When to break away from Turnkey properties...

Question

Hello BP community,

I attended a Passive Income/Turnkey company seminar and I was impressed in the professionalism and attention to detail.  This company will walk me through the ownership process  and will cover the property management from A-Z.  I've decided I'm  going to purchase my first property through them.---    I work in construction and I would like to purchase and rehab properties to rent out.   I'm not confident in my construction abilities to rehab an entire house yet and have no investment experience.  I think this company would work  great for me now, but I would eventually like to  do it alone.   Ive met people who own nearly 10 Turnkey properties,  which works for them as they had no construction experience or desire to learn or move to another state.  My question is this.  Should I purchase 1 or 2 properties to learn about the process then branch out? It sounded simple, but I just finished a real estate class and it's a lot more complicated than I thought and that's just the realtor side of things.  Any thoughts on how I should organize this? or if there's a limit on Turnkeys I should purchase before going on my own. Thanks for reading, Josh

Marco Santarelli · Answer

@Josh Koett -- welcome to BiggerPockets!

Congratulations on your first property. Glad to see you getting started, especially living in an expensive state for real estate such as California.

The answer to your question lies in what you want to do in terms of your goals and long term objectives. If you want to be an active real estate investor and roll up your sleeves to acquire properties and rehab properties then that's great.

On the other hand, if you enjoy investing passively with turnkey rental properties and that will help you fulfill your goals then stick with that.

A big factor here is TIME.  We have many clients with deep pockets and large incomes that prefer to build a large real estate portfolio with our turnkey properties primarily because they don't have any "extra" time to get involved actively in real estate investing.

Other factors to consider are your knowledge, contacts, capital, and other resources that may be necessary to do it on your own. That should not be discouraging to you, just do a reality check with what you want and how you want to get there.

If you do choose to go to turnkey route, there are a number of good providers that will walk you through the process. A smaller number of premium turnkey providers will hold your hand from beginning to end and provide post-closing support.  Try to avoid companies or individuals that have an introductory conversation then "throw you over the fence" to a local rehaber or property manager to "seal the deal".

it has been my experience over the last 11 years investing out of state that systems and procedures are critical and having a great team on the ground will help make or break your success.

It has been my experience over the last 11 years investing out of state that systems and procedures are critical and having a great team on the ground will help make or break your success.

Continued success!

Dmitriy Fomichenko · Answer

@Josh Koett

Hopefully @Marco Santarelli might be able to answer some of your questions about Turnkey. He has years of experience in this field.

Alexander A. · Answer

Hey Josh,

Im not a cali expert or anything but im pretty sure it is very difficult even for experienced investors to purchase and rehab for rent and actually make cash flow in San Diego.  With that being said, I assume your plan is to do that out of state?  Do you want to purchase and rehab properties in a different state because if so, that will require you have a good team and boots on the ground wherever you are thinking of doing that.

There is no problem at all with purchasing turnkeys.  I would recommend proceeding with a turnkey rental out of state as long as you have properly vetted the turnkey seller and the numbers on the house are good.  You should not buy the first thing you see or from the first turnkey that has pitched you.  Check other providers in that market youre buying in and make sure the numbers all compare.   Ask for MLS sold and rent comps.  Due your own research on the house and make sure the numbers they are touting are correct.  Dont just believe what they are saying.  Ask for references and actually speak to those investors.

Its probably a good idea to let people here know who you are wanting to buy from so you can get opinions from others.  Just be weary because the way it works here typically on biggerpockets is you mention the word turnkey and you will get all the turnkey sellers chiming in and probably giving you biased opinions.  It would be very beneficial to get opinions from turnkey buyers, not sellers.

Marco Santarelli · Answer

Many good comments and suggestions Alexander.  I'll add to your last paragraph by suggesting that you speak with those that are 'Agnostic' to a particular market so that you can get a fair and balanced opinion.

Marco Santarelli · Answer

@Dmitriy Fomichenko -- thanks for the shout out.  You're a gentleman and a scholar.

Matt R. · Answer

@Josh Koett Great advice. Good luck with your TK search!

Ali Boone · Answer

I think that's a great plan. I've always bought turnkeys and one thing I think is super-valuable about them is with them being so hands-off, the investor can focus on learning fundamentals--crunching numbers, management, due diligence, etc. Get all of the foundation laid (how's that for a construction pun?) and then branch into the more complicated side of things. No certain number of turnkeys, just whenever you feel ready!

If only more people had the same thought on how to get started! (we'd be a much smarter community of folks)

Chris Clothier · Answer

Hi Josh,

The two options for you investing in real estate (active investing and passive investing through turnkey) do not have to be mutually exclusive.  Its not an 'or' question, but an 'and' question.  Can you buy turnkeys passively?  Yes.  Can you also purchase and renovate your own projects for long-term buy & hold?  Yes - and you can do both at the same time.  Many investors on here do it every day.

You can find properties in southern California and many within an hours drive of SD that you can purchase, renovate and rent.  I'm not sure they will cash flow positively, but you do have high demand in southern cal, so depending on area it may be a good investment for holding for a shorter period of time - say 1-5 years.

Without knowing anything else about your situation, such as your true experience in construction, knowledge of surrounding areas, the assets you have available to use or your local team, I would just say that you may be able to do both.

Lastly, if a company makes things sound super easy - like you have no work to do as an investor and sit back in your easy chair waiting for the rent check to come in - you need to slow down before buying.  I have been in the Turnkey niche for a long time and you have to do your homework before buying.  Company, city and management due diligence is imperative before you buy.  No matter what anyone tells you, you cannot just lay back with Turnkey investments.  You have to be diligent.  I always advise investors that they cannot be passive about their passive investments.  You have a job to do with these investments and if a company thinks you are not going to do your job, then they are going to work overtime selling you.

Best of luck as you get going and feel free to post more questions on here.  You will get lots of answers!

All the best - Chris

Mark Shaffar · Answer

@Josh Koett

It's definitely possible to save money by doing it yourself. Either way you will need to do due diligence on the front end. You're not the first contractor I've heard of who would rather pay someone else to rehab your home. Like @Alexander A. said, you need to make sure the comps and rents back up what you're being told. Ideally tour the neighborhoods yourself too before committing.

Curt Davis · Answer

are you buying to homes in your local area? If they are out of state homes then doing this on your own will be more difficult.  Also was this corny the actual to co

Pant or was it a marketing company wholes a large commission for basically connecting you to the actual to company?

When to break away from Turnkey properties...

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