Turnkey or Properties with some minor rehab?

Question

Hello BP Family!

I've made some progress and wanted to share. I just created a LLC in PA. I'll be looking at Philadelphia, Bethlehem and Allentown areas.

Although, I am not too familiar with those areas, I will be doing more research.

I know this is never ending debate, but... Should I invest in Turnkey properties or Decent ones that need some minor rehab?

Just to give you some context, I have a full time job and a family with young children. On top of that, as you house owners know, there's always something to do with your primary residence.

I'm also giving some thoughts to hiring a property manager. Please share some of your thoughts thinking back the day you started investing in  your First rental property.

Thank you!

Justin R. · Answer

This depends on your objective and goals.

Do you have extra money that you want to create some cash flow, and long term wealth, while spending little to none of your own time/energy? If so turn-key properties may be for you....

Do you want to create equity, and potentially continue using the same funds to purchase additional properties? If so then you need to find "under valued" properties, rehab, and rent.

Kyle Keck · Answer

@JASON CHOI

I started self managing for the main reason of more cash flow so I can reinvest in more property’s.

You really need to be sure if using a property manager you account for all there expenses so you are still making some money.

All have different fee and offer different services .

I personally shoot for more cash flow to get the compound affect going .

Jonathan Oh · Answer

@JASON CHOI

What is your end goal? If you are looking to expand quickly, turnkeys won't get you there. But if you're just looking for somewhere to place your cash and are ok with lower returns, turnkey is a good route. It seems like you're worried about time commitments with your career and family in which case, turnkeys are also good. I mostly invest in turnkeys, but I have colleagues that also have a ft job with a family and have successfully done brrrr remotely - so it is possible. Also, on PMs I think every investor here had problems and get annoyed by them, but they do take a lot of the grunt work for you. I'm a strong supporter of using REPUTABLE PMs. If you have decent management in place, their fees shouldn't be a deal breaker. And again if you have time commitments you're worried about, hiring a PM should be a no brainer - just make sure you vet them.

Nicholas Parish · Answer

I agree with Justin. If you are looking for a more passive route where you intend on working your day job while still accumulating real estate, Turnkey should definitely be considered. However, if you are looking to be a more hands-on investor and you are looking to oversee the entire process and develop those business relationships yourself, the BRRRR method would suit you well.

If you're interested in Turnkey, we are active in Kansas City and have seen great success in our market. If I can be any help, please reach out to me and i'd be happy to answer any of your questions.

Ali Boone · Answer

Try this for some considerations-

https://www.biggerpockets.com/blog/buy-rehab-turnk...

Stephen Akindona · Answer

@JASON CHOI, like others have said it really depends on your personality and the goals you have set for your real estate investing! I know guys who have high paying jobs that they love and don't want to quit! They want an alternative to the stock market to grow their cash and so they choose to invest via a turnkey company! They WILL NOT get the same returns that someone who finds their own deals will get! For them this strategy works!

Are you wanting to be active or passive?  (I'm assuming here that you know even investing with turn key companies is not 100% passive!)

I have always desired to be very active in my real estate investing. I want to be the guy finding the deals, finding the money, managing the rehabs and managing the asset. As you start to think about scaling this becomes hard to do and eventually you will grow to want to outsource most activities.

Mike D'Arrigo · Answer

@JASON CHOI It all depends on what you consider "minor rehab" Generally speaking, there's not a lot of opportunity to force equity in a minor cosmetic rehab because you're not going to be able to buy at distressed pricing. To force equity, you need to make some fairly significant improvements. If you're talking about simple paint and flooring etc, then you may not even recover the cost and all you'll have done is taken on the hassle of getting it done rather than buying something truly turn key.

Nathan Hillier · Answer

Like a lot of investors have said - it comes down to your willingness to put in time and energy into these projects, as well as your objectives and goals.

If you have time, energy, and willing to oversee the project - then value add rentals are a great route to go. This also involves a huge learning curve between working with contractors, overseeing the rehab, and ensuring proper progress is made..etc. The best part, is once you've done a few and know what you are doing, it easy to do more and compound your success using your established teams and experience.

Turnkey rentals are a great route to go as well for passive income. The main issue i've found is that most turnkey companies sell at high prices, which really hurts cash flow and the ability to refinance out afterwards. I currently working with a large network of investors to create turnkey investments where you can refi out, and still collect great cash flow and gain better ROI than what most turnkey companies can offer - win win deals for both buyers and sellers. I personally feel unless you have a lot of cash and little time, turnkey properties offered by many companies today offer lower ROI, taking too much profit off the top for the end buyer, and can slow progress to achieving your goal. But, you do not have to deal with the headache of fixing up properties and can begin cash flowing right away.

Whether you choose value add, or turnkey, it is crucial to have a great team behind you. Between property management companies, general contractors, and a third party individual to walk the property and take photos for you. If you ever got stuck and had to pick value add, or turnkey, I would go with the option that involved the best teams to work with, and a route which you are most comfortable pursuing.

Please feel free to reach out to me anytime, I'd be more than happy to talk and share my experiences! Cheers

James Wise · Answer

No reason a property manager can't do minor rehabs on houses you buy right off the MLS. Pick yourself up some little old lady homes & you're likely going to maximize your returns.

Joel Krieger · Answer

Regardless of whether the property is being sold as turnkey or not, definitely get a property inspection and find out what issues are discovered.  From my experience you want to make necessary repairs with a qualified contractor to baseline a property on day 1 so that all critical elements--roof, plumbing, appliances, and mechanicals--are fully functional and you have an understanding of the remaining useable lifespan. The biggest miscalculation for me when just starting out was underestimating the need for adequate replacement reserves to minimize disruptions in cash flow.

Turnkey or Properties with some minor rehab?

Most Popular Reply