Turnkey investment value

Investor · New York City, NY · Member since 2015 · 17 posts · 7 votes

I've read many pros and cons of turnkey esp for out of state or country. In summary, the pros is for maximizing the "passive" portion of rei vs the cons of paying more to do it all yourself (cash or diff to access financing for purch distressed property, rehab, holding costs, and lack of doing this all efficiently etc). I think it all could be a fair trade off. However, I also think it's a fair ask to get a good price at or below MLS prices (assuming in good shape, not talking about foreclosure/shorts). I am not counting the turnkey's company money- I can care less their profit margin! But I should be able to turn around and resell my property on the open market for at least my purchase price- otherwise I am overpaying! I look at these turnkey companies- norada, hipster, memphis invest, ohiocashflow etc (no knock of these companies- I just seen you post and looked at some of your properties- and their cash flows are attractive but the purchase amts seem higher than what I see on MLS for what appears on surface to be comparable (I use this term lightly as I am not familiar with all their areas) properties.

First question, would you expect to over pay for turnkey? Secondly, assuming you agree with me, how could we protect ourselves to be sure we are getting a fair deal and not a provider taking advantage of a naive investor? An appraisal would be one tool but what many of us know is that it's not an exact science and many appraisals come in unexpectedly significantly higher or below without rhyme or reason- it's one tool but not the sole one I like to support for/against my purchase.

Lastly, I believe in win win. The TK people can make good profit while offering a fully TK property at or below retail. The TK providers scale allows efficient rehab (cost/time/experience) and selling to investor which is much faster (and typically repeat business) than retail transaction allows for a win win that doesn't take advantage of anyone.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

10y

@Charles Lemelle repectully disagree with your statement that PM's Lenders and home warrenty companies give kick backs.

PM's in a turn key setting are generally owned by the turn key provider. and if there is any concession its usually a concession to the Buyer ... not kick back to provider.

Lenders would lose their licenses giving kick backs.. ( it could happen but usually just a beer or lunch).. no lender who Cherishes their NMLS license would risk it by giving kick backs on these small loans or any loans... Same with realtors.. there is customs to give little gifts but not kickbacks.

And home warranties are in the 300 to 450 range not much room there to give a kick back that would be meaningful or steer business.

Having been in the space since about the inception of the turn key business 2001.

Here is the list of who gets what in my experience.

1. original home owner gets paid.. be it bank , homeowner etc.

2. wholesaler may be in the deal and make a wholesale fee.. I see this a lot in certain markets not at all in others.

3. Contractor who does the rehab.. ( or if company is large enough they have in house crews).

4. HML private money lender or bank gets paid to provide acquisition and rehab loans or capital ( this is what I have done to the tune of 2500 plus times LOL) This can very greatly. I have not seem many in the turn key space that can get True Bank loans Like I get on my new construction in ORegon and Charleston IE 1/2 to 1 point and 5 to 6% apr and only pay interest on drawn funds. Cost of capital is generally in the 12 to 20% or higher APR range.. and they can easily pay that because the loan amounts are low. I suspect a few have internal cash but I don't know a one of them that has enough to fund a virguous turn key company.. I think when I was talking with Chris at Memphis invest to keep them in inventory and they are one of the top 5 providers that I know of .. its a 10 to 15 million dollar cash need at all times. so lots of money and lots of risk in that regard.

5. Now you go to sales and marketing... some sell most if not all through internal channels. IE They do their own webinars etc. Although as you pointed out with Norada Hipster, Maverick Home union etc.. those are companies that generally broker turn key companies properties for a brokerage fee IE they are Real Estate brokers bringing buyer and seller together and earning a fee.

Now in some settings this was quite high I have seen some charge as much as a 10k flat fee on 70k turn keys.... ( remember I see the HUDS LOL) . OR they get paid after the fact and not on the HUD there are some licensing issues here that are kind of foggy but its an accepted practice..

so if we can think that if there is a marketing company between you and the turn key provider they are making a fee I have seen as small at 3k and as stated as high as 10k..

So lets run the numbers:

if we have a wholesaler they made 2 to 5k generally

contractor is going to make 2 to 5k profit ( you pay this even if you were doing it yourself)

HML or funder is going to make 3 to 6k depending on the size of the deal and it could be more if the projects takes a long time as time is money.. and with investors using loans again closing get delayed for lender reasons so holding cost go up.

Marketing fee 3 to 10k lets use 5k as average I think that fair.

Now turn key company putting this all together for you wants to make a fair profit so say 7 to15k and some do quite a bit higher I have seen it up to 25k and more.

But today I see 7 to 15k which you MUST make other wise why be in the business.. I mean I build new homes and I am not going to do it take all the risk and we want to make 15% of gross as profit.. turn key does a little better but I am selling 400k homes so 15% is 60k per home and we close 30 plus a year... so it adds up.

3k ( wholesaler) contractor ( 4K) finaincing ( 5K) marketing 5K turnkey profit 15k

3 + 4 +5 + 15 = 27k added to actual costs.. and this would be minimum so if property is bought in its as in condition for 40k and 20 to 25k rehab... + 27k your at 87k for the turn key product.

this is generally how it goes..

And remember turn key folks that sell direct have to pay for marketing advertising travel to west coast etc to attend shows like realty 411 and other venues.

OR DIY and you can be in the home for less but whats your time worth do you have the cash to pull it off and the time.

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Alexander Price
Investor · Gilroy, CA · Member since 2016 · 255 posts · 195 votes
10y
@RI Neo You need to talk the the TKs you want to deal with and understand their process. I cannot speak for all, but some back their price out from a rental price that meets certain cash flow criteria. Does that mean your overpaying? Maybe. Check what they bought the house for and find out if there is deferred maintenance or not. What are the warranties, lease terms and PM terms. Does the whole package you buy value at what they are selling the house for? If so make an offer, otherwise offer lower.
I am dealing with a TK in Memphis who has been nice to deal with so far. They took less than asking for the property. I am sure they are still making profit because I know what they bought the property for. I also know their terms and their offers and I liked them. So I paid what I offered.
Don't assume you can't ask for more for the price or offer less. I bet most TKs offer based on a backed out price that includes a set profit so keep that in mind.
3 Reply
Curt DavisBusiness Member
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
10y
@RI N.
Great question. Trying to determine if a TK company is charging too much is hard to do when comparing to other homes on the MLS. There are many factors to consider. I have to disagree in that if you buy a home from a TK provider and their list price is say $90,000 and the home appraises for $90,000, that does not mean you paid too much for it if you cant sell it on the MLS, it simply means you paid market value. Buying through a TK system is meant for long term buy and hold and there is a risk in that if you had to sell fast after only owning the home for a short time, you might have a hard time selling.
Great post!!
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Shane Vince
Jersey City, NJ · Member since 2016 · 31 posts · 2 votes
10y
I have been wondering the same thing. Would love to hear some opinions.
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Christian Sifuentes
Flipper/Rehabber · Fair Lawn NJ · Member since 2016 · 382 posts · 87 votes
10y
Is there a set time for the hold of the property when you buy TK to maximize or at least increase profit? The peace of mind is intriguing but need to do more research. Definitely hope to get others feedback on this. Thanks
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RI N.
OP
Investor · New York City, NY · Member since 2015 · 17 posts · 7 votes
10y
@Alexander Price: thank you for your response. I'm in preliminary research and have yet to offer on a property. Though, I read on several posts that TK prices are set (i.e. No neg). However it's apparent from your exp that negotiation are possible w some TKs so it depends. Though, your point about backing out the rents/cashflow from rents is what concerns me most about inflated prices. Just bc the place rents for $1000 doesn't mean the house should be offered at 90-95k. Most TKs I've seen here are working w Sfh or dups which trade at market value not cashflow like commercial props.
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RI N.
OP
Investor · New York City, NY · Member since 2015 · 17 posts · 7 votes
10y
Hi Curt,
thank you for your response. I took a quick glance at your website and I like the layout and breadth of info you provide, which is more than I've seen w others (ex. Full address, est. value, description and photos). To clarify on my post, I wouldn't have a problem w your example for that is mkt value 90k for 90 value). I just want to make sure I pay NO more than mkt value and wanted more assurance than just appraisal if possible. When an appraiser works on pending sale they already know the price- I think that is stupid and biases the report to come in at around the amt of contract. In contrast for a refi, the appraiser does NOT know the loan value seeked and therefore are more like likely to value the property more accurately. As I mentioned above to Alexander, I see too much correlations btwn price and rents across several TKs, which seem to shoot for a 1-1.2% ration. Even your props seem to fall around a 1.2% rent ratio. My concern is that you should be offering props at a max price of mkt value and not based on cash flow like an apt complex. For example you could buy 50k @market Baltimore properties that command 950 rents. I don't think it's fair that a TK would sell this property at $90k bc the cash flow allows the numbers to work. Obviously that's an extreme case but just an example to illustrate my concern. Please understand I am bot alleging you're doing that w your firm. Idk your market and it could be that your mkt prices line up close to that ratio. But I find it hard to believe that all cities are priced accordingly but that's exactly what I am seeing with others. I'm not familiar with the KC, Memohis, Indy, Columbus etc areas and fear my naïveté could get me in a position where I'd overpay (note I don't care how much money TK makes but I do care what I pay is fair value or better).
In anticipation someone will see this post and ask me- those type of numbers and better do exist in Baltimore. I've had properties there in the past but it's a tough market and I don't like it. The numbers don't maintain when you deal with the vacancies and mgt issues. The headache wasn't worth it to me- tho I wouldn't dissuade any from looking into it as there's money to be made but, for me now, I prefer the hands off passive income from a TK w better clients in other areas
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RI N.
OP
Investor · New York City, NY · Member since 2015 · 17 posts · 7 votes
10y
@Curt Davis
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
10y
@RI N., you wrote: ..."The (Baltimore) numbers don't maintain when you deal with the vacancies and mgt issues"... But, what has that got to do with whether it's a Turnkey property in the first place? Get what I mean? It seems like your question should relate to the market are you buying in, as well as the intrinsic value of individual "Turnkeys".
The short answer is: the RIGHT Turnkey company may sell at a slight discount (to clients that look like they could be repeat customers). But, the AVERAGE TK company will go for top dollar ie. more than the Buyer could easily get if reselling straight away.
Good luck discerning the difference...
Think about it. Why would a Turnkey Company that's gone to all the effort of retaining a team for every aspect along the way, sell their properties for less than full retail value? And if the cash flow numbers still work for out-of-state Investors at an even higher price - why not chase THAT price?...
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Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Originally posted by @Brent Coombs:

@RI N., you wrote: ..."The (Baltimore) numbers don't maintain when you deal with the vacancies and mgt issues"... But, what has that got to do with whether it's a Turnkey property in the first place? Get what I mean? It seems like your question should relate to the market are you buying in, as well as the intrinsic value of individual "Turnkeys".
The short answer is: the RIGHT Turnkey company may sell at a slight discount (to clients that look like they could be repeat customers). But, the AVERAGE TK company will go for top dollar ie. more than the Buyer could easily get if reselling straight away.
Good luck discerning the difference...
Think about it. Why would a Turnkey Company that's gone to all the effort of retaining a team for every aspect along the way, sell their properties for less than full retail value? And if the cash flow numbers still work for out-of-state Investors at an even higher price - why not chase THAT price?...
Good post Brent. It is what it is. They find and buy a property for low money. Pay for rehab, and then retail the property at market rate. They are done with the financials and their name on the property at that point. They have made their profit. I'm sure they get their fee/cut/kickback from all stakeholders. Cut from PM, lenders, home warrantors, etc. An investor just has to figure if the Net Rental is worth it to them individually. Along with principal pay down monthly and possible appreciation. If you don't want to be replacing someone else's toilet on your weekend, then its a good investment to get into. The net rent difference each month in "doing it yourself" isn't worth letting rentals taking over my life. That's just for me, not for everyone.
1 Reply
Robert Herrera
Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
10y
@RI N. I'm working as a Turnkey Investor Partner. I do things differently. The investor I work with gets qualified for a loan. We find a house for them, get it rented, and take care of everything from beginning to end. We split cash-flow and appreciation. We like to buy with equity so everyone makes more. We never buy expecting appreciation, that's speculation. Speculation is Gambling. We buy for Cashflow and for the REALLY long term. Any appreciation after that, is a bonus.
0 Reply
RI N.
OP
Investor · New York City, NY · Member since 2015 · 17 posts · 7 votes
10y
@Brent Coombs, @Charles Lemelle
Perhaps my previous Msg was confusing. I only referred to Baltimore as an ex where the property Mkt values is more than 1% ratio. In anticipation ppl would ask me if the numbers were realistic and why I wouldn't just invest there, I answered. I convoluted the issue and I think may main point is missed.
Like any investor I'd love to get a discount but I'm not demanding that to be the case. However, I do demand I don't pay more than the market value! This is my main point and concern. The turnkey props I've seen seem to be priced as commercial props based on income. The TKs I've seen are in the ballpark of a 1-1.2% rent ratio. Now if that price equates up to a marker value i.e. Retail price, I have NO quarrels. However I find it suspect or too coincidental that the TK prices so closely align to rents. Theis suspicion leads me to believe that the prices are sometimes pushed above retail. As an example if a particular market retails a typical 3/2 sfh (for illustration assume all equal - location. size. condition etc) for $80k. This is the Mkt value where it should retail. I'd expect to lay no more than $80k in this ex. If this property rents at $1200, I'd still expect to pay no more than $80k bc that's the retail value. I suspect that TK companies would try to raise the price to 100-110 bc of the cash flow instead of limiting their price to retail value ONLY. In reverse, that'll be like me asking a seller in NYC to reduce their market valued 800k condo to 350k bc the rent is only 3700. It doesn't work that way in residential mkt- the value is dictated by market and not income like commercial. In summary, I just don't want to pay more than retail Mkt value. I am buying for long term but that doesn't mean I want to pay an inflated price regardless of the cash flow.
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RI N.
OP
Investor · New York City, NY · Member since 2015 · 17 posts · 7 votes
10y
@Robert Herrera
Thx for your reply. I applaud you for being creative and offering something different. However I am not sure I understand the value proposition of your offerings. Sounds like your buyer would bankroll (cash or construction loan) the entire project which you'd manage and then u split the perpetual cash flow and appreciated sale value
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@RI N. from my perspective your having a hard time with what is market value
in most turn key markets there is little to no retail ( IE selling to homeowners) activity in the asset class's that are sold for turn key.. and if there is its maybe 20 to 1.. IE 20 sold for rentals 1 sold to a homeowner.
Where as in establishing TRUE market value were there are no sales to investors this is quite easy you use comps off of MLS... For instance in higher price points virtually no houses sell for rentals numbers do not make sense.. Now some new construction say in Texas were they can pop out 120k new homes will go for rentals.. and I have seen some of that in Memphis.. and this is a good option to buying older used homes.. but still again if you saturate a new construction development with renters your values don't go up.. they will stay the same and go down and then only sell for cash flow hurdles and cash flow acceptance by the market.
And since the mantra is cash flow values tend to be based on soup de jour cash flow numbers.. Like today they are .08 to 1.2.... 2% rule went out with the great recession.. At least as you point out in areas that are only 2% on paper IE inner city semi ghetto areas.
There are turn key providers that will source at cost rehab at cost and simply charge you a one time management fee that in my mind is about as good as you can get.. vis a vi value proposition. The turn key operator does not have to borrow HML or private money like 95% of turn key companies have to do to buy inventory so there holding costs can be substantial.
You as investor are now the developer as well so in exchange for no cash flow up front your getting into the deal for a lower basis.
The reality is as Curt has pointed out Many times on this site .. virtually no property anywhere in most of the US that is bought at market today can be sold within 2 to 5 years and not sustain a loss to capital.. IE sales costs is your loss and your not a organized financed TK company so your relegated to MLS you have a used house etc etc.. this will not bring top dollar. there is no mystery here..
Then you have the turn key providers that advertise instant equity.. I for one have never subscribed to that.. its worth what you pay for it when you buy it in that setting... you would never sell it and capture that phantom equity.. if it was easy to capture your turn key provider would be capturing it not giving it to you out of the goodness of their heart ( if that makes sense).
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JLH Capital Partners51 Review
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Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Thanks Jay. maybe you can help a couple of newby's like myself with something. I believe that I am reading in your post that there is an investor market-with prices; and then there are homeowner markets-with their own different prices. Do I have that correct ? Can you outline the pricing differences ? Are you claiming that this can occur even within the same block, going from house to house ?
Thanks
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Charles Lemelle repectully disagree with your statement that PM's Lenders and home warrenty companies give kick backs.
PM's in a turn key setting are generally owned by the turn key provider. and if there is any concession its usually a concession to the Buyer ... not kick back to provider.
Lenders would lose their licenses giving kick backs.. ( it could happen but usually just a beer or lunch).. no lender who Cherishes their NMLS license would risk it by giving kick backs on these small loans or any loans... Same with realtors.. there is customs to give little gifts but not kickbacks.
And home warranties are in the 300 to 450 range not much room there to give a kick back that would be meaningful or steer business.
Having been in the space since about the inception of the turn key business 2001.
Here is the list of who gets what in my experience.
1. original home owner gets paid.. be it bank , homeowner etc.
2. wholesaler may be in the deal and make a wholesale fee.. I see this a lot in certain markets not at all in others.
3. Contractor who does the rehab.. ( or if company is large enough they have in house crews).
4. HML private money lender or bank gets paid to provide acquisition and rehab loans or capital ( this is what I have done to the tune of 2500 plus times LOL) This can very greatly. I have not seem many in the turn key space that can get True Bank loans Like I get on my new construction in ORegon and Charleston IE 1/2 to 1 point and 5 to 6% apr and only pay interest on drawn funds. Cost of capital is generally in the 12 to 20% or higher APR range.. and they can easily pay that because the loan amounts are low. I suspect a few have internal cash but I don't know a one of them that has enough to fund a virguous turn key company.. I think when I was talking with Chris at Memphis invest to keep them in inventory and they are one of the top 5 providers that I know of .. its a 10 to 15 million dollar cash need at all times. so lots of money and lots of risk in that regard.
5. Now you go to sales and marketing... some sell most if not all through internal channels. IE They do their own webinars etc. Although as you pointed out with Norada Hipster, Maverick Home union etc.. those are companies that generally broker turn key companies properties for a brokerage fee IE they are Real Estate brokers bringing buyer and seller together and earning a fee.
Now in some settings this was quite high I have seen some charge as much as a 10k flat fee on 70k turn keys.... ( remember I see the HUDS LOL) . OR they get paid after the fact and not on the HUD there are some licensing issues here that are kind of foggy but its an accepted practice..
so if we can think that if there is a marketing company between you and the turn key provider they are making a fee I have seen as small at 3k and as stated as high as 10k..
So lets run the numbers:
if we have a wholesaler they made 2 to 5k generally
contractor is going to make 2 to 5k profit ( you pay this even if you were doing it yourself)
HML or funder is going to make 3 to 6k depending on the size of the deal and it could be more if the projects takes a long time as time is money.. and with investors using loans again closing get delayed for lender reasons so holding cost go up.
Marketing fee 3 to 10k lets use 5k as average I think that fair.
Now turn key company putting this all together for you wants to make a fair profit so say 7 to15k and some do quite a bit higher I have seen it up to 25k and more.
But today I see 7 to 15k which you MUST make other wise why be in the business.. I mean I build new homes and I am not going to do it take all the risk and we want to make 15% of gross as profit.. turn key does a little better but I am selling 400k homes so 15% is 60k per home and we close 30 plus a year... so it adds up.
3k ( wholesaler) contractor ( 4K) finaincing ( 5K) marketing 5K turnkey profit 15k
3 + 4 +5 + 15 = 27k added to actual costs.. and this would be minimum so if property is bought in its as in condition for 40k and 20 to 25k rehab... + 27k your at 87k for the turn key product.
this is generally how it goes..
And remember turn key folks that sell direct have to pay for marketing advertising travel to west coast etc to attend shows like realty 411 and other venues.
OR DIY and you can be in the home for less but whats your time worth do you have the cash to pull it off and the time.
Podcast Guest on Show #222
JLH Capital Partners51 Review
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4 Reply
Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Originally posted by @Jay Hinrichs:

@Charles Lemelle repectully disagree with your statement that PM's Lenders and home warrenty companies give kick backs.
PM's in a turn key setting are generally owned by the turn key provider. and if there is any concession its usually a concession to the Buyer ... not kick back to provider.
Lenders would lose their licenses giving kick backs.. ( it could happen but usually just a beer or lunch).. no lender who Cherishes their NMLS license would risk it by giving kick backs on these small loans or any loans... Same with realtors.. there is customs to give little gifts but not kickbacks.
And home warranties are in the 300 to 450 range not much room there to give a kick back that would be meaningful or steer business.
Having been in the space since about the inception of the turn key business 2001.
Here is the list of who gets what in my experience.
1. original home owner gets paid.. be it bank , homeowner etc.
2. wholesaler may be in the deal and make a wholesale fee.. I see this a lot in certain markets not at all in others.
3. Contractor who does the rehab.. ( or if company is large enough they have in house crews).
4. HML private money lender or bank gets paid to provide acquisition and rehab loans or capital ( this is what I have done to the tune of 2500 plus times LOL) This can very greatly. I have not seem many in the turn key space that can get True Bank loans Like I get on my new construction in ORegon and Charleston IE 1/2 to 1 point and 5 to 6% apr and only pay interest on drawn funds. Cost of capital is generally in the 12 to 20% or higher APR range.. and they can easily pay that because the loan amounts are low. I suspect a few have internal cash but I don't know a one of them that has enough to fund a virguous turn key company.. I think when I was talking with Chris at Memphis invest to keep them in inventory and they are one of the top 5 providers that I know of .. its a 10 to 15 million dollar cash need at all times. so lots of money and lots of risk in that regard.
5. Now you go to sales and marketing... some sell most if not all through internal channels. IE They do their own webinars etc. Although as you pointed out with Norada Hipster, Maverick Home union etc.. those are companies that generally broker turn key companies properties for a brokerage fee IE they are Real Estate brokers bringing buyer and seller together and earning a fee.
Now in some settings this was quite high I have seen some charge as much as a 10k flat fee on 70k turn keys.... ( remember I see the HUDS LOL) . OR they get paid after the fact and not on the HUD there are some licensing issues here that are kind of foggy but its an accepted practice..
so if we can think that if there is a marketing company between you and the turn key provider they are making a fee I have seen as small at 3k and as stated as high as 10k..
So lets run the numbers:
if we have a wholesaler they made 2 to 5k generally
contractor is going to make 2 to 5k profit ( you pay this even if you were doing it yourself)
HML or funder is going to make 3 to 6k depending on the size of the deal and it could be more if the projects takes a long time as time is money.. and with investors using loans again closing get delayed for lender reasons so holding cost go up.
Marketing fee 3 to 10k lets use 5k as average I think that fair.
Now turn key company putting this all together for you wants to make a fair profit so say 7 to15k and some do quite a bit higher I have seen it up to 25k and more.
But today I see 7 to 15k which you MUST make other wise why be in the business.. I mean I build new homes and I am not going to do it take all the risk and we want to make 15% of gross as profit.. turn key does a little better but I am selling 400k homes so 15% is 60k per home and we close 30 plus a year... so it adds up.
3k ( wholesaler) contractor ( 4K) finaincing ( 5K) marketing 5K turnkey profit 15k
3 + 4 +5 + 15 = 27k added to actual costs.. and this would be minimum so if property is bought in its as in condition for 40k and 20 to 25k rehab... + 27k your at 87k for the turn key product.
this is generally how it goes..
And remember turn key folks that sell direct have to pay for marketing advertising travel to west coast etc to attend shows like realty 411 and other venues.
OR DIY and you can be in the home for less but whats your time worth do you have the cash to pull it off and the time.
We do indeed respectfully disagree when you state that a PM firm is actually owned by the turnkey company. How is that not a kickback in of itself ? The turnkey is never out of the property. Bought low, rehabbed, sold it retail, and keeps a hand in through PM. All of these firms(Warranty, Insurance, PM's, lenders, construction, repair, etc) are comfy cozy in bed with each other, but there's no hanky panky ? C'mon. I'm a Turnkey company (pretend), I'm going to give MyInterestRatesAreKillingYou mortgage company 1000 investors, that are going to create 3000 mortgage loans, but I don't want anything out of it. Nope. Its good Samaritan month, so its all good. There is no way I am feeling that. At a minimum, the turnkey owner/employees are getting great rates when they want to borrow. And I do mean minimum.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Charles Lemelle Chris there are crooks in every business.. I can tell you as a NMLS licensed mortgage banker ( which I am ) . that if your caught giving a kick back you will lose your license and lively hood.
I have been in the business for 42 years hundreds of millions in closed transactions and I have never been offered or received a kick back nor would I offer.
Nice dinner ... bottle of wine GREAT service yes .. but little kick backs that just screams of EAst coast every one wants a taste mentality.. it just does not happen with those that have good business ethics that all the folks I deal with have.
PM business as it relates to turn key is a necessity.. not a profit center.... PM does not get profitable until you have a few thousand units.. Like a Memphis invest manages.. 200 to 300.. is slave wages in my mind LOL... don't think that manager is getting rich on the PM business ...
Podcast Guest on Show #222
JLH Capital Partners51 Review
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2 Reply
Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Originally posted by @Jay Hinrichs:

@Charles Lemelle Chris there are crooks in every business.. I can tell you as a NMLS licensed mortgage banker ( which I am ) . that if your caught giving a kick back you will lose your license and lively hood.
I have been in the business for 42 years hundreds of millions in closed transactions and I have never been offered or received a kick back nor would I offer.
Nice dinner ... bottle of wine GREAT service yes .. but little kick backs that just screams of EAst coast every one wants a taste mentality.. it just does not happen with those that have good business ethics that all the folks I deal with have.
PM business as it relates to turn key is a necessity.. not a profit center.... PM does not get profitable until you have a few thousand units.. Like a Memphis invest manages.. 200 to 300.. is slave wages in my mind LOL... don't think that manager is getting rich on the PM business ...
I'm glad you wrote that about PM's. I honestly have wondered how they make a business work. It stands to reason that it would take great volume to see profits.
1 Reply
Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
10y
Charles Lemelle A lender who can close is rare a lender who can close that 10th Fannie Mae loan is worth their weight in gold. If you were a seller you want to work with those who can get the deal done. Now a seller that gets an inspector they know and say the property is always "AOK" now that wrong on so many levels.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Lane Kawaoka and for those reasons you want to hire the home inspector so he has a fiduciary to you and if they goof up you can go after his E and O insurance. make sure they are licensed insured and bonded.
Apprasials should only be ordered by yourself if you want one for your own purposes or the lender must order them NOT the provider this is not permissible any more.
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RI N.
OP
Investor · New York City, NY · Member since 2015 · 17 posts · 7 votes
10y
@Jay Hinrichs:
Thank you so much! You tatally got my dilemma and answered it beautifully though new questions come up.
1. from your explanation- most TK mkts are investor saturated therefore the prices have been set by them which would align w their main interest cash flow. So while they may have started at 2% rent ratio the prices have increased to a still acceptable investor flow of .8-1.2. It is what it is so I accept this is mkt value esp in established investor areas
1a. First red flag is that in best case scenario the prices will remain for perpetuity w increases only when rents rise (my assumption that investors are not going to accept much lower than .8 rent ratios). But the cash flow is good so the investment works without the bonus of appreciation.
1b. However the risk is high. investors will eventually stop coming as the rent ratios are squeezed and better mkts come on line. Thus the price won't increase w/o retail buyers. So it's fair to assume a cycle of lower prices may come to increase investor returns or, as I mentioned above the best case scenario is static price. I'm not convinced this strategy is prudent w risks that if and when investors bail out there's no retail mkt to stabilize the price and instead leads to a crash. In addition I naively assumed the TK would just back out the promoter's fee (i.e norada, hipster etc) but if their making the market they can easily increase it to the price as long as cash flow is attractive enough. My assumption was that the TK price would be same price I'd pay for a "like" property on MLS
2. I was hoping and assuming more TK markets were also o/o neighborhood where there is a local retail mkt that goes thru normal cycles. This is ideal bc the investors are their to support min price level when ratios are high but o/o also offer a threshold of mkt value and not simply to prices driven by ratios which can mask true mkt value.
In summary, if markets remain investor driven then they can behave like commercial/apt pricing where it's based on cash flow. However this puts a TK at a disadvantage bc unless it's majority TK owned (paid TK price) the average price will be much lower bc most are investors which will never pay your purchase price.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@RI N. you got it about right.
remember in the mid west its always been renter dominated ... and its always been slow to no growth in values.. very very long time for values to increase.. these homes are being sold for less than replacement costs.
one of my First posts on BP that got about 150 hits.. was my assertion that 2% rule KILLS values
you should have been in on that one.. But in my mind your correct.. value is a function of what the market is willing to pay for a cash flow...
where as home owner ship is completely different its what can a person afford.
So in those markets... take Memphis as one example.. you can buy new construction at 140 to 180k.. I know I was pitched some to fund... nice brick homes. mainly owner occ.
Whats the mortgage payment on a FHA 3.5% down deal at those numbers.. 10k down payment and you can now get those gifted I believe... and payments all in ( as long as your not buying in the city of Memphis with its lovely double taxation. IE city and country property tax's ( but then you probably get a homeowner expemption..
But even with PMI taxs insurance etc etc. your all in about or about 1k.. price of rent.
So what is the wife going to buy ( wifes buy houses men come along for the ride). a brand new home with granite stainless spotless for 10k down and 1k a month.. or are they going to buy in a renter dominated neighborhood with higher crime ( rental areas are always higher crime) schools not as good etc etc... the only one's that buy in those areas are folks that for whatever reason Have to live there because maybe its all they know or their family is there etc. its whats for dinner in these markets. Just is.
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Charles Lemelle
Punxsutawney, PA · Member since 2016 · 45 posts · 16 votes
10y
Jay, You didn't answer one of my questions, but let me phrase it differently. If a Turnkey for investors is 100k on Main St, what is its price on the open market for owner occupied ?
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RI N.
OP
Investor · New York City, NY · Member since 2015 · 17 posts · 7 votes
10y
Thank you @Jay Hinrichs. I didn't ask my question very clearly but you got it nevertheless. TK is still a good option but not as good as it was touted by many TK providers. To quote your website , "performing your due diligence and managing your expectations." Is key to TK investment. You definitely helped me with the latter now I'm on to the DD. I will review your site to conduct some of my DD thx for the service. I've liked your responses here and other posts of yours I've seen. You appear to be honest and knowledgeable. That said, do you offer any full TK offerings yourself or you're serving as an info hub similar to BP? Again thx for your guidance
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@RI N. I am not and have never been a TK provider.. .I am a financier of many different real estate models including some turn key.. prior to 08 I was one of the top 10 lenders in the turn key space. Plus a home builder developer in Oregon and Charleston SC...
And by lender I mean HML that financed turn key buyers.
YOu see prior to 08 the way folks went about buying turn key was the BRRR method. Although some think it was just invented here on BP in the last few years.
We loaned to turn key buyers in LA and all over the country.. to put them into title so they could then once rehab was done get a rate and term refi.. there by paying off my HML... I did literally thousands of them we did 40 to 60 a month in 6 of our strongest markets.. so pretty versed at the space as I have literally funded well over 100 million dollars worth of these. And in excess of 250 million in all other avenues over a 40 plus year career.. but like most lenders we got kicked in the Teeth in 08 and 09 I had just under 500 of these on the books and ended up owning a little over 200 of them and losing many millions of dollars in the process... so the thought that rentals will save the day in a down turn is just not true.. they can in the right spots... but it takes a lot of work to stay on top of them. and thankfully we were not in Vegas or FLA or AZ other wise I probably would be dead right now. it was bad enough.. so I most definitely have a PHD in this asset class. plus I bought 350 of them from 2011 to when I sold out in 2013...
so that's my story.. Brie and I created turn key reviews based on my conversation with her that it would be great if there was a website were all turn key companies could go and the public could go to comparison shop.. with the thought that the one's doing very good would get some positive feedback and those that needed to up there game would get constructive feedback.. So far its worked very well.. We get reports back that many of the turn key providers on the site have gotten sales from the site.. BP is a small % of the folks that go to TK Reviews...
So its all good.. I like the new version of Turn Key providers they are soooo much more on top of it than the last group that was pre 08..... Internet for one has made them step up their game.
And for the starting investor who wants to own rentals its a nice alternative... For those that want to DIY well you can certainly do that... and many who live in Sitsu do that in their markets... its basically those that live on the coast in high price point markets that drive the mid west turn key model.. And foreigners.
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