Hi Michael, great question! You know, I don't think it's a big difference. I've never done the math, although now I think I'm going to for the sake of now I'm curious what the actual numbers look like. In thinking about the market I'm most familiar with, Atlanta, I can give you a basic numbers guess (numbers from about a year ago, things there have changed a lot). \
You could buy a foreclosure for say $20k-30k, with about 18-22% cap rate after initial rehab costs. So the investor probably put in an additional $5k-30k in rehab costs, then rents it out which gives him an 18-22% return. Also in that purchase, the buyer had to find tenants and had to find property managers if he wanted one.
If you had bought a turnkey property, which is fully rehabbed with tenants and managers in place, the average purchase price was $55k-100k with 9-14% cap rates.
Also remember too- you can finance full purchase price of the turnkeys. With a foreclosure, you can only finance the purchase price (maybe) but not the construction costs. Construction loans usually only help with flipping, not holding, so that doesn't help much either for a hold. The important factor in how much you can finance, aside from if you only have a certain amount of cash to play with, is leveraging gives you a higher cash-on-cash return. So potentially that financed turnkey with lower cap rates could give you a higher cash-on-cash return than that foreclosure with higher cap rates!
My final answer? About a year ago in Atlanta, you're looking at an average of about a 8% difference on ROI between doing all the work yourself and having someone else doing everything for you.
My last final answer? I hate stress. Doing any of that work I mentioned really stresses me out, so I tell anyone who wants those extra 8% points to have fun with them because I don't want them!
I am going to put more thought into this so I can answer it more specifically. Keep an eye on the blogs as I foresee me being able to write one that answers just this.
