Who has built a portfolio mostly from turn key opportunities?

[Michael McManus]

As I’m looking for my first deal I keep going back to turn key opportunities as an option. I’m curious if anyone has built their portfolio mostly or completely with turn key properties?

[Mike D'Arrigo]

@Michael McManus A lot of people have built sizeable portfolios through turn key, For some people, that's the only way to do it. The main reasons some people buy turn-key are:

• They have busy lives with family, work and personal interests and don't have time to deal with real estate full time.
• They are investing outside of their local market. It is extremely difficult and risky to manage a renovation and work with contractors long distance.
• They don't have the knowledge or skills to manage a renovation. You don't need to know how to swing a hammer but you do need some level of understanding of basic construction and how to speak a contractors language. If not, it's very easy to get taken advantage of. 
• Financing. The primary way of forcing equity is to buy a distressed property and renovate it. This is what turn key companies do, however, in order to force equity, the property usually has to be pretty well distressed otherwise you can't buy it cheap enough. You'll never force equity with a simple cosmetic rehab. The problem with this is that is usually requires a cash purchase or hard money because banks don't lend on distressed properties. 

People will go the DIY route with the expectation of holding on to some equity but here are some reasons that for the average individual, that doesn't happen:

• Turn key companies have much lower acquisition costs because they are buying further up stream . They are usually buying at courthouse auctions, tax sales and direct from distressed owners which the individual usually doesn't have access to. Keep in mind, in real estate, you make your money going in. 
• An individual will never have the control of a construction crew that a turn key company does. hey are never going to the same construction costs that a turn key company does and they are going to be low on the contractors priority list.
• Turn key companies can rehab a property for far less than an individual--sometimes as much as 50% less. Because of economies of scale, they are buying materials much cheaper and for big ticket items like HVAC, they are not walking in to big box stores and paying retail. A turn key company can generally replace a furnace, AC and roof for about half what an individual doing it on their own could do it for. 

Unless you are trying to scale your real estate business and build a larger portfolio, the time, risk and commitment involved in doing it yourself is usually not worth it, especially for just a few properties.