How Turn Key Real Estate Works

You know, Jim, your company is somewhat unique among our sponsors, and I think we should spend. Before we get into your presentation, let's spend a few minutes talking about the merits of the method of real estate that, that you and those who work with you use, which is essentially turnkey properties. And I've talked many times with, with white coat investors about the spectrum of real estate, you know, and on the far left end, you've got people who are basically building their own properties from the ground up and then renting them out and managing them, et cetera. And on the far end, people who are investing in a, in a mutual fund, an index fund of publicly traded REITs, and everything else is in between those two things.

Yes.

And one of the beautiful things about, you know, a turnkey property is it's kind of found at the midpoint in that scale with a lot of the benefits of individual ownership of properties and yet a lot of the benefits of being able to still invest very passively.

Yes.

So what do you see as the advantages of, you know, a turnkey property over investing in, you know, individual syndications or even a fund of syndications?

Yeah, it's a great question. Well, first off, I think one of the most proven ways to make money in real estate is to own rental property long term. It's just so many people have done it. It's one of the most proven. And if you do it right, I think one of the easiest ways to make money, even if you put a few things in line. And this term, Jim, as you know, turnkey investing didn't even really exist until about the 08 meltdown. And how this turnkey happened, this turnkey term was there was lots of deals all over the US from all these foreclosures coming out, and there were people that were not in the area where they wanted to invest. Calling people like me and my partner Chris and his father to say, hey, can you get us some houses and fix them up and manage them? It was literally that generic. And that's exactly how the turnkey model happened. I live in California, I live in New York, I live in Chicago, and I want to invest like, let's say where we are in Florida. I can't be there, but you could find some companies like ours that would find the deals, renovate them, and then manage them long term. So you're getting all these pieces into place where, let's say you're in Orange County, California, and you want to buy property in Tampa, Florida. Well, that was hard to find the agents and to find the subcontractors and the management, or try to manage from your, you know, from afar yourself. And so companies like ours were born where people just started to say, because my, my partner Chris and I were investors, well, how do you, what houses do you buy? How do you fix them up? Who manages your property? And so this is how the turnkey model started. And the advantage to that, Jim, is what you said, all that guesswork. It doesn't matter if you're going into a market and you're buying one house or a hundred houses. You need the same team players to complete the deal and to see it through long term. And what I found is the turnkey model will help buy back your time if it's done correctly, if it's done with the right type of properties, in the right area, with the right management. And all the nightmares, you and I first gotten into this game many years ago hearing about terrible tenants and bad areas and broken toilets and leaky roofs. All those things can be definitely minimized greatly by the turnkey model.

Yeah. So clearly there's advantages of having somebody out there to help you to own the individual property. But I think the real advantage over, you know, a more passive solution, you know, a syndication or a fund is control. You've got control over the property.

Yeah.

You know, you don't have to worry, well, when's the syndication going to return my money to me? Well, your money gets returned to you when you choose, when you decide to sell the property.

Exactly.

There's, you know, that control. You want to hold on to it for 25 years. You want to hold onto it until you die and give your heirs a step up in basis. You can do that, whereas you're not going to be able to do that, you know, with a private real estate fund. That's just not going to happen. It's going to, you know, close in five or ten years or whatever. I mean, there's some that are a little bit more evergreen, but even so, that's not the way they're designed. Whereas when you're buying the individual properties, you have that control to manage real estate in the most tax efficient way to do it, which is basically to depreciate, exchange, depreciate, exchange, depreciate and eventually die and leave that to your heirs with the step up in basis. And you can do that with turnkey investing while avoiding, you know, the hassles of having to find the property and having to fix the property and having to manage the property and having to sell the property. So it's very cool part in the spectrum for those who, who, who are looking for then, you know, you know the benefits of individual ownership and control without the, without, you know, the hassles of doing so because that's what keeps people from buying the properties themselves. Right. It's not that the minimum investment is too high because it's no higher than it is to buy into a syndicated, you know, apartment complex. No, it's the hassle they're worried about.

Yeah, the hassle and the stories, Jim, and we know em and a lot of those stories are true. And like I know we've done past episodes, we've talked about the kiss of death. The kiss of death for a lot of investors, successful medical professionals that, hey, I'm busy with the practice, it's going well, but I know I need exposure to real estate. In the past, they've been sold into a very simple recipe of not good properties with a lot of deferred maintenance in bad areas with poor management. Now, to your credit, I believe we're the only turnkey specialist that's ever been invited into White Coat Community because we built our business model on the exact opposite. In fact, we will only do new construction. We go to a certain formulated area of growth and safety, low crime, and have management already in place. And so what I've seen a lot of people, Jim, either they get completely scared of the stories or they become one of the stories, at least so many of them. And what we've tried to do is create a model that completely takes a different path than the stories we hear. And the beautiful thing is you don't have to own a lot of rental property to really increase your wealth. In fact, I tell people it sounds really cool that, oh, Jim's done thousands of deals and they're like, well, what would you do differently? I know you've asked me that. I said, jim, I would own less of better quality if I could go back 25 years. I mean, what does that tell you? I did all these deals and this and that. I'm like, gosh, I could have gotten a lot further along if I had just done higher quality, better properties all along instead of just being almost like a deal junkie. And that's kind of the formula we put together for the people we work with in the White coat. You, you don't need a ton. Just get solid, well placed assets that are well managed, that are in good condition that you can look long term with and they'll be there for you when you sell your practice. They'll be there for you, possibly with generational wealth. I mean, what you just said, Jim, that's my entire wealth strategy. Everything you just named. I'm going to exchange, I'm going to depreciate, and hopefully along the way I'm going to die. And I'd love my children to take over what's left.

Yeah. The other big advantage, I think over a syndication or particularly a fund is, you know, the state tax return burden. You know, I mean, I have funds that might send me K1s from eight states, you know, and you end up filing taxes in eight states. Well, the cool thing about, you know, turnkey is you know exactly where you're buying it and where you're gonna have to file a return. And in your case, you know, the properties you're putting up are in Florida, which is a tax free state. No, there is no additional state tax bill, which is not insignificant. If you paid to have your returns filed in multiple states, it is a not insignificant expense and hassle every year.

Yes, that's very true. Going from being in California to Florida, Jim. I don't miss state income tax. Let me tell you, the hosts of.

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