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 !
Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
11y
I don't own all "turn key" but I own more than 10! Also, as an investor, you have to DEFINE what "turn key" is. "Turn Key" has been around since before the great pyramids of Egypt were built. Even the book, "The Richest Man in Babylon" talks about "real estate investing in a distant area," since "Distant Real Estate Investing" has been done forever. IF, by "Turn Key," you mean that Party A buys, renovates and immediately sells the property, than I have ZERO. The closest I came to that was that I actually bought the house from the "Turn Key" provider BEFORE the renovations were done. That way, the provider was not out any money, and I paid the actually costs of the renovations. That "Turn Key" provider is still managing the house today so they have a steady income too. The kinds of "Turn Key" I like is from the actual Property Manager. They have been managing the property for years and now the investor wants out, for whatever reason. They offer the seller a lower commission rate and they offer the buyer a deal with a house that is already rented and in generally good condition.
For the record, I own 25 properties in 6 different states, and my average rent is over $1,000 a month. Four properties have mortgages. I bought my first property at age 19, am turning 55 this summer, and was a Real Estate Broker for 20 years. I would have had a lot more if not for the Big "D" seventeen years ago! But that is life. At least I had the knowledge and experience to start over again.
The closest I came to that was that I actually bought the house from the "Turn Key" provider BEFORE the renovations were done. That way, the provider was not out any money, and I paid the actually costs of the renovations. That "Turn Key" provider is still managing the house today so they have a steady income too. The kinds of "Turn Key" I like is from the actual Property Manager. They have been managing the property for years and now the investor wants out, for whatever reason. They offer the seller a lower commission rate and they offer the buyer a deal with a house that is already rented and in generally good condition.
Thanks for your feedback. Buying properties "Turn Key" in the situations you described seems way better than what most of the "Turn Key" properties that are offered today. In both of your cases the "TK" provider and your interest were more aligned than the typical TK pitch these days.
agree with your process buying from referrals from PM's is a good way to go.. your buying from a seller that needs out for whatever reason.. be it burnt out landlord syndrome, kid needs to go to college,, kid needs to be bailed out of jail.. the Big D... who knows.
One would still want to do the same due diligence's of course.
thanks for sharing your experiences. Curious did your PMs manage the rehab or did you establish trusted "boots on the ground" teams in all 6 areas yourself before purchasing in each area?
Always do your due diligence! Certified Appraisal, Professional Home Inspection, Internet Research on Demographics (Business, Schools, Shopping, Level of local Medical Services, etc...) You also need to have your own parameters. I RARELY buy anything built before the year 2000 (My Memphis Turnkey was built in 1998 and I had to install a new HVAC in my first year, thus I bought "14 years" worth of deferred HVAC repairs) Never buy less than 3 bedrooms, never buy less than 1,200 square feet and never buy a pool! I have many more parameters, but at this point, I can peruse pictures and stats of a property and make a decision in less than 60 seconds if it is worthwhile to check deeper. 99% of what I look at, I decline.
Some Turnkey providers also run Property Management Companys. I prefer those that do as they have a vested interest in doing a good rehab job. Your "churn and burn" Turnkey providers need to be avoided like a snake. The business world has always had it's share of shady dealers, but that doesn't mean that all businesses are fraudulent. The best turnkey providers are the one's that stand by their work, offer to buy the house back from you for one year if you are not satisfied, and are interested in a long term approach to business building. The way I see it, if you ask a TK provider if they would buy back the house within the first year, and they say NO, then ask them why it is such a good deal today?
just curious if you actually know first hand of any turn key provider that promises to buy a house back in the first year IE cut a check at take it back.. that would be a pretty risky move lest one have a run on the bank..
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
11y
@Gautam Venkatesan I have to respectively disagree about buying properties back. I don't know of any turn key companies that do that. All investments carry risks and the investor has an obligation to do their own due diligence as the turn key company has an obligation to fairly represent their properties. Beyond that, unexpected things can happen and they are not the fault of either party. I think a home warranty is reasonable but I don't think it's reasonable to expect a turn key company to buy a property back. Their liability would be enormous and would make the business model not workable. People need to think of real estate as any other asset class with risks and rewards. As with stocks, a fund manager isn't going to buy your stock back because it doesn't perform as well as you expected.
Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
11y
I Never said they would buy it back at the same price. It's just like the car we bought. The dealer gave us a "buy back" guarantee, for five years, but NOT for what we paid for it. There are a lot of stipulations. My point being, a good turn key operator SHOULD be willing to buy back a property with certain stipulations in place.
Dream on --------that is not reality since when does anyone in the RE business guarantee to buy a back property :)
now you have listing agents do this all the time IE if I don't sell your house in 60 days I will buy it for a pre agreed price.. ( which of course if anyone had a brian understands that price would be FAR under market) we have 2 realtors in our PDX market who advertise that.
I'm late to the game on this thread, I missed it until tonight. I have to say I've learned more about TK over the past hour than I knew total beforehand.
I don't have specific advice on TK for you. But, I am also a physician who got into real estate as passive diversification play. It has evolved into something very different for me. My first year (2013, not long ago) I bought a fourplex that caters to medical students since I knew I could relate to the renter population and a 16 plex in a completely different part of town that I hired a PM company to manage. I had been wanting to get involved in real estate for many years, and that pent-up interest and some initial success led me to expand pretty quickly (4 additional buildings, 134 additional units since that first wave).
I have no specific complaints about my PM company, but I would echo what @Jay Hinrichs has said in that they are potentially a drain on your return. While I don't suspect intentional errors, every so often I have to send an email asking for "clarification" on what happened to the security deposit for x, is that a repeat charge for the new carpet in unit y, etc. These errors would be corrected when I pointed them out, but if I wasn't going over my statements with a fine tooth comb, my CoC returns would certainly be lower.
The point I would take home from this is - nobody will care about your investment return more than you will. Even a great PM will not be as invested in your portfolio as you are. You have shown on this thread that you expect full, accurate information about what goes into these TK investments, and rightfully so. But if you buy a portfolio of 5 (or 10, or 20) TKs are you going to be satisfied trying to evaluate the performance of a PM 4 states away? If you vacancy spikes temporarily are you going to be losing sleep wondering if the marketing, turnovers, etc are being done to your expectations? Passive investing sounds great, and you may find a great TK company, but will you truly be able to be "hands off" if you have a substantial stake at risk? For me, the answer to that question was no as my portfolio grew larger.
I was able to become more active in managing my own portfolio (without cutting back on my clinical time) by hiring a great team. I have a full time maintenance man and an office staff. They are far more affordable than a PM company and phoned in contractors, and I can count on them to manage the properties to my expectations. If there is a problem a quick phone call or face to face meeting takes care of it all. I'm far more comfortable dealing with my own employees than I would be with a TK company that introduces the possibility of conflicting priorities. Something to consider.
Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
11y
@jon alke
There is a group of investors here on BP who totally agree with you. Then there are those who totally disagree with you. I am not investing in Real Estate to create another "JOB" for myself. I have owned "out of area" rentals for over 35 years and they have done very well for me. PM's are no more a "drain" than insurance, property tax, repairs, etc... It is just the "cost of doing business." As a Doctor, do you sit down at night and call the people who have not paid their bill? Or do you leave that to the "Accounting Office?" As a Doctor, you spend your time helping patients get well, not chasing down some past due invoice. As a Real Estate Investor, my job is to find more investments, not collect past due rents and unclog toilets.
As a quick background, I was a Real Estate Broker during the 80s and 90s, I ran a small PM company, managing about 100 units by myself before cell phones, computers and fax machines. I have dealt with just about everything a PM has to including murder, DEA busts, a two year old drowning in a pool of a house I managed, fleas to my knees, using a garden hose INSIDE a house to wash out the mess, fires, etc.... Earlier this week, I got back from a two month road trip on our Fifth Wheel, visiting five National Parks, visiting 4 of my rentals (so I could write the trip off), lots of old friends and family, etc... And the only "work" I did was to approve a couple of repairs (any repair over $200 is run by me first) Two years ago I was in Russia and one of my rentals failed a Section 8 inspection (carpeting). But my PM took complete care of it and I just made one email for it.
When I hear investors say, "No one will care about your investment as much as you," I just cringe. Your real estate investments are NOT one of your kids, or your hobby or your pet. Just as in Poker, with Real Estate "LEAVE YOUR EMOTIONS AT THE DOOR." Emotions cause 'would be' investors to NEVER make that first purchase. Emotions cause people to overlook facts! Emotions cause people to make WRONG decisions. Emotions get in the way! A GOOD Property Manager wants your investment to succeed just as much as you do. It is their continuing income and business success. I have now FIRED six property managers in the past 10 years, and as an investor, you have to be able to do that. But in the process, I have found some EXCELLENT Property Managers.
My goal is that when I die, my investments will continue to produce with very little input from my heirs! Hassle Free Income! My parents did NOT do that and it has taken me over three years to clean up the mess. I have had to sell and buy, fire PMs, record three separate Quit Claim deeds per property, via a new attorney (their estate attorney was gone). It was a mess. I am determined to not leave that for my children.
On a side note, I need to clarify something I posted earlier. @Jay Hinrichs and @Mike D'Arrigo, you are right, the TK did NOT offer to buy the property back out right, they told me that was on the table if I were unhappy. But they did offer to cover all repairs that were done by them for a year. They said they would help me sell it at a discounted commission after a year if I were unhappy. They wanted me to be happy with my investment!
There are many ways to invest in real estate. My way is not the "right way" or the "wrong way", it is just one way. Been there and done that with rentals. Now it is time to let a PM do all that. I have NO emotional attachment to any property I own. It is just an "Income Stream" for me, not some brick, mortar and lumber building. Once the income stream gets screwed, I sell and buy a different and better one.
It's never too late to learn new things -- whether from a thread, podcast, or otherwise. Glad to see you here.
It's funny, the turnkey property model has been around for a long time. I founded my company 11.5 years ago when it was 'relatively' new but it still existed around the country. I think more people have taken notice of it because of its benefits, particularly those with limited time on their hands.
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
11y
@Mike McKinzie - Great additions to this thread. Thanks for sharing. Also, your clarified the remark about guarantees and buybacks and I wanted to make one quick point. In my opinion, the best Turnkey companies do not guarantee anything. Why? Because they are good business men and women. They understand the difference between the value of what they offer and the value of marketing a guarantee. They understand that while others sell guarantees and gimmicks, they simply sell their service and their product. I also think the best in this business have purchased back properties many times and in many circumstances and certainly not always (but sometimes) at the full purchase price. If a company has been in this business long enough, they have encountered scenarios where that need or question arises. I agree with @Jay Hinrichs. Experienced companies know guarantees could put a company out of business in more ways than one! I think you clarified great and what you described is a solid, honest business person that is looking to provide a great product and genuinely cares about their product and their clients. Congratulations, there a few left out there and it sounds like you have found a couple to do business with! All the best -
I agree with you about keeping your emotions out of you business decisions. I'm not sure where you got the impression that I don't. Bringing love for someone's children in as a comparison seems pretty extreme. You "care" about the return on your investments as I do. If you didn't, why fire 6 property managers in 10 years to make your returns better? Expecting a property manager who loses $70 if my revenue falls by $1000 to "care" as much a I "care" about losing the other $930 is not realistic.
I wouldn't lump property management into an assumed expense along with taxes, insurance etc. Property management is a choice. Many here do it themselves. I was using the most affordable and most reputable company in my medium sized town. I was paying 7% to the PM, and $35/hr for contractors. I pay under $20 for wages/taxes for my maintenance man, and the office staff's wages/taxes amount to less than 3% of my gross receipts. Choosing that savings at the expense of my time supervising the staff is purely an economic one, emotions play no part in it. You fired 6 PMs for the same reasons I hired employees to help me become my own, a better return.
Thanks Marco! BP never fails to teach me something, I hope down the road I can be as helpful to newbies as some of the vets around here have been to me.
Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
11y
Let me give an example @Chris Clothier and @Jay Hinrichs. On my last Turnkey, it turned out that one of the electrical outlets did not work when the TK "guaranteed" me that all the electrical had been fixed. It was NOT a manufactures warranty, just told to me via verbal and written contract that all electrical was working. But the TK folks went out and fixed the outlet for no charge to me. Who knows, maybe the tenant broke it their first day in the house, but it was something that needed to be repaired. I will buy from this TK again as I appreciated the "guarantee." Good business practices always pay off in the long run.
Let me give an example @Chris Clothier and @Jay Hinrichs. On my last Turnkey, it turned out that one of the electrical outlets did not work when the TK "guaranteed" me that all the electrical had been fixed. It was NOT a manufactures warranty, just told to me via verbal and written contract that all electrical was working. But the TK folks went out and fixed the outlet for no charge to me. Who knows, maybe the tenant broke it their first day in the house, but it was something that needed to be repaired. I will buy from this TK again as I appreciated the "guarantee." Good business practices always pay off in the long run.
To me, that is the best measuring stick of a company. How do they treat you when they know they don't have to treat you right? I am sure that many of us on here could post a "self-serving" follow-up about the times we have done these types of things, but that would be just that "self-serving". Let's just say that I have a ton of respect for whomever it is that you purchased from and it is the exact reason no guarantee is needed. They understand that sooner or later there will be an opportunity to earn the right to keep your business. It sounds like when it presented itself, they did exactly what any good company would do - they did the right thing.
For all of the readers on here, Mikes' story illustrates some great points. This is not personal - it is business. These companies are operated by humans and humans all make mistakes. Not always intentional. Really good companies - not just Turnkey companies - but all good companies, realize that the customer is not always right, but the customer is always the customer. When companies realize that, they start to take actions like the one Mike described. It is called earning your reputation and the right to do business with them and it is the one thing that you have to earn everyday. Once again, thanks for sharing!
not to mention potential Securities violations.... when you induce someone to purchase based on a guarantee.
That was my point about the "many" ways guarantees can put you out of business quickly. There is a reason there are state and federal agencies watching out for consumers on those types of issues.
the turn key companies I finance will do the same they will warranty work.. but no one offers a buy back... warranty of work is standard.. and you usually put it back on your subs.
Just like the new construction I build ... if there is a warranty claim year one.. its not me who warrants it its the sub who did the work.. lest they never get a job from me again.
I know of One company in Utah a turn key company working in Indy and KC that had this elaborate guarantees.. they allowed Annuity salesmen to bring them clients at the cost of 10% per deal.. and a 24 month worry free guarnetee well the company is now in major litigation and I suspect pending criminal charges.. the reality is you cannot as a rental property provider regardless of turn key or otherwise guarantee someone's out come you will do what happened to these dudes flame out and risk potential disaster
Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
11y
@Jon Alke
"Expecting a property manager who loses $70 if my revenue falls by $1000 to "care" as much a I "care" about losing the other $930 is not realistic."
I am not sure I totally follow you on your logic here. Of course it hurts to lose $1,000 a lot more than it hurts to lost $70, that goes without saying. And I was not criticizing you in any way, you are very successful and I ADMIRE that! More success to you!
But in my way of thinking, an investor who won't use a PM because "no one will care about the investment as much as I do" is a weak argument. No one cares about my car as much as I do, but I still take it to a professional mechanic to fix it. No one cares about my children (of which I have six) as much as I do but I still trust others to educate, provide health care and provide other PROFESSIONAL services.
And even though I was a property manager for years, TODAY, a PROFESSIONAL PROPERTY MANAGER will do a LOT better job than I will ever do. Talk about Economies of Scale! I get a full "Spring Service" including changing out all HVAC Filters, Smoke Detector Batteries, Sprinkler System check and repair, and a complete inspection by a Professional Contractor for a cheap price. That's because my PM orders 5,000 of them to be done. When I have a rental coming vacant, my PM emails their CURRENT 6,000 plus tenants that an availability is coming and see if they have any friends or family looking for a rental. Some times, I have two moving trucks in the driveway, one leaving and one moving in, because of my PM. But usually I leave a week vacancy for clean up and repairs. The intangibles provided by a Professional Property Manager are priceless. And a GOOD Property Manager WILL care about your success as much as you do. Not in the same way as you do, but in the way knowing that your success is also their success. They also treat their tenants well knowing that good referrals are priceless!
I have no problem with people who want to manage their own properties. As a matter of fact, I still manage ONE of my own, because it is four miles from me. It was a past personal residence, so I know the house well. But, it still irks me when I get the occasional call "The AC is not working" or "The toilet is clogged." I answered calls like that for 30 years, time to move on. After each of those calls, I threaten to sell that house and buy something THOUSANDS of miles away. Which, by the way, 20 of the houses I own I have NEVER seen. Talk about being unattached!!! NEVER seen, not even when I bought them.
We all want to succeed and we all appreciate success when it is achieved. And for each person, "SUCCESS" is defined a little differently. For me, it is knowing that if I die tonight, NOTHING will change with my Real Estate Investments. All my rents will be automatically deposited every month, the properties will be well maintained, turnover is light and my heirs can get on with their own lives and careers.
I spend a little less than $2,000 a month on PM, mere peanuts. And because I do, last year I paid $500,000.00 for $800,000.00 worth of Real Estate, buying eight Single Family Homes in three different states. There was no way I would be able to do that if I were self managing my rentals, saving $1,800 to $2,000 a month. My time is better spent, WHEN I WANT TO WORK, finding deals than it is collecting rent and fixing properties. Earlier I mentioned we just returned from a two month road trip. We bought a Montana Fifth Wheel in June, 2014 and this was our 14th trip in it in 12 months, 30 weeks on the road! This is how I define success and I am happy!
So Jon Alke, I APPLAUD your success and I admire your business model. Just remember that there are "different strokes for different folks" as we all play this game of Real Estate Investing!
As for Turn Key properties, I LOVE THEM, just do your DUE DILIGENCE!
I do envision having more of your approach when I am retired than continuing with my current role. And I'd never claim I am better as am amateur property manager than an experienced pro. But, with current demand allowing less than 1% vacancy, currently happy tenants (with low turnover), and my staff doing most of the heavy lifting the increased marginal cost of the PM seems to be too expensive.
This all started as me pointing out to the OP that he had options beyond 100% passive investment in real estate - he has certainly heard some good points on both sides!
Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
11y
@Mike McKinzie -- great comments and very well said. You make a lot of good points. I've always said, "you live and die by your property manager". And that's the reason why some people should outsource that critical task.
Investor · Hillsboro, OR · Member since 2014 · 65 posts · 26 votes
11y
Great thread and inputs from all. I was looking at exploring the possibility of turn key out of state and this thread gives a new perspective to some of the notions I had about TurnKey operators and how to set good operating principles.
I wrote a little E book on the Do's and Don'ts of out of state investing.. happy to send it along if you like.. it will give you the questions to ask and the items to Check off your list , so you can make an educated and prudent buy decision
Hey Jay just catchign up with this thread now. Would it be possible to send this ebook my way as well?
