Turnkey vs OOS Rehab

Buying & Selling Real Estate
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Turnkey vs OOS Rehab

Zack P.
CA · Member since 2017 · 31 posts · 11 votes

Hey Everyone!

I'm definitely a noob on BP, but have been a landlord for about 5 years.  I'm looking to expand my rental portfolio and wanted to get your thoughts.  

I've talked with several turnkey companies, but my concern so far is that there exists no equity to start, so essentially the finished product is AT or sometimes even ABOVE market price.  I may still go this route, but has anyone done out-of-state buy, rehab, and rent it out?  (instant equity!!!)

If so, how was your experience, is there a company who will help with the whole process?  Or is only way to do this flying out to location, interviewing tons of people, and building a team/network?  

I'm looking in Memphis, KC, Indianapolis, Atlanta, Birmingham, Dallas, Chicago.  But really anywhere is fine as long as the math works. 

thanks in advance

~Zack

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Jason CoryPro Member
Real Estate Broker · Birmingham, AL · Member since 2018 · 264 posts · 381 votes
8y

I do a version of this in Birmingham for investors. I buy properties that will leave meat on the bone for investors but turn them over to a PM for the renovation so they can work to get it rented as it's being renovated. This usually equates to it being rented as soon as it's ready since I allow the property to be listed for rent on my local Facebook page with 1,600 +/- people looking for a place to rent. I stay involved but in the background to make sure things are happening as they should be. This also helps make sure renovations are completed to the correct standard since the PM can withhold money from the GC until the work is completed properly. 

Out of state investing can be tricky but no one can guarantee rent since investment guarantees are illegal. I use my appraisal background to make sure value is maximized from start to finish for my clients. 

You should always visit the city & meet the PM face to face wherever you decide to invest to see if their operation is professional. That's where you get in trouble long term if you hire a non-responsive or unprofessional PM. 

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  • Josh C.Pro Member
    Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
    8y
    Our clients do this all the time in Indianapolis. Turnkey has its place, but if you can save that 10-15k mark up you’ll be way ahead of the game. Good luck.
    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Hey Zack P. You’d have to crunch the numbers to see if this works like a true BRRR as I haven’t used their service (I do own rentals in Memphis though ) but some companies in Memphis Allow you to buy a rental and then they rehab it for you. One that has such a program is crestcore realty there in Memphis. It’s ran (at least in part) by Douglas Skipworth . I am sure if you talk to him, he can give you more information. Again haven’t used this service but I am pretty it exists.
    2Reply
  • Account Closed
    Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Zack P.:

    Hey Everyone!

    I'm definitely a noob on BP, but have been a landlord for about 5 years.  I'm looking to expand my rental portfolio and wanted to get your thoughts.  

    I've talked with several turnkey companies, but my concern so far is that there exists no equity to start, so essentially the finished product is AT or sometimes even ABOVE market price.  I may still go this route, but has anyone done out-of-state buy, rehab, and rent it out?  (instant equity!!!)

    If so, how was your experience, is there a company who will help with the whole process?  Or is only way to do this flying out to location, interviewing tons of people, and building a team/network?  

    I'm looking in Memphis, KC, Indianapolis, Atlanta, Birmingham, Dallas, Chicago.  But really anywhere is fine as long as the math works. 

    thanks in advance

    ~Zack

     Hi Zack, picking a market is a tough thing to do sometimes. Some of the decision process is based on your long term goals and strategies and the projected performance of the markets you are considering. I buy in Arizona and Texas right now because both areas are on the upswing and are still affordable. One difference though, when I buy I use Subject To and Wraps so I have instant equity without having to do rehabs.  No bank loans needed. 

    I then sell on Lease Option with a large Option payment down from the tenant buyer and cash flow the properties. I let the buyer do the rehab. I can get into a $250,000 property for roughly $50k per house, I get usually $20k to $25k for a non-refundable Option down payment and I usually cash flow for about $300 to $500 a month. So, over the course of the life of the Lease Option the return is somewhere around $200k profit per house. 

    I've helped some people who bought turn key in the midwest and southern parts of the US change their investing angle when they bought turn key and ended up not liking the neighborhoods the properties were in. They were stuck with tough to deal with tenants and couldn't get out of the turn key without losing quite a bit of money, so be careful. If you choose to buy using turn key, make sure you run the numbers and throughly check the neighborhoods.

    2Reply
  • Caroline C.
    Investor · Jacksonville Beach, FL | NYC | Tamarindo Costa Rica · Member since 2014 · 182 posts · 130 votes
    8y

    For us, the key to purchasing out of market for rehab and rent was to find a good local realtor in the market.

    That person would show us properties or listings, facilitate the purchase process, coordinate quotes for repairs, and recommend property management.  Then over time we would expand the local team on our own once getting things off the ground.  It has worked well for us as we have purchased 9 properties in 3 markets over the last 12 years this way.  It does require some patience.

    Important to note that we've only bought properties that needed light rehabs, so if you are looking for equity by doing big rehabs, maybe realtor as center won't work as well. In that case, I'd recommend picking a market or 2 (tops), then sign up with their REIA's, and schedule a visit to the market around REIA meetings to make connections. You'll find people willing to help you this way if you ask for it.

    I still think realtor is key if you are out of market.  If location isn't a big deal to you, I would tell everyone you know (friends, family, coworkers) that you are thinking about buying real estate and you are looking for a market and a realtor in that market, and perhaps you'll be surprised and get a good lead.  We've gotten 3 realtor leads this way, and sometimes from unexpected places.

    1Reply
  • Jason CoryPro Member
    Real Estate Broker · Birmingham, AL · Member since 2018 · 264 posts · 381 votes
    8y

    I do a version of this in Birmingham for investors. I buy properties that will leave meat on the bone for investors but turn them over to a PM for the renovation so they can work to get it rented as it's being renovated. This usually equates to it being rented as soon as it's ready since I allow the property to be listed for rent on my local Facebook page with 1,600 +/- people looking for a place to rent. I stay involved but in the background to make sure things are happening as they should be. This also helps make sure renovations are completed to the correct standard since the PM can withhold money from the GC until the work is completed properly. 

    Out of state investing can be tricky but no one can guarantee rent since investment guarantees are illegal. I use my appraisal background to make sure value is maximized from start to finish for my clients. 

    You should always visit the city & meet the PM face to face wherever you decide to invest to see if their operation is professional. That's where you get in trouble long term if you hire a non-responsive or unprofessional PM. 

    4Reply
  • Zack P.
    OP
    CA · Member since 2017 · 31 posts · 11 votes
    8y

    WOW, thanks everyone for the response.  I can't believe that people saw this post.  I was slightly nervous that it might get buried under millions of posts :-) 

    @Josh C.I think Indy is a GREAT market!!  I will be there this summer, would you be up for helping me connect with some of these investors especially if they are on BP? 

    @Caleb Heimsoth I'll definitely contact crestcore.  Thanks for the lead!  I'm looking to be in rental rate of $900+/mo.  Good zip code suggestions for Memphis?  

    @Account Closed  Light rehab is exactly what I'm looking for.  I'm not about to get into $50k+ rehabs, lol.  What markets are you in?  Mind sharing who you used??  Love to connect.  

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Zack P. I like 38118 and 38111 but you do have to make sure you research the specific area in that zip code 

    1Reply
  • Zack P.
    OP
    CA · Member since 2017 · 31 posts · 11 votes
    8y

    @Account Closed Who said anything about not visiting the city?  I already mentioned I will be visiting Indianapolis and Memphis.  Also, no one mentioned C- properties??

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Definitely visit lol. That’s sort of a given I feel like
    0Reply
  • Zack P.
    OP
    CA · Member since 2017 · 31 posts · 11 votes
    8y
    Originally posted by @Jason Cory:

    I do a version of this in Birmingham for investors. I buy properties that will leave meat on the bone for investors but turn them over to a PM for the renovation so they can work to get it rented as it's being renovated. This usually equates to it being rented as soon as it's ready since I allow the property to be listed for rent on my local Facebook page with 1,600 +/- people looking for a place to rent. I stay involved but in the background to make sure things are happening as they should be. This also helps make sure renovations are completed to the correct standard since the PM can withhold money from the GC until the work is completed properly. 

    Out of state investing can be tricky but no one can guarantee rent since investment guarantees are illegal. I use my appraisal background to make sure value is maximized from start to finish for my clients. 

    You should always visit the city & meet the PM face to face wherever you decide to invest to see if their operation is professional. That's where you get in trouble long term if you hire a non-responsive or unprofessional PM. 

    That's definitely a good word.  What parts of Birmingham do you normally work with? 

    0Reply
  • Jason CoryPro Member
    Real Estate Broker · Birmingham, AL · Member since 2018 · 264 posts · 381 votes
    8y
    Originally posted by @Zack P.:
    Originally posted by @Jason Cory:

    I do a version of this in Birmingham for investors. I buy properties that will leave meat on the bone for investors but turn them over to a PM for the renovation so they can work to get it rented as it's being renovated. This usually equates to it being rented as soon as it's ready since I allow the property to be listed for rent on my local Facebook page with 1,600 +/- people looking for a place to rent. I stay involved but in the background to make sure things are happening as they should be. This also helps make sure renovations are completed to the correct standard since the PM can withhold money from the GC until the work is completed properly. 

    Out of state investing can be tricky but no one can guarantee rent since investment guarantees are illegal. I use my appraisal background to make sure value is maximized from start to finish for my clients. 

    You should always visit the city & meet the PM face to face wherever you decide to invest to see if their operation is professional. That's where you get in trouble long term if you hire a non-responsive or unprofessional PM. 

    That's definitely a good word.  What parts of Birmingham do you normally work with? 

     Personally, I only purchase in D areas because they cash flow higher with the lower entry and you get the Section 8 guarantee with rent along with help from a caseworker if a tenant gets out of line. I invest based on property usage. If I'm flipping I'll go to B or C areas since that gives the highest return for that area. For renting it makes no sense to buy for the 1% rule when higher returns are available for what you're trying to do.

    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Jason Cory suggesting someone buy those types of property as someone out of state is very risky
    0Reply
  • Jason CoryPro Member
    Real Estate Broker · Birmingham, AL · Member since 2018 · 264 posts · 381 votes
    8y
    Originally posted by @Caleb Heimsoth:

    Jason Cory suggesting someone buy those types of property as someone out of state is very risky

     It's safer than buying in a c neighborhood. Renters degentrify owner occupied areas. Value instantly declines because renters don't have a financial vested interest like owner-occupant to do so if you're going to rent you go where reading is what creates the demand. It may be risky for people that don't know what they're doing but not for an investor that wants the cash flow. I may be the exception to the rule since I used to appraise. Every investor has their own opinion and I can respect that.

    1Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y

    Have you seen any of the BRRRR+turnkeys? If you have the capital, you fund the property purchase and the rehab and the turnkey company does all the work. So you get the benefits of both models- forced appreciation/equity upfront while someone else does the work.

    You have to be careful who you do this model through because it's your money on the line instead of theirs (whereas it's their money on the line in a standard turnkey setup), so guarantees and/or reputation are HUGE on this one, but I've been working with someone over the last couple years that have gone great.

    At least that's an alternative to possibly solve your conundrum.

    I've always bought standard turnkeys myself. I bought primarily when the markets had more room to grown, so my turnkeys actually have all doubled or tripled in value. That would be impossible to achieve right now with where the market is, but with turnkeys it's more about where you buy in terms of working that equity front.

    1Reply
  • Justin C Huggins
    Clinton, AR · Member since 2017 · 37 posts · 6 votes
    8y

    I am very new as well, but have went the turnkey route.  I bought mine in Cahokia Illinois and it is a C class property with very low involvement, and pretty good cash flow.  Low crime area but will be very little appreciation on the property and high taxes.  Probably would not purchase in this location again, but would go the turnkey route again for the passiveness. 

    I have been looking at Memphis turnkey properties for a potential next property, as they do offer financing as well (%35), so you will not be paying higher than appraisal . They have properties in Little Rock and Memphis mainly.  From the looks of some of there properties, they have a mix of B and C class properties.  I have seen many good reviews from them on BP.  

    0Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    8y
    Originally posted by @Zack P.:

    Hey Everyone!

    I'm definitely a noob on BP, but have been a landlord for about 5 years.  I'm looking to expand my rental portfolio and wanted to get your thoughts.  

    I've talked with several turnkey companies, but my concern so far is that there exists no equity to start, so essentially the finished product is AT or sometimes even ABOVE market price.  I may still go this route, but has anyone done out-of-state buy, rehab, and rent it out?  (instant equity!!!)

    If so, how was your experience, is there a company who will help with the whole process?  Or is only way to do this flying out to location, interviewing tons of people, and building a team/network?  

    I'm looking in Memphis, KC, Indianapolis, Atlanta, Birmingham, Dallas, Chicago.  But really anywhere is fine as long as the math works. 

    thanks in advance

    ~Zack

     Turnkey can be a great option when investing OOS! Doing a rehab may be difficult unless you know the right people or have the time to make this a full a time job.

    If you go with a Turnkey, just make sure they are a TRUE provider. The provider should own, renovate, and manage the property all in house.

    Try looking at:

    The Best Types of Markets for Profitable Turnkey Properties

    and

    How to Find the Right Turnkey Real Estate Investment Company for You

    0Reply
  • Ali Hashemi
    Investor · Southern Indiana, IN · Member since 2017 · 178 posts · 95 votes
    8y

    I can tell you it is possible to have both equity and turnkey

    0Reply
  • Jay Bhatt
    Tarrytown, NY · Member since 2016 · 79 posts · 43 votes
    8y

    @Zack P. I was in the same boat in Late 2016 and decided to set up my own OOS rehab operations. I have listed out the steps I followed in a different thread.

    https://www.biggerpockets.com/forums/311/topics/54...

    I inquired number of  the turnkey providers that were out there in 2016. I would recommend Crestcore in Memphis to help you with your OOS rehab process that you mentioned.

    https://www.biggerpockets.com/forums/517/topics/22...

    @Douglas Skipworth and Dan Butler were straightforward and I would recommend you to reach out to them should you decide to take that route. Personally, I haven't bought a property from them. However, their operation was quite impressive and I have heard good reviews about the company.

    Lot of turnkey companies have moved out of C class neighborhoods and more into 100K +. A good example is Memphis Invest.

    I will recommend  @Sharad M. He has great turnkey product in Northwest Indiana market. Again I haven't bought any but he has a stellar reputation of putting out great quality product.

    I expect to have more information on Chicago area after this weekend. I am going to attend @Brie Schmidt's  Midwest conference.  She is a great resource in Chicago market.

    Good luck!

    2Reply
  • Zack P.
    OP
    CA · Member since 2017 · 31 posts · 11 votes
    8y

    @Ali Boone Noticed tha you are in Venice Beach. I'm doing in Irvine/Costa Mesa for work a lot. Would you be able to introduce me to your contact on BRRRR+turnkey? Feel free to DM me :-)

    @Justin C Huggins  I'm fairly familiar with St. Louis metro area and Cahokia is definitely a tough place.  I don't know how you classify your properties or define them, but Cahokia is probably more like D properties in my opinion.  I've got some properties in the city which is more like C in my opinion.  Hope things go well for your Memphis.  

    0Reply
  • Zack P.
    OP
    CA · Member since 2017 · 31 posts · 11 votes
    8y

    @Jay Bhatt  I'll be scheduling a convo with Crestcore.  Seems like great guys.  Let me know how your Chicago conference goes.  It'll be interesting to hear, I know some guys who are doing Section 8 stuff on the southside, but I'm not exactly sure if I want to get into that.  

    1Reply
  • Fernando E.
    Rental Property Investor · SF Bay Area · Member since 2016 · 234 posts · 103 votes
    8y

    Hi @Zack P., I'm in the same situation as you, I live in a very expensive market in SF bay area. I too am focusing on OOS,  the book of "Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties" by @David Greene is a wealth of resource. Building your OOS team is key, David provided key steps on doing this in his book. Worth checking out, best of luck! 

    0Reply
  • Zack P.
    OP
    CA · Member since 2017 · 31 posts · 11 votes
    8y

    @Fernando E.

    Well, the Bay Area is just out of control!!  All these tech companies are buying up property left and right.  Google just purchased a GOLF COURSE for their employees!!!  #smh

    Let's connect sometime!  OOS investors gotta stick together!!

    0Reply
  • Michelle Paul
    Rocklin, CA · Member since 2018 · 2 posts · 0 votes
    8y

    I'm struggling with the same situation right now. I am at the beginning of my 1031 exchange 45 day identification period and need to have multiple properties identified by early June. I haven't been overwhelmed with the cash flows on the Turnkey properties I've been looking at. (Could be a sign of the markets where I have been looking). However - it's a complete project and I know I'll meet the 1031 deadlines if I go that route.

    @Ali Boone If you could DM me the BRRRR+ turkeys you have are aware of, I'd appreciate it.

    0Reply
  • Zack P.
    OP
    CA · Member since 2017 · 31 posts · 11 votes
    8y

    @Michelle Paul

    Depending on the equity and the debt that you will be bringing in for 1031, you may need to go the 4-plex or even bigger route, especially if you are 1031'ing from CA to the midwest.  

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Zack P. I talked to the crestcore guys last week. Really knowledable. Make sure you do plenty of your own research on Memphis on your own too. For out of staters try to Stu above 750 a month in rent. The 60k duplex that rents for 550 a side will look appealing but avoid those. That tenant class is extremely difficult. Also for a good understanding of what can go wrong on the BRRR out of state process, search for ABC capital on here. There have been several threads about that that I’ve seen. I think the BRRR is a good thing and can work long distance but just be aware it does add a lot of extra risk. Your returns can be higher though.
    4Reply
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