Hello BiggerPockets I am a NEWBIE!!!! I have been doing a lot of reading and podcast listening(BiggerPockets of course) over the last few months. I have been hearing some advertising for turnkey companies that are selling the properties, have renters and will manage the property for you. I am wanting to get feedback on this approach to get into real estate investing to start with. Please let me hear your thoughts on this subject, thank you.
Pros: you earn cash flow right away, the tenant is already in the property, the property has been fixed up
Cons: someone else made a margin off the rehab that you do not receive, the property might not be fixed up the way you would have done it, you do not select the tenant
Thoughts: this might be a good starting point to gaining knowledge, earn cash flow, and be a hands-off investor
As for myself, I like being hands-on and overviewing the contractor and several key subcontractors. I get to fix up the property to my liking. Then, I turn it offer to our property management company to find & place the actual tenant.
I think turnkeys can be great for newbies. Here's why-
If you want to compare turnkeys to just regular do-it-yourself properties, here's pros and cons for each-
I understand the hesitation when deciding whether or not to go the turnkey route, but I think there are a lot of factors that an investor needs to weigh during the decision making process. Turnkey investing is very dependent on the market the companies are located, level of involvement desired, policies of the companies, pricing, warranties, and whether they have in-house property management.
For example, the seasoned turnkey companies realize that their demand is driven by investors looking for a safe, consistent return. That means that the market needs to provide the opportunities for turnkey companies to price their properties based on the rent to value ratio, instead of relying on top market price, they are providing those properties below market value a lot of the time. If you can cash-flow $200-$350/month, with 20% down, that is a solid long-term investment.
Also, the turnkey option is the best way to go if you would like the benefits of owning rental property without being completely hands on. At our company we like our clients to be involved as much as they want to be with the expectation of trust in our expertise for certain operational factors.
Also, if the turnkey company has well-established policies in place for leasing, resident on-boarding, standardization of renovation approach (replacing capex items first and foremost), and property management, then they could be a good option for investors.
Also, look to see if they have warranties in place to cover the renovations they have completed on the property. This is a good way for turnkey companies to hold themselves accountable for their work. If they do not cover any of the items on the scopes of work completed, then it could mean the company does not focus on quality.
Also, it's my opinion that if the company provides in-house property management services, that is another way they hold themselves accountable. There are mixed reviews on whether this is a positive or a negative, but if the other factors have been met, this is another great sign you've found a company dedicated to providing a quality product and resident to manage.
Also, even though some of the prices look like there is a premium in price point, you have to find the value in the services being provided: Extensive research in the submarkets in their city, leasing services, value add to the property, and property management.
I hope this helps start the convincing process. Feel free to ask me any questions!
I wrote an article a while back that compares turnkeys to doing-it-yourself. Maybe that can help?
And then this one is really old but also contrasts the options-
I've mostly gone the turnkey route for myself and definitely prefer it. But everyone is different and lots of people don't want turnkey. All just depends on your interests and situation. But they can be great!
@Dennis Crawford Where do you live and do you want to invest passively or actively? If you want to be active and live in a decent market, learn to BRRRR in your backyard.
If you want to be passive, do turnkey. Keep in mind of the pros and cons to this.
If you want to be active, but live in a cashflowless market (SF, LA, NY, etc.) you can look into BRRRR from distance (very risky) or look for turnkeys first to get your feet wet and then move up to BRRRRing.
@Jonathon Oh I live in N.E. Georgia just north of Atlanta and work in S.C. I do plan on being a passive investor to start with and that is why I was looking into turnkey properties. Thank you for your feedback!