Are Turnkeys Too Good To Be True? And 4 More Popular Turnkey Questions Answered
Turnkey properties are popping up everywhere lately – and no wonder, since they make it easy for ordinary people to get involved in real estate investing.
Even if you don’t have the skill, knowledge, or time to start the sometimes laborious process of acquiring a rental property, you can still enjoy the benefits of a passive income property.
It’s simple: let someone else handle the hard parts. There are now services that will take care of the entire process from beginning to end. They’ll take care of everything, from finding the property, to renovating it, to placing quality tenants.
Of course, you will need to spend some time managing your team, but that seems like a fair trade when you consider the benefits – owning your own investment property in a fraction of the time it would otherwise take.
Of course, as more and more people hear about turnkey investments, I find myself answering questions about them. That’s why I’ve decided to share with you the top five questions people ask me about turnkey properties.
Are Turnkeys Too Good To Be True? And 4 More Popular Turnkey Questions Answered
1. What’s the catch?
Well, it’s not hard to imagine that many people think there must be some sort of trick involved when it comes to turnkeys. After all, we’ve all been trained to avoid like the plague schemes that promise you’ll earn easy money for very little work.
Here’s the thing.
While there really is very little work involved in turnkeys, and plenty of cash flow coming in for good looking properties that need no renovation, there is one big caveat that turns many serious investors away.
Many serious investors prefer to buy properties that cost less, and can be renovated or re-purposed in order to increase property appreciation.
Turnkey properties, while offering good cash flow, are sold pretty much at market price. That gives the purchaser very little ability to increase appreciation when he chooses to renovate the property in order to increase sagging vacancies.
Another problem has to do with the price. Turnkeys are more expensive than other types of property, since the selling price is usually very close to market value.
There are also investors who don’t like the idea of handing over the running of their property to a management company, preferring to run the property on their own.
2.Why should I pay someone else to find my property?
Here’s the thing. The people selling the turnkey properties are providing a service. Just like it costs less to make your dinner rather than going to a fancy restaurant, it’s also cheaper to find your own property, do your due diligence on it, negotiate a good deal, renovate it, and then find your own tenant.
But it’s also a lot of work and more importantly, time consuming. If you have the time to do all of that, then that’s great. More power to you. But if you don’t, then those markups are actually a great deal. I knew a popular turnkey property provider who only made $5,000 on a property.
Is that a lot?
Well, I guess it depends on how much your time is worth. If you add up the hours it would take you to find your own property (don’t forget to include phone calls), you might be unpleasantly surprised to note that more than a few hours of your time get eaten up. If you’ve just purchased a $45K rehab that needs a ton of love, then you’re going to be spending quite a bit of time on that… not to mention the risk right along with it.
3. Where can I find turnkey properties?
Turnkey properties can be found pretty much in every market, but just like you wouldn’t buy a Gucci original in Walmart, you don’t want to invest in every market out there.
By good market, I mean one where there is some opportunity for growth. That fancy high-end suburb may look great on the outside, until you find out a few years later that house owners are quietly fleeing their mini McMansions in the middle of the night.
Look for an area that is a growing market so you can have an opportunity to use appreciation to increase the value of your asset. Ideally you want an excellent deal, not just a good one, and one of the factors that makes a good deal a great one is the potential for appreciation.
Once you’ve found a good market, you’ll need to find a good turnkey provider.
Aside from asking around and getting recommendations from other experienced real estate investors, hiring a third party appraiser and inspector, using a reputable title company, checking public records for liens or back taxes, and asking for a scope of work prior to purchase go a long way to making sure things are on the up-and-up.
The next step is simply to choose the turnkey provider and type of property you like best. Of course the type of property you choose will depend on the city, since each market will generally have a property type that performs better than most others.
There are plenty of property types to choose from, however, even within just one city.
Some people prefer one type of property over the other, while others couldn’t care less as long as it has good cash flow. Single families, multi-families and row house properties are just a few examples of what’s out there, but the truth is as long as you do your due diligence on the market you can just choose whatever appeals to you.
4. How can I tell if it’s a good property?
This is the part where some investors, anxious to close their first deal, mess up.
Keep in mind that in real estate, it’s better to take the time to find an excellent deal, not just a good one. And the only way for that to happen is if you do your due diligence.
Yes, it can sometimes be a pain in the neck, but thorough due diligence is the best way to make sure you don’t lose thousands of dollars on fixing unexpected repairs, hidden expenses, and other nasty surprises that can eat up your profit faster than a snake at an Easter egg party.
Hire a professional house inspector before you purchase the property; you can go back to the seller with a list and require the seller fix them before you buy the property. And if for some reason the seller won’t or can’t fix any of the repairs on the list, you can ask them to lower the price to take repair costs into account.
Another important due diligence point is to make sure you check ALL the numbers. Don’t rely on the seller’s word – ask for official documents from a third party, or verify information from on your own. For example, if you’re told the rent on a property is a certain amount, get copies of the lease. If the rent is $1,200 a month but there are a huge number of incentives and a clause that says you can’t raise the rent for five years… it may not be as good of a deal as you think.
Get in touch with a property management company, and offer to pay them for a comparative market analysis. Of course they have a vested interest in the deal, seeing as how they would love for you to hire them, but as long as they back up their claims, you’ll have another way to evaluate whether or not the rent is realistic for that property in that particular area. That’s especially important if you don’t live near the area, which is the case for many turnkey providers.
5. Do I have to see the property before I buy it?
The whole point of turnkey properties is that they’re hands-off management-free ways to earn passive income. And unless you have a heck of a lot of time on your hands, or live in the same city as the property, going to visit the property might take up more time than you’re willing to spend.
On the other hand, it can certainly won’t hurt to visit the property, even if you live in a different city. Visiting the property at least once will give you a better feel for the turnkey provider and for how the whole process works in general. A casual talk with your property inspector, for example, could leave you with valuable information about the location, the quality of the rehab, and other tidbits that you wouldn’t have otherwise been privy to.
At this stage in my real estate career I have properties that I’ve never even set foot in… and I’m okay with that. There’s no right or wrong way, only the way that gives you the peace of mind to buy your next turnkey property.
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If you’ve read this far then you probably like the idea of turnkey properties and want to know more.
I invite you to click here and get access to our latest turnkey deals while learning how to invest in turnkey properties for yourself.
Then, when you’re ready, we can connect you with our trusted turnkey provider to ensure you get an investment property (or many) that’s right for you.
I look forward to welcoming you to our community.
Source: Hipster Investments