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Pros and Cons of Buying a Turnkey Rental Property

Todd Breen - Monday, March 29, 2021
Property Management Blog

Whether you’re new to investing in real estate or are a seasoned pro, it’s likely you’ve wondered whether to buy a turnkey property or not. After all, when the housing market is hot, investors often find themselves priced out of their local markets.

Rather than give up on your dream of owning a rental property altogether, you might consider buying a ready-made property in an undervalued area. Of course, there is a stigma surrounding turnkey properties. But it’s not all bad.

Today, we’re going to take a look at what a turnkey property is and examine the pros and cons of buying one for your rental portfolio. This way, you can make an informed decision on whether turnkey properties are worth it or not.

What is a Turnkey Property?

A turnkey property is one that has been recently renovated. It is usually marketed to investors with lots of cash or equity on hand. Lastly, they usually have a tenant already living in it.

This is how the turnkey process works:

  1. A turnkey provider finds a property that is in bad shape and buys it
  2. The property is then renovated in full
  3. Tenants are placed in the property
  4. The turnkey provider then seeks out an investor to sell the property to for a profit

Turnkey properties are much like houses that have been flipped. However, instead of selling the rehabbed property to a homeowner, it’s sold to an investor. This investor then continues to lease the rental to tenants and uses a local property management company to help manage it.

Pros of Investing in a Turnkey Property

There are several ways for people to become landlords. For example, you might inherit a home, become an accidental landlord, or need to move and lease your current residence. Or, you might just want to invest in a rental property in Wellington to supplement your annual income.

Though there are many ways to invest in a rental property, turnkey property investments are one of the most ready-made options available. There are also many other advantages to buying a turnkey property.

1. Lower Vacancy Rates

Turnkey properties are move-in ready. Because of this, there will be very little you’ll need to do beyond buying the property to get it ready for tenants and start earning money. Plus, many turnkey properties already have tenants living in them when you buy them. This means you won’t have to worry about a tenant leaving right away or placing a brand-new tenant in the rental once it’s yours.

In addition, since your property will have been recently rehabbed, it’s likely your tenants will be satisfied to live in such a modern and updated rental. This leads to lower turnover and vacancy rates in the long run.

2. Hands-Off Investing

If you’re the type of rental property owner in Wellington that wants someone else to handle everything from renovations to managing the property, you’re in luck with a turnkey property. You won’t have to do any work on the property after you buy it if it’s a turnkey property. That’s because all the hard work will have already been done for you. You probably won’t even have to place a tenant in the property either.

In addition, if you hire an experienced property management company to help with the day-to-day operations, you’ll find owning a turnkey property is one of the most hands-off things you can do to earn money. It’s a win-win-win for you.

3. Portfolio Diversity

If you’ve never had a turnkey property and you invest in one, you diversify your portfolio. Diversifying your portfolio is a good thing for many reasons. Having different types of properties — in Wellington for example — help to protect you against downturns in the real estate industry that target a certain area or property type.

In addition, a diverse portfolio makes it easier for you to invest in areas that are beyond where you live. This is especially true with turnkey properties. With a turnkey property, you don’t have to worry so much about major maintenance and repairs since all of that was handled before you bought the property. As a result, there are fewer chances of being called out to the property.

4. Nearly Passive Income

With a turnkey property, you’ll get about as close to true passive income as possible. The renovations will be done, the tenant will be placed, and the property manager will handle everything else moving forward.  

5. Out of State Investing Becomes a Reality

While anyone can invest in a rental property out of state, buying a turnkey property makes it even easier. With so many turnkey providers out there specializing in specific regions of the country, you can easily find a reliable one to get you started. Better yet, a turnkey provider with experience across multiple states makes it a cinch to diversify your portfolio all over, without ever having to travel to do the work yourself.

Cons of Investing in a Turnkey Property

As with most things in life, there are cons to every decision that’s made. The same rings true for investing in a turnkey property.

1. You Have to Rely on Others

When you buy a turnkey property, you rely solely on the work of others. After all, the property has been completely renovated by someone else calling the shots. Though that’s not to say the workmanship will be terrible, you just never know what you’re getting.

People want to rehab properties for as cheap as possible and sell them for as much as possible. A turnkey property is no different.

2. Rent is Not Guaranteed

As much as turnkey providers would like to convince you that renting a property is guaranteed, especially one that is freshly renovated, you should know that there are no actual rent guarantees.

Sure, a newly rehabbed property may rent quickly, especially in a hot market. However, it’s best to do your research before investing in a turnkey property just to make sure. You’ll want to make sure you or your property manager understand the status of the rental market in the area you’re looking to buy. In addition, you’ll want to have a rental analysis done to get an idea of the rent rate you may be able to set should you invest in the property.

3. Prices May Be High

Despite being in an undervalued market location, there is always a chance the turnkey property you want to buy is pricey.

Remember, turnkey providers rehab properties to sell them for a profit. You can bet they’ll want to generate as much profit as possible on the property they’re selling you. If this is the case, you’ll end up investing a lot more cash upfront and have to wait longer to realize a high ROI.

4. The Potential for Terrible Tenants is High

If you invest in a turnkey property that already has tenants living in it, you’re taking quite a gamble. Sure, not having to go through the tenant screening process is a time-saver. However, if you find out the tenants that are living in your newly purchased property stop paying their rent, don’t follow the rules, or just aren’t a good fit, you’re stuck with them until the lease is up or you can properly evict them. Both of these options have the potential to wreak havoc on your free time and bank account.

Are Turnkey Properties Worth It?

In the end, owning a turnkey rental property is a personal decision. However, it’s good to know the pros and cons of this type of rental so you can make an educated decision.

Are you interested in having your turnkey property in Wellington professionally managed? Then contact us today and see how we can help.

At Home Property Management, we know that no matter what type of rental property you own, even if it’s turnkey property, there’s a lot of work to be done. We also know what it takes to secure high-quality, long-term tenants, comply with all landlord-tenant laws, and ensure the highest ROI possible on your property.

Serving the Palm Beach and Marin County areas since 1985, our experienced property managers can take the hassle out of managing a move-in ready rental property.

And thanks to our Happiness Guarantee, we believe that if you just give us a chance to help you achieve your financial goals as a rental property owner in Wellington, you won’t be disappointed.