How to Invest in Turn Key Rental Properties


Hi, it’s Mark Ferguson with Invest Four
More. Today I want to talk about turnkey rental properties. Now turnkey rental properties
may be a little different than what many people think turnkey rental properties are. I’ve
heard a lot of different definitions. My definition of a turnkey rental property is a rental property
that is repaired, rented and has a property manager in place. So it’s not just a house
that’s repaired, and ready to move into. I’m talking about a property that’s been
repaired already, is in great shape, has the home rented with the tenant on a long-term
lease, has a property manager in place—basically it’s a turnkey rental property ready for an
investor to buy and start making money right away with very limited work from themselves. There are many turnkey companies that have
popped up in the last few years because investing in real estate has become such a big thing
lately. I personally have 11 rental properties. None of them are turnkey rental properties.
I will talk about why that is later on, but I know how great rental properties are, the
cash flow you can make, equity pay-down, the use of leverage—there are just so many advantages
to rental properties. They can help you retire early. And in my
opinion they are much safer and give much better returns than investing in traditional
methods, like the stock market, even bonds, CDs—unless you want to make, you know, 0.1
percent on your money. So why would people want to invest in a turnkey
rental property? Well for one thing, most turnkey rental properties are going to be
out of state from where you live. So one big problem that many investors run into to, especially
those in California, New York, you know, San Francisco, even Seattle or other places with
high prices, it’s really hard to find cash flowing rental properties because owner occupants
have pushed the prices of houses so high that you can’t really make any money on them. It’s
an appreciation play. I think it’s a bad idea to invest for appreciation because nobody
can predict the market. It could go up but it also could go down. We’ve seen that happen
in the last 10 years with it. Incredibly high rise in prices, then huge drops, then again,
high prices. So it’s not always best to and bet that your house is going to go up in value,
and in the meantime breakeven or maybe even lose money while you’re renting it out. The great part about rental properties, if
you do it correctly, is you should be able to make money every month and then also hope
it goes up in value. If it doesn’t go up in value, you’re still making money every month,
you’re not out anything. But for people in those high-priced areas, there isn’t a
lot they can do in their own market. And that’s where out-of-state turnkey rental properties
may be a good option for them. So these companies, the turnkey rental property
companies, will buy properties. Many times they are REO properties, distressed properties,
or even off-market properties. They do a lot of direct mailing. Their goal is to buy properties
as cheap as they can. They will then repair the properties—you know, new paint, new
carpet, make sure the systems all work great, the furnace, the roof, all of that is updated—at
least the good turnkey rental properties do all this. Then they will get a property manager
in place and they will have the home rented. They’ll have a long-term lease, a property
management company they have worked with in the past, hopefully, and have a good relationship
with. And it will be a fairly solid investment for an investor who was out of state and can’t
invest in properties in their own backyard. The returns on turnkey rental properties can
vary. They range from 5 percent to 10 percent to as high as 15 percent, I’ve seen. The
lower-priced homes tend to produce the most returns, and the higher the priced home, the
smaller returns. The reason that is is many times the lower-priced homes may not have
as big of an appreciation potential, as with the higher-priced homes. And just in general,
the higher priced home you buy, usually the harder it is to cash flow on that property
and make money on that house. So how much does it cost to buy a turnkey
rental property? It can vary, depending on the company, again. Some companies have financing
they offer, some work closely with banks, and others deal in low-priced properties—they
can be bought for cash. So the company that I’ve been in touch with the most, who I have
actually talked with about buying turnkeys myself, deals with the very low-priced properties
that can be bought for cash. These are 30,000, 40,000 dollar houses that are rented for 700
to 800 dollars a month. Those are pretty good ratios. Usually you’re buying older homes,
but they are in decent shape. It’s hard to know what the appreciation potential is
on some of these properties, but probably not as high as, say, a 150 or 200,000 dollar
house that you’re going to buy. But you’re probably going to make more money on these
lower-priced homes than you will the higher-priced house. When you buy a turnkey rental, you still have
to do due diligence. I never suggest just calling up a company, giving them money and
hope for the best. You need to make sure you talk to the property manager, you talk to
the tenants, if possible. If possible, visit the area you want to invest in, see where
your properties are located, see what the market looks like. And you can even ask a
real estate agent to provide you their opinion of the area, their opinion of the neighborhood,
and even the price you’re paying. Many agents will do a broker priced opinion for you. It
might cost you 50 dollars, 70 dollars, but it would give you an idea of what they think
it’s worth, and give you any information they know about the house, the neighborhood, et
cetera. When you buy a turnkey rental property, many
times the price is going to be retail or even a little bit above retail value. And the reason
is, you are paying for the home to be rented, to be managed, and to be in great shape. It
is very, very difficult to find any house anywhere that is already rented, already has
a great property manager in place and is in really good condition. You might find one
of those, you might find a house that’s rented, but maybe doesn’t have the greatest
property manager. You might find a house that has a great property manager, but maybe the
house isn’t in that great of shape or the tenants aren’t very good. Usually if the house
is in good shape, it’s rented and it has a property manager in place, the landlords
aren’t selling it because it’s bringing them in money and they’re making a lot of
money. So don’t be surprised if when you buy a turnkey property, you’re not getting a
smokin’ fantastic deal. And that is one reason why I have not bought
one yet. I have thought about it. I seriously considered buying a turnkey. I went through
the process of an initial interview, talked on the phone with a turnkey company—really
a great experience. They gave me a ton of information, showed me examples of some properties,
what returns would be, you know, all the costs they consider—maintenance, vacancies—all
of that, taxes, insurance. But ultimately it came down to, I‘m still able to buy properties
in my area in Colorado 20 percent below market value, and I can usually get between 15 and
20 percent cash on cash returns. It’s really tough to do that with a turnkey property,
almost impossible, especially the buying below market value part. So for me, it doesn’t make
a whole lot of sense to buy a turnkey rental property at this point, unless I just wanted,
you know, a lot of diversification. If I want to buy in a different state to spread out
my risk. Another thing that you have to consider is,
I’ve been a Realtor since 2001. I’ve been investing for five years, I’ve fixed and
flipped over a hundred houses, and I run a real estate team. It’s pretty easy for me
to buy a rental property compared to most people. I know the markets, I know the process,
I know contractors. So for me it’s not a whole lot more work to buy a rental property, as
opposed to a new investor or investor who has a full-time job, who doesn’t have a
few hours every week to dedicate to finding a rental, finding contractors, finding property
managers, renting the home, et cetera. For those investors, maybe a turnkey rental property
is a better solution than trying to do all that work yourself. Or, like I said, if you
can’t find those good deals in your own market. I have a contact at a great turnkey rental
property. They’ve been around for 10 years, done hundreds—actually they do hundreds
of deals each year—specialize in out-of-state investors, self-directed IRAs, you know, building
retirement income, four people with a great property rental company and great renters. If you’d like to get in contact with them,
fill out the form below. If you include your phone number, email address, they will get
in contact with you right away. I do not give this information to anybody else except this
one turnkey company. No one else. I don’t use it for anything, you don’t get signed
up for my email list or anything else. It’s only for turnkey rentals. They are very easy to talk to. No hard sales
techniques here. I went through the process myself. It was an education process, telling
me about the areas where they invest, the properties they invest in, why they like to
buy there and how they work in their process. So if you have any questions, you’re always
welcome to leave a comment as well, down below on the article. Or you can send me an e-mail
to [email protected] I have not ruled out buying a turnkey in the
future at sometime, but I’ve got two more rental properties under contract, number 12
and number 13 here locally in Colorado, so for the time being I’m going to concentrate
on local rental properties. And then maybe someday in the future, we’ll look at turnkeys
again. Thanks a lot.

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