Is Turnkey Real Estate Investing Right for You?
By Kerry Curry, B2R Contributing Writer
Turnkey investing offers a lot of allure for the busy or remote investor, but still demands a time commitment up front to be done correctly.
“It can be a very hands-off and passive model for busy professionals or those who don’t have the time to learn real estate,” says Chris Clothier, partner and vice president of sales and marketing for Memphis Invest, a turnkey real estate company with operations in Memphis, Dallas and Houston.
A turnkey property company uses its own funds to buy residential investment properties, renovate them and manage them on behalf of investors. They typically have a portfolio from which the investor chooses and buys properties.
There also are many hybrid “turnkeys” that may provide part, but not all of those services. They may find the properties but not renovate them, for example. Or they may find, buy and renovate them on behalf of investors, but not lease or manage them.
In this blog post, we’ll look at the pros and cons of turnkey investing, and what to do if you decide this investment option is right for you.
- Saves time. A turnkey property company does the legwork for real estate investors. They handle all the details of purchasing, repairing and renting out the property before selling it to an investor. Think of it as a one-stop shop.
- Provides immediate cash flow. A tenant often will be in place prior to the investor’s closing. Once the purchase is closed, cash flow could be immediate.
- Handles repairs. Novice investors often underestimate the cost of repairs. A turnkey company decides what repairs to do and does them before selling the property to the investor.
- Manages the property. Selecting and managing tenants and making repairs takes time, energy and expertise. Turnkey companies worth their salt should be well-versed in how to stay in compliance with laws and ordinances governing anti-discrimination and tenants’ rights. They will complete all necessary paperwork to secure leases with qualifying tenants and address tenant needs as they arise (no 2 a.m. phone calls!).
- Expands geographical reach. Investors who live in expensive metros where they may be priced out of their markets can consider hiring a turnkey company and invest in a more affordable city in another state or region. “When you embrace and learn this model, you can invest anywhere in the country or the world,” Clothier says. “Every market is a market that is open to you.”
- You’ll pay a premium. If you’re hiring a company to do everything for you, then you should expect to pay a premium over a deal in which you do all the legwork yourself. The price of the property may be higher and the returns lower than if you handled all aspects of the transaction and property management yourself. But if you’re an inexperienced investor, you may come out ahead as a reputable turnkey company will know how to keep overhead manageable.
- Hands-off decisions. While this is a pro for some investors, it’s a con for others. You won’t get a say in choosing what properties the turnkey company decides to buy and place into its portfolio. Nor will you have a say in the tenants chosen or the cost or type of repairs made by the turnkey company.
- Not foolproof. Any investment comes with risks. In the case of turnkey properties, you should thoroughly investigate the turnkey company to make sure you’re not turning your investment over to someone who doesn’t know what they are doing. The investment itself may also be risky. Rents could fall, repairs could rise, or a tenant may need to be evicted.
If you decide to go turnkey, here are three things Clothier recommends that you do for a successful investment:
- Research the market
- Research the turnkey company
- Evaluate the houses in the turnkey company’s portfolio.
For the passive, time-starved investor, a reputable turnkey company can be a great option, especially if the investor desires to buy rental properties outside of his or her home city. For an investor who prefers a more hands-on approach, this may not be a form of investing that meets their needs.
“You’ve got to know yourself and be sure you are doing business with a true turnkey company,” Clothier says. “This is a long-term investment. You aren’t necessarily buying a property. You are buying a relationship with someone who you trust will take care of you.”
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