Turnkey Rental Properties?

Question

Does anyone here have experience with purchasing from a turnkey rental company?

I’m struggling to realize the value proposition especially in cash flow if you’re buying a property for market value.

More so, if investing from out of state and leveraging property management. How are you supposed to make money?

Are those doing it more interested in the equity gained and the prospect of wealth creation vs cash flow?

Are the target metrics I.e. 1% rule, minimum cash flow, around 10-12% cash on cash, different and should be expected to be lower on a turnkey? And what would be reasonable target metrics to expect?

Ali Boone · Answer

More so, if investing from out of state and leveraging property management. How are you supposed to make money?

Primary income comes from cash flow. But rental properties (turnkey or not) have 5 profit centers that provide income-

https://www.biggerpockets.com/...

Are those doing it more interested in the equity gained and the prospect of wealth creation vs cash flow?

No, they are cash flow focused. But per the profit centers listed above, the general idea is wealth creation, yes. Just not depending solely on the equity gained as how to do that. Cash flow is key on turnkeys, and any appreciation on the property is a bonus.

Are
 the target metrics I.e. 1% rule, minimum cash flow, around 10-12% cash 
on cash, different and should be expected to be lower on a turnkey? And 
what would be reasonable target metrics to expect?

It totally depends on what you're buying. What I'd accept on turnkeys in one market, I may not accept in another market. The 1% rule is attainable mostly these days, but it's still not my focus just because those rules can get people in trouble. At best, I might use it as a quick look metric, but nothing more than that. For what numbers to shoot for, these are old articles and not asking exactly the same question you are, but the points are the same-

https://www.biggerpockets.com/...

With those, you can use cash-on-cash in place of cap rate just as easy. As far as comparing turnkey metrics specifically, my recommendation is to just start shopping around turnkey world and see what is offered. Different markets, different property types, different numbers. Once you do that, you'll start to get a feel for what the better deals might be amongst them...not solely just based off the numbers but rather based off the big picture-- the numbers you get for what property type in what location and what risk factor, etc.

Account Closed · Answer

Your Comment: "I’m struggling to realize the value proposition especially in cash flow if you’re buying a property for market value."

Because it IS hard to understand the value, I've put together a spreadsheet of an actual deal I've done in the Phoenix area and this is the kind of deal offered to CA Investors as Turnkeys. It's different than the Turnkeys being offered in the Midwest for a few reasons:

1. The monthly cash flow is always $500 or more on the Turnkey on an investment of roughly $60,000

2. It's higher value property ($200,000 +) in nicer neighborhoods in an appreciating market (compared to the rough neighborhoods in the Midwest)

3. Since the California investor gets $20,000 to $25,000 (10%) from the Tenant Buyer it is immediate return from a much more stable Tenant

4. The Tenant takes care of all maintenance and repairs so the the Investor has no Cap Ex.It's important to always walk the neighborhoods and meet the Turnkey provider before making any commitment but here are the numbers.

3 Ways to Wealth in Real Estate – Fix & Flip, Buy & Hold, Turnkey (Cash flow) – Here’s How

https://www.biggerpockets.com/forums/311/topics/780022-3-ways-to-wealth-in-real-estate-cashflow-flip-hold-here-s-how

David Lutz · Answer

@Dan Valiente  hey Dan, I'm having similar concerns. I posted what my deals are looking like on this thread

https://www.biggerpockets.com/...

What are you seeing in the market at the moment?

Michael P. · Answer

The value add is that highly paid professionals who want to be nearly 100% passive in the investment can achieve this buying turnkey.  If you have the time to source your own deals and do your own flips, of course you will make more money.

Jeff Schechter · Answer

@Dan Valiente  Different TK's operate in different markets with different buying/rehabbing relationships.  I'd encourage you to not lump "turnkey" into one ball, and let each deal stand on its own merit.

Tom Ott · Answer

Turnkeys are meant for cash-flow. Equity would just be earned over time.

Dan Valiente · Answer

Hey @Tom Ott I understand. It doesn't seem like there's much meat left on the bone after you're purchasing a house that's already been flipped, for at or above market rate, and still have to turn around and pay for property management services. I guess the trade off being, completely passive. And how much profit you're willing to sacrifice to achieve that.

Tom Ott · Answer

Many investors who invest OOS opt to use a Turnkey company. Working with a TRUE Turnkey Company keeps everything passive. Ideally, they will own the property first, renovate it in house, lace a tenant before closing, and manage it in-house after closing. The idea is that everything is done for you.

For more info try checking out:Assessing the Risk of a Turnkey Real Estate Company5 Keys to Turnkey Real Estate Investing

Turnkey Rental Properties?

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