Turnkey Properties for starting investors

[Taylor Pelzel]

Im a new investor near the charlotte area and my wife and i have saved enough to comfortably to be able to start investing in real estate which is a goal we have had for a while now. We have been doing tons a research and reading and becoming educated in the area. We both have full time jobs and do not have the time to rehab a house and rent it out and be landlords. Being in our position turnkey properties sound like a good 1st investing for a beginning investor. Does anyone have any words of wisdom on this topic or if there is an easier way to get in the door without the chance of making a big mistake on my first deal??

[Jon Holdman]

Rental real estate is not a passive investment. If you want passive real estate either invest your cash in REITs or companies where real estate plays a significant role.

With rentals you're either managing the tenants or the property manager. And you better understand the former if you want to be able to deal with the latter.

The 50% rule says that for a large portfolio (dozens of units) over the long term (decades) your expenses (IRS definition), vacancy, and capital expenditures will average 50% of the gross scheduled rents. Nobody every believes that at the start, and there are many people who will tell you this is BS. Especially people who are in a position to make a buck off your naivety. A few rentals for a few years is more like playing a slot machine. You could hit the jackpot or you could have a run of bad luck.

Turn key rentals can be crummy properties that have been shoddily fixed up and are being sold to naive investors at inflated prices with a promise of inflated rents. The seller guarantees the rent for a year from the profits they've made all along the way. After a year you discover you have a property that won't rent for anywhere near the rent you've been promised (or, at all). And you can't sell without accepting a short sale and the credit hit or bring a big pile of cash to the table. Its up to you to learn the area and be sure you're you're actually getting a good deal. You must understand the area where you're investing. DO NOT evaluate it based on where you live. Learn the area. Learn values. Learn rents and tenants. And learn the rental business.