Are Turnkey Properties Overpriced?

There was a really great article I read a couple weeks about turnkey rentals and how most people assume they’re overpriced. The author did an excellent job of explaining that these properties are not, in fact, overpriced, but rather they’re offered at fair market value. She also talked about how most turnkey companies are not staffed by big skeezy jerks trying to cheat people.

This topic is something I find myself addressing fairly often as well, as turnkey providers like me are frequently - and unfairly - labeled as scam artists or swindlers. It’s unfortunate, because making this assumption without doing any research on its validity means one thing: lost opportunities for would-be investors.

Also, it kind of hurts my feelings when people think mean things about me.

So I’m going to explain in my own words today why turnkey is such a wonderful strategy for investors. Hopefully when you’re done reading, you’ll understand why our properties are priced the way they are, and you’ll realize two things 1) we’re not trying to screw people over, and 2) turnkey is an amazing vehicle for you to realize success.

Turnkey Pricing: An Explanation

Let me reiterate this: turnkey properties are not overpriced. They are priced at or around market value, and even though 9 times out of 10 this is completely fair and reasonable, it’s this detail that hangs so many people up. Many investors, new and veteran, think that the best way to make a profit on a property is to buy it way under market value, and then fix it up and enjoy that sweet appreciation. They’re not wrong; this IS a great way to turn a profit. However, they’re not always considering all the time/money/effort that goes into elevating said property to market value.

With turnkey, there is no time/money/effort. The work is already done. The property is already at market value; therefore, it’s listed for investors as such. In other words, you’re not missing out on some great deal just because you’re not buying well below market value and force-appreciating the property. You’re getting exactly what you pay for - a quality property at a fair price without having to put in a boatload of cash and time.

Appreciation vs. Cash Flow

There’s also the matter of appreciation vs. cash flow. Appreciation is how much a property increases in value over time. This can change based on market fluctuations, work you do to the property, and the passage of time itself. Cash flow, on the other hand, refers to revenue generated by the property, usually in the form of rent payments. Positive cash flow comes when your income from the property exceeds expenses.

It’s true that turnkey properties don’t leave much in the way of appreciation, at least right away. If you plan on holding on to the property for many years, then yes, you should see it appreciate. The big win with turnkey real estate comes in the form of cash flow. These properties are move-in ready, and therefore able to produce revenue immediately. SCORE.

Should You Pay Fair Market Value?

When deciding whether or not it’s worth it to pay market value for a property, three factors must be considered. One is your strategy. If your plan is to flip houses, then paying “full price” for a property is a bad idea, since you’ll also be spending money on repairs and/or upgrades. If you’re using a buy-and-hold strategy, however, paying market value can still result in a profitable outcome because the property should be cash-flowing and should appreciate as well.

The second deciding factor is how much involvement you want to have in your investment. Buying a turnkey property that’s move-in ready, under property management, and tenanted means your involvement is virtually nil. Once you sign the paperwork and take ownership, your job is more or less finished.

Finally, you need to ask yourself how much risk you’re willing to take on. Sure, you can buy a rundown house for $10,000 in an area where houses go for $50,000, but even after repairs, are you going to come out on top? It’s hard to say. Will you be able to rent it? Will you be able to sell it for more than what you’ve put into it? It’s a gamble. These below-market properties come with much more risk than a turnkey, where everything is done, tenants are there, and the numbers are proven. Basically, you know what you’re getting into before you buy.

Hopefully this has cleared up some of the misconceptions surrounding turnkey properties. They’re really not overpriced; they’re fairly priced. You’re getting what you pay for. And as for the bad rap that us providers get about being swindlers, we’re not. I won’t deny that there are a few bad seeds out there, but that can be said for any industry. Most of us are just regular people who are in the unique position of being able to connect investors with properties. We’re on your side, and we truly want to help you succeed through turnkey real estate.