You’ve found a new interest in real estate investments and are excited to get started. You love the idea of having a passive stream of income and want to join the 10.6 million other people benefiting from income as landlords. However, you’re already busy with your other projects and job to find a great deal.
Instead, you learn about turnkey properties in Aurora and consider purchasing one as your first real estate investment. It sounds like a great deal at first – almost like instant money. But there are some risks involved that make turnkey properties almost not worth buying.
By the end of this article, you’ll be able to decide if buying a turnkey property is worth the investment based on your goals and situation.
What is a Turnkey Property?
Let’s start with the basics – what is a turnkey property?
A turnkey property is a property sold to investors that have already been renovated and a tenant living in it. The term “turnkey” comes from the idea that the investor simply has to turn the key to their new property, and they’ll start making money.
These properties are often renovated and managed by a company with a goal to sell them to a real estate investor. So, they spend time searching for a good deal on the market, acquiring the appropriate funding, renovating the property as needed, and finding a tenant to live in it.
All in all, it sounds pretty straightforward and like a blessing for new real estate investors looking to break into the industry. But sometimes, things aren’t as they seem.
Too Good to Be True?
Buying a turnkey property in Aurora as an amateur real estate investor sounds like an ideal purchase. You do little to no work and will start making money almost immediately. Unfortunately, there are some risks associated with turnkey properties.
A common reason you should stay away from turnkey properties is that many of these companies prey on uneducated amateur investors. They are great salespeople and make everything sound like an easy process to get your real estate portfolio started.
Unfortunately, this isn’t always the case. There are many situations and claims that can be misleading and cause the investor to lose money on the investment.
One example is that some companies tell investors that the property is renovated while it’s still in the foreclosure process in its original condition. Many of these companies will advertise the properties online with the expectation that investors won’t physically see the property until later.
Your Profits May Be Lower
As an investor, your goal is to make as much return on your investment as possible. Buying a turnkey property will most likely lower your returns on a real estate investment.
Since you’re buying a property that has already been renovated and invested in, you’re going to spend more on the property than if you had found it yourself. There is also a chance that you’re overpaying for the renovated property.
Remember, since the property was already purchased and renovated by investors, you’re just another investor helping the first one to make a profit. With this thinking, wouldn’t you rather be the first investor and consistently make a profit from your tenants?
The Location May Not be Great
Many turnkey property investors and companies will purchase properties in unpopular areas and renovate them. They then sell these properties to inexperienced investors, promising that the area is up and coming.
Being in an undesirable location will make it difficult to find tenants to lease the property and retain them once you do find them. This can also cause issues when you try to sell the property as there won’t be many buyers, and you’ll have to ask for a lower price.
Renovations are Generic
When purchasing a turnkey property, the renovations that have been made are often very generic. They are done hastily and are not of high-quality because it’s simply seen as an investment to make money.
If you were to buy a property and renovate it yourself, you would probably put more work and thought into the renovations. These renovations will be personalized and to your liking.
What’s the Alternative?
For new real estate investors, there’s a better alternative option that is easy while also providing a great experience.
This involves finding a property deal yourself and purchasing it. You can work with a real estate agent who specializes in investment properties to help you identify good deals. Many investors decide to purchase short sale or foreclosed properties.
Then, you’ll renovate the property. While this may put your timeline to getting a tenant back a little, it will be worth the wait. Your renovations will be personalized and with a tenant in mind, not just another investor.
Once your property is ready to rent, you can hire a property management company to fully manage the rental. This includes finding tenants, collecting rent, maintaining the property, and more.
The only difference between buying a turnkey property and this classic, alternative option is the beginning process and the fact that you’ll most likely make a better profit.
Plus, working with a property management company that you research and trust can provide a relaxed and enjoyable experience as a property owner.
How You’ll Make More Profit
We keep saying that you’ll make more profit if you don’t buy a turnkey property in Aurora, but why is that?
Well, if you find a property yourself for $100,000 and renovate it for $50,000, you’ve invested $150,000 total. After this investment, you’re ready to rent it out for $1,000 per month.
Now, a turnkey property company purchases the same property and puts in the same work they’ll sell it to you for $200,000 because they need to make a profit.
You’re spending $50,000 more just for the convenience of purchasing a property that has already been renovated for you.
Wouldn’t you rather put in the work and make more profit?
Get Help Managing Your Rental in Aurora
Are you thinking of purchasing a rental property in Aurora but want some help managing it?
Kirch Property Management is the answer you’ve been looking for!
A full-service property management company, we make owning a rental property much easier (and more profitable!) than self-managing it. You’ve done the hard work of finding and purchasing the property; let us professionals take over the time- and labor-intensive management of it so you can do other things.
Contact us today to speak to one of our professional team members about how we can help you maximize your rental income!