Venture into true Turnkey

So one thing I did not mention (at least I don't think I did) is we decided to venture into true turnkey to test the waters.  Our last 2 properties were purchased as turnkey properties from a firm in Memphis.  I won't name them for now but will talk some details.

If you've read previous posts you probably know that all 3 of us have full time jobs, young families, and we really aren't in the business of anything except buy and hold (rent) properties that are pretty much ready to rent.  We've also said anything more than a couple of thousand dollars of work (which is pretty much nothing beyond some painting, new locks, new carpet, etc) isn't what we're interested in.  You could say our first 7 properties were "turnkey" properties because they were pretty much ready to rent when we bought them.  Most required less than $1k worth of work before renting.

There are companies that specialize in full service turnkey operation for rental properties.  The quick overview of a turnkey company if you aren't familiar is that the company buys properties in need of a lot of repair for a low price, rehabs them, and sells them to people at a profit (think flipping) but there is usually a property management arm that also finds renters and manages them as well.  All the buyer has to do is inspect the house (if you want) and purchase it.  The aim is mainly at out of town investors and those who want very little time invested.  Some people think it's a scam.  Some people love it.  Some people have had horrible experiences and some have had great ones.  It's a mixed bag out there depending on who you ask.

We've done a lot of research on these types of companies and introduced ourselves to one of them in Memphis.  With our time being limited, we decided to see if this kind of property purchase could save us time and still bring in decent returns.  We've decided to test the waters with 2 properties.  It's a small investment and if it turns out horribly we've just learn a good lesson (without it being too expensive).  At this point, we've already purchased the 2 properties.  Below are the details.

When we looked at their properties, we analyzed (on paper) a lot of them.  Some of them didn't fit in with our numbers and we were honest with the company on our goals and what we were expecting out of it.  Every property we analyzed, we came back with an unofficial offer on what made the numbers work.  When we both agreed on a property, we wrote up an official offer letter and contract and started the process.  Keep in mind, we still due the same due diligence on these properties as we would if we found them ourselves.  We made sure the numbers worked.  We had the property professionally inspected, an appraisal happens, we get title insurance, etc.  We cut NO corners.  Doing this minimizes the risk that everyone out there seems to be so scared about.  Sure we might make 10-20% less cash flow than if we found the properties ourselves but we knew that going in and were willing to accept it if it saved us time.

All in all, we spent about 30% of the time purchasing these turnkey properties than we did when we found them ourselves.  So the time aspect worked for us.  The next big step was finding out if they could deliver what they promised.  Long story short, they did.  Not only did they rent out both properties for the rate they advertised, they signed 2-year leases.  The first property took ~45 days to rent and the second took ~5 days to rent.  We don't have any fantasies that 5 days will be the norm but our goal was set at 60 days so both exceeded our expectations.  One of the benefits of the turnkey property is since they are the PM as well, they can start looking for a tenant well before closing.

We're only a couple of months into it and we have no real track record with them yet.  There are still some things to be seen but everything looks very positive so far.  Seeing as how we are already rented, that's 90% of the battle.

This post isn't meant to encourage anyone to go out and do this, but only to lay out that so far our experience has been very positive.  ALWAYS ALWAYS do your due diligence.  No matter what you may try as long as you don't cut corners, if a deal is bad, you'll catch 99% of them in the process.  No one is perfect, especially us, but we've always been diligent and 9 properties in it hasn't failed us yet and when (notice I say when, not if, because everyone has a bad deal at some point) it does, the damaged should be severely minimized and we can chalk it up as a lesson learned and keep going strong!