Long-term Turnkey investment numbers
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes@Diane G. I first started financing turn key operators in 2002... so I am probably the oldest on BP in that regard or have the most time at it... MI came a few years later.
virtually all the turnkey companies went out of business in 08 to 2010 or had to reorg.
You ask WHY.. well I can tell U why since you asked.
1. turnkey in the day was the BRRR strategy... I know those on BP think it was invented here in the last 3 to 5 years but not so.
2. I was the BRRR.. I was the HML loaning to the CA. investor to buy the mid west rental.. then they would get a rate and term refi and cash me out. BRRR
3. in those days and I started in all Places Detroit.... buyer would buy 4 homes at once usually get about 5 to 8k CASH BACK at close.. so I would get cashed out and the investor would get 20 to 30k cash deferred in their jeans.. plus in those days. 100 a month cash flow was the goal..
4. Why 100 a month because they got all this cash at close..
5. 08 hit and I was basically put out of business I could not make loans because no one could refi and I ended up owning over 200 homes scattered throughout the mid west.. IE west coast investors walked on my HML leaving me holding the assets.
6. Those companies that reorged did so by targeting SIDRA ( need to sell for cash only) and foreigners.. TK companies started going to AU and other countries with their cash buyers and making big presentations there.. Kathy Fehtke and many others.
Now that lending has come back in you have many that jumped into the fray in the last 10 years.. and you have the turnkey marketing companies.. which many are on BP... who market these for the local guys..
I think @Andrey Y. would need to talk to Local investors who have portfolios to see how they have done then you can back out management if they self manage.. Remember most folks only hold real estate 5 to 7 years .. and turnkey is no different lives change .. markets go up and down.. people realize they don't like landlording and exit all sorts of reasons.. I know many local investors in many of the turn key cities who live on their rentals and lived through the tough times and continue to grow their portfolios... but they are DIY all in house.
33 Replies
- Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes9y
@Andrey Y., I would disagree with your last statement. Turn key rentals are by their very nature going to be higher priced than non turn key properties. Why would anyone buy a property, fix it up thoroughly and sell it below market? That is crazy. Worse yet some folks selling turnkeys were dishonest and sold crap properties for tens of thousands more than they were worth in war zones. Now turn keys do offer investment alternatives to folks in a certain niche, like those with lots of money but little time to invest. There are some very ethical turn key operators just like are there are the other kind. you need to do due diligence to make sure the kind you are dealing with, and you need some due diligence on the properties you buy as well. The timing on the market can make or break turnkey investing too. If you bought in Atlanta 5 or 6 year ago you probably made a lot of money, if you bought in Detroit probably not. Just like all other forms of investing, use your head investigate, and decide whats best for you using all of the information available.
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes9y
@Jay Hinrichs Really not too worried about it. Maybe some of those buyers can answer his question then.
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes9y
@Andrey Y. Ha, well plenty of people on here would argue that theory. I'm with you on it, but not everyone is. I see what you are saying though about the clarification. But it still is just about buying rent-ready properties in comparable types of markets as turnkeys, or with similarly-projected returns. But it's water under the bridge for what you are asking. Hopefully you get some answers!
- Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes9y
I have two turnkey properties for a year now, and have been working on a monthly dashboard to track results. The site is still a work in progress (I just have "portfolio" view now, but working on individual property views), but since the discussion came up...
I also have some "non-turnkeys" for which I'm tracking the same way.
To answer your question, the results look great for one property (built in equity and high cash flow, over 20% cash on cash return) and bad for another (no built in equity and major repair killing cash flow, negative return). But that is really only after a year.
- Member since 2016 · 13k+ posts · 12k+ votes9y
It is a very common practice for investors to calculate yearly returns on a investment income property. The reality however is that as investors we estimate actual costs based on long term hold and long term expenses. When a owner says he has XXX per month positive cash flow what is that number based on. If it is based on actual costs over the previous 12 months then the number is irrelevant. If it is based on estimates of the cost to hold for ten years then it may be slightly more actuate as it includes expected costs that have not yet been incurred. If you want to know how certain property types produces long term you must contact investors that have owned and sold with consideration given to geographic area of the investment.
It is nice to conclude we have a specific return on a property however until the day a investor sells a property income and cash flow at best is nothing more than a very rough estimate. That is the entire premise of the 50% expense rule.
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes9y
Originally posted by @Andrey Y.:
Originally posted by @Ali Boone:
Hi Andrey. I bought my first turnkeys 6 years ago, and I don't have exact numbers to offer you for returns annually on them but I can tell you that I'm in the positive with them.
As far as why no one is actually answering your initial question- all of the turnkey buyers I know (which is a lot) really aren't on BP anymore. Once they learned what they needed to get started and they bought their properties, they don't have much of a need to be on these types of forums. These forums are generally geared towards learning, and they are past that phase. So I don't expect a lot of people to respond, mostly for that reason, but also because it is true that "turnkey" didn't become such a noted strategy until [less than] 10 years ago. Yes, the concept existed, but it wasn't as known or known in the same way as it is now. Turnkeys became popular with the crash, because that's when turnkeys popped up everywhere like crazy. So when people bring up turnkeys, they are referring to the more recent and more known concept of them.
I would offer you one major consideration in terms of getting your question more thoroughly answered. I would revise it to ask about returns on rental properties, in comparison to the initial characteristics of the properties. Reason being- once you buy a turnkey, it's the same as owning any other rental property. "Turnkey" is only a method of buying, not of owning. So once you own the property, there's nothing different with it.
So if you bought a random property, rent-ready, with similar projected cash flow and market characteristics as a comparable turnkey- how did it perform over the long-haul? That's what you are really asking.
It may not help to revise the question, and it may seem like a mild difference, but it the real underlying question really isn't about whether turnkeys perform, it's whether rent-ready properties with comparable projected cash flow pan out or not.
If that makes sense.
I hear you totally. But, in the large majority of cases, folks buying "Turnkey" are out of state buyers. If the folks are local, chances are good one would be a fool to buy turnkey.. since they would have local market knowledge, and would develop a niche that would make their investing more profitable. I do this within 6 months of moving to a new place organically.
The reason I didn't just ask for "out of state SFH numbers long term" is because THEORETICALLY, buying through a Turnkey company would produce better and more reliable returns for the out of state investor.. both implicitly and explicitly.
One would assume locals do not invest with Turnkey providers in their local market, but you would be surprised. Sometimes investors who work a 9-5 or even longer hours do not have the time nor ability to manage/renovate their own property. Using a TK provider would give them the passive investment they want. As you mention they would know the market. This way they can weed out those who dress up a D as a C or those who dress up a C as a B.
- Member since 2018 · 1 post · 3 votes8y
I'm an OOS investor that bought a Turnkey property through an established turnkey company, whom is now managing the property, in Fort Worth 3 years ago. I've been lucky and have had the same renter all 3 years and minimal repair expenses. The first few years I cash flowed a ~13% return (not including equity) on my downpayment (including closing costs). Then property taxes went up which reduced my return to ~10%, which I'm currently getting.
If I forecast 8% of revenue to go towards expenses & vacancy in the future, I'd expect an ~7% cash flow return long term, with upside as rent increases. Beyond cash flow, note that my property has probably appreciated 15-20% in 3 years, and I've received tax benefits through depreciation.
Overall I expect this property to cash flow a little worse long term than my initial forecasts due to big unforeseen property tax increases. But, my luck with a good renter, low expenses and strong appreciation has made it a worthwhile investment thus far.
- Reston, VA · Member since 2014 · 74 posts · 24 votes8y
Thanks @Eric Brager this was helpful.
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