Lessons Learned: Turnkey Rentals

[Victor Mora]

3 things I wish I knew before buying turnkey rentals:

1. “Passive” doesn’t mean no problems. The same risks are still present, you’re just outsourcing the work.
   
2. Property management can make or break the deal. A mediocre PM can quietly destroy your returns.
   
3. The real returns come from what you don’t see upfront. Vacancy, repairs, maintenance, tenant quality/turnover, and the trends of the location matter just as much, if not more, than the purchase price.

Turnkey wasn’t a bad decision for me, as it's what got me in the game. But if I were starting again today, I’d spend more time thinking about:

- Downside protection

    - Operator quality

    - Consistency of returns vs headline numbers (in my most recent post, I learned that if you verify the big three independently before writing an offer [tax assessment after sale at purchase price, a real insurance quote from a broker, and cross-checking the rent against closed lease comps, not active listings], you can avoid a lot of the headaches and surprises that plague many first-time turnkey investors! I would have loved to know that before I started :) )

What surprised you most in your first deal?

[Jeremy Horton]

Turnkey never made sense to me - I mean the majority of rental property investing is equity capture at the buy (aka buying at a discount). If you're not buying at a discount you're simply locking up your liquidity for crappy returns. Most of the "turn-key" investors probably have W2 jobs (that's why they do turn key investing) so they're not REPs so they're missing the tax deductions on top of it all. 

Then comes the time, stress, vacancy, CapEx, repairs, and don't forget the selling costs when you decide after a few years that the returns suck, the cashflow is too low to move the needle, the tax deductions are essentially worthless etc.

I mean, I cannot imagine buying a house at market value lol. Absolutely horrible idea through and through