Negotiating on a turnkey property

[Zevi Arem]

Is it possible to negotiate a good deal with a turnkey property or most probaly they'll stay firm with their price, what advice would you have for dealing with turnkey sellers.

[Mike D'Arrigo]

@Zevi Arem You have to ask yourself what is a good deal when it comes to a turn key. Typically investors buy turn keys for immediate cash flow and not built in equity. Good turn key companies sell at market value which means there has to be margin left in it after acquisition, renovation and holding costs. They make their money by forcing equity by buying right and making the right improvements. There generally isn't going to be a lot of margin left for them to discount. If you're considering turn key, you should really evaluate it in the basis of cash on cash return that it generates. However, as with any form of rental, the return isn't limited to the cash flow. Keep in mind that there is equity gained by mortgage pay down courtesy of your tenants. This can really be accelerated if you apply all of your cash flow to the mortgage and accelerate the pay down. Then of course, there is an accounting principle courtesy of the IRS called depreciation. Depreciation is a powerful tax advantage unique to real estate. I see too many investors evaluate an income producing property on the basis of cash flow alone and completely overlook equity from mortgage pay down and depreciation.