For the past 5 years, I’ve owned and operated a turnkey real estate investment company. I started as an investor and fell in love with turnkey real estate, and eventually through a series of ripoffs, started my own company because I wanted to do it better and with integrity. One of the prevailing knocks on turnkey companies is that you pay full market price or even above market price for properties, thus leaving you the investor with no equity in the deal. Although I would argue we have never charged above market price, because the market is always what buyers are willing to pay sellers for an offering. I can say that when I first started in the business, I gave the best deals that I could, often discounting our properties to put the investor in the best equity position I could. But I do have to say, my position has changed, and the criticism is very true- we charge full market price and feel great about it. There’s no denying it here – guilty as charged.
It takes a LOT of effort to get a property across the finish line.
You see, it takes quite a bit of effort to get a property across the finish line. You have to sort through a large number of potential projects, just to find one where the seller isn’t off his fucking rocker in terms of how dilapidated the piece of shit is. “Only needs carpet and paint” and other supposed “light rehabs” get the buyer stuck with a whole host of other issues that end up costing big time and making the project unprofitable. Then on top of that, you have to have a great construction team that won’t screw you over with shoddy work and impossible timelines they know they can’t hit but they tell you that so they can keep their deal deck full.
Then you’ve got to pass inspection, and they ALWAYS find even more shit you’ve got to fix. Then on top of that is having a great propriety management team to screen and place quality tenants that actually pay their rent. And if that wasn’t enough, there’s this major expense called “carrying costs” which means the cost of your capital being tied up (interest to your lender or yourself), taxes and insurance all adding up while you’re working on the project.
Then, there’s finding a buyer and the marketing and commissions paid out to close a deal. I know right – you want to do this all yourself, with your very limited knowledge and having no team? Be my guest – good luck not getting the shaft!
No Discounts! Ever!
When you buy a completed, done for you property like this, you can’t expect to have any equity (discounted price you pay vs what it’s actually worth) because for any team doing all that heavy lifting, will capture that equity when they sell it. Speaking from personal experience, I have zero interest in not making the maximum profit I can for the system and team we put together to bring turnkey properties to market. If you’re my Mother, best friend, cousin, heck I’d charge MY WIFE full price if it weren’t my own money – I don’t care – no discounts.
So when you buy finished, quality properties and you’re expecting to have an equity position, especially in this heated market with low interest rates and tight supply, your expectations just aren’t in line with reality. But honestly, shouldn’t you just stay focused on what you’re good at, increase your value and your income in your primary lane, and let others do the heavy lifting that already have teams and systems in place? Specialization of labor is largely responsible for the incredible economic progress humanity has achieved the past 2 thousand years. This will be a much smoother and quicker way to grow your wealth – you’re paying someone else and in turn, you don’t have to be an active, stressed out, distracted investor – a small price to pay to buy turnkey.