Never… NEVER invest in Turnkey real estate if you're not prepared to face some hard truths. Turnkey real estate companies offer renovated and tenanted properties, but there's a price. If you want to make the most money from a real estate deal, you need to buckle down, find the property, complete renovations, and source tenants yourself.
Here are the top four reasons you should never invest in turnkey real estate.
Instead of going out, finding the property, buying it distressed, renovating it, and then finding a tenant, you will have to pay a turnkey real estate company to do that for you. While the convenience is fantastic, you will pay a premium for turnkey properties. After renovating, the turnkey company will put a BIG margin on top of its costs to cover its labor. Remember, turnkey companies want to make the biggest possible profit they can, just like any other business.
Investing through a turnkey rental property means you will be paying a premium for your turnkey property in exchange for convenience and having a professional do all the work for you. You can avoid this margin by doing all the work yourself!
A lot of turnkey companies are known for "putting lipstick on a pig" and selling it to aspiring real estate investors. That means they add a little paint to make the house appear prettier but don't address any of the major electrical or plumbing issues, which is where the real costs lie.
Or worse, some turnkey companies are known for sending you a photo of one house but would sell you an entirely different property.
If you get stuck with a crappy property in a crappy area that hasn't been properly renovated, you will have a property that isn't self-sufficient for the long haul. When investing in turnkey properties, your goal should be to purchase self-sustaining, passive income properties that generate cash flow, not more costs.
Turnkey real estate businesses are notorious for selling properties above market value. They justify these premiums by calculating huge overheads and highlighting the convenience of their service, even though they are selling you a bad product.
If you buy these properties, your investment is set up for disaster from day one. In real estate investing, you make money when you buy, not when you sell. If you are purchasing a property for way more than it is worth, you will not have an exit strategy because you will not get what you paid for.
Only invest in a turnkey property if you're planning on buying and holding for the long haul because otherwise, you won't get your entire capital investment back. Real estate investing is a long investment strategy, not a short one. So if you are expecting to have your capital back in your pocket in the next year or two, turnkey properties are absolutely not the investment strategy for you.
4. Outsourced property management companies assigned by turnkey companies will upcharge you and eat up your profits.
After a turnkey real estate company has sold you a crappy property in a crappy location for way more than it's worth, they will sign you up for expensive outsourced property management. If you have experience in the real estate industry, you know the best way to build long-term wealth is through the hard work of self-management.
These property management companies don't care about you or your property. A property manager often aims to turn tenants over so they can charge you 1.5 times the monthly rent for new tenant rent, upcharge maintenance costs, administration fees, and a massive $4-500 annual releasing fee for signing one document. If you want to build a real estate business, hiring a property manager is going to eat into your profits.
These are the reasons to never invest in turnkey real estate. You need to understand all the pitfalls in turnkey properties and why they aren't for everyone. The most profitable real estate investment strategies involve your time and energy. Real estate investors get the best returns if they source property, complete renovations, and manage an asset themselves.
If you don't have time to do the hard work yourself, remember that teamwork makes the dream work. Focus on the people you work with first and the cash flow of an asset. You need to establish trusting relationships with the key people who help you in your due diligence and fast-track your real estate investing journey before you start looking at the statistics and demographics of a particular region. If you are entering a remote investing relationship with a turnkey real estate investment company, you absolutely must focus on the people you will be working with first.
Ohio Cash Flow and Oz Realty
Ohio Cash Flow and Oz Realty partner to provide outstanding real estate investment opportunities in Toledo to passive investors. Instead of taking advantage of our buyers, we view them as long-term partners. We embrace transparency in our goal to collectively build a real estate portfolio that delivers fantastic cash flow returns that outperform the market to passive investors.