Answers to Your Most Burning Questions About Turnkey Investment
Turnkey investment may be one of the popular real estate investment strategies out there, but many still don’t fully understand what it means. What makes a property turnkey? What are the advantages of this strategy? What are the disadvantages?
Today, I want to answer some of those burning questions, and hopefully dispel any of the myths that I’ve heard floating around, too, like if you use turnkey, you’re basically getting scammed. NOT TRUE.
So let’s get down to business and get some of these questions answered!
- What is turnkey investing?
Turnkey investing involves the purchase of a move-in ready rental property from a turnkey provider. The turnkey provider is someone who has purchased a property, rehabbed it, tenanted it, marketed it to investors, and will often provide property management services after an investor has purchased it. It’s called a turnkey property because it’s 100% ready to go – simply turn the key and move in (or in the case of investors, turn the key and then hand it over to your tenants).
- Is it too good to be true?
It sounds like it’s too good to be true, huh? A totally renovated, tenanted property that provides immediate cashflow seems like a dream. This is reality, though, and it’s definitely not too good to be true. It’s a solid investment strategy that works well for all parties involved – investors, turnkey providers, and renters. This approach allows for a much more passive role for the investor, allowing them to focus their energy on investment rather than the day-to-day operation of their property. While it’s true that turnkey properties are usually sold slightly above market value, it makes perfect sense when you consider all the work that has already gone into the property, as well as continued management of the property after purchase.
- What are the risks of turnkey?
No real estate investment is risk-free, and turnkey investing comes with what I like to call a bonus risk. And it’s a big one, too, because this risk can result in a whole host of issues for you later on. So what is at the root of all these potential issues? It’s hooking up with a shady turnkey provider. One of the most important aspects of using this strategy, if not THE most important, is working with an experienced and reputable provider. You want someone who knows their market inside and out, who can offer advice, who has a keen eye for profitable investments, and who isn’t going to make you overpay for a property. Obviously, turnkey providers are in this business to make money, just like you are, and it’s only fair that you’ll pay a bit more than market value for a rehabbed, cashflowing, tenanted property. But unfortunately, just like in every other industry, there are shady companies out there who list properties way above market value, or encourage investors to buy sub-par properties, offering false promises of big profits. That’s why it’s critical that you do your research on any company before signing anything. Get references, visit them in person if you can, and ask questions about their background and experience. Know who you’re working with before you start the process.
- What are the best markets for turnkey investing?
Some markets are better suited than others for real estate investing, and specifically, turnkey investing. Right now, some of the hottest markets are Kansas City, MO, Dayton, OH, and Memphis, TN. So what makes a market great? Three things: growing population, increasing and diverse employment opportunities, and overall livability of the area. Before deciding on any market, it’s critical that you look at each of these factors to ensure the area is growing and will continue to grow for the foreseeable future, otherwise your risk of vacancy and property depreciation will be greater.
- What services can I expect from a turnkey company?
One of the best things about using a turnkey strategy is that a great provider will offer a full range of services. Not only will they help match you to a property that fits your needs and goals, they’ll also help you with the purchase, closing, and whatever else you need. This is especially beneficial to new investors who need all the guidance and advice they can get. An awesome turnkey company will be with you every step of the way, from property selection to long-term management of the asset.
- How do I know I’m making a solid investment?
This is where due diligence comes into play. It’s up to you, as the investor, to do your homework on any potential property as well as the market it’s located in. The turnkey provider will give you numbers and projections about cash flow and other financial inputs, but it’s your job to ensure that an investment is a good one. If you’re able to, visit any property you’re considering in person so you can really get a feel for the area and the property itself. If you can’t, consider sending a designated representative in your place. A visit will also enable you to meet with turnkey providers in person to find one that you trust and feel comfortable with.
Hopefully this has answered some of the biggest questions you may have had about turnkey investing. This truly is a strategy that can work for investors from all walks of life, and it’s especially suitable for those who prefer a more hands-off approach. With a turnkey provider at your side, you have local expert who can assist you every step of the way, so you can meet your investment goals.