Starting a Great "Turnkey" company...How?

[John Ellis]

I know this post is long but if you ever thought of investing or have invested with a turnkey company could you help me?

Over the past 8 years I have worked hard to establish myself as both a investor friendly contractor and a real estate investor who specializes in flips 200,000 and under. I have worked in many different types of flipping/contracting including JV, Partners, Investors. I have had the pleasure of being apart of about 30 flips mostly, about 20 in the last 2 years. As I stated in previous posts I am going full time into real estate investing to work on my business. This past year has really opened my eyes to the lack of good turnkey companies in Northeast Ohio. I have redone/fixed 4 properties this year that turnkey companies sold to out of state investors. The standards, craftsmanship and overall product was disgusting, sad and unethical. I am tired of seeing "turnkey" companies hurt Northeast Ohio. I see short term practicing in a long term game and I want to change that.

In the next year I am focusing on 2 things: Retail Fix and Flips and developing a Turnkey company. I have read a ton of posts on bp on turnkey companies and understand the importance of following the rule as it seems not only the product of the home is important but also property management (which in the state of ohio must be done under a broker). 

There is a lot to learn in managing a turnkey but I am more worried about what individuals/investors expect, demand and want in a turnkey company. From that I am going to focus developing my turnkey business on those. I would love to hear suggestions, ideas, wants, needs. I will do my business out of Northeast Ohio in both suburbs and Cleveland. Basically A-D neighborhoods. 

Basically the question could read: What would be the perfect turnkey company? What would they do that others don't? Expectations, ROI, Price, Neighborhoods, etc.

[Chris Clothier]

 John - I have a long answer, forgive me on the front end!!   It is great that you are flexing your entrepreneurial spirit and setting up a Turnkey company.  I don't necessarily have empirical data to show the number of investors that want to invest passively, but I have been talking to and working with investors going on 11 years now and my perception is that passive investors far outnumber active investors.

When you see all of the demand for Turnkey product, it is easy to realize that if you are willing to work hard and develop a quality, service company, you can enter that market and get a piece of that demand.  I have worked with maybe a dozen companies and am writing a blog this week for the BP Blog about turnkey companies and the investor that should avoid them.  It will also answer some of your question, but here are a few pointers.

 - Quality matters!  As you have already seen in your area, poor quality requires the investor to come behind and do more work.  It cost dollars and time, the two things passive investors (any investor for that matter) does not want to lose.  If you want to build a solid reputation, start with the quality of your properties and the quality of the work done.

 - You must build a profitable company.  You have to be profitable in order to build a team around you that provides high quality and high service.  @Curt Davis was correct when he noted the size of our company and the reasoning.  We set out with a goal to be the best at what we do.  We built a team around us and have always been willing to invest in our company.  New people, new technology, new services.  None of that happens if you are not profitable.  (FYI - the company that Curt works for is a quality operation and we meet regularly with the owner of that company to talk about best practices.  We learn as much from them as they may learn from us even though we are "competitors".  Realize that there is an abundance of business and a HUGE demand for quality so there is plenty for everyone).

 - DO NOT APOLOGIZE FOR BEING PROFITABLE.  I cannot tell you the number of times investors have stood up in a room full of other investors and said they would rather do business with a profitable company ALL DAY LONG!  They understand that a cut rate, "cheap" company CANNOT provide the service that a passive investor wants and needs.  You are providing service to your clients for years to come and the only way you are able to survive and thrive as a service provider is by offering your service at a fair price...but a profitable one as well.  

 - You become more profitable by improving your relationships on the buy side.  Buy homes at a proper price for you to be able to do the work needed on the property and make a profit as a service provider, YET still provide the passive investor - your client - with a high quality, consistent and fair return on their investment.  The same rules apply - you make money when you buy the properties.  Buy them at a fair price, drive down your renovation costs through volume and offer the property at a price that helps you to be a profitable company offering a quality product.

 - Do Not Try To Compete On Price!  Companies that compete on price, in my opinion, lose sight of the fact that these investments are long-term.  Cheap properties and cheap prices lead to poor investments.  A company without the needed capital to grow, cannot compete on REAL VALUE for investors.  Value that comes from systems, workforce, communication, service programs.  So companies that do not have money to grow, cannot offer value-added services.  So they try to compete on being the cheapest and that - again, in my opinion - is not the route you would want to take.  Compete on real value for the investor provided that you truly offer real value.

 - Property management can be a huge difference maker.  Being great at property management can be the true differentiator between you and other companies in your area.  Having built our company to managing over 2,700 properties today in three different markets, I can tell you that I do not agree with aligning or hiring a local broker, especially not one retired or retiring and done with their career.  Why?  They have their own ideas about real estate and they come from an old school thinking about property management.   If that is your only option for having a licensed broker, then I would use them ONLY for the license.  Do not use them to run your company - again, my opinion.

Instead, use someone from your inner circle, someone on your team.  Think about what you have seen already - the low quality.  As a property manager, be a high quality provider.  Build a company that manages only the highest quality renovations - yours!  Hire and train great people to be friendly yet stern with tenants and train your entire team that quality and service are what will set you apart.  

***  It is very important to remember that tenants are your clients as well.  A happy tenant stays longer, is willing to pay a premium for great service, will handle minor issues for you and be more than willing to extend lease agreements and tell others to rent from you.  It takes TEAM MEMBERS to offer these services. 

Part of being a profitable Turnkey company means that you are able to subsidize the property management company.  You can hire team members to answer every phone call and return tenant issue calls.  You can hire team members to close every rental contract in a professional manner and cover up the tenants with great service.  A happy tenant absolutely leads to happy investors.

Two quick things.  I firmly believe that a company that concentrates on quality will have no choice but to grow in quantity  Your clients and investors will demand it.  We have worked with and trained other entrepreneurs many times over and helped them develop Turnkey companies.  I have offered to help many others and it amazes me how few take us up on it.  I know it feels unconventional to have someone you view as a competitor actually help you.  So, some entrepreneurs simply do not take us up on it.  We do not do it for free, our time and knowledge is valuable to us, but we share with others and host entrepreneurs several times a year at our Memphis offices to learn.

Feel free to reach out.  I still have coffee and lunch with two other local companies on a fairly regular basis and we all share ideas and tips about what is working and what is not working.  I travel a little bit speaking at different financial and real estate events and always meet with other Turnkey company owners to share.

When you have an abundance mentality, you can build anything without fear of others.  When you have a scarcity mentality, you will always fear others and worry that the deal in front of you is the last deal you will do.  

Have an abundance mentality in all that you do.  Be the absolute best at what you do and use your marketing to compete on value and not on price.  Be profitable yet fair and you can do awesome things.  We are proof of that in Memphis, Dallas and now Houston.  Be great, concentrate on relationships and you can grow your company.  Best of luck as you start to move forward!