Turn-Key real estate investing seems to have exploded in popularity over the last few years. With new websites and marketing ads announcing new companies on a weekly basis, turn-key companies seem to be sprouting up in every city and offering services in every corner of the country. In a recent international real estate publication, over half of the ads were touting turn-key real estate companies and their particular brand of done-for-you real estate investing. Business school graduates everywhere will tell you that when there are this many options there must be plenty of demand. I didn’t graduate business school, but I can tell you that demand or not, investors must be honest with themselves on a few key points before buying turn-key properties. If they are not, the result can be a miserable experience for everyone involved.
Too Busy For The Details
I get a kick out of investors who cite Donald Trump as an inspiration for buying real estate. It’s not that he shouldn’t be used as a role model. What makes me laugh is wanting to skip the learning curve that Donald Trump went through, and investors not realizing that Donald Trump has a team around him that he trusts implicitly to watch the details for him. For an investor, purchasing a turn-key property does not mean you leave ALL the details to others. From the very beginning, an investors’ best attribute with a turn-key company is the willingness to ask questions. You need to know who you are doing business with and exactly what you get in return for using that turn-key company. I often tell new investors that the professional investors do 3 key things to find success:
1. They research to find ideal markets for their investment plan.
2. They interview and surround themselves with the best team.
3. They are VERY CLEAR about their expectations.
It is their ability to do these three things that sets professional investors apart from average and beginning investors. They have taken the time study the details and their buying decisions are made very easy. If an investor is too busy for the details of due diligence, then turn-key properties are going to be a risky venture. An investor that takes everything on faith, is an investor who is bound to fail.
D.I.Y. – Do It Yourself
We all have our personality traits that make us who we are and we can not change those traits anymore than a zebra could change its stripes. For better or worse, our traits make us unique and some investors are not cut out to purchase turn-key properties. For an investor who has spent his or her life being in charge, and is a hands-on type of person, purchasing a turn-key investment property is a recipe for disaster. The very definition of turn-key means that a product or service can be utilized without any additional work being required by the buyer. When it comes to real estate, that means that the property is renovated and often occupied and there really are no decisions left to be made. Most turn-key companies are designed to provide every possible service for an investment property and leave very little control or decision making process to the investor. That is, in fact, the point of using a turn-key company in the first place; to make fewer decisions! If you enjoy the process of renovating a property, working with your tenants, or would have any trouble letting go of responsibilities, then turn-key investments may not be a good idea.
Turn-Key Real Estate: The Bottom Line
One of my first real estate mentors taught me that when evaluating a deal, the only price I should worry about was my price. If I wasted my time worrying about what the seller was making, I would end up buying all the wrong deals. When purchasing from a turn-key vendor, investors will absolutely pay a premium for the service they receive. Whether that service is any good or not is a whole separate story, but that company is adding a premium to provide services. It is up to the investor to decide if the price for the property meets their needs. They need to decide if the return is going to be adequate for their investment strategy. Worrying about the companies profit margin takes an investors eye off the important numbers.
Understanding that the returns are going to be smaller and the purchase price points will be higher is a great first step for an investor buying turn-key properties. If an investor wants the services provided by a turn-key vendor but wants to dictate what that service is worth, then that sets up a never ending circle of negotiating that leaves no one satisfied. Again, that does not mean not to ask questions, but turn-key companies provide convenience for investors and an investor should want to do business with profitable, successful turn-key companies. These, after all, are the companies investors are asking to manage their investment portfolios and their success is a big part of an investors success.
Turn-key companies provide a very valuable service for real estate investors, but that does not mean all investors will find success when buying turn-key properties. Many investors find themselves in markets where long-term buy & hold strategies are not possible and they have to look elsewhere to find good properties to buy for long-term gain. They instinctively begin to look for opportunities and invariably will find turn-key companies. An investor who can see past the possible road blocks listed above and work with a turn-key provider can find success and should be able to build a good long-term portfolio. An investor who can be honest about the road blocks listed above and realize that turn-key solutions may not be best for them, will save themselves and others a lot of time, energy, and headaches.
Photo: steven depolo