More Challenges and Risks in Turnkey Investing
Wait, there’s more? Right, although turnkey properties may seem like a dream come true, they’re not without their pitfalls. Here are some challenges and risks to watch out for:
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- Inflated Numbers: Some unscrupulous turnkey providers might exaggerate potential rents or underestimate expenses to make a property look more attractive. Always verify the numbers independently.
- Lipstick on a Swine: Not all renovations are created equal. Some turnkey companies focus on cosmetic upgrades that look great in photos but ignore underlying issues. That fresh coat of paint might be hiding serious problems.
- Quality of Tenants: Remember our earlier warning about tenant screening? It’s worth repeating. Some turnkey sellers might place any tenant just to show occupancy, regardless of their long-term suitability.
- Market Knowledge Gap: When investing long-distance, you’re disadvantaged in understanding local market dynamics. This can make it harder to spot overpriced properties or declining neighborhoods.
- Reliance on Third Parties: With turnkey investing, you’re putting a lot of trust in the seller and property management company. If either drops the ball, your investment could suffer.
- Higher Entry Costs: The convenience of turnkey properties comes at a price. You’re likely paying a premium compared to finding and renovating a property.
- Limited Customization: If you have specific ideas about how your rental property looks or functions, a pre-packaged turnkey property might not meet your needs.
Due diligence is as important to mitigate these risks. Always get a professional inspection, even if the property is supposedly “fully renovated.” Just because it’s called “turnkey” doesn’t mean you can turn off your brain.
Stay engaged, ask tough questions, and don’t be afraid to walk away if something doesn’t feel right. Your future self (and your bank account) will thank you!
Turnkey Property Management
As mentioned above, one advantage of out-of-state real estate investing through Roofstock is that they vet and certify local property managers to recommend them.
However, as the owner, you are not obligated to use one of their certified property managers. You can choose another property management firm or forego property managers and use our online landlord app to automate your management! (Shameless plug? Yeah, well, we are a business, after all!)
You can also deduct the rent from the tenant’s paycheck for even more assurance of on-time rent.
Of course, the inverse is also true. You don’t have to use Roofstock for your long-distance real estate investing, but you could still find out which property management firms they’ve certified in that local market.
Hiring people who have already been vetted for you is always nice!
As a final note, it’s worth mentioning that Roofstock does not receive a commission or other financial gain from its certified property managers. There’s no conflict of interest—it truly wants to work with the best in any given market.
Financing a Turnkey Property
One of the great advantages of turnkey property investing is that it’s easy to finance since it typically doesn’t require repairs.
Instead of getting a short-term renovation loan and refinancing once the repairs are finished, you can buy the property with a permanent long-term mortgage.
We’ve vetted several investment property lenders; see our investment property loans comparison chart for details. To compare today’s rates on conventional loans, check out Credible.
Roofstock also vets local and nationwide lenders and can offer a few recommendations.
Firsthand Experiences with Roofstock
I have not yet bought a property through Roofstock. So to bring some firsthand perspectives, here are a few case studies from real estate investors on BiggerPockets:
“Overall, I would say the process has been pretty painless. I think that Roofstock has a really great tool/system and does a great job of what they have set out to do. I was a little frustrated by the miscommunication and phone tag at the end, but that isn’t Roofstock’s problem, and I know that generally, last minute changes right before closing aren’t terribly uncommon. I would definitely use Roofstock again – in fact I plan to.”
Jon Krombein, Rental Property Investor from Seattle, WA
“A Roofstock representative was closely working with me while I placed the order and confirmed that the purchase went through fine and congratulated me on the first purchase. Following Monday, I got a one line text from Roofstock that the purchase was cancelled. Not sure what happened in between. In this case, I am guessing, the Seller did not act on any of the offers and after the review period ended the Seller went to Roofstock to allow him to pick previous offers. At least they should give a proper explanation instead of apologies.”
Anandakumar Elumalai, Rental Property Investor Torrance, California
“Would I Use Roofstock Again? Yes. I felt that even though I had issues with the certificate of compliance, the inspection/appraisal report, and closing, I would use Roofstock again and would recommend it to others. Obviously, that recommendation may change as we move forward and have more experiences with Roofstock, and become more experienced investors, but as of right now I have been pleased with the experience, communication, and ultimate result of using Roofstock for our first out-of-state rental purchase.”
Jason Gines, Turnkey Property Investor from Long Island, NY
Final Word
Whether you use a corporate turnkey property seller, a mom-and-pop seller, or Roofstock, turnkey rental properties can be an excellent avenue for long-distance real estate investing.
It can also be a convenient and simple way to buy your first rental property.
Always be doubly careful with your due diligence when buying properties unseen. Out-of-state real estate investing can help you pursue more profitable markets but also puts you at risk for buying properties with unforeseen problems.
Consider finding a local partner to serve as boots on the ground when in doubt.
Alternatively, you could visit in person – and perhaps write off the trip as a real estate investing tax deduction!
