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December 9, 2015
Guest post by Larry Arth:
After investing in real estate for over 20 years, I have spent my last 12 years enjoying the passive investments I have found by investing in turnkey (done for you ) real estate investments.
Like many investors, I too started investing the old fashion way. After buying duplexes, triplexes and four-plexes that all taught me a lot along the way, I was ready to promote myself to investments that would have less of the domestic challenges that come from multiple families living together under one roof.
After managing my own properties for close to 20 years, I eventually hired property managers as I no longer had the time or desire to deal with tenants or fixing leaky toilets. I was now a true passive investor, but I was struggling to find these good investment properties.
Finding Good Investment Properties
I had the clarity that I did indeed wanted to invest in single-family homes. I wanted investments that would of course produce a cash flow while creating great equity build-up through appreciation that I could execute a perfect exit strategy of selling to the retail home-buyer looking for a place to house their families.
I spent hours which turned into days then weeks and then months searching properties that may be good investments. Then trying to establish fair market rents in the area and establish what my expenses would be. There was little room for error here as your cash flow and total R.O.I. was at stake.
Then I Found Turnkey Investing
My “Ah-Ha” was like many others as we were trying to take a single-family home and convert it into a small little business. This process meant we have to do all the diligence and take all the risk in buying property and insuring we can make cash flowing equity building business from the property. I discovered that the risks of turnkey investing have been absorbed by the turnkey companies, and we could actually acquire these homes as a performing asset already rehabbed and rented with tenants and leases in place. The calculations and guess work had been completed, and now we could simply confirm the properties meet our investing criteria and invest in a little business that is already established.
7 benefits of Investing in Turnkey Real Estate
Properties are already performing assets: The guess work is removed and the properties are already rented and performing as assets in the best locations with property management and exit strategies in place.
Best investing markets: As an investor, you want to invest in only the best most sustainable markets. The nice thing is these companies can only survive in these best markets as well. If you cannot find a turnkey company in a particular city, there is probably a great reason why. Real estate is all about location, and turnkey companies will not start a business in a non-sustainable market. Find a great turnkey company, and you probably found a great market to invest in (of course you will want to still perform your diligence on the turnkey company)
Knowledgeable purchases within the sweet spot of the market: The owners and operators of these turnkey companies usually live in the investment areas and have intimate knowledge of the micro markets there, so they know which streets to buy on that will produce the highest demand for resale. Knowing schools, price points of properties, and areas that are prominently owner-occupied are keys to help to you reap the highest reward when selling.
Buyer/investor reduction of risk: The uncertainties of buying properties and converting them to a small rental business, establishing the true cost of any rehab work, the cost of utilities, taxes, insurances, etc. are removed from the buyer. You simply need to evaluate if the investment meets your turnkey investing criteria.
Benefit from economies of scale: Because turnkey companies have relationships with banks and typically buy 10, 20, and even 30 properties per month that close quickly with cash purchase, they tend to get better pricing than an individual can get for the purchase of the property. Then they have their own rehab construction crew that can renovate cheaper than an individual can by hiring contractors themselves since they can buy material in bulk.
Vested interest in the success of your portfolio: Like any good business, turnkey companies want to earn your business today and again in the future. To do this, they are motivated to work with investors and assist in making sure your investment rewards you well. They want to manage your properties and get you great overall repairs with as few headaches as possible so they can hopefully sell you another property in the future. The only way to accomplish this is to sell you a property at a fair price today, run it efficiently and help your investment make you money.
Real estate professionals teams in place: As an individual, buying property requires you to find great tradespeople like lenders, attorneys for entity structuring, and accountants. Turnkey companies already have a variety of proven professionals that they can share with you to make the process easier for you.
Which way makes the most sense to you?
Active investors sometimes enjoy doing all this research and diligence. Passive investors tend to have less time on their hands or simply do not have the desire to do all these tasks, so turnkey investing is a great solution for them.
It took me 20 years of doing investments the hard way before I discovered turnkey investing. Now that I know turnkey investing exists, I no longer have to waste all my time and money doing it the hard way. I can reduce my risk and transfer it to the turnkey companies so I can do what true investors do – invest instead of micromanage details.
Larry Arth is the founder and CEO of Equity Builders Group. Larry is an international recognized consultant and speaker, and he assists investors, both foreign and domestic, to realize their investment potential. He analyzes locations for economic strength that will yield the most sustainable return on investment. Visit Larry’s website.