Watertown, NY · Member since 2015 · 12 posts · 5 votes
I know ‘turnkey’ has been a hot topic as of late, but I am wondering who is out there regarding truly vertically-integrated “turnkey” providers or “fully-managed” providers. My thoughts are that there would be significant benefit to a company with a solid reputation that handles the purchasing, rehab/construction, and property management completely in-house. I would be particularly interested in the most established providers in a particular area of operations, the ones that won’t be going anywhere, and may be considered the blue chips or market leaders of the industry. I know that there are companies that are a little spread out geographically and handle the purchase, rehab, and placement of a tenant, but I would be less confident that they would maintain a presence in that particular location. Also, I believe that a company that owns/operates the construction/rehab themselves (not just oversees) would be more likely to back the work rather than point fingers at other entities. They should potentially be able to save a little more on the rehab, etc., but I am skeptical that they would pass much of this savings on to the investor.
Basically I am interested in what companies are out there that handle every step of the process (apart from independent inspection/appraisal) in house and also push to keep the customer as happy as possible to keep them coming back to purchase more properties. I am sure there are benefits to ‘boutique' providers and other models as well, and I would be open to hearing about them, but I believe I may feel more secure/confident with companies that were most likely to stick around and strive to continuously earn my business with quality rehabs and PM. I am open to hearing about these companies anywhere, but I'm personally most interested in TX, FL and east coast (PA, VA, etc).
Investor · Cambridge, MA · Member since 2014 · 92 posts · 87 votes
11y
I've only found a few that meet your criteria (fully integrated, around 10+ years): Memphis Invest (which operates in Dallas and Houston as well) and MACK Investments in Chicago.
Norada has been around for 10+ years too and I believe is vertically integrated in some markets and promotes in others. I'm not certain on that one but perhaps @Marco Santarelli will clarify.
That said, even if I buy from a "blue chip" turnkey seller I still plan to have contingency plans in mind.
Though I have no intention of selling the property in under 10 years, what are the odds I could sell it at market value?
Do I have 1-2 backup property managers identified? Could I eventually transition to using brokers or PMs for lease-up and self-manage month-to-month?
Investor · Cambridge, MA · Member since 2014 · 92 posts · 87 votes
11y
I've only found a few that meet your criteria (fully integrated, around 10+ years): Memphis Invest (which operates in Dallas and Houston as well) and MACK Investments in Chicago.
Norada has been around for 10+ years too and I believe is vertically integrated in some markets and promotes in others. I'm not certain on that one but perhaps @Marco Santarelli will clarify.
That said, even if I buy from a "blue chip" turnkey seller I still plan to have contingency plans in mind.
Though I have no intention of selling the property in under 10 years, what are the odds I could sell it at market value?
Do I have 1-2 backup property managers identified? Could I eventually transition to using brokers or PMs for lease-up and self-manage month-to-month?
Watertown, NY · Member since 2015 · 12 posts · 5 votes
11y
@Keith Anderson, thank you. Yes, I have also wondered if Memphis Invest is more established or committed to a strong presence in any or some of their 3 markets over the others.
And, yes, I would consider Norada to be a 'blue chip' organization based on what I know of them, but I have wondered about their integration considering I know that they are in many markets. For example, I have seen that they have listings and are building MF units in San Antonio, but I don't know if they have PM or what kind of a team they have established there. I really like that they have their listings visible and well-organized on their website, as not all turnkey providers do unfortunately.
I like your ideas regarding still identifying backup PM's, etc. I also try to be prepared for all potential scenarios.
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y
@Ryan C. can't speak for all turn key but I am pretty sure most turn key of course are investors and own the assets.. ( I know I fund a bunch of them) and they own the PM companies as an affiliate.. however not many if any actually own the construction company.. they have maintenance folks on staff at the PM.. but I think the major rehab is done by sub contractors....
Just like my business we do a lot of rehab and new construction but we do not have any employees that acutally build anything its all subs... You have a GC then he subs out to all the specialty items... this is how it usually works.
@Douglas Skipworth I have other vendors I work with that have your model Douglas.. it works well.. although your now putting the buyer in the shoes of playing rehabber developer and many don't have the experience or temperament for it. But it is a nice alternative.
Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
11y
Thanks, Jay. I agree that the solution we offer is not for every investor. It is, as you and I agree, an vertically-integrated alternative to the turnkey model.
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
11y
@Ryan C. Really what you are describing is the true definition of Turnkey. We do the same thing. We run 3 full time crews that directly work for me that handle the 80% of the rehab; the items that need permits pulled, we sub that out to licensed trades that give us well beyond 50% discounts off retail due to the volume we give them in our Turnkey and Property Mgmt biz. With an average rehab of $25,000, that saves us at least $7,500 per job by not hiring a contractor and since I own the properties, I do not have hire one, rather like I mentioned above, I have guys who work for me. The money you save by hiring a contractor is very close to what the contractor mark up would be. $25k sounds like a lot, but when you install new roofs, HVAC systems, hot water tanks, ceramic tile, new supply lines to angle stop valves, vinyl plank flooring in high traffic areas, carpet in bedrooms, faucets, fixtures, electrical panel updates, etc. it really is not that much and important if you plan on a long term hold. Otherwise you will get eaten up in vacancy and maintenance. I own the PM company to that places tenants and handles day to day operations. We do business in Memphis and Little Rock, AR. Owning PM company is essential for Turnkey providers so that they are overseeing your investment and looked as more as partners and your real estate adviser as opposed to someone who did nothing but "sell you a house."
As for market leaders, who is going to stick around, etc. I would say those in the business now doing high volume would be the ones that having staying power. I have seen many come and go. Some because they were terrible companies that had no idea what they were doing or they were simply not smart enough to change due to market demands. The nature of the business has changed so much over the past 8 years since I started, that only those who are smart and savy enough (and well capitalized) to adapt and change to evolving market conditions are still around (and those that have treated their clients with their clients interest in front of their own). A good turnkey provider can show you how their properties through their rehabs position you for long term success.
I would advise you talk to several companies and make your decision based on your meetings, online research and conversations of who you want to work with. Then when you make that decision, I would fly to that market, meet them in person and tour their properties.
Thanks for the feedback. I am new to BiggerPockets forums.
How can I present the information that Ryan C. asked for in a way that doesn't violate the rules?
I want to contribute to the community discussion, but I don't want to do it in a way that is inappropriate.
Please let me know.
You can do a couple of things...
1. Create a profile for your company here on BP explaining what you do. If people PM you, you can always direct them to your company profile, which would also be linked to your personal profile.
2. (This is the route I take, as we provide a subset of the services you describe.) I simply tell people we provide services to out of market investors, and they are welcome to PM me, if they would like additional information. Once I receive a PM from them, to ensure I'm not abusing the purpose of BP, I ask them to send me an email, so I can so I can respond our service catalog and investor screening material. Taking this approach puts a little more burden on the investor asking the question, but it ensure I can't be accused of spamming or anything like that.
I know ‘turnkey’ has been a hot topic as of late, but I am wondering who is out there regarding truly vertically-integrated “turnkey” providers or “fully-managed” providers. My thoughts are that there would be significant benefit to a company with a solid reputation that handles the purchasing, rehab/construction, and property management completely in-house.
Hi Ryan,
Welcome to BiggerPockets!
First off, if you haven't listened to my podcast episode "Turnkey Real Estate Investing Explained", then I encourage you to listened to it as I go through the ins and outs of turnkey investments and investing. (Episode #004)
On the surface it might appear that having everything "under one roof" is good thing, but that's NOT true all the time.
Case in point: We used to work with one of the best rehabbers we've ever worked with in almost 12 years in this business. They always impressed the inspectors and went far beyond expectations. Then one day they decided to get into property management and started up a new division (same partners, under one roof). It was an epic disaster!
Not only did they lose virtually all of the property management clients, but it created waves of problems for everyone involved past and present.
LESSON LEARNED: Just because you're good or great at rehabbing, does not mean your great at property management. They are TWO very different businesses. The RIGHT thing to do is work with the best rehabber/builder because they are they can provide you what you need. And work with the best property manager because they are the best manager you can find. If they happen to be under the same roof, great. If not then look for the best of both separately. They are different businesses, so treat them that way.
- - - - - -
On a related note, when working with an adviser or turnkey company that works with multiple property providers and property managers, you should get unbiased advise on each company's reputation and their fit for your goals & strategy. I call this being "Market Agnostic".
There are very few truly end-to-end companies that I know of. We've taken an end-to-end approach because the investing experience should be complete and hassle-free.
Norada has been around for 10+ years too and I believe is vertically integrated in some markets and promotes in others. I'm not certain on that one but perhaps @Marco Santarelli will clarify.
That said, even if I buy from a "blue chip" turnkey seller I still plan to have contingency plans in mind.
Though I have no intention of selling the property in under 10 years, what are the odds I could sell it at market value?
Do I have 1-2 backup property managers identified? Could I eventually transition to using brokers or PMs for lease-up and self-manage month-to-month?
You make a very good point Keith! Having backup service providers is a very good idea -- even if you never end up using them. Call it your "Plan B".
We survey our clients on their experience with every party involved to keep dibs on them. If there is a problem we look into it. The worst case scenario is you make a change (i.e. change of property manager). This rarely occurs but does happen from time to time. And that's another reason we maintain multiple service providers (managers, inspectors, title companies, lenders, etc.) in every market.
Watertown, NY · Member since 2015 · 12 posts · 5 votes
11y
@Douglas Skipworth It would seem from your description of your model that a potential benefit would be more upfront equity for the investor. And drawbacks may be more upfront capital required. Also, potential holding costs during rehab, less certainly of actual rehab costs since they have yet to be completed, and no tenant in place w/ signed lease/exact rental price upon purchase.
@Marco SantarelliGood points. I agree that in an ideal situation, “the investing experience should be complete and hassle-free.” I believe most out-of-state investors would prefer to thoroughly vet one organization rather than separate ones for each part of the process. At that point you’re almost putting together your own team. I am personally in a situation where I can do that locally, but I would prefer to diversify to other, potentially safer, markets as we have only one major industry here. Also, I see a benefit to having one organization hold itself accountable (and strive to keep you coming back) rather than point fingers in the chance that something goes wrong during the process.
You mentioned that you “maintain multiple service providers (managers, inspectors, title companies, lenders, etc.) in every market.” I was just hoping for a little more clarification. Do you have teams on the ground in your markets? From what I understand, you don’t have in-house management, but you set-up the property management initially with a local company that you vet for the investor. Do your teams or your model vary at all depending on the market? Thank you very much.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
11y
Hey Ryan! Well you basically described what a good turnkey company would consist of :) The most important being the motivation to keep earning your repeat business. That is actually a huge part of a successful turnkey business model. From a stats standpoint, the average primary homebuyer buys a new home every 7 years, whereas investors average 2 properties/year. Turnkey companies know this (or should) and know that with investors buying that many, they'd be stupid not to shoot for the repeat business.
There are a handful of great turnkey companies out there that meet your criteria. If you want to talk offline about them, shoot me a PM.
You mentioned that you “maintain multiple service providers (managers, inspectors, title companies, lenders, etc.) in every market.” I was just hoping for a little more clarification. Do you have teams on the ground in your markets? From what I understand, you don’t have in-house management, but you set-up the property management initially with a local company that you vet for the investor. Do your teams or your model vary at all depending on the market? Thank you very much.
Hi Ryan -- Good questions:
1) Yes, we have teams on the ground in all our markets, including property management companies. Think of our company as the hub of a wheel with all the other companies and services you require on each spoke. We have relationship with the partners and vet them for your benefit, while being agnostic to all. We are not married to any of them and remain unbiased in our counseling and suggestions.
2) The model I just described is the same in every market. What differs are the specific companies and people between those markets (obviously).
Please let me know if you have any other questions.
2. (This is the route I take, as we provide a subset of the services you describe.) I simply tell people we provide services to out of market investors, and they are welcome to PM me, if they would like additional information. Once I receive a PM from them, to ensure I'm not abusing the purpose of BP, I ask them to send me an email, so I can so I can respond our service catalog and investor screening material. Taking this approach puts a little more burden on the investor asking the question, but it ensure I can't be accused of spamming or anything like that.
Hattie, I just tried to PM you but apparently you've previously denied my connection request. Would like more info on your services for out of state investors.
We are a full service turn key operation in Birmingham. The acquisition, rehab, and management are all done under our companies. You are correct that shops like this do have more of an incentive to keep the repairs legit and prices tight. Everything we do relies on future sales. If I can help you understand our market please give me a call or send an email. Good luck
I know ‘turnkey’ has been a hot topic as of late, but I am wondering who is out there regarding truly vertically-integrated “turnkey” providers or “fully-managed” providers. My thoughts are that there would be significant benefit to a company with a solid reputation that handles the purchasing, rehab/construction, and property management completely in-house. I would be particularly interested in the most established providers in a particular area of operations, the ones that won’t be going anywhere, and may be considered the blue chips or market leaders of the industry. I know that there are companies that are a little spread out geographically and handle the purchase, rehab, and placement of a tenant, but I would be less confident that they would maintain a presence in that particular location. Also, I believe that a company that owns/operates the construction/rehab themselves (not just oversees) would be more likely to back the work rather than point fingers at other entities. They should potentially be able to save a little more on the rehab, etc., but I am skeptical that they would pass much of this savings on to the investor.
Basically I am interested in what companies are out there that handle every step of the process (apart from independent inspection/appraisal) in house and also push to keep the customer as happy as possible to keep them coming back to purchase more properties. I am sure there are benefits to ‘boutique' providers and other models as well, and I would be open to hearing about them, but I believe I may feel more secure/confident with companies that were most likely to stick around and strive to continuously earn my business with quality rehabs and PM. I am open to hearing about these companies anywhere, but I'm personally most interested in TX, FL and east coast (PA, VA, etc).
Having been doing this for nearly 15 years, there was a time when I started and provided all three key services: acquisitions, renovations and property management. Like the old saying goes, " would you rather excel in 1-2 areas or be mediocre in 3 or more."
As time went by, and hearing stories from other investors that used complete turnkey services, I realized many of them were doing a disservice to their buyers and here's why:
Too much power under one roof. You've got your TKP helping you purchase 1 property, managing 2 of your turnkey properties and handling renovation on 2 new properties recently acquired. Along comes a dispute or misunderstanding in one area and before you know it, it's now affecting all your properties.
What if you buy an existing turnkey property from a property management company that sells turnkey properties? That works until one day you realize that the PM is not managing your properties the way you require. What if you decide to move to another PM? How is that going to affect acquisitions and renovations? I see this scenario all the time and it takes the investor many months to extricate themselves from the relationship.
The solution is to separate them. Have one company handle your acquisitions, one handle renovations and a separate company handle property management. Yes, I know this is not what you are looking for but there is a solution to that as well. For example, my brokerage handles acquisitions, whether off the MLS or off market. When a client closes, they are transitioned to my partner (separate company) located in the same office providing all construction services. We coordinate all our activities to insure the acquisition and renovation services run smoothly in a seamless process. When property is completed, we then assist with the transition of the property over to our recommended property management companies who then market, lease and manage. It's seamless, easy and an assembly line approach. Therefore, if there is a misunderstanding with one service, it does not affect the other operations. You mitigate your risk quite a bit.
Although many of our clients wanted us to handle property management in house, we chose to outsource it to a few PM's we have strong relationships with. We don't receive any referral fees from this. We only want happy clients who will continue using our services.
Property management is a tricky beast. You want to pick a PM that focuses 100% on property management (and nothing else) that a good TKP has a strong relationship with. If you don't, eventually you've got a PM trying to do everything, are spread to thin, and you don't get the level of service and attention your property deserves.
Registered Nurse (ICU) · San Jose, CA · Member since 2014 · 496 posts · 332 votes
11y
Jonathan Mednick that is a great point. But for me that just stresses the importance of finding a good turnkey provider. A good turnkey company should be able to constructively work with you on any issues that arise. As time progresses and each issue is tackled appropriately a trusting relationship is born.
Watertown, NY · Member since 2015 · 12 posts · 5 votes
11y
@Jonathan Mednick Good point. You referred to the construction company as your 'partner.' I guess if I felt that a company was using a trusted sister-company I would feel better about it. You hear stories about people buying turnkeys to find out later that a lot of corners were cut during rehab (and missed during inspection), and I would just want to avoid the fingers being pointed at the company that was hired out to do the work. I understand that you only want happy customers who will come back as well.
@Jonathan Mednick Good point. You referred to the construction company as your 'partner.' I guess if I felt that a company was using a trusted sister-company I would feel better about it. You hear stories about people buying turnkeys to find out later that a lot of corners were cut during rehab (and missed during inspection), and I would just want to avoid the fingers being pointed at the company that was hired out to do the work. I understand that you only want happy customers who will come back as well.
As we agreed, it's all about strategic relationships.
A few additional items:
1. If you decide to work with a TKP that separates and partners with renovation and property management companies, the question to ask them is, "are you as the TKP receiving any referral fees from your affiliate partners?" You want your acquisition services beholden to no one and insure they have your best interests as there top priority, not just seeing you as a paycheck. My company does not receive any referral fees from any of our affiliate partners.
2. If the renovation partner did their job and documented in detailed the scope of work (SOW), then when the inspector shows up, there is no additional charge for anything found that requires additional work that was already included in the SOW. However, many inspectors need to justify their services and will always find something no matter how insignificant. Then it becomes a matter of interpretation on whether it is part of the original scope of work or a change order and and who should pay for it?
For example, most inspectors inspecting crawl spaces will recommend laying down plastic sheets as a moisture barrier to keep the area dry. Most contractors will not include this and see it as an unnecessary expense to the investor. If the investor wants it installed, it is clearly a change order with an additional cost. That is why documentation is so important and both the contractor and investor agree and approve the original SOW.
Finally and most important, find out what warranties TKP will provide. For example, on any properties we run through our complete turnkey service where the investor takes title to the property, we offer a 13 month home warranty and our partner contractor offers a 6 month warranty on all work associated with the SOW. Those that do not offer warranties, should be a red flag and you can expect higher deferred maintenance issues eating in to your net yield.
@Jonathan Mednick Good point. You referred to the construction company as your 'partner.' I guess if I felt that a company was using a trusted sister-company I would feel better about it. You hear stories about people buying turnkeys to find out later that a lot of corners were cut during rehab (and missed during inspection), and I would just want to avoid the fingers being pointed at the company that was hired out to do the work. I understand that you only want happy customers who will come back as well.
As we agreed, it's all about strategic relationships.
A few additional items:
1. If you decide to work with a TKP that separates and partners with renovation and property management companies, the question to ask them is, "are you as the TKP receiving any referral fees from your affiliate partners?" You want your acquisition services beholden to no one and insure they have your best interests as there top priority, not just seeing you as a paycheck. My company does not receive any referral fees from any of our affiliate partners.
2. If the renovation partner did their job and documented in detailed the scope of work (SOW), then when the inspector shows up, there is no additional charge for anything found that requires additional work that was already included in the SOW. However, many inspectors need to justify their services and will always find something no matter how insignificant. Then it becomes a matter of interpretation on whether it is part of the original scope of work or a change order and and who should pay for it?
For example, most inspectors inspecting crawl spaces will recommend laying down plastic sheets as a moisture barrier to keep the area dry. Most contractors will not include this and see it as an unnecessary expense to the investor. If the investor wants it installed, it is clearly a change order with an additional cost. That is why documentation is so important and both the contractor and investor agree and approve the original SOW.
Finally and most important, find out what warranties TKP will provide. For example, on any properties we run through our complete turnkey service where the investor takes title to the property, we offer a 13 month home warranty and our partner contractor offers a 6 month warranty on all work associated with the SOW. Those that do not offer warranties, should be a red flag and you can expect higher deferred maintenance issues eating in to your net yield.
Jonathan,
I have a counter argument to using a company that wants to just be responsible for one part of the transaction and then affiliate with other companies. I have seen several companies break apart with the same phrasing of being great at finding great deals and letting experts in renovation and management handle those areas. I am sure you do not have the same issues that they have had, but none-the-less here is where that led for investors.
It led to issues with poor renovations and the company they bought from telling the investor to go call the renovation company. It led to issues with poor management and the company the investor bought from telling the investor to go call the management company. It led to items on home inspections and the company they bought the property from telling the investor to go dispute that with the contractor and shrugging their shoulders when it cost the investor more money. After all, they had done their job and found the deal. It was up to the investor to build a relationship and deal with the other companies - even if they were referred by the original company they were buying from.
Companies that decided to hang their hat on just finding properties and using affiliate companies to provide the other services essentially wring their hands of responsibility for those services.
You may very well have an excellent thing going in your city and may never deal with these issues. But many companies and business persons made the conscious decision to go the other way and be responsible for the performance of each of those areas. IMO, that is a much better alternative ESPECIALLY for passive investors who are buying for the purpose of NOT being overly involved. They need to build one very good and very trusting relationship - not multiple relationships to stay on top of the business.
