Most people know that real estate ventures are immensely profitable, and they’re not wrong. With a market value of about $3.81 trillion, real estate is a goldmine for investors. Plus, since real estate is highly diversified, anyone can get a piece of the $3.81 trillion pie.

Renovating cheap, run-down properties and selling them for a profit is one of the best ways to invest in real estate. However, not everyone has the time or dedication to go through the hassle of finding and renovating properties. If this sounds like you, you could always invest in turnkey rental properties.

However, there are a few factors you might want to consider before taking that leap. In today’s post, we’ll be highlighting a couple of factors you need to consider before investing in turnkey properties.

What Is a Turnkey Property?

A turnkey property is a ready-to-rent investment property. In other words, it’s a fully renovated property that already has tenants. All you have to do as the investor is sit back and collect the rent each month.

Sounds like a pretty great deal, right? And it is. Turnkey properties are one of the best investments you can make. However, as with any investment, there are certain risks and factors to consider before diving in headfirst. 

Here are a few things you need to take into account before investing in such properties.

1. The Housing Market

Turnkey rental properties are a great way to make money, but only if the housing market is looking good. If the housing market crashes, it’ll be much harder for you to sell the property or even find tenants.

Before investing in turnkey rental properties; do your research and make sure the housing market is stable. You can do this by looking at things like population growth, job security, and average rent prices.

Alternatively, you could hire a real estate professional to do the heavy lifting.

2. The Property’s Market Value

Of course, you’ll also want to make sure the turnkey property you’re interested in is actually worth your investment. To do this, you’ll need to have the property appraised.

An appraisal will give you a pretty accurate estimate of the property’s market value. Once you know the market value, you can compare it to the purchase price and make a decision accordingly.

If the market value is lower than the purchase price, you might want to think twice about buying the property. However, if the market value is higher, it’s probably a good investment.

Don’t forget that turnkey rental properties are only worth your investment if they’re actually worth something on the market.

3. Where You’ll Get Financing

Unless you have a huge chunk of cash saved up, you’ll need to get financing for your turnkey rental property. And since turnkey properties are usually more expensive than regular properties, this could be difficult.

Before investing in a turnkey property, make sure you know where you’ll get the financing. You could always take out a loan from the bank, but this isn’t always the best option. You might be better off finding a private lender or using a home equity line of credit.

Turnkey rental properties are a great investment. But you need to afford them first.

4. The Cash-on-Cash Returns

Another factor to consider before investing in turnkey rental properties is the cash-on-cash return. This is basically the amount of money you’ll make each year after accounting for all your expenses.

To calculate your cash-on-cash return, simply take your annual cash flow and divide it by your total investment. For example, let’s say you’re investing $100,000 in a turnkey rental property.

After your first year, you’ve made $20,000 in cash flow. This means your cash-on-cash return would be 20%.

Ideally, you want to aim for a cash-on-cash return of at least 15%. Anything less than that may be a poor investment.

5. The Presence of Existing Tenants

As mentioned earlier, some turnkey rental properties come with tenants. While this sounds great, it could also be a problem.

For starters, you’ll need to do a background check on the tenants to make sure they’re actually reliable. You don’t want to end up with toxic tenants that never pay their rent on time or cause damage to the property.

It’s also important to remember that you might not always agree with the existing tenants. They could have different ideas about how the property should be managed. This will likely generate a lot of friction between you and the tenants.

That’s why smart investors hire property management companies to oversee their properties. This leads us to the next point.

6. The Property Management Company

If you don’t want to deal with the tenants yourself, you’ll need to hire a property management company.

A good property management company will take care of everything for you. This includes everything from finding tenants and collecting rent to maintaining the property.

Of course, you’ll have to pay the property management company, but it’s worth it if you want to sidestep the hassle of dealing with tenants. Not all property management companies are created equal. You’ll need to do your research to make sure you find a reputable one.

The last thing you want is to end up with an inept property management company. It could run your investment to the ground.

7. The Quality of Fixtures and Systems

Since turnkey rental properties are usually move-in ready, they come with all the fixtures and systems in place. Looks are deceiving, so don’t let the furnishings and aesthetics blind you from seeing what’s important.

Before investing in a turnkey property, make sure the fixtures and systems are actually up to par. Otherwise, you’ll end up spending a lot of money on repairs and replacements.

The appraisal should reveal details about the state of the fixtures and systems so you can make a more informed decision.

Invest in Memphis Turnkey Rental Property

Investing in turnkey rental properties is never a bad idea. Just don’t forget to take the above factors into consideration before investing in one. Also, ensure you do your homework to find the best property to invest your hard-earned cash into.

Here at Memphis Investment Properties, we offer only the best properties for you to invest in. Contact us and we’ll get started on your investment.