Turnkey + BRRRR for out of state investors?

Question

Are there any turnkey companies that provide BRRRR strategies vs the traditional turnkey model (tenant occupied, already rehabbed, etc.)?

Edwin Williams · Answer

I've done this process twice in Cleveland. With the first house the plan was I pay 85K for the house. The contract with the Turnkey provider is solid where any overruns are covered by the turkey provider.  The house was abandoned and needed a complete rehab.. The roof was fine.  I bought the house for 45K.  The title company holds the money for the rehab and only releases installments on my approval. The house was completed and they got me a tenant with a 2 year lease, that was 14 months ago with no issues. The house appraised for 112K and I pulled out 76K. The second house was the same deal but I paid 75K to the Turnkey provider and the house cost 14K. This house needed a lot of work. I have not got it appraised but I'm guessing it will come in around 105-110K. No tenants yet. Everyone made some money with these deals. The Turnkey provider has no out of pocket money in the process. If you have a good contact and can find someone you trust it is possible.

Ali Boone · Answer

Oh yeah, sorry. I mean the investor (you) is holding the risk in that kind of model.

Normal turnkeys- You don't close on the property until everything is verified. Rehab quality, property condition, rents, tenants, etc. Everything is in place before you close, so you don't have to close until everything is certain. All that while--during the construction time--the turnkey seller holds the risk. They are at risk for rehab costs being higher than planned, they are at risk for something not working out on the property, they are at risk for either not finding tenants or not getting the anticipated rent, etc. All of the risk is on them should something go wrong. You have none of your own risk in it because you don't own it and you are allowed out of the contract if something can't be verified.

BRRRR+turnkeys- You have purchased the property before the rehab even starts. There are no tenants in it. So everything I mentioned above, it's your property during all of that time that all of those things are going on and being put in place. A lot of companies will offer things to help mitigate that risk (ex. rental guarantees), but it's still technically/legally risk to you.

The BRRRR+turnkey option isn't undoable, by any means, but because of the risk factor involved I only trust proven companies who are doing it...with a long-enough track record to offer substantial confidence.

James Wise · Answer

You could just buy the property using financing in the 1st place. There would be nothing to refinance unless it drastically went up in value (unlikely)

Colin C leamy · Answer

I don't understand why you can't just do a normal turnkey and then refinance it later?

Michael Ramos · Answer

@Lane Kawaoka, I appreciate the Fannie Mae breakdown.  I just listened to a podcast on this topic and you seemed to have covered it all and more. Some of the other things I learned for loans/refinancing were around PITI reserves, Credit Scores, DTI, Liquidity. Some notes below:

Reserves (Loan spots 1-6)

• 6 months of PITI (principal, interest, tax, hoa on subject property) + plus additional 2 months of PITI in each of the subsequent loan spots 1-6. (ie. you hold 3 investment properties and looking for 4th… the 4th property needs 6 months PITI in reserves plus additional 2 months for each of the subsequent 3 in those spots) Kind of confusing after hearing that...

DTI

• Maximum DTI = 50% (Preferably below 45%)
• Work with a lender with investment loans experience. Don't file a tax return until a draft version is prepared and understand how this may effect to qualify in the following months for underwriting. Work with investment property lender...

Credit Score:

• 3 credit scores (take the middle of 3 scores)
• 1-6 loans that can be overcome with lower credit score
• 7-10 loans and individual must maintain 720 or greater
• Optimization tips: no more than 4 credit cards (credit limit want ratio of 30% or less)

Michael Ramos · Answer

This is why I love BP... Thank you all for your replies! It's seems like I have some serious homework cut out for me with this type of approach. I found other organizations that were promoting similar services but I was was turned off with future upsell/membership fees involved and my overall goals seemed a bit misaligned. I appreciate all the feedback.

Jay Hinrichs · Answer

@Michael Ramos  well everyone who posted above is basically new to the business  ( sorry Grant and Tom and Ali)

But this is how TURN KEY was done 99% of the time prior to 08  its was all BRRR

when this BRRR came up as some new concept I just have to belly laugh.. I did at least 2,000 funding's for turn key investors using this method from 2001 to 2008...

the only reason turn key is now fully tenanted is because the industry changed yet again.. and the BRRR method from 08 to 2012 to 2013 was not available.. because of lack of refi or cash out financing.

so its really all come full circle.. and I know a few others that do this for clients as well.

Although I 1000% agree with Ali here you can only do this with the most Vetted or trusted ground partner... anything less is a huge risk.

Tom Ott · Answer

I believe there are. Just depends on the markets. Be sure to do your research!

Grant Diggles · Answer

@Edwin Williams , I would love to find out who your Turnkey contact is in Cleveland. We are always looking for great turnkey providers who do great work and are dependable.

Turnkey + BRRRR for out of state investors?

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