BRRRR Turnkey Providers

Buying & Selling Real Estate
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BRRRR Turnkey Providers

Ryan Holland
Real Estate Agent · Palo Alto, CA · Member since 2017 · 22 posts · 17 votes

Hi All,

I recently came across a company called ABC Capital Investments. This company provides BRRR services in Philly, Baltimore, Cleveland, Birmingham and Jackson. They complete renovation work and find a tenant for you after you purchase the home. They offer a home warranty and a rent guarantee. Their business model is to essentially facilitate the BRRR process for you so the investor just needs to put down the money and wait for them to renovate, rent, and refinance the home. I am curious to hear if anyone is familiar with other companies that offer similar services. I would like to get into BRRR, but I don't have time to find investment opportunities, analyze neighborhoods, oversee contractors/renovation work and rent properties in a market with strong cash flow. I am hesitant to work with ABC Capital after seeing the reviews that tenants have written about them. The majority of these reviews indicate that the homes needed maintenance after new tenants moved in and ABC Capital was completely non-responsive.

At this point I am open to the possibility of investing in any market that provides strong cash flow. I am more interested in learning if there are similar companies with this business model. If anyone is knowledgeable about similar companies it would be greatly appreciated if you could share your thoughts/experience.

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Joe Norman
Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
8y

I can't speak about this company specifically, but I can warn you to be careful when investing in Baltimore if you're not familiar with the city. Home values can vary significantly on a block-by-block basis so you really need to make sure that the ARV is there. I suggest getting an independent BPO or Appraisal before making any purchase.

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  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    8y

    per @James Wise’s post just now & my earlier post, always question any long-term incentive offered by someone (rent guarantee, discounted PM fee, etc) & ask yourself a) can they really sustain this?, b) are they just trying to lure me in & when i realize how sub-standard their PM service is, will i end up switching to a true professional PM firm who, by nature, must charge regular fees & rates instead of the discounted ones this firm is offering?

    1Reply
  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    8y
    I’ve heard of rent guarantees before but not rent insurance? I’ve heard of renters insurance of course but not an insurance policy that guarantees your tenants rent .. that sounds especially fishy.
    1Reply
  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    8y
    Joseph Kha from what I’ve seen about rootstock they seem to partner with vendors for property management etc , rather than handling everything in house . I have looked at their site before and it looks interesting and more transparent than most turnkey operators . I did hear a podcast interview with with the founder or CEO a while back .. but can’t remember if it was on BP or another podcast . They have raised $75 million https://www.crunchbase.com/organization/roofstock
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  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    8y

    another thing to keep in mind with turnkey - the TK operator is basically flipping a property & selling it to you. Why aren't they just selling it on the MLS to the highest bidder like most flippers do? Why are they trying so hard to find someone to lock into a contract up front? Sure, it moves things along faster for them. But also could be that this area doesn't attract many home buyers... which doesn't bode well for when you want to sell... unless you too can find some unsuspecting out of state investor to sell to

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  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    8y
    Eric P. It’s because most likely the homes aren’t going to appeal to owner occupants and they also want to save on the realtor commission , and you also have more control over the transaction versus listing on the MLS . I’d probably go with roofstock if going the turnkey route but I’d still make sure to run comps on the property and area etc .
    2Reply
  • Eric P.
    New York City, NY · Member since 2016 · 470 posts · 348 votes
    8y

    @Joseph M. makes sense, though I’d be wary of buying a house in an area that doesn’t attract owner occupants. Esp when you don’t live in the city & might not know the neighborhoods very well. Your only exit strategy would be to sell to another investor & investors will be wary if you’re an investor trying to sell to them (ie, why are you selling? It isn’t cashflowing?)

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  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    8y

    I don't understand why a company would go through all the work of generating deal flow and completing the rehab and then leave the profit for the investor (unless the construction fee is significant, which would mean there is little equity created anyway).

    4Reply
  • Jeffrey H.
    Baltimore, MD · Member since 2018 · 169 posts · 82 votes
    8y

    I saw abc capitals website relative to baltimore. The available houses are all relatively similar in neighborhood (lower end) though some are more desirable than others relative to size and rentability. The biggest considertion is what the inside is. Any of those houses 80-100 should be relatively nice. If so, they will rent. Their definition of "nice" is the difference between a good deal and a bad deal. 

    1Reply
  • Alpesh Parmar
    Investor · Dublin, CA · Member since 2016 · 344 posts · 228 votes
    8y
    Ryan Holland I would agree with @Jason Cory. In the end, this is a turnkey provider like others. Most of the TKP buys property for very cheap, rehabs and then adds 25+% to the total cost and sells it to investor. I am not saying there is anything wrong with it but choose TKP wisely. Always hire a third party inspector and get your own PM instead going with in house inspector and PM. I live in Bay Area and invest in Birmingham as well as other markets. Feel free to ping me if I can be of any help.
    1Reply
  • Ryan E.
    Investor · Salt Lake City, UT · Member since 2016 · 287 posts · 270 votes
    8y
    Originally posted by @Mike Dymski:

    I don't understand why a company would go through all the work of generating deal flow and completing the rehab and then leave the profit for the investor (unless the construction fee is significant, which would mean there is little equity created anyway).

     Mike, I definitley see your point and agree but wouldn’t some of the upsides for the company be that they have customers that can keep buying and they don’t have to raise/risk their own capital on the purchase and rehab? To me the largest downside of Turnkey investing is having to use large downpayments and limiting your ability to scale. 

    Maybe a better term would be “Turnkey wholesaling”...it seems like this could be a good model for wholesalers. Maybe they don’t have to manage the rehab per se but they could connect the investor with trusted and vetted GC’s or even partner with GC’s. The GC’s would want to please the investor/wholesaler so they keep getting business. 

    There was a recent podcast guest who it sounds like does something like this. The wholesaler from Houston...he said they started their own construction company (I think) and that they will pay the investor a thousand dollars if the rehab goes over budget by a certain percentage. 

    1Reply
  • Ryan Fox
    Investor · NV and CA · Member since 2016 · 374 posts · 227 votes
    8y

    @Ryan Holland - I spoke with turnkey operator Memphis Invest a couple months ago and asked about the possibility of purchasing one of their properties in the pre-rehab state, have them rehab the property, and then do the rest they would do as a TK provider. The person I was speaking with said this was a possibility. It occurred to me that this could actually work out as a BRRR. No promises were made by Memphis Invest that I would actually be able to pull off a BRRR. We didn't get into significant detail on this.

    I didn't pursue the idea further because I was more interested in locking-in a low interest rate on a long-term mortgage and I felt I would be taking on most of the risk of the deal.  But I just wanted to throw that idea out there.  

    Maybe Memphis Invest management wants to chime in?  @Chris Clothier 

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    8y
    Originally posted by @Ryan Fox:

    @Ryan Holland - I spoke with turnkey operator Memphis Invest a couple months ago and asked about the possibility of purchasing one of their properties in the pre-rehab state, have them rehab the property, and then do the rest they would do as a TK provider. The person I was speaking with said this was a possibility. It occurred to me that this could actually work out as a BRRR. No promises were made by Memphis Invest that I would actually be able to pull off a BRRR. We didn't get into significant detail on this.

    I didn't pursue the idea further because I was more interested in locking-in a low interest rate on a long-term mortgage and I felt I would be taking on most of the risk of the deal.  But I just wanted to throw that idea out there.  

    Maybe Memphis Invest management wants to chime in?  @Chris Clothier 

     Hey Ryan and Ryan,

    I read the original question and a few of the responses. I will just cut straight to the main point. BRRR is a strategy for active investors. You need to be able to find efficiency in the process. That means first and foremost identifying properties that are being sold well below value for some reason. It could be distress of the home or distress of the owner. Then you have to build value into your deal, but leave enough room to be able to refinance your money back out of the deal so you can do it again.

    Turnkey real estate is passive and with any passive deal you will always have another party taking advantage of the efficiencies. They will be buying the properties below value, negotiating bulk pricing on goods and services and then earning the spread that a BRRR investor would want to capture.

    I love the idea of buying, renovating, refinancing and repeating, but you really have to be able to take advantage of what is happening in the market place. If you are relying on someone else, you are losing your advantage and it simply isn't a good strategy. You must be an active investor to have any real success in BRRR.

    In my opinion....

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    8y

    I have never heard of the company being discussed on here, but I will tell you that it would raise my antenna for red flags if someone was touting a way for me to put my money into a deal on the front end, let them do all the heavy lifting after my money is in, and then expect to have enough juice left in the squeeze for me to make be able to refinance all of my money back out.

    To me, there is simply too much room for fraud in these types of set-ups even if it is accidental.  If everyone is simply "working together" to make deals work, eventually that comes to an end.

    I wouldn't put a lot of faith in a Turnkey BRRR program.

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  • Ryan E.
    Investor · Salt Lake City, UT · Member since 2016 · 287 posts · 270 votes
    8y

    @Chris Clothier do you think it would make sense at all for a TK provider to have the client fund the purchase and rehab up front in exchange for some percentage of equity on the back end? Maybe not the full 20-25% required for a fully successfull BRRRR but maybe something like 10%? That way it takes some of the risk off the TK provider and allows them to keep more of their capital for other deals, marketing, etc. An added benefit to the client is being able to recoup a portion of their capital for future deals.

    Maybe that wouldn’t be something you’d do at this stage of your business but would it have been a fair trade off in your earlier years as a TK company? 

    Maybe another reason it doesn’t make sense now is because it seems money is plentiful and deals are more scarce at this point in the economic cycle. Im very curious to hear you’re response as I always like your posts in the forums so thanks for chiming in here. 

    0Reply
  • Jim Froehlich
    Investor · NH · Member since 2016 · 134 posts · 61 votes
    8y

    @Ryan Holland, I really like @Larry Fried's first reply post to you on this.  I know some people who have recently gone to guys in Memphis for Turn-Key rentals at Mid-South Home Buyers and they seem happy as well as other folks in TX using American Real Estate Investments.  The ones in Memphis have decent cash flow but little to no appreciation, while the Dallas ones (for example) are higher-rated, better appreciating, but look to be less cash flow (percentage-wise).  I'm considering both myself along with partners, but I think they are very conservative and modest investments in terms of returns.  The Mid-South guys have very good systems in place from my discussions with them.  I would recommend calling a few of these places and then maybe connecting with a few of their references (maybe a few will pop up on this thread?!).  In either case, I think the good places take on all (or most) of the risk themselves, but mitigate that by having a solid, pre-qualified list of buyers and they present homes in progress (or finished ones) to people near the top of the list. One of the guys I work with at my day job said his Memphis home already has a lease on it and isn't fully finished yet.  Good Luck!

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    8y

    this is a model that can really only be done if dealing with low class investments as it all works off percentages. No true turnkey company operates like this bc I can’t imagine finding homes where the profit margins are there and also able for the investor to refi and get all or most of their investment back. 

    Also many of our lenders we talk to tell us that it hurts all normal turnkey providers when homes dont appraise and the investor who was banking on getting their money back or losing  big time. 

    Might as well stick with normal 20-25% down purchases, they are much safer. 

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    8y
    Originally posted by @Ryan E.:

    @Chris Clothier do you think it would make sense at all for a TK provider to have the client fund the purchase and rehab up front in exchange for some percentage of equity on the back end? Maybe not the full 20-25% required for a fully successfull BRRRR but maybe something like 10%? That way it takes some of the risk off the TK provider and allows them to keep more of their capital for other deals, marketing, etc. An added benefit to the client is being able to recoup a portion of their capital for future deals.

    Maybe that wouldn’t be something you’d do at this stage of your business but would it have been a fair trade off in your earlier years as a TK company? 

    Maybe another reason it doesn’t make sense now is because it seems money is plentiful and deals are more scarce at this point in the economic cycle. Im very curious to hear you’re response as I always like your posts in the forums so thanks for chiming in here. 

     You're sharp to recognize this as a good way for a company to get started.  A company that does not have access to capital has to give a big part of the deal to a buyer in order for them to pay in advance.  I am positive that there are good people out there who are operating under these conditions and treating investors the right way.  Unfortunately, this leaves a buyer wide open to fraud and that is absolutely happening today.  

    You see this currently happening with a company being widely discussed here on the BP forums who has buyers pay for the house and renovation on the front end before the work has been done.  They then take months to complete the work, but as has been pointed out, the out of state buyers are rarely going to check on the houses and those that have checked, have discovered that little to no work has been done.

    What happens if the company goes out of business after you have paid?  Most people are going to look to get paid first and pay the bills second, so what happens if their original assessment is too low?  What happens if it requires more money to complete the renovation?       There are simply so many ways for an out of state buyer to lose in these situations.  

    Buying out of state is already high-risk.  When an investor is having to raise their risks by paying in advance and providing all the capital to buy at discount in order to make a strategy work, for me, it just raises the risks too high. 

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  • Ryan E.
    Investor · Salt Lake City, UT · Member since 2016 · 287 posts · 270 votes
    8y

    @Chris Clothier thanks for the reply! I’ve been able to talk to some companies/wholesalers who offer something similar but they don’t call themselves “Turnkey” as they either wholesale you the deal and set you up with the contractor or the brokerage has access to foreclosures and connect you with contractors, law office, property management etc and get paid commission from the bank. Again, it isn’t Turnkey and not billed as completely passive like Turnkey but it’s sort of a one stop shop for all the critical “team” members. 

    1Reply
  • Jonathan McGee
    Rental Property Investor · Memphis, TN · Member since 2017 · 155 posts · 151 votes
    8y

    @Ryan Holland this is a similar business model that many out of state investors achieve using a “boots on the ground” team. 

       I’m actually doing this myself in Memphis for another investor where I located the deal, received a wholesale fee and now acting as a Project Manager on the rehab with my contractor. 

      My main concern is how this company is able to achieve this in multiple markets, with multiple projects going on with multiple investors. Seems like a lot to handle.

       Sounds like a good concept but seems like even if they have the manpower to handle multi-projects, then there would be less attention to detail. 

    1Reply
  • J Benoit
    Residential Real Estate Agent, Investor and Mentor · Birmingham, AL · Member since 2013 · 257 posts · 61 votes
    8y

    Like everyone else, I've never heard of them in Birmingham AL. I have been working with my clients and we have been successful with the BRRRR model. In fact, it's all I'm doing right now. I stopped the Turnkey a few years back because I saw the market getting hotter and realized my investors were not getting the returns they should be getting. For a company like ABC to provide rent guarantees and warranty work on repairs done I can't see how the BRRRR model would work. It has to be financially fit and those extra perks they provide are not cheap or free.

    2Reply
  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    8y
    J Benoit Are your investors typically able to get all their money back when they refinance ? Do you handle all the rehab to get the properties rent ready ? How much are the properties typically cash flowing after the refinance is done ? Would be interested to hear about a typical or recent deal. Thanks
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  • J Benoit
    Residential Real Estate Agent, Investor and Mentor · Birmingham, AL · Member since 2013 · 257 posts · 61 votes
    8y

    @Joseph M. yes they do.  I do handle all of the on the ground items including the rehab.  Please PM me and we can go into details.  I don't want to push my products or services on the public forum.  Thanks for asking :-)

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  • Amit Shenoy
    edison, NJ · Member since 2015 · 25 posts · 15 votes
    8y

    Hi,

    Very interesting comments . But no one has addressed the other side.

    Blogs are written on how you can generate 100K a year with BRRR strategy and with 2 real estate deals in 5 years. If you read carefully -- the person says he is will sell in a couple of years. So lets take in 5 years you have a house and u have a tenant in place . Dont you become a turn key provider of sort to sell to another person. And if a person has never sold a house with a tenant in place that is an equivalent lie and really in ur real estate life in order to maintain a fixed life style you will always in the end shed ur least friendly area real estate as u scale into better neighborhoods.


    So like others said to do it on scale in various states i dont think so. I am a very active investor in Philly and very familiar with ABC model. They do make a lot of their money on the front end of the deal since from what i heard from talking to ppl they try and get their properties at about 20 - 25K and then its the regular reno. 

    In the end -- if the area is good and the ROI is there i would say go for it. I am setting up a similar turn key operation in Pittsburgh where in i buy the house like i would want for my portfolio -- i have my construction crew and then working with my friends to help them get a 13 - 15 ROI . If in the end i can do it for them then i am happy . If they dont want it i am happy to keep it . Win - win. Not all of us can invest in every state but each individual person in each state does the same i do then together like crowd funding and syndication etc u grow.


    So look for that concept. In the end after ur all in if u get the 500 per door after u mortgage it out ur good. If ur skeptical -- add a clause of appraisal needs to happen before u take possession this way there is no BS and if the person can stand behind his product he shouldnt be afraid of an appraisal.

    Cheers

    Amit

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  • Pat Marco
    Real Estate Attorney · Manhattan, NY · Member since 2014 · 129 posts · 106 votes
    8y
    Check out www.sfifunddirect.com I invested with them and like most turnkey companies it is all done for you but unlike other turnkey companies they seem to always have 10 to 15 properties posted and available for purchase online Also if you buy 5 at a time they offer a discount and resell your properties for you for more money within 6 months to a year while you enjoy the rental income (they call it a virtual flip) very profitable - totally hands free I did have a problem once with a tenant leaving earlier and breaking the lease but that happens and the Mgmt Co RE-rented it at same price (was hoping for a higher rent!)
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  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    8y

    @J Benoit

    Can you give me an example of a typical deal that you have done recently that has allowed an investor to recoup his money after refi and still cashflow?

    All in cost/PP/cost to Rehab/ARV/rent to price ratio after refi, etc.

    How is the deal structured (how do you make your profit)?

    What class of neighborhood are these properties usually in?

    Thanks!

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