Turnkey question - is there real value?? (Math inside)

[Moses W.]

There's something I don't quite understand about turnkey properties. If I buy a SFH from a turnkey company, I know that they've made improvements to the property and the purchase price includes the cost of these improvements plus a profit margin.

If I then rent this property out and it's giving me a net cash flow.  

I'm looking at areas such as Cleveland and Memphis right now and since these areas are not really known for appreciation, my concern is as the years go by, the value of the improvements that I paid for when I bought the property has depreciated.  If I decide to sell the house, won't I most likely be selling at a loss?

Eg., 

1. Buy a house from turnkey company at $80K (market value in this neighborhood is $65k).

2. Rent it out $850/mo.  Calculated net cashflow is $450/month.

3. At the end of 5 years, after wear and tear and in need of improvements again, the house is now worth ~$65K-$70K.  

Let's say it's worth $65K now so does that mean my net gain on this property is actually just $12,000?

Math: 

$80,0000 purchase price - $65,000 value after 5 years = $15,000

# of months of net cashflow to break even: 15,000/450 = 33.3 months

Length of ownership: 60 months

60 months - 33.3 months = 26.7 months of profit

26.7 x $450 = $12,015.

That means after 5 years, I've actually made only $12,015 after you factor in the depreciation of the value of the improvements which is 15% ROI over 5 years. That's only 3% ROI per year!!

Am I out to lunch or does this make sense somewhat??

To make this purchase worthwhile the value of the house would have to stay at $80K and hopefully appreciate.  In these markets, I'm not so sure that will happen.  They'll produce decent cashflow but I'm worried my cashflow will be wiped out by a drop in the value of the property.