Value Add vs turn key or light cosmetic rehab

10 Replies

There are positives and negatives of both systems

Value Add

Positives:

1. Cheaper acquisition price

2. Greater ability to force appreciation.

3. You get to pick the maintenance that you do, and you know what major mechanicals issues if any could go wrong or have been fixed.

4. It gives you less risk or error because you know exactly what issues you have from rehabbing the place.

5. You get to pick your own tenants.

Negatives:

1. It takes longer to get your money back.

2. Rehabs can get costly.

3. If you are a beginning investor the process can be overwhelming.

Turn-Key or light cosmetic rehab:

Positives

1. Faster return on your money (tenants already in place or can get tenants quicker because of light or no rehab)

2. Easier for the part-time or out of state investor.

3. A good way to get started in real estate, to learn the ropes.

Negatives:

1. Less room to force value.

2. Unknown things that could be wrong.

3. Do not get to pick out your own tenants.


Everyone else feel free to chime out add, take out comment, want to see what other people have to say about this.

Originally posted by @Quentin Mitchell :

There are positives and negatives of both systems

Value Add

Positives:

1. Cheaper acquisition price

2. Greater ability to force appreciation.

3. You get to pick the maintenance that you do, and you know what major mechanicals issues if any could go wrong or have been fixed.

4. It gives you less risk or error because you know exactly what issues you have from rehabbing the place.

5. You get to pick your own tenants.

Negatives:

1. It takes longer to get your money back.

2. Rehabs can get costly.

3. If you are a beginning investor the process can be overwhelming.

Turn-Key or light cosmetic rehab:

Positives

1. Faster return on your money (tenants already in place or can get tenants quicker because of light or no rehab)

2. Easier for the part-time or out of state investor.

3. A good way to get started in real estate, to learn the ropes.

Negatives:

1. Less room to force value.

2. Unknown things that could be wrong.

3. Do not get to pick out your own tenants.

Everyone else feel free to chime out add, take out comment, want to see what other people have to say about this.

Hmmm, I don't see any numbers. The only way I make an informed decision is to know the numbers, something like this:

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

 

I think that it ultimately depends on your preferred lifestyle.

If you have extra time and can do a lot of the renovation work yourself then I would recommend house hacking or the brrrr method. (depending on your market) However, if you work a lot and don't have the extra time to be a project manager I would recommend turnkey. Basically... TIME = MONEY! I would always recommend someone to choose the option that will add value to their personal situation.

 Either way, you are getting starting investing in real estate!

Originally posted by @Mike M. :
Originally posted by @Quentin Mitchell:

There are positives and negatives of both systems

Value Add

Positives:

1. Cheaper acquisition price

2. Greater ability to force appreciation.

3. You get to pick the maintenance that you do, and you know what major mechanicals issues if any could go wrong or have been fixed.

4. It gives you less risk or error because you know exactly what issues you have from rehabbing the place.

5. You get to pick your own tenants.

Negatives:

1. It takes longer to get your money back.

2. Rehabs can get costly.

3. If you are a beginning investor the process can be overwhelming.

Turn-Key or light cosmetic rehab:

Positives

1. Faster return on your money (tenants already in place or can get tenants quicker because of light or no rehab)

2. Easier for the part-time or out of state investor.

3. A good way to get started in real estate, to learn the ropes.

Negatives:

1. Less room to force value.

2. Unknown things that could be wrong.

3. Do not get to pick out your own tenants.

Everyone else feel free to chime out add, take out comment, want to see what other people have to say about this.

Hmmm, I don't see any numbers. The only way I make an informed decision is to know the numbers, something like this:

I agree I was speaking in general every vaule add isn't always better than a turn key and vice versa just giving my opinon on the advantages and disadvantages of both. I would love to hear your take on both.

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

 

 

Originally posted by @Meghan Latenser :

I think that it ultimately depends on your preferred lifestyle.

If you have extra time and can do a lot of the renovation work yourself then I would recommend house hacking or the brrrr method. (depending on your market) However, if you work a lot and don't have the extra time to be a project manager I would recommend turnkey. Basically... TIME = MONEY! I would always recommend someone to choose the option that will add value to their personal situation.

 Either way, you are getting starting investing in real estate!

Can't argue with that I am not saying defintely one is better than another, just in my market in my opinion value add is better. 

 

@Quentin Mitchell I agree with your points but a major consideration with value add is that there is no guarantee of creating equity. There's an assumption that a turn key will cost more than a value add but the realty is that turn key companies have several cost advantages that the individual investor does not. Turn key companies generally buy further upstream at better prices. They get substantial discounts on materials and have better control over their labor costs. As long as a turn key company isn't selling above market value, it's not uncommon for and investor, especially with little experience, to pay as much for a value add deal as they would for a turn key while taking on a lot more risk.


If you need anything to just push you out of analysis paralysis then go with turnkey to get started. Light cosmetic rehab once you have a little bit experience with home ownership. Go with value add once you know the area and are confident with your assessment of property value and costs. Of course you need to consider the amount of time needed to accomplish different methods.

Originally posted by @Mike D'Arrigo :

@Quentin Mitchell I agree with your points but a major consideration with value add is that there is no guarantee of creating equity. There's an assumption that a turn key will cost more than a value add but the realty is that turn key companies have several cost advantages that the individual investor does not. Turn key companies generally buy further upstream at better prices. They get substantial discounts on materials and have better control over their labor costs. As long as a turn key company isn't selling above market value, it's not uncommon for and investor, especially with little experience, to pay as much for a value add deal as they would for a turn key while taking on a lot more risk.

Agreed Mark I stated that in my positives, maybe I didn't word it right but yes it defintely is easier entry for the novoice investor and minimizes risk if bought from a reputable company.

 

Originally posted by @Son D. :

If you need anything to just push you out of analysis paralysis then go with turnkey to get started. Light cosmetic rehab once you have a little bit experience with home ownership. Go with value add once you know the area and are confident with your assessment of property value and costs. Of course you need to consider the amount of time needed to accomplish different methods.

The start is key so I would agree, whatever gets you in the game go with that.

 

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