Downsides of Buying Turnkey Rental Properties
One excellent way to start building your real estate portfolio is through turnkey real estate. For many investors, turnkey real estate is a great way to create cash flow and passive income. However, turnkey real estate investment is not for everyone. It is vital that you make the most informed decision when you are investing.
In this article, you’ll learn the downsides of buying rental properties.
1. Buying turnkey rental property is hands-off
If you are the type of person who would do everything and would like to control everything in the process, then buying a turnkey rental property is not for you.
When you buy turnkey property, it is move-in ready. This means that you don’t need to select what type of floor, the colors of paint to use, the design of the kitchen or the bathroom, carpet colors, etc. You do not have to look for contractors to build your rental property. You also do not have to look for suppliers and manage contractors. You do not have to do the dirty works.
But if you are the type of person who would like to be hands-on and would like to do the dirty work. And if you are the type of person who wants to control and do everything from head to toe; and would like to knit pick the process; then buying a turnkey rental property is not for you.
2. Turnkey Rental Property is ROI (Return on Investment)
When you work with a turnkey provider ask for the financial projection of the property that you are going to purchase. Ask for the projected net return on investment of the property that you are intended to purchase. The net return on investment is after taxes, maintenance, mortgage, etc. Make sure that your ROI is high. If they are telling you that the ROI is less than 5 percent, there’s no point in getting into a turnkey rental property. Make sure that the ROI is 12% above.
3. Find out the costs
Know the cost of management fees and any hidden costs. Some turnkey property management companies have additional fees. Ask for it upfront.
4. Be aware of the vacancy
Know the vacancy rate of the neighborhood of the property where you intended to buy. Make sure to ask the turnkey provider of that area. If the vacancy rate is higher than 12% then it would be difficult to fill the rental property. Make sure that the property has a low vacancy rate.
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