Your Complete Guide to Turnkey Properties

If you are creating a real estate investment portfolio and are looking for different strategies to use, one option that might interest you is turnkey investing. This is a popular form of investing that allows you to earn mostly passive income by collecting rents. If you're considering turnkey investing, you'll need to find the right properties to invest in. The following guide delves into the world of turnkey investing and how to build a strong portfolio based off this strategy.

What Is Turnkey?

Turnkey properties are homes that have been leased to a tenant or rehabbed. Most turnkey properties already have professional property management in place to effectively manage repairs, screen tenants, and take care of accounting matters. As the owner of a turnkey property, you won't need to act as a landlord.

Here at Rent To Retirement, we ensure the overall success of these rental properties by performing comprehensive research to identify markets that provide investors with the best combination of equity, appreciation, and cash flow potential. When you buy a turnkey property, it will be able to be rented out immediately.

How Turnkey Investing Works

Turnkey properties became increasingly popular following the Great Recession that began in 2007. After this period, it became more affordable to purchase homes instead of renting them throughout most areas across the country. If you can find locations where properties are less expensive, you can create sizable revenue streams by renting out these properties and hiring property management firms to take care of them. In this scenario, you'll be able to earn passive income.

If you want to get involved with real estate investing but don't have the time needed to screen tenants or renovate the property, turnkey investing may be the perfect investment strategy for your portfolio. When you buy the property, a tenant may already be living there, which means that you can forgo screening tenants altogether. Most turnkey companies that sell these properties offer their property management services while the sale is going through.

Generating Revenue with Turnkey Properties

Once you've acquired a turnkey property that you can begin renting out immediately, you should be able to quickly begin generating revenue by collecting rents. The type of work that might be done before you buy a turnkey property includes replacing fixtures, adding a fresh coat of paint, repairing appliances, and adding new flooring.

Buying a property that requires renovations is beneficial if you're looking to flip it for a sizable profit. However, renovating a home before renting it out means that you'll need to wait longer to begin establishing a cash flow. With a turnkey investment, you'll generate revenue soon after the sale closes.

Importance of Property Manager

If the turnkey property you're purchasing comes with property management services, it's highly recommended that you closely read the terms to identify the types of services you have access to. Not every property manager offers the same services. Look for a property manager that provides you with:

• Rent collection
• Cleaning services
• Maintenance
• Tenant screening
• Lease signing
• Background checks

If the company covers all important aspects of managing a rental property, you'll be able to collect income without needing to actively manage your property. You should also find out if you're liable for anything according to the contract. There are some questions you should ask your property management company of choice, which include the following:

• What fees must I pay?
• How much experience do you have?
• Do you offer financial reporting that allows me to track expenses, income and revenue?
• What does your tenant screening process entail?

How to Finance a Turnkey Investment

When you're considering investing in a turnkey property, there are many financing options available to you. Keep an eye on the latest interest rates to make sure any loan you obtain doesn't come with an interest rate that's far higher than normal. If you have a high credit score, you'll have an advantage when seeking a loan with good terms. The types of loans at your disposal include:

• 15-year fixed
• 30-year fixed
• 5/1 ARM
• 7/1 ARM
• 10/1 ARM
• 30-year FHA loan
• 30-year VA loan
• 15-year jumbo loan
• 30-year jumbo loan

Lengthier loans come with lower monthly payments. However, the amount of interest you pay will be higher. Keep in mind that FHA and VA loans have special terms and rates for people who qualify. All adjustable-rate mortgages have a fixed period, during which the interest rate remains the same.

Reasons to Purchase a Turnkey Property

Turnkey investing is a viable strategy for practically all portfolios. Whether you're investing in your first property or already own multiple investment properties, this strategy makes it possible for you to take a passive approach to your investments. It should also be easier for you to bring in new tenants when you purchase a property that already comes with upgrades, which might include everything from a new HVAC system to fresh landscaping.

A small percentage of investors purchase a turnkey property to avoid the lengthy and oftentimes frustrating process of remodeling a home or rental building that's in need of repairs. If you buy a fixer-upper, you'll be tasked with managing the property and performing renovations at the same time, which involves hiring the right professionals and buying the necessary building materials.

Benefits of Turnkey Investing

Before you make the decision to invest in a turnkey building, consider the advantages and disadvantages of this approach. There are many benefits associated with turnkey investing, the primary of which is that you aren't directly responsible for the renovations. These projects have already been taken care of.

Investing in turnkey properties also gives you a quick start for generating cash flow. Traditional rental properties usually don't begin generating income for several months because of the need to screen potential tenants and make home improvements. If you buy a home that's move-in-ready, you should receive your initial rent check in a month or less.

When you're making turnkey investments, it's possible to diversify by acquiring out-of-state properties. Since you won't be managing the property yourself, you don't need to limit yourself to local markets. This level of diversification allows you to protect yourself from substantial losses.

A clear advantage of investing in turnkey properties is that renters find them highly appealing. A well-renovated apartment is more attractive to renters who are searching for the perfect spot. Since premium rentals are in high demand, your turnkey property shouldn't remain vacant for too long.

Downsides to Turnkey Investing

Though turnkey investing offers many advantages, there are a few downsides to this investment strategy. For example, you won't be able to personalize these properties and add more unique features that you believe potential renters might enjoy. All renovations are handled elsewhere.

You also don't have complete control over the property's location. The turnkey company itself will determine which properties they'd like to renovate and refresh.

If you don't thoroughly research the property you're interested in, you might overpay. Additional repair and management costs can quickly add up and might limit the profits you can obtain from the property.

There's also a chance that you'll be paired with a poor property management company. While you have a personal and financial stake in making sure the property remains in great condition, property managers don't. If the property management company you hire does a bad job, your net operating income could drop by a considerable amount. You might also discover that fewer renters are willing to move in.

Finding the Right Turnkey House

You can find turnkey properties all over the country. However, not every turnkey investment provides the same return. It's crucial that you find properties in valuable and profitable markets. Look for markets where there are signs that an increase in demand or value is about to occur.

When you're searching for the perfect rental house to buy, there are a few factors you should be on the lookout for. The most successful turnkey properties are usually found in places where the monthly mortgage payment is more affordable than monthly rental payments. If you're able to invest in an area that has high rental demand, you may be able to earn a sizable profit based on the average rent in the area. The best cities are ones with affordable real estate and relatively low vacancy rates. Adhere to the following guidelines:

• Look for locations with low default rates
• Identify your potential cash flow
• Find properties that meet your budget
• Estimate property appreciation
• Research the best property management services

Tips for Turnkey Success

When you start making turnkey investments, there are several steps you should take to give yourself a better chance of succeeding. First, it's highly recommended that you research potential turnkey companies. You'll need to buy a property from a legitimate turnkey provider who isn't solely looking to take money from inexperienced out-of-state investors. Make sure you inspect the property yourself before completing the transaction.

Even though many companies are focused on keeping their clients happy, take some time to determine if you have the resources needed to manage the property. Check online reviews to make sure the company is legitimate. You should also speak with existing turnkey owners who are part of the company in question. Never rush when making a turnkey investment. The research you conduct about the turnkey company is just as important as the property research you perform.

Before the sale goes through, visit the property in person to gain a better understanding of its quality. Don't hesitate to seek advice from property management and zoning professionals during your search for the ideal turnkey property. Keep in mind that nothing's guaranteed until you've signed a legally binding contract, which is why you should never rely on verbal agreements. You can maximize cash flow with your turnkey properties by:

• Charging market rates
• Obtaining an environmentally friendly and efficient property
• Seeking other sources of revenue via parking spaces or storage space

Turnkey investing is an effective strategy that you can employ while building your investment portfolio. These properties require very little maintenance or renovation, which means that you can earn profits while working on the more active investments in your portfolio. While you don't have full control over a turnkey property, this form of investing offers many advantages. Get in touch with Rent To Retirement today to explore our turnkey inventory.