Real Estate Agent · Baltimore, MD · Member since 2020 · 18 posts · 8 votes
I'm looking to start investing in properties this year. I find myself leaning towards properties that I can rehab on some level to ultimately gain more equity overall. However, I see a lot of experienced investors building their strategy around turn-key rental properties.
1.) Why is the strategy so popular?
2.) What are the benefits of purchasing Turn-key rentals vs. Properties that need a little bit more help?
Any advice and insight from experienced pros would be very helpful in helping me figure out my next step with investing
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Nicholas Pedrick we like properties that require either very light rehab or none at all. We are not interested in doing much more than cleaning, paint, fixtures, landscaping and flooring. We avoid anything that requires permits. There is several advantages:
1. Speed to rent. We can have tenants placed before closing, so we are collecting rent before our first payment is due.
2. Remove the time and budget risk of a full rehab. When you open walls you can find problems, waiting for subs or inspection issues... you name it, things can go wrong.
3. Very little time invested. We are full time W2 and don't have time to manage construction projects.
4. No risk, time or cost associated with refinance. We put financing in place when we acquire and leave it long term. Paying multiple closing costs has an expense.
5. Tax advantages, because property goes into service faster, so you can start claiming depreciation, rather than waiting until it is rent ready.
No doubt if you rehab, you can gain more equity. That is true of anything, the more you do yourself, the more money you save. It is your choice what is your best use of time and expertise.
I would call it easier in some ways, but harder because it requires more capital. For someone with more capital than time, it is the easier path. For someone with little capital, it is not easier.
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
6y
Hi @Nathan Pedrick, welcome to the BP Forums!
Good news here! These answers are pretty straightforward:
1. Because it is easy
2. It's easy
That is all there is to it. You pay a turnkey provider because it is turnkey. (In theory) that's all you do: close and roll. Going the non-turnkey route involves more work (in theory, we're painting with broad strokes here) and MAY get you a better return overall, but comes at the costs of time/energy/money invested.
Turn the key and let it be . . . so they say.
Tis not for me and so I'll be . . . going the other way.
Investor · Blacksburg, VA · Member since 2020 · 65 posts · 33 votes
6y
As a newbie and in the military, the turnkey niche is very attractive for my first rental property investment. My wife and I want to get into the market, but we both have full time jobs so turnkey seems like the most realistic way to get in the game. Being geographically displaced obviously has its challenges, but if I can find a reputable PM company, I feel that we can be successful.
We are actively searching listings but can't seem to find turnkey properties that are going to bring a reasonable cash flow and ROI. We are looking for recommendations of turnkey realtors in the Jacksonville and Tampa FL. We also have an interest in East TN for later down the road (hometown) after the military.
Real Estate Agent · Baltimore, MD · Member since 2020 · 18 posts · 8 votes
6y
@Will Fraser
Thanks for your response. I just don't see how buying something at the top of market makes sense financially. Especially since you would be completely dependent on how the neighborhood market for that property is performing versus forcing the equity yourself. From what I understand in life anything worth having isnt easy
I'm looking to start investing in properties this year. I find myself leaning towards properties that I can rehab on some level to ultimately gain more equity overall. However, I see a lot of experienced investors building their strategy around turn-key rental properties.
1.) Why is the strategy so popular?
2.) What are the benefits of purchasing Turn-key rentals vs. Properties that need a little bit more help?
Any advice and insight from experienced pros would be very helpful in helping me figure out my next step with investing
Thanks for all your help!
Turnkey investments are great for investors who are looking OOS or if they work a 9-5 job and are not ready to become a full-time landlord. Some investors investing OOS may not want to just jump in a market they don't know and try to hire contractors they found on Google. Going with a Turnkey means the house was renovated all in-house by that company, they owned it first (not a listing) they place a tenant BEFORE closing, and then they also manage it in-house after closing. It is very passive and can appeal to many investors.
Rental Property Investor · Springfield, MO · Member since 2016 · 1k+ posts · 890 votes
6y
@Adam Cade have you been introduced to @Stuart Grazier with Storehouse310Turnkey yet? Stu and his partner @David Gutierrez are both active duty Naval Officers, and their turnkey business is thriving! Stu and I are business partners on another venture, and if I was going to do turnkey it would be with the two of them.
That makes much more sense to me. Time and location is huge and was not really part of my consideration.
do you feel like this will be a long-term strategy or just a way for you to break into real estate investing sooner?
Thank so much for your response
Nicholas, I think stepping out of the gate our niche is going to be multifamily with a strategy of long term (3-5) rental periods. Until I get out of the military, we need a more passive strategy. Evertually we’d like to expand our horizons once we become more experienced and have more time after the military.
@Adam Cade have you been introduced to @Stuart Grazier with Storehouse310Turnkey yet? Stu and his partner @David Gutierrez are both active duty Naval Officers, and their turnkey business is thriving! Stu and I are business partners on another venture, and if I was going to do turnkey it would be with the two of them.
David, thank you for the recommendation!! I will definitely reach out to them on BP. The most realistic starting point for us will be turnkey, from all the research we’ve done. We just don’t have the time or ability to be more hands on right now, but we don’t want that to scare us away. We want to get started sooner rather than later so we can begin to build a strong portfolio for after the military.
Flipper/Rehabber · Memphis, TN · Member since 2020 · 758 posts · 285 votes
6y
We provide turnkey properties in Memphis, TN. If you are living in the same area where you plan to invest a turnkey property then you can go through the process of looking for properties, finding contractors, designs, do paper works, etc.
Investing in a turnkey rental property that is fully renovated is your best option if you are going to invest in a different state. You can look for market area which you think is the best for you. You can look online which property companies can provide you best. Check how they do the turnkey process by contacting them, doing your research, etc. Once you found the one. You can choose which available property you would like to invest. Have an inspection to the property, get a property manager and get it rolling.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Nicholas Pedrick we like properties that require either very light rehab or none at all. We are not interested in doing much more than cleaning, paint, fixtures, landscaping and flooring. We avoid anything that requires permits. There is several advantages:
1. Speed to rent. We can have tenants placed before closing, so we are collecting rent before our first payment is due.
2. Remove the time and budget risk of a full rehab. When you open walls you can find problems, waiting for subs or inspection issues... you name it, things can go wrong.
3. Very little time invested. We are full time W2 and don't have time to manage construction projects.
4. No risk, time or cost associated with refinance. We put financing in place when we acquire and leave it long term. Paying multiple closing costs has an expense.
5. Tax advantages, because property goes into service faster, so you can start claiming depreciation, rather than waiting until it is rent ready.
No doubt if you rehab, you can gain more equity. That is true of anything, the more you do yourself, the more money you save. It is your choice what is your best use of time and expertise.
I would call it easier in some ways, but harder because it requires more capital. For someone with more capital than time, it is the easier path. For someone with little capital, it is not easier.
Real Estate Agent · Baltimore, MD · Member since 2020 · 18 posts · 8 votes
6y
@Tom Ott
Thanks for you response. To make sure I understand, it's for people who don't have a lot of time during standard working hours or individuals looking to test a market. It feels like an option if I was just looking for a way to increase my cash flow not necessarily grow equity over time, is that on track?
Thanks for you response. To make sure I understand, it's for people who don't have a lot of time during standard working hours or individuals looking to test a market. It feels like an option if I was just looking for a way to increase my cash flow not necessarily grow equity over time, is that on track?
Pretty much, or if you are just starting out. Some find it as a good way to get passive cash-flowing properties in your portfolio while you get ready to jump into a flip or something else.
Real Estate Agent · Baltimore, MD · Member since 2020 · 18 posts · 8 votes
6y
@Adam Cade
Thanks for the response. Definitely feels like a great stategy if you don't have a ton of time or aren't investing in an area that isn't close to home. Really appreciate your response, thanks again
Real Estate Agent · Baltimore, MD · Member since 2020 · 18 posts · 8 votes
6y
@Aigo Pyles
Thanks so much for the response. I was really focused on investing close to home which in turn made it difficult for me to understand why this strategy was so popular. I definitely can see the appeal if I was looking to invest outside of my state. Appreciate your help thank you
Real Estate Agent · Baltimore, MD · Member since 2020 · 18 posts · 8 votes
6y
@Joe Splitrock
Thank you so much for the in depth response. Truly appreciate the outline. The way you laid it out makes a lot more sense to me and I can see the appeal especially for investors that do not have a lot of time to manage the moving parts of an in depth rehab. Thanks again, really appreciate your help.
Lender · Central Florida Markets · Member since 2017 · 137 posts · 135 votes
6y
@Turnkey ? Think about it if it was so turnkey why would they be selling ? Of course they may need cash or getting older etc .. it doesn’t matter , as there is no true turnkey properties besides your own house and even that has issues at times .There is always more to the background than what lies on the surface.
On the flip side Many properties can be turnkey if you put the right people and process in place. From prop managers to legitimate handymen.
Don’t pay turnkey price unless you know the property and owner well enough
I live in the northeast where the returns aren't the greatest. I own 6 homes, have a full time job and also own a retail business, I simply wouldn't have the time to find a property in a different state and find contractors and etc...
So for me, turnkey investing makes a lot of sense. I deploy my capital, get about 15% cash on cash, plus some tax benefits and it takes very little of my time. Last provider I used gave me a 6 months warranty, and so far I haven't had any issues. There are steps that you can take to avoid paying a 30% premium, it's more like a 3% to 7% premium.
I dont think anyone can make a blanket statement saying one is good and the other, one is bad.
There is no guarantee that you will get a better return by doing everything yourself.
Turnkey is easier. You'll see lower returns usually, but you don't have to put the work into it.
If you're interested in rehab, that opens up your scope to a larger pool of properties compared to turnkey, as there are a lot of older homes that need updating that you could purchase for a more affordable price.
The more value you bring to people, the more return you will receive. If you buy turnkey in a lower class neighborhood, then your return could be higher.
Rental Property Investor · San Diego · Member since 2019 · 73 posts · 34 votes
6y
@Nicholas Pedrick
It’s a good way to start out. If you go the turnkey route, do your own due diligence, including which provider you go with. Don’t trust their pro formas. Wait for the right property with the right numbers based on your own figures. Talk w locals in the area and with property managers to understand how much more you’ll be paying.
Your returns will be lower as you’re shelling out cash out for convenience. Less meat on the bones.
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
6y
Someone on this thread wrote there are a million turnkey horror stories out there...
Anyway, I put together rental properties and hold them. Years ago, I was amazed when I saw someone in my market selling similar rented properties for a lot of money, to mostly out of State investors in California. I looked at their proforma assumptions. I am quite certain those investments did not work out.
Be very careful when buying these properties, which many are located in below average areas and / or declining regions. Subpar areas don't appreciate and most likely are worth less when you want to liquidate your investment.
As far as the cash flow - They don't mention the above average costs in maintaining rental houses in the long run. Your rate of return looks solid for year one. If lucky, the tenant stays for awhile. But then the costs in turning them over are very high, much higher than an apartment unit. The maintenance and capital improvements are much higher as well. And the turnkey company that you bought it from is not going to bail you out a few years from now when the property is vacant and has a lot of problems.
Sorry to seem negative, but I have more:
Selling rented houses has a limited buyer pool.
Financing for rental houses has contracted recently.
The markets for investment properties are probably experiencing some changes right now. And it is not growth.
Why would you go into an “investment” knowing you are paying to much, and there’s a million turnkey Horror stories out there.
No way.. not even for my primary would I buy something “turnkey”
I’d much rather buy a dump and rehab it myself.
There's also a million turnkey success stories out there and not all of us have the blessing of having contractor skills like you do. Making a broad statement suggestive that anyone could buy a dump and rehab it successfully is dangerous because a lot of people get in trouble trying to do that when they aren't contractors like you are. It actually does require skills. You obviously have them, but not everyone does.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
6y
If you're leaning towards doing a property that needs some rehab, do that. Turnkeys are more expensive (not 'overpriced'...there's a new misnomer about that going around right now), and you can't force appreciation with them like you can with a rehab. If you have the time, resources, and skills to rehab, do that. But a lot of us don't have one or more of those things, or we live in expensive markets so our only option would be to do it long-distance which is even riskier, so turnkeys fit in great for us. I actually wouldn't consider the strategy that popular. But it's definitely an option for a strategy. The two biggest benefits of turnkeys in my mind are: 1. someone else is doing all the work for you. You don't have to spend time or effort on it, and you can then buy them from anywhere and 2. there's a good chance that means someone smarter with more expertise in those areas are doing the work for you. If I tried to my own property, I'd do a way worse just than someone who does it professionally. If you're in Baltimore, you can certainly buy cash-flowing properties there and there are plenty that needs rehabs. But if you don't have a lot of market expertise or understand the dynamics of buying-and-rehabbing and the risk factors, etc., you could get in trouble in Baltimore. It's what I would consider to be a very advanced market to invest in, in the sense that you absolutely need to know what you're doing. It can be great and wildly profitable, but you have to know what you're doing.
Residential Real Estate Broker · San Mateo, CA · Member since 2013 · 585 posts · 264 votes
6y
Not sure if this would apply for you, but it allows scale to take place much quicker (possibly). If you are a solid income earner for example (lets say stacking away $25K a month after all expenses, etc. with your W2 or 1099) then you might go buy a house a month. You have someone that you are plugging into their system for and you try to ride the snowball. You also might be tapping into their lender (or network of lenders) that know the structure/model/business/etc. and are not capped on a number of loans, etc.
It is not completely "passive" when you invest in turn-key, but there is a lower barrier to entry and it might allow someone to get their feet wet in real estate.