Do You Want to Buy a TurnKey Rental?
Do you know why turnkey rentals are more prevalent in less expensive real estate markets? The economy has forced a lot of people into a foreclosure or unemployment for periods of time. Due to their inability to obtain traditional financing and stricter lending criteria, these people have migrated to the rental market. The resale amount for homes in these markets is not even close to what it use to be, so it does not make sense for real estate rehabbers to buy, fix, and sell these homes to a retail buyer. The appraisal will simply not come in high enough to justify the purchase amount, repair costs, holding and closing costs, and profit needed to take that risk on. But if these properties are bought, fixed up, and rented out, they can be sold to real estate investors for more than their current retail value.
An income generating property is valued by using the amount of income it can produce, instead of sold comparables. The demand for rental properties has increased the amount of rent that can be generated in any of the areas hit hard by the economy.
I go into quite a few real estate markets each month. I have seen this trend grow in popularity over the last two years. Most of these turnkey rentals will have property management in place too. These turnkey rentals are marketed to landlords who want an already stabilized and profitable investment property. These landlords have a variety of different experience levels too.
There are a lot of credible and ethical companies that are providing turnkey rentals, but there are a lot that are not too. I want to identify a few items to look into before you buy a turnkey rental, so you can make sure you are getting a good solid investment. Here are some items to check into or request from the party selling that amazing turnkey rental to you.
- You need to make sure that you see a track history of rents coming in on the property for at least three months preferably six months
- You should make sure there is a verifiable lease agreement for the current and existing tenant
- You should make sure that there is documentation showing there was a legitimate background and credit check performed on the current tenant
- You want to make sure that you have an extensive title search done to make sure that the turnkey rental has a free and clear title.
- You want to verify that there are not any current building code or zoning violations on the turnkey rental and that it can be used in the manner that is being offered.
- You should verify that the repairs stated and condition presented is valid and true.
- You need to make sure you do a background search on the property management company and ask for referrals to verify their service and work. I would recommend doing an online search too.
- You should do yourself a favor by doing some of your own real estate market research. You should call a few local property management companies to request information about the local vacancy rate, security deposits, & rental amounts for a property similar in all ways to your possible turnkey rental.
All of these items will show whether you are truly buying a sound investment or not. It is simply good practice to do this amount of due diligence on any income generating property. Please do not let a high pressure sales person cause you to disregard these things and miss some of the items you must verify. It will protect you from walking into a real estate nightmare.
Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses from 2007 up to the present of experience in real estate investing and property management in the Memphis and Nashville markets.
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