Questions to ask Turnkey Providers

17 Replies

When doing your due diligence, what are the top questions you would ask a turnkey provider?

When was the roof replaced? When was HVAC replaced? What type of neighborhoods do you invest in and why? etc...

What are the most important questions to ask?

@Kyle Scholnick

Is the management company licensed? 

How long have you been in business?  

What price ranges do you sell in and why?

What can I expect after the sale?

What type of renovation do you do to the homes?

Those are just a few.

Curt Davis, Real Estate Agent in TN (#00321765)
605-310-7929

@Kyle Scholnick

To above I would add:

Vacancy rates for properties under management?

How long do their tenants stay in the property (average)?

Average vacancy time (how long does it take them to fill a vacant home)?

Lease up costs? (for when you do have a vacancy).

Larry Fried, Real Estate Agent in OR (#201211636)

Ask them what the typical process is for them (step by step) on purchasing a turnkey from them so that there are no surprises.

Find out if they do their own property management, if the turnkey comes with a tenant as part of the purchase or if you need pay extra fees for them to do that.  Believe it or not I know of a turnkey provider that does that so they are out there.

Ask for referrals, they should be able to give you contact information for previous investor(s) that have worked with them.

 @Kyle Scholnick

Key questions to ask a Turnkey company.  Pay close attention to the answers they give you and take notes.  If they do not want to give you the time to answer your questions, then you do not want to do business with them.  If they are irritated by the questions, definitely move on.

These are the KPI's that any quality turnkey company will measure and track and should be able to give you an accurate and correct answer at any given time.  If you pay close attention to the answers, you can do simple math to determine if they were just giving you answers you want to hear to sound smart or if they actually know how their company is performing for clients.

•Are You an Investor?  Do you own in the exact neighborhoods you are selling?

•How many investors do you work with?

•Do you own all facets of the operation?

•Do you offer rental or maintenance guarantees?

- IF they answer yes, ask them why?  And then ask them if they will put the guarantee on year three.  Guarantee are used as a sales technique and should be a red flag for an investor.

•Do you defer maintenance?

•How many properties do you manage?

•Do you own the properties you sell?

•How long have you been in the business?

•What is your average vacancy rate?

•What percentage of expiring leases will renew their lease each month?

•What is the average number of days a property is vacant between tenants - Move out to move in?

•What percentage of billed rent do you collect each month?

•What is the cost of an average repair bill after move-out?

•What are your management fees?

•What percentage of collected rent goes to yearly maintenance on average?

•What is your average # of months occupancy per property?

Three most important questions you can ask to learn a little about their mindset as business owners and how they are going to treat your investments:

•What programs do you have in place to keep tenants happy?

•What customer service programs do you have in place?  Will you call me every month with an update on my portfolio?  How many team members are dedicated solely to providing service to your clients?

•What has been your biggest mistake as an investor?  How do you protect your clients from making the same mistakes?

@Chris Clothier     

BRILLIANT:  

  • Do you offer rental or maintenance guarantees?
  • - IF they answer yes, ask them why? And then ask them if they will put the guarantee on year three. Guarantee are used as a sales technique and should be a red flag for an investor.

    OK I realize this thread is long dead at this point... but @Jay Hinrichs and @Chris Clothier ....

    Why is rental/maintenance guarantee a bad thing? I'm still learning and I want to understand why its a red flag? Thank you so much!

    PS THANK YOU for the awesome questions. About to hop on the phone with a turnkey provider and this is incredibly helpful.

    @Jason Howell   now GENERALLY speaking it has been a sales tool that has been used to give false sense of security to investors.. they will skip over some issues in due diligence etc and rely on this guarantee.. there is one thing to say pay a few months rent in the beginning but a full blown year long gurantee is really risky on the TK companies part..

    but I will let Chris chime in he is the expert at this..

    @Kyle Scholnick I think many people have hit the nail on the head. What I'd also be be asking (well ahead of time) is to see a copy of a pro-forma on the subject property. From what I read some don't account for cap-ex expenses are are a little "optimistic" around areas like maintenance, vacancy, etc. It doesn't take too much optimism in projections to go from a 3% return to an 8% return. I'd also be curious about seeing how they come up with their ARV. Is it only in comparison to other turnkey properties that the provide as flipped? Are other people investing in the neighborhood?

    Originally posted by @Andrew Johnson :

    @Kyle Scholnick I think many people have hit the nail on the head. What I'd also be be asking (well ahead of time) is to see a copy of a pro-forma on the subject property. From what I read some don't account for cap-ex expenses are are a little "optimistic" around areas like maintenance, vacancy, etc. It doesn't take too much optimism in projections to go from a 3% return to an 8% return. I'd also be curious about seeing how they come up with their ARV. Is it only in comparison to other turnkey properties that the provide as flipped? Are other people investing in the neighborhood?

    My biggest concern is to make sure they actually own the property and will do the PM. Sometimes people call a property a "turnkey" they found on the MLS. Or they are in the business to sell you a property and then dump you on to another PM. It should be all under one roof.

    Please look at:

    How to Find the Right Turnkey Real Estate Investment Company for You

    Tom Ott, Real Estate Agent in OH (#2016003865)
    440-749-4043
    Originally posted by @Jason Howell :

    OK I realize this thread is long dead at this point... but @Jay Hinrichs and @Chris Clothier....

    Why is rental/maintenance guarantee a bad thing? I'm still learning and I want to understand why its a red flag? Thank you so much!

    PS THANK YOU for the awesome questions. About to hop on the phone with a turnkey provider and this is incredibly helpful.

     Jason,

    It is not a bad thing that they have the guarantee.  It is a bad thing when the guarantee is what is advertised to get the attention of potential investors.  They are selling the guarantee.  Now I am a bit old school on this because I remember the days of being at events with several Turnkey companies and hearing them brag about selling houses with guarantees, raising the price to a point where if something happened then they were essentially giving the investor back their own money.

    So they were self insuring the guarantee that the TK company was selling them in the first place.  If the guarantee never had to be exercised then the TK company pocketed the extra money.  So I am very against them today.

    I advise other turnkey companies to be so good at the service you provide, that a guarantee is not needed.  Your client should know that you do the right things from the beginning and that you don't need a guarantee to treat your client the right way.

    Sorry it took so long to respond...we are getting ready to host our big spring event and it is a little crazy around here! 

    Thank you so much for that info @Chris Clothier . That makes perfect sense: If it's so good, why need a guarantee. I've seen that in other industries as well.

    I'll keep my eyes out for this!

    Originally posted by @Chris Clothier :

     @Kyle Scholnick

    Key questions to ask a Turnkey company.  Pay close attention to the answers they give you and take notes.  If they do not want to give you the time to answer your questions, then you do not want to do business with them.  If they are irritated by the questions, definitely move on.

    These are the KPI's that any quality turnkey company will measure and track and should be able to give you an accurate and correct answer at any given time.  If you pay close attention to the answers, you can do simple math to determine if they were just giving you answers you want to hear to sound smart or if they actually know how their company is performing for clients.

    •Are You an Investor?  Do you own in the exact neighborhoods you are selling?

    •How many investors do you work with?

    •Do you own all facets of the operation?

    •Do you offer rental or maintenance guarantees?

    - IF they answer yes, ask them why?  And then ask them if they will put the guarantee on year three.  Guarantee are used as a sales technique and should be a red flag for an investor.

    •Do you defer maintenance?

    •How many properties do you manage?

    •Do you own the properties you sell?

    •How long have you been in the business?

    •What is your average vacancy rate?

    •What percentage of expiring leases will renew their lease each month?

    •What is the average number of days a property is vacant between tenants - Move out to move in?

    •What percentage of billed rent do you collect each month?

    •What is the cost of an average repair bill after move-out?

    •What are your management fees?

    •What percentage of collected rent goes to yearly maintenance on average?

    •What is your average # of months occupancy per property?

    Three most important questions you can ask to learn a little about their mindset as business owners and how they are going to treat your investments:

    •What programs do you have in place to keep tenants happy?

    •What customer service programs do you have in place?  Will you call me every month with an update on my portfolio?  How many team members are dedicated solely to providing service to your clients?

    •What has been your biggest mistake as an investor?  How do you protect your clients from making the same mistakes?

     I really like these questions, but as a investor, I thought the first question would be what are your typical investor Return on Investment numbers or Cash on Cash numbers?

    Originally posted by @Peter Schuyler :
    Originally posted by @Chris Clothier:

     @Kyle Scholnick

    Key questions to ask a Turnkey company.  Pay close attention to the answers they give you and take notes.  If they do not want to give you the time to answer your questions, then you do not want to do business with them.  If they are irritated by the questions, definitely move on.

    These are the KPI's that any quality turnkey company will measure and track and should be able to give you an accurate and correct answer at any given time.  If you pay close attention to the answers, you can do simple math to determine if they were just giving you answers you want to hear to sound smart or if they actually know how their company is performing for clients.

    •Are You an Investor?  Do you own in the exact neighborhoods you are selling?

    •How many investors do you work with?

    •Do you own all facets of the operation?

    •Do you offer rental or maintenance guarantees?

    - IF they answer yes, ask them why?  And then ask them if they will put the guarantee on year three.  Guarantee are used as a sales technique and should be a red flag for an investor.

    •Do you defer maintenance?

    •How many properties do you manage?

    •Do you own the properties you sell?

    •How long have you been in the business?

    •What is your average vacancy rate?

    •What percentage of expiring leases will renew their lease each month?

    •What is the average number of days a property is vacant between tenants - Move out to move in?

    •What percentage of billed rent do you collect each month?

    •What is the cost of an average repair bill after move-out?

    •What are your management fees?

    •What percentage of collected rent goes to yearly maintenance on average?

    •What is your average # of months occupancy per property?

    Three most important questions you can ask to learn a little about their mindset as business owners and how they are going to treat your investments:

    •What programs do you have in place to keep tenants happy?

    •What customer service programs do you have in place?  Will you call me every month with an update on my portfolio?  How many team members are dedicated solely to providing service to your clients?

    •What has been your biggest mistake as an investor?  How do you protect your clients from making the same mistakes?

     I really like these questions, but as a investor, I thought the first question would be what are your typical investor Return on Investment numbers or Cash on Cash numbers?

    I agree with Peter, always good to get what the turnkey provider *THINKS* the cash-on-cash should be. However, from my experience, these numbers are always inflated, though I usually use more conservative numbers when doing my own calculations.

    Originally posted by @Peter Schuyler :
    Originally posted by @Chris Clothier:

     @Kyle Scholnick

    Key questions to ask a Turnkey company.  Pay close attention to the answers they give you and take notes.  If they do not want to give you the time to answer your questions, then you do not want to do business with them.  If they are irritated by the questions, definitely move on.

    These are the KPI's that any quality turnkey company will measure and track and should be able to give you an accurate and correct answer at any given time.  If you pay close attention to the answers, you can do simple math to determine if they were just giving you answers you want to hear to sound smart or if they actually know how their company is performing for clients.

    •Are You an Investor?  Do you own in the exact neighborhoods you are selling?

    •How many investors do you work with?

    •Do you own all facets of the operation?

    •Do you offer rental or maintenance guarantees?

    - IF they answer yes, ask them why?  And then ask them if they will put the guarantee on year three.  Guarantee are used as a sales technique and should be a red flag for an investor.

    •Do you defer maintenance?

    •How many properties do you manage?

    •Do you own the properties you sell?

    •How long have you been in the business?

    •What is your average vacancy rate?

    •What percentage of expiring leases will renew their lease each month?

    •What is the average number of days a property is vacant between tenants - Move out to move in?

    •What percentage of billed rent do you collect each month?

    •What is the cost of an average repair bill after move-out?

    •What are your management fees?

    •What percentage of collected rent goes to yearly maintenance on average?

    •What is your average # of months occupancy per property?

    Three most important questions you can ask to learn a little about their mindset as business owners and how they are going to treat your investments:

    •What programs do you have in place to keep tenants happy?

    •What customer service programs do you have in place?  Will you call me every month with an update on my portfolio?  How many team members are dedicated solely to providing service to your clients?

    •What has been your biggest mistake as an investor?  How do you protect your clients from making the same mistakes?

     I really like these questions, but as a investor, I thought the first question would be what are your typical investor Return on Investment numbers or Cash on Cash numbers?

     You can always ask whatever questions you think are most relevant and in whatever order you want.  For me, I try and work backwards and I suggest investors do the same.  If you know what type of return you are looking for from a turnkey investment, then you craft your questions to see if you are going to be happy with them before you even get to a return question.

    To put it differently, if you go in asking what a companies' returns are and they give you a ridiculously good sounding number like many are going to do, you are automatically interested.  Whereas, if they give you a number that is more in line with reality and what a passive investor should expect for such little risk, then you might be inclined to tell yourself you can do better.

    In neither case were you able to dig in and find out how they operate and what makes them special or what makes them ordinary.  You've already made your decision - or started to anyway - on the return number they told you.

    We all want a higher return.  That is a given.  What sets a smart investor apart from the masses is their willingness to wait on focusing on the return.  Go straight for what differentiates a quality provider and then weigh that against the return you get.  You will often find that the more quality controls they have, the more time they spend on becoming a great company offering a great service, the more an average sounding return looks really good and the more a really good sounding return looks really risky.

    That has been my experience anyway with the industry over the last 14 or so years.  There will always be time to find out what their returns are and if they are in line with the services they provide. 

    Great words of wisdom @Chris Clothier !  I think some kind of rehab guarantee is a good thing, as the TK company can (and should) be controlling the quality of the work.  However, there is not an opportunity to control the rental market.  So, any guarantees in that arena are strictly promotional.  

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