Seven Steps to Safely Buying Turn Key Rentals

I've had a lot of questions on Turn Key Rentals Lately so wanted to share...

What does that mean?

The term refers to a property that has been renovated and leased. It usually implies that the home has an active property manager in place as well collecting the rents.

Turn Key Rentals allow busy or out of area Investors to plug into an investment property without all the headaches of renovation or tenant placement.

If you are a Wholesaler considering adding Turn Key Rentals to your line up or if you are a buyer of Turn Key deals, the tips below may help you.

When considering a Turn Key Rental, its important to make sure you peel past the first layer. Don't be roped in by promises of 25% Return On Investment.

On any property, including Turn Key, its important to do your Due Diligence.

Prior to me getting real education in real estate, I bought a package of homes that the seller advertised as turn key. Long Story cut short, the seller lied on all the numbers and I lost a sizable chuck of money on the deals along with three of my partners... Meanwhile the seller took off with our cash. The total was nearly six figures!!! Talk about an education --- this mistake cost nearly as much as my Tuition to St. John's University.

Don't want that to happen to you or anyone! It nearly made me quit real estate right as I was getting started. Thankfully, God blessed me with wise people around me and I recovered... now have gone on to partner with good partners and together we've produced over 3,300 deals.

Here is what you can check BEFORE you buy a Turn Key Rental:

1) Is the Provider Reliable?
-Check References
-How many homes have they completed?
- Do they have standard systems?
-Do they use Licensed Vendors?
-Consider a Background Check on the Provider (this step alone would have saved me from my loss as the guy had trouble written all over his background I later learned).

2) Was the Rehab done right?
-Ask for the Scope of Work - Everything that is going to fail within 5 years is often best to have replaced during the rehab - if it wasn't then you should budget for it in your numbers.
-Licensed Contractors?
-Passed all local municipality inspections?
-Passed Rental inspections?
-Current Rental License?

3) Is the Tenant Solid?
-Household Income should be at least three times the monthly rent
-Debt monthly payments should not exceed 35% of their monthly income.
-Landlord / Reference checks need to be done - not just a "nice to do..." - its a must!
-Background needs to be clean - no hard crimes or UDs (evictions)
-Credit Check - scores north of 600 are typically good

4) Is the Tenant Current on rent?
-Ask for proof

5) Is the house free of deferred maintenance?
-Have a licensed inspector inspect the home before you buy - its the best $300 you'll ever spend in some cases and if you find any problems simply ask the seller to cure them.

6) Is the house in a good area?
-Visit Trulia.com. Type in the address of the house you are considering. Scroll down to "Crime" and you'll see a heat map. Red is bad. Green is good. Look for homes with little to no crime near them. Homes in high crime areas tend to have high turn over and more theft which ultimately lowers your ROI.

7) Onsite Tour
-Visiting the area and meeting your Provider is key... Even if you're busy, send someone else! You're entering a long term relationship with the person providing you a turn key deal. Its vital you like them and its a good idea you like the area where the property is located. Flights are cheap in comparison to the price of a home.

Happy Investing!

~Nate Armstrong