Today’s REI Classroom Lesson

Steven Gesis explains the difference between a true, all-in-one, turnkey company vs. faux turnkey.

REI Classroom Summary

Discover what a true turnkey provider does for the real estate investor and where a faux turnkey provider falls short.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: 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. Now, let’s meet today’s expert host.
Steven: Hey FlipNerd community, my name is Steven Gesis, and I’m with SmartLand out of Cleveland, Ohio, and today we’ll talking a little bit about the difference between turnkey and faux turnkey.
Mike: This REI Classroom real estate lesson is sponsored by
Steven: So I want to dive in today and talk about the difference between a real true turnkey operator and a faux turnkey operator and define what those differences are. So I want to begin with, let’s define what a true turnkey is.
A true turnkey is going to be something where you’re going to hook up with an operator that has an all-in-one operation. They’re going to cover your acquisition, they’ve done the construction in-house. They have a management company as well as a maintenance company. They’re vetting and placing tenants on your behalf in advance of your acquisition. So in this case scenario we have a true cash flowing asset that produces income as soon as you’re acquiring.
So let’s break that down again. So a true turnkey operator is going to be someone who’s done the acquisition in advance with no prior commitments from the investor that has these homes in inventory ready for acquisition.
So they’ve done the acquisition. At this point they’ve implemented a construction strategy. Hopefully they’re using uniform construction materials and methodologies to enhance your ROI and increase the economies of scale across the board of assets that they’re managing for investors.
So we’re going to follow that up by making sure that that turnkey operator is also placing and vetting the tenants in-house, and that they have a legitimate property management company that’s servicing that asset.
So the point being here is that you’re going to get a global solution from one turnkey operator for pure accountability. So that’s a real true turnkey. So we’ve done the construction, we’ve vetted and placed the tenant, and then that asset is acquired by you and managed by the same operator that has done all those things. So it’s all about accountability here.
So now let’s talk about what a faux turnkey is. So a lot of people use “turnkey” very loosely, and we want to make sure that we drill down what that true turnkey, really, what that definition really means.
Some people represent turnkey, and I call it a faux turnkey, but some people call turnkey something like where they’ll help you acquire the asset, they’ll help you do the construction, but they’ll pass you off to a third party or tertiary property management company.
And alternatively they may have just helped you do the acquisition, connected you with an operator that does some construction and then they pass you along again to a property management company. So it’s not really lockstep. There’s really no accountability. However, they’ll dub themselves as turnkey.
So I think it’s really important that we dive into what the true standard of turnkey is and really define true turnkey. And true turnkey again, and we’re just going to just summarize it real quick and then we’re going to move on from today’s lesson.
So a true turnkey is going to be working with an operator that has done the acquisition in advance of any commitments of any type of investor. They’ve done the construction in house, they’ve implemented a uniform construction methodology and materials throughout their process and ensuring that you’re getting the most efficiencies and economies of scale at the property.
And then they’ve vetted and placed the tenants in house. And then they manage it on the back end when you do acquire it. So there’s full accountability. You have somebody from lockstep, every position you can hold accountable for any trials, tribulations, whatever may come.
And then let’s talk about what a faux turnkey is. Finally, we’ll summarize. A faux turnkey is going to be an operator that says they have a turnkey asset. However, all they’re doing is helping you with the acquisition. They’re helping you with the construction in one capacity or another. Then they’re passing you off to somebody else for management. No accountability. Don’t get the economies of scale. You’re not going to increase your ROI and you’ll probably pay a premium from that asset.
So it’s important that we understand and define those two differences and I hope today has been very educational and I wish to see you back in my REI Classroom.
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