How should a person invest in real estate as a beginner?
Member since 2018 · 26 posts · 20 votes
How should a person invest in real estate as a beginner?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes@Clayton Mobley I have not run the math so going to wing it right now.
lets say you have 150k to invest. and of course you have reserves this does not include your MUST HAVE reserves.
you use 100k for down payments..
lets say you buy 3 100k props for 25k down each.. lets say in this market your actual cash on cash with quality assets is about 5 to 7% return I think that's pretty fair in todays market on 100k rentals..
so lets say 7% of 25k.. give you 1700 a year in cash flow net.
now lets say you bought a quality performing note secured on the exact same collateral.. only instead of investing 100% of value your the bank at 65% so you loan 65k your spent 75k on your down payments to generate 3X 1700 a year.
and your performing NOTE on the exact same assets at 65k is making 9% which is quite doable.. so roughly 5900 a year in come on your note.. and you have ZERO cost to your note.. its just pays every month.. into your account..
so take your 5900 and 3X 1700 5100 that's 11k a year .. pay down one 75k note you will pay this off in about 7 years .
your note at 65% LTV being interest only is still worth 65k.. its just a cash flow machine..
and now your free and clear asset just dropped a 500 a month payment ( just spit balling.. )
now you have another 16k a year to pay down your next note which has been paid down to say 65k with normal payments so in 5 years that's paid for then you do the next one and its paid for in 4 year lets say.. so in about 16 years
you now have 3 paid for houses and your 65k note as its still an interest only note.. and its all equity.
you income on those three homes and your note.. brings you up to about 3k a month or so.. and its all paid for.
not a bad use of 150k to start with.. and pretty manageable for home.
Or you could just buy 3 notes to start with making 14k a year in income and save it for 5 to 6 years and pay cash for homes going forward.. few ways to work it..
Just a Saturday morning Musing on what to do with 150k..
28 Replies
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes8y
Originally posted by @Nick Tarantino:
I know a person who has about 140k to invest. This person has an interest in rental properties and flipping houses. If they want to make a living off passive income from real estate, how do you think they should get started? The person lives in New York City, but since NYC real estate is so expensive, he's considering moving to a place less expensive such as Austin, Texas. Thanks so much!
They should partner with someone to learn the ropes.
- 8yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votesJohnny Stacks I always think househacking is the best way to start. Buy a small multi and live in it. You’ll save a ton of cash and learn a lot.
The Moorhead Team5140 Reviews - Member since 2018 · 26 posts · 20 votes8y
Originally posted by @Jordan Moorhead:
Johnny Stacks I always think househacking is the best way to start. Buy a small multi and live in it. You’ll save a ton of cash and learn a lot.
Thanks for the advice guys. Jordan, starting with a multi-family and living in it was something I was considering.
Do you guys think it's possible to get started with a 140k investment and eventually build enough passive income to live off? A person can probably afford a 20% down payment on two properties in a place like Austin, Texas, but I think two properties might not be enough to live off of.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yJohnny Stacks Austin is cheaper than NYC but your friends 140k will not go very far there. It depends what you mean by live off of or how much money you need. As a general idea to make 100k per year requires roughly 800k-1.5M of invested capital. So if I was your friend I’d pick a cheaper market than Austin but that’s just me. This is a get rich slow game. Tell them they’ll need 10-15 years minimum unless they have the amount of money said above
- 8yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votesJohnny Stacks if you want to live in Austin then use an FHA loan to househack there. Put the rest of the money to work in other markets that have better cashflow. There are a few within driving distance.The Moorhead Team5140 Reviews
- Member since 2018 · 26 posts · 20 votes8y
@Caleb Heimsoth Thanks for those great insights. Are there cheaper markets out there that have a moderate or high demand from tenants? If so, where are those markets?
@Jordan Moorhead I will read about what a FHA loan is. What kind of other markets have better cash flow?
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Nick Tarantino, I agree with @Caleb Heimsoth - not only is this a 'get rich slow' game (nicely put), but Austin isn't the cheapest market. A good one, to be sure, but there are others with similar returns and lower bars for entry.
With $140k alone, no, you can't make enough to live off of, BUT you can get a great head start on a portfolio that will eventually generate enough passive income to sustain you. Like Caleb said, your friend will need to be comfortable with a 10+ year timeline.
Now, I am a big fan of leverage. So if it were me, I would take about $120k of that and use it as down payments on multiple properties in a cheaper market (obviously I am biased toward Birmingham, but there are plenty of markets in the South and Midwest that work well). Speaking only for the market I know, he could use $120k to put 20% down on 4-7 props (avg value of $100k here in Bham for solid B/B+ cash flow props) plus closing costs.
If he doesn't need the income now, I'd say go for a 15 year loan and devote all the cash flow to paying down the loans, one at a time (so minimums on loans 2-6 and everything left over from all those rent payments onto Loan 1, till 1 is paid off, then start focusing on Loan 2, etc.) This way he won't have any money coming in as income BUT his tenants are buying him a small portfolio much more quickly. Eventually (for some of our clients as soon as 7 years) he'd have at least a few free and clear properties, 80% funded by tenants, doing nothing but providing income.
Afterward (or even before if things line up and depending on how quickly he's paid the loans down) he can pull out equity to buy new properties, use money saved from his regular job to buy more, or use a 1031 to leapfrog into something even better. Fifteen+ years down the line, if the Appreciation Gods have smiled upon him, a 1031 could even allow him to trade one appreciated property for 2-3 new cash flow properties with no tax bill for all those capital gains!
There are plenty of rules and regs for the 1031, but no limit on how many of these tax-free exchanges you can do during your lifetime, so this process of having tenants pay off a property, exchanging into something else with a 1031 and expanding your portfolio can go on until he has the income he wants. It's not quick, but it is effective. Once he gets a little portfolio of solid cash flowing properties, the sky is the limit if he plans well and is ok with living off W2 income for another 15 years or so. The first couple properties are always the hardest for all REI, but you get to a point where there's a snowball effect. It takes research and a lot of upfront homework, but it is 100% doable.
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
Sorry, I should say:
If your friend is highly risk-averse, or doesn't qualify for financing, then this isn't going to work. It's what I would do, what a lot of our clients do, but it's not necessarily for everyone. If he doesn't want to use debt to leverage his current sum, it's going to be a slower climb, but with less risk (ie if a property he buys with cash sits vacant, he doesn't have mortgage payments to cover). BUT he will only be able to start with one property and it will take a long time to build up to No.2.
It all comes down to his goals and needs. There are many many ways to do REI and he can deploy that cash in any number of ways to generate income - but not all will be passive - so he needs to research what kind of investment is best suited to his goals. NY is crazy expensive, but he could easily get great cash flow properties in other markets and have them managed. Then he has to decide if he wants to figure it all out himself, find a team (agent, contractor, PM) and manage them from afar (which means lots of time and energy but maybe better returns) or would he rather pay someone to handle it for him so it's just about passive income building with very little hands-on work (turnkey).
Living off the income from $140k isn't going to happen, but it's a great start in the right direction.
Best of luck (to your friend ;) !
Clayton
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
Aaaaannnnd a couple 'word to the wise' disclaimers:
- If he does go the rental route (either DIY or turnkey) I would strongly advise him to stick to properties in solid B areas. Steer clear of sub$50k props, ESPECIALLY IF TURNKEY, because there just simply isn't enough meat on that deal for everyone to get paid, which means someone has cut corners somewhere and he'll end up holding the bag. Plus, cheap properties like that are almost always in an area with no appreciation potential and plenty of tenant issues.
- Quick prop class/goal breakdown: A -class properties are good for appreciation, but PITI eats up all your cash flow. C/D areas seem good for cash flow but in reality evictions, limits on housing authority vouchers, and a more unstable tenant pool means the returns are almost never as good as they look on paper, unless you're a very experienced investor working in your own market (saving money on management fees). B-class properties are the safest place to be for cash flow without totally sacrificing appreciation potential and owner-occupant re-sale options.
- Lastly, if this $140k accounts for all his disposable assets, I would encourage him to not spend his last penny. You'll notice in my first post I said to take about $120k for down payments? That so that last $20k can serve as a cash reserve - for unexpected CAPEX items (although, speaking for turnkey, this shouldn't come up for the first several years), for flights out to vet partners, whatever. I just always advise new investors to keep a reserve in the bank - the peace of mind that will bring will be worth it.
- If he does go the rental route (either DIY or turnkey) I would strongly advise him to stick to properties in solid B areas. Steer clear of sub$50k props, ESPECIALLY IF TURNKEY, because there just simply isn't enough meat on that deal for everyone to get paid, which means someone has cut corners somewhere and he'll end up holding the bag. Plus, cheap properties like that are almost always in an area with no appreciation potential and plenty of tenant issues.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yI can vouch for Clayton Mobley strategy that he just described because that’s basically what I’m doing. The only difference is I’m doing all 30 year loans and just paying down extra principle. Then I use the debt snowball. My first property will be free and clear 3 years after I bought it. I should have 20 or so rentals by 30 that give me ~5k a month cash flow. Now to get that requires about 360k in investable cash.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Clayton Mobley while we always debate the leverage question and of course i am on the side of the name of the game or goal is to get some properties paid for as soon as possible.. leverage is needed to scale.
Although some diversification can be good as well.. he could buy a few rentals then buy a nice performing note that will not have the risk of tenants.. if a tenant should not pay one month he or she still has the note income.. also could use the note income to further snow ball that mortgage.. Cash flow from rental and Note income would pay a house off in less than about 7 years....
but of course others will say we are nuts refi to you die and paid for assets are dead equity.. but i look at those that made it through the last down turn who had little to no debt they were fine even though there rentals were vacant for significsant amount of time.. those with max debt literally lost their rentals.. I know I ended up owing about 200 of them that i foreclosed on out of state landlords who could not make it work.. they lost everything and I ended up with their homes. if there was less debt or they paid me off sooner this would not have happened.
- San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes8y
@Nick Tarantino If they're looking into buying and holding, they'll have to pick an area to invest, learn the market and build their network...before they buy. It'll take some. Best thing to do is do a small deal first. They'll be ups and downs but the important thing is that they'll learn through experience. In all honesty, the hardest part of this business is finding your niche. It may take a lot of trial and error. Though, once you find it you become a specialist. If you're interested in learning more, I wrote a whole book on the topic of finding your niche as a real estate investor. Best of luck!!
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Jay Hinrichs agreed - leverage is absolutely necessary to scale. I am often speaking to new investors so you know I come out heavy in favor of loans, for exactly this reason. But then if you can live off other income and pay those suckers down, now you're talking free and clear, nothing but flow in a relatively short period. I think leverage is a crucial tool to use when you're beginning, and then once you get closer to a point where you want to retire and live off your income, you switch your focus to having paid off props - less hassle, more income, lower risk. Of course some of us (looking at you Jay...ok, me too ;) aren't just in this to create retirement income, this is a career, so there's more of a cyclic, upward momentum where leverage and cash purchases each play a part. But for many people, at least until they get well and truly hooked on REI for its own sake, the goal is just to build a portfolio that will sustain their current lifestyle (or better) through retirement. For those people, I'm always a fan of using leverage early to get an aggressive start and then using tenants' money to pay it all off, leapfrogging into more and better with the 1031, rinse and repeat until you're ready to just live off the income without strategizing all the time.
So as much as I am always singing leverage's praises, I actually like a spectrum of leverage to free and clear - I know people who would refi a property when they're 95 years old because 'the equiiitttyyyyy' but most people aren't going to want to be that active with their investments in their golden years. I think of it a lot like retirement funds - start aggressively with value/growth stocks and ETFs when you're young and have time to play with, move into highly rated bonds and low-fee dividend funds as you get closer to retirement. Lower your risk, leave something for your children.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Clayton Mobley I have not run the math so going to wing it right now.
lets say you have 150k to invest. and of course you have reserves this does not include your MUST HAVE reserves.
you use 100k for down payments..
lets say you buy 3 100k props for 25k down each.. lets say in this market your actual cash on cash with quality assets is about 5 to 7% return I think that's pretty fair in todays market on 100k rentals..
so lets say 7% of 25k.. give you 1700 a year in cash flow net.
now lets say you bought a quality performing note secured on the exact same collateral.. only instead of investing 100% of value your the bank at 65% so you loan 65k your spent 75k on your down payments to generate 3X 1700 a year.
and your performing NOTE on the exact same assets at 65k is making 9% which is quite doable.. so roughly 5900 a year in come on your note.. and you have ZERO cost to your note.. its just pays every month.. into your account..
so take your 5900 and 3X 1700 5100 that's 11k a year .. pay down one 75k note you will pay this off in about 7 years .
your note at 65% LTV being interest only is still worth 65k.. its just a cash flow machine..
and now your free and clear asset just dropped a 500 a month payment ( just spit balling.. )
now you have another 16k a year to pay down your next note which has been paid down to say 65k with normal payments so in 5 years that's paid for then you do the next one and its paid for in 4 year lets say.. so in about 16 years
you now have 3 paid for houses and your 65k note as its still an interest only note.. and its all equity.
you income on those three homes and your note.. brings you up to about 3k a month or so.. and its all paid for.
not a bad use of 150k to start with.. and pretty manageable for home.
Or you could just buy 3 notes to start with making 14k a year in income and save it for 5 to 6 years and pay cash for homes going forward.. few ways to work it..
Just a Saturday morning Musing on what to do with 150k..
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Jay Hinrichs exactly! that's why I'm always so heavy on the research for new investors - you came up with that strategy over coffee! Yeah, you have tons of experience, but it just goes to show you how many options are out there. So many amazing ways to make REI work for you, but every investor has to put the time in to figure out what works for them. $140k is a great start (and we're on the same page re: don't use it all, save some for reserves) - I know lots of people who started with less!
- Member since 2018 · 26 posts · 20 votes8y
@Clayton Mobley Thanks for your in depth response. It's so refreshing to hear from people who are successful in REI and optimistic about it. My friend and I encounter a lot of naysayers out there when we have conversations about REI. I was blown away when you said 120k would allow a person to put a 20% down payment on 4-7 rental properties in Birmingham. Where I live in NYC, that amount of money might not even get you 20% on one property.
I don't think my friend would want to move to Birmingham to begin REI, but we'll be researching to see if there's any other markets out there with similar property prices. You gave some helpful advice though. I will property return to your post on the future to read it a couple more times.
- Member since 2018 · 26 posts · 20 votes8y
@Rachel H. Thank you. I also think it would be wise to start small for anyone beginning in REI.
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Nick Tarantino glad you found my ramblings helpful ;) And just as an aside, most people do not move to the market they want to invest in, though if they want to self-manage their properties it's obviously very very helpful. For people who want to get started by house-hacking (buy a duplex, for example, and live in one side), living in your investment market is obviously crucial, but for more passive types of rental investment, it isn't necessary.
In general, people looking for passive income would either develop a team (agent, contractor, property manager) and manage those people from afar or go the turnkey route (one company does all the work, finds props, rehabs, markets, manages, etc). Either way your friend will need to do a lot of due diligence to ensure he chooses partners he can trust to be around for the long haul, but my point is that he doesn't *have* to live in the market he invests in. Especially as his portfolio grows and he diversifies into multiple markets, it stops making sense to move around and manage all your own properties. If he's truly looking for passive income, he will need a solid property manager whether he lives 10 miles or 1000 miles away.
Unless he feels like he would be uncomfortable living far away from his properties or is looking into a more hands-on type investment, there are many many other factors in choosing an investment market that trump whether or not he wants to live there.
- Member since 2018 · 26 posts · 20 votes8y
@Clayton Mobley The turn-key method is intriguing. I've never heard of this method before and I'd like to learn more about it.
I see that you're involved in a turn-key business, so you might endorse it more than the average person would, but I do wonder if it's a legitimate way for someone to make money in REI.
Can you give me an example of how much money an investor can make on a 100k rental property by using a turn-key company in Alabama? How does the company deduct their fees, and how much do they charge for their service?
Thanks!
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Nick Tarantino Turnkey is a very common strategy, especially for newer investors. And while, yes, I do use this investment both personally and professionally, if you look through my past posts you'll see I'm pretty even-handed about recommending it - it's not for everyone and new investors need to have a very clear idea of their needs and goals before they can decide if it's the right avenue for them.
That being said, I will try to give you a brief description of the model. The term 'turnkey' has actually come to have a fairly broad meaning, so when you do your own research on BP and elsewhere (which I high recommend) you may have some confusion over what a turnkey investment is. The way I explain is that lower-case-t 'turnkey' just means a property is tenant-ready, doesn't need any work, can be leased and cash flowing today. Anyone can sell a turnkey property - an owner occupant that is selling but kept the property maintained and updated all the big items before selling, or a company that's just marketing properties sold by other entities all over the country (called a marketer) will often sell 'turnkey' properties. Lower-case-t just means the property doesn't need any work before it can be tenanted.
Upper-case-T 'Turnkey' is what we refer to when we say things like 'the Turnkey model' or 'a Turnkey provider'. This implies a much broader service. A Turnkey provider is a company (like Spartan but there are many all over the country) that does all the work for the investor. We scout properties, we get the deals, we rehab the property and replace big items, we market it, we vet tenants, we manage the rental long-term. So, ideally, the only work that the investor needs to do is upfront, loooong before they pick a property and cut a check. Many people refer to Turnkey as the 'most passive rental investment' but that doesn't mean you don't need to think about it. There's tons of homework that goes into selecting the right market and, most importantly, the right provider.
Once an investor selects the market and provider they want to work with, the provider sends them properties that best meet their criteria and they choose whichever one they like best. Closing doesn't occur until all rehab work is done and inspections passed, so the investor should assume zero risk until the property is ready to go, or 'turnkey'. Depending on the provider and the property, you may have a tenant before closing, which is great. If not, the provider markets the property and finds a qualified tenant, deals with leases, maintenance, late payments (if any) etc. The investor just collects their net income every month - which is why it's called a passive investment.
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
So that's how a true full-service Turnkey investment works. The other side of rental investments is what I call DIY rentals - which means the investor either hunts for deals themselves, hires an agent, uses a friend who lives in the market, or some combination thereof. Then the investor finds a contractor that can do the rehab work and negotiates fees etc. Once rehab is done, the investor either needs to advertise the property and vet tenants themselves, or find a Property Manager (PM) to do it for them. Property managers typically charge between 8-10% of your gross rent, so if your property rents for $500 a month (low, just a nice round number) and your PM charges 10%, you will pay them $600 a year, which really isn't much for the service they provide. Most people that invest outside of their own backyard or don't have a lot of time/energy/interest to devote to being a landlord end up hiring a PM. With Turnkey, the provider is the PM, so it's all built in.
The upside to the DIY method is that, if you're good at it and/or get lucky, you might end up with a bigger share of the profits. If you find a really good deal, get a good price on rehab, and force some appreciation, you now own a property worth a lot more than you paid, AND you get to rent it out (or sell it if you decide to flip instead of buy and hold). The downside is that it's a ton of work and steep learning curve. If your contractor screws you or drops out, if the tenant you choose ends bailing and leaving the house a mess, you may end up having to go deal with it yourself. Especially if you invest outside of your own market, DIY is simply riskier. That being said, TONS of people swear by it and are very successful with this method. Like everything it gets easier as you go along, and for many people the increased risk is worth the potential for increased reward.
The upside of turnkey is that there is very little work involved after the initial due diligence you do to select your provider. It's really just collecting money, having a call with the PM every once in a while, and signing off on any major repairs or other larger decisions. The downside is that the Turnkey company keeps that spread between what they bought the property for and what they sell it to the investor for. They did the work, so they keep the money. That being said, you shouldn't be paying more than market value for a Turnkey property (just as an aside). Turnkey takes the guesswork out of finding a property in a good area, finding a contractor that's trustworthy, vetting tenants, etc. For people who either don't have the time/energy, don't like the increased risk of DIYing in another market, or simply don't want to do all that legwork, Turnkey is a good fit.
So DIY is higher risk, but potentially higher reward. Turnkey is lower risk, but lower reward. Think of DIY as the stock market and Turnkey as more of a mutual fund.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Nick Tarantino:
@Clayton Mobley The turn-key method is intriguing. I've never heard of this method before and I'd like to learn more about it.
I see that you're involved in a turn-key business, so you might endorse it more than the average person would, but I do wonder if it's a legitimate way for someone to make money in REI.
Can you give me an example of how much money an investor can make on a 100k rental property by using a turn-key company in Alabama? How does the company deduct their fees, and how much do they charge for their service?
Thanks!
in todays market rentals are returning 4 to 8% realistically in the Best B to low A areas.. C class 6 to 10.. D 10% and above although the numbers look good that's if you can actually collect rent over a sustained period of time.
rental properties are a very nice slow growth to add to your long term portfolio .
to make big money in the business you have to be in the business IE you are the turn key provider.. or your a developer or big margin flipper etc..
rental income is rental income.. and its just long term... let your tenants pay your house off sort of thing..
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
Ok, to answer your last question: how much can you make on a $100k prop in AL.
First the disclaimer: one turnkey property (or DIY rental) will not a sufficient income make. You start with one and build up.
So our average property value is about $100k (fair market value, we don't inflate our prices and any provider worth your time shouldn't either) and our average rent is $950 per month.
That's gross rents, you need to account for real expenses, like taxes, insurance, PM fees (ours is 9%), etc. None of our properties have HOA fees but some other Turnkey providers do offer props that fall under an HOA so you have to check for those as well.
You also have to account for potential expenses, or things that might not occur every month (and shouldn't) but may be larger expenses that occur infrequently. This includes maintenance costs (to fix things and also to spruce up the place when a tenant moves out, called move-out or turnover costs) and vacancy (for when you have an empty house between tenants, for example). Some people also include Capital Expenditure or CapEx expenses in their monthly calculations as well (which means the cost of big-ticket items like a new boiler or new roof). However, because we replace the big items in our properties during rehab (new floor, new roof, new HVAC, new boiler, etc) those items are highly unlikely to come up until much further down the road. So we advise clients to keep a reserve (remember I mentioned only using the $120k and keeping the $20k?) as a buffer for if and when those things come up down the road.
So the math for how much you actually take home each month is complicated. You will find many 'back of the napkin' calculations here on BP that people use to assess whether or not a property is worth looking at further. Everyone has an opinion on them, so you'll need to look into those for yourself. What's most important is that any provider you work with has solid, statistical figures for their expenses so they can show you what the most likely scenario is for your returns. Back of the napkin is good for seeing if something is just not worth your time, but you need hard data to really evaluate any deal, Turnkey or otherwise. Our average expenses for the past 52-week rolling period are: Maintenance 3.1%, Vacancy 3.6%, Property Management 9%. This is based on our entire portfolio for the past 52 weeks, with data updated daily. Over the past five years, these numbers haven't changed much. If memory serves, our vacancy got up to about 5% a few years ago, but very temporarily.
Your loan term and interest rate also impact your actual net returns, so unless you buy outright in cash, some of your rent goes to the bank (but that's ok, great actually, because it means your tenants are buying you a house!). If you would like to see some more specific numbers, feel free to PM me any time and I'll send you some interactive ROI spreadsheets so you can see how all the numbers work together, it might be easier than me trying to explain it here ;)
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
You can find a TON of information on the Turnkey model, different markets and providers, and real experiences from other investors here on BP, so please don't rely solely on my little novellas to inform your investment decisions. There are some very strong opinions on both sides with regard to Turnkey, and there are definitely some scammers out there (read any thread about Morris Invest for reference). So it's not like Turnkey is pain-free, you have to do the work and know how to avoid being taken for a ride, like pretty much any big financial decision in life.
I am always happy to provide info to new investors, as it fuels my BP addiction anyway ;) But before you or your friend make any decisions, it's crucial to have a serious heart to heart about what the goals are for the investment and what your needs are with regard to time commitment, risk, and control (do you need to be near the property, do you need to be in charge of tenants?). Turnkey is a solid model that many people use, but that doesn't mean it's perfect for everyone. So use BP for the amazing resource it is and do some outside research before making an investment decision.
Best of luck!
Clayton
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