Disappointed with no deal on turnkey - need some inspiration

29 Replies

Hello!

I was pretty excited about "turnkey investments" and what have you, at first.

I looked at a couple of markets, the only market that made sense to me was DFW. I'll explain my rationale:

1. Since I am borrowing 80%, the minimal returns coming from cash flow means nothing to me as long as the cashflow is not negative.

2. Due to operating costs due to loan payments, the only  thing that make sense to me to make good money is a growth market.

This immediately ruled out class C type and even many class B's to me.

I turned my attention then to DFW as a turnkey promoter who's name I don't want to mention told me to talk to a "turnkey provider" in the area. I was pretty excited. But now it is becoming a drag because:

1. They have very little inventory - 1 or 2 houses.

2. Their email turn around time is > 48 hours, this is very frustrating.

3. They apologize about point 2. but apologies mean nothing, if you apologize for the same reason on every call.

4. In their "cashflow" calculations in their proposals, they did not factor in vacancy costs, which was a bit of a red flag since that and if you factor in maintenance costs, does make the cash flow net NEGATIVE.

5. They had some listing discrepancies. A property on their website is listed on zillow with small square footage - and they don't answer me clearly why this is. Could they selling a dud on their website?

6. Some of their previous properties on Zillow's price history shows a > 80 day vacancy. This is quite scary for an investor.

All in all, this seems a really risky affair even if it means high growth. If the cash flow wasn't net-negative, and if these people were more responsive over email, then may be I would be more interested.

But right now I'm really demotivated, and I am thinking if I should turn away from "turnkey" and do all the dirty work that they do than giving them a pile of money. :-(  And may be do something local to my city, since the whole "send an email and wait for a couple days" thing isn't working for me. If my emails don't get responses now, what assurances I have that they will get responses after a deal closes?

You don't need inspiration...you need persistence.  Check out numerous operators and you will have your answers.  Even turnkey (done properly) is not fully passive...particularly in the beginning.  Good luck...just need more time on the job.

Zillow data or its flips are not creditable. Wall Street is blasting at Z for even getting into such business. Stock value tumbled 50%.

Suggest you work through its local MLS. I don't expect you will find more turn key inventory than described in DFW area or majority of US urbans. With 20% down I expect most SFHs are just break even unless you go to Midwest blue collar neighborhood with low to zero appreciation(factoring in inflation). Unless there is compelling reason to take more risk invest out of the state finding high cash flows, it is easier to leave it in the bank. This is almost the end of the economic growth cycle with little steam left.

Originally posted by @Mike Dymski :

You don't need inspiration...you need persistence.  Check out numerous operators and you will have your answers.  Even turnkey (done properly) is not fully passive...particularly in the beginning.  Good luck...just need more time on the job.

I don't agree you don't need inspiration, though. One needs inspiration in any creative venture. But I agree, I should not give up and be persistent. I will consider the other operators as well. Thanks!

Originally posted by @Sam Shueh :

Zillow data or its flips are not creditable. Wall Street is blasting at Z for even getting into such business. Stock value tumbled 50%.

Suggest you work through its local MLS. I don't expect you will find more turn key inventory than described in DFW area or majority of US urbans. With 20% down I expect most SFHs are just break even unless you go to Midwest blue collar neighborhood with low to zero appreciation(factoring in inflation). Unless there is compelling reason to take more risk invest out of the state finding high cash flows, it is easier to leave it in the bank. This is almost the end of the economic growth cycle with little steam left.

Thanks. I will look into local MLS. Yes I was exactly thinking about economic growth slow downs, makes sense to wait for the next contraction before doing anything.

Joel check out Roofstock.. they are brokering not only turn key inventory however they have every day sellers as well.

and a good real estate agent in what ever market your interested in.

be cautious in many parts of texas.. Taxs need to be fully understood and soil conditions. and make sure you have great wind insurance as wind and hail damage is real there.

timing markets to buy rentals.. is tough to do.. if you wait for a big correction it may not hit the rental inventory like other asset class's and or rates could be higher LEss cash flow.. or it could be very tough to get a loan.

although if your a cash buyer.. no issue on financing.. there are deals every day of every year.. waiting out a correction could take a few years or never.

You don't need motivation, you need to find a different market.  All the reasons why you chose DFW market, are also reasons why it isn't a market for you.  Find one that is.

@Joel Fernandes You are right that most operators will show you the rosiest numbers and minimize things like capex and vacancies, so at least you are going into it with the right mindset and asking the right financial questions. Keep in mind that it will be harder to cash flow if you are excluding C and some B properties.

For all the due diligence you do on the TK provider and the numbers, the other thing to understand is that ultimately the success of your investment will depend on the tenant placed and the property management. If you have a good tenant that pays every month and stays for 3+ years, then even a marginal-looking deal will be great. But if you have a property that turns over every year or you have a tenant that stops paying mid-lease, then the best looking deal will be a loser/money pit. Do a deep dive on the PM, and don't hesitate to go elsewhere if needed, and make sure you can exit your PM relationship with 30 days notice. With the right PM with deep experience with it, you can make C+ / B- properties work.

Originally posted by @Joe Villeneuve :

You don't need motivation, you need to find a different market.  All the reasons why you chose DFW market, are also reasons why it isn't a market for you.  Find one that is.

 Any suggestions?

Originally posted by @Joel Fernandes :
Originally posted by @Joe Villeneuve:

You don't need motivation, you need to find a different market.  All the reasons why you chose DFW market, are also reasons why it isn't a market for you.  Find one that is.

 Any suggestions?

 Yes...find a different market.  I have no idea which one since your criteria would be different than mine, or anyone else for that matter.  What I can see, is the DFW market, by your own admission, isn't one that works for you.

Originally posted by @Jay Hinrichs :

Joel check out Roofstock.. they are brokering not only turn key inventory however they have every day sellers as well.

and a good real estate agent in what ever market your interested in.

be cautious in many parts of texas.. Taxs need to be fully understood and soil conditions. and make sure you have great wind insurance as wind and hail damage is real there.

I do love the nice search tools @ roofstock. I signed up for getting notifications of any listings there. BTW, I am wondering whether roofstock lists each property in their inventory with due diligence, or is it that anybody can easily list there (?). The other TK promoters so far I have been working with all have certain properties that have to meet a bar before they can recommend for investment. I wonder if that's the case with Roofstock too.

Originally posted by @Caroline C. :

@Joel Fernandes You are right that most operators will show you the rosiest numbers and minimize things like capex and vacancies, so at least you are going into it with the right mindset and asking the right financial questions. Keep in mind that it will be harder to cash flow if you are excluding C and some B properties.

For all the due diligence you do on the TK provider and the numbers, the other thing to understand is that ultimately the success of your investment will depend on the tenant placed and the property management. If you have a good tenant that pays every month and stays for 3+ years, then even a marginal-looking deal will be great. But if you have a property that turns over every year or you have a tenant that stops paying mid-lease, then the best looking deal will be a loser/money pit. Do a deep dive on the PM, and don't hesitate to go elsewhere if needed, and make sure you can exit your PM relationship with 30 days notice. With the right PM with deep experience with it, you can make C+ / B- properties work.

 I am certainly preferring properties that have tenants already placed with leases ending around a peak time of the year, so that replacements are easy. I'll keep looking! Thanks!

I only buy local and have not found a decent deal on the MLS or via realtor in a couple years now. Just to much competition and low inventory. I'm finding decent (not great) deals at foreclosure auctions and the courthouse steps where most owner occupants don't play because of risk and cash.

Originally posted by @Joel Fernandes:
Originally posted by @Jay Hinrichs:

Joel check out Roofstock.. they are brokering not only turn key inventory however they have every day sellers as well.

and a good real estate agent in what ever market your interested in.

be cautious in many parts of texas.. Taxs need to be fully understood and soil conditions. and make sure you have great wind insurance as wind and hail damage is real there.

I do love the nice search tools @ roofstock. I signed up for getting notifications of any listings there. BTW, I am wondering whether roofstock lists each property in their inventory with due diligence, or is it that anybody can easily list there (?). The other TK promoters so far I have been working with all have certain properties that have to meet a bar before they can recommend for investment. I wonder if that's the case with Roofstock too.

Update, I found the answer here: https://www.roofstock.com/learn/faq 

@Joel Fernandes Don't be discouraged. If it were so easy to find deals and they were a dime a dozen, I'd have purchased them all already. :D

Seriously though, it sounds like you've talked to one company about a few houses. You need to look at 100 houses and talk with many many people. Even then, you might not find something you like right away. This is a long game and it takes a lot of time to either build the team and structures to have a deal land at your doorstep, or search through a lot of avenues yourself.

Remember that there are 100 flavors of "turnkey" companies and more are not truly ones where you can turn the key, than are. Also, if you are looking for a smoking hot deal with tons of cashflow, it is not going to happen through that avenue most likely. Why should they do the work and leave excess meat on the bone? They don't, won't and shouldn't. If it was that easy, then they would keep the deals all to themselves and their investors.

Keep plugging along, and keep looking. Make your plan, set criteria and keep searching. Something will come up. But if you think it will be easy and happen overnight, you are in the wrong business. Ex: My first deal took over 3 months to find, another 3 to close and I looked every day. That was after learning about REI for over a year. Yes, it waxed and waned, but you have to be persistent. When you do, you might find yourself with 3 deals in 3 months from now and have to figure out how to buy all of them. That is a good problem to have. You've got this!

PS - Always run your own numbers. Don't just trust what someone provides to you.

Change your criteria, or change your market. 

You cant force criteria onto a market and hope it works. If you want to be highly leveraged, in a growth market, in A class, and Turnkey....you will probably be cash flow negative.

If you want to be highly leveraged and cash flow positive, you need to take on a property with higher risk, either through asset class or a higher risk market.

Everything is a tradeoff.

@Joel Fernandes don’t be discouraged! You definitely should be prepared for a learning curve, IMO. No matter what you do in real estate. My first 2 years were hell in some ways, but I learned so much invaluable knowledge in my space. Keep grinding and be prepared to eat crap! If this was easy, everyone would be millionaires ;) 💪

@Joel Fernandes based on your post from 3 days ago, finding the right property will require more than a few days.  The process of finding a good deal whether it be turnkey or not requires patience and I agree with numerous others that have commented here.   

https://www.biggerpockets.com/forums/12/topics/661...

Many of the recommendations provided are; change markets, change your criteria, persistence, educate yourself more on the process of buying turnkey rentals.

While buying turnkey is easier because it doesn't require as much effort on your part doesn't mean everything that happens during the process is going to be easy.  Turnkey is not easy money there is still work required.

Keep going and if you put in the effort and due your due diligence you'll find the property that works for you.

Originally posted by @Michael Tripp :

@Joel Fernandes based on your post from 3 days ago, finding the right property will require more than a few days.  The process of finding a good deal whether it be turnkey or not requires patience and I agree with numerous others that have commented here.   

https://www.biggerpockets.com/forums/12/topics/661...

Many of the recommendations provided are; change markets, change your criteria, persistence, educate yourself more on the process of buying turnkey rentals.

While buying turnkey is easier because it doesn't require as much effort on your part doesn't mean everything that happens during the process is going to be easy.  Turnkey is not easy money there is still work required.

Keep going and if you put in the effort and due your due diligence you'll find the property that works for you.

Well, it has been 2-3 months, but yes it is early. And no - I'm not giving up! I was just a bit disappointed since I wasn't finding anything that fits my criteria. But I feel a lot better now after all the responses here. Thank you for the reply and thanks everyone!

@Joel Fernandes hang in there,REI takes time and patience. This is long game, continue to look and educate yourself. Happy Investing!!

Be very careful with turnkey investments:

Some shady operators.  Many of the investments are houses in declining areas.  Get your own appraisal and loan.  Talk to realtors local in the area.  

Realize that you need strong management and boots on the ground, if you are investing out of your area.

Realize that some operating costs are left out of their proforma.  I find that turnover costs for vacant houses are much higher than apartments.  Also, houses have more capital expenditure issues in general.  

Good luck.

It's not fair at all to judge the entire turnkey industry or offerings by the performance of one company. There are tons of turnkey companies out there and plenty of them are great (and respond to emails quickly). If there are red flags about this company, take those to be what they are and move on and meet another turnkey company.

DFW is going to be extremely limited for turnkey options, primarily for the issue of lack of inventory. Secondary issue of minimal cash flow. 

I started buying turnkeys in 2011 and while the experiences weren't always perfect, I wouldn't buy any other way. 

Find a new provider.

It's pretty common for an investor that knows their market well to see 20-30 deals before getting one.  I wouldn't be frustrated.  Just look for the next deal.  Don't do a deal just to do a deal. Be patient and look for the right ones.  It is incredible how fast you can lose money in the wrong day.  It is a lot faster than most will make money in a deal.

Yep, I agree with @Ali Boone .  There are some great TK's out there.  WHO you do business with is just as important (if not more so) as WHERE you do business. Not sure why you're so set on DFW, but if you're looking for cash-flow, there are better markets.  

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