New to investing is turn key best?
Kansas City, MO · Member since 2018 · 5 posts · 4 votes
Hi I’ve recently become interested in finding way to invest my money. I’m already in the stick market but the more I read it sounds like real estate is a great way for me to invest in my own. I’m here wondering what is a great first investment.
Thanks in advance for the help.
Hi I’ve recently become interested in finding way to invest my money. I’m already in the stick market but the more I read it sounds like real estate is a great way for me to invest in my own. I’m here wondering what is a great first investment.
Thanks in advance for the help.
Turnkey is really setup as a great way to streamline the buying & management process for investors who need to buy outside of their market as their market is expensive as all hell. Think Los Angeles or pretty much all of California for that matter. You my dude happen to live in Kansas City so you've got a leg up on the west coasters.
You can simply invest in your own town with relative ease & low cost. Hook up with a Realtor who works for a Property Management company. You'll be able to buy right off of the MLS & have all the management done for you. Passive & affordable. Good luck to you & I'll see you around the forums.
Just run your numbers really well on the turnkey if you go that route.
@Nick Giulioni is saying something I hear all too often. Turnkey is (when done by a good provider) going to have minimal first year repairs and vacancy, but you're going to pay a premium for things to be replaced that you probably wouldn't have spent the money to replace if you had owned the property. Many providers I've come across also do lipstick jobs on their properties and sell them to you at perfect property pricing.
TK folks are pretty notorious for BS pro-formas as well. There's a boatload of tricks to buff up the numbers. Here are a few that I see often:
- Placing a low quality tenant at above market rent to show better number, leaving you to have to lower the rent to find a decent tenant after you kick this one out and rehab the unit.
- Offering free management for the first year if they have an in house management company to show lower expenses on your ROI calculation. Also, if they're managing it for free that means that their management company probably stinks, bc their primary profit center (and priority) is the sale of the property.
- Showing lower taxes than you would pay. In some states/regions, sale of a property (esp at a higher price) will trigger a reassessment of property taxes by the county/municipality.
- Underestimating utility bills.
- THE BIGGEST ONE: underestimating or completely excluding vacancy and maintenance reserves. Have your own vacancy and maintenance reserves that you budget for. Don't use the providers.
There are many more, but the big take home is to calculate your own pro-forma income and expenses based on good ole fashioned due diligence.
Here's a deal calculator I created/use, for your reference. Feel free to save a copy and use it for yourself.
Suggestion: Why not pick a good market & seek out deals that aren't PERFECT, but are in good rentable condition that bring in a higher return? You can hunt em down yourself or just find a wholesaler that sells rentals as-is.. and you can inspect em, etc... If it's the difference between a 10% cash on cash and a 18% cash on cash it's worth learning a market!
@James Wise alllllll of California for sure. Good point though! Xavier can grab a rental or two... and hell, while he learns the market can do a couple of wholesale deals and flips and really fast track his investing career. That's the approach I would take for sure.
@Account Closed Very good point. Do your research and understand you won't be getting the best possible deal. Go in with your eyes wide open.
Turnkeys no longer fit my investing goals, but that doesn't mean that they don't have any merit.
@Nick Giulioni what are your current investing goals? I love hearing the evolution of each investors story- I know mine's changed so much since my first deal. It's crazy going back and thinking of it.
It is incredible how fast things change and how much you learn from each and every deal!
My initial plan was to maximize cash flow through B&C class duplexes/triplexes. That has largely shifted after doing several of those deals to maximizing my equity growth by buying 1-2 single family homes per month in A&B class areas that I can BRRR my equity out of. The long-term plan is to convert that equity into larger deals such as apartments (but I'm not quite there yet).
The only reason I've been able to do all of this though is because I have a really solid W2 and I don't need to count on the rental income. Would be a different approach if I hated my job.
How about you?
@Nick Giulioni BRRR!?!?!? >:(
HAHA I'm kind of kidding. I'm a big BRRR hater lol. But if you're currently buying 1-2 per month consistently you've got a great engine going. Why not sell them though and take your cash so you can roll it into growth sooner rather than later? Taxes suck but the net if reinvested in more deals will make you a hell of a higher return on investment than the rental cash flow- esp. considering you're doing pretty good volume.
Damn you're really moving along considering you're doing this on top of a FT job. I overlapped 1 year between this and my job and the second I replaced my income I had to quit.
I was a BRRR buyer & realized it was pretty slow compared to moving property quickly- so I started providing rentals along w/ kind of a boots on the ground service and resource pool I link all of our buyers up w/. Think turnkey but I never own the properties- I find good ones off market that are already cash flowing and sell them directly to rental property investors wholesaler style. Not having to keep them and rehab properties myself keeps inventory cost low enough to be able to sell investors significantly higher returns that TK providers, which is where my competitive advantage lies. Tough thing is finding more markets to offer more product of equal quality/yield as our current. Phew.
@Nick Giulioni BRRR!?!?!? >:(
HAHA I'm kind of kidding. I'm a big BRRR hater lol. But if you're currently buying 1-2 per month consistently you've got a great engine going. Why not sell them though and take your cash so you can roll it into growth sooner rather than later? Taxes suck but the net if reinvested in more deals will make you a hell of a higher return on investment than the rental cash flow- esp. considering you're doing pretty good volume.
Damn you're really moving along considering you're doing this on top of a FT job. I overlapped 1 year between this and my job and the second I replaced my income I had to quit.
I was a BRRR buyer & realized it was pretty slow compared to moving property quickly- so I started providing rentals along w/ kind of a boots on the ground service and resource pool I link all of our buyers up w/. Think turnkey but I never own the properties- I find good ones off market that are already cash flowing and sell them directly to rental property investors wholesaler style. Not having to keep them and rehab properties myself keeps inventory cost low enough to be able to sell investors significantly higher returns that TK providers, which is where my competitive advantage lies. Tough thing is finding more markets to offer more product of equal quality/yield as our current. Phew.
I have a really really good team of people on the ground who help me get it done. I just make the offer and they handle much of the rest. I'm definitely planning on trading up that equity - but right now this is the fastest way I'm finding to quickly recycle my cash.
Sounds like you have a really cool business model that helps out individuals. Curious how you are marketing it.
@Nick Giulioni what do you mean marketing it?
We've been having extensive talks about marketing expansion the past week or two.
@Nick Giulioni what do you mean marketing it?
We've been having extensive talks about marketing expansion the past week or two.
How do you find both sides of your market?
@Nick Giulioni BRRR!?!?!? >:(
HAHA I'm kind of kidding. I'm a big BRRR hater lol. But if you're currently buying 1-2 per month consistently you've got a great engine going. Why not sell them though and take your cash so you can roll it into growth sooner rather than later? Taxes suck but the net if reinvested in more deals will make you a hell of a higher return on investment than the rental cash flow- esp. considering you're doing pretty good volume.
Damn you're really moving along considering you're doing this on top of a FT job. I overlapped 1 year between this and my job and the second I replaced my income I had to quit.
I was a BRRR buyer & realized it was pretty slow compared to moving property quickly- so I started providing rentals along w/ kind of a boots on the ground service and resource pool I link all of our buyers up w/. Think turnkey but I never own the properties- I find good ones off market that are already cash flowing and sell them directly to rental property investors wholesaler style. Not having to keep them and rehab properties myself keeps inventory cost low enough to be able to sell investors significantly higher returns that TK providers, which is where my competitive advantage lies. Tough thing is finding more markets to offer more product of equal quality/yield as our current. Phew.
I have a really really good team of people on the ground who help me get it done. I just make the offer and they handle much of the rest. I'm definitely planning on trading up that equity - but right now this is the fastest way I'm finding to quickly recycle my cash.
Sounds like you have a really cool business model that helps out individuals. Curious how you are marketing it.
Nick, what markets are you investing in with the BRRR strategy?
I am the skeptic on BP for turnkey rentals. There are plenty of very mediocre investments being offered. Often these properties attract California buyers but few local buyers. Do a lot of due diligence beyond what is being offered by the turnkey provider. Pick a good market, get to know that market and realize that turnover and maintenance costs for houses can be high.
@Nick Giulioni BRRR!?!?!? >:(
HAHA I'm kind of kidding. I'm a big BRRR hater lol. But if you're currently buying 1-2 per month consistently you've got a great engine going. Why not sell them though and take your cash so you can roll it into growth sooner rather than later? Taxes suck but the net if reinvested in more deals will make you a hell of a higher return on investment than the rental cash flow- esp. considering you're doing pretty good volume.
Damn you're really moving along considering you're doing this on top of a FT job. I overlapped 1 year between this and my job and the second I replaced my income I had to quit.
I was a BRRR buyer & realized it was pretty slow compared to moving property quickly- so I started providing rentals along w/ kind of a boots on the ground service and resource pool I link all of our buyers up w/. Think turnkey but I never own the properties- I find good ones off market that are already cash flowing and sell them directly to rental property investors wholesaler style. Not having to keep them and rehab properties myself keeps inventory cost low enough to be able to sell investors significantly higher returns that TK providers, which is where my competitive advantage lies. Tough thing is finding more markets to offer more product of equal quality/yield as our current. Phew.
I have a really really good team of people on the ground who help me get it done. I just make the offer and they handle much of the rest. I'm definitely planning on trading up that equity - but right now this is the fastest way I'm finding to quickly recycle my cash.
Sounds like you have a really cool business model that helps out individuals. Curious how you are marketing it.
Nick, what markets are you investing in with the BRRR strategy?
I'm currently successfully pulling off the BRRR strategy in Indianapolis. Looking to branch out though.
@Nick Giulioni sorry for the late reply here. What do you mean both sides of my market? Buyers and sellers?
I am the skeptic on BP for turnkey rentals. There are plenty of very mediocre investments being offered. Often these properties attract California buyers but few local buyers. Do a lot of due diligence beyond what is being offered by the turnkey provider. Pick a good market, get to know that market and realize that turnover and maintenance costs for houses can be high.
Too much advertising dollars. TK operators are coddled.
Everyone n their brother says you make your money on the buy. TK model you pay PREMIUM on the buy. It just makes little to NO sense.
Then the pro forma they spew out. Wheres all the expenses?
I once asked a TK operator why he left out all the normal expenses on his sheet of spread. His reply was thats how the other guys do it.
@Jan Brady Yep, people are paying a premium for investments that leave out expenses. Often, they are engineered to perform well in the beginning. Gimmicks such as "Guaranteed first year income."
@Xavier Williams This depends on your level of experience and knowledge, the amount of time you have to devote, your tolerance for risk and your ability to manage a project with a lot of moving parts. For most out of state with little or no experience and a busy life, turn key is usually the easiest and least risky way to go.
@Kiera Underwood said makes great sense. I have never heard of anyone making true cash flow, the first few years, from a turnkey investment. The debt is a big hurdle. You need to get the property to be of a high enough value that it passes the debt, and expenses. One way is to force appreciation, through improvements.
And she has your perfect path (in my opinion): to buy a property that needs slight improvements and updates. Paint and countertops and rugs installed by home depot, ect, might very well be within your level to get executed.
Then once improved, and set better to cash flow, you can then have a property management company manage it for you.
Your next property, you would have that company's vendor resources, they likely would willing refer to you, for more involved projects.
I would avoid the companies that will buy you a discounted property, renovate it for you, then they will be your property management company. I'm not sure that is the way it ends up.