What's the deal with Turnkey Companies?

[Andy Gross]

Hello BP Nation. I apologize for the Seinfeld-esque question, but what's the deal?

I see advertised properties that meet the 2% rule, or come close, and they claim to have a tenant in place, management ready, etc, and all you have to do is come up with the cash to buy the property that is generating upwards of 20% cash-on-cash returns assuming a 20-25% downpayment. If it's such a good deal, why is the Turnkey company selling it? Is it just to raise capital? Are Turnkey companies just another type of flipper, buying distressed assets, cleaning them up, placing a tenant and selling for a profit? What's the motivation?

[Ryan Mullin]

@Rodney Kuhl   I have found that investors that come from BP have a pretty good understanding of what it takes to get 2% per month.   Essentially you have to give something up...   the area, the quality of tenant, the age of mechanicals..  you can't have it all and get 2% (for the most part..)  With investing in general there is a tradeoff between risk and reward.  Buy and hold real estate is no different.  

With the Out of state crowd from BP you have (in general) a very low tolerance for risk.  If you read through some of the Turnkey disaster stories here its not hard to tell why.  Here is what I have found to be very popular with BP investors:

• Coming to visit Indianapolis to see the properties / areas 
• Newer big ticket items 
• Inspections with repairs 
• Area that they feel comfortable with - would I move my sister in this house? my mom? 
• Finding an "overly qualified" tenant - not just meeting but exceeding qualifications

The first 4 can add costs and the 5th item calls for a rent reduction to offer a great deal to a great tenant.   Your return will go down but your risk is also decreased.  

Me on the other hand...  I love 2% deals.   Being local and having full trust in our property management team, I can put up with lower end areas, tenants that are qualified but not overly qualified, and doing maintenance on our properties on a regular basis.  For us this is just part of everyday life.  Not stressful.   We are not passive investors though, we are active in property management every day.   NOT the goal of an out of state BP investor. 

I love BP (Very thankful) because it serves as a risk mitigation tool for its users.  It makes life on me and my wife much, much easier as a turnkey provider.  I would much rather sell 1.5% deals to informed investors rather than 2% deals (to someone that just goes after the higher return with no knowledge of why) all day long.   Its way easier on the property management side, and in the end our clients get a better experience.    BP is like Advil.  It reduces headaches!    

Hope that made sense! 

Happy Thanksgiving!   Happy Investing!