Turnkey vs Syndication

45 Replies

Hi everyone.  I am new to real estate investing and I have been reading books and following the bigger pockets posts.   I am looking to do my 1st real estate investment.  Currently live in New Jersey so  I will be doing OOS.  I have been looking into turnkey companies and specifically looking at Columbus/Cleveland  However I also  learned recently about real estate syndications, and I am trying to decide between turnkey versus syndication.  I understand that with  Turnkey it is not completely hands off,  while with syndications it is hands off and  majority of the work is up front with vetting the sponsor and etc. 

Does it make sense to start with syndications? or would you first prefer to own your properties and then maybe do syndication as a way of diversifications? Can you actually build wealth and equity the same way with syndications that you would with owning your properties?  do syndications offer tax benefit  like the benefits of owning your property? 

My 2nd question is in regard to Columbus/Cleveland itself.  from my research it is a good investment there for cash flow.  what about appreciation? does BP Community feel that properties there will appreciate more in the future?

Also would be happy to hear recommendations about specific Turnkey companies  in  Columbus

Thanks in advance!

There is a lot of opportunity in both markets and it all depends on your specific criteria for property which might help you choose one of them. Columbus specifically doesn't really have turnkey companies because the market is still pretty competitive. Certain brokerages will still have in-house PM or other services but usually, you pay for each separately. If you find one part of the team, the hope is that they can introduce you to more contacts in the area to help build a team.@Lydia Bar

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Hi Lydia,

I think it depends on what you're looking for. As I understand it, here are some things to think about for turn-key vs. syndication

Turn-key

  • Limited upside as 'turn-key' means you are not buying any deal and forcing appreciation
  • Potential for cash flow, especially in the midwest and moderate asset appreciation over time
  • Still requires property management, which can be a headache if out of state (especially when it comes to local knowledge issues such as inspections, pricing rentals, what's going on in the neighborhood, etc)
  • More simple tax strategy (depreciation and loan interest)

Syndication

  • Potential to achieve both cash flow and long-term equity
  • Upside in that a good deal means you will get more than a preferred return, but the upside is better for the general partner due to the waterfall structure
  • 100% truly passive income
  • If the syndication you are investing in has a lot of experience and local knowledge, it's probably less risky
  • I'm unsure of how you would get taxed, but I do know it is possible to invest using types of IRA accounts to avoid capital gains

Being from Michigan, I don't know a whole lot about what's going on in Columbus and Cleveland, but I know a few folks from those areas. Everything I've heard suggests that Columbus is really booming with logistics and Cleveland is turning it around (probably similar to Detroit).

Here's my overall thoughts:

If you want to learn the ins and outs of the real estate process from acquisition through disposition, go turn-key or even non turn-key. However, if you want to reap the benefits of real estate from afar and not deal with the potential headaches and be truly passive, go with the syndication.

Hope that helps!

@Lydia Bar welcome to BP...definitely some good questions...syndication and turn key investing are really far apart on the RE investing spectrum. Despite the popularity of turn key, the underlying motives for most (not all) turnkey providers can get ugly...there is a prime example in Rent to Retirement...buying cheap poor condition properties in suspect locations, doing minor repairs, misrepresenting the neighborhood quality, and turning into a maintenance nightmare where you'll be nickel-and-dimed right out of the industry. That said, there are some solid TK companies like Memphis Invest. Overall, TK tends to be a play for sideline affluent investors looking to diversify and park capital...perhaps even an intentional loss to offset high wages.

Columbus is an partially transitional, partially stable market with big growth and rapid price appreciation...think Denver 15-years ago. Cleveland has opportunity and tends to be a higher risk, high ROI market due to that assumption of risk...we're pulling for Cleveland, but they have been hemorrhaging population for decades.

On the point of syndication...real estate is "real"...we're ultimately housing providers that are actively involved with our properties...this is a people business...it's gratifying to see your tenants do well as they help to pay off your mortgage and keep the property condition up...if you want to move to syndication, you should look to stocks or other investments as well...syndication is not investing in real estate...it's investing in the company acquiring and managing the real estate...odds are you never personally see the property or know your tenants...feels deflated to me personally.

Best of luck going forward.

@Lydia Bar

I’d recommend starting with a property of your own first before you take on debt of other people who will entrust you to perform with their money.

Columbus is a great cash flow and appreciation market to build long term wealth. It’s harder to find deals here than normal but there’s still a lot of opportunity.

@Lydia Bar I agree with others here that turnkey and syndication are pretty different and hard to compare. Here is what I see:

Syndication:

You join an organization that has a general manager who helps investors buy a part of a development for a unit price (often $50K or $100K) and the aim is to improve the development and select a location where the appreciation of the development combined with the increased income post-renovation create a valuable deal for larger scale and institutional investors. If the development can be sold in 3-5 years for a great price, the original investors participate in the increase and get that profit proportionate to the units purchased at the start of the syndication. In the meantime, there is potential for cash flow that investors receive either monthly or annually. It's important to know that most syndications are all cash and not financeable and that you often need to be accredited. The deal is very passive because there is management in place that typically owns a good part of the development and you only see reports and bank transfers. Very importantly you have basically no influence on what's happening with and to the development as the group of investors is passive by design.

Turnkey

As with anything you need to deal with the right partners. That applies to Syndication as well. The good turnkey providers find suitable properties, renovate them well and then sell them to you and manage them for you after the sale. That means they have an interest in the quality of the reno. It's true that there are many turnkeys that don't do that but you should not buy from them -same like you do not buy a bad apple, a ****** car, or anything that does not meet your quality standards. The benefit of turnkey is that you can finance it 20% down, 80% mortgage, so with the same money (i.e. $100K as for syndication), you can buy 3-4 turnkey properties. Yes, you have a little more communication with the provider but you are also the sole owner. Everybody is working directly for you and any changes, improvements, tenant approvals, etc. are up to you if you like that to be the case - or you can delegate to your turnkey provider. One can argue that well-performing turnkey properties don't have as much appreciation potential as syndication deals but that's mostly dependent on the location. If they happen to be in the same general location, appreciation will be very similar. I would say that's true for Cleveland.

Overall you decide if you want to put mostly cash or use leverage and financing (which I recommend) and have more or less influence.

I have often found the real hurdle is accreditation. As you are just starting you might struggle to qualify as an accredited investor - which then the decision is made for you. There is syndication that allows non-accredited investors but I would suggest staying away as the risk is often much higher and problems can arise, especially when markets are not appreciating as much as the syndicate had originally promised.

It's all about finding someone you trust. Personally, I know more syndicators that I trust than turnkey operators, so I'd feel more comfortable with syndicators.

To figure out if a market is appreciating, I like to download Zillow's Housing Data. It shows you data by year, and if you add a simple formula, you can see the percentage increase or decrease. It isn't perfect, but it takes any personal bias out of the equation.

Originally posted by @Axel Meierhoefer :

@Lydia Bar I agree with others here that turnkey and syndication are pretty different and hard to compare. Here is what I see:

Syndication:

You join an organization that has a general manager who helps investors buy a part of a development for a unit price (often $50K or $100K) and the aim is to improve the development and select a location where the appreciation of the development combined with the increased income post-renovation create a valuable deal for larger scale and institutional investors. If the development can be sold in 3-5 years for a great price, the original investors participate in the increase and get that profit proportionate to the units purchased at the start of the syndication. In the meantime, there is potential for cash flow that investors receive either monthly or annually. It's important to know that most syndications are all cash and not financeable and that you often need to be accredited. The deal is very passive because there is management in place that typically owns a good part of the development and you only see reports and bank transfers. Very importantly you have basically no influence on what's happening with and to the development as the group of investors is passive by design.

Turnkey

As with anything you need to deal with the right partners. That applies to Syndication as well. The good turnkey providers find suitable properties, renovate them well and then sell them to you and manage them for you after the sale. That means they have an interest in the quality of the reno. It's true that there are many turnkeys that don't do that but you should not buy from them -same like you do not buy a bad apple, a ****** car, or anything that does not meet your quality standards. The benefit of turnkey is that you can finance it 20% down, 80% mortgage, so with the same money (i.e. $100K as for syndication), you can buy 3-4 turnkey properties. Yes, you have a little more communication with the provider but you are also the sole owner. Everybody is working directly for you and any changes, improvements, tenant approvals, etc. are up to you if you like that to be the case - or you can delegate to your turnkey provider. One can argue that well-performing turnkey properties don't have as much appreciation potential as syndication deals but that's mostly dependent on the location. If they happen to be in the same general location, appreciation will be very similar. I would say that's true for Cleveland.

Overall you decide if you want to put mostly cash or use leverage and financing (which I recommend) and have more or less influence.

I have often found the real hurdle is accreditation. As you are just starting you might struggle to qualify as an accredited investor - which then the decision is made for you. There is syndication that allows non-accredited investors but I would suggest staying away as the risk is often much higher and problems can arise, especially when markets are not appreciating as much as the syndicate had originally promised.

If you like to discuss it, I'll be happy to have a chat.

No one mentioned accreditation until you hit on it .. thats the biggest stumbling block to most  IE they are not accredited .. so buying aTK rental you dont need anything but desire a little money and ability to get a loan.

there are small syndication's that take non accreds but most ready for prime time syndicators will not deal with non accredited investors.

PS I got larkmoor all cleaned up and ready to go  LOL

@Lydia Bar , you might want to also consider syndications if you qualify as accredited investor. We view large multi-family apartment investing as very attractive area especially for folks that want to invest w/experts that do value add investing for a living. I've had investors make straight cash investments into funds, which are small portfolios of properties. This might be something for you to look further into based on the goals you’ve shared. I've written a few blogs you might find of interest as alternative to doing turnkey which most folks I talk to migrate away from due to the extra hassles and distance of managing your own properties even if you have property management. If you like to be somewhat active, great, do that locally but for distance and diversification, it's hard to beat being a part of a 200 or 300 unit apartment investment in a strong market where trying to do this yourself would be very difficult to do.

Originally posted by @Brandon Sturgill :

@Lydia Bar welcome to BP...definitely some good questions...syndication and turn key investing are really far apart on the RE investing spectrum. Despite the popularity of turn key, the underlying motives for most (not all) turnkey providers can get ugly...there is a prime example in Rent to Retirement...buying cheap poor condition properties in suspect locations, doing minor repairs, misrepresenting the neighborhood quality, and turning into a maintenance nightmare where you'll be nickel-and-dimed right out of the industry. That said, there are some solid TK companies like Memphis Invest. Overall, TK tends to be a play for sideline affluent investors looking to diversify and park capital...perhaps even an intentional loss to offset high wages.

Columbus is an partially transitional, partially stable market with big growth and rapid price appreciation...think Denver 15-years ago. Cleveland has opportunity and tends to be a higher risk, high ROI market due to that assumption of risk...we're pulling for Cleveland, but they have been hemorrhaging population for decades.

On the point of syndication...real estate is "real"...we're ultimately housing providers that are actively involved with our properties...this is a people business...it's gratifying to see your tenants do well as they help to pay off your mortgage and keep the property condition up...if you want to move to syndication, you should look to stocks or other investments as well...syndication is not investing in real estate...it's investing in the company acquiring and managing the real estate...odds are you never personally see the property or know your tenants...feels deflated to me personally.

Best of luck going forward.

 Brandon, your characterization of Turnkey is a little slanted and why you would call out all TK  then praise one ( who's name by the way changed to RE Nation)  Then take a below the belt pot shot at another is confusing.  There are probably 100 turn key plus turn key providers.. all over the US.. also lets not lose perspective here.. People dont buy them for tax loss's not sure why you would even say that.. If someone was going to do that they would just buy in HIgh priced markets were break even or negative cash flow to start is the rule.. No need to come to fly over land to take a tax loss.. Keep in mind all of Ohio 10 years ago was in the dumps .. Heck between Ohio and Michigan those were the only states in the country the big note buyers would not even buy defaulted real estate notes thats how crappy those two states were at the time.  

And your characterization of syndication while some points you make are probably valid but again these are all your own personal opinions with no basis in fact I suspect you have never invested in a syndication yourself. 

I know we all try to steer business to our personal sand box's however singling out one turnkey company while praising another seems mean spirited and or there is some personal vendetta going on and so maybe the OP will want to  take that into consideration.  

Turnkey is not for everyone  and neither is syndication.   Ohio is one market but that's all it is  ONE market among 50 others in the country all of them have investment opportunities with many far superior to your market.  

I get it we are all trying to compete here on BP for the investor clients its no secret .. 

Hopefully your post just kind of came out wrong and you were not taking pot shots. 

Your choices really depend on:

1) How much time you want to invest in your investing

2) How much expertise you have or plan to acquire

3) Stress you can handle

4) ROI you want

Here are some RE investing options:

1) Wholesaling

2) Fix & Flip

3) Fix & Rent

4) Turnkey Rental

5) Private Lending

6) Syndication

As you move down the list, from #1 to #6, you are giving up higher amounts of potential ROI.

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@Lydia Bar Hello Lydia! For starters I would suggest turnkey or fix and flips. When it comes to syndication vs turnkey there are a few things to consider. (1) Syndication is for more larger projects/investments (more on the 4+ unit side of things). (2) You will 150% have better luck at finding a promising turnkey/fix and flip in cities such as Cleveland/Columbus (more specifically Columbus). (3) Turnkey has a better ROI short term that can lead you to growing your business that can lead you to higher end projects/syndication. Columbus is one of the fastest growing markets in the U.S at the moment. It is projected to increase over 1 million residents in the coming 7 years. Turnkey, fix/flips, and BRRRR is very popular here and there's a reason for that (it works). If you have any further questions feel free to reach out to me. Regardless, I wish the best of luck to you and happy investing!

@Lydia Bar , I have never invested out of state or with a turnkey operator.  I do own my own rentals and I am a passive investor in syndications, so can bring that perspective.  Additionally, I live in Cincinnati, with my in-laws in Columbus, so have some background on those markets.

As you noted, turnkey properties are not hands-off.  For some people the amount of work needed to manage turn key properties is fine, for others it is too much.  With a turnkey property, you are still approving the repairs/improvements (typically over a certain dollar level), you will be paying the real estate tax bill every 6 months, the insurance bill, the mortgage payment, and the book keeping for each.  A manager will provide you financials for what they handle, but you need to reconcile that financial statement with the expenses you are still responsible for.   And of course, you run the risk that a manager isn't working out and you need to fire and find a new one.

The upside of a turnkey is you aren't splitting your profits with anyone.  When the property appreciates, when you refi, etc. that is your money to keep 100%.

Syndications are not hands off either, as you allude to, but are far more passive than owning a rental directly.  Vetting sponsors and reviewing financials/operational reports is, in my experience, much less than work.  Of course, you lose control in a syndication.  The sponsor will be setting the business plan and making decisions on executing.  They will also have control over when to sell and refi the asset.  The other downside is that the sponsor will often charge fees and take a cut of profits that reduce your overall profit.

As for growing wealth, you can do so in either option.  A good sponsor will be generating mid-teens to low 20% annualized returns on average.  Many sponsors on BP work in the value-add space, so your holds will be 3-5 yrs, but reinvesting those proceeds will keep the base growing, and ultimately grow your wealth in the same way buying a rental will.

And as for tax benefits, I actually get better tax benefits from my syndications than I do my direct rentals.

Now onto Columbus and Cleveland, both are fine markets, and there are areas in both that you can see strong appreciation. But your available appreciation is really set on the purchase. Just because you buy a property in a great neighborhood doesn't ever mean you will see appreciation, especially in today's hot market. And buying in the rough areas, also doesn't guarantee appreciation. As for cash flow, many here will say "class C areas are where you make the cash flow". While this may be true, you are getting that cash flow for taking on risk. And that risk is lower quality tenant, shorter tenant stays, more turnover, tenants that, in general, are rougher on the property, more Capex, etc. If you underwrite a Class C property with the same assumptions as an A or B, yes, you can model more cash flow. In my reality, my class C properties will cash flow more today and next year, but then have a much higher turn over cost, and more frequent turns than the better properties I have. Maybe you find that great tenant, but maybe you don't. It is all a game of probabilities and risk reward balance.

@Lydia Bar

Congratulations on getting started. 

Both certainly have their advantages and would depend on your ultimate plans and goals. Syndications are of course passive and don't lead to tenant phone calls, property management, etc. There can be tax benefits to the final investor via depreciation and cross segregation. Syndications can also provide an opportunity to gain experience and insight into the space. Turn key provides the opportunity for a first deal, to build a track record and can lead to growing to scale if that was your goal. 

Best of luck and congrats again in getting started. 

@Jay Hinrichs thanks for the perspective, I appreciate you taking the time to reply. 

This is a prime RTR example in my city...this is the most homicidal neighborhood in Columbus...to give you an idea, gun violence is so bad here the police created technology to "hear" bullets so they could respond quicker...I know the maintenance man at a nearby hospital that informed me they have so many roof leaks they can't keep pace...all from falling bullets....I have seen gang members chasing other gang members with shotguns nearby...I don't drive in this neighborhood because everyone is drunk at 10a and nobody has car insurance...

After sitting on the market for 242 days an expiring at $49k list price, RTR "flipped" this proper for $120k resale and represented the location as B+...most of their Cleveland inventory is like this... this isn't just RTR...this is the bulk of the TK industry...

Here are your current closed comps

This is 165 S Oakley...$105k...full reno and move in ready 

I'm not calling out RTR arbitrarily...I have nothing personal against them...these are just facts that I know about Ohio. 

Chris has a textbook operation...some of the best systems in the industry...not promoting his company...just a comparison of 2 firms I know that operate in the TK space...

@Brandon Sturgill

I've decided not to comment on some of the negative posts you have made since there really isn't a point.  I did see that some of them have been removed which we appreciate.  I will comment on this now to add some insight for you and the community as a whole.  I don't know what prompted you to post multiple times negatively about our company as I've never spoken to you, and you have not invested with us.  I do understand that we are competitors in the industry, but this does seem like a personal attack as you did not bring up any other TK company other than my own on your posts.  We are not active in the Columbus market so you don't need to be concerned with us as a competitor against you.  In fact, we are always looking for top brokers in markets to refer clients to that we do not have inventory in.

I would first like to point out that my company has been in the industry for many years, and has a very positive reputation.  Which is difficult to do in the turnkey space.  If people were not having a good experience investing with us they would be quick to talk about it in these forums, and it would be quite public.  We are not seeing that.  By doing a quick search in the forums one can easily see that we have hundreds of positive reviews that we've worked very hard to achieve.  We always do right by our clients, and that is evident.  I have over 120 positive reviews on my BP account that I am very proud of.  I've worked extremely hard to earn their trust over years of working with them.  Real estate has many obstacles to overcome, and ensuring our clients have a team to support them as they scale their portfolio is of the utmost importance to me!  

To be specific on this particular property you posted, this was sold over a year ago.  I'm not sure where you are finding this listing.  A high scale rehab was done on this property.  The property appraised for the asking price showing that there were viable comps to support the value of $120,000.  Zillow has this property estimated at $139,800 right now.  This property has performed quite well for the investor that purchased it, and the investor has since come back to buy many other rentals with us successfully scaling his rental portfolio.  I do agree with you that this is not B property, and would fall better into a C class.  Your feedback is noted about that, and I will revisit our algorithm on how that was determined.

In general it should be noted that the majority of what we sell is actually brand new construction in A class locations.  This is quite different from the typical TK model of rehabbing C class assets.  To be very specific, we build heavily in SW FL where investors can purchase a brand new 4/2 in an outstanding area with high rental demand for $275k.  Most appraisals we see are in the $310k to $340k range providing the investor with significant equity!  Two weeks ago we saw our highest appraisal for one of these at $375k.  The address for this was 3118 NW 18th Terrace, Cape Coral, FL 33993.  This was even on pre-construction appraisal.  We initially projected rents to be in the $1,850 range, and are now seeing actual rents on completed projects come in around $2,100 to $2,200 outperforming our initial projections!  All of these investors are in an excellent position with cash flow & equity while having the benefits of a newly built home in an upscale area.  My point in providing these details is to show the types of opportunities we typically offer to our clients.  We also try to have a diversity of different investments available to clients based on their own investment criteria & goals.  

Since this thread is about the difference in TK vs syndication (and not meant to focus on RTR) it is important to note that we also offer syndications so we knowledge in both these spaces.  There are most definitely pros and cons of each strategy.  I will be happy to dive into that, but I need to at least set the record straight with the RTR discussion first since this seems to be the direction the post went.

In closing, I encourage everyone to do their own due diligence on any person or company you may consider working with.  The BP forums are a great place to start, and to network with like minded individuals.

@Brandon Sturgill, I'm happy to have a conversation with you if you would like to clear the air on any topics.  As I hope you can see we are well known in the forums and general public with a very positive reputation that we all have worked extremely hard to maintain.  We respect you as a professional in the industry, and we all like to work towards the common goal of helping others to reach their investing goals.  All tides rise together through this community as we educate each other & assist one another on becoming better investors.  We wish everyone the absolute best of success investing & taking action!

Originally posted by @Brandon Sturgill :

@Jay Hinrichs thanks for the perspective, I appreciate you taking the time to reply. 

This is a prime RTR example in my city...this is the most homicidal neighborhood in Columbus...to give you an idea, gun violence is so bad here the police created technology to "hear" bullets so they could respond quicker...I know the maintenance man at a nearby hospital that informed me they have so many roof leaks they can't keep pace...all from falling bullets....I have seen gang members chasing other gang members with shotguns nearby...I don't drive in this neighborhood because everyone is drunk at 10a and nobody has car insurance...

After sitting on the market for 242 days an expiring at $49k list price, RTR "flipped" this proper for $120k resale and represented the location as B+...most of their Cleveland inventory is like this... this isn't just RTR...this is the bulk of the TK industry...

Here are your current closed comps

This is 165 S Oakley...$105k...full reno and move in ready 

I'm not calling out RTR arbitrarily...I have nothing personal against them...these are just facts that I know about Ohio. 

Chris has a textbook operation...some of the best systems in the industry...not promoting his company...just a comparison of 2 firms I know that operate in the TK space...

I think the bottom line is providers provide a product that investors want or are seeking and as such its about the investors themselves set the bar of what they want to buy.. And for better or worse many read BP and other social media and feel that they need very high COC returns and will pass over other investments that dont meet their criteria.. you see that all the time on BP Poster says I am looking for property with this criteria well most want a very high return and as such its common knowledge that there is a slot that properties have to fit into to create that return and its generally the C class stuff and some B..

The social issue you describe are common in all cities  our city of Portlandia was spared this up until a few years ago and now our lovely city has its own war zones these days when 3 years ago none existed.. Even the worse neighborhood houses were 400k and up.. 

So while many locals don't like certain areas and would not live there, tenants do live there. So its not really up to us to decide what risk the investor wants to take they do it on their own. WE in the industry just present the product the buyer chooses what to buy. The semi national sales organizations generally are repping 10 plus markets.. And they give their clients the choice of what they want to buy. from C class to B class to new construction.. but the investor at the end of the day chose's what criteria they will use to invest and so many the overriding criteria is COC return day one.. And with all things the higher the return generally the greater the inherent risk and you can tell investors this until you are blue in the face and they will still go for the greater returns over buying something that maybe say breaks even has no return.. but has some real up side down the road and or quality of asset and tenant is far better.

For me personally that's what I found with my A class Vegas properties I don't own a lot of rentals anymore ..  I did own 350 C class doors but now its just A class  make a nice 5 to 6% return I am happy with that my criteria is not ( hey has to be 10% or its no good).

Bottom line these threads have been going on since day one on BP..  U have the Cash flow is the only reason to invest crowd and appreciation is gambling and then you have the  cash flow is just a place setter while my prime asset goes up in value based on a location and desirability IE no social issues like you describe.