Scratch below the surface of any strategic investment discussion, and you’ll probably find mixed opinions about its merit and value. The subject of turnkey properties is no different. Although people’s experiences will always vary from one person to another, these facts can help you sort the facts from the myths.
Top Myths about Turnkey Investments
1. You don’t need a down payment.
Because of the mortgage meltdown of the late 2000s, lenders require a down payment to secure a mortgage. Because mortgage insurance policies won’t cover investor-owned properties, the borrower needs at least 20 percent down.
Mortgage underwriters will allow a down payment that comes from a personal loan, a home equity loan, or a second mortgage. Private investors, whether they’re friends, family or investment groups, may also have financial resources you can use to secure or purchase the property outright.
2. Properties offered by turnkey investment agencies are overvalued.
Of all the myths regarding turnkey investments, this may be the most misleading. The reverse is often true. Realtors work with buyers and sellers alike, and know that properties need realistic pricing to sell.
They have nothing to gain by overpricing a home, since their business model hinges on having occupied properties that they manage. They also know to price the home based on present market value, often determined by a licensed appraiser.
3. The homes aren’t in good neighborhoods.
Properties in bad neighborhoods often need basic improvements as opposed to homes in neighborhoods perceived as better by both prospective tenants and investors. It makes more financial sense to invest money in solid neighborhoods where potential tenants will pay a premium for livability, location and local amenities. Exceptions do exist, however, especially in areas undergoing gentrification and revitalization.
4. Property management companies don’t always do a great job.
Property management companies have every reason to streamline their operations for efficiency and capability. It’s in their best interest to provide the best service for their clients, whether they’re the tenants or the owners. They operate in a local environment and work with trusted subcontractors to upgrade and maintain the physical components of the housing unit. As local businesses, they know that their reputations rest on delivering competent services.
Before you settle on a particular realty management group, interview them and ask for recent references. Have them outline their scope of services and how they interact with both you and the tenants. If you’re not comfortable, ask for clarification or look for an agency that falls more in line with your preferences and expectations.
5. Turnkey properties don’t require personal involvement.
While you won’t need to manage the day-to-day details, you’ll still need to be part of the decision-making loop when you own turnkey properties, especially for the major decisions (things like appliance replacements, major improvements, and final tenant selection, for example.). How much you want to participate is up to you.
6. You need personal expertise in residential real estate and rentals.
You won’t need an advanced degree in real estate management to do well in this field when you work with turnkey professionals. Although it won’t hurt to do your homework, you can rely on expertise of local real estate agents and learn from them.