The Most Common Turnkey Rental Misconceptions—And Solutions
I’ve been in and around turnkey rental properties for seven years now. It’s actually unbelievable when I think about it, because it seems like just yesterday I was sitting at my corporate engineering job secretly reading Rich Dad Poor Dad by Robert Kiyosaki and Sharon Lechter under my desk.
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I was just like everyone else who started with that book. I had no idea what I was going to get into with real estate investing—or if I was even going to get into real estate investing at all.
Seven years later, completely unexpectedly, I somehow ended up eating, breathing, and sleeping turnkeys. Could I have ever guessed those would end up being my thing? Absolutely not. But here I am. And in those seven years, I’ve not only experienced owning my own turnkey properties, but I’ve also been around hundreds of other investors who have bought, and consequently, owned them.
I know that when I first started in the turnkey world, I definitely held the two common misconceptions I’m going to present to you in this post. Once I realized they were, in fact, misconceptions, I was able to quickly adjust and roll with the punches. In truth, I’ve seen a lot of turnkey buyers who weren’t so quick to roll with those punches. They also were not so open-minded about what seemed to be going wrong.
My plan is to give you the dirty reality about turnkeys right here and now so that you are able to (re)set your expectations about them from the start. The more realistic you are about what you are getting into, the better equipped you will be to handle any challenges that may arise. At least mentally you’ll be better equipped, if nothing else.
I’m first going to address the two major misconceptions that a lot of people hold about turnkeys. Then I’m going to offer you a short list of helpful points to keep your expectations in tact and more easily handle the things that may come up.
When I say turnkeys, at least for this post, I’m referring to turnkey rental properties sold through turnkey providers. You can buy a property anywhere that might be in turnkey-condition, but I’m more specifically talking about buying through actual turnkey providers, so the rehab is done by them, tenants are placed by them, and the property management is set up and running through them.
Because all of those things are done by the turnkey provider, in addition to the market research and all that jazz, I will say that turnkeys are about as close to being hands-off as owning real property can get. Key phrase being as close to.
Ready, set, go!
Turnkeys Are Too Good to be True
Ha! I wish. Guess what? Turnkeys are rental properties. If rental properties were always that easy, everyone would buy them. Cliché, I know. But it’s true.
Rental properties are never guaranteed to be perfect. (More on this below.) But most generally, if you own a rental property, no matter how you acquired it, there will always be live humans (live humans = complete unpredictability) and a physical structure that you’ll have to deal with.
There are a lot of advantages to going the turnkey route over doing all the work yourself. The teams are already in place; a good turnkey company will offer a lot of expertise going into your property for you. The cash flow can be great. You don’t have to get your hands dirty, and you are more likely to be able to buy smoothly in multiple markets (which can be extremely financially advantageous) rather than just staying in one. So yes, turnkeys can be fantastic.
But here are a few reasons why turnkeys aren’t necessarily too good to be true:
- Paying market value. Unless you go the BRRRR and turnkey route, which some providers do offer, you will be paying closer to market value for your property. You won’t necessarily have equity immediately on the buy. Plus, the property will be fully rehabbed, so you won’t be able to force appreciation on it yourself. The market itself may provide appreciation, but there won’t be much you can do yourself to control it.
- Control issues. If you have control issues or are a control freak, and I can say this because I was once one myself, you’ll hate turnkeys. Everything is done for you, and nosing into everything and micromanaging will be severely frowned upon. This idea of not being heavily involved is a gift to those who can handle it, but it’s not for anyone who will lose sleep because they don’t have their hands in something.
- Communication. I’ll just be frank on this one. With only a couple of exceptions, when it comes to turnkey providers, most don’t specialize in customer service. They are good at what they are good at, which is negotiating deals for distressed properties, market expertise and rehabbing expertise. They are also clever enough to set up their businesses to support the turnkey business model. But realistically, because they can’t be experts at everything, customer service will be the area that likely takes the hit. Again, there are certainly some exceptions out there, but for the most part, you won’t be getting any warm fuzzies from them.
- Property management. Turnkey providers really only offer property management because it’s part of the turnkey business model. This isn’t necessarily their forte. There are definitely exceptions here too, but the property management that comes with turnkeys oftentimes is not the most blissful.
Don’t let any of these things dissuade you from turnkeys if it’s is something you are considering. All of these downsides are easily workable. The bottom line: Turnkeys aren’t too good to be true, and they’re not always perfect. And they aren’t always as completely hands-off as they are advertised either…
Turnkeys Are a Hands-off Investment Strategy
Ack, cover your ears! Don’t let the phrase “hands-off” even get into your head! To be honest, I may have been one of the people who said they were hands-off back in the day. I said that because I thought turnkeys were supposed to be when I started buying them! It turns out, after watching so many people buy and own turnkeys throughout the years, some people truly don’t realize that they actually do need to use their brains for their properties occasionally.
If you own real property of any sort, you should never assume that you can be completely hands-off. Even if the property is advertised as “everything is being taken care of for you,” your job is then to keep an eye on things and make sure that everything continues to run smoothly.
People aren’t perfect, and operations aren’t perfect. It’s your job, as the owner, to step up and make an adjustment if need be. Even a person or team who operates perfectly in the beginning may end up starting to slide later on, possibly for no good reason whatsoever.
Here is a list of some things that I’ve seen go wrong with various turnkey properties:
- Signed contracts aren’t returned.
- A rehab isn’t started, or completed, when expected or promised.
- The inspection report comes back with issues.
- The seller doesn’t communicate with the owner or the lender when necessary.
- The property manager doesn’t deposit funds when they should.
- Repairs come up on the property—maybe they should have been covered under the scope of work warranty and weren’t, or maybe they are due to damage caused by the tenant.
- Damages are severe enough that the property must be rehabbed, but the property managers and/or contractors don’t get started on it in a timely manner—or they don’t do it to a quality level (rehabs need to be monitored!).
- The property manager just flat out sucks and needs to be replaced.
And the list could go on.
Keep in mind that while I am talking about turnkeys, all of these issues can happen to a general rental property, so don’t think these possible issues give turnkeys a bad name. Actually, just the fact that this list is short and generally inexpensive, that in and of itself should be great marketing for turnkeys!
Remember Who the Boss Is
When I work with people who buy and own turnkeys, I always tell them I’ll be there anytime they need me for support. I can’t tell you how many times someone has messaged me and said something is wonky, and yet they haven’t reached out to the property manager or the seller (whichever is applicable) to address it.
It’s like they think the property manager or seller is the boss and they can’t (or shouldn’t) put their foot down. You are the boss! And just like the boss of anything, you have the last say, and you may occasionally need to jump in and set people straight in order to keep things moving along. You may even have to hire and fire employees—it comes with the position of being the boss.
If you aren’t comfortable being the boss, you shouldn’t buy turnkeys. They are primarily hands-off, but not that hands-off. Remember that people and operations aren’t always perfect. You must control your property.
Find the Right Balance
Now, a major note here: Please don’t take what I’m saying and run in the extreme far direction with it and suddenly insert yourself into every part of the turnkey process—to the point where you are obnoxiously micromanaging every step of it.
I guarantee that if you do that, a lot of turnkey providers will just stop working with you and refuse to sell you properties. It’s all about balance—figuring out the fine line between letting someone walk all over you and letting the pros do what they do best. If at some point, they don’t do what they are supposed to do, then you jump in and tell them what you need. It’s finding the middle ground between being 100 percent hands-off and being a micromanager.
What you need to know about this misconception is that not only does everything not always operate perfectly, but when it doesn’t, you’ll need to be prepared to stand up to somebody. You have to remember that when you own a property—of any kind—you are the boss of it.
Here’s a baffling example of an owner not initiating authority properly: When there’s a severe level of repairs for some reason and they don’t contact the insurance company to see if any of it is covered. I’ve heard of people having $5,000-$7,000 worth of repairs that easily would have been covered by insurance. When I ask them, shocked, why they didn’t call their insurance company, they say, “Oh, well, I didn’t think about that.” This is an example of when a property owner must use their brain!
You don’t need to swing a hammer, fix a toilet or chase down a tenant if you buy a turnkey. However, you should at least be ready to make a call to fix a problem. That’s not being hands-off, I know, but it only takes a phone call or two and some basic monitoring
Set Your Expectations Appropriately for a Turnkey
As I said, turnkeys can be a fantastic method of investing, but they aren’t always perfect. If you go into a turnkey purchase with your expectations set at a realistic level, your experience is likely to go much smoother.
Here are some very basic points to consider (as well as mitigations for each) to help you set those expectations:
A turnkey provider doesn’t communicate at a stellar level, but this does not mean your property has burned to the ground or that you will be shafted out of funds you are owed—or that they are out to scam you!
- Email or call your primary point of contact and specify, in detail, exactly what information it is that you need. If there are facts behind what you are asking for (like if you were owed a payment on a certain date and didn’t receive it) state that fact: “I was supposed to receive $X on Y date and I did not receive it. Can you please tell me when I should expect that payment?” Be clear and concise.
- If you work through a turnkey promoter rather than through a turnkey provider to buy your property, this is a fantastic time to reach out to them and let them know that you haven’t heard from the provider and are in need of X, Y and Z. Turnkey providers are much more receptive to one of their promoters putting the smack down than individuals, so take advantage of the promoter being able to help you.
Things go wrong with your property. Maybe it’s the rehab schedule, or the tenants, or who knows. It’s just a fact.
- Don’t assume you are being scammed if something falls off schedule. Relax. It happens.
- Follow the same solutions above. Properly message your primary contact to ask for information. Don’t forget to specify the details you need! And same as above, reach out to the promoter (if you are working with one) and ask their opinion about what’s happening and how to proceed.
The inspection report comes back with a large list of items on it!
- Don’t panic! That’s normal.
- Read the section called “Property Inspections on Turnkey Rental Properties” in Property Inspections: Why They’re Vitally Important and How to Get the Most Out of Yours.
Just because property management comes with a turnkey doesn’t guarantee it’s going to offer flawless service!
- Start simply by knowing that you aren’t required to use, or keep, the property management that comes with the property. You can use any property manager you want—either from the start or at any point along the way.
- Make attempts to remedy the problem before you just jump ship—specify communications that you need, or ask for clarification about the problem, etc. Then, take the initiative to possibly find a new property manager. I recommend starting your search on Yelp for a new manager. It’s worked great for me in the past.
- Do your due diligence and research the property manager that comes with the property, just as you would if you were hiring a property management company on your own. Don’t just assume and trust that all will be fine.
Note: Most turnkeys come with guarantees in place for some period of time—scope of work, rental guarantees, etc. If you start with a property manager other than the one that comes with the property, those guarantees fall off. So I usually recommend sticking with the one that comes with the property, at least for the duration of the guarantee. Then plan to switch if you aren’t pleased.
Repairs and damage will always happen! It’s part of the game.
- Know that it just happens.
- If the repair amount is something substantial, contact your insurance company to see if any of it is covered under your policy.
Here is the most basic list of remedies. Certainly other things may come up, but make these your first steps:
- Don’t panic.
- Don’t assume you are getting scammed.
- Communicate with specificity about what you need or are missing.
Following these three steps will change your life when buying and owning turnkey rentals. For more information about being a turnkey owner (or just rental properties in general), check out “The Top 3 Mistakes Turnkey Property Owners Make Once They Buy.”
I hope this makes your turnkey experience go a little smoother. Turnkeys really can be great, fun investing experiences, so try your best to keep everything on the fun and light side!
What tips do you have for dealing with turnkey issues?
Share them below!