I've got about 30K to invest, and am really intrigued by turnkey properties. Having looked at all the various TK companies in different states and cities, it seems buying 2 houses at around the 50k price point would be most advantageous in terms of cash flow.
My concerns are the exit strategies for turn keys @ that price point. Being a new investor, I don't have prior data to go off on the appreciation history of rundown neighborhoods. I would love to be able to exit a house in 5 years and turn the appreciation and cash flow saved from that house into the down payment for 2 more. However, Im not sure that 50k houses appreciate. When I look at those neighborhoods that have houses in them selling for 8k or even lower next to my 50k house, at best I assume it will stay at 50k forever. What makes that area any different then Detroit people are just leaving by the busloads? Maybe an area that has consistent job growth will help raise the values of even these lower priced houses?
So what is everyone's exit strategy for cheap turnkeys? Do they just buy and hold forever and keep saving money from their cash flow and 9-5 job to add more houses for passive income in the future?
This is my second post and must say I love the community here on BP and thank you all for taking the time to provide great insight for us new people browsing every day.
The more turnkey that a property is, the less of a discount you're going to get on it. So going with a turnkey home is going to net you less in the long run. Turnkey homes are typically sold to end-users unless they are in bad neighborhoods that you typically don't want to invest in anyways.
Investing in a bad area costs much more in the long run, even when you section 8 rent it. Damage, evictions, unpaid rent, squatters are items that make newer land lords run for the hills. You want an area where working families desire to live, even if it costs you more.
All areas appreciate and depreciate, but only use the comparables as a basis for your purchase(so you know you're not overpaying). But in the long run, the ROI and IRR should be your main consideration for the investment.
Your exit strategy should be adjusted based on the market cycle of the type of property you buy. You want enough IRR to know that if the market is at a low in 5 years, you can afford to hold on to it based off the rents. You always want a back up plan!
@Ryne Ray you did not identify the state you plan to purchase turnkeys so I will assume its not TX. If you take out a 30 year loan putting 20% downpayment in 5 years you will still owe close $40K since you have very little principal paydown. You cannot count on appreciation (if it happens great but what if it doesn't??). So given your short timeframe and paying market value for turnkeys your possible exit strategies to turn a profit might be lease option to a tenant buyer (check if its legal in the state you have the property) or owner finance to another turnkey investor to where your monthly cash flow. If you try to sell in 5 yrs, assuming no appreciation, your marketing and closing costs will easily eat up 10% of the sale price.
Where we are located in IN, you can easily buy a turnkey that is leveraged (other people's money) and professionally managed (other people's time) to give you a great ROI and ROT (Return on Time). We have over 100 properties under contract and are actively doing turnkeys in a very boring area that does not have huge ups or huge downs, but our cost of living is low so we can achieve some great ROIs.