Turnkey Rental Properties As A Business Model

[Alex Z.]

I have been researching turnkey rental properties as a means to get into real estate. I know there are reputable companies out there (some of them are on here). I know that they serve a need in the market with offering passive real estate investors a way to buy and hold real estate. 

But what I am struggling to comprehend is from the turnkey companies perspective what their incentive is for offering up cash flowing properties. It seems most of the companies own real estate in the same markets they are selling it. 

I sound cynical saying all this but here is what I am struggling with...

• These companies are finding below market value deals and putting rehab money into them to the point that when they sell I am paying close to retail?
• Are they making money by referring me to brokers, lenders, PMs, etc? 
• Why aren't they just keeping these awesome deals for themselves?

I guess I am struggling to understand why, if these properties are good investments, are they offering them up instead of holding them?

Would someone with more experience be willing to shed some light on my mental block here? 

[Andrew Johnson]

@Alex Z. I think that @James Wise and @Ali Boone hit most of it on the head.  It's just a fundamentally different business model.  I'm going to go out on a limb and say that James has spent money on a team, marketing, keeps contractors (or employs them directly) busy, etc.  The single investor that is doing buy-and-hold would pay disproportionately high marketing costs, probably doesn't have enough acquisitions to keep great contractors busy, etc.   Consequently, they would be at an economic disadvantage and their margins would be smaller.   

Not to mention, if an individual investor was sitting on massive amounts of capital, they might choose to buy one 300-unit apartment complex instead of owning 300 SFRs that they each had to rehab, rent, and manage.  So outside of the fundamental business model differences the "why wouldn't they keep the awesome deals for themselves?" answer could easily be: If I could afford 300 SFRs I'd rather have a 300 unit apartment complex.

Of course, that doesn't mean you should or shouldn't use a turnkey company.  Figure out where you want to invest, look at both options, and see how they compare.