Questions/worries about turnkey rental props
Residential Real Estate Agent · Long Beach, CA · Member since 2008 · 432 posts · 63 votes
Questions/worries about turnkey rental props
Most Popular Reply
Same reason flippers don't keep the houses they buy, Shari. Buying and holding isn't their model. Turnkey providers are essentially flippers. And they use the money from one sale to buy another and keep rolling it over and over. They wouldn't have the capital, most wouldn't, to hold all of them. Just a different biz model.
I'm not sure the benefit of sliding money under the table to tenants. Not sure what that would get anyone. You can always ask a separate property manager their take on what a property would rent for and compare that to what is being charged.
Then lastly, the property managers work for you, not the other way around. You are free, or should be free, to ditch them anytime you want. I don't buy into that contract nonsense with terms on time. I fire managers if I don't like them, no question.
37 Replies
- 13yDawn AnastasiPro MemberRental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
Ali Boone I hope you don't mind if I keep asking questions.
How do you pick your properties? Do you base it on the purchase price versus cash flow, etc. Do you base it on the reputation of the seller? Just wondering what criteria you use.
Thanks!
No worries Dawn A.. This isn't exactly answering your question, but it talks a good bit about my buying criteria
http://www.biggerpockets.com/renewsblog/2013/03/30/battle-of-the-cap-rates/I'm all about quality. I don't buy cheap stuff. I want the least likelihood of headaches. But a lot of people have other buying criteria or preferences, especially for cheaper stuff.
- Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes13y
Hi Dawn,
I'm not sure I understand... Are looking to become a turnkey provider?
If so, maybe I can provide you with a little guidance. My company is a turnkey provider with 24 local partners in fifteen U.S. markets. If you're rehabbing and flipping a few properties here and there, then you could label yourself a turnkey provider, but I separate a flipper from a provider as those that focus and specialize their business on a regular volume of renovated properties, typically off-market, and usually sold to investors. I take it further (at least for us) by including tenants, management, due diligence, lenders, etc. (My loose definition.)
Continued success! - Residential Real Estate Agent · Long Beach, CA · Member since 2008 · 432 posts · 63 votes13y
Good link Ali about the pros and cons of chasing cap rates!
- 13yDawn AnastasiPro MemberRental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
Marco Santarelli just questioning what being a turnkey provider means, what they do, etc. Because it sounds like exactly what I'm doing right now for myself -- meaning, buying cheap, rehabbing, and renting out, and property management -- except to sell to other people not keep for myself.
BP is all about learning and I love to learn new things!
- Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes13y
Dawn A. - yes, it encompasses what you and most DIY landlords do, just writ large. But once you know what else they do, you may lose interest!
They market like crazy to people in California, Manhattan, Australia, Hong Kong, and every other expensive market. They travel to those places and lead investing workshops. They invite potential buyers to come to their market and take them on bus tours and road shows to show them the city and its neighborhoods. They help the international investors to navigate the maze of how to buy property in the US. Are you still interested?
Then they spend lots of time consulting with all these prospects, to find out their investing goals, experience level, investment time horizon, income requirements, risk tolerance, etc. In this regard, they're a bit of an investment strategist as it pertains to this particular asset class.
Now, to be fair, there are lots of small operators that don't do a lot of traveling, although virtually all are cultivating the international buyers these days. After all, those buyers will take down 5 properties at a time in cash, at full price.
They develop and maintain good working relationships with lenders that have expertise in financing investment property.
They have business models designed to operate at various pricing tiers. A lot of the sellers of inexpensive properties don't even have websites, but here is one that does and tries to basically be a 2%/mth provider:
A company with mid-priced properties at weaker rent yields:
http://midsouthhomebuyers.com/mshb-available-properties/
And the higher end, at still weaker rent yields.
http://www.gainvesting.com/Properties.aspx?class=A
And the cream of the crop are the guys who are long-time active on BP!
http://www.memphisinvest.com/
http://www.noradarealestate.com/
http://www.gainvesting.com/ - Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes13y
I've always been considered "different" or contrarian, so here is my take on this subject.
1. Turnkey is not just large company related.
2. Yes-you can find new homes in this category.
3. Turnkey person not necessarily in cahoots with mgmt. company.
4. There doesn't have to be ANY difference in pricing to MLS.
5. All building didn't completely dry up.I know these things are true because my model has all the above. For 5 years, I've been building new 4br-2ba-2 car homes in a SO TX subdivision. Sell some as turnkey to investors, keep some for myself (same floor plans), personally trained mgr, (who lives and owns rentals in SAME gated subdivision) and some to owner occupants. Investors are buying directly, so we save RE commissions while others are on MLS. I have other posts somewhere here on BP about this.
Shari- I don't consider myself a turnkey company, but do offer that service in one location. I did a lot of the flip/rehabs in same area but decided building new offered much more to investors.
Jeremiah- no premium involved in many cases across U.S.
Marco- I never stopped during the crash building new product in SO TX. I didn't enter other areas until I could see light at end of tunnel, like SO UT.
Jake- I as the seller of the turnkey property have zero involvement with the property mgr business. I did hand pick the couple, trained them and sold them their own residence and 2 investment homes in same subdivision. A very good set up for a buyer to know that the mgr AND the developer own homes in same subdivision, imo. Rich
- 13yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Dawn A. - We started our company in much the same manner as the statement you made above. We were doing something for ourselves and it evolved into doing the same thing for others. Back then, we had no idea what Turnkey was and that name just became synonymous with what we (and other companies around the country) were doing.
We had a lot of experience as business people so we were able to look at the traditional way of doing things like property management and a lot of experience with sales and were able to develop processes to grow our business. Those are the only two cautionary notes I can give you if you want to start offering your service - regardless of what you call it. We had a great deal of prior experience with building businesses. Everything that David Beard wrote about the in-depth and multiple tasks involved with such a business is accurate. It is not simply buying, renovating, renting and selling. There are a lot of moving parts even if you are only doing a handful of deals a month. And most of what has made us successful has to do with business experience not because we had a real estate background.
Lastly, we do not spend any time with foreign investors. We looked at the numbers and for us, it did not make sense. There are millions of U.S. real estate investors and many, many more investors who are interested in using real estate to diversify. There is no reason at all that you could not build a Turn-key company in Milwaukee if you offer a quality product and have good business acumen and business integrity. In fact, I'm sure you could start with investors right there in your area. So worrying early on about travel and events and even foreign investors should be secondary. First and foremost it should be about whether you can offer a product to a local investor that you would be proud of.
We would not even exist today if it had not been for local investors, who knew us as a smart business family, asking us to help them get started. That is the only reason we even started building this company. There was a need for it and they asked us to help.
If you have the desire and are willing to work at it, I think you could build a small company and who knows what you could grow it in to. I'd be happy to help you in anyway I could as you got started.
Shari Posey, we got off of your original topic a bit! But hopefully through all of this discussion you can see that there is a lot of thought that goes into operating a company like this and just like any industry there is good and bad. Your concerns and original question were valid, but I do know that if you want to invest in other areas that allow you to diversify out of southern California and at a lower price, you can find good, quality companies that you can trust.
- 13yGreg PowersPro MemberReal Estate Agent · Manchester, NH · Member since 2013 · 120 posts · 159 votes
I'm going to piggy-back on this discussion with my own questions. This is my first post on BiggerPockets--I'm fairly new to real estate investing, looking for an entry point based on my financial and personal circumstances, and the turnkey model looks fairly appealing. I've been reading all the posts so far, but I'm not sure these questions have been addressed yet:
If house prices go up in a specific market and current turnkey owners sell their SF rentals, and the in-place property management has fewer and fewer properties to manage, at what point does it stop being cost effective for them to manage these properties?
The discussion originally focused on a scenario in which the investor is not happy with the property manager and wants to change. What if the property manager is no longer happy with the business model and bugs out? If I only own two or three SFs in a market miles away from each other, how easy is it going to be to find a replacement PM?
(And incidentally, how likely is it that the investor/owners would sell to cash in the equity in a rising market versus holding for the continued cash flow?)
Also, how does one manage the property manager from a distance? How do you check up on how they’re doing? Do you plan a trip once a year to check on the property; get in touch with the neighbors and ask how things look; send the tenant a brief survey every six months…?
And as a corollary to that last question, is it ever a good idea to open a channel of communication directly with your tenant, or should you stay anonymous and let the PM be a buffer between you and them?
And lastly, addressing this to the turnkey operators who are active here on BP, and without naming names, how long have you been in business? Of your colleagues/competitors, how long has the oldest been in business? Just trying to get some historical perspective. If turnkey investment companies weren't around twenty years ago (like interest rates below 4%), what suggests they will be around twenty years from now? I mean no disrespect--I just like to have the long view whenever possible.
Thanks to everyone who is participating in this discussion. In fact, thanks to everyone who participates in BP in any capacity--I've learned an unbelievable amount from you all so far!
- Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes13y
Greg Powers: Welcome to BiggerPockets!
Glad you jumped into the conversation. (Be sure to start another post to introduce yourself here: New Member Introductions)
Also be sure to check out the Ultimate Beginner's Guide.
To answer your questions above:
This is a non-issue... The overall percentage of owner-occupied properties (nationwide) has dropped since 2007, therefore there has been growing demand for rental homes. It would take an enormous shift if housing demand to put property managers out of business. Also, I doubt a large percentage of landlords would sell their properties around the same time should prices go up. Markets are cyclical and most of the time those landlords are buy-and-hold investors for the long-term (not short term flippers/speculators).
Regardless of what your property management company decides to do, these are your properties and you're free to hire any manager you choose. If they 'quit the business' then you simply interview and find another company to take over. It's your tenant and they own you the rent. The manager works for you! (Location is also irrelevant here.) Be sure to read: Secrets to Finding a Trustworthy Property Manager
You "manage" the manager. Although they should and usually do stay in touch with you, you should stay in touch with them on a regular (i.e. monthly+) basis. They work for you so don't be afraid to call/email and ask questions.
You are free to visit once a year or more often if you like, but that may be over-kill. Do what you makes you feel comfortable with the manager and your property, but don't obsess over it. If you have a competent management company you can take a high-level management role in your investments.
Stay anonymous and don;t get involved with the tenants. Some of them know how to play with your emotions, or work the system. Your manager will know how to deal with them and any complaints that some of them have. They will be unbiased and removed from their personal situations when they arise. Besides, they probably know the laws and can screen new tenants better than you.
I started my company in January 2004. I don't recall any real competitors before 2004, although there probably were a few. The internet has helped turnkey providers reach more investors faster, and that has helped investors discover many new markets and choose better properties from a larger pool of investment options. I highly doubt you'll see the larger/stronger companies go away in 10 or 20 years from now.
And to echo a couple of points David Beard made above, you will find various tiers of turnkey providers. Each specializing in different markets, different tenant and neighborhood classes, and offering different value-added services. Look around and ask questions.
Feel free to post any other questions you have... Happy to help.
Shari Posey: Hopefully all this "extra" information helps to "round out" your original question by seeing this model from other perspectives.
Continued success!
- 13yGreg PowersPro MemberReal Estate Agent · Manchester, NH · Member since 2013 · 120 posts · 159 votes
Thank you, @Marco Santarelli, for the comprehensive reply, and for the link to your article on finding a PM. I was listening to the BP podcast this mornning and @Mehran Kamari mentioned a checklist of questions to ask a potential PM, so I've contacted him about that, as well.
I also like your unequivocal answer to being touch with tenants--"No." That's what my gut was telling me, but I thought I'd ask.
- 13yGreg PowersPro MemberReal Estate Agent · Manchester, NH · Member since 2013 · 120 posts · 159 votes
Marco, I should have finished your article before replying--I see you have a great list of questions there, too!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.