Turnkey properties come with amazing promises of just buying properties and waiting for the checks to roll in. The reality is that there is actually a significant amount of work involved in finding, buying, and owning turnkey properties.
Ali Boone from BiggerPockets.com details three of the important ways that turnkey properties will make you work.
People think that when turnkeys are advertised as “hands-off,” it means they have to do nothing. Then, inevitably, when something goes wrong, the investor is irritated because things are getting handled.
Well, I hate to break your cookie jar and spill cookies everywhere, but turnkeys aren’t fully hands-off!
Turnkeys do, however, take care of a lot of the work for you. You don’t have to spend time focusing on more advanced skill sets such as rehabbing, negotiating, or direct landlording. You also are likely working with experts so you are able to get a lot of built-in expertise with your property as well, which can be especially advantageous for newer investors.
Choosing Your Turnkey Provider
Conducting Due Diligence
Owning the Property – Sorry, But Turnkeys Aren’t 100% Hands-Off.
Though later in their article they offer solutions to many of these problems, Hipsterinvestments.com sheds even more light on some of the common turnkey misconceptions.
Ack, cover your ears! Don’t let the phrase “hands-off” even get into your head! To be honest, I may have been one of the people who said they were hands-off back in the day. I said that because I thought they were supposed to be when I started buying them! It turns out, after watching so many people buy and own turnkeys throughout the years, I believe that some people truly don’t realize that they actually do need to use their brains for their properties occasionally.
Here is a list of a few things that I’ve seen go wrong with various turnkey properties:
Signed contracts aren’t returned.
A rehab isn’t started, or completed, when expected or promised.
The inspection report comes back with issues.
The seller doesn’t communicate with the owner or the lender when necessary.
The seller or property manager doesn’t give the owner documents to review prior to decisions that are made.
The property manager doesn’t initiate an eviction as quickly as they should.
The property manager doesn’t deposit funds when they should.
Repairs come up on the property—maybe they should have been covered under the scope of work warranty and weren’t, or maybe they are due to damage caused by the tenant.
Damages are severe enough that the property must be rehabbed, but the property managers and/or contractors don’t get started on it in a timely manner, or they don’t do it to a quality level (rehabs need to be monitored!).
The property manager just flat out sucks and needs to be replaced. – read more at hipsterinvestments.com
Clayton Morris highlights five extremely important downsides of buying turnkey properties in this video.
Engelo Rumora says to “NEVER” invest in turnkey properties!
I don’t agree with Rumora’s Reason #1 as for me, it doesn’t reflect the entrepreneurial mindset necessary for effectively scaling business growth. Counting other people’s money is not a practice that I endorse. If a company provides a valuable service to me that saves time and I can still make the profit I need, then they should be well compensated or you simply don’t make the deal. All of that aside though, I do agree with Engelo’s other Top 4 reasons and LOVE his enthusiasm!