Reasonable cap rates for turnkeys

[Sarah Lam]

Hi everyone! I'm just starting out in the world of REI, and I've really enjoyed reading @Ali Boone Chris Clothier's, and Marco Santarelli's articles on turnkeys. As a resident San Franciscan, there is no way I can afford to get started in my market! I am definitely leaning toward the turnkey route, and am making my way through every single forum post regarding turnkeys.

From what I've read so far, I understand that turnkeys are not the best deal for real estate investors (ie I could make a better return on my money doing most of the rehab work myself), but are a great choice for out of state investors looking for passive income. I'm fine with sacrificing some return for less stress and headaches, but I'm wondering at what cap rate I should walk away and dump my money into the market.

Since the market has historical returns of 7%, should I set my cap rate minimum to 8%? Is that realistic for a turnkey property?

[Will Barnard]

Based on that, I would suggest you learn everything you can on operating expenses, managing property managers, selecting property managers, and everything required by a landlord for success. Much of which is available from many other experienced investors right here on BP.

Operating expenses have a huge impact on cash flow, leave some out and have some bad surprises. Account for the worst and keep reserves, your windfall will come down the road. This is a get rich slow business.