who owns the turnkey property?

8 Replies

Does the TK company actually own it first (name on deed) then sell it to their client/the new owner). Or are they acting as a realtor between a seller and their client/the new owner. Or a double close as wholesaler?

 Once owned does the TK company have any ownership interest or are they strictly a 3rd party manager?

Yes, the company doing the renovation work will take ownership, then make the renovations, and then sell to you.  Completed renovations with inspection is typically required before you can close, as well as tenant in place, so they would need to have ownership to do those activities.  

Sometimes you might be working with a marketer, and in that case they are acting as the realtor - and your contract will be with the actual turnkey operator they are seller for, not the marketer.

The term "turnkey" is used loosely by folks that operate different models.

Some acquire (own), rehab, and re-sell the property to the turnkey buyer.

Some broker the property to the turnkey buyer, who funds the rehab out of pocket.

Some are marketers/promoters that collect a fee from the actual rehab/property management team and steward the buyer through the process.

In the sense that property management is often handled in-house by many turnkey sellers, there is a "vested interest" in the property's condition and tenant quality. But in the single-family market, I am not aware of any turnkey models that include fractional ownership of the property itself on the part of the seller/turnkey operator. 

Those kinds of JVs seem more common in the multi-familiy market, particularly commercial properties (5+ units). For example, I discovered one company offering individual units in their apartment complexes with pre-approved, non-recourse financing--but you could only qualify by investing with a self-directed IRA.

Originally posted by @Keith Anderson :

The term "turnkey" is used loosely by folks that operate different models.

Some acquire (own), rehab, and re-sell the property to the turnkey buyer.

Some broker the property to the turnkey buyer, who funds the rehab out of pocket.

Some are marketers/promoters that collect a fee from the actual rehab/property management team and steward the buyer through the process.

Is it possible to remove the turnkey company who is doing the initial PM on the property? What if say a year or two into the ownership (granted the contract between turnkey-PM and owner is such that there is a 30 day notice on either party to dissolve the relationship) the owner doesn't like the handling due to changes in the turnkey company. This happens with regular PM companies that change in-house and the quality of service goes down. What of trunkey companies?

@Daria B.  I think that the owner (turnkey buyer) can generally switch out the property manager if they're dissatisfied. There do seem to be volume discounts on PM fees (e.g. 1% discount after 5 properties under management), and the PM side of the turnkey operator is eager to keep clients happy to encourage more property purchases. But there's nothing keeping you with a sub-par manager.

Legit turnkey providers will own the house.  Those that do not are really not turnkey providers, rather middle men or wholesalers that have no skin in the game. I would say buying a distressed house and depending on someone to fix it up after the sell is a huge risk--a risk that falls 100% on your shoulders.  I like to retain the management of the homes obviously to grow my PM business, but also to oversee the investment after the sell so that if issues come up within the first year, I can address them accordingly and if necessary pay for those issues instead of the investor.  Legit turnkey operators will want to develop long term relationships, which is another reason I like to retain mgmt.  I would be cautions of the "sell you a house, then see you later" type sellers.  That connection back to the property I think is important.

Originally posted by @Keith Anderson :

@Daria B.  I think that the owner (turnkey buyer) can generally switch out the property manager if they're dissatisfied. There do seem to be volume discounts on PM fees (e.g. 1% discount after 5 properties under management), and the PM side of the turnkey operator is eager to keep clients happy to encourage more property purchases. But there's nothing keeping you with a sub-par manager.

Thanks Keith. I'm researching this process right now and am a long way off of making a decision so I try to read and learn as much from others' experience.

A properly setup turnkey company- yes, they own it in their name. If that is not the case, there is something else going on. And once you own the property, no they don't have ties to ownership of it at all, they only manage it. But since you own the property, you aren't even required to keep them on as managers, you can do whatever you want.