Is it wise to buy turnkey rental properties, or are you throwing your money away? Here's a few things that your real estate advisor may not want you to know.
Obviously, buying a rental property that is turn-key -- meaning no immediate repairs should be necessary, and having a tenant installed who is paying rent -- is a huge benefit. And even more important, if you live out of the area.
It's a wise decision to buy turnkey, provided you work through a reputable agency to find your investment property. If not, you could be buying someone else's nightmare.
Another impressive fact is that you won't need to sink additional money into your new investment, and should be earning a nice income right from the start. Just know that you will be paying top dollar for this rental property. When you want to be frugal with your investment funds, you will make more money buying a fixer-upper.
It's always down to what makes best financial sense for you and your wallet.
Relying on someone else to have vetted and approved a tenant can be worrisome. Could be that your standards for tenant requirements are quite different than the previous owner? Once you realize that you are buying a cash flow of passive income, it shouldn't matter. Or should it?
Myself, I have solid standards for the tenants that live in my income properties, and my hand-picked property manager holds to the same standards, so I am confident that if I find myself with a vacancy, it can be filled quickly.
Have you considered things like . . .
Some landlords and property managers collect a non-refundable fee. Personally, I prefer to collect a good sized returnable damage deposit. I find that the if my tenants need to move out, they typically leave the rental property in excellent condition knowing that I promise to return their damage deposit up on vacancy. Otherwise, there isn't any motivation to keep the house in good condition.
Where to start when considering turnkey rentals? Take a bird's eye view of the entire scope of the deal. Jut because a house seems inexpensive, there are a few key factors that will affect your investment.
You probably don't want to invest in a war zone, so it's best to stick with investing in neighborhoods that you would feel comfortable walking at night.
If you don't have a property manager to take care of it, you'll want to feel safe when you visit to collect rent or review repairs.
Where will the tenants work? I have found that it's much easier to attract good paying tenants if there is ample employment within a reasonable distance.
Check to see if there are any big name employers such as Amazon or a Walmart Distribution Center.
Read the business news for the local area, and see who is expanding (needing to hire even more people). Overall, is the area growing or downsizing?
With most cities you'll find some neighborhoods attract more people than other neighborhoods. If you see that there are lots of houses that have sold and are occupied, that's a good indication that the neighborhood will appreciate more than other neighborhoods where houses stay for sale for months and years sometimes.
Word of mouth is always a good place to start when looking for turnkey rental properties specially if you trust the person who is sharing the tip with you.
Recently, I entered into a contract with an online company that offers turnkey rental properties to see first hand how the whole program works. I read every inch of the buy/sell agreement and was comfortable with what I read. I liked their policies and mission statement. It hasn't closed yet, but I'll be the first to sing their praises when it closes as expected.
There are a few reputable online companies where you can search and buy turnkey rentals. Each one I reviewed had a slight different approach to the way they conduct business. My best advice is to read all the fine print and ask for references from actual customers.