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Turnkey property investing can be a great option when you are just starting out on your real estate investing journey or when you want to cast a wider net with your investments beyond your local area. When done right, turnkey investment can be a part of a long-term real estate portfolio-building strategy.

However, with turnkey investing, the same things that make it an attractive investment formula are also those that can make it challenging. The most significant challenge is dealing with potential issues that can arise from investing in properties long distance. The one question most people ask when they consider turnkey property investing is: “How do I confidently invest from a distance and still make sure my property performs well if I am not there to oversee it directly?”

The short answer is that you need to develop a system for overseeing your turnkey investments and stick with it. Here, we take a detailed look at the steps to create this systematic approach. 

1. Understand the Differences in Markets  

Let’s start out by naming the one thing you should not do if you’re considering turnkey investing: automatically investing in a location because you’ve heard it’s a hot market. It’s true that a cursory glance at real estate news will give you a couple of locations that are labeled hot because they’re experiencing a home price boom/population boom. However, these media-prominent options should never become your turnkey investment destinations by default. 

Let’s take Florida as an example. Yes, it is a popular area with a burgeoning population. But it also is in the midst of a major housing crisis, with surging home insurance costs and stagnating markets in some regions.

If you’re attracted to the idea of investing in an area with a growing, younger population, you may be better off looking into Midwestern cities like Cleveland. Your goals and strategy as an investor should always come first; you then find locations to invest based on your investment strategy, never the other way around. 

The U.S. is a remarkably diverse investment space, with great variations between regions and localities. You need to do your research beyond price points and the overall popularity of a potential investment destination. You’ll need to educate yourself on everything from local laws to appreciation rates, taxes, and local economic performance. 

For example, you may not want to end up sinking all your beginner investor money into a property in an area populated primarily by retirees with a stagnant seasonal economy that relies on summer tourism—unless, of course, you’re looking into vacation rentals. It really all depends on what your goals are.

This thorough approach to vetting potential geographic locations as turnkey investment opportunities should apply to your selection of a turnkey investment company. With turnkeys, the investment company is much more than just a middleman. The company’s strategy and expertise can make or break your success as a turnkey investor because it will be the one presenting you with investment opportunities. 

Our advice is to look for a company that works in multiple investment markets. While other forms of real estate investments may work better with a laser focus on just one area, this isn’t the best way to achieve success in turnkey investing. A broad insight into multiple geographic locations is what pays off here.

The turnkey company should help you work toward your goals as an investor and offer you locations to invest in that will truly fit those goals. You may end up investing in a location halfway across the country you’ve never even considered, but that’s the whole point.

We recommend turnkey companies that work in at least five different markets to give you more perspective in market decisions and allow for more diversification over time.

2. Don’t Cut Corners on Due Diligence  

Turnkey investing is attractive to many beginner investors because it has a reputation for being a passive form of investing. That is true in the sense that you won’t need to renovate a home before renting it out, and in many cases, won’t even need to look for tenants, as the turnkey company can do that for you. 

What the company cannot do for you, though, is your due diligence on the property before you’ve signed the contract. In that sense, turnkey properties should be treated in exactly the same way as any other type of real estate investment. Or think of it this way: The passive leg of the journey begins only after you’ve done all your research and due diligence. 

Once the turnkey company has found a suitable property for you, they will send you an investment analysis or pro forma of projected rental information. It is your job to verify everything in that document. 

As a bare minimum, you will need to:

• Make sure any rent quotes are in line with comparable properties in the area.
• Obtain your own insurance quotes to make sure you won’t be overpaying on home insurance.
• Get lender quotes for financing: These will be required to close the deal in any case.
• Get a third-party property inspection and appraisal report: These will tell you if the pricing is in line with what it should be and if the condition of the property is as advertised before you close.

This may look like a daunting list, but it’s very important to obtain all this information before you close on the turnkey property. The convenience of turnkey really won’t be very convenient if you discover further down the line that there were undisclosed issues with the property, or you’re overpaying on insurance, or your cash flow is too low because the agreed-upon rents aren’t in line with what they should be. These are potentially huge issues you’ll have a hard time resolving long distance. 

3. Spend Time Researching and Interviewing Turnkey Companies

We’ve already touched on the fact that the quality and experience of the turnkey company really matters to your success as an investor. You will be trusting this company with crucial investment decisions, after all. But vetting your turnkey company doesn’t stop at researching how many markets it operates in. 

Turnkey companies vary wildly in the type and extent of the services they provide. There is no standard definition of how much a turnkey company will do for you; they’re not regulated in any way, so it’s up to you to ask the right questions to determine if they’ll cover your needs.

Get as much detailed information as possible before deciding to work with a turnkey company. For example, you may want to ask whose responsibility it will be to find tenants, and whether the company works with properties that are already occupied. You should also get a detailed breakdown of what types of situations (e.g., emergencies, disputes, evictions) the company will manage and how. 

Remember: When an issue eventually arises, you won’t be able to easily get there as a long-distance investor, so you must make sure the company has the resources and experience to handle all kinds of potential issues. 

Another thing you’ll need to determine is how committed the turnkey company is to growing your long-term success as an investor. Again, although turnkey investing is attractive because you can get into it quickly, it’s still a long-term project. 

The best turnkey companies offer a variety of resources to help an investor grow their portfolio over time. These will range from simple tools like online investment calculators to in-depth market data reports, individual coaching, and educational courses. 

Rent to Retirement, for example, has an Academy program that offers educational resources for investors. These resources are based on real-life investor expertise and can help you avoid common beginner investor mistakes. You’ll also be building a long-term relationship with your turnkey company, which will yield better long-term results. 

4. Leverage Your Turnkey Company to Build Your Team

One of the more daunting prospects for a beginner investor is building a team. Networking isn’t always easy, but it’s especially difficult when investing long distance. How do you find a reputable lender, insurance provider, or accountant when you are hundreds or even thousands of miles away from your investment location?

Building an entire team on your own without local knowledge is a challenge, and that’s another area where an experienced turnkey company can really make a difference. By using a reputable turnkey company like Rent to Retirement, you’ll instantly tap into an established network of respected property professionals who will help you manage every aspect of your investment. 

Using a turnkey company to leverage its team-building prowess works in your favor because access to an expertly built, well-coordinated team is much more effective than trying to string one together from disparate individuals you’ve never met.  

Final Thoughts

These are the fundamentals of developing a fail-safe, systemic approach to turnkey property investing. As we’ve seen, there are several challenges that come with investing long distances, but they can all be overcome by working with a dedicated, experienced turnkey company. There is a lot of research you’ll need to do at the outset, but once you’ve done it and found the best turnkey company for your goals, your turnkey journey should be smooth sailing.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.