New Investor from Glendale, CA
Glendale, CA · Member since 2016 · 8 posts · 4 votes
I'm a 52 year old new investor (I guess better late than never). I am leaning towards investing in out-of-state rental properties (either SFH or small multi-family to start) to create some passive income that I can continue to reinvest. I am an entertainment marketing and production exec and love my job so I am not looking to quit (at the moment). I make a good income and am initially looking towards turnkey investments as I've got capital and good credit, but not a lot of free time. I've been listening to the BP podcasts and reading boson RE investing. Starting to do research as to which areas and turnkey providers to contact. Hoping to purchase first property within the next 6 months.
Looking forward to making some great connections here in the BP forums. What a great community.
I haven't made it out to Indy yet. However, with a lot of reading here on BP and other sources I've built a small ground team of realtors, PM and contractor. Over the past 5 months i've made 6 offers, 5 were accepted, I walked from 3 post the home inspection, and closed on 2 that are cash flowing nicely with some built in equity. All have been off the MLS and for the most part turnkey or rent ready.
Thru my readings and analyzing turnkey investments, they don't meet my requirements in working toward the bottom line. i noticed that they will have the TK companies profit built into the price, the proforma often has a lower repair expense %, and none of them factor in CAPEX even on 50-100 yr old properties where it is due. Do your DD and analyze according to your method for what is a great deal. Of course finding great deals off the MLS will be far fewer compared to the bundles that TK companies have on hand, I've searched hundreds upon hundreds of properties and can do a mental assessment of rental comps in a few minutes. Being patient, when the right one comes on the market i can have an offer in within an hour and my realtor on site shortly after.
Best to you.
Hi Mitchell - I'm also in the entertainment industry and completely understand your lack of time to focus on RE investing. I've been in and out of rental properties; at the moment I'm out.
I think it's smart for you to look outside CA for turnkey properties as the entry price points here in So Cal are off the charts.
I bought a turnkey , brand new sfr, in a development in Lancaster right before the crash. Dumbest thing I ever did for a variety of reasons. Ultimately I lost the property and my credit has been horrendous for almost a decade. The point being you need to heavily scrutinize an area and the investment if you're going to pay turnkey top dollar for an investment property.
Anyway you probably already knew this but just wanted to share my cautionary tale.
Happy to help further if I can
Welcome Mitchell. Which market are you looking at?
If you do buy from a turnkey provider I would advise you to make the trip out to see the operation. Plenty of these turnkey providers are scamming out of state investors who are buying inventory in worse than advertised neighborhoods, with terrible rehabs, site unseen. Turnkey providers tend to have inflated prices. In my experience I saw properties they were selling at tens of thousands above anything else comparable in the neighborhoods. They claim inflated rents above what is realistic long term. Even if they actually have a tenant in there at higher than market rent, you will have problems when that tenant moves out. They try to shoot for the highest possible rent to make their proformas look good and so that they can charge a higher sales price. You can try to ask an independent property manager to check rental rates for you to make sure that the rent isn't inflated. Also the proformas that they will show you are usually too optimistic, leaving out lines like capital expenditures, anticipating too high of appreciation, too low of vacancy, etc.
So do your due diligence and visit the operation or you are making a big mistake. And if you make the trip out to a market that you are interested in, you will probably find that you can find better value right off the MLS. You will have an agent thats on your side, rather than buying from a provider without representation. Part of appeal of turnkey is that the property comes with a tenant in place. The property management they use is a part of their team though. Making a conflict of interest on getting any tenant they can find in there at that highest possible rent. I'd rather get an empty property and find my own independent PM. My two cents. Good luck!
Hi Mitchell - I'm also in the entertainment industry and completely understand your lack of time to focus on RE investing. I've been in and out of rental properties; at the moment I'm out.
I think it's smart for you to look outside CA for turnkey properties as the entry price points here in So Cal are off the charts.
I bought a turnkey , brand new sfr, in a development in Lancaster right before the crash. Dumbest thing I ever did for a variety of reasons. Ultimately I lost the property and my credit has been horrendous for almost a decade. The point being you need to heavily scrutinize an area and the investment if you're going to pay turnkey top dollar for an investment property.
Anyway you probably already knew this but just wanted to share my cautionary tale.
Happy to help further if I can
My experience has been just about the opposite. I bought a bunch of cosmetically run down properties in decent neighborhoods in Lancaster right after the crash ... one of the smartest things I did for a variety of reasons. Ultimately I kept the property and the value has more than doubled and cash flow all the while, also increasing every year. The dumbest thing I probably did was selling my property in Glendale after it doubled in value and rents; that and chasing cash flow out of state in Phoenix. Sorry you had a bad time locally Chet, but this has not been my personal experience. I wish you better luck with your out of state turnkeys.
Welcome to the site @Mitchell Rubinstein
Welcome to Bigger Pockets. The Bigger Pockets book store if full of great books: https://www.biggerpockets.com/store
Thank you all for the great feedback. Had no idea I'd get this many responses to my first post! I've been leaning towards turnkey because I work 60+ hours a week at my day job and just don't have the time to dedicate to a ton of additional work on the RE side. I will definitely heed all the warnings mentioned here. Will definitely take a trip to visit any operation I decide to invest in and plan to do my own number crunching until I find a deal that works. If anyone has any other suggestions rather than out-of-state turnkey that I can look at without a big time commitment, I'm all ears.
I used an agent. Looked at 12-13 properties in one day. Identified the one I liked the most. Made an offer and it was accepted right away. Hopped back on a plane to Los Angeles. The agent ran sales comps, and I asked several PM's to give me a rental estimate. I bought for $113K in an upper middle class, suburban neighborhood. 2001 construction, brand new roof, paint, carpet and appliances. It should rent for around $1200. Maybe more if it were spring or summer. REAL numbers. Extremely easy. For $113K from a turnkey you won't find anything in this neighborhood. Yes they might sell you something for $113K in a B- neighborhood, built in the 1950s worth $90K, and tell you that rent is $1200 when the comps really suggest $1000 rent.
I wanted to become an investor & learn the business without a large amount of time commitment. I became a private lender for a rehabber in Los Angeles. Perhaps you could find a rehabber in Glendale & partner with them where you fund part of the project in return for part of the profits. The time commitment is in the front end-analyzing the deal, meeting with your attorney to make sure everything is recorded properly etc. it's the best return on my time that I've found. Good luck.
Hi @Mitchell Rubinstein, I help many of my clients invest into multi-family properties across the country. If you're an accredited investor you might consider investment into DSTs. They are hands-off, institutional grade real estate investments, and they allow you the option to diversify. You can buy into institutional grade $50-125M projects with as little as $100,000. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse.
@Mitchell Rubinstein Welcome to BP! Since you are leaning toward turnkey I thought I would throw my two cents in. Firstly, I would like to second some of the comments of @Dustin Cook regarding the importance of due diligence.
While I definitely agree that turnkey is a great REI choice for those who do not have the time, experience, or inclination to self-manage properties or flip, it is an investment like any other and you owe it to yourself to really put in the legwork necessary to find a team you trust. Dustin is right that there are a lot of so-called providers out there who are really looking to saddle out of state investors with an overpriced property and then essentially drop the ball.
You should visit any operation you are seriously considering, as this can really make a huge difference in your impression of them. You'll find countless stories here on BP of turnkey ops that sound amazing, even have podcasts and a loyal following, but require huge waiting lists just to schedule a call, only accept cash payments, have operations that pale in comparison to their ads when investors actually visit or, amazingly, don't even have offices in the markets in which they purport to be experts. All of these are massive red flags and some of them require an actual boots-on-the-ground visit to suss out.
Regarding some of the other points here about the dangers of turnkey, again, if you don't do your research and ask allllll the questions, then there are definitely people out there that are happy to take your money without really providing value. In your research, it is imperative that you get comfortable with the terminology and performance metrics used to determine a successful turnkey provider and then ask specific upfront questions of any provider you consider. They should provide swift, data-based answers and be willing to walk you through the real ROI math - not just the simplified website math that often excludes key expenses like vacancy and maintenance. If you find a provider that talks the talk, has a shiny website with big promises, but can't or won't walk through these things with you in a timely manner, or gives vague answers, it's time to walk away.
I would also like to offer another vantage point regarding in-house operations like PM etc. For us, the value of doing everything in house is that we benefit ( and so do our clients) from economies of scale. For example, we do our own in house rehab, and use the same fixtures for bathrooms and kitchens in all our properties, which means we can buy in bulk and save on per-property costs. Since our rehabs generally have the same basic components - new like-wood vinyl flooring, new HVAC, updated kitchen and bath, new paint, new tin roofs etc - we can get wholesale pricing on many items and streamline our process to keep man-hours down. The same goes for in-house PM. We manage our own properties, we know the tenant vetting process, how long it takes to get a maintenance call taken care of (typically under 24 hours), and there's never an issues with communication between parties because it's all under one roof. There are lots of opinions on both sides of the in-house issue, and I'm sure you'll read them all. This is just our take on the benefits of this system.
Another of the chief concerns is that turnkey providers inflate prices to make a margin by charging more than market value. If you find a provider that provides recent appraisals showing the price you pay is market value or lower, then you know you're not just lining their pockets. You can also hire your own appraiser if you don't mind the extra cost, and again, a visit to the property and a tour of the neighborhood/city can go a long way to confirming the value of a property without relying on someone else's opinion. Regarding inflated rents, a provider's track record of tenant turnover and average lease length can tell you a lot about that. You should also ask about their average rents to get an idea of what is actually attainable. In the end, a good turnkey provider wants you to be more than satisfied with their product because unhappy customers are vocal customers and the power of a glowing referral to other investors is important in this business. So if things don't add up or there are a lot of caveats when you ask specific questions about rent rates and tenancy, then I would think twice.
Ok this is already a massive wall of text, so I will finish with this list of questions you should be asking any turnkey provider you consider. I've posted these elsewhere as this is a common thread topic, but hopefully these can help you narrow down your options. Answers should be prompt, thorough, and data-based (not estimates or 'oh it's really good'). A good provider will KNOW these numbers off-hand.
1. What are your short, mid, and long-term occupancy rates? Do you track them?
2. What is your annual maintenance rate? Do you defer maintenance? How quickly does the typical maintenance issue get resolved? What do you expect your maintenance rate to do as your portfolio ages and capex items need repair or replacement? (and estimate is ok for that last one, of course, but it should be based on the age of the property and the life expectancy of capex items etc)
3. Does your maintenance rate include move-out costs? What is your average net move-out cost?
4. What is your minimum lease term? What is your average lease length?
5. What is your property management fee?
6. What is your leasing fee?
7. Do you charge any other fees?
8. What is your average time to first lease on a new property? What is the average time between tenants?
9. Can I see an appraisal for the property I am considering?
10. What was done to the property during rehab? What is the expected life on new appliances/flooring etc?
11. How is your ROI calculated and what does it include? Can you walk me through the math?
12. What type of service can I expect once I've made an investment? How do I know when rents are paid, when maintenance issues are resolved? How can I see rental or PM contracts to review terms? How do I get in touch with you if I need something?
In the end, turnkey is primarily about your relationship with your provider. There are good markets all over the country (though of course CA and HI are not ideal, sadly). Focus on finding a team that will answer all your questions, offer information upfront, and walk you through the ROI math - and see what people say about them here on BP. If you find a team you feel good about working with for the next 10+ years and their numbers add up, you're already in a good position to have a successful turnkey investment.
Best of luck in your new RE adventure, it's never too late to start!
Clayton
Welcome to BP @Mitchell Rubinstein. I'm also looking at out-of-state RE investments and will definately heed the cautionary words of @Dustin Cook and @Clayton Mobley. Have been pounding various Indianapolis realtor sites but there are too dang many new and reduced 'almost turn-key' properties to analyse that it's gotten very frustrating. I plan on taking a buying trip to Indy in the very near future and meeting with some contacts on the ground to ensure I'm investing in the right neighborhood, at the right price point that will ensure long term profitability. Best to you.
Hi @Alan Kahanu,
Good luck. I was thinking about planning a trip out there sometime in February or March. Let me know what you find out. Good luck!
Hi @Alan Kahanu..I am in the same boat as you. I have been researching Turnkey companies in the Indiana market for the last few weeks and there are way too many to keep track of. Curious..did you finalize the Turnkey company you will invest with?
@Alan Kahanu Let me know if you need a reference for Indianapolis. We invest with a very high quality operator in that market and have been very happy.
I haven't made it out to Indy yet. However, with a lot of reading here on BP and other sources I've built a small ground team of realtors, PM and contractor. Over the past 5 months i've made 6 offers, 5 were accepted, I walked from 3 post the home inspection, and closed on 2 that are cash flowing nicely with some built in equity. All have been off the MLS and for the most part turnkey or rent ready.
Thru my readings and analyzing turnkey investments, they don't meet my requirements in working toward the bottom line. i noticed that they will have the TK companies profit built into the price, the proforma often has a lower repair expense %, and none of them factor in CAPEX even on 50-100 yr old properties where it is due. Do your DD and analyze according to your method for what is a great deal. Of course finding great deals off the MLS will be far fewer compared to the bundles that TK companies have on hand, I've searched hundreds upon hundreds of properties and can do a mental assessment of rental comps in a few minutes. Being patient, when the right one comes on the market i can have an offer in within an hour and my realtor on site shortly after.
Best to you.
@Alan Kahanu inspiring reply!
It would be very useful for novices like me knowing what are your criterias for quick mental assessment in Indy, beyond the obvious ones that is.
Regardless, thank you.
I forgot to mention another key player I found is a great local lender/bank. I'm purchasing using conventional 30 yr loans for now. Hopefully will get to the point where I will use private lenders to finance substantial value added properties.
@Alan Kahanu thank you! I've been doing that mental exercise for a while now and I think I'll be ready for prime time at some point soon, I mastered most of the math :)
Thanks again!
I forgot to mention another key player I found is a great local lender/bank. I'm purchasing using conventional 30 yr loans for now. Hopefully will get to the point where I will use private lenders to finance substantial value added properties.
Good luck on finding your TK provider! I hope it works out!
Alan,
You're correct about TK companies and your bottom line. You definitely pay more for their "all in" services they provide. My suggestion to you and Abhishek is to find companies that provide all of the tools you need to invest out of state. Find someone who offers a contractor, property manager and a realtor for flipping. There are companies like that out there and we're one of them. You'll find that your overall cost is much less. Of course you have to be careful with your choice, but you'll bring more money down to your bottom line. I would also bet that the rehab jobs will be of higher quality as well, which lowers your maintenance fees. I'm not saying TK companies are bad. Everyone has their niche. But there are other choices out there. Do a little bit of research and I'm sure you can find reliable sources throughout most of the country. Best of luck.
Mitchell,
It's great to see that you've decided to join the real estate investing community. I work with new investors everyday helping them with their investing goals. I get 30-40 properties a month from fix and flip to buy and hold. Most individuals are hesitant to invest out of state but for rentals, however out of state is often the best properties. I would love to connect with you to help you find your first (of many) long term rentals.