The turnkey real estate scene is getting hotter by the day — and not without good reason. If as a real estate investor, you too want to get your hands on good turnkey deals, then let me warn you — today, there is plenty of discussion surrounding the subject of turnkey investing. This kind of investing isn’t easy, and if you ignore what’s important, you could soon find yourself in the red. I say this out of personal experience, having invested in turnkey real estate and learned my lesson the tough and expensive way.
What is most important in investing for most people is to focus on one aspect: higher cash flow. And that’s exactly what your baseline should be for every investment you take on. As the founder of a turnkey company, I’ve recognized a lot of difficulties with investing in turnkey properties and have implemented different strategies to make us stand out from the rest of the crowd.
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6 Key Items to Seek When Investing in Turnkey Real Estate
Quality Over Quantity
When you’re investing in turnkey real estate, the first and definitely the most important thing to do is to focus not on quantity but on quality. When you’re in real estate, it’s easy to get carried away with the feeling that you should be selling or renting out as many properties as you can. This is tricky, though, and can lead to a lot of debt and even a bad reputation. Instead, it’s always better to focus on a few well-chosen, high-quality properties rather than many low-quality ones.
And that should be reflected by your turnkey provider as well. Don’t be turned off by the fact that the company you’re using for turnkey isn’t unloading a ton of houses each month. To deliver good properties, the company needs to have a decent amount of staff that’s able to service you properly.
That all amounts to one thing: proper delivery. In fact, rather than over-promising to customers and then under-delivering, it is always better that the company you choose makes it a practice to do the opposite. Many investors think that by not taking up a larger share of the market, they’re limiting their growth, so they decide to chew off more than they can swallow, and this in return can cause substantial losses.
Remember here that less is more.
The Right Quality
While choosing the quality of turnkey real estate to invest in, there are two aspects that any investor should follow. Primarily, one should choose to work only in specific areas. Which one? I choose B-class properties.
The “A” property class is a mark given to newer homes with a certain “wow” effect — the house you would want to live in. These properties also tend to be accompanied with nice views and are very well-maintained.
B-class properties, however, are homes that are from the ’40s, ’50s or ’60s and are typically occupied by blue-collar workers. These homes are well-maintained also — no boarded-up windows and clean-looking streets.
C and D-class homes have the potential to be lucrative since they usually can be bought at a super-low price, but they have a big downside. They’re pretty risky to invest in due to high crime and a lower socioeconomic status in the area.
So, instead of buying multiple properties in C and D-class areas, investing in a decent B-class area can have far better long-term returns and a lot less risk. B-class also has a great exit strategy, as most folks would also rather buy and own instead of renting. When crunching the numbers, it is much cheaper to own than rent for them.
The most important part is that these properties are located near infrastructure like schools, shops, and employment, and the crime rates are much lower than C and D-class areas.
Properties Sold at or Below Market Value
Most turnkey real estate companies will sell you properties above market value. This can be the case with companies selling in any of the property classes, and that means a much lower return for you and a very poor exit strategy.
So ideally, any investor should look to purchase properties in B-class areas that are sold at or below market value. That said, in today’s market, I don’t know of many turnkey companies that can pride themselves on saying that they sell at or below market value.
On a personal level, I feel that if you buy a turnkey product, then I don’t believe that a buyer should pay more. In the worst case scenario, you should be paying the market value of the property. However, having said that, it is important to remember that investors are in this for profit, so any equity left in the deal is a huge bonus.
It is OK to pay more than market value, but only after you’ve ensured that the property is in a good neighborhood and that the property management is top notch. So while it’s important that the pricing is justified, remember that it should get a good return on investment not just for you, but for the seller as well.
You want the turnkey provider doing well, adding more staff and servicing your needs for a very long time after the property has been sold. Genuine turnkey operators should deliver high-quality renovations, high-end property management and an amazing after-sales service with super prompt communication.
In-House Property Management That Doesn’t Nickel and Dime
Property management plays a vital role in the turnkey real estate business, for the simple reason that they provide the entire after-sales experience. Be it in-house or outsourced, you should be assured of high-quality tenants, fewer vacancies and legal issues, better retention of tenants, lower maintenance, and reasonable repair costs. That’s what you can expect to get when you’re in the hands of a firm that does a good job of managing your property.
Even if a company charges you a little more (remember they’re in it for the money, too!), it is better to work with companies that won’t keep giving you bad surprises. In fact, that’s why it’s even better to work with an in-house property management company — because their income source comes from the initial sale and they won’t prey on you to make all their money from the property management.
A Low-Pressure Sales Tactic
Sales tactics can be hard to deal with, and a good salesman can put more pressure on you than you could’ve thought possible. There are so many occasions companies force you to believe that the right time to buy is now, and the right people to do it with is them!
However, real estate isn’t a seasonal market or a highly variable one, but a constant one. At least in turnkey investing, that’s the case. As long as there is someone willing to sell a home and someone willing to rent or buy it, real estate won’t go out of fashion. So if someone is trying to pressure you into purchasing, steer clear.
Turnkey real estate is a great way of investing your money for passive income. It’s vital to know where to invest and with whom to invest. One way of finding out if you have a good turnkey operator is by watching their communication style. If they pressure you, leave. If they don’t respond to your emails, don’t pick up your calls or don’t call you back, leave.
Prompt communication is a very important element of any business, especially turnkey real estate and especially if you’re not in the same region. I make sure that our entire group responds to all queries as soon as possible. That kind of communication, especially today, is very important. You want results, fast and delivered in a proper way. You also want to be kept in the know with any happenings related to your properties.
My final piece of advice is to “keep it mean by keeping it lean.” And these words hold true not just for turnkey real estate investing, but for anything else in life as well. Limit your turnkey investments — and any investments, for that matter — to only high-quality. Please don’t focus on quantity. Finally, focus on developing trust and relationships with the key people who’ll help you buy properties and generate that extra income. These people must always have your best interests at heart and regularly practice delayed gratification.
If you invest in turnkey rentals, what would you add to this list?
Let me know with a comment!