Landlording & Rental Properties

The #1 Indicator That You’ll Have a Successful Experience When Investing in Turnkeys

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
239 Articles Written

Today, I’m going to talk about a subject that I may be a bit biased about because I own a turnkey real estate company. I want to warn everyone about some of the things you need to look out for to have a successful experience when investing in turnkey real estate.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

If you look online, you will find a ton of horror stories about investors getting ripped off.

Why In-House Property Management is Vital

The turnkey company has to have in-house property management. I say that because the turnkey company will have a vested interest in your success. Meaning, when they sell you a property and then pass you on to their in-house property management company, that property has to be a success. So, in order for you to keep buying properties from them, for good word-of-mouth and referrals, that property has to be a success. The flip-side if it is not a success, you’re not going to buy any other properties and you’re definitely not going to tell anyone how good they are.

In-house property management is vital! They aren’t allowed to nickel and dime, and they’re not going to charge you ridiculous ongoing maintenance fees, tenant placement fees, leasing renewal fees, and administration fees. Why? Because once you hit whatever the negotiated cap rate you’ve been promised on paper is, you are going to be a happy camper. You’ll be singing the praises of your turnkey company and want to buy more properties from them. And they’ll get a pristine, blossoming reputation and will be able to build their business through work-of-mouth and referrals.

Related: Why Turnkey Rentals Might Just Be an Ideal Investment for Real Estate Newbies

Fee Structures

Now, I want to make this clear. You have to understand that property management companies don’t make a lot of money on the 10% fee that they collect every single month. They make money most of their money in tenant replacement fees. So, they want to charge you one and a half month’s rent to put a new tenant in your property. Those outside property management companies don’t care if your tenant stays and pays. They want them out! Rent is due the first, it’s late on the third, they post a notice on fifth or sixth, they file on the ninth or tenth. Why? Because they want one and a half month’s rent for a new tenant placement. Say there’s a little plumbing maintenance problem. They don’t get their full-time guy to take care of it for $20.00. They call Roto Rooter, who charges a $100, and then they are going to put a $100 fee on top. They make their money on upcharges from maintenance and tenant placement fees.

The only way an outsourced property management relationship can work is if the relationship is really tight. What fee structure do they have? They must have great attention to detail. There must be employees that are especially designated to work with the turnkey company. That, in my opinion, is the only way it could work.

Do you agree with this assessment?

Leave your comments below!

Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
Read more
    Don Ashby from Roy, Utah
    Replied almost 3 years ago
    Thanks Engelo for the insight. I did not think about the PM company having the incentive to push existing tenants out in order to get the larger placement fee. I recently purchased my first real estate investment from a turn-key provider. They have an in-house PM team and only charge a half month’s rent for tenant placement. I have been pleased thus far but it is still early in the game. There are plenty of horror stories out there regarding PM. This article helps reassure me in my decision in the specific turn- key I have chosen.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 3 years ago
    Hi Don, Thanks for your comment. Yes, unfortunately PM companies make the most money from up charging maintenance and tenant placement fees. It’s very good that you bought through a provider that has in-house PM. That means that the provider has a vested interested in your success. Well done and keep the dream alive 🙂
    Chris Ellis Flipper/Rehabber from Tulsa, OK
    Replied almost 3 years ago
    This is extremely true with property management companies. They take 7% – 10% here, but you still have the exact same issue with wanting to get either the first month as their “fill the house fee”. The one thing you can do is include a performance rider and final say on evictions. I worked for a apartment complex for years and while we did most of the work, there were times the owner contracted with specialists in order to handle certain issues. And we’d see them over charge and make up problems and have to point them out to him time and again till he saw the money he was losing. You would need to talk to an attorney about the performance rider and how it would apply, but basically it will limit how they handle certain situations and when they can handle them on with their discretion and and when they have to call you. You can also list who they use for maintenance…say you have specific plumbers, and that there is no override just for making a call. We have one here in town run by an attorney, that’s about all he does; and he’s been doing it for 40+ years. I’m a little surprised he’s still alive. But he charges 10%, but he’s all about working with and keeping the tenants IN the houses. Because he does that, at one time I know he had over 200 properties he managed with just 2 employees. If you can find someone like that to work with…you’ll be in good shape.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 3 years ago
    Thanks for your comment Chris. It isn’t easy finding a good PM and many have bad reputations just like turnkey companies. Well done on finding a good one in your area. Much success
    John C. Investor from New York, NY
    Replied almost 3 years ago
    Good to know. Thanks!
    Christopher Smith Investor from brentwood, california
    Replied almost 3 years ago
    I’ve been a bit leery of “turnkey” providers. In the relatively few instances I have spoken with them they are always very quick to launch into an aggressive sales pitch (which as far as it goes is fine), but as soon as they find out that I have a very seasoned property manager on the ground who will be involved on site with the selection, inspection and acquisition management of the property they seem to melt away and I never hear from them again. I get the sense they are primarily looking to make a hard sell sales pitch to the novice and the naive which gives me a very uneasy feeling.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 3 years ago
    Thanks for your comment Christopher, Our approach is very different and we turn down 90% of business. We are one of the best companies at what we do and if an investor isn’t willing to completely let go and let us handle absolutely EVERYTHING. We unfortunately have to turn down working together. Ultimately, turnkey investing should be hands off and completely passive. What your describing doesn’t seem like you should be even considering investing in turnkey. You might as well just, buy, fix, tenant and manage yourself. Thanks and much success ps. Many are hard core sales sharks and I would run from anyone putting pressure on you to buy
    John Laabs from Chanhassen, Minnesota
    Replied almost 3 years ago
    Christopher, I think the real issue is that the Turn Key companies have all of the people in place and expect you to use them for the them to make $$’s. If you have your own in place then that just cuts into their business model and profits. But I do understand what your saying. As a new person trying to get into the real estate arena, the Turn Key companies look attractive to me to take some of the unknowns away. But at the same time being very cautious of them and the process. This article makes sense to me.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 3 years ago
    Thanks John, I would disagree. For example, my company makes money when it sells a property and not when it manages. Property management is a hassle but it’s a necessary evil as all other PM companies in town suck and are scammers. So in order to continue being the best and offering the best results, we suggest that every investor manages through us otherwise they will get screwed. Ultimately, it’s their decision in the end tho. I always tell investors this “If you think you know it all, then do it all yourself” “You don’t need to be buying through a turnkey company” “Just do it all yourself” Thanks and much success