I am evaluating my options and currently thinking that Turnkey investing in the United States may be my best option. It is very difficult to attain the 1% rule while investing in Southern Ontario and the rent yields south of the border seem to be much more appealing.
I just want to see if anyone has any direct experience working with Elite Invest ( based out of Chicago) and/or Memphis Invest? If so, what was your experience like?
I do not have direct experience with them on the buy side. I have met both owners personally and have nothing but good things to say. That doesn't specifically help you but make sure you do your due diligence and ask the right questions to compare apples to apples
I'm not a fan of turnkey investing, but Memphis Invest (and their property management company Premier Property Management) has a stellar reputation. We are friendly competitors with them in Memphis and I have nothing but good things to say about their service and their products.
Good luck to you!
Thank you Brie for your feedback. That is good to know.
@Douglas Skipworth Thanks Douglas for that information. Just curious as to why you are not a fan of Turnkey investing? for example, what pitfalls and disadvantages to you see?
For a safe pair of hands with massive muscle to back them up you cannot compare Memphis invest with any other player. They are the best in that space by a country mile.
Great question, William!
It is our experience that most turnkey providers extract all of the profit from a deal for themselves and then leave the investor with a high-priced asset that is almost always impossible to sell at or above the original purchase price.
Said another way, we find that most turnkey providers are selling houses at or above retail prices, which leaves the investor with no downside protection. We think that is a major pitfall or disadvantage with the turnkey market.
Personally, we believe in partnering with like-minded investors who want to pay a normal real estate commission to a licensed agent for helping them find discounted properties. It might be old fashion, but we think it is more of a win-win since it fosters a long-term relationship for investors who want to buy, hold, and grow.
Hope that helps.
@Douglas Skipworth Thanks Douglas.
You said that most Turnkey providers would leave the investor hanging. Since you had nice things to say about Memphis Invest, I am assuming that this company would be the exception to that general rule?
If not, I would be curious as to how they make money from dealing with a foreign investor like myself.
William there is much debate over even what Turnkey means so it's hard to answer. Generally what is being discussed is a company like Memphisinvest that basically does everything. They buy, they rehab, they manage, they provide finance and they get you to treat your investment, quite rightly, like any other investment. Look at teh over all return and be happy with it or not.
On the other side are investment house providers who do not provide all the bells and whistles like MI but they can supply you a good investment property for a lot less than MI can because they don't need all their infrastructure and don't provide the same level of comfort and "set and forget" as a turnkey does.
So some people don't like Turnkey because you will pay 10 to 30K more for the same house. This doesn't make it a bad investment providing everything pans out long term but we think paying above retail at the time of purchase can be a dangerous way to invest.
Question for the group: do investors prefer turnkey individual properties (fees paid upfront as discussed, but with control of individual properties by the investor thereafter) or a pooled fund model (fees paid primarily based on actual return results, but requiring trust in the sponsor to select, purchase, rehab, manage and exit properties)?
@Ian Fisher I think the major difference here is the accredited investor rules.. If you look at some of MI post by the owner he delineated how many homes was owned by how many investors.. and the vast majority only own one or two, ergo probably not accredited ...
@William Wong the owner of MI makes no bones about it, you will pay top of market for his product and they think they have earned that right and give quality for the price.
As for Elite you should just go and check it out personally have them walk you through there current projects the are very detailed in their rehabs I can say that much.
I would agree with @Douglas Skipworth 's comment about extracting the profit, although I would modify that statement to say they take the equity out of the house. Some houses have a bit of equity appreciation potential if you buy at a low price and rehab yourself. I believe that these companies do the purchase and the rehab for you, so you're left with the final product at a higher price point with less room (if any for appreciation)
With that said, if you're an out-of-state (or out-of-country) investor, then this may be your only option. If you don't know anyone locally that could do everything for you, then I would definitely suggest the Turn Key model.
As part of my own due diligence, I had visited Memphis Invest and was extremely impressed by what they offered. I took a tour of the entire facility and everyone was extremely professional. If you do invest with them, I know you'll have a great product and a great team to provide that support.
@Jay Hinrichs , fair enough, makes sense - to me it is a strange world where the SEC doesn't care about people exposing themselves to the level of risk that comes with direct ownership of 1-2 homes but does care about people exposing themselves to the level of risk that comes with interests in a fund that owns 500 homes, but I do understand this is the case.
Dean Letfus and George Chang above did a nice job answering your question about how turnkey providers make money.
Just to be clear, I would not say that most turnkey providers leave investors hanging. My point is that turnkey providers usually make significant amounts of money by selling houses that they own, which leaves the investors with less equity in the property (i.e., more risk).
There are alternatives to turnkey for foreign investors, but they oftentimes require more involvement on the part of the investor.
Hope that helps.
I just saw this blog post here on BP.
It's an alternative to turnkey investing that works well for investors who are willing to be a little more hands on. (Whether they admit it or not, we have found that most BP members are hands on investors!)
All the best,
@Douglas Skipworth I see your new to BP welcome. Nice to have the brokerage community chim in as well.
I think on BP you have 3 distinct camps.. 1 a huge body of folks that have never done anything in RE and are wanting to do so, so they are trying to get educated on line here.
Then you have the local investor, who 90% of the time probably does not buy from turn key but I know instances in all markets were locals will buy turn key.. But as you state generally they are more hands on and are more experienced in the market place. IE they already know the Zip codes to stay out of the school districts etc etc. and they will buy the homes on their own retain their own GC or do it themselves. No denying this investor gets the best deals at the end of the day if they have any clue as to what they are doing.
Then you have the Out of area investor.. which includes the MIllions of CA. investors who are market makers. ( IE take the CA investor out of any cash flow market and you would lose a big % of your sales).. this investor is what created turn key in the first place. They were followed by other out of area investors then the Off shore investors started getting marketed to and you have seen a big influx of AU GB CA CH SING those folks invest turn key. All with a varying degree of success.
So your impression maybe that most people on BP are hands on but that's just not the case in my 18 months of following the boards here.
And Turn key is really just local fix and flippers instead of selling retail they sell to investors and have put together in many cases property management. ( as you know that is critical in your market and most turn key markets at the price point these folks are buying at)
If you represent a fix and flipper that does retail deals to owner occ.. you expect them to make a profit correct ? and usually a fairly big one for all the risk and cost of capital and time etc.. So turn key is no different but in fact in many turn key operations they do volume and the profit margins are much smaller than what a retail fix and flipper would expect.
I'm excited to now be actively involved in the BiggerPockets forum community (I've been a passive BP participant for several years...mostly just reading the blog posts each day).
As an investor, Realtor, and property manager, I have strong opinions about owning rental properties. I intend for my comments to be thoughtful and courteous, although they will admittedly be biased towards what I believe and have found to be true.
I appreciate others like you rounding out the dialogue with insights and observations that I don't have. That's why I think BP is a great place for newbies and veterans alike!
@Douglas Skipworth you don't have to soft sell it on BP.
If you think buying in neighborhoods in Memphis at the 30k price point Is basically suicide for an out of state investor its best to state your thoughts and opinions.. I think it is LOL.
Many out of state investors really don't understand the dynamics of the mid west markets IE the huge % of the population that rents SFR's..
For instance in my neck of the woods less than 10% of all SFR's are rentals... So your never going to go into neighborhoods that have burn outs board ups and barred windows and caged condenser units... and those things can extend into mid price in the mid west as well at least the caging the condenser units.. And houses don't go vacant one day and get stripped the next here as well. These are things that can catch a west coast investor completely by surprise and be shocking to them.
So its important that we tell both sides of the story here on BP.. So that folks understand that % returns are directly related to Risk .. and by risk I mean physical risk to the property and very very HIGH touch tenant base that are and will always be renters.
In our markets renters rent apartments. SFR's are owned by homeowners..
this is why you see all these post about how West coast properties don't cash flow.. its because they are owner occ generally..
You set me down I Georgetown TN which is generally owner occ and those houses won't cash flow any better than our west coast SFR's its because of the renter vs owner demographic.
The reality is the horse is out of the barn... these areas that provide cash flow rentals are and for ever more will be rental areas.. Locals in your market that want to own a home know this and you as a broker know it.
@ Jay Hinrichs, I appreciate your comments.
I won't hold back from now on!
I have done business with Elite and have had a good experience. It is a certainly not for everyone so I would suggest you talk with them (if you did not already) and go out to see the properties.
Memphis Invest I know only be reputation and as you can tell they have a good one.
I would say one of the primary differences at least for me was that Elite was probably more likely to work with you on price points while Memphis Invest I view as more streamlined.
I have bought 2 homes with MI and in contract with a 3rd. They are a solid company and have so far produced good results.
I have not heard of Elite Invest, however a quick look on their website shows me a ton of multifamily opportunities which you will not find with Memphis Invest. So if you want to go the multifamily route Elite Invest could be a good choice.
@Allison Karrels Keep in mind, when you purchase through Turnkey, after your inspection report, most all issues(at least 95%) should be fixed by the seller and this includes not only the items related to the house but also items such as external buildings, fences and potential tree issues. A owner occupant selling to a investor may not be willing to do that. Also, Turnkey providers should be positioning your properties for success in the long run through upgrades in the renovation (ceramic tile, updated lighting fixtures, ceiling fans in the master bedroom and den, vinyl plank in high traffic areas instead of carpet, new counter tops, updates to the electrical service box, new supply lines at angle stop valves, etc) and replacing big ticket items that are old with new. If a owner occupant has all of that in the home they are selling, their price should be in line with a Turnkey providers. Everyone is right, there is a premium when buying Turnkey and with that premium should be a seller willing to hand over a property with all deferred maintenance issues addressed and positioned for success for at least a 7 to 10 year min hold. Something else, I feel Turnkey should come with a property warranty and no initial lease up fee. In other words, the money you come to the closing table with will be enough to start cash flowing immediately and those cash flows should be sustainable (meaning you do not have to reach back into your pocket to pay any debt commitments) b/c the house is virtually maintenance free and you do not incur a lease up fee for your first tenant. If you have that, then you are buying 100% Turnkey.
Thank you all for your responses on this. It is quite helpful.
My objective like all real estate investors is to have a positive cash flow situation of a few hundred dollars and some appreciation, say, at minimum 2% per year based on the initial purchase price. I am also willing to look at this long term.
I guess I will have to check to see whether this type of situation is feasible. As long as the turnkey company in question is providing fair value for money, then, I am okay.
Thank you all for your feedback on this.
@Charles Worth Thanks for your feedback. Just wanted to get some more clarification on why Elite Invest is not for everyone in your opinion? were they difficult to deal with in certain areas?
Its more urban which has its good and bad. Some of the good and why I like it is
a) 2,3 and 4 flats are the norm so the cash flow is typically better than places where SFRs are the norm and tenants are used to these multis where as in Memphis you can get an SFR for cheap so a duplex can be more difficult to manage.
b) Urban cities that have long histories in my view have greater appreciation potential. The urban revitalization has gone well in many cities and this is an opportunity.
The drawbacks are
a) Like any long standing city there are problems with pensions, fiscal responsibility etc. Almost all major cities have these hangovers.
b) Like many urban cities there has historically been crime and poverty in many areas. Key is to pick the right blocks but that is a matter of trust for an out of state investor. In a place like Chicago go two blocks over and you will hit a not very good area even if your block is good. As such, this requires diligence on your part or trust. Elite does have good system for managing it and I did a lot of diligence but if you are an investor who thinks white picket fences it will be a bit different from that expectation.
I will be also interested in hearing about any horror stories people have had with Turnkey companies.