Questions to ask Turnkey Providers

[Jay A.]

I was wondering if anyone who has invested with turnkey companies, if there were certain questions or checklists that you asked prior to investing?

If this is in the wrong section, apologize in advance

[Ken M.]

Quote from @Jay A.:

I was wondering if anyone who has invested with turnkey companies, if there were certain questions or checklists that you asked prior to investing?

If this is in the wrong section, apologize in advance

Just a few quick thoughts. Always walk through any property you buy Turnkey.  Understand you are paying a premium since they are doing all of the work for you. Find out what all of the "after" sales costs are.

[Evan Polaski]

@Jay A., while I have not invested in a turnkey property, I have viewed several on some of the websites.  Things I would ask:

Full list of renovations that were done, with before and after pictures of basically everything.
I would still get a property inspection, like any house you buy.  If they provide you one, I would still say I am getting my own.

I would ask for full demographics of the area, including incomes, home prices, education levels, crime levels, etc.

I would want to see full tenant application and any pertinent backup verifying income, employment history, landlord references, etc of the in-place tenant.

I would want to talk to the property manager, if they are coming with the property.  Understand their fees, bid process, termination requirements, markups for work done, how they confirm fair bidding (especially if they have on-staff handyman).

I would talk to the actual tenant in place to understand what their experience is with both property and management team.

I would drive the area to understand how your property compares to others on the street/in the neighborhood.

I would talk to other management companies and realtors to understand their understanding of the market, rent levels, etc.

Basically, full due diligence and underwriting of the property. You are effectively paying a premium for someone else's work, and taking on all their risk, so I would make sure to understand as much of the risk as possible.

[Jay A.]

Quote from @Evan Polaski:

@Jay A., while I have not invested in a turnkey property, I have viewed several on some of the websites.  Things I would ask:

Full list of renovations that were done, with before and after pictures of basically everything.
I would still get a property inspection, like any house you buy.  If they provide you one, I would still say I am getting my own.

I would ask for full demographics of the area, including incomes, home prices, education levels, crime levels, etc.

I would want to see full tenant application and any pertinent backup verifying income, employment history, landlord references, etc of the in-place tenant.

I would want to talk to the property manager, if they are coming with the property.  Understand their fees, bid process, termination requirements, markups for work done, how they confirm fair bidding (especially if they have on-staff handyman).

I would talk to the actual tenant in place to understand what their experience is with both property and management team.

I would drive the area to understand how your property compares to others on the street/in the neighborhood.

I would talk to other management companies and realtors to understand their understanding of the market, rent levels, etc.

Basically, full due diligence and underwriting of the property. You are effectively paying a premium for someone else's work, and taking on all their risk, so I would make sure to understand as much of the risk as possible.

What an informative response! Thanks for taking your time out. 

you mentioned a few things I wanted to Clarify:

- markup for work done , what does this mean?
- fair bidding?

Thanks!

[Engelo Rumora]

Quote from @Jay A.:

I was wondering if anyone who has invested with turnkey companies, if there were certain questions or checklists that you asked prior to investing?

If this is in the wrong section, apologize in advance

Hey mate,

Some quick tips to look for when evaluating a turnkey provider:

1) Do they have in-house property management? (Not "be all, end all" but important IMO)

2) Have they stood the test of time? (There are any that come and go quickly so how long have they been in business)

3) Do they sell properties for fair market value? (Many offer financing and will manipulate appraisals to get top dollar. Not the end of the world as long as they can manage well and deliver what was promised on paper).

Happy investing 👍

[Joseph Bui]

I've worked with turnkey companies in Memphis and Detroit. Here are the questions I would ask:

How many deals have you done?

Do you invest in this marketplace?

How Do You Source Your Properties?

Do you believe this market will appreciate? Why?

What Are Your Fees and Costs?

Can You Walk Me Through a Typical Investment Process?

What are the pros and cons and risks associated with the marketplace?

Happy to connect and share my experience with Turnkey companies.

[Evan Polaski]

@Jay A., markup for work work completed: many property managers will charge a mark up for construction management.  I.e. if they get a tenant call for a clogged drain, they will call a plumber.  The plumber sends a bill to manager for $100, and they pay it from your account.  But they will actually charge you $120, 20% mark up, for making the phone call and coordinating with tenant a good time to make fix.  The amount of mark up could be 10%, it could be 20%, it could be a flat fee, or have a minimum: i.e. regardless of cost of repair, they will charge greater of $50 or 20%.

Depending on the amount of steady maintenance your property needs, this can become very pricey.  Again, not saying there is a right or wrong, it is just knowing what that mark up is.

As for fair bidding: again, let's assume there is a plumbing issue.  Is it outlined how many contractors they will get bids from before selecting one?   Do they need to get three bids for any repair, only repairs over $500, etc?  How do they select which bid to go with?  If there is no fair bidding, how do you, as the OOS owner, know whether you are getting good pricing?  This is especially true if they have in house teams.

At the end of the day, the point is to know all your costs and how things are actually going to be run.  You, as the owner, are the one footing the bill.  And every dollar of expense paid/saved impacts your returns just as much as a dollar more or less in rent.

[Alex Evans]

Hey @Jay A.

I work for a turnkey company in Memphis, TN, and below is a list of the most FAQs that I receive on a daily basis.

1 - What market do we invest in?

2 - What property classes do we invest in?

3 - Average rents? 

4 - Average prices? 

5 - What are your management fees? 

6 - What are your vacancy rates and eviction rates?

7 - How long does it take you to find a tenant? 

8 - How do you screen tenants? 

9 - What guarantees do you offer on the work or in general?

10 - What are the average returns? 

These are just a few but all great questions to ask! 

[Lane Kawaoka]

Hey Jay! Looks like you're starting where many new investors do, well those with at least $20-30,000 for a down payment on a rental property. Gotta understand, like most folks these forums or REIA clubs, not everyone has that 20-30 grand lying around. So they start with wholesaling or more active real estate gigs.

 Turnkey properties are a solid entry point. I started investing in those back in 2012, diving into markets like Birmingham, Atlanta, and Indianapolis. Back then, I snagged properties at $85,000 that rented for just under $1000 a month.

Fast forward a decade, and those same properties are going for $130,000 to $140,000, with rent not seeing the same spike—maybe $1200 today, if you're lucky. The easy entry into turnkey rentals isn't what it used to be. The NFL analogy - the hole closes!

I've shifted towards syndications and private placements. It's a more mature take on the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy without the hands-on hassle. Duy-and-hold strategies in tertiary markets like Birmingham just aren't cutting it anymore.

Turnkey Providers? Or as some might say, marketers. They jack up prices by $5,000 to $20,000 to make their cut. With today's slim margins, bypassing these middlemen might just mean working with a reliable real estate broker instead.

Everyone starts somewhere! If you have any specific questions reach out.

[Chris Clothier]

As an actual provider, I can't give you advice on experience with any companies although I originally started investing passively back in 2003 in essentially turnkey properties before the marketing of the name really took off. I wrote a book called the Turnkey Revolution in 2017 and based a lot of it on advise I've given here on BP. Here are some questions that I have posted many, many times here on BP that you should be asking any Turnkey company you are going to do business with. I'm happy to give what I think are the best answers to these as well. Again, I made this list based on my own experiences.

Two important things to remember. One, if they don't have time to spend with you and answer your questions in detail and discuss them, in my opinion, move on. Two, a key about asking questions is to ask a mirror question. Many companies have learned how to sell and how to market and certainly how to answer questions like this. Often answers are scripted and your job as an investor is to ask the right questions in the right way to answer for yourself whether you can trust what you are hearing. It is also important to remember that investors like myself always advise meeting who you're going to do business with. That is important because it allows you to see for yourself if the answers you heard match what you see on the ground. A mirror question is where you ask what is the average vacancy rate each month. Write down the answer. Sometime later in the conversation you ask the mirror question of what is your average occupancy each month. Write that answer down.

A high quality company will be on top of their KPI's and their numbers will match. A 3.5% vacancy number will match a 96.5% occupancy number.

Lastly, after you have their numbers research what you were told. I'll never forget a conversation with an investor who was amazed that a turnkey company had a 1.5% vacancy rate and a 98.5% occupancy. It sounded amazing. He asked how many properties they managed and the answer was roughly 1500. He then went onto their website online and researched their property management online and was shocked. Their website listed 198 properties for rent. They had an ad online for prospective tenants advertising 200+ vacant rentals. Their true vacancy rate was roughly 13% not 1.5%. But they felt like they had to market a low rate to "keep up with the Joneses". So ask your questions, get your data and do your research.

Are you an investor?

Do you own in the exact neighborhoods you are selling?

How many investors do you work with?

Do you own all aspects of the operation?

Do you offer rental or maintenance guarantees? If they answer yes, ask them why. Then ask them if they will put the guarantee on year three.

Do you defer maintenance?

How many properties do you manage?

Do you own the properties you sell?

Do you promote other companies and get paid by them when I purchase a property?

How long have you been in the business?

What is your average vacancy rate?

What percentage of expiring leases will renew their lease each month?

What percentage of signed leases fulfill their full term?

What is the average number of days a property is vacant between tenants, move-out to move-in?

What percentage of billed rent do you collect each month?

What is the cost of an average repair bill after move-out?

What are your management fees?

What percentage of collected rent goes to yearly maintenance on average?

What is your average number-of-months occupancy per property?

What is your average occupancy rate?

What programs do you have in place to keep residents happy?

What customer service programs do you have in place?

Will you call me every month with an update on my portfolio?

How many team members are dedicated solely to providing service to your clients?

What has been your biggest mistake as an investor? How do you protect your clients from making the same mistakes?

[Engelo Rumora]

Quote from @Chris Clothier:

As an actual provider, I can't give you advice on experience with any companies although I originally started investing passively back in 2003 in essentially turnkey properties before the marketing of the name really took off. I wrote a book called the Turnkey Revolution in 2017 and based a lot of it on advise I've given here on BP. Here are some questions that I have posted many, many times here on BP that you should be asking any Turnkey company you are going to do business with. I'm happy to give what I think are the best answers to these as well. Again, I made this list based on my own experiences.

Two important things to remember. One, if they don't have time to spend with you and answer your questions in detail and discuss them, in my opinion, move on. Two, a key about asking questions is to ask a mirror question. Many companies have learned how to sell and how to market and certainly how to answer questions like this. Often answers are scripted and your job as an investor is to ask the right questions in the right way to answer for yourself whether you can trust what you are hearing. It is also important to remember that investors like myself always advise meeting who you're going to do business with. That is important because it allows you to see for yourself if the answers you heard match what you see on the ground. A mirror question is where you ask what is the average vacancy rate each month. Write down the answer. Sometime later in the conversation you ask the mirror question of what is your average occupancy each month. Write that answer down.

A high quality company will be on top of their KPI's and their numbers will match. A 3.5% vacancy number will match a 96.5% occupancy number.

Lastly, after you have their numbers research what you were told. I'll never forget a conversation with an investor who was amazed that a turnkey company had a 1.5% vacancy rate and a 98.5% occupancy. It sounded amazing. He asked how many properties they managed and the answer was roughly 1500. He then went onto their website online and researched their property management online and was shocked. Their website listed 198 properties for rent. They had an ad online for prospective tenants advertising 200+ vacant rentals. Their true vacancy rate was roughly 13% not 1.5%. But they felt like they had to market a low rate to "keep up with the Joneses". So ask your questions, get your data and do your research.

Are you an investor?

Do you own in the exact neighborhoods you are selling?

How many investors do you work with?

Do you own all aspects of the operation?

Do you offer rental or maintenance guarantees? If they answer yes, ask them why. Then ask them if they will put the guarantee on year three.

Do you defer maintenance?

How many properties do you manage?

Do you own the properties you sell?

Do you promote other companies and get paid by them when I purchase a property?

How long have you been in the business?

What is your average vacancy rate?

What percentage of expiring leases will renew their lease each month?

What percentage of signed leases fulfill their full term?

What is the average number of days a property is vacant between tenants, move-out to move-in?

What percentage of billed rent do you collect each month?

What is the cost of an average repair bill after move-out?

What are your management fees?

What percentage of collected rent goes to yearly maintenance on average?

What is your average number-of-months occupancy per property?

What is your average occupancy rate?

What programs do you have in place to keep residents happy?

What customer service programs do you have in place?

Will you call me every month with an update on my portfolio?

How many team members are dedicated solely to providing service to your clients?

What has been your biggest mistake as an investor? How do you protect your clients from making the same mistakes?

Hey mate,

Here are my answers.

What ya think? 😁

Are you an investor?

Yep, own 10 properties. Had over 20 but was short on inventory so had to sell some of my own to meet investor demand grrrr

Do you own in the exact neighborhoods you are selling?

All of our staff lives in the same areas we sell in. I'm a pilgrim now but converted our office basement into a 2 bed unit and lived there for 7 years while scaling the business.

How many investors do you work with?

150 or so. Would be 4x that if we accepted financing ehhh 🤷‍♂️

Do you own all aspects of the operation?

Property management is in-house and owned/controlled by us. 3rd party contractors for rehabs and considering building in-house maintenance team for property management.

Do you offer rental or maintenance guarantees? If they answer yes, ask them why. Then ask them if they will put the guarantee on year three.

None, offered in the past but it got messy. Our promise is if it's our fault, we will pay and fix it. If you don't trust us, don't invest with us.

Do you defer maintenance?

Not sure I understand the question 100%. but we try to get everything done asap. Sometimes we wait for owners to top up maintenance reserve but we don't like to wait.

How many properties do you manage?

400 and growing

Do you own the properties you sell?

Yes, through our various LLC's but all under our company umbrella.

Do you promote other companies and get paid by them when I purchase a property?

I should start doing this. If only I had the courage to put my name behind someone else's product. I'd rather make a mistake and fail knowing it was my doing than make a mistake and fail due to someone else's doing.

How long have you been in the business?

Established in April of 2014. 10 year anniversary coming up mate

What is your average vacancy rate?

400 managed and 20 vacant as of today including recently bought.

What percentage of expiring leases will renew their lease each month?

Don't track this stat personally and will have to ask team. I'm sure they have an answer when looking at the PM software.

What percentage of signed leases fulfill their full term?

Don't know the exact figure but I know it's quite high. Just need to look at data in PM software and could find out. We sign 1 year leases.

What is the average number of days a property is vacant between tenants, move-out to move-in?

Depends but usually 6-8 weeks

What percentage of billed rent do you collect each month?

Just asked team this not to long ago. Eventually everyone pays up and we do have to evict 2-3 per month unfortunately. Had times of zero evictions for months and other times of 10 in a month. So I guess that makes it around 99%, right? lol

What is the cost of an average repair bill after move-out?

Average is $1,500 including eviction. Less if no eviction.

What are your management fees?

2 different structures. A monthly flat fee and the traditional 10% fee. Don't wanna self promo so not including any links hehe

What percentage of collected rent goes to yearly maintenance on average?

10-15%

What is your average number-of-months occupancy per property?

Don't know this stat. Have to ask team. A high percentage honor the 1 year lease but don't know the exact average length of stay.

What is your average occupancy rate?

95%+

What programs do you have in place to keep residents happy?

Deposit insurance, credit building and on time rent payment rewards (Through Second Nature)

What customer service programs do you have in place?

Me hehe

Will you call me every month with an update on my portfolio?

No. No news is good news as long as the rent is in the account every month 👍

How many team members are dedicated solely to providing service to your clients?

6 in-house + 4 remote workers. Turned it into a lean machine mate. Was chasing tale when we had 30+ staff...

What has been your biggest mistake as an investor? How do you protect your clients from making the same mistakes?

Going too fast and too hard. All good things take time. Protect the downside first and base your decisions on a worst case scenario.

[Chris Clothier]

@Engelo Rumora,

That is why I have included you guys as providers to talk to if you are just starting out and wanting to learn about cities and providers!  You'd be surprised at the number of people advertising "turnkey" that give very different answers to those questions when asked by investors.  Wait, no, you've been in the industry for 10 years - you are someone who would not be surprised!

Be well - 

[Engelo Rumora]

Quote from @Chris Clothier:

@Engelo Rumora,

That is why I have included you guys as providers to talk to if you are just starting out and wanting to learn about cities and providers!  You'd be surprised at the number of people advertising "turnkey" that give very different answers to those questions when asked by investors.  Wait, no, you've been in the industry for 10 years - you are someone who would not be surprised!

Be well - 

Cheers mate,

Keep setting the standard for the rest of us 🙏