Starting in Turnkey REI

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Starting in Turnkey REI

Sandesh Sapre
Investor · Saint Paul, MN · Member since 2015 · 9 posts · 2 votes

Hi everyone,

I am Sandy. I heard about Turnkey Real Estate investing a few months back. I like the concept of passive income without being an actual landlord. I started researching companies that provide this service. So far I have talked to a 3 of them. American Wealth Builder, Epic and maverick group. Any of you worked with these companies before. I'd love to hear your experiences. I looked at the sample properties from each one of these and they look reasonable on paper in terms of numbers. However when I researched about the neighborhoods, each one of those happened to be lower income neighborhoods with not so great schools and that was the reason ( in my mind at least) for the price to be little cheaper and numbers being attractive (12-15%) I am little concerned about investing in such properties simply from vacancy perspective.

A part of me tells me that they are just trying to make a quick sale as nothing is guaranteed in real estate business. Last thing I want to do is invest in an out of state property that sits empty for the most part. There is also a part of me that says that I won't know it unless I actually do it

Sorry for the long post. Just wanted to provide where I am coming from on the matter. I look forward to expert opinions. Also, if you have any other suggestions in terms of companies, I'd truly appreciate that. 

1Reply
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Most Popular Reply

Marco Santarelli
Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
11y

Hello @Sandesh Sapre

Welcome to BiggerPockets!

This is a great question and one that I hear often...

Full disclosure -- I am the founder and president of one of the first turnkey property investment companies in the U.S.  Started the business over 11 years in January 2004.

Here is a VERY brief reply to your questions:

  • Not all so-called "turnkey" companies are the same.  I know of several people/entities that do nothing more than make an introduction and nicely "toss you over the fence" to another company that owns property in whatever market.
  • A good turnkey provider will have a proven system in place and "hold your hand" through the entire purchase process.
  • A full-service provider will have virtually everything you need to assist you with your transaction -- from property managers, to lenders, to inspectors, etc, etc.
  • Be aware that some providers are "married" to their market and properties.  We like to say we are Agnostic because we're not attached to any preferential market, service provider, etc.  The client's goals and criteria always come first.
  • Numbers will often look better on paper than in practice.  This one point can be a large discuss and a separate post, but be sure that any pro-forma includes a vacancy factor as well as a maintenance reserve in addition to the usual expenses plus property management.
  • Often the properties are leased so you can review actual numbers.
  • Stick to better neighborhoods ("A" and "B" type) if you want better quality tenants.  Every investor is difference and their investment goals also drive that criteria.  (I wrote a great article on our website blog on this subject.)
  • Don't be sold on appreciation (or potential appreciation).  That is basically speculating on the market.  Appreciation is icing on the cake and your property should keep up with inflation over the long-term.  So...
  • Make sure the number make sense the day you purchase the property.  Net cash-flow must be positive and the cash-on-cash returns should meet your goals or expectations.

I've been personally investing out-of-state since 2004 and have seen the good, the bad, and the ugly.  I'd be happy to share those successes and war wounds with you. 

I just finished writing an eBook of the subject if you want a copy -- just PM me. 

Hope that helps a little.   I could go on and on... 

Continued success!

3Reply
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11 Replies

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  • Alexander A.
    Investor · Indianapolis, IN · Member since 2015 · 143 posts · 82 votes
    11y

    Hi Sandesh,  

    Just over a year ago I started purchasing turnkey properties also.  They can really be awesome but you do have to watch out for bad signs and a high crime area is a bad sign.  I have looked into maverick before and im pretty sure they are just a marketer.  They dont actually own any of the turnkey properties they sell.  I think its best if you pick a particular city you want to invest in, then start looking for the actual turnkey sellers from that city.  Each one needs to be carefully reviewed and interviewed to determine which one you want to work with.   Anyhow, i can provide much more detail into a specific category so feel free to shoot me a PM and we can discuss.

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    11y

    @Sandesh Sapre

    Welcome to the site.

    I am not familiar with the Minnesota real estate market but I am guessing it is not one of the super expensive markets such as California or NYC.

    Have you looking into buying close to you and having a property management company manage the property for you? 

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    11y

    Hello @Sandesh Sapre

    Welcome to BiggerPockets!

    This is a great question and one that I hear often...

    Full disclosure -- I am the founder and president of one of the first turnkey property investment companies in the U.S.  Started the business over 11 years in January 2004.

    Here is a VERY brief reply to your questions:

    • Not all so-called "turnkey" companies are the same.  I know of several people/entities that do nothing more than make an introduction and nicely "toss you over the fence" to another company that owns property in whatever market.
    • A good turnkey provider will have a proven system in place and "hold your hand" through the entire purchase process.
    • A full-service provider will have virtually everything you need to assist you with your transaction -- from property managers, to lenders, to inspectors, etc, etc.
    • Be aware that some providers are "married" to their market and properties.  We like to say we are Agnostic because we're not attached to any preferential market, service provider, etc.  The client's goals and criteria always come first.
    • Numbers will often look better on paper than in practice.  This one point can be a large discuss and a separate post, but be sure that any pro-forma includes a vacancy factor as well as a maintenance reserve in addition to the usual expenses plus property management.
    • Often the properties are leased so you can review actual numbers.
    • Stick to better neighborhoods ("A" and "B" type) if you want better quality tenants.  Every investor is difference and their investment goals also drive that criteria.  (I wrote a great article on our website blog on this subject.)
    • Don't be sold on appreciation (or potential appreciation).  That is basically speculating on the market.  Appreciation is icing on the cake and your property should keep up with inflation over the long-term.  So...
    • Make sure the number make sense the day you purchase the property.  Net cash-flow must be positive and the cash-on-cash returns should meet your goals or expectations.

    I've been personally investing out-of-state since 2004 and have seen the good, the bad, and the ugly.  I'd be happy to share those successes and war wounds with you. 

    I just finished writing an eBook of the subject if you want a copy -- just PM me. 

    Hope that helps a little.   I could go on and on... 

    Continued success!

    3Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    11y

    @James Wise -- I'd guess that there are some deals to be found around Sandy's local market, but the challenge might be the high rent-to-value ratio in the market.

    With a median price of $178,242 and rent around $1,300 for a SFD, this is a borderline market with a 0.7% R/V ratio.  That is my personal minimum and I don't suggest it to clients because of the better deals available in other areas/markets. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Sandesh Sapre

    I think the major issue with any SFR rental or the one's that are presented turn key generally is they lack history.. its all supposition as to how well they will do.

    You may want to look at multi family that is established one's that have track record then you can see through tax returns and actual P and L's how they have done over a 2 or 3 year period...

    for SFR's its all about price point in a given market.. or the what folks like to call A B C D class properties. Generally A is nice with majority owner occ and best schools then it falls down from there.. the highest returns on paper will be the lowest class and the most problematical to run consistently over time.

    And yes the sale of these is two fold ... one direct with the TK company and or through a marketing agent like some of those you mentioned above who are just like free lance RE brokers representing those TK companies that will pay them to market their product...

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    11y

    @Sandesh Sapre

    You need to do a little more homework on companies offering a full service system.  Make sure to check out some actual companies who are the ones who actually purchase, renovate and rent out the homes.  

    I am not a big fan of companies who offer a product but make you sign up in order to view what they are selling.

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  • Mark Shaffar
    Real Estate Agent · Madison, WI · Member since 2015 · 328 posts · 88 votes
    11y

    @Sandesh Sapre

    disclosure: I bought turnkey rentals in St. Paul and recently started working for that company I purchased from (Calhoun Ventures/Midwest Equity Partner)

     Especially if you are buying out of area you really want to do your homework. Tour their rehabs, get to know the people you are working with. Chris Clothier has a great video introducing the concept 

    1Reply
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    11y
    Originally posted by @Sandesh Sapre:

    Hi everyone,

    I am Sandy. I heard about Turnkey Real Estate investing a few months back. I like the concept of passive income without being an actual landlord. I started researching companies that provide this service. So far I have talked to a 3 of them. American Wealth Builder, Epic and maverick group. Any of you worked with these companies before. I'd love to hear your experiences. I looked at the sample properties from each one of these and they look reasonable on paper in terms of numbers. However when I researched about the neighborhoods, each one of those happened to be lower income neighborhoods with not so great schools and that was the reason ( in my mind at least) for the price to be little cheaper and numbers being attractive (12-15%) I am little concerned about investing in such properties simply from vacancy perspective.

    A part of me tells me that they are just trying to make a quick sale as nothing is guaranteed in real estate business. Last thing I want to do is invest in an out of state property that sits empty for the most part. There is also a part of me that says that I won't know it unless I actually do it

    Sorry for the long post. Just wanted to provide where I am coming from on the matter. I look forward to expert opinions. Also, if you have any other suggestions in terms of companies, I'd truly appreciate that. 

     Sandesh,

    I have been in this particular niche for a long time and met with or networked with many turnkey companies.  I have not heard of American Wealth Builder or Epic.  I have met with Matt Bowles who is one of the partners at Maverick and is a high quality person.  I think he would tell you that they are a connector - a company that vets turnkey companies for their clients and then connects them - not an actual turnkey company.  That is one small distinction for you to be aware of.  

    As for the other two companies, like I said, i have never heard of either one of them so I can't tell you anything about the good or bad.  I can tell you that there are a lot of companies in various cities around the country working in and selling in the cities that they are located.  They have histories and track records and lots of data for you to be able to learn from.  No matter which way you go, I would dig a little more before purchasing and make sure you are comfortable with the company you choose.  You should not have any part of you telling you that the company is just in for a quick sale.

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y

    Hey Sandesh,

    The biggest thing I want to tell you about your post is just that you can certainly buy turnkeys in higher income areas. A lot of the markets out there with higher returns are lower-income areas (but not necessarily unsafe or disaster areas either), but there are other higher-income options. The returns will be less, but they do exist. So definitely don't feel like you have to settle for an area you aren't comfortable.

    Hope that helps!

    0Reply
  • Sandesh Sapre
    OP
    Investor · Saint Paul, MN · Member since 2015 · 9 posts · 2 votes
    11y

    I talked to a company and have been looking at a couple of possibilities. Also talked to the person who was introduced as the person working for the property management. She sounded nice and was forthcoming. What I am struggling with is the property valuation. They have also listed it on Zillow / Trulia which kind of surprised me ( Estimated at 55k)
    Also, checking the county records the property is evaluated at 18K. The asking price is 85K .Financing is available.  Also, on the county website another property managment's name came up. 
    So I am not able to connect all the dots here. The person I am in touch with is very prompt in answering the questions but almost every time it raises another question. I have been given the option of putting a contingency of fully leased and cash flowing at the time of closing otherwise I can back out. 

    So just wanted to know how does one do due diligence on out of state turnkey investment properties. 

    -Sandesh

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Sandesh Sapre

      one thing you could do to cut through the inconsistencies is engage an appraiser to do a drive by appraisal for you.. front pictures and comps in the neighborhood those usually run about 200 bucks.. you could put this as a contingency in your agreement.

    In any cash flow market in the mid west  upper east  deep south.. you will drive yourself nuts looking at on line valuation data.. because they are picking up the bombed out houses that the company your buying form has paid to buy them.. what you don't know is how much they spend to rehab them..

    One of my clients routinely buys assets in the 25 to 40k  range and sells them north of 175k but they also gut them to the studs and put 80 to 100k into rehab.  Everything brand new.

    So the on line source's pull up the wholesale buy and you look at the retail exit and it does get confusing..

    Also remember valuations from a county assessor are always VERY low or generally low.

    Oregon is one of the few states I know that on the assessor page they give you tax assessed value.. Also less than market... then they also tag a market value to the property that is generally pretty accurate for county work, condition of the property not withstanding.

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