From unexpected maintenance costs to substandard renovation work, turnkey investment properties can introduce obstacles that affect your bottom line. In this article, we explore the potential pitfalls of turnkey properties and share strategies on how investors can avoid costly mistakes.
What Are Turnkey Properties?
A turnkey property is a fully renovated home or apartment building that investors can purchase and immediately rent out. These properties are typically sold by companies specializing in the restoration of older properties.
Turnkey investments are highly appealing to rental property owners because they require little effort to prepare them for tenants. By leasing the property right away, buyers can enjoy immediate cash flow without the burden of renovation or major repairs.
Hidden Risks of Turnkey Properties
On the surface, turnkey properties appear as ideal investments for rental property owners seeking to avoid lengthy and costly renovation costs. However, even newly renovated properties can have hidden issues, leading to unexpected maintenance costs.
For instance, the quality of the renovations may be questionable, particularly if completed without proper permits or licenses. Some turnkey properties feature renovations that are not up to code, causing significant challenges for property owners in the long run.
Another potential risk of turnkey properties concerns property values. Certain turnkey properties are listed at inflated prices that don’t align with current market values. Since the property is renovated, sellers may request prices higher than other properties in the area.
Due to elevated pricing, turnkey properties rarely offer the same potential for appreciation and equity growth as buying a fixer-upper. Without careful consideration, investors risk overpaying for a property that is slow to gain in value, reducing cash flows.
How to Mitigate the Risks of Turnkey Properties
While hidden risks when buying turnkey properties exist, there are effective ways to mitigate them and continue investing wisely. Conducting thorough due diligence is a critical approach to reduce risk.
For any property you are considering, it’s crucial to carefully evaluate the property’s history and condition. Look beyond cosmetic improvements. If possible, arrange a professional inspection, focusing on potential issues with the property’s structure or significant systems.
It’s equally important to perform a comprehensive market analysis to ensure the property aligns with long-term market growth potential. Work with a reputable real estate agent and consult local market experts to gather critical data for an informed decision about the property. Professionals with experience in turnkey properties are particularly valuable.
Finally, if you move forward with the purchase of a turnkey property, allocate funds for hidden maintenance and repair costs and establish a proactive property maintenance plan. This preparation helps avoid expensive surprises, ensuring your investment delivers solid returns for as long as you own the property.
Weighing the Risks and Rewards of Turnkey Investments
While turnkey investment properties can be lucrative for many investors, it’s vital to approach these properties with caution and a clear strategy. By conducting thorough research and enlisting the help of qualified professionals, you can better assess the risks and rewards of investing in turnkey properties.
Considering adding a turnkey property to your rental portfolio? Contact the Real Property Management Seacoast New Hampshire office to discover how we can assist you in developing a profitable investment strategy in Dover and surrounding areas. Contact us online or reach us at 603-343-2202 today!