Turnkey - Why Flip to Investors?

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At a recent investor club meeting, a group of investors raised the question - why do Turnkey Companies "flip" their properties primarily to investors as opposed to owner occupants? One person responded, "because the majority of Turnkey companies operate in markets/neighborhoods with low job growth and limited capital appreciation... therefore little interest from owner occupant buyers." Another investor said, 'because some companies buy in neighborhoods/cities with incredible cash flow (2% rule of higher), but the problem is, very few prospective owner occupants want to live in those areas. Yet another investor thought that  many turnkey operators want to help investors realize higher returns.

Clearly, there are Turnkey companies that operate in excellent growth markets such as Austin, but I thought I will turn the discussion  into a forum to get a few different perspectives. Happy investing!

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Phil,

As an investor for cash-flow, equity and a flipper, I can tell you that there's no right or wrong answer.  So far, the biggest pay-off has been equity return.  The equity can be tapped tax-free while I have to pay all kinds of taxes on my flips.  Cash-flow will help with paying the bills, but in no way, shape or form it builds wealth.  You have to own a lot before they're building wealth.  

At 8%-10% cash on cash returns, you're looking at making $200-$250/door on a $25k investment on a $100k property.  You will need to own 40-50 properties to give you $10k/month.  That means you need to invest $1.2MM - $1.5MM of your own money to get to $10k/month.  Owing 4-5 properties will not cut it.  

With appreciation play, it comes with rent growth.  We have experienced 50% rent growth in the last 3 years.  Properties, that were making $100-$200/door, are now making $600 to $1k/door.  For every $500/month in rent growth, you can tap $100k of equity in your property tax-free/deferred.   

When it comes time to liquidate, I sell the least desirable properties and trade up to better asset classes.  I would think other investors tend to do the same.  All in all, a combination of all three has been the best approach for me although the equity return has been the BEST.

Just food for thought.