When you’re seeking your next real estate investment, beware that many properties will require a lot of work, even turnkey real estate. After tallying up the cost, time, and effort that these fixer-uppers require after you step through the door of a well maintained home can feel like a breath of fresh air.
Are turnkey homes worth the investment? Read on to find out. But while they may seem like a great deal, there are some downsides that you should consider before making this type of purchase.
Basics: Turnkey Real Estate “Definition”
What is a turnkey real estate property? Well, put simply, it’s an ideal home in which you can unlock the door and move right on in. Essentially, it’s a home that has recently and comprehensively been renovated. For investors, this may also mean the property is already rented to tenants. However, there isn’t any standard for what’s considered turnkey so different people have their own opinions on when something can be called “turnkey.”
A home ready for moving in is perfect to many buyers, but they should know that turnkey homes are also favored by real estate investors who don’t have the time or skillset to fix up a property. Some people seek these properties out because of their passive income benefits so it’s wise not only as an investment but you’ll be able to enjoy renting them too!
No Set Standard of “Turnkey”
Before you purchase a turnkey property, make sure to do your due diligence. This type of investment isn’t as easy as it sounds and what makes sense for one person may be completely different from someone else’s idea. Too many investors assume that because a property is move-in ready, they don’t have to do anything.
This type of buyer may pin their hopes on the false belief that because someone else has done the legwork – buying, repairing, renovating, renting and managing the property – all they have to do is sit back and watch rent checks flow in.
There may be some truth in this belief. After all, a turnkey home may allow you to make money without putting in the time and effort into rehabbing the property. But most cases are not that simple. A turnkey property might not be ready for you to move in. The seller could just paint the walls with a fresh coat of paint, hoping that an out-of-town investor will buy it at full price without looking inside first.
In other words, don’t fall for the marketing. Turnkey homes may look attractive but they come with cons too! Let’s look at some disadvantages of turnkey real estate investors will bite your wallet dry by selling you a home at full market price.
Turnkey Doesn’t Always Offer Good ROI
If you want to invest in turnkey homes, it is important that they are less expensive than other types of real estate. If the purchase price were higher, there would be fewer opportunities for gainful investment and this could result in financial loss instead of profit.
In a high-value neighborhood or seller’s market, the price will be even higher with renovations rolled in. You can’t blame them for that. Turnkey doesn’t mean risk-free. A natural disaster could strike, the market take a downturn or property taxes go through the roof – don’t get stuck with an asset you can’t liquidate quickly!
Imagine you buy a house and there is more damage than expected. You lose the purchase price of the home plus repair costs, but most importantly it allows for another opportunity to save on labor cost by doing work yourself!
When you purchase turnkey real estate, not only do you lose control of the project because it is already done for you, but if all the work was not done right or to your standards then that’s a problem too. Sometimes, you might need to make additional changes if the client is not satisfied with the property. This further reduces your ROI.
Turnkey Real Estate Companies Aren’t 100% Reliable
Unfortunately, turnkey real estate companies can be not exactly on the level. In some cases a company will make a property look great from the surface. However, when you look beneath the new countertops and flooring in your customized kitchen design, they may reveal that no other updates were made.
In fact, this means there are still old pipes underneath along with wiring from years ago–issues which should be taken care of before any superficial changes to a room take place. Property management companies aren’t in business to help you make money. They are actually making a profit off the property already so why should they care about your investment?
Turnkey real estate is a great option for passive income, but it’s also risky. For better returns on investment, you’re likely to see more success by picking up cheaper or distressed property and rehabbing it.
Florida Property Warehouse is a turnkey company that can help you with your real estate investing decisions. You do not need to use their services but they recommend finding reliable professionals who will put their expertise and experience into practice for you when buying property without the assistance of Florida Property Warehouse.