Another Turnkey Thread

[Kevin Harrison]

Ok folks, this is my first post on BP. I love the site, the podcast, and forums and exchange of information. I have not yet purchased any investment property but have been considering a turnkey approach. Companies I am considering investing through include Memphis Invest, Midsouth Home Buyers, Pinnacle Investment Properties, and Norada. I know there are many threads in the forums with experiences with these companies. However, most seem dated. I am looking for folks to share a recent investment expereience with one of these turnkey providers or another, for that matter. I am curious how the experience went, what the numbers looked like, etc. Bonus points if your experience took place within the last 12-18months. Any insight is appreciated. Thanks for reading and sharing.

[Chris Clothier]

@Kevin Harrison, thanks for the mention on here!  Always nice to hear that you are on an investors' short list for review.  I will tell you that both Midsouth HB and Pinnacle are owned and operated by first-class gentlemen.  I know both Terry Kerr and @Mike D'Arrigo personally and I think they both run excellent investment operations with solid teams.  I know that each of these companies are ones that I happily refer investors when our company is not the right fit.

I want to touch on one thing that is different from these three companies and the fourth, Norada.  I do know Marco and from the few times we have spoken, I think he is also a stand-up business man.  I believe we have done a handful of transactions through the years.  Before I say anything else, I will tell you that I personally like Marco and some of the other individuals in his particular niche, but I have developed an unease over the years as I've seen that industry develop.  Here is why.

There is a key difference that is seldom, if ever, touched on between turnkey providers and promoters.  There is a fee paid by turnkey companies, typically for every transaction, to the promotional company.  That fee can range anywhere from $5,000-$10,000 and can even be a percentage - often 6%.  

Often times, the sales pitch to an investor is that the investor is getting a high level service - vetting of companies and some sort of advice on what to do - at no cost.  I'm making no assumptions on if the advice is any good or if the vetting of companies is any good.  I am just pointing out how the finances work and leaving it to you to decide if that model is one that is in the investors best interest.  

So, the pitch is that the service provided  is free.  If that is the case, then where is the financial transaction and what is actually being sold?  How does a promotional company make money?

The transaction occurs when an investor is introduced to a provider by the promoter and they close on a house.  That is when the provider pays the promoter for delivering the product.  What is the product?  A pre-vetted and qualified buyer.  You.  

You are the product that is being sold.  You are being sold to whatever turnkey company in whatever city is willing to meet the freight.  If the cost is 6% and someone says I can deliver x number of houses each month, then the promotional company works to deliver buyers for those houses.  When the deal closes, the promotional company gets paid. 

It leaves an awful lot of grey area and takes an exceptionally - and I mean exceptionally - strong company to forgo those dollars from a provider that may not be the best of the best and the highest in class.  Your job as an investor is to dig really deep as Marco suggested and not make any purchases simply based on his companies' advice.  You have to take him up on his suggestion and make your decisions based on your own due diligence and I give Marco  credit for giving that advice.  I think he is setting himself apart by doing that.  

There are plenty of bad actors in the Turnkey space and plenty of companies using the term to advertise their own 'spin" on turnkey investing.  I'm not advocating one way or the other on what you should do.  But, you absolutely need to understand the dynamics and the economics that have somehow developed in the cottage industry of promoting turnkey companies.  There are simply very few things in this world of any real value that are free.

Best of luck to you as you move forward!