Not all Turnkey Properties are Created Equally
Several real estate investors have fallen into the trap of investing in what appears to be a turnkey real estate investment, only to find they are opening Pandora’s box after the deal closes. The seller may have packaged the newly rehabbed property into a neat little investment bundle complete with all the bells and whistles including a tenant who just moved in, a compelling cash flow, and a renovation that appears to be comprehensive. These may sugarcoat defects and potential problems, such as a deteriorating roof, an outdated plumbing system, and a tenant with an unruly lease history. These kind of hidden issues will eventually hurt your cash flow if not vetted properly ahead of time.
The whole point of buying a turnkey income property is to eliminate the headaches involved in hands-on real estate investing, while reaping the benefits of passive income, appreciation and tax deductions. Therefore, it is imperative that you never take the seller’s word for it when evaluating a deal.
Unmask potential problems by doing your homework.
Ask for Records That Verify Seller Success
Request the records of some actual investor acquisitions of turnkey real estate investments extending over more than one year. Details must include unforeseen maintenance costs, vacancy rate and management expenses among others. These records will serve as proof of the seller’s track record in selling properties that really clinch as forecasted. Ask how many repeat buyers they have and how many investors have bought multiple properties from them.
Tip: Always ask for proof of any numbers presented to you. Buying investment property should never be treated lightly.
Dig Up References
Do not be satisfied with getting in touch with the list of investors that the seller has provided. Dig for more references with Google’s help. The Internet is a vast source of complaints and reviews. Join real estate forums or sites to ask if someone is familiar with the company. You can also ask competitors, but remember to sift prejudices out.
Proof of Renovations
Inspecting or taking photos of the property may not be easy if a tenant is already occupying the property you are about to buy. What you can do is request the scope of work performed to renovate the property and the name of the contractors that performed the work. Inquire about the remaining usage life of parts of the property that can eat away at your cash flow when repairs are needed, such as the roof, plumbing, electrical and HVAC systems.
Be wary of the turnkey investment companies that have no to little owner support programs after the deal closes. If the seller conveniently wants to get out of the picture once you buy the property, any subsequent concerns that may arise now become the burden of your property manager. Since the property manager may not be fully aware of the details of the transaction, this set-up may lead to a number of headaches. Clarify with the seller the procedure of buying their property and note if they talk about after-sale procedures and support. A good turnkey property investment company will have these as part of their account management and should be willing to keep tabs on your investment by supporting your property manager or providing their own property management services.
Gauge The Seller’s Market Knowledge
Fancy presentations and marketing materials look impressive and may be an indication of professionalism, but do not get blinded by these if the seller cannot directly discuss the details the market where the property is located. A seasoned seller will know the market, from demographics to future development, like the back of their hand. This comprehensive knowledge will enable them to appropriately match you with the right turnkey property depending on your specific goals.
There may be more ways for you to unlock the secrets of a turn-key real estate investment. However, the work involved in uncovering these hidden complications can be greatly reduced if you can establish a good long-term business relationship with a dependable seller who is committed to supplying you with good cash flow opportunities without the sugar coating.