Searching for 1st rental...turn key or realtor/PM team???

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Searching for 1st rental...turn key or realtor/PM team???

Brian Goodwin
Investor · San Francisco, CA · Member since 2016 · 5 posts · 2 votes

Hey Community!

I am interested in purchasing real estate out of state (live in SF) and was leaning towards using a turn key outfit just for simplicity. I understand that there are some good ones and some bad ones and have done a lot of reading/research, and ultimately feel comfortable using a few outfits that are out there (i.e. Memphis Invest, Mid South, Elite Invest). 

I also understand that I would be paying full retail price for turn key, but if it's truly passive with a good PM and good tenant (i.e. Memphis Invest with a 2 yr lease with hopefully minimal maintenance/repairs and an average tenant stay of 4 years and 4% vacancy) then it is probably worth it for me.

I also understand that if I had a realtor/PM team "on the ground" I could probably find a property below market value, but then would need to have the realtor/PM team fill in the gaps (possible repairs, possible vacancy, etc).

Things I am looking for: hands off (passive), decent cash flow ~10% after all expenses (mort, interest, prop mgmt, prop taxes, repair/mait, util, vacancy, etc), and QUALITY tenants.

Are there any realtor/PM teams out there that you can recommend over using the turn key providers???

Really appreciate any feedback...thanks,

Brian G

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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
9y
Originally posted by @Brian Goodwin:

I also understand that if I had a realtor/PM team "on the ground" I could probably find a property below market value, but then would need to have the realtor/PM team fill in the gaps (possible repairs, possible vacancy, etc).

Things I am looking for: hands off (passive), decent cash flow ~10% after all expenses (mort, interest, prop mgmt, prop taxes, repair/mait, util, vacancy, etc), and QUALITY tenants.

Brian, it's really a fallacy that you can buy a property "below market" value on the MLS with a Realtor. Rarely does anything sell below market value. What you would be doing is buying a property at it's market value for the condition it is in and forcing equity through improvement. Even then, you may not be saving money for the following reasons:

1. Turn key companies usually buy further upstream at better prices than you would on the MLS.

2. Turn key companies are usually buying in large volumes and get large discounts on materials, supplies, HVAC and appliances.

3. You'll be paying carrying costs like taxes, insurance, utilities and mortgage while the property is being made rent-ready and then marketed for a tenant. This can add up to a couple thousand dollars easily.

4. You generally don't pay a tenant lease up fee which is usually the equivalent of 1 month rent with a turn key property.

I did a podcast on this topic which you can find on my website. Look for the 10-7-2015 episode.

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  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    9y
    Originally posted by @Brian Goodwin:

    I also understand that if I had a realtor/PM team "on the ground" I could probably find a property below market value, but then would need to have the realtor/PM team fill in the gaps (possible repairs, possible vacancy, etc).

    Things I am looking for: hands off (passive), decent cash flow ~10% after all expenses (mort, interest, prop mgmt, prop taxes, repair/mait, util, vacancy, etc), and QUALITY tenants.

    Brian, it's really a fallacy that you can buy a property "below market" value on the MLS with a Realtor. Rarely does anything sell below market value. What you would be doing is buying a property at it's market value for the condition it is in and forcing equity through improvement. Even then, you may not be saving money for the following reasons:

    1. Turn key companies usually buy further upstream at better prices than you would on the MLS.

    2. Turn key companies are usually buying in large volumes and get large discounts on materials, supplies, HVAC and appliances.

    3. You'll be paying carrying costs like taxes, insurance, utilities and mortgage while the property is being made rent-ready and then marketed for a tenant. This can add up to a couple thousand dollars easily.

    4. You generally don't pay a tenant lease up fee which is usually the equivalent of 1 month rent with a turn key property.

    I did a podcast on this topic which you can find on my website. Look for the 10-7-2015 episode.

    1Reply
  • Jacob Bedard
    Edgewater, MD · Member since 2016 · 3 posts · 2 votes
    9y

    Some of these companies have long waiting lists (I am near the end of the 4 month waiting list for MidSouth currently) so I would suggest contacting several of them ASAP to secure your spot ahead of time!

    0Reply
  • Spencer Shadrach
    Rental Property Investor · Memphis, TN · Member since 2013 · 57 posts · 13 votes
    9y

    @Brian Goodwin I sell plenty of deals to both memphis invest and mid south rentals. If you want a turnkey product then go with the company that suits you best. You must think about an exit strategy with all your investments whether it's rentals, stocks, or other. If you buy at market rate, you might not be able to sell at market rate. Let me know if I can answer any questions. 

    1Reply
  • Marty Bosse
    Financial Services / Real Estate Investor · Hanahan, SC · Member since 2014 · 34 posts · 44 votes
    9y

    Brian,

    Have you talked with @alex craig at Memphis Turnkey Properties? He is very active on this site. I've bought two from him and have zero issues. They have inventory in both Memphis and Little Rock. It's worth talking to him in your due diligence process. 

    1Reply
  • Alexander Price
    Investor · Gilroy, CA · Member since 2016 · 255 posts · 195 votes
    9y

    @Brian Goodwin

    @Marty Bosse He is having a meetup in Orange County I think January 18th or so. Sometime around there. Alex has a wealth of knowledge and strong opinions about the Memphis market. Reach out to him or go to the meetup. I wish I could go, but am out of town. 

    Good luck!

    1Reply
  • Alexander Price
    Investor · Gilroy, CA · Member since 2016 · 255 posts · 195 votes
    9y

    @Brian Goodwin

    On the note of teams for turnkey. So far I have used Rent to Rewards for two purchases and have been happy. I am new to the game though. 

    0Reply
  • Larry Fried
    Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
    9y

    @Brian Goodwin Turnkey is certainly a lot simpler, especially for getting started in out of state REI. That assumes you pick a good company to work with. In doing so, I highly recommend visiting the market you are thinking of investing in, meet and tour with the provider, and at that time you might also meet with other providers in the area to compare, as well as RE agents and PM.

    0Reply
  • Brian Goodwin
    OP
    Investor · San Francisco, CA · Member since 2016 · 5 posts · 2 votes
    9y

    thanks for the info guys...keep it coming in!!

    I will be following up with many of the recommendations mentioned.

    0Reply
  • Jeff Wallenius
    Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
    9y
    Brian Goodwin property management of your investment will make or break your bottom line. There are shady turnkey operators so you need to be informed on who you work with. We invest in 10 different states and our strength is in our proven team members on the ground. If your time is limited turnkey is the way to go. If you want to be more involved, and have the time to research and network then find and develop your own team.
    0Reply
  • Jason Hopkins
    Investor · Memphis, TN · Member since 2016 · 549 posts · 286 votes
    9y

    @Brian Goodwin  Hello, I'm a investor and realtor in Memphis, TN.  My broker offers rehab services in addition to PM.  We are not considered a turnkey company however we do provide many investors with boots on the ground services. 

    Regards,

    0Reply
  • Douglas SkipworthBusiness Member
    Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
    9y

    Hi, @Brian Goodwin.

    You should definitely talk with my colleague @Tina Sandoval or our good friend @Dean Harris.  They both specialize in working with investors like you.

    Investor's Guide to Memphis Real Estate
    View Page
    0Reply
  • Steven Gesis
    Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    9y
    Originally posted by @Brian Goodwin:

    Hey Community!

    I am interested in purchasing real estate out of state (live in SF) and was leaning towards using a turn key outfit just for simplicity. I understand that there are some good ones and some bad ones and have done a lot of reading/research, and ultimately feel comfortable using a few outfits that are out there (i.e. Memphis Invest, Mid South, Elite Invest). 

    I also understand that I would be paying full retail price for turn key, but if it's truly passive with a good PM and good tenant (i.e. Memphis Invest with a 2 yr lease with hopefully minimal maintenance/repairs and an average tenant stay of 4 years and 4% vacancy) then it is probably worth it for me.

    I also understand that if I had a realtor/PM team "on the ground" I could probably find a property below market value, but then would need to have the realtor/PM team fill in the gaps (possible repairs, possible vacancy, etc).

    Things I am looking for: hands off (passive), decent cash flow ~10% after all expenses (mort, interest, prop mgmt, prop taxes, repair/mait, util, vacancy, etc), and QUALITY tenants.

    Are there any realtor/PM teams out there that you can recommend over using the turn key providers???

    Really appreciate any feedback...thanks,

    Brian G

     Brian- 

    All great points and very reasonable/achievable expectations with good PM in place. Checkout this article, it should help summarize the key-points you hit on: A Simple Guide for Buying Out of State Turnkey Investment Property

    Most important is to make sure, that the passive intent, is always passive/continuos, with that said you should be able to easily capture the result you are seeking. Now just need to couple yourself with a TK provider that meets not only your criteria, but your culture of thinking, assuring you that your asset is being well cared for with foresight and ran as a business. 

    0Reply
  • Tina Sandoval
    Real Estate Broker · Memphis, TN · Member since 2015 · 95 posts · 77 votes
    9y

    Thanks @Douglas Skipworth! Welcome @Brian Goodwin I will email you my info so we can talk!

    1Reply
  • Brian Goodwin
    OP
    Investor · San Francisco, CA · Member since 2016 · 5 posts · 2 votes
    9y

    Everyone,

    Appreciate the input...it's been very helpful.

    I've looked at sales prices for a few of the turnkeys I've been considering and didn't realize how much more the turnkeys actually charge (based on comps). I'm starting to believe that my best bet is to find a realtor/PM team and find a property that is pretty much move in ready (or maybe with some minor upgrades). 

    I know this is probably obvious to a lot of you more experienced investors, but this is what is becoming apparent to me...so are there any realtor/PM teams out there that you would recommend in the Midwest? I'm open to locations at this point (though I have already been looking in Chicago, Memphis, and KC).

    thanks again,

    Brian

    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    @Alexander Price, the meet up is on the 19th, location not determine. I think the main difference between TK and going the TK alternative is equity vs cash flow. As a experienced investor of 23 local properties who did several BRRRR in 2008, those properties cash flow the least because I did the bare minimum of the front end. I am slowly upgrading all of these units so that they are places people want to live and stay, not places I rent our because my rent is lower. As I evolved as a investor and TK provider, I realized that equity for me is not a big deal since I am paying off my properties for a long term buy and hold. With that strategy in mind, it makes sense to do more on the front end and put more money down...basically position on the front end for more consistent cash flow. Often times equity in a deal means making a property inhabitable, but ignoring the 10 yr old roof, 15 yr old AC unit and fuse box that needs to be updated to breakers. In other words, equity may mean large capital expenses sooner then later. A new roof could mean 2 to 3 yrs cash flow, maybe more if other expenses come up or a vacancy.

    901-848-9028
    1Reply
  • Lumi Ispas
    Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes
    9y

    @Brian Goodwin, what is your goal? Are you looking for appreciation also, or just cash flow? I know only several turnkey companies, and as I am a Real Estate broker, I can do my own comparables. I can share that none that I know are selling properties at market value, that they are selling way above market value and most properties are located in areas where there is no appreciation, only C neighborhoods. Of course, they create their own comparables for their properties through past sales, that's why someone really knowledgeable in the market will be able to see the difference between real and made up comparables.

    Make sure that wanting to be a hands-off investor doesn't mean you are buying overpriced properties to just park your money and get a bit of cash flow.

    If you do decide to go with turnkey companies, choose at least B neighborhoods and hire two different local Realtors in the area or your own appraiser to check the value of the property you are interested in and the market rent. 

    Good luck!

    0Reply
  • Brian Goodwin
    OP
    Investor · San Francisco, CA · Member since 2016 · 5 posts · 2 votes
    9y

    @Lumi Ispas

    @Alex Craig

    @Steven Gesis

    @Mike D'Arrigo

    I'm mostly looking for cash flow (but am expecting that the property would at least keep pace with inflation...anything above that is gravy). I have other investments (vanguard total market, reits, primary residence) so again really hoping for a type A/B+ type property/tenants. 

    I have noticed that the "comps" in the area of these turnkeys are generally 20-25% higher, but some of that can be explained by the rehab they perform. If a turnkey provider is selling me a home for $100K and the comps in the area are more like $80-$85K, but the roof, HVAC, flooring, plumbing, electrical, etc are all new then I don't feel like I'm being ripped off. Obviously I'm still paying a premium, but a little markup isn't unreasonable to me if I can be hands off and hopefully have very few issues for the first few years (assuming the PM can get a quality tenant)...which is again why i'm shooting for a type A/B+ property/tenant.

    Will definitely reach out to a realtor to get input and have a home inspection done.

    Brian

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    9y

    @Brian Goodwin You're absolutely right about comps. People need to be careful of using MLS listings as "comps" for a turn key properties. Most of the time those "comps" haven't been renovated and may have some significant deferred maintenance. The vast majority of our investors use financing which means that the lender will do an appraisal. In this day and age, appraisers are being very conservative on their valuations, however, we have had very few appraisal issues. Because of how turn key companies buy (usually further upstream and not off the MLS) and the fact that they have large discounts with suppliers and better control over their construction costs than the average individual, they don't need to be putting big mark ups on the properties and pricing above market value. When a turn key company doesn't allow financing or doesn't allow for an appraisal contingency, you should watch out. It usually means that they know their properties won't appraise. There's plenty of good turn key companies that don't do that.

    0Reply
  • Alex CraigBusiness Member
    Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    @Brian Goodwin you can always check out the purchase price too.  I think you will find for a full rehab of a roof, HVAC and everything in the middle, the spread is not that big.

    901-848-9028
    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    9y

    @Brian Goodwin I don't think it's something you necessarily need to have figured out ahead of time. Nor is it something you need to be tied to. I would base my decision on a deal by deal basis. Take a look at everything everyone has to offer then go from there. You may see a smoking deal on the MLS buy that then down the road buy something directly from a turnkey operator. You can most likely even have either company handle the PM on both properties.

    0Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Brian Goodwin Just reading your question it sounds like you are finding a lot of value in the turnkey approach.  It's sounds like your valuing the real/perceived certainty of it.  While I use a PM in the market that buy in I definitely want to have a feel (and level of comfort) with the neighborhood and understand the property at a street level.  I personally can't outsource that discernment to someone in a different market.  I can have them get me the T12s, preview the property, etc. but I always want to put my own "boots on the ground" and compare and contrast a high number of properties.  That's the only I can get comfortable.  I think if you narrow your geography there's no reason you can't go down parallel paths with a realtor and multiple turnkey companies.  

    One thing that I've found incredibly valuable is that the PM that I use will point-blank tell me "I will manage this property" vs. "I want to manage this property".  If you can find an (overly) candid property manager it will help you with your first investment as well as subsequent ones.

    0Reply
  • Brynn Misener
    Real Estate Agent · Chicago, IL · Member since 2016 · 98 posts · 33 votes
    9y

    @Brian Goodwin - Hi Brian,  my partners and I have a turnkey real estate investment company based  in the greater Chicagoland area.  We have two properties to be ready within 30 days or so.  Our services include property management.  Please let me know if you like to hear more details! 

    0Reply
  • Tom Ott
    Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
    9y
    Originally posted by @Brian Goodwin:

    Hey Community!

    I am interested in purchasing real estate out of state (live in SF) and was leaning towards using a turn key outfit just for simplicity. I understand that there are some good ones and some bad ones and have done a lot of reading/research, and ultimately feel comfortable using a few outfits that are out there (i.e. Memphis Invest, Mid South, Elite Invest). 

    I also understand that I would be paying full retail price for turn key, but if it's truly passive with a good PM and good tenant (i.e. Memphis Invest with a 2 yr lease with hopefully minimal maintenance/repairs and an average tenant stay of 4 years and 4% vacancy) then it is probably worth it for me.

    I also understand that if I had a realtor/PM team "on the ground" I could probably find a property below market value, but then would need to have the realtor/PM team fill in the gaps (possible repairs, possible vacancy, etc).

    Things I am looking for: hands off (passive), decent cash flow ~10% after all expenses (mort, interest, prop mgmt, prop taxes, repair/mait, util, vacancy, etc), and QUALITY tenants.

    Are there any realtor/PM teams out there that you can recommend over using the turn key providers???

    Really appreciate any feedback...thanks,

    Brian G

    Often Turnkey providers that help you from start to finish can be a great way to earn passive income. Some "providers" really are just agents that farm the MLS for listings and act like agents. A true provider will be exactly what you are talking about, they own the home, did the work, placed the tenant, and will manage the home. When you are investing out of state, going with a provider is the best way to avoid some head aches. I understand if you find something on the MLS it might seem like a better deal, but there might be It all just depends on your strategy, what you have time for, and the market.

    Best of luck to you! Please feel free to message me if you have any questions.

    0Reply
  • Brian Goodwin
    OP
    Investor · San Francisco, CA · Member since 2016 · 5 posts · 2 votes
    9y

    @James Wise

    @Alex Craig

    @Andrew Johnson

    Your advice is sound in that you need to analyze each deal...and that the deal can come from anywhere...can't imagine anyone could argue with that. 

    My issue is trying to analyze each market (not literally every single one, but even the 3 or so that I've narrowed my search down to), then each turnkey or realtor/PM/contractors in that market, then each neighborhood in that market, then when I do find someone that seems reputable trying to confirm after buying the property and getting the initial tenants in there, but long term will the PM will continue to treat me the same over many years?

    I don't want to be taken care of only in the beginning...I imagine this could be pretty common. You find a deal either thru a realtor/PM or thru the turnkey and for the first few years everything is great...it's rented out the tenant pays on time, but my concern is after a few years which teams will still be fighting for you and your property to get it filled with a quality tenant after the honeymoon period. And I do think there are things you can do to limit this risk (multiple positive reviews of PM team, Type A/B+ properties/tenants, etc).

    I've gotten a lot of advice and it's hard to know who is just a "salesman" and who is what they are advertising. 

    I know I'll get there eventually it's just time consuming! And I also believe that you can sit on the sidelines forever waiting and watching and at some point you just need to get your feet wet, because even the best plans will have some surprises.

    0Reply
  • Gautam Venkatesan
    Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
    9y

    @Brian Goodwin another thing to consider - be aware sale prices and rents have gone up quite a bit in the last few years so any A/B properties you contemplate buying at market price today will need to have the ability to cashflow in the future should there be a correction and rents go down in whatever location you decide to purchase...

    0Reply
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