Great Investment Strategy: Bad Company? Protecting Yourself from Subpar Turnkey Real Estate Services
Turnkey real estate provides you with the opportunity to generate income, build a robust portfolio, and have the burden of property management lifted from your shoulders. But, as with any industry, any sector, and set of services, there are always a few bad apples in the bushel. This is unfortunate as turnkey real estate is one of the lowest risk entry points into investing.
Does this mean you should turn your back on turnkey? Absolutely not! It does mean, however, that you need to take the time to do your homework. Start by recognizing the signs of a subpar turnkey real estate company – and learning how to protect yourself.
Watch Out For: Inexperience.
Now, lack of experience does not indicate any intentional malfeasance on the part of the company. It just means that you will not be able to rely on a solid track record of success or in-depth market expertise. And that they’ll be “practicing” with your time and money.
Opt for a turnkey real estate investment partner with a long history of acquisitions, rehabs, and property management. Look at reviews, ratings, and testimonials. Contact clients. Do you due diligence.
Watch Out For: Promises
We’ve all heard the truism, the only certainties in life are death and taxes. Likewise, there are no guarantees in the real estate world. There is always a level of risk (it’s up to you to determine your tolerance). Beware of companies that give you guarantees in terms of rentals and vacancies. They’re likely padding their prices – and if they go out of business, guess what happens to that “guarantee”? It disappears, just like the company.
Arm yourself with knowledge: you need to understand the neighborhood in which you are interested, the current and historic rental and vacancy rates, the local economic and job outlook, and the demographics of the rental pool. When you know what you’re getting into, there is no need for a guarantee.
Watch Out For: Pricing
One of the most attractive features of turnkey real estate is that you do not have to live in the area in which you are investing. You can execute the transaction and have third-party property managers handle the day-to-day without having to be local. But this also leaves you vulnerable to pricing issues.
Some companies sell above market value, and you may have no idea. And some lift their comps by having another company purchase their properties. When you receive the appraisal, you’re getting an inflated figure.
This is especially common for investors from states with high real estate prices (e.g. New York, California). If they see an apartment complex in Detroit for $90,000, they may leap at this “amazing” deal. But they don’t have the insider knowledge to fully understand what they’re getting for this money.
A good turnkey company will price fairly. But you need to know what “fair” is. Do your research. What other other properties in the area selling for? What’s the neighborhood/city’s outlook? Talk to the neighbors. Talk to other businesses. Talk to other investors.
Turnkey real estate investment is an exciting opportunity – but “turnkey” does not mean giving up all responsibility when it comes to making choices. The first, and arguably most critical, is partnering with the right company to help you through the process and ensure you find the best properties at the best prices to build your portfolio.