Last Updated on February 2, 2023 by Mark Ferguson
Turn-key rental properties can be a great option for investors looking to get cash flow without a lot of work. They are also a great option for investors who cannot find cash-flowing properties in their state and must invest in a different area. Turn-key rental 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. I own a lot of local to me real estate, and I have bought a turn-key rental as well out of my area. You must be very careful with the property you buy and the company you use. While turn-key rentals can help investors buy cash-flowing rentals in different markets, it can also be a risky investment.
What is a turn-key rental property?
Some consider a turnkey property to be a house that is remodeled and needs no repairs, but for this article, we are talking about rental properties that are set up to make money right away. 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!
There are many companies that will sell turn-key rentals to real estate investors, but be very careful when using these companies. Some are great and some have caused investors huge losses. Make sure you vet whatever company you use.
What are the advantages of turn-key rental properties?
One of the biggest problems for many investors is finding affordable properties that will make money. Turn-key rentals are often located in areas that have low prices and relatively high rents.
Here are a few advantages to buying turnkey rentals and why I bought a turn-key rental:
- 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 about 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.
What are the disadvantages of turn-key properties?
While there are many advantages to buying a turn-key rental property there are disadvantages as well:
- Turn-key rentals are usually priced at retail value or even above retail value. I like to get a great deal on my rentals and that is why I have not bought more turn-key rentals.
- It can be tough to know where to buy a long-distance rental or keep track of it. You must have a great property manager to make sure the home is maintained and managed right.
- Not all turn-key companies are reputable and many take advantage of long-distance buyers because they do not see the property.
- There may not be as much cash flow with a turn-key property than if you buy it yourself.
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. I have met a lot of turnkey company operators and only met a couple that I trust! Fill out the form below and I will refer a company to you I trust. Your information will not be given to anyone or used for anything except a turn-key rental property company to talk to you about turn-key rentals.
The company I used for my turn-key rental is not one I would recommend and is not selling turn-keys anymore. This is a different company and I have talked to many investors who used them with success.
Do I invest in long-distance turn-key rental properties?
I had always bought my rental properties in Colorado until 2015. That was when prices became too expensive here to get good rentals. I bought one turn-key property in Ohio that has done okay for me. I have no plans to buy any more turn-key properties because I prefer to find deals on my own in my local market. If I can find the deals I can get a discount which is a huge advantage with real estate. I may buy in other states but I would buy with a real estate agent who is able to search for more houses, but just what the turn-key company owns. A good agent can also find property managers and even contractors. I have a few agents like this across the country in areas with good rent-to-value ratios.
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 on 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 normally 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 turn-key properties.
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 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.
Why do you need to do due diligence on a turn-key rental property?
Turn-key rental properties are typical houses that have been purchased by a turn-key company, renovated, rented, and have a property manager put in place. An investor still has to perform due diligence when buying a turn-key to ensure the properties are as advertised. The turn-key companies know their clients are out-of-state and they may try to fudge their numbers a bit to make more money on a deal. It does not hurt to have an inspection done on any property you buy even if the turn-key company says the home is completely repaired.
How can an out-of-state investor determine the value of a home
I wrote an article here about how to determine value. Even if a property cash flows great, an investor still does not want to pay much more than market value for a home. It is not easy to determine market value from a long distance, but it is possible. The best way to find out what a home is worth is to get an opinion from a local real estate agent. You can also use websites like Zillow or Trulia, but I would not count on them to be very accurate.
How can you find a real estate agent to provide a price opinion?
I wrote an article about how to find a great agent here, but many agents will be wary of providing values to an out-of-state investor. My advice is to be perfectly honest with the agent and tell them you are trying to verify if a price on a home is market value. Tell them your situation and see what they say. You should be able to find an agent or two who will give you ballpark values. You may even find an agent who knows of more turn-key properties in the area.
If you want a detailed value you can even order a BPO (broker price opinion) from a real estate agent. Most REO agents perform BPOs for banks on distressed properties. For $75 to $100 you should be able to find an agent who can complete a BPO report. Try looking on usreop.com, nrba.com or reonetwork.com for experienced REO agents. The agent should have their own BPO form they can use that provides three sales, three active comparables and they should know exactly what a BPO is. If not, find another agent.
How can an out-of-state investor determine fair market rents?
Not only does an investor need to know that they aren’t overpaying for a turn-key property, but they also need to know that the rents are accurate. It is possible a property manager or turn-key company rented a home for more than market rents by charging a premium to an unqualified tenant. You don’t want to buy a turn-key, have the tenant stop paying and then find out the home was rented for more than it should have been.
The best way to determine rents is to call a few property managers in the area. Tell them you are an investor, are buying some homes, and need a property manager. This serves a few purposes; it gives you an idea of market rents, the property manager can let you know if a property will be difficult to rent, and you can interview property management companies in case you need a new one.
You can also check Zillow for rental rates, but again they may not be accurate. You can also look at Craigslist, the classifieds, or check out this article for more tips on determining rental rates.
How to determine if your property management company is good on a turn-key property
The most important piece of a long-distance rental property is the property manager. A bad property manager can cause thousands of dollars in losses through lost rent or damaged property. This article on how to find a great property manager can help you determine if the property manager the turn-key uses or referred you to is any good. Make sure you ask the property management company what kind of screening process they use to check tenants; background checks, credit checks, references, income, and job verification. It is best to let the company tell you what they do and not suggest these screening processes to them.
In some cases, it may be difficult to contact the property management companies. A lot of turn-key companies sell hundreds of properties a year and the property managers do not have time to talk to hundreds or even thousands of prospective buyers.
What can you do if the rents, values, or property management is off on a turn-key?
The first thing you want to do is make sure you discover any issues before you buy a turn-key property! It will be difficult to get any recourse after the fact, although some turn-keys offer rent guarantees and buyback programs.
If you discover a problem before you buy a property, talk to the turn-key. Tell them what the issues are and see what they offer. The more facts and information you can back up your numbers with the better. You may be able to negotiate a better price or have them help you find a new property manager.
This is a great time to see how customer service-oriented the turn-key company is as well. Will they work with you and try to come up with a solution or become defensive? If they won’t try to help at all, then you have a great idea of how good they will be to work with after you buy a property and there is a problem.
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.
Can you buy turn-key rental properties with less than 20 percent down?
Some turn-key rental property providers offer seller financing that can be used to buy turnkey proprieties for less than 20 percent down. The trade-off with putting less money down is a higher interest rate and loan costs. Rates may be as high as 9 or 10 percent on seller-financed turn-key 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?
If you would like a custom report on turn-key rental properties and more information on turn-key rental property companies, please fill out the form below. Your contact information will not be given to anyone, except a turn-key rental property company.