?Turnkey rental properties with positive cash flow ?

14 Replies

I am first rental investor. My goal is to buy-and-hold

for passive income with ROI of 10-12%. I do not want

to spend lot of time and effort managing rental properties.

Towards this goal, I talked to few companies that

offer rental properties and also do the property

management and take care of everything.

I am trying to understand the Pros and Cons of buying

turnkey rental properties. All the experts, please let

me know the Pros and Cons of turnkey properties.

What are the things, I need to look for when buying

turnkey rental properties ?

What the pitfalls, I need to avoid ?

Is this a good approach to receive Passive rental

income (or) should I search the properties and do

all the work myself.

Any suggestions for a first time rental investor

like me are appreciated !!

Thanks

--uday

You are asking all the right questions, and in the right Site. Very good. The short answer is, if you have found a provable reputable Company with provable lengthy track record, and they can offer you properties that can provably meet all your stated criteria, Then those properties may well be worth the punt. But you know what to do before taking the final plunge:- yes, that's right - ask here, again, and post those sweet numbers.  Cheers...

@Udaya P.

Make sure you are dealing directly with an actual turnkey provider and I mean directly.  Make sure the management company that they either own or use for managing the homes is an actual licensed company.  You should make sure that the actual tK company, the owner actually lives in that city and have a real physical location.  Its too easy to seem like a tk provider but not really be one. 

If you have a company that is offering every guarantee under the moon that might be a sign of inexperience or competing against others in their specific market. Some might feel that being able to offer that means there is a massive profit margin, nothing wrong with that by the way.   Aside from standing behind their work and offering a general warranty on workmanship, that's all you should really need.

Pros - leveraging a professional, one stop shopping, mostly passive, 

Cons - getting used to trusting someone and or company when your not actually there. More hands off.

I would suggest identify a few markets that meet your criteria and then seek out the tk providers in those markets, narrow them down and then make your selection . 

Good luck

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I've only bought turnkey rental properties for myself and that's all I really plan to buy. The pros of it are ease of process, so little time/effort required on the buyer's part, money in your pocket starting from day one, and so much built-in expertise to take a lot of the risk out. The cons depend a lot on the person. People who have a hard time giving up control and trusting other people to handle something will have a hard time with turnkeys. Not everyone trusts buying outside of their local area. One con that doesn't depend on the person is that turnkeys are usually more expensive upfront, although the total cost of turnkeys being higher could be debated.

The trick to succeeding in turnkeys is to learn how to manage the process. When you go the turnkey route, your job is to know what you are looking for, what to check up on and verify, how to run numbers, and how to manage the managers (so to speak). With non-turnkeys, your job is more about rehabbing successfully and all those technical things. So think of turnkeys like learning the broader picture and just having to learn that part of it, rather than the nitty gritty.

I love them personally, I wouldn't buy any other way. I could, but no interest.

@Udaya P.   

A few of our fellow BP members have created a site for tk buyers to review providers.  There isn't a whole lot of info on there just yet but its growing fast..   turnkey-reviews.com 

I would keep an eye on it in the coming months!  

@Udaya P. 

Being a Bay Area guy I have invested heavily out of state... at one time I had 350 SFR's in multiple markets.. Of course it was our focus and business. And I first started in the business when Turn Key term was first coined back in 2001.... So seen my share.

As a whole the industry is much stronger than in the past. however the markets are still the same they did not change.. So caution is needed when ever investing out of state.. Actually any RE investment has a certain amount of risk.. its how you mitigate that risk that is important.

I know from my personal perspective I wanted to deal direct with the source.. I think its beneficial to understand the company... know their principals and how they manage the company... There are many options there are 30 plus markets and 100's turn key providers so as you start your search look for common themes.. IE your dealing with the owners of the assets.. How long have they been doing it.. Are they living in one community and selling 4 states away.. etc etc.. I always wanted to deal with those right there and closest to the action.

Lastly take care not to get sucked into war zone's because they look good on paper.. the absolute highest advertised returns need to be vetted well so your not investing in a troubled area.

To that end I wrote a little e book about the do's and don'ts  no  recommendation of markets or companies.. but 20 years of experience on the little things that you want to look out for when your buying out of state..... drop me a PM and I will shoot it over to you

Good luck with your search I hope you find some good properties.  And better yet good companies to do business with.

@Ryan Mullin  

  Ryan thanks for the mention  the site is really getting some great traffic.

over 500 page views a day with average time on page 5 minutes.

Also getting feedback from TK providers that they are getting inquires.. Best is yet to come on the site.. So make sure you keep your inventory fresh so the folks can see your product real time.

@Udaya P. 

Buying Turnkey Cash Flowing Rental Properties

Pros- Buying turnkey properties is a very simple process  sometimes affordable and hassle free. A lot of turnkey companies provide reduced risk, eliminate challenges, and ensure success by educating and guiding the investors through every step of the entire process.

 Cons- It is very difficult to find quality properties in decent neighborhoods, honest contractors, effective property managers, and reliable maintenance personnel. In fact, it often takes 2-3 years just to get a working system established internally. Out-of-state investors often do not know how to find profitable neighborhoods and usually end up buying a property because of the low price, although it may be in an undesirable neighborhood. This technique often leads to a management nightmare as they, or the management company they have chosen, are not prepared to properly screen tenants and manage a rental property in a distressed community. It's is REALLY HARD to trust anybody in these days and times- Example- You buy a home that is currently rented from a turnkey provider and 2 months later the home is vacant and the so called tenants moved out leaving you high and dry and that turnkey provider feels they have not done anything wrong!!! That's BAD Business in my eyes!!

What are the things, I need to look for when buying turnkey rental properties? Visit the properties and also get to know the property manager or team this will make or break your investment regardless of the area you invest in A, B, C, D, E, or F!!!

What the pitfalls, I need to avoid? Never make quick decisions on any investment in real estate, take your time do as much due diligence as your conscious/heart desires.

Is this a good approach to receive Passive rental income (or) should I search the properties and do all the work myself? It is a good approach for passive income if you really don't want to be to involved with the day to day activities of finding, buying, renovating, renting, and dealing with Landlord duties of a property and still receive the benefits of owning a property. On the other hand I would suggest try looking for a property in your own back yard California and experience the learning curve of investing in real estate and prices it cost to fix different things that could  and will go wrong in a property. That alone will help you a ton when if you decide to invest out of state companies will not be able to just throw any quote at you for a job it also helps your negotiating skills in deals.

Good Luck and Happy Investing!!

Life is an echo. What you send out, you get back. What you give, you get.

A follow up question on this.

What is realistic ROI for turn-key properties ?

- 8-10%

-10-12%

-12-14%

How should we evaluate/validate the rent and appreciation of turn key properties ?

Thanks

--uday

I have invested in one turnkey before 1.5 years. At that time, returns were ~10% with 25% down payment. With the recent increase in prices, I was trying to buy another turnkey now. Now, I am seeing ~7-9% returns with 25% down.

What I look for is the accuracy and honesty of turnkey providers than the numbers on paper itself

I'm currently closing on a TK property and the return is between 8 and 10 percent. It will he higher if maintanence is low initially

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Originally posted by @Udaya P. :

I am first rental investor. My goal is to buy-and-hold

for passive income with ROI of 10-12%. I do not want

to spend lot of time and effort managing rental properties.

Towards this goal, I talked to few companies that

offer rental properties and also do the property

management and take care of everything.

I am trying to understand the Pros and Cons of buying

turnkey rental properties. All the experts, please let

me know the Pros and Cons of turnkey properties.

What are the things, I need to look for when buying

turnkey rental properties ?

What the pitfalls, I need to avoid ?

Is this a good approach to receive Passive rental

income (or) should I search the properties and do

all the work myself.

Any suggestions for a first time rental investor

like me are appreciated !!

Thanks

--uday

Turnkeys can be excellent when looking to invest into different markets. Investing in CA is almost impossible. Turnkeys are very passive and if you go with a true provider than you should not have anything to worry about. Ideally the company will have good reviews online and they should own, renovate, and manage the property all in house. If they use a 3rd party for anything I would think twice. 

Please feel free to look at:

How to Find the Right Turnkey Real Estate Investment Company for You

and

What to Ask When Working With a Turnkey Provider