Turnkey Real Estate Investing: The Guide to Passive Income

Even if you're new to real estate investing, you've likely heard of "turnkey rentals" before now. This guide offers an in-depth overview of turnkey real estate and how investing in these properties can help you generate seriously passive income.

What is Turnkey Real Estate Investing?

Turnkey real estate, by definition, is “turn-key,” meaning it’s a property that is ready to rent or has tenants in place as soon as you buy it. The property will often already be renovated and rented upon purchase, so many investors can start making passive income within the first month of owning a turnkey real estate investment. 

Why Invest in Turnkey Real Estate

From generating instant passive income to having fewer capital expenditures, investing in turnkey real estate can be advantageous for many reasons.

Instant Passive Income

Investing in turnkey real estate allows you to generate passive income by collecting rent. Since these properties are fully managed by a third-party company, you get to enjoy the advantages of owning real estate without the traditional responsibilities. The home is move-in ready, which means that you can start generating income immediately after purchasing. 

Hands-off Property Management

The real estate company that sells you the home also acts as the property manager. They'll screen tenants, deal with routine maintenance, and collect rent for you. 

Fewer Capital Expenditures (CapEx)

Turnkey properties are fully rehabbed, which means that you won't need to pay for many renovations or repairs. While the upfront costs will still be high, your ongoing capital expenditures should be considerably lower in comparison to traditional rental properties. By having fewer capital expenditures, you can build strong cash flow early on. 

Easier for New and Busy Investors

Turnkey property investments are much easier to maintain for new and busy investors alike. When you acquire one, the property will be in rent-ready condition, which means that it shouldn't take long to bring in tenants, and that’s assuming the property doesn’t have tenants in place already! 

Turnkey Real Estate vs. Traditional Rentals

In today's market, investing in residential real estate is difficult and oftentimes not worth it. The primary benefit of investing in traditional rentals is that you have more control over how the property is renovated and maintained. However, the costs associated with traditional rentals are too high for most investors. Along with the upfront costs, the initial maintenance and repair expenses can make it very difficult to obtain positive cash flow.

Turnkey real estate investing solves many of the problems that come with the traditional approach. For example, finding tenants is much easier. You can start searching immediately after you acquire the property. The company that sells you the property will also manage it. With traditional investing, you can spend weeks searching for the perfect property management company.

Finding deals and funding is also simpler with turnkey real estate. When you invest in turnkey properties, you know that the property is in good shape, which means that there's a lower risk of making a bad deal. As for funding, lenders are more confident in properties that have already been renovated and are generating income.

Picking a Turnkey Real Estate Investing Market

While turnkey investing has many advantages, you still need to find a healthy real estate market to invest in. To identify the right market, ask yourself what you want out of your investments. For example, do you want appreciation or cash flow? If appreciation is important to you, look for turnkey rentals in areas with steadily increasing property values, strong economic growth, and growing populations.

You should also identify how much money you'd like to invest. Knowing how much you can spend on turnkey real estate should help you narrow your options and find the best market. Ask yourself if you are interested in investing out-of-state or would prefer something local to your market. Do you already have rental properties but are looking to expand into other markets for better diversification?

There are many ways to analyze a real estate market. Learning about your preferences and finding out what you can afford is necessary when you're searching for the ideal market to invest in. 

How to Buy a Turnkey Rental in 6 Steps

Are you interested in buying a turnkey rental? You can acquire this type of property in six easy steps.

1. Talk to a Turnkey Provider

The first step in this process involves speaking with a turnkey provider. The company you choose will sell the home to you and serve as its property manager. Schedule your free Rent to Retirement turnkey investing consultation here!

2. Browse Turnkey Real Estate Investments

This is useful for finding properties but also helpful to see what you could buy and how much it would make! Don’t know how to analyze rental properties? Don’t worry; we’ve done it for you! View live turnkey rental properties for sale here!

3. Line Up Financing

Unless you're able to purchase a turnkey property in cash, you must secure financing from a lender. If you haven't invested in these properties before, worry not! We’ve got lender relationships to help you get funding for your first or next deal! 

4. Submit Your Offer

Once you have your preferred lender in place, it's time to submit your offer. If there's a lot of competition for turnkey real estate in the area, be prepared to make a competitive offer. Your goal should be to make an offer that the turnkey company will accept but also works for your cash flow and ROI (return on investment) goals. 

5. Close and Start Collecting Cash Flow

If the turnkey provider accepts your offer, you can start the closing process. During this time, your lender needs to complete the underwriting process for your mortgage loan; you’ll also need to get an appraisal and inspection. . Once you close on the property, you can start enjoying cash flow immediately!

6. Repeat!

Use the cash flow you earn from your turnkey property to invest in another. The best aspect of turnkey real estate investing is that the process is meant to be repeated. After a few years, you can have many successful rental properties in your portfolio, helping you reach financial freedom, retire early, or spend your cash flow however you’d like!

The Different Types of Turnkey Real Estate

From long-term rentals to build-to-rent properties, there are numerous types of turnkey real estate you can invest in.

Long-term Rentals

A long-term rental is a more traditional property. Tenants often stay for 12 months at a time, during which they pay a fixed amount every month. In most cases, tenants can choose to renew or leave after 12 months.

Pros

• Income is predictable, which makes it easier to calculate cash flow
• Lower operating expenses
• Financing is easier to obtain
• Lower vacancy and turnover rates

Cons

• Scheduling maintenance is more challenging
• You can't increase rents as often
• Risk of agreeing to a lengthy contract with a bad tenant

Mid-term Rentals

A mid-term rental offers stability and flexibility at the same time. Property owners can offer leases that range from several months to upwards of a year. By offering lengthier stays than short-term rentals, tenants are less likely to use them for business trips and vacations.

Pros

• Offers ample versatility and flexibility
• Often attracts high-quality tenants (nurses, traveling professionals, etc.)
• Higher rents and low turnover costs

Cons

• Less income compared to short-term rentals
• Higher maintenance requirements than long-term rentals
• Tenants are more difficult to find

Short-term Rentals

A short-term rental is a type of property that prospective tenants often use like a hotel. Stays are usually 30 days or less. However, the maximum duration of a stay varies based on the state you're in.

Pros

• High turnover allows you to get rid of bad tenants quickly
• Can often charge much higher rents
• More flexibility when scheduling rental times

Cons

• Income is less consistent due to vacancies
• Maintenance costs can be high
• More risks when numerous tenants are involved

Build-to-Rent

When this type of property is built, it's designed to be rented out. Build-to-rent properties combine the best of single-family homes and apartment rentals. They can be short, medium, or long-term.

Pros

• Highly appealing to tenants who want a new home
• Lower maintenance requirements
• More flexibility
• Low tenant turnover

Cons

• High upfront costs
• Often more work to buy and build than traditional existing rentals 
  
  

The Easier Way to Invest: Turnkey Real Estate

Turnkey real estate investing is one of the easiest ways to build your portfolio. All the work needed to make the property ready for tenants has already been done, which allows you to relax and enjoy the passive income you bring in. Ready to buy your first turnkey rental? Schedule your free Rent to Retirement turnkey investing consultation here!

Turnkey Real Estate FAQs

What does “turnkey” mean in real estate?

In real estate, "turnkey" refers to a home that is move-in ready. If you acquire a turnkey property, every appliance should be in working condition, and there may be tenants already in place.

Are turnkey real estate investments worth it?

If you have enough capital, turnkey properties can be fantastic additions to your investment portfolio. Thanks to so much being done for you, you can quickly generate revenue from rent without needing to manage the property yourself.

Are turnkey rentals profitable? 

When you purchase turnkey real estate, there's a good chance that it will be profitable immediately. Since the property has already been repaired and rehabbed, you shouldn't need to make many repairs or renovations for the first few years of ownership.