Turn-Key Provider Road Trip!

Banks are closed on President’s day each year and virtually no other business is closed on that holiday (except for the government, of course) which makes it the perfect day to take a road trip!So, I decided to book a trip and visit a turn key real estate provider located about three hour’s drive from my home market.

A turn key real estate provider will find a house, fix it up, find a tenant to rent it and will act as the property manager after they sell the renovated house to an investor.It is a way for someone who only wants a purely passive investment in real estate (without having to get their hands dirty or deal with finding a tenant, collecting rents, and fixing toilets).That is why it is called a “turn-key” investment - only it is more like a “write-the-check” investment.

The first thing that impressed me about this operation was the fact they had 49 employees to handle each of the business systems needed to run the company smoothly.The company manages over 1,600 rentals and is constantly buying, renovating, or selling one house per day, on average!To do this type of volume without having the wheels fall off, there must be specialized divisions of labor where everyone has a specific job and each piece of the puzzle is handled seamlessly from one department to the next.

In our case, the first people we met were in charge of investor relations.These people were responsible for marketing the company to people with sufficient money/credit and these potential investors would be interested in finding out how they could participate in real estate returns of up to 10% or more (depending on leverage) without having to do any of the labor.The two ladies we met at the company were our tour guides and they introduced us to the various employees who had specific tasks to handle for the company.

The first people we met were the schedulers for maintenance and repairs.One can only imagine how many things could go wrong at any given time when there are 1,600 houses and you are adding to that number each day.A big help on this project was the software they used to schedule maintenance and repairs to keep their employees busy going efficiently from one job to the next.

This particular company had a rather large warehouse full of supplies they were able to purchase wholesale from Lowes.The owner had figured out a long time ago to keep things simple so each of the houses they renovate has the same paint color, carpet, tile, appliances, heat and air conditioning systems, etc.This way, once you know how one is supposed to look they can punch out house renovations like Big Macs!It also makes the maintenance easier when you have all the same parts for each house in stock so there is no running around to find available parts each and every time there is something that breaks down.

As you might imagine, this company also had multiple construction crews working on multiple houses at the same time.They had a system down where they could take most houses from demo down to the studs to the finished product in a few weeks.Turning houses quickly can save a lot of money in holding costs and will start the cash flowing in quicker when there are tenants ready to move in and start paying rent.

Acquisition managers are responsible for finding the houses in the first place.To buy the number of houses they needed to keep their crews busy was a full-time job in and of itself.No one person could possibly find a house per day with the tight investment parameters the company had to meet in order to sell the finished product to an investor.

Our guides took us to see several projects in various stages to get a sense of the beginning, middle and finished product before it was put on the market for an investor to buy and a tenant to lease.If you have seen one of these houses, you have seen them all because of the cookie cutter approach they followed for each property.The only big difference was they were buying houses all over the city so each one was different on the outside.It was the insides of each house that looked alike.

We ended up at another company location that was the central office for prospective tenants to show up and complete rental applications and get approved to rent one of these properties.Of course, this was also the office that handled the inevitable late payment details and working out a plan to see if the tenant would be allowed to stay in the property. “If you don’t pay, you can’t stay” was the mantra we heard repeated several times.

Inside this building was also the lady who would coordinate communication between the company and the investor.This position was in charge of keeping records of the rent collected and any expense items associated with repairs and maintenance.Each month, the investor will get an email copy of a report and then she would ACH your money electronically to your banking account each month, less their 10% property management fee.

If someone was interested in becoming an investor, they would put you on a waiting list for a house.They could also hook you up with a local provider to finance the purchase of the house so it was a one-stop shop.Very convenient since most of the investors never set foot in these offices or met these people.Since I live only a short car drive away, I was the anomaly coming in for a personal visit!

Unfortunately, the main issue was the wait.If you want to be an investor you have to get in line and wait your turn.The wait, I was told, was between four to six months!So even though they were popping out houses as quickly as possible, there were way more people that wanted to purchase these as an investment than there was the ability for this company to produce the quantity needed to satisfy the demand.

An investor that wanted to remain 100% passive would probably only get the opportunity to purchase two or three properties in a single year, which would be a very slow process.My team and I purchased five houses in the last three weeks, so that is definitely a faster way to go about building up a portfolio of rental properties.But it also reveals an opportunity in the market place for other turn key providers.

Can you name another business whereby if you were the customer and had the cash available and wanted to make a purchase that you would have to wait four to six months to be able to do so?I didn’t think so!