Target and Walmart are both big-box, chain stores. They sell a little bit of everything, while simultaneously offering very different products and service. Some would prefer Target while others would choose Walmart. Turnkey real estate providers are no different. As a turnkey real estate provider, I see firsthand how significant the differences between them can be, from the products to the services they provide. To be sure you’re working with a turnkey provider you’re comfortable with, ask at least these 10 questions.
1. What market do you invest in? You want to be sure you’re able to research the stability and hopefully growing economy in that area. Be sure to get the name of the immediate market and if there are any suburbs they’re investing in. A few miles' difference in a neighborhood can make a huge difference in real estate.
2. Are there specific property classes you’re investing in? Depending on your personal investment strategies, you may only be interested in a specific class of property. Properties can be rated A, B, C or D based on several different factors. Generally, A- and B-class properties are going to be newer, nicer, stable neighborhoods. C-class properties may be in neighborhoods that have been distressed and are recovering and may contain older homes. D-class areas are generally in distress and may be in decline. Properties here are usually older and not well-maintained. It will depend on your risk tolerance where you’re comfortable investing. It's important to note that the lower the class of property, the higher the risk — but also the higher potential for return.
3. What type of properties do you offer? Some turnkey providers only buy and sell single-family homes. Others may sell duplex properties as well. There are also turnkey providers that sell multifamily properties (five units or more). Be sure they offer the inventory you’re interested in. You don’t want to waste your time with a provider that isn’t offering the properties you want to invest in.
4. Is there an average price point you offer? This is another question to ask so you don’t waste your time. Depending on the market and the provider, price points will vary greatly. You may be able to purchase a turnkey property in Dallas for $130,000, while turnkey properties in Dayton, Ohio may only be $75,000. Make sure your provider offers inventory that is within your budget and what you’re comfortable investing.
5. What are the average returns? If you are wanting a minimum of 15% returns on a single-family property, that’s important to discuss with a turnkey provider. They simply may not offer that kind of inventory. Real estate markets are localized, and what can be possible in Indianapolis may not be reasonable at all in Miami. It’s important to note that the higher the property class, generally, the lower the returns in terms of cash flow. Also, the more units you have, the higher the potential return. Duplex properties almost always have better returns than single-family. Of course, all of this will depend on the market you’re investing in.
6. How is property management set up? Most reputable turnkey providers either have in-house or hybrid models of property management. If the turnkey provider doesn’t offer property management, ask if they have someone they recommend. Strictly third-party property management can occasionally create communication and quality issues, so be sure to contact and vet potential property management teams as well before making a purchase, if that’s the setup.
7. Are there any rent guarantees? Many turnkey providers offer rent guarantees. These stipulate that you will be paid the projected rental amount, even if the property is unoccupied, and somewhat protects your cash flow. There are usually restrictions to these guarantees, so ask for details. If a turnkey company doesn’t offer this, you’re going out on a limb to trust it to rent the property. Approach that company with caution. Confident turnkey providers will typically provide a rent guarantee.
8. Do you offer any warranties? Again, most turnkey providers offer warranties. However, the terms and timelines vary greatly. While some turnkey companies offer extensive warranties (up to 10 years), others may offer limited warranties for 90 days or one year from purchase. The longer the warranty, the better. You will be off the hook for repair costs during those times. Be sure to get the details on this one — it could be a lifesaver.
9. Are inspections and appraisals allowed? If the turnkey company representative says no to this question, politely get off the call quickly. This is a red flag. There is no legitimate reason a turnkey company would deny inspections or appraisals. If you’re purchasing before the rehab of the property is complete, they may recommend you delay these items, but they should never disallow an inspection or appraisal.
10. What purchase methods do you allow (e.g., financing, cash)? Some turnkey providers only allow cash purchases. While some work with both types of buyers, some providers may only allow financing on properties once they’re near completion. This is usually done to time the appraisal properly. Be sure to ask what kind of timeline restrictions there are, if any, on finance purchases if you’re using financing. If you’re purchasing a turnkey property with cash, you will likely have no restrictions or issues as long as you have the money in the bank.
These are just a few conversation-starters and are certainly not inclusive of all the questions you should ask. Hopefully, these conversations lead you to more answers and clarifications that help you sort out the perfect turnkey provider for your next real estate investment.
