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The Advantages and Disadvantages of Buying a Turnkey Property

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The Advantages and Disadvantages of Buying a Turnkey Property
4 min. read

Image: Photographee.eu / Shutterstock.com

When it comes to investment opportunities, turnkey properties may seem like a sure-fire way to see quick returns. They are houses or apartments that have been renovated, ready to move in, often already rented, and typically managed by a turnkey real estate company. But are they a safer bet than buying a distressed property and turning it around yourself? Read on to find out.

Advantages

The main advantages of turnkey properties arise from the fact that they are represented by a managing company.

Convenience

Turnkey properties have already been repaired and renovated, which saves you a lot of time, especially if you’re an investor targeting distressed properties by default. In addition to rehabbing the property, you no longer have to spend time prospecting the market, or with appraisals, contractors, titles, and finding tenants. Not only that, but, for an extra fee, the management company will also be there to deal with any tenant complaints and requests, which only adds to the hassle-free nature of such rentals.

Instant Passive Cash Flow

Most turnkey properties will already have a tenant in place, which saves you a lot of leg work when it comes to posting the listing, holding viewings, as well as tenant screening. Even if there isn’t a tenant renting already, the management company will also take responsibility for finding one for you. With a tenant already sorted, this means that you can start seeing a potential return on your investment as soon as you’ve signed the contract.

Easier to Expand Your Out-of-State Portfolio

Turnkey properties are a great way for investors to branch out into other areas of the country, without having to spend time travelling to auctions, supervising repairs, finding tenants, and so on. This has already been handled by the turnkey company, which means you just have to browse their portfolios and find a suitable addition to your own. Listings are available in hundreds of areas across the US, and it’s easy to handle them remotely via the managing company. In fact, diversifying your portfolio with turnkeys also provides an excellent safety net, in case some areas depreciate in value over time, or they are struck by natural disasters.

Easy to Manage

Once you buy a turnkey property, it’s up to you whether you keep the property management company working for you or you go down the self-managing route. Choosing to keep working with the company will further save you time in terms of both having someone maintain the property and handle tenants, yet it’s good to bear in mind that there will be additional monthly fees to contend with.

Disadvantages

While having a property management company in place is one of the main selling points for turnkey properties, it can also be the source of most of their drawbacks. Here’s how:

Less Income

The caveat with turnkey companies is that they save you a lot of hassle, yet they do so for a fee. It’s true that they can save you money on renovations and repairs, especially since they collaborate with their own contractors and can negotiate lower prices. Yet when you crunch the numbers, you may discover that the fees can considerably detract from your potential monthly earnings if you continue working with them. One way to mitigate this is by having a large portfolio of turnkey properties. However, this may not be feasible if you’re only just starting out.

No Control Over Tenant Screening

Having a tenant already renting your property is a perk of turnkeys, yet it’s good to bear in mind that while the tenant was pre-approved by the management company, they might not be to your liking. Some turnkey companies may even discard tenant screening altogether, while also charging you the tenant placement fees.

This can complicate matters further, especially if your tenant damages or abandons the property. If you’ve decided to keep working with the management company, you risk being charged additional maintenance and tenant placement fees, but if you’re self-managing, you can find yourself back to square one in a couple of months’ time, having to both renovate, and look for new tenants.

More Expensive

Turnkey properties can often be more expensive than other real estate investments. The refurbishment costs will be added to the price of the property, followed by any additional fees the managing company has in place. In some cases, these costs can mount up to exceed the value of the property itself. Also, if the property is an older house that requires constant upkeep, this can pack hidden costs that will only detract from your investment over time.

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