Questions on turn key properties in Indianapolis

16 Replies

Hi BP crew, Hope you are all well I’m an out of state investor from CA and my goal for 2018 is to buy multiple (targeting 10 this year) small single family homes in the Indianapolis between $50K to $70K with minimum $500 Cash on cash return. Does this sound realistic or blowing smoke? With 1 realtor as my boots on the ground on an area that I’ve not seen, I’m starting to look at turn keys and have reached out to multiple turn key providers here in the BP community. My goal is for cash flow, I felt that if I buy one, I’ll learn by taking action rather than sitting on the sidelines . Only downside I see in turnkey is that it seems there is no appreciation and I can’t execute BRRR strategy since off the bat the property is sold at a higher price (not below 20% market value) and sometimes sold at a price way higher than zillow or Redfin estimate which tells me that the selling price is really high. I will appreciate your input and more so from someone who really made it big and achieving massive success in turn key If that is even possible. Much thanks all!
Originally posted by @Fernando Enrile :
Hi BP crew,

Hope you are all well

I’m an out of state investor from CA and my goal for 2018 is to buy multiple (targeting 10 this year) small single family homes in the Indianapolis between $50K to $70K with minimum $500 Cash on cash return. Does this sound realistic or blowing smoke?

With 1 realtor as my boots on the ground on an area that I've not seen, I'm starting to look at turn keys and have reached out to multiple turn key providers here in the BP community. My goal is for cash flow, I felt that if I buy one, I'll learn by taking action rather than sitting on the sidelines . Only downside I see in turnkey is that it seems there is no appreciation and I can't execute BRRR strategy since off the bat the property is sold at a higher price (not below 20% market value) and sometimes sold at a price way higher than zillow or Redfin estimate which tells me that the selling price is really high.

I will appreciate your input and more so from someone who really made it big and achieving massive success in turn key If that is even possible. Much thanks all!

Prices that low kind of sounds like it might be getting you into something that may be difficult. What do you know about the neighborhoods or the quality of the tenants? You want to make sure you are not being sold the nicest house in a horrible area. It might be difficult to fill or to keep tenants!

Try looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

The 50% rule is rather accurate. We manage homes for hundreds of investors and I believe that they net about 45%-55% of the gross rental income (without figuring financing.) There are multiple things that impact these numbers, but at the end of the day, if you tally an average over 5 years, the net really does come close to 50% across the board. With that being said:

To cash flow $500/mo is easy. To net $30,000 over 5 years is not so easy. At that point, you are taking in to consideration vacancies, make-ready expenses, service work/maintenance, and capex. So to cash flow $500/mo on average over time, you are looking at $950-$1,050 rentals. While they can occasionally be found in the $50k-$70k price point, it isn't very often. The closest thing that I see is finding MLS deals in the $90k's that will rent for $1,100-$1,200. These homes are usually in pretty good shape and you can get in to these for about $20k with bank financing. After financing, most of my investors are netting about $2,000-$3,000 per year (10%-15% COC ROI) and they have a good asset, purchased at a discount, that is appreciating around 3.5-4% of the FMV. Here's an example:

Home value : $110,000

Rent rate : $1,150/mo.

Purchase price : $92k

20% down = $18,400

Closing costs, due diligence, and make-ready costs = $3,000

Holding costs during vacancy (includes 2 mortgage payments) = $1,200

Total out of pocket = $22,600

NOI (55% Gross) = $7,590/year

Financing costs = $5,928/year

Cash Flow = $1,662/year

7.35% COC ROI

Equity from beginning = $18,000

Appreciation at 3.5% = $3,850/year (and still growing each year.)

Sell at FMV at year 5 = $130,645

Total Profit = $8,310 cash flow + $38,645 = $46,955

Less Realtor Commissions = $9,150

Profit = $37,805 or $7,561 annually for 5 years

IRR = 33.45% ROI per year.

This is one of the reasons I prefer better assets as opposed to cheaper assets. When financing, there's not enough cash flow to bother with. Let is stockpile to handle that speed bump down the road. The actual money is in the equity machine that you have created between the discount rate and a desirable property with a retail exit strategy.

@Fernando Enrile As Ross has indicated above focusing on the price range of $50-70k is likely going to get you into a more headaches than cashflow.  Focusing on better asset class as Ross outlines is a much better strategy in my view.

@Ross Denman thank you very much, very insightful.  I messaged you and scheduling a quick time to chat next week.  

@Larry F. much appreciate the input, I will send you a message to connect. Thanks again both!!

@Fernando Enrile Personally, I wouldn't touch anything in the $50K-$60K price range. You will never attract quality tenants in that class of property. High $60K will be in a lower C class neighborhood which could have it's challenges. Low $70's with rents of around $800 to $850 will get you in to a decent C class area. If you want a nicer B class area, you're going to have to move up to the $90K to $100K range. The rents in the area will tell you everything you need to know about the type of neighborhood it is. With few exceptions, We don't do anything with rents of less $750 on a 3/1. Ask yourself what kind of tenant will you get in an areas with rents of $650. 

I wouldn't put much faith in a Zillow Zestimate. Just because you see a selling price above the Zestimate value doesn't mean that the price is too high. The prices on our properties are usually above the Zestimate on Zillow but we rarely have appraisal issues. Zillow is an automated valuation tool that can only pull from public records data. It can't differentiate between distressed properties and renovated one's and it can't account for different features and amenities. It is not an appraisal and is notoriously inaccurate in many markets, Indianapolis and Kansas City among a couple of them.

Do you have 500-700k or were you planning on leveraging each of those purchases? I personally would never buy SFH TK. I would buy a TK apartment building in an area in the path of progress. An area that’s on the up and up, with a good tenant pool and a lot of demand. There are plenty of them around, pick your market and your price range and check out loopnet. Just to be clear turnkey just means renovated with no additional work to be done. Turnkey providers sell SFH that have been renovated and already have PM. I think it’s crazy to buy 10 TK SFH when you could buy a few apartments. But I’m not selling TKs!

Focus on value not price, don't get caught up in the game of owning the most doors. It's going to be MUCH MUCH MUCH easier to own fewer high quality doors then a gazillion low quality/low price ones. Be warned these attractive numbers on paper hardly ever turn out to be anywhere near as attractive in real life.

@Fernando Enrile - I use a TK provider in Indy and purchased 2 more last year. One was $53k and the other $70k. The cheaper house is in an area called 16tec and it is where i bought my very first house from the provider 5 years ago @$46k on the same street about 6 doors down. Appreciation will depend on the neighborhood and in my case, Indy has spent millions revitalizing this area to bring in new companies. Can’t go wrong with that...

Originally posted by @Fernando Enrile :
Hi BP crew,

Hope you are all well

I’m an out of state investor from CA and my goal for 2018 is to buy multiple (targeting 10 this year) small single family homes in the Indianapolis between $50K to $70K with minimum $500 Cash on cash return. Does this sound realistic or blowing smoke?

With 1 realtor as my boots on the ground on an area that I've not seen, I'm starting to look at turn keys and have reached out to multiple turn key providers here in the BP community. My goal is for cash flow, I felt that if I buy one, I'll learn by taking action rather than sitting on the sidelines . Only downside I see in turnkey is that it seems there is no appreciation and I can't execute BRRR strategy since off the bat the property is sold at a higher price (not below 20% market value) and sometimes sold at a price way higher than zillow or Redfin estimate which tells me that the selling price is really high.

I will appreciate your input and more so from someone who really made it big and achieving massive success in turn key If that is even possible. Much thanks all!

BRRRR & Turnkey are completely opposite of one another.

With BRRRR you are running a full business. That's going to entail things like handling contractors, directly advertising to distressed sellers, taking on serious risks & overhead etc.....

With Turnkey you are paying a premium to buy a property from a company who already did everything mentioned above.

Essentially one model you are going out & hunting the food to later cook it. The other one you are simply going to a restaurant. Neither one is better, just two different avenues for revenue. What are you looking for right now? Another business/career or simply a passive vehicle to invest money into?

@Mike D'Arrigo I had some initial discussions with some folks here in BP, and it seems that's the consensus. Your comment about the Zillow estimate help me understand why some properties being sold at your site is significantly higher than what is estimated by Zillow. I sent you an email since we're both in the bay area, wanted to know more about turn keys and how can your business help me achieve my goals. 

@Lee Ripma I like the straight shooter question :) I am planning to leverage 20% from the bank. I am will start with 1 and work my way to ten high quality turn key rentals with the help of these good folks in BP. Eventually I'll find the right one with enough due diligence, I work in compliance and it's my strong suite. Thanks for the apartment complex insight, maybe I can explore that once I gain some small success, I need to jog first before I sprint. 

@Matt K. agreed sir! I am looking into high quality turn keys that will generate a good cash flow.  Being an experienced investor, I would very much appreciate your input since you and I are in the same area. I will private message you Matt

@Hank Keller thank you for the input, is 16tec a town in Indy? Anyway, in your experience did you gain any appreciation and who did you use as a turn key provider? Is it fair for me to say that overall you are happy with the experience? Seems like Indy is the place to be :) 

@Ross Denman I left you a voicemail yesterday, will appreciate a quick chat next week sir

@James Wise Thank you for confirming my understanding of BRRRR and Turnkey, nice analogy :) At this stage in my life, I have a very demanding full time job in a tech company so I am taking the restaurant route (Turnkey). My aspirations is to have enough high quality turn key properties within this year that can generate good cash flow, I just don't want to over pay, get screwed by malicious, fast talking people so I'm doing my due diligence work by reaching out to the good folks here in BP. I will appreciate your advice James if you have any input, I'll pm you, thanks in advance!

Originally posted by @Fernando Enrile :

@Ross Denman I left you a voicemail yesterday, will appreciate a quick chat next week sir

@James Wise Thank you for confirming my understanding of BRRRR and Turnkey, nice analogy :) At this stage in my life, I have a very demanding full time job in a tech company so I am taking the restaurant route (Turnkey). My aspirations is to have enough high quality turn key properties within this year that can generate good cash flow, I just don't want to over pay, get screwed by malicious, fast talking people so I'm doing my due diligence work by reaching out to the good folks here in BP. I will appreciate your advice James if you have any input, I'll pm you, thanks in advance!

 Not overpaying is simple.

Buy the property using financing. Bank will force you to get an appraisal. Bank isn't gonna let you loose their money. On top of that you should also hire a 3rd party inspector.

As for analogies I am full of them. So keep the questions coming to hear my favorites such as "That's like asking how wet water is" or "That's like trying to stay dry after you already jumped in the pool."

@Fernando Enrile - Yes, i’ve used the company for the past five years and havent looked anywhere else as they have taken care of me and performed well. Appreciation has been about 3-5% in the other 5 Indy houses I’ve purchased from them and 16tec (a industrial area with neighborhoods around it) and fountain square have had much better appreciation. PM me and i’ll Provide details on the company

@Fernando Enrile 500 a month cf is not possible with a financed property.

I have an analyzer that out lines the expenses but basically use

10% maintain
10% cap ex
10% vacancy and leasing fee
And 5% for beer because it’s a rough volatile ride when you have a turnover.

Originally posted by @Gautam Venkatesan :

@Ross Denman curious if the example you provided off the MLS or off-market?

I actually had 2 clients purchase deals with almost these exact numbers last year. Both of them were MLS deals that one of my realtors found for these clients. While I have MLS access, I am not a licensed broker, but I do have a few very good brokers that I work with. Both of those deals had accepted offers on the 2nd day on the market BTW. Speed is power and having a broker who stays on top of the market and is ready to pounce at any given time is a big bonus.

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