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5 Ways to Reduce Your Risks When Buying a Turnkey Rental Property,
Without Paying Extra

There’s no getting around it — every investment involves risk. Wiring your deposit money can be nerve-wracking, especially for first-timers. It can be hard to shake the feeling that you’re making a big mistake with a large amount of money. This is especially true when buying turnkey real estate you have never seen, several states away. In this article we will show you how to reduce your risks when buying a turnkey rental property.

 

But unlike the stock market, which is completely unpredictable, real estate — especially turnkey real estate —  offers you several avenues to reduce or control your risk, without reducing your exposure to profit or even costing you any extra money (insurance, emergency funds, option fees, etc.)

 

Here are five ways to reduce your risk when buying a turnkey rental that don’t cost you any extra money …

 

1. Research the Market

Real estate is a highly localized industry. Even a weak property will do well if it’s in a good area. If you’re thinking of investing in a particular market, learn everything about that market you can. 

 

Information breeds confidence. Find out if people are moving there, if companies and jobs are moving there. Look for news articles about the local economy.

 

Consider setting up interviews with local professionals. Be wary of realtors — they will definitely want to talk to you, but they tend to be cheerleaders for the market because they only get commissions if you do deals there. Property managers or contractors are a better source, because they actually have to run the deals you do there.

 

If you have a particular neighborhood in your sights, check the area amenities on Walkscore.com, the average market rent on Rentometer.com, the crime heat map on Trulia.com.

2. Partner with a Reputable Turnkey Rental Provider

On easy and free way to reduce the risk of your turnkey rental property purchase is to partner with a reputable turnkey provider. If only we had one to recommend you …

 

But seriously, folks, MartelTurnkey has been in business for over six years. We have testimonials and reviews online attesting to the quality of our work. We’re in this for the long haul and have no interest in jeopardizing our reputation by selling you a lemon. This isn’t rocket science.

 

Just as you can reduce the risk of further damage to your car by choosing a reputable mechanic, partnering with a reputable turnkey provider is the best investment in peace of mind you can make. The first few deals may be nerve-wracking, but once you get comfortable with the provider (and hooked on the cash flow and increasing property values), you’ll get to the point where you’re buying deals as quickly as you can raise the money.

3. Check the Property’s Condition

One of the biggest risks of purchasing real estate is the secrets that might be hiding in the bones of the property. Every buyer fears a major system failure — a collapsed roof, a flooded basement, etc. — rearing its ugly head while the ink is still drying on the mortgage contract.

 

The remedy is to verify the property’s condition before you buy. How can you do this with a turnkey rental property you don’t plan to visit? Several steps:

 

The Property Inspection. This is a standard part of any property purchase, and it doesn’t require you to be there. The inspector will furnish you with a detailed report, accompanied by photo evidence.

 

The Renovation Contracts. Most turnkey rentals have been extensively renovated, and the provider will provide you a list of all the work that was completed. Photos provide good evidence of the work and city inspection certificates (when required) help clarify things

 

Boots On The Ground.  This is supposed to be about how to reduce risk with no extra cost so I don’t want this to be about hiring help, but if you happen to have friends or family in the area — or someone you can barter services with — have them visit the property for you to verify its condition. Just remember to pick someone who isn’t affiliated with the seller or turnkey rental provider so they have nothing to gain by misleading you. 

 

That being said, eventually something always breaks in every property. It is inevitable.  Whether it happens in Year 1 or Year 10 is only a question of how long you have to save up a contingency fund to cover it. At MartelTurnkey we always recommend you have a cushion for unforeseen situations.

 

So although this article is about not spending extra money, it bears repeating — have a contingency fund from the get-go.  We discuss how to do that here.  A property can suffer tens of thousands of damages and still be wildly profitable over a 5-10 year time horizon. If you have the cash cushion to get you through it, you’re still in great shape. 

4. Check the Financial Documentation

The physical condition of the property isn’t the only thing to verify — you should also consider the financial condition. 

 

Check documentation for every bill you will be responsible for. Look up property tax records. Ask to see every service contract. Call insurance agents and find out what it will cost to insure this property so there are no surprises. If there is a tenant in place, examine the lease. If anything is a mismatch, ask questions until you are satisfied with the answers.

5. Target Positive Cash Flow on Day One

Positive cash flow is about more than just financial freedom. Cash flow is liquidity. Cash flow gives you options. Positive cash flow reduces risk. 

 

So if you’re buying a turnkey rental property, you can de-risk your investment by targeting a property that has positive cash flow on Day One — no deferred maintenance, a tenant in place, enough rent coming in to cover all the projected expenses, including the mortgage payment.

 

What if you don’t intend to have a mortgage? What if you’re buying all cash? With no mortgage payment it’s certainly a lot easier to achieve positive cash flow and reduce your risk. 

 

But if you want to still adhere to the principle of de-risking your investment, follow the “75% Rule” — do the math as if you were borrowing 75% of the purchase price. If the math returns positive cash flow, you’re taking a pretty minimal risk, even with a mortgage … which means you have very little risk as an all-cash buyer.

 

Ready to invest? MartelTurnkey has a sterling reputation in the Turnkey Rental industry, with the results and testimonials to back it up. We are always replenishing its inventory of fully-renovated, tenant-in-place rental properties in strong markets ready to produce cash flow on Day One. The next one could be yours! See what properties we have available right now.



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When Should I Refinance My Rental Property?

One of the most exciting times in the life cycle of a real estate investment is when it’s time to refinance. Your wealth has been tied up in equity … but at refi time you get to turn that equity into cash! Best of all, a refi is a not-taxable event — no capital gains taxes to pay to Uncle Sam. In this article we help you answer the question: “Is it the right time to Refinance My Rental Property?”

 

That being said, there’s a right time and a wrong time to refinance. Here are some circumstances when it may make sense to refinance your rental property …

1. When You Paid All Cash

If you paid all-cash because you couldn’t get a loan or didn’t like the lending environment, you might want to refinance to add leverage to your investment and pull out principal for other investments. This isn’t “refinancing” since you didn’t finance in the first place, but on paper it’s a “cash-out refi.”

2. When You Can Get A Lower Interest Rate

As I’m sure you know, interest rates are higher now than they have been in the past ten years. The Fed is making big moves. If interest rates come down in a few years, it might be worth refinancing into that lower interest rate to get a lower payment. But be careful — read #6!

3. When You Can Pull Out The Principal

If you have built substantial equity in the property — either through appreciation or principal paydown — it may be time to pull out the principal. For example, if you put $50,000 into acquiring the property and your refi will net you $50,000 cash, you have pulled out all of the principal. If your refi will net $25,000 cash, you have pulled out half of the principal.

 

Why do this? Because it de-risks the investment. There’s no more risk of losing all your money … because you have all your money back. But you still own the asset! You still get to collect cash flow and enjoy future appreciation.

 

But refinancing to a bigger loan adds risk in a different sense, as we’ll see in #4 … 

4. When Your Cash Flow Increases

A cash-out refi usually means replacing a mortgage loan with a bigger mortgage loan. After all, you have to pay off the first loan. Unless you got a much better interest rate in #2, that also  means a higher mortgage payment. 

 

A bigger mortgage payment eats into your cash flow. Smaller cash flow means a greater risk that you can’t pay the bills, which can have drastic consequences – up to and including foreclosure.

 

In other words, you don’t just want to refi when you have more equity — you also want more cash flow. Focus on increasing revenue and lowering operating expenses today to set up your refi for the future.

5. When You Can Get Higher Loan-To-Value

The bigger the loan-to-value (LTV), the more leverage you have. Sometimes you may only be able to get 75% LTV, but you find a refi of 80% LTV or more. At this point, you can probably pull out a substantial amount of cash by refinancing … but watch out for that cash flow (#4) and those fees (#6).

6. When You Can Avoid Heavy Fees

Okay, this is a big one. Your cash-out refi won’t be pure cash-out. You will probably owe application fees, appraisal fees, and possible loan points, which will eat into your cash-out. 

 

Additionally, if your loan has prepayment penalties, you might want to wait until those penalties expire — even if you enjoyed a big increase in equity. Excessive fees are just a gift you’re giving to your lender. Yes, they’re doing you a service … but that should be your money!

7. When You Need To Finance Construction

If your asset is in need of serious repairs — new roof, HVAC, foundation, etc. — a refi might provide the cash to do it. You might also consider a refi for products that add value to your asset, like an addition, extra bathroom, or ADU.

8. When You Had Short-Term Debt

If you bought the property with short-term debt — a hard-money loan, construction loan, or bridge loan — the ultimate goal is to refinance into long-term debt. Otherwise, you will owe a balloon payment in the form of the entire remaining balance.

 

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Think of the above points as stars that have to align. When the stars align, the time is right to refinance. In our experience, the time is usually right at about the five-year mark.

Want to add cash-flowing assets to your portfolio the easy way? Click here to check out the assets we have available for deposit right now. Any one of these is perfect for a lucrative refinance strategy, and we can introduce you to the lenders that can make it happen.

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How Much Should I Put Down, Given Current Interest Rates?

Unless you have been living under a rock, you probably know that interest rates have gone up sharply in the last year. It’s now more expensive to take out the same mortgage … which makes positive cash flow harder to achieve with leveraged real estate investing. So the question is: How Much Should I Put Down when buying my rental property?

 

One consequence of higher interest rates is downward pressure on market value. In other words, some attractive prices are appearing on the market. But with interest rates higher, many buyers are considering taking out smaller loans … which means bigger down payments. Instead of 80% or 75% LTV, they’re considering 70%, 50%, even all cash. 

 

Is this a good idea? How much should you put down in this interest rate environment?

Interest Rates Are Actually Closer to Normal

First things first — the past decade of bargain-basement interest rates is not the norm. What we’re seeing now is closer to the norm. We’re actually still below the sixty-year median for interest rates.  

 

This means they have not only been higher on average, but there were periods of time when they were much higher. In 1983, the average mortgage interest rate tipped the scales at over 16%!

 

So while mortgages seem like a worse deal now than they were last year, they’re still a good deal historically speaking. 

Should You Make a Bigger Down Payment to Achieve Higher Cash Flow?

What about the buyers considering a bigger down payment to achieve positive cash flow? Remember, positive cash flow is the key building block of financial freedom. If it takes a little more skin in the game to achieve it, why not?

 

I understand that temptation … but let’s not lose our heads completely. At MartelTurnkey we believe in the 75% Rule — if you can’t achieve positive cash flow with 75% LTV, regardless of the interest rate environment you happen to find yourself in, it’s probably not a good-enough deal. Something is out of whack, and it’s probably a pass.

 

As such, whatever down payment you ultimately intend to make — even if you intend to buy all-cash! — I strongly recommend underwriting 75% LTV with a 25% down payment, and just seeing how the numbers fall.

Should You Buy All Cash and Refi Later?

Many buyers are bitter about the higher interest rates … but tempted by those compressed prices. Federal monetary policy is expected (well, hoped) to result in declining interest rates over the next year or two. If you have the disposable cash, would it be wise to snap up some of those properties with all-cash purchases and refinance them later?

 

There’s nothing wrong with this strategy (as long as the property passes the 75% rule). Why take on a big mortgage at a higher interest rate? 

 

Yes, you could make a bigger down payment, take out a smaller loan, and still refi later … but then you will face two application and underwriting fees. Plus, you might face a prepayment penalty on the first loan. As a rule of thumb, we recommend either maximal leverage 75% – 80% (assuming the deal passes muster), or no leverage.

 

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The most important thing to do in an environment of rising interest rates is to not panic. Interest rates have been higher — much higher, in fact — and odds are they will come down again. Just keep your head and keep looking for positive-cash-flow deals. 

 

MartelTurnkey is here to help with that. We built our business on supplying our select buyer list with real assets that cash-flow from Day One, and that hasn’t changed. Click here to view our inventory of renovated, rented, ready-to-go investment properties just waiting for your deposit!

 

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The Hidden Income Stream of Real Estate Investing

In August, we announced that we updated our financial projections on our turnkey rental assets to include equity buildup.  This helped many of our investors discover a Hidden Income Stream.

 

This is a wealth-building factor of real estate investing that most people ignore … or at least discount the importance of.

 

We talk a lot about 1) rental cash flow and 2) appreciation. We even mention 3) the tax advantages of real estate investing pretty frequently. But equity buildup is the unsung hero of real estate wealth creation. 

 

When all four income streams are combined, the compounding effect turns real estate investing — or at least, leveraged real estate investing — into one of the most effective wealth-building mechanisms ever known to humankind.

What Is Equity Buildup?

As we refer to it here, equity buildup is a function of paying down the principal balance of your mortgage. 

 

To recap, your equity in a piece of real estate — whether your primary residence or an investment property — is the difference between how much it’s worth and how much you owe. Subtract the remaining loan balance from the market value, and that’s your equity.

 

Equity = Market Value – Remaining Loan Balance

 

Equity is the asset value of the real estate on your personal balance sheet. It adds to your net worth. You can’t spend it at a grocery store, but it is worth money. If you were to sell the property, in theory the equity is how much cash you would pocket (after closing costs). You can also use your equity as collateral for a refinance loan.

 

So how do you gain more equity? Well, appreciation adds to your equity by adding to the value of the property.

 

But you can also build equity on the other side of the equation — the loan balance.

 

In an amortizing mortgage (i.e. not “interest-only”) every monthly payment includes interest, but it also includes some portion of paydown of the loan principal balance.

 

Early in the loan, those monthly payments are mostly interest and very little principal paydown.

 

But as the years pass, those payments become less and less interest, more and more principal paydown. Over time, your buildup of equity starts to accelerate from your mortgage payment alone. Combine that with appreciation, and your net worth is effectively turbocharged.

Why Most People Ignore Equity Buildup … But They Shouldn’t

Why do people overlook this? Because it’s easy to forget. They can watch the cash flow land in their bank account. They can watch the Zestimate spike. They can pump their fists with glee when their CPA returns a tax bill of zero dollars.

 

But the mortgage payment? It stays the same. It’s downright boring. The same payment, month after month after month. 

 

The magic is built into the amortization math. With every payment, the math pushes the interest expense lower and lower — and the principal repayment higher and higher — without ever changing the payment amount.

 

Years later, when the property owner decides to sell the house or refinance the loan, they find the principal balance greatly diminished. They thought they had increased their net worth by the amount of appreciation … but because they have been diligently paying down that loan, they actually increased it much more. 

 

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Of course, equity buildup through principal paydown only works if you leverage your investment with a mortgage loan — which, if at all possible, we recommend that you do. Every one of our turnkey rental assets is structured to produce positive cash flow on day one — even with maximum leverage. Check out what properties we currently have in our inventory, — renovated, rented, and ready for acquisition by an investor like you!

 

Never taken out an investment mortgage before? Don’t panic. We partner with lenders who finance investors from all walks of life. Ask us for referrals — we’re here to help.

 

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What Happens if the Appraisal Comes In Too Low on my Investment Property?

It’s the worst nightmare of every seller — what happens if the property “doesn’t appraise?”

 

Of course, this is a euphemism. It’s not like the appraiser is going to visit the property and then run away to join the circus. (At least, not usually.) No, if you hire an appraiser, that appraiser is definitely going to give you an opinion of that property’s value.

 

So what does it mean if a property “doesn’t appraise?” It means that the appraiser comes back with an appraised value lower than the purchase price on the contract.

 

So what, right? The buyer and the seller agreed to the price; what does the opinion of the appraiser matter?

 

Here’s why the appraisal matters … and why it could be a problem if it comes in too low … 

What Is The Purpose of the Property Appraisal?

Let’s go back to basics — why is the appraiser there in the first place?

 

Yes, appraisers offer professional opinions of the value of the property … but realtors, investors, even most homeowners are smart enough to come up with a pretty good idea of a property’s value. 

 

With homes, it’s particularly easy — you just find out what similar nearby homes have sold for recently. There’s an industry term for this — comparative market analysis (CMA). Realtors do them all the time.

 

So why pay the appraiser?

 

The appraiser is there not for the buyer, not for the seller, and not for the realtor. The appraiser is there for the lender. In fact, if the buyer intends to pay all-cash with no mortgage loan, there’s actually no reason for the appraisal.

 

But if a mortgage lender is going to write a six-figure check with the property as collateral, she needs to know what the property is actually worth. Otherwise, if the borrower defaults and the lender has to foreclose, she may find herself with a lemon property she has to sell at a loss. 

 

So she needs a professional opinion of the property’s value … and that opinion of value needs to come from someone neutral. 

 

The realtor isn’t neutral. He gets a commission if the deal closes.

 

The buyer may not be neutral. She may really really want the property and be willing to overpay for it.

 

The seller is not neutral. He wants the highest price he can get — whether the home is worth that much or not!

 

The appraiser? She has no dog in the fight. The appraiser is the only party to the transaction with nothing to gain at closing (she gets paid either way). So hers is the only opinion the lender can trust.

What If The Appraisal Comes Back Too Low?

Suppose you want to buy a house in Detroit as an investment property. You and the seller agree on a sale price of $150,000. Your lender is willing to lend 80% loan-to-value. 80% of $150k is $120k. All you need to bring to the table is a $30,000 down payment (plus closing costs) and the house is yours! 

 

… except that pesky appraiser comes back with an opinion that the house is only worth $130,000. What to do? You’re still under contract at $150k. Heck, you’re willing to pay $150k because it’s a fantastic location in a growing neighborhood. You think it’s a good deal at that price!

 

… but the lender. The lender was willing to lend 80% of the home’s value … and the appraiser just told her that the value was $130k, not $150k. Based on that appraisal report, the lender is now only willing to front 80% of $130k — or $104,000.

 

Where does that leave you? If you want to satisfy that original $150k contract, you no longer have to come up with a $30,000 down payment … you have to come up with a $46,000 down payment. Remember, the lender is only willing to give you $104k! You have to make up the difference.

 

Do you have the extra $16,000? Are you willing to tie it up? Is the seller willing to renegotiate to a lower price so you still only have to put $30,000 down? This is why “failure to appraise” causes deals to fall apart … and why sellers and their agents try hard to price their listings correctly and only accept offers that will “appraise.”

What If The Appraisal Comes Back Too High?

What if the circumstances are the same as above … but the appraiser comes back with an opinion of value of $170,000? Is the deal in trouble in this circumstance as well?

 

Not at all. Under these circumstances, the lender would actually have been willing to lend more. 80% of $170,000 is $136,000. She will certainly lend a measly $120,000 against this value.

 

Now, this doesn’t mean the buyer gets to borrow $136,000 and only put $14,000 down. The lender will still want that 20% down payment so the seller has “skin in the game.” But, this bodes well for a cash-out refi in the future. 

 

The seller may feel a little salty for accepting a price lower than the appraised value, but he’s under contract. There’s nothing he can do about that. Meanwhile, the buyer has the satisfaction of knowing she got a swimming deal!

 

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One thing you don’t have to worry about when buying investment properties from MartelTurnkey is whether or not the property will “appraise”.” Our conservative analysis, collaboration with professionals, and experience in our target markets means we never price our properties above their likely appraised value. And to take it a step further, at MartelTurnkey we often match appraised values!  And this still results in some screaming deals with no-brainer ROI profiles. 

 

Click here to see what deals we have in our inventory right now — renovated, rented, and ready to start delivering passive cash flow into your bank account on closing day!

 

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6 Things Our Clients Do When They Achieve Financial Freedom

Most investors come to Martel Turnkey on the quest for financial freedom. We dig deeper into what this means in this article, but in a nutshell, it means they have enough passive cash flow from rent income that they no longer have to report to work in order to sustain their lifestyle financially. 

 

What would you do if you no longer had to work? For a lot of people, worn down by the rat race, the obvious answer that springs to mind is “Nothing at all!” But believe it or not, even lounging on beaches gets old after a while. 

 

You have to do something with all that free time. In fact, in our experience, having a plan for that free time makes our clients more likely to actually achieve financial freedom — because they have a clear “North Star”  in mind.

 

Here are six things our clients tend to do after achieving financial freedom once they can no longer stomach another Mai Tai … 

1. Start A Business

Many of our clients dream of doing freelance work, starting a consultancy, or starting a business based on their passions. They never pull the trigger, though, because they craved the security of a paycheck. As such, they remain salaried workers in service of someone else’s vision rather than serving a vision of their own.

 

Financial freedom gives them the safety net they need to take the leap. It gives them the courage to try, fail, and try again. And if the business hits, they can, create jobs, solve problems, add value to the marketplace, and drastically increase their financial legacy

2. Become Stay-At-Home Parents

Many of our clients are parents of minor children, and all of them agree on one thing — life would be a lot more fulfilling if they got to spend less time at the office and more time with their children. 

 

Financial freedom empowers them to be stay-at-home parents. Some of them decide to start home-schooling their children. All of them build stronger relationships and nurture in their children a greater sense of confidence and self-worth. Still others enjoy a significant financial boost simply by eliminating their day-care expenses.

3. Do Charity or Non-Profit Work

Many of our clients wish they could do work that makes a difference in the world outside of solving business problems and fattening up the shareholders’ stock prices. They long for the personal fulfillment of non-profit work … but they can’t absorb that kind of pay cut.

 

Financial freedom enables them to take on the work that matters to them, not just the work that pays the mortgage and fills the college fund. Many are even able to do the volunteer or pro bono work 

4. Take Up Hobbies

Most people have a hobby they always meant to take up. Learn a language, learn a musical instrument, learn a dance style, play sports, practice martial arts, write or paint. Things that enrich your life … but take time and attention. 

 

With financial freedom, you have all the time in the world. The sky’s the limit for the amount of value you could add to your life through new hobbies and interests. Some of our clients become full-on renaissance men and women, chocked to the gills with interesting and amazing hobbies.

5. Travel The World

It’s near the top of nearly every bucket list — see the world! Hard to do if you’re anchored to a job … but easy to do if you’re financially free. You don’t have to request time off … Just book a ticket and go!

 

Some of our clients even go so far as to sell their home and possessions and become full-time nomads, living in hotels and bed-and-breakfasts, touching down in a new magical destination each month. Others downsize to an RV or a motorcycle and become road warriors.

6. Buy More Real Estate!

Just because you have achieved financial freedom doesn’t mean the party is over! Many of our clients become addicted to the thrill of buying new property … but unlike retail therapy, it’s a buying impulse that makes them richer instead of poorer. Why stop at financial freedom? We have a legacy to build!

 

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Whatever you dream of doing after punching the clock is a thing of the past, our job at MartelTurnkey is to help you get there. Check out our inventory of ready-to-go properties, renovated with tenants in place. With our help, you can easily, quickly, and affordably start building a portfolio of passive cash flow — one that will eventually set you free!

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Are Interest Rates Too High to Buy?

One of the big financial stories of 2022 was an end to the historic low interest rates we have enjoyed for more than a decade. The shock is causing people to ask Are Interest Rates too High?

 

Although rates are still below their sixty-year average, last year ended with mortgage rates sitting at nearly double where they had sat at the beginning of the year as the Fed spent the year ratcheting up the cost of borrowing to try and cool down an economy of rapidly inflating currency.

 

If you follow the housing market, you have probably heard that these higher interest rates make it a “bad time to buy.” Is that true?

 

To find a coherent answer, we have to differentiate the way homeowners think about interest rates vs. how investors think about them.

The Effect of High Interest Rates on Homeowners

The main impact of high interest rates on homeowners is that it becomes more expensive to buy or refinance. 

 

Because the mortgage payment is higher on the same principal balance, homeowners and aspiring homeowners tend to put off their purchase or refinance goals because they simply can’t afford it. This is especially true in periods of high inflation, when everything has become more expensive.

 

The one thing that could get homeowners back in the market is if prices start to come down. Those mortgage payments won’t be as high if the principal balance gets smaller. If homeowners catch a dip in prices, they may end up getting a great deal on a home with a lot of headroom to appreciate.

 

That’s why the Fed does the interest rate thing in the first place. Raising the price of borrowing decreases the demand in the market, which causes prices to fall — a counteracting force to inflated costs.

 

We have seen both of these effects in various markets — a slowdown in home transactions, accompanied by a dip in home values.

The Effect of High Interest Rates on Real Estate Investors

Higher interest rates tend to take the wind out of homeowners’ sails. With real estate investors, though, it’s a little different. 

Cash Flow

What happens to your cash flow when mortgage payments become more expensive? Obviously it eats into the cash flow … but that may not be as big a deal for a real estate investor. Why? Because in a time of high inflation, rents may have gone up as well. There could be little net change on the cash flow.

 

Of course, inflation may drive up other costs, like insurance and repairs. Eventually you hit a rent ceiling where tenants can’t afford it and the demand disappears. There are a lot of factors to consider.

 

Of course, investors who bought early enough to take advantage of low interest rates and rent increases are sitting pretty right now. But higher interest rates are not all bad news for real estate investors. 

Appreciation

Same as with the homeowners, investors stand to benefit from a decline in prices that could follow in the wake of a decrease in demand. If the goal of investing is to “buy low and sell high,” watching for prices to dip after an interest rate increase represents an excellent chance to “buy low.”

 

If interest rates ease up within the next year or so (as they are expected to do), you may have the opportunity to refinance into a lower interest rate and a higher valuation — possibly pulling out enough cash to make another property purchase! 

 

When you buy turnkey rental properties, be sure to wear your investor’s hat. Take the advice of many successful investors and think long term.  The house you buy today will definitely appreciate and be more valuable in the future despite any dips along the way. 

 

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Remember, interest rates change minute-by-minute. You could get lucky or unlucky when you lock your rate, regardless of the environment. Trying to “time the market” is usually a fool’s errand. That’s true with stocks, it’s true with real estate, and it’s especially true of interest rates.

 

The better course of action is to establish the criteria — e.g. cap rate, cash flow, projected ROI — under which you are a buyer. 

 

The beauty of real estate is that every market is different, and every property is different. With an expansive-enough pool of properties to pull from, a winning property can emerge from any economic environment … and you can be a buyer at any point in the cycle, adding cash flow and tax benefits to your portfolio.

 

Whatever happens with interest rates, or any other metric, MartelTurnkey will continue doing what it does best — bringing no-brainer, cash-flowing investment opportunities in growth markets to our select pool of savvy buyers. Reach out to us today if you want to be one of them!

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Home Inspection for Turnkey Rentals — 3 Tips to Buy With Confidence

It bears repeating (because most people find it remarkable) — most of our clients buy turnkey rentals from us sight unseen. How can they do it? They get a profession complete a home inspection for Turnkey Rentals.

 

This gives many homeowners and real estate investors heart palpitations — especially those that like to crawl into crawl spaces and scrape every eave with a screwdriver in search of rot before they even think of making an offer.

 

For those who have better things to do than crawl into crawl spaces and scrape eaves, however, that means a lot is riding on the home inspection report. 

 

That sheaf of paper, prepared by a professional home inspector based on a multi-hour visit to the property, is your best glimpse into the bones of the house … and your best indication of whether or not, from a physical and structural standpoint, you’re buying a tank or a lemon.

 

Here are three tips for the inspection stage of your turnkey rental purchase, so you can feel confident about your investment.

1. Screen the Inspector

If you live far away from the prospective rental property, you probably don’t know any local home inspectors. 

 

We can recommend some to you, but it’s important to remember — the home inspector is your guy, not ours. The buyer hires the home inspector, because the buyer is the one with more to lose if the home turns out to be riddled with defects.

 

So take the time to call the inspector and do some due diligence. Make sure (s)he is licensed and has positive reviews online. You don’t have to use our recommendations. If you find someone you like better and the schedules line up, by all means go with the inspector with whom you feel most comfortable.

2. Don’t Be Alarmed By a Long List of Defects

Home inspectors are thorough. Inspection reports, especially those for older homes like the ones we acquire and renovate, tend to identify dozens of defects. You are paying someone to go through your property with a fine tooth comb.  

 

If you have ever bought a home or investment property in the past, you have probably encountered this. That long list can be scary. 

 

Take heart. It’s nearly impossible to make an older home “perfect.” Even brand-new homes have defects. Most of them have little or nothing to do with the economic function of the property, or even yours or the tenant’s ability to enjoy the property. They are just bases the inspector is required to cover.  See something really concerning? A phone call with the inspector can clarify the findings. 

3. Compare the Scope of Work with the Report

We rehab every property that we acquire and bring to market as a turnkey rental. That rehab leaves behind a paper trail — specifically the scope of work, an official agreement with contractors and subcontractors as to what work must be done.

 

We provide a summary of the scope of work for every turnkey rental. When you get your inspection report back, compare it to the SOW.  If something seems to be askew, ask about it. 

 

In other words, the inspection becomes an opportunity to keep things honest — to verify that we actually did the work we told you we did. Isn’t that a good feeling?

 

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Read here for more info about buying turnkey property sight-unseen. Suffice it to say, at MartelTurnkey we fully expect — and wish for you — a robust home inspection process when you buy one of our turnkey rentals. Why? Because we have nothing to hide. Message us today to find out how easy it is to add one of our cash-flowing assets in growth markets to your own portfolio.

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Why Real Estate Appreciates In Value?

We take for granted the notion that real estate appreciates in value. It’s why so many people yearn to be homeowners — not just to have a place that they “own,” but because it turns your personal residence into a vehicle for wealth creation. Not because you pay yourself rent, but because the property itself grows in value.

 

But why does this happen? It’s worth understanding the mechanism behind the appreciation of real estate, if for no other reason that it’s not guaranteed. Real estate can and does lose value. As we speak, some property somewhere in the US is becoming less valuable.

 

Understanding why real estate becomes more valuable (or less valuable) can help us make good investments by only buying property that is likely to appreciate.

 

To figure out why does anything have value let’s go back to Econ 101 — supply and demand. 

What is the Demand?

 

Let’s start with demand. For something to have value, people have to want it or need it in the first place.

 

Real estate obviously fits the bill. People need shelter in which to live … soil in which to grow things … buildings in which to do business. Humans need space, and as long as space is a thing that can be owned, people are going to want to buy it.

Follow The U-Haul Trucks

If you want to pick which real estate is going to appreciate, follow the demand. We sometimes say “Follow the U-Haul trucks” of the people moving out of one city and into another. If a city is growing economically — if big employers are bringing new jobs to that city, if people are flocking to move there in droves, if it’s a burgeoning tourist destination — demand for real estate in that city will almost certainly drive the prices up. Even ugly, outdated, or distressed property will increase in value.

 

What if jobs are leaving a city or a neighborhood? People are moving out? The town is dying? Even the most beautiful homes and commercial buildings will start to lose value, because the demand just isn’t there.

How Much Money Can This Property Make?

Another key factor to the demand for any given piece of real estate is its economic value — how much income can a particular class of property generate? Consider the booming eCommerce industry. It had a profound effect on the value of real estate. Warehouses to store all these products along the supply chain came into heavy demand, so the price of warehouses went up. Meanwhile, with fewer and fewer people shopping in stores, retail property has struggled to appreciate and even lost value.

What is the Supply?

A resource can’t just be in demand to be valuable — it has to be in limited supply too. 

 

Humans have an inelastic demand for breathable oxygen. We need it to survive. So why don’t we have to pay for it, like we have to pay for bottled water or heart surgery? Because (for now), breathable oxygen is in abundant supply. No supervillain has yet figured out how to take us all hostage by monopolizing the supply of breathable oxygen … so despite our insatiable demand for it, breathable air has no market value and remains free.

 

So what about the “supply” of real estate? It’s an old cliche — you can always print more money or issue more stock, but they aren’t making more land. Real estate is a kind of real asset — a tangible resource that is in limited supply.

Inflation 

Let’s talk about printing money while we’re on the subject. Real assets tend to gain value in times of great inflation of the currency (like the one we find ourselves in now). As currency becomes more plentiful, it becomes less valuable. It takes more of that currency to buy things. One of those things you can buy is real estate. Because of inflation, it takes more money to buy the same piece of real estate — meaning inflation has inherently forced its value higher!

What About All That Undeveloped Land?

But is real estate really in short supply? Over 96% of the United States is undeveloped land! Let that sink in. That’s a lot of real estate. Doesn’t that disrupt the supply/demand balance?

 

Not necessarily. Remember, some of that land is on the sides of mountains. Or hostile to the cultivation of crops. Or just so far away that it would be prohibitively expensive to run roads, power lines, water lines, and sewer lines to them. Or it’s just too far away — no one wants to live there. 

 

We come full circle back to demand. Yes, there is a lot of land … but how much of it is in demand, for one reason or another?

The Real Estate That Is Most Likely to Appreciate

We can start to look at the supply of real estate in terms of “pockets of demand.” Suppose a city has a thriving urban core full of arts and entertainment. Lots of people want to live there or open a business there … but there are only so many homes and commercial spaces in that space. The demand is high, but the supply is limited … so that real estate is likely to appreciate.

 

What if a school district is widely recognized as the best in the city? Every family is going to want to live in that school district so their children get the best education. But there’s only so many houses in that neighborhood. Limited supply plus high demand equals appreciation. 

 

You have to be careful about chasing school districts into the suburbs. Thriving suburbs tend to have lots of new houses under development. If builders are constantly adding new houses to the market, they are increasing the supply, which pushes values down. If the demand is strong enough, this may not slow down appreciation, but there’s always a chance that the neighborhood will get overbuilt, with more houses than there are people who want to buy them — especially if a recession hits unexpectedly.

 

By contrast, urban core areas tend to have a much more limited supply. You can tear down old buildings and replace them with new ones, but the property supply is what it is. Homes in nice urban core neighborhoods in growing cities are some of the safest bets for appreciation. 

 

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As you can tell, supply and demand is much more than numbers on a page. It’s a story — the story of a city, a neighborhood, a piece of property. Understand the story, and you can glimpse the future. 

 

MartelTurnkey goes the extra mile to understand the story of every turnkey rental in our inventory. We don’t just buy any property in any city. We specifically look for the markets, the neighborhoods, and the property classes most likely to generate cash flow and appreciate in the near future. 

 

Reach out to us today and let us fill in the gaps so you can invest with confidence — and grow your net worth!