As of Monday October 26th 2015, I officially bought my 4th turnkey rental property! I now have 6 total investment properties, 7 mortgages (including my primary) and the last 4 of those properties were all purchased via turnkey providers. Wow! I am excited about the growth I have had this year alone. This is my 3rd rental property I have purchased just in 2015. I am officially back in save mode where all my hard-earned cash that I get from my day job as well as my real estate investments will begin stock piling until I have enough money to buy another one. It’s a cycle that I am doing over and over again and don’t plan on stopping until I am financially free. Buy, save, buy!
Although some of you might be thinking I am crazy or am bound to fail, I feel very confident in the growth I am in and the way I am choosing the properties. One of the most important factors I have while building in this manner is to ALWAYS have sufficient cash reserves to handle any emergencies or potential pit falls I may encounter with these rental properties. No matter what, I will always have a minimum of $3,000 per property in cash ready to be used. No matter what I will always make sure I am making plenty of cash flow from each property so that in a worst case scenario, (real estate market crash), I can lower the rents and still at worst break even. As long as I maintain these fail safe strategies, I will feel confident continuing to grow as I am.
Now grant it, it is not that hard to build like this when the real estate properties are in the mid-western united states. I prefer Indy and KC and the prices there are just so affordable. Having a day job with good income makes it even easier to save for me as well. Another big criteria I have when buying these “affordable” properties is to ensure these are not in war zone areas. Buying a property in a high crime area will destroy you. You won’t be able to get good tenants, the tenants you do have will destroy your house and you will have a really hard time getting rid of a property like this when you are in a bad area. It is very important to have an exit strategy in mind when buying. That is exactly what I did when I bought this new rental property.
Here are some details about my new purchase
Independence, MO – A suburb of Kansas City. I chose the KC metro area because it passes all my out of state investing criteria. The important factors being:
- A steadily increasing population. Any market with an increasing population leads to more jobs, growth and more importantly, renters!
- A diverse economy. Not reliant on one or a few industries. A city with plenty of jobs and career choices make it a great place to live and grow.
- A mecca for sports/culture. Having a multitude of sports/recreation/culture in a city also is a great reason to live in a specific market.
I also confirmed my new rental property was in a good working class area. Low crime and a good pool of tenant selection. I did this by checking crime stats online as well as speaking to multiple local investors in the KC area and asking for their opinion on the address. It is very important to always reach out to local investors in the area to get an honest opinion of any location/house you are looking into. Very important!
My new rental is a cute smaller 1000 sq ft 2/1. This is my first 2/1 (2BR 1Bath) that I have ever bought and am diving into new territories with a house of his stature. I normally like to buy a 3/2 or 4/2 but I really like the idea of renting to a couple or single person in a decent area and want to give this a shot. I have read from other investors that love 2/1’s that these are great little cash cows and typically fly under the radar. The only caveat with these is that the turnover rate may be shorter times than what you could expect with a bigger house. I have had full discussions with my new property management team and feel confident in the tenant selection for this one so we will see how it plays out. As of now, the house has qualified tenants and is cash flowing from the start.
Now lets rewind and get into some of the details about the process I went through for purchasing this rental property.
After speaking with 5 different turnkey providers in the KC area (real ones, not marketers), I chose the only one that actually was able to answer all my turnkey interview questions with good responses as well as the only one that had decent inventory for me to even look at.
I narrowed down the search to one property and analyzed and researched it to confirm it hit my criteria. I also made sure from the turnkey provider that the rehab on this one was to my standards. I needed it to have a new or newish roof, HVAC, water heater and new interior cosmetics. This is important to me because I don’t have to want to worry about major cap ex (capital expenditure) items for a long time. I may hold onto this house for a good 10 – 15 years and get rid of it before I have to replace any of the big ticket items. It just depends on how the property performs and if there is any appreciation during that time frame.
I then proceeded with the purchase agreement in which we included a few weeks inspection period. This would give me sufficient time to order an inspection and an appraisal. If either of those items were to fail my standards, then I will be able to back out of the contract as necessary. Check out the picture on the right. It is the actual house shortly after it was rehabbed.
Inspection – The inspection was ordered the day I went under contract. It took a little less than a week before I received the inspection report and to my liking, it came out with very little issues. It had about one page of minor issues. The turnkey provider agreed to fix ALL the items on the list. I was very pleased with this.
Appraisal – The appraisal was ordered AFTER I negotiated inspection repairs. I was very pleased to see that the house was officially appraised at $1k more than my purchase price. A big problem with buying turnkey rentals is making sure the house is worth at least what you are buying it for. Do not ever purchase a turnkey rental more than retail value. That just does not make sense. Many investors would argue that buying even at retail value does not make sense. Well if you are a turnkey buyer and do not have the time/effort/skill to buy a fixer upper yourself then this is one of the best options you have to become a real estate investor and making passive income. I personally choose to buy turnkeys because I am no longer able to make cash flowing deals in my local market. I am okay with buying at retail value as long the property is cash flowing from day 1 and the house/turnkey provider meet pass all my criteria.
About 5 weeks after going under contract I officially closed on the house and I am very pleased with my new addition to my mini real estate empire.
Here are the actual numbers used to purchase this new turnkey rental property.
According to my calculations above I should be making about 19% in cash on cash returns if all goes well. This surpasses my 15% minimum criteria and I am super happy about this new rental. Only time will tell if this property performs as projected but I am and will always be optimistic about it. Apart from the house itself, and you have heard me say this before plenty of times but the Property Management team you have in place will make or break you and I am fully confident in the PM that came with this property. They passed all my property management interview questions and criteria.
Are you interested in purchasing a turnkey rental property or are you already buying? What do you think of my latest purchase? Good or bad?