Are you an investor who is interested in diversifying your portfolio through real estate?
If so, you may be wondering what is a turnkey rental property?
There is one big reason why the turnkey rental property investment opportunity continues to grow in popularity…
Imagine being able to own a rental property that:
- Doesn’t require you to invest any of your time on renovations
- Doesn’t require you to manage tenants tenants
- Creates positive passive-cash flow, month after month
Sound too good to be true, right?
Let’s take an honest look at the pros and cons of turnkey rental properties. But before we do that, we should clearly define what a turnkey rental property is– and what it is not.
What is a Turnkey Rental Property (Definition)?
First, turnkey real estate investing is a flexible investment strategy that involves a third party who buys, rehabs and manages the property for you. Typically, this is done a long distance away from you the investor. The third party’s business model is all about making the entire real estate investment process as simple and stress-free as possible for you. That’s why it’s called turnkey. It’s a ready-to-go investment package that ready to create positive cash-flow from day one.
The U.S. has hundreds of turnkey real estate providers, and just like any other industry, no two companies are exactly the same.
For example, some companies buy, rehab, rent and then sell the property to you.
Other companies help you find the property, but then you must do the heavy lifting of rehabbing the property, after which they will manage the property for you.
Before you decide on which turnkey company you want to invest with, be sure to do some in-depth research on the turnkey company and what they do and don’t do for you the investor.
Now, let’s look at the pros and cons of turnkey investing…
The Pros (Benefits) of Turnkey Rental Property Investing
Turnkey Investing Is Easy
This is worth repeating as it’s one of the biggest benefits of turnkey investing. The process can and should be an easy and enjoyable experience. Again, each turnkey company has their nuances, but they all have the same goal to make property investment easier. Investing in real estate on your own requires a lot of work and time. When a company has a proven process, all you need to do is write and receive checks.
Successful turnkey providers buy, sell, and rent dozens or even hundreds of homes per month. They can do this through their effective marketing funnel. The best ones drive leads through various parts of their marketing strategy—newspaper ads, billboards, radio ads, along with content marketing and digital advertising. Do you already have a marketing machine like this? If not, turnkey providers can find better deals at a much faster rate than you can on your own.
Real estate investors can easily buy quality properties long distances away thanks to the insights provided by the turnkey provider, who can provide insights that only a long time local normally can. Things like the reputation of the neighborhood, local changes coming that could affect the economy and more.
A turnkey provider has their finger on the pulse of the community—something an out-of-town person cannot grasp, even with the Internet. You may find some reports on crime, school ratings, and price ranges, but Google doesn’t know the heart of the area. On the other hand, a good turnkey provider is intimately familiar with the communities in which it.
Long Distance Service
We have already mentioned this benefit, but it is worth repeating—turnkey real estate investing allows you to invest in a good real estate market that is hundreds, even thousands of miles away from you. Trying to manage tenants close to you is hard enough, can you imagine trying to be a landlord with a property a thousand miles from you? People who live on the coasts are jumping at the opportunity to own properties in Midwest markets where cash flow tends to be higher. Even foreign investors who live outside the U.S. are enjoying the benefits of turnkey real estate investing.
A property management company normally has in-house staff, or they work closely with vendors who as a team make sure a property is taken care of…turnkey providers are no different. With a turnkey provider, all the weight of leaky toilets and phone calls gets lifted off your shoulders. You don’t need to be present when a new tenant signs the lease—a professional from the turnkey provider takes care of that. As you can see, the amount of work required with turnkey vs. investing on your own is dramatically different!
Being a landlord requires its own unique skill set. Some people love doing it, but many investors see it as a necessary downside to real estate investing…not with turnkey rental properties! You don’t have to deal with tenants or contractors when you invest in turnkey rental properties.
Now let’s look at the Cons (Downside) of Turnkey Rental Property Investing
Okay, you might be wondering why everyone isn’t doing this when there are so many positive reasons for investing in turnkey rentals? There a couple of big reasons why turnkey investing might not be for you:
Level of Trust
A high degree of trust is needed when you decide to take action and invest in real estate through a turnkey company. Your level of trust in the provider will depend on their knowledge and expertise in handling the various pieces of the puzzle—choosing the location and property, who they select as a tenant, and then how they manage the tenant.
A lot of trust is required in this transaction. You are paying them a significant amount, then trusting your investment will deliver good returns. With an out-of-state turnkey provider, you can see how easily someone could be taken advantage of. There are horror stories out there of unscrupulous turnkey providers who encourage out-of-state investors to buy bad properties in bad locations. Some have reported being misled so much they were stuck with a money pit.
Turnkey companies want to make money like all businesses do. There are several ways they typically do this. First, turnkey companies often buy a property at a discount, then sell it to out-of-state investors like you, for a higher amount—similar to flipping the property for a nice profit. And then, a monthly income is made for the turnkey provider as they manage the property.
This should explain why you will be paying a premium for the ease-of-service you get in return. You can’t have it both ways, right?
One thing to remember is how turnkey companies include a marketing machine that never sleeps. This generally helps them find incredible deals in their market on a regular basis. So even when a turnkey provider makes a profit when they sell to you, you could purchase below average market prices and still get a great deal.
As you can see, there are both benefits and disadvantages that come with this type of investment.
Take some time to consider these factors of turnkey rental properties against investing in your own market. If the area you live in is considered a high dollar market, and you want to invest in lower-priced properties with a higher ROI, then turnkey rental property can be a simple solution that will help you reach your retirement goals.
On the other hand, if you are happy with local real estate investing, where you handle all the leg work, then you should continue doing that.
Only you can determine if a turnkey rental investment is a good match for you. First and foremost, we recommend a careful investigation into the turnkey company.