Whats your opinion on Turnkey Investment Property Companies?

[Leah VandenAkker]

Hi BP Community,

I am seriously considering  buying from turnkey companies that buy houses, flip them, then advertise them as perfect turnkey properties. I have been looking into a few including mantel turnkey and missys mccalls in Ohio. I feel really hesitant to buy these properties sight unseen because to be honest, the flips look like they are done quick and sloppy. 

What has your experience been using these companies? Does anyone have any turn key companies they have really enjoyed buying from and/or recommend? 

Thanks for your feedback!!

Leah

[Chris Clothier]

@Leah VandenAkker and @Logan Stecher

One thing to keep in mind when reviewing companies, properties and evaluating the whole opportunity, is that the word Turnkey simply describes a generic process.  There are debate after debates on here on what "Turnkey" means and I fall firmly on the side that is has come to mean a process where a company purchases a property with their money, they renovate the property with their money, they promote the property to find a renter and place the property with their in-house property management.  From that point, the property is marketed to passive investors who are looking for a passive, long-term investment and one point of contact.

We've been doing this particular process since 2005 and started first offering passive properties in 2003 (we didn't originally do the management).  So for 20 years we have seen the good and the bad in the industry and have been discussing all of it right here in the BP forums.  

My advice would be to take the same precautions with a turnkey investment as you would any other investment you are going to make.  Great advice from several above commenters that you need to have an independent inspection.  This is something you should do no matter how a property is marketed.  Make sure you understand the language used or have an experienced investor help you.  Some language is put into inspections that at first read can sound really bad and significant and be relatively minor.  Just make sure you have a good understanding and ask the inspector to explain their inspection if need be.  Same with the appraisal although I am not a fan of the subjectivity of appraisals.   You should still get one on a property to have an independent evaluation of value.

As for good and bad, I would say that size does not denote a good company from a bad company.  Time however can be a factor.  With all of the turmoil right now roiling the markets, you have to be very, very careful.  Inexperienced companies that have only operated in the good, boom times of the market growth out of the last housing correction could be in for a tough time.  Many companies will certainly be tested int he coming months and possibly year and have opportunities to prove they are a high-quality company that will not cut corners to find profit.  

My advice is to be patient and make sure you have a trusted investor or counselor who you can bounce ideas and investments off.  At least until you have a good handle on who you're doing business with.  I have said for years that you cannot take anything on faith.  Not even with my families' company. You should make companies earn the ability to do business with you and verify as much information as you can. A quality company will have data to back up performance and expected results.  Be patient.  Do not be in a hurry.  Ask as many questions as you have to ask before moving forward.

Lastly, if what you see with your eyes does not match what you are hearing with your ears, hit the pause button.  You mentioned things look low quality.  Confirm that with an inspector.  Poor quality homes will absolutely require more maintenance.  Homes that require more maintenance will also have more vacancy.  Homes with higher vacancy along with maintenance have little shot at performing the way many turnkey companies show numbers today.  

Bottom line is you are responsible for the final decision.  Be patient and make sure you have done good quality due diligence.  On another thread this week, I noted that few investors actually ask the question of property management and/or turnkey companies - "how are you going to make this property perform to the standard you are showing me on your pro forma."  It does not matter to me what numbers are used or how things are calculated.  It is easy to manipulate.  I think the more important questions are Why and How.  Why doe you run numbers the way you do and How are you going to make this property hit its performance expectations.  You will know when you have the right company by the answers they give.  There are several out there that I consider at the top of the list and each of them will be able to describe in detail the systems and processes they have put in place to make their properties perform at their best.  They are not guessing - they have data to prove their processes work.  That is what you are looking for in an answer.  A level of professionalism and experience that is hard to find but it does exist.

Good luck as you get started!