Can someone please tell me what the catch is with turnkey!

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Can someone please tell me what the catch is with turnkey!

Shant Ohan
Member since 2020 · 18 posts · 8 votes

So I just learned about turnkey investing and downloaded the app! I’m not sure any more people don’t use this style of investing, am I just new and hyped or is there a catch?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
5y
its a coined term.. but basically it just means buying  a house that has been rehabbed or is in great shape and will need no major repairs and or is already rented with a PM in place.  you can buy them through companies that do this for a living IE buy houses and fix them and specilize in resale to investors as oppossed to selling to owner occuppied buyers.

you can buy them off of the MLS or FSBO
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    its a coined term.. but basically it just means buying  a house that has been rehabbed or is in great shape and will need no major repairs and or is already rented with a PM in place.  you can buy them through companies that do this for a living IE buy houses and fix them and specilize in resale to investors as oppossed to selling to owner occuppied buyers.

    you can buy them off of the MLS or FSBO
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  • Steven Westlake
    Developer · Bellefontaine Ohio · Member since 2016 · 371 posts · 219 votes
    5y

    @Shant Ohan - not new, could work well for hands off folks. Steady incomes are possible, but as most repairs are done, and your paying almost market rates, you can not BRRRR easily or get forced appreciation. But hey a 5 cap looks good compared to 0.5% in the bank.

    4Reply
  • Shant Ohan
    OP
    Member since 2020 · 18 posts · 8 votes
    5y

    @Jay Hinrichs so people use an app and purchase these homes and have property managers in place that are looking after them and they are collecting a check monthly?

    2Reply
  • Shant Ohan
    OP
    Member since 2020 · 18 posts · 8 votes
    5y

    @Steven Westlake it’s a good rate for the amount of work that is in play! But what’s the catch with the apps that people use?

    0Reply
  • Brian Hosier
    Investor · Port Coquitlam, BC · Member since 2013 · 203 posts · 119 votes
    5y

    I love turnkey investing because I want passive income without all the work that goes with the BRRRR strategy or managing your own properties. For me, syndication can also be a great opportunity because with it you are just one of many investors (typically as a limited partner or unit holder) and can make a solid return.

    I have managed my own properties in the past but now value my time more so turnkey gets me there. It really depends on how you want to invest, where you want to invest, and how much time you want to devote to building your RE business. 

    I'm not an expert but if you want to get on a zoom call and discuss the details feel free to message me. 

    6Reply
  • Lynnette E.
    Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    5y

    With turn key a lot of the potential profit goes to the turnkey provider.  But if you want someone else to do the work, you   get less $ for yourself.  Your potential profit from fixing the house, managing the rental business is paid to others to do.  So, if you do not want to do that work, and want hands off, just park my money somewhere, turn key may be for you. 

    Also many turnkey properties are in not so nice areas with little appreciation on the houses.  They rent the houses, often, to Section 8 renters.  They may or may not be screened well.  Some Section 8 renters are great and stay year after year.  Some not so much.  Often in these types of neighborhood, selling to other landlords is your only option when you want to sell.

    2Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    I don't know why you'd need an app for this.  As Jay said, it merely means buying a property that doesn't need any renos.

    They are a good option if you don't want to do renos or don't have the time to do them or deal with a contractor.

    4Reply
  • Kent Leach
    Specialist · Knoxville, TN · Member since 2012 · 66 posts · 59 votes
    5y

    I'm  not sure why turnkey is so popular.  With a little more research you could identify some good multifamily syndiators and spread the risk out over more units while making better returns. 

    But do take the time to find syndiators that have experience and track records. 

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Shant Ohan:

    @Jay Hinrichs so people use an app and purchase these homes and have property managers in place that are looking after them and they are collecting a check monthly?

    AN App?  you mean like something you click on your phone ?  I have no idea ?  nor would I recommend transacting in real estate that way.

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    3Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    5y
    Originally posted by @Shant Ohan:

    So I just learned about turnkey investing and downloaded the app! I’m not sure any more people don’t use this style of investing, am I just new and hyped or is there a catch?

     Who's app?

    3Reply
  • Clark Williams
    Rental Property Investor · Atlanta, GA · Member since 2016 · 19 posts · 8 votes
    5y

    @Shant Ohan turn key properties are a great option depending on your area and considering you get a good deal on the property. Why?

    Turnkey properties come completely renovated. My second house was turnkey. Instead of putting thousands down for a property, then waiting 3-6 months for renovations to be completed before you make profit, i was able to start collecting revenue within a week of purchasing the property. Also, the area which i bought in was on the way up. My house was one of the first renovated, and within a year, the value has gon up around $30,000. In addition, we profit $900 each month. With turn key, if you have a good system in place, everyone wins. Flippers get the quick cash they were looking for, and you get a fully renovated property. Just make sure you pay attention during the inspection. Some house flippers will cut corners to save money.

    2Reply
  • Joe Cassandra
    Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
    5y

    It's not really a "catch." 

    It's just you're buying houses at near 100% ARV because you don't have time to do the work, find a tenant, and get a PM.

    It's "mailbox money."

    The play for you is a place to park your money for 5-7% returns...and also banking on good appreciation. 

    But it's really only if you have cash to park. Meaning you have good chunks to put as down payments, else it makes more sense to find your own offmarket properties where you make most of the money (not the turnkey provider). 

    They're essentially flipping you the home plus getting a tenant in there.

    3Reply
  • Account Closed
    Member since 2019 · 1k+ posts · 1k+ votes
    5y

    @Shant Ohan

    Paying 5-10% over market value to avoid interviewing and hiring a property manager together seems like a catch to me.

    5Reply
  • Bill Goodland
    Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
    5y

    @Shant Ohan others have said it, but essentially you’re buying at or above market rate where most successful investors try to buy below market. If your time is better spent on another business or income source, turn keys can be a solid strategy over time for cash flow and building wealth slowly through loan paydown, but most active investors generally want to find their own deals and build in equity into the deal by buying below market to have instant increases to their net worth.

    3Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    Many of the turnkey operators grossly understate actual expenses of operating the property so you end up with much lower cashflow (if any) then you initially think. The second catch is that they tend to be in areas with no appreciation so once the property is no longer a newly rehabbed property it may actually have depreciated.

    6Reply
  • Jonathan Oh
    Investor · Las Vegas, NV · Member since 2019 · 499 posts · 259 votes
    5y

    @Shant Ohan Very curious about this app like everyone else lol. Turnkeys is just a terminology for rent-ready rental properties with tenants in place.

    1Reply
  • Shant Ohan
    OP
    Member since 2020 · 18 posts · 8 votes
    5y

    @Henry Lazerow

    That’s really good to know. Again I’m very new to the real estate world and to my very minimal knowledge I thought it was a app base service. But thanks for everyone’s clarification that turn key is essential someone’s else work and the buyer just comes in to buy the property and rent it out.

    1Reply
  • Brian Dickerson
    Rental Property Investor · Delray Beach, FL · Member since 2017 · 102 posts · 44 votes
    5y

    @Shant Ohan

    There is no official app so it must be a specific company’s app.

    The “catch” Is that there are more bad turnkey providers than good. Their numbers look great on paper but you will probably have more expenses than they project with lower returns than they’re projecting. As with most property managers, you will overpay for maintenance / repairs as well.

    This isn’t to say you won’t make money if you use a reputable turnkey provider. Just do your research.

    Google “Morris invest scam” or read about them on here to learn some turnkey horror stories, red flags, and what to avoid.

    1Reply
  • Rodney Robinson
    Rental Property Investor · Melbourne, FL · Member since 2017 · 114 posts · 108 votes
    5y

    @Shant Ohan precisely. You are getting someone else’s deal at a higher price to avoid the initial effort of stabilizing your own rental. Most people on this site are seeking to create wealth and the proven strategies are through cash flow and appreciation, and turnkey rentals do not usually fit that strategy.

    I hope this helps!

    Rodney

    1Reply
  • Jared Galde
    Rental Property Investor · Camano Island, WA · Member since 2020 · 10 posts · 7 votes
    5y

    @Brian Hosier I don’t know if you got a response to this but I’d love to pick your brain a bit from the consumer side of turnkey. Would you be willing to have a quick meet? I have a few questions about what to expect as far as reporting received, do they basically do your taxes for you on the specific investment? Plenty of questions really but mostly around the client experience and insights you may have to make that better as we launch our turnkey product.

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    5y

    @Shant Ohan there is no catch but you have to vet the turn key company well. Like with any other business, there are good one and bad ones. Turn key is a good way to go for new investors, especially out of state that don't have the time, skills or inclination to do everything themselves. Here are some of the key things to watch out for and avoid when evaluating turn key companies:

    • Don't allow financing or a finance contingency (it can be a good indication they are selling above market value)
    • Don't allow for your own independent property inspection
    • Are not realistic with their pro forma's (i.e. they don't include vacancy or maintenance projections or use unrealistically low vacancy factors)
    • Require you to pay for any renovation upfront
    • Sell only in cheap. low end neighborhoods
    • Don't accurately represent the neighborhood/property classification
    • Don't have consistent rehab standards for all properties
    • Don't provide a scope of work for the property
    • Can't provide references of repeat investors
      Require you to close before a tenant is in place
    2Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    Some great advice here. If you do not have the time, patience, knowledge or inclination to get your hands dirty in real estate, but still want real estate returns, buy a publicly traded REIT and avoid unexpected repair bills, non-paying tenants, slow-paying tenants, evictions, and insane drama from time to time.

    Of the millions of posts on this amazing website, I have yet to see someone show in actual numbers a positive 5+ year return on a turnkey investment. Certainly nothing to suggest you will beat the 9-10% you will get on a publicly traded REIT. Happy to be corrected/instructed on this point if anyone is game.

    0Reply
  • Account Closed
    Specialist · OverTheRainbow · Member since 2020 · 607 posts · 909 votes
    5y
    Originally posted by @Darius Ogloza:

    Some great advice here. If you do not have the time, patience, knowledge or inclination to get your hands dirty in real estate, but still want real estate returns, buy a publicly traded REIT and avoid unexpected repair bills, non-paying tenants, slow-paying tenants, evictions, and insane drama from time to time.

    Of the millions of posts on this amazing website, I have yet to see someone show in actual numbers a positive 5+ year return on a turnkey investment. Certainly nothing to suggest you will beat the 9-10% you will get on a publicly traded REIT. Happy to be corrected/instructed on this point if anyone is game.

    Your Comment: "Of the millions of posts on this amazing website, I have yet to see someone show in actual numbers a positive 5+ year return on a turnkey investment"

    I suggest that the answer to that question is that they are too busy doing rather than telling. ;-)

    Here is a link of an old post of a guy I buy Turnkeys from in Phoenix. The numbers work. He got busy and closed his account a couple of year's ago but he is still at it. I'd love to hear your input.

    Average Cash Flow Per Door In Phoenix Metro Area

    https://www.biggerpockets.com/...

    1Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    5y
    Originally posted by @Darius Ogloza:

    Some great advice here. If you do not have the time, patience, knowledge or inclination to get your hands dirty in real estate, but still want real estate returns, buy a publicly traded REIT and avoid unexpected repair bills, non-paying tenants, slow-paying tenants, evictions, and insane drama from time to time.

    Of the millions of posts on this amazing website, I have yet to see someone show in actual numbers a positive 5+ year return on a turnkey investment. Certainly nothing to suggest you will beat the 9-10% you will get on a publicly traded REIT. Happy to be corrected/instructed on this point if anyone is game.

    I've been knee-deep in turnkey world since 2011, both with my own turnkey investments and working with people with them more or less full-time, and in all that time and with the hundreds of turnkey buyers I've worked with, I've never seen any of the ones who have good experiences hanging out on BiggerPockets after they buy the property(ies). No reason to... they got what they came for--knowledge and connections. Then they go back to their lives. It's, I think, why there are so few reviews on turnkeys providers, no one talks about their turnkey properties, etc. They just aren't on here anymore because they have no reason to be unless they start looking into a different strategy.

    1Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    5y

    The "catch" to turnkeys is that they aren't perfect. The formula suggests they should be, but they aren't. They are still rental properties. They require due diligence on the part of the interested investor and some oversight.

    The other downfalls to turnkeys, none I would necessarily consider "catches" as much as just the fact that they aren't perfect:

    - you're buying at market value without room to force appreciation outside of what the market itself can push for you

    - they tempt a grave misunderstanding of how hands-off they really are... they are arguably the most hands-off way to invest in a rental property, but for some reason that phrasing has triggered people to also be brainless and not stay in charge of their own investments

    Otherwise, those things aside... if you understand they aren't perfect, you learn how to do thorough due diligence on them (as you should), they can be great! I have all my originals turnkeys I ever bought and yes I absolutely learned some hard lessons, but I'd continue to buy turnkey today if I were investing right now. Hands-down.

    Yeah, what's this app? Never heard of it.

    1Reply
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