Turn Key Providers: Due Diligence / Verifying the Numbers

[Pat L.]

I'm currently analyzing real estate markets in the U.S. As part of the process, I'm starting to analyzing some properties that are being offered by turn key providers.

When looking at these numbers, what are the best techniques for analyzing this data (i.e., doing due diligence?)

I appreciate your help.

Thanks!

[Jay Hinrichs]

@Pat L. 

  you will want to compare apples to apples.   So just make sure you factor in.

1. leasing fee's if any ( most do)

2. REALISTIC on going maintenances  I see some pretty low numbers that IMO are not sustainable  but if you do better great.

3. vacancy factor for a 5 year holding period... renters in the cash flow markets tend to average about 18 months...

4. tax's ( need to check this out carefully as if the home was lost by a homeowner and bought by a TK company the tax's may still be in homeowner exemption and the following year your tax's could go up substantially.. Also some markets have two tax's county and city ( think Memphis)

5. insurance , pretty vanilla this one.

6. If its HUD there will be an annual inspection and having owned and operated well over 300 homes rented to hud tenants the average yearly inspection will run on the low side 600 to 700 to 1200 to 1500 depending on how rough Moma was and her kids.

7. Get a list of what was actually rehabbed or replaced.. Is the HVAC just been serviced but 20 years old.. is there a new condenser... Water heater old and or replaced.. Is the electrical up to snuff.. what about the roof 15 years old with 5 years left will mean a new roof in your ownership.

8. Super important in Texas and other southern states.. FOUNDATION issues.. Same with upper mid west with basements.

A post rehab home inspection is cheap insurance as well...

But the absolute key is choosing a good reputable TK operator to begin with and a bullet proof PM.