Turn-Key Rentals- Good or bad idea? What are your opinions?

56 Replies

@Nick Troutman There are tons of ways to fully optimize the benefits of Real Estate Investing and if FULL Passive Income is what you are looking there are other ways to achieve that. 

I'd say you should look into Multifamily Syndication or Self Storage or MHP. What you get with these options are scale and tax benefits not seen with Turnkey Strategies such as Cost Seg with MF. 

Basically, keep looking at some other strategies you never know what else you will find!

@Nick Troutman

Hey Nick, I would have to agree with @Ola Dantis

Investing in apartment syndications would be a good way to go. Depending on the deal, you’d get around an 8% return day one, along with a 70/30 split after that, which means that you not only get cashflow, but also enjoy the appreciation as well. Along with the great tax write offs Multifamily provides.

I’ve heard nothing but horror stories about turnkey providers. And IMO they’re not a good way to create wealth. When you buy at market value or higher, you have no equity, and likely won’t create any either, as these are cashflow markets that don’t appreciate. You’re also relying on the turnkey providers for the property management and the tenants.

There are much better ways to invest your money that this. So I’d say spend some time on BP, and look for some other investment strategies. And then if you still think turnkey properties is the way to go....post on here again and I’ll try and change your mind again!haha.

Originally posted by @Ola Dantis :

@Nick Troutman There are tons of ways to fully optimize the benefits of Real Estate Investing and if FULL Passive Income is what you are looking there are other ways to achieve that. 

I'd say you should look into Multifamily Syndication or Self Storage or MHP. What you get with these options are scale and tax benefits not seen with Turnkey Strategies such as Cost Seg with MF. 

Basically, keep looking at some other strategies you never know what else you will find!

Agreed. I know folks who have done very well as turnkey investors. However, it's not nearly as passive as syndication investments for a very similar return.

@Nick Troutman Not the best way to buy in my opinion. Memphis has some reputable companies but in my opinion, not the best way. Memphis is tricky but I have been able to find some success in a few different pockets.

@Nick Troutman

Take everyone's comment with a grain of salt, including mine. A lot of people on BP will tell you that turnkeys are terrible and that you could get better returns by doing what they do. What they don't mention is that they aren't traveling 6-10 months like you are. You have a different lifestyle and have different needs. There is nothing wrong with investing in turnkeys, just like there is nothing wrong with non-turnkey investments. Every type of investment has its pros and cons, and you need to decide which one has better pros for you. I personally invest in turnkeys and properties needing small touches. I know those strategies don't bring the highest return, but they are perfect for what I want and what my goals are - not others. And if you buy some turnkey properties today, I doubt the same people telling you its a bad idea will tell you so in 10-15 years. Hope this helps!

Originally posted by @Jonathan Oh :

@Nick Troutman

Take everyone's comment with a grain of salt, including mine. 

I feel the same way as Jonathan.  I know buying turnkey or light rehab is not going to maximize my returns, but it fits my investment style at the moment.  I'm not using the turnkey companies, but whether you do or don't, still learn to analyze the deals yourself.

 

The average TK returns appear to be around 8% per year, same as the stock market. I'd imagine even with TK, you're looking for the needle in the haystack. If they were all good, the TK company would have been a real estate buy and hold company.

Originally posted by @Matt R. :

I think some TK buyers might be better off getting a REIT like OHI. They do the assisted living facilities and pay 7%. Let's say they did this 3-5 years ago. They would be nearing double in appreciation plus dividends. That is turn key without the debt and evictions. I would not say TK is necessarily a bad idea, just perhaps there could be better ideas for some of those TKers. Another example is goto the MLS and buy a turnkey condition house. On the MLS you might find 100X the inventory and likely a better price than what a TK company can offer. Then just add the PM yourself. Good luck!

REITs sound interesting but whenever I look one up they are always so volatile compared to the rental market (vacancy rates, rents). They're basically just like the stock market.

If I could get into a REIT with 8% to 10% returns without volatility I'd probably go for it.

 

@Nick Troutman , I started with SFH's provided via a turnkey provider. Turnkey providers add value by packaging up all of the things you need in order to start building an real estate portfolio (the asset, financing, insurance, the team, management, etc.) and for that you pay a fee. This all makes sense, provided you like the options on offer.

I ultimately transitioned out of turkey’s since they were increasingly less passive as I scaled, each house you buy carries an admin overhead (applying for financing, getting insurance, filing taxes etc.). I ultimately started investing in multifamily syndications as they offer all the benefits of physical real estate ownership (depreciation, LT cap gains, leverage) but are entirely passive and the team managing the deal have incentives more aligned with yours (they only get paid after they meet performance hurdles and they typically co-invest in the deals)

Multifamily syndications aren’t the only way to invest passively so educate yourself on all the options available and pick the one that works best for you. Good luck!

Originally posted by @Kalen Jordan :
Originally posted by @Matt R.:

I think some TK buyers might be better off getting a REIT like OHI. They do the assisted living facilities and pay 7%. Let's say they did this 3-5 years ago. They would be nearing double in appreciation plus dividends. That is turn key without the debt and evictions. I would not say TK is necessarily a bad idea, just perhaps there could be better ideas for some of those TKers. Another example is goto the MLS and buy a turnkey condition house. On the MLS you might find 100X the inventory and likely a better price than what a TK company can offer. Then just add the PM yourself. Good luck!

REITs sound interesting but whenever I look one up they are always so volatile compared to the rental market (vacancy rates, rents). They're basically just like the stock market.

If I could get into a REIT with 8% to 10% returns without volatility I'd probably go for it.

 

Yeah, it performs same as dividend paying stock. For OHI, thats a decent 20 year run without missing rent (divs), without a single penny in expense, and no evictions. Being that they do the assisited living that market is like a pig thru a python for next 20 years. One could do the similar with an assisted living syndication but track record there on average might be riskier? In OHI case they NNN from NYC, thru midwest and all the way to OC/LA. It would be difficult to beat the passivity to profits ratio vs turnkey. Those TK guys are cutting checks left and right, private syndications not so much but they can go south. I think what partly attracts TK buyers is the passive theory, with publically traded Reits one gets thats in reality and has a chance at the real REI passive part, appreciation. It is the more of a set it and forget it option.

 

Updated about 1 year ago

I noticed that last 20 year run includes a 4X on principle, that is as good as most Calif prime can do. If you check those TKs I think most are actually negative in appreciation when you factor for inflation. This could be alarming for some investors but honestly I don't think 99% of TKers check historicals.

I see people suggesting multifamily syndications, but I was under the impression that reputable syndicators only work with accredited investors and he has not even started

Originally posted by @Ronan Donnelly :

@Nick Troutman , I started with SFH's provided via a turnkey provider. Turnkey providers add value by packaging up all of the things you need in order to start building an real estate portfolio (the asset, financing, insurance, the team, management, etc.) and for that you pay a fee. This all makes sense, provided you like the options on offer.

I ultimately transitioned out of turkey’s since they were increasingly less passive as I scaled, each house you buy carries an admin overhead (applying for financing, getting insurance, filing taxes etc.). I ultimately started investing in multifamily syndications as they offer all the benefits of physical real estate ownership (depreciation, LT cap gains, leverage) but are entirely passive and the team managing the deal have incentives more aligned with yours (they only get paid after they meet performance hurdles and they typically co-invest in the deals)

Multifamily syndications aren’t the only way to invest passively so educate yourself on all the options available and pick the one that works best for you. Good luck!

it has little to do with the value proposition of turnkey vs non. a house is a house is a house.. Turnkey just means that the house has a fresh rehab is usually vacant so you can inspect then a new tenant goes in.. you can jump on MLS and just buy a house if you want with a good agent .. were the risk or value proposition comes in usually is the asset class its self.. IE lower end SFR's or SFR's that are substantially under the median price point of a given MSA and the subsequent risk / reward factors.. I mean if you have a MSA in the mid west were median price point is say 140k or so ( quit common) and your go to the same MSA and buy houses for 50 to 60k.. what does common sense tell you.

the outcomes for many if they just buy nicer product day one IE at the median or a little above is much better long term.. Day one cash flow is probably either very low or neutral but that's not the way to buy property in my mind.. you have to look at IRR and what is it going to be worth at exit in 5 to 7 years.. there is a romanticism with investors especially on this site that think they are buy hold fore ever well properties change hands on average of every 7 to 8 years.. so you need to look a that potential.. granted some that live in the market and decide for better or worse there life mission is to be a hands on landlord for their job.. I can see them owing for ever or long time.. I have run into many in my travels that own 100 to 500 sfr doors in these areas and they have been collecting them for 40 years.. usually all paid for as well.

So turn key not turn key its just depends on what and where you buy as to how your success or lack thereof will be. 

 

@Nick Troutman

You could always buy a fixer on your own with a realtor, and hire a 3rd party property management company to handle it after the rehab. Find an agent that works primarily with investors. He/she can be your boots on the ground to help estimate rehab costs, rents, ARV's, etc. It's more work, but worth it.

Originally posted by @Jay Hinrichs :
Originally posted by @Ronan Donnelly:

@Nick Troutman , I started with SFH's provided via a turnkey provider. Turnkey providers add value by packaging up all of the things you need in order to start building an real estate portfolio (the asset, financing, insurance, the team, management, etc.) and for that you pay a fee. This all makes sense, provided you like the options on offer.

I ultimately transitioned out of turkey’s since they were increasingly less passive as I scaled, each house you buy carries an admin overhead (applying for financing, getting insurance, filing taxes etc.). I ultimately started investing in multifamily syndications as they offer all the benefits of physical real estate ownership (depreciation, LT cap gains, leverage) but are entirely passive and the team managing the deal have incentives more aligned with yours (they only get paid after they meet performance hurdles and they typically co-invest in the deals)

Multifamily syndications aren’t the only way to invest passively so educate yourself on all the options available and pick the one that works best for you. Good luck!

it has little to do with the value proposition of turnkey vs non. a house is a house is a house.. Turnkey just means that the house has a fresh rehab is usually vacant so you can inspect then a new tenant goes in.. you can jump on MLS and just buy a house if you want with a good agent .. were the risk or value proposition comes in usually is the asset class its self.. IE lower end SFR's or SFR's that are substantially under the median price point of a given MSA and the subsequent risk / reward factors.. I mean if you have a MSA in the mid west were median price point is say 140k or so ( quit common) and your go to the same MSA and buy houses for 50 to 60k.. what does common sense tell you.

the outcomes for many if they just buy nicer product day one IE at the median or a little above is much better long term.. Day one cash flow is probably either very low or neutral but that's not the way to buy property in my mind.. you have to look at IRR and what is it going to be worth at exit in 5 to 7 years.. there is a romanticism with investors especially on this site that think they are buy hold fore ever well properties change hands on average of every 7 to 8 years.. so you need to look a that potential.. granted some that live in the market and decide for better or worse there life mission is to be a hands on landlord for their job.. I can see them owing for ever or long time.. I have run into many in my travels that own 100 to 500 sfr doors in these areas and they have been collecting them for 40 years.. usually all paid for as well.

So turn key not turn key its just depends on what and where you buy as to how your success or lack thereof will be.  

Couldn't agree more. I always try to stay close to the median. I see so many people buying dirt cheap turnkeys thinking they got a steal. And then they get slammed with turnovers, evictions, etc... its like what did you expect?

 

Originally posted by @Jonathan Oh :
Originally posted by @Jay Hinrichs:
Originally posted by @Ronan Donnelly:

@Nick Troutman , I started with SFH's provided via a turnkey provider. Turnkey providers add value by packaging up all of the things you need in order to start building an real estate portfolio (the asset, financing, insurance, the team, management, etc.) and for that you pay a fee. This all makes sense, provided you like the options on offer.

I ultimately transitioned out of turkey’s since they were increasingly less passive as I scaled, each house you buy carries an admin overhead (applying for financing, getting insurance, filing taxes etc.). I ultimately started investing in multifamily syndications as they offer all the benefits of physical real estate ownership (depreciation, LT cap gains, leverage) but are entirely passive and the team managing the deal have incentives more aligned with yours (they only get paid after they meet performance hurdles and they typically co-invest in the deals)

Multifamily syndications aren’t the only way to invest passively so educate yourself on all the options available and pick the one that works best for you. Good luck!

it has little to do with the value proposition of turnkey vs non. a house is a house is a house.. Turnkey just means that the house has a fresh rehab is usually vacant so you can inspect then a new tenant goes in.. you can jump on MLS and just buy a house if you want with a good agent .. were the risk or value proposition comes in usually is the asset class its self.. IE lower end SFR's or SFR's that are substantially under the median price point of a given MSA and the subsequent risk / reward factors.. I mean if you have a MSA in the mid west were median price point is say 140k or so ( quit common) and your go to the same MSA and buy houses for 50 to 60k.. what does common sense tell you.

the outcomes for many if they just buy nicer product day one IE at the median or a little above is much better long term.. Day one cash flow is probably either very low or neutral but that's not the way to buy property in my mind.. you have to look at IRR and what is it going to be worth at exit in 5 to 7 years.. there is a romanticism with investors especially on this site that think they are buy hold fore ever well properties change hands on average of every 7 to 8 years.. so you need to look a that potential.. granted some that live in the market and decide for better or worse there life mission is to be a hands on landlord for their job.. I can see them owing for ever or long time.. I have run into many in my travels that own 100 to 500 sfr doors in these areas and they have been collecting them for 40 years.. usually all paid for as well.

So turn key not turn key its just depends on what and where you buy as to how your success or lack thereof will be.  

Couldn't agree more. I always try to stay close to the median. I see so many people buying dirt cheap turnkeys thinking they got a steal. And then they get slammed with turnovers, evictions, etc... its like what did you expect?

 

they just don't know what they don't know..  And for most they live completely different life's and lifestyles as the blue collar mid west cash flow tenant.. that's just a fact.. you need to move up to better tenants to have better results most of the time. 

 

@Nick Troutman . Hello Mr. Nick , look at the numbers and if after you pay the price and have an experienced PM on board and you still are making a good net profit why not. I know it is scary but there are places that still make a nice return on their money . Make sure the properties are in great shape and the numbers are correct , talk to some of the tenants that are leasing. I sell turnkey properties but offer them a PM that know the properties . Also my PM also do all maintenace and repairs that know the properties . You will have turnover and repairs that tenants destroyed but that is part of the business. You can make way more with your money this way than other investments and they keep giving. You might want to look for a property that the seller is retiring they usually sell there properties in good shape and usually around the properties later if you need to help . Hope this helps Good Luck

Honestly I wouldn't touch them. They seem over priced for what you get.

Also, I bought out of state and have a pm and it takes me about 1 hour per month to go over statements and do my book keeping.

I just don't see the advantage.

Am i going to clean my house myself, hell no gross i hire a cleaning lady

Am i going to change my oil myself, hell no gross i go to jiffy lube

Am i going to buy a rental in the midwest and rehab and manage it myself, hell no gross i outsource to a turnkey provider

Originally posted by @Nick Troutman :

I want to get into rentals for some passive income, but I travel 6-10 months out of the year and cant manage them myself. I am intrigued by Turn Key rentals. Can anyone give me some of your personal opinions on whether turn key rentals are good or bad idea? I can see the upsides for my lifestyle, but what are the negatives or downsides that I might be missing. Thanks, Nick

Regardless of what type of RE you choose to go with, hiring a property manager or investing in a syndication will allow you to travel as much as you want because someone else will manage your property.