If you like the idea of growing your wealth or adding to your income or retirement income stream with real estate but don’t want any of the headaches that go along with it, start where I did: Turn Key Real Estate Investing.
A turnkey real estate investment is an income producing rental property that was most likely a distressed property that has been completely renovated and is sold to an investor with tenant in place and cash flowing.
The beauty of the perfect turn key experience is after you have chosen from a list of homes and gone through the purchase process, all you have to do is collect rent payments via the provider less their management fee which can range from 8-10% –and worth every penny as your investment property is most likely to be in another state. They handle the placement of renters, collection of rents, and most tenant / repair issues.
Across the country there are some fantastic turn key providers, and there are some you should steer clear of, so always do your due diligence. Here are some questions you should ask in your search for a reputable turn key provider.
How many rentals do you personally own?
You want someone who’s in the game and ‘eats at the same restaurant they manage’ so to speak. If they don’t own a few of the properties themselves, you need to pause and ask why that is.
Is there a guarantee?
After selecting your property from their list of options, get your own home inspection from a third party inspector. The turn key provider should offer a one year home warranty if the home was just completely rehabbed.
What’s your experience?
How long have they been a turnkey provider? Do they understand the nuances of the neighborhoods and markets in which they provide? Always ssk for references and contact current or previous investors and ask them what they wish they had known before going into business with the operator. Would they recommend them? Use them again in the future?
Who will be managing my property?
Many providers manage their own properties, and this can make for a seamless experience. Typically in this scenario you will have the same teams maintaining the property that renovated it in the first place. Ask how they handle the maintenance, and what tools and systems are in place to communicate with their property owners. They should be using web based tools where you the owner can track all income, bills, and property activity via you own user portal.
How do you arrive at the rate you charge for rents?
We all want to maximize performance from our rental properties, but not at the cost of frequent vacancies. Choosing a rent price at the lower end of the market will keep your tenants in place longer, maximizing your returns. As long as the ‘cash on cash’ fits with your performance expectations this is the best strategy. Personally, I will not choose a property that doesn’t return at least 12% cash on cash return.
How do you determine the ‘Location. Location. Location?’
We all know the importance of location in real estate and it’s equally important when investing in turn key investments. Every town has it’s wealthy areas and it’s ‘other side of the tracks’ areas also known as ‘war zones’ to some real estate professionals. The middle is where it’s at: middle class, middle price point. Cash flow is more important than appreciation in this type of investment and as always, you want to minimize risk. Stable, middle class neighborhoods with good schools and nice parks is the sweet spot. Never invest in an area you wouldn’t want to live in yourself.