America's Top 5 Turnkey Companies!
Logistician · Member since 2012 · 58 posts · 17 votes
America's Top 5 Turnkey Companies!
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
11yMost TK companies I have spoken with are against guarantees. It has been explained to me that they don't need to woo clients with guarantees because their product speaks for themselves. Reminds me of the Tommy Boy scene
https://www.youtube.com/watch?v=cf4C9ssuPjEI was under contract once to buy 9 "TK" properties and what lured me in was their guarantee.... then I saw the properties and realized they had to offer a guarantee to sell them because that is the only way anybody would buy these crappy properties.
Second City Real Estate4.821 Reviews
87 Replies
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed
if you were deliberately lied to from a seller of RE your remedy is the courts.
Just like if you were deliberately lied to from a stock broker your remedy is the courts.
You would Sue for rescission and if it was egregious enough Fraud.
What prompted me to write the E book for the AUssie folks was one Aussie contacted me about 6 properties he bought or six doors 4 plex in Youngstown and 2 SFR's in Detroit.
he paid 125k for the 4 plex was promised it was rehabbed and rented.. It was after sending my broker contact to do a drive by.. it was neither occupied or even rehabbed it was still sitting there apiece of poo poo never touched... easy examination of title docs revealed the TK marketer hammer in Aussie bought it for 15k and sold it for 125k and never touched it.. With Detroit houses they got rehabbed but were low end... tenants paid maybe 4 months then eviction by the time he got them back again the houses were trashed. he paid 60k each for those and they were probably 20k houses at best. He lost it all his entire savings . So I for one try to champion for the out of area folks I hate to see this happen it gives all the good people a bad name and our country as a whole..
I think the industry has cleaned itself up a lot but there are STILL scammers out there and there are still people selling 10 to 25k cash flow homes and not fully explaining how very hard they are to own and manage if you do not live within and hour of the asset and can take care of it your self.
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes11y
No doubt every market has good TK as well as bad TK providers. Based on what I read and came across old and new threads on BP, those two names stood out to me. Not an endorsement, but more like they should look into those names if they're interested.
I had a talk with some BP members at a meet-up a couple nights ago. I told him to reach out to you if he's looking for TK properties. Coincidentally, he already did and you referred him to a TK provider in Birmingham. Pretty cool.
As Warren Buffett said "liquidity, liquidity, liquidity." It's the lifeblood of our business. The way we have our syndications set up are more like a partnership, where my partner and I are the loan guarantors, and all the loans are non-recourse to our investors. Raising money here is quite easy especially with investors who have bought/invested out of the areas. We tell them 4% CoCR, and they say "where do I sign?" I guess the myth about no cash flow in the Bay Area is so real that they're jumping all over 4% CoCR.
Of course, we would rather under promise and over deliver. We're exiting a deal now, where our investors are making approx 40% CoCR after 1 year and 7 days. The returns not only included the down payment and closing cost, but also included the 20% of cash reserves sitting in our bank account. Not too shabby. As much as they all voted to exit the deal, none of them wants their money back. LOL!!!
We're closing on two apartments this Friday 5/15 and another one on 6/30. We're in talk for four more deals. All of these deals were brought to us off-market. I guess we're reaching to a point where deals are chasing us. The two deals closing on 5/15 will be flipped in the coming months for a healthy profit. The one closing on 6/30 is a trophy property with an 8.5 GRM after stabilized. More than likely we're keeping this unless someone is offering us a price we couldn't refused.
Cheers.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Account Closed
I have some IRA loans paying off I will send you 100k for the June deal :) since I can't invest in my own funds....
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
this is a very old sales tactic with RE brokerages the more common one is list with me and if I don't sell it in 90 days I will buy it for a price we both agree on...
with this company you need to see the
*restrictions apply
at the bottom of the page I suspect they will come up with a buy back value that leaves them at no risk...
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes11y
@Jay Hinrichs I hear ya. In some cases the investor would be taking a loss. If the investor knows this ahead of time and the TK company explains worse case scenarios perhaps this is doable. I think it is more like knowing this out of state TK company is willing to help as much they can in all cases vs leaving the investor hanging sort of speak.
I sold classic cars as a hobby. Every out of stater I sold to, I had a standing policy for the life of the car. That was I will either buy it back for what you paid or help you resell for a small flat fee $500. One guy took me up on it 6 months later. I ended up selling it for way more than paid. This was my policy because I did not want someone to end up with something they did not want. It may not be so realistic for REI but it is similar with respect to the out of state part most TK buyers find themselves in.
I think if I invested in TKs I would want to know these guys have my back. If I need to sell it for some reason in the next 12 months and being fully prepared for a possible loss vs what I have seen is you are pretty much left stranded 1000 miles away trying to deal with dumping assets you don't want anymore. But if you say it is unrealistic for REI that pretty much sums up my take as well.
- Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes11y
If a company offered a 3 year guarantee I would be more concerned with the amount they would have to overcharge me to cover that for all customers
Second City Real Estate4.821 Reviews - 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
maybe @Curt Davis
could chime in here.. Curt what do you do when one of your cleints needs to sell in 12 to 24 months.. Do you market it for them. or do you just refer them to a local realtor...
I have one client in LA that has 3 Memphis turn keys that she bought 4 years ago.. 1 had been boarded for 18 months one is vacant and needs repair and one is functioning.. she loses money every month but does not want to ruin her 800 fico.. The only offers she can get is for half of what she paid from the same company that sold them to her.
this is a common theme from what I have seen.. TK easy to get into next to impossible to get out of ...( in the short term)
it comes down to Human nature TK can sell one of their homes in inventory and make 20k or they can sell an existing home make no money and if they had to guarantee something probably lose 10 to 20k so 40k swing on one transaction.. for those reasons you have what you have in the industry.
And interesting post would be Who has sold a TK home within 24 months on the open market thorugh a realtor and made a profit or let alone broke even.. that would be interesting to know.
- Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes11y
If you have a buy-back policy, I bet your business will explode. Why do I say that? It's because I have talked to too many people here, who have learned it the hard way unfortunately.
Case in point, I was at a party last night. One lady came to me and introduced herself. She's a BP member, but doesn't post much. She recognized me. She and her hubby own 3 properties in another state. Their original plan was to buy at least 10 properties. They stopped their buying spree when they realized it wasn't what it seemed. This is what she told me with a smile on her face "My husband said .... it looks like everyone is getting paid except us." Ouch.
I'm sure there's a way to come up with a buy-back policy that's acceptable to both parties. If you could find a partner to back your buy-back policy, I'm quite sure everyone will make more money in the short,- intermediate- and long-terms. The consumers have spoken. If you give them what they want, you will have more business than you can handle.
Just my 2 cents.
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
As a licensed realtor I give anyone who has asked me to sell their home the following options:
1. I can list their home on the mls and act as Listing agent and they will pay a 6% commission.
2. I can sell their home through our investor network bit we have to agree on a fee they will have to pay us.
This is what I can do in most cases. We have offered to buy back homes before but it usually never works unless they have owned the home for several years.
Curt Davis - KAIZEN Realty538 Reviews - Rental Property Investor · Cincinnati, OH · Member since 2013 · 292 posts · 280 votes11y
Originally posted by @Jay Hinrichs:
it comes down to Human nature TK can sell one of their homes in inventory and make 20k
Jay, in your estimation, is that $20k per copy profit in addition to the "finder's fee" of $3k-$10k that they paid the Forum Shark who brought them the deal?
And one more question. Generally speaking, would you say that the long distance TK Buyer commits to purchasing a certain TK House during renovation and then closes the deal at rehab completion or do they buy a TK House "post rehab, rented and ready to cash flow?" I can't help but wonder exactly at what point in the process is the TK Buyer actually entering into a contract to purchase the TK House?
In 2015, with SW Airlines flying practically everywhere/anytime at a reasonable price, please tell me that nobody actually buys houses without doing a walk through....
DL
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
With TK providers we all have our own way of working the deal. Some companies only offer homes is a renovated state with a paying tenant in place. Some companies show homes in a distressed state but will list the repairs they plan on doing. Some companies make the repairs and then start to advertise for sale once repairs are completed but before a tenant is in place. TK to me refers to the whole system that is being offered and not whether the home has a tenant in place right away or not.
Curt Davis - KAIZEN Realty538 Reviews - 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
profits vary ... for certain.. but I know as a fix and flipper ( this is what I do) I don't do anything that we can't make at least 20k on .. .so I would imagine a TK operator has the same metrics. some probably pay the marketing fee out of that some add it to it.
everyone is different...
- Investor · Chicago, IL · Member since 2014 · 84 posts · 20 votes11y
Ladies and gents, as someone who for quite a few years has sat on the "buying" end of TK deals and is moving into the "selling" end of a fund - I've got a few thoughts here:
- at a minimum people need to of course do appropriate due diligence on integrity and client recommendations of a TK provider before jumping in. The number I've seen who for example try to post that an NOI / unleveraged CAP rate is simply calculated by gross rent less property management, insurance and taxes is stunning to me - and I almost believed it myself early in the game, until I saw my first maintenance expenses, vacancies, etc.
- even then, I'd ask some tough questions on any TK provider's model - even a reputable one - regarding when they make their money vs. when you as an investor make yours. Ultimately I abandoned the traditional TK model where your provider makes his money upfront and then you're left to make your money over time - it just isn't aligned and incentivizes even a completely reputable TK provider to "sell" deals to you rather than partnering with you to make money, which is ultimately what you want
- so I would challenge any TK provider to consider a JV partnership model - the on ground provider is putting in the work and the remote partner is putting in the capital. So instead of a fat upfront payment, I'd want my TK provider to take the same risks I am, that is, his work gets him a piece of the equity, not an upfront fee. That way he's eating exactly the same thing you are, and his incentives for the properties to perform aren't just so that he can sell you more of them, they're so that he makes his money (or not) depending on achieving what as an investor you actually care about: IRR. To me it's the height of insanity to expect that you'll be able to maximize your IRR over time as a remote investor with no one on the ground with expertise who's incentivized to maximize this - and don't tell me that's your PM, PMs (perhaps understandably given the business model) are incentivized only by maximizing revenue, nothing to do with controlling cost. This is all why I won't do any more deals where the on ground guy is charging fixed fees - I want him to have skin in the game, ideally putting some small amount of the actual equity into the deal, or at very least having most of his compensation depend on achieving the (long-term) results that I am trying to achieve as an investor
- the next logical extension to this is a fund structure where you as an investor hold fractional ownership in a larger number of homes rather than sole ownership of a smaller number of homes. In this model the "TK provider" just gets renamed as a fund manager and likewise his incentives are generally very closely aligned with yours as an investor
So bottom line for me is I'd only partner, never be a "customer" of a TK provider. I'd be very interested in others' views - is there any argument in favor of the traditional TK model?
- 11yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
You are completely unrealistic in what you think TK providers should do. Most people on average who purchase turnkey buy using conventional bank financing so the home has to be renovated. With the investor using financing, this then does not allow for true partnering in a legal sense. Also most TK providers use private funds to purchase and renovate and hold these homes until they sell. There is a lot of risk on the TK side with this model as think of he companies who have on average 2 million out in private funds at any given time.
From a financial feasible standpoint, TK providers cant do this as they have to make money up front to cover overhead, employee salary's and all the other expenses that goes into running a business. There are some companies out there yes who are probably making $20k on average per deal, I wish I could say the same for us.
If you are working with a true legit TK provider you should do well long term or better as opposed to doing it on your own ( when investing long distance ). The people who try to save a few bucks by doing this on their own always eventually end up using TK companies in some fashion whether it be on the prop. mgnt side or construction etc...
You are going to have vacancy, maintenance expenses regardless if you go with a TK provider or not.
Curt Davis - KAIZEN Realty538 Reviews - 11yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
@Account Closed
True, you might have more options since stock brokers are regulated by the SEC, however, even for fraud, you can't make the broker buy the stock shares back. In either case, your remedy will be in courts.
- 11yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
Originally posted by @DL Martin:
In 2015, with SW Airlines flying practically everywhere/anytime at a reasonable price, please tell me that nobody actually buys houses without doing a walk through....
Another alternative if someone doesn't want to actually visit the market is to simply get an appraisal. Lender don't go look at the property but they sure as heck require one before they will lend. Why cash buyers don't just fork over the 400 bucks for an appraisal is beyond men. That would eliminate most of these problems. If a turnkey company won't give an appraisal contingency then you might want to reconsider working with them.
- 11yEngelo RumoraBusiness MemberInvestor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
Originally posted by @Account Closed:
If you have a buy-back policy, I bet your business will explode. Why do I say that? It's because I have talked to too many people here, who have learned it the hard way unfortunately.
Case in point, I was at a party last night. One lady came to me and introduced herself. She's a BP member, but doesn't post much. She recognized me. She and her hubby own 3 properties in another state. Their original plan was to buy at least 10 properties. They stopped their buying spree when they realized it wasn't what it seemed. This is what she told me with a smile on her face "My husband said .... it looks like everyone is getting paid except us." Ouch.
I'm sure there's a way to come up with a buy-back policy that's acceptable to both parties. If you could find a partner to back your buy-back policy, I'm quite sure everyone will make more money in the short,- intermediate- and long-terms. The consumers have spoken. If you give them what they want, you will have more business than you can handle.
Just my 2 cents.
Thanks Minh,
I agree. Definitely will look into this idea over the next few years.
Our biggest concern was always if someone wanted to use the buy back due to other reasons that have nothing to do with our performance or the properties performance.
Its very risky putting control in some one else hands like that.
I like the idea very much and due to our lower than normal price range and a limited amount of inventory we could pull it off. As I mentioned tho, probably a few years away lol
Thanks for reading.
- Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes11y
What they have to lose is their reputation. Someone doing 80 to 100 properties should be more worried about their reputation than making a little bit of short term money off of you. This risk will only become greater as information is easier to get and with sites like the one from @Brie Schmidt and @Jay Hinrichs
For an example of this damage, see below:
http://www.biggerpockets.com/forums/311/topics/113...
I say should be because there are a lot of bad TKs as well who are more short term oriented and I assume figure they will just do enough marketing to overcome upset clients or change their name.
Even for good TK RE is def not risk free. Sell 100 properties and some percentage will have issues its a certainty and that percentage will depend heavily on the TK and the type of property you target. So even a good TK will have problem properties.
In terms of partnership, did you mean for flipping or buy and hold. For flipping capital is there so why do they need you? For buy and hold, keep in mind that TK is a business with real overhead. They have to pay their overhead and they would not do this with the model you describe because those payouts take a long time. Also, many TKs have bih advantages in property management and rehabbing that comes with scale. That scale exists because they SELL properties.
Lastly, if they did want to JV it would not make sense to do it with every person that called for a property. Managing a large number of different partnerships with different wants and needs would be a nightmare and I can't see how it wouldn't make more sense at that point to only deal with people who were also funding at scale though Jay can chime in there because he knows about that part best.
- Investor · Chicago, IL · Member since 2014 · 84 posts · 20 votes11y
Thanks @Curt Davis. I understand the debt side of the equation - so perhaps ownership is with the investor and then there's a JV profit sharing agreement between the investor and the on ground partner. (Going forward I'd like to suggest we rename these "remote partner" and "on ground partner" to be more accurate.) No doubt the on ground partner has expenses - so does the remote partner. Those get covered by building a profitable model. It means it requires a decent amount of working capital / investment upfront while the first deals are made, but after a few years should pay out nicely as the on ground partner builds up enough residual cash flow from their profit share of all the deals they've done so far.
I'm not for a moment advocating that people go out and do this by themselves remotely, rather that instead of paying a service provider a big fee upfront and then being left to try to make profit in the long term, remote partners are better served by finding appropriate on ground partners whose incentives are aligned to their own.
- Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes11y
Agree 100% although more on inspections than appraisals. The appraisals can be very different depending on the company, who ordered them, etc.
My last one had three really different values from three different firms.
- Investor · Chicago, IL · Member since 2014 · 84 posts · 20 votes11y
Thanks @Charles Worth. Reputation is important, but do we really with a straight face think that a newbie investor is going to be equipped to properly evaluate this, especially if it's a new TK company? Ultimately I'd rather have quantitative metrics in a contract that align incentives rather than simply a broader, qualitative reputational risk.
I do agree with your point on scale to some extent - this model probably doesn't work for the guy who wants to buy one SFR. But on the other hand, in my opinion the guy who wants to just buy one SFR shouldn't be doing it remotely anyway, he should either buy in his backyard (in which case he's not investing, he's building his own business) or invest in a fund or REIT to give him exposure to this asset class.
- 11yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
I am not a fan of any guarantees because they are often only used as a marketing gimmick. What good is a guarantee? There is nothing in place that makes it enforceable. TK companies earn their reputations by guaranteeing their clients that they know how to operate fairly and with integrity. They earn their reputations by doing exactly what they say they will do - by providing excellent customer service - and by putting their clients needs first. A guarantee is only as good as the operator as @Jay Hinrichs stated. TK companies that use guarantees - and this is my opinion and not meant to disparage anyone cause I still mentor companies that use guarantees - but it is my opinion that when you market with guarantees you have not learned your companies' true value. Those companies have not yet established their core competency and core value to the marketplace.
We have bought back clients investment properties in the past. Life sometimes gets in the way and people need help. You have to help out investors when you can and just like @Curt Davis noted, when you have clients waiting for homes and the properties are performing, it is easy to facilitate a sale. So you do not have to have a formal guarantee to perform like you do. You just have to have a little integrity and do the right thing by your clients, your company and your family. If you can help an investor out who needs your help and buy a property back, then you do it. If you can't, then you do everything you can for them short of buying that home back and hold your head high.
There are a lot of good companies out there. There are a lot of bad companies out there. There is really no way to rank the companies themselves since that would be a matter of opinion unless you used useless metrics like size and volume. I can assure you one thing - just because Memphis Invest does huge volume in three cities, those numbers of homes and cities are not the reason we have our reputation. Being more expensive or being bigger or having a bigger team, those are not the reasons we have a great reputation. So those numbers mean nothing for ranking because I am a big fan of several companies in other cities and especially of two other Memphis companies that are active right here on BP. None of them are as big as us, but they all have great people that operate with a high level of integrity. That is what mattes most.
And yes, my family is absolutely grateful for the kind words from other turnkey companies, clients and even investors who are just fans of our family and business. We have worked hard and tried to do things the right way and are still very active in helping other entrepreneurs get off the ground. We have helped many turnkey companies and view good competition as very healthy for all of us. We all want to rid our niche of the fringe operators who prey on investors and the best way to do that is to lift the good companies up. So there are plenty of other good companies - how anyone goes about listing them out is up to each individual investor based on what they need.
@DL Martin - it happens all the time. Many turnkey purchasers are buying a passive investment and are really investing in the company. They are much more concerned by the ability of the company to perform and once they are comfortable they purchase properties without seeing the actual property itself.
- 11yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
phew, I was hoping I was right about you still mentoring :)
- Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes11y
Its an interesting concept and I can see you putting something like this in place. However, if you had to reserve for just 5 properties to be returned out of the many you hopefully sell you would need to hold $200K in reserves. At 10% return that you could get elsewhere (and more I am sure) you lose $20K a year from this alone. I am sure your investors would be much happier getting that in other forms especially as you have only choose to work with certain people.
- 11yMike D'ArrigoPro MemberTurn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
Originally posted by @Charles Worth:
Agree 100% although more on inspections than appraisals. The appraisals can be very different depending on the company, who ordered them, etc.
My last one had three really different values from three different firms.
Very true.
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