Are most out of state investors using turnkey companies?

12 Replies

Or is there another way? I've read on the forums that doing a rehab from out of state is not recommended because overseeing a rehab project invites a lot of issues. Does that mean that most people investing from out of state are using turnkey companies? Even if you use a turnkey company, if a major repair needs to happen, wouldn't you have the same issues that you would have from a rehab?

Originally posted by @Duane Alexander :

Or is there another way? I've read on the forums that doing a rehab from out of state is not recommended because overseeing a rehab project invites a lot of issues. Does that mean that most people investing from out of state are using turnkey companies? Even if you use a turnkey company, if a major repair needs to happen, wouldn't you have the same issues that you would have from a rehab?

I will save my opinion about turnkey, but just address the major repair issue. Ideally the turnkey provider would warranty any work they performed. I do BRRRR (locally, agree that trying to do it remotely as a small or newbie investor could easily become a fiasco) and there are always problems that pop up in the first few months of the new tenant moving in, similar to buying a new house. I fix them myself because I'm the dumba$$ that screwed up the original work, but a bad turnkey company may try and get you to foot those bills.

Another option instead of turnkey would be to find the property management company first, then work with them to find deals from their own deal pipelines and/or just grandma's house off the MLS. Honestly I think that would be the way I would do it.

 

Originally posted by @Nicky Reader :
Originally posted by @Duane Alexander:

Or is there another way? I've read on the forums that doing a rehab from out of state is not recommended because overseeing a rehab project invites a lot of issues. Does that mean that most people investing from out of state are using turnkey companies? Even if you use a turnkey company, if a major repair needs to happen, wouldn't you have the same issues that you would have from a rehab?

I will save my opinion about turnkey, but just address the major repair issue. Ideally the turnkey provider would warranty any work they performed. I do BRRRR (locally, agree that trying to do it remotely as a small or newbie investor could easily become a fiasco) and there are always problems that pop up in the first few months of the new tenant moving in, similar to buying a new house. I fix them myself because I'm the dumba$$ that screwed up the original work, but a bad turnkey company may try and get you to foot those bills.

Another option instead of turnkey would be to find the property management company first, then work with them to find deals from their own deal pipelines and/or just grandma's house off the MLS. Honestly I think that would be the way I would do it.

 

What would be the advantage of finding the property management company first over using a turnkey company? If you find the property management company first, would they handle the rehab? Doesn't that still open you up for issues?

 

I recommend engaging an investor-focused realtor/broker who can provide not only assistance in finding the right property at the right price - but also provide vetted resources for completing the project from inspection/appraisal/lending - to rehab completion. In my area, contractors are in short-supply and the best ones are booked out for months.  My clients are a consistent source of business to those contractors so they respond quickly and do the job well knowing that their next job will most likely come from a seasoned investor of mine.

As a buyer, you pay no commissions so add the bench strength and get a resource on your team who can carry a good portion of the heavy lifting.

Hope this helps...



Originally posted by @Duane Alexander :
Originally posted by @Nicky Reader:
Originally posted by @Duane Alexander:

Or is there another way? I've read on the forums that doing a rehab from out of state is not recommended because overseeing a rehab project invites a lot of issues. Does that mean that most people investing from out of state are using turnkey companies? Even if you use a turnkey company, if a major repair needs to happen, wouldn't you have the same issues that you would have from a rehab?

I will save my opinion about turnkey, but just address the major repair issue. Ideally the turnkey provider would warranty any work they performed. I do BRRRR (locally, agree that trying to do it remotely as a small or newbie investor could easily become a fiasco) and there are always problems that pop up in the first few months of the new tenant moving in, similar to buying a new house. I fix them myself because I'm the dumba$$ that screwed up the original work, but a bad turnkey company may try and get you to foot those bills.

Another option instead of turnkey would be to find the property management company first, then work with them to find deals from their own deal pipelines and/or just grandma's house off the MLS. Honestly I think that would be the way I would do it.

 

What would be the advantage of finding the property management company first over using a turnkey company? If you find the property management company first, would they handle the rehab? Doesn't that still open you up for issues?


The long-term relationship will be with the property managers, so that's the relationship I would want to be most confident in. A good property manager will have a lot of contacts with other investors and trustworthy contractors, and a good reputation locally, and be experienced in rehabs because rental properties are constantly falling apart. A good one will also give you pretty good advice about all the different areas in your city, and the types of properties they do and do not handle.

Turnkey providers are harder to define, and vary so much.. IMO they are house flippers first, they are more motivated to sell the particular homes they already have vs giving you a bunch of advice on how to move forward, then helping you move forward.   Also, some of them just unload the property management onto some other entity,  and who knows if that PM is actually the best for your long term investing goals? 

I admit being very suspicious of turnkey providers.  When there are scams and fly-by-night operators in this part of the industry, they are almost always with turnkey providers such as Clayton Morris.  They also only seem to operate in markets with excess inventory, Cleveland, Memphis, Indianapolis etc, where its easy to turn up houses, paint them and sell them to Californians.   The types of areas those houses are in are also sometimes not the best for attracting quality tenants. 

Short version of my opinion is that Property Management is a long-term relationship game, turnkey is just about selling you a house. 

As for doing a rehab, a good PM will be able to get it done either by putting you in contact with local reputable contractors or doing it in-house.  

Its a lot more work for you to find the PM first then find a house, then renovate it, but I believe that investment in both the PM relationship and your time will pay off in the long run.

Be very careful with turn key, I would focus on your relationship with your realtor who can help you get the investment opportunity.  If you buy a property with a resident already in it, make sure you underwrote the resident like they don’t already live their and ask the seller for a copy of their rental application.

Originally posted by @Stewart Beal :

Be very careful with turn key, I would focus on your relationship with your realtor who can help you get the investment opportunity.  If you buy a property with a resident already in it, make sure you underwrote the resident like they don’t already live their and ask the seller for a copy of their rental application.

Do you agree with the poster above who said that they would let a property manager oversee a rehab?

 

I have mixed emotions on the turnkey flipper properties, for OOS investors this is a dream come true. But you sacrifice all the customization of the guts of the home. which is vital to having a solid home for the next say 10 years.  I want my rental to be bulletproof dame near when I rehab, do I trust most anyone else to meet my standards? No, But - To each their own, happy to help any SERIOUS oos with acquiring a rental or flip.  

@Duane Alexander Turn key is one way to go but you can also buy off the MLS. The advantage to working with a turn key company is that the property will be fully renovated, have a tenant in place and under property management. There's a perception that you pay more for a turn key but that's not necessarily the case. A good turn key company makes their profit but increasing the value through improvements, not by charging over market value. Some of the biggest challenges in trying to do a rehab remotely. are determining what needs to be done and estimating the cost before you even make an offer. The next challenge is managing the project remotely and keeping it on schedule and insuring it's done right. It can be hard enough managing contractors when you're right there locally, doing that from out of state is extremely difficult and opens you up to a lot of risk. This is why so many out of state investors choose the turn key route.

Originally posted by @Duane Alexander :

Or is there another way? I've read on the forums that doing a rehab from out of state is not recommended because overseeing a rehab project invites a lot of issues. Does that mean that most people investing from out of state are using turnkey companies? Even if you use a turnkey company, if a major repair needs to happen, wouldn't you have the same issues that you would have from a rehab?

Don't overthink it. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible. Always going to be some bumps, but the list below will keep them to a reasonable minimum.

  • Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
  • Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
  • Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
  • Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
  • Make sure your property manager is a licensed real estate brokerage.
  • Google Clayton Morris and/or Morris Invest for a cautionary tale of what not to do when buying turnkey real estate
  • Understand you can not eliminate all risk, only mitigate it. If you are risk averse, real estate, (especially out of state) is not for you.

At this point its tough. I used to buy turnkeys in 2012-2015 and the margins are smaller and smaller. You might have better luck going with a broker but good luck finding a good PM and broker that actually knows what a good rental is (not a home to live in). 

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