My first turnkey experience in Houston!

65 Replies

Inspired by similar posts about turnkey companies,  I wanted to share every step of my experience with TexasTurnkeyProperties.com, which offers turnkey properties in the Houston area. 

I purchased one side of a duplex in Spring, TX. It's a standard 3BR/2BA and the purchase price was listed at $99,900 with rent projected at $1100, a 1 year rental guarantee and a 1 year home maintenance warranty. I was given a scope of work, and spoke with Brian, who was able to answer most of my questions. We opened escrow back in mid-July, and we were supposed to close at the end of August. We had to push back closing twice, until we finally closed on 10/4. The first delay was due to stormy weather which delayed renovations. I was disappointed that nobody from Texas Turnkey Properties bothered to let me know they were delayed; I had to reach out several times for updates. 

The second delay was due to an awful appraisal they received. After renovations, the appraisal came in at $84k, $16k below the purchase price. Shawn, the owner of the company, emailed me letting me know he couldn't sell it to me at the appraised price, but he would split the difference, making my purchase price $92k, but requiring more cash for the down payment. Coming from SF, I'm used to the notion of paying over the asking price, so it wasn't an automatic no for me. Instead, I countered him at $90k, which meant I was paying 7% over market/appraised price, but requested an additional year of rental income guarantee at $1100 and an additional year of the home maintenance warranty, which would at least give me some kind of value for that extra 7%. He accepted and we moved forward with closing. 

I used a lender they recommended and had no complaints with them. I have a 30 year fixed mortgage at 4.875%, and due to the construction delays being outside of my control, they didn't charge me for a rate extension.

Right before we closed, Shawn emailed me to tell me they had a tenant moving in on10/12. Unfortunately, that tenant was unable to come up with the security deposit, so the leasing office did not let them move in. I appreciated the communication from the property management team, but now that it is the end of October and my property is still vacant, I'm wondering if the projected rent is too high for the area, or if it's just a seasonality thing. Either way, I will be receiving $1100/mo for the next 2 years, beginning in November, so I am covered, but it does make me question how well Shawn and his team truly know the neighborhood. 

For now, I think it's too early to tell. The whole process was generally smooth. I would have appreciated more communication regarding renovation setbacks, but felt that the whole team was honest and reasonable. Since my intention for this purchase was long term cash flow, I'm satisfied with the terms of the deal, which is netting me about 15% COC return for the first two years.

I will update when a tenant is placed. Feel free to ask me any further questions. 

Hi Sarah,

Congratulations on your first turnkey! 

Couple of questions if I may

1. Why did you agree to buy over appraisal value and was there no back out clause in case you did not go ahead due to the mismatch?

2. Are you going to get the 1100/m for next two years regardless if a tenant? Even if the property is vacant for a good part of that period?

Hi @Gaurav G.

1) I was looking for long term cash flow, so I wasn't planning on selling it anytime soon. Plus at $90k, $1100/mo rent is over the 1% rule, which is particularly rare for turnkeys that I've seen, anyways. Yes, I could've taken my earnest money and walked away. 

2) Yep, that is their rental guarantee. $1100/mo no matter what for the time specified. 

Good luck with the new property. Feel free to reach out should you ever have questions about the Spring market place.

Chris

@Sarah Lam I don't know much about your property, but in order to verify rents we use a combination of rentometer, craigslist, mls and zillow. You'll get a good idea from those four. When we sell property to investors we don't project rent we have a renter in with a signed lease at that amount. If ever you want to talk about the Houston market let me know I live in the Bay Area as well.

Hi @Kevin Wood , i did check rentometer, and zillow. The rent seemed reasonable for a renovated property. I'll have to look at Craigslist as well in the future. Thanks for the tip! 

It looks like they lowered the rent to $1000/mo. I haven't received any communication from the property management team informing me of the rent drop; I saw it on Zillow. Still no word about tenants. Not thrilled about the lack of communication from Real Property Management. 

@Sarah Lam Do you pay one month rent for tenant changes? I know some happy customers of Texas Turn Key so I hope you can work through this. Based on what I have heard they treat their customers fair and are one of the better providers. Best of luck. Zillow is definitely hit or miss in Houston they rate themselves a 1 star for the Houston market:

http://www.zillow.com/zestimate/

If you feel like you aren't getting great property management service I suggest you change property managers.

don't count on rental gurantee's  the world is litered with companies that went banko offering those

@Sarah Lam Full disclosure, I own multiple properties that I've purchased with Brian & Shawn at Texas Turnkey.  The process isn't flawless, but I've generally been quite pleased.  Your rent guarantee (negotiated to 2 years) of $1100 will guarantee that even if the rent is dropped to place a tenant now, you're getting what you expected in rent.  By the time the two years is up, rents will likely have appreciated and you should have no problems getting the rent you planned.  I think this is exactly what every turnkey buyer wants: actual returns meet or exceed expected returns.

@Jay Hinrichs I've successfully collected the rent guarantee from Texas Turnkey on multiple properties.  In my opinion, that's something you can trust from Shawn & Brian.

@Kevin Wood it's not a full month, but I think something close to that. We closed on 10/4, so I haven't seen enough from Real Property Management to warrant changing property managers, but I do wish they took more initiative with communicating updates. Plus, as @Natasha Keck points out, my rental guarantee means I still get paid even if the property is empty. Beyond the lack of communication, I wouldn't say I'm unhappy with Brian and Shawn's team, just a little wary. With the short appraisal and the drop in rent, it makes me question their understanding of the neighborhood. I hope I'm proved wrong, though! As I said in my original post I think Shawn's team is honest and reasonable. 

@Natasha Keck   my point is rental guarantee's if there is a run on the bank.. can bankrupt a company. its happened many times.. also I am not so sure this is not selling a security. IE guaranteed returns.

and to think rents always go up .. is very flawed.. we you are not in SF or Silicon valley( were I was raised incidentally )  

But I am sure it will work out.. most turn key companies frown on gurantees as its simply an inducement to sell what could be a not ready for prime time product...

@Sarah Lam ,

Well, it looks like you finally jumped in. Congrats on your purchase. If you can buy 30-40 more properties like this, you can retire. :o)

Hey @Minh Le good to hear from you! Thanks for the congrats, surprised people remember me :) I'm actually hoping to start investing locally now. I think I'm alternating between buying in appreciation markets and cash flow markets. Honolulu, Houston, and now hopefully the SF Bay Area. 

Originally posted by @Sarah Lam :

Inspired by similar posts about turnkey companies,  I wanted to share every step of my experience with TexasTurnkeyProperties.com, which offers turnkey properties in the Houston area. 

I purchased one side of a duplex in Spring, TX. It's a standard 3BR/2BA and the purchase price was listed at $99,900 with rent projected at $1100, a 1 year rental guarantee and a 1 year home maintenance warranty. I was given a scope of work, and spoke with Brian, who was able to answer most of my questions. We opened escrow back in mid-July, and we were supposed to close at the end of August. We had to push back closing twice, until we finally closed on 10/4. The first delay was due to stormy weather which delayed renovations. I was disappointed that nobody from Texas Turnkey Properties bothered to let me know they were delayed; I had to reach out several times for updates. 

The second delay was due to an awful appraisal they received. After renovations, the appraisal came in at $84k, $16k below the purchase price. Shawn, the owner of the company, emailed me letting me know he couldn't sell it to me at the appraised price, but he would split the difference, making my purchase price $92k, but requiring more cash for the down payment. Coming from SF, I'm used to the notion of paying over the asking price, so it wasn't an automatic no for me. Instead, I countered him at $90k, which meant I was paying 7% over market/appraised price, but requested an additional year of rental income guarantee at $1100 and an additional year of the home maintenance warranty, which would at least give me some kind of value for that extra 7%. He accepted and we moved forward with closing. 

I used a lender they recommended and had no complaints with them. I have a 30 year fixed mortgage at 4.875%, and due to the construction delays being outside of my control, they didn't charge me for a rate extension.

Right before we closed, Shawn emailed me to tell me they had a tenant moving in on10/12. Unfortunately, that tenant was unable to come up with the security deposit, so the leasing office did not let them move in. I appreciated the communication from the property management team, but now that it is the end of October and my property is still vacant, I'm wondering if the projected rent is too high for the area, or if it's just a seasonality thing. Either way, I will be receiving $1100/mo for the next 2 years, beginning in November, so I am covered, but it does make me question how well Shawn and his team truly know the neighborhood. 

For now, I think it's too early to tell. The whole process was generally smooth. I would have appreciated more communication regarding renovation setbacks, but felt that the whole team was honest and reasonable. Since my intention for this purchase was long term cash flow, I'm satisfied with the terms of the deal, which is netting me about 15% COC return for the first two years.

I will update when a tenant is placed. Feel free to ask me any further questions. 

I would be seriously shocked if you actually achieve anything close to a 15% COC with a turnkey provider.

How did you calculate COC? Use a vacancy rate if atleast 7%? Deduct taxes, insurance, property management and maintenance expense of at least $50 a month? Deduct mortgage debt?

You should be using this form:

Annual cash flow before taxes / total investment (including down payment, closing costs, rehab) = COC

Originally posted by @Natasha Keck :

@Jay Hinrichs I've successfully collected the rent guarantee from Texas Turnkey on multiple properties.  In my opinion, that's something you can trust from Shawn & Brian.

Until the guarantee ends and you're left with a non cash-flowing property that can't be sold for what you bought it for.

For what reason, would anyone provide a rental income guarantee?  What do you think?

If the property is a high-quality property in a good area and you've done your work leasing it out...the property itself should attract high rents...that is your guarantee!

I could slap a guarantee on anything.  It's only as valuable for as long as the guarantee lasts.  Then I'd be very concerned.

Hi @Jon S. good questions. As I mentioned in my original post, the 15% COC return is only for the first 2 years. Once I add back in vacancy at 8% and maintenance at 8% of gross rents, I expect to see COC settle in around 8%. And of course, PITI and property management costs are included in that calc.

One thing you should have considered is acquisition timing.  The drop in oil prices is is having a dramatic impact on this market and virtually all industries in it have been and may continue to be negatively impacted (see article below).

I'm not sure if and if so when these oil companies will be able to transition to clean energy production, but it would be something I would be very concerned with when considering investing in Houston.

www.houstonchronicle.com/business/economy/amp/The-deceptive-diversity-of-Houston-beyond-oil-8325303.php?client=safari

@Jon S. Agreed, one needs to be careful with rental income guarantees hiding a weakness in the underlying market (or price you paid).  As always, do your due diligence.  I haven't sold any of my properties that I purchased from Texas Turnkey yet, so I won't know for sure what the market price is.  The indicators I have (Zillow, loan appraisals) suggest that the properties I bought have appreciated since I bought them but who knows.  If you're looking to get significantly below market purchase price, you'll have to do more work than the turnkey model.

Originally posted by @Natasha Keck :

@Jon S. Agreed, one needs to be careful with rental income guarantees hiding a weakness in the underlying market (or price you paid).  As always, do your due diligence.  I haven't sold any of my properties that I purchased from Texas Turnkey yet, so I won't know for sure what the market price is.  The indicators I have (Zillow, loan appraisals) suggest that the properties I bought have appreciated since I bought them but who knows.  If you're looking to get significantly below market purchase price, you'll have to do more work than the turnkey model.

FYI: zillow is junk...and home appraisals aren't very useful except for obtaining financing. 

Zillow is junk and home appraisals aren't very useful except for obtaining financing.  Call a local agent not connected to your turnkey and ask for sales comps within 5 blocks of your property.  That info will be much more valuable.

Originally posted by @Natasha Keck :

@Jon S. Agreed, one needs to be careful with rental income guarantees hiding a weakness in the underlying market (or price you paid).  As always, do your due diligence.  I haven't sold any of my properties that I purchased from Texas Turnkey yet, so I won't know for sure what the market price is.  The indicators I have (Zillow, loan appraisals) suggest that the properties I bought have appreciated since I bought them but who knows.  If you're looking to get significantly below market purchase price, you'll have to do more work than the turnkey model.

You can pull the rental rate on your property in 2 minutes at Rentometer.com.  Only consider the comps closest to your property...weight the ones on the same block the most!  Rental rates can vary widely within a small area... (ex. one subdivision may have homes that are much higher quality than others and as such may rent for 50% higher).

Originally posted by @Sarah Lam :

Hey @Minh Le good to hear from you! Thanks for the congrats, surprised people remember me :) I'm actually hoping to start investing locally now. I think I'm alternating between buying in appreciation markets and cash flow markets. Honolulu, Houston, and now hopefully the SF Bay Area. 

 Honolulu, oh my you are about 6 years late to the party ;) In any case, good luck!

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