Anybody have a great experience with a turn key companies oos?

Question

New investor looking for first deal. Anybody have experience with turn key companies for out of state investing? Looking for buy and hold for cash flow. Small multi family or sfh. Thanks!

Clayton Mobley · Answer

@Robert Tinker I should preface this by saying we are a turnkey company in Birmingham, AL. That being said, the following advice is what I tell any and all new investors regardless of which market they're looking at.

@Mike D'Arrigo  made some really good points that you should take note of, esp his comments about incomplete pro formas, inconsistent rehab processes, lack of references, and selling only low-tier props.

There are several markets where you can get relatively comparable returns for relatively comparable properties - turnkey investing isn't that complicated and the specific market isn't what's going to make or break your investment. The people, on the other hand, and the research you do - that's what's going to decide your fate. The most important factor is finding a provider that is transparent, communicative, and is going to be around for the long haul.

Below are a few things to do, look for, or look out for, when shopping for a turnkey investment. It's important to remember that all investments have inherent risk, but you can mitigate your risks to some degree by being prepared and thorough in your vetting.

• Any turnkey company you consider should be full-service, meaning they do everything from finding props to rehab to long-term management. If they sell you a property and then sign you off to a third-party PM, that's another team you need to vet, and means the TK company has less skin in the game (ie once you close, their work is done).
• They should have solid, data-backed answers to your questions at-the-ready. Any TK company worth your time knows their vacancy and maintenance rates, turnover, avg move out costs etc off the back of their hands. If they don't, they're not paying enough attention to the metrics that help them improve performance, which is a bad sign.
• Some will disagree with me on this, but I advise most investors (and new ones especially) to stick to B/B+ properties and areas. This means places that nurses, teachers, skilled laborers, etc live. Places regular middle-class folks would be happy to raise a family. These areas have the best combination of cash flow, appreciation potential (never guaranteed), exit options (you might be able to sell to an owner occupant rather than another investor down the road = higher sales price), and stably-employed tenant pools. Cash flow for lower-tier props can look amazing on paper, but there are a lot of other factors that make real-world returns less impressive. New investors, esp out of state, should look for reliable, consistent cash flow and capital preservation. If you want to get into C/D class props, take your time to learn the ropes and try to invest in your own market so you can self-manage to minimize expenses.
• Use Google Earth to check out the neighborhoods they list in. Ask for a couple properties they have sold recently and take a virtual walk around those neighborhoods to see if they line up with the class of property you're being sold. There is a difference between B- and B+, and it's sort of a 'you know it when you see it' situation. But you'll know right away if something is being listed as a B but is actually a C or D ( I have seen folks listing props in C+ areas here in Bham as being A-, and someone from another market wouldn't know the difference without looking). In B areas, homes will be modest but maintained, grass mowed, no cars up on cinder blocks, etc.
• After you've narrowed down your choices to your top one or two, just make the trip out to meet them. See the city, tour the neighborhoods, check out some properties, meet the team. Face to face is still the best way to gut-check your decision, and this is a long-term relationship you're getting into, so make the investment in your investment and just fly out. If you invest with them and it goes well, you don't need to make the trip again, you can build your portfolio with that provider pretty easily.
• Even if you haven't narrowed down your list yet, ask about a visit. Many fly-by-night operations will talk a real good game but then suddenly stop responding or 'not be able to accommodate you' if you ask about coming out to see them. Why? They don't actually have real boots on the ground in the markets they advertise, let alone offices. They're either marketers calling themselves turnkey (ie they don't own any properties, they get a referral fee from other TK companies around the country for sending buyers) or they're some sort of Morris Invest house of cards (search the forums for Morris to see what to avoid).
• Pay attention to language. If a TK company sends you emails with a used car salesperson vibe, lots of ACT NOW!!!!!!! messaging or too-good-to-be-true promises, just walk away. This also applies to anyone who tells you that you need to sign a contract within minutes of being emailed a prop (ie before you have time to run numbers and ask questions). Real estate isn't going anywhere, don't let this type of hype make you pull the trigger on something you haven't had time to properly vet.
• Go ahead and spring for your own 3rd party inspection / appraisal. If a company you're considering working with balks at this, that's a bad sign.

Hopefully some of that is helpful. Turnkey can be a great investment, esp for folks in pricier markets, but it isn't the Passive Holy Grail that many people make it out to be. You need to put in the legwork to find a real long-term partner.

Here are a couple recent-ish threads that might be helpful in terms of learning how to vet turnkey providers and markets.

https://www.biggerpockets.com/forums/88/topics/638...

https://www.biggerpockets.com/forums/48/topics/683...

https://www.biggerpockets.com/forums/21/topics/674...

https://www.biggerpockets.com/forums/55/topics/676...

Best of luck!

Clayton

Mike D'Arrigo · Answer

@Robert Tinker Just like with any business, there are good turn key companies and not so good ones.

In general, the ones to avoid are the ones that:

• Don't allow      financing or a finance contingency (it can be a good indication they are      selling above market value)
• Don't allow      for your own independent property inspection
• Are not      realistic with their pro forma's (i.e. they don't include vacancy or      maintenance projections or use unrealistically low vacancy factors)
• Require you      to pay for any renovation upfront
• Sell only in      cheap. low end neighborhoods
• Don't      accurately represent the neighborhood/property classification
• Don't have      consistent rehab standards for all properties
• Don't      provide a scope of work for the property
• Can't      provide references of repeat investors
• Require you      to close before a tenant is in place

Stephen Bighaus · Answer

As a lender I work with many turn key companies in multiple states , a great way to start as a new investor purchasing out of state properties.

Robert Tinker · Answer

@Jay Hinrichs, I am investing in Texas. However deals are skinny with our property taxes so high. Along with Austin is so much of an appreciation game now. Difficult to cash flow for buy and holds.

Rivy S. · Answer

@Jay Hinrichs The property taxes (at least in the DFW area) are out of control, especially for non-homesteads.  And they increase so unpredictably, that I'm wary of holding rental even if they pencil out now.

@Robert Tinker I've been happy with FS Houses in Indy. I can't tag Ryan Mullin (the owner I think), but I believe he's on BP

Jay Hinrichs · Answer

I know Ryan and Ashley good people

Larry Fried · Answer

I started my out of state REI with turnkey companies back in 2012.  The ones I actually closed on have worked out well over the years, but have also seen some real stinkers along the way, which I didn't buy from.  Buying turnkey today is much more challenging as prices have gone up considerably, while rents don't keep pace.  You have to be very careful about who you choose to work and vet thoroughly.  Make sure you have realistic numbers and vet the companies (and those behind them) you are considering thoroughly.  In my view that should include a visit to the market and an on the ground visit with the provider if at all possible.

Tom Ott · Answer

Investing OOS can be a great way to get a good passive Turnkey. Just make sure you go with a True Provider. They should own the property first, renovate it, then manage it after the purchase. They should not be MLS listings. None of this "listing a day" stuff.

Sharad M. · Answer

@Jen Pothilat thank for the kind words. It has been a pleasure working with you.

@Robert Tinker I own a TK company in Indiana and will be more than happy to answer any questions you might have.

Account Closed · Answer

Where to you is out of state? ;-)

Disclaimer: I sell turnkeys out of state

Anybody have a great experience with a turn key companies oos?

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