Starting out with Turnkey investment - questions

[Joel Fernandes]

Hi,

I was referred to a turnkey provider in a certain market, by another company called a "turnkey promoter".  I was disclosed that the turnkey promoter would be getting a fee, if they successfully sold me a home there.

I am curious if this "fee" is the same as a "buyer's agent commission".  My question is - Is the fee the promoter is getting, the same as a "buyer's agent commission"? Is there any difference between the "promoters fee" and the "buyer's agent commission" as far as the paper work goes?

One more question, Is it common to not have a tenant placed at the time of signing a contract for a turnkey property? I am told by them that - it is common not to have a tenant already, since the houses are in demand, so by the time they finish construction / rehab, people are already trying to buy the property. Is this true?  I really want a property that is already generating cash flow.  I am also told that since the mortgage payment is at the end of the first month (basically you don't pay for the first month), there is not really an impact - what do you think about that?

[Brian Ploszay]

The turnkey promoter sounds like a real estate broker who will get a fee.  I am not sure this is even a legal fee, because they will need to be licensed in the state they are getting that fee.  If the turnkey company pays that fee, I wouldn't worry about it too much.

A turnkey property does or should have the tenant in place.

Please be careful with turnkey properties.  Some are legitimate.  Others are houses bought cheaply in declining areas.  Here are two thoughts:  Make sure you get your own independent appraisal of the property.  And talk to an independent realtor in that market.  Be weary if they control the appraisal and lending process for you - you might end up buying a property that is worth less than you paid for.

What can go wrong with these investments?  The number one thing is vacancy turnover costs.  When the property goes vacant, often the turnover costs and repairs are high for single family houses, compared to apartment units.  Good luck.