Distinguish good/bad turn key solutions

17 Replies

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.

Well I am sure you should receive several more posts to your thread from people and or property providers in that area.  Some will give you info on whom you might consider and some will be actual TK in that market.  Do your homework on them, even google for TK providers there and see who comes up.  

Good luck

@Leo Qu  

welcome to the site.

Because of my business interests I would not be able to give you a truly unbiased opinion on Cleveland vs Springfield.

I'd recommend flying out to both areas & meeting the local teams & seeing the areas then choosing who your most comfortable with.

Originally posted by @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.

Hi Leo,

There is a key question that I personally use when looking at entering into new business ventures.

The questions you as is this "Are you willing work answer any questions I might have and guide me for 9-12 months before any business is conducted"?

IMO you will eliminate many non-genuine professionals that are just looking for a quick $.

Feel free to listen to a podcast I did with Bigger Pockets. See link below:

http://www.biggerpockets.com/renewsblog/2014/09/25/high-school-dropout-300-real-estate-deals/

I hope you find it useful.

Thanks and have a great day

One thing to keep an eye out for is whether the turnkey provider requires you to put all the money up, upfront, for them to do the work. There are a lot of those around Cleveland. That is the risky version of turnkeys. Other turnkeys don't make you put up a dime (other than earnest money) until the property is ready and performing.

Why those areas in particular?

Originally posted by @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.

 HI Leo - 

What are the big numbers that everyone is claiming?  You mean volume of homes they are doing or the returns you can get?  Volume of homes is one thing - it can easily be verified through public records.

Big numbers as far as returns on paper....that is another thing.  Big returns on paper do not always pan out in reality.  I have no direct knowledge of providers in that area, but know there are several and some are brand new - others may have been working for a while.  

My big advice is to take your time, ask lots of questions and look for companies whose message, numbers, returns and product are all congruent.  What they provide has to match what they advertise and talk on the phone.

@Ali Boone Yeah that's a good point. If one had to put up that money up front while turnkeys do renovations, it would be a lot riskier. I would expect the turnkey guys to give a discounted price in that case.

Numbers I hear are anywhere from 1.3-2% of house price in monthly rent. I think turnkeys do provide a lot of value, and they should make a bunch of money. But just don't want to be ripped off.

Originally started looking at Cleveland because the housing was cheap and I may be going there for a trade show for work next year which is convenient. Since then have started looking at Philly and Chicago also.

The question I'm thinking about is, how can I incentivize turnkeys to want to work with me over the long term, and develop a partnership, rather than just do one-and-done and give me the bad end of one deal.

@Chris Clothier  Thank you for the advice. I'm hearing numbers between 1.3-2%.

Guess there is no replacement for doing your own due diligence. Regardless who I work with, would have to get a second opinion on the property/neighborhood.

If I compare properties in the same neighborhood to the turnkey offer, should I expect the turnkey offer to be a deal? About even? Slightly more expensive?

@Ali Boone  Tagging again, last one might not have worked.

Oh I can make sure that happens for you (long-term instead of a one-deal thing). Send me a PM or direct message (or whatever it's called?) and I can explain. 

Of the markets you mention, I'm a fan of Philly and Chicago but not Cleveland. There's a reason properties are cheap in Cleveland. People can argue all day long that Cleveland is turning around, but people have been saying that for about 20 years and it's yet to have started. Cleveland led the nation in job loss last year. If that's not a sign of a declining market, I don't know what is. Maybe it is going to turn around, but I'll have to see a lot more solid evidence of it before I buy into it (pun!). Philly and Chicago both have a lot stronger economics and growth, jobs, industry, etc.

http://www.thedailybeast.com/articles/2014/12/07/t...

Article from 3 days ago makes a pretty compelling case for Clevelands come back. They claim it is already snowballing. Stats like "

Over the last three years, the Cleveland metro has risen to third in the nation in the percentage gain of young adults with a college degree, behind only Nashville and Orlando. Cleveland’s gain of 15,500 college-educated young adults was greater than Silicon Valley’s and seven times that of Portland."

Anyways check it out if you are interested in Cleveland. It is an interesting read for sure.

Updated almost 5 years ago

Philadelphia metro unemployment 5.4% Cleveland metro unemployment 5.4% Chicago metro unemployment 6.1% Bureau of Labor Stats Oct 2014

I like Cleveland. I think there're a few cities in Ohio that have a good base of young professionals, colleges, and major sports teams (don't ask me why, but I think those three things bode well for a city). 

@Leo Qu  

  so many choices... Have you thought about being on the debt side of the equation?

Some pretty strong debt plays in the bay area .. if your planning on paying cash for the rentals.. Debt plays on the west coast will equal or exceed COC returns of any rental property in any of the cities described above.. with much less head ache..

You may want to look into that as an alternative.. since were you live in the land of 1 to 5 million dollar plus homes makes buying rentals a little tricky... LOL...  You should ping @?minh le  or @?jmartin about what they do.. these guys get cash flow  in the Bay area that rivals out of state... Just keep your options open  and make sure you fully understand the asset class's and at which price points deliver the best balance of security of the asset and return...

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

@Jeff Pollack  I think that's a great breakdown of what to look for in providers. Any extra $50-100 a month to me won't make a difference, but if I have a property with little chance of appreciation, that doesn't make sense to me.

Steven

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