Thoughts on turnkey investing and the best locations

12 Replies

Keith

Step one, set an alert for the Keyword "turnkey" just highlight the text and that option should pop up.  

You are going to receive lots of responses with polar opposite points of view so only you can decide if it is for you or not. What are your goals? What level of involvement do you want (how much time do you have)? Are you looking to go out of state (I assume so since you asked for areas).

Turkey is great for the hands off investor especially when going out of state. You've got a steady job and are looking for a way to diversify your retirement planning. You are in it for the long haul, not the quick turn around profits.

 Not so good if you have the time and want to devote the effort into building your own team, you want to learn as much s possible about investing from the ground up, want the opportunity to maximize your equity etc. you get the general pattern.

markets (mostly midwest, and some in south)

Cleveland, Dayton, Cincinnati, Indy, KC, Memphis, Birmingham. You'll find tons of other places to review but some good summaries:

https://www.realwealthnetwork.com/learn/best-place...

http://www.businessinsider.com/the-20-best-cities-...

Turnkey markets usually are Indy, Memphis, Milwaukee, cleveland, maybe dfw and Chicago.

@Natalie Allen - Thank you for the recommendation

@keith 

@Keith Brown I couldn't agree with @Chris Bodden more. All of your investment activity should support your personal, financial and lifestyle goals. I strongly suggest you figure out these goals prior to purchasing anything if you haven't done so already.  Here's a few sample questions to ask yourself...

  • 1) Do I want to be a passive investor or an active investor
  • 2) If active, do I have the time, knowledge and resources to do so
  • 3) If not, how do I get them
  • 4) Real estate offers the potential for wealth accumulation and/or income. Which (wealth, both, income) do I want/need
  • 5) What is my exit strategy 

Once you have your goals laid out, your path forward will be relatively obvious. For example, if it is really important to you to get a strong equity position and you are willing to trade your time for this, than active investing may be your path.  Just remember that buying, rehabbing and managing homes is not investing; it is a job. Owning the home is the investing part.  If your time is more valuable because of existing family, lifestyle or work requirements, passive investing is the right choice.

Similarly, if you want to maximize short-term cash flow from a 'disposable' house (one that you will sell to another investor at or below the same price you paid), look for those types of houses, neighborhoods or markets.  Homes in nicer neighborhoods that produce consistent (albeit lower) cashflow, appreciate and are able to be left as a legacy will be in different neighborhoods and/or markets.

I'll finish with a comment on turnkey providers.  While there is a physical asset and a real estate transaction, you are really buying a rate of return that you want to meet or exceed on a consistent basis. Vacancy and turnover will really limit your success in this category. Make sure your provider is excellent at providing service to not only you as the investor, but also to your residents.

Good luck!!

@Erik Hitzelberger thank you for the insightful post. I will take this into consideration. Vacanacy and turnover is not mentioned much when I see ppl discussing turnkey properties. This would really put a strain on your ROI after the initial excitement of having a tenant day one wears off.

Originally posted by @Keith Brown :
I am just starting out in REI and would like to know your thoughts on turnkey investing PROs and CONs and what are the best areas to look at? Thanks in advance.

 I just did one for a guy in your neck of the woods. In Mesa AZ  - you can kind of see ho wit works at

https://www.biggerpockets.com/forums/600-phoenix-r...

Originally posted by @Erik Hitzelberger :

@Natalie Allen - Thank you for the recommendation

@keith 

@Keith Brown I couldn't agree with @Chris Bodden more. All of your investment activity should support your personal, financial and lifestyle goals. I strongly suggest you figure out these goals prior to purchasing anything if you haven't done so already.  Here's a few sample questions to ask yourself...

  • 1) Do I want to be a passive investor or an active investor
  • 2) If active, do I have the time, knowledge and resources to do so
  • 3) If not, how do I get them
  • 4) Real estate offers the potential for wealth accumulation and/or income. Which (wealth, both, income) do I want/need
  • 5) What is my exit strategy 

Once you have your goals laid out, your path forward will be relatively obvious. For example, if it is really important to you to get a strong equity position and you are willing to trade your time for this, than active investing may be your path.  Just remember that buying, rehabbing and managing homes is not investing; it is a job. Owning the home is the investing part.  If your time is more valuable because of existing family, lifestyle or work requirements, passive investing is the right choice.

Similarly, if you want to maximize short-term cash flow from a 'disposable' house (one that you will sell to another investor at or below the same price you paid), look for those types of houses, neighborhoods or markets.  Homes in nicer neighborhoods that produce consistent (albeit lower) cashflow, appreciate and are able to be left as a legacy will be in different neighborhoods and/or markets.

I'll finish with a comment on turnkey providers.  While there is a physical asset and a real estate transaction, you are really buying a rate of return that you want to meet or exceed on a consistent basis. Vacancy and turnover will really limit your success in this category. Make sure your provider is excellent at providing service to not only you as the investor, but also to your residents.

Good luck!!

nice post.. !!! 

Originally posted by @Keith Brown :
I am just starting out in REI and would like to know your thoughts on turnkey investing PROs and CONs and what are the best areas to look at? Thanks in advance.

Most people who go the turnkey route go with investments out in the midwest. Cleveland, Dayton, Indy, KC etc.....This is because these are the cheapest markets in the country. You can't get cheaper real estate anywhere in the USA. 

As for which one of them to look at you're basically splitting hairs. All very similar. What is going to make a bigger impact on your bottom line than what market you choose is what property(s) and strategy(s) in said market you choose. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
Originally posted by @Keith Brown :
I am just starting out in REI and would like to know your thoughts on turnkey investing PROs and CONs and what are the best areas to look at? Thanks in advance.

 Turnkey is a great way to invest when you are doing it OOS. When you do not live in the market, it can be very difficult to hire contractors, find a good PM etc.

A Turnkey Provider should own, renovate, and manage the property all IN HOUSE. The only third party should be the home inspection. This way it is very easy and passive for the investor.

Try looking at:

Out-Of-State Turnkey Investing: How to Minimize Your Risks

and

What to Ask When Working With a Turnkey Provider