DATA POINTS - Multi Year Turnkey Performance - Your Experience!

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DATA POINTS - Multi Year Turnkey Performance - Your Experience!

Josh Stack
Investor · Cramerton, NC · Member since 2017 · 336 posts · 198 votes

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!

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Brandon H.
Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
9y

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.  

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    9y

    @Daniel Mills, Sorry I can't speak from the Japanese side of taxation.  But anyone owning real estate in the US - foreign national or not can do a 1031 to avoid US tax on the sale and depreciation of real property.

    The 1031 Investor5140 Reviews
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    1Reply
  • Daniel Mills
    Investor · Kusatsu, Shiga · Member since 2015 · 147 posts · 87 votes
    9y

    @Dave Foster - OK. Unfortunately, I'm almost 100% sure that I will get nailed in Japan on the sale. It's crazy high here too. First, I have to pay cap gains at 40% for a property I've owned less than 5 years (20% for more than 5) and the depreciation recapture. Since you can depreciate the entire purchase price on properties in 4 years if they are more than 20 years old, that's going to be a lot. I will double check with an accountant here though. If I can do this, I would be so happy.

    1Reply
  • Josh Stack
    OP
    Investor · Cramerton, NC · Member since 2017 · 336 posts · 198 votes
    9y
    Originally posted by @Ali Boone:

    What kind of data would you want? Actual cap rates or cash-on-cashes? Or total cash flow, or....what?

    Morning @Ali Boone,

    Really just looking for:

    - I went into the deal expecting XX% Cash on Cash ROI

    - Actual performance has been XX% Cash on Cash ROI

    - Differences between expected and actual are X, Y, Z.

    - Knowing what I know now, I would/would not make this investment or type of investment again.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    9y

    Okay, cool, thanks. I'll have to put some thought into the "expecting" category. I don't have the original listings to know exactly what rents were projected at and therefore what CoCs I was expecting. I remember the caps were all advertised somewhere between 10-14% at the time (way back when), but I'll have to dig into old notes to see if I can hone in on the more specific numbers. If I didn't save spreadsheets or something with those numbers, I may be a little stuck for specifics.

    Can't promise it right away, but I'll start poking around in all my stuff. 

    0Reply
  • Brandon H.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
    8y
    Originally posted by @Josh Stack:
    Originally posted by @Ali Boone:

    What kind of data would you want? Actual cap rates or cash-on-cashes? Or total cash flow, or....what?

    Morning @Ali Boone,

    Really just looking for:

    - I went into the deal expecting XX% Cash on Cash ROI

    - Actual performance has been XX% Cash on Cash ROI

    - Differences between expected and actual are X, Y, Z.

    - Knowing what I know now, I would/would not make this investment or type of investment again.

    I like this framing because then you're using the same assumptions for the initial expectations versus actual performance. I've read a lot about people "reporting" their numbers but they aren't telling the full story (e.g. failing to include CapEx on their pro forma, excluding some cash outlays when calculating their return, etc.). This is why it's very difficult to compare one person's numbers to another's when they're using different assumptions/reporting criteria. The important part, which @Josh Stack is getting at, is the expectations versus reality.

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  • Satish Jayanthi
    Member since 2019 · 2 posts · 0 votes
    7y

    Hey Brandon, 

      I recently signed a contract with JAX. The property will be ready later this year. Your posts were really helpful. Hope things are still going well.

    0Reply
  • Josh Stack
    OP
    Investor · Cramerton, NC · Member since 2017 · 336 posts · 198 votes
    7y

    @Brandon H. I think it's interesting that no one has been able to or willing to share detailed data about the performance of their turnkey portfolio.


    I think this speaks pretty loudly that turnkey is not necessarily a winning strategy.

    0Reply
  • Brandon H.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
    7y
    Originally posted by @Josh Stack:

    @Brandon H. I think it's interesting that no one has been able to or willing to share detailed data about the performance of their turnkey portfolio.


    I think this speaks pretty loudly that turnkey is not necessarily a winning strategy.

    Yeah, I'm surprised more people haven't shared specifics (e.g. most people didn't share to the same level of granularity as I did).  Maybe we should've provided a template to populate with people's numbers to help compile our dataset.  

    I do think there are a lot of turnkey companies out there that are just pawning off bad investments and the market is blindly gobbling them up.  Too much cash sloshing around so good investments are harder to come by.  People are buying properties that only return 3% cash on cash - they are one month vacancy away from losing their profits for years!  

    Alternative theory: Perhaps turnkey investors are more inclined to be more passive and "set it and forget it" and don't spend as much time on BiggerPockets. I'm still leaning towards the above though. Turnkey is a great place to start for first time investors but, at a certain point, you probably need to start doing your own fixer uppers (e.g. BRRRR) or you'll never scale...

    Update on my numbers:  
    Purchase price = $165,320
    Rent = $1,476/month
    Mortgage = $647/month (30 year @ 4.75%)
    Property taxes = $212/month
    Insurance = $42/month
    HOA = $21/month
    Property mgmt (8%) = $118/month
    Cash flow = $437/month (~11% cash on cash return)

    This is before CapEx (the property was new construction so I haven't had many repairs), tenant placement fees and vacancy (I haven't had any turnover). Return is down a little bit due to the taxes finally being reassessed (as expected). In years with turnover (assuming one month vacancy and paying the tenant placement fee), my return drops down to ~6.34% cash on cash return. Please note that these rates do not include any principal pay down - simply annual cash flow divided by my initial cash outlay. The cash on cash return isn't bad but not some bombshell either.

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