Investing in Turnkey Real Estate

By Bill Jackson May 20, 2023 20 mins read 207 Views

By Joe Dyton, WCI Contributor

Real estate has become a go-to investment option for those looking for alternatives to the stock market. Deciding to invest in real estate is just the first step, however. Next, you have to decide what type of real estate in which to invest. Perhaps the biggest reason real estate investing has become popular is because it’s often sold as a way to make “passive income.” While no income stream is truly passive—at least some upfront work is required to generate income—there are some real estate investment options that can create income that’s more passive than others, such as turnkey real estate.

Keep reading to learn more about turnkey real estate investing, how it works, the pros and cons, and whether it’s the right real estate investment model for you.

What Does Turnkey in Real Estate Mean?

The term “turnkey” applies to any product or service that’s ready to be used right away. Essentially, you “turn the key,” and you’re good to go. When it comes to real estate, turnkey properties are ones that are ready to rent with a tenant in it and a fully assembled team on hand to take care of the property. Turnkey real estate properties do not require much upfront effort from investors, allowing them to generate rental income a lot faster than they would with more time-consuming investments.

More information here:

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Advantages of the Turnkey Model

There is no shortage of advantages when it comes to investing in a turnkey real estate property:

Full Control of the Property

Investing with the turnkey model allows you to still own the whole property. This includes having full control of when you buy or sell it. There’s no reason to worry about seeing your investment sold and you getting your money back only to have to pay high taxes on it because of your high income. You decide when the time is right.

Other examples of your control include having the ability to do a 1031 exchange to another property or a 721 exchange into a REIT, so you can defer paying the taxes on your gains for as long as possible. You can also choose the property you want and solely decide how much you’re willing to buy it and sell it for. It’s yours to leave to your heirs if you wish.

A (Mostly) Hands-Off Investment

Another advantage of the turnkey model is that most of your work is selecting the property. You’re not responsible for putting together a team of realtors, lenders, contractors, etc. You don’t have to worry about tenant selection, carpet and paint colors, or late-night maintenance calls. The turnkey model is the most passive way to own a real estate property directly.

Invest from Anywhere

You’re also not bound to your local area to invest in real estate. You could buy non-local properties without the turnkey model, of course, but it would not be nearly as easy. You’d be responsible for finding a realtor, attorney, property manager, and repair person. All of that is difficult enough to do in the area you actually live.

The turnkey model expands your investment opportunities, which can be helpful if you live somewhere where you don’t want to buy real estate. Or maybe you just happen to live in an area that’s the best place in the country to invest in real estate. If not, turnkey investing lets you invest in the best areas and maintain maximum control of your investment.

Turnkey Model Makes Real Estate Investing Easy

A fourth advantage is you gain some economies of scale. For example, a top-notch turnkey company has streamlined the rental property management process and procedures, particularly for single-family homes. The expertise of these companies is at your disposal, minimizing hassle for you and increasing the chance of getting high returns.

Turnkey investing offers lots of advantages. No wonder so many white coat investors are interested in it.

More information here:

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Disadvantages of the Turnkey Model

Few, if any, investment opportunities are void of disadvantages, and the real estate turnkey model is no exception:

You’re Investing on Your Own

For starters, it’s great that the turnkey model allows you to own an entire property, but at the same time, you own the entire property. That means you need enough money to purchase it—a 25% down payment on a $400,000 property is still $100,000 that you’d have to bring to the table. That’s a substantial amount of money for most white coat investors. A significant down payment like that will also leave you less diversified than you’d like; if that property underperforms, so do you. You’re also at the mercy of how well the city your property is located in performs.

The only way to avoid letting a single real estate investment drag down your portfolio is to acquire more properties. Unfortunately, that will take a lot of time and money that you might not have. You’ll also need to qualify for a property loan and sign for it personally. Suddenly, you have even more than your entire investment on the line if things go south.

You Have to Count on 1 Company

Using the turnkey model also means you will be heavily reliant on a single turnkey company for your investment. If it performs poorly, so will your investment property. Bad ROI, lots of stress, and headaches are all results of picking the wrong turnkey company.

It Can Be Tough to Keep Tabs on Your Investment

One of the previously mentioned benefits of the turnkey model is that you aren’t limited to investing in your local area. There’s also a downside to that, however; you can’t easily keep tabs on your investment property when it’s in another state. Sure, you may have a turnkey company nearby to monitor things, but it likely won’t care about your investment property as much as you do.

Don’t forget about potential tax hassles. If your investment property is in a state with state income taxes, that means more paperwork and more time—and direct property investment reporting is a lot more complicated than filling out a 1099 or a K-1 from a passive investment.

Less Room for Variety, Additional Expenses

If you were hoping for variety among your investment properties, the turnkey model may not be a good fit. Turnkey companies often use the same carpet, tile, and paint in all of their properties in an effort to save money.

You also need to consider the additional costs that come with using a turnkey company. Every time-saving task it performs will cost you money, and that will lower your ROI.

Turnkey investments have advantages, but they have disadvantages as well. Make sure you are familiar with and OK with the disadvantages before you buy.

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Who Should Consider Investing in Turnkey Real Estate?

turnkey real estate investing

Turnkey real estate investing could be good for rental property investors as well as seasoned property owners who quickly want to expand their portfolios. If you have available funds and don’t want to spend a lot of time renovating an investment property, the turnkey model is a good option—just don’t forget to weigh the pros and the cons.

Additionally, think about your investment plan. If you’re comfortable with the longer-term, buy-and-hold approach, turnkey might work well for you. However, if you’re more interested in a quick financial return, you might want to consider house-flipping. There will be more upfront work in terms of getting the property ready to sell, but you’ll have a chance to turn a profit sooner than you would by acquiring a turnkey property.

What to Look for in a Turnkey Company

The turnkey real estate company you choose could significantly impact how much success you have with this investment model. Be sure to do your homework before you decide on a turnkey real estate company to work with. A good choice will help you find high-quality properties to acquire for years to come.

Here are a few things to consider when looking for a turnkey real estate company:

High-Quality Property Listings

The more in demand a property is, the more valuable it can be to you as an investor. Make sure that any company you work with has a solid roster of turnkey properties—and can back up their claims with documented return on investment and positive cash flow. Inquire why the company opted to acquire property in a particular area. Additionally, turnkey companies that invest in areas where they also have properties for sale is a good sign that they believe in that community’s ROI potential.

Easy to Get in Touch

You want to contact your turnkey rental company without much trouble. It doesn't need to be available to you 24/7, but it’s fair to expect that the company returns your call or email within 24 hours.

The Property Is Under Your Control After Purchase

After you buy a turnkey rental property, the company should be willing to let you manage it as you see fit. The company should not dictate which property management company you use—or demand that you use one at all. Decisions should be yours and yours alone once you officially own the property. Note that some companies do require you to use them as the manager for a year or two after purchase.

Available Funding

Working with a turnkey company that has relationships with trustworthy lenders will make using this model a lot easier. A company that can help you access property listings is nice, but one that can assist you in actually acquiring a property is even better.

How to Select a Turnkey Property

When you select a turnkey property, you want it to be one that will be financially beneficial to you at the time of purchase and in the future. Think about how much cash flow you want a property to generate for you. You also need to determine what payment options are available to you to help you purchase your turnkey rental property. If you have cash saved up, that’s great, but otherwise, you’ll need to find a trustworthy lending source.

Determining potential cash flow and finding funding to help pay for your property comes down to the aforementioned factor of selecting the right turnkey company. It’s the first and most critical step in selecting a turnkey property.

Again, the right company will guide you away from properties that could cause problems for you down the road, show you properties that can produce your desired monthly cash flow, and connect you with trusted lenders so you can purchase a turnkey property hassle-free. Once you have a good turnkey real estate company in place, the acquisition process will become a lot easier.

Meanwhile, do not get too hung up on your proximity to the turnkey properties you’re considering. Of course, it would be more convenient if your portfolio was comprised of rentals that were a short drive from your main residence, but to make this a truly profitable venture, you’ll likely need to invest in properties that you might not ever see in person. You want to acquire properties in the best markets and deliver positive cash flow, and that will mean searching outside of your hometown.

Best Turnkey Real Estate Investments

Working with a turnkey real estate company allows you to own properties directly and singly. You get to enjoy all of the benefits, such as profits and control, but you're also on your own when dealing with the downsides of illiquidity and a lack of diversification. However, turnkey companies will take care of fixing up or building a property and acquiring a tenant prior to selling it to you. Turnkey companies’ services come with fees, but they also decrease the hassles that often come with direct ownership.

For example, Southern Impression Homes specializes in helping individual investors build successful rental portfolios in high-growth, landlord-friendly markets in Florida. The company focuses on new construction homes in desirable neighborhoods that are designed to maximize landlord profit with better inventory. It has less tenant turnover, requires lower maintenance and repairs, and has a better overall growth strategy for both rents and values.

Southern Impression’s system provides full service in acquisition, building, construction, property management, and ongoing client support and education. They are one of several WCI partners.

Featured Real Estate Partners

DLP Capital

Type of Offering:

Fund

Primary Focus:

Multi-Family

Minimum Investment:

$100,000

Year Founded:

2008

Type of Offering:
Fund

Primary Focus:
Multi-Family

Minimum Investment:
$100,000

Year Founded:
2008

37th Parallel

Type of Offering:

Fund / Syndication

Primary Focus:

Multi-Family

Minimum Investment:

$100,000

Year Founded:

2008

Type of Offering:
Fund / Syndication

Primary Focus:
Multi-Family

Minimum Investment:
$100,000

Year Founded:
2008

MLG Capital

Type of Offering:

Fund

Primary Focus:

Multi-Family

Minimum Investment:

$50,000

Year Founded:

1987

Type of Offering:
Fund

Primary Focus:
Multi-Family

Minimum Investment:
$50,000

Year Founded:
1987

Mortar Group

Type of Offering:

Syndication

Primary Focus:

Multi-Family

Minimum Investment:

$50,000

Year Founded:

2001

Type of Offering:
Syndication

Primary Focus:
Multi-Family

Minimum Investment:
$50,000

Year Founded:
2001

Wellings Capital

Type of Offering:

Fund

Primary Focus:

Self-Storage / Mobile Homes

Minimum Investment:

$50,000

Year Founded:

2014

Type of Offering:
Fund

Primary Focus:
Self-Storage / Mobile Homes

Minimum Investment:
$50,000

Year Founded:
2014

Origin Investments

Type of Offering:

Fund

Primary Focus:

Multi-Family

Minimum Investment:

$50,000

Year Founded:

2007

Type of Offering:
Fund

Primary Focus:
Multi-Family

Minimum Investment:
$50,000

Year Founded:
2007

AcreTrader

Type of Offering:

Platform

Primary Focus:

Farmland

Minimum Investment:

$5,000

Year Founded:

2017

Type of Offering:
Platform

Primary Focus:
Farmland

Minimum Investment:
$5,000

Year Founded:
2017

Southern Impression Homes

Type of Offering:

Turnkey

Primary Focus:

Single Family

Minimum Investment:

$60,000

Year Founded:

2017

Type of Offering:
Turnkey

Primary Focus:
Single Family

Minimum Investment:
$60,000

Year Founded:
2017

* Please consider this an introduction to these companies and not a recommendation. You should do your own due diligence on any investment before investing. Most of these opportunities require accredited investor status.

Please note that due to the long-term nature of real estate investing, this process is dramatically more difficult, so The White Coat Investor’s real estate company list is more of an “introduction list” than a “recommended list.” You'll still have to do due diligence on these companies before you begin partnering with them. To learn even more, you can sign up for The White Coat Investor's monthly real estate newsletter that will alert you to opportunities to invest in private real estate syndications, funds, and turnkey properties.

WCI’s No Hype Real Estate Investing is the best real estate course on the planet and the best way to get started in this exciting (and profitable) asset class. Taught by Dr. Jim Dahle and more than a dozen other experts, this course is packed with more than 25 hours of content, and it gives potential investors the foundation they need. If you’re interested in real estate investing, you can’t afford to miss the No Hype Real Estate Investing course!

Have you ever acquired a turnkey property? What was your experience like? Do you prefer other ways of real estate investing? Comment below!

The post Investing in Turnkey Real Estate appeared first on The White Coat Investor - Investing & Personal Finance for Doctors.

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By: Josh Katzowitz
Title: Investing in Turnkey Real Estate
Sourced From: www.whitecoatinvestor.com/turnkey-real-estate/
Published Date: Sat, 20 May 2023 06:30:07 +0000

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