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Posted over 7 years ago

Part 4 – Closing on my first Turnkey

This is the fourth part of my blog about my journey to my first turnkey REI property. Hopefully if anyone is on this journey this information will help guide them into a smart decision. If you have any questions not covered here please feel free to PM me.

Signing the Contract of Sale

Signing the Contract of Sale was a very easy and straight forward. Because of my extended research on BiggerPockets and many recommended books, I felt like I knew what to look for. Within the contingencies section the normal “pending finance and inspection” was included. However, I put this particular SFR under contract before it was finished, purely based on the reputation this company had built. This caused two concerns. The first was the 10-day inspection window and the second was having a tenant in place. To help extend the inspection window I had the seller add the clause “10 days post renovation completion”. As I chose turnkey partly due to the fact that there would be a renter in place, not having a renter when I put the property under contract had me concerned. To alleviate this concern, I had the company add the clause “if a tenant is not placed within 30 days of closing, the seller will pay the first month’s mortgage payments”.

Please, don’t expect every turnkey company to give into these demands. I thoroughly vetted many companies and went with one that had an outstanding reputation, which I may have paid for in the overall cost of the property (See more in the Lessons Learned section below).

Obtaining Financing

I shopped around a little for financing but ended up going with bank the TK company recommended. Their rates were competitive and they were very investor friendly. They gave me credit for 75% of the predicted rent towards my debt/income ratio. The key factors while under contract to ensure financing are:

-Don’t make a lot of big moves between accounts. The more large moves you make the more the financing company will ask questions.

-Don’t go out and open any other accounts while your loan is in underwriting. Again, this will just raise questions and could ultimately be the cause of your loan being denied.

-Every bank will make you get an appraisal. This is the one step in the process that is completely out of your hands. The bank chooses the appraiser and you will have little to no contact with him or her. If your appraisal comes in under value, just take it as a sign that it may not have been a good investment and move on to the next property. The property I purchased did appraise for $3K over purchase price however!

Finding Insurance

My biggest tip here is to shop around. Play with different deductibles you’re comfortable with and different choices in coverage. I was pleasantly surprised to find that my large corporate insurance company (which I’ve been really happy with over the years) was cheaper on the investment property than local companies. Also, check with your proposed property management company to see if they have any specific requirements for insurance coverage

Inspection

The inspection results were both the scariest and the most relieving experience in my TK purchase. When I received the initial inspection results I immediately had buyers regret. I couldn’t help but think that this “TK” wasn’t so TK and was ready to use the inspection contingency to back out. After talking with the company they went through the report and agreed to fix EVERYTHING. Well everything except the recommended addition of gutters to the rear of the house. When I say everything I don’t mean just big electrical or plumbing issues, but even small items recommended by the inspector. This is what I expected from a TK company. My tip if you’re going TK: Get seller to fix everything on the report. You’re paying more to ideally have a 100% move-in ready house.

Closing Day

The day of closing was the least smooth of all the areas in this process. I have to mention first of all that we were not present for closing, so they had to ship all of the closing documents to our home. This entire process was completely out of the TK company’s hands and 100% in the hands of the title company. I purposely only put my name on the loan and intended for only my name to be on the title. When we were shipped all the documents for closing and the notary arrived to our house we soon realized that my wife’s name was on half of the documents and she would not be available that evening to sign the required documents. My tips for a successful closing are to 1) ask who needs to be at closing and 2) open and read the documents before the notary arrives.

Property Management

I chose to go with the property management company associated with the TK company that sold the house. It’s only been 2 months, but so far so good. I’ve received all my rent on time and have only had one minor issue that I wasn’t even aware of until the statement came out (this is a good thing). Apparently the tenant didn’t transfer the water bill in their name. The PM merely paid the water bill out of the rent and then collected the extra amount from the tenant. All of this was without bothering or notifying me at all. This is how a PM company should operate and hopefully things will continue like this.

Lessons Learned

In the end, the house had tenants, weeks before closing and I’ve been sitting back happily collecting rent checks for the last couple of months that far exceed any expenses I have. I know there are a lot of you out there that will tell me that I overpaid for the house. I could have gone out and drove for dollars or sent out yellow letters, put in some new carpet and paint and fix whatever other minor or major issues the house had, searched for a PM company, and either found tenants or paid for the PM company a month’s rent to place tenants. But, after this is done and calculating my time and energy is it worth the amount saved rather than going with a company who are experts at all of the above? That’s for you to decide. I know I’m already saving my pennies to buy another TK property ASAP!



Comments (3)

  1. Great articles, Kyke- I appreciate hearing the nitty gritty details that I hadn't thought about when choosing a TK (I have added them to my due diligence list).  As others have commented on your pervious articles, I have a good guess at Company 3 but was hoping you can PM me with info on company 4?

    Thanks in advance!


  2. Great article Kyle!!  As usual it's informative and you are really an inspiration.


  3. Great to hear.  I'm in the process of purchasing my first turnkey as well.  I'll take your notes to heart as I go through this process for the first time...

    Like you, the time and energy involved in finding my own deal isn't worth the savings.  Since I'm already a business owner, and am my own boss, I can probably make more money by spending the time working on my day-to-day business, and then using that money to invest in more properties...

    Good luck!