The Turnkey Investor’s Guide to Selecting a Profitable Property Market

Estimated read time 12 min read

Looking for turnkey rental property? Where can you buy one? What is the first step?

The best way to begin is by networking. Shop from where others are shopping, who’s having success in what market, with which turnkey providers, etc. How do you sort through all this information? How can you tell if the referrals that you receive are good?

It is important to be able to verify whether the information you receive is accurate or if it is in line with what you want to achieve. This is what I will do for you — give you enough information to get you started, and you can take it from there.

What is a Turnkey Rental Property (TRP)?

If you don’t know what I mean by “turnkey rental properties”, this article will not be very helpful.

The “turnkey property”, also known as “turnkey” or “turnkey”, is a property which has just been redeveloped or renovated, with tenants already in place and paying rent. Property management has also been set up for the property to be managed by you. It implies that you only need to turn the key and the property will be up and running without any effort on your part. To be honest, I have always purchased turnkey rental homes and never had a door key.

A real estate agent can sell you a turnkey property. Turnkey is any property that meets these criteria. There are many other definitions of “turnkey”. (Always verify what the seller is trying to tell you about a property means by this term). In this article, I’m referring specifically to turnkey rental homes that are typically sold in bulk by turnkey providers.

These companies will go out and find distressed inventory. They will fix it all up, secure tenants, and manage the management. Turnkeys is all they do. They may work in bulk but it doesn’t necessarily mean they buy in bulk. They just use bulk property to do things cheaper. These companies are flippers. These guys are not the typical flipper that flips homes to homebuyers. Instead, they flip houses to investors.

What are the benefits of turnkey rentals? These properties are perfect for anyone who doesn’t want to spend a lot time and effort on real estate investment or is comfortable with relying more on the expertise of others. They’re also great for anyone living in an area that does not encourage a positive cash flow. You can completely stay hands-off, as everything is taken care of for you.

This is the “turnkey” idea in a nutshell. Let’s now look at how to buy one. I’m focusing on the market you should start with. Turnkeys are available in many markets in the US. Each market has something different to offer.

Turnkey Rental Properties: Shopping for Turnkey Rental Properties

Many turnkey providers are available, and are located in many different markets. You’ll need to sort through the many options available before you can narrow down your search. I am often asked: Which markets do I prefer for turnkeys? Here is an extended answer to this question.

Turnkeys is the only answer I give when I am asked what market I prefer right now, or at a particular time.

Market fundamentals + Turnkey provider’s quality

When I say that I like the market for turnkeys I am referring to the fact that I believe the market is strong in terms of each of these three factors: the numbers, the fundamentals of the market, and the quality provided by the turnkey provider. Many people overlook the quality of the turnkey provider. If a market has great numbers (returns), but no quality turnkey provider, then I wouldn’t recommend that market as a place to buy turnkeys. What am I saying? There are many markets that I’d love to invest in, but there are no high-quality providers of turnkey services. This prevents me from doing so. The reverse is also true: I may love a high-quality provider, but don’t like the market they are in. So I won’t buy.

Let’s look at each of the three criteria that I listed.

Numbers

Turnkey rentals are purchased to generate positive cash flow each month. Turnkeys do not support investing methods such as appreciation investing (which means you aren’t getting monthly cash flow, but instead are relying on a property that will appreciate later). For a market to have a positive cash flow each month, the price-to rent ratio must be supportive. The price-to rent ratio tells you whether the monthly cash flow you can expect to generate from a property (after expenses), is worth the price that you pay.

When I purchased my first (turnkey rental) property in Atlanta, the price was $55,000. The rent was/is currently $975/month. You can easily generate cash flow with that amount of rent after paying all expenses. For help with running the numbers for a rental property, see: ” Rent Property Numbers so Easy You Can Calculate them on a Napkin.

However, I am aware of a property that was bought for $460,000 in Los Angeles and had a rental income of $2,250/month. If you run the numbers, the rental income is not enough for the cost of the property. You can see the difference. This Atlanta property has an excellent price-to rent ratio and the Los Angeles one does not. Cash flow is important if you want to generate cash. This is where markets come into play. Markets either support or do not support good rent-to-price ratios. Los Angeles, San Francisco and New York City do not, for example have good ratios of rent to price. Midwestern cities are a good example.

If you’re looking for a good cash flow, then you may want to begin your search in the Midwestern cities. Other cities are also available, but this is a good starting point. Note: Just because one market has good ratios of price to rent does NOT mean all areas or neighborhoods in that market have them as well. It is not true for the nicest neighborhoods. Keep that in mind. Turnkey providers are rare in markets with low price-to rent ratios. This means that you will not have to worry about whether a property purchased from a provider who offers turnkey services will generate a positive cash flow each month. This is an important point to consider when you are looking for a rental home outside of turnkeys.

Market Fundamentals

I am a big fan of markets that are growing. The market is desirable because the population, jobs, and industry are all growing. Both growing markets and those that I would consider to be in decline have turnkey solutions. You should be aware. Check out “How to Know If Any Given Real Estate Market Is Wise to Investment (With Real-Life Examples!)” for details on what to look for and avoid when looking for rental properties. ).”

The fundamentals of a particular market can have a direct impact on the success of an investment. They also affect the level and type risk associated with a property. It is important to understand that the turnkey offering in each market will differ, but not necessarily because of market fundamentals. Some markets offer only single-family homes, while others offer both. Some markets offer better cash flow for lower prices in urban areas. Other markets offer more luxurious properties at higher costs with slightly lower cash flows. Keep in mind that the properties you are most interested in may only be available in certain markets.

Quality of Turnkey Provider

The kicker is to be at the back. There may be markets with great fundamentals and cash flow, but no turnkey providers. There are some markets that don’t have turnkey providers. This could be because the numbers do not work, or there isn’t enough distressed inventory to justify setting up shop.

There are many ins and outs with turnkey providers that lend their hand to Turnkey providers have a number of ins-and-outs that can lead to major warning signs. Despite being in the business for several years, I still rely on my experts to spot these red flags because they are not always obvious. Here are some qualities that make a good turnkey provider.

  • Delivering consistently high-quality property
  • Communication is key
  • Transparency
  • Delivery as promised
  • Property managers are in place
  • Willingness and ability to work with the purchaser if obstacles arise
  • Quality consistency is maintained

This list does not include many turnkey providers. I have bought one of the amazing turnkey properties I’ve seen in Atlanta. However, the seller is so difficult to deal with that I recommend that new investors avoid this company.

The most common problem is a lack of consistency. Turnkey providers offer great properties at first, but somewhere along the line, quality begins to slip and things start going south. There are also providers who never intend to deliver on what they promise, or whose advertised services are not up to par. My opinion is that the quality of a turnkey provider matters a lot, and my purchasing decisions are often based on who I can work with. In some cases, I might want to buy in one market but the turnkey provider in another market is so awesome that I decide to go with him instead.

Changes in Turnkey Markets

Last note on turnkey markets

The Turnkey Market is constantly changing.

What was once a great turnkey market, may not be the same now. These are some of the factors that could cause a shift in a market:

General Market Shifts

Phoenix, for example, was once a good market to invest in if you wanted to generate cash flow. The prices rose so much because of the influx of buyers that the ratios between rent and price in Phoenix no longer support positive cash flow. The numbers of the entire market changed.

Inventory

It is not uncommon for a market to run out of stock. Turnkey providers have been digging and sifting through the remaining properties, but it is not worth it. It happened in Charlotte, then Dallas.

Turnkey providers

Turnkey providers go through a cycle. They start off great and then, at some point, they stop being so good. A market might be able to hold on to its inventory but the quality of the providers may not be up to par. This causes me to move my attention to another market. Birmingham is a good example.

Saturation

The market may have remained strong, the inventory is still there, and the turnkey providers themselves may have remained calm. Sometimes, saturation is what happens. The market has become saturated because so many investors bought property. Now, tenants have so many options to choose from. Rental property owners can incur high costs due to vacancies.

I had this happen with one of my Atlanta property. My vacancy period increased because I was having a hard time finding tenants. It took me four months to rent out a property that usually only takes 30 days.

Other Markets

There are better markets. Why stay in a market which has seen its peak when there are better markets that offer better returns, lower purchase prices and better deals elsewhere? Atlanta and Memphis fall into this category.

Position in the Growth Cycle

This last point has a lot of significance. Well, maybe. You must buy a turnkey property if you want to take advantage of the potential for appreciation. The growth boom is not yet complete. Do not confuse this with markets that are rumored to be experiencing a boom, but have no evidence of the actual event. Many markets are showing solid signs of a boom. When you buy, it’s a good time!

In 2021-2022, I did the same thing with Atlanta. There was no boom yet, but I had every reason to think it would. So, I got in. I purchased my last property in late 2022. I refinanced the loan a few months ago. This means that I received $40,000 for appreciation less than three years after purchasing it. Boom! Boom!

Look at the timeline. Atlanta’s boom occurred around 2023, plus or minus one year. When I bought it in 2021-2022, the city was still in its infancy. Atlanta has now reached its mature stage. This boom has already occurred. If you buy now, you won’t see that boom, because it has already happened. Other markets are still in the early stages of the cycle. Atlanta may not have boomed as much, but they still have more room to grow than Atlanta. Memphis is also included in this category.

You’re done. This is a guide to shopping for turnkey rental property, with an emphasis on how to choose a turnkey market. You now know what I look at when I’m evaluating turnkey markets. It is obvious that there are many other details to consider when determining market fundamentals and separating the good from the bad turnkey providers. But my theory has been to leave this job to the experts – the guys who really know what they are doing (because these guys do exist).

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