Is the BRRRR strategy possible with turnkey companies

San Diego, CA · Member since 2016 · 25 posts · 17 votes

I've owned my PR 3yrs and should soon be able to get a HELOC of 100k. I live in San Diego but looking to invest out of state. I'm looking for turnkey companies that would facilitate me using the BRRRR strategy so that I can continue to use that money over and over. I'm hoping I can do this with a new property once a year. Is this something that turnkey companies do? Specifically I keep coming back to Kansas City as a market I like. But I haven't closed the door on other markets like Atlanta or (if it were possible Nashville, Clarksville TN). I've tried looking online but it doesn't seem to be something that is mentioned on companies Web sites. I don't really want to just start randomly calling turnkey business. Any insight or recommendations would be greatly appreciated.

0 Reply

68 views

Most Popular Reply

Andrew SyriosPro Member

Moderator

Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes

In short, no. Turnkey companies need to make a profit themselves and since you need to be into a property for 75% of it's market value to completely BRRRR out, they would have to be all in for more like 65%. In addition, they wouldn't have a problem selling it for 90% of market value, so why would a turnkey company leave so much money on the table? From what I've seen, generally, turnkey companies sell slightly over market value, although there are exceptions of course.

This isn't to say there aren't good turnkey companies or you can't purchase good buy and hold investments from them. But you're almost never going to get a killer deal from a turnkey company.

Podcast Guest on Show #121

4 Reply

See this reply in the discussion

51 Replies

Jump to latestLatest

Sort by

Andrew SyriosPro Member
Moderator
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
9y
In short, no. Turnkey companies need to make a profit themselves and since you need to be into a property for 75% of it's market value to completely BRRRR out, they would have to be all in for more like 65%. In addition, they wouldn't have a problem selling it for 90% of market value, so why would a turnkey company leave so much money on the table? From what I've seen, generally, turnkey companies sell slightly over market value, although there are exceptions of course.
This isn't to say there aren't good turnkey companies or you can't purchase good buy and hold investments from them. But you're almost never going to get a killer deal from a turnkey company.
Podcast Guest on Show #121
4 Reply
James Riggs
OP
San Diego, CA · Member since 2016 · 25 posts · 17 votes
9y
I was kinda afraid of that. I was hoping to pay cash for a property put in the money to rehab and then BRRRR out after it was rented out. Thanks for the feedback I will keep on learning
2 Reply
Curt DavisBusiness Member
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
9y
if you find a company offering this strategy it's most likely a home in an area you don't want to own in.
Curt Davis - KAIZEN Realty538 Reviews
Website View Page
4 Reply
James Riggs
OP
San Diego, CA · Member since 2016 · 25 posts · 17 votes
9y
Good warning, thanks
0 Reply
Gordon CuffePro Member
Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
9y
@James Riggsthe other challenge is that 99% of lenders will want you to own the property for one year in order to use the new appraised value to get your cash back. You can meet wholesalers for the Kansas City market to find a house below market. Then you just remodel it and rent it out. You hopefully have equity in the house so you can refi cash out on the house
1 Reply
James Riggs
OP
San Diego, CA · Member since 2016 · 25 posts · 17 votes
9y
My only concern with that would be putting a team together from across the country to be my boots on the ground. Verify the location, do and run the rehab, find a tenant. But that may be my only option.
1 Reply
James Riggs
OP
San Diego, CA · Member since 2016 · 25 posts · 17 votes
9y
I'm also not so worried about having to wait a year to get my money back, just as long as I can get it back and do it all over again.
1 Reply
Andrew Johnson
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
James Riggs You're buying a turnkey property because it's turnkey. If you buy a property from them that needs major rehab it really defeats the purpose. Not to mention that some turnkey companies will only manage properties they have rehabbed themselves. Most would argue you're paying a premium to buy a turnkey property. At least compared to what an investor would pay. The "value" you're getting is someone else running the rehab and managing the property.
2 Reply
Fabio Salas
Investor · Champaign-Urbana, IL · Member since 2014 · 84 posts · 49 votes
9y
@James Riggs the term 'turnkey' implies that once you purchase the property you can turn the key to your front door and immediately live in it or rent it out. If the property needs work it is no longer a 'turnkey' property. Some people market their properties as 'turnkey' in need of minor rehab, but from what I've seen those are shady deals in one way or another.
2 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
9y
Originally posted by @Fabio Salas:

@James Riggs the term 'turnkey' implies that once you purchase the property you can turn the key to your front door and immediately live in it or rent it out. If the property needs work it is no longer a 'turnkey' property....
As indicated by Fabio turnkey implies there is no rehab necessary which implies you are missing one key R in the Brrr. Without the rehab there is no forced appreciation from the rehab and therefore only principle paydown and market appreciation. At 70% LTV on a refinance you need about 30% equity which implies you need close to 30% market appreciation which is very unlikely in a year. Basically the rehab R is a critical part of the BRRR and turnkey implies no rehab is needed and therefore forced appreciation opportunities from rehab do not exist.
Good luck
0 Reply
Gordon CuffePro Member
Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes
9y
@James Riggsif you pay 75k for a turnkey house with cash , in one year you can do a cash out refi but the lender will only give you 70% to 75% of the appraised value which will be around 75k. You will get around 57k cash back , but if you get 550 per month bet in rents for one year then you will have around 73k back and can buy another house . The other option is buy a house for 45k that needs 25k in work and that will appraise for 100k after the work is done and you take a 75k loan out after 3 months
0 Reply
Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
Will the BRRRR strategy work with turnkey as you asked, No. You simply won't have enough equity to cash out refi in one year or even 3 (unless you are buying in places like CA for super appreciation (could be a big gamble on a short to mid term play).
As another mentioned, buying a fixer for cash and doing the rehab yourself (with a team) would be the better choice. Your concerns of having that team with boots on the ground is certainly warranted so I would suggest that you seek out a flipper who also does his or her own work (has a GC license) and structure a deal where they find the deal and fix it for a reasonable fee that makes sense to both sides. The deal would have to be good enough so that you could do the cash out refi later and get most of your capital back. No matter, this would require some intensive due diligence and then trust in the team.
Another option would be to join forces with a group of investor's buying a large number of doors at a time with value add opportunities. You may not get your money back in one year, but certain deals would offer a high principle return in 2-4 years with the right strategies.
Podcast Guest on Show #130
1 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
9y
Originally posted by @James Riggs:

I was kinda afraid of that. I was hoping to pay cash for a property put in the money to rehab and then BRRRR out after it was rented out. Thanks for the feedback I will keep on learning
This question comes across my desk on a daily basis.
The answer is yes, but mostly no.
You can accomplish a version of this using a brokerage that offers PM services. However you won't be getting all of your money back out of the deal. For deals that good you would need to be spending time and money building a large infastructure that allows you to reach out to many many sellers directly.
0 Reply
Jeff Wallenius
Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
9y
James Riggs this option is available with the understanding that you'll most likely not get 100% of your capital back. Why? As others have stated the operators on the ground need to make a few bucks. We are doing these in Indianapolis with a high volume ground partner. Happy to share more via PM.
1 Reply
James Riggs
OP
San Diego, CA · Member since 2016 · 25 posts · 17 votes
9y
@Gordon Cuffe your second example is what I was thinking. Buying cash around 70k putting in around 30k getting a renter in place I thought I might have to wait up to a year to get it reapraised at hopefully120k cash out and do it all again. @Will Barnard @James Wise A brokerage that offers PM services, thanks that looks like it might be a good option something for me to start looking into @Jeff Wallenius I do understand its going to cost me something, but for me in my situation working with a credible company that has boots on the ground and a tested process in place would be worth it. I will be in touch. Thanks again everyone
0 Reply
Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
Hey James. Well, a few things. You can absolutely combine BRRRR+turnkey. I'm working with a company right now who is doing exactly that and it's working really well. There are a lot of companies out there who say they can do it, but with that particular strategy you want to be extremely careful who you work with because unlike with normal turnkeys, you are the one holding the risk before the property proves itself. But work with a good company, and it's an amazing strategy.
I don't know of any companies doing it in KC, unfortunately. Atlanta either, but unlike KC, I don't support Atlanta as one of the better markets to buy in now anyway. I do still support KC, but it's normal turnkeys. Nashville has been too expensive for a while to get much for cash flow, so definitely no turnkeys there, and Clarksville is a little cheaper but much smaller so no turnkeys there either. I wish Nash had some...I'm obsessed with Nash (and went to school there)!
[Solicitation Removed]
2 Reply
James Riggs
OP
San Diego, CA · Member since 2016 · 25 posts · 17 votes
9y
Originally posted by @Ali Boone:

Hey James. Well, a few things. You can absolutely combine BRRRR+turnkey. I'm working with a company right now who is doing exactly that and it's working really well. There are a lot of companies out there who say they can do it, but with that particular strategy you want to be extremely careful who you work with because unlike with normal turnkeys, you are the one holding the risk before the property proves itself. But work with a good company, and it's an amazing strategy.
I don't know of any companies doing it in KC, unfortunately. Atlanta either, but unlike KC, I don't support Atlanta as one of the better markets to buy in now anyway. I do still support KC, but it's normal turnkeys. Nashville has been too expensive for a while to get much for cash flow, so definitely no turnkeys there, and Clarksville is a little cheaper but much smaller so no turnkeys there either. I wish Nash had some...I'm obsessed with Nash (and went to school there)!
Happy to chat anytime if you want to message me. Oh, and I'm not far from you....just up in LA!
Its great to get so much feedback from different perspectives. I just visited TN this past year and love it. Figured it was getting to expensive but I like to keep an eye it. Maby someday I will end up there. It would be great to talk with someone who has done this before. Getting your input on what to watch out for, and your positive experiences. I will definitely be in touch. Don't forget your sunscreen! Feels like summer this week
0 Reply
Brendan H.
Real Estate Agent · Denver, CO · Member since 2015 · 125 posts · 43 votes
9y
James Riggs I agree with much of the above. Best to try to network with the areas that interest you. Eventually partnering with somebody that has boots on the ground is your best bet in my opinion. As mentioned, buying turnkey isn't necessarily a bad thing, it will just limit some of your potential to gain the equity personally from "forcing" the appreciation. The turnkey company will earn those $'s. I would imagine there are sharp people in those areas that are in need of more capital, so as you network for a bit I'm sure you'll be able to find somebody worth working with. The BRRRR strategy takes a lot of effort but is well worth it. BP is a great place to network and having some capital like you do is a great way to get started. Keep up the due diligence & I'm sure you'll find something that'll work!
0 Reply
Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
9y
Not really the pro forms are missing refinance costs.
0 Reply
Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
Originally posted by @Ali Boone:

Hey James. Well, a few things. You can absolutely combine BRRRR+turnkey. I'm working with a company right now who is doing exactly that and it's working really well. There are a lot of companies out there who say they can do it, but with that particular strategy you want to be extremely careful who you work with because unlike with normal turnkeys, you are the one holding the risk before the property proves itself.
So I'm curious, What does "working really well" actually mean? How many TK properties did you buy where you were able to purchase under market and cash out refi at least 75% of your initial capital through a lender willing to do so?
Podcast Guest on Show #130
0 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
Originally posted by @James Riggs:
I've owned my PR 3yrs and should soon be able to get a HELOC of 100k. I live in San Diego but looking to invest out of state. I'm looking for turnkey companies that would facilitate me using the BRRRR strategy so that I can continue to use that money over and over. I'm hoping I can do this with a new property once a year. Is this something that turnkey companies do? Specifically I keep coming back to Kansas City as a market I like. But I haven't closed the door on other markets like Atlanta or (if it were possible Nashville, Clarksville TN). I've tried looking online but it doesn't seem to be something that is mentioned on companies Web sites. I don't really want to just start randomly calling turnkey business. Any insight or recommendations would be greatly appreciated.
Turnkey and brrrr method are not a known combined strategy ( unless Cali type location ). Rehab projects are risky and rehab projects far away very risky. REI is already considered high risk as is. Even if you found a turnkey company to do this it could be a big gamble. If you do find one let us know how it turns out. Imo there are far better and safer REI opps in your own backyard. Like this https://www.biggerpockets.com/forums/517/topics/37...
Good luck with your search!
0 Reply
Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
@Will Barnard Would have to do some research to get you specific numbers of how many properties, but it's been quite a few so far. A significant number of buyers I know, and then the company has also done lots more than that outside of my network. So not sure total numbers. Can find them out if you really want to know. And most people are getting out 100% of their initial capital on the refi.
0 Reply
Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
9y
So if I am reading into this correctly, you are speaking from second hand knowledge of investors whom you have referred to TK companies and not from your own portfolio? I was looking for actual first hand info of precise numbers of specific deals where this worked. Reason being, I find it hard to believe that a TK company can sell a fullybrehabbed property to a buyer at enough of a discount to make the needed profit and still deliver enough of a discount to the buyer so that they have built in equity. Then that buyer would have to find a lender willing to do a cash out refi at least 12 months later. That 12 months would not be a whole lot of time to also support market appreciation in any significant amount so that the refi LTV was still within the 75%-80% range for the lender.
I have a strong inclination that such situations are very few and far between and would likely rely on a few years of super market appreciation like we have had in the recent past (and very little chance of that continuing for any future plays of this nature).
Podcast Guest on Show #130
2 Reply
Matt R.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
9y
Originally posted by @James Riggs:

I've owned my PR 3yrs and should soon be able to get a HELOC of 100k. I live in San Diego but looking to invest out of state. I'm looking for turnkey companies that would facilitate me using the BRRRR strategy so that I can continue to use that money over and over. I'm hoping I can do this with a new property once a year. Is this something that turnkey companies do? Specifically I keep coming back to Kansas City as a market I like. But I haven't closed the door on other markets like Atlanta or (if it were possible Nashville, Clarksville TN). I've tried looking online but it doesn't seem to be something that is mentioned on companies Web sites. I don't really want to just start randomly calling turnkey business. Any insight or recommendations would be greatly appreciated.
Looks like there is are couple brrrr TK outfits after all. I stand corrected. I had not seen before.
From what I can tell the tk seller picks up the total beater house for 5-10k and in some cities there are blocks loaded with these. Then markets and sells for 100k cash previous to rehab? Which is insane imo. At some point in the future the house is rehabbed. There could be a ton of profit or wiggle room on 95k pre paid rehab budget for the seller if everything goes according to plan and that rehab might cost 30k to 50k. But that is their profit motive so understandable. The refinance part is left for the buyer. To prepay 100% upfront for a yet to start and unknown rehab budget might be the extra risky part for you not them.
Anyhow here is one of the TK brrrr companies that apparently do exactly this already. I have heard of them before just not for this newer brrrr type deal.
Good luck!
https://www.maverickinvestorgroup.com/
0 Reply
James Riggs
OP
San Diego, CA · Member since 2016 · 25 posts · 17 votes
9y
Originally posted by @Will Barnard:

So if I am reading into this correctly, you are speaking from second hand knowledge of investors whom you have referred to TK companies and not from your own portfolio? I was looking for actual first hand info of precise numbers of specific deals where this worked. Reason being, I find it hard to believe that a TK company can sell a fullybrehabbed property to a buyer at enough of a discount to make the needed profit and still deliver enough of a discount to the buyer so that they have built in equity. Then that buyer would have to find a lender willing to do a cash out refi at least 12 months later. That 12 months would not be a whole lot of time to also support market appreciation in any significant amount so that the refi LTV was still within the 75%-80% range for the lender.
I have a strong inclination that such situations are very few and far between and would likely rely on a few years of super market appreciation like we have had in the recent past (and very little chance of that continuing for any future plays of this nature).
This is something I had not thought of, is it difficult to find a lender to do a cash out refi a year after owning the property? What would be the average time frame ?
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.