Epic Real Estate Investing - Can Turnkey Properties Become Short Term Rentals? | 1122

Episode Date: February 9, 2021

Last week, Mercedes participated in virtual women summit and had a chance to hear a story about a turnkey property that serves as a short term rental! Even though she does not support this kind of real estate investing strategy, our Turnkey Girl decided to open-mindedly embrace it! Therefore, in today’s episode, Mercedes shares key facts that will help you decide if YOU should treat YOUR turnkey property as a vacation rental. Tune in and find out more! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing show for Turnkey Tuesdays with your host, Mercedes-Torres. Hello and welcome, welcome to Turnkey Tuesdays brought to you by Epic Real Estate Investing. My name is Mercedes-Torres, your turnkey girl. And I help busy professionals create passive income through real estate investing so they can retire even sooner.

I created this show specifically to share tips and real life real estate experiences so that you two can apply these to your life and create passive income in your world. So if this is the first time that you're joining us, so glad you found us. If this is not your first time and you listen to us on a weekly basis, welcome back. So, I was asked to speak at a virtual summit last week. I mean, everything nowadays has been virtual. And hopefully the world is opening up. But anyway, somebody asked me to speak at a virtual woman summit. And it was amazing.

And I heard someone share their experience with a turnkey. property that they purchase that they made a vacation rental. Or some people call it a short-term rental. I mean, I consider myself to be, you know, open-minded. I like to consider myself to be an open-minded investor. But generally speaking, I consider myself open-minded. But when my brain heard these two terms together, vacation rental and turnkey, I mean, I instantly can. I instantly can. kicked into, okay, that doesn't really mesh. But regardless, considering my open-mindedness, I try to embrace it. And then I broke it down. And I often say, just because you're a passive investor doesn't necessarily mean you're an inactive investor. And while a rental property hardly requires

your undivided attention, a short-term rental absolutely does. Hence my response of the two strategies not really meshing. Having said that, I want to share what my thought process was and why I've heard so many more stories about most turnkey properties don't really work as short. term investments. So first, I just kind of want to point out, a normal turnkey rental typically leases one year at a time. And sometimes you'll get a request for a longer lease, like a two-year to three-year lease, especially if it's someone that's like relocating, you know, to your, to your city where you have your rental. And while the term of the rental is, completely up to you. I personally like one-year leases regardless because I like to increase the rent

every year. And despite the fact that I only do one-year leases, my typical tenant will stay an average of almost four years with minimal service calls. Now, at the end of the day, you absolutely want that for a turnkey rental because if your tenant stays longer, that ultimately for you means more money in your pocket. I mean, it's a bigger ROI because there's less turn and there's less maintenance. Now, on the flip side, a short-term rental is exactly that. Short-term meaning at every turnaround or every time your renter, aka vacationer leaves, you have to service the property to get it ready for the next renter. And sure, you can find someone to do all that for you,

but do you really want to have to oversee that process every few days? I mean, I guess it's a matter of perspective. I just think that the reason you're buying a turnkey property to begin with is so you don't have to deal with the ins and outs on a frequent basis. I mean, you want cash flow and the benefits from the tax deduction that a passive income property provides you, but you don't want to have to deal with it every week, right? I mean, think about it. Let's talk about just the basic thing of the curb appeal of the property. Like handling the lawn. Handling the lawn on a short-term rental, I mean, unlike a long-term rental property where the tenant has to maintain the lawn,

in this case, you have to maintain the law. And the list goes on and on because at the end of the day, the aesthetics of the short-term rental is what really makes a difference. And it makes a different all the way around. And sure, you can take pictures of the property looking amazing when you first get it done, but the reality is the history of a short-term rental lingers. And I'll talk about that in just a moment. So here's the reality of it.

For the most part, a turnkey property is generally designed to bring in a long-term tenant for cash flow. A vacation rental on the flip side, while it is also designed to be profitable, the different lies in the two passive income models. So at the end of the day, it lies in the actual product itself. The product at the end of the day is the turnkey property. And that brings me to my second point. Your typical turnkey rental is designed to have the asset perform for a long time,

hence creating that cash flow with minimal interaction. And that's what most turnkey properties look for. They look to create a product that's going to produce a long-term return with minimal interaction. This is where my one-year lease comes in. Most turnkey rental properties focus on the property being in a family-friendly neighborhood. Well, why? Because you want to rent your turnkey rental property to families that want to stay for a long time. So generally speaking, turnkey providers provide properties in areas where there are good schools, where there's local shopping centers around like your local grocery store, your Walgreens or your CVS, your Target,

where there's churches nearby and parts nearby. On the flip side, a vacation rental is focusing more on providing a comfortable, oftentimes a luxurious environment offering a vacation feel because, after all, short-term rentals are known as vacation rentals. And while this rental could be centrally located, short-term rentals are more conducive if they're located in more touristy areas, if you will. So properties close to a beach or closer to a theme park or maybe a metropolitan area, a sports arena, or a concert venue, purposely designed for somebody to enjoy it for three to four days on average

and then get up and go back home. So at the end of the day, you've heard the term location, location location, this certainly applies. And finally, the other thing to consider is, with a vacation rental, you have to focus on the fact that you have to find a tenant constantly. Because if you don't have a tenant, aka a vacation her, you aren't making any money. And the whole reason you purchase this investment was to create passive income. in your world. Well, if you're depending on a turnkey to find and purchase a property, chances are you like the ease of it. A short-term vacation rental is not easy. Not to mention,

with a short-term rental, you'll need services like towels and linen and landscaping. And then, in addition to needing all of the products itself, like the towels and linens and plates and utensils, you're going to need somebody to service them. So you're going to need somebody to clean up the pile of dishes that were left behind after your tenants spent a whole five to seven days at your house and left a hot mess. You're going to need somebody to wash the towels, to change the sheets, to clean up the linens, and to service that all up before you offer this to your next short-term tenant. Finally, with a turnkey rental, let me preface that by saying turnkey done the right way. Well, it generally comes with property management. Meaning, management is everything. A property manager, I often say it's the backbone of your rental. It doesn't matter how cute your property is. At the end of the day, if your property manager can't get your property to perform, then your asset is pointless.

So their job, property management truly can make or break your rental. So they have to find the tenants. They need to screen the tenant. They need to make sure that your tenant qualifies for being able to afford the rents. Then they place the tenant. And then when the tenant leaves after they've been there for one, two, three, or four years, then they have to get the property to be rent ready for your next tenant. That's a lot. Think about that. With a short-term rental, there's even more to that because the management company of this short-term vacation rental, they're not only responsible for booking your guest, which is a constant turnaround.

They're responsible for the ads, for making sure that they're screening your vacationers, for making sure that when the tenant leaves, short-term tenant leaves. the management company has to do a physical walkthrough and pay attention to little details like the shower curtains, the kitchen utensils, the garage remote controls. It's all the little things that add up. They need to make sure that they didn't walk out with the beautiful picture frame that you had on the wall. They need to ensure that your bathroom has all the toilet trees that were originally there when they rented it for the first time. then they have to hold the tenant responsible for any damages. So if someone ripped off your shower curtain, then you need to make sure that that shower curtain gets replaced,

but more importantly, you need to build the tenant, the previous tenant that ripped off the shower curtain. There is where it gets hairy because it's those little things that add up that become your nightmare. Not to mention short-term rentals depend on reviews and ratings. And the last thing you want, the very last thing you want, is a bad review. You absolutely, as a consumer, looking for a short-term rental, do not want to read a bad review about the place was not tidy, or there were holes on the wall because somebody stole that beautiful

painting that you had up there. Or the linen smelled. The towels wouldn't clean. The kitchen was clogged. You should not ever encounter that kind of a review. And at the end of the day, short-term rentals bank on reviews. So be mindful. Bottom line, when you're buying a turnkey property, really think about this. Think about what the goal was for the turnkey provider when making this product for you. Was it a short-term rental goal? Or was it truly a turn-key company that's providing you a long-term rental? Chances are the turn-key company created this property with a long-term tenant in mind because the reality is if you keep a tenant an average of three years within a short,

period of time, you will make your money back. My friend, that's it for today. I truly hope this information was helpful. And if there is anything that we can do to help you make a decision on your next turnkey rental, we are here for you. Feel free to go to cashflow savvy.com, download the frustrated investors guide to passive income. And more importantly, if you found this episode helpful, or thought of a friend that might benefit from listening to this information I would love for you to share. And more importantly, leave us a review. That's it for today, my friend. I hope you have an epic day where cash flow is king.

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