Rocky start to turnkey investing --> perspective needed

33 Replies

Hey BP Community- Wanted to share a bit of my story here to get some perspective. I started reading the site back in January and after many conversations and a few site visits, I decided to purchase two out-of-state SFRs using the same turkey provider (both closed at the end of April). I’ll write a longer post about my purchase experience later but overall it was incredibly smooth and easy…. I even had both properties appraise for more than purchase price! Both homes are in solid class B neighborhoods in TN with rents between $1,000-1,200/month.

My frustration began once the tenants moved in. Both places were rented at the time of closing with deposits and first month (May) paid at lease signing. Property 1 has been a disaster from a first-time investor’s standpoint. The tenants basically stopped paying and communicating after moving in and we had to file papers to evict at the end of June. I had a court date last week where possession was granted back to me. If the tenant doesn't pay in full (i.e. 2 months) in 10 days, we file a writ to remove the tenants and I have to start over.

Property #2 has been better, but not smooth. They paid in full for June (thank goodness), but only paid a partial amount for July (about 60%) with the promise of paying in full by July 12th. It’s now the 16th and they still have not paid in full and are not responding to the management company. I’m not sure where this one will go, but I’m certainly not brimming with confidence.

Don’t get me wrong, I understand that stuff happens and being a landlord is more than just “collecting checks”; you’ve got to have a stomach for some unpleasantness and for things to not go as planned. However I've got to say, I wasn't mentally prepared for such a rocky start. In the three months I’ve owned, I'm running about 50% vacancy (on average) for 2 properties! I had hopes of buying 2-3 more SFRs before the end of the year, but now I don’t want to do anything until I see these situations resolve and I quantify the bleeding.

Does anyone else have a similar experience? Or perhaps words of advice to give me some perspective? Feeling a bit dejected at the moment….

@Jesse S. What part of Tennessee is this in? Is it Memphis?

You want to ask a property management company what their eviction rate is. If it’s low t can go well, if it’s higher it can be bad.

If this is in Memphis I can offer some advice. That’s why I asked.

For turnkey or reallt any long distance rental your property management company is the most important part

@Jesse S. Nobody said this wasn't work. I think you just got a bad tenant to start off with. I would not get discouraged. Once you get a better tenant, things will improve. There is no such thing as a bad property, just bad management.

I've had something similar. I jumped into real estate and Bought a duplex in December 2017 and inherited a tenant. February 2018, the tenant doesn't call or text (which they usually do) for rent pickup. Come to find out, they used to sell drugs and they apparently got the door kicked in when they were not home. As a result, they were moving out and basically, I knew I wasn't going to get the rent. All in all, it worked out because they were paying well under market value for the unit. I now have a new tenant paying market rate and no more drug issues. Don't give up. It's only for a short time being.

Hey Jesse- Sorry to hear that you’re off to a rough start. I’m a real estate agent/contractor/investor in Tennessee. Send me a
PM. I’d like to know what city/town your properties are in and if you are using a property manager.

From the rental amounts, it sounds like you bought two  houses in good neighborhoods, which is important for OOS investors.

As long as you are using a really good PM, you should be fine.  They should turnover the problem house quickly, and get a better tenant in there.   Sounds like you may have just got unlucky with the first tenant.  If these problems persist through the second tenancy, you should evaluate whether you are using the right PM.  

Yeah, get bad tenants out and properly screen new ones! PM company should be doing this for you. Is the PM company owned and operated by the same turnkey company that sold you the house?

This may fall into the ‘... happens’ category, but It could indicate bad screening of tenants.

I would go back and review with your PM their applications, credit scores, etc. Discuss together whether this was just back luck, or poor screening.

I’d hate to put two more tenants in place to find out they aren’t being screened to your expectations.

@Stephen Akindona yes the PM is owned by the turnkey company. I thought that would be a benefit, but maybe its not....

@Mike McCarthy good idea.... I will do that before they start screening new tenants

@Dean Letfus   yes its Memphis. If this is normal for Memphis, why do so many people invest there? Are all the newbies suckers? (i'm including myself in that category...)

Originally posted by :

@Dean Letfus  yes its Memphis. If this is normal for Memphis, why do so many people invest there? Are all the newbies suckers? (i'm including myself in that category...)

This will sound harsh but the short answer is yes. People flock to Memphis because of the low entry price without understanding what a problematic market it can be. I spend a great deal of time trying to help other investors minimise their losses through bad operators and bad buying. Generally if you stay above $850 a month rent and stick to good areas you'll be OK. The hard part is getting someone to be honest with you about locations. Memphis is really funky in parts.

I can totally relate to your story/frustrations. When I bought my first turnkeys (although I hesitate to say turnkeys because this isn't a turnkey-specific problem, it could be any rental property), things were good for a minute but it didn't take long before the tenants started following the same patterns yours did. 

It's been 6-7 years now that I've owned those properties, and I can tell you that even with a rocky start, things can work out really well. All of my properties have had long-term tenants in them for quite a while now. I just today got a notice one of them is finally moving out in August, but they've been there for a handful of years now so it's been nice. 

I'm not saying the property manager you have on the properties now is bad, it could have just been an unlucky start, but in my experience it's 100% about the property manager selecting the tenants. I would stick very closely to them and get all the information about anyone they are getting applications from and who they think they want to choose. You have the final say in it. But, the better the property manager, the better the tenants. Some of it will still fall into the luck category, but the turmoil can be minimized with a good PM. With the turnkeys, you never have to stick to the PM that comes with the property. You can always change. 

I assume this turnkey company didn't offer a rental guarantee of any sort...

I know it's beyond frustrating, but it can all be recouped.

 @Jesse S.  If the same company placed both these tenants it's time to change your management company. When I started I did that "no, let's work with the company and give them a fair chance." Experienced investors told me to move on but I didn't. That ignorance cost me thousands. Now I've got experience and I'm telling you - Ditch 'em. Don't give problem tenants or management second chances, unless you're running a charity. 

Sounds harsh, but I'm telling you, I learned the hard way. 

I'd start by reaching out to @Antoine Martel and ask about him about management. Memphis has good options and a lot of experienced investors on here who can help. 

Depends on where in Raleigh you purchased. You really need to be on the m east side of Raleigh Millington road to be in a decent area. 

Raleigh and Whitehaven can both be bad. And you cannot tell a street by driving it. It was the first thing I learned in Memphis. Pretty much every street looks great. Of course boarded up homes and burnouts are a giveaway but there are hundreds of good looking streets you don't want to own in. And areas de-gentrify, sometimes quite quickly, so you have to know which way the trends are moving. You really need a good PM who has local expert knowledge and run any address past them first.

Originally posted by @Jason Carter :

 @Jesse S.  If the same company placed both these tenants it's time to change your management company. When I started I did that "no, let's work with the company and give them a fair chance." Experienced investors told me to move on but I didn't. That ignorance cost me thousands. Now I've got experience and I'm telling you - Ditch 'em. Don't give problem tenants or management second chances, unless you're running a charity. 

Sounds harsh, but I'm telling you, I learned the hard way. 

I'd start by reaching out to @Antoine Martel and ask about him about management. Memphis has good options and a lot of experienced investors on here who can help. 

 I’d love to help!

@Jason Carter thanks. I learned the hard way when I house hacked years ago that 2nd and 3rd chances are not ok unless you are running a charity. Thanks for the reminder!


@Ali Boone Thanks for the perspective on PM. I'm hoping it turns around for these properties, possibly with a new PM. And no, no rental guarantee came with the houses.  

Originally posted by @Jesse S. :

@Lane Kawaoka interesting...... was there a theme about why the lost money? Vacancy? Repairs? etc? Also, you said had... does that mean that you no longer have them? 

 what happens is investors set them selves up for this stuff by choosing properties with higher Paper returns..

if you buy in Memphis at 5 and 6% returns and over 1000 rents your normally fine.. and basically any area.. 

its when you try to push those returns up that your risk goes up with it.. 

Originally posted by @Jesse S. :

Hey BP Community- Wanted to share a bit of my story here to get some perspective. I started reading the site back in January and after many conversations and a few site visits, I decided to purchase two out-of-state SFRs using the same turkey provider (both closed at the end of April). I’ll write a longer post about my purchase experience later but overall it was incredibly smooth and easy…. I even had both properties appraise for more than purchase price! Both homes are in solid class B neighborhoods in TN with rents between $1,000-1,200/month.

My frustration began once the tenants moved in. Both places were rented at the time of closing with deposits and first month (May) paid at lease signing. Property 1 has been a disaster from a first-time investor’s standpoint. The tenants basically stopped paying and communicating after moving in and we had to file papers to evict at the end of June. I had a court date last week where possession was granted back to me. If the tenant doesn't pay in full (i.e. 2 months) in 10 days, we file a writ to remove the tenants and I have to start over.

Property #2 has been better, but not smooth. They paid in full for June (thank goodness), but only paid a partial amount for July (about 60%) with the promise of paying in full by July 12th. It’s now the 16th and they still have not paid in full and are not responding to the management company. I’m not sure where this one will go, but I’m certainly not brimming with confidence.

Don’t get me wrong, I understand that stuff happens and being a landlord is more than just “collecting checks”; you’ve got to have a stomach for some unpleasantness and for things to not go as planned. However I've got to say, I wasn't mentally prepared for such a rocky start. In the three months I’ve owned, I'm running about 50% vacancy (on average) for 2 properties! I had hopes of buying 2-3 more SFRs before the end of the year, but now I don’t want to do anything until I see these situations resolve and I quantify the bleeding.

Does anyone else have a similar experience? Or perhaps words of advice to give me some perspective? Feeling a bit dejected at the moment….

 Sure, these things do happen, but for it to be back-to-back is very alarming. Yes, sometimes people can look good on paper and then be very bad tenants. That is just the way it works sometimes. I am shocked this happened twice to you though. Aren't they very picky with their tenant screeing process? If they are good areas, how often does this happen? Could it really just be bad luck?

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you