Turnkey Program Concept Review

[Stuart Udis]

I’m not seeking a review of any particular turnkey company. I’m interested in hearing directly from investors who have participated in turnkey programs and are far enough along to reflect on actual performance.

Specifically, I’d like to hear from investors where all of the following apply:

• Property owned for 3+ years

• Property has gone through at least one tenant turnover

• Owner is out of state

• Day-to-day operations handled entirely by third-party property management and vendors

Under those circumstances, how has the investment performed relative to your original expectations:

• Underperforming

• Meeting expectations

• Overperforming

If you’re willing to share, it would also be helpful to hear:

• How closely actual maintenance and capital expenses tracked underwriting

• Any lessons learned that weren’t obvious at the time of purchase

Thanks in advance. I’m looking to understand tested outcomes.

[Jay Hinrichs]

Quote from @Ryan Fox:

@Stuart Udis - My investment doesn't quite fit what you're looking for but it's close.

• Property owned for 3+ years - YES, 2017 to present
• Property has gone through at least one tenant turnover - NO, but another turnkey property I owned through the same turnkey provider went thru a turnover during the same time.
• Owner is out of state - YES - property is in south side of Chicago, I'm in Nevada
• Day-to-day operations handled entirely by third-party property management and vendors - YES, the turnkey provider is still managing.

Under those circumstances, how has the investment performed relative to your original expectations: exceeded expectations - I was conservative with my numbers at purchase and thought I would only get a 4% cash on cash return, but it's turned out to be 13% at purchase and this year is on track for 24%. I thought it would need a lot more repairs, but apparently the turnkey provider did a pretty solid rehab. I haven't had to pay any capital expenses as of today.

This property has not gone through a turnover. However, as mentioned above, I also bought another turnkey property in the same neighborhood in 2017. This property went through a turnover last year. I paid about $4,000 to fix it up and sell it. In addition, that tenant sued my property manager because she thought the manager had mis-applied her section 8 payments. She had very little proof of this. Nonetheless, the property manager settled the matter for $1,600. Since I indemnified the property manager through the property management agreement, I was responsible for the $1,600.

Lessons learned:

1) Section 8 tenants tend to stay a long time. This property is an example.

2) It helps to contest the property taxes. This saved about $1,000 in cash flow per year.

3) This is a location where homeowners insurance premiums have not been rising out of control, which has definitely helped with the cash-on-cash returns.

4) Biggerpockets was definitely helpful to get reviews on turnkey operators when I was doing my due diligence.

South side of Chicago even with all the negative and crime states if one bought in 2017 those props have more than doubled.. and rents increased as well..