"Turnkey" hazards for newbies.
Hi everyone.
I am a brand new real estate investor. A 'newbie', as they say. For many years I have looked at real estate investing as a great vehicle to help someone to become financially independent. I come from a fairly large family that often built their own custom homes and I was able to gain an appreciation for owning real estate quite early in my childhood.
Fast forward to 2017. I lost both my parents within a span of about 4 years. The last one, being my Mom who passed away back in 2016. Almost 4 years to the month after my Dad passed away. They left behind a sizable estate which provided myself and sibling with free and clear homes, and funds that we otherwise might have had to work an entire lifetime to achieve/build. All that said, I wanted to use my inheritance for the beginnings of a 'Real Estate' goal of achieving that "passive monthly income' from rental property that I had always dreamed of. So, I decided to "go for it" and began negotiations on a single family home in Alabama. Prices in other parts of the country are considerably less than in my home state of California. That is why I went 'out of state' with my first acquisition.
My immediate family (Dad & Mom) owned 2 duplexes and one 900 sq ft home, all on one property. Matter of fact, I was born in the house on that property. It was originally my grandparents rentals and my folks acquired them many, many years later. As I grew up I watched my parents manage it themselves. They worked hard at it, too. They did all the cleaning & scrubbing, re-painting, plumbing and electrical repairs, replaced furnaces, stoves, sinks, showers, cabinets, refrigerators, etc., all by themselves for over 40 years. Then they would place their own local ads for the prospective tenants. They would interview them carefully - when they'd show up. Many would set up a meeting, then be a "no show". Then the decision came of who to place into our rental/s. Some tenants were awesome. Some, quite literally the "tenants from hell". But they learned a lot through it all. Experience, it is said, is THE BEST teacher. Right?
That said, with the recently acquired inheritance monies I received I decided to pull the trigger, figuratively, and invest it in Real Estate. I wanted to start my journey of finding "passive income streams" to become financially independent so that I can have more time for my family, for traveling, etc.. One day I became aware of the "Bigger Pockets" network and started learning about Real Estate investing from their many informative videos, blogs, and webinars. I decided, based on one of their YouTube "Deal of the Day" videos, to take the leap & go the "Turnkey" route.
One of the videos I saw presented a certain "Turnkey" opportunity that claimed to be able to help investors to buy into already established real estate that provided already established revenue streams, immediately. The claim was that if you bought their "turnkey" offering, you'd get instant revenue the minute you closed Escrow. It sounded too good to be true. The host/presenter in the video, and the spotlighted company that they touted all sounded like it was made to order, and just for me. I was excited. It was just what I was looking for. Or so I thought. All I will say is that the first experience with a "turnkey" provider was NOT what I was expecting. Actually, it was the exact opposite. I will end it there......for now.
Stay tuned for the rest of the story to come.
Comments (1)
Hi everyone, I wrote down a few things that I think should be on EVERY real estate investors mind when thinking of going the "turnkey" route. And if you don't get any answers to some of these questions, my advice is to move on to someone else's company. Or, forget 'Turnkey' deals altogether and go a different route.
~ Verify claims of installed management. Make sure the management company in charge of the property you choose is legitimate. And even if legit, ask them for a copy of their contract so you can read it before committing.
~ Check online for neighborhood evaluations. Is it a "high crime" area? Check local crime reports. Does the area have lots of unemployed folks or not? High unemployment often-times leads to people doing desperate things. Like squatting in vacant homes. That should be of major concern to 'turnkey' seekers. If your home sits vacant things can happen.
~ Make sure that the "Turnkey" provider you are working with owns the property you pick. If not, there may be some issues that you'll have to deal with because of a third party being involved. That's what I did wrong. I bought a home that was NOT the turnkey providers. It was someone else's company who owned it.
~ Check the Tax Assessors records with your property's county assessor and make darn sure property taxes are up to date. You don't want to find out they are still owed and/or not paid & accrued from several years back.
~ Check the title company involved and make sure they're legitimate before sending ANY funds. Even the 'good faith monies'. Remember, it's a long distance purchase deal. If something should go wrong you may need a face to face with whatever entity it may be. Same state stuff is easier then cross-country purchases.
~ Management companies may "quit" on you before you even get started with them. Some 'turnkey' deals come with the promise of an already installed management team in place. Make sure you read their contract, you agree on their monthly fees (usually their interest percentages from 7% to 10% - or more), and there are no hidden fees. The one that quit on me was because I questioned their 'percentages'. I also found a 50% charge for re-negotiating a new lease with the same tenants. The company wanted 50% of the rent for first months rent on a newly written lease agreement. We're in his to make money. If you find hidden costs, they WILL cut into your profits/income.
~ Ask each member of the turnkey 'team' what they get out of YOUR deal? If they don't answer you, run! Run away as fast as you can. They should at least be transparent & honest with you. If they are not, I'd say they have something to hide. Letting an investor know about 'their cut' in the 'turnkey' deal shouldn't be "top secret" info. They should at the very least be open and tell you. If they are embarrassed to tell you what they make, maybe it's because they're making a killing on the deal - and YOU. Example: You pay $100K for a 3/2 in "any town USA" and find out later that the same home was sold months earlier for $40K. Was it under foreclosure? Why so cheap? They're obviously making $60K on the deal with YOU after all the dust settles. That said we're in business to make a profit. No doubt. But not to screw people over. We, as investors, need to be fair, honest, and have some moral principles as our personal guidelines. If not, it's all about GREED. Greed has wrecked more than one business relationship and/or friendship in past history. Murphy's Law states; "If anything bad can happen it usually does - and at the worst possible moment!".
That's it for now. Stay tuned!
Philip Lanza, almost 7 years ago