Midwest Turnkey for First Purchase?

Question

Hello,

We are trying to stretch staying in our two bedroom town home with our three growing young boys as long as possible to save for a down payment on a SFR once the oldest starts into his teen years.  We plan on keeping our current home as a rental, but in the meantime I am considering paying cash for a turnkey rental in the Midwest somewhere (or wherever I could cashflow something) in order to start the two year process of receiving rental income on our taxes, so that once we move and are settled in our home, I can actively buy more properties and not have the debt to income problem.  We are blessed with good income, and I am trying to lay the foundation down to potentially own 100+ rental properties over the next 20 years.  Once prices cycle here in Southern California I would like to invest locally, learning to buy at a discount during the downturns, rehab and hold until it makes sense to sell again, or just hold forever.

I am having a blast so far learning from all the great posts, podcasts, and books that you all recommend!

Thanks for your help,

Jeff

Chandler Spence · Answer

That's great info, @Ali Boone! Your articles are packed with great information as well. I'm currently investing with a turnkey company in Indy and the returns are as advertised, 12-20% CoC Returns and 8-12% Cap Rates.

Ali Boone · Answer

Hey Jeff! I do exactly as you are wanting to....I live in LA and buy turnkeys elsewhere.

Indy and KC are great Midwest markets, and Chicago and Philly are doing really well for turnkeys right now too. Depending on your budget, based on considering quality of the market + quality of the turnkey provider + returns, I'd recommend Indy or Chicago starting out. Indy is all SFRs and Chicago has both, but Chicago is a slightly higher price point (but better returns too).

Lots of good stuff out there! I love the turnkeys. They are all I have (except one 'accidental' rental property).

Paul Choate · Answer

@Jeff Howard

You have found the key to the entire game. Most of my properties would be considered C or D by most people. I consider them C because they are not dangerous and I feel comfortable going there.  These are smaller towns to the East of OKC. When I look at what turnkey guys are offering, I recognize these kinds of areas. They look a lot like what I am investing in. It's all about how much you pay to get in. You should always be able to sell out if you have to.

To answer your question, my numbers are all in meaning purchase plus renovation to get a tenant in them. I don't fix everything and I cash flow a lot of cap ex once it is up and running. Just make sure you see what is actually selling. There are huge variations between houses in these kinds of areas.

I average about $17,000 per unit to get it rent ready and $500 per month in gross rents. I budget about 30% for repairs and cap ex., 10% vacancy, 10% management (myself) and 10% for taxes and insurance out of the monthly rent. I am looking to make about $200 per door after all expenses. I expect to be able to pay off the initial investment in 5-8 years.

Make sure to watch for the real numbers out there. My first deal was my worst one. I bought a house for $4000 and put $30000 into it- not counting my own labor. I am so glad I did it because it got me going. Do the best research you can then act.

Kyle Myers · Answer

@Jeff Howard

I just decided on the turnkey route. Check out my two blog posts about why I chose it and how I chose the company and let me know if I can help you out at all.

https://www.biggerpockets.com/blogs/8313/49711-par...

https://www.biggerpockets.com/blogs/8313/49783-par...

Paul Choate · Answer

@Jeff Howard

I think you have a good strategy but I am coming from the opposite situation (Oklahoma). I like the idea of getting something going now as experience is always a factor for financing or working with others. It took me years to establish credibility with my lender and my partners. I would also imagine messing up on a Midwest property will not have the same financial consequences of making mistake in CA. There is always a learning curve.

I am happy with the cash flows I can get out here. I generally shoot for $15 - $20k all in with monthly rents in the $500 - $600 range. I don't think those numbers are realistic for out of state investors. I am on the ground in a low cost area so it is easier to find these kinds of deals. You will probably need to pay more or buy in more stable areas but make sure you look at the actual sales in the area (Zillow is easy to use) as you will be surprised what things go for. The second biggest mistake you can make is paying too much. (The first is doing nothing.) If your goal is to gain experience and get some cash flow, you are on the right track.

I don't participate in turnkeys so all I can say is make sure you do your research on the individual company and get independent inspections on the subject properties. Good luck on your investing.

Natalia Ewa Lizon · Answer

Ali would also love to hear the turnkey providers you have used and have good experiences with!

Ali Boone · Answer

Sure thing!

@Chandler Spence

That's awesome! Also nice to hear when advertised returns are panning out :) (helps with the nay-saying!)

Jeff Howard · Answer

Thank you everyone for your responses! Lot's to consider.  I just want to avoid the "too good to be true" scenario that turnkey providers tend to paint.  @Ali Boone maybe you could PM me the turnkey providers you have used and have a great track record with?

Leo Kingston · Answer

@Paul Choate you are right on target!!!!!

James Wise · Answer

Welcome to the site @Jeff Howard

Sounds like you have a pretty good plan in place.

Good luck to you & I'll see you around the forums.

Midwest Turnkey for First Purchase?

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