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Turnkey Real Estate Investing vs Going It Alone: Which Is Right for You?

Posted by Equity On Repeat on October 23, 2023
Turnkey or Solo

Ever thought about getting into the real estate game but weren’t sure where to start? Turnkey real estate investing is all the rage these days for good reason. Who wouldn’t want an investment property without the hassle of finding deals, financing the purchase, or managing tenants? But is turnkey really the path for you? Before you hand over your hard-earned cash, you owe it to yourself to understand what you’re really getting into. Going the traditional route and doing it yourself also has some appealing benefits worth considering. Over the next few minutes, we’ll break down the pros and cons of turnkey real estate investing versus going it alone so you can make the choice that fits your goals and risk tolerance. By the end, you’ll know which strategy is the best vehicle to generate wealth and build your real estate empire.

The Pros of Turnkey Real Estate Investing

Turnkey real estate investing means purchasing rental properties that are already renovated and ready to rent out. As an investor, you buy a turnkey property and then hand it over to a property management company to handle the day-to-day operations. This passive approach allows you to own cash-flowing assets without the hassle of finding, fixing up, and managing the properties yourself.

Some benefits of turnkey investing include:

  • Hands-Off Experience: Once you purchase the property, a property manager takes over. They find quality tenants, collect rent, handle maintenance and repairs, and re-lease the unit if needed. All you have to do is cash the checks.
  • Instant Equity: Turnkey companies purchase distressed properties below market value, rehab them, and then sell them to you for a profit. The renovations instantly increase the equity in the property before you even buy it.
  • Instant & Stable Cash Flow: Turnkey rentals come with tenants already in place, so you start earning rental income from day one. As long as the property manager does their job keeping units occupied, the cash flow remains stable. No waiting months for renovations and leasing before you see a dime.
  • Less Risk: Turnkey properties have been rehabbed and tenanted by professionals, so you know the job was done right. The chance of unexpected costs or vacancies is lower. Turnkey companies also thoroughly screen tenants for you
  • Diversification: Turnkey makes it easy to build a portfolio of properties across different cities and states. This spreads out your risk in case one market takes a downturn.

Of course, the convenience of turnkey real estate investing comes at a cost. You’ll typically pay a premium for turnkey properties compared to buying a rundown property and renovating it yourself. Turnkey companies also charge fees for property management services. For some investors, a hands-off approach is worth the added costs. For others, taking a more active role in searching, acquiring, and managing their own investment properties is a better option. The choice comes down to your investing goals, experience, and risk tolerance.

The Cons of Turnkey Real Estate Investing

Turnkey real estate investing certainly has its advantages, but there are some downsides to consider as well. One of the biggest drawbacks is that you have to pay a premium for the convenience that turnkey companies provide. You’re paying extra for them to find, rehab, and manage the property. This can cut into your profits, especially in the first few years.

  • You Have Less Control: By not being directly involved in the selection and rehab process, you give up some control over the investment. The turnkey company may make choices you wouldn’t necessarily make yourself.
  • There Is Still Risk: Although turnkey companies aim to minimize risk, there is always a chance the property won’t perform as well as projected or that costs will be higher than estimated.
  • Hidden Fees: Some turnkey companies charge additional fees for things like maintenance, repairs, vacancy periods or capital expenditures. Be sure to understand all potential fees upfront to avoid surprises down the road.
  • Less Opportunity For Learning: For beginners, turnkey investing offers little chance to learn the nuts and bolts of real estate investing. You miss out on acquiring valuable experience finding, rehabbing and managing your own properties.

While the ease of turnkey real estate investing is appealing, going the traditional route and being actively involved in your investments has significant benefits too. For many investors, a hybrid approach works well. You can start with a few turnkey properties to gain experience, then transition into more actively managing your own investments over time. The choice is yours!

Which Strategy Is Right for You? Comparing Turnkey vs Traditional Investing

Going the traditional real estate investing route means you’re responsible for finding properties, evaluating deals, financing the investments, managing the properties, and more—all on your own. While the potential rewards may be high, so too are the risks and responsibilities.

Find Your Own Deals
You’ll need to source your own deals by scouring listings on websites like Zillow, Trulia, and MLS, driving around neighborhoods on the lookout for “for sale” signs, and networking with real estate agents, brokers, and property owners. This requires a significant time commitment to filter through lots of duds to find a diamond in the rough.

Conduct Your Own Due Diligence
You’ll handle property evaluations, inspections, title searches, and other due diligence to determine if a potential deal is worth pursuing. If you’re inexperienced, you could miss important red flags or underestimate required repairs and expenses.

Secure Your Own Financing
Traditional investing means finding your own financing through banks, hard money lenders, private lenders, or other sources. This requires a good credit score, experience, and often putting up your own money as a down payment. Interest rates and terms may be less favorable for new investors.

Manage the Property Yourself
As a traditional real estate investor, you’re responsible for all property management like screening and dealing with tenants, handling maintenance and repairs, collecting rent, and addressing any issues that come up. This requires knowledge and time that many new investors don’t have.

While going it alone as a real estate investor may seem glamorous, the reality is it’s an challenging path that often ends in failure for beginners. For those wanting to get started in real estate with less risk and responsibility, turnkey real estate investments are an attractive option worth considering.

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