My Out-of-State Search: Step 6a - To Turnkey or not to Turnkey???

Now that I’ve settled on a market (Charlotte), the next step is to start building a team. But before you build the team, you should know what you want the team to look like. In theory, turnkey providers are a godsend to out-of-state investors, but the decision of whether to use a turnkey provider is a complex one. And honestly, the notion that there is a single “turnkey” approach is a little naive. This post will explore several different turnkey and non-turnkey options.

And like everything else in an investment plan, the decision of whether to use a turnkey provider or not is an individual one. If there’s one thing that you should take away from my endless ramblings, it’s that your strategy should dictate your tactics. In this case, I ultimately hope to build a team in Charlotte – a city where I’ve never been – but first need to determine what type of team I want. This post will focus on that decision.

General Turnkey Concepts
I will compare several options below, but I want to start by setting the premise on a few definitions and concepts:
*DO NOT TRUST TURNKEY PRO FORMAS!!! I have seen several turnkey pro formas, and virtually none that I’ve found provide a clear and accurate cash-flow projection. Most do a tricky thing where they show you a vacancy/repair value, but do not include them in the shown cash projection (for year 1). So, do your own pro forma, then post it in BP for expert reviews! Never trust the pro forma of someone trying to sell you something!
*There is no one “Turnkey” model! – and I’m finding a lot of companies that basically sell you a property that they don’t-yet own, and will rehab it for you.
Regardless of what course of action you opt for, an investor should ALWAYS DO THEIR OWN DUE DILEGENCE, both on the property and on their local team!!! And, when relevant, the tenant and their lease (some unethical turnkey providers will do some unethical stuff to get a tenant in a property).
*You should always understand how the person you’re working with is being paid.
*I’m no expert. Following is my own perspective from my own limited experiences.

Turnkey Option A: National Turnkey Providers
Business Model. National turnkey providers act around three primary objectives: identifying investors, identifying rehabbers/turnkey providers and matching investors to a property (and potentially a local expert). And while these providers may provide oversight or quality control of the rehab team, they are not rehabbers and do not employ the rehab team.
Financing. Super-flexible financing!!! They can find you creative/excellent mortgage people to work with, or get you a deal if you pay cash. And if you are open to multiple markets, they can probably find you a seller-financed property.
Big Names. Interestingly, there are only a handful companies that do this work… I’ve maybe run across a dozen. I think the best that I’ve found is Marco Santarelli – a BP frequenter. Jason Hartman is a big podcast name (the best SFR investment podcast out there), and works in a ton of markets, though I can’t speak to the man or business.
Turnkey Ready? Most properties have been rehabbed with rental-level upgrades, and have a tenant and property manager (PM) in place. However, this is not always the case, and these providers may offer just about anything.
Variety. These companies get their inventory from local rehab/turnkey teams (describe below), but many of these providers work with dozens of teams, and have a pretty decent variety of houses to choose from. They may have 50 properties to choose from, spread out over 8-12 markets. With that said, I’ve seen a ton of properties listed in Charlotte with a significant issue (backing to a freeway, horrible area, etc.).
Value. The good national providers are super knowledgeable, and provide a lot of value identifying markets to look in, and should help finding a vetted team to work with. They can also function as a partner in your investing.
Risk. Somewhat limited. If you go with an established company, you may not make a ton, but you probably will not lose a ton either.
Price. Turnkey providers and experts would disagree with me on this, but these houses look more expensive than retail – typically by around 5%-10%.
Good for. These companies have their value, and are good options for investors who want to be super-hands off or super catered-to. Although they are a bit expensive, SFR is a long-term investment, and can be forgiving for overpaying.
Not good for. Those with trust or control issues need not apply! And penny pinchers will also struggle with this model a bit as you can likely get slightly better returns with more headaches from an option listed below. In short – not a good option for me.

Turnkey Option B: Local Friendly Turnkey Providers
Business Model. These companies are typically own/manage the entire lifecycle of a property from purchase, through rehab, through placing a tenant and selling the property. In short, they are flippers with a defined/narrowed exit strategy. Additionally, they provide many of same consulting services of the national providers… they are willing to do some hand-holding and catering to the investor.
Financing. These are smaller companies, so purchases in cash are strongly preferred. Traditional financing is also very common (and probably the most common).
Big Names. Chris Clothier (Memphis Invest) is the gold standard here (also in Texas now I think). GAInvest is another good one in Atlanta. I’ve found several options in Charlotte, but none that look very appealing.
Turnkey Ready? These happen in one of two ways – the most common is to rehab it and then get a tenant in place before the transaction. Alternatively, some will work with you to buy a rehab-ready property, and then oversee the rehab. The latter is becoming increasingly common as it allows for the company to control inventory and risk.
Variety. Limited selection. These companies can only turn over so many places per month, so they are limited in their variety. Additionally, many of these companies will only work in segments of their cities.
Risk. Pretty high. By going direct to these providers, you do not have that additional level of due diligence. If you go with an established company, you should be fine. If you go with a smaller company, be sure that you know exactly what you’re getting, as there is some risk there.
Value. These companies provide a ton of value, and do so throughout the lifecycle of the house and investment. They are experienced in all aspects of the game.
Price. I’ve found properties listed on both a local provider and national providers webpage for the same amount, suggesting that they are listed ~5%-10% above retail, but that there may be wiggle room in that price. Indeed, these companies may sell directly or indirectly through a national firm – but will pay a fee to the national firm if sold in that manner, so you may get a better deal buying direct.
Good for. Those who are more interested in the team than the city may find a lot of value in one of these companies. These provide easy purchases, good hand-holding, and decent value.
Not good for. Those who like selection, choice or control. Or who have trust issues. Or who pinch pennies. Ugh.

Turnkey Option C: The Local Non-Social Turnkey Option
Business Model. I know the least about these, but have had them referenced many times. Basically, these are flippers. They focus on the property, and are not in the business of managing investors, so they don’t have a website and work from a buyer’s list. Or – they may not exist at all *twilight zone music*
Big Names. Unknown…
Turnkey Ready. Rehabbed, probably with tenant and PM in place – though note that their relationship with the PM will be much looser than the above options. I think some will work with you to buy a place and then rehab it, but that seems less common.
Financing. All cash! Period.
Variety. Limited.
Risk. From what I know – this is pretty dang risky.
Value . Their business model is simple: flip and house and sell it to an investor. They do not want to hold your hand or deal with banks, so their value is in the price and value of the rehab.
Price. I’ve been told by people I trust that this can be below retail, but I’m not sure I buy it. The few times that I’ve actually seen these, they have been at retail.
Good for. Experienced and connected investors who can cover their own ass, have cash to spend, and don’t need the sales pitch. In short: me in 15 years
Not good for. Non-cash buyers, conservative buyers, or small fish. Or those who want control or have issues with trust. Or me today.

Non-Turnkey Option D: Through a specialized RE agent
Business Model. Find a RE agent who has experience working with out-of-state SFR investors. They get a normal commission and probably have an established traditional RE agent business going as well.
Turnkey Ready. No, but they will be connected to multiple PMs and you can probably leverage the RE Agent and PM’s relationship a little bit early on, and get more out of the PM prior to the purchase than you would otherwise. Note that getting a relationship with a PM prior to having a place under contract is a little tough – so this really is a value-add.
Financing. Probably conventional – but cash is always accepted.
Variety. Although you can access the MLS – your ability to do any rehab on a property to get it rent ready is an issue. So – you may be limited to rent-ready places on the MLS.
Risk. Moderate. You will need to rely heavily on the agent’s opinion for a lot of things, and form/rely on several relationships.
Value. This will vary by agent, but in theory, they will provide value in 3 ways: identifying areas, identifying/screening properties, putting your team together. This is a lot of work for a 3% commission.
Price. By definition: retail. Or, you can buy a fixes below retail, and manage that from afar.
Good for. This is a good option for those who want to exercise control over the process, and who want to get their hands pretty dirty. This will require work on your end. Good for someone who can manage a rehab from afar, and/or who already has resources in the area.
Not good for. Penny pinchers who want to buy below retail. Those who want a huge selection of houses to choose from. Those who want an easy process start-to-finish.

Non-Turnkey Option E: Through a RE Agent/PM
Business Model. This is an interesting one. Find a RE agent who has experience with out-of-date investors but who also acts as a PM. No joke, I’ve found 2-3 in Charlotte alone. They get paid in lots of ways (the sales commission, the rehab, the leasing fee, the management fee) – but these are almost always expenses that you will be anyways.
Big Names. Rhonda Copp is a good one in Charlotte – and the one I use. I will not mention the name of the other one who I did not use…
Turnkey Ready. Pretty close. Because this person will act as your agent and PM, they will likely oversee the purchase, rehab, renting, and ongoing PM. This means that you probably will not have a tenant when you purchase, but that this person will manage the full life-cycle of the transaction.
Financing. Typically conventional, though cash is always a winner.
Variety. Huge. Basically you can look at the whole MLS with the knowledge that if a place needs carpet or a new roof, that you have someone locally who can do it. You may not want to do a full 30k rehab with this approach, but you can look at the whole market.
Risk. Mixed. You are relying heavily on one person for a lot of things, which means that only a few people can screw you – but those who can screw you – can really screw you. With that said, this person should have expertise in all aspects of buy-and-hold investing.
Value. This is not an investment counselor – but can provide a ton of tactile guidance. In addition to normal RE work, they can estimate rents, oversee rehab, and rent/manage the place.
Price. Although you are buying off the MLS, you can offer on beat-up properties and put in a lot of offers. You should be able to get a place under retail.
Good for. Someone who doesn’t have many connections. Wants an easy process with lots of options. Focuses on value, and can get a place for below market. In short: me!
Not good for. Someone who wants to hand-pick their PM or rehab team. Someone who wants to oversee a rehab from afar or control every aspect of the transaction.

Non-Turnkey Option F: Networking and managing the rehab
Business Model. Buy a distressed property below rehab, and build a team to fix it up. Hand-pick a PM or manage the PM yourself. Rely on wholesalers for the purchase.
Big Names. You.
Turnkey Ready. Not even close.
Financing. Cash for the purchase and cash for the rehab. Ideally, you can refi after rehab and get most of the money out to repeat the process. Hard money might be an option – but I would advise shying away from it.
Variety. This is limited to the properties that you can buy – probably through a wholesaler.
Risk. High. All the risks associated with a wholesale deal, and a flip, and a rental.
Price. By far, the best financial option! If you can find a 100k property that meets the 70% rule, you’ve earned 30k equity (or 30% ROI) when you sign the contract.
Good for. True RE Investors who have resources, connections and time – and will leverage those to make big returns. In fact, this should be the default approach for the savvy REI who is investing in his/her local market. Note that every out-of-state conversation has someone saying “you can find a deal in your market.” – this is the deal that they are talking about.
Not good for. The unconnected, uninformed, over-leveraged, under-capitalized, or lazy investor. I qualify as several of these…

What is the correct option for me?
This really is an easy decision. I like the ease of turnkey options and may go that route in the future, but for now – I want to find a RE agent who can also act as the PM (Option E).