Turnkey investment properties are often promoted as the ultimate solution for rental property investors—move-in ready, low-maintenance, and a rapid path to steady rental income. They may look like the perfect investment, but hidden risks of turnkey properties can catch even experienced investors off guard.
From unexpected maintenance costs to inferior renovation efforts, turnkey investment properties can present hurdles that affect your bottom line. In this article, we uncover the potential pitfalls of turnkey properties and share strategies 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 typically sold by companies specializing in the restoration of older properties.
Turnkey investments are highly attractive to rental property owners due to the minimal effort needed to prepare them for tenants. By leasing the property immediately, buyers can secure immediate cash flow without the need for renovation or major repairs.
Hidden Risks of Turnkey Properties
On the surface, turnkey properties seem like ideal investments for rental property owners seeking to avoid prolonged and costly renovation costs. However, even newly renovated properties can have hidden issues, resulting in unexpected maintenance costs.
For example, the quality of the renovations may be questionable, especially if completed without proper permits or licenses. Some turnkey properties feature renovations that are not up to code, leading to significant issues for property owners in the future.
Another potential risk of turnkey properties involves property values. Certain turnkey properties are listed at inflated prices that don’t align with current market values. Since the property is renovated, sellers may request 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. Without careful attention, investors might overpay for a property that is slow to gain in value, diminishing cash flows.
How to Mitigate the Risks of Turnkey Properties
Despite hidden risks when buying turnkey properties, proactive steps can help you continue investing wisely. Conducting thorough due diligence is a critical approach to reduce risk.
For any property you are considering, it’s essential to meticulously assess the property’s history and condition. Look beyond superficial improvements. If feasible, arrange a professional inspection, focusing on potential issues with the property’s structure or significant systems.
It’s equally important to perform a comprehensive market analysis to ensure the property aligns with long-term market growth potential. Work 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.
Finally, if you move forward with the purchase of a turnkey property, allocate funds for hidden maintenance and repair expenses and establish a proactive property maintenance plan. This preparation helps avoid expensive surprises, ensuring your investment delivers solid returns for as long as you own the property.
Weighing the Risks and Rewards of Turnkey Investments
While turnkey investment properties can be lucrative for many investors, approaching these properties with caution and a clear strategy is vital. By researching thoroughly and enlisting the help of qualified professionals, you can effectively weigh the risks and rewards of investing in turnkey properties.
Thinking about adding a turnkey property to your rental portfolio? Contact the Real Property Management California Coast office to discover how we can support you in crafting a profitable investment strategy in El Segundo and nearby areas. Contact us online or reach us at 310-535-2150 today!
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