Investing in a Turnkey Rental? Watch Out For These Warning Signs
It’s becoming one of the more popular means of investing in real estate these days, and there’s not much work involved in it – if you make the right purchase.
It’s called turnkey rental property investment, and it offers investors lucrative ways to make a profit with minimal work involved. Turkey rentals are perfect for those that might be too busy or disinterested in putting in too much work into the property.
This passive form of real estate investment has been increasingly attracting young millenials who like the idea of owning property, but not necessarily in the traditional sense. Turnkey properties offer investors the opportunity to become homeowners while collecting an additional revenue stream to contribute to an investment portfolio.
But like all other types of investments, they come with some risks. Be wary of the following warning signs before you claim title on a turnkey property.
The Seller Won’t Accept Financing
Huge red flag here. The majority of buyers tend to leverage financing order to be able to buy properties, whether it’s for a primary residence or an investment property. If the sellers try to feed you some line about how the demand is so strong that they can snag a cash buyer within 24 hours, proceed with caution. They’ll tell you that their properties on flying off the shelf, and that they only sell to those who can pay with all cash.
Many of these cash-only turnkey providers probably don’t want to deal with financing because they’re probably worried that their properties won’t get appraised at the value that they are trying to get you to buy them for. Basically, they’re trying to rob you blind. Even if you’ve got the cash to pay in full, you’d still be smart to have the place appraised anyway just to make 100% sure that the real value property is exactly what you’re buying it for.
The Seller Needs a Minimum of 30 Percent Down
Some turnkey property sellers will offer their own financing. But if they ask for at least 30 percent down – or more – think twice.
To get you to comply with their request, they could tell you that a larger down payment will reduce your monthly payments, and thereby boost your cash flow and your equity in the property. The thing is, this could really just be a scheme to make you feel more comfortable about the purchase after the property has been appraised for less than what they’re selling for. Play it safe and get your own lender and go the traditional lending route.
The Seller Also Happens to Be a Marketing Specialist
Much of real estate has to do with effective marketing. After all, you’re probably most likely to come across properties that have been marketed really well before any others. In some cases, you could find a turnkey property that’s being offered by a marketeer at a decent price. But just keep in mind that marketing wizards are basically selling other people’s properties, just with a hiked-up price.
They need to make a buck too, so you can’t really blame them all that much. But don’t forget that buying directly from the turnkey provider can potentially save you a good chunk of change off the purchase price. Ditch the middleman and keep that money in your pocket.
Most of the Seller’s Turnkey Properties Are Located in Shady Areas
Some turnkey providers will try to unload their properties and make a quick buck by trying to sell properties that are in the crappy parts of town. They’ll claim that you can make a really good return on investment on properties in these areas. Take a few minutes to get to know the crime rates in the areas that these properties are located in. If they’re higher than the national average, run.
Keep your eyes peeled for these red flags when searching for the right turnkey rental property to add to your investment portfolio. Not all turnkey providers are shady, but some are. Team up with a real estate agent that’s well-versed in the world of investing in these types of properties to make sure you’re making a sound decision that won’t eat up your profits or cause you headaches.