Would you choose Turn Key vs BRRR as an out of state investor?

Question

I'm looking into the interest and views from out of state investors on purchasing turn key vs BRRR model. I have been providing turn-key properties since 2012. I also use the BRRR method to hold properties. I also own my own property management company. I would like to know what out of state investors currently prefer. Here are the two scenarios:

1. Turn-Key properties: Everything done done for you, properties completely rehabbed and tenanted before closing. Properties sold at or close to market value.

2. I help you find a property to purchase, use my crews to rehab it and then tenant the property for you. Which you can then refinance it. My fee would be built into the rehabs. Most of the properties you would end up with about 15-20% equity.

Jay Hinrichs · Answer

#2 is how turn key was done 95% of the time prior to 08... its how us HML made a living.. putting the buyer into title so that you could then do your job and new you were going to get paid.  when refi's shut down so did the BRRR model.

relying on refi is still suspect at this time.. you see that on posts on BP... but can work well.. I Have a few turn key companies I fund that do the what I call  turn key light.. IE  they provide the service as you describe in #2.

however it brings on for the operator ( you) another set of headaches you get micro managed on the rehab so you have to be prepared for that.. look at the Morris invest threads.. you will get a good idea of how clients will go off on you if you can't keep a rehab schedule or your work is not up to what the buyer thinks it should be..

Andrew C. · Answer

Hey @Ali Boone, do you know of any turnkey operators who have a hybrid approach or as @Jay Hinrichs calls it "turnkey light"?  For my first out-of-state property, I went with a provider who offered turnkey but also had option #2.  He acted as my realtor (distressed property so price was low), then acted as project manager (charging a reasonable management fee), and is now the property manager.

I like this approach as I get some equity from the beginning.  And from what Account Closed said, it sounds like many other out-of-state/country investors would be interested in that option as well.  Thanks!

Zachery Buffin · Answer

I hate to sound bias as an agent but the fact of the matter is turnkey takes a lot off your plate but there is also a lot out of your control. You don't know the quality of rehab, the quality of the people involved in selecting tenant, the tenant themselves, rental rates, anything and everything that makes a deal a deal is taken out of your hands. I find that turnkeys often (not all and not always) misrepresent the cashflow by missing key factors like cap ex. Long story short, unless you just have so much money sitting around that you can stand to make less per door and buy a ton of these things outright then you need to get more involved than turnkey allows.

Building a team, getting to know the markets you want to invest in, analyzing "practice" deals, getting a good investor centric agent to find you properties in distress but clear titled, property managers that work in your area, and everything else that makes successful investors is worth your time. Do the work so that you will know the game, maybe get a partner in the area for your first deal, maybe even first few, that knows the area so you have trusted boots on the ground.

We do sell distressed properties to investors, most of the rest will be on you, if you would like you can PM me or call me, my number is in my profile and at the bottom of every post. I can send you packets on properties, of course not to buy right away but just to give you a feel for what an agent who works with investors remotely should be sending you. I will give you a PDF file that will give you the CRS data sheet, four or more comps in the market and their information, pictures to start with, pricing information, days on market analysis, and I will include in the emails what I think the rehab will be based on my estimates. You can take those deals and run them through the bigger pockets calculators (or other calc programs if you prefer) and get a feel for the numbers. That way you have run the numbers in a safe space before you have money really on the line, you can also email/call with questions while running the analysis.

In the end the worst thing you can do is NOT invest at all, no matter which strategy you choose the idea is that you will pull the trigger when the deal is right. Don't get caught up in analysis and doubt over the "best" solution work until the numbers do and then go. This can seem like a cliff to new investors but the truth is that you should be investing with savings or money set aside for investments. That means that it is really a curb you are jumping off, it isn't as scary as it seems. Good luck, let us know when you jump in and what you chose!

Antoine Martel · Answer

I invest only out of state and have been doing the BRRR strategy. It has worked out great for me and my team!

Zachery Buffin · Answer

@Jay Hinrichs On a side note I just checked out your site and some of the info you have, great stuff! Certainly a lot of great info on turnkeys on there!

James Wise · Answer

I have sold over $50 Million worth of real estate doing both. (Tons of it here on BP, hit the marketplace if you aren't already) The biggest takeaway I have for you after selling all of that real estate is there is no reason to limit yourself to one method or the other. For every potential client that likes #1 there is a client who likes #2. By being able to do both my company has actually gotten to the point where we do sales for rehabbers who focus on method #1.

Account Closed · Answer

@Nick McKinnis Great thread! I never even knew scenario #2 exists! It definitely pays off to participate more on BP! I am a prospective out of state (actually country) investor and when I began reading into REI I was almost sure I wanted to begin with turnkey properties. Given the right provider and management company, I don't think it can get any easier to acquire a rental property. Plus, if you invest in the right market some returns can be quite fair. However, a bit more into my REI education I learned about the famous BRRRR strategy and now I can't think of any other way to get into REI other than BRRRR. If I can buy more with less then why choose otherwise? So, I personally would prefer #2 any day.

@Michael Noto I wouldn't understand the intricacies of a rehab project, but that would not deter me from using scenario #2. Due diligence and building a win-win relationship for both parties is enough reassurance for me to be more hands-off the rehab project. But of course, regarding expectations, an experienced investor would better understand when things don't go as planned whereas as Jay said a new investor may go off when things don't go as planned. I think clear communication and just knowing that things may and do go wrong are vital before jumping in. And of course, it ultimately depends on the investor and their strategy/goal.

Bo Kim · Answer

Option #2 sounds great. How do your investors finance the buy + rehab. Do you also refer HML?

Bo Kim · Answer

Hi Jay,

Can you also PM me some referrals for TK light?

Thanks,

Bo

Ali Boone · Answer

@Andrew Chan Heya, I do know of a really successful one, yes. Shoot me an email or message and I can give you more details.

Would you choose Turn Key vs BRRR as an out of state investor?

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