Turnkey

[Brian Christensen]

Looking to buy turnkey in Memphis. I also am buying one local in Utah (probably a duplex). 

My question: I am very busy with 4 kids and a profession and am thinking Turnkey would be my best option. I would like to hear the arguments against turnkey. My concern is I am paying too much to get little equity. Cash flow (after PIMI, capEx/repairs, vacancies, etc.) is near $300-400. Thoughts? Thanks

[Jon Holdman]

You're asking for arguments against, and I'll give you that.  You'll get a bunch of replies extolling the virtues of turnkeys, too.  Be sure to check for vested interests.  

You must do the same due diligence you would do on any other property.  Many times these sellers are hoping for far-away buyers who will not do any serious examination of the deal and will look at it with their far-away eyes. Many bad actors in this space.  Just because it would be a great deal if it was in your area does not make a good deal.  Compare it to other properties in the same area.  Five minutes searching on realtor.com will often reveal this is price above almost every other listing in the same area.

Rent claims are often above actual rents for the area.  The seller may offer a rent guarantee.  That sound great, but a year later that guarantee runs out and the tenant bails.  You then find out market rents are much less than you were told.

Watch out for shoddy rehabs.  These turn into ongoing maintenance expenses.

Call a few property manager that are unaffiliated with the seller and discuss the property and area with them.  Ask if they would manage the property and what rents you would get.  Ask about the area.  Easy to get long term tenants?  Or lots of turnover?

If you go into the believing everything you're told you stand a pretty good chance of paying too much for a poorly rehabbed property that rents for much less than you're told.  You'll end up with a cash flow negative property that's hard to rent.  You'll decide to sell only to discovery you're going to have to bring a bunch of cash to the table to find a buyer.