?Turnkey Survey: Would you rather…

[Tara Piantanida-Kelly]

I often hear investors say that out-of-state turnkey deals aren’t great because they are often at (or above) retail pricing, and you “make your money when you buy”. That being said, assuming the numbers work for you (1.5% rule? C+/B- or above neighborhood? Whatever is important to you, etc.), would you rather:

• Buy a completed turnkey property for $60,000 which is currently rented for $900/month, or
• Buy a wholesale house for $30,000, hire a “boots on the ground” team to manage your rehab and tenant vetting and take your chances on rehab and holding costs.

Thanks for your thoughts!

Cheers~

Tara Piantanida-Kelly

[Troy Sheets]

Most of the turnkey deals I've seen presented by a big provider in my area are:

• Overpriced (by 15% +/-) for the neighborhood. 
• The neighborhoods are misrepresented. C- to D areas are touted as B areas.
• Rents are higher than rentometer average, again, sometimes as much as 20%. Granted, a turnkey is generally fully rehabbed so it can command a premium in rent over the rundown rentals in the area. The problem there is, would you as a potential tenant rather live in a D area in a really nice rental or, in a B area in a shabbier/dated unit?

Look at it like this: I'm a tenant with a $900/month budget for my apartment. I can live in a great looking unit in a D area with nothing going for it and high crime. No restaurants, bars, shopping, public transportation, etc. Only corner stores and Chinese food for blocks in any direction. My other option is to spend the same amount to live in an area with better amenities, less crime, more public transportation, etc. but perhaps in a more dated/shabbier unit. Another option for me is to spend the same amount and get a larger house (4 br instead of a 3br) in the same D area. My thoughts are, unless the person wants to live in that area due to family living nearby or being close to an employer, the other options will win out or at least retain a tenant longer. 

The only people I ever hear about on BP that have anything to say about turnkey are people selling it. Where are all the success stories from happy customers THAT AREN'T BEING COMPENSATED FOR REFERRALS??? 

I've said it before and I'll say it again. Find a good property manager (PM) or two in an area you're interested in. Ask them where they are comfortable managing and what is renting well and in demand. Look for well taken care of properties that meet the criteria the PM has laid out for you. Buy said property and rent as-is or do a few cosmetic upgrades to get top rental dollar. Turn over to PM and know you didn't get robbed. Aside from buying the right properties in the right areas, the PM is going to be the most important part of absentee landlording. 

What if the turnkey company sucks as a PM and then you find out, since you bought in a D area and they promised you $900/month in an area that averages $700/month, no one else will manage your property because of the area AND they know they'll never rent/keep it rented at the $900/month promised by the turnkey company. 

Last part of my rant, promise. So, you've ignored my advice and bought that turnkey anyway. It's one year later and you've fired the turnkey PM company and you're sick of tenants, evictions, repairs and you can't find a PM that will manage in the D area your property is in. You've paid $75k for a property that will sell at $65k tops. To get out of this nightmare you have to eat the $10k in difference you paid over FMV and then pay a realtor 6% to sell the place, transfer tax of 2% at closing (yes, you'll pay 2% when you buy and 2% when you sell in PHL) as well as other assorted closing costs. Let's call it 10% to sell. Between the $10k difference in sale price and the 10% costs to sell, you're out $16.5k in this little misadventure. Forget lost rent, repairs, evictions/legal fees, etc. if you have a particularly rough go of it with a tenant or two...

I'm sure there are some good turnkey companies out there, I've only ran the numbers on the couple operating in my neck of the woods and this is just my opinion to get you guys thinking long and hard before plunking down your money. 

Full disclosure: I've got nothing to sell, no services to offer, etc. Just a small-time, local landlord who hates to see people taken advantage of. I'd honestly love to hear from some happy turnkey customers that are over one year in (once all the guarantees are up), have realized the returns promised by these companies, and aren't being compensated for their testimonial or referrals. Show me a few of those and I'll shut up.