I live in a hot market (Utah) where deals are more difficult to find. Turnkey has appealed to me because of the time issue and the long distance investing uncertainty. I would love opinions for a newby. In a turnkey market I can buy 2-3 homes (>80K ea). I have a sample of a turnkey here.

@Brian Christensen We have purchased some properties (8) in Memphis for cash flow, but have not increased our holdings there since and have continued to purchase in our market (just south of Portland OR) due to ease of management and what I think will be better long-term performance.  Just my two cents, there is value to proximity.

Hey @Brian Christensen ! I bet you’re experiencing some nice appreciation if you currently have a primary and/or other local investments in Utah!

That being said, I don’t know cash flow specifics in Utah. But I trust you can generate more gross/net cash flow per month in OOS turnkey properties. A lot of great markets to invest in - I am sure you know the cities if you peruse through BP. Just got to find the market you like the most, ensure you can cash flow based on your calculations, and qualify the right team/turnkey providers.

If you are a busy working professional, I see value in working with a trusted turnkey provider with your first OOS purchase. Saves you time, all major capex is generally rehabbed, and should be rent ready on day 1. I would chat with turnkey providers that are active on BP. Shows they have a reputation with investors here - to earn and protect. 

If all goes well, you can purchase another property through them or - if you want a more hands-on role - you can be more active with an agent, do a BRRRR, etc. Whichever you choose, you'll learn a ton if you ask great questions with your turnkey provider and network with other investors in that specific market.

In the end, depends on what you want to do. You could purchase another property locally and bank on appreciation long-term if you can hold it for a while. But if you have the capital and ability to, might be worth building a passive income portfolio in a linear market. Or better yet, you can do both!

Good luck!

I am not sure how/why a turnkey company is making assumptions of both future appreciation , and increased rents .  I would suggest doing your due diligence  based on how  the property is performing right now  ... assuming it is rented.

We are up to nearly four hundred doors in Indy ...  Happy to answer any questions about this Market ... Just PM me .

@Peter Cung thanks for your input. I have been casing BP for info in Indy. You might be right in a turnkey first, just to get feet wet. I am looking for cash flow mostly, because I feel that a peak is coming and am not banking on appreciation. Many markets now are stalling.

@Jeff Schechter I will definitely reach out soon. Thanks. Brian

@Jeff Schechter

one of the reasons I’ve held off on turnkey is because of the fees. I get that they organize it all and it is newly rehabbed, however you’ll pay 5k organization fee, 6% closing costs, 2500 PM fee for tenant placement, etc. Maybe 2500 in PM fee is typical in Indy, but here it equates to the first months rent. I could pay 13k or more to get into the property. I might be naive about closing costs, so correct me where I am wrong with appropriate fees.

@Brian Christensen what is funny is I look at the deal you have in your market like the one you posted on and am like..man I wish I could get those deals in my market.  My rents are similar but that house would be $220k+ here

@Richard Sherman

That deal is actually in Indy. Here it would be 280k. That is why I’m looking elsewhere.

@Brian Christensen ahhhhh, ok that makes sense..haha...I was like man I need to buy in Utah.   Here is my quick and dirrty rule of thumb.

CAN they build that property for under that price per SF AND is it a growing market demographically.  If the answer is no, it can not be built for that AND the market is growing, then I look deeper.

Notice I also want the land for free.  So in that house, 1760 SF...I am not sure about build cost there, but lets call it $90 a SF (pretty darn low compared to my market) = 1760 x 90= $158,400.   So, it would cost them that much to replace.  Here are the other caveats but this is where I start looking (though I apply it to multifamily mostly.)

1. There is a discount of a few percents for older vs. newer but not much

2. The area you are looking at has to be a decent area (good schools etc)

3. You can not have weird properties like crazy 600 sf 2 bedroom houses or 3500 sf 6 bedrooms, needs to be normal stuff

If these items line up, then you KNOW that at some point excess inventory is used up by growth and they MUST build and then your existing will approximate the cost of the new. PLUS you got the land etc for free .  The best skill in real estate investing is learning to do NOTHING but wait...haha, time makes almost any deal a good one!

Originally posted by @Brian Christensen :

I live in a hot market (Utah) where deals are more difficult to find. Turnkey has appealed to me because of the time issue and the long distance investing uncertainty. I would love opinions for a newby. In a turnkey market I can buy 2-3 homes (>80K ea). I have a sample of a turnkey here.

 Important to note that there are varying levels of the turnkey product & service.

Most people seem to think that you can either purchase a property that's already been renovated & has a tenant in place. Or you can also purchase a property that is beat to holy hell, hire a GC then hire an agent to show the property to tenants when the GC finishes the reno.

You can also find options in between. You can find properties that don't need anything done to them or just very minor repairs. Most of the time Property Management companies will handle sales as well as repairs. What you do need is people on the ground to physically do the work. How you want to slice it can vary from deal to deal.

Originally posted by @Jeff Schechter :

I am not sure how/why a turnkey company is making assumptions of both future appreciation , and increased rents .  I would suggest doing your due diligence  based on how  the property is performing right now  ... assuming it is rented.

We are up to nearly four hundred doors in Indy ...  Happy to answer any questions about this Market ... Just PM me .

 Jeff this is keeping up with the Jones turn key marketing profroma's  they pretty much all make those assumptions.. its up to the investor to do due diligence and see if they agree that rents will increase year over year or your going to have a consistent straight line up appreciation factor no matter how little it is..  to me most turn key mid west stuff does not perform like that.  You want to run on actuals just like anyone buying a MF  and looking at T 12 or T24  not forward. Now in true MF not just duplex 4 plex.. there are certainly situations were rents can be moved up with refurbishment and improvements its the basis of most syndicated deals. 

Investors tend to focus on bottom line so if they see a 20% IRR they just assume its a 20% return deal but they really wont know until they own 5 or more years been through 2 to 3 turnovers and see if there is any market to resell them to create the IRR return.. in the mean time its just a cash on cash with a tiny bit of depreciation since these are so inexpensive you get some but its not really significant in my mind. its about parking money and letting the tenant pay for your home.. if you get money on top of that that's the icing on the cake.. Its all about getting those suckers paid for.. those that make bank in low end rentals do so because of no debt.

Originally posted by @Richard Sherman :

@Brian Christensen ahhhhh, ok that makes sense..haha...I was like man I need to buy in Utah.   Here is my quick and dirrty rule of thumb.

CAN they build that property for under that price per SF AND is it a growing market demographically.  If the answer is no, it can not be built for that AND the market is growing, then I look deeper.

Notice I also want the land for free.  So in that house, 1760 SF...I am not sure about build cost there, but lets call it $90 a SF (pretty darn low compared to my market) = 1760 x 90= $158,400.   So, it would cost them that much to replace.  Here are the other caveats but this is where I start looking (though I apply it to multifamily mostly.)

1. There is a discount of a few percents for older vs. newer but not much

2. The area you are looking at has to be a decent area (good schools etc)

3. You can not have weird properties like crazy 600 sf 2 bedroom houses or 3500 sf 6 bedrooms, needs to be normal stuff

If these items line up, then you KNOW that at some point excess inventory is used up by growth and they MUST build and then your existing will approximate the cost of the new. PLUS you got the land etc for free .  The best skill in real estate investing is learning to do NOTHING but wait...haha, time makes almost any deal a good one!

 for these exact reasons new construction in many of these markets is around the perimeter of the cities in new communities.  or like in Indy in the Hot neighborhood that is regentrifying like  Fountain square I have 11 projects new builds going there.. its an anomaly you can by beat up old houses for under a 100k and rent them for 900.. or you can do a pop top and sell them for 350k or like me I bought a bunch of infill lots for 30 to 40k and build new 2000 sq to 2200 sq ft and sell in the 350 to 400k range.. and your right for those which have top end finishs as nice if not nicer than we do in the ORegon market 100 bucks a foot about. 

but you go out into other VAST areas of indy and there is no hope of building infill and the houses are so dominated by rentals that the values are priced by backing into rent  numbers  and this is true in Memphis as well. you simply cant have 50% or more of your SFRs be rentals and have a upside on the housing stock unless its like I said above it catch's a wave..  other wise builders are going to pop out into the burbs and build new communities and were there are better schools than in the old existing areas.

@Jay Hinrichs always love hearing about your projects and the way that you look at things.  The community is better for it jay!

@Richard Sherman

Thanks. I like the cost to build criteria. I appreciate your words of advice. I found the maps to show where A/B areas are in Indy and will search those areas. I do need boots on the ground, but have that if I go with this company. They are pretty good from what I’ve seen. Just not sure I’ll use them or try to build my own team.

@Jay Hinrichs

Thanks for your comments. It sounds as if buying a rental near new build areas might appreciate better and you’re right I am not relying on appreciation. Simply want to security of cash flow and buy down. I think markets are getting top heavy and not much appreciation expected. Forced appreciation might be out of my realm currently.

@Bill O Brady

Thanks. I wanted analysis insights. I hadn’t noticed capEx. Do you know the area? Are vacancies ~10% there? That might make sense if 50% of housing are rentals as mentioned earlier. Here you can’t find a rental or have multiple people waiting for a place.

@Brian Christensen I think this is a good find as a turnkey buyer myself.

Stay away from stuff that rents for under 900 a month... its tough to sell those.

@Brian Christensen   I can't speak for what others charge.  We have normal closing fees at the title company, that's it.  There are no organization fees, 6%, or anything else.  Again, probably just depends on who you're dealing with.

Agree with the points made by @Jeff Schechter ;  here's some of my own thoughts (disclaimer - I do not know anything specifically about the Indy marketplace, and am drawing on my knowledge and experience of the landscape here in Huntsville):

-Throw out the 5% appreciation for several reasons.  Number one, the turnkey seller does not have a crystal ball.  Number two, you lose a lot of appreciation "potential" given that you are paying a retail or higher acquisition cost on the house.  Number three, turnkey is not the way to go for an appreciation play - especially when your personal knowledge of the market is not comprehensive.

-Insurance costs will increase with time.  Their rates didn't change.  Bad assumption in my opinion.

-5% increase in rent is really wishful and probably not realistic.  That would imply a rapidly increasing population to that particular part of the city with a flat or diminishing amount of SFHs.  

-If the deal was that good, it probably would have been gone in 48 hours given the number of investors that are now in the Indy market.  

-I would not pay anyone $5000 as a "coordination fee".  That's almost 4 months of rent for this property, and not including the fee to place the tenant also.  Subtract that from the cash flow, and you're negative cash flow year one.

-The 8% property management fee is the most reasonable thing I see on the analysis.  That's better than we pay (10%), but we don't pay a month's rent for placing the tenant.

Thanks @Michael S. ,

That is good insight. I will pass on this turnkey.