What are the pro's for purchasing Turn-key rental properties?

[Nicholas Pedrick]

I'm looking to start investing in properties this year. I find myself leaning towards properties that I can rehab on some level to ultimately gain more equity overall. However, I see a lot of experienced investors building their strategy around turn-key rental properties.

1.) Why is the strategy so popular?

2.) What are the benefits of purchasing Turn-key rentals vs. Properties that need a little bit more help?

Any advice and insight from experienced pros would be very helpful in helping me figure out my next step with investing

Thanks for all your help!

[Joe Splitrock]

@Nicholas Pedrick we like properties that require either very light rehab or none at all. We are not interested in doing much more than cleaning, paint, fixtures, landscaping and flooring. We avoid anything that requires permits. There is several advantages:

1. Speed to rent. We can have tenants placed before closing, so we are collecting rent before our first payment is due.

2. Remove the time and budget risk of a full rehab. When you open walls you can find problems, waiting for subs or inspection issues... you name it, things can go wrong.

3. Very little time invested. We are full time W2 and don't have time to manage construction projects.

4. No risk, time or cost associated with refinance.  We put financing in place when we acquire and leave it long term. Paying multiple closing costs has an expense.

5. Tax advantages, because property goes into service faster, so you can start claiming depreciation, rather than waiting until it is rent ready.

No doubt if you rehab, you can gain more equity. That is true of anything, the more you do yourself, the more money you save. It is your choice what is your best use of time and expertise.  

I would call it easier in some ways, but harder because it requires more capital. For someone with more capital than time, it is the easier path. For someone with little capital, it is not easier.