Turn-key horror stories?

[Brian Blahous]

Hey everyone. I've been a member for a while, however, this is my first post. I currently own two long-term rentals and I'd like to acquire a third. I spend a lot of time working and with my family and I just don't have the time to commit to acquiring and renting another property.

I am seriously considering investing in a turn-key. I've read a lot of the pro vs. con arguments on the site and I completely understand that the purchase price might be above what I could get in the open market, but in this case I'm taking a long-term, multi-year view and I'm willing to pay a slight premium for the convenience.

I'm not looking to bash any specific members and I've actually already talked to a few BP members (or their firms) who deal with turn-keys. I realize that due diligence is a must and I must feel comfortable with the firm.

With that said, I'm curious if there are any horror stories out there related to investing in this way?

[Marco Santarelli]

Hi @Brian Blahous & @David A.,

This a very good question because many investors consider buying out-of-state turn-key properties because of a lack of time and/or lack of skills to rehab distressed properties. But what holds many of the them back is a fear of the unknown, fear of making mistakes, and lack of a system.

Due diligence is certainly a big part of your success when investing. But related to your due diligence, and taking a larger view is the process or system that takes you through the purchase process step-by-step so you approach your investing is a logical manner; and that I believe lowers your risk, increases your success rate, and maximizes your returns. Although my points here are somewhat "high-level", the takeaway is that a good turn-key provider can (and should) have a system in place to help you with the purchase process and doing your due diligence for the reasons I mentioned.

Another quick point is you shouldn't assume that you'll be paying a "premium" or above market value. There may be times when you might pay above market for whatever reason -- overpriced by the provider, a heated market, or multiple-offer situations. But a reputable provider will usually have them prices at or below market value. (I can't speak for other providers but our properties have been 0% to 20% below market over the last 12 months.)

Back to your question about "horror stories". There will always be horror stories regardless of the investment strategy (turn-key, rehab, wholesaling, etc.) -- After all, this is real estate!

Some of the "horror stories" we've heard from new clients include:

• Deposits withheld (or stolen) for various reasons. [Solution: Always have funds held my a title/escrow company or attorney.]
• Income or expenses misrepresented by seller/provider. [Solution: Request confirmation of the numbers being represented.]
• Work represented as being done was incomplete. [Solution: Have a professional home inspection done.]
• Beautiful property in a very bad neighborhood. [Solution: Learn as much as you can about the area, and talk to some local property managers.]
• Related to the last one; buying nice property in a declining market. I've personally been caught up in my own horror stories on this one. [Solution: Be "market agnostic" and only invest in cities that make sense economically, fundamentally, and the health of the housing market.]
• Tried self-managing their property(ies) without the experience or skill set required to qualify, screen, and manage tenants properly. [Solution: One of my 10 rules of successful real estate investing is to always use professional local property managers.]

I'm sure there's other examples, but once again the best way to avoid these problems is to do thorough due diligence and have system in place.

Continued success!