Would you buy a Turnkey in an area like this?

[Matt R.]

Buying turnkey out of state is another viable cash flow option for many newer investors. There are some really good operators out there and some are BP members.

I recently saw a real nice looking property in a major midwest city (not Detroit) listed for sale at 200k++ ,  by a Bper.  Since I did market research for a living, and learning about new areas still fascinates me, I looked it up for 5 minutes. The address is not disclosed but that property is no problem for me to find even without knowing the address initially.  The numbers on paper look great but there is more to the story in real estate than numbers on paper. For this one, it was positive around 1k+ month. Caveat....other numbers presented did not jive to what is known as averages on rentals for this area and or rentals in general. 

For this example, it turns out that property's immediate hood is in one of the FBIs ranked most dangerous hoods. (#4). Murders are common and average 1+ a month. The building next door is vacant although it was occupied not too long ago. There are many vacant/abandon buildings on same street and nearby streets. The vacancy rate is 24% for this area. I don't know what the abandon rate is but it looks like that might be close to double figures or at least 5%.  Btw the police station is two blocks away, so that means nothing for future reference. Heck we have real bad hoods in LA too but not this bad or this much negative population growth. Average for this zip has been around negative 8% population growth for each of the past 3 decades and equal to almost exactly the vacancy rate currently. 

The building was sold for 85k to the TK seller so I get that profit angle...it is the new buyers risks I am completely perplexed about and especially since the guy next door looks like a very recent total loss here. None of this insider info was made public and I doubt the TK promoter is aware of these realities.  I am not saying this is a for sure terrible investment but on the surface it does not look like a very solid location for the new turnkey buyer to start. 

I think you will find the most experienced TK players will not operate in hoods like this for many practical reasons. One major concern for the new buyer is what would they do if the management bails or fails like the guy next door just did apparently.  What would a local investor pay for this if they wanted to sell is another. 

What do you think? Would you buy a Turnkey in an area like this? 

For anyone looking for turnkeys you could check out turnkey-reviews . com. They have most of the TK companies listed on there with reviews. The owners of the site are very helpful bp members so that is double bonus. 

Good luck with your search!