Can you truly get ahead by buying turn-key homes
New to Real Estate · Tacoma, WA · Member since 2017 · 20 posts · 13 votes
Can you truly get ahead by buying turn-key homes
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Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
6yOriginally posted by @Christina Tkacs:
Am I missing something, or is buying a home at appraised value an effective strategy?
Turkey is a great place to start says the TK provider and the property manager. LOL Barbers also recommend hair cuts.
Paying retail / appraised value makes you a buyer. Investor's capture equity at the buy.
Paying retail for a turnkey product is fine for those that realize the trade-off. You are eating at a restaurant. It's all prepared for you. No planning. No effort.
Equity capture requires more work.Now eating means you have to grow it or go to the store, plan it, prepare it and clean up.
Which strategy is more effective depends on the person. I don't have a job and haven't for a long time because I spent the time growing my food early on while others went to the restaurant. It wasn't an accident.
Someone with a demanding job and or busy family life maybe can't do it any other way. Just know that paying retail will keep you needing that job, like it or not. It's the equity capture that moves the needle enough to matter.
Down payments won't change much, but having equity sooner will accelerate the velocity of your dry powder.
89 Replies
- Omaha, NE · Member since 2020 · 611 posts · 665 votes6y
Christina,
I know where you're coming from. My wife and I recently bought a turnkey home, but instead of using it as an investment property we're moving into the home ourselves. This allowed us to use the home we're currently living in, and own, into a rental. We acquired it for much cheaper, have substantially more equity in it, and know it will cashflow exceptionally.
Buying a turnkey for our primary allowed us to put down just 5%, tying up less of our cash. Obviously, we can only do this every 24 months, but it is one way to avoid those huge sums of cash.
The biggest thing I'm losing sleep over is whether the home I just bought will cashflow in 2 years if we do choose to move out and rent it. I know rent will cover the mortgage as is, but it leaves us little room to save for repairs and capital expenses.
Do you have any cash flow on the properties you've purchased so far?
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes6y
Originally posted by @Christina Tkacs:
I want to write the title in quotes because it's not like I had much of a strategy to start with. I bought a duplex and a turn-key SFH at a normal price for houses in the area. Both were conventional loans with 25% down because they're investment properties. All three doors are rented at the high end of rents in the area.
I can't keep paying 25% down on homes - it's cost me nearly $160,000 cash so far and of course that money is all tied up until it makes sense to refinance.
Am I missing something, or is buying a home at appraised value an effective strategy? It's killing my savings account. 25% down is a lot of cash. I want to buy another house as a short-term rental, but I don't want to tie up another $80,000 in cash - I'm not that rich.
(I'm looking to BRRR at some point as soon as I can catch the deal fast enough)
I now many investors who use Turnkeys to invest OOS and get a footing on some passive income. It can be a good place to start.
- 6yCameron TopePro MemberProperty Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
Christina,
As @Tom Ott mentioned above, it's a great place to start and get your foot in the door. The only other time turn-key seems to be a solid strategy is if you have a job with fantastic income that you don't want to leave, but you want the wealth building power of real estate. Then you would buy a property every year or two for 15-20 years and have an unbelievable portfolio when you retire.
Hope that helps!
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes6y
@Christina Tkacs short answer is yes. Could you accelerate faster with a different strategy? Maybe if you have the right strategy, time, interest and skills to execute.
There are many paths to success in real estate. I know people who only do new construction and have considerable wealth. I realize the BP drum beat is loud for BRRRR, but don't make the mistake of believing that is the only way to be a successful real estate investor. It is a good strategy in many cases, but not the only way and in some people's opinion not the best way.
- Rental Property Investor · Oregon City, OR · Member since 2020 · 324 posts · 780 votes6y
Nice to see a local face! I'm up in Puyallup this weekend visiting family for Father's day.
Are you investing locally in WA? Those down payments seem crazy high. Appreciation in the area will most likely be good but the returns just don't make sense to me for the cash invested.
I have invested OOS because I can get the sames returns for much less money down. If you're interested in turnkey I would recommend @Zach Lemaster over at Rent to Retirement. They specialize in renovated rental properties in markets that maximize cash flow and appreciation.
I recently closed on one that was very affordable and is set to have great returns. Based on your post this may be a great idea to get similar returns with much less money.
Hope that helps!
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes6y
Originally posted by @Christina Tkacs:
Am I missing something, or is buying a home at appraised value an effective strategy?
Turkey is a great place to start says the TK provider and the property manager. LOL Barbers also recommend hair cuts.
Paying retail / appraised value makes you a buyer. Investor's capture equity at the buy.
Paying retail for a turnkey product is fine for those that realize the trade-off. You are eating at a restaurant. It's all prepared for you. No planning. No effort.
Equity capture requires more work.Now eating means you have to grow it or go to the store, plan it, prepare it and clean up.
Which strategy is more effective depends on the person. I don't have a job and haven't for a long time because I spent the time growing my food early on while others went to the restaurant. It wasn't an accident.
Someone with a demanding job and or busy family life maybe can't do it any other way. Just know that paying retail will keep you needing that job, like it or not. It's the equity capture that moves the needle enough to matter.
Down payments won't change much, but having equity sooner will accelerate the velocity of your dry powder.
- Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes6y
I found myself in the same boat. I had 3 properties and couldn't figure out why it wasn't getting easier to scale. Then I realized I was buying cash flow rather than equity. What draws you to turnkeys? Are you opposed to doing rehab?
- Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes6y
I think @Steve Vaughan hit it perfectly. Buying turnkey never made sense to me as an investor, I don't want something that the TK provider is going to make the margin on, I want to make that margin myself. It doesn't mean you have to do a full rehab, especially if you have a lot of non-RE requirements, but small things like finding deals off market, properties needing minor work, negotiating a favorable deal (seller financing or below market value), etc. Turnkey seems to be a slow game, but it is much more passive, so if you're able to put in more time/effort into REI then I think you could reap some more of the margins and gain more equity in your deals.
- Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes6y
@Ujwal Velagapudi @Steve Vaughan
You’re both discounting the advantages that turn key has. If you’re just starting out as an investor you likely do not have huge sums of money to throw around. Buying a turn key property where you can finance the entirety of your investment is a huge win for many newbees. Let’s take a brand new build for example
1. Drastically less cash intensive.
2. Capex is largely being financed in if your hold period is 5 years or less.
3. Appreciation at market rate.
4. Appeal to the renter for top end rents.
5. Warranty is essentially financed in.
Sure, there is no instant equity injection so utilizing this strategy in an appreciating market is key. That said, if cash is hard to come buy, turnkey offers a TON of considerable benefits.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes6y
Originally posted by @Account Closed:
@Ujwal Velagapudi @Steve Vaughan
Sure, there is no instant equity injection
That was my point. Thanks for highlighting it.
Equity at the buy earned my time freedom. Equity can mean solving a sellers problem and isn't necessarity a large capital outlay rehabbing. Equity is gained transacting solo with no agents. Between naps.
I'll help you and say it again. Turnkey = no equity.
- Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes6y
@Steve Vaughan you're generalizing again. I just bought a brand new build for $375k that appraised for $398k. Instant equity. All cash outlay minimized. For 3.5% down I've created a massive ROI using nothing but turnkey INVESTING. Call me a "buyer" all you want!
- 6yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
@Steve Vaughan - I voted for your first post because I thought you did a great job of articulating one of the big reasons investors go the passive route. I hate categorizing it as turnkey, because of the emptiness of the word, but you did a good job of identifying the need for the passive investment. Not everyone has the time that they can take away from something and give it to education on real estate. Still others aren't looking for an exit from their job. They need a path to get into the real estate investing game and many are looking for a long-game approach.
I think you were spot on though for investors who have shorter time-frames and are truly looking to build in real estate quickly. It requires your time and your energy. It requires a focus and plan, but you only get out what you put in. You can get a bigger reward faster if you're willing to sacrifice more on the front end (time). An educated active investor can absolutely build quicker than a passive investor who is not able to learn the ins and outs. Good post!
- 6yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Christina Tkacs:
I want to write the title in quotes because it's not like I had much of a strategy to start with. I bought a duplex and a turn-key SFH at a normal price for houses in the area. Both were conventional loans with 25% down because they're investment properties. All three doors are rented at the high end of rents in the area.
I can't keep paying 25% down on homes - it's cost me nearly $160,000 cash so far and of course that money is all tied up until it makes sense to refinance.
Am I missing something, or is buying a home at appraised value an effective strategy? It's killing my savings account. 25% down is a lot of cash. I want to buy another house as a short-term rental, but I don't want to tie up another $80,000 in cash - I'm not that rich.
(I'm looking to BRRR at some point as soon as I can catch the deal fast enough)
Im not sure if you're missing anything. That would really depend on your expected outcome of buying rental real estate. It sounds like you have invested in some solid properties (total assumption on my part based on pricing) and rather than killing your savings account, you have simply shifted the money into an asset worth roughly 4-5 times the dollars you've spent. Again, assuming you put 20-25% down.
It is all about perspective and expectation. You may be hitting your goals, but falling short of your expectations for how quickly you can move. I can almost assure you that there are investors in your area who are achieving your goals and would be happy to connect and maybe even talk over a cup of coffee. My advice would be to seek out investors who have experience and can just help you review where you are and where you're trying to get to. Modeling other investors can be a valuable tool provided you are modeling those with experience.
Best to you -
- Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes6y
@Account Closed is seeking advice on, and if I understand correctly, is basically how to invest without the 25% down and/or no instant equity realized at purchase situation.
Aside from specific properties and situations, how would you go about financing the entirety of the turnkey purchase for most folks around the country? I still think 25% down is quite a bit of cash to come down with and scale quickly with this strategy, especially if I'm not realizing any equity at purchase. Outside of using private capital and hard money, do you know of any lenders that would provide 90, 95%+ LTV's consistently for turnkey SFH's that can allow for quicker growth?
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes6y
If you hate putting 160K for turn key then don't. Everyone is different and everyone has different situations, some prefer turn key. It'd be nice to find a turn key 70% below market but that is a needle in a haystack (Not impossible). What gives you value is finding a rehab below market and refinancing later... aka BRRR.
You can as others said do the ground work yourself, find a good deal, connect with contractors, and manage the rehab. If you do this you'll need to do research and learn. You won't know everything there is to know until you start. Another option is to partner for your first few. At the end of the day you need to take the jump out of turn key and into another niche. Weigh out Pros/Cons and get a plan together.
- Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes6y
@Ujwal Velagapudi I’ve seen strategies where the investor buys properties as a primary home with 3.5% down, lives in it for a year to satisfy the terms of the loan agreement and then turns it into a rental. Rinse and repeat. The “work” here is to be willing and able to move each year.
Outside of a private lender you'll be hard pressed to find financing at 90% LTV or better on an investment property.
You might also consider “owner carry” or “seller carry” properties where the seller acts as the bank. Obviously this limits your options but it’s just another tool to keep in mind.
- Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes6y
TK is fine sometimes and for certain buyers, it just depends on a person’s individual situation. TK is good for people with high income w2 jobs. You see a lot of high income earners (doctors, lawyers; etc) buying TK Bc it’s more passive and they can keep shoving money into the business and grow it that way. Also many just pay cash since many TK areas are dirt cheap.
It’s not easy to buy value add RE and force appreciation at scale while having a full time job.
- 6yZach LemasterBusiness MemberRental Property Investor · Denver, CO · Member since 2015 · 1k+ posts · 3k+ votes
@Joseph Crunkilton Thank you for the shout out!
You will build equity/income over time even if buying close to market value through appreciation, principle reduction, cash flow, tax benefits/depreciation, etc. It won't happen over night, but over time as you grow your portfolio you will be in a much better position to do creative things like 1031 exchanges, cash out refi/HELOC & cost seg studies to rapidly expand your portfolio without having to put down more cash each time. Just repositioning equity. Really depends on your overall goals. Remember, just because you attempt a brrr, does not automatically guarantee you equity! There are many risks & variables involved with acquiring a distressed property like dealing with contractors, finding unexpected rehab, longer than expected rehab times that extend hard money costs/hold expenses, miscalculating ARV, etc. Not to discourage you at all from this, but it's just good to fully be aware of all the variables involved. Many people that flip their first few houses it ends up taking longer than expected, and they end up losing money in the deal. So it is always a good idea to be fully aware of everything involved, and all potential outcomes going into it. It's also important to be aware of what your time is worth. If it takes you 6 to 8 months to brrr one deal working an extra 20 or 30 hours a week on that home, you likely would have simply been better off working those hours in your profession earning a higher wage per hour, and could have maybe bought a couple rentals in that timeframe receiving income on them the whole time. Just throwing ideas out.
We do offer some hybrid turnkeys where you can get some equity out if this is something you're interested in learning about.
Also, just curious, why did you put 25% down on the SFR? You could have put 20% down to save another 5% for the next rental.
Feel free to reach out with any questions you have.
- Member since 2020 · 9 posts · 9 votes6y
@Christina Tkacs you asked about "getting ahead", and I think the important question is, get ahead of what?
There's really no free lunch in investing. But the more time, energy, mistakes, and learning you're willing to put into the process, the more you can "get ahead".
Any investment requires due diligence. Even buying an S&P index fund (which has done fantastically over the past decade) really should be approached with caution and due diligence as it may not continue to perform very well in the next decade. But a 60/40 stock-bond portfolio is probably one of the most passive investments you can make with reasonably good expectations of success.
After my first month in digging into all this, it seems to me that good TK properties provide a really outstanding risk-return profile compared to other passive investments like stocks. They require a bit more due diligence and networking than buying an index fund, but it's a solid way to build long-term wealth. Especially when combined with investments that perform well in markets where real estate will not perform well.
Sounds to me like BRRR is significantly less passive than TK, but may be able to provide even better returns if done right.
So it depends on what you want to get ahead of. You can probably get ahead of the returns from turnkey by educating yourself and putting in the sweat to learn brrr or other real estate strategies. You could probably "get ahead" of the time spent on even turnkey with a vanguard fund.
I expect there's a good sweet spot for everyone here and finding your sweet spot is the most important thing.
(btw I love this discussion! Thanks for the great advice ya'll!)
- Richmond, VA · Member since 2017 · 7 posts · 17 votes6y
I invest solely in turnkey properties and have okay returns.
I bought my first two rentals when I was living at home with my parents, when I was 23 years old, about 10 years ago. I didn’t have the time or money to invest in a house which would need a renovation. The house was also 45 mins away in traffic, so constant back and forth travel wouldn’t work for me. I worked in IT making $60k/ year.
Shortly after, I moved across country for a new experience, and got a higher paying job of $100k+
A few years ago I moved back to the area I’m from and have since gotten married, had a kid, with one more on the way. The two rentals I bought have appreciated about $100k each; and I cashed out refi one of them to buy two rentals recently. And the past few years since I’ve moved back I have bought a few more rentals, all through cash in my savings. I still work IT now, $120k salary.
I have no doubt the BRRR strategy would be more profitable for me, but honestly I don't have the time to do it. When I was younger I had less cash and was going out, started my career, etc. I didn't want to spend a year working on a renovation on a property 45 mins away.
Now in my early 30s, I have a growing family and also don't have the time to spend on a process like BRRR.
My TKs overall have been fine, as I still get all the benefits of investing in real estate. And since I have a W2 job, I'm able to max out my 401k, my IRA, and still save money on the side. Currently my net worth is split 50/50 between real estate and stocks which gives me peace of mind as I'm diversified a bit.
When I get older, I hope to have the risk appetite and time to try BRRR. I may have to quit my W2 job to do it, which sounds great to me, but I will only do it after I have quite a bit in my retirement account. I also don't know if BRRR would be able to replace my decent W2 income, I'm sure it would long term but it may take several years to get to that point.
My question to the group; do any of you who do BRRR have a W2 job, and/or a young family? How do you have the time to do it?
And how/when did you decide to quit your W2 job to focus solely on BRRRing?
Thanks!
- Investor · Williston, VT · Member since 2016 · 28 posts · 19 votes6y
@Christina Tkacs you are in a very expensive market and the cost of market value homes is prohibitively expensive. I live in an area where homes are relatively expensive for the average income and it is extremely difficult to obtain cash flowing properties unless you buy a dilapidated home that needs a lot of work. I have a career that I enjoy and pays very well, but I also have limited time. That said, last June, I started investing in turnkey properties outside of my state and have bought 5 to-date. I have spent approximately $200,000 with 25% down and all have been at or slightly below market value. Now, I cannot say that I am making a killing, but I do have some cash flow. Additionally, my 2019 tax return was much improved compared to previous years due to the tax incentives (i.e, $13,000 in my favor). Finally, every month my mortgage balance decreases while the tenant indirectly pays the loan. That all said, I entered the game with the intention to diversify my assets and with the goal of long-term wealth. I do not expect to replace my income in 5 years, but my overall asset mix will improve and I will be better off than 95% of the population. If you want immediate or forced appreciation, I would avoid turnkey. On the other hand, if you have limited time, you do not want to spend the time, or your market has significant barriers then turnkey can be a good option.
- Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes6y
Originally posted by @Account Closed:
@Steve Vaughan you're generalizing again. I just bought a brand new build for $375k that appraised for $398k. Instant equity. All cash outlay minimized. For 3.5% down I've created a massive ROI using nothing but turnkey INVESTING. Call me a "buyer" all you want!
What’s the mortgage on that thing? It’s got to be well over 2k.
Is this a single family? Multi family?
You don’t have much of an argument unless you share the numbers. If it is a single family I don’t see how this is a good investment unless you can get 3k in rent. You are essentially stuck, even though you’ve captured 20k in dead equity.
- Investor · Miami, FL · Member since 2019 · 41 posts · 33 votes6y
Love the thread!
@Christina Tkacs I just started to look into Turn Key so thank you bringing up a great point. My local market is to expensive for me to BRRRR, at least at my experience and network level at this point. If I were to attempt a BRRRR it would have to be local one first. Podcast 384 shows the risks involved when doing distant flips or BRRRR.
@John Castillo I would say your doing great. I would say I am in a similar situation. My local market is pricing me out to attempt a BRRRR. I am starting to look in to OOS TK due to the prices that I can't get here in Miami. At my personal residence the Iron pipes collapsed so we pretty much had to do a complete remodel of our house. I was a quasi-GC and was able to get the job done with doing some of the work myself, while still working my W2 Job. So I always know it can be done, but my local numbers don't make sense at the moment to BRRRR. - Rental Property Investor · Member since 2019 · 304 posts · 462 votes6y
My real estate attorney always told me, you always make your profit on the buy. If you pay top dollar for turn key you are either going to earn a smaller profit or it is going to take longer to get the return you want. If you are handy, it makes more sense to buy a fixer-upper. The objective is to add more value than what it costs.Even if you are not handy, if you are able to hire a contractor, get the work done, and still come in at a lower price than turn-key, the deal might make sense.
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