Turnkey Rental Properties: Are They the Right Investment?
Posted by: John Crow
Date: March 19, 2021
Posted by: John Crow
Date: March 19, 2021
Have you been searching for the perfect real estate investment option? Many investors turn to rental properties to begin their journey as property owners or managers. Given the ability to generate recurring income, some future investors compare turnkey rental properties with other popular options.
Recent statistics show why and how rental property options are generating quite a buzz. According to Pew Research Center, in today’s marketplace, 36.6% of households in the United States are renting. This is the largest percentage of renters since 1965.
Moreover, the National Multifamily Housing Council revealed that there are almost 44 million rental homes in the country. This is in comparison to 75 million owner-occupied homes. The numbers and trends show that there is a need and desire for more available rental properties.
If you’re ready to jump in but want to compare turnkey properties to other options, this post is the perfect place to start.
To sort through the real estate jargon, let’s start with a basic definition of what a turnkey rental property is. According to Buildium, the term turnkey simply relates to the process of “buying, rehabbing, and managing a property through a third party.”
Purchasing a turnkey property to rent is a common investment strategy in today’s real estate arena. Some investors choose this strategy when the current prices in a given marketplace are too high for their initial investment. It can also be a time-saving strategy if the investor has a tight turnaround and doesn’t want to involve manual labor.
There are several commonalities of this type of rental investment property. You can identify a turnkey opportunity by the following characteristics:
Occasionally, the turnkey company may also offer property management services after the sale of the home or residence is complete. This added bonus may appeal to investors who don’t want to be on the hook for the everyday upkeep of their properties and tenants.
Although the option to invest with little work sounds appealing to many investors, there are some companies that try to take advantage of the system. Potential investors should be aware of these red flags and only work with reputable companies.
Before you purchase a turnkey property, it’s important to understand that this industry is not regulated or standardized. This means that a turnkey rental property can range from the most up-to-date, modernized home, to a dilapidated structure that has only new paint and surface-level upgrades.
You can guard yourself against common turnkey scams, but it requires due diligence. As an investor, you should be aware of the following red flags and warning signs.
As you’ve probably realized, investment real estate options differ according to how much work you want to put in. In this case, there are two main options on the table: turnkey and fixer-uppers.
As we’ve established, turnkey properties are often sold through a third party company. The work and renovations are complete. This means that the company is literally ready to turn the keys over to you as soon as you make an offer and close on the property.
Fixer-uppers are perfect for the investor who is willing to put in more work. These homes are also great if you’re incredibly handy or want personalization options. If you’ve dreamed of owning a fixer-upper, it’s wise to consider the following:
As with any rental investment property, the decision is extremely personal. If the upgrades to a home are simple and the timing makes sense, a fixer-upper could allow you to flex those design muscles. You’ll have more creative freedom and a longer window of time to work.
If you live far away from the location where you want to invest, considering turnkey properties could make more sense. You won’t be able to oversee a full renovation in person, and the amount of time required for travel might not be feasible.
Base your investment decision on facts, numbers, and the advice of trusted real estate personnel in your city or town. Making a rash, emotional decision is not the way to approach a rental property investment.
Let’s say you’ve weighed the pros and cons and have decided that turnkey is the right choice for you. Congrats! Your next steps involve learning how to buy a turnkey rental property.
Fortunately, the process is not too complex. It begins the same way as the traditional home-buying process. Your first steps will be to choose and research your market and to secure the appropriate financing.
Then, you’ll want to find a reputable turnkey property and do diligent research on the homes that company has listed. After you’ve located the best home choice, you’ll need to:
It’s important to note that a complete, unbiased home inspection is perhaps the most important step in the process. Although you’ve received information from the turnkey company, an inspection provides a third-party perspective. This means that you and your tenants won’t be surprised by any significant, yet hidden issues.
When you invest in a turnkey property, part of the process has been done for you. The work of preparing the property is complete. That being said, smart investors know how to anticipate potential challenges and roadblocks.
When buying your first rental property, consider the following:
Although it would be nice to have a profitable rental around the clock, success isn’t guaranteed. Fortunately, with a bit of strategy and professional oversight, you can ensure a high rate of return. The following cash flow fundamentals will serve you well as you buy, maintain, and manage a rental property.
Generating income from rental property investments requires understanding your own skills and desires. In fact, it may require having an honest conversation about how much you’re willing to do to generate a full-time income. Whether you decide to go the DIY route or hire help, remember that investment success is achievable.
Are you ready to make the investment process simple now and in the future? If so, it’s time to check out a property management team that can do the lifting for you.
Century 21 Northwest Realty provides customizable service to help landlords with basic tasks like maintenance, tenant mediation, rent collection, and more.
Learn more about property management services in your area.
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