Are you planning on investing in a rental property? If so, you may be debating if you should invest in a turnkey property or a rental that needs some work before it can be considered to be move in ready.
In this article we will answer this question and offer you the pros and cons of investing in turnkey rental properties.
Pros and Cons of Turnkey Properties
Pros of Turnkey Property Investing
- Lower vacancy rates: Since turnkey properties are move-in ready, you’ll likely see a return on your investment more quickly because tenants can move in right away and the property can start producing cash flow without requiring upfront funds for renovations and repairs. Some turnkey properties are even occupied by tenants upon sale, making your job even easier. When you do deal with tenant turnover, turnkey properties can be more desirable to potential renters because they typically are updated with more modern features and amenities.
- Diversify your portfolio: Adding a turnkey property to your investment portfolio will allow you to diversify by type and even location. Turnkey properties make it much easier to invest in areas outside of where you live, looking for markets of growth even if your local market is in decline. Diversification across different markets can mitigate the effects of an isolated local downturn.
- Hands-off investment: Because a turnkey property doesn’t require much (or any) work to get your investment up and running, it is usually a solid “passive income” investment. All of the parties involved prior to your investment have likely handled the time-consuming processes like inspections, appraisals, and title search and procurement. You can even turn the property over to a management company for a completely hands-off investment.
Cons of Turnkey Property Investing
- Less personalization: As an investor, you will have less control over appearance, layout, appliances, landscaping, and similar items without incurring additional costs because the property has already been renovated and updated (and therefore reversing the turnkey status). If you plan to live in the home yourself at some point (or have another specific purpose in mind), this may be an issue for you. Vintage, specialized, or other unique homes also might not be included in the turnkey property category.
- Price: Because turnkey properties are often updated and in premium condition, they will be priced accordingly and in line with market value. This could potentially make a turnkey property a higher initial investment for you, and it will take you longer to realize an increase in overall property market value.
- Long distance: While the option to invest in markets outside of your local area is helpful to diversify your portfolio, investing in any sort of property long-distance presents its own set of risks. Being away from your investment property requires more effort in terms of due diligence, both before and after purchase, and often requires the help of other professionals. If there are any unforeseen issues that were not disclosed (structural, electrical, etc.), this can prove to be difficult to manage from far away.
Contact RPM Central Valley
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