This is a simple concept where the investor buys, rehabs, and then resells a property at a profit. This is also known as “flipping” a house. This process usually happens remotely, because the investor stays in his own home, sometimes in a place where changing his mind doesn’t make sense, and uses the Internet to find and invest in opportunities. The goal here is to make the real estate investing process as easy as possible, so all the investor has to do is flip a switch or “turn the key.”
Typically, then, you’re buying a single-family home, fixing it up, bringing it in line with current codes and making it more attractive to buyers. Is that how it works:
- A retailer or turnkey company purchases the property.
- One or more investors buy some or all of the shares in the house.
- The retailer or company “repairs” or rehabilitates the property to make it current and attractive to buyers.
- Once the property is rehabbed, it is put back on the market for resale.
- As soon as a sale is closed, the investor gets his money back plus any profit made, based on the portion of the investment he owned.
If done correctly, this can be a very solid investment strategy. You, as the investor, have made a profit by remodeling the house and can have as much or as little share as you like. You can be as involved or not as involved in the remodeling process as you want, helping to oversee the contractors rehabbing the home or leaving the entire process up to the turnkey retailer.
Why not buy a house myself and flip/rent it?
Maybe you’re thinking you can cut out the middleman, retailer, or turnkey company, and do all the legwork yourself. While many investors do exactly that and are successful, there are some drawbacks. In most cases, you will end up doing a lot more work than you would as an investor. This is what you would need to do if you were to become a pinballer, instead of going for a turnkey solution and having the turnkey retailer handle the process for you.
- Find the property: First, you would need to locate a suitable property, which means knowing which neighborhoods will attract buyers or renters.
- Property Rehabilitation: Next, you would need to renovate and rehab the property, to bring it up to current codes and also make a great single-family property. This requires an adequate budget and attention to contractors and workers, something that requires a presence on site.
- Marketing of the property for sale or rent: Once the house is move-in ready, you will need to find a buyer or a paying tenant to move into the location.
If you decide to rent the property, you would be entering a whole new dimension. To learn more about turnkey real estate investments where you rent rather than resell, check out our summary of that investment strategy.
If this sounds like a lot of work, that’s because it is. With turnkey real estate investing, most of that work can be taken off your shoulders and onto someone else’s. Let’s see the advantages of turnkey real estate investment.
The advantages of turnkey real estate investment
In a complete, turnkey real estate investment situation, you are an investor, not a pinballer or landlord. You are hiring someone else to manage the property for you, so all you have to do is collect the winnings. These are some of the main advantages of turnkey real estate investment.
Does not require your presence locally
With a turnkey real estate investment, you purchase single-family properties in remote locations. This allows you the freedom to continue living where you want, while maintaining cash flow from a location that has excellent real estate values. You can continue to live in your gated community in Florida, for example, where remodeling homes may not make sense, while investing in affordable or profitable properties in Seattle or anywhere else that has strong demand for such properties.
Easy diversification of your investment portfolio
Turnkey real estate investment can be a success, if done correctly. One aspect of successfully executing a turnkey real estate investment strategy is investing correctly in multiple markets, something that is easy to do as it requires little or no time on your own. The benefits of investing in multiple markets are simple: it gives you protection against an unexpected downturn in an economy. For example, an investment in single-family properties in Seattle may seem like a guaranteed cash flow scenario, but what if Boeing announces major layoffs? If that happened, home prices would fall and properties would be harder to sell, negatively affecting your profits.
Since turnkey real estate investing makes it so easy to own multiple properties, this is a significant advantage of the investment strategy. if you do it right. In other words, don’t put all your eggs in one basket.
You don’t have to be a real estate expert
When you deal with a reputable turnkey real estate company or retailer, that provider knows the real estate markets much more accurately than a third party. Sure, you could do some basic research in an area, checking local school ratings, crime reports, and price ranges, but a turnkey provider will know all of that and more; they’ll get to know the heart of an area, like why people prefer one neighborhood over another.
The Disadvantages of Turnkey Real Estate Investing
If turnkey real estate investing sounds like a surefire way to make money, you should be aware that the strategy has its downsides. First, you’ll run into turnkey retailers trying to maximize their own profits at the expense of cutting corners, but beyond that, there are other drawbacks.
The “middle man” needs to make money
The turnkey company is a business, and that business needs to make money. This means buying a property at a discount and then selling it for a higher amount, or “trading in” the property, often for a substantial markup. After that, the turnkey company can make an additional profit by managing the sale or rental of the single-property property for you. One thing to remember about this downside, though, is that turnkey businesses often have a marketing machine running at all times and can find amazing deals in your marketplace, allowing them to give you a great deal even when the business gets his profit.
you have to trust someone
There are “shady” turnkey companies out there. These companies will encourage an out-of-state investor to buy a bad property in a bad location, which means more money will slip out of the investor’s pocket than will come in. You have to rely on the knowledge, experience and credibility of the turnkey operator to do a good deal. This means that you have to deal with someone you can really trust.
Conclution
There are significant benefits to turnkey real estate investing, and it can definitely be an attractive cash flow strategy. However, there are also drawbacks to consider before proceeding with any deal. You will want to research the turnkey provider and make sure that they are reputable and profitable, and that the cash flow opportunity they are offering you is actually achievable and realistic. Turnkey real estate investing is a fantastic way to make money, as long as you’re smart about it and take care of your own due diligence throughout the process.