Is Buying a Turnkey Property More Expensive Than Doing It Yourself?

That is the age-old question and it is assumed that it is always cheaper to do it yourself.

 

The quick answer is that in most cases if experienced, yes it would be cheaper to do it yourself.  But at what effort, time and cost?   You can come out with a better deal when you actually have the experience and know how to acquire great deals on fixer-uppers.  You really need to get a steal on the purchase price to come out ahead.  This is not an easy thing to do and it varies on your market but I can tell you that where I live, it is extremely difficult to find a good deal on a fixer-upper because there are so many other investors to compete with.

 

If you were to set up your own wholesaling campaign, flyers and all, take the time to negotiate with distressed buyers, and find a house off the MLS, you will increase your chances of getting a better deal.   That alone is a time-consuming process and it costs money to set up a successful wholesale campaign.  If you are anything like me, there is not enough time in the day to get this started and go through all this because I have a full-time job and a busy life.

 

Not to mention that doing a rehab on a house also takes experience and could take months to make a property rent-ready.   Finding good deals on materials, dealing with contractors, and dealing with unexpected costs is all more headaches, stress, and time-consuming.

 

The other side to this is that in SOME cases, it could potentially cost the same amount to buy a turnkey rental as it would be to do it all yourself.   Here are the reasons why I believe that it could cost almost the same to buy a turnkey rental instead of going through the whole process of doing it yourself:

 

1)  Acquiring Cheap Properties (All cash purchase)

 

If you do not have the real estate investing experience of finding super cheap fixer-uppers, you will spend tons of time trying to figure this out.  The best deals are most likely not found in the MLS people. And this is where you most likely will go and try to find this steal of a property.   Turnkey providers on the other hand do have this knowledge.  They set up their own wholesale campaigns have relationships with other wholesalers and go to auctions to buy these super cheap fixer-uppers with all cash.  These types of fixer-uppers are normally so beat up that there is no way you can get conventional financing on it which is why an all-cash purchase is the best way to buy these.   So in reality, you will probably end up paying more money on the initial purchase price than a turnkey provider will because of your lack of experience.

 

 

2)  Rehab Costs

 

Unless you are an experienced rehabber, you will end up paying more money for your rehab than a turnkey provider.  Turnkey providers flip so many houses that they have this figured out like a science.  They get cheaper deals on rehab materials because of the number of houses they rehab.  They can get bulk discounts on materials and also get better pricing on contractors because of the steady business they provide to them.  Some turnkey providers even have their own crew that rehabs the houses and they save a lot more money that way.  They can go through a process or fixing up a house way faster than an inexperienced person.

 

 

3)  Holding Costs

 

Each day that goes by that you are renovating your fixer-upper, those are days you are not getting paid rent and losing money.  If you do happen to be able to get financing on your purchase then you also will have to start paying the monthly mortgage while you are rehabbing.  Unless you are a master rehabber with great experience you are probably going to take longer to make the house rent ready than your initial projections.  This eats away at your profits.  Not to mention a rehab never goes according to plan, you will most likely also end up paying more for your fix-up costs because of unanticipated problems that arise.  All these holding costs can be avoided by having the turnkey provider assume all the risk, holding costs, and time needed to fix up the house.  It could take 2 – 4 months to get the house rent ready and that is 2 – 4 months of not having cash flow.

 

 

4)  Placing a Tenant

 

Once you finally have the fixer-upper completed and rent ready, the next steps that will eat costs and your time are finding a properly screened tenant.  In most cases, you will probably end up paying a property manager or a realtor for them to do this for you.  A PM will typically charge one full month’s rent to do this and it could take up to a month to find a great tenant.  If you go this route, make sure the property manager has these great qualities.  When you go turnkey, the tenant is already provided for you at the time of closing and there is no cost for you.  It is part of the package.  Again you are saving time and money here by having the turnkey company do this all for you.

 

Here is a fictional example of how the charges/expenses could stack up when comparing purchasing a turnkey to buying, fixing, and renting out yourself. This is what the numbers would possibly look like especially for a newbie investor without a lot of knowledge on rehabbing a property.

 

 

Is buying a turnkey property more expensive than doing it yourself?  In this example, you are only saving a few thousand dollars and not to mention all the time, energy, and stress involved in getting to that point.

 

All the time, effort, holding costs and unexpected problems eat away at your profit.  You really need to know what you are doing and have tons of cash to be able to properly get this done to come out ahead with better numbers.

 

Keep in mind here that it could only be possible to save time and money like this when you find a good reputable turnkey company that does not sell the house more than market price and does a great rehab.   You still have to do the research on finding the right property.  You don’t ever want to work with a turnkey seller that sells houses listed more than market value.  That is just not a smart way to purchase a turnkey property.  You have to have a strict criteria when purchasing a turnkey rental.