Have you considered purchasing a turnkey rental property? If so, I don’t blame you. Buying a turnkey rental is an undeniably great way to generate passive income and increase that cash flow! If done properly of course. My plan to financial freedom is going to be mainly dependent on turnkey rental properties. It’s crucial to my success that I purchase good investments and work with a reliable turnkey seller. You can read about my third turnkey property here to see actual numbers.
Before you commit to buying a turnkey from a turnkey provider it is imperative you interview them and do proper due diligence to ensure you are working with a reliable and trustworthy company. There are many scrupulous turnkey sellers out there and you need to make sure you do not fall prey to one of them. I have spoken to at least a dozen turnkey sellers and have asked a myriad of questions. It is important to pay attention and make a mental note of how the turnkey seller answers these questions as it can be a determining factor on if you want to do business with them.
This is why I have created below the most comprehensive set of questions to ask a turnkey provider prior to buying a rental property. You may or may not want to ask all these questions however they are all legit questions and a really good turnkey provider should have an adequate response for all of them. Pick and choose which questions you want to ask but the more you ask, the more information you get. Information is power!!
1) Does your company own the turnkey properties you are selling or are you a marketer?
- You will find that many “turnkey sellers” are actually just marketers selling actual turnkey providers properties. These marketers typically mark up the price of the property a little but so they can get a piece of the pie. There is no sense in working with a marketer when you can go direct to a turnkey provider and cut costs and time. Cut out the middleman!!
2) How long have you been in business as a turnkey seller?
- The longer they have been in business the better. There are many new providers popping out left and right and although this isn’t necessarily a bad thing, having more experience selling turnkeys will lead to a more efficient and better experience when buying.
3) Do you own any rentals in the same neighborhoods you’re selling in? Do you stand by your product?
- It would be a good sign if the turnkey provider invests in their own properties and has their own portfolio of rental investments in the same locale they are selling. If not, this could be a red flag.
4) How many markets/cities do you sell in?
- Multiple cities and markets could mean the turnkey seller does not own the properties themselves and are a marketer. What I’ve found is the best turnkey sellers only offer properties where they live.
5) How many out of state investors do you work with? Do you have any investor referrals I can speak to first hand that have acquired 1 or more of your turnkeys?
- You are looking for a team that has experience catering to out of state investors. If they cannot provide referrals of previous customers to talk to than that is a red flag.
6) What types of neighborhoods do you purchase/sell properties in? A, B, C, D classes?
- The best turnkey properties typically fall in either the B or C class properties. A’s are usually too expensive and there is no cash flow. D’s are high crime areas which you don’t want.
7) What is the rehab process like on each property? What items are replaced?
- Ideally the properties provided from the turnkey provider should include a new rehab with all new or newer mechanical’s including roof, HVAC, water heater, updated electrical, and updated plumbing.
8) Can I fly out and take a tour of your operation and view available properties?
- It is highly recommended that you do fly out there and visit the company you are wanting to work with. You need to see firsthand how they operate, who they are, and more importantly the quality of the properties they have and locale. Nothing says more than seeing it for yourself. If they don’t provide this, run! To read about my experience flying out and doing just this, read here.
9) Do you provide a home warranty for the first year?
- Most turnkey providers will give you a first year’s home warranty which will replace any of the newly replaced items free of charge if they go out on you. Nice to have!
10) Do you allow lender financing for purchasing your turnkeys?
- A legit and reputable turnkey provider will allow you to provide your own conventional financing. This is a big deal because using conventional financing means an independent appraisal is required. This covers your butt to make sure you are not over paying for the turnkey. You should be expecting to pay no more than market value for whatever turnkey property you are interested in. If a turnkey seller won’t allow an appraisal, run! Even if they tell you that they only accept cash offers because the properties sell so quickly. They will always say this when they don’t allow financing. Just find another company!
11) Do you offer any rental or maintenance guarantees?
- Some turnkey providers will offer a guarantee of some sort. Take this as a warning as this is really more of a sales gimmick. If they do say yes, ask them if it applies when it really matters like years 2 – 4.
12) Will the turnkey property be fully occupied with a tenant before closing?
- A true turnkey company will provide property management, fill the vacancy and have an already cash flowing property for you at the time of closing.
13) Do the properties come with appliances? (Fridge, Stove)
- Some turnkey providers do not supply this and you are caught off guard toward the end of the process and will have to cough up more money for these two items. This does however vary by locale so be sure to do research to find out of this is common to not include these appliances.
14) Can you provide a step by step process of what the turnkey purchasing is like with your company?
- They should be able to provide to you a rundown of all the steps involved when purchasing a turnkey from the first step to the last step. It is very good to hear this as you’re not caught with any surprises during the process.
15) Do you provide property management in-house or outsource to a 3rd party?
- Regardless the answer to this one, there is a whole set of property management questions that need to be asked to whoever the property manager will be. It is preferred that they have the property management team in-house in my opinion, as they will provide you better service since they know they will be dealing with you in the future and are vested in this property. See property management questions below. To see the top 10 qualities for a property management company, click here.
The questions above are specifically for the turnkey provider and how they operate. The questions below are meant toward the property management aspect of the turnkey business. Some turnkey companies will provide their own property management through a different company they own or they will outsource the property management to a 3rd party in which they have a partnership with. Either way works however be sure to ask the property management team the questions below.
For a more comprehensive set of questions, see The Best 31 Questions To Ask a Property Manager.
16) Is your property management team licensed?
- Make sure this one is a “yes”. You don’t want an unlicensed management company as it can come back and haunt you if there are ever any legal matters.
17) How many properties/doors do you manage? And how many employees do you have?
- This will give you a glimpse into how big this company is and based on the employee/doors ratio what kind of service you can expect to get. You don’t want 1 employee handling 100 doors. The level of service would be degraded.
18) What is your communication response time for owners and tenants and via what means?
- Preferably the PM will be able to be contacted via email, text, phone and an online portal. Response time should be no more than a few hours at the most.
19) What are your management fees?
- 10% of the monthly rent is average. If its more, find out why? If its less, find out why?
20) What is your fee for filling new tenants or re-leasing an existing tenant?
- Typically its 75% to 100% of monthly rent for a brand new tenant. For a simple lease extension it should cost very little to do this as it virtually requires no effort from the PM. Watch out for high costs on this.
21) What percentage of expiring leases renew?
- It’s better for everyone for this number to be high especially if it’s a quality tenant. Reducing tenant turnover will greatly reduce headache and keep that cash flow coming!
22) How long is your average # of month’s occupancy per property?
- Average is about 1 year. I like 18 month leases. Locale is very dependent on the recommended answer. If you are in a hotter area with rents increasing then you don’t want to have the tenant sign for more than 1 year as you won’t be able to raise rent prices during the lease.
23) How do you determine market rent value?
- They should be able to provide proof that the projected rent values coincide with the market. Ask for MLS rent comps. You can even do your own research on Zillow, craigslist and rentometer to confirm the rent prices match to similar homes in the same vicinity. If the numbers don’t match, take this as a red flag.
24) What is the screening process like for qualifying tenants?
- It’s almost impossible to find a perfect tenant but there are many steps that can be taken to securing a good tenant(s). You should expect a credit check, background check, eviction report, pay verification and previous history of rent payments from the screening process.
25) Who is your average tenant?
- College kids, blue-collar workers, families, couples and young professionals. That is what you should be hearing as those typically make the best tenants. Also check if they do section 8 or low-income tenants. Don’t get caught off guard if they do but be aware and do more research. You may not want to dive into that realm as it typically means more headaches in the future but I do not have any experience in this yet so take what I say with a grain of salt.
26) What is your eviction experience?
- You want to make sure they know how to handle an eviction as quickly and efficient as possible and that only comes with experience. It’s a double edge sword though because if they have a high amount of evictions then they are most likely not screening the tenants properly.
27) How long does it typically take to fill a vacancy?
- This varies by locale however it’s good for you to have an expected time frame so you’re not caught off guard when it takes 5 weeks for your vacancy to fill.
28) How is the security deposit handled?
- There always needs to be a security deposit and it will either be held by the property management team or given to you. Find out. Then find out how often its refunded to the tenant.
29) How do you handle tenant delinquency? Late payments?
- You need to make sure they handle these matters professionally and legally. Don’t ever let a tenant slide from having to pay a late payment fee. This will only lead to more trouble in the future. Run your rental properties like a business, not a hobby!
30) What is the cost of an average repair bill after move out? (make rent ready)
- It’s a good idea to get an estimate on how much on average you can expect to pay to make your rental rent ready again after vacancy. Don’t get caught off guard a year later when this happens.
31) Last but not least. HOW DO I GET PAID!!!
- Find out when the check/ACH disbursement typically occurs after the tenant pays rent. You want your CASH FLOW!!
By asking all or at least most of the questions above you should have a very clear picture of who you are working with and what to expect. Don’t feel bad asking any of these questions and if you feel any negativity coming from the responses then that is a red flag. Find another company. You don’t want to waste your time with a not so good turnkey company. You want the very best out there and there are some out there. It’s just a matter of going through the process of finding them.
Click this to see my Step By Step Guide on How To Purchase a Turnkey Rental.
Can you think of additional questions you would ask?