How do turn-key companies form and work?

Question

I am interested in purchasing turn-key investing, but I would like to have a deeper understanding of how they form and function. I am talking about the marketers like Pinnacle, Norada, Real Wealth Network. I had a few questions I wanted to have clarified:

1. Do they just go out and find sellers that are rehabbing rentals and market them? Is there some kind of contract that limits them to market only certain providers in a given market?

2. If you are a seller, you want as many of these marketers to be displaying your properties. Do the sellers look for anything specific in these turn-key providers (licensed RE professional, track-record, etc.)?

3. Are the sellers pretty much home flippers (homes that still cashflow) that give a small percentage to the turn-key marketers if they sell to the client they bring?

4. How much do turn-key marketers typically charge when they provide a client? Do they continue to make money after a client has purchased?

Appreciate the responses in advance!

Jay Hinrichs · Answer

my perspective comes from 20 years in the space as a HML who basically created the BRRR that is famous today..

the industry if you can call it that.. started in Socal with radio shows and marketing companies aligning with fix and flippers in the cash flow markets  ( Mid west  northesast deep south) areas were you have plenty of SFR's huge disproportion of renters to owners.. ( more renters less owners than CA).

Some of the out fits like a Memphis Invest grew to the point that they did not need marketing companies like the ones you suggest above and there are others.

In the old days it was pretty tough for the mid west guys to do this on their own and they relied almost soley on marketers for their sales..

Much like me as a builder developer and retail flipper relies solely on the MLS to sell my props.

the issue is the Memphis MLS does not show up on the LA MLS.. So for those agents that wanted to specialize in this niche they created marketing companies like you mention.. Also they MUST be licensed to do this as they are clearly selling real estate.. and to my knowledge most or all are now these days.

However as these flippers in each state have gotten more computer savvy and marketing savvy they are much less reliant on the LA based marketers than they use to be..

Fee's used to be quite hi  up to 10k a sale.. what yoiu see now is about 5 to 6k per sale. With some as low as 3k...

And I agree with Marko about any fee above a sales fee.. there is not enough money in these deals to fee them up for ongoing maintenance of the PM.

John Chin · Answer

@Jamey Mako, I've been around a lot of these companies (as a supplier for turn key inventory). This guy ^^^  is legit. He was one of the hardest "turn key providers" for me to qualify my inventory for and to this day, I'm still trying to find cash flow properties that meet his underwriting criteria. @Marco Santarelli and his group do a pretty good protecting investors. He's originally Canadian though. Don't hold that against him :)

Marco Santarelli · Answer

Hi @Jamey Mako -- Welcome to BiggerPockets!

These are great questions.  I have several podcast episodes that actually going to detail about questions.  For example, what is a turnkey investment and what does it mean to be purchasing turnkey properties.  Also why many investors choose to purchase turnkey rental properties.

1. In episode #004 I explain the difference between a turnkey promoter and a turkey provider.  (Our company happens to be both.)   Typically properties are acquired from auctions where rehabbers can get the best price before rehabbing them.  Sometimes distressed properties come from the MLS.  Other times they are acquired through farming areas and marketing for them.  There are no geographic limitations.

2.  Like any seller of the property, they want to often reach potential buyers through as many marketing channels as possible. They may have a criteria in selecting who they work with, of course.  For example, we as a turnkey provider have specific criteria that we look for.  We vet our providers.  And we have guidelines in what we choose to offer our clients (which is entirely based around their investment goals and criteria.)

3.   Unfortunately, some companies out there "profit share" or charge unnecessary fees for management or other unnecessary items.  I think that's a waste and it's unnecessary.  It is not necessary to charge you any fees. The price of the property is the price. If a provider/rehabber can turn a profit then everybody wins.  I don't believe in ongoing fees after the sale.  So be mindful of that.

And yes, of course, the properties must produce positive cash-flow.  Cash flow is king.  Do not look at properties that don't cash flow after all expenses are factored in.

4.  Ditto. Same answer as in number three above. Some companies may charge you fees at various points in time, but again they shouldn't and I feel it's unnecessary.

Feel free to post any additional questions in this thread.

Continue success!

James Wachob · Answer

@Jamey Mako I'm a Real Estate Investment Broker in Memphis, TN and would be happy to be your "boots on the ground" if you need someone to evaluate a property.

Jamey Mako · Answer

@Marco Santarelli @John Chin @Jay Hinrichs

Thank you guys! I appreciate the explanations. I have a much better understanding now.

How do turn-key companies form and work?

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