Are you looking to invest in real estate? You’re not alone. There are over 11 million independent landlords across the US, making real estate one of the most popular investments in the nation!
However, one real estate investment stands above all for security and profitability. Let’s talk about turnkey rental properties and see why they might be right for you!
So, What Exactly Is Turnkey Real Estate?
Turnkey rental properties are investment properties that are essentially ready to go. They have their name because all you have to do is “turn the key.”
Moreover, this contrasts with buying a “fixer-upper” or flippable property or an older building needing renovations. Instead, turnkey properties are either newer or recently renovated and typically have existing tenants. Upon purchase, the new owner assumes the responsibilities and liabilities of the previous owner.
There is one significant downside here for confident investors. Turnkey properties are the most expensive to purchase upfront, and many investors will not have the capital to invest. For this reason, many investors choose not to go this route.
However, turnkey properties are arguably the safest investment you can make if you have the money to invest. Here are some reasons why!
1. You See Immediate Earnings
The most obvious benefit of choosing a turnkey rental property is that you can earn from it immediately. If you spend most of your capital on a down payment or cash purchase, there’s no reason to worry! You will start receiving rental checks within the first month of ownership.
This makes it a much safer investment than a flippable property. You won’t have to take out risky bridge loans or hold your breath and hope for the best. Instead, you can start seeing a cash flow immediately, which will only continue for years.
2. There’s a High Resale Potential
Many new investors calculate potential earnings before purchasing to see their possible return on investment for renting the property. They are usually justifiably ecstatic to know that they can earn their money back in 5 to 15 years and then continue earning from there!
However, the resale value is often left out of this equation. Not only will you earn your money back through your rental income, but your asset will still be there.
This is why so many people choose to invest in real estate. You have a tangible asset always in high demand, and you can even earn a profit on the resale in the right market.
With a fixer-upper, you have to invest up to 100% (or even more) of the price you paid for the building just in repairs, and you have no idea what could go wrong while doing them. An inspector can only tell you so much, and there are plenty of ways for remodeling and repairing to go over budget.
For that reason, a turnkey property is a much safer investment. You will have to put in much less to maintain the building, and the property will likely continue rising with the market.
3. You Qualify for Financing Coverage
Turnkey properties, especially ones with existing tenants, allow you to stretch your financing as much as possible. Your tenants will immediately cover your mortgage, allowing you to stretch the rates. This will enable you to build potential equity over time.
For example, if you purchase a fixer-upper for $150,000 and put $100,000 worth of work into it, there’s no guarantee you’ll see a return on your investment. You’ll have to find tenants or a buyer willing to pay at least $250,000 just to break even.
Conversely, if you purchase a turnkey property for $350,000, you may have to take out more loans or spend more of your capital. However, you will still build more monthly equity, as the rental income will be much higher than your mortgage with the right property.
Let’s do the math and imagine you have $100,000 in cash. If you take out a $150,000 mortgage to renovate an older property, you’ll have to spend at least six months (plan for twelve or more) without rental income where you have to cover the mortgage payments yourself. From there, there’s no guarantee that your renovations will see a 100% ROI, which leaves you covering those expenses as well.
On the other hand, if you take out a $250,000 loan on a turnkey property and receive $4,000 each month in rent, you can easily afford to pay it down by $2,000 each month. This will pay off your property in 10 years and five months, building an extra $2,000 in equity every month and still excess revenue.
4. You Can Charge the Highest Rent Prices
Of course, a successful flip can lead to charging high rental prices, but it’s essentially guaranteed with a turnkey property. You can even rent out an older property that needs renovation, but you can’t charge as much.
If you’re in the right market, you’d be amazed at how much you can earn monthly with a turnkey property. The average rent price per unit across the US is now over $1,300 and over $2,000 in most major cities.
With a nicer, turnkey property, the sky is the limit. The price you set can easily dwarf your mortgage payments!
5. You’ll Experience Fewer Vacancies
Turnkey properties in good condition will rent out much faster. If you give renters a reason to move in, you can keep your vacancies to a minimum, which only helps secure your income over the short and long term.
Even one vacancy can add up to significant losses. An extended vacancy of six months in one of two units is a quarter of your annual income while you still have to continue paying the mortgage and maintaining the property. Quality rental units are much easier to market!
6. You’ll Have a Sense of Security
Time and time again, real estate is deemed one of the safest investments, which is why it’s so popular. Again, it’s a tangible asset, and everybody needs somewhere to live!
Moreover, this offers a level of security beyond most investments already. Even with cryptocurrency and stocks dominating the news cycles, millionaires still agree that real estate is the best investment.
Well, turnkey properties are undoubtedly the safest. There are fewer variables to worry about than with a fixer-upper, and you can begin earning right away with steady and predictable expenses. In many cases, this can last for ten years or more while you continue to build equity!
7. You’ll Have No Problem Attracting Quality Tenants
Your property and location are two essential aspects when buying an investment property. Either factor can make or break your investment. Also, your only defense is preventative.
The third factor is your tenants; again, your only defense is preventative. One bad tenant can cost you a small fortune in damages and lost rent, and you can only have many safeguards to prevent this.
Consequently, offering a high-quality apartment unit at the right prices can help you attract and screen the right tenants, which only secures your investment.
8. Hiring Property Management Is a Breeze
If you’re interested in earning passive income from your real estate investment, you will need a property manager to handle the day-to-day tasks. Property managers take a small portion of your rent, but they handle everything from rent collection to tenant screening, marketing, maintenance, and all of your other responsibilities.
For this reason, a turnkey property is the best option if you intend to hire a property management team. The higher rent prices and reliability will make their fees negligible. They will even help you set the right rent prices for your local market, which can translate to a higher profit even after their fees!
This can free you up and offer peace of mind that you have the right team managing your property and that your property is in good condition. From there, you’re free to travel, retire, or work full-time without worrying about your property.
Choose the Right Turnkey Rental Properties Today
Now that you know the benefits of investing in turnkey rental properties, you can see why it’s such a popular investment. You don’t have to wait to start earning, and it’s a much safer investment strategy overall. If you have the funds to meet the initial barrier to entry, there’s no reason to take on unnecessary risks.
Stay up to date with the latest real estate tips and industry news by visiting our blog often. And don’t hesitate to contact us with any questions or for help with your property management needs.