What is a Turnkey Rental?

For those of you wondering, a turnkey rental is one that already has a paying tenant in place when it is purchased.  The draw is that there is no fix up, hunting for a qualified renter, and finding a good property manager.

This is crucial because if you bought a regular rental, all of the above would have to be put in place while you are making the mortgage, insurance and property tax payments. A turnkey rental on the other hand, provides cash flow immediately.

Buying a turnkey rental can be successfully done, but in order to do so, there are quite a few steps that must be followed to ensure that you can sleep at night after you have purchased the rental. A good real estate agent that is knowledgeable about purchasing turnkey rental property is invaluable. Here are my tips on having a successful turnkey rental:

1. Understand that buying a rental is all about the numbers.

If they don’t work, you will, and spend, and not sleep at night. You will need to establish what dollar amount you would like to have as cash flow at the end of each month and work backwards from there.  For example if you would like $X in cash flow per month, start at $X.00, add in mortgage payment, taxes, vacancy, property management fees, and maintenance. The number you come up with is the minimum amount that you need to get in rent.

2. Buy in an area where people want to live.

Sounds elementary but you would be surprised how many people overlook this. Your real estate agent is the best source for this type of information. Although a turnkey rental comes with a paying tenant, should that tenant leave, you want to be an area where you would have no trouble finding tenants or if you need to sell the house, there would be no shortage of buyers.

3. Purchase a newer home. This will help tremendously in reducing repairs and maintenance and increasing profits. It will also be a draw when the time comes to re-rent the house. To most people,  newer is better.

4. Make sure to get a home inspection.  Just one major repair like the roof or heating system can erase 2 or 3 years of profits overnight.

 5. Have the seller give you records of what maintenance /repairs they have done since they have owned the house. This will be a good indication of how well the house has been cared for.

6. Property management is key. Do your research, and find a good one. The property management company will make or break your bottom line. They are not only responsible for making your life easy (which is why you pay them), but they are also responsible for making sure that your tenants are happy and want to stay in your house. If you don’t have long-term tenants, your profits leave when the tenants do.