Turn Key Magic?

Question

So I see ads like this all the time....

http://www.ebay.com/itm/Memphis-Fully-Renovated-Rental-Properties-80-Financing-Qualified-Buyers-/330863348512?_trksid=p2047675.m2109&_trkparms=aid%3D555003%26algo%3DPW.CAT%26ao%3D1%26asc%3D142%26meid%3D7101941366914018464%26pid%3D100010%26prg%3D1076%26rk%3D5%26sd%3D350768857308%26

(Not sure if that will show up as a URL, but you know how to use it)

Turn key investments in Orlando, Houston, Memphis, Kansas City, with claims of cash flows to the tune of $300-$500 a month after management expenses. What's the catch? Seems so many people are looking for $100-$200 a door when talking cash flow, so I know if these claims were legitimate people would be banging their door down for business. I'd just like some seasoned, experience, preferably market familiar opinions on what's up with ads like this.

Being new, they look so tempting and stress free. But anyone who's been around a little bit knows if it sounds to good to be true, it usually is.

Thanks.

Ali Boone · Answer

Regardless of that particular ad or not, turnkeys in general to some do seem too good to be true. I've only bought turnkeys myself and they have been fine. Nothing about them is too good to be true necessarily because none of that income they talk about in guaranteed. You still have to make sure property management is on their game, otherwise you will see a lot of vacancies and repairs and whatnot. $300-500 cash flow per month is not anything so far out of the ordinary that you should be skeptical. Anyone who says they are struggling to get $100-200 per month just doesn't know how to find the good deals. The turnkeys are usually unlisted to the public and are done in such large quantities that everything can be done cheaper than individuals can do it, so they can sell them cheaper giving you higher returns.

Don't fall into the trap of listening to people to require they be the landlords, do the rehabs themselves, etc. They often don't understand the big picture of investing. They are willing to get a lower cash flow per month after doing all the work themselves on a property rather than getting a better property that cash flows better because they are against the turnkey provider making money before they do on the property they buy. It's a wacked up mentality.

Marco Santarelli · Answer

Hi Val  Dufour ,

I took a quick look and my first reaction was that the post is a "lead generator" for a local rehabber.  The post is an eBay 'classified ad'.

The one thing I thought was a bit funny, is the "80% Financing for Qualified Buyers".  That in a nutshell is standard institutional financing.  They're almost all 20% down (80% LTV).  Nothing "magic" there!

I'll keep reading...

Sam W. · Answer

Val  Dufour

Normally these outfits significantly under-state/estimate expenses.  A good rule of thumb is to estimate expenses at 50% of gross rents.  Then subtract out the mortage costs and see if you are still cash-flowing $300-$500 / month.