When looking at ways to increase your net worth, real estate is a popular choice. Turnkey rentals are a rental that you purchase from a company that has bought a house, rehabbed it, put a tenant in it and then manages the property for you so that you are not dealing with tenants, toilets or termites.
You can use real estate as a way to supplement your retirement income, pay for a child’s college education or create a monthly income to live from. Regardless of why, here are three reasons to use a turnkey strategy.
1. Your either to busy to take on another job or dont have the contstruction skills.
Most investors who purchase a Turnkey Rental choose one because they are either too busy to buy, rehab and manage the investment or dont have the knowledge or skills to compete financially with the professionals. Over 60% of investors who have approached me are parents who have a busy family life with children and in many cases both parents have full time jobs. A good percentage of these families have some experience with completing minor repairs and fixes to their homes but have not done major rehab. 10% of Investors are individuals who are working extreme hours, making good wages and just dont have the time. The remaining 30% of investors have no repair knowledge, outsource all of their home maintenance and are not interested in learning but recognize the potential returns of real estate. Regardless of whether you dont have the time or skills, a Turnkey investment is a great alternative to a retirement account or worse yet doing nothing.
2. Your missing out on the advantage and returns of Real Estate.
The investment returns using real estate vary greatly depending on the market, neighborhood, type of house repairs, tenant quality and a hundred other variables. But in general, it’s not uncommon to get 7-10% average returns on a typical Alpine rental. When you consider that the average Fidelity retirement account return is 3%, turnkey real estate is a great consideration. With planned investments, a turnkey solution will compound better than many retirement accounts. As an example, if starting with a $300,000 investment of 5 turnkey rentals yielding $2500 per month in rent and the monthly rental income is used to reinvest in additional turnkey rental purchases, in 15 years that initial investment will have grown into 23 houses, yielding $11,000 per month and increased your net worth to $1,900,000
Management fees are lower in real estate than retirement accounts. The management fee for a retirement account typically ranges between 2-3% of the total investment while the fee to manage a turnkey rental is about 1%. For instance, on a $100,000 investment, a retirement account manager will charge about $3,000 annually while that same investment in a turnkey rental, with a $1000 rent will charge $100 per month or $1,200 per year. However, the retirement account fee will occur regardless of whether the market goes up or down and regardless of the return rate (note the average Fidelity returns above) while the turnkey management fee is only charged when the rent is collected.
There are several tax advantages to owning real estate. First, When a property is invested through a business structure such as an LLC, many of the travel expenses as well as expenses associated with the rental itself are tax deductible (Consult your accountant, CPA or tax attorney for clarifications). Next, because these are business expenses, your personal tax rate could potential be reduced as the income is based on Gross income minus the expenses.
Turnkey Real Estate can be purchased using different funding methods. Cash and a self directed IRA, which can either be a pre or post tax investment can be used to purchase the rental outright. In both cases you (or your IRA) is on the deed and the lawful owner of the property. Using this method provides for better monthly returns and less risk in the event of real estate downturn.
3. You can grow your net worth faster using real estate and a little sweat equity.
A turnkey property is a Hard Asset and as such provides better long term value compared to a paper asset such as stocks or bonds. Real estate is more likely to appreciate (when in the right market), can be insured against fire, storms or other damage and can be borrowed against. It can be used as a down payment or collateral unlike stocks or bonds. Many new to real estate will purchase a duplex, live in one side and allow the other side to pay the mortgage while the owner saves money for their first turnkey real estate purchase.
Purchasing a Turnkey Rental is easy, profitable and can impact family generations. Why not find out more today about how it can help you! Fill out the form below if you’d like more info.