thoughts on All-In-One investment companies?

Question

Hi Rockstars!!

I have seen those so called all-in-one investment companies who help you from finding a deal, closing,  managing rehabs, putting tenants to PM. For first time out-of-state investor like me who lives in the middle of the pacific ocean, this couldn't sound more enticing than anything. Or is it too good to be true? I have been talking to some realtors in a handful different states/cities to learn the area right now so that I can narrow down what city to invest in. Then I started running into those all-in-one investment companies.

Have anyone had experiences working with those kind of firms?

Pros/Cons?

Thank you so much in advance!!

Masa

Aloha

Dave DeMarinis · Answer

@Cj Powderhorn You have the right idea to think about another market with a goal of 5 to 7 properties. I think geographical diversification with just one or two properties in each location adds more risk than the benefit of diversification because of the overhead of establishing relationships and knowledge.

I'm a lender and heavy value add investor, focused on the midwest and south east. If you are interested in Huntsville, AL - DM me. I really like that market for the very strong population, job and income growth with great affordability. It is actually set up to continue appreciation based on those dynamics. I have a couple properties you can compare and contrast coming up soon. One is B+/A- (~$200K and $1500 rent) and the others are C+/B-) $115K/$1K rent.

I'm an engineer so my grading scale is harder than most which is why I gave the price and rent to try and give some context.

Masa Moromisato · Answer

@Michael Ohara, @Matthew Shedd, @Tom Ott, @Ali Boone

Mike, Matthew, Tom and Ali thank you all of you for responding to my discussion!! Every piece of advice and your personal experiences shared are so appreciated.

I'll DM some of you for some more questions since I recognize some of you live in cities I am interested in to invest.

Stay safe

Masa

Aloha

Masa Moromisato · Answer

Hi @Ali Boone

Thank you for your response.

My reason of looking into turnkey services was to lift some burdens of off my shoulder since I am a first timer investor from the middle of the Pacific. I know that services on turnkey providers widely varies by companies. By reading some books on turnkey providers, concerns will be the cost, and of course it is understandable because it is business so they need to make profit. However, my main concern is not getting the benefit of force appreciation on the property (because rehabs are done) if BRRRR is the strategy, and going all cash in. I am guessing buying turnkey properties doesn't give you that leveraging benefit when refinancing? I think that is the biggest knot i have to loosen because I am using private money for my first few investments, hopefully just the first one so I can enjoy the taste of tax benefits.

Let me know what you think.

I'm looking forward hearing from you Ali

By the way, how is your Spanish going? I saw that you've been "trying" to learn it since 10 haha. I love the name of your investment firm Hipster

Masa

Aloha

Cj Powderhorn · Answer

Hi,

I 'm new to the site and really appreciate all of the experience that is shared here.  Currently, I have all of my eggs in one basket (in Memphis). I use MSHB there and have been with them since around 2008.  I am looking for turnkey properties in a few different areas.  I've talked to both Norada and Roofstock and their advice has been quite helpful. I've also spoken with Freedom Real Estate Group in Ohio-they are in Dayton and Cincinnati. I have considered Chris Clothier, but I feel like their model (not showing any homes) is a bit strange.  I'd like to find one other TK provider in an area where I can get 5-7 SFR (eventually) that will appreciate.  I don't currently have any loans on my investment properties so would like to finance new ones.

I'd love some advice/experience sharing on:

1.  Do the 'big' turnkeys provide the same level of service as a solid provider that deals with one/two areas? I did notice RS has some discounts with the PM rates as well. I've read the articles on here, and watched some various youtube videos.  Are there any other recommendations, good or bad?

2.  Given I'll be investing long distance, what areas do you recommend for appreciation?  I have solid cash flow right now, but need to get into some different market segments.  I've been looking in the south and midwest, but would like to avoid C neighborhoods as I've got several of those! :)

Hopefully, my question isn't too repetitive as I've seen quite a bit of individual reviews, but nothing comparative.

Thanks,

Cj

Corby Goade · Answer

@Masa Moromisato Welcome! There are (obviously) plenty of turnkey providers out there. Mostly, you pay a premium for the service and those companies and properties are located in higher cash flow markets, which typically have low to no appreciation. For some people, it can be a good fit, especially for newer investors with little to no experience, since it can be more passive.

That said- the lack of appreciation can take a real toll on a portfolio- without appreciation, there's no leverage and growing true wealth can be next to impossible. The only equity you get is from debt paydown, which is typically excruciatingly slow.

I'd find someone who can help you create some equity in a growing market. If you find the right person in the right place, they can connect you with whatever "boots on the ground" services you need.

Best of luck!

Joe Facenda · Answer

I see the need turnkey providers and value their services.

I am invested in several markets outside of my own market. None were purchased from a turnkey provider but that doesn't mean I won't in the future.

Early in my investing career, for my 3rd property, I considered a well respected turnkey provider that I met at a national convention. The concept was intriguing.

I looked at their portfolio online and the numbers made sense.  But I wanted to see what I was getting.

I always enjoy visiting other cities particularly in the summer when I can catch a baseball game, either major or minor in the nearby area.  So I hopped on a plane to visit this city.  At the same time I made an appointment with a local Realtor to show me other options.

The turnkey provider had very little available currently but gave me address of recently sold homes.  I drove around the city and looked at the homes and neighborhoods.  I was impressed with the quality of their work but I was not always impressed by the neighborhood.  I got concerned that I could potentially purchase a great home in a lousy neighborhood because I was from out of town and did not know the area.

Then the Realtor showed me around and explained pusses and minuses of certain areas.  She showed me several properties and I actually bought one from her.  Did it need a little paint?  Sure.  But even after a few thousand in fix up costs, I was way under the cost of turnkey and knew I was in an area I like. Plus the  management company  she recommended was 2 points lower than the turnkey provider.

The turnkey provider has only their inventory to sell And, yes, it is often very good inventory.  But the Realtor can sell any home that meets your criteria.  And any investor oriented Realtor knows that most investors are not one timers.  They have a vested interest in giving you a high level of service.

Just one guy's thoughts and perhaps biased since well.... I am a Realtor.

Michael P. · Answer

Turnkey is an option, another option is buying through an investor friendly agent and hiring local property management. I’m not sure the “Pacific Ocean factor” really matters people invest from Australia, Japan, Brazil, etc. as long as you have trusted partners you can make it work whether turnkey or not.

Ali Boone · Answer

Hola y gracias on the company name! That's about as far as I got :) You're right about not having the chance to improve the property with turnkeys. There is the 'turnkey light' model, or the 'BRRRRkey' model, which combines the benefits of both- forces appreciation but someone else does the bulk of the work. It's riskier, but can be quite fruitful. Have to be really careful who you work with on those since it's your money on the line rather than the turnkey provider's while all the work is being done. Can tell you more about those or answer turnkey questions anytime... I work with both of them. Message anytime.

Tom Ott · Answer

I always suggest looking for a TRUE Turnkey provider to do something like. I would not suggest some company that has "contacts" in multiple markets they claim to know OR if they are just showing you listings off of the MLS. A Turnkey Provider should own the property first, renovate it all in-house, place a tenant BEFORE closing, and then stay on as the property manager after closing. They should not push you off on some "trusted" partner that you have never heard of before to do management.

Try looking at:5 Keys to Turnkey Real Estate InvestingAssessing the Risk of a Turnkey Real Estate Company

Matthew Shedd · Answer

Masa,

I think most seasoned real estate investors will tell you that your starting point should be to define your (long-term) goals, clarify your expectations, and set the parameters (your metrics) for your investments.  Both Ali and Mike are spot on.  TK companies should theoretically be one-stop shopping, but just like any business, the quality of product and services fall along a wide spectrum of quality and value.  With TK, you are going to pay retail prices because someone else is doing all the work.  It's a classic money vs. time/sweat equity equation.  Despite the many critics, this does not mean it's a bad investment.  If you elect to be a passive (still requires oversight) investor, TK can very much be the right choice.

My wife and I originally got into real estate by purchasing new construction production homes in Orlando.  The rent:purchase price ratio is much lower than other REI options, but considering our unique circumstances at the time, it allowed us to get into real estate with no experience and high comfort level.  Many hardcore real estate investors would criticize this approach, but it's a matter of perspective.  This was almost 20 years ago, we were living abroad, had no real estate experience, and didn't want a slew of maintenance and management headaches.  While we may not have done nearly as well as some much more seasoned real estate investors, we are now head and shoulders above many of our professionals peers and this investing allowed us to retire earlier than most of our friends.

My wife and I just dipped our toes into the small MFH sector purchasing a new construction triplex.  The numbers are good, but the TK provider's property management fee schedule is high.  We need to give it some time so we can see how it plays out over time.  We can find another property management company, but I have to say we've been happy with the level of communication (often the greatest criticisms of property owners), the documentation, and their performance.  I can also say that we don't possess the expertise and don't want to invest the time to deal with managing the property.  As this is a different investment vehicle, there are a different set of issues.  With our SFHs in Orlando, we've had very little turnover (most tenants stay 5+ years).  This does not appear to be the case for small MFHs.  Although all three units were rented within weeks of closing on the property, we just had our first turnover 6 months into a 1-year lease (not COVID-19 related).  The PM company is dealing with it and will handle recouping the penalty (2 months rent), not something we would want to mess with.

I could give you a lot more detail on this option and our experience looking into several major TK companies if you want to PM me.

Whatever path you choose, be deliberate, do your due diligence, and remember, there are no right or wrong decisions.  As the old adage goes, you either succeed or you learn.  Good luck!

Matt

thoughts on All-In-One investment companies?

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