Turnkey Investing Concerns

[Silas Melson]

I’m trying to get my feet wet in real estate investing, but I’m drawn more to the passive route. Active real estate investing doesn’t seem to float my boat. What are people’s opinions on turnkey? What are the typical fees that turnkey investors charge?  Are they flat fees or percentages? My goal is to achieve a good cash flow and rent out properties for a long time. The cash flow first, the appreciation to be the icing on the cake.  

[Nicholas L.]

@Silas Melson

hi. a few reactions.

1. there's no cash flow in the short term on a turn-key property.  none.  after the property is stabilized, the rent has increased, etc. you may see cash flow.  that is typically 5-10 years+ of ownership.

2. turnkey isn't entirely passive. you have to manage your property manager. they are responsible for doing whatever their management agreement says they're responsible for, and you are responsible for doing what it says you're responsible for.  if you ever have a major repair, or an eviction, or a major turnover, you may need to be a little more 'active.'

hope this helps. turnkey might be a good fit for you. but real estate is a long game.

[Silas Melson]

Quote from @Nicholas L.:

@Silas Melson

hi. a few reactions.

1. there's no cash flow in the short term on a turn-key property.  none.  after the property is stabilized, the rent has increased, etc. you may see cash flow.  that is typically 5-10 years+ of ownership.

2. turnkey isn't entirely passive. you have to manage your property manager. they are responsible for doing whatever their management agreement says they're responsible for, and you are responsible for doing what it says you're responsible for.  if you ever have a major repair, or an eviction, or a major turnover, you may need to be a little more 'active.'

hope this helps. turnkey might be a good fit for you. but real estate is a long game.

I would be in it for the long game so I would be hoping for cash flow and appreciation knowing that the cash flow may not be as high as if I did all the dirty work. I believe any investing is a lot about you get what you give, but quick question- I’ve read and listened to a few podcasts where people claim they get fast cash flow once they invest in turnkey. I’ve seen statements about how the properties being purchased have tenants a lot of the time, what is your opinion on that? 

[Nicholas L.]

@Silas Melson

'fast cash flow' - no.  think about how much you have to put down, and your closing costs.  when do you get that back?

inheriting tenants - generally it's better to start with a vacant property, spruce it up, and do your own screening.  inheriting tenants is higher risk.

[Michael Smythe]

@Silas Melson most turnkey acquisitions barely cashflow and many investors overpay.

There is a cost to being passive!

Other issues with turnkey is not knowing exactly what was renovated and how well. We often take over "turnkeys" and find them a bit of a mess.

That's why we started doing BRRR Turnkeys for our clients where they buy a fixer-upper and we renovate to THEIR standards, find a tenant and manage for them.

[Bradley Buxton]

@Silas Melson

If you buy in cash you will have good cash flow. The idea you can put 5% down and cash flow and have strong appreciation is very rare. You can buy new construction for low maintenance and use a property management company to rent out out the property. You will still need to manage the property manager. There are other more passive ways to invest such as REITs or syndications. You can go with a partnership as well to put in the capital and have less of the day-to-day management. Going to a few meet-ups and meet some other investors can give a perspective on what strategies are available to you. 

[Jay Hinrichs]

Quote from @Silas Melson:

I’m trying to get my feet wet in real estate investing, but I’m drawn more to the passive route. Active real estate investing doesn’t seem to float my boat. What are people’s opinions on turnkey? What are the typical fees that turnkey investors charge?  Are they flat fees or percentages? My goal is to achieve a good cash flow and rent out properties for a long time. The cash flow first, the appreciation to be the icing on the cake.  

The cash flow first, the appreciation to be the icing on the cake" 

this sentiment is one of the worst I see on BP not sure who espouses this and why all these investors say the same  thing but that's really a recipe for disaster for the investors.

If your leveraging RE to the max U know 20 to 25% down .  And your RE does not go up in value a significant amount and I am not talking 2% or 3% a year. When you exit your will lose money.  And unless your going to hold for life ( which not many do) Appreciation is where the wealth is made.. Its better to buy assets that will appreciate ( historic ) and be break even or a little negative.  Or one needs to pay cash for the rentals. So you have some meaningful cash flow that can be saved to expand your empire.

@Nicholas L.  Nick is a sharp investor U may want to see if he will engage you off line for some deeper dive in methods for success

[Benjamin Aaker]

What are you looking for in an investment? With turnkey, the value-add has been done already and there isn't much left. Turnkey might be a place to sink a bunch of cash to hedge it for some potential downturn. Don't bet on passive appreciation, just forced appreciation. And in turnkey, all the forced appreciation has been done already. I'd love to hear from a turnkey operator here about the benefits. Perhaps there are some that I don't know.

[Jay Hinrichs]

Quote from @Benjamin Aaker:

What are you looking for in an investment? With turnkey, the value-add has been done already and there isn't much left. Turnkey might be a place to sink a bunch of cash to hedge it for some potential downturn. Don't bet on passive appreciation, just forced appreciation. And in turnkey, all the forced appreciation has been done already. I'd love to hear from a turnkey operator here about the benefits. Perhaps there are some that I don't know.

The Benefits are ease of purchase and finding the right turnkey company is critical. While we all the like the forced appreciation its simply not reality for a lot out of state investors unless they take on quite a bit of risk.  So for the conservative busy professional that just wants to buy a clean house that is the attraction to turn key..

[Silas Melson]

Quote from @Jay Hinrichs:

Quote from @Silas Melson:

I’m trying to get my feet wet in real estate investing, but I’m drawn more to the passive route. Active real estate investing doesn’t seem to float my boat. What are people’s opinions on turnkey? What are the typical fees that turnkey investors charge?  Are they flat fees or percentages? My goal is to achieve a good cash flow and rent out properties for a long time. The cash flow first, the appreciation to be the icing on the cake.  

The cash flow first, the appreciation to be the icing on the cake" 

this sentiment is one of the worst I see on BP not sure who espouses this and why all these investors say the same  thing but that's really a recipe for disaster for the investors.

If your leveraging RE to the max U know 20 to 25% down .  And your RE does not go up in value a significant amount and I am not talking 2% or 3% a year. When you exit your will lose money.  And unless your going to hold for life ( which not many do) Appreciation is where the wealth is made.. Its better to buy assets that will appreciate ( historic ) and be break even or a little negative.  Or one needs to pay cash for the rentals. So you have some meaningful cash flow that can be saved to expand your empire.

@Nicholas L.  Nick is a sharp investor U may want to see if he will engage you off line for some deeper dive in methods for success

Forgive me for my confusion, reading statements are way harder to understand than hearing them, are you saying that if someone puts the typical 20% down they are better or better putting that money down on a property that they know will appreciate for the long term and not even worry about cash flow? I only think appreciation has “icing on the cake” because of Brandon Turner (lol). 

[Jay Hinrichs]

Quote from @Silas Melson:

Quote from @Jay Hinrichs:

Quote from @Silas Melson:

I’m trying to get my feet wet in real estate investing, but I’m drawn more to the passive route. Active real estate investing doesn’t seem to float my boat. What are people’s opinions on turnkey? What are the typical fees that turnkey investors charge?  Are they flat fees or percentages? My goal is to achieve a good cash flow and rent out properties for a long time. The cash flow first, the appreciation to be the icing on the cake.  

The cash flow first, the appreciation to be the icing on the cake" 

this sentiment is one of the worst I see on BP not sure who espouses this and why all these investors say the same  thing but that's really a recipe for disaster for the investors.

If your leveraging RE to the max U know 20 to 25% down .  And your RE does not go up in value a significant amount and I am not talking 2% or 3% a year. When you exit your will lose money.  And unless your going to hold for life ( which not many do) Appreciation is where the wealth is made.. Its better to buy assets that will appreciate ( historic ) and be break even or a little negative.  Or one needs to pay cash for the rentals. So you have some meaningful cash flow that can be saved to expand your empire.

@Nicholas L.  Nick is a sharp investor U may want to see if he will engage you off line for some deeper dive in methods for success

Forgive me for my confusion, reading statements are way harder to understand than hearing them, are you saying that if someone puts the typical 20% down they are better or better putting that money down on a property that they know will appreciate for the long term and not even worry about cash flow? I only think appreciation has “icing on the cake” because of Brandon Turner (lol). 

I respectively disagree with the bearded one on that statement. great wealth in RE for the investor is made with appreciation is my perspective.. Jsut ask anyone how bought in LA or SF bay area 10 years ago.

[V.G Jason]

Fast solutions have slow problems.

This definitely includes any risk-on investment. Bottom line.

[V.G Jason]

Quote from @Silas Melson:

Quote from @Jay Hinrichs:

Quote from @Silas Melson:

I’m trying to get my feet wet in real estate investing, but I’m drawn more to the passive route. Active real estate investing doesn’t seem to float my boat. What are people’s opinions on turnkey? What are the typical fees that turnkey investors charge?  Are they flat fees or percentages? My goal is to achieve a good cash flow and rent out properties for a long time. The cash flow first, the appreciation to be the icing on the cake.  

The cash flow first, the appreciation to be the icing on the cake" 

this sentiment is one of the worst I see on BP not sure who espouses this and why all these investors say the same  thing but that's really a recipe for disaster for the investors.

If your leveraging RE to the max U know 20 to 25% down .  And your RE does not go up in value a significant amount and I am not talking 2% or 3% a year. When you exit your will lose money.  And unless your going to hold for life ( which not many do) Appreciation is where the wealth is made.. Its better to buy assets that will appreciate ( historic ) and be break even or a little negative.  Or one needs to pay cash for the rentals. So you have some meaningful cash flow that can be saved to expand your empire.

@Nicholas L.  Nick is a sharp investor U may want to see if he will engage you off line for some deeper dive in methods for success

Forgive me for my confusion, reading statements are way harder to understand than hearing them, are you saying that if someone puts the typical 20% down they are better or better putting that money down on a property that they know will appreciate for the long term and not even worry about cash flow? I only think appreciation has “icing on the cake” because of Brandon Turner (lol). 

He bought in an era when a retarded monkey could've made out like a bandit. Excuse my french. 

You're talking a reset in physical asset prices due to the GR and low rates to help stimulate inflation after a massive banking crisis. Good for him to enter then, but to give that advice is completely missing the forest for the trees. 

****, I married during the GR and divorced a bit post it. I still made a ton of money net, from original cost basis to after splitting things unfairly. Do you want me to give advice that you should get married & divorced to guarantee returns? No, it was just a sign of the timing. We may never see such an era. Mark my words though the 2020-decade will be as transformational, transitional, and pivotal as the 1940s.

Bottom line--appreciation is where the money is made, consider cash flow a defensive play and way end of the chain of the reasons to invest in physical RE. Do not miss the forest for the trees, too.

[Ko Kashiwagi]

I see it like a seesaw - less work, less returns but also less stress. I do know of investors that do turnkey and do well over the long run, but short run there's really no cash flow. So if you want to do the least amount of work then it makes sense in my opinion

[Min Zhang]

Buying a turnkey property is the easiest way to get a feel for being a landlord without all the hassle of rehabbing a place. If you don’t have the time to manage value-add deals, turnkey could be a good fit. Just remember, you’ll maybe inheriting tenants, so make sure you run the numbers and see if it makes sense for you. Best of luck Silas!

[Chris Clothier]

@Silas Melson

@Nicholas L., @Jay Hinrichs and @V.G Jason have done an excellent job of laying out a flaw in your thinking, and I will take it a couple of points further.

1. Turnkey is a marketing word.  In the sense that I think it should be used, it means that the risk was taken by someone else.  They used their money, time, and resources to offer you a complete investment, including in-house management.  They are selling you something they own.  Yes, you will likely pay close to or at retail value if you are buying a quality property that has been properly renovated.  If you are working with a reputable company, then you buy the property, hold the property and look up 7-10 years down the road and have a home that has increased in value and a debt that has been reduced by your renter.   This is not get rich quick.

2.  There should be cash flow on day one.  It's just not how you and most other investors think about it.  The income (rent minus management) should cover the costs (principle, interest, taxes, and insurance) depending on the property's price point.  Cash flow is the amount left over that you deposit into your real estate-only account.  Not spending money.  Not dinner money.  Not car note money.  Not replacement and quit my job money.  You will need this money in the future.  It was given to you by the renter to pay the bills on this property.  When there is a vacancy, a leaking sink, a drip from the roof, a fallen branch from a tree, storm damage, a rough tenant, a potato down the toilet...whatever expense comes up in the future, and they always come up, that is what the cash flow is for.  I want to keep 5-10% of the property's value in this account.  When I exceed that amount, I reduce the principle.  So, the only things I spend cash flow on are property expenses or principal reduction.

So, why buy turnkey?  Because you don't have the time or the knowledge or the time or patience to acquire the knowledge to actively invest.  Spend time finding the best company you can in a market you have researched.  Do not buy junk.  Do not mistake low cost for low risk.  Don't mistake high cost for low risk.  Meet who you are going to do business with before you buy.

Then, buy properties where 1. There is a high probability that every dollar you collect in rent will cover every dollar of future expenses. 2. there is a high probability that due to location and price, there will be demand in the future for this property, so it will increase in value.

Good luck to you as you get started.

[Danny Gonzalez]

@Silas Melson If you’re aiming for true passive income, turnkey properties might not be the best route. As mentioned, they often come with limited returns and still require management.

I’m curious—when you say active investing doesn’t appeal to you, is it because of time constraints or concerns about risk? Both of these challenges can often be minimized with the right team and guidance from an experienced investor.

As @Jay Hinrichs mentioned, appreciation is the main driver of wealth in real estate. But that doesn’t mean you need to buy in a top-tier market and lose money each month. There are two types of appreciation to consider:

1. Market Appreciation: Rising property values driven by external factors like economic growth, demand, or market conditions. This is more about riding the wave of a growing market.

2. Forced Appreciation: Actively increasing a property’s value through strategic actions like renovations, raising rents, or improving operations. This method gives you more control and is often a faster way to build wealth.

Forcing appreciation allows you to create value rather than waiting and hoping for the market to rise. It also provides the opportunity for both appreciation and cash flow, especially in markets like Birmingham, AL, where value-add strategies can thrive.

So as others have said, avoid turnkey if you’re looking to build real wealth. Instead, focus on real estate that provides the opportunity to force appreciation or invest in a market with strong growth projections. This approach can lead to both short-term gains and long-term success.

If you’d like to discuss this strategy more, feel free to reach out—I’d be happy to share some insights.