Avoid Your Own Turnkey Horror Story

If you search the Internet for “worst renter stories” or terms like it, you’re bound for hours of jaw-dropping, stomach-churning entertainment. It’s like watching a train wreck. And while as fun as a bit of schadenfreude can be, no real estate investor goes into this business wanting their own horror story.

You might think it can’t happen to you. But no investor, even the seasoned and experienced among us, is immune to a horror story set-up. This is true even for turnkey investing – a strategy designed to mitigate risk exposure.

So how can it happen…and how do you avoid it?

What Can Go Wrong?

When looking at the turnkey SFR model, you might wonder how it can all go wrong. Part of avoiding a bad experience is recognizing the risks so you’re better equipped to understand, foresee, and prevent these issues.

•  Renovation Quality – Turnkey properties are typically renovated before being sold to investors. However, the quality of these renovations can vary widely. Properties with subpar renovations lead to a host of maintenance issues and decreased property value. Look for quality materials and attention to detail.
• Misleading Property Descriptions – Some turnkey providers may exaggerate the property condition or potential rental income. Verify these claims using comps, public records, and eyes on the ground.
• Property Management Issues – While turnkey investments often include property management, the quality of these services can vary. Poor property management is an investment killer! 
• Overpriced Properties – Turnkey properties often have a premium price tag due to the convenience and services included. When done correctly, the price is well worth it. When it’s not…you get the picture!
• Market Risk – Investing in turnkey properties in a declining or unstable market can be risky. Economic downturns or shifts in market demand can impact property values and rental income. Be sure the turnkey markets offered have promising long-term outlooks.
• Resident Issues – Subpar property management can lead to subpar residents. Without proper vetting, you could face late payments, property damage, or conflicts with management.
• Hidden Costs – Account for all potential costs associated with a turnkey investment. Consider maintenance expenses, property taxes, insurance, and management fees. Failure to accurately budget for these costs spells disaster!

5 Lines of Defense Against a Terrible Turnkey Investing Experience

Defense #1 – Define the Terms

When you’re considering a turnkey partner, take time to define the terms. What do they mean by “turnkey”? What are your expectations? In this business, terms can be nebulous marketing words that don’t guarantee anything. Get on the same page! See what these companies actually offer rather than assuming. 

Defense #2 – Do Your Due Diligence

An investor’s research is worth its weight in gold. As a passive investor, this is our primary responsibility. Ask tough questions, meet multiple times, do the research, check out reviews, and crunch the numbers. Make it an ongoing process, not a one-time task. We always recommend working with companies and vendors with significant experience in this industry. This isn’t the place to take a risk on start-ups with a lot of learning to do.

Not sure what to ask? Read “Crucial Questions New Investors MUST Ask a Property Management Company”

Defense #3 – Stay Engaged

Being a passive investor does not mean being an unengaged investor. Analyze reports from your management team, look for ways to improve cash flow, and plan to scale your portfolio. You won’t be bamboozled by bad news when you stay engaged and in the know. Your engagement is critical. The more you engage with your provider, the stronger your relationship. When your partner understands and values your goals, it improves outcomes.

Defense #4 – Know the Red Flags

Do you know how to tell a good turnkey partner from a bad one? What makes a suitable investment property? A standout market? Can you spot a real estate scam? Do your homework and listen to your gut. If something sounds too good to be true, it probably is. Continue your education in this industry so you can spot red flags from a mile away!

Defense #5 – Take Nothing on Faith

Ultimately, our best piece of advice is this: take nothing on faith. Some might call it looking a gift horse in the mouth. We call it mitigating risk. There’s a place for faith and spontaneity, but real estate investment isn’t one of them. Question, verify, analyze, and examine. 

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