Does Anyone Own ALL turnkey??

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

Super post.

As you expand your search or options of investing in Real Estate you may want to consider some alternatives to turn key SFR's s there is certainly more to the industry than just that model. And like a good stock portfolio you may want to diversify across the industry.

Some examples may include:

1. Investing in Debt IE a GREAT HML in your city that you can sit down an eye ball and or has impeccable rep . these investment can easily bring you 8 to 12% with little hassle factor actually once up and running probably the most passive of the bunch.

2. Crowdfunding portals... That are doing debt deals they have matured.. check out Realty Shares and Realty Mogul I know those folks personally and they are very diligent in what they bring to the investor.. go with the very simple fix and flip loans for safety and least exposure to market up and downs.

3. There are some really good Syndicators in the US>. And the sponsor is critical but once you get with one of them you can establish a very long term relationship.. etc.

4. Look at larger Multi with Professional institutional type management.

5. Class B Mobile Home parks.. don't go lower other wise your buying your own mini Ghetto.. I have owned 3 and I love these.

6. Find a really good local fix and flipper and fund their deals doing a JV this can be very rewarding financially of course just like picking a TK company caution must be taken.

7. If you have not already buy your own medical practice facility and rent it to the Group ! you know you will get rent !

And as you state there are plenty of ways to make money in RE... but you may want to spread your risk to a few different scenarios so you don't have all your eggs in one asset class. just some Saturday morning food for thought !

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21 Reply

Kyle Scholnick

OP

Boca Raton, FL · Member since 2015 · 135 posts · 132 votes

11y

@Jay Hinrichs

I love you more and more man! You always have great opinions, you are honest and you always have great ideas. Really sad knowing how rare that is.

You make an excellent point, that there are many other areas to invest passively in real estate and those are great suggestions.

The reason I was so set on turnkey rentals was because of not only the potential return but also the loan pay down, the tax benefits, the depreciation so I was hoping with all that factored in could make a good 12-15%. Perhaps that is unrealistic .... From all the turnkeys that you have owned... When you factor in tax benefits, depreciation, etc. what was your total return on most of your turnkey rentals?

0 Reply

Trevor Ewen

Rental Property Investor · Weehawken, NJ · Member since 2014 · 1k+ posts · 704 votes

11y

@Jay Hinrichs

Great breakdown of some of the other passive options. I think the list would be really handy as a blog post or even a webinar for the 'other-industry' professional class trying to get into REI. I often feel as if we're the minority on the forums.

@Kyle Scholnick

I can speak to #3 as being a great option, doesn't always expose you to new debt, and can even give you exposure to deals a little closer to home.

We've invested in a syndication in New Jersey that's been very hands free. Furthermore, it would be hard for me to play in that market on my money alone (much like DC area). Syndication makes everyone more effective with a larger pool for momentum. I know for a fact that three of the investors in our deal are physicians (typical targets, no time + money).

The network value is great, too. Because these guys take me seriously, and can easily expose me to other deals.

1 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Ali Boone:

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'.

Good and thoughtful response Ali. You say you and other turnkey investors you know own more than 1-3. Any way we can get some real numbers? How many do you know that own more than 10? 20? What's the most you've sold to any of your buyers? Do you own more than 10?

I think the OP's question is a good one and I like that he used 30 houses as a goal. $600K in downpayment cash to acquire 30 properties over, say 5 years, is actually very little investment funds for high income earners. I don't think that type of new investor is looking at commercial. I think the appeal is greater for SFH turnkeys.

1 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

@Kyle Scholnick

my model was a modified Turn key... but to answer your question. 9 to 12% is a good number.. and if you buy better asset class 6 to 8% but at 6 to 8 your banking on some pretty good upward movement over time.

mortgage pay down is important.. I would not get to much fixated on depreciation unless you plan to go pretty large.

I know I am completely in the minority on this one.

But I for one do not think ( appreciation is icing on the cake) I think a prudent investor should be looking at properties that have a chance to rise in value fairly significantly over time as with mortgage pay down and appreciation that is were the bigger dollars are made.

And Kyle the Reason I say this is over the course of owning these homes 10 to 20 years.. your going to need to do a full rehab gut job most likely to sell them... and that is to just sell them for what you paid for them.. now I know you will be putting money aside for capex however experience has dictated to me its never enough.. so with sale commission etc. if you have no real upward movement in your values and you do need to cash out.. you may take a loss of actual principal to then be off set by cash flow.. but it will lower your return over time.

And if you buy in an area that has upward movement and can realistically be sold to a homeowner you have a very great chance of selling your home and recapturing this end of life cycle major rehab and potentially greater equity in the appreciation over time.

The only way lower end properties that have static value can rise in value if rents rise appreciably over time.. and since many of these areas are hud reliant that involves our government increasing the benefits ... I have not seen a raise in hud rate appreciably in the 15 years I have been funding TK... what was 700 in 2004 is 700 today in many markets.

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1 Reply

Kyle Scholnick

OP

Boca Raton, FL · Member since 2015 · 135 posts · 132 votes

11y

@Trevor Ewen

I agree with you Trevor, busy professionals are severely in the minority around here, and there are not enough posts on passive real estate like you and @Jay Hinrichs mentioned.

It is hard to explain to people that there are more ways in life to be involved in real estate, make a great return, and be in another industry and be happy....all without buying a foreclosure and flipping! Who would have thought! They don't seem to understand that there is a need for busy professionals like us who have skill in other industries other than real estate but still would like some passive exposure to it.

Would you mind expanding on your experience with the syndication? You don't have to give a name but perhaps the process you went through, How long you have been with them, how to get involved with syndications, where you find them, and what your general returns have been ?

3 Reply

Leslie Pappas

Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes

11y

if anyone wants to learn more about the available syndicated properties for accredited investors, please give me a call. It's great industry and totally hands off investing.

Best- Leslie

3 Reply

Kyle Scholnick

OP

Boca Raton, FL · Member since 2015 · 135 posts · 132 votes

11y

@Leslie Pappas

Would you mind expanding on your experience with the syndication? The process of getting involved, How long you have been with them, where you find them, and what your general returns have been ?

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

@Kyle Scholnick

one of the reasons you don't hear in mainstream these other types of investment ( save crowdfunding ) is the government hamstrings them on marketing.. IE they can only market legally to those they have existing business relationships with. So there is nothing harder than being a fledgling syndicator who has no one to talk to LOL.

or like @Leslie Pappas

Leslie who pops on with a helpful hand so now she has a existing relationship with you if you choose to contact her then she can expound on her deals.. but she cannot just go to the marketplace and advertise syndications.. At least in my understanding I think that is correct. although I do see some folks do it, and there are some offerings were its allowed but those are expensive to put together.

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Kyle Scholnick

OP

Boca Raton, FL · Member since 2015 · 135 posts · 132 votes

11y

@Jay Hinrichs

Jay, as you know I always love your opinion however it almost seems like you are against turnkey properties.... Now that may just be a complete misinterpretation and I might be extremely naïve here, and perhaps what you are doing is just saying all the negatives involved in turnkey properties that nobody else mentions, which I can't tell you how much I appreciate and is such valuable information....

But in your opinion do you think for most busy people in general, are turnkey properties actually the way to go, are they the solution? Or in your experience do people get ripped off more often than not buying these turnkey companies and they are better off steering clear of them?

0 Reply

Leslie Pappas

Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes

11y

hi again- this area is heavily regulated by the SEC, and these offerings may only be presented to accredited investors. Those rules preclude me from explaining anything in this forum. I'm sorry about that, but I don't write the rules.

Kyle, my mention of assistance has nothing to do with the motivation you present. It rather disturbs me that you would characterize someone you've never even met as being so crafty and manipulative. You have it all wrong.

If anyone would like to learn more, please call me during the week, and I can explain everything.

Best- Leslie

1 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Kyle Scholnick:

Ali,

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

I didn't see your same questions/concerns before I posted a similar question to Ali. I'm in agreement with you that there are plenty of high earners who can easily buy 30 $100K houses with $20-30K down over a period of a few years. Turnkey is not really a new product, either. It's been in my market farms since I started in 1999, before you could buy a property easily on the internet.:) Some of it is/was really low end. Some of it good properties in good areas marketed to Europeans and Canadians. I watch ownership data and I know who buys it, how much they buy and who sells it/manages it. I haven't seen any of the out country owners of turn key with more than 6. That data is harder to track now that some owners use separate LLCs for each property. However, that practice is not that common in CA because there is an annual filing fee of $800+ for each entity.

0 Reply

Kyle Scholnick

OP

Boca Raton, FL · Member since 2015 · 135 posts · 132 votes

11y

@Jay Hinrichs

@Trevor Ewen

@Leslie Pappas

So how do people actually go about finding these syndication deals if they can't market to you and you are not heavily involved in real estate?

0 Reply

Leslie Pappas

Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes

11y

it's very, very difficult. I have conversations all the time with accredited investors who do not know that the world of private placements is available to them. Conversely, I have conversations with folks who are not accredited who are incensed that the government set such rules which disallow them from participation based on their income or net worth.

It's a bind. I do a lot of referral work.

1 Reply

Kyle Scholnick

OP

Boca Raton, FL · Member since 2015 · 135 posts · 132 votes

11y

@Leslie Pappas

What in the world are you talking about Leslie??

You just said "disturbs me that you would characterize someone you've never even met as being so crafty and manipulative. You have it all wrong."

It disturbs me that you are pulling that out of nowhere where in the world did I say that about you ??????

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

@Kyle Scholnick

I pride myself on full disclosure... I think turn key with the right company the right product etc is a great way to go... I have been in the industry since the inception. what I try to point out is the soft underbelly and that if you know this going in you choose correctly.. If one is thinking the industry self polices itself then that is a misconception that I try to bring to light..

There are GREAT turn key companies.. there are really poor ones some markets are better than others. And if you see my posts I am a proponent of buying the best you can.. And I Absolutely do not think low end rentals ( C or lower Class) are appropriate for out of state busy professionals.. If your not a busy professional and can engage often they can be managed. the lower end properties in my mind are the play ground for the local landlord that does it for a living.

Most of the bigger turn key guys will agree Mike D a Chris Clothier etc.. they will be the first to tell you buying low end high touch hard to manage properties are tough for those looking for what your looking for, which is complete passivity.

I have seen many of my clients end up in financial ruin thinking they could make a 30k rental house in the worse parts of the Major US cities work.. they tend to get completely wiped out...

for my personal out of state portfolio I currently own and will be liquidating over the next few years. they were all New construction bought at 120 to 200k with rents at 1200 to 1800. these are pretty easy homes to manage and they are full brick in the south so been very lucky with them. But even now 7 years later I have to write a check to sell one.. one I made 30k on when I sold it so its all over the map. and cash flow was negligible... I bought them for the GOZONE write off so I made over 350k just buying them net in my pocket. so it was a different play.

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Jonathan Mednick

Birmingham, AL · Member since 2013 · 149 posts · 44 votes

11y

Originally posted by @Kyle Scholnick:

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.

With the 5% vacancy, the assumption is that a turnkey provider is already delivering just that, a tenant occupied property when you purchase the property. If they did their job, they provide a stable tenant who will stay long term. In Birmingham, average stay is around 3 years and with Section 8, I would say 5 years but of course, you can obtain this statistical data from local PM's.

Let's assume you purchased a turnkey property in Birmingham with rent of $750/month. $750 x 36 months = $27,000 x 5% = $1,350. That's almost 2 months of rent. That is about the average for a PM company to re-rent the property.

8% deferred maintenance over the 3 year period is $2,160. If the turnkey provider did their job, you should have very little if any maintenance issues during this time. However, with a Section 8 property, I suggest 10% deferred maintenance. Section 8 tenants hardly ever have money for repairs they cause and typically this falls on the owner when Section 8 re-certifies the property. This money will also be used to make the property rent ready again (minor painting, carpet cleaning, etc.)

Obviously there are a lot of moving parts here but no one has a crystal ball on future market movement, how long a tenant will stay, or amount of repairs needed.

0 Reply

Matt R.

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

11y

@Marco Santarelli

I can appreciate your decade+ experience in the turnkey business. I think it is awesome to have a passive cash flow business but perhaps RE investing and acting too passively is where a new RE investor could find themselves creating extra challenges.

Owning SFR rental investments 1000 miles away is not a passive business in my mind even if it is TK. For example Ali, who is in the same type of TK referral business I think, had a recent blog post on her personal long distance TK property challenges, including confusing PM expense reports, multiple evictions, $1000's in turnover cost, going thru multiple PMs, current PM neglecting landscape needs, poor PM response times..etc. This happened with just 3 or 4 TKs - all this in the last 36 months from what read.

If even a TK specialist can experience management/return issues like that - what are one or two top unobvious things could you recommend for the TK novice look out for?

In all fairness, I have not listened to your passive podcast and perhaps you already covered realistic passive expectations. How many hours per door per month should a TK investor expect is required personally?

Thanks!

0 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Jay Hinrichs:

@Kyle Scholnick

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

To be fair, it's not C class in Philly that the problem. Ali also has better markets/props to sell. But even if Ali lived in and owned and/or or marketed all A class in, say Austin, the experience to be an expert or even an amateur just can't be there. We have so many people in REI now who haven't lived through one market cycle. WAY too many people who started in 2009 or after. There are SO MANY B&H people who haven't owned anything long enough to know their real capex and vacancy rates.

2 Reply

Leslie Pappas

Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes

11y

Originally posted by @Kyle Scholnick:

@Leslie Pappas

What in the world are you talking about Leslie??

You just said "disturbs me that you would characterize someone you've never even met as being so crafty and manipulative. You have it all wrong."

It disturbs me that you are pulling that out of nowhere where in the world did I say that about you ??????

Kyle- you characterized me as opportunistic. You stated that I popped in to comment so that I would thereby have established a pre-existing relationship with members of this thread. You said it, I didnt! I commented because there were questions about syndication.

0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

@Kyle Scholnick

@Leslie Pappas

holy cow ... I did not read Kyles question or take it the way you did.. I think this is an investor who just had questions.

But if you want to talk to a top syndicator who is a regular on BP I can mention him

@brianburke you may want to contact his office ... you do need to be accredited for their deals as Leslie has stated.. same with most crowd funding deals. And Brian did a pod cast I believe and is a respected contributor to BP.

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0 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

11y

@Leslie Pappas

I said that... and I did not mean it that way.. I only mentioned it in relationship to my understanding of selling unregistered securities as most PPM's are.. in that once you have a relationship then you can then have a direct dialogue.

I was simply trying to help you get your point across and help Kyle get to talk to someone who knows a thing or two about that industry.

Don't blame Kyle for my post.. and if you took it wrong I do apologize it was not my intention to call you out as opportunistic ...

I remember when I worked for a syndicator in the bay area in the mid 80's we would do free how to invest in multi family work shops 2 nights a week.. we would talk about how multi worked how great it was.. and if you wanted any further info fill out our yellow card and we would follow up... this created our relationship then we would go for the appointment and explain all the GP deals we had going and etc.

the govment makes it tough in that industry for sure

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Leslie Pappas

Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes

11y

Thanks.

Yes- seminars are a standard way to educate potential investors and establish relationships too.

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Kyle Scholnick

OP

Boca Raton, FL · Member since 2015 · 135 posts · 132 votes

11y

@Leslie Pappas

Actually Leslie, you're making yourself sound really foolish right now...you might want to reread the forum posts because I never said that... Show me what in the world you are looking at to get this delusional idea in your head

0 Reply

Leslie Pappas

Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes

11y

lets just move on

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Does Anyone Own ALL turnkey??

Does Anyone Own ALL turnkey??

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