Help me figure out if I am crazy or...

[Ivana Ivanovic]

Folks, I was talking to a turnkey company to buy an investment property, and looking at a few properties. Their pro forma sheet doesn't take into account ANY vacancy or repairs when calculating cash flow, and the rent comps are...ambitious. 

1. The way their cash flow calculations are presented is IMO sketchy: while the form is not a spreadsheet, it is made to look like vacancy/repairs are included in cash flow calcs (stacked together with other numbers impacting cash flow, and right above the final cash flow amount) 

2. When asked about vacancy/repairs, their answer is: that's why why they separately have $5,000-10,000 as "account reserves" in their pro forma. Or "simply cost of doing business", they keep repeating - (an unprofitable business, it seems to me, but maybe I am just inexperienced?). Furthermore, they add something along the lines of "this property is working for you, cash flow is here to cover this type of stuff while the property is appreciating -- so what if you have that 5K HVAC unit replacement " (FYI, even when optimistically calculated, cash flow does NOT cover a 5K HVAC unit within the first few years) 

3. When asked why their properties don't cash flow in any rental calculator, the answer is: "people who use these rental calculators don't get the kind of deals we give you" 

4, Re rent comps...I looked at Zillow, and another tool, and if I simply rely on Zillow, rents are typically lower and there are properties in the same few blocks on the market for 40+ days. THe turnkey company's answer: our property mgmt company is doing daily complex algorithms and they have the best information here. My reply: "but these properties realistically are for rent, so your comps should not be that much off, correct?" No reply, just that their PM knows best. P,S. PM has bad reviews for the most part 


Am I crazy here? Should I at least see NEUTRAL cash flow if I account for vacancy and repairs (and am optimistically counting on this to appreciate)?...Not to mention that all their ROI calcs depend on cash flow of course so long term return calculations also fall apart.

I do want to give them benefit of the doubt but I also want your smart opinions. Thank you very much! 

[Greg Scott]

There are TONS of turnkey rental companies out there.  If you have concerns, don't buy.  Go look at some others.