Investor · Norfolk, VA · Member since 2014 · 164 posts · 51 votes
Hey BP,
I was just curious what was everyone take on buying rental properties. Do you or would you buy turn-key properties? Why or why not? What do you consider turn key (i.e. already renovated and rented or just renovation done ready to be moved in)?
Or on the other side do you prefer to find and fix your own properties? If you have done both what are the pros and cons of going either direction?
Its an interesting question and one I have thought about. In a nutshell, I buy turnkey properties for a number of reasons. First, I don't have the time to supervise or engage in renovations. I would prefer to devote my limited time to managing more units, not investing time heavily in renovating just one. Second, and this is important, if you buy a turnkey property you get to leverage up and use other people's money to pay for the renovations, only having to put down 20 cents on the dollar. If you buy a property needing renovation you only get to finance the original price of the property using mortgage money. Most likely the cost of renovations has to come from cash. I prefer to leverage up my properties and have more of them rather than tie up excessive cash in renovations.
Besides this we are assuming that the renovations go well, stay within budget, and are competently done by experienced contractors . But we know that this often is not the case. Renovations can be a bit of a crap shoot. If you buy a renovated property that is ready to go you get to see the finished product as it is. In my view this finished product is lower risk.
I am sure some posters will have trades experience or have trades that they are confident in. That's great but ultimately I want to leverage my time and my money. When you buy a renovated property you are in effect hiring the owners to have gone through all the renovation hassles for you. You get to finance the cost of the renovations, and you get to move on to the next deal. It works for me.
For me Gary, I am looking to create value and equity. That normally does not involve regular turnkey investing. I am not opposed to turnkey investing or buying an already fully rehabbed tenanted rental. It is just a partially rehabbed property seems to create more value and equity opportunities.
Some of the best turnkeys companies on the planet are bp members. We fortunately can let them explain some other distinct differences going the 100% turnkey method.
For us, the answer is, "Yes!" .... no, make that "Absolutely, Yes!".
In our local markets we like to look for the downtrodden and unloved as they offer the best opportunity for forced appreciation (read: we can pull our initial capital back out once the property is stabilized).
They also allow us to rehab the property to our standards for energy efficiency, sustainability and healthy environment without the cost of undoing the work of a recent renovation.
In remote markets we are struggling between our nature to say - the bones are good, lets' go - and our trepidations around managing a renovation 1000 miles away with a team we do not know. In these areas we would be open to turnkey ... or nearly turnkey ... properties.
@Stephen E.
BTW: There are mortgage products which include a renovation budget.
I have a strong preference for buying rentals that need work to get them ready. That enables me to buy the property for below market value and to inject some sweat equity into the deal by doing the necessary renovation work. I'm a firm believer in a buy-and-hold property earning me passive income through cash flow and also through property value appreciation.
On the other hand, I've worked with investor buyers who prefer turn-key rentals because they don't have the experience or willingness do deal with a bigger renovation. A turn-key rental also allows them to put the property into service as quickly as possible, thereby maximizing their rental income. They're sacrificing some long term property value appreciation, but are realizing immediate cash flow without the hassle of going through a renovation.
To me turn-key means anything that's ready to rent as-is or that needs just a little bit of cosmetic work (e.g. painting or new carpet).
I define a turn key as 1. Recently renovated, 2.Tenant in place and 3. Under professional property management.
I think the choice between turn key and fixer depends on someone's level of experience, skill and time. If you're a full time real estate investor, of course buying distressed properties is the way to go but if you have a full time job, busy family life and don't have the time or skill to assemble a team and do it yourself, turn key is the way to go. You forego some equity but if you're looking for long term buy and hold, this is perfect for the arm chair investor.
, i would never trust another's definition of what constitutes turn-key, hence i would never buy one. I do the work so i can monitor the house and work done to it, plus a ovoid paying a premium for a questionable tenant/property/management co
I suppose I should have added the caveat that I actually did renovate a condo earlier this year, for the first time. It did not need vast amounts of work, but the kitchen and bath were redone, carpet replaced, new tiling installed. It ran about $12k for a unit that we had bought three years ago for $116k. But this is just about the most I would want to do. There was a lot of running around. Buying units that are done reduces headaches. I may not capture value from a renovation but I save hassle and am able to devote limited management time to getting more units going and managing those I have. I am not a full time landlord, I have a busy job that requires my attention. Landlording is strictly free time; instead of watching TV I manage my properties.
Incidentally I would be wary of buying tenanted units. There are a number of potential problems. First, many small landlords do a bad job of screening tenants and so their tenants are higher risk than you might like. Second, in rent controlled jurisdictions you are locked into the rent at the level set by the former landlord. Vacancy decontrol gives an opportunity to move up to market rents. I would far rather have a property I choose with a tenant I choose than have a property with a tenant that was someone else's choice. Whenever I have looked at deals with tenants in place I have found there to be problems and have walked away.
I'm also in the rehab group. My current strategy is to purchase, rehab (through contractors) and refinance. I've done two of these and I'm starting on my third. It is not easy and there is certainly a learning curve. I am also working with properties that are within a 40-minute drive from me. It would be extremely challenging to try this from distance and I'm just not ready for it yet.
Are you investing or running a business? Is this your full time job? Whats the best value of your time and skills? For me, I don't have the time to do rehabs. I want as close to passive as possible because I have a well paying day job that keeps me busy. RE is a part of a diversified investment strategy but certainly not where I want to spend 20 hours a week. So for me, turn key works. As does Private Lending, Passive funds etc. If I wanted to run a business, rehab to flip seems like the best way to grow income and capital rapidly.
Buying turnkey makes you compete with buyers who can put little to no money down. You don't want to compete with those buyers because chances are you won't build instant equity and will spend years trying to build up any equity at all.
I buy properties in need of work. They have repairs and improvements that are obviously needed and deferred maintenance abounds. I do this in order to get a great deal as the buying pool for these properties is generally less. Another way to look at it is I am purchasing an additional revenue stream as I can do the work and lower the costs if I so choose. This method actually allows me to use less of my own capital as I can purchase the property, repair and then refinance and recoup all I have out in thus far.
I am often disappointed when looking at a turnkey property. I will see too many things done incorrectly or differently than I would have done. I hate seeing a new roof but they just went over the old layer, same with siding. I have seeing windows updated but they are not energy efficient. Poor flooring choices which will lead to problems in the near future. I would really rather not pay for someone elses work that does not meet my standard and even costs me more money down the road...
I don't know about turnkey, depends on the definition. I prefer to buy what I call rent ready. Basically, I can list it as soon as I close with putting less then $100 into the property to get it ready. I'm closing on one this week that needs a couple thousand in updating. It was cheaper, but my stress meter increased more then usual and I don't care for that.
if I were investing in properties out of state or more than a hours drive from my primary residence, I would consider a turnkey property. However, being local I prefer to purchase a distressed fixer upper in the nicest and most desirable neighborhoods and renovate.
After renovations, I would charge market rent rates and enjoy the property value appreciation over time. I prefer to use a couple of investment real estate strategies to build my wealth overtime 1) Buy & Hold for the long term 2) Buy & Flip when a great deal has come my way 3) Buy & Rehab when cash flow and time is available for the project.
Gary, Anyone can go out and purchase a "turn-key" home and hope to build equity over time. As stated above, there is real value in purchasing distressed, rehabbing, and building equity. The advantage to this method is you could ultimately end up with more equity than if you purchased turn-key. If you then decided to refinance, you could end up with a lower payment and more cash flow. If you are not comfortable with this process, team up with other investors or proven turn-key companies and be involved in the process.
I've only bought turnkey for myself and I don't plan to buy anything other than turnkey. I certainly don't plan to buy a do-it-yourself, for several reasons: no interest, no skill, too much risk, too much work.
@Ali Boone puts it very well......I've found real estate to be a business with so many options that people struggle to define themselves and draw the lines. Each person needs to figure out how much time, energy, capital and talent they can bring to the table. Once you size that up, determine the REI strategy that meets your level of those resources.
At the risk of dating myself, I find real estate to be much like the guy on the Ed Sullivan show back in the sixties....he would spin about 22 plates on sticks and run between them to keep each one spinning. If you don't like broken plates...you won't like rehab and rental management. One friend of mine recently jumped back in the business and knows how to "spin plates" and has built up to 38 rehabbed properties. He works long hours like me! He looked a bit haggered for a year or two...but smiles all the way to the bank currently. We have breakfast each Saturday and compare war stories....but now are starting to debate the retirement strategies more. Rehab certainly pays to build equity but is not for the faint at heart. Good luck!
As always a bunch of valid on point posts. Consider my case, I have the skills and capital at this time to do a rehab, but not the time or team (and I don't have a full time job!) Next year my youngest starts full time school so we plan on doing a rehab and hold or flip at that time. Be very careful of "turn key" all houses have issues and will need upkeep attention. Keep a maintence long and get on some kind of maintence check and expectected repairs schedule just like for a car. I purchased a turnkey light house off of mls this year and ended up doing a bunch more time and work into it than I had planned so be careful especially if you are new to rehabing. Good Luck!
Thanks everyone for your post! You all gave such great and valid points. When I posted it I knew it would be split but was curious to hear everyone's reasons. I am just doing some planning for my business model and looking at doing rehabs aimed at offering turn key investment opportunities when I'm ready to start rehabbing.
So for those of you that would or have bought turn key properties, what do you normally look for in a property? I know most people do not do not go all out in rentals with granite and stainless steel everything, or do you? I would understand that in high end rentals but for most I wouldn't see the point. Please explain if you do this?
I have always enjoyed working on projects, building and fixing things so when I first started buying properties I looked for ones that needed a lot of work that I could fix up. In addition to building the sweat equity, I was enjoying doing the work and also fixing up run down properties in the city I grew up in and love so I got a sense of pride out of that.
Fast forward a few years and I got married. Now my priorities are a little different and I would rather spend time with my wife than paint a bathroom. Nowadays I look for places that need minimal work so I can still enjoy a project or two and still get to spend time with my loved ones.
If you want to spend a lot of time fixing a place up then by all means do it. If you would rather spend more time managing properties or having more free time for other ventures then get something a little more turn key. As long as you're making some money on the deal do what makes you happy. Life's too short
@Account Closed that makes a lot of sense. Different life stages, different availability of time, so different projects make sense for different people. I am sympathetic to those who want to build equity through renovations and can see the merits of that approach. For me I have a demanding job that requires long hours and a lot of commitment. I do landlording in time that otherwise I might spend watching TV. Its for profit but it is also a bit of an extracurricular interest. You meet some really interesting people doing this and face a whole lot of different business situations, each one a case study. Its never dull.