Good Questions to ask Out of state turnkey provider ?

[Srikanth Raj]

What are some good questions that one should be asking when talking to out of state turnkey providers and which parameters should one be looking out for to find out between some good and not so good turnkey providers ?

[Jay Hinrichs]

Originally posted by @Chris Clothier:

Originally posted by @Srikanth Raj:

What are some good questions that one should be asking when talking to out of state turnkey providers and which parameters should one be looking out for to find out between some good and not so good turnkey providers ?

I do agree with what @AJ Singh asked about your local market.  Assuming you are not comfortable investing close to home or more hands-on, here are some questions I have posted in the past for investors to ask.  For all intents and purposes, I started as a Turnkey investor back in 2003 before the word took off as a marketing term.

I wrote a book called the Turnkey Revolution and based a lot of it on advise I've given here on BP.  I'm happy to give what I think are the best answers to these as well. Again, I made this list based on my own experiences.

Two important things to remember. One, if they don't have time to spend with you and answer your questions in detail and discuss them, in my opinion, move on. Two, a key about asking questions is to ask a mirror question. Many companies have learned how to sell and how to market and certainly how to answer questions like this. Often answers are scripted and your job as an investor is to ask the right questions in the right way to answer for yourself whether you can trust what you re hearing. 

It is also important to remember that investors like myself always advise meeting who you're going to do business with. That is important because it allows you to see for yourself if the answers you heard match what you see on the ground. A mirror question is where you ask what is the average vacancy rate each month. Write down the answer. Sometime later in the conversation you ask the mirror question of what is your average occupancy each month. Write that answer down.

A high quality company will be on top of their KPI's and their numbers will match. A 3.5% vacancy number will match a 96.5% occupancy number.

Lastly, after you have their numbers research what you were told. I'll never forget a conversation with an investor who was amazed that a turnkey company had a 1.5% vacancy rate and a 98.5% occupancy. It sounded amazing. He asked how many properties they managed and the answer was roughly 1500. He then went onto their website online and researched their property management online and was shocked. Their website listed 198 properties for rent. They had an ad online for prospective tenants advertising 200+ vacant rentals. Their true vacancy rate was roughly 13% not 1.5%. But they felt like they had to market a low rate to "keep up with the Joneses". So ask your questions, get your data and do your research.

Are you an investor?

Do you own in the exact neighborhoods you are selling?

How many investors do you work with?

Do you own all facets of the operation?

Do you offer rental or maintenance guarantees? If they answer yes, ask them why. Then ask them if they will put the guarantee on year three.

Do you defer maintenance?

How many properties do you manage?

Do you own the properties you sell or are you a promoter simply taking a fee from Turnkey companies to market their companies?

How long have you been in the business?

What is your average vacancy rate?

What percentage of expiring leases will renew their lease each month?

What percentage of signed leases fulfill their full term?

What is the average number of days a property is vacant between tenants, move-out to move-in?

What percentage of billed rent do you collect each month?

What is the cost of an average repair bill after move-out?

What are your management fees?

What percentage of collected rent goes to yearly maintenance on average?

What is your average number-of-months occupancy per property?

What is your average occupancy rate?

What programs do you have in place to keep residents happy?

What customer service programs do you have in place?

Will you call me every month with an update on my portfolio?

How many team members are dedicated solely to providing service to your clients?

What has been your biggest mistake as an investor? How do you protect your clients from making the same mistakes?

That's an exhaustive list Chris  I wonder if the new PM software runs all or some of those calcs ??   

The one I like though is and I think you and I agree on this.. but buying at or close to the median price point of a given MSA to me is a critical for out of area.. just gives you a leg up on quality assets and generally speaking a mixture of owner occ and rentals in the area instead of 100% rentals or high % rentals.. and of course buying 50% under the Median is inviting high risk for out of state folks..