Turnkey investment properties are often touted as the ultimate solution for rental property investors—fully move-in ready, low-maintenance, and a straightforward path to generating steady rental income. While this may sound like the perfect investment, there are still hidden risks of turnkey properties that even experienced investors might not anticipate.
From unexpected maintenance costs to potential concerns with renovations that are not up to code, turnkey investment properties can bring surprises that impact your bottom line. Below, we reveal the potential pitfalls of turnkey properties and provide strategies 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 frequently sold by companies that specialize in the restoration of older properties, offering buyers ready-to-rent homes.
Turnkey investments are particularly appealing for rental property owners, as they require minimal preparation to prepare them for tenants. With these properties, buyers can enjoy immediate cash flow without having to deal with extensive renovation or major repairs.
Hidden Risks of Turnkey Properties
On the face of it, turnkey properties are ideal investments for rental property owners who want to avoid lengthy and expensive renovation costs. However, even newly renovated properties can have hidden issues that may result in unexpected maintenance costs.
For instance, the quality of the renovations may not meet the expected standards, especially if the work was conducted without obtaining the proper permits or licenses. Some companies may perform renovations that are not up to code, leading to significant future challenges for property owners.
Additionally, there are potential risks of turnkey properties related to property values. In many cases, turnkey properties are marketed at inflated prices compared to current market values. As a result of these price discrepancies, turnkey properties can have less potential for appreciation and equity growth than fixer-uppers, limiting long-term profitability.
Investors who are not vigilant may find themselves overpaying for a property that is slow to increase in value, which can ultimately drive down cash flows and make the investment less lucrative.
How to Mitigate the Risks of Turnkey Properties
Despite the hidden risks when buying turnkey properties, there are practical ways to reduce these risks and ensure that you can continue investing wisely.
One of the most important strategies is to conduct due diligence. No matter which property you are considering, take the time to assess the property’s history and condition. Always look beyond aesthetic upgrades and, when possible, arrange for a professional inspection. Special attention should be paid to potential issues with the property’s structure or major systems.
Performing a detailed market analysis is also critical. Make sure the property aligns with your goals for long-term market growth potential, and work closely with a reputable real estate agent or other local market experts. Professionals with experience in turnkey properties can provide valuable insights to help you make an informed decision about the property.
If you choose to invest in a turnkey property, it’s vital to set aside funds for hidden maintenance and repair costs and to implement a property maintenance plan. Being prepared for potential challenges will help ensure that your investment offers solid returns throughout the time you own the property.
Weighing the Risks and Rewards of Turnkey Investments
While turnkey investment properties can present an attractive option for certain investors, it’s important to approach them with a combination of caution and a well-thought-out strategy. By conducting thorough research, seeking input from qualified professionals, and planning for contingencies, you can effectively navigate the risks and rewards of investing in turnkey properties.
Are you considering expanding your rental portfolio with a turnkey property? Contact Real Property Management Southeast Idaho to discover how we can support you in crafting a profitable investment strategy in Rexburg and beyond. Visit us online or call us at 208-522-2400 today!
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