A New Way To Invest In Turnkey Rental Property [EPISODE #249]

by | Feb 28, 2017

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A New Way To Invest In Turnkey Rental Property [EPISODE #249]

by | Feb 28, 2017

The Big Idea

Turnkey rental property investing is inherently simple, eliminating 95% of the effort and time involved in rental property investing.  But for those seeking a 100% hands-off experience - along with the benefit of a higher level of professional management - a brand new approach to turnkey investing could be even better than it was before.

Points To Ponder

  • Turnkey rental property investing eliminates 95% of the effort involved in rental property ownership, but for some, that's not enough
  • "Buffer Fund" is an investment fund that invests in rental properties and is an alternative to direct 100% ownership of individual properties
    • Not the same as a REIT (Real Estate Investment Trust)
  • "Negatives" of investing in Buffer Fund rather than directly into real estate:
    • Loss of control
    • Potentially decreased liquidity
    • Loss of use of 1031 tax defferred exchange
  • "Positives" of investing in a buffer fund rather than directly into real estate:
    • All involvement and time requirements are eliminated
    • Your legal & financial risks are each greatly diminished
    • Superior diversification
    • Economy of Scale
  • What do you think?  We really want to know your opinion... please use the comments area below to sound off!

Resources

Full Transcript

Here at SDI Talk, we love turnkey rental property and all of the potential it represents.  But a new approach to cash flow properties promises to make it EVEN EASIER. I’m Bryan Ellis.  This is episode #249 of Self Directed Investor Talk.

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Hello, SDI Nation!  Welcome to the broadcast of record for savvy self-directed investors like you where EACH DAY, we help you to find, understand and profit from exceptional investment opportunities… and in the process, DECLARE INDEPENDENCE from Wall Street!

Ok people… you know I love the concept of turnkey rental properties, those delightful real estate assets that are already renovated, occupied, managed and producing cash flow when you buy them.  It’s a beautiful thing to have probably 95% of the effort involved totally handled for you.

But for some, even 5% effort is more than they’re looking for.  And hey:  That’s not a judgment in any way.  If what you need is an absolutely 1,000% hands-off investment – as in, you never, ever, ever have to do anything at all – then turnkey rental property investing is not that, even though it’s astoundingly close.

As it turns out, though, a new alternative to turnkey rental property investing is emerging that shows some real promise.  It shifts you from the 95% passive level to the 100% passive level.  But there are some tradeoffs you need to understand.

But first, a very quick message from our sponsor Fund & Grow, who graciously makes this program possible.  If you need funding for a real estate deal, a business project or anything else, let me tell you:  Nothing beats an interest rate of ZERO.  To learn how you can acquire from $50,000 to $250,000 of zero-interest cash credit, just visit SDITalk.com/credit. That's SDITalk.com/credit to learn how to get $50,000 to $250,000 of zero-interest cash credit.  Visit SDITalk.com/credit now.

So what’s this new approach to turnkey rental property investing?

I call it the Buffer Fund.  The idea is that instead of into the purchase of specific rental properties, you instead invest into a professionally-managed fund along with capital from other investors as well.  The manager of the fund then uses their presumably superior experience as a real estate investor and asset manager to create strong returns for you without ANY of the already minimal involvement required of you from the more traditional approach to turnkey rental property investing.

Basically, there’s a buffer between you and the real estate – the buffer being the investment fund itself – thus the name.  And this “buffering” effect offers some real advantages… and potentially some downsides, too.

If you’re familiar with REITs – real estate investment trusts – you might think that this is the same thing.  But it’s really not, and the distinction is further explained on this episode’s SDI Insiders page at SDITalk.com/249… this could be a big deal for some of you for whom liquidity is very important.  SDITalk.com/249.

So these buffer funds of cash flowing rental property… like everything else, there’s an upside and downside.

Let’s start with the negatives first:

  • You necessarily give up control of big decisions – such as property selection, tenant approval, renovation/upgrade decisions, etc – to the fund manager
  • You also give up liquidity, which is clearly a fundamental challenge with all real estate-oriented investments
  • You give up the ability to use some tax strategies – most notably the 1031 exchange – since you’re no longer technically investing in real estate, but in a fund that owns real estate

Yes, those things are negative, but the news isn’t all bad.  Far from it.  In fact, some of the biggest benefits are:

  • Yes, you give up control. But you’re also inherently giving up the NEED to make the decisions that having that control would have forced on you.  Which leads to another huge benefit:
  • Investing in a buffer fund also buffers you from two huge, related risks: financial and legal.  Legal, in that any lawsuits that arise in connection with the properties in the fund are the responsibility of the fund manager to handle on your behalf.  Financial, in that if a cataclysmic event happened – maybe a frivolous $10 million trip-and-fall lawsuit – was to go against the fund, your liability for such will always be limited to the amount of your original investment.
  • You’ll also be a bit better diversified, as you’ll essentially own pieces of a lot of properties rather than owning all of just one or two
  • You should enjoy a very attractive economy of scale that happens as a function of the pooling of capital and the association with an experienced, professional real estate asset manager.

Now folks, I’ve got to tell you:  To me, the verdict is still out on this.  I can see some really big benefits to this approach to building turnkey rental property wealth.  But while the notion of investment funds is far from new, what we have now that wasn’t the case even as recently as 5 years ago is that it’s now relatively inexpensive to establish these kinds of funds, which means the barrier to entry is much lower.  Maybe it’s democratization of access to capital, or maybe degradation of capital standards.  Either way, it’s your capital that hangs in the balance.

What do you think?  I mean… seriously, folks… I *REALLY* want to know what you think.  Would you rather own turnkey rental properties directly, or would you prefer to own them indirectly in the form of a buffer fund?

Sound off… this is important… let your voice be heard.  Best way to respond is to leave a comment on today’s show notes page at SDITalk.com/249.  Alternatively drop me a line by email to ,

That’s all for today… but tomorrow, we’re going to look into solo 401(k)’s one more time, because it turns out there’s a HUGE distinction between serving as the trustee of your own account versus allowing a custodial company to handle it for you.  The distinction is profound and actually dangerous, so you’ll want to hear that in tomorrow’s episode of SDITalk, the link to which may actually already linked on today’s SDI Insider’s page at SDITalk.com/249.

And my friends, remember:  Invest wisely today, and live well forever!

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Bryan Ellis is host of Self Directed Investor Talk, America's #1 radio show and podcast for affluent self-directed investors.  He's also an expert in self-directed IRA's, solo 401k's and turnkey rental property investing... at least, that's what his wife tells him 🙂  He's a contributor to well-respected publications like TheStreet.com, Entrepreneur and ThinkRealty.  Bryan lives in metro Atlanta, Georgia with Carole Ellis - his wife, business partner and best friend - and his 4 children ranging in age from 2 to 19.