Turnkey investing thoughts?

Question

Do we have any turnkey investors here? What's your experience like? Would you do it again? Do you recommend turnkey investing? I am trying to find out more information on this.  I already have a couple single family homes as rentals and would like to expand my portfolio more later on.

Michael Smythe · Answer

@Bob Smith

While investing via Turnkey Rentals sounds easy, you should understand that you will be paying full retail, often even more, for the properties.

Why? The Turnkey provider is looking to maximize their profits!

Also, there are numerous challenges dealing with Turnkey providers:

1) Terrible renovation work - we've taken over many properties that investor bought turnkey and they were shocked to learn the true condition of their property from our TakeOver video.
---So, get a GREAT property inspector NOT recommended by the turnkey company to avoid bias.

2) Misrepresenting Property Class - have seen many turnkey providers in Metro Detroit area sell OOS investors Class C properties as Class B. 
---So, learn the neighborhoods where you plan to invest and use Google Streetview to virtually explore them.

3) Poor Tenant Screening - they typically can't sell a property until they place a tenant. So, they have a conflict of interest in waiting for the right tenant.
---So, insist on them providing the rental application and supporting docs for your review. This means YOU need to learn how to evaluate a rental application!

4) Poor Property Management - Where do you think a turnkey provider will put their best staff, on selling properties and making $5k+/transaction or on property management and making $80/month transactions?
---So, ask about their standard operating procedures and make sure your management contract has an easy termination clause.

What are your options if you experience one of the above? Everyone thinks they can sue to solve the problem.

Do you realize how much it will cost to hire an OOS attorney to sue the turnkey company?

Unfortunately, the majority of investors that experience terrible service from turnkey companies, figure out that it's not worth spending tens of thousands of dollars suing their turnkey provider and just move on - which allows the turnkey provider to not change their ways and stay in business:(

You should also check out this BP thread about the topic:

https://www.biggerpockets.com/forums/88/topics/976647-turnkey-company-suggestion?highlight_post=5648876&page=1#p5648876

Andrew Syrios · Answer

I'm generally not a fan of turnkey. There are good operators, but there are also some really bad ones. You need to vet them carefully. But moreover, it's unlikely you'll get any built-in equity. In fact, often you'll be buying over market. So it's a long term play for sure.

Alecia Loveless · Answer

@Bob Smith I couldn’t tell from the postings if you wanted a redone, rent ready property that should have little maintenance for years to come or if you wanted a new property with management in place?

I’m in the process of buying my first turn key property as opposed to the value add ones I usually buy.

Part of the attraction to me is that this property appears to need extremely minor upgrades that will be done prior to purchase. Everything has been nicely redone, we only found one electrical outlet that didn’t work compared to the usual $15,000 worth of electrical I have done to most of my buildings.

I’m still waiting on the inspection but my contractor found few faults.

I know looking for appreciation is generally speculative but since I first offered on this property a month ago (made a second offer Saturday and got it under contract today) property prices in the area this is in have gone up by close to $40,000 across the board.

People are moving to the area and continue snapping up houses like crazy. I’m anticipating little in terms of issues with this property for years to come.

I can’t speak to turn key properties that have management in place because I self manage but I’m looking to buy more properties like this in the future.

Taz Zettergren · Answer

If you are looking to invest passively then turnkey is the way to go if you have the right team in place. I have purchased a turnkey rental in DFW and I also have worked with hundreds of clients who have purchased turnkeys with a lot of success. It's all about the team you have in place, in my opinion a true turnkey rental is one where the provider purchased the property with their own money, did the renovation and own the property management company on the back end. So it's a one stop shop kind of deal and with everything being handled in house the interests have to be mutually aligned because that provider is married to you for the longevity of the investment.

Full disclosure I help dispo deals for REI Nation who operates in several markets in the southern/middle part of the country. 70% of the sales go to existing clients so I think that speaks volumes to those investors experience.

Lucia Rushton · Answer

Are you asking for Turnkey Cos to provide everything for you? Or are you looking for rentals that do not need much work? And hire your own PM and source the deals with a qualified Realtor?

All of our investor clients do not need a TK Company when we provide any resources from our team. And don't charge the crazy amounts a TK Company would. Just a thought.

As always, just my opinion, and not written by Ai.

Samuel Diouf · Answer

Turnkey properties are a great way to invest a little more passively. You won't have as many headaches with mechanicals being newer and you'll be able to get cash-flow day one if you're investing in the right market. If you can't get cash-flow, then market appreciation is an important factor to focus on.

Gregory Schwartz · Answer

From my perspective, the new builds are so competitive with both the prices, closing cost assistance and rate buy-downs that they are a clear choice for anyone looking at turnkey options.

We're not talking huge cashflow here in my market but the analysis looks very stong based on market average appreciation and the low capex figures.

Might be worth calling up agent and or builder in the markets you have your eye on and starting to build those relationships.

Jonathan Greene · Answer

What is your definition of turnkey and what are your expectations?

Do you mean completely turnkey and new or renovated and rent-ready?

You are in TX so you have the ability to buy decent turnkey new builds in San Antonio right now, with less cash flow up front, but hopefully scalable appreciation. Other smaller areas in Texas can work as well.

Do you mean turnkey meaning all-in-one so the turnkey company handles property management, tenant leasing, etc?

Bob S. · Answer

I already own a couple rental properties in DFW. But looking to expand more. We bought them in 2020. Haven't purchased anything recently due to inflated prices/ high interest rates. We are looking to dive back in soon when prices come back down over the next couple months/years. Curious what others have experienced in turnkey rentals. We would like to keep them in the TX area, since our LLC is already here in Texas. I don't want to have to open another LLC and file taxes in another state for business.

Turnkey investing thoughts?

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