Turnkey Real Estate Investing
What is it, how does it work, and is it right for you?
what is turnkey investing?
Turnkey real estate investing might be defined differently by different people, but here is my description: The investor buys a property from a rehabber. The property has been completely updated cosmetically and mechanically. The property also has a tenant (with a lease) in place, as well as a reputable property manager.
This investment is essentially "turnkey" for the investor. All they have to do is close on the property, and then start collecting the cash flow (via the property manager) from day one.
Turnkey operators are typically located in great markets for real estate investing, particularly for cash flow. Cities such as Indianapolis, Memphis, Jacksonville, and Kansas City are popular turnkey cities.
how does it work?
Turnkey operators (sellers) are essentially house flippers. They have found a niche in which they can find great deals in need of rehab and sell to investors. They might also flip other houses to primary homebuyers, but have found that some properties just are better used as rentals. Turnkey operators basically choose to cash in on the extra equity generated on the flip, rather than hold on to the property as a rental for themselves.
Buying a turnkey property can be pretty easy, as long as you have the market and provider picked out and vetted thoroughly. After completing your due diligence, you contact the provider and let them know which property you want (sometimes you can just pick out the property from a website). Then you complete the buying process just like any other property - title search, inspection, securing financing, etc. You will also get put in touch with the property manager who will set you up with an account right away. After closing, you usually get monthly updates to your account and all cash flow (minus expenses) is direct deposited into your bank account.
is it right for you?
Turnkey investing can be right for you if you meet each of the following criteria:
1. You work a full-time job that you love, making good money
2. You have a decent amount of money to invest, and expect to continue to build up that money from your full-time job
3. You don't have a lot of free time AND/OR you are having trouble finding good deals that cash flow in your market.
It is also important to realize how the numbers work in a turnkey investment. Remember, you are buying from a house flipper, who is trying to maximize his own profit. Therefore, you will most likely be paying market value for the property (i.e. you won't start with an "equity position"). It is OK to buy property this way, but you must ensure that the property cash flows very well (after paying for mortgage and ALL expenses) and you also must ensure that you are willing to hold onto the property for the long term (at least 5-10 years). If you end up selling too soon, you might only get what you paid for it, and after paying for closing costs you'll be lucky to break even. You have to give the investment some time: time for the debt to be paid down, time for appreciation to build up, and time to collect as much cash flow as possible.
I own two turnkey properties - Indy Rancher #1 and Indy Rancher #2. All in all, these have been successful investments so far. The cash flow is great and the rental market is noticeably hotter than Central PA. I even was able to start with an equity position in Indy Rancher #2 (I bought for $95K and it appraised for $111K).
I stopped buying turnkey properties when I began to find some decent deals in my market - deals where I could arrange the rehab and capture some extra equity. Managing a rehab is SIGNIFICANTLY more work, but I've chosen to make that trade-off in order to get some better returns.
I would recommend turnkey investing to those that meet the criteria outlined above. If you would like more information about turnkey investing and where I have found success, please reach out via the Contact Page.