Turnkey investing is a catchy phrase that sounds pretty intriguing to investors of all levels of experience. But turnkey is kind of a buzzword that is often used without a distinct standard intact.
The generally accepted definition of turnkey property is a home that has been restored from a fallen state to like-new condition. Then, a landlord purchases it and sells it or rents it out as an investment. It’s supposed to be a low-risk, easy investment, but that’s not always the case.
Sometimes, people will purchase a property without doing their homework. They find that the repairs made were only superficial—a coat of paint covering mold, new carpet covering rotted floors, etc. It looks good in pictures, but once you’re inside, you discover there’s a lot more happening underneath it all.
If done right, turnkey investing can be a great way to diversify your portfolio and increase your wealth. The biggest pro of turnkey properties is lower vacancy rates in your units. Most properties are move-in ready, and tenants don’t make as many requests for repairs and renovations. They’re happier to stay there longer.
It can also be a relatively hands-off investment. Because someone else did the renovation and selling for you, you’re just working as the landlord. If you hire a property management company to handle the day-to-day for you, you’re looking at basic passive income.
But there are downsides to turnkey investing, like the fact that you’re usually an offsite landlord who doesn’t see the day-to-day. It’s also easy to get taken in during the sale by a con artist who markets their listing as a “turnkey” property when it’s not in great shape.
If you’re going to diversify with turnkey properties, you should know what you’re doing first. Here are some mistakes that many people have made in turnkey investing. We’re sharing them so you don’t do the same.
We get it: Keeping overhead low is a huge part of being profitable as an investor and given the like-new condition of a turnkey property, it’s not always easy to bite the bullet and pay full price. But that doesn’t mean the cost of the property should be your top criteria.
It’s important to set a realistic budget and look for a quality property that fits within those parameters. Purchasing the cheapest option you can find might cost you more in the long run. The renovations might be low-end, you might run into costly maintenance down the road, or tenants might be unhappy with the quality.
It’s important to get a fair price, but don’t let that be the only deciding factor when making a purchase.
Turnkey marketing scams are among the most prolific real estate scams. Real estate companies might market a property as being in like-new condition when cosmetic updates have only been applied. It’s pretty easy to doctor a photo and post it online where long distance buyers might purchase it sight unseen.
To avoid running into turnkey marketing scams, research potential warning signs of a dangerous turnkey property company like inexperienced or unorganized operators, solo operators, low-quality renovations, and over-promising guarantees.
This isn’t always a bad thing, but the risks of landing yourself a money pit are significantly higher for renovated properties built more than 60 years ago. Unless the company has done an immaculate job of renovating the property, there are likely structural issues.
Old homes, even very updated ones, are more likely to have leaks and pest problems because it’s very, very difficult to fill all the holes of such an old property.
The risks of there being lead paint or asbestos somewhere on the property are also very high, vastly increasing your risks as a landlord.
Some turnkey property companies don’t want you to do a home inspection because they’ve already done one or they’re trying to close the property quickly. It’s understandable that they want to keep business moving along, but you shouldn’t take the risk of buying a property without having it inspected.
You need an experienced and licensed set of eyes to point out the differences between purely cosmetic updates and updates made to last. When buying sight unseen, a home inspection can help you avoid a lemon.
This is part of real estate investing 101: Don’t pour all your money into one investment. You always need a buffer in case there are additional repairs. You never know if something is going to happen the day you close on the property, and you’ll be glad you had an emergency fund in place to absorb costs.
You probably won’t be making your first turnkey investment on your own. There are partnerships involved from the time you apply for funding until you close on a property with a turnkey company.
Be very selective in your partnerships, especially if you’re choosing a company that claims to do it all, from providing funding to legally closing. Research reviews and look into the backgrounds of the company’s partnerships to ensure greater satisfaction with your property.
It’s nice if you can find a turnkey company that operates out of your home area. You can see the property for yourself and personally oversee landlord responsibilities. But don’t limit yourself to these prospects.
There are thousands of turnkey properties that will match your search criteria if you’re willing to work long distance. You can find a great investment in a neighborhood ripe for the rental market, lowering your initial overhead and increasing your overall profits from the investment.
This is generally good advice when you’re a landlord, but it especially applies to turnkey properties. You need proper insurance—landlord insurance, eviction insurance, and property insurance at the very least. These will protect you if your investment goes south.
If you’re ready to start investing in turnkey properties or any other rental investing, one of the most important things is to have a property management team cover you, especially if you’re operating from a distance. Let our team at Green Residential be your property managers!
We are experts in the Houston area rental field, and as one of the most trusted brands in the area, you can rest assured that your rental property will be in good hands. For more information about what we offer, contact us today!
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