Distinguish good/bad turn key solutions

[Leo Qu]

Hello BP,

I plan to invest in a few buy and hold properties in Cleveland and/or Springfield, Ohio. And having a full time job, going for a turn-key solution doesn't seen like a bad idea to me.

• Economy of scale when fixing up property
• Developed networks of wholesalers, PMs, and contractors etc.
• Knowledge of the market and different neighborhoods

My question is how do you distinguish the high quality turnkey providers from the ones that will give low returns, or worse low-ball you? Everybody claims big numbers...

And any recommendations for some good people in these areas that one can develop a real relationship/partnership with?

Thanks in advance for your advice.

[Jeff Pollack]

Hey @Leo Qu 

Decisions, decisions.  Turn key can definitely be a good option for some (e.g. if you have a day job, lack of knowledge, lack of time, or even lack of interest in RE).  For a lot of folks its a relatively easy way to passively buy a real estate and diversify.  

As everybody has already said, do you due diligence.  And by due diligence I don't mean just grill the turn key provider.  They'll all say their market/product/returns, etc, etc, are the greatest.  Dig deeper.  Look at the area.  How is the job market?  What is emigration like and what trends are projected by the most recent census report?  How diverse is the economy?  Check U-haul of Penske truck rental rates for a one way trip to, for example, Cleveland from a similarly sized city/metro and vice versa.  Do this for several cities.  These price differences will tell you right away where people are moving for jobs.

Get references.  Talk to people who have bought from the TK provider in the somewhat distant past, not people who just bought a couple months ago.   People who bought recently won't know how the TK provider handles problems when they occur.  Ask to talk to the property manager/management company the TK provider uses.  Then ask the property manager for references and insist they give you people who own multiple properties and live out of state.  Don't let them send you to the accidental landlords who had to rent out their former primary residence because they couldn't sell it.  These people will lack the perspective and experience you need from a reference.  If the property manager is bad it doesn't matter how great those cash flow numbers look.  You'll never hit the numbers because your property will have high vacancy and high maintenance fees. Speaking of property managers, don't ever sign a management agreement that requires you pay the PM their management fees for the remainder of your tenant's lease if you cancel while your property is rented.  A good PM won't have this clause or will happily remove it if you ask knowing there is very little chance you'll fire them if they are doing a good job.  A sub par PM will want to retain this clause to keep you handcuffed to them or pick your pocket on the way out when you discover they are no good. 

And be wary of those eye popping rent ratios.  You may find these properties are either in the war zone or in the sticks.  Everybody loves cash flow, but over time the cash flow is just icing on the cake.  The real money is made later as a result of equity gained from your tenant paying off your mortgage and from compounded appreciation, which you'll get if you buy right. 

Happy Hunting!

Cheers,

Jeff