The Ugly Truth About Turnkey Investing

Imagine this: you’re a new real estate investor. You want passive income. So you set your sights on a turnkey property requiring no renovations or lead time before you find a resident and start earning sweet, sweet cash flow. Only one problem: you decided not to use a property manager.

You may think to yourself – is that really a big deal? People landlord for their properties all the time! How hard can it be?

While taking on landlord responsibilities is something people do, you must be sure it fits into your vision of investing in real estate. Going in unprepared is a recipe for failure. You can have a pristine, beautiful turnkey property, but without proper management, it can all be a big waste of time and money.

6 Ugly Scenarios for Turnkey Investors without Professional Property Management

Scenario #1 – You stop earning passive income.

Let’s be honest – there’s no such thing as entirely passive income. Some work will always be involved, even when you defer daily tasks. However, forgoing property management will turn your passive investment into a very active one. Effective property management isn’t easy. It demands plenty of hard work. If your goal is setting up an easy cash flow stream, managing the property yourself is not the way to do it!

Technically, you can not pay that much attention as an owner-landlord. But believe us, your property and bottom line will pay the price!

Scenario #2 – Inexperience lands less-than-ideal renters.

It takes experience to effectively vet rental residents. Plenty of people know how to look trustworthy and reliable on the surface. While property management isn’t guaranteed to get it right all the time, they are experienced judges of responsible renters and those most likely to renew their leases. Securing residents isn’t just about finding people who will pay on time and take care of their temporary home – it’s about looking for those “long haul” families who will reduce turnover.

We all know what bad renters can look like – from the frustration of chasing down late payments to the horror of intentional or negligent property damage.

Scenario #3 – Critical maintenance goes undone.

We imagine that you’re a busy person. After all, people who look for turnkey real estate usually aren’t in the market for a second full-time job. Time constraints and inexperience can easily lead to property neglect. Effective management demands keen attention to detail and swift action. When you’re busy, and your first priority isn’t property management, you’ll be tempted to kick the can down the road. That, in turn, means bigger, more costly maintenance and property repairs.

Scenario #4 – You’re left to find trusted vendors from scratch.

Industry connections are a big deal. Experienced property management companies often have networks of vendors they work with and trust to deliver quality work. Because these management companies manage hundreds, if not thousands, of properties, they may even be able to negotiate prices better than the average customer.

If you’re flying solo, that’s not the case. Not only do you have to build your network of vendors from scratch – sometimes through learning the hard way who not to hire – but striking a deal is less likely.

Scenario #5 – Property vacancies last longer.

For investors, vacancies are the most expensive period. There’s a lack of cash flow while property expenses continue, not to mention the costs of cleaning and preparing the property for the next resident, marketing the property, and securing new renters. It’s a lot of work! Quality property managers know how to shorten this period through effective marketing and a streamlined turnover procedure. Going at it alone, you’re looking at much longer, more frequent vacancies.

Scenario #6 – You can’t scale your portfolio as you’d like.

You’re only one person. While managing a single investment property may suit you just fine, it will stunt your growth potential in the long run. It locks you into a single market (simply because you can’t be in two places at once!), and it limits how many properties you can own and manage at once. While you may “save” money by doing it yourself, you hurt your long-term wealth-building potential.

Further Reading: 5 “Optional” SFR Expenses Worth the Cost

So what’s the takeaway?

Ultimately, new investors should do everything possible to avoid getting in over their heads. This business is fraught with pitfalls, especially for the inexperienced. If you forgo the essentials, your turnkey dream can quickly become a nightmare.

Yes, effective property management costs more. But what you gain is worth its weight in gold! Don’t squander your potential – utilize and leverage the experts who can turn a run-of-the-mill real estate portfolio into something exceptional.

Join thousands of successful REI Nation investors today!