PROs and CONs of Turn key properties

[Jeffrey A.]

Hello, I am still a very new investor.  I am in the learn as much as I can stage right now which means I am reading books, listening to podcasts, hanging out in the biggerpockets forums, etc.  I am a full time research scientist in San Diego and want to do real estate investing as a supplement to my income.  I am most interested in the Buy and Hold rentals and came across a few turn key companies.  I was wondering what some of the PROS and CONS of turn key rental properties are.  Thank you.  

[Justin R.]

This is religious war territory.  I'll try to come up with something insightful on top of the standard answers you'd find by reading through all the threads on the topics...

I'll assume you mean PROS and CONS relative to starting out with Buy and Hold locally here in town.

PROS for Turn Key

• Less time and lifestyle commitment from Day 1.  You can try out real estate as an investment without committing to learning and getting up to speed on the details of self-management.
• You're a customer, which means you get customer service.  Someone is trying to sell something to you and make money off of you, so you don't have to go out and make it happen on your own.  There's someone by your side.
• No need to network and build a team.  In exchange for your money, you don't have to spend your time understanding rental laws and finding people to help with the things you need.
• The short term financial performance, at least, will be pretty attractive.
• Simple financials.  More like investing in a company stock - you get a monthly statement and just go from there.

CONS for Turn Key

• You're going to pay retail - or above retail - prices for the property you buy.
• You won't learn as much.  By definition, you're hands off ... and that means you won't naturally learn and put yourself in a position to be exposed to more, bigger things.  Opportunities are less likely to present themselves.
• A sophisticated investor is selling you this property instead of holding onto it themselves for rental purposes.  You need to be able to answer the following: "Why would they rather renovate, sell to me, and take a property management fee rather than hold onto it themselves?"  Make sure you're not the sucker in the transaction.
• You're very reliant on someone(s) else to make sure your investment performs.  You're in a position of weakness in that regard.

TOTALLY up to the investor to decide what they're trying to optimize for and there's no right or wrong.  With the turnkeys and with respect to long term success with real estate, I would personally sum it up like this: You're limiting your long term upside in exchange for protecting your short term downside. That's the right move in some people's situations ... the wrong move for others.

Good luck!