turnkey vs. putting together my own team (new investor)
Silver Spring, MD · Member since 2018 · 5 posts · 6 votes
turnkey vs. putting together my own team (new investor)
Most Popular Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesThis is all great talk and so forth but in reality and in execution this is HIGHLY risky and fraught with danger.. but here we go again a BP podcast and a bunch of folks who have no experience at this thinking they too can build a rock star team only to find out when they lose their butts that this is an advanced strategy for very experienced and well cashed up investors.
to do this and make it sound like anyone can build a rock star team there are a lot of folks that are going to jump in based on those pod casts and books.. and the next thing you will see is:
Help I hired this contractor in another state and he ran off with my money .. or the work wont pass inspection .. or my rock star realtor lied to me etc etc.
All I can say is in theory yes.. In practice CAUTION.
I have spent the better part of 20 years and a few thousand fundings in these asset class's and even the locals miss occasionally.. someone from out of state the risk goes up expononetially.
I am not saying you have to buy turn key .However I strongly disagree with the ease of building a Rock star power team.. I just do.
36 Replies
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
This is all great talk and so forth but in reality and in execution this is HIGHLY risky and fraught with danger.. but here we go again a BP podcast and a bunch of folks who have no experience at this thinking they too can build a rock star team only to find out when they lose their butts that this is an advanced strategy for very experienced and well cashed up investors.
to do this and make it sound like anyone can build a rock star team there are a lot of folks that are going to jump in based on those pod casts and books.. and the next thing you will see is:
Help I hired this contractor in another state and he ran off with my money .. or the work wont pass inspection .. or my rock star realtor lied to me etc etc.
All I can say is in theory yes.. In practice CAUTION.
I have spent the better part of 20 years and a few thousand fundings in these asset class's and even the locals miss occasionally.. someone from out of state the risk goes up expononetially.
I am not saying you have to buy turn key .However I strongly disagree with the ease of building a Rock star power team.. I just do.
- Silver Spring, MD · Member since 2018 · 5 posts · 6 votes8y
Thank you Jay! This is why I posted - we used a contractor that came highly recommended to renovate our personal residence and it turned out to be a very difficult process working with them. They tried to add all sorts of change orders, did less than what was in the contract, etc and I can only imagine if I was out of state and unable to personally be on site to question everything it would have been a lot worse. Putting together this team - it seems like if you make one bad hire everything could go south very quickly.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
the reality is rehab contractors that work on these types of properties are tough to manage .
they need you to buy the materials they need draws every Friday.. the dont' show up they do mediocore work..
what the local flipper or turn key guy or gal has is their thumb on them.. all except Morris that is he is a train wreck by the post that I have seen.
again just caution hiring out of state contractors and dream teams sells pod cast and books but in my experience it so far from reality.. I just cringe at the money that will be lost based on this.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes8y
Originally posted by @Graham Dersley:
Just listened to the recent BP podcast about out of state investing (prices are too high in my area for good cash flow). David Greene talked about finding a real estate agent, contractor, property manager etc in a town that you're interested in, and once you have a great team you can use modern technology to make remote investments.
I've also been reading about turnkey investments, such as through a company like Memphis Invest. This seems to involve less work, and it seems to me possibly less risky vs. somehow picking a bad contractor and getting screwed since I'm not able to be on site. With of course the drawback of being more expensive, so less potential return?
Seeing how I'm new to real estate investing and don't have great prospects to invest locally, what do you all see as the pros and cons about how to get started with investing in rental properties in other markets?
Just an FYI every property management company you find will also handle sales. They are also almost always able to handle renovations for you as well. So more or less your getting a similar product to that of a company like Memphis Invest or another traditional turnkey provider. The management company will of course also be charging a similar rate to the turnkey company for having all of these things in place for you. So the only way you can get a huge savings is if you tried to do things piecemeal.
If you are going to do it piecemeal you'll need to hire a young hungry agent who will do most anything you ask on the cheap because he has no other way to eat. However you should note that he probably has little knowledge & experience. So you'll need to step in to make the big decisions. Don't think some young buck it just gonna be able to lead to you the promise land. Doesn't work that way. The folks that have paved the way are above & as I mentioned they aren't cheap. After you get the agent squared away you can opt for a cheap mom & pop landlord with low to no overheard but that comes with the need for you to step in & handle the General Contractor's. For those not in the construction trades let me tell you, it's A LOT different then you think it is. Dealing with General Contractors is VERY different then dealing with the types of folks we see here on Bigger Pockets.
(The differences between the general population of Bigger Pockets & those in the construction trades is a topic that those of us in the business could go on for days about....Two totally different worlds. Think men from Mars, Women from Venus x100...🤣)
Also worth noting that just because you don't buy a property from a company that specifically bought the property with the intention of rehabbing it to then tenant and sell it to you means that you are now forced to buy some beat to hell house that needs a major renovation. Keep it simple. Case & point a house is a house is a house. Buying a decent house & doing little to very minor work to it will eventually get you to the same destination as purchasing a turnkey or complete rehab will.
So the real question is this.
Do you want to run a business or do you want to passively invest some money?
If you just want to invest some money go with a traditional turnkey provider or property management company that has the ability to provide the turnkey experience.
If you are willing to take on much more risk & a heavy workload in an effort to build the business of your dreams do it all piecemeal.
- Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes8y
I agree with @James Wise. It depends on your motivations. If you want to run a full time business, just for the sake of gaining a cash flow property, have at it. Otherwise, look at reputable TurnKey companies.
- Silver Spring, MD · Member since 2018 · 5 posts · 6 votes8y
There are rumors out there that the expenses involved with a turnkey company take a lot of the profit out of a deal. I'm sure that's not always true, but what would be a "good" deal to shoot for using a turnkey company? Let's say I have $50k to invest, and I'm open to single family, multi unit, or small apartment options. Could someone walk me through what a good buy and hold result looks like?
- 8yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Graham Dersley I came here to impart some wisdom, but I see @Jay Hinrichs and @James Wise have beat me to it ;)
While I may be personally biased toward turnkey, conservative as I am, but I think I maintain a pretty unbiased attitude here on BP - both the self-assembled team route and turnkey have merit and both work for many many people. As Jay and James rightly pointed out, it's about what you're going for, and what you're willing to risk. One is a self-managed active stock portfolio designed to beat the market - high-risk, high reward. The other is an indexed mutual fund with steady, but not world-beating, returns - lower risk, but lower reward.
Jay is absolutely correct - these podcasts often make it sound like it's super easy to self-assemble a team of trustworthy, motivated contractors, agents, PMs etc. But it gets harder the further you are from that team, and they less experience, fewer connections you have. And if one team member doesn't perform or just bails, you've got a long distance mess on your hands.
The other thing turnkey companies have that the individual investor (especially new investors) will struggle to match is economy of scale. We buy things in bulk, we have streamlined processes for each property, we do hundreds of these every year and we know what to look out for when vetting a property. In general, the amount a turnkey will have to spend to rehab a property is a fraction of what the individual investor would pay to do the same work. We pay lower prices for supplies, we have in-house contractors, less guesswork, fewer surprises. The flipside is that we get the profit created by buying a property that needs work and then selling it for appraised value, that's our paycheck. The investor will pay market price for a rent-ready investment because they didn't do the work.
It's all about your priorities. Ease, simplicity, and reliable monthly cash flow in exchange for a lower overall return? Or DIY, self-management, long distance team assembly in exchange for higher return potential?
Both can work, you just need to be honest with yourself about the benefits and drawbacks of both strategies.
Best of luck!
Clayton
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes8y
Originally posted by @Graham Dersley:
There are rumors out there that the expenses involved with a turnkey company take a lot of the profit out of a deal. I'm sure that's not always true, but what would be a "good" deal to shoot for using a turnkey company? Let's say I have $50k to invest, and I'm open to single family, multi unit, or small apartment options. Could someone walk me through what a good buy and hold result looks like?
There are going to be expenses that would take profit out of the deal no matter who you'd be working with. Anytime there is a hand other than your own in that cookie jar expect them to get paid to have their hand there.
- Long Beach , CA · Member since 2018 · 34 posts · 24 votes8y
@Graham, I see lots of new REIs want to make profit from OOS deals without having a good team on the ground = DISASTER (you should read Morris Invest Case Study 2 & 3).
I agreed with @Jay and @James about putting a “good team” together is hard, and investors need to spend money and time at the beginning to nurture that team. I listen to BP podcast regularly, and learn a whole bunch from them; but those successful investors have done the first few investments in their own backyard before venture out to other arenas.
Regarding to contractor: as a seasonal contractor for over 20+ years, I still get screwed over by some of my new subs. The housing market in CA (maybe elsewhere as well) is extremely crazy, which causes me to hire additional subs to help my company finish some of my projects. And guess what? I have more headache chasing after them, then my regular subs… and I am here on the ground working with them daily. So why OOS investors think that these subs will put them on their first priority list?
The good contractors and subs that I work with NEVER wanted to work on homes of class B-, C, and D. These dwellings are nightmare, because they are old and require lots of work; in addition, the profit is not there. I feel sorry for new investors/homeowners when they found out how much money they have to put out.
@Clayton is right about bulk purchasing. This is the only way you can make investing work in any market.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yGraham Dersley I’ve done it both ways. I personally prefer the turnkey method mostly. It’s not perfect but it’s been much more passive, at least for me, which is what my goal was
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes8y
Originally posted by @Graham Dersley:
Just listened to the recent BP podcast about out of state investing (prices are too high in my area for good cash flow).
My suggestion: move to live in an area where you can invest. I previously lived in a very expensive area and kept my powder dry for 2 years until I had the opportunity to move.
- Investor · Redwood City, CA · Member since 2017 · 30 posts · 14 votes8y
I'd recommend starting with turnkey. On paper, the returns will be lower than the maximum possible return by leveraging your own team but, as others have said, there's a lot more risk and downside if you're a newbie managing a team from afar. As you learn more about REI, you can revisit and build your team when you're better prepared.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes8y
@Graham Dersley There are deals to be found in Silver Spring. Have you researched Baltimore, which is almost local being in SS.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Clayton Mobley:
@Graham Dersley I came here to impart some wisdom, but I see @Jay Hinrichs and @James Wise have beat me to it ;)
While I may be personally biased toward turnkey, conservative as I am, but I think I maintain a pretty unbiased attitude here on BP - both the self-assembled team route and turnkey have merit and both work for many many people. As Jay and James rightly pointed out, it's about what you're going for, and what you're willing to risk. One is a self-managed active stock portfolio designed to beat the market - high-risk, high reward. The other is an indexed mutual fund with steady, but not world-beating, returns - lower risk, but lower reward.
Jay is absolutely correct - these podcasts often make it sound like it's super easy to self-assemble a team of trustworthy, motivated contractors, agents, PMs etc. But it gets harder the further you are from that team, and they less experience, fewer connections you have. And if one team member doesn't perform or just bails, you've got a long distance mess on your hands.
The other thing turnkey companies have that the individual investor (especially new investors) will struggle to match is economy of scale. We buy things in bulk, we have streamlined processes for each property, we do hundreds of these every year and we know what to look out for when vetting a property. In general, the amount a turnkey will have to spend to rehab a property is a fraction of what the individual investor would pay to do the same work. We pay lower prices for supplies, we have in-house contractors, less guesswork, fewer surprises. The flipside is that we get the profit created by buying a property that needs work and then selling it for appraised value, that's our paycheck. The investor will pay market price for a rent-ready investment because they didn't do the work.
It's all about your priorities. Ease, simplicity, and reliable monthly cash flow in exchange for a lower overall return? Or DIY, self-management, long distance team assembly in exchange for higher return potential?
Both can work, you just need to be honest with yourself about the benefits and drawbacks of both strategies.
Best of luck!
Clayton
there is a Paul Simon song 50 ways to lose your lover.. well in rehabbing houses there is 50 ways to lose your money.
Even though you may get some savings on materials with a builder account like we do.. the real savings is in labor and doing the job right the first time and time efficiency..
if your rehabbing lets say 20 to 30 homes simultaneously IE pretty standard production line for a above average turn key outfit.. the homes are in various stages of course.. But that all said your work is consistent and the subs and contractors know your a known quantity.
So here comes Mr. One off.. how does he come into your market and penetrate your sub or contractor base..
All of us keep our subs and contractors that are any good to ourselves generally.. your not going to set up someone else with your best people.. YOU need them to keep your machine working.
Your guys also know your going to pay them.
This is why so many rehab guys want money up front ONE they can't afford to not get paid basically weekly as there life runs on weekly pay checks.. and two they don't have accounts at the suppliers IE CREDIT... so they are cash and carry..
So here comes the out of state trying to hire a contractor.. how do they do it how do they compete whoever has time slots right now in the trades and is not busy in todays market..???? Well there is a reason.. I know this is a very tough part about this business keeping your subs once you built them and making sure they have work each and every day of the year...
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes8yGraham Dersley no doubt you will pay a remote investor premium. I was pretty smart on how I did these out of state investments but everyone new person I worked with considered me a rich Californian who did not know any better. Once I find them it does not make sense to work with me because they can screw someone else so easily. That said just know eyes wide open going it. The returns will still be greater than the stock market.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @Clayton Mobley:
@Graham Dersley I came here to impart some wisdom, but I see @Jay Hinrichs and @James Wise have beat me to it ;)
While I may be personally biased toward turnkey, conservative as I am, but I think I maintain a pretty unbiased attitude here on BP - both the self-assembled team route and turnkey have merit and both work for many many people. As Jay and James rightly pointed out, it's about what you're going for, and what you're willing to risk. One is a self-managed active stock portfolio designed to beat the market - high-risk, high reward. The other is an indexed mutual fund with steady, but not world-beating, returns - lower risk, but lower reward.
Jay is absolutely correct - these podcasts often make it sound like it's super easy to self-assemble a team of trustworthy, motivated contractors, agents, PMs etc. But it gets harder the further you are from that team, and they less experience, fewer connections you have. And if one team member doesn't perform or just bails, you've got a long distance mess on your hands.
The other thing turnkey companies have that the individual investor (especially new investors) will struggle to match is economy of scale. We buy things in bulk, we have streamlined processes for each property, we do hundreds of these every year and we know what to look out for when vetting a property. In general, the amount a turnkey will have to spend to rehab a property is a fraction of what the individual investor would pay to do the same work. We pay lower prices for supplies, we have in-house contractors, less guesswork, fewer surprises. The flipside is that we get the profit created by buying a property that needs work and then selling it for appraised value, that's our paycheck. The investor will pay market price for a rent-ready investment because they didn't do the work.
It's all about your priorities. Ease, simplicity, and reliable monthly cash flow in exchange for a lower overall return? Or DIY, self-management, long distance team assembly in exchange for higher return potential?
Both can work, you just need to be honest with yourself about the benefits and drawbacks of both strategies.
Best of luck!
Clayton
there is a Paul Simon song 50 ways to lose your lover.. well in rehabbing houses there is 50 ways to lose your money.
Even though you may get some savings on materials with a builder account like we do.. the real savings is in labor and doing the job right the first time and time efficiency..
if your rehabbing lets say 20 to 30 homes simultaneously IE pretty standard production line for a above average turn key outfit.. the homes are in various stages of course.. But that all said your work is consistent and the subs and contractors know your a known quantity.
So here comes Mr. One off.. how does he come into your market and penetrate your sub or contractor base..
All of us keep our subs and contractors that are any good to ourselves generally.. your not going to set up someone else with your best people.. YOU need them to keep your machine working.
Your guys also know your going to pay them.
This is why so many rehab guys want money up front ONE they can't afford to not get paid basically weekly as there life runs on weekly pay checks.. and two they don't have accounts at the suppliers IE CREDIT... so they are cash and carry..
So here comes the out of state trying to hire a contractor.. how do they do it how do they compete whoever has time slots right now in the trades and is not busy in todays market..???? Well there is a reason.. I know this is a very tough part about this business keeping your subs once you built them and making sure they have work each and every day of the year...
Yea, trying to get folks to understand how the contracting game works is pretty funny. You just gotta let them jump in & try it out. 9 times out of 10 they end up with egg on their face as they think it's as easy as calling one of the big companies with the large overhead & hefty price tag. There's a reason the overhead & price tag are there folks! Controlling the subs or hourly guys for a 1 off situation isn't saving anybody any money most of the time. Often times it's gonna lead to a huge loss & you calling in the original big company to fix all the stuff you paid to get done wrong.
Sometimes investors can be their own worst enemy.
Quick story. We have had this happen in our portfolio a few times now. You get an out of state investor who gets his reno bid on some property. Rental amount is typically $650-$950 per month. They get their bid & think they can do it cheaper on their own because they've watched some HGTV or maybe painted their house or something, I dunno. So now they've got it in their head that they can save $1,000-$2,000 by rolling up their sleeves & doing the dirty work. They don't need to pay someone else's overhead! So they let it sit empty for another 3 months while they wait for their vacation time at their day job. Then they burn that vacation to fly out to Cleveland to spend another 2 months renovating it to save that $1,000-$2,000. Very happy with their savings they then fly back to California. 🤣
Let's do the math on this real quick. Let's assume they hit the top end of the savings spectrum & that the property rented for $950/mo.
Original Investor "Savings" Amount $2,000.
- 3 additional months of lost rent waiting for vacation time -$2,850
- Round trip flight from California to Cleveland. -$600
- Additional month of lost rent due to owner doing job slower than contractor -$950
- Short term rental in Cleveland for 2 months. -$3,000
- Two months of missed pay at work (Assuming investor makes a modest $250k/yr) -$41,666
- Additional money paid to original contractor to fix stuff that owner found out wasn't as easy to fix as he thought -$1,500
- Additional month of missed rent waiting for original contractor to finish the stuff that owner found out wasn't as easy to fix as he thought -$950
Actual Investor "Savings" Amount -$49,516.
Yup, in an effort to save that $2,000 the investor winds up loosing a total of $49,516. Sounds ridiculous but I have literally seen a few investors do this. One guy turned his turnover project into a unit sitting vacant for a total of 9 months so he could "save" $2,000 or something like that.🤣 Only thing we can do is shake our heads while they learn the contracting business. Note that we have NEVER had the same investor do this more than once! 🤣🤣🤣🤣
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:
Originally posted by @Clayton Mobley:
@Graham Dersley I came here to impart some wisdom, but I see @Jay Hinrichs and @James Wise have beat me to it ;)
While I may be personally biased toward turnkey, conservative as I am, but I think I maintain a pretty unbiased attitude here on BP - both the self-assembled team route and turnkey have merit and both work for many many people. As Jay and James rightly pointed out, it's about what you're going for, and what you're willing to risk. One is a self-managed active stock portfolio designed to beat the market - high-risk, high reward. The other is an indexed mutual fund with steady, but not world-beating, returns - lower risk, but lower reward.
Jay is absolutely correct - these podcasts often make it sound like it's super easy to self-assemble a team of trustworthy, motivated contractors, agents, PMs etc. But it gets harder the further you are from that team, and they less experience, fewer connections you have. And if one team member doesn't perform or just bails, you've got a long distance mess on your hands.
The other thing turnkey companies have that the individual investor (especially new investors) will struggle to match is economy of scale. We buy things in bulk, we have streamlined processes for each property, we do hundreds of these every year and we know what to look out for when vetting a property. In general, the amount a turnkey will have to spend to rehab a property is a fraction of what the individual investor would pay to do the same work. We pay lower prices for supplies, we have in-house contractors, less guesswork, fewer surprises. The flipside is that we get the profit created by buying a property that needs work and then selling it for appraised value, that's our paycheck. The investor will pay market price for a rent-ready investment because they didn't do the work.
It's all about your priorities. Ease, simplicity, and reliable monthly cash flow in exchange for a lower overall return? Or DIY, self-management, long distance team assembly in exchange for higher return potential?
Both can work, you just need to be honest with yourself about the benefits and drawbacks of both strategies.
Best of luck!
Clayton
there is a Paul Simon song 50 ways to lose your lover.. well in rehabbing houses there is 50 ways to lose your money.
Even though you may get some savings on materials with a builder account like we do.. the real savings is in labor and doing the job right the first time and time efficiency..
if your rehabbing lets say 20 to 30 homes simultaneously IE pretty standard production line for a above average turn key outfit.. the homes are in various stages of course.. But that all said your work is consistent and the subs and contractors know your a known quantity.
So here comes Mr. One off.. how does he come into your market and penetrate your sub or contractor base..
All of us keep our subs and contractors that are any good to ourselves generally.. your not going to set up someone else with your best people.. YOU need them to keep your machine working.
Your guys also know your going to pay them.
This is why so many rehab guys want money up front ONE they can't afford to not get paid basically weekly as there life runs on weekly pay checks.. and two they don't have accounts at the suppliers IE CREDIT... so they are cash and carry..
So here comes the out of state trying to hire a contractor.. how do they do it how do they compete whoever has time slots right now in the trades and is not busy in todays market..???? Well there is a reason.. I know this is a very tough part about this business keeping your subs once you built them and making sure they have work each and every day of the year...
Yea, trying to get folks to understand how the contracting game works is pretty funny. You just gotta let them jump in & try it out. 9 times out of 10 they end up with egg on their face as they think it's as easy as calling one of the big companies with the large overhead & hefty price tag. There's a reason the overhead & price tag are there folks! Controlling the subs or hourly guys for a 1 off situation isn't saving anybody any money most of the time. Often times it's gonna lead to a huge loss & you calling in the original big company to fix all the stuff you paid to get done wrong.
Sometimes investors can be their own worst enemy.
Quick story. We have had this happen in our portfolio a few times now. You get an out of state investor who gets his reno bid on some property. Rental amount is typically $650-$950 per month. They get their bid & think they can do it cheaper on their own because they've watched some HGTV or maybe painted their house or something, I dunno. So now they've got it in their head that they can save $1,000-$2,000 by rolling up their sleeves & doing the dirty work. They don't need to pay someone else's overhead! So they let it sit empty for another 3 months while they wait for their vacation time at their day job. Then they burn that vacation to fly out to Cleveland to spend another 2 months renovating it to save that $1,000-$2,000. Very happy with their savings they then fly back to California. 🤣
Let's do the math on this real quick. Let's assume they hit the top end of the savings spectrum & that the property rented for $950/mo.
Original Investor "Savings" Amount $2,000.
- 3 additional months of lost rent waiting for vacation time -$2,850
- Round trip flight from California to Cleveland. -$600
- Additional month of lost rent due to owner doing job slower than contractor -$950
- Short term rental in Cleveland for 2 months. -$3,000
- Two months of missed pay at work (Assuming investor makes a modest $250k/yr) -$41,666
- Additional money paid to original contractor to fix stuff that owner found out wasn't as easy to fix as he thought -$1,500
- Additional month of missed rent waiting for original contractor to finish the stuff that owner found out wasn't as easy to fix as he thought -$950
Actual Investor "Savings" Amount -$49,516.
Yup, in an effort to save that $2,000 the investor winds up loosing a total of $49,516. Sounds ridiculous but I have literally seen a few investors do this. One guy turned his turnover project into a unit sitting vacant for a total of 9 months so he could "save" $2,000 or something like that.🤣 Only thing we can do is shake our heads while they learn the contracting business. Note that we have NEVER had the same investor do this more than once! 🤣🤣🤣🤣
Or the very sad case of the Aussie investor ( you know those guys get 6 weeks off paid every year) :)
fly's to Detroit to work on his 4 plex.. gets in an argument with one tenants boy friend the boy friend shoots and kills him.. that one made the national TV news in AU.....
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes8y
Originally posted by @Jay Hinrichs:
Originally posted by @James Wise:
Originally posted by @Jay Hinrichs:
Originally posted by @Clayton Mobley:
@Graham Dersley I came here to impart some wisdom, but I see @Jay Hinrichs and @James Wise have beat me to it ;)
While I may be personally biased toward turnkey, conservative as I am, but I think I maintain a pretty unbiased attitude here on BP - both the self-assembled team route and turnkey have merit and both work for many many people. As Jay and James rightly pointed out, it's about what you're going for, and what you're willing to risk. One is a self-managed active stock portfolio designed to beat the market - high-risk, high reward. The other is an indexed mutual fund with steady, but not world-beating, returns - lower risk, but lower reward.
Jay is absolutely correct - these podcasts often make it sound like it's super easy to self-assemble a team of trustworthy, motivated contractors, agents, PMs etc. But it gets harder the further you are from that team, and they less experience, fewer connections you have. And if one team member doesn't perform or just bails, you've got a long distance mess on your hands.
The other thing turnkey companies have that the individual investor (especially new investors) will struggle to match is economy of scale. We buy things in bulk, we have streamlined processes for each property, we do hundreds of these every year and we know what to look out for when vetting a property. In general, the amount a turnkey will have to spend to rehab a property is a fraction of what the individual investor would pay to do the same work. We pay lower prices for supplies, we have in-house contractors, less guesswork, fewer surprises. The flipside is that we get the profit created by buying a property that needs work and then selling it for appraised value, that's our paycheck. The investor will pay market price for a rent-ready investment because they didn't do the work.
It's all about your priorities. Ease, simplicity, and reliable monthly cash flow in exchange for a lower overall return? Or DIY, self-management, long distance team assembly in exchange for higher return potential?
Both can work, you just need to be honest with yourself about the benefits and drawbacks of both strategies.
Best of luck!
Clayton
there is a Paul Simon song 50 ways to lose your lover.. well in rehabbing houses there is 50 ways to lose your money.
Even though you may get some savings on materials with a builder account like we do.. the real savings is in labor and doing the job right the first time and time efficiency..
if your rehabbing lets say 20 to 30 homes simultaneously IE pretty standard production line for a above average turn key outfit.. the homes are in various stages of course.. But that all said your work is consistent and the subs and contractors know your a known quantity.
So here comes Mr. One off.. how does he come into your market and penetrate your sub or contractor base..
All of us keep our subs and contractors that are any good to ourselves generally.. your not going to set up someone else with your best people.. YOU need them to keep your machine working.
Your guys also know your going to pay them.
This is why so many rehab guys want money up front ONE they can't afford to not get paid basically weekly as there life runs on weekly pay checks.. and two they don't have accounts at the suppliers IE CREDIT... so they are cash and carry..
So here comes the out of state trying to hire a contractor.. how do they do it how do they compete whoever has time slots right now in the trades and is not busy in todays market..???? Well there is a reason.. I know this is a very tough part about this business keeping your subs once you built them and making sure they have work each and every day of the year...
Yea, trying to get folks to understand how the contracting game works is pretty funny. You just gotta let them jump in & try it out. 9 times out of 10 they end up with egg on their face as they think it's as easy as calling one of the big companies with the large overhead & hefty price tag. There's a reason the overhead & price tag are there folks! Controlling the subs or hourly guys for a 1 off situation isn't saving anybody any money most of the time. Often times it's gonna lead to a huge loss & you calling in the original big company to fix all the stuff you paid to get done wrong.
Sometimes investors can be their own worst enemy.
Quick story. We have had this happen in our portfolio a few times now. You get an out of state investor who gets his reno bid on some property. Rental amount is typically $650-$950 per month. They get their bid & think they can do it cheaper on their own because they've watched some HGTV or maybe painted their house or something, I dunno. So now they've got it in their head that they can save $1,000-$2,000 by rolling up their sleeves & doing the dirty work. They don't need to pay someone else's overhead! So they let it sit empty for another 3 months while they wait for their vacation time at their day job. Then they burn that vacation to fly out to Cleveland to spend another 2 months renovating it to save that $1,000-$2,000. Very happy with their savings they then fly back to California. 🤣
Let's do the math on this real quick. Let's assume they hit the top end of the savings spectrum & that the property rented for $950/mo.
Original Investor "Savings" Amount $2,000.
- 3 additional months of lost rent waiting for vacation time -$2,850
- Round trip flight from California to Cleveland. -$600
- Additional month of lost rent due to owner doing job slower than contractor -$950
- Short term rental in Cleveland for 2 months. -$3,000
- Two months of missed pay at work (Assuming investor makes a modest $250k/yr) -$41,666
- Additional money paid to original contractor to fix stuff that owner found out wasn't as easy to fix as he thought -$1,500
- Additional month of missed rent waiting for original contractor to finish the stuff that owner found out wasn't as easy to fix as he thought -$950
Actual Investor "Savings" Amount -$49,516.
Yup, in an effort to save that $2,000 the investor winds up loosing a total of $49,516. Sounds ridiculous but I have literally seen a few investors do this. One guy turned his turnover project into a unit sitting vacant for a total of 9 months so he could "save" $2,000 or something like that.🤣 Only thing we can do is shake our heads while they learn the contracting business. Note that we have NEVER had the same investor do this more than once! 🤣🤣🤣🤣
Or the very sad case of the Aussie investor ( you know those guys get 6 weeks off paid every year) :)
fly's to Detroit to work on his 4 plex.. gets in an argument with one tenants boy friend the boy friend shoots and kills him.. that one made the national TV news in AU.....
Oh man, that's sad. You know what they say tho. Play stupid games win stupid prizes. If I had to guess it was probably a 4 plex in the Detroit Ghetto. Can't just go in to those types of areas without any caution yelling at people in their apartments. Those kinds of people need to be handled correctly or well you know, you get shot by their boyfriend.
- Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes8y
SInce we are talking about rehabs.
i bought a boarded up VA house for $82k in Memphis around sep 2016. our budget was $40k to rehab it and sell it for $155k for a tidy profit.
actually sold for $165k in aug 2017 but rehab and acquisition total cost was $140k .. after closing cost and commssions, barely made $8k profit in one year. lucky not to lose money.
everybody involved ( contractors and agents) made money except for me. No more rehab OOS unless a buy and hold
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @AJ Singh:
SInce we are talking about rehabs.
i bought a boarded up VA house for $82k in Memphis around sep 2016. our budget was $40k to rehab it and sell it for $155k for a tidy profit.
actually sold for $165k in aug 2017 but rehab and acquisition total cost was $140k .. after closing cost and commssions, barely made $8k profit in one year. lucky not to lose money.
everybody involved ( contractors and agents) made money except for me. No more rehab OOS unless a buy and hold
the idea though is many will do this with the thought to buy and hold so if can get a home for 5 to 10k less than having it all done for them or what they can buy it on MLS its a win.. that's what is being touted.. my point is you could easily end upside down and whats your time worth etc etc.
- Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes8y
my experience is limited to memphis or southern ca market.
there are neighborhoods in memphis which are called " turnkey zones" its one investor after another taking a beating in those tough neighborhoods and low quality tenants.
secondly you are not saving $5k or $10k in turnkey vs mls, sometimes its three to four times that margin. that was in 2016 when i built our rentals in memphis. now it could be more.
its an investors own due dilligence. BP can only help to an extent.
Hard work cannot be surpassed by posting and looking for advice.
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @AJ Singh:
my experience is limited to memphis or southern ca market.
there are neighborhoods in memphis which are called " turnkey zones" its one investor after another taking a beating in those tough neighborhoods and low quality tenants.
secondly you are not saving $5k or $10k in turnkey vs mls, sometimes its three to four times that margin. that was in 2016 when i built our rentals in memphis. now it could be more.
its an investors own due dilligence. BP can only help to an extent.
Hard work cannot be surpassed by posting and looking for advice.
so if I understand what your saying is you can buy a home on MLS in Memphis that is rent ready for 50k and the same house through a turn key provider will be 90k ? is that what your saying.
or are you saying you can buy the same wholesale deal as a turn key provider or flipper.. for say 40k put 20k into it be in 60k cash you do all the work and take the risk.. and that same deal will be 90k turn key ?? Or 75k on MLS all in the same condition ????
did you do this remotely or did you go there a bunch or stay there during the process's to manage it. ????
thank you in advance for your responses.
- Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes8y
i did go out to memphis and stayed there for brief trips to learn about the city and neighborhoods. i am grateful to @Chris Clothier 's company Memphis Invest who took me on a tour and told us which areas in 2016 were they investing in for their investors.
through an investor/broker, i built my portfolio using off market deals at that time .
there was a twenty percent difference in mls and turnkey prices in 2016. i bought leased homes with tenants already in them and we put them under prop mgt co. of course maintenance was deferred but was negotiated in purchase price as per inspection reports
my comments are based on 2016 and 2017 investing after reviewing prices on MLS and similiar turnkey product
In 2018, at least in memphis you can get wholesale/off market deal but will need 15k to 20k rehab easy and difference of final price is maybe 15k to 20k pricing between MLS and turnkey.
u can get wholesale deal for $95k with 15k rehab needed and ARV is $125k in the last deal I reviewed and above all CASH only.
IMHO it is the neighborhood that is more pivotal to real estate investing than just numbers all the time.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yJay Hinrichs and AJ Singh in my experience in Memphis and with TK companies there, at least with who I use, the pricing difference right now between what you pay for a TK property and what you’d pay by doing it all yourself (ie managing a long distance rehab) is about 10-15k maybe. I’m guessing net profit margins for the properties In buying is around 10k. The owner of the company even said on a thread I found from a couple years ago his net is about 7k per property. That difference isn’t worth the added risk for me to do a rehab out of state. Maybe someone with more rehab experience can chime in and comment but I’ll give an exact example for the last house I bought TK in January. They paid 38k for it. I paid 77k. The entire house is essentially new. Roof, Interior updates paint, flooring, furnace, AC unit and hot water heater. I figure all that work is 25k or so. If that’s the case they’re all in at 68k and with a couple grand in closing costs, commissions etc their net is around 11k. So unless they’re getting cheaper labor from economies of scale I’d say your typical TK deal is 10-15k net. You do 300-400 or those per year and that’s a tidy profit but also a lot of work.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yAs far as overpaying, I’m sure that can happen but according to some local agents I’ve talked to for updates homes in the areas I’ve bought for, go for right in the range I’ve paid. These neighborhoods vary a lot in value depending on if it’s been updated or not.
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