Description: Purchase fully renovated, ready-to-rent properties managed by a turnkey provider to minimize involvement and generate passive rental income.
Implementation Steps:
1. Research Turnkey Providers:
- Providers: Consider reputable turnkey providers such as Roofstock, HomeUnion, and Memphis Invest.
- Evaluate Providers: Assess their portfolio, market areas, and property management services.
2. Select Investment Markets:
- Target Markets: Identify markets with strong rental demand and appreciation potential, such as Memphis, Atlanta, and Indianapolis.
- Example Properties: Look for properties priced between $100,000 and $200,000. Example: A 3-bedroom home in Memphis priced at $150,000.
3. Property Purchase and Financing:
- Down Payment: Use equity from the inherited property or savings for down payments.
- Example: Extract $100,000 through a cash-out refinance on the inherited property and use it for multiple down payments.
- Mortgage: Finance the remaining amount through a mortgage. For a $150,000 property, a 20% down payment is $30,000, with a mortgage of $120,000 at 6% interest.
4. Property Management:
- Turnkey Management: The turnkey provider handles tenant placement, rent collection, and maintenance.
- Management Fees: Typically range from 8-12% of monthly rental income.
Financials:
1. Single Property Example:
- Purchase Price: $150,000.
- Down Payment: $30,000.
- Mortgage: $120,000 at 6% interest.
- Monthly Mortgage Payment: Approximately $719.
- Monthly Rental Income: $1,200.
- Annual Rental Income: $1,200 * 12 = $14,400.
Costs:
- Mortgage: $719 * 12 = $8,628.
- Management Fees: 10% of rental income = $1,440.
- Maintenance: Estimated at 1% of property value = $1,500.
- Total Annual Costs: $8,628 (mortgage) + $1,440 (management) + $1,500 (maintenance) = $11,568.
- Net Annual Income: $14,400 - $11,568 = $2,832.
2. Scaling the Investment:
- Multiple Properties: Using $100,000 extracted from the inherited property, purchase 3 properties.
- Total Value: $450,000.
- Total Down Payment: $90,000.
- Total Monthly Rental Income: $3,600.
- Total Annual Rental Income: $3,600 * 12 = $43,200.
- Total Annual Costs: $11,568 * 3 = $34,704.
- Net Annual Income: $43,200 - $34,704 = $8,496.
Time Needed:
- Initial Setup: 1-3 months to research, select properties, and complete purchases.
- Ongoing Management: Minimal, as the turnkey provider handles day-to-day operations.
Risks:
- Dependence on Provider: Quality and reliability of the turnkey provider can impact investment performance.
- Market Risks: Property values and rental demand can fluctuate.
- Maintenance Costs: Unexpected repairs can affect cash flow.
Useful Resources:
By leveraging the equity from your inherited property, you can invest in multiple turnkey properties, providing a diversified and passive income stream. This strategy minimizes your involvement while allowing you to benefit from rental income and potential property appreciation.