A turnkey residential property is where a distressed home is purchased, renovated then leased to a tenant. There is a favorable net cash flow for the buyer and the buyer literally has nothing to do but collect the payments and pay bills like insurance and property taxes. The renting and collection of rent checks as well as any needed property maintenance is handled by a property manager.
There Three Primary Sources For Funds To Purchase and Renovate A Home:
1. Personal funds of the Real Estate Investment Firm (Project Partner)
2. Money from a funding partner or private money lender
3. Buyer funding – this means the buyer of renovated home with a paying tenant.
The following are the steps for a successful Buyer Funding solution. An escrow agent is used at all times during this process. Normally the escrow agent is the title company for the project partner (firm buying and renovating the distressed home).
1. A qualified buyer (buyer who has proof of fund to purchase a turnkey property) sends a deposit to reserve the next available property to the escrow agent.
2. When the Project Partner finds a home that meets the defined profit and cash flow criteria, the buyer wires the full amount of the final selling price to the escrow agent.
3. The escrow agent pays the seller of the distressed property the agreed upon price and titles the property in the name of the Project Partner’s Corporation.
4. The title company files a mortgage on behalf of the buyer for the full amount of the final selling price which is the same as the amount wired to escrow agent plus the initial deposit.
5. The escrow agent releases the agreed upon funds for the renovation to the corporate account of the Project Partner. Note there are at least two people in the Project Partner’s control system who verify renovation contract amounts, controls over paying contractors and accounting for all money.
6. When the renovations are complete and a tenant is secured for the property, the title company closes the sale for the final buyer at which point the title is transferred from the Project Partner (real estate investment firm) to the buyer.
The paperwork trail, finding the property, controlling renovation, property management system, finding buyers is outside the scope of this article.