Turnkey rental properties can be an awesome investment to add to your portfolio. If your plan is to increase your passive income like mine is than buying a turnkey property may be a good fit for you. One of the nice things about purchasing turnkey is that it cuts out a lot the hard work involved when wanting to get into rental properties. Depending on your geographical location, it may not be easy to find a rental property that produces monthly cash flow. You may also find that the best ways of finding a good income producing rental is to buy a fixer upper, then do all the rehab and then rent it out. This can be a very time-consuming endeavor and if you have a full-time day job, it will make it harder to do.
Which is why I decided to start investing in out of state turnkey rentals. With my day job, I just don’t have enough time to buy a fixer upper, do all the rehab, deal with the stress involved in rehabbing and not to mention, there just isn’t any good deals left in my market. I really think investing in real estate can be the fastest way to early retirement which is why I am adamant about investing in rentals.
I have now successfully bought three cash flow producing turnkey rentals while I have attempted to buy five of them. That’s right folks, I have backed out of two different turnkey purchases I was under contract in. Been there, done that!! I have spoken to at about a dozen different turnkey providers, multiple property management companies and am now pretty familiar with the process of buying a turnkey rental. My plan for now is to buy at least 10 total turnkey properties and then re-evaluate to see where I stand.
With my turnkey experiences, I have already had the luxury of helping out other people thinking about going turnkey and part of the reason why I created this blog is just for that. If I had the kind of knowledge on turnkey rental properties I have been writing about here on my Cash Flow Diaries when I was first starting out, oh man! it would have made my life a whole lot easier.
To try to make life a little easier for you, I have created a step by step guide on how to buy a turnkey rental property. This little guide should put you on the correct path and arm you with enough knowledge to understand what the process is like. The steps below are the steps I have taken and will take when looking for my next turnkey. You may or may not go through all these steps when you purchase as the situation may vary for you but for me, it has proven to be an effective way of getting my turnkey rentals.
Step 1) Pick a Market to Invest In
- If you are thinking going turnkey, it’s most likely because you live in an area where you can not find good cash flow producing rentals. One of the first things you want to do now is find a city that you want to buy in. It is very important you do proper research on picking the right market to invest in. For example, I don’t think it is a good idea to buy rental properties in a city that is consistently declining in population and you probably shouldn’t either. Click the following link if you want to read more about how I chose my market to buy turnkey rental property. Ultimately, my plan is to have 4 to 5 properties in each city and right now I am concentrating on one city.
Step 2) Get Financing
- Now the next thing you want to do before you begin your turnkey adventure is to secure your financing. If you do not have financing in place, there is just no point in taking the time to do all the research needed when finding a turnkey property. If you are paying all cash, then great, you can skip this step. For most of us, getting financing will be top priority at this point. Find a lender who is licensed in the state you chose from step 1. Get qualified, and make sure you will be able to purchase. It is a good idea to find a lender that is licensed in multiple states because if you are serious about retiring early with turnkey rentals, you will need plenty of turnkey properties in your portfolio. Keep in mind it is a good idea to not buy them all in one city/state. For diversification purposes, you should buy some rentals in one city/state, then other rental properties in a different city/state. If your lender is licensed in multiple states it will make your life easier to continue working with the same lender on your future purchases.
Step 3) Find a Reputable Turnkey Provider
- You have financing in place, you know what city you want to buy in and now you want to find all the turnkey providers in that city and research the crap out of them. You don’t want to work with just any turnkey provider. They are all different. Some are bad, some are okay, some are good and some are great. You want to find a turnkey provider who is looking out for your best interests. One that wants to establish a long-term relationship with you where you all make money. You also want to find one that has good properties. Google “turnkey sellers”, “turnkey properties”, “turnkey providers” and append your city name to the search and see what comes up. You can also go to sites like turnkey-reviews.com who lists a bunch of turnkey providers and also lists reviews on some of them. There is also biggerpockets which is a real estate forum. There are plenty of turnkey providers you can find on the biggerpockets forum. Once you have a selection of turnkey providers you are thinking about doing business with, make sure you interview them and ask them these top 31 question to ask a turnkey provider.
Step 4) Start Reviewing Available Turnkey Properties (See step 9 for another possible step to be done at this time)
- Now that you feel comfortable possibly working with a few turnkey providers. Its time for the fun to start! Start checking out all the available properties they have in inventory online. Make sure the properties fit your criteria model. If you don’t have a criteria on the kinds of properties you want to get, feel free to see my turnkey criteria to help get started with that. I urge you to take the turnkey providers calculations/numbers with a grain of salt. Do your own research to confirm rent prices, tax values, estimated vacancies and estimated repairs. You also should do your own research on determining if the location of the property is in a good area. Make sure you stay away from high crime areas as these types of properties will most likely end in failure. And you don’t want that. Trust me!! If you can’t find any available properties that do fit your criteria, wait for one to be available. There is no need to rush into purchasing. One will come up, just be patient! Never, ever tie your emotions to a single property. This is a business and you should stay in business mode when finding turnkeys.
Step 5) Put it Under Contract
- You have found a potential turnkey property that fits your criteria and you are excited about moving forward. Yeah, good job!!! It’s a great feeling when you find a property you like and it fits all your criteria. Put this puppy under contract!! Keep in mind you are not even half way through the process so don’t get your hopes to high just yet. There is still plenty of work and steps needed to make sure this turnkey property will be a winner. At this point in time, you will sign the required purchase agreements, any addendum’s you or the turnkey provider might have and send off an earnest money check. Believe it or not, not all turnkey providers require earnest money deposits so make sure you confirm before hand. I highly recommend you include an addendum to back out and get a refund on your earnest money if the inspection or appraisal does not meet the requirements. This is a good method to cover your behind in case it all falls through.
Step 6) Order Inspection
- Ordering your inspection is a very important step and you absolutely must do this no matter what. Regardless of what the turnkey seller tells you. You should order this as soon as you get the purchase agreement and paperwork handled. If your turnkey property is still in the process of being rehabbed, you will want to wait to order your inspection until after the rehab is complete. The inspection will determine if your turnkey property is a pig or not. A pig is when a property has underlying problems that are not visible externally. Many times, a turnkey provider may just “put lipstick on a pig” and try to sell you a house that is visibly attractive but full of other problems internally. This is the last thing you want and if you do land a pig, its time to back out and walk away. To find an inspection company, google “inspection company” in the city you are working and find a reputable inspector. I personally like using Yelp to find them because they provide helpful reviews. You can also network with other real estate investors in your city and get solid recommendations on good inspectors. Don’t skimp out on this! You want a good inspector who will find all the problems.
Step 7) Negotiation based on Inspection Report
- The inspection report is in hand and you now have a solid grasp on what kind of property this is. Don’t freak out just yet based on the problems and issues the inspector found. Now is the time to send the report to your turnkey provider and ask them to fix the issues at hand. In a perfect world, the turnkey provider will repair all the issues on the report. This however does not always occur. You will need to find out which ones they will fix and determine if this is suitable for you. At least make sure they take care of Major/Critical items listed on the inspection report. After fixing the repairs, you will want to order a re-inspection so that the inspector can come out and double-check the repairs made. If you are on a tight budget then you can have the turnkey provider provide proof that the repairs were made by taking before and after pictures. If the turnkey provider does not want to fix the repairs or you find that the fixes they do want to fix are not sufficient to your demands, it’s time to back out of the deal. Know when to walk away from a bad investment! Don’t feel bad about walking away. This is your future investment and if it’s not what you want, you will regret it later on. This is part of the game when buying turnkey rentals. I have actually already had this happen to me twice and backed out of two different turnkey rentals I had attempted to buy. It’s okay, the world is not over. It can happen to you. Hopefully it wont!
Step 8) Order Appraisal
- Typically the inspection and appraisal is ordered around the same time however I urge you to NOT order these together. Wait and order the appraisal AFTER you get your inspection. Only when you are satisfied with your inspection and repair negotiation should you order the appraisal. The reason for this is that if you do end up backing out of the property because of a failed inspection, you just wasted $400 on an appraisal. Don’t do this and learn from my mistake. The first turnkey I backed out of I did the mistake of ordering the inspection and appraisal at the same time and ended up losing the costs for both of these. I learned my lesson real fast! Once the appraisal is complete, assuming it meets the purchase price requirement, you can proceed to the next step. If your appraisal does not meet the purchase price requirement then this also may be a good time to walk away. I have not had this problem yet but it is always a concern for me.
Step 9) Visit your Market and your Turnkey Provider
- It is a really good idea to visit the city you are wanting to invest in, meet your turnkey providers, see their operation first hand and see the property you have under contract. This particular step can be done anytime before this step as well. An alternative is to do this step after step 3 that way you can visit all the turnkey providers you have researched. This would be a great time to do tours with all these companies and see the kinds of properties they have available. This is actually the way I did it when I bought my first turnkey and you can read about it here. For future turnkeys however, I will come up and visit after the inspection so I can see the house I am purchasing after rehab as long as I continue buying in the same city. I would recommend that if you are a first time turnkey buyer to do this step after step 3.
Step 10) Secure your new tenants
- We are now getting to one of the final steps here with your new turnkey rental property and it could be one of the most important. Having qualified tenants will make your life easier and keep your cash flow coming. If your turnkey provider hasn’t already found qualified tenants then it is a waiting game at this point. Depending on your lender and financial situation, you may have to secure tenants, get a lease agreement and send it off the to lender before you can close. If you are purchasing all cash I also recommend that you wait to have tenants in place before you close. A true turnkey provider will have this step completed for you before closing. If you choose for whatever reason to use a different Property Management company, make sure you interview them properly and ask these top questions for a property management company. You don’t have to use the property management that the turnkey seller provides. This should be negotiable and if you don’t like the property manager being placed, find one that you do like.
Step 11) Gather remaining underwriting requests and stipulations
- Just when you thought you were all secure with financing, not so fast bub! This is now right around the time you are moving closer to closing and your lender will ask for final paperwork needed at the request by the underwriters. These types of documents may include Letters of explanation, additional statements, etc. Make sure to provide all requested information promptly and keep your lender happy! Remember, if you are looking into buying more turnkeys, you will want to have an awesome relationship with your lender for future purchases. If you make it easier on them, they will do what they can to make it easier on you. (If you’re paying all cash you will skip this step)
Step 12) Close on your New Turnkey Property
- You made it!! You have the clear to close and now an appointment has been set for closing. Don’t you just love getting a clear to close!!?? Chances are that you are out of state and this is not a big deal. The title company will send out a notary to your location to sign all the closing documents. Make sure to review all the final documents, make sure the numbers look good and actually read what you’re signing. Whoohooo! It is a very good feeling after this step is completed. Go grab yourself a margarita to celebrate.
Step 13) Time to GET PAID!!
- Yeah!! You’ve closed and now you are an official turnkey real estate investor. Congratulations on your new turnkey! Now you sit back and collect your payments. You also however will sit back and wait for any repair/issues to come up but hopefully you wont have too many of these. Especially your first year. Always include estimated repairs and vacancies when running your numbers and keep this money somewhere collecting in your bank account. Do not use this money, you WILL absolutely need this money later on. Not having cash reserves to handle repairs, vacancies and unexpected expenses will result in FAILURE. You don’t want that now do you? So make sure you do it right!
These are the steps I have taken on purchasing my turnkey rentals and are the steps I will continue to take on future investment properties. This may not be the same steps you go through and your experiences with purchasing a turnkey may be completely different. If so, please comment below and let me know.
I would love to hear about other turnkey investors and what experiences you have gone through or are going through. There is not a ton of information out there from actual turnkey buyers so by sharing all this knowledge and you contributing as well, we can build knowledge and help our turnkey buying process get better. Us turnkey buyers need to stick together!! Don’t be shy! Speak up!
If you’d like to see details and returns on my last turnkey purchase, click here.