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  • Turn Key Real Estate

    Has anyone done significant turn key real estate investing?  I have a demanding practice and its difficult for my to invest otherwise outside of some crowdfunding. Currently investing with AREI in Dallas, but thinking of buying with Memphis Invest amongst others.  Any good or bad experiences?

  • #2
    I've heard both pros and cons from those who do it. Think you just need to know who you're working with and keep the lines of communication open. Good luck!

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    • #3
      Desert doc,

      I too am interested in these turnkey real estate operations. Have you found out any more information?  Or have you jumped in and had any experience?

      Thanks.

      Beth

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      • #4
        What's ROI/IRR on these turn key residential investments? Probably not great. Thus, why bother. These are oversold/overhyped.

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        • #5
          Bigger Pockets is a great real estate website with lots of information, though it tends to be geared to newbies.

          I looked into turnkey real estate pretty heavily about four months ago and spoke with some of the companies, including Memphis Invest. I also had done all of the pre-approval stuff for a mortgage.

          I wasn’t super impressed with the ROI, most of them barely met the 1% rule (MI was closer to 0.8-0.9) and I was a bit underwhelmed. The other issues I had with turnkey was that it is prevalent in markets that tend not to appreciate. Although I was investing for cash flow, appreciation would also be nice. Lastly, the scalability was tricky with only being able to have ten mortgages, unless you find a portfolio lender or something of that sort.

          I also looked into multi family, which is more promising in the right markets. After all of my research, I decided that crowdfunding both on and off platforms made the most sense for me.

          Passive Income MD has some great posts on this, that may be an additional resource to you.

          Good luck.

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          • #6
            Not super interested in doing this myself. I really don't want to be the only owner of properties again, especially out of state. Once burned twice shy maybe, but prefer funds/syndications/REITs myself.
            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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            • #7
              Good to know.  Thanks everyone.

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              • #8
                In 30 years of medical practice and now 15 years of financial planning practice, I have yet to see anyone do well in non-controlled real estate investing.  That is, if you want to make money in real estate, it means owning it directly and managing it.  This still usually takes a long time to work out profitably also.  Any other strategy is likely to fail.

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                • #9




                  In 30 years of medical practice and now 15 years of financial planning practice, I have yet to see anyone do well in non-controlled real estate investing.  That is, if you want to make money in real estate, it means owning it directly and managing it.  This still usually takes a long time to work out profitably also.  Any other strategy is likely to fail.
                  Click to expand...


                  With all due respect , I have to call you out on that very encompassing and broadly worded statement.

                  There are many pathways to doing well in real estate, and I have tried many of them. ( And this has been discussed ad nauseam in numerous locations on this site) I have been investing in real estate directly and passively for 20+ yrs. Some of my investments have done well , some have failed. However, ALL of my successful investments have not been directly owned and managed individually. Some are local partnerships, where , yes, we do have some control over the leases. But most of my investments are with large well known syndication groups with solid track records. Some of these are single asset acquisitions, some are multi asset funds. Most are multi family assets, but some are diversified across other asset classes, and also diversified geographically. The only time I failed was when I tried to do it alone...directly controlling single family assets.

                  Perhaps, your comments are trying to steer people away from jumping in on poorly researched and properly vetted deals. In such case , I applaud your advice. However,in my opinion, to outright state that there is no other way to invest except direct ownership is ludicrous. Perhaps, based on your personal experience you have seen failures in real estate investing. But I can assure you based on decades of successful investing that your statement is misguided.

                   

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                  • #10
                    So to answer initial question, turn keys have been working out OK lately.  Probably more like 5% cash on cash for each, but I bought one that is basically A class and the other a A-/B+. I disagree you need to manage it directly, I think that is a sure way to get fed up and never invest again.  Also how could you ever work in private practice and manage 10 properties or ever scale your business while managing it yourself?  Huge headache. Also, people that self manage often forget to increase rent with inflation or pay attention to the rising rents surrounding their property if out of state.  Good management is well worth the cost and tax deductible on your passive income.  I pay no taxes on my rental profits and take 5k of passive loses per home due to depreciation.

                    I have also done four deals on Equity Multiple, which appear to be going well.

                    Turn key was a good way for a new investor to get their feet wet.  Did I pay a lot for properties?  Probably, but I would likely do it again as Dallas opportunities appear to have dried up since last year.  I plan to add to my existing portfolio if I can.  Currently, I'm trying to go through the property managers in different markets I'm looking at and have them find properties for me in good rental markets (kind of a turn key).  I'll see if I get better prices doing so.  Also talking to Memphis Invest, but they appear expensive both in prices and management (10%). However, they have decent reputation and will handle everything for your.

                    Home union I don't have a good feeling about.  Their fees are absurd at 3.5% acquisition, 10.5% management, and 15% of all contractor expenses.  Plus, I hear they subcontract out the management and pocket the difference.

                    I don't think you should get fixated on cash on cash return entirely.  The benefit of direct ownership vs. crowdfunding ect. is within the phantom returns of principle paydown, appreciation, tax benefits, and inflation hedging.

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                    • #11
                      I bought ready to rent residential properties in the market that I knew best when I was a young attending.  After maxing out all retirement account options in mutual funds, that is what I did with much of my extra investment money.  My strategy was to buy properties in the county where I live.  It is a HCOL area, but I knew the schools, the job market, the commuting patterns, just about everything about the area as a buyer for my own family.  I figured that if I could put 20% down and cash flow positive, I would be ok in an area where both rents and property values would appreciate with time.  I targeted the upper middle market, meaning that demand for rentals would be high, and my tenants were mostly young professional class families or international transplants, also professional class people.  Some of my long term tenants have been renting for more than a decade.  After many years, I am sitting on property appreciation in the millions, and I have a 6 figure relatively passive annual net rental income which is highly income tax protected that I could retire on if I chose to do so.

                      My real estate total return over decades has averaged over 10% annually, some years much better or much worse than others.  There have been rare moments where there was significant work involved, but most years there is nothing to do other than occasional calls to reliable, well known service providers and 15 minutes of monthly accounting for the electronic rent payments.

                      My current problem is that all of this net worth is tied up.  The cash flow from rent is great, but cashing out would cost me huge capital gains taxes, depreciation recapture taxes, and hefty state taxes on top of that.  So based on tax considerations I feel somewhat stuck with this highly valuable portfolio of properties.  One son is gradually taking over management of the properties, since one strategy might be to hold the properties until death when the stepped up basis will wipe out all the capital gains taxes.  However, at the rate things are going, if at least one of us live another 30 or more years, the estate taxes are going to be onerous.

                      One major caveat for any investment also applies to real estate, past performance does not predict future returns.  And I have location risk, meaning that if my currently highly desirable, dynamic city suffers a terrorist nuclear attack, the value of my real estate could be wiped out.  Overall however, so far this has worked out very well for our family.

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                      • #12
                        Being from SoCal we took a chance without much calculative due diligence and bought 3 sfh’s and a townhome in the south puget sound area in 2004,2005(pre bubble) and 2009,2010(post bubble). We’re done with RE and have no interest in expanding our position in RE. I don’t think we’ve done better than the sp500 but we get weekly solicitations to purchase these properties so I suppose I have a greater fool in waiting if we need to unload the properties. Our pm has been very good and has been worth the 10%10%10%8% that we pay.

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                        • #13
                          Great answers everyone, thank you.  I would love to be able to get into RE locally, just finding the market so competitive.  Being patient.

                           

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