How to Invest in Turnkey Properties

It’s hard to overstate the advantages of investing in turnkey properties.

For people who are too busy to take on what amounts to a second job, investing in ready-to-rent properties saves time.

For people who hope to see a fast return on their investment, turnkey properties provide a quick source of cash.

But neither of those things should suggest that turnkey investing is easy. As with anything, there’s a right way and a wrong way to approach turnkey property investments.

What is turnkey investing?

Turnkey investing is a strategy in which an investor purchases a home or apartment building that is usually managed by a third party, and that is already in good, rentable condition.

The goal here is to make the process as streamlined as possible, so that all the investors need to do is turn the key on their new building, hence the name.

What are the advantages of turnkey property investments?

Turnkey investment properties offer several benefits you won’t find in traditional real estate investing:

  • You can invest in a market from faraway – Maybe you live on the east coast but know that there’s a great market somewhere in the Midwest. Turnkey investing allows you to tap into that market without having to move there.
  • You don’t have to know the market – While you’ll likely do your research on the market, a third-party could take a much deeper dive. They know each neighborhood and how it’s changing and how those changes could help/hurt your investment.
  • It’s simple – Working with a third party property management firm makes things much easier for you. They can handle everything from renovating to finding tenants to marketing and maintenance. All you have to do is put up the cash…and wait to collect on your investment.

What’s the catch?

All of these things might lead you to conclude that turnkey investing is the easiest, most lucrative way of investing in real estate. And while this method has its advantages, it doesn’t mean that you won’t have to do some work on your own.

This includes:

Making sure the numbers work

Make sure the rent amount the turnkey company projects for you is reasonable. Compare it to other rents in the neighborhood. You don’t want your investment to depend on you collecting $1,500 a month rents in a $900 a month part of town. It’s also important to see copies of leases to make sure the property is as advertised.

Inspections and appraisals

Make sure you have the property examined by a third-party inspector, independent of the turnkey company. We’re not saying that you shouldn’t trust their assessment. It’s just that their work should be seen from an outsider’s perspective. If the company doesn’t have an outside inspection performed, pay for your own. (You could always do it yourself if you have the expertise.)

You should also have an appraisal done to get the value of your turnkey property investments. While you can have an appraisal done while the rehab is still underway, the ideal time to do an appraisal is after the rehab has wrapped up to get the most accurate value for the property.

And don’t sign a purchase agreement without knowing what will happen if the appraised value is less than the purchase price. It’s not a good idea to be saddled with a contract if the appraisal isn’t what you’re anticipating.

A good real estate agent can write up a purchase contract that includes an appraisal contingency for situations where an appraisal should be done. Better still, a good agent can do comparisons to make sure you aren’t overpaying for a property.

But finding the right agent means having a strong network of real estate professionals. Let DIG – the Diversified Real Estate Investor Group – help provide you with that network. We’ve spent more than 40 years connecting investors with professionals in the real estate world, from Realtors to contractors to inspectors to attorneys.

Come to our next meeting to connect with other investors and the experts that can help you find the right investment properties.