Tacoma, WA · Member since 2015 · 176 posts · 88 votes
Are there ALTERNATIVES to TURNKEY INVESTING? You know... somewhere an out-of-state investor (or local investor) could find a "team" of people already in place to find/buy deals.... and then they have a trusted PM to recommend?? (PLEASE no FOR or AGAINST arguments for turnkey.... I've read thousands of posts on everyone's thoughts... just wondering what OTHER options are out there for investors like myself...)
I've have been crunching numbers like crazy. And I just can't get the turnkey returns that I was hoping for. I haven't ruled it out yet, but I know in the back of my head, if I didn't go through a turnkey company, I'm sure I could improve my numbers.
Of course the appeal of turnkey... I'm paying someone to spend the TIME getting a house rent ready, I have no history of fixing homes/rehabbing them, I want homes with a trusted PM (not easy to find though), and it opens up markets across the country.
So my question..... is it a dumb one? Is the alternative to turnkey investing something that even exists?? Or is it non-existent? I guess I don't maybe know the right verbiage to use ...
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
10y
@Ed B. Jeez, give her a break. She is just promoting herself like so many others do on BP. I think most see through a sales pitch and truly trying to help. A simple, "I disagree with that statement" would have worked fine. Where you the moderator on the Academic Decathlon?
Investor · Phoenix, AZ · Member since 2015 · 30 posts · 6 votes
10y
great question and @Don Konipolgave a excellent list of all the alternatives. The problem is finding the right one for you. We are all looking for better returns than 1% CDs without taking much risk and not having the hassle of lanlording. There are risks to every investment and finding the right deal from dons list is your best alternative IMHO.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
10y
@Cailyn Aune I am curious what returns you are seeing on turnkey property and what your target is.
@Michael Lautherfor an exit strategy have you considered selling your rentals to either the tenants or other owner occupants sing owner financing? We have found we can get a premium price for property sold this way and it takes away the issue of dealing with property managers.
Investor · Phoenix, AZ · Member since 2015 · 37 posts · 14 votes
10y
Hi, Cailyn-
We've been in the real estate business for 13+ years and are also beginning to tire of landlording. For better cashflow we've turned to promissory notes backed by real estate. I can routinely get 8-10% returns (hard to get that cap rate on a rental) without worrying about the plumbing.
I still think rental properties have a place in a portfolio for the 30-50 year horizon, but for cash flow in the 0-30 year interval notes make a great choice.
Scranton, PA · Member since 2016 · 201 posts · 44 votes
10y
I'm always willing to check out deals for people, or to set up other types of arrangements. Also, don't ignore private money lending. I'm always ready to write mortgages for people on deals on doing at 10 or 15% or even more annual return, purely guaranteed by Morgan. Meaning we love the property makes money or not, you still get paid
Investor · San Francisco, CA · Member since 2013 · 147 posts · 97 votes
10y
If you have more time and want to be more involved in the transactions and learn more about real estate investing, there are alternative models to the turnkey model. I purchased properties in Memphis at or above retail price from turnkey companies as well as properties at wholesale price and I think both options are great. It's more of a personal choice.
One alternative model to turnkey is to buy properties at wholesale price from wholesalers or realtors (usually with 20-25k equity) and have a reputable trustworthy property management company do the rehab and manage the property for you.
The pros - equity, equity, equity which means that if you need to liquidate, you are less likely to lose money or lose much less money compared to if you buy from a turnkey company at or above retail price.
Cons - more risk, dealing with a rehab when you are out of state is not an ideal situation to be in if there are issues with the rehab (ask me how I know...). You will also spend more time managing the property manager to make sure the rehab is on schedule and on budget. Financing - buying a property at a discount usually means that the property needs work and therefore conventional lenders won't lend on it and you will need to buy it with cash and won't be able to leverage compared to buying a rent ready, fully rehabbed property from a turnkey company.
Again this option is good for someone that have the time to be more involved in the transactions and is more risk averse and want to learn about real estate investing.
If you don't have the time and want a completely passive investment with minimal involvement, this is not the model for you and turnkey is probably a better alternative.
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
10y
@Douglas Skipworth@Curt DavisMost all the investors who are buying through us have a plan to max out their Fannie Mae loans, for some that is 10 and for others that is 20 if they are married. Like Curt said, most investors today have taken the strategy of spreading out their empire across the country. Maybe 2 to 5 through us in LR and Memphis, then the rest somewhere else. I have mixed feelings about that and can see both sides. We have one investor who has 2 with us in Memphis, 2 in Little Rock and 5 other properties in 5 other markets. That investor has multiple statements to understand each month and she has 7 property managers. She routinely has questions and while we do not mind helping, we know she has never logged onto her PM portal. She once told me she does not have time for that. In other words, investing across multiple markets takes away some of the passive approach investors are seeking. Also, I have always been a proponent of finding a team you like and if that team works for you, then go with it. Why risk doing business with someone who has awful mgmt and not interested in a win-win relationship. On the flip side though, I see the advantage. Think about the individuals invested in North Dakota, those who invested in other markets will have other homes to sustain during the oil slump. Houston is another market that could see a downturn with the oil slump. Those investors should be fine to sustain if they are in other markets. The argument to the argument is to buy in linear markets (Shameless plug coming) such as Little Rock and Memphis, but also Indy and KC.
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
10y
@Ed B. Jeez, give her a break. She is just promoting herself like so many others do on BP. I think most see through a sales pitch and truly trying to help. A simple, "I disagree with that statement" would have worked fine. Where you the moderator on the Academic Decathlon?
Rental Property Investor · Cleveland, OH · Member since 2014 · 214 posts · 86 votes
10y
Yes, pick the area you want to invest in, find a good agent, and contacts who have off market deals available. Will take a little networking but it is doable.
Just keep in mind you will also need the PM you use to handle the work needed, or have to handle that yourself. Generally in spite of all this, you can if your smart, end up with better deals then you do when working with a turnkey company. They are making 10-20k per house normally on lower end properties (sub 100k) and more on higher priced properties. They are essentially rehabbers but selling to an investor market.
In my opinion, it may be the easiest option, (assuming you find a very good turnkey company) but it is also the option that takes the most money out of your pocket, and can very easily put you in a negative equity scenario.
Most turnkey prices in the Cleveland area for example are so high, that any local investor who knows what he was doing would never buy them. Generally the clients are people who don't understand the local market, and are willing to pay at or over market value, normally due to lack of education and understanding about the local market.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
@Cailyn Aune- I have used targeted, specific CL ads in homes for sale with some success. RE wanted with less success. We buy houses doesn't work. A specific seller of a specific product can work. Landlords that want to unload occupied rentals should be specific enough.
I wouldn't include my phone number, but would respond promptly via the anonymous e-mail. First question is if they are the owner? Learn to quickly look up owners of addresses on the county assessor's site. Avoid the wholesale 'opportunities' best you can. There will probably be a lot to weed through.
There's no cost and you can do it in minutes. There will always be an excuse not to take action.
Investor · Big Spring, TX · Member since 2016 · 140 posts · 59 votes
10y
It sounds like you have spent a lot of time researching turnkey and cash flow. Now that you know the markets you can get the best return in, you should start researching contractors in those areas. Look for contractors (General or Specialty) that are licensed (if state requires) and insured. Call them and try to get references to call and ask if the customer was satisfied with the work they did. Cost and time it took to get the work done. Would they hire them again? If a contractor won't give you any references move on to the next one.
Don't be afraid of confrontation. My wife used to be but now she can keep the contractors on task.
Spend more time on researching insurance, property management companies and contractors. Then once you find all of them buy a property.
That is the best alternative to turnkey. Otherwise, provide the note side.
Are there ALTERNATIVES to TURNKEY INVESTING? You know... somewhere an out-of-state investor (or local investor) could find a "team" of people already in place to find/buy deals.... and then they have a trusted PM to recommend?? (PLEASE no FOR or AGAINST arguments for turnkey.... I've read thousands of posts on everyone's thoughts... just wondering what OTHER options are out there for investors like myself...)
I've have been crunching numbers like crazy. And I just can't get the turnkey returns that I was hoping for. I haven't ruled it out yet, but I know in the back of my head, if I didn't go through a turnkey company, I'm sure I could improve my numbers.
Of course the appeal of turnkey... I'm paying someone to spend the TIME getting a house rent ready, I have no history of fixing homes/rehabbing them, I want homes with a trusted PM (not easy to find though), and it opens up markets across the country.
So my question..... is it a dumb one? Is the alternative to turnkey investing something that even exists?? Or is it non-existent? I guess I don't maybe know the right verbiage to use ...
Just reposting my answer to you so folks can read it better.
Two ways of looking at this first and foremost, I don't have anything to sell. So that helps with my opinion. I was turnkey guy back in 2010-2013. Sure this is possible to achieve by yourself just demands a lot more time and knowledge of creating your own team.
Turn key is exactly that, a cash flowing asset from day one. You are paying a company to take care of that for you. On the flip side, you will have to do this all with your team that you are creating if you do things yourself. A lot of moving parts at one time.
Building a decent team, which I have seen many folks do from out of state. Starting first with a very knowledgeable real estate agent. I want one of the best in that market, but one who understands investing (and owns investment properties). Keeping in mind everyone who works in this business is trying to make a living. So what can you offer that agent. They are going to be the one who brings you deals. They most likely will have some contacts for good reliable contactors.
Next is find that property management company. You will need to always interview at least three. This is a major hurdle for most investors. Trust me this is a big one, being they will take care of your assets.
Next is to build a team of local contractors, handyman, and general labor guys. Lawyers, appraisers, and inspectors will also be needed. Again a solid real estate agent , who has a decent team. Will have all your needs. They are just not going to run your job for you. Their job is to sell homes. So that responsibility will fall on you.
Again, I see this done quite often but just demands a lot of detail and well thought out planning.
Funny thing, is all this can be achieved by flying into local markets and attend a few local meeting. Most of the folks are more than willing to share this information. Slowly building relationships with the people you choose to work with.
Now on the flipside, education is the key, understanding the markets, and what is happening. If I could add on peice of advice do not touch lower end investments, because of price point being attractive.
Just this past week I sat with a California investor, who was trying to do this same process. He was using his personal funds. Being the agent was fairly new , she over priced his sale comps on price per sqft . It took me less then 5 minutes of searching to realize his house was $50k to $60k over priced. Which he did not want to believe until he came in last week.
Please ask away if any more questions. I made the jump to commercial but I closed and old over 800 units in my career. Majority of these were turnkey deals .
Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
10y
@Alex FranksHow do we know what is a low end investment? What factors decide if something is a low end investment? I am new to investing and new to BP. Just getting my feet wet
@Ed B. Jeez, give her a break. She is just promoting herself like so many others do on BP. I think most see through a sales pitch and truly trying to help. A simple, "I disagree with that statement" would have worked fine. Where you the moderator on the Academic Decathlon?
Love it !! bare with me stuck in my house for next two weeks, so a lot of time to post and think...
@Alex FranksHow do we know what is a low end investment? What factors decide if something is a low end investment? I am new to investing and new to BP. Just getting my feet wet
Simple country guy version
Now keep in mind for this for Charlotte NC , and SC markets.
A: Pristine rentals complete retail area $1800 and up to $2500 if not more in rent.
B : Still a retail 80 to 90% home owners own and live there. $1400 up Still solid investment. older more estabilished areas.
C: to C - Sure people will disagree with me for these. If 50 % or more of the homes are rentals homes. $1350 to $850 . Values are not going up when areasgo from retail to rental. Majority of folks are investing in these types of area in most markets ( just my opionion).
D: Anything things less, and question I ask myself "Would my wife go on a Friday, night to collect rent with out her gun? and I would feel safe about her being there. Usually when I can say no we are 100% in a class D area.
Alex
Please bare with spelling an grammar. I am not the best typer ,or speller in the world.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
10y
Well I'd ask, long before making alternative recommendations--what kind of returns is it you are looking for that you aren't finding with the turnkey providers? I think the answer to that will say a lot towards what any possible alternatives are.
Seattle, WA · Member since 2016 · 22 posts · 5 votes
10y
Part of what my company does is find deals for buy and hold investors. We get a property under contract, assign to investor, and after closing we manage the contractors and then become property managers. A lot of our investors are overseas, and seem pretty happy with the results.
Steve Vaughan David Faulkner - you make that sound so easy. :) Maybe it is a lot more simple than it feels. Here's where I get stuck with buying a house in Tacoma that's "not a dump"- I cannot get the numbers to work on houses that aren't dumps. It seems everything in decent shape is too much to get any sort of cashflow. And then if it IS a dump, I'm back to the BRRR strategy, figuring out contractors and a whole bunch of stuff I have no clue about. (Not that I'm not willing to learn!) You can obviously see the appeal of turnkey... :) Not that it's the answer, but you know what I mean.
Would either of you be willing to analyze a deal if I could find one that works? When you're starting out, you don't know anything... Ha! Try and remember what that feels like. :)
Okay- so a Craigslist ad. I like that idea. Are landlords seriously on Craigslist looking for ads like that?? Do you know people who have used this strategy?? Sounds too easy. I guess I'm still thinking I will run into the same issue... The house will be crummy and will still need work. And if it doesn't- the numbers don't seem to work for cashflow.
So poke some holes in my thinking please! :)
Apologies if I made it sound easy, as that was not my intent. To level set expectations, it is NOT easy. Taking a dump in a decent neighborhood and turning it into not-a-dump is hard work. I cut my teeth investing in dumps in C+/B- neighborhoods, moving in, fixing up myself, renting out, and repeating ... I can tell you it is definitely not easy, but I believe it to be the absolute best way to learn the business, hands on and locally, and it can be VERY profitable. I've also invested out of state, and can tell you from my personal experience that it is also far from easy or passive, and far less profitable for me than investing locally even though the cash flow numbers looked way better on paper, but ultimately got robbed away by incompetent and crooked contractors, property managers, and bad tenants selected by these property managers. In many cases, it was more work for me to try to manage these folks out of state so that they wouldn't rob me blind or get me into legal troubles than it was for me to just manage my own rehabs and tenants locally. Your mileage may vary, of course, but either way you slice it, it is NOT easy (but totally worth it for me), and anybody that tells you otherwise is likely trying to sell you something. Good luck whichever path you choose.
Agree with David. Just buy a house already rented that's not a dump. Tacoma should be a great market for that. CL ad- "Landlords! I'm looking to buy your occupied rental no one else is bothering with." (They are notoriously hard to sell)
Thank you for the idea! Are you saying that this strategy is almost the equivalent of investing in Turn Key rentals? Are these properties that are not dumps and already have good PMs and existing renters really available with numbers that make more sense than a Turn Key? I would be interested in hearing from anyone who has experience with both of these strategies?
Actually, the sellers I meet mostly all self-manage quality properties and own free and clear. Boomers that have been LLs for decades and have more than 1 rental. They like seller financing and don't do agents or PMs. They are also local. I listed it as an alternative to TK. Get the already rented asset, put your own PM on it of that's your deal.
You know... somewhere an out-of-state investor (or local investor) could find a "team" of people already in place to find/buy deals.... and then they have a trusted PM to recommend?? (PLEASE no FOR or AGAINST arguments for turnkey....
Tacoma, WA · Member since 2015 · 176 posts · 88 votes
10y
@Bob E.- Well as far as returns... on the spreadsheet we are using, that is including EVERY single thing we have learned to include, (vacancy, repairs, PM, capex, closing costs, even personal federal tax rate, etc), on most places we are running numbers, we are getting anywhere from as low as 5-7%%, up to about 11-13% is on the better, upper end. I guess with all the "talk" about turnkey, I would hope it would be better. There is one compan we've connected with that has been recommended by multiple individuals who invest in the turnkey market who have used them and use them personally, that we are seeing their returns as high as 19%, 24%, and even 28% (depending on the property)... and they have every thing included on their proforma... they don't leave out a bunch of stuff like everyone else does to make their numbers look good/better. We are looking closer into where their houses are, crime, schools, etc. Some of them look pretty decent. At this point this is the only place we are seriously considering. Everything else feels like the numbers are too low for it to be worth it out of state.
Tacoma, WA · Member since 2015 · 176 posts · 88 votes
10y
@Fred Boyd- Thanks for the idea. I know very little about notes, so I guess that is another opportunity to learn... ! :) I see it come up quite a bit on the threads, so continuing my education I guess. How many properties do you own?
@Stephen Franco- Thanks Stephen, you will be a good resource to have!
@Haim Mamane Palman- It's good to know that both are an option- thank you for sharing the spectrum, so to speak. :o) I think when it comes down to it, time IS a big factor for us... we have 3 young children, and run our own business. Hence- turnkey felt worth looking in to. I think if I were to be getting my hands dirty with rehabs, etc... it would probably have to be close to home realistically..... In my mind it's separating into- out of state turnkey, or in state-rehab-and hold..... or both. :o)
