Real estate investors are constantly looking for ways to optimize their profits, especially in unstable market conditions.
Many of these strategies depend on the various factors like the investor's skill level, the amount of money available to invest, and much more.
Some investors, however, are more concerned with being able to earn a profit from the property in as little time as possible.
In these cases, a turnkey rental is probably the best choice for those investors.
In this guide, we will be discussing what turnkey rental properties are as well as their benefits and how to invest in one.
To begin, let's discuss what a turnkey rental property actually is.
What Is A Turnkey Rental Property?
A turnkey property is a property that a real estate investor can purchase and immediately rent out to someone. This is usually because the property has been recently renovated or repaired and it requires no further work.
The main benefit of these properties is that whoever purchases it will have to put in very little time and effort in order to get the property rented out to tenants. However, this amazing benefit does not come at a cheap price.
Turnkey rental properties are typically more expensive than regular rentals. This is why it is important to weigh the advantages and disadvantages of investing in these properties.
So, now that we know a little about what these properties are, let's discover how to actually purchase on and manage it.
Investing In Turnkey Rental Properties
Below, we have described the complete process of finding, funding, and acquiring a turnkey rental property.
1. Find a Property
Depending on your investment goals, a turnkey real estate company helps you choose a good investment to build a portfolio of different properties to meet your needs.
Most of these companies claim to have pre-vetted databases so that you can consider the right turnkey property. With that, some use proprietary software to evaluate the real estate properties that are most likely to see significant returns.
2. Fund the Investment
Unlike your experienced investors, typical turnkey property buyers aren't familiar with the many ways of buying rental properties. Third-party turnkey providers help you evaluate your financing alternatives, which depend on your goals and circumstances.
3. Acquire the Property
Once you have identified the real estate investment property you want to purchase, the third-party turnkey property company assists with the paperwork, loan documents, appraisals, home inspections, and more. This is similar to what happens within the traditional real estate industry.
The turnkey seller provides end-to-end services, similar to a local real estate agent. However, they're specialized and can handle long-distance buyers who prefer the hands-off approach to real estate investing.
Typically, you are a passive investor who sits back and lets the provider handle the work while you see the rental income generated from it. With that, the company works on the investor's behalf to get what they need or want.
4. Find Third Party Property Management Services
The main reason for people to buy turnkey rentals is that the property management team handles the turnkey property on a daily basis. This includes finding tenants and responding to maintenance issues and other needs.
Ultimately, the property management services create a stress-free opportunity for investment. The property manager handles everything, and you just deposit the rent checks.
Turnkey Management Fees
Generally speaking, most property management companies typically charge a 3% fee for the turnkey property acquisition. From there, you could be charged 7 to 10 percent to hire the property managers and cover property management fees.
So, now that we know all about what turnkey properties are and how to invest in them, let's look over some of the benefits of investing in them.
Benefits of Turnkey Properties
Turnkey rentals may have several benefits over traditional rentals. Below, we will be discussing some of these benefits.
One of the main benefits of investing in turnkey rentals is that it is a relatively secure investment. This is because, when you purchase a property that has been recently renovated and is in good condition, it is much easier to rent it out and begin collecting profit from it.
However, no investment is 100% secure, and it's important to always remember that. This is why investors should do their proper research before investing in any rental property.
Another notable benefit of investing in turnkey properties is that they can typically be resold at a high value. Although this can be done with any rental property, it is especially prominent in turnkey rentals because there is not much work needed to prepare the property for resale.
Especially for properties that have tenants already staying in them, it is easy for turnkey properties to start having a positive cash flow. This differs from traditional rental properties as those can sometimes take months to begin earning back the investment.
Now, although it may seem like turnkey properties are perfect investments and are a great idea, that's not necessarily true. Below, we will be going over some of the main issues that come with turnkey properties.
Issues with Turnkey Properties
From the initial overview, it seems that turnkey investing is an easy choice. However, you can't be too quick. Below, we will be describing some of the main disadvantages of investing in turnkey properties.
One of the main issues with investing in turnkey rental properties is that the current tenant is not the best tenant. This is a serious issue and it can occur very early into the ownership of a turnkey when there are already tenants renting it out.
This could lead to a number of other, related issues, like:
- Late or missing rent payments
- Damage to the property
- Lack of communication
- Beginning of eviction process
…and much more.
Subpar Property Manager
Now, the tenants on the property might be very high-quality tenants but the property manager may be the one causing problems. This is also a serious issue, but it is easier to resolve than if the tenants are the problem.
As a property owner, some clear signs that your property manager is not doing a good job include:
- Lack of communication
- Tenants keep contacting you
- Property is not maintained
- Signs of laziness
…and a few more.
If you are witnessing these signs in your property manager, it may be necessary to find a different property manager to take care of the property.
Problems With The Property
When purchasing a turnkey rental property, some people will try to scam you or try to make the property seem to be something it's not. This is a huge problem for prospective property owners as it may cause them to make a huge mistake.
To prevent this from happening, all real estate investments should get thoroughly inspected before you invest any money in them. It is also worthwhile to personally check out the property and verify that you are getting what you're paying for.
It is also a very good idea to verify who you are working with on the property. This can serve as a good start to the relationship between yourself and the property manager or the tenants currently staying at the property.
After purchasing a turnkey property and making it part of your portfolio, you have a tough decision to make: how should you manage that property?
The best answer to that question is DoorLoop.
DoorLoop is a complete, full-service property management software designed to offer every tool you’d need to manage your properties, whether it’s one property or one thousand.
Designed with ease-of-use, speed, and world-class support in mind, DoorLoop is the only tool on this list that offers all of the features mentioned above. And, since it is a cloud based solution, it can be done from virtually anywhere!
- Robust accounting suite: Everything you need to manage all your property accounting in one place, no difficult QuickBooks workarounds necessary.
- QuickBooks integration: Rather integrate with QuickBooks and use it? You can do that too.
- Convenient tenant portal: Communicate with tenants and allow them to pay rent and other fees and even send in maintenance requests all from within the app.
- Invaluable maintenance management features: Speaking of maintenance, edit those requests with attachments, send them to vendors, pay those vendors, and even communicate with tenants on those requests simply and easily.
- A plethora of leasing tools: From automatic listings to background checks and leasing templates to make the entire process more streamlined.
- And much more
One of the greatest characteristics of DoorLoop is its pricing. At only $49 per month for up to 20 units, it comes in at one of the cheapest options on this list.
Schedule a free demo today to see what DoorLoop can do for you.
Deciding to invest in turnkey real estate is a personal choice. Ultimately, your knowledge of the markets, real estate industry, and investment objectives influence your decision here.
A turnkey property can help diversify your portfolio, especially if you're now priced out of the market. However, be careful of who you use to find your turnkey home. Research everything thoroughly before committing to a property or provider.
There are no foolproof investments. With that, turnkey properties are often much easier to buy than sell, so have a good exit strategy if you find things not working out as you planned.