Turn Key. Why all the hate?

116 Replies

 Not my first post about buying out of state but I am perplexed. Why all the hate towards “turn key”? To be more direct, if it meets the bigger pockets guidelines/numbers, what’s the problem?

And if you can resist, this is not really pointed toward the turn key industry so try to restrain yourselves and enjoy the comments :)

WEll part of it is that you have local investors who get deals usually below market and do some fix up and get larger returns..  

on turnkey folks admittedly pay full retail.. and some claim higher than retail.. 

So that's were you get folks talking negative about them.

then of course not all turn key companies are equal in customer service quality the deal etc.. 

Then of course you have Morris invest who sold I don't know what 500 to 700 houses that were all never deals no matter what in what of the biggest frauds of this decade..  so that does not help

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Not sure what you mean by 'not pointed toward the turnkey industry'... if I'm supposed to or not supposed to answer a certain way.

Jay hit the main reasons people knock turnkeys. Another factor to consider is that most turnkey buyers I know that like their turnkeys and like the strategy aren't on BP once they start buying. Once you buy a turnkey once, it's really straightforward and if you're happy with the strategy as being your primary strategy, no real need to be on BP anymore. Which primarily just leaves the haters to talk about turnkeys. So the 'pro turnkey' folks aren't here to stick up for them.

I think the biggest issue people have with them is the inability to force appreciation. Which, yes, that's a thing. Other people argue you should never invest outside your own backyard. Well props to those people who have a backyard that it makes sense investing in (vs. us LA or NYC or CA folks). 

I will say that I think it's strange how rowdy people get against turnkeys. I've never heard a turnkey investor knock anyone else's strategy. Who cares what other people do? 

And like Jay said too, Morris Invest didn't help anything. But I started buying turnkeys in 2011 and I totally dig them. Wouldn't do an out-of-state any other way.

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@Bukka Levy

I agree with @Ali Boone and @Jay Hinrichs I think most buy n hold investors like the BRRRR idea about buying distressed properties and forcing equity. No money in if done correctly. Better cash flow, but more work. For the totally passive investor I think it works. In my mind, the cash flows for me are to small. Not worth the $150 per month. I have looked pretty hard at Norada. I think they are a reputable company and if there was the slightest thought of negativity there would be plenty of posts here.

Check out there podcast “passive real estate investing”.  

I looked at TKs carefully over the past 6 months and determined they aren’t for me.  I realize they work for some people and I may get a little blowback for writing this, but my feeling is that buying TKs are a few degrees separate from true real estate investing.  The TK providers are doing all the work and you’re buying your appreciation up front by paying the provider. 

Typically much lower returns.  But I think there’s a place for them, for the investor that is okay with taking a bit lower return to avoid all the hard work it takes to force appreciation and find higher yielding deals.  Everyone thinks their niche is the best but everyone has different goals.  

There is absolutely nothing wrong with buying turnkey rentals, just make sure you do it the right way(don’t walk into a Morris type scheme).

Originally posted by @Bukka Levy :

 Not my first post about buying out of state but I am perplexed. Why all the hate towards “turn key”? To be more direct, if it meets the bigger pockets guidelines/numbers, what’s the problem?

And if you can resist, this is not really pointed toward the turn key industry so try to restrain yourselves and enjoy the comments :)

 You've got to understand the nature of this website. You get a lot of folks who have a very limited experience in the real estate industry commenting here. Anytime you own a rental property it's going to be filled with problems. That's just what the business is. Experienced landlords know this but they aren't typically spending a lot of time on this site. The only people who frequent the site are of course those we are new and looking to gain education and those who are here to sell them stuff (lenders, HMLs, Turnkey vendors, agents etc.) So when folks who've got no experience in real estate buy a rental they start running into issues that they weren't prepared for so they will of course vent about it.

@Bukka Levy I appreciate this discussion. LOL. One bad experience can ruin someone on something forever. Bad Turnkey providers give all of them a bad name!

I always tell anyone interested in doing Turnkey to do their due diligence and then some. Research the area. Research the local economy. I've had people call the local police and news stations, realtors, other client referrals... you get the idea! Leave no stone unturned. Don't buy D Class properties with bars on the windows.

If it sounds too good to be true? It probably is. Read the fine print. Those 13% CAP rates you saw some Turnkey company advertise? FAKE. Understanding what Turnkey is and what it offers upfront will help you temper your expectations back down to reality. Like @Kenneth Garrett and @Andrew Flora said, it's passive monthly cashflow, and that is a perfect strategy for some people, but not for others. It shouldn't just be a product, it's a service. :)

Originally posted by @Bukka Levy :

 Not my first post about buying out of state but I am perplexed. Why all the hate towards “turn key”? To be more direct, if it meets the bigger pockets guidelines/numbers, what’s the problem?

And if you can resist, this is not really pointed toward the turn key industry so try to restrain yourselves and enjoy the comments :)

If Turn key is what you want and your happy with your ROI then why not. Majority or turn keys i have seen do not qualify for my requirements in cash flow because the equity has been taken out and leaves little room for me but that is my area. Good luck!

Lewis

Originally posted by @Sarah Doogle:

Ill Start.

Turnkeys providers  are very discriminatory.  They only sell to CaliforniaNs.

@Mindy Jensen   Looks like Joe Gore has a sister  LOL 

Originally posted by @Bukka Levy :

 Not my first post about buying out of state but I am perplexed. Why all the hate towards “turn key”? To be more direct, if it meets the bigger pockets guidelines/numbers, what’s the problem?

And if you can resist, this is not really pointed toward the turn key industry so try to restrain yourselves and enjoy the comments :)

 It just depends on the other's strategies. Some investors prefer appreciation while a Turnkey property is more of a cash-flowing property. If it is a real Turnkey, it should be owned by a provider, renovates by them, and managed by that same company after the purchase. Maybe others got burned in the past by companies who only acted as agents or pushed the buyer off on some random property manager after the sale?

I own several turnkey properties. I've been in the real estate industry for over 10 years, and have enough knowledge to probably go out and find my own deals. But I simply do not have the time. For a lot of people that work 60+ hours a week, turnkey is a great way to buy a property. For some people, buying below market is their strategy. Maybe they want to sell in 5-10 years. But for other people who want to hold long term, turnkey is a great way to go.

Originally posted by @Tom Ott :
Originally posted by @Bukka Levy:

 Not my first post about buying out of state but I am perplexed. Why all the hate towards “turn key”? To be more direct, if it meets the bigger pockets guidelines/numbers, what’s the problem?

And if you can resist, this is not really pointed toward the turn key industry so try to restrain yourselves and enjoy the comments :)

 It just depends on the other's strategies. Some investors prefer appreciation while a Turnkey property is more of a cash-flowing property. If it is a real Turnkey, it should be owned by a provider, renovates by them, and managed by that same company after the purchase. Maybe others got burned in the past by companies who only acted as agents or pushed the buyer off on some random property manager after the sale?

I also look at it this way..  Why do people buy new construction homes to live in from the builder.. when in fact if they really knew what they were doing they would buy a lot and build themselves and capture that equity.. well we all know that its much easier said than done and 90% of the buyers have no ability to go find a lot pay cash for it as required by the lender and then hire and run a GC.. so they buy new homes from the builder / developer.. and depending on market cycle  builder developer can make some big money or they can break even or in a down turn lose their butts.. LOL

Turnkey is just a coined term what your buying is from a home flipper who instead of providing new remodels or new construction for retail sales on MLS sells them to investors and does not even offer the product to home buyers..

Its simply renovation remodel business for commercial purposes.. then you throw in the PM component which most turnkey if they are of size own the PM or are closely  affiliated with one..  

Now the reality is this works were there are lower price points so that price to rents work for a 6 to 10% COC return with 20% down or so. not all areas of the country does this work.. we all know that and not all neighborhoods work.. so they must work in markets that has excess SFR inventory that home owners are not buying in those areas .. if home owners want to live in those areas there would be no need to sell to investor make more money selling to homeowners..

IE retail flippers who we see all over BP with their success stories.. they are not selling to investors..  

Originally posted by @Jay Hinrichs :
Originally posted by @Tom Ott:
Originally posted by @Bukka Levy:

 Not my first post about buying out of state but I am perplexed. Why all the hate towards “turn key”? To be more direct, if it meets the bigger pockets guidelines/numbers, what’s the problem?

And if you can resist, this is not really pointed toward the turn key industry so try to restrain yourselves and enjoy the comments :)

 It just depends on the other's strategies. Some investors prefer appreciation while a Turnkey property is more of a cash-flowing property. If it is a real Turnkey, it should be owned by a provider, renovates by them, and managed by that same company after the purchase. Maybe others got burned in the past by companies who only acted as agents or pushed the buyer off on some random property manager after the sale?

I also look at it this way..  Why do people by new construction homes to live in from the builder.. when in fact if they really knew what they were doing they would buy a lot and build themselves and capture that equity.. well we all know that its much easier said than done and 90% of the buyers have no ability to go find a lot pay cash for it as required by the lender and then hire and run a GC.. so they buy new homes from the builder / developer.. and depending on market cycle  builder developer can make some big money or they can break even or in a down turn lose their butts.. LOL

Turnkey is just a coined term what your buying is from a home flipper who instead of providing new remodels or new construction for retail sales on MLS sells them to investors and does not even offer the product to home buyers..

Its simply renovation remodel business for commercial purposes.. then you throw in the PM component which most turnkey if they are of size own the PM or are closing affiliated with one..  

Now the reality is this works were there are lower price points so that price to rents work for a 6 to 10% COC return with 20% down or so. not all areas of the country does this work.. we all know that and not all neighborhoods work.. so they must work in markets that has excess SFR inventory that home owners are not buying in those areas .. if home owners want to live in those areas there would be no need to sell to investor make more money selling to homeowners..

IE retail flippers who we see all over BP with their success stories.. they are not selling to investors..  

 I agree! Especially about the numbers. That is why I think you see most Turnkey Providers operating in the Midwest where they can still make the numbers work on a fully renovated property. 

Originally posted by @Tom Ott :
Originally posted by @Jay Hinrichs:
Originally posted by @Tom Ott:
Originally posted by @Bukka Levy:

 Not my first post about buying out of state but I am perplexed. Why all the hate towards “turn key”? To be more direct, if it meets the bigger pockets guidelines/numbers, what’s the problem?

And if you can resist, this is not really pointed toward the turn key industry so try to restrain yourselves and enjoy the comments :)

 It just depends on the other's strategies. Some investors prefer appreciation while a Turnkey property is more of a cash-flowing property. If it is a real Turnkey, it should be owned by a provider, renovates by them, and managed by that same company after the purchase. Maybe others got burned in the past by companies who only acted as agents or pushed the buyer off on some random property manager after the sale?

I also look at it this way..  Why do people by new construction homes to live in from the builder.. when in fact if they really knew what they were doing they would buy a lot and build themselves and capture that equity.. well we all know that its much easier said than done and 90% of the buyers have no ability to go find a lot pay cash for it as required by the lender and then hire and run a GC.. so they buy new homes from the builder / developer.. and depending on market cycle  builder developer can make some big money or they can break even or in a down turn lose their butts.. LOL

Turnkey is just a coined term what your buying is from a home flipper who instead of providing new remodels or new construction for retail sales on MLS sells them to investors and does not even offer the product to home buyers..

Its simply renovation remodel business for commercial purposes.. then you throw in the PM component which most turnkey if they are of size own the PM or are closing affiliated with one..  

Now the reality is this works were there are lower price points so that price to rents work for a 6 to 10% COC return with 20% down or so. not all areas of the country does this work.. we all know that and not all neighborhoods work.. so they must work in markets that has excess SFR inventory that home owners are not buying in those areas .. if home owners want to live in those areas there would be no need to sell to investor make more money selling to homeowners..

IE retail flippers who we see all over BP with their success stories.. they are not selling to investors..  

 I agree! Especially about the numbers. That is why I think you see most Turnkey Providers operating in the Midwest where they can still make the numbers work on a fully renovated property. 

absolutely  I mean there are retail to owner occ flippers in your market.. and their are flippers selling to investors.

what you don't see in our market is both of those .. if your going to do a flip its retail only 99% of the time.. Investors in these markets buy MF  not sfr's  generally speaking..  The only new construction that I have sold to investors was a 25 home project I did up in Hood River OR that is a world class wind surfing destination and Airbnb is huge there.. we sold a few to people that were going to do that.

but of the 200 plus homes I have built over the last few years in the Portland market not one went to an investor NOT one.

If you listen to the BP podcast, the message is BRRRR and only BRRRR, so anyone who buys a rent-ready property is not getting a "good deal". BP can fall into the "echo chamber trap" where the same core ideas get repeated so much, that everyone just echos it back.

All the properties I buy are pretty much rent ready. I want to start collecting rent day one. I don't have the time to manage a rehab. I know others who only do new construction, which is turn key from the standpoint it is also ready day one. Lost of different strategies which all have advantages and disadvantages.

As far as why turn key gets a bad rap? It is a combination of two factors:

- Turn key attracts lots of new investors who want an easy way into real estate. They often lack knowledge and experience, but have high expectations.

- Turn key sellers sometimes over promise returns or over sell the rehab to imply there will be no problems. 

These two combined can be a bad combination, an inexperienced buyer and an over promising seller. On top of that real estate has a high failure rate anyways. When a turn key investor has trouble, they always blame the provider. Of course unhappy customers are always the loudest voice too, so people who are happy with turn key don't post "I love turn key" posts on the forums.

Originally posted by @Joe Splitrock :

If you listen to the BP podcast, the message is BRRRR and only BRRRR, so anyone who buys a rent-ready property is not getting a "good deal". BP can fall into the "echo chamber trap" where the same core ideas get repeated so much, that everyone just echos it back.

All the properties I buy are pretty much rent ready. I want to start collecting rent day one. I don't have the time to manage a rehab. I know others who only do new construction, which is turn key from the standpoint it is also ready day one. Lost of different strategies which all have advantages and disadvantages.

As far as why turn key gets a bad rap? It is a combination of two factors:

- Turn key attracts lots of new investors who want an easy way into real estate. They often lack knowledge and experience, but have high expectations.

- Turn key sellers sometimes over promise returns or over sell the rehab to imply there will be no problems. 

These two combined can be a bad combination, an inexperienced buyer and an over promising seller. On top of that real estate has a high failure rate anyways. When a turn key investor has trouble, they always blame the provider. Of course unhappy customers are always the loudest voice too, so people who are happy with turn key don't post "I love turn key" posts on the forums.

there are going to be many folks who fall for the BRRR as promulgated on this site.. some will do fine.. others with no experience and think they can read a book and do as well as the author they are in for some painful times ahead.. long distance rehab for a newbie is fraught with risk... and you wont hear from those that failed.. they will just slink into the real estate morass..

@Bukka Levy , It's easy to feel like Rip Van Winkle.  You go to sleep and Turn Key is the rage.  You wake up and theyre chopped liver but large MF is the holy grail.  Every type of real estate has its place in a cycle.  It's not the product.  It's the deal that make or break it.  And that's why no matter how many want to hate turn key there are just as many who use it and do it well.  

All of the arguments (except for the CA residency requirement :) are valid to some degree.  But not always and not in every case.

The truly great investors resist the lemming like siren call of the "next great thing" and stay focused on the fundamentals of the deal at hand.

I don't see an issue with turnkey  especially for out of state investors who are worried about the cost of big ticket items 6 days after they bought the property..  If the property cash flows to my liking and all of the big ticket items are new with the home fully rehabbed who cares?  

I am an out of state investor so if i bought a property that needed work I would have to hire either a realtor/PM or a GC to rehab it (Probably the realtor/ PM to get a relationship going).  If the total cost at the end is the same as turnkey whats the difference??

The issues that i have is if the Turnkey is selling me a property that is wayyy overpriced. Or, is selling me a property where the big ticket items were never replaced. I will always reserve for Capex, and as an example, I shouldn't be replacing the roof in 7 years.

@Bukka Levy

I will take your question to mean turnkey for SFRs and small multifamilies. In that realm, I think people hate it for the following reasons: 

  • Generally lower returns.
  • Many real estate investors --- especially newer ones --- have no idea how to evaluate a turnkey deal. And as others have mentioned, some turnkey providers are not very good at what they do. They can get by for a few years but things can blow up as the capex items add up and other issues pop up. I can't say I have a lot of experience with the smaller turnkey market. But my few interactions with it seems to be the classical case of the blind leading the blind. 

Note that when you start looking at large scale projects, turnkey products are pretty common. For example, my construction company works on new construction projects where the total budget is in the billions. Most of the time, the goal of the project is to develop, stabilize, and sell the stabilized product to a new buyer. Obviously, the first group of investors is taking a bigger risk so they typically get higher returns. The second group of investors typically consist of very wealthy folks and fund managers who need to park money somewhere. Hopefully, when all said and done, everyone walks away happy.  

I suppose the above can happen with smaller turnkey arrangements as well. But one challenge with smaller projects is that the group of folks you get to work with are often not as good as folks you can work with on large projects. But that's not a problem unique to turnkeys. It's true for anything in life. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

@Joe Splitrock well said! It depends on what kind of investor you are, but I'll gladly pay a slight premium for speed and to cash flow day one.

If your handy or a contractor then use your skills, of you want to use your time also. I'd rather leverage other people's time and speed up my purchasing and cash flow like Joe mentioned.

Different strokes for different folks right?

Happy investing!

@Bukka Levy Majority of people investing in turnkeys are busy professionals who don't have the time to build a team and run the show themselves - so why would they spend the time to go on BP and spread positives about it? They have better things to do than argue against the people who are against it. And like a lot of the replies are stating - the people that are bashing turnkeys are probably doing it because it tends to bring smaller returns than the strategies they use. One of the most common reply to what people should invest in is - 'it depends on their preference'. Same thing with turnkeys. It depends on the investor whether it is a good solution or not.

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