Buy a Turnkey Rental or Do It Yourself?
Many newer real estate investors deliberate between buying a turnkey rental or buying a distressed property and doing their own rehab. Both are valid options, but the experiences between the two are vastly different. It’s important to understand exactly what you’re getting into beforehand, particularly if you’re leaning toward finding and fixing up your own rental property. Here are some of the ways these two choices stack up against one another.
Passive Experience With a Turnkey Rental
When you buy a turnkey rental, your experience will be very passive. It’s passive because you don’t need to do anything except provide the initial investment, make the monthly payments and deposit the monthly cash flow into your bank account. In fact, after the purchase, you can make the money side of things automated so your passive experience is even more so. You can automate your monthly mortgage payments and automate your monthly rental deposits.
The experience of owning a turnkey rental is made even more passive with the help of a property manager. When you hire a property manager, they take care of all the day-to-day tasks as well as the monthly and yearly maintenance. The property manager finds tenants for you when the lease is up, gets contracts signed, takes care of repairs and maintenance and collects rent on your behalf. Of course, you can hire a property manager if you do your own rehab and rental, too, but then it becomes just one more item on your to-do list.
Arduous Experience With a DIY Rehab
When you do your own rehab, it’s the opposite of a passive experience. A DIY rehab is a very hands-on experience, even if you’re outsourcing a lot of the actual physical labor. (And, if you’ve never acted as your own general contractor before, you’re in for an unpleasant surprise.) The arduous experience of a DIY rehab begins with actually finding the property. It can be done, but it’s a complex process that requires some fundamental knowledge and a lot of research. Having a step by step guide to finding rental properties out of state is very helpful in this stage.
Next, you need to source either supplies or labor or both to do the actual rehab work. This entails finding materials and people that will cost amounts that fit within your budget. This alone takes up a significant amount of time and multiple trips back and forth to the hardware store to buy and then return items that aren’t quite right or that are faulty in some way.
When it comes time to rent out or resell your property, all the marketing will fall to you, too. You’ll need to stage the property on some level, write the listing, advertise someplace, meet with prospective buyers or tenants and arrange for contracts. You may need to find a real estate lawyer, an agent, a title company, a background check company or all of the above.
If you plan to rent out the property, your work isn’t done even after you’ve found a tenant. Ongoing repairs and maintenance, collecting rents and just managing all the paperwork will take up enough time that it will be like having a second job. Of course, you could hire a property management company at this point that would take over the ongoing work on your behalf.
In short, everything that happens with a DIY rehab is on your shoulders. You’ll either be managing everything yourself, getting your hands dirty, risking injury by doing the work yourself or doing one of other dozens of tasks related to getting the property in tip-top shape for rental or resale. For natural DIYers who like to dig in and do some heavy lifting, this all may sound appealing.
Predictable Experience With a Turnkey Rental
When you buy a turnkey rental, you also get a predictable experience. Why is this important? Because the more unexpected events, the more stress, the more time and the more money your project will cost you. The predictable experience of buying a turnkey rental begins with the purchase itself. Buying a turnkey rental simply entails making a down payment, obtaining financing and leaving the paperwork matters to the seller. Basically, all you have to do is provide the funds and sign on the bottom line.
Next, you’ll make contact with the property management company for the turnkey rental you just bought. At MartelTurnkey, all the properties already have a property management company in place. You can choose to keep the same one or you can find your own property manager if you want. The property manager will tell you the services they provide and how they operate. You’ll likely get access to a landlord portal on the property management company’s site where you’ll be able to access all the documents related to your turnkey rental. Then you’ll give your deposit information for where the rental checks should go. It’s relatively the exact same routine with every turnkey rental purchase you make. Very smooth and very predictable. No hidden surprises.
Unpredictable Experience With DIY Rehabs
On the other hand, DIY rehabs always have unpredictable elements. It starts with the property itself. Often, DIYers encounter unforeseen circumstances such as outdated electrical wiring that isn’t up to code, mold, termites and other pests, boundary issues with sheds or fences and other problems. These are challenges that can strain your budget and test your patience, among other things. They can also sour you on the whole landlord experience, which is a shame.
Unfortunately, reality TV shows highlight all the money you can make with DIY rehabs and downplay the potential pitfalls. Even when unforeseen circumstances are presented on these shows, they don’t really explain how all the extra cost can cripple a typical DIYer who doesn’t have an extra $7,000 or so sitting in the bank to pay for a new roof or whatever else has gone wrong. Suddenly, the work comes to a grinding halt.
Basically, the experience of doing your own rehab is unpredictable time-wise and money-wise. Meanwhile, you’ve got a lender to pay, insurance to pay and maybe even HOA fees to pay on a rehab project that’s come to a standstill. It’s not a pretty picture.
There are benefits and drawbacks to doing your own DIY rehab. For some, the drawbacks are worth it because the experience appeals to them. But as you can see, buying a turnkey rental is much more simple and straightforward, with no undesirable surprises. Plus, the results in terms of positive cash flow are highly predictable, even before you buy. Now that you see the differences between these two experiences, it’s time to make a choice. The most important step you can take is to move forward with your real estate investment goals, whether it’s a DIY rehab or buying a turnkey rental. If you would like more information about buying a turnkey rental, please contact MartelTurnkey.
Eric. Jim B. here. Congrats on your business startup. I’m looking for multi unit turnkey (4 or 8 units). Keep me in mind if you run across any of these properties.
Thanks.
Jim B.
Thanks, Jim. Will do!