How to Invest in Turnkey Vacation Rentals: A Guide
With the world still recovering from the fallout of the COVID-19 pandemic, it’s safe to say that our vacations look a little different than they used to. Many of us are just starting to feel safe enough to travel, but research suggests that 84% of Americans have trip plans for 2022. Even better, over half plan to travel at least once in the next three months.
In other words, the world of rental properties is set to make a major comeback—which is why now is a good time to invest in turnkey vacation rentals.
Not sure how to jump into this market before things start to take off? If you’re ready to earn more income with less work, here’s what you should know.
Understanding the Basics of Turnkey Vacation Rentals
First things first: what should you expect from the basic turnkey rental model?
There are many different kinds of turnkey rentals, including both long-term housing rentals as well as a host of commercial turnkey properties worth investing in. However, for our purposes in this article, we’ll be talking only about turnkey vacation rentals, which are single-family houses or duplexes that the owners rent out for vacations.
The word “turnkey” means that these properties are ready for tenants to move in, and that a property manager will take care of all repairs, tenant communication, and money collections.
As the investor, you’ll receive regular statements and a check for everything the property has earned after the payment of the mortgage and other expenses.
Now that you have a solid understanding of what a turnkey vacation property entails, let’s take a look at the steps to buying one of these investments.
Find Properties in the Right Market
It should come as no surprise that location matters when it comes to investing in a vacation property. After all, even the most upscale property will sit empty if it’s in a location no one wants to visit!
Do your research to find a location with popular attractions that attract a fair amount of tourists, and an area in which you’ll want to own property. Whenever possible, seek out a location that has high year-round tourism rates rather than areas that get sporadic tourists throughout the year. You’ll need to take seasonality and the climate into account as well for certain types of rentals, such as beach rentals.
It also helps to make sure that the market is landlord-friendly, with properties that have a good rent-to-value ratio. Don’t forget to consider the demographics and safety of the location, as well as its proximity to neighboring attractions.
If you’ll need to secure financing in advance of your purchase, now is a good time to begin.
Look for a lender who is licensed in the state in which you’ll be buying the property. If you plan to invest in multiple turnkey properties, especially across multiple states, it might be a good idea to research lenders that are licensed in all of these states. This can help you start building a relationship with the lender in question while relieving some of the research effort you’ll need to make during future purchases.
Find the Right Property and Provider
With financial backing and the ideal market to choose from, it’s time to find your property.
Search for turnkey rental providers in the area you’ve chosen, but be prepared to do your homework before making a decision. It’s crucial to check BBB ratings as well as online feedback and reviews before you decide to partner with a provider.
In addition, make sure to choose a provider that will transfer property ownership after they’ve gotten a tenant in place. This means you’ll start getting cash flow from the first day onward rather than waiting through any unexpected delays in finding a tenant.
As for the property itself, your decision will depend on your preferences and goals—though you’ll want to keep a few factors in mind:
- Look for an ROI of around 15% COC (cash on cash) returns
- Consider finding a property with multiple bedrooms and a high occupancy rate, as these tend to be more popular and easier to sell if you change your mind down the road
- Look for a property with updated features, plumbing, and appliances
- Make sure the purchase price is equal with a fair market value
- Check into the property management team to ensure that they’re reliable enough to meet your standards
Above all, make sure you’re not purchasing a property you feel emotionally invested in. Staying objective is the best way to ensure that you’re purchasing a property that will offer a great ROI down the road!
Get Second Opinions and Negotiate
Once you’ve decided on a property, it’s time to draw up a contract—though you’ll want to keep in mind that the purchase isn’t yet a sure thing.
Order an inspection of the property to ensure that there are no underlying issues that don’t appear on paper. This can help you avoid foundation issues, plumbing problems, and other potential nightmares that could rear their ugly heads after you’ve put money down.
Once this is finished, you’ll also want to order an appraisal, which can help you understand the value of the property.
With these second opinions in hand, it’s time to negotiate! Ask the turnkey provider to fix any issues that have come up, providing proof of repairs. At this point, you may even want to negotiate the price, depending on the outcome of the inspection and appraisal.
When you feel confident, it’s time to close on your new turnkey real estate. Congratulations!
Your New Investment Property Awaits
The right turnkey vacation rentals offer plenty of major benefits for an investor—including the fact that they’re making the most of a market that’s starting to spark back to life after the pandemic. If you’ve ever considered jumping on this investment bandwagon, now is the time to do your homework and find a property fast! With a little research, you can find a turnkey investment that will earn you a nice wad of cash for years to come.
Want to learn more about making the most of your finances? For more of the personal finance and investment tips you need to know, be sure to take a look at our other guides.