Boca Raton, FL · Member since 2015 · 135 posts · 132 votes
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?
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 !
This is why I joined Bigger Pockets! Fantastic Thread.
Kyle, way to go man. Great question.
Petra, thank you for your honesty and relating your experience.
Jay, I'm off the fence. You are a straight shooter. I appreciate your honesty. And, I look forward to reading and learning from your future posts.
I am still sitting on the fence, studying real estate, trying to learn as much as I can, reading books, BP podcasts/forum posts, etc. I am looking for local deals (Denver) not having much luck, but I think when it happens, I'll be ready.
A couple of things (several really) mentioned in this thread really got my attention.
It seems really difficult for a newbie to understand syndications. At least it does for me. Where do you find these multi-family investing seminars? I'm not quite an accredited investor yet. So I can't do realty shares. That seems like a great investment opportunity.
I think I'm close, and I will probably get there in a couple of years, maybe sooner. I am a software engineer with a really good job. I don't necessarily want to invest in SF, mostly because of the extra workload it would entail. That is why I was looking at Turn Key.
But, I'm not sure it makes sense to break even or just barely cash flow on a B/C class property. Maybe in some locations it does. It seems to me that those properties would require too much in renovations when I want to sell them, and that would eat into what I gained in paying down the note, and the little (if any) appreciation.
I really like the idea of JV/Partnering/Syndication to get into multi family rentals, apartment buildings, or commercial real estate. Any advise of how one would go about meeting those types of folks?
I'm not sure how I am missing the point it seems pretty cut and dry, I understand that these turnkey companies are providing the most basic information but I am saying that a lot of them are being very manipulative and dishonest in terms of their expectations
In my opinion many turnkey providers are trying to take advantage that many investors interested in them have little experience in real estate and think that they won't properly run the numbers... Again that is not missing the point but it is sleight-of-hand making the investor think they are going to make more then they really will because they purposely do not account for many things....
With your pro forma, can you explain why you don't account at all for capital expenditures ? Are the turnkey providers trying to imply that you will never have to fix the roof or get a new HVAC, etc?
Why so little dedicated to maintenance, in my opinion that is being very optimistic why not leave a little bit more cushion?
What about flood insurance or other liability insurance, what about trash removal?
What about the possibility of turnkey providers overestimating rents in the area? Sure they may be collecting the current rent now but what happens when that tenant leaves in the year maybe they won't get that same rent... No buffer there they're constantly quoting the absolute top rental rates in the area..
A pro forma is supposed to be an estimation, is it not? So why in the world don't the pro forma's account for these costs??
Kyle,
As I said before, you have to do a lot of due diligence on TKP's before you sign up with them. When an new investor inquires about investing in Birmingham we strongly recommend that they come to Birmingham, see the operation, meet the team, visit the offices, meet PM's, and meet the closing attorneys. Investors need to be taken out to properties under renovations and show them completed properties ready to be rented. It's important to get that comfort level. If a TKP does not offer this level of service, then that is a red flag.
A good TKP knows the rents and will be conservative in his target rent to a client. For example, on one property we were targeting $850 rent and the property management company got us $900. Better to set proper expectations. If we go above our target, even better. It the TKP is too aggressive with the rents, then they risk losing future business with that client.
As for the other expenses, we don't by in flood areas so that insurance is not required. Trash removal and liability insurance are covered by general contractors during renovations.
Capital expenditures? we can't predict the future but there are ways to mitigate the risk. A good TKP will provide a 6 month contractor warranty covering all repairs made, a 13 month home warranty, and a 60 day rental guarantee.
Not sure if you saw our pro forma or referring to another one. My previous posting was removed by the BP Police when I tried to post it. My last posting only focused on the vacancy and deferred maintenance rate because that was a focus of one of your postings. Here's a sample breakdown on a typical turnkey property renovated and tenant occupied:
Property Specs:
Sales Price:
$60,715.00
Beds
3
Baths
1.0
Rental Analysis:
Sq. Ft
1152
Monthly Gross Rent
$ 770.00
Yr. Built
1964
Annual Gross Rent
$ 9,240.00
Yr. Renovated
2014
Operating Expenses
Annual
Monthly
Vacancy
$ 739.20
$ 61.60
Maintenance
$ 462.00
$ 38.50
Management
$ 924.00
$ 77.00
Taxes
$ 910.73
$ 75.89
Insurance
$ 607.15
$ 50.60
Other Fees
$ -
$ -
Total Operating Expenses
$ 3,643.08
$ 303.59
Cash Purchase Analysis:
Closing Costs
$ 1,821.45
Expense Assumptions:
Turn-key Service Fee
$ -
Vacancy
8.0%
Total Purchase Cost
$ 60,715.00
Maintenance
5.0%
Operating Expenses Ratio
39.4%
Management
10.0%
Monthly NOI
$ 466.41
Taxes
1.50%
Annual NOI
$ 5,596.93
Insurance
1.00%
Estimated ROI - Year 1
9.22%
Closing Cost
3.00%
Estimated ROI - Years 2+
9.22%
Financed Purchase Analysis:
Financing Assumptions:
Down Payment
$ 12,143.00
Interest rate
4.50%
Closing Costs
$ 3,642.90
Loan Term
30
Total Purchase Cost
$ 15,785.90
Down Payment
20%
Total Amount Financed
$ 48,572.00
Closing Costs
6%
Monthly Loan Payment
$ 246.11
Operating Expenses Ratio
71.4%
Monthly NOI
$ 220.30
Annual NOI
$ 2,643.64
Cash on Cash Estimated ROI - Year 1
16.75%
Cash on Cash Estimated ROI - Years 2+
21.77%
Format is a bit off since I copied from a spreadsheet. Obviously, a buyer could tweak the numbers based on their own expectations if they like but this is the type of pro forma client's should expect to see. It's up to the investor to decide if they agree with the numbers or have the TKP tweak the numbers based on their client's criteria and input.
Again, great post. It doesn't sound like a bad idea if people like us (good income, not beginner but limited time to rehab/acquire etc) share some information. E.g., we can create and maintain a blacklist and goto list for TKs. Also if we buy in bulk (each buy one), we have more power in bargaining.
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
My understanding was that you wanted to know why there aren't more people who own 30 (or 12-20, still talking 360k-600k in down payments) turnkey properties. One of the main reasons is lack of funds. I do know a lot about finance and spending $50,000 a year is a lot of money. You're a physician so you make a considerable amount more per year than the average person on this forum so maybe you don't see it that way. Saving 50-60% of income for most people is hard. So you're taking a small group of people that save 50-60% a year, out of that small group you are looking at a smaller sub group of people that make 100k+/year. Out of that group you are looking at a smaller subgroup of people that LOVE Real Estate Investing (enough to put all of their 50-60% savings into). Out of that group you are looking at a smaller sub group that only wants turn key properties. And out of that very tiny sub-sub-sub-subgroup, you want to know why you don't hear about more of them. This forum is flooded with people who are just getting into Real Estate investing, diluting the number or experienced investors. There are people out there who own 30+ turn keys, but they aren't common.
Aw nuts!. Formatting is off and I can't upload a PDF of the spreadsheet so if you or anyone wishes to see a PDF format of this spreadsheet, send me a private message.
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?
Hi Kyle -
I do own two turnkey rentals in Columbus, Ohio, along with 13 other properties. Here's my opinion, if you work with a good turnkey provider, the properties are great for out-of-town investors. We've had zero problems with our turn-key rentals. We are making more return than the company promised in that they 1) had the property completely rehabbed prior to our purchase; 2) do a good job of screening tenants and we have no involvement in that piece; and 3) have not had any vacancies (one property we've owned more than a year and another for more than six months).
I can say that the properties I have purchased on my own have been much more hassle. I have had to manage the renovations and the property management company.
I think it would be crazy for someone out of market to purchase a property without having the resources set up. You can do it with a turnkey rental company or you can jump on a plane, manage the contractor and set up the property manager yourself. I guess if you're buying 30 properties at one time, that might make sense. But for most investors just getting started with one property, setting this up does not make sense.
I do not work for a turnkey company but I have purchased two properties through the company I work with. Additionally, I have done training to learn wholesaling so I've visited their company headquarters, met staff, seen operations and even met the property manager.
I have a friend who could have bought a home from me in Florida. (She is in Montana.) Instead of setting her up with a property there, I felt much better knowing she would be taken care of with a property in Ohio through the turnkey company.
If you have any specific questions on my experience, you can sure ask. I'm a satisfied customer and have seen both sides of real estate investing.
most syndication deals are accredited only as well.. there are vehicles to allow up to 35 unaccredited.. at least in the state of Oregon.. I was just at a securities attorney meeting this week on the subject. So I know its available here.. the issue is you have these advertising restrictions.. I am not totally up on them but they are changing and you should see things loosen up.. The purpose of our meeting was for one of my Clients who has been very successful in flipping.. and he works in a very closed in environment were he has a lot of co workers that want to put smaller dollars to play... so its more like an investing club.. the money raised for this PPM will be all word of mouth.. its a 506 offering and there are 506 c and b and etc. Most of the multi deals I see require 100k minimums..
however and I can't stress this enough.. syndication more than any other type of investing ( the character and compenentcy and financial ability ) of the sponser is as important if not more so than the actual investment itself. A poor sponser can fubar the best deal.. a great sponser can keep a good one from tanking and takes a great one on to make huge returns.
We've not had the same problems with the FNMA 10 mortgages and the bank overlays of 4 mortgages.
1. First thing to do is deed some properties in spouse's name. Then you can get 20 mortgages, 10 each.
2. Secondly is portfolio mortgages, which don't have to comply with Fannie and Freddie, since they are not sold on the secondary market. There is no number of mortgage limit. The interest rates may be slightly higher but is a cost of doing business.
3. Thirdly are commercial mortgages, not regulated by Fannie and Freddie, usually not fixed for as long as #1 and # 2 above, but can be fixed for 5 years then adjustable. Sometimes 5 years is enough to either sell the property, refi it or pay off the debt.
Agree that appreciation is the icing on the cake as well as favorable tax treatment. the numbers have to stand on their own, and its not a deal if you're depending on appreciation for your only profit.
Also agree that equity build up through the mortgage pay down is a very important facet that is so often overlooked. and when you have more and more mortgages and debt that equity build up/mortgage pay down can be very significant money. Was talking with somebody recently whose debt pay down was $19,000 a month. That's very significant.
I had a conversation recently with a TK, who is the largest in his area. They of course do tons of advertising to feed their source funnel. But he did admit that 50% of their deals come straight from the MLS.
When I was doing the research for my book, I sourced my deals and found the 25% came from the MLS.
I do Buy & Hold. I manage almost all of my own properties including out of state properties. I worked at a company that managed over 100 building and saw the inner working of the management business. And nobody will do as good as you will do yourself. But most of the time their work is good enough.
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.
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?
.
Good questions Matt...
A) I'd say two things novices get hung up on are:
Analysis paralysis -- I talk to many investors that have the desire and intent to invest but never get started. They feel they need to keep learning until they feel ready. The problem is that good deals will continually pass them buy. They will never learn it all, and experience is one of the best teachers there is!
Working with the right TEAM. Having good advisers, and trustworthy "boots on the ground" will eliminate and reduce most risks, as well as ensure success. The team we've built over the years has made this easy, but it took time. They can sidestep that time and effort with the right advisers/counselors.
B) The time required each month will vary from 10 minutes to 1 hour per property. However, the more properties you have the less time is needed because you will batch your tasks (same managers, etc). Reviewing statements, banking, QuickBooks, occasional calls with your property managers are what you do!
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, you asked a few questions and this forum has taken on a life of its own, but since my name has been brought up a couple of times and I couldn't find where anyone had really answered a couple of questions, I thought I would chime in.
First off, there is nothing special about turnkey. It is a marketing term created to describe the simple process of buying a single-family home (now it is even being used for multis and commercial) that has been or will be renovated, tenanted and managed. Nothing more and nothing less. It seems to have taken on a life of its own as some savior for some investors when in fact it has existed for a very long time, just as an extremely niche product and mostly for more savvy and in-the-know investors. Not really sure how to put that last sentence any other way - new investors simply were not aware until the last 6-8 years that something like this existed unless they were introduced in a REIA or something.
So after saying all of that and understanding that it is nothing more than a "way" to buy a single-family investment house,in my opinion, there is no reason to expect that very many investors are going to own more than one or maybe two turnkey properties. Josh Dorkin and I undertook an investor study three years ago and then I ran the study again the next year and it pretty much showed that the average number of properties an investor owns was close to two. I suspect a vast majority own only one and a small but significant number own way more and that brings up the averages.
@Matt Rosas I will update my numbers tomorrow once I pull them from our property management company, but they will show that the average investor with our company owns three properties. However, that is skewed because a majority of those investors only own one property. Roughly 15% of our investors own 5 or more while close to 40% own only one. Again, I could be off a little, but we are now at roughly 3,050 properties under management and I will update tomorrow AM the breakdown of investor owned properties for our company across all three cities.
As for property managers, turnkey or not, an investor with one property is an unsettling prospect. They are either going to be happy or sad all the time - no inbetween. Their property is either occupied or it is vacant. Happy or sad, which stinks for the investor and it stinks for the PM company. You are either the hero or the goat. I can't speak for other companies, but we work hard to help investors get to that second or third property. It makes a big difference in their ability to actually hit a consistent return number. It helps tremendously to have a bucket for your buy & holds and not simply one rent income.
As for Turnkey numbers, I can tell you that @K. marie poe is right (at least I think she is the one who pointed out) that many TK companies are young companies. They have popped up - many in the last couple of years and in some cases with little real life business experience. They are may be off with numbers, they may put too much emphasis on their own ability and they may view this as nothing more than a business transaction. Meaning that the numbers are what they are and it is up to the investor to do their due diligence. I have heard more than once that the investor is responsible for their buying decision and if they miss something then shame on them.
Obviously, that is a ridiculously poor way to do business and there are many, many good companies around the country who do not operate that way. That being said, anyone can make mistakes with numbers or be too optimistic with their numbers. Doesn't mean they do it on purpose or with malice - sometimes they do not know better - they haven't experienced enough to know yet.
For your statement about investors using turnkey as a spring board. I would say you are right and that may happen in a few instances, but that has not been my experience. The last time we surveyed our clients, roughly 10% were also active investors while closer to 30% had other passive investments in real estate such as notes or lending. I just don't think there are a lot of investors who buy turnkey thinking it will lead them to active investing. Maybe the other way around a little but not turnkey first in my experience.
Last reminder on turnkey companies, people make mistakes. I would be the first to tell you that my company is not perfect. HOWEVER....so do real estate agents, contractors and rental agents and property management companies. If a buyer feels they are working with a company deliberately trying to take advantage of buyers - they should walk. If not, then remember that people and companies make mistakes - the real gauge should be if they correct those mistakes.
I wouldn't expect to hear too much from Turnkey investors. They are no different from other buy & hold investors. I believe most have one maybe two and a minority own a lot more, but they are still passive investors. This site is fantastic but it is filled with active investors and users in some form of real estate business.
I liken it to stock forums. I am a passive investor in the market with a good portfolio and yet, while I read on those forums, I do not post. Half the time I have no idea what they are talking about and the rest of the time I couldn't care less to get involved. They often make fun of investors who do what I do by turning over my money to someone smarter than I am about the market and whose job it is to make me money. I can imagine that is the case here at Biggerpockets. There was a time when a Turnkey investor would speak up about their experience - good or bad - and most likely get badgered by other users for not their stupidity for not being a "real" real estate investor. That does not happen anymore, but instead has been replaced by people like me posting on behalf of turnkey investors.
Maybe, as time goes by, more and more actual turnkey investors will post more about their experiences. When, damn that was long. If you made it down to this point you are a committed reader!! Best of luck to you....
I am too lazy to try to get all those mortgages.. I am going the other direction selling consolidating moving to cash and just do short term Mezz... but that's just me... but I did just buy a MHP last week I might keep it a year or so..
in our market of Portland I am not really aware of a portfolio lender. other than a smaller commercial bank who does it for a courtesy.. I know here in Portland they will give me all the loans I want with 25 to 30% down.. terms would be 1 point 5.5% or so 20 year am due in 5.. that sort of thing.
And I know when I try to borrow Money in Charleston for my projects there I have never got one local bank to approve us IE we don't lend to anyone who lives more than 100 miles from the property.. WE have large credit for our building business in PDX 8 figures I can't get one 200k verticle loan from one bank in Charleston so we go private and cash.
But I don't try very hard either.. and yes I know there are all sorts of alternatives to finding money if you want to pay more for it..
I'm with you. In 2007 I decided that I had way too many mortgages. Besides conventionals and HUDs, I also had some VA repo mortgages, some portfolio mortgages and some other 2nd, HELOC, Signature Loans and lines. I decided that I was working for the banks and wasn't getting a salary, commensurate with my position. So I went on a big debt reduction program. I paid off some mortgages, sold some properties and refinanced some to lower interest rates. Its all good.
We've been able to get portfolio mortgages from local and regional banks as well as credit unions. I wouldn't go to the big 4 or that product.
Lender · Lusby, MD · Member since 2014 · 59 posts · 37 votes
11y
I am enjoying this forum! I am a young investor who is trying to figure out how to start a turnkey real estate business. It is hard to find credible information online. Can anyone suggest a good book or alternative source for someone looking to acquire and manage rental properties.
I am enjoying this forum! I am a young investor who is trying to figure out how to start a turnkey real estate business. It is hard to find credible information online. Can anyone suggest a good book or alternative source for someone looking to acquire and manage rental properties.
Thanks in advance.
Hi Ken!
I'd say the best place to start is to learn about wholesaling as you'll need to find properties at a discount in order to make money from turnkey investors.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
11y
Originally posted by @Account Closed:
@Account Closed
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
My understanding was that you wanted to know why there aren't more people who own 30 (or 12-20, still talking 360k-600k in down payments) turnkey properties. One of the main reasons is lack of funds. I do know a lot about finance and spending $50,000 a year is a lot of money. You're a physician so you make a considerable amount more per year than the average person on this forum so maybe you don't see it that way. Saving 50-60% of income for most people is hard. So you're taking a small group of people that save 50-60% a year, out of that small group you are looking at a smaller sub group of people that make 100k+/year. Out of that group you are looking at a smaller subgroup of people that LOVE Real Estate Investing (enough to put all of their 50-60% savings into). Out of that group you are looking at a smaller sub group that only wants turn key properties. And out of that very tiny sub-sub-sub-subgroup, you want to know why you don't hear about more of them. This forum is flooded with people who are just getting into Real Estate investing, diluting the number or experienced investors. There are people out there who own 30+ turn keys, but they aren't common.
My experience and data says that lots of people in many different markets own 30+ properties, with good management and are relatively passive investors. This is CA. There is no shortage of out of area owners with 30+ properties. But turnkey sellers/marketers are not part of the formula. There are teams to purchase and rehab and teams to manage. The only thing that would be called turnkey is when the property is new or newly rehabbed and has a qualified tenant in it. Lots of property is sold that way and is not referred to as turn key.....because the buyer still needs PM and a plan. I've sold such property. At close of escrow I'm out of there.
Turn Key as we refer to it here on BP is a business model with a less than stellar reputation. Its marketing often targets a certain kind of buyer that is more susceptible to bad numbers and hype (and low entry cost). That being said, there are good providers. It's just really hard to know and trust someone to do the rehab and sell you a good deal, present the numbers conservatively, place the tenant and write a PM contract in your favor. That's a lot of moving parts and different skill sets being offered. Proceed with caution.
As for property managers, turnkey or not, an investor with one property is an unsettling prospect. They are either going to be happy or sad all the time - no inbetween. Their property is either occupied or it is vacant. Happy or sad, which stinks for the investor and it stinks for the PM company. You are either the hero or the goat. I can't speak for other companies, but we work hard to help investors get to that second or third property. It makes a big difference in their ability to actually hit a consistent return number. It helps tremendously to have a bucket for your buy & holds and not simply one rent income.
This was really eye-opening for me. It's obvious now that you've said it, but of course the TK owner (or any rental owner) with one property is Happy or Sad. Satisfied or Mad. They Love or Hate their PM. No in-betweens. I don't know how you can stand it. :) It really does explain the extreme commentary about PMs (mostly negative) you hear from rental investors. The owner with one property has nothing to compare the "bad" property to. And no other rental income to mitigate income loss on a vacant property.
From the numbers shown, you've got a lot of one property owners on board there in Memphis. Looks likes your is work cut out for you. Thanks for the edifying view into your world.
As for property managers, turnkey or not, an investor with one property is an unsettling prospect. They are either going to be happy or sad all the time - no inbetween. Their property is either occupied or it is vacant. Happy or sad, which stinks for the investor and it stinks for the PM company. You are either the hero or the goat. I can't speak for other companies, but we work hard to help investors get to that second or third property. It makes a big difference in their ability to actually hit a consistent return number. It helps tremendously to have a bucket for your buy & holds and not simply one rent income.
This was really eye-opening for me. It's obvious now that you've said it, but of course the TK owner (or any rental owner) with one property is Happy or Sad. Satisfied or Mad. They Love or Hate their PM. No in-betweens. I don't know how you can stand it. :) It really does explain the extreme commentary about PMs (mostly negative) you hear from rental investors. The owner with one property has nothing to compare the "bad" property to. And no other rental income to mitigate income loss on a vacant property.
From the numbers shown, you've got a lot of one property owners on board there in Memphis. Looks likes your is work cut out for you. Thanks for the edifying view into your world.
Ive been in business way to long to bs myself or anyone else. The PM business is neither fun nor especially rewarding, but done properly it can be profitable and I think we do it right. Let me just share a couple of other numbers - again turnkey or not - PM is extremely important but it still boils down to statistics and data like most businesses. Here is the data we use to manage those one house investors.
First, once they reach beyond 24 months they most likely are not going to buy another property - at least not through our company. That is absolute failure on our part. Usually it means we failed to make sure they wanted to build a portfolio from the beginning. Secondly, we know that 60%+ of our monthly sales for over three years running go to an existing investor building their portfolio. The average investor takes just under 18 months to purchase their second property with our company. So we can reliably predict when each investor will purchase another property and almost guarantee the existence and growth of our company provided we can continue to find good investments. Lastly, only 18% of our portfolio turned over last year and 67% of our investors did not experience a vacancy. So....
If we mange the data and the experience, there will be some investors with one property who experience a vacancy and we have to manage their experience and work hard to insure their trust was not misplaced. We do not always accomplish that. But that should be kept to a minimum and if we provide good service to them, then most will purchase that next property. We have the luxury that most strictly PM companies do not have. We are adding properties every month and can pick and chose our clients. We can try to limit our clients to just those investors who aspire to build portfolios and show the werewithal and knowledge to do it. Again, we are not always successful.
K. Marie, I chuckled at your earlier comment about "lots" of investors because lots is such a relative word. I know some investors with 30+ properties and some are turnkey investors including a few in my family. But, i don't think turnkey is an anomoly in statistics. I would bet that the percentage of turnkey investors with 30+ properties closely mirrors investors with 30+ properties who did not buy turnkey. I would also bet that California and New York have more 30+ property investors just like they have more turnkey investors when compared to other states. I am fascinated by things that many may think are unique but are really explained by data and statistics.
The rest of what you said I agree with wholeheartedly. The poor reputation was earned by many turnkey providers for the whole niche and whether the reputation was good or not, caution should always be used.
Virtual Assistant · Reynoldsburg, OH · Member since 2014 · 66 posts · 23 votes
11y
I come really late into this conversation and so many people have had really great and detailed comments. I hope what I have to say isn't spam.
If you want to buy 30 turn key units at one time, then you should hire and or train someone to do it. If you want to do 30 turn key units over 15 yrs, then hire it out. You will start with a lower return and potentially make a very high return if you learn and focus.
If you have a ton of money and need to invest it at once and don't have the time, intent or ability to do it yourself or train a team and your accountant says to spend the money in this fashion, then do it fast.
If you have a year or two to do it and enjoy the game some, then really dig into it yourself. It's a great skill that will reward you way beyond just real estate.
Basic review of options:
1. Need 30 properties before taxes are due in less than 30 days then buy all turn key
2. Itching to spend some money and want to learn, buy 3 to 5 turn keys and learn to manage yourself.
3. Have a limited amount of money but enough time to spend 1 or 2 years to learn how to retire, do it all yourself.
This is terrible investment advice, but you get the idea. a Vague question gets a vague answer :) If you want to buy me a beer we could talk in person :).
As for property managers, turnkey or not, an investor with one property is an unsettling prospect. They are either going to be happy or sad all the time - no inbetween. Their property is either occupied or it is vacant. Happy or sad, which stinks for the investor and it stinks for the PM company. You are either the hero or the goat. I can't speak for other companies, but we work hard to help investors get to that second or third property. It makes a big difference in their ability to actually hit a consistent return number. It helps tremendously to have a bucket for your buy & holds and not simply one rent income.
This was really eye-opening for me. It's obvious now that you've said it, but of course the TK owner (or any rental owner) with one property is Happy or Sad. Satisfied or Mad. They Love or Hate their PM. No in-betweens. I don't know how you can stand it. :) It really does explain the extreme commentary about PMs (mostly negative) you hear from rental investors. The owner with one property has nothing to compare the "bad" property to. And no other rental income to mitigate income loss on a vacant property.
From the numbers shown, you've got a lot of one property owners on board there in Memphis. Looks likes your is work cut out for you. Thanks for the edifying view into your world.
Ive been in business way to long to bs myself or anyone else. The PM business is neither fun nor especially rewarding, but done properly it can be profitable and I think we do it right. Let me just share a couple of other numbers - again turnkey or not - PM is extremely important but it still boils down to statistics and data like most businesses. Here is the data we use to manage those one house investors.
First, once they reach beyond 24 months they most likely are not going to buy another property - at least not through our company. That is absolute failure on our part. Usually it means we failed to make sure they wanted to build a portfolio from the beginning. Secondly, we know that 60%+ of our monthly sales for over three years running go to an existing investor building their portfolio. The average investor takes just under 18 months to purchase their second property with our company. So we can reliably predict when each investor will purchase another property and almost guarantee the existence and growth of our company provided we can continue to find good investments. Lastly, only 18% of our portfolio turned over last year and 67% of our investors did not experience a vacancy. So....
If we mange the data and the experience, there will be some investors with one property who experience a vacancy and we have to manage their experience and work hard to insure their trust was not misplaced. We do not always accomplish that. But that should be kept to a minimum and if we provide good service to them, then most will purchase that next property. We have the luxury that most strictly PM companies do not have. We are adding properties every month and can pick and chose our clients. We can try to limit our clients to just those investors who aspire to build portfolios and show the werewithal and knowledge to do it. Again, we are not always successful.
K. Marie, I chuckled at your earlier comment about "lots" of investors because lots is such a relative word. I know some investors with 30+ properties and some are turnkey investors including a few in my family. But, i don't think turnkey is an anomoly in statistics. I would bet that the percentage of turnkey investors with 30+ properties closely mirrors investors with 30+ properties who did not buy turnkey. I would also bet that California and New York have more 30+ property investors just like they have more turnkey investors when compared to other states. I am fascinated by thingsthat many may think are unique but are really explained by data and statistics.
The rest of what you said I agree with wholeheartedly. The poor reputation was earned by many turnkey providers for the whole niche and whether the reputation was good or not, caution should always be used.
Man, I think you are shockingly transparent sharing those kinds of numbers here. To clarify, are you saying 33% of your TK investors experienced a vacancy, or 33% of the properties you are managing? That's some good stuff. "Based on last year's stats, please be advised that there is a 33% chance you will experience a period of no rental income. Length of vacancy and lack of income will vary based on number of properties and specific locations." :)
"Lots of investors" refers to the hundreds of LLCS and entities that own more than 30 properties in my So Cal markets that come across my computer screen. Totally anecdotal and unscientific. It also refers to some of my buyers who have that many doors. I'm not looking for these type of investors, as they are not my customer. I'm typically trying to eliminate them from my marketing efforts. If I actually searched for them, there would be way more than hundreds. I remain convinced most of them weren't sold TK based on the age of the holdings and the acquisition dates and type of property. "Turn Key" just wasn't quite the same thing 10 years ago that it is now.
That being said, I'm with you on your NY and CA assumptions. Buyers with 30+ props, TK and non-TK probably about the same overall with so many people entering B&H in the last few years.
Thanks again for all the insider info from your business and perspective. It's absolutely fascinating to me.
What I would like to know is why can a turn-key company solicit their "deal" witch is basically a security. Why don't the same laws apply?
Reed, you asked a great question and one extremely relevant especially here on BP. There are very subtle nuances that are violated by some of the companies who have entered the niche recently and some that are marketing here on BP. They could - and I have to say could because I am not an expert but did correspond with the SEC on this - they could be violating SEC and FCC laws by:
- using the words guarantee. even simply guaranteeing happiness and satisfaction. - limiting clients or excluding some investors, thus creating a "group" who benefit from being a part of the group. - charging money for investors to join your group or get in line for properties. - tying the performance to your property management company - using one contract for all services (textbook definition of security)
These are just a few of the ways it can be a violation and all are examples of things that are actively done. As long as a person or company sells a property and offers PM as an added benefit they should be ok. As long as the property will perform whether or not an investor uses their service, they should be ok. A TK company should never limit or close their company to a certain number of individuals, charge money to wait in line to get a property or charge money just to see properties and they should always separate their services into separate companies with separate contracts. Most importantly, they should make sure that any property sold will perform exactly as advertised whether or not an investor chooses their PM company. If they follow those rules, they should be able to avoid any compliance issues with the SEC or FCC.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y
@Account Closed
you have to back into the tenant pool.. how our west coast tenants live there lives and mid west tenants live there lives is really quite different.
in our market in PDX we have ZERO vacancy period end of discussion.. if a tenant is moving they actually give their notice.. and you will have unit rented .. you do a 1 or 2 day clean up and new tenant moves in.. that's just the reality.
When you have almost 50% of your SFRs are rentals compared to the west coast were that number is 6 to 10%... and most renters are in apartments.. .. its far more complex for the PM's in those markets to keep units rented.. just the logistics.. compared to apartment owners.. that is one aspect of the cash flow game that us on the west coast just don't really have a comprehension of.. its one thing to have 100 units in a square block IE apartments but out in the burbs 100 houses may be in a 10 square mile area and its just much harder to cordiante.. along with each house is on an island isolated as it were and subject to break in's ext....
same reason you can advertise to sell your car. The rules that you are referring to are very very specific and in many ways don't make much sense. Second reason that those and many other laws which apply to many other purchases do not apply to RE is because the real estate lobby in Washington is very powerful and has over the years managed to keep RE relatively regulation light compared to other areas as well as maintaining the existence of the GSEs and various RE tax deductions that have helped make RE such a great investment for many owners.
I too found the 67% vacancy number shocking considering you are mostly selling SFRs in good areas in a town where I don't see why people would be moving every year. Did you possibly mean 67% over the life of their investment so far?
Yeah, 67% vacancy??? I know people who buy the properties and purposely keep them 100% vacant, but they have different gameplans...
GREAT POINT on the guarantees'... got wrung up once from the state of Oregon and pad a slap your hand fine.. but they harped on the common enterprise and that we were the sole provider of the outcome and as such we needed to register our model as a security in Oregon.. of course we had no clue.. paid a small fine and went on our way.. but your right the regulators can take harsh views of common enterprise guaranteed returns etc.
and @K. Marie P. Just to clarify the statement you guys are asking about:
Lastly, only 18% of our portfolio turned over last year and 67% of our investors did not experience a vacancy.
So, I calculate this number kind of crudely, but I look at the number of properties under management when the year begins and how many actual vacancies occur during a 12 month period. That was 18% - so in theory, the average length of stay would be 5 years since it should take 5 years for an entire portfolio to turn over at 18% per year. For us, that is roughly 400 properties that went vacant during a 12 month period of just over 2,000. That is a good thing.
Of those 400 properties that went vacant during the year, they were owned by roughly 330 investors. Again, these are rounded numbers since I am not sitting at my office with the exact numbers on Saturday night (-: , but they are very close to actual numbers.
So 330 investors, out of close to 1,000 to start the year experienced a move-out. If you follow the numbers, that means that some experienced more than one move out during the 12 month period. On the flip side, over 600 investors and over 1600 properties did not experience a vacancy during that same time period.
So we use that data to determine the likelihood that a one-property owner will experience a vacancy and then we prepare to respond to over-perform when that happens. Most of our vacancies last year, by a wide margin were owned by investors with more than one property. So back to my earlier point, they are not freaking out with a vacancy because they have additional rental income. For a PM company, they are an ideal client because they have spread their risk over multiple properties.
Two more stats I think you guys will find interesting. We only offer a two year lease or longer and our recorded average length of stay is 4 years. We will see if that holds true through this year. Of every lease signed, 77% complete the full term. Of those 77%, just under 75% sign a new extended lease. So we can track and use this data to work with investors to build their portfolio in that first 18-24 months, get past one property before they experience a vacancy so when they do, they are not shocked by the experience.
Bottom line, I think we are pretty damn good at what we do, but the numbers show you that we can always do better. And Charles Worth, you just gave me a string of data that I want to check on. I am going to pull a report of every property, by client, who has never experienced a vacancy and see the length of ownership for each of them. That will be a telling piece of data.
