What Are Turnkey Rental Properties?
Real estate is often one of the best investments you can make. Although the real estate market fluctuates like any other, investing in property offers several advantages over other types of investment and can be less risky. Many people also invest in properties to rent out for income. In recent years, one of the most popular forms of rental property investment is known as a turnkey rental property.
Turnkey rental properties are properties where the old owner simply “turns over the key” to the new owner, and the new owner can begin renting the property right away. Turnkey properties are ready-to-go, requiring no renovations, upgrades, or permitting to make them habitable. Often, turnkey rental properties also have current tenants.
For aspiring landlords who want to generate rental income without being too hands-on, a turnkey rental property can be a great investment. However, there’s a lot to know about these types of properties. As an association manager, it’s important to understand how turnkey properties work so that you can offer your services to new owners or assist your current clients with the acquisition of new properties.
Turnkey Rental Properties Versus Traditional Properties
If you’re wondering, “What are turnkey rental properties?”, your next question may be, “How are they different from traditional properties?” As mentioned above, the primary difference is that turnkey properties can be rented out immediately. These properties are often brand new or have been recently renovated. There are many real estate firms that specialize in purchasing older properties, completely upgrading them, then selling them to new owners as turnkey properties.
When purchasing a traditional property, you may need to wait a while before you can rent it out to tenants. The property may need extensive repairs, new appliances, painting, landscaping, or other work before it’s ready for someone to live in. Each of these upgrades can take weeks or months.
Plus, many properties must be inspected by a city official before they can be rented out. Owners may need to wait to receive proper licenses or other approval before acquiring tenants, which can add additional wait time. The longer you wait to rent your property, the longer you wait to see returns on your investment.
Purchasing a turnkey rental property virtually eliminates this wait time because the property is already up to code. It eliminates the need to hire contractors, plumbers, electricians, or other workers to repair the property. You won’t need to fill out seemingly-endless paperwork with your city officials, either. Once you acquire the property, you can potentially see an immediate return in the form of rental income from tenants.
Risks Associated With Turnkey Rental Properties
Purchasing a rental property that doesn’t need renovation seems like a great idea, but is it? Some investors are wary of turnkey rental properties and consider them a risk. As with any type of investment, there are pros and cons. Whether the risks associated with a turnkey property are worth taking is ultimately up to you. However, it’s important to educate yourself and understand the potential risks of purchasing a turnkey rental property.
1. You Might Inherit Bad Tenants
Often, turnkey rental properties are more than just “rent-ready” — they may come fully occupied! While some may consider this a benefit, there are many unknowns with existing tenants. You don’t know whether the previous owner had issues with these tenants, such as late rent payments or noise violations. Additionally, the original leases may include provisions that you wouldn’t have agreed to. If there are troublesome tenants on the property, it may be difficult to evict them.
2. Unknown Construction Quality
One of the best reasons to purchase a turnkey rental property is also, potentially, one of the biggest risks. Because you weren’t involved in any renovations or construction firsthand, you can’t guarantee the quality of the work. If the previous owners hired a contractor who cut corners or used cheap materials, you may find yourself with a property that still needs extensive repairs down the road.
3. Turnkey Properties Are More Expensive
Finally, turnkey rental properties are generally much more expensive than a traditional property of equivalent size and location. Some real estate investors believe that the cost difference doesn’t add up. If the housing market declines in your area, you may potentially lose more money with a turnkey rental property than you would with another property.
Advantages of Turnkey Rental Properties
But turnkey rental properties offer many advantages, too, which may make up for the risks. For many investors, turnkey properties are ideal because they can be very “hands-off.” If you’re interested in rental income but don’t wish to be a very active landlord, turnkey properties may be the best choice for you. As mentioned, turnkey rental properties can begin generating income right away with very minimal work. Other advantages of turnkey rental properties include:
1. You Might Inherit Good Tenants
While you might be stuck with bad tenants from a previous owner, you’re equally likely to acquire existing tenants who are reliable and conscientious. When this happens, owning a turnkey rental property is an excellent investment. Acquiring tenants can be a long, arduous process even with a property that’s immediately habitable. If your turnkey rental property comes with good tenants, you won’t need to waste time posting ads, showing the units, and processing applications.
2. They’re Easier To Manage From A Distance
Because turnkey properties don’t need construction and require only very basic, everyday maintenance, they’re much easier to manage from a distance. With a turnkey property, you won’t need to be on-site nearly as frequently as you would with a traditional property. In fact, many real estate investors purchase turnkey properties in other states.
3. Great Way to Gain Experience
Finally, turnkey rental properties are a great way to gain experience with property investment and management. You can learn about the day-to-day requirements of owning a rental property without the pressure of extensive repairs. Turnkey rental properties are a great way to “practice” owning other types of rental property.
If you or someone you know is considering a turnkey rental property, try CINC Systems for your management software needs. Click here to request a free demo.
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