Investing in turnkey real estate is an opportunity for passive real estate investing. Passive investing is good idea since investing allows us to accumulate wealth from our investments, work and effort. As Warren Buffet famously said, if you don’t find a way to make money in your sleep, you will work until you die. If you want to build sufficient wealth to retire one day, or even retire early, you need passive investing in your life. We are going to explore what turnkey real estate is and if it’s a good idea to add to your investing plan.
What is investing in turnkey real estate?
A turnkey property describes a house, apartment, or building that has been fully renovated. Purchasing a turnkey property means you can move right in without having to do any work. When you purchase real estate as a turnkey investment, you intend to sell the property for a profit, or to put tenants in and start earning rental income instead of moving in yourself.
According to Investopedia, investing in turnkey properties gained popularity in the aftermath of the 2007-2008 financial crisis where properties prices plummeted in many markets. With property going on sale, people started to think about investing in real estate, but not everyone had the time, ability, or interest to do so actively. With turnkey real estate investing, a company finds suitable properties, finds investors for those properties, and supports investors through the process of purchasing, renovating, leasing, and managing the properties. The investment company offers you a turnkey investment opportunity. In theory, once the property is leased, you receive monthly checks in the mail.
Sounds simple… What could go wrong?
The attraction of investing in this way is that you have all the trappings of investing in real estate without the work. Your name is on the deed, you own the asset directly, and you collect the rent checks. There are some things you need to be aware of.
There are risks. A common scenario with turnkey real estate investing is that you can invest in markets other than where you live. You might live in a big city where real estate is expensive, but you invest in a less expensive market through a company. You might never actually see the property you purchase, and you will have to trust them that the purchase price is fair, the renovation costs (if any) are reasonable, that the tenants are paying market-related rents, and so on.
There are costs. Having a company that takes care of all aspects of the investment comes at a cost. You may pay a finder’s fee when they find a property for you, you may pay a premium on the costs associated with getting the property rent-ready, and you’ll certainly have to pay a property management fee in addition to the actual running costs of managing a rental property. Don’t forget that all properties need maintenance and repairs over time, and you’ll need to pay for this too. There is no free lunch. You need to consider the opportunity cost of the investment – will the returns you receive (after considering all costs) be worthwhile compared to other available investment vehicles.
Things can go wrong. In any market, you will find a range of competent and trustworthy companies, but you will also find those who aren’t. If the investment company you choose does a bad job of managing your property, you will need to step in. It can be very inconvenient if you suddenly need to fire the property manager and scramble to find a replacement when the property you own is in Wisconsin and you live in New York… You own the property, and you could be forced to become an active real estate investor overnight if things go wrong.
Do your due diligence.
You can take steps to make turnkey real estate investing successful. The first step is to understand the risks, the costs, and the list of things that can go wrong. Thoroughly investigate the company before deciding to invest with them. Look for a company with a proven track record, don’t go with the first company that pops up in your browser. Request information from several, ask for examples of their contracts and make sure you understand the business model – especially what services are included or not, and what fees or percentage of rental income you will be paying. Even if you’re investing in a distant town or city, you should get to know the property you are buying. Go and view it yourself. If this is not possible, have several virtual viewings, read through inspection reports, and even consider getting an independent person to go and look at the property on your behalf.
This post was written by Wendy Noble on Fiverr. Wendy is a real estate investor who also loves to write about investing. I hire Fiverr writers to provide helpful advice which helps us all make better decisions. For more about passive real estate investing from Wendy read A Deeper Look at REITs. Subscribe for more business, sales and investing posts. Have a lovely day.
