Turnkey or renovate?

Question

Hello, I am looking at some multi family investment properties and I see big difference in price in properties that are turnkey from ones that are fixer uppers. What do you guys think the best route to go is? I can see pros and cons to both sides but I would like to hear some advice from a more experienced investor.

Look forward to reading the replies!

Alecia Loveless · Answer

@Eric Formiller Because I have a strong team I only buy value-add multis.

If I was starting out and it was an option I would buy at least 1 turn key to get my feet wet and use to begin building my team with.

After being involved in a business that owned real estate for 28 years and investing in real estate for the last 5 years I have a great relationship with many trades people.

I can quickly and accurately get an estimate of what just about any renovation or project will cost and sometimes I figure out a better way to do a project that saves money.

I recently had an estimate of $20,000 to create a basement egress window and I put my foot down and told my GC that I was going to rent the excavator, and we found much cheaper supplies, and were doing the project ourselves. I estimate the whole thing will only cost about $9,000.

Once you know your market and have built your team you can make these decisions yourself.

I’d definitely start turn key and build my team then do the renovations on the 2nd or 3rd property.

Bob Stevens · Answer

If local and you have trusted crews and YOU know what the reno should cost, then of course reno. If OOS then you do not have a choice, turnkey UNLESS you have trusted crews and YOU know pricing ,  If you are new then turnkey, for both. RE is just math, If it makes sense do it

Jake Andronico · Answer

@Eric Formiller

If you have cash, some turnkey deals that need to sell can be a fantastic buy right now. People are feeling the pressure from higher interest rates (yes they're coming down slightly) but with turnkey multifamily that has to sell it can be powerful to have cash.

We've seen some of the best deals we've seen in years.

Also for renovating a multifamily property, tenant lease expirations are key.

Gino Barbaro · Answer

@Eric Formiller

I think it depends upon experience level, goals, and pricing. The past few years, the older fixer uppers were trading at 4 caps. Four caps are turning into foreclosures.

If you can buy older assets for the right price, and add value, great way to build equity and cash flow. You just need to make sure you have enough budgeted for repairs.

We've been buying more stable, newer properties in this pat of the cycle because of pricing, and us wanting to hold these assets long term.

I don't think one is better than the other. I think it's a function of the market cycle and what you're trying to achieve.

Gino

Samuel Diouf · Answer

Start with something that's turnkey with value-add potential. Use this experience to work out the kinks and build a strong boots on the ground team. Once you're ready for the next purchase, you will have experience, solid systems, and the confidence to tackle a bigger project like a BRRRR.

Steve Seger · Answer

@Eric Formiller It really depends on your goals and investment strategy. If you're aiming for long-term growth and are interested in potentially fixing and flipping properties, a fixer-upper could be a great option. Keep in mind, though, it will require significantly more time and effort but offers the potential for higher rewards through forced appreciation.

If you aren't wanting to be as hands on with your real estate and want to approach it more as a side hustle while you focus on your career, the turn key option may be better. As Justin mentioned, the advantage of immediate cash flow is why turnkey properties typically come with a premium price tag.

Try to get a sense of why you are investing in real estate and what the goal of getting into it may be then decide what option is best for you.

Justin Moy · Answer

Fixer uppers - higher risk higher reward potential

Turnkey - lower risk lower reward potential

Depends on your skills and how heavy of a turn the property is.

At this stage in my investing career I don't buy things that don't cash flow, so if the fixer upper is going to bleed cash until it's fixed, I wouldn't invest in it.

Then you have to really stay on top of the renovations. Don't just hire a contractor a PM and tell them to fix the property. Be hands on and know what you're looking at and talking about.

If those skills aren't you or you don't want to commit the time to managing that process, take the lower risk option and go turnkey

Turnkey or renovate?

Most Popular Reply