Last week a dentist sent some “turnkey” real estate investments to my email. He was about to pull the trigger and purchase the deals. Good thing he didn't…
I'll tell you the rest of the story in a minute.
First, what's “turnkey?”
It's a rental property, single family to 4-plex, that has already been renovated and has a paying tenant in place. The advantage to an investor is that he or she doesn't have to deal with the process of renovating or tenant management. So far, so good.
- But who is the turnkey provider? Do you know?
- What is their track record? Do you know how to verify?
- Are there any property warranties?
- Who is responsible for management?
- What kind of deal are you getting?
- Do you know what questions you need to ask?
- Do you know what answers to look for?
To be fair, there are good turnkey providers out there.
We have a few on our Board of Advisors at Freedom Founders.
A lot of other turnkey providers use front-end promoters to find potential high net worth investors like you or me and get us “signed up.” The promoter takes a front-end sales commission from the turnkey provider and then they're gone. Now who do you look to? Do you know? Have you met the principals?
Back to the story…
After evaluating this dentist's prospective deals, I told him to hold off – he could do much better on the deals, notwithstanding that he had done little or no due diligence on any of the questions above (not his fault – nobody told him what questions to ask).
He has postponed any investment decisions until he comes to a Freedom Founders meeting and finds out what he needs to know so that he can compare apples to apples and really vet out the turnkey provider.
My guess is that we saved him about $60,000 just in overpaying on his first deals alone. I have no idea what kind of renovation quality was backing his deals or what level of management he would encounter.
Big questions need to be answered before making your first investment.
To your freedom,
P.S. Our February meeting is two weeks away! Are you ready to rock 2016?