So if you can verify a purchase\/investment, you don\u2019t have to take anyone\u2019s word for anything. Bingo!<\/p>\n
As most of you know if you\u2019ve read many of my articles, turnkey rental properties have been my jam for quite a while. I love them, they love me, and we get along great (most of the time). A question I get quite often is, \u201cHow do I know I\u2019m not being taken by one of these turnkey companies?\u201d<\/p>\n
Great question!<\/p>\n
How do you know? Well, as with REI in general, there is very little you can\u2019t verify about a turnkey purchase. In fact, with a turnkey, I\u2019d go as far as saying that there is nothing<\/em> you can\u2019t verify about the purchase! The only thing that will always be an unknown is simply the unknown. Like a crazy freak tenant, or a freak storm that hits the house, or some other kind of incident that you could not have predicted. But that\u2019s possible with any rental property<\/a>.<\/p>\n So in thinking of a possible turnkey purchase (I\u2019m specifically referring to turnkeys sold by turnkey companies in this case), what kinds of things can you incorporate into your due diligence to ensure you are actually buying what is being advertised and you aren\u2019t being taken?<\/p>\n Now, I do want to be specific about this one. On one hand, the turnkey provider itself\u00a0absolutely does not matter for your purchase — technically. I say this because you could buy a turnkey property from a company who doesn\u2019t know their hind side from their elbow, they are raging jerks, they are former felons, or they are completely dysfunctional. The reason that technically doesn\u2019t matter is because all that matters is the property. If you get a bangin\u2019 good property that gives great returns and all functions well, then who cares who you bought it through?<\/p>\n Related:<\/strong> The Downside to Turnkey Rental Properties No One Tells You<\/a><\/em><\/p>\n Now, on the flip side, while technically it doesn\u2019t matter who you buy from, the quality of the turnkey provider is likely to drastically affect your buying experience. Furthermore, if you are working with a low-quality provider, it\u2019s unlikely you can expect a high-quality property, although not impossible. Especially if this turnkey is your first purchase, turnkey or in REI in general, working with a solid turnkey provider will literally change your whole buying experience for the positive. When you work with a good provider, you are more likely to get a high-quality property, have easier communication, be able to close on your property in a decent amount of time, and go to sleep at night with warm fuzzies in your belly because of how good your property makes you feel.<\/p>\n If you work with a rougher company, you are more likely to have to fight to get the property quality up to standards, experience communication stress, have continued delays on construction and closing, not see the returns that were originally advertised, and go to bed thinking you have been (or are being) had. But all of that doesn\u2019t matter if you do get a good property, so just make sure you know the difference. I\u2019ll hit due diligence items about ensuring the property, but I wanted to throw this out about the quality of the turnkey provider. I won\u2019t send people to bad turnkey providers, mostly because the people I work with are new investors, and I don\u2019t want them scared off or in positions to need to do levels of due diligence on a property that are way past their knowledge levels. There\u2019s just no reason for it when there are good providers out there. So, the key points here are: All the matters is the quality of the property you are buying; however, who you work with will likely determine the likelihood of that property being up to standards and the ease of your experience in buying a property.<\/p>\n Now to the property! One of the absolute keys in buying a turnkey property — and in fact this goes for ANY property you buy, no matter what — is hiring a good property inspector to check everything out for you. This is not required, but frankly you are crazy if you don\u2019t have an inspection done. I might even judge you. The main role of a property inspector is to let you know of any problem areas they see in a property. This is key for you so that you aren\u2019t hit with an unexpected expense for some kind of repair later.<\/p>\n With the turnkeys, they are advertised as being fully rehabbed, and part of the perk of a turnkey is not having to do any major repairs or replacements for several years or more, so a property inspector should ensure that this is actually the case. When I hire a property inspector for my properties, I also whisper some sweet words to them about how nice it would be if they would relay back to me how the quality of the rehab looks. I\u2019m telling you, be nice to a property inspector because they can be your best friend. Especially if you are buying sight unseen, they can be your eyes and ears.<\/p>\n Quite honestly, inspections aren\u2019t that expensive so you could even hire two different inspectors if you really wanted to go crazy with assurance! I think that is a great idea. You can also pick your inspector\u2019s brain a little about the area the property is in, what the neighborhood’s look\/feel is like, and the kinds of residents.<\/p>\n Speaking of location, there are a few things about this. I\u2019ll start at the highest level. The highest level of location is the general market that you are buying in. Make sure you know the fundamentals associated with the market you are looking in. If you aren\u2019t sure exactly what to look for, check out “The Turnkey Investor\u2019s Guide to Choosing a Profitable Real Estate Market<\/a>.” A quick note that ties getting market information into the turnkey providers themselves — if you ask a direct turnkey provider what they think about the market they are selling in, of course they are going to tell you it\u2019s fantastic. Duh, it\u2019s where they sell. I caution you to do your own market due diligence and\/or speak with people who are more \u201cmarket agnostic\u201d so they can give you a less biased opinion on a particular market.<\/p>\n Now the market is set, the next issue is the particular neighborhoods. More neighborhoods\/areas than not within a market are not good places to buy. It may be because the numbers don\u2019t work, or it\u2019s not safe, or it\u2019s only renter-occupied (affects property value), or it\u2019s just a hard area to get renters in. How can you double-check where you are buying, outside of what the turnkey provider tells you? My vote is to call a third-party property management company in the area and mention you are thinking of buying in a particular area (don\u2019t mention you are buying turnkey or who you are buying through, just so you get a completely unbiased answer), and ask their experience with that neighborhood\/area. How rentability is, how the tenant pool is, how properties are there, etc. Get an outside opinion. You could even call a real estate agent who deals a lot with rentals. Call a couple different folks if you want, and see what the general consensus is. That should paint a fairly accurate picture about where you are buying this property and how likely it is to perform in the way that is being sold to you.<\/p>\n Lastly, and I do recommend this whenever possible, go visit it yourself. Not only can you get a feel for the turnkey provider, but you can go check out the areas and see for yourself what you think. It may not always be convenient to fly out to see things, and you certainly don\u2019t have to, but it never hurts. But if you can\u2019t, you can make plenty of calls to get outside opinions. Ultimately, why the location matters is because if you buy in a bad area or a bad market, the returns on your property could be drastically affected. Advertised returns in those cases can end up just that — advertised. You actually want them to pan out, so location matters and is worth verifying.<\/p>\n Yay, numbers! These are ultimately all that matter, right? (Say \u201cright.\u201d) The whole purpose for an investment is to make money, so if numbers don\u2019t pan out, you could be a\u00a0creek without a paddle. So going into a purchase, and in attempt to verify you are getting a legit property, you want to confirm the numbers that are presented to you. Never, ever take someone\u2019s word for numbers! They are way too easy to check, and there is way too much risk in not verifying them.<\/p>\n There are lots of ways to verify the numbers. The two most important numbers you want to verify are the rental income and the expenses. For the rental income, either have a real estate agent run a comparative market analysis (CMA) for you, or ask a third\u00a0party property manager their take on what the property could\/should rent for, as we discussed earlier. Never take a turnkey company\u2019s word for rental income. This bit me one time. Then for expenses, you can verify actual <\/em>numbers. Don\u2019t rely on estimates, except when it comes to vacancy and repairs, since you obviously can\u2019t know those exactly. Everything else, you can get actuals. Look up taxes on the county\u2019s tax assessor website, get an actual insurance quote from an insurance company, confirm with the property manager their fee, confirm if there is an HOA\/condo fee and if it\u2019s adjustable, and find out for sure if there are any utilities or other monthly expenses the owner is on the hook for. Once you have all of the numbers known, rerun them with your own calculations and see how they compare to what is advertised. If you need help on the numbers, check out “Rental Property Numbers So Easy You Can Calculate Them on a Napkin<\/a>.”<\/p>\n If you get verification on those four things (really just three because if those three check out completely, the turnkey provider doesn\u2019t matter), it\u2019s probably safe to say you aren\u2019t getting taken. But if in doubt at all, I definitely recommend solving that by going to visit the provider and property! Even if you just do it once to get you going, then you can easily buy sight unseen afterwards.<\/p>\n Related:<\/strong> Turnkey Real Estate Investing: Can You Really Have Your Cake and Eat It Too?<\/a><\/em><\/p>\n Lastly, it never hurts to ask for recommendations on what turnkey providers people like and are having good experiences with. Take everyone\u2019s word, good or bad, with a grain of salt because everyone can have different experiences, but it\u2019s a good place to start. If you identify a particular provider you are interested in, post in the forums<\/a> and see if anyone has had experience with them. But outside of referrals, make sure you are still doing your own due diligence!<\/p>\n Have any of you experienced investors gotten bitten by insufficient due diligence, on turnkey properties or something else?<\/em><\/p>\n Let me know with a comment!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" A common question newbies ask about turnkey rentals is, “How can I tell if this deal is legit?” Learn to buy with confidence using these steps!<\/p>\n","protected":false},"author":782,"featured_media":78225,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4252],"tags":[],"class_list":["post-78181","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-deal-analysis"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/78181","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/782"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=78181"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/78181\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/78225"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=78181"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=78181"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=78181"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}4 Steps to Ensure You’re NOT Getting Duped by a Turnkey Provider<\/h2>\n
Check out the reputation\/quality of the turnkey provider.<\/h3>\n
![\"turnkey-stigmas\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/01\/turnkey-stigmas.jpg\" "\\"\\"")
<\/p>\nDetermine the quality of the rehab.<\/h3>\n
Fully gauge the location.<\/h3>\n
![\"traits_reputable_turnkey_company\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/02\/traits_reputable_turnkey_company-702x336.jpg\" "\\"\\"")
<\/p>\nRun the numbers.<\/h3>\n