Thoughts about Turnkey Investing
Member since 2021 · 6 posts · 3 votes
Thoughts about Turnkey Investing
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Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
3yThis is a question you need to answer yourself depending on the type of investor you want to be.
A turnkey company will charge a premium for marketing, advertising, locating the property, rehabbing the property, placing the tenant, managing the property etc. Their numbers will be biased in their favor - ie: underestimating vacancy, repairs, Cap Ex etc. But there's a good chance they get you into a property in a good location too.
I can locate a property, buy it, rehab it and get a lot more cashflow myself than going turn key. I am a hands on investor though, I enjoy getting into the numbers, managing rehabs, my own deals, etc and seeing it all work out in the end. Also, I want more $$, so I cut the middle man (which is essentially what a turnkey company is). It's a different type of investment.
40 Replies
- Member since 2022 · 1 post · 4 votes3y
Hi @Jennifer Shen - I find that most Turnkey companies input very low assumptions for reserves into their pro forma, which can make the Monthly Cashflow look a lot better than it actually is. For example, where you typically assume 5% for Repairs, 5% for Vacancy, and 5% for CAPEX (15% of total Gross Rent) - a Turnkey company will have much smaller assumptions or won't budget for reserves at all.
Now to play devil's advocate, the Turnkey company has 1) Placed a tenant already 2) Should have completed all major repairs/CAPEX so in theory - their Pro Forma might actually be pretty close to actuals....initially. I still think it would be best practice to budget more for reserves regardless.
In the end, you are definitely paying a premium because the Turnkey provider has done all of the legwork - so you can't really expect that amazing of a deal. Depending on your strategy + goals though, this might work perfectly fine.
Hope this was helpful and good luck on purchasing your first property!
- Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes3y
@Jennifer Shen Just like in all other parts of RE there is more than one type of Turnkey. Some companies are the traditional they bought it fixed it and rented it and will sell it to you. Then you can find ones that buy and fix and you get it out. Then ones like I work with who help you buy it, fix it (if it needs to be) and will manage it for you.
I think if you have capital buying move in ready is the fastest way to scale as you can get tenants in quickly and leverage your cost, but most importantly you are leveraging your time. If you don't have the capital to scale buying BRRR's and other properties that require sweat equity are good because it keeps you busy and focused while building up capital and also increasing equity. However the greatest factor of investing is time, so the sooner you start and get a property rented the better off you are. Loan pay down is huge as it is can be looked at as forced savings or slowly increasing your net worth each month. The cash flow allows you to maintain and fuel your acquisitions but time in the market is what make passive wealth.
As far as finding reputable and trustworthy Turnkey companies check out some reviews, but ultimately talk to them, get references, and ask them questions about management, acquisition, and turnover.
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes3y
This is a question you need to answer yourself depending on the type of investor you want to be.
A turnkey company will charge a premium for marketing, advertising, locating the property, rehabbing the property, placing the tenant, managing the property etc. Their numbers will be biased in their favor - ie: underestimating vacancy, repairs, Cap Ex etc. But there's a good chance they get you into a property in a good location too.
I can locate a property, buy it, rehab it and get a lot more cashflow myself than going turn key. I am a hands on investor though, I enjoy getting into the numbers, managing rehabs, my own deals, etc and seeing it all work out in the end. Also, I want more $$, so I cut the middle man (which is essentially what a turnkey company is). It's a different type of investment.
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
By all means buy a property that needs little to no work, but I wouldn't necessarily buy them through a turnkey company. Several of the rentals I bought required little or no work (by little we're talking painting, caulking tubs, etc) and they do well.
Find a realtor to work with and run your own numbers. If you don't want to manage the property yourself, interview property management companies.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Just be sure to do your due diligence. A lot of turnkey companies buy the property below market, use their own contractors to renovate, sell it to you with their agents, then manage it with their agents. You don't have anyone outside of the company checking the work of others or cross-checking numbers. There's an increased risk (not a guarantee, just an increase) that they'll cover something up, exaggerate performance, etc.
The DIY Landlord Book4.7247 Reviews - Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes3y
Quote from @Jennifer Shen:
Hi, I'm currently looking for my first investment property. It seems to me Turnkey properties will be the fastest way to get my portfolio started. Wondering...what are yall's thoughts on turnkey properties? Are the numbers that the company give you reliable? i.e. monthly cashflow. What are some ways to find a reputable, trustworthy turnkey company?
If you want to be more passive and have low capex then it’s a great option. I’d ask to speak to some of their clients or see if anyone on BP has used them before. If you’re curious about their pro forma take their analysis and send it to a local investor or property manager or realtor investor to get their advice.
- 3yGarrett D.Pro MemberCO · Member since 2020 · 31 posts · 8 votes
@Jennifer Shen As a means to get your first step into owning rental properties a turnkey company can certainly be a good consideration. I too asked the same question at one point in my journey. Time being of a premium, turnkey seems attractive. Ultimately, for me to get started I chose a path similar to what @Theresa Harris has suggested - properties that needed a little work but essentially that which I could have completed by a handyman in a few days. From listening to those that I know who have tried the turnkey company route the key take away is trust but verify. Its not to say that the turnkey company is not being truthful but it is up to the investor to run their own numbers and do all the same research and due diligence as you would if you were managing all the steps. A couple areas that have stuck out in the comments of those who have turnkeyed; hire your own inspector and be very diligent in reviewing the specific tenant placement policies that the company uses. Learn what good looks like for tenant placement and get comfortable with the policies the company will be employing on your behalf.
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
If the numbers make sense and it is hitting the ROI you like, then sure it's good. I will always prefer to run the numbers myself of course, I don't want someone else to do them and tell me it (unless they show me and explained to me the numbers they put together). Like @Jacob Sandoval said, you have to be sure these turnkey companies didn't use "phantom numbers" (make sure they included vacancy, CapEx, and Main.) to make their ROI more attractive. If you ever have connections, or just want to reach out, feel free to contact me! I am an agent in Cincinnati, OH if you are ever interested in Greater Cincy!
Sam McCormack Realtor - 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
While investing via Turnkey Rentals sounds easy, you should understand that you will be paying full retail, often even more, for the properties.
Why? The Turnkey provider is looking to maximize their profits!
Also, there are numerous challenges dealing with Turnkey providers:
1) Terrible renovation work - we've taken over many properties that investor bought turnkey and they were shocked to learn the true condition of their property from our TakeOver video.
---So, get a GREAT property inspector NOT recommended by the turnkey company to avoid bias.2) Misrepresenting Property Class - have seen many turnkey providers in Metro Detroit area sell OOS investors Class C properties as Class B.
---So, learn the neighborhoods where you plan to invest and use Google Streetview to virtually explore them.3) Poor Tenant Screening - they typically can't sell a property until they place a tenant. So, they have a conflict of interest in waiting for the right tenant.
---So, insist on them providing the rental application and supporting docs for your review. This means YOU need to learn how to evaluate a rental application!4) Poor Property Management - Where do you think a turnkey provider will put their best staff, on selling properties and making $5k+/transaction or on property management and making $80/month transactions?
---So, ask about their standard operating procedures and make sure your management contract has an easy termination clause.What are your options if you experience one of the above? Everyone thinks they can sue to solve the problem.
Do you realize how much it will cost to hire an OOS attorney to sue the turnkey company?
Unfortunately, the majority of investors that experience terrible service from turnkey companies, figure out that it's not worth spending tens of thousands of dollars suing their turnkey provider and just move on - which allows the turnkey provider to not change their ways and stay in business:(
You should also check out this BP thread about the topic:
Logical Property Management4.9459 Reviews - Rental Property Investor · Green Bay, WI · Member since 2016 · 150 posts · 94 votes3y
Hello @Jennifer Shen Many new investors look to turnkey to get started, as it provides an entry point that requires less hands-on and allows an investor to participate in markets that offer higher returns. If you go this route it is important to realize that there is no common definition of turnkey. In terms of rehabbing the property, the workflow can range from throwing a coat of paint on a wall or two, to an entire gut of the mechanicals, windows, siding, and flooring. Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly. That furnace will need to be replaced in the next few years, but just not yet... Some turnkey companies sell the property to investors at the point where the rehab work is identified and quoted, but not yet completed. The investor then waits for completion and tenant selection prior to earning any income. Other providers sell the units only after the rehab is completed and the tenant in place.
Any turnkey investor should ask very probing questions of the turnkey provider regarding the condition of all mechanicals, roof and windows prior to entering into a deal. As you will soon find, there is no common definition of a turnkey property, and it can be very risky (and expensive) to make any assumptions.
The ongoing management of the property is another area of vastly different approaches to turnkey investments. Some providers simply sell the property and the investor is left to find a management company, maintenance personnel, snow and lawn care providers, etc. Other providers offer up recommendations for these services, and still other turnkey companies offer these services as part of their overall package. The range of offerings is great, and no assumptions should be made; you need to ask very specific questions regarding who is to do what.
All the best to you as you begin your investment journey!
- Birmingham, AL · Member since 2021 · 3 posts · 0 votes3y
Hi @Jennifer Shen! I work for Spartan Invest, a full-service turnkey provider, and would love to talk to you about investing opportunities in the Birmingham and Huntsville, Alabama markets! Please feel free to reach out and I would be happy to answer any questions you have about turnkey!
- Real Estate Agent · Cincinnati, OH · Member since 2015 · 474 posts · 580 votes3y
Quote from @Jennifer Shen:
Hi, I'm currently looking for my first investment property. It seems to me Turnkey properties will be the fastest way to get my portfolio started. Wondering...what are yall's thoughts on turnkey properties? Are the numbers that the company give you reliable? i.e. monthly cashflow. What are some ways to find a reputable, trustworthy turnkey company?
It is a complex questions but I think Turnkey properties are only a good fit for a very small % of people. They are mainly a hedge against inflation as they typically will not cash flow well, they should be less management intensive and therefore take less time, but if you are investing for cash flow, or even strong appreciation there are much better paths. If you are a high income/high networth individual with limited time, I personally would just invest passively or partner with other active investors, your returns should be much higher with lower risk. If you are not high income/networth then buying turnkeys will really slow down your wealth generation. I am happy to chat more if you want to reach out! Best of luck on your search!
- Property Manager · Huntsville, AL · Member since 2017 · 302 posts · 246 votes3y
Do your research on the company. All turnkey companies are not the same. I see a lot of lipstick on a pig. Sure, they put in LVP and painted it all Agreeable Grey, but....then there may be foundation issues. Also, form a business relationship with a quality property manager to give you realistic rents. Oftentimes, wholesalers and turnkeys inflate rents and ARV. Then the buyer is disappointed when they can't achieve that rent.
- Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes3y
Pro formas are just that....pro formas. They are made by the person trying to sell you the deal. Of course they are going to be somewhat inflated and kind of "in a perfect world" scenario. So definitely do your own analysis.
Turnkey properties work for some and not for others.
If you have a job where you can't do much or any RE outside of your full time W2 work then it makes sense. You can't answer calls from tenants, agents, contractors, etc if your job is an underwater welder. Same way if you are a surgeon you can't dedicate several hours a day to finding the best deals.
If you have the time to find the best deals then turnkey isn't the way to go.
It really just depends on your situation and what your goals are.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes3y
From what I have seen the numbers way off. The areas they do turnkey have working class or lower tenants. You can't realistically expect under $150 a month average for cap/ex/reserves/turnover many have this at like $30-50. A lot of these areas its normal to have the occasional eviction or non-paying tenant this is typically not included at all in their pro-forma.
As others said buy a property with little to no work can be great option. But negotiate it off MLS and get a good deal. Don't overpay because theres a tenant in it, or its supposedly "turnkey" etc.
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes3y
Focus on being an Investor not a Landlord.
Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Trouble is with Turnkeys is that good ones move up to larger developments and those who stay and build a brand name are super expensive which is why there is margin for them to have marketers sell to you.
If your net worth (income minus expenses) is under $200,000 or barely save $30,000, syndications are not for you. Stick with these Turnkey rentals despite what Gurus (who are trying to sell you their program) tell you for now. They have a little higher gains (a lot more volatility) but a syndicator who is willing to put you in a deal with more than 10-20% of your net worth is asking for trouble. - 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
you said "fastest." can you elaborate on what you're looking for and why that aspect is appealing to you?
- Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes3y
There are pros and cons to buying Turnkey properties. I seriously considered investing in TKs, but realized that buying at a premium price meant that I was paying for (or buying) the home’s appreciation for an indefinite period of time. And that “period of time” has increased in this current economy and market, especially with home values lowering.
- Rental Property Investor · Philadelphia, PA · Member since 2017 · 13 posts · 8 votes3y
@Jennifer Shen REI NATION, JWB PROPERTIES or RENT TO RETIREMENT. The only one's I'd go with
- Birmingham, AL · Member since 2021 · 3 posts · 0 votes3y
@Jennifer Shen
First, to address your original question - there are a lot of great turnkey providers across the US and in doing your research, look at their KPI's. Just as @Luka Milicevic mentioned, every investor will evaluate a portfolio addition differently so look at how that is presented and make sure you understand the calculations or data they're providing you. One important thing to remember is that as the owner, you should have all the information you need upfront, like a home inspection. Secondly, turnkey is not for everyone and it works great for others. Turnkey is a great option for those who want to release control of leasing, maintenance, management and a lot of the legal legwork. If you're the landlord, you have to abide by fair housing laws, that state's process...etc. For any beginner, it would be my recommendation that you work with a property manager. At the end of the day, no matter who you work with, it's different for everyone, and that's where due diligence comes in! - Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Turnkey property is a fast way to grow a portfolio if you have a lot of money, but you will not have as much equity if you instead bought a fixer upper at discount and was all in for way cheaper
- 3yMackaylee BeachPro MemberReal Estate Agent · Kansas City, MO · Member since 2020 · 1k+ posts · 492 votes
@Jennifer Shen Turnkey is great - in the right markets! I've been facilitating turnkey sales for the last 7 years. Most, if not all of those clients experienced massive appreciation over the years, not to mention positive cash flow and other tax advantages. I've also heard horror stories of out of state investors trying to rehab from afar... I don't recommend that route!
- Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes3y
@Jennifer Shen Turnkey is a great strategy to get started in real estate. Its actually what got me into real estate investing and out-of-state investing. I purchased 3 turnkey properties in Milwaukee, Wisconsin and I still own them today thanks to @Stuart Grazier and his awesome team!
Turnkey is ideal for individuals who have the capital to buy properties, but don't have the time or desire to put together a team and brrrr properties themselves. Its not a completely passive strategy, but it is definitely more passive than brrrr-ing or flipping.
Some folks on this thread don't think turnkey is a great strategy because you're "leaving equity on the table" which is true, but if you're someone that works a busy W-2 and the alternative to turnkey is just not investing at all, then it could be a good fit for you.
I'm happy to chat more about my experience.
Good luck and keep us updated on your journey!
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes3y
Turnkey is unlikely to get any equity upon purchase (maybe even a little disequity) but can be very simple and passive. That being said, you really need to vet the operator and manager as I've seen some bad ones make turnkey go sideways.
- 3yGregg CohenBusiness MemberRental Property Investor · Jacksonville, FL · Member since 2011 · 143 posts · 136 votes
@Jennifer Shen - The question of whether or not turnkey is right for you comes down to whether or not you have the time, experience, and desire to be an active investor or not. If you want to be an active investor and you live in a market that can maximize all 5 profit centers, then turnkey rental properties probably are not the best risk-adjusted returns on investment for you. You should probably do it yourself.
If you don't want to be active and/or don't live in a market where the numbers work, then turnkey investing is a great option. But don't work with a turnkey company. Work with a vertically-integrated real estate investment company that focuses on one market. There's a big difference.
A turnkey company sells you a property. Some may also do the property management in house, but most outsource it. That company typically operates in multiple markets because they are in search of inventory.
A "vertically-integrated" investment company is a much higher threshold. And this higher threshold translates into higher risk-adjusted returns on investment over the long haul.
A vertically-integrated company buys the property, builds or renovates it in-house, and does the property management in-house. But here's where a vertically-integrated company differentiates itself.You should be investing for a full market cycle (10-20 years) to maximize your returns on investment in rental properties so your vertically-integrated company will have an Innovations Department dedicated to solving problems and taking advantage of opportunities for tomorrow. Turnkey companies that operate in multiple markets just don't have these.
A company having an Innovations Department and a focus on one market really matters. Here's an example. My company, JWB, was a pioneer in the build to rent space beginning in 2011. Since then, we've build over 1,000 new construction homes that have turned into assets for our clients. We also built the first shipping container apartment in downtown Jacksonville as a way to potentially lower build costs. In the last 2 years, we've acquired the equivalent of 19 city blocks in downtown Jacksonville (roughly 12% of all of downtown) so we can be a major player in downtown Jacksonville's growth which will raise market values and rents for all of our clients who own properties in the surrounding neighborhoods.
All of these activities make a real difference. That's why our clients have earned 79% more home price appreciation than the average Jacksonville investor since 2013.
You can't get that by being a solo active investor or by investing with a regular turnkey company.
Full disclosure: I'm one of the owners of JWB, a vertically-integrated real estate investment company.
@Jared Kotler - Thanks for mentioning JWB!
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