Thoughts on Turnkey then BRRRR strategy

18 Replies

Currently, I’m located in the California Bay Area and the market is hot so I’m looking into long distance investing in a cheaper market (no predetermined market just yet). Please recommend opportunistic markets!

My question is: would starting off with a turnkey property for my first deal then going for a BRRRR property for my second deal be a good idea.

My thought is that if I purchase a turnkey property it would give me access to the turn key provider, the property management they use, and personnel that I could ask questions to learn about the process. It would essentially be training wheels for my first deal so that I have a better understanding of the process of purchasing, rehabbing, refinancing, renting out a property for my second deal. The icing on top is that the turnkey property may possibly cash flow (I would do my due diligence and own analysis on the turnkey property before purchase). I understand some say that "hands-on" experience in BRRRR is the best way of learning but would starting off with a turnkey be beneficial to learning as well before diving 100% into my second deal (or my first BRRRR deal that I do on my own). Thanks a bunch in advance!

@Steven Lam I have never gotten any good feedback about turnkey. Not saying there aren't good providers, I just haven't heard of them. BRRRR long distance is possible but you need a lot of capital and a great team. Long distance investing as a rule is harder and probably not something I would recommend for your first time.

@Steven Lam Whether it's local or out of state,...first thing you should do is get pre-approved with a lender (plenty here on BP) and see where you are at regarding that sir.

What I know of turnkeys vs BRRRR is that in BRRRR, you can force value (forced appreciation) by doing the rehabbing yourself. Whereas with turnkey, the property is already improved. Deals are harder to find and you might not get that much meat on the bone. Then there's an issue of pre-placed tenants. They may not be ideal tenants.

@Steven Lam I would suggest starting out with a turnkey property to experience first-hand what expenses are and what profit to expect. Using this knowledge will help you be pickier on your next deal and make you more comfortable on your next project.

Looking back I just realized every deal I've done has been a BRR.  Not often the refi part.

I am a DIYer that likes to get in and add the value and make decisions about what gets the most bang for the buck. Rehab returns are often 20 to  1 or more.

Turnkey is the exact opposite.  All done and ready to go.  Convenience store purchases vs growing ingredients in your garden or buying the ingredients and cooking yourself.

What type of investor do you want to be?  Interesting you'd buy one way on your first then do a complete 180 for your second.  It's ok to stick with one niche. 

If the choice is buy turnkey or OOS rehab with retail contractors, I'd go turnkey. Paying retail for the rehab takes away the benefits of doing the rehab in the first place. You'll just have open the wall risk and now bring it up to code compliance risk. 

@Steven Lam it’s not a bad idea but you’ll need to make sure the Turnkey provider you choose will manage properties that they didn’t Rehab. There are a few in Birmingham that will only manage the properties that they have sold Turnkey. With that said, you won’t learn much of anything from a turnkey provider on how to buy, rehab or rent. That’s usually all done before you buy the turnkey property.

I used to live in San Jose. Currently living in South Carolina. I have bought 5 properties turnkey, with mixed results It has been a learning experience. I have two properties in SC (bought before I moved here) 1 in Indianapolis, and 2 in Alabama. AL properties have the lowest taxes, and the best return. I have recently hired a new property manager. I was also visiting some friends recently, in Salem OR. They are purchasing new units, for 200k, and renting them for 2k/month. The sold a rental in San Jose, and had 45 days to do a 1031 exchange. I am looking to rehab some properties, and have teamed up with somebody here locally. We could probably help you do your rehabs. He is currently working on rehabs in Charlotte, and Columbia.

@Steven Lam I say go for it, start with turnkey make some contacts learn some lessons make some money. From there decide if you want to go all the way to BRRRR or just play in cash flow rentals. I live down in Los Angeles, also priced out of this market. I'm investing in the Midwest and buying semi turnkey type properties through a local realtor. There are turnkey companies out there scattered across the US - they work if you want a property that has been bought, rehabbed, rented and is ready to go.

@Steven Lam I think the risk is the same if you were to start off with BRRRR as it would be starting off with turnkey. BRRRR just requires a little more work and research on your part which you will have do either way. As you know, the key to success in long distance investing, whatever your method, is your contacts, your team. I think you would be better served focusing your efforts on finding a team that will help you BRRRR. I say, if you want to BRRRR then BRRRR!

Hey @Steven Lam !

I agree with @Steve Vaughan here. You might want to ask yourself whether you'd prefer being a hands-off investor, or being more involved with your investments. Both options are perfectly fine (be sure to do your due diligence on what you're investing in and who you're investing with!), and go for the one that you think fits you better. If you end up wanting to do a BRRRR out of state, then you might want to spend time networking with folks who have done an out-of-state BRRRR before, educating yourself on the best market to invest in, and then go right in with a BRRRR.

My advice for anyone thinking about turnkey is always to find the property management company first (interview them until you find the right one) and ask them about areas to invest in. Then just buy grandmas house off the MLS (or the management company may have a client selling), refresh it and rent it. 

There is no need to get an "in" with the turnkey providers management company. That manager is very likely used because of their financial involvement with the turnkey provider and not because of their management ability. 

You are going to pay retail anyway, so may as well just buy off the MLS.
Originally posted by @Nicky Reader :
My advice for anyone thinking about turnkey is always to find the property management company first (interview them until you find the right one) and ask them about areas to invest in. Then just buy grandmas house off the MLS (or the management company may have a client selling), refresh it and rent it. 

There is no need to get an "in" with the turnkey providers management company. That manager is very likely used because of their financial involvement with the turnkey provider and not because of their management ability. 

You are going to pay retail anyway, so may as well just buy off the MLS.

Little old lady houses off of the MLS are great money maker's folks.