Turnkey Property for First Investment
Member since 2019 · 24 posts · 3 votes
Hey BP,
I'd love to hear others thoughts on buying a turnkey rental property for a first time investment.
Also, any suggestions on content to research as well as suggested providers to potentially work with.
As always - responses are appreciated!
Hi there @Michael Bonanno, there are pros and cons for both the turnkey and BRRR options. I am biased when it comes to the turnkey method, but I find that certain methods that work for one person may not work for the next. The issue many people have with turnkey is that forcing appreciation and selling quickly for a profit has been removed. The turnkey company has done this for you, this is how we make our money. If you BRRR (DIY method), you fix a distressed home from the ground up, you can flip it for a profit or keep it as a rental. Whichever you choose, the value of the property you renovated is and should be higher than the total cost of the purchase and rehab work. This process is called forced appreciation and it's the reason investors choose the BRRR method instead of turnkey. Nevertheless, this is a lot of time and work.
The BRRR method is good for a person who has a lot of free time, you're handy, and you have a good network of people you can contract to do any extra work you don't know how to do. However, the risk is that the rehab process can take long, all of this time means that you aren't making money on the property. The longer it takes, the longer you have to pay out of pocket for the mortgage (if you financed). When the work is done, and done correctly, you will have a better return on your investment. You have traded a LOT of time and energy and risk for a higher potential reward.
The turnkey option means that you don’t need to do any of the work I mentioned above, this doesn't mean that you won't also have to do your due diligence. The turnkey company does all of the work on their time and dime. The turnkey company has networks and systems in place to find the best properties and rehab to a high standard and quality. This also means that you won’t have to worry about vacancy risk during the rehab process.
Closing happens after the rehab is finished and inspections are passed, this means that you won’t have any risk during the rehab stage. The turnkey company benefits from the spread between what they put into the property and the market price they sell to you. The price you purchase the property at should be market price, a reputable turnkey company wouldn't inflate their values and third-party appraisals should back up the prices. Your returns will come from cash flow each month and, presumably, long-term appreciation, this is not guaranteed. Going with the turnkey option means that you’ve traded extra potential return from forced appreciation for the luxury of having your time and energy back and having someone else do the hard work for you.
For those who work full-time jobs and don't have a lot of time on their hands to rehab and do a full reno, trading their potential for forced appreciation for convenience is more valuable. Investors who choose turnkey are probably looking for passive income or they live in a more expensive market. This all depends on your goals and what you would like from your investment. Before you decide on turnkey or BRRR, have a discussion with yourself or your partner about what your objectives are in real estate investing.
I hope this helps you out on deciding what you would like to do.
Best wishes!!
I don't have a lot of experience with turnkey properties but what little I do has lead me to believe that they rarely cash flow and I really only care about cash flow. Further as a new investor I would probably put an even greater premium on cash flow since you are most likely to make bigger mistakes in the beginning and you will want that cash flow to help with those mistakes.
Turnkey properties are a good choice for new investors but it is important to realize that the majority of the value has already been created, so you will not see massive appreciation. Of course you will still see some appreciation depending on your market.
Hey BP,
I'd love to hear others thoughts on buying a turnkey rental property for a first time investment.
Also, any suggestions on content to research as well as suggested providers to potentially work with.
As always - responses are appreciated!
If you buy in your market near you, may be you can take on some minor work like paint and flooring? I like turnkey property because I can rent it out right away. being the turnkey property is still in pretty good price range and can give me the return i'm looking for.
Thanks for the responses!
@Jingru Sui which turnkey provider do you work with?
@Charles Carillo
Thanks!
Do you know any providers that you would recommend?
When you buy Turnkey you're buying PM service too and they should have a tenant in place by the time you close. You will also be paying top dollar for the property and realize that the property more than likely won't ever appreciate in value.
All of the big ticket Capex items should also be replaced if they have a medium-short life span remaining.
Make sure you get a good feeling with the TK provider because there are lots of TK providers that buy property for $30K, throw a coat of paint on the property, change the $300 bathroom vanity, tell you its fully rehabbed and sell it to you for 80K.
You may be better off buying a property, rehab it, hire a PM and rent it. You can also find something through the MLS too that needs minor cosmetic or a full rehab. Do thorough research and weigh your options.
Either way, visit properties yourself and inspect them.
@Michael Bonanno, I'd be thinking about your second investment property first. Will your first deal allow you to refinance and pull out equity to buy your second property? If not, you may be stuck for a while unless you have extra cash or access to equity partners.
Turnkey is a good option for those who don't have much time to build teams/manage rehabs, and don't want to go through a huge learning curve. If you do have the time, knowledge, and stomach to take some bigger risks, think about doing your own BRRRR. Otherwise, turnkey is good too. Just do your DD thoroughly and be extra careful if you're about to buy dirty cheap properties with high cashflow. In this market, cheap properties are cheap for a reason.
Turnkey is a great way to get started, but it also begs the question of what is your definition of turnkey? Are you thinking of doing some work yourself, or are you wanting to be as hands off as you can?
Additionally, make sure that you vet your turnkey provider correctly. You're doing the right thing by starting out here on the forums, but the right provider makes all the difference.
When talking to your prospective providers, ask questions about the systems and processes that they have in place. As has been mentioned on the podcast, you want to work with a provider that is running a business, not a provider that had some spare time on their hands and decided to start a property management company.
Would you be financing or buying with cash?
I work for a turnkey company in Kansas City, MO. (www.turnkey-pg.com) We specialize in providing outside investors with cash flow generating rental properties. The turnkey method is perfect for people that see the benefits of investing in real estate but do not live in the right market. I think it is key to use leverage while diversifying your investment portfolio.
We sell our properties based on a rent/value ratio, not the current market. We do see appreciation in our past clients property values! Please let me know if you would like to learn more about our passive approach to investing in rental properties. Thank you
Would love to know more about your offerings and process..
TK can get a bad rap, but if you have more money than time - it could be a solid start. I would ask the TK provider for 3 customer references and I would speak to them. Don't purchase a property without a tenant in place, UNLESS, they offer rent concessions...some TK will do this. Make an offer to the TK that make sense for your goals, some are willing to negotiate purchase price. Good luck @Michael Bonanno
@Michael Bonanno the "TK" model is a broken model. Dig deeper my friend. There are no short cuts!
@Michael Bonanno
Despite my wife’s preference of buying, moving in, and hanging pictures, I won’t even buy turnkey for my family. No equity, top dollar, typically a cheap rehab. I don’t see the point in turnkeys unless it’s a deal, and that just doesn’t happen. Buy something that needs work, even if it’s just paint, carpet, etc.
if turnkey is what you want, you might as well just buy off the MLS from mom and pop, get a tenant in and move forward. I see no value in turnkey unless you are ok with minimal cash flow and appreciation.
Thanks for the responses!
@Jingru Sui which turnkey provider do you work with?
I find my own turnkey properties. I have license.
Hi there @Michael Bonanno, there are pros and cons for both the turnkey and BRRR options. I am biased when it comes to the turnkey method, but I find that certain methods that work for one person may not work for the next. The issue many people have with turnkey is that forcing appreciation and selling quickly for a profit has been removed. The turnkey company has done this for you, this is how we make our money. If you BRRR (DIY method), you fix a distressed home from the ground up, you can flip it for a profit or keep it as a rental. Whichever you choose, the value of the property you renovated is and should be higher than the total cost of the purchase and rehab work. This process is called forced appreciation and it's the reason investors choose the BRRR method instead of turnkey. Nevertheless, this is a lot of time and work.
The BRRR method is good for a person who has a lot of free time, you're handy, and you have a good network of people you can contract to do any extra work you don't know how to do. However, the risk is that the rehab process can take long, all of this time means that you aren't making money on the property. The longer it takes, the longer you have to pay out of pocket for the mortgage (if you financed). When the work is done, and done correctly, you will have a better return on your investment. You have traded a LOT of time and energy and risk for a higher potential reward.
The turnkey option means that you don’t need to do any of the work I mentioned above, this doesn't mean that you won't also have to do your due diligence. The turnkey company does all of the work on their time and dime. The turnkey company has networks and systems in place to find the best properties and rehab to a high standard and quality. This also means that you won’t have to worry about vacancy risk during the rehab process.
Closing happens after the rehab is finished and inspections are passed, this means that you won’t have any risk during the rehab stage. The turnkey company benefits from the spread between what they put into the property and the market price they sell to you. The price you purchase the property at should be market price, a reputable turnkey company wouldn't inflate their values and third-party appraisals should back up the prices. Your returns will come from cash flow each month and, presumably, long-term appreciation, this is not guaranteed. Going with the turnkey option means that you’ve traded extra potential return from forced appreciation for the luxury of having your time and energy back and having someone else do the hard work for you.
For those who work full-time jobs and don't have a lot of time on their hands to rehab and do a full reno, trading their potential for forced appreciation for convenience is more valuable. Investors who choose turnkey are probably looking for passive income or they live in a more expensive market. This all depends on your goals and what you would like from your investment. Before you decide on turnkey or BRRR, have a discussion with yourself or your partner about what your objectives are in real estate investing.
I hope this helps you out on deciding what you would like to do.
Best wishes!!
@Michael Bonanno My advice would not to go with turnkey as your first or any investment. In my opinion you lose a lot of equity by going turnkey and lose your exit strategy if you ever decide to sell. If you are interested in SFH's then I suggest the BRRR model where you can add value, force appreciation and take advantage of the built in equity vs handing it off to the turnkey provider and middle man. Just my two cents (from experience). Good luck!
Hey BP,
I'd love to hear others thoughts on buying a turnkey rental property for a first time investment.
Also, any suggestions on content to research as well as suggested providers to potentially work with.
As always - responses are appreciated!
Tons of turnkey opportunities out there.If you buy turnkey below are some best practices that you can employ so that you can best protect your capital.
Would you be financing or buying with cash?
I'd be looking to finance. Any recommendations for providers?
When you buy Turnkey you're buying PM service too and they should have a tenant in place by the time you close. You will also be paying top dollar for the property and realize that the property more than likely won't ever appreciate in value.
All of the big ticket Capex items should also be replaced if they have a medium-short life span remaining.
Make sure you get a good feeling with the TK provider because there are lots of TK providers that buy property for $30K, throw a coat of paint on the property, change the $300 bathroom vanity, tell you its fully rehabbed and sell it to you for 80K.
You may be better off buying a property, rehab it, hire a PM and rent it. You can also find something through the MLS too that needs minor cosmetic or a full rehab. Do thorough research and weigh your options.
Either way, visit properties yourself and inspect them.
Hey Anthony,
Thanks for the suggestions. Do you have any recommendations for providers?
@Michael Bonanno, I'd be thinking about your second investment property first. Will your first deal allow you to refinance and pull out equity to buy your second property? If not, you may be stuck for a while unless you have extra cash or access to equity partners.
Hey Rich,
Thanks for your reply. How do you recommend refinancing a turnkey property?
Turnkey is a good option for those who don't have much time to build teams/manage rehabs, and don't want to go through a huge learning curve. If you do have the time, knowledge, and stomach to take some bigger risks, think about doing your own BRRRR. Otherwise, turnkey is good too. Just do your DD thoroughly and be extra careful if you're about to buy dirty cheap properties with high cashflow. In this market, cheap properties are cheap for a reason.
Thanks for the advice, Jonathan. Do you have any providers that you recommend?
Hey BP,
I'd love to hear others thoughts on buying a turnkey rental property for a first time investment.
Also, any suggestions on content to research as well as suggested providers to potentially work with.
As always - responses are appreciated!
Tons of turnkey opportunities out there.If you buy turnkey below are some best practices that you can employ so that you can best protect your capital.
Hey James,
Thanks for the advice! Do you know of any turnkey providers that implement these strategies?
@Michael Bonanno I've purchased 2 turnkeys, but one was rehabbed by my father, so I don't suppose that really counts. I will say that my one pure turnkey property is my best cash-flower. I went through Huntington to finance it, but I recommend finding a small local bank to work with.
I'm way late to the thread, but I think turnkeys can be great for new folks. Here's why-