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Pros and Cons of Working with A Turn-Key Company

by Ken Corsini on February 22, 2012 · 5 comments

  

With such a diverse collection of real estate markets around the country, investors have many choices when it comes to where to invest in real estate. Some investors look for areas that were hit hard by the real estate crash in hopes of acquiring property that will experience a recovery in values over the next several years (ex. Phoenix, Las Vegas, Orlando). Other investors look for markets with very inexpensive properties that cash flow well, but may not have as much upside potential (ex. Memphis, Indianapolis). I personally like markets where there is both an opportunity for a recovery in values and strong cash flow (ex. Atlanta). Whatever the reason and whatever the market, investors that invest out of state are tasked with putting together a support team of professionals to help them through all phases of the investment.

Turn-key real estate investment companies are companies that have already assembled a team in a particular market to handle all of the different aspects of the real estate investment. This typically includes the ability to acquire properties at a deeply discounted price, renovate the properties, screen and place tenants, coordinate financing, and handle ongoing property management. While this type of service can be a huge benefit to investors, some investors prefer to assemble their own team of professionals to do this work.

While it may be possible to shave a few dollars off of the total investment when working by yourself, the pros of working with a turn-key company may still outweigh the cons.

Here is a quick rundown of the pros and cons of working with a turn-key company:

PROS

  • A reputable turn-key company will know where to buy and where not to buy in a particular market. This is especially important for an out-of-state investor that may not have any local knowledge of the real estate market.
  • A turn-key company can sell a house that has already been fixed up. This is a huge benefit to an investor who doesn’t want to pay for repairs out of pocket.
  • A larger turn-key company typically has economies of scale when it comes to rehab costs. These savings are typically passed on to the buyer.
  • Working through a turn-key company eliminates the hassle of trying to manage multiple contractors (ie. Plumber, electrician, roofer, HVAC, handyman, painter, etc.)
  • Most turn-key companies have relationships with lenders who are familiar with their product and know how to get an investment loan closed. There are very few lenders out there who can consistently get investor loans done …. Having a good lender already in place is a huge benefit to an investor.
  • Turn-key companies almost always have property management in place. With so many fly-by- night property managers out there, having a property manager you can trust to place a quality tenant, collect rent and take care of your property is crucial to an out-of-state investment.
  • Having a relationship with a turn-key company gives you direct access to a vested party when any sort of need arises with the property. Turn-key companies operate off of referrals from their investors and as such, are very willing to stay involved with any investor throughout the life of their investment.

CONS

  • An investor may pay a slight premium for purchasing through a turn-key company rather than managing the entire process on their own.
  • For an investor that has the time to be “hands-on,” a turn-key company may not provide the satisfaction that comes with managing details and working on-site.
  • Not all turn-key companies are reputable (it is imperative that an investor do their due diligence before partnering with any turn-key company).

While this is not an exhaustive list, it is a high level glance at a type of investing that may or may not be attractive to different investors – depending upon the level of involvement they wish to have. With the vast amount of opportunity in multiple markets throughout the country, the ability to work through a turn-key company can be a great strategy for an investor looking to diversify a real estate portfolio.

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{ 5 comments… read them below or add one }

Chris Clothier February 23, 2012 at 9:45 am

Ken –

Great article and very good short list of points.

Reply

Ken Corsini February 23, 2012 at 9:49 am

Thanks Chris.

Reply

Ziv Magen March 4, 2012 at 8:02 pm

Brilliant article, thanks. Agree with every word.

It’s as simple as this – do you want to micro-manage your own investments? Are you geographically able to? Do you have the time and inclination? Can you afford to learn from your mistakes in an unfamiliar geographical territory?

If the answer to even one of these questions is “No”, a turn-key company is the way to go – and, as mentioned, due diligence, credibility kits, referrals – these are all key to choosing the correct company to go with.

Thanks for a great piece!

Reply

Todd Brittingham May 13, 2012 at 9:46 pm

Great article Ken. You’ve hit the nail on the head with a number of points. I just recently worked with an investor from Australia who tried to “go it alone” because he thought the fees charged by turnkey companies were “expensive”. However, let me illustrate his experience to date. He purchased two properties through a realtor back in September. He tried to assemble his own team to renovate the properties and manage everything from Australia. It has been a complete disaster for him, and he finally broke down and contacted me in early April (7 months after purchase) to help finish the rehab and get the properties rented. When I first walked into the properties I found work that was half done and the work that was completed was shoddy at best (for example all the windows were painted shut in both properties). So, by going the “cheap” route this particular investor lost at least 5 months worth of rental income and had to come out of pocket for expenses like taxes, insurance, utilities and maintenance. In the end I helped turn both these properties around in about a month. He paid my fee for this, and now we are in discussion for him to utilize my team for the next several properties he purchases.

This one example illustrates how tough it is to manage things from afar, and how the “cheap” route can quickly get really expensive. I’m not saying it can’t be done, but it certainly takes time to develop a team and knowledge of the area. With a turnkey company you are essentially purchasing these things, and if you find a reputable one they can certainly save you a lot of time, stress and most importantly money.

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Edita February 26, 2013 at 7:14 pm

thank you for the article!
how to find these reputable turnkey properties?

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