Downside of Buying Turnkey Real Estate

Downside of Buying Turnkey Real Estate



the downsides of buying turnkey rental properties that's today's video let's dive in hey there Clayton Morris long time real estate investor and founder of Morris invest thanks so much for dialing up our channel and subscribing a thrilled that you're here and today we're going to talk about the downsides of buying turnkey rental properties so let's dive into it you know when you're getting started and you want to build your portfolio quickly turnkey rentals can be a really attractive way to do that it's hands-off you don't have to be there it's fully managed for you you just put up the cash for the property and you've got a tenant in place cash flowing rental property fully done for you from A to Z that's great but there are some downsides to buying turnkey rental properties let's dive into it number one downside to buying turnkey rental properties its hands-off so if you like to get your hands dirty if you really like to control the whole process that is you like to manage contractors you like to cut drywall you like to put up siding you like to manage roofers electricians you like to nitpick and follow every little thing along the way what kind of paint color carpet all of those things the hardwood floors all of those things if you like a hands-on approach to real estate investing then doing turnkey rentals and buying from a turnkey provider is not going to be for you absolutely not if you are a control freak and let's be honest if you're honest with yourself are you a control freak if you are then buying turnkey is probably not the solution for you because if you're going to want to be on the phone every day managing your rentals like that then you should probably do it yourself take it from somebody who knows I know individuals who are control freaks they like to do everything themselves they like to be out there every day they like to meet with the contractors they like to see that this is happening if you are a control freak then a turnkey real estate investing is not for you stay away from it you will not be happy I'm telling you stay away number two downside to buying turnkey rental properties number two is that not all turnkey providers are reputable you need to do your homework I recently heard a story about a group of investors out of Hawaii they purchased a bunch of properties about a year ago from a turnkey provider or an alleged to turnkey provider and after about five or six months of owning these properties they were sitting vacant and they were wondering where their rent checks were and basically this little phony company sort of folded up and disappeared then these Hawaiian investors were left holding these properties that ended up not producing cashflow they paid too much for those properties and they couldn't get tenants in those properties what are they going to do unfortunately I ended up buying them from the Hawaiians and at a loss they actually took a loss on the properties they paid more than they were worth they didn't cashflow they couldn't find tenants for it so you need to be careful and make sure that you're working with a reputable turnkey provider so you absolutely want to ask for testimonials you want to hear from people who have actually purchased properties from the company before ask for some testimonials make sure that the company actually does what it says it's going to do hear from happy customers right there's no better way than to find out if a company actually exists and is doing real work then to talk from people who actually own properties from that company and who are receiving rent checks on a regular basis no one wants to work with a phony company so don't do it don't get suckered into that kind of stuff work with reputable companies that have testimonials that they can share number 3 downside to buying turnkey rentals is ROI return on investment you know a lot of people have money in the stock market they make a 3 or 4 or 5 percent return on their money that is okay it's kind of low but when you work with a turnkey provider ask them what is the typical net ROI on the property that I'm going to buy not gross gross is before expenses and other things are removed what is the net ROI now if they're telling you if they're giving you a gross ROI number they're telling you it's going to be 20 percent or 25 percent and you ask them is that gross ROI well yeah yeah that's gross ROI that's a red flag you want to know what the net is after expenses insurance taxes those types of things if they tell you to three percent net that's basically what you're getting in the stock market or even a little bit lower make sure that your ROI is high the whole point of getting in real estate investing is for ROI I have so many videos here where I talk about the power of return on investment and why that's the most important thing not the four walls in a roof just return on investments that's the whole reason we're doing this right so find out make sure that that ROI is high personally I don't buy properties unless I can hit a 10 to 12 percent net ROI net ROI why would you settle for anything less than that so make sure when you're talking to a turnkey provider that their net ROI is high if it's not why not just invest in the stock market for on the list number four on the list the downsides of buying from a turnkey rental provider find out the costs costs very often turnkey providers will nickel and dime you and they kind of don't tell you about it they'll kind of hide it and and and you'll find out later and I've heard horror stories from people that found out later after they bought turn-key properties for instance here's a scenario if a turnkey provider if you get a maintenance call on your house and a plumber has to go out and fix the toilet happens right something gets a clog are you going to just pay the plumber you should why then would you pay an additional percentage or fee to the turnkey company to call the plumber to go out to the property so certain companies will charge you additional maintenance fees ten percent or so on top of the fee that you're going to pay for maintenance so watch out for little fiddly costs hidden costs to go out to your property to check on things let's say there's a storm thunderstorm is your team that you work with your property management team or your turnkey provider are they going to go out and check on your property are they going to charge you I heard from another investor who told me this one of their teams went out and charged them seventy dollars just to drive and look at the house they called that a site visit and charge them for a site visit be aware of those little fiddly costs that can add up make sure you ask those questions upfront does your team charge an additional fee for maintenance do you charge for site visits are all of those things extra that we are paying a turnkey provider so look for those little hidden costs it's kind of like the phone company see those things adding up on your bill and they can be costly so ask about them number five downside from buying from a turnkey provider okay maybe you're in California and you hear that certain cities offer have a turnkey service great but you need to be aware of the vacancy rate no turnkey company is better or much better than the vacancy rate of the city that you're buying so make sure you ask your turn P provider what the vacancy rate is for that area and they cannot beat the vacancy rate it's going to be very difficult for them to fill that property with a tenant if their vacancy rate is above 10% or 12% there are certain cities where the crime is very high and the vacancies are very high and they have one employer in the town great that there is a turnkey provider there but at the vacancy rate is through the roof you probably want to avoid that it's going to be very difficult for them to get a tenant in the property so that can be a downside vacancy rate make sure that you know what the vacancy rates are and that you're getting a low vacancy rate so those are five downsides to working with a turnkey rental provider I hope this was helpful I want to protect you make sure you have the education to go out there and make great decisions about your real estate investing future we have other great videos in this series on turnkey providers we also have getting started videos we have whole playlist just go down in the description below in this video click on the show more tab and you'll see the links to other videos in this series please subscribe also to this channel just click the button over here to subscribe and we'll see you back here we publish videos multiple times a week everyone I want you to go out there take action and become a real estate investor it's the best way to create passive income we'll see you next time