How to Analyze Turnkey Investment Properties to Mitigate Risks


How to Analyze Turnkey Investment Properties to Mitigate Risks

When looking to buy a turnkey investment property, it is important to take the proper steps in order to mitigate risks and generate high returns. With this being said, it is essential to understand what risk mitigation means. Risk mitigation can be defined as the process of reducing risk exposure and minimizing the likelihood of an incident. This entails continually addressing risks or concerns to ensure that you, as the investor, are fully protected. In this blog post, the top three steps to mitigate risks when analyzing a turnkey investment property will be discussed.

Top 3 Steps to Mitigate Risks for Turnkey Investment Properties

1. Research Turnkey Companies

The first step to take when analyzing turnkey investment properties is to research turnkey companies. A turnkey company finds and acquires a property. Then the firm flips the property, rents it out, and sells the revamped property to prospective investors. One of the main benefits of a turnkey company is that they manage everything, from looking for a property, to flipping it, or screening a tenant. 

With this being said, it is important to do your research to find the right turnkey company to fit your individual needs. So when researching, it is essential to keep these tips in mind:

  • Research how much experience the turnkey property company and provider has 

  • Make sure the turnkey investment company has a large portfolio of rental properties

  • Double-check that the turnkey property company has the proper team and software systems in place 

  • Investigate the turnkey investment company’s background to make sure they do not have a history of fraud 

  • Never pay your turnkey investment company money upfront for renovations until they are complete

2. Conduct Neighborhood Analyses

The second step when analyzing turnkey investment properties is to conduct a neighborhood analysis. However, before we dive in, let's discuss a couple of things. First, many investors who are buying turnkey properties typically live out of the state that they are buying in. This is due to a few reasons. One, it allows investors to take advantage of various housing markets across the country. Two, it grants investors and turnkey investment companies the ability for diversification. Three, housing markets can fluctuate based on environmental conditions. With this being said, the bottom line is that something that affects one market may not affect another.

In terms of looking at turnkey properties to buy and mitigate risks, a neighborhood analysis should be conducted. A neighborhood analysis, also defined as a real estate market analysis,  is defined as a detailed examination of determining the best location for buying an investment property based on data collected and the potential cash flow. Additionally, some of the other factors to look at are the safety and crime rate in a neighborhood, the cap rate, and the cash on cash return. A cap rate is used to compare different real estate investments by calculating the ratio between the net operating income produced by an asset and the current market value. A cash on cash return calculates the annual return the investor made on the property in relation to the amount of mortgage paid during the same year. 

Additionally, one thing to remember when conducting a neighborhood analysis is to understand the specific area and the values with the specific market you are looking to buy in because some turnkey investment companies sell their properties above market value. As the investor, you want to make sure that you are not overpaying for a turnkey property.

3. Perform a Rental Property Analysis

Another factor to consider when buying a turnkey investment property is to perform a rental property analysis. A rental property analysis is a process in which an investment property is analyzed to determine its viability for renting out and also the profitability that the property can achieve as an income property. Some of the aspects to consider when completing a rental property analysis are as follows:

  • Location 

  • Property Type 

  • Rental Income and Cash Flow

  • Ideal Tenants 

  • Comparative Market Analysis 

  • Vacancy and Occupancy Rates

Performing a thorough rental property analysis takes some time. With this being said, it is critical that the rental property analysis is not rushed as this may save the investor a lot of money.

Looking to Buy a Turnkey Property in the Mid-South? We Can Help!

Memphis CashFlow specializes in providing turnkey investment properties to real estate investors, specifically in the cities of Memphis and Little Rock. Our organization handles real estate investments, investment property renovations, and property management services. We list properties that can immediately have a cash flow right into your pocket! Would you like to start building your wealth in real estate? If so, contact us!