How To Do Turnkey Rental Deals Step By S...

Welcome back to my 4-part series where I’m explaining the ins and outs of how to find turnkey rental properties and the provider that will best fit your needs.

Chris Clothier here with a quick recap of what we’ve already covered…

Review

In Part 1, we looked at several foundational criteria that you should consider before selecting your investment market. This might include such things as industries located in the area as well as population growth.

In Part 2, I explained that once you locate a great market, then you find a great provider in that market. This will be a provider who will give you the kind of passive investment that you want. The next step will be to interview them and make sure they’ll be accountable for doing what they say they’re going to do.

Now in Part 3, you’re going to be equipped with even more tools to ensure this is a profitable venture for you.

Let’s get to it.

Drill Down with These Questions

Once you’ve found a good partner/provider, there are going to be questions surrounding how they operate. Ask these:

Can you tell me about the systems you use? (Make notes of what they tell you.)
How do you manage your portfolio?
Tell me about your team—who works for you?
How do you operate on a daily basis with the rentals and renovations that go on within your company?
How many people do you have full time on your staff?
How do you treat your tenants?
How do you keep tenants in your properties?
How long do you like them to stay?
What is your average length of occupancy?
What’s your average vacancy rate on your portfolio?
How do you operate?
Will you call me, as an investor, every single month with an update on my properties?

These questions are designed to find out their level of integrity.

integrity Are they the type of company that invests in people and systems?

At this point, it doesn’t matter the price of their service. Because anyone can be the low-cost leader or they can be the high-cost leader. They could be the most expensive or the least expensive.

What you are really looking for is the value you will receive from them as a provider.

Determine the Value

So let’s say you’ve found a provider that you really like. It appears that they’ll give you a good service. Now you need to know if the value behind the service is there.

The way that’s done is two-fold…

First you want to look at the properties. What kinds of properties are being offered and where are they located?

Let me insert here that I’ve thrown away this idea of ranking neighborhoods as A, B, C or D. Here’s why...

I can tell quality from junk all day long. “Cheap” is the killer of rental portfolios. Especially when you’re buying passive; especially when you’re buying turnkey.

Avoid it at all cost.

The reason is that these properties are purchased, then renovated and there’s a profit made on top of that for the turnkey company. They need to make money too. But they are pricing it low so they can attract you as a buyer. They are using that low price to drive up the returns.

As with any investment, the higher rate of return you see on paper, the greater the risk is going to be.

As a turnkey investor, I’ve been where you are; I’ve invested in turnkey properties in other cities around the country; I’ve interviewed many other companies; I helped my family build one here.

fix So, what is the greatest value?

I can tell you that the greatest value of a turnkey company is providing you consistent and reliable returns, and that is done in only 2 ways:

You must buy better homes.
You must do the very best renovation possible.

This means eliminating as much deferred maintenance as you can identify. Replacing all the systems that need to be replaced. Fixing floors, removing trees, checking foundations, etc.

These things must be done for a stable and consistent return. Once you start doing all of these things, what happens is the return on the backside starts coming down on paper. This is where it’s really going to return.

Or…

We can skip all of those steps, defer all that maintenance to sometime in the future, show a higher return on paper and what do you get as an investor?

Frustration.

So, forget cheap! I’m telling you on the frontend—forget cheap. Cheap is the fastest way to failure in turnkey real estate investing.

Price is what you pay; value is what you get.

More to Come

In the last and final segment of my mini-series, we’ll look at the bottom line...

How to buy what I call neighborhood normal and in the path of progress. This is very important. And keep in mind that cash flow is not the primary criteria you should be looking for.