Our Arbitrage Properties blog post discussed a type of investment for entering the vacation rental business without even owning a property. In this post, we will get acquainted with a different kind of investment known as turnkey vacation rentals. This investment allows individuals to enter the short-term rental landscape and generate immediate passive income quickly.
Turnkey properties are perfect choices for investors interested in stepping into the short-term rental world or for those thinking of scaling up their rental business. They are ideal for individuals who don’t want to get involved in rehabbing distressed properties or dealing with the day-to-day hassles of property management.
In this article, we will explain how turnkey vacation rentals work. We will also analyse their cons and pros to help you determine if this investment method makes sense for you. If you are interested in this investment option, we will show you how to invest in turnkey properties.
Table of Contents
What Is a Turnkey Property?
Turnkey vacation rentals are houses, apartment buildings, or other properties that are fully renovated and ready to rent or move in. A turnkey home is often purchased and rehabbed by turnkey companies. So, the investors can buy and immediately rent out these properties for simple income streams without any extra work.
How Do Turnkey Vacation Rentals Work?
An investment company specialising in the restoration of older properties finds a house or apartment requiring renovation under the market value.
The company uses its money to purchase its own labour and materials to repair and update the property.
Once the property is ready to rent, the investment company introduces it to investors as a potential property for their portfolio.
An investor then buys the property for rental purposes.
The turnkey company finds renters, vets tenants, and connects buyers with approved local property managers. Some companies also provide property management services and regularly take care of routine repairs.
The tenants can turn a key and move in while the investors turn a quick profit without the typical responsibilities of property management.
Is a Turnkey Property a Good Fit for You?
This investment approach especially appeals to investors who…
- Desire to run a rental business but are not interested in renovating a home or handling maintenance issues.
- Have busy lifestyles or a full-time primary job.
- Don’t have the required house improvement skills, experience, and knowledge.
- Want to earn a consistent passive income, yet don’t want to take the responsibilities of a property manager.
- Want to invest in a market with good potential but are far from the markets. So, they don’t know the market trends, neighbourhoods, local contractors, and rental landscape.
- Don’t have enough budget to buy more modern properties or invest in fix and flip properties for a long period.
Turnkey Vacation Rentals Investment Perks
Faster Return on Investment
As it takes little to have them up and running, turnkey vacation rentals can start operating shortly after the purchase. As a result, the investors can quickly earn a return on their investment. Investors can soon harvest what they plant without having to wait for the repairs and renovations to be completed after purchase.
Making Remote Investments
The turnkey investment allows for remote real estate investing, in which investors buy real estate anywhere in the world. The investors might live in high-priced markets and see the opportunity to invest in profitable rental markets. The turnkey properties are ideal for cheaper properties without needing in-person involvement.
Hands-Off Property Management
Investors who buy turnkey properties can delegate their property management to their turnkey company. So, they don’t have to deal with day-to-day rental management and operational tasks.
Since the turnkey company handles the rental management and addresses any issues, the property owners don’t need any property management experience or skills.
Professional Management
Many turnkey providers may manage properties with trained staff or contract with many reputable property management companies. In both cases, investors benefit from professional property management, ensuring low vacancy rates and high profitability in their rental business.
Lower Expenses
Turnkey companies usually have an extensive portfolio, different connections and committed teams. As a result, they can negotiate with contractors and finish renovation projects with a lower total budget.
On the other hand, if the renovation process is done correctly, there should be fewer maintenance issues and lower repair costs in the first few years. Therefore, turnkey properties can be considered strong cash flow sources, at least for the first several years.
Turnkey Vacation Rentals Investment Downsides
Higher Purchase Price
Turnkeys generally have higher rates than fix and flip properties due to renovation costs included in the home’s final price. Turnkeys will get even more expensive in high-value markets. This is why many investors prefer to buy fixer-uppers and rehab properties themselves.
Investment Properties Associated Risks
Investing in real estate has never been riskless, and turnkey vacation rentals are no exception.
Owning a turnkey property goes along with risks like reduced property value, property tax increase, and bad tenants renting. This investment becomes riskier in remote investments or when rehabs are not delivered as promised.
Lower Return on Investment
You can use a turnkey company’s property management services if you live far from your turnkey property. This way, they take care of your property’s everyday operations in your absence and take a load off your shoulders.
However, the additional property management fees the turnkey company collects will cut a significant share of your profit and reduce your return on investment.
Less Control over Your Investment
When you rely on a turnkey property company to fully manage your property, you won’t likely gain much knowledge of the market. And you can’t acquire many property management skills and experience.
As a result, you will have less control over your turnkey property. If you want to put your own touch into the operations of your vacation home, outsourcing property management may not be wise.
Shall We Invest in Turnkey Vacation Rentals?
If you seek a ready-to-use property requiring minimal refurbishment and aim for quick rental revenue, turnkey property investment must be a good match for you.
Remember that this investment approach needs a great deal of research. So, a massive share of due diligence is on your shoulders before you begin. We will show you all the steps you need to take before going turnkey.
How to Invest in Turnkey Properties
1. Find a Market
You first need to find a city to invest in and do proper research on picking the right market. There are a lot of factors to consider before choosing a turnkey rental market.
Try to find a growing market and ensure it’s not a temporary popular market without proper infrastructure. Conduct comprehensive research to ensure your choices have a diverse economy, and do not rely on a single business or industry. There must be plenty of things to do, places to go, and nightlife in the city of your interest to attract more renters.
When evaluating an investment market, check for a growing city population. You also need to check out the rental rates in your selected market.
2. Choose an Investment Company
Your second step would be finding a good and reputable turnkey property with years of experience in property management. Evaluating a company before working with them will save you numerous future headaches.
Investors must conduct their own research and approach the company with prepared questions. They should thoroughly analyse their selected company to ensure its reliability.
A trustworthy investment company must…
- Have enough trained and experienced staff and real estate professionals.
- Be able to share their strengths and weaknesses openly.
- Answer all the questions of their clients.
- Have experience with their own rental properties.
- Hold a provable record of high average returns and occupancy rates for their clients.
- Have positive referrals from their clients.
- Have a good reputation in handling repairs and maintenance issues.
An excellent way to gain firsthand information about turnkey companies is by joining online forums. You can read direct feedback from the companies past and current clients and ask them for referrals.
Sift through turnkey companies and look for red flags, such as rejecting in-person or third-party property inspection requests. Subpar renovations and insufficient staff to effectively manage all the properties in the company portfolio can also be critical warning signs.
Evaluate multiple turnkey company options and dedicate enough time to study each company’s past performance meticulously.
3. Pick a Property
After choosing a turnkey company, investors should visit their chosen city to meet with their real estate agents. They should visit a few properties of the company, and observe their renovation and property management operations in person.
Turnkey property investment is appealing to many investors due to the opportunity to earn a passive rental income with a hands-off management approach. However, investors need to mind their due diligence in planning their property walkthrough or hiring a professional inspector before investing.
Travelling might sound difficult to many investors. But, it’s well worth the effort, at least once, to ensure that the information presented by the turnkey company is accurate.
After building trust with a company, there’s no need to travel to a market every time you add to your portfolio. But for your first investment, hire an inspector to survey the home from top to bottom.
The surface of a property might look flawless, while there could be some plumbing or electrical issues you might never notice. This is why you need to ask a paid inspector to closely inspect your selected property. You should examine the details to ensure that the quality of the renovated property matches what has been promised.
Conclusion
Turnkey vacation rentals are an interesting investment alternative in the real estate market. They offer investors opportunities to gain a steady cash flow from worldwide markets rather than solely from their own local market. Turnkey properties also allow investors to run a vacation home without having to do any heavy lifting.
Nevertheless, investors must delegate their rental property business management to a turnkey company. As a result, by researching and vetting turnkey companies, investors can make their turnkey property investments successful.
