Real Estate Investing from NYC: Turnkey Properties

RealEstateAt this time last year, I never would have thought that real estate investing was possible for me*. It was a type of investing that never crossed my mind and even if it had, I would have laughed at the idea that I could play the real estate game in the big city of New York. No, I’m a small fish and I would be lost in the big ol’ real estate ocean.

Then, I read this post from FI Fighter. My eyes widened. Wow, with turnkey properties in other cities, real estate investing while living in New York was suddenly a possibility! So what is a turnkey property? Let me explain.

Turnkey properties are sold by turnkey companies. These companies set up shop in a location that has a particularly favorable real estate market. They find properties that are undervalued and need repair, purchase them and fix them up. Then, they sell them at a profit. That’s the main way that they make money. I am happy for them to make that money in exchange for handling the rehab of the house. Sure, I technically could have purchased the property and fixed it up myself and saved money, but I have NO clue how to do that, especially in some other city. So, I am happy to pay them the markup.

So, I come along and purchase the house at market value. The turnkey company then takes care of finding a tenant, collecting rent, taking care of maintenance issues that come up, and generally managing the property on my behalf. I pay them a property management fee for that. The idea is that after all fees, mortgage payments, taxes, insurance, and various other costs, the rent I receive will still be greater than my mortgage payment. If that’s the case, I have a successful investment, which is giving me more money than it costs every month (this is known as cash flow). I am also building equity in the property (as I pay off the mortgage, I increase the percentage I would receive if I sold the house).

Pretty simple, huh? Not so fast. There are SO many things that can go wrong. Here is a short list (just a taste of some of the issues that can arise):

  • The house doesn’t rent for as much as you thought it would
  • The monthly costs are more than you expected
  • The house is old and you have to sink thousands of dollars into repairs as the turnkey company didn’t take care of everything that they should have
  • The turnkey company can’t find tenants for your place
  • The turnkey company finds BAD tenants and they trash your house. You are on the hook for repairs.
  • The turnkey company finds BAD tenants and they don’t pay rent. You have to evict them and you don’t collect rent for a few months
  • Your insurance doesn’t cover a specific natural disaster

So the moral of the story is: you must do your due diligence. You have to do your research and run all the numbers to make sure you are getting a good deal. I also STRONGLY recommend taking the time to fly out to the city you are investing in and meet the turnkey company. Have them show you their operation and ask them about how they screen tenants and their vacancy rates. Get as many references as you can. You have to believe that this company is good at finding desirable houses as well as finding desirable tenants, not an easy task!

So for the past several months, I have been researching real estate best practices, vetting a turnkey company, networking with other people who invest in real estate generally as well as turnkey properties specifically. And I am proud to say, that I recently closed on a property! It’s the first house I have ever owned, and I don’t even live in it!

While I have done my due diligence, I am very new at this. But I wanted to share this experience with you all, so I will be posting monthly updates (starting in July) that will include a number of pieces of my financial life as well as lifestyle. One of those pieces will be the performance of my first adventure in real estate investing. I am happy to answer any questions I can along the way. And thanks to FI Fighter – be sure to check out all of his posts on real estate investing.

 

*By real estate investing, I don’t mean REITs, which are great, but don’t provide all the benefits of a buy and hold property.


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22 thoughts on “Real Estate Investing from NYC: Turnkey Properties

  1. Stefanie @ The Broke and Beautiful Life May 27, 2014 at 9:30 am

    It looks like the turnkey companies help with all the work, but it’s still an expensive investment yes? The thing that keeps me from investing in real estate is the price. I don’t have enough money for a downpayment on my own home, let alone a rental property.
    Stefanie @ The Broke and Beautiful Life recently posted: Budget Travel: NYC Weekend GetawayMy Profile

    • Mr NYBudget May 27, 2014 at 9:35 am

      Yeah, it does take some money to invest initially. Turnkey houses can actually be found for $70k or so in the right markets, so a 20% downpayment would be $14,000 plus closing costs, inspection costs etc. If I was looking at the downpayment being all the money I had in the world, I certainly wouldn’t start with a turnkey investment, but as net worth grows, I think it can definitely be a part of the plan.

  2. Broke Millennial May 27, 2014 at 5:37 pm

    Very interesting and congrats! Are you going to disclose where your property is located? I’ve been eying property in Nashville, but hadn’t thought of (nor heard of turnkey companies). I’ll have to do some digging and see if that would make more sense than my original plan.
    Broke Millennial recently posted: Frugal Find Friday: UberMy Profile

    • Mr NYBudget May 27, 2014 at 5:46 pm

      Sure thing! It’s in Indianapolis. I am definitely planning a Q&A style post about my property a little later on (I realized I needed this when some of my friends peppered me with questions) – so feel free to ask any questions you may have. I may answer them publicly or I can shoot you an email if we get down to the real nitty gritty.

  3. Kassandra May 28, 2014 at 8:55 pm

    Congratulations! I’ll be looking out for your future posts on your property as my DH and I have been talking about the idea of purchasing a rental property but we’re still on the fence.
    Kassandra recently posted: Letting Go of What You WantMy Profile

    • Mr NYBudget May 28, 2014 at 11:13 pm

      Happy to be the guinea pig! And if you ever have any questions, feel free to ask away!

  4. EL @ Moneywatch101 May 30, 2014 at 8:34 am

    Congrats on the new investing venture. Being a long distance owner can be a bad thing I have heard, hopefully you get a good managment company. I also understand living in this area that real estate here is overpriced for average folks. Most times it takes a full 7oK as a downpayment to even get a home in the tri-state area.
    EL @ Moneywatch101 recently posted: Pension Concerns are AlarmingMy Profile

    • Mr NYBudget June 1, 2014 at 11:15 pm

      Thanks EL! The good news is that turnkey companies have got your covered with the management side as well. I went out and visited their rehab operation as well as their property management side!

  5. Andrew@LivingRichCheaply June 2, 2014 at 2:09 pm

    Very cool…congrats, I read about your investment in real property in one of your comments somewhere and have been meaning to ask you about it. I would love to hear more about the details in a future post. I’ve been contemplating a similar investment because real estate is so expensive in NYC. I was thinking Western New York though since my wife went to school there and my brother-in-law lives there. I’m a bit nervous about it, being that the property is not within driving distance and you have to trust the turnkey company. Plus, my wife and I have been looking to buy a co-op here so this will have to wait until later on.
    Andrew@LivingRichCheaply recently posted: Why Do You Live Where You Live?My Profile

    • Mr NYBudget June 2, 2014 at 2:14 pm

      Thanks Andrew! I definitely plan on more posts about this turnkey investment. My property is in Indianapolis. I figure, if it’s not within driving distance, I might as well optimize the market I choose. Indianapolis has a great combination of cash flow and a steady economy/steady job growth. If you have any specific questions, I am planning a Q&A post in the not-too-distant future.

  6. Evan June 13, 2014 at 11:33 am

    On LI here so I completely hear the problem with RE investing here…how did you vet the turnkey companies?
    Evan recently posted: What Should Someone Do After Paying Off All Consumer Debt? There is No Right AnswerMy Profile

    • Mr NYBudget June 13, 2014 at 11:36 am

      So, I went off of references and then I actually flew out to Indianapolis to see their houses in different states of repair and see the neighborhoods for myself to make sure they weren’t terrible areas. The BiggerPockets site has a great guide to questions you should ask a property manager as well, so be sure to meet with the PM side of the operation.

  7. Real Estate June 20, 2015 at 10:38 am

    Exceptionally intriguing and congratulations! Is it true that you are going to uncover where your property is found? I’ve been peering toward property in Nashville, however hadn’t considered (nor knew about turnkey organizations). I’ll need to do some burrowing and check whether that would bode well than my unique arrangement.

    • Mr NYBudget June 22, 2015 at 11:47 am

      Thanks for the comment! I actually bought in Indianapolis, which I think is a pretty solid market. Laws are pretty landlord-friendly there.

  8. Herman May 2, 2016 at 7:15 am

    Hey..!!!
    Congratulations for a successful investment. I am into the investment business from a long time.
    I love to read such type of success stories as they always motivate me and I get to learn something new.
    Cheers buddy…!!! 🙂
    Herman recently posted: Villas for Sale Hua HinMy Profile

  9. Vern C.Tan May 7, 2016 at 1:08 am

    Wooh! This is really great !
    I am also involve in the real estate market , after reading this i really get motivated.

    Heartily Congrats from my side , keep posting

    Cheers 🙂

  10. Sam Elgohary November 21, 2016 at 1:16 am

    Great Post!
    I’m also from real estate industry in Toronto, providing condos and their listings
    Your post is very useful for investors sharing it on my profiles thank you keep it up.
    Sam Elgohary recently posted: NORD EAST CONDOS AT EXPO CITY IN VAUGHANMy Profile

  11. Juan Carlos December 10, 2016 at 2:53 am

    Hii
    Great post!
    All steps are really helpful in order to do the best real estate investment.After reading your post I really want to do real estate investment.

    Thanks,for sharing this valuable information with us.

  12. McKenzie March 23, 2017 at 9:49 am

    This is a great post with great advice! With rentals and real estate there is always a big risk, so you definitely need to make sure that you research everything. Thanks for sharing this!

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