There are very few terms that make Detroit real estate investors happier than “turnkey rental.” Unfortunately, this term is one of the most misunderstood concepts in the real estate investment industry. Whether you’re just getting started in the Detroit real estate market, or you’re looking to branch out into the world of residential rental properties, it’s crucial that you understand the truth about the different options available to you. With that in mind, take a look at seven of the most common myths about turnkey rentals, and how our team can help you find the right property and manage it.
Myth #1: Turnkey Properties Provide Fully Passive Income
Turnkey rentals are more passive than fix-and-flip properties. However, they are not fully passive. As a landlord in Detroit, there are state and federal laws that you must follow, many of which require you to take an active role in the property.
There are steps that you can take that will allow you to not be as actively engaged as you would be otherwise. For instance, a good turnkey property management company will have the right procedures and tools in place to let you take a more passive approach to managing your rental property. Without a management team in place, you’ll still need to be actively engaged in maintenance, repairs, rent collection, and other aspects of being a landlord. Turnkey properties are less passive, but on their own, they’re not completely passive.
Myth #2: You Need a Huge Downpayment to Buy a Turnkey Rental Property
Since a turnkey home is in better shape than one that requires a lot of work, you may assume that you need to come up with a larger down payment for a rental home in Detroit that is move-in ready. Additionally, there is also a misconception that investor loans automatically require higher down payments than traditional mortgages.
While it’s true that a turnkey property may have a higher asking price, there are still options out there that allow investors to only put between 5% and 10% down on the home. Yes, a 5% down payment on a turnkey home that costs more will be higher than a 5% down payment on a home that needs a lot of rehab, but that cost is offset by the lack of work that the property requires. Make sure to consider all your options before obtaining your loan. Consider seller financing, DSCR loans, and more, and evaluate how much each option requires for a down payment.
Myth #3: Turnkey Investing Offers Lower Returns
Investing on your own isn’t a surefire path to higher returns, but this comes with a caveat. If you are a longtime investor who knows how to add value to a property that you find and rehab on your own, you may be able to generate higher returns by using your proven business model. However, if you’re just getting started in Detroit real estate investing, or you’ve worked in a sector other than residential real estate, turnkey investing is still a viable option for you.
Myth #4: There Are No Risks Associated with Turnkey Investments
There is truly no such thing as risk-proof investing. When you take money that you have and use it in an effort to make more money, there is an inherent risk involved. With this in mind, successful investors in every sector carefully evaluate the risk of every investment and decide whether the potential reward is worth it.
No, you’re not likely to run into major structural issues when you invest in a turnkey property, but that doesn’t mean that it’s a risk-free proposition. However, turnkey properties typically pose less risk than homes that need a lot of work.
Myth #5: Turnkey Operators Avoid Older Homes in Cheap Markets
Over the years, turnkey operators have gotten a bad name, thanks in large part to property flippers. There are plenty of people who watch a one-hour TV show in which people flip a property and either sell it for a profit or convert it into a rental property. Most of those shows involve flippers buying newer homes in nice neighborhoods.
Contrary to what you may have seen and heard, turnkey operators don’t automatically avoid older homes in cheaper markets. While there are certainly some turnkey operators who focus on new constructions and only want to work in exclusive areas, there are plenty of other operators out there who look for growth markets.
Myth #6: All Turnkey Properties Are Single-Family Homes
What if you want to get into Detroit real estate investing, but aren’t exactly drawn to single-family homes? Maybe you’re thinking “bigger,” and want to invest in a duplex or a multifamily unit. If you’ve ever heard it said that every turnkey property is a single-family home, you have been fed some misinformation.
The turnkey space is incredibly diverse and includes apartment complexes, duplexes, and even commercial properties. To find these types of properties, you’ll want to work with a turnkey operator who knows how to find properties of different types.
Myth #7: Turnkey Properties Are All Overpriced
There are certainly some overpriced turnkey properties on the market. If you look for a potential rental property on your own, you’re sure to find someone who is trying to sell a property at a price that doesn’t leave much “meat on the bone” for you as an investor. However, a few overpriced properties are not indicative of the entire market.
There are ways for you to obtain a turnkey property at a price that makes profitability possible for you. For example, you can look into buying multiple properties at a wholesale price. As is the case in any type of investing, the more information you have, the more successful you’ll be.
Finding the Right Turnkey Properties in Detroit
Our team at Upside Investments is ready to help you find the right turnkey property in Detroit. Whether you’re just getting into the world of real estate investing, or you want to diversify your existing portfolio, contact us to find out more about how we can put our knowledge and experience to work for you.
