Turnkey Rental Property a good idea for a first-timer?
Homeowner · Palmdale, CA · Member since 2014 · 9 posts · 6 votes
Turnkey Rental Property a good idea for a first-timer?
Most Popular Reply
Eric FernwoodBusiness Member
Realtor · Las Vegas, NV · Member since 2014 · 993 posts · 1k+ votesHello @Cassandra Boyett ,
Buying turnkey can be an excellent purchase method but remember that this is only a purchase method, it does not assure you that you are buying in a “long term good” location, getting a good property or that you are going to get good tenants.
You have heard the old adage that the three most important things to consider in real estate are location, location and location. This is still true. When you are considering a property in any “location” you need to think long term. Do your homework and make an informed guess whether the state/city/area is still likely to be a good place to own a property in 15 or 20 years? What is happening today or this year is almost irrelevant because real estate is a long term (multiyear) proposition. Some of the key indicators you should consider are:
• Population migration - are people moving in or out? If they are generally moving out of the state/county/area then the value of your investment in 5 or 10 years is going to be much less than today. Here is a page that provide population shifts by city.
• The value of a property is no better than the jobs around it. This does not mean just that there are jobs, the earning power of jobs needs to be stable or increasing. For example, if the state/county/area trend is from manufacturing jobs to lower paying service jobs, your rent is going to go down and the value of your property will fall.
• Property price trends - If property prices are trending down in an area, that is because there is less demand. If there is less demand to purchase, then there will likely be less demand for renting in that area too. And, if property prices are going down, rents will also go down and even if you decide to cut your losses and sell you probably can’t even sell the property at break even.
The following two points are not criteria but something to keep in mind. 1) As long as you buy in a good area (see all the above), all but the worst mistakes will be corrected over time through appreciation, inflation and rent increases. However, if you buy in a bad (or trending down) area, there is little or nothing you can do to make money over the long term. 2) To quote a former president, "Trust, but verify"; never take others claims at face value. With the internet, you can validate any claims made by others. The data is there and all you have to do is to spend sometime and the claims will be either validated or you will know that you need to find someone else to deal with.
Below is the process model I recommend. The property profile and profitability are explained in details in this thread - http://www.biggerpockets.com/forums/12/topics/1527...
Best Wishes,
Eric Fernwood
FERNWOOD Team, KW VIP Realty520 Reviews
106 Replies
- Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes11y
Originally posted by @Hattie Dizmond:
I don't know @Ali Boone personally, but I've read enough of her posts to know she isn't about to sign up for anything, until she has fully vetted the property and the seller. No gullibility with Ms Boone!
Just an FYI, although she fails to disclose it, Ali reps for at least one turnkey company. Hate to put her out there but, if you're going to push a product on your peers, you should be honest enough to tell them you have a reason for pushing it besides their best interest. It's borderline shady to me...
- Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes11y
I love that this is bringing in important details. @Troy Sheets it's not unusual for turnkey owners to work with ther provider to bring clients. After all, if something is working well for someone they want to refer others---and it's nice to get paid for sending new biz.
Full disclosure is an important detail for all of us. I tell people up front if I am marketing a jv partner's property. It's not unusual in this biz and it isn't anything we need to hide.
Best of Success
- Tampines, Singapore · Member since 2014 · 68 posts · 21 votes11y
I think it all boils down to performing due diligence on the people that you are working with and the property that you are going to invest. Being active and contributing in biggerpockets no doubt builds trust and sometimes is a very good marketing tools.
By the way @Troy Sheets , If I'm not mistaken Ali did disclose that she will be receiving referrals fee from her recommendation. Just check her BP profile.
- Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes11y
Originally posted by @Melodee Lucido:
I love that this is bringing in important details. @Troy Sheets it's not unusual for turnkey owners to work with ther provider to bring clients. After all, if something is working well for someone they want to refer others---and it's nice to get paid for sending new biz.
Full disclosure is an important detail for all of us. I tell people up front if I am marketing a jv partner's property. It's not unusual in this biz and it isn't anything we need to hide.
Best of Success
Understood and agreed, however, she's pushing this way too hard (under the radar) to not be getting a cut. I talk to many investors that pass through BP and Philadelphia looking at turnkeys and her name comes up often. Like every time often. If I misspoke, I certainly apologize, I just think that full disclosure is extremely important and fair. An unbiased recommendation from a peer that stands to gain nothing from your decision to patronize a company they've recommended is one thing. I'm guessing this is another.
- Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes11y
Originally posted by @Martin Yung:
By the way @Troy Sheets , If I'm not mistaken Ali did disclose that she will be receiving referrals fee from her recommendation. Just check her BP profile.
IMHO, it should be in her signature, tag line and at the end of each post she makes repping a turnkey company...
- Investor · Fort Wayne, IN · Member since 2009 · 391 posts · 257 votes11y
I want to approach this from a similar but different angle. When dealing with rentals, I believe the property management company is the most critical component. In 2003, my wife and I purchased 8 duplexes in our local area and then tried to find a property manager. After failing to find competent property management, we starting the process to sell after 6 months. We did not want to property manage ourselves and never intended to be the property manager.
In 2008, I had some commercial projects closing and needed to invest that capital. After reviewing the options, I determined that the best investment that I could find were the SFR's in my local area. With our previous experience, I did not care if someone was giving houses away if we did not have competent property management.
We then commenced to interview a number of property management companies prior to ever beginning a search for homes.
We have had much better success with this strategy. We now have so much confidence in our team that we have not even looked at the last 100+ homes that we have purchased.
The criteria that I review for an investment area ONCE I have found an honest and competent property management company are:
1. Price to rent ratios
2. Crime rates
3. Landlord laws
4. Insurance rates
5. Property tax rates
Good luck with your search.
- Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes11y
Originally posted by @Troy Sheets:
Originally posted by @Melodee Lucido:
I love that this is bringing in important details. @Troy Sheets it's not unusual for turnkey owners to work with ther provider to bring clients. After all, if something is working well for someone they want to refer others---and it's nice to get paid for sending new biz.
Full disclosure is an important detail for all of us. I tell people up front if I am marketing a jv partner's property. It's not unusual in this biz and it isn't anything we need to hide.
Best of Success
Understood and agreed, however, she's pushing this way too hard (under the radar) to not be getting a cut. I talk to many investors that pass through BP and Philadelphia looking at turnkeys and her name comes up often. Like every time often. If I misspoke, I certainly apologize, I just think that full disclosure is extremely important and fair. An unbiased recommendation from a peer that stands to gain nothing from your decision to patronize a company they've recommended is one thing. I'm guessing this is another.
Hey @Troy S I don't think you misspoke and I think you are making a good point that we should all make sure we are in complete integrity with all our dealings.
I think I get the heart of what you are saying (and I'm trying to keep with the intent of this thread) new investors are vulnerable and we MUST take care to not lead them in a manipulative way.
Everyone is selling every day. We sell our spouses, friends, kids, neighbors and co workers. I believe turnkey providers, as all other business people, deserve to get paid for what they do (the good ones work hard for their money). Marketing makes the world go around (ok, along with love) lol
I also believe the best way to sell is by building strong relationships.
- Investor and Realtor · Milwaukee, WI · Member since 2013 · 46 posts · 18 votes11y
@Cassandra Boyett I was going to refer you to the Podcast 089 by @Engelo Rumora after I saw your forum Title but realized it has already been pointed out by @Hattie Dizmond. Great podcast to learn a lot about team building for all types of long distance investments.
Good luck!
- Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes11y
@Chris L that is called hitting the nail on the head!! Putting the cart before the horse is dreadful in this biz.
Having excellent PM is more important than having an excellent property :-) You stated that so well. Thank you
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes11y
The positives of turnkey are that somebody else fixes the house up, gets it rented and manages the property.
The negatives are they don't do it for free, they typically charge market price or more for the property, and they charge for their management maybe 7-10% of the gross rent.
I like to find the deal myself and usually manage the property myself. Getting a bargain price for a property, whether a buy and hold or a rehab or a flip has been a key to my success. Recently I bought a house for $51,000 that last sold for $150,000. Another house I just bought for $16,000, last sold for $72,000. Another house I bought for $36,000 last sold for $108,000, and another house I bought this year for $34,000, last sold for $95,000. You won't be getting those type of prices from a turn key company.
- 11yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Kingsley Siribour:
@Cassandra Boyett I was going to refer you to the Podcast 089 by @Engelo Rumora after I saw your forum Title but realized it has already been pointed out by @Hattie Dizmond. Great podcast to learn a lot about team building for all types of long distance investments.
Good luck!
Hi Kingsley,
Thanks for the mention.
I am very glad that many investors have found the podcast useful.
Thanks again and have a great weekend.
- Investor and Realtor · Milwaukee, WI · Member since 2013 · 46 posts · 18 votes11y
Hi Engelo, I think many investors liked it because whether local or long-distance investments, the team building tips apply and very crucial especially due to trust issues in every type of business.
Cheers!
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes11y
I am sure Ali has disclosed she get s a cut from memphisinvest on sales she generates. It's not like it's a secret :-)
- Professional · Pittsburgh, PA · Member since 2013 · 88 posts · 42 votes11y
@Eric Fernwood your reply here was my favorite because I love to think about the big picture economics situation. It ALL comes down to demand. Like any industry, if there's no demand for your product, you make NO money. Our demand comes from people, and the highly qualified tenants will only be in need of housing where our housing supply is- IF there are (GOOD) jobs there. No good jobs = moving population to where opportunity is! Declining population equals less demand equals all housing prices declining. That's the long reason as to why I could buy a 4-plex in the southside area of Youngstown, OH today for 22k. Houses next door to that building are boarded up or falling in on themselves. There is zero demand from a highly qualified tenant to live there.
I enjoyed reading all of the replies highlighting the pros and cons are buying turnkey! Thanks everyone!
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes11y
Welcome to bp. I like your idea to purchase another one local to you. If the fha down is about the same as the out of state normal down and you can comfortably swing this, I would consider the local Palmdale a superior investment for many reasons. One major reason is you will be in more control local normally. It might take months to discover a remote PM is slacking. Factor in the history of great appreciation vs low appreciation for many turnkey locations and the choice becomes clearer. Figure if you were buying a business for the first time do you think the chances are going to be better for success if that business is 2 miles away or 2200 miles away. Out of state turnkey would be the secondary option if the fha is doable locally. Keep in mind in Palmdale there are renters and buyers beating down your door vs in some turnkey areas they just beat down your doors:) If the turnkey still is a better fit, you have some good ones mentioned above to explore.
thanks,
Matt
- Real Estate Agent · Bloomfield Hills, MI · Member since 2014 · 117 posts · 30 votes11y
Great post and a some good info here. I personally pondered the turn key question myself when I started investing recently and decided to start doing wholesale first. I felt wholesaling was a good way to start so I became familiar with the process of buying and selling from various types of properties and property owners. It has also helped get real experience when it comes to valuing a property and its repairs.
When it comes to actually purchasing my first turnkey buy and hold I will wait for the right opportunity- multi-unit or small apartment property- where the seller is willing to finance with no or little money down. I think this strategy would minimize the personal financial risk associated with properties.
Just do your research, there are limitless possibilities to begin your path in real estate investing and your education, if willing to learn, is endless.
Good Luck!
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes11y
Thanks @Hattie Dizmond, and you are correct- I don't play :)
I haven't read this whole chain to know who is arguing what, but I can tell you- there is truly nothing about a turnkey purchase that you can't verify. Even if it seems blind, it doesn't have to be because you can check up on and verify everything about it. Period.
I also don't agree with @Curt Davis about dealing directly with a local turnkey company. For one, in my experience it's actually harder to deal with them directly a lot of times than it is with the affiliates because customer service isn't always their strong point (some companies are an exception) but for two, and more importantly, dealing direct with a local turnkey company will only give you biased advice. The reality is that there are several great markets out there, and they all have a totally different offering. What is good for one person may not be good for another, and you have to find the market that is good for you. If you ask a local turnkey company what the best market to invest in is, of course they will say their market.
- Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes11y
heehee well said Sistah Investah. There are several markets that can give people what they want. We all have our favs of course but not at the expense of bashing others ;-)) And yes, everything is verifiable n today's world. So nice!!
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes11y
Originally posted by @Ali Boone:
Thanks @Hattie Dizmond, and you are correct- I don't play :)
I also don't agree with @Curt Davis about dealing directly with a local turnkey company. For one, in my experience it's actually harder to deal with them directly a lot of times than it is with the affiliates because customer service isn't always their strong point (some companies are an exception) but for two, and more importantly, dealing direct with a local turnkey company will only give you biased advice.
How unbiased can you be when you're making money off the deal? And what expertise can you provide when you have no hands on investing experience, have only been sending money to turnkey operators "investing" for you for only two years and have NEVER even seen those properties? What do you add?
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Ali Boone There are two sides to what you state its obvious a turnkey provider is going to be partial to their market.. But the exact same can be said of someone like you who gets compensated to steer folks to a certain turn key provider in a certain market... Your advice and opinions will no doubt be biased as well. And of course your not the only marketing company out there.. But your posts on BP, as the original OP stated comes off a little short of full disclosure I mean I even know your response before you write it.. Its the "I live in Socal and its too expensive here so I only invest out of state blah blah blah. It would be nice if you actually gave any concrete and real advice to these folks that are asking for it.. other than to promote buying out of state as buying out of state is just plain risky and many should never attempt it for a myriad of reasons.
And are either of you lady's who are selling Real Estate for these companies licensed in your state or the state that the properties are in?
If not I think what you all are talking about, IE having websites talking to investors coordinating inventory for the investors to buy.. then getting paid to do so is clearly selling Real Estate.. And I know its a fine line here .. However I would suspect if an inquiry was made to the Department of Real Estate in the states you folks operate out of ( and I have looked at Ali's site) and if indeed your not licensed I think you would probably get a letter to cease activity until the time you have your RE brokers licenses. As well if an investor was hurt in a transaction and their was litigation you would be wide open to a claim.
The only West Coast marketing guys I knew that followed the rules to the letter were Jay and Bill down in San Deigo they were RE max agents had their radio show and all transactions would go through a RE max agent in the state they were working in. and of course Brokers can give other brokers in any state a referral fee all legally. I funded almost a 100 deals for their clients in the day.
- Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes11y
Originally posted by @Account Closed:
Originally posted by @Ali Boone:
Thanks @Hattie Dizmond, and you are correct- I don't play :)
I also don't agree with @Curt Davis about dealing directly with a local turnkey company. For one, in my experience it's actually harder to deal with them directly a lot of times than it is with the affiliates because customer service isn't always their strong point (some companies are an exception) but for two, and more importantly, dealing direct with a local turnkey company will only give you biased advice.
How unbiased can you be when you're making money off the deal? And what expertise can you provide when you have no hands on investing experience, have only been sending money to turnkey operators "investing" for you for only two years and have NEVER even seen those properties? What do you add?
Hmmmm, Bob, I believe we can recommend something without bending the truth. Affiliates are paid for recommending people yes. But why in the world would anyone recommend a junk property. I have many friends that are affiliates for products they are crazy about; they started using the product and then sad, "Hey I want to help others enjoy this too!". There is nothing wrong with this.
And it still takes MUCH research and expertise to pick a good company and good market to invest in. Just because someone is buying turnkey doesn't mean they are stupid---not at all. The thing is to know the numbers you want, study the area and then give the TK company the criteria---then verify everything before pulling the trigger. It takes a lot of skill to invest this way also.
The numbers are what matters not having EVER SEEING the property. And TK investors aren't looking to add anything; they are looking for long term, cash flowing or appreciating (or both) solid investments. I love it when my friends ADD to my live by recommending doctors, lawyers, title companies, restaurants, shampoo . . . you get the picture.
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Considering you both get paid on referrals I would expect you to disagree with my when I state that dealing direct with the turnkey provider is the best thing for the investor.
In most cases affiliates like you both dont own property in Memphis and have either never been here or only been here 1 or 2 times, not enough to be considered an expert. You also make it more difficult for the actual investor to get a deal as I am sure like most you require a hefty " fee " for bring a buyer.
When your client that you bring has a problem they wont get any real help from you as you have been paid already but now they are the responsibility of the turnkey provider who has taken all the risk and financial expense.
I am not saying affiliates dont deserve anything as bring a buyer does have value. But I dont know how you can say that dealing with you long distance is better for the end buyer then dealing direct with the actual company located in that market?
Curt Davis - KAIZEN Realty538 Reviews - Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes11y
I love it when the pot/kettle nonsense starts :-)
- Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes11y
Originally posted by @Melodee Lucido:
Originally posted by @Account Closed:
Originally posted by @Ali Boone:
Thanks @Hattie Dizmond, and you are correct- I don't play :)
I also don't agree with @Curt Davis about dealing directly with a local turnkey company. For one, in my experience it's actually harder to deal with them directly a lot of times than it is with the affiliates because customer service isn't always their strong point (some companies are an exception) but for two, and more importantly, dealing direct with a local turnkey company will only give you biased advice.
How unbiased can you be when you're making money off the deal? And what expertise can you provide when you have no hands on investing experience, have only been sending money to turnkey operators "investing" for you for only two years and have NEVER even seen those properties? What do you add?
Hmmmm, Bob, I believe we can recommend something without bending the truth. Affiliates are paid for recommending people yes. But why in the world would anyone recommend a junk property. I have many friends that are affiliates for products they are crazy about; they started using the product and then sad, "Hey I want to help others enjoy this too!". There is nothing wrong with this.
And it still takes MUCH research and expertise to pick a good company and good market to invest in. Just because someone is buying turnkey doesn't mean they are stupid---not at all. The thing is to know the numbers you want, study the area and then give the TK company the criteria---then verify everything before pulling the trigger. It takes a lot of skill to invest this way also.
The numbers are what matters not having EVER SEEING the property. And TK investors aren't looking to add anything; they are looking for long term, cash flowing or appreciating (or both) solid investments. I love it when my friends ADD to my live by recommending doctors, lawyers, title companies, restaurants, shampoo . . . you get the picture.
DO YOU CHARGE YOUR FRIENDS FOR YOUR RESTAURANT RECCOMENDATIONS? I DON'T. MAYBE JOSH & BRANDON SHOULD PONY UP HERE.
Cafesistina.com
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Melodee Lucido the difference is when they are recommending these other folks they are not getting compensated for it.
@Curt Davis And Curt has a great point when the deal is done your paid and down the road... The issue many TK have with some marketing folks ( and I am not saying that is Melodee and Ali) but what representations have been made to induce the person to buy.
Every one has financial pressures and sometimes in sales things are puffed.. and then its the TK operator that has to live with the puffing down the road..
I run into this with my long term financing that I do for IRA buyers that have bought turn key and there sometimes was a sales rep involved...
But at the end of the day from my perspective as long as you folks are licensed have E and O insurance like a licensed agent would have to protect your buyers and referrals then all is good..
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