I dont understand the Turnkey game
Real Estate Investor · Louisville, KY · Member since 2017 · 56 posts · 39 votes
I dont understand the Turnkey game
Most Popular Reply
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
In theory the TK could be a viable option and in practice sometimes it is not. Investing in locations you might have little knowledge about could add extra risk and since these TKs are usually far away from the investor that extra risk part gets added many times.
There are other issues that seem to go hand in hand with the lack of local knowledge. One common mistake I see some TK buyers make is how they analyze price to rent ratios.
Price to rent ratios can be used to compare and or predict initial cash flow on like properties in the same location/zip. The price to rent ratio number does not meaningfully transfer to compare and contrast to other locations/properties 1000 miles away as we see commonly promoted on BP.
Properties with little to no appreciation can primarily return via initial cash flow ( higher initial price to rent ratios) and without that there is hardly any chance to profit. Other locations might have more profit ways going for them and usually have lower initial price to rent ratios. It could make much less investment sense to compare price to rent ratios as if these two properties were next door to each other.
If you use price to rent of one location and then apply that locations ratio to another property outside of that exact local market the way I see some TK promoters instruct TK buyers to do, this could lead to some very flawed investment analytics turnkey or not.
Good luck!
- 9yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Chris Mason:
Originally posted by @Micah Mcarthur:
I am just starting to explore the turnkey option of investing, and right away, I am having serious doubts, because it doesnt make sense. It sounds too good ....
If a turnkey outfit buys a distressed property at a discount, puts money into it, rents it, and manages the property, exactly how and why are they going to sell it to me at a price that allows me to make a profit?
Why wouldnt they just hold the property, and all the equity and cashflow with it. What am I missing?
There was a post a few days ago, and someone was talking about $20K instant equity, because the turnkey company was selling the property below market? How does that even make sense?
Quick note that no one else caught:
Micah, you appear to be in Kentucky. I have family from there. You, and my family, actually know what real estate on the ground in Kentucky is like. Even if you don't know the neighborhoods in some particular town in Kentucky, you've got a buddy that you went to high school with that you can call and ask (or I could call my family out there and ask). You, clearly, aren't the primary target customer of the TK provider.
If your facebook knows you're interested in real estate, spoof your IP address so it looks like you're on facebook from California or New York, and change your personal details to indicate that you've never been outside the coastal areas of the country, certainly not Kentucky or Ohio or Nebraska. Change your job to be software engineer or medical doctor, something high income but stereotypically low in "street smarts." Watch all the TK ads suddenly start blowing up your facebook feed. Now we are starting to get an idea of who the target customer is. :)
Chris, that was actually pretty funny!
- 9yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Unfortunately, today the word Turnkey is used like it is a noun with real meaning behind it.
You have to wrap your mind around the fact that there is no definition of turnkey. It is widely used today by everyone on both sides of the argument as if there is one standard definition that explains what a turnkey investment is or how turnkey companies operate. Most of the comments I read on both sides I would judge as inaccurate at best and an outright lie at worst.
Substitute the word passive for turnkey and you should start to get a better grip on what does it mean. It means you are not doing the work for the investment. You are not doing the property search, the property due diligence, the buying, hiring, firing, renovation decision making, budget analysis, budget adjustments, rental analysis, property marketing, resident evaluation, resident approval or property management. Nor are you having to repeat any of those steps in the future.
The decision making for each of those steps is left up to someone else. Your job is to figure out if that someone else is a reputable and trustworthy person and/or company. That is the hard part in this equation.
As to why someone would sell a property for $20,000 under value. You have to ask yourself what the real value is? What is the real value of the property, of the service and company and do they even value what they provide to you. I agree with a point that @David Song made earlier although I think some of his statements are bit too heavy. (You cannot paint all turnkey companies in the same colors. Neither good nor bad.) But he made a point that basic economic theory suggests that no one would leave that kind of money on the table without reason. Truth is, no high quality company would leave that kind of money on the table. If they were providing a truly valuable service then they would value that service and maximize their income as a company. If they do not provide a valuable service, then they need another compelling reason for a buyer to buy. Hence, the discount.
That is why you will find many companies that use the word "turnkey" as a marketing tool, are not offering any real value. I define value as far as turnkey is concerned as limiting risk. That is why a lot of investors are going to lose money in the next few years buying turnkey. They are buying the word "turnkey" and not the value that it is supposed to provide.
If you buy the value, then you are paying at or near a retail value. You are buying a property that has been substantially upgraded to at or near retail levels and you are buying a property with no underlying deferred maintenance. You should expect a company that utilizes technology and people to provide a stable investment with reliable and predictable returns and great communication. This is not cheap. This is not going to be found in economically challenged areas of cities. This is not going to be found in companies with stay small keep it all mentalities and you are sure not going to find it in companies that want you to pay for the property, then pay for the renovation.
There is price compression across the boards right now with prices going up for everything from acquisition (the price a company pays) to materials and labor. If a company wants to make a profit - and why in the world would an investor want to engage in a long-term relationship with a company that does not know how to make a profit - then that is going to push the pricing even higher.
I think an investor who wants to invest passively - using a turnkey company or not - should expect an all in cost of near retail value and a straight COC return of 5.5% to 7.0%. Every bit of discount and every bit of return higher comes with some increased form of risk. Riskier neighborhood. Riskier renovation. Riskier property management. Or all of the above.
IMO, an investor looking to buy turnkey investments today should be looking for a safe place to put capital and utilize a bit of leveraging. You should be as confident as you can be that you can get a return of your capital first and a return on your capital second. That may mean you have to pay more and get a smaller return, but you will sleep better at night.
Lastly, not all turnkey companies or offerings are created equally. To say only out of state investors buy turnkey is not true. To paint all turnkey investors as lazy is not true. To say all turnkey investors are newbies or that the turnkey model is to attract newbie investors is not true. Are those statements true in some cases, absolutely. We have all seen it happen and it has been happening for as long as I have been around. It is not something new. Just don't get hung up on there being one definition for the word or for what it means and certainly don't believe that every company operates from the same playbook meant to take advantage of others. That is simply not true.
Investigate with patience. Spend time on the phone with companies you trust and understand what value they bring to the table for the return you get on your investment. You will find out if the trade-off you in time, money and risk are worth the return you expect to get. And if they are not, then look for other ways to passively invest. There are literally hundreds. Just be patient whatever you do.
- 9yJoshua DiazPro MemberRental Property Investor · Bronx, NY · Member since 2015 · 269 posts · 165 votes
As someone who lives in one of those expensive cities (NY WOO), i see the value of turnkey. I want to say thanks for the thread as all the different viewpoints are valuable.
There are bad turnkey companies just like there are shifty wholesalers.
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes9y
Originally posted by @Joshua Diaz:
As someone who lives in one of those expensive cities (NY WOO), i see the value of turnkey. I want to say thanks for the thread as all the different viewpoints are valuable.
There are bad turnkey companies just like there are shifty wholesalers.
I 100% agree! There are too many people who say "Turnkey" when all they mean is "Hey look I found a good looking home on the MLS"
- Investor · Hillsboro, OR · Member since 2016 · 310 posts · 153 votes9y
@MatthewOlszak : Some of the situations you describe are simply fraud not a bad business model. A business is only as ethical as the people running it.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes9yThere are pros and cons to buying turnkey. I bought one and don't regret it. It got me in the game and I'll still make decent returns. It's not a grand slam, it's a base hit. It would take a while to retire on only buying Turnkeys but my age and ability to save allow me to buy properties (turnkey or not) relatively often so it works for me. Everyone else may not have that same situation. Whether or not it's for you is based on many factors besides simply whether or not it's a good deal. I don't have any affiliation to any turnkey provider.
So I read through this whole thread and seems the prevailing consensus is there are a lot of scammers out there and if you can find an honest, reliable turnkey provider it could be worth it, but no recommendations on how to find that needle in a haystack. Maybe BP just removes those posts. Anyway, anyone NOT affiliated with a turnkey provider who wants to tell me about positive/negative investor experiences with specific providers, please PM me and I would be very grateful to hear about your experience.
@Kevin it's easy to find a good TK provider... understand the market you're wanting to invest in and how an investment should be made so you can perform your due diligence. You don't have to be an expert in either to weed out scammers... and if you're half way decent you can at least ask questions that'll significantly reduce your risk.
But the deeper you go in doing your own research the less value a TK hold... and you're paying for something you aren't really using.- Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes9y
@Micah Mcarthur Your instincts are correct. If someone tells you they are in the business of selling their assets below market value... RUN.
One thing about knowing lots of investors with different entities is finding out what people are saying from both sides of their mouths.
Most turnkey companies tell customers one thing and people they want to borrow money from something completely different.
- Investor · Houston, TX · Member since 2014 · 208 posts · 135 votes9y
Originally posted by @Vika Bha:
@ 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?
If your goal is to buy and hold, there is no reason you should lose money if you plan to sell down the road after buying through a turnkey company. You wouldn't be able to sell it immediately and make money, but if that was the case, you shouldn't be buying TK in the first place. You just need to do your due diligence and buy right, just like you would any other investment. Don't blindly trust, do your own research to make sure you're making a good investment at the start. Don't discount the entire industry just because of a few naysayers on BP.
- Real Estate Consultant · Kansas City, MO · Member since 2013 · 388 posts · 200 votes9y
Not to completely follow one of the great minds in turnkey real estate, but as a smaller provider in a different market, and one who respects Chris Clothier, I want to second his comments.
True, there is significant price compression in the current market. Whether Memphis, Indy, KC or other, prices are up substantially. So is the cost of quality labor. Note: Quality.
Providers in the current markets are battling one another for fewer properties. We also are competing with local mom and pop investors, in every market. To say that there is equity in any transaction, is simply not a true statement, and certainly not in the current ecomony. At best, we can afford to sell a property, properly rehabbed, in a good neighborhood, for about a 3% discount only. Why? Because I wont be paying commission to a buyers agent selling at retail. Competition is fierce. Competing with providers good and otherwise, has the market scrambling to make sense of available deals.
Exceptions are not necessarily true. Quick example....property in KC suburb has Zillow value of $150k, in an A class market area. But, the street is an exception. The block belongs in a B- area, but is surrounded by A. True value is $100k. Sold at auction for $75000 and needed every bit of $30k to rehab. For us, that was an investment of $105k for value of $100k. No profit, in fact, a loss. Bought by a turnkey company currently selling the property at $145k, not yet leased. Would you be happy with a property for $145k that was valued on Zillow for $150k? Always? No. There are comps within 1/2 mile that support the value. Still, the answer is no. The block is valued at $100k. The value of the house is $100k, maybe $105k, but certainly not the $145k.
As providers, it cost us more to rehab the house than a local mom and pop doing work themselves, but less than a homeowner or individual investor because of our volume. Rehab 50-100+ houses a year in a market, and you will have volume discounts. This is our margin now.
I would venture that there are more unscrupulous turnkey companies in the U.S. than ones that provide a solid product and service. I've reviewed turnkeys in my own market and travelled to other markets to review others. Lipstick on a pig is a common reference, and a solidly true statement in many respects. Home Inspections can help a lot, but strong, proactive due diligence is key to success. For investments as much as a house cost, a simple flight to a market could be your wisest investment. Then look past the cosmetics...look at durability, safety, foundation, construction, etc. Cosmetics are cheap, real cheap, compared to the value put in by the good providers.
FInally, a topic not mentioned in this thread, is the pressure applied by the hedge fund buyers. Big money from firms are being applied in these same markets. Their investment return expectations are at an all time low. Many are sub-7%, some are now sub-6%. One must beg the question then, how do you expect to get a better deal, that is true to market, where the ROI is superior to the multi-million dollar funds? If they are willing to buy these same few assets on the market with say a 7% cap expectation, how is it that a turnkey company, with a solid rehab, can provide a 9.5% cap rate? Simply won't happen.
It's up to the investor to do proper due diligence, not only on the real estate being purchased, but also on the quality and value of the renovation, plus appropriate analysis of expense expectations, etc.
Whether is macroanalysis of a market area, or microanalysis of a property, please do your due diligence. This ultimately makes real estate a more honest business, with good providers.
Originally posted by @Chris Clothier:
Unfortunately, today the word Turnkey is used like it is a noun with real meaning behind it.
You have to wrap your mind around the fact that there is no definition of turnkey. It is widely used today by everyone on both sides of the argument as if there is one standard definition that explains what a turnkey investment is or how turnkey companies operate. Most of the comments I read on both sides I would judge as inaccurate at best and an outright lie at worst.
Substitute the word passive for turnkey and you should start to get a better grip on what does it mean. It means you are not doing the work for the investment. You are not doing the property search, the property due diligence, the buying, hiring, firing, renovation decision making, budget analysis, budget adjustments, rental analysis, property marketing, resident evaluation, resident approval or property management. Nor are you having to repeat any of those steps in the future.
The decision making for each of those steps is left up to someone else. Your job is to figure out if that someone else is a reputable and trustworthy person and/or company. That is the hard part in this equation.
As to why someone would sell a property for $20,000 under value. You have to ask yourself what the real value is? What is the real value of the property, of the service and company and do they even value what they provide to you. I agree with a point that @David Song made earlier although I think some of his statements are bit too heavy. (You cannot paint all turnkey companies in the same colors. Neither good nor bad.) But he made a point that basic economic theory suggests that no one would leave that kind of money on the table without reason. Truth is, no high quality company would leave that kind of money on the table. If they were providing a truly valuable service then they would value that service and maximize their income as a company. If they do not provide a valuable service, then they need another compelling reason for a buyer to buy. Hence, the discount.
That is why you will find many companies that use the word "turnkey" as a marketing tool, are not offering any real value. I define value as far as turnkey is concerned as limiting risk. That is why a lot of investors are going to lose money in the next few years buying turnkey. They are buying the word "turnkey" and not the value that it is supposed to provide.
If you buy the value, then you are paying at or near a retail value. You are buying a property that has been substantially upgraded to at or near retail levels and you are buying a property with no underlying deferred maintenance. You should expect a company that utilizes technology and people to provide a stable investment with reliable and predictable returns and great communication. This is not cheap. This is not going to be found in economically challenged areas of cities. This is not going to be found in companies with stay small keep it all mentalities and you are sure not going to find it in companies that want you to pay for the property, then pay for the renovation.
There is price compression across the boards right now with prices going up for everything from acquisition (the price a company pays) to materials and labor. If a company wants to make a profit - and why in the world would an investor want to engage in a long-term relationship with a company that does not know how to make a profit - then that is going to push the pricing even higher.
I think an investor who wants to invest passively - using a turnkey company or not - should expect an all in cost of near retail value and a straight COC return of 5.5% to 7.0%. Every bit of discount and every bit of return higher comes with some increased form of risk. Riskier neighborhood. Riskier renovation. Riskier property management. Or all of the above.
IMO, an investor looking to buy turnkey investments today should be looking for a safe place to put capital and utilize a bit of leveraging. You should be as confident as you can be that you can get a return of your capital first and a return on your capital second. That may mean you have to pay more and get a smaller return, but you will sleep better at night.
Lastly, not all turnkey companies or offerings are created equally. To say only out of state investors buy turnkey is not true. To paint all turnkey investors as lazy is not true. To say all turnkey investors are newbies or that the turnkey model is to attract newbie investors is not true. Are those statements true in some cases, absolutely. We have all seen it happen and it has been happening for as long as I have been around. It is not something new. Just don't get hung up on there being one definition for the word or for what it means and certainly don't believe that every company operates from the same playbook meant to take advantage of others. That is simply not true.
Investigate with patience. Spend time on the phone with companies you trust and understand what value they bring to the table for the return you get on your investment. You will find out if the trade-off you in time, money and risk are worth the return you expect to get. And if they are not, then look for other ways to passively invest. There are literally hundreds. Just be patient whatever you do.
- 9yWhitney HuttenPro MemberInvestor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
Regardless of whether you are sourcing your own deals or going with a TKP, you make your money on the purchase. I started out the traditional route, but now I am growing much quicker in the TKP space due to the scalability of the model with having a full-time career and family (not to rent ratios are not ideal for leveraging capital where I live).
The question was asked, how do you start finding a provider and deals... it's a funnel... and I feel the best way to find a great TKP is to network with members on BP... really network... comb the boards and find who is really having success with TKP. Here's how I did it:
1. I started off researching 10 members and interviewed each member to understand how they got started in the space, what they looked for in a provider, what were their redflags, and maybe, just maybe they shared their source openly. The education gained in those interviews and the network created is priceless to me. As I grew my portfolio, these members also supported me in helping me look at numbers and find more deals!
2. Then you go and interview each provider, sort which have the product you want, get on their lists, and analyze deals... 95% will not meet your criteria or are over-priced... but you will have tons to look at and access to so many properties that aren't on the MLS (to me this is the best part of TKP).
3. Then "offer" on the deals (don't just agree to the price marked). In many cases you can negotiate on a turnkey deal (the price and terms isn't necessarily set). Be willing to walk away or hear "no". I just closed on a deal today that I picked up 20% under appraised value, inspected beautifully, all because the provider needed cash for another deal ASAP.
4. Do your due diligence. Make sure you have an inspection and appraisal out in your contract. If a TKP won't allow for this or wants it to be a "handshake" type of deal, I personally would not do business with them.
4. Just with any other real estate deal... be patient until the right deal comes. Don't rush... don't succumb to the pressure to purchase.
TKP isn't for everyone... and like with anything in life you can get scammed... but don't rule it out as a viable way to grow passive income and quickly!!!
- 9yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
Originally posted by @Kevin H.:
So I read through this whole thread and seems the prevailing consensus is there are a lot of scammers out there and if you can find an honest, reliable turnkey provider it could be worth it, but no recommendations on how to find that needle in a haystack. Maybe BP just removes those posts.
Hi Kevin.
The posts in this thread that have been removed were from a scammer/spammer who was harassing our members. They had nothing to do with finding turnkey providers or with recommendations.
Yeah, if you are in Louisville, there are probably deals to be had there. There aren't any turnkey companies there I know of, but I bet if you network around hard enough there are probably PMs or someone who can offer some kind of turnkey-experience for you....either finding you good rent-ready properties that don't need much work, or they have connections with good contractors to take care of things to the point you only need to check in.
@Emily Powell Turnkey properties would be most ideal for me. Because of my day job, it would be great to go to one company versus search through listings, find relators, contractors, property management etc etc
I think my hesitation is this. I researched a property being offered by a turnkey company. It was selling for $185K. When I looked up the address, the property was purchased for $10K. I am no rehab expert but I would imagine a full gut rehab with the connections TK operators have would cost $50-$60K for that particular property. And I do understand that the TK company is bidding for these deals (as in I probably would not be able to obtain the same property for that low of a price), has an army of people searching and negotiating, spent time building relationships with contractors and property managers and are also dealing with other hassles hence why I pay a premium. I am ok with that premium but $185K? for a property that may have cost $70K total for them? I'm paying $115K premium? Needless to say, I crossed that company off my list. Maybe I am naive and that $115K premium is truly warranted but it just seems steep to me.
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes9y
Originally posted by @Vika Bha:
@Emily Powell Turnkey properties would be most ideal for me. Because of my day job, it would be great to go to one company versus search through listings, find relators, contractors, property management etc etc
I think my hesitation is this. I researched a property being offered by a turnkey company. It was selling for $185K. When I looked up the address, the property was purchased for $10K. I am no rehab expert but I would imagine a full gut rehab with the connections TK operators have would cost $50-$60K for that particular property. And I do understand that the TK company is bidding for these deals (as in I probably would not be able to obtain the same property for that low of a price), has an army of people searching and negotiating, spent time building relationships with contractors and property managers and are also dealing with other hassles hence why I pay a premium. I am ok with that premium but $185K? for a property that may have cost $70K total for them? I'm paying $115K premium? Needless to say, I crossed that company off my list. Maybe I am naive and that $115K premium is truly warranted but it just seems steep to me.
Many times Turnkey companies sell homes at or just below market value. If you are leveraging the property your lender will require an appraisal! I would assume the Turnkey company would not over inflate the price because if the appraisal fails, then the deal fails! I would watch out for those companies that say "cash only." That just means they are trying to avoid the appraisal.
Turnkey is likely not the best equity play, but it can provide value for a number of parties. This is my understanding:
For the buy-and-hold investor, it provides a safer way of entering a new market. As someone from California, turnkey would allow me to vet and adopt a set of pre-existing boots on the ground and get into a cashflow-ready property without taking on the risk of out-of-state rehab or vacancy time up front.
For many turnkey operators, my understanding is that volume is key. The main difference from traditional flippers is that these operators are more vertically integrated, typically profiting on management long term. What I think may be lost on many is that many turnkey operators are incentivized against holding by their financing. There are large investment groups that provide many operators with the capital they need to finance volume. I don't think many operators benefit by holding.
- Investor · Houston, TX · Member since 2014 · 208 posts · 135 votes9y
@Vika Bha Out of curiosity, did you check more than 1 house being sold by that company or just the 1 before crossing them off? I would guess that the amount you saw was actually the payoff of a lien (which is a subject I am not terribly familiar with). I'd be curious what else you could find on their properties, as I highly doubt that kind of profit is possible on a small SFH.
- Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes9yVika Bha From what you describe yourself, you have a full time job, and do not have time to find a realtor, and actually deal with the headaches of REI, therefore you think a turnkey might fit your need. You might find other investment like stock, REIT, bond, notes, more suitable. REI is never hands free. That is unrealistic. Hands free REI will get ripped off. Do not trust other people with your own money. You have to be vigilant when dealing with people in investment.
- Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes9y
highly depends on what is put in. You can always request they give you a scope of work performed. A gut reno can easily cost way more than $50K - $60K. TK margins should be much smaller than that (key word is should be).
@Emily Powell after your suggestion, I looked at other properties listed and the mark up is significantly higher for the 5 other properties as well. And you are right, if the homes were foreclosed, they may have paid more money to clear the title (not too familiar with this either). I just don't know how much that would actually be.
@Tom Ott I don't plan on working with any company that says "cash only" for the very reason you described. Just out of curiosity, if the turnkey provider owns many properties in that same area with the high prices, would it push up the appraised value? And what if one is required to use their lender? they choose the appraiser?
@David Song thanks for the suggestion. I have some investments in stocks already and am seeking real estate for diversification. I am not looking or 100% hands free investment, just something that is relatively reasonable for a person with a day job. Even investing with a turnkey operator takes a good amount of work, finding reputable providers, seeing if the prices make sense, vetting property management, hiring independent inspectors, researching property locations, crime rates, city statistics, visiting the city/neighborhoods, etc. I imagine there must be some investors out there who have day jobs and still invest in real estate successfully. Just curious to see how I can also achieve that.
- Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes9y
REI is more risky than stocks, mutual funds, and has a higher barrier for entry. If you have limited time, maybe find some properties close to where you live. First and most important, minimize risks and not losing a lot of money in your first purchase.
Every city is unique, and have its own opportunities. There are also so many ways to play the game.
To be honest, right now, it's not a good time for new investors to get in, imo.
Ask yourself what you are good at, compare to other investors?
Do not trust any stranger over the internet. Do not trust a seller. Make your own assessment.
You have to become an expert in the market you are investing in. Your local market is the easiest.
Keep in mind that REI is a competitive game. You are competing and fighting with seller, buyer, realtor, contractors, and basically everyone you deal with.
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes9y
Originally posted by @Vika Bha:
@Emily Powell after your suggestion, I looked at other properties listed and the mark up is significantly higher for the 5 other properties as well. And you are right, if the homes were foreclosed, they may have paid more money to clear the title (not too familiar with this either). I just don't know how much that would actually be.
@Tom Ott I don't plan on working with any company that says "cash only" for the very reason you described. Just out of curiosity, if the turnkey provider owns many properties in that same area with the high prices, would it push up the appraised value? And what if one is required to use their lender? they choose the appraiser?
@David Song thanks for the suggestion. I have some investments in stocks already and am seeking real estate for diversification. I am not looking or 100% hands free investment, just something that is relatively reasonable for a person with a day job. Even investing with a turnkey operator takes a good amount of work, finding reputable providers, seeing if the prices make sense, vetting property management, hiring independent inspectors, researching property locations, crime rates, city statistics, visiting the city/neighborhoods, etc. I imagine there must be some investors out there who have day jobs and still invest in real estate successfully. Just curious to see how I can also achieve that.
Lenders pick the appraisal and it is supposed to be unbiased. I would really hope the Turnkey company lets you pick your own lender. I do not see a benefit to you if they make you go with someone. I would have to think there is a relationship there that helps them out.
- Investor · Cypress, TX · Member since 2016 · 170 posts · 139 votes9y
@Micah Mcarthur To answer you initial question, why is there an equity capture on some TK properties? TK operators sometimes sell a property to investors below market value so that the property will offer an adequate ROI given the rent it commands. I might sell a $190,000 property for $170,000 because the max rent i can get is $1,700 mnth or less. Am I leaving $30K on the table? Perhaps but I'm also going to make money on the Property Management for years and if I bought the property well, did the rehab well, I'm making money at each stage. (old saying: pigs get fed, hogs get slaughtered) I don't need to make as much money on the sale because there was profit at each part of the deal for me. I could flip the house for $200K and walk away but that is not my business model and I'm focused on building my PM business and all the other aspects. We do flip houses and make maximum profit sometimes. The "A" properties don't often fit into the TK business model (buy and hold) because they are too expensive to acquire and i can't get enough rent to offer a TK buyer a good ROI. We don't look for "A" properties just for that reason, they do come across our desk occasionally and we do flip them when that happens.
@David Song your responses to this message thread have been almost completely inaccurate and misleading. TK is not a scam, we don't target OOS investors, and it is not more volatile than Wall St. I do get a lot of OOS investors because people who live in Cali and NYC can't buy RE where they live that can do the same thing we do here in TX and in the Mid-West. Here you can buy a $150,000 property that rents for $1,500/mnth in a "B" neighborhood. Our customer base is growing because we offer real value and expertise that someone like yourself does not have. We will not put you in a bad neighborhood or put a bad tenant in your property, or make unnecessary repairs to your property. And you can insure a TK property, how do you insure your Wall Street portfolio?
If you have the time and the skill you can do exactly what we as TK operators do for yourself. It takes a lot of time and a lot of skill (education, market knowledge, local resources) to do what we do and that is what you are paying for and relying on with TK operators. It is not "too good to be true", there is a market opportunity created by people who want to live where they want to live, and invest where it makes sense. Those investors rely on TK operators and what we bring to the table.
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