Turnkey Real Estate Investing At Your Own Risk
Turnkey Real Estate Investing companies are just about everywhere you look. They promise great things to you as an investor but, should you invest your money in these Turnkey real estate investing companies?
Things To Watch Out For with Turnkey Real Estate Rental Properties
- Overpriced Properties
- Rehab Expenses and Charges
- Rental Guarantees
- Bad or Unfinished Renovations
- Not Maintaining a Portfolio of Their Own Rental Properties
- Unprofessional Actions and Attitudes
- Lacking Business Experience
- Little to No Business Support
- Lacking Business Systems
There are many different ways companies do their turnkey properties but the core of the business is the same.
- The company selects a part of the country to invest in and identifies a property before you become a part of the investment
- They sell you a home with the promise of turning it into a rental property. The price is fixed and you know exactly how much money you are required to pay or get financing for.
- All negotiations, title work, closing, etc. is done by the company for you
- The rehab is done by the company's subcontractors and you are charged for all the work done to the house
- Once the property is rehabbed, the Turnkey real estate company selects a property manager to manage your property
- The property manager finds and places a tenant in the property
- You receive rent profits minus expenses and property manager fees
Then you hope you gave your money to the right company and they invested it for you and didn't steal your money.
Sounds like a good plan right?
You get a business already built for you with little to now effort on your end. Some companies ever offer a guarantee for the property to be rented. If it sounds like it is too good to be true, then it may very well be.
Watch the Turnkey Real Estate MPI Episode here:
Don't Be Fooled by Turnkey Real Estate Companies
Recently a well known ex-Fox News host Clayton Morris and his company Morris Invests reviews have run into some issues with their investors.
Morris Invest sells turnkey real estate investing properties to investors like you, promising to do all the work for you to set up your business and buy a property.
Morris Invest reviews finds the home, rehabs the home, then has a Property Manager place a tenant for you in the property. Everything is paid up front and hopefully you will
Here is an investor who checked out his property to see the progress on it:
More issues have come up with the these turnkey real estate investing properties. The property management company utilized by Morris Invest reviews, Ocean Pointe Properties have ran into issues with unlivable homes and tenants who are complaining about the condition of the homes.
As you can see, there can be some issues if you are not fully engaged in your business.
The bottom line with turnkey real estate investing is that you are buying a business that someone built with the intent to sell to an investor like you. The turnkey company could possibly cut corners or even completely con you out of all your money.
With the chance of losing all you have to invest, why would you even consider these turnkey properties? Even a well known company like Morris Invest reviews can lose investors money easily.
The main reason most people turn to turnkey properties is that all the work is done and the investor doesn't want to take the time to learn the business and start from the ground up.
Some, not all of these companies can be scams and designed to steal your money.
Whenever anyone asks me if turnkey real estate investing is a good idea to get started investing, I tell: “Why not just do it all yourself? It's not complicated and you won't take the chance of having these issues fall on you.”
There are no shortcuts in wealth building. Each step builds on the other and once you are at the top, life is amazing. And, Morris Invest reviews is not the company I would go with for investing.
The Major Problems with Turnkey Real Estate Investing
1. Properties Are In Areas You Don't Know
When you buy from turnkey real estate companies, you are hoping that the company would buy a property in a good area of town. One that is profitable for rentals and have low crime.
It is much better to do your own homework on the area to make sure it’s a place that you want to invest in.
If you don't know the area, you would not know that crime rate, if the property is likely to get rented fast, what type of clientele you will have, and if you will get the place rented or not.
For example, the company can tell you that the property you are buying for $120,000 is worth $140,000. If you don't know the area, you may not know that the value of the home is actually $110,000. It will be easy to overpay for a property if you do not do your homework.
2. Turnkey Real Estate Properties Can Be In Bad Neighborhoods
It's not just the area of the country that your investing in being bad but if you are in a good part of the country, but have your property in a bad neighborhood, it is more than likely it can be hard to get the property rented.
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It be hard to even get it fixed up or keeping it safe.
The properties that are in bad neighborhoods tend to have more crime. The property will probably get broken into more often and have things stolen. You will have tenants that move out more often or even have tenants that stay longer than they are supposed to be there and then you have to go through an eviction.
Just like the properties sold to investors by Morris Invest reviews have lost them tens of thousands of dollars.
These properties are in bad neighborhoods can potentially cost you lots and lots of money not just on overpaying for property but having tenants that live in the property and do not take care of it.
Many things can happen if you don’t know exactly what is going on in that area or part of town you are investing in.
By building the business yourself, you would become very knowledgeable about all aspects of the part of town, types of homes for sale, what is a good deal, and when you should buy.
3. You Don't Know What the Actual Condition of the Property Is
When you buy from a turnkey company, you’re really just taking the word of the company that the property is a good property and one that you should buy.
You are basically just putting all your faith in the turnkey rental property company to buy a good property and give you adequate numbers on what it costs to fix up.
Normally you don’t get to walk through the property. They may give you a home inspection that they did but again, you are trusting the company to give you a true inspection report.
What the company really wants from you is to be very standoffish and basically be basically a passive investor that is going to be hands-off in the business.
4. The Turnkey Real Estate Company Adds a Percentage Onto The Rehab Work
Let’s say that the rehab company the turnkey company hired is actually telling you that it will cost $20,000 to fix up the property. The $20,000 also includes money the rehab company is charging for the work being done. On average, the turnkey company takes 10%-20% on all rehab done on the property.
Why not do that yourself? I managed the rehab of one of my properties in Texas completely over phone, even without ever stepping foot on the property seeing the house.
I basically relied on my property manager, my real estate agent, my inspectors, my contractors to be my eyes and ears on the property.
They took great pictures of everything and documented all the work so I can see the progress.
5. No Appreciation of Value After Rehabbing the Property
The reason why you will not get appreciation is because you’re paying a premium for the property. The company will try to tell you that the market value is much higher than it actually is.
It’s really easy to say that the property is worth $140,000 and is much harder to prove it. If you buy a property for $100,000 from the turnkey company and it takes $20,000 to fix up the property, they will tell you the value will be $140,000 after all the repairs.
By their numbers, you would gain $20,000 in appreciation by forcing the value up with renovations.
It is entirely possible that they are being overly optimistic on the value after it is fixed up. They could even be lying to you about what the home is, and, will be worth.
6. No Equity In The Property Because the Turnkey Real Estate Company Takes It All
When you buy a property, you want to look for deals. Deals are properties that you can buy for under the market value. When you buy a good deal on a property, you get automatic equity in the property on the day you buy it.
When I find a property that is listed for $100,000, I try to buy the property for $80,000 or less. The goal is to get as much equity in the property.
Tip of the day for you is: You make your money when you buy the property. You realize your money when you sell the property.
These turnkey companies mark up the price of the property and sell the property to you at a premium. If the company finds a seller who wants $70,000 for their property, the company would try to sell it to you for $85,000 and pocket $15,000.
Especially with companies like Morris Invest reviews who take all the money in the deal when they sell you the property.
7. You Weren't the One to Hire the Property Manager
The PM is selected for you and is already in place when you take ownership of the property. The PM can actually be your Turnkey company or a different company.
The property manager is the most important person on your team. The PM runs your business for you by fixing up the property, finding tenants, evicting tenants, collecting rents, and everything else that your property needs.
I have personally had horrible property managers. They make your life a living hell. Stealing from you, not taking care of your properties, not finding good tenants, etc.
If you don't select your PM yourself, you may get stuck with a horrible PM that will run your properties, and business, into the ground.
Whenever I hire a PM, I make sure they are they type of person I would work with for 5, 10, 15 years later. Changing PM's is time consuming and you want to hire the right PM the first time.
8. You Don’t have a Team of People Working With You in Turnkey Real Estate
The most important part of your business is the team you have around you.
- Property managers
These are your eyes, ears, and hands on your property. Without having a good team, you are in the dark on your property and can run into huge problems. Neglected properties and tenants will ruin your business.
Whenever I start a new are of the country to invest in, I build my team from the ground up. This way, I have contact info of every people who can fix any problems my business may run into.
9. You Don’t Know Who Is Good On Your Business Team
The Turnkey company will select and place people in and around your business that may or may not be good for you.
You need to know the people working for you and on your property have your best interest in mind and desire to do good work for you.
If you get a shoddy electrician on your property, you could have a fire and have a major liability issue on your hands.
10. The Tenant Is Selected For You
Finding the right tenant is crucial to a profitable business.
If you go through eviction after eviction, your profits get eaten up very quickly. Selecting the right tenant the first time is hard for a lot of people. It really comes with experience to find good tenants.
When you are placed with bad tenants, you may have your property damaged, loss of rents and high expenses.
Also, the cost of evictions and the length of the eviction can be very long and drawn out. Depending on what state you are investing it, it can take 1-3 months to evict someone out of your property.
11. Rents Are Never Guaranteed
Some Turnkey companies guarantee to have your house rented and guarantee income for you.
In my experience, rent is never guaranteed. There are so many things that come up in this business that may eat away at your profits.
To guarantee rental income to an investor is really like dangling a carrot in front of you enticing you to give the company your money.
Be weary of companies that give a guarantee.
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