There’s been a lot of discussion about turnkey properties on the ADPI FB page, so let’s talk about turnkey properties! There are so many options with real estate investing that sometimes it can get overwhelming to choose. But, if you’re looking for a low-key, mostly hands-off way to invest, turnkey property investing may be for you.
Turnkey properties became popular after the real estate market crash of 2008. According to Investopedia.com, a turnkey property is often “a property purchased from a company that specializes in the restoration of older properties.” These companies usually offer property management services as well – which can shorten the amount of time required to manage a rental.
A hands-off, ready-to-rent investment property that cash flows sounds great, right? Sign me up! But wait—even though it’s easy to get caught up in the supposed ease of turnkey properties, we still need to do our due diligence to make sure that the property is a good value and will get you closer to your real estate investing goals.
When conducting due diligence, if possible, visit the property in person. Personally visiting the site gives you the advantage of seeing and knowing what you’re purchasing. Having eyes on the property can help you get a feel for the neighborhood and possible demand for future tenants. If you’re unable to physically visit the property, find a trusted (unbiased) real estate agent to help photograph/video the property and neighborhoods. A great agent is absolutely essential to your success in investing in turnkey properties.
Don’t get too overexcited about the idea of a property management company “taking care of” things. Not all property management companies are created equal, so make sure to research them too! Watch out for red flags like a company refusing to do an in-person walkthrough, unusually high fees, and low staffing. You can start by asking fellow investors for their opinions on the company, then interview the property manager by asking questions:
* Typically, how long are vacancies between tenants?
* What is your vacancy rate?
* How much experience do you have managing properties?
* What are your fees for managing?
* What financial reporting do you provide for owners – including income, expenses, revenue, etc?
Even if the property looks impeccable, it’s important to hire a certified property inspector to view the property. A property inspector will identify issues with the property that may cause you a loss in income. Property inspectors look for HVAC and electrical issues, roof issues, plumbing issues, and poor quality renovations. Having a property inspection done will also help you know if the property is a good value.
Conduct your own analysis to make sure that the numbers work for the purchase. Include management fees, premiums, room for repairs, etc. Though the cash-flow for turnkey properties is typically not as lucrative as self-renovated homes, you can still cash flow and need to make sure the numbers work for your investing situation.
As with any real estate investment, cash can be used to finance a turnkey property. Obviously, it’s the simplest way to purchase a turnkey property. Paying cash lowers your closing costs and may even result in a discount from the sellers.
When cash is not an option, turnkey properties can be financed using traditional lending options. If you’re intending to occupy the property, VA loans and FHA loans are a great option for no or low down payments. If it’s solely an investment property, conventional loans can provide financing with a 25% down payment. As mentioned before, run a property analysis to calculate if these options can work for your cash flow goals. When shopping for lenders, compare interest rates and fees to help find the best deal.
Hard money loans can also be used to purchase turnkey properties. Hard money loans are a type of private funding that can help when traditional bank loans aren’t an option. Since hard money loans usually occur with higher points and higher interest rates, you will want to eventually refinance into a lower interest rate or pay off the loan with cash.
If you’re researching lenders, ADPI offers amazing in-house lending teams that can help you! Whether you’re looking to use a traditional bank loan, need commercial lending, or considering hard money lending options, we’ve got you covered! Connect with our lending team to see what we have to offer!
When researched properly and carefully, turnkey properties can be an excellent real estate investment option. If the numbers work, it may be a low time commitment solution to your investing portfolio. If you're interested in learning more about investing in turnkey properties, check out Bridge Turnkey Investments for a free consultation.
Kelly Madden is an Air Force spouse currently stationed at Yokota AB, Japan and has been married to her wonderful husband, Rich, for 13 years. She is also mom to three beautiful girls: Ava, Lexi, & Evie. A licensed FL real estate agent (currently on referral status), she and her husband own three rental properties in Crestview, FL and are working toward breaking into the multifamily arena. Kelly likes to spend her time working as a virtual assistant, volunteering as a key spouse for 5AF, and horseback riding.