When you’re seeking your next real estate investment, you inevitably come across many properties in need of serious TLC.
Let’s face it: After tallying up the cost, time, and effort that these fixer-uppers require, stepping through the door of a well-maintained home can feel like a breath of fresh air.
But while a turnkey home may be tempting because it requires less work, it’ll cost you more upfront.
Is a turnkey property worth the investment? Read on to find out.
What is Turnkey Real Estate?
What, exactly, is a turnkey real estate property? In a nutshell, a turnkey home is a property in which you can (literally) put a key in the lock, turn it, and move in.
Essentially, it’s a home that’s been recently and comprehensively renovated. For investors, this may also mean a property that’s already rented to tenants. But a word of caution — there is no standard for what is considered ‘turnkey’ so different people have different opinions.
Many home buyers gravitate toward turnkey properties, as they’re move-in ready. So do real estate investors who don’t have the time, skills, or interest in fixing up the home themselves.
For investors who seek a source of passive income, turnkey homes may fit the bill as they require less effort.
1. No Standard for Turnkey Properties
However, keep in mind that an “official” standard for turnkey real estate doesn’t exist… and that this type of investment isn’t as easy as it sounds. What you consider turnkey may be completely different from someone else’s idea, so always be sure to do your due diligence before purchasing a property.
All too often, uninformed investors assume that because a property is move-in ready, they don’t have to do much of 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 the rent checks flow in.
There may be some truth in this belief. After all, a turnkey home may allow you to make some money without putting in the time and effort to rehab the property. But in most cases, it’s not that simple.
Consider that a turnkey property may not actually be ready for that key. Sometimes, the property seller just slaps a fresh coat of paint on the walls to make a house appear renovated, then crosses their fingers and hopes an out-of-town investor will bite at the full-market price.
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.
2. Turnkey Properties Sometimes Generate Lower Income
A turnkey house will cost you more. A higher purchase price means less opportunity to make money. In fact, turnkey homes are one of the most expensive types of real estate you can invest in.
The seller will roll the cost of renovations into the price of the home, and you can’t blame them. In a high-value neighborhood or a seller’s market, that price will be even higher.
Just because a property is “turnkey” doesn’t mean it’s risk-free. A natural disaster could strike, the market could take a downturn, or property taxes could go through the roof.
Worse, the house could have a lot more damage than you suspect… and then you’re out the purchase price and the cost of repair.
More importantly, you lose the opportunity to manage the work yourself and save money.
3. Turnkey Properties Offer Less Freedom to Customize
You also lose control of the project when you purchase turnkey real estate. If all the work is done, you can’t make the changes you’d like to see. The work may not be done right, or it may not be done to your specific standards.
In such cases, you’ll end up making more changes to the property anyway. This further mitigates your return on investment.
4. You Shouldn’t Always Trust Turnkey Real Estate Companies
Unfortunately, turnkey real estate companies can be, to put it gently, not exactly on the level. In some cases, a company will make a property look great on the surface.
But once you examine beneath the new countertops and flooring, you may find that no other updates were made. That means no new pipes, new wiring, and other structural issues that are more important than paint color or cabinet finishes.
Property management companies aren’t in business to help you make money. They’re making a profit off the property already, so why should they care about your investment?
(Pro tip: They don’t always care about your investment.) Is there still room for you to turn a profit?
In conclusion, turnkey real estate may sound like the ideal option for investors who want passive income. However, it’s a risky investment. In most cases, you’ll see a better return on investment by purchasing a less-expensive or distressed property and rehabbing it.
Most importantly, if you do decide to purchase a turnkey, consider finding it without the help of a turnkey company.
Instead, work with reputable professionals who will put their experience and expertise to work for you. New Western Acquisitions specializes in finding off-market properties for real estate investors – whether turnkey or not.