turn key vs newbie best recommendation

7 Replies

hello to all my name is mike I am currently looking at buying my second property in the area of Detroit my option that I am considering is buying with money from my 401k a turnkey property that already has a tenant in place or to find the property my self and manage it. advice welcome

@Rafael Trinidad I am not a huge fan of the turnkey model. Unless the home is a newer construction home in an area that will attract great tenants, all you will really be buying is a few years of low CapEx (maybe). If the turn key provider just did "paint on a pig", you could be in for a world of hurt. I imagine Detroit's building stock is a lot like the ones I am buying in Berwyn and Lyons; old.

If you buyer a property the good old fashioned way, you have a better chance of buying equity. I have looked for "value add" deals ever time where I was buying a mildly distressed property and slowly managing the asset to create better value. This gives you more flexibility as you can sell or refinance as needed. 

Originally posted by @Rafael Trinidad :

hello to all my name is mike I am currently looking at buying my second property in the area of Detroit my option that I am considering is buying with money from my 401k a turnkey property that already has a tenant in place or to find the property my self and manage it. advice welcome

 Turnkey can be great for investors who do not have the time nor ability to be a property manager/real estate agent. A turnkey is very passive and is great for OOS investors. Just make sure the provider is a TRUE provider and not just a glorified real estate agent. They should own, renovate, and manage the property all in house. 

Good luck to you! 

You may want to consider being the bank with your 401k you don't want to buy depreciable assets in a retirement account when you cant take the depreciation and especially in an area with limited appreciation potential.

Use after tax money so you can take the full benefits of the rental.

use 401k to buy great performing notes and make that interest income tax differed you will make far more money doing that than owning the asset in your 401k.

@John Warren I'm not sure why you feel that a turn key property is going to have more CAPEx than a property bought "the good old fashioned way". In fact, it would be just the opposite with a good reputable turn key company that does a quality renovation. The property bought the "good old fashion way" may not have had a thing done to it in 20 years and has all kind of deferred maintenance whereas it is more likely that the turn key property will have new AC, furnace and maybe roof. Plumbing and electrical may also be upgraded. Personally, I think one of the worst ways to buy a property is to buy something off the MLS that has had nothing done to it. Also, "newer construction" homes are no guarantee of having less CapEx. A house built in 2000 might be considered "newer" constructions, at least when compared to turn keys built in the 1950's and 1960's commonly found in the Midwest. The catch is that that house built in 2000 is 18 years old and most likely everything is original and very well at the end of it's useful life. The fully renovated turn key built in 1960 may very well have all new hvac and roof. It's not the age of the property or the method it was acquired which determines what CapEx will be incurred. It's the condition of the property and what rehab has been done do it. A scope of work and independent property inspection will tell you all you need to know.

@Mike D'Arrigo I am sure there are companies out there that do a great job with turnkey. Obviously, the investor in that case would need to do due diligence on the turn key provider as well as the property they are buying. They also would need to do due diligence on the management company that will be managing the asset, as the management company can be even more important than the turn key company in many cases. 

I also agree that this is on a case by case basis. I was simply stating that my preference is always to "get my hands dirty". I buy properties that are need love so that I know exactly who did work on the property and exactly what was done to the property. Not everyone is as crazy as me though!