Analysis Tool & TurnKey Company numbers?

Question

Hello BP Community,

I'm considering buying a Turnkey property and have a question about inputing numbers into the "Rental Properties Calculator" here on BP.  The information given by this company has the following information listed:  Sales price, rent, gross yield, net yield, gross revenue, tax, insurance, management fees, maintainance, and NOI.   There are different names that don't match up listed on the BP calculator  from the information given by the Turnkey company.  I'm still learning how to interpret the data and curious if this is how you'd evaluate a Turnkey property?  Is there another way you recommend checking the numbers listed by Turnkey companies. ---  Lastly, I understand this is a tool and may not reflect reality in the real world.  Should I contact a realtor in the area and ask for recently sold homes, market values, comps etc? Do you recommend other websites like Trulia, Realtor, Craiglist or others?  Please don't be critical of my question and I thank you for your feedback.   Josh

Ryan Mullin · Answer

I would plug in my own numbers in on everything rather than taking a Tk providers word for it. Honestly I would check every website possible, just to simply learn anything and everything about the house, the history on it and the area.

One thing that I have heard @Alexander A. talk about is checking craigslist to see what other properties in the area are being rented for.  Its very common to see a TK provider rent the property for the very top dollar amount and then put vacancy at 5% (or whatever..  lower than 10).  Obviously the more that it rents for the more they can sell it for.  - So its really important to keep an eye on those numbers.  Especially when you consider that a freshly rehabbed property will rent for more than it will after 3 tenants have turned over.

The other thing that investors and tk providers tend to overlook is Cap ex. (not on BP tho!)  For the longest time I had just lumped cap ex numbers in with maintenance/ repairs.  Now, I am starting to separate them into 2 categories.  Either way its important to have reserves sitting aside like Alexander said.. because no matter how good your tk provider is or how amazing your property manager is there with inevitably be maintenance, cap ex and vacancies.

As far as 800 in rent on 53k...  Just looking at the rent to price ratio...   that is a great tk deal.  IMO.

Best of luck.

Alexander A. · Answer

Hey Josh, If i were you I would always bump up the vacancy and maintenance to 10% to be more conservative.  These providers love putting 5% which in my opinion does not seem accurate.

Based on your numbers im showing that this one has a cap rate of 10.3 which is good and a Cash on Cash at 18.57% which is great.  That is based on a 30 year loan at 5%.

Here are the numbers I used:

Purchase Price:  53k

Rent: $800

Down Payment:  20%  $10,600

5% interest rate on a 30 year note

Taxes:  702 per year

Insurance:  $576 per year

Vacancy:  10%    $80 per month

Maint:  10%  $80 per month

Property mgmt:  10%  $80 per month.

So assuming that the property is in a good area and was rehabbed property I would say that is a winner.

Josh Koett · Answer

Thank you very much Bob and Alexander,

I appreciate the offer Bob and i'll be sure to ask for the comps in the future. Those are some great numbers on cash flow Alexander. Im learning quite a bit! Thanks again, Josh

Alexander A. · Answer

Oh and as Bob mentioned.  yes you absolutely have to get sold MLS comps on any property you ever want to buy.  That is just part of the due diligence phase when it comes to analyzing properties before you purchase.

Alexander A. · Answer

Thanks man I appreciate the kind words on my blog.   I typically get anywhere from $220 to $275 of cash flow on my turnkeys.  I think that is a good number.

It is important that the house you buy has new or newer big ticket items like roof/hvac/water heater. etc..  that way it prolongs the amount of time you will have to pay for something big.

From day 1, after closing, collecting rents.  You need to be sure you really put away those projected expenses and stash them away in some bank account. Dont ever use them until you have to.  Ideally, that account will grow and when the day comes to repair anything, you just use that money.  That is how I do it and I have yet to use any of my own money to have to fix something.  I just use the money that I have been getting from the rentals.

Does that make sense?

Also, if you are going to be buying properties of that price range and getting financed, you are not going to find anything that cash flows a lot more than that.  That is just the way it is.

Account Closed · Answer

Josh, if your turnkey is advertising a cap rate on a SFR ask them for the comps.  They will not be able to provide you any and they want you to think you are making a "return" equal to the "crap rate" they are trying to sell.  Feel free to have any turnkey representative contact me if you don't feel experienced enough to tell that they are bullsh*tting you.  Also watch out for those offering a price to rent ratio as an indicator of profitability.

Josh Koett · Answer

Thank you Alexander! I appreciate your input. Even with a good cap rate, is there an average cash flow per month you are looking for in a home around this price?  Maybe  $150-200 a month. Is there a number where its not worth your effort.  I fear with low cashflow if a problem comes up it would take over a year to recover the costs. I really enjoy your blog Cashflowdiaries and Im learning a lot through your experiences!   Thank you, Josh

Josh Koett · Answer

Thank you Ali and Brie,

@aliboone, here is an example. Im not sure if these are okay or poor deals and how to compare them... Single family, built in 1955, 1150 square feet, 3 bedroom, 1 bath, grade B, sales price $53,000, rent $800, gross yield 18.11%,  net yield 14.04%, gross revenue $9,600, tax $701, insurance $500, management fees $768, maintainance $192, NOI $7,439.----   I checked some of these properties on Trulia and some numbers were off like square footage at 840 sq.ft and the year for the property above.  Plus maintenance of only  $192 a year or $16 a month seems a bit low.... For the BP calculator I put in 20% down, 3% vacancy and 30 year loan.   Some calculations were negative and others at less than $100  a month cashflow.  Do most Turnkey companies inflate the numbers? Maybe I just need to sift through the properties offered and find a better one.  Thank you, Josh

Brie Schmidt · Answer

@Josh Koett

Some of the things you listed like gross/net yield, NOI are calculations.  The data needed to calculate your return on investment in the BP calculator or any other calculator are price, gross rents, taxes, insurance, management,  maintenance, utilities, vacancy, ect.

Ali Boone · Answer

I definitely wouldn't worry about Trulia and those right now.

As far as the calculator and the given numbers...what specifically are you trying to evaluate that isn't provided by the turnkey provider? What are you looking for from the calculator that isn't given there? (I'm not familiar with that calculator to know what it gives...my company has it's own)

If you want to shoot over numbers with descriptions, I'd be happy to interpret for you. I've always bought turnkeys myself and have built calculators and such.

Analysis Tool & TurnKey Company numbers?

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