Clark Howard gives a thumbsdown to TURNKEY.

23 Replies

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Alice this is a little silly.. Any real estate bought no matter turn key or what.. if it never goes up in value and you have to sell it.. its not that great of an investment.. you not only don't make much because of sales load but you have recapture..

real estate wealth is made in ultra long term hold IE your tenant pays off your house forget about cash flow as long as you did not feed it you end up with a free and clear asset that your tenant paid for.. that is wealth builder..

Or its made in very nice appreciation movements.

OR and this is more than just buy and hold money is made in value add... as the name implies.

lastly what the heck does Clark Howard now about real estate anyway ? :)

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If I could get long term financing on all of the homes we sell I probably would keep a higher % of them. I can also tell you that Homes we were selling as late as 2012, we could almost certainly buy them back from the investor for the same price that we sold them for. 

@Curt Davis   curt as in you would buy them back for 2012 prices because that would be a good price point for you now ??

some of my turnkey vendors there markets have shot up pretty good since 2012.

many markets are bouncing back but as we know middle earth did not falter as far as other markets so it did not go down as much so the bounce back is not as pronounced.

@Jay Hinrichs

Yes that is correct.  There have been several factors which have helped the values improve to a level that we could almost buy them back for the price we sold it to them then.  An example would be in 2010 we sold 3 bed 2 bath brick homes for $49,900 - $54,900 that rented for $850.  In 2012 we sold the same home for about $62,900.  Same home today sells for a minimum of $79,900-$84,900.  Still meeting the 1% rule in this price to rent ratio range.

@Curt Davis   my wife brokered a duplex last july  1200 a side  sales price 440k... in Portlandia and one of my clients is building new construction 2 and 4 units that will sell for 400k a UNIT.. kind of getting to socal and bay area prices here.. those will rent in the 2 to 2500 range.. but they are high end.. wolf appliances sub zero really nice stuff.. and of course we have basically zero section 8 here. pretty tough to get anyone to take it.. with vacancy less than 1%... one add on craigs list and 35 calls all 700 fico or more..  :)  got to love the different markets right?

so I guess 850 rent for 80k still works just fine :)

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Originally posted by @Curt Davis :

If I could get long term financing on all of the homes we sell I probably would keep a higher % of them. I can also tell you that Homes we were selling as late as 2012, we could almost certainly buy them back from the investor for the same price that we sold them for. 

That's what's known as a circular argument. ie. Why would Lenders readily give long term financing against properties that are known not to have increased in value over time? Good luck.

All of the homes we sell every year do increase in value. They have been going up since 2010.  

Originally posted by @Curt Davis :

All of the homes we sell every year do increase in value. They have been going up since 2010.  

 That just speaks to clever marketing. ie. Why don't your Buyers expect the same, 6 years later?...

Originally posted by @Curt Davis :

All of the homes we sell every year do increase in value. They have been going up since 2010.  

Seems like the proper phrasing of this statement should be" All of the homes we sell every year have increased in value"  .......   

I do not have a home for sale In Little Rock.  Tenants are responsible for their landscaping as well as utilities.  Regarding vacancy and repairs factors, all investors factor it in, we just provide basic financials. You will find that many companies project figures differently. Regardless of what figures are shown any prospective buyer is going to run them their way and if the numbers pan out for them then great, if not no big deal. 

Originally posted by @Account Closed :

Key Metrics

=$661.83Gross Monthly Cash Flow
$825.00Monthly Rental Income
-$66.00Monthly Management Fee
-$54.17Monthly Property Tax
-$43.00Monthly Insurance Expense

   

Curt Davis property currently for sale.  No accting for ladscaping, vacancy,, etc................what is this......................................lol.

7 Sunnydale LRock ARK.   I must say the neighborhood does  a good job on lawn care.

Thanks for pointing that out. 

Originally posted by @Jack Baczek :
Originally posted by @Curt Davis:

All of the homes we sell every year do increase in value. They have been going up since 2010.  

Seems like the proper phrasing of this statement should be" All of the homes we sell every year have increased in value"  .......   

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@Jay Hinrichs
Clark Howard is a multi millionaire, has no debt and owns rental property. You should listen to someone that is this successful.

Originally posted by @Marcus Johnson :

Jay Hinrichs
Clark Howard is a multi millionaire, has no debt and owns rental property. You should listen to someone that is this successful.

And what about Jay's comments shouldn't be listened to? [Jay may well win that wealth contest!]

BTW, Jay was not rubbishing Clark, except inasmuch: generalizing can't speak to every situation!

@Marcus Johnson   There are many multi millionaires on biggerpockets.  In fact, there are some with more than $100 million in assets.

Originally posted by @Michael Biggs :

@Marcus Johnson   There are many multi millionaires on biggerpockets.  In fact, there are some with more than $100 million in assets.

Mik  well that's NOT me... LOL  I was really just kind of making a joke guys ... please don't take it literally.. but anyone with a syndicated radio show like Mr. Howard I am sure is doing fine financially speaking.. I just did not see him really as an expert on rental real estate.. My sense of him is more a consumer advocate..  in the day one of my bigger clients/investor was Dr. Don Rose the SF am DJ  and I know HE did quite well I can only Imagine Mr. Howard.

My point stands though.. if you buy a non appreciating asset/real estate and you have to sell it.. and it was just marginal on cash flow it does not take an expert to declare that's not the best investment ever.

Is Clark Howard a big name on Real Estate related topics? I had to google the guy to know what you guys were even talking about.

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As I have said in the past...  I would not buy from a "turnkey company".  If I wanted to pay that much I would simply buy a brand new house.

Turnkey properties aren’t for everyone, but they have a place in many markets. Everyone’s situation is different. There are many ways to make money in real estate and there is no one correct way.

I’ve bought turnkey, I’ve made money doing it. I’ve bought one of those 35k houses in a working class neighborhood and made money doing that.

Personally I’ve skeptical of my own ability to find a house (in an out of state market) st a discount, manage a rehab (without cost overruns) and then find a good tenant. That’s way more risk than I would be comfortable doing on my own. So I just buy the property after that’s done. Last one I bought appraised for several thousand more than I paid. They’re not all over market values.

The biggest downside to turnkey (that newbies need to be aware of) is you need to hold it for at least 5-10 years. If you’re okay with that you’ll be fine. Many people aren’t and that’s fine, then turnkey probably isn’t for you. If you can do it better yourself then you’re welcome to do that too.

Most BPers advocate for a very active form of real estate investing such as rehabbing, flipping or wholesaling. Not everyone has time for that. I work full time (in an expensive market), I’m about to go back to grad school. I don’t have time right now to do it actively. Same goes for others with full time jobs and families or kids.

All the people in my life who are burnt out landlords are that way because they tried doing it themselves (aka self manage, self fix etc). What good is that if you only last a couple years? I value my time and my peace of mind, so I’m willing to pay a bit more for that.

Just lots of things to think about before you just make sweeping generalizations about turnkey or almost anything else regarding real estate

@Account Closed - You ask a great question!  Why don't we Memphians not buy all the turnkeys in the area and share the investments with anyone else?

Super simple: there are too many properties here in the Memphis area for the number of local investors.  Over half of the city are life-long renters (strange but true) and the majority that do own their own home can't/don't invest.  Also TK are fantastic tools for a more passive OOS investor (obviously purchased correctly and from a reputable firm). Many local investors would prefer to manage their own properties so the selling/price point of a TK doesn't fit with their preferences.

One thing I love about REI is that there are so many options for people.

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