TurnKey Or Not To TurnKey? That Is The Question...
ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes
Hello BiggerPocketeers!
Looking to buy properties OOS and am wondering whether or not to use a "TurnKey" company. My thoughts are either to use one, and let them do most everything, a "One Stop Shop" so to speak (Obviously, I would do major due diligence.), or to buy Out~of~State properties myself and set up a reputable property management company that runs a super~tight ship.
Please share your expert thoughts, pros, and cons, that I may have some light shed on the prospect of purchasing OOS using TurnKey companies or not.
Thank you in advance for your responses. :)
Daniel F. Harb
@Daniel F. Harb The question comes down to do you have them time, resources and skills to do everything from out of state and whether you can truly have built in equity by doing it yourself. Those are big if's. In order to force equity, you would most likely need to buy a distressed property that needs to be rehabbing. That means that you have to be able to manage that remotely--no small feat. There's also no guarantee that you would save anything over a turn key company. Reputable turn key companies do not sell over market value. They have significant cost advantages over an individual trying to do it themselves. That's because turn key companies are buying further up stream at lower prices than on the MLS. They have more control over their construction costs and quality because the are using the same crews consistently, and they have much lower material costs because of volume discounts and access to wholesale prices on big ticket items like HVAC systems. There is no way an individual can do a rehab for anywhere close to the cost that a turn key company can do it for. That said, if you decide to go the turn
In general, the ones to avoid are the ones that:
@Daniel F. Harb I came here to pipe in with some sage words of wisdom, but you've already gotten the great advice you need: both options can absolutely work, it's all about your goals, finances, and needs with regard to time, control, and risk.
@Mike D'Arrigo gave an awesome check list of red flags to look out for as well, I'd maybe screenshot that post for later. One great way to suss out TK companies to avoid is to try to set up a time to visit. A good company should not only have a physical location in the market they're selling (you'd be surprised how often this is not the case), but they should also be willing and able to give you a tour - show you not just some properties, but the neighborhoods, the broader city they are telling you to invest in. Often, you won't even get past the second email - once it becomes clear that you want to come lay eyes on the product, communication will dry up, excuses will be made, etc. That's your exit cue. Even if you don't intend to go visit, this little litmus test can be a great way to ferret out the less-than-scrupulous providers who still talk a great game.
With regard to Mike's point about companies misrepresenting the area or property, Google Earth is going to be your best friend. Until you narrow down your choices to one or two providers, you can't possibly fly around the country looking at every possible investment. BUT you can very easily type in the addresses of a couple of the advertised properties and take a virtual walk around the neighborhood. Of course, bear in mind whether the prop has been rehabbed yet or not, but even if its still in rough shape, you should be able to assess the neighborhood quality virtually. I have seen very large turnkey marketing companies representing properties here in Birmingham as A- when they are absolutely C+ or lower - cars in the yard, unkempt lawns, peeling paint, etc. OOS investing (either TK or DIY) is 100% a viable investment choice, but you do have to account for the disadvantage of being at a distance.
If you do go the TK route, of course, you need to do your due diligence (which I see you're already aware of). That's a topic that gets discussed a lot here, so I won't give you my standard ramble about what to ask. Just know that you should be able to ask specific questions and get data-backed answers (like they should KNOW their vacancy and maintenance rates, not just estimate) in a timely manner. Here's a link to an older thread (still relevant) about this topic that might help you in your due diligence if you decided to go that route: https://www.biggerpockets.com/forums/55/topics/361...
Best of luck!
Clayton
Wow, Clayton S., superlative post! You are precisely right, I took a screenshot of Mikes words of wisdom! I will be doing the same with your post, thank you very much. :)
On my way to the hospital to work, sorry for the short note, but talk soon.
Best of profits, Clayton!
Daniel F. Harb
@Daniel F. Harb : In Bigger Pockets podcast #257 with long-distance real estate investor David Greene, David talked about whether or not to use TK companies. He doesn't recommend using TK companies unless you're just crazy busy in your highly-paid day job, because you're giving away your equity to the TK company. David has accountability checks and balances and leverages technology to be hands-off and efficient in his out-of-state investing. David just wrote a book titled Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Investments. I've read the book and recommend it.
Thank you, @Diane E..
I will definitely purchase the book over the next few days. I am crazy~busy, but not so busy that (I've been researching many properties) I would be excited about paying, say, $75,000.00 for a turnkey property as opposed to finding a property that looks to be mostly the same including the financial analysis for maybe $35,000.00. :o
I'm thinking of maybe finding my own properties and finding a Broker/Agent to work with, and then find and install a superlative property management company that runs a tight ship. Of course, both must be filled with integrity, and all the while, like Reagan said, "Trust, But Verify."
Thank you, Diane, for your input, and I wish the best of profits to you!
Daniel F. Harb