I think you'll get a lot of that - people in the business suggesting their market, whether on your list or not - you are not likely to get an unbiased assessment of which market is best. I personally invest in Jacksonville and Indianapolis, but I can't tell you those are the best for cash flow in 2017. There are simply too many markets for me to understand them all. But since Indy and Jax are the markets I know, they are the ones I'd recommend. But I'm sure in any of the markets you listed, there are turnkey operators that have good cash-flow deals. And of course in other markets.
I like Indy because the cost of entry is pretty low with a strong rental market, and I'm working with partners I feel I can trust and have shown to do good work, and I like Jax because of all the job growth and infrastructure improvements, and again because I have partners on the ground I'm comfortable working with. I passed on KC as a market because it is a bit too far for me to drive there myself and flights there tend to be expensive, although there certainly were deals with good cash flow.
My advice - pick a market based on criteria important to you, contact the turnkey operators, visit the market to look at deals and see their work firsthand (very important), find ones with cash flow that meet your criteria, and dive in.
Thanks for the numbers breakdown - turnkeys look less palatable when you account for the lease renewal and placement fees. MSHB did tell me their average stay per tenant was about 3 years in the same property, perhaps that reduces the leasing fees a bit.
However 100-200/mo cash flow is not acceptable for me. I feel that 300/mo is a minimum per door. Otherwise the number of properties required is too high.
I just called @Brian Adams today about his syndication, and he requires "accredited" individuals as defined by the govn't, which means over 200k annual income or net worth over 1 million. That's to reduce his paperwork and liability for securities.
He said beginner syndicators will often take non-accredited investors but of course then you are working with a relatively untested system. So for me that means syndication is probably not a good bet at this point. Perhaps being a hard money lender to local flippers/investors would be something I would do, and go for a 10% annual return.
I don't know what you plan to do with your debt, but I plan to leverage as much as possible a la Keith Weinhold/Get Rich Education. I like his approach and if you haven't heard him yet, he has some great podcasts. So I don't plan to pay off mortgages, rather to pull out equity and reinvest.
@Sean Gallagher Hi Sean, which area are you mentioning? Does the 400-500 cash flow per month include property management, taxes, insurance, R&M, and CapEx? What price range houses are these (under 100k, 100-200k,)?
So the only thing I didn't factor in is random repairs, vacancy, or management fees. If you can't make money on a sfr 3/2/2 in new condition near turn key that can flow 400-500 I'd be baffled. I manage one right now in Delaware, I live in Florida and its been smooth. I even managed it when I lived in California. Helps to know the right people and have some badass tenants. I'd like to get so many going in a close area that I can use 1 management company. For a few properties though.. eh, I'd rather stay far away from that over head cost.
@Tandi H., yes, I am a huge Keith Weinhold fan. I actually got to meet him in person and hang out with him, and several other real estate investors, about three months ago in Belize. It was amazing. The reason I mentioned possibly killing a mortgage was if that was the only way to get beyond SFRs of rules don’t change and that’s still the strategy at that point. Probably not the only way to do it, but an option. He did a recent podcast, I think within the past two weeks, on why financially free beats debt free and talks a lot about the power of mortgages. Great stuff. Have you read his new book? I bought it when it first came out. The eBook is now free. Highly recommend it.
As for CashFlow per door, I can see why you would say that. At the same time, you mentioned possibly getting a 10% cash-on-cash return as a private lender. If you take my $193/Mo x 12 months = $2,316/yr. Take the $2,316 / $16,800 down payment for this rental and you get about a 13.7% CCR. Obviously there are closing costs, etc., that bring the out of pocket cash to close amount up (and thereby reduce the CCR), but it's still not too far from 10%. Factor in things like IRS depreciation, interest expense, insurance expense, and other deductions, and all of a sudden this number looks a bit more attractive.
I’m not saying this deal is a home run by any means, but I’m proud of how it looks and the fact that I really am providing clean, safe, affordable housing for others for a (in the eyes of some, small) profit.
If you start lending money and earning interest, isn’t that all taxable at ordinary income tax rates? What happens when the loan is paid back and you have to redeploy elsewhere? What if you later decide to buy turnkey but interest rates are a lot higher? These are some of the things I’d be thinking about.
I don’t know of any reputable turnkey providers that can truly say, after all reserves and expenses, that their investors are getting $300-$400+/month. If they’re out there, please let me know; I’d love to learn more.
Most properties that cash flow in this area are probably those held by investors who have put in at least some sweat equity and probably didn’t buy from a turnkey provider. Just my $.02.
@Sean Gallagher, if you’re not including vacancy, PM fees (if you ever decide to hire one), expenses, and cap-ex, then your numbers aren’t really cashflow. You can reduce them by about 28% and they’d be closer to accurate.
If I left these numbers out of my example above, I could say my SFR cash flows $443/month. But that isn't correct.
I’d say in today’s market for turnkey you can lprobably estimate 150-200 a month per property of true cash flow.
You won’t build a huge empire with turnkeys but they’re a good way to start if you can buy them consistently.
In today’s market? How can you say that, every area has a different market.
I’m speaking in broad generalities.
That's cool you know Keith! So were you checking out the cacao farms? What did you think? I downloaded the info packets and they've been sending me videos, etc...I'm definitely curious about this type of investment. My main concern would be lack of control and distance. While of course any out of state turnkey includes a loss of control to some degree, for stateside properties at least I know we could fly there and do repairs, etc, if needed. I do like the idea of supporting local Mayan farmers though, as I've traveled in that region and the Yucatan is probably my favorite part of Mexico. I'd love to hear your take!
I listened to the financially free podcast and it's one of my favorites. I would love to meet Keith and pick his brain. His last podcast (Monday's?) was great too. That got me inspired to replace all our income and free up our time. I loved his point, time is not money! Time is worth so much more than money. Money is replaceable, Time is not.
I see your point about returns on private lending vs turnkeys. Perhaps as you are saying, to get the cash flow per door that I want requires investment of some sweat equity. Forced appreciation is what is allowing our local real estate to cash flow well. Good food for thought...
@Tandi H., it went well. Definitely a longer term investment that will take a while for the cash flow to build up. For that reason, I decided to start a self-directed ROTH IRA and transfer some funds from my existing Roth IRA into it. We're literally in the process of wiring funds as we speak. Obviously this won't affect my cash flow today, but as the income grows over time (and goes back into my Roth IRA), I will eventually be able to withdraw it tax-free. This also allows me to take my cash (outside of retirement plans) and leverage it now while interest rates are low and benefit from cash flow today while the other funds do their thing for later.
I also have a coffee farm parcel with them in Panama (bought earlier this year) with non-retirement funds. I bought a raw land parcel, so cash flow should begin in 3-4 years.