Turnkey Rentals for out of state investing.

24 Replies

Verify all the numbers yourself, 100%. Turnkey providers are notorious for advertising BS numbers for rent, expenses, ect.

When someone puts everything on a plate for you, it usually comes at a premium. 

Originally posted by @Anthony Vangilder :

What are your thoughts on turnkey rentals when looking for out of state rentals for a new investor to get their feet wet? Great idea with low risk? Terrible mistake? What do you think?

Purchasing a Turnkey when you invest OOS is a great way to earn passive income. Of course, make sure you go with a TRUE TK provider. Ideally, they should own the property first (not have it as a listing on the MLS) they should renovate it all in-house, please a tenant, and then continue to stay on as the property manager (also in-house) after the purchase. The key is to make sure it is all done by the same company. The only third-party involved should be your home inspection.

Also, try looking at:

Assessing the Risk of a Turnkey Real Estate Company


5 Keys to Turnkey Real Estate Investing

In a perfect world they work great.  Make sure to do your due diligence and check it out for yourself.  Run your own numbers on the property, find references from others that have used them, etc.  Anybody can spend 100 bucks to make a website that is all flashy and fill in some numbers to make the deal look great.  I have seen way too many people post on here about finding a turn key that ended up being a disaster.

@Anthony Vangilder

Do your own due diligence. Most pro forma are inflated and underestimate cap ex, repairs, tenant turnover costs. It’s a great option for getting your feet wet w real estate investing but since you won’t be making your money when you buy, you’ll need to plan for a long term hold with adequate cash reserves.

Hi there @Anthony Vangilder , I see everyone is saying the same thing, do you due diligence. They are correct! I am biased on the turnkey method, but I do try and give sound advice where it is needed. 

Run your own numbers!! Every turnkey company will provide you with ROI information, but not all of the information is made equally. Double-check that they have included insurance, vacancy and maintenance taxes, etc. whatever assumptions the company makes in their pro formas, you need to get the data that backs those up - what are they based on? Confirm that you understand the math. If you don't understand it, tell the company that you need them to walk you through the information. If the turnkey company will not walk through this with you, that's not the company for you.

Do research on the areas the properties are in. Yes, get info from the turnkey company, but you also need to do some research on your own. Ideally, the research you do will just back up what the company is saying. BUT companies will advertise a property as being maybe an A when anyone who lives there would tell you that area is a C. Checking Google Earth is a great first step.

Of course, market research is crucial, but nothing beats looking people in the eye. I usually
recommend that people take the time to visit their top two companies before pulling the trigger, just to really narrow down their decision. Any decent turnkey company should be ready to give a tour or even have scheduled ongoing tours. They should be able and ready to show you some props, take you around town, answer questions. If the turnkey company ‘can’t’ accommodate a tour, again, move on.

Don't forget that you have a great community here on BP that would be happy to answer any question you have going forward on your REI journey!

Best wishes!!!

Originally posted by @Anthony Vangilder :

What are your thoughts on turnkey rentals when looking for out of state rentals for a new investor to get their feet wet? Great idea with low risk? Terrible mistake? What do you think?

Well, you have to look at the numbers to make a decision: You are in California so you probably need to consider places outside of LA and CA.

Visit the Turnkey operator and view some of the properties like this in Phoenix or in other parts of the country.

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

 Don't just take people's word for it, have them email you paperwork, proof of payments, value, cash flow and ideally a copy of their Turnkey agreement. Meet with them in that market, get to know the market, think long term, think safety, think cash flow.

Disclaimer: I sell Turnkeys (and I'm darn good at getting great deals) ;-)

@Anthony Vangilder I think buying turnkey properties is a good way to get started in out of state investing. We are both in California. It is difficult for people to invest and get cash flow in CA. I’m thinking about investing out of state properties recently. It is critical to find good resource such as a turnkey provider. If you know where to invest, ask for referrals don’t just find a turnkey provider online. Also do your due diligence and talk to local agents and property managers. My husband is a real estate attorney. He usually recommended real estate investor to go investing in Memphis, TN or Indianapolis, IN.

@Anthony Vangilder

You got a lot of responses from folks who sell TK properties. Why? They have marketing departments that spend the time to do this because their companies make money from selling TK to investors. There is nothing wrong with this at all, they are selling you a renovated product at market value. A renovated product is a lot of work to produce and you certainly couldn’t do it anywhere near as well or as cheaply as they can. It’s a huge time suck. You’re going to get to go and ask all these folks questions and they will spend hours with you, unless there is profit there is no way for them to do this.

Think about the wealth generators of RE-cash flow, loan paydown, tax benefits, and appreciation (forced or market). Using TK do you get these?

Cash flow - check, as long as you do your DD and have reserve fund

Loan pay down - check, as long as you have tenant (technically you still pay when it’s vacant and get this benefit but not ideal)

Tax benefits - check, think about doing a cost seg to supercharge this

Appreciation - you won’t get forced appreciation because the TK company got this. You can get market appreciation if you buy in an area where values are going up (hard to predict but population growth, job growth, overall market growth, and supply restriction will often cause this, especially on a long time horizon).

Having done RE for a couple of years now the number one thing that I want is equity in my properties.

I didn’t buy TK when I was starting out because I wanted equity in my properties. I had limited capital that I wanted to reuse. So TK didn’t meet my goals but it might meet yours. RE investing is personal and changes through time based on you. That’s what makes it fun but also makes it hard to advise you on what to do.

@Anthony Vangilder   There's lots of good advice here.  Much of your decision on using a Turnkey company should be based on how active you want to be.  

Notwithstanding the glut of information about how to do a BRRRR long distance, that is very difficult to pull off without getting burned... it requires a great team, and plenty of your time and involvement. There is also a lot of risk.

Should you want to just get a great property that performs, and don't want the headache of acquiring, rehabbing, placing and managing tenants, etc, then TK is a great way to go.  Yes, you'll pay the TK's markup, but you'll also be shielded from all of the risks in doing it yourself.  A good TK has enough economies of scale to get you a solid property, at a price that makes sense.  Like the others stated... just do your due diligence, and you'll find something that fits.

Good luck!

Turnkey Dad, Pet Urine Dad

Turnkey Dad makes no money on the buy and likely does marginally better on the returns

Pet Urine Dad buys a stinker, makes repairs, turns a quick 25% in equity and likely 12% or better on returns.

Signed, Pet Urine Dad

@Anthony Vangilder - I do agree with everything most folks have posted about doing your due diligence. I’m also going to highlight something @Maureen McCann said and that’s go and meet the people you’re investing with. I’m still blown away that people will invest $20k-40k without first spending $1k on a plane ticket, hotel and rental car. Go see with whom you’re investing!

Originally posted by @Anthony Vangilder :

What are your thoughts on turnkey rentals when looking for out of state rentals for a new investor to get their feet wet? Great idea with low risk? Terrible mistake? What do you think?

You can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

Let's get real here and talk about your options. 

(Below scenario is a generalized reenactment from the perspective a random individual). 

You read about how real estate investing is awesome! Cashflow is great, long term/ growth is incredible, leveraging is amazing and the tax benefits are truly unreal. So you can't argue that wealth and financial freedom is created by owning assets like real estate that create income. (not flipping)  You decide you want this. 

So, cool.... owning real estate assets = winning. Now what? You decide to look in your own backyard first.  (except if you live in a market CA, Oregon, Washington, etc etc). You get sad really quick when you realize that #1 inventory is low or too competitive #2 costs are high (20% down on $800k property is insane). #3 Doesn't cashflow, #4 high property taxes, #5 not landlord friendly- rental control is real. 

You won't give up yet....after a while you finally find a gem,  but it ends up being a total rehab or gut project and if you are not equipped to deal with that or have the knowledge or time to do it....you are now bummed and decide that you can't in fact be a real estate investor and now you are going to have to suck it up and work that 9-5 job you hate forever and hope your retirement account is healthy when you retire. #bummer. 

Then you heard that out of state investing is a real thing from the girl at the store that said her brother is investing in Indy but lives in California--- other options?? Yeee haaa!  But how do you do that? 

Option 1. Spend months researching a market you like, fly out and visit the market, find a realtor to help you find a property, bid on a property- lose a bid, lose a bid and finally win a bid. Find a property manager that can help you manage or if you want to manage on your own --yes you can-- but you will need to learn how to do this and build some help on the ground for handyman, yard care, etc. Now you need to hire a contractor (if the property will need some rehab) and you need to learn about costs, bids, etc. so you know they won't over charge you. (yes they will know if you don't know what you are doing). Ok- now go time. Buy the property and hope and pray it works out and you found people to trust locally. You did it! Give yourself a pat on the back... you will have ups and downs and it might work out great- it might not, you learned a lot and spent months and months dedicated to this process, a lot of time traveling and building your team, but the important thing is that you did it! Congrats. 

Option #2. Find a reliable company who can help you do all the above. You want a shorter learning curve, and don't have the time or the experience to do the above with a full time job. So, who would be the company to help? This is what is called "Turnkey"  you are buying a property at market value, sometimes under- typically the equity in the property is the 20% down your lender required you to put down at closing- conventional lenders won't let you over leverage or buy over market value.   Rehab is done, property management is in place, tenant moved in. The numbers are presented on a "proforma" and you decide what property you want with the help of someone who has experience- AKA turnkey company. This process is typically 30-40 days and if done correctly, you are now a cash-flowing real estate investor and on your way to financial freedom. Your property manager is your #1 fan and you never touch a hammer or deal with a tenant. Like magic the money shows up each month in your bank account.

This is passive investing, and why it's so popular, anyone can do it quickly without experience, because you are relying on the experience of others and able to do it from a distance and it gets you in the game. 

 ***** BIG DISCLAIMER**** passive investing doesn't mean "fall asleep and no responsibility investing". Real estate is a serious business transaction and you do need to take some responsibility and vet out anyone you are working with and learn how to read the numbers on the proforma, and use your brain. Sometimes it is too good to be true... *shocking* there are people out there who take advantage of people.  Work with a company in market that suits YOUR goals and strategies and ask lots of questions. There are plenty of good people and good turnkey companies out there.   

In any real estate transaction, Be real! You WILL have a vacancy at some point, you WILL have a maintenance call at some point. Be prepared! You have planned for this day and set aside funds to cover if needed. All cool- you are looking at the long term and all benefits of owning real estate. Congrats- you did it and now you are saving up for your next property.

Take action. You learn by doing. Your strategies will change and new opportunities will come up as you grow your portfolio and continued eduction. But you have to get started somewhere and the sooner the better. 

Happy Investing. 

FYI- don't take real estate advise from anyone that isn't an investor too! 

@Anthony Vangilder I’m not a fan of TK but it’s definitely right for some people. I have a wholesaler friend who can sell u a house, u can hurt his guys to do the rehab, rent and refi and pull all your money out of. I’m helping a friend do in it now. He even got a 2yr lease on it.

@Holly Williams

I agree with you - best returns for the smallest amount of time invested. Have to spend the time to vet the sponsor and have to have the capital to invest. The capital to invest is what stops most folks from being an LP. I believe only 3% of the US population is accredited. TK is not a syndication and is available to anyone who has the capital for a down payment. So although the returns might be better elsewhere TK does get folks a lot of the benefits of RE with limited capital. I don’t sell or buy TK, I’m just trying to have an objective view on the subject.

Main thing is to make sure they are truly a TK company as there are a lot of house flippers who do a few deals a month and calling themselves TK.  Also, there are a lot TK providers popping up in markets in which they do live, thus lacking true market experience. IMO, a TK provider who opens up shop in a new city that they do not live does not have the experience necessary to truly known the in's and outs and historical trends within neighborhoods.  Not only do you want experience within that market, but experience in general.  Flipping a few houses a month for the past 2 or 3 years IMO is not enough experience to know what works, what doesn't, what tenants like, what is important to address, made enough mistakes to evolve their business, etc.  I would also make sure the TK provider owns their inventory and not 3rd party coordinating a sales or worst of all, selling you an "as is" deal to which you send in money to have the home renovated--no doubt, that is the riskiest move an out of state buyer can do.

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