Turn Keys projections for management fees, vacancy, maintenance?

Question

Hello,

Looking at some Turn Keys projections for  management fees, vacancy, maintenance they project 8%, 4%, and 4% respectively while my calculations are for 10%, 5%, and 5% on my calculators.  Am I overestimating costs or are my numbers a good safeguard against the unforeseen when running a projected deal?

Rob Hakes · Answer

@Jeremy Hackenberg

Also make sure you are figuring in any lease up or tenanting fees.  This is a hard cost that does not get included into the PM fees typically and does not go away.  This should add another 3-4%for a lot of turnkey companies.  Also don't calculate your vacancy based on just a percentage.  Find out their average length of stay, average turnover cost, and average months on the market, and then come up with a conservative estimate on that.

Also prepare for taxes to go up.  Depending on market, it is very possible that once a county sees a bunch of out of state investors start to own houses in their jurisdiction it can become a feeding frenzy for revenue.  I saw two of my turnkey properties have taxes jump by 40-50% after only owning for a few years.

Tom Ott · Answer

Well, a lot can go into that. What market are they in, what kind of properties are these? If the Turnkey Provider has been around for years and they consistently see an average of 5% annual maintenance on their properties, then I would be inclined to belive them. You could estimate more if you are worried. Their management fee is typically fixed. It is often 10%. The ones who charge 8% are probably up charging you somewhere else. Vacancy is also more of an in-house number. If they have consistently seen a 4% vacancy on average with their properties in their market and their leasing staff, then maybe their number is accurate. Again, you can estimate higher if you are worried.

Chris Coleman · Answer

@Jeremy Hackenberg use your numbers.

Unless the Turnkey operator you’re going with has their own in-house PM that specifically quotes you 8%, then you’re most likely going to pay 10% for good PM.

The standard for maintenance and vacancy is 5% and 5%.  You hopefully won’t use all that in the first 2-3 years since it’s Turnkey and supposed to be newly renovated.  But better to underwrite conservatively.

Kevin Chan · Answer

You definitely need to use your own analysis.  They are looking to sell the property, and thus, will use very aggressive numbers to produce a very optimistic ROI

Tom Shallcross · Answer

As others have pointed out, it all depends.  One big one to note is the leasing fees @Rob Hakes mentions.  The overall cost of a turnover is commonly missed.

Let's just say rent is 1k/M and you have a tenant turnover after a the first year.

You're going to pay anywhere from 500-3k to make the unit rent ready for the next tenant.  It takes a few more weeks to get a tenant placed (could be a week, could be longer) and you give the first month rent to the PM for placement.

You've now just spent the following:

500-3,000 - get the unit ready

1,000 (month of no rent)

1,000 (1st month's rent to PM)

That can be 2.5-5k which is >20% of rent collected for the year.

Even if you only turnover a tenant every other year, it's still very plausible to be above 10% for that true vacancy number.

All market dependent, but just calling out the true cost of a turnover.

Caleb Heimsoth · Answer

@Jeremy Hackenberg. Management is probably about right (would change to 10 percent).  Vacancy, maintenance and capex is way to low

Jaysen Medhurst · Answer

I'm assuming these are SFR properties, @Jeremy Hackenberg. I use 10%, 7.5%, 7.5%. I think their numbers are pretty optimistic and I would not accept them. Maybe the management number, if their company will manage for that. More often I see 10-12%

Turn Keys projections for management fees, vacancy, maintenance?

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