How to vet turnkey companies other than reviews

[Tanner Shore]

Hey BP fam, 

I am a brand new investor and have decided OOS turnkeys is the route I am going to take. It might be because I am new and don't want to get burned, but I have heard stories of some turnkey companies being shady and having only their best interest in mind. 

My question is, what negative experiences or mistakes have you ever had/heard of from turnkey companies? I plan to go the turnkey route for my first 3-5 properties and maybe even all, so I want to make sure I choose a company that I can "partner" with for years and deals to come. 

Question #2, other than good reviews and referrals, are there are other good ways to vet these companies? Any and all input is appreciated! Thank you.

[Mike D'Arrigo]

@Tanner Shore like with any business, there are good turn key companies and bad. The biggest mistake OOS investors make is not knowing the neighborhoods they are buying and buying a different class of asset than they are. Some of the less scrupulous turn key companies will misrepresent a D class neighborhood as C class or even B class. This is where you need to do some of your own due diligence. With all of the online tools that are available today, it's not that hard to do. The most important thing you need to know is what the crime rate is in the area. Trulia has a good heat map that is fairly accurate and will give you a pretty good picture. Next, get familiar with prices and rents in your market and the neighborhoods you are considering. Rents are a big indicator of the area. Go on Google Maps and see what is in the immediate area. If you see a lot of apartment complexes and strip malls with liquor stores, check cashing establishments and bail bondsmen, then it's probably not the type of area you want to be in. On the other hand, if you see Starbucks and Wholefoods, it's probably a decent neighborhood. Look at the size of the homes. C class neighborhoods will have predominantly smaller 3Br 1Ba homes whereas you'll find larger 3 or even 4br 1.5ba homes. As @Ali Boone has mentioned, doing due diligence on the property is key. You'll hear all kinds of horror stories on properties that weren't rehab which the buyer paid for. The lesson there is to never pay for rehab upfront and always get an independent inspection. If the turn key company says that they have already had one done, insist on getting your own. If they say that you don't need one, turn and run. Ask for a scope of work for what was done for the rehab then compare that to the inspection report. If the scope of work says that they replaced the furnace and the inspection says the furnace is 10 years old then you have a problem. There are tell tale signs I've seen with any of the bad turn key companies that you need to watch for. 

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

Feel free to reach out if you want anymore insight.