Investing into Turnkey Rentals should you do it?

Question

Now that I have some time on my hands I'm looking into turn key rentals.  I have one company that I'm looking at, Rent to Retirement.  However, with just one company how do you know if you're making a wise decision?  Are there any other companies out there that I can check into?  Has anyone else done this to increase their cash flow?  I already have some feedback on a previous post in reference to Rent to Retirement.

Zach Lemaster · Answer

@Alicia Harrington

There are many companies out there that offer "turn key rentals."  You may find yourself going down the rabbit hole here of research.  It's important to find a team you feel comfortable working with, has good communication, has a long standing track record with lots of positive feedback, and that is compatible with your goals.  Being in the tk space we are very familiar with many other tk providers that do a good job that I'm happy to recommend to you directly.  Of course I'm biased, but we do have more positive reviews from previous clients than any other tk provider on this site (that I can find).  They only way you are going to know for sure if an organization is one you want to partner with long term is through a first hand investing experience.  Just because you partner with a company on a few deals does not mean every single deal you do has to be with that same company.  It strongly encourage investors to work with different teams in different locations to add perspective & diversity, but you will never truly know for sure which team is the best suit for your goals until you actually do business with them firsthand no matter how much research you do.  Hopefully this all makes sense.  My encouragement to you is to simply get started & take action once you do find a team you feel confident in working with.  I'm happy to answer any specific questions you have.

https://www.biggerpockets.com/users/ZacharyCole/references

Alicia Harrington · Answer

@Zach Lemaster Thanks for responding I have already heard some good reviews from others about your company.

Gregg Cohen · Answer

Full disclosure: I'm an owner of JWB Real Estate Capital.

@Bradley Sriro - Thanks for sharing your experience with us!

@Alicia Harrington and @Vinod Badami - I'm glad you're both interested in investing in rental properties.  Single family rentals offer the best risk-adjusted return on investment due to the 5 profit centers, in my opinion.  Just a few things that I would pay close attention to when choosing a turnkey partner and a real estate market:

1. Is the company that you are buying the property from also the property manager?  It's really important to make sure that the company that makes the promises as far as what your returns on investment will be is the same company who actually collects the rent.  This will make sure the goals are aligned and increase the chances of a successful working relationship for you.

2. Does that company only sign 1 year leases?  Don't settle for this.  Make sure they only sign 2 and 3 year year leases with rent escalators.  Your success as a rental property investor will be tied to how long your average duration of tenant stay is and the best way to influence this is to sign long term leases.

3. If you are a buy and hold investor and you plan to be owning the property for a full market cycle (10-20 years or more), then look at all 5 profit centers when determining which market offers the best returns.  Most investors only focus on positive cash flow and ignore home price appreciation.  However, history shows us that home price appreciation rates in a given market tend to repeat themselves over a full market cycle.  Knowing this, you can look back at the historical averages for home price appreciation and you'll have a good idea of what your investments will do over the next market cycle.  Invest in a market that has both positive cash flow and higher-than-normal home price appreciation.  Most cash flow markets have appreciated 2-3.5% on average per year since 1991.  Jacksonville has appreciated at a rate of 4.3% on average.  This is a big deal when you are invested in a $200k asset and you hold on for a long time.  It can equate to hundreds of thousands of dollars in additional return on investment simply by buying and holding in a growth market like Jacksonville.

I'm happy to be a resource any way possible.  Hope this helps.

Bradley Sriro · Answer

@Alicia Harrington I too would recommend looking into JWB. I live in Miami where it is very difficult, if not impossible to  cash flow with single family. As a result, I began researching multiple turnkey providers. I decided to go with JWB and have since purchased with them. I really liked the fact that they are in a great market (Jacksonville) that offers both cash flow and consistent historical appreciation. While their properties may not cash flow as much as some other markets, all things considered, they offer a very attractive total ROI. I also found that they have a stellar reputation in the turnkey world and I have been very happy with their customer service thus far. If you would like additional information or a point of contact for them, feel free to direct message me. Best of luck!

Evan Polaski · Answer

@Alicia Harrington, take this for what it is, as turn keys are not what I look for.  I have spoken to many others that have had some seemingly good experiences. I think the first hurdle is setting up your investment objectives, primarily WHERE do you want to invest geographically.

Second, as Zach mentioned, try to find several.  Get on their deal list and start comparing them and asking questions.  How much do they reserve for vacancy, repairs and maintenance, Capex in their financial models?  How much are they charging for management?  Leasing commissions?  Particularly with management and leasing commissions, what is market rate?  I.e. 10% is standard management and leasing commissions of 1 month rent for new leases and 1/2 month for renewals.  If the turn key operator is only charging 5% and no leasing commissions that makes their numbers look better, but what if they do a poor job managing the property and you need to replace them with market rate provider?

The biggest issue I have heard about from both turn key and other long term hold investors is insufficient reserves, particularly for Capex.  A brand new roof will wear out eventually and need replaced.  If there are fences, trees, retaining walls, exterior paint, landscaping items, gutters and downspouts etc, you can either gamble that you won't need to touch them, or will be out of pocket for them when it arises.

To be clear, this is not to say all turn key operators charge below market management, or under reserve in their projections, but if you only look at one operator it is hard to know what questions to ask.  It is when you look at many, and start seeing the differences that prompt the questions or why are you reserving this or charging that.

Steven Foster Wilson · Answer

@Alicia Harrington,it depends on what youre goals are in investing in RE. I really like Columbus OH because its beginner friendly (in the sense that prices are appreciating so almost anything you buy is worth more the next month) and there is a huge tenant pool to choose renters from.

Soh Tanaka · Answer

I contacted some of the names mentioned in this post in the past, but the numbers didn't work for me. I personally like the Northwest Indiana market.

Theresa Harris · Answer

Why don't you find a property on your own and then get a good PM?

Bradley Sriro · Answer

@Alicia Harrington you're welcome... Happy to help any way I can.

Investing into Turnkey Rentals should you do it?

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