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 ...

@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?

1. Syndicated equity investments now with significant transparency and available on equity real estate crowd funding sites. Yields 5 to 20% annualized 2. Same as above except mortgage debt investments. Yields 8 to 14% annualized 3. Publically traded REITs, equity or mortgage 4. Private REITs, equity or mortgage 5. Condotels 6. Condos, which require significantly less individual maintenance and supervision as compared to a SFR (as long as higher end). I own 5 higher end high and midrise units in the Phoenix area, and live 6 months in New York and 6 months in Texas. 7. Branded hotels under contract to a management company 8. Apt complex large enough to support an on site manager 9. NNN commercial property 10. Land leases 11. Farm land with shared crop arrangement, or leased outright

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.

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.

You could buy a "turnkey" rental home for retail right off the MLS, going through a realtor and not a turnkey operator. As part of your due diligence you could ask to see tax returns for the last year to validate income, expenses, and therefore your return. Better yet, if you find a good one where the validated numbers look good and it is under a PM, you may have found your local PM too. Staying local is still better IMO, but if you have your heart set on passive out of state, there's an alternative.

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 . Alex

@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.

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. Fred

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) Or you could try and rehab a place 18 states away and wonder why it didn't work later. An alternative for investors like yourself? Maybe a little hint of what that is? Most TK folks are looking for shortcuts IMO. What does an investor like yourself mean @Cailyn?

Alternatives to Turnkey Investing?

Cailyn AunePro Member

OP

Tacoma, WA · Member since 2015 · 176 posts · 88 votes

10y

@Alex Craig- This makes sense to me.... instead of being so aggressive about spreading out the investments, find an awesome team. Then, maybe get lucky and find another one somewhere else. But I can see that having too many all over would definitely create more work, in more ways that one. I connected with a google exec who owns all 10 turnkeys from 1 provider, and has been pretty pleased. He is only know looking into another provider... still in the same market. Again- you can see the rationale, for sure. Thanks Alex, I appreciate the advice. Can you tell me more about the linear markets idea? I have been looking into Indianapolis, and was seeing geographically that KC is just west, and Columbus is just east, and was thinking it could be beneficial... but don't actually know why, except that they are close when you need to make visits. What is the argument for that? :o)

@Isaac Rowe- Thanks Isaac- this seems reasonable... what is the best way to find agents and PM's? Just through BP? Are most PM's capable of handing rehabs... or are you hunting for the few that are? Do you know of anyone personally who has done what you have suggested?

Alternatives to Turnkey Investing?

Most Popular Reply

76 Replies