Advice on Turnkey Investing

21 Replies

I just watched this great BP video: The Top 4 Reasons to Never Invest in Turnkey Real Estate ... although he has some goods points, there are situations where turnkey might make sense and I'm wondering what the BP community has to say about turnkey investing in general. 

Here in San Diego, we live in a market that is currently out of control and cash flow is just not happening. If I want to buy and hold properties, I need to be looking at equity markets out of state. Although I currently manage my own in-state properties, it only makes sense to hire a property management co to handle an out of state purchase. This is why I'm considering looking at turnkey opportunities. 

With turkey, I can fly into a market (Indianapolis for example) to personally check out properties, then any renovations needed can be handled by the turnkey co while they also take care of getting and keeping it rented. It would be nearly impossible for me to take care of all of that across the country, but this way I'm actually getting cash flow that I would otherwise not get in my own market. Is it such a bad idea? 

I would love to hear from people who have actual experience with turnkey investing and whether it' has worked or not worked for them.

Thanks in advance!! ツ

@Elaine Hester

Turkey means something that that is rent ready and already rehabbed. A turnkey company sells SFHs that are turnkey. I would not buy a SFH sold by a turnkey company. I would buy a turnkey apartment if I had a lot of capital. I would consider buying a turnkey home off the MLS in a good area with a lot of appreciation potential if I had a lot of capital. I mention the capital because if you're not doing value add then you're buying cash flow. There are a lot of places to buy cash flow that do not involve the headaches of RE. If you have lots of capital and you want to park it to get cash flow, okay cool. If you don't have a lot of capital you need to do value-add so you can reuse the same chunk of capital over and over.

I was in your same boat about a year ago. I bought a value-add small MF and rehabbed it. Now I have almost all my capital back and I'm looking to do it again. It was a huge project but now it cash flows well even without much capital in it. This works for me but it's not passive! 

What you describe (fly out, check out properties, manage renovations, be involved in the process, etc..) isn't exactly turnkey - that sounds more like regular buying, rehabbing, and then running.

Turnkey is when you buy with tenant in place, or the property is move in ready and/or a tenant is scheduled to move in.

Many people have success with turnkey - but typically the only aspect that is actually "turnkey" is the status of the property and lease at the moment that you purchase.  As soon as you close you're an owner and you have to manage either the property, or manage the manager, and you assume all the risks that come with every other purchase.  

Caveat - This is different if you work with a company that gives some kind of guarantee of tenancy or ROI - but the term "Turnkey" is tossed around somewhat loosey-goosey here on BP and pretty much everywhere else.

Some common complaints about a turnkey purchase are junky rehabs, bad tenants, early vacancies - however those really aren't turnkey problems.  These are all aspects of real estate that can come with any property.  

In my opinion, the real problem with turnkey properties are the expectations that are set by the seller to the buyer. 

@Elaine Hester I started my OOS REI with turnkey property purchases. The first company I dealt was excellent and set my expectations for other companies. When I went to diversify to other markets, I found few even came close to those expectations. Long story short I have vetted many many companies and in today's markets it is more important than ever to realize that the team you work with is more important than the market. There is an endless and prolific debate here on BP about the value/mistake of turnkey investing.

@Elaine Hester I started with turnkey rentals and they are a great way to get started. The issue is that they are not scalable so you will soon out grow them. Also today with the market is the way it is a lot of stuff does not cashflow. Let me know if you want to see my underwriting Calc with rules I use for expenses. You will see how a lot of things don’t make sense.

That article has some good points but it’s overly simplified. The issue about a crappy property in a crappy location with a crappy PM (ie doesn’t care about your investment) all comes down to just vetting the company. As far as overpaying, that’s subjective but lots of turnkey companies will not sell you something above appraisal and others will.

I’ve done turnkey and non turnkey and plan on doing more turnkey in the near future and then going from there. I don’t live in a good cash flow market and I’m very busy with a full time job and soon part time school as well. I’m in my early 20s so even if I’m sacrificing some return now, I’ll likely still be fine as I have a long time horizon. What’s 10 percent compounded for 30 years? It’s a lot.

Hey Elaine! There are a lot of turnkey debates out there, but unfortunately they tend to veer in favor of anti-turnkey because a) for some reason love to hate them and b) all of the turnkey buyers I know who have had good experiences with them aren't active on BP anymore because they got what they came for and don't need it anymore. So they aren't here to defend turnkeys on behalf of those of us who have had good luck with them. I know hundreds of buyers that have had good experiences. I know of plenty of bad ones too, but there are just enough good ones.

I've always bought turnkeys for myself. As with any strategy, there are pros and cons. If anyone has the time, ability, desire, skills and/or risk tolerance for doing things on their own, I think they should because they can make more money. But that doesn't mean turnkeys aren't good for other people who may not have any of those things under their belt. 

I actually just wrote this article this week-

https://www.biggerpockets.com/renewsblog/types-of-...

Not sure if that helps, or is exactly related to the question you are asking, but feel free to reach out anytime if I can answer any other questions as you ponder them. I have other articles about different aspects of turnkeys too that I can send, or I can just answer specific questions. 

I'm in LA and I'm on #teamturnkey ;) (I just made that hashtag up...I wonder if I will catch on...)

@Elaine Hester

I think a lot of the things you mentioned in your original post are accurate. You fly in...look at the house...etc. 

However, if you are already taking the time to fly somewhere and look at houses...all you really need is a good realtor. That realtor will hold the key to finding a DEAL, knowing contractors and introducing you to property managers. All of this and YOU still get to keep the equity in the property. 

I have posted this a few times...
"My experience with TK was not the best and I would always recommend staying away from it unless you absolutely have too.

My thought is with the internet and the ability to network and check people's backgrounds online you can set up and find your own team. The foundation to that would be a realtor...this person has contacts, can put you in touch with lenders, handymen, contractors and anyone else you would need.

The nice part is that they will want to treat you right so that you continue to invest and buy with them.

The TK companies are set up exactly for people like you though...live in CA, can't invest there but want to invest somewhere. Some cut corners and I can guarantee you that you will be buying a property with ZERO equity left in it.

The only company I dealt with was Bridge Equity out of Kansas City and I would definitely not use them".

Feel free to send me a message if you have any more questions...

I didn't read all the replies, but as someone who has used a turnkey service and buys property outside of that, I can speak to it.

Generally, turnkey means this:
-- Less time involved all around in the process of obtaining the property
-- Lower monthly expenses (at least in the first few years)
-- You pay at or above market rate.
-- Less class flow due to reason above.
-- Easiest and least risky way to get into a market where you don't live.
-- A lot less hands on throughout.

Again, those are very general statements and not necessarily the case every time but was my experience having done it 5 times.  Others may have different experiences, but those were mine.

Originally posted by @Elaine Hester :

I just watched this great BP video: The Top 4 Reasons to Never Invest in Turnkey Real Estate ... although he has some goods points, there are situations where turnkey might make sense and I'm wondering what the BP community has to say about turnkey investing in general. 

Here in San Diego, we live in a market that is currently out of control and cash flow is just not happening. If I want to buy and hold properties, I need to be looking at equity markets out of state. Although I currently manage my own in-state properties, it only makes sense to hire a property management co to handle an out of state purchase. This is why I'm considering looking at turnkey opportunities. 

With turkey, I can fly into a market (Indianapolis for example) to personally check out properties, then any renovations needed can be handled by the turnkey co while they also take care of getting and keeping it rented. It would be nearly impossible for me to take care of all of that across the country, but this way I'm actually getting cash flow that I would otherwise not get in my own market. Is it such a bad idea? 

I would love to hear from people who have actual experience with turnkey investing and whether it' has worked or not worked for them.

Thanks in advance!! ツ

 Disclaimer: Turnkey Provider.

Many investors who live in markets such as CA, NY, etc. are looking for better markets to get into! It only makes sense! Investing in places like that can be very challenging, and it is almost impossible to get cash flow from a buy and hold. Many investors look into markets in the Midwest where you can get an amazing ROI. If you work a full-time job, or are not ready for the pain it takes to completely renovate a property (it is even worse remotely) then Turnkey is a great option.

Ideally, the Turnkey Provider will own, renovate, and manage the property for you in house! They should not use any third parties or push you off on some other management company when the sale is done. They should be there 100% of the way!

Try looking at the following:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

Originally posted by @Elaine Hester :

I just watched this great BP video: The Top 4 Reasons to Never Invest in Turnkey Real Estate ... although he has some goods points, there are situations where turnkey might make sense and I'm wondering what the BP community has to say about turnkey investing in general. 

Here in San Diego, we live in a market that is currently out of control and cash flow is just not happening. If I want to buy and hold properties, I need to be looking at equity markets out of state. Although I currently manage my own in-state properties, it only makes sense to hire a property management co to handle an out of state purchase. This is why I'm considering looking at turnkey opportunities. 

With turkey, I can fly into a market (Indianapolis for example) to personally check out properties, then any renovations needed can be handled by the turnkey co while they also take care of getting and keeping it rented. It would be nearly impossible for me to take care of all of that across the country, but this way I'm actually getting cash flow that I would otherwise not get in my own market. Is it such a bad idea? 

I would love to hear from people who have actual experience with turnkey investing and whether it' has worked or not worked for them.

Thanks in advance!! ツ

 When buying out of state you should do a few things.

  • Buy a property in a nicer asset class. You don't need to try to find the cheapest possible property. Go with something slow & steady at first.
  • Hire a 3rd party inspector.
  • Use OPM. Get a bank loan. The 30 year loan is the best thing about this biz. On top of that the bank will require an appraisal. This way you ensure you aren't over paying for the property.
  • Make sure your property manager is a licensed real estate brokerage.

@Elaine Hester There is no one size fits all strategy. Just as with any strategy, turn key isn't the best route for everyone, but it is a good route and in many cases, the only route for some and has been very successful for them. Turn key is a much lower risk alternative than assembling your own team and doing it yourself. For an out of state investor, that is a high risk strategy since it is much harder to manage and control. With turn key, you only have to get one piece right---choosing a turn key company that you can trust and rely on. When you do it yourself you have to choose the right real estate agent, the right contractor, the right property manager etc etc. One wrong choice in the chain can spell disaster. A greedy real estate agent might just want to make a sale to an out of state investor and not give you the best advice on the best areas. Contractors can be hard to manage when you're there on top if them, but good luck managing and keeping a project on track and budget from thousands of miles away. Since you're not there, your property manager has to manage your investment and can make or break you. There is no guarantee that someone with no experience and from out of state will have equity left by doing it themselves. There are a whole host of reasons that turn key companies can do a rehab for far less than an individual that doesn't do this professionally. There is definitely a place for turn keys. The investors that turn key makes the most sense for are:

  • People with busy careers, families and interests
  • Those that don't have the project management skills or inclination to deal with a construction project
  • It is just a source of side income and not a business. It doesn't make sense to invest the time and effort to learn a market and set up a team for a small number of properties. 
  • Those that are more risk averse and want the expertise of a professional.

Hey Elaine,

I live in San Diego and the market here is pretty nuts. But I consider it a motivation to get wealthy.  I'm not from cali and already knew markets elsewhere made more sense. So I did a bunch of research. That's how I discovered bigger pockets.  I messaged Ali since she's doing what I want to do and seems to have good grasp on the more passive part of real estate. 


I ended up getting a turnkey in Indianapolis a few months ago and it was an easy process. No problems and the PM company the turnkey came with has been working out.  I'm looking forward to buying more.

My situation is that I moved to cali to have fun and be active.  I have no interest in real estate and no desire to make deals or really be involved in any of the process.  Real estate to me is a way to fund the lifestyle i want and not have to have a job. I have other pursuits and goals and those require money, lol.  All that being said i need an investment option that lets me as hands off as possible. I can earn more in my job and just invest it so I'm not too concerned about a turnkey earning a bit less if it's more hands off, since I'd just be acquiring more and eventually scaling up.  

So I had to be able to trust a turnkey company to a certain degree.  Do all the research you can online and then pull the trigger with one property and go from there.  If I have to fly over there to check the property then that turnkey company is a not going to work out for me.  The numbers don't work out if you include travel nor do i have any desire to be involved in the day to day operations.  Now if your personality is that you enjoy real estate and want to travel and as you stated "personally check out properties".  Then maybe turnkey isn't for you. You can still invest out of state without a turnkey company, but you'd be much more involved.  

Thank you all for your replies, this has been very helpful! 

@Lee Ripma

Although I'm just becoming familiar with the term, I do understand it is used somewhat loosely in the industry and it is my understanding that you can buy properties that a turnkey operation will handle the renovations and set up management for. I guess it depends on the company and the services they offer.

@Blair Poelman I actually don't intend to fly out for anything other than viewing the property initially. The turnkey company handles the renovation and management. I just don't feel confident enough yet to buy a property sight unseen, which is why I will fly out to see it before I pull the trigger. 

You mentioned that "the real problem with turnkey properties are the expectations that are set by the seller to the buyer." Can you elaborate on what you meant by that? I.e., what expectations?

@Larry F. So happy to hear of your positive experience. Would you be so kind as to share what company you dealt with that you speak so highly of?

@Lane Kawaoka Happy to hear you had luck with starting out in turnkey. I'm guessing when I "outgrow" an investment, I can always let it go. I would love to see your underwriting Calc. Please PM me and connect!

@Caleb Heimsoth Good point about appraisal—thanks for the reminder to verify that! Would you mind sharing what turnkey companies you've successfully worked with? Feel free to connect and PM me. 

@Ali Boone I am actually Investor Type #3 from your article! I have done a couple of BRRRRs and want to invest more OOS where I can get cashflow without having to self-manage. My in-state properties are doing well with appreciation, but I'd like more cashflow. Thus my interest in turnkey investing. Can you also share the companies you've worked with successfully?

@Justin B. Yay—love hearing success stories! Your statements are exactly why I'm interested. Did you stick with the same company throughout all 5 deals? Would love to hear who you used.

@Tom Ott Thanks for your post and the articles! I will read them momentarily. Is Ohio your only market?

@Mike D'Arrigo Thanks for the call—looking forward to connecting with your team next weekend!

@Cezar Danilewski Thank you for sharing. Happy to hear of your success and would love to hear who you went with in Indy. Eventually I will get to the point where I'm good with doing deals sight unseen. For now I'm still being a bit cautious—and it gives me an excuse to get away with the hubs for the weekend. ;)

Originally posted by @Lee Ripma :

@Elaine Hester

Turkey means something that that is rent ready and already rehabbed. A turnkey company sells SFHs that are turnkey. I would not buy a SFH sold by a turnkey company. I would buy a turnkey apartment if I had a lot of capital. I would consider buying a turnkey home off the MLS in a good area with a lot of appreciation potential if I had a lot of capital. I mention the capital because if you're not doing value add then you're buying cash flow. There are a lot of places to buy cash flow that do not involve the headaches of RE. If you have lots of capital and you want to park it to get cash flow, okay cool. If you don't have a lot of capital you need to do value-add so you can reuse the same chunk of capital over and over.

I was in your same boat about a year ago. I bought a value-add small MF and rehabbed it. Now I have almost all my capital back and I'm looking to do it again. It was a huge project but now it cash flows well even without much capital in it. This works for me but it's not passive! 

Lee, everyone has there own definition of what turn key is. Personally, I don't consider something turn key just because it is rent ready. That would include existing rentals off the MLS. A property should be fully rehabbed with little to no deferred maintenance or CAP Ex. Something can be rent ready or have a tenant already in place but the HVAC could be on it's last leg. Or it could have had a tenant in place for 5 years and nothing has been touched in that time. I don't consider that turn key.

Originally posted by @Elaine Hester :

Thank you all for your replies, this has been very helpful! 

Yay—love hearing success stories! Your statements are exactly why I'm interested. Did you stick with the same company throughout all 5 deals? Would love to hear who you used.

Yes, same company.

@Mike D'Arrigo

No, those examples would not be turnkey, they would just be available on the MLS. Are there really so many different ways to define turnkey? It means that something is already fixed up - you turn the key and go.

I totally get why people would buy either a turnkey property or from a turnkey company. I personally would never buy a SFH fixed from a turnkey company. I think when you start to add up the true costs and lack of appreciation you're going to see that you could have gotten the cash flow you are seeking from something that is actually passive and does not come with the risks of real estate. I'm a value-add investor because I don't have truckloads of money to go out and buy expensive cash flow!

@Lee Ripma How come you don't think there is any appreciation potential in a turn key? I don't see them as mutually exclusive. Are you referring to the forced equity through the improvements?

Yes, you can't force appreciation on a turnkey. Also, they tend to be in areas that don't have that much potential appreciation, at least the ones I looked at in Kansas City (I'm sure there are exceptions to this). So you're looking at the slow and steady appreciation of the midwest. What is that appreciation over the next 20 years? More than inflation? 

Sure. Shoot me an email at my address in my signature or a direct message on here. 

And very cool you fit into one of my categories! (I kind of made them up, so they aren't official, but they seem to be a thing. So it's great to hear of someone actually in them!)

@Elaine Hester it is still an excellent company, but today's prices are way up, making for pretty tight cash flow for today's buyer's.  Please feel free to PM me if you want more info.

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