What if you want to invest in real estate, but don’t have any experience or a mentor to guide you? What if you live in a high-cost location and can’t find reasonably priced properties to invest in? And what if you want to invest in real estate but don’t want to do any of the active management?
In recent years, turnkey real estate providers have emerged, offering to solve all of these problems for would-be investors.
Generally, a turnkey real estate provider buys and renovates a distressed property, sells it to an investor, and then serves as a property manager — screening and placing tenants, and managing operations. As the property owner, you get to remain fairly passive. You may only have to get involved if significant repairs are needed, above a preset cost threshold.
Business models vary. Some turnkey providers will buy, renovate, rent, and then sell the property to you. Others help you locate and purchase the property and then follow up with rehab and rental support.
Critics say turnkey real estate providers charge a high margin, do shoddy renovation work, and try to sell buyers sub-par properties in sub-par neighborhoods. There is real risk involved, especially if you can’t travel to inspect your investment in person.
Others say turnkey real estate is a good opportunity for investors who can’t afford to break into their local market, new real estate investors who want more hand-holding, and those who are just too busy to be landlords.
Turnkey firms make it easier to invest in a profitable real estate market without having to live there. A good turnkey provider has local market insight, experienced staff, and a well-oiled marketing machine to source tenants. They simplify the process, allowing you to diversify your investments without having to handle all the details.
Here’s some advice when evaluating a turnkey real estate opportunity:
- Recognize you’re paying a premium. This is a business. Turnkey providers are doing all the legwork and providing monthly management services. In some cases, they’re taking on the initial risk. You will be paying for their efforts and probably buying at market price. That means if you change your mind or need to resell soon after buying, you may lose money.
- Do lots of due diligence. The turnkey provider is going to get paid whether you make a good investment or not. You’re putting a lot of trust in this company, so do everything you can to vet the team and the property before investing. The most prudent investors will meet the turnkey team in person, seek out online reviews, talk to other clients, get a third-party inspection, and visit the firm’s other properties.
- Calculate beyond basic cash flow. Take a critical look at the firm’s cash flow projections. Check that estimates are accurate and realistic and include all expenses. Consider extra expense for repairs and vacancies.
- Look for warranties. A reputable turnkey company should provide some warranties on their rehab work. Look for at least a one-year warranty on large-ticket items like roofs, HVAC, and water heaters. Help mitigate your risk by consulting with an experienced real estate attorney. They can assist with due diligence and review purchase and investment contracts to ensure your interests are protected.
- Listing photos a concern for some sellers, buyersIf you’ve purchased a home or vacation property in the last few years, you might be surprised to find the realtor’s listing photos still lingering online. In a recent advice column in The Chicago Tribune, one homeowner expressed frustration that the seller’s agent wouldn’t remove online photos of her new home. In her mind, those photos represented an invasion of her family’s privacy.
Reportedly, the seller’s agent refused to take the pictures down because such photos serve as “comparables” for future clients. In an online discussion, many other agents weighed in, asserting the necessity of those photos for appraisers and comparative market analysis.
As a homeowner, if you’re concerned that such photos are a privacy or safety issue, start by contacting the listing agent and asking for his or her support. Be aware that you’re asking for a favor and he or she has no obligation to honor your request.
Even if they agree, it may never be possible to have your house photos removed from the web. While the listing agent has control over their own site, there’s only so much they can do about other listing sites.
In order to get the photos removed from MLS data, which feeds other sites such as Trulia and Zillow, you’ll need the seller’s agent or managing broker to make the request. Once photos have been submitted to MLS, they are the only ones who can request the suppression of interior photos. Even if a request is granted, the main exterior shot of the home almost certainly will remain.
If your listing agent is not supportive, you’ll have to make individual requests to each site on which your pictures appear. Zillow, Redfin, and Trulia all offer the option to remove photos. That doesn’t mean, however, that you’ll have any luck with other sites that republished photos without adherence to MLS licensing agreements.
If you are in the market for a home, you can ask to have photos removed from the agent’s site and MLS as a contingency in your purchase offer. Recognize that this may not endear you to the listing agent and that there’s only so much he or she can do once the photos are out in the world.