Pros & Cons Turnkey Companies

[Kay M.]

Hi!

We obtained a HELOC and looking into our first multi family investment property.
We wanted to explore the turnkey routine but I spoke with a few and I feel like that may not be the direction I want to go.

Anybody have thoughts or experiences with turnkeys?

[Steve Donovan]

Greetings @Kay M. !  

I have posted this previously, but it bears repeating... Do your research on the markets and the turnkey company prior to making any investments; especially these days as there are people looking to make quick money off unsuspecting buyers.

The Bigger Pockets forums provide a wealth of information and sources of ongoing support. Many new investors look to turnkey to get started, as it provides an entry point that requires less hands-on and allows an investor to participate in markets that offer higher returns. If you go this route it is important to realize that there is no common definition of turnkey. In terms of rehabbing the property, the workflow can range from throwing a coat of paint on a wall or two, to an entire gut of the mechanicals, windows, siding, and flooring. Some providers take the approach that a furnace or water heater with several years of expected life shouldn't be replaced in the rehab, but that the final product should be priced accordingly. That furnace will need to be replaced in the next few years, but just not yet... Some turnkey companies sell the property to investors at the point where the rehab work is identified and quoted, but not yet completed. The investor then waits for completion and tenant selection prior to earning any income. Other providers sell the units only after the rehab is completed and the tenant in place.

Any turnkey investor should ask very probing questions of the turnkey provider regarding the condition of all mechanicals, roof and windows prior to entering into a deal. As you will soon find, there is no common definition of a turnkey property, and it can be very risky (and expensive) to make any assumptions.

The ongoing management of the property is another area of vastly different approaches to turnkey investments. Some providers simply sell the property and the investor is left to find a management company, maintenance personnel, snow and lawn care providers, etc. Other providers offer up recommendations for these services, and still other turnkey companies offer these services as part of their overall package. The range of offerings is great, and no assumptions should be made; you need to ask very specific questions regarding who is to do what.

All the best to you as you begin your investment journey!