Turnkey real estate is all the rage right now in the real estate world. More and more investors are looking for a way to get started in passive investments and the Turnkey route often looks promising. The reality is, like any investment, Turnkey real estate is not always the best option and will not work for everyone.
However, if you’re in the market for a more hands-off approach to investing, turnkey real estate just might be right for you. So much of deciding what kind of investments to pursue just depends on what you as an individual enjoy and value.
To help you decide, we’re digging deep into the red flags you should watch for within yourself! We have to be honest with ourselves as real estate investors to ensure the best outcome for our financial future.
Who Should NOT Buy Turnkey?
Investors Who Need The Income
Too often, new investors look at owning passive investments and earning cash flow as a way to supplement their income and offset expenses. The phrase, “I am going to use the monthly cash-flow to pay some bills” is uttered way too often and can be a disaster for new investors. Passive investments are not a source to pay bills.
If an investor needs their passive income check in order to meet monthly bills, then they are not in a position to buy turnkey properties. Investors need to have multiple sources of income set up, including active income, some passive income and even interest income. These sources should be varied, and passive income from turnkey investments can certainly fit for some investors. But these investors are not those who are planning to pay electric bills and car notes and house notes and are going to be in a bind should a property go vacant or need a repair. That is too much stress and means an investor needs to become more secure before going the turnkey route.
Investors Looking to Build a One-House Portfolio
I am a big believer in making a splash when you go into a passive investment. Looking back, I have seen many investors who have purchased one property as a turnkey investment and never moved off of GO for a second. What ends up occurring is a roller coaster for that investor. They are either happy or distressed at all times. They’re happy when the property is occupied and paying and distressed when it is vacant and costing money. They have no other properties to offset their mood swings and are entirely reliant on one property.
It is important for turnkey investors to be prepared to build a portfolio and to do it as quickly as possible. One property with a far away management company bought turnkey is likely to become a source of tension and a disappointment at some point. It is better to plan for how to build a portfolio of multiple properties if you are going to go the turnkey route than to plan on one and done.
Active Investors That Love Being Active!
Moving into passive investments, with no intention of being passive, is the biggest mistake an active investor can make. If you love picking paint colors, then a passive, Turnkey investment may not be the best option for you. If you love the negotiations that come with real estate from negotiating pricing, negotiating with vendors or even negotiating with tenants, then Turnkey investments are not going to be a good investment for you. If you love heading out and collecting rents and banging on doors in the early morning to collect late rents, then buying a passive, Turnkey investment is going to be a real let down for you.
Because you do not get to do any of those things when you buy Turnkey! You may think that you need to expand your portfolio and get into some passive investments, but if you are not mentally prepared to leave the satisfaction of your active investments behind, then you really need to give second thoughts to buying turnkey properties.
Investors Without A Solid Financial Backing
We see quite often that some investors get started in Turnkey real estate thinking that this is the spring board to bigger things. In reality, Turnkey real estate is a really good option for investors that are already secure financially and they can handle a couple of months of vacancy or a high priced move-out. These things happen in real estate and they often happen when we least expect it.
The worst thing that can happen to an investor is to be faced with a property that under-performs - and ALL properties will under perform at some point and for some period over the life of that property - and not be prepared financially for the hit. Bills must be paid. You cannot let a property sit there and not be fixed. You cannot half-ass repairs and let your property fall below par. If Premier Property Management manages your property, we will not let you do that. If you want to skimp on repairs, then we are not willing to manage the property.
No matter how good a property management company is, there will be issues with properties from vacancy and maintenance. As an investor, you have to be prepared to hold that property through those lean times and then allow it to perform through the good times!
These are just 4 basic types of investors or basic characteristics that need to be avoided if you are an investor. There is nothing wrong with realizing that you are not prepared to be a Turnkey investor. That is a good thing. It means you are building a plan to get started and to actually have success. It is best if investors take a hard look at themselves and decide if they are ready and prepared to be a passive investor. If you are able to do that, you will never be disappointed.