Updated: Nov 1, 2021
Real estate investments are a central part of my overall investment portfolio and plan for financial independence. I currently only own one single family rental property, but am under contract for another (scheduled to close next month). I'm just getting started here. My plan is to have a dozen or so rental properties by the time I call it quits from my W2 job and enter into the next phase of my career & life. If you're a beginner in real estate investing, here's a good article to get you started.
I've decided to utilize turnkey providers for building out my rental property portfolio. Thus far I've used Memphis Investment Properties and the experience has been positive. I will most likely continue to invest with them over the next few years (until I get my portfolio to the size I want it to be and then move to just maintaining what I own).
There are many options out there for how to build a real estate portfolio. House hack, wholesale, REO properties, syndicate investments, driving for dollars...the list of terms and options go on. I think that if someone wants to invest time in nailing down one of these strategies they'll be successful. To me there is no such thing as "the" way to invest in real estate...only "your" way. Just gotta find it.
So why have I decided to utilize Turnkey Real Estate providers for these investments?
Honestly I need simplicity when it comes to investing in real estate. I don't want to think about my properties more than I absolutely have to. I've got many other investment areas I like to focus my energy into (I'm looking at you Music Royalties). My ideal real estate investment is one where I sign some forms, wire some money, auto pay my mortgage, auto collect my rents and forget about it. Hands. Off. Sure there'll always be the maintenance expense that requires my approval, or maybe there's a gap between tenants that causes a bit of concern. But overall I don't want to think about it.
Top 5 Reasons to Use a Turnkey Provider
Here are my top 5 reasons for using a Turnkey Provider for my real estate investments:
I don't have to spend much time searching for properties. They've done the heavy lifting for me.
I don't have to manage any rehab or prep work for the property.
The financial analysis is already generated (although I do comb through this to call bullshit where it is warranted).
There's oftentimes inhouse management as part of the deal.
Ease of making out of state investments.
Yes I realize that some of you are having allergic reactions to this list. Some of you prefer to dig in much deeper than this to make sure you're finding the best possible deals out there. Again that's not what I'm in this for. Of course I want and expect a cash flow positive investment with solid providers, I just don't want to invest too much time in the process.
Risks of Using a Turnkey Provider
The real estate market is a crowded space. There are lot of self-proclaimed Turnkey Providers on the market. There are groups dedicated to analyzing turnkey providers (just search for them on Facebook and you'll find them). For me the top 2 risks of using a turnkey provider are:
The turnkey provider must make a profit somehow, and their 2 biggest levers are going cheap on the renovations or overpricing the property. The inspection (always pay for your own) and the appraisal should help reduce the risks for these two things, but nothing is guaranteed. What makes this even harder is a lot of turnkey real estate investors are out of state and they never actually see the property.
The best bet is to research the turnkey provider and find one that has a lot of independent testimonials (i.e. - not on their own website). It also helps if they have been in business for many years.
What criteria do I look for when buying a property from a Turnkey provider?
A- or above neighborhood. This helps me sleep at night knowing that my properties are in desirable neighborhoods.
No more than 20 years old. I don't want to financial headaches associated with an older property.
Hard surfaces for flooring. It's much harder for a tenant to stain & ruin hard floors vs. carpet (although not impossible). I had a previous rental property that was carpeted and it was a nightmare to keep clean.
Newer High Dollar Items. Roof, HVAC, water heater & appliances. These are the items that can kill years worth of cash flow if they need replaced.
Cash Flow / Total ROI. Simply put, I want to have positive cash flow every month and expect a healthy (25%+) yearly Total Return on Investment.
Here are the cash flow and ROI projections for the two rental properties in my portfolio:
Wrap It Up
Turnkey property investing is not for everyone. Some people want to turn over every rock to find the absolute best possible deal. Others want to be hands on in the renovation process. I get it and encourage them to do so. Everyone needs to find their own groove in investing and building a portfolio.
For me though, I like my real estate investments the same way I like my airport screenings - as hands off as possible.
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