One weekend, I went to a guru seminar where the guru gave out his bestselling books and did a nice talk on the basics of real estate investing. On Sunday, he introduced two guys who gave a PowerPoint presentation explaining their turn-key process. Their concept seemed wonderful; I’d make better returns than I had been making finding rentals for myself.
The turn-key guys started sending me possible properties and I ran the numbers on a Columbus, Ohio duplex on Carpenter Street. I liked the price, the rehab estimates and rent ranges, and told the turn-key group that I wanted to see the duplex; of course, I scheduled a trip to Ohio.
I liked the neighborhood. A children’s hospital had just been built nearby and the area was starting to improve. New houses and remodels were surrounding the old Carpenter Street duplex. I had already seen the inspection report from the turn-key company so I had a good idea of what I would find on the house tour.
Exploring the Unknown
When I opened the door to the basement, I couldn’t see anything. Unfortunately, I had forgotten to bring a flashlight. I asked myself the same question quite a few times, “why didn’t I go buy a flashlight and come back,” but I believed the turn-key inspection report. I didn’t need to inspect the basement because the turn-key guys had already completed an inspection. Anything wrong in the basement surely would be covered in the 25K worth of repairs estimated by the turn-key group.
Not having a flashlight cost me a lot of money!
Here were the issues in the basement not reported on their inspection report:
- A flooded basement
- 2 missing furnaces
- A cut sewer line
- 2 missing hot water heaters
Here were the numbers on how my Carpenter duplex turned out:
- Price: $22K
- Expected Rent: $1400
- Actual Rent: $1100
- Expected Repairs: $25K
- Actual Repairs: $56,994
- Mistake: $31,994!
I am grateful for the knowledge I gained from my Carpenter duplex, but I’ll never make the same mistakes again. I’m not going to tell you not to buy turn-key rentals. I like turn-key properties; I sell turn-key rentals myself. What I am going to tell you is to do your research before you buy.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Here are a few tips for buying turn-key rentals:
- Trust but verify. Since big bucks are involved with buying houses, some big frauds are out there. Stay away from the frauds and find some trustworthy companies. The best way to find trustworthy ones is to do your research. Talk to everyone involved. Visit the company. Confirm the numbers. Talk to other clients. Check with the Better Business Bureau.
- Do your due diligence. Get a professional inspector that you have researched. Don’t just use the turn-key companies’ inspector. Personally inspect the houses. Mystery shop to double check rent ranges.
- Buy one property at a time from turn-key companies. Make sure the first one works before you buy the second.
- Listen to your intuition about the people you work with and the properties you choose. If something is telling you to say “no”; say “no.”
I take full responsibility for my $31,994 mistake. Ultimately, I was the one who made a decision based on sloppy research. I reflect back on the situation and ponder: “What have I learned and how can I do better next time?”
Here’s what I do know. The $31,994 could have been put to better use. I could have bought 12,352 Starbucks’ decaf café au laits, 799 sessions with a personal trainer, 581 massages or an awesome cash flowing rental.