For all you wanting to invest in turnkey rental properties, I have created Turnkey Interviews.  In these interviews, I pose 10 great questions to actual investors who have and/or are currently buying turnkey rentals.

I post a lot about my own turnkey experiences and also want for you to get some valuable information from others as well who are doing the same thing.  I strongly feel that investing with turnkeys is a great way to reach financial freedom if done properly.   My plan to retire early will greatly be dependent on the passive income I make from rental properties.

If you have purchased a turnkey rental property and would like to be interviewed.  Please contact me and we can coordinate it.  Thanks so much.   I really think us turnkey buyers need to stick together and share as much as we can from each other in order to have the best chances to succeed.

 

Turnkey Interview #4 with David Hutson

 

David – “If you would like to discuss turnkey homes or investing you can reach me at david@hutsoninvestments.com.  I enjoy discussing property investing often so feel free to email me.  If you are interested in the Memphis area I can point you in the direction of the companies I prefer but again, make sure you find a company that meets your goals.”

 

1. What led you to start buying turnkey rentals?

– I started purchasing turnkey after the property prices in California were too high to make a decent return when compared to the rents I could get for the homes here.  I am full-time military and do not have work day hours available that other investors have to look for the few good deals.  In addition, I plan to retire in about five years and get out of California.  I do not see a reason to build a bigger portfolio here since the taxes and costs are high.

I know that deals are being found locally but they are much more difficult to find.  Compared to the deals here I can get a good turnkey property in Memphis with property management included and still make a better return out there.

2. When did you start buying turnkey properties?

– I purchased my first turnkey property almost two years ago.  It was November of 2013.  Prior to going out I spent a month planning and completing research on the area before flying out.  I spent more than 50 hours researching the market, the area and the companies.  When I flew out to Memphis I was looking for three homes to purchase.  After visiting several turnkey companies in town and taking tours with them I was only satisfied with one home, which I purchased.

Since then I have discussed purchase purchasing homes with every turnkey company in Memphis that I could find and reviewed updated inventory every quarter or so.  I also look at their policies, property standards, etc a few times a year to see if anything has changed.

3. How man turnkey houses do you own?

– I own three pure turnkey properties from two different companies, Mid South Homebuyers and Meridian Pacific Properties.  Both have been great but Mid South is my favorite and the only turnkey company I am purchasing from at this time.  I still have the original tenants in the properties and almost no maintenance issues.  I will be in contract for one more, hopefully two, by the time this is posted.  I am in discussions to purchase them now but they are not contracted as of today.

I have three more properties I purchased from a turnkey company that went out of business after the owner passed away.  I had offers in on two of the houses when the unfortunate end of the company came into play.  I was able to track down the gentleman who held the liens to the house through his attorney and went directly to him to purchase the homes at a discount.  This worked out very well for me as I got a good deal with only a few thousand dollars left in repairs after I had the homes inspected.

4. Are you planning on buying more turnkeys?

– Without a doubt.  I am currently on the waiting list again at Mid South and will continue to buy from them every three months or so when my name comes back to the top.  I have seven houses total in Memphis now in less than two years so I am averaging a purchase every three months.

Going forward the issue for me will be financing.  I currently have 10 mortgages which is the limit for most conventional lenders.  I have been researching loans and found a few lenders for private and hard money but I feel there are other options also.

I called one of the credit unions I have belonged to for many years and found out they will do loans on any amount for me that I can qualify for, up to a four loan maximum.  There are no minimums which is helpful since my loans are generally around 50k.  This is in addition to the 10 mortgages I currently have giving me time to find another credit union or option for financing.

5. What kind of returns are you getting on your turnkeys?

– I am earning between 13%-18% on all of the turnkey homes except one.  This is after PM, taxes insurance and a reserve of 8% for repairs and 8% vacancy.  My goal is to find homes above 13% after the listed expenses.

For the one home that is earning less, it was for a brand new home in the Cordova, TN area.  It’s earning approximately 8%.  I decided to purchase this home as it should have very low maintenance issues for the next 10-12 years.  This would eventually turn into my primary residence after I retire from the military.  I knew prior to purchasing this home it would earn less but going on two years with the same tenant my returns will go up as will stop setting money aside for vacancy once I have two month’s rent set aside.  My return will go once I do that.

6. What cities are your turnkeys in and do you plan on venturing out to different cities?

– Currently all of my turnkey homes are in Memphis.  Once I have 10-12 homes there I will move to another city to look for 10-12 more turnkey homes.  I’d like to find a good secondary market that is not so popular and well-known, preferably in the lower half of the eastern states.  I do not care for the colder states that get snow.

7. Are you happy with the PM that was provided with the turnkey?

– I am very happy with the service I have received from my current PM’s.  PM is a very important item to look at when purchasing a home.  You only purchase the home once but have to deal with the PM monthly, if not more often.  I have managed my homes in California and homes for friends for 15 years.  I really understand what it takes to get good tenants and what the tenants are looking for in a home in California.

I will not buy any home, turnkey or not, without a quality PM.  I have fired one PM company in Memphis already.  I am not going to mention them here but it’s a big company who had a lot of good reviews but lately has been catering to hedge funds.  They appear to want to focus on the big money companies and nickel and dime us little guys.  It was a major hassle and somewhat expensive to switch but it’s not worth it to remain with them when your needs are being taken care of as the property owner.

8. Have you had any bad experiences with any of your turnkeys? Either with the purchasing process or after?

– I have had issues with a few of the homes I purchased from company that went under.  I knew there were some things that were not completed to my standards.  Unfortunately they were also with the PM I fired.  I feel the homes are good deals but the management didn’t take care of them and wanted to add charges that I didn’t feel were necessary.

Since moving the homes to a new PM I have completed the rehab items I felt were necessary and hope to keep good, long-term tenants in the homes.  I prefer to make my houses a little better than the others surrounding it.  It costs a little more but I believe I have a better chance of getting the home rented and keeping those tenants in the home.  If you let your homes fall apart or do not keep up on the maintenance it will get much worse over time.

9. Do you have any advice for others looking to venture into out of state turnkeys?

– I have a few items which everyone should strongly consider before purchasing out of state turnkey homes.  First, do a lot of research prior to picking the area to invest.  You should know why you are choosing that area, the pros and cons of investing there, then discuss your top three choices with some trusted friends or people who are familiar with the areas, and come up with a plan to invest.  How will you finance the homes, will you pay cash or 20-25% down?  Are you able to qualify for conventional loans or will you have to look for private money.

Also, what is the end state or exit plan.  You should have an understanding of how you will get out of the homes at a later time.  For me, I plan to keep my homes for 20+ years and possibly sell them off later to finance my retirement or sell them sooner to move up into an apartment complex.  I would like to get into large multi-family in a few years.

10. Overall, are you happy with the investment?

– I am happy with my turnkey investments.  While they do not earn as high of a return as my other homes I own they are very low maintenance and takes very little of my time.  Time is money.  They are a good investment and since they are rehabbed and tenanted I am mostly hands off.  This leaves me time to work on my non-turnkey purchases and my full-time job.

Finally, turnkey homes can provide you with a good investment with little work on your part.  It’s not the most lucrative way but it is the least involved from the investor’s perspective.  No investment property will be totally hands off.  Do your research and focus on quality investments and you can do well with turnkey homes.

 

This concludes the interview.  If you would like to contact David,  you can do so here:

david@hutsoninvestments.com