Using Turnkey Companies

28 Replies

Hello everyone, I'm new to the REI world and also BP. I had a question about Turnkey companies. Do they allow you to finance it through a broker or do they want cash up front usually? One of my family members told me that i'll need to have funds available to deploy because most purchases are from auctions that require cash payment. Is that how the turnkey process works? I was under the impression that they actually buy the house for a good deal and then sell it to us. Then we are able to get a mortgage for the home.

Glad to be apart of BP and any advice would help. Im currently deployed and have lots of time to read books, listen to podcasts and research how I want to begin my REI future. Thanks!

Originally posted by @Vivek Shah :

Hello everyone, I'm new to the REI world and also BP. I had a question about Turnkey companies. Do they allow you to finance it through a broker or do they want cash up front usually? One of my family members told me that i'll need to have funds available to deploy because most purchases are from auctions that require cash payment. Is that how the turnkey process works? I was under the impression that they actually buy the house for a good deal and then sell it to us. Then we are able to get a mortgage for the home.

Glad to be apart of BP and any advice would help. Im currently deployed and have lots of time to read books, listen to podcasts and research how I want to begin my REI future. Thanks!

I am also currently in the process of finding a good turnkey provider, and have some unfinished business to take care of with existing property and some trouble tenants before I take plunge into investing with a TK provider. 

I have talked to numerous people regarding the turnkey business, and it seems that there are various flavors when it comes to financing. I have come across some folks who insist on cash, while some are OK with financing.  The only difference for them is whether they get money NOW, or in 30-45 days - and that largely depends on their business model.   My understanding is that they do have the title to the property themselves and have done all the rehab and might have already placed tenant, or will place tenant upon transfer of the title to you, investor. 

P.S - As a side note, don't be surprised if the TK provider would push you towards getting their own in house broker and PM as well. I am not sure if they can legally force you to go with their mortgage broker though. Vertical integration seems to be a big part of their business model. 

@Chinmay J. Thanks for that. I guess I’ll have to research each specific TK and see how they operate.

@Vivek Shah I have bought a turnkey property and live in Cary. Feel free to reach out if you have questions

The basic premise is you buy a recently rehabbed property

I’ve bought two of my rentals through turnkey and used conventional financing on both. They had lenders they worked with previously and are comfortable with but weren’t pushing them as long as your lender could close in a timely manner.

Let me know if you have any other questions purchasing through turnkey and I can share my experiences with the two I went through.

@Vivek Shah I started my OOS investing via turnkey 5 years ago. First you have to understand, "turnkey" is used rather loosely in different ways.  To me, a true turnkey company will purchase the property, rehab it in full, place a tenant and then and only then do you close on the deal.  That way, you are cash flowing from day one.  

For those requiring cash purchases, you are taking on a lot more risk, and generally they are lower priced assets that are particularly difficult to own at a distance.  Stay with properties that get at least $875 in rent, and can be financed would be the way to go IMHO.

Some of the best and well established companies actually do insist that you work with one of their lenders, simply because those lenders understand their model and their area.  Others will leave it up to you to choose your lender, but might have recommendations.

All best in your REI!

Thank you all for the advice and information. As of right now I’m deployed overseas and just studying what I can about it for when I come home. If any of you have any podcasts or books to recommend for Turnkey companies or something you think might help, please let me know! I will be reaching out to some of you personally with questions as well! Happy Thanksgiving!

@Caleb Heimsoth what company do you use in Cary? I would like to research them if possible.

@Jonathan Ly if I were to use a turnkey company in Cary, NC, do those companies go to other states as well? Just wondering if you had to use two different companies in the two different states? Thanks

Thanks!! I’ll look into it!

The only times you should be forced to buy a property in cash is if it's so distressed that it won't qualify for traditional financing or if the competition is so intense that your competing with other buyers who are already bidding in cash.

Outside of those two very unique times you should aim to use a lender to buy your properties. Using leverage is the best part of Real Estate Investments. It is something unique to Real Estate. You buy a property using someone else's money (The bank) You then pay off your loan with someone else's money (Tenants Rent) best business in the world. You can't do that with the stock market. You essentially buy 1/4 of the property and someone else pays for the other 3/4's thus you can quadruple your net worth with every purchase if you hold it long enough.

On top of the benefits you receive from being able to use someone else's money to quadruple your net worth buying with financing provides you another safe guard with the appraisal. You see the bank isn't going to let you over pay for a property using their money! This is especially important when you are buying property out of state and may not be that familiar with the market. 

You don't know how many times I assist other investors in liquidating properties that went south. Often times they paid cash for them a few years ago the investment didn't go well & they now want to sell. When it comes time to sell they are shocked to realize that the home they bought for $40,000 cash is really only worth $20,000. <----Don't let yourself get in that situation. Check comps, get an inspection, use a loan & get an appraisal.

@James Wise there are turn key companies that do the BRRRR model.. you pay cash as the buyer and they rehab then you refi so theoretically you pull most if not all your cash out of the refi so you can scale.

we did a few thousand of these for investors.. back in the day prior to 08.. as a HML we put up the money to buy it and rehab.. then they paid us off with a rate and term refi.. that model is coming back.

@Vivek Shah you need to find those who will allow you to buy via financing. Many times by forcing you to pay cash now you don’t get an appraisal which is good for them.

@Jay Hinrichs

Hi Jay,

Can you refer any of these kinds of TK BRRRR companies. I've been on the hunt for TK provider in the midwest for a while now (Cleveland, Columbus, KC, Indy).

Originally posted by @Bob Okenwa :

@Jay Hinrichs

Hi Jay,

Can you refer any of these kinds of TK BRRRR companies. I've been on the hunt for TK provider in the midwest for a while now (Cleveland, Columbus, KC, Indy).

Try FS Houses for Indy - https://fshouses.com/

Try Jason Hartman for Indy plus other areas in Midwest and South - https://www.jasonhartman.com/

@Chinmay J.

Thanks for the referrals. I'll give those sites a look.

Originally posted by @Bob Okenwa :

@Chinmay J.

Thanks for the referrals. I'll give those sites a look.

 If you do use them, and if you can give me your feedback, I would appreciate it. 

@Vivek Shah Are you referring to having to use different lenders for different states?  I used one lender for both turnkey purchases and most lenders can lend in multiple states, you will just need to ask them.

@Jonathan Ly yes I was wondering if a Turnkey company in NC could help me with investments in other states like Memphis. It would make it easier with the organization part of it.

@Vivek Shah , as @James Wise and others have mentioned (and from an inside perspective), outside of distressed properties that wouldn't qualify for financing anyway, it's generally kind of a red flag if a provider insists on cash. Yes there a business models that would require the provider to get paid in full up front, but they aren't typically super stable. If a company can't go 30-45 days before getting paid through a mortgage, that business model sounds tenuous at best. Often you'll find that the providers who do require cash are also the ones with a more 'used car salesman' vibe, where there's a lot of pressure to sign something right away, or agree in writing to purchase a property that was emailed to you within five minutes to 'avoid missing out'. Those kinds of high-pressure tactics are generally not a the sign of a company you want to be in business with for the next 10+ years. Similarly, you should always be able to get your own independent appraisal. A company that discourages you from doing so isn't worth your time.

As @Larry F. noted, turnkey is a term that is thrown around a lot and can mean slightly different things to different people. A true full-service turnkey company is one that buys a property that needs work, rehabs it, sells to an investor, and then manages the rental long-term - a one stop shop for REI. They often have preferred lenders (we do) but I would also be wary of a company that requires you to use their lender. We have lenders we like to work with, but if a client wants another lender that's fine as long as we have time to vet them and ensure they meet our requirements. Similarly, turnkey companies should have in-house PM services (not contract out to a third party that you don't have the chance to vet). Usually you have to use the in-house PM services for a set amount of time (like a year) and then you're free to use someone else if you want to. But the PM aspect of a turnkey provider is a huge part of their value, so if clients regularly want to to ditch their PM, there are probably other aspects of the business that warrant scrutiny as well.

Some great turnkey companies work in multiple markets, but be wary of those that sell properties in a half a dozen markets or more, because they're usually just marketing companies that advertise properties owned by other companies. You buy through them, they get a cut, but you're actually buying a property from a company you haven't even vetted yet, and getting handed off to a third-party PM you've never heard of. You always want to work with people who live and work in the market they sell, so multi-market turnkey companies that are worth your time usually have 1-3 markets where that have actual offices. You should always be able to visit a turnkey company you're considering. Even you don't actually make the trip (though I definitely recommend that you do), it should be an option.

@Vivek Shah I would also note that, though of course there are exceptions, the pay-to-play turnkey model (where you buy a property that still needs work, then pay for the rehab which the company executes) is not typically a great idea. Firstly, you're taking on the risk inherent in the rehab process. With standard turnkey, all the nasty surprises and delays that come up in a rehab are the responsibility of the turnkey company (which incentivizes them to deal with things efficiently) - the investor isn't on the hook till closing, and closing happens after rehab is complete and inspections are passed. If you buy pre-rehab, and something nasty pops up, all that extra vacancy time is on you. In general, the appealing part of this half-DIY process (the ability to get your hands dirty on the rehab aspect) is much different in reality than on paper. Turnkey companies have streamlined processes, buy fixtures and flooring and everything else in bulk, they do the same thing for every property - capitalizing on economies of scale is how they make money. So while you're taking on the risk of rehab, you're not likely going to get to actually direct the work. The company will say 'this is what needs to be done' and then they will do it like they do all their other properties, buying one-off fixtures, CAPEX items, flooring, etc for every new prop would be a huge waste of money - costs that would passed onto you. Again, some people like this model, but for new investors who don't have the industry knowledge to know when they're being taken for a ride, it seems more like a way for the turnkey company to pass risk onto the investor.

You're in the right place to find the option that works for you - just do your due diligence and ask plenty of questions.

Best of luck!

@Clayton Mobley thanks for the insight man. That advice will keep me out of trouble with Turnkey companies. Cheers

@Vivek Shah Yes, there are turnkey companies that operate in more than one market but it may not always be one you are interested in.  I think once you are vetting different turnkey operations it will become easier as you talk to different ones to get a feel for what you are comfortable with.  Let me know if you want to chat further about my process with different turnkey companies, happy to give any additional perspectives if you need.

Originally posted by @Vivek Shah :

Hello everyone, I'm new to the REI world and also BP. I had a question about Turnkey companies. Do they allow you to finance it through a broker or do they want cash up front usually? One of my family members told me that i'll need to have funds available to deploy because most purchases are from auctions that require cash payment. Is that how the turnkey process works? I was under the impression that they actually buy the house for a good deal and then sell it to us. Then we are able to get a mortgage for the home.

Glad to be apart of BP and any advice would help. Im currently deployed and have lots of time to read books, listen to podcasts and research how I want to begin my REI future. Thanks!

I would make sure the company does everything by the books, no seller financing and no CASH ONLY! Cash only makes me think they are afraid the what the appraisal will show.

You should look at:

What to Ask When Working With a Turnkey Provider

and

The Best Types of Markets for Profitable Turnkey Properties

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