Turnkey investing is one of the most controversial forms of real estate investing. Depending on who you ask, you might hear that turnkey is one of the best forms of passive real estate investing, or that it just doesn’t deliver the profit margins andso, It’s not always worth it.
As with any type of investment, although, What’s important Inquiring Right question. The question you should ask about a turnkey investment is not whether it is good per se, but whether it is a good fit for you in particular.
To a newbie, it seems By its very nature, Turnkey not required what you have to do As much research as the BRRRR method. However, this is never true.
Yes, You won’t spend your time finding or renovating properties that are below market value. In some cases, you may not even need to spend time looking for tenants, as the turnkey company will provide you with investment opportunities in existing tenants.
Three strategies for analyzing turnkey opportunities
You still need to perform due diligence and thorough analysis on your potential investment. You should focus on three main areas of turnkey analysis:
- Your abilities and expectations as an investor.
- Profitability in a given market.
- Turnkey company reputation.
Let’s take a closer look at each of the essential focuses of turnkey analysis.
1. Be realistic about your time, resources and experience level
The short version: if you have enough cash, but No When it’s time to flip and/or manage properties, or diversify your portfolio into out-of-state properties, turnkey may be a good option.
Longer version: The beauty of a turnkey project is that you are buying Renovated property Ready to rent. It really is that simple; hence the name. You don’t need to worry about screening potential homes worth renovating, finding and hiring contractors to renovate, or screening tenants because turnkey management companies typically take over this responsibility.
We’ll be honest here, this convenience comes at a price. The whole concept of turnkey projects is almost the opposite of the BRRRR approach. Turnkey companies are businesses too, and they too must earn a return on their investment by flipping homes that are subsequently sold.
Therefore, as a turkey buyer, you will pay more for the privilege of someone else restoring the property. If turnkey company And then there are When managing a property for rent, they will also You are charged a percentage of the rent as a monthly fee (usually around 10%).
However, some investors believe that whatever money you save on fixing up and renting out your own property is negligible and not worth the time and effort.one example price comparison It is estimated that the savings on a BRRRR investment compared to a comparable turnkey investment is only around $3,000. The idea is that by the time you’ve paid the renovation and carrying costs of a BRRRR investment, or during the period when the property is being renovated and no one is paying rent, there isn’t that much rent left. the difference.
So far, so good. But what are your goals as an investor? How long do you expect to receive a return on your real estate investment? You really need to have a plan before you start buying a turnkey service because turnkey services take time and it will always take longer to generate wealth compared to faster investing methods like BRRRR.
Typically, with a turnkey approach, you will receive returns from rental cash flow over a long period of time before you benefit from appreciation in value. This works well if you plan to rent out the property for the next 10 to 15 years; less so if you expect to sell it in five or so. In fact, if you sell your turnkey investment too early, you risk breaking even or losing money.
2. Understand which markets are right for you
of course there are exceptions. There is significant Regional market differences across the United States this means, In some areas you will have More over Opportunity to generate appreciation returns. This is where our second tip for analyzing turnkey projects comes in.
An attractive feature of turnkey projects is that suddenly, you can enter almost any real estate market in the country.This choice opens up all kinds of opportunitiess—aYou need to know which ones are right for you.
In a sense, the local market conditions in which you decide to invest will determine your investment strategy. Let’s say you decide to invest in a turnkey property somewhere in the Midwest or Northeast. You don’t necessarily need to focus on the sexiest metros, just those with reliable rental prices and steady growth, as well as affordable sales prices.
You can buy an investment property between $150,000 and $200,000 in popular metro areas like Flint, MI or Rochester, NY and look forward to Rent-to-price ratio 0.62%. In an area with little market volatility, this is steady cash flow. Your turnkey investment will still appreciate in value, but it’s better to have it generate cash flow for the next decade or so.
On the other hand, let’s say you purchase a turnkey property in Florida.House prices in the state have surge According to Construction Coverage, there has been a 158.5% increase over the past decade; individual cities such as Miami Gardens and Lehigh Acres have seen even more impressive appreciation rates of 312% and 277% respectively.
And prices continue to rise.this The average home price in Miami Gardens in March 2024 is $458,409an increase of 10% compared with the same period last year.
average rent Rent is also high (currently $2,064), but it’s worth noting that rental prices for certain property types, especially small apartments, have dropped over the past year. Rental prices for studio apartments Home prices in Miami Gardens fell 13.4% last year. If you own a turnkey property in the city, can you afford such high market volatility?
If, on the other hand, you rent a four-bedroom house in the city, you’re in luck: rents for such properties have increased by more than 7% in the past year alone.
If you have the cash to invest in more expensive properties, turnkey construction works better in states like Florida, as these properties tend to generate better cash flow in pricier areas. In the low-end market, You will experience greater volatility and tighter profits. At the high end, rents tend to rise more Stable and provide better cash flow and better one Appreciates in value over time.
Generally speaking, investing in prosperous high-end areas always works better for turnkey investors. what you are looking for is You’ll have no shortage of renters in this area who can afford local rents and purchase nicer, renovated homes.
When considering a turnkey investment, one opportunity you should always consider is in areas with high rates of new construction. Particularly in the South East, there is a growing demand for leasing in new construction. This means investing in one of these areas can reduce tenant turnover and maintenance costs, but equally, you’ll see higher purchase costs in more expensive areas, which are typically the areas that offer the best long-term returns.
Another advantage of new build turnkey properties is that There are many loan options Some banks claim interest rates as low as 3% to 4%, which is great considering the current high interest rate environment.
There are also new construction opportunities Allows investors to obtain immediate equity to purchase a home in a specific market for 5% to 10% below market value. This is another advantage to consider when considering different markets and asset classes.
Choose the Best Turnkey Management Company
Turnkey investing is booming. There are countless turnkey companies out there, but not all are created equal. The reality is that some people, while they look good on paper and seem to be offering decent properties, either don’t know enough about the area they are selling in or will blatantly try to sell you a property that won’t give you a decent return because it In the wrong area.
One example: An investor purchased several turnkey properties in a very low-income area on Chicago’s South Side. These properties are beautiful restoration jobs with attractive numbers on paper, but due to high tenant turnover and higher-than-expected vacancies and maintenance, the properties have not performed as expected.
An obvious lesson to be drawn from this example is that: always Research the local market and The specific location you are considering investing in. Another equally important lesson is arrive Thoroughly vet the turnkey companies you will need working and.
Once you’ve focused on your local market, contact and personally interview the team you work with. If you can’t visit in person, do it over a Zoom call, but make sure the team understands what they’re working on and what your goals are as an investor. They should have a thorough understanding of local demographics and be able to back up their claims of success with past sales. The company should have sufficient data to verify all claims, including rent compensation, market value, vacancy and turnover rates, and typical home and rental appreciation in the area.
If this sounds like the kind of research you’d do for traditional real estate investing, you’re not far off. It pays to do your due diligence, though, because choosing the wrong turnkey company—or worse, a disreputable one—can cost you.
This article is provided by “Rent to Retirement”
Rent To Retirement is America’s leading turnkey investment company offering passive income rental properties in America’s best markets to maximize cash flow and appreciation! Rent To Retirement is your partner in achieving financial independence and early retirement through real estate investing. Invest in the best markets available today with a comprehensive team handling everything for you!
Ready to explore your first turnkey opportunity? Please visit our website or text REI to 33777 to learn more about turnkey investing.
Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
