Most people are familiar with the concept of rehabbing and renting or selling a house – but many don’t know the difference between traditional flips and turnkey real estate investing. This post is going to explain how turnkey investing works and will detail the pros and cons. Let’s take a look!
Turnkey real estate agencies purchase houses in up-and-coming neighborhoods with high rental demand. These companies rehab the properties they buy and sell their houses to investors, who make money on recurring rental revenue.
Here’s a step-by-step look at how it works:
- A turnkey company or retailer buys a house.
- The retailer rehabilitates or fixes up the house to make it code compliant and appealing to buyers. The level of investor involvement in the rehab varies by company.
- After the house is completely renovated, you buy it from the company and it’s marketed to renters.
- Once tenants are moved in, you get recurring profits from rent payments.
- You pay an ongoing property management fee, so your total cash flow is the rental income minus any service fees the turnkey company charges.
So why would you opt for a turnkey investment instead of a regular flip? What are the benefits? What are the downfalls? Let’s take a look.
Benefits of Turnkey Investments:
- You can purchase properties in other cities and states where the real estate market is more affordable.
- Turnkey companies know their local markets really well, so they can help you pinpoint an ideal location with high rental demand to invest in.
- You get the financial benefit of being a property owner without having the responsibility of being a landlord.
- Having easy to manage properties is lower risk and helps you to diversify your portfolio.
Pitfalls of Turnkey Investments:
- You don’t make as much money on an ongoing basis because you’re paying your turnkey agency ongoing property management fees.
- You have to do your homework to make sure the company you’re working with is trustworthy.
- There are more middlemen involved in the process so you have less control.
The bottom line is, if you’re interested in owning properties in out-of-state markets or are looking for a hands-off investment opportunity with a lot of potential for success, turnkey may be a great fit for you.
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