If you are thinking of buying a turnkey rental property or are in the process of buying one, there is something about turnkey providers that you need to understand. Knowing this will only make your turnkey buying process smoother, not just for you but for the turnkey seller as well. When everyone is getting along, it can make the process all that much more enjoyable.
But you may not like what I have to tell you.
Before I tell you the situation, though, I want to make a distinction. Keep in mind, I make no judgment whatsoever which category you fall into. But these (unofficial) designations will help make what I want to tell you more clear. These are unofficial designations because I’m basically naming and defining them myself. They are not standard designations.
The Two Types of Turnkey Buyers
This is a good majority of the BiggerPockets crowd. If you are reading this, you are likely in this category. This is the category of investors who are either new to real estate investing and/or are smaller-scale investors. The terms “private” and “individual” really aren’t very clear or accurate terms, but it’s what I mean by them that counts. Actually, I don’t know how to designate this category that would be most accurate, so just bear with me.
Either way, the traits of this group that are important are — they have a lot of questions, they have a tendency to be more emotional in their purchase, and they tend to move forward with a purchase a little slower and with a little more caution. With the emotions, I don’t mean blatant emotions per say, but they are going to care a lot more. I want to be clear when I say that there is absolutely nothing wrong with wanting to ask questions and/or caring more about a property or even in moving slow and cautiously. It is what it is, and you should ask questions and you should always be cautious in who you work with and what you are buying. If you are in this category, you are likely to also expect a certain level of communication and customer service.
What I call “advanced investors” are the ones who only care about the numbers. They have no emotions in their buying or owning. Yes, they will have a set of questions for ordinary due diligence, but the number of questions will be very limited to specifically the only things that truly matter, and they couldn’t care less about customer service levels or communication style. All they care about is the numbers. All they care about is their checks arriving safely in their bank account.
Advanced investors move quickly. They know what they are looking for, they do some due diligence and decide if a property either provides it or not, and then they either buy it or they don’t. There’s minimal to no piddling around and no small talk. They couldn’t care less how friendly the seller is or even anything about them, so long as they get a good financial investment.
Despite a lack of good terminology, are you able to understand the two categories I’m trying to convey? The beginner, more individual type of investor will tend to ask a lot of questions. They care more about the properties they buy than just the numbers, they tend to move slowly and cautiously, and they are going to expect a certain level of customer service and communication. If certain levels of customer service or communication are lacking, their first inclination will be to assume they are getting scammed. The advanced investors only care about the numbers on a property and the sustainability of those numbers. They don’t care what the property looks like, they ask only the minimally required questions during due diligence required to ensure what they are getting, and they couldn’t care less about customer service levels.
Now, here’s what I want to tell you and what you need to understand if you are buying a turnkey rental property. In fact, one could consider it a bit of a conundrum. Like I said earlier, if you are reading this you, are likely more in the beginner or individual investor category, so there’s a good chance you are going to want to be more thorough with your questioning and you are likely to expect a certain degree of customer service. However, the reality is that…
Turnkey providers primarily focus on advanced investors!
The conundrum might be obvious — you are a beginner or individual (or small-scale) investor and they focus on advanced investors. But the effects of the conundrum might not be as obvious. Don’t worry, I’m going to explain everything right here.
Turnkey providers tend to focus primarily on selling to advanced investors because:
- Advanced investors tend to move quickly, which better matches the speed at which the turnkey provider operates.
- Advanced investors tend to buy in bulk, and the turnkey model is based off the idea of bulk.
- Advanced investors tend to pay with cash rather than with financing, which better matches that speed of process.
- Advanced investors do not demand a certain level of customer service or communication, and by far turnkey providers’ worst trait tends to be in their customer service skills.
- Advanced investors do not expect or demand perfection, and turnkey providers usually aren’t striving for perfect.
People don’t realize that turnkey providers work mostly with and focus mostly on advanced investors because they don’t see those transactions happening. How would you see it? You wouldn’t, unless you are already in that world, at which point you wouldn’t be reading this article. But trust me when I say, you have no idea how big of groups these turnkey companies sell to. Oftentimes these are international groups, from countries you probably didn’t even know were buying U.S. real estate, and the speed at which money changes hands with these investors is something you’ve probably never thought of.
Now, how might this affect your turnkey buying experience if you are a newer or smaller-scale investor? Well, I can tell you.
This kind of buying process is not a one-way street.
This would mean you are the customer, and the customer should be catered to and you are always right. Instead, it is a two-way street. Not only do you get to choose what turnkey provider you buy FROM, but sellers get to choose who they sell TO. They don’t need your business. They have enough business as it is. This is even more significant in a sellers’ market as we have now, where sellers can be increasingly selective.
You can’t assault turnkey providers with a list of questions before you actually have a property under contract.
Turnkey sellers deal with so many buyers so quickly that if they spent that much time answering exhaustive lists of questions from every client, they would never get anything done. Remember, they don’t typically cater to the question-askers! So go easy, or you may find yourself banned from working with that provider. Sounds dramatic, but I can think of at least a handful of times just in the last year that I’ve been working with buyers where the turnkey provider has flat-out said they will no longer work with that buyer. Question-assaulting really needs to wait until you at least have a contract on the property.
It is very likely that the turnkey provider may drop the ball on communication at some point.
Turnkey providers just really tend to suck at communication! It does not mean you are getting scammed. Turnkey providers are exceptionally good at what they do, which is finding properties, rehabbing properties, and managing properties. Communication is not inherently included in those things. If they were much better at communication than they are, they would probably not be as good in their property skills (everyone can’t be great at everything!), Why don’t they hire a customer service person, you ask? Because they cater to advanced investors who don’t care about customer service! They aren’t catering to the crowd who would want it, so they aren’t likely to hire a person to fill those shoes.
The inspection report on the property will show items that still need repairs.
Why? Because the companies don’t function at absolute perfection at all times, which includes the rehabbers. This does not mean you are getting scammed. What it does mean is that you now have a chance to tell the seller exactly what must be fixed before you are willing to close on it. That is the completely normal process for turnkeys. Somehow along the way, people have assumed turnkeys are perfect, but they just aren’t.
If you are on the newer end of buying or someone with trust concerns (don’t feel bad, I fall into the latter category personally), here are some mitigations to help you out while you work with these companies who are fairly terrible at catering to questions and hand-holding:
As I mentioned, understand that the turnkey sellers don’t need your business.
This is not like working with a normal real estate agent. The turnkey sellers really are doing you a favor by selling to you at all. You can certainly still — and should — do your due diligence and communicate as you normally would, but be mindful that these companies just aren’t equipped to always respond in a way that you would expect companies who do need your business to respond. If you can at least go through your buying process understanding this, it will help you ease up on your end, which will make things go smoother on both your and the seller’s end.
Don’t expect the sellers to just cater to you.
You need to put your own effort in as well. Help the seller help you. For example, buyers need to get qualified so the seller knows they are “able” to buy, and the buyer also needs to put earnest money in escrow so the seller knows they are “willing” to buy and serious about it. If the buyer is not willing to do either one of those things, then a seller is only willing to put so much time into preliminary discussions with the buyer because the seller’s time is very valuable. Therefore and in addition…
Don’t bombard the turnkey seller with lengthy, detailed questions before you have signed a contract on a property.
Give the seller confidence that you aren’t just wasting his time by signing the contract. Ask all the questions you want, but wait until after you are under contract. Just because you are under contract doesn’t mean you can’t get out of it should you find out anything that you deem uncool about moving forward with your purchase.
Don’t freak out when you receive your inspection report.
The condition of the property does not matter whatsoever until it’s time to close.