Despite the fact that investors are gobbling up fixers-uppers and wall street can’t get enough of them, flipping houses is not for everyone. Some real estate investors want to completely avoid the prospect of hiring and managing contractors. To stay away from the hassles that come with acquiring permits or dealing with surprise repair expenses.
This is where turnkey properties come in. If you’re looking to purchase your first investment rental property, a turnkey house stands as a viable option. Keep reading to find out what turnkey properties are and top-tier tips you should know when investing.
What is Turnkey Real Estate?
First things first, what is a turnkey property? A turnkey property is one that has already been fully rehabilitated. They’re either tenant-ready or already occupied.
Most of these properties also come with property management in place. Turnkey properties are some of the most excellent ways to generate passive income through real estate investing.
If you’re looking for streamlined property investments, a turnkey house may be the best place to start. The best part is that turnkey properties are available in a variety of regions. You can diversify your portfolio to avoid losses of the market filters.
Now, as good as this sounds, there are several things you have to consider as your keys to success. Here is an in-depth guide on those top-tier tips we mentioned.
1. Consider the Cap Rate
Based upon the initial overview, it may look like turnkey properties are a no-brainer. Like you should definitely get your hands on a turnkey house as soon as possible.
However, you need to sit back and give it some thought before you take a dive. The most significant drawback of getting into the turnkey real estate market is finding a good deal.
Think about the fact that someone else has already done all the dirty work of renovating the property and putting it in rent-ready condition. They’re selling you a finished product but are cashing in on the equity they got from updating the property after selling it to you. This means the property is already near full market value.
As an income investor, your main focus lies with the ongoing income potential of the property in the current market value. To measure the earning potential, you need to consider the cap rate, the net operating income divided by the purchase price.
2. Cash on Cash Returns
The next thing you have to consider before starting a turnkey project is the cash-on-cash returns. When purchasing a turnkey house, you’ll put down some cash out of pocket for the down payment and closing costs.
Now, you may be putting up a little investment cash, but this also means you’ll see little net income due to the mortgage payments and maintenance costs. You need to consider your cash-on-cash returns to measure your return on investment. This will give you an objective view of whether your turnkey house will be worth the investment.
3. Consider the Holding Period
Your hold period for the turnkey house is a significant factor because market dynamics change a lot in the real estate industry. While having a turnkey rental property will simplify your real estate investing, it’s essential for you to grasp what time commitment is involved.
Consider whether this is a short-term or a long-term investment so you can get the right finances. Ensure that you finance the property with the term length you would like to hold the property for.
4. Scrutinize the Property Fully
You may find a nice turnkey house that looks like a good investment on the surface, but the trick here is to never take the seller’s word for it. There are certain turnkey investment providers that target uneducated buyers. These buyers fall for the slick pitching and compelling marketing materials only to regret the investment down the road.
A lot of these sellers bank on the fact that most real estate investors don’t come to scrutinize the property. However, you’ll find that some of the turkey houses have not been upgraded to turnkey standards, and some of them haven’t even begun the upgrades yet. It’s better to check out the house to avoid poor workmanship that will lead to additional headaches and expenses.
Go the extra mile and hire a property inspector who will detect any potential issues before you purchase the turkey house. Additionally, scrutinize the sellers’ overall reputation and consider the properties surrounding your turnkey house as well. Look at the upkeep of all the other neighboring houses, then factor in the reliability of the tenants already in place.
5. Consider the Property Management
Being rental properties, turnkey houses require ongoing property management. If the prospect of being a landlord and handling all the maintenance than red collection appeals to you, then you may opt to do it yourself. If not, it’s essential to have quality turnkey property management to make the transition completely seamless.
You can talk to the turnkey property investor who sold you the property for recommendations. You may actually find that the investor also offers property management services.
When making your choice, consider what kind of services they offer and the fees they will charge. Essentially, the services need to be comprehensive, but the associated costs should not distract significantly from your overall returns.
Purchasing Your First Turnkey House: What You Should Know
If you’re already considering purchasing your first turnkey house, these are some of the factors you must consider. Turnkey real estate properties can be an excellent way to invest in rental income. However, it’s of absolute importance that you conduct due diligence to ensure you get proper returns.
That said, if you would like more information articles, please head over to our blog section. You’ll find more valuable and informative content prepared just for you.