Yearly Update - My TURNKEY portfolio 2017

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Hey all - I did an update on my Turnkey Portfolio for 2016 here: https://www.biggerpockets.com/forums/311/topics/40...

and it was a big hit so I figured I'd do it again for 2017! NOTE: I own OTHER properties that are NOT Turnkey including everything from SFR to Commercial, BUT this is JUST to discuss my Turnkey portfolio specifically. I do this because there are so many questions about TKs for beginning investors so I thought it would be good to go through this and answer any TK specific Qs that anyone has.

I own Tks in 2 markets, Indy and KC. One of the ones in KC I sold so I am leaving that one out altogether.

All of them were purchased with 70-75% LTV.

Indianapolis properties - I bought ALL of these properties in mid - 2015, at the end of 2017 I did a cash out refi and the property values had gone up about 25% across the board in appreciation. That roughly equates to what I had down + closing costs in to buy these properties! I hear a lot about turnkey and appreciation - BUY IN A NEIGHBORHOODS that are close to the median house price!

Cash on Cash returns

Property A - 5% (Had a turn that cost one month rent, one month in lease up fees, and then almost another month rent in the turn as this tenant lived there for almost 3 years.)

Property B - 27%

Property C - 18%

Property D - 17%

Blended CoC - 16%

IRR (For the sake of this, just cash on cash + principal paydown (before the cash-out refi's) went into this calculation)

Property A - 10%

Property B - 33%

Property C - 22%

Property D - 21%

Blended IRR - 21%


Factoring a cash out is always tough where to place it when looking at returns, yearly the returns would come out to 41%, 73%, 105%, and 100%, but really, with the money I've made and taken out I've already made back all of the money down into my pocket and then some so over 100% cash on cash overall.

The crazy thing about the refi was that not only did I take money out, but the amount my payment increased over 30 years is LESS than what I took out due to lower interest rates now.


Kansas City Property - 

Cash on Cash - 3%, IRR with above metrics - 7% - This property is the most expensive TK I've ever bought, it's a nice property with low issues, but once a turn hit, the property just took a while to rent back out.

Turnkey isn't exactly TURNKEY and PASSIVE like everyone thinks. Due diligence is really important and it still takes some tracking and staying on the PM to make sure everything is done properly. There is NOTHING more important than your feet in the street when buying turnkey and the PM you use. For that reason alone, my investing strategy for 2018 includes only buying more in Indianapolis at this point with most or all of it being turnkey (that of course could change.)

And please, don't try to get rich quick, slow and steady is the best way to do it, don't get burned on a D grade property from across the US that you bought for $40K and rents for $700/month and think you won't have issues and will become a millionare over night.

If any property or TK specific questions, please ask away!

@Lance Robinson   great post congrats on identifying the logical aspect of landlording IE buy quality and buy close to the median in a given MSA... do not buy the bottom on the Median.

this is quite inspirational to the future or present investor.. !!!!

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Originally posted by @Jay Hinrichs :

@Lance Robinson  great post congrats on identifying the logical aspect of landlording IE buy quality and buy close to the median in a given MSA... do not buy the bottom on the Median.

this is quite inspirational to the future or present investor.. !!!!

 Thanks Jay! I should add that I learned about how to buy turnkey the right way from you! We had a great phone conversation about buying close to the median and I ran the numbers and realized that was a HUGE factor in separating the investments that did well vs those that didn't (whether TK or not)

And also helped me to decide to buy more TK responsibly and having debt pay down in my near term plan. (I plan on buying my first property with CASH this year as well)

So big thanks to you sir!

@Lance Robinson   thanks Lance  now if I could just get my wife to listen to me  LOL>..

anyway congrats and will let others jump on here so you can pay it forward and help others make the right decision and ensure their invest do well like yours have..   !!!

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

Good job!

I am curious how you figure out returns when your cash outlay is nothing? That is one thing I struggle with on a few of my properties as I have refinanced some as well.

It would be great if you could provide the info on what TK providers and PM companies you have used

@Lance Robinson

Great post Lance, very informative and great insight!  So to clarify, you bought these from a TK provider and by nature of doing so, paid basically full market value for these properties...and in a mere two years you were able to get pretty much all your cash Back out from that much appreciation??  Wow. Don’t hear that often with a lot of the types of properties people are buying from TK.  I have a flip going in Indy right now - what part of the city are you investing in?

I'm going to show off how horrible I am at math right now. It had not occurred to me to continue calculating ROI after purchase, although it makes a ton of sense. I tried to google the best formula to use and came up with NOI divided by total cash initially invested. Does that sound right?

So for my example, I purchased a property with $19,716 total in to make the deal happen. After a year and a half, the total cash I have made, minus actual expenses is $4,132.92. So if I am calculating correctly I am coming up with .2096, which is essentially a 21% ROI, right? So this is my actual ROI thus far for this property.

When I initially run my numbers, I account for putting money aside for vacancy, capex, maintenance, etc on a monthly basis, and my ROI looks like it will be much lower. For this one, I had calculated a 9.68% ROI when I purchased.

Would love some feedback on if I am doing this correctly.  Thanks for the inspiration @Lance Robinson .  I'm going to start tracking these numbers yearly as well.  

@Lance Robinson I'm very interested in how you evaluated your Turnkey Providers, and if hindsight has shown you that there were any warning signs about the TK provider where you had a negative experience?

I'm working on choosing a market and deciding between buying from a TK provider and just interviewing PMs and buying from the MLS.

What advantages did you feel you received by buying from a TK instead of on MLS? Especially once you knew the PM from your first deal in Indianapolis, for example?

Oh Geez, if I did this right my other property is performing at a -29% ROI and we had anticipated a 6.66% ROI. Way too many expenses have come up on the 2nd property, including a tenant turn, replacing all of the windows, rodent maintenance...and now to start out 2018, a new HVAC is needed. Hooray for Capex repairs!

Thanks for the great input everyone! I LOVE talking real estate, so here it goes...

@Kyle M. Absolutely! I've really loved Indy!

@James Woodrich THanks! So you can really show numbers however you want, you can even cheat it if you really wanted to...I take what I put into the property as my baseline amount (down payment plus closing costs) then I take my net money made (easy, just take my owner draws from the PM company less my mortgage payment) and divide that number into it to see my YEARLY Cash on cash return. Then I look at my principal balance on Jan 1 and then the principle balance on December 31 to get the principal paydown to see my IRR (I don't factor depreciation or taxes into this number, just my returns both in property and cash - and no I don't count appreciation either, this is just me personally. It's easy and gives me what I'm looking for.) I also run the cost basis on the property (what I bought it for) and what I've made in cash to see what my cash return would be had I paid cash (I don't adjust for appreciation) because I want them paid off one day and like to see how that net performance after escrow payments looks. In terms of refinancing, I just look at the numbers the same and will continue to look at the initial amount invested because that's what's most important to me. I side note the refinance and earnings out of it as a true bonus. Again, just me.

@Ned Jackson I'm trying to stay away from posting anything on the forums so nothing is taken as advice of who to use, but shoot me a message and I can recommend a couple people to you.

@Tae C. Yes, that is correct. I own in the west outside the loop, south one just inside and one outside the loop, and east outside the loop. I try to buy near the median MSA and when you do that good things happen. On paper, they didn't appear to be the best buys compared to the $50K houses renting for $800 but they have outpaced those by 10 fold!

cont'd...

@Samantha Soto look at my previous post for math. You should just take down payment + closing costs and divide the NOI into it for your cash on cash return (owner draws - mortgage and escrow payments) for Cash on cash. Deduct yearly principal paydown for cash on cash + principal rate. If you want to figure tax, depreciation, or appreciation, go for it...All depends what and how you want to track. Yes that is right, but that is over 1.5 years, so I like to see my ANNUAL return, 21% in 1.5 years for cash on cash is good though!

I always run initial numbers with vacancy, pm, maintenance, etc. and then I like to look at all of my real properties real time every year to understand the bigger picture. There is much more than just numbers. Let me know if you have any other Qs would love to help more, I love math riddles : )

For your second post, sometimes this stuff takes time, don't expect returns immediately depending on property!

@Sean McCluskey Hindsight showed me a lot about the bad one (ones, I've had 2 bad TK experiences now.) Due diligence is king, seeing the market, properties, meeting them, and meeting the PM is SO important also. I see very property that I buy.

So in Indy for instance, I can buy a $120K house that has a tenant in it and ready to go. If I bought the same price range, maybe I could get one for $110K that needed $3K of work and then had to find a tenant and pay a lease fee. How much did I really save for the headache? Small numbers mean small margins. With that said, if it was orange county, that could be $1.2M, and the $10K savings could be $100K and the$3K could be $30K, then the numbers are big enough to look differently. I'm talking with an agent now as well but can't get the headache and numbers to work well for me, I LOVE as passive as possible. This is an investment not a business for me though. I've owned 4 plexes in LA, Houses in the bay area, new construction, and 22 units in C neighborhoods, I've really touched it all.

Bad signs are when they are too pushy, sell properties that seem like too good of deals, when they force there inspector on you, etc. Question everything, see all. Let me know if you want more specific info.

Turns out I did do my math wrong on the second property. I had forgotten we received a $5k seller credit at closing. So instead of my NOI being -4422.03 it was actually $577.97. Our ROI was actually 3.8%, still not great, but a lot better than -29%!

So @Lance Robinson when you calculate it each year, are you only looking at the NOI from that particular year, or total NOI since you have owned it? If you ended 2017 in the red on a property, do you start 2018 with a clean slate, or still in the red for your NOI?

@Lance Robinson You've just confirmed what I've been saying about Indianapolis and Kansas City a along and why I like these markets so much. You've done it right which why you've had such positive results. You've done your due diligence and you've bought the right class of properties. These results can be duplicated by any investor willing to put in the time and not fall for the phony returns of cheap, low end properties. I challenge any out of state investor with a portfolio of those types of properties to do the kind of analysis you've done and see if they come close. Good job Lance!

Mike D'Arrigo, Pinnacle Investment Properties, LLC | [email protected] | 800 348‑0956 | http://www.investwithpinnacle.com

@Lance Robinson
I know how to calc returns, I was just curious on how you got to those returns for your properties since you said you cashed out and got most of your cash out.

I'm curious if you have a way to calculate a return with a $0 basis or how you plan on determining your return going forward.

@Samantha Soto I only look at the particular year ROI personally. So it may be down 15% then up 21% then up 10%, etc. You can track however you want though, but annual returns are a good measure. You can keep those statistics and then run a blend to see what you're averaging yearly if you'd like as well. I think a yearly average is what you are really looking for.

@Mike D'Arrigo Thanks! Shiny Object syndorme : )

@James Woodrich So I keep my cost basis on them and then just add that to the return, I look annually and then averaged out. If I bought stock and it doubled and I sold half, I would still keep my cost basis to calculate my return. It's the same as a 25% CoC 4 years in a row, you wouldn't change your money in to 0, you would say your return is 100%, so I track it that way and track all my properties across and against my portfolio and use that to make decisions on buying or selling. This is really just "truing up" the IRR.

Thanks for clarifying.  i wasn't sure the best way to track my yield on properties that I have cashed out of.

This is my first post on BP. I am a rookie in REI and this information will help me in my education.

Thanks @Lance Robinson for your sharing your expertise!

@Lance Robinson , this is one great thread! My head is spinning bc I am still in my first year so too early to draw any conclusions.

How do you determine whether the price is close to median? I purchased 2 tk properties in Indy and both are in similar neighborhoods but the price delta was 30K. I have no idea if I got a great deal below market with one or perhaps I paid median for it while overpaying for the other. When I try running comps, they are all over the place.

Appreciate you feedback!

Hey @Lance Robinson congrats and thanks for sharing. I recently purchased a turnkey rental myself near Cleveland but curious to hear why 40k with $700 rents are bad investments? Is it b/c the quality of tenant? Bad neighborhood? Higher vacancy rate? All of the above? Would love people's take on this! -Jason

“...I LOVE as passive as possible. This is an investment not a business for me though.”

Thank you @Lance Robinson for the above statement.  For months I’ve been struggling on how I should begin getting involved in investing and whether in buy TK or not.  I’ve been doing so much reading on other types of investing, as well as TK pros and cons on BP, that I felt myself losing focus.  

I want the properties that I buy to be an investment, I’m not looking to start a business, and I want to be as passive as possible.  So, again thank you for your statement because it has helped me to refocus on my goals in real estate investing.

@Damaso Bautista No problem! If you have any Qs please ask away.

@Lane Kawaoka It's really not for everyone. It is, however, for me. I'm doubling down on TK this year. The "passiveness" and returns from it can't be beat against other investing I've done. $20K? What happened?

@David Khalfin Glad it was helpful! You can search the median home prices for a metro area, it's not too difficult to find. $30K delta could be a lot of things, similar neighborhoods doesn't mean same location. Shoot me a DM and I can help with the median home data and if you want to send me your property addresses and any questions I can look and try to help. ALWAYS do your due diligence, that should include seeing the property and neighborhood.

@Jason Pabon Thanks and of course! Oh boy... Who would want to live in a $40K house? Who can only afford $700 in rent? Bad quality of tenant = lots of turnover (every time they move out you lose a month rent with the PM + a month of vacancy because people really only move in on the 1st or a few days before), high eviction rates - 1 bill away from bankruptcy, literally, you add the eviction costs and process to that turnover and it gets bad.  They usually leave the place TRASHED. I've had SOME bad experiences with this. They don't care about their belongings and leave it in a hurricane disaster. On top of that, there won't be any apprecition - in fact, if the home is $40K today in the best real estate market we've ever seen, chances are that it will be worth even less in the years to come, maybe even 0.  Especially since Cleveland is declining population. Hope that helps, we can chat more if you'd like.

@Elizabeth Garcia I struggled with that for a long time, then I realized I didn't have the bandwidth to chase better returns. I already have a day job and a side business, I just want to put my money somewhere to get better returns. Although in fairness, the stock market returned better than my RE last year. Way more passive, but you don't get the cash on cash the same way.

@David Khalfin   @Lance Robinson   Lance thought I would pop in on the Median question David asked.

David any decent realtor can access this information right off of the MLS system..

so what we want to look for is the Median sold in a given MSA... also google probably has it too.. you know they have everything..  that just gives you kind of a break were the homeowners are buying.

Way below median and those are renter dominated way above is going to be homeowner dominated and right at the median you go either way.. and pick the right one's your rental can get caught up in an upward momentum instead of way below were your VALUES are only as good as your rent/risk.

Lance sorry for jumping in.. but thought it would help.

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

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