Frequently Asked Questions About Owning a MartelTurnkey Home

Are you thinking about buying a turnkey rental from MartelTurnkey but not sure what it would be like? You can always contact us with your questions and we’ll return your call or email right away. But if you’re just curious about some basic aspects of owning a turnkey rental from MartelTurnkey, the following answers to commonly asked questions may help.

 

Do I have to find a property manager myself?

 

When you buy a turnkey rental from us, there is already a property manager in place. We have been using these companies for years, and they manage our own rental property portfolios in these markets. However, if for any reason you want to use a different property manager, you can. You’re under no obligation to continue working with the same property manager that comes with your new turnkey rental. In that case, you’d need to either manage the property yourself or find your own property manager in the area.

 

Do you offer property management services?

 

MartelTurnkey sells turnkey rentals out of state. As such, we don’t directly provide property management services. What we do for every property we sell is get a quality, local property manager in place. Your property manager would be the same company that we use to manage our own portfolio in the market.

 

How do I know the existing tenant is good?

 

Every property manager we hire adheres to strict tenant vetting procedures in addition to our own tenant criteria. Tenants are screened for evictions, criminal behavior and credit, just like you would do if you were managing the property yourself. When you take over the property you’ll have a vetted tenant in place who has already begun making rent payments on time.

 

Will the tenant have my phone number?

 

No. Tenants are not provided with any of the landlord’s contact information. The only way a tenant would have that is if the owner directly gives it to the tenant. In almost all cases, the tenant doesn’t even know the name of the owner of the property. This is to ensure that the tenant only communicates through the property manager. If a tenant needs to let the owner know something, they’d leave the message with the property manager, who would then contact you. Your response would also go through the property manager.

 

Can I raise the rent?

 

Any time a lease comes up for renewal, you’re free to raise the rent for the next term. When a lease expires or a tenant moves out, the property manager reviews the current rent prices in the area and other data. Based on those findings, they may suggest keeping the same rent, raising it or, in rare instances, lowering it. However, the final decision is always yours. The only time you are not able to change the rent is in the middle of a lease term, for contractual reasons.

 

What happens if the tenant stops paying rent?

 

If a tenant stops paying rent, the first thing the property manager will do is try to find out why it’s happening. Often, it’s due to a technical problem or some other temporary issue. A late fee will be assessed after the rent is late for a certain amount of time, in accordance with state laws where the property is located. If the tenant still doesn’t pay rent within the month, you may have the right to begin eviction proceedings. Your property manager can advise you as to when eviction proceedings can begin under the state laws. The property manager will take all the necessary steps, including making court appearances, should eviction become necessary. You will be notified of everything, but you don’t need to be personally involved.

 

What is the average turnover time between tenants?

 

The property managers that we have chosen for our turnkey rental properties understand the importance of quick turnovers. As soon as a tenant gives notice, the property manager starts looking for a new tenant. When a tenant vacates for any reason, a cleaning and maintenance crew gets in there right away. Once renovations have been made, property management will go in and take photos of the property and list it for rent. A tenant will then be found in one to two weeks, and that tenant will move in one or two weeks after that.  In an example like this, typical turnover is 30 days. In any case, fast turnover is always a top priority. Think of it like a racecar in the pit. Every crew member works fast and efficiently to get the car back on the track. That’s how your property manager will act on your behalf.

 

What happens if something breaks?

 

Every material object has a limited lifespan. If something breaks and is in need of repair or replacement, the property manager will take care of the actual work to get everything back in order again. They will evaluate whether it makes sense to repair an item or replace it. Estimates will be obtained for your review. You’ll be responsible for paying for the repair or replacement; this isn’t included in your property management fees. For that reason, we always recommend that landlords put aside some rental income in savings to pay for unexpected expenses like this. Having said that, in between rentals, the property manager will inspect and maintain important systems in the home (i.e., HVAC) to try and avoid unnecessary breakdowns in the future.

 

Hopefully this list has answered many of your burning questions about owning one of our properties. If you have questions that aren’t listed here, please don’t hesitate to call or email us. We’ll spend as much time with you as necessary to answer all your questions. Our previous customers are already enjoying being a landlord with their MartelTurnkey rental properties. Will you join them?

 

 

 

What Insurance Coverage Is Recommended For Investment Properties?

As a landlord, you have special insurance needs. Regular homeowner’s insurance may not be enough to protect you and your investment property because landlords are vulnerable in ways that a regular homeowner isn’t. Following are some of the recommended and available insurance types to consider for your investment property.

 

Property Insurance

 

You’ll certainly need to have property insurance for your investment property. If the property’s financed, your lender requires it. After you pay off the property, you’ll want to keep this coverage in place in order to protect your investment. You may also want to look into certain riders for your policy, such as earthquake or flood, depending on where the property is located. There’s also such a thing as water line insurance, which is available as another rider you can purchase from your property insurance company. This covers you if your water line fails from the foundation to the property line. While the chances of such a failure are slim, they do occur. Repairs run in the neighborhood of $5,000, but the rider costs only a few extra cents a day. Ultimately, you’ll need to decide which riders are worth the peace of mind they can offer a property owner.

 

Liability Insurance

 

Liability insurance gives you protection against lawsuits and liability claims. It covers things like an individual getting injured on your property; whether it’s a tenant, a worker, a guest or even someone who may be trespassing. It may also cover damage to a tenant’s possessions, if that damage was proven to be the landlord’s fault. Exact coverage will depend on the policy. Typically, liability insurance would pay toward things like medical bills, legal fees and settlement costs.  

Landlord Insurance

 

You can also opt for a type of policy called landlord insurance. Landlord insurance is specifically for investment property owners. It’s not mandatory if you own rental properties, but it is worth considering, especially if you own multiple rental properties.

Landlord insurance may include both of the insurance coverage types mentioned above, as well as:

 

Property damage: This covers damage to your property from fire, storms, vandalism, theft and sometimes even tenant damage. Note that some elements of property damage coverage may overlap with your homeowner’s property insurance.

 

Loss of income: This would compensate you for loss of rental income if the property becomes uninhabitable due to fire, water damage, etc. If your rental income is a main source of household income for your family, this insurance makes good sense.

Landlord contents insurance: This would cover appliances or furnishings that belong to the landlord. This insurance is especially worth considering if you provide furnished rentals.

 

What’s the Cost of Landlord Insurance?

 

Landlord insurance expense is comparable to homeowner’s insurance. You might find a policy in the neighborhood of $500 per year. The more riders you have added on, and the more complex the property is, the more landlord insurance will cost. For example, if the property is a multi-unit with a swimming pool, obviously that’s going to cost more than a turnkey single-family rental.  

 

The two bare minimum insurance policies you’d want to have in place for your rental property are property insurance and liability insurance. These protect yourself and your property. When you choose a turnkey rental property on our website and put it under contract, we will introduce you to the insurance company we use on the ground. They will be able to get you coverage quickly and easily as  they will already be insuring the property, making it an easy transition.

 

Why Invest in Memphis Real Estate?

Memphis, Tennessee is an iconic cultural center that attracts over 11 million visitors annually. Tourists and business men and women come to Memphis from all over the world; especially Canada, UK, Germany, France, Brazil, and of course right here at home in the U.S.

 

 

Memphis boasts a number of historically significant attractions such as Graceland, Beale Street, Sun Studio, the National Civil Rights Museum, the Blues Hall of Fame, and the Rock ‘n’ Soul Museum.

 

 

Musically, Memphis has the market cornered with a pedigree of musical legends who hail from “the Birthplace of Rock ‘n Roll,” including Elvis Presley, Kirk Whalum and Justin Timberlake. An even longer list of iconic musicians have drawn inspiration from the depths of Memphis’ soul. B.B King moved to Memphis from Mississippi, while dozens of others started their careers in this city, like Otis Redding, Roy Orbison, Jerry Lee Lewis, Aretha Franklin and many more.

 

 

All this goes to show that Memphis is an attractive place to live, with a rich cultural scene and a vibrant social setting. But what is it about Memphis that makes it especially appealing for real estate investors?

 

Memphis By The Numbers

 

Just over 646,700 people call Memphis home, according to the U.S. Census Bureau. The cost of living in Memphis is 15.7% lower than the U.S average. There are nearly 71,000 companies in Memphis, providing plenty of job opportunities for residents.

 

Economic Diversity

 

Fortune 500 companies with a corporate presence in Memphis include FedEx, International Paper and AutoZone. Other major employers based in Memphis are Cargill Cotton, Allenberg Cotton, Baker, the prestigious law firm of Donelson, Bearman, Caldwell & Berkowitz, Perkins Restaurant and Bakery, ServiceMaster, Varsity Brands and Gibson Guitars, St. Jude Children’s Research Hospital is based in Memphis, as are dozens of healthcare, pharmaceutical and biotech companies.

 

Landlord-Friendly Statutes

 

States mandate tenant-landlord laws. As a city in the landlord-friendly state of Tennessee, Memphis is considered a landlord-friendly city.

 

  • Security deposits are not capped. You can charge whatever you want for a security deposit. You just have to return it within 30 days after the move-out, less any charges for damage.
  • Rents are not capped. You can set any rent price you want since there is no rent control in Tennessee.
  • Late fees are allowed. You can charge a rent late fee as soon as five days after the due date, up to 10% of the amount due.
  • Eviction filings can begin in 14 days. If the tenant hasn’t paid the rent by just 14 days after the due date, the landlord can notify for eviction.
  • Move deadline is just 16 days. After an eviction notice, the tenant can be forced to move in just 16 days, allowing for a quick turnaround to get a paying tenant into the property.

 

 

These factors make Memphis an appealing location for real estate investors; the abundance of attractions and entertainment options, the economic diversity and the landlord-friendly attitude of the state and local government.

 

 

MartelTurnkey has procured several cash flowing turnkey rental properties in the Memphis area. If you’d like to get in on the lucrative rental market in Memphis, please browse our Memphis rental properties listings. When you’ve found one or two that interest you, please contact us to learn more.

 

 

Almost Like Winning the Lottery: What It’s Like to Own a Turnkey Rental

If you’ve never been a landlord before, you‘re probably wondering what it’s really like to own a turnkey rental. Is it as awesome as everyone claims? The truth is, it’s probably better than what you’ve heard, especially when you get your turnkey rental through us. We can’t speak for other companies out there. Remember that all turnkey companies are not the same. There are huge differences, so you have to be sure to deal with a reputable company. But when you get your turnkey rental at MartelTurnkey, here’s what you can expect.

 

Excellent Customer Service

MartelTurnkey was originally founded to serve our family and friends. We’ve put customer service at the forefront of importance from day one. So when you buy your turnkey rental property from us, you’ll probably be a little amazed at the level of customer service you get. Our investors are constantly saying how responsive we are to every question, how far we’ll go to make sure you get the information you need to make the best decision for you. And that service extends to your property management company. After you take over ownership, you’ll likely be working with one of our thoroughly vetted property managers. We chose each of them because they reflect our dedication and commitment to customer service. It’s customer service you can count on from the time you first contact us, all the way through to your ownership experience.

 

Reliable Income

Once you own a turnkey rental property from MartelTurnkey, you can look forward to receiving regular rental income each month. Our single family home rent prices are set so almost anybody can afford to pay their rent, no matter what happens with the economy. As Antoine Martel says, “Tenants can afford to pay our rent with just a job at a local coffee shop .” All of the turnkey properties that we sell already have a reliable tenant in place at the time of closing. If you buy one of those, the next rent payment goes straight into your bank account. As a turnkey rental owner, you’ll appreciate having that extra income each month. And best of all, you don’t have to lift a finger to work for it. It’s passive income at its finest.

 

Support and Maintenance

Every homeowner knows that issues come up. Maybe a faucet develops a leak. Or a screen door hinge comes loose. If you were a regular landlord, your tenant would be ringing you and asking you to run down and fix it. But as a turnkey rental owner, you don’t have that situation. The tenant contacts the property manager, not you. The property manager gets a handyman out there to fix it, not you. The tenant doesn’t even have your phone number, so you’ll never be disturbed with a maintenance request. And, the property manager is working for your interests, so they keep repair and maintenance costs to a minimum. If something needs to be replaced, they’ll get some estimates and you’ll be billed accordingly. That kind of support and maintenance doesn’t exist with other forms of property ownership. But you can count on it when you buy a turnkey rental from MartelTurnkey.

 

Now you can see that owning a MartelTurnkey rental property is actually a little bit like winning the lottery every month for the rest of your life. You just keep collecting that monthly income over and over again without the traditional hassles of being a landlord. If you’re even the slightest bit curious about what it would be like to work with us, fill out our contact form or give us a call. Let us show you firsthand what real customer service looks like. 

National Banks VS Local Lenders VS Hard Money Lenders

We help a lot of clients and new investors to get financing for their turnkey rental properties, rehab projects or construction loans. I have done all of these things personally and I’ve helped a lot of people do them as well.  One of the questions that I get asked all the time is should I use a national lender or a local bank. There is no right answer but I will discuss both options below.

 

National Banks

National banks are great for buying turnkey rental properties, and the reason why is they don’t touch anything that needs rehab or is not in livable condition. These national banks are banks like Wells Fargo, US Bank, Bank of the West, etc.. The reason why they don’t do loans on rehab projects or anything like that is because these are national banks, they typically lend on investment properties or give mortgages in all 50 states, and there’s no way that they could figure out all the different neighborhoods and cities and know a ton about them.

 

They focus on stuff that’s already been completed so that they can do appraisals, verify the value, and then they just look at your income and see if you can support that mortgage on your debt-to-income ratio. That’s how they come up with the mortgage for you and see if you’re approved or not.

 

These national banks are great for buying turnkey rental properties, not much else. If you don’t have a W2 income or solid W2 income job over the last two years, then you’re going to have to look at some different options because national banks are not going to work for you.

 

The other benefit of using these national banks is that it allows you to buy and diversify your rental property portfolio into multiple different states because they are national banks. For example if you use Wells Fargo you get a mortgage in Tennessee. Two months later you want to diversify and buy a house or duplex in Cleveland, you can still use Wells Fargo. You just need to provide them the last two months of your bank account and just a little bit of information, but they already have your whole personal record.

 

I do recommend many of my clients to national banks for that reason. Many of my investors and clients like to buy properties in different states, they like to diversify their portfolio and using the same national lender over and over makes that possible.

 

The other benefit of using them is they provide the best terms that I’ve seen. Many of these banks don’t have loan minimums, they charge very low amount of fees. They will just look and see if your W2 income supports that mortgage, and that’s how you’re approved, it’s nothing much about the property or the cash flow of the property.

 

The downside of using these national lenders is that they do a ton of research about you, maybe to a point where it becomes annoying. They’re going to ask you everything, all the dirt under your fingernails, everything you’ve done the last two years, ask you why you have these certain large deposits, they’re going to ask you a ton of different questions like that. It is a pain in the ass, but for that 5-6% interest rate on a 30-year amortization there’s nowhere else that you can get that. I’ve talked to many hard money lenders, local lenders, and nobody that I’ve seen is offering exactly what those national banks are offering with very low amount of fees. They’re a great solution for the turnkey rental properties if you have a W2 income and a solid job over the last two years. They’re a great resource to use especially for financing those turnkey rental properties.

 

Local Lenders

The second group that I’d like to talk about is local lenders. Local lenders can be small commercial banks, like Bank of Memphis, Bank of Bartlett, Cleveland Bank, etc. There are going to be many of these little banks in the cities that you are investing in. They’re great for rehab projects and construction loans. The reason why is because these lenders are local they can actually go to the job site, they can go visit the property, they have post-renovation appraisers and do things like that to protect their investment.

 

The national banks on the other hand won’t even touch it, they’re not going to touch anything that needs a rehab. Only these local lenders are great for those rehab projects and construction loans. If you do use them for these loans you are going to have some fees. They’re going to be a little bit more expensive and a little bit more strict about the property but not so strict about you and your W2 income.

 

For example, I don’t have much W2 income because I run everything through my company, so when I went to a local lender it was very easy for me to get approved because the property was cash flow positive. I just showed them the financial statement for the property and that was it. They didn’t care that I didn’t make any W2 income over the last two years. It was all about the property and how much cash that property was producing.

 

The only other thing that these lenders look for it to make sure the income of the property will be able to pay for the debt service, this is called debt to income ratio. Typically they want a rate of 1.2 to 1.5. This means that they want the income to pay the debt, plus 20%, or plus 50%, if that makes sense.

 

It’s also important if you’re investing in a city where you live in to make a connection with those people at the bank. Trust me, it goes a long way. You can get stuff done that you never think would be possible, you can get rates that maybe you’ve never seen before. If you build that relationship with those people and maybe open a bank account with them and put in some money into a savings account with them so that they could use it. Doing so is really going to increase your chances of getting a great loan.

 

Hard money lenders

Many new investors go and look for hard money. Hard money is great for rehab projects, they’re great for construction loans, they do some turnkey rental property financing as well. Personally I’ve never really used hard money, I’ve never been a fan of hard money, and the reason why is it’s so expensive. Hard money lenders charge three points, and a 12% interest rate.

 

Hard money lenders are also going to do a ton of due diligence on you and the project. Especially if you’re doing a construction loan, they’re going to be very diligent, especially with some of the national hard money guys. They’re very diligent about your draws, about sending photos for verification, about doing all these kinds of things to verify that a draw should be paid out to a contractor. That’s because these hard money lenders are national guys and they’re not local. If you have a local construction loan, the guy from the bank is going to walk over to the property and make sure that the stuff was done and pay your draw for the construction. But if you’re using a hard money lender who’s a national lender then they’re not going to be able to verify that information. So you’re part of the verification process and it becomes an extreme headache, especially after paying three points and 12% interest rate.

 

Of course there are many other ways to raise money for your real estate investmensts. The two that I use the most are private money lenders and joint venture partners. You can find these people through networking. Go to meet-ups and network your ass off on biggerpockets.

How to Finance Rental Properties without W2 Income

We help a lot of investors make their first investment in real estate, and many of those investors do have W2 income. They have good, solid jobs, they don’t have the time to go and manage these properties or find the deals, etc., so I’m that resource for them. These investors who have full-time jobs are able to get conventional financing due to their W2 income. If you are an employee at any company then you do have some W2 income. The other type of income is called 1099 which also counts and makes you eligible to get Fannie Mae financing from these conventional lenders which lend on 30-year terms at the lowest interest rate possible, around 5%-5.5%.

 

I have been helping these people get regular conventional financing but I recently just helped one of my investors buy a couple of rental properties without W2 income. So this gentleman owns his own business, he doesn’t have any W2 income, he runs everything through his business so he doesn’t take any money out of the company. He does have cash in the bank account that he has available. So what can somebody do when they aren’t a regular employee? You own your own business, you’re making good money with your business and you want to invest in real estate and you can’t gain conventional financing, that’s what I’m going to answer for you.

 

The first thing that I did for my client was I went and found an asset-based lender. An asset-based lender is a company who will give you a loan based solely on the financials of that property. So the cash flow that that property generates, they’ll pretty much just look at the cash flow, the profit and loss statement for that rental property, then they’ll do an appraisal, make sure the property is worth that amount of money, and then they’ll lend you based on that appraisal that they get back. That is what we did with this investor. I have an asset-based lender that I referred them to who has great terms, 30-year amortization, a little bit higher interest rate, but they were actually able to give one of my clients a loan based on just the appraisal and the cash flow that the property generates. They didn’t ask for any tax returns, they just wanted to see that they had enough money in their bank account for the down payment, and that’s it.

 

So one option is using those asset-based lender, and that was terrific. It was probably the fastest and most seamless property purchase that I’ve ever encountered. Just did the appraisal, made sure he had the money in the bank account, and that was it. It was incredible. And it was also pretty good terms for being a non-conventional lender.

 

The second option would be finding a commercial lender who lends on portfolio loans. There are many of these banks out there. Some credit unions are actually like this where they will do portfolio loan. So what you want to look for when you are doing your research is commercial lenders who do portfolio loans for whatever type of asset class you’re looking for. If you want to do a small multi-family, then type in multifamily portfolio loans. A portfolio loan is a loan that is typically on one or more units. What we’ve done in the past where we’ve had four single-family homes and we’ve done a portfolio loan cash out refinance. So it’s anything that’s over one unit.

 

Typically these commercial lenders won’t help you get financing on just a single-family home, most of the time it’s because the purchase price is just too small for them. They want to lower the risk for themselves, and many of these portfolio lenders do have loan minimums. The reason is because many of these commercial lenders who do these portfolio loans have pretty high fees. So something that you do want to watch out for when talking to these portfolio lenders is their fees.

 

Many of these lenders do have loan minimums of $75,000 or $100,000. That’s why it’s a good idea to actually find a couple of single families or find a small multifamily property and then begin using these lenders to fund those deals, because then the fees are going to start to make sense. If you’re just trying to buy a single-family home for $70,000 and you have $5,000 in fees, it doesn’t really make much sense. You’re now going to have to pay 7 or 8 points on that loan and it doesn’t make sense anymore.

 

The way that I found these lenders was just going through Google. I typed ‘asset based lender’ in the city that I was looking to help my client buy that rental property in. I just went through Google and just typed asset based lender, or portfolio loan, and there’s a ton of lenders that you can find that way.

 

What I would do is I would just start cold calling them, letting them know that you’re a real estate investor, you’re looking to buy rental properties, you want to know what their loan minimums are, you want to know what their fees are, you want to know what their loan-to-value ratios are, and that you’re interested in buying some properties. The catch is that you don’t have any W2 income, so you need their help with that, you want to make sure that they don’t do conventional Fannie Mae loans, you want to make sure that they’re a commercial lender and that they don’t really care about your W2 income.

 

I called probably twenty or thirty companies and found seven or eight companies who didn’t really care too much about the W2 income, they just cared about the asset, and that’s exactly what you’re looking for. Once I went through and found those twenty or thirty lenders, I just gave them all a call, then I created a spreadsheet to keep track of all their term sheets.

 

What you’re going to ask these companies for is their term sheets. Those term sheets will show their fee amount, how much the interest rates will be, and then what their loan-to-value ratio is. You want to have a very high loan-to-value ratio, probably around 70-80%. Some of these commercial lenders will lend you LTVs of 50-60%, and LTV stands for loan-to-value. For example, the bank is going to underwrite your property, they’re going to do an appraisal on that property, and let’s say the value comes back at a $100,000. Some banks are going to lend you $60,000, which be a 60% LTV, and some banks are going to lend you $80,000, which is going to be an 80% LTV. You’ll only have to come up with $20,000 out of your pocket, which is great.

 

To reiterate, you may want to find some bigger deals before actually going and talking to these commercial lenders, because if you’re just trying to finance a single-family home without W2 income in the $70,000 price range, they may not be worth it due to the fees. The lender that I’m personally working with, who is an asset-based lender, they have a loan minimum of $100,000. And I found out a lot through my research, through calling these companies that they do have loan minimums. And if they don’t have loan minimums then they do have points or fees minimum. For example they will have fees of 3% of the loan amount or $2,500, but if you’re doing a loan for $50,000 that $2,500 in fees is five points now, which is really expensive.

 

If you need any more help, if you’re looking for asset-based lenders in your city, I have a couple who may be able to help you. Feel free to reach out to me. I hope this was helpful for you. I know there are many of you out there who own your own business, who are struggling to get financed. My dad and I both own our own business and for us when we first started out before we knew any of this stuff, it was hard for us to get a loan for $40,000 because we’ve ran everything through our company. So we know what the struggles are, we know through our research and stuff like that that these lenders are out there and they’re ready to make loans to you. They’re just a needle in the haystack.

Six Things to Watch Out for With Turnkey Providers

Our business has been very busy over the last couple of months so I’ve been talking to a lot of new clients who are interested in buying rental properties out-of-state. When I talk with them, many of them share with me their experiences with other turnkey providers and a whole laundry list of things that have gone wrong in the past. And when they’re interviewing me and looking to buy rental properties from me they share that laundry list with me and I have been keep track of the ones that appear the most.

 

I have about six things that I want you guys to watch out for when you’re talking to turnkey providers and are looking to buy turnkey rental properties.

1. Low or No Inventory

Many turnkey providers are having a very hard time finding inventory. Because the market is so hot right now, it’s very hard to find any good deals, therefore if the turnkey providers can’t find deals it means they can’t give you deals as well. When they’re trying to sell deals to you they want to make sure that you’re hitting a certain percentage return, a nine or ten percent cap rate, but if they can’t find their deals to sell to you then there’s going to be no inventory for you

 

This is the most recent problem that a lot of investors have been coming to me and saying, “I used to use this turnkey company but they have no inventory.” Therefore, one of the first questions that I would ask a turnkey provider is how much inventory do you have on a monthly basis that I’m able to buy, and is that on a first-come, first-served basis, do you just sell them to your number one, two and three guys, or am I, as a newbie, able to get in front of some of those deals.

 

There’s some turnkey providers that are really big, who have some VIP buyers lists, and if they have low or no inventory, and especially low inventory, they’re just going to go to the top three guys and you’re never going to get a deal. So you want to go and talk to a turnkey provider who is actually going to share with you some deals. Before you spend your time interviewing them and learning more about them you want to make sure that it’s even possible for you to get in front of some deals and you’re not just there stuck on the back burner.

2. Large Deposits Upfront

Many turnkey providers want you to be in line waiting for them to feed you deals. They want you to be in the back of the queue and they want to make sure that you’re interested and that you stay interested, and one way that they do that is by asking for a large deposit upfront. What many of them will do is say, “We know you’re interested in buying rental properties in Salt Lake City, and we provide that, and we do a couple of deals a month. In order for you to get any properties or have any properties shown to you, you need to give us $2,000 earnest money to show that you’re interested.”

 

I’ve heard many investors in the past do this, give the company two, three, four thousand dollars as earnest money. The money’s not gone, it’s in a third-party account, but that money is stuck there for three, four, five months. Because there’s low or no inventory, so these turnkey providers, while they’re asking you for a deposit, now they don’t have any inventory, and now your money is stuck in this limbo, and you don’t want your money to be stuck in a limbo and have to beg to get it back out.

 

I wouldn’t recommend working with any companies that are asking for these large deposits upfront. I would just ask to see some deals without that, tell them that you are serious, show them your proof of funds, show them that you have a pre-approval letter, show them that you’re serious in other ways, but there’s no reason for you to put two or five thousand just to see a deal, it doesn’t make any sense.

3. Buying Properties without Tenants in Place

A lot of the big turnkey providers have been selling their rentals without tenants in place. They’ll actually sell you a property that they just finished the rehab and they’ll say, “The rental rate is $700 to $800” but that’s a big range and your bottom-line return is going to change a whole lot whether it rents out for $700 or $800.

 

Something different that we do is that we actually sell our properties with a tenant in place so that you as a buyer know exactly how much money you’re going to make every single month. A lot of the other guys are not doing that. They’re selling them for these rental ranges, and a lot of the times what happens is that these properties will sit on the market for a month or two months, and that’s one or two months that you’ve just lost rent. If you want to buy these properties, don’t close on the properties until you have a tenant in place and until that property is making money. You’re supposed to be a passive investor, you want to buy the cash flow, and why would you buy an asset that’s not even producing cash flow yet. I would hold off closing until you do get a tenant in place.

 

Another issue with buying a rental property without a tenant in place is that that first month rent typically goes to the property management company. So if the property is on the market for one or two months for rent, and then the first month is the fee for the property management company, and that’s three, four months that you still haven’t made money on your investment property. You want to make money from day one, you want to get in the groove of collecting rents and making sure that your property is a valid investment. That’s three or four or five months that you’re just going to be sitting on the sidelines scared to buy another one. So buy a property with a tenant in place, have the turnkey provider pay for that first month’s fee to rent out the property so that you can start collecting rents right away.

 

This is what happens, the turnkey provider is going to sell you a property that’s vacant, and they’re going to sell it to you vacant because they want to get that first month’s rent for renting out the property. So it all goes back to finding a turnkey provider that doesn’t own the property management company and buy a property that already has a tenant in place, that’s already making money.

 

Another reason you don’t want your turnkey provider to own the property management company is that they’re going to make recurring revenue from you now, and there are typically a lot of markups on the property management side. You want the turnkey provider to be vested in your success, and the success should be on the purchase. The continued success should be you and the turnkey providers goal. But when the turnkey provider owns the property management company and you have a bad experience with the property management company, then you’re alone, the turnkey provider is not going to refer you to a different property management company.

 

Typically when you buy properties from these turnkey providers who own the property management company, you have to use that property management company. So what if you have a bad experience with that property management company and you want to use somebody else because they’re up charging you and they’re not able to rent out the property, you want to go and look for another property management company, you have to go and do that homework yourself because nobody’s on your side.

 

That’s why we always use third-party property management companies so that whenever the issue arises where somebody’s not happy with the property management company for whatever reason, we can step in and we can talk to the property management company and explain what’s going on and why our clients aren’t happy. And then if they are really not happy and they want to find another property management company, we’re there to help them find another property management company if that’s what the issue is. You’re stuck by yourself if you try to use one of these turnkey providers who own the property management company.

4. Required to Use Their Bank & Sell Back to Them

These are two things that you should never sign up for. There are so many different banks out there and many of these turnkey providers who require you to use their banks are doing that for a reason. The reason is that they have a certain appraiser at that bank, or that bank gives them certain referral fees, or compensates them in some way, whether that means increasing the sales price or kicking them back some money for referring clients over. I would find a turnkey provider that doesn’t require you to use their bank. Typically you can find other banks that you’ve used in the past, who can give you a little bit better of a rate.

 

When you sign the contract with the turnkey company, make sure to see that you’re able to resell the property as you wish and you don’t have to resell it back to the property management company or the turnkey provider. I know it sounds crazy if you’ve never heard that before, but there are some turnkey providers out there who are requiring their clients, when and if they ever want to sell, that they need to sell the properties back to them.

 

 

As soon as you close and you own that property, you should be able to do whatever the hell you want to. You should be able to change property management companies, you should be able to evict the tenants, just like it was your own property. You should be able to use whatever bank you want, you should be able to use whatever insurance company you want. Don’t use turnkey providers or property management companies which are forcing you to use certain people. Definitely look at those options but you can also ask them for other recommendations, and they should be able to provide you that information, and they should really be on your team as the turnkey passive investor who wants to make some good cash flow for the next 30, 50, 60 years.

5. Huge Property Management Companies

There are a few turnkey providers out there who own the property management company and the property management company manages 3,000 or 5,000 doors. A lot of my current clients have been actually coming from these property management companies. I’d stay away from them because you do get lost in the shuffle, and you become an excel on a spreadsheet.

 

There’s no more relationship between you and the property management company or you and the property management company and the tenants. Because they have so much on their plate, the company is all spread out, they have a huge office space for all those property managers, and you just get lost in the shuffle.Especially if you’re just getting into turnkey rentals or rental properties in general, I would definitely stay away from these super large property management companies. With the smaller management companies I’ve seen a little bit more hands-on. They will be a little bit more hands-on with you as the property owner and a little bit more hands-on with the tenants. They’ll treat the tenants in the right way. They’ll be very descriptive in their emails between you and the tenants and keep you posted as to what’s going on. You can also pick up the phone and call the property management company. The property manager will actually walk the property and ask them what’s going on, how does it look, etc.

 

The larger property management companies with 3,000 or 5,000 properties that they manage, that just doesn’t become possible because there’s so many different property managers, and you’ve got to talk to Bill, to talk to Serena, to talk to Kevin, in order to get the information that you want. So you’re playing telephone with these large property management companies to get the info that you want.

6. Buying Over Appraised Value

This is the most important point. When you’re buying turnkey properties out-of-state, you want to make sure you’re paying market value or less. If you’re buying the property for less than market value, that’s terrific, that’s some built-in equity that you get. Most of the time that does not happen, but you just want to make sure that you’re not overpaying for these rental properties.

 

Let’s say you have a property under contract for a $100,000, and you’re using a bank. The bank sends out an appraiser to that property, and the bank is on your team, so they want to make sure that you’re buying a property at fair market value so that they can give you a loan. The loan will be for 80% of the total value of that property, and you’ll put down 20%. So they’re on your team to make sure that the property is worth that amount of money before they let you spend that and before they loan against that.

 

Let’s say the appraisal comes back at $80,000 and the turnkey provider comes to you and says, okay, you’re going to get the loan on the $80,000 but we want you to come up with the rest of the equity on top of that. So not only will you have to put 20% down on the $80,000 purchase, you also have to come up with an extra $20,000 to make up the difference between $80,000 and $100,000.

 

Trust me, this happens a lot, especially for the large turnkey providers. I’m not sure what they say to get people to do so, but a lot of my clients have come from these companies who have done business that way. Please don’t do that. It means you’re overpaying for these rental properties and typically by a large amount of money. And a lot of the times the amount of money now that you have in those properties is so much that your cash on cash return actually sinks a whole lot.

 

You may never be able to get that that money out, because if you buy an $80,000 property for $100,000, let’s say a family member gets sick and you need to liquidate, now you can only sell that property for $80,000, your $20,000 just disappeared.

 

You’ve got to think worst case scenario. You don’t want to overpay for these properties and be stuck holding the bag. Have the turnkey provider come up with a difference or drop the price for you. What they should be doing is dropping the price for you, or they should be complaining about the appraisal being so low and being wrong and they should show you why it’s wrong. We get bad appraisals all the time. I’ve had homes that I’m trying to sell for $70,000 that come back out $40,000, when I have $55,000 in the deal, and I share with my client that I sold this house around the corner for $70,000, here is one I sold for $72,000, this appraisal doesn’t make sense. I show them my numbers on the deal, this is how much I have in the deal, there’s no way that the property is worth $45,000. I have even more money in the property than that.

 

Your turkey provider that you’re using should be able to show that information. If not, you’ve got to go and talk to somebody else. So never overpay for your rental properties. Buy your properties for fair market value, get good cash flow from them, make your money on the buy, and you just want to put that 20% down on your loan and that should be it. You’re going to have some closing costs of course, but put that 20% down, you shouldn’t be overpaying for these properties. Buy them at fair market value, with tenants in place that are cash flowing from day one, and you’ll be good to make cash flow for many years to come.