Turnkey or realtor for out of state investing

15 Replies

I am torn between buying long term rental property out of state through a turnkey broker or a local realtor. The turnkey I was looking at Rent to Reward memphis. They price their inventory higher than comparable listings. I've heard that some turnkeys nickel and dime owners for maintenance fees. I'm leaning towards buying through a realtor.  Any advice would be appreciated. 

Neither ... buy locally and control your own destiny rather than relying on the kindness of strangers out of state. Either that, or just buy a REIT and be done with it ...

My local market is horrible for rentals returns. Out of state markets have better returns. Using a turnkey seems easy but the fees and purchase costs are higher. That's why I am also considering a local realtor.

Anyone here use both? Pros? Cons?

@Rico See I am absolutely stunned and surprised by the amount of useless information being peddled when the same question like yours gets asked in the forums. As an example, the gentleman who has responded to you has provided no details that fully demonstrate that he has understood your unique challenges. I live in NJ and am frustrated and tired of looking at properties in the local investing model. When I run my cash flow numbers, the price I can offer on a property as an investor is far lesser than what seller wants to see at. I have had 7 - 8 offers being turned down most recently where even a Fannie Mae Homepath property which is a foreclosure accepted offers higher than mine although mine was $3k higher than the closest comparable sold over the last 6 months in a regular sale in the same condo complex. Beats me!!! I started looking at some of these bank owned properties because I was not getting much success going the retail route. I recently won a bid on Hubzu for a foreclosed home. However, the house had its pipes cut out in the basement and no water and my lender wouldn't lend with no water unless it was a rehab homestyle renovation loan which takes on an average 60 days to close and Hubzu had a 30 day limit beyond which it was a flat $300 fee plus $100 per day for each incremental day. So, I had to get out of that deal as well. On the retail side, the challenges I have seen in NJ are high property taxes. As a result of a combination of factors above added to the fact that I do not have contractor crews in place (as I have a full time demanding job) I am unable to proceed on my investment goals in real estate locally. When I posted my dilemma on these forums, I got useless responses mostly about do it yourself or focus on in-state etc. which were short on details and went nowhere to yield a tangible suggestion.

As a result of all of the above, I have started looking at turnkey investments. I have spoken to a number of firms padeals, memphis invest and norada. I have been looking at the investment properties on their website and have been using my own adjustments to the numbers provided to see what the monthly cash flow would look like. As examples, for memphis invest, I had to add the vacancy rate, repairs and CAPEX to the proformas sent. To Norada's I had to adjust a number of percentages around vacancy, closing cost, rent appreciation etc. to more conservative estimates. When I do all this, there still seems to be some level of positive cash flow but lesser than what I would like to get. So, there are two lessons here when looking at turnkeys a) keep looking at deals until you find what meets your goals and b) there is positive cash flow even after hiring a property management company. The latter is unimaginable in NJ where the offer price would need to come down even lower to be able to afford property management.

So, based on all this, I have looked at what my primary motivations are for getting into real estate. I already have a well diversified managed stock portfolio and I am looking some passive investment options which will yield a steady cash flow 10 years down the line when everything is paid off. My intent is to use all extra cash from these turnkey investments into paying off the mortgage faster so that in 10 - 12 years time I own about $1MM portfolio fully paid off which can yield a sizeable monthly chunk.  I have also asked myself what I want to be - an investor or a landlord. The turnkey option offers you to do the former and focus on building your portfolio which my local in-state investing does not allow to do. 

I have still not purchased a turnkey property yet nor am I affiliated with anyone; so all of the above is just my personal rant. What I have found is that turnkey is a viable option for out of state investors like us who cannot get meaningful returns in the local market. You need to use your due diligence in running your own financial checks on proformas provided by turnkey providers, do your own research on property areas they are selling in, crime stats, property values etc. But, if everything works out, I do not see any harm in investing in turnkey.

Many people in this forum talk about built in equity where you make money going in. I have read all the relevant real estate books, forums, blog posts, pod casts etc. where this is being said. But, it is easier said than done to find deals where you can do this without putting in a lot of work. If you are like me and have a primary job and are just looking for passive investments you should consider turnkey. Of course this in just my personal point of view and you are free to choose your own path and this is also just my personal point of view at this time when I don't have turnkey properties. So, the experience may change once I acquire a few. However, looking at things from where I am I think turnkey seems like a pretty good alternative to consider at this time.

Abdul, thank you

@Rico See

In case you haven't spent enough time on BP, do some searches on BP and read those old posts related to this topic.

A few questions to ask yourself - why are you investing in RE?  are you investing for cash flow or appreciation or both?  where do you want to invest? how much do you have to invest?  are you hands on?  how much time do you have?  do you mind giving up control to get ease of management?  do you have trust in the providers?  how do you verify your providers?  what's your holding period?  why aren't you investing locally when Pomona / Chino / IE is around your neck of the woods?


We all have different answers so proceed based on your answers.

I can only share what I've learned and my path - I bought turnkey because I didn't know better when I started.  I didn't know BP existed when I started learning in 2011.  I didn't want to spend the time to deal with local realtors / rehabbers / tenants (or out of state one for that matter) because I couldn't handle the stress of late night toilet/tenant calls and I didn't have the money.  I know my return will be less but I was OK with that - I gain leverage from borrowed money and I have my tenants paying off the mortgage.  If the turnkey providers did a good job on rehab, and my cash flow is sufficient, I should be able to make "some" money in a LONG run like 10+ years either through cash flow + mortgage pay down + "maybe" appreciation.  I vetted providers by asking them questions, visiting the market, and checking their rehab quality.  I check in with them regularly to see how things are doing.  I have google keywords set up so I get general market update.  I also have zillow setup to send me daily emails on new listing for sell or rents so I know how the market listing is going.  It's not perfect because I still don't know Memphis market well but I count on my PM / provider to help me.

Can I do the same using a local realtor?  I probably can do it now with a new market with the help from BPers.  I'm not ready to invest in another market yet considering the market condition and my own personal situation.  

Hope that helps and good luck making a decision and move forward.

Henry

If you don't know what you are doing there is some value to going TK. But I use an agent.

Thank you

Henry J., The rents here in South California are low, purchase prices are high, and I just sold a condominium here that I was in the negative with rent income. I sold it for $300k with about $86k in equity.  I'm currently in a 1031 exchange. I like the Memphis area since the rents are about $850- $900 for about a $75k home. You can't get that in California. 

Rico,

I buy from Rent to Reward have also done a few referrals for them where I did receive a small fee ** disclosure** but that has let me see the full process.  I worked with the people I referred to them through the complete process until it closed to ensure they picked a good home in a good area.

I have flown out and met with them also.  They took the time, as many TK companies do, to show you around and to look their homes.  I'm also in the process of choosing and purchasing another home from them. 

They have very reasonable fees and the customer service is very good.  I have had no issues with the service.  I did have a month or two where a tenant was late and they immediately started tracking the tenant for eviction if they didn't respond and pay the rent.  The tenant called in and set up a payment plan as they had an issue.  I think they are a very good company.  You will pay around appraisal value for the home, maybe a little under, but for me it works.  I also purchased a wholesale deal out there this year and by the time I paid for the home, rehab, the rent up fee, not including vacancy, I wasn't that much further ahead than buying TK, less than 10% between my total costs and the appraisal I had done.

Good luck with whichever option you choose.

David

built in equity is so last year .. or last 3 years. MEMO prices have stabilized whatever you pay for a property that is what it is worth.. you may pay more than its worth with some providers.. but no one is giving away equity in this market.

Few things about our market. You should be able to easily achieve 1% or better for rent to purchase price ratio.   If you buy with bank financing no  one can control where the appraised value comes in at.  Some values will come in at the buy price, some a little higher and sometimes lower.  Anyone buying out of state,  unless you have visited that market a few times and formed some great relationships then you should consider the turnkey route, at least for your first few. You might find that going with a realtor who is only focused on their 3% commission doesn't know much about the rental or investment market in their own city.  Once you buy they are essentially out of the picture. Turnkey providers will do what they can to provide a positive experience though it can't happen 100% of the time. 

Good luck 

@Rico See

Have you look at properties within a 1-2 hours drive from where you live?

Like @Abdul Azeez mentioned, TK could be viable for certain investors. Like @Henry J. , I have kinda started with TK as well, but I would not buy 1 again knowing what I know today. (thanks to BP and networking)

The fastest way you can grow your money is through BRRRR. But of course, it is not easy to do it. If you don't buy TK, make sure you use an agent who is also an investor and works with investors.

Good luck! 

@Rico See

Welcome to Memphis! I personally manage several out of state investors and a couple of hedge funds. I consistently, on an annual basis have my investors seeing ROI's in the mid-teens. I am happy to answer any questions you might have about buying TK vs buying wholesale/from an agent.

There are several reputable TK providers in Memphis but that product isn't for everyone and neither is the program I provide. 

Please feel free to reach out anytime. I'm happy to jump on a call and help answer any questions you might have! 

Good Luck!!

Obviously my take is going to have some bias as a TK provider in Memphis and Little Rock, but I recently went to Knoxville for another business I own up there and wanted to buy a few homes up there too as the market looks great. After spending a week talking to Realtors, contractors, attorney's, bankers, etc.  I simply felt the amount of work needed to develop my team was just to much.  I also noticed the prices to get work done is close to 2x as much as I pay in Memphis and LR. Classic example, I get a 3.5 HVAC system in Memphis for myself and our clients for $3,000, I was getting quotes of $6,000.  Hot Water tank in Memphis and LR is $600 to $650, Knoxville was $1,000.  I simply did not have the leverage in Knoxville that I did in Memphis.  I did fall into a great deal by luck while I was there as one of my employees wanted to sell her home, but for future purchases, I will certainly consider turnkey.  

Hi Rico. To clarify, it's not "turnkeys" that nickel and dime, it's property managers...if someone is doing it. There are plenty who don't. Turnkeys are great but as with any type of company, there are good turnkey companies and bad ones. The key is knowing how to do due diligence. I own mostly all turnkeys and there are plenty of property managers who don't nickel and dime. Turnkeys are a little higher on purchase price typically, but remember, you're getting more than if you buy on your own. Turnkeys are fully/freshly rehabbed and everything is done and operating on them. Hence the higher price. But if they cash flow well, it can still be a great deal.

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