Turnkey investment properties are frequently presented as the ultimate solution for rental property investors—move-in ready, low-maintenance, and a rapid route to steady rental income. They might appear as the perfect investment, but hidden risks of turnkey properties can startle even experienced investors.
From unexpected maintenance costs to shoddy renovation efforts, turnkey investment properties may introduce obstacles that impact your bottom line. Below, we explore the potential pitfalls of turnkey properties and share advice 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 often sold by companies focused on the restoration of older properties.
Turnkey investments hold significant appeal for rental property owners due to the minimal work needed to prepare them for tenants. By renting the property promptly, buyers can achieve immediate cash flow without undertaking renovation or major repairs.
Hidden Risks of Turnkey Properties
At first glance, turnkey properties seem like ideal investments for rental property owners aiming to sidestep lengthy and expensive renovation costs. Yet, even newly renovated properties can have hidden issues, resulting in unexpected maintenance costs.
For example, the quality of the renovations may be dubious, especially if done without proper permits or licenses. Some turnkey properties undergo renovations that are not up to code, leading to considerable challenges for property owners down the line.
Another potential risk of turnkey properties involves property values. Certain turnkey properties are marketed at inflated prices that don’t reflect current market values. As the property is renovated, sellers may demand 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. If investors aren’t vigilant, they could overpay for a property that is slow to gain in value, lowering cash flows.
How to Mitigate the Risks of Turnkey Properties
Despite hidden risks when buying turnkey properties, proactive strategies can help you continue investing wisely. Performing thorough due diligence is essential to minimize risk.
Regardless of the property you are considering, it’s vital to meticulously examine the property’s history and condition. Look beyond cosmetic enhancements. If feasible, schedule a professional inspection, paying close attention to potential issues with the property’s structure or significant systems.
It’s also critical to conduct a detailed market analysis to confirm the property aligns with long-term market growth potential. Partner with a reputable real estate agent and leverage local market experts to collect essential data for an informed decision about the property. Professionals with experience in turnkey properties are especially helpful.
Lastly, when proceeding with the purchase of a turnkey property, budget for hidden maintenance and repair expenses and implement a proactive property maintenance plan. This foresight can prevent costly surprises, ensuring your investment yields solid returns throughout your ownership.
Weighing the Risks and Rewards of Turnkey Investments
While turnkey investment properties can be profitable for many investors, approaching these properties with caution and a clear strategy is crucial. By researching thoroughly and seeking the help of qualified professionals, you can effectively weigh the risks and rewards of investing in turnkey properties.
Thinking about incorporating a turnkey property into your rental portfolio? Reach out to the Real Property Management Northern Utah office to learn how we can support you in crafting a profitable investment strategy in Salt Lake City and nearby areas. Contact us online or call us at 801-546-1770 today!
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