Six-Figure Income part time - Will this work for Turnkey Property

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Six-Figure Income part time - Will this work for Turnkey Property

Steven Lam
Rental Property Investor · Los Angeles, CA · Member since 2017 · 23 posts · 7 votes

Newbie question here.

I got totally inspired yesterday during @Brandon Turner webinar on "How to Achieve Massive Success Using the BRRR Strategy over on BiggerPockets!"

Brandon has definitely taken the mystery out of figuring out the numbers like, monthly cashflow, cash on cash ROI %, estimated property value in 5 years, etc with the BP BRRRR calculator.

My question is "will this concept still work with turnkey investment property by selling 2 to 3 deals every 5 years (assuming it is positive cashflow and the numbers work using BP BRRRR calculator)?

Due to the nature of turnkey, I would not have the opportunity to buy low, rehab. But can I still refinance and pull out the equity and then sell in 5 years to follow Brandon's system of selling at least 2 deals every 5 years to generate close to $100k per year?

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David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
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!

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  • Steven Lam
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 23 posts · 7 votes
    9y

    @Victoria S. @David Faulkner Thank you for sharing your insight.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    9y
    Originally posted by @Samir Shahani:

    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. 

    I see these claims all the time and just responded to one yesterday who claimed $800 monthly cash flow because they failed to include all operating and CapEx expenses. Please point me to where you can find buy and hold properties (especially turnkey which is in the thread title here) with $500 monthly cash flow? And cash flow is NOT calculated by gross income less PITI!!!!

    Point is, turnkey properties are being sold at or close to retail and that is very difficult to buy and gave cash flow off the bat (exclusive from principle paydown, cash out refi income from future appreciation, and tax deductions. If you can hit $200 cash flow per door on single family or small multis, you are a superstar and you probably did it buy purchasing an off market deal from a very motivated seller where the property was in need of medium to heavy repairs.

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  • Samir Shahani
    Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes
    9y

    @Will Barnard Look in any small town in USA. I own several properties (SFH's) in Pennsylvania that I make over $500/mo cash flow with cash on cash returns over 20%.

    My calculations (and now I'm living proof) includes all necessary expenses, property management, vacancy, PITI, CapEX, repairs, etc.

    1Reply
  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    Hi @Samir Shahani:

    Would you be willing to share more details about your cash flow numbers? 

    0Reply
  • Samir Shahani
    Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes
    9y

    @Chris K. sure, anything you want.  Ask away.

    Here is the details on one of my houses.  Mind you guys, I do not buy every house on the market. 

     My partners and I are VERY, VERY, VERY selective.  I'll repeat it, VERY selective.  But that's exactly what you need to do.  Nobody is going to hand you a good deal and have it cash flow endlessly at 20%.  You have to look at and analyze 200 homes before you find one that works.

    **Incidentals includes all repairs, CapEX, maintenance, etc. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @Account Closed there are a few turn key companies that allow you to go through the process with them so you can BRRR and actually get some value add.... I know of 3 in the US that do that.

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  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Samir Shahani

    Interesting! Am I correct in assuming that the principal for your mortgage is somewhere around $60,000 to $70,000? And based on your 20% CCR, you put in about $25,000 to $30,000 of your own cash?

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  • Samir Shahani
    Investor · Easton, PA · Member since 2017 · 131 posts · 102 votes
    9y

    @Chris K.  That is exactly correct. 

    1Reply
  • Dave Hoeller
    Marietta, GA · Member since 2017 · 9 posts · 5 votes
    9y
    Jay Hinrichs I'm intrigued by your comment about turnkey companies that provide a way to go through the BRRRR process. As a newbie, I'm researching and trying to develop my strategy and niche for my investing. I started learning about buy and hold and then turnkey. Eventually I came across the BRRRR method and definitely see the value and opportunity that comes along with it. I would be interested in hearing your thoughts on those BRRRR turnkey providers. Are they easy to locate on the turnkey-reviews website or can I PM you for their names? Thanks so much.
    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    not allowed to advertise on the public forum @Dave Hoeller

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  • Dave Hoeller
    Marietta, GA · Member since 2017 · 9 posts · 5 votes
    9y
    Originally posted by @Jay Hinrichs:

    not allowed to advertise on the public forum @Dave Hoeller

    Understood - thanks Jay.  Still learning the ropes here.  

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  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    @Samir Shahani

    It is my understanding @Brandon Turner reason for selling a BRRRR property after 5 years was to avoid the CapEx that will eventually come due. I think he referred to it as a long flip. This is a similar strategy that I have. Only I intend to upgrade to a larger Multi family property each time.

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  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    @Samir Shahani

    While I don't know all the details, that looks like a great deal! 

    But yes, @John Leavelle hit one reason why investors sell the property after they do all the work to create a stabilize it. If you try to use IRR (or other similar metrics) to analyze a property, you will likely notice two things. First, you will find that there's a "peak" when it comes to your returns. The drop off from the peak happens for various reasons (e.g. rent and other income not being able to keep pace with inflation, etc.) but it will likely happen at some point. So if the goal is to maximize your returns, then buying and holding forever is often not the best option. That's especially true for value-add investors since bulk of their returns happen at the start (when they add the value) and at the end (when they exit).

    Second, you will likely find that a major CapEx item can substantially reduce your returns. Some thus argue that the best strategy is to sell the property at a time where a big CapEx item is looming, but not looming close enough to seriously affect the sale value.

    2Reply
  • Christopher Fougere
    Milton, VT · Member since 2014 · 38 posts · 9 votes
    9y

    I can say that TK can be great for cash flow - IF you buy the right deal from the right vendor. Example I just bought one in Independence MO in a top end school system for 92k that was listed as a 3/2 but had 2 extra "bedrooms" in the basement. This rents for 1200, and my COC on this deal is 23%. Zillow estimate for this property was 100k.

    However that was a lucky stroke - pretty much every TK company I have run across are selling properties that are not exactly my preferred type of investment.  Not only are they at top of market with no built in equity but they also typically are in rougher areas where they can buy houses cheaper, so that after the rehab they can still make a profit. 

    Now I have money to spend and want to buy 2-3 properties before school starts up in Sept - and every day I get emails about several TK opportunities but I am passing on all of them. Instead I am reaching out to realtors, with whom hopefully I can build some trust in areas I like where perhaps I can find a better deal. My plan is slow since I am investing out of state. I had some success from 2015 - present, I was able to buy 7 SFR all with COC of 18-25%, and I'm picky about where and what I buy, but now it's a real struggle to find anything worth buying.

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  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    @Chris K.

    You hit the nail on the head. IRR is the exact reason I don't plan on holding my small multi's for long periods. I want to maximize my returns.

    1Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    9y
    Originally posted by @Samir Shahani:

    @Will Barnard Look in any small town in USA. I own several properties (SFH's) in Pennsylvania that I make over $500/mo cash flow with cash on cash returns over 20%.

    My calculations (and now I'm living proof) includes all necessary expenses, property management, vacancy, PITI, CapEX, repairs, etc.

    Samir, thanks for posting your numbers. I want to start by saying I am in no means pissing on your deals or your comments, just want new investors to be clear and not expect to cash flow $500 per door. That said, here are my comments from yourvreply:

    Based on the operating, Capex, and vacancy numbers (you grouped some which is fine) you appear to have accounted for them all in that one deal. What I do notice is that your cash outlay to get that low mortgage payment is what us raising your monthly cash flow. If one was to pay all cash and go with no leverage, sure they can have higher cash flow numbers. But that would also drop the cash on cash and yours is at 20% which means you purchased at a great discount, but still put down about 30%.

    Lastly I would point out that the topic of this thread referenced turnkey and I bet a million none of your very, very, very carefully selected purchases involved a turnkey deal. So, if any investors want anywhere close to $500 per door cash flow, be prepared to be very selective, analyze hundreds of deals, market your rear end off for motivated sellers, put at least 30%~ into the deal, and don't expect to purchase turnkey to get to that number. - Would that be a fair statement?

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