Dos and Don’ts of Turnkey Investing
When investing in real estate, turnkey properties are an exceptionally tempting way to pad your portfolio. With a turnkey property, you’re going to find a lot less work on your part and a faster path to turning a monthly profit. A turnkey property is complete—you’re purchasing a property that won’t require any additional investment or rehabbing on your part. It’s all been done before you take ownership of the property. In fact, most turnkey properties even come fully furnished with an already-paying tenant.
While investing in turnkey properties is an excellent way to grow your portfolio without much hands-on involvement from you, it isn’t completely risk free. There are many red flags you need to be wary of and research that you still need to do, regardless of what the turnkey property company offers to you prior to purchase. Doing your due diligence will help you from making a costly mistake by trusting the wrong company.
There are many dos and don’ts when it comes to real estate investing, with just as many tailored specifically to the turnkey industry. Understanding these dos and don’ts prior to making any final decisions will guide you on the way to making a sound real estate investment and avoid purchasing a money-pit.
Get Your Ducks In A Row:
Before you take any steps toward real estate investing, get your own finances in order. This means building a nest egg, purchasing a home of your own, and squaring away any unnecessary debt you may have, such as overly high credit cards or high interest rates on a car loan.
Track your spending—both frivolous and bill-related. Understanding your purchases will help you see where you could potentially save money to put toward your investment plans. Building a savings account to put strictly toward your investment property is always a great way to start as it will help you with any down payments that are required as well as any bumps you may encounter along the way.
Goals, Goals, Goals:
An important DO when it comes to investing—regardless of whether you’re looking at turnkey properties or not—is to write down your real estate investment goals. Having a clear understanding of what you’re looking to gain from the industry will allow you to make concise, educated decisions regarding property purchases in the future.
Break down all the details when creating your plan—what your budget is, how long you want to tie your money up into the property, risks you’re comfortable taking, etc. Do you want to purchase, rent for a year or two, and then flip? Do you want to purchase an already-rented home and sit back and collect the payments with little to no action on your part? Are you looking to build a varied investment portfolio or are you looking to stick to one type of investment and tenant-base?
Understanding all of these items will help you out when you begin your search for property and tell you whether you want a ready-to-go turnkey property or if you’re looking to get your hands dirty yourself.
Before you can properly make any informed decisions regarding properties, investment types, or locations, you’ll need to do your research. Research the national market and then scale it down to areas that meet your investment goals and needs. Once you’ve narrowed it down to a state or city, research it further and decide on a neighborhood. You’ll need to thoroughly understand the area’s market, the school, job, and crime ratings for the area, and the local average rental rates.
DO check into purchasing options prior to making any decisions. Some cities offer benefits to out of area investors than others. Some locations have lower tax rates and discounts. Certain cities even offer financing programs to those looking to invest in their area.
DO research turnkey companies by interviewing past and present clients, check their vacancy rates, and purchase/sale prices. Do their current portfolios match the type of investment you’re looking to make? Are their contractors licensed and insured and do they offer 24 hour maintenance services after you purchase the property?
The Bottom Line:
DON’T ever forget what really matters when selecting investment properties: the bottom line. This shiny little number is the most important factor in any potential property. The bottom line includes more than just the final purchase price and the monthly rental rate. You need to factor in any community fees, maintenance fees, insurance, property taxes, repairs, and so forth.
Check it Out:
DO scope out the neighborhood. Do your research on the area. There are plenty of websites available for combing through market studies and research data regarding the neighborhood you’re interested in purchasing in.
DON’T purchase a property based on pictures and reports provided to you by the turnkey company. Always make time to visit the property in person—even if it requires hopping on a plane to do so. Photos can be misleading and reports can omit important information. Seeing the property with your own eyes can help you to avoid making a costly mistake such as seeing water damage in the back corner of the basement or cracks in the foundation, neither of which would appear in photographs.
If an investment seems simply too good to be true and you feel pressured to snatch it up before someone else does, take a step back and reevaluate. While there are great deals to be had in the turnkey industry, be wary of anything that seems like it is too good of an arrangement. Generally, you won’t be the first to have seen the property and, if that’s the case, then you’re likely missing something that an experienced investor passed up on. Sure, there is a chance that you may be the first to see the property, but those chances are 1 in every 20.
DON’T act an on impulsive feeling—it’s likely that you’ll end up regretting it later.
Just Do It:
After all of the research and scrutinizing you’ll be doing over each and every property, making that final leap can sometimes be difficult. At this stage, you have to be careful not to overanalyze everything. If you’ve run all the numbers, visited the property, and verified all the information and everything looks good, DON’T let yourself get what the industry refers to as “analysis paralysis”—a common issue for new investors. As long as you’ve double checked everything, go for it.
Now, this doesn’t mean to just jump into it because on the surface it looks like a good deal. Do your research and your due diligence. Then, check it again. If it lines up on the second look-over, go for it. As long as you’re making an informed decision, chances are you’ll be okay. If you’re still nervous, there are plenty of mentors and other professionals in the industry that can be hired as a consult to verify whether the purchase is viable.
For investors looking to purchase investment properties in Detroit, Strategy Properties offers a safe, reliable method to invest in rental properties. Providing a certified team of Detroit real estate experts, Strategy Properties combs the city to find only the most practical of investment properties. Every property is scrutinized, analyzed, and reviewed before being added to the Strategy Properties portfolio. You can rest assured that each property shown to you will be of the highest caliber, with an exceptional return on investment, and the lowest output costs possible. While we encourage you to review each property personally, we won’t show you anything we wouldn’t purchase ourselves.