Turn Key Companies who to avoid

26 Replies

I'm from the Seattle area and interested in purchasing properties for passive income, lately been looking at different turn key properties and been reading BP forums for certain companies. I've been seeing different opinions about the good, the bad and the ugly which makes me nervous but something tells me to just jump in take a risk but limit them so it won't bankrupt me :)

Now I want to ask anyone from the community on your experiences on certain TK company and who to definitely avoid?  Thanks in advance and happy investing!!

Originally posted by @Ryan Santos :

I'm from the Seattle area and interested in purchasing properties for passive income, lately been looking at different turn key properties and been reading BP forums for certain companies. I've been seeing different opinions about the good, the bad and the ugly which makes me nervous but something tells me to just jump in take a risk but limit them so it won't bankrupt me :)

Now I want to ask anyone from the community on your experiences on certain TK company and who to definitely avoid?  Thanks in advance and happy investing!!

I am going to try to not be biased, but I give the same advice to anyone looking into Turnkey. Just do your research on the specific company. Ask questions on BP and to anyone who may have worked with them in the past. Also, make sure they are a TRUE Turnkey Provider. Sometimes people just use the word to describe a home that looks like it does not need a lot of work. All they know is what they see from photos and they are acting as agents using the MLS.

Ideally, the should own, renovate and manage the property for you all in house and not use any third parties.

Try looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

If I can offer a suggestion... I would encourage you to re-frame your question and maybe ask people which turnkey companies they've had good luck with and start there. The only reason I say that is- I think asking about the "bad" companies is going to give you more answers that involve drama, possibly inaccurate assessments, etc. Now, if someone can respond about a company and offer a very objective reasoning as to why they suggest not working with them- void the emotions and the drama about it- then that is super helpful and valid. Unfortunately I don't think that will be the bulk of the responses, just based on the years of turnkey forums on here and watching how people respond in them. 

Plus, even if you get a list of "bad" companies, then you still aren't much further along other than knowing who to avoid, but that doesn't help with who to possibly buy from. So, asking about companies people do recommend gets you more efficiently to where you're trying to go. Of course if you find a company along the way, you could ask if anyone has any warnings to offer about them, so it's not about not hearing bad reviews, but being a little more strategic in how you get the information you're looking for. 

One more caution, and I say this from being a turnkey buyer myself and working with turnkeys ever since and with a lot of people on BP who have bought them- I can think of very few people who have ended up buying turnkeys successfully who still participate in these forums. Mostly because, they don't need them anymore if turnkeys are all they wanted or needed. So there is an extremely large population of turnkey buyers who have had great experiences who won't be on here to respond about those experiences. All the more reason to support the warning about asking about the bad experiences.

I hope that wasn't too philosophical of a [long] response, but just since I've seen how the turnkey responses can go, and how many of them I've seen that I know for a fact are inaccurate, I just want to throw out that caution. By no means does it mean there aren't any bad companies out there, there absolutely are, but there are also a lot of unfounded opinions that tend to creep up. 

Reach out anytime if I can be of any help. Sorry again for a slightly long, not-answering-your-question, response.

@Ryan Santos

Many people buy out of state rental property. Many of those people are here on BP. 

Some important things to do when you are buying out of state

  • Hire a 3rd party home inspector.
  • Use a bank loan. OPM is the best part of the biz. On top of stretching your cash the bank will perform an appraisal. Bank isn't going to let you loose their money.
  • Buy the nicest property in the nicest area you can afford.
  • Hire a Realtor to represent you in the sale.
  • Make sure your Property Manager is a state licensed Brokerage.
  • Accept that you can not eliminate all risk. You can only limit it by doing things like the above tips.

Good luck & happy investing.

I agree with @Ali Boone .  Better to focus on the positives.  Once you find those positives, it's not that difficult to get on an airplane, and go see the people/operations that you want to do business with.  Once you've established a good working relationship, and do your first deal with them, you'll feel more confident in just looking at pics and numbers....assuming your first experience was positive.  Then, like Ali said, there's very little reason to spend time on BP...it's just a matter of prepping for the next deal.

Are you looking locally for turnkey companies? It's hard enough to find cash flow in western WA these days, let alone with a turkey company. If you're looking out of state then you'll probably need to hone in on a few markets and be more specific. 

Thank you @Tom Ott, @Ali Boone, @James Wise, @ Jeff Schechter!

I've been looking into different TK's and yes you guys are right about asking the positives and I agree that all have their own positives and mostly good experiences from other investors,  people talk about the negatives and I'm already taking that into account (risk) .

The only reason I asked the question is because I already feel most of the companies I'm looking at checks out t so I want to see if I would get a common theme on who has bad experiences noting that I know you cant make everyone happy but once you see a common theme then that should give me a reason to research some more. I'm pretty much convinced to make a purchase using them but I wanted to see if someone would say no to someone:)

@Ryan Evans

No I'm looking at out of state because I agree that my market is not easy anymore to find a cash flowing property and I know theres still deal out there but I have a full time job and doing marketing etc. is just not gonna work for me right now atleast.

Looking at Indy, Memphis, OH, KS, TX so far.

@Ryan Santos gotcha. I figured you were looking elsewhere. I'd still consider buying in certain areas of south sound, but you definitely need to get out of WA to find the good cash flow. I've got 2 duplexes in OH so I know the out of state struggle, but whether or not you go with a turnkey, I'd still fly out to your market and see it for yourself. If only for a weekend. 

@Ryan Santos -  I don't agree with reasons not to start in your back yard. You are dealing with two evils OOS and  TK+Agents. 

Buy @Ryan Evans bear and get important education.

"Education is what you get by learning from others. Experience is what you get by not learning from others."

Good Luck

Vivek

Indianapolis and Cincinnati seem to be good markets these days.  I know people in both markets.  If I could answer any questions, I'd be happy to discuss with you.

I invest in Cleveland and Memphis. The first property I bought was turnkey and the second wasn’t. I can give you pros and cons of both if you want.

Just PM if you want to chat and I can answer any questions you have based on my experience

Originally posted by @Ryan Santos :

@Ryan Evans

No I'm looking at out of state because I agree that my market is not easy anymore to find a cash flowing property and I know theres still deal out there but I have a full time job and doing marketing etc. is just not gonna work for me right now atleast.

Looking at Indy, Memphis, OH, KS, TX so far.

Ryan, I have knowledge and some experience with most of the turnkey companies in Indy and Kansas City ( assuming by KS you meant Kansas City, MO not Kansas?)  I happy to share with you my knowledge of any of the particular providers you have questions about in those areas.  Just PM with your questions. 

We have purchased 4 turnkey properties from three different providers.  One provider was horrible - you can search for the story on BP if you want the details.  The other two providers were good to work with.  My biggest piece of advice is to use a completely independent home inspector - that person is one of your advocates.  We had a contract on another property with a fourth turnkey provider until the inspection came back with some serious mold, rot and radon issues with property that was supposedly turnkey.

@Ann Howell 10-4 on hiring an independent inspector! For an OOS investor like myself, I rely heavily on them when I don't know the company I'm purchasing from yet.

I agree with @Vivek Khoche the aforementioned advice means nothing to do with anything. Buy for cashflow and use the advice of disinterested parties who are not getting compensated when you buy.

A lot of the experience comes down to the execution of the construction process and then the management of the property itself.  It is worth investigating those areas of the TK company you are researching.

Thank you again everyone for the inputs and that's why I love BP!

Here's my dilemma now. looking at most of the properties offered and doing a little check using Zillow or redfin, values of the homes seems to be way higher from what it was originally bought for. I know I can get protected if I finance them with a bank appraisal and I am all for them needing to make money also but is 30k or higher premiums seems ok or normal? I know Zillow or redfin is not very reliable but they should be close. My strategy will be possibly refinancing (cashout) this homes in the future so I can purchase more but if I was already way behind its value from where I bought it and knowing some of this markets don't appreciate much, wont that create a problem of what I am trying to accomplish?

I do turnkeys and recommend always to get in touch with the company and ask for their track record and reference. See how many deals they do monthly, etc. Get to know who you're working with.

I purchased from Curt Davis at BuyMemphisNow about 2 years ago. Only one repair in two years and the tenant just resigned a 2nd 2 year lease. It's been a great experience! If you're interested in Memphis, I'd give him a call. There are a number of reputable TK companies in Memphis so call a bunch!

@David Hodge  

Thanks for the kind words. 

@Ryan Santos You can find both good and bad turn key companies in nearly every market. 

In general, the ones to avoid are the ones that:

  • Don't allow financing or a finance contingency (it can be a good indication they are selling above market value)
  • Don't allow for your own independent property inspection
  • Are not realistic with their pro forma's (i.e. they don't include vacancy or maintenance projections or use unrealistically low vacancy factors)
  • Require you to pay for any renovation upfront
  • Sell only in cheap. low end neighborhoods
  • Don't accurately represent the neighborhood/property classification
  • Don't have consistent rehab standards for all properties
  • Don't provide a scope of work for the property
  • Can't provide references of repeat investors 
  • Require you to close before a tenant is in place

@Ryan Santos I think some people here have already hit the nail on the head - of course the most important thing is your due diligence, which its sounds like you're already working on. I think @Ali Boone makes an awesome point -most tk investors that found what they were looking for on BP are no longer around to talk about it because they found what they needed. BP is populated mostly by new investors looking for tips and advice, and some of us old pros who stick around to keep tabs on the industry. Those who have tried a tk company and had a bad experience are MUCH more likely to still be very vocal on BP, because they've been burned and are still looking for the right investment.

I think @Mike D'Arrigo gave a perfect list of important red flags - the cash-only, no repeat investors, and pre-tenanting closing, especially. Really that whole list is gold. When it comes to metrics and pro formas, always ask where those numbers come from. There should be solid data (like actual, tracked spreadsheet data) to back up their numbers - estimates shouldn't fly in this industry. I'd also add that you should be able to get a detailed list of what was done to a property, it's important to know what the general standards are for rehab, but you should also be able to get specific details about the property you're looking at.

Just make sure you ask tons of questions and get specific answers in a timely manner, that responsiveness alone can tell you a lot about a company and how they view their investors. If you want some input on questions to ask, here's a thread that discussed this topic (its a common one) a while back: https://www.biggerpockets.com/forums/55/topics/361999-new-investor-from-glendale-ca

Best of luck!

Clayton

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