In our previous post, Should I Invest in Wholesale, Retail or Turnkey Properties? we talked about the difference in investment type and effort needed for each style of investing. Today we are going to look at Turnkey Real Estate Properties, where they come from and what to look for in a good one!
When getting Turnkey properties ready for sale, the wholesaler will:
- Scrub the title and correct any challenges to the title such as removing liens which may be costly and time consuming, by doing so they will able to sell with clean and marketable title.
- Remove any code violations to the property.
- Rehab or renovate the property. As these properties are typically purchased as distressed property they most often need work to make them move in ready. So any work that needs to be done to make the home move in ready is taken care of. Anything from new roofs and kitchens or baths to carpet and paint. There may be a need for new heating and air conditioning units, electrical or plumbing repairs. At this point some wholesale investors will simply resell the property for fair market value to the retail buyer.
The wholesaler who utilizes the exit strategy to sell the property to the turnkey investor has a few more tasks to perform. In addition to the above mentioned tasks they also have:
- The properties are then assigned to property management divisions or to outside management companies to place a tenant in them and acquire a one year lease. In essence converting the property to a performing asset.
- As a performing asset, expenses to maintain the properties are established and pro-formas are computed.
- Relationships that have been established (known as the Powerteam) are offered as a tool for the turnkey property provider to utilize, adding additional value to the property. Relationships that offer economy of scale pricing for things like insurance, property management and repair services.
The turnkey properties offer two key elements to an investor that the retail properties cannot compete with:
1. Clarity: the pro-forma, as it is now a performing asset. It now has the performance of a business model. As an investor you do not have to assume what income and expenses will be, the cloud of mystery has been removed. You now know what it will rent for as it has a lease in place verifying what someone is willing to pay for rent. You also have expenses established at a reduced cost as you are able to utilize the economies of scale pricing established by the turnkey property seller and the power team they established already being in place.
2. Below retail pricing (built in equity from day one). This may be the best benefit of them all. When wholesale investors sell their inventory on the retail market they typically do so on a much smaller scale. They may buy a few properties a year. However, the turnkey property provider does everything based on economies of scale. They buy several homes a month and they pay cash for the properties. This gives incentives for the banks to sell to them cheaper. They have their own rehab crews which allow them to remodel homes more economically. They buy their remodeling material at a discount as they buy in bulk.
All these economy of scale purchases allow them to keep their expenses down while offering a turnkey property with a real estate power team in place at a price discounted below retail – often as much as 10 percent or better. You see, the turnkey property provider does everything based on economies of scale. As they purchase and rehab between 20 to 40 properties per month, they must also sell 20 to 40 properties per month. They tend to work on a smaller profit margin than the retail market since they understand selling a property quickly and re-investing that money into the next property is more profitable than letting the property sit on the market for a long time looking for a retail buyer.
We know that finding good, reputable Turnkey Properties is a challenge for most real estate investor. With that in mind, we are part of power teams that help you get a great deal, with good property management in place. If you would like to find out more about the properties we have available RIGHT NOW, give me a call today 941-718-7761 or search our available turnkey properties.