Are Turnkey Investments Really Worth It?

by | BiggerPockets.com

Is turnkey real estate worth it? There is a huge stigma around turnkey and rightly so. At the end of the day, there are just too many operators selling properties for far more than they are worth in bad areas. There are also property management companies associated with turnkey properties known to nickel and dime to death. So what you’re promised on paper is never actually what you make in real life. Are there good turnkey companies out there? Sure. But unfortunately, the majority of them are pretty crappy.

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Are Turnkeys Ever Worth It?

Look, I speak to so many investors, and many of them want to buy turnkey real estate. Of all those, the majority we turn down. I’ll tell you why. In my honest opinion, if you understand real estate deals well, you should do the work of finding properties yourself. Find the property, buy the property, renovate the property, put a tenant in the property, and manage it. You do not need a turnkey company.

Related: Sorry, But Turnkeys Aren’t 100% Hands-Off. For Success, Know THIS.

So, when is turnkey worth it? Honestly, you are probably going to get better deals yourself. But if you do want your investments to be passive, you don’t want to do any work, and you don’t want to control the entire process, then turnkey real estate might be for you. But you have to understand that you are not going to get the best deals. And in many instances, you will be paying more than what the property is worth. Then, of course, you’re going to have a property manager who is going to charge their fees to make ends meet and to cover costs.

I’d love to hear from you, especially investors that are buying turnkey properties and are able to buy them at below market value. I personally have not heard of anyone able to do that successfully.

So if you have done that, I would love to hear from you.

About Author

Engelo Rumora

Engelo Rumora, the Real Estate Dingo and your favorite Australian, quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate all over the world and has bought, renovated, and sold over 500 properties. He is currently in the process of launching an ICO that will “Decentralize The Real Estate Industry.” He’s also known for giving houses away to people in need and his crazy videos on YouTube. His life’s mission is to be remembered as someone who gave it his all and gave it all away.

13 Comments

  1. Charles Borrelli

    Good Post. I always watch your video blogs! I agree. Turnkey is great for Doctors or other professional people with not time to work investments. As a full time investor / rehabber I always find the absolute best way move forward in wealth is to do it yourself. A good rehab can double the value of a property in 6 weeks.

    • Isaac Agbolosoo

      I am Electrical Engineer – weekday and I rather find properties myself. Next, I will only invest close to where I live – mid west. Turnkey investment to me, could be another form of white collar crime , where management companies charges more that necessary on repairs, and many others.

      • Engelo Rumora

        Thanks Isaac,

        I would disagree on investing “close to where you live”

        I moved from Sydney, Australia to Toledo, Ohio and achieved my dreams in 4 years due to that move.

        It’s great being mobile and not anchored down to one location

        Much success

  2. Rob Cook

    Hey Engelo,

    I loved this post. FINALLY, the truth comes out, and most notably by a relatively big turnkey operator like yourself. Good on you.

    Your last statement mirrors my own thoughts on this:

    “I’d love to hear from you, especially investors that are buying turnkey properties and are able to buy them at below market value. I personally have not heard of anyone able to do that successfully.”

    Agreed. PLUS, I would add that this next thought is an important addition:

    Most Turnkey deals are NOT in high-appreciation areas. Therefore, cashflow is much more important. And turnkey, if properly accounted for, makes getting a cashflow almost impossible.

    And I define proper accounting as not leaving out large expense considerations like I always use in pro-form analysis for rentals = 10% each for Maintenance, management, Capex, and vacancy. That is 40% of gross rent right there alone, and until a track record is established, assuming any less than 10% for each of these is no justifiable. PLUS add taxes and insurance, which often come to another 10% and you have the fabled 50% Rule of thumb in effect.

    ANy stated ROI that either neglects to account for any of those expenses, at a realistic assumed rate OR have actual historical PROVABLE historical data to use instead, is bogus. And that is where most “turnkey investors” fall into the precipice and find out too late that they are screwed and without inflation to bail them out, it is not going to be a happy ending.

    Thanks!

    Rob

    • Engelo Rumora

      Thanks Rob,

      Agreed

      40-50% is a great expense ratio to use

      “Under estimate your income and overestimate your expenses”

      I always tell investors to use whatever formula they feel comfortable with even if that means taking the bubble gum they bought at Walmart while “thinking” about the property as en expense lol

      Over the past 3 years we have seen our investors getting around an 8% net “year after year”

      I’m looking forward to seeing what those numbers will be as the years keep passing

      But all in all I think that’s a decent return

      Have a great day

  3. ron mccord

    Good short Post….. I have used First Trust deed investing for the passive cash flow…
    a couple of bad tenants can mess with those very small, narrow positive cash flow returns on the Turnkey Deals but if inflation keeps going should turn out in the end for those that buy them

    • Engelo Rumora

      Thanks Ron,

      I always advise investors to buy with cash

      It helps with cashflow

      Safety also comes in numbers

      Not even David Copperfield can help you if you own only 1-2 properties lol

      7+ should be the goal

      Thanks again

  4. Kim Martin

    Engelo I believe it depends on how we do the math. I was becoming a stressed out, burned out, do it myself landlord with a full time job on the side. When I factor in the cost of my time, the stress in my life and my earning potential when I can focus on my day job, I am coming out WAY ahead financially with turnkey. (Yes it is hard to let go of the control at first.) Thank you for providing an honest, reputable service for those of us that want to focus on what we do best.

    • Engelo Rumora

      Thanks Kim,

      It’s a pleasure having you on board

      I know exactly what you mean as I also recently started putting a cost on stress and even my thoughts (Weird I know hehe)

      If I have to think about something that I don’t want to be thinking about

      How much am I actually loosing by not thinking about something else that is more profitable lol

      Have a great day and speak soon

  5. Christopher Smith

    I am a passive investor who bought in the 2010 to 2013 time frame. The properties were nearly new then so no turnkey intermediary was necessary, they were in effect already turnkey ready, and there were so many offerings at that time they were easy to find.

    Now really attractive deals are very hard to find because of pricing so I’ve turned to some turnkey providers to help with that process of finding acceptable properties in this more competitive environment. What I have found are that most TKPs are selling inferior properties in mediocre neighborhoods at unreasonably high prices and charging very high management fees.

    In my view, publicly traded REITs are a much better deal alternative than turnkey for the passive investor.

    Sure I got a number of grand slam deals back in 2010 to 2013 and still hold those properties currently, but those days are long past for any more direct additions by myself and TKPs appear to be a very poor substitute to make up the difference.

    In contrast publicly traded REITs are still reasonably attractive, totally passive, highly marketable and tax advantaged under both old tax law and even more so under the new tax law. TKPs appear to be a dud of an investment from my perspective, very little long term upside and not much current return either.

  6. Casey Maeda

    As a foreign investor (from Japan), I look to turnkey providers to get the yield I am looking for (over 10% cap rates) that I can’t get where I am currently living. I am ok with a lower return not having to deal with the headaches of rehabbing etc. turnkey can be a fabulous option for people like me provided the property management is on top of their game. But I agree, choosing the wrong tkp will lead to a poor investment

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