The #1 Indicator That You'll Have a Successful Experience When Investing in Turnkeys

Today, I’m going to talk about a subject that I may be a bit biased about because I own a turnkey real estate company. I want to warn everyone about some of the things you need to look out for to have a successful experience when investing in turnkey real estate.

If you look online, you will find a ton of horror stories about investors getting ripped off.

Why In-House Property Management is Vital

The turnkey company has to have in-house property management. I say that because the turnkey company will have a vested interest in your success. Meaning, when they sell you a property and then pass you on to their in-house property management company, that property has to be a success. So, in order for you to keep buying properties from them, for good word-of-mouth and referrals, that property has to be a success. The flip-side if it is not a success, you’re not going to buy any other properties and you’re definitely not going to tell anyone how good they are.

In-house property management is vital! They aren’t allowed to nickel and dime, and they’re not going to charge you ridiculous ongoing maintenance fees, tenant placement fees, leasing renewal fees, and administration fees. Why? Because once you hit whatever the negotiated cap rate you’ve been promised on paper is, you are going to be a happy camper. You’ll be singing the praises of your turnkey company and want to buy more properties from them. And they’ll get a pristine, blossoming reputation and will be able to build their business through work-of-mouth and referrals.

Related: Why Turnkey Rentals Might Just Be an Ideal Investment for Real Estate Newbies

Fee Structures

Now, I want to make this clear. You have to understand that property management companies don’t make a lot of money on the 10% fee that they collect every single month. They make money most of their money in tenant replacement fees. So, they want to charge you one and a half month’s rent to put a new tenant in your property. Those outside property management companies don’t care if your tenant stays and pays. They want them out! Rent is due the first, it’s late on the third, they post a notice on fifth or sixth, they file on the ninth or tenth. Why? Because they want one and a half month’s rent for a new tenant placement. Say there’s a little plumbing maintenance problem. They don’t get their full-time guy to take care of it for $20.00. They call Roto Rooter, who charges a $100, and then they are going to put a $100 fee on top. They make their money on upcharges from maintenance and tenant placement fees.

The only way an outsourced property management relationship can work is if the relationship is really tight. What fee structure do they have? They must have great attention to detail. There must be employees that are especially designated to work with the turnkey company. That, in my opinion, is the only way it could work.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.