Are turn key rentals the right real estate investment for you? Turn key rentals have already been rehabbed and have a qualified renter in place paying rent the day you take ownership. These also typically have a property management company in place to take care of the day-to-day operations and keep qualified renters in the house. Turn key rentals do make everything easier for you as an investor. But of course, your return on investment is likely to be lower. At least in the early years.
If you are getting into real estate investing as a full time professional, turn key investing probably doesn't make sense in most cases. However, if you have a full time job and family but want the investment security that a real estate investment presents, turn key investing may well be the right decision for you.
Turn key rentals cost more for the original investment than a do it yourself fixer upper because the property has been professionally rehabbed. However, you don't have to deal with contractors or spend your weekends doing the work yourself. Still, I've seen turn key rentals that provide an annual rate of return as high as 15%. Not bad for an investment that is fully secured by real estate.
Another time a turn key investment works well is when investing in property in your local area doesn't make financial sense. With most major metro areas seeing substantial rental increases the past several years, it might not make sense to invest in your location if isn’t delivering the highest returns. However, don't write off your location too quickly. Rents have gone up substantially in many of these areas as well. Always perform due diligence on multiple scenarios before investing your hard earned cash. When your local market doesn't offer the best return or a decent return, you can look for better markets all across the country. When you find a turn key investment offering a better return on investment than managing property in your local area, it definitely makes sense to have professionals earning money for you.
The biggest advantage to a turn key real estate investment is that you have positive cash flow beginning on day one. A $50,000 turn key investment earning a 15% annual return will put an extra $7,500 into your bank account or retirement account each year. You also have a brick and mortar asset that is very unlikely to fluctuate in value the way Wall Street investments do. You might want to consider investing through a self-directed IRA or 401k to boost the earnings of your retirement account tax-free.
But always look at the worst case scenario. Your rental will become vacant from time to time. With a reliable property management company this shouldn't happen very often. Especially in today's marketplace when more people are renting than buying. A well qualified renter is likely to give ample notice he or she is moving out so that your property manager can have a new renter moving in right away without a gap in rent collection.
However, it's possible that a renter moves out without notice and leaves the house a mess. If it takes two weeks to get the house back into rentable condition, here is what you can expect a $50,000 investment to cost you. If you own the house out right, a temporary vacancy won't cost much. About $93 in taxes, $50 for insurance, $80 for property management, and $55 for utilities. That comes to $278 each month your rental is vacant or $139 if it's only vacant for two weeks. Keep in mind that depends on the individual cash flow circumstances of your rental.
If you’re looking for a low risk, low management real estate investment, turn key rentals may be for you.
Please comment below with your perspective on turn key rentals. Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.