Property management company that does the vetting for you.
Investor · Windsor, CA · Member since 2013 · 22 posts · 6 votes
Property management company that does the vetting for you.
Most Popular Reply
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
12yJust general comments regarding turnkey operators. You have to understand the whole business model. They make money by doing the least rehab possible for obvious reasons, asking the most on the selling price and charging the most for their maintenance. They sell properties sight unseen to foreign buyers who are looking for capital preservation 1st. That's a different customer than most of us US REI folks who look for value and cash flow. So right off the bad there's a business model mis match.
Turn key folks won't pull out dated kitchens and often even leave the counter tops, old toilets and bath tubs. So what you say as long as the renter pays? It a maters ALOT! 1) future CAPEX. No one is going to hold your hand and tell you that you're in for $10k rehab in 5 yrs updated all the things the turnkey guy didn';t do. 2) the quality of your perspective renter will drop over time as newer rehabs by the Funds flood these low end cheaper markets. I suggest everyone go to craigslist, for Atlanta. Search on the whole area, but enter Decatur for the search term, $900 max rent. Look at every rental in the first 2 pages. Notice the upgrade quality. You'll be SHOCKED! There's brand new flip quality being rented for $800. Check your area to see if these marginally rehabed turnkeys are competing side by side with much nicer quality. Your real NOI is at risk IMHO.
Look at the pictures from the turnkey folks for their properties: do you see old wood grained back splashes (Formica) and counter tops. Cabinets with those black groves cut into the doors etc. Old toilets and fiberglass tub/showers? You'll be budgeted for a rehab in the coming years. Re-calc your profitability based on re-doing a complete rehab within 5 yrs is my suggestion, it's going to happen. Budget for dropping occupancy, it's going to happen...
Your competition for these properties are the Chinese, Australians who just want their cash out of their country where cash flow is frosting. The turnkey folks are glad to give them what they want, less cash flow than what the ad sheets make it sound like.
12 Replies
- 12yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Meridian I believe is also the same as Meridian Pacific which is sort of like a turnkey company that is based in California and sells homes here in Memphis. They sell nice homes from what I have seen but usually at or more then full retail value. Understand they are homes that they own as a company. I think they also offer rental and maintenance guarantees which you are actually paying for in the price of the home. That would make me feel like I am being gouged. If you are going to buy from a turnkey company then buy from one who is actually from Memphis and do your homework on the pricing models as many are different.
Curt Davis - KAIZEN Realty538 Reviews - Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes12y
Hey Thomas! Windsor, where is that? Can't think of it. I'm down in LA.
I don't know anything about Meridian but I have visited Georgia Residential's company before. Ken is great. I was impressed with their setup and I saw a few properties and they looked good. I've known a lot of turnkey providers in Atlanta and they were one of the better ones in my opinion.
I've only bought turnkeys myself and as a business model, I love it. As long as you are working with a good company, it's a great way to go. You will be paying at market value, yes, but you get a lot for your money. I recommend it. Especially if you are in CA and wanting a long-distance property. Less risk.
Good luck!
- Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes12y
Hi @Thomas Hart,
Welcome to BiggerPockets!
I'm close with Meridian, as well as GRP having worked with them for many years. I can discuss my experience and get more personal offline if that will help you -- just send me a PM at your conveience.
Be sure to check out the Ultimate Beginners Guide as well as my 10 Rules of Successful Real Estate Investing.
Continues success!
- Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes12y
Hi Thomas,
Welcome to BP! I don't work with those companies but I am a former SoCal investor that went to greener cash flow areas.
Turnkeys are a wonderful way to invest without the headaches---provided you get in with the right people. I "interviewed" several people before deciding who felt like a good fit.
You will also find prices vary a lot depending on who you are buying from. One of my favorite markets is Memphis where you can still buy a nice turnkey in a nice area quite a bit below market value.
Great success to you!
- Investor · atlanta , GA · Member since 2012 · 287 posts · 148 votes12y
Word of caution, here in Georgia anyway. I've looked at the inventory for some of those companies here in GA, and the areas they buy and sell in are areas I wouldn't want to own property in. Before making the purchase, make sure you know what kind of area the property is in.
- Investor · atlanta , GA · Member since 2012 · 287 posts · 148 votes12y
Word of caution, here in Georgia anyway. I've looked at the inventory for some of those companies here in GA, and the areas they buy and sell in are areas I wouldn't want to own property in. Before making the purchase, make sure you know what kind of area the property is in.
- Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes12y
Just general comments regarding turnkey operators. You have to understand the whole business model. They make money by doing the least rehab possible for obvious reasons, asking the most on the selling price and charging the most for their maintenance. They sell properties sight unseen to foreign buyers who are looking for capital preservation 1st. That's a different customer than most of us US REI folks who look for value and cash flow. So right off the bad there's a business model mis match.
Turn key folks won't pull out dated kitchens and often even leave the counter tops, old toilets and bath tubs. So what you say as long as the renter pays? It a maters ALOT! 1) future CAPEX. No one is going to hold your hand and tell you that you're in for $10k rehab in 5 yrs updated all the things the turnkey guy didn';t do. 2) the quality of your perspective renter will drop over time as newer rehabs by the Funds flood these low end cheaper markets. I suggest everyone go to craigslist, for Atlanta. Search on the whole area, but enter Decatur for the search term, $900 max rent. Look at every rental in the first 2 pages. Notice the upgrade quality. You'll be SHOCKED! There's brand new flip quality being rented for $800. Check your area to see if these marginally rehabed turnkeys are competing side by side with much nicer quality. Your real NOI is at risk IMHO.
Look at the pictures from the turnkey folks for their properties: do you see old wood grained back splashes (Formica) and counter tops. Cabinets with those black groves cut into the doors etc. Old toilets and fiberglass tub/showers? You'll be budgeted for a rehab in the coming years. Re-calc your profitability based on re-doing a complete rehab within 5 yrs is my suggestion, it's going to happen. Budget for dropping occupancy, it's going to happen...
Your competition for these properties are the Chinese, Australians who just want their cash out of their country where cash flow is frosting. The turnkey folks are glad to give them what they want, less cash flow than what the ad sheets make it sound like.
- 12yKevin PolitePro MemberInvestor · Decatur Atlanta, GA · Member since 2011 · 611 posts · 232 votes
@Curt Smith I invest in Decatur and luckily haven't run into them, but have seen what you're talking about. They seem to be in areas where rents are below $950 the cutoff point for Section 8 in DeKalb County or Stone Mountain where you could once find 4Br homes less than 10 years old for $50k Off topic, I wonder have they upgraded them in hopes of selling them for a sizable profit in 5 years?
- Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes12y
@Kevin Polite My guess is that it's typical spread sheet business model by some idiot fund. They look like flips that failed to sell and they're being dumped into the rental market. This was always the risk. We've read about predictions of the "dump". I think this is the finger prints of it in progress.
I suggest you periodically search your rental areas in craigslist and look at every listing for fit and finish. What I saw in craigslist last week for Decatur made no sense at all. Not only is it killing your chances of finding another renter if you aren't offering stainless and granet but the renters are being trained to skip normal looking rentals. The very worst is that I saw 5-8 listings with free or 1/2 price first months rent. This is the death throws of a geographic market (low end rental areas) when you see 1st month free. Renters will quickly learn, to game that system. Jump place to place even mid-lease for a free month.
Watch out folks! Keep an eye on craigslist for the listings in your areas. Free first month is a very bad sign, granite / stainless in a $800 rental is another bad sign. I suggest you not buy into these areas. We need to wait till the funds melt down and literally dump these properties. Then the renters in those markets will have to be re-trained... It's not a good landlord model in my view. Let me mention the gorrilla in the room; landlords are mistaken if they think they are buying houses!!! You are buying a business that serves people who look to live in a geographic area. "People" not houses.
If you have new money to deploy there's ways to bullet proof your next rental purchase. There are business rules you can add that will keep you safer and there are strategies that target desirable renters and what they want.
- Real Estate Investor · OR · Member since 2012 · 390 posts · 133 votes12y
Wow Curt,
That is a big broad over generalization about how investors invest/manage their turnkeys!! I am sorry that has been your experience. There are many people in any niche that try to take unfair advantage of unknowing investors but that doesn't mean all are that way.
The buyers that purchase turnkey houses from my group of investors/sellers (not in Ga) are mostly nationals with a few internationals. We stand behind our properties with a warranty even. But maybe it's different in your market.
As far as what renters are renting no one twists their arm behind their back to rent what they do. Renters aren't stupid; they know the rents for areas and look for the most value for their buck.
It seems that you are so strong on your point of view that maybe you have something in your business to offer the misguided people that you are warning. I don't know. Maybe I just mis-read your post. It just tweeks me when people put all of everyone in the same bad apple basket.
Best to you.
- Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes12y
@Melodee Lucido Thanks for your comment Melodee. A warrantee sounds like a nice value add. It occurred to me while thinking about the turnkey question what gorillas where in the room that no one was asking about. I just mentioned a few big ones for folks to consider that's all. These are important metrics that will affect a turnkey's 10yr profitability.
- Future CAPEX because rehabs where "light" as apposed to complete rehabs. Yet you pay a price as if the rehab replaced everything. Look at the pictures carefully. Do an indepth inspection if possible.
- The market where most turnkeys that I've seen here in Atlanta are in the same areas that the Funds bought up whole neighborhoods. We knew the dump was possible. It may be happening via over fixed properties showing up as rentals. Which means stiff competition for an average fixed up property.
- Free first month is a big problem to compete against and a sign of serious problems with over supply! Study up in the multi family forums. Free first month is one of the biggest indicators of problems in that geographic market.
In summary the turnkey business model hinges on issues that are not talked about by the vendors or even the buyers: CAPEX, vacancy, fixup to re-rent. We are probably on the leading edge of a vacancy problem in these areas. We need a year to see, but if you are buying now, this I hope is useful info.
Odd timing, today I just got a lead into my website from a fellow who bought cheap (thinking low price ment a good deal), over fixed and is now stuck with an empty property in College Park, GA. He's underwater and can't sell via an agent, since that takes about 15% out of your net, he doesn't want to rent, wisely because there's alot of College Park rentals. To diverge off topic, our business model that targets "people" markets for rent to own with an ok down payment, then after a year do an owner finance sale at a slightly higher than market price and that means no lost 10%-15% cost of sale. In this model, we still get 15yrs of same as rent cash flow, but we've put an owner into the property who creates their long term home. No calls or problems.
Happy Holidays folks. Hope your rentals and rehabs are allowing you some down time!!! It's our choice but we are starting a rent to own rehab in a 1 hr away from Atlanta small town where good "people" want to live. People not houses. A house is just the medium of exchange between people.
- Investor · atlanta , GA · Member since 2012 · 287 posts · 148 votes12y
Great insight as usual Curt. I'm shifting focus in Atlanta to areas where people want to be as well. I see all kinds of cheap properties around the metro, but not where I want to be, or people want to be either.
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