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RG 026 – What To Look Out For When Buying Turn Key Investments with Curt Davis

Everything an international investor needs to know about purchasing turnkey investments in the U.S.

This week I am chatting with Curt Davis, a former hotel chef turned a licensed realtor. Curt worked with the first company in Memphis, Tennessee that provided turnkey investments for international investors back in 2008/2009. He has worked with a lot of foreign investors in his 6 years as a realtor, and is a host of his own podcast ‘Investor Talk Radio’. Curt explains what turnkey properties are, mistakes international investors make when purchasing turnkey properties, and offers advice on how to avoid them.

Unrelated to Real Estate:

  • Curt enjoys building furniture and really enjoys buying new tools! I bet he has a great man-shed!

curt (1)

What are turnkey properties?
Turnkey providers find discounted and distressed properties. They renovate the properties and make the necessary repairs. Turnkey providers even find tenants for these properties.

Turnkey providers can add value to an investor returns, only if they are licensed.
There are companies who provide really cheap properties, but they fail to give investors the desired returns or at times equal fraud.

Investors shouldn’t make their decisions based how cheap a property costs
The most common mistake investors make when buying a turnkey property is, go for the cheapest property available. Fact is, those who have cheap deals are not legitimate turnkey providers. Since recurring maintenance cost, tenants’ background check, and added modifications to the property tends to raise the holding costs, so available assets are highly unlikely to vary in terms of cost. Within some cases ‘cheap’ houses can mean a lower quality tenant; I know from experience that positive cash-flow can be eaten up very quickly in repairs and maintenance once a tenant moves out.

 

Ex: Property A –

Purchase Price: $45,000

Monthly Income: $700

Monthly Expenses (tax, insurance etc.): $300

Yearly Income: $8,400

Yearly Expenses: $3,600

Cashflow: $4,800 per year.

This seems good on paper but just simple things like painting walls and replacing damaged walls/cabinets once a tenant moves out can eat up most of, or potentially even all, of your profit.

 

Takeaway advice: Just because the property is cheap doesn’t mean it will be a good investment. The type of tenant that moves in to your property directly affects how much you will spend on yearly repairs and maintenance. 

 

Investors must do their homework and due diligence
Bad turnkey purchases can be avoided by thoroughly researching the company they are purchasing from. The Internet is the first place to go, and see reviews. Check out responses/feedback from past investors or the providers’ activities online.

If an investor must buy from the providers, they must visit the property they are buying. Investor must know, if the company provides property management services, do they do it themselves or do they seek an outside company. In either case, they must have a license and it must checked if they are operating according to the state laws.
Until Next Week, Happy Investing!