Turnkey performance over time

6 Replies

Hi all - I'd love to get some real world data on turnkey performance. 

Chris has a great post discussing TK: https://www.biggerpockets.com/renewsblog/mastering...

My concern as a new investor is the long term performance of these types of investments. 

1) Who has purchased something TK and would be willing to share actual vacancy, maintenance, cash flow, appreciation (if you've had it long enough), etc.?  The pro-formas always look great, don't they? 

2) Another question in my head related to TK is whether people just pay the PM fee or if they Master Lease to the PM or TK providers.  It seems that the ML would better align future interests. What am I missing?

@Joe Ort there are several threads about this on BP in various cities. I have bought turnkey in Memphis (and plan to continue to do so) but haven’t owned them long enough to really provide what you’re asking.

I can tell you in 8 months now I have had zero maintenance on my turnkey properties. Talking to people who have owned them longer than me from the provider I used it’s not unheard of to have no maintenance the first couple years (out side of a tenant turnover).

The houses I’ve bought anyways have entirely new mechanicals, roof etc so it’s unlikely any of that will go bad in the first 5-10 years. What will likely happen is paint, cleaning and some other minor issues when tenants move out.

If you have any specific questions feel free to tag me or PM me. I am very transparent and will answer any questions you have. I’ve also done the “do it yourself” method out of state, so I can compare the two different routes.

@Joe Ort I had ten of these starting in 2015.

Three out of ten lose money but over all hit their numbers. I seemed to keep 60% of the rents.

But them got hit with huge cap ex and made me rethink things.

@Joe Ort
I only have 2 data points...

One beat projections and has cash on cash returns of about 25%.

The other has had all sorts of water issues in the basement and overall has been cash flow negative.

Overall I am cash flow positive between the two. Berate of probably around 10% return.

Originally posted by @Joe Ort :

Hi all - I'd love to get some real world data on turnkey performance. 

Chris has a great post discussing TK: https://www.biggerpockets.com/renewsblog/mastering...

My concern as a new investor is the long term performance of these types of investments. 

1) Who has purchased something TK and would be willing to share actual vacancy, maintenance, cash flow, appreciation (if you've had it long enough), etc.?  The pro-formas always look great, don't they? 

2) Another question in my head related to TK is whether people just pay the PM fee or if they Master Lease to the PM or TK providers.  It seems that the ML would better align future interests. What am I missing?

 Sadly Turnkey has grown so much that it does not fit into a box anymore. Depending on the market you go with or which provider you pick, the returns could be different. You could check with past investors from a certain company you are looking in to. I would hope they would give you the information you need to move forward. 

Try looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

Originally posted by @Joe Ort :

Hi all - I'd love to get some real world data on turnkey performance. 

Chris has a great post discussing TK: https://www.biggerpockets.com/renewsblog/mastering...

My concern as a new investor is the long term performance of these types of investments. 

1) Who has purchased something TK and would be willing to share actual vacancy, maintenance, cash flow, appreciation (if you've had it long enough), etc.?  The pro-formas always look great, don't they? 

2) Another question in my head related to TK is whether people just pay the PM fee or if they Master Lease to the PM or TK providers.  It seems that the ML would better align future interests. What am I missing?

Joe,

I really hope you get some good responses here with how specific portfolios have performed over time.

I can tell you that the type of property you purchase, the location of the property, the amount of rent paid by the resident and probably most importantly, the quality and level of renovation are going to have a major impact on performance over time. In the end, all Capex comes due. Those costs can be mitigated and delayed to a later date, but that raises the initial price you pay for the property.

Of course, if no maintenance has been deferred and you ave a higher quality renovation, you may be able to command a higher rent and attract a higher quality of qualified resident.  That leads to fewer maintenance costs and longer occupancy.

Each of those factors will absolutely effect the long-term performance of any property - not just a Turnkey property.

Lastly, if you want to just cut straight to the chase about returns, expect to lose 50% of your rents annually and reflect out over 10 years. Some years will do way better and some years may do worse. If you are satisfied with your IRR, based on ability to sell in 10 years, depreciation, possible appreciation, possible rent increases and debt pay down plus your rental income, then you buy the property.

Turnkey purchases should be looked at the same as any other rental property with the exception of how much heavy lifting you have to do.  Beyond that, the economics of how you hit your expectations stay the same.

Again, I hope you get a few answers on performance on here.  Best to you ~ 

Chris

Hi Joe! I've always bought turnkeys, and I've owned my oldest ones since 2011 so I have a good bit of history with them. I can't, unfortunately, give you specific numbers (vacancy, cash flow, mx, etc.) because I don't know them off the top of my head. I can tell you that despite some vacancy periods over the last 7 years (and one that lasted about 8 months one time awhile back), they are all very much cash flow positive. All the tenants have been in them for multiple years. This part won't be accurate for today's market at all, but all of mine have double to tripled in value. But I bought at a very strategic time in Atlanta. That kind of appreciation shouldn't be expected anywhere right now. 

I actually have no idea what a Master Lease does or entails so can't speak to that side of it. I will say though that I changed out all the PMs on my properties within a couple years. Away from the PMs that came with the properties.

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