Turnkey Out of State Investment

[Jonathan Scialpi]

Hello Turnkey Investors!

I am new investor living out of Queens, NY. Being that the barrier for entry is quite steep in NYC, I did some research on great cities for investments and Grand Rapids hit the top of the list. I was hoping for some general advice on Turnkey investing and some recommendations for legit Turnkey companies.

Thanks in advance!

[Clayton Mobley]

@Jonathan Scialpi Welcome to BP! While I am not familiar with that market, I am familiar with turnkey. I think @Anton Ivanov made a good point in that turnkey should be treated as any other investment would be. The big appeal of Tk for most people is that the income is passive - meaning the investor does not have to manage the property, worry about rehab, find tenants etc. However, the downside of all that upside is that unscrupulous 'providers' will prey on the desire for a no-hassle investment and try to sell turnkey as 'effortless' when it isn't. Yes, once you select a provider, a property, cut the check, there should be very little investor interaction, but there should still be a lot of work done looooong before that point to ensure a successful investment.The difference between Tk and other REI is that with turnkey all the work is done upfront, but it's still a lot of work.

As a turnkey provider, I am obviously not trying to discourage you from this niche. On the contrary, I love turnkey and so do my clients, but it is very important for all investors (new and seasoned) to ask the right questions to weed out the bad seeds (and there are plenty) when selecting a provider. It's just like picking a stock - if you don't do any research, look at the income statements, study past performance, and the stock you pick is a dud....who is really to blame? It would be great if there were no snake oil salesmen and you could trust everything you read online, but it just isn't the world we live in, so due diligence is the price you pay for a successful passive investment.

Steer clear of anything that guarantees tenancy terms (can't be predicted or promised) or excludes any expenses in their ROI calcs. Most importantly, learn all you can about the key metrics that are used to measure success in TK investments (ROI, lease terms, maintenance rate, occupancy rate, turnover, etc.), what they mean and how they are calculated. Then ask any provider you consider what their metrics are and how they are determined (do they track them daily, weekly, monthly, do they estimate? that last one should usually be a 'no'). Any TK provider worth your time will be more than happy to lay out their numbers and walk through any and all calculations - and that's probably the most important thing to look for. If a provider can't, won't, or 'doesn't have the time' to talk with you about your questions in a timely manner (like within the week in most situations) then are they really someone you want to work with for the next decade or more?

I know this is already long, so I'll just finish with this quick list of some basic questions new investors should be asking of any TK provider they consider. Answers should be prompt, thorough, and data-based (not estimates or 'oh it's really good'). A good provider will KNOW these numbers off-hand.

1. What are your short, mid, and long-term occupancy rates? Do you track them?

2. What is your annual maintenance rate? Do you defer maintenance? How quickly does the typical maintenance issue get resolved? What do you expect your maintenance rate to do as your portfolio ages and capex items need repair or replacement? (An estimate is ok for that last one, of course, but it should be based on the age of the properties and the life expectancy of capex items etc)

3. Does your maintenance rate include move-out costs? What is your average net move-out cost?

4. What is your minimum lease term? What is your average lease length?

5. What is your property management fee?

6. What is your leasing fee?

7. Do you charge any other fees?

8. What is your average time to first lease on a new property? What is the average time between tenants?

9. Can I see an appraisal for the property I am considering?

10. What was done to the property during rehab? What is the expected life on new appliances/flooring etc? 

11. How is your ROI calculated and what does it include? Can you walk me through the math?

12. What type of service can I expect once I've made an investment? How do I know when rents are paid, when maintenance issues are resolved? How can I see rental or PM contracts to review terms? How do I get in touch with you if I need something?

Sorry for the wall of text, hopefully this gives you a good place to start when beginning your search in Grand Rapids.

Best of luck!

Clayton