Turnkey Portfolio?

19 Replies

Hi Everyone,

Does anyone have a portfolio of strictly turnkey properties? I'm talking about 5-10 (or more) properties that were bought "turnkey", with property management and tenants already in place.  No fixes and flips, no looking for deals on your own, just 100% all through turnkey?

Did you buy all of them through one or several turnkey provider/promoters? If so, what was your experience like? Which provider(s) did you go through (if you're willing to share)?

Reason I'm asking is because I'm thinking it would be something that I would want to do. Ideal scenario, I would buy one TK property in one market, then another in another market (to spread the risk), and then eventually work my way up to about 10 properties or so. It's too expensive to invest in my area, so I plan on investing out of state. Is this a sustainable plan? Has anyone had success doing this?

I'm curious as to what other investors may think. I'd prefer to hear from people who have multiple properties, but please let me know if you have any advice that may be useful to a newbie investor like myself as well. Thanks!

@Account Closed There are a few really good (but long) threads on BP that follow certain investors thru the process and have followup even a year later.  I have to add, being out of state you are investing in a management company just as much as the property itself.  If you are considering Chicago let me know and I can connect you with my partner who handles new business relations. 

Hi @Account Closed I live in CA and I invest in Indiana. I have several investors who have purchased multiple properties from me. Some of them are purchasing in other markets but from what I understand most of them are intent on growing their portfolio in one market. There are of course pros and cons of each approach. You spread your risk by investing in different market but at the same time their admin cost and time will be a lot higher managing different teams. You will not be getting same service across different markets.

It is a very competitive market right now and there aren't too many great deals out there. I have zero properties for sale. Everything that I have is under contract with closings scheduled in next 2-3 months.

If there is anything I can help you with, please do not hesitate to contact me.

Sharad

@Snehann Kapnadak We have clients that do both. As  @Sharad M. noted, there are pros and cons. With a portfolio of just 10 props, I would not recommend spreading them out over more than 2-3 markets, personally, as that is not a large enough portfolio to warrant the headache of dealing with too many providers. We have many clients that focus on building a solid 5-10+ prop portfolio here in Birmingham before spreading out. The appeal of diversification is clear, and it is very much a viable strategy as long as you find strong teams to work with, but buying one prop per market is unnecessary.

I will also second what @Mark Ainley said regarding the fact that you are investing in your management team. With turnkey, choosing a good provider is the number one most important factor in a successful investment. If your team doesn't have your back or drops the ball, even the best property in the best market can be a huge loser. Turnkey is often touted as being 'easy', but there is actually a lot of legwork you need to do in vetting your providers long before you cut a check (but yes, after that, it should be a passive investment).

Out-of-state turnkey can be a fantastic investment, and whether or not you diversify or stay in one market is a matter for you to decide. But I would say never to choose diversification over the quality of provider. So, if you feel like you want to add a second or third market, make sure you have a provider you are prepared to stay with for 10+ years before pulling the trigger, don't diversify just for its own sake. It won't matter how well you spread your risk if the providers you choose aren't worthy of your investment.

If you have any questions about turnkey in general or the market here in Birmingham, feel free to drop me a note any time.

Best of luck,

Clayton

I do. Am I'm damn proud of it y'all. 😝

Hey @Mark Ainley thanks for your advice. Yes I've heard that the management company and PM are key to a good turnkey investment. I'll definitely check you guys out if I'm considering Chicago.

@Sharad M. I didn't really consider the admin costs between managing different teams, so thanks for bringing that up! You don't think I (or any investor) would be able to leverage a buy across several markets with one national provider? I'd assume that if I buy from them in one market and then buy from another market, I'd be able to leverage and possibly reduce the admin costs in the third market. I understand real estate is local but do you think that's doable with the same TK provider? Hope that makes sense!

@Clayton Mobley That makes sense and thank you for your advice as well. Yes I was possibly thinking about being in 2-3 markets only and then growing my portfolio from there. My concern was that I didn't want to invest in and grow my portfolio in one market, and then if that market crashes, all my properties take a hit. I heard this happened to Phoenix and Las Vegas during the Recession. If I invest in a few other markets, I'm hoping to spread the risk. Is this similar to what your clients do?

@Lane Kawaoka Haha do you utilize this strategy? How's it going for you?

Thanks again everyone!

Hey @Snehann Kapnadak ,

Yes, some of our clients spread their portfolio across a few markets for the reasons you outlined, but they typically focus on building in one market first and then spreading out. One rental prop does not a real portfolio make, so focus on finding a provider with the right numbers and service-oriented attitude first, build with them till you have a budding portfolio of 3-5 props or more, and then see where else you might be interested in investing.

I also noticed your comment to Sharad and I would caution you about trying to save money by going with a 'national turnkey provider'. Many companies that market themselves as such are simply advertising properties they don't own - they are owned by actual providers who live and work in the markets they represent. 

I know the appeal of consolidating all your purchases with one company is strong, but when it comes to out-of-state investing, you need to be sure the people you are trusting with your investment really know the markets they are selling. Many markets (Birmingham included) can be very different street to street, so a company that has one national office in Utah or some other state, but advertises properties all over the country likely won't have a firm grasp on the details of any of their markets. They won't know which neighborhoods/streets are better for rental demand, what the schools are like, how easy it is to get to major thoroughfares or employment centers. These details are important when selecting a rental investment - because you want to invest in a place people want to live.

Of course, there are some solid turnkey providers that work (and have a legitimate presence) in a couple cities, but I don't know of any fully national company that owns all the props they advertise or has a physical presence in all the cities they market. I would advise you to focus more on finding a team that you trust to be around for 10+ years, that has good numbers and a focus on service. If you find one that works in multiple places, great! But don't let the ease of that be the only reason you invest in that provider's other markets. Do your due diligence on every market and every prop as if it were a new provider.

Best of luck!

Clayton

@Snehann Kapnadak  Skip the "turnkey providers" and contact local property management companies.  They will know when their owners are going sell, and they have the rental history already with the current tenants.  

Hey Snehann! I fit into the category you mention. (except one of my properties wasn't turnkey, it was an accidental investment....but everything else is turnkey). 

In my case I bought all in one market (Atlanta) but through different providers. It was back when there were a lot more choices for providers but at the time there was really no better market to buy in than Atlanta so that's why I stayed focused there. I was planning to start into other markets but didn't end up doing it. 

As far as the best way to go--diversify between markets, stay with one, diversify between providers, etc....there's really no wrong way to do it. I'd say a dream scenario, budget dependent of course, would be to buy say 4 turnkeys in 4 good markets (from good providers), hold onto them for a year give or take, and assess which ones you've liked the most. Maybe some have produced better, maybe some of the PMs are better communicators than others, etc.Then whichever ones you like the best, buy more of those. Then you are getting the benefit of diversifying but also maximizes on the best producers. Different turnkey markets and properties and sellers are better for different people. I've known some absolutely love a turnkey provider while someone else hated the same one. 

It's the nice thing about turnkeys--as long as you are doing your end of the due diligence and confirming and verifying everything that is being advertised--you have a lot of mobility to diversify or whatever else you want to do.

Reach out anytime with questions. I can also talk markets and turnkey comparisons, etc. For instance, if you prefer suburban SFRs over urban MFRs, which markets have good turkeys for those. Etc.

Originally posted by @Snehann Kapnadak :

Hi Everyone,

Does anyone have a portfolio of strictly turnkey properties? I'm talking about 5-10 (or more) properties that were bought "turnkey", with property management and tenants already in place.  No fixes and flips, no looking for deals on your own, just 100% all through turnkey?

Did you buy all of them through one or several turnkey provider/promoters? If so, what was your experience like? Which provider(s) did you go through (if you're willing to share)?

Reason I'm asking is because I'm thinking it would be something that I would want to do. Ideal scenario, I would buy one TK property in one market, then another in another market (to spread the risk), and then eventually work my way up to about 10 properties or so. It's too expensive to invest in my area, so I plan on investing out of state. Is this a sustainable plan? Has anyone had success doing this?

I'm curious as to what other investors may think. I'd prefer to hear from people who have multiple properties, but please let me know if you have any advice that may be useful to a newbie investor like myself as well. Thanks!

 Hi Snehann,

It sounds like you are building an excellent strategy. I know many investors who have a portfolio of only turnkeys. Sometimes they work a 9-5 or have other commitments that does not allow them to focus on investing full time. Investing in Turnkeys allows you the freedom to focus your attention elsewhere while earning passive income.

Send me a message if you have any questions.

@Clayton Mobley Thanks again for the advice. My concern lies with if I start building in one market and then if that market crashes, then I'm out of luck. Instead if I buy in one market, then another, then another, then maybe back to the first, at least I can spread the risk. But I definitely hear you about markets varying street by street and picking a provider who knows the ins and outs of each market.

@Phillip Dwyer Thanks for the tip! My only issue with that is that initially I wanted to scale up and possibly use leverage with one provider through several markets (thinking wayyy long term). If I use multiple local property management companies, I might not be able to build that leverage. Thoughts?

@Ali Boone Ha, I've heard about how hot Atlanta was a few years ago. I like your suggestion of evaluating different providers over a year's time. It's certainly not an affordable option for me, but still a strategy worth thinking about. Due diligence is definitely something I will keep in mind for all future deals, thanks for that.

@Tom Ott Thanks! Yes that's exactly what I'm trying to do while working by full-time job. I'm aiming to have a portfolio of TK properties across several markets so I can diversify and reduce the risk. It's kind of like capitalizing on the beauty of how real estate is "local". I'll definitely reach out to you with more questions.

@Snehann Kapnadak You're going to have to hire property management anyway, so what's the difference?  Also, if you go with a property that's been seasoned longer, you can probably have more faith in the numbers than a "turnkey" where they slammed a tenant in there just to make it look like it's performing.

@Snehann Kapnadak

Reading your posts and responses on here, first you should be congratulated for trying to build a plan and then for reaching out and asking for feedback.  My entire portfolio is Turnkey, but I am not the investor you want to hear from.  I own a TK company and you are looking for advice from truly passive investors like yourself who come from outside the RE world.  Hopefully, you will get a few responses because they do exist.  Along those lines, maybe look up Mike McKenzie (i believe I have that spelled correctly) on here.  

Mike has built a portfolio mainly using the method that @Phillip Dwyer describes but has purchased from Turnkey operators as well including one here in Memphis ( I believe that is the case).  He has also built his portfolio in multiple different cities while me maintained his own work and lifestyle so he may be a great connection for you.

Here is my advice though based on a couple of your responses.

1.  I believe you speak of using leverage when you are buying as a negotiation tool.  I'm not sure how much a negotiating tool that is going to be in the real world.  Yes, buying multiple properties is good, but that does not necessarily mean you will get a better deal from a management company or a TK company if you buy everything from one company.  So to Phillips point, if you find three good property management companies in three cities, you may get the same negotiation advantage as you would with one company.  You just never know until you get moving forward.

2.  Diversification does not equal decreased risk.  In fact, it can equal more risk.  It can equal a lot of things, but simply diversifying across multiple markets does not equal risk reduction.  The only way to reduce risk when buying passively, is to know how each piece of your team or each piece of a Turnkey team operates and influences the next piece.

You reduce risk by paying close attention to the location of the property.  Proximity to services, schools, transportation, jobs, crime.  Each of these will play a role in how risky a property is.

Second, risk is reduced by the renovation that is done.  The more extensive a renovation and the more work that is done to prevent deferring maintenance and costs to late, the less risk their is for the investor.

Third, the better the location and renovation, the more attractive that property looks and the easier to attract a higher qualified tenant.  Higher qualified tenants are also more likely to pay a higher rental rate if they can clearly see the benefit of renting that property.

Which brings you to property management.  A quality property management company is going to manage better properties with more extensive renovations and use those to their advantage to attract better tenants and hopefully at stronger rental rates.  They are also going to provide services to their residents to increase the length of stay and reduce both turnover and inflated maintenance issues.

If you truly want to reduce your risk, the most important this you will do will have less to do with buying in multiple cities and more to do with building the strongest team possible that adhere closest to what you value most in your investment.  That will be the best way you reduce risk.

All - I reached out to @Snehann Kapnadak and am going to help him out.  Nothing is actually "passive" by the way. : )  Also, leverage of buying multiple doesn't exist in TK. Maybe if you purchase a portfolio from an individual investor.

Re: @Mark Ainley - Agreed 100%! The PM company is exactly what you are buying. managing multiple PMs in multiple markets can suck. You could have a bad seed, but the false sense of security/diversity could force you to use a mediocre PM. I wouldn't purchase in a market without a good PM, period.  Even the way they collect rents, pay you, charge fees, etc. can be different and confusing and take a "passive" investment and make it more active than you want.

@Lane Kawaoka and I have talked a bunch before, great person to talk with as well!

What @Phillip Dwyer said is also a great point! Most people that start in turnkey end up veering off to doing their own things IMO. My first 5 units weren't turnkey, then I purchased a bunch of TK in multiple markets, but most of the units I own today aren't turnkey.

@Chris Clothier - Agreed 100%, couldn't have said it better myself! Also a TK provider with a great reputation!

@Chris Clothier Thanks a lot for the advice. Really good stuff and definitely got me thinking about redefining my REI strategy. I think I was thinking of leverage and negotiating with a TK provider in the sense that their properties are all interconnected across all markets. But clearly that doesn't seem to be the case. I definitely hear you on a good property manager and building a solid team. I'll try to make that that priority. BTW I spoke with one of your counselors some time ago and he was great! Will keep you guys in mind for when I'm ready to pull the trigger and start investing.

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