Is TurnKey investing really worth?

Question

(To clarify I am NOT talking about getting cheated or bad examples etc. I am talking about a good case where transaction was smooth, house rented without any issues etc)

Hi,

I notice that turnKey properties sell at a premium above the market rate! I looked at TurnKey in markets like PalmBay, Baltimore etc.

1. A TurnKey provider shows a "positive cashflow" with a 225K property that rents for 1500 a month! Based on thumb rules like 1% rule, this is obviously not close. I started wondering how can one openly claim positive cash flow with 0.7% rule!

2. I noticed that few things were slightly upward revised.

a. In a given area, when most houses in less than half a mile radius fetches an average rent say 1400, the turnkey property somehow magically rents for 1700. That changes all the numbers for cashflow calculation.

b. For every 100 dollars additional shown in rent, the property can be charged $10,000 higher to keep the same ratios.

c. In many cases they showed lower maintenance, lower insurance etc..

d. When I discussed with turnKey providers and ask about materials, appliances etc the underlying answer is why do you care when its renting. When I ask about the property is higher priced than market, its always why do you care or why do you say that when cashflow is positive. So I am a bit confused as its almost like "actual property has no significance"

3. In the similar areas, the houses I could find say were $200K (instead of $225 by TurnKey), however the cashflow does NOT make sense because 1400 on a 200K property doesn't flow positive for my calculations.

I know there are lot of great (and genuine) TurnKey providers in this forum (and I am not complaining). I want to learn and my initial analysis didn't seem favorable? I am sure I must be missing something.

Am I understanding things wrong? TurnKey or not, shouldn't the 1% or closer rule still apply. People who successfully invested in TurnKeys in the recent past, any tips or perspectives? If any of you can share actual numbers it would be super helpful.

Thanks!

Caleb Brown · Answer

I'd pick cheaper areas that are 100K-150K. From what I've seen in my market anything above 150K rarely makes sense for cash flow on SFH. You'll have a higher appreciation on 150K+ properties but low returns. You can also buy rent ready places on the MLS or off market then higher a PM. Turn key providers can be expensive. Another thing is have a 2nd/3rd opinion on the areas, they can sometimes oversell a bad area.

Lane Kawaoka · Answer

Stay around 900-1400 rents per month. That should be around the 100-120k range.

I just speak for higher paid professionals who are short on time and higher and better use is through their day job.

Darius Ogloza · Answer

NEVER trust anyone's numbers but your own. If you do, you are asking for what you get. Trusting a seller's numbers is like wearing a sign that says "kick me."

Mike D'Arrigo · Answer

@Rocky R.good turn key companies don't have to price above market value. They make their profit by creating equity through the renovation and improvements they make. If the turn key company allows financed buyers, the properties will need to appraise. I would avoid ones that don't allow financing or if they do, don't allow an appraisal contingency. You have to be careful though in determining market value. If a fully remodeled and renovated property is selling for more than other properties that might not be remodeled, than it shouldn't necessarily be considered over market value.

Also, I nicely remodeled turn key with a new condition and bathrooms will generally command a higher rent (and attract a better quality tenant) than one that hasn't been remodeled, however, it's not realistic to think that it would command $300 a month more. Something doesn't seem right. Also, I have to agree that positive cash flow on a $225K property renting for $1500 is a little suspect, especially in FL which has high insurance rates. I would dig in to those numbers a lot more.

Rocky R. · Answer

Thank for the replies @Caleb Brown @Lane Kawaoka

Ozzy Sirimsi · Answer

If they mark up the price just enough, then they can even guarantee the high rent for some time :D))

Is TurnKey investing really worth?

Is TurnKey investing really worth?

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