Investing in Turn-key properties

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Investing in Turn-key properties

Kumar R.
Real Estate Investor · Fremont, CA · Member since 2011 · 13 posts · 5 votes

Hi,
My name is Kumar from Northern California, employed full time. Have spent several months trying to educate myself by reading most of the articles on this website.

I am a regular visitor to this website, this forum provides ..
# Great wealth of information on real-estate, concise but still well described for newbies.
# Information is shared by members who are actually doing this business, this makes it realistic.

Having spent some time researching on Turnkey projects, I am planning to start investing in out-of-state rental properties. Local properties are very expensive to invest in decent area, which would have been my preferred area to invest.

I have come across several companies that has turnkey offerings for investors.

Memphis ==> memphisinvestmentproperties.net, memphisinvest.com, Memphiscashflow.com, investornation.com

Ohio ==> Realestatedone4u.com

Illinois ==> Mackcompanies.net

midwest ==> Equityteam.com, Rpmmidwest.com

Cincinnati ==> Cincinnatireia.com, Cincyareaproperties.com, Meadowsteam.com

Alabama ==> Turnkeyventures.com

NJ ==> Trentonsrentalmgmt.com

Arizona ==> Arizonaturnkeyrentals.com, Pruvenrealestate.com, Homelovers.com

Georgia ==> keypropertysolutions.com, Gainvesting.com

North Carolina ==> retireonrentals.com

Florida ==> howtobuyusarealestate.com

Kentucky ==> peakkc.com

Are there are any members in this forum who are working with any of the above listed companies ?. All your suggestions are appreciated.

Thanks for reading.
Kumar

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y

Kumar,
I have not looked in detail at your list, so cannot comment on the deals offered by any of these specific companies. I have, however, reviewed a number of deals offered by turnkey companies. The majority (though not all) of the deals I have reviewed have been, at best, mediocre. They're priced above other properties in the same area and the claimed rents are higher than the market. These companies are, all too often, aimed at people exactly like you. Someone from NY or CA or some other very high priced market. You will look at these deals with your CA eyes. You will think I can't believe these houses are so cheap and will jump in with both feet.

Before you engage in a deal like this, you need to 1) learn about the landlord business, and 2) learn the market where you're buying.

I get beat up for advocating the "50% rule". That is, expenses, vacancy, and capital will eat 50% of your gross schedules rents. Really, that's market rent. Any particular property in any particular year will do better or worse than this rule of thumb. But for a portfolio over the long term, this rule seems pretty good.

You can do quite a bit better by contributing your own labor for management and minor maintenance. But it you're living in the bay area and have properties far away that's very difficult to do. You will have to pay a PM and you will have to pay someone to deal with the most minor of problems. So, this rule of thumb is what you should consider.

Second, learn the area. That can be as simple as spending some time doing research. Look on realtor.com and local web sites and see what's for sale in the same area. Look on craigslist and other sites and see what's for rent. Watch for six months or a year and see what disappears and what's still there month after month. Then, once you've found something where the deals being offered are comparable to the market (you're not going to get screaming good deals going this route), the claimed rents seem about right, and properties come and go for both for-sale and for-rent properties, buy a plane ticket. Go there. Drive the area. Drive up and down every street in the area of the properties. Day and night. Meet the sellers. Look over their operation. Meet the PM. Buy a soda at the 7-11 and see what the area is really like.

Real estate is not like stocks. If you buy a stinker stock, you can sell at a loss at any time. Thirty seconds online and its gone. Real estate isn't like that. You get stuck with a stinker and it can suck more and more cash out of your pocket. Even if you pay cash. If you're leveraged, and you overpay, you can end up with a "deferred down payment" and have to pay to get rid of a bad property.

Real estate can be a good investment. But for many people who got caught up in the hype of the bubble years, it can be absolutely devastating. Learn the business first. Learn what's a good deal for you and what's not. Then jump in.

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    14y

    McKellar Newsom this was a really, really good piece of advice. I could not agree more with the one sentence about "don't just believe them...". I speak around the country a lot and if I am speaking about buying turn-key properties, I tell people to take nothing on faith. Do not believe what I say because I say it, but because you do your own due diligence and find it to be correct.

    Originally posted by McKellar Newsom:

    If you buy from a turnkey company, make sure you do all your own due diligence. Tell the company exactly what you are looking for with the numbers, rehab, rent, area, etc. Don't just believe them when they tell you the numbers, rehab costs, rent, etc. Research it all when they bring you deals. You could treat the turnkey company as you would a wholesaler or a realtor, they are another resource to send you deals.

    Really good observation and advice for others.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    I think it's great Chris that you stay humble. It is easy for a company to grow and forget what got them there to begin with.

    If people get defensive of others statements it can make them close minded and limit growth and learning and insight into their own business.

    Of course the statements have to have something of value to learn from in the first place to be considered.

    Do turn key properties only push what they are selling or do they also locate other properties??

    Example for Chris: Say an investor wants 12% return but all your properties offer 10% you are packaging.Will you just discard that investor as it doesn't meet your model or will you keep a lookout for a property that would meet their criteria??

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  • McKellar Newsom
    Real Estate Investor · Chattanooga, TN · Member since 2009 · 191 posts · 47 votes
    14y

    Thanks for your comments Chris. Due diligence delivers the dough. When I was slack about due diligence, I lost money and just as importantly I lost time and focus.

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  • Kumar R.
    OP
    Real Estate Investor · Fremont, CA · Member since 2011 · 13 posts · 5 votes
    14y

    I am enriching from all the comments from BP members. This is what makes this forum a great place.

    As many of BP members commented, I totally agree that there will be markup by the Turn-key, because of additional work and initial risk taken by them. But at the same time I also believe in 2% and 50% rule followed and preached by several BP members.

    My though process when started looking for out-of-state property was to narrow down few markets having decent growth ( employment, population, etc) and find the turn-key companies in those markets that are doing decent job. If properties meets my requirements then buy and continue cookie cutter kind of approach so the business can scale.Now after reading last few posts as suggested by @McKellar Newsom and @Chris Clothier and others, I have to add due diligence as one of the important step whether I buy through turn-key or directly from an agent.

    Thanks
    Kumar

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    14y

    Joel Owens Like so many other things in these forums it is subjective, but IMO, a quality Turn-Key company should only say they cannot work with an investor, if their standards as a company do not line up with the investors needs. As an example, there are large areas of Memphis that we do not manage or invest in property and those areas also have some very low price points. When an investor contacts us and wants to invest in homes for $20,000, it is not that we will not work with them, we simply explain that homes in that price point are not our specialty and we point them in a direction where they can find success.

    We do in fact tell more investors no than we do yes and for a bunch of reasons. Mostly we say no when an investor wants to buy really cheap, has very little money (so they need financial advice not investing advice) or bad credit, is asking for money back (cash out) deals or simply has too high a return demand for us to be able to deliver. That is where the standards as a company come into play and you have to tell people the truth and be careful not to sell properties to people. We want to go shopping for them instead. So, when we are working with an investor to define exactly why they want to invest in Memphis and with us, if they have a minimum return and we can get it, we go to work to make it happen. That is the shopping part. They tell us exactly the experience, return and long-term vision they have and we want to find investments that match those criteria.

    Remember, this is just my opinion and my families company has been extremely blessed in the last few years with some really good relationships and hiring really good people. We are a very large company and have the luxury of being able to put very good procedures, rules and quality controls in place. I suspect that many Turn-Key companies are a good bit smaller and, at times, may be selling anything and everything to whomever will buy so that they can make money. That is where the whole "Turn-Key" tag becomes a marketing term and not a descriptor of the company, the process or the intended outcome for the investor.

    I have bought money-pits many years ago and held onto money pits way longer than I should have. I have bought remotely and dealt with pitiful management from afar and I have lost a lot of money in those processes. I remember those lessons when dealing with investors.

    McKellar Newsom Like I just said, I have been right there with you and I lost money on deals I bought because I failed, not because the people I dealt with failed. They sold me junk, but I bought it and had every opportunity to do my own due diligence. So, your words rang very true to me.

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  • Pakav Kim
    Sunnyvale, CA · Member since 2013 · 3 posts · 0 votes
    12y

    Kumar & et al,

    I am in a similar situation (investing in out of state) and would like to invest in turnkey real estate for passive income.

    Kumar - can you suggest which turnkey company you went with?.

    Others experienced folks - Please do let me know which are good turnkey real estate companies who would not just jack up the price of the proerty by 50% after rehab and some potential markets where appreciation would occur.

    My goals are clear - a) I am interested in passive income - where I get the cash flow (reduced flow due to property mnght, mortgage etc)

    b) Owning a real estate which would appreciate in future with time horizon of 7 years or so.

    thanks....

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  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    12y

    Hi @Pakav Kim,

    Welcome to BiggerPockets!

    Glad to hear that you want to get started in real estate investing. It's a great time to be building your real estate portfolio, and if you're looking for passive income with the least amount of work then turn key properties might be the best option for you.

    As with any real estate investment, regardless of where you buy, or who you buy from, proper due diligence is always necessary.

    Be sure to check out the Ultimate Beginners Guide as well as my 10 Rules of Successful Real Estate Investing.

    Be sure to start a new BP thread if you have specific questions.

    All the best!

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y

    @Pakav Kim There are quite a few good turnkey companies out there now. The hard part with turnkeys is a lot of the companies have gone in and out over the last few years, so who the "good" ones are can change quite a bit. I can definitely tell you more about what makes a good turnkey provider versus not, at least from my experience, if you want.

    As far as "jacking up the prices", the good ones only jack it up by what they need to in order to recoup their rehab costs and make it worth their time. They don't raise the prices past normal levels for no good reason.

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    12y

    @Kumar R. and @Pakav Kim .

    I'd like to suggest some alternatives rather than directly addressing the turnkey company issue. Have you considered investing directly alongside the cash of an experienced buy and hold investor in a cash flow property with equity and cash flow split pro-rata? - so your interests are aligned and they are working to boost the value of their own equity also? - rather than buying someone's flip at a premium when they have no real interest in the property except for collecting fees? Just a thought on an alternative to the "turn-key-but-on-your-own-if-things-go-south" route.. (No offense to any turnkey sellers out there! I'm just talking about investing with someone that has the same skin in the same game as you do - rather than a pure 'sevice provider'.)

    Regarding the location, I ran up against many of the out-of-state issues mentioned here when I first started looking, until I realized I could find cash flow in the East Bay. There is cash flow if you come up to the North part of the East Bay, such as Richmond, Pittsburgh/Bay Point, and a few others. I can share some specific numbers with you if you message me, on deals I've purchased in the last 4 and 10 months, respectively, for informational purposes. Both providing good cash flow, principal paydown, and good appreciation prospects, with a reasonable commute to Oakland (20min) and SF (35min) in a tight market with lots of spillover into the secondary/tertiary markets. And no rent control!

    Look at a 10+yr historical chart of prices in the area, and you'll see how far they have gone down and how much more potential they could move up over the long term.. (although, who knows!? - that's why I like the cash flow and principal paydown to support the purchase of the investments.) I like to be near BART and freeways, when possible. Commutes can get crazy real quick. **Just information. Not a solicitation.**

    Rough down in the South Bay! It is ON FIRE down there along with tech!!! I see a lot of multifamily deals (although I invest in 1-4), and WOW! Cap rates (yields) getting pushed to 3-4%..!

    Always happy to help with any questions, and especially networking with fellow local investors! Send me a message. Welcome to BP and good luck!

    0Reply
  • Jeff Greenberg
    Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
    12y

    This is a great thread with a lot of good information. My two sense is this. When I hear someone talking about turnkey, I hear that they have some money and maybe good credit. I also hear that they want to be a passive investor, but get the benefits of investing in Real Estate. as @Jeff S. stated there are other ways to make strong returns from Real Estate. For some cashflow is important, for others it is equity build, and for others it may be both. There was a great thread in this site about the different ways to make money in Real Estate and perhaps someone can post a link. Take a look at your goals and look at your options.

    I personally would be uncomfortable buying SFH out of state unless I had a trusted team in the area. We buy large MF properties where we can hire a profession PM. There is also enough cashflow where we can budget for the cost of our site visits, and not break the bank.

    There are many opportunities for both active and passive investors. Sometimes all it takes is getting them together, and BP is a great place for that.

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  • Wayne Tam
    Hacienda Heights, CA · Member since 2014 · 7 posts · 7 votes
    11y

    @Kumar R.  Sorry to resurrect this old post but I really learned a lot from it! Now that it has been 3 years since you originally posted the question, can you share how your experience turned out?  I'm now sort of in the same boat like you were 3 years ago.  Did you end up using a turnkey company to acquire your properties? 

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y

    Hey Kumar! Good research. I have bought turnkeys (for the same reasons you want to... I'm down in LA) and I have experience with a couple of those companies, and own properties from at least one of them... I'd be happy to share my experiences with you if you want to send me a PM. 

    0Reply
  • Julie Underwood
    Investor · West Columbia, SC · Member since 2014 · 10 posts · 0 votes
    11y

    I logged onto BP tonight intending to start a discussion asking where to advertise my turn-keys. I was prompted to this discussion, and I have to say, Ouch! My rehabs are top to bottom beautiful homes with excellent rent potential. I would love to keep them as rentals but my 5 year plan only allows me to keep 2 a year (my 5 year plan allows me to buy 10 at the fifth year to reach my goal of 20 rentals free and clear). I understand that buying across the country is a difficult situation having to trust a company's honesty. Maybe hiring a national property management company would be the way to go for you. 

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  • Adolfo Zamora
    Real Estate Agent · Burbank, CA · Member since 2013 · 24 posts · 9 votes
    11y

    Hi Everyone, I appreciate everyone's feedback on this site.  I am a new investor and looking to invest out of state.  I currently reside in California which is way to expensive for me at the moment.  I am having a hard time on know what areas to invest in I did look into Ohio, Texas, Indianapolis, Charlotte but still not sure what area I should go with.  I will be financing the deal and would like to find something under 75k possibly a lot lower.    I would appreciate anyone's advice. 

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  • Larry Fried
    Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
    11y
    Originally posted by @Adolfo Zamora:

    Hi Everyone, I appreciate everyone's feedback on this site.  I am a new investor and looking to invest out of state.  I currently reside in California which is way to expensive for me at the moment.  I am having a hard time on know what areas to invest in I did look into Ohio, Texas, Indianapolis, Charlotte but still not sure what area I should go with.  I will be financing the deal and would like to find something under 75k possibly a lot lower.    I would appreciate anyone's advice. 

    As an investor in buy and hold TK properties, I can tell you that investing with the right team can be even more important than the market.  So make sure you have a team you can trust with a proven track record and excellent PM in place no matter where you invest, and by all means go for a visit before you close on your first deal.  As for your price point, if you go too much lower, expect to assume more risk - older houses, lower quality rehabs, more maintenance, riskier neighborhoods, less reliable tenants and higher cost (percentage wise) of financing - if you can get conventional lending at all (tough below $50k with some banks in some areas).  

    1Reply
  • Steven To
    Rental Property Investor · San jose, CA · Member since 2009 · 25 posts · 6 votes
    11y

    @Kumar KR

    I want to bring back this thread to see if any one has gone through the out of state route and share some experience with me.

    thanks,

    HN

    0Reply
  • Account Closed
    Registered Nurse (ICU) · San Jose, CA · Member since 2014 · 496 posts · 332 votes
    11y

    If you are new to investing, investing out of state, and know nothing about your area of interest then turnkey investing is the easiest and safest way to get your start being that you find the right company to work with.  Others will argue that you should find your own realtor, wholesaler, contractor, property manager and basically build your own team.  This is easier said then done.  It takes a lot of time to find and build relationships with all these people needed on your team.  And all can easily take advantage of an inexperienced out of state investor.  My advice is to consider turnkeys companies for a more hands off approach but utilize them to there full service and learn from them as well.  You will still need to do your due diligence as every investor should however you will have more time to focus elsewhere and definitely less stress.

    I use FS Houses in Indianapolis and Decas group in Birmingham.  I suggest you give either of them a call to learn about turnkey providers before trying to do it all on your own. 

    1Reply
  • Ahmed Khidre
    San Jose, CA · Member since 2016 · 2 posts · 0 votes
    10y

    how you check the out of state investment properties ?

    0Reply
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