Turnkey Property for First Investment

[Michael Bonanno]

Hey BP,

I'd love to hear others thoughts on buying a turnkey rental property for a first time investment.

Also, any suggestions on content to research as well as suggested providers to potentially work with.

As always - responses are appreciated!

[Mari Pearce]

Hi there @Michael Bonanno, there are pros and cons for both the turnkey and BRRR options. I am biased when it comes to the turnkey method, but I find that certain methods that work for one person may not work for the next. The issue many people have with turnkey is that forcing appreciation and selling quickly for a profit has been removed. The turnkey company has done this for you, this is how we make our money. If you BRRR (DIY method), you fix a distressed home from the ground up, you can flip it for a profit or keep it as a rental. Whichever you choose, the value of the property you renovated is and should be higher than the total cost of the purchase and rehab work. This process is called forced appreciation and it's the reason investors choose the BRRR method instead of turnkey. Nevertheless, this is a lot of time and work.

The BRRR method is good for a person who has a lot of free time, you're handy, and you have a good network of people you can contract to do any extra work you don't know how to do. However, the risk is that the rehab process can take long, all of this time means that you aren't making money on the property. The longer it takes, the longer you have to pay out of pocket for the mortgage (if you financed). When the work is done, and done correctly, you will have a better return on your investment. You have traded a LOT of time and energy and risk for a higher potential reward.

The turnkey option means that you don’t need to do any of the work I mentioned above, this doesn't mean that you won't also have to do your due diligence. The turnkey company does all of the work on their time and dime. The turnkey company has networks and systems in place to find the best properties and rehab to a high standard and quality. This also means that you won’t have to worry about vacancy risk during the rehab process.

Closing happens after the rehab is finished and inspections are passed, this means that you won’t have any risk during the rehab stage. The turnkey company benefits from the spread between what they put into the property and the market price they sell to you. The price you purchase the property at should be market price, a reputable turnkey company wouldn't inflate their values and third-party appraisals should back up the prices. Your returns will come from cash flow each month and, presumably, long-term appreciation, this is not guaranteed. Going with the turnkey option means that you’ve traded extra potential return from forced appreciation for the luxury of having your time and energy back and having someone else do the hard work for you.

For those who work full-time jobs and don't have a lot of time on their hands to rehab and do a full reno, trading their potential for forced appreciation for convenience is more valuable. Investors who choose turnkey are probably looking for passive income or they live in a more expensive market. This all depends on your goals and what you would like from your investment. Before you decide on turnkey or BRRR, have a discussion with yourself or your partner about what your objectives are in real estate investing.

I hope this helps you out on deciding what you would like to do.

Best wishes!!