@Cassandra Boyett As a green investor not much further down the road than yourself, I’ve found the idea of turn-key’s to be very appealing. There are reputable turn-key companies out there that do aim to deliver quality homes in good areas. Unfortunately, so far what I’ve found every time is these homes tend to be listed at or above market price with above-market rents. This is a two-fold hit against you right off the bat:
First of course is that as an investor I want to get into a property below market value. There are plenty of properties out there. Many sell near market value, some sell higher and some lower – so why as an investor would I buy one that I know is high? I like the mantra “make your money when you buy”. I want to find value, not set the value for the area!
Secondly, if rent is substantially above market it raises a red flag to me as to the quality and longevity of the tenant(s) in place. How likely would I be able to sustain that level of rent? Would there be high turnover at that price? Are the renters in place higher risk tenants? The turnkey company has incentive to command the highest rent feasibly possible because it makes the CAPs look better. I’ve seen some turnkeys with rents that are at 20-30+% above the market.
I mean, it makes sense for the turnkey company to make a profit. I’m all for that and for them to reap the returns of the work they put into it to. I just don’t want to buy a property at the upper end of its value. All that said, Real Estate is a great investment and has the capacity to forgive some mistakes. As members have shared in podcasts, even many of their mistakes and missteps still turned a profit. Just not as big a profit as if they had made the better/wiser move. So I would say buying a good turnkey property is better than buying nothing at all. In fact I’m sure some turnkey investors do very well.
The veterans around here can give far better advice how to analyze turnkeys, but as a start:
Use sites like realtor.com and zillow to get a ballpark value (look at the comps). Other sites like PadMapper, Craigslist, ApartmentHunterz, and RentOMeter can help you determine what the market rate is for rents. Once you get familiar with these sites (and I’m sure many more great ones out there) you can quickly get an idea if the property is listed at, above or below value.
Get to know the local expenses (approximately what % of the purchase price are taxes? insurance?). I've seen some turn keys that understate expenses to again boost their claimed CAP rate. Also, check out local crime on a site like trulia and look on Street View to get some sort of feel for the area (I know it's not the same as being there, but you can tell a lot more from street view than just a single photograph from the curb).
If you find areas you want to invest in, perhaps try reaching out to the BP community for referrals – find a reputable broker local to that area who can be your eyes and ears.
Oh, and welcome to BP! Good luck with your search.
