Are Turnkey Properties a Good Investment?
If you’ve ever thought about investing in real estate, chances are you’ve heard of a turnkey property. Turnkey properties are popular among investors and real estate firms. Many firms even specialize in turnkey properties. While turnkey properties have many advantages, they also carry unique risks. How do you decide if turnkey properties are a good investment?
As with any potential investment, it’s important to do your homework. Learn why some experts believe turnkey properties are a good investment, while others advise against them. Understand the potential risks associated with turnkey properties as well as the perceived benefits. If you decide to pursue a turnkey property investment, it may also help to enlist the services of a real estate agent who specializes in these properties.
Here’s some basic information about turnkey properties that can help you make a more informed investment decision.
Definition Of A Turnkey Property
First, it’s important to know the definition of a turnkey property and understand how these properties differ from other real estate investments. A turnkey property is usually defined as any multi-unit house, apartment building, or other property that has been fully renovated and is ready for immediate occupancy.
Unlike other types of property, turnkey properties don’t need construction or repairs. It’s also common for turnkey properties to include standard apartment fixtures such as refrigerators and stoves. Additionally, they are likely to have proper landscaping and fully upgraded facilities, such as entry gates or intercoms.
With a turnkey property, you can begin generating rental income as soon as you purchase it. There’s no need to wait for construction projects or city approval. Once the key is “turned over” to you, you can begin renting to tenants right away.
Pros And Cons Of Turnkey Properties
Once you’ve learned more about turnkey properties and researched them in your area, it’s time to weigh the pros and cons. There’s no such thing as a perfect, risk-free investment. However, understanding the pros and cons of a turnkey property can help you make a more informed decision with your money.
PRO: Little to No Renovations or Construction
As mentioned in the definition of a turnkey property, one of the main reasons why turnkey properties are a good investment is that there’s no virtually no work that needs to be done on the property. Turnkey properties have already been renovated and upgraded by the previous owner. You don’t need to hire contractors and deal with months of construction. Simply purchase the property and you’re ready to start renting.
CON: No Guarantees About Previous Construction Work
Because you weren’t involved with any of the previous construction work, you can’t guarantee its quality. There’s no way to know if the previous owner hired the lowest bid to cut corners. Construction may have been rushed and the materials that were used may have been lower in quality than you would have preferred. If you purchase a turnkey property that wasn’t properly upgraded, you may experience problems that still need major repairs after only a few months.
PRO: Begin Generating Rental Income Immediately
When you purchase a “fixer-upper” property, it may be months or even years before you can begin renting it out and generating a return on your investment. With a turnkey property, you’ll begin making income immediately. This is because turnkey properties can be occupied right away and many even come with existing tenants who were approved by the previous owner. There’s no need to wait before your property gives you income.
CON: Financing Your Investment Can Be More Difficult
Because they’ve been upgraded to be “rental ready,” turnkey properties tend to be more expensive than other properties of a similar size and location. As a result, this can make it more difficult to finance these investments. Purchasing a turnkey property also means that you’re paying for the seller’s profit margin; you’re not making any money off the original investment.
PRO: May Include Existing Tenants
Depending on where your property is located, finding tenants can be a long, difficult process. You need to advertise the property, show it, and process rental applications. The longer you wait to find the right tenant, the longer you wait to begin earning money from your property. With a turnkey property, it’s not uncommon to “inherit” existing tenants from the previous owner. This means you may begin earning rental income immediately.
CON: Existing Tenants May Be Difficult
However, existing tenants are “unknown.” Since you didn’t process their rental applications, you have no way of knowing whether they’re reliable renters. They may also have an existing lease agreement with provisions you wouldn’t normally include. While attracting tenants can be a long process, removing an existing tenant is even more difficult. If you inherit tenants who routinely create problems and you can’t remove them right away, it may not be worth the immediate income.
PRO: Easier to Manage at a Distance
If you want to invest in property in a region farther from home, turnkey properties can be a great investment. These types of properties are much easier to manage at a distance because they require less day-to-day building maintenance. You don’t need to be on-site on a regular basis to monitor construction or repairs. Many turnkey properties also come with property managers as well as handymen, landscapers, and other service providers on retainers.
CON: Less Opportunity to Be Creative
Some real estate investors love the opportunity to be creative with a property. Purchasing a property that needs work is the perfect time to apply what you’ve learned from all those hours watching HGTV. If you love the idea of rehabbing a property as your hobby, a turnkey property likely isn’t a great choice for you. Because renovations and upgrades have already been done by the previous owner or a real estate firm, there’s less room for you to make creative decisions about construction.
Are Turnkey Properties a Good Investment?
For the right person, turnkey properties can be a good investment despite the risks. If you or someone you know is acquiring a turnkey property, make sure you have the best software available to help you manage it. Click here to try a free CINC Systems demo.
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