is the most difficult question to solve for a buyer with no experience in the real estate market. We all know that in a real estate investment “cash-is-king.” But, if an investor does not have that much cash in hand, finance is definitely required to meet the purchase price of an investment property. There are many options available to finance turnkey rental properties. Among them non-recourse loans, hard money loans, and private loans are mostly popular. In conventional mortgage, the down payment is smallest and the rate of interest is also lower. In case of Non-Recourse Loan the investor puts an asset forward. But, let us first discuss what is a turnkey property.
A Turnkey Property or a turnkey rental property is a real estate investment property (mostly a house or an apartment) that an investor can buy and rent in a short period of time. The turnkey real estate companies are specialized in the purchase and restoration of old and distressed houses. They usually buy them at REO auctions, renovate them and rent them out to the tenants, before putting the property in the market for sale. This type of turnkey property investment has become particularly popular after the 2008 bubble burst in the US real estate market. Basically, a turnkey rental property is a passive real estate investing for investors. It corresponds to those investors who do not have the ambition or the ability to directly/actively deal with the purchased real estate. They engage other companies called turnkey property management companies that will deal with the maintenance of the property. Passive real estate investments are a great way to gain a constant cash inflow over a significant period of time without doing any heavy work. Also, such investments benefit from special tax discounts.
Advantages of Buying a Turnkey Rental Property
High return real estate outlines several key benefits of Turnkey Rental Property investments.
- Location: With Turnkey Rental Property option, the potential investor is not tied to the location of the property. For a small difference in price, the investor can buy a turnkey rental property for rent that is in a better location than his own, and with that up to five times more rent. This is certainly a Win-Win situation.
- Resources: With Turnkey Rental Property investment, a potential investor, with an already checked property, usually gets a company that knows the neighborhood well and the market where the property is located.
- Turnkey Rental Property investment is cost-effective for several key reasons.
- Turnkey Rental Properties have proven high level of Return of investment.
- Time saving also stands out as a great advantage. An investor can find a good provider who will take care of current restoration and tenants problems. In this case, the investor gets an additional source of income without too much effort.
- Turnkey Rental Property are restored and sold by companies that know the terrain and this diminishes the risk of the inexperienced investor who cannot deal with a property requiring rehab.
- Cheaper input investment – Turnkey Rental Properties for sale can be easily found in the best growth markets and can be easily scanned without unnecessary “wandering” in the real estate market. They are already move-in ready and rented out to qualified tenants with property management in place.
Financing Turnkey Rental Properties
If you need financing to purchase a turnkey rental property, you must pay attention to the information given below. Purchasing a turnkey rental property is a good-call in today’s low-interest environment. As of January 2017, the interest rate for a 30-year conventional fixed rate mortgage is 4.25% with an APR of 4.323%. For a 20-year conventional fixed-rate mortgage the average interest rate is 4.125% with an APR of 4.225%. And for a 10-year fixed rate mortgage, the average interest rate is 3.625% with an APR of 3.751% (Source – usbank.com). The given mortgage will be paid monthly in arrears over the 2-year period. 30% of the total cost has to be paid as a down payment within four weeks from signing the purchase contract.
There are three basic ways to finance turnkey rental properties – Cash, Borrow and Loan or Mortgage.
Financing turnkey rental properties with cash is the simplest way, provided you have so much of cash in hand. It also means less paperwork and a higher inflow of money, as there are no EMIs to pay after the purchase. Cash buyers often get a discount from sellers. As a cash buyer you can also save on closing costs. You don’t need pay a bank attorney for the mortgage. Financing turnkey rental properties with cash means you don’t need put real estate taxes in escrow up front nor pay for a mortgage application and loan origination fees. A property appraisal is not mandatory in cash purchase, which is required by all mortgage lenders….