Turnkey Company, yes or no?

Question

Hi All,

Background: Last year, my husband and I bought a foreclosure property in Missouri and rented it out through Zillow since we had some free time. It's going well so far! However, new job opportunities came up and we are now located in Shanghai, China!

Goals: Our focus is mostly on creating passive income and getting the cash-flow to fund our travels! Hoping to generate enough cash flow in order to quit my day job by age 30 to volunteer, travel, and work on things I'm more passionate about. That's in 3 years, it's ambitious but never hurts to try!

Advice needed: Since we are in Shanghai, we are hoping to find TK companies to assist, perhaps in the KC area, or honestly any other areas that is up and coming. I have read pros and cons about TK companies, but I am not sure how else I can invest from abroad if not for TK.

Also need advice on financing, we are able to save large chunks of $ for down payments but how would I go about getting a loan for the rest of the properties from abroad? I have a great credit score of 799 and no loan history so far.

Thanks in advance!

Andrew Johnson · Answer

@Sherry Lee If I were in your shoes my first step would be figuring out where you want to invest.  Opening yourself up to "any others areas" will just have you scattered around.  Every realtor, turnkey company, etc. in the U.S. will tell you why their region, company, homes, etc. are the best.  Do you really want to be "sold" on my Akron is better than KC?  Why KC is better than Indianapolis?  Why Indy is better than Memphis?  Why Jacksonville is the most awesome place on the planet?  Figure out where *you* think the best place would be to invest.  Maybe it's Saint Charles, Missouri and you can build on that, find a property manager, etc.  Maybe it's not.  I have no dog in the geography fight but I'd encourage you to figure that one out on your own.

At least when you've narrowed geography you can figure out if you want to go TK or go it yourself.  Both have risks.  You also have to ask yourself if you want to buy a serious of SFRs or a commercial multifamily.  If you want to buy in a great neighborhood in KC (if that's what you choose) or in a dicey one.  If I was in your shoes (i.e. out of the county) I'd pick some place with a trusted friend or family member.  At least then someone can drive by once-a-quarter and make sure your home didn't float away in the winter rains.  I'd also focus on quality areas and potentially newer builds.  I'll be overly general and say that tenants in B areas give you less hassle than D areas.  Home built in 2005 give you less random issues than homes built in 1900.  if you're not around, you might want to err on the side of "less risk" even if you give up some potential returns for it.

Others will disagree, just one opinion here...

Andrew Syrios · Answer

Turnkey companies are a mixed bag. Be very careful on your due diligence as their are some shady players in this market. Don't get me wrong, there are good one's too. But you want to make sure you aren't buying in bad areas. Ask around (not just the company showing you them) and look online to make sure they are at least lower middle class. You really don't want to mess around with properties in questionable areas if you are in Shanghai. Normally, I would say to stay in at least working class areas, but for out-of-state (and especially out-of-country) investors, I would be that much more cautious with property location. That goes the same for due diligence on the property itself and the turnkey company.

Finally, don't expect to get much if any built-in equity in the property with turnkey companies. There's just too many transactions for there to be much left when it gets to you. That being said, good turnkey companies can make the process very simple and easy and provide a good cashflow for their customers.

Ali Boone · Answer

Hi Sherry!

As far as the financing goes, if you (or your husband) are still US citizens, financing from afar is fine- you should still be able to get mortgages. For the paperwork of them,  I've never been local to any of my turnkey closings....all the papers just get overnighted and a notary comes to my house to watch me sign. You could work with the lender directly about how it can work (assuming it can work the same way) internationally.

Turnkeys work...they are all I own. There is controversy about them, but I can personally attest they can be great. I know lots of turnkey buyers who have had great luck too. It's all about who you work with and buy through and holding up your end of the due diligence. People tend to think turnkey = completely hands-off and then they don't do due diligence and something happens. With due diligence and keeping tabs on the management afterwards, you can do great with them.

Happy to chat anytime if you want to email me at my email below or message me on here!

Ali

James Wise · Answer

Seeing as you are out of State the turnkey route is great. You will of course cut down on your margins as you are paying someone else to run the investments for you but there is no practical way for you to be hands on when you are not near the property itself.

One thing you should make note of is the goal to retire in 3 years. Buying some turnkey properties will not allow you to retire in 3 years. In fact you will have LESS money in 3 years then you currently have.

Think about it. If you buy say 10 turnkey properties for $75,000 each. The down payments on said properties would be $11,250 on the 1st four of them & $18,750 on the next 6. So your total out of pocket cost is $157,500. You are only going to cash flow roughly $1,200 a year off of each property after you pay your expenses & said mortgage so that's going to be $36,000 of income over those 3 years putting you at a NET of -$121,500.

If I needed to live off of my savings I'd rather be in the green than the red. The real reason you would want to buy these is to get the tenants to buy these homes for you. If we put appreciation to the side for now when you are ready to retire your original $157,500 investment is now worth a cool $750,000. That's an increase of $595,500. Not to mention the $360,000 of cash flow you likely made.  Which brings your profit to $955,500.

See what I mean. Turnkey is a long game, not a short one. You'll wanna keep the day job and continue earning income. If you were able to generate $955,500 off of 10 properties imagine what you could do if you kept on earning the money that allowed you to buy said 10 properties and you ended up buying 30, 40, 50 or 100 properties. Retiring with almost $10M in profit would be rather nice.

Josh H. · Answer

@Andrew Johnson

Andrew nailed it here I think. I will also add extra emphasis on researching "where" the property is located, especially in KC.

I will also say that with your strategy, you should keep in mind the strategy that is involved with TK properties and the give and takes. Obviously the biggest plus for you is the ability to buy a hands off investment. But, when buying a TK, the TK provider has already taken advantage of the lions share of the "value add/built in equity." That ultimately boils down to you having your equity tied up in the property and putting great limitation on your ability to recycle your equity. I only mention this because you had mentioned you are trying to grow fast. But, if you are able to save large chunks of cash and don't mind, then this could be a good play.

Best of luck,

Josh

Andrew Syrios · Answer

North of 470 is quite a bit better than south of 470. Generally, you want to stay out of Ruskin (south of 107th, north of Longview and east of Blue Ridge). With Cerner coming in on Bannister, north of 470 should improve quite a bit. Between 107th and 470 is so/so, but manageable for cash flow rentals if you have good property management.

Andrew Syrios · Answer

We like Raytown (64133, 64138), Grandview (64030), Waldo (64114 and the west half of 64131) as well as Belton (64012), near the old Bannister Mall (64134, but only the part north of 470 and east of 435) and Red Bridge (64137) for Jackson County. Schools aren't great, particularly near Bannister, but most are OK. North of the river (Clay county) is solid for the most part, with some nicer areas, particularly in Platte County. And Johnson county and Lee's Summit are great, but mostly more expensive. I'm not a huge fan of KCK, other than right by the Med School near State and County Line. Independence is pretty rough in the west, but gets better as you go east, particularly east of Noland and south of 23rd.

Mark Hart · Answer

Memphis has a lot of opportunities. I'd be happy to discuss in detail the reasons why and show you why so many people choose to invest here.

Ron Quinn · Answer

@Andrew Syrios seems to know KC better then most. Based on the posts here I would discuss with him if interested in a TK property first. There company seems to have the best rep from the happy investors. His father basically invented turnkey from the videos I have watched on you tube and the bigger pockets podcast # 140.

Turnkey Company, yes or no?

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