Turnkey Properties? Yea or Nay?

Question

REI'S! What are your opinions and/or dealings with turnkey investment properties? I have been looking into a couple of companies that specialize in turnkey properties. Are these good properties to invest in? If so, are there any buyers or lenders available willing to help me fund them? I could be wrong, but I thought it would be a good idea for me as a beginner investor to invest in properties that are already managed, have tenants in them and established cash flow. Also thought it was a good idea starting out to build my portfolio.  If I am wrong feel free to correct me.

James Wise · Answer

@Jake Gaines The turnkey product is great if you purchase it for the right reasons.

You will see debates back and fourth on whether or not the turnkey model is good or pad. There are endless threads about that topic here on BiggerPockets.

The turnkey product is for the investor that can't or doesn't want to be involved in much of anything relating to the investment. Perhaps the investor has a busy career or other business ventures to attend to. Perhaps the investor can't deal with or simply doesn't want to deal with the headache associated with tenants and rental properties. The solution is to pay someone else to do it for you, that is what the turnkey product is for.

I see lots of people arguing that there is less profit when you go the turnkey route.....Duhhh, of course there is, you have to pay someone to do the work for you! People don't work for free. That is why the mechanic is more expensive than going to the auto parts store and the steakhouse is more expensive than going to the grocery store.

When deciding whether or not to go turnkey you have to take other factors into account. Your answer to the following questions should show you if turnkey or the do it yourself route is better for you.

• What is more important, time or money?
• Can you deal with tenants?
• Do you want to deal with tenants?
• Do you have time to devote to sourcing properties?
• Do you have market knowledge?
• Are you familiar with landlord tenant law?
• Do you mind paying a premium?
• Do you need to be in control?
• Do you have the money to pay a premium?
• Are you investing because you have excess capital you need to park, or do you hope to turn real estate investment into your full time career?
• Are you looking for low to no money down investment strategies?

Clayton Mobley · Answer

Wow @James Wise that is right on the money - and a super useful list of questions for investors to answer when deciding if TK is right for them. Also, if you don't mind, I'm definitely going to use the steakhouse/mechanic analogies in future! I've been trying to illustrate the trade off by explaining that if you can't/don't want to build your own diversified stock portfolio, you can invest in a mutual fund, give away a small portion of your returns, but never have to lift a finger....I think perhaps your analogies are a bit more accessible ;)

@Jake Gaines, I know we've already spoken, but I wanted to pipe in here for the record, and to second what @Mike D'Arrigo just said - finding a transparent and trustworthy turnkey provider is the number one most important factor, even more so than market. Turnkey, like any investment, isn't inherently good or bad. There are good cash flow properties all over the country, and there are definitely bad TK outfits out there who will put lipstick on a pig, obscure the numbers and leave investors holding the bag. However, as I've mentioned before, any provider worth their salt will be able to provide hard figures for things like occupancy and maintenance, lease terms, management and leasing fees, turnover, etc. They should also be able and willing to provide an appraisal showing that the property you are buying is worth what you're paying or more. Any provider that has iffy numbers or is just estimating (read: making things up because they don't actually track anything), or refers to things like appraisals as 'red-tape' is a non-starter.

Regarding your questions about portfolio building, I think @Chris Virgil-Stone made some good points. TK is an amazing tool for building a portfolio and getting your passive wealth machine running. However, if you are interested in other types of RE investment, there is nothing stopping you, and TK can actually help you attain other goals more quickly.

TK is great for starting out because there is no effort on your part for maintaining the investment. At Spartan, we set clients up with a PropertyWare account so they can always see their rents, expenses, leases, PM agreements - everything- at a glance. BUT if they don't want to check in regularly, they don't have to. Each client has an assigned investment manager who calls with a check up every month to go over the numbers and discuss any issues or questions. If they are not satisfied with anything in the first year - the property, the returns, the team, me - we will buy the property back for exactly what they paid. Now, no one has ever taken us up on the offer, but we keep it on the table so that clients know that we are accountable every step of the way and that, even if they aren't actively checking in on their investment, we are working to ensure its success every day. For newbie investors, this is the kind of investment that helps grease the wheels for future success. You can start by building a TK portfolio and, once you have solid cash flow going, if you like the idea of self managing to score those extra few ROI points, you'll have both the knowledge and the capital flexibility to move into other investment niches. You can also simply scale your TK portfolio, which many investors elect to do because it is simply the easiest way to generate income. The point is, TK, done right, is a great way to generate the extra capital that will give you the freedom to choose what you want to pursue down the road.

Anyway, that's my more-than-two-cents ;) Thanks again for reaching out and I look forward to chatting further.

All the best,

Clayton

Chris Virgil-Stone · Answer

Turn key properties are great but it all depends on the individual investor. I just put an offer in on a turnkey investment property because it is well below market value but also because I have a baby, full time job and my wife works as well. So I don't have as much time as I had in the past to put towards updating or fixing things myself. While you  can hire out on properties that need work, I would advise anyone that wants to invest to do a good amount of the work themselves on their first property ( I also suggest it be one where a lot of value can be added i.e. not turnkey). The best way to learn is through action. I don't recommend this for scaling a business but you learn a lot such as things to look for in your next property that might be a common problem, how much materials actually cost for repairs, contacts in your area if something were to go wrong, etc. Just an example, in my first property I had the drain in my basement back up causing all the sewage to spill out onto the floor. After trying to clear the drain myself I had to call a local company. The owner showed up and was able to educate me on how the roots would grow through the pipes and they need to be cut out every couple of years. I was able to watch how he did it and knew I could rent a professional pressure hose so I could do it myself in the future if need be.

Good luck @Jake Gaines

Mike D'Arrigo · Answer

@Jake Gaines it all depends on the turn key provider and where the property is located. TK properties are not inherently good or bad just by virtue of the fact that they are turn key. The things to look for are the reputation and experience of the turn key provider, the quality of the renovation, the location and the property management. I did a Pinnacle Perspective podcast on what to look for in a turn key company. Look for the 12-7-2015 episode on our website.

Jake Gaines · Answer

@Matthew Dowdy It IS, man!! Now is the time to take advantage!!

@Bishoy Girgis I see your point! But to be a landlord? I'd rather not! I'd rather hire someone to do it for me! I can get hands on experience from a flipper as far as how to estimate cost of repairs and what all that entails as far as fixing up a property. But I don't feel I need a buy and hold to do that! Hey, man, I could be naive. I am a beginner so its possible! Lol. But I just know for me, I'd rather have someone experienced to handle my properties and TK's appeal to me. Now maybe further along down the line, when I'm a veteran in this game, I will no longer have the need for TK's; who knows? But for right now I see it as a good look for me. I appreciate your point and your opinion though. I value all of you guys' opinion.

Bishoy Girgis · Answer

@Jake Gaines hey man i would totally disagree that TKs are good for starters but i completely respect your point of view and might i add it is alot better then if you arent in the position to be able to  just as mentioned by @James Wise they are awesome if you dont want to do anything (basically learn anything and can sit back and be know FOR THE MOST PART) that your investment is doing alright....BUT if you do want to learn i would recommend to go find a fixer uper thats cheap and get some real hands on experience regarding costs of repairs (which includes carpet kitchen washroom) but if this isnt something you are trying to get into and simply just wanting to put your money somewhere safe and make a small return then TK are one of the best and im with you if thats what your trying to do

Best of luck in the future man

Jake Gaines · Answer

@Ali Boone I currently live down the street from MTSU! Less than a 2min drive. Awesome school! Great atmosphere! Appreciate the enthusiastic response! It adds to my growing confidence that this is the right decision for me! Thank you!

Ali Boone · Answer

Murfreesboro! I graduated undergrad from MTSU :) I love NashVegas. I try to still go back as much as possible.

Plenty of folks with disagree with you about turnkeys being awesome, but I will totally agree with you. They are all I've ever bought (mostly) and I wouldn't buy anything else. I also think they are great for beginners because they let you learn the basics (running numbers, market analyses, DUE DILIGENCE, and managing managers). You don't have to be bombarded with advanced stuff (rehabs, etc.) while you learn the basics.

Be prepared for plenty to disagree, but I'm 100% on your side!

Jake Gaines · Answer

@James Wise I believe my response to most of those questions is no. Which is why TK investments appeals to me. My time is very important to me. Especially starting out because I feel I have very little room for error as a newbie. I can deal with tenants but I'd rather not deal with the hassle of finding good tenants. Not familiar with landlord/tenant law, etc. I'd rather pay someone who are more knowledgeable in those areas to do it for me. My dad has always taught me to "pay for peace." I'd rather pay for the peace of mind knowing that my investments are ran and overseen properly than to get in there with my limited knowledge and screw things up.

@Clayton Mobley Wow! Everything you said made perfect sense! For me, starting out I think TK is the way to go. I would like to build a portfolio while also establishing consistent cash flow. Look forward to discussing this with you further

Thank every single one of you for your responses, knowledge and willingness to share your expertise. When I first posted this I was on the fence about TK investments. I thought it would be a good look for me but you guys just gave me the confidence I needed to move forward. Now all is left is finding the right companies/properties to investment with/in. Thank you all so very much! You guys ROCK!!

Account Closed · Answer

Typically companies that are selling turn key properties may be a bit high. Have you agent check on the actual ARV and access your price point from that angle!

You should be able to get lending on them fairly easy are you doing it in personal or business name?

Turnkey Properties? Yea or Nay?

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