3 Frequently Asked Questions About Turnkey Rentals
Are you wondering if it’s too late to invest in turnkey rentals in the Dallas-Ft. Worth area? North Texas has experienced unprecedented growth over the last year, which has impacted the real estate market. Despite the fact that the housing prices have gone up in the DFW area, turnkey rentals are still a good investment. Why? Because when you buy from an established turnkey rental provider, the inventory was likely purchased before prices increased. You could still find some very good bargains when you work with a quality turnkey rental company. Following are more frequently asked questions about turnkey rentals.
Exactly How “Turnkey” is a Turnkey Rental?
When people talk about turnkey businesses, the idea is that the new owner can just walk into a business that’s up and running and start collecting income. That’s how turnkey rentals are meant to operate. An investor should theoretically be able to take ownership and start collecting rents on a property that’s been rehabbed and is ready to rent.
Unfortunately, this is isn’t always the case. Almost anyone can call themselves a turnkey rental company and sell what they call “turnkey property.” But some companies are less than aboveboard about the rehabs. For example, one supposed investment manager was selling what he called turnkey rentals to unsuspecting persons with the promise that after they bought the property, the rehab would take place. After numerous complaints from investors that the rehabs never took place or that they were done in a shoddy manner, the investment manager is now facing federal fraud charges. The investors may or may not get their money returned to them. The lesson here is that not all property that’s called “turnkey” really is turnkey.
As an investor, you need to do your due diligence to be sure that a) you’re working with an established investment company with a proven track record, and b) the property is already rehabbed BEFORE you buy. Finally, a tenant may or may not be in place when you purchase, but the property should be attractive and ready to rent in any case. If you’re buying a property that isn’t already rehabbed, then it’s not technically a turnkey rental.
Do I Have to Hire a Property Manager?
When you purchase a turnkey rental, the investment company will most likely suggest that you have a property manager in place to take care of the day-to-day tasks. After all, that’s a key component of what defines passive income. It’s not passive if you have to do all the work on your turnkey rental like finding tenants, getting leases signed, collecting rents and…the worst…unclogging toilets.
Often when you buy a turnkey rental the property manager will already be in place and it’s just a matter of you taking over paying the monthly fee. In some cases, like with American Real Estate Investments, the investment company has a sister company that is the property management company. Then you can choose to keep that property management company or not. It can be convenient to use that same property management company because they’re familiar with the property. But you shouldn’t have to use one certain property management company over another.
However, there is always an exception. One popular real estate investment company forces its investors to retain their existing property management company for a period of one year after purchase. It’s likely that the investment company gets some financial compensation for this relationship. It’s our opinion that after an investor takes ownership of a turnkey rental, it should be their choice whether or not to retain the same property management company or whether to hire a property manager at all. When you buy a turnkey rental from American Real Estate Investments, the choice is yours.
What Level of Rehab Can I Expect?
Ah, this is a good question. The answer is that you shouldn’t expect any certain level of rehab from a turnkey rental company. Because when you expect something, you might assume it’s been done a certain way, and that’s when you get unpleasant surprises. The problem with turnkey rental companies is that they all have their own standards for rehabs. The quality and extent of rehab work will vary from one company to another. The key is to “demand” a certain level of rehab from any turnkey rental you’re thinking of buying.
Any quality turnkey rental company will be able to offer some before and after pictures of rehabs they’ve completed. You may not be able to see before pictures of the particular property you’re thinking of buying. But seeing before and after images of previous rehabs will allow you to evaluate the extent and quality of the rehab work that company performs. You should always be able to view the “after” pictures of the turnkey you’re considering, obviously.
In general, the rehab should have taken care of all major issues like a failing roof, HVAC system, bad foundation, peeling paint, etc. In addition, minor issues and cosmetic issues should have been taken care of. Just think of it like any rental property. Did the rehab make it an attractive and safe place to live? Other than that, you shouldn’t have to put any big money into the property before you get a tenant in. And, just like any other property you purchase, get a property inspection and review it. Did the rehab miss anything important? If so, you can negotiate with the turnkey rental company to take care of the issues.
Buying a turnkey rental company requires careful consideration on the part of the investor, just like any other property investment. Hopefully, the answers to these frequently will enlighten you as to what buying a turnkey rental is all about. And, hopefully this will prevent you from buying a turnkey rental from a company that doesn’t offer the value you deserve. If you’d like information about the turnkey rentals available at American Real Estate Investments, we’d be happy to speak with you.