Turnkey strategy - realistic expectations?

Question

I am interested in people's thoughts on realistic expectations for turnkey SFHs across different markets, as I am just getting started and trying to calibrate expectations.
I have evaluated a few dozen properties now from several well known turnkey providers on these forums, and while they polish up their marketing materials pretty nicely, when I run my own numbers with my own financing and assumptions these deals rarely look interesting from a cash-on-cash return perspective, so I feel like I'm either I'm only seeing the scraps that other investors have discarded, or my expectations just aren't realistic on what to expect out of these turnkey providers when utilizing conventional financing.

Returns I'm seeking:

- ≥8% Cash-on-Cash in year 1

- ≥18% 10-year IRR

- ≥$150/mo in monthly cash flow after all expenses in year 1

Properties I'm focused on (I am flexible on the area as long as the numbers work): - Class A/B neighborhoods (middle class incomes, low crime, safe for families, decent schools, higher rents (>$900/mo)) - want to stay clear of C/D properties to avoid tenant problems and depressed neighborhoods, even if it means sacrificing some cash flo - decent potential to be exited to an owner-occupied buyer in 10-15 year timeframe rather than a "lifetime rental"
- 3-4 BR / 1.5-2.5 BA, ideally built within last 40 years
- Major CapEx (roof/HVAC) either recently rehabbed or with 10+ years of life

Assumptions:

- 6-8% combined vacancy / maintenance / CapEx reserves (may be higher depending on the property)

- 75-80% LTV financing

- 2-4% annual appreciation, depending on the market (though this is just bonus for the IRR in the 10-year pro forma)

I feel like these are pretty modest objectives but I haven't really been seeing many properties that come close to meeting my expected returns, so I'm second-guessing if this strategy is going to make sense.
What is BP's take - are these unrealistic expectations given current market conditions in the popular turnkey markets? Any markets where these criteria are more achievable?

I am interested in people's thoughts on realistic expectations for turnkey SFHs across different markets, as I am just getting started and trying to calibrate expectations.
I have evaluated a few dozen properties now from several well known turnkey providers on these forums, and while they polish up their marketing materials pretty nicely, when I run my own numbers with my own financing and assumptions these deals rarely look interesting from a cash-on-cash return perspective, so I feel like I'm either I'm only seeing the scraps that other investors have discarded, or my expectations just aren't realistic on what to expect out of these turnkey providers when utilizing conventional financing.

Returns I'm seeking:

- ≥8% Cash-on-Cash in year 1

- ≥18% 10-year IRR

- ≥$150/mo in monthly cash flow after all expenses in year 1

Properties I'm focused on (I am flexible on the area as long as the numbers work): - Class A/B neighborhoods (middle class incomes, low crime, safe for families, decent schools, higher rents (>$900/mo)) - want to stay clear of C/D properties to avoid tenant problems and depressed neighborhoods, even if it means sacrificing some cash flo - decent potential to be exited to an owner-occupied buyer in 10-15 year timeframe rather than a "lifetime rental"
- 3-4 BR / 1.5-2.5 BA, ideally built within last 40 years
- Major CapEx (roof/HVAC) either recently rehabbed or with 10+ years of life

Assumptions:

- 6-8% combined vacancy / maintenance / CapEx reserves (may be higher depending on the property)

- 75-80% LTV financing

- 2-4% annual appreciation, depending on the market (though this is just bonus for the IRR in the 10-year pro forma)

I feel like these are pretty modest objectives but I haven't really been seeing many properties that come close to meeting my expected returns, so I'm second-guessing if this strategy is going to make sense.
What is BP's take - are these unrealistic expectations given current market conditions in the popular turnkey markets? Any markets where these criteria are more achievable?

I am interested in people's thoughts on realistic expectations for turnkey SFHs across different markets, as I am just getting started and trying to calibrate expectations.
I have evaluated a few dozen properties now from several well known turnkey providers on these forums, and while they polish up their marketing materials pretty nicely, when I run my own numbers with my own financing and assumptions these deals rarely look interesting from a cash-on-cash return perspective, so I feel like I'm either I'm only seeing the scraps that other investors have discarded, or my expectations just aren't realistic on what to expect out of these turnkey providers when utilizing conventional financing.

Returns I'm seeking:

- ≥8% Cash-on-Cash in year 1

- ≥18% 10-year IRR

- ≥$150/mo in monthly cash flow after all expenses in year 1

Properties I'm focused on (I am flexible on the area as long as the numbers work): - Class A/B neighborhoods (middle class incomes, low crime, safe for families, decent schools, higher rents (>$900/mo)) - want to stay clear of C/D properties to avoid tenant problems and depressed neighborhoods, even if it means sacrificing some cash flo - decent potential to be exited to an owner-occupied buyer in 10-15 year timeframe rather than a "lifetime rental"
- 3-4 BR / 1.5-2.5 BA, ideally built within last 40 years
- Major CapEx (roof/HVAC) either recently rehabbed or with 10+ years of life

Assumptions:

- 6-8% combined vacancy / maintenance / CapEx reserves (may be higher depending on the property)

- 75-80% LTV financing

- 2-4% annual appreciation, depending on the market (though this is just bonus for the IRR in the 10-year pro forma)

I feel like these are pretty modest objectives but I haven't really been seeing many properties that come close to meeting my expected returns, so I'm second-guessing if this strategy is going to make sense.
What is BP's take - are these unrealistic expectations given current market conditions in the popular turnkey markets? Any markets where these criteria are more achievable?

I am interested in people's thoughts on realistic expectations for turnkey SFHs across different markets, as I am just getting started and trying to calibrate expectations.

I have evaluated a few dozen  properties now from several well known turnkey providers on these forums, and while they polish up their marketing materials  pretty nicely, when I run my own numbers with my own financing and  assumptions these deals rarely look interesting from a cash-on-cash  return perspective, so I feel like I'm either I'm only seeing the scraps  that other investors have discarded, or my expectations just aren't  realistic on what to expect out of these turnkey providers when  utilizing conventional financing.

Returns I'm seeking: - ≥8% Cash-on-Cash in year 1- ≥18% 10-year IRR - ≥$150/mo in monthly cash flow after all expenses in year 1

Returns I'm seeking:

- ≥8% Cash-on-Cash in year 1

- ≥18% 10-year IRR

- ≥$150/mo in monthly cash flow after all expenses in year 1

Properties I'm focused on (I am flexible on the area as long as the numbers work): -  Class A/B neighborhoods (middle class incomes, low crime, safe  for families, decent schools, higher rents (>$900/mo)) - want to stay clear of C/D properties to avoid tenant problems and depressed neighborhoods, even if it means sacrificing some  cash flo- decent potential to be exited to an owner-occupied buyer in 10-15 year timeframe rather than a "lifetime rental" - 3-4 BR / 1.5-2.5 BA, ideally built within last 40 years- Major CapEx (roof/HVAC) either recently rehabbed or with 10+ years of lifeAssumptions:- 6-8% combined vacancy / maintenance / CapEx reserves (may be higher depending on the property)- 75-80% LTV financing- 2-4% annual appreciation, depending on the market (though this is just bonus for the IRR in the 10-year pro forma) I  feel like these are pretty modest objectives but I haven't really been  seeing many properties that come close to meeting my expected returns, so I'm  second-guessing if this strategy is going to make sense. What is BP's take - are these unrealistic expectations given current market  conditions in the popular turnkey markets?   Any markets  where these criteria are more achievable?

-  Class A/B neighborhoods (middle class incomes, low crime, safe  for families, decent schools, higher rents (>$900/mo)) - want to stay clear of C/D properties to avoid tenant problems and depressed neighborhoods, even if it means sacrificing some  cash flo

- decent potential to be exited to an owner-occupied buyer in 10-15 year timeframe rather than a "lifetime rental" - 3-4 BR / 1.5-2.5 BA, ideally built within last 40 years- Major CapEx (roof/HVAC) either recently rehabbed or with 10+ years of lifeAssumptions:- 6-8% combined vacancy / maintenance / CapEx reserves (may be higher depending on the property)- 75-80% LTV financing- 2-4% annual appreciation, depending on the market (though this is just bonus for the IRR in the 10-year pro forma) I  feel like these are pretty modest objectives but I haven't really been  seeing many properties that come close to meeting my expected returns, so I'm  second-guessing if this strategy is going to make sense. What is BP's take - are these unrealistic expectations given current market  conditions in the popular turnkey markets?   Any markets  where these criteria are more achievable?

- 3-4 BR / 1.5-2.5 BA, ideally built within last 40 years- Major CapEx (roof/HVAC) either recently rehabbed or with 10+ years of lifeAssumptions:- 6-8% combined vacancy / maintenance / CapEx reserves (may be higher depending on the property)- 75-80% LTV financing- 2-4% annual appreciation, depending on the market (though this is just bonus for the IRR in the 10-year pro forma) I  feel like these are pretty modest objectives but I haven't really been  seeing many properties that come close to meeting my expected returns, so I'm  second-guessing if this strategy is going to make sense. What is BP's take - are these unrealistic expectations given current market  conditions in the popular turnkey markets?   Any markets  where these criteria are more achievable?

- Major CapEx (roof/HVAC) either recently rehabbed or with 10+ years of life

Assumptions:- 6-8% combined vacancy / maintenance / CapEx reserves (may be higher depending on the property)- 75-80% LTV financing- 2-4% annual appreciation, depending on the market (though this is just bonus for the IRR in the 10-year pro forma) I  feel like these are pretty modest objectives but I haven't really been  seeing many properties that come close to meeting my expected returns, so I'm  second-guessing if this strategy is going to make sense. What is BP's take - are these unrealistic expectations given current market  conditions in the popular turnkey markets?   Any markets  where these criteria are more achievable?

Assumptions:

- 6-8% combined vacancy / maintenance / CapEx reserves (may be higher depending on the property)

- 75-80% LTV financing

- 2-4% annual appreciation, depending on the market (though this is just bonus for the IRR in the 10-year pro forma)

I  feel like these are pretty modest objectives but I haven't really been  seeing many properties that come close to meeting my expected returns, so I'm  second-guessing if this strategy is going to make sense. What is BP's take - are these unrealistic expectations given current market  conditions in the popular turnkey markets?   Any markets  where these criteria are more achievable?

I  feel like these are pretty modest objectives but I haven't really been  seeing many properties that come close to meeting my expected returns, so I'm  second-guessing if this strategy is going to make sense.

What is BP's take - are these unrealistic expectations given current market  conditions in the popular turnkey markets?   Any markets  where these criteria are more achievable?

Hank Keller · Answer

@Antoine Martel - I'd have to agree that a turnkey investment in an A neighborhood is going to be a stretch to get those returns. At least where I invest.

James Wise · Answer

As others have stated I don't think an A grade neighborhood is going to be conducive to a rental property. Typically those neighborhoods are almost entirely owner occupied & the price to rent ratio is just not there from an investing standpoint.

B class is a nice sweet spot. Get to avoid major headaches of C-D-F while still being able to generate a healthy return.

Anthony Dooley · Answer

You could just stack your money and wait for the next crash. They will negotiate then.

Kevin H. · Answer

That is another thing that irks me about the turnkey providers. They don't negotiate the price, which is really hard for anyone who has ever purchased a home through an agent and feels like "not paying asking price" is part of the game.  It gives me the feeling that it's just because they know there is another coastal sucker on their list waiting for a OOS deal, many of whom are already conditioned to pay asking or over-asking price for their own homes in their local overheated markets.

Anthony Dooley · Answer

8% is realistic in Texas, Memphis, Birmingham, and Atlanta markets. Also think about this. $150 cash flow is $1,800 per year. How long will it take you to break even on that kind of return? If you were buying a 100 unit apartment building, $150 would be a lot of money.  Putting more money down and negotiating the price down will increase the cash flow. Buy for cash flow, not appreciation. Take appreciation out of your projection unless you are doing value add multi-family.

Antoine Martel · Answer

Agree

Antoine Martel · Answer

I think those are very safe bets and I believe that with those numbers you will be able to find many turn key rental properties to fit your box. Even maybe too many. I'd recommend moving up first year COCR to 15%.

Turnkey strategy - realistic expectations?

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