This is a simple concept in which the investor buys, rehabilitates, and then resells a property at a profit. This is also known as “flipping” a home. This process usually happens remotely, because the investor remains in his or her own home, sometimes in a locale where flipping doesn’t make sense, and utilizes the Internet to find and invest in opportunities. The goal here is to make the process of investing in real estate as easy as possible, so all the investor has to do is flip a switch or “turn the key.”
Typically, then, you’re purchasing a single-family home, fixing it up, in order to bring it in line with current codes as well as make it more appealing to buyers. Here’s how it works:
- A turn-key retailer or company purchases the property.
- One or more investors purchase a share in or all of the shares in the house.
- The retailer or company “fixes up,” or rehabilitates, the property to make it current and appealing to buyers.
- Once the property is rehabbed, it’s put back on the market for resale.
- As soon as a sale is closed, the investor gets his or her money back plus whatever profit was earned, according to what share of the investment he or she owned.
If done properly, this can be a very sound investment strategy. You, as the investor, have earn a profit from flipping the home, and you can have as little or as much involvement as you wish. You can be as involved or uninvolved in the flipping process as you desire, helping to oversee the contractors rehabilitating the home or leaving the entire process up to the turn-key retailer.
Why not just buy a house myself and flip/rent it?
You might be thinking you can just eliminate the middleman, the turn-key retailer or company, and do all of the legwork yourself. While many investors do just that and succeed at it, there are some drawbacks. In most cases, you’ll end up undertaking much more work than you would as an investor. Here is what you would have to do if you became a flipper, rather than utilizing a turn-key solution and having the turn-key retailer handle the process for you.
- Finding the property: First, you would have to locate a suitable property, which means knowing which neighborhoods are going to appeal to buyers or tenants.
- Rehabilitating the property: Next, you would have to renovate and rehabilitate the property, making it adhere to current codes and also be an excellent single-family property. This requires proper budgeting and attention to contractors and laborers, something that requires an on-site presence.
- Marketing the property for sale or rent: Once the house is move-in ready, you would have to find a buyer or a paying tenant to move into the location.
Should you decide to rent out the property, you would be entering a whole new dimension. For more information on turn-key real estate investment where you rent instead of resell, check out our outline of that investment strategy.
If this sounds like a lot of work, that’s because it is. With turn-key real estate investing, as little or as much of that work can be taken off your shoulders and put on someone else’s. Let’s look at the advantages of turn-key real estate investment.
The advantages of turn-key real estate investment
In a full-fledged turn-key real estate investment situation, you are an investor, not a flipper or landlord. You’re hiring someone else to manage the property for you, so all you have to do is collect on the profit. Here are some of the primary advantages of turn-key real estate investment.
Does not require your presence locally
With turn-key real estate investment, you acquire single-family properties in remote locations. This allows you the freedom to remain living where you want, while still maintaining a cash flow from a location that has excellent real estate values. You can continue living in your gated community in Florida, for example, where flipping houses might not make sense, while investing in flippable or rentable properties in Seattle or anywhere else that has a strong demand for such properties.
Easy diversification of your investment portfolio
turn-key real estate investment can be a wise move, if done correctly. One aspect of correctly executing a turn-key real estate investment strategy is investing properly in multiple markets, something that is easy to do since it requires little to no time of your own. The benefits of investing in multiple markets is simple: it provides you with protection from an unexpected downturn in an economy. For example, an investment in single-family properties in Seattle might seem like a guaranteed cash flow scenario, but what happens if Boeing announces major layoffs? If that were to happen, home prices would fall and properties would be more difficult to sell, negatively affecting your profit.
Since turn-key real estate investing makes it so easy to have multiple properties, this is a significant advantage of the investment strategy if you do it right. In other words, don’t put all of your eggs in one basket.
You don’t have to be a real estate expert
When you deal with a reputable turn-key real estate retailer or company, that provider knows the real estate markets with much more precision than an outsider would. Sure, you could do some basic research on an area, checking out the local school ratings, crime reports, and price ranges, but a turn-key provider will know all of that and more; they’ll know the heart of an area, such as why people prefer one neighborhood over another.
The disadvantages of turn-key real estate investment
If turn-key real estate investing sounds like a sure-fire way to make money, you should be aware that there are disadvantages to the strategy. First and foremost, you will come across turn-key retailers that try to maximize their own returns at the expense of cutting corners, but beyond that there are other drawbacks.
The “middle man” needs to make money
The turn-key company is a business, and that business needs to make money. This means buying property at a discount and then selling it to you at a higher amount, of “flipping” the property, often for a hefty profit margin. Following that, the turn-key company can make an additional profit by managing the sale or rental of the single-property property for you. One thing to remember about this drawback, though, is that turn-key companies often have a marketing machine running at all times and can find incredible deals in their market, allowing them to give you a great deal even as the company makes its profit.
You gotta trust someone
There are “shady” turn-key companies out there. These companies will encourage an out-of-state investor to buy a bad property in a bad location, meaning more money leaking out of the investor’s pockets than coming in. You have to rely on the turn-key operator’s knowledge, expertise, and credibility to actually make you a good deal. This means you have to be dealing with someone you can truly trust.
There are serious benefits to turn-key real estate investment, and it can definitely be an attractive cash flow strategy. However, there are also drawbacks to take into account before you proceed with any deals. You will need to investigate the turn-key provider and make sure they are both reputable and profitable, and ensure that the cash flow opportunity they are offering you is actually feasible and realistic. turn-key real estate investment is a fantastic way to make money, as long as you are smart about it and take care of your own due diligence throughout the process.