Rule of thumb for Turnkey vs. Non Turnkey CapEx Accrual

3 Replies

Hello,

I am evaluating turnkey vs. non-turnkey as an out of state investor. As I build out my model for ROI, do turnkey properties typically allow you to set aside a lower percentage CapEx / repair expense each month?

It looks like there is a premium that you pay for the convenience of turnkey, and I'm wondering if that premium is offset somewhere else over time.

Thanks,

Josh

Originally posted by @Josh Vernon :

Hello,

I am evaluating turnkey vs. non-turnkey as an out of state investor. As I build out my model for ROI, do turnkey properties typically allow you to set aside a lower percentage CapEx / repair expense each month?

It looks like there is a premium that you pay for the convenience of turnkey, and I'm wondering if that premium is offset somewhere else over time.

Thanks,

Josh

There really is no rule of thumb. Don't over complicate things or think a spreadsheet can run a property for you.

Just look at things objectively.

A roof is going to last 30 years. How old is the roof on the house your buying? If it's 20 years old your going to need to buy a new roof in about 10 years. A hot water tank lasts around 12 years, furnaces 25 or so etc...

It's not so much offset somewhere else over time (although it could be sometimes), but it's offset by the hours and stress you *don't* have to put into an investment.

This is an old article, but it hits some key points about where the offset really is-

https://www.biggerpockets.com/renewsblog/2013/02/1...

It's all about the value of your time (and sanity). For me, my time and sanity is worth way more than the monetary difference between turnkey and non-turnkey. But I also have no interest in rehabbing or finding teams on my own or negotiating deals, whereas a lot of people may. For them, non-turnkey is great. So it's all about where you fall on the spectrum of- what's more important? For me, it's time and fewer headaches so I've always gone turnkey.

But also too, within the spectrum of non-turnkey, there's a big difference between buying a total dump and rehabbing it and buying a rent-ready (or close to it) property that just isn't necessarily labeled turnkey. So, it's all about what you find.

In terms of CapEx specifically, turnkeys usually don't involve nearly as much CapEx (assuming you verified everything was new and working well during your inspection), but a nice property may not need much either depending on how new everything is.

My thought would be to just weigh out a few different options in both categories. Check out some turnkeys that look interesting and check out some non-turnkeys that look interesting. Compare the prices and projected returns versus how much needs to go into the property, and see how it starts to shake out when you compare the options.

@Josh Vernon As James as said there certainly is no rule of thumb.  That includes the fact that if you go the non-turnkey route that you will actually save money.  There are simply no guarantees that way.  It really comes all down to the team you work with and the level of comfort you have with the market, the neighborhood and the work done.

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