• by The VRET Team

What Is Turnkey Real Estate Investing?

What if the best investment opportunity has been hiding in plain sight right in front of you?

Turnkey real estate represents an unprecedented opportunity to grow your wealth and secure steady passive income. Unfortunately, many potential investors don’t know about the benefits of buying a turnkey property or even how the process works.

Ready to learn the benefits of turnkey real estate and how easy it is to get started? Keep reading to discover the answers!

What Is Turnkey Real Estate?

Our guide is going to walk you through both the benefits and the process of investing in a turnkey property. Before we go any further, though, we need to answer your main question: what, exactly, is turnkey real estate?

In short, “turnkey” means that the property is not going to need any renovations. If you invest in such a property, you won’t have to worry about performing extensive maintenance or making major improvements before you buy.

Why would you buy a turnkey property? Some investors buy so they can quickly sell the home and make an easy profit. Others buy such properties in the hope of securing passive income.

Still on the fence about investing in a turnkey property? Let’s take a closer look at the benefits this investment opportunity has to offer.

Benefits of Investing In a Turnkey Property

We’ve already covered one of the biggest benefits of turnkey real estate: the opportunity to make a quick profit. If you are an investor who wants to make money (sometimes a lot of money) in very short order, real estate is definitely the way to go.

However, quick profit is not the only reason that turnkey properties have grown in popularity. The simple truth is that this kind of investment comes with many benefits that might otherwise be hidden from anyone who hasn’t made the investment.

What are these hidden benefits? We have a full breakdown below.

1. Property Appreciation

If you’re an investor, you know the world is full of potential investment opportunities. However, some of these opportunities are very unpredictable and even very volatile. In fact, that is a perfect description of Bitcoin and other forms of cryptocurrency.

Fortunately, real estate is the perfect investment if you’re looking for something safe and secure. That is because you can count on the property to regularly appreciate in value. And that really works in your favor if you are willing to rent the property out over the years instead of selling it right away.

And renting out the property creates a “win/win” for investors as the home appreciates in value over time. This is your key to securing a passive income that is going to increase over time.

2. Easy Passive Income

Once you buy a turnkey property, it’s tempting to sell it in relatively short order. After all, what is better than making a quick profit without having to put in much work?

The honest answer is that passive income is even better than a one-time profit. So long as you can regularly rent the property out, then you will have a convenient and steady source of income pouring in for years (perhaps even decades).

You can use this to your advantage soon after buying a home. By setting the right price, you can have tenants effectively pay off the property you have financed and still make a modest profit. And once the home is paid off, the profit will increase.

Speaking of increasing profits, the property steadily appreciating in value means that you can effectively raise your rental rates over time. And because it is increasingly difficult for many consumers to buy a home, you are that much likelier to have a steady stream of renters to serve as your tenants.

3. Tax Benefits

Many investment opportunities are a double-edged sword. That is because while these investments can help you make a lot of money, they can create more than their fair share of tax headaches.

However, turnkey real estate isn’t like that. In fact, the tax benefits are one of the best things about investing in such a property (though there are tax complexities as well)!

First of all, if you hire a property manager (more on this later), the fees may be deductible. Similarly, if you end up repairing or purchasing property over time, this is tax-deductible. Finally, appliance depreciation is tax-deductible, as are any fees related to marketing your home.

On top of all this, appreciating home value effectively increases your net worth. This opens up additional financial opportunities in the future, and all while making your taxes that much easier.

4. Sheer Convenience

The final benefit may be the simplest benefit, but it’s also our favorite. And that benefit is this: this is one of the most convenient investments you will ever make!

After all, the whole point of a turnkey property is that you don’t have to spend money, energy, or effort renovating the home. You can simply buy it and begin renting almost right away. Compared to other investments (including buying a flipping property), this is about as simple as it gets.

In fact, the convenience of investing in turnkey property is why many landlords eventually invest in multiple properties. This regular flow of passive income creates an easy income stream, and you don’t have to worry about the unfortunate financial surprises you get with the stock market and with other investments.

Doing Your Homework

Now you know why investing in turnkey properties is so attractive for many investors. But make no mistake: there are good properties to invest in and there are bad ones. So how are you to know which homes are worth buying and which you should leave alone?

First of all, you need to take the time to personally inspect the property. Even if you are buying a home in a different state, we recommend driving or flying out to give the property a once-over. This gives you a valuable opportunity to inspect both the condition of the home and the quality of the surrounding neighborhood.

Second of all, you should pay for a professional property inspection. Just like with your own home, there may be issues with the property that you cannot notice with the naked eye. These may be issues that the sellers don’t even know about, but a professional inspector will be able to discover.

Finally, we recommend doing your homework about other rental properties in the neighborhood. Are most of them currently rented, and what are the rental prices like? This gives you a better idea of whether you will be able to rent the property out quickly and how much you should initially charge.

Finding the Financing “Sweet Spot”

When it comes to investing in turnkey properties, you have the same financing opportunities that you have when buying a home to live in. But what you intend to do with your new property will inform which kind of financing you need to get.

For example, are you going to try to sell the home soon after purchase? If so, you may want to choose an interest only bank loan to minimize your closing cost expenses. This has higher interest but lower payments, and the interest rate won’t matter as much if you are selling the home within a few years.

But what if you are intending to rent the property out instead? In that case, you may want to go with a financing plan such as a 30-year fixed mortgage. Because your tenants will effectively help you pay for the property and you will have tax deferred extra income that can be used to buy more property, or make extra principle payments to pay off your mortgage faster.

How Does Property Management Work?

If you intend to sell a turnkey property soon after you buy it, then you don’t need to worry about property management. But if you wish to transform the property into a rental, then you are going to need to find a good property manager.

What does a property manager do, though? Basically, a property manager handles most of the things related to your tenants. This includes initial tenant screenings, rent collection, and emergency services for tenants. In some cases, property managers may also help with marketing your home to attract tenants when it is vacant.

It’s always good to check “the fine print” to discover what services a property manager does or does not offer. But the basic function of all property managers is the same: they keep the “turnkey” spirit alive by assuring that you don’t have to worry about the day-to-day operations. Instead, you can mostly sit back and wait for the passive income to roll in!

Getting To Know Your Property Manager

Earlier, we talked about the importance of getting to know the property you are intending to buy. After all, you don’t want to invest a lot of time and money into this investment and have things not work out. And you can say the same thing about the property manager!

Just as you don’t want to buy a random turnkey property, you don’t want to trust a random property manager. It’s important to get to know the person or company that will be overseeing your investment. But what is the best way to go about that?

The first step is one that we have already mentioned: you need to find out what services they have to offer. In some cases, even highly-rated property managers may not offer the range of services that you need.

Speaking of “highly-rated,” the second step is to research what people are saying about the property manager online. Check user reviews across different websites and across social media to make sure the manager has a good reputation.

Finally, we recommend personally interviewing potential property managers yourself. While this requires a bit more time and effort, it is the best way to make sure you “click” with someone that you will be working with very closely.

Understanding Property Management Fees

Property managers do a lot of hard work. Without them, “turnkey” properties wouldn’t really be turnkey. But if it wasn’t already obvious, property managers aren’t going to manage these things for free!

Every property manager assesses a fee for their services. Some of them prefer to charge a flat rate regardless of the rental value of your home. Others, however, prefer to charge a percentage of that rental value each month.

Long story short? You need to review their fees and services to make sure you will get your money’s worth. And you should consider raising your rental prices with these fees in mind as a way of making the profit you are hoping to make.

Getting the Right Tenants

The good news is that a property manager will help screen for tenants to rent your property. The bad news is that different property managers have different screening strategies. Therefore, you need to make sure prospective property managers are taking the right steps to screen applicants.

Generally speaking, your tenants should make at least three times the monthly cost of rent. They should also have a decent rental and credit history. Finally, they should have solid references, a clean criminal background check, and proof of utilities in their name.

A property manager may have additional screening questions on top of these. But as long as they are asking these core questions, you should get reliable tenants each time.

Your Next Move

Now you know why turnkey real estate is such a major investment opportunity. But do you know who can help you make the most of this opportunity?

Here at The Virtual Real Estate Team, we specialize in making your investment dreams come true. To see how we can help you find the turnkey property of your dreams, all you have to do is contact us today!