Turnkey Rental, Are They Right For You?
The right turnkey rental property may the right real estate venture for you..
The popularity of turnkey rental properties saw an explosion after the housing crisis of 2008. During a time when many homeowners were losing their homes, investors were scrambling to purchase properties to meet new rental demand. Much of that rental market emerged because homeowners either were not in position to downsize or were not able to qualify for home loans.
Savvy investors were purchasing renovated properties or properties that required very little work and renting them to a whole new rental market. Investors are split on whether turnkey properties are a worthwhile investment, let’s take a look at some of the issues.
Advantages
- For the right investor, turnkey investments provide convenience, as all the renovation work has been done.
- The property has some or all of the units are already occupied — you’re collecting rent from the start.
- Many turnkey properties are either purchased with or through a management company, they will be familiar with the property, the tenants, and have a streamlined system in place to oversee day-to-day operations.
- Employing a local management company gives you the option of owning properties out of your immediate area.
- When you find the right property, it will produce a steady passive income stream.
Disadvantages
- Because someone else has already put in the efforts to renovate and rent out a turnkey property, you’ll pay more than if you found your own project and put your efforts into it.
- Any occupied units will have tenants you didn’t screen. Unless you can be sure that the previous property owner’s screening process meets or exceeds your standard, you may have tenant issues.
- You not only inherit previous tenants, but also the previous owner’s lease agreement – which may not meet your standards. You’ll be stuck with the terms and conditions through the end of each lease term, after which time, you can slowly start introducing your own lease.
- As it applies to the previous two points, unscrupulous property owners or management companies may “stuff” tenants into a property to boost occupancy rates and misrepresent cash flow in preparation for a sale.
- It’s harder to trust rehab projects completed by someone else. Some turnkey providers make superficial repairs or merely “slap on a coat of paint on it.” Another common issue is that many of the properties are older and/or not fully updated, so they may need constant maintenance to keep them at livable standards.
A turnkey rental can make a great addition to your real investment portfolio, especially if you’re looking for a potentially steady stream of passive income. As with any real estate investment, it’s crucial to do your due diligence, and perhaps more so with turnkey rentals.
Since you’re trusting others from which to purchase and for who to operate your business, unique variables that come into play, unlike some other real estate investments. Whether you’re starting out in real estate or you’re an experienced investor looking to round out your portfolio, the right turnkey rental property may the right real estate venture for you.
Image Courtesy of David McBee