About me: High income individual but work long hours in a city that's terrible for investors right now. Sure there's Tacoma and Everett, but there's better opportunities out there. I don't have the time to fly out to cities and personally vet everything because I work weekends as well. I want to retire in 20 years, and need about 500k passively yearly.
Strategies: Multifamily seemed like the way to go. But there are few apartment deals out there and it's a sellers market. So, I decided to wait for things to cool off (whether it's one year, five years, or ten years), and jump in when the environment is more in my favor. In the meantime, why not get my feet wet with SFR's?
New Strategy: I'm finding some great SFR turnkey deals with COC returns 10%+ in the South and Midwest. I hope to purchase one SFR deal every 1-2 months using local lenders and use PM companies to help run them. PM is going to be key.
When things start slowing down, 1031 exchange into apartments. The months that I don't buy a house, the down payment that wouldve gone to a turnkey SFR house will instead go to the "future multifamily fund" to fund that project when I do finally find a good deal.
How I analyze SFR turnkey:
Assume 30 year mortgage at 5% interest rate
Expenses are 50% (to include property management, taxes, etc.)
Vacancy rate of 8%
Find rent ranges within a couple hundred dollars within a few square miles, and assume a rent on the LOWER end.
Minimum COC required 10%.
Closing costs 2%
Because it's turnkey, I don't budget any money on renovations. I do budget $1000k to go into the "reserve fund" right off the bat.
Long term play without multifamily if it never happens:
200k/yr invested in houses, 10%COC return each, in 10 years hopefully the investments return enough to keep the investment fund going on it's own (from a capital injection standpoint). 20 years total should get me the passive income I'm looking for. Some killer good deals and ability to scale along the way may even allow me to reach my goals sooner!
1. If a deal offered to me via turnkey doesn't cashflow the way I want it to, is it customary to negotiate (they tell me EVERYTHING is negotiable in the books and on this community) or is it better off to just say "pass" and look for the next one? For example, with conservative analysis as stated above, if listed at 85k doesn't work, but 78k does give me the returns I want, is it a major faux pas to say I'd be willing to consider for 74k and hope to negotiate to 78k or lower with a turnkey as I would the general market?
2. When purchasing turnkey, do you tend to pull the trigger AFTER a tenant is already in place, or (assuming an awesome PM company), go ahead with the deal and take a risk/put faith in finding a tenant within a month or two.
3. Do you ever purchase with a stipulation during a 30-day close that the PM company has to sign a tenant in that time? Especially when the PM company IS the turnkey?
4. Any other thoughts, especially with regards to my approach to the analysis above? I'd rather it be too conservative in case hard times are coming. I'd love insights as to whether I'm not conservative enough, or whether these assumptions would generally keep me safe even if the 2000's hit again (as long as it breaks even, I'm safe as I'm not quitting my job for at least 15 years, unless I find resounding success in real estate and can afford to).
Any insights are greatly appreciated!
I’ve worked with some turnkey properties and own some turnkey properties as well. Usually the price they give you is what they will sell it for and nothing less. You can wait to close sometimes until a tenant is in. A good company will have it in already and this won’t be an issue.
I would hesitate on your strategy for two main reasons: 1. 1031 exchanges are difficult to do and with so many moving parts it’s unlikely you’ll pull it off successfully. 2. Your resale value for a TK property may or may not be what you buy it for. You can easily buy it for appraised value and then realize the true market value is much less. You have to hold a TK property for probably 10 years before you make money and ideally you’d hold it forever.
Assuming you’re an accredited investor id look into participating in syndications of apartment complexes. They find the deal, you supply cash and you make probably around 10 percent in your money.
Finally, if you’re truly accounting for all expenses and getting good TK deals you probably get 200 bucks a month per house. So I if you want 500k annually you’d need over 200 houses, which means you’d need to buy 10 per year for 20 years. Which unless you’re doing cash is going to be difficult after a while. The good news is you have options but for your goals I don’t know if turnkey is the right path
Also assuming closing costs as a purchase price (for residential at least) is not accurate. Your closing costs will be around 5k for each transaction. Could be 1000 under or over but that’s pretty standard and it’s won’t vary much for a 50k house or 200k house
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