Out of state turnkey investing

18 Replies

Anyone from Minnesota invested in turnkey properties out of state? If so, which ones and how has your experience been? I would love to get some feedback as I am doing a lot of research and talking with companies in Indianapolis, Memphis, Kansas City and a few others. I am having a hard time narrowing down the best market and most reliable company.

Be careful with turnkey properties. Often, these are homes bought in declining areas / lower middle class income areas. Yes they cash flow, but only if occupied. A few things are left out of the analysis: What are the true costs of turnover when a tenant leaves? (answer - a lot). Second, if you had to sell the property on the open market, what would you get for it? For example, in my market, a turn key operator was successfully selling properties for $125K. Somehow a bank appraised the properties for that amount. But if they were sold on the MLS, they were 80K maximum. I know that market backwards and forwards, because I operate there.

Don't just buy cash flow, but buy value.  But a strategy and a property with future potential.  

Finally, there is not reason that you can't purchase properties in your home state.  Minnesota isn't California, so there are some viable investment deals there...

I do know a legitimate and honest operator in Memphis.

@Peter Heldstab this is some good advice from @Brian Ploszay .  I'm sure there are some good rentals in Minneapolis/St Paul.   But, if you do choose to go out of state - I would use a reputable turnkey company.  But, once you have a property narrowed down, I would spend a few hundred dollars on an independent inspection and have a realtor run some numbers for you.  

That little bit of extra investment could spare you from buying something you don't want.  Or it could give you peace of mind that you have a great property for years to come.  

If you end up working in KC, I can recommend a great inspector and can link you with a Realtor as well.  

Originally posted by @Peter Heldstab :

Anyone from Minnesota invested in turnkey properties out of state? If so, which ones and how has your experience been? I would love to get some feedback as I am doing a lot of research and talking with companies in Indianapolis, Memphis, Kansas City and a few others. I am having a hard time narrowing down the best market and most reliable company.

 Hello and welcome! Best of luck to you!

@Peter Heldstab I have clients who are in MN and have turnkey properties.  Off the top of my head some of them own properties in Indy, IA, and FL.  I am excluding people who have vacation rentals, these are turn-key properties.  I have clients in other states but it is also because they have connections there.

You can find turn-key in MN but I am not aware of many operators.  Would be more about finding a property and hiring a property manager.

Always go turnkey.  But as the investor, you need to know your numbers. 

Whether you hire out everything or are more involved, plan from the beginning to be able to step away from the business if you need to.

That requires careful analysis of the property BEFORE you buy, to determine if it meets your financial goals AFTER including all expenses.

If any turn key company sends you a cashflow analysis without at least TIMMUR:

1. Taxes,

2. Insurance,

3. Management,

4. Maintenance,

5. Utilities,

5. Repairs

Then run for the hills.

In Bridgeport, Connecticut and many North East regions we also include Snow Removal and Pest control.

Explore all markets but do your research, as to where net migration and jobs are heading.

@Brian Ploszay, , I understand the hesitation when deciding whether or not to go the turnkey route, but I think there are a lot of factors that an investor needs to weigh during the decision making process. Turnkey investing is very dependent on the market the companies are located, level of involvement desired, policies of the companies, pricing, warranties, and whether they have in-house property management.

For example, the seasoned turnkey companies realize that their demand is driven by investors looking for a safe, consistent return. That means that the market needs to provide the opportunities for turnkey companies to price their properties based on the rent to value ratio, instead of relying on top market price, they are providing those properties below market value a lot of the time. If you can cash-flow $200-$350/month, with 20% down, that is a solid long-term investment.

Also, the turnkey option is the best way to go if you would like the benefits of owning rental property without being completely hands on. At our company we like our clients to be involved as much as they want to be with the expectation of trust in our expertise for certain operational factors.

Also, if the turnkey company has well-established policies in place for leasing, resident on-boarding, standardization of renovation approach (replacing capex items first and foremost), and property management, then they could be a good option for investors.

Also, look to see if they have warranties in place to cover the renovations they have completed on the property. This is a good way for turnkey companies to hold themselves accountable for their work. If they do not cover any of the items on the scopes of work completed, then it could mean the company does not focus on quality.

Also, it's my opinion that if the company provides in-house property management services, that is another way they hold themselves accountable. There are mixed reviews on whether this is a positive or a negative, but if the other factors have been met, this is another great sign you've found a company dedicated to providing a quality product and resident to manage.

Also, even though some of the prices look like there is a premium in price point, you have to find the value in the services being provided: Extensive research in the submarkets in their city, leasing services, value add to the property, and property management.

I hope this helps start the convincing process. Feel free to ask me any questions!

@Peter Heldstab All 3 of the markets that you mention are strong cash flow markets, The real key to success in either of them is getting to know the areas and neighborhoods. All of them have good areas and bad areas. Identifying the neighborhoods and knowing the neighborhood classes is the trickiest part of out of state investing, however, it doesn't have to be difficult. The first thing to do is get to know the market rents and home prices in the various areas. Focus on better rental neighborhoods and stay away from  cheap, low end areas. They might look good on paper, but rarely perform for the out of state, hands off investor. I've been active in both Indianapolis and Kansas City for several years. We focus on A through C class neighborhoods with rents of at least $750 in Indy and $950 in KC. 

When you're evaluating different turn key companies, in general, the ones to avoid are the ones that:

  • Don't allow financing or a finance contingency (it can be a good indication they are selling above market value)
  • Don't allow for your own independent property inspection
  • Are not realistic with their pro forma's (i.e. they don't include vacancy or maintenance projections or use unrealistically low vacancy factors)
  • Require you to pay for any renovation upfront
  • Sell only in cheap. low end neighborhoods
  • Don't accurately represent the neighborhood/property classification
  • Don't have consistent rehab standards for all properties

@Peter Heldstab I would recommend meeting with @Jordan Moorhead he lives in MN and has transitioned to out of state investing.  He does not have turn key's but I think he can add value to your knowledge base + it would be wise to have the knowledge to create your own team when out of state investing because if the turnkey company turns out to not meet your expectations you need the confidence to fire them and build the team on your own as Jordan has.

Originally posted by @Peter Heldstab :

Anyone from Minnesota invested in turnkey properties out of state? If so, which ones and how has your experience been? I would love to get some feedback as I am doing a lot of research and talking with companies in Indianapolis, Memphis, Kansas City and a few others. I am having a hard time narrowing down the best market and most reliable company.

 Some things you may want to look at are:

What to Ask When Working With a Turnkey Provider

and

The Best Types of Markets for Profitable Turnkey Properties

@Peter Heldstab , if you are looking for a stable, out of state investment, I'd be happy to chat with you. I run a Turnkey real estate company in Boise, Idaho, which is the fastest growing city in the US. Our structure is much different than many of the turnkey providers in the midwest. Feel free to shoot me a PM if you have any interest. 

Best of luck!

Originally posted by @Peter Heldstab :

Anyone from Minnesota invested in turnkey properties out of state? If so, which ones and how has your experience been? I would love to get some feedback as I am doing a lot of research and talking with companies in Indianapolis, Memphis, Kansas City and a few others. I am having a hard time narrowing down the best market and most reliable company.

 Biggest thing is to avoid the hood. The hood isn't a great place for new investors who are going across state lines. Pick yourself a solid working class neighborhood even though the price to rent ratio won't be as attractive. You do that & get an inspection & appraisal on your property before closing & you should be fine.

Start with your own goals.   Do you want appreciation or is cash flow most important ?

Appreciation markets - They can be more volatile.   May say we are coming into a recession in 2020 or 2021.  Who knows what that will bring.   TX, FL are the hot markets for appreciation.   But your cash flow suffers and there is the potential for negative cash flow because rents don't hit the 1% of purchase price mark.

Cash Flow Markets - the midwest.  These tend to be more stable but don't appreciate much.

Study study study the turnkey investing.  I am doing the same thing as you.

I have figured out the markets I want to be in and why.

You have to not only look at States but individual neighborhoods.  Price of houses you want to buy ?   Do you want to buy in states with cold winter weather ?

What age homes ?  The older the more maintenance.  

Do you want houses with basements ?

I could go on and on.  

I have bought 10 TK properties over the last couple of years. I like the model because it allows me to invest in real estate in the most passive way possible. The most important factor is the turn-key operator. They are your expert on the ground in the area that you have decided to invest in. Pick an operator that specializes in the type of properties you are looking for. I like B-/C+ SFR for Cash Flow. I am buying in St. Louis in the North County area. Good working class population with stable cash flow. I won't see the appreciation that other parts of the country see, but I know that going in to the deal. Staying with one trusted operator has enabled me to scale efficiently. I also know a good TK operator in Milwuakee. Stuart Grazier at 3:10 Storehouse Ventures. He would be a great resource to look up. Good luck!

Also if you have not done so yet I recommend looking up the snowball affect when it comes to paying off the mortgages.

Should be able to pay off 10 properties in 10-12 years from what I have read.   You need to run it like a business.   

And to reduce risk you need to scale up to as many properties as you can as fast as you can.   If you have 10 properties and get a vacancy or need repairs you can weather the storm from the income of the other properties.

Unfortunately MN is not landlord friendly so no way am I investing in the MN market.   MN is terrible for business which is why so many small businesses have left.  Taxes are high.   One of these days MN is going to experience the pension problems now starting in CA and IL.  4 of the 5 top employers in the state are State or Federal government.  When that happens taxes will go up because politicians know nothing else.

One of the things I do when assessing a market is to download the CAFR of the city I want to invest in.  Then I look at the level of increase in taxes and pensions.  For example in Cleveland the pensions liability for the city increased 22.5% in one year.   No way to sustain that so I will not be investing in Cleveland.  You have to look at population growth, diversity of employers in the area etc...

Other things to consider ... harsh weather is harder on properties.   Old basements can cause trouble.  Some suggest to get the roof inspected by your insurance company which I think is a good suggestion.

Take 6 or 8 months and study TK investing.  I think it is a great retirement model with less risk than the stock market if you do it right.

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Two things will make your investments better and your life MUCH easier. (I professionally flip houses, commerical property, and land.)

1) Data. Get good data and let that do the work for you. Data can tell you EXACTLY the areas to buy AND how to price your offers. For starters, you can find a ton of FREE SFR data here: https://www.realtor.com/research/data/ For SFRs, we use the nationwide, residential "ZIP" data and extract what we need. 

2) Since you are out of state, you need "Boots On The Ground". We have teams (usually husband and wife/partners) that will meet with sellers, help with move, and facilitate the deal as needed.

No matter what you are doing. If you buy it right and have that immediate equity, you will do great.

Hope that helps, 

Jill

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