Turnkey investment properties are widely advertised as the ultimate solution for rental property investors, offering move-in ready, low-maintenance options that promise steady rental income. At first glance, these may seem like the perfect investment, but there are significant hidden risks of turnkey properties that even experienced investors should carefully evaluate.
From unexpected maintenance costs to the risk of renovations that are not up to code, investing in turnkey properties can bring challenges that could seriously impact your bottom line. Below, we dive into the potential pitfalls of turnkey properties and provide advice on how investors can avoid costly mistakes.
What Are Turnkey Properties?
A turnkey property is typically a fully renovated home or apartment building that is sold with the intent for buyers to purchase and immediately rent out. Such properties are often sold by companies specializing in the restoration of older properties.
For many rental property owners, turnkey investments hold strong appeal because they significantly reduce the effort needed to prepare them for tenants. By renting the property out quickly, buyers can enjoy immediate cash flow without enduring 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.
One major concern is the quality of the renovations, which might be inadequate. If the work was completed without the necessary proper permits or licenses, the property could later require additional fixes. In some instances, companies may deliver renovations that are not up to code, leaving property owners to address the resulting challenges.
Another area of concern is the potential risk of turnkey properties related to pricing. Many turnkey properties are listed at inflated prices compared to current market values, as sellers frequently set higher price points due to cosmetic upgrades. This strategy leaves little room for the buyer to achieve meaningful appreciation and equity growth, unlike investing in a fixer-upper.
As a result, investors might inadvertently find themselves overpaying for a property that takes years to appreciate in value. This can drive down cash flows and make the investment less profitable over time.
How to Mitigate the Risks of Turnkey Properties
Thankfully, there are ways to minimize the hidden risks when buying turnkey properties. A systematic approach is key to making informed decisions.
Start by performing thorough due diligence on any property you are considering. Don’t be swayed by superficial upgrades—make sure to have the property professionally inspected. Focus on identifying potential issues with the property’s structure or significant systems, which may not be immediately visible.
In addition, conduct a comprehensive market analysis to determine whether the property matches your expectations for long-term market growth potential. Working with a reputable real estate agent or local market experts—especially those experienced with turnkey properties—can provide valuable insights to help you make an informed decision about the property.
If you proceed with purchasing a turnkey property, ensure you allocate funds for hidden maintenance costs and establish a property maintenance plan. This preparation can help you avoid unexpected expenses and ensure the investment delivers solid returns throughout the time you own the property.
Weighing the Risks and Rewards of Turnkey Investments
Investing in turnkey properties can be advantageous for the right investor, provided it is approached with caution and a sound strategy. By conducting due diligence, consulting qualified professionals, and preparing financially for potential obstacles, you can effectively navigate the risks and rewards of investing in turnkey properties.
Thinking of adding a turnkey property to your rental portfolio? Reach out to Real Property Management Commonwealth today to explore how we can support your goals with a profitable investment strategy in Waltham. Contact us online or call 617-299-2342 to get started!
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