I dont understand the Turnkey game
Real Estate Investor · Louisville, KY · Member since 2017 · 56 posts · 39 votes
I dont understand the Turnkey game
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Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
9yThe TK provider flip the house to OOS investors, to get a higher profit. They sell the TK at higher prices than on open market to local people.
This is a scam targeting OOS, especially CA people. You lose money at the time of buying.
114 Replies
- 9yRobert E BoginoPro MemberReal Estate Agent · Alpharetta, GA · Member since 2017 · 151 posts · 76 votes
I think turn keys are fine (I have not used one myself). You just have to analyze the deal like you would any other investment property. Run the numbers yourself , from what I have seen they TK providers tend to run low on their estimates on repair, CAPEX, and vacancy percentages. Obviously there are bad Tk providers as well. Just check them out and fly out to see the property and area at least once if possible. Some also tend to talk up a bad area making it sound nicer than it is.
I have known some newbies to get their start through TK
- Investor · Fresno, CA · Member since 2017 · 27 posts · 12 votes9yI have purchased two out of state tournkey houses in IN. Both appraised for $5k over selling price and both are cash flowing close to $300/month. I looked for houses in neighborhoods that had good school districts and I got my own home inspections. I've had one for a little over a year and one for two months. I will not get rich from these properties but so far everything is good. One house was $120k and the other $100k. Granted it's still early on for these houses but so far all is good. That being said, my next property will be a local (Orange County) multifamily that I house hack.
I'm a bit late to the thread...it's now 3 pages in and I admit I'm not reading any of the other responses, so if I repeat anything that's already been said, sorry!
Fair question and totally valid. So the deal is- totally separate from the idea of turnkeys, compare the idea of buying rental properties and flipping houses. Both are legit strategies, both are very different and have different benefits, risks, skill levels, etc. One is an active strategy, one is a passive strategy.
Turnkey providers are essentially glorified flippers. They flip in large quantity and typically only to investors (versus flipping/selling to primary home buyers). Their business model is an active model and based on the principles of flipping. They use the money they make in each flip to continue funding purchasing more distressed properties and rehabbing them. If they held all the properties they bought, they'd quickly run out of money.
Turnkey providers do what they do for the same reason flippers do what they do. Flippers don't hold onto the properties they work with for the same reason turnkey providers don't hang onto the properties they work with.
With that said, most turnkey companies I know of do in fact hold some properties for themselves. They 'flip' most of them, but they do hold some usually.
Hope that helps! (and doesn't repeat a million other answers)
What is your connection to Alpine Turnkey? I'm assuming since your email is alpinehank, then you work for them?
- Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes9y
@Micah Mcarthur The model of selling turnkey properties is totally reasonable. It is essentially flipping to investors. There are good and bad players in the turnkey field like all other REI, as well as the competent & incompetent. Keep in mind that the seller is often saving on cost of sale when they are selling to investors (no commissions), and because of demand can do so a lot quicker than if they were targeting owner occupiers.
What I would doubt very much is that in today's sellers markets that a respected seller would be providing a property with $20k equity in it to the investor, unless possibly if that was a $170k plus property. I would be very cautious of such an offer until I fully vetted the company and the provider. Check the quality of the rehab. They are very possibly cutting corners somewhere, or they have inflated the value. Without more detail its hard to know if this would pass the smell test.
- Discovery Bay, CA · Member since 2016 · 44 posts · 13 votes9y
@Hank Keller would you be willing to share the TK company you are working with?
- Real Estate Investor · Louisville, KY · Member since 2017 · 56 posts · 39 votes9y
thanks to everyone here, there has been a lot of different viewpoints in this thread. very informative, although clearly a topic for some debate.
@Ali Boone and @Larry Fried I like your explanation of their model, basically flipping, getting their cash back, and quickly selling to investors.
TK done well still interest me, although I am not really interested in purchasing OOS, I think there are deals to be had locally to me. MY big challenge is that I work 60-70hrs per week- every week, and travel 2-3 nights a week,and some weeks I dont even come home, I just got home from an 11 day tour. My territory is all of the continental US, and then some... (over 150 hotel nights last year). Plus I have 2 school age children, swimming, cross country, band, and weekend activities... my wife is a litte busy keeping the house going...
I really like the idea of REI, and all the advantages, and I have some money, but have no TIME....
- Real Estate Investor · Louisville, KY · Member since 2017 · 56 posts · 39 votes9y
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- Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes9y
Do you have cities you travel to on a regular basis? Those might be the places to target for your REI, assuming it is a cash flow market. Turnkey is relatively passive, but there are even more passive forms of REI if you are willing to give up control of the asset. Take a look at my BP article
Three Key Routes for Passive Real Estate Investing
for some more ideas.
- Real Estate Investor · Louisville, KY · Member since 2017 · 56 posts · 39 votes9y
Originally posted by @Larry Fried:
Do you have cities you travel to on a regular basis? Those might be the places to target for your REI, assuming it is a cash flow market. Turnkey is relatively passive, but there are even more passive forms of REI if you are willing to give up control of the asset. Take a look at my BP article
Three Key Routes for Passive Real Estate Investing
for some more ideas.
Thanks Larry, Unfortunately, I do not in this position. (old job was always in the same areas). I dont really have time to drive around and learn the cities like I used to.
- Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes9y
Market value is open to interpretation
Originally posted by @Jay Hinrichs:
@Micah Mcarthur one other point I know I can be a little long winded LOL
but many of my clients will have in a market 60k homes 80k homes 100k homes 120k homes.
60k homes on paper will make 12% the 80ks on paper 10% the 100k homes on paper 9% the 120ks 8%.
the provider will tell the client the risk is obviously higher in the lower end.. the BUYERS don't hear that part and what do they do.. they simply gravitate to the higher return.. because they think they need the 1% rule or the 2% rule or just because they want the highest return possible.
I know when I was doing HML and providing loan opps for investors.. ( I had a book of about 50 million ) we would put up 3 new loans.. 10% 12% 15% they were risk adjusted... did not matter 15% were subscribed in 30 minutes.. But if there was a problem loan guess where it came from... ???
investing is Risk / reward... there is a reason cap rates are 3 to 5% in our market.. Risk is next to nothing..
I knew Clayton Morris was full of hot air when he said (on more than one occasion) that he has Doctors and Nurses live in his Class D/D+ homes in Michigan. Right. So a doctor (making $350K+ per year) and a nurse (making $110K per year) RENTS a 3/1 in a bad area that he purchased for $10K, rehabbed for $10K, and kept (or sold for $45K to an investor). If a doctor is renting a borderline war zone house, I don't even want to know what a teacher/carpenter/postal working is renting (a cardboard box?) haha!
The other thing people don't realize is, he preaches that only cash flow matters, and appreciation is pointless and not important. People don't realize that Clayton/Morris Invest is $20-25K all in on these homes, so he can probably weather high repairs or CapEx costs with a portfolio of 30-50+ homes. The average investor from CA or NY buying one or two of these (for $50K per house) is screwed. No lender will lend on these homes. I sometimes listen to his podcast at work to make me instantly laugh, although sometimes I cringe at the thought that someone actually believes the nonsense said on there.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Bryan O. Aaron Adams owns Alpine he is an old client of mine we have done many a deal together over the last 15 years. Although we have not done anything in the last 3 or so years . . I don't know Hank.. but I would guess .. just like larry and ally and others here he probably makes a spiff for referring people on to Alpine.. I know its frustrating when all these folks don't kind of just come out with it already.. LOL. it does give the poor newbie BP poster a run for their money to figure out whats going on and who has what agenda..
- Yuba City, CA · Member since 2016 · 48 posts · 10 votes9y
Originally posted by @Hank Keller:
Having purchased several turnkeys that have equity in them, doing well and generating enough rental income from 8 to purchase 1 a year i can say that the model works. Blanket statements are an indication of people who either have no or little experience. People buy from out of state for several reasons mostly because the market they are in doesn't create the cashflow they need or they dont have the skills to do it themselves. I have local rentals that dont perform as good as my turnkey's.
There's plenty of reputable vendors, just do your due diligence and dont let people who havent scare you from taking the first step...
Glad to hear that the turnkey model actually works. I am from California and am considering going with a turnkey company to purchase my first out of state rental. Like you said, there's so many people out there with little information who don't understand the process (myself included until just recently) and can't understand why a turnkey provider would do what they do. But I love your tip about not allowing opinion and misinformation to scare you from exploring the option. I know that I won't! - 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Robert Ferrell approach like you would any other purchase... find an area you like.. a team you like get references.
have a home inspection... get comps from public sites like realtor dot com or an appraisal.. and buy at the top of the food chain not the bottom.. you do that you stand a good chance of a smooth rental.
buy in the hood and your sunk... simple as that.. but in your area you can probably find cash flow without going out of state.
- Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes9y
@David Song - Thanks for the blanket statement about our entire industry being a scam. There are obviously good and bad players in every business in the world. TK is no exception.
@Hank Keller - Thanks for being the voice of reason.
The reasons that TK's do well is because they can do things better than the individual investor can. Typically, they will operate in cities that have far better price-to-rent ratios than where the investor lives. They rehab multiple properties at a time, creating some excellent economies of scale. The good ones don't cut corners on rehabs, and warranty their work. They work with local wholesalers, tax sales, sheriff sales, surplus sales, and work their asses off to get good acquisitions that will make sense financially once they are rehabbed. They have proper management, and transparent systems in place, so that the OOS investor can see and know this his/her property is protected.
For an investor that has a busy day job, doesn't want to rehab, and doesn't want to manage, there is a lot of VALUE that is created for that investor.
We operate in Indy. And, although Indy is going through an amazing renaissance right now, we never guarantee any appreciation. It does happen, but that's just a bonus. The big value of TK is hands-off passive income. It's a place to park cash that will perform better than the wild ride of the stock market. It's about CASH FLOW, not appreciation.
Our customers are not unsuspecting folks from CA. For the most part, they have invested elsewhere, and rely on us to do the heavy lifting for them. They are usually not first time investors.
TK is simply a viable business model. It is not for every investor. But for some investors, it's an excellent choice.
- Rental Property Investor · Mansfield, OH · Member since 2017 · 151 posts · 117 votes9y
@Maggie H. - I'm a satisfied customer who is helping to market what I feel is a very good company. Whether the company I use, or any of the other, it takes a very good purchase to be able to buy a TK with some equity. It still happens but to give you a number of a percentage below market would be specific to my market and not necessarily what you might find.
- Philadelphia, PA · Member since 2014 · 25 posts · 7 votes9y
@Micah McarthurI think for purchasing Tk rental in any market, you want to stay as close as possible to the 2% rule. i'm usually buying at 1.75%-1.8% . I do well in my market, so it's need to go out of state. Although i have toyed with the idea, and most of what i found was overpriced inventory. I don't think these people are scammers. They are just taxing you for doing all the work. i find most of my deals from the MLS and never from a company that specializes in TK rentals. Look for tired landlords, or landlords just looking to move on to something better. I asked the same questions before i bought my TK rentals. Especially the TK rentals i bought with section 8 tenants. LOW priced, TK, guaranteed income every month, with equity. Most sellers needed the cash to start a business and still had other rentals.
@ David Song.
I think your reasoning makes sense. I was planning on buying a turnkey myself but I'm reconsidering as I may lose money when I plan on selling it one day. What is an alternative option for an out of state investor priced out of local markets looking to invest out of state?
- Rental Property Investor · Miami, FL · Member since 2017 · 2k+ posts · 911 votes9yIf you lose money when buying a TK property on the purchase than you’re using the wrong TK provider.
- Professional · Little Rock AR / Memphis, TN · Member since 2017 · 4 posts · 2 votes9y
Guys/Gals -
Turn Key providers are not all scammers.. are there people that scam investors?? Absolutely!! The question is why was there equity still on the table and because there was.. is it a scam?? Well the answer is simple.. if you are an investor then you know that you buy these investments with expectations of a good monthly cash flow. Without this then it makes no sense... So this seller could have priced the home in accordance to make the property still cash flow and at the same time still have equity to give to the buyer. Just because a home has built in equity and is a rental doesnt make it to good to be true.. I personally dont even look to have equity in my own personal portfolio when I am buying a home... thats like an added bonus.. we all know what happened a few years ago and how quickly that said equity can disappear. NOW.. equity is very important when it comes time to go see MR. Banker!! You definitely need that to make your financial statement look stronger. But at the end of the day a savvy investor looks past the equity part of the marketing in that sale and looks to more important aspects such as.. the rehab, the tenant, the property mgmt team, the area, etc.. so my advice to you is to look past the equity part of the sale and look more into the home itself.. thats what matters most.
Now are TK providers worth you exploring? Absolutely!! You are only as big as your network!! Explore ALL options that can get you to your Real Estate goals safely and securely. Always cover your self by making the investing all about the investment!
Regards
Lorne Shive
My story is the same as many other CA investors. I was referred to a note purchase investment through my Solo 401K provider and thought I should get my cash to start working in my Solo 401K. The company offered a 9% return that would be "hassle free" and they would provide 2 points for buying this note. The note was tied to a property in PA. I got consistent payments for 18 months and then the payments started to become late to non-existent. I was informed that the company was going under and I had to try and get the property through deed in lieu of foreclosure. Eventually, after several months of paying 2 years of back (3 different types of property tax), 2 years of delinquent utility bills, and repairs (new roof, flooring, paint, etc.). I paid all of the interest plus, points, and additional from the Solo 401K reserves to get it into rentable condition. It is currently rented at below market rent to stop the bleeding. The property is on the market and only received 1 offer significantly below asking. The value of properties in this area of PA are the cost of a down payment for a property in CA.
Something to consider is the growth of a city or area you plan to invest. I think the area of PA the home is located is significantly depressed and can't see any future growth. Wikipedia shows a decline in population and could explain the difficult time to sell a home in a depressed market. I should have used this money to invest in my own rentals/flips. I would be in control of my investment and decisions. I can guess that the money that I invested in this note purchase went to the owners business of building new homes and other business ventures.As others have stated, if the investment was so good, then why would the business have to market to OOS investors? Money follows value that is being offered. I am sure all of these referrals from third parties get commissions as well. It is strange to me how I post about my negative experience with TK investments and still get friend requests from TK providers in these depressed markets. Good luck in whatever venture you decide, but like everyone has stated do some due diligence.
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