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7 Things To Check When Buying Turnkey Properties
Few investment jargon are as seductive as the word turnkey.
Just the mere whisper of this term can arouse curiosity and interest even from strangers… that is assuming they know what it means in the first place.
Turnkey is a word used in financial and investment circles to describe assets that are fully ready to generate an income for the buyer who acquired it.
It is most often used to describe businesses and investments, especially investment property.
While we would implicitly think that real estate marketed as turnkey are targeted at investors, it is not uncommon to find houses targeting homeowners use this term as well.
Turnkey homes for sale will then mean that the property is ready for residents to move in immediately without needing to spend money on remodeling or repairs.
It is therefore important to note that turnkey properties targeting home buyers will have a very different focus compared to turnkey properties targeting investors.
The gist of it all is that home buyers will feature move-in condition, while investors and landlords will feature a readiness to generate an income.
As investors are often prepared to pay a premium (overpriced) for real estate that are ready to hit the ground running, it also creates opportunities for unscrupulous people to attempt pulling a fast one on unsuspecting investors.
Here are some things to check for due diligence when investing in turnkey properties.
When your attention is all focused on the potential passive income a house can make for you as soon as you acquire it, you could become blind to matter that really matter.
Title problems in real estate have been around for centuries. This is why there is title insurance.
But why let insurance be the protector of your investment when you can avoid falling into a pit altogether?
Title checks are gravely important especially if the property in question is more than 30 years old.
A lot of times, turnkey properties don’t just come with a fully operational rental property. They come with inherited tenants as well!
So you don’t just take over the house. You take over the current and future income specified in the lease.
Even though this can seem like a lovely bonus that comes with your investment, there’s also every chance that you would be walking into more complicated issues than you could imagine.
You were not the landlord who screen the tenants. You had never interacted with tenants. And you don’t even know what as been agreed upon between the selling landlord and the tenant that was not put into writing.
An estoppel certificate should be able to offer some protection.
But don’t fully depend on it to save you when you run into legal issues with inherited tenants.
Always remember that unless the seller is Santa Claus or his next of kin, the seller is profiting from the deal.
A profit driven seller or flipper will go all out to minimize inputs and maximize outputs.
Meaning he or she will try to spend as little as possible to create as much perceived value as possible.
With this in mind, take special care in inspecting a turnkey property to ensure you will will not end up as the fool holding the bag.
While a flipped property is not necessarily a bad investment, it is up to you to evaluate the condition of the house with home inspections.
As if enabling buyers to make an immediate income is not good enough, many developers even offer financing for buyers to acquire turnkey properties.
This is something that you must absolutely be very careful with.
Sometimes developers and builders are willing to market the houses at or below costs to entice buyers.
Their strategy is to make money off the financing.
If for example, a seller raises the price considerably when you refuse to take up their loans, it is a big sign that they are getting huge margins from financing the properties.
Translating to… you are probably being ripped off by the terms of the loan… should you take it up…
In this modern digital world we currently live in, it is critical to be aware that although pictures tell a thousand words, they thousand words are not always the truth.
In fact, most of the time it’s just not the whole truth.
NEVER buy a turnkey property that you have never physically visited and inspected.
To avoid the problem of potential buyers visiting a location altogether, many promoters of real estate make it their job to travel all over the world to market turnkey property packages to unsuspecting victims.
They arrive in smart-looking business suits, glossy brochures, professional presentations slides, and charismatic accents to sell everything from log homes to sea front condominiums.
While many of them are not legitimate scams, be careful when dealing with overseas properties.
6) Property manager
Many times, turnkey properties also come with specified compulsory property managers or with packaged solutions services.
It is necessary to check the background, experience, and track record of the property management company.
If the company is related to the seller, then it’s possible that the seller is just using you as a cash cow.
Making a one-off profit from you from selling the property is not good enough. Since they have identified a fool, they might as well milk him for eternity.
I’ve lost count of the number of times promoters showcase their portfolio, then indicating what needs to be repaired, changed, or overhauled, etc.
What’s the point in marketing a house as “turnkey” when it’s really not?
Buyers will then have to spend even more money to get the house ready for prime time.
What’s the point really?
The sad thing is that many investors get pulled into deals that were initially marketed as turnkey estate sales. But later discover that additional work have to be done in order to put the rental up onto the market.
By this time, they have gotten too deep and too emotionally involved in the deal to back off… All this while when there are better investment opportunities available.
Don’t become a victim of buying a turnkey property when it’s obviously not one.