Turnkey vs. Learning How to Fish

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Turnkey vs. Learning How to Fish

Daniel Cruz
Knoxville, TN · Member since 2013 · 100 posts · 24 votes

I plan on buying my first property using a very reputable turnkey company. The ROI is smaller but it seems almost headache free. In fact the company's goal is to make the investment process as easy as possible.

I have some money to invest and I do plan on starting out real estate investmenting doing the turnkey thing, but my concern is doing all your real estate investing in this way doesn't seem to me to be a very good teacher.

I do want to learn how to fish, and I have future goals of buying small multi-family properties. But I also have a vision of buying a bunch of turnkey single family homes, wait 10 years for decent appreciation, save the rents (currently I don't need the money) and buy something REALLY big ($1 mil down on an apartment complex) for some nice retirement cashflow.

"4 green houses, 1 red hotel"

If I went the all in and wait w/ turnkeys route, how would I learn about buying an apartment and hiring management? Nothing beats experience. I've listened to Rich Dad's Cashflow quadrant and it makes sense to me that a bank would rather lend $2 mil vs. $200K. Anyway I definitely would like some opinions and insight, Thanks...

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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
12y

@Daniel Cruz sometimes you have to walk before you run. There's a lot of aspects of investment to learn and you'll never be an expert right away. You might want to think about going the turn-key route for your first property or two and then start becoming more hands on. I think it can be difficult to take everything on with your first deal unless you already have the skills.

Best of luck.

Mike

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    12y

    you could hire management to run those houses that would give you an understanding of how to hire management.

    Another option would be to partner with someone who knows how to "fish" If you have the money it will not be hard to find people who want to work with you.

    You said the turnkey company is reputable. That is extremely important. There are a lot of people out there who put lipstick on a pig and market it as "turnkey"

    1Reply
  • Rachel H.
    San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
    12y

    It's all about knowing what kind of person you are. Some try to do everything when they hear others doing the same thing but fail as they do not have the same personality types.

    Starting out the single family route will help you to learn the business from a management perspective if you are hiring property management — you will be managing the managers. It will also give you a chance to see how you like the real estate business.

    The good thing about single family homes is that they are more easier to sell (in general) than multi-family apartments which tend to get tied up finding the right buyer and waiting for financing to go through.

    I have heard of others doing exactly what you want to do. On the other hand, I know others who have started in the multi-family realm only to go to single family due to the transient nature of their experience in this niche. All in all, it really depends on your preference and what kind of business person you are.

    Hope that helps!

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  • Greg B.
    Investor · Syracuse, NY · Member since 2014 · 170 posts · 73 votes
    12y

    @Daniel Cruz What exactly does this Turnkey Company provide and at what price?

    You say you have some money to invest so why not call a Realtor and look for ONE property to purchase? A property that needs little if any make-up. Manage it on your own with the help from locals and this site. Learn the business and learn your tolerance level.

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  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    12y

    As @James Wise mentioned. There are many turn key operators putting lipstick on pigs and selling with super high margins in place. They pocket half and invest the other half in "Ra Ra' marketing, seminars or whatever else to get fresh blood.

    Find a company that has the investors interest and never jump in to soon. I always recommend spending 6 - 12 months asking questions of this company and building trust and if they get tired of answering them this obviously means that all they want is to sell, make quick profit and they don't care about any long term relationships with clients.

    Thanks.

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  • Daniel Cruz
    OP
    Knoxville, TN · Member since 2013 · 100 posts · 24 votes
    12y

    Greg, Cap rates between 7 to 8%, cost = ~100K per house. The company finds the property, perform repairs, sells to the investor and manage the property. They have accounting services and advice on SDIRAs, which is where my money is coming from.

    Rachel, sounds like that there's less competion in the multifamily realm. I have visions of buy and hold w/ cashflow and w/ the units supporting each other if one unit is empty. But like you guys are posting I need to figure out my preferences. Jump in w/ both feet and hope I don't drown.

    One thing I forgot to mention is the property will be on the otherside of the state (6 hrs away).

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  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    12y

    @Daniel Cruz sometimes you have to walk before you run. There's a lot of aspects of investment to learn and you'll never be an expert right away. You might want to think about going the turn-key route for your first property or two and then start becoming more hands on. I think it can be difficult to take everything on with your first deal unless you already have the skills.

    Best of luck.

    Mike

    2Reply
  • Greg B.
    Investor · Syracuse, NY · Member since 2014 · 170 posts · 73 votes
    12y

    @Daniel Cruz

    http://www.biggerpockets.com/forums/311/topics/115313-turn-key-demistified

    2Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y

    Hey Daniel! Great plan. I think you will do great at it and I certainly wouldn't worry about not learning what you need to in order to move to the big stuff. Turnkeys are great, they are all of I have bought for myself, but they are still investments, meaning they aren't perfect. It is possible that this company will be so good that you don't have to learn anything to be successful with those properties. More likely though, you will be able to learn the fundamentals that go into making a property successful. I know I learned everything I did because of problems with my properties, but if you want to make sure you are learning what you need to and your property doesn't have any problems, be able to figure out what is going into your property that is making it successful. But definitely, should anything go wrong with your property, you will learn real fast that way.

    Despite turnkeys seeming really easy, I think they are perfect for teaching fundamentals. You have to learn the critical stuff- running numbers, how to manage management, what makes or breaks a deal. If you were flipping or rehabbing or doing all the complicated stuff, all that will teach you is how to rehab better. That doesn't teach you what you need to know in order to be successful with larger properties, it only teaches you to rehab. Exactly your desire for what to learn is why I stick with turnkeys, because they keep me learning the fundamentals rather than swinging hammers and fixing toilets. The latter skills aren't what will increase my portfolio tenfold.

    1Reply
  • Daniel Cruz
    OP
    Knoxville, TN · Member since 2013 · 100 posts · 24 votes
    12y

    @Greg Brown

    Thanks for the article. That article actually made me feel more comfortable about my decision.

    @Mike D'Arrigo

    @Mike D'Arrigo

    Thanks for the encouragement. I am moving forward w/ the purchase and once I get a couple of months of rents under my belt I'll post in the Real Estate Success Story section.

    Thanks again everyone

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y

    Hi @Daniel Cruz,

    Welcome to BiggerPockets!

    Your strategy of starting out with a portfolio of turnkey rental properties then eventually building up to larger real estate is the way most investors do it when starting out. There is nothing wrong with it, and you may end up liking the smaller residential properties (1-4 units) and never moving "up" to larger properties. Remember that it's entirely possible to become wealthy and retire on single-family homes.

    If you decide to transition your real estate into larger property you can do it tax free through a 1031 exchange. There are only a few rules to follow but it is a powerful way to leverage up.

    I started investing at the age of 18, and have been involved with turnkey investment properties since late 2003. It's at the core of my investment strategy and as a heavy advocate of it spend each day talking to investors about the benefits and process involved.

    BTW -- If you have the right strategy you can achieve your "4 green houses, 1 red hotel" sooner than 10 years.

    Be sure to check out the Ultimate Beginners Guide as well as my 10 Rules of Successful Real Estate Investing.

    Continues success!

    2Reply
  • Pat McGrath
    Real Estate Agent · Lincoln, CA · Member since 2014 · 225 posts · 43 votes
    11y

    daniel you ever pull the trigger?

    0Reply
  • Daniel Cruz
    OP
    Knoxville, TN · Member since 2013 · 100 posts · 24 votes
    11y

    @Pat McGrath

    Hi Pat, Here's my experience w/ turnkey properties.

    http://www.biggerpockets.com/forums/223/topics/177843-am-i-successful-or-am-i-an-example-of-what-not-to-do

    0Reply
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    11y

    @Daniel Cruz

     You can do both - they certainly don't have to be mutually exclusive.  One quick thing is to remember that turnkey does not mean you need to be passive.  The more active you are in managing your relationship and all the details, the better you will understand and probably the better your experience will go.  Do not simply be passive.  

    I cannot tell you how many investors I have worked with who may have bought courses, hired mentors or coaching programs and even attended REIA's for months on end without ever getting started. After investing in passive properties - Tunkey properties - they found those properties and their actions as inspirational motivation to call themselves investors. From there, they found the confidence to follow through on other actions and steps that led to active investing.

    It is amazing how much confidence people that are truly motivated to succeed can find in a little success.  Success can lead to more success can lead to more success and so on.  So, I think for some people, turnkey investing can absolutely help you to learn more about the 'how-tos' of real estate and make you a better fisherman!

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