What is the definition of a 'Turn-Key' Real Estate Company?

Question

Answer

selling turnkey properties at market of above market price, all the while telling the "investor" that there is equity. Basically looters chasing lemmings.....

Answer

In the other thread, Chris, you seem to be arguing that another company is not "turn key" because they outsource the rehabbing. Here you what to say a company is not "turn key" if they are located in a different city from the properties. IMHO, these two facts are irrelevant. If I think about a "turn key" property provider I don't care about these details. Turn key, to me, means the provider is taking care of all aspects of the investment deal. I pay my money, get ownership of a property, and get (hopefully) get periodic checks from the property. Essentially the same as buying a dividend paying stock or a bank CD. I don't want to do any work at all w.r.t. this property. I expect the provider to do all the work for me. But I could care less if they do it in house or hire it out. Or if they're located in one city or another. Those are details that are below my radar. My cynical definition is that it appears many of these companies are selling overpriced product to naive wannabe investors and leaving them holding the bag a year or two down the road when they realize market rents aren't want they were told, the property isn't rent-able without more work on it, and they can't sell for anything near what they owe. Hopefully your company isn't like that, and I have seen a few exceptions to this general pattern. But I've looked at more than a few offers of turn key properties where neither the value nor the rents were anywhere near market for the area where the rentals were located. Money makers for the people running the company, but they leave a trail of ripped off investors in their wake.

Answer

For me, "Turn-Key" real estate investment companies are "one-stop" shops. IOW, an investor simply writes them one LARGE check in return for several smaller ones, at a rate-of-return which is much lower than direct investment, but avoids most of the headaches of DIY.

Answer

Hey John - Thanks so much for your input and perspective. You make some great points. IMHO it is companies that outsource or sell in other areas that have created the most headaches for investors and frankly themselves. Its probably a little ambitious to think we could 'define' turn-key but the discussion has been good and points to the bigger issue that there are far too many companies who have done more harm than good.

Answer

Chris, This post is an illustration of the up hill battle reputable Turnkey companies face. The fact of the matter is that there are a number of investors out there who have been burned by the fly-by-night turnkey companies, and they are left holding the bag a couple years down the road as Jon has indicated. This makes it very difficult for folks like you and I. All I can say is that the turn-key company must stick to fundamental systems built into their method of investing because at the end of the day that is all we are selling. We are selling a system for investing in cash flow real estate to investors who otherwise would not have the ability to invest in such real estate. Reasons for this might include lack of knowledge, motiviation, or the location where they live. To answer your original question, I would say that the turn-key provider must provide all aspects of property investing: locating, evaluating, purchasing, rehabbing, tenanting, and managing. If these services are not provided, then the investment is not turn-key...simple as that.

Answer

Craig - Thanks for the reply. That is really good and detailed info. It boils down to what a lot of BP members have advised and that is do your homework and know who your dealing with, but also have the ability to get ALL of the relevant info. on a deal before you buy it. You said all services in house which I agree with and I want to add one caveat that I think is important. A lot of companies advertising 'turn-key' opps. today are located in one city while their offerings are in another. I have a hard time figuring out how that can be good for an investor if the 'turn-key' company is in one market and the props. are in another. Just my opinion.

Answer

Jeff - Thanks for the reply. You illustrated my point pretty well although i don't know enough of the companies to say that most are churn and burn, but I would say a vast majority are interested only in making money as fast as possible and turning as many transactions as possible. I am trying to pin down what investors are looking for when they turn to a Turn-Key company in the first place. You highlighted MARKETING which I think you nail perfectly because the word 'Turn-Key' is marketed like crazy today.

Answer

Turn-Key providers need to be transparent. An investor (like myself) must know the original purchase price, the BRV, the actual cost for materials and labor for the rehab, the ARV based on a professional CMA, a detailed PM services agreement including PM compensation based on an all inclusive flat fee or percentage of the gross/net, and the actual cost for maintenance items (materials and labor burden). All work must be performed in-house (no retail vendors). The PM should also provide performance metrics and an (real-time) owner portal. With this information, an investor should be able to determine the turn-key provider's profit for each service. I am also a Broker/Investor/General Contractor/Property Manager. I provide the same (turn-key) services in my area. That said, I would use another turn-key services provider if the margins were solid and the provider offered complete transparency at each service level.

Answer

Then when it comes time to sell the cash draining nightmare they sold you, they offer to "help you" in selling it. How nice. I like how they turn on each other and claim THEY are the good turkey vendor. "OH dey bad gypsies, you no buy from dem! We good gypsies. You buy from us, No?" Live and learn, live and learn.

Answer

Most of the companys MARKETING this service are turn and burn artists. Pure and simple. Investing is about creating returns thru adding value. There needs to be value evenly distributed in the deal. I have watched a lot of people try this concept over the years. They and the people who did business with them are either dead, broke or in jail.:idea: :wink: