My TurnKey Investing Strategy. Feedback please.

My TurnKey Investing Strategy. Feedback please.

Atlanta, GA · Member since 2017 · 54 posts · 30 votes

So, I know this has been discussed a million times on this site. I just wanted some feedback on my strategy over the next 5-10 years or so. 

Here's a little background about me. My wife and I are both employed (W2) and make about $60,000 a year in household income. We have about $30,000 cash currently and no debt. Our monthly expenses are under $2,000.

My plan is to invest in turnkey SFR in the Memphis market. I would like to buy between 15 and 20 gradually over the next 5-10 years. I expect the houses to all be between $100K-140K. I expect these to each rent for $800 - $1,200 per month. My cash flow goal after ALL expenses (including PITI, management fees, all maintenance and a reasonable allowance for vacancy) is an average of $200 per month per property. My plan is to finance these with traditional mortgages, 10%-20% down.

Here's what I'd like to know: 

Are my cash flow goals reasonable and achievable? 

Is there another market that you think would work better for my strategy?

Is securing that many traditional mortgages possible?

What are some difficulties I may encounter? What suggestions do you have for me?

If some experience property investors wouldn't mind sharing some wisdom I would greatly appreciate it. Thanks for your time.
 

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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
6y
Originally posted by @Andrew M.:

So, I know this has been discussed a million times on this site. I just wanted some feedback on my strategy over the next 5-10 years or so. 

Here's a little background about me. My wife and I are both employed (W2) and make about $60,000 a year in household income. We have about $30,000 cash currently and no debt. Our monthly expenses are under $2,000.

My plan is to invest in turnkey SFR in the Memphis market. I would like to buy between 15 and 20 gradually over the next 5-10 years. I expect the houses to all be between $100K-140K. I expect these to each rent for $800 - $1,200 per month. My cash flow goal after ALL expenses (including PITI, management fees, all maintenance and a reasonable allowance for vacancy) is an average of $200 per month per property. My plan is to finance these with traditional mortgages, 10%-20% down.

Here's what I'd like to know: 

Are my cash flow goals reasonable and achievable? 

Is there another market that you think would work better for my strategy?

Is securing that many traditional mortgages possible?

What are some difficulties I may encounter? What suggestions do you have for me?

If some experience property investors wouldn't mind sharing some wisdom I would greatly appreciate it. Thanks for your time.
 

Andrew,

Nice job introducing yourself and laying out a bit of your strategy.  It is kind of "30,000 foot-ish" so hard to give in depth feedback, but enough to start with.  And with the responses you've already received, hopefully I can give you some things to think about as you move forward.

First, you have to know that on a site like BiggerPockets the responses are going to run the gamut.  Unfortunately, you often have no idea what the experience or expertise is of the poster.  Here is my advice on what you posted and my advice on some of the comments from others.

Based on what you wrote, I would suggest trying to find an experienced real estate investor who can answer some of your questions about why you are investing.  Your goals.  Not that crap about "know your why" or "how to calculate your freedom number", but why you are actually investing in real estate.  I had this grand plan when I first started in 2003 to own 50 inexpensive properties in Memphis (I think at the time I described them as cheap) and I want to make $200 a month.  I was a passive investor at the time living in Denver with a full time job running my first start-up.  I also flipped houses in Denver because everyone told me I was supposed to learn to do it myself and invest close to home.  Problem was, I had no idea how these actions were going to lead to my goals of building long-term wealth and having a portfolio I could pass on to each of my kids.  That was goal, I was just doing a bunch of stuff blindly.  Fast forward, I almost drowned in all the paperwork of owning that many properties and the cheap, crap properties that were easy and cheap to buy became the bane of my existence.  I'm not sure I ever saw $200 monthly per property across my portfolio and I owned 57 properties at one point.  It was a disaster because I was just doing stuff with no real understanding.  And by the way, I flipped two properties in Denver and made a killing.  I thought I had it figured out and lost every $ of profit from those on the third.  I realized I am a much better business man than I am full time real estate developer.  I became a passive investor right then and there.

You need to connect with a local investor in Atlanta if possible.  If not, start listening to the BP podcast and find persons whom you feel you can connect with and reach out.  You need to surround yourself with people who are successfully doing what you want to do.  You will become the 6 people you surround yourself with so be careful who you listen to.  The naysayers and posters constantly posting all the reasons other investors can't do something are the ones who are not where you want to be.  Choose carefully!

I agree with many posters on here about the number of properties and the cash flow. Both are arbitrary. It doesn't have to be a set number of properties and it does not have to be a set cash flow number. My personal advice is that I would rather use leverage to acquire properties than hold them. I want to buy properties where I can fashion the calculations to reduce principle and own the asset free and clear in the shortest time possible. I often am cash flow neutral but pay off assets in 8-12 years. I don't need cash flow and I have a solid, steady income so I don't put money off to the side as a "no-big-deal" fund. I know that move-outs, maintenance and Capex will occur, but I take precautions to limit those exposures as much as possible. In your case, over a 15-20 year period, if you are able to purchase 1-2 properties every 3-5 years, you could own 8-10 properties inside that time frame and if you purchase properties that are a better long-term value investment, you may see rents from $1100 to $1400. If your average rent is $1250 and you own 8 properties, your monthly gross income would be roughly $9000 monthly. Ten properties would be $12,500 monthly. Rather than trying to figure out how many $200 rentals you can acquire, think what your real long-term goal is and ask mentors or investors who have achieved that goal to assist in the best strategy. That is my first advice. I just think you may be a bit premature in laying out a plan and I just hope you exercise patience before moving forward. Hopefully every poster on here would agree that there is no need to rush.

Now, my other advice is to understand that the word turnkey means absolutely nothing today on this site. It has been hijacked so many times that you need to forget it and understand it is simply a marketing term. On some level it means that there are some passive elements to the investment. Someone bought something and they are selling it. That pretty much sums up what every turnkey property has in common! From there, you really have to understand that it is up to you to dig in and get to know if the person or company you are doing business with is going to help you reach the goal you have set for yourself and the strategy you are using. I mentioned taking steps to reduce my exposure to maintenance, vacancy and Capex. You absolutely can reduce those variables, especially in the relatively short period of the first 7-10 years. Not every investor and certainly not every company that markets "turnkey" real estate believes in or understands how to do that. There are definitely differences in companies and the actual value they bring you as an investor. Figuring out how to align your needs and expectations with that value is your challenge.

Any poster on here who tells you definitely will or that you will not make money with a certain strategy or investment has no idea what they are talking about and probably not worth taking seriously.  Each person has there own experiences, but none are in your situation and none can tell you exactly what outcome you will achieve.  There is a possibility to achieve what you outlined in your post by purchasing turnkey properties in Memphis.  Yes, you can hit those goals.  You can also lose a lot of money and miss your goals.  Your job is to do your homework on the front end and align your expectations with the best decisions based on knowledge, facts and doing your own homework.

I would read what Rob Hakes has to say and definitely pay attention to his story. He has documented his experience so far.  But remember, he made decisions and had expectations and he can share with you what he did and how it has turned out...with that particular investment and company.  He has taken the time to document it.  He has not taken the time to go on every thread about Turnkey and simply tell the poster that they were definitely going to lose money.  If you are going to learn lessons from investors, learn them from those that are giving details and sharing the good, the bad and the ugly.  And remember, your job is to make an educated investment decision.  All of the horror stories plus all of the homerun stories only amount to data and education.  

Two last things in my ridiculously long post!  @Matt R. is one of those guys that I love reading and for years have told myself and probably him as well that I want to meet up out in Cali for a beer and a surf lesson next time I'm there.  I admire and respect his posts and think he gives great level headed advice.  However, lol.  If we're going to use sports analogies, if my math is correct, a batter laying down 10 bunts is batting 1.000, has 3 runners on base and 7 across the plate.  Those bunts may not be sexy, but over time and adding up, they amount to a lot of wins.  I work with a lot of investors who have no need nor desire to go any public forum, they just love the consistent and reliable realization of hitting their goals and expectations.  Many with well over 10 bunts!

Lastly, investing does not have to be an "or" strategy.  You can have "and" strategies.  In other words, you can invest in passive, turnkey real estate and be an active investor.  You can invest in passive, turnkey real estate and invest in index funds or syndications.  You don't have to choose just one.  It's not invest in one or the other.  I have invested in syndications and while they have been good, I didn't "own" the asset and I could not borrow against the asset.  I have lent money in real estate deals and earned great returns, yet I didn't own the asset when it paid off.  I buy the same dollar amount of an index fund on the same day of every month, and even with the recent corrections, I am still in the black on my investments in the market.  And you know what, the whole time I am making those investments, I have a resident paying off my mortgage where I leveraged a high-quality property passively.

Hopefully this long post sheds some light on your next steps. I'm sure in a city like Atlanta you and find investors who have traveled the path you are discussing and can help shed some light for you. If you have any trouble finding one, reach out and I'll help connect you. I know two investors over there with REI clubs and several on here that are active. Best of luck to you ~

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  • Michael K GallagherBusiness Member
    Real Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
    6y

    @Andrew M. First of all both having W2 Jobs will for sure help securing traditional mortgages. I believe traditional personal mortgages top out at 10 doors? don't quote me on that but there is a limit, as I understand, on how many "traditional mortgages" you can get. However, don't let that deter you. As we talk about all the time on BP small local banks are a huge partner for REI like you. So in the beginning years I'd be looking at building relationships with the local credit union etc.

    If I understand correctly you are looking to invest with Turnkey Providers?  If thats the case one of the best providers in the country is "Memphis Invest" so if you have not heard their BP podcasts I highly suggest it.  If you are going to be investing turnkey, you really want to understand what you are looking at, and looking for when buying from a provider.  There are obviously some amazingly honorable and well managed providers out there, but there are also some really sketchy ones.....cough cough....Clayton Morris...cough cough.  So I'd encourage you to find a provider that shares your values and goals to make sure you'll be aligned.  

    Not knowing too many details about your market, your cashflow goals seem reasonable and well thought out.  Other cities or markets that you may want to look at are Cleveland, Columbus, Indy, really any decent sized mid west city seems to be a great place to get some long term decent cashflow and appreciation.  

    If you are interested in Columbus I'm happy to talk specifics, numbers, details, locations etc, but thats about the only location I'd have any hard data on.   
      

  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    Why would you want a goal that has you holding 10+ mortgages to make $200/door? Do you not see the problem with that? Why are you so interested in how many holdings you will have instead of finding better deals that net you more and why turnkey? Do you not really have an interest in real estate? Turnkey is passive and can be fine, but not a great strategy over the long-term, especially with the numbers you said. You would have 10 down payment tied up to make $200/door per. You could take your cash and do one flip and make more than everything you said.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Andrew M. Your cash flow goals aren’t realistic for turnkey. The premium is to high for those. You’ll be more in the 100-125 per month range long term.

    I bought turnkey in memphis, I know how it goes.

    Yes you can secure that many mortgages with 10 in your name and 10 in your wife’s otherwise you’ll have to do commercial loans.

    Rethink your strategy, owning 15-20 turnkey properties is bad for you but great for the person selling them to you

  • Andrew AkinsPro Member
    Realtor · Memphis, TN · Member since 2016 · 50 posts · 45 votes
    6y

    @Andrew M. I think starting out turnkey is the way to go.  A good provider is going to minimize your risk with less maintenance ideally and tenants staying longer.  You want to also look for someone who has been in the business and has experience for 10+ years and is local.  Also, having everything in house is good with management as well.  Your cashflow numbers are obtainable and with most turnkey providers in Memphis you can get good homes in quality B to C class neighborhoods under a 100k that rent around the 1;1 ratio.  I would lock in as many 30 year mortgages you can afford.  This will help build up reserves for maintenance and vacancy.  Once your reserves are built up you can start paying for some mortgages by attacking the one with the highest interest rate.  You will then be able to start paying off properties and then make your next purchase go faster.  This is how I have built my portfolio to nearly 20 homes over the past 7 years.  Let me know if I can help in any way.  Good Luck

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Jonathan Greene:

    Why would you want a goal that has you holding 10+ mortgages to make $200/door? Do you not see the problem with that? Why are you so interested in how many holdings you will have instead of finding better deals that net you more and why turnkey? Do you not really have an interest in real estate? Turnkey is passive and can be fine, but not a great strategy over the long-term, especially with the numbers you said. You would have 10 down payment tied up to make $200/door per. You could take your cash and do one flip and make more than everything you said.

    I get what you're saying. I never claimed my strategy was the best or the quickest way to make big money. What I'm interested in is diversification and passive income. Also I like my current job, I want RE to be an investment in the truest sense, not a job. 

    I don't think $200/door is anything to sneeze at personally. This may be a bit optimistic but for example, if I can buy a property for $100,000 with $20,000 down and net $200 per month that's a 12% yearly cash on cash return. That's not even factoring in any possible appreciation on the property over the next 30 years. If I'm missing something let me know though.

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Caleb Heimsoth:

    @Andrew M. Your cash flow goals aren’t realistic for turnkey. The premium is to high for those. You’ll be more in the 100-125 per month range long term.

    I bought turnkey in memphis, I know how it goes.

    Yes you can secure that many mortgages with 10 in your name and 10 in your wife’s otherwise you’ll have to do commercial loans.

    Rethink your strategy, owning 15-20 turnkey properties is bad for you but great for the person selling them to you

    Thanks Caleb. Nice to hear from someone who's already done what I'm thinking of doing. What part do you think I have wrong? Are my rent projections too high? Any ideas on how I should rethink my strategy. Keep in mind at this point in my life I want RE to be a very passive investment. 

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Andrew Akins:

    @Andrew M. I think starting out turnkey is the way to go.  A good provider is going to minimize your risk with less maintenance ideally and tenants staying longer.  You want to also look for someone who has been in the business and has experience for 10+ years and is local.  Also, having everything in house is good with management as well.  Your cashflow numbers are obtainable and with most turnkey providers in Memphis you can get good homes in quality B to C class neighborhoods under a 100k that rent around the 1;1 ratio.  I would lock in as many 30 year mortgages you can afford.  This will help build up reserves for maintenance and vacancy.  Once your reserves are built up you can start paying for some mortgages by attacking the one with the highest interest rate.  You will then be able to start paying off properties and then make your next purchase go faster.  This is how I have built my portfolio to nearly 20 homes over the past 7 years.  Let me know if I can help in any way.  Good Luck

    Thanks for the reply Andrew, that'd be exactly what I'm looking for, solid homes in B to C class neighborhoods. Can you recommend a good turnkey provider in Memphis? 

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Michael K Gallagher:

    @Andrew M. 

    If I understand correctly you are looking to invest with Turnkey Providers?  If thats the case one of the best providers in the country is "Memphis Invest" so if you have not heard their BP podcasts I highly suggest it.  If you are going to be investing turnkey, you really want to understand what you are looking at, and looking for when buying from a provider.  There are obviously some amazingly honorable and well managed providers out there, but there are also some really sketchy ones.....cough cough....Clayton Morris...cough cough.  So I'd encourage you to find a provider that shares your values and goals to make sure you'll be aligned.  

    I'll be sure to check out Memphis Invest, thanks for the tip. I'm not currently looking at any other markets besides Memphis but if that changes I'd definitely love to have a chat. 

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Andrew M. It won’t be passive, that’s one flaw. Owning real estate isn’t passive. I can run my stock portfolio in real time from my phone. You can’t do that with real estate (you can come close though.)

    You can’t buy these with 10 percent down. It’ll be 20 or 25 percent down.

    Your cash flow numbers are too generous. It’ll be 100-125 a month long term, not 200.

    If you buy turnkey and get 200 a month (won’t happen, but let’s say it does), you earn 2400 a year. Let’s say your tenant stays 2 years, which is about average. That’s 4800.

    They leave it’ll be minimum 2000 to fix everything. Then you pay the lease up fee of 800-1000 (depends on rent) and you may one mortgage payment. Let’s say that’s 700.

    Your total minimum is 3700. So you make 1100 cash flow in 2 years or a whopping 45 dollars a month.

    This is if everything goes well, which it won’t. And this is under normal times, not with the impending recession we have coming.

    There are way better investments that TK rental properties.

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Caleb Heimsoth:

    @Andrew M. It won’t be passive, that’s one flaw. Owning real estate isn’t passive. I can run my stock portfolio in real time from my phone. You can’t do that with real estate (you can come close though.)

    You can’t buy these with 10 percent down. It’ll be 20 or 25 percent down.

    Your cash flow numbers are too generous. It’ll be 100-125 a month long term, not 200.

    If you buy turnkey and get 200 a month (won’t happen, but let’s say it does), you earn 2400 a year. Let’s say your tenant stays 2 years, which is about average. That’s 4800.

    They leave it’ll be minimum 2000 to fix everything. Then you pay the lease up fee of 800-1000 (depends on rent) and you may one mortgage payment. Let’s say that’s 700.

    Your total minimum is 3700. So you make 1100 cash flow in 2 years or a whopping 45 dollars a month.

    This is if everything goes well, which it won’t. And this is under normal times, not with the impending recession we have coming.

    There are way better investments that TK rental properties.

    First off, I really want to thank you for taking the time to write all that out because I can tell you don't want me to make a bad financial decision. That said I don't quite follow all your assumptions.

    Here's how I see the numbers on a hypothetical purchase (let me know where I'm wrong): 

    Purchase price let's say $100,000

    Down Payment: $20,000

    Mortgage payment/mo (based on current average 30-year fixed mortgage rate of 3.99 percent): $380

    Taxes/mo: $62

    Insurance (based on avg. premiums throughout the state): $91/mo 

    Monthly Rent (I've looked at many listings and reference materials, this number seems reasonable): $1,050

    Vacancy Rate: 5%

    Property Management: 10%

    Repairs & CapEx: 15%

     So...          $1,050 - 380 - 62 - 91 - 52 - 105 - 158 = $202 

    This leaves little room for error but I think it proves it is possible. 

    As far as the $2,000 damage when a tenant moves out that you mentioned, I would certainly hope I have a security deposit to cover that (or the bulk of it). I would also consider including a cleaning fee into the contract if the house requires cleaning upon tenant exit. Anyway, I can't deny you're much more experienced than I am. What part of my estimates do you think is incorrect or what am I missing? Thanks. 

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Account Closed:

    Has anyone ever looked at an income statement posted on their sites.  Ill give you an example.  Who analyzes with just those numbers?  TK companies customers are naive to say the least.  Listen to Caleb n myself.  

    I certainly don't. Those numbers are clearly silly. But I never had such unrealistic expectations in the first place. The truth is somewhere in the middle I think. Decent returns can be had in turnkey investments. 

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y
    Originally posted by @Andrew M.:
    Originally posted by @Caleb Heimsoth:

    @Andrew M. It won’t be passive, that’s one flaw. Owning real estate isn’t passive. I can run my stock portfolio in real time from my phone. You can’t do that with real estate (you can come close though.)

    You can’t buy these with 10 percent down. It’ll be 20 or 25 percent down.

    Your cash flow numbers are too generous. It’ll be 100-125 a month long term, not 200.

    If you buy turnkey and get 200 a month (won’t happen, but let’s say it does), you earn 2400 a year. Let’s say your tenant stays 2 years, which is about average. That’s 4800.

    They leave it’ll be minimum 2000 to fix everything. Then you pay the lease up fee of 800-1000 (depends on rent) and you may one mortgage payment. Let’s say that’s 700.

    Your total minimum is 3700. So you make 1100 cash flow in 2 years or a whopping 45 dollars a month.

    This is if everything goes well, which it won’t. And this is under normal times, not with the impending recession we have coming.

    There are way better investments that TK rental properties.

    First off, I really want to thank you for taking the time to write all that out because I can tell you don't want me to make a bad financial decision. That said I don't quite follow all your assumptions.

    Here's how I see the numbers on a hypothetical purchase (let me know where I'm wrong): 

    Purchase price let's say $100,000

    Down Payment: $20,000

    Mortgage payment/mo (based on current average 30-year fixed mortgage rate of 3.99 percent): $380

    Taxes/mo: $62

    Insurance (based on avg. premiums throughout the state): $91/mo 

    Monthly Rent (I've looked at many listings and reference materials, this number seems reasonable): $1,050

    Vacancy Rate: 5%

    Property Management: 10%

    Repairs & CapEx: 15%

     So...          $1,050 - 380 - 62 - 91 - 52 - 105 - 158 = $202 

    This leaves little room for error but I think it proves it is possible. 

    As far as the $2,000 damage when a tenant moves out that you mentioned, I would certainly hope I have a security deposit to cover that (or the bulk of it). I would also consider including a cleaning fee into the contract if the house requires cleaning upon tenant exit. Anyway, I can't deny you're much more experienced than I am. What part of my estimates do you think is incorrect or what am I missing? Thanks. 

    Using percentages to dictate repairs and capex is a bad idea. It doesn’t work. 

    You’re welcome to buy a TK property but after you own it a few years and try to sell it (which you won’t be able to since you bought at top of the market), you’ll understand what I mean.

    I personally think the s and p 500 index fund is better than a TK property.
     

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Account Closed:

    Ask yourself this if they were so good why are people who actually live in Memphis not TK companies customers?

    I assume some of them are TK company customers. Regardless CBS news recently reported that nearly 40% of Americans can't cover a surprise $400 expense, let alone save $20,000+ for a down payment. That could have something to do with it. 

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Caleb Heimsoth:
    Originally posted by @Andrew M.:
    Originally posted by @Caleb Heimsoth:

    @Andrew M. It won’t be passive, that’s one flaw. Owning real estate isn’t passive. I can run my stock portfolio in real time from my phone. You can’t do that with real estate (you can come close though.)

    You can’t buy these with 10 percent down. It’ll be 20 or 25 percent down.

    Your cash flow numbers are too generous. It’ll be 100-125 a month long term, not 200.

    If you buy turnkey and get 200 a month (won’t happen, but let’s say it does), you earn 2400 a year. Let’s say your tenant stays 2 years, which is about average. That’s 4800.

    They leave it’ll be minimum 2000 to fix everything. Then you pay the lease up fee of 800-1000 (depends on rent) and you may one mortgage payment. Let’s say that’s 700.

    Your total minimum is 3700. So you make 1100 cash flow in 2 years or a whopping 45 dollars a month.

    This is if everything goes well, which it won’t. And this is under normal times, not with the impending recession we have coming.

    There are way better investments that TK rental properties.

    First off, I really want to thank you for taking the time to write all that out because I can tell you don't want me to make a bad financial decision. That said I don't quite follow all your assumptions.

    Here's how I see the numbers on a hypothetical purchase (let me know where I'm wrong): 

    Purchase price let's say $100,000

    Down Payment: $20,000

    Mortgage payment/mo (based on current average 30-year fixed mortgage rate of 3.99 percent): $380

    Taxes/mo: $62

    Insurance (based on avg. premiums throughout the state): $91/mo 

    Monthly Rent (I've looked at many listings and reference materials, this number seems reasonable): $1,050

    Vacancy Rate: 5%

    Property Management: 10%

    Repairs & CapEx: 15%

     So...          $1,050 - 380 - 62 - 91 - 52 - 105 - 158 = $202 

    This leaves little room for error but I think it proves it is possible. 

    As far as the $2,000 damage when a tenant moves out that you mentioned, I would certainly hope I have a security deposit to cover that (or the bulk of it). I would also consider including a cleaning fee into the contract if the house requires cleaning upon tenant exit. Anyway, I can't deny you're much more experienced than I am. What part of my estimates do you think is incorrect or what am I missing? Thanks. 

    Using percentages to dictate repairs and capex is a bad idea. It doesn’t work. 

    You’re welcome to buy a TK property but after you own it a few years and try to sell it (which you won’t be able to since you bought at top of the market), you’ll understand what I mean.

    I personally think the s and p 500 index fund is better than a TK property.
     

    I'm invested in the S&P 500 index fund already actually. It's a fine investment. My interest in turnkeys is I would like to diversify and add leverage to my investments. Also, if I were to buy a TK property I wouldn't sell in a few years, I would buy with the intention to hold for the long term, at least 20 years.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y
    Originally posted by @Andrew M.:
    Originally posted by @Caleb Heimsoth:
    Originally posted by @Andrew M.:
    Originally posted by @Caleb Heimsoth:

    @Andrew M. It won’t be passive, that’s one flaw. Owning real estate isn’t passive. I can run my stock portfolio in real time from my phone. You can’t do that with real estate (you can come close though.)

    You can’t buy these with 10 percent down. It’ll be 20 or 25 percent down.

    Your cash flow numbers are too generous. It’ll be 100-125 a month long term, not 200.

    If you buy turnkey and get 200 a month (won’t happen, but let’s say it does), you earn 2400 a year. Let’s say your tenant stays 2 years, which is about average. That’s 4800.

    They leave it’ll be minimum 2000 to fix everything. Then you pay the lease up fee of 800-1000 (depends on rent) and you may one mortgage payment. Let’s say that’s 700.

    Your total minimum is 3700. So you make 1100 cash flow in 2 years or a whopping 45 dollars a month.

    This is if everything goes well, which it won’t. And this is under normal times, not with the impending recession we have coming.

    There are way better investments that TK rental properties.

    First off, I really want to thank you for taking the time to write all that out because I can tell you don't want me to make a bad financial decision. That said I don't quite follow all your assumptions.

    Here's how I see the numbers on a hypothetical purchase (let me know where I'm wrong): 

    Purchase price let's say $100,000

    Down Payment: $20,000

    Mortgage payment/mo (based on current average 30-year fixed mortgage rate of 3.99 percent): $380

    Taxes/mo: $62

    Insurance (based on avg. premiums throughout the state): $91/mo 

    Monthly Rent (I've looked at many listings and reference materials, this number seems reasonable): $1,050

    Vacancy Rate: 5%

    Property Management: 10%

    Repairs & CapEx: 15%

     So...          $1,050 - 380 - 62 - 91 - 52 - 105 - 158 = $202 

    This leaves little room for error but I think it proves it is possible. 

    As far as the $2,000 damage when a tenant moves out that you mentioned, I would certainly hope I have a security deposit to cover that (or the bulk of it). I would also consider including a cleaning fee into the contract if the house requires cleaning upon tenant exit. Anyway, I can't deny you're much more experienced than I am. What part of my estimates do you think is incorrect or what am I missing? Thanks. 

    Using percentages to dictate repairs and capex is a bad idea. It doesn’t work. 

    You’re welcome to buy a TK property but after you own it a few years and try to sell it (which you won’t be able to since you bought at top of the market), you’ll understand what I mean.

    I personally think the s and p 500 index fund is better than a TK property.
     

    I'm invested in the S&P 500 index fund already actually. It's a fine investment. My interest in turnkeys is I would like to diversify and add leverage to my investments. Also, if I were to buy a TK property I wouldn't sell in a few years, I would buy with the intention to hold for the long term, at least 20 years
     

    I thought the same way.  After the neighbors throw a rock through your window for the third time or have your water heater stolen, or your tenant leaves randomly etc etc, you’ll probably be thinking differently.

    Good luck my friend, with whatever you decide.

  • Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
    6y

    @Michael K Gallagher thank you for providing such great info on Turnkey property investments. 

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Caleb Heimsoth:
    Originally posted by @Andrew M.:
    Originally posted by @Caleb Heimsoth:
    Originally posted by @Andrew M.:
    Originally posted by @Caleb Heimsoth:

    @Andrew M. It won’t be passive, that’s one flaw. Owning real estate isn’t passive. I can run my stock portfolio in real time from my phone. You can’t do that with real estate (you can come close though.)

    You can’t buy these with 10 percent down. It’ll be 20 or 25 percent down.

    Your cash flow numbers are too generous. It’ll be 100-125 a month long term, not 200.

    If you buy turnkey and get 200 a month (won’t happen, but let’s say it does), you earn 2400 a year. Let’s say your tenant stays 2 years, which is about average. That’s 4800.

    They leave it’ll be minimum 2000 to fix everything. Then you pay the lease up fee of 800-1000 (depends on rent) and you may one mortgage payment. Let’s say that’s 700.

    Your total minimum is 3700. So you make 1100 cash flow in 2 years or a whopping 45 dollars a month.

    This is if everything goes well, which it won’t. And this is under normal times, not with the impending recession we have coming.

    There are way better investments that TK rental properties.

    First off, I really want to thank you for taking the time to write all that out because I can tell you don't want me to make a bad financial decision. That said I don't quite follow all your assumptions.

    Here's how I see the numbers on a hypothetical purchase (let me know where I'm wrong): 

    Purchase price let's say $100,000

    Down Payment: $20,000

    Mortgage payment/mo (based on current average 30-year fixed mortgage rate of 3.99 percent): $380

    Taxes/mo: $62

    Insurance (based on avg. premiums throughout the state): $91/mo 

    Monthly Rent (I've looked at many listings and reference materials, this number seems reasonable): $1,050

    Vacancy Rate: 5%

    Property Management: 10%

    Repairs & CapEx: 15%

     So...          $1,050 - 380 - 62 - 91 - 52 - 105 - 158 = $202 

    This leaves little room for error but I think it proves it is possible. 

    As far as the $2,000 damage when a tenant moves out that you mentioned, I would certainly hope I have a security deposit to cover that (or the bulk of it). I would also consider including a cleaning fee into the contract if the house requires cleaning upon tenant exit. Anyway, I can't deny you're much more experienced than I am. What part of my estimates do you think is incorrect or what am I missing? Thanks. 

    Using percentages to dictate repairs and capex is a bad idea. It doesn’t work. 

    You’re welcome to buy a TK property but after you own it a few years and try to sell it (which you won’t be able to since you bought at top of the market), you’ll understand what I mean.

    I personally think the s and p 500 index fund is better than a TK property.
     

    I'm invested in the S&P 500 index fund already actually. It's a fine investment. My interest in turnkeys is I would like to diversify and add leverage to my investments. Also, if I were to buy a TK property I wouldn't sell in a few years, I would buy with the intention to hold for the long term, at least 20 years
     

    I thought the same way.  After the neighbors throw a rock through your window for the third time or have your water heater stolen, or your tenant leaves randomly etc etc, you’ll probably be thinking differently.

    Good luck my friend, with whatever you decide.

    Thank you for the words of wisdom. Good luck to you as well!

  • Developer · Panama City Beach, FL · Member since 2013 · 130 posts · 88 votes
    6y

    Why not buy a property in your area and learn how to manage it yourself and grow it from there? If turnkeys were such great deals, why would they ever sell them to you? It's because they are making a big payday when they sell to you, and then they take most of the profit in management fees, leaving you with all the risk. The only thing they give up to you is appreciation, which is not going to happen in those types of markets. You need to learn to do what they are doing, otherwise you are just a passive investor, similar to turning over your funds to a stock broker.

  • Atlanta, GA · Member since 2017 · 54 posts · 30 votes
    6y
    Originally posted by @Account Closed:

    The reason Memphisonians dont buy from Memphisoninas TK companies is because they dont want to overpay for most like C- rated  donkey khrap.  No  you will not be getting B class as many companies will lead you to believe.

     Haha ok Juanita, I get it, you don't like Memphis TK companies. Thanks for the input.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Andrew M. Also keep in mind when you run numbers on those make sure you account for the property tax increase.

    If the property is assessed for 50k (before rehab) and then you buy it at 80k. The first full year after you buy it, the property taxes will go up. Your assessment will become closer to 80k which will increase your taxes by that percentage (in this case 60 percent).

    That’ll probably dent your cash flow even more.

  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    6y

    Listen to @Caleb Heimsoth, but also think artfully about what you are trying to do. Real estate is never passive. Buying turnkey is lazy. Why not invest in something else that doesn't need to have someone else manage it and constantly check with the people who are in it? Just organically, why do you want to buy something that is not near you, that you want someone else to manage for a fee, but you also want people to live there and pay you money, but you want them to be found my someone else also, but you are paying a mortgage on the same property to get a small monthly income. Then you want to do that ten times and forget that what happens when a recession hits and you have ten mortgages just to make $1,000/month. It's not logical. You are reading too many books, using too many calculators, and drinking some REI "guru" juice that isn't going to help you. If you can't be present in real estate investing, put the money into something else.

  • Murray, UT · Member since 2016 · 162 posts · 166 votes
    6y

    @Andrew M.

    I will need to echo what @Caleb Heimsoth has said as i to am somebody that has been down the turnkey road for a few years.  Cashflow projections are too high.  You will have a few months where you see it cashflow over $200/mo but there are way too many things that can go wrong with a turnkey property that was purchased at top dollar.  

    The taxes will increase.  If you are calculating taxes at $62 there is a good chance after a year or two the county will realize that you are not an owner occupant and you will lose that exemption, or they will just realize that they can charge more in taxes to an out of state investor that can't/won't come and protest.  

    Also your mortgage rate looks a little low for an investment property, but i haven't looked in a while so i could be wrong.

    On one property the taxes started at about $750.00 a year and two years later are at $1150 a year.

    I was and am very excited about the turnkey model, but the numbers don't lie.  They are crappy returns thus far.   Really the only hope of having these be a really good investment is if i can see some good appreciation overtime.  That's not a really good model if you are planning on cashflow and the chances of much appreciation in these markets is sketchy.

    There are other solid passive investments that have proven to be more stable with higher returns.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Rob Hakes for example Tesla stock. It’s highly volatile but the returns are great, as long as you don’t bet the house on it.

    I’ve made 25 percent in 3 weeks and I know people who have made 40-60 percent off it in a few years.

  • Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    6y

    Some get their feet wet with TK. I am not sure you want to practice a bunt 10X in a row though. If you are stepping up to the plate eventually you might want to take a full swing. Good luck! 

  • Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    Great that posters on this thread are shouting caution.  There are many turnkey investments out there that I feel are toxic, so tons of research needs to be done.  And don't let the salesperson feed you all the information.

    Can't you potentially find a local investment in Georgia?  

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