Turnkey Tour - Due Diligence and Questions

[Jay Bhatt]

Hi BP community,

I am in Chicago to take a tour of a turnkey rental operations. Although it is kind of last minute, I thought I would run by BP community list of questions I am going to ask or notes I am going to make. Please provide your review and add anything to the list of questions. We have asked them more than 30 questions about their operations and  property  management.  I will summarize that details here for everyone.

Neighborhood class :B

Property Type: SFR

Property Management Fee: $95 per month regardless the price of the property

Property Management: In House

Market: Suburb Chicago

Average occupancy: 3 to 4 year

Tenant Type: Blue Collar workers with families

Renovations: All the big ticketed items + cosmetics

Cash on Cash Return: Using BP calculator with very conservative number - 8% Vacancy, 10% Cap EX and 10% Maintenance, we know we can get a property from their portfolio which will generate double digit returns.

Finance: leverage with 20% down

Properties to property manager ratio is also impressive.

They do have eviction experience. They also have online portal for owners and renters.

Now, they offer properties in various suburbs of Chicago and if anyone can chime in with recommendations of suburb that is upcoming market, it will be a great help. Some of the areas I am listing below might be B+ or A class neighborhood since they offer properties in those areas as well but our focus is B class.

South Holland, Matteson, Blue Island, Bellwood, Richton Park, Lansing, Bollingbrook, Lock Port, Homer Glen, Crestwood, Alsip, Oak Lawn, Evergreen Park are to name a few where they invest.

1. How do you select the property?
2. What is the exit strategy? ( if there is any)
3. Where do you see expanding in upcoming years?
4. How do you see rental markets in your area for five years?
5. Who are the biggest employers in this area?
6. Do you offer any special programs for loyal investors?
7. How many properties are own by an average investor?
8. When do you see this market entering saturation? or What will you consider as a sign for saturation?

Thank you in advance for your help. I understand it is kind of last minute since I will be on tour for next 3 or 4 hours. I should have thought about this before but better late than never. I will keep checking the replies on the post.

[Allen Fletcher]

@Jay Bhatt

Ask them if they charge a fee if you decide to go to another property manager.

Ask them how they deal with repairs.

Ask for a copy of the property management contract.

Ask how they communicate with property owners.

Ask to see there tenant screening process.

[Jay Bhatt]

Sure. Thank you @Allen Fletcher.

[Chris Clothier]

@Jay Bhatt - from your details, they sound like a quality operation.  How long have they been in business?  How many units do they manage?  What are the other fees?  Lease-up fee, maintenance mark-up, etc...?  Do they have a threshold for maintenance that they will call you as a client before performing the work?  Do they answer residents' phone calls for maintenance or have it go to voicemail?  How long does it take to answer/return/repair maintenance calls?   I would ask if they have a customer service department to call you as a client monthly for a check-in and update on your portfolio?  If not monthly, perhaps quarterly?  Either way, make sure they make residents and owners both a priority and have the team set up for communication.

Those are questions I would be asking and continue to ask.  Make sure you ask questions from two angles, such as - what is your average vacancy?  Then later in the conversation and hour or so later ask what is the average occupancy.  The two numbers should correlate.  If they do not, then take pause and determine are they just telling you want you want to hear.

Best of luck to you ~ enjoy your time in Chicago.  Hopefully you like what you see!~

[Jay Bhatt]

@Allen Fletcher I did ask those questions and got the satisfactory answer. They provided property management agreement without asking for it. Their tenant screening process is very robust as well. Not only they do criminal and background check, they ask for past two years of employment, references from their previous landlords and any eviction record.

They don't charge any fee for changing property management. Although you can only switch it after 1st year as for the first year they provide maintenance guarantee and hence their property management has to be in place.

Thank you for providing me additional ammo, it was very useful.

@Chris Clothier They have been in business for 20 years and manage 2000 properties.$ 300 is maintenance threshold.  They assign a point person to a client for all their portfolio related questions. For maintenance, they have in house contractors and I am free to use my contractors if need be.  24 hours is the time period for answering maintenance query and based on the urgency, the repair work will be addressed. 

Your suggestion to ask occupancy and vacancy was a great one. I did employ that technique and their response matched their previous claim. Their claim is 4 to 5% vacancy rate but we are going to keep our number to 8% for our cashflow calculation.

Thank you for taking time to provide these questions. I had earlier pulled out a list of questions that you provided to use to vet turnkey providers.

[Allen Fletcher]

@Jay Bhatt

These guys sound pretty good. If they turn out to be a good team can you post the company information I would like to look into them myself.

Allen Fletcher

[Chris Clothier]

Originally posted by @Jay Bhatt:

@Allen Fletcher I did ask those questions and got the satisfactory answer. They provided property management agreement without asking for it. Their tenant screening process is very robust as well. Not only they do criminal and background check, they ask for past two years of employment, references from their previous landlords and any eviction record.

They don't charge any fee for changing property management. Although you can only switch it after 1st year as for the first year they provide maintenance guarantee and hence their property management has to be in place.

Thank you for providing me additional ammo, it was very useful.

@Chris Clothier They have been in business for 20 years and manage 2000 properties.$ 300 is maintenance threshold.  They assign a point person to a client for all their portfolio related questions. For maintenance, they have in house contractors and I am free to use my contractors if need be.  24 hours is the time period for answering maintenance query and based on the urgency, the repair work will be addressed. 

Your suggestion to ask occupancy and vacancy was a great one. I did employ that technique and their response matched their previous claim. Their claim is 4 to 5% vacancy rate but we are going to keep our number to 8% for our cashflow calculation.

Thank you for taking time to provide these questions. I had earlier pulled out a list of questions that you provided to use to vet turnkey providers.

 Sounds like a trip that was well worth it for you.   Wishyou the best of luck if you decide to move forward.

Chris

[Raheel Chohan]

Hi Jay,
Thank you for this discussion since I am also looking into acquiring turnkey properties and your post contains some important items for consideration. I would be very interested to know which turnkey companies are you working with in Chicago ?

Regards,
Raheel

[Prolet Miteva]

@Jay Bhatt I second Raheel's request :)

[Jay Bhatt]

@Chris Clothier Thank you. I am not done with my research yet. It will be at least a month before I pull the trigger since I am evaluating few other turnkey providers. 

 @Allen Fletcher @Raheel Chohan, @Prolet Miteva the company's name is Mack Investments. It is a division of Mack Companies.  

However, they haven't earned a complete endorsement from me as I discovered through different BP forums about the complaints against Mack.

Issues with Mack Investments

Troubles and Issues with Mack

Tenant reviews of Mack on Yelp

Now  some of the questions, concerns and allegations are answered in those threads but not all of them.

Personally, I am immensely satisfied with the tour and have received a list of people for reference check from Mack.  I am going to check with Mack personnel about these allegations.

I hope to keep everyone posted here.

Raheel,  there are other operators in Chicago market as well in case you are specifically looking into Chicago area. GC Realty, Elite Invest and Profit from rentals are mentioned on BP as well as on turnkey-reviews.com. My partner visited a week earlier and had a tour with Elite. The demography and area of target are completely opposite for Mack vs Elite. Personally, we feel we are more comfortable with neighborhoods chosen by Mack vs Elite. You can research and choose your own preference.

[Jay Bhatt]

@Allen Fletcher somehow my last post failed to tag you.

[Raheel Chohan]

@Jay Bhatt 

Thanks for this information. It is really helpful. I am looking specifically into the Texas markets, Houston to be exact since I have family there and that would help me to have an actual physical presence if need be for things like a property tour or a home inspection. At the same time if the right opportunity presents itself in a MidWest market then its a matter of doing the due diligence and executing. Some of the turnkey providers that I am looking into are MemphisInvest, NoradaRealEstate and MemphisTurnkey.

[Jay Bhatt]

@Raheel Chohan  The name you have mentioned do have a stellar reputation especially MI and Norada. They have earned rave reviews on @Jay Hinrichs' and his partner's website turnkey-reviews.com and on BP across various forums. I didn't know Memphis Turnkey invests in Texas too. Below is a link for list of questions you can ask to TK providers.

Questions for Tk providers

In addition below is a list of questions that @Chris Clothier provided in a different forum on BP which I find immensely helpful.

[Raheel Chohan]

@Jay Bhatt

Yes that is correct. Memphis Turnkey does not invest in Texas but I got several recommendations from other BP members on Alex Craig and his stellar reputation so I definitely wanted to check them out regardless.

[Chris Clothier]

Originally posted by @Jay Bhatt:

@Raheel Chohan  The name you have mentioned do have a stellar reputation especially MI and Norada. They have earned rave reviews on @Jay Hinrichs' and his partner's website turnkey-reviews.com and on BP across various forums. I didn't know Memphis Turnkey invests in Texas too. Below is a link for list of questions you can ask to TK providers.

Questions for Tk providers

In addition below is a list of questions that @Chris Clothier provided in a different forum on BP which I find immensely helpful.

 There are several companies in Memphis with very similar names.  Memphis Turnkey, headed by @Alex Craig and his wife Benolyn Craig (hopefully I got that right!) are located in Memphis but also operate in Little Rock, AR.  Alex is a very good guy and runs a solid company.

Memphis Invest is operated by the Clothier family and is also headquartered in Memphis, but has offices and operates in both Dallas, TX. and Houston, TX.  Dallas is becoming our largest market but we will remain Memphis Invest as that is now a well-established brand name.