All Forum Posts by: Todd Crippen

@Account Closed I think the turnkey option is the best way to go if you would like the benefits of owning rental property without being completely hands on. Turnkey companies have the ability for clients to be involved as much as they want to be with the expectation of trust in the provider's expertise for certain operational factors, which can otherwise be considered hard work if the investor has a full time job.

Also, if the turnkey company has well-established policies in place for leasing, resident on-boarding, standardization of renovation approach (replacing capex items first and foremost), and property management, then this could be a good option for new investors that do not necessarily have the experience/resources for what to replace at a fair price.

Also,  if they have warranties in place to cover the renovations they have completed on the property, this can help investors sleep at night. This is a good way for turnkey companies to hold themselves accountable for their work.

New investors can also take advantage of the extensive research, the companies do, in the sub-markets in their city. 

I hope this helps. Feel free to ask me any questions!

I would look at Kansas City, Jacksonville, Memphis, and Indianapolis.

We focus on turnkey in Kansas City and we have had great success in our market. Please reach out if you would like more information.

The most important factor is finding a good company to partner with in a strong market. Review their policies and check to see if they have good in-house property management. A good company in a strong market should be able to offer inventory with safe and consistent returns.

@Nana Piesie we do

Although turnkey companies cannot directly solicit, I would like to give our advice on this subject. @Marcus Linehan

Important Questions to Ask Turnkey Providers

Key Questions:

1. What is their track record?

Some turnkey providers might have a privacy policy in place to avoid previous client referral communication. This should be a red flag. Although clients’ privacy is very important, if the turnkey company has a good track record, they should have at least a few clients that are more than willing to be contacted on their behalf. Also, take the time to look for references and testimonials on the turnkey provider’s website/BiggerPockets account.

2. Do they offer maintenance warranties?

I think it is important for turnkey providers to provide a warranty over what they repaired or improved on the property, but I agree that there should be a limitation on what they cover, and if there is not, then this should be a red flag for the investor. For Example, turnkey companies that have experience and a good track record should never warranty tenant caused damage. It is irresponsible for the company to do so. They would be risking going out of business for unforeseen events that are impossible to track. This is not a smart way to run a business. Companies should offer a one year warranty over the entire scope of work, but if acts of God and tenant caused damage are not covered under the warranty, it's not a red flag, for good reason: they would not be able to adequately forecast the company’s performance and overhead costs, which would impact not only the owners, but their employees as well. This also stresses the importance for a turnkey company to have an extensive screening process to keep their clients happy and to mitigate this concern.

A turnkey provider that follows this approach is more likely to be experienced and built for longevity.

3. Do they offer rent guarantees?

I think that rent guarantees can be tailored to fit both parties in the transaction., I am of the opinion that if there is a strong rental market, and the company feels comfortable tailoring a rent guarantee based on the company’s tracked performance in the past, it can help the investor sleep at night. If there are substantial changes in the rental market, then the company can adjust their policies to reflect the change. How many times do you get policy update notification from various companies in which you’re involved? I bet a lot. I think being able to have the expertise to know when the company can provide such peace of mind, there is nothing that should raise a red flag about this one, but make sure it is not “too good to be true.” A total rent guarantee until a tenant is placed should be a red flag. Does the company have an average leasing period of 30 days, which we have tracked over time. Do they understand that this is an average, and not always the case. That is why they should have a tailored 45 day grace period before their rent guarantee initiates, or something similar. This is because they should be are experts in the industry and know how important it is to find a quality tenant, and the clients should too. If the rental demand is affected, which they should research frequently, they should adjust this policy and send out a notification to their clients with an explanation. This is a partnership, and clients understand that. They know it is important to them and turnkey providers to succeed in this industry.

4. Will they manage your property in-house or leverage a third-party expert?

There seems to be a lot of differing opinions on this subject, but I have a firm opinion on this one. I think that if the company has a good track record and adequate experience while providing in-house property management, it is the best case scenario. I believe this for a number of reasons: 1. It holds them accountable for their product, 2. Not being in property management for their primary revenue stream reduces the chances for inflated fees and trip charges, 3. It is, in my opinion, the only true turnkey experience. I am not saying it’s an automatic red flag if the company does not provide in-house property management, but it does add an additional step to the due diligence process. At the end of this post, I will provide a list of the most important factors to consider when choosing property management.

5. What systems do they have in place to ensure you have transparency into your investments at all times?

This is the most important factor when choosing your turnkey partner, and that is how investors should look at it. As a partnership. If an investor can’t frequently get a hold of their turnkey provider, or is always talking to a different person, this should raise an immediate red flag. This is a good indicator about whether the turnkey company is in it for a volume play, or a quality play based on superior customer service. You should always be able to get a response from your turnkey provider within 24 hours at the latest. If it takes more than 24 hours to in contact with the provider, this is a red flag situation.

Finally, I want to touch on the heart of your investment: Property Management. Get information on these bullet points, and look out for these red flags.

Key Bullet Points:

1. Is property management the company’s primary revenue stream?

2. How many doors do they manage?

3. How many employees do they have?

4. How is their response time?

5. What software do they use?

6. Do their fees seem fair?

7. What is their average leasing period?

8. Do they talk negatively about other property management companies or turnkey providers?

9. Do they offer routine maintenance programs?

10. Do they have good reviews online (be fair in your judgement)?

11. Are they avoiding providing references?

Are they in the property management business to provide an additional service to their clients? Do they only manage their clients’ property? Turnkey providers should always answer the phone, and not mark up maintenance costs.

Lastly, I think it is important to choose a company where it is readily apparent that the people love what they do. The turnkey business is tough, and it takes a lot of passion to be good at it and be fair. 

As for good markets: Kansas City is our favorite (may be a bit bias) Indianapolis, Memphis, and Jacksonville have been very good markets in our opinion. @Marcus Linehan

@Mike H., you bring up good points to consider during an investor's due diligence period, but it disappoints me that you have such a negative viewpoint about the turnkey industry as a whole. I respect your opinion and it is readily apparent that you are educated in investment real estate, but I would like to hopefully change your outlook about an industry that has a lot of hard working people with the main focus of providing a long-term investment with a service to help alleviate the active involvement with the process that some people associate stress with in regards to real estate investing.

Before I address your points, I would like to mention that every industry unfortunately has companies that are not as trust-worthy, or are in it for the wrong reasons focusing on a deal by deal mentality, which sets these companies up for a very short life-span.

But, as a turnkey company owner, I share the roll of representing the industry in a positive light with a lot of our competitors that I respect a great deal.

I will respectfully comment on your bullet points in order:

1. The word choice, "reality," seems to allude that these companies are trying to use deception tactics when marketing their properties. And I feel like every investor weighs factors differently depending on their strategy when buying rental property.

Selling a turnkey rental at or near retail does not mean it is a bad investment for some. It is more important for some to have a healthy rent to value ratio in a market with lower than average volatility, and in a sub-market, in that market, with even lower average volatility in comparison.

While liquidity is important, it carries different weights for each investor. How long are you wanting to hold that property? Is cash-flow more important than a short term liquidation strategy? Does the neighborhood show signs of growth potential and modest appreciation, with a cushion for a market correction?

2. Number 2 stresses the importance of whether a turnkey company has solid policies in place. It benefits no-one to place an unqualified tenant in the property, especially if company has in-house property management.

Premium rent is earned by providing a quality place to live for residents and companies should not place the "first" tenant unless they are qualified and meet a strict screening process standardized and communicated to the client while developing a business relationship.

Also, even though you tend to see a premium in rent with quality turnkey companies, there is an upward trend of 2 year leases as opposed to 1, because of growing rental demand, which reduces vacancy.

3. I agree with comment 3. Property management is the most important factor to consider, especially for out of state investors. I think it is a positive sign if turnkey companies have in-house property management with very detailed policies. For example, at Turnkey Property Group, we have policies for every process associated with property management, on-call maintenance, no % upcharges for that maintenance, and we only manage our clients’ properties. We do not act as a third party management company that relies on upcharges and fees as their primary income. The repeat business and reduction in over-head is worth it for companies in it for the right reasons.

Also, not every investor focuses on liquidation, but turnkey companies have a pipeline of clients from all over the world that want to buy in their markets, increasing their chances of reducing the liquidation period, which adds value.

4. There are companies that focus on lower class neighborhoods, but the ones with B--A- focus with in-house property management reduces this risk.

Ask the company what their plans are as they scale their business. Do they have a hiring process in place to maintain quality while allowing for growth? If not, they could have a deal by deal mentality.

5. Instead of focusing on a hard number for equity, I would encourage focusing on the percentage of cash up front/purchase/market price that hard number is and compare it to other investments. Also, it is important to value the time turnkey companies save for their clients.

Cash flow is very case specific to one’s debt structure/interest rate allowable due to credit rating. Also, if the turnkey company has a capex renovation approach with the ability to extract quality tenants and top market rent, you can be more aggressive with your pro forma estimates. Also, there are a lot of creative ways to structure debt to increase investors’ cash-flow while allowing to get started at a fairly low price without being active in the process.

Also, it is imperative that turnkey companies consistently research the development of their markets. Areas with growth potential around commercial developments and expanding public transit should be close in proximity. And if the appreciation is less aggressive, it tends to be a more stable market, which is a positive for a lot of long-term investors.

Overall, I don’t have the data to make a bet on how many trust-worthy turnkey companies exist out of ten, but greatly appreciate the dialogue and perspective shared, Mike. I hope it inspires the organizations that shaped your outlook, to share Turnkey Property Group’s, and many of our peers' philosophies, in the turnkey industry, to start running their businesses with integrity, transparency, and honesty at their foundation.

I understand the hesitation when deciding whether or not to go the turnkey route, but I think there are a lot of factors that an investor needs to weigh during the decision making process. Turnkey investing is very dependent on the market the companies are located, level of involvement desired, policies of the companies, pricing, warranties, and whether they have in-house property management.

For example, the seasoned turnkey companies realize that their demand is driven by investors looking for a safe, consistent return. That means that the market needs to provide the opportunities for turnkey companies to price their properties based on the rent to value ratio, instead of relying on top market price, they are providing those properties below market value a lot of the time. If you can cash-flow $200-$350/month, with 20% down, that is a solid long-term investment.

Also, the turnkey option is the best way to go if you would like the benefits of owning rental property without being completely hands on. At our company we like our clients to be involved as much as they want to be with the expectation of trust in our expertise for certain operational factors.

Also, if the turnkey company has well-established policies in place for leasing, resident on-boarding, standardization of renovation approach (replacing capex items first and foremost), and property management, then they could be a good option for investors.

Also, look to see if they have warranties in place to cover the renovations they have completed on the property. This is a good way for turnkey companies to hold themselves accountable for their work. If they do not cover any of the items on the scopes of work completed, then it could mean the company does not focus on quality.

Also, it's my opinion that if the company provides in-house property management services, that is another way they hold themselves accountable. There are mixed reviews on whether this is a positive or a negative, but if the other factors have been met, this is another great sign you've found a company dedicated to providing a quality product and resident to manage.

Also, even though some of the prices look like there is a premium in price point, you have to find the value in the services being provided: Extensive research in the submarkets in their city, leasing services, value add to the property, and property management.

Feel free to ask me any questions!

@Judy Graff, I agree with @Mark Hart that Memphis is a great market. I would also look at Kansas City, Jacksonville, and Indianapolis.

I own a turnkey company in Kansas City and we have had great success in our market. Please reach out if you would like more information.

The most important factor is finding a good company to partner with in a strong market. Review their policies and check to see if they have good in-house property management. A good company in a strong market should be able to offer inventory with safe and consistent returns.

@Grace Donahue, are you looking to invest in Ohio, or are you looking into multiple markets and planning on being an OOS investor from Ohio? 

@Charles Mitchell, I see you have been doing great market research for your property. Those are all solid areas to invest. I would like to just ask: Have you thought about going the turnkey route at all? They already have relationships with trusted contractors, leasing agents, and some have property management in-house.

BRRRR can be a good choice, but it all depends on how much time you have to dedicate to the project, and how far away you are located. It can be difficult, not impossible, to do the acquisition, renovation, and leasing if you have a full time job. Having those services wrapped up for you could be a good option as well.

If you would like to learn more about that option, please reach out. If not, I have a couple of agents I can reach out to on your behalf to see if they could assist with the process.