Strategy For Selling Turnkey Properties

28 Replies

Please provide your best strategy for selling turnkey properties.  I'm rethinking my 2014 approach.  Thx

1.  What Cap rates?

2.  Do you guarantee rents for 4-6 months?

3.  Do you offer repair warranty?

4.  Should property management be in place?

1. What Cap rates?

Completely depends on the market!

2. Do you guarantee rents for 4-6 months?

Some do, some don't. Those that do guarantee for 1 year though.

3. Do you offer repair warranty?

All of them provide a 1-year scope of work warranty that covers anything covered in their rehab. Most don't offer repair warranties outside of that though.

4. Should property management be in place?

Absolutely. Tenants too.

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1. What Cap rates?

Should be 10-20%

2. Do you guarantee rents for 4-6 months?

We guarantee fee waiver if tenant leaves within 6 months.

3. Do you offer repair warranty?

Most do, insurance is also recommended

4. Should property management be in place?

YES

@Rolanda Eldridge  

Do you have a website so your potential investors can view your properties? This will help you tremendously!

1. What Cap rates? 12%-20%

2. Do you guarantee rents for 4-6 months? It depends on the  turnkey provider.

3. Do you offer repair warranty? I don't see many offer repair warranty's, this could depend on the provider as well. I'm sure if you offered this you would build more trust with your investors but could cost you a lot as well because you just never know what breaks down in a investment property. Only so much American Shield will cover LOL!!!

4. Should property management be in place? ABSOLUTELY!! This will make or break your deal more than any of the other 3 questions!!!

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@Rolanda Eldridge

That high? That's the highest cap rates I've heard of any good market. How do you calculate those (what variables do you use in the calculation) and what market is that specifically?

That's an insanely awesome cap rate....unfortunately it could be too awesome. I think any turnkey buyer would be immediately suspicious.

Originally posted by @Rolanda Eldridge :

Please provide your best strategy for selling turnkey properties.  I'm rethinking my 2014 approach.  Thx

1.  What Cap rates?

2.  Do you guarantee rents for 4-6 months?

3.  Do you offer repair warranty?

4.  Should property management be in place?

 Hey Rolanda,

Value is not found in price and return, but in the service provided to a client of yours.  You do not have to compete on price with others in your area if you provide the best "value" for your clients.  Cap rates do not need to be off the charts high.  If you can provide a very consistent return for your clients with a high level of hospitality and service, then a consistent 8% return is fine - DEPENDING on location you are buying and selling.  Higher risk neighborhoods that demand more attention from a management company should command a higher return for the investor.  

1.So I would say a solid property, renovation, management experience would be fine at 8-10% return without leverage.

2.  I am not a fan of guarantees mostly because they have been used by Turnkey companies as a marketing tool.  They are not in place for the benefit of the buyer, but rather the benefit of the TK company.  (That is the not the case 100% across the boards...that is simply my experience from having been in the industry for 12 years now and having seen a lot of companies come and go).

If you are going to use a guarantee, do something that other are not doing, but make sure you do not splash it all over the place as the unique reason to do business with you. 

3.  Absolutely warranty your repair work.  Ali called it a scope of work warranty.  You do not have to put your entire warranty in black n white.  Meaning that be up front that you will warranty any work that has been completed and will warranty items not touched by your renovation as is necessary.  That is your discretion as a business owner.  If something occurs that is/was completely out of your control, then that gives you the ability to decide how to handle that and you can look like a super hero to your clients when you cover those bills unexpectedly.

4.  Management can be the differentiator.  It does not necessarily mean better - In no way am I saying that property management makes us better than other companies in the three cities we operate.  But we have built a reputation through being ruthless about the way we built and developed our management company.  YOU should be too.  We demanded that our team be great.  We were quick to fire vendors and honest yet firm with our tenants.  We show and demand respect and although we manage over 2200 properties in Memphis, only evicted 23 in 2014.  That is an earned reputation and it can make a huge difference.  Being great at property management can absolutely separate you as a great company and one that investors want to do business with. 

Best of luck to you, I really hope you do well in 2015!

@Chris Clothier  ..thx for feedback! Wow 10%! I'm not planning to handle PM but insure it's in place.  

Pros..first turnkey

1.  Sold As is

2.  Tenant in place about 6 months

3. Closed quickly

4.  Learned some valuable lessons

Cons..

1.  Left $$$ on the table

2. Took inactive approach by not marketing

Originally posted by @Rolanda Eldridge :

@Chris Clothier ..thx for feedback! Wow 10%! I'm not planning to handle PM but insure it's in place.  

Pros..first turnkey

1.  Sold As is

2.  Tenant in place about 6 months

3. Closed quickly

4.  Learned some valuable lessons

Cons..

1.  Left $$$ on the table

2. Took inactive approach by not marketing

 As for PM, I want to encourage you to patiently interview and work with local management companies until you find and strike the right deal.  There was a competitor here in Memphis who was splitting with his partner very amicably.  When they split they were both going to stay int he property management business, but one partner had a wealth of management experience and the management company and the other did not.

The one without the management company reached out to me for some advice on starting his TK company and we met for coffee.  When we did I encouraged him to meet with management companies and offer them the right to manage his properties for a fee.  In other words, he would become a silent partner and provide properties for a piece of the income.  I also offered to be one of those management companies he talked to, but only after he talked to others.

Long story short, today i provide property management to his clients and he participates in the profitability of his portfolio.  Of course, we are so big that we help drive down his costs through efficiencies, which is good for him.

I think you can do the same there in AL.  Find a management company that will manage your investors properties for you and allow you to participate in the profitability.  You work very hard to develop clients that will trust you as  TK company so you need to protect that by protecting them on the management side.

I would be happy to discuss this with you on the phone and help you however I can.  All of your pros and cons are correct.

Chris