What are the things to keep in mind when using turnkey company?

[Hemal Adani]

Hello fellow BP members, I am looking to use a turnkey company to help me rehab and manage property. I am full-time software engineer and investor. My job is 100% work from home and requires little interaction using phone and laptop. I would like to screen company to invest. Anyone can share their experience? Here is what I am looking for.

Name of the company, Location of the property, Any challenges, How to screen them?.

[Chris Clothier]

Quote from @Hemal Adani:

Hello fellow BP members, I am looking to use a turnkey company to help me rehab and manage property. I am full-time software engineer and investor. My job is 100% work from home and requires little interaction using phone and laptop. I would like to screen company to invest. Anyone can share their experience? Here is what I am looking for.

Name of the company, Location of the property, Any challenges, How to screen them?.

This is how you go about screening turnkey companies.  I'm happy to give what I think are the best answers to these as well.  I made this list based on my own experiences and share it quite often here on BP.

Two important things to remember. One, if turnkey company does not have time to spend with you and answer your questions in detail and discuss them, in my opinion, move on. Two, a key about asking questions is to ask mirror questions.  A mirror question is where you ask what is the average vacancy rate each month. Write down the answer. Sometime later in the conversation you ask the mirror question of what is your average occupancy each month. Write that answer down.

A high quality company will be on top of their KPI's and their numbers will match. A 3.5% vacancy number will match a 96.5% occupancy number.

Lastly, after you have their numbers research what you were told. I'll never forget a conversation with an investor who was amazed that a turnkey company had a 1.5% vacancy rate and a 98.5% occupancy. It sounded amazing. He asked how many properties they managed and the answer was roughly 1500. He then went onto their website online and researched their property management online and was shocked. Their website listed 198 properties for rent. They had an ad online for prospective tenants advertising 200+ vacant rentals. Their true vacancy rate was roughly 13% not 1.5%. But they felt like they had to market a low rate to "keep up with the Joneses". So ask your questions, get your data and do your research.

Lastly, take nothing on faith!  Including my families' company.  We have a stellar reputation which matters, but you still have to ask the right questions and do your due diligence.  You still have to make us earn the right for you to trust us.  Often times, going and visiting a company in person is what seals the deal either in favor or against.  It is the only true way to determine if the answers you get match what you see in person.

Best of luck to you!

Are you an investor?

Do you own in the exact neighborhoods you are selling?

How many investors do you work with?

Do you own all facets of the operation?

Do you offer rental or maintenance guarantees? If they answer yes, ask them why. Then ask them if they will put the guarantee on year three.

Do you defer maintenance?

How many properties do you manage?

Do you own the properties you sell?

How long have you been in the business?

What is your average vacancy rate?

What percentage of expiring leases will renew their lease each month?

What percentage of signed leases fulfill their full term?

What is the average number of days a property is vacant between tenants, move-out to move-in?

What percentage of billed rent do you collect each month?

What is the cost of an average repair bill after move-out?

What are your management fees?

What percentage of collected rent goes to yearly maintenance on average?

What is your average number-of-months occupancy per property?

What is your average occupancy rate?

What programs do you have in place to keep residents happy?

What customer service programs do you have in place?

Will you call me every month with an update on my portfolio?

How many team members are dedicated solely to providing service to your clients?

What has been your biggest mistake as an investor? How do you protect your clients from making the same mistakes?