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
- Bay Area, CA · Member since 2016 · 80 posts · 43 votes3y
@Jennifer Shen Good diverse opinions here. Turnkey means different things to different people but I like the definition of a provider who does end to end (locate property in good area, good rehabs to minimize deferred maintenance, markets, screens tenant, and in house PM). We closed on our first OOS turnkey in Aug 2017 and present day we have double digit all OOS turnkey portfolio. I chose the turnkey path as we wanted the more passive route and equally important , we wanted to minimize risk .. at the expense of highest potential returns (ie remote BRRRR). We used leverage (20% to 25% down) to scale with sufficient reserves.
The past two years have been hard on us personally due to myriad of reasons 1) higher turnover costs in our area possibly related to COVID and local market dynamics 2) bad section 8 tenant (not allowing anymore for our homes) --> eviction and costly repair 3) unexpected high cost repairs on few properties - water intrusion needing french drain, plugged old sewer line needing new sewer line, fallen tree that pulled electrical cable that pulled out the wall electrical panel. So I would say our past two years were 1.6x to 1.7x the 10% reserve I set aside for maintenance + turnover costs. With the above said, we are still in the black though given cashflow and scale. We will see if 2023 is better. I do trust our turnkey company and believe they are good people. I give them feedback and they seem to listen. If you decide turnkey is right for you, then I think it's a matter of knowing to a reasonable degree the area you are buying into and the possible risks. A good turnkey will shield you from many risks but cannot eliminate all of them. - Rental Property Investor · Green Bay, WI · Member since 2016 · 150 posts · 94 votes3y
hello @Jennifer ShenMany 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!
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
There's lots of good information on here. I didn't use turnkey companies. I recently did a major renovation on a house that took 5 months - it can be done with a full-time W2 job, lots of running around to order materials for kitchen and bathrooms, buying supplies at Home Depot etc. I had a great contractor who provided the rough materials. It cost me a lot (took out an equity line, a hybrid between a HELOC and equity loan). All new electrical wiring was the largest cost and knocking down a wall. Everything is new in there. I have a tenant in and am getting rent checks now. Good luck!
I'm in the Bay Area. I'm also wondering about turnkey out-of-state or buying something that needs work. I'd probably use a local realtor and not buy from a turn key company.
- Bay Area, CA · Member since 2016 · 80 posts · 43 votes3y
Quote from @Becca F.:
I'm in the Bay Area. I'm also wondering about turnkey out-of-state or buying something that needs work. I'd probably use a local realtor and not buy from a turn key company.
@Becca F. That is so great that you can manage a rehab with a contractor and put sweat equity in and hopefully you are getting a great return so far. Glad your approach is working out well for you. I did and still do prefer the more passive route. Even with the challenges, I am still sticking with our turnkey strategy. Many ways to approach real estate investing !
- Investor · Greater Cincinnati · Member since 2018 · 25 posts · 12 votes3y
First off, do not rely on the numbers the listing agent gives you. You have to run your own analysis and do a TON of due diligence yourself. Second, turnkey can be a very good option for certain people. Focus on buying a turnkey property under market value. They can still cash flow very well depending on your location and property.
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ 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?
Turn key/ or hands off is absolutely the way to go for most as they do not have the time or energy. Simply connect with those that provide the numbers you want and allow then to handle for you
Double digit net caps are to be had , Its all about your team and knowledge
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
I'd like to hear more about your turnkey strategy. I found one who has properties in the Midwest (Ohio and Detroit area so far). Their properties are under $150,000. I've been looking at Class A properties in Indiana, Tennessee (Nashville area), Florida Panhandle in $300,000 to $425,000 range but I'm dipping into my reserves to do 20 to 25% down. Not sure if I should look at Class C properties and neighborhoods in California. To me under $150,000 to $200,000 is much better, especially if it's turnkey.
- Real Estate Agent · Indianapolis IN · Member since 2022 · 144 posts · 65 votes3y
Quote from @Becca F.:
I'd like to hear more about your turnkey strategy. I found one who has properties in the Midwest (Ohio and Detroit area so far). Their properties are under $150,000. I've been looking at Class A properties in Indiana, Tennessee (Nashville area), Florida Panhandle in $300,000 to $425,000 range but I'm dipping into my reserves to do 20 to 25% down. Not sure if I should look at Class C properties and neighborhoods in California. To me under $150,000 to $200,000 is much better, especially if it's turnkey.
Hi Becca. I'm a RE Broker in Indianapolis IN with 20 years experience working with investors.
I can help you find a solid B turnkey SFH for less than 200k in Indianapolis. Just send me a message. My info is also on my Profile. Thanks
- Bay Area, CA · Member since 2016 · 80 posts · 43 votes3y
Quote from @Becca F.:
I'd like to hear more about your turnkey strategy. I found one who has properties in the Midwest (Ohio and Detroit area so far). Their properties are under $150,000. I've been looking at Class A properties in Indiana, Tennessee (Nashville area), Florida Panhandle in $300,000 to $425,000 range but I'm dipping into my reserves to do 20 to 25% down. Not sure if I should look at Class C properties and neighborhoods in California. To me under $150,000 to $200,000 is much better, especially if it's turnkey.
@Becca F. I invest in Memphis and Little Rock area. The homes are mostly in $100K to $200K range. I'll send you a DM with more details.
- 3yGloria N GearBusiness MemberRealtor · Indianapolis IN · Member since 2018 · 464 posts · 339 votes
This is a great discussion. I have found that "turnkey" means different things to different investors. Some investors want to buy a "turnkey" property that is completely rehabbed and ready to rent. (Disadvantage is that another investor has already flipped it and gained the equity). Other investors want to work with a "turnkey" company. The company buys a distressed house for them, does all the work to renovate it, and then rents it out for them. Should be easy. (Disadvantage: can I use the word nepotism?-- if you are out of state, you are completely trusting one company to do everything and trust their numbers). I prefer to have a hybrid model, where you as the investor build your team of realtor, contractor, property manager, they will all run their own numbers to justify your research, and you have 3 different companies (that work together) to look at the property and tell you it is a good deal. If any one of them shows you a red flag, you can walk away. Then you are finding the distressed property, getting it rehabbed and rented out, and keeping the equity gain in your pocket.
- 3yRemington LymanBusiness MemberReal Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
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?
There are not any turnkey companies in my market. You typically find those companies in less competitive markets. Columbus, Ohio is hotter than markets with a lot of turnkey companies because we have an increasing job and population growth.
I would recommend building your Core 4 so you can cut out the turnkey company. Not that much more work and gives you way more control. - Memphis, TN · Member since 2022 · 230 posts · 99 votes3y
Hello @Jennifer Shen
I hope you are doing well! Turnkey is a great way to get started in real estate investing especially if you are looking out of state for an investment!
If you have not you should look into Memphis! There is a great opportunity to find cash flow here, and there is also stable appreciation as well!
It depends on the company, but we definitely try to be as conservative as possible when we put together our proformas.
I would be more than happy to discuss the Memphis market with you and the opportunities that are available here in town!
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ 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?
Most important thing you can do is get an inspection and appraisal. If you buy at FMV it's pretty tough to lose in real estate in the long term.
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