I know there are many people who like to get their feet wet with turnkey, but does anyone actually own ALL turnkeys? Does anyone own 30 turnkey properties?
Can anyone actually speak up that owns nothing but turnkey and has had a great experience?
I rarely hear from anyone who owns turnkeys other than the turnkey provider marketers, and of the people that do own them, it seems they only own 1-3. Is there a reason for this?
I want to believe turnkey is a great investment for busy professionals who have no desire to rehab/find deals/landlord/manage properties/deal with contractors etc....but why isn't it more common then?
I do also get concerned when I see proformas by turnkey providers that are only accounting for 5% vacancy (seems optimistic since just one month vacant should be 8.3%), 3-5% maintenance which seems low, absolutely no Capex inclusion etc.....
When you put regular numbers in to account for those things, it seems that many of the turnkeys aren't profitable...Don't get me wrong, I'm sure you make something, but just seems like 6-7% after you PROPERLY account for all possibilities and have a margin of safety.
I also don't buy the answer that people got involved with turnkeys and then realized they can go out on their own and do it....this makes no sense...if they are busy professionals and don't want to deal with the headaches of real estate, why all of a sudden after one turnkey experience they are starting their own empire?
So, again, anyone out there own ONLY turnkeys and have more than 10 of them?
@Kyle Scholnick - it really depends on the market for vacancy... For example, my very first few multifamily properties in the Boston area in the last 8-10 years or so have had almost 99% vacancy rates, i.e. 1 month not rented out of 120 months.
so if you take that into consideration, the upside is that returns up here are not great if compared to other parts of the country but you do get a much higher occupancy rate than most areas. My assumption is the same for parts of NYC and DC
Hope this helps...
All of my properties are turnkey (except one, which was originally my personal house but I took a job transfer so now rent it out...but that wasn't an intentional rental property).
Where are you getting all the info you provide...about how turnkey owners don't own that many and/or they go out on their own afterwards? Do you know specific people that fit that bill? Just wondering where you are getting all of this from.
A couple responses though:
- turnkeys are a newer concept, mostly since the crash in 2009. If someone were to buy 30 turnkeys since turnkeys came into existence, that would require a ballpark of $600k cash out of pocket, and that's if they were financing at 20% down. It's not typically standard someone can pay that much cash over the span of only a few years? Someone with that kind of spare cash is probably investing in commercial deals. But 30 aside, myself and plenty of other turnkey owners I know have bought plenty more than 1-3.
- turnkeys not being more common (although I think they are more common than maybe you are thinking? I have no idea how common you think they are or aren't) is easily due, in my opinion, that the majority of people just aren't that comfortable a) investing outside their local market and b) trusting other people to run the deals. When I started buying turnkeys I thought they were too good to be true and wondered why everyone wasn't doing it...but now I understand.
- I don't know the exact tallies of how my vacancies and repairs have turned out to respond directly to you wondering about realistic numbers. The properties I've always worked with estimate 7% vacancy and 5% repairs...but that is generic. Vacancy will depend on the market (but with a good PM, turnovers shouldn't be estimated to happen every year necessarily) and then repairs, again dependent on the quality of the rehab. A turnkey property should come 100% renovated to good standard, so there should be no repairs for awhile. But estimated 5% from day 1, that builds over time and then by the time the repairs happen, there should be enough in the pot. Of course this can be debated, and if you are shopping for a turnkey, use whatever estimates you want. You don't have to go off the word of the seller or promoter by any means.
- Lastly, I've never known of a turnkey buyer who went out and did it all on their own afterwards. Except my cousin, who first bought a turnkey that performed excellent but then bought a rehab (no idea why) and they've yet to have seen income on that one. Not sure that even counts as 'going out on their own'.
@with 15 - 15 properties
1 with 14 - 14 properties
2 with 13 - 26 properties
1 with 12 - 12 properties
2 with 11 - 22 properties
4 with 10 - 40 properties
5 with 9 - 45 properties
17 with 8 - 136 properties
20 with 7 - 140 properties
35 with 6 - 210 properties
38 with 5 - 190 properties
60 with 4 - 240 properties
115 with 3 - 345 properties
267 with 2 - 534 properties
469 with 1 - 469 properties
@Kyle Scholnick Those are good questions. I did some research a few months back. Here is what Chris Clothier shared. This was for his Memphis location. Keep in mind more might just buy rent ready stuff right off the MLS.... in the cash flow markets many properties are available. It is hard to paste with my tablet but that first line is 1 with 15.
How many turnkeys do you actually own?
The information I provided I admit, I did not do any extensive market research or statistical data analysis, it is just what I have noticed from talking to many people on this site....Many of them say they got started in turnkey, learned the process of investing and then went out to do it on their own because they didn't feel they "needed" the turnkey...which again doesn't make sense to me for us busy professionals.
From what you were saying about turnkeys being a newer concept...I understand that, but I don't buy that someone couldn't accumulate a lot of them over a period of 6 years. Buying 2-4 properties per year with about 20-30k down doesn't seem out of the realm of possibility, I know many people that can do that easily, especially since we are talking about turnkey and they aren't doing any leg work of finding deals or managing. So that is my question...where are all those people? Maybe not owning 30 turnkeys, but what about 15? I still don't hear from any of those people. I always love your opinion Ali, you are very helpful, but it seems like its always the same 6 marketers that respond to all turnkey inquiries. Where are all the happy and rich investors who own 10 turnkeys?
You said you know some specific people who own a bunch of turnkeys other than yourself, can you provide some of their information or tell them to hop on the site because I haven't heard from them.
Thanks for your response Ali
As much as turnkey providers want you to think it's a simple game, it's not. The management of your turnkey is incredibly important and it's not a science, it's an art. That's why the big commercial guys never get into residential.
We believe that one of the biggest assets an investor has is not necessarily the property but the tenant. And there are several factors that go into finding that great tenant. It starts with buying the right house and ends with tenant appreciation.
Where do most investors lose out? On the turn...especially if the turnkey company placed a trouble tenant in the house before they sold it. Seen it a million times and it never ends up profitable for the owner.
As usual....crickets from the turnkey world.....
let me comment if you will
Were Ali comes off thinking Turn Key started in 09 is just BS.. I was funding turn key in 2001 and did over 300 in 2002 alone. And to date have done over 2000. Maybe Ali got into turn key Sales in 09 probably very possible.. but her version of the industry and reality are flawed at best.
Agreed Tenant retention is key and as well as buying a good asset to begin with.. The flip side for the public is not being ABUSED by a PM .. That is one of the biggest issues in out of state investing is PM.. I have seen it a thousand times... Tenant minor issue and PM sends pumber and next thing you know a 50 dollar item is 542.00 with the PM making a 15% rake on it... So where this person post about an industry and is a PM.. its the PM's that get a lot of critizism. and the fact is to make money at PM it comes at the expense of the owners.. that's the bottom line.. It does not come from any other source PM makes there money from taking from owners end of story..
We know That CC is top in the industry but even with his huge volume you see there are not many multiple owners.. a large function of that is the ability to get mortgages .. 4 mortgages are usually easy.. 1 Personal resi and 3 rentals.. going above that even though the lenders say it can happen the financial requirements are quite a bit stiffer and many just can't pull it off.. Now with B2R and Colony Cap maybe that will change.. the issue the turn key guys have with companies like B2R and Colony is valuation and equity into the deal that is the feeback I have gotten from some of my turn key Vendors hard to get a deal done..
and to be clear I have owned over 350 of these turn key homes ... And that is a great questions for Ali as its her lead statement on every post she ever puts on BP/
I it would be great for her to expound on her holdings if for nothing else to let the audience know that she does not own 2 or 3 of them and is thereby an expert .. other than a paid marketer to sell turn key which she admits she is.. but you can hardly be an expert sitting in Venice beach and selling C class in Philly LOL.. bet she has never set foot in most of the stuff she markets.. However that's common in the industry.. I can't tell you how many marketers simply make connections talk maybe on the phone and interenet and then start hawking properties.. LOL
The biggest hurdle for 30+ turn key properties is the $$$ to get in to all those properties. The reason there are a million shows about flipping houses is that the idea appeals to people who don't have a ton of money. They think they can buy that diamond in the rough for a fraction of the cost (all they have) and with a little magic, flip the house and play up a few leagues.
I don't think it's extremely rare for real estate investors to have multiple turn keys, but to have 30+ is. To buy thirty properties at 150k and put 20% down, you're gonna need a million bucks.
Not to pile on to @Ali Boone but I have never seen her state how many homes she owns. And I find it incredibly hard to believe that someone who has a portfolio and claims to be in the business of marketing turnkey doesn't collect statistics on her own portfolio. I know I calculate all kinds of percentages on my properties, vacancy costs, maintenance cost ratios, ROI, COC, ROE etc.
C'mon Ali, tell us how big is your portfolio. I have 8 turnkeys in Indiana and 2 rentals in the Bay Area (not turnkey).
Great post. I enjoyed reading @Jay Hinrichs comments. A quick and dumb question here: if someone has quite some cash but almost no time, is turnkey one of the best investment avenues. I was following at CC/memphisinvest you mentioned and couldn't find many listings at 1%(rule) not to mention 2%.
Originally posted by @Harry Zhou :
Great post. I enjoyed reading @Jay Hinrichs comments. A quick and dumb question here: if someone has quite some cash but almost no time, is turnkey one of the best investment avenues?
Hi Harry -- to answer your question, yes turnkey investments are often the best solution for investors with limited time and connections. That's assuming they want to build a real estate portfolio.
I've covered this in detail on Episode 001 and 004 of my "Passive Real Estate Investing" podcast.
Please enlighten me about the "a little education and networking" you mentioned. Let's say the turnkey provider gives us a mediocre 8% cash on cash. I am all ears.
I believe @Harry Zhou that when you mention that you can't find Memphis Invest 1-2% rule it might be that they're being transparent about what investors can expect. They're setting reasonable expectations.
Any turnkey company can manipulate numbers. Here's an example pulled from our market:
Looks amazing...but that 13.03% cash on cash return number is worthless. Why? Where's the maintenance number? Even if this company is guaranteeing no maintenance for a year, don't people plan on holding rentals longer than that?
Taxes are not correct and there's not a dime allocated to vacancy.
So imagine if you bought this house, gave it to a local PM and within months realized your expenses were much more than this? You probably wouldn't be happy.
We see this ALL THE TIME.
This example doesn't seem like "ABUSE" by a PM company as @Jay Hinrichs mentioned. But it does seem like turnkey 'abuse' and also by anyone involved in this kind of deal to an out of state investor.
your assuming the investor is completely uneducated to the way of Real Estate.. it does not matter what the turn key company markets on proforma's.. Every investor knows there will be a vacancy, and every Investor knows over the life of the property there will be maintenance... Its all in the marketing message..
Just like we see proforma's were TK companies or marketers add in modest appreciation to get to a total gain.. or they add in Depreciation its all just proforma to get you a base line.
Just ask anyone who plays in the Multi family space... Blue sky profroma's are the rule not the exception, it is up to the investor to determine running costs over time.. and with very little effort an investor can do that.
If an investor believes they will have no maintenance and no vacancies when buying a rental property , then probably Real Estate is not a good choice for them.. they should invest in a Riet or some sort of dividend stock...
The absolute greatest risk to an investor is with PM.. Either incompetent PM.. or one's that gouge the crap out of the client with excess service calls and reparis and turn overs that are many times what a local investor in the market could get the same thing done for.. The contractors know they have a out of area investor who may be thinking CA prices and not Birmingham prices.
So in my mind for you to try to single out Turn Key companies from your PM perspective when your industry has just as many complaints if not more.. Seems a little like the pot calling the kettle black.
There are great TK and bad TK there is Great PM and bad PM...
What Many investors totally miss the point on is the asset class's you can have the most rock star PM but if your tenant base in High touch and transient by nature your going to have to work within the SOP's of the tenant base.
I love hearing about all the back and forth here. I think it really helps us all. I really understand the hesitancy about turn-keys as I felt the same. I bought my first property 29 years ago and then moved 2 years later and it became a property for PM as I moved to Califronia. I still own it today and after investing in my own back yard and knowing the ups and downs of the stock market crash I bought my first turn-key this year. I have been happy and plan to buy more but it still takes time to choose the property and do your due diligence via internet etc. Keep asking questions and you will get there.
I always appreciate your honesty and your transparency. I would really love it if @Ali Boone would address some of those questions. It is very frustrating when people think that it is still 1993 and they can just say that they own a bunch of something and pass themselves off as an expert without showing one lick of proof... People are smarter than that today and you need to show your cards. The key to running a convincing Bluff is that once in a while you need to actually have a winning hand. It is actually quite insulting that you think people are that gullible and naive Ali, you need to work on a better sales pitch.
So @Ali Boone please give us details on your personal portfolio, it is not fair that you try to push turnkey so much and talk about how it's the greatest thing in the world yet you have shown no proof on how many you actually own.
My personal adviser always tries to get me to buy cash value life insurance which I am not a fan of and he says it's the greatest thing in the world but at least he actually shows me he owns plenty of it and believes in what he sells...that is very respectable, at least he actually shows me he owns plenty of it even if we disagree on the product
I am not sure why people are taking it this way, I was not implying that you buy 30 turnkeys all at once.... It is a very common strategy to purchase one or two properties per year even for a beginner, so I am saying someone may have gotten 30 turnkeys over the course of about 10 years or so...
And you don't have to take 30 as literally the number I am just implying on the general concept why arent there people that own 20 of them or 12 of them it just always seems people have one to three of them
If you buy one or two turnkeys per year you may need about $50,000 per year... That may be a lot to some people who know nothing about finance but for many of us who will save 50 or 60% of our income that is really not that hard
Thank you so much for your input it sounds like you have a lot of experience owning turnkeys
I won't ask you to name the companies you are with, but can you shed light on all of us on what some of your returns have been, what your maintenance costs have been, what your vacancies have been, how long you have owned each property?
It is so rare we get someone like you with actual experience in owning turn keys so this information would be so helpful to many people thanks so much Anish
I think the main stumbling block is the lack of reliable financing past 4 mortgage slots.
And I know people can get to 10 but you need significant cash reserves income etc etc. So some might have a hard time getting there.
And over 10 is forget about it... I was trying to buy a short sale in Vegas for a second home and I could not get any conventional type loan at all because I have more than 10 mortgages on my Fico... my Mort. broker suggested I refi my primary to pay cash for this one. He was like hey dude your crazy to have all that equity in your house you can borrow 800k at 3% etc etc.. I told him go fly a kite at my age I am looking to pay my home off not mortgage it up... So I just need to save my pennies and this winter we can pay cash for a home in Vegas and call it a day... IN the mean time I keep selling off 1 to 3 of my rentals so I can finally get under that magic number of 10...
this is were I stated B2R and Colony are coming into play trying to bridge the gap for investors that want to grow a portfolio.. its just not as easy as going to your mortgage broker though and getting a loan.. these are quasi commercial loans and once done great but another level of sophistication and hoops to jump through ,,, at least from what I heard I have one acauantance though that dropped a 2 mil loan on sFR's with B2R so I know it happens.
I couldn't disagree with you more. You said "even busy professionals gravitate towards real estate because they realize with a little education and networking they can create much better returns than they can from turnkey"
No offense but that makes no sense, and that is exactly what I posted about on my first post on this thread.
Just to use myself as an example, I am a very busy physician, I have surgeries, I have emergency room calls, I have patients in the hospital, I see 35 patients a day in my office, I work about 12 hours a day... Not to mention the fact that if I am lucky I would like to actually get to the gym, spend time with my family, and possibly get more than five hours of sleep one night.... I am nothing special there are many people like me I am just using myself as an example..
Us busy professionals do very well in our industry, this is what we do, this is how we make money .... It may be hard for people on this site to understand but there are many other ways of making money and being very happy what you are doing without flipping houses.
So those of us busy professionals who barely have time to breathe have absolutely no desire nor time to start sending out direct mailings, driving for dollars, searching the MLS all day, dealing with contractors, dealing with tenants, etc. .... Not to mention the fact that in my area just outside Washington DC this is not a cash flow market so to have any profitable rentals, you need to be out of state, therefore need a great team to help run your rentals .... You can try to build that team yourself or you can buy the package of everything a.k.a. a turnkey company.
Busy professionals like me understand that real estate is a great investment and you can make more money than the stock market down the road with more consistent returns.... That doesn't mean I am going to start doing all this crap myself even if I can get a few more percentages of return because my skill is better used treating patients and I make a lot more money doing that....so I would rather do my full-time job and invest in turn key real estate with the hopes of making a higher return than the stock market even if I have to give up a few percentages to avoid the hours of hassle and time that I don't have to try to find deals and manage everything myself.
That is why turnkey is so important to so many people, and it is so frustrating when people are not transparent or give honest feedback about them
We have been waiting for people like you, can you please elaborate on your situation and your experience with the turnkey companies?
Can you give some examples on how long you have owned the properties, what kind of problems you have run into, what has your actual return on investment been, what has vacancies been, what has maintenance been ?