5 Tips to Consider Before Buying Your First Turnkey Rental Property

5 Tips to Consider Before Buying Your First Turnkey Rental Property

5 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Experience
Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

Press
Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

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I want to talk about turnkey real estate investing. First of all, what is turnkey real estate investing?

Here’s the deal. Turkey is a process by where you buy a property from a company whose sole business it is to sell you properties that are finished. In other words, properties that are done, completed, and already rented out for you—all you have to do is turn the key.

Sounds really great doesn’t it?! Well, yes and no.

So, turnkey real estate investing can be fantastic, because you don’t have to do hardly any work at all. The problem is sometimes those deals just don’t work.

Here I’m going to go through a bunch of steps on how to make turnkey real estate investing work for you.

6 Tips for Finding Success With Turnkey Rental Properties

1. Research different companies and different markets.

Look, there’s a lot of turnkey companies out there, and most of them are based somewhere in the Midwest (like Kansas City, Oklahoma City, Detroit, and even Knoxville and Nashville). A lot of these towns that are kind of in the Midwest or maybe even the South have a turnkey company. Dallas, Austin, and San Antonio—they all have turnkey companies, too.

So, research different companies and different markets, and don’t just trust what they say on their website. What you really want to do is you want to talk to people who have used them before. Get recommendations. And if you have no idea, start interacting and asking questions on BiggerPockets—it’s a free real estate forum where you can go ask questions.

If you really can’t find any info, then call these companies and ask for referrals. Get on the phone and talk to people who have bought properties from them in the past (preferably several years ago). Ask them how their investment has been going.

Related: How to Analyze a Rental Property to Know if it Will ACTUALLY Produce Income

Here’s a good tip for you. Anytime you’re asking for a reference, look for signs that the person is enthusiastic about selling you that company versus being careful not to get in legal trouble. Does that make sense?

Let’s just say you are called and asked about a former employee. If that employee was great and you love that person, you would tell them all sorts of great things. You would sell that person to the caller. But if that person was horrible, you probably wouldn’t throw them under the bus, but you’d be very careful about what you said.

You’d be like, “Oh, yeah. They were satisfactory. They showed up on time.” But you’re not actually selling it.

So, look for examples from referrals and people telling you how great that company is, and then do the homework. Research a bunch of different companies, and find one that you like.

2. Arrange your financing.

Most turnkey companies will want you to come with financing of some kind—usually 20 or 30 percent down. Now, some turnkey companies want you to pay all cash, especially the lower-priced markets—maybe Ohio or Detroit or Michigan.

Or they might just say you should pay cash. And if you choose to do that, that’s just fine. Just understand you’re going to need to know what financing you’re going to use as you get into it.

I would recommend talking to the turnkey company and finding out who they recommend. Chances are they will have a recommendation, a lender that they generally have all their clients go through. So, why not go through them? They already understand the process.

So, get pre-approved, which means submitting all your information, your W-2, your 1099s if you have them, your tax returns. Get all the information to the lenders, and you can get pre-approved to buy that property.

3. Learn to run the numbers.

This is probably the No. 1 mistake I see people make when they buy turnkey: They trust the turnkey operator’s number. Now, trust is not a bad thing. But here’s the problem.

Turnkey companies exist to sell you a product. In other words, they’re going to paint the most rosy picture possible.

Are they lying? Not necessarily, but I have seen just complete, complete garbage when it comes to analyses from turkey companies (although I’ve also seen really good analyses).

Either way, never trust a turnkey company to do your math homework. Never trust your partner to do math homework. Never trust your spouse, never trust your mom, do your own math homework. Only you can do your math homework, because at the end of the day, you are responsible for your future success or failure in life—nobody else.

So, don’t trust an agent, the turkey company, or anybody to do the math.

Is the math hard? It’s not very hard. I’ve got videos on YouTube. There’s one called “How to Analyze Properties Using the Four Square Method.” Or check out my webinar. I do a webinar on analysis every week at BiggerPockets.com/webinar, and you can sign up for free!

Plus, we’ve got software on BiggerPockets to help you run the numbers in under five minutes. It’s great. Go to BiggerPockets.com/calc. However you do your math, do your math.

turnkey-mistakes

4. Go out there and find a great deal.

Again, just because a turnkey company says it’s good doesn’t mean it is. So, I would recommend running the numbers on a dozen—maybe even two dozen—different turnkey properties from different companies, so you can kind of see how they’re all working and which ones seem to be doing better. Which ones have better returns and which turnkey companies are better at doing their math? And then sift and sort until you find something that looks like a great deal for you.

Related: The Top 5 FAQs About Turnkey Rental Properties — Answered!

5. Close on the deal.

So, now you found a property that you want to buy. You’ve got the financing arranged. You’ve got everything worked out. You’re going to go through a title company or sometimes an attorney, and you’re going to close on the deal.

The title company basically handles all the paperwork, the signatures, they tell you where to be, when to be, how to sign, what to sign—all that. You’ll sign all the paperwork, you’ll show up, and you’ll be the proud owner of a brand new turnkey property.

6. Continually manage the managers.

Although turnkey properties are billed as “you don’t have to do anything and we’ll manage the property for you,” that’s not entirely true. Most property managers will not care enough about your property, because they’re managing thousands. So, they don’t care as much about your property as you would care about your property.

Therefore, your job is to continually manage the manager. What does that mean? It means every month when you get the report from the property manager, you look over the numbers. You look to see, “How did we do? How many vacancies do we have? What’s going right? What’s going wrong?”

Then, get on the phone and talk to that property manager. Sometimes you’ll need to scold them and say, “Hey, what’s going on?”

Remember, the squeaky wheel gets the grease. And that’s especially true with property managers. So, get on the phone and manage the manager.

And that’s it. Then, if you find success, do it again and do it again, and keep working with these turnkey companies as long as you find one that you can trust. Don’t just blindly walk into a turnkey deal just because they say it’s a good deal.

Know your numbers, know the map, work and make it happen.

Have you worked with a turnkey company before or do you know anyone who has? What have you experience or heard from others?

Share in a comment below.