Landlording & Rental Properties

The Top 5 FAQs About Turnkey Rental Properties — Answered!

Expertise: Business Management, Personal Development, Real Estate Deal Analysis & Advice, Real Estate Investing Basics, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate News & Commentary
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It seems that turnkey rental properties have gotten more and more popular over the last few years. It makes sense — they open up the door (great pun!) for people who wouldn't have gotten involved in real estate investing otherwise. Turnkeys allow people who don't necessarily have skill or interest in finding motivated sellers, rehabbing, and managing tenants to still own a profitable rental property.

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How? Someone else does all of that complicated stuff for you! You just have to do you due diligence and buy the property. Yes, other people are running your investment property, which brings on a certain level of skill just in managing your team, but learning that tends to be a lot easier for most of us than something like rehabbing.

With so many people getting interested in turnkeys as a potential investment strategy, I’m hearing more and more questions come up about them. I’ve chosen the top 5 questions I hear from people interested in turnkeys, and I’m sharing them with you here.

Ready?

The Top 5 FAQs About Turnkey Rental Properties — Answered!

1. Are turnkeys too good to be true?

Answer: no. Sure, at first glance, it may be hard to see the catch — nice, fully rehabbed properties, great cash flow, doable prices, and everything taken care of for you. Why isn’t everyone buying them? I’d say there are a few main reasons not everybody necessarily wants a turnkey.

The major downside to turnkeys is that typically they are priced fairly close to market value, if not at market value, and since they are fully rehabbed, there is limited ability to force appreciation. A lot of investors want to force appreciation (and rightfully so). Then, there's the price. I'll get to that in the next bullet, but in short, turnkeys are typically more expensive up front than non-turnkey properties. Lastly, some people just don't have any desire (or capability) to let other people control their investment.

For more in-depth information about whether or not turnkeys are too good to be true — or whether or not a turnkey is for you — check out “The One Piece of Advice You NEED to Read Before Buying a Turnkey Rental Property.”

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2. Do the markups kill the deal?

Answer: no. Sort of. Well, it depends.

If you have skill in finding properties and rehabbing and all that jazz, I’d say yes, the markups on turnkeys should kill the deals for you. If you can do everything easily on your own, go for it. But if you aren’t in that category, you absolutely don’t need to feel like the markups on turnkeys should be a deal-breaker (another great pun — I’m on roll).

First of all, the “markups” by the turnkey provider are not as much as you might think. What they actually make on each property, after all of the rehabbing and such expenses are covered, isn’t anything crazy high. I knew a turnkey provider a few years ago, quite a popular one, who only made $5,000 per property.

Now, is $5,000 too much for them doing ALL of the work for you and taking on ALL of the risk? I hope your answer is no. That’s a steal for the buyer! But more important than how much the actual markups are is the concept of valuing your time. If you pay $50k for a piece of junk property that needs a massive rehab, you are going to be investing a lot of your time into that. You will also be taking on risk, and never mind the money you’ll have to front for the rehab. If you compare all of that to the same property but fully turnkey priced at $100k, are you really saving that much money — once you consider how much you have to put in for the rehab and how much of your own time you have to invest?

For more clarification on what I mean by trading your time for money, check out “Do the Markups on Turnkey Properties Kill the Deal?

Related: 4 Steps to Ensure You’re NOT Getting Duped by a Turnkey Provider

3. Where should I buy a turnkey rental property?

Answer: It depends. Once you narrow down the list of options of where you can buy one, then it will come down to your own preferences. Before the preferences, though, I’d say first that at a minimum, you need to assess the different markets and then find the good turnkey providers.

Turnkey providers are only in so many markets, but not all of those markets are ones I would necessarily consider good to invest in. Projected cash flow is inherent with turnkeys, so that part is covered, but then you need to assess whether a market is a growing market or a declining market. Well, at least in my opinion, you should. Buying in a declining market is substantially more risky.

For more information on assessing good markets for buying turnkeys, check out “The Turnkey Investor’s Guide to Choosing a Profitable Real Estate Market.”

Then you want to determine where the good turnkey providers are. Once you come up with the combinations of good markets and good providers, now you can just go off which ones you like the best. Different markets will offer different opportunities. Some cities may have more suburban SFRs, some markets may specialize in MFRs, some will offer urban row house-style properties rather than freestanding properties, some will offer higher returns, some will offer less risk, etc. Maybe you prefer a newer suburban SFR over an urban MFR, even though the urban MFR offers higher projected returns. Or maybe you only care about the numbers. Things like that. There are lots of options out there!

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4. How do I know if the property I’m buying is a good one?

Answer: due diligence! Due diligence is key. By far the most important bit of due diligence that every turnkey investor should do is hire a professional third party home inspector to inspect the property. You need to ensure you are getting a property that lives up to how it is being advertised. If there are any unresolved maintenance issues, it could cost you quite a bit.

Once you get an inspection done, you submit all of the repairs to the seller, and typically they fix all of them before you close on the property. So check the quality of the property before you buy it, for sure. Then, it's always good to verify all of the numbers you have been given. Call your insurance company and check tax records to confirm the actual numbers for those expenses. The less obvious one people don't realize is that they can verify how realistic the projected income (rent) is.

Sure, the tenants placed in the property at the time you close on it may be paying a certain amount, but make sure that if those tenants leave that you can realistically get that same rent from new tenants. The easiest way to do this is to call a third party property management company and ask their opinion on rents for the area — the rental amounts, the rentability, and maybe even their thoughts on the specific neighborhood or location. Don't abuse their helpfulness. Maybe even offer to pay them for a comparative market analysis (CMA) for their time, but they can be very helpful. Speaking of a property's location…

5. Should I go visit the property before I close on it?

Answer: It’s totally up to you! I’ve known turnkey buyers who always go see a property before they close on it, and I’ve known turnkey buyers who have never seen a single one of the turnkeys that they own. I personally was in between — I went out to tour the markets and properties initially when I first started getting into turnkeys just to get a feel for the process and the operations (and to make sure I trusted them!), but then later, I bought a good many of properties unseen.

To this day, I have some properties I’ve never seen inside of. It is 100 percent up to you and your comfort levels as to whether you should go out and visit a property before you buy it. I can’t say that I don’t recommend first-time turnkey buyers go check things out, if for no other reason than to give you peace of mind. You can see several properties, see how consistent the rehabs and locations are amongst the different properties from a particular provider, and get an overall better feel for what you are working with.

Related: 6 Key Items to Seek When Investing in Turnkey Real Estate

Every time I have gone out to one of my providers, I end up with re-instilled faith in the process and I get excited to buy all over again. However, if you don’t go out there, there are plenty of ways to verify everything (some mentioned above), and it’s not a deal-breaker, assuming you are working with a reputable turnkey provider. Sometimes knowing the reputable providers is the trickiest part! Once you have those, though, things get much easier. You can even ask your property inspector his/her opinion on the area, what all he saw, what his overall impression about the rehab quality and the location was, etc. I can’t stress it enough — always do whatever makes you most comfortable! There’s no wrong way to do it as long as you are familiar with due diligence techniques.

There you have it! The 5 most popular FAQs about turnkey rental properties. I realize the short answers I’ve provided may easily lend to a lot more questions. If you have more questions based on anything I’ve said, please leave them in the comments! I’m always looking for new things to write articles about, so any questions you have would be perfect for me to consider writing more about. I’ll of course answer what I can in the comments section, but a lot of these things have lengthy enough answers where they really do need to be put into a full article. Even then, it’s often hard to speak in crazy detail about a lot of these things.

What other questions do you have about turnkey rental properties or the buying process?

Leave your questions in the comment section!

Ali Boone is a lifestyle entrepreneur, business consultant, and real estate investor. Ali left her corporate job as an Aerospace Engineer to follow her passion for being her own boss and creating t...
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    Brian - Rental Mindset
    Replied almost 4 years ago
    Great article, I wonder if there will be as much interest in turnkeys when the market declines. Perhaps it is just because everyone is seeing prices rising. I hear questions similar to #2 a lot. I tell people to think of it as paying for a service. It shouldn’t matter to you how much the provider is making, what matters is that your numbers work. Too many people underestimate the risk involved in an amateur doing that work themselves. Maybe you make a mistake on buying a property that needs more work that expected. Maybe you make a mistake in hiring the wrong contractors. There is a lot that can go wrong, so paying a professional who makes a profit shouldn’t be seen as a negative.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 2 years ago
    I absolutely agree Brian. And in the case of the turnkeys, not only are they doing the work and lending their expertise, they are actually holding all of the risk. So of course they should make some money for that, and really it’s not that much in comparison to the value (in my opinion) and worth doing everything yourself, and taking on the risk, just to avoid it. When the market declines…the general RE economy you mean? Omg, that’s when turnkeys boom. They are much slower now than during the last crash. Because during the crash, that’s when prices are low, rents are high, cash flow is absurdly awesome, and then there’s the upside potential assuming you bought in the right market. I would never wish a recession just because of how many people it will hurt, but recessions are like Christmas for me for buying properties!
    Ken P. Rental Property Investor from Northville, MI
    Replied almost 4 years ago
    On point #2, I wholehearted agree that paying a professional what they are worth is money well spent, assuming the deal still makes sense after you do so. While I haven’t bought a turnkey property yet, we have bought one of those “$50k piece of junk” properties, but for more than twice that amount from a rehabber who does that type of flip as his business model. He made a profit, and exactly how much a profit I really don’t care, because I got a totally ready-to-rent house with all new everything at a price that allowed me to get the cash flow and appreciation I was looking for. For me it’s not worth the time, aggravation, and risk to learn how to rehab houses myself when a pro can deliver an asset ready to rent.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 2 years ago
    Exactly Ken, I agree.
    Ken P. Rental Property Investor from Northville, MI
    Replied almost 4 years ago
    On point #2, I wholehearted agree that paying a professional what they are worth is money well spent, assuming the deal still makes sense after you do so. While I haven’t bought a turnkey property yet, we have bought one of those “$50k piece of junk” properties, but for more than twice that amount from a rehabber who does that type of flip as his business model. He made a profit, and exactly how much a profit I really don’t care, because I got a totally ready-to-rent house with all new everything at a price that allowed me to get the cash flow and appreciation I was looking for. For me it’s not worth the time, aggravation, and risk to learn how to rehab houses myself when a pro can deliver an asset ready to rent.
    Casey Murray Investor from San Diego, CA
    Replied almost 4 years ago
    Great article Ali. Regarding point #4, could you also get information on market rents/CMA from the actual turnkey provider (assuming they also act as the property manager)? It seems this service would be part of the fee you’re paying them.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 2 years ago
    Oh yes, absolutely Casey. They’d be the first to know the numbers and comps and such. The only reason I mentioned a 3rd party is in case anyone is leery asking for that kind of info from the turnkey provider themselves since they have a stake in the sale, whereas a 3rd party wouldn’t.
    Eric Egeland Specialist from Long Grove, IL
    Replied over 2 years ago
    Great article and excellent advice on getting your own home inspection.
    Ali Boone Business Owner & Investor from Venice Beach, CA
    Replied over 2 years ago
    Thanks Eric!
    Alicia H. Rental Property Investor from Oreland, Pennsylvania
    Replied over 2 years ago
    Ali, How long do you have to stay in the management contract with the turnkey rental company? Is it for the entire time you own the home?
    Peter Ledger Investor from Salt Lake City, UT
    Replied about 2 years ago
    Hey Alicia, I know this is an OLD post but I wanted to respond to this for anyone who might be coming in late to this article like me. I sell Turnkey Rentals in Cleveland, OH. Rarely does a turnkey provider require you to stay with them for property management. It can sometimes be a little risky to use the same company for property management that you bought the property from. I can explain in detail if you want to message me directly. I would recommend working up a couple of good options for property management and shopping around. It’s really important that you get a good one!
    Justin Gutierrez Rental Property Investor from Anaheim, CA
    Replied over 1 year ago
    Great article. Living in Southern California, Purchasing a SFH for $0.5 million or a MFH for $0.8 million seems a little ridiculous when I could buy 1-2 100% down with turnkey. That being said, I think a better deal would be to search properties in turn-key markets, find a good realtor, and buy multiple properties for 20% down. That would probably allow me to double my purchasing power as of today. Any thoughts on this?
    Zachary Dahlke from San Diego, CA
    Replied over 1 year ago
    Ali, As a newbie investor that is trying to get started with decent cash flowing properties out of state, the turnkey model seems to be a great one! I feel like in my research turnkey properties can get a bad rap due to some people getting ripped off but not-so-good rehabs, or a lot of hidden issues, but tell me if I am wrong here, but as long as an individual does these things: 1. Gets a 3rd party home inspection 2. Runs all of their own cashflow numbers with BP calculators or their own spreadsheet 3. Vets, interviews and chooses a great property manager (or backup PM if the turnkey company is providing PM) Then one should be pretty confident and safe buying a turnkey property from a reputable turnkey company, wouldn’t you say? Great article, and I am excited to think that I can get started in REI without having to buy a foreclosure and rehab it myself to turn create passive wealth!
    Moana Dherlin
    Replied about 1 year ago
    Thank you for this article Ali! It is great to hear from a real esate investor who has a large number of keyturn properties in their portfolio. I am wondering if you think it is still an ok time to buy into turnkey properties (fall 2019) or if the market is too hot right now and better to wait until it cools off. Also what markets do you like to invest in?
    Forest Skufca Specialist from Memphis, TN
    Replied almost 1 year ago
    Hey Moana, I hope you don't mind if I hop in to help answer your question. As we've all seen, the housing market has highs and lows just like any other market. The difference with real estate is that everyone needs a place to live and your business is in the backend performance of renting the property. When the market is hot, not everyone can afford to pay top dollar for the house they want, so they continue to rent. When the market is in a low it opens up the opportunity for investors to purchase more property. So, in short, there's not really a bad time to get into turnkey real estate. As far as markets to invest in, there are great deals everywhere! What's important is that the performance of the asset meets your investing criteria and gets you closer to your long-term goals. To be transparent, I work for a turnkey real estate company, Passive Wealth Builders. For our markets, we have specifically chosen to operate in the Dallas/Fort Worth area, Memphis, and Huntsville. That's not to say there aren't a ton of other great markets to invest in, those are simply the ones we have chosen to operate in for many factors. I'd love to connect directly and answer any other questions you might have!