All Forum Posts by: Shelby McKean

Quote from @Shelby McKean:

I think I am learning that I probably should have said rent-ready and not turnkey, but I think you have answered the subtle question I was asking which is, is it possibly worthwhile to invest in properties that give you only one type of revenue (paying down the mortgage) and maybe don’t give back the cash immediately for the next investment?  

If I am understanding, you don’t (or can’t) refinance these properties for seed money for your next investments. 

Thanks for your reply  

I’ve bought 18 or 19 houses with tenants in place. I’ve done well off them and they were all easy transactions. I actually bought one last week and another one two weeks ago with families in place. For me, I prefer investing this way. I’ve also bought a half dozen houses that were vacant but only needed an appliance or two to get ready to rent. Those are easy too and they all appreciate the same over time. I target C+ class hoods that seem to have tenants that stay much longer so my turnovers are almost zero. Almost all of my tenants won’t ever be able to afford or qualify to buy a house. I keep them under market rent and hopefully they’ll stay for a decade or two. Turnovers within 3 or 4 years will crush your profits. It’ll cost you 5-10k to repaint and clean them up. Think long term and look for  properties you can buy with tenants in place. Those are the properties I love buying because I know these people don’t ever want to leave and will be with me for a long time. 

Turnkey properties can work if you're seeking immediate cash flow without renovations. While you can't build equity through improvements, the strategy can still be profitable if the numbers align. Using a turnkey condo for short-term rentals on weekends while reducing your commute could be smart, as long as STR income covers costs and local regulations allow it.

From tax perspective, if you personally use the STR as you intend, you cannot create losses under vacation home rules. Means no STR loophole benefit.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

yes in theory turnkeys limits you to create/add value .If you do see a deal that makes the numbers work, you should still consider the deal and take advantage of it. The reason people seek for distress properties, so that they can acquire the property at a low price and renovate the house aka "value add" so that they can increase the property's value and create sweat equity, then pulling the money out or cash out we call out so that investors can liquidate their money and reinvest on the next project @Albert Bui @Carlos Valencia

Quote from @John Clark:

My thoughts on turnkeys is simple: get your head examined. Peruse all of the threads/posts here on BP about turn key properties that weren’t turn key. Never buy any property without physically inspecting it and its neighborhood yourself, AND having it thoroughly inspected by a great inspector who YOU select and pay for. Don’t forget to get title insurance to, and get the owner’s paperwork showing that all contractors, subcontractors, and materialmen have been paid.

As for short term rental of a condo you buy, most condominium associations don’t allow that, and for good reason. Also, it can be very difficult to get financing for a unit in an association where a percentage of units are not used as primary residences full time.

I completely agree.  I considered buying turnkey (meaning renovated home with a tenant placed in there) with a company that buys properties in Detroit area, Cleveland, and a few in St. Louis and got on a call with them. The numbers look good on paper and I still get their emails - one of them said "stress free ownership". There's nothing stress free about real estate investing. I decided against it because I didn't know those markets or neighborhoods in those cities. Since then I've heard mixed reviews about that company. I've heard turn key companies can range from terrible to good. I wouldn't buy a property based on numbers from a turnkey company, agent or wholesaler, but fly or drive out and look at the property and neighborhoods. Seeing it in person looks much different than video tours and Google map images 
 

I also agree on buying a condo. HOA fees can increase with no limit and you can have special assessments. I sold a condo in the San Francisco Bay Area, really wanted to keep it but the badly managed HOA and all their HOA increases with a large special assessment, decided to get out of it. And most HOAs won't allow STRs.

@Shelby McKean

I've bought 25 SFR turnkeys. You're not getting the instant equity as you would with fixer uppers with rehabs. However, you're able to rent them out right away and don't have the hidden surprises rehabs almost always bring on. And in 3-5 years, these "base hits" look like home runs due to inflation and your tenants paying down the mortgages.

Hey Shelby - 

You are correct, turnkey properties don't get the lime light like flips / brrrs get in general within the BP community. 

Whether to buy something turn-key or something that needs work comes down to your goals and what you are looking to accomplish. 

A turn-key property allows you to walk into something that is ready to go to be rented out with minimal repairs, or it potentially already has tenants in place. There are in general less headaches on the front end and it is typically easier to get stabilized. 

The downside though is your ability to recycle your money with a turn-key property is limited. Something turn-key is typically going to be sold at market price (unless you can find a deal off market as you mentioned). Therefore, your ability to re-use your money like you could in a BRRR or a flip is limited, and you are banking on the cash flow from that property or market appreciation over time to re-capture any money.

If you have a lot of capital already, a solid income coming in elsewhere from real estate, and want to minimize your headaches / downtime to get a property, than I would say this strategy fits. 

I also believe that jumping into a flip / brrr as a first deal is a good way to never do a real estate deal again. 

In your situation, it sounds like the primary focus for you is more a quality of life play (reducing your commute time), and the STR may allow you to break even cash flow wise?

A turn-key purchase is typically an easier and less risky strategy , but the benefits are less than buying a flip / brrr. 

Lots of good info already mentioned here but just to add another hat in the mix I recently purchased 3 turnkey properties each from a different turnkey provider. 1 in Cleveland and 2 in Memphis. It’s been about 4 months post and so far I’d say it’s been a very good experience. As @Nick Harrington stated the main drawback as I see it is that you are buying at retail or very close to it. I continue to evaluate deals these providers send me and if something penciled I would definitely consider buying more. 

For me the reason for going turnkey was to limit my lack of experience and knowledge of the areas I am investing in and I looked at the premium I was paying as worth it to acquire the things I lacked. 

In the end I’ve learned a ton and it’s given me the confidence to pursue non turnkey as I continue to build relationships with people. 

I think the most important thing is taking action and limiting your risk as you start, knowing that part of starting is going to force you to learn some things you just can’t learn otherwise so try not to focus on hitting home runs right out of the gate.