Turnkey real estate investing is a relatively new phenomenon; it’s something that’s developed fairly recently. In that time, there’s been debate about what it truly means to be turnkey.
Hey Moguls, Chris Clothier here, and I feel it’s important for you to cut through the fog and confusion when it comes to turnkey rental deals.
The fact is, turnkey is nothing more than a marketing term. There’s a different definition for every single vendor who wants to tell you that they have turnkey opportunities. Because of this, it’s difficult as a consumer to know what turnkey actually means.
I could look at one so-called “turnkey property” with one company, and check out another one with another company – but they may be very different. Will you actually know the difference between the two?
We should be able to determine which is good and which is bad, or perhaps neither one is good or bad. What should you look for to know the difference?
Well, that’s why I’m creating this series of lessons – because it’s important to you as an investor to know.
You want to be successful in picking a good turnkey market or deal (and a good turnkey provider) and have the right expectations as you go into that investment so that what you get on the backside is exactly what you were looking for.
Criteria for Choosing an Investment Market
Oftentimes, investors will choose an investment or an investment market by saying:
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“This is where I grew up.”
Or
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“I’ve got an old college buddy who owns a business there.”
As bad as those are, here’s an even worse scenario:
“We vacationed there once and it was a lovely little city. We think we can find success there so we want to buy there.”
These are never valid reasons to invest in a certain market.
Forget the House
If you’re going to find a good turnkey investment, the first place to start is always the market. Before I get into the steps necessary to find good turnkey investments and good turnkey properties, I want to talk about one crucial step you must follow: Forget about the house.
The house should be the last thing you think about as an investor.
Way too often, investors buy a property… but they don’t buy the experience. They don’t buy the team. They don’t invest in the steps that will cause that property to perform the way they expect it to perform.
Instead, they buy based on numbers, or what their perception is of that house as an investment property. Again, this is the last thing you should do.
So, remember these words: Forget about the house.
The first step to finding good turnkey properties is to decide which city (or cities) you’re going to go into as an investor. Leverage other people; leverage systems; leverage professionals who are in place to help...
When you do that, the entire world opens up to you as an investor. You can literally go anywhere and leverage other teams and the experience of other people, if you’re open to it.
Rather than investing around the corner or across town, you can now invest across the state, across the region, across the country. For some who are a little more adventurous—even in another country.
It can happen when you have the right teams in place.
Population Growth
One of the things I look at for a good investment city is population growth.
Is it going up or down?
And I’m not just talking about the city itself, because oftentimes cities are part of an MSA (metropolitan statistical area), and more than ever, those are driving the economy in a statistical area.
It’s not just the main city; it’s not just the smaller cities around it, but what’s going on in the entire area. People commute across MSAs to go to their job. So I want to know, is the MSA:
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growing?
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shrinking?
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flatlining?
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remaining stagnant?
I’m looking for growth. If it’s shrinking I want to look at the trends to find out why. It doesn’t mean it’s going to be a bad market, but it’s something I want to pay attention to.
Area Industries
Another factor I look at in a market is the industries that are driving job growth.
It’s not just the employers themselves, not just the companies… many times, we’re talking about Fortune 500 companies that have their world headquarters in a city. That’s a great reason to put stars next to a city.
Those matter—believe me, they do.
Having said that, what I really want to know about is the industries behind those companies.
In a place where you have one big company, if it’s driving an industry, you’ll have a lot of other little companies as well. Plus, you have the secondary companies. These are companies that are offshoots that provide a product or service to that big company that is employing in the area.
I want to know what the industry looks like and not just the companies themselves.
Housing Statistics
Lastly, I want to see what’s going on in the housing statistics. For instance, I want to know what’s happening with housing starts and with foreclosures.
Several years ago, we came through a rough time in the housing market where we saw the numbers shift. That’s why I want to know what’s happening locally within that market.
What’s amazing is when you begin to dig in, you might find that some markets never really suffered from the 2008 crash. Their economy kept right on rolling forward. It could have been the perfect mix for them. If the economy goes well, the housing never suffers.
Or you might find places where the housing was just fine; no imbalance in the housing, but the economy got hit hard and it drove prices down and created a housing crisis from the job crisis. That’s why you want to look and see what’s happening with jobs and housing.
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Are they rebuilding?
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Are they new?
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Are they old?
You must consider what’s happening in the local market that’s going to help you be successful as an investor.
Coming Up in Part II
This is the foundational criteria that you should be thinking about before entering into a new market.
In Part II of How to Do Turnkey Rental Deals Step by Step, you’ll learn to consider not only if it’s a good market, but also if you can find a good provider in that market.
How do you find that qualified provider? Where do you look? What questions should you ask before joining up with that provider?
All of that, and more, is covered in Part II.
Share Your Experience
Have you joined up with a provider who used the turnkey term? What was your experience? Your feedback is appreciated, and your experience can help others.
Understand that turnkey means different things to different people.
Be aware of your own personal criteria for entering into a new market.
Study underlying criteria such as local industry and population growth.
Know the housing statistics for the area.