Why don't THEY buy it themselves? (a Q re: Turnkey 'deals')

12 Replies

My question is this, and it applies to Turnkey companies, as well as other investors selling properties.

"Why don't they buy it themselves if its such a great deal/ROI?"

If a turnkey company actually believes in the product they're marketing as a great ROI for the potential client and has such great cash flow potential, why don't they just get a loan and put the 20% down on the property themselves? Why sell it and get their small 1-time commission?

Thanks,

x CHRIS x

@Chris Collins That is in a way what we do.  We were doing it for ourselves and saw a huge demand for better quality in better neighborhoods in Chicago so we put some marketing material together and here we are.  Most turn key properties we sell we own a property ourselves within a block or two. This clearly isn't the norm because you wouldn't be asking the question if it was but that is just how we are different than most.  

Medium untitledMark Ainley, GC Realty & Development LLC | [email protected] | 630‑587‑7400 | http://www.gcrealtyinvestments.com | IL Agent # 471.003954 | Podcast Guest on Show #72

When we analyze deals for ourselves, we analyze for 5 different exit strategies. Our criteria for the returns for each strategy may not be met...however, we may know of another REI where the returns do meet their's. That is a simple explanation. Turning that property over to them can be another source of income. Why leave money on the table?

Also, for us, selling the property could be the best exist strategy we need to execute at that time.  Two months later, the overall situation may be different, and holding that property may be the best exit strategy...so we keep it.

Selling great properties that we've analyzed for ourselves is one of the reasons why we analyze deals in the first place.  Just one of many exit strategies available to us.

I would say that if I could I would keep 80% of what we sell.  Unfortunately we cant keep them all.  I already have 20 rentals in my market and getting conventional loans is not as easy anymore.  There is financing options still available, just a little more aggressive.  

Medium buymemphisnow stacksCurt Davis, Buy Memphis Now | [email protected] | 605‑310‑7929 | http://www.BuyMemphisNow.com | TN Agent # 00321765

There are just too many slices of pie in REI that one of the big downfalls is being a jack of all trades and master of none. Focus on a niche market is a great way to brand and grow the biz. Obviously, people make money on buying, selling, repositioning, managing, building, commercial, etc. but it's difficult to do them ALL. Great question. I used to ask this many times myself.

@Chris Collins it's no different than why flippers, buy-and-hold investors will pay high interest. If TK operators are selling to another investor at 20%, but their profit margins are 50% the TK operators use of capital is better to continue to buy-fix-sell TK properties than hold them. (I assume they are also building their PM side of their business too by collecting management fees.)

Additionally, like @Curt Davis most investors don't have money to keep every deal.

Medium 19013 george logoJonathan Makovsky, Jon George Home Buyers | http://jongeorgehomebuyers.com/ | Podcast Guest on Show #107

I completely understand why TK co's sell property.  Nobody can hold everything they have when at that scale. As long as they also offer to manage the property, I feel they are standing by their product.  They are nut 'pumping and dumping'.  If the property or area were complete crap, they wouldn't also offer to put up with the management headaches. It is an awesome business model.  Guess who the buyer turns to when they want to sell provided the servicing was good?  Bingo!   

If I ever get into out-of-area TK, I will look to the fine providers here on BP for my deals!  Specifically @Joe Villeneuve and @Curt Davis who have been on here providing help to the masses the longest.

What I don't get is why wholesalers sell off their sweet deals for a one-time payoff at a high tax rate.  All that went into acquiring that property, only to have to do it again to eat again.  Hard for a buy and holder to reconcile!  Cheers!

Originally posted by @Steve Olafson Vaughan Vaughan Vaughan:

I completely understand why TK co's sell property.  Nobody can hold everything they have when at that scale. As long as they also offer to manage the property, I feel they are standing by their product.  They are nut 'pumping and dumping'.  If the property or area were complete crap, they wouldn't also offer to put up with the management headaches. It is an awesome business model.  Guess who the buyer turns to when they want to sell provided the servicing was good?  Bingo!   

If I ever get into out-of-area TK, I will look to the fine providers here on BP for my deals!  Specifically @Joe Villeneuve and @Curt Davis who have been on here providing help to the masses the longest.

What I don't get is why wholesalers sell off their sweet deals for a one-time payoff at a high tax rate.  All that went into acquiring that property, only to have to do it again to eat again.  Hard for a buy and holder to reconcile!  Cheers!

 Much appreciated @Steve 

Hey Chris! I asked the exact same question when I started buying turnkeys. I since learned that basically turnkey providers are operating under a different business model-- they are essentially flippers. I will say that I do know for sure that a lot of them do hang on to a lot of the properties they deal with, but for the most part their model is based around buying and selling. That's where their capital comes from and it's a flip business- not a hold business. But they do hang on to some of them themselves.

It's just two completely different models.

Medium hipsterinvestment logo black300dpiAli Boone, Hipster Investments | [email protected] | 310‑957‑2101 | https://goo.gl/x52ZKJ | CA Agent # 01911993

@Chris Collins

Truth is many of the best ones do own a large number of properties. So why not own all of them? From what I know it seems to be access to money and that they get more deals than they can take themselves when you do this day and day out.

For reference let's take a home being sold to you for $100K and assume they were in it for $85K all-in. Now 30 of these a month equates to $2.55MM a month which is a lot of money to keep in properties.

Second reason in my opinion is scale. Scale is a huge advantage for your own investments and for your TK investors. The way to get to scale is to sell properties. A larger number of properties sold equals lower costs and more control. In some areas it also means you control the block or range of blocks which could mean the difference between a bad investment and a good one. 

@Chris Collins

I was taught not to fall in love with the properties I buy, rehab, place tenants in, then place up for sale. If I did I would not be in business as a turnkey provider but if no one buys then at least I am collecting cash flow each month from the properties because all the properties I sale are all owned by my company.

My business model is a little different from other turnkey providers here is why: if I buy a property, rehab the property, place a tenant in the property I am fine with selling/flipping it and I am also fine if I don't sale it and hold it for the long haul. BUY and HOLD!!

Medium new logo for bigger pockets..Derrick Craig, Memphis Buy and Hold | [email protected] | 901‑212‑4476 | http://www.memphisbuyandhold.com

Thanks so much to everyone for the replies. It was helpful to learn other thought processes that I (as a NEW investor) may not be thinking about.  

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