Turnkey or Value-Add for First Multi-Family Property?

Question

I've identified the markets I want to explore out-of-state, connected with an agent and am evaluating properties daily. Looking for MF buy & hold B class properties. I've seen many turnkey duplexes on the market with new builders, and have the perception turnkey would be easier but not always yield the best returns. Value-adds may have more upside but also more risk. Knowing I'm outside of state, naturally I'd lean to turnkey, but want to know if the juice is worth the squeeze with a value-add deal.

I understand there's no right or wrong answer here, but just curious to hear about other experiences in addition to pros & cons.

Lee Ripma · Answer

@Austin McAnena

I am also in LA. I talk about my experiences OOS investing on my podcast. Basically I started out with BRRRR and was successful with it, however, it's a ton of work and risk. So I switched to buying stabilized value add MF. What you start with really depends on your resources and goals starting out. I currently buy small stabilized MF in the KC market and add value with minor cosmetic renovations. I'm glad I started out doing really large rehabs because I learned a ton. I also invest in LA doing development and certain types of fix and flips. My knowledge of construction I got from those BRRRRs really helps me. So I don't think there is a wrong answer here but if you have the capital to buy more stabilized properties and continue to scale those purchases that would be my recommendation based on my personal experiences. If you have limited capital you may need to start with the heavier value add.

Mary M. · Answer

I buy new build small MF. My most recent acquisition was a 8 and 12 unit Class B  buildings.

I buy where I live even tho I live in a low cap rate area because I believe it is too risky and expensive to buy where I cant manage my assets.

If this is your first purchase I would rethink OOS investing.  Also, i would never do a remote rehab. That is crazy risky.

Just my POV.

Mark H. Porter · Answer

I invest both here in Vermont and in South Carolina.  I remotely did a substantial rehab on a home that had termite damage and natural deterioration from being across from the beach.

We went down there for a week to do walkthroughs with contractors and quickly zeroed in on a young contractor that was smart as a whip.  Work went very well thanks to FaceTime and the ability to message photos.  Job was done in time and within budget (As a project manager I know this rarely happens).

I have a property manager down there who does a great job So I don’t worry about things.  I’m now at a point, in just 6 months of owning them, that my class B property there, which cost me less than half the class A down the street, will bring in an equal amount of annual revenue.  That’s a deal I can live with.

Andrew B. · Answer

I personally lean toward OOS.  @David Greene's book Long Distance Real Estate Investing is a great resource for developing a team of the right people to systematize your portfolio growth.  Thorough due diligence combined with putting checks and balances in place among your team will help to mitigate the risk.  It all depends on what you're comfortable with.

OOS allows you access to the best markets nationwide and value add brings with it immediate equity and faster wealth building.  There is more risk which means a better system needs to be put in place as there is less margin for error.  There are a lot of different real estate investment strategies and if done well they all work.  Be open-minded to all of them and choose the one that suits your situation.

AJ Singh · Answer

@Austin McAnena

Start exploring in riverside and san bernadino county. Plenty of rehab opportunites and closer to your area to manage

also pockets in los angles counties e.g. long beach, bellflower, paramount, around the 710 freeway may have opptys for you as well.

When you evaluate Turnkeys in OOS, make sure not to pay over comps.

Ali Boone · Answer

Maybe this can help?

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

Lane Kawaoka · Answer

@Austin McAnena I lived in Seattle and yea I went OOS. Bought 11 turnkeys and moved to syndication when my net worth was decent.

Austin McAnena · Answer

Thanks for your thoughts @Mary Mitchell, definitely very tough to do rehabs from OOS. I live in Orange County, CA so it is really challenging to find lower cost/cash flow opportunities in our expensive appreciation market. But definitely something to consider.

Jordan Moorhead · Answer

Value Add, you'll get a better return on the rents and add equity

Carl C. · Answer

Our first MF was relatively local for us. We went for a value added deal solely because it was a killer location. I don't think I'd personally get into a long distance rehab project. I work in the construction management field for my W2 and I have seen how difficult managing projects can be from a distance. You better really know your contractor or get lucky.

Turnkey or Value-Add for First Multi-Family Property?

Most Popular Reply