Hyattsville, MD · Member since 2017 · 42 posts · 57 votes
So I've been looking at different options to get into the rental real estate arena and for someone who works at a senior management level with a full time job it seems that Turnkey properties would be ideal to at least start out with and start attaining cashflow but I've read good things about TK's and not so good things. My real questions are:
1.) can one actually get real cashflow from a turnkey?
2.) Is success with TK's something that is just theoretically possible but highly unlikely?
3.) What about exit strategies? It seems for a TK provider to actually make their own money and be successful then their markup would put you in the retail price realm which leaves very little equity if any to start and it seems the properties in the areas that many TK's operate in have a very slow rate of appreciation so how do ever really increase your true net worth or implement a true BRRRR strategy?
I apologize if these questions are very naive, I'm just trying to understand and vet my options for entry into buy and hold very carefully.
Thanks in advance for any time taken to provide info and guidance, it's appreciated.
So I've been looking at different options to get into the rental real estate arena and for someone who works at a senior management level with a full time job it seems that Turnkey properties would be ideal to at least start out with and start attaining cashflow but I've read good things about TK's and not so good things. My real questions are:
1.) can one actually get real cashflow from a turnkey?
2.) Is success with TK's something that is just theoretically possible but highly unlikely?
3.) What about exit strategies? It seems for a TK provider to actually make their own money and be successful then their markup would put you in the retail price realm which leaves very little equity if any to start and it seems the properties in the areas that many TK's operate in have a very slow rate of appreciation so how do ever really increase your true net worth or implement a true BRRRR strategy?
I apologize if these questions are very naive, I'm just trying to understand and vet my options for entry into buy and hold very carefully.
Thanks in advance for any time taken to provide info and guidance, it's appreciated.
Hello,
Yes! Turnkey can be a great investment, but honestly do your research on the market and the company. Some people don't even own the property or do any work to it, they just find properties on the MLS and call it "turnkey" because it does not need a lot of work. People throw that word around without understanding what that means. Also, always get an appraisal/inspection done. These providers should stand by their price and their word. Do not be scammed by people trying to make a fast dollar.
Investor · Boulder, CO · Member since 2015 · 137 posts · 36 votes
9y
Albeit hard to find, I think you can get decent cash flow.
However, beware not all turnkey providers are working in your best interest.
So do a lot of due diligence on the company, their rehab contractors, the current tenants, and the neighborhood. Also check local municipal rental requirements/codes.
Remember you are buying a flip that you did not rehab, with a tenant you didn't choose, in a neighborhood you don't know.
So I've been looking at different options to get into the rental real estate arena and for someone who works at a senior management level with a full time job it seems that Turnkey properties would be ideal to at least start out with and start attaining cashflow but I've read good things about TK's and not so good things. My real questions are:
1.) can one actually get real cashflow from a turnkey?
2.) Is success with TK's something that is just theoretically possible but highly unlikely?
3.) What about exit strategies? It seems for a TK provider to actually make their own money and be successful then their markup would put you in the retail price realm which leaves very little equity if any to start and it seems the properties in the areas that many TK's operate in have a very slow rate of appreciation so how do ever really increase your true net worth or implement a true BRRRR strategy?
I apologize if these questions are very naive, I'm just trying to understand and vet my options for entry into buy and hold very carefully.
Thanks in advance for any time taken to provide info and guidance, it's appreciated.
Hello,
Yes! Turnkey can be a great investment, but honestly do your research on the market and the company. Some people don't even own the property or do any work to it, they just find properties on the MLS and call it "turnkey" because it does not need a lot of work. People throw that word around without understanding what that means. Also, always get an appraisal/inspection done. These providers should stand by their price and their word. Do not be scammed by people trying to make a fast dollar.
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
9y
@Michael Perry Yes, you can successfully invest in turnkey properties, and get good cash flow. I have done so, and have helped other investors do the same. I do have to say that in many markets inventory has tightened up, and prices have gone up, making it much more difficult to find truly good deals with reliable and trustworthy turnkey companies. My own buy and hold strategy has more recently been focused on an alternative to turnkey, that is actually much more passive. It involves investing in portfolios of 10 single family properties at a time that are co-owned by the managers for aligned interest. I have written about my investments on my BP blog in a series of articles Have I Found the Holy Grail of Passive Real Estate Investing?
Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
9y
1. Cash-flow is very possible, depends on which market you choose.
2. Success is very possible, although turnkey hasn't been around for too long, it's harder to determine long-term success.
3. Depends on which market you are choosing. If you go in Texas or Florida chances of appreciation are more likely higher, with less cash-flow. If you choose somewhere like Ohio, you will have better cash-flow, most likely less appreciation.
I increased my true net-worth by purchasing 2 turnkey properties last year. They cash-flow and lowered my debt to income ratio.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
Hey Michael. Not naive at all...actually very good questions! I've always bought turnkeys and I work heavily with them. So my answers--
1.) can one actually get real cashflow from a turnkey?
I get plenty of cash flow on mine. It all depends on what market you buy in and how sustainable the advertised income is. If you buy in a declining market, or you buy at an unrealistic rental rate (tenants paying an unrealistic rate), you might not be able to sustain what was advertised.
2.) Is success with TK's something that is just theoretically possible but highly unlikely?
I've had mine for 5 and 6 years and so far they are working. I know of a lot of turnkey buyers who have been profitable the whole time they've owned as well. Things can go wrong, as with any rental property, but they are viable as investments for sure.
3.) What about exit strategies? It seems for a TK provider to actually make their own money and be successful then their markup would put you in the retail price realm which leaves very little equity if any to start and it seems the properties in the areas that many TK's operate in have a very slow rate of appreciation so how do ever really increase your true net worth or implement a true BRRRR strategy?
You aren't going to be able to do a BRRRR strategy with a turnkey. There's nothing to improve on the property. The closest you can do is buy in a solid growth market as close as possible to it's infancy stage so you can experience as much appreciation as possible. This worked well for me on a lot of my properties. Otherwise, you'll just be at normal market appreciation rates. But people don't buy turnkeys for appreciation, they buy for cash flow. Appreciation is a secondary on turnkeys (secondary piece of awesomeness, but not mandatory). There are some combo options of turnkey + BRRRR though if you want the best of both worlds. For general exit strategy options with turnkeys, check out-
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Michael Perry I'm with Bill Florence on this one. There are a huge mix out there of success and horror stories. The reality is that most of those posts are from people that have had the property >12 months. They haven't really seen the quality of management (good or bad), the quality of the rehab work done (good or bad), or anything else. Quite simply, it's just hard to find enough neutral data. Consequently, you'd have to treat it like any other purchase. Do your diligence, get to know the area on a street-level, and determine if it's a property you'd buy whether it was turnkey or not. My two cents anyway.
Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes
9y
Interesting question. I always managed my own properties. Tried to check on a few turn key out of state providers, found that the price of the property they offer is not good.
In my opinion, turn key is a scam. If the property is priced good enough with high cash flow, with enough appreciation potential, without all the trouble, why don't I just keep it. Why would I offer it to someone else?
In other words, these turn key providers must make a profit greater than if they hold it themselves. That means, the purchase price will be inflated, and you will be buying at a higher than market value.
I will never buy something at a initial loss. This is the essence of turn key.
If it's too good to be true, it is.
You may have good rental return, but at the end, you might loss all those return when you want to sell it.
Just my 2 cents.
Investor · Palatine, IL · Member since 2015 · 69 posts · 31 votes
9y
I'm near Chicago. My partners and I work mostly with condo rentals. But a few of them have sold entire blocks of rentals to other investors, as turnkeys, because they wanted the cash to put down on what they saw as a better deal, like a 6-unit building or a commercial property. Investing has sort of an evolution aspect to it, so if you make friends, you can create win-win scenarios with investors in different stages.
I am a Property Manager, so if you can find a good deal on a little condo in your area, or a house, I am happy to walk you through the analysis of it, to see if it would cashflow. What I'm saying is that you may not need to buy a turnkey. Just do it yourself! : )
Investor · Zürich, Zürich · Member since 2016 · 292 posts · 115 votes
9y
@Michael Perry I (only) do "turnkey". My definition of turnkey is: no need to do any work for it to be put into service (when buying from a developer) or remain in service with an existing tenant in it (when buying from a non-developer). If there is work needed, it would be only cosmetic such as some interior paint here and there, maybe, maybe a new carpet, replace a ceiling fan or something like that. Minor stuff in the grand scheme of things.
Having said that: why would this not cashflow? As others have stated already, if you buy right (i.e. don't overleverage; I have voiced my opinion on this topic recently here on BP in a few posts) and the building is in good shape and tenants are ok with low vacancies then there is no reason for such a "turnkey" property to not cash flow.
I would even go ahead and say: why and how would a "non-turnkey" cash flow any better? Because if it's not turnkey then you need to put money in it which will give you an ARV which then will have to be put into relation to the rent (and the associated mortgage/costs).
With respect to @David Song's post and him saying that this is all a scam: don't agree. At least not when it comes to buying from either a developer or a private person/investor. While there might be people/institutions out there trying to sell you a property priced (way) over its value: yeah, so? If the buyer buys it then that his/her problem, not the seller's! Are people buying Louis Vuitton handbags because they are actually worth that money? No, they don't. They want the damn thing and are willing to pay what the seller is asking for. Their problem, not the seller's/manufacturer's. The market dictates the prices. Supply and demand.
As regards David's statement: "If the property is priced good enough with high cash flow, with enough appreciation potential, without all the trouble, why don't I just keep it. Why would I offer it to someone else?"
Because there is an immeasurable amount of situations and reasons why someone has or wants to sell. How does this make the sale a scam? It doesn't. What David is in essence saying is that every flipper is a scamer. I don't think that will bode so well with them. ;-)
So don't be frightened by all these "buzzwords". If you want to invest into real estate you need to find the right property. Whatever someone is calling it. If you do, it will cash flow. If you don't it might still cash flow and yet still be a bad deal. Heck, it might not cash flow initially but still be a good deal! Everything is possible.
Do be careful, or rather: prudent, when getting into this game but don't over-analyze things, especially not with a Townhome/Condo. And make sure you have enough equity in there initially. Leveraging is great, but it turns against you if things go south and you don't have enough other reserves. Good luck.
Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
9y
Michael Perry I've got two cash flowing properties in Indy and have been quite satisfied with the teams (rehab and PM). Both have multi year leases in place. One rented for $100 more than what was quoted to me, and appraised for $16k more than I purchased it for (although I do concede that this is very rare).
Regarding usually starting with little equity in the deal, that is a concern of mine. But I have begun looking into the BRRR/turnkey combination that Ali Boone mentioned and actually have one project going on in Philadelphia where I will be starting with about $25k in equity.
As others have said, treat it like any other purchase. I try to always meet the provider and PM and view the property. And check all the numbers they give you. If they always try to paint a rosy picture, be skeptical. I have found that the ones who have your best interests at heart will be conservative with their numbers and will advise you to be cautious/prudent with your personal expectations.
Hyattsville, MD · Member since 2017 · 42 posts · 57 votes
9y
Hey everyone thanks so much for the responses, I'm sorry I haven't responded sooner - I've been quite sick with a nasty bug the last few days. All the info you guys are posting seems like Turnkey CAN make sense but it's important to know the companies policies, research their reputation & average return they give their customers, and above all else research the market and neighborhood these homes are in.
Hyattsville, MD · Member since 2017 · 42 posts · 57 votes
9y
@Bill Florence Thanks for the perspective mate. That makes sense.
@Tom Ott Thanks for this Tom. I know being in the turnkey business it's in your best interest to make them sound like good investments but I do appreciate your feedback and the tip on getting 3rd party appraisal and inspections. That's helpful.
@Larry Fried Thanks for taking the time to write back. Your niche take on turnkey sounds interesting, I'd love to talk to you more about it at some point over the next few days
@Derrick Dill Thanks for the perspective of the balance between cash flow and appreciation based on market.
@Ali Boone Thanks so much for the detailed response! Would you mind if I reached out to you over PM to get some input on your experience with Turnkey?
@Andrew Johnson Thanks for this mate. I'm planning on incorporating using Google street view to see local business and them giving them a call to get the scoop on the street level info about the neighborhood. I've thought also about calling the closest schools and hospitals to get a good idea of the area as well.
@Tom Kaider Thanks for the help offer mate. I'd definitely like to take you up on that once I think I've found "the one" to finally get my feet wet.
Hyattsville, MD · Member since 2017 · 42 posts · 57 votes
9y
@Andy D. Thanks for the response. I appreciate the info from your first hand experience. The fact that you only do turnkey is interesting. Would you mind if I sent you a PM to ask some questions about markets and companies you've used?
@Kyle McCorkel Thanks for the feedback. So you flew out to the properties in Indi to meet the managers and provider or is it a virtual meeting type scenario using Skype or similar? Would you mind if I PM'ed you with a few questions about your experience?
Investor · Zürich, Zürich · Member since 2016 · 292 posts · 115 votes
9y
@Michael Perry Sure, shoot me a PM, although with respect to "companies" I can only provide you with a property management company for a spefic area which is not going to be much help for you unless you plan on investing there as well. Also, I have never bought from a "company that does turnkey". Only from a developer and there it's obviously again dependent on the location. So, really, I can't give you anything now that I think of it. :-o
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
@Michael Perry something to consider is that many people who are giving you testimonials that they purchased turnkey and have gotten good cash flow, purchased those properties at a low point in the market. Someone who purchased a turn-key in 2011 or 2012 would have gotten a much better deal than someone purchasing today. Properties I purchased during that time frame have gone up 30% in value and 20% in rents. The price I paid for some properties in 2012 was the same price they sold for in 2004. It is all about timing. Nobody can predict the future with certainty, but based on historical trends we are not at the low point in a real estate cycle.
As the market has continued to improve, the deals and opportunities have gotten harder to find. I know turnkey providers will chime in and tell you there are deals, but for every post like that I see another from someone who lost money in turnkey.
You will always pay a premium for turnkey versus buying direct in the market. That is fine for many people because of the value a turnkey provider delivers. Just do your research on the local market. Don't believe any information they give you, such as rent value, unless you verify yourself.
Hyattsville, MD · Member since 2017 · 42 posts · 57 votes
9y
@Joe Splitrock Thanks for this. Question for you - what's a great way to verify rental value and average rent for comps to what you're purchasing? Is going to the realtor.com or zillow etc... and checking rent prices in the area a good start for a rough baseline? What other ways would you check?
Investor · Zürich, Zürich · Member since 2016 · 292 posts · 115 votes
9y
@Michael Perry Forget zillow (my5c). When I occasionally look at some of my units on there I typically have to laugh fairly hard. The information is completely off, both with respect to the rents as well as property values. Sometimes only the one or the other, sometimes even both. I would, therefore, ask local people dealing with this: your broker/agent and/or property management companies.
realtor.com might be better with respect to getting more accurate rent figures as they at least show you what's available for rent. And that is generally the market rent, especially when you find several comps that show similar figures.
@Joe Splitrock has an excellent point. And I can very much confirm this, having bought my first unit in 2009. It is about timing as well, yes, but there is much more to it. It's also about buying right. Which can happen at any point in time. Every investor should know what they are investing in. And with real estate it's about location. Therefore about local circumstances which encompass a variety of aspects as we all know.
And I still believe that "turnkey" can also be when buying from individuals/direct in the market as Joe calls it. It's a matter of definition, see my initial post.
And as everyone should also know: you cannot get reward without risk. Real estate is risky. As is driving in a car, or even walking, to work. Yet most of us still do it every day...
@Joe Splitrock Thanks for this. Question for you - what's a great way to verify rental value and average rent for comps to what you're purchasing? Is going to the realtor.com or zillow etc... and checking rent prices in the area a good start for a rough baseline? What other ways would you check?
Zillow and Craigslist mainly, but you can also check Rentometer (hit or miss on accuracy).
Zillow is nice because it will give you a map showing properties for rent close by. You want to look for listed rent values instead of relying on their estimated rent value. Keep in mind "for rent" is an asking price, not necessarily what they are getting. Pay attention how long the properties have been listed and how saturated an area is. I like to look up every property on the street and look at the "last sold" value and tax value. That will give you a feeling for the going prices of property nearby. If you are lucky, you will find some other rentals and will see the rent value that Zillow recorded.
Craigslist is another data point to use for going rents in a specific area. Just be careful, because a 3 bedroom in one part of town could rent for much more than a 3 bedroom on the other side of town. Ideally you will find a house for rent down the street, although keep in mind that too many places for rent near by could be a bad sign too.
I will give you an example of how not doing your homework can be a problem. There was a recent thread on BP where an out-of-state buyer got a good deal on a property. The property manager told him it should rent for $1115. It was listed a month and had not rented so he came to BP for help. I looked the property up on Zillow and it had been listed for rent at $1125 for several months before it was dropped to $975 and then it was sold to him. It appears the previous owner had trouble renting it and then sold it. Several people were telling the new owner his price was too high, but he insisted his PM said it was good. Digging deeper, the property values in the neighborhood where questionable. This buyer should have checked Zillow before even making an offer.
So I've been looking at different options to get into the rental real estate arena and for someone who works at a senior management level with a full time job it seems that Turnkey properties would be ideal to at least start out with and start attaining cashflow but I've read good things about TK's and not so good things. My real questions are:
1.) can one actually get real cashflow from a turnkey?
2.) Is success with TK's something that is just theoretically possible but highly unlikely?
3.) What about exit strategies? It seems for a TK provider to actually make their own money and be successful then their markup would put you in the retail price realm which leaves very little equity if any to start and it seems the properties in the areas that many TK's operate in have a very slow rate of appreciation so how do ever really increase your true net worth or implement a true BRRRR strategy?
I apologize if these questions are very naive, I'm just trying to understand and vet my options for entry into buy and hold very carefully.
Thanks in advance for any time taken to provide info and guidance, it's appreciated.
There are some good ones and some not so good. Both TK seller types have replied to your post. Without investing in an appreciation area the only thing left is speculating on the cash flow. It may be a challenge to eventually exit without wiping out any cash flow as you noted. It does not take much to go wrong to erase $100 to $200 a month of cash flow. One bper decribes them like a tattoo...easy to get and financially painful to get rid of. You might get stuck with an investment in a bad location that has liabilities like mortgage, taxes, insurance, repair costs, vacancies. You just have to do the homework like any normal investment. Many investors find turnkey like properties first hand and for much less, then just get a PM. Same basic concept and more profitable exits and locations are now possible. Find a good PM first then the property is probably best with your busy schedule turnkey or not.
I always envisioned a TK opportunity like buying something in a plastic package right off the shelf. Immediately usable, fresh, and ready for consumption, but more expensive than if you made it at home.
Because I could find enough deals around me that fit my criteria (50% rule), I never really considered the option, but I have been intrigued particularly for out of state purchases.
It still seems a little daunting, but your questions have beat the bushes and delivered some really intelligent, encouraging responses. Thank you for (ex)posing your naiveté for us to see and starting this discussion.
(Hijacking slightly) Like all REI, we shoot for a "general range of numbers" or ratio. Is there anything like this for %cash flow or %equity regarding TK? I know it's very regionally specific, but there must be good numbers, bad numbers and then realistic numbers. And because this is no longer 2012, what would be a comparison between now and then?
@Michael Perry Yes, you can successfully invest in turnkey properties, and get good cash flow. I have done so, and have helped other investors do the same. I do have to say that in many markets inventory has tightened up, and prices have gone up, making it much more difficult to find truly good deals with reliable and trustworthy turnkey companies. My own buy and hold strategy has more recently been focused on an alternative to turnkey, that is actually much more passive. It involves investing in portfolios of 10 single family properties at a time that are co-owned by the managers for aligned interest. I have written about my investments on my BP blog in a series of articles Have I Found the Holy Grail of Passive Real Estate Investing?
You might find it an interest read.
@Larry Fried,
I just read your post and it was indeed an interesting read. Could you please PM me the name of the company? I'm keen to find out a bit more about them and their ideas.
I just read your post and it was indeed an interesting read. Could you please PM me the name of the company? I'm keen to find out a bit more about them and their ideas.
Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
9y
@Michael Perry sure feel free to PM. To answer your question yes I flew out to meet the managers. Met for breakfast then drove around to see some of the neighborhoods and walked through the properties that I had under contract. I met a home inspector in one of the properties, and also met the tenant.