Turnkey Investing by the Numbers

Six numbers to help evaluate a turnkey deal

Purchasing a turnkey rental property can achieve a positive monthly cash flow, but not all properties are created equal. When evaluating a turnkey property, there are six key numbers to consider to ensure you get the most cash flow for your investment dollars.

• Price-to-Rent RatioTo receive positive monthly cash flow, there must be supporting price-to-rent ratios in a market. This ratio suggests whether or not the price you have to pay for a property will allow you to receive cash flow each month (after expenses) given the amount of rent the property can viably bring in. Establishing whether a market has a healthy price-to-rent ratio will help you narrow the markets worth investing in.
• Cash Flow formula: Income minus expenses = cash flow. You are likely familiar with this formula from your everyday dealings. The amount you earn, minus how much you spend, leaves you with a positive or negative balance. (We’re going for a positive outcome here!) Use this formula to help establish whether a property is worth investing in.
• IncomeConsider whether the rent a property will generate is feasible as well as what the vacancy rate will be. The rent, or income, from the property will have to be affordable for renters in the area.
• ExpensesWhile the expenses include the mortgage you hold on it (if any), there's also maintenance fees, management fees, insurance and possibly more. Ensure you have a solid understanding of all expenses, including who makes decisions on expenses, whether a vacancy adjustment is included in the formula from your Turnkey Property Provider.
• Market growth Consider whether the market you’re buying into is growing or declining. Signs of continued growth include population growth, job growth, etc. Just because a market supports a good price-to-rent ratio doesn’t mean that all neighborhoods or areas of that market are good. For these numbers, you must trust your turnkey property dealer and verify the numbers.
• Appreciation (it’s a bonus)Real estate markets fluctuate, but properties generally increase in value over time. If you’re looking at a turnkey property, appreciation is NOT one of the numbers you need to be concerned about today. Holding the property over a long period will likely result in an increased value. The relatively stable selling price is what makes a turnkey property a secure investment, an increase in value is a great bonus.

By considering all the numbers associated with a real estate market and each turnkey property, you can win at real estate investing.