Have you been scammed on a “Turnkey” Rental Property Investment Scam? Here are some thoughts

 I have been handling consumer law cases for over 30 years, and just recently I received my FIRST complaint about a “turnkey” rental property Investment.  I did some initial checking and my first impression is there maybe avenues where an attorney can help you get your money back.  

The first thing you have to understand is that whenever somebody is selling a security, and for our purposes think of “security” as a passive investment, both the person selling you the investment and the investment itself must either be registered or covered by an exception.  Now there are some very broad exceptions.  The smaller the investment and the lower the number of people to whom it is offered, the more likely that it is covered by an exception. Because both federal and state law apply to securities offerings, the offering must comply with both state and federal law to be fully exempt.  

In general a sale of a fee interest (traditional property ownership) in real estate is not a security, but when that property is sold as an income-producing asset along with services in managing the property, that property might be a security.  

The current crop of “turn-key” property “scams” look more like a security than traditional real property sales, because the whole spin is to combine the purchase of the property with management services that make renting the property practical. Promoters advise that putting a rental property into your IRA is a great investment. The thing is, rental property that is actively improved or managed by the investor is not allowed to be in an IRA. That’s what makes these operations look more like securities investments than a pure purchase of investment real estate.  

“Turn-key” property sellers and managers are not necessarily scams, but keep in mind, a lot of these companies own portfolios of properties that they also manage to make money. Are they more likely to sell you the turkey that is a money-loser, or the prime property that is a cash cow?  

If you find yourself victimized by a Turnkey property operation, and either you, the property, or one or more of the promoters is located in Indiana, we would love to hear from you.  If the transaction has nothing to do with Indiana, You can find an attorney in your state at the National Association of Consumer Advocates website www.consumeradvocates.org.