WHAT IS TURNKEY REAL ESTATE INVESTING?
Turnkey real estate is a term that has a big problem. And that problem is that there is no accepted definition of what “turnkey” actually means! Here at Property Rush, we know what WE define it as (more on that later), but there are many people in the industry that throw the term around so loosely that it has become almost meaningless.
Turnkey SHOULD mean that all major systems have been looked at, repaired well, or replaced, or at a minimum checked out and determined to be in good working order with a minimum of several years of life left. Plumbing, electrical, HVAC, and roofing all fit in that category. In addition, items such as flooring, finishes, countertops, door hardware and faucets should have all been replaced if they don’t work well and look good.
Turnkey real estate should also include property management in place from a good and reputable property manager, with years of experience and a reputation to protect.
Stay clear of Turnkey companies that have any of these 8 issues:
8 SIGNS OF A DANGEROUS TURNKEY OPERATOR
1 – Inexperienced Operators
You don’t want your turnkey real estate operator learning on the job with your money. So, always find out how long they have been doing what they are doing, and that they have a demonstrable track record.
2 – Talking the Talk, but Not Walking it
Do they own several rental properties of their own, personally? And have they for many years? There is much more to this business than simply buying and renting some property. The right price point and tenants are crucial to a successful endeavor, and the people you work with have to be able to articulate that easily and well. If they cannot, that’s a big red flag.
This is also why I don’t recommend that people buy rental property from any part-time real estate agents. Because most real estate agents don’t own rental property. They specialize in selling primary residences, and many don’t even own their own primary residence. So always only get your advice from people who have done exactly what you want to do, over and over again…for many, many years. If you do work with an agent, make sure they own and have experience with their own rental properties.
3 – Lack of Systems
Any good turnkey real estate operation has to have a proven system that they replicate over and over, ensuring consistency and quality. Do they have a system? What software do you use in conjunction with your operation? This applies of course to both the renovation team as well as property managers.
4 – Inability or Unwillingness to Scale
One issue I have seen a few times, unfortunately, and especially with property managers, is the inability or unwillingness for them to scale their business as it grows. They are great at what they do, so they attract more business, but they don’t want to hire new people because they feel they will then lose control. Or they WANT to hire new people, but are terrible at it and end up hiring the wrong people. The newbies end up not doing well, which reinforces their original reluctance to scale! So they try to do it all themselves, service slips, clients (of course) notice, and then they start losing business!
5 – Bad Areas
Be careful if a potential turnkey real estate company operates predominantly in a C or D neighborhood. Here’s why: C and D properties can look great on paper – great ROI, great cash flow. But reality is a different story. A perfect example is Kansas City. There’s the really, really nice part of Kansas City, and then just a mile away is the worst part of Kansas City. And the worst part of Kansas City photographs pretty well, during the day…but at night, the scene changes dramatically – your properties get vandalized – it’s almost guaranteed. Or your tenant, if you can even find a local person willing to live there – is going to be terrified. At Property Rush, we DO NOT buy in these type of areas…We do not want to manage them and are very picky about where we will manage properties.
6 – Sub Par Renovations
How do you know if a supposed turnkey company is not fully renovating the properties they sell? How can you tell if they’re just trying to make a profit, overcharging you and leaving you with the repairs?
Part of Property Rush’s standard practices with remodels are that we demand all plumbing, roofing, HVAC, and electrical to be upgraded to code. We have found it makes more sense to go above and beyond most investors who simply paint and patch repairs. Rather, we take the time upfront to do it RIGHT and that includes putting nicer finishes in the home including stainless steel appliances, granite or butcher block countertops, new cabinets, new windows, new siding when needed, replace subfloor where needed, etc.
7 – Over Market Pricing
Do you think that ethically challenged turnkey real estate operators might try to get away with pricing their properties well above market?
Answer: Yes! I think that appraisers for the most part are fairly accurate, but we still encourage our investors to get multiple opinions of value and we strive to be as fair as possible with our pricing. Most importantly, we are transparent with our calculations and get multiple rental and value opinions that are shared up front with our investors so they can make an informed decision.
8 – A History of Fraud
Due Diligence is imperative when screening a turnkey provider! Should you find a history of fraud, scams or anything shady in the real estate world, run. It does not matter how long ago it occurred…It is not worth the risk.
Are you looking to start investing in real estate? Schedule a consultation today: