Any turnkey providers helping with BRRR Strategy?

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Any turnkey providers helping with BRRR Strategy?

James Denon
Investor · Westbrook, CT · Member since 2016 · 79 posts · 27 votes

I am checking turnkey properties. Seems like all of them are charging above retail prices if you compare them with local comps. This makes the exit strategy difficult for the investor. If you hold the turnkey property 5-6 years and it is in a slow appreciating market like Indiana, you may lose money overall selling the house despite the $200/month cashflow you made because you paid too much buying it.

Are there reputable turnkey service providers out there who will wholesale you the property, charge you reasonable amount for rehab and manage the property for you? Essentially helping you do a BRRR in a good market like Memphis, Florida, Atlanta, Texas etc. and maybe indiana or chicago. I would imagine not, since they probably make most of their money with the markup they sell the property after rehab. So charging "reasonable rehab costs" would not fit into their business model. Thoughts?

I am interested in turnkey markets which are likely to keep up with inflation with their appreciation. So that would be 3% appreciation per year. I live in Connecticut and it really sucks because good cash flowing B- properties are hard to come by. Anything that cashflows well is a war zone. Also the appreciation is low in areas that make sense to invest for cashflow.

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Rick SantasierePro Member
Real Estate Broker · Granby, CT · Member since 2015 · 695 posts · 317 votes
9y

@James Denon, there are markets that exist in CT where the cash flow can far exceed the prospect of what any future appreciation can give you. Filipe mentioned his scenario, which was a great one. His property "appraised" for almost 10% less than what he paid for it, however, the property ended up creating a nearly 40% Cash on Cash rate of return. It is virtually impossible to find everything you want in a property, and I find that sometimes we (analytical investors) can paralyze ourselves if we try to put too many stipulations on what we need in an investment property. With that said, patience is key, as well as the understanding that you need to adjust your views based on the property. Be open to different situations that could change your perspective from a prior deal you may have analyzed. You had mentioned a property that most likely required a full gut rehab a few days ago in an area that is considered to be a potential "war zone." Discussing the turn-key options is certainly another way to think about value (in terms of your time spent). Your return will be much less on a turn key investment (someone else does all the work and drops the "performing asset" in your lap to manage), but will afford you more "time." Time is the most important commodity that this world offers us, because you never get it back, ever. With that said, there are investors who make a business out of buying non-performing assets (like the one you mentioned in that bad spot), then spend a great deal of time, effort and energy getting it occupied, then they re-finance and do it all over again, or sell to an investor who doesn't who want the asset to be performing right out of the gate. Decide what is most important to you. Mike's comments above about creating "value add" is by far the best way to invest and repeat, and most of us thrive in that area. IF we have "time." If you are working 40-50 hours per week, time may not be in decent supply for you, or it might due to your level of passion towards REI. Either way, keep on analyzing, and reach out to some investor friendly brokers like myself, or agents like @Michael Noto who can help you hone in on your prize.

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  • Kyle McCorkel
    Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
    9y
    James Denon I completely agree with your assessment on pricing, exit strategy, etc. I have pretty much come to the exact same conclusion. I do have a few providers that I'm working with, providing deals with built in equity and $200-$300 per door via the BRRRR method. You gotta really trust the provider to provide a solid rehab. Feel free to PM me and I can give you some more details.
    1Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    @James Denon there are some Realtors here that can help. My only advice is to consult an appraiser before jumping into a property. I am starting to see appraisers ding these BRRRR properties because they lack the upgrades that TK providers and retail flippers are doing. Typically the BRRRR method (in Memphis) is basically carpet, paint, light fixtures and a mop. Hard to win with that strategy when local landlords, experienced investors, equity groups and TK providers are putting quality properties on the market.

    901-848-9028
    4Reply
  • James Denon
    OP
    Investor · Westbrook, CT · Member since 2016 · 79 posts · 27 votes
    9y

    @Kyle McCorkel I will send you a PM. 

    @Alex Craig, I would like to do a full up rehab with plank floors, SS appliances, updated cabinets, new roof etc. I am just trying to avoid the huge markup that kills the exit strategy.

    For example, I see that the property was bought in an auction for 15K. As far as I can tell, ~15K-20K worth of rehab was done. It is being sold on turnkey website for 70K. If you look at the recently sold comps in the past 2 months in the local market, they sold for 45K to 50K. I am ok with paying 45-50K for that property. Not 70K. 

    In 6 years, you don't build much equity and you only make $200/month X 6yrs X 12months= $14400 cashflow.

    If you sell it at 50K, you just owned a house for 6 years as a hobby without accomplishing any financial goal..

    1Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    @James Denon what is the address? Typically a roof, HVAC, vinyl plank flooring and other standard items is going to be $25,000. That is what it would cost me and I do not hire a contractor, rather I have my own in house crews.  a contractor I would think would need to charge a min of 40% to be profitable. The Workers Comp and GL will be 10 of the 40%.

    Personally I would skip the midwest for a 6 yr investment.

    901-848-9028
    3Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    9y

    @James Denon If you are willing to take on properties where you create value as an investor through rehab, rent raises, aggressive offers, being aggressive with contract terms, etc there are plenty of good areas in Connecticut where you can make things work and hit comfortable cash flow metrics. 

    I have clients here in CT who are doing this on a daily basis. 

    If you are looking for the value to already be created for you, which is essentially what I understand turnkey to be, there are plenty of opportunities like that in desirable areas of the state as well. 

    Now, are you going to pay for that in terms of purchase price? Probably, but you are paying for it also in the turnkey markets you invest in where the value has already been created for you.  The price points of entry are just lower, the rents are lower, property taxes, etc...

    Sorry, saw in your post "anything that cash flows well is in a war zone" and that is just not accurate for the market you are talking about. Plenty of investors in this state have good cash flowing properties in good areas. The properties are just not falling from the sky, you have to be on your game and patient in some cases to land them. 

    2Reply
  • Filipe Pereira
    Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    I agree with Michael. Be patient, the deals are out there. I paid 200K for my 4plex in East Hartford last September, the gross rents are around 3850. I paid full retail for it, but still feel pretty good about the numbers at the end of the day. Find yourself a good Investor-friendly agent that can help you. The best deals are often found off market. It pays off to find an agent that is "in the know". Touch base with @Rick Santasiere if you need help on that front. 


    In terms of Turn Key outside of CT, I've heard good things about "memphis invest" out of TN. 

    2Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @James Denon, the short answer to your thread question is: no.

    You summed it up very well: "they probably make most of their money with the markup they sell the property after rehab". Exactly! And why wouldn't they? Wouldn't YOU?

    I suspect that even the TK providers that @Kyle McCorkel works with don't "give away" enough equity to allow him to get ALL his own money back upon refi (which is important for BRRRR).

    (If I'm wrong about that Kyle, kudos to you on finding almost-unheard-of charity TK operators!)...

    3Reply
  • Rick SantasierePro Member
    Real Estate Broker · Granby, CT · Member since 2015 · 695 posts · 317 votes
    9y

    @James Denon, there are markets that exist in CT where the cash flow can far exceed the prospect of what any future appreciation can give you. Filipe mentioned his scenario, which was a great one. His property "appraised" for almost 10% less than what he paid for it, however, the property ended up creating a nearly 40% Cash on Cash rate of return. It is virtually impossible to find everything you want in a property, and I find that sometimes we (analytical investors) can paralyze ourselves if we try to put too many stipulations on what we need in an investment property. With that said, patience is key, as well as the understanding that you need to adjust your views based on the property. Be open to different situations that could change your perspective from a prior deal you may have analyzed. You had mentioned a property that most likely required a full gut rehab a few days ago in an area that is considered to be a potential "war zone." Discussing the turn-key options is certainly another way to think about value (in terms of your time spent). Your return will be much less on a turn key investment (someone else does all the work and drops the "performing asset" in your lap to manage), but will afford you more "time." Time is the most important commodity that this world offers us, because you never get it back, ever. With that said, there are investors who make a business out of buying non-performing assets (like the one you mentioned in that bad spot), then spend a great deal of time, effort and energy getting it occupied, then they re-finance and do it all over again, or sell to an investor who doesn't who want the asset to be performing right out of the gate. Decide what is most important to you. Mike's comments above about creating "value add" is by far the best way to invest and repeat, and most of us thrive in that area. IF we have "time." If you are working 40-50 hours per week, time may not be in decent supply for you, or it might due to your level of passion towards REI. Either way, keep on analyzing, and reach out to some investor friendly brokers like myself, or agents like @Michael Noto who can help you hone in on your prize.

    6Reply
  • Elizabeth Wilson
    Real Estate Investor · Memphis, TN · Member since 2016 · 940 posts · 695 votes
    9y

    @James Denon - if you are wanting to invest out of your area,  I'd highly recommend visiting the place and meeting with both TK folks and agents/brokers or at least talking with them and explain what you are looking for in a property.  Maybe a TK doesn't fit for you and instead you can buy a house from an agent and hire a good PM company.  Let me know if I can do anything on the ground here.

    3Reply
  • Larry Fried
    Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
    9y

    @James Denon I know of at least a couple of turnkey providers who also use the model you describe. One does it on the side with certain investors, the other is the model they started off with and then did some true turnkey and now is back to only doing the BRRR. Now one thing to consider as an investor is that doing the BRRR method takes on a lot more risk for the investor, plus you are essentially needing to come in with all cash, no conventional lending until refinance. You are replacing the need for the provider to borrow (usually hard money rates) to do the purchase & rehab and becoming the lender yourself. So the provider is saving on costs, saving on risks, and you get, if everything works out, some equity and a performing property. It will tie up your funds for months and will take much more of your attention than doing a turnkey, so you have decide if it is worth it.

    2Reply
  • David BellPro Member
    Real Estate Agent · East Brunswick, NJ · Member since 2016 · 129 posts · 63 votes
    9y
    Kyle M. Could you PM me who you're working with in Indy? Thx
    0Reply
  • Keith Jourdan
    Property Manager · Metro Detroit, MI · Member since 2008 · 305 posts · 362 votes
    9y

    I have helped several BP members do this in the Metro Detroit area. Numbers on our deals look like this. 85-100k Turn key rents for $1300. Deals that need rehab, buy for 80k, rehab $15k, appraise for 125-135k.  I handle everything, the buy, rehab, managing rental.

    0Reply
  • Lee S.
    Northern, CA · Member since 2014 · 674 posts · 444 votes
    9y

    @Larry Fried it makes no sense to say a BRRRR is more risky than buying a straight turn key property. If I buy a 100k turnkey with 25k down plus closings costs, I'm into the house for 25k minimum right? If I buy the same house for 40k, attempt to rehab for 35k and have an ARV of 100k then I can do a BRRRR in 6 mos. How long to get my 25k back on that 200 a month cash flowing turn key? A decade. I can be 25k off on my rehab estimate (70% error) and be no worse off than having bought it as a turn key in the first place. Yes, financing may be a little more expensive to go this way if you don't have the cash, so let's say you have 10k in financing costs (extremely high for this value of property)? I refinance and only have 10k left in the property instead of 25k.

    This is exactly why I will only buy under value properties that I have a good chance of refinancing all my cash out of. Anyone would be better off skipping turn keys completely, saving all their money until they can do a deal all cash, then doing a BRRRR. Even if it took you 5 years to save all that money up, you come out way ahead of the guy that bought the turnkey 5 years before you. Once you have that money saved up, you can then repeat the process every 6 months moving forward as long as you can find the next property. Compare the two strategies by the numbers, one guy ends up significantly more wealthy in 10+ years than the other.

    0Reply
  • Lee S.
    Northern, CA · Member since 2014 · 674 posts · 444 votes
    9y

    @Keith Jourdan  Where is your profit in these deals?  I would be interested in doing some flips with those numbers.

    0Reply
  • Larry Fried
    Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
    9y

    @Lee S.  Well in your example of course it would be better, but those differences don't always work out as you laid them out - not by a long shot from what I've seen.  To clarify, I should have said that the investor is taking on more risk upfront.

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @James Denon:

    I am checking turnkey properties. Seems like all of them are charging above retail prices if you compare them with local comps. This makes the exit strategy difficult for the investor. If you hold the turnkey property 5-6 years and it is in a slow appreciating market like Indiana, you may lose money overall selling the house despite the $200/month cashflow you made because you paid too much buying it.

    Are there reputable turnkey service providers out there who will wholesale you the property, charge you reasonable amount for rehab and manage the property for you? Essentially helping you do a BRRR in a good market like Memphis, Florida, Atlanta, Texas etc. and maybe indiana or chicago. I would imagine not, since they probably make most of their money with the markup they sell the property after rehab. So charging "reasonable rehab costs" would not fit into their business model. Thoughts?

    I am interested in turnkey markets which are likely to keep up with inflation with their appreciation. So that would be 3% appreciation per year. I live in Connecticut and it really sucks because good cash flowing B- properties are hard to come by. Anything that cashflows well is a war zone. Also the appreciation is low in areas that make sense to invest for cashflow.

     You are on the right track ... now why don't you just do that in your local market and cut out the middle man?

    "I am interested in turnkey markets which are likely to keep up with inflation with their appreciation." You know what they say about assumptions, don't you James? High initial cash flow and appreciation in excess of inflation are not a combination that happens regularly ... be sure to validate any assumptions like this against long term historical data in the exact neighborhood you invest in. And no, that data should not come from the turnkey company, much like you should never ask a barber if you need a haircut.

    "Anything that cashflows well is a war zone. Also the appreciation is low in areas that make sense to invest for cashflow." Why would you think that it would be any different in an out of state market that you are not familiar with?

    The grass is not greener on the other side of the fence, it is just a different shade of green, and a newbie should be very careful smoking what others have rolled for them without experience or detailed knowledge of the field from which it came.

    1Reply
  • Lee S.
    Northern, CA · Member since 2014 · 674 posts · 444 votes
    9y
    Originally posted by @Larry Fried:

    @Lee S.  Well in your example of course it would be better, but those differences don't always work out as you laid them out - not by a long shot from what I've seen.  To clarify, I should have said that the investor is taking on more risk upfront.

    Right, but this would be an issue of bad up front analysis and not the BRRRR strategy at fault. My last two I did I ended up with 150k in equity and will have all my initial investment refinanced out in 2-3 months, im waiting on seasoning on number 2. Number 1 came in after rehab at 65% ARV, already refinanced.

    0Reply
  • Grant Diggles
    Professional · Portland, OR · Member since 2017 · 21 posts · 16 votes
    9y

    @James Denon Looks like you have your hands full in this post. The BRRRR method is great if you:

    1. Work with a reputable Provider
    2. Have work/property warranties
    3. Receive 1st-hand management on the property
    4. Use someone who lives locally in the investment area
    5. Has relationships with banks who know the system
    6. Can provide you with a track record

    We work with turnkey providers and BRRRR specialists who MUST meet all of these criteria for us to work with them as we invest personally as well as our North Peak fund; covering turnkey, BRRRR and flips.

    Happy to help if you want additional info.

    Good luck and happy investing.

    0Reply
  • James Denon
    OP
    Investor · Westbrook, CT · Member since 2016 · 79 posts · 27 votes
    9y

    @Alex Craig This property was in Indiana. I don't want to give the address because to your point maybe my underestimating the rehab costs. It has been 2 years that I have been involved in any kind of rehab. Maybe the material prices have gone up.

    I want to be able to have the flexibility to sell the asset couple of years down the road if I need the liquidity at a minimal loss.. So maybe Turnkey is not the right model for me since it doesn't leave much on the bone for the end investor. 

    0Reply
  • James Denon
    OP
    Investor · Westbrook, CT · Member since 2016 · 79 posts · 27 votes
    9y

    @Michael Noto The decent properties here locally are few and far between. I was drooling over the 2 family property you sold in Southington which is probably good B+ property. I saw it and did not call you right away and it went into contract 1 day later.

    I don't think you see similar properties that often whether it is already rehabbed or lend itself to BRRRR.

    0Reply
  • James Denon
    OP
    Investor · Westbrook, CT · Member since 2016 · 79 posts · 27 votes
    9y

    @Elizabeth Wilson@Larry Fried @Grant Diggles @Keith Jourdan @Grant Diggles thank you for the insight from your markets. I will send you a PM to see if there is opportunities to work together.

    As I said, I am looking to buy the property in cash, looking to pay for the rehab and get it appraised such that I have ~20-25% equity and manage it. I am looking for long distance investor friendly providers.

    1Reply
  • James Denon
    OP
    Investor · Westbrook, CT · Member since 2016 · 79 posts · 27 votes
    9y

    @Rick Santasiere  good points about CT market and nice meeting you at the CT meetup. I made 2 offers in CT  that had 30-40% cash on cash return and with none to little deferred maintenance. I missed them since someone outbid me. Next time I might get lucky and more aggressive.

    You are right about avoidance of analysis paralysis if you want everything in a single property. I have been all over the map but I am coming to the realization that I need to pursue both CT and some investor friendly markets both BRRR which would enable~20% equity position when appraised OR +35-40% cash on cash return properties with no deferred maintenance.

    Ideally one would like to buy a NNN property with 20 year corporate backed lease (Maybe a Walgreens) which is 15% CAP, appreciates 10% a year, you can get a non-recourse loan that brings your cash on cash return to ~40% but that probably does not exist :-) I might have invited different type crowd into the post by using these keywords.

    0Reply
  • James Denon
    OP
    Investor · Westbrook, CT · Member since 2016 · 79 posts · 27 votes
    9y

    @Brent Coombs I will pay the acquisition cost and rehab cost. The provider can make the money on both of these which can still make the exit strategy viable for the end investor. Overpaying for a turnkey above market that only cash flows $200 makes it difficult not only for exit strategy but also capex. If you have a capital expense of 10K on the 4th year, you just wiped all the cashflow. Nothing should fail on 4th year since they are rehabbed 4 years ago but you never know.

    So either you need to have a high cashflow position (~$600/door) or a high upfront equity position via BRRRR (20%) entering into it.

    0Reply
  • James WachobBusiness Member
    Real Estate Broker · Memphis, TN · Member since 2015 · 1k+ posts · 890 votes
    9y

    @Jennifer Slaughter can tell you all about this?

    @Scott King is managing some properties for some investors who used the BRRR method.

    0Reply
  • Scott King
    Memphis, TN · Member since 2017 · 1 post · 0 votes
    9y

    @James Wachob has worked with many of the investors that I currently manage homes for using the BRRR method.

    0Reply
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