Turnkey at full value

[Michael Gee]

Hello all,

I have a question about purchasing multifamily turnkey properties. Is there a formula for this or would you want to purchase at full value and look to gain your investment back in cash flow? I know we always look for a lower price but I am wondering if there is a standard formula for investors when looking for multifamily turnkeys e.g duplex, triplex?

[Ali Boone]

If you are buying through an actual turnkey company then there is not really a formula because you aren't the one deciding on a price, they list the price of the property. You would/could compare that to market value, but those prices are pretty much set. If you are just buying a random turnkey property, the seller has probably set the price and you just need to determine if it's a legit price or not. You can do two methods for that- look at comps and see what it should be valued at (taking into account it's fully rehabbed and good to go) or you can look at the income approach to valuation and, knowing what cap rate is standard for that market, figure out what the sales price should be.

Turnkeys will always almost be more of a cash-flow play because they are almost always at or above market value, so no equity starting out. The real trick to get some appreciation working in your favor is to buy the turnkey in a market whose growth spurt hasn't fully happened yet and has room to grow. Atlanta was a huge one over the last few years, Phoenix before that, and more recently Dallas and Chicago have been fast-movers. Chicago especially. So that's the trick for equity in a turnkey, grab the right market at the right time.