Turnkey investment properties

23 Replies

I’m currently active duty and want to get into real estate but my current schedule is pretty hectic and I would like to minimize the time I dedicate to a property (for the time being). Does anyone have any tips or recommendations on turnkey companies and/or great property managers in the southeast.

I'd google areas you are interested in and read reviews. I'm sure you'll get some great recs from BP as well! I'd just make sure to talk to providers that aren't sucking out all the equity or charging you crazy fees. Make sure to talk to investors they've worked with in the past see if they're happy about their investments. I'd also review their recent inventory to see if you like what's been sold and if the numbers meet your goals! 

Originally posted by @Christopher Raney :

I’m currently active duty and want to get into real estate but my current schedule is pretty hectic and I would like to minimize the time I dedicate to a property (for the time being). Does anyone have any tips or recommendations on turnkey companies and/or great property managers in the southeast.

 Turnkey properties can be a great way to invest OOS or when you do not have time to be a full-time landlord. 

I would suggest looking at:

Assessing the Risk of a Turnkey Real Estate Company

5 Keys to Turnkey Real Estate Investing

@Christopher Raney

Southeast is a very broad region. I think you should first figure out which market you want to go into and then decide on the turnkey company from there. Property managers are market specific as well, so no one will be able to help you out there until you choose some markets. I invest in turnkeys as well, so let me know if you have more questions! I'd be glad to help!

@Christopher Raney   I apologize for the lengthy reply, but I think it could be useful for this thread, not only for the southeast! Here are some important questions to ask turnkey providers:

Forbes published a great article about how to screen turnkey companies before you decide to partner with them. I was very excited to see this article published, because of the increasing popularity of the industry over the last couple of years. Here is a brief summary of the article. At the end of each question, I will add my opinion as a real estate expert and turnkey provider.

Key Questions:

1. What is their track record?

Forbes Advice: Ask for references, and call their previous clients to ask what they wish they would have known before partnering with them. Also, ask if they would partner with them again.

My Advice: Some turnkey providers might have a privacy policy in place to avoid such communication. This should be a red flag. Although clients’ privacy is very important, if the turnkey company has a good track record, they should have at least a few clients that are more than willing to be contacted on their behalf. Also, take the time to look for references and testimonials.

2. Do they offer maintenance warranties?

Forbes Advice: “Turnkey providers are all over the map in this regard. As an investor, you’ll want them to stand behind their work, but to the appropriate level. If they offer maintenance warranties to shield you from the ups and downs of investing, like tenant issues and unforeseen problems, they are doing you a disservice. You need to be prepared for the full cost and responsibility required to own and operate an investment property. If you take a maintenance warranty, be sure to have a detailed understanding of the costs your provider is agreeing to cover. Things break, even the best tenants have issues and there are many uncontrollable costs that come with owning a rental property. As the owner, it’s imperative that you have full transparency into what is going on at your property and a clear grasp of who and how maintenance is being handled.”

My Advice: I quoted this in full because of its importance. I think the tone is somewhat negative, but I agree with the overall approach. I think it is important for turnkey providers to provide a warranty over what they repaired or improved on the property, but I agree that there should be a limitation on what they cover, and if there is not, then this should be a red flag for the investor. Turnkey companies that have experience and a good track record should never warranty tenant caused damage. It is irresponsible for the company to do so. They would be risking going out of business for unforeseen events that are impossible to track. The company should stand by their product, but limit their exposure from acts of God and tenant caused damage, which should not be covered under a warranty for good reason: They would not be able to adequately forecast the company’s performance and overhead costs, which would impact not only their clients, but their employees as well.

A turnkey provider that follows this approach is more likely to be experienced and built for longevity.

3. Do they offer rent guarantees?

Forbes Advice: Forbes states that rent guarantees are a disaster. They mention that investors have several rental insurance options. They also go on to say that companies go bankrupt for such policies. They state that it increases the turnkey company’s chances for failure.

My Advice: I agree in part and disagree in part on this particular subject. I think that rent guarantees can be tailored to fit both parties in the transaction. They also say that one bad “crack in the system” could lead the company to go “belly up.” I interpret this to mean a decline in the market. During a market decline, I would agree. But, I also am of the opinion that if there is a strong rental market, and the company feels comfortable tailoring a rent guarantee based on the company’s tracked performance in the past, it can help the investor sleep at night. If there are substantial changes in the rental market, then the company can adjust their policies to reflect the change. How many times do you get policy update notification from various companies in which you’re involved? I bet a lot. I think being able to have the expertise to know when the company can provide such peace of mind, there is nothing that should raise a red flag about this one, but make sure it is not “too good to be true.” A total rent guarantee until a tenant is placed should be a red flag. Inquire to see if they have an average leasing period of 30-45 days (or something near), which should be tracked over time. And, understand that this is an average, not always the case. That is why we have a tailored 45 day grace period before our rent guarantee initiates. The company should have experts in the industry and know how important it is to find a quality tenant. If the rental demand is affected, which they should research frequently, they should adjust this policy and send out a notification to their clients with an explanation. This is a partnership, and turnkey clients should value the partnership as well. It is important to them and turnkey companies to succeed in this industry.

4. Will they manage your property in-house or leverage a third-party expert?

Forbes Advice: “Property management is tough business and isn’t usually the main revenue stream for turnkey providers. It’s usually something they take on as a necessary evil given its nature of importance for out-of-state investors.” Forbes continues by providing two main reasons to not outsource property management: 1. “The firm may not have a trusted third-party partner…”, and 2. “The firm may be overly tied … preventing them from establishing a process to outsource property management.”

My Advice: There seems to be a lot of differing opinions on this subject, but I have a firm opinion on this one. I think that if the company has a good track record and adequate experience while providing in-house property management, it is the best case scenario. I believe this for a number of reasons: 1. It holds them accountable for their product, 2. Not being in property management for their primary revenue stream reduces the chances for inflated fees and trip charges, 3. It is, in my opinion, the only true turnkey experience. I am not saying it’s an automatic red flag if the company does not provide in-house property management, but it does add an additional step to the due diligence process. I will close with some property management pointers.

5. What systems do they have in place to ensure you have transparency into your investments at all times?

Forbes Advice: Ask the firm how the handle communication with their clients. It is difficult to stay on top of a rental property investing out-of-state. Ask the turnkey provider about the procedures they have for client communication.

My Advice: I agree 100% with this question. This is the most important factor when choosing your turnkey partner, and that is how investors should look at it. As a partnership. If an investor can’t frequently get a hold of their turnkey provider, or is always talking to a different person, this should raise an immediate red flag. This is a good indicator about whether the turnkey company is in it for a volume play, or a quality play based on superior customer service. You should always be able to get a response from your turnkey provider within 24 hours at the latest. If it takes more than 24 hours to contact with the provider, this is a red flag situation.

Finally, I want to touch on the heart of your investment: Property Management. Get information on these bullet points, and look out for these red flags.

Key Bullet Points:

  • Is property management the company’s primary revenue stream?
  • How many doors do they manage?
  • How many employees do they have?
  • How is their response time?
  • What software do they use?
  • Do their fees seem fair?
  • What is their average leasing period?
  • Do they talk negatively about other property management companies or turnkey providers?
  • Do they offer routine maintenance programs?
  • Do they have good reviews online (be fair in your judgement)?
  • Are they avoiding providing references?

Check to see if the company is in the property management to provide an additional service to their clients.

Lastly, I think it is important to choose a company where it is readily apparent that the people love what they do. The turnkey business is tough, and it takes a lot of passion to be good at it and be fair. They should be in the turnkey business to provide proven investment channel to their clients.

*This reply is for educational purposes. It is not intended as a solicitation. 

@Christopher Raney . I can give you recommendations for what you ask, but in my experience I would look for other avenues than turnkey property.

Here’s why: a turnkey property is renovated and updated, looks nice and usually rents around the 1 percent rule. All of that may help with capex and renting quicker to tenants but 1) it doesn’t help you get more rent and 2) in my experience it doesn’t really cut down on repair costs.

I owned 2 turnkey properties, collectively for 2 years. I had more maintenance with both of them than the non-turnkey I bought in the and market. A lot of this boils down to the tenant. And the tenant is going to be random, whether or not it’s turnkey or not.

@Christopher Raney , thank you for your service, firstly.

Secondly, I wonder if you'd be interested in joining me in partnering with local operators. Here's my plan: I worried I don't have the bandwidth to actively own the asset class I'm interested in (10-to-30-unit buildings in emerging markets), so I'm doing some deep market research to identify a handful of really promising markets and connect with locals active in those markets. I call this "pactive investing." It's not quite passive and not quite active, and I project a more profitable outcome than buying a turnkey or entrusting the entire operation to a low-paid property manager.

If you're interested in coming along on this journey, please message me!

@Christopher Raney Welcome! Where are you located, sir? I know active duty can move you around. When looking at turnkey, are you set on the southeast or have you chosen that area simply because you live there? I invest OOS because I don't have time to manage a BRRRR project OOS and have found success in Indianapolis. Feel free to PM me to discuss further!

@Christopher Raney I do not, but you could look to Norada. They vet turnkey providers and could be super helpful to you. I love the Oklahoma City market personally. It's insulated to recession, so it's held it's value through downturns, but also held it's rent rate. I take a lot of comfort knowing I'll keep getting my rent, even through a recession. It's also just super approachable price points. 70k can get you a decent rental in a solid C class neighborhood. 

Originally posted by @Christopher Raney :

I’m currently active duty and want to get into real estate but my current schedule is pretty hectic and I would like to minimize the time I dedicate to a property (for the time being). Does anyone have any tips or recommendations on turnkey companies and/or great property managers in the southeast.

Chris, thanks for your service. I wonder, did you make the move and buy something?

With respect to tur(n)key properties, I was considering them but I personally feel they are just set up for lazy (or in your case, unable to access the market) people who want to throw money at others in the hopes of getting strong rewards. I considered a couple of companies, including Morris Invest. One company advertised some good looking deals, and when I went after the particular property, it would be unavailable and only poorer performers were available - I guess I fell for the clickbait. Then I saw the info and complaints about ripoffs with respect to Morris Invest.

If in your shoes, I wouldn't throw money at a turkey provider in the hopes of early retirement; remember, they're in the business to make money for them, not you. There are reasons they don't want to carry the financial burden of select properties; you can bet the good ones are in a nice portfolio somewhere. 

Anyway, that is my opinion and I'm probably a bit negative. I know there are some highly ethical turnkey providers out there, but I don't know who or where they are, and I don't know the difference between a turkey and a turnkey. I'll just stick to investing locally so I can see what I'm getting. 

Good luck.