Turnkey. Am I a wussy?

Buying & Selling Real Estate
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Turnkey. Am I a wussy?

Tony Velez
Hvac 路 North Haven, CT 路 Member since 2015 路 298 posts 路 79 votes

Am I a wussy for thinking turnkey for my first real estate investor?  Be honest I can take it. 馃槉

Thanks

Tony V

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James Wise
Real Estate Broker 路 Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH 路 Member since 2013 路 30k+ posts 路 20k+ votes
10y

Turnkey is a service just like any other service. Will you pay more for everything to be done on your behalf instead of doing it yourself? Yes, of course. Just like it will cost more money to have your car fixed by a mechanic as opposed to doing it in your garage.

It is a trade off. Do you want others to do work for you or do you want to save a few bucks and do it yourself? 

One important thing to think about: When you are doing it yourself to save a few bucks are you taking time away from your other earning potential?

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  • Radhika M.
    Investor 路 San Jose, CA 路 Member since 2014 路 167 posts 路 146 votes
    10y

    @Curt Davis Have to agree with @Ben Leybovich and @Steve Vaughan on comparing an investment to a car.  Are you really comparing a Depreciating item to a Investment. If this is true I would never want to buy a property in those areas. Very strange example.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y

    @Alex Craig  I agree with you... one off out of area folks will never get that pricing.. but most if not all high volume turn key companies do get that and the same numbers you do.

    they all hire out the sub trades for mechanical  electrical and plumbing.. its the painting floors general labor that is johnny lunch bucket your not getting true finish carpenters in these homes... like we do with our new constructions that I build.

    those are great rates by the way.. best we can do west coast is 1/2 to 1 point and 5.5 to 6.5 on new builds... and a little better on reno.

    Where things on the west coast have gotten very competitive is in HML you can get 1 point and sub 10% in many markets the deals are not as plenty ful and there is a crap pot full of money looking to do deals.

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  • Curt DavisBusiness Member
    Flipper/Rehabber 路 Memphis, TN 路 Member since 2008 路 5k+ posts 路 2k+ votes
    10y

    @Radhika

    the point is that if you buy any property as a buy and hold strategy and then you de use to sell it in a short time, you might have difficulty in doing so. How is this so hard for you to understand?  

    It also has nothing to do with the area, this goes for almost everywhere. 

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  • Alex CraigBusiness Member
    Real Estate Professional 路 Memphis, TN 路 Member since 2009 路 1k+ posts 路 1k+ votes
    10y

    @Jay Hinrichs  I agree on TK getting same pricing.  I thought you were saying out of state investors are getting the same pricing.

    901-848-9028
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  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y

    @Ben Leybovich@Radhika M.  I think what Curt was tyring to point out and maybe the car was a bad analogy... is that if you buy a home at retail.. and most turn key is retail plus !! or at least a very good premium over best pricing in an area.  and you want to sell in a year yoru going to take a loss..

    if you buy a new home in Portland for example in my market..  and want to sell in a year you MIGHT break even .. IE it went up 6% in the year to cover Realtor fees.. you might break even in the Bay area if you had to exit in one year.

    in the Turn key markets you will FOR sure lose money.. and most likely will lose Capital anytime in the first 5 to 10 years in most lower end turn key areas as values are stagnet and really don't move up unless the homes are completely refurbed again and run through the high powered West coast marketing machines that Turn key operators are ..

    The great state of CA realized this way back in the 60's in those days you had to file and receive a "public report" to sell of subdivisions this was issued by the department of real estate and it was a basic disclosure doc... one of the main disclosures was that it could be very difficult to resell your property for what you paid for it because your not a highly organized sales organization... The turn key industry is exactly the SAME as these early day CA subdivisions... These reports are no longer required as time has gone on. But I remember my dad getting them on each of our subdivisions and as a new salesmen having to sit down and go through them with each buyer and have them sign that they read and approved.

    One other question comes to mind... to all your turn key guys responding on this thread.. Do you routinely give out the Owners Disclosures like we see in the owner occ.. @Curt Davis  Curt you would not sell a home to a owner occ without giving them a Owners disclosure form to read and approve correct  ???   do you also give them out on ones you own to your turn key investor buyers.. @Alex Craig  Alex do you also fill out Owners disclosures and give them on each of your properties. ?

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  • Curt DavisBusiness Member
    Flipper/Rehabber 路 Memphis, TN 路 Member since 2008 路 5k+ posts 路 2k+ votes
    10y

    I never said a buy and hold is top dollar sale. There are many who sell full price and many who sell under market value.  

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  • Curt DavisBusiness Member
    Flipper/Rehabber 路 Memphis, TN 路 Member since 2008 路 5k+ posts 路 2k+ votes
    10y

    jay, I provide all legal contract documents according to Tennessee law.  

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  • Alex CraigBusiness Member
    Real Estate Professional 路 Memphis, TN 路 Member since 2009 路 1k+ posts 路 1k+ votes
    10y

    @Jay Hinrichs  Yes. I have a TN Real Estate agent send out all required documents as required by our state real estate laws, which includes lead paint disclosure.

    901-848-9028
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  • Nathan W.
    Alexandria, VA 路 Member since 2014 路 140 posts 路 45 votes
    10y
    Originally posted by @Curt Davis:

    Well if the TK provider is not around anymore then you just transfer your home to a new property management company.  There are always options, some maybe less favorable then others. 

     This answer was amazingly succinct and straight forward.  To the point it makes me wonder why it even needed to be said (but of course realizing why it does).

    1Reply
  • Ben Leybovich
    Rental Property Investor 路 Phoenix/Lima, Arizona/OH 路 Member since 2012 路 4k+ posts 路 4k+ votes
    10y

    People - money is made on the purchase. Cash Flow doesn't drive discounted returns over 5-7 years. We must have appreciation, and in Mid West it is forced appreciation - it's the only flippin' way to make decent returns. There's no magic to this. And if you're not going to have organic appreciation, the only thing that guarantees returns is buying them at the front with value add structure.

    This is so elementary, guys. You know what I am saying, @Jay Hinrichs!

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y
    Originally posted by @Curt Davis:

    jay, I provide all legal contract documents according to Tennessee law.  

    Does that include the RMLS  standard Sellers disclosures forms ?  Just curious.. So is the disclosure required by Tennessee law or NOT  that's the question.

    in our state if you don't provide those to a buyer the buyer had the right to cancel the deal right up to the last minute and the seller MUST give the earnest money back .

    In my line of work I rarely see wholesalers or other sellers filling out and giving sellers disclosures.. but I know most RE agents worth a damn would never let their buyer buy without getting one.. its just not done.

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  • Radhika M.
    Investor 路 San Jose, CA 路 Member since 2014 路 167 posts 路 146 votes
    10y

    @Curt Davis

    @Curt Davis I think what @Jay Hinrichs

    explained in regards to the high transaction costs and stagnation of prices makes sense.  Comparing to a Car was a bad analogy. I do understand that the price may not go up and you will loose money if there was a down turn when you try to sell if you bought at the peak/market. 

    @Jay Hinrichs

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  • Curt DavisBusiness Member
    Flipper/Rehabber 路 Memphis, TN 路 Member since 2008 路 5k+ posts 路 2k+ votes
    10y

    I will agree it may have not been the best comparison. Trying to type on my phone takes far too long to get deeper into it. 

    Curt Davis - KAIZEN Realty538 Reviews
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  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y

    @Alex Craig  I fund deals in CA  and you should see the disclosures they send there.. its off the charts... I have been a CA broker for 40 years but not active there in 20 so not up to speed on the latestest disclsoures... only the one's I get via docusign when I am reselling.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y
    Originally posted by @Nathan W.:
    Originally posted by @Tony Velez:
    Originally posted by @Account Closed:

    What happens in a year or 2 or ten if the turnkey business is gone you are stuck with a property thousands of miles away with no control and as mentioned no way out without a loss 

     That's exactly what I'm thinking. Long term. 

     This advice you were given is actually terrible and represents a fundamental ignorance of how most turnkey companies (at least in my experience) operate.  They are usually NOT the property manager.  Please take advice with grains of salt (including mine).  Some people really have no idea what they are talking about.

    I started funding turnkey companies at the beginning of time  IE 2001... when it was basically became and industry selling mid west to CA investors.  and basically none of my original clients are in business today or at least as the same company and brand..

    So your correct to think that who you start out with probably won't be there in 10 years.. althought the industry this time around is more stable than last.. the lenders have made the borrowers be more qualified than alst go around

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  • Ben Leybovich
    Rental Property Investor 路 Phoenix/Lima, Arizona/OH 路 Member since 2012 路 4k+ posts 路 4k+ votes
    10y
    Originally posted by @Nathan W.:
    Originally posted by @Ben Leybovich:

    People - money is made on the purchase. Cash Flow doesn't drive discounted returns over 5-7 years. We must have appreciation, and in Mid West it is forced appreciation - it's the only flippin' way to make decent returns. There's no magic to this. And if you're not going to have organic appreciation, the only thing that guarantees returns is buying them at the front with value add structure.

    This is so elementary, guys. You know what I am saying, @Jay Hinrichs!

    I have always been amazed that you are regarded as some sort of guru around here. Your brash personality for the sake of such and know it all attitude aside, your eagerness to discount COC return out of hand has mystified me from the first time I stopped listening to your first appearance on the podcast 20 minutes into it because I found your whining and self-blovation nauseating.

    Not everyone lives in flyover country and not everyone does this full time.  Your advice is so narrow minded to full time or homebased investors I can't believe that I am the only one that ever sees this when they read your posts.

    I will never personally throw away a 15% COC return because it doesn't meet some ridiculous forced appreciation projection, or whatever other mathematically self-stroking overly analytical criticism can be thrown at it.  

    BUt maybe I am just not "sophisticated" enough...

    I don't discount CCR - reality does :)

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  • Matt R.
    Sherman Oaks, CA 路 Member since 2013 路 3k+ posts 路 2k+ votes
    10y

     Everyone buying TK should know there might not be much meat on the bone left to exit. That is par for the course for TKs. That is their biggest disadvantage. At least Curt is upfront with that part. Jay has mentioned many times these same homes can be sold over and over again to the West Coasters. At least we are helping the environment by recycling:)

    2Reply
  • Nathan W.
    Alexandria, VA 路 Member since 2014 路 140 posts 路 45 votes
    10y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Nathan W.:
    Originally posted by @Tony Velez:
    Originally posted by @Account Closed:

    What happens in a year or 2 or ten if the turnkey business is gone you are stuck with a property thousands of miles away with no control and as mentioned no way out without a loss 

     That's exactly what I'm thinking. Long term. 

     This advice you were given is actually terrible and represents a fundamental ignorance of how most turnkey companies (at least in my experience) operate.  They are usually NOT the property manager.  Please take advice with grains of salt (including mine).  Some people really have no idea what they are talking about.

    I started funding turnkey companies at the beginning of time  IE 2001... when it was basically became and industry selling mid west to CA investors.  and basically none of my original clients are in business today or at least as the same company and brand..

    So your correct to think that who you start out with probably won't be there in 10 years.. althought the industry this time around is more stable than last.. the lenders have made the borrowers be more qualified than alst go around

     You appear to have completely missed the point that the turnkey operator is NOT the property manager, which was the original concern presented.  

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  • Nathan W.
    Alexandria, VA 路 Member since 2014 路 140 posts 路 45 votes
    10y
    Originally posted by @Ben Leybovich:

    What an insightful, thoughtful, and helpful post.  Thank you so much for weighing in.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
    10y

    @Nathan W.  well lets see i currently fund 8 turn key companies and all but one do own their own PM company as they find it necessary to keep command and control.

    but I know many do not your correct.  but its not the majority.. PM is a necessary evil.

    and once they get past 1000 units it can be profitable up until then its about keeping their buyers happy

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  • Ben Leybovich
    Rental Property Investor 路 Phoenix/Lima, Arizona/OH 路 Member since 2012 路 4k+ posts 路 4k+ votes
    10y
    Originally posted by @Nathan W.:
    Originally posted by @Ben Leybovich:

    What an insightful, thoughtful, and helpful post.  Thank you so much for weighing in.

     My pleasure to help :)

    0Reply
  • Account Closed
    Investor 路 Trabuco Canyon, CA 路 Member since 2015 路 40 posts 路 35 votes
    10y

    @Tony Velez

    I self manage some local units, have done a couple of full turnkeys in other states, and have done a bit of a hybrid outside of my state as well.  Not sure if you stated where you want to invest, but I think that is a huge part of your decision making process.

    If local is your target, why not hook up with your local REI group and start picking people's brains? Ask the wonderful folks on BP that are in your local area who they use (i.e. Brokers, PMs, Lenders, Attorneys, CPAs etc etc). You'll be amazed at how helpful people in this community are. With a little bit of education and some of @Brandon Turner's "take action" pills, you'll be on your way quickly.

    If out of state investing is what you're targeting then I would probably go with a Turnkey provider to start.  As you learn the area and build relationships you can then shift to more of a hybrid model.

    Best of luck with your investments!!!  

    Gil

    3Reply
  • Nathan W.
    Alexandria, VA 路 Member since 2014 路 140 posts 路 45 votes
    10y
    Originally posted by @Jay Hinrichs:

    @Nathan W.  well lets see i currently fund 8 turn key companies and all but one do own their own PM company as they find it necessary to keep command and control.

    but I know many do not your correct.  but its not the majority.. PM is a necessary evil.

    and once they get past 1000 units it can be profitable up until then its about keeping their buyers happy

     I am not for one second (foolishly) discounting your experience and anecdotes.  And your experience that "but its not the majority" may very well be absolutely accurate.  But that does not represent my current reality that none of the turnkey providers I am looking into for my next purchase are the property managers.  Looking at 3 different markets right now and 4 different TK providers and all of them have the property set up with a PM that appears to be a separate entity from their TK company (with nothing leading me to disbelieve them). 

    The OP that I initially responded to would have been absolutely correct to state that "one of the risks is if the TK company also is the PM company and they both fold". But that is not representative of necessity and can be easily mitigated by going with a TK company that is NOT the PM company, as I have done.  And I have touched base with other PM's in my target market area just in case, you know, as part of due diligence....

    I stand by my original post with the clarifications noted above. 

    0Reply
  • Nathan W.
    Alexandria, VA 路 Member since 2014 路 140 posts 路 45 votes
    10y
    Originally posted by @Ben Leybovich:
    Originally posted by @Nathan W.:
    Originally posted by @Ben Leybovich:

    What an insightful, thoughtful, and helpful post.  Thank you so much for weighing in.

     My pleasure to help :)

     Anytime.  I know that you are a proverbial pinata just overflowing with helpfulness and goodwill, just waiting for someone to come by with a stick...

    1Reply
  • Sara Hodge
    Pro Competitive Dance Coach 路 Denver, CO 路 Member since 2015 路 42 posts 路 9 votes
    10y

    I'm a wuss then too! Not really thought. It's been so empowering jumping into it. I'm a 100% newbie to investing and have already learned so much. Having a positive experience with both turnkey investments (one more so than the other). Feel free to send a message any time if you're looking for input! And for the record- I agree with what others are saying: it's all about what works for you. If you're a working professional, it could be the right starting point. Good luck!

    1Reply
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