Thoughts on Turnkeys?

[Shelby McKean]

I don’t hear much about turnkey properties on the BP podcasts.  Is there a strategy for buying something that someone else has already improved or is inexpensive (or off-market) and starting to do a short-term rental right away?    I realize that turnkey properties mean you can’t improve equity so a re-assessment would not add lending dollars, but is there a scenario where the numbers work?  Break-even cash flow?

I am thinking of using an apartment or condo to eliminate my commute four days per week and making it available on weekends for STR. My primary residence also has an apartment I am preparing as an STR.

[Isaura Orellana]

Turnkey operations are an excellent way to minimize headaches and begin Cash Flowing the day you purchase your property. Most turnkey operations also have excellent in-house management as well as real, true and established boots on the ground teams in place to help the buyer protect they're investment and thereby lowering the investors risk. Other benefits to purchasing turnkey if you as a buyer is out of state or out-of-country is the knowledge and experience the turnkey provider can offer with such things as the best local lender for DSCR loans etc or guiding the investor on setting up a local LLC if the buyer chooses to purchase through a company as opposed to one's personal name. Another benefit to purchasing Turnkey would be they in all likelihood would have vetted the tenant and would have methods in place to make sure a higher quality of tenant was delivered. Perhaps the Turnkey Company may even specialize in section 8 which would be another big positive if an investor is looking for less risk and government guaranteed rent and cash flow. If you have any other questions please feel free to reach out.

[Ashish Acharya]

Quote from @Shelby McKean:

Quote from @Ashish Acharya:

Turnkey properties can work if you're seeking immediate cash flow without renovations. While you can't build equity through improvements, the strategy can still be profitable if the numbers align. Using a turnkey condo for short-term rentals on weekends while reducing your commute could be smart, as long as STR income covers costs and local regulations allow it.

From tax perspective, if you personally use the STR as you intend, you cannot create losses under vacation home rules. Means no STR loophole benefit.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

 This is a very important little nugget.  Thanks-Shelby

Happy to help!

[Shelby McKean]

Quote from @John Morgan:

Quote from @Shelby McKean:

I think I am learning that I probably should have said rent-ready and not turnkey, but I think you have answered the subtle question I was asking which is, is it possibly worthwhile to invest in properties that give you only one type of revenue (paying down the mortgage) and maybe don’t give back the cash immediately for the next investment?  

If I am understanding, you don’t (or can’t) refinance these properties for seed money for your next investments. 

Thanks for your reply  

I’ve bought 18 or 19 houses with tenants in place. I’ve done well off them and they were all easy transactions. I actually bought one last week and another one two weeks ago with families in place. For me, I prefer investing this way. I’ve also bought a half dozen houses that were vacant but only needed an appliance or two to get ready to rent. Those are easy too and they all appreciate the same over time. I target C+ class hoods that seem to have tenants that stay much longer so my turnovers are almost zero. Almost all of my tenants won’t ever be able to afford or qualify to buy a house. I keep them under market rent and hopefully they’ll stay for a decade or two. Turnovers within 3 or 4 years will crush your profits. It’ll cost you 5-10k to repaint and clean them up. Think long term and look for  properties you can buy with tenants in place. Those are the properties I love buying because I know these people don’t ever want to leave and will be with me for a long time. 

Wow- this is a super interesting strategy that not many people have talked about.  I did come across a friend who has had a rental for ten years with the same family in it that they “inherited” when they bought it so I will look into some possibilities in my area.  I appreciate the story of your investments.

[James Wachob]

Hi @Shelby McKean, One of the best things about turnkey properties is that they really take the hassle out of ownership. They come fully renovated and often have an in-house management in place, so you can sit back and enjoy the passive income without worrying about repairs or dealing with residents in the middle of the night. Although it's not always a guarantee, many of these properties already having residents at closing, so you can start earning cash flow right away.

All in all, turnkey investments offer a fantastic mix of convenience and solid cashflow. If you’re curious to learn more or want to chat about it, let me know!