Would you buy a Turnkey in an area like this?

Question

Buying turnkey out of state is another viable cash flow option for many newer investors. There are some really good operators out there and some are BP members.

I recently saw a real nice looking property in a major midwest city (not Detroit) listed for sale at 200k++ ,  by a Bper.  Since I did market research for a living, and learning about new areas still fascinates me, I looked it up for 5 minutes. The address is not disclosed but that property is no problem for me to find even without knowing the address initially.  The numbers on paper look great but there is more to the story in real estate than numbers on paper. For this one, it was positive around 1k+ month. Caveat....other numbers presented did not jive to what is known as averages on rentals for this area and or rentals in general.

For this example, it turns out that property's immediate hood is in one of the FBIs ranked most dangerous hoods. (#4). Murders are common and average 1+ a month. The building next door is vacant although it was occupied not too long ago. There are many vacant/abandon buildings on same street and nearby streets. The vacancy rate is 24% for this area. I don't know what the abandon rate is but it looks like that might be close to double figures or at least 5%.  Btw the police station is two blocks away, so that means nothing for future reference. Heck we have real bad hoods in LA too but not this bad or this much negative population growth. Average for this zip has been around negative 8% population growth for each of the past 3 decades and equal to almost exactly the vacancy rate currently.

The building was sold for 85k to the TK seller so I get that profit angle...it is the new buyers risks I am completely perplexed about and especially since the guy next door looks like a very recent total loss here. None of this insider info was made public and I doubt the TK promoter is aware of these realities.  I am not saying this is a for sure terrible investment but on the surface it does not look like a very solid location for the new turnkey buyer to start.

I think you will find the most experienced TK players will not operate in hoods like this for many practical reasons. One major concern for the new buyer is what would they do if the management bails or fails like the guy next door just did apparently.  What would a local investor pay for this if they wanted to sell is another.

What do you think? Would you buy a Turnkey in an area like this?

For anyone looking for turnkeys you could check out turnkey-reviews . com. They have most of the TK companies listed on there with reviews. The owners of the site are very helpful bp members so that is double bonus.

Good luck with your search!

Will Barnard · Answer

I would totally buy it . . . . .

If my business model was to lose money!

Joel Owens · Answer

Wouldn't touch it.

There are many areas in other states and mine that are very nice demo graphics where you can pick up a property for 200k.

WHY would someone spend 200k for a high crime zone from afar? Just asking for a loss. Many of those TK outfits make profit when they sell and PM is something they do to get the sale to happen. When it gets tough they tend to bail pretty fast.

If people are going to buy turn key at least pick a quality area. The quality area might cash flow less but your total overall return over time tends to be much greater and you have less headaches.

Christopher Brainard · Answer

@Matt R.

I would never buy a property in the 'hood' or where vacancy rates are 24%. I also do not invest in areas with negative population growth - that number is letting you glimpse into the future of the area. My assumption would be the TK Provider is counting on finding an  out of state investor is not going to know the area and is not going to do proper research and buy strictly on price.

-Christopher

Mike D'Arrigo · Answer

@Matt R. unfortunately, this is an all too common story. We won't sell anything in high crime areas or war zones because experience shows they don't work. I had @Jay Hinrichs on my show not too long ago and he shed some great perspective on these low end properties. You can find the podcast of the show on my website. Just look for the 7-23-2015 episode. Jay has great insight on the subject.

Matt R. · Answer

@Will Barnard That is funny.  After reading the news about this area, there is a shooting victim about once a week sometimes twice. December was busy for murders with 3 victims. That part is sad. Who knows maybe they have profitable experiences in this location and know how to make these type of locations work well. It is all section 8 here and if done right that can work but you would have to try hard on a national scale to find a more dangerous hood it appears. The dangerous scale might not correlate with profits either.  You want to buy it now? ;)

Matt R. · Answer

@Mike D'Arrigo Yes I figured you would not mess with these types. I think this would make a good case study to follow and see how this turns out over time. I hope it is safe for anyone involved. I think I listened to that show awhile back. Jay's great. Thanks for helping out.

Matt R. · Answer

@Christopher Brainard @Joel Owens Agreed. I just watch one of this hoods residents videos. And he was saying how bad it is when these investors keep piling section 8 renters in his hood.  It is making it very difficult to turn this area around as a result. To be certain there are good folks living here...it is just an up hill battle for them when that stuff is constantly going on.

Would you buy a Turnkey in an area like this?

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