Advantages of buying turnkey rental properties are many especially for new buyers. Turnkey rental properties provide investors with a chance of experiencing high return on investment due to numerous advantages associated with the built-in defenses which provide security. Turnkey properties are also great real estate investment vehicle for investors who want a long term sustainable passive income without any hassle. These defenses operate as anti-fluctuating tools against the economic cycles. The biggest advantage of buying turnkey rental properties is that the cash flow starts from the first month onward, which is generally not possible in any other type of investment. A turnkey rental property is a good source of income to own because it provides a quick return on investment and a stable income with no work to be done by the owner of the property.
Turnkey rental properties, because of their uniqueness in real estate, can benefit new investors and lead to huge profits in a short span of time. The new investors who are not well versed with the process that goes into finding and buying income properties and making them a successful investment, can also benefit from such an investment by mitigating the risk to a great extent. In this blog, we shall discuss what are the advantages of buying turnkey rental properties in detail.
A Turnkey Rental Property is a property bought by an investor with a tenant and management in place. Turnkey property investing is a loosely defined investment strategy in which the investor buys, renovates and has a property managed through a specialized property management company, usually from a long distance away. Their goal is to make the turnkey real estate investment as simple as possible, so all they need to do it “turn the key.” Hence, the term “turnkey.” In turnkey real estate investing, the first step for you an investor is to find turnkey rental properties for sale. For that you need to find reputable turnkey providers, which are real estate companies that find a property in a proven rental market with high ROI, rehab the property, and also place it in the hands of a local turnkey property management company.
What Are The Advantages of Buying Turnkey Rental Properties
In the days of vulnerable economies and financial systems, real estate market remains very challenging and competitive. It is associated with major possibilities of high returns on investment. Specifically, turnkey properties have revolutionized the real estate market by providing buyers and sellers with major financial benefits. In the rest of the blog we shall be listing the top advantages of buying turnkey rental properties.
- The first and foremost advantage of buying turnkey rental properties is that the turnkey property companies do all the research needed saving you a huge amount of time in finding properties, doing title searches, doing rehab, having homes inspected and finding qualified tenants. They provide you with complete done for you investment system including ongoing management of your property. You have no leg work to do.
- If you are a first time investor, it may be difficult venture for you to buy a property which needs repairs. You may end up spending a lot more money to repair the property. Advantages of buying a turnkey rental property is that the turnkey property companies do all the repairs before putting the properties out for sale.
- Another advantage of buying turnkey rental properties is that the turnkey investment companies also take the responsibility of finding qualified tenants. This creates instant cash flow from the first month onwards. They handle all the paperwork to be done with the tenants.
- Another benefit of buying turnkey rental properties is that you do not need to manage the properties on your own, especially if the properties are located out of state. A turnkey rental property management company will manage your property and take care of your tenants’ complaints as well. For this they will charge you some fee, but it is saves you from doing all the hard work after buying the property. This is an awesome advantage of buying turnkey rental properties if you have a day job and have no experience to deal with every one of the intricate details of purchasing and setting up a property for leasing.
- A turnkey rental property can give a quick passive income from the very beginning. Rental properties can be purchased in numerous cities all through the United States and can be a decent source of passive income. Therefore, it is imperative to comprehensively vet a turnkey property supplier and any property you are thinking of buying.
- Turnkey property companies provide the buyers with warranties on home renovation. Any defect in the roof, plumbing, walls, etc can be repaired free of cost with the warranty period. The turnkey property companies have their own general contractors to do the repair. After the warranty period is over and issues arise they will do the work and bill you just for the cost of the repairs. You do not hire any company from the outside to repair anything in your house.
- As an investor you need to put money into the best and most sustainable real estate markets, the markets in which property prices are steadily rising. Turnkey property companies comprehend this and (generally) they only exist in these best markets because they too need to profit and markets that are not balanced for long term sustainable development won’t provide them with future buyers. While it is judicious to do your due diligence on a market, it will be uncommon to discover a turnkey property company in an awful market.
- One of the advantages of buying turnkey rental properties is also that purchasing them in a different real estate market can give you access to properties which fit in your budget. If you live in New York you may be able to buy a turnkey rental property because of soaring real estate prices. However, you can buy a turnkey rental property in markets like Atlanta and Memphis or Houston, where properties have a great price to rent ratios and make for a good source of rental income. Basically, go for market with expanding population and dynamic economies.
- Buying turnkey rental properties gives you an opportunity to expand into different real estate markets. After you choose a market, you can buy 3 or more rental properties and then go to another market. In this way you are quite sensibly mitigating risk of losing your investment due to any catastrophic event or large scale economic downfall in a given market. It is always advantageous to not have all your turnkey rental properties in one given market. Rental properties can be found in various cities and states of the US, so you can easily diversify your portfolio of turnkey rental properties.
- Turnkey rental properties are found to keep pace economic inflation. Over the long term turnkey rental properties will appreciate because of inflation and the corresponding demand in market. These increases shape a strong reason to reinvest in higher-priced properties or by enabling you to build up a credit extension to use towards additional investments that you may in mind.
- If you choose to finance your turnkey rental properties, a mortgage will cover the majority of the purchase price. Usually it is 80% of the purchase price and you need to pay 10% as down payment. Your tenant then “pays off” the mortgage for you via monthly rental payments. The difference between your rental income and property expenses will be your net cash flow per month. As rent from your tenant is adjusted with inflation, the spread between the income and property expenses increases, bringing about more cash flow for you. With no vacancy period and a good property management, your rental income can extend over the term of the mortgage, eventually resulting in a mortgage-free income property, which means the title of the property is finally transferred to you by your lender. With more cash flow in hand you can now finance and buy more turnkey rental properties. This is an awesome example of an investment that required minimal outlay on your part and will continue to generate income until you sell it. What more do you need from an investment?
- Buying multiple turnkey rental properties with efficient management in place can lead to increase in your equity, creating more funds to invest in other rental properties. Instead of putting all your money in a single rental property, you should go for mortgage and finance multiple rental properties. This is called leverage. When you have a solid portfolio of turnkey rental properties, you can think of retiring early. Isn’t that great?
- Tax breaks are major initiators for turnkey property investing. Turnkey investment properties can offer tax deductions to investors that can reduce the income tax on your net cash flow. Operating expenses such as mortgage interest, property management fees, property taxes and repair & maintenance can all be claimed as deductions against rental income. This is one of the biggest advantages of buying turnkey rental properties. However, there are certain guidelines set up by IRS (Internal Revenue Service) that you need to understand. Rental property owners may assume that anything they do on their property is a deducible expense, but that is not true according to the IRS. Money you receive for rent is generally considered taxable in the year you receive it, not when it was due or earned; therefore, you must include advance payments as income. Therefore, it is advisable to have a Chartered Accountant to guide you on tax deductions laws for rental property owners.
- Real estate profits are not taxed until you sell the property. For example, if you purchase a home for $150,000 and it appreciates to $200,000, the $50,000 gain is protected from taxes until you sell the property.
- You can invest in out of state turnkey rental properties. With over 400 markets around the United States, some markets become more favorable than others as they transition through their individual market cycles. That means that at any given time there will be markets that offer you better opportunity in terms of cash-flow and/or appreciation potential. You could find an out of state turnkey property investing opportunity with lower prices, higher and better returns and better cash flow.
Conclusion: Like any other real estate asset, a turnkey rental property can be easily acquired, and the process is similar to purchasing your own single family house or a condominium. Many real estate investment companies are there in the US that specialize into restoring the old properties and also provide services to investors minimizing the efforts of the buyers to convert the property into a rental one. For more information on rental property investment, you can read how to buy turnkey rental properties.