What to Expect from Turnkey Properties

A turnkey real estate company finds a property, renovates where needed, finds a tenant and manages the property for an investor. Not bad, is it? Instead of actively pursuing the next deal, crunching numbers and researching demographics, an investor can work with a turnkey operator who essentially does all the “dirty work” as it relates to finding and selling real estate. All the investor needs to do is a good share of due diligence, confirming the numbers and making an offer or otherwise deciding whether or not to participate.

The turnkey real estate company takes care of the details and your job is to confirm those details. It’s relatively easy to do simply by comparing market rent for the area, the neighborhood, schools and the like and say “yes” or “no.” A turnkey does the same things you would do when actively finding and rehabilitating properties to sell or rent.

Beware! It is not that easy. There is no clear definition or standard of what a turnkey operator should provide and some investors have learned the hard way so do your due diligence and you should be fine.

What makes a quality turnkey real estate company?

Getting the Best

A turnkey company may be a local brand in the area or part of a regional or national firm. Like with any other investment property, the numbers need to work. If you’re on the receiving end of an aggressive sales pitch about a particular property or area it’s time to give pause. You don’t need a cheerleader, you just need a little time to evaluate the opportunity. A good turnkey operation will:

• Have extensive experience in real estate
• Solid character references of principals
• Provide a long list of successful properties along with references of other investors
• Fully renovate the property providing a lower cost of ownership to the investor
• Use standardized materials making repairs less costly
• Buy and renovate with quality and the long-term owner in mind
• Provide a description and some kind of warranty on the work completed
• Produce or openly welcome an independent inspection of the building by certified assessor
• Manage the property by experienced teams collecting rents and making repairs
• Provide a long term lease with professionally screened tenants
• Produce quarterly or annual income statements for the investor
• Provide immediate cash flow

Turnkey real estate firms make money buying distressed real estate, renovating them, finding tenants then selling the investment. They can also make money managing the property for the investor. I like the teams that also manage and especially the ones that only manage their own. They have a vested interest in a long-term relationship and low cost of operation and management. Investors who purchase turnkey properties can’t expect to buy a home that is 20-30 percent below market value, the turnkey firm has taken much of that as their profit but you should be able to buy lower than surrounding real estate as turnkeys want to sell the asset as soon as possible and is rarely entered into the local multiple listing service, keeping other buyers at bay.

Okay, now you know the characteristics of a solid turnkey real estate company, what are the signs of a bad one?

• Little experience in real estate
• Principals with previous litigation or licensing issues
• Few transactions
• No property management or management experience
• Lofty projections that don’t match surrounding real estate
• No description of work provided or independent inspection report
• Return on investment too aggressive, like including depreciation but no vacancy expense

If any of these statements are true, nothing else matters. Move elsewhere.

Recap

1. Turnkey real estate do all the work
2. You need only to validate the numbers
3. Do you diligence on the company, get 3 investor references and see previous transactions
4. Don’t buy without an independent certified inspection report or seeing the leases
5. We provide a 20 point diligence checklist and interview questions in our Education Center