How Turnkey Real Estate Investing Works

Turnkey real estate investing refers to the purchase of a ready-to-move-in home. These properties are typically recently-built or renovated and require no large-scale updates. In other words, they’re ready to rent out to residents immediately – the opposite of a fixer-upper.

Many investors tend to favor turnkey homes because they’re able to generate passive income faster, sidestep a potentially costly rehab, and easily market an updated home. In other words, turnkey homes can be a seamless and lucrative investment decision, but you’ll want to have all the facts.

In this article, we’ll take a deep dive into:

• The benefits of turnkey investing
• How to find the right turnkey properties
• How to find the right property manager
• What to know about the ownership agreement
• How to finance the turnkey investment

Let’s get started.

Promising Benefits of Turnkey Investing

Turnkey investments come with a range of advantages. Some of the most common benefits an investor might enjoy in turnkey real estate investing are:

Earnings

One of the primary drivers for investing in turkey properties often revolves around cash flow. Most investors find this method of investing promising as it creates a near-instant stream of passive income. Investors don’t need to put nearly as much time and effort into making these spaces livable, plus they tend to be easier to market. This can translate to higher rent rates, longer-term residents, and more money in your pocket overall.

Location Independent Option

When someone looks for real estate for investment purposes, they often have limited options in their immediate area. For example, an investor located in Southern California could likely afford a ready-to-rent turnkey property in Birmingham, Alabama, for far less than a fixer-upper in their local market.

This option marries the convenience of investing in turkey properties with the freedom and flexibility of out-of-state investing.

Suggested reading: Guide to Out-of-State Real Estate Investing in 2022

Fewer Maintenance Requests

By investing in a home that doesn’t require an intensive rehab, you sidestep many of the most common management issues that tend to pop up over time. Newer home systems, updated materials, and even higher energy efficiencies can cut down on resident complaints and maintenance costs.

To go the extra mile, consider investing in an experienced property management company. These professionals will keep your investment properties in tip-top shape, whether turnkey or fixer-uppers, as your portfolio grows.

Suggested reading: Is DIY Rental Property Management Right For You?

Easy Renting Opportunity

Typically, residents like to move into a home that is clean, well-kept, and may even feature high-end finishes. As such, turnkey properties that are updated and move-in-ready are highly-desirable among potential residents. This means you’ll be able to fill vacancies faster and easier.

This is especially true if you choose to buy a turnkey property in an area where other homes require rehabs before being rented out. You’ll have a significant edge in this scenario because you can entice residents that much easier.

Value for Money

Many investors are opposed to turnkey properties because you can almost always get a fixer-upper for far cheaper. The fact is, though, that those homes may require substantial updates, renovations, and even specialized maintenance moving forward.

While you may need to spend a bit more upfront when investing in a turnkey home, expenses after the purchase are often lower and more predictable. You may also be able to charge more in rent because, as mentioned above, residents tend to prefer newer homes.

Finding the Right Turnkey Property

Investing in the right property is critical to ensure secure and steady cash flow from the turnkey investment. An ideal property can provide an excellent long-term outcome, but real estate purchases are a big decision. So, before signing on the dotted line, look for a property that is poised to turn out profitable.

You can follow the steps below to find the right property that matches your investment needs:

• List out the features and standards that you need in the property. Then, create a list of those that you simply want. These features should be different, and keep in mind that you might have to sacrifice some of your ‘wants’ to achieve all of your ‘needs’.
• Complete comprehensive research before making any major decision about a property purchase. What are the local employers like? What kind of retail spaces are nearby? What is the crime rate?
• Select areas where people are more interested in renting homes rather than becoming owners.
• Choose areas with a high affordability index and low resident default rates.
• Look for properties that can provide higher rent rates than mortgage rates.
• Explore the property. The right turnkey investment should truly be turkey – confirm that large-scale rehab is absolutely not necessary.

Suggested reading: 6 Factors to Consider When Choosing a Neighborhood to Invest In

Find the Right Property Manager

While turnkey properties can cut down on maintenance requests, the occasional issue is sure to slip through, not to mention screening renters, collecting rent, and managing resident communications. Because not everyone has the time to deal with the many activities that come along with being a landlord, some investors choose to work with a property manager who manages everything on their behalf.

The right property manager will have extensive experience in all facets of management, including working with turnkey investors like yourself. 

An investor should consider these three qualities before they hire a property manager:

• Experience: Investors can rest easy knowing everything is taken care of by hiring a company with years of expertise. If your management company is experienced in the field, they can handle even the most intricate cases – without the investor’s interference.
• Team: The management company should have a handful of local team members who can fulfill many different requirements of the investor and residents.
• Fees: Before hiring for any service, it is crucial to cross-check their prices and compare them with earnings.

Suggested reading: 5 Challenges When Buying And Managing Rentals

Know Your Ownership Arrangement

While many investors choose to purchase turnkey properties independently, some may work with specific turkey investment companies. In these cases, the ownership arrangement determines what kind of ownership the investor is entitled to. 

Some investors want shared ownership, while others might wish to get full ownership of the turnkey property. The shared ownership puts the name of the investment company in the property title. This gives them the power to make necessary decisions for the property without conferring with the owner.

If you choose to work with a company, you should know exactly what the company is offering and entitled to through the ownership arrangement.

How to Finance The Turnkey Investment

Managing liquid cash for the downpayment is not as easy as it seems. The good news is that many financing options are available for turnkey investments. The interest rates are not the same for all methods. Also, they change with times and economic conditions.

The lengthy loan durations will have higher interest rates. Investors can apply for non-recourse loans, private loans, hard money loans, and many others.

You can also explore conventional mortgages if you want to get a lower rate. Speak with a home finance professional to determine necessary documents, pre-approvals, and more. It’s also important to keep in mind that, like any other real estate transaction, borrowers with excellent credit scores, substantial financial histories, and plenty of cash-on-hand will get better opportunities than others. 

Wrapping Up

Whether you’re interested in turnkey properties or fixer-uppers, a deep study of the market and proper planning can help investors crack the best deal of their life. Now, let’s add some turnkey properties to your real estate portfolio!

Get Started Buying Homes With Evernest

Whether you’re purchasing one turnkey home or one hundred, you don’t have to go it alone. 

If you’re ready to buy your first (or next) ready-to-rent property, here are 3 steps to get started today:

• Subscribe to our podcast: The Evernest Real Estate Investor Podcast—for all things real estate investing, being a landlord, growing your portfolio, and more. 
• Find a property: Make sure you sign up for our Pocket Listings to get notified of all the deals that come across our desk daily. 
• Get an investor-friendly agent: We can help with that—we would love to help you buy your next rental property investment.