Turnkey Investment Advice

10 Replies

I am looking for any advise you have for turnkey investment. After you identified the city or state to invest, do you plan a trip to visit the cities and meet with your turnkey providers? Or do you wait until the rental property is identified? I am wondering what due diligence should be performed for a first time out of state investor.

Thank you!

Tracey

@Tracey Leung

It sounds like you have identified the city which is the first goal. Second, I would get to know the neighborhoods and drive them. Check them out on SpotCrime.com etc. This will allow you to figure out the areas that match your goals; usually C and B areas. This will need to be done after a potential property is selected so you might as well do it first so when a listing comes across your desk, you can cross reference it with your map and notes and jump on it. Every city has places where you don't want to invest (Ds) and places where you cannot afford to invest or make money (As). Your turnkey provider should have a similar guide to the city as well and you can cross reference them. Lastly, get to know the rental and sales comps of the neighborhoods and this USUALLY can be mostly done online.

I am an out of state investor who has closed on 4 properties so far. All have been bought without my wife and I physically seeing it. All were properties that we found ourselves instead of a agent sending it to us. None were purchased from "turnkey providers". None needed notable work performed to make it rent ready.

We started with high level research with searches such as "best rental markets in USA", "highest rental return cities", "fastest growing cities and such and then honed in from there reading up on whatever we could find on that market. From the top 1-2 cities we started looking for agents (it was HARD to find agents willing to go all out on the price ranges we were after while doing our own MLS searching). For the most part we only considered homes that were on the market for < 30 days. We analyzed crime maps and compared to areas we knew locally to get a rough bench mark of the neighborhood. We also scrolled through google maps street view of the surroundings. We looked at previous sold homes to get a feel of market value.

Originally posted by @Tracey Leung :

I am looking for any advise you have for turnkey investment. After you identified the city or state to invest, do you plan a trip to visit the cities and meet with your turnkey providers? Or do you wait until the rental property is identified? I am wondering what due diligence should be performed for a first time out of state investor.

Thank you!

Tracey

It all depends on you. If you feel the need to go visit, call up the Turnkey Providers and see what they can show you. It would be nice to see what kind of properties they have to offer and in what neighborhoods. On the other end of it, some investors may just jump on properties before they miss it. There are many TK investors from OOS who never visit their properties. It is all personal preference.

 

@Tracey Leung   As a turnkey provider, I am amazed at how few investors come to see us.  We certainly have a lot of documentation to make them comfortable with their purchase, but there is another consideration... namely WHO are you doing business with?  This is something that goes beyond the numbers.  At least before your first purchase, it's a good idea to get a feel for the team you'll be working with.  If it's a good TK, they'll welcome the visit, and you'll hopefully be establishing a long term relationship.

Speaking to local RE agents and others involved in the field will give you the best information about a location.  You can virtually drive the neighborhoods with google maps and other online sources, so visiting in person is always a good option, but not really necessary due to all the technology available today.  Don't forget to have your appraisal and inspection to get more verification on the home condition & pricing before closing.  Hope this helps.

I represent a turnkey company in Kansas City. We tent to see around 10% of our clients actually visit Kansas City before purchasing. I love it when people come into town and I get to show off Kansas City! However, I do think that due diligence is a crucial first step. Six very important things to ask provides are:

1. What is your renovation process? Does a third party assist when making decisions to replace CapEx items?

2. What goes into making the city's economy stable and thriving? 

3. What class of neighborhoods does the company invest in and why?

4. Does the company have in-house property management? What are the costs per month and what additional fees come up?

5. Does the company stand behind their work? What kind of warranty will be included? 

6. Do you feel a connection with the company? Do you feel a high level of transparency and communication? Are they adding value to your experience?  

Most folks I know buy turnkeys sight unseen, but I think there's HUGE advantage to going to check out the operations for yourself...at least once. You could do it either time- before you identify a property or after. Once you meet the teams and such and have a feel for their work, you could choose any house after that and just let the inspector verify things for you. Or you could go out before and decide that you for sure want to work with that provider first. Either way, getting a first-hand looksie is extremely helpful in my opinion and experience. That way you're deciding for yourself that you agree with and trust the investment and opportunity rather than just taking other people's words for it.

Hi @Tracey Leung ! This is a great question!! I know some turnkey investors may not take the trip to see the city, the neighborhood, or the turnkey provider. However, I recommend that folks take the time to visit their top one or two companies before pulling the trigger. Any decent turnkey company should be ready to give a tour, or even have scheduled ongoing tours. This tour can include a tour of the area and a few properties. They should be able and ready to show you some props, take you around town, answer questions, shake your hand. If the turnkey company can’t accommodate a tour, move on.

Best wishes!!

@Tracey Leung - I have always visited the TK provider prior to investing. I have met with several companies in the same market(s). In my mind, the company you partner with is the most important part of out of state investing. Site visits allow you to meet the team, see the operation and ask all your questions concerning the properties they buy, their rehab process and property management. Then you tour the areas they operate in to make sure the neighborhoods and houses match your expectations. I’ve always said I would spend the $1,000 (flight/hotel/car/food) before investing $30k-$40k with any company. Better to spend the money to visit even if it means you rule out working with a company!

Originally posted by @Tracey Leung :

I am looking for any advise you have for turnkey investment. After you identified the city or state to invest, do you plan a trip to visit the cities and meet with your turnkey providers? Or do you wait until the rental property is identified? I am wondering what due diligence should be performed for a first time out of state investor.

Thank you!

Tracey

Here is a punch list of best practices I try to give as many new investors as possible.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.