First Turnkey Property

[Trevor Crabtree]

Looking to buy my first turnkey rental. What advice would you recommend?

[Chris Clothier]

Trevor,

In my opinion, stick to the companies that purchase, renovate, lease, and manage the properties for investors.  Stay away from promoters who don't buy or sell anything.  Work with companies with teams in the markets and are responsible 100% for your experience and results.  Avoid third-party hand-offs.  

From there, here are some questions you should ask to narrow down who you think may be a good fit for the results you are looking to achieve as an investor.

Two important things to remember. One, if they don't have time to spend with you and answer your questions in detail and discuss them, in my opinion, move on. Two, a key to asking questions is to ask a mirror question. Many companies have learned how to sell, how to market, and certainly how to answer questions like this. Often answers are scripted and your job as an investor is to ask the right questions in the right way to answer for yourself whether you can trust what you are hearing. It is also important to remember that investors like myself always advise meeting who you do business with. That is important because it allows you to see if the answers you heard match what you see on the ground. A mirror question is where you ask what is the average vacancy rate each month. Write down the answer. Later in the conversation, you ask the mirror question about your average monthly occupancy. 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 to research 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 they had to market a low rate to "keep up with the Joneses". So ask your questions, get your data, and do your research.

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?

Be patient as you go forward.  There is no need to rush into making decisions.