6 min read
Do you want the benefits of real estate investing without the typical headaches of managing rentals? You could buy “turnkey” and earn more “passive” income, but are turnkey properties worth it? In this article, we discuss how these properties work, their pros and cons, and who should buy them!
Summary:
- Turnkey properties are newly-built or renovated rentals that often come with property management and tenants in place.
- Turnkey properties often have lower maintenance costs and give you faster cash flow than other types of properties.
- Turnkey rentals are a great option for investors who have busy jobs, want more “passive” income, or are looking to invest out of state.
What Are Turnkey Properties?
A turnkey property is a newly-built or fully-renovated home that investors buy and rent out to tenants. Some properties are already tenant-occupied when you close, while others are vacant but move-in ready. Turnkey rentals often come with property management, making them a great option for out-of-state investors. You typically find and buy these properties from turnkey companies like Rent to Retirement!
Why Investors Buy Turnkey
While there are several types of rental properties you can buy, many investors prefer turnkey rentals due to the following:
1. Day One Cash Flow
After you close on a property, you may still need to renovate, hire a property manager, or find tenants before you can start earning rental income. Newly-built or renovated turnkey rentals often come with property management and tenants, allowing you to cash flow out of the gate!
2. No Managing Tenants
Don’t want to handle tenant communication, chase rent payments, or deal with evictions? With a local property manager overseeing your rental, you’ll do less managing and more investing!
3. No Finding Renters
It can take several weeks or even months to find a tenant if you’re unfamiliar with the process and/or your market. With a turnkey rental, the property manager finds the renters for you (if they’re not already in place), so you don’t have to spend time screening tenants, checking references, or moving them in!
4. Lower Maintenance and Repair Costs
Since turnkey rentals are either renovated or newly-built before you buy, any repairs to major systems have already been made, so they may require very little upkeep compared to many other properties. This gives you peace of mind and saves you from those dreaded “the AC is out!” calls.
5. Less Cash to Close
Why put 20% down when you can put 5%-10% down? Leading turnkey rental providers like Rent to Retirement offer investors new build loans that require significantly less money down. Rent to Retirement investors also get exclusive incentives from builders, like lower purchase prices, less cash to close, interest rate buydowns, or cash back at closing.
Get your next turnkey rental for just 5% down!
The Real Risks of Buying Turnkey
Like any investment, turnkey properties involve a certain level of risk. Here are a few potential downsides to keep in mind:
Overpaying for a Property
Many so-called turnkey providers will simply add a coat of new paint and call their property “turnkey,” leading investors to buy an average property at a premium price. Turnkey providers like Rent to Retirement include full scopes of work with each listing, showing the major systems that have been replaced or repaired, so investors know what they’re really paying for.
Buying in Bad Areas
Many turnkey operators want to provide affordable properties, so they buy in bad areas of town and create unnecessary risk for investors. This is why Rent to Retirement operates across multiple markets in some of the best states to invest in real estate, so investors have a full range of choice on what and where they’re buying.
Getting Lower Returns
Many investors assume that buying a turnkey property means getting a lower return, which is true if the property hasn’t been fully rehabbed, isn’t being professionally managed, or is in a sub-optimal area. However, cash-on-cash return is often higher with properties like Rent to Retirement’s new builds due to the following:
- You can put low money down.
- You can get closing credits, rent credits, and other incentives.
- Maintenance and insurance costs are often lower than regular rentals.
- New or renovated rentals often allow you to charge higher rents.
Browse cash-flowing turnkey rental properties!
Who Should Buy Turnkey Properties
Buying a turnkey rental could be a great move if you’re in any of these situations:
Investors Living in Expensive Markets
Especially if you’re in a high-cost-of-living (HCOL) area, you might not be able to afford many of the rental properties in your market. With turnkey rentals, you can buy in more affordable areas, and since the properties are professionally managed, it’s easy to invest remotely!
Investors Who Want More “Passive” Income
Make no mistake—most rental properties require a significant amount of time and energy. But with a turnkey rental, you’ll spend less time maintaining and managing your property, giving you more “passive” income.
Busy Professionals Looking to Invest
With turnkey rentals, you don’t have to manage tenants, coordinate with vendors, or send out notices since a property manager handles it all for you. This allows you to scale your real estate portfolio in a way that doesn’t pull you away from your busy job!
Burned Out Self-Managing Landlords
If you’re tired of chasing rent payments and evicting tenants, turnkey rentals are an alternative that allow you to reap the benefits of real estate investing without the frustrations of self-managing. With someone overseeing your property’s day-to-day, you’ll spend much less time worrying about your portfolio!
Investors Looking for Market Diversity
While some investors prefer to have all of their properties around the same area, what if that market takes a downward turn? With turnkey properties, you can spread out your investments across several markets, lowering your risk!
Ready to invest? Schedule a free consultation with the turnkey rental experts!
Who Should NOT Buy Turnkey Properties
Turnkey properties aren’t for everyone. These investors might consider a different type of investment property:
Heavy Value-Add Investors
Turnkey may not be your first option if you want to make your money by renovating or flipping houses. However, these projects also come with more investing risk, and adding a few “passive” real estate investments (like turnkey rentals) to your portfolio could help balance out your risk!
Backyard Investors
If you live near your property and don’t mind checking in on it regularly, you might not need something turnkey. However, if you don’t have the time or desire to self-manage your properties, turnkey rentals can be a great option—no matter the distance!
Hands-On Landlords
If you like customizing your properties—whether it’s designing new builds, picking paint colors and finishes, or being involved in property upgrades—turnkey rentals might not be the right fit for you. However, being a hands-on landlord also requires more time—time you might not have if you already have a full-time job, family, or other commitments. Turnkey properties can make your rental income more passive!
Red Flags of a Turnkey Rental Provider
For every trustworthy turnkey provider, there’s another you should probably avoid. Here are some common red flags to watch out for:
Promising Extremely High ROIs
Some turnkey providers are notorious for embellishing their estimated returns. As an example, if you see a turnkey rental being advertised as having returns of 40% or higher, it’s most likely untrue and you should run! At Rent to Retirement, we’re transparent about our properties and strive to provide realistic projections so you can make an informed decision.
Poor Online Reputation
One of the best ways to vet a turnkey provider is to check their online reviews for customer complaints. Rent to Retirement is legitimate, having one of the strongest reputations in the industry and holding an A+ rating on the Better Business Bureau (BBB) and a perfect five-star rating across 300+ BiggerPockets reviews!
Middlemen Who Aren’t “Turnkey” Providers
Some turnkey providers merely act as middlemen between buyers and sellers, facilitating the transaction but nothing more. They may not be around to help once you close!
Providers with No Investing Experience
Look out for providers that sell turnkey properties but aren’t investors themselves. Rent to Retirement’s CEO, Zach Lemaster, started the company after already achieving financial freedom through turnkey investments!
Do This Before You Buy!
Regardless of which turnkey provider you use (even if it’s Rent to Retirement!), make sure you’re always running your numbers conservatively and doing your due diligence on the property to ensure it’s a good deal. You can use our free rental property calculator to analyze any property in minutes!
Are Turnkey Properties Worth It?
Yes! Turnkey properties are often worth it, assuming you’re doing your due diligence on both the property and the market you’re investing in, like you would with any other real estate investment. Rent to Retirement’s new build rentals often beat out regular rental properties on returns, thanks to incentives that lower your total out-of-pocket costs and increase your cash flow!
Are Turnkey Properties Worth It FAQs
Are Turnkey Properties Overpriced?
Turnkey properties can be overpriced, particularly if you’re working with a provider that makes minimal improvements yet labels their properties as “turnkey.” Rent to Retirement’s new builds are competitively priced, and many of our renovated properties have exhaustive scopes of work attached to the listings.
Is Turnkey Real Estate a Good Investment?
Turnkey real estate can be a great investment if you buy the right property. Make sure the strategy fits your long-term investing goals, run your numbers conservatively, and partner with a reputable turnkey provider like Rent to Retirement!
What Are the Cons of Turnkey Properties?
Some inexperienced providers have overpriced properties, poor management, and unrealistic estimated returns. Work with a trusted turnkey provider instead, like Rent to Retirement, who has hundreds of five-star reviews!