Post by Nichell Williams, VIP Client Specialist
I attended a real estate investment event this past weekend. While there, I heard some rather unsavory stories about OTHER turnkey providers and things they had done. Let me start by saying that these companies have pissed.me.off.
You’ve probably had it happen to you before if you’re involved in providing a service or in selling products – You operate with integrity, honesty, transparency, and the desire to provide a win/win to both yourselves and your clients. You put your nose to the grindstone, you crunch numbers, you lose money here and there because you own up to your honest mistakes, and you don’t settle for anything less than “great.” THEN one of your competitors decides to be an unscrupulous jackwagon and the next thing you know, everyone suspects you of being the same way just because you’re in the same industry. I won’t name any names, but you may have heard of them, or even done business with them if you’ve purchased turnkey properties around Chicago, or somewhere down south. AUGH. It grinds my gears.
Back to the event I attended – one of the presenters relayed the story of how a turnkey investor had purchased a property through one of these outfits and had come to the startling realization a few months later that he was experiencing NEGATIVE CASHFLOW. Not only was he not receiving any income from his rental, but it was actually COSTING him out-of-pocket with no end in sight! The turnkey provider was charging him for maintenance every single month that was just below the threshold where they would have to notify him and seek authorization to do repairs. Typically, that’s somewhere between $500 and $750. That meant that this company was spending nearly $500 each month doing “maintenance and repairs.”
A few things here: 1. A real turnkey property should not need maintenance and repairs each and every single month 2. especially not repairs that cost THAT much money. EVERY MONTH. It makes me twitch. They’re obviously either jacking up rates to pay themselves more for minor repairs, or they’re purposely doing poor or incomplete repairs to keep the river of cash flowing back into their account. No. Just no.
At this point, you’re probably thinking something like, “Sure, you renovate your properties. There will still be repairs and maintenance, though, so don’t try to tell me there won’t be any!”
Yes, a house is used. It is lived in, every day. Just like anything that sees everyday use, things get worn down, or they break. A rental property isn’t like the nice China you keep in the cabinet that you only use once a year. It’s the plates in the cupboard that get chipped and scratched up because your family eats off of them every week. Eventually you’ll need to get new plates, or maybe you’ll need to buy some bowls or cups to go with them. Rental properties are the same way. If you get a good tenant who treats the property like their own, then your costs for repairs and maintenance are tempered. That’s one of the true benefits of Class A and Class B properties – the tenants that rent them value the property more than Class D tenants would, so they take better care of it overall. However, even the best tenants in the world will have their HVAC stop working, or their plumbing fixed if there’s a leak. After it has been purchased, it is the responsibility of the property owner to take care of their investment and ensure that it is a place that people WANT to live. We take care of a lot of that upfront for you when we get the property and renovate it. After that, it’s up to both of us to make sure it doesn’t fall into disrepair from pinching pennies or thinking it never needs updates. Properties are like living things, don’t starve them!
That being said, we’re not going to suggest you feed that property filet mignon every night. We’re going to want to give it more than drive-through fare, but less than Gordon Ramsay, if you know what I mean. In other words, don’t go the cheapest route possible and sacrifice quality and more repairs down the road, but don’t treat it like it’s your PERSONAL home, either. Individual tastes should not factor into updates and renovations. Our standard is time-tested, and I think it speaks for itself. Tenants like modern, clean, efficient spaces. We keep up on new trends and adjust as necessary. We perform renovations and maintenance to the degree required and recommended, and we do not upcharge any of that when the cost is reflected in your owner statement. We feel like that’s an abuse of trust, and it’s dishonest.
Check out some of our tours to see what our spaces look like!
You don’t have to simply take my word for it, though. I’ll gladly back it up with some proof for you to consider.
Here’s a snippet from the last three months of one of our properties. The owner was charged $175 for repairs made to the HVAC system. The annual rent is $11,940. That’s a paltry 1.5% cost over the course of the year. They’ve owned the property since December 2018 and that’s the only expense for maintenance they’ve had so far. They’d have to incur an additional $425 in repair costs before they hit the 5% maintenance total we figure in to our calculations for ROI.
Remember the story we started with? Imagine how much they have to be charging that poor property owner for him to have negative cashflow. Alternatively, imagine how little he must be getting in rental income for that to happen (Class C and D properties, anyone?). Even with financing, that’s a HUGE cost they’re charging him! In my property example here, rent is $995/month. Property management with us is a mere 8%, meaning $79.60. Even in a worst case scenario, after taking out the management fee, taxes, insurance, etc, the property owner still wouldn’t have negative cashflow EVERY MONTH. On very rare occasions, there could be an emergency repair that eats away your cashflow for one month. At $995 rental income, that’s possible if the water heater gives out suddenly, or if there’s a major roof repair. If you’re an experienced real estate investor, you’ve likely had that happen to you at least once before. You could have a small catastrophe like those that costs that much once in a blue moon. Not every.single.month, though. Good grief.
We don’t do that. We don’t operate like that.
It’s not our style, and it’s not in our code of ethics. You can ask me anything. I encourage anyone looking to invest in anything to do their due diligence before investing a penny. Don’t go off of a shiny website or polished marketing videos. Don’t believe the sales rep at their word. Dig deeper. Ask around. Those who operate with honesty and integrity will gladly address any concerns or questions you have. They won’t dodge you or tell you half-truths. Don’t believe me? My number is 513-443-8008. My email address is firstname.lastname@example.org. I’m ready and waiting to hear from you.