I've considered turnkey investments (provider buys property, totally rehabs it, then sells the property with a tenant and PM service in place) but I can't see a the viable exit strategy with this type of investment. My concern is that the provider gets the benefit of the forced appreciation from the rehab, and the buyer receives a nicely cash flowing property whose ARV exceeds the local market making a later sale very difficult (unless appreciation is rock solid and consistent). Perhaps the circumstance is far more dynamic than how I'm thinking about it. Ntl, I'm curious if turnkey investors feel they do have a reasonable exit strategy? Turnkey providers feel free to chime in also, if you like.
@Aaron M.turn key is simply a method of acquiring a property and has nothing to do with your exit strategy. There's an assumption that you will pay above market value for a turn key but that's not true with most good turn key companies. Turn key companies make their profit through the equity gained by improving the property, not by charging above market prices. Unless they are selling to all cash buyers, they can't charge over market value since lenders require an appraisal so don't automatically buy in to the notion that you pay more for a turn key. And don't buy in to the notion that you will automatically have built in equity if you do everything yourself. There are a lot of moving parts and a lot of people involved and a lot of things can go wrong. The advantage that turn key companies have that an individual doesn't have is 1. The turn key company is buying further upstream at better prices. They are not buying off the MLS
2. Turn key companies have significant economies of scale when it comes to buying materials and things like HVAC systems
3. Turn key companies usually employ the same crews full time and have much more control over their labor costs.
Like any strategy, turn key isn't for everyone. If you're buying in your local market, have some experience and know how and have the time to manage and oversee a project, then doing it yourself might be the way to go but if you're doing it remotely, have no experience and have a demanding job and family life, turn key is probably the best way to go.
This thread caught my eye because I just purchased an out of state turnkey property and I wish I hadn't. I foolishly paid cash about $20k more than it was worth -- without an appraisal or third-party inspection. It has been 2 months and still not rented. I had to call to ask them to lower rents because their asking rent was at least $200 more than comps in a 1.5 mile radius. I ordered a third-party inspection on my property after seeing the deplorable rehab quality on a second property I was considering. Rotten plastic dryer vent exhausting into attic. New HVAC with a crushed return duct (because the HVAC control panel was only accessible by crawling over the duct through low-headroom trusses) Leaking faucets. Leaking drains, rotten wood.... But beautiful granite countertops and LVT flooring. Granted, I'm probably fussier than the average turnkey investor since I am a contractor and home inspector and have rehabbed several homes myself. I thought I had done my due diligence and the turnkey company was highly recommended with a good reputation on BP. I also believed that the house was in a "B-class" neighborhood -- I've been informed by 3 independent RE pro's that it is "C-class".
The moral of the story is "Trust but verify". Companies change ownership. Employee turnover can also change the culture of a company. If I ever buy another turnkey property, I will at least check for price and rent comps and hire my own 3rd party inspector.
I expect I will have to hold the property for 3 or 4 years for the value to climb high enough to break even on the sale. This investment reminds me of the time I got on the Pennsylvania Turnpike going the wrong direction -- I had to pay to drive 14-bumpy miles to the next exit and then pay again to drive the right direction.
This thread caught my eye because I just purchased an out of state turnkey property and I wish I hadn't. I foolishly paid cash about $20k more than it was worth -- without an appraisal or third-party inspection. It has been 2 months and still not rented. I had to call to ask them to lower rents because their asking rent was at least $200 more than comps in a 1.5 mile radius. I ordered a third-party inspection on my property after seeing the deplorable rehab quality on a second property I was considering. Rotten plastic dryer vent exhausting into attic. New HVAC with a crushed return duct (because the HVAC control panel was only accessible by crawling over the duct through low-headroom trusses) Leaking faucets. Leaking drains, rotten wood.... But beautiful granite countertops and LVT flooring. Granted, I'm probably fussier than the average turnkey investor since I am a contractor and home inspector and have rehabbed several homes myself. I thought I had done my due diligence and the turnkey company was highly recommended with a good reputation on BP. I also believed that the house was in a "B-class" neighborhood -- I've been informed by 3 independent RE pro's that it is "C-class".
The moral of the story is "Trust but verify". Companies change ownership. Employee turnover can also change the culture of a company. If I ever buy another turnkey property, I will at least check for price and rent comps and hire my own 3rd party inspector.
I expect I will have to hold the property for 3 or 4 years for the value to climb high enough to break even on the sale. This investment reminds me of the time I got on the Pennsylvania Turnpike going the wrong direction -- I had to pay to drive 14-bumpy miles to the next exit and then pay again to drive the right direction.
Ouch. Sorry that that happened..
Please share the Turnkey company so we could learn something. If you aren't comfortable posting it here.. please PM me.
@AJ Singh that’s a good point
You should always buy single family (1-4 units) based on comparable sales. Look for other homes in the area that have the same attributes (bed,bath, sq footage, yr built, etc).
If you're a short term investor (less than 2 years), probably won't make sense to buy turnkey.
If you're long term with the intention of accumulating assets and building a portfolio, a turnkey solution provides an easy entry point to get started. Over time, you should see some gain.
As some have mentioned, my initial thought is to talk to your turnkey provider and see if they have any investors ready to purchase. The new investor is getting turnkey and if the numbers work for a higher price than you paid due to appreciation. Any agent fees and closing costs may eat up any profit.
Turnkey gets a little bit of a bad reputation, but there are some great turnkey providers nationally. Also, we provide turnkey services specifically, but not a turnkey product as most companies. Happy to share more if anyone is interested as this model lets you keep the equity in the deal.