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
- 8yIvan BarrattBusiness MemberInvestor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
@Lara Chinarro TK is probably the biggest mistake you could make jumping into real estate as a newbie. The likelihood of losing a lot of money is high! Money is made in real estate by solving problems; not buying supposed "turn key" homes! Buying TK is akin to gambling and something tells me you wouldn't take your hard earned money to vegas and play craps our roulette would you?
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Ivan Barratt:
@Lara Chinarro TK is probably the biggest mistake you could make jumping into real estate as a newbie. The likelihood of losing a lot of money is high! Money is made in real estate by solving problems; not buying supposed "turn key" homes! Buying TK is akin to gambling and something tells me you wouldn't take your hard earned money to vegas and play craps our roulette would you?
Well, of course I wouldn't bet my money on red, but I am considering investing more of a science, not mere luck. Even if i go with a turn key provider, i would have to play my part and research the heck out of the property. I don't think I would be just blindly giving away my money to anyone: but to a company that has done all the work that I am not able to do (and some that I don't want to) , after finding what is the property that fits my criteria the best.
- 8yIvan BarrattBusiness MemberInvestor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
ok @Lara Chinarro at least I tried. :)
One final tip: add the cost of turnover to your model. Try $2/Sf every other year. NOTE: turnover is separate from vacancy and maintenance/repairs.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Lara Chinarro:
Originally posted by @Ivan Barratt:
@Lara Chinarro TK is probably the biggest mistake you could make jumping into real estate as a newbie. The likelihood of losing a lot of money is high! Money is made in real estate by solving problems; not buying supposed "turn key" homes! Buying TK is akin to gambling and something tells me you wouldn't take your hard earned money to vegas and play craps our roulette would you?
Well, of course I wouldn't bet my money on red, but I am considering investing more of a science, not mere luck. Even if i go with a turn key provider, i would have to play my part and research the heck out of the property. I don't think I would be just blindly giving away my money to anyone: but to a company that has done all the work that I am not able to do (and some that I don't want to) , after finding what is the property that fits my criteria the best.
do check out Morris invest and let us know what you think ???
this is just buying a rental no magic to it.. the turn key marketers ( just think as real estate brokers nothing more nothing less) their clients are the guys and gals that live in the market buy the homes that need rehab and then resell.. they are flippers.. then many will have in house management which makes them " turnkey "
the real risk as Ivan is talking about is buying low end C class.. for most out of state investors over time the expense's create an investment that maybe you would not have made... where as A and B class tend to run fine in any city you buy them in or anyone you buy them from... you can go right on MLS and buy them.. its just real estate thats all it is.
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Jay Hinrichs:
this is just buying a rental no magic to it.. the turn key marketers ( just think as real estate brokers nothing more nothing less) their clients are the guys and gals that live in the market buy the homes that need rehab and then resell.. they are flippers.. then many will have in house management which makes them " turnkey "
the real risk as Ivan is talking about is buying low end C class.. for most out of state investors over time the expense's create an investment that maybe you would not have made... where as A and B class tend to run fine in any city you buy them in or anyone you buy them from... you can go right on MLS and buy them.. its just real estate thats all it is.
I am horrified by the Morris invest tales... More so because I even made an appointment to talk to them before I knew about bigger pockets. I am so thankful I found this forum first! I cancelled my appointment…
After reading a lot here, I am making my target a B neighborhood with some cashflow and high owner occupancy. But not in DC! That is 400k and years before I can buy property number 2.
About buying from the LMS, is it possible to just find house, have it inspected, buy it, find a PM and go? And save money in the process? No need for the TK provider? I understood the TK renovations were "cheaper" than the ones I would find on a flip. But if it is not the case, this opens a bunch of different possibilities!
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Ivan Barratt:
ok @Lara Chinarro at least I tried. :)
Not all is lost! :)
I still have not pulled the trigger on anything! But I keep hearing "don't just learn, but take action", and I am getting antsy!
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
its certainly possible in many markets.. the higher the class of property the easier MLS becomes.
Just saying there are alternatives you just need a good broker... who likes to work with investors.
I referred a BP client to my broker in Charleston SC who then bought a 800k duplex.. that she got approved for air bnb for example and its now making her 5k a month Net after expenses and sometime more.. that type of thing.
that was not turn key and right off of MLS..
but turnkey for many works because the inventory is specific to investors wants and desires.
- Tacoma, WA · Member since 2018 · 230 posts · 257 votes8y
Originally posted by @Lara Chinarro:
Originally posted by @Ivan Barratt:
ok @Lara Chinarro at least I tried. :)
Not all is lost! :)
I still have not pulled the trigger on anything! But I keep hearing "don't just learn, but take action", and I am getting antsy!
That phrase has some merit to it for sure. But are you hearing it more from investors on this forum or from turnkey providers/marketers with something to sell? Just make sure you always ask yourself who is saying it. :)
- Tacoma, WA · Member since 2018 · 230 posts · 257 votes8y
Every time the turnkey topic comes up I just wonder if those potential investors have compared the other available rent-ready options on the MLS. The turnkey approach of integrated services and convenience certainly has some merit to it (if you find a good provider). Just make sure you have considered your options. For me personally, I wouldn't purchase a turnkey property without visiting the area in person to meet the turnkey operator, compare neighborhoods, etc., especially on the first one. It would be worth the time and money in my opinion.
- 8yAutumn RankinPro MemberRental Property Investor · Bandera, TX · Member since 2017 · 148 posts · 56 votesDavid Greene has a book and several BP podcasts about long distance real estate. My friend lives in Hawaii and has a turn key here close to me in Texas! Has worked great!
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes8yLara Chinarro check out my bp article. https://www.biggerpockets.com/blogs/7810/72815-turnkey-guide-2012-2018
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Lane Kawaoka:
Lara Chinarro check out my bp article.
So... no recommendations?? haha
Thanks for the article.
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Autumn Rankin:
David Greene has a book and several BP podcasts about long distance real estate. My friend lives in Hawaii and has a turn key here close to me in Texas! Has worked great!
I listened to his Podcast and it is enlightening! Maybe I need to check out the book!
- 8yAutumn RankinPro MemberRental Property Investor · Bandera, TX · Member since 2017 · 148 posts · 56 votes
@Lara Chinarro Ill message you. I know a few turn keys available in my area.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes8y
Originally posted by @Lara Chinarro:
Originally posted by @Jay Hinrichs:
this is just buying a rental no magic to it.. the turn key marketers ( just think as real estate brokers nothing more nothing less) their clients are the guys and gals that live in the market buy the homes that need rehab and then resell.. they are flippers.. then many will have in house management which makes them " turnkey "
the real risk as Ivan is talking about is buying low end C class.. for most out of state investors over time the expense's create an investment that maybe you would not have made... where as A and B class tend to run fine in any city you buy them in or anyone you buy them from... you can go right on MLS and buy them.. its just real estate thats all it is.
I am horrified by the Morris invest tales... More so because I even made an appointment to talk to them before I knew about bigger pockets. I am so thankful I found this forum first! I cancelled my appointment…
After reading a lot here, I am making my target a B neighborhood with some cashflow and high owner occupancy. But not in DC! That is 400k and years before I can buy property number 2.
About buying from the LMS, is it possible to just find house, have it inspected, buy it, find a PM and go? And save money in the process? No need for the TK provider? I understood the TK renovations were "cheaper" than the ones I would find on a flip. But if it is not the case, this opens a bunch of different possibilities!
Yes. Don't over complicate this stuff. A house is a house. The MLS is where most houses are sold.
Most importantly always hire a 3rd party inspector no matter where you buy it from, MLS, Craigslist, Youtube, Turnkey website, Here on Bigger Pockets etc.......
- 8yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
Originally posted by @Ivan Barratt:
@Lara Chinarro TK is probably the biggest mistake you could make jumping into real estate as a newbie. The likelihood of losing a lot of money is high! Money is made in real estate by solving problems; not buying supposed "turn key" homes! Buying TK is akin to gambling and something tells me you wouldn't take your hard earned money to vegas and play craps our roulette would you?
Ivan, I have to disagree. For the out of state, non professional newbie, turn key can be a far less risker proposition than finding and renovating a property remotely when they don't have to time, resources, experience and connections it takes to do it. Like in any business, there are good turn key companies and there are bad ones as shown right here on this forum. The key is working with a trusted turn key company that has a long, successful track record. Investors should still do their own due diligence also. There is no reason to get take by a bad TK company if they do that.
- 8yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
Originally posted by @Lara Chinarro:
Originally posted by @Jay Hinrichs:
About buying from the LMS, is it possible to just find house, have it inspected, buy it, find a PM and go? And save money in the process? No need for the TK provider? I understood the TK renovations were "cheaper" than the ones I would find on a flip. But if it is not the case, this opens a bunch of different possibilities!
Lara, it's very rare that you can find something on the MLS that doesn't need renovation and still have equity left in it. Most anything on the MLS is being sold at full market value. Personally, I think you can be better off with a turn key property than one off the MLS as long as you are dealing with a reputable turn key company and here's why.
1. It's a fallacy that you pay more for a turn key property than one off the MLS. True, some turn key companies put big mark ups on their properties and price above market value but those are the ones that require cash purchases or don't allow finance contingencies. Stay away from those. When a turn key company sells to a financed buyer, an appraisal is done. If it doesn't appraise, the buyer can cancel.
2. Turn key companies have significant cost advantages where they don't have to sell above market value. They are buying further upstream--often at auction and getting better pricing than the MLS. They also have significant leverage and control over the labor and materials. All of these things allow them to sell at market value and still make a profit. It's the same principle as the BRRRR strategy except that the forced equity goes the their profit.
3. A property turn key property will be fully and recently renovated and often have some guarantee. This means that it will have either a new furnace, AC, roof etc or still several years of useful life. Plumbing and electrical are upgraded to modern standards if need be and their should be no deferred maintenance or big CAP Ex expenses for quite some time. When you buy from the MLS, you are generally buying an existing rental that hasn't been renovated. It could have a lot of deferred maintenance and is cosmetically outdated which can have an effect on how easy it is to rent. If the HVAC is 20 years old but still working, good luck asking the seller to replace it. So bottom line, you are going to get a better quality product with a good turn key than an existing rental off the MLS.
The key, like with anything is if you decide to go the turn key route, be sure to work only with reliable, reputable companies that have a long and successful track record. They are out there in nearly every market.
- 8yShawn AckermanPro MemberReal Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
@Lara Chinarro congrats on getting the ball rolling with your REI career. I'd suggest doing some research on markets that offer what you are looking for. Additionally I would also suggest you identify your metrics i.e. cash flow/appreciation/class of property/landlord tenant laws in the respective state and any other metric that propels you toward a specific goal. Lastly, be sure to do your due diligence on any provide working in the market that interests you. There are no two providers alike and not all "turnkey" companies are made equally. All the best to you. Always remember to persist and you will WIN!!!
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Mike D'Arrigo:
Originally posted by @Lara Chinarro:
Originally posted by @Jay Hinrichs:
About buying from the LMS, is it possible to just find house, have it inspected, buy it, find a PM and go? And save money in the process? No need for the TK provider? I understood the TK renovations were "cheaper" than the ones I would find on a flip. But if it is not the case, this opens a bunch of different possibilities!
Lara, it's very rare that you can find something on the MLS that doesn't need renovation and still have equity left in it. Most anything on the MLS is being sold at full market value. Personally, I think you can be better off with a turn key property than one off the MLS as long as you are dealing with a reputable turn key company and here's why.
1. It's a fallacy that you pay more for a turn key property than one off the MLS. True, some turn key companies put big mark ups on their properties and price above market value but those are the ones that require cash purchases or don't allow finance contingencies. Stay away from those. When a turn key company sells to a financed buyer, an appraisal is done. If it doesn't appraise, the buyer can cancel.
2. Turn key companies have significant cost advantages where they don't have to sell above market value. They are buying further upstream--often at auction and getting better pricing than the MLS. They also have significant leverage and control over the labor and materials. All of these things allow them to sell at market value and still make a profit. It's the same principle as the BRRRR strategy except that the forced equity goes the their profit.
3. A property turn key property will be fully and recently renovated and often have some guarantee. This means that it will have either a new furnace, AC, roof etc or still several years of useful life. Plumbing and electrical are upgraded to modern standards if need be and their should be no deferred maintenance or big CAP Ex expenses for quite some time. When you buy from the MLS, you are generally buying an existing rental that hasn't been renovated. It could have a lot of deferred maintenance and is cosmetically outdated which can have an effect on how easy it is to rent. If the HVAC is 20 years old but still working, good luck asking the seller to replace it. So bottom line, you are going to get a better quality product with a good turn key than an existing rental off the MLS.
The key, like with anything is if you decide to go the turn key route, be sure to work only with reliable, reputable companies that have a long and successful track record. They are out there in nearly every market.
Thank you for this detailed explanation. I am still doing my research, but so far I like what I have read about Spartan and JWB. And the numbers in those markets look good too! Any red flags I should be considering with these too?
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Shawn Ackerman:
@Lara Chinarro congrats on getting the ball rolling with your REI career. I'd suggest doing some research on markets that offer what you are looking for. Additionally I would also suggest you identify your metrics i.e. cash flow/appreciation/class of property/landlord tenant laws in the respective state and any other metric that propels you toward a specific goal. Lastly, be sure to do your due diligence on any provide working in the market that interests you. There are no two providers alike and not all "turnkey" companies are made equally. All the best to you. Always remember to persist and you will WIN!!!
Thank you! I am very excited to be here!
- 8yIvan BarrattBusiness MemberInvestor · Indianapolis, IN · Member since 2015 · 764 posts · 953 votes
@Mike D'Arrigo There are great TK companies in existence; perhaps 1 out of 100.
The problem is the model. It falls apart from a return perspective over 3 to 5 years (and then on...) due to costs of turnover/make ready. If the investor is ok with 0% or negative cash flow and only looking to build equity over time by paying down the mortgage then by all means move forward. When you're old and gray you might be rich.
Oh wait... but aren't investors like @Lara Chinarro going out of state to find deals that "cash flow."
Bottom line: TK investing is a BS investment 99% of the time even when the TK provider is good!
- Washington, DC · Member since 2018 · 35 posts · 11 votes8y
Originally posted by @Ivan Barratt:
@Mike D'Arrigo There are great TK companies in existence; perhaps 1 out of 100.
The problem is the model. It falls apart from a return perspective over 3 to 5 years (and then on...) due to costs of turnover/make ready. If the investor is ok with 0% or negative cash flow and only looking to build equity over time by paying down the mortgage then by all means move forward. When you're old and gray you might be rich.
Oh wait... but aren't investors like @Lara Chinarro going out of state to find deals that "cash flow."
Bottom line: TK investing is a BS investment 99% of the time even when the TK provider is good!
I am sure there are plenty of ways to make a better return of my money. However, being a newbie with 0 time and living in an expensive area, this seems like a better way to use my money than sticking it in the bank. At least with the TK I might be rich when I am old. They way I have it now, I will never be rich.
Also, now we have our W2 jobs, so we do not need the additional income. We will when we no longer are working. We are thinking about this as a long-term strategy.
- 8yJason CoryPro MemberReal Estate Broker · Birmingham, AL · Member since 2018 · 264 posts · 381 votes
The issue with TK is that when you only cash flow $100-200 per month you are inherently putting yourself in a financial strain in the event something goes wrong.
Being able to only net $1,000-2,000/ a year is making everyone else wealthy except the actual investor/risk holder. The TK provider, mortgage company, insurance, etc are making more than the investor every year.
If the tenant loses their job, gets cancer, etc., how does the investor cover their debt?
If the tenant moves out for any reason where does the $10,000 + come from to renovate to be rented again or resold? It would take 10 years to make $10,000 at minimum to repair for more negative cash flow cycle or be resold if it's only cash flowing $100/month.
Interest is primarily paid at the beginning of the loans so little principle is actually paid in the 1st 10 years so there isn't any equity unless the market always appreciates. That's never happened, ever.
If the economy goes down so does value.
Invest to make money not because you can be hands off. I've seen countless investors wind up in financial hardships because they threw money at something instead of treating it like a full time job.
Real Estate is not a hobby.
I know the guys at Spartan & they do their best to keep things rented but they can't control the external factors like tenants, the economy, & the RE market. No one can control any of those factors including me.
Protect your investment & your families livelihood by being an investor not buying something because it seems easy. Real Estate is never easy, ever.
- Investor · Chambersburg, PA · Member since 2017 · 1 post · 0 votes8y
Check out PAdeals.com in Harrisburg, PA. Only a few hours away from you. No pressure. Seem to know their stuff. Will do occasional group tours to explain what they are about and tour some properties. Can also listen to some older radio programs on the website for tips, do’s and don’ts. I am not connected to them, only suggesting another option for you. I have met with them and would feel comfortable working with them.
- 8yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
Originally posted by @Ivan Barratt:
@Mike D'Arrigo There are great TK companies in existence; perhaps 1 out of 100.
The problem is the model. It falls apart from a return perspective over 3 to 5 years (and then on...) due to costs of turnover/make ready. If the investor is ok with 0% or negative cash flow and only looking to build equity over time by paying down the mortgage then by all means move forward. When you're old and gray you might be rich.
Ivan, turn key is simply one of several methods of acquiring rental properties. So are you saying that if one acquires rentals through a different source they are not going to have turnover/make ready expenses after 3-5 years?? Those expenses are a fact of life with any rental regardless of whether you bought it turn key. I'm not seeing how this is unique to turn key properties.
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