I think the take away from this thread is that some people obviously do not like Turnkey, but it is a necessary service for several investors who have no desire to buy, renovate, find tenants, manage, etc. Basically they want as passive as they can get.
What I do not get is Aaron's statement: "That is how turnkey sellers suck you in. You think by buying a house for $60, $80, or $100K you're getting a "good deal" because houses here are priced so much higher." That statement would imply that all Turnkey providers are not being truthful up front and they this whole model is a gimmick. I am sure there are some that operate that way, but to assume the need to sell on a gimmick is simply not true. As I told the guy in my office yesterday and I will say it now and I will put it in bold. If you are looking for a large equity position, you will probably not get it when buying Turnkey. In most cases (not all) it is simply not possible. Why? Because we have to buy a house that is discounted already (and for anyone buying foreclosures, the discounts are not nearly as great now as they were), take ownership of it, fix it up, hold it, then sell it for a profit. The only way to get equity is to scale back on the rehab which is not doing the buyer any justice at all since this model is designed for a long term hold. I will say this in bold too. If you want to buy, hold and sell in 7 to 9 years, then this is not for you and the alternative is to go around the TK model or buy into a REIT. I can't speak for all TK providers, but since my model is designed for long term buy and hold, then I am going to over renovate the home with granite in A+ properties, vinyl plank flooring in high traffic areas, brush nickel faucets, oil rubbed bronze fans, brush nickel cabinet knobs/handles, new vanities, new counter tops, address 98% of the items in the buyers inspection report, thicker carpet and carpet pads in the bedrooms, ceramic tile in showers and bathrooms, new supply hoses on all plumbing connections, update electrical systems, fix/install fences, repair outdoor storage, etc. Why? Because we position these properties to give them the best opportunity to cash flow through lower vacancy (because the houses looks awesome and on average, rent fast) and lower maintenance (because everything is up to date). Anyone who has been to our You Tube page or website can obviously see that our rehabs look awesome.
@Matt R mentions experts in the field typically have 10,000 hours under their belt. How many people who want to invest in real estate, but have a full time job and families have time to do that? Same reason I hired an attorney to do my will last month as opposed to going online through legal zoom. I am not an expert so I rely on someone who is.
Then there is @Dean Suzuki, him and his wife Ellen has been great to work with. He has bought 2 properties from me. He is right, the one on Egyptian Cv have resulted in 2 evictions. Both screened well, but these things happen as people live in rental homes. Things can go wrong with people; I can't recall both instances of why Dean's tenant on Egyptian Cv, but I know one guy lost his job. I think the other lady did too. But all that being said, Dean paid $69,000. There have been 4 investor sales since March this year, the cheapest being $83,000. If he wanted to sell, he could list for $82,900 and probably get $78,000; that is 12% over what he paid. Sure he has to back out fees, but he can also try to sell on sites like Zillow or Craigslist. But here is the kicker, even with the eviction last year, Dean netted $4,397.16, after closing and property taxes, he is still around a 6% return. My IRA returned 2.3% so far this year and after last week and today, I am likely in the red. There are some old ladies on fixed budgets wishing they can get 6%. This year is struggling, but he still has not lost money and we are moving in a tenant in a week or so. But I agree, for real estate, it should be better and it will get better. I would advise him not to sell because even at selling at a 12% clip higher then he paid 2.5 years ago, after Realtor fees, he would net around $73,000 to $74,000. Which is about a 3 to 4k profit. Even with an eviction last year, he still made more ($4,397). His other property he bought in 4/2013 and still has the same tenant. Last year he had $735 in maintenance (6.25%) and this year he has had $156.03 in maintenance. Rents for $975, he paid $80,900. He paid cash, closing cost was $1,704.33. Total out of pocket cost was $82,604. Tax and Insurance are $2,103. Total return 9.5% last year. This year, he is on pace for 10.2%. How much involvement has Dean been in that 9.5% and 10.2% ---- none. That is not bad at all for a passive investment. BTW, Dean's house is 5434 Rappahannock. 5300 Rappahannock just sold for $114,900 to owner occupant.
Bottom line -- if you want to do it on your own and make the sky high returns that are possible, then I would advise putting in the hours learning to do it and then take action. If you want a more passive approach and are ok with better then market returns (and BTW, most investors come to us b/c they want to get better returns then they are getting in the market. Key word "better", not "slaughter") and have no desire to manage a renovation, then maybe turnkey works for you.
@Aaron Mazzrillo you can't assume that everyone wants the same goals that you do or the same level of involvement. I promise you, just like any industry, there are good and bad. TK is no different and there are TK providers who do look out for their clients.
Focker Out!
