What is a Turnkey Rental?
If you’re new to real estate investing, the phrase turnkey rental may sound a little ambiguous. Turnkey might mean different things to different people. Everyone has their own understanding of how much work should be involved with a turnkey property. In real estate, a turnkey rental property is generally understood to be a rental property that’s ready to cash flow for the investor. A true turnkey rental has been renovated to a point where it’s inhabitable or already being rented out. Turnkey rentals technically should require only a modicum of effort by the landlord.
How a Turnkey Rental Works
A turnkey rental is a real estate investor’s dream. Instead of having the hassle of buying, fixing up, renting and managing a rental property, a turnkey rental practically takes care of itself. For investors who want to get into real estate but have neither the time nor the inclination to get their hands dirty working on a property or dealing with tenants, turnkey rentals are ideal.
Typically, an investor will work with a company that sells turnkey rentals, like MartelTurnkey. It’s the company’s business to find lucrative turnkey rental properties in places like Memphis, Cleveland and St. Louis. The company will usually either supply a property management company to maintain and handle the tenant end of things, or the company might act as its own property management company. In the case of MartelTurnkey, we find and renovate properties, but we don’t manage the property. Instead, we have trusted property management companies that we work with who handle ongoing day in and day out management, paperwork, tenant concerns and so forth.
In most cases, the turnkey rental company will buy properties that need work, fix them up and then rent them out before selling them to investors. The real estate investors make money when the turnkey rental property cash flows, and the real estate company makes money on the sale. It’s a win-win proposition for all parties.
Are All Turnkey Rental Companies the Same?
There’s no standard operating practice for turnkey rental properties, which is why we always advise real estate investors to be careful when choosing a turnkey rental company. Sometimes what’s advertised as being a turnkey rental property isn’t truly turnkey. If the investor is tasked with finding tenants, writing up contracts, doing repairs and managing the property, that’s not turnkey at all. Also, if the property isn’t fully renovated and ready to inhabit before the sale, that’s not a true turnkey rental property, either.
At MartelTurnkey, all of the properties we sell are fully renovated before the investor buys it. In 99% of the cases, a tenant is already in place. In 100% of the cases, the turnkey rental is being managed by a property management company that is either actively seeking a tenant or managing an existing tenant. It’s worth mentioning here that if our investor wishes to use a different property management company, they are always welcome to do so.
How a Turnkey Rental Property Generates Money For the Investor
A good turnkey rental property will provide income on a regular basis for the investor. This is called positive cash flow. Positive cash flow is profit for the investor. The cash flow is what is left after all the expenses related to the property are already paid. In other words, cash flow is what’s left after:
– Property tax
– Property management fees
Many people wrongly think that investing in turnkey rentals isn’t profitable because they think they won’t make money after paying all those expenses. But when you see a positive cash flow number on our turnkey rental properties for sale, you can rest assured that is profit. The cash flow number we quote is a good estimate, but since insurance rates and mortgage terms vary, the actual cash flow number may be slightly higher or lower.
Now, there will be expenses now and then associated with the turnkey rental property. This is to be expected with any property you own, including your primary residence. Sometimes things need to be replaced or fixed. These sporadic expenses come out of the profit each month. But with MartelTurnkey turnkey rental properties, you always get a positive cash flow quoted for every property, and for the most part, that’s what you can expect to receive on a monthly basis. In addition, MartelTurnkey turnkey rental properties are nicely renovated, so our investors typically wouldn’t have any big ticket repairs to make for several years.
Why Are Turnkey Rentals Considered Passive Income?
Turnkey rentals are considered passive income because the investor doesn’t have to do much each month to get that income. Of course, there is a little bit of paperwork, insofar as each month money will be coming in, which needs to be recorded in the investor’s financial records. But the income is direct deposited, so it’s a simple matter of balancing the checkbook each month as usual. Then there may be a few emails from the property management company if necessary. All in all, there is about an hour or so of cumulative “work” for the investor over the course of a month.
Are Turnkey Rentals Worth It?
To buy a turnkey rental from MartelTurnkey, you typically need about $20k, plus or minus, to put down on the purchase. This is commensurate with what you might put down on an inexpensive residential home for yourself. Once the turnkey rental is yours, you receive a profit each month from the difference between the rent paid and all the expenses going out. All during the time of ownership, the tenants are paying for the cost of owning that turnkey rental. Once the mortgage is paid, you have a turnkey rental property that you only paid the down payment on, plus you have all the monthly cash flow that went straight into your bank each month. All of this for what amounts to about an hour’s worth of paperwork each month. Any savvy investor would agree that turnkey rentals are worth it!
We’ve been selling turnkey rentals for five years now, and we’ve successfully expanded our business each year. This is due to the excellent reputation we’ve built by providing responsive, knowledgeable, personal and professional customer service. We’d be honored to count you as one of our investors. Please feel free to reach out if you’re ready to invest, and in the meantime you can peruse our turnkey rentals for sale. Our inventory is constantly changing, so please keep checking back or sign up for our VIP mailing list.