There has been a recent soar in the popularity of turnkey rental properties over the last few years, especially among those people who want to tap into the world of real estate investing but don’t have the necessary amount of time to dedicate to flipping, renovate to rent out or even simply try and scour for a great deal on a distressed home. The great thing about investing in turnkey rental properties is that it doesn’t matter whether the Real Estate market that you’re currently living in is worth investing in. After all, with such a diverse range of markets all around the country (or even the globe), Real Estate investors have the luxury of being provided with so many choices when it comes down to choosing where they want to invest.
However, unfortunately, like most things in life, there is always a con to every pro that you find. So while not all of these disadvantages will apply to every single turnkey property out there, these do have some truth to them and are certainly things that you should not take lightly. If you are seriously thinking about purchasing a turnkey rental property, be sure that you keep these factors in the back of your mind and are convinced that having these cons following around you is OK before you stride on forward.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
5 Reasons to Think Twice BEFORE Purchasing Turnkey Real Estate
There is Very Little Appreciation
The thing is, most turnkey rentals are located in cities/areas where very little appreciation occurs. Nevertheless, the real estate market of these locations are highly stable, so it is also very unlikely that you will see a decline in appreciation.
However, if you are in it for gaining equity via appreciation, i.e. selling the property for profit in the future, this is not the real estate investing path for you. This is simply because, if you want to purchase a turnkey rental property, it is best if you go into it without expectations of high appreciation.
You Can’t Always Find Good Property Management
First of all, if you think that turnkey properties are an easy way to earn some passive income, you may have to re-evaluate your thoughts. Due to your investment properties being miles and miles away from you (sometimes in a different state or even in a different country altogether!), there is no way that you can manage the property on your own.
More often than not, you will have to hire a management company to lend you a helping hand. Unfortunately, just because you purchase a turnkey property doesn’t mean that it will automatically come with a good property manager. So this may be a hassle that you’ll face, which will take more of your precious time to oversee.
No Diversification Comes With Risks
If you are dealing with turnkey investing for single family properties, if you find that the property is vacant, you are in now at a 100 percent completely empty vacancy rate. This isn’t a good thing for you if you are using leverage (which you most probably are), so the sad truth is that despite having no tenant occupying your property, you still have to pay that mortgage.
You’ll Be Tapping into Unfamiliar Territories
Chances are, if you are seeking to be a turnkey property investor, you will be purchasing properties that aren’t in your area or even your city. This can be a rather frightening thing and is certainly one of the bigger risks involved when buying a turnkey property.
After all, how can you be sure that you are making a good investment decision if you don’t know the neighborhood like the ones surrounding you? Pro tip: It’s best to take a trip to the market you plan on investing in to get a feel for the neighborhoods.
You’re Purchasing at Retail Price
It probably goes without saying that if you manage to nab a deal on a property where it is selling for less than its retail price, you will be making good money. However, this is unfortunately not usually in the cards to those of you who wish to tap into the world of turnkey properties. The truth is, if you opt to buy a turnkey property, the likelihood of you paying retail value for the property is extremely high, as it is quite rare to buy off a turnkey provider at a price that is below retail. So for those of you who are in it for the appreciation or the equity, think twice.
From this article, it is probably quite obvious that there are a few things to keep at the back of your mind when it comes to buying a turnkey rental property. While these disadvantages won’t always be intrinsic to every turnkey property, it is important to remember that they do exist, so before going forward with anything due to a sudden passion, be sure that you make well-informed decisions so that you won’t live to regret your choices later.
Investors: What do you think? Are turnkey properties a part of your portfolio? Why or why not?
Leave your comments below!