Buying Turnkey Properties

[Carlos Chavez]

Is anyone actively investing in Turnkey properties? 

[Account Closed]

Originally posted by @Devan LaBrier:

@Mike M.

I’m fairly new to Real Estate, but I’m struck by the notion of “If it’s too good to be true, then it probably is”.

Lots of TurnKey properties give me that feeling for some reason, and I can’t put my finger on it. I don’t have enough knowledge to look at a TurnKey property and tell if it’s a good deal (outside of running numbers on the BP calculators of course).

 Your dilemma is a common one and maybe I should write a post about it at some point. 

But, here is enough to begin the conversation. Let's start with the fact that are at least two kinds of Turnkey.

1. Turnkey A - generally in Ohio, Tennessee, Indiana or Michigan. Generally means a property has been bought cheaply, sometimes in a not so nice neighborhood. The Turnkey provider sells you the house, (they sometimes will provide financing at above market rates) they tell you how much it will cost to renovate and they find a renter for you. You pay the provider slightly above actual value since you didn't have to locate the property etc. Generally cash flow is $100 a month or so.

From reading people's comments and listening to someone who actually bought two turnkeys that way, they are losing money every month and are having problems with their renters. Over time you deal with toilets, tenants, broken water heaters, roofs, etc. They feel the Turnkey provider over promised and under delivered. Not every property is a "dud" but enough are. These providers are doing "high volume" and quality suffers apparently. But, the investor got into the game and that at least is a start. Houses are generally in the $80,000 to $100,000 range

2.  Turnkey B - generally in Arizona and Texas. Generally a property has been bought below market using "creative financing" with taking over the financing (equity comes with the property). Generally in a nice family neighborhood. The Turnkey provider sells you the house, and there is no renovation for you to do. (So, you save $10,000) You invest a set amount (well below the amount Turnkey A charges). And the Turnkey provider finds a Tenant Buyer for you who gives  you $20,000 to $25,000 for a Lease Option on the property. Over time you DON'T deal with toilets, tenants, broken water heaters, roofs, etc. The Tenant Buyer takes over all responsibilities. Generally cash flow is $500 a month or more. Houses are generally in the $200,000 to $300,000 range. 

You get the same tax write offs with both Turnkey types but a heck of a difference in cash flow and cost and return using Turnkey B.

Remember, if you have a house worth $100,000 (Turnkey A) and it goes up 10% that is $10,000 improvement. 

If you have a house worth $200,000 (Turnkey B) and it goes up 10% that is $20,000 improvement plus you get the $20,000 from the Tenant Buyer plus you get $500 positive cash flow a month for $6,000 in cash flow.

You can see how the numbers work at the link:

How I buy houses for pennies on the dollar

https://www.biggerpockets.com/forums/311/topics/67...

As you can see, it is a bit of an advanced technique so it requires a lengthy explanation. Too long for here, to explain everything, so you can go to my Profile https://www.biggerpockets.com/users/MikeM500 and follow the link, email me or PM me. I can help you there with more detail.

Sometimes, people don’t like toilets and tenants and don't like buy and hold, so they do Turnkeys instead. This is what I call the " Cash Flow Method". You still own the property but the Tenant Buyer takes care of it while they pay down the mortgage and you get the cash flow and the tax benefits. It's nice and it's safe. Pretty Cool!