All Forum Posts by: Jeff Schechter

@James Li As someone who has intimate knowledge of the TK industry, it is apparent to me that you have not yet found any true Turnkey providers.  Let me address your concerns individually...

1.  A true TK company will have rehab systems and checklists in place.  The age of the property is not that meaningful, as long as their processes address anything old that does not have a long lifespan remaining.  The good TK's will even give a warranty on their work, and show you a scope of repairs.  Once the rehab is complete, a 3rd party inspection will reveal any issues that may not have been addressed.  From there, you can fully assess the condition, and whether or not you want to buy the property.  

2.  When buying from a true TK, their name should be on the contracts.  If you are buying from one of their referral sources, they have to get paid too.  You should be buying direct to get the best pricing.

3.  Many TK's are not that good at marketing, and have to rely on referral sources.  Again, find one that doesn't sell this way, and skip the extra markup.

4. A true TK will have their own PM team.... full skin in the game.  They will be motivated to earn your business, and to KEEP your business with good management every month.

5. As @Mike D'Arrigo has pointed out, age has little to do with appreciation.  Increased values come from increased demand.  That said, when you are buying from a TK, you are buying with the intent of buy and hold.  You are going for CASH FLOW.  If you are buying for appreciation, that is a completely different strategy.  Further, appreciation is only meaningful upon sale or refinance.  Look for properties that have excellent cash flow, and buy in bigger growing cities where the demand is increasing, so that you can maybe see some appreciation, but don't factor it into your calculations.  

@Jesse S.  Just wanted to share an opinion from the other side.  We operate a very successful TK in the Indianapolis area, and are very sensitive to this topic, as we've had investor express similar frustrations.  As we've evolved, we've created a situation that's fair for everyone....

1.  We typically operate in the C-class neighborhoods in Center Township (within 5-20 minutes of downtown).  Most of these neighborhoods have similar price points, etc, so investors who follow us know that our product remains consistent across the board.

2. We rarely do any multis... almost always SFH's, as they are easier to rent and manage. Again, consistency of product.

3.  We do TWO inspections... the first when we acquire the property, so we don't miss anything on the rehab, and then another at the end, to make sure we caught everything.  We do include a warranty on all major systems, so the 2nd one is just as important to us, as we don't want the exposure of unnecessary repairs.  Again, consistency.

4.  All investors that work with us speak to our Investor Relations team first, and get a clear understanding of how we do things.  We want to make sure that we have a good fit.  

5.  All potential investors get a packet that's got all of our standard contracts, so they know what they're getting into AHEAD of signing any purchase agreements.

6.  Our CFO's (cash flow opportunity sheets - mini pro-forma) have ALL anticipated expenses on them.  We research the taxes, and get a real insurance quote.  We also only sell tenanted properties, so the rent numbers on the CFO are accurate... they are NOT a projection.  Nowhere on the CFO do we discuss appreciation, or future market rent increases.  We are letting the investor see what's going on RIGHT NOW.  We even give the investors a mini-calculator that can be used to "adjust" the numbers on our CFO, to help them make more informed decisions.

7.  When an investor inquires about a property, we send them before/after pictures, scope of repairs, final inspection report, another sign-off sheet if the property needed any final corrections after inspection, etc.

8.  We sell don't ask for earnest money on our Purchase Agreements.  Our properties sell and close quickly... we just ask the investor to be ready to go, once they sign the PA.  In a couple of instances, there have been investors that did not (or could not) pull the trigger.  No big deal.  We let them off the hook.  We offer that property to the next investor that was interested, and we move on.  

9.  We encourage ALL investors to fly out and see us before doing business with us.  Some do, some don't.  

Once an investor has access to all of the above, and goes through the process, deciding on a property is quick and easy.  Sometimes we post properties on our website, and they sell very quickly.  We often send out emails to our list highlighting a property, and get back many responses asking for the packet.  Our process is fair... we simply sell it to the first investor who signs a PA.   If the investor misses out, we'll have more product very soon, that is VERY similar to the one that just sold.  

We are working hard to keep prices down (and ROI up) for our investors. In order to do that, we must move our inventory quickly to keep hold times down. We have found that the process we've created is fair, and serves both sides very well.

Wow...there are some great responses here, and I'm encouraged to see that it's not another Turnkey-bashing party. Both sides are represented well. That said, as a TK provider, we get 1-2 investors per WEEK reaching out to us privately on BP, wanting to "partner" with us on a BRRRR. Namely, they want us to do all the work, and they keep all the forced appreciation. This is usually after they start understanding how much work it really is, and they still want the shortcut to the Promised Land.

If it were an all cash purchase, I'd take the two lesser priced properties every time.  It's true that there is more risk, but we have great management in place, and that's what makes it work.  Here in Indy, a $50K property will bring about $700-750 in rent.  A $100K property will bring in $950-1000.  It's not hard to do that math.  Even with higher vacancy rates (and accounting for other expenses), we've found that having more doors in C-class will always outperform less doors in B-class.  Further, if one goes vacant, at least we have income from the other.  If your one door goes vacant, you have zero income.  Additionally, in the lower priced neighborhoods, we rent to LIFETIME renters...it's unlikely they'll ever own a property.  In B-class, the renters are always looking to buy....lease renewals are not as easy as many make it seem.

That said, if you're financing, you can ignore this argument.  Most lenders have $75K minimums, and you'll not be able to purchase a $50K property with traditional financing.... you'll most likely have to pay cash up front, then come back and refinance after a seasoning period.

Most on here on BP will disagree with me, but we've been proving this over and over for years.

Yes, fly out to see the company you're working with.  Make sure they have good processes in place.... 

• FINISHED properties, inspected by third party, some sort of warranty on the work
• Fully tenanted - LICENSED, IN-HOUSE Property Management
• Good track record, etc.

It's pretty hard to have both.  We always go for max cash flow, as that is something we can realize right now.  Appreciation is only meaningful later, is not predictable, and ONLY is recoverable upon sale or refinance.  Further, it's spending power is eroded by inflation.

Are you looking for SFH or multi? B class or C class?

Hello @Hector De la Canal - Your question is a little too broad, so I'll give a broad answer. We operate almost exclusively in SFH's. We're about 450 doors deep in Indy. The prettier A/B class stuff in the suburbs should yield cash-on-cash returns of 6-9%, AFTER all expenses. The inner city C-class properties should yield 9-12%, AFTER all expenses. This assumes that you are finding good deals, and have great management.

@Jad Boudiab  Thanks for the clarification.  Seems like you too are running a tight operation.   The nerve with me gets struck when all the TK providers get lumped into this "Paying a premium" or "paying retail" narrative, and it's not always true.  We deal mostly in C-class, and in the lower price points, there is zero margin for error.  We get 3-4 investors per week reaching out to us, trying to leverage our services for their "value add" because they've tried to do it themselves and failed (after reading a famous book that is promoted heavily on BP).  We often tell them to stick to A/B class where there's more meat on the bone (and more exposure), so they can find that forced appreciation.  

@Jad Boudiab - although I'm sure your business model may be sound, it's quite a stretch to say that it is leaving more value and equity.  The investor is making a one-time purchase (no volume discount) that is PRE-rehab.  So, they're taking all the risk.  Then you provide construction services, clearly at some sort of markup... and that rehab is not standardized, as you're now working with the investor on what they want, (which may not always be the same thing as what's best for that market).  This will ALWAYS make the rehab cost more.  Then you provide management services, at some sort of markup.  

Conversely, we (as a TK) go out and buy in volume. We get discounts up front....rarely buy off the MLS. In some cases, we pay less than local wholesalers. We only buy vacant properties. We then do a STANDARDIZED rehab with TWO outside inspections...one before, one after. We do so many of these (and warehouse our own regularly used materials), that most of our rehabs come in at HALF the price of what a decent contractor would charge us. We then place the tenant, and give a warranty on the rehab done. We then take a small markup for the entire process, but that markup is NOT felt by the investor due to our economies of scale. And, although we have in-house management, we certainly will entertain investors like @Alpesh Parmar who may want to use an outside company (although our in-house team will ALWAYS charge less maintenance costs).   In essence WE have taken ALL the risk up front. We've even placed the tenant - and didn't adopt someone else's nightmare.  The investor is simply walking in to an already performing property without the inherent risk of buying and rehabbing.

As @Milton Marcelin pointed out, there are some unscrupulous providers out there, but there are some darned good ones too.  Just like in any industry.  You've got to vet the ones out that don't make sense for you to work with.  We are Indy only, but in Birmingham, Spartan is a an excellent outfit, and although he doesn't do the work himself @Antoine Martel may be able to find you some good TK stuff in some of the other cities you've mentioned.

Good luck!