Two different things:
If you mean 2.1, then the difference is that a turnkey guy may buy a house, rehab it. He may have 30k in it, but he would sell it to you for 40k... He makes money because he did the work of getting it rent ready(maybe even have a tenant in it for you)... You may be able to get a loan because the house is now livable instead of junk state where no bank wants to lend on it. Where-as if you go the 2.1 option you would have 30k in the property and have a guy getting you a tenant for it.... Best 2.1 options are when a house needs a lot of work, but are generally unlendable until after the work is complete.
There is risks involved with either strategy...
Turnkey guy could put a total loser in the rental and make it look appetizing, but you lose the tenant and they trash the place on the way out.. Turnkey guy could also do crap work, and you have to redo a bunch of it(inspection would tell you this hopefully)...
2.1 - you could get a crap GC or Property manager and they rip you off.. I see this day in and day out here in Indy... I can;t tell you how many people have been fed a bill of goods and the GC/PM take them to the cleaners...
Hopefully that helps and doesn't throw you into analysis paralysis.
They both do essentially the same thing. Turnkey companies will sell you a home that they have rehabbed so it should be tenant ready the day you close. They also provide monthly management service once you take possession.
Since the property manager is also a Realtor, he can be your agent in the search for and acquisition of properties that are turnkey because they have been rehabbed by the seller.
Either way, my opinion is you need a property manager if you're buying out of town, if for no other reason than to have someone who can react quickly in case of some kind of emergency.
Two different things:
If you mean 2.1, then the difference is that a turnkey guy may buy a house, rehab it. He may have 30k in it, but he would sell it to you for 40k... He makes money because he did the work of getting it rent ready(maybe even have a tenant in it for you)... You may be able to get a loan because the house is now livable instead of junk state where no bank wants to lend on it. Where-as if you go the 2.1 option you would have 30k in the property and have a guy getting you a tenant for it.... Best 2.1 options are when a house needs a lot of work, but are generally unlendable until after the work is complete.
There is risks involved with either strategy...
Turnkey guy could put a total loser in the rental and make it look appetizing, but you lose the tenant and they trash the place on the way out.. Turnkey guy could also do crap work, and you have to redo a bunch of it(inspection would tell you this hopefully)...
2.1 - you could get a crap GC or Property manager and they rip you off.. I see this day in and day out here in Indy... I can;t tell you how many people have been fed a bill of goods and the GC/PM take them to the cleaners...
Hopefully that helps and doesn't throw you into analysis paralysis.
Think of Turnkey as a hands off solution--someone else finds the property, the tenant and takes care of the management of your investment. You bring $ to the table and the TK provider is responsible for taking care of anything that comes up. You pay a premium for that. The alternative is to find a property and hire your own property manager.
1. Why is the assumption that every property needs work to be rent-ready? Can't you just buy a property that's in good shape out of state, use an inspector, neighborhoodscout and wegolook, and hire a local property management company?
2. Also, what's stopping me from buying a property through a turnkey provider and then firing them and hiring my own PM? I assume all of a turnkey's services will be priced at a premium because of the convenience they provide.
I'm looking at these $50K homes with 15% caps in flyover states and who cares if they make $10K on me? It's still a good cash flow play.
1. You can absolutely do that, some people prefer not to do the work themselves and TK is a much better fit for them (less headache). If you are a TK provider, you want properties that are in great shape since they will be easier to maintain (think about if you were a property manager, and you make 10% of gross rents regardless of the type of property, do you want to manage properties in top shape or properties that constantly need something fixed).
2. Some TK providers have termination provisions/limitations in them (early term fees, or make you prepay the 1st year of management fees), but that is definitely something that you can do.
$50K homes with a 15% cap rate can quickly turn into a 0 cap rate if 3 months in you need a new roof, HVAC, etc. If you can find homes in good shape that need minimal repair and good property management (that screens tenants well), then you're all set and no need to work with a TK.
Hey Art! I've been buying and dealing with turnkeys for about five years now....so wanted to chime in. For your last questions-
1. Why is the assumption that every property needs work to be rent-ready? Can't you just buy a property that's in good shape out of state, use an inspector, neighborhood scout and wegolook, and hire a local property management company?
You definitely can do the latter. There are a lot of factors that may be different between the two options- finding an individual property in a good area (since you aren't local to the area to know exactly where is where, presumably), knowing where to buy the property, and finding a rent-ready property that is priced properly enough for the numbers to work. Some of it, too, has to do with incentive. A turnkey provider has more incentive to perform, and give you a good property, because their business is based off repeat buys. The contractors and the PMs and everyone involved are all under one entity (essentially) so if one doesn't perform, the whole thing could collapse. Whereas when you do an individual property on your own, no one is tied to one another (agent, contractor, PM, etc.) so there's less at stake if one person tanks. For them. If that makes sense.
2. Also, what's stopping me from buying a property through a turnkey provider and then firing them and hiring my own PM? I assume all of a turnkey's services will be priced at a premium because of the convenience they provide.
You can do that right off the bat if you want. You own the property, so you can do whatever you want with it. I actually encourage people to interview some other PMs during their due diligence because I don't want anyone feeling like they have to be tied to the PM that comes with the property (mostly in case they don't perform!). You can live in the house when you buy it, if you want. Totally your call. As far as premiums, it's actually typically the opposite- PMs that come with the turnkeys oftentimes charge less than regular PMs. They can do that because of the bulk number of properties they work with. Same premise as why doing things turnkey can actually be significantly cheaper per unit--because everything is done in bulk.
Hope that helps!
That does help. Thanks, Ali!