Turnkey investing offers a safe and effective (i.e., profitable) way for people to get into real estate investment. It works by pairing an investor with a turnkey provider, who is an expert in the local market and has an inventory of move-in ready properties ready for purchase. After reviewing the financial details, the investor makes his/her decision, buys a property, and sees immediate cash flow if the unit is already rented. If it’s not, the turnkey provider is likely already at work locating a high quality tenant. Oftentimes, the turnkey company will even provide property management services, so the new owner can enjoy a truly passive investment.
So that’s basically how turnkey works. But what else is there to know about this proven strategy? A lot, actually. Here is a list of “do’s and don’ts” for the beginning turnkey investor:
DO learn all you can about the turnkey provider. You want someone who is not only knowledgeable about the local market, but also experienced in working with investors. This company should be viewed as a partner, and like any partnership, you want someone you are comfortable with, can trust, and that you know has your best interests in mind.
DON’T forget to ask for references. Know who can tell you what a turnkey company is really like? Other investors. Get a list of references from the provider, and follow up with them.
DO perform your own market research. Turnkey providers can be found in most major markets, and they will do all they can to sell you a property in their area. However, it’s important that you do your own research on any market you’re considering, because you need to be 100% sure that you’re investing in the right area. Looks for signs of growth – increasing population, strong job market, new developments. These are all characteristics of a growth market, and these are the areas you’ll see the most success with your investment.
DON’T buy a property without visiting it first. If you live in the same market you’re investing in, there’s no excuse for not seeing the place in-person at least once. But what if you live 2,000 miles away? Making the trip can obviously be a little more difficult. In this case, send a designated representative if possible, or at a very minimum, do some good old-fashioned internet stalking of the home and neighborhood using Google Street View and other online tools.
DO calculate your own profit/loss potential. The turnkey provider will have much of this data available, but you need to run the numbers yourself as well. Make sure you have a list of ALL the expenses associated with the property, as well as accurate rental rates and any other sources of income.
DON’T forget about property management. As I mentioned, many turnkey providers offer these services as part of their investment package. Find out exactly what is included with property management; usually, this will be rent collection, marketing the property if necessary, handling maintenance and repairs, and dealing with any tenant complaints. Make sure you review the associated paperwork carefully and that you are comfortable with the fee and included services.
DO stay involved with your property. Yes, turnkey typically means passive investing, but you’re still the owner. You need to be available and responsive if and when your property manager contacts you, and you need to be actively monitoring all the financial details of the property to ensure you’re seeing a profit each month.
Using a turnkey strategy to reach your goals is a great way to get started with real estate investment. I’ve seen many investors succeed with this method, and you can too, using the guidelines above to help you get started. And don’t forget…have fun with it!