Six-Figure Income part time - Will this work for Turnkey Property
Rental Property Investor · Los Angeles, CA · Member since 2017 · 23 posts · 7 votes
Six-Figure Income part time - Will this work for Turnkey Property
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Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9yOriginally posted by @Victoria S.:
Hi @Account Closed
Thanks for the detail mechanistic sketch and I can somewhat see how that would work - certainly see how movement and agility is exponentially increased with a such RE portfolio. A comment on another thread by @Will Barnard in "BRRRR Strategy really works! Even in the Bay Area" struck me as appros in the sense that with the great deal that @Ori Skloot has in terms of immediate cash flow in the Bay area, the fact that its a home run flip is its "true" and perhaps more immediately desirable perspective, in the sense that you mention forced appreciation a MUST to recycle capital.
With my place in Oakland: It's unusual in many ways. I am not sure if I had invested in Multi-family "standard" fourplex in the C / D areas that I would see the gains and pleasures (wonderful tenants) that I have. I would like to repeat what I did again. The climate to do so has changed substaintially and the capital needed far more than in 1999. Through those years I wasn't poised to recycle capital, so time passing was not an issue or strategy and the gains produced an overall stability that has happily put me into todays position. It did take a long time, though there were a few peaks in there where I suppose I could have cashed out and chose not to.
When I consider repeating or doing a similar BRRR in our sizzling market, from the perspective of appreciation and not cash flow, there is strategy and expectation, demarcated with timelines much shorter than what I have lived, and debt service, which restricts the mobility and agility that appreciation portfolio will one day provide.
Conundrums.
I bet if you cast your mind back to 1999 when you first purchased that property, it probably seemed crazy expensive to you back then too ... that is the thing about prime CA RE ... it always seems expensive. I'm reminded of a story my parents tell about how they got scared that the market was overheated some time back so they sold a triplex. They were right, they got out at the peak of that RE cycle ... they sold for $150k, it was a triplex a few blocks from the ocean in Redondo Beach, CA. You certainly could purchase another place retail so long as you are 100% sure you are willing and able to hold long term through thick and thin, and you would still likely do very very well in the bay area if you did that. However, what I think Minh is getting at and I agree, is that by buying distressed below retail market and then forcing appreciation gives you a margin of safety against any short term market volatility. It gives you multiple exit strategies (plan A hold for appreciation and cash flow, plan B sell for profit), it helps plan A and enables plan B at the same time. It is not easy for sure, but it is what gives you the investor edge on the market and tilts the odds dramatically in your favor ... heads you win big, and tails you win small, but the house always wins and you are the house. I believe this is a superior strategy and what tends to separate the professional investors from the amateur newbie wannabe investors ... it is important in any market, but getting back to the OP's original topic, it simply is not practically possible/probable to pull this type of strategy off as a novice investor going out of state to a market you are not familiar with and will be 100% dependent on the kindness of strangers acting in your best financial interest to make or break your investment for you. To those that agree and want to stay local, this is the prize to keep your eye on IMO ... stay focused, hungry, looking and learning, find somebody that knows how to stack the deck in their favor in this manner and watch closely how they shuffle, and be patient to not play the game until you find or create a winning hand where you can do this. It is not easy, but it can be done, and when it is it is the safest and most profitable way to invest in my opinion and experience. Good luck to all and happy investing!
41 Replies
In theory, it should work.
However, very few markets appreciate 3% annually every year and TK providers typically buy in B / C neighborhoods with minimal appreciation. And they mark up their pricing to the passive investor.
When you refinance or sell, you have other additional costs to factor in, so that you might not see much back. It is extremely difficult to do the BRRRR strategy with turn key providers.
But if you find the right team (e.g. realtor, contractor etc) in a stable market, you could potentially implement this strategy.
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes9y
@Steven Lam The short answer is, no. However, what you do have to weight is the economic value of your time. If you can work the "standard" job to generate the income that will allow you to purchase turnkey properties that generate passive income then you can build that portfolio over time. Your ability to "reload" for the next investment will largely be dictate by W2 and lifestyle. If you making $50K/year vs. $200K/year your ability to reload will be drastically different. Looking at they screenshots let's assume you need $40K for the 20% downpayment on the $200K property (it's more with closing costs, etc. but just for simple math let's go there). If you W2 $200K you might be able to save $40K per year, if you W2 $50K it might take you 8 years.
One thing I will point out is that things always look nice on paper until they hit the real world. Assuming you have infinite and immediate access to deals where you can get a 21% return ($35K equity, $165K total cost) on your investment is dicey. Look at it this way, if that were always assured and possible, why not flip 10 properties a year? Use their "value" of $200K, assume 10% for realtor fees, etc. and boom, you're making $15K per flip. 10 flips * $15K per flip is $150K in your first year! Why wait for 5 years to make $100K/year if you could make $150K your first year?!?!?!
I'm not advocating that in the least, it's meant to be hyperbolic and convey that spreadsheets are always different than the real world.
- Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes9y
What is the incentive to sell the house after you have already done all the work to have it as a stable buy and hold?
You can make 100k a year from cash flow indefinitely if you own the right number of homes. You won't have to exit an excellent property.
I'd say either BRRRR or Flip. Alone they are both amazing ideas. Together, I'd say you're complicating things. Just my two cents :)
- Rental Property Investor · Los Angeles, CA · Member since 2017 · 23 posts · 7 votes9y
@Andrew Johnson @Samir Shahani Thank you for taking your valuable time to answer my question and adding additional insight. Truly appreciate it gentleman. I have lots to learn and am so so glad I have found BiggerPockets. People like you is what makes this community great. Thanks again.
Samir, I agree with your proposition. Our goal is to build up the right number of units (homes, multi family, apartments) to our portfolio to help generate yearly cash flow.
- Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes9y
If you have the financial ability to buy and hold 3 solid, cash flowing units per year you will be in great shape.
If you have 17 units (little over 3 per year for the next 5 years) cash flowing at 500/month each. You will be generating slightly over 100k a year - completely PASSIVELY!
You will also notice that after the 3rd year, it is entirely self sustaining and you will no longer need to put up any of your own money. You can just indefinitely compound what you already have.
100% agreed with @Andrew JohnsonIn a perfect world, all the numbers will match up well on our spreadsheets.
Owning rentals, even if they're TK, are NEVER passive like @Samir Shahani pointed out. You still have to manage your manager. Key is to get a good team. Lots of landlords will sell their rentals eventually. Whether they're tired of being landlords or just decided to cash in and invest that money somewhere else. All you need is 1 eviction or a needy tenant to increase your stress levels.
Since @Steven Lam is in Los Angeles,CA, I'm assuming you are looking out of state. You always need boots on the ground.
Right now, education is key. Learn the numbers and the market you want to invest in. Network with other like-minded investors, and more importantly take your time. Always do your due diligence. Good luck!
- Investor · Top of the World · Member since 2016 · 165 posts · 40 votes9y
@Steven Lam I agree with @Samir Shahani. Once they are paid off you will get an income boost as well.
TK is another strategy, but like @Andrew Jonhson said, how do you reload to purchase your next property. This is why the BRRRR strategy is so powerful, it has the ability in the cash out refi, to give you cash for your next deal built into it. You can get to your cash flow goals much quicker without the limits of other strategies.
If I was a flipper I would sell TK to passive investors too. It seems that to purchase a flip, rehab it, and sell it to a passive investor is easy. That is how they get the cash for their next deals too. You may see some appreciation at the rate of inflation, but that is it.
Curtis
- Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes9y
@Chris T. Sure, nothing is 100% passive. Even if you invest in stocks (usually considered a very passive place to invest), you have to re-balance your portfolio, monitor large trends, check news stories, look at financial statements, listen to shareholder meetings, etc. etc.
In this case, if your properties are under an even reasonable property management company, you will be in a situation where your income is more or less "passive". You will not be the one dealing with leaky toilets or broken appliances. If you are receiving a phone call every single minute from your property manager then is he/she actually doing anything?? Why are you paying them ~10% of revenue??
And it goes without saying, that buying and holding properties requires MUCH less activity than spending time fixing and flipping a property.
- Rental Property Investor · Los Angeles, CA · Member since 2017 · 23 posts · 7 votes9y
@Samir Shahani completely agree with your point of view, thus that is why we are interested in a solid TK investment property with a solid reputable property mgnt co.
@Chris T. Yes def investing out of CA where the number makes sense.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes9y
@Steven Lam the fact that one could make a ton of money buying properties for 80 cents on the dollar isn't much of a revelation. The actual task of convincing sellers to sell to you at 80 cents on the dollar is the hard part.
Unless you run into a situation where
- The seller is heavily distressed
- You got really lucky
- Tons of repairs are needed and nobody else wants to deal with doing them
you aren't going to get anyone to sell to you at 80 cents on the dollar.
I believe when Brandon discusses this method he always talks about doing lots of repairs, this is your number 1 & 3 from above. Maybe even a bit of number 2 as well.
BRRRR; Buy Renovate Rent Refinance Repeat. No renovations needed in a turnkey and your seller probably won't be distressed as they buy and sell properties professionally.
- Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes9y
Sure ... it is easy. Keep on drinkin' the koolaid ...
If you want passive REI, and don't have any knowledge or experience in the field nor the desire to acquire these (which would not be passive) then go buy a REIT.
- Rental Property Investor · Los Angeles, CA · Member since 2017 · 23 posts · 7 votes9y
Thank you @James Wise for your insight.
- 9yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
this in most cases will not work for a purchase strategy if you buy from a turnkey provider.
Curt Davis - KAIZEN Realty538 Reviews The answer is....it completely depends. I bought several turnkey properties in Atlanta 4-6 years ago when it was at the beginning of a major boom cycle and every one of those properties appreciated about $40,000 in 2-3 years. If that time in Atlanta's market cycle had continued and I had continued buying over the years, then yes, I could do what you are proposing. However, not only do specific markets change but the general real estate economy has changed.
I bought mostly in 2011 and 2012 and as you know, the general RE economy only increased tremendously over the next couple years after that. Most markets' properties are selling for more now than they were valued before the recession. Meaning if you bought in the beginning of it all, like I did, there was tremendous appreciation over a few years, but if you buy now you will shouldn't expect to see any major appreciation anytime soon. Market values are high right now, and turnkeys are typically priced around market value.
The best way to ever add value to a property is to improve the property itself. Hence the BRRRR thing. But with turnkeys, the properties are already fully improved, so the only way to gain that equity is to buy in a strategic time in the market cycle. Right now is not that time. 2009-2014 (or so) was perfect time for that strategy.
So yes, you can do it with turnkeys if you only buy in strategic times in the market, but those times are not right now and they aren't usually the case. Without the market cycles, you'd have no way of gaining that kind of equity. You're better off buying those to hold just for the cash flow.
- Rental Property Investor · Los Angeles, CA · Member since 2017 · 23 posts · 7 votes9y
@Ali Boone thank you so much for taking your time to reply and sharing your experience with me. Totally makes sence. Definitely agree with 2017 RE economy, it is best for me to invest in turnkeys and hold for cashflow and I am not ready for BRRR yet.
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes9y
Steven,
To answer your question, yes, it's possible, but not with turnkeys unless you have a boatload of money to invest. Paying retail or above retail prices is a buy-and-hope strategy IMO. You're at the mercy of the market when you pay retail or higher. Would you call that investing or speculating?
Listen to the greatest investor of all time Warren Buffett. Buy with a margin-of-safety. This gives you multiple exit strategies in case the investment is not working out as you expect. You could always exit and make a profit had you bought with a margin-of-safety.
Everything in life has a price. Assets in LA is expensive for a reason and cheap elsewhere for a reason. Would you rather own an asset that everyone wants, or an asset that no one wants?
Have a read of this thread to shed some light into the odds of you investing in turnkeys. Of course, you can always be a special one who beats all the odds. ;)
https://www.biggerpockets.com/forums/311/topics/22...
When the market is cheap anyone could make money. When the market is expensive like now, this is when it separates the pros from the amateurs. The pros can find deals in any part of the housing cycle. The amateurs tend to look for the path of least resistance when things get tough and get fleeced investing in "cheap" markets they have absolutely no clue about. This ends up setting them back further financially.
Nothing in life is guaranteed including cash flow or appreciation. I suggest you spend sometime to understand the history of the markets which you plan to invest in and make your bet accordingly. As the old saying goes, cash flow pays the bills while appreciation makes you rich. Are you looking to build long-term wealth or looking for immediate yield? The veterans told me the yield will come once you have the wealth. I didn't quite get it initially, but it makes total sense now.
Just be careful before investing your hard-earned money. Some sharks are lurking to part you from your money.
Have fun hunting and investigating!
- Rental Property Investor · Los Angeles, CA · Member since 2017 · 23 posts · 7 votes9y
@Account Closed Thank you so much for taking your time to share your insight with me. Lots of great advice:
"Listen to the greatest investor of all time Warren Buffett. Buy with a margin-of-safety. This gives you multiple exit strategies in case the investment is not working out as you expect. You could always exit and make a profit had you bought with a margin-of-safety."
"The pros can find deals in any part of the housing cycle. The amateurs tend to look for the path of least resistance..."
"cash flow pays the bills while appreciation makes you rich"
Will check out your suggested link.
- 9yVictoria S.Pro MemberInvestor · Miami FL / DMV · Member since 2016 · 70 posts · 27 votes
@Account Closed yes, I second your advice / statement. What's most interesting to me about investing generally, at this juncture in my development is how strong a role that philosophy plays. It seems natural and self evident at this point. I speak to this with the great divide in mind - cash flow or appreciation - the REI mind/body problem so to speak. When you say "The veterans told me the yield will come once you have the wealth. I didn't quite get it initially, but it makes total sense now."
That strikes me like a philosophy perspective, that I don't fully understand mechanically. After all, no cash flow, no eating, in the most simplistic sense. If you can, please share.
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes9y
Originally posted by @Victoria S.:
@Account Closed yes, I second your advice / statement. What's most interesting to me about investing generally, at this juncture in my development is how strong a role that philosophy plays. It seems natural and self evident at this point. I speak to this with the great divide in mind - cash flow or appreciation - the REI mind/body problem so to speak. When you say "The veterans told me the yield will come once you have the wealth. I didn't quite get it initially, but it makes total sense now."
That strikes me like a philosophy perspective, that I don't fully understand mechanically. After all, no cash flow, no eating, in the most simplistic sense. If you can, please share.
Hi Victoria,
A lot of folks in the Bay Area has $250k - $750k in the bank after 10- 20 years in the work force. Most are at the peak of their earning career and got burned out. They want to take this money and invest it in real estate so they can quit their W2. If they take this money and invest some cash faux investments, the yield is not enough to replace their $150k - $250k salary so they still can't quit. It's like you give someone $500k, and they will give you back $30k/year for the next 15-16 years. It's almost a losing proposition to invest in flat and declining markets only to see cap-ex comes due and your cash flow is not enough to pay for the cap-ex. Who will bail you out when that day comes?
Why not take this money and grow it to $2M to $4M or even $8M using the BRRRR approach aka forced appreciation? It'll take several years to get there. Once you reach several millions in net worth, it gives you a lot more options. Forced appreciation is a MUST to recycle the capital to keep on growing one's portfolio.
It seems like appreciation is the most overlooked and being called speculation even with 50 years of data to back it up. Appreciation markets offer rent growth along with equity growth without you lifting a finger. Something used to rent for $1,200/mo a few short years ago is now renting for $2k/mo while the debt service and property tax remain almost the same. This is a huge advantage investing in CA thanks to Prop 13. When cap-ex comes due, the equity gains are more than enough to cover them all and more. Even a pathetic 4 cap in our market will offer you a $160k return on your $4M gained equities.
In the meantime, you only need adequate cash flow to service the debt until your rent growth kicks in and it'll all be a windfall profit. You'll get your $30k-$50k in cash flow in no time, and it's only be up from there.
Take a look at your property in Oakland for an example. Had you take the money and invested it in some unknown market back then, where do you think you would be now? How many decades would it take for you to get in cash flow compared to your equity gains?
- 9yVictoria S.Pro MemberInvestor · Miami FL / DMV · Member since 2016 · 70 posts · 27 votes
Hi @Account Closed
Thanks for the detail mechanistic sketch and I can somewhat see how that would work - certainly see how movement and agility is exponentially increased with a such RE portfolio. A comment on another thread by @Will Barnard in "BRRRR Strategy really works! Even in the Bay Area" struck me as appros in the sense that with the great deal that @Ori Skloot has in terms of immediate cash flow in the Bay area, the fact that its a home run flip is its "true" and perhaps more immediately desirable perspective, in the sense that you mention forced appreciation a MUST to recycle capital.
With my place in Oakland: It's unusual in many ways. I am not sure if I had invested in Multi-family "standard" fourplex in the C / D areas that I would see the gains and pleasures (wonderful tenants) that I have. I would like to repeat what I did again. The climate to do so has changed substaintially and the capital needed far more than in 1999. Through those years I wasn't poised to recycle capital, so time passing was not an issue or strategy and the gains produced an overall stability that has happily put me into todays position. It did take a long time, though there were a few peaks in there where I suppose I could have cashed out and chose not to.
When I consider repeating or doing a similar BRRR in our sizzling market, from the perspective of appreciation and not cash flow, there is strategy and expectation, demarcated with timelines much shorter than what I have lived, and debt service, which restricts the mobility and agility that appreciation portfolio will one day provide.
Conundrums.
- Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes9y
Originally posted by @Victoria S.:
Hi @Account Closed
Thanks for the detail mechanistic sketch and I can somewhat see how that would work - certainly see how movement and agility is exponentially increased with a such RE portfolio. A comment on another thread by @Will Barnard in "BRRRR Strategy really works! Even in the Bay Area" struck me as appros in the sense that with the great deal that @Ori Skloot has in terms of immediate cash flow in the Bay area, the fact that its a home run flip is its "true" and perhaps more immediately desirable perspective, in the sense that you mention forced appreciation a MUST to recycle capital.
With my place in Oakland: It's unusual in many ways. I am not sure if I had invested in Multi-family "standard" fourplex in the C / D areas that I would see the gains and pleasures (wonderful tenants) that I have. I would like to repeat what I did again. The climate to do so has changed substaintially and the capital needed far more than in 1999. Through those years I wasn't poised to recycle capital, so time passing was not an issue or strategy and the gains produced an overall stability that has happily put me into todays position. It did take a long time, though there were a few peaks in there where I suppose I could have cashed out and chose not to.
When I consider repeating or doing a similar BRRR in our sizzling market, from the perspective of appreciation and not cash flow, there is strategy and expectation, demarcated with timelines much shorter than what I have lived, and debt service, which restricts the mobility and agility that appreciation portfolio will one day provide.
Conundrums.
I bet if you cast your mind back to 1999 when you first purchased that property, it probably seemed crazy expensive to you back then too ... that is the thing about prime CA RE ... it always seems expensive. I'm reminded of a story my parents tell about how they got scared that the market was overheated some time back so they sold a triplex. They were right, they got out at the peak of that RE cycle ... they sold for $150k, it was a triplex a few blocks from the ocean in Redondo Beach, CA. You certainly could purchase another place retail so long as you are 100% sure you are willing and able to hold long term through thick and thin, and you would still likely do very very well in the bay area if you did that. However, what I think Minh is getting at and I agree, is that by buying distressed below retail market and then forcing appreciation gives you a margin of safety against any short term market volatility. It gives you multiple exit strategies (plan A hold for appreciation and cash flow, plan B sell for profit), it helps plan A and enables plan B at the same time. It is not easy for sure, but it is what gives you the investor edge on the market and tilts the odds dramatically in your favor ... heads you win big, and tails you win small, but the house always wins and you are the house. I believe this is a superior strategy and what tends to separate the professional investors from the amateur newbie wannabe investors ... it is important in any market, but getting back to the OP's original topic, it simply is not practically possible/probable to pull this type of strategy off as a novice investor going out of state to a market you are not familiar with and will be 100% dependent on the kindness of strangers acting in your best financial interest to make or break your investment for you. To those that agree and want to stay local, this is the prize to keep your eye on IMO ... stay focused, hungry, looking and learning, find somebody that knows how to stack the deck in their favor in this manner and watch closely how they shuffle, and be patient to not play the game until you find or create a winning hand where you can do this. It is not easy, but it can be done, and when it is it is the safest and most profitable way to invest in my opinion and experience. Good luck to all and happy investing!
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes9y
Originally posted by @David Faulkner:
Originally posted by @Victoria S.:
Hi @Account Closed
Thanks for the detail mechanistic sketch and I can somewhat see how that would work - certainly see how movement and agility is exponentially increased with a such RE portfolio. A comment on another thread by @Will Barnard in "BRRRR Strategy really works! Even in the Bay Area" struck me as appros in the sense that with the great deal that @Ori Skloot has in terms of immediate cash flow in the Bay area, the fact that its a home run flip is its "true" and perhaps more immediately desirable perspective, in the sense that you mention forced appreciation a MUST to recycle capital.
With my place in Oakland: It's unusual in many ways. I am not sure if I had invested in Multi-family "standard" fourplex in the C / D areas that I would see the gains and pleasures (wonderful tenants) that I have. I would like to repeat what I did again. The climate to do so has changed substaintially and the capital needed far more than in 1999. Through those years I wasn't poised to recycle capital, so time passing was not an issue or strategy and the gains produced an overall stability that has happily put me into todays position. It did take a long time, though there were a few peaks in there where I suppose I could have cashed out and chose not to.
When I consider repeating or doing a similar BRRR in our sizzling market, from the perspective of appreciation and not cash flow, there is strategy and expectation, demarcated with timelines much shorter than what I have lived, and debt service, which restricts the mobility and agility that appreciation portfolio will one day provide.
Conundrums.
I bet if you cast your mind back to 1999 when you first purchased that property, it probably seemed crazy expensive to you back then too ... that is the thing about prime CA RE ... it always seems expensive. I'm reminded of a story my parents tell about how they got scared that the market was overheated some time back so they sold a triplex. They were right, they got out at the peak of that RE cycle ... they sold for $150k, it was a triplex a few blocks from the ocean in Redondo Beach, CA. You certainly could purchase another place retail so long as you are 100% sure you are willing and able to hold long term through thick and thin, and you would still likely do very very well in the bay area if you did that. However, what I think Minh is getting at and I agree, is that by buying distressed below retail market and then forcing appreciation gives you a margin of safety against any short term market volatility. It gives you multiple exit strategies (plan A hold for appreciation and cash flow, plan B sell for profit), it helps plan A and enables plan B at the same time. It is not easy for sure, but it is what gives you the investor edge on the market and tilts the odds dramatically in your favor ... heads you win big, and tails you win small, but the house always wins and you are the house. I believe this is a superior strategy and what tends to separate the professional investors from the amateur newbie wannabe investors ... it is important in any market, but getting back to the OP's original topic, it simply is not practically possible/probable to pull this type of strategy off as a novice investor going out of state to a market you are not familiar with and will be 100% dependent on the kindness of strangers acting in your best financial interest to make or break your investment for you. To those that agree and want to stay local, this is the prize to keep your eye on IMO ... stay focused, hungry, looking and learning, find somebody that knows how to stack the deck in their favor in this manner and watch closely how they shuffle, and be patient to not play the game until you find or create a winning hand where you can do this. It is not easy, but it can be done, and when it is it is the safest and most profitable way to invest in my opinion and experience. Good luck to all and happy investing!
David,
You have just swept the floor clean with this post. Brilliant sir!
- 9yVictoria S.Pro MemberInvestor · Miami FL / DMV · Member since 2016 · 70 posts · 27 votes
Agreed, thanks @David Faulkner and @Minh Lee!
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