Are turnkey investors losing their minds?

Buying & Selling Real Estate
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Are turnkey investors losing their minds?

Jesse S.
Rental Property Investor · Brooklyn, NY · Member since 2017 · 45 posts · 37 votes
I own two out of state SFRs in Memphis that I purchased from a turnkey provider about a year ago. I’m looking to add a few more to my portfolio but I’ve had a hard time finding properties that fit my investment criteria (i.e. price point, target rent, neighborhood, etc). I’m on the distribution list for a couple different turnkey providers in Memphis for investors that are ready to purchase. Recently there were three properties that looked promising that I wanted to investigate further.   Property #1- All that was listed for this property was an address, price, and projected rent. They deal packet wasn’t ready yet so I couldn’t see the scope of work, so I requested it and they promised to send it to me by the end of the day. About 4 hours later, they responded again and said that somebody else already reserved the property (without seeing the SOW).   Property #2- Full deal packet was available, I took a few hours to run my own financial projections, look at comparables, look at the neighborhood, and ultimately decided that I wanted to buy it. I emailed the office to reserve it, and they responded in 30 mins that the property was already taken.   Property #3- I opened the email immediately when I received it in a cab and the full deal packet was available. I did some light touch due dilligence while in the cab, and then 40 mins later I reopened the deal packet and saw that it was already taken.   In all three instances, properties were released and then reserved within a matter of hours (if not minutes!). How can anyone do due diligence to know what they are buying in that time? Have investors become so savvy that they know what 2-3 metrics matter and only focus on them? Or have investors lost their mind because they are so desperate for yield that they buy anything called “turnkey” and assume it’s a good deal?   I take this as a massively worrying sign and I’m tempted to stay on the sidelines until things cool down. Once we get a dip, then I’d be ready to pick up a bunch of places once the demand slows. Is anyone else noticing the same thing?
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Frank S.
Investor · Simpsonville, SC · Member since 2015 · 19 posts · 32 votes
7y

@jesse s.  You are not alone. In my experience “locking up the contract” with certain phrases does not work well. In fact, it hurts. Sellers, agents, wholesalers and investors are well aware of this tactic and will simply not reply or reply back with an “as is” offer especially if the property is getting a lot of interest.

Buying is the easy part. You can buy anything. Selling for profit and/or returns and creating a smart exit strategy is the hard part.

Your analysis is a rational decision process. What I am beginning to see in the market is irrational.

That tells me something about this market…

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  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    The situation that you are facing should make you have caution.  You're going to feel the pressure to get into these deals, when you need time to do your due diligence.  

    1Reply
  • Jesse S.
    OP
    Rental Property Investor · Brooklyn, NY · Member since 2017 · 45 posts · 37 votes
    7y

    @Anthony Wick I had the same concern you did about not paying EM and your subsequent reputation. The TK community is pretty tight knit and demand is so strong, that I can imagine that if you miss an EM payment more than once, you wont be eligible for future deals. 


    Does that make sense @Dean Letfus? I think TKs are slightly different in this regard as there isn't much that is negotiable about the contracts. The price is fixed and usually anything from the inspection report is fixed prior to close (at least in my limited experience). 

    0Reply
  • Jesse S.
    OP
    Rental Property Investor · Brooklyn, NY · Member since 2017 · 45 posts · 37 votes
    7y

    @Jonathan Oh Thanks for the reply. I think its probably a combination of both. Some investors being a little too eager and others having a few bright line criteria (i.e. neighborhood, price, sq ft, & rent) that means they can act quickly. All of the houses I missed were in neighborhood that I visited before, so I probably could have acted a bit quicker and maybe I will in the future. It still seems crazy fast, but the lesson for me is to come up with a few criteria which will help me with decision making. I'm in it for the long game, so it would be nice to pick up a few more properties sooner rather than later, but I can also wait.  

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    @Jesse S. you hav to pick one in my opinion. A contract full of clauses wont be accepted by a TK. I don't see any issue with not proceeding with contracts here and there. I've done it many times it's never kept me from deals. Once people know you're genuine they're fine with it in my experience.  I'm just telling you what I do and I've bought hundreds of homes in Memphis.

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    Also remember you're only not going to buy it if it's been misrepresented so who cares if you upset dishonest TK's?

    1Reply
  • Alyssa Dyer
    Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
    7y

    @Anthony Wick That's the standard contract used with everyone I've worked with. I've never had push back!

    0Reply
  • Alyssa Dyer
    Rental Property Investor · Oklahoma City, OK · Member since 2017 · 1k+ posts · 694 votes
    7y

    @Jim O. Happy to help!

    0Reply
  • Jeff Schechter
    Developer · Nashville, TN · Member since 2016 · 484 posts · 406 votes
    7y

    @Jesse S.  Just wanted to share an opinion from the other side.  We operate a very successful TK in the Indianapolis area, and are very sensitive to this topic, as we've had investor express similar frustrations.  As we've evolved, we've created a situation that's fair for everyone....

    1.  We typically operate in the C-class neighborhoods in Center Township (within 5-20 minutes of downtown).  Most of these neighborhoods have similar price points, etc, so investors who follow us know that our product remains consistent across the board.

    2. We rarely do any multis... almost always SFH's, as they are easier to rent and manage. Again, consistency of product.

    3.  We do TWO inspections... the first when we acquire the property, so we don't miss anything on the rehab, and then another at the end, to make sure we caught everything.  We do include a warranty on all major systems, so the 2nd one is just as important to us, as we don't want the exposure of unnecessary repairs.  Again, consistency.

    4.  All investors that work with us speak to our Investor Relations team first, and get a clear understanding of how we do things.  We want to make sure that we have a good fit.  

    5.  All potential investors get a packet that's got all of our standard contracts, so they know what they're getting into AHEAD of signing any purchase agreements.

    6.  Our CFO's (cash flow opportunity sheets - mini pro-forma) have ALL anticipated expenses on them.  We research the taxes, and get a real insurance quote.  We also only sell tenanted properties, so the rent numbers on the CFO are accurate... they are NOT a projection.  Nowhere on the CFO do we discuss appreciation, or future market rent increases.  We are letting the investor see what's going on RIGHT NOW.  We even give the investors a mini-calculator that can be used to "adjust" the numbers on our CFO, to help them make more informed decisions.

    7.  When an investor inquires about a property, we send them before/after pictures, scope of repairs, final inspection report, another sign-off sheet if the property needed any final corrections after inspection, etc.

    8.  We sell don't ask for earnest money on our Purchase Agreements.  Our properties sell and close quickly... we just ask the investor to be ready to go, once they sign the PA.  In a couple of instances, there have been investors that did not (or could not) pull the trigger.  No big deal.  We let them off the hook.  We offer that property to the next investor that was interested, and we move on.  

    9.  We encourage ALL investors to fly out and see us before doing business with us.  Some do, some don't.  

    Once an investor has access to all of the above, and goes through the process, deciding on a property is quick and easy.  Sometimes we post properties on our website, and they sell very quickly.  We often send out emails to our list highlighting a property, and get back many responses asking for the packet.  Our process is fair... we simply sell it to the first investor who signs a PA.   If the investor misses out, we'll have more product very soon, that is VERY similar to the one that just sold.  

    We are working hard to keep prices down (and ROI up) for our investors. In order to do that, we must move our inventory quickly to keep hold times down. We have found that the process we've created is fair, and serves both sides very well.

    3Reply
  • Tia L.
    Member since 2019 · 29 posts · 13 votes
    7y

    so true, tell it like it is jeff

    0Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y

    @Jesse S. This is a very common scenario and becoming more so with inventory shortages in many of the popular markets. Investors that are pulling the trigger quickly are not out of their minds. They've done their due diligence upfront which puts them in a position to recognize a good opportunity when they see it. They know the areas and neighborhoods they like so they don't have to spend time researching the neighborhood and they know the prices and rents for the area. It shouldn't take you hours to run numbers. Built yourself a spreadsheet which you then just need to plug your assumptions in to it. You should be able to tell if a deal makes financial sense in 10 minutes. I understand wanting  to see a scope of work, but I always tell our investors not to make that a deciding factor and to make getting a SOW a contingency in the purchase agreement otherwise, the property will be gone while they are waiting a day or so to get it. If you have a turn key company that you've worked with and trust, and you know what their rehab standards are, a scope of work becomes a lot less important. Ask your TK provider what their rehab standard are and what you can expect in any of their rehabs. If you know that they replace roofs and HVAC systems when they have less than 5 years of useful life or whatever their standard is, will a scope of work be as important? Are you ever going to not go forward on a deal because of the scope of work? It's not like an inspection. A scope of work doesn't tell you anything about the current condition of the property and what it needs. If you don't see a new HVAC system on the scope, that doesn't mean you're getting an old system that is on it'w way out. It just might mean that the existing one is relatively new and has plenty of useful life. What's more important than a scope of work is the actual inspection. It's the inspection that will tell the condition of the property at the time that you close. 

    4Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Jesse S.:

    @Anthony Wick I had the same concern you did about not paying EM and your subsequent reputation. The TK community is pretty tight knit and demand is so strong, that I can imagine that if you miss an EM payment more than once, you wont be eligible for future deals. 


    Does that make sense @Dean Letfus? I think TKs are slightly different in this regard as there isn't much that is negotiable about the contracts. The price is fixed and usually anything from the inspection report is fixed prior to close (at least in my limited experience). 

    no way turn key operators talk to each other about buyers who may or may not close.. its not that tight knit  I can assure you 

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  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    7y

    @Jonathan Oh when I was buying turnkey in 2014 there were a lot of buyers and competition. Now its crazy.

    But just keep a spreadsheet of what comes up so you know when you see something you grab it right away.

    0Reply
  • Jesse S.
    OP
    Rental Property Investor · Brooklyn, NY · Member since 2017 · 45 posts · 37 votes
    7y

    @Jeff Schechter I appreciate the detail about how you guys operate. The providor I deal with in Memphis has a pretty similiar process (with a few differences). But all in all, I like your style!

    @Mike D'Arrigo fair points. And I agree that the inspection is crucial. For one provider, I've visited them already and seen their rehabs. They are a solid shop that doesnt try to screw investors over. My take away from this post is to come up with some neighborhood, price, & rent criteria so I can move quickly when inventory come availalbe. 

    @Jay Hinrichs Good to know. I more meant that if I fail to pay EM for a couple of contracts with the same TK, then they would likely cut me off going forward. 

    1Reply
  • AJ Singh
    Rental Property Investor · Orange County, CA · Member since 2016 · 513 posts · 374 votes
    7y

    @Jesse S.

    you can also build your ground team with a realtor and prop mgt co. you are right, the good neighborhoods dont have as much inventory as in 2016 and 2017. 

    a lot of turnkey properties are in zip codes which should be best left to a local investor. If your rentals are providing good cash flow, just focus in that zip code. 

    i have focussed in cordova, bartlett, east memphis and southaven. olive branch and hernando are good suburbs as well.

    right now memphis is on every guru's ten best cash flow market that why things are crazy. Remember we have just touched 2005 and 2006 levels in pricing and lot of owners who bought then are cashing out.

    1Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    Sounds like your just another anybody to them .. haven't flow out to develop a personal relationship and move to the front of the pecking line.

    0Reply
  • Aaron Simpkins
    Rental Property Investor · Mustang, OK · Member since 2019 · 15 posts · 4 votes
    7y

    as long as you don't waive your right to inspection, you have good knowledge of the market you have time to save yourself from a bad/scary investment.  also, find a way to evaluate quickly and accurately.  If your initial glance at the numbers meets your rule of thumb first, then you should be able to log onto here and check your goal numbers with one of the calculators very quickly.  The rest should be covered after offer by your ground team in the area such as inspections, appraisals, contractors etc.

    1Reply
  • Mark Blaz
    Member since 2019 · 10 posts · 0 votes
    7y
    Originally posted by @Brian Ploszay:

    The situation that you are facing should make you have caution.  You're going to feel the pressure to get into these deals, when you need time to do your due diligence.  

    Everyone on this thread should be aware that this poster is extremely dishonest and unprofessional in his business dealings. Despite entering into a contract to buy properties, he made up a series of ridiculous excuses, changed his financing source at the last minute without disclosure, refused to communicate at all simply ghosting the transaction. This is not a person from whom to seek any advice.  Consider this due diligence

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Mark Blaz:
    Originally posted by @Brian Ploszay:

    The situation that you are facing should make you have caution.  You're going to feel the pressure to get into these deals, when you need time to do your due diligence.  

    Everyone on this thread should be aware that this poster is extremely dishonest and unprofessional in his business dealings. Despite entering into a contract to buy properties, he made up a series of ridiculous excuses, changed his financing source at the last minute without disclosure, refused to communicate at all simply ghosting the transaction. This is not a person from whom to seek any advice.  Consider this due diligence

    Mark you are posting this on every thread Brian has posted on.. the site frowns on copy and paste jobs.. you sound like a 17 year old high school girl.. get over it some deals just don't close..  you have to have better things to do than this I would think.. other wise it seems like your just very immature.  

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