TURN KEY REAL ESTATE INVESTMENT DEFINED
Many people interested in the returns real estate offers feel they are not qualified to do the work. They recognize succeeding with just a weekend education course is remote but a viable alternative is to work with turnkey fix and flip or buy-to-rent companies that populate this country. In this case understanding a property financial analysis is indispensible.
HANDS-OFF – BRAIN-ON
Before you begin don’t make the assumption that turnkey investment provider does all the work, and the investor sits back and collects the checks. The issue is you should understand how things work, especially the financials. This is because the market does not adhere to the standards or regulatory oversight of stocks, bonds and funds.
Real estate investing is not “armchair investing.” It may be “hands-off” investing in that you are not swinging hammers or cleaning up after tenants, but it is very definitely “brains-on” as far as understanding the strategy, financials and exit plan, otherwise how do you know you are not being taken for a ride. This is why basic real estate financial literacy is vital.
Before you jump at this opportunity understand the variations on turn key process. The most complete arrangement is where you do business with one company who helps you buy, renovate, sell or turn into a rental, property manage, account and report. There are a number of companies that do all of this, however they do subcontract things like renovation and maybe property management. The key is a singular point of contact and responsibility to you as an investment client.
Other companies will contract with you, using your money to buy the house, fix it up, and help you find a tenant – then assign management to an associated or third property manager. The advantage often is the property can be purchased more inexpensively, but the investor offsets time and uncertainty for income. This is not what we define as turn key experience as the different contractors are driven by different goals that are not necessarily those of the investor. This further complicates any financial analysis because of disconnect physical and financial processes.
Some turnkey vendors provide the investor with a leased-up property already generating income. This removes many of the uncertainties of price and contingencies of unknown costs, delays and time it may take to renovate, sell or find a tenant. Experienced turnkey vendors are going present you with a pretty detailed spreadsheet prior to acquisition of a particular property. If they are not willing to do this, walk away. You also need to understand the numbers you are looking at.
Ask your turnkey vendor these questions: Can I buy the house you are showing me as the typical investment house? Do you own it as principal or acting as agent? Is it renovated and habitable by a renter? If not what will it take to bring it to market ready condition? Is the property leased to a rent-paying tenant paying market rent? (check rents at www.rentrange.com.) If any answers are in the negative get more inquisitive.
2020 REI Companies Consulting Services is happy to offer a second opinion on any analysis on a property you may be considering.
Current real estate accounting standards are quite sufficient for any analysis, but using them requires understanding. The information we are going to present is here to help.
These analyses and explanations follow standard real estate accounting rules and will be broken out with examples. Where appropriate we will also provide you with some baseline rules related to industry insights that have served and real estate investors well over the years. 2020 REI invests using these same rules.
It is the intention of this blog to update this data and provide on-going education to those involved in the investment in real estate. The blogs will provide building blocks related to real estate analysis and progressively work towards more complex financial return metrics. It is important to have a basic understanding of cash flow analysis before you begin any real estate investment or buy real estate as an investment. Investors can avoid pain if they use and implement the analysis and decision tools we will present going forward.
If you want a second opinion on any investment you are about to make, 2020 REI Consulting is happy to provide a second opinion.
DO YOU CARE ENOUGH TO MAKE MONEY? Succeed with Sound Real Estate Analysis (Part 1.)
TURN KEY REAL ESTATE INVESTMENT DEFINED