Is a turnkey investment good for a beginner real estate investor?

44 Replies

Hello everyone! 

I'm new to BiggerPockets and just finished reading Brandon Turner's "The Book on Rental Property Investing". I live in Portland, OR, where the housing market is very high for rental property investing. Turnkey investing seems very enticing, and I am seeking some advice from experienced investors. Is turnkey investing a good way to go for a beginner investor like myself? If so, what are the most reliable turnkey companies with in-house property management? 

Thanks!

David 

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I think it can be a good way to start but recommend branching out from there after you do a couple.

I think it depends on where you want to go with RE investing. Is rentals something on the side to invest your money and build wealth (this can be great if you have a high earning potential in your W2 job - so you can focus your time on earning $ and then investing that in more turn key). Obviously a portion of your returns will go to paying for it being turn key and ‘hopefully’ less hastle.

For others getting started they don’t have the capital and need to build sweat equity or want to use their time to maximize their cash on cash return. Using BRRRR will typically max COC returns (remember you don’t have to personally renovate, you can still hire out someone to do the renovation) but this way you are focusing on finding deals below market value and doing the dirty work to build them up (typically have a better equity position in the property afterwards after all is said and done). But of course there is a little more at risk (depending on your experience level and renovations involved) and much more time involved.

Think about what you are envisioning for yourself and go after that.

@David Kuhlke Turn key can be the best way to go for a beginner investor from out of state. There are a lot of moving parts, especially on a property that needs work and a lot of things can go wrong even for experienced investors. It's much more risky for an inexperienced investor to try to do it themselves. Having said that, working with a reliable turn key company with strong ethics and integrity is a must if you decide to go this route. There are several good ones here on BP depending on what market you are interested in.

In general, the ones to avoid are the ones that:

  • Don't allow financing or a finance contingency (it can be a good indication they are selling above market value)
  • Don't allow for your own independent property inspection
  • Are not realistic with their pro forma's (i.e. they don't include vacancy or maintenance projections or use unrealistically low vacancy factors)
  • Require you to pay for any renovation upfront
  • Sell only in cheap. low end neighborhoods
  • Don't accurately represent the neighborhood/property classification
  • Don't have consistent rehab standards for all properties

@David Kuhlke it’s a great way to get started if you live in a primary market but once you get one or two try to find your own deals without paying retail price.

Originally posted by @David Kuhlke :

Hello everyone! 

I'm new to BiggerPockets and just finished reading Brandon Turner's "The Book on Rental Property Investing". I live in Portland, OR, where the housing market is very high for rental property investing. Turnkey investing seems very enticing, and I am seeking some advice from experienced investors. Is turnkey investing a good way to go for a beginner investor like myself? If so, what are the most reliable turnkey companies with in-house property management? 

Thanks!

David 

Turnkey can be a great way to start investing outside of your own market. It is really great if you also want (or need) to be a passive investor. The Turnkey provider should own, renovate, and manage the property all in-house. The only third parties used should be your home inspector.

Try looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

@David Kuhlke Have you thought about looking in Kansas City or Cincinnati/Dayton OH?  Both are great markets! Turn-Key is great for new investors like yourself. I'm happy to provide any info if you'd like.

@Caleb Heimsoth thanks for the advice, I definitely want to have a diverse portfolio in the future, but will probably start out with a turnkey 

@Mark Hughes Thanks, Mark for the information! This is helpful. I believe at this point in time, I am too preoccupied to do any BRRRR investments. I am definitely looking for more passive investments but am definitely open to something more hands-on in the future.

@Mike D'Arrigo Mike, thanks for that advice, I never thought of the independent inspection aspect. Question for you, what are your thoughts on Kansas City and the future population growth potential there? I am interested, but also hesitant due to the high crime rates. I assume that the crime rate elevation might be in particular to specific neighborhoods and not indicative of the city as a whole? 

Thanks, 

David 

Originally posted by @Ali Boone :

I wrote an article about why I think turnkeys can be good for new investors-

https://www.biggerpockets.com/renewsblog/turnkeys-...

Hope that helps!

Thanks, Ali. I love your article, and it's reassured me that turnkey can be an excellent choice for REI! Question-- what do you think are the best cities for turnkey investments right now?

Thanks, 

David 

Originally posted by @Lane Kawaoka :

David Kuhlke it’s a great way to get started if you live in a primary market but once you get one or two try to find your own deals without paying retail price.

Hi Lane,

Do you currently invest in rental properties in Honolulu? I was just there a couple months ago and visited some nice areas. 

@Tom Ott

Thanks, Tom! I noticed you are a real estate agent in OH. What city? Also, what cities in OH do you see as future growth potential? 

Originally posted by @Sean Tarpenning :

@David Kuhlke Have you thought about looking in Kansas City or Cincinnati/Dayton OH?  Both are great markets! Turn-Key is great for new investors like yourself. I'm happy to provide any info if you'd like.

I am interested in Kansas City, but probably just the Missouri side. I'm also a little apprehensive about crime rates and population growth trend. What are your thoughts on these? 

If you’re looking for places with strong population growth that’s likely going to come with a high price.

I look for slow population growth, or slow decline and an area with lots of renters.

Originally posted by @David Kuhlke :

Hello everyone! 

I'm new to BiggerPockets and just finished reading Brandon Turner's "The Book on Rental Property Investing". I live in Portland, OR, where the housing market is very high for rental property investing. Turnkey investing seems very enticing, and I am seeking some advice from experienced investors. Is turnkey investing a good way to go for a beginner investor like myself? If so, what are the most reliable turnkey companies with in-house property management? 

Thanks!

David 

What are your goals? Turnkey is more a service than a product. You are simply paying someone else to handle the business of being a landlord for you. Your profit margins will be thinner but you aren't the one doing the work. Works great for those that want that. Not so great for hands on folks.

@David Kuhlke - no! LOL. You missed the boat by about 5 years. You need to do it the hard way like the rest of us now. Anyone who tells you differently either loves making very little cash flow, loves having almost no equity, or is trying to sell you. Best of luck. 

I consider turnkey rental properties as training wheels. You never hear about the most successful investors out there buying turnkeys, but rather, owning companies that sell them.

On the other hand, it helps you understand the process of buying, analyzing, and managing a property and property manager. I'd consider doing it purely for what you'd LEARN from it, now how much you'd profit - that comes later as long as you don't make a very bad buy (less than 1% rule). Warren Buffet says that "the only investment that NEVER goes down in value is knowledge."

You want to make sure you keep your motivation up and move the needle a little bit in the positive direction, and a turnkey could nudge you and motivate you to do something yourself once you start understanding how much you're paying for the convenience. It will also provide a benchmark for you for what a "successful" rental should "feel" like.

Search Lane Kawaoka. He has 11 of them bought in recent years.  Slowly he is divulging his true experiences.

Originally posted by @Derek Clifford :

I consider turnkey rental properties as training wheels. You never hear about the most successful investors out there buying turnkeys, but rather, owning companies that sell them.

On the other hand, it helps you understand the process of buying, analyzing, and managing a property and property manager. I'd consider doing it purely for what you'd LEARN from it, now how much you'd profit - that comes later as long as you don't make a very bad buy (less than 1% rule). Warren Buffet says that "the only investment that NEVER goes down in value is knowledge."

You want to make sure you keep your motivation up and move the needle a little bit in the positive direction, and a turnkey could nudge you and motivate you to do something yourself once you start understanding how much you're paying for the convenience. It will also provide a benchmark for you for what a "successful" rental should "feel" like.

There's a guy here who said he funded the operators. 

But when people ask if TK rental is good to buy he won't affirm it is. 

Originally posted by @David Kuhlke :

Hello everyone! 

I'm new to BiggerPockets and just finished reading Brandon Turner's "The Book on Rental Property Investing". I live in Portland, OR, where the housing market is very high for rental property investing. Turnkey investing seems very enticing, and I am seeking some advice from experienced investors. Is turnkey investing a good way to go for a beginner investor like myself? If so, what are the most reliable turnkey companies with in-house property management? 

Thanks!

David 

David - 

Just some quick insight on your specific question, the word Turnkey is a marketing term.  Unfortunately, beginning investors (and even some experienced investors) use the term like it has an actual definition and meaning that can be attached across any property, in any city, from anyone that uses the word Turnkey.

Regardless of how you decide to get started, if you have not already bought investment property, your first step needs to be a mentor.  Someone you can talk to and ask questions of and learn some solid basics.  Whether it is turnkey or house hacking or trying to wholesale a property - whatever your chosen endeavor, you need to have someone with some legs beneath them as an investor to speak with.  I am sure Portland is loaded with quality people you can offer to buy a cup of coffee or a lunch and pick their brain.

NO matter what you do, any investment can be a great investment for a beginning investor if they take their time and don't rush.  The opposite can be said as well if an investor simply jumps into something without an understanding of what they are doing.

I do hope you are patient and spend some time learning how to invest wisely whether it is active or passive and Turnkey or not.

Best to you!

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