Pitfalls to Turn Key Rental Properties

[George Gammon]

I've been surprised by how many people are getting ripped off by turnkey rental providers. Most without even knowing they're getting ripped off. Granted, there some providers that are good but many aren't. The question always has to be asked "why would a provider not just sell their inventory on the MLS?" Wouldn't there be a bigger pool of buyers and therefore potentially a higher price?

What's most shocking is how buyers overlook key issues.  Such as the depreciation in real dollars "adjusted for inflation" or rentability of a property.  This is a zillow snap shot of two areas in a market where I have several properties.  The first is a hot spot for turnkey providers and second is not (the second is where I prefer to buy.) 

Basically the same sized area, both all single family homes.  The first area is where a provider can advertise high yields but very few owner occupants will buy there.  The second is very desirable for owner occupants and homes sell and rent very quickly.  Where would you rather own a rental?

The turn key provider can buy a lot more inventory in the first area, mark it up and still sell it to investors.  In the second area turn key providers can't get inventory because the markets hot and it's desirable.  How many turn key buyers think or want to be invested in area two but unbeknownst to them are investing in area one?  

Put yourself in the shoes of the turnkey provider.  Where are you going to make more money?  Said another way, where do you have to sell in order to stay in business when it's a sellers market (today.) 

I'm considering writing an ebook on what to look for when considering out of state turnkey investments.  I'd love to hear from investors considering this path and what their concerns are about turnkey investing so I could address these concerns in the ebook.  

Thank you,

George

[Diane G.]

@George Gammon

George - I think you are TRYING to make a very good argument.... I am not familiar with the area that is in debate here, so I can't say yes or no to either side of the debate..

What I can and would say is:

1. Whenever you go "out-of-state", you are buying into something that you don't really understand... Period...You are exposing yourself to all kinds of risks that you won't if you were to stay local....Could be the turnkey company, could be PM, could be RE agent....Anything.....

2. Whether it is the turnkey company, or PM, or RE agent.... No one is going to safeguard YOUR financial interest like yourself... It is NOT even their job...If they sell you something for market price, they are all ethical...If they sell you something for above market, why did you buy it? 

So, all in all, if you want to invest out of state, know your risk and don't complain later.... That is why I do NOT invest beyond 2 hours of driving...If the local price is too high, like is now in San Francisco, I will wait......