Turnkey vs OOS Rehab

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

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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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
8y
@Zack P. You really have to ask yourself what is the single most important thing to you. If it's cash flow and equity is just icing on the cake, then turn key might be the better way to go especially for someone with no experience. In order to have any chance of forcing equity, you have to buy a fairly distressed property. You're not going to be able to add much value through a simple cosmetic update. So ask yourself how you're going to manage a construction crew from 2000 miles away. It's hard enough to manage some contractors and keep them on schedule and budget when you're right there. Also, how are you going to determine what the scope of work should be to fit the class of property and tenant you are trying to attract. How are you going to communicate with the contractor? Do you have a general understanding of construction? It's a misconception that someone with no experience and 2000 miles away can find and renovate a property and do it for less than a turn key company. Good turn key companies have significant cost advantages over the inexperienced person doing it one off. Turn key companies are buying further upstream (auctions, tax sales etc) at much better prices than someone buying off the MLS. They also have significant economies of scale and much lower material and labor costs. On top of that, you will be paying a mortgage, property taxes, insurance and utilities while you are rehabbing the property and marketing it for a tenant which brings up another cost. Once you go to get it rented, you're going to pay a property manager usually 1 month of rent for lease up. Most people with no experience can't manage all of this, assume all the risk and do it for less than a turn key. You should carefully consider which route is best for you.
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Alyssa Dyer
Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
7y
@Zack P. right now things are so stable that it's tough to BRRR in a lot of markets. However you can totally add value to existing rentals. So grab turnkey or almost turnkey properties and convert garages, convert to section 8 or better yet, do both! I've seen a lot of success with this in my local market.
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