Rental Property Investor · Round Rock, TX · Member since 2019 · 246 posts · 159 votes
New investor looking for first deal. Anybody have experience with turn key companies for out of state investing? Looking for buy and hold for cash flow. Small multi family or sfh. Thanks!
New investor looking for first deal. Anybody have experience with turn key companies for out of state investing? Looking for buy and hold for cash flow. Small multi family or sfh. Thanks!
Rental Property Investor · Round Rock, TX · Member since 2019 · 246 posts · 159 votes
7y
How did you find the turn key companies that you use? What or who should I stay away from? Has your experience been favorable? Narrowing down locations. Thanks for any information.
Birmingham, AL · Member since 2014 · 875 posts · 947 votes
7y
@Robert Tinker I should preface this by saying we are a turnkey company in Birmingham, AL. That being said, the following advice is what I tell any and all new investors regardless of which market they're looking at.
@Mike D'Arrigo made some really good points that you should take note of, esp his comments about incomplete pro formas, inconsistent rehab processes, lack of references, and selling only low-tier props.
There are several markets where you can get relatively comparable returns for relatively comparable properties - turnkey investing isn't that complicated and the specific market isn't what's going to make or break your investment. The people, on the other hand, and the research you do - that's what's going to decide your fate. The most important factor is finding a provider that is transparent, communicative, and is going to be around for the long haul.
Below are a few things to do, look for, or look out for, when shopping for a turnkey investment. It's important to remember that all investments have inherent risk, but you can mitigate your risks to some degree by being prepared and thorough in your vetting.
Any turnkey company you consider should be full-service, meaning they do everything from finding props to rehab to long-term management. If they sell you a property and then sign you off to a third-party PM, that's another team you need to vet, and means the TK company has less skin in the game (ie once you close, their work is done).
They should have solid, data-backed answers to your questions at-the-ready. Any TK company worth your time knows their vacancy and maintenance rates, turnover, avg move out costs etc off the back of their hands. If they don't, they're not paying enough attention to the metrics that help them improve performance, which is a bad sign.
Some will disagree with me on this, but I advise most investors (and new ones especially) to stick to B/B+ properties and areas. This means places that nurses, teachers, skilled laborers, etc live. Places regular middle-class folks would be happy to raise a family. These areas have the best combination of cash flow, appreciation potential (never guaranteed), exit options (you might be able to sell to an owner occupant rather than another investor down the road = higher sales price), and stably-employed tenant pools. Cash flow for lower-tier props can look amazing on paper, but there are a lot of other factors that make real-world returns less impressive. New investors, esp out of state, should look for reliable, consistent cash flow and capital preservation. If you want to get into C/D class props, take your time to learn the ropes and try to invest in your own market so you can self-manage to minimize expenses.
Use Google Earth to check out the neighborhoods they list in. Ask for a couple properties they have sold recently and take a virtual walk around those neighborhoods to see if they line up with the class of property you're being sold. There is a difference between B- and B+, and it's sort of a 'you know it when you see it' situation. But you'll know right away if something is being listed as a B but is actually a C or D ( I have seen folks listing props in C+ areas here in Bham as being A-, and someone from another market wouldn't know the difference without looking). In B areas, homes will be modest but maintained, grass mowed, no cars up on cinder blocks, etc.
After you've narrowed down your choices to your top one or two, just make the trip out to meet them. See the city, tour the neighborhoods, check out some properties, meet the team. Face to face is still the best way to gut-check your decision, and this is a long-term relationship you're getting into, so make the investment in your investment and just fly out. If you invest with them and it goes well, you don't need to make the trip again, you can build your portfolio with that provider pretty easily.
Even if you haven't narrowed down your list yet, askabout a visit. Many fly-by-night operations will talk a real good game but then suddenly stop responding or 'not be able to accommodate you' if you ask about coming out to see them. Why? They don't actually have real boots on the ground in the markets they advertise, let alone offices. They're either marketers calling themselves turnkey (ie they don't own any properties, they get a referral fee from other TK companies around the country for sending buyers) or they're some sort of Morris Invest house of cards (search the forums for Morris to see what to avoid).
Pay attention to language. If a TK company sends you emails with a used car salesperson vibe, lots of ACT NOW!!!!!!! messaging or too-good-to-be-true promises, just walk away. This also applies to anyone who tells you that you need to sign a contract within minutes of being emailed a prop (ie before you have time to run numbers and ask questions). Real estate isn't going anywhere, don't let this type of hype make you pull the trigger on something you haven't had time to properly vet.
Go ahead and spring for your own 3rd party inspection / appraisal. If a company you're considering working with balks at this, that's a bad sign.
Hopefully some of that is helpful. Turnkey can be a great investment, esp for folks in pricier markets, but it isn't the Passive Holy Grail that many people make it out to be. You need to put in the legwork to find a real long-term partner.
Here are a couple recent-ish threads that might be helpful in terms of learning how to vet turnkey providers and markets.
New investor looking for first deal. Anybody have experience with turn key companies for out of state investing? Looking for buy and hold for cash flow. Small multi family or sfh. Thanks!
Investing OOS can be a great way to get a good passive Turnkey. Just make sure you go with a True Provider. They should own the property first, renovate it, then manage it after the purchase. They should not be MLS listings. None of this "listing a day" stuff.
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
7y
I started my out of state REI with turnkey companies back in 2012. The ones I actually closed on have worked out well over the years, but have also seen some real stinkers along the way, which I didn't buy from. Buying turnkey today is much more challenging as prices have gone up considerably, while rents don't keep pace. You have to be very careful about who you choose to work and vet thoroughly. Make sure you have realistic numbers and vet the companies (and those behind them) you are considering thoroughly. In my view that should include a visit to the market and an on the ground visit with the provider if at all possible.
New investor looking for first deal. Anybody have experience with turn key companies for out of state investing? Looking for buy and hold for cash flow. Small multi family or sfh. Thanks!
Hey Robert good question. Tons of out of state investors around here so I've seen & heard some horror stories. The biggest things I always tell investors like you that you can do to stay safe when investing out of state are as follows.
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.
@Jay Hinrichs you think if I added "avoid Morris Invest" to my punch list he'd send me a cease & desist? lol.
@Alyssa Dyer I'll have to check them out. Thank you!
why not texas you have no state income tax. and many OOS investors look to texas to invest just curious why you would not invest in your own back yard. ?
Silver Spring MD · Member since 2015 · 198 posts · 116 votes
7y
@Jay Hinrichs The property taxes (at least in the DFW area) are out of control, especially for non-homesteads. And they increase so unpredictably, that I'm wary of holding rental even if they pencil out now.
@Robert Tinker I've been happy with FS Houses in Indy. I can't tag Ryan Mullin (the owner I think), but I believe he's on BP
@Jay Hinrichs The property taxes (at least in the DFW area) are out of control, especially for non-homesteads. And they increase so unpredictably, that I'm wary of holding rental even if they pencil out now.
@Robert Tinker I've been happy with FS Houses in Indy. I can't tag Ryan Mullin (the owner I think), but I believe he's on BP
Rental Property Investor · Round Rock, TX · Member since 2019 · 246 posts · 159 votes
7y
@Jay Hinrichs, I am investing in Texas. However deals are skinny with our property taxes so high. Along with Austin is so much of an appreciation game now. Difficult to cash flow for buy and holds.
