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Why a ‘Vertically-Integrated Company’ Beats a ‘Turnkey Company’ Over a Full Real Estate Cycle

 

There are big differences between doing business with a “turnkey property provider” and a “vertically-integrated investment company,” yet most investors think they are one in the same. If you are investing for a full market cycle, you’ll want to pay special attention as these differences will likely result in significant risk mitigation and hundreds of thousands of dollars in additional returns on investment from rent and home price growth for your rental property portfolio.

Let’s first define what “turnkey” has come to mean to today’s rental property investors. A turnkey company sells you a rental property. Some turnkey companies own the assets they sell you while many just act as a broker, connecting the buyer and the seller. Some may also do the property management in-house, but most outsource it. Turnkey companies typically operate in multiple real estate markets because they are in search of inventory. They operate with the idea of going a mile wide, rather than going a mile deep, in one market.

A “vertically-integrated” investment company is a much higher threshold. A vertically-integrated company buys the property, builds or renovates it in-house, and does the property management in-house. But that is where the similarities stop.

A vertically-integrated company is committed to one real estate market. They are major players in the social, political, and economic policies and initiatives in their market. They invest their own money to develop land, buy downtown buildings, and serve on local boards so they can be in the “know.” Their efforts help create a runway for future investment opportunities for their clients and attract jobs and talent to the area to raise median incomes. This allows rents and home prices to continue to rise, which will increase returns on investment over a full market cycle.

Want to know which neighborhoods are positioned for rent growth and home price growth over the next market cycle?

Find out where a “vertically-integrated” company is buying and selling. The odds are that you want your money to be where they are. As you can imagine, JWB is a “vertically integrated” real estate investment company. It seems as if we are featured in the Jacksonville Business Journal, The Florida Times-Union, and other leading local publications every week or so because our roots in Jacksonville go much deeper than just buying, selling, and doing property management for over 3,700 homes here.

One of Jacksonville’s recent initiatives that has already had a major impact on downtown is the approval of The Downtown Preservation and Revitalization Program. This new program was created by the Downtown Investment Authority (DIA) and approved by Jacksonville’s City Council in October 2020 and JWB, along with a group of other Jacksonville developers and downtown stakeholders, were a part of the process.

It allows for more incentive dollars to be allocated to developers to revitalize historic downtown buildings, which in turn leads to more residents and more amenities coming to downtown Jacksonville. Ultimately more residents and more amenities leads to higher rents for properties downtown. This is important because we need higher rents to support downtown revitalization without the need for incentive packages like this in the future.  Without larger incentive packages, it just didn’t make financial sense for a developer to risk millions of dollars renovating downtown buildings and that’s why many have sat vacant for decades.

Here’s what a program like this means in real dollars:

There were roughly $530 million worth of projects completed in downtown Jacksonville in 2019 before this project was approved.  It has only been 3 months since the first project was approved with the new DPRP incentives and downtown Jacksonville has already seen 4 projects approved under the new program, totaling over $100 million in development.  That’s almost 20% of the total development we saw in 2019 and it typically takes years for the full impact of projects like this make it to approval.

That’s real growth that will lead to more residents, better jobs, and higher rents and home prices in all JWB rental property neighborhoods over the next 20+ years.

By Gregg Cohen

I am a co-founder at JWB Real Estate Capital, and I love to talk about investing in rental properties! You’ll often find me here contributing to our blog and in our Facebook group connecting with the community & sharing insights.

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