Posted about 8 years ago

How Turnkey Properties Drive Passive Income: The Hands-Off Approach

Investing in property frequently involves strong commitment in property care, which might take an inexperienced investor by surprise. At least this is the usual method when buying property individually and reaping the immediate financial benefits. However, if you're new to property investing, you're maybe looking for other options beyond the standard.

Perhaps you've put off investing in any properties lately because you're worried about the time commitment. The reality is, when you invest in a house (or houses) and rent them, it's up to you to keep maintenance going. Potentially, it can become a money drain if you end up with a house needing more fix-up and tenant replacement than you planned.

If you don't want the burdens of being hands-on in keeping up a property, turnkey properties are possibly the better options. But do you really know how turnkey properties drive passive income without having any sideline problems?

It's time to look at the details and see what to look out for so this process works well for your investing lifestyle.

Finding Reality in Turnkey Properties

Before you do anything, you need to understand the realities behind turnkey properties since it's certainly not for everyone. One of the best analogies came from *U.S. News & World Report* last year when they described it as buying a "take-and-bake pizza."

While this is arguably a great description in basic terms, you need to understand what generating passive income means. It's not a means toward income for paying your monthly bills. Generating passive income from turnkey investing is better for long-term financial goals, just like investing in the stock market. The same goes for creating income to use in future retirement.

The best way to look at this is to look more in-depth at what passive income really is. It's worth remembering that passive income can always waver, even if it's over a period of years. Overall, though, it should become just one part of your investment portfolio involving active, passive, and perhaps semi-passive income.

With this in mind, it still involves some work beforehand to find the right turnkey property. Most of your work will come in finding the right turnkey company. After you invest, you can remove the problem of dealing with day-to-day property issues.

Other Benefits Beyond Earning Passive Income

Before investing in turnkey properties, you have to look at your lifestyle and whether it makes sense to do this in the first place. It does take more capital to invest in than doing individual investing, or doing house flipping. You'll need to have significant investment money available to invest in the best turnkey properties.

This could become ideal if you happen to live out-of-state and can't commit the time to keeping a property maintained. Plus, it's an excellent opportunity if you're new to property investing and need something with an easier learning curve.

When you find the right turnkey management company, you'll learn along the way while letting the management team take care of rehab, and finding tenants.

Vetting Your Turnkey Management

All turnkey companies should have in-house management service. Make sure their reputation is pristine in the industry and that they're not out to just make profits for themselves when deciding to sell their properties. I like to highlight this by defining the true culture of the company, either they are going to be "fee centric" or "ROI driven."

Fee Centric - this is your typical property management company, simply searching/fishing at every opportunity to nail the owner with a fee of some sort, no vested interest in really considering the ramifications of each action.
ROI Driven - a culture of deep understanding of working with specifically investors seeking true and honest passive investment experiences. Not littered with fees, rather make cost effective calculated decisions with foresight consideration.

You'll also want tenants already in the turnkey properties you invest in. Having them already there helps you start generating passive income quickly. Complete transparency on the operation is key here, a schedule of renovations, normal purchase contingencies (inspection period, removal of contingency, etc...) Many lenders will allow you to apply 70% of the gross annual rental income to your DTI (debt to income ratio) if you are considering financing.

Lets not forget Real Estate investing can be financed, where as your conventional financial products are cash only. (Food for thought)

What's really important is not investing in a suspiciously cheap turnkey company / property since it could become a red flag. Paying more now for quality generates more positive passive income far down the road, just like any other smart investment.

Remember, real estate investing is not rocket science --

Onward and Upwards! Happy Investing!

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