Turn Key Type 1 vs Turn Key Type 2 - Be sure you know the Diff
There are a lot of people asking questions about Turnkey recently because acquisition costs are so high in CA IL NY WA OR and parts of TX. The key to making money by buying a Turnkey is knowing your costs and knowing the market. Most Turnkey buyers I've spoken to tell me they were surprised that the rehab costs were so high and that it took so long to get a tenant. Generally, I'm told they are making about $100 to $150 a door. Anything under $500 a door is a questionable investment in my opinion. So, I put together a spreadsheet comparing what I've been told that others buy and a couple I've done. The spreadsheet allows you to see how over time, there are substantial things to be aware of that you might not have considered. I do Type 2 Investing. I wrote this comparison for a California investor who wanted to see the numbers. If you look at the very bottom line, the results are remarkably different.
Turn Key Type 1 vs Turn Key Type 2
| 1) Assumption: Turn Key – Type 1 Company Name Invests Mostly Passive Investment | | | 2) Assumption: Turn Key - Type 2 Taking Property Subject To Mostly Passive Investment | |
| Assumption: Investor has to get financing from a bank or from Turn Key company Or Invests $80,000 cash Requires $16,000 cash plus closing costs | | | Assumption: Investor takes over seller’s loan (Subject To or Wrap) and does not have to get financing from a bank or from Turn Key company. No Bank, No Credit Needed Requires $50,000 cash | |
| Assumption: Turn Key company has found and rehabbed property and found renter to install | | | Assumption: Turn Key company has found property with equity and taken over loan with Subject To or Wrap. And found Tenant Buyer who puts $20,000 down, pays a premium lease and does all maintenance and repairs | |
| Assumption: Goal Is Cash Flow with Eventual Property Appreciation | | | Assumption: Goal Is Cash Flow, captured equity with Eventual Property Appreciation | |
| Assumption: Investment Amount $80,000 | | | Assumption: Investment Amount $50,000 | |
| Location: Columbus Ohio | | | Location: Phoenix Arizona | |
| 2,373 miles from Los Angeles | | | 373 miles from Los Angeles | |
| | | | | |
| Investor 100% Profits (No Back End Equity) | | | Investor 100% Cash Flow & Back End Equity $$ | |
| | | | | |
| Investor's Total 10 Year Return (Plus (Does Not include Tax Write Off's) | $75,240 | | Investor's Total 10 Year Return (Does Not include Tax Write Off's) | $249,971 |
| Investor Funds LLC | $80,000 | | Investor Funds LLC | $50,000 |
| Investor Profits | $75,240 | | Investor Profits | $249,971 |
| Less Cap Ex (Roof, AC Unit, Landscaping, Water Heater, etc) | -$$$ | | No Cap Ex (Tenant Buyer does All Maintenance and Repairs) | $0 |
| Investor sets up LLC | | | Investor sets up LLC | |
| Investor Funds LLC $80k or applies to bank and hopes to qualify | | | Investor Funds LLC $50k | |
| Turn Key locates & acquires property | | | Turn Key locates & acquires property | |
| | | | Turn Key teaches Investor Subject To, Wrap, Lease Options | |
| Investor 100% Ownership | | | Investor 100% Ownership | |
| Investor 100% Cash Flow | | | Investor 100% Cash Flow & Back End Equity | |
| Investor makes management decisions | | | Investor makes management decisions | |
| Investor collects rents, disburses | | | Investor collects rents, disburses | |
| | | | | |
| Property ARV | $80,000 | | Property ARV | $225,000 |
| Purchase Amount | $80,000 | | Purchase Amount | $180,000 |
| Cash Out - to Seller | $0,000 | | (Cash Out - to Seller) | $15,000 |
| Seller Carry Back | $0,000 | | (Seller Carry Back) | $20,000 |
| Bank Financing | $64,000 | | | |
| Amount Cash Have To Put Down | $16000 | | (Underlying Note Subject To) | $145,000 |
| Monthly Payment Out | $419 | | Monthly Payment Out | $995 |
| Repairs & Maintenance | $5,000 | | No Repairs or Maintenance | $0 |
| | | | | |
| Sell Amount to Tenant Buyer | $0 | | Sell Amount - New Tenant Buyer | $245,000 |
| Seller Carry Back (Paid when Tenant Buyer Refinances) | $0 | | Seller Carry Back (Paid when Tenant Buyer Refinances) | $20,000 |
| Underlying Note Subject To (Paid when Tenant Buyer Refinances) | $0 | | Underlying Note Subject To (Paid when Tenant Buyer Refinances) | $145,000 |
| Cash In – From New Tenant Buyer | $0 | Cash In - From New Tenant Buyer | $20,000 | |
| Monthly Payment In – From Renter | $550 | | Monthly Payment In – From Tenant Buyer | $1,650 |
| Investor Does Repairs & Maintenance | $$$ | | Tenant Buyer Does Repairs & Maintenance (No Cap Ex) | $0 |
| Amount Tenant Buyer Owes Investor | $0 | | Amount Tenant Buyer Owes Investor ($245k - $20K) | $225,000 |
| | | | | |
| Monthly Payment In | $550 | | Monthly Payment In | $1,650 |
| Monthly Payment Out | $419 | | Monthly Payment Out | $995 |
| Monthly Cash Flow Investor Total | $135 | | Monthly Cash Flow Investor Total | $655 |
| | | | | |
| Vacancy Rate 80% | | | Vacancy Rate – None | |
| Renters Occasionally Need To Be Evicted | -$1,000 | | Note: Tenant Buyer puts down $20,000 Non Refundable – If the Tenant Buyer vacates the property – another Tenant Buyer is found with an additional $20,000 Non refundable down | $20,000 |
| Year 01 Cash Flow Investor - $135 monthly | $1,620 | | Year 01 Cash Flow Investor - $655 monthly | $7,860 |
| Year 02 Cash Flow Investor - $135 monthly | $1,620 | | Year 02 Cash Flow Investor - $655 monthly | $7,860 |
| Year 03 Cash Flow Investor - $135 monthly | $1,620 | | Year 03 Cash Flow Investor - $655 monthly | $7,860 |
| Year 04 Cash Flow Investor - $135 monthly | $1,620 | | Year 04 Cash Flow Investor - $655 monthly | $7,860 |
| Year 05 Cash Flow Investor - $135 monthly | $1,620 | | Year 05 Cash Flow Investor - $655 monthly | $7,860 |
| Year 06 Cash Flow Investor - $135 monthly | $1,620 | | Year 06 Cash Flow Investor - $655 monthly | $7,860 |
| Year 07 Cash Flow Investor - $135 monthly | $1,620 | | Year 07 Cash Flow Investor - $655 monthly | $7,860 |
| Year 08 Cash Flow Investor - $135 monthly | $1,620 | | Year 08 Cash Flow Investor - $655 monthly | $7,860 |
| Year 09 Cash Flow Investor - $135 monthly | $1,620 | | Year 09 Cash Flow Investor - $655 monthly | $6,000 |
| Year 10 Cash Flow Investor - $135 monthly | $1,620 | | Year 10 Cash Flow Investor - $655 monthly | $7,860 |
| Cash Flow To Investor | $16,200 | Cash Flow To Investor | $78,600 | |
| Repairs & Maintenance (Roof, AC Unit, Water Heater, Painting, Appliances, Landscaping, etc) | -$$$ | No Repairs or Maintenance (No CapEx) Tenant Buyer Does All Maintenance & Repairs | $0 | |
| 10 Year Principal Pay down by Renter | $11,940 | 10 Year Principal Pay down by Tenant Buyer | $28,871 | |
| | | | | |
| Cash Down - From Tenant Buyer | $0 | | Cash Down - From Tenant Buyer – Goes into Investor’s Pocket | $20,000 |
| | | | | |
| Tax Write Offs For Investors | $$$ | | Tax Write Offs For Investors | $$$ |
| Appreciation Is Investor's -10 Year | $40,000 | | Appreciation Is Investor's -10 Year | $112,500 |
| Note: Appreciation on a $80,000 property in Indiana at 5% per year is $4,000 per year | $4,000 Year | | Note: Appreciation on a $225,000 property in Arizona at 5% per year is $11,250 per year | $11,250 Year |
| Investor Borrows From Bank$80k to acquire property | $80,000 | | Investor Funds LLC $50k (From Cash IRA 401(k) for Property | $50,000 |
| | | | | |
| Sell Amount to Tenant Buyer | $0 | | Sell Amount to Tenant Buyer | $245,000 |
| Payoff Amount for Investor | $64,000 | | Payoff Amount for Investor | $180,000 |
| Creates “Back End Equity” | $16,000 | | Creates “Back End Equity” | $65,000 |
| | | | | |
| Original Down – From Tenant Buyer | $0 | | Original Down – From Tenant Buyer | $20,000 |
| Tenant Buyer – Pay Off Amount | $0 | | Tenant Buyer – Pay Off Amount | $225,000 |
| | | | | |
| Tenant Buyer Eventually Refinances | $0 | | Tenant Buyer Eventually Refinances | $225,000 |
| Underlying Note Paid Off | $64,000 | | Underlying Note Paid Off | $145,000 |
| Seller Carry Back Paid Off | $0 | | Seller Carry Back Paid Off | $20,000 |
| Remaining Equity | $16,000 | | Remaining Equity | $60,000 |
| | | | | |
| 10 Year Cash Flow To Investor | $39,300 | 10 Year Cash Flow To Investor | $78,600 | |
| Backend Equity – Investor 100% | $0 | Backend Equity – Investor 100% | $60,000 | |
| Total | $39,300 | | Total | $138,600 |
| Investor’s Amount Invested Investor's Total Return From Tenant Buyer 10 Year Cash Flow Principal Pay Down Appreciation Back End Equity Total Minus Repairs, Maintenance, AC Units, Roof, Water Heater, Landscaping and other Cap Ex | $80,000 $75,240 $0 $39,300 $11,940 $40,000 $16,000 $75,240 -$$$ | | Investor’s Amount Invested Investor's Total Return From Tenant Buyer 10 Year Cash Flow Principal Pay Down Appreciation Back End Equity Total Minus Repairs, Maintenance, AC Units, Roof, Water Heater, Landscaping and other Cap Ex | $50,000 $299,971 $20,000 $78,600 $28,871 $112,500 $60,000 $299,971 $0 |
| Additional Investor Funds to buy Another Property in Year 1 | $0 | | Additional Investor Funds to buy Another Property in Year 1 | $20,000 (From New TenantBuyer’s DownPayment) |
| Investor's Net Return Profit | $75,240 | | Investor's Net Return Profit | $249,971 |
| 10 Year ROI | 9.40% | | 10 Year ROI | 49.90% |
| 1st Year ROI Cash Flow | 2.03% | | 1st Year ROI Cash Flow | 15.72% |
| 1st Year ROI Including Down Payment | 2.03% | | 1st Year ROI Including Down Payment | 55.72% |
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