All Forum Posts by: Todd Crippen

@Duarte Marques 

Investing in turnkey property is a solid way to grow your portfolio by taking advantage of markets that maximize your returns. There are a few initial market research tips I will provide first. I will then move to good return benchmarks and close with the most important piece of choosing a turnkey company.

Important market focus points: 1. Stable and desirable rental market (seasoned turnkey providers know these markets and utilize them with economic fluctuations in mind); 2. Diverse employment drivers; 3. Ability to get as close to 1% rent to value as possible (.85-1%).

Important return benchmarks: 1. Cash on cash return (8-12%); Cap rate (6-10%); and Rent to value ratio (.85-1%).

Choosing a turnkey provider: This is the most important step of the process. In effect, you’re not only investing in real estate, you're investing in that turnkey company. You want to share the same vision with your contact there and seek how transparent they are.

Key Questions:

How responsive are they?

Do they have in-house property management or is it referred to a third party?

How many doors do they manage in comparison to how many employees are on the payroll (should be at least 1 per 100 doors)?

Do they have up to date software with the ability to provide accurate reports for your income?

Do they offer routine maintenance programs?

Are they willing to readily provide references?

I hope this helps a bit!

@James Wise I agree that has evolved a bit, but think the more accurate description would be that it is just a little more challenging to find solid turnkey deals. That being said, it's all about hitting benchmarks. If you are still seeing those benchmark return figures after debt service, then it is still viable and lucrative. Investors just have to spend more time focusing on markets that still have the capability of hitting those benchmarks. Example: Investors usual expectations during initial analysis: a cash on cash return of 8-12%; cap rate of 6-10%; GRM of .85-1%; and of course positive cash flow after debt service.

In Kansas City, we are still seeing these numbers, even witht the higher interest rates. For example, I just picked up a property with the following return figures: Cash on Cash of 10.16%; Cap Rate of 8.89%; and a GRM of 1.01%. These are all very solid and is a great investment.

Additionally, a lot of economists and real estate pros are projecting another surge in market value after the rates are lowered (estimated that the first reduction will be in July of 24) because of the squeeze of inventory. Once we see the rates reflect low 6's and high 5's, there is a good reason to believe that investors that had the opportunity to purchase property, hitting their investment benchmarks during the higher interest rates, will experience a solid increase in equity with the increase in market values.

I will also end on the fact that a lot of lenders are offering promotional incentives right now because of the reduction in opportunities. I have spoken to many lenders in my network that are offering investors refinancing options after the rates are reduced without any closing costs.

I agree that it may be a little more difficult to find these great deals, but finding a good team with boots on the ground in markets like Kansas City will still provide great opportunities.

@Edward Toomey V I feel like this is a frustration for us all in the property management game. Firstly, do you manage your own property or do manage mix of your own plus clients' property? Secondly, how many doors are you managing? I ask this because Buildium, also a RealPage company, can actually be more affordable depending on the door count and whether you manage on behalf of others.

Buildium, like Appfolio, has different tiers of membership. Our company uses the growth plan. Though Buildium has its limitations, its financial tracking is quite robust. You are also able to send client disbursements directly through the platform with their Forte transaction processing partnership. This plan also offers many integrations (at an additional cost) depending on what your needs may be. They also have a support ticket system and customer support contact number that sends you directly to a human being. Most of the time they are quite knowledgable. They track management income, expenses, vendor payments, etc. I am sure Appfolio has similar features, but the pricing structure is dependent on your needs and door count. The reason I mention Buildium is because their Growth plan can be more affordable than the second tier of Appfolio that you need to pay for to get access to the integrations. I just thought I would share and I hope you have a great holiday season and New Year in 2024!

I wanted to share a valuable research method that I use for analyzing potential investment real estate markets. It's called the VMAR method, which stands for Value Creation Catalyst, Modest Appreciation, Affordability, and Rent to Value Ratio. This approach helps us identify markets with strong potential for long-term growth and profitability. Let's break down each component of the VMAR method:

1. Value Creation Catalyst: The first step in researching investment real estate markets is to look for a value creation catalyst. This could be anything that positively impacts the market's growth potential, such as major infrastructure development, population growth, new job opportunities, or urban revitalization projects. Identifying these catalysts can give us valuable insights into the future appreciation and demand for properties in the area.
2. Modest Appreciation: While rapid appreciation might seem attractive at first, it's crucial to focus on markets with a history of modest yet consistent appreciation. Markets that experience extreme fluctuations can be risky and may lead to unsustainable price bubbles. Modest appreciation ensures a stable and predictable growth in property values over time, which is ideal for long-term investment strategies.
3. Affordability: Affordability plays a significant role in determining the potential demand for rental properties. Look for markets where the cost of living and housing is reasonable compared to the income levels of the local population. Affordable markets tend to attract a steady stream of renters and buyers, reducing the risk of prolonged vacancies and ensuring a stable cash flow.
4. Rent to Value Ratio: The rent to value (RTV) ratio is a critical metric that helps us evaluate the income potential of an investment property. It's calculated by dividing the property's expected annual rent by its current market value. Aim for markets with higher RTV ratios, as this indicates a better potential return on investment. Higher rental income relative to the property's value means better cash flow and profitability.

Also, considering your goal is to find passive income, I would recommend researching turnkey companies in Midwest markets. It is just really important to vet the companies to develop trust.

Here are some recommended questions to ask:

1. What is their track record:

Some turnkey providers might have a privacy policy in place to avoid such communication. This should be a red flag. Although clients’ privacy is very important, if the turnkey company has a good track record, they should have at least a few clients that are more than willing to be contacted on their behalf. Also, take the time to look for references and testimonials on the turnkey provider’s website/BiggerPockets account.

2. Do they offer maintenance warranties?

I think it is important for turnkey providers to provide a warranty over what they repaired or improved on the property, but I agree that there should be a limitation on what they cover, and if there is not, then this should be a red flag for the investor. Turnkey companies that have experience and a good track record should never warranty tenant caused damage. It is irresponsible for the company to do so. They would be risking going out of business for unforeseen events that are impossible to track. This is not a smart way to run a business. At Turnkey Property Group, we stand by our product. We offer a one year warranty over the entire scope of work, but acts of God and tenant caused damage are not covered under our warranty for good reason: we would not be able to adequately forecast the company’s performance and overhead costs, which would impact not only our owners, but our employees as well.

A turnkey provider that follows this approach is more likely to be experienced and built for longevity.

3. Will they manage your property in-house or leverage a third-party relationship?

I think that if the company has a good track record and adequate experience while providing in-house property management, it is the best case scenario. I believe this for a number of reasons: 1. It holds them accountable for their product, 2. Not being in property management for their primary revenue stream reduces the chances for inflated fees and trip charges, 3. It is, in my opinion, the only true turnkey experience. I am not saying it’s an automatic red flag if the company does not provide in-house property management, but it does add an additional step to the due diligence process.

5. What systems do they have in place to ensure you have transparency into your investments at all times?

This is the most important factor when choosing your turnkey partner, and that is how investors should look at it. As a partnership. If an investor can’t frequently get a hold of their turnkey provider, or is always talking to a different person, this should raise an immediate red flag. This is a good indicator about whether the turnkey company is in it for a volume play, or a quality play based on superior customer service. You should always be able to get a response from your turnkey provider within 24 hours at the latest. If it takes more than 24 hours to in contact with the provider, this is a red flag situation.

Finally, I want to touch on the heart of your investment: Property Management. Get information on these bullet points, and look out for these red flags.

Key Bullet Points:

• 1.Is property management the company’s primary revenue stream?
• 2.How many doors do they manage?
• 3.How many employees do they have?
• 4.How is their response time?
• 5.What software do they use?
• 6.Do their fees seem fair?
• 7.What is their average leasing period?
• 8.Do they talk negatively about other property management companies or turnkey providers?
• 9.Do they offer routine maintenance programs?
• 10.Do they have good reviews online (be fair in your judgement)?
• 11.Are they avoiding providing references?

Happy investing!

@Anthony Holloway 

I wanted to share a valuable research method that I use for analyzing potential investment real estate markets. It's called the VMAR method, which stands for Value Creation Catalyst, Modest Appreciation, Affordability, and Rent to Value Ratio. This approach helps us identify markets with strong potential for long-term growth and profitability. Let's break down each component of the VMAR method:

1. Value Creation Catalyst: The first step in researching investment real estate markets is to look for a value creation catalyst. This could be anything that positively impacts the market's growth potential, such as major infrastructure development, population growth, new job opportunities, or urban revitalization projects. Identifying these catalysts can give us valuable insights into the future appreciation and demand for properties in the area.
2. Modest Appreciation: While rapid appreciation might seem attractive at first, it's crucial to focus on markets with a history of modest yet consistent appreciation. Markets that experience extreme fluctuations can be risky and may lead to unsustainable price bubbles. Modest appreciation ensures a stable and predictable growth in property values over time, which is ideal for long-term investment strategies.
3. Affordability: Affordability plays a significant role in determining the potential demand for rental properties. Look for markets where the cost of living and housing is reasonable compared to the income levels of the local population. Affordable markets tend to attract a steady stream of renters and buyers, reducing the risk of prolonged vacancies and ensuring a stable cash flow.
4. Rent to Value Ratio: The rent to value (RTV) ratio is a critical metric that helps us evaluate the income potential of an investment property. It's calculated by dividing the property's expected annual rent by its current market value. Aim for markets with higher RTV ratios, as this indicates a better potential return on investment. Higher rental income relative to the property's value means better cash flow and profitability.

In conclusion, the VMAR method is a comprehensive approach to research investment real estate markets. By evaluating the presence of a value creation catalyst, focusing on modest appreciation, considering affordability, and analyzing the rent to value ratio, we can identify markets with strong potential for sustainable growth and profitability.

Happy investing!

Turnkey Property Group LLC's in-house property management company, TPG Management Services LLC is now taking additional clients needing industry leading property management services for their rental properties. Please visit the link below to request a time to discuss with the team.

https://forms.wix.com/f932c559...

Turnkey Property Group LLC 's in-house property management company, TPG Management Services LLC is now taking additional clients needing industry leading property management services for their rental properties. Please visit the link below to request a time to discuss with the team.

https://forms.wix.com/f932c559...

@Anthony Holloway that's exciting! There are a number of great markets that have lower price points while still demanding high rent prices relative to the initial cash investment. I am biased and have a lot of experience in the Kansas City metro (Jackson, Clay, Cass, and Platte Counties). The sweet spot is right around a .95-1% rent to value ratio.

Indianapolis, Memphis, Cleveland, Jacksonville, and pockets in Atlanta also provide great opportunities. 

Chris, as others have mentioned, it is hard to know exactly what is going to happen. That being said, I as many others, choose this channel (in the right real estate market) because of the options it provides as a consistent investment through economic volatility. This increases the importance of researching the markets you buy in. 

A couple items to focus on: 1. What has the appreciation looked like over the last 10 years. Is it modest or has the growth been too rapid for stability? 2-6% appreciation is the window of stability I look for. Look at what the average market price and value change was during previous economic downturns. 

2. What is your primary goal with the investment? Is it up front equity, or decent equity with a focus on cash flow? If your primary goal is cash flow, then buying a property that cash flows after debt service and expenses can be a solid investment to rely on during some instability. Over 30 years your equity will grow as you see healthy cash flow. 

I hope this is somewhat useful and wish you luck.

@Nathan Nance no problem!