Landlording & Rental Properties

3 Things You Don’t Have to Think About With Turnkey Properties (& 3 Things You Do)

Expertise: Business Management, Personal Development, Real Estate Deal Analysis & Advice, Real Estate Investing Basics, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate News & Commentary
170 Articles Written
Close up portrait of handsome cheerful african man smiling looking at camera

You’re pondering buying a turnkey rental property. You’ve even checked out some inventory from different sellers in different markets. You’re pretty much onboard with the idea, but for some reason, you are at a standstill. Why?

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

I have a guess. You have plateaued with your knowledge about them and are hesitant to move forward with buying one. You don’t know if you know enough.

  • Have you done enough due diligence?
  • How do you know if you are doing the right thing?
  • How will you manage your property after you buy it?

Each of those questions is worthy of an article. We can get to that later, but for now, I want to offer you something—a little bit big-picture if you are pondering buying a turnkey and just haven’t gotten quite there yet.

This information will be handy for you if are wondering either of the following:

  • Are turnkey rental properties the right investment strategy for me?
  • What kinds of things do I need to be focusing on if I am buying a turnkey rental property?

These things I’m going to mention will help answer other questions, too, but those are the most basic.

As with every type of investment or every investment strategy, there are different levels of effort and knowledge required to succeed. Here are the things you do not have to worry about or think about so much with turnkey rental properties, as well as the things that you do.

3 Things You Don’t Have to Think About With Turnkeys

One major benefit to turnkey rental properties is that a lot of the workload—and arguably the education load—is taken off of you. To me, high levels of workload and education equate to stress. I hate stress.

Here are the three things I don’t have to worry about when I go the turnkey route:

1. Rehabbing/Contractors

I should probably just say contractors for this category because if contractors were that easy to work with, rehabbing wouldn’t be so much of a headache. I know there are some of you out there who are handy and can do a lot of the work yourselves, and more power to you for that. But not all of us have that gift.

I don't know about you, but I hate dealing with contractors. I'm not even good at it. Inevitably, every single time I work with a contractor, I either spend too much for a poor-quality job, get a high-quality job for a ridiculously absurd amount of money, or the quality and price are OK but it takes eons for the work to be completed. Anyone else have that experience?

Well, with turnkeys, the rehab is done before you own the property and someone else is managing the whole thing. You don’t have to deal with the contractors or the time to completion (unless you are just waiting to close on the house), and you basically don’t have to stay on anyone’s hind side about the work. You also don’t have to worry about the cost of the work, because that’s the turnkey sellers’ problem. If calling myself out on my own stupidity with contractors sounds entertaining to you, check out “Personal Rant: I Can’t Stand Working with Contractors!

Street of residential houses

Related: Choosing Between Turnkey & DIY Rentals? This is a MUST-Read Before You Decide!

2. Finding Properties

Turnkeys have already been found, so to speak. The most you have to do is look at a turnkey seller’s inventory and pick which one you want. The two major things you don’t have to do that most rental property buyers will have to do to some extent or another are:

  1. Decide on a market (and neighborhood) that is smartest to buy in, and
  2. Either find motivated sellers in that location or find good deals. (Hint: Don’t look on the MLS for the best deals.)

The turnkey guys have already found the houses for you. They have strategically selected the market and neighborhoods that they have deemed smart to buy in. (Caution: Don’t trust just anyone’s opinion on where is smart to buy.) They have already negotiated and hassled with finding motivated sellers and getting their properties or dealing with auctions or foreclosures. Like I said, all you have to do is go shopping from their inventory and pick which one you like best.

3. Expertise

You don’t have to be an expert in properties. The turnkey guys do that for you. They are the market experts, location experts, finding good deals experts, rehabbing experts, and managing experts. Well, the managing part is debatable, but we’ll get to that. They take a good portion of the load off you for having to be an expert in all of these areas yourself. You need only enough education to know what to verify and how to conduct due diligence, but that isn’t necessarily expert status in any one category. That’s a huge, with a capital “H,” load taken off you. Let them do the stressing. That’s what they are there for.

Pretty convincing arguments for why turnkeys are awesome, right? Talk about a major load taken off! Well, don’t get completely comfortable just yet. You aren’t totally off the hook for needing to think if you decide to buy a turnkey rental property.

3 Things You Do Have to Think About With Turnkeys

You thought you were off the hook, I’m sure. Unfortunately, there’s no such thing as a real estate investment that you can be completely brainless about. That’s what stocks are for. No matter how simple the real estate investment, you do need your head in the game to some capacity. For turnkey rental properties, here’s what I believe that capacity to be:

1. Being a Boss

When you buy your turnkey rental property, even though everything is in theory being done for you, you still need to act like a boss. Confirm things are running as they should be, immediately communicate with the property managers or seller if anything quirky happens, put the crack down on anyone not performing up to standards, and make executive decisions. If anything starts going sideways, don’t pussyfoot around in reeling it back in.

You are the boss! You are the boss of the managers and the boss of the property. I’ve seen it a handful of times where turnkey owners act like submissive dogs, who just roll over and show their belly at any hint of distress. Please don’t do that.

2. Verification/Due Diligence

Other than being a boss, this is the biggest area you need some education in. With everyone else doing everything for you, you need to understand how to verify things. This is called doing due diligence. Due diligence can involve other things than just verification, but verifying what you are being told and what has been advertised to you is key.

Turn your brain on for this one! I’m guilty of having learned some hard lessons with my turnkeys when it comes to not verifying everything I should have. It can happen on non-turnkey properties, but turnkey are especially susceptible because the impression buyers go in with is that everything is done for them, so they are off the hook—whereas typically when you buy do-it-yourself properties, you are more naturally inclined to do more research and verify more things.

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

Step up on this part. Just like you are going to step up and be a boss, you want to step up and check on things. Property condition (via property inspection), numbers (rents, market rents, taxes, etc.), location information—the list goes on. More specifically, those things I mentioned before that you don’t have to be an expert in—make sure you do know how to conduct due diligence on each of those specific items! That’s all you need to know how to do. This is an old article, but here’s some info to get your brain thinking about due diligence on turnkeys: “Due Diligence on a Turnkey Property.”

invest_locally_real_estate

3. Market

But didn’t I say you don’t have to be a market or location expert when you are buying turnkey rental properties? Yes, I did. And no, you don’t have to be a market expert. Being a market expert, to me, means being the one who can bring in all sorts of data and make an educated decision about the potential of a market. There are a lot of details in an analysis like that—expert-level details.

No, you don’t need to be able to do all of that to buy a turnkey rental property. All you need to be able to do in terms of market information with turnkeys is know just enough to decide which markets you should and shouldn’t buy in. Most turnkey companies I know are in pretty good markets with strong market fundamentals, but I’d argue that there are some turnkey companies out there who are not.

If you ever ask a turnkey seller which is the best market to buy in, of course they are going to say the one they are in, because they only make money if they sell you on their market. There are experts out there who are not turnkey sellers themselves but are market experts and can give you more of an unbiased assessment of market fundamentals and pros and cons. You just need to know the basic qualities that make for a good market, and then apply that to the turnkey companies to see who has properties in those locations.

For more detailed information on knowing how to decide between the turnkey markets, check out “The Turnkey Investor’s Guide to Choosing a Profitable Real Estate Market.”

There you have it! The things you do and don’t need to focus heavily on when buying a turnkey rental property.

ad-youtube-channel

Any experienced turnkey buyers out there—did I leave anything out? Any lessons learned in your buying that you can share?

Leave your comments below and let’s talk!

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 true lifestyle design. She did this through real estate investing, using primarily creative financing to purchase five properties in her first 18 months of investing. Ali’s real estate portfolio started with pre-construction investments in Nicaragua and then moved towards turnkey rental properties in various markets throughout the U.S. With this success, she went on to create her company Hipster Investments, which focuses on turnkey rental properties and offers hands-on support for new investors and those going through the investing process. She’s written nearly 200 articles for BiggerPockets and has been featured in Fox Business, The Motley Fool, and Personal Real Estate Investor Magazine. She still owns her first turnkey rental properties and is a co-owner and the landlord of property local to her in Venice Beach.

    Kyera Nowllin investor from Tucson, Arizona
    Replied over 3 years ago
    Great read.
    Ali Boone from Venice Beach, CA
    Replied about 3 years ago
    Thanks Kyera!
    Vanessa Vandervalk investor from Newhall, California
    Replied about 3 years ago
    Thank you Ali, thanks to BP, there is a lot of information readily available to help select turnkey markets! FYI, you are an inspiration to me. As a fellow Southern Californian, I have struggled with how to invest in such a competitive market. My impression is that people here who get started in real estate have a family legacy of investing or at least a strong family-based backing of capital (not me). I see other people in LA here on BP struggling to get started. Because of people like you who have been successful with turnkeys, I decided to select one out of state for my first investment property, and so far it’s been great. I am working on my strategy and deciding where my next investment will be. If you have any tips about your creative financing, I would love to hear them.
    Ali Boone from Venice Beach, CA
    Replied about 3 years ago
    Hey Vanessa! Thanks for the awesome words! I really appreciate them. That’s awesome you got an out-of-state property already! Where’d you end up buying it? For creative financing, feel free to shoot me a PM and we can talk anytime. The biggest creative move I made for financing I lay out here- https://www.biggerpockets.com/renewsblog/2015/12/03/structuring-partnership-rental-properties/. But feel free to reach out anytime too!
    Christy Greene from San Diego, California
    Replied about 3 years ago
    Thank you for your insights with turn key investments. I am working with a few out of state to see which one to get started in.
    Ali Boone from Venice Beach, CA
    Replied about 3 years ago
    Hey Christy! Great! Where all are you looking right now? Find any you think you want to move forward on? Reach out anytime if I can be of any help.
    Christy Greene from San Diego, California
    Replied about 3 years ago
    Hi Ali, I did not end up buying the duplex. After the inspection, I found out there was things that needed to be repaired on HVAC, some roofing issues, some plumbing issues, and sloping issues, and the list went on and on…..He was not willing to budge on price so I walked. As the prices creep up in Texas, I am starting to look in other areas. You are right, the property taxes ruin it. I am going to look into Mempis, and other mid-west areas.
    Ali Boone from Venice Beach, CA
    Replied about 3 years ago
    Hey Christy, yep, sounds like a good call on that property. If you want to PM me or direct message me, I’m happy to share some market notes if you are looking at other markets. There is a huge caution towards Memphis right now (in my opinion) that I don’t think people realize is happening, so I’m happy to talk through that if you want.
    Christy Greene from San Diego, California
    Replied about 3 years ago
    Hi Ali, We we went to Dallas. We ended up putting a cash offer 10K above asking price to get the deal. We ended up getting the deal. However, after the inspection there are quite a few things that we can negotiate with. It is a duplex with 2bedroom/2bath on each side. No garage. Each side has a utility room for their washer and dryer. They listed for 135k and we bid 145k. There is already a long term tenant now paying $750/month. Other side is vacant . Rents are going for $800/month. Other side is vacant. Flooring replaced and painted. Clean and rent ready. Inspection showed some roofing tiles need to be replaced, water damage so plumbing issues need to addressed, and some electrical issues. Because the current tenant has lived their for 4 years, there is a lot of deferred maintenance issues that need to be addressed . According to the BP calculator, the approximate cash flow after taxes,etc would be about $800 /month profit (if both units are rented.) This is NOT including the repairs we would have to do . Could you suggest some negotiating points? Thank you! : )
    Ali Boone from Venice Beach, CA
    Replied about 3 years ago
    Hey Christy. I can’t, no, as I don’t do negotiations. But are you sure your numbers are right? $800/month? If you get the property for $145k, then add x in repairs, then rent it out for ballpark $1500, with very high TX property taxes and insurance (it’s just a thing there)…you sure you are cash-flowing at all? Have you included ALL expenses into your equations?
    Kenneth Dai investor from Fairhaven, Massachusetts
    Replied about 3 years ago
    Nice, straight-to-the-point article. Thank you for the tips, along with some of the benefits of turnkey real estate.
    Ali Boone from Venice Beach, CA
    Replied about 3 years ago
    You’re very welcome Kenneth!
    Abner Coelho from Simi Valley, California
    Replied about 3 years ago
    This is a great article. Thank you for the information. I’d like to get my mother in law started in something like turn-key property. She bought her SoCal home 15 years ago and has some serious equity she wants to use. Currently looking at some different markets but its a good reminder to make sure we do our due diligence!
    Ali Boone from Venice Beach, CA
    Replied about 3 years ago
    Hey Abner! Yep, be sure to do that due diligence! What markets are you guys looking at right now? Happy to help in any way I can! Reach out anytime.
    Albert L. investor from Temple City, California
    Replied over 2 years ago
    Thanks for the helpful article!
    Marissa Quick
    Replied 3 months ago
    Thanks for the info! We are in the process of buying our second turn key rental. With 5 young children and my husbands military career that moves us every few years we felt we weren't in a position to update or rehab properties. Great article!