pricey with low rent-to-value ratios. That makes them poor candidates for prudent (and affordable) buy-and-hold investment property.

      Take a top-down approach by electing the market(s) that make the most sense and align with your investment goals. If you need help there are many internet resources to gather information and narrow it down. Of course you can talk to other successful investors you know, or here on BP.

      Continued success!

  23. Tim Chasteen

    It seems to me that Real Estate investing is an art and those people who purchase turn-key investments don’t see it’s beauty. They don’t capitalize on it’s strengths…

    Then again if this is how they would like to diversify their portfolio so be it. It’ll be a weaker return on investment than the true Real Estate investor may seek, but a return no-less.

  24. “find, negotiate, repair, and manage assets themselves”

    What would be interesting to see is an associated cost and return with respect to finding, negotiating, repairing, and managing assets themselves.

    I think then, we truly can make a more accurate assessment of maximizing returns from start to finish and which might be a better investment vehicle in terms of returns.

  25. Christopher G.

    Ben, great article…what would you say to someone who is living overseas and trying to do long-distance investing with respect to turn keys? I have a full time job and don’t plan on going back to the states anytime soon. I’m working with a few property managers who are also brokers to find, fix, rent, hold properties…taking a lot of time at night…just wondering if it makes sense to trade a few investment return % but gain some of my time back with buying property that needs no work and has a renter.


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