Turnkey Rental Property a good idea for a first-timer?

[Cassandra Boyett]

We live and own in California where we can't afford to do much, so we'd like to invest in a rental property somewhere else and this will be our first purchase (aside from our home). 

Can anyone break down how Turn-key property companies work, what they charge and such? We have a lot of family in the Tennessee/Arkansas areas and Ive read Memphis is a good area to look. 

Any tips and info would be much appreciated!

[Eric Fernwood]

Hello @Cassandra Boyett ,

Buying turnkey can be an excellent purchase method but remember that this is only a purchase method, it does not assure you that you are buying in a “long term good” location, getting a good property or that you are going to get good tenants.

You have heard the old adage that the three most important things to consider in real estate are location, location and location. This is still true. When you are considering a property in any “location” you need to think long term. Do your homework and make an informed guess whether the state/city/area is still likely to be a good place to own a property in 15 or 20 years? What is happening today or this year is almost irrelevant because real estate is a long term (multiyear) proposition. Some of the key indicators you should consider are:

• Population migration - are people moving in or out? If they are generally moving out of the state/county/area then the value of your investment in 5 or 10 years is going to be much less than today. Here is a page that provide population shifts by city.
• The value of a property is no better than the jobs around it. This does not mean just that there are jobs, the earning power of jobs needs to be stable or increasing. For example, if the state/county/area trend is from manufacturing jobs to lower paying service jobs, your rent is going to go down and the value of your property will fall.
• Property price trends - If property prices are trending down in an area, that is because there is less demand. If there is less demand to purchase, then there will likely be less demand for renting in that area too. And, if property prices are going down, rents will also go down and even if you decide to cut your losses and sell you probably can’t even sell the property at break even.

The following two points are not criteria but something to keep in mind. 1) As long as you buy in a good area (see all the above), all but the worst mistakes will be corrected over time through appreciation, inflation and rent increases. However, if you buy in a bad (or trending down) area, there is little or nothing you can do to make money over the long term. 2) To quote a former president, "Trust, but verify"; never take others claims at face value. With the internet, you can validate any claims made by others. The data is there and all you have to do is to spend sometime and the claims will be either validated or you will know that you need to find someone else to deal with.

Below is the process model I recommend. The property profile and profitability are explained in details in this thread - http://www.biggerpockets.com/forums/12/topics/1527...

Best Wishes,

Eric Fernwood