In Real Estate Investing in Turnkey Investment Properties Parts 1 and Part 2, we discuss the steps required to make a turnkey property and the 5 benefits of acquiring a rental property from a turnkey property provider.
In this article we will discuss 6 requirements when selecting a turnkey property provider.
1). Buy directly from the seller
It is common in real estate investing for investors to wholesale other people’s properties. A red flag is when the seller is in California selling property in Ohio. The problem with this is that the wholesaler doesn’t really know about the property and the property can easily be misrepresented. Always ask if the seller actually owns the property. Let the seller know that you would like to discuss the property with the person or company that originally purchased it and did the renovations. Even if you buy from a broker, sign an agency disclosure agreement and insist on speaking to the owner. When you talk to the owner, interview him about the renovations that were done.
2). Pay for a property inspection:
It is always advisable to pay for a third party inspection to confirm that the property is completely renovated. Don’t be alarmed if the inspection has some minor items, as all reports do. An inspector must justify its cost. The main thing is that the seller quickly deals with all the problems.
3). Make sure the renewal is 100% complete:
Never buy a property at wholesale price where the rehabilitation is not 100% complete. Some property providers sell the property and then do the repairs. For example, “Sells for $39,900 and only needs $15,000 in rehab.” The question is does he really need $15k in rehab. According to the WHO? Make what repairs? These types of transactions may sound attractive, but they leave the buyer very exposed to an unrenovated property or “extras” that exceed the original estimate. Additionally, the investor would have to purchase the property and then wait for the renovations to be completed, delaying the time to start renting and earning a return on investment.
4). Know the finances:
The seller must provide a financial analysis showing all expenses, cash flow, cash return, capitalization rate, and other key financial ratios. One item that is often misrepresented is property taxes. Make sure the taxes listed are based on non-residential rates, even if the property is currently assessed with residential taxes. Sooner or later the adjustment will come and non-family taxes will be much higher.
5). Property Manager/Rentals:
Be sure to interview the property manager and make sure you are clear about your goals, objectives, and expectations. For example, discuss the collection policy and what type of qualifications you would like to see in a tenant.
6). Work with a company that has a proven track record:
When it comes to investing in real estate, there are many novice or beginning investors. Be sure to use a company that is established and has a strong track record. Look at previously sold properties and testimonials and ask for referrals. A solid company will work with the best property managers, insurance agents, lenders, appraisers, etc. Find out how long they have been in business. Be sure to do your due diligence and learn about the area, rentals, property, etc. Select a company that has excellent customer service, great properties, and long-term tenure plans. Make sure you get a complete warranty deed and a clean title. Above all else, work with only the best in the business!
Be sure to read “Real Estate Investing in Turnkey Investment Properties, Part 1 and Part 2.”