Is turnkey investment good idea ?

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Is turnkey investment good idea ?

David Esteban
Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes

Hello,

I need some recommendation if a turnkey options is the best idea.

At the moment I live overseas working for a major airline.

I want to invest in rental properties and this turnkey option came across my research.

I have been talking to this big group that offer this option,

Please I need if possible a feedback wether this is a good deal and if you would take it.

It's a SFH 3/2 located north of the Tampa area ( holiday)

Their asking price is 125K which is about 6% over the market value.

What they offer I really like because gives me peace of mind being far away from the property.

They offer is the following:

2 year rental guarantee

1 year appliances guarantee

2 year PM cost covered

The rent at the moment is 900/month

Taxes are 65/month

Of course I need to add extra expenses such as insurance, water n sewer, lawn maint, etc

My plan is to finance it with an investment mortgage with 20% down.

Do you think is a good deal ?

Should I research for more options?

Is it a good idea to finance it with a traditional mortgage or are there any other ways to do it ?

I really appreciate any comments on this

Thank you

2Reply
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
6y
Originally posted by @David Esteban:

Hello,

I need some recommendation if a turnkey options is the best idea.

At the moment I live overseas working for a major airline.

I want to invest in rental properties and this turnkey option came across my research.

I have been talking to this big group that offer this option,

Please I need if possible a feedback wether this is a good deal and if you would take it.

It's a SFH 3/2 located north of the Tampa area ( holiday)

Their asking price is 125K which is about 6% over the market value.

What they offer I really like because gives me peace of mind being far away from the property.

They offer is the following:

2 year rental guarantee

1 year appliances guarantee

2 year PM cost covered

The rent at the moment is 900/month

Taxes are 65/month

Of course I need to add extra expenses such as insurance, water n sewer, lawn maint, etc

My plan is to finance it with an investment mortgage with 20% down.

Do you think is a good deal ?

Should I research for more options?

Is it a good idea to finance it with a traditional mortgage or are there any other ways to do it ?

I really appreciate any comments on this

Thank you

 If you are buying a property from turnkey provider who needs to offer a 2 year rental guarantee and a 2 year PM guarantee I can almost guarantee you that you're drastically overpaying for the property or dealing with a very inexperienced turnkey provider. Offering these types of guarantees are not viable from a property management perspective. Huge red flag.

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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    6y
    Originally posted by @David Esteban:

    Hello,

    I need some recommendation if a turnkey options is the best idea.

    At the moment I live overseas working for a major airline.

    I want to invest in rental properties and this turnkey option came across my research.

    I have been talking to this big group that offer this option,

    Please I need if possible a feedback wether this is a good deal and if you would take it.

    It's a SFH 3/2 located north of the Tampa area ( holiday)

    Their asking price is 125K which is about 6% over the market value.

    What they offer I really like because gives me peace of mind being far away from the property.

    They offer is the following:

    2 year rental guarantee

    1 year appliances guarantee

    2 year PM cost covered

    The rent at the moment is 900/month

    Taxes are 65/month

    Of course I need to add extra expenses such as insurance, water n sewer, lawn maint, etc

    My plan is to finance it with an investment mortgage with 20% down.

    Do you think is a good deal ?

    Should I research for more options?

    Is it a good idea to finance it with a traditional mortgage or are there any other ways to do it ?

    I really appreciate any comments on this

    Thank you

     If you are buying a property from turnkey provider who needs to offer a 2 year rental guarantee and a 2 year PM guarantee I can almost guarantee you that you're drastically overpaying for the property or dealing with a very inexperienced turnkey provider. Offering these types of guarantees are not viable from a property management perspective. Huge red flag.

    8Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @James Wise

    Thanks for the heads up

    I will really reconsider this option

    3Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    6y
    Originally posted by @David Esteban:

    @James Wise

    Thanks for the heads up

    I will really reconsider this option

    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.
    • Google Clayton Morris and/or Morris Invest for a cautionary tale of what not to do when buying turnkey real estate
    • 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.
    5Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @David Esteban to keep it short and simple. Don’t do this deal. Do quite a bit of research and figure what you want to do in real estate and see which strategy best fits those goals for you. Once you figure out your strategy (i.e turnkey investing, flipping, etc) figure out the pros and cons.

    Don’t invest in areas you do not know and don’t trust a random PM or turnkey providers advice.

    Talk to others who have been doing what you want to do already and get some objective points of view along with your own research and make your own decision as to best route you should take.

    It sounds like you want to be completely hands off and that said, I don’t believe there are many, if any real estate options that will be good for you.

    Best of luck to you!

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    1Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @James Wise

    Great info !

    I will definitely follow those steps you are telling me and I’m googling that case right now.

    With that I expect to get a better picture of this type of investment.

    0Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Twana Rasoul

    Thank you for the feedback

    You are right, I will do a better research to make sure this turnkey investment is right for me right now.

    1Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    6y
    Originally posted by @David Esteban:

    @James Wise

    Great info !

    I will definitely follow those steps you are telling me and I’m googling that case right now.

    With that I expect to get a better picture of this type of investment.

    I am not sure I understand the question. Please elaborate.

    0Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    6y
    Originally posted by @James Wise:
    Originally posted by @David Esteban:

    @James Wise

    Great info !

    I will definitely follow those steps you are telling me and I’m googling that case right now.

    With that I expect to get a better picture of this type of investment.

    I am not sure I understand the question. Please elaborate.

    He's looking up "Morris Invest," Jim. 

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    125k and 900 rent rate .... that’s all I needed to see

    Hard pass ...

    3Reply
  • Justin Tahilramani
    Rental Property Investor · Fayetteville, NC · Member since 2014 · 884 posts · 670 votes
    6y

    @David Esteban - can be all in at $65-70k in my market and get $850/month.

    1Reply
  • Alex G.
    Eastern Mass & Central Maine · Member since 2009 · 252 posts · 135 votes
    6y

    Buying a turnkey property is not a good idea.   Why would anyone sell you a good one at a reasonable price?

    1Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    6y

    @David Esteban

    When buying into a "turnkey" situation, there's a LOT of above market pricing built in to pay for the sellers profit, overheat, advertising and rental guarantees. So it's like paying a heavy "load" charge (in the old days) for a high load mutual fund, you've got a built in loss position before you start. Is it worth it? I don't know....maybe. But you'll need future price appreciation to make it work out as an acceptable ROI.

    However, this really relates to the passive vs active investment divide. However, it seems that the premium paid for these turnkey SFR are much higher than the premiums paid for REITs or most private syndications.

    If your goal is to hold a property 30 years, pay off the mortgage, and have a free and clear rental for retirement, then paying a 15% premium to market value won’t kill you. If your hoping to aggressively invest to increase your wealth at a high compound rate their won’t help you accomplish your goal.

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    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @David Esteban in general a turnkey property or especially the one you just used as an example will lose you money over time. Best case scenario will be break even unless you’re putting 40-50 percent down.

    0Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    I’m with @Dennis M.

    $125k $900/month isn’t even worth a second look, or making this post

    1Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Dennis M.

    Hello Dennis

    When you put it this way it is really an eye opener, thank you

    0Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Justin Tahilramani

    Thank you for the feedback, since I’m fairly new to the RE investment I’m not seeing all the correct numbers, I agree with you.

    0Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Alex G.

    Thank you, with all the feedback I’m getting here in BP I’m now the thinking twice about this type of investment.

    0Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Don Konipol

    Thank you so much, your comment helped a lot in making a decision, when you put it in that prospective this deal is not worth it, I'm not planning to keep it for long so my ROI will not be positive at all.

    After reading all the great comments here in BP I won’t be doing these deal. Thanks again !

    0Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Caleb Heimsoth

    Hello, thank you for the feedback,

    When you put it that way I couldn’t agree more with you, this is not a good deal.

    0Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Matt M.

    Thank you, being fairly new to the RE investment I’m still learning a lot, all your feedback is really helping.

    1Reply
  • Helen C.
    Investor · New York City, NY · Member since 2017 · 15 posts · 4 votes
    6y

    @David Esteban

    You are paying premium for SFRs, no argument about that. But even in other passive routes, there are traps/pitfalls to look out for.

    Regardless, you should start by formulating your own investment criteria (e.g. level of return you are looking, your risk appetite, holding period, your source of funds/cost of capital, are you looking for cashflow or appreciation, or both, do you want to be active v. passive - you sound like a passive to me). Good/bad investment is relative so explore a few options, get a sense of what major RE categories offer and pick one or two to start that suit your criteria the most. There are other passive options:

    Loan/debt: you loan against single property or against a pool of property (as in a private loan fund). You are the bank/lender. Generally, returns are in high single to low double-digit, pre-tax, assuming using a max 60-65% LTV. If a fund uses no leverage, returns would be even lower. Your capital can be tied-up for as little as 6m to a year and you could start redeeming thereafter; some require several months heads-up for partial redemption.

    Equity: you are JV partner investing in a single asset with, say, a fix & flipper, or invest as a limited partner (LP) in a syndication with a sponsor on an apartment building in Tampa, for example. Or invest as a LP in a real estate PE fund that consists of multiple assets. e.g. several apartments, or self-storage (SS) facilities, or across a kitchen sink of office, SS, hotel in different market, to diversify. Returns on private syndications are mostly projected at mid to high teens these days, 5-7 year hold; cash-on-cash, if any, is all over the place, and depends on business plans and financing.

    Lots of contributors to BP blogs offer opportunities named above.  By no means I endorse them but you could start educating yourself by learning from the free educational content they put out (e.g. blogposts, podcasts, youtube videos). Welcome to the club! 

    0Reply
  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    6y

    @David Esteban

    Don't do it

    0Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Helen C.

    Hello Helen, thank you so much for the great info you are sharing with me.

    Being so far away from the US and new to the RE investing gives somehow hard time to find a good deal to start my venture, as you recommend I will learn more about every possible detail I can before jumping to my first deal.

    Thanks again

    0Reply
  • David Esteban
    OP
    Rental Property Investor · Fort Lauderdale, FL · Member since 2019 · 27 posts · 14 votes
    6y

    @Hai Loc

    I like that, plain and simple

    Thank you !

    I agree with you

    0Reply
  • Bob Prisco
    Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
    6y

    @David Esteban yes as out of state investors do not have any other choice. Also all the " perks " you are paying for with the over pricing.  I just moved to that area ( 20 min SW ) in March, and my GF is an appraiser. I am more then happy to have her run the numbers for you to make sure you are getting a good deal. 

    Also for rentals there are much higher returns to be had if you know where to look

    Good Luck 

    2Reply
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