DATA POINTS - Multi Year Turnkey Performance - Your Experience!

32 Replies

Hey Everyone,

My wife and I are having a very lively debate about turnkey vs. non-turnkey.  Hearing all the turnkey success stories really fuels the debate but then I go in and read an inordinate number of thread where turnkey and turnkey providers are basically being pooh poohed.  The debate about whether or not going with Morris Invest or Jason Hartman is well documented so this is not an attempt to re-litigate those discussions not is it an attempt to get into which city is better, Birmingham, Indianapolis, Memphis, Kansas City, Oklahoma City, Chicago, Atlanta, Charlotte, Jackson, Jacksonville or Little Rock.

What we would like is some real world year over year performance data on how your turnkeys are actually performing.  Over time do they hold up or is the worst that's said about them on these forums really true?

Can you kindly share your experience with real world multi year numbers?  Most importantly, would you invest again in the same properties, knowing what you know now?


Looking forward to your data!

Hi @Josh Stack - Good post!  Just to clarify, there's no debate about us (that I'm aware of - just searched but didn't see anything) just a troll running a tax lien / tax deed investment company we're suing because we believe he owes us over $350,000.  I interviewed a few of his/their clients who felt ripped off and they told their stories of dissatisfaction / money loss.  Consumer advocacy is very important to us and that is why we do our best to expose apparent scams and interview people so the other investors can hear their first-hand accounts and protect themselves against bad actors. 

I've also interviewed lots of our clients who have shared their first-hand accounts with lots of data points on their portfolios so you, and other investors, can hear it right from the source.  One of the challenges of real estate investing is fragmentation and inconsistent data standardization, this is why we use one consistent format and software so people can evaluate things without having to be a detective on each deal.  I hope this helps and happy investing! 

@Josh Stack

How many years of performance are you looking for? I've bought TK and through brokers since 2012. What you need to be mindful of is Capex / turnover. I just experienced my 1st TK turnover after 2 years and it wasn't too bad on the repair (~$1000), until a couple of months later the AC broke and there went $2K (about 8 months worth of cash flow). I think I'm still positive overall - but I will have to update my spreadsheet to see where we are. Again, only 2+ years of TK to share at this time.

@Josh Stack I have been doing out of state turnkeys these past few years and it's been good and bad. Good because there is really no other way other starting with little capital but bad because of the entitled tenants and un scalability.

If you want I can share my p&l s but would don't want to post on the internet.

Hi @Jason Hartman ,

I make no comment on the quality of your company's services, I actually only became aware of your organization yesterday when doing some research prior to creating this thread.


I have not found the interviews and data points that you reference, can you post these as links in this thread?

Evening @Henry J. ,

Thanks for responding, perhaps I was not direct enough in my question.  What we looking for is simply - What returns where you promised (or did you project), did you achieve those returns over a multi year period, and what surprises came up along the way.

Most importantly, knowing what you know now, would you do the same turnkey investment again?

Thanks again, your input is super valuable.

HI @Lane Kawaoka , Thanks for your transparency, your turnkeys make a good case study. 


@BP_all, it would be great to hear your relative experience in turnkey as well.

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Great idea Josh!

I was  thinking about this the other day as I am looking into TK options in the near future. Hopefully we can get some good long term data points for reference.

Cheers.

Awesome @Josh Stack - love that! 

Let's just remember that Google is the overlord of all overlords - yikes. 

@Josh Stack

Be mindful 2 years of data is not sufficient for TK evaluation because 1) I haven't sold it yet so I will incur selling cost of 6-10%, 2) I haven't experienced much CAPEX / turnover so COC return isn't really meaningful until I sell.

TK projected return which didn't account for vacancy - 16% return based on 20% down, including principal pay down.

My own expectation with 1 month vacancy - 6.5% based on 25% down payment, not including principal pay down.

Actual - 

2016 return - about $2800 / 11% return, not including my travel expenses ($600) to visit multiple properties, and not including principal pay down.  

2017 return - I haven't gone through and updated my spreadsheet yet but I expect a loss or at best break-even.

Hope that helps.

Henry

I opted for turnkey (new construction) in Jacksonville, FL because (i) I was looking for diversification outside of the stock market, (ii) I do not have the time right now to manage a renovation long distance, (iii) I can't afford local properties, and (iv) I liked that new construction would tend to have minimal CapEx until the mortgage is paid down.

I have less than a year of data so perhaps my example isn't all that helpful but my cashflow numbers came in much higher than I originally forecasted in my pro forma (although, this is largely due to property taxes coming in way lower than I anticipated, in year two it will likely be corrected). Currently, I'm cash flowing ~$505/month on a property I purchased for $165,320 ($1420 in rent, ~$780 in PITI, $250/year HOA, 8% property mgmt). Cash return, not accounting for equity gains from appreciation or principal payback, is almost 13% in years when there is no turnover and closer to 8% in years where there is turnover. I expect these rates to decrease a bit once the property taxes get reassessed (new construction tends to lag a bit since the govt takes time to reassess the value after the building is constructed). I estimate that my property taxes will go up ~$100/month so my numbers will adjust accordingly.

For the most part, I'm happy with my decision and I would do a new construction deal again.  I ended up getting lucky with how the numbers turned out.  I've since evaluated a number of other new construction SFHs and many didn't perform as well the above example.  The key is being patient and critical of each opportunity.  There is no rush so take your time finding the right first investment.  If your first experience is bad, you'll be unlikely to do a second.  

@Jason Hartman do you have a data set that can show the actual performance of the turnkeys you have sold over time - thinking here that perhaps there could be an anonymized  data set of performance data that could then be smoothed over enough properties to take out all the wacky outliers and show actual, real performance vs predicted.

----

Back to the request at hand for folks to share their real world turnkey returns, I saw this today (another happy Morris Invest customer who's ROI IS THROUGH THE ROOF). It's easy enough to post anonymous satisfied customer videos like this but what I cannot for the life of me find is actual customers who will stand up and say "I budgeted for/was sold on a 14% ROI when I bought my home in 2014 and for the last three years my actual performance has been XX% ROI".

All I can find is anecdote, third hand accounts, scare mongers and no one who is actually putting real world data out there that can be verified and validated.

@Josh Stack - Not sure of your objective on the post, watching super happy Morris investor shows where you are leaning. Most of the investors on BP read and believe what they like to hear. There aren't many investors on BP that can give you enough data points one way or other. 

You have a choice of watching and reading super happy investors or work hard on understanding data on public records. My two cents would be to start from your back yard and make sure you understand your investment. Lack of time and focus would give you lot of experience. For general REI education I like these links:

https://www.biggerpockets.com/forums/311/topics/22...

https://www.biggerpockets.com/forums/52/topics/402...

https://www.biggerpockets.com/forums/594/topics/49...

Good Luck

Vivek

Hi @Josh Stack - We are working toward a software system that would aggregate that data IF the clients input their data, and if it's accurate, and that's a tall order/long-term goal. This is why I interview our investor clients on the show because people can hear from them first-hand.  

Hi @Vivek Khoche ,

I'm actually not learning to turnkey if that's the the intimation you are making.  Merely after some hard data which I can't manage to find.  Maybe the fact that it doesn't exist or people aren't willing to share it speaks volumes for what the data actually says.

Data is a scary thing if it doesn't tell the story that you want it to.

Thanks for the links, the thread started by Sabrina Brown was perhaps the most helpful.  There is so much good information in that thread its a pity it's not summarized in ebook form or something more digestible!  It would also be great if threads like this could be pinned or favorited or added to a START HERE thread.  There is so much content on these message boards that discoverability is somewhat of an issue, so thanks for the link, your post has been very helpful

@Brandon Hausauer which TK provider did you use to buy in Jax, and what management company are you using for 8%?

As a resident/investor in Oklahoma City real estate, I'm curious what OOS investors are looking for regarding ROI and Capex when it comes to TK's in OKC.

We began acquiring (C+) SFR houses on a single street about 2 years ago, then renovating and renting them primarily as Sec-8. Now have 6 SFR's on that street.

I'd call them TK at this point based on all the improvements, and was considering making them a package deal. What are OOS investors looking for as ROI? Is it based on cashflow? How long do you need to see data? Do OOS investors use PM's? Any advice would be helpful as we consider what to do.

Originally posted by @Mark Moss :

@Brandon Hausauer which TK provider did you use to buy in Jax, and what management company are you using for 8%?

 Turnkey provider = JAX Investments.

Property mgmt company = Suncoast.

Disclosure: I refer for various turnkey providers but for this response I'm solely speaking from the perspective of owning my own turnkeys.

I can't offer you specific numbers on my turnkeys right now because I would actually have to calculate them. I bought all of my turnkeys in 2011-2012. They've all had some down moments, as can happen with any rental property, but I'm certainly very much so in the plus on the cash flow front. And because I bought at the right time and in the right market, they have all doubled or more in value in the short amount of time. That opportunity isn't so much one now because of where we are in the general RE market, but it's definitely been an added bonus.

I can gather my year-end statements and see what I come up with, but for now I'll leave it as a generic- turnkeys can definitely work out. I wouldn't buy any of mine differently and I don't wish I had done it differently.

Because I've been in the turnkey space for a while and on BP a lot (I write a lot of articles on the BP blog about turnkeys), I've seen the comments you are referencing. I can honestly say that in a lot of the threads, I know for sure a lot of the people who are voicing negative opinions have not actually had buying or owning experience through the companies they are referring to. Not to say everyone isn't worth listening to, but just remember that anyone can talk on these forums.

Statistics-wise, I've worked with easily hundreds of people buying turnkeys, including myself. I can think of...{thinking}...2 disaster cases. Fairly freak of nature, if I do say so. Outside of the total disasters, I'd conservatively (and very roughly) come up with...{thinking}...10-25% of turnkey buyers that I know have had challenges since buying their properties? But of those, I can definitely say a significant portion of them didn't handle the challenges correctly and make the problems worse by not handling them. Turnkey buyers tend to be of the mindset that they literally have to do nothing once they buy the property, and that's not the case. You have to manage the manager, and very often, the managers suck. I've had horrible managers and I just fired them all and hired new ones and cleaned up the dust. Manage the manager.

So, I personally have had great luck with turnkeys and have seen a lot of people have great luck. Way more with good luck than bad luck...assuming you work with a genuine turnkey company in a steady growth market. If you include bad turnkey providers in declining markets, than all bets are off in my opinion.

Hope that helps some!

Hi @Ali Boone , thanks for sharing your anecdotal experience, if you have any data to support, that would be interesting as well.

I own 4 turn keys through MidSouth in Memphis and 1 through Alliance Wealth Builders in Birmingham (I also have a couple of rentals in Boise, which perform worse cash flow wise than these but have better capital appreciation). My oldest one is from 2015 so I don’t know if that will be enough data for you, but I am cash positive on all these properties. But, for me, a US expat in Japan, the real advantage is in taxes. In Japan, the entire purchase price of a SFH that is over 20 years old can be depreciated off your income taxes in as little as 4 years. Because of my rentals, I actually look on paper like a low income earner despite earning about $100,000 a year. This doesn’t just affect what I pay every year but also for government services like child daycare. But, as a Japanese tax payer, I can’t use 1031 exchanges, so I plan on holding these properties forever. I think quantitative data alone can’t tell the whole story here because an individual’s situation can determine whether it’s worth it or not. That being said, I am happy to share my actual numbers for the last couple of years (it will have to be a in another post, I’m on my phone).

Hi @Daniel Mills , thanks for the unique perspective.  We are too living outside the US thus our research on what the real experience of others is.  The depreciation you are getting sounds very nice, well done!

Numbers:
My oldest TK property was bought through MidSouth in Memphis for $55,000. I bought it with 20% down on a 30 year mortgage at a 4.9% rate. I bought it in May of 2015 and my net profit each full year has been about $3,500 (so 2015 was about half of that and 2017 is currently at about $3,000).

My other MidSouth properties have performed in a similar fashion, but there are some bad years. My other property there which returned about $3,500 last year has only given me about $800 this year because of some storm damage and turnover. However, as I stated above, this is not such a big deal because of the tax advantages.

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