Turnkey Investing: Is it a good start for a newbie?

Question

Hello All!

I am a complete newbie to the real estate market, although I have read tons of books and attended seminars, I have yet to make a deal.

I was wondering if I should start out by going to a turnkey company like Norada or HomeUnion to get started on investing?

What are your thoughts on this? and if you recommend a turnkey company, which ones are good ones to try?

Thanks!

Will Barnard · Answer

The age old question and there is not a single right or wrong answer. All depends on each investor, their goals, their abilities, and their desires.

In my opinion, if your plan is to build cash flow to replace a current income, that will take many doors (quantity depends on each situation) and as such, you will eventually be in the landlord business. If that is the case for you, than my advice would be to educate yourself on whatnot takes to be a landlord, what you should know, what you should be aware of, and how you operate such a business. Buying from a turnkey company in most cases, most of the work is done for you so your learning experience is limited. Shopping, negotiating, fixing, renting, and managing your first will give you some valuable hands on experience which down the road will equate to developing your skills to be a better operator.

One could argue that going with a TK company could reduce the amount of mistakes and that is true assuming you work with a good turnkey company. I would also suggest to stay away from companies that merely introduce you to another, go direct to the turnkey company, why have another unnecessary third party between you! Again, this is all a personal choice and should be weighed with your goals, desires, abilities, etc. If you do choose to go with a TK company for yr first or your 100th, make sure you fully get that company! Due diligence is important in all aspects of RE.

Charles Worth · Answer

@Ilona Kovacs

I have looked at HomeUnion, feel free to PM me if you want.

Also, they are not turnkey they are more of a service focused on trying to help investors easily invest in RE but do not own their inventory (most turn-key companies do). It shares many of the same characteristics with turnkey in the types of properties they target and that in a product that, at least to me, seems to be targeted at people who want to be truly passive as much as possible.

The third-party nature has positives and negatives. The biggest negative is that while they know their areas they will not know the property nearly as well as a turn-key does because they do not own it vs. a turnkey that bought that property, fixed it up themselves and should guarantee that it is delivered in tenant move-in condition for a price you agreed upon before closing.

Brie Schmidt · Answer

@Ilona Kovacs-  There are over 100 turnkey companies across the US.  I always suggest speaking with a few first, and then honing in on a market.  Their operations and PM can make or break your profit so it is important to pick the person first, and one you see yourself working with for the long term

Chris Clothier · Answer

Hi Ilona,

One quick correction to your question, both Norada and HomeUnion offer the same type of service and neither is a Turnkey company.  Both act more as referral companies who meet, vet and then point clients toward Turnkey companies.  I know both companies and I don't point this out as a negative, just wanted to provide some insight that both are very similar and neither (unless one or both have changed business models) own the investment properties that their clients eventually purchase.  They have the relationship and make the introduction.

I think @Charles Worth

pointed out some of the pros and cons of working with a Turnkey company directly and working with a company to do the vetting for you and most of that is going to come down to personal preference and comfort level.

best of luck as you get started researching!

Chris

Larry Fried · Answer

@Ilona Kovacs

Hi and welcome to BP.  As an investor, I have only purchased turnkey properties out of state for many of the reasons that @Marco Santarelli states.  Also, I live in an area where that model doesn't work, rent to purchase costs ratios are just too low, and can result in low to negative cash flow.  Turnkey has worked well for me thus far, and I have seen very respectable ROI.

Account Closed · Answer

Just want to chime in here...Thanks all for your attempt at clarifying HomeUnion's role in the investment cycle. Unfortunately, our process has changed quite a bit in the last year. We are no longer just a referral company as @Chris Clothier pointed out. Yes, some of our inventory comes from turn-key providers, but now a lot more come from other sources (MLS listings), we also offer a property management services and beyond...I won't go into too much details as this is not the place for it, but I did want to clarify that we are not a referral company.

Account Closed · Answer

I agree with Marco, your investment goals will dictate whether investing with a real estate investment management firm like HomeUnion or a turnkey provider like Norada is a good fit for you.

If you want a hands-free investment that can provide you with solid returns while protecting your principal as much as possible, then working with a reputable company would be a great option for you.

If on the other hand, you're looking for a quick windfall and/or are able to put in a lot of work into your investment, then you'd be better off looking elsewhere.

Marco Santarelli · Answer

Hello @Ilona Kovacs,

Welcome to BiggerPockets.

Your question is a good one, and a common one.  The first thing to consider is what are you real estate investing goals, and from there what is your strategy.  Most of our clients are looking to build their portfolio with hassle-free cash-flow properties.  They don't want to get involved in rehabbing, property management, etc.

The other question to consider is how much time you have to be able to "invest" in your real estate investing.  If you have a lot of time then you can probably acquire, scope, rehab, and flip (or hold) properties with the help of the right team (contractors, etc).  If you don't have a lot of time then turnkey investment properties can make a lot of sense  for you.

Another resource to consider is your experience level.  You mentioned you're a "newb ie".  A lot of our clients are new too and find that this is an ideal way to start building their portfolio of properties.

I started investing long ago (age 18) and have invested our-of-state since 2003.  I've made my fair share of costly mistakes, which fortunately has led to my success and perfection of a system that work for me (and others).

Hope that helps a bit.  Feel free to post (or PM) any other questions.

Continued success!

Turnkey Investing: Is it a good start for a newbie?

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