Turn-key rental properties are a great option for investors looking to get more cash flow with less work. They are also a great option for investors who cannot find cash flowing properties in their state and must invest long-distance. Turn-key rentals properties are fully repaired, rented, and managed by a property manager. Buying a turn-key property allows a long-distance investor to buy a property that cash flows with minimal work.
What is a turn-key rental property?
Some consider a turnkey property to be a house that is remodeled and needs no repairs, but it may not be rented. I consider turn-key to mean the home needs no repairs and has a tenant and property management in place. Make sure you and whomever you are talking to about turnkey properties have the same definition of turn-key! If you are investing out-of-state in a turn-key property, make sure that it is already rented and has property management in place.
What are the advantages of turn-key rental properties?
Here are a few advantages of buying turnkey rentals and why I am buying a turn-key rental. I go into much more detail on each point throughout the article.
- Easy to find: You can buy a turn-key property very quickly from turnkey providers who have a stock of turn-key properties available to purchase. Turn-key companies can have a large inventory of turn-keys because the properties are providing cash flow and are making money while the company owns the properties. You do have to know the right turnkey companies to work with.
- Less work than a normal rental: Turn-key properties are already rented, managed, and repaired. You do not have to find contractors, property managers, or real estate agents.
- Provide cash flow from day one: The first day you buy a turn-key, it will have a tenant in place paying rent. You do not have to worry how long the repairs will take or how long it will take to get a tenant.
- Provide a great return: Most turn-key rentals provide 10 to 15 percent returns. The return begins right away and takes little work to maintain because a property manager takes care of the house for you.
- Provide diversification: Buying turn-key rentals in different markets of the country gives you diversification.
- Can be bought for cash: Many foreign investors have trouble buying properties because they cannot get financing. Turn-key rentals can be as inexpensive as $30,000, making them easier to buy with cash.
- You can invest your retirement savings: You can invest a self-directed IRA or 401k into turn-key rentals.
How can you find turn-key rental properties?
There are many turn-key rental property providers throughout the United States. Some companies are specific to local markets such as Memphis, Ohio, Missouri, Florida, Texas, Chicago, and Wisconsin while other companies have properties all over the country. The properties vary in price, rent, financing options, and returns, but a good turn-key property will cash flow. Even with cash flow, I would advise investors to spend time researching the property manager and the area they want to invest in before buying any turnkey property.
A Google search for turnkey rentals will get many results for property managers and houses for sale that are not rented. I have spent a lot of time researching turnkey companies and have met with turnkey companies in person.
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Do I invest in long-distance turn-key rental properties?
I have never bought a turn-key rental property or a long-distance rental property (I bought one in 2015). However, I am in the process of a buying a long-distance, turn-key rental property and I discuss it more here. I have purchased my 14 rentals and my fix and flips locally in Colorado. I am lucky that house values are relatively cheap here and that compared to values, rents have been relatively high. These factors have allowed me to get great returns here. I would lose some of those advantages investing out-of-state. However, in the last part of 2014, prices have increased in Colorado making it much harder to get a great deal that cash flows, so I am considering a turn-key rental.
How much do turn-key rental properties cost?
Every turn-key property is different and every location for turn-key properties is different. I have seen turn-key rentals that are repaired, rented, and managed that range from $35,000 to $150,000. I have not seen turn-key properties in higher price ranges because it is much harder to cash flow on a higher priced rental property than a lower priced one. The lower priced turn-key rental properties usually provide better cash flow and may be a good option for foreign investors who have a hard time getting a loan on properties in the United States.
Can you make money with a turn-key rental property?
I usually do not buy rental properties that are turn-key ready, because they usually cost more. I rarely buy homes that are fixed up, because they usually are not a great deal. Rental property number nine, which I just got under contract, is the closest thing to a fully repaired property that I have purchased (or that I will have purchased). It needed a bit of paint, but that was about it. In a perfect world I would love for all the rentals I buy to be repaired and rented before I buy them, which is one advantage of turnkeys.
When I buy my rentals, they usually need work and I get a discount for the money and time I have to put into repairing them. In fact, it is less helpful to buy a home that needs repairs than purchasing a home fixed up, unless you can get a great deal. It is harder to have built in equity on a turnkey rental, but you do not have to spend time repairing the home, renting it out, or finding a property manager.
When would investing in a long-distance turn-key property be a good idea?
I have had many people reach out to me about investing in rental properties, but they do not know how to start because their market is too expensive. When starter homes are $300,000 or more in an area, it is almost impossible to cash flow on a rental property unless you pay cash for it. When you pay cash, your returns are not nearly as good as if you can get a loan (as long as the property cash flows). Rents are almost never high enough on a $300,000 home to cash flow, no matter where you live.
The down payment on a $300,000 property is going to be at least $60,000 unless you use a technique to buy with less money down. Then you have to add closing costs, reserves, repairs, and other costs associated with buying a rental property. I can buy two or three cash flowing rental properties in my market, where someone in a more expensive area would only be able to buy one that may not cash flow at all. I never invest for appreciation, which is what many people are forced to do in these areas.
If you are in an area with very expensive homes or very low rents compared to home prices, you may want to consider long-distance investing and possibly long-distance, turn-key investing.
Diversification with turn-key rental properties
Many people like to spread out their risk when investing and rental properties are no different. If all of your properties are in one place, it could be riskier if something were to happen to that area. I have all of my rental properties in one place; one reason I like the idea of an out-of-state property is that it would provide diversification.
What is the difference between long-distance investing and long-distance turn-key investing?
Long-distance investing is simply investing in real estate outside of your local market area. You are still in control of the purchase, the renovation, and finding a property manager. This can be a great way to invest if you have a great team that can handle all of these aspects for you or if you are able to travel to handle them yourself. However, it takes a lot of time and work to buy a rental property in another state; you have to control the entire process of finding the property, repairing it, renting it, and finding a property manager.
Are turn-key rental properties a good option for foreign investors?
Foreign investors can buy homes in the United States, but it is hard for many of them to get financing. Traveling to the U.S., researching markets, finding real estate agents, closing on properties, and then repairing and renting properties is very difficult when you live in another country. Turn-key rental properties make it much easier for foreign or any long-distance investor to invest in rental properties. If you buy a turnkey rental property, you might not make as much money as if you did all the work yourself, but the time and money saved may be worth the cost.
Are turn-key rental properties a good option for self-directed IRAs?
You can invest money from a self-directed IRA into real estate. When you use an IRA to buy real estate, the IRA is buying the property and all income and expenses must go through the IRA. Some turn-key rental properties specialize in self-directed IRA investing and can help investors invest from their IRA into rental properties.
What are the possible downfalls to investing in long-distance turn-key properties?
Just because a home is rented, repaired, and managed by a property manager does not mean you may not run into problems. You still have to do your homework and make sure the person or company you are buying the property from will follow through on their promises. There can be problems with renters, property managers, maintenance, and repairs. Here are some proactive things you can do to prevent a disaster with a turn-key property.
- Get references for any company with which you are going to do business. Ask for references from current customers and search online for reviews of the company.
- Check the value of the properties you are looking to buy. Find a local Realtor that can tell you what a home is worth in the area. Even if a home cash flows great, shy away from houses that are priced 10 to 20 percent above market value.
- Check out the property manager that is managing the rental property. I have an article here on how to find a great property manager; these techniques can be used from a distance.
- Check the history and record of accomplishment of the company. Check the BBB, see how long they have been in business, and ask how many deals they have done.
- Ask for details on any home you want to buy. How old is the furnace, hot water heater, wiring, plumbing, etc.? You want to make sure the major components are good and the company did not put lipstick on a pig to cover up problems.
- How realistic are the company’s projections and estimates for cash flow? Even with a turn-key property, you may still have some maintenance and vacancies, unless the turn-key company will guaranty those.
Can you buy turn-key rental properties with less than 20% down?
Some turn-key rental property providers offer seller financing that can be used to buy turnkey proprieties for less than 20% down. The trade-off with putting less money down is higher interest rate and loan costs. Rates may be as high as 9 or 10 percent on seller financed turnkey properties.
Turn-key rental properties are a great way to invest for cash flow when cash flow is hard to find in your market. Turn-key rental properties are also a way to invest in rental properties without having to repair or rent out the house or having to find a property manager. However, it is hard to get a great deal on turnkey rentals because turn-key providers want compensation for all the work they do.
How can you get more detailed information on specific turn-key properties?
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