Everything You Need To Know About Turnkey Rentals

| September 29, 2021
turnkey rentals

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Long distance investing used to be only for the wealthy, but today, it’s increasing in popularity thanks to turnkey rentals. Millions of real estate investors have realized the potential of long-distance turnkey rental properties, giving a new meaning to passive investing.

What Are Turnkey Rentals?

Turnkey rentals can have a few meanings. In general, it means you invest in a property already outfitted with tenants. You ‘turn the key’ in the investment by buying the house and taking over its ownership. Property management companies manage most turnkey properties. All new owners do is collect the check.

Sometimes it’s more complicated than that, though. It depends on where and how you invest in the properties.

In some instances, a turnkey property is a property you buy, fix, and rent out. Once you have tenants, you hire a property management company to handle the property’s daily tasks. All you have to do is collect the profits.

How Do You Buy Turnkey Rentals?

You’ll find turnkey rentals in many places, but here are the two most common ways to buy them.

Buy From a Turnkey Company

Turnkey companies buy properties, rehab them, and sell them to investors like yourself. One part of the company does the buying and rehabbing, and the other does the selling and property management.

Once a property is ready for the market, the property management side of the turnkey company takes over. They handle marketing, leasing, and property maintenance. 

When you buy the turnkey property, you simply provide the money to own the home and rent it to the provided tenants. The property management company handles all aspects of managing the home and even the tenants.

Turnkey companies usually have a market niche – typically within a specific price range. They buy undervalued homes (usually foreclosures or short sales), fix them up, and sell them to investors for a higher price.

Buy From an Untraditional Turnkey Company

Some turnkey companies don’t handle both buying/rehabbing and managing properties. Instead, they focus their efforts on finding properties, buying them, and fixing them up.

Companies that just buy and rehab properties use platforms like

Roofstock Marketplace

to market the property, sell it, and match the buyers with excellent property management companies.

How Do Turnkey Rentals Work?

Your experience will differ based on the type of company you use to buy the property, but many commonalities exist.

Buy a Home With Tenants in It

Whether the home you buy already has tenants in it or hte property management company helps you find tenants, you own a home that earns cash flow. You earn the difference between the rent collected and the expenses, such as property management company fees, taxes, insurance, and your mortgage payment.

The Property Management Company Handles the Home and Tenants 

The right property management company will manage the tenants and the home. Each company offers different services, but typically they screen applicants, help you choose tenants, and execute the lease. They also handle non-paying tenants and evictions if it comes down to it.

Property management companies also manage the property itself. When the hot water heater breaks or a pipe leaks, the property management company sends a contractor to the house to fix the issue. 

Find New Tenants at the End of the Lease

Leases don’t last forever, and sometimes, you’ll find yourself without tenants in the property. When you own a turnkey property, the property management company will help you find new tenants and fill the vacancy as quickly as possible.

What Are the Advantages of Turnkey Rentals?

Like any investment, turnkey rentals have many advantages.

Long Distance Investing

This is the most considerable benefit of turnkey rentals. You don’t have to stick to investing only in your backyard, so it’s convenient. With a property management company handling most aspects of owning the home, you can buy property across the state or even across the country.

This gives you more access to affordable properties. Let’s say, for example, you live in New York City, where property values are high, and new investors can’t afford the higher prices. If you use Roofstock Marketplace to find a property in Arkansas to rent out, you may be able to afford the property and can invest much sooner. 

Passive Income

Investing in real estate isn’t passive unless you use turnkey rentals. With property management companies handling all aspects of managing the property, all you have to do is collect a check. You put the money in the home, and the property management company does the rest.

You earn the monthly cash flow from rent and also any appreciation the home earns while you own it.

Instant Appreciation

If you buy a traditional turnkey property, buying it for an undervalued price, fix it up, and then rent it out, you’ll earn instant appreciation after fixing the home back up.

While this isn’t cash in your pocket immediately, it’s a nice nest egg, knowing you have equity in the home that will likely continue growing until you sell it.

Easy to Buy

Buying real estate can feel overwhelming, but when you use a marketplace like

Roofstock,

you get all the information you need to make an informed decision. Most Roofstock buyers buy a home before even seeing it. 

They rely on the information provided by Roofstock, including all financial evaluations. Since most Roofstock properties have tenants in them already, everything is done for you – all you need is the money.

Diversify Your Portfolio

Even if you already invest in real estate, investing in turnkey properties diversifies your risk. Let’s say you only invested in your home area. What if the market tanks in that area? If you have all your money there, you could lose everything.

If you diversify and invest around the country, you offset the risk of a loss since real estate markets operate independently of one another.

What Are the Disadvantages?

Like any investment, there are downsides to turnkey rentals you should be aware of to help you decide.

You Must Rely on Others

If you invest out of state, you put your investment in the hands of a property management company. They interact with your tenants, handle the home maintenance, and deal with any lease or payment issues.

If you’re an impatient person, it can be hard to wait while others manage your property, find new tenants, or evict the current non-paying tenants.

Lower Profits

If you don’t shop around and find the most affordable yet reliable property management services, it could eat into your profits. You have to decide what’s worth more to you – money or time. If you invest locally, you can handle the home’s needs yourself, but it can take up a lot of time and cause many headaches.

If you hire a property management company, you have to pay them their monthly service fees, plus any extra costs for repairs or other services you need along the way. This could deplete your profits but leave you with more time.

You Don’t Interview Tenants

You have to put your home’s livelihood in the hands of tenants you haven’t met. The property management company does the tenant screening. If you buy a property with tenants in it already, you must trust that they are good tenants. If you use

Roofstock Marketplace,

you can trust that they vetted the tenants before listing the property on their marketplace, including their payment history.

Vacancies

Any investment property creates the risk of loss. Whether you buy a home to fix up and sell and it doesn’t sell for a long time, or you buy a turnkey property but don’t have tenants, there’s a risk.

Vacancies happen even in the best homes in the best neighborhood. You must figure in carrying costs into your budget to plan for the worst based on the average vacancy rate in the area.

Where Do You Find Turnkey Rentals?

If you’re ready to buy turnkey rentals, here are a few key places to look.

Roofstock Marketplace

Roofstock makes it easy to invest in turnkey rentals. Not only is Roofstock a platform with investment properties for sale – they certify every property they list. They don’t list every property a seller brings to them. They do their due diligence first to ensure it would be a good investment for the right person.

Roofstock doesn’t own the properties it sells – they are a marketplace. In the listing, you’ll find the traditional description of a property, its measurements, and features, but you’ll also find plenty of financial information, including projected returns, cash flow, net operating income, and cap rate.

Corporate Turnkey Rental Companies

Many corporate companies are investing in properties, fixing them up, and selling them to long-distance investors. They cater to investors who want a passive investment and hire property management companies to handle the property. 

Many corporate turnkey rental companies offer seller financing, making it easier for investors to start their real estate journey.

Real Estate Flippers

Real estate flippers have been around for decades. These are individuals who buy undervalued properties, fix them up, and sell them to investors.

Because they are individuals and don’t have a company’s marketing budget like

Roofstock

they are harder to find. You’ll get less information from them about a property’s capabilities than you would from a marketplace like Roofstock. 

How to Finance Turnkey Rentals

Real estate investors have a unique circumstance when buying properties. Unlike investing in stocks or bonds, you can leverage your investment. For example, if you find a property for $150,000 but only have $30,000 to invest, you can borrow the rest with a mortgage.

Real estate investors have a couple of options when financing turnkey rentals.

Investment Financing

Many lenders offer investment home financing to help real estate investors buy homes. The terms and requirements are often more challenging than traditional loans for a primary home because the risk of default is higher. Most lenders require a 20% – 30% down payment, decent credit, and a low debt-to-income ratio.

Home Equity Loan

Suppose you have equity in your primary residence or even an investment property you own. In that case, you can tap into the equity, using it for the down payment on an investment property. 

Home Equity Line of Credit

A HELOC also uses the equity in a home you own but provides it as a line of credit (like a credit card) rather than giving you the money in one lump sum. You can use the credit line like a credit card for ten years, making at least interest payments on the money you withdraw. You can use the funds as your down payment or even pay cash for an investment property.

The Bottom Line

Turnkey rentals are a great way to invest in real estate. You buy a property and have a hands-off investment. If you buy from Roofstock Marketplace, you may even buy a property with tenants already in it.

The key is to earn monthly cash flow from the rent and have the long-term investment of the equity you earn in the property by owning it long-term. The right property management company can help you make your turnkey rental investment a passive and profitable investment.

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Category: Real Estate

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Roofstock is building the world's leading real estate investment marketplace. Our mission is to make ownership of investment real estate radically accessible, cost-effective and simple. Our platform lets everyone from first-time investors to global asset managers evaluate, purchase and own residential investment properties with confidence from anywhere in the world. Since launch, we've surpassed $4 billion in transactions and continue to disrupt the industry with cutting edge technology and innovations. No matter your investing goals, Roofstock is here to help.

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