Turnkey investment properties are frequently promoted as the ultimate solution for rental property investors—move-in ready, low-maintenance, and a swift route to steady rental income. They might appear as the perfect investment, but hidden risks of turnkey properties can surprise even experienced investors.
From unexpected maintenance costs to substandard renovation quality, turnkey investment properties may present challenges that impact your bottom line. Below, we explore the potential pitfalls of turnkey properties and offer guidance on how investors can avoid costly mistakes.
What Are Turnkey Properties?
A turnkey property is a fully renovated home or apartment building that investors can purchase and immediately rent out. These properties are typically sold by companies specializing in the restoration of older properties.
Turnkey investments are highly attractive to rental property owners because they require minimal effort to prepare them for tenants. By leasing the property promptly, investors can secure immediate cash flow without the burden of 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 lengthy and expensive renovation costs. However, even newly renovated properties can have hidden issues, leading to unexpected maintenance costs.
For instance, the quality of the renovations may be dubious, particularly if the work was completed without proper permits or licenses. Some turnkey properties undergo renovations that are not up to code, creating significant challenges for property owners later.
Another potential risk of turnkey properties involves property values. Certain turnkey properties are listed at inflated prices that don’t reflect current market values. Since the property is renovated, sellers may demand prices higher than other properties in the neighborhood.
Due to elevated costs, turnkey properties rarely offer the same potential for appreciation and equity growth as buying a fixer-upper. Without caution, investors might end up overpaying for a property that is slow to gain in value, reducing cash flows.
How to Mitigate the Risks of Turnkey Properties
Despite hidden risks when buying turnkey properties, strategic steps can help you continue investing wisely. Conducting thorough due diligence is a critical approach to minimize risk.
Regardless of the property you are considering, it’s vital to carefully assess the property’s history and condition. Look beyond surface-level upgrades. If feasible, arrange a professional inspection, focusing on potential issues with the property’s structure or significant systems.
Equally crucial is performing a detailed market analysis to confirm the property aligns with long-term market growth potential. Collaborate with a reputable real estate agent and consult local market experts to gather essential data for an informed decision about the property. Professionals with experience in turnkey properties are particularly valuable.
Lastly, if you proceed with the purchase of a turnkey property, ensure you budget for hidden maintenance and repair expenses and establish a proactive property maintenance plan. This preparation helps avoid expensive surprises, ensuring your investment offers solid returns throughout your ownership.
Weighing the Risks and Rewards of Turnkey Investments
While turnkey investment properties can yield profits for many investors, it’s crucial to approach these properties with caution and a clear strategy. By conducting thorough research and seeking the help of qualified professionals, you can effectively evaluate the risks and rewards of investing in turnkey properties.
Are you considering adding a turnkey property to your rental portfolio? Contact the Real Property Management Excellence office to learn how we can support you in crafting a profitable investment strategy in Raleigh and surrounding areas. Contact us online or reach us at 919-827-1107 today!
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