The Truth: Exposing 7 Turnkey Real Estate Investment Myths

Posted by Chris Clothier on Thu, Mar 30, 2017

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The average person hears “real estate investment” and they understand what you’re talking about, at least in concept. You throw “turnkey” in there and things just get a little fuzzier.

Even if you know what turnkey means—the idea that you “turn the key” and step into an investment that’s ready-to-go and generate cash flow, if it isn’t already generating cash flow at the time of purchase—there are a surprising number of myths and misconceptions surrounding turnkey real estate.

In fact, we’ve covered a few on the blog. But it’s been some time, and the myths surrounding our business are always worth covering.

It’s time to expose the truth about investing in turnkey real estate!


Exposing 7 Myths About Turnkey Real Estate

 

Myth #1: All Turnkey Companies Are The Same

This ridiculous statement could not be further from the truth!

First, if you are reading this article, I am assuming you are familiar with the word Turnkey.  You probably have an idea in your mind of exactly what that means. Your idea of the meaning was developed either by being told by someone or reading articles like this one and doing research.  Either way, you developed your definition of what Turnkey means to you.

Unfortunately, so did every Turnkey company that has popped up over the last 5 years!

The word Turnkey means less today than it ever has in the real estate space.  It is a marketing term used to attract the attention of real estate investors.  As for what the word means and the service an investor can expect...that will differ from company to company and can run a huge gamut.  The fact remains that real estate investors cannot purchase properties from just ANY turnkey company and think that their expectations will be met.  They need to be super focused on exactly what they expect from their investment and ask the specific questions of the turnkey company to make sure they are met.

Myth #2: I Can Believe Everything a Turnkey Company Tells Me

Seriously, I put this one on here because I am stunned at the number of real estate investors who do not question statements made by Turnkey real estate companies.  Sometimes the statements are made on their websites, their podcasts, their online forum responses, etc...

Some of the crazier statements that investors have failed to question and are easily proven false - even if an investor chooses not to use common sense and needs proof - have been:

"My $30,000 properties have been completely renovated and are in high-demand from our renter pool of doctors and nurses."

"If you need to rate properties, our properties would rate as 'A' and maybe 'B+' properties.  Yes, even at such low price points and even though our tenant base is entirely Section 8."

"Our vacancy rate is only 1.5% with 1,500 properties under management.  Don't pay attention to our website which lists over 98 vacancies being advertised.  It is not up to date.  We really only have 22 vacant right now!"

"Our average length of occupancy is over 3 years on our properties.  Yes, we have only been in business for 2 years and I know we are only managing 150 properties, but trust me, our average length of stay is really that long!"

Real estate investors are smart.  So really, I am directing this one to all of the entrepreneurs and business owners out there thinking of starting a turnkey company.  Take this one piece of advice... 

Tell the truth and give accurate data!

It is easy for real estate investors to do a little digging...to put a few pieces of the puzzle together to tell when a company simply makes it all up as they go.  After 13+ years in this industry, the BIGGEST lesson we have learned is that transparency, including owning your mistakes or when you were not at your best, is THE best way to earn the respect and opportunity to do business with investors.

And investors who are reading this...you should expect nothing short of the absolute truth and transparency from a company.  They should always be proud of their results.  If they have to resort to making it up as they go to make it sound better, they are not worth your time!

Myth #3: Turnkey Properties Are Overpriced

A lot of people don’t really understand how the turnkey real estate model works. Because of that, they look at the prices of turnkey properties with a lot of skepticism. And that skepticism pretty quickly turns into accusations. Now, the model between individual turnkey companies may vary depending on if they are renovated prior to purchase, or if the turnkey provider collaborates with the buyer to make customized renovations.

But in essence, the turnkey providers use their market expertise to locate and buy properties for a fraction of their market cost. Many then renovate to get the properties to “turnkey” status, and sell to you, the investor.

When you buy, you’re not just buying the property. You’re buying convenience. And providers know they have to price those properties to sell. They have to be competitive. There’s nothing to gain from being overpriced!

Myth #4: I Don’t Need to Get Involved At All After Purchase

Turnkey real estate is the path for passive real estate investors. That said, “passive” is misleading. Because it’s not totally passive! No investment is. After you buy your turnkey property, you can’t just check out of the process. Yes, your property management team will take care of all of the day-to-day details.

Your involvement can be are much or little as you want it to be, but it needs to be there! You’ll still have bigger decisions to make, including anything regarding repairs, renovations, and the big picture details. Turnkey real estate might be hands off, but it’s misleading to think you won’t be doing anything.

Myth #5: I Can Make More Money If I Just Do It Myself

A lot of people can’t fathom why they would go through a turnkey provider and give a monthly cut of their rental profits to the property managers. They believe that if they buy their own property, rehab it themselves, and manage it themselves, they can earn more money.

But does it really work out that way?

Here’s the thing: a quality turnkey provider has done the heavy lifting. The hard part is done. That’s finding the good deals on the properties and on the renovations. It’s finding the good tenants. It’s having the quality property management. They have saved you money, time, and hassle.

And, as we’ve already discussed, they’re still giving you a fair price for the property, if not under market value!

Even if you’re losing a small percentage each month to your managers, it’s so worth it when you take into account what you would lose doing it yourself.  

Myth #6: Turnkey Properties Are in Bad Neighborhoods

This is one of those myths that depends on which turnkey provider you’re dealing with, and what neighborhoods they deal in—because at times, a neighborhood that is going under revitalization or gentrification makes for a good investment.

A good turnkey provider, however, isn’t investing in bad neighborhoods. They’re investing in quality properties that don’t need total overhauls to get to “turnkey” status. That just doesn’t make sense! Anyone in real estate knows that you don’t want to raise your property values too high above that of your surrounding neighborhood, nor do you want to take on a total property overhaul unless you’re flipping!

Plus, investing in cheap properties doesn’t have the returns that you think it would. Smart, quality turnkey providers don’t invest in bad neighborhoods, and neither should you.

Myth #7: I Can’t Trust Property Managers or the Turnkey Provider

Speaking of quality turnkey providers...you should be able to trust them. That goes for their property management team. Some investors don’t view turnkey companies as allies in their investments. And they should! Turnkey providers have a vested interest in the success of their clients and their properties. They don’t want to take your money and run—they want to build a lasting partnership!

If you find yourself not trusting your turnkey provider: for lack of transparency, information, or other red flags, maybe they aren’t the provider you need to work with. You should be able to partner with them, not worry that they’re going to screw you out of your hard-earned money.

Ready to talk to a real turnkey provider? We’ll help you get started today!

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