Turnkey investment properties are frequently promoted as the ultimate solution for rental property investors—move-in ready, low-maintenance, and a fast path to steady rental income. They might seem like the perfect investment, but hidden risks of turnkey properties can catch even experienced investors unaware.
From unexpected maintenance costs to low-quality renovation efforts, turnkey investment properties may bring challenges that impact your bottom line. Below, we uncover the potential pitfalls of turnkey properties and provide guidance on how investors can avoid costly mistakes.
What Are Turnkey Properties?
A turnkey property is a fully renovated home or apartment building that an investor can purchase and immediately rent out. These properties are often sold by companies focused on the restoration of older properties.
Turnkey investments hold strong appeal for rental property owners due to the minimal work required to prepare them for tenants. By renting the property promptly, investors can achieve immediate cash flow without undertaking renovation or major repairs.
Hidden Risks of Turnkey Properties
At first glance, turnkey properties seem like ideal investments for rental property owners aiming to bypass time-consuming and expensive renovation costs. Yet, even newly renovated properties can have hidden issues, resulting in unexpected maintenance costs.
For example, the quality of the renovations may be doubtful, especially if done without proper permits or licenses. Some turnkey properties undergo renovations that are not up to code, leading to considerable issues for property owners down the road.
Another potential risk of turnkey properties involves property values. Certain turnkey properties are offered at inflated prices that don’t reflect current market values. As the property is renovated, sellers may demand prices higher than other properties in the neighborhood.
Due to higher costs, turnkey properties rarely offer the same potential for appreciation and equity growth as buying a fixer-upper. If investors aren’t cautious, they could overpay for a property that is slow to gain in value, lowering cash flows.
How to Mitigate the Risks of Turnkey Properties
Despite hidden risks when buying turnkey properties, strategic measures can help you continue investing wisely. Performing thorough due diligence is a key approach to minimize risk.
Regardless of the property you are considering, it’s vital to meticulously examine the property’s history and condition. Look beyond surface-level enhancements. If feasible, schedule a professional inspection, paying close attention to potential issues with the property’s structure or significant systems.
It’s also crucial to conduct a detailed market analysis to confirm the property aligns with long-term market growth potential. Partner with a reputable real estate agent and leverage local market experts to collect essential data for an informed decision about the property. Professionals with experience in turnkey properties are especially beneficial.
Lastly, when proceeding with the purchase of a turnkey property, budget for hidden maintenance and repair expenses and implement a proactive property maintenance plan. This foresight can prevent costly surprises, ensuring your investment yields solid returns throughout your ownership.
Weighing the Risks and Rewards of Turnkey Investments
While turnkey investment properties can be profitable for many investors, approaching these properties with caution and a clear strategy is essential. By researching thoroughly and seeking the help of qualified professionals, you can effectively weigh the risks and rewards of investing in turnkey properties.
Thinking about incorporating a turnkey property into your rental portfolio? Reach out to the Real Property Management Diversified office to learn how we can support you in crafting a profitable investment strategy in Ocala and nearby areas. Contact us online or call us at 352-854-2221 today!
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