Once you start maxing your contributions to a 401(k) or other types of retirement accounts, most people start looking for other investment options. You might start a business if you have time, or invest in one if you don’t have time. You can invest in the stock market directly.
Of course, the risk of losing your investment through those routes is higher than average. If you want something a little less risk-heavy, real estate is a viable option. One popular option for real estate investment is a turnkey property.
Not up to speed on turnkey properties? Keep reading for a quick breakdown of what you need to know about them.
What Is a Turnkey Property?
When you buy a property to own and live in or one that you plan on using as a rental, there is almost always a renovation process. You must pick and hire a contractor. Then, in most cases, the contractor spends a few months fixing or upgrading the property to meet your expectations.
In those scenarios, between buying and renovating the property, you can spend as much as a year or more before you can move in or let tenants move in. That’s a long time to wait before you can do anything with an investment.
With a turnkey property, you bypass the entire renovation phase of the process. Another person or company buys a property and renovates it themselves. Then, they sell the property as a ready-to-move-in or ready-to-rent property.
In essence, you can take the key they hand you, turn it in the lock, and move in belongings.
Turnkey Investment Properties
Most turnkey investment properties become turnkey rental properties. You buy the property with the intention of holding it as a long-term investment and renting it out.
Let’s say you buy a turnkey duplex. You can rent out both parts of the duplex and set the rent high enough to cover the mortgage, taxes, upkeep, and still generate some profit.
Another option is buying a property in a tourist-adjacent location or picturesque part of the country. Rather than handling it as a traditional rental with one tenant, you treat it as a vacation rental. You can set much higher rates daily, weekend, or weekly use to help offset the slow seasons.
Depending on the property’s location, the busy season will vary. For example, a property near Denver might see much heavier use in the winter during the skiing season. A property in New England will likely see more traffic in the nicer weather of summer and fall.
Benefits of Turnkey Rental Properties
One of the key benefits of turnkey rental properties, as mentioned above, is that they let you start the renting process as soon as you close on the property. That lets you start generating an active revenue stream from the property much faster than renovating yourself.
Turnkey properties are generally inflation-resistant. The value of property generally rises over time and, typically, in sync with inflation.
With turnkey rentals, you can expand beyond your local market. While the prices of any property in Los Angeles or Manhattan may remain forever out of reach, you can often find properties in other areas that you can reasonably afford. That does come with management challenges that we’ll cover in more detail below.
You get a source of passive income that typically remains steady, particularly if you choose rental properties like multi-family homes where the rent remains constant or rises slowly over time.
While turnkey properties offer many advantages, there are a couple of potential pitfalls. As a general rule, you will pay more for a turnkey property than a similar property without the renovations. While you could get a similar property and renovate it yourself, even for less overall, you trade away the income you could make during the renovation process.
You also get very little say in the look and feel of the property. You more or less accept the colors, flooring, fixtures, and appliances selected by the individual or company from which you purchase the property. Otherwise, you must take on additional renovations which makes buying a turnkey property something of a moot point.
When you buy outside your local area, you also lose much of the direct management you would enjoy with a local property. You won’t know the local services, such as plumbers, electricians, or lawn care, which makes maintenance and upkeep tricky. Fortunately, that is a problem with a solid solution.
Turnkey Property Management
Most people who look at turnkey property investments do not particularly want an active role in managing the property on a daily basis. They want a financial return on investment, not a second career as a landlord. That’s why most turnkey property owners work with a property management company.
The property management company essentially steps in and takes on the role of landlord for those properties. In most cases, they maintain offices in the same general area as the property and hire locals for the day-to-day roles.
The company handles everything from marketing vacancies in your property to collecting rent and handling repairs and maintenance. Since the company operates locally, it’s better positioned to find both reliable and affordable local services for those repairs.
While every company is a little different, they usually charge somewhere in the neighborhood of 10 percent of collected rents. Most investors find that offloading all of those daily headaches is well worth the price.
Is a Turnkey Property Right for You?
A turnkey property makes an excellent investment for the right person. It lets you make a long-term investment that will generally appreciate in overall value while providing passive income. It also lets you invest beyond the local area, where real estate may cost more than you can afford.
You must accept certain realities, though, such as limitations on the final look of the property. In most cases, you hand over daily decision-making to a property management company.
Memphis Investment Properties specializes in turnkey properties and property management. For questions about available properties or our services, contact Memphis Investment Properties today.