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Can You Find Success With Turnkey Rentals?

Engelo Rumora
7 min read
Can You Find Success With Turnkey Rentals?

Turnkey companies typically purchase properties at discounted rates and then rehab them, essentially flipping them and selling them for a higher price than what they bought them for.

Is turnkey real estate worth it? There is a huge stigma around turnkey rentals, and rightly so. At the end of the day, there are just too many operators selling properties for far more than they are worth in bad areas.

There are also property management companies associated with turnkey properties known to nickel and dime to death. So, what you’re promised on paper is never actually what you make in real life. Are there good turnkey companies out there? Sure. But you need to know what to look for.

What a turnkey company should do for you

If you invest in turnkey, or if you’re considering investing in a turnkey investment property, there are several things to look for in a turnkey company. They must do the following:

  • Find the rental property themselves
  • Purchase the asset
  • Renovate the asset
  • Acquire tenants and.

Turnkey rental properties should hold your hand throughout the entire process. The only thing that you should need to do is sit back, relax, and collect rent. You’ll just need to check your account every month and make sure the rent is coming in—the cash flow should be flowing!

One of the biggest benefits of turnkey real estate investments is that the provider will completely take the headache out of owning an investment rental property. In most cases, you’re going to have to pay a little bit more than what the property is worth because of the premium associated with buying a turnkey property. The inflated fees offset the amount of work and renovation the companies put into the investment.

Keep in mind, though, landlords (i.e., you) can set the price and gradually increase living payments for your rentals, which would help offset some of your initial inflated costs.

Additionally, some turnkey operators might actually own the property management company for the turnkey properties, and investors may incur extra fees to pay the property manager. However, this one-stop-shop approach can make the process even simpler.

Ultimately, a great turnkey company offers you a completely hands-off, passive income, money-making experience. If they don’t do that, it’s not a good idea to invest with them.

More on turnkey investments from BiggerPockets

Are turnkey properties a terrible choice for beginners? And if you’re interested in beginning, where should you start? Learn more at the BiggerPockets Blog.

Who buys turnkey properties?

There are several types of buyers when it comes to real estate investments:

  • Beginners
  • Private buyers
  • Skeptical buyers
  • Individual investors
  • Advanced investors

These are investors who are either new to real estate investing and/or are smaller-scale investors. Common traits of novice/individual investors typically include:

  • Having lots of questions
  • Tendency to be emotionally attached to a purchase
  • Tend to move forward with a purchase a little slower and with more caution
  • Expects a certain level of communication and customer service

There is absolutely nothing wrong with wanting to ask questions, caring about a property, or even moving slowly and cautiously. You should ask questions, and you should always be cautious in who you work with and what you are buying.

On the other hand, “advanced investors” are the ones who only care about the numbers. They have no emotions in their buying or owning, and don’t want to deal with the ups and downs of the broader real estate market. Yes, they will have a set of questions for ordinary due diligence. Still, they will limit the number of questions to only things that truly matter, and they couldn’t care less about customer service levels or communication style. Advanced investors also move quickly. They know what they are looking for, and they do some due diligence to decide if a property is right or not.

Generally, turnkey properties are a great fit for advanced investors—not beginners.

Are turnkey properties worth it?

There is a conundrum here—you are a beginner, individual, or small-scale purchasing investor, and turnkey real estate companies tend to focus on working with advanced investors. They do this for several reasons:

  • Advanced investors tend to move quickly, which better matches the speed at which the turnkey provider operates.
  • They tend to buy in bulk, and the turnkey model is based on the idea of bulk.
  • They tend to pay with cash rather than with financing, which better matches the turnkey process speed.
  • They do not demand a certain level of customer service or communication, and by far, turnkey providers’ worst trait tends to be in their customer service skills.
  • They do not expect or demand perfection, and turnkey providers usually aren’t striving for perfection anyway.

As a beginner turnkey real estate buyer, you have to really row against the current, so to speak. There are several reasons why this type of investment might not be right for you at this time in your career.

The buying process is not a one-way street

In a one-way street situation, you are the customer, and companies should cater to the customer. Instead, turnkey real estate investments are a two-way street.

Not only do you get to choose what turnkey provider you buy from, but sellers get to choose who they sell to. They don’t need your business. They have enough business as it is. This is even more significant in a sellers’ market like we’re in now, where sellers can be increasingly selective.

You can’t ask a lot of questions

Turnkey sellers deal with so many buyers so quickly that they would never get anything done if they spent that much time answering exhaustive lists of questions from every client. Remember, they don’t typically cater to the question-askers! So go easy, or you may find yourself banned from working with that provider. Question-assaulting really needs to wait until you at least have a contract on the property.

Turnkey providers lack communication skills

Turnkey providers just really tend to suck at communication! It does not mean you are getting scammed, though. Turnkey providers are exceptionally good at what they do, which is finding properties, rehabbing properties, and managing properties. Communication is not inherently included in those things. If they were much better at communication than they are, they would probably not be as good in their property skills. (Everyone can’t be great at everything!)

You may be wondering, “Why don’t they just hire a customer service person?” It’s because they work with advanced investors who don’t care so much about customer service. They aren’t catering to the crowd who would want it, so they aren’t likely to hire a person to fill those shoes.

The inspection report shows items still needing repairs

Why? Because the companies don’t function at absolute perfection at all times, which includes the rehabbers. This (also) does not mean you are getting scammed.

It does mean that you now have a chance to tell the seller exactly what must be fixed before you are willing to close on it. That is the completely normal process for turnkeys. Somehow along the way, people have assumed turnkeys are perfect, but they just aren’t.

Turnkey sellers don’t need your business

This is not like working with a normal real estate agent. The turnkey sellers are doing you a favor by selling to you at all. You can certainly still—and should—do your due diligence and communicate as you normally would, but be mindful that these companies aren’t equipped to always respond in a way that you would expect companies who do need your business to respond.

If you can at least go through your buying process understanding this, it will help you ease up on your end, which will make things go smoother on both your and the seller’s end.

How to become v5

Don’t expect the sellers to cater to you

You need to put your own effort in as well. Help the seller help you.

For example, buyers need to get qualified so the seller knows they are “able” to buy. Additionally, the buyer also needs to put earnest money in escrow so the seller knows they are “willing” to buy and are serious about it.

If the buyer is unwilling to do either one of those things, then a seller is only willing to put so much time into preliminary discussions with them because the seller’s time is precious.

As you can see, a new investor trying to break into turnkey real estate investing will be faced with an almost insurmountable list of circumstances going against them.

If you are feeling adventurous and are okay to patiently navigate all the obstacles facing you as a small or newer real estate investor, then take a look at a few tips for approaching the turnkey investing process.

3 key turnkey investing tips

Even after reading all the difficulties you will face, if you still decide to invest in turnkey real estate, keep these three tips of advice in mind.

1. Ask questions after you are under contract

Give the seller confidence that you aren’t wasting their time by signing the contract. Ask all the questions you want—but wait until after you are under contract. Just because you are under contract doesn’t mean you can’t get out of it should you find out anything you deem problematic about moving forward with your purchase.

2. Don’t freak out when you receive your inspection report

The condition of the property does not matter whatsoever until it’s time to close.

Take the inspection report, list out what you expect to be repaired before you are willing to close on the property, and give that to the seller. You are not required to close on the property until the final condition is confirmed, so don’t freak before then. It is standard to have items show up on your inspection report.

3. Be patient for returns with this type of investment

You have to be okay with a long-term buy and hold strategy when it comes to turnkey investments. If you are looking to make a quick profit, consider buying and flipping a property yourself rather than go through all the hoops and risks of working with a turnkey property company.

Again, turnkey properties are probably not worth it for new or smaller investors, but keep these tips in mind if you are going to try this investment now. This isn’t to say that turnkey investing is not EVER a good investment for you! Once you have grown your real estate investment portfolio and have many more years of experience under your belt, give it a go!

So, are turnkey properties worth it? Maybe. They can be a great investment and a way to make easy money for the right investor or real estate company.

If you are a novice investor, an individual buyer, or part of a small investment group, then turnkey properties probably are not the best investment move to make at this time in your career.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.