Turnkey rental properties definitely offer an opportunity to own rental properties in a much more hands-off way than most are used to when it comes to real estate investing. With everything done for you — finding the right property, negotiating the property, rehabbing the property, and tenanting and managing the property — turnkeys have opened up the door for a huge number of people who wouldn’t have previously been equipped to buy rental properties to now go ahead and invest.
As I’ve clarified in several of my articles, owning a turnkey is no different than owning any other rental property; turnkey is only a method of buying, not of owning. However, I have found that buying a turnkey can tempt an investor to slack on how they “own” the property. The reason I believe turnkey owners are more tempted to slack on how they own the property is because of this “hands-off” advertising.
The fact of the matter is, turnkeys are not flawless, and at no time should an investor assume they should always be hands-off with their property. They should own the property in the exact same way that they would if they had bought the property do-it-yourself style.
With that said, here are 3 ways that rental property owners (in general) can increase the ease of their investment and returns — and where new turnkey owners tend to slack (severely).
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The Top 3 Mistakes New Turnkeys Owners Make
In working with turnkey buyers for the past five years, I can truly say that not doing these 3 things is what causes the majority of headaches for new turnkey owners. I share them in hopes that you will follow them and then be excited about how much more gracefully your turnkey investment flows!
In no particular order, the top 3 mistakes that new turnkey owners make are:
1. Not Buying Eviction Insurance
Part of the hands-off advertising seems to make investors think their tenants won’t have to be evicted. I understand this as a turnkey buyer myself, as I would like to think that these “experts” placed good enough tenants that eviction shouldn’t be a possibility, but there is no 100 percent guarantee against eviction, ever.
Even if you do a substantial amount of due diligence on the tenants that will be coming with your property, eviction insurance is cheap enough that every turnkey buyer should consider it. Few things are worse for a new rental property owner than quickly having to deal with an eviction process. The process isn’t crazy-stressful itself because the property manager will deal with all of that, but the financial hit can quickly become a major deterrent for wanting to continue on as an investor. Nothing is flawless with rental properties — or turnkeys — so take out all the stops you can to avoid stressful situations later. Buy the insurance.
2. Not Switching From Reactive to Proactive if Challenges Arise
This one should probably be listed as number one because I think it’s arguably the biggest problem I see with investors who have just bought turnkeys. Again, going back to advertising that these properties are hands-off, I think that this tends to give people the idea that not only will everything always be taken care of for them, but that they don’t have any say if they did want to chime in.
That is not the case. When you buy a turnkey property, just the same as if you buy a rental property, YOU own the property. You are in charge, you are the final decision-maker, and you can ultimately do whatever you want with the property. If challenges arise, such as a tenant stops paying or continuously pays late or a repair doesn’t get done, any rental property owner — turnkey or not — should immediately hop into their proactive shoes and not wait around to only be reactive.
I’ve had so many people come to me saying something is going on with their property and they are freaking out, yet they don’t actually have any details from the manager as to what is going on. Not having enough information, it’s not only very difficult to come up with a solution, but it also tends to make for an overly dramatic situation unnecessarily. Most often, things are just fine once all of the information is laid out. I’m not sure that’s the best explanation for it, but basically any rental property owner needs to be ready to demand what is going to happen next, hire or fire anyone necessary in order to make that happen, and at all times, make a decision. I see too many people relying on everyone else to make a decision. On that note…
3. Not Standing Up to Property Management
Remember, you own the property. The property manager does not. Technically, the property manager works for you; ergo, you are the boss. Did you hear that? You are the boss. You are the final say, you make the final decisions, and if the decisions your property manager is making aren’t to your liking, you can fire that manager and hire a new one.
This is not an excuse to run around bossing property managers around like they are some kind of minions — because pretty soon, you won’t have a pool of managers to pick from any longer, but if at any point they are no longer doing their job, you are the one who has to crack the whip. Not all property managers are good, and actually most of them are not. If a manager is doing their job and making sound decisions, you should leave it to them to do their thing or you really will annoy them. But so many investors, turnkey especially, assume the manager must know more than them ,and they let them just keep running wild while they are the only ones hurting.
Not to scare anyone off, but bad property management can cost you more than just about anything else. The reason is that bad property management can place bad tenants, which can cause unpaid rents and evictions. They can forego necessary repairs, which can later cost you tons in makeup repairs. They can avoid keeping things up to code or secure, which can cost you in violations or vandalism.
I don’t say this to convince you to avoid working with property managers, but I do say it to tell you that you should always be on the lookout for any red flags with your manager. Not nipping bad managers in the bud immediately becomes a very slippery slope into financial headache. In case I didn’t mention this before, you are the boss of your property, and the property manager works for you. Do not micromanage a good manager or annoy them, but do stand up immediately to a bad manager to avoid more headaches than necessary. Turnkey buyers tend to always assume the property management that comes with the property will be good, and that’s just not always the case. Property management is the lowest on the turnkey totem pole in terms of what the turnkey sellers are experts at. For more information on doing due diligence on turnkey property management, check out “The Downside to Turnkey Rental Properties No One Tells You.”
There you have it. If you buy a turnkey rental property and you don’t make these three mistakes, you are likely to see some smooth days and nice change in your pocket! If you do make these mistakes, don’t say I didn’t caution you.
Turnkey buyers — any other helpful tidbits you can share from your own experiences?
Let me know with a comment!