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

56 Replies

@nick troutman Turn key is simply a method of acquiring a rental property. It isn't a strategy. One of the biggest complaints you'll hear is that you over pay for a turn key. That might be the case with turn key companies that only sell to cash investors so be sure to work only with a company that allows financing and an appraisal contingency. Companies that do that can't sell above market value. Also, look closely at the class of properties and neighborhoods they operate in. Make sure that whoever you are working with is aligned with the type of asset that you are interested in. Personally, I wouldn't recommend buying cheap, low end assets in rough neighborhoods, especially as an out of state investor. If that's primarily what a turn key company sells, then they may not be a fit for you. Here are some of the key things to look for and avoid in a turn key company:
* Don't allow financing or a financing contingency
* Don't allow for an independent inspection
* Are not realistic with their pro forma projections
* Require you to pay for renovation upfront
* Sell only in cheap, D class neighborhoods
* Don't accurately represent the neighborhood & property classification
* Don't have consistent rehab standards
Don't provide a scope of work for the renovation
* Require you to close before a tenant is in place.

@Nick Troutman

Hi! I’ve used turnkey investment companies since 2016 and purchased a few. I get decent cash flow for the least amount of work, HOWEVER - I had to evict two tenants last year, deal with legal fees and the costs to fix the place. The hands off approach goes both ways, so although I don’t have a say in most things, that’s bad also, such as the costs to renovate and to be able to approve and qualify a tenant. One turnkey company is St. Louis told me they don’t want to share the details of a new tenant to the OWNER of the property because that goes beyond their process and if they did it to one, they would have to do it to all. I was gobsmacked. And I pay them!

I guess what I’m trying to say is, do your due diligence on the turnkey providers, see what other folks on here have to say about them. Good luck

@Nick Troutman

Definitely possible any one who says all turn keys are bad is just being close minded.

I just closed on my 4th basically turnkey and they rent at 2-4%, depreciation and management cover my taxes as well. All out of state and managed professionally. Doesn’t need to be rented out if it’s in rentable condition your PM should be able to get a tenant in there in 1-2 months.

Downside is the area is not known for its appreciation but I’m in the game for cashflow first, and appreciation after I’ve built up solid passive income streams.

Best of luck on your journey brother!

@Nick Troutman As an agent I get this question all the time.  The best way I've found to think about it is the level of involvement you want to have and then that typically correlates with higher risk and potential for return with the more involvement you want.  If you think about it as concentric circles then the highest level of involvement would be managing the property yourself in a market you also live in, the second would be using 3rd party manager but sourcing your own deals in another market, 3rd circle would be paying others to source your deals and do the work to repair and mange, this is generally the turnkey model and you are naturally experiencing less of the upside yourself as you are hiring out the other parts.  But even turnkey is not totally hands off as you are still responsible for anything that happens to the house whether or not you are paying someone else to deal with it.  A 4th circle for totally hands off would be investing as an LP in other peoples deals that way you can leverage the expertise of the sponsor find and do good deals.  This mitigates some of the risk but also takes away any control you would otherwise have with owning your own house.  A good option might be to talk with a group who can help you with any of the options.  I know @Sean Tagge sells a lot of turnkey properties in Memphis and they also provide 3rd party management for properties all over the Memphis area.  

I started with turnkey a little over a year ago, and it's been wonderful. It gave me both an education and an inspiration for more investing. The best thing about it is that you get properties that make sense from the day you but them. To this end, the best learning I found on turnkey was from @Jason Hartman and his podcast. 

@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.