Two Rules for Successful Turnkey Rental Investing

There are several benefits to investing in turnkey rentals, including that renovations have already been completed, management is outsourced, and cash flow can be achieved from the first month of ownership.

Here are two key factors that can increase your likelihood of success when investing in turnkey rentals.

1. Buying Right

One of the most common adages in investing is that you make money when you buy, not when you sell, meaning that the purchase price of the investment can play a significant role in determining your overall returns. Simply put, you have to “buy right”.

Turnkey rentals are a great example of why this is so important.

When purchasing a turnkey rental, it is essential to do your submarket analysis and know the general range of comparables in the area in which you’re buying. Don’t simply assume that the turnkey company’s price is a good purchase price for the property.

I’m not saying the turnkey company is intentionally over-pricing or trying to gouge their customers. Hopefully you’re working with a very honest and reputable company. Along those lines, it should be understood that the turnkey provider is in business to make a profit just like we are as investors. So while you should not be overpaying, you also should not be trying to low ball the purchase price. With turnkey properties, you are paying somewhat of a premium because you didn’t do any of the work. You didn’t find, purchase, and renovate the property, advertise it for lease, or qualify and place the tenant. The turnkey company did all this work, and therefore should be fairly compensated for such.

However, with that being said, if all the other 3 bedroom/2 bath houses built from 1965-1980 in that community are selling for $125,000 - $135,000, then you should not be paying $155,000 for the turnkey property. Even with the renovations, is it going to be worth that much more? It is important to know the price ranges within your market and stay within reason.

Additionally, while you shouldn’t overpay, you also don’t want to go too cheap into the lower end rentals. Even with turnkey’s “built-in” property management, going too far on the lower end of the market is simply asking for tenant turnover and unexpected repairs, all of which cost money, and frankly, negate one of the main benefits turnkey property in the first place, which is to be more passive in the investment’s management.

2. Property Management

It cannot be stressed enough that property management is paramount when it comes to success in turnkey rentals. It can make or break your investment returns and overall experience.

Different investors have varying experiences and opinions here, but finding a turnkey company that manages its own property managers can generally be a good idea. The turnkey company should have a vested interest in finding and keeping good tenants for you when they know they will be managing them. Plus, you’ve already taken the time to select and get to know the turnkey company, so why have to do it all again with the property manager?

With that said, most turnkey companies do not have in-house property management, but rather property managers whom they refer to their customers. In this case, make sure the turnkey company has a highly regarded and long-standing relationship with the property manager. And don’t just take their word for it. Do your own homework, check reviews, get other referrals, and make sure you’re comfortable with the property manager’s reputation.

When it comes to property management, there are enough criteria to write an entire book. But its largely accepted that rule #1 is communication.

As a rental property owner, you want “no surprises”, and that only happens with proactive and consistent communication from the property manager. Of course, we know things are going to break, and tenants are going to have concerns and the like. But the key is for the property manager to communicate before it becomes a major issue.

A good property manager will contact their owner-clients at least once per month, even if just to say everything is running smoothly.

Conclusion

Turnkey rentals can be great for passive investors wanting to own rental property. They can provide great cash flow without the work of finding and renovating a property yourself or being a landlord. Two factors that turnkey rental investors should strongly consider are to buy right and hire good property management.