I’ve invested a few times in a couple of different turn key models: single family residential and multifamily. Thinking back on those experiences this short list stands out as key principles and practices that helped invest with confidence.
- Interview the provider by leveraging social media.
- Any provider with reasonable scale will have a social media presence. Get on their pages and follow them for awhile, ask a few questions and see how they interact with people.
- Subscribe to their email opt-in. Not only will you start getting a look at some of their deals, you’ll see how they market them. If they are overly spammy and full of hype I start to get suspicious.
- Don’t overlook the BBB (Better Business Bureau), this is where people go to complain in a more official capacity. How a company response to public complaints says a lot about there credibility. Did they respond at all? If they did was it resolved in a way you find satisfactory. Stuff happens, everyone needs to realize this, see if you can get a look into their problem solving skills.
- Interview them personally. Multiple times.
- Get on the phone, skype, zoom, whatever. Video calls are becoming increasingly popular and are a great way to have providers walk you through case studies or even specific deals your looking at. For larger deals that will have multiple investors, expect some kind of webinar. Attend it live if possible, a recording should be made available for review or for investors unable to attend live.
- There should be no “act now” call to action at the end of a webinar or call. Of course there may be some indication of when a deal will close to funding, these companies have costs to recover like any business, but some kind of marketing ploy based on scarcity is a red flag for me.
- I recommend reaching out personally at least a couple of time, preferably to different people in the organization. Ask the same question to multiple people and look for consistencies (or inconsistencies) in their answers.
- Use third parties when appropriate.
- I’ve had both of my turn key houses inspected by a third party inspector. The costs was negligible, maybe $300, it will vary by market Even these completely rehabbed houses had “issues” found by the inspector. Look for nonnegotiable problems: safety and legality top the list. Everything should be to local codes.
- The inspection report should come with detailed pictures and some indication of priority. Some may also provide a video.
- Repairs can lead to some level of negotiation. In my case all repairs were taken care of prior to closing without negotiation. Pictures were provided as proof of work.
- If you are financing a single family rental, the bank will typically require a third party appraisal. If you are paying cash, I would recommend paying for an appraisal and making it a condition of sale.
- Be comfortable NOT seeing your investment. I’ve never seen our houses in Memphis. Just like I’ve never been to the HQ of any companies I own stock in. Some people have a hard time with this. Know which kind of person you are or you may loose some sleep.
- If you are lucky enough to live in a city with good providers…all the better. I would caution about doing too many drive by’s, let your property manager do their job. The tenants will call if there is a serious problem. You did not go down the passive income path to obsess about the length of grass on your rentals.
- Educate yourself enough to ask well informed questions.
- There is no reason not to have a good underlying understanding of the business model your investing in. Seriously, no excuse.
- Google, YouTube, Bigger Pockets, Pod Casts, books, blogs, forums, meet ups, Facebook groups, local investor clubs…all FREE!
- Udemy, Online Courses, Masterminds…very little upfront costs, huge ROI over a lifetime.
- A week or two (10-20) hours of deliberate study is all you need.
Did you notice how little of this post was numbers driven? That’s because you will ultimately be investing in people as much as an asset. Be certain you are comfortable with the people running the show. You may not have to interact directly with renters, but you will still have a long term relationship with people. Be certain your comfortable with the companies you choose to invest in.