Real Estate Investor · Aurora, CO · Member since 2014 · 240 posts · 109 votes
So, I guess this isn't going to be our first investment since we have a vacation rental property in Maui, but this will be our first buy/ hold / rent property. We've been looking locally here in the Denver metro and quickly found that this is not the best market when it comes to price/ rent ratios.
I've been reading up on some of the forum posts and BP articles about turnkey rental properties. We've got friends/ family in Dallas, Austin, KC and Atlanta so we have already started asking them and their real estate sources to get a feel for those areas. We are real familiar w/ Atlanta since we lived there for 5 yrs before moving to Denver.
So as much as we would like to stay here in Denver, would an out of state turnkey be a wise move for a first investment? The more and more we read up on turnkeys the more we like these options. Thanks in advance for any input and advice!
Turnkeys are, in theory, fully fixed up properties that are ready to rent. Often with tenants and management in place.
Do your own due diligence. Verify everything turnkey seller tells.
I've looked at quite a few of these. While there may be acceptable deals out there many are overpriced, with overly optimisitic rent projections, and a shoddy rehab job. After the one year rent guarantee runs out the buyer, almost always distant, discovers they have bought a property at an above retail price that needs continual maintenance and doesn't rent for anywhere near what the seller claimed.
At best you'll give up some of your profit in exchange for not having to do any work. At worst you'll take a beating. Get on a plane or in the car and go see the property. Drive the area. Do your own research. Forget about what properties are worth in your own area and learn values where the property really is.
**I Personally** wouldn't do out of state as my first buy and hold rental property. Theres quite abit to learn and being that far away for me would leave me too vulnerable to trusting others to take care of things I need taken care of. I like to have control and direct oversight so not being able to stop by when I need to wouldn't work for me.
As far as a turnkey rental yes I would definitely buy one if the price were right but just not out of state.
Turnkeys are, in theory, fully fixed up properties that are ready to rent. Often with tenants and management in place.
Do your own due diligence. Verify everything turnkey seller tells.
I've looked at quite a few of these. While there may be acceptable deals out there many are overpriced, with overly optimisitic rent projections, and a shoddy rehab job. After the one year rent guarantee runs out the buyer, almost always distant, discovers they have bought a property at an above retail price that needs continual maintenance and doesn't rent for anywhere near what the seller claimed.
At best you'll give up some of your profit in exchange for not having to do any work. At worst you'll take a beating. Get on a plane or in the car and go see the property. Drive the area. Do your own research. Forget about what properties are worth in your own area and learn values where the property really is.
Thanks everyone. From other posts, articles and blogs I've read about turnkeys, the common thread is "do your due diligence" regarding the property, the turnkey company and property management company(s). I'll admit, it does make me nervous trusting others out of state, but there is always a little nerves when making any investment...well, at least for me.
We've had great success w/ our Maui property, so we are not totally inexperienced w/ out of state properties, but that property is vacation rental and long term rentals is another beast where we have no experience.
I can't remember who had it in their signature here, but I remember reading "live where you want and invest where it makes sense," or something like that. I've read where others have had success w/ out of state turnkeys and it's definitely something we are looking into.
We are still looking here in Denver and always will be. However, if what could be a good out of state turnkey comes up before our first Denver property, should we jump on that? That's the question we are asking ourselves. Again, thanks for all the replies and to anyone else after this post who graciously adds their expertise and opinions!
**I Personally** wouldn't do out of state as my first buy and hold rental property. Theres quite abit to learn and being that far away for me would leave me too vulnerable to trusting others to take care of things I need taken care of. I like to have control and direct oversight so not being able to stop by when I need to wouldn't work for me.
As far as a turnkey rental yes I would definitely buy one if the price were right but just not out of state.
Thanks Chris. I too am a very hands on type of person that really doesn't like to give up control. But I would rather give much of the control up to someone on a property that gives me good positive cash flow than have total control on a property that is losing me money!
That being said, my wife really would like to use a management company with our future properties here in Denver and I really would like to manage them myself. That being said, she wins most tug of wars and I'm starting to think she might be right on this one too!
Turnkeys are, in theory, fully fixed up properties that are ready to rent. Often with tenants and management in place.
Do your own due diligence. Verify everything turnkey seller tells.
I've looked at quite a few of these. While there may be acceptable deals out there many are overpriced, with overly optimisitic rent projections, and a shoddy rehab job. After the one year rent guarantee runs out the buyer, almost always distant, discovers they have bought a property at an above retail price that needs continual maintenance and doesn't rent for anywhere near what the seller claimed.
At best you'll give up some of your profit in exchange for not having to do any work. At worst you'll take a beating. Get on a plane or in the car and go see the property. Drive the area. Do your own research. Forget about what properties are worth in your own area and learn values where the property really is.
Thanks for your input Jon. One reason we are looking in the areas I mentioned above is that we already have friends and families in those cities so it would save us money when we travel there to check out the properties and area (free places to stay). They are also helping us get a feel for the value and rental rates there.
I'm not real familiar with the Denver market but I think you'll find the price rent ratios in Atlanta, Dallas and Austin similar. Prices have been pushed up too quickly by the equity funds in Atlanta. Dallas and Austin have great economies but the rent/price ratios are fairly low compared to other markets. On top of that, Dallas has some of the highest property taxes and homeowners insurance rates in the nation. Of the markets you mentioned. KC has the best cash flow and ROI. You might want to look at Indianapolis. Indy is one of the most affordable markets in the country and has great cash flow.
My husband is active duty "investing locally" always becomes long distance :) We personally don't invest in turn key. We buy our own kind of turn key. Great houses, in great neighborhoods, that priced well rent out to great screened tenants that can be managed long distance.
So far this has worked great. The tenants once places, need limited hand holding. To date 95% has occurred through txt, email and phone. Totally doable even in California when your properties are in South Carolina.
We have bought totally from out of area, bought, showed and leased up. Our agent has actually been more than willing to show houses for us which has been very helpful.
I caution you/highly recommend that you evaluate the escrow fees. This has "surprised" us in the past. One of the things that we have found in "cheaper" areas is that the insurance and taxes are significantly higher. In Charleston our 90k house taxes is as much or more than our $240k house in Virginia. Also if you buy in an undervalued area, know that as the price rebound so will the taxes. @Jeremy Baker
@Elizabeth Colegrove is right. Too often, people overlook property taxes and insurance which vary greatly. These are a big part of operating costs and will have a big impact on your cash flow.
Taxes and Insurance are the first two costs we list on our spreadsheets when we compute our expenses when making our initial cash on cash reports. We also look at the past 4-5 years to see how much those taxes increase each year to give us an idea of what to expect the next 4-5 years.
Honestly the taxes and insurance is what closed our Charleston market too us. It is also what has prevented us from pulling the trigger in Texas, more specifically Kingville/Corpus Christi. It is also why we are investing in the valley of California. The insurance is very low because we are outside of the need for earth quake insurance. Taxes are also 1%. Our goal is to keep a handle on our expenses, the biggest one is the escrow.
I'll second the suggestion that if you end up going long distance, stick with nicer properties - the turnover, upkeep, and repairs that you'll deal with on lower end properties will be tough to manage long distance.
Before diving in read about the 50% rule. That rule of thumb says expenses, capital and vacancy eat 50% of the gross rents. That's certainly going to be true for a turnkey where you have no choice but to use a PM. From the remaining 50% you have to pay your debt service. What's left is your cash flow.
Surprisingly enough, property taxes are still pretty low here in CA where they like to tax us for everything. What kind of cash flow are you getting in Central Valley?
We are finding 8% cap rates, almost 10% with financed money on A+ properties. These are new areas attracting mostly professional who are long term transient (military, government, high level manufacturing). They want great homes but don't want to be tied to a house when they get sudden transfer orders.
This area was also hit very hard. So there is a lot of people who won't buy because blank X removed lost everything out here. On the other hand, while I don't buy for it, I do believe we will see great appreciation in the next 5-10 years. This area is really growing.
I love turnkeys and think they are excellent for new(er) investors. If you buy from a reputable turnkey provider, a lot of risk is mitigated quite a bit. You of course need to do your own due diligence on the work done and what you are buying, but eliminating having to rehab yourself and all that takes a ton of work and risk out. I like them because you learn the fundamentals before going crazy with learning to rehab. That and I don't want to work that hard on my investment properties :) So I've only bought turnkey.
Mine are in Atlanta actually. There are still deals there but the hayday is over there. Dallas is a really hot spot right now but inventory is low. I don't know of any turnkeys in Austin because the prices there don't bode well for profits. KC is strong but a much cheaper, older market. I think Atlanta and Dallas would both be excellent starters.
As a new investor in real estate based out of SoCal I have been looking at out of state turnkey's as well. I went to a few Marshall Reddick presentations and was wondering if anyone here has experience/an opinion on them. Am I better off going alone? I found good and bad reviews so far so still trying to get a feel for their business. One thing I see is that they sell their properties at a premium, does the extra cost justify their service?
I love turnkeys and think they are excellent for new(er) investors. If you buy from a reputable turnkey provider, a lot of risk is mitigated quite a bit. You of course need to do your own due diligence on the work done and what you are buying, but eliminating having to rehab yourself and all that takes a ton of work and risk out. I like them because you learn the fundamentals before going crazy with learning to rehab. That and I don't want to work that hard on my investment properties :) So I've only bought turnkey.
Mine are in Atlanta actually. There are still deals there but the hayday is over there. Dallas is a really hot spot right now but inventory is low. I don't know of any turnkeys in Austin because the prices there don't bode well for profits. KC is strong but a much cheaper, older market. I think Atlanta and Dallas would both be excellent starters.
Thanks for your input @Ali Boone . We saw in a few other forum topics you mentioned out of state turnkey and that's what had us looking in that direction. Then again we just may go around town snatching up all the properties that meet the 2% rule, after all, the 2% rule is made of gold right. :) (We read your 2% rule article here on BP earlier this afternoon).
I think @Jeremy Baker baker hit the nail on the head. If you have a turn key company that you can fully trust, I think it's a far less risky way to go for a first time investor than for them to do it themselves. DIY is definitely not for everyone and there is a lot of opportunity for costly mistakes. Working with a good trustworthy turn key company, you only have to choose one good partner. When you do it on your own, you have to be sure you choose, the right real estate agent, contractor, property inspector, property manager, mortgage lender etc. One wrong choice and it can turn a good potential investment in to a bad one. I know a lot of people think that you leave a lot of equity on the table buying a turn key but one mistake by an inexperienced investor can more than wipe out any savings.
@Jeremy Baker - you're in a pretty pricey market to try and do anything with the 2% rule and you have to be careful with turn-keys to make sure they will actually deliver what they say they will....most pro-formas are fantasy work from my own experience. We have quite a few turn-key marketers presenting here on BP. The models are all over the board...try to find something that is already rented and performing or has a rental guaranty from the provider. Austin would be a great rental market - awesome town but I don't think you'll find anything cheap enough to make any sense. What price range of properties are you looking at? Cash or financed? Happy Investing!
I've had good success buying houses that are already rented--but in neighborhoods where I do my own property management and within 100 miles. Immediate cash flow is always a nice thing.
I have looked at quite a few out-of-state turn key deals and have not been impressed with the pie-in-the-sky, best-case, rosy scenarios most have presented.Many of these seem to be geared toward a novice, less-educated investor that does not quite know how to do their own due diligence.
When I invest in out-of-state properties, I prefer to do fix and flips with a few other partners that are in the same town. In and out in a few months and I can cut my losses if things go south without having monthly reminders of a bad deal.
Best of luck to you. Buying local for buy and holds is usually a better long term strategy.
We plan for our first investment to be an out-of-state turnkey. Out-of-state because we want at least the possibility of appreciation, and turnkey due to the very fact that we are inexperienced. It seems to me that you may be losing some profit due to the convenience factor - but as long as the trade-off seems beneficial to you, I don't see the problem with it.
I find it absurd that people buy turnkey properties without verifying and validating every piece of information provided by the seller.