Investing in real estate doesn’t only involve buying and fixing up dilapidated properties. You can also buy properties that are already ready to go, even with existing tenants, which is called turnkey real estate investing. All you have to do is buy the property and take over as the new landlord.
The following is all you need to know about turnkey real estate investing, which is a viable way for many investors to jump into real estate investing or start their portfolio.
What Is Turnkey Real Estate Investing?
There are a few different types of turnkey situations, but, in general, turnkey real estate investing is when an investor buys a property that’s primed and ready to rent out immediately (hence the name turnkey).
In some instances, not only is the home already renovated and ready for renters, it may already have renters. In this situation, you purchase a property that is already loaded with tenants and you will take over the lease as the property manager.
Turnkey Real Estate Investing: Pros And Cons Pros
You buy a property that’s ready to go. The remodeling/renovations are done, leaving only the task of finding renters (if they aren’t there already).
There’s usually little to no maintenance required within the first few years of owning the property.
There’s little time and effort required on your part. The most work you’ll do is in finding the right property to purchase.
You receive an immediate and steady stream of income from the rents.
There’s lower incidence of vacancy carrying costs.
You can invest in properties outside your state, which is great for investors who live in high-cost areas and may not be able to invest in their area.
The property management company or even seller may be able to refer you to qualified services in the area, such as title companies, appraisers, insurance agents, and contractors.
You lose out on a large portion of the equity that the initial investor earned. They typically get as much equity out of the property as possible by buying low and selling high.
You’re at the mercy of the seller’s tenant screening procedures, which may or may not be in line with your standards.
It’s hard to walk through a property or even get to know the area intimately if you’re a long-distance investor, which puts you at higher risk.
Five Things To Know About Turnkey Investing
1. Prepare for Holding Period Costs
If you don’t buy a turnkey property already outfitted with tenants, there may be time in between buying the property and acquiring tenants. Know the cost of holding the property and work it into your budget.
2. Know the Area, Not Just the Property
Doing your due diligence on the property itself is a no-brainer, but don’t forget about the area, too. If you’re investing long-distance, you may not be familiar with the area. If you don’t visit the area yourself, work with other professionals who can scope out the area for you and make sure it’s kept up. In other words, make sure it’s an area where renters would want to live.
3. Look at Historical Rents
Don’t assume the property will remain occupied all the time. Whether it’s a year-round rental or vacation rental, life happens, and you may be without renters for a period of time. Look at the historical rents and vacancies to determine if a property is a viable investment.
4. Turnkey Real Estate is Great for Beginners
If you’ve never invested before, turnkey real estate can be a great way to start. While you’ll pay more for the ready-to-go property than you would a fixer-upper, you get a property that’s ready to rent. You can get your feet wet in the rental arena while, and this endeavor will help you figure out whether you like the ready-built property purchase or you’d prefer to handle the process from start to finish yourself.
5. Turnkey Properties Could Create Income Right Away
If you’re lucky enough to score a property already outfitted with tenants, you could earn income from day one. This means there are no holding costs and a lower risk of vacancy, at least until the current lease or leases expire.
Is Turnkey Real Estate Investing Right For You?
Think about your financial goals. Are you looking for a passive investment, one in which the work is already done and all you do is take over? If so, turnkey real estate investing may be perfect for you.
If you’re a more active investor who wants to be involved in every detail from start to finish, a fix and flip strategy may be better for you.
Look at your options, think about your goals, and choose the real estate investment option that’s right for you.
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