I have a strategy I call out of state turnkey residential investing or "OOS TK SFR". We have all our properties in this model and have great experiences for several year now. When I speak to people here on BP, a lot of them tell me that turnkey does not have a good reputation on Bigger Pockets, sometimes even to the point of being surprised when I describe what we do, how we do it, and how well we have been getting the desired results, especially when it comes to cash flow.
Am I just lucky, what are your experiences, and what do you think about turnkey investing in residential real estate?
That's great Axel, it's nice to hear you're doing well. I THINK like anything there's an onus on the investor to verify the numbers themselves and selects the right vendor.
I think it's a question of goals. Many members of BP are looking to be more active in their investments and use more active strategies - BRRRR, flips, and so forth. However, for a high paid professional looking for a steady appreciation and income in preparation for retirement, they can work well.
Well don’t get too excited the reality is Your numbers probably suck and you just don’t realize it or understand you could do much better because you live in a hot market that has no decent cashflow to speak of
I bought a couple local properties I manage myself as basically turnkey. They've been great for me but I've only had them for three years and have only had one turnover so far. My only concern about turnkey out of state is getting turnovers. Many of these properties are bought at market rate. And if you have a turnover every couple years, you're probably breaking even other than appreciation. It's great for the management companies because they get a month rent to find a new tenant to place in plus charging 10% to manage and any other fees they seem to charge like annual renewals or inspections. And the owner loses a months rent and 2-4k in expenses to turn it. But for those wanting to be hands off and not really care about a high ROI, I would definitely recommend it.
@Andrew Rosenberg Yes, totally. I would even go one step further and say that it is important to have a set of criteria and principle. Several times over the years I was tempted to buy something or consider a location only to find that they did not meet my criteria and principle. They looked soooo good and sounded so interesting, but in the end sticking to my criteria and principles has always protected me from my excitement and foolishness
@Taylor L. Yes, totally. Passive is one of the most important terms for me. Still, I had to learn that the promise of passivity and the reality can be very far apart. the quality of the turnkey provider makes a huge difference. I have had a few and am now down to just three that I work with. I would like to add a 4th one to have more local diversity, but its hard to find one that really has everything under one roof (reno, sale, property management) and lives up to the plan by applying all the criteria. Constancy is really the key. If that's not there, you have a few good months and then a bunch of bad ones. I am lucky to have found my providers who really renovate well so things don't break and select tenants well so rent comes in without any issues.
@Dennis Wayne Not sure how to respond to that statement. The numbers are always in the eye of the beholder. What yuo would call bad might be acceptable to me.
In 2020 my properties appreciated by 9% and produced almost $3000 cashflow per month. No rents were missed and repairs were very minimal.
Reserves grew to $30K and now the 15% I used to put aside to build the reserves are coming to me as cash flow. I am in the process of buying 3 more properties.
My strategy to hold all my properties in well preforming locations , which is far away from San Diego, where I live, means that the valuations in my area are irrelevant. You are right they are very high and performance is very bad, but since I don't own any investment properties, it doesn't really matter to me.
Well maybe I’m way off base . What kind of numbers are you seeing ? Likes the buying these for 30k and getting 900$ in rent ?
@John Morgan You are right, that would be a problem. In my world (so far) the reality is that people don't want to move out. I actually have one property I am going to change and need to do some work on for that to work. The lease is coming to an end and when we informed the tenant that we are not renewing she did anything I could imagine except begging on her knees.
I have found there are a few things to consider and combine that lead to tenants who stay:
1. They like the property and are ok with the rent they pay for the value and service they receive
2. They call the property home
3. They have a stable job that allows them to work, have money left to enjoy life and pay rent on time
4. The relationship with property management is good, so the little stuff is not called in all the time and when there is something serious, the PM is handling it quickly
5. The market is stable or improving, meaning moving to another property will not cost less but probably more, if you can find one at all
6. The size of the property is such that the development of the family is easy. Have three bedrooms when you only have 1 child, and if you get more, you can still expand the family without needed a new house.
7. Having hobbies that cost money, so instead of saving the money goes into those hobbies and the ability to purchase a house and make a down payment is low.
There are probably a bunch more but that is the combination I see and when it is present (or at least most of it is), the tenants stay and renew. That does not mean there there is no turnover, but its minimal.
The other thing I did when I started was developing a reserve account. For my 10 properties I have $30K in it. That came from putting 15% of all rents aside. In my contracts I have a clause that states that the TK provider covers all repairs in the first years and has to make sure that a tenant is in the property from day 1 (ideally at day of closing). Completion of repairs can't be more than 2 months ago and if there is no tenants the TK provider pays the rent until they find the first tenant.
All this helps to make the majority of decisions in the purchasing phase and then just enjoy the ride.
I can't tell how that will look like 5 - 10 years down the road, but so far it works well.