Exit strategies for turnkey properties

5 Replies

Hello, I am considering purchasing turnkey rentals from reputed companies like MemphisInvest (Memphis) or Profitfromrentals (Chicago), however I still do not see or understand what exit  strategies they offer in case I wanted to recover my equity investment (I know the goal is passive income, but it is always good to have an exit option should you need it), usually these properties are in city areas where their market price is higher than the median around, and if I wanted to resell them it would probably be hard to do so, or I would be competing with the same companies selling their own turnkeys in the area. In either case it seems hard to recoup your investment should you want to, does anyone have any experience or advice on this? Thank you very much!

@Julian T. This is an excellent question, and one that I think too view turnkey investors ask before they make the purchase.  I know when I made my first turnkey investment, the exit strategy was not foremost in my thinking.  Now it is much more so. Rather I relied on the turnkey operators advice to plan on holding the property for 5 years plus (ie: a long term buy and hold).  When the company is selling to you a property that is at full market value (which it was), it probably will take that long to get back what you put into it, given all the costs of your purchase and sale: rehab for sale, closing costs, commissions, etc.  And that assumes you bought in a modestly appreciating market, and that you didn't pay more than the market price.

 Another thing to look at is whether you are purchasing in a primarily owner occupied area or an area that is mostly rentals.  In a rental area, your sale is likely going to have to be to another investor, in an owner-occupied area (or one that is shifting to such) you can target either investors or owner occupiers or both.  

Now this is where many BP members would come in and say that it is important to make your money when you buy and have a good chunk of built in equity, ie: buy at a good discount.  If you're buying turnkey that is simply not realistic in many markets (many companies will represent otherwise, but what they say at face value - always confirm from independent sources), but there are exceptions.

I would ask this exit strategy question of any turnkey operator you are considering working with, including @Chris Clothier at Memphis Invest, who I believe will give you a very straight forward answer.  I also have some experience as a client with Profit for Rentals.  If you would like to know about that, go ahead and PM me.

Medium dgi logo rgbLarry Fried, Do Good Investing, LLC | [email protected] | http://DoGoodInvesting.net | OR Agent # 201211636

Wow I never really thought of that before. I have been looking into turnkey rentals recently as my first venture into the real estate world and just assumed I would keep the property "forever" (10+ years). After running the numbers on some of the properties I saw it seemed like it would take approximately 7-10 years to recoup the initial investment anyway. 

For those who have used turnkey providers, on average how long did it take for you to regain your initial investment?

It is almost impossible to know what the market/economy will be like in 10 years from now.  There are so many factors that will determine a properties market value.   For example: homes we were selling about 2-3yrs ago for $62,900 - $64,900 with rents of $850 average we are now selling closer to $75,000 average price.  A lot of this had to do with the hedge funds coming in and creating a scare on inventory which forced a lot of TK providers to up their end sale price bc our now initial buy price also went up.  I tell you this as to show that any of our clients who were buying during that period have enough equity and appreciation where they could not only sell and get their initial investment back but also make a few bucks.  It also makes it easier for our company to help them sell through our investor network and sell faster. Hard to say what the value of the homes we are selling now will be in 3yrs. 

Medium buymemphisnow stacksCurt Davis, Buy Memphis Now | [email protected] | 605‑310‑7929 | http://www.BuyMemphisNow.com | TN Agent # 00321765

Disclosure: I recently started working for the TK provider I bought from

Originally posted by @AKini Moses :

Wow I never really thought of that before. I have been looking into turnkey rentals recently as my first venture into the real estate world and just assumed I would keep the property "forever" (10+ years). After running the numbers on some of the properties I saw it seemed like it would take approximately 7-10 years to recoup the initial investment anyway. 

For those who have used turnkey providers, on average how long did it take for you to regain your initial investment?

 I bought 4 turnkey rentals from 2010-2012 in St. Paul, MN. Those had equity in a year and have grown 40%, but I don't think you can bank on that and you don't need to. If you are in a good market with low unemployment, low price to rent, and you don't overpay you lower your risk. The beauty of good cash flowing rentals though is that if markets tank you just continue to sit back and collect rent. 

I think being able to resell buy and holds is an added luxury in most cases if you are in a growing market. My area in PA is definitely long term. I know the appreciation is slow, owner purchase is low. I have no problem with that because I consider these 30 year investments with good flow and have bought them well below replacement costs. Now, if I buy and hold in NJ, I have a much better chance of having the ability to resell for profit if that's my strategy there. Much better appreciation and owner occupancy as mentioned..

Rafael Norat, RN Business Management | [email protected] | 908‑419‑3665