Turn Key Single Family

7 Replies

Hi BP family: What are the biggest pitfalls associated in purchasing and owning single family homes from a turn key provider? Would like to hear of personal experiences both positive and negative ? Thanks. Peter.

@Peter Paxos

Stay away from rents under 900. Don’t chase paper returns it won’t happen in real life

Buy with appraisal and don’t forget inspection

Thanks for bringing this up. It is also a question I would like to know answer to.

Jerry

@Peter Paxos There are lots of turnkey stories here on the forums - the good, the bad, and the really ugly.  For myself, I starting investing in turnkey homes in 2012.  All the ones I actually closed on since then have been positive experiences with some bumps along the way.  Now that isn't to say there weren't some I didn't close on, or reject outright, because there are lots of less than fully competent or trustworthy providers out there.  Which is why I always recommend some key points to include in your selection and due diligence:

Avoid lower cost homes and low income areas . I generally like to see rents of $900 to $1,000 and above, but that can be market dependent.

Visit the area and the provider you are considering - there is nothing like a face to face, seeing the neighborhoods, the quality of the rehabs, and the operations of the provider.

Fully vet the property management - nothing is more important than the PM in the long term success of your rentals.

There's more, but those are some keys to look out for.

All best in your REI!

Originally posted by @Peter Paxos :
Hi BP family:

What are the biggest pitfalls associated in purchasing and owning single family homes from a turn key provider? Would like to hear of personal experiences both positive and negative ?

Thanks. Peter.

 Turnkey can be great when you are investing OOS and need a good start.

Try looking at:

The Best Types of Markets for Profitable Turnkey Properties

and

What to Ask When Working With a Turnkey Provider

I'd say the biggest pitfall is a less obvious one than people may think. In my experience of buying my own turnkeys and helping other people buy them, I'd say the biggest pickle I've seen people get in is going into it assuming they can be completely hands-off. Originally turnkeys were always advertised as being totally hands-off {guilty, party of 1}, but people tend to take that to mean they don't need their brains for them and they don't have to manage anything. Turnkeys aren't perfect and a TK buyer should know that they need to a) do due diligence on the property as thoroughly as any other property and b) they need to be ready to step up and manage something (likely the property manager) if things aren't going well after the purchase.

I'd imagine some people will say the pitfalls are based on inaccurate advertising by the turnkey provider or the rehab quality not being up to par or something, but the reality is--those things happening should've been checked up on during the due diligence period by the buyer. So while it sucks the turnkey company didn't perform up to snuff, the buyer shouldn't have closed on it if it wasn't performing as advertised.

Things like that.

Positives? Easy-- I don't have to spend much time at all on my properties, whether during the purchase or while owning them!

Originally posted by @Peter Paxos :
Hi BP family:

What are the biggest pitfalls associated in purchasing and owning single family homes from a turn key provider? Would like to hear of personal experiences both positive and negative ?

Thanks. Peter.

 Some common things some may consider pitfalls are as follows.

  1. Cost. You are paying for a service. Someone else is doing all of the hard work for you because you either can't or don't want to do it. They of course would only do this if there is a strong financial incentive for them to do so. There is only so much profit available, anytime another hand is placed in the cookie jar that's less left over for you.
  2. Lack of control. The asset is being managed by another. If you are very hands on this is not a good venture for you.
  3. Lack of market knowledge. Typically you are buying these turnkey properties out of state. Presumably you have less knowledge of that market then the one you actually live in.

biggest pit fall Is chasing return and buying basically the lowest value asset in a given MSA

this will bring along with it the lowest common denominator in the tenant pool.. read into that toughest to manage and most risky.

But it really does not matter how you aquire these assets if you do it yourself or buy through a company that specializes in flipping investment properties and may have in house management to keep everything under one roof.

No company lives with the tenant 24 7.. and being that your investment security is 100% dependant on what that tenant does.. NO matter how good PM is.

does it not make sense to pick the BEST tenants  :)  I think so.  NOT the riskest right.

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