Landlording & Rental Properties

Turnkey Rentals vs. “DIY” Real Estate: Which Is the Better Investment?

Expertise: Business Management, Landlording & Rental Properties, Real Estate News & Commentary, Real Estate Marketing, Personal Development, Real Estate Investing Basics
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An entire vast market in turnkey rental properties has sprung up, basically ventures that specialize in taking a broken house, fixing it up, getting a tenant in it, and then putting it up for sale the moment they've got a few months' income in a row so they can advertise it as a proven moneymaker.

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On the one hand, it can be a pretty decent decision to invest in a turnkey rental property because you get to skip to the good bit: the profit. On the other hand, there are several good reasons why you might want to DIY and start at the beginning and work your way to the profit-making stage on your own.

The Argument for Turn-Key Rental Properties

First, let's define "turnkey rentals." There are some companies who advertise "turnkey rental" properties as houses that have been fixed up and are ready to rent. That's not good enough. A turnkey rental property is one that has been fixed up and is being rented. It may or may not have property management already attached to it, but it is at the minimum being overseen by the current owners and hasn’t had any meaningful problems in the last few months.

The argument in favor of buying these properties comes in four parts:

It’s Easier

When some other company goes to the work of deciding which of the thousands of relevant properties is going to be able to be profitable—arranging and overseeing its rehabilitation, marketing for and signing a tenant, and (usually) hiring a property manager—it's not hard to take over from there. In the ideal situation, you sign some papers, tour the property, shake hands with the PM, and start collecting rent. Piece of cake!

It’s Faster

All that work isn’t just work, it’s long work. It’s not uncommon for a DIY investor to spend two months researching, one month purchasing, three months renovating, a month advertising, and finally you get to collect your first month’s rent. Eight months later. That’s a huge amount of time to wait to become cash-flow positive!

Related: Turnkey Real Estate Investing: Can You Really Have Your Cake and Eat It Too?

Less Risk

You may go the DIY route and put in all time and effort in developing a property, only to find in the end that you made one or more critical errors: picked the wrong location, picked the wrong property, overspent on the purchase price, overspent on the renovating, overestimated the rental market in price and/or demand. Any of these errors may lead to you losing money instead of making money.

A Matter of Diversifying

When you're comfortable picking and buying turn-key properties, you can insulate yourself from localized shocks to real estate markets by purchasing properties in a number of widely-varying locations.

The Argument for Going DIY & Doing It the Hard Way

There’s a good reason for the phrase, “Nothing worthwhile ever came easy.” So let’s dial back our perspective a little bit and talk about why you’re investing in real estate at all. The reasons to choose real estate over stocks (for example) are fairly well-established:


The ability take out a loan (mortgage) and thus invest someone else's money to turn your own profit. So long as you make a greater return than your mortgage's interest rate, you're winning this game—and you can do that by purchasing properties below their market value and then cranking up the value with a bit of rehab.


Real estate isn’t as volatile as the stock market—if there’s a big shift coming, it’s not that difficult to get ahead of it, and even if you can’t, it’s a lot less difficult to ride it out and sell once things are on the rise again.


When you buy a property, you are in control of that property. You can have it renovated to your specifications. You can set your level of rent. You can choose the property manager you feel most comfortable with. Heck, you can even choose the neighborhood and building that you think has the best chance of turning a profit.

Now ponder what happens to those great reasons for choosing real estate when you invest in a turnkey rental property. Leverage isn't going to happen, because you know full well that the turnkey company has already purchased well below market price and is selling it to you at very close to full value—so they're milking that cow before you get your hands on it. Control? You don't have it! Once you buy it, sure, you could decide the current PM is awful and the home needs new work, but at that point, you've lost all of the advantages of a turnkey in the first place.

There are other potential pitfalls with turnkey rentals that boil down to you not doing the proper research and buying on hype. Here are some of the issues we’ve encountered when taking over management of properties for owners that purchased them from turnkey rental sellers:

Location Issues

Just because someone is advertising that a property is in a great location doesn’t make it true. We’ve seen many investors buy properties in terrible areas based solely on hype. Don’t rely on the company or person you’re buying the property from! Even if they are ethical, they are naturally biased. Hire an independent third party to evaluate the location and neighborhood.

Renovation Issues

Unfortunately, there have been several occasions where we’ve discovered that a turnkey rental was poorly renovated. Often major maintenance issues were deliberately hidden. The owners were of course very unhappy about our news, and several tried to pursue the turnkey selling company for reimbursement, with zero luck. Hire an independent third party to professionally inspect a property before buying it. And don’t take a referral from the seller, as they may be in cahoots with the seller.

Related: Turnkey Real Estate: What Does It Offer, And Is It Right For You?

Tenant Issues

Lastly, we’ve found that the quality of tenants in the turnkey rentals we’ve taken over management of is well below average. Many we ended up evicting for nonpayment shortly after taking over management. So, just because a property is advertised with a “paying tenant” doesn’t make it so. Rent ledgers and receipts can be easily faked. Ask for copies of rent payment checks and money orders, and if they’re not available, ask for bank deposit records accompanied by deposit descriptions (if deposits have co-mingled rent payments).

So in short, while turnkey property investment has some distinct advantages—and you shouldn’t ever discard the idea of buying a turnkey property out-of-hand—you should make sure that you understand why a turnkey is what you want and thoroughly investigate. Turnkeys might feel like a “genuine” real estate investment, but in many ways, the “turnkey-ness” itself could be robbing you of the biggest reasons to get into real estate in the first place!

If you’re already saddled with a turnkey that isn’t living up to its potential, remember the central truth about residential property investment: It’s better to have good management of a bad property than vice versa. Switching to a serious PM is the first step toward saving many a bad turnkey investment.

Would you rather invest in turnkey real estate or do the work yourself? Why?

Let me know with a comment!

While in the mortgage business, Drew rose to a VP position at the first broker he worked for and then started his own company. In the pursuit of excellence, he obtained several mortgage designation...
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    Chris Clothier Rental Property Investor from memphis, TN
    Replied about 5 years ago
    Hey Drew, Thanks for writing this article this week. You’ve done a nice job of trying to lay out some advantages/disadvantages, but I wanted to throw out some thoughts on the article. You listed leverage as an advantage for DIY. Leverage can be used and most often is used by investors no matter how they purchase property. Whether DIY or turnkey. However, a huge disadvantage for DIY investors wanting to leverage their entire project is finding a bank that will fund purchase plus renovation. In truth, that will be impossible for nearly every investor reading this article. Only seasoned investors with established bank relationships and a history of success are going to find a construction loan enabling them to leverage their purchase plus rehab and even then it will be considerably less than they could leverage on a completed home they buy turnkey. Your other issues with the exception of control are also inherent to all real estate including DIY. Control I think is the best argument you make for an investor not purchasing Turnkey. That is the biggest factor, in my opinion, when investors get frustrated with their turnkey investments. They wanted to be in control, should have chosen the harder DIY route, instead chose the Turnkey route for many of the reasons you listed only to find that they are not built to give up control of their investment. So many cable tv shows have convinced investors that it is easy and they are enamored with what they see on TV and want to do the same. As you can attest, real life investing and especially when it comes to management and long-term buy and hold are very different from reality tv. Again, thanks for writing your article this week!
    Mark Adams
    Replied about 5 years ago
    This may be a good resource for you.
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied about 5 years ago
    My wife (a retired school teacher) and I have 30 SFRs 1/2 are more than 1 hr away and we no problems self managing. I believe the discussion of self manage vs PM vs turn key contains many missed points. 1) the key to self management bliss starts with the location of your rental. If you buy the cheapest house in a top high school disctrict, THEN screen for younger children who’s parents say: I want my children to stay in the middle school then high school, and you screen for 2 incomes that total greater than 3x rent, preferably 4x rent, then you’ll likely never hear from those folks, assuming other standard screening steps. Like walking them out to their car and making sure their car is NEAT. I find that folks with trashed cars also have trashed credit and past rental history so denying based on your standards is usually easy. 2) Assuming the landlord is now following #1, and NOT buying “in the hood” where my mental math calculates that landlords actually don’t make the cap rate they think they are due to turn over, vacancy and repairs. You don’t need a PM unless you are traveling 6 mo of the year and even good rentals have leaks so someone needs to answer some phone nearly 24 x 7. I never get calls after 8 or if I do I’m glad I did. With 30 rentals, I might get a call ever 2-4 weeks with something minor that me txting a contractor solves. 3) Turn keys. IE some org has bought, rehabbed, and rented and is now PM’ing a property. You buy that property and get mailed checks (hopefully) via their PM function. There are many problems with turnkey. If all was perfect or even just “ok” turnkey would be a good choice for the traveling or distant or passive investor. But there’s many not ok issues in the turnkey market place. – It’s VERY difficult to filter all the turnkey shops out there for the honest ones. Meaning: the typical turnkey shop was set up to do: buy in the hood cheap, do a lipstick rehab, put the best renter that can be found due to the poor locations and marginal fix up. Then mark up 2x and take fuzzy pictures and offer to Australian or Chinese investors who don’t recognize the original bathrooms and kitchens in the pictures. Plus these buyers don’t realize that a $120k turnkey is really worth $80k tops, and will need ANOTHER complete rehab in a few years. – Renter turn over is high, turnover costs are high and actual cash flow to the investor is some fraction of what was touted (or imagined by a hopeful buyer). – Surprise needs for major fixes because the original rehab was not a 100% complete rehab but a lipstick patch work fix up. Paint and carpet, patch roofs, and limp along HVACs making for kitchen / bath rip out rehabs, roofs and new HVAC’s in the future now on the investor’s dime. Ok ok, I was pretty critical above. I agree. But the turnkey business model invites the problems I describe because many buyers never see the properties thus the turnkey companies slip into a sleazy way of running their business. It’s hard to sort the turnkey companies out as a result without talking to current owners of the company’s units and certainly doing your own comps to validate their asking prices. Maybe there’s BP forums for turnkey company comparison and discussion of true multi-year cap rate to the investor/buyer.
    Jay Hinrichs Real Estate Broker from Lake Oswego OR Summerlin, NV
    Replied about 5 years ago
    curt that’s what turn key reivews website does you can compare markets side by side just incase you have not popped on to see it. I agree there were those totally abusing the Aussie and GB buyers. especially those in Rochester and Detroit and other areas were they could buy 5k houses put little into them and sell them for 75k
    Wilson Churchill from Madison Heights, Michigan
    Replied about 5 years ago
    The biggest advantages of DIY are “instant equit and “sweat equity”. The buyer has control of the offer and can purchase at a discount. Equity can be increased further through repairs. Having more equity (less cash invested) allows for a shorter payback period and allows for more cash out at refinance. A cash out refinance above the purchase amount would probably not be possible if the property is purchased as a turnkey.
    Gloria Almendares from Kailua, Hawaii
    Replied about 5 years ago
    Hi Drew: Nice post, I agree with your assessment of “DYI vs Turnkey Investments” . My two cents worth of advice is that “it depends” on what the market will bear and on the cost of construction in your state. I live in Hawaii, and the cost of rehabs is almost prohibitive, unless you are a G/C or have a well established crew to do your rehabs. For example: I have condos on the beach, asking price $100K+, that presently have a 7% cap rate. This is very good for HI, because normally after a rehab you will be lucky to get a 5% cap rate. HI is not about the “cash flow”, it’ s all about “appreciation” (which is one of the highest in the nation, next to CO, WA and NV). You can probably save $20K if you DYI, however, the rehab work will be $20K+, and you will have at least a 3 mon. vacancy while you are doing the rehab and looking for a tenant. My condos already have a tenant in place, renting at $1,250/mo. This is a “win/win situation” for an investor, because you have the option of “self-managing” and save the costs of doing any rehab work, and save the time of looking for a quality tenant (already in place with a long term lease). This eliminates some of the “guess work” associated with buying rehabs and trying to figure out what you can rent them for. Where else can you buy a condo, on a gorgeous beach, for around $100K????? This is what I do, I’m a Broker and Realtor and most of my client base are “investors”. I know what an investor is looking for: “built-in equity” and high ROI’s. Gloria Almendares
    Nathan W. from Alexandria, Virginia
    Replied about 5 years ago
    There’s a whole lot in this article that doesn’t make a lick of sense. Chris Clothier pointed out one of the more egregious fallacies in here, in that buying turnkey doesn’t give you leverage. WUT? That is nonsense. Of course you can leverage a turnkey. The other point that nobody pointed out were these two conflicting statements: Turnkey Pro: “It’s not uncommon for a DIY investor to spend two months researching, one month purchasing, three months renovating, a month advertising, and finally you get to collect your first month’s rent. Eight months later. ” Turnkey Con: “Once you buy it, sure, you could decide the current PM is awful and the home needs new work, but at that point, you’ve lost all of the advantages of a turnkey in the first place.” So are we just ignoring the two months researching, one month purchasing, and month adversting here? And assuming that touch up work will require the original 3 months of renovation? This was not a very good article by any means.
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied about 5 years ago
    Nathan, Good point re the time spent by DIYer pre actually collecting rent. IE time is worth something. I admitted being quite sour on turnkey because of the problems I listed in the 2nd post at the top. So getting ones cash working 4-6 months sooner in a bad turnkey to me does not tip the scale to going the turnkey route… Unless one finds a good turnkey shop, a correctly priced deal etc etc AND you have no interest in DIY. A missed advantage of DIY is; you get your hands and brain dirty. After you’ve done your first deal, you are better prepared to do you 2nd, then 3rd. Buying turnkeys, unless you are a distant investor or really want to be hands off, you re little better prepared to launch your REI career than before buying the turnkey. In a perfect world, where the cap rate / cash on cash of a turn key is just a few percent less than same house done via DIY, why not go turnkey. Time is valuable and being on the beach is better than struggling with contractors and renters. I’d like to hear from investors who’ve bought turnkey’s and are very happy after a few years hold time?
    Bryan Otteson
    Replied about 5 years ago
    Hi Curt. While I disagree with much of your article, it gives one viewpoint among many. You seem to live in a good market for cheap buys with fixup potential. That’s a bonus. What if you didn’t? You have a 4-6 month repair window for your units. What if you spent that time doing your due diligence on a turnkey provider and the areas they operate in? Once you make that one-time investment, you can move as fast as financing allows because they can do something you will never be able to by working in your properties as a handyman: scale. You said “you get your hands and brain dirty” doing the DIY. I would prefer to get my hands dirty by running the business and growing my portfolio. Is DIY really getting your brain dirty? I’d say that learning a new market, figuring out an additional income stream, and networking with other successful investors is a better way to get my brain dirty rather than learn to caulk a smooth line or fix a leaky faucet. It’s all perspective. You are espousing the virtues of having a job while I am praising the virtues of running a business. I have done a little of each flavor investing: I did a live-in remodel, then rented it with management (moved overseas for 4 years). I bought a 3-plex that I self-manage where I am forcing myself to learn how to build a team rather than just be another laborer (harder than it sounds). I’ve also just bought a turn-key style property but have not been in that space long enough to have any numbers for you, but the projections are far better than I would find anywhere I can reasonably drive to. The real question is, how valuable is your time and how much of it do you have? That will be the deciding factor that really allows you to make the decision on your style.
    Jeb Brilliant Rental Property Investor from Long Beach, CA
    Replied about 5 years ago
    I think for passive investors or out of state investors Turnkey is wonderful. I spoke to Memphis Invest, Chris’s company and they seemed honest. I’ve read about them, talked to others about them and so on, I think they along with a few others like Steve Lawson and Mike D’Arigo have the most to lose from getting a bad reputation so they are much more likely to be straight shooters. I would have most likely gone Turnkey if I could have afforded it but I couldn’t so I built my own turnkey house. It took time but that was ok. Prior to finding the right house I put together a team on the ground in Indy. After I knew who I was going to use I found the right house and because of my preparation the house has been basically turnkey. I think this hybrid model is great but keep in mind I had to find and vet people to be able to build my Indianapolis team.
    Luka Milicevic Rental Property Investor from Nashville, TN
    Replied about 5 years ago
    I guess it does depend on your personal investing goals, and as with most things in real estate, there isn’t necessarily a right or wrong answer. I personally prefer the DIY route in my market, mostly because I only invest in properties that are within 1 hour driving distance which makes them easier to personally manage. One point that I strongly agree with are the “renovation issues”. If they focus effort and $ on cosmetic fixes and leave out structural type fixes such as plumbing etc, it will leave you with hidden issues and future expenses.
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied about 5 years ago
    I would invest in turn key real estate in other states and DIY with properties in my state/county. Like you mentioned with turn key properties, due diligence is required before investing on out of state properties.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied about 5 years ago
    I have rarely been impressed with the quality of turnkey rentals, be they rented or not. Indeed, most properties I’ve bought that are rented were usually not rented to people I would have rented to. That being said, there are plenty of exceptions and I have seen turnkey done right. But I would still lean toward doing the work ourselves.