Negotiating turn key properties

New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes

When purchasing a home from a turnkey company, do you negotiate the price based on comps for the area, or do you purchase it at the list price?

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Alex CraigBusiness Member

Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes

@Jamie Henkin 38127 is C and D class. If your seller told you it was B class, he is either blatantly lying to you or is possibly the least educated real estate individual in the business. What is the address?

901-848-9028

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Kristopher HanksPro Member
Rental Property Investor · Davenport, FL · Member since 2016 · 593 posts · 382 votes
9y
@Jamie Henkin I always negotiate every deal no matter who is selling it. I have a personal rule that I never offer asking price. To me the asking price in real estate is the seller's dream price. And you will never know if you can get a lower price and better deal unless you ask.
2 Reply
Derrick Craig
Memphis, TN · Member since 2013 · 969 posts · 524 votes
9y
@Jamie Henkin
All they can say is yes or no, It can't hurt!!
2 Reply
Larry Fried
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
9y
@Jamie Henkin Sometimes turnkey companies offer their properties at a certain price and that is what they expect to get - no lower offers. If they have no shortage of buyers, they may stay firm. Others will be more flexible, and usually they are less well established and certain of their pricing.
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Jeff Wallenius
Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
9y
@Jamie Henkin making an offer never hurts, however most turnkey operators work on pretty slim profit margins so don't expect a large discount off purchase price.
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Eddie T.
Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
9y
@Jamie Henkin You do realize that one of the most important aspects of a buy & hold investor is to purchase and still have some equity in the deal. By purchasing from a TK operator you are buying at a premium with 0 equity. You purchase property A Today for 100k. in 5 years something happens in your life and you need to sell. And at the same time we have a recession and the property has not moved up one penny in value. you list it for 105k accept an offer for 100k now you have to pay the realtors, the attorney and other fees you will wipe out 2-3 years in cashflow. We all go into these investments with the mindset of I am buying and will never sell but no one can predict the future.
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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
I've been buying and working with turnkeys since 2011 and I've yet to have ever heard of a good turnkey company negotiating the listed price. The only times I've heard anyone come down on price at all is if a low appraisal comes in and the seller is feeling nice that day and offers to make up a little bit of the difference.
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
9y
Originally posted by @Jamie Henkin:
When purchasing a home from a turnkey company, do you negotiate the price based on comps for the area, or do you purchase it at the list price?
You should always negotiate the price on a home based on the area comps, no matter whom the seller is. That is a core principle of prudent real estate purchasing.
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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
9y
Of course you should never pay above market value so you want to know what the comps for the area are. If the property is priced at fair market value, you can always try to negotiate but experienced turn key companies know the values in their area and price accordingly. Buying a turn key property is not like buying a retail property to live in. Turn key companies price to sell quickly and don't want to spend a lot of time haggling over price. You also have to know what the real estate is doing in whatever market you're in. Markets like Indianapolis and Kansas City are red hot with very low inventory and high demand so a turn key company doesn't have a lot of incentive to discount. I think the most important thing is to determine what price you need to be at to meet your ROI objective.
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Dave Clauson
Real Estate Investor · Lawrence, KS · Member since 2016 · 55 posts · 35 votes
9y
I bought a house in Kansas City recently from one of the well-known turn key providers. One suggestion that worked for me was to put an appraisal clause in the contract. I had the house independently appraised for a couple hundred dollars. The house I had a contract on didn't appraise for the value they wanted. We revised the contract to the appraisal price. Even though turn key providers do know areas, sometimes they get their price wrong.
4 Reply
Jamie Henkin
OP
New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
9y
The property I'm looking at is a B class in Memphis. They are selling it at 43K. The comps in the area are 32K
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
So you would pay 11,000 more than the property is worth. You buy and it doesn't work out and now with resale fees you are looking at a 20k loss??
Sounds like keeping the money at home on the sidelines is a better choice if that is all there is to buy.
Make sure your source for price comps is accurate.
If you do not want to pay for an appraisal right away there are brokers/agents that perform BPO's ( broker price opinions) that are third parties not involved in the transaction. Typical cost depends on if you want an exterior with pics or full interior. Could be 50 to 100 bucks depending on how involved.
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Jamie Henkin
OP
New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
9y
I am going to have it appraised and inspected.
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Sean Tarpenning
Turnkey Investment Provider · Kansas City, MO · Member since 2015 · 1k+ posts · 116 votes
9y
I recommend having all properties inspected and appraised. All of our homes in KC that we provide appraise at sale price or higher. Many times 5-15k higher. Talk about instant equity!
1 Reply
Eric P.
New York City, NY · Member since 2016 · 470 posts · 348 votes
9y
@Jamie Henkin don't waste your time and money on appraisal and inspection. It's like you're trying to convince yourself to make this purchase even though you, me, and everyone reading this thread know it's an awful purchase. Remember the adage "You make your profit when you buy." Not "Sure, buy at an $11k loss. What could possibly go wrong with that?"
If I were you, I'd switch to KC or Indy & buy from @Sean Tarpenning @Nathan Brooks @William Robison or @Mike D'Arrigo
3 Reply
Sebastien Hitier
Rental Property Investor · Hong Kong, Hong Kong Island · Member since 2014 · 188 posts · 114 votes
9y
B class, how much does it rent for?
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Jamie Henkin
OP
New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
9y
700
0 Reply
Jamie Henkin
OP
New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
9y
Eric I have been studying the comp report. I don't intend to buy an overpriced property. They will have to come down in price or at the very least add a bathroom. It's 3BR 1Ba. If the numbers don't make sense I'll walk away.
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AJ Singh
Rental Property Investor · Orange County, CA · Member since 2016 · 512 posts · 374 votes
9y
Jamie Henkin There are lot of posts on buying 50k or less price point in memphis Please be aware of the neighborhood before committing to a contract If you really want turnkey in Memphis, research BP for @chris clothier, @Alex Craig, @James Wachob etc
4 Reply
Hadar OrkibiPro Member
Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
9y
@Jamie Henkin B class in Memphis under 60k is probably not B in todays Market.
these were the prices 3-4 years ago. Also considering the rent of $700PM it doesn't sound like B unless the house need a lot of work.
I do think that home inspection and appraisals are important, especially for out of area buyers.
having a reliable and experience local source for deals is key for having good starting point.
What area / Zip is the house in?
The names mentioned above are good starting point for TK.
4 Reply
Jamie Henkin
OP
New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
9y
38127
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Alex CraigBusiness Member
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
9y
@Jamie Henkin 38127 is C and D class. If your seller told you it was B class, he is either blatantly lying to you or is possibly the least educated real estate individual in the business. What is the address?
901-848-9028
7 Reply
Alex CraigBusiness Member
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
9y
@Jamie Henkin one other note to mention. Whether a property is worth 40k or 32k is probably not all that relevant. With values that low, that means investors are the only ones buying in that area. Those homes are worth what an investor will pay, not what a home owner will pay. Keep in mind, a 40k with a new roof, new HVAC and rehabbed nicely is going to be worth about the same as a 32k home with a old roof, HVAC system on its last leg and deferred maintenance.
$750 on 40k is a good yield on paper. I say on paper because in these areas, unless the management is Awesome, then the chances of the home being successful are slim to none. Now, all that being said, there are small pockets in Memphis where I actually buy, but those areas are few and far in between. If I were you, I would phase out 38127 and look towards 38111 Sherwood Forrest area.
BTW, I have never heard of it, but Cardiff by the Sea sounds like a fantastic place to live.
901-848-9028
2 Reply
Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
9y
Originally posted by @Jamie Henkin:
The property I'm looking at is a B class in Memphis. They are selling it at 43K. The comps in the area are 32K
Please be careful before you go forward. This is an example of why I am not a fan of classifying properties as A, B, C, D, etc... That classification really doesn't mean a thing and is absolutely abused by sellers to hook an interested buyer. You are interested because in your mind a B class property has value.
As @Alex Craig already noted, at this price point and in that area of Memphis, there is nothing that any investor should ever classify as B. That rental rate is low in Memphis today. The only resident that will look at property in that area and at that price today is someone earning between $25,000 and $34,000 on the high end and that is well below median income in Memphis. Data tells us that a resident looking in that price range is not a long-term stable tenant in most situations. They are much more transient and that has to be factored into your decision making.
Please re-read what Alex said and shake away the thoughts that this is a good investment. It may pencil out on paper as a good risk, but it is not. Unfortunately, this looks like a low-cost, low-risk investment, but in reality it is a low-cost, very, very high-risk investment where in most cases the investor will absolutely lose. There are some very high-quality people on this forum who have been active for a long time and investing in Memphis for many years. All will gladly point you in the right direction without trying to sell you on their companies.
As to your original question - absolutely. There is nothing wrong with inquiring about pricing and trying to negotiate. Now, negotiating just for the sake of negotiating makes no sense. Only negotiate to the point where the investment brings the value you are looking for as an investor. If it doesn't - try to negotiate. If it does, make the investment. Best to you, Jamie.
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6 Reply
Jamie Henkin
OP
New to Real Estate · Cardiff By The Sea, CA · Member since 2016 · 49 posts · 29 votes
9y
2886 Dumbarton Oaks drive
0 Reply
Alex CraigBusiness Member
Real Estate Professional · Memphis, TN · Member since 2009 · 1k+ posts · 1k+ votes
9y
@Jamie Henkin seeing 38127 was enough for me to know it was not B class. Chris nailed it, you may be interested in this deal because of the price point of what the seller is calling "B" class. This property is classic Memphis deception to an out of state investor. We have established this is "C" to "D" class, but if you were to head South and hit James Rd and go literally over the train tracks, there are some really nice homes in what is called the Scenic Hills neighborhood that one could classify as "B" class. However, those homes comp $80 to $110,000 (we have sold homes in that neighborhood). Seems like the investor is trying to justify the proximity of that neighborhood to the neighborhood you are evaluating.
Proceed with extreme caution, especially since the seller has told you it is a "B" class.
901-848-9028
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