Thoughts on turnkey rentals

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Thoughts on turnkey rentals

Javier Kaufmann
Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes

Hi everyone! I'm looking to begin my real estate investing within the next few months and I've been doing as much self-educating as I can with all my free time. I've read a lot about BRRRR but haven't seen much discussion about purchasing turnkey properties to make rental properties. Are there any big disadvantages to doing this that I'm not aware of? I'd greatly appreciate any input on this.

Thank you all in advance! 

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Adrienne Wilkins
Rental Property Investor · Washington, DC · Member since 2020 · 16 posts · 29 votes
5y

@Javier Kaufmann My first property is a turnkey single family. It works for me because I have a very busy job and I live in a very expensive market so doing something locally doesn’t work for me right now.

I qualified for 20% down but put down a little less than 30% down - my loan to value is 71% so when I want to buy another property I will refinance & pull out that equity for the next property.

As others mentioned there are pros and cons - turnkey only works for long term buy & hold because you’re purchasing at market value. I’m bringing in $350/mo in cash flow which isn’t a bad start in my opinion.

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  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    Be very careful. I see a lot of turnkey deals in Indiana that are really just $60k homes with $10k of renovation selling for $100k to out of state investors as a 10 cap. If you lose equity on the buy who cares about a on paper cashflow number that doesn't pan out half the time in real life after cap/ex/turnover/etc. 

    The markets hot in 2020 and any areas that look cheap are cheap for a reason. My strategy is get best deals on quality properties and raise rents/mild updates. 2-4 units work best for this in current market. 

    4Reply
  • Zach LemasterBusiness Member
    Rental Property Investor · Denver, CO · Member since 2015 · 1k+ posts · 3k+ votes
    5y

    @Christopher Parsons

    Thank you for the recommendation!

    @Javier Kaufmann

    We've helped many investors just like yourself build a successful rental portfolio across numerous cash flow markets. It's all a numbers game, and the most successful investors invest in the markets where they get the best returns!

    Please let me know if you have any questions on anything. I typically like to start with an initial phone call to discuss your investment goals/experiences, answer any questions you have, and tell you all about what our company has to offer. Please let me know if this is something you would like to schedule.

    Also for your reference, here are some other forum discussions from investors that have worked with us in the past like Joseph. I'm sure you'll find this informative. Looking forward to hopefully connecting in the near future!

    https://www.biggerpockets.com/users/ZacharyCole/references

    https://www.biggerpockets.com/forums/92/topics/518583-feedback-on-renttoretirement-and-zach-lemaster

    https://www.biggerpockets.com/forums/92/topics/765347-rent-to-retirement-review

    https://www.biggerpockets.com/forums/92/topics/808479-rent-to-retirement-experiences

    https://www.biggerpockets.com/forums/12/topics/533693-anyone-worked-with-renttoretirement-turnkey

    https://www.biggerpockets.com/forums/92/topics/581730-rent-to-retirement-zach

    https://www.biggerpockets.com/forums/48/topics/874096-reviews-on-r2r-and-nch?page=1&utm_source=Iterable&utm_medium=email&utm_campaign=Transactional:%20topic_notification&utm_content=Transactional#p5123754

    https://www.biggerpockets.com/users/ZacharyCole/references

    [email protected]800-311-6781Podcast Guest on Show How to Get 10%+ Off Your Next Real Estate Deal Right Now
    Rent To Retirement5334 Reviews
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    5Reply
  • Samuel Bofferding
    Member since 2020 · 2 posts · 1 vote
    5y

    @Adrienne Wilkins if your loan to value is 71%, how do you go in and pull all that equity out. Isnt it true that all banks will only give you equity back on a refi up to 80% of value? Is it possible to find lenders who will give you better cash out equity refi rates?

    1Reply
  • Wesley WhiteheadPro Member
    Rental Property Investor · Depends on where my employer sends me · Member since 2018 · 171 posts · 142 votes
    5y

    @Adrienne Wilkins bring up great points. It’s all personal choice. I live in an expensive market where my only viable option to invest was to house hack a triplex in a transitioning neighborhood.

    I bought a turnkey duplex that has averaged a $500/month cash flow over two years. I did extensive research and was lucky enough to meet the owner of the turnkey company at a conference prior to purchasing the property. Given that I put down about 28K (this includes closing), my CoC return is about 42% over those two years. Beats the return on my TSP and Roth IRA.

    My strategy is for everyone but I don't want to quit my day job. I am simply a guy who saves almost all of his take home pay (minus what goes into the TSP/Roth) and was looking for a way to diversify his asset class while simultaneously picking streams of income to enhance my pension.

    Apologies for rambling. Just wanted to illustrate how hands off turnkey can be.....if you go with a decent provider.

    2Reply
  • Chris Martinez
    Denver, CO · Member since 2019 · 24 posts · 8 votes
    5y

    @Javier Kaufmann

    Like most people here have said. It’s up to you. Do you have the money but no time? Then it might work well for you. Do you have time and not enough money? Then you might need to put in some sweat equity.

    One thing turnkey provide is a top quality products. With this they can sometimes get higher rents. This can give you more cash flow.

    I’m currently working with a turnkey company. I hope to have a property closed I. The next 45 days.

    1Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Isaura Orellana Thank you very much for the advice.

    0Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Ayyub Omer That’s a great tip! I really appreciate it, thank you.

    0Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Todd Pultz That is awesome advice! Will definitely be taking this into consideration, thank you very much.

    0Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Justin Elliott Thank you very much! I do have a very nice amount of capital to begin with and am looking for ways to multiply it, while also buying a few cash flowing properties along the way. I really appreciate your input!

    0Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Whitney Hutten Thats a terrific criteria to have in order to minimize your risk. Will 100% be keeping this in mind when making my purchase. Thank you so much!

    0Reply
  • Ethan Koch
    Rental Property Investor · Denver, CO · Member since 2020 · 4 posts · 2 votes
    5y

    @Javier Kaufmann

    I agree with the others. The trade-off for ease of renting and maintenance is less upside for return. You’ll be the only one to know if that trade-off is right for you.

    2Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Christopher Parsons thank you very much for your input, I really appreciate it. I'm definitely willing to put in the time and effort that is required for BRRRR and am looking to do something very similar to your plan. I hope all goes well for you & your wife!

    0Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Jonathan Oh thank you so much for reaching out!

    0Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Henry Lazerow thank you so much for the great advice! Definitely something to keep in mind when purchasing my out of state properties.

    0Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Wesley Whitehead thanks a lot for your input! I don’t mind the rambling, it’s informative haha. I’m glad to hear you’ve had success doing this and will for sure be choosing my turnkey provider carefully. Thanks again!

    0Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Chris Martinez That’s very true. I appreciate your words of advice & wish you the best of luck on that new property!

    0Reply
  • Harish V.
    Investor · Fremont, CA · Member since 2015 · 209 posts · 124 votes
    5y

    Turnkey rental has potential to make a lot of money for those selling to you and managing property for you. If you must do it, follow strict code.  From my experience you want to do the following

    1. Get independent inspection - do not accept the words of selling party, no matter how reliable. You need to get independent inspection. Also get independent appraisal done.

    2. Double check rent, insurance, property tax and  maintenance assumptions - Model vacancy of 15 days per year. Model cost of renting + management. You should model to have new tenant every year. If that is not the case some years that will be your upside.

    3. Some sellers may only tell you seasonal high rents and build model based on that. When season is gone, rents may be lot different. So build model based on average rents.

    4. Never refinance through hard money lender. FHA or bank if they will finance it, I feel more comfortable. If you end up with hard money lender that's fine, but a bank should be willing to lend that will ensure loan to value and other performance metrics are good.

    Good luck

    3Reply
  • Javier Kaufmann
    OP
    Flipper/Rehabber · New York City, NY · Member since 2020 · 18 posts · 10 votes
    5y

    @Harish Verma those are fantastic tips! Thank you so much for your words of wisdom, I really appreciate your help.

    0Reply
  • Ken Christensen
    Investor · Atascadero, CA · Member since 2017 · 5 posts · 2 votes
    5y

    I'm currently buying my second duplex.. Both properties were bought off the MLS and pretty much rent ready (not from a turnkey co, but close enough). The numbers are decent, both cash flow well, but what I'm noticing is that I'm "going broke buying good deals." Meaning with no value add potential, I'm going to have a hard time recycling my initial down payments into more properties. I bought the brrrr instead of creating the brrrr.. However, at the moment it feels safe and I'm learning at an exponential rate. Out of state investing is no joke. Your team really is everything! Good luck, bud!

    0Reply
  • Courtney Jones
    Rental Property Investor · Dayton, OH · Member since 2016 · 210 posts · 160 votes
    5y

    I am doing fine with my two turn keys in Ohio. I think the trick is making sure you are patient to find a good deal. The last one I purchased last year was turn key for 41,000 and it appraised at 63,000.  The people needed to move and I was in the right place at the right time. I did not go through a turn key company because I hadn't found one that I felt comfortable with.  Turn key is what I prefer!

    1Reply
  • Adrienne Wilkins
    Rental Property Investor · Washington, DC · Member since 2020 · 16 posts · 29 votes
    5y

    @Javier Kaufmann no problem, I went through REINation (formerly called Memphis Invest) - I had a great experience with them.

    1Reply
  • Adrienne Wilkins
    Rental Property Investor · Washington, DC · Member since 2020 · 16 posts · 29 votes
    5y

    @Samuel Bofferding I started at 71% and the tenant of course pays that down even more, so there will be equity to pull out.

    I can’t compare my returns or strategy to someone doing this full time or doing everything themselves because that’s not what this is and that’s not what I’m trying to make it. Just sharing that there are some opportunities with turnkey, especially if you’re just getting started.

    3Reply
  • Angelo Forzano
    Member since 2020 · 54 posts · 30 votes
    5y

    @Javier Kaufmann hi. We're both in the New York City area and I think we both have seen the rental market absolutely explode here. the rentals on a 2-bedroom Suburban apartment are more then most downtown cities. I think there were plenty of 10 to 12% cash on cash deals in our area especially those with older landlords who like to keep good tenants at low Market rates if you can find those put a little money into the property and raise the rates by 10 to 15% you're making pretty nice profit and again this is real estate as part of your portfolio it's going to appreciate it's certainly not going to be... in our area anyway ..a roller coaster ride like the stock market. you don't want to put all your eggs in one basket everyone knows that but as an investment that won't take up too much of your time I think it's a good start the brrrr are good but not for everybody especially if you have a full-time job and you buy locally in our high tax area.

    1Reply
  • Dylan Johnson
    Real Estate Consultant · Memphis, TN · Member since 2020 · 10 posts · 7 votes
    5y

    Quite a few turnkey providers here in Memphis TN. I rarely recommend our investors go the turnkey route simply for the equity they lose on the buy. However, we have a few OOS investors just stepping into the game looking for something with as little headache as possible. Something Turnkey is a great option for them to get their feet wet and start to see their money working for them. There is an end buyer for everything, just comes down to what your looking for. @Javier Kaufmann

    1Reply
  • Greg Shell
    Rental Property Investor · Tampa, FL · Member since 2016 · 21 posts · 11 votes
    5y

    My experience with Turn-Key has been nothing but negative, but it has more to do with the company than the actual business model. Usually you will be paying top dollar or even more than the property is worth at the time of purchase. So there will be no equity forced or built-in at the time of acquisition. You make your money when you buy.

    To learn more on this, I would buy David Greene's book called Long-Distance Real Estate Investing and jump to chapter 8 before making a final decision on purchasing a turn-key property. I am reading the book now and it's really good.

    I too bought my turn-key properties early in my investing career and thought it would be a good idea to get my feet a little wetter. Looking back, that was the wrong decision in my case. For one, you have more control and the ability to be more agile by not going the turn-key route. All though, if you're a high earner it may be a good way to be completely hands-off, and you will at least get the benefits of the tax write off when they are negative cash flow. I still think there are better options though.

    1Reply
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