Atlanta, GA · Member since 2017 · 8 posts · 0 votes
Hi all
I am interested in TK as a way to invest in a 'hands-off' manner. I have done lots of research and it still just doesn't quite sit well with me.
One issue I have: the companies price the properties based on expected rent and therefore your return. They then buy the properties wholesale or super cheap and rehab them. The difference between these two figures is their profit. As property prices have increased and as rates increase, however, they will still need to show investors similar PF returns to make them attractive. How does this occur / who is eating this cost?
- are they taking less of a margin (unlikely)?
- are they just buying in cheaper / worse areas (likely given most investors wouldn't really know the difference)?
Investor · Hayward, CA · Member since 2015 · 83 posts · 72 votes
9y
I think you're going to find a lot of #2 and #3. I looked at a few TK providers in Jacksonville FL 18 months ago. The B class neighborhoods they claimed to be buying in have bulletproof glass in the local convenience stores. It was about then I realized that if I wanted a hands off approach in real estate I should passively invest in syndications or REITs. I have since purchased my first multifamily complex and couldn't be happier.
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
9y
@Sam Mason It sounds like you might be looking for a passive investment where your interests are more aligned with the seller/provider. As a previous TK investor myself, who has seen prices rise and good TK opportunities diminish, for my own buy and hold investments of late I have turned to a investment strategy that allows me to invest in property - usually syndicated portfolios of 10 SFR, but also now apt buildings - that remain co-owned by the seller/managers. I have written extensively about my investments in a series of blog articles starting with
Atlanta, GA · Member since 2017 · 8 posts · 0 votes
9y
@larry fried
Sounds interesting. How levered are the underlying properties? Can you depreciate the property and write off interest expense for favourable tax treatment?
Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes
9y
@Sam Mason - In the investment world their is nothing like passive and risk free. I hear people saying that they don't have time but in the end they end up spending all their time once they crash land. Ask the OP of the post about her life in last few years.
I am interested in TK as a way to invest in a 'hands-off' manner. I have done lots of research and it still just doesn't quite sit well with me.
One issue I have: the companies price the properties based on expected rent and therefore your return. They then buy the properties wholesale or super cheap and rehab them. The difference between these two figures is their profit. As property prices have increased and as rates increase, however, they will still need to show investors similar PF returns to make them attractive. How does this occur / who is eating this cost?
- are they taking less of a margin (unlikely)?
- are they just buying in cheaper / worse areas (likely given most investors wouldn't really know the difference)?
- are they spending less on the rehab?
Who suffers when rates rise?
These are all great points. That is why buying from a turnkey company who has already owned & renovated the asset may not always be the best choice for every investor.