TurnKey Or Not To TurnKey? That Is The Question...

[Daniel F. Harb]

Hello BiggerPocketeers!

Looking to buy properties OOS and am wondering whether or not to use a "TurnKey" company. My thoughts are either to use one, and let them do most everything, a "One Stop Shop" so to speak (Obviously, I would do major due diligence.), or to buy Out~of~State properties myself and set up a reputable property management company that runs a super~tight ship.

Please share your expert thoughts, pros, and cons, that I may have some light shed on the prospect of purchasing OOS using TurnKey companies or not.

Thank you in advance for your responses.  :)

Daniel F. Harb 

[Mike D'Arrigo]

@Daniel F. Harb The question comes down to do you have them time, resources and skills to do everything from out of state and whether you can truly have built in equity by doing it yourself. Those are big if's. In order to force equity, you would most likely need to buy a distressed property that needs to be rehabbing. That means that you have to be able to manage that remotely--no small feat. There's also no guarantee that you would save anything over a turn key company. Reputable turn key companies do not sell over market value. They have significant cost advantages over an individual trying to do it themselves. That's because turn key companies are buying further up stream at lower prices than on the MLS. They have more control over their construction costs and quality because the are using the same crews consistently, and they have much lower material costs because of volume discounts and access to wholesale prices on big ticket items like HVAC systems. There is no way an individual can do a rehab for anywhere close to the cost that a turn key company can do it for. That said, if you decide to go the turn

In general, the ones to avoid are the ones that:

• Don't allow financing or a finance contingency (it can be a good indication they are selling above market value)
• Don't allow for your own independent property inspection
• Are not realistic with their pro forma's (i.e. they don't include vacancy or maintenance projections or use unrealistically low vacancy factors)
• Require you to pay for any renovation upfront
• Sell only in cheap. low end neighborhoods
• Don't accurately represent the neighborhood/property classification
• Don't have consistent rehab standards for all properties
• Don't provide a scope of work for the property
• Can't provide references of repeat investors
• Require you to close before a tenant is in place