Rehab vs turn-key for rental properties

[Raushanah Glinton]

I am looking to purchase my first long-term rental property. There is so much content about BRRRR, rehabbing and flipping but not to much on the pros and cons of turn-key properties especially for rental properties. Does anyone have any input on what they experienced with turn-key properties?
Thanks for any information you provide.

[Drew Sygit]

@Raushanah Glinton

While investing via Turnkey Rentals sounds easy, you should understand that you will be paying full retail, often even more, for the properties.

Why? The Turnkey provider is looking to maximize their profits!

Also, there are numerous challenges dealing with Turnkey providers:

1) Terrible renovation work - we've taken over many properties that investor bought turnkey and they were shocked to learn the true condition of their property from our TakeOver video.
---So, get a GREAT property inspector NOT recommended by the turnkey company to avoid bias.

2) Misrepresenting Property Class - have seen many turnkey providers in Metro Detroit area sell OOS investors Class C properties as Class B.
---So, learn the neighborhoods where you plan to invest and use Google Streetview to virtually explore them.

3) Poor Tenant Screening - they typically can't sell a property until they place a tenant. So, they have a conflict of interest in waiting for the right tenant.
---So, insist on them providing the rental application and supporting docs for your review. This means YOU need to learn how to evaluate a rental application!

4) Poor Property Management - Where do you think a turnkey provider will put their best staff, on selling properties and making $5k+/transaction or on property management and making $80/month transactions?
---So, ask about their standard operating procedures and make sure your management contract has an easy termination clause.

What are your options if you experience one of the above? Everyone thinks they can sue to solve the problem.

Do you realize how much it will cost to hire an OOS attorney to sue the turnkey company?

Unfortunately, the majority of investors that experience terrible service from turnkey companies, figure out that it's not worth spending tens of thousands of dollars suing their turnkey provider and just move on - which allows the turnkey provider to not change their ways and stay in business:(

You should also check out this BP thread about the topic:

https://www.biggerpockets.com/forums/88/topics/976647-turnkey-company-suggestion?highlight_post=5648876&page=1#p5648876

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