WHAT IS TURNKEY INVESTING?

Mark was your typical, hardworking, Mr. Do-anything-and-everything-it-takes-to-get-ahead-and-stay-ahead kind of guy. He was not only a high-level airline captain, he also owned a media production company with his wife. When he wasn’t flying huge airplanes, he was producing shows for reality television, publishing regional magazines, and helping organize exhibitor shows. Mark also had his sights set on early retirement. With that kind of schedule, who wouldn’t be looking forward to retirement?

He knew that real estate investing was the way to make his dream happen. So, he did what a lot of people do: he bought and renovated four rental houses, and he managed them himself.

It didn’t take long for Mark to realize he was in over his head.

As a pilot, he worked 12 days a month. He co-owned the production company with his wife, so he had help with that company. Mark figured that would give him plenty of time to manage his four properties on his off days. However, what he didn’t know was how much work that would be. He did everything on his own from the beginning. He found the properties, which took hours of research online and even more time driving to look at each one. He handled repairs by hiring and overseeing the contractors. He showed each of the properties to prospective renters himself and then collected rents. When he absolutely couldn’t do it himself, he paid top dollar to have someone come in and take care of the job for him as a one-off.

Mark knew he was being inefficient with his money. Worse, he was putting in 40 hours a week keeping up his rentals. Not only could he not retire under his current plan, even if the numbers allowed it, he would just be trading one full-time job for another. He was exhausted.

That’s when he saw my father give a speech about turnkey at a home and garden show he and his wife were putting on in Memphis. And suddenly, he saw a way forward. I remember the talk vividly not so much for the content but for the setting. Apparently, a talk about real estate investing was not a big draw at a home and garden show. There were four people in the audience that day. Myself, my brother, Mark, and his wife. Fortunately for all of us, the one person who needed to hear that message most that day was one of the four!

Mark contacted our company a week later. “I want to buy properties with you,” he said immediately. “Where do I start?”

We helped Mark restructure his portfolio. Because he was buying houses from us, we agreed to take over the management of the four rentals he already had. Instead of the 30-year mortgages he currently had on those properties, we advised him to put everything on very short payoff periods. We looked at his goals and figured out how many houses Mark needed to make them happen. He bought more turnkey investment properties based on those numbers.

Mark began working with us in 2009. In 2014, he sent us an email out of the blue.

“My wife and I sat down this morning, and I brought her up to speed on our rental houses,” he wrote. “Currently we have 27 houses with your company, all rented. We’re bringing in $18,900 a month in gross income. Fifteen of our houses are paid off, and we will own the others free and clear in another 23 months.

“I’m 44 years old, and I’ve already scheduled my retirement from the airline in five years. This would not have been possible without you and your turnkey team. Thank you!”

WHAT IS TURNKEY REAL ESTATE?

If you search the term “turnkey real estate,” one of the things you will quickly notice is that it gets thrown around a lot online. But what does it really mean?

Turnkey real estate is a form of passive investing in which you buy a piece of real estate from a company, and that company manages your property for you. The team you work with finds, renovates, and maintains the house you invest in, rather than you doing it all yourself, like Mark did. You don’t even need to visit the house before you buy it. You can purchase it sight unseen from a company you trust and let the company handle the rest.

The philosophy behind the turnkey revolution is simple: it gives regular people a chance to invest in real estate.

For years, people have been able to invest in the stock market on their own. If you are willing to put in the time learning the system, you can jump online, look at ratings, and figure out how to do it yourself. But what you could never do was buy real estate in the same simple way—especially real estate located halfway around the world. Turnkey takes everyday people who are working their butts off to have what they have—airline pilots, firefighters, schoolteachers, sanitary workers, office assistants, police officers, even stay-at-home moms—and gives them a solution for their future.

One of the big benefits of turnkey real estate investing is that you don’t have to quit your day job. You don’t have to spend all your waking hours painting, scrubbing, and collecting rents. There are no late-night phone calls about busted pipes and broken air conditioners or heaters. Those issues are all eliminated when you buy turnkey real estate investments the right way. All you have to do is transact a property through a dependable team, and the wheel starts turning on its own.

I will get to the specifics of each step throughout the book. The most important step for you to remember at this point is that you want to let a dependable team that you have vetted and trust do the hard work and heavy lifting.

This chapter will give you a brief rundown on how turnkey came about, answer your questions about whether this is a “real” form of real estate investing, and help you decide if turnkey is right for you.

OLD STORY, NEW NAME

Turnkey real estate investing has been around for decades. It just wasn’t always called turnkey.

Back in the sixties and seventies, passive investing worked by word of mouth. Investors with deep pockets found out about it through their real estate clubs. It didn’t have a catchy name. The conversation went along the lines of, “Hey, I know you can’t buy a garage here in San Francisco for $50,000, but guess what? You can get a whole house for $35,000 out in Fort Wayne, Indiana. I have a property out there, and I can manage it for you. Do you want to buy it from me?”

That was how it started. But the term turnkey investing wasn’t coined until around 2006, and the Clothier family was the first to go mainstream with the term as a business model. That is when the business finally became a hot mainstream topic thanks to the Internet.

Once the Internet got a hold of it, turnkey exploded. The word turnkey began to dominate the space. Promoters came into the picture—companies that offered to funnel investors to property management businesses in exchange for a referral fee—and from then on, turnkey became a fixture in the bigger real estate picture.

But the downside of turnkey’s fast rise to fame is that it hasn’t been mainstream long enough to have clear standards. Every single week, somebody new raises a hand and says, “Hey, I have a turnkey property over here.” That person might sell you a house, tell you that XYZ Company is going to manage it for you, and then disappear completely. Six months later, XYZ Company disappears, too, and you’re stuck with a property on the other side of the country that you can’t handle.

As for the promotional companies, that downside has just as big a bite. They bill themselves as a one-stop shop that handles all the due diligence for interested investors. They will vet the turnkey companies for you and take a fee for every transaction. Unfortunately, if a turnkey company is willing to pay a promoter’s price, it can usually get business funneled its way. Let’s just say that standards are sorely lacking in this area of the business as well. Rather than looking for the best in class, these promotional companies often promote anyone and everyone so long as they are willing to meet the price.

Scenarios like these have given turnkey a bad rap as a marketing term. The real estate world has its guard up and for good reason. But is it really as bad as some of the critics make it out to be?

THE TRUTH ABOUT TURNKEY

The main argument against turnkey investing is that the only people making money on it are the people selling the houses.

Most of the people who feel this way are active real estate investors. They believe that if you want to get involved with real estate at all, you need to do everything yourself: find the house, fix it up and paint the walls, and then maintain it on your own—just like Mark tried to do when he was starting out. Anything less, and they don’t consider you a real investor.

If you ask these active investors how to invest in turnkey, their answer is, “You don’t. You’re a fool if you do. Go buy houses in your own city and learn this business on your own.”

But the truth is that when you follow the right steps, turnkey will give you a safe, high-quality investment that will pay off year after year. Your income will be steady, and your reputable turnkey company will keep you abreast of what’s going on with your property monthly.

It may look like you pay more for a property using the turnkey method than you do if you handle everything yourself. But what you’re buying with those extra dollars is experience. You’re not going to lose thousands of dollars on mistakes like active investors do. Instead, you’re putting that money toward getting it right the first time, which actually saves you money in the end.

Not only are you a “real” real estate investor when you invest in turnkey, but you’re an extremely intelligent real estate investor. This does not have to be an either/or scenario. It can absolutely be a scenario where you do both. You can actively invest in real estate and at the same time earn money on passive investments. Either way, when you decide to invest passively in turnkey, you are a “real” investor.

You’ve analyzed yourself and said, “I want to invest in real estate, but I don’t have the knowledge or the time to do it myself. So, I’m going to surround myself with people who do have that knowledge and time. I’m going to own as much real estate as the next guy, and while he’s out finding new tenants and repairing toilets, I’m going to collect my check.”

You’re still investing in real estate. You’re just doing it the smart way for you.

IS TURNKEY RIGHT FOR YOU?

Now you understand what turnkey is and how it works. But real estate investing is a risk no matter what, and you still need to decide if turnkey investing is the right calculated risk for you. You simply need to ask yourself these questions to determine whether turnkey investing is the path you really want to be on.

Do I want to be hands-on or hands-off with my investments?

Turnkey real estate investing is not a hands-on experience at the day-to-day management level. You make your investment, and your turnkey company takes care of everything else. If you’re the type of person who wants to be there every step of the way, choosing what color to paint the bedroom and which flowers to plant by the mailbox, you’re going to be happier as a do-it-yourself style investor. Turnkey is a better fit for you if you are more of a find-the-best, invest-and-forget style of investor.

At the same time, turnkey is hands-on when it comes to managing your investment portfolio. You need to communicate with your turnkey partner and keep track of your monthly statements. If you’re willing to do those things, but don’t care about the physical details of owning an investment property, you’ll enjoy the turnkey experience.

Do I want a quick return, or am I in it for the long game?

Turnkey investing is a patient investor’s game. If you need a big, immediate return on your investment, then you need to focus on a different form of real estate investing such as wholesaling properties, lending money to active investors, or fixing and flipping houses. If you’re more interested in building your long-term financial future, turnkey is right for you.

With turnkey, you can expect 5 to 7 percent for a cash-on-cash return, and 9 to 14 percent return if you use your leverage. These types of returns are excellent when you consider that done right, everything is done for you. However, this is not “get-rich-quick” kind of money. It is slow and steady, designed to build over time and provide steady income or wealth building. I’ll dive into your purchasing and financing options as an investor a little later, which can certainly accelerate your ability to use turnkey real estate as a smart, long-term wealth strategy.

Do I need to be close to my investment, or can I handle the distance?

Will you be able to relax knowing that you have an investment property that you have trusted someone else to handle every detail of for you from a hundred or even thousands of miles away? This may be one of the more difficult questions to answer, because only you know how you are really going to feel. If you already know that you would like to drive past any investment property that you buy on a weekly basis, then turnkey real estate may be a waste of your money. You will be paying someone else to do the very job that you already know you will do weekly!

The question is only difficult because we have to be honest with ourselves. When we are honest, then the answer is simple. If you can’t trust someone else to manage your investment, turnkey will drive you crazy. If you’re comfortable leaving the keys in the hands of people you trust, you’ll be fine.

Do I have enough money to get started?

It takes money to make money. You can’t jump into turnkey investing with nothing. Anyone who says you can is selling snake oil. Buying passive investment properties is not a game you want to try to play with no money down or even with creative financing. Building a portfolio that truly changes the kind of future you can plan for yourself is going to take money. There is simply no way around that fact.

As an investor, you are looking for ways to reduce risk. I am going to share quite a bit about how to reduce risk when buying turnkey real estate. I am not going to waste our time together by telling you all the creative ways to get around not having money. Access to money and the important role it plays in building a strong turnkey portfolio is one risk that does not have a creative solution.

There are other ways to invest in real estate. There are other ways to build your cash reserves to use to buy real estate. So, while I will not waste our time together, I will advise you to be patient if you do not have the money yet to get started. Be patient. If you follow the steps I outline in this book, you can get started as a turnkey real estate investor and build your passive portfolio in any city, any market, and in any economic environment. The plan I share and the path I tell you to follow will work every time. So be patient and do whatever you need to do to build your cash reserves to get started with your turnkey portfolio.

If your honest answers to these questions reflect a long-term hands-off policy on your part, then turnkey real estate investing is a great option for you. And you’re in the right place to learn how to do it well.

THE PATH TO TURNKEY INVESTING

The key to safely and passively investing in real estate is to follow the right steps. As long as you stay within tried-and-true guidelines, you will almost always come out on top in the end.

At Memphis Invest, we’ve created our own investing guidelines tailored to turnkey real estate. We call these guidelines the Turnkey Safely System™. Our process has seven steps:

1. Set your vision.

The first step in the system is to set your vision. You can’t achieve your dreams if you don’t have a clear idea of what those dreams are. When you identify exactly what you want to achieve, you can design your turnkey investments to help you reach those goals.

2. Research the market.

Turnkey gives you the ability to invest anywhere in the world. However, not all markets are created equal. Choosing a good market is critical to your long-term success as a real estate investor. Before you do anything else, you need to do your due diligence on potential locations.

3. Choose your turnkey company.

After you narrow down your markets, the fundamental key to success as an investor is selecting a high-quality turnkey company. This is a make-or-break aspect of turnkey real estate. You need a partner that is established, trustworthy, and reliable to manage your investments for you.

4. Create a plan for your investments.

Once you have a good turnkey company in your corner, that company will help you create a plan for your investments. Your plan is designed to turn your vision into a reality. Without a plan, you could come up short or find yourself in way over your head.

5. Make your investments.

Making your actual investments is the execution of your plan, and you need to be steady and systematic about it. Your turnkey company will help you with this stage of the process by presenting you with good potential investments and guiding you through the purchases.

6. Follow up with your investments.

Investing in passive real estate does not mean you’re a passive investor. Mistakes do happen, and you need to stay up-to-date with the reports your turnkey partner sends you monthly. This is the stage of the process where you hold your turnkey company responsible for all the things it has promised you.

7. Expand your vision.

Turnkey real estate can expand with your vision for your future. You don’t have to stop with one vision. You can always reach for the next horizon, and turnkey will be there to support your new goals.

Each chapter in this book covers one step in the Turnkey Safely System, and each step is a tool that can empower you to join the turnkey revolution and take your future into your own hands. Every piece of this puzzle is indispensable. If you skip steps, you lose money.

This book also includes chapters on evaluating your purchasing options and using a self-directed IRA. By knowing all the different ways you can purchase a turnkey property, you can build your portfolio faster and always be prepared to take the next steps. The SDIRA is a special tool that can be a powerful part of your overall plan as an investor. If you spend time with this book and learn how to be a better, smarter passive real estate investor by following the process, you will set yourself up to win in real estate.

But as powerful as it is, you need more than the Turnkey Safely System alone to be a successful turnkey investor.

IT TAKES COURAGE

When you move to get started in turnkey, everyone around you is going to tell you what a fool you are. They won’t just insist that buying real estate sight unseen is a bad decision—they’ll say it’s the worst decision you can make. Those naysayers are around us all the time. They said the same thing to me when I started investing in turnkey.

I spent many hours wringing my hands over what to do and should I get started or not. I spent a lot of wasted hours researching the wrong things and focusing my attention in the wrong areas. I even lost money to a mentor who was more interested in making money off my indecision rather than helping me get started in the right direction. Ultimately, it took me finding my own inner voice and the courage I needed to get started. I had to quit reading books until I “was ready” to get started. I had to quit listening to other investors who tried to convince me that I had to be actively involved in my properties or I would lose money. I had to make my own plan, set my own goals, and create my own vision and then take action! If I had continued to wait and listened to the naysayers, I would not be where I am today.

Don’t just read about investing in real estate. Have the courage to act. Stand up and say, “I took the steps to learn how to do this. I am going to implement a strategy, and I’m going to change the trajectory of my future.”

Now is the time to make it happen. But where do you start? I’m about to show you.

If you don’t believe that there’s a reason behind what you’re doing and why you’re doing it, you won’t find the courage you need to move forward. In the next chapter, I’ll show you how to define a clear vision that motivates you to take the necessary steps to achieve your dreams.