Tell me about your turnkey real estate experience

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Topic Author
whohasaquestion
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Tell me about your turnkey real estate experience

Post by whohasaquestion »

So I've been reading about the turnkey real estate property and how it could provide steady cash flow which I am very much attracted to.

It looks like this is how the game would be played out:

1) Buy an out-of-state rental property
2) The company manages the property (tenant, property maintenance...etc)
3) Net income > expenses = Cash flow
4) Rinse and repeat

It seems pretty simple and takes a lot of guessing out of the game. But at the same time, I wonder whether this is too good to be true.

I am already topping out the $10k SALT cap without even having to pay for state property tax. Even with that, I am still taking standard deduction this year, which pains me to my core. I need something that can offset and replace my ordinary income hopefully.

I will research into the out-of-state local market, rental potential, what ifs...etc, but are there questions I should ask when I get on a call with them?
smitcat
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Re: Tell me about your turnkey real estate experience

Post by smitcat »

whohasaquestion wrote: Tue Mar 21, 2023 7:08 pm So I've been reading about the turnkey real estate property and how it could provide steady cash flow which I am very much attracted to.

It looks like this is how the game would be played out:

1) Buy an out-of-state rental property
2) The company manages the property (tenant, property maintenance...etc)
3) Net income > expenses = Cash flow
4) Rinse and repeat

It seems pretty simple and takes a lot of guessing out of the game. But at the same time, I wonder whether this is too good to be true.

I am already topping out the $10k SALT cap without even having to pay for state property tax. Even with that, I am still taking standard deduction this year, which pains me to my core. I need something that can offset and replace my ordinary income hopefully.

I will research into the out-of-state local market, rental potential, what ifs...etc, but are there questions I should ask when I get on a call with them?
"but are there questions I should ask when I get on a call with them?"

Ask the person on the call....If it's that safe and easy why do any of these opportunities ever make it to us strangers?
Topic Author
whohasaquestion
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Re: Tell me about your turnkey real estate experience

Post by whohasaquestion »

They fix and flip essentially. And they make a profit by managing the property.
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quantAndHold
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Re: Tell me about your turnkey real estate experience

Post by quantAndHold »

If this was so easy and risk free, why wouldn’t they just keep the property in their portfolio and pocket the money themselves?
Topic Author
whohasaquestion
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Re: Tell me about your turnkey real estate experience

Post by whohasaquestion »

They are wholesaler too. They buy lots of houses for fix and flip. I would think they need cash to sustain the business model.
Oddball
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Re: Tell me about your turnkey real estate experience

Post by Oddball »

Without actual numbers it is hard to give advice. But it is clear from your post that you are *hopefully* just starting out on this process.

How do you know what the rent will be? What is your monthly mortgage payment? How much are they charging in a management fees? What are the utilities you expect to pay? HOA? Very generally speaking, turn key rentals do not cash flow off from the start with a normal 30 year mortgage.

Also, for the "rinse and repeat" part of your strategy, you will need 25% down with each property, so it will be very capital heavy up front. And buying turn-key means very limited chance to force equity into the property, you can not BRRRR (buy, rehab, rent, refinance, repeat) the property to reuse the capital.
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whohasaquestion
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Re: Tell me about your turnkey real estate experience

Post by whohasaquestion »

Right. So even in their calculation, they only assume a 30-year mortgage rate of 6%, which is unrealistic for a rental property given the current rate environment.

I am not expecting equity until the property had a chance to appreciate over the next few years.

The ability to BRRRR is nice but I don't know any contractor in the local area.
AlwaysLearningMore
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Re: Tell me about your turnkey real estate experience

Post by AlwaysLearningMore »

quantAndHold wrote: Tue Mar 21, 2023 7:50 pm If this was so easy and risk free, why wouldn’t they just keep the property in their portfolio and pocket the money themselves?
Bingo. I'd ask what's inspiring their altruism to spread this wonderful opportunity to others.
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ActiveIndexer
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Re: Tell me about your turnkey real estate experience

Post by ActiveIndexer »

Stay away from turnkey operations. Two major issues.

First, poor performance. The numbers they present are not attainable in the long run. You end up getting a solid 1-3 years, then you go negative because of capex and repairs. The work they do to flip the property looks great but it’s the cheapest low quality labor so there are typically issues at or after year 3.

Second, poor property management. Most times their incentives are misaligned with your interests. They charge up-fees for maintenance and most keep late fees. This means they have an incentive to bandaid fixes and allow tenants to pay late. Hold them to doing regular property inspections and demand pics.

If you decide to go down this road, get an inspector from a neighboring market, not where the turnkey operation is located. Run your own numbers after doing plenty of diligence- look online for what’s normal. Fight to have them align financial interests with yours when it comes to fees. Standard property management is 8-10% of rents, depending on the market. I would pay more if they allowed you to keep half or more of the late flee and no charge maintenance.

Not saying a few don’t get diamonds in the rough, but it’s rare. You rarely hear the horror stories because people are either too prideful to admit they screwed up or they graduate onto better real estate investments.
ActiveIndexer
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Re: Tell me about your turnkey real estate experience

Post by ActiveIndexer »

quantAndHold wrote: Tue Mar 21, 2023 7:50 pm If this was so easy and risk free, why wouldn’t they just keep the property in their portfolio and pocket the money themselves?
Many do eventually do that when they secure a large enough lender. However it would be very difficult for a legit turnkey operation to cover that many properties whereas they can get cash flow from selling the flips and residuals from managing them.

I often hear the same question about why would anyone take a hard money loan. What’s 100% of no deal? Zero. Sometimes they don’t have the cash so it’s better to take an unfavorable loan than to lose out on the good deal.
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DeliberateDonkey
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Re: Tell me about your turnkey real estate experience

Post by DeliberateDonkey »

An out-of-state rental is a recipe for disaster. The people making real money renting out houses do so either through sweat equity or cutting out the middle man (i.e., property managers). If you are doing neither of those things, how much is really going to be left for you at the end of the day?

Sounds like a lot of risk for very little reward.
jimkinny
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Re: Tell me about your turnkey real estate experience

Post by jimkinny »

This sounds a lot like a stock broker. They recommend this or that stock, you buy and take all of the risk and the broker walks away with a commision.
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Re: Tell me about your turnkey real estate experience

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (real estate).
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Bikes4life
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Re: Tell me about your turnkey real estate experience

Post by Bikes4life »

DeliberateDonkey wrote: Wed Mar 22, 2023 12:49 am An out-of-state rental is a recipe for disaster. The people making real money renting out houses do so either through sweat equity or cutting out the middle man (i.e., property managers). If you are doing neither of those things, how much is really going to be left for you at the end of the day?

Sounds like a lot of risk for very little reward.
Agreed. I manage my family real estate and all our properties are local. It is very hands on for me and because we manage everything ourselves and we have employees on the payroll of our construction company that can do majority of our work in house for much cheaper, it makes sense. The success of our properties is also my direct relationship with our tenants. If someone out of state owned our buildings and the management was not as actively involved as we are / I am, there would be much more turnover gauranteed. Majority of our tenants have never left. I have built personal relationships that you can only get by being local. As you have turnover, vacancy loss and renovations eat the profits.

We do a lot of work for a developer who has maybe $75 million in commercial real estate rentals with 1 or 2 girls in his office and he subs everything out and he is a self made guy who started out just doing autobody repair in his driveway as a kid then started real estate. I am actually not sure how he does it with such little staff. I dont think he touches a screwgun. Literally calls out for everything and never seen him without a suit on. But he has also built hundreds of millions worth of condo and housing developments sold over the past 50 years, so he has built up the cash to do whatever he pleases. We call him Midas because whatever he touches, turns gold. Starting out, I don't see how someone could make money doing this without being hands on and heavily involved, unless you are also a Midas :)
WAROB
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Re: Tell me about your turnkey real estate experience

Post by WAROB »

In reference to your point about not itemizing. Do the math on what savings you would actually get if you itemized a few grand over the standard deduction.

Are you expecting to include the mortgage interest on Sch A? Makes way more sense to include it on Sch E or however the rental would be classified.

If a deal sounds too good to be true…
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whohasaquestion
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Re: Tell me about your turnkey real estate experience

Post by whohasaquestion »

LadyGeek wrote: Wed Mar 22, 2023 7:52 am This thread is now in the Personal Finance (Not Investing) forum (real estate).
I mean real estate is a form of investing. But, okay.
Topic Author
whohasaquestion
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Re: Tell me about your turnkey real estate experience

Post by whohasaquestion »

Bikes4life wrote: Wed Mar 22, 2023 12:12 pm
DeliberateDonkey wrote: Wed Mar 22, 2023 12:49 am An out-of-state rental is a recipe for disaster. The people making real money renting out houses do so either through sweat equity or cutting out the middle man (i.e., property managers). If you are doing neither of those things, how much is really going to be left for you at the end of the day?

Sounds like a lot of risk for very little reward.
Agreed. I manage my family real estate and all our properties are local. It is very hands on for me and because we manage everything ourselves and we have employees on the payroll of our construction company that can do majority of our work in house for much cheaper, it makes sense. The success of our properties is also my direct relationship with our tenants. If someone out of state owned our buildings and the management was not as actively involved as we are / I am, there would be much more turnover gauranteed. Majority of our tenants have never left. I have built personal relationships that you can only get by being local. As you have turnover, vacancy loss and renovations eat the profits.

We do a lot of work for a developer who has maybe $75 million in commercial real estate rentals with 1 or 2 girls in his office and he subs everything out and he is a self made guy who started out just doing autobody repair in his driveway as a kid then started real estate. I am actually not sure how he does it with such little staff. I dont think he touches a screwgun. Literally calls out for everything and never seen him without a suit on. But he has also built hundreds of millions worth of condo and housing developments sold over the past 50 years, so he has built up the cash to do whatever he pleases. We call him Midas because whatever he touches, turns gold. Starting out, I don't see how someone could make money doing this without being hands on and heavily involved, unless you are also a Midas :)
Not a Midas for sure. Couldn't even figure out a good entrance to the space.

I mean they do have a solid reputation on BiggerPockets. However, I have no way to verify if these users were paid or incentivized to say good things about the company.
Bikes4life
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Re: Tell me about your turnkey real estate experience

Post by Bikes4life »

Seems a bit too risky for me
mighty72
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Re: Tell me about your turnkey real estate experience

Post by mighty72 »

I looked at all the popular turnkey providers on biggerpockets a few years ago. I talked to many, looked at Zillow, redfin, etc for local rents and property prices. I could never make the math work. Probably would make 4-5 % at best. The only way to go in with cash or buy many properties quickly and use all money to pay down loan one at a time. Once you pay them off, you get cashflow. My numbers were worse than what providers because I kept some money as reserve for repairs and vacancy
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unclescrooge
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Re: Tell me about your turnkey real estate experience

Post by unclescrooge »

I've bought 24 homes in the past 20 years. Only 3 were primary residences and the rest were investment properties all across the west and mid-west.

I have a detailed spreadsheet to model out returns on investment properties. I assume a sale in year 11 and calculate the IRR.

Iusually crunch numbers a few times a month when a friend has seen a webinar about the same thing you are taking about.

All of these protections being shown to investors are the result of an exceptionally unique period where the last ten years saw massive appreciation in most markets. This is unlikely to be repeated again over the next few decades.

In order to get good cashflow you need to buy a crap house in a crap location. Typically you will be a slumlord. These houses are usually cheap and the cashflow per house, while good on paper, is so small it will not move the needle for you. Think sub -$100k homes and $100/month cashflow.

If you want a nice house in a nice neighborhood, I doubt it will cashflow at today's rates.

I recommend you real Gallineli's book: What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures.
Apathizer
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Re: Tell me about your turnkey real estate experience

Post by Apathizer »

To me it's too risky and complicated. Total market stocks and bonds already include REITs and mortgage securities that are more well diversified and simpler.
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softwaregeek
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Re: Tell me about your turnkey real estate experience

Post by softwaregeek »

There is an argument that indexes underweight real estate. The solution is to add a reit index.

Owning real estate is a job, it is not hands off. I did make money on rentals but fixed a fair number of toilets,. Could not imagine making money at todays interest rates with a manager fee and remote. Too much temptation for the property manager to screw you.
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TinyElvis
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Re: Tell me about your turnkey real estate experience

Post by TinyElvis »

Like most any industry, there are good turnkey companies and bad ones. A few posters have made some blanket comments that simply are not true based on their lack of experience with real estate investing.

REI Nation (formerly MemphisInvest) is a really good company. They've been around for 20 years, are in several markets, do a top-notch job, and are completely transparent. I've been a client with them for 13 years.

https://www.reination.com/

Can you make more money with more hands-on real estate investing? Absolutely. However, if you want to diversify into single-family homes and have little experience, then a good turnkey company is a great place to start.

I'm always surprised that people will blindly throw thousands and thousands of dollars into some faceless mutual fund over which you have zero control but will balk at the idea of investing in real estate where you have total control. I prefer a good balance of both. :)
Last edited by TinyElvis on Thu Mar 23, 2023 9:58 am, edited 1 time in total.
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Re: Tell me about your turnkey real estate experience

Post by exodusNH »

whohasaquestion wrote: Tue Mar 21, 2023 9:37 pm I am not expecting equity until the property had a chance to appreciate over the next few years.
That's a big assumption. I bought my primary home in 2005. It did not "appreciate" until 2020 and is still below what I paid for it when you factor in inflation over 18 years.

Managing out of state properties is difficult, especially if you don't really know how well they're going to manage the property. Also, you don't know the local market. Is demand based on one or two large employers who might be on the verge of consolidating locations? You also need to worry about renter protection laws being different than your home state.

Rental properties do not last as long as primary residences. Your maintenance costs are going to be much higher than your primary home. When problems do some up, you will pay emergency/holiday fees.
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