Turnkey real estate investment has become a popular choice for real estate investors over the past decade. What is it? How does it compare with other investment options? What should we be looking for in sound and profitable turnkey opportunities?
Turnkey Real Estate Investment 101: What is it?
Turnkey real estate investing has been the norm, or even go to investment strategy for investors in Europe and Asia for decades. It really woke up in America after 2008.
This term is typically used to describe investing in fully managed single family rental homes. Instead of doing it all yourself, a turnkey real estate provider like REINation will find and screen the properties for you, help with tenant placement, and connect you with ongoing full time property management. All you do is invest and reap the rewards in your bank account, fund or self-directed IRA.
The Benefits of Turnkey Real Estate Investing: Why Do it?
There are several obvious advantages of going turnkey, including:
- Eliminating or at least shortening the learning curve
- Fast tracking getting started in real estate investment
- Ability to benefit from real estate without quitting your job
- Minimal to no time needed to acquire and scale an income producing portfolio
- Truly passive income
- Leveraging the best experts at every part of the process
- Long term wealth building
- Tax saving and deferring benefits of real estate
Essentially, if you are busy, you want to get going quickly to avoid missing out any longer, and you want to minimize risk as low as you can, and make expert moves, all without sacrificing your precious time, turnkey really stands out as an attractive option.
Turnkey Investing Vs. Other Real Estate Strategies
There are many great real estate investment strategies. You can use more than one, and probably should at some point. Different vehicles may be a better fit for your circumstances and needs at different phases of your life as well.
For example; real estate wholesaling is highly regarded as one of the fastest and lowest risk ways to get into real estate and get paid. Especially, if you are limited on funds and credit. It can produce sizable paydays fast. You don’t even have to get your hands dirty. Wholesaling can also be used long term at create scale as a very profitable business. On the other hand, unless you have automated this business it is very intensive. Meaning, if you aren’t out there buying and selling deals this month, you aren’t getting paid. You have to keep putting the work in, to get the money out.
The same goes for house flipping. Flipping houses is very intensive and time consuming. There are many variables and skills required. It can give you a bigger paycheck in one deal, in one month, than most people make all year. Yet, if you love your career or the foundation you are working for, you might just not have the time or desire to get dirty rehabbing abandoned homes.
You can do it all yourself as a landlord as well. Many love this. Though, you will have to deal with tenants and maintenance, and find the deals yourself. It’s just not passive like turnkey investing. Though great if you are living next door to a duplex you own and love talking to your renters all day long.
There are also turnkey style commercial real estate investments. These can be good too. Though with the exception of multifamily apartment buildings, investors do need to keep on the technology risk and how new tech is impacting these properties.
What to Look for in a Turnkey Property Investment
- Strength of the location and future outlook
- Pricing of the properties and what value is based on
- Likelihood of return of capital
- Likely return on investment made
- Experience of the property management team
- Plans for sustainability of the investment, income and company
- Spread between any debt, expenses and rents
- Potential for rental rate growth
- Tax saving and deferring opportunities
- Risk versus reward balance
- Ease of staying on top of your investments (i.e. real-time online vs. quarterly paper statements)
People make money from real estate many different ways. Turnkey investing is a popular way to buy and hold onto rental properties without being involved or funding expensive repairs and improvements. A “turnkey” property is a fully renovated property: home, condo, duplex, townhouse, or apartment building.
How to Buy Turnkey Investment Properties
While the term “turnkey” is often used to describe move-in ready residential homes for sale, in the investment context, turnkey properties are renovated and ready to rent. For an investor, they offer confidence that a “buy and hold” property can be rented out quickly, without wallet-draining renovations. Turnkey property investing has been around for decades, but became popular following the housing market decline of 2007-2008.
Becoming a Successful Turnkey Investor
Your success as a property investor will come down to profits. Becoming knowledgeable and educated in markets and processes is crucial, but you don’t have to learn on your own. The most successful investors have coaches or mentors, or work with a company that will guide them.They also leverage the best experts in every step of the process. If you are new to the turnkey real estate game, a coach, mentor, or professional group is a must to reaching your full potential and going from making a living to being wealthy with multiple income streams and having the time to enjoy life.
The Steps to Buy Turnkey Property
Select your market to invest in: Although it seems like qualifying for financing may be the first step in purchasing your turnkey property, knowing your market is critical. You’ll need to find a lender licensed in the state you purchase property in. You may already have an idea where you want to invest, but research the market to make sure it makes sense. Look for an area that has high rental occupancies, high rental rates relative to mortgage repayments / home values, and low tenant default rates.
Get financing: If you have cash, you can obviously skip this step. Talk to a lender about your goals and make sure you qualify. If you will be diversifying a portfolio of rental properties, you might look for a lender licensed to lend in multiple states. Real estate investment experts warn that it is not a good idea to buy all your properties in more than one state.
Find a reputable turnkey provider: Do your research. Choosing the wrong turnkey provider makes you vulnerable to falling victim to a scam or reducing your income due to mistakes. Check out forum websites like turnkey-reviews.com and BiggerPockets.com. If you’re buying a property far away, it is crucial that you work with a provider you trust who can be your eyes, ears, and voice. You should not be a guinea pig for an inexperienced operator.
Find and purchase your property: Come up with your criteria for homes and start shopping. Example criteria for a turnkey property might include:
- Return on investment
- Single family homes
- Minimum 3 bedroom / 2 bath
- Freshly renovated
- Low crime area
- Purchase price not more than appraisal / fair market value
Once you’re under contract, insist a home inspection, even if a turnkey seller tells you it is not necessary, or offers up an inspection report. You may be able to negotiate a credit based on items found in the inspection report, or you may find “deal breaker” issues like mold that were covered up in hastily made renovations. If possible, visit the property at some point during the purchase.
Enjoy your stream of income: Once the house is yours, get it rented. Then you can sit back and watch those payments come in. Don’t spend all this money, however. Set aside money for estimated repairs, unexpected expenses, and vacant periods.
Turnkey Property Rental Management
Many turnkey sellers provide property management services. If they are experienced and have a history, they may work just fine for you. If they are not experiencedIf not, choose a property management company with good reviews from both tenants and property owners.
Turnkey real estate investment has grown in popularity in the United States. It is a strategy that has proven to work for decades. It may be especially appealing to those with capital to invest, who are busy professionals, or have accumulated wealth through other forms of real estate investment. It’s quick to get started with. Just make sure you know how to take advantage of all the benefits, and what to look for in the best opportunities.
How to Find a Property Manager for Your Rental Property
Property managers can make or break your real estate investment ownership experience. If there’s a flood at 3 AM, if the oven breaks on Thanksgiving morning, or your tenant complains that their neighbors are throwing loud parties, your property management company will take care of the problem. Not having to deal with maintenance headaches and tenant issues allow you to acquire more properties and grow your portfolio.
Researching Property Management Companies
You should spend some time finding the right property management company to manage your property. Your turnkey seller might manage properties. If they do, research both their rates and their reputation as property managers. Do your homework, ask for references, and read reviews.
You can start with a basic search of property management companies in your property’s area by googling “property management companies in ________.” From there, you can compile a list of the top results. Keep in mind that just because a company has great search engine optimization and is a top google result does not mean they are the best company for you. Read Yelp and Google reviews and come up with a top five list. Then put on your property owner hat, make some phone calls, and ask the important questions.
Questions to Ask a Property Management Company
You should consider your property management company search to be a hiring process and dedicate time to finding the right company. Below are the top questions to ask a property management:
- Is your property management team licensed? If not, is a property manager required to be licensed in your state?
- Do you have insurance (professional liability insurance or errors and omissions coverage)?
- How long have you been operating a property management business
- How many properties do you manage? And how many employees do you have, and what are their roles?
- What types of properties do you manage?
- Do you have a communication response time policy for owners and tenants, and via what means?
- How often, and how do you communicate with owners (text, email, phone, mail, etc.)
- What are your management fees?
- What is your initial fee for filling new tenants or renewing a lease with an existing tenant?
- Do you charge markups for repairs? Are there marketing or account setup fees?
- What percentage of expiring leases renew?
- What is your average number of months/years occupancy per property?
- Do you have copies/templates of your contracts? (lease, parking agreement, etc..)
- What is the process to cancel my contract with you if I’m unsatisfied?
- How do you determine market rent value?
- How do you market/advertise your properties?
- What is the screening process like for qualifying prospective tenants?
- What forms of payment are accepted by the tenants?
- Do you perform property inspections?
- How long does it typically take to fill a vacancy?
- How is the security deposit handled?
- How do you handle tenant delinquencies, late payments, and evictions?
- Do you provide monthly statements?
- Do you have any references?
- When are property owners paid?
Once you ask all these questions, you should have a good “gut feeling” about whether a property management company will be capable of managing your rental, and whether you are interested in doing business with them.
Dealing With Property Management Fraud
Rental fraud was described by a Florida judge this year as “an absolute art form,” and is something every property owner must be aware of. If you hire a property management company, you are placing trust in them to keep fraudulent tenants out of your property. According to Transunion, 95% of property management companies have experienced fraud in the past two years, and 80% have experienced fraud more than 20 times. These numbers are important to understand because it is absolutely critical your property management company does their diligence and protects you as a property owner.
How to Find Turnkey Real Estate Properties
The internet is saturated with endless real estate brokerage companies, real estate agents, turnkey real estate companies, and out-of-state turnkey coordinators – all waiting to help you buy properties. In some areas of the country where turnkey real estate markets are hot,, inventory is short, and properties are quickly snapped up. If you’re buying rental properties in high demand areas at competitive price points, you can easily spin your wheels writing offer after offer that isn’t accepted. This is obviously, not a good use of your time, and can be extremely frustrating.
Find Turnkey Properties in Your State or All Over the US?
Buying rental-ready turnkey properties in your own city and state might make sense, but it depends where you live and boils down to numbers. If you live in a beach city on the west coast, a rental property can easily set you back upwards of half a million dollars. Even with a 20% down payment, rental income will not cover a mortgage payment. Even if you can qualify for a rental home in that market, you will not be taking advantage of opportunities in other areas that offer substantially better values and more cash flow.
It is more likely than not that you will get a better value for a turnkey rental outside of your own neighborhood. Investment experts have created formulas and algorithms that calculate the best cities to buy turnkey properties. These factors consider:
- Average home price
- Average monthly rent
- Projected equity growth
- Projected population growth
- Projected job growth.
With property management services, you can reap the benefits of positive cash-flow properties all over the country, without physically being close to the property. A property management company can offer peace of mind that emergencies and tenant issues will be handled promptly.
How to Search for Turnkey Properties
The best way to find turnkey investment properties is to establish your criteria and narrow your search. Parameters to consider should include:
- Budget, considering available cash and financing options
- Whether you want a single-family home, duplex apartment
- Must-haves: For example, 2+ bedrooms, garage, yard, etc. (make sure your must-have features are in line with your budget).
Remember that you are buying an investment property and not your own home. A “great buy” should not be based on features or area, but based on purchase value and return on investment. Do not get attached to features or one particular property. Stick within your budget and stay organized.
Increase Your Odds of Success: Utilize Experts At Every Step
Real estate investing is something anyone can jump into, at any age, with any background. However, not everyone is successful, and some investors are far more successful than others. Treat every decision as an opportunity for money to be made or lost. Success in your first rental property will make you far more likely to have funds to invest in a second property.
If you do “burn your hand on the stove,” and have a bad experience or make a mistake, do not let it turn you off from investing for good. If you aren’t an expert in your local area, talk to an investment-friendly real estate agent who knows the market, desirable vs. undesirable neighborhoods, and school districts. If you aren’t comfortable running calculations on financing and expenses, talk to a qualified real estate investment coach who can help you determine if a particular property is a good choice.