Turnkey Rental Properties Misconceptions – Exposing the Truth

There is huge excitement surrounding real estate investing involving Turnkey companies as eager investors anticipate the golden opportunity to generate “passive” cash flow, also known as passive income, which just simply means, you are earning profits on a regular basis with little or no effort.

As a matter of fact, “The article “Available Turnkey Rental Properties” from High Return Real Estate explains that you can enjoy the benefits of a good real estate investment without having to go through the time consuming and costly processes, simply by investing in Turnkey properties, which enables select real estate companies to locate income-generating properties for you as well as employ the right team to manage it on your behalf.

However, before participating in Turnkey real estate investing, there are a few pointers investors should know before getting started to help ensure their investment is a successful one. In fact, when it comes to investing in Turnkey properties, the following Mythbusters can help take the guesswork out of finding a good real estate provider, which can help make the process easier and put you well on your way to becoming the savvy real estate investor of your dreams.

1. What Turnkey Means and How Turnkey Companies Work

Chance are, by now you’ve undoubtedly become familiar with the term turnkey, either from reading articles, from watching infomercials, or perhaps even by word of mouth, which has conjured your own idea of what turnkey means as well as what turnkey companies do.

However, your interpretation of the term as well as how turnkey companies operate may be far from the truth, which can cause you to make an uninformed decision you will regret later.

In fact, unfortunately, many emerging Turnkey real estate companies are now relying on your misinterpretation of how Turnkey real estate companies operate and are playing on this misconception as part of their marketing efforts to gain your attention.

The term turnkey is generally used to describe a real estate investment where investors simply “turn the key” and access an already fixed up property that is ready to generate a flow of cash from rental profits upon making the purchase.

However, the misconception lies in how the Turnkey real estate company actually operates as well as the services they provide. In fact, what investors can expect differs from company to company; therefore, interested investors need to ask specific questions regarding the way the turnkey company operates in order to gain an exact understanding of what to expect from the company as well as to ensure their requirements are satisfied.

2. Investigate Statements Made by the Turnkey Company to Ensure They are True

Another misconception of Turnkey real estate companies is that their statements are always true. However, you will be surprised at the number of false or misleading statements made by Turnkey real estate companies either via their podcasts, on their website, or even when responding to forum inquiries, which are just simply to make the company appear as if it is doing better than it actually is.

Therefore, as with any investment, it is important to conduct thorough research, first, to ensure what the company states is what’s actually true.

For instance, as a Turnkey property investor, some red flags you should look out for when purchasing a property are inflated vacancy rates, inflated lengths of stay, and inflated property ratings, such as we have an A or B+ property rating, even though the building rents at low price points or is mainly section 8. Another red flag to look out for is claims of low-cost properties being in high-demand by high-income renters, such as lawyers and doctors.

In other words, real estate investors, entrepreneurs, and business owners need to be smart when it comes to investing in Turnkey real estate companies, which thorough research and asking the right questions can help you do.

Turnkey companies should be happy with their outcomes, which means they should be open and honest when it comes to answering questions and providing proof of their claims in order to gain the trust and opportunity to collaborate with investors.

On the other hand, if a Turnkey company has to falsify or embellish their results in order to get your business, they’re not worth your investment. Even if a company is truthful and admits their mistakes, but can show they are working towards making improvements, may be a better investment than a company that just simply enhances their results because at least you know what you are getting into.

3. Understand the Pricing Behind Turnkey Properties

Many investors really do not understand the pricing behind Turnkey companies and how this reflects in the costs, which can quickly turn to skepticism.

However, the overall purpose of using a Turnkey provider is that they utilize their skills in marketing to find and purchase properties for below the market price, which then enables them to rehab the property and then put it on the market for sale to investors. So as an investor, when you buy into a Turnkey property, you are not just purchasing the property, but you are also paying for a benefit, which is often reflected in the pricing.

But, these prices usually vary based on whether the Turnkey company has rehabbed the property prior to the investor’s investment or if the company decides to work along with the investor to perform the renovations.

In the end, a good Turnkey company understands that there is no advantage to inflating the price of their properties because the property has to be priced to sell in order to be competitive, so assess the pricing accordingly.

4. As a Turnkey Investor, You Still Have Work to Do

Another common misconception with Turnkey real estate investing is that once you buy a Turnkey property, the property management team will do the rest. However, your involvement in the property is still needed to make important decisions, regarding renovations, repairs, and other important details that impact the upkeep of the property.

In other words, though Turnkey real estate is a pretty hands-off investment, it is not for the passive real estate investor because you still need to put forth the effort to ensure your best interests in the property.

5. Can’t You Just Purchase Property On Your Own and Rehab it Yourself to Make More Money?

Giving a portion of the monthly rental profits to a property manager seems like a lot to many investors; therefore, it makes them wonder why they shouldn’t just purchase a property on their own and rehab it and manage it for higher profits.

However, keep in mind that Turnkey companies basically do all the complex work, such as locating the property, getting a good deal on the property, and performing the renovations, which helps save you stress, time, and money.

They also provide you with professional property management for quality supervision of the property, including finding good tenants, for peace of mind. But the greatest benefit is that they provide you with a fair price on the property that is sometimes even lower than the market value.

6. Are There Turnkey Properties in Good Neighborhoods?

There is a common belief that Turnkey properties are only located in non-profitable neighborhoods. However, it is possible to find good Turnkey companies that invest solely in good neighborhoods with quality properties to help increase your return on your investment.

It is also possible to invest in neighborhoods undergoing gentrification or revitalization, which sometimes make a good investment.

7. Can I Trust Turnkey Providers and the Property Managers?

Good Turnkey providers go above and beyond to show you they can be trusted. This also goes for their property management team.

Investors should be able to view the Turnkey company as a collaborator in their investment. A quality Turnkey company will have their client’s best interest in mind as well as the property because they are also benefiting and want to establish a long-term partnership.

This also includes having good customer service in place, so an investor calling from 10,000 miles away feels the company is competent and their investment is safe and secure. They will also reach out when there are issues with the property, such as maintenance issues, so you feel secure that they have the proper systems in place to protect your investment.

If you are in the process of working with a Turnkey company who you don’t feel you can trust, then chances are they are not the right company for you. In fact, some warning signs they may not be the company you need to work with include a lack of information, a lack of honesty, and any other apparent signs they are not trustworthy.

Instead, conduct further research to find a quality Turnkey company that values your hard earned money and who strives not to lose your trust. By doing so, it will help eliminate any worries associated with working with a Turnkey company.

8. You Still Need a Down Payment

It is another common misconception that Turnkey properties do not require a down payment because it is an investment property; however, lenders still require a downpayment to secure a mortgage.

Furthermore, since Turnkey properties are investor-owned properties, they are also not covered by mortgage insurance policies, which means the investor will need to make a down payment of 20 percent.

However, this down payment can come from various sources, including a home equity loan, a personal loan, investment groups, a second mortgage, friends, family, and more.

9. You are Not Limited to Just Turnkey Properties in Your Area

While some locations have Turnkey properties in abundance, which makes sense to simply purchase a Turnkey property in your area for added convenience, other locations have a scarce supply of Turnkey properties, which may send investors in search of Turnkey investments elsewhere. Not to mention, some locations, such as New York, Los Angeles, Miami, have a booming real estate market, which makes them especially attractive for investors seeking a higher rate of return.

So, if you are an investor who is looking to purchase the most lucrative Turnkey properties, your options are not limited to just your area.

In fact, many larger corporations are purchasing Turnkey real estate exclusively to offer to out of state real estate investors to help make long distance real estate investing much easier.

Some of the corporations also offer their own seller financing to help make the transaction a smooth one.

10. More Than One Person Can Own a Turnkey Property

Some Turnkey properties, such as apartment buildings and multi-family properties, can be quite expensive to purchase on your own. However, it is possible to purchase these type of Turnkey properties under a Limited Liability Partnership (LLP) or a Limited Liability Corporation (LLC), which will enable you to bring in a partner to divide the costs.

This means if you are using cash or purchasing the investment property using a commercial loan, you will be able to purchase it directly in the name of the LLP or the LLC. However, there are many details involved with purchasing investment property under a partnership, so be sure to consult with an experienced lawyer who can help you set up a proper structure that protects each party’s interest.

Turnkey properties are an attractive investment to many individuals because they offer the chance to invest in real estate but without the hassle of actually being in the real estate business.

When investing in Turnkey properties, keep in mind, the key to making a good Turnkey investment is to be sure to ask questions of the company and work with a quality Turnkey provider that you feel certain has your best interest, as well as the success of the property, in mind. In doing so, it can help ensure your property is the lucrative investment it was meant to be.

Furthermore, you should also keep in mind that as an investor, it is still important to remain involved in your investment even after you have trusted it to property managers in order to ensure your best interests, as well as your property, remain protected for optimum results.