Super newbie, looking to start with a Turnkey provider
Washington, DC · Member since 2018 · 35 posts · 11 votes
Super newbie, looking to start with a Turnkey provider
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Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
8yOriginally posted by @Lara Chinarro:
Hi everyone!
After listening to a lot of podcasts and reading lots of threads, I am very excited to be writing here!
I am starting my research for a good turnkey provider. I am in the DC area, so investing locally is out of the question, but would like to start investing in real state.
We have some money for either a couple/three of down payments or a cash purchase. I know many turnkey providers work only with cash buyers. Should we go for those or try to find the ones who would let us use some leverage?
Nice to meet everyone!
Welcome to the site Lara. You should definitely use leverage. The ability to use financing is one of the things that makes real estate investing so unique. You can't walk into your bank and ask for a loan to buy bitcoin or invest in the stock market. However you can absolutely and should absolutely walk into your bank and ask for a loan to buy real estate. The loans you can get on real estate investments also happen to be the best loans there are. They are 30 year terms and come with low tax deductible interest rates. Literally the best money you can borrow.
As for working with a turnkey provider investing out of state specifically it's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
- Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
- Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
- Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
- Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
- Make sure your property manager is a licensed real estate brokerage.
- Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
51 Replies
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes8y
Id suggest listening to the most recent BP podcast with Paul Morris who holds the same view I do.....invest in the locations you know. Investing in some location you dont adds huge amounts of risk. If you have enough money to invest with cash out of your area, then you certainly have enough money to invest with leverage right here in the DC area.
District Invest Group545 Reviews - Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Hi!
Thank you for that super quick response!
The issue is, nothing that I have seen around here would even be close to the 1% rule. Maybe the 0,5% rule... Everything is so expensive! Are there any markets that we are missing? Also, we have no experience, time or interest in property management. This is why we were thinking a turnkey provider was the best solution for us. Are we not considering something basic?
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes8y
Originally posted by @Lara Chinarro:
Hi everyone!
After listening to a lot of podcasts and reading lots of threads, I am very excited to be writing here!
I am starting my research for a good turnkey provider. I am in the DC area, so investing locally is out of the question, but would like to start investing in real state.
We have some money for either a couple/three of down payments or a cash purchase. I know many turnkey providers work only with cash buyers. Should we go for those or try to find the ones who would let us use some leverage?
Nice to meet everyone!
Welcome to the site Lara. You should definitely use leverage. The ability to use financing is one of the things that makes real estate investing so unique. You can't walk into your bank and ask for a loan to buy bitcoin or invest in the stock market. However you can absolutely and should absolutely walk into your bank and ask for a loan to buy real estate. The loans you can get on real estate investments also happen to be the best loans there are. They are 30 year terms and come with low tax deductible interest rates. Literally the best money you can borrow.
As for working with a turnkey provider investing out of state specifically it's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.
- Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
- Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
- Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
- Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
- Make sure your property manager is a licensed real estate brokerage.
- Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.
- San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes8y
@Lara Chinarro Definitely get in touch with @Ali Boone if you're interested in this niche. She's got extensive experience in the area and has written on it for the BP blog. Hope that helps!
- Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes8y
Disclaimer: I'm a partner in a TK company...
Hi @Lara Chinarro - We sell only cash, but it allows us to pass along better deals to our investors. That does not mean you shouldn't use leverage. Many of our investors will do a cash out refi after a brief seasoning period, and are able to draw cash out to buy their next one.
As @James Wise pointed out, investing OOS is not that scary if you work with the right provider. If they are providing good documentation of processes along the way, inspections, warranties, etc, you will do fine.
- Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes8y
Originally posted by @Lara Chinarro:
Hi everyone!
After listening to a lot of podcasts and reading lots of threads, I am very excited to be writing here!
I am starting my research for a good turnkey provider. I am in the DC area, so investing locally is out of the question, but would like to start investing in real state.
We have some money for either a couple/three of down payments or a cash purchase. I know many turnkey providers work only with cash buyers. Should we go for those or try to find the ones who would let us use some leverage?
Nice to meet everyone!
Hello and welcome! Investing with a Turnkey provider when you live OOS can be a great way to earn a decent ROI!
Make sure you go with a TRUE provider, and not some agent that uses the MLS. Also, I would hope they are not CASH ONLY, that just makes me think they are afraid of appraisals.
Try looking at:
The Best Types of Markets for Profitable Turnkey Properties
and
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
@James Wise:
Thanks for all this information. I am still researching the market and therefore the provider. I think I have a long laundry list of to do's after that!Thanks! I hope to learn a lot here!
@Rachel H.
I did contact hipster, but it seems that they are not a turnkey. They referred me to another firm, who is also not a turnkey provider! That seemed too confusing to me, specially when I read the reviews of the actual turnkey in the area I was looking into (ABC properties)
@Tom Ott:
I am actually looking into Smartland. I talked to someone in your team and was very impressed with the clarity of the conversation, and the options I had. Definitely still under consideration!
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yLara Chinarro I’ve bought turnkey in Memphis, so if you have any questions about that market I can probably help with that. Good markets for turnkey are Cleveland, Memphis, Birmingham, Indianapolis, Milwaukee, Jacksonville, and more. If you go this route make sure the property management is under the same company as those that buy, rehab, and sell and that it’s not a third party. I would advise that you find a company that doesn’t use high pressure sales tactics and that allows for an appraisal contingency. Buying at fair market value is one thing, buying significantly above it is another. Understand that this strategy can limit your exist strategy and that you may need to hold it 5-10 years unless the market appreciates a lot.
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Caleb Heimsoth:
Lara Chinarro I’ve bought turnkey in Memphis, so if you have any questions about that market I can probably help with that.
Good markets for turnkey are Cleveland, Memphis, Birmingham, Indianapolis, Milwaukee, Jacksonville, and more.
We are in the DC area and have contacts in MI, so we were thinking probably OH would be best for us, since we can have "eyes" on the property if needed, with short notice.
However, maybe it is just not necessary if the provider is great and I just need to do a good due diligence. And go for the best market, wherever that is!
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Lara Chinarro Welcome to BP! I would love to second @James Wise , as usual - keep those notes in mind. Don't get sucked into sub-$50k properties because you can buy more than one and the returns seem amazing, C and D properties are way more risk than they're worth for an out of state first-timer.
I also agree that leverage is one of the most powerful tools at your disposal. The beauty of leveraging a buy and hold investment is that your tenants end up buying you 75-80% of a property. Turnkey is a long-term investment focused on cash flow, so you let your tenants pay off your loan, you pocket the net income for a while, and then eventually the property is paid off and your cash flow balloons, usually around the time you really need it for retirement. One of the strategies our clients use when they don't need the income right away and are in a position to buy multiple properties is to use alllll the cash flow to pay off each loan in turn, resulting in free and clear properties much more quickly and less total interest paid. If you still don't need the income, refi, reinvest, and repeat, leapfrogging your portfolio until you need the rental income.
The question of which turnkey company is best for you comes up all the time, so I won't belabor points already made here. The biggest takeaway is that management matters more than market. Especially if you're going out of state, the people handling your investment are the MOST important aspect of that investment. Numbers need to work, of course, but the people you invest with need to be transparent, communicative, and reliable.
Here's a thread about vetting TK companies that I like to share with new investors (although there are tons out there). It includes a brief list of questions I think all investors should ask of their TK contenders, hopefully it's helpful: https://www.biggerpockets.com/forums/55/topics/361999-new-investor-from-glendale-ca
Best of luck!
Clayton
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes8y
If it sounds like I'm Biased it's because I am.......you should check out Cleveland. I live in s super expensive part of the country and after buying a couple of rentals out here and still not meeting the 1% rule, I flew out to Cleveland last year to look around. I've since purchased 3 properties out there since then, and found a property manager.....and found financing.....for duplexes under $75K.....I did not go the Turnkey Route although there are certainly some positives to that.
If you want to PM me I'll let you know who my contacts are......
#allmyclevelandpropertiesmeetatleastthethreepercentrule
- 8yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
@Lara Chinarro Often times, when a turn key company only works with cash buyers it's because they are selling above market value and know their properties won't appraise. I would be careful of working with someone that requires a cash buy.
- Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes8y
@Lara Chinarro If you are going turnkey, I think working with a provider that offers the option to work with conventional financing for leverage is the best way to go. Most often those who work with cash only buyers are working with lower cost properties in areas that are really difficult for out of state investors. There are a lot of turnkey providers that work with investors who finance.
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Heard loud and clear! I will stick with my gut and only work with those who let me finance. I find that actually a lot simpler that the refinance situation, and it seems it is also more transparent...
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes8yLara Chinarro some high level tips. Don’t buy with out inspection and appraisal. Try to stay with rents over 900. You can find a lot of 60k properties that rent for 750. Just don’t mess with those because it’s going to be too much headaches.
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Thank you, everyone, for your awesome advice. this is really a great community!
For what I have been reading, I think it is clear that the most important part of the investment is after the purchase, when the PM comes into play. I am reading about what I need to ask when I talk to one.
Something surprised me when I talked to one: is it normal to charge 1 month's rent for tenant turnover?
I think I am a believer now, and I will work with a TK provider that allows me to finance! and involve a bank in the equation!
The debate over B vs C/D class is probably the most debated issue I have been reading about. And I still need to read more, because it is not clear to me why the positions are so different!
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes8y
Originally posted by @Rachel H.:
@Lara Chinarro Definitely get in touch with @Ali Boone if you're interested in this niche. She's got extensive experience in the area and has written on it for the BP blog. Hope that helps!
Thanks Rachel! Lara, sure, reach out anytime if I can be of any help.
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Ali Boone:
Thanks Ali!
I have spoken to someone in your office, but I still don't really understand your company's role. I have read several threads in the fora where you explain it, but I still don't get it. In any case, thanks for the offer!
- Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes8y
Originally posted by @Lara Chinarro:
Originally posted by @Ali Boone:
Thanks Ali!
I have spoken to someone in your office, but I still don't really understand your company's role. I have read several threads in the fora where you explain it, but I still don't get it. In any case, thanks for the offer!
I totally understand. Feel free to message me directly and we can chat if you are interested and I can explain, or happy to help in any way I can as well.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yLara Chinarro it’s also important to understand what companies roles are as turnkey is thrown around a lot and sometimes companies are different. A turnkey provider is a company that buys (themselves) property, rehabs it and sells to an investor while staying on post sale to Manage. A promoter or marketer is a company that markets properties for third parties. They don’t own the properties they’re marketing, someone else does. They are middle men who connect buyers with sellers of rehabbed properties. PM can sometimes be separate as well or under the same roof as company who is selling. Providers make money on the sale of the property to you, promoters make money on referral commissions based on when you buy. There are pros and cons to both, hope this helps.
- Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes8y
@Mike D'Arrigo We sell all cash AND our properties appraise. So, as such, I will have to disagree. We made a decision to go all cash, because most of our properties are priced in the $50-70K price range, and most lenders don't want to mess with that. Even if they did, the amount of paperwork required for the investor is crazy. Our business grew 5X when we stopped doing financing. This allowed us to give BETTER pricing to our investors, as our hold times decreased. This is DEFINITELY what's best for the investor, as it improves their ROI. In many cases, investors will simply do a cash out refi after a brief seasoning period, with much less paperwork requirements. WIN-WiN.
- Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes8y
@Lara Chinarro Yes @Caleb Heimsoth makes a great point. There are many promoters of TK properties (many of them active on BP) who do not live and work in those areas. They are not in the trenches every day. A good TK provider will know their stuff, provide ALL the info and transparency you need to make a decision, and be involved in EVERY part of the process. And, you won't be paying additional markup for the "expertise" of someone who is not involved in the process.
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Caleb Heimsoth:
Lara Chinarro it’s also important to understand what companies roles are as turnkey is thrown around a lot and sometimes companies are different. A turnkey provider is a company that buys (themselves) property, rehabs it and sells to an investor while staying on post sale to
Manage.A promoter or marketer is a company that markets properties for third parties. They don’t own the properties they’re marketing, someone else does. They are middle men who connect buyers with sellers of rehabbed properties. PM can sometimes be separate as well or under the same roof as company who is selling.
Providers make money on the sale of the property to you, promoters make money on referral commissions based on when you buy. There are pros and cons to both, hope this helps.
Thanks for the clarification, Caleb.
I have spoken to a couple of marketers and I have ended up thinking that, if I decide to invest with them, is going to be based on the actual TK that they work with. After all, no matter how good the marketer is, what I THINK I need to actually care about is the home itself, the quality of the rehab, the price, and, over all, the PM.
- 8yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
Originally posted by @Jeff Schechter:
@Mike D'Arrigo We sell all cash AND our properties appraise. So, as such, I will have to disagree. We made a decision to go all cash, because most of our properties are priced in the $50-70K price range, and most lenders don't want to mess with that. Even if they did, the amount of paperwork required for the investor is crazy. Our business grew 5X when we stopped doing financing. This allowed us to give BETTER pricing to our investors, as our hold times decreased. This is DEFINITELY what's best for the investor, as it improves their ROI. In many cases, investors will simply do a cash out refi after a brief seasoning period, with much less paperwork requirements. WIN-WiN.
Jeff, that is why I said often times. There are a lot of turn key companies that price above market value and require cash buyers. In your space at the $50-$70K price range, it can be harder of course to get financing as many lenders have minimum loan amounts. We work with a good lender that doesn't have any minimum. This had been a big problem after the housing crash of 2008 and there were a lot of unscrupulous people taking advantage of Australian and other foreign nationals by selling properties for $65K or more that were only worth $40K and non U.S. buyers didn't know any better. We saw a lot of that going on in Indianapolis then and I'm sure many other low cost markets.
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