Turnkey Real Estate Investing: Everything You Need to Know
A turnkey property is a fully renovated house that a real estate investor can easily buy and rent. That's why it's called turnkey. You can easily turn the keys to the doors, open the house and rent it out. The main benefit is that since the house is already renovated, you can immediately rent it out and get passive income.
Turnkey investing differs from other types of investing because there is no delayed gratification, such as in fix-and-sell or buy-and-hold. You get the returns immediately. This also makes it low risk. In this article, we'll look at what are turnkey properties, turnkey real estate definition, and steps in turnkey investments.
What is Turnkey Real Estate Investing?
Turnkey real estate investing is when a real estate investor buys a fully renovated and rented property from a turnkey provider. This makes turnkey investing a serious choice for investors who want passive income without wasting too much time and effort.
Turnkey properties have become popular in the United States since the housing market decline of 2007-2008. At that time, it was cheaper to buy a home than to rent one in most parts of the country.
Real estate investors looking to create revenue streams may buy rental properties in cheaper areas of the country, such as the Midwest, and hire property managers to take care of the rentals. This allows them to collect profits without renovating or handling maintenance issues themselves. This investment approach is ideal for people who want to invest in real estate but don't have the time or interest to renovate a home or handle maintenance issues.
Advantages of Turnkey Real Estate Investing
Here are some advantages of Turnkey Real Estate Investing
- Minimal time and effort required: Buying a turnkey investment property ensures secure investment. You avoid unexpected expenses that come with old buildings that require constant repairs.
- Resale Value: Turnkey properties allow you to build equity and generate rental income while still having the property to resell. You can maintain the property and resell it when it is right, earning profit from rent while you own it.
- Lower risks in turnkey investing compared to other forms of real estate investing: With turnkey properties, you can start earning immediately after closing, especially with existing tenants. This is a shorter waiting period than other popular investment strategies, such as the flipping method.
- Cash flow and long-term benefits: With turnkey properties, you can potentially resell the building for more than you bought it for or charge more in rent. Though the upfront cost may be higher, you'll generate more profit in the long run.
- Turnkey investing provides a ready-to-go solution: All you need to do is buy the property, and you can make your income fully passive.
Key Factors to Consider Before Investing
Before investing in turnkey properties, you need to consider these factors
Finding the right turnkey provider
This is necessary. It's important to find a turnkey provider whose goals align with yours. When choosing a turnkey provider, consider your:
- Desired property type
- Level of involvement
- Desired profit margin
Property management company
It's important to have a plan for who will manage it. You can manage the property yourself or hire a property manager. The right property management company would help take the burden of the day-to-day activities on the property.
Property location and market analysis
You need to make sure the housing market is stable. Check things like population growth, job security at the time, and average rent prices. If the market is volatile, it may be harder to sell the property or find tenants.
Analyzing the potential returns and risks
You also need to know the property's market value. Get the property appraised to know its market value, and compare it to the purchase price. If the market value is lower than the purchase price, you may want to think again about buying the property.
Financing is another consideration. Turnkey properties are usually more expensive than regular properties. So, you need to know where you'll get financing.
Finally, ensure the fixtures and systems are in good condition before investing. An appraisal should reveal any issues that need to be addressed.
The Process of Turnkey Real Estate Investing
Here are the steps involved in turnkey investing:
- Finding the right turnkey property: This is the first and most crucial step in turnkey investing. You must research and identify the right market to invest in based on factors such as property values, market, rental demand, and economic indicators.
- Inspecting and evaluating the property: You must inspect and evaluate the turnkey property thoroughly to ensure that it meets your investment criteria. This includes evaluating the property's condition, location, rental history, and potential rental income.
- Financing and closing the deal: Once you have found a turnkey property that meets your investment criteria, you must arrange to finance and close the deal. This can involve working with a lender to secure a mortgage or financing. Or can involve negotiating the purchase price and terms of the sale.
- Ongoing management of the property: Once you have closed the deal and taken possession of the property, you will need to manage it continuously. This includes finding tenants, collecting rent, and handling maintenance.
Common Misconceptions about Turnkey Real Estate Investing
Here are some common misconceptions about turnkey real estate investing
Turnkey investments are for rich people
While it's true that those who have invested in turnkey rentals for any length of time typically enjoy some level of financial success, turnkey rentals aren't for rich people. Everyone started from somewhere. You can start from somewhere, just one property, and grow.
Turnkey investing is too good to be true
Turnkey investing is not a fail-safe plan to get rich. It comes with risks, such as investing at a bad time, and big rewards, such as sure passive income. So, it's neither too good to be true nor the opposite. You have to weigh the pros and cons.
All turnkey providers are the same
No, not all turnkey providers are the same. Some providers specialize in a particular type of real estate instead of another type. That's why you ought to do your research.
Turnkey investing requires little to no work
No, this isn't true. You must have your hands on deck from the pre-investing stage to the post-investment stage. Even with a property manager, you must ensure your investment is viable.
Is Turnkey Real Estate a Good Investment?
Turnkey Real Estate Investing is a good investment. It allowed Anton Ivanov to invest in several states. He started as a property manager who was saving money for retirement. However, instead of letting the money sit, he chooses to invest in real estate. He then chose turnkeys because it afforded him the freedom to invest out of state in cheaper markets and start generating cash flow. With that, he bought several properties across Atlanta, Alabama, and Birmingham.
Frequently Asked Questions
The main difference between turnkey real estate investing and other types of real estate investing is that the turnkey property is ready to be lived in, sold, or rented out immediately.
Turnkey real estate investing is a good option for beginners because it is relatively low risk.
The typical return on investment ranges from 10-15%. However, this depends on several factors, such as the real estate market at the time, location, and turnkey properties, among other factors.
Here are some risks involved in Turnkey real estate investing
- Choosing the wrong turnkey provide
- Buying an overpriced turnkey property
- No Exit Strategy Planned
- High Property Vacancy Rates
- Buying a poorly renovated turnkey property
- Tax hikes
You find a reputable turnkey provider by doing extensive research about several turnkey providers, checking their success stories, and making sure your goals align.
Yes, you can invest in turnkey properties remotely.
The typical cost of a turnkey property is not set. This depends on several factors like location, type of building, market, turnkey provider, cost of renovations, etc.
You can be involved as much as you want. It is your property, after all.
You should start seeing significant returns on investment about one year from your purchase, but you should start seeing returns immediately.
Yes, you can invest in turnkey properties through a self-directed IRA.
There are many real estate investment options to take advantage of, but turnkey investing is one of the best. It can be a bit expensive, but the rewards are worth it. All you need to do is choose the right turnkey provider, do good makers analysis, ensure the building fixtures are fine and choose a good property manager if you don't want to do the day-to-day yourself.
So start your journey now! Good luck!