Are Turnkey SFHs passive or hands off investments?

Question

IMO it might be a bit of a fantasy that somehow this type of investment is going to be truely passive or actually hands off. I know some TK promoters use these buzz words to help sell and create an investment picture but it is misleading at best. If one has to pay taxes, insurance, maintenance, capex, travel, evictions, mortgages, lease up fees, deal with PM and the rest that is neither passive or hands off. It may qualify as passive for IRS concerns and that's about it in reality. Many TK promoters really could adjust what they are presenting to new investors. It is just not kosher to represent these as hands off investments to newbies. Perhaps a something like a reit is 100% hands off instead. Random long distance SFRs or duplexes, tris, quads will never be. The reality of the liabilities just does not make that possible.

Agree or disagree? Thoughts or comments?

Engelo Rumora · Answer

Thanks for kind words Matt,

I'll tell you this mate, if we compromised our integrity and converted just for the purpose of making sales, I'd be a multi multi-millionaire right now.

I'd piss of a few people and eventually it would catch up with me.

Bankruptcy would be an option and a disappearance to Australia.

NOT me mate and definitely NOT Ohio Cashflow.

Delayed gratification and reputation is the key to this business.

We are building to last...

Thanks and much success

Adam Bontrager · Answer

@Matt R.

Anytime you purchase an actual physical property/asset, it's going to be more hands on than a REIT.  I would venture to say that most "turnkey" providers really don't provide the level of service required to qualify as a passive investment.  With that said, though, there are TRUE turnkey companies that do a really good job of providing hands-off rental investments.

TRUE turnkey providers know how to make the investment process as easy and hands-off as possible.  Buying from a company the provides TRUE turnkey service means that the property is already tenanted and cash flowing, all maintenance and management processes are already in place, they pay the bills and send you the cash flow each month.  Investors who partner with these companies will discover that the amount of ongoing time or effort required from the investor is minimal.  For investors that are out of state or busy with other interests, it's the perfect way to get into real estate without the hassle and headache.

Gerardo Dominguez · Answer

I agree.  Unfortunately, there's no standard definition for what a "turnkey" property really is.  The idea is that it's meant to be completely hands off.  But different companies use the term turnkey a bit more liberally than other so you might be stuck with a bad rehab job/ bad tenants/ etc.

I met @Engelo Rumora at a meetup in Chicago recently and his company seemed really good.  About as handsoff as a turnkey can be.  If I'm not mistaken, his company actually stays on to manage the property for the owner too.

Scott C. · Answer

Passive is definitely a misnomer.  I like to think of turnkey as a "streamlined process to close on a cash-flow property with a tenant in place."

Once you close on a property, the 'turnkey' aspect is almost irrelevant.  The question is whether you have property management or not.  If you went DIY, but put property management in place after close, you essentially have the same 'passive' process going forward than if you did turnkey.  Yes turnkey maybe gives you some advantages, like a few months of free maintenance/repairs, or access to the renovation crew that did the initial renovation work, but in the long term, essentially, you have a house with property management, and all the headaches that go with it.

It is the purchasing process that is vastly different if you go turnkey vs DIY.  I've purchased both ways, and yes, the process is much more streamlined (maybe better word than passive?) with turnkey.  DIY we'd be lucky to purchase 1 property a year, but with turnkey we easily did 3 in a single year, with lots of properties to choose from, and more available if we so wanted.

Matt R. · Answer

+@Adam BontragerI am with ya. Do hands off / passive investments have all the associated expenses might be another question or qualifier? A good PM should do all the day to day that part I get but since when did passive investments have ongoing expenses and liabilities? Perhaps comparing rental properties one is more passive than the other I agree. Just because the PM handles paperwork does not make it passive as that is actively your money that's going out.

Matt R. · Answer

@Gerardo DominguezI agree and Engelo is a realist he would never mislead his investors to make an extra buck.

Matt R. · Answer

Account ClosedSome are better than others I agree. Thanks

Matt R. · Answer

Scott C.Streamlined sounds more accurate. Scalable definitely could be biggest advantage. Thanks.

Ian Walsh · Answer

Every company will be built different.  As mentioned above, there is no standardized factory line model for the ideal company.  You need to get to know the inside of the company you are dealing with , how they run their business and how they manage the projects in the property management phase.

Are Turnkey SFHs passive or hands off investments?

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