As more individuals look for alternative sources of income, investing in rental properties has become increasingly appealing. One option recently gaining traction is investing in turnkey properties for passive income.
What are Turnkey Properties?
Turnkey properties are rentals that have been fully renovated, furnished, and maintained by a third-party firm. This company handles any repairs and tenant management––making investing stress-free! All an investor must do is purchase the property, turnkey businesses take care of everything else!
Short-term rentals, such as vacation rentals, have become an increasingly popular asset class among passive investors, providing the possibility of weekly or daily rental income. But this market requires investors to adopt a different strategy than long-term rentals: considering location, seasonal demand, and marketing strategies to maximize their profits and return.
Turnkey homes offer a fantastic way to generate passive income if you are considering investing in rental properties. In this article, we’ll outline their benefits and drawbacks as an investment option, along with any key considerations before making your decision. In addition, short-term rental investment could present additional opportunities to generate passive income streams.
Pros of Investing in Turnkey Properties
Investing in turnkey properties can be an attractive option for individuals looking for a hassle-free way to generate passive income through rental properties. Turnkey properties are fully renovated and equipped with all the necessary amenities and typically come with tenants already in place.
Here are some of the pros of investing in turnkey properties:
Hassle-Free Investment
Investing in turnkey properties is hassle-free because the company takes care of everything. The investor does not have to worry about finding tenants, managing the property, or dealing with repairs and maintenance. This makes turnkey properties an attractive investment option for individuals who do not have the time or experience to manage a rental property.
Immediate Cash Flow
Turnkey properties offer immediate cash flow because they are fully furnished and managed by a third-party company. This means the property is ready for rent when the investor purchases it. The investor can start earning passive income immediately without needing to find tenants, manage the property, or deal with repairs and maintenance.
Lower Risk
Investing in turnkey properties is considered a lower-risk investment than other rental properties. The turnkey company handles everything, from finding tenants to managing the property. The investor does not have to worry about any risks of owning a rental property, such as tenant turnover, vacancies, or property damage.
Access to Professional Management
Investing in turnkey properties provides access to professional property management. Turnkey property management companies specialize in finding tenants, managing the property, and overseeing maintenance and repairs; this ensures your property stays maintained while any issues are quickly addressed. An effective professional property management service may increase rents and retention rates for you and your landlords.
Diversification of Portfolio
Investing in turnkey properties can help diversify an investor’s rental property portfolio. Investors can minimize risk and maximize returns by purchasing turnkey properties in various locations, protecting themselves from market downturns.
Passive Income
Investing in turnkey properties can provide investors with passive income. As turnkey firms offer property management, owners do not need to be involved with the day-to-day running of their properties – which allows investors to profit without investing too much of themselves or time or energy into them.
Cons of Investing in Turnkey Properties
While investing in turnkey properties can have several advantages, considering the potential downsides is essential before making any investment decisions.
Here are some of the cons or disadvantages of investing in turnkey properties:
Higher Initial Investment
Investing in turnkey properties requires a higher initial investment than other rental properties. Due to a third-party company providing equipment and maintenance for their house, an investor has to make payments upfront which may prove daunting for novice investors.
Limited Control
Investing in turnkey properties means the investor has limited control over the property. Turnkey companies take care of finding tenants, running the building efficiently, and handling maintenance and repairs. The choice of who rents out the property is never given to the owners, how much rent should be charged, or manage its operations independently. Basically, these controls will be given to the third-party companies.
Higher Fees
Investing in turnkey properties comes with higher fees compared to other rental properties. The turnkey company charges a fee for finding tenants, managing the property, and dealing with repairs and maintenance. These fees can significantly reduce the investor’s rental income, making it a less profitable investment.
Limited Appreciation Potential
Investing in turnkey properties has limited appreciation potential compared to other rental properties. As these properties are fully furnished and managed by third-party companies, investors cannot make improvements themselves. This reduces their appreciation potential, making them less appealing as an investment option for individuals seeking long-term appreciation.
Market Dependency
Investing in turnkey properties is heavily dependent on the local real estate market. The investor’s turnkey property investment may suffer if the local real estate market experiences a downturn. Assuming the real estate market in your locality experiences an upward surge and you are not taking full advantage of its growth potential, a careful examination and study must be conducted of local real estate markets before making decisions regarding investing in turnkey properties.
Limited Value-Add Opportunities
Investing in turnkey properties limits the investor’s ability to add value to the property. Since the turnkey company manages the property, the investor cannot make any improvements or upgrades. This means that the property’s rental income potential is limited by its existing condition, and the investor cannot increase their return on investment by adding value to the property.
Limited Tax Benefits
Investing in turnkey properties offers limited tax benefits compared to other rental properties. This is because turnkey properties are considered passive investments, and the investor cannot take advantage of tax deductions related to depreciation or other expenses associated with managing the property. Therefore, the investor’s tax liability may be higher for turnkey properties than for other rental properties.
Conclusion
Investing in turnkey properties for passive income has its pros and cons. Although turnkey properties provide a simple investment, instant cash flow, less risk, accessing professional management, portfolio diversification as well as passive earnings, they come with disadvantages, including a higher investment, limited control, more expensive charges, lower appreciation potential market dependence, insufficient options for value-added, and also limited tax advantages.
Thus, it is crucial to carry out an exhaustive study and analysis before deciding to invest in turnkey properties. Seek a financial advisor to evaluate whether these properties can be the ideal investment for your goals in terms of financials and the risk you are willing to take.
Turnkey properties are a perfect investment for people looking to earn passive income but don’t need the resources or expertise to manage the rental of a property. So, the potential advantages must be carefully weighed against the risks and benefits of investing in turnkey homes before making any investment decision.
