I have a property in Katy Texas that I acquired through long term seller financing. I have a few exit strategies in mind, but thinking about selling it as a turnkey rental.
Does anyone have suggestions on how to properly price a turnkey property vs a standard resell?
I'm a turnkey buyer, not a seller. Not saying I approve of these tactics, but it seems like most sellers price based on an investor's expected monthly cash flows, cash on cash returns, cap rate, or a combination thereof.
Most sellers I've vetted use 5% allowances for vacancy & maintenance, which most investors consider too low. (But since this practice is pervasive I am assuming there are buyers that bite anyway.)
It sounds like you plan to sell the property fully tenanted and post-rehab, correct? If not, you may need to do more handholding and limit your buyer pool.
Check out the pro formas from some of the big turnkey marketers for a sense of how they position properties.
You might want to see what other TK providers in that market are selling them for in that market and go from there.
In today's market, at least in my market, most of the homes by turnkey providers are priced pretty close to each other with similar rental amounts. While it may seem that the rent dictates the price, and they are certainly co-related, the purchase price, appraised value and the turnkey provider level of rehab and service also are key factors in determining price. Because most turnkey providers are in and out in 90 days (give or take), most do not have the luxury of a property with a ton of room to work. If the method of providing the property is via a turnkey provider buying a foreclosure, the selling bank does not discount or come off their list price anywhere close to what they did 4 + years ago and they will sit on it for 90 days before the price is dropped where it makes sense for turnkey. If I am buying a home that rents for $950, more then likely I am buying somewhere between 44 and 50k, the variation would be the condition of house. If the house needs a roof and HVAC system, then I am spending minimum of $25,000. The house would sell somewhere between $86 to $89. That home value will be close to the purchase price. This is a fairly common deal in my market. If you count in closing twice, soft cost, overhead, etc. you can see in that scenario the factors I listed above (purchase price, level of rehab, rent, value) for the most part dictate the price. Notice, no where in there is desired profit and I will talk about that later in this post. Some providers will scale back on the rehab and keep the roof and HVAC and offer the home 10k cheaper. In that scenario, with level of rehab being scaled back and the house is sold with deferred maintenance, it warrants a discount. FYI, I do not endorse that method as it will not cash flow b/c of the deferred maintenance. For us, the turnkey business is more about volume then minimum profits; we will enter into deals that we know have very slim profit margins b/c we have more buyers then houses and our goal is to build the management company with a good portfolio of houses as that is a very sustainable business with other business opportunities that can spin off that. Also, I have employees and full time rehab crews that get weekly checks; I have an obligation to keep these guys working, or risk losing them.
If you are doing a one shot deal, then I think you need to include desired profit margin into the mix of rent, value, condition of house (deferred maintenance).
Hope that helps.