Does turnkey exploit the 1% rule?

[Matthew Terry]

Hello BP Mates,

There is an ongoing debate (and I've read the majority of posts about this) if turnkey providers offer a good product for investors. I'm not here to debate this, but what I find interesting is that the vast majority of turnkey companies that offer "like new" fully rehabbed properties in "cashflow" markets list the target rent at exactly 1% of the sale price. It is overwhelmingly like this. I'm a bit skeptical about this coincidence and I'm wondering if they are exploiting the 1% rule that many new investors hear about on BP and other REI podcasts and websites. Perhaps the property could achieve a 1.2% rent-to-value, but the turnkey company sells it for another $3,000 more because it hits the 1% rule exactly and that is the demand driver? Of course, an appraisal can keep them honest, so my next question is:

Does anyone have experience getting an appraisal on a turnkey product and it appraises for less than the sales price? Did you use your own appraiser or the one the turnkey company recommended you use? What happened? 

[Todd Rasmussen]

@Matthew Terry

Same as anyone else, most turnkey companies buy properties for what they can buy them for and sell them for what they can sell them for. No reason to give the end buyer more than the market demands. The increased margin is their reward for vertically integrating in the industry. I wouldn't call it exploiting the 1% rule, just selling at the market rate everyone has established. I'm seeing 1% as the exception recently, most are closer to .8%'s.

We have bought two turnkeys and never had an issue appraising. Appraisals were done by the banks vendor without connection to the turnkey company.