Hi BP nation,
I am very sure you all will be rather surprised to see this often belated question come up again? Well, I am forced to ask this question because I have read a couple of REI machinations being bandied around and called ' turnkey', even in this site, and its about time we provided a clarification of what this truly means, especially now that the Turnkey-reviews.com is now up and running. I have reviewed some of the posts and the claims made by those reviews and advertising there.....well, that's a post for another day..
We have quite a number of experienced and well respected bloggers who run 'turnkey projects' on this site and I follow a number of them:
and quite a good number of others I cannot name off my head now.... and I will like to know the following:
- what is the universally recognized and BP-nation accepted definition of a turnkey project in REI?
- What are the characteristics/terms and conditions associated with a project for it to qualify as a a turnkey project?
My primary reason for asking this question is that I am an out of state investor (from Canada), and my policy is what I call 'Remote REI Strategy', hands-free, no contact with tenants, and I don't want to be called by 1:00am that a bulb is burnt out....strictly no involvement with daily property management and all that come with it..... I will let someone else do all that and I pay for the services as PM fees.....this is my understanding of a turnkey and all my investment decisions are channeled towards this goal..
I am hopeful that this question will attract attention and comments from seasoned experts from BP nation to provide clarification to this. This is not meant to spite anyone but strictly for my personal education ( am closing one on Feb 27 in KC, with many planned for the year and I need all the education I can get from my primary constituency-the BP nation).
Thank you for the mention on www.turnkey-reviews.com remember we are only 2 weeks old and hardly scratching the surface of were we will be at in the coming months.
As for the term Turnkey
I think it was coined about 2001 or so.. that is when I first entered the industry as a HML I made loans to clients of Turnkey operators 95% were based in LA and were buying mid west .. it was the put the buyer into title then rehab and refi model.. which worked great until it did not in 08 ( but that's another story).
the premise is that you will buy from a company that sources.. rehabs and then rents and manages for you all in one tidy bow.
Now the business has morphed quite a bit over the last 14 years.. Gone is the HML to refi ( at least in any great abundance) and what you have now is a more educated buyer who wants the home done and tenanted to alleviate risk.. You have Turnkey companies that are fully vertically integrated you have Marketing companies that rep various Turnkey companies and they work as a RE agent would work.. making a commission if they are the procuring cause of the sale. And you have plenty of smaller players that sell direct and handle the entire operation as well.
So its really a pretty simple concept... virtually every metro area East of the Rockies and south of NYC has turnkey in their market... You really won't find it on the West coast. And of course the properties have to hit a certain return metric which is basically 8% COC or greater with or without leverage..
Ali just wrote a book on the subject that you can buy. She has it advertised over in the Market place if you can get on that side of the site. . I wrote a little e book for Australians a few years back on the do's and dont's and different terms etc etc when buying turn key I would be happy to send that to you via e mail if you like.. just PM me with your e mail.
NA Onyido From my perspective, TurnKey is exactly as it sounds. Take the key, turn it, and the business the REI just bought (the property is a business) is ready to, or already is running. I'll address your specific questions though:
Q: "what is the universally recognized and BP-nation accepted definition of a turnkey project in REI?"
A: It varies, and that's not a statement of inconsistency, but more a question of variety and versatility. Not every investor "buying" is looking for the same thing.
Q: "What are the characteristics/terms and conditions associated with a project for it to qualify as a a turnkey project?"
A: It ranges (see answer to Q #1) from all of the below or up to a certain point. I've put the list in order of inclusiveness...as in the top of the list is always, and the last item it left off the most -
1 - Property owned by seller
2 - Rehab is completed
3 - Property has tenant in place
4 - Property Manager is included
5 - Financing provided to Buyer (not necessarily from the Seller)
6 - LLC is included
In my experience, we have a variety of different Buyers looking for TurnKey. The Out of State Buyers usually want the entire list, but the local buyers may leave off the last two...sometimes up to the last 4. This all depends on if they have any of the items #3-6 already in place and would prefer to use their sources instead of ours.
I think the real definition you are looking for comes from the Buyer, and not the Seller. It all depends on what the Buyer wants/needs, and it is up to the Seller to be able to supply it all for every deal...I can always cut back what the Buyer doesn't want/need.
Thanks for the details explanation with the chronological events that gave rise to the word 'turnkey'.
So am I correct to assume that a turnkey will have a property tenanted and cash-flowing from day 1? And PM in place at the least?
I must congratulate you on the www.turnkey-reviews.com revolution.
Now, do you have any metric for accepting the reviews on the site? I was excited to know that such plan was under works. My only concern is how we screen those who claim to be doing turnkeys? At least, this will make credible all the claims we see on their site.
Thanks again for your usual insights....
Hi NA Onyido
There is no formal industry-wide definition of what a turnkey investment is. I assume by "turnkey project" you are referring to a turnkey investment property.
Ever since I started investing out-of-state myself, and then founded my firm in late 2003, people have defined "turnkey" differently over the years.
To me and my company, "Turnkey" investment property is defined as follows:
- The property is in a stable or growth market.
- The property is in a desirable neighborhood.
- The property is new or has been newly renovated.
- The property is cash-flow positive even if fully leveraged.
- The property is leased, or in the process of being leased.
- The property is under professional property management.
- The property has been carefully selected with renters in mind.
I have posted and occasionally updated this definition on the About Us page on our website.
Your "hands free" strategy to real estate investing is very similar to how I viewed out-of-state investing over 11 years ago when I started. I've systematized that approach and carried it forward by helpling hundreds of investors do the same. My point is, would you and I define as being a passive turnkey real estate investment may be different then someone else's; and that's ok.
Note: some of the people you mentioned above do not technically have "turnkey projects/properties".
BTW -- good choice on Kansas City. That has become one of the top markets with our nvestors over the last 6 to 12 months!
Thanks for the mention. This topic comes up a lot so it's good to address it from time to time. Every one has their own definitions. You'll often see a property on the MLS be referred to as "turn key" simply because there happens to be a renter in it. That doesn't make it turn key in my book. Here are the key factors that I think make up a turn key:
- Fully and recently renovated
- No deferred maintenance/repairs
- Fully vetted and qualified tenant in place
- Under professional property management
- Cash flowing from the start
Other services that a turn key provider may provide could include referrals to preferred lenders, inspectors, insurance brokers and real estate attorneys.
Thanks for your usual frank view...this is very comprehensive.
So do I assume that the buyer pretty much determines the terms of the turnkey project?
I asked this question before and your # 3 condition confirms it: a tenant must be in place at the point of closing.
Thanks a lot
I sent you a PM. Please send me the ebook.
Again, I cant thank you enough for proving direction through numerous fora.
NA Onyido Not necessarily on the tenant. We usually have them ready to go, but it's pretty common for the Buyer to want to place their own tenants. Sometimes they're looking for more control over the property and don't want to inherit a previous potential) problem.
In some cases, we find our out of state buyers want the PM to place the tenant (the one we provide will, which is how we do it on ours).
Sometimes, the out of state Buyer already has a team for rehab, and PM in the state they are investing in, so they are just looking for a wholesale deal. Now, that isn't a TurnKey in anyone's definition, but some of our OoS Buyers will be looking for either/or.
They let us know what they want, and we just fill the orders. If the Buyer wants the entire list of mine, or parts, we just "Tee" it up for them based on their want/needs, and deliver.
NA Onyido -- In response to your last question, some terms may be dictated by the buyer from time to time. But usually the turnkey property is what the seller is offering. You can negotiate many things if the possibility exists, but often it's a "package".
This is why sometimes some companies can provide you more as part of your investment than others. I believe in a Complete Solution where you have everything under one roof from research to property management, to inspectors, to mortgage brokers, etc. etc.
Thanks. Looks like you have same views. I will connect with you privately. By the way, your site looks intuitive.
Originally posted by @Joe Villeneuve:
In some cases, we find our out of state buyers want the PM to place the tenant (the one we provide will, which is how we do it on ours).
Joe raises a good point here. Sometimes our investors want to place the tenant and in those cases we let them do it but the vast majority are looking for a turn key solution with everything in place. It always makes me a little nervous when investors want to use their own PM's unless I know the PM and their reputation. If that PM places a bad tenant, it reflects poorly on the whole concept of income property investment especially for new investors.
Like I mentioned earlier, I will not want to have anything to do with property and tenant management. For it to be turnkey, the choice and management of the tenant is completely that of the turnkey provider.
I am not sure why any investor would want to place and manage tenants if its a 'turnkey' transaction.....
will send the little book right over... as to your question about those that claim to be turn key.. Having been in the industry since basically its inception many are known to me. However it will be up to the investing public to create the feedback needed for other investors to read and gauge... I expect the best in class will get great reviews and one's that need to work on their game will get comments that will help them do just that. In the meantime the investing public will get a flavor of the company. With right at 800 click through in the last 36 hours this is obviously a site that has legs.. and will be a great service to buyers and sellers.. If nothing else you can sit at home and shop the entire country in a matter of minutes. Make real time comparisons with REAL inventory.. exciting stuff.
There is two schools of thought on the placing of tenants... one school of thought is if you pick the tenant yourself you can be more selective with your PM in the selection process.
I know one hedge fund we flip two they first started wanting everything tenanted.. then they switched and now they want to do their own tenant placement feel they have better command and control.
Unfortunately some bad actors in the business have put terrible tenants in and within a few months the tenants are gone etc.. there is a BP thread from an investor off shore who bought Memphis from an Off shore TK company and it had tenants in place that were not good... ONe of the BP turnkey guys who specializes in lower end Memphis stuff came to his rescues. but that would have been a perfect example of why some want to place their own tenants.
Thank you for the mention, sir. Our 'turnkey' is a bit different - we do 5-10k rehab, and then locate an owner finance buyer for the investor. Then at that point upon move in, there are no further maintenance costs for the investor.
I personally own four of these type deals in my city and I find it superior to owning rentals. I am not disparaging people who own rental property; I have done it myself before. I just prefer the hands off nature of owner financing distressed properties.
The vital key is to qualify your buyer appropriately so that you do not get your house back in 3 months. I am pretty knowledgeable on that subject and I rarely get a house back, going back 13 years.
Also Marco was correct in his statement that some of the people you listed are not turnkey providers.. for instance myself I am NOT a turn key provider.. Although I work with many by providing capital for their business so they can become or scale up their inventory so they can sell it to the public.
Well, I have followed you closely in different REI fora and I know you will not want to be associated to anything but 'complete'; so I look forward to greater heights for www.turnkey-reviews.com. I know this is just the twilight of the site...
Hey Ndy, thanks for including me.
I'm a little late to the chain to not say anything that hasn't already been said before, but truly turnkey means a property that has been rehabbed, tenants placed, and property management in place to manage it.
There is a different version of this though, which confuses people sometimes, and that is the companies who tell you they will provide you all of that, but instead of all of that being in place at the time of closing, you buy the property and give them the money to rehab and then they do it all. Major risk associated with that (all on you instead of the seller) and to me that's not actually turnkey because it's not all up and running by the time you close. Plus you'll have a major delay in income, whereas the normal turnkeys start giving you money on day 1.
I wrote an article about it, if you want to read more. Otherwise, yes, exactly what you want in terms of hands-off investing is done by going the turnkey route.
In my experience, most of the Sellers who use the term 'turnkey' are selling rehabbed properties, but with NO Tenants or Management or Funding lined up with the deal. So my understanding of 'turnkey' has been a property ready to move into for either a tenant or a home buyer ie. not only being sold to investors. As far as I can tell, there is nothing wrong with THAT definition. Cheers...
Thanks. By the way, I got the ebook you sent me and it makes a whole world of sense.....I read it through without dropping :)
Your model sounds very innovative. So you basically beomes the 'bank' and reap all through the mortgage life? what kind of range do you get your properties?
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