All Forum Posts by: Keith Anderson

First, out of curiosity, did you find turnkey operators in the Boston area? I'm based here and consider it a market not unlike California -- expensive without a lot of cash flow potential unless you go 1+ hours outside of the city. 

Your intuition on many turnkey providers is sound, and you should trust your diligence. I am under contract for 2 turnkey properties that are in stable, mostly owner-occupied neighborhoods outside of Chicago. They have no trouble appraising, the rents are realistic, and the renovations are high quality.

But during the diligence I did on many markets and operators, I found exactly what you described finding. It strikes me that there are a lot of high-income investors getting skittish about the stock market and looking to diversify into real estate, creating demand for turnkey properties. 

In many markets, it seems investors are willing to pay above fair market value for the "service" they expect to receive. I am willing to pay more than I would buying a distressed property on my own and managing the renovation myself, but I am not willing to pay 10-15% above what the property will appraise for. But it seems like there's a glut of investors out there that are.

Anyone can access RentFax at www.rentfaxpro.com. If you can find Dan's affiliate link he will benefit from you using it but if you're pressed for time you can go direct to the app. 

Glad to see this topic discussed. I've bought into the idea that turnkey can work for passive investors (like me), and I've spent many months vetting several providers.

One of the most well-respected providers can't seem to deliver properties that will appraise. I'm still working with them (because their service seems best in class), but with so many options I'm not sure how sustainable it will be for them to price above market and expect investors to float the difference between purchase price and appraisal.

Thank you! @Mark Ainley @Crystal Smith @Keishee Hill

I'm under contract on a property in South Holland (Southwest of Chicago) and looking for input on inspectors.

I've been referred to Ryan Valan at a company called General Property Inspections (http://www.valinspect.com/) but would love to hear from other investors about folks you've worked with.

I'm a turnkey buyer, not a seller. Not saying I approve of these tactics, but it seems like most sellers price based on an investor's expected monthly cash flows, cash on cash returns, cap rate, or a combination thereof.

Most sellers I've vetted use 5% allowances for vacancy & maintenance, which most investors consider too low. (But since this practice is pervasive I am assuming there are buyers that bite anyway.)

It sounds like you plan to sell the property fully tenanted and post-rehab, correct? If not, you may need to do more handholding and limit your buyer pool.

Check out the pro formas from some of the big turnkey marketers for a sense of how they position properties.

@Account Closed

Thanks, very helpful. Not many markets with average annual appreciation rates of ~7-9%+, but great opportunities if you can crack into them.

Forgive me if you've explained this elsewhere, but could you expand on why the turnkey operators using cap rates are "ignorant or crooks"?

What would your take be on a $150k property in an area appreciating 2-3% annually with monthly cash flows of $150-300?

@Account Closed

Bob, any resources/tools you'd recommend for analyzing rent history / growth?

I'd ask for a sample Scope of Work. You'll want to understand their standards for the roof, plumbing, electrics, mechanicals (furnace & water heater), appliances, and flooring. 

Most that I've vetted have standards for replacing major components if their useful life is under 5-7 years. So, if a new roof was put on 7 or 8 years ago and has a useful life of 10-12 more years, they may not replace it. If a furnace only has an expected life of 4 more years, they will replace it.

The higher-end operators should be able to readily answer how they handle their renovations and give you examples of recent projects.

So, just an update for everyone. Since I last updated the thread, I toured 2 of this turnkey operator's 3 markets.

When I was in-market and meeting with their director of ops (instead of talking to my "Portfolio Relations Manager," I was told that the 35-40% down suggestion is simply because the properties won't appraise. 

So I have now been told

1. 1. that the 35-40% is to help investors improve cash flow (the original answer) and
2. 2. the 35-40% down is required since the properties won't appraise (which seems more likely)

I really like this operator's service level and reputation, and one of markets they're in is a good fit for our strategy. But I've also been vetting another large-scale provider, which has no problem financing properties at 20% down and sells properties at or below market value and typically 5-10% below median home values in their neighborhoods.

So I shared these concerns with this turnkey operator:

And this was their reply:

Now, perhaps I'm losing the forest for the trees. But I'm not banking on appreciation, and I'm not looking for major built-in equity upfront. This felt like a deflection, not an answer.

I am considering reaching out to one of the principals of this turnkey operator (who is one of the most visible presences on Bigger Pockets) to see if he can clarify.

I'd be very happy paying market value and putting 20% (or even 25%) down, which the other turnkey operator is able to deliver. Without a compelling explanation for why it makes more sense to put 35% down and pay above market value, I'm having a difficult time moving forward with this operator.