Do I go with Turnkey options or search for deals locally?

Question

I'm in the "drinking from a fire hose" seIf-education phase of my early real estate investing career. I've been thinking about the option to go with the turnkey options available outside of my area (assuming the numbers make sense), but I'm also thinking of waiting to land my first deal close to home. I'm in Connecticut, so the taxes are insane, but in theory it would be great to invest in a property I could actually drive to.

The advice I'm looking for is this: if I'm going to be leveraging (like private money turned into a bank loan) -- what makes the most sense to get started? I'm in it for the long-haul, so I'm not concerned with cash flow to pay bills, but rather something to lead me to my next investment. Thanks in advance!

James Wise · Answer

1st thing I would do is actually wait until your ready to just get the bank loan in the 1st place. No sense spending more on private money to turn it into a loan later. You will loose profit in all of the fees.

If one can afford to stay local it is probably best because it is always cheaper to self manage then pay a guy like me to manage the property for you.

Sam Van Horebeek · Answer

@Jason NatelleI would mention that there is another option - you can invest in non-turnkey options in different cities outside of your local area.

99% of our clients (which are all international clients) follow that approach: they do not buy turnkey solutions often and they do not buy locally (as they are keen on investing in the US). For them (and for you), you might consider identifying the right team members in each city that you are interested in and have them find deals for you. Often you will increase your return this way as you are in control about the property that you purchase, the property management that can be engaged, etc. Obviously, the key is to identify the right team members in the city of your interest whom you can trust.

As a result, I do not believe that you should invest locally if the numbers locally are not meeting your risk/reward profile. You should look at other places that are expected to provide you a better return (whether it is cash flow or long term appreciation) and do your due diligence.

Hope this helps

Michael Noto · Answer

As someone who has done both I would recommend investing in Connecticut rather than at a distance.

Like you mentioned, CT has its drawbacks and challenges, but the challenges will be there as well in another city/area you don't know that well while others manage your investment

Mike D'Arrigo · Answer

@Jason Natelleit seems to me that you need to more clearly define your objectives and goals. If you're not concerned about cash flow, what is your objective? I don't see the advantage of being able to drive to a property that doesn't cash flow. Personally, I think it's best to choose a market that best fits your objectives regardless of where that is. If it's in your back yard, all the better but not all of us live in good cash flow markets so we have to look out of state. I have a podcast on investing out of state on my website that you might find helpful.

Jonathan Makovsky · Answer

@Jason Natelle, either option works for the right person. Personally, I prefer to implement @Michael Noto's strategy for myself as we are invested in CT because I can gain an edge in this market - something that wouldn't be as easy for me at a distance.

Jay Hinrichs · Answer

been a lot said on buying 30k houses.. you will be extrodinarily lucky if you collected rent each and every month that you owned a home that price point in a major US city

Melissa Gittens · Answer

I would suggest trying to buy in the state you live in, but it also depends on your strategy

Jason Natelle · Answer

Thanks all. How about getting leads? If you don't have an established network and really only have things like Zillow, how does someone find the best deals? Is this the point where you "drive for dollars?"

And which do you do first-- get the team in place or get the first property? I don't want to get an ugly house and then not get the right contractor in there or bad inspector.

James Paine · Answer

Jason - A few pieces of advice:

1. If you can get a good cash flow property in Connecticut then go for it.  If not then don't.

2. Buy for CF not just to cut your teeth.

3. Somethings are better to do the first time with an expert. That could be a montor, turn-key guy, or ???

Lucas Cookson · Answer

I've done it with one of my rental properties. It was a $43k fixer upper. I put down $20k, and put the rest on a couple credit cards. They were 1 year 0% with a $0 balance transfer fee. I got it paid off within that year. If I didn't, the fee would have jumped to 23%!

When you apply for the credit card, make sure they can either do a deposit directly into your bank account, or they give you checks to write to yourself with no transfer fee. Maxing out the credit card limit is usually a bad idea because it can hurt your credit score, so make sure you're a few thousand below your limit.

Do I go with Turnkey options or search for deals locally?

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