First Investment Property Out of State - "Hybrid Turnkey"

[Randy Smith]

Investment Info:

Single-family residence buy & hold investment in Kansas City.

Purchase price: $119,360
Cash invested: $30,000

3/1 property we bought from a turnkey provider found on another Real Estate Podcast. This turnkey provider offered traditional turnkeys properties or what he called "hybrid turnkey properties." We chose the latter which meant that we purchased the distressed property for from him for $95,000 and then spent about $25,000 rehabbing the property through him as well. The quality of rehab was sub par and we've have significant repairs/maintenance in the first 15 months.

What made you interested in investing in this type of deal?

I had been listening to Bigger Pockets and other numerous podcasts for a number of years. After completing the Baby Steps by Dave Ramsey, my wife and I were ready to start investing. Since we live in Phoenix, AZ, we had difficulties finding properties that would meet are target metrics, but we were scared to do BRRRR or flips out of state for our first deal.

How did you find this deal and how did you negotiate it?

I heard a turnkey operator on another Real Estate Investing podcast, and he was very animated and high energy. We connected with him shortly after the podcast , connected with a few referrals he provided, and decided on one of the many properties he had available. Since he presented this as a "hybrid turnkey" we thought we were getting a great deal because we would purchase the house, then pay for the rehab which would be completed by his company, and than move to his prop. management team.

How did you finance this deal?

We funded the purchase and rehab from a HELOC on our primary residence.

How did you add value to the deal?

We thought we were adding value by using the "hybrid turnkey strategy," but we later found out that our appraised value was far less than the ARV he provided in the provider's numbers. This was our first lesson about ARV inflation from turnkey providers and wholesalers.

What was the outcome?

As it stands today, we are cash flowing most months, and over the past 15 months, we've realized about $1100 of actual positive cash flow. We moved the property to another property manager due to a negative experience withe the turnkey provider. On a positive note, our home has appreciated by about $12,000 and we saved about $2500 in taxes in our first year of ownership.

In hindsight, we wouldn't change a thing because this deal got us off of the couch and got us into the game.

Lessons learned? Challenges?

-Always have an inspection completed by a third party before completion of every transaction
-Check for comps in the area through a third party and compare to the ARV that is provided by the turnkey provider
-Check ratings and reviews of turnkey property managers before moving forward
-Turnkey providers can be a great option for first time investors but due diligence should be a priority

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We were able to find some great partners in insurance through NREIG and lending with Movement Mortgage. Both companies have been able to work with us on multiple properties in multiple states.

[Brian G.]

@Geoff Husa have you considered buying property as a Vacation Rental? You would more than cashflow and could have more control over it when you use it. Just block your calendar whenever you plan to visit or pause your listing when on furlough for a year. I know a good handful of ppl, myself included, who manage remotely. Provided PNG has internet you could do the same. DM me if you want to discuss. I have no angle and nothing to sell.