Should you buy a turnkey investment property? Well, of course you should!
First and foremost, investing in turnkey properties falls within the category of residential real estate investing. It takes place in the housing market and there are always two parties involved: landlords and tenants.
So, how to invest in real estate with a turnkey investment property? Start by looking for a turnkey investing company!
A turnkey investing company is one that finds, buys, renovates and rents out the property. In addition to that, it hires a property management company to handle its day to day operations. Eventually, it sells the property to real estate investors looking for a turnkey home. In shorter terms, a real estate investor gets his/her hands on an investment property that is ready to go. His/her only duty at this point is to provide the financial means to acquire ownership of the property. Other than that, he/she gets to receive the monthly paychecks the rental property provides.
At the end of the day, the main question this article is trying to answer is why is a turnkey investment property a good strategy for real estate investors?
For a beginner real estate investor, there is a whole bunch of reasons that make a turnkey investment property the best investing choice. Here is our take on the top reasons for that:
A turnkey investment property is subject to easy financing:
The ultimate goal for every beginner real estate investor is to find a strategy that allows for easy financing. This is due to their inability to provide the full amount of cash that is needed to buy an investment property. Therefore, the only obvious approach is to apply for external financing methods such as a mortgage.
As for mortgage lenders, they love to finance investments that guarantee your ability to repay the mortgage, thus, making a turnkey investment property a great choice for you. A turnkey home will guarantee a rental income for as long as the lease agreement is in the act. This means that the rental property is going to pay for itself and spare you the headache of trying to make ends meet.
Ultimately, it all means that you can invest in a turnkey investment property with as little as the amount of the down payment.
Related: Can You Use FHA Loan for Investment Property Financing?
No need for education or experience whatsoever!
We all know that if you choose a certain career path, you would have to go to college. A lawyer goes to a law school to qualify. Even a real estate developer goes to a relevant school to qualify for that career choice. However, becoming a turnkey investment property investor does not require that at all. Plus, you can start investing with no experience either. Once you have found the turnkey investing company, it is all a matter of acquiring ownership of the property. The rest is taken care of by professional property management experts.
A source of steady cash flow:
The rental income is maybe one of the best aspects of investing in turnkey properties. After you have paid all the rental expenses, you are left with what we call the cash flow. The cash flow is what you are left with after collecting the rental income and paying for all the monthly expenses such as the mortgage, facility fees, and insurance. In other words, it is your share of profit. Therefore, the cash flow makes turnkey properties a great opportunity for making money in real estate with little efforts. This leads us to the next major advantage of a turnkey investment property– an opportunity for passive income investing!
Related: Making Money in Real Estate Online – Is it Possible?
An opportunity for passive income investing:
If you want to know how to invest in real estate with little activity on your side, invest in a turnkey investment property.
As you already know, a turnkey investment property is already taken care of by a professional property manager. That being said, you are free of any time or effort obligations. It lifts the burden of hassling around trying to control your business and managing its daily operations. This leaves enough time for you to focus on your own career. Actually, you’ll come to believe that a turnkey investment property is the best way you can make extra income aside from your 9-5 job.
With that in mind, many beginner real estate investors still fail with this strategy. Why? That is what we are going to discuss next.
Where do investors go wrong with a turnkey real estate investment?
As we have viewed previously, a turnkey investment property is an ideal opportunity for an investor to generate wealth. However, for many beginner investors, things start to go downhill after they purchase the property. The sole reason for this, in our opinion, is neglecting the return on investment measures.
Any profitable real estate investment starts with a proper investment property analysis. It includes checking the most important real estate metrics. So, where does it go wrong?
First of all, many beginner real estate investors fail to buy a rental property with a good cap rate. The cap rate is simply the rate of return in relation to the overall property price. So, to calculate it, you calculate the annual cash flow and divide it by the property price. A good cap rate would be 8% and above.
The other metric that new investors neglect is the cash on cash return. This metric measures the rate of return based on the actual cash you put from your own pocket. It means that unless a property indicates a return of 8% or above, you will have to reconsider your choice.
One more aspect that many investors overlook is the location analysis. It has to do with the real estate market analysis. Basically, it analyzes the location, finds similar properties to which you can compare the one you are looking into buying and eventually, helps you in two ways: 1) Determine whether the property is worth its price and 2) Determine whether the location promises a good rate of appreciation.
Related: Become an Expert on Comparative Market Analysis with Our Guide
In conclusion:
After analyzing the turnkey investment property approach, we find that it is, in fact, a great investment. And, yes, we encourage every beginner real estate investor to take this approach. However, learning the basics and consulting with experts would be a great idea at this point. Alternatively, you can check out Mashvisor’s rental property calculator. It is one of our most requested and popular real estate investing tools. For many, it has proven to be the best friend of a rental properties investor.
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