What’s the secret to succeeding with turnkey investment properties?
We asked Sean Tarpenning, owner of US Real Estate Equity Builder (USREEB). His company has been sourcing and managing turnkey properties in Kansas City’s urban core and suburbs since late 2014, and it’s expanding to two other metros. In a typical month, USREEB sells at least 30 properties.
Tarpenning’s experience with turnkey properties goes back even further than USREEB. He previously helped grow another turnkey company into a multimillion-dollar business, and he opened operations for that company in several cities.
There’s no magic formula for achieving perfect success in turnkey, but Tarpenning shared several strategies that have worked for other real estate investors.
Because it’s relatively simple to get into turnkey properties, there’s always a temptation to speed past the traditional due diligence. But that’s just a shortcut to disaster. Treat your real estate investments as a career, not a hobby. Take your time, and do the work.
Vet your turnkey provider
You should thoroughly question your potential turnkey partner. How big is the provider’s team? What services will (and won’t) the company provide, and what will you be responsible for? What kinds of features or amenities are included in its properties?
Is your turnkey operator’s team actually a team—do the members communicate and work together seamlessly? “Teamwork makes the dream work.”
How does the provider handle property management? Is it an internal function, or is it outsourced to a third party? Is the team big enough to service all the properties under its umbrella? USREEB keeps its property management in house, and Tarpenning makes a point of “overhiring” so that his company can respond quickly to calls.
How long is the turnaround time for repair calls? Do they offer same-day service?
Does the provider offer any kind of warranty for repairs after the sale? Tarpenning offers a three-month warranty that covers pretty much any repairs required. “The investor should not inherit that bill,” Tarpenning said.
Ask about tenant policies
You also should quiz your turnkey provider about its criteria for approving or rejecting clients. After all, the quality of tenant could mean the difference between making a profit on your property—or watching everything go down the tubes.
Check on the provider’s payment policies, too. If a client fails to pay rent on time, how does the provider respond? At USREEB, if a tenant goes past Day Five with no payment, the company automatically starts the ball rolling on the eviction process.
Don’t commit if it doesn’t feel right
Tarpenning and USREEB assist a lot of first-time investors in turnkey properties. The USREEB team often has to battle misconceptions that clients have picked up while reading social media—chief among them the ideas that turnkey investors always get ripped off and that all turnkey operators are bad.
That’s simply not true, as Tarpenning and his repeat customers can attest.
Nevertheless, if you thoroughly investigate your target market and vet your provider, and if you still don’t feel confident about the deal, then you should probably walk away.
“I always want them to have a good gut feeling that ‘This is the one for me,’ ” Tarpenning said.
Still, you should give your provider a chance to answer any lingering concerns you have. “Your provider should be able to put you at ease with a phone conversation,” Tarpenning said.
Part of the appeal of turnkey properties is that they are passive investments. But wise investors also make a point of checking up on things. They email their property manager each month and ask about the state of the property. If you live in the same city, you could even do a regular drive-by. Tarpenning recommends that out-of-state investors fly in at least once a year to view their properties.
“You always want to check on everything,” he said.