What to be Aware of with Turnkey Properties

[Dave Payerchin]

What to be Aware of when Investing in a Turn Key Rental Property

If you are looking to invest in out of town real estate, it is vitally important to be aware that not all brokers or sellers are trustworthy, honest, or straightforward in their dealings. In fact, many commission-driven promoters are eager to find unseasoned investors who are willing to take their income projections at face value. Many new investors are blinded – by their own greed and lack of experience – to the less-than-enticing realities of the hidden costs of turnkey properties, and may be conned into making unprofitable investments based on inaccurate numbers and an incomplete Pro Forma.

Most players new to turnkey real estate investing only look at the projected income they could acquire from a rental property, and fail to take into account total costs of doing business. They may consider normal monthly expenses, but don't include major repairs and the very real possibility of extended vacancies in their calculations of ROI.

It is critical for investors to have all of the facts in turnkey real estate investing, to maximize their return on investment and minimize financial risk. To find and correctly “read” the true projected costs and income inherent in investing in a rental property – especially multi-family properties -- it is vital to have an in-depth understanding of the market segment in which you are investing, and what it can cost to operate the kind of property you are considering. The first step can be to examine the broker’s Pro Forma, but accurate Pro Forma are unfortunately not the norm in cash flow investing.

Ideally a Pro Forma should be transparent and complete, including purchase price, monthly rent, real estate taxes, and property insurance costs, as well as projected major repair and maintenance reserves, vacancy reserves, and property management fees, at the very least. In actuality, the provider often leaves closing costs, fees to finding tenants, maintenance, capital improvement costs, and vacancy reserves out of the calculations, because without them, the numbers look far better to inexperienced investors. Being unaware of these hidden costs can mean a significant risk of losses, unrealistic expectations, and disappointment with actual results for investors.