Selling a turnkey rental demands a strategic pricing approach that considers:

• Appraised value

• Cash flow potential

• The 1% rule (monthly rent = at least 1% of purchase price)

• Cap rate analysis

• Current interest rates

In a high-interest rate environment, pricing becomes even more critical, as buyers evaluate affordability and return on investment (ROI).

The Condition of the Property Matters

Most turnkey buyers seek low-maintenance investments, ones they can step in to and cash flow on day one. If the property has been fully renovated and has a solid tenant payment history, it can command a higher price provided it cash flows to the buyer’s satisfaction. However, if major repairs (roof, HVAC, plumbing, etc.) are needed, these costs must be factored into the asking price. It’s unrealistic to expect full market value for a property that requires substantial capital expenditures.

If the inspection reveals necessary repairs, how will you accommodate the buyer?

Seller Concessions?

• Reduce the sale price to account for the repair costs.

• Complete the repairs before closing.

• Offer seller concessions to offset the buyer’s costs.

• No concessions. Take it or leave it.

Trying to sell an “as-is” property with needed capex at full market value is unlikely to attract offer prices you would accept. Similarly, setting a high asking price based on appraisal value alone—without considering market rent, cash flow and interest rates—will not work. Most buyers rely on financing, and their lenders have strict cash flow requirements.

Identifying the Ideal Buyer

Understanding your ideal buyer is key to setting a competitive price. Different investors will have different strategies.

• Long-term rental strategy – Keep the tenant and make repairs gradually over time.

• Deferred maintenance strategy – Make no repairs until the tenant vacates, leading to added costs and potential vacancies but higher rents and possibly greater appreciation.

• Value-add strategy – Terminate the lease, tenant vacates, renovate, and increase the rent to at or above market rate, depending on the level of renovations.

• Short-term rental conversion – Convert the property into an Airbnb or other short-term rental to even greater cash flow.

• Fix-and-flip strategy – Terminate the lease, tenant vacates, renovate, and resell for a profit.

Buyers will base their offers on one or more of the following criteria:

• BRRRR Strategy – After-repair value (ARV) minus 25%, accounting for repair costs.

• 1% Rule – Ensuring monthly rent equals at least 1% of the purchase price with 80% financing and provides adequate net income.

• DSCR (Debt Service Coverage Ratio) – Meeting a lender’s minimum DSCR requirement (often 1.2) with 80% financing.

• Cap Rate – Ensuring the cap rate meets their minimum threshold if purchasing all cash.

• Cash-on-Cash Return (COC) – Meeting a minimum COC return using 80% financing.

• Cash Flow Minimums – Achieving a required net income (e.g., at least $150 per month).

Your pricing strategy should align with the buyer type most likely to purchase your property at an optimal price.

With interest rates averaging 7.5%, pricing based purely on appraisal value may not work.

For example: A $150,000 property rented at $1,100/month will generate zero cash flow and fail to meet the lender’s minimum 1.2 DSCR requirement. To attract buyers, the price would need to be $134,000 or less to achieve the required DSCR and cash flow.

Three questions to consider:

• Are you willing to sell at a lower price to move the property?

• If you hold the property and make repairs later, will it still be able to sell it at or above your original asking price?

• Would investing additional capital in renovations ultimately yield the same profit as selling now at $134,000?

Pricing a turnkey rental property requires more than just listing at appraised value. Buyers must weigh property condition, repair costs, cash flow analysis, financing options, and the best exit strategy. By understanding your ideal buyer’s financial metrics and investment goals, you can create a pricing strategy that maximizes both interest and profitability while creating a win-win for both you and your buyer.

Need assistance or seeking to sell your turnkey property, let us help. Contact the guru@rei.school