Turnkey in a rising rate environment...who gets screwed?

[Sam Mason]

Hi all

I am interested in TK as a way to invest in a 'hands-off' manner. I have done lots of research and it still just doesn't quite sit well with me. 

One issue I have: the companies price the properties based on expected rent and therefore your return. They then buy the properties wholesale or super cheap and rehab them. The difference between these two figures is their profit. As property prices have increased and as rates increase, however, they will still need to show investors similar PF returns to make them attractive. How does this occur / who is eating this cost?

- are they taking less of a margin (unlikely)?

- are they just buying in cheaper / worse areas (likely given most investors wouldn't really know the difference)?

- are they spending less on the rehab?

Who suffers when rates rise?