Turnkey companies worth the $$?

[Bill Zarzecki]

Anyone here on BP using turnkey companies for rentals, or does everyone hunt for and get their own deals? Does anyone use Smartland in Ohio?

[Jeff Schechter]

Gosh, there is so much misinformation about Turnkeys, it's hard for me not to comment.  Here's the reality of you doing it yourself vs a good TK company...

You find a property through a wholesaler and buy ONE property from someone you don't have a history with.

The TK buys many properties at once with their own acquisition team.

Who's getting the better price?

You rehab a property with a (hopefully) honest contractor from OOS who will make a considerable markup.

The TK uses their own crews and doesn't waste any materials...leftover paint, carpet, etc is going to the next job.

Who's getting the better price?

You finish the property (hopefully in a few months) and pay for an inspection.  Then, you have to convince the contractor to go back and fix any issues...usually at more cost.

The TK company brings in a 3rd party inspection, shows you what came up, then sends their crews back to take care of any outstanding items.  The good TK's will go a step further, and give you a warranty on the property.

Who's getting the better deal?

At this point, the TK company is making a markup selling it to you.  And remember, you've NOT been involved in the process up until now.  You're walking in to a FINISHED PRODUCT without MONTHS of aggravation.   Because of their processes, relationships, and buying power, you're not paying any more than the additional markup that you paid your contractor, AND you have a warranty.  You've NOT paid retail...this is still an off-market sale... no commissions to realtors, etc.

But wait...here's the part most investors lose sight of...

Now you go find a good PM company, who will "take good care of you."  ALL PM's have to make a profit.  They cannot survive on 10% of your rents, so every little that issue that comes up costs you big.  THAT's where their markup is.  This SIGNIFICANTLY affects cash flow.

The TK company gets their in-house PM involved...markets the property, gets it rented and performing, and takes care of all the little day-to-day stuff. Because the TK company makes their money on the sale, they do not need to charge you $2.500 for paint and carpet every time a tenant turns over.  They WANT your ongoing expenses to be low, and your cash flow healthy, so that you'll buy more properties from them.  That's how they make money.

Which is the better deal?

You decide.