Turnkey Investing vs REITs

[Tonyahu]

Hey all,

Looking to have about 20% of my NW into real estate by the end of this year. I want to get your inputs on the above options.

I am (as of now) looking for passive investing which will be hands off but do plan to own and manage my own properties in the future.

- TK would be out of state, spread between multiple properties across different companies, states and with the use of leverage

- REITs would simply be index based

This will be used for cash flow and/or SWR.

Hopefully you can give me some insight. If you need more information please let me know.

Thanks!

[waltworks]

My personal opinion is that if you don't want to do the nitty-gritty finding properties/DIY RE investing thing (and that's ok) REITs are a better option than turnkey. Turnkey is, in my experience, someone who *does* do that hard work looking for suckers to pad their bottom line even more. Can it work out? Yes. Can you find a good turnkey opportunity without doing a ton of work to make sure the numbers work out? No, probably not. If you want to do that, just go the DIY route.

REITs are pretty boring and safe (usually) due to large/diversified holdings and you're unlikely to end up with your funds all tied up in one bad investment.

-W

[sammybiker]

What Walt said!

[coopdog]

Walt is right.

The only "turnkey" deals I've seen work well for everyone were small partnerships between a few friends or acquaintances with similar investment objectives where one person put the deal together and earned a reasonable fee to do so.

[tralfamadorian]

Agree with everyone above. IMO turnkey is for the birds.

Either REITs or syndications (if you're qualified) are the best passive real estate investments.

[coopdog]

Also, never trust the numbers given to you on a turn-key or any real estate deal for that matter. You really need to do the analysis yourself which can be a lot of work. The two exceptions are 1) REITS where you pay for the luxury in reduced return. 2) Where a trusted friend or advisor presents the deal AND has an equity stake in it. 

[Bicycle_B]

Agreeing with all of the above.

The more personal involvement you need to assure your interests, the more real estate is a business rather than a passive investment.  I think that "turnkey" purports to be an investment, but still is on the business side of the line.  Your risk is higher unless you have the time and skill to get usefully involved.

Here is a link to some basics of evaluating REITs:  https://www.investopedia.com/articles/04/112204.asp

[Bobberth]

From what I have seen in my local market-St. Louis-turn keys work out well for 2 types of people:
1. Those who sell them
2. The locals that buy them cheap from disgruntled out of state owners

Getting more specific, the "turnkeys" that I see marketed for my market are generally priced considerably higher than market prices. Even those listed as "wholesale" or "off market". Some are rehabbed pretty poorly.

If you want to invest out of state, turnkey or not, make sure you check the MLS or at least realtor.com. I've had several out of state investors contact me through Bigger Pockets asking about deals and I pull up realtor.com and ask them why they are paying so much more than similar properties or what superior knowledge they have in buying the most expensive property in the area that has been on the market 9+ months and every local has already passed on.

Buyer beware

[SwordGuy]

Also, never trust the numbers given to you on a turn-key or any real estate deal for that matter. You really need to do the analysis yourself which can be a lot of work. The two exceptions are 1) REITS where you pay for the luxury in reduced return. 2) Where a trusted friend or advisor presents the deal AND has an equity stake in it AND has an established track record of making good real estate deals AND has an established track record of NOT making bad real estate deals.

Fixed that for you. :)

[MaikoTsumi]

Turnkey operations typically either border on complete scam or have squeezed all the profit out at the front end via pricing and often continue to squeeze by offering management services.  REITs maybe better, but I wouldn't consider it being "in" real estate.