Feedback on turnkey

13 Replies

Hi BP, 

I would like your input on this SF turnkey, 2/1, 1946, currently rented, new roof, new mechanicals, new plumbing, refinished hardwood, new kitchen, new bathroom. 

I calculated the vacancy rate quite high, as the company charges one month rent, plus a fee for being present during the section 8 inspection, plus touch up/repairs and I assumed that tenants leave every year, which I hope they don't. 

I appreciate your feedback. 

The numbers look good on paper. If only we could deposit paper we all would be retired by now;). A couple resources you can check is rentfaxpro, they will tell you the actual vacancy rate and tenant duration for that area. And check esri tapestry to get a flavor of who those actual tenants will be in the future. Typically investments can only perform as good as the location and management. One wrong move there and things could go south pretty quick. Geography and demography are your friends or foes.

@Anja Wehrmann The main problem with paying full retail for turnkey properties is that there is no assured "exit strategy" that will result in profit to you. (All the profit has already been taken out of this deal).

Recent conversations I have had with others who have invested in similar turnkey properties indicated that their REAL value is only $30-50k, not $70-80k!

Those same conversations have emphasized that the ongoing MAINTENANCE (and other) costs are higher than expected. 'Turnkey' does NOT mean 'maintenance-free'! And, your vacancy-rate might still not be enough (it IS good to calculate conservatively, covering worst-case scenarios)!

You will find that in general, the BiggerPockets forum aims to help investors avoid the traps inherent with paying full retail. Cheers to BiggerPockets. All the best...

How are the the sales comps? How comfortable do you feel with them? 

There are comps and then there are "comps"! In many cases, the comps and/or ARV presented may not be representative of the actual subject property.

Just make sure you are comfortable that you are not paying above "market price" for the privilege of (potentially) receiving "pro-forma" cash flow.

By the way, in which market is the property?

@Brent Coombs @Anja Wehrmann

Brent brings up a great point. Almost eveytime I have checked the mls that turnkey home is priced above the one next door and I am not talking 5k above. I have seen 50k above and these are under 100k homes. Then I check rentometer and a good portion of the street is practically for rent currently. So if the one you buy is overpriced and five next door are for rent that kind of shoots the good investment on paper right off the bat. Don't take sellers word on all of this. A trust but verify policy is required. 

@Brent Coombs @Matt R.

Thank you for your advice. I hear you. Any suggestions on how to buy discounted properties without a turnkey from a distance while working full-time? 

@Anja Wehrmann you may want to reach out to @Mehran K. he lives in Los Angeles and invests out of state while avoiding turnkey. I also know he has a podcast that talks about his strategy.

Good luck

@Anja Wehrmann

Network with BP investors on the ground. Call on property management companies and let them know what you are looking for. Find an investor friendly realtor in the area. Start checking craigslists and fsbo. Do direct mail to the area ( yellow letters). Run I buy houses ads.  And or work this in reverse by finding management first then the property. Talk to @Mehran K. and discover his partnership model. Good luck with your search!

@Mehran K.

@Anja Wehrmann

I am not saying don't do turnkey as much as triple check first. There are reputable TK operators on BP like @Curt Davis and @Chris Clothier and more. If that fits your overall expectations better that is cool too. 

@Anja Wehrmann  going to throw you a curve ball.

with the new crowd funding rules to so be here... maybe short term debt deals with the top crowd funding shops  were you can make 9 to 12% would be an alternative to taking the risk in actually owning A rental

@Anja Wehrmann  However to prempt the west coast marketing folks we all know that there is no cash flow in CA..and many of these folks only buy turn key out of state of course they also only sell turn key for certain companies   LOL

@Anja Wehrmann

@Jay Hinrichs advice is spot on. I see a ton of real TK returns that are only 2% or so above the returns he stated which for the risk you are taking on at least to me is just not worth it unless you are in a really really good market and think it will appreciate. This is very hard to judge for a newer investor though as even the best pros get appreciation forecasts wrong all the time.  The only thing I would maybe think about is how much you need the money. Many of the best debt deals I see selling out quickly and it seems some of the yields are going down as demand is there for lower yields in the 9% - 10% range. 

I like the 12% ones with low price to ARVs but these are getting harder to find. 

Also, until Title IV is implemented I think most of these are only open to accredited investors. 

@Anja Wehrmann I have had some success by partnering with another investor on the ground in my target market. Things will be a lot more "personable" than working with a bigger operation. I like that! The key is finding the right person on the ground that works well with you and is very capable.

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