Hey everyone, and welcome to Passive Real Estate Investing. I’m Melissa Nash, your guest host Jumping in for now. Let’s dive in.
Hello everyone. Welcome back to the show. And today I’m doing something a little bit different. I have been getting the same questions over and over for the last 10 years, whether it’s in my inbox or social media or webinars, talking to people on the phone, you name it. So I thought, why not just sit down and answer the top questions I get about turnkey real estate investing all in one episode? So think of this as your crash course in turnkey investing. I’m gonna give you the real deal, no fluff. This is not a sales pitch. Just honest answers to the questions that keep you up at night when you’re thinking about getting started in real estate investing. So grab a coffee or if you’re on that run or something like that and you can’t take notes right now, then maybe you wanna save this one so you can come back to it.
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‘Cause You’re definitely gonna wanna take notes when you get a chance. But let’s go for it and let’s dive in. Okay, let’s start with the basics because I get this question pretty much every day for the last 10 years. It’s kind of like Groundhog Day, I don’t mind it, but let’s talk about what is turnkey real estate because here’s the thing, not all turnkey is the same. There is a lot of confusion out there about what turnkey actually means. So let me define how we do turnkey here and what it really means. So normally when you hear the word turnkey, you basically put the key in, turn, open the door and you can move in. Now that’s where this is coming from. You know, realtors have said, oh, it’s turnkey and that’s what it means. It basically means rent ready or move in ready. But there is so much more to it.
Now, this is a big disclaimer, I’m gonna say there’s so much more to it. If you’re working with someone like us here at Norada, we have the entire turnkey system. It’s not just the property. And I think that term turnkey is thrown around so loosely, and to be honest with you, there’s a lot of bad characters out there that kind of take advantage of people and use this word. So when I’m saying turnkey, I’m talking about the entire system. Now I personally have broken it down into what I call the three Ps, the property, the people, and the process. Now I believe that to have true turnkey, you have to have all three to have a good turnkey done for you rental process. So number one is the property, and that is a renovated property or new construction that meets our investment and renter standards with a pre-vetted rehab team that has warranties and a long history.
Number two, it’s the people and this is going to be the local team that is going to manage the property for you and also manage the tenant. Again, we do not want you to sit there 2000 miles away and manage a tenant and worry about, you know, getting them into the property and collecting rent checks and all that kind of stuff. No, we have a vetted out local team in place on every single property that we have. They are going to manage it for you and manage the tenant. Then we have the lender, and again, we introduce you to lenders and we’ll kind of get into that a little bit later. And then the other part of the people is us working with us to help you define your strategy market and budget. And the last P is process. That is the system that makes all of this work seamlessly so that you don’t have to do all the work yourself.
You don’t have to get on an airplane and hire out and deal with the contractor and rehab on your own. Basically you’re buying a property that has already been renovated to standards with a local team who’s going to manage it for you. All you have to do as the investor is figure out your strategy, which market fits your budget, and then buy a property that’s already done. You are not flipping, you’re not researching the markets and you’re not managing the renovations. The work has been done for you. Pretty awesome right now, this is the system that we help our clients with here, and we don’t charge you for this either. So number one, I’m gonna let you guys know that if you are interested in learning more about this amazing system, please reach out, go to noradarealestate.com or you can also go to the link that is in the show notes below.
And myself or another investment counselor would love to have a strategy call with you where we literally block out our calendar for 30 minutes for you. There’s no charge for that and we want to strategize and kind of see where you’re at and if we can help you move forward, we would love to do that. Now let me paint a picture of why this matters. Now obviously you’re interested in owning real estate because you’re listening to this podcast and you wanna create not only wealth and financial security, but you want cashflow too. Now you might live in a place like California where let’s just say an average rental property might cost anywhere from 800 to a million dollars and that is going to give you negative cash flow every month. Plus we all know that California is not landlord friendly and you’re very high risk if that tenant doesn’t pay again with the right system, you can do this, you can invest over 2000 miles away and live in California.
We’re not gonna have you investing or buying in California. So let’s look at how it works in real life. Again, like I said a minute ago, we have vetted out partners in cash flowing markets across the country. These guys are the boots on the ground. They are going to foreclosure your auctions, they’re buying short sell, they’re picking up properties from wholesalers. Now most of these properties are pretty beat up when they get them. They are in distressed state and they completely rehab the property. So new flooring, new paint, new appliances, the works. Now in this scenario, this is not new construction, so we’re not expecting perfection. They’re not gutting the entire house, but they’re doing the work on the property. So the property can be as maintenance free as possible. Now while they’re doing that, they’re also working with the property management company to screen the tenants.
And then by the time the renovation is done, boom, the tenant’s going to be moving in shortly after. Now that’s when the property becomes available to our investors. So the property managers get the key to the property, they start marketing it for rent, and then that’s when you’re making the money again, you turn the key and start collecting the rent checks, hence turnkey. So here is something that I hear every single day. You guys, I’m going to say this out loud and it’s okay, I don’t mind it, but this is what I hear. People go, wow, this sounds too good to be true. What’s the catch? Now if any of you were thinking that right now, welcome to the club. Everybody says this and I don’t mean it, I kind of laugh because I love when people ask this because it shows that you’re thinking like a real investor.
Look, there is no catch. There are plenty of checks and balances along the way, but there are trade-offs and I’m going to be completely honest with you about each one. Now first you are not going to find these types of deals in Manhattan or Beverly Hills. We are talking about markets like Alabama, Memphis, Kansas City, little Rock places where your dollar actually stretches and properties cash flow from day one. Second, you are paying for convenience. These aren’t the absolute cheapest properties you could find, but if you are working with us, we will never let you pay over market for a property. The properties have to appraise. If there is an appraisal problem, it is in the contract that you can cancel and walk away, okay? So you are not overpaying for a property, but you are also going to pay market value. So if you’re not okay with that and you wanna go buy a fixer upper yourself and manage the contractors from three states away, then go for it.
Turnkey might not be for you. But let me ask you this, do you really wanna be following up with subs all week and missing out on family stuff because you’re calling plumbers in Tennessee at [spp-timestamp time=”8:00″] PM on a Sunday? Yeah, I don’t think so. So that is the convenience I’m talking about with turnkey. Now third, you are giving up some control. You are not picking the paint colors or the flooring. Our partners, our professionals who know what renters want in their markets, they have been doing this for years and years. Now here’s the next question. How do I choose which market? Now this is where we get a little bit nerdy with the data and honestly it’s probably the most important part of what we do. We have four non-negotiable criteria that every market has to meet. Number one, there has to be some type of cash on cash return.
So if you’re gonna put let’s say $25,000 down total on a property and you’re not getting solid monthly cash flow, then we are not interested in that property either. End of the day there has to be some cash flow. Now because of this, this immediately eliminates the entire West coast and probably most of the northeast, basically anywhere where you would think I want a vacation is probably not the place where you’re gonna buy one of these long-term rentals. We’re not talking about vacation rentals, we’re talking about long-term rentals where a tenant signs a lease and they’re going to be in there for a long period of time. Now, number two, stability over volatility. Now remember those crazy appreciation markets before 2008 where people thought they were geniuses for about six months and then they lost everything? Yeah, we avoid those rollercoasters. We want to be the tortoise, not the hare with real estate investing, okay, patients, stable markets.
Number three, landlord friendly laws. I kind of hinted at this a little bit ago, but this is actually a huge deal. If you live in San Francisco for example, and you own a rental property there and your tenant stops paying rent, congratulations, you just got a new permanent roommate. In the markets that we’re in, we are not dealing with that. We’re looking at an average of 30 to 45 days to resolve tenant issues, not eight months to 12 months of carrying the mortgage while the courts figure it out. You guys, can you imagine if you bought a million dollar property and you’ve got a big mortgage to cover and the tenant decides to not pay, you are responsible for that mortgage payment and the courts are not going to evict that tenant very quickly in California. So you better have 12 months of reserves to cover that.
Very, very stressful. So let’s go on to number four, economic diversity. We don’t want markets that depend on one industry. What happens when that industry tanks? We like places with transportation, manufacturing, tech, medical education, multiple job sources. So you’ve always got a good pool of renters. Think of it like where are the jobs and your renter is the employee of those jobs. So that’s what we’re always looking at. Now, if a market doesn’t hit all four of these criteria, we don’t go there and we don’t work with teams there. It’s as simple as that. So the next question is about how do I know which market to go to? So this is actually one of my favorite topics because it helps you think strategically about your portfolio. Now I like to simplify it because if we’re looking at investing into another state, it can be very overwhelming because you know, why would you pick one state or another?
So the way that I have found to broke it down the most simple is I break down the markets that we are in into three categories. And I think it’s crucial for you to think about it like this, especially in the beginning because it helps you decide what is most important to you at each stage. Again, whether you’re at the beginning or the middle or the end of your portfolio growth, let’s look at it in a strategic way. So number one, cash flow markets. These are going to be your highest monthly return markets. So you are basically saying, Hey, you know what? I care more about cash flow right now than I do appreciation. Now remember I’m going to say this again. All of the markets that we’re in have some type of appreciation and all of the markets that we are in have some type of cashflow.
Some markets will have more cashflow than others and some markets will have more appreciation than others. Again, this is why you need to talk to us so that we can go over all this with you and help you with it. So again, this first strategy is called the cashflow markets. So I want you to think of markets like Little Rock or parts of Ohio or certain areas of Alabama where you can buy a turnkey already renovated investment property for let’s say a hundred thousand to 150,000. Now you’re gonna get a really good monthly cash flow return, but do not expect rapid appreciation. These are linear, steady markets, very set it and forget it. Now if you want to replace your income faster and you need more cash flow and you want to buy more properties, then this is probably a good strategy and a good place for you to start.
Now again, there are a lot of asterisk asterisks that I really wanna talk to you about that’s hard to do on this podcast, but just jot this down so you can start thinking about what is most important to. So again, if, if cashflow markets are really important to you, then write that down. Now on the opposite of these cashflow markets is what I call the growth markets. Now these are gonna be higher price points, usually around two to $300,000 and you’re going to get some cash flow, but you’re gonna get a little bit more potential for that appreciation and the growth. Think of markets like Florida, North Carolina, parts of Texas. You’re going to sacrifice some of the monthly cash flow for property value growth and higher rental increases over time. So if you’re thinking of long-term wealth building, these markets might make sense because you don’t need the cash flow today, but over time you’re gonna see that longer appreciation potential and you’re gonna see higher rental increases over time.
We tend to focus on a lot of new construction in these areas because that can keep your costs down. When you have new construction then you know everything is brand new and the warranties are so extended and tenants love to move into new construction. So if you’re interested in that, jot that down. Now we’ve got somewhere in the middle, I call this the hybrid markets. Now if you’re following along with me, I’m kind of thinking of this stuff as Goldilocks and the three bearers a little bit. The hybrid markets are gonna be right in the middle. So we’re usually going to be looking at properties that range from 150 to maybe $190,000. Now I want you to think about these areas, Indianapolis, Kansas City, St. Louis, better areas of Birmingham. You’re going to get decent cash flow and some growth potential. So again, it’s kind of right there in the middle.
So it’s perfect for investors who want both, but they don’t want to have to pick sides. So again, you’re gonna see a little bit in the middle for price, a little bit in the middle for appreciation, a little bit in the middle for cash flow. Now again, all of our markets cash flow, all of our markets have appreciation. The strategy that you choose is going to depend on your goals, your timeline, and your budget. So that’s why we wanna talk with you to help you sort this out. Now here is the next question I keep hearing about A, B or C class properties. What is this <laugh>? So this is where it gets really interesting because there is nothing out there that says, Hey, this is the formula and this is how we grade. How houses, it drives me crazy, but one person’s B class neighborhood is another person’s ds.
Honestly, it just depends on what you’re used to. I’ve had investors from New York look at a property on an acre with a two car garage and call it an A class and meanwhile someone from the suburbs calls that same property a C class because the neighbor didn’t mow their lawn. I mean it’s, it’s really tough, but there’s a couple ways to look at it and we do it a little bit different. So one of the criteria that we look at is we use the ownership percentage data. It’s the most objective way of looking at it. So we look at how many properties in a neighborhood are owner occupied versus rentals and why does this matter? Because there’s something called pride of ownership. Very generally speaking, when a neighborhood is mostly owner occupied, it’s better maintained, there’s less crime. And ironically, there’s higher rental demand. Tenants want to live where owners live.
And if you also think about the blue collar worker and what their wages are, that is going to also drive the rental demand and the rental costs. So you know, if you can charge more for rent, you’re most likely going to be attracting that worker who has a better wage. So we also look at what the rents are in that area alongside of this owner percentage data. So one analogy I like to use is think of it like vacation planning. So an A class neighborhood is kind of like the first class trip to Tahiti. It’s expensive but it’s mostly drama free. Now a C or a D class is kind of like backpacking through Europe, higher returns, but you’re gonna need a little bit of thicker skin and more experience to handle the bumps. Now B class is kind of what I like to think of as the sweet spot.
Maybe a business class to Europe you still get a good return and with less headaches. Most of our investors tend to love the C plus B class neighborhoods, especially where they’re starting out little bit less bumps and bruises, little bit better area where you can get a little bit more appreciation happening and hopefully a better quality tenant. And then those rental increases will happen a little bit more when you’re in those better areas. So let’s go on to the next question. This one is about financing. Somebody asked what is the difference between investor financing and buying a primary residence? It’s actually pretty similar to buying your primary home just with slightly different terms. Now there’s a couple different loans that you can get right now. There’s a conventional loan, a Fannie Mae loan, or there’s A-D-S-C-R loan. You’ve heard a lot about DSCR loans right now because they’re really popular.
There’s not as much red tape. You can get both of them for 20 to 25% down and they will lock you into a 30 year fixed rate loan. Now the biggest difference between buying a primary home and buying an investment loan is the interest rate is going to be a little bit higher. So on average, just plan on spending about three quarters of a point higher than owner occupied rates. And that’s pretty normal for investment properties. So when you see, you know, your bank throw out an ad or an email or or something like that and it says, oh, you know, the interest rate is 5.5% or six, whatever it is go ahead and add about three quarters of a point higher on that for an investment property. That’s just kind of a minimum guideline to think about. Now here’s the key thing that a lot of people miss.
You need to be working with lenders who are licensed in multiple states, especially if you’re working on growing a portfolio within multiple states and you wanna work with a lender who work with investors regularly. Your local credit union that gave you a great rate on your house probably can’t help you buy a property in Memphis. And trust me, you do not want to find this out when you’re under contract. We recommend lenders who do this all day, every day. They know our markets, they know our local partners and they won’t promise you something that they can’t deliver. Now I am literally working with a client right now and she was already previously working with a lender and I just spoke with her and she’s under contract with the property closing soon and she just stuck with that lender ’cause she had already uploaded everything. And even though she talked to one of the recommended lenders that I sent her, she just didn’t wanna upload everything again.
And she just told me she cannot wait until this loan closes because the lender is absolutely driving her crazy. Again, this is her lender, not mine. It’s somebody who was not experienced working with investors and basically wanted to use her as a Guinea pig. Now of course they acted like they knew what they were doing and they acted like they had done, you know, plenty of these, but she’s clearly the Guinea pig and she’s about to pull her hair out and about to scream and she’s like, I wish I would’ve switched <laugh>. So you guys, the stories out there are real. I cannot tell you how important it is to work with a lender that knows what they’re doing. And again, we have plenty of names to give you guys. These are the best and the best in the industry. They’re licensed in all of our markets.
They have the best rates. There is no reason why you should not use one of these recommendations because they are going to be your strategist and they’re going to help you grow your portfolio and they’re going to help you continue to qualify for properties. I literally use these same lenders myself. In fact, I’ve closed on loans with about five of them that I recommend to you guys and right now I’m doing a loan and they are literally working with my CPA, who’s getting ready to or who now, now that I’m recording this, we just finished my taxes from last year ’cause we had an extension and we were working with my lender to make sure that everything was correct. That way there’s nothing that could stop me from being qualified to continue to build my portfolio. So that is the value of working with these really experienced lenders.
Now, budget wise, plan on spending about 25 to $35,000 on your first property. Now that’s your down payment and maybe your closing costs, you might wanna pull a little bit of extra that that the bank is gonna require for reserves that they would just wanna see in your bank account. So I usually say that’s kind of the minimum so that we are not putting you in a war zone area and we can get you a good quality property. Now, next question, Melissa, what is your role in all of this and how does it actually work? Well, great question. Basically, I am an investment counselor and your wingman throughout this process. I am not your real estate agent and that is really important to understand. You are not working with real estate agents, okay? These properties are off market. You are not putting in offers and you’re not going back and forth with a seller.
These are first come first serve properties. So I am here for the education and to refer you out to all of the amazing people that I work with. So I help you understand the markets, analyze the properties, and connect you with the right lenders and teams. Now, when you buy a property, we are going to be here to help you throughout the entire closing. We have a closing coordinator. We’re going to make sure that that everybody is coordinating with inspections and appraisals and title and escrow and all the things because remember, we do this all day every day, and this might be new for you, especially buying something in another state. Now, when you buy a property, our brokerage gets a referral fee from the local team. You do not pay us anything, okay? This is a pretty big deal. All that that I just mentioned that I’m helping you with, you are not paying for that.
We do charge the $250 transaction coordination fee that you’ll see at the closing table. This goes directly to the coordinator. Even though it says our name, it’s actually not coming to us directly. It goes to the closing coordinator. Now, this structure keeps us completely agnostic. I don’t care which market you choose or which property you buy or what your budget is. We don’t have a financial stake in any of these properties. We do not own them. We do not have ownership and property management. You know, we don’t have to push Kansas City because those are the only properties that we own. You know, like there’s teams out there where they’re like, Hey, you have to buy in this market and this is the best market because that’s all they have. So it’s really cool because we have access to multiple properties with multiple teams in multiple markets.
So we can really help you define what makes sense for you first. That way we’re not forcing a market upon you that you don’t want because it may not fit your strategy. So we really want to dive into this with you and help you pick the strategy that really aligns. Maybe Memphis makes more sense than Kansas City or Florida might make more sense for you. We don’t care. We’re just gonna help you do it either way. The next question, Melissa, walk me through the actual process. What happens after I decide I want to do this? So here’s exactly how it works. First, we’re going to schedule a call. Again, go to noradarealestate.com and you can click book a free strategy call and you’ll get hooked up with myself or one of the other investment counselors here, or you can also click on the link in the show notes below.
So you’re going to want to schedule a call. We are going to dig into your specific situation and goals. Again, are you trying to replace your income? Are you trying to build long-term wealth, diversify from stocks? This is really what is going to drive everything. Then I’m going to connect you with recommended lenders and you’re going to really get your ducks in a row. They’re gonna answer your questions, you’re gonna decide who you wanna work with, and then they’re going to start working on a pre-approval process for you, and they’re gonna go over all the different loan types and see which is best for you. Now, once you have done that and you’ve spoken to one of our lenders, then you’re gonna reach out and you’re gonna say, Hey, let’s do this. I wanna start checking out the inventory. So we’re gonna get you access to even more inventory after we know that you already connected with a lender because you’re serious. So we want to give you serious properties so we don’t show you everything on our website. So when you go to our website, you’re gonna see a few things on there, but a lot of our properties sell before they even hit our website. So that inventory really goes to pre-qualified investors. So that’s why we wanna help you step by step so that you can see everything and get access to everything.
So when you find a property that you like, it’s first come first serve basis. Again, these are not on the MLS, this is off market inventory just for our investors. Now the cool thing about it is the prices are set. You don’t have to worry about negotiations and waiting. If an offer gets accepted and the inventory moves, I mean you might look at a deal today and it’s gone tomorrow, and that’s okay. If you see a property that you like and you already spoke with a lender and you have your plan with the lender, you can request that property and you’re gonna say, Hey Melissa, I like that property, I want it. Great. Let’s do it. And we’re gonna help you from there. Now, once you’re under contract, it’s really like any other real estate transaction. You’re gonna get inspections done, appraisal title work, and the beauty of all of that, again, part of our three Ps process is that we have the teams ready to go to help you do it in each market.
You can even close with a traveling notary, so you don’t even have to leave your house. The next question is, Melissa, what are the risks? What can go wrong? So I’m gonna give you guys the real talk, and here’s the honest truth that a lot of people in this business won’t tell you. Real estate isn’t buying stocks and forgetting about it. You are dealing with houses and people and sometimes things don’t go according to plan. Properties might need unexpected repairs. Water heaters don’t read calendars, they break when they wanna break. Tenants might move out sooner than you expected. Markets can shift, and here’s what I tell my investors. Have realistic expectations and keep reserves. These properties are newly rehabbed or new construction, and they all have warranties. So you shouldn’t have major repair issues for years, but at the end of the day, stuff happens.
You do have a renter in the property. So make sure you’ve got money set aside to cover those things when they do happen. Now the other thing is, you know, if you’re coming from high appreciation markets like California or Utah or somewhere on the east coast, you might get impatient with linear growth markets like the Midwest. If you’re used to seeing property values jump, you know a hundred thousand dollars every year in our markets, you’re not gonna see that. You know what? If you see 5,000 or 10,000 or even 20,000 in appreciation, there still is appreciation happening, but you’re also getting that cash flow that you wouldn’t get in California or the other markets. So if you’re easily getting, let’s say, three to $500 in cash flow every month, then that’s pretty awesome. So remember, you are the tortoise in this race and the tortoise wins.
Last question is any final advice for someone getting started? So absolutely, the first thing I’m gonna say again is go to noradarealestate.com or I want you to go to the show notes. There is a link below and I want you to click a free strategy call. And I want you to remember that not all properties are on the site. It’s not completely up to date. So if you wanna get a handle on everything, you definitely need to chat with us. So here are the big things for just getting started. First, know your why are you building for retirement trying to replace your W2 income building generational wealth? That answer is going to drive your entire strategy, and we wanna help you figure that out. Number two, start with quality over quantity. I don’t care how tempting those D minus or C class returns, look, get a few solid B class properties under your belt.
First, learn the business with properties that won’t keep you up at night. Number three, think portfolio, not individual property. Nobody says I wanna buy one property and stop. So let’s plan for growth from day one. And finally, remember that you can live where you want and invest where it makes sense. Don’t let your zip code limit your investment potential. So we covered a ton of ground today from what turnkey investing actually is to market selection, financing neighborhoods, the whole process. And if you’re sitting there thinking, this sounds interesting, but I have about 50 more questions, that is fantastic. That means that you are thinking like a real investor, not just someone looking for a get rich quick scheme. So here’s what I want you to do. Start thinking about which market strategy appeals to you. Are you a cashflow person who wants monthly income? Now, do you have a budget, a growth person who’s thinking long-term wealth building or somewhere in the middle like Goldilocks and the Three Bears?
That decision is going to guide everything else. It’s gonna guide the markets. You look at the price range neighborhoods. So we’ve gotta get clear on that first. So if you wanna go deeper, go to noradarealestate.com, click on that free strategy call or click the link in the show notes below. And remember, again, not all the properties are on there, so we wanna get the correct properties in your hands. I would love to chat with you and learn about your specific situation and see if turnkey investing actually makes sense for your goals. So again, thank you for hanging out with me today. Until next time, and remember, invest where it makes sense, not where you want to vacation.
Thank you, Melissa, for sharing your expertise and knowledge with us. We hope this episode provided helpful information to support you in making decisions on your investment journey. If you haven’t yet, be sure to subscribe so you don’t miss any future episodes. We’re grateful to have you with us. Thanks again for tuning in and we’ll see you on the next one.
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