Creating a Lifestyle by Design With Turnkey Real Estate Investing

0:00So turnkey rental property. So turnkey actually refers to the condition of a property. The metaphor is you turn stick the key in the door and turn it and you're making money on day one. So a turnkey property is fully rehabbed, tenants in place in most cases, property managers already set up to manage it. So again, you're metaphorically sticking the key in the door and making money. And like you could have a turnkey property next door to you if it's in turnkey condition. But when you hear people talk about turnkey rental properties, and especially when I talk about them, I'm specifically talking about rental properties that are sold from turnkey providers.

0:32So the turnkey providers are companies, they're essentially glorified flippers really. And they're just flipping properties to investors rather than primary home buyers. So they go out and they buy the distressed inventory. They rehab it in bulk. They buy it bulk, rehab bulk, place the tenants. They've got property managers. So you, especially out of state investors, all you have to do is due diligence and buy the property. So somebody else did all that hammer swinging and you know all the nasty stuff and how I got into it was I you know like a lot of people and you know you Google how to be a real estate investor and you're going to get absolutely bombarded with options.

1:06Everyone's going to tell you how you should do it and how you shouldn't do it and then they're going to conflict and it's a whole big thing. So, I was I was the same way. And so, I just assumed if I was going to have rental properties, I'd have to put the work into it. And I live in Los Angeles, and I went with an investor friendly agent down in Orange County to look at properties. I didn't know what I was looking for. I didn't know how to run numbers. And we're running around and like the the cheapest property we saw, I think at that time, was like $270,000 and it was renting for like 1,200. I didn't know what I was looking for, but I was like, I don't really get Oh, and it needed a full rehab.

1:40So, this is like distressed. There was like a petrified rat in one of them. I was like, "Oh, this is so gross." So, I'm like, "Okay, hang on. I buy this house for $270,000. Then, I have to spend x number of dollars to rehab it, and then I'm going to get like $1,200 in rent." I'm like, I don't know how to run numbers, but I I don't I How does that make money? You know, I didn't know. And so, that was my reference point. And then I had I had in corporate I had subscribed to every email list of everything business, real estate.

2:11I was like just somebody entertained me other than corporate my job. And I had gotten a webinar like invite for something totally random. It was a pre-construction development Nicaragua of all things, but it was starting it was beach bungalow starting at $99,000. Well, having just been in Orange County for $270,000 for a shack, I was like, "Oh, well, 99,000 in a beach." I was like, "Where's Nicaragua?" I don't know. And the guys who were involved in that project were also involved in turnkey rental properties. And they tried several times to pitch me on turnkeys, but I was like, "That sounds so boring." I was like, "I want the exciting beachfront, you know?" I was like, "Why would I buy a long-term rental, you know, boring?" And they at one point the next so this was during the crash.

2:56This was 2011 and they knew I was from Atlanta and one of the guys said, "Hey, I know you're not in the turnkey thing and that's fine, but just so you know, the next big market is Atlanta." And I was like, "Well, I mean, I guess if I'm ever going to look into it, I might as well do it there because I'm from Atlanta." And so I flew out. I And I was hooked immediately. I bought three pro three three properties I think within like 12 months or something you know I was like I'm going to find money like I want I want this now and so it you know the turnkey rental properties you're buying these properties from the turnkey providers but most of us like I said are out of state because the turnkey thing gives you that hands-off opportunity versus if you're flipping a house or swinging hammers or having to do all that work you're either somehow having to do it from afar or manage contractors from

3:45Afar. I can barely manage contractors in person. Like at all, I don't like doing that. And so when I got involved with Turnkey, that's what appealed to me is cuz, you know, when I was looking at this $270,000 house down in Orange County, never mind not knowing how the numbers would work or it didn't seem to make sense. I also didn't want to do that work. I was like gh. So the turnkey providers take all of that off my plate. And the trade-off for that, cuz you know that seems too good to be true. The trade-off for that is you're going to pay market value for these properties versus, you know, the typical value ad where you buy the distress price, you rehab it, you force that appreciation.

4:20You don't get that with the turn keys, but you also don't really have to put any work in it either. So, you know, there's that trade-off with them. Yeah, absolutely. So, what was it about then that all of a sudden just clicked when you were in Atlanta? Well, at that time, so the very first turnkey I bought, I still have it, was, and this is during the crash, was $55,000. It's a cute little house in like a B+ grade neighborhood, two stories, little yellow house, super freshly rehabbed, $55,000, and it was renting at that time for $975.

4:52By this time, I had started to figure out how to run numbers. That is very profitable from a cash flow perspective. In contrast to that 270, well 270 plus rehab and then renting for 1,200. I was like, "Oh, okay. Now I'm starting to figure this out." And that property today, I think it's rented right now for $1,855. I was just looking at it recently. And it's I think the value of it, what did I just see? Like 270 or something. So it was like it was so easy to buy that house for $55,000.

5:26I was like, I have to get. And now if I had known then what I know now, I would have found way more money and I would have bought way more of these things, you know, like when are we ever going to have that crash again? But yeah, I mean I was hooked immediately because it was kind of the it was kind of the perfect thing for me because, you know, I said about engineering, I'm not really a details person. And to go flip a house or put the work in, that's the details. I don't like that stuff. I like the big picture. And turnkeys were perfect for me from a big picture standpoint because somebody else is doing all the detailed work. I'm doing like the due diligence, how am I going to get more properties?

5:58Kind of that bigger picture portfolio building mentality versus swinging a hammer mentality. So, it was it was perfect for me. And my favorite like kind of testimonial to the turnkey thing because, you know, I have property managers, so I don't manage it myself. And I I was going to Nicaragua a lot at that time because I had gotten involved in that real estate stuff. And I was in Nicaragua in the pool before all the real estate investors got there. I had a pina claw in my hand and I get a call from my property manager in Atlanta and they said, "Hey, a storm just came through and took half your roof off." And I was like, "Well, that sucks." And I said, "Well, what should I do?" And they said, "Call your insurance." So, I hang up.

6:35I call my insurance company. Give them the property manager's number. The whole time the pina colada never came out of my hand. I text the property manager. I said, "The adjuster has your number." That's all I ever did. And I was I was sitting there and I was like, now if I'm just managing this property myself, seriously, what would happen right now? Like the roof blows off. So like time is of the essence. I'm in a third world country in a pool with a pin colada in my hand. Like I to this day don't know what that answer would have been. I I don't know.

7:08So that was that hands off and I was like, h this is why I pay more for turnkeys. Like I don't I don't want to I don't want to deal with toilets and tenants. I want to deal with portfolios and you know bigger picture management. So that was I was like done sold. That was probably one of my if I wasn't already sold by then that locked it in for me. Yeah. Yeah. What kind of a perfect like turning point moment for you? Yeah. So, so I'm curious then how long it took you from that experience of going to Atlanta for the first time, buying your first three to getting to a place where you could say goodbye to your your corporate job.

7:45And then also, I want to talk about turnkey today if it still works cuz you know that those properties that are 55,000 aren't on every corner anymore. So, yeah. Those those days of $55,000 houses renting for $975 are not around. I can you imagine? Oh my gosh. I would have gotten so many more of those had I known. Yeah. So, I ended up leaving corporate not because of the cash flow, although the cash flow was pretty snazzy on those properties. I so I hung on to my corporate job as long as I could, but I had I was doing flight test engineering and I was on the classified side of things and so every week I was having to fly out to black military locations which meant I didn't really have access to unclassified I didn't have I had very limited access to unclassified computers.

8:34So I had kind of started this turnkey thing on my own but now I'm in a position where I can't really get to it from the computers. And what happened in that was I started buying the properties for myself, but suddenly everyone's like, "Wait, what are you buying?" Like, I I can buy a rental property and not swing a hammer. I was like, "Right, who knew?" And so suddenly my cousin had bought one. My mom's friend had bought one. Like it was starting to pick up. And at some point, the guys reached out to me and they said, "Hey, you're sending us so many people anyways. If you'll go get your real estate license, we can pay you a referral fee.

9:06So you're already doing it." I was like, "Oh, that seems like easy side money. Here I am trying to figure out how to get out of corporate and not even putting two and two together that you know I could do this. I was like, "Oh, well, I might as well just get the free money." And that picked up so hard. It was fantastic. Except I couldn't I couldn't do much with it because of work, you know? I didn't have the computers access. Not that I probably should have been doing it during work work hours anyways, but you know what I mean. And so it was the referrals that got me out of corporate. So, you know, the thing with rental properties is it's not year 1 and year two that make you money.

9:42Like, you're not going to I mean, unless you're starting with a million or two million or $5 million or something, you're not going to buy enough rental properties, especially when you're paying market value for them to be financially free to be able to walk out of your job just based on the cash flow, right? Then, you know, it's really year 10, this is kind of a different soap box, but it's really more like year 10 where these things really start the profit centers really start compounding. So, they're long-term investments because a lot of people in the beginning were like, "Well, how are you how do you how are you making enough?" Because we naively think financial freedom is that black and white where let's say we need 5,000 a month in passive income.

10:18Well, how are we going to buy that many properties? Well, when they're cash flowing 100 to 200 to 300 bucks a month, which is what they are now, that's a lot of properties. But, you know, I had one property that started at negative $100 a month and it's now plus $1,000 a month 13 years later. 13 years, something like that. And so it's that long-term kind of hold. So I was trying to clarify with people. I was like, I didn't walk for the rental properties. I walked because of the referrals around the rental properties while I was also getting my own property. So my whole turnkey thing started with me as a turnkey buyer and I accidentally kind of ended up on the other side of it, which worked out really well.

10:56I just never knew I did. I didn't know what was coming. And I never thought I'd be the one managing turnkey providers because that's a lot of what I do is run around and try and find the really good turnkey providers. And God bless managing people because I I've got buyers over here and turnkey providers over here and I need everybody to perform and then there's the real estate market and then interest rates skyrocket. I'm like, you know, exactly not what I pictured, but also not a bad gig, you know, when I get to make my own hours and everything else. So that's how I got that was that out of corporate shift. But again, going back to I never knew I was going to make money doing that and it kind of naturally started becoming a thing and then I just latched on.

11:31And so at some point when I it was starting to pick up enough, I ended up leaving corporate too soon. I should have had it would have been easier if I had had more money in my savings account, you know, like better prepare. I'm kind of a throw noodles against the wall and see where they land kind of girl, which, you know, has some benefit and also some disadvantages. But so I left with not a very secure savings account and all that, but I had to because I I couldn't do both, you know. I had to I was like, well, if I'm gonna make real estate go, I'm gonna have to get out of here because I can't work on it. So yeah.

12:02Yeah, it was kind of a leap. And that's entrepreneurship is a whole different conversation from real estate. Turns out I ended up starting a business and doing real estate investing. I, you know, I was thinking I had to do one or the other, but I ended up having a real estate investing business. So what can you do? You know, it's interesting because I I recommend this strategy to a lot of people and I think it's it's such a powerful strategy where you're you're building your portfolio of assets that are both cash flowing and creating long-term wealth and giving you tax benefits, but then also at the same time, if you can find something, and a lot of times it's tangential or there's some crossover that is an active income that doesn't require you to go to a corporate job, which you you can make so much more outside of corporate settings.

12:51You know, it feels a lot less safe because it's not a paycheck on the 1st and 15th, but for the amount of time you spend like the referral business, you know, you you basically had two different businesses there that were both paying well. And you know, probably a lot of flexibility around your time, too. So, well, I got to do what felt good to me. You know, when I was working corporate first, I didn't really like engineering, but it was also somebody else's project kind of thing. And I think it was in the first year, maybe the first year, cuz I was working like a crazy person the first year cuz I was like, I'm going to be hungry if I don't like I got to make something happen.

13:27And I remember saying I remember thinking to myself, I was like, I would rather work 90 hours a week on my own schedule doing what I want to do than 40 hours on somebody else's. And you know, when I was working on my own thing and it was lighting me up, I loved designing the company and I loved all that. I'd fly out of bed. I'm like, "Oh." I'd get to work and I'd go to bed late at night and I, you know, the first year I think the first year I made it was either like 27 or $29,000 and living in Los Angeles. I mean, that's that's rough anywhere, but Los Angeles is I was on food stamps like the whole from the referral fees you're saying.

13:58Yeah. Yeah. My first year in business was a grand total of $29,000 gross before all expenses. I was like, "Wow, this is going so well." And I was obviously nervous about it because I, you know, there were some bills I didn't get to pay and you know it it I could go a couple months without making a penny and you know all that. At one point my mom, she was like, "Would you ever want to go back to your overly safe, secure, high paycheck job?" She kind of said more like, "Do you want to go back to corporate?" But that's what that translated to is like, "Would you like to go back to some level of safety and you know, health insurance and all those things?" And I said, "I will sooner be homeless on Venice Beach before I go back to that because it's it, you know, and it's not, you know, some people have a job that they love and it doesn't mean that everybody should be trying to bail out of their job.

14:41I didn't love it. And it was like what am I on this earth for? You know, like I if I'm not enjoying this job and like you said, you can make more money outside of corporate, but if you're not digging it, like you know, it's easier said than done for sure. I mean, even now, see that I left corporate in September of 2012, so I'm like 13 years into this and I'm still on entrepreneur roller coaster. It's a whole, you know, you trade one stress for another. It's a very different kind of stress, but this is the stress that I it's more worth it because it's for me and it's for my growth versus just showing up in clothes that I hate at a time in the morning that I hate doing a job that I'm not really a fan of either, you know.

15:22Yeah, absolutely. No, it's a great way to describe it. So, going back to the question around like does turnkey work today. I also, I've seen a lot of turnkey providers over the years come and go, and it seems like the downfall of many of them is the, property management side of things. You know, it's they they find these deals, they fix them up, they sell a buyer on, you know, that this is going to make a ton of sense for him, and then there's a lot of problems with the tenant or with the property itself.

15:54And that's what, you know, tends to drive them out of business eventually. So, how do you screen for a good turnkey provider? And with the cash flow situation and interest rates, can it can it work today? Yes. Because of it, because it's a long-term investment and you know, like when I got into it, I got into it when it was the cash flow is king era. Remember, everybody was yelling cash flow is king. Cash flow is all that mattered. Two, at the time it was the 2% rule, which sounds crazy now. Now 1% rule almost sounds crazy, but it was such a cash flow focus.

16:29And so I bought my initial round of properties and about 10 years in, which I didn't even know this 10 year thing was going to be a thing. At 10 years, I was like, I'm going to going to do a look back like, how have they been doing? What did what went good? Because I didn't know what I was doing when I was buying these things. Remember, I didn't even know how to run the numbers. I was like, all I heard was $55,000 for a cute house. I don't know. And so fast forward 10 years, I did what I called the 10-year look back. I was like, "Okay, what what am I even looking at?" And I realized in that that there were two, you know, we we mentioned a couple of those profit centers.

17:02So, you've got cash flow appreciation, tax benefits, equity build via mortgage payown, and hedging against inflation. Some of those are a little bit more kind of abstract in terms of figuring out, you know, putting numbers to whatever, like tax benefits. I'm not even going to try and do those calculations. I just know there's benefits there. But cash flow and appreciation. And so when I looked at these properties, I was looking at the profits and I was like, "Okay, where they were all very they're all very profitable." Now, where did the profits come from? The first one pretty obvious that we all know is the appreciation. These things, especially cuz I bought them in the crash, most of them.

17:36It the appreciation was crazy. But the second thing that I had heard about and obviously talked about, but I completely discounted the power of it was the rent increases. And you know, like I said, that little $55,000 house that was 975 in the beginning is now $1855. And then I had another house that was negative 100 a month and now it's plus a,000 a month which and I was that's what I looked at and I was like oh you know if I'm thinking financial freedom and I need $5,000 a month to live I suddenly only need five of those houses versus you know if they're making $100 a month that's a lot of houses for 5,000 a month.

18:15And so that is what like really clicked in my head. The big thing discounting rent increases because what that told me was the initial cash flow on those properties never mattered. It absolutely did not matter. And you know you mentioned the turnkey providers coming and going during the crash. Everyone in their mothers had become a turnkey provider. It was a rogue outfit. You did not know who you could trust. I mean there were some sketchy players out there like because it was so profitable. So, everyone was doing it. Now, there's some turnkey providers I wouldn't necessarily work with, but now there's so few turnkey providers compared to back then, you know, the ones that have really been around for a long time.

18:56They have obviously figured things out because, you know, you brought up some reasons why they fail. But, you know, there's a big difference in being a house flipper, which is what ultimately a turnkey provider is, and running a business. Those are very different skills. And property management is a very different skill from flipping a house. So if some genius got this idea of well I'm going to flip houses and become a turnkey provider and sell all these houses well then they had to build a business around that and they may not have been very good at that you know and or they're really good at it but then they grow and then they spontaneously combust because they don't know how to grow and they don't have the systems. And so the turnkey providers in general now are more reliable.

19:30I would say that doesn't mean just go with any of them by any stretch. That's literally what I do because I've been dealing with turnkeys for so long. I go meet these guys. I know what I'm looking for and if somebody said like, "Hey, I want to vet a turnkey provider on my own. What are questions I can ask them?" Well, I could probably give you a list, but if you don't have the experience, even if you get an answer, you're not necessarily going to know how to interpret that answer.