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What Is A Turnkey Property In Real Estate?

CEO Khai Intela
In today's real estate market, where buying property is often cheaper than renting, investors are finding opportunities to purchase rental properties with low price-to-rent ratios. One popular avenue for investors looking to earn passive income...

In today's real estate market, where buying property is often cheaper than renting, investors are finding opportunities to purchase rental properties with low price-to-rent ratios. One popular avenue for investors looking to earn passive income without the hassle of additional work is through turnkey properties.

What Is A Turnkey Property?

A turnkey property is a real estate asset that requires no repairs or improvements and is move-in or rental ready. These properties are usually sold and managed by companies that specialize in purchasing and rehabbing under-market value properties for passive income investors.

Turnkey properties emerged as a result of the housing bubble burst during The Great Recession. At that time, it was actually cheaper to buy homes than rent them, leading investors in expensive markets to buy move-in ready homes and place them under third-party property management. This strategy provided a quick turnaround and required minimal effort from the investor, making it appealing for those who preferred a more hands-off approach to investing.

What Is Turnkey Real Estate Investing?

Turnkey real estate investing involves purchasing a rental property that has already been renovated and is managed by a turnkey real estate company. The company takes care of property management, allowing the owner to earn passive income without any involvement in day-to-day operations.

A turnkey company typically renovates undervalued properties in strong rental markets and sells them to rental property investors. The company also provides property management services, including marketing the property, handling paperwork and tenant turnover, and addressing maintenance issues. Some investors may choose to oversee the renovation process themselves. Turnkey real estate investing provides an opportunity for immediate passive income without the need for hands-on property acquisition, renovation, and management.

Benefits Of Turnkey Properties

Turnkey properties offer several benefits for investors looking to diversify their real estate portfolios. Here are some advantages worth considering:

Remote Investing

Turnkey rental properties enable investors to invest in strong rental markets remotely. For example, an investor living in New York City can take advantage of high rental yields in Cleveland, Ohio by investing through a turnkey company that also provides property management services.

Move-In Ready

A turnkey investment property is ready for occupancy, allowing for immediate cash flow. This eliminates the need to oversee repairs and renovations.

Property Management

Turnkey real estate companies serve as property managers, handling day-to-day landlord tasks for property owners.

Good Property Condition

When properly renovated, turnkey properties are in excellent condition. This reduces the likelihood of repairs or maintenance issues in the first few years, unlike renting out older or less well-maintained properties.

Simplicity

One appealing aspect of turnkey rental investments is the simplicity of the process. Investors purchase a renovated rental property managed by a turnkey company staffed by experienced real estate professionals. This simplicity minimizes risk and stress associated with being a landlord.

Risks Of Turnkey Properties

While turnkey properties offer numerous advantages, it is important to acknowledge the inherent risks. Here are some potential risks investors may encounter:

Placing Trust in Others

One significant risk is the level of trust placed in a turnkey company. Investors should research the company's past performance, obtain client referrals, and carefully inspect selected properties to ensure a favorable return on investment.

Lack of Direct Oversight

Investors must be prepared to hand over the management of their rental property business to a separate entity. Turnkey companies provide full-service management, limiting the investor's involvement in day-to-day operations.

Paying Premiums

The purchase of a turnkey property usually incurs a premium, along with monthly property management fees. Investors must accept these costs for a favorable return on their investment.

Minding Due Diligence

Although turnkey properties offer a hands-off approach to earning rental income, investors must conduct their own research and analysis. It is essential to verify the accuracy of information provided by the turnkey company and personally inspect the renovated property.

What To Look For In A Turnkey Property

When considering investing in a turnkey property, it is crucial to know what to look for and be aware of potential red flags. Here are some key considerations:

  • Look for turnkey properties in growing or up-and-coming markets with strong rental populations and yields.
  • Thoroughly vet the trustworthiness of the turnkey company. Check for strong average returns, good occupancy and maintenance averages, and positive referrals from past and current clients.
  • Be cautious of red flags such as resistance to property inspections or excessive acquisition and management fees compared to industry averages.
  • Ensure the turnkey company has enough experienced professionals to effectively manage their portfolio of properties.
  • Don't hesitate to ask tough questions before entrusting a turnkey company to manage your business.

In conclusion, turnkey properties provide investors with an opportunity to earn passive income in rental real estate. By partnering with a turnkey company, investors can benefit from a simplified investing process and hands-off property management. However, proper due diligence is crucial to ensure the trustworthiness of the turnkey company and the potential for strong returns.

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