turnkey vs value-add properties

Real estate experts discuss the differences between turnkey vs value-add properties

If you are someone who is looking to become a successful real estate investor then it is paramount to have the foresight to make a number of important decisions including the type of property you are looking to make an investment in. Turnkey property or a value-add property are two of your major investment options, irrespective of whether you are looking to invest in a residential rental property or commercial real estate.

Here we will discuss value-add and turnkey properties in great detail along with their pros and cons and help you come up with a conclusion as to which property investment is the right choice for you;

Turnkey Property

  • A turnkey property is a type of fully renovated apartment building or a home that can be easily purchased and rented out by an investor as soon as possible. This type of property does not require any more improvements and renovations as it has already been restored by a company that specializes in buying and restoring older buildings.

Once you have purchased a turnkey property a third-party property management company is normally in place to help you in maintaining and renting out the building so the owner of the property does not have to make any major changes after the initial purchase of the real estate.

Pros of Buying a Turnkey Property

  • The biggest pro of investing in a turnkey property is that it is an investment that is more passive in nature and because of that it requires very little day-to-day involvement from the property owner. The owner is just responsible for supervising the property but other than that the property management company takes care of all other details.

Another added benefit of investing in a turnkey property is that there is an opportunity to make an immediate profit because the property is ready to be rented out at the time of purchase so the investor will start getting a return on his property immediately after the purchase.

Cons of Buying a Turnkey Property

  • There are plenty of risks involved when you are investing in a turnkey property that makes it a bad purchase in the eyes of multiple people. The biggest con of investing in a turnkey property is that they produce a typically low yield. Most of the turnkey properties available in the market are more expensive than value-add properties because of the fact that they do not require any renovations or improvements. This high price means that you might receive a lower return on your investment as compared to the return you might be able to get from a  value-add property.

Value-Add Property

  • A type of property that is an underperforming or a distressed investment property that requires various improvements in order to meet the market standards for an ideal property is normally referred to as a value-add property.

There are a plethora of factors that can contribute to the underperforming nature of a value-add property like below-market rental rates, abnormally high vacancy rates, or the poor management of the property by the previous owner.

  • The term value-add also means that the value of the property can easily be improved by using better marketing, introducing better and more effective property management systems, or increasing the overall rental rate of the property.

Pros of Buying a Value-Add Property

  • The biggest pro of investing in a value-add property is that the overall profit rate can easily be increased by fixing up a few small things. Most distressed properties that are underperforming are typically valued based on their current yield or condition. This means that you are able to purchase these properties at a far cheaper rate as compared to a turnkey property.

This discount purchase can enable you to earn an overall higher return on investment (ROI) on a value-add property than a turnkey property.

Cons of Buying a Value-Add Property

  • The biggest con of investing in a value-add property is that the investor has to put in a lot of effort and time in the improvement and overall management of the property. Most of the value-add properties require a full upgrade and renovation at the start meaning that if you are a relatively new or inexperienced investor, then this entire process can be hectic and overwhelming for you.

Another con of investing in a value-add property is that there is no initial cash flow meaning that the investor is responsible for paying for amenities like holding costs, mortgage, and the initial cost of improvement until the building has been rented out.

  • Furthermore, a value-add property investment itself is a high upfront investment which means that even if you spend a large sum on the renovations at the start there is still no guarantee as to when the property will start making a profit.

Which Investment is Better?

  • Knowing the investment that is better for you is dependent on your requirements and preferences as an investor as well as the goals you are looking to achieve through the purchase of the property. There is no correct answer as to which property is best for you as it comes down to various key factors like your financial goals, experience, risk tolerance, and the time you have available to put into the project.

If you are residing in North Carolina and have any further queries about value-add and turnkey properties or if you are looking to purchase a turnkey at a competitive rate then you can contact us today at Turnkey Military.