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?
I have a guess. You have plateaued with your knowledge about them and are hesitant to move forward with buying one because 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 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.
Download Your FREE Tenant Screening Guide!
Hey there! Screening tenants can be a tricky business, and this critical step can be the difference between profits and disaster. To help you with your real estate investing journey, feel free to download BiggerPockets’ complimentary Tenant Screening Guide and get the information you need to find great tenants.
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.
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, I 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 the 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 just 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 me calling myself out on my own stupidity with contractors sounds entertaining to you, check out “Personal Rant: I Can’t Stand Working with Contractors!”
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:
- Decide on a market (and neighborhood) that is smartest to buy in, and
- 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 which 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.
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 of 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 of 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:
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.
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.”
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 and see who have 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.
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!