In the world of real estate investing, there are some buzzwords that send investors, both experienced and new, into a frenzy. Thanks to the rise in popularity of reality TV shows, lots of people think that words like “fixer-upper” and “rehab” are signs that a property is a sure thing. Those who aren’t all that interested in remodeling a property before renting it out look for certain terms, too. One of those words is “turnkey.” While many people assume that finding a turnkey property means all you need to do is find a tenant, there’s much more to it than that. Knowing about some of the common myths about turnkey properties ensures that you’re setting yourself up for success in the competitive Detroit real estate market.
Myth #1: Turnkey Means Passive
Many people get into real estate investing because they’re looking for a passive way to build wealth. While real estate investing can be passive, there’s no such thing as a completely passive real estate investment. When you purchase stock in a company, you don’t suddenly become involved with the daily operations of that company. When you purchase a Detroit property, you’re going to find yourself involved, though the amount of involvement may vary.
Turnkey properties are those that don’t require any sort of rehab or repair after you purchase them. While they may be in good enough physical and cosmetic shape for you to rent the property out, this doesn’t mean that it’s a passive investment. Even if you choose to work with a property management company to handle advertising vacancies, perform maintenance and repairs, or collect rent, you’ll still want to be in touch with them, working alongside your chosen manager. At the very least, managing your money involves some level of involvement, which means that there’s no such thing as a completely passive real estate investment.
Myth #2: Turnkey Properties Aren’t as Profitable
Every investment you make is made with profits in mind. When you invest in a property, you want to make as much money as possible, turning the money that you put into the property into significantly more property. Different types of properties offer different returns, and you may have heard it said that turnkey properties simply aren’t as profitable as other options on the market. This is usually only true for experienced investors who have mastered the art of adding value to a property. If you’ve been in the real estate investing game for a long time and know how to fix and flip a property effectively and efficiently, you probably won’t find the same type of returns in a turnkey property. This is largely because properties that are rental-ready cost more than properties that you’ll need to spend months working on.
There’s no arguing that turnkey properties are more expensive, and initially, that’s going to cut into your profits. However, depending on the amount of work put into a rehab property, you may be able to charge a higher monthly rent for a turnkey property. Value-add investors typically opt for more affordable materials when rehabbing a property. Turnkey properties can be just as profitable in the long run as fix-and-flip homes. Most experts agree that choosing the right location is the most important part of maximizing profits, so if you can find a turnkey property in a spot that offers plenty of growth potential, you should still expect to turn a good profit.
Myth #3: Turnkey Properties Are Overpriced
In a lot of ways, this myth ties directly into Myth #2. People who aren’t interested in turnkey investments typically point to their higher up-front costs and say that you can’t generate positive equity in them because they’re all overpriced. This is untrue based on three undeniable truths about the real estate industry.
First of all, the market determines the cost of a property. If someone is selling a turnkey property in an area where similar homes are selling for $100,000 but they’re asking $250,000, they’re probably not going to be able to sell the property. The market will dictate that the home isn’t worth that much because other homes in the area that are similar in size and amenities offered aren’t selling for that much. Even if the asking price is too high, you don’t have to buy the overpriced property.
Secondly, turnkey buyers often have the advantage in negotiations because they regularly buy in bulk. If you’re buying turnkey properties from someone who wants to move out of their investments out of a certain area, you can usually get a better price by purchasing multiple properties at a wholesale price.
Finally, words like “never” and “all” simply don’t apply to the real estate industry. Every real estate transaction is unique, so saying that all turnkey properties are overpriced is simply not a viable take. There are undoubtedly some that are, but all of them are not.
Myth #4: Turnkey Properties are All Single-Family
As we already established, there is no “all” in real estate investing. The final myth further underscores that point. Lots of new investors have heard that they should avoid turnkey properties because they’re all single-family homes when that’s simply not the case. In the world of Detroit real estate investing, “turnkey” simply refers to a property that’s ready for tenants to move into.
These properties that don’t need any repairs are not all single-family properties. While you’ll obviously end up paying a higher up-front cost, you can find turnkey multifamily properties, commercial properties, and more. Even new construction and development investments are often referred to as turnkey properties. Don’t pigeonhole an entire class of investment based on such a baseless myth.
Work With the Detroit Turnkey Experts
The team at Upside Investments is not only familiar with turnkey properties, but we also know the Detroit real estate market. If you’re looking for a Detroit rental property that doesn’t need to be remodeled and rehabbed, let our team help you make the best investment for your personal strategy and the goals that you have in mind. Contact Upside Investments today to find out more about how we can help you find success as a real estate investor in Detroit.
