Are turnkey, hands off investing companies legit?

Question

I’ve been checking out turnkey out of state (I live in Texas) real estate investing companies like Rent to Retirement, Sharestates, etc.  but don’t have a good feel for if they are legit.  By legit I mean actually do what they say, no hidden fees, upfront with pricing..

Does anyone have any experience with them? Was it positive?
I have 2 rentals in Austin and 1 in Lindale but they aren’t cash flowing very well. I have some extra cash so I’d love to be able to invest with confidence.
Any actual experience feedback is much appreciated!

Zach Lemaster · Answer

@John Pocher, yes there are a ton of threads on BP and online in general on sites like BBB where investors share their honest feedback.  Just like with any business or industry, there are good team and not so good team.  Look at reviews, talk with investors and speak with the team you are looking to work with to determine who is the right fit and has a positive reputation.  To assist with your search, here are many forums talking about TK, RTR and investing in general.  Hope this helps.  Reach out at any point in time with any questions.

https://www.biggerpockets.com/forums/92/topics/765347-rent-to-retirement-review

https://www.biggerpockets.com/forums/92/topics/1116050-a-huge-win-with-cori-from-rent-to-retirement

https://www.biggerpockets.com/forums/44/topics/1058814-first-time-with-new-construction-cape-coral-fl?highlight_post=6055029&page=1

https://www.biggerpockets.com/forums/850/topics/895660-my-first-investment-property-an-out-of-state-deal

https://www.biggerpockets.com/forums/88/topics/1047543-big-profits-from-new-construction-sfr-build-in-cape-coral-fl

https://www.biggerpockets.com/forums/92/topics/983659-first-investment-property-with-rent-to-retirement?highlight_post=5677176&page=1#p5677176

https://www.biggerpockets.com/forums/12/topics/1122318-quality-turnkey-companies?highlight_post=6413855&page=1

https://www.biggerpockets.com/co/RentToRetirement

https://www.biggerpockets.com/forums/92/topics/929410-rent-to-retirement-updates?highlight_post=5508807&page=1#p5508807

https://www.biggerpockets.com/forums/92/topics/893621-rent-to-retirement-review?highlight_post=5222888&page=1#p5222888

https://www.biggerpockets.com/forums/311/topics/915728-experience-with-rent-to-retirement-turnkey?page=1#p5345200

https://www.biggerpockets.com/forums/92/topics/808479-rent-to-retirement-experiences

https://www.biggerpockets.com/forums/92/topics/518583-feedback-on-renttoretirement-and-zach-lemaster?highlight_post=6192149&page=4&utm_source=Iterable&utm_medium=email&utm_campaign=Transactional:%20topic_notification_V2&utm_channel=28426&utm_content=Marketing

https://www.biggerpockets.com/forums/67/topics/952977-turnkey-in-indianapolis-through-rtr-case-study

https://www.biggerpockets.com/forums/12/topics/997350-lessons-learned-from-buying-my-first-rental-property?highlight_post=5748036&page=1#p5748036

https://www.biggerpockets.com/forums/12/topics/533693-anyone-worked-with-renttoretirement-turnkey

https://www.biggerpockets.com/forums/92/topics/581730-rent-to-retirement-zach

https://www.biggerpockets.com/forums/48/topics/874096-reviews-on-r2r-and-nch?page=1&utm_source=Iterable&utm_medium=email&utm_campaign=Transactional:%20topic_notification&utm_content=Transactional#p5123754

https://www.biggerpockets.com/forums/311/topics/883772-turnkey-investing-renttoretirement-feedback-reviews?highlight_post=5171720&page=1#p5171720

https://www.biggerpockets.com/forums/92/topics/950188-rent-to-retirement?page=1&utm_source=Iterable&utm_medium=email&utm_campaign=Transactional:%20topic_notification&utm_content=Transactional#p5535505

https://www.biggerpockets.com/users/ZacharyCole/references

Chris Clothier · Answer

Tim and John,

To the first question, I've never heard of Sharestates and I would definitely consider length of time in business for any company you chose to work with.  That is part of your due diligence.  As for Rent to Retirement, they are a legit service provider with a long record for you to review.  I've talked to Zach a few times and discussed the industry in general and how they operate and we operate to see if there is any synergy.  I also know a few of his team as well.  We have never done business together, but I can tell you from my conversations and experience as a turnkey provider, they are a good company looking to point investors in the right direction.

As far as the next question you asked, below are questions you need to ask any turnkey provider you are going to do business with.  A few companies you can research and certainly look to connect with would be Pinnacle investments (@Mike D'Arrigo) who operate midwest like KC and Indy, JWB (@Gregg Cohen) who operate in Jacksonville, FL, Spartan Investments in Birmingham, Memphis Turnkey and Memphis Cash Flow in Memphis and Texas Turnkey in Houston and Albuquerque.  There are others, but I know each of the owners of these companies and they are all good.  Their not all on the site here, but they are good people and I believe each of them encourage appraisals and inspections.

That is a big thing and you asked a great question.  If a company is selling something and they don't want you to use 3rd parties to inspect and get an appraisal, in my opinion, that is an issue.  It raises the risks.  Even on new built properties you need to get inspections and appraisals.  Now, that doesn't mean both will turn out perfect and if they don't then there is a problem.  An appraisal is an opinion and I for one don't always agree.  However, it is important that you are able to get one as an investor and have a good understanding with your turnkey provider as to how that appraisal is treated.  Same as inspection.  You should always get one - period.  In the end, they are a great tool for a company like us to evaluate our team and processes.  If we see a certain item get called out by multiple inspectors, then it is something we need to train on internally.  At the same time, a prefect house is almost impossible to come by, so focus on the ability to get one and make sure you get it.  Then deal with how the report comes out once you have it in hand.

Here are some questions I would suggest you ask any turnkey provider you want to do business with:

Two important things to remember.  One, if they don't have time to spend with you and answer your questions in detail and discuss them, in my opinion, move on.  Two, a key about asking questions is to ask a mirror question.  Many companies have learned how to sell and how to market and certainly how to answer questions like this.  Often answers are scripted and your job as an investor is to ask the right questions in the right way to answer for yourself whether you can trust what you re hearing.  It is also important to remember that investors like myself always advise meeting who you're going to do business with.  That is important because it allows you to see for yourself if the answers you heard match what you see on the ground.  A mirror question is where you ask what is the average vacancy rate each month.  Write down the answer.  Sometime later in the conversation you ask the mirror question of what is your average occupancy each month.  Write that answer down.

A high quality company will be on top of their KPI's and their numbers will match.  A 3.5% vacancy number will match a 96.5% occupancy number.

Lastly, after you have their numbers research what you were told.  I'll never forget a conversation with an investor who was amazed that a turnkey company had a 1.5% vacancy rate and a 98.5% occupancy.  It sounded amazing.  He asked how many properties they managed and the answer was roughly 1500.  He then went onto their website online and researched their property management online and was shocked.  Their website listed 198 properties for rent.  They had an ad online for prospective tenants advertising 200+ vacant rentals.  Their true vacancy rate was roughly 13% not 1.5%.  But they felt like they had to market a low rate to "keep up with the Joneses".  So ask your questions, get your data and do your research.

Are you an investor?

Do you own in the exact neighborhoods you are selling?

How many investors do you work with?

Do you own all facets of the operation?

Do you market rental or maintenance guarantees?  (Guarantees are a tough issue.  Just make sure you are paying for quality and not over-paying for a guarantee)

Do you defer maintenance?

How many properties do you manage?

Do you own the properties you sell?

How long have you been in the business?

What is your average vacancy rate?

What percentage of expiring leases will renew their lease each month?

What percentage of signed leases fulfill their full term?

What is the average number of days a property is vacant between tenants, move-out to move-in?

What percentage of billed rent do you collect each month?

What is the cost of an average repair bill after move-out?

What are your management fees?

What percentage of collected rent goes to yearly maintenance on average?

What is your average number-of-months occupancy per property?

What is your average occupancy rate?

Can I order an appraisal before closing?

Can I order a 3rd party inspection before closing?

What programs do you have in place to keep residents happy?

What customer service programs do you have in place?

Will you call me every month with an update on my portfolio?

How many team members are dedicated solely to providing service to your clients?

What has been your biggest mistake as an investor? How do you protect your clients from making the same mistakes?Good luck as you get moving forward!

Chris Clothier · Answer

@John Pocher

One more thing, any investment you make like this is best described as semi-passive.  The hands-off part is that someone else is doing the heavy lifting, but as na investor, your monthly role is to manage your manager.  You have to stay on top of your portfolio.  It prevents you from freaking out with a move-out or an expense.  It helps you to be in control of your semi-passive investments where you are heavily relying on someone else's expertise for your success.

Whatever you do, be patient.  There is no need to rush.  Quality investments exist in every market in every period.  It just takes patience and clarity and you can will find an investment that make you comfortable and meets your expectations.

Nicholas L. · Answer

@John Pocher

there are tons of threads on BP about them - just google / search and they should come up.

i don't think turnkey is going to provide huge cashflow right now with rates the way they are.

Engelo Rumora · Answer

Hi John,

The gents in the comments above said it all so nothing to add.

Your heading caught my attention so I'll just touch on that briefly.

After 10+ years in real estate and in various other investments, there is pretty much nothing that is "Hands off".

Even turnkey real estate.

You will need to be in sync with the turnkey providers property management company and they will still need to reach out to you from time to time to get certain approvals on maintenance items that arise, etc...

The bigger your portfolio, the more "hands on" you will need to be IMO from an asset protection, tax planning and off course the often collaboration with the PM company.

I've seen many investors get pissed off over the years because things aren't "100% hands off."

There is no such thing as completely hands off other than US Treasury Bonds lol

Even then you sometimes have to think if your money is more valuable elsewhere.

Just my opinion and wishing you much success 🙏

Lucia Rushton · Answer

@John Pocher my opinion is you have better chance of creating cash flowing properties on your own vs paying a company to “possibly” do it for you.

Tim L. · Answer

Great info, thank you sir!

Tim L. · Answer

Hey Zach, for Turnkey purchases what does a typical due diligence for us as the buyers look like? Can we see an inspection report for example?

Are turnkey, hands off investing companies legit?

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