Well, after a long hiatus I am back on Bigger Pockets.
I started with a "turn key" company many years ago in Cleveland. I think the people who go into the "turn key" business are generally well intentioned people looking to make a prosperous venture. This is nothing against turn key providers. They provide a valuable service which is bring to investment opportunities to otherwise unsophisticated real estate beginners,,,,for a price. A pretty BIG price.
The acute problems come after the sale. After the glow of all the promises wear off the more mundane aspects of owning and managing rental properties come into play.
I can just hear the groans. "Well, if you have the RIGHT "turn key"/property management company you shouldn't have any problems."
Picking the RIGHT property management company and expecting unending success is like having to pick the RIGHT spouse and expecting a successful marriage---and only after a few emails, maybe a phone call or two and if you are lucky an in person meeting with the property manager. All of the reality of the horrors of what will unfold next will play out over the next several months and possibly at the expense of several more thousands of dollars coming out of your pocket.
Turn key providers are in the business of making a profit. There is nothing wrong with that. EXTREME caution and due diligence are warranted when dealing with turn key providers and their in house property managers,,especially when more than $50k is at risk. The good ones will cost you a LOT of money and will represent significant downside risk to your portfolio, especially if you have to carry mortgage debt and if you experience significant repairs(likely in the beginning.)
No property management company I have ever come across has been able to decrease the amount of repairs a property needs, decrease tenant vacancy rates, or communicate with me in an effective manner. Quite the opposite. After I fired my property management firms, my rent was collected on time, my repair costs suddenly went down and I was no longer paying 10% for a "management fee". Suddenly my properties were up 30 plus % and now even more. And I got to know all of my tenants; some of who I had to let go and others who have stuck with me for years.
Yes, I had to learn the business. I had to speak to a few tenants. I actually had to visit my properties a few times each year. But over the years I have developed systems and practices that now all hum along nicely. It's just not that hard folks. I read the comments above about not having the time or the "expertise" to start with your own real estate investments and I just shake my head. This is not rocket science folks. Its people, process, product. There is nothing very complicated about a simple income producing duplex with two tenants. Even in the worst of areas I can make this property work. We don't intentionally go into the worst of areas but the point is that BAD THINGS WILL HAPPEN regardless of where your properties are located. Your ability to bounce back from a setback is what will make you successful in your investing.
You may not even know of a vacancy if you have the "wrong" property manager. Much better for you to find out on your own and deal with it in a common sense way and get on top of it. I have many permutations of every horror you can imagine happen at several of my properties while under the care of property managers. Almost all of which I could have done a better job of handling on my own had I given myself permission to do so and let myself out from under the shackles of "not being an expert" in the field.
Food for thought: If you are going to own LESS than 3 properties and just want rental income for some diversification , the using a "turn key" provider and outsourcing your rental income management MAY be for you. Be prepared to experience low positive cashflow though or even losses. HOWEVER, if you are looking to build a portfolio of rentals of greater than 3 properties you must learn the business. That does NOT mean you need to study toilet repair, HVAC principles or drive a junky car to your properties. The modern landlord today can use technology, other people and some basic common sense to solve and manage many investment property issues.
Bottom line: Be prepared to pay significant sums in profit to "turn key" companies for their service. While there is nothing wrong with this, factor this into your long term investing goals. While I maintain that 80% of all "turn key" companies/property management firms are excellent.....;))), its the bottom 20% I worry about--and those are the ones that will cause you significant financial losses,,,,,and the ones to run, not walk away from.
All the best !
Faisal
