First property: turnkey vs. self-managed?

Question

Hi! I've been doing research and looking to get into the real estate investment space. I live in San Francisco, therefore am looking to invest outside of my area since I have a better chance at buying property elsewhere. I'm looking at Indianapolis, IN, partly because I have family who lives there and are 1) knowledgable about the area and 2) could potentially do property management for me. But I'm also looking into turnkey properties in Indy, and elsewhere.

What are the perks of turnkey (especially in Indy) I should consider vs. doing my own due diligence and handling all the aspects of buying and managing on my own ( with help from family?) I won't have a ton of time to visit or do rehab on properties, so turnkey sounds really nice, but I'm worried about low returns from buying too high.

thank you,

Natalia

Tom Ott · Answer

Investing with a Turnkey provider can be a great idea when you live in a place like CA. When you work a 9-5 or just simply do not live nearby, it can be VERY difficult to go it alone. A Turnkey Provider should own, renovate, and manage the property all in house and not use any third parties for the basic operations.. This way you have someone to hold accountable for tenants that were placed,, work that was done, etc. It is someone you can talk tto about the property, rather than an agent just listing the property.Try looking at:What to Ask When Working With a Turnkey ProviderandThe Best Types of Markets for Profitable Turnkey Properties

Jeff Parker · Answer

@Natalia AvalosDoes your family have any experience in being landlords themselves? If Yes, then great! They should be able to tell you what you need to know and what the pitfalls and benefits are. If No, well then you need to ask them what they are willing to do. It's more then just collecting rents. A. who in the family is going to lease the property? How will they advertise for a potential tenants? Do you have an application to fill out? How will you do back rounds, criminal, credit checks, job references, recent rental history etc.? That's just some of the things to find a tenant. B. Who in the family will be handling the maintenance issues? The repairs at 2AM in the morning? Like when the furnace goes out and it is 0 degrees outside or when one of the tenants kids puts a basketball through the window from the inside? Yes, this happened during winter. Appearntly practicing their dribbling and passing game. C. Who's going to collect rent? How will they handle late rents? How will they handle the sad story about how the tenant can't pay rent? Tenants always have a great sad story about not being able to pay rents. Even the good ones. D. If you have to evict who will handle the eviction process? a Lawyer which will cost money or one of your family members which means someone has to go to court? E. Will you be paying family members to do the managing for you? This is just a few of the things to consider when becoming a landlord. This includes whether you are buying out of state or within where you live.

James Wise · Answer

Turnkey & Self Managed are two totally different businesses with different pros & cons. If you are going to invest out of state going the turnkey or MLS with a property manager route is a MUST. Trying to manage a rental property out of state on your own is a NO GO. If you are staying local managing it yourself shouldn't be a problem at all.When buying out of state you should note a few very important things.Always hire a 3rd party inspector to check out the house.Get an appraisal. If you are buying with a loan (You should be. OPM is the #1 reason you should invest in rental real estate) the bank will force you to get one. They are not going to let you loose their money.Make sure you property manager is a licensed real estate brokerage.

Corby Goade · Answer

Obviously the market in SF is crazy, but if you are going to be an investor/landlord, I think it's vital to manage on your own when you get started. You learn so much that helps you as you grow. If you don't know how to fix things around the house or how much a repair should cost, or how to screen tenants or what a reasonable interaction with a tenant should be, how do you supervise or direct a PM to do so on your behalf? It's like any other job- a supervisor should understand how their reports jobs and duties work, so that they can effectively lead them and achieve their goals as a team. Investing is no different. While it's possible to have success in turnkey, it's also possible to lose your shorts because you don't know enough to push your PM when you should.

Lane Kawaoka · Answer

Natalia Avalos Brian Adzadi is right. I would recommend starting turnkey on your own so you understand the process. Having boots on the ground can help tact check from a far.

Thomas S. · Answer

It come down to how much time you want to invest in education. You must either educate yourself on the necessary due diligence of finding a reliable turn key provider or the much greater task of investing in and managing real estate.It is the difference between buying a steak in a restaurant or raising your own cattle.

Chris Seveney · Answer

Natalia Avalos Truly depends on your level of risk. For Me it is worth to have it managed if I am out of state because I do not want to have to deal with any issues even if the property condition is good. I have rented fully renovated properties and have had tenants call me because they stick potatoes down the drain and clogged it. One bad tenant or lack of actual management of property will cost you a lot more than the PM fees

Brian Adzadi · Answer

@Natalia AvalosTurnkey companies are for pretty much people who don't want to do a single thing physical with the property except receiving checks. However, like you said, that comes with a high cost that may eat away at your profits.That does not mean you cannot buy a turnkey house that you can rent out and have your family member maintain the property for you (they don't have to be handymen but just someone the tenant can call and they can call companies to fix whatever the issue that day is: plumbing, electrical, roof etc.)My only concern is how willing is your family member to help and maintain the property? Do they work themselves where they may not have time all the time to be coming over to be checking on the property? Do you think if you give them a small cut of your profit to help maintain the property they will do good job?Personally for me, I would not get a turnkey company per se. I would get a property that is turnkey itself, which will not need any major works and have my family member help maintain it for me while I am compensating them. If they won't be able to do help at all or anymore then I will get a Property Management company to take over from there.