Eric is a Real Estate investor, founder of MartelTurnkey, and author of Stop Trading Your Time for Money.
Due to the simplicity of their model, turnkey rentals have become one of the most popular investment options to generate passive income in real estate. Simply put, turnkey rentals are single-family rentals, houses or duplexes that are rented to long-term tenants. “Turnkey” refers to the fact that these properties have been renovated and are either tenant-ready or already rented out. A property manager takes care of the property by handling repairs, tenant relations and rent collection. At the end of each month, the owner of the property receives a statement and a check for the net cash flow that’s left after these expenses and the mortgage is paid.
As a real estate investor and owner of one of the country’s most popular turnkey rental companies, I’m passionate about educating potential investors and helping them understand the process of owning and operating turnkey rentals. This article will help anyone considering purchasing a turnkey rental property by breaking down who should invest in turnkey rentals, where to buy them, how to buy them and how to ensure success in your turnkey rental investment.
Decide If Investing In Turnkey Rentals Is Right For You
Purchasing a turnkey rental is a fantastic way to generate passive income. One way rental properties provide this income is by having significant tax advantages. For example, operating expenses for running the property such as property management fees, property taxes and repair and maintenance can all be claimed as deductions against your rental income. Additionally, depreciation can be used to offset your taxable rental income. The net effect could reduce your overall taxes while retaining cash flow. Like many investment properties, turnkey rentals can steadily appreciate over time, and the equity can be leveraged later on to expand your portfolio. Regardless of what you do with your turnkey rental, it’s a great way to build wealth.
After reviewing multiple passive income strategies, I found that turnkey rentals are one of the best investments to achieve financial freedom; however, this strategy may not be for everyone. Some people want to be completely hands-off — even approving maintenance items may feel like a burden to some. A syndication or a REIT may be more appropriate for them. At the other end of the spectrum, you have people who want to handle the renovations and even manage the property themselves. Turnkey rentals would not be the ideal investment for them either. The ideal investor for turnkey rentals is someone who has an investor mindset, who is willing to get out of their comfort zone and who sees these houses as assets that generate passive income.
Find The Ideal Market
If you’re ready to invest in a turnkey rental property, the next step is to look for markets that are landlord-friendly and contain fairly inexpensive properties with a great rent-to-value ratio to ensure positive cash flow. When deciding on a market, compile and analyze business statistics such as unemployment rates, demographics, housing prices, rents and business diversification on markets across the country to find the best one. Look for cities that have plenty of job opportunities, popular attractions and affordable houses. It’s critical to find markets that are affordable now and show potential for sustainable growth in population and value in order to generate positive cash flow.
Select Your Property
So you’ve found your ideal market. Now it’s time to find an actual turnkey rental property. You can always Google a list of turnkey rental providers, but it’s important to do your homework before making a decision. Look at the provider’s ratings, feedback and reviews. Also consider if the provider offers what my team and I call appraisal matching, meaning that if the appraisal from the bank doesn’t equal or exceed the price of the property, then we will reduce the price to match the appraisal value. Unfortunately, appraisal matching is not something all providers offer even though I believe they should since they are supposed to be the expert in their own market.
Another key factor in choosing your turnkey provider is to partner with a company whose properties will create cash flow from day one. That means the provider transfers ownership of the property after a tenant is in place. This avoids delays in finding the tenant, confirms the market for the property and means less worry for a brand new owner.
While there are a lot of factors to consider before investing in turnkey rentals, they can be fantastic investments that provide predictable, steady cash flow. I’ve dedicated my career to helping people achieve financial freedom, and investing in turnkey properties is one of the best ways to reach that goal because of their ease and dependability. In fact, I believe they’re the best passive income opportunities in today’s market!
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?
Eric is a Real Estate investor, founder of MartelTurnkey, and author of Stop Trading Your Time for Money. Read Eric Martel’s full executive profile here.