TurnKey Or Not To TurnKey? That Is The Question...

29 Replies

Hello BiggerPocketeers!

Looking to buy properties OOS and am wondering whether or not to use a "TurnKey" company. My thoughts are either to use one, and let them do most everything, a "One Stop Shop" so to speak (Obviously, I would do major due diligence.), or to buy Out~of~State properties myself and set up a reputable property management company that runs a super~tight ship.

Please share your expert thoughts, pros, and cons, that I may have some light shed on the prospect of purchasing OOS using TurnKey companies or not.

Thank you in advance for your responses.  :)

Daniel F. Harb 

714-470-4152

I think you are on the right track and what leads me to say that is the emphasis you placed on Property Management. PM is simply that important. A great house with poor PM is going to be a bad buy, and even an average house with good/great PM will be a better investment for you. I see this everyday. 

Perhaps you should consider working with a good TK operator to "learn" what you need to know and be comfortable with before you strike out on your own. We've had several clients proceed this way and it seems the most logical path to knowledge and success. 

TK was born out of the opportunity created by the time vs money quandary. Those that had money but no time [busy, successful career] are the best candidates for a TK offering. Time and time again I've seen people start with TK and then as they expand their knowledge and comfort level they grow their portfolio outside of just the TK purchases.

And one final thought, local knowledge, local relationships, and strong infrastructure with a top tier TK operator are very valuable. As a TK operator we've learned our markets, our properties, our contractors and built our companies through a lot of trial and error. We've made mistakes and learned from them. You can benefit from that knowledge and there is definitely value to it.  

I decided to use a Property Management team for my recent multifamily purchase and glad I did. Their knowledge of local market and how to get the highest rents will pay the fees with ease. That said, they are charging me a very low percentage so easy to overcome the cost.

I would echo learning from a professional manager before venturing out on your own.

@Daniel F. Harb , so long as you're not expecting much of a profitable exit strategy, then sure, research Turnkey Companies and their properties, then buy 'em, all day long.

So long as your Turnkey Company research proves to be correct, you will get better than bank interest return on your invested cash. That's all you're looking for, right?

Your post reads as though you already know the answer to your question. Good luck...

Originally posted by @Daniel F. Harb :

Hello BiggerPocketeers!

Looking to buy properties OOS and am wondering whether or not to use a "TurnKey" company. My thoughts are either to use one, and let them do most everything, a "One Stop Shop" so to speak (Obviously, I would do major due diligence.), or to buy Out~of~State properties myself and set up a reputable property management company that runs a super~tight ship.

Please share your expert thoughts, pros, and cons, that I may have some light shed on the prospect of purchasing OOS using TurnKey companies or not.

Thank you in advance for your responses.  :)

Daniel F. Harb 

 When investing out of state, one of the best methods is Turnkey. If you go with a true provider the home should be owned, renovated, and managed all for you IN HOUSE. Make sure you do not go with a company that uses a third party or pushes you off on some property management company they "trust." 

When you live very far away and work a 9-5, Turnkey is much easier than buying a low-cost home and having someone manage it. At least a Turnkey you will have all of the major renovations done for you and you will not have to worry about major maintenance up front!

Try checking out:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

Tom Ott, Real Estate Agent in OH (#2016003865)
440-749-4043

I’ve done this both ways, bought from a turnkey company and (built my own team, PM etc).

I think there are benefits to both and plan to continue to do both strategies going forward. The do it yourself way took way more time, I had to switch PMs early on and my return is only slightly better.

The turnkey way has been essentially effortless (so far) since closing. The biggest downside to turnkey is you have limited exit strategies your first ~ 10 years or so. If you’re okay with that (I am) then I think it’s sort of a wash.

Now this also includes the fact that you need to make sure your turnkey properties have true rehabs and most big ticket items are new. That’s not always the case.

Hope this helps, feel free to PM me if you want

Thank you very much, @Brian Foster , @Michael M. , @Brent Coombs , @Tom Ott , and @Caleb Heimsoth .

I really appreciate your valuable input, and I look forward to the new year and getting started in investing OOS. The fact that it works both ways (with serious research and due diligence), is really heartening and gives me the confidence to invest OOS.

I look forward to continuing this great conversation hopefully later tonight, I am off to the hospital and my MacBook doesn't get connectivity at all in the Radiology Department. I'm stuck to my Note 4, which is spotty at best.

You know, the walls are lined with lead.  :)

Have an awesome day everyone, and talk soon!

Best of profits!  $$$

Daniel F. Harb

714-470-4152

As others have said, the reason to go turnkey is to get up and running quickly.  You still need to do your due diligence (at the very least) on the property with an inspection, the location by visiting and seeing it firsthand, and the turnkey company by seeing some of their previously completed rehab work firsthand, but all that is much easier than locating a property yourself and renovating it.  Once you own it, the 'turnkey' aspect is done, since it is turned over to property management either way you go.  

I'll add that property management is where you need to do extreme due diligence.  Yes, you can use the property management that the turnkey company works with or has in house, but research others and don't hesitate to hire a different company that might be better at it.  And no matter what property manager you go with, make sure you have the ability to cancel within 30 days in case you become unhappy.  

I know this is straying away form the 'turnkey or not' question, since it applies either way, but the reality is that your tenant makes or breaks the investment.  Good tenant, and you'll hardly think about or worry about your investment, and you'll think your property management is awesome.  However, when tenant starts paying late or stops paying, or leaves you with several thousand dollars in damage when they move out after a year or 2, that is when you really find out if you like your property manager or not.  You won't know 'how tight their ship is' until you start running into issues.  

Ah, thank you, Scott C. Critical info and very much appreciated!

Look forward to talking more tonight. :)

~Daniel

714-470-4152

Always go turnkey. 

Whether you hire out or are more involved, plan from the beginning to be able to step away from the business if you need to.

That requires careful analysis of the property before you buy as to whether it meets your financial goals AFTER including all expenses.

If any turn key company sends you a cashflow analysis without at least TIMMUR

1. Taxes, 

2. Insurance, 

3. Management, 

4. Maintenance, 

5. Utilities, 

5. Repairs

Then run for the hills.

In Bridgeport, Connecticut and many North East regions we also include Snow Removal and Pest control.

I like Craig's TIMMUR list. I've been a bit more informal in how I describe it and may just be using different terminology, but I also include set asides for Capital Expenses (CapEx)....thinks like roofs, HVAC, etc. Maybe that's what he considers Repairs vs. Maintenance.

Turn key investing is fine, although I prefer to find distressed properties because I usually get a better deal.  I'm a bit more hands on with tenant management, although I hire out all maintenance and rehab.  I don't know of anyone who would treat my properties with as much care as I would, and since I don't own 200+ units (yet), I have time to do it and see a great profit as a result.  

Someday, I will likely hire and train my own property management assistant so they know "my way" of doing it vs. a canned method that may not be optimal for my class of rentals (typically "Class C"....sub $30K units).  Lots of Pro managers in my area won't touch anything if the rent is under $1000 a month, which for my area is a very nice 3-bed house in a new subdivision or extensively rehabbed older house in a desirable "seasoned" neighborhood!  I'm a blue collar investor, for the most part.

Thank you, Craig B & Erik W. I really like that "TIMMER". I will most definitely use both of your expert info wisely, and I really appreciate you taking the time to share with me the critical information before diving into OOS investing.

Best of profit to you both!  $$$

Daniel F. Harb

714-470-4152

Depends on what you want.  A good TK company will do all of the heavy lifting for you...sourcing, acquisition, rehab, management, etc.  There's a system already in place to minimize your risk, and maximize your returns.  If you're busy with a full-time career, and want to take advantage of better markets OOS, they can be a great resource.

If you really want to squeeze every nickel, then these are things you'll have to do yourself, which is not very easy from a distance, but there are plenty of investors on BP that have made a go of it.  It all depends on what your tolerance is for the time vs money argument.  

Well said, Jeff S. When I am crazy~busy in my career, TK just sounds really great especially the company doing the heavy~lifting.

Really interested in Indianapolis, Indiana. Looks like a pretty solid start for me. :)

Best to you, Jeff, and thank you!

714-470-4152
Originally posted by @Daniel F. Harb :

Well said, Jeff S. When I am crazy~busy in my career, TK just sounds really great especially the company doing the heavy~lifting.

Really interested in Indianapolis, Indiana. Looks like a pretty solid start for me. :)

Best to you, Jeff, and thank you!

 If you are dealing in an area you are newly discovering, perhaps also check rentfaxpro for more insights. There one will find stuff like rentability scores, rents, tenant and vacancy durations, PM scores, basically the insider nuts and bolts for that exact address historically. Some lenders will use rentfaxpro.

Some OOS areas also can vary widely street by street, block to block. You might want to visit as these could be much different than OC whereas one could be ok in virtually any zip or nearly every single street as compared. 

Good luck with your search! 

Thank you, Matt R. 

I appreciate the info on RentFaxPro. As some have suggested, besides heavy due diligence, I think flying out there is wise as well just to get my feet wet. It would be a write~off, too! :)

Best to you, Matt!  $$$

714-470-4152

Turnkey is a really broad term.  There is a wide range in terms of quality and operating style among turnkey providers.   So do research and visit a few, if you can.

Daniel

As a busy OC  medical professional, you may have a target on your back and risk getting taken advantage of in The real estate space.  My advice is to get educated, listen to Dr.  Buck Joffrey's podcast, and probably buy from one of the premium turnkey providers, where you will pay a little extra but get a goid asset , good managemnet, and  a low stress experience.

Thank you, David B. Some providers might think I am too busy to make triple sure all is being watched, but trust me, I am not shy when it comes to my investments and money. I will triple~verify everything and make absolute that the places that I use are super recommended. I understand that even so, things do happen. My schedule is malleable, so my time is my own, thankfully.

The provider that thinks they can pull some wool over my eyes will get bitten, hard. I BITE when it comes to someone trying to take advantage of me. My attorneys are strong. 

Thank you so much for the heads up, my friend.  Again, I know things happen to the best of us. I try to triple~insure against that.  ;)

Best to you! $$$

714-470-4152

Daniel.  It's just a friendly heads-up.  Sounds like you have the right attitude .  Making small mistakes is okay, just dont want you to get a big headache.

Excellent. I deeply appreciate that, David. Your words carry great weight.  :)  Years ago I was in small claims court over two tenants. It was expensive, time~consuming, and was just a heartache. I try to do everything in my power to not go down that road again. 

I appreciate all your words and wisdom, and it is an amazing blessing to have all this expert advice through BP. Just love this great community!

Have an awesome Friday, David.

714-470-4152

@Daniel F. Harb The question comes down to do you have them time, resources and skills to do everything from out of state and whether you can truly have built in equity by doing it yourself. Those are big if's. In order to force equity, you would most likely need to buy a distressed property that needs to be rehabbing. That means that you have to be able to manage that remotely--no small feat. There's also no guarantee that you would save anything over a turn key company. Reputable turn key companies do not sell over market value. They have significant cost advantages over an individual trying to do it themselves. That's because turn key companies are buying further up stream at lower prices than on the MLS. They have more control over their construction costs and quality because the are using the same crews consistently, and they have much lower material costs because of volume discounts and access to wholesale prices on big ticket items like HVAC systems. There is no way an individual can do a rehab for anywhere close to the cost that a turn key company can do it for. That said, if you decide to go the turn

In general, the ones to avoid are the ones that:

  • Don't allow financing or a finance contingency (it can be a good indication they are selling above market value)
  • Don't allow for your own independent property inspection
  • Are not realistic with their pro forma's (i.e. they don't include vacancy or maintenance projections or use unrealistically low vacancy factors)
  • Require you to pay for any renovation upfront
  • Sell only in cheap. low end neighborhoods
  • Don't accurately represent the neighborhood/property classification
  • Don't have consistent rehab standards for all properties
  • Don't provide a scope of work for the property
  • Can't provide references of repeat investors
  • Require you to close before a tenant is in place

Wow. Thank you, Mike D. It seems like you have the TurnKey business down to a science.  Thank you so much for your valuable and expert input. Could you share any excellent and reputable TK companies in Indiana, Ohio, and Tennessee?

Thank you, Mike, I look forward to talking with you. :)

Daniel F. Harb

714-470-4152

@Daniel F. Harb Turnkey can be one of the easiest ways to slip into obtaining rental properties OOS.  It is how I started some 5 years ago.  No matter where you are investing or who you are investing with; be sure to do your due diligence.  To me that should include a visit to the market and the provider, there is nothing like a face to face and on the ground visit.

Now turnkey isn't the only passive route to REI, in fact there are some that are more passive (with less control) as I write about in my BP blog article Three Key Routes for Passive Real Estate Investing

Larry Fried, Real Estate Agent in OR (#201211636)

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