Turnkey rental properties for a new investor
Member since 2018 · 10 posts · 7 votes
Turnkey rental properties for a new investor
Most Popular Reply
Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes
7y@Account Closed, that makes them convenient. Not necessarily appropriate.
Convenience comes with a 'tax'. They burdened the risk to renovate the property and then place a tenant, you skipped it. However, there are plenty of new investors who do not go with the turnkey approach and instead decide to learn through the trench. They can be rewarded with higher returns because the earlier in the process you take a property over, the more risk.
Turnkeys can also be more dangerous. Always do your due diligence in real estate. Always. Make sure you know their quality of workmanship, quality of tenant, etc. Just because they placed the tenant doesn't mean they are good. If you skim your due diligence that is where you'll find yourself in more trouble and hard work.
7 Replies
- Investor · Tempe, AZ · Member since 2018 · 1k+ posts · 731 votes7y
@Account Closed, that makes them convenient. Not necessarily appropriate.
Convenience comes with a 'tax'. They burdened the risk to renovate the property and then place a tenant, you skipped it. However, there are plenty of new investors who do not go with the turnkey approach and instead decide to learn through the trench. They can be rewarded with higher returns because the earlier in the process you take a property over, the more risk.
Turnkeys can also be more dangerous. Always do your due diligence in real estate. Always. Make sure you know their quality of workmanship, quality of tenant, etc. Just because they placed the tenant doesn't mean they are good. If you skim your due diligence that is where you'll find yourself in more trouble and hard work.
- 7yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by @Account Closed:
If I'm understanding things correctly, turnkey properties already have a tenant and property manager in place. Does that make them appropriate for a new investor (because a lot of the "hard work" has already been done)?
Depends on what you consider to be the "hardwork". No investment is appropriate for a new investor if they do not understand the value of the investment.
The first thing to understand is that the word Turnkey is a marketing term. It really has no meaning today. It has been hijacked so many times by different marketers putting their own spin on the word. There is nothing wrong with that, but here on BiggerPockets, in general, the term has come to mean a property where a majority of what you term hard work - locating the house, renovating the house and have management in place have been done.
The problem is it does not mean the house is in a great neighborhood, it does not mean the renovation has even been done much less to a high standard and not all management is created equally.
So, there is a ton of research, digging and understanding what the investment is you are making that has to be done before you can ever buy a property. Whether it is across town or across the country, you are ultimately responsible for making a good decision.
A turnkey investment is often a very appropriate investment for a first-time investor as well as experienced investors. A turnkey investment can be an appropriate investment for local investors and investors buying out of state alike. But, they can also be the wrong investment. There is a lot of work you have to do as an investor in identifying your goals, your needs and reasons for wanting to invest in real estate, identifying whether or not you can truly be a passive investor, etc.
Then you can start looking into your city and possibly other cities to see if they are going to meet your needs as an investor. After you have assessed yourself as an investor and city(ies) that make sense for you, then you turn your attention to a team that can help you be successful. Long after you have researched the cities and the teams that you may use, then you start looking at actual investments that you might add to your portfolio.
Lastly, be patient. You may do a lot of research and talk to a lot of companies and even look at properties for your portfolio and still not pull the trigger. In the end, as I said earlier, you are responsible for your investment. You have to be happy with the return you are getting on your money and the way the team is going to deliver it. Be patient and you will have a higher likelihood of making a good decision and making a good investment - turnkey or not.
Good luck to you!
- 7yJorge VazquezBusiness MemberReal Estate Broker · Tampa, FL · Member since 2017 · 1k+ posts · 684 votes
No one does things as well as you do. What I mean is that it is way better to work with a company that can help you "buy, fix and rent" (New tenant, new rehab from the beginning, knowing your property intimately) versus buying someone else's problem. You have to ask yourself what is the motivation of the seller when selling a turnkey property. Bad performance? Bad Tenant? No equity left? Why would a seller sell a property that is cash flowing well? That is the real question!!! Here is a good youtube video about it https://www.youtube.com/watch?v=xB5lOnPVVIA&t=564s
Graystone Investment Group4.6271 Reviews - Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes7y
Originally posted by @Account Closed:
If I'm understanding things correctly, turnkey properties already have a tenant and property manager in place. Does that make them appropriate for a new investor (because a lot of the "hard work" has already been done)?
Yes, that is one way to start. Many investors looking out of state decide to go this route. This way they can earn passive income without having to do much work. Ideally, the Turnkey company will own, renovate, and manage the property in house. They will not use any third parties (especially for management) The only third party should be your home inspector.
- Realtor · Rocklin · Member since 2016 · 128 posts · 67 votes7y
Even if you purchase a turn-key property, you must first spend a lot of time learning to analyze rental properties. You need to be able to run your own numbers and not rely on the numbers the company is giving you. Sometimes critical elements like cap ex and vacancy will be left out or will be calculated at much different rate than what you might. You must also get a home inspection by an independent third party and make sure you get an appraisal. Good luck!
- 7yTodd CrippenPro MemberRental Property Investor · Kansas City, MO · Member since 2016 · 116 posts · 49 votes
@Account Closed I think the turnkey option is the best way to go if you would like the benefits of owning rental property without being completely hands on. Turnkey companies have the ability for clients to be involved as much as they want to be with the expectation of trust in the provider's expertise for certain operational factors, which can otherwise be considered hard work if the investor has a full time job.
Also, if the turnkey company has well-established policies in place for leasing, resident on-boarding, standardization of renovation approach (replacing capex items first and foremost), and property management, then this could be a good option for new investors that do not necessarily have the experience/resources for what to replace at a fair price.
Also, if they have warranties in place to cover the renovations they have completed on the property, this can help investors sleep at night. This is a good way for turnkey companies to hold themselves accountable for their work.
New investors can also take advantage of the extensive research, the companies do, in the sub-markets in their city.
I hope this helps. Feel free to ask me any questions!
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes7y
Originally posted by @Account Closed:
If I'm understanding things correctly, turnkey properties already have a tenant and property manager in place. Does that make them appropriate for a new investor (because a lot of the "hard work" has already been done)?
Depends what you want out of the investment. Do you want something simple & easy to get into so you can park your money there and be done with it? Or do you want to run an active business & get your hands dirty? Neither one is better or worse. Just two different business models.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.