Investment properties have skyrocketed in value in the last three years. The summer of 2021 saw a major increase in the price of homes across America's major cities, including Phoenix, Tampa, and Dallas. This trend is expected to keep pace for the foreseeable future.
One of the most popular types of investment properties is turnkey properties. A turnkey property is any home, apartment, or condo that is move-in ready with no necessary additional investments from a potential buyer.
Investing in a turnkey property doesn't have to be a complicated process. Read on to learn everything you need to know before you make an investment!
Why Invest in a Turnkey Property?
The appeal of investing in turnkey properties is their quick turnaround time. Because these properties are bought by investors ready to be lived in they get sold faster than normal investment properties. Real estate investors use turnkey properties to quickly build their cash flow and asset portfolio.
The Most Important Things to Consider Before Investing
While turnkey properties represent a very attractive opportunity there are several important things to consider before investing. Let's take a look at the most important ones.
Financing the Property
The first thing to consider before making a turnkey property investment is financing it. Depending on the value and location of the property, financing agreements with a lender will vary. It's important to come to a lending agreement that works for both parties.
For example, suppose you are interested in buying a property out of state. You find a local lender who agrees to the terms you are looking for. But, there's one problem.
You find out last minute that the lender doesn't lend to out-of-state buyers. Now the terms of the deal are off and you must spend time looking for a different lender who will agree to the same terms. To avoid issues like this it's important to reach out to multiple lenders at once.
Cap Rates
Purchasing a turnkey property often means you're buying at market price. Therefore, the real value in a turnkey property is its value over time. This is where cap rates come in.
Cap rates are an objective measure of your return on investment. They are measured by the operating expenses of a property divided by the purchase price of the property.
Compared to regular property investments, turnkey properties are more expensive. They require less cash upfront but reduce the amount of income you will receive from the property each year. This is why they have higher cap rates.
It's important to fully understand the potential value of a turnkey property before making a final investment.
Tenant Screening
The property you're considering an investment in may come with tenants. It's important to screen them before buying and get an idea of who will be occupying your property. The quality of your tenants will determine the quality of your investment.
The last thing your turnkey property needs is nightmare tenants.
Property Management
Once your property is bought there is still much work to be done. Between all the paperwork, legal fees, and unexpected issues that come with owning a property, it all can be a lot for one person. This is where property management comes in.
Property management makes the work of maintaining your turnkey property seamless. For a fee, they take care of everything you simply may not have the time or know-how to do.
The Bottom Line
Turnkey properties have a great deal of value to real estate investors. They require minimal maintenance and sell quickly.
However, real estate investment always comes with potential downsides and risks. It's best to be prepared for anything. Consider the above tips before making any kind of long-term investment.
Interested in property management for your rental or investment property? We've got you covered. Contact us today to get started!
