​Minimizing Risk with Turnkey Investments

One of the biggest reasons that some investors are hesitant to use a turnkey strategy is perceived risk. As with any real estate investment, there is always risk involved - that’s just how investments work, no matter what type of asset you’re into or what strategy you’re using. However, there’s an added layer of risk involved with turnkey, because there’s another party that’s introduced into the mix - the turnkey group.

Unfortunately, this is what gets some folks hung up on the idea of using a turnkey strategy, and ultimately pulled away from what truly is a fantastic way to invest in real estate.

So how can this additional risk be mitigated, so that even the most hesitant investors feel confident using a turnkey provider? It’s actually pretty simple.

1. Partner with a Great Turnkey Provider

The first step is to find a reputable turnkey group. Now, I understand this can be easier said than done. All of the hot markets have been flooded with “experienced” turnkey providers who claim to have unmatched knowledge of the market and squeaky clean reputations. Obviously, some of these claims are going to be exaggerated, and it’s your job to pick out which companies are speaking the truth and which aren’t.

The best way to do this is to get references from other investors. You can ask people that you know personally, or you can get online to see what people are saying about a particular turnkey provider. There are lots of helpful forums on real estate investing sites like Bigger Pockets, or you can simply search for “[company name] + [market] + reviews” and see what comes up.

You should also take the time to meet with the provider in person. Go to their office, meet their associates, and try to get a feel for how they run their business. A face-to-face meeting is usually the best way to get an accurate read on any turnkey company you’re considering.

2. Understand That You’re Not Actually Overpaying for Property

Another area that can cause some heartburn with investors is the idea that they’re not getting the best deal when they work with a turnkey provider. Here’s the truth: yes, you’re going to pay more for your completely rehabbed, tenanted, and management-provided investment than, say, Investor Joe down the street who got a “great deal” on his 1970s built home with shag carpet and peeling linoleum. While Joe is spending the next several weeks or months to bring his property into the 21st century, not to mention his subsequent quest for quality tenants, you’ll be bringing in positive cash flow from the moment you take possession of your property.

So yeah, you’re going to pay more, but you’re paying market value or slightly above market value for a property that is move-in ready and cashflowing, while people like Investor Joe are pouring time and money into their “great deal” that is actually kind of a dump.

3. Do Your Homework on Property Management

Many turnkey companies offer in-house property management in their bundle of services. This usually includes things like tenant screening/selection, rent collection, handling tenant communications/complaints, regular property maintenance, and coordinating repairs.

Before signing any agreement regarding property management, be sure to review the contract carefully. Note what services are included, how long the agreement lasts, and how much it costs. Questions you may want to ask include: how much experience they have, how many properties they’re currently managing, what happens if you want to cancel the contract, do they offer an eviction warranty or screening guarantee, and what happens during a vacancy. Make sure you have satisfactory answers to all these questions and any others you can think of before finalizing the agreement.

Don’t let perceived risk about turnkey investing prevent you from using this strategy. Turnkey truly is a great way to get into the real estate game and create a passive income stream that can supplement your current income and pad your retirement savings. While there’s certainly risk involved with this type of investment, taking the steps above will help mitigate some of it, as well as put your mind at ease so you can focus on what’s important - making money!