FAQ
First of all, there are no silly questions where real estate investing is concerned. We are committed to working with all investors, no matter your level of expertise, to achieve your real estate investing goals. Here are some of the more frequently asked questions we come across. Please feel free to ask if you would like any further clarification. An informed investor is a savvy investor.
Turnkey rental real estate refers to a performing rental property that has been renovated to a high rental standard, has a qualified tenant in place and has been assigned professional property management.
Turnkey Investor Group is a developer. We have a wealth of experience in developing turnkey properties and BRRRR-strategy acquisitions. As the developer, we acquire the properties, renovate them and install a qualified tenant before handing off to a professional property manager.
The BRRRR strategy is a financial strategy used in the purchase of turnkey properties. Typically, the investors will buy a distressed property with all cash. The investor will pay a developer (like Turnkey Investor Group) to completely renovate the property to a high rental standard. The investor’s total price for the asset and the renovation is generally discounted to reflect the fact that the developer is using the investor’s cash rather than their own. After a mandatory 6-month ‘seasoning period’ the investor can pull out built-in equity using a conventional loan. They can pull out up to 75% of the appraised value regardless of the total price they paid for the property and renovation. Using the BRRRR strategy, you may typically enjoy a 20% return which comes from the discounted price of the property combined with the increase in value of the property.
Yes. BRRRR is simply a financial strategy to amplify returns, so long as the investor has the requisite cash resources.
Although we specialize in the BRRRR strategy, we are happy to offer our clients classic turnkey opportunities.
Classic turnkey properties may be financed and rarely contain any built-in equity, this is a perfect option for an investor who has some resources but not necessarily enough to purchase the property outright. BRRRRs are typically an all cash purchases.
With a classic turnkey, if leveraged conventionally, you can expect returns to be in the 10%-12% range. With the BRRRR strategy, once you have done your cash-out refinance conventionally, you can often enjoy returns of 20% or more.
Short for Capitalization Rate. Cap Rate (also referred to as Return on Investment) is the amount you will earn on a rental property and can be used to compare one property against another. . To calculate, take the monthly rent and deduct all monthly expenses (taxes, insurance, property management fee), we also recommend you deduct a contingency amount for future vacancies (we suggest 7% of rent) and future repair/maintenance expenses (we suggest 5% of rent). You are then left with the Net Operating Income (NOI). Multiply this figure by 12 to get an annual figure, and divide by the selling price of the property (do not include closing costs or any other fees in your calculation). The resulting figure is your Cap Rate.
Cash-on-cash return reflects your true return on your net cash outlay. To calculate, take the monthly rent and deduct the direct monthly expenses (taxes, insurance, PM fee, contingencies for vacancy (7%) and repair/maintenance (5%) and your monthly mortgage payment. This will give you your monthly net income. Multiply this figure by 12 to get an annual figure. Divide this by your net cash out of pocket – this is made up of three elements: 1. down-payment 2. closing costs 3. fees associated with your financing. Once you divide your annual net income by your total cash-out-of-pocket, the resulting percentage will be your true cash-on-cash return. With a BRRRR transaction, you can only evaluate your true cash on cash return after you have done your cash-out refinance. After the 6-month seasoning period from initial closing, you may pull out up to 75% of the appraised value. The difference between your total purchase price and the cash you were able to pull out is what you would use as your “down-payment” (element 1 of the calculation).
CapEx stands for Capital Expense. This refers to the major expenses associated with owning a property and generally includes: roof, HVAC (Heating, Ventilation, Air Conditioning) system, hot water heater, electrical system, plumbing system.
For a classic turnkey property, this depends primarily on the status of renovations and whether you are leveraging your purchase. The total time from contract to close can be anywhere between 4-8 weeks. With the BRRRR strategy, you are actually purchasing the property in advance of the renovations being undertaken. Depending on the market, you can generally close on these all cash purchases in 1-3 weeks.
No. We professionally and fully renovate your property to a high rental standard as a condition of closing.
Turnkey Investor Group will introduce you to a reliable and professional property manager who will manage the property on your behalf. However, once you have closed, you can choose your own property manager if you wish.
If borrowing conventionally, you are limited to 10 mortgages (sometimes referred to by lenders as “golden tickets”) and if you are married, your spouse may also possibly get 10 mortgages. After that, there are other options you may take to continue acquiring properties. Please contact us if you would like further details.