Turnkey or BRRRR?

Oklahoma City, Oklahoma
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Turnkey or BRRRR?

Deal H.
New to Real Estate 路 Oklahoma City, OK 路 Member since 2019 路 8 posts 路 10 votes

After many years of analysis paralysis, I'm finally in a place where I'm ready to make my first real estate investment. My plan is to use my HELOC from my current primary residence as the down payment. For someone in my situation, is it better to purchase a Turnkey property or a fixer upper using the BRRRR strategy?

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Benjamin AakerPro Member
Rental Property Investor 路 Brandon, SD 路 Member since 2015 路 1k+ posts 路 1k+ votes
2y
I recommend BRRR. Turnkey will be a lot less cash flow. Make sure if you use your HELOC that the new property can pay back the HELOC as well as its own mortgage.
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  • John Mason
    Member since 2024 路 1k+ posts 路 351 votes
    2y

    @Deal H. Turnkey is safer but will give less cashflow ..BRRS is riskier but done well will give great returns..maybe partner first time with an experienced realtor or investor.

    3Reply
  • John Mason
    Member since 2024 路 1k+ posts 路 351 votes
    2y

    @Deal H.  some more info   https://www.biggerpockets.com/forums/12/topics/753209-turnke...

    1Reply
  • Benjamin AakerPro Member
    Rental Property Investor 路 Brandon, SD 路 Member since 2015 路 1k+ posts 路 1k+ votes
    2y
    I recommend BRRR. Turnkey will be a lot less cash flow. Make sure if you use your HELOC that the new property can pay back the HELOC as well as its own mortgage.
    5Reply
  • John Mason
    Member since 2024 路 1k+ posts 路 351 votes
    2y

    If you use HELOC and something goes wrong it may be riskier..better to use savings for it unless you have a strong w2 job on the side

    3Reply
  • Luke Bricca
    Investor 路 Austin, TX 路 Member since 2020 路 20 posts 路 13 votes
    2y

    @Deal H.

    I agree with the comments above. Turnkey is safer, much harder to get your net yields to pencil, and you lose out on building immediate equity through renovation. BRRRR is typically more expensive, requires more people (contractors, etc.), but will allow you to build equity up front & potentially refi should rates decrease.

    2Reply
  • Deal H.
    OP
    New to Real Estate 路 Oklahoma City, OK 路 Member since 2019 路 8 posts 路 10 votes
    2y

    Thanks everyone for insight. I understand that BRRRR would provide more cash flow, but from what I've read this method also requires more time and investment. I have a full time W2 job that takes up much of my time, so I'm leaning toward Turnkey until I gain some experience. Has anyone used the company Roofstock to acquire properties?

    3Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor 路 Kansas City, MO 路 Member since 2014 路 10k+ posts 路 5k+ votes
    2y

    Turnkey is generally a passive investment strategy, where you just buy from an operator and turn it over to them to manage. Tbh, with most turnkey operators, you'll be buying at least at market and likely slightly over. (Or a lot if you're dealing with a scam turnkey company, of which, unfortunately, there are a decent number.)

    BRRRR is much more active, you buy a fixer as you note, oversee the rehab yourself and then either manage yourself or find a manager for. I definitely prefer this option as the whole point is to get built-in equity. But it all depends on what your goals and money/time constraints are.

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    1Reply
  • Tina L King
    New to Real Estate 路 HOUSTON 路 Member since 2024 路 28 posts 路 12 votes
    2y

    Can somebody explain to me what's the turnkey method and please give an example in the difference in cost. Cause this could be an avenue to explore as well. 

    0Reply
  • Tina L King
    New to Real Estate 路 HOUSTON 路 Member since 2024 路 28 posts 路 12 votes
    2y

    @Deal H.thank you for sharing this,because my W2 is taking too much of my time and Turnkey seems to fit with the projects I have in mind. Is there any place on this forum I can learn about the Turnkey method?

    2Reply
  • John Mason
    Member since 2024 路 1k+ posts 路 351 votes
    2y

    @Tina

    https://www.biggerpockets.com/forums/963/topics/1200440-expe...

    2Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber 路 Pittsburgh 路 Member since 2018 路 6k+ posts 路 5k+ votes
    2y

    @Deal H.

    with a successful BRRRR there isn't much, or any, cash flow either. you're trying to increase the ARV as much as you can and then refinance and with rates high, you'll probably be at break even or even negative.

    and it's very risky to use 100% leverage. it seems like that HELOC is free money, but it's not. you have to calculate the interest costs.

    and.... it makes zero sense whatsoever to buy something turnkey with that much leverage. none. you'll never, ever pay back the HELOC with the non-existent 'cash flow' from the property.

    just trying to be realistic. the market is unforgiving right now.

    2Reply
  • Tyler Tapley
    Real Estate Agent 路 Memphis, TN. 路 Member since 2018 路 175 posts 路 101 votes
    2y

    Both are good options, the problem with Turnkey is that sometimes you are paying a premium price and you may not have much appreciation.  Also---you need to make sure whoever did the rehab did it correctly (no point in paying a premium price is the work isn't done correctly)...lastly if you pay for a turnkey property...how do you know the tenant is paying a market rent and is a good tenant (credit score wise, payment history wise) etc?

    Put simply...I've seen turnkey sales that were done terribly in terms of rehab, weren't in great locations, and had tenants that were paying over market rent (to make the numbers look good).  That rent just isn't sustainable and tenant could be unable to continue to pay...or could look elsewhere due to it being above market.

    1Reply
  • Ke Nan Wang
    Developer 路 St. Augustine, FL 路 Member since 2018 路 311 posts 路 384 votes
    2y

    Depend on what you personally want to do. If you love your job, make good money from your job, have very little time, and have cash want to park into a secure real estate asset, turnkey is the way to go.

    If you are opposite of that and want to dive into real estate investing operations, then fixed upper and BRRR. You can do it two ways, one is to do everything yourself and learn the in's and out's. Secondly is to outsource everything to a professional so you are basically acting as the developer/project manager. The first way you get to learn the secret behind doors, see things get ugly, get your hands dirty, it may or may not save you money but will get you the working experience you needed so you can appreciate the work and know how to talk to people. The second way you are basically get hired into a position by your own company as a mid management. Most likely you don't know much about the ground level work and must trust your professionals to give you the right advices for you to make decisions on. If you find the right people to work for you, you totally can make it work and save the cost of a project manager.

    The difference between a turnkey and the second option is the cost of marketing, project management, any fixed cost plus the profit the turnkey service company would like to make. Keep in mind turnkey companies do get bulk discount from their subcontractors and vendors, some company pocket the discount for themselves, some company pass onto the discount to their customers and offer a great price. So depend on which turnkey company you work with, sometimes it's not that expensive than do it yourself, but you will get the knowledge and experience from that company.  
     

    0Reply
  • Taz Zettergren
    Real Estate Agent 路 Memphis, TN 路 Member since 2019 路 365 posts 路 264 votes
    2y

    @Deal H. If you have the time and want to spend the effort then doing it yourself is the way to go. If you don't have the time and are unable to make the effort then passively investing is a great route if you have the right team in place. Like @Tyler Tapley mentioned turnkey can be risky, it's a marketing term nowadays so I would definitely dig deeper into who it is you're investing with and what type of areas they will put you in, I would go as far to say go out and visit them before investing so you can get a better feel of who they are, where it is they invest and the types of renovations they do. 

    There are companies out there that have 0 skin in the game and are just referral sources and there are others who are vertically integrated so they own/manage the entire process from start to finish. This type of company will be married with you through the longevity of the investment so naturally their interests will have to be mutually aligned. 

    Feel free to reach out if you have any question, I'd be happy to help. Best of luck on the journey! 

    2Reply
  • Lettitia L.
    Member since 2022 路 13 posts 路 5 votes
    2y
    Quote from @Deal H.:

    Thanks everyone for insight. I understand that BRRRR would provide more cash flow, but from what I've read this method also requires more time and investment. I have a full time W2 job that takes up much of my time, so I'm leaning toward Turnkey until I gain some experience. Has anyone used the company Roofstock to acquire properties?


     Feedback from our investors regarding Roofstock is that they are still required to be hands on with property management (so it's not truly turnkey). If you'd like to learn more about what we can do for you in terms of sourcing deals in any market, managing renovations (if necessary), professional property management, etc. send me a DM! 

    1Reply
  • Terra Padgett
    Investor 路 Houston, TX 路 Member since 2022 路 126 posts 路 122 votes
    2y

    It depends on a variety of factors: your goals, your time constraints, your available capital, your desires, your timeline, etc. If you want to be more hands-off/passive, then Turnkey route. You'll buy a property pretty much at market value and the property management company will handle the day to day items. It is your property and the buck still stops with you, but for the most part you're responsible for managing the manager & making sure all interests stay aligned. If you want to be more hands-on/active, then BRRRR route. You will certainly learn a lot more and get experience in all sorts of areas. It will be a commitment of time, effort, & resources, but the returns could be greater. You may want to consider partnering with someone who has some experience to help you along the way.
    But if you鈥檙e open to both, I say flip a coin 馃獧 and do that method first and the other method on your second property. 

    1Reply
  • Denis PonderPro Member
    New to Real Estate 路 Yuma, AZ 路 Member since 2023 路 280 posts 路 246 votes
    2y

    If you are "cured" of your analysis paralysis and have the capacity to stomach the project and the "issues" that come with it, I vote BRRRR. If you are still very prone to analysis paralysis, turnkey might be the better first choice as a BRRRR is likely to present you with more challenges and decisions to make.

    I don't know you well enough to know which will be best suited for you.

    If you have a good team you can rely on for the BRRRR, that will always get my vote. But, that can be a big IF in a lot of cases.

    1Reply
  • Michael SmytheBusiness Member
    Real Estate Agent 路 Metro Detroit 路 Member since 2023 路 4k+ posts 路 3k+ votes
    2y

    Only do turnkey if you have your OWN well qualified inspector who can point out any hacks or deferred maintenance issues.

    Many turnkey providors are notorious for this.

    Logical Property Management4.9453 Reviews
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    1Reply
  • Connor Hibbs
    Lender 路 Ellington, CT 路 Member since 2024 路 210 posts 路 103 votes
    2y

    Hi @Deal H.,

     Both are good options, and the true answer is which properties become available to you and which strategy best fits the properties you can find. 

    The Turnkey properties will start showing returns immediately once they are rented out but has lower returns than a BRRRR property would. BRRRR properties will take more up front capital to get started but if done correctly they can yield larger returns.

    Getting a partner to invest with would make more sense on your first BRRRR since the rehab processes if heavily based of experience for your LTV% and your rate, where the turnkey will just be based off your FICO and the cashflow of the property.

    0Reply
  • Deal H.
    OP
    New to Real Estate 路 Oklahoma City, OK 路 Member since 2019 路 8 posts 路 10 votes
    2y
    Quote from @Nicholas L.:

    @Deal H.

    with a successful BRRRR there isn't much, or any, cash flow either. you're trying to increase the ARV as much as you can and then refinance and with rates high, you'll probably be at break even or even negative.

    and it's very risky to use 100% leverage. it seems like that HELOC is free money, but it's not. you have to calculate the interest costs.

    and.... it makes zero sense whatsoever to buy something turnkey with that much leverage. none. you'll never, ever pay back the HELOC with the non-existent 'cash flow' from the property.

    just trying to be realistic. the market is unforgiving right now.


    @Nicholas L. Not having the correct ARV and having the rehab get a low appraisal is my main concern. Based on your response, it seems like the HELOC will take awhile to pay off regardless of the appraisal. Either way, my goal is to finally get in the game and start getting my investor feet wet.

    0Reply
  • Samuel DioufBusiness Member
    Real Estate Agent 路 Columbus & Cleveland, OH 路 Member since 2023 路 1k+ posts 路 1k+ votes
    2y

    If your risk tolerance is low. It's safer to buy something that's turnkey with value-add potential. Use this experience to work out the kinks and build a strong boots on the ground team. The first purchase is always a huge learning experience, so it's smart to buy something you can't lose your shirt on. Once you're ready for the next purchase, you will have more experience, a stronger network, and the confidence to tackle a bigger project like a BRRRR.

    [email protected]614-662-1652
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    3Reply
  • John Mason
    Member since 2024 路 1k+ posts 路 351 votes
    2y

    Best do Joint venture with an experienced investor and then slowly get independent is a good approach

    0Reply
  • Pete Tarin
    Homeowner 路 Buckeye, AZ 路 Member since 2024 路 12 posts 路 7 votes
    2y
    Quote from @Nicholas L.:

    @Deal H.

    with a successful BRRRR there isn't much, or any, cash flow either. you're trying to increase the ARV as much as you can and then refinance and with rates high, you'll probably be at break even or even negative.

    and it's very risky to use 100% leverage. it seems like that HELOC is free money, but it's not. you have to calculate the interest costs.

    and.... it makes zero sense whatsoever to buy something turnkey with that much leverage. none. you'll never, ever pay back the HELOC with the non-existent 'cash flow' from the property.

    just trying to be realistic. the market is unforgiving right now.

    would there be any tax benefits for loss of income on property to offset high w2 earnings? also is there a higher likelihood that this type of property would appreciate faster allowing you take advantage of the eaquity?
    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor 路 Kansas City, MO 路 Member since 2014 路 10k+ posts 路 5k+ votes
    2y
    Quote from @Tina L King:

    Can somebody explain to me what's the turnkey method and please give an example in the difference in cost. Cause this could be an avenue to explore as well. 


     Turnkey just means you're buying properties that are rent ready and need no rehab (i.e. on day one you're ready to turn the key and move in). Turnkey companies are usually one stop shops that bring deals to (usually) out-of-state investors who bring deals to them, do the rehab if needed then manage them. 

    Some of these companies are good but you're not going to get any built-in equity with them. Some are sketchy to say the least. Definitely need to do your due diligence on any turnkey operator. 

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    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber 路 Pittsburgh 路 Member since 2018 路 6k+ posts 路 5k+ votes
    2y

    @Pete Tarin

    there could be tax benefits - you might be eligible for passive losses, but it would be specific to your situation.  talk to your CPA.

    https://www.biggerpockets.com/forums/51/topics/1133534-how-d...

    as for appreciation - that has more to do with the market and less to do with the method of acquisition. just because you bought a BRRRR or a turnkey doesn't mean you'll appreciate slower or faster. or at all.

    1Reply
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