All Forum Posts by: Steve Donovan

Hello @Benjamin Su  I've posted this previously, but it is worth repeating.  Feel free to reach out if you would like additional advice or would like a second opinion on a deal you are considering.  

Many new investors look to turnkey to get started, as it provides an entry point that requires less hands-on and allows an investor to participate in markets that offer higher returns. If you go this route, it is important to realize that there is no common definition of turnkey. In terms of rehabbing the property, the workflow can range from throwing a coat of paint on a wall or two, to an entire gut of the mechanicals, windows, siding, and flooring. Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly. That furnace will need to be replaced in the next few years, but just not yet... Some turnkey companies sell the property to investors at the point where the rehab work is identified and quoted, but not yet completed. The investor then waits for completion and tenant selection prior to earning any income. Other providers sell the units only after the rehab is completed and the tenant in place.

Any turnkey investor should ask very probing questions of the turnkey provider regarding the condition of all mechanicals, roof and windows prior to entering a deal. As there is no common definition of a turnkey property, and it can be very risky (and expensive) to make any assumptions on the condition of the property or age of the mechanicals.

The ongoing management of the property is another area of vastly different approaches to turnkey investments. Some providers simply sell the property, and the investor is left to find a management company, maintenance personnel, snow and lawn care providers, etc. Other providers offer up recommendations for these services, and still other turnkey companies offer these services as part of their overall package. The range of offerings is great, and no assumptions should be made; you need to ask very specific questions regarding who is to do what.

All the best to on your investment journey

Cash flowing deals make sense in any type of market.  I would recommend locking interest for five years if possible to be able to ride out any upward spikes that may be coming our way.  I don't think interest rates will stay elevated beyond that timeframe and will likely settle back into the five percent range.  I'm always leary of banking on appreciation because you just can't bank on it happening or at what rate.  Property values are likely to move lower instead of higher due to elevated interest rates for the next few years and I don't want to risk the loss of equity, even in the short-term.  I think rents are going to stay at a high level as fewer people can afford to purchase houses due to high rents.  There are still deals to be had even at these elevated interest rates.  Be diligent in your selection process; verify "possible" rents, or better yet, buy properties with good quality tenants already in place and under professional management.  Don't let the urgency to do something cause you to buy a bad deal.

Hi @Melinda Elmer and congrats on your off-market deal.  I'm in Madison, let me know if you ever need any help locally.  All the best in your investing future!

Hi @Carla Pareja Paris.  Don't overlook Wisconsin when seeking good cashflow with smaller investments.  The Green Bay market in particular is great and going to be even better on some great news.  The NFL draft will be in Green Bay in 2025 which will give the city a great deal of exposure and US News just ranked Green Bay as the #1 best city to live in. All the best in your investing future!

Hi @Amber Masterson

I'm only familiar with Wisconsin, so I don't know if this might vary from state to state...  Here, the security deposit(s) normally transfer from seller to buyer at the time of the property closing and are accounted for on the closing statement.  Even if the former owner (the turnkey company) had the deposits held by the property manager, they would give you a credit for the amount of the deposits at closing. They then would have the property manager refund the deposit to them after you gave the deposit back to the PM.  So, let's say deposit amount is $1500:

Seller gives you a credit for $1500 at closing and identifies this as security deposit transfer

You give the $1500 to the PM so it can have the funds available at time of move out

PM refunds the seller the $1500 that they paid you

Everyone ends up in the same position they were in (the PM holds the security deposit for the tenant but under your account)

I hope this helps and doesn't add to the confusion.  All the best in your investing future!

Hi @Jessica DiPonziano.  Be aware that turnkey means many things to many people.  I'll paste a reply below that I've shared many times in these forums.  I would be very hesitant to purchase an investment where the rehab has not been completed and where a tenant is not in place...

These forums provide a wealth of information and sources of ongoing support. Many new investors look to turnkey to get started, as it provides an entry point that requires less hands-on and allows an investor to participate in markets that offer higher returns. If you go this route, it is important to realize that there is no common definition of turnkey. In terms of rehabbing the property, the workflow can range from throwing a coat of paint on a wall or two, to an entire gut of the mechanicals, windows, siding, and flooring. Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly. That furnace will need to be replaced in the next few years, but just not yet... Some turnkey companies sell the property to investors at the point where the rehab work is identified and quoted, but not yet completed. The investor then waits for completion and tenant selection prior to earning any income. Other providers sell the units only after the rehab is completed and the tenant in place.

Any turnkey investor should ask very probing questions of the turnkey provider regarding the condition of all mechanicals, roof and windows prior to entering a deal. As there is no common definition of a turnkey property, and it can be very risky (and expensive) to make any assumptions on the condition of the property or age of the mechanicals.

The ongoing management of the property is another area of vastly different approaches to turnkey investments. Some providers simply sell the property, and the investor is left to find a management company, maintenance personnel, snow and lawn care providers, etc. Other providers offer up recommendations for these services, and still other turnkey companies offer these services as part of their overall package. The range of offerings is great, and no assumptions should be made; you need to ask very specific questions regarding who is to do what.

All the best to on your investment journey!

Very good post @Allen Tackett!  You are absolutely right that you currently can get risk free returns of well over 4% especially if you are willing to tie the money up for a couple of years.  Currently, 2 yr treasuries have yields of 4.66%.  While this is a good return, especially looking at recent history, you will be running behind if inflation continues to be high.  While the Fed will likely reduce inflation via their money tightening and rate increases, it will probably stay much higher than 4.66% so you will have less purchasing power in 2 years than you do now.  You could invest in stocks, but that is very risky currently.  You might be lucky enough to buy something that will appreciate faster than inflation, but you are at least as likely to grab a mix of stocks that will actually lose money in the near term.  You only need to look at yesterday's market (Tues Feb 21) to judge the current volatility of the stock market.

Real estate investing offers predictable returns - your rents should continue to at least keep pace with inflations assuming you maintain the properties and do your diligence when selecting tenants.  The Midwest offers some great returns and also will be less likely to see decreases in asset values if interest rates continue to rise.

Be careful in your analysis and I wouldn't plan for a great deal of appreciation at least in the next couple of years.  All the best in your investing future!!

Hello @Mike Montanye

As others have  stated, don't be pressured into making a hasty decision.  Do your diligence to examine the offering from the legal perspective as well as making certain that the proforma seems reasonable and contains all necessary expense such as maintenance and vacancy allowances.  Also beware of projections that rely heavily on value appreciation to make the numbers pencil out.  Betting on appreciation is always a risky proposition, but especially today where property values may be flat or even slightly down depending on the market.  Better to not plan for appreciation and get it versus relying on it and not.  All the best in your investing future!

I agree there are some (many?) owners who are extremely focused on near-term results and won't spend the money necessary to keep their investments in top condition.  It is still the duty of the property manager to point out the need for normal ongoing maintenance activities such as gutter cleaning, trimming trees and shrubs away from buildings and roofs, filter changes, etc and for the less routine items such as updating furnaces, water heaters, windows and the like.  In many cases the owners of rental properties with property management in place will not see the property after buying it until they decide to sell it, and perhaps not even then if it is outside of their geography.  The good property management company will make recommendations to retain, if not enhance the value for their owners.

I totally agree @Calvin Ozanick.  Thanks for adding your thoughts.