Assessing the Risk of a Turnkey Real Estate Company
If you’re looking into turnkey real estate investing, you’re certainly looking at the risks involved. But are you looking at the potential risks that could come from the turnkey real estate company you’re working with?
We get it, more and more investors are becoming increasingly worried about the unpredictable stock market and escaping it to search for safer assets such as real estate. However, they don’t wish to become active landlords. They prefer becoming passive investors and are drawn to the world of turnkey real estate investments. Does that sound like you? Before you jump in, make sure you know who you’re working with and how to spot an untrustworthy turnkey real estate company.
7 Common Red Flags in a Turnkey Real Estate Company
1. One-Man Shows
Individuals may be great at what they are doing, but without a team to run the show, they won’t be able to support your requirements. Having a single point of contact is one thing, but you need to work with a turnkey real estate company that can handle architecture design, marketing, facility management, investor relations, and construction all under one roof. A one-man shop just can’t do that.
2. Incomplete Renovations
Many turnkey real estate companies overcharge you for renovations but don’t give you what they promised. So, the best way to protect yourself is to not pay them up front until the renovations are complete, especially if you’re not living in the area. As a standard rule, all turnkey properties require roofing, plumbing, HVAC, foundations, boilers, and electrical equipment to be upgraded before they’re sold. So, make sure everything’s done before finalizing the deal.
3. Little to No Experience
The most significant factor to consider before investing in turnkey real estate is the knowledge and experience of the turnkey real estate company you’re partnering with. You want to work with a firm who knows the area and its properties inside and out and has the data to back it up. New turnkey companies use your money to learn. Don’t pay for their education. Make sure you fully evaluate the experience of the turnkey real estate company before even considering a deal.
4. Higher than Market Rates
Many turnkey real estate companies sell properties at prices that are higher than the market value. Many companies sell their properties to other companies to increase their compensations. So, if you’re planning to invest in turnkey properties, make sure you understand the market rates before you purchase the property. The best way to check the market value is to get in touch with the locals and neighbors. Talk to them, and they’ll provide you with honest information and feedback.
5. Properties in Class D Neighborhoods
If you find a turnkey company operating in a D neighborhood, stop and take stock. While properties in D neighborhoods look good on documents, the real story is often different. For instance, most of these areas have two parts — a beautiful, picturesque section and another less-desirable section. Ask around and you’ll find out the true picture. Properties under $50,000 are typically located in areas with high crime rates. So, avoid these areas as much as you can. Even if you’re planning to invest in a turnkey property lower than $50,000, make sure you check the crime rate in the area
6. The Absence of a Portfolio
If the company you’re planning to work with does not have a strong portfolio of properties, there is a high chance they won’t know how to succeed, regardless of how intelligent and experienced they may seem. There’s a massive difference between knowing how to do something and actually doing it. You need to carefully evaluate the property, its price, any renovations made (or needed), and the current and potential tenants. And don’t purchase turnkey properties from real estate agents — they just don’t have enough experience with these types of properties.
7. Old Software and Systems
If the turnkey real estate company is not equipped with advanced software and systems, they may not be able to manage properties efficiently and serve you in the long run. But, if they do use state-of-the-art software and systems, they will be able to manage properties and renovations resourcefully and help you make informed investment decisions.