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Downsides of Buying Turnkey Real Estate | Investing for Beginners - YouTube

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the downsides of buying turnkey rental

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properties that's today's video let's

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dive in hey there Clayton Morris long

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time real estate investor and founder of

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Morris invest thanks so much for dialing

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up our channel and subscribing a

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thrilled that you're here and today

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we're going to talk about the downsides

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of buying turnkey rental properties so

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let's dive into it you know when you're

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getting started and you want to build

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your portfolio quickly turnkey rentals

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can be a really attractive way to do

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that it's hands-off you don't have to be

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there it's fully managed for you you

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just put up the cash for the property

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and you've got a tenant in place cash

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flowing rental property fully done for

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you from A to Z that's great

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but there are some downsides to buying

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turnkey rental properties let's dive

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into it number one downside to buying

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turnkey rental properties its hands-off

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so if you like to get your hands dirty

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if you really like to control the whole

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process that is you like to manage

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contractors you like to cut drywall you

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like to put up siding you like to manage

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roofers electricians you like to nitpick

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and follow every little thing along the

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way what kind of paint color carpet all

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of those things the hardwood floors all

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of those things if you like a hands-on

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approach to real estate investing then

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doing turnkey rentals and buying from a

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turnkey provider is not going to be for

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you absolutely not if you are a control

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freak and let's be honest if you're

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honest with yourself are you a control

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freak if you are then buying turnkey is

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probably not the solution for you

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because if you're going to want to be on

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the phone every day managing your

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rentals like that then you should

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probably do it yourself take it from

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somebody who knows I know individuals

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who are control freaks they like to do

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everything themselves they like to be

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out there every day they like to meet

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with the contractors they like to see

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that this is happening if you are a

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control freak then a turnkey real estate

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investing is not for you stay away from

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it you will not be happy I'm telling you

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stay away

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number two downside to buying turnkey

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rental properties number two is that not

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all turnkey providers are reputable you

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need to do your

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homework I recently heard a story about

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a group of investors out of Hawaii they

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purchased a bunch of properties about a

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year ago from a turnkey provider or an

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alleged to turnkey provider and after

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about five or six months of owning these

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properties they were sitting vacant and

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they were wondering where their rent

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checks were and basically this little

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phony company sort of folded up and

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disappeared then these Hawaiian

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investors were left holding these

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properties that ended up not producing

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cashflow they paid too much for those

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properties and they couldn't get tenants

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in those properties what are they going

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to do unfortunately

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I ended up buying them from the

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Hawaiians and at a loss they actually

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took a loss on the properties they paid

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more than they were worth they didn't

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cashflow they couldn't find tenants for

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it so you need to be careful and make

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sure that you're working with a

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reputable turnkey provider so you

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absolutely want to ask for testimonials

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you want to hear from people who have

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actually purchased properties from the

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company before ask for some testimonials

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make sure that the company actually does

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what it says it's going to do hear from

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happy customers right there's no better

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way than to find out if a company

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actually exists and is doing real work

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then to talk from people who actually

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own properties from that company and who

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are receiving rent checks on a regular

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basis no one wants to work with a phony

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company so don't do it don't get

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suckered into that kind of stuff work

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with reputable companies that have

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testimonials that they can share number

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3 downside to buying turnkey rentals is

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ROI return on investment you know a lot

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of people have money in the stock market

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they make a 3 or 4 or 5 percent return

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on their money that is okay it's kind of

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low but when you work with a turnkey

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provider ask them what is the typical

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net ROI on the property that I'm going

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to buy

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not gross gross is before expenses and

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other things are removed what is the net

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ROI now if they're telling you if

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they're giving you a gross

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ROI number they're telling you it's

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going to be 20 percent or 25 percent and

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you ask them is that gross ROI well yeah

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yeah that's gross ROI that's a red flag

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you want to know what the net is after

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expenses insurance taxes those types of

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things if they tell you to three percent

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net that's basically what you're getting

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in the stock market or even a little bit

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lower make sure that your ROI is high

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the whole point of getting in real

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estate investing is for ROI I have so

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many videos here where I talk about the

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power of return on investment and why

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that's the most important thing not the

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four walls in a roof

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just return on investments that's the

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whole reason we're doing this right so

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find out make sure that that ROI is high

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personally I don't buy properties unless

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I can hit a 10 to 12 percent net ROI net

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ROI why would you settle for anything

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less than that so make sure when you're

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talking to a turnkey provider that their

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net ROI is high if it's not why not just

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invest in the stock market for on the

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list number four on the list the

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downsides of buying from a turnkey

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rental provider find out the costs costs

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very often turnkey providers will nickel

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and dime you and they kind of don't tell

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you about it they'll kind of hide it and

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and and you'll find out later and I've

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heard horror stories from people that

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found out later after they bought

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turn-key properties for instance here's

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a scenario if a turnkey provider if you

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get a maintenance call on your house and

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a plumber has to go out and fix the

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toilet happens right something gets a

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clog are you going to just pay the

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plumber

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you should why then would you pay an

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additional percentage or fee to the

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turnkey company to call the plumber to

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go out to the property so certain

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companies will charge you additional

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maintenance fees ten percent or so on

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top of the fee that you're going to pay

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for maintenance so watch out for little

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fiddly costs hidden costs to go out to

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your property to check on things

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let's say there's a storm thunderstorm

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is your team that you work with your

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property management team or your turnkey

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provider are they going to go out and

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check on your property are they going to

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charge you I heard from another investor

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who told me this one of their teams went

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out and charged them seventy dollars

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just to drive and look at the house they

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called that a site visit and charge them

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for a site visit be aware of those

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little fiddly costs that can add up make

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sure you ask those questions upfront

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does your team charge an additional fee

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for maintenance do you charge for site

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visits are all of those things extra

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that we are paying a turnkey provider so

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look for those little hidden costs it's

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kind of like the phone company see those

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things adding up on your bill and they

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can be costly so ask about them number

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five downside from buying from a turnkey

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provider okay maybe you're in California

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and you hear that certain cities offer

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have a turnkey service great but you

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need to be aware of the vacancy rate no

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turnkey company is better or much better

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than the vacancy rate of the city that

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you're buying so make sure you ask your

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turn P provider what the vacancy rate is

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for that area and they cannot beat the

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vacancy rate it's going to be very

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difficult for them to fill that property

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with a tenant if their vacancy rate is

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above 10% or 12% there are certain

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cities where the crime is very high and

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the vacancies are very high and they

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have one employer in the town great that

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there is a turnkey provider there but at

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the vacancy rate is through the roof you

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probably want to avoid that it's going

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to be very difficult for them to get a

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tenant in the property so that can be a

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downside vacancy rate make sure that you

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know what the vacancy rates are and that

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you're getting a low vacancy rate so

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those are five downsides to working with

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a turnkey rental provider I hope this

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was helpful I want to protect you make

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sure you have the education to go out

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there and make great decisions about

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your real estate investing future we

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have other great videos in this series

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on turnkey providers we also have

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getting started videos we have whole

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playlist just go down in the description

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below in this video click on the show

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more tab and you'll see the links to

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