Turn key real estate investing is a very eye-catching strategy.
You don’t have to actually “DO” real estate:
- You don’t have to market for deals
- You don’t have to find off market properties
- You don’t have to cold call
- You don’t have to negotiate with sellers
But there IS a con to it.
Even though it seems “easy”, buying property “sight unseen”, blindly from a vendor you’ve barely vetted, when you have no “boots on the ground”, no eye on sight, etc…
… Can lead you to buying a BAD property.
Yes, even though the turn key property might be “cheap”, it doesn’t mean it’s a good deal.
Check out a free eBook from our founder Ryan Dossey, who explains how he got a bad deal from a FREE house (yes that’s right, someone GAVE him a house):
(you’ll be added onto Ryan Dossey’s email list where he teaches and gives real estate investing tips to building your own portfolio portfolio):
So in this article, we want to go over how to SAFELY buy turn key rentals so that you don’t get screwed and end up buying a property you don’t want (and can’t sell — yup, sometimes it’s a whole lot easer to BUY property than it is to sell it).
What is turn key real estate
Turn key real estate investing is a strategy and product where consumers can invest in a newly remodeled rental with new tenants inside. The the property and investment is literally “done for you”; hence the name “turn key”. Companies who provide “turn key real estate” do the work of having “boots on the ground” for you, where they find discounted properties, perform due diligence, repair the house, and screen tenants… without you (the buyer) involved.
It works out for those that just want to be an “arm chair” investor, regardless if this is “long distance investing” or in your own backyard.
So let’s lay out some steps to get into Turn key real estate (and at the end of the article, we’ll list off some other strategies if “arm-chair” investing is your choice)
Pros and cons of turn key
- Pros — (Everything is done for you. You just buy the property and you have an investment. You don’t have to worry about the ARV (after repair value), or renegotiation, etc…Most companies will guide you, and offer vendors for property management (if they don’t do it themselves — a lot of them do).
- Cons — (You pay a high premium. There’s good chance that it’s not a good property and not in a good location. There’s a good chance you’ll end up with more headaches: a lot of tenant turnover, shotty repairs, bad neighborhood, crime, and a house that no one wants to buy if you want to exit).
Market Location for your turn key property
So before you start shopping around for a turn key company, you need to figure where is the ideal location for you to buy.
What you shouldn’t do is choose a place solely because of real estate prices.
That’s a terrible way to start.
Because you have no idea:
- What kind of cash flow it has
- What the tenants are like (you can be a D-class area where you’ll be getting nothing but turnover and repairs every year)
- What the desire of the area is like (Locals might stay away from the area — you want to be in area that you can also SELL easily if you needed to)
- What’s the appreciation is like
This is probably one of the most daunting tasks.
You have thousands of marks to choose from… which do you go with it?
It comes down to what YOUR goals are. What’s the reason for investing in turn key? Just because it seems like a good idea? You need to be more specific than that…
So here are 2 common reasons people buy turn key:
- Passive income — (you’re trying to grow your monthly passive income to outpace your W-2 income)
- Wealth creation — (you’re trying to create a “nest egg” via appreciation so that in 10+ years you have built solid equity)
Some will say?
“But I want both?!??”
Yes you can have both as a “buy-and-hold investor”… (as there are some markets that will give you a little bit of both), but you have to choose which is most important for you in your stage of life right now. Some people love the job they do, and have no rush in quitting anytime soon. Others, hate their job and just want to be a real estate investor…
SIDE NOTE: If you choose the latter, we STRONGLY suggest you become someone who can find their own deals rather than relying on and paying a premium to turn key companies.
Check out this video on why turn key rentals aren’t for you if you want to be a career real estate investor:
And then if you think finding your own deals is something you’d like to venture into…
Then we HIGHLY suggest you get on this persons email list and Real Estate YouTube channel — he’s built a large rental portfolio from scratch, with very little money:
On to our regular broadcast…
Cash flow vs Appreciation
There are markets that offer lots of cash flow… and others that offer a lot of appreciation.
If you’re someone who wants to live on passive income ASAP… then cash flow now is your game.
You’ll want to choose the markets that are low price in comparison to the rental income they bring in that market; I.e. they fall under the 2% rule or the 1% rule.
If you’re someone who just wants to build a wealth portfolio for the future and your family… You’ll want to choose a market that has historic appreciation (Think Southern CA, Souther Florida, Boise ID — anywhere that has large/steady growth and you can see high appreciation percentages each year).
Here’s a great video that breaks it down:
Macro vs Micro markets
You have to start with the “Macro” market; aka, which state, which metros, which cities… before you start choosing neighbors or “pockets” in a city.
Here are some factors/metrics to choosing a macro market
Factors to choosing macro markets?
- What’s the states tenant/landlord laws — Some are much harder to be a landlord in.
- What’s the overall growth
- Employment rate
- Weather — This affects conditions, repairs, and desirability, etc
- Job Growth
- Net migration — If you look at all the people leaving and coming in, is there a NET number coming in every year?
- City laws for landlords — some cities have their strict laws for landlords or rent caps (for example: Some cities have placed caps on how many AirBnb’s you can have; some cities don’t allow you to raise the rent a certain percentage)
- More tenants the homeowners, vice versa — This affects who you sell the property to. You get more dollar if you sell to homeowners as opposed to investors.
Factors to choose a MICRO market (neighborhoods)
- What’s the overall “feel” of it — not a “hard metric” but what’s the feeling it gives when you drive through it. This is the SAME feeling your tenants/buyers will have too
- More tenants than homeowners — if you’re in a neighborhood where 90% of the properties are owned by investors, than your property will have direct competition
- How clean is the neighborhood
- What type of tenants does it attract
- Distance to highways, stores
Now, all this CAN be overbearing when choosing a virtual market (whether being a virtual landlord or a virtual wholesaler)…
So it leads me to the next question:
Why not choose your own “backyard”?
If you’re in an expensive market there are some pros to this where it offers explosive appreciation and equity — equity that can lead to HUGE paychecks where you can have “passive income” eventually. If the issue is not having a enough capital… I should divert you to a great article we wrote on buying great deals with little of your own money.
Check it out here (and subscribe below to on our list where you get first dibs on these articles): https://callporter.com/creative-financing/
You’d like to at least KNOW how to research all these factors and areas without spending years putting together spreadsheets.
Well check out this video below on choosing markets:
Getting eyes on the turn key real estate market
Once you narrow down on a handful of markets, it’s time to get eyes on it.
Yes I know, not IDEAL… but HIGHY recommended especially if you’re new. You don’t want to be lazy about this if you’re dropping $50k+ of your hard-earned money. So here are some things you can do to get “eyes” on the market:
- Call up hot shot agents — this is the easiest way to go about. Just call agents (and/or property managers). You’ll want to choose one that has been in that market for a while. They can tell: “Oh that neighborhood is a WAR zone. You don’t have to tell them you’re buying a turn key rental — because obviously they won’t get paid — but it’s great to have good agents in the market that your property is in, plus they can always bring you a good deal too, outside of Turn key real estate company.
- Research Turn Key companies in the area — Start looking into all the companies that offer turn key real estate. Look deep into them; Call up agents that might have dealt with them. look at the neighborhoods they have sold past deals in.
- Call local wholesalers — Some of them have as much knowledge or more about the area than agents. Befriend them as you can always ask them about neighborhoods — and you can get on their cash buyers list and BUY a property from them if you’re O.K. with repairing a house yourself .
- Book a flight — once you do the above steps it’s a VERY good idea to visit the area yourself. Get a feel for some of the neighborhoods or past deals you’ve seen online (Pictures can be VERY deceiving). Visit the neighborhoods that your resources tell you NOT to go to, to see why.
To warn you against being a “laptop landlord”, check out this video here:
Pulling the trigger on a turn key real estate company
After you’ve selected markets and got familiar with people who’ll be your “boots on the ground” you’ll need to choose a turn key company.
Depending ont he market, there can be MANY.
Most are terrible.
Some are good.
So how do you choose a company?
Here’s a step by step guide:
- See the deals they’ve sold in the past — Whether you’re there yourself or you have boots on the ground (the agents you’ve spoken to), get a feel for their past deals and get an opinion about the house from a local: What’s the repair like, how’s the neighborhood?
- Get opinions from locals — agents and wholesalers most likely have dealt with the company
- Get opinions from clients — if you can, figure out who has bought deals from the company and call them. If you can see their past deals, you can find out who owns the property and find their phone numbers with skip tracing tools.
And finally, you can always view this great real estate podcast on how to choose a turn key real estate company:
Other Real Estate Investing Strategies
Turn key real estate isn’t the only investment strategy out there if you want to be an “arm chair” investor.
And, it might not be for you…
Like mentioned before, if you’re someone who rather do the work yourself and BE a real estate investor… rather than just a side line observer parking his money… there’s a multitude of real estate business models for you that we’ll explain below:
- House hacking — House hacking is a great way to get started in real estate if you’re a new. Basically, you live in a house for a certain time (to get your FHA financing), and then rent it out or sell if there’s a nice pay check in appreciation.
- Become a private lender — If you have $100,000+ to put into a turn key rental, then you have enough to invest with a flipper in your market. Flippers are always looking for private money. And you can earn 9% – %12 interest on your money.If you want a guide to becoming a private lender, opt in below to our founder Ryan Dossey’s email list, to get your free guide called “Become the bank”:
- Go off-market — Other than becoming a private investor… we HIGHLY suggest you go after you own deals. Not only will you cut the agent fees (you can pay anywhere from $25k-$50k in realtor commission) but you can buy the property with EQUITY. Which gives you a safe buffer in case things go south. Going off market is by far the safest way to invest in real estate. To do this, you can buy straight from wholesalers/ wholetailers… or market to find deals yourself.
If you want to find your own profitable “turn key” deals…
We suggest getting on the eBook below and subscribing to our founder Ryan Dossey’s list where he teaches people how to find off-market deals: how to negotiate, how to market for them, how to find contractors, etc.