Rent ready (Turnkey) or value add?

Question

With where interest rates are right now is anyone finding success in purchasing out of state rent ready homes? Rentals don't make sense in my city and the competition for value add is insane. I've thought about value add plays out of state but the managing of the rehab etc is turning me away. What are y'all transacting more on rent ready homes or value add BRRRR?

Patrick Drury · Answer

@Sean KirkDepending on the market you are looking in if you have a good team sourcing off-market deals you should be able to find good turnkey opportunities. If you have a few rentals under your belt out of state and are familiar with how your team operates then I would dive into doing some value add deals as long as it's not down to the studs.

Kerlous Tadres · Answer

I would go with more rent-ready homes now that interest rates are dropping especially if you're starting out. The biggest thing for you to do when buying out-of-state properties is to build your CORE 4 which includes finding a great realtor, contractor, property manager, and attorney.

Samuel Diouf · Answer

Hey Sean, a lot of investors are experiencing this same problem. There will always be competition for value-add deals so it's important to network with right people to find opportunities off of Zillow and the MLS. I moved from Florida to start investing in Columbus, Ohio, because the market is seeing appreciation and the rentals still cash flow in certain areas.

Danny Gonzalez · Answer

@Sean Kirk As someone who owns a Property Management company in Birmingham and has experience working with both Turnkey providers and Value Add investors, I’d recommend steering clear of Turnkey properties. While Turnkey properties offer a lower barrier to entry, they also come with much lower rewards. Since you’re buying at fair market value, there’s no room for margin. Additionally, you miss out on one of the biggest advantages of real estate: forcing appreciation through strategic renovations. Another issue with Turnkey properties is that they often aren’t homesteaded, which typically throws off any proforma, resulting in higher-than-expected property taxes. Plus, you have no real insight into the type of rehab that’s been done. Most Turnkey providers only do the bare minimum to maximize their own returns, which can lead to issues down the road. With Value Add properties, you control the rehab process. That means you’re in the driver’s seat, deciding what needs to get done for maximum value, versus what can be deferred until later. We manage the entire project for our clients—from acquisition to rehab and property management—so you don’t have to worry about the day-to-day. If you’re looking for steady returns, lower price points, and less competition in a market like Birmingham, feel free to reach out. We specialize in helping out-of-state investors and would love to help you build a successful portfolio.

Remington Lyman · Answer

There is a significant increase in investors entering the Midwest markets, such as Ohio, from both the West and East coasts. Rates have dropped back to the low 6s, depending on the lender and borrower.

Jamie O'Connell · Answer

Closing Cost. Prepaid taxes and insurance, any lending fees, points, surveys, settlement fees etc

Alfath Ahmed · Answer

What type of loans are you using? Conventional loans will have lower interest rates than DSCR loans but you are also only allowed to have 10 conventional loans under your personal name. I do a ton of BRRRRs in my market so I refinance into DSCR loans which are slightly higher interest rate but it is solely based on the performance of the property.

Melissa Johnsen · Answer

@Sean KirkThere are turnkey REI opportunities in different markets - markets in the Midwest and Southeast of the country are great - where not only are the purchase prices reasonable for most RE investors, but the homes are turnkey (new builds or completely rehabbed homes, tenant ready, systems 10 years of life remaining on them, property management teams in place) with appreciating home value AND appreciating rent. The amount of cash flow on a home will of course be contingent on the down payment. Putting less down may subsequently put you in a break-even scenario or possibly even a negative cash flow. However, some investors don't mind this strategy if they prefer not to put a lot of liquid in up front and plan to refi out within a few years of closing (which seems to be a great option with the talks of the FED reducing interest rates into 2025).It really comes down to investing in a growing market, in a good neighborhood & building a great team to support you. It can be a lot of time and work if doing it on your own. It's helpful to work with a reputable team. That is what our team at Rent to Retirement has been helping investors to do for a decade now with BP. I'm happy to answer any questions you have about analyzing markets or getting started. Most importantly, choose a market that aligns with your goals!Wishing you the best of success!Melissa

Sean Kirk · Answer

Thanks for your insights. What does CC stand for?

Jamie O'Connell · Answer

Depends on the team you have in your new area. If you don't have a point person AND a contractor, I would not do value add. It's a headache at the best of times. I will also say in the smaller valued areas like I have in upstate NY I am having issues with appraisal. I buy, I add value and fix up and appraisals still come in weak. But my goal is always to try and get as much of my downpayment and CC back in my pocket so I keep trying. If your ok with not getting your CC and DP back quickly and can afford the 25% down on each prop plus CC I would go the rent ready way.