Where to start with turn key properties?

Question

Hello members,

I am a looking to start investing in out of state turn key properties. I am looking for a passive investment that does not require much of my time. Does anyone have recommendations of areas I should look into or providers you have used that yielded good results?

Looking forward to hearing your feedback!

Clayton Mobley · Answer

As an aside, I noticed someone mention that you can buy turnkey props on MLS and I just wanted to point out a distinction because it is a source of a ton of confusion in REI. The term 'turnkey' has come to be applied to a lot of different investment products, so it's good to clarify.

What I like to call 'lower case t' turnkey is just any property that is rehabbed and rent-ready. These you can buy on MLS or directly from a seller on your block, but you then have to manage them or find a manager, you don't know much about what went into that property prior to laying eyes on it.

'Capital T' Turnkey is the full-service investment product I discussed above, where one company takes care of every aspect of the investment process, from finding props to managing them.

You'll also sometimes see marketers referred to as Turnkey Providers, but what they really mean is that they advertise and sell turnkey properties owned by other people or entities, so they themselves are not Providers at all. These companies usually market props in many different markets, owned by many different companies, and when you buy one they get a little off the top and you get signed off to another company you may or may not have even vetted yet.

It's not that marketers aren't a good resource for investments, but it's important to know that when you buy a prop from a marketer, you may or may not be getting a Capital T Turnkey product, and if you are, you need to do additional due diligence on that provider before pulling the trigger, because the marketer isn't the company you'll be dealing with for the long haul.

Clayton Mobley · Answer

@Renata Miyerov, @Spencer Hilligoss is right on the money. Markets are important, and of course the numbers need to work, but when it comes to Turnkey it's People First all the way. You could do all the market research it's possible to do, you could find the best house at an amazing price in a neighborhood ripe for appreciation with rental demand through the roof, and it can still turn into a money pit if the turnkey provider you choose drops the ball.

Generally speaking, the property management side of things (in any rental investment) is the make or break aspect of your investment. When it comes to full-service Turnkey, however, this is doubly true. Because a true Turnkey provider does it all - finds the props, rehabs them, markets them, manages them - they should be incentivized at every step to keep long-term performance in mind. That means living and working in the market they sell, so they know all those little micromarkets from street to street. It also means doing high-quality rehab work with consistent results and upgraded capex items to keep good tenants happy and maintenance costs low as long as possible. It means keeping maintenance call out times down and rent payments on time. If you have a provider that can't or chooses not to deliver on any of those crucial aspects of their business, then even the best prop can end up being a loser in the long run.

There are plenty of good markets for Turnkey rentals, primarily down here in the South and in the Midwest. I agree with others that secondary markets are going to have a lower bar for entry and less volatile ups and downs as the real estate market cycles.

If you're going the Turnkey route, focus on the people first and market second. Ask for reviews here on BP, ask providers for references, and when you've narrowed your choices down to the top one or two, fly out to meet them. Shake their hands, look at their work, tour their properties. You can still tell a lot about the quality of an operation by looking its people in the eye, and the investment of time and airfare will pay off big time in peace of mind.

Good luck!

Mike D'Arrigo · Answer

@Renata Miyerov Start by clearly defining your goals and objectives. If it's cash flow, look for the following:

• Strong rent to price ratios
• Low property tax and insurance rates
• Landlord friendly state and local statutes
• Strong population and job growth

There's a number of good cash flow markets. I like Indianapolis and Kansas City due to good cash flow combined with strong economic and demographic fundamentals. I'm happy to offer more insights if you'd like to reach out.

Gary Swank · Answer

@Renata Miyerov I just toured a nice turnkey property the other day in Pittsburgh and continue to do so. This city is certainly a hot market and properties don't last long here. Pittsburgh PA is a city on the rise due in part to the technology boom in our area, a strong established healthcare system, A Mayor and our County Executive who are very proactive on initiatives that are attracting big businesses, a strong recovering economy and the continuation of new construction. There are plenty of turnkey properties to look at and it helps to have someone who knows the area and market very well, no matter what city you choose. Feel free to reach out to me if you want to know more about the Pittsburgh PA area. Thanks and best of luck to you....Gary

Brian Foster · Answer

Some great advice here.

Always have goals, agree this is critical

Property Management will be the most important choice you make. A great house with poor property management can be less than ideal. Average house with great management company and you'll be ok/better. Spend  at least as much time researching the PM company as the property.

The market is also very important. For the money, it is hard to beat Texas for cash flow  and appreciation. Best economy in the nation, most job creation, under inventoried for rental properties and likely to be that way for a long time due to population growth.

https://texasturnkeyproperties.com/id-do-a-deal-in...

lots of economic information here

Spencer Hilligoss · Answer

The first step is goal-setting, as @Mike D'Arrigo called out

The second step is finding a trust-worthy turnkey provider with a track record. We recently closed on 5 single family turnkey properties out-of-state (our first time with turnkey). The experience has been excellent.

Typically, I say: 'start with the market'... but when it comes to turnkey, specifically... i think it starts with the provider, @Renata Miyerov. Happy to share learnings, if/when you have questions

Elbert D. · Answer

@Renata Miyerov Hello, how are you. I would recommend a good property manager wherever you choose to invest. I know New York is extremely expensive and probably offers low CAP rate and Cash on cash returns. I would suggest looking into Chicago and Northwest Indiana. Some investors would tell you to run away from Chicago due to the propaganda told by the media. Truthfully, there are some things wrong with the state such and its mostly politics(how the government is ruining things). Chicago is truly a beautiful city and has a lot to offer. There are only maybe 4 areas I would not recommend to investors......  There are several areas in the city of Chicago and its suburbs that offer very good returns for potential landlords. Cash on cash return rates vary from 10-14.5%! Some of the taxes on some properties in certain areas make absolutely no sense and those are the ones that hammer the CoC return.

Northwest Indiana is the little brother/sister of Chicago and some areas are really nice to invest. The CoC return is very high in certain areas ranging from 12-18%! The taxes are generally lower than Chicago and if anyone is living close to the borders of IL they are about 45-75mins away from downtown Chicago.

As far as turnkey properties.....I have never truly seen a property that needed no work. There were always little things that needed to be replaced/updated when a property claims to be turnkey. Things such as the wall outlets, new light fixtures,  etc......Also, you will be paying almost retail if not over retail price for a property marketed as turnkey as oppose to you buying something that needs to be rehabbed. I have several close relationship with general contractors that are licensed, insured and bonded in Illinois and Indiana. They do great work and can be trusted(although I still watch them lol). Let me know if you have any other questions about investing in the Midwest.

Larry Fried · Answer

@Renata Miyerov Hi and welcome to the site.  Turnkey can be a very good way for some investors to enter out of area REI in a relatively passive way.  It is certainly how I started back in 2012.  But as @Lee Ripma mentions there are other ways to go for passive REI, and I wrote a blog article last year Three Key Routes for Passive Real Estate Investing that illustrate and compare some you may want to consider.

The best major cash flow markets have all grown very competitive for turnkey investors just starting out, so if you are going to go that route in might want to look at smaller markets that are earlier in their turn around stage, such as Dayton, OH, if you are going the turnkey route.  Whatever route you take, all the best in your REI!

Where to start with turn key properties?

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