Good morning @Ivana Ivanovic,
You have some good advice from the previous responses, so I won't spend a lot of time repeating it. The reality of most buying decisions is that we move forward when we like whom we are working with and trust what they tell us. When you lack trust in what you are hearing or seeing, typically, it is almost impossible to move forward. It seems like you have good instincts and want to understand what you are seeing and hearing.
I would like to counter some of the statements on here, though, and offer some advice that may help as you get moving forward. My family first used the word turnkey to describe our business model back in early 2007. We were featured in a couple of real estate magazines that were widely distributed among real estate meet-ups, and pretty soon, the word began to stick. I don't claim to be the first to use it, but we have not heard other companies use the word to describe their model before.
To me, a turnkey real estate offering includes a high-quality remodeled property with a resident in place or high probability before closing and an in-place management company under the same roof. As an investor, this gives you one point of contact and one responsible party to speak with going forward. One point of contact to purchase the property from, to talk with about renovations and quality of work, and to speak with for ongoing property management. One responsible party.
I began posting on BP in January 2009, and almost immediately, active investors and other posters with differing views made the same arguments in your posting. The general argument was the same: All turnkey is bad, and all investors can do the exact same thing on their own. I have spent 15+ years making the following statements.
1. Turnkey is just a marketing word. It is way over-used today on BP by everyone looking to get some eyeballs on their posts or their products. Every company that uses the word turnkey has its own definition for what it means. Today you see realtors use it to describe their services. You see individuals who buy and sell properties but do none of the work and do not manage the properties; use the word turnkey. You see, companies that don't actually do anything. They don't buy properties, renovate, or manage properties; they don't even risk their own money. They act as marketing companies, and they use the word turnkey because they know it works to attract buyers.
2. It's important to note that not all turnkey companies are bad. There are a few reputable companies around the country, some of which are here on BP, with solid long-term reputations. However, it's crucial to invest time in doing what you've already done- asking questions and getting to know the companies. The two most important questions you can ask are 'How' and 'Why '. Why do they run their numbers the way they do? How do they operate to give you high confidence in their ability?
Many investors never bother to understand precisely how a passive investment will work. When you buy halfway across the country and expect a turnkey process where someone or some company is doing all of the detailed work, such as property selection, renovation work, and property management, you are entirely reliant on their ability. As I said, several companies are very good at selecting, renovating, and managing investment properties. In my opinion, there are also more that are not so good and several promotional companies that do the industry no favors.
As far as the answers you received, I likely would not find any comfort in them the way you typed them in here. I would ask a few more questions, but again, I doubt my trust in them would grow based on what you typed.
I agree 100% on the account reserves. As an investor, I firmly believe in keeping $5,000 to $8,000 in reserves for each property up to five or six properties. I also believe every dollar from my residents' paid rent goes toward principal reduction. If I am not reducing the principal, then I will add it to my reserve account. I don't invest to make and use the cash flow for anything outside of the property. Once I have $40,000 to $50,000 in a reserve account, I am no longer worried about having enough reserves. I am comfortable that I built enough of a reserve account to handle my portfolio.
I do not account for vacancy, maintenance or capex in my personal calculations. Those are soft costs that are not monthly nor annual - however, they will occur. My cash flow is calculated by income - fixed expenses, which I can calculate monthly, quarterly, or yearly. Over the long term, my properties make money in multiple ways, but cash flow is probably the least significant. For me, the rent covers everything and allows the property to perform. From there, every dollar goes toward reserves or principal reduction. If a property goes vacant, reserves pay the note. If a property needs maintenance, it is either reduced from that month's rent or comes from reserves. It is the same with capex costs. Some are treated as expenses, and some are an increase in basis.
I am explaining all of this because I am a passive investor like you. I am buying for the long haul. I am not buying for short, quick hits. I rely on others to be really good at what they do. I do not expect to buy properties at 1% rent-to-price ratios. I buy median-priced homes and above with exceptionally good property management and high expectations that the house's value will go up, the rent it commands will go up, and the likelihood of it staying rented with low maintenance is very high. I know it will likely make very little annual cash flow for that. I generally own my properties at the top of the market and sometimes above market value, but I am an experienced investor and fully understand that I must let time do its job. If I have the right company, they will help me beat market averages for vacancy and maintenance.
You are not asking for too much with your post and expectations of a turnkey provider. I think you are getting some poor responses from the company. Do not settle for less than what you expect. I don't like the word realistic, so I will say that you want to understand what you get for what you pay. The better the deal looks, knowing that you are passive, the higher the likely risk. There is a point where a property makes sense to meet your expectations. But your expectations have to align with who you are doing business with and what you are buying. There are good turnkey companies out there that understand how important high-quality homes and services are to investors.
Please don't worry about being in a rush. I promise that you will not miss out by being patient. Best of luck as you go forward!
