Turnkey rental full cycle analysis

[Jesse Proett]

In 2018 I bought a turnkey rental house from Memphis. High cash flow and all that.

Purchase price $79,000 rented for $835

Money due at closing to acquire the deal was $23,374. This does not include the inspection cost I did prior to closing. Lets just say it was $100, I forget what it was.

So Im all in $23,474. Monthly mortgage was $485.81 and the rent after property management was $751.50. Now Im cash flowing $265.69. Not too bad.

A few months into it and the tenet fell into hard times and could not pay the rent. This went on until we had to evict them. The cashflow was about $1,100 the first year because of this.

With make ready costs and vacancy, the cash flow for the second year was about $1,450.

Ok, but now it is worth more and I agree to sell it for $85,000. Lender requires certain repairs that cost $2,250. My loan payoff is $58,446. Minus the 6% commission and I estimate getting $19,204 at closing.

Money into the deal $23,474. Money out after 2 years $21,704.

This is probably a great deal for someone that wants to hold on for a very long time.

[Tony Kim]

Originally posted by @Jesse Proett:

In 2018 I bought a turnkey rental house from Memphis. High cash flow and all that.

Purchase price $79,000 rented for $835

Money due at closing to acquire the deal was $23,374. This does not include the inspection cost I did prior to closing. Lets just say it was $100, I forget what it was.

So Im all in $23,474. Monthly mortgage was $485.81 and the rent after property management was $751.50. Now Im cash flowing $265.69. Not too bad.

A few months into it and the tenet fell into hard times and could not pay the rent. This went on until we had to evict them. The cashflow was about $1,100 the first year because of this.

With make ready costs and vacancy, the cash flow for the second year was about $1,450.

Ok, but now it is worth more and I agree to sell it for $85,000. Lender requires certain repairs that cost $2,250. My loan payoff is $58,446. Minus the 6% commission and I estimate getting $19,204 at closing.

Money into the deal $23,474. Money out after 2 years $21,704.

This is probably a great deal for someone that wants to hold on for a very long time.

For a TK property, you actually had a pretty decent exit considering you only held it for two years. Most people would have to take a bath if they tried to exit after two years.

For folks that want to be successful with TK's, I always say that in addition to finding a top notch provider you can trust, you also need to do two additional things: 1) hold for the long-term, and 2) buy a lot of them. Tenant turnover is a fact of life when it comes to TK's. The best way to stabilize your monthly cash flow and to absorb the eventual capital expense that you will incur in about 5 years is to spread things out with a lot of TK properties.  As for the investment cycle term, thanks to their non value-add nature, you have to hold for the long term in order to recoup transactional costs and the slight decline in price once the 'new car smell' from the TK provider's renovation wears off.