It’s a New Year and time to jump back into the blogging saddle! I find that holiday’s are tough to come up with postings when I know that most are knee deep in eggnog and Christmas trees…
So to start things off fresh I decided that we should focus on a list of risk mitigation techniques when evaluating a deal. Previous postings have explained websites and calculators, but this is more of the soft-skill type techniques. This is not an all encompassing list and quite frankly should be a starting point for developing your own mitigation plan.
It’s a harsh world out there and the only way to protect yourself is through the power of knowledge and data:
Real References: Don’t take the word necessarily of the seller or his group of investors. Do google searches on the company. See if any complaints have been made with the Better Business Buearue for instance. Use sites like BiggerPockets and LoopNet to see if anyone has heard of the company. Ask competitors about them, of course there will be a biased but an intelligent investor will know the difference between contempt and honest opinion.
Proof of Success: Ask for a few real world examples of investor purchases and how they resulted over a year period. Ask to see vacancy rate, maintenance charges, management expenses and any other expenses outside those expected. Ask to see the actual profit and loss in a summary format to verfiy that they are selling properties that actually perform as expected… but secondly they actually have the information.
After-Sale Commitment: Turnkey has traditionally followed a pretty straight process; sell property to investor and from that point on the investor is the “problem” of the property manager. This design creates many issues, not including the ability to form a solid relationship with the turnkey provider if the property turned out acceptable. Ask the seller to explain the process of purchasing a property, see if they discuss post-sale processes. If they have a true account management program in place, you will know it. You won’t have to ask, they will simply demonstrate it in their explanation of what they do. Make sure that they are willing to act as your advocate and monitor your investment and warn you of issues they may see as a local advocate.
Knowledge to the Extreme on the Market: Experience operators in a market will have a mental library on their market. From demographics to future revitalization, a turnkey operator that understands their market can position you perfectly based on your unique goals. Don’t get too focused on flashy presentations and marketing materials, these are great and show a group is committed to exhibiting professionalism but if they can’t back it buy speaking directly with you on the phone then they are simply “copy & paste” experts.
Scope of Work: If the property is a turnkey with a tenant residing in the residence you will have a difficult time visiting the property or getting photos of the renovations that took place. Ask for a scope of work and the contractors that provided the work. Review the renovations to make sure that you are comfortable with the scope of work. Ask about service life left on HVAC, Roof , Electrical & Plumbing. These are the items that will cost you heavily when repairs are required.
Is this an all encompassing list of vetting tools? Nope. But that’s what future postings are for. Remember, find someone you can trust and stick with them. You may not always get that “killer” deal but “killer” deals can sometimes lead to significant blood loss in your bank account.
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