Benefits And Risks Of Turnkey Real Estate Investing

Turnkey Real Estate Investing

Turnkey Real Estate Investing

When I was first debating whether to become an active or passive real estate investor, single family homes seemed the logical choice to start with if I chose the active route.

Another reason was I thought focusing on fully renovated local property (vs long distance property) would put me at ease as I could ride by and check on it anytime I felt like it.

But after hearing horror stories of what other active investors had to deal with regarding their tenant’s problems (at all hours of the night), I decided against it. It seemed that being a landlord would cut into my time I want to spend with family and friends.

But one thing that piqued my curiosity while doing research was the concept of turnkey real estate investing.

I’d heard of turnkey businesses before but wondered if this was similar.

Let’s find out….

What Is A Turnkey Rental Property?

One of the reasons I decided to look into turnkey properties was the “turnkey” part of the equation. In most of the research I’d performed, all that needed to be done to start raking in passive income was basically “turn the key” and get going.

One characteristic that seemed attractive was the fact that these properties didn’t have to be in the local real estate market. This is especially nice for those living in areas such as the North East and on the West Coast where real estate prices are typically sky high.

A turnkey property is property that you’re not that involved in. It doesn’t require much if any rehab (unlike using the BRRRR strategy), and is usually move in ready with tenants already in place producing cash flow.

This sounds great for someone wanting to grow passive income and take a “hands off” approach.

What Is Turnkey Real Estate Investing?

Turnkey real estate investing is simply a strategy of earning passive income investing in turnkey property. There are hundreds of companies out there that find undervalued property in strong rental markets and renovate them to sell as “move-in” ready for investors.

The majority of these turnkey real estate companies provide other services as well such as all management services, marketing the property to keep it rented out, and addressing all maintenance issues. If they can’t handle the properties in-house, they’ll do their due diligence and find a good property management company that will.

Benefits Of Turnkey Properties

More opportunities

Depending on where you live, there could be a limited inventory of rental property in your local market. But with turnkey real estate investing, there’s a much larger supply to choose from.

This is especially good news for people living in expensive areas of the country like my good friend (and periodontist) in CT. If he decides on purchasing rental property, he’d be able to get more bang for his buck by going with something in a cheaper part of the country, like Louisiana!

Move in ready

Most turnkey property companies rehab their real estate getting them move-in ready for tenants. This also removes the investor from having to oversee the repairs and making sure the renovation process is going smoothly. Who wants to deal with that?

Landlord free

One of the main reasons myself and other passive investors invest the way we do is to forgo the headaches of day to day management of property. The turnkey real estate company can manage the property for you unless you choose to go with someone else. Either way, you’re avoiding the daily landlording activities.

Guarantees

Occasionally, turnkey companies such as Roofstock, include guarantees.

Here’s their 30-day guarantee from their website:

Also, if it fails to sell within 90 days, they buy it from you themselves.

Here’s their Guaranteed rent guarantee from their website:

Tax benefits

The longer you hold a property, the more long term equity is being built which causes it to increase in appreciation. This can then be used to leverage the purchase of future property.

Once you sell, you can take advantage of a powerful wealth building tool that will allow you to defer capital gains called a 1031 exchange.

Cash flow

The main reason to invest in real estate is cash flow, right? If the property is not cash flowing, you’re NOT making money.

Risks Of Turnkey Properties

Lower rates of returns

Seasoned real estate investors pride themselves on finding good deals that can be rehabbed to allow it to appreciate in value.

Unfortunately, when you invest in turnkey property, the updating has already taken place which typically doesn’t allow the investor to benefit from selling at top dollar.

Also, investors pay a premium for companies to do most of the legwork for them in exchange for a favorable return on their investment.

As with most things in life, convenience comes at a cost.

Buying site unseen

Whenever I’ve invested in property online such as via crowdfunding, it’s always been without me getting to really see what the property looks like.

Most of the time this works out pretty good, but sometimes it can come back and bite you on the rear such as what happened to me with an apartment complex in Tulsa, OK.

Putting trust with others

As with any type of passive real estate investing, you’re putting your trust into the management company’s hands. In order for you to obtain a good ROI, they have to make sure they’re attracting and retaining the right kind of tenant all while keeping the property in great condition.

Is Turnkey Real Estate Investing Right for You?

If you want to take advantage of markets outside of your area and earn rental income in a passive manner then turnkey investing maybe right for you.

Even though you’re allowing a company to do the heavy lifting for you, investors should still conduct their own research and analysis to ensure that the rental market promises strong returns, as well as fully vet that the company of their selection is fully trustworthy.

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One comment

  • I’ve bought a lot of turnkey properties and have property managers for all my properties. I typically even get 1-yr warranties for repairs.
    However, no matter what you do and what guarantees you get the first and second year of ownership won’t be very profitable.

    Year 3+ though. That’s where the money shows up!

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