Today’s REI Classroom Lesson

Dave Payerchin with Columbus Turnkey Houses shows us specifically what to look for when buying Turnkey Properties.

REI Classroom Summary

Picking the right property manager is crucial for turnkey investments. We’ll also find out about hiring an inspector and determining your return on investment.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Announcer: Welcome back to the REI classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now let’s meet today’s expert host.
Dave: All right, everybody, this is Dave Payerchin, Co-owner of Columbus Turnkey Houses. We’re the number one turnkey house provider in the Columbus, Ohio market. I’m your host with the most of today’s REI classroom and today we are talking about turnkey properties.
Announcer: This REI classroom real estate lesson is sponsored by
Dave: All right, everybody, turnkey properties. So turnkey, the whole subject of turnkey has been gaining a lot of traction over the years, especially with the real estate market being as hot as it is. A lot of companies have been popping up all over the country, especially in the Midwest, and that’s where we are. Our company is in Columbus, Ohio. And I wanted to talk today about a few things to keep your eye on or to look at when evaluating a turnkey provider and evaluating a turnkey property.
So first off, let’s define what a turnkey property is. A turnkey property is a property that has been fixed up, rented out, inspected. We’re going to talk about inspections and has professional property management in place. So this property is generating income from day one and then an investor comes in and purchases this property with the intention of collecting cash flow.
So when evaluating a turnkey provider, and they are everywhere these days, you want to make sure you’re dealing with a good one. What makes a good turnkey provider? One good question to ask them is do they own properties themselves? Are they just a middle man out there flipping properties or are they in the real estate business themselves in the day-to-day managing tenants, managing properties, and do they own properties in their own portfolio? I think that’s really important that the turnkey provider has experience themselves. And basically they’re willing to put their money where their mouth is and they’re willing to put some skin in the game. So make sure any turnkey provider you’re working with actually owns properties themselves.
The next thing I want to touch on is inspections. Now it’s really easy for a turnkey provider out there to tell you how great and how fantastic a property is, but they can show you pictures. Without actually physically doing a walkthrough yourself, it’s impossible to know the true condition of a property. You can take someone’s word for it, but it is always best to get a third party’s opinion.
And what people do when purchasing turnkey properties from our company here in Columbus, Ohio is to hire an inspector. And we can refer several different inspectors that we work with. But we even suggest go ahead and find one on Google. Hire your own inspector and we’ll let them in and let them do that inspection. This way you’re sleeping better at night knowing where your money is going. Meaning that the investment property that you acquired has been fully inspected by a neutral third party and you know exactly what you’re getting.
Now the next thing I want to talk about when evaluating turnkey properties, which probably is the most important, is determining the return on investment, determining the ROI. Now several companies out there, every company when they’re marketing a turnkey property, they’re always going to talk about what the ROI is. What you need to ask is how did they come up with that number? How did they determine this ROI?
Now typically it’s going to be is the amount of a rent that’s being collected minus the expenses is going to equal to that positive cash flow, and that’s the number that’s used to determine this return on the investment. But what you need to make sure and analyze is where they’re coming up with these expenses. Have they factored in property management? Have they factored in the cost of money if you’re getting a loan for this property? Have they factored in vacancy? Have they factored in maintenance?
So don’t just look at a line item as expenses and take that number for face value. Find out whoever is selling this property, how they came up with that number. And don’t forget taxes as well.
Now, the last thing I want to touch on is property management because the majority of people who buy turnkey properties are not looking to manage the property themselves. So when evaluating a property manager, obviously you want to see how much they charge as far as the monthly percentage of the gross rent that’s coming in, but take the time to interview them and actually ask them how many properties they have, how many vacants they have of the properties that they currently manage. And don’t be afraid to ask for reports either and actually see their current portfolio that they’re managing and see the actual vacancies. And then also don’t be afraid to ask for references as well because if they’re really doing a great job, then they should be happy to provide references of other satisfied investors who are using them for property management.
So that’s a brief overview of turnkey real estate investing. I’m Dave Payerchin and I will see you in the next class.
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