We all know that when getting into real estate investing, there are some companies out there who don’t have your best interests in mind. There are some important things look for when getting into business with any individual or company.
Prove Their Experience
If the company you’re working with doesn’t own a portfolio of rental property, they won’t really know firsthand what it takes to succeed. There’s a lot to it. It’s not as easy as many people think – there’s a lot more to this business than simply buying some property and renting it out.
You’ve got to make sure you’re investing in the right neighborhoods, at the right price point, and that tenants will be screened properly. It’s essential that you really checked out the quality of the property’s renovations. You want to make sure the renovations are in line with what renters in the area want in a home.
This is why I don’t recommend that people buy rental property from real estate agents. Because most real estate agents don’t own rental property. They specialize in selling primary residences, and many don’t even own their own primary residence. So always only get your advice from people who have done exactly what you want to do, over and over again…for many, many years.
Over Market Pricing
Many turnkey operators sell their properties above market value, and out of state investors have no idea. Some companies do this by working with another company to purchase their own properties – this lift their comps. So, when you get an appraisal, you’re actually getting an inflated comp. Unfortunately, this type of thing happens a lot.
Another example, a lot of fraudulent appraisals were done in Atlanta during the housing boom, and when the markets crashed. This is why it’s so important that you really understand the area and the values.
This is especially true for people who live in California, and other expensive real estate markets. They think everything is cheap, which makes it really easy for less moral turnkey providers to take advantage. I remember when a lot of investors from California were going to Detroit, and paying $90,000 for properties, when they were probably worth about $5000. But at the time, nobody could believe that anything could be only $90,000…. To reiterate, make sure you understand market values before you buy property.
Inexperienced property management
Many turnkey operators choose to do their own property management, because they had a bad experience with another property management company. And that’s nice of them. The problem is that if they don’t have at least two years’ experience as a property manager, they might not do a very good job.