Is Turnkey A Good Place To Start?

Question

This is my first question of many.  As I have just started to look into real estate investing.  It seems that a turnkey provider might be a good place to start.  I have come across a few horror stories.  So I know that I must carefully vet any providers.

Beyond that, I do have questions.

1. Do I become the owner of the property?  Able to brow from the equity.  Able to sell the property at any time to a buyer of my choosing.  Adjust the terms of Lese/Rent once the current contract runs its course.   or am I just buying the rights to collect rent and responsibility for taxes and fees? and the turnkey provider remains the owner of the property?

I hope my question is not too confusing.  I appreciate all help.

Thank You

Troy

Larry Fried · Answer

@Troy Grudin Turnkey is exactly how I got started in my OOS REI.  It worked well for me because I was a busy running a business and my local market was not good for passive cash flowing REI, as prices were too high compared to rents.

Yes you do own the property.  Typically buying turnkey you are going to be buying close to or at market value and would finance the deal upfront.  That leaves the only equity you have in as your down payment of 20-25%.  If the turnkey is only offering cash purchases, I would exercise extreme caution.  These are likely going to be very low priced properties that banks typically won't finance for investors.  The returns may look good on paper, but for OOS investors they will likely be a huge headache and the real returns will be much lower.   PMs have different contracts, and some may be more restrictive than others in what control you have.  You should know that most turnkey companies in house PM will want to use their experience in the market in setting the terms of the lease, including the rents amounts.  The best will also discuss with their investors their strategies and certainly accept input.  It can also widely depend on how closely you want to manage the managers.  I get pretty involved myself as I know no one is going to care as much about my properties as I do.

Account Closed · Answer

People do turn-key to get their feet wet and when they have more money than experience. If you want to make real money, partner with someone and learn the trade. For instance, Investing in Phoenix is very profitable right now as is other parts of the country. Personally, I would never buy turn-key since it is almost always priced higher than true value. They've done all of the work and expect and should be compensated for that. But, if you want to learn and to make big profits, you've got to team up, not buy turn-key.

James Wise · Answer

Welcome to the site Troy.

Yes you are the full owner of said property. You would be able to sell whenever you like. Typically folks buy turnkey out of state so they can hit the lower cost markets. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

• Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
• Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
• Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
• Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
• Make sure your property manager is a licensed real estate brokerage.
• Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

Tom Ott · Answer

Hello,

Yes, going with a Turnkey property as your first is a great place to start. Many investors who want to invest outside their own market, or do not have time to be a full-time flipper or Landlord go with Turnkeys. Is it very passive for you! It will also help get you started if you want to do something else.

To answer your questions

1) YES, you should ALWAYS become the owner of the property.

2) It is your property, sell it whenever you want!

3) Sometimes it is not great to pick fights with your PM in terms of the lease/rent. You have to remember they know their markets. The last you want to do is raise the rent 15% at renewal and now you have a vacant property. PMs should know what is best for the local market.

4)  The turnkey provider should never keep the title. You are the owner 100%!

Try looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

Is Turnkey A Good Place To Start?

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